FORM 10-K
SECURITIES AND EXCHANGE COMMISSION Exhibit Index
Washington, D. C. 20549 on Page 52
(Mark One)
[XX] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 28, 1998
---------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 1-8821
GENERAL MICROWAVE CORPORATION
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Exact name of registrant as specified in its charter)
NEW YORK 11-1956350
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5500 New Horizons Boulevard, Amityville, New York 11701
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code 516-226-8900
-------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
- ----------------------- -----------------------------------------
Common Stock, par value American Stock Exchange
$.01 per share
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, i.e. by persons other than officers and directors of General
Microwave Corporation as reflected in the table incorporated by reference in
Item 12 of this Annual Report on Form 10-K as of April 1, 1998 was
$8,954,517.
As of April 1, 1998, there were 1,210,659 shares of the registrant's common
stock outstanding.
Documents Incorporated by Reference
-----------------------------------
Part III: Proxy Statement for Annual Meeting of Stockholders to be held June
23, 1998.
Page 1 of 88
<PAGE>
TABLE OF CONTENTS
-----------------
NOTE: General Microwave Corporation and subsidiaries are sometimes
referred to in this Annual Report on Form 10-K as "the Company",
"General Microwave" or "Registrant".
Item Page
---- ----
PART I. 1. Business........................................ 3
2. Properties..................................... 8
3. Legal Proceedings.............................. 8
4. Submission of Matters to a Vote of Security
Holders........................................ 8
Executive Officers of the Registrant........... 9
PART II. 5. Market for Registrant's Common Equity and
Related Stockholder Matters.................... 10
6. Selected Financial Data........................ 11
7. Management's Discussion and Analysis of
Financial Condition and Results of Operation... 12 - 16
7A. Quantitative and Qualitative Disclosure
About Market Risk.............................. 17
8. Financial Statements and Supplementary Data.... 18 - 45
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure......... 46
PART III. 10. Directors and Executive Officers of the
Registrant..................................... 47
11. Executive Compensation......................... 47
12. Security Ownership of Certain Beneficial Owners
and Management................................. 47
13. Certain Relationships and Related Transactions. 47
PART IV. l4. Exhibits, Financial Statement Schedules and
Reports on Form 8-K............................ 48
Signatures.................................................... 50
(1) These items are omitted because the Registrant will file a definitive
Proxy Statement pursuant to Regulation 14A involving the election of
directors with the Securities and Exchange Commission not later than 120
days after the Registrant's fiscal year end. Information relating to
Executive Officers of the Registrant appears at pages 9 and 10 of this
Annual Report on Form 10-K.
Page 2
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PART I
------
ITEM 1. BUSINESS.
---------
Description of Business
-----------------------
General Microwave Corporation was incorporated in the State of New
York in 1960. Unless the context otherwise indicates, the terms "General
Microwave" and the "Company" as used herein refer to General Microwave
Corporation and subsidiaries.
The Company is engaged primarily in the design, development,
manufacture and marketing of microwave and electronic systems, equipment and
components. The Company is organized into three operating divisions in three
locations with strong inter-divisional ties. The parent company, General
Microwave Corporation, operates the Company's largest division, its microwave
division located in Amityville, New York. A substantial portion of the
Company's microwave products is sold to manufacturers and users of microwave
systems and equipment for applications in the defense electronics industry.
The Company also sells these components and equipment for use in the
industrial sector as well as in commercial telecommunications industries.
Typical applications for the Company's microwave products include electronic
warfare and countermeasures, airborne and shipboard navigation and
communications, radar systems, missile guidance systems, automatic test
equipment, and satellite communications.
The Company's subsidiaries, General Microwave Israel Corporation
and General Microwave Israel (1987) Ltd. in Jerusalem, Israel, conduct
research and development and manufacturing operations largely devoted to the
production of microwave oscillators. The Company's subsidiary, General
Microcircuits Corporation in Billerica, Massachusetts, engages in the design,
manufacture and sale of hybrid microcircuits largely intended for military
applications.
In February, 1997, the Company decided to concentrate on its core
businesses and adopted a plan to exit the fiber optics business of its Math
Associates subsidiary. On September 24, 1997, a sale of certain of the
assets of Math was completed. (See Note 2 to Consolidated Financial
Statements in this Annual Report on Form 10-K.) Accordingly, unless
otherwise indicated, all of the information contained in this Item has been
restated to delete data applicable to Math Associates, Inc. (now known as GMC
Associates, Inc.).
The Company has traditionally developed new products for sale as
standard catalog items as well as products designed to customer
specifications under fixed price contracts. The Company's catalogs currently
list over 300 products.
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The following table sets forth, for the periods indicated,
unaudited information with respect to the Company's net sales contributed by
each class of similar products which accounted for 15% or more of consolidated
net sales in any of the last three fiscal years.
Year Ended February 28 or 29
----------------------------
1998 1997 1996
---- ---- ----
Microwave Components............. $15,244,037 $14,463,094 $11,833,453
Power Measuring Instruments...... $ 2,031,890 $ 1,894,491 $ 2,148,258
Hybrid Microcircuits............. $ 3,664,140 $ 3,323,266 $ 2,958,868
Other............................ $ 377,515 $ 380,037 $ 487,031
---------- ---------- ----------
Net Sales......... $21,317,582 $20,060,888 $17,427,610
Marketing
---------
The Company markets its products through an internal marketing
department and through independent domestic and independent foreign sales
organizations.
Research and Development
------------------------
The Company's research and development is conducted both through
internally funded activities and through customer funded research and
development under fixed price and cost plus fixed fee product development
contracts.
Internally funded research and development expenditures aggregated
$295,500, $495,000 and $1,090,000 in fiscal 1998, 1997 and 1996,
respectively. These expenditures are net of reimbursements received under
agreements with the government of Israel and another entity in the amounts of
$104,000 in fiscal 1996.
In addition to Company sponsored development activities, the
Company continues to expand and improve its product line and technology
through performance under certain fixed price and cost plus fixed fee
contracts requiring the development and manufacture of new products.
Development and manufacturing costs incurred in connection with customer
funded prototype development contracts are included in cost of sales. The
estimated amount spent by the Company during each of the last three fiscal
years on customer sponsored research and development activities aggregated
$1,075,000, $350,000 and $625,000 in fiscal 1998, 1997 and 1996,
respectively. The Company is currently engaged in the design and manufacture
of new prototypes in connection with various electronic countermeasures,
electronic warfare, radar, navigation and communications programs of the
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United States Government. The Company also understands that many of such
engagements by major industrial corporations are for the design and
manufacture of products for foreign governments and agencies thereof.
Raw Materials
-------------
Manufacturing operations consist of fabrication, assembly and
testing of components, systems and equipment built from fabricated parts as
well as printed circuits, electronic materials and components purchased from
outside sources. Manual and semi-automatic methods are employed in the
manufacturing process, depending principally upon production volumes.
Inspection and testing are critical to the achievement of product reliability
and performance standards demanded by the Company's customers. The Company
utilizes proprietary and other testing equipment in its operations and is
continuously developing new testing techniques to maintain its products'
performance standards.
Electronic components and raw materials used in the Company's
products are generally available from a large number of suppliers. Some
materials are standard items and others are manufactured to the Company's
specifications by subcontractors. The Company is not dependent upon any
single supplier for any component or material and has not experienced
significant interruptions in production due to a shortage of raw materials.
Patents and Trademarks
----------------------
The Company has 12 patents in the United States which cover various
products. The Company considers that its competitive position depends more
upon the technical expertise and creative ability of its engineering and
development personnel than upon its patents, patent applications and
trademarks.
Customers
---------
The Company's customers consist primarily of the United States
Government and major industrial corporations that incorporate the Company's
products into a variety of military, and to a lesser extent, commercial
systems. At present, the Company estimates that it has approximately 2,500
customers. During fiscal 1998, no customers other than Litton Systems, Inc.
accounted for 10% or more of the Company's net sales. Litton accounted for
approximately 16% of net sales.
Although the end-use for the Company's products is not always
identifiable, Management estimates that sales for direct or indirect use by
the United States Government represented approximately 53%, 42% and 55% of
the Company's net sales in fiscal 1998, 1997 and 1996, respectively. The
timing and level of appropriations by the federal government can influence
the Company's operating results significantly. No material portion of the
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Company's business is subject to renegotiation or limitation of profits on
contracts or subcontracts by the federal government. However, the federal
government, or agencies thereof, may terminate their contracts, in whole or
in part, at their convenience. In such event, the government agency is
obligated generally to pay the costs incurred by the Company under the
contract plus a fee based upon work completed. Substantial curtailment or
termination of the government programs which, directly or indirectly, fund
the Company's contracts could have a material adverse effect upon the
Company's operating results.
Foreign sales, primarily in Israel, Japan, Norway, United Kingdom,
India, France, Australia and Canada accounted for approximately 34%, 34% and
25% of the Company's net sales in fiscal 1998, 1997 and 1996, respectively.
Foreign sales in fiscal 1998 include immaterial amounts of direct sales to 5
foreign governments or agencies thereof.
Competition
-----------
The Company's ability to compete is dependent on several factors,
including product performance, quality and reliability, product development
capabilities, price, and the ability to meet delivery schedules and customer
specifications. The microwave component and equipment markets are highly
competitive and are characterized by rapid advances in technology resulting
in the introduction of new products with improved performance
characteristics, thereby subjecting the Company's products to the risk of
technological obsolescence.
The Company has numerous competitors, including some of its current
customers with captive microwave component design and manufacturing
operations. In addition, the Company competes with certain of its suppliers
of semiconductor devices. The Company also competes with a variety of
companies across its entire product line. Many of the Company's competitors
have greater financial and other resources than does the Company.
In response to increased competitive pressure caused by tightened
government purchasing practices, the Company continues to implement cost
reductions on its current products and expand its selling and marketing
efforts in the United States and abroad and continuously endeavors to expand
its activities in non-military aspects of the electronics industry. The
Company has traditionally emphasized the integrity, reliability and
performance of its products.
Backlog
-------
The Company's backlog was approximately $13,886,000 at February 28,
1998 and $16,946,000 at February 28, 1997. Although the contemplated end-use
for products ordered is not always identifiable, Management estimates that
approximately 38% and 35% of the Company's backlog at February 28, 1998 and
February 28, 1997, respectively, is attributable to products ordered for
direct or indirect use by the United States Government.
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<PAGE>
The Company manufactures standard components and equipment for
inventory and specialized components, systems and equipment pursuant to
orders from customers. Orders are included in backlog upon the receipt by
the Company of verbal or written purchase orders with firm delivery dates.
Approximately 86% and 87%, respectively, of the backlog at February 28, 1998
and February 28, 1997 is scheduled for shipment within 12 months of such
dates. The amount of backlog expected to be shipped over such periods
represents only a portion of anticipated sales for such periods. Most of the
orders included in the Company's current backlog may be cancelled by
customers without cause or penalty, subject to payment for costs incurred and
normal profit thereon.
Segments and Other Financial Data
---------------------------------
Information concerning business segments and the estimated
geographical allocation of the Company's total sales is contained in Note 15
to the Consolidated Financial Statements in this Annual Report on Form 10-K.
The risks associated with the Company's sales in foreign countries are no
different from those experienced domestically. There is no significant
difference in the estimated profitability of such business.
See the information concerning working capital contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" in this Annual Report on Form
10-K which is incorporated herein by reference.
Other Information
-----------------
At February 28, 1998, the Company had approximately 243 full-time
employees. None of the Company's employees are subject to a collective
bargaining agreement.
The Company's business is not seasonal.
The Company does not anticipate that compliance with federal, state
and local provisions which have been enacted or adopted regulating the
discharge of materials into the environment, or otherwise relating to the
protection of the environment, will have material effects on the earnings or
competitive position of the Company. The Company does not anticipate making
any material capital expenditures for environmental control facilities for
the remainder of its current fiscal year or its succeeding fiscal year.
Page 7
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ITEM 2. PROPERTIES
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The Company manufactures microwave components and equipment in an
approximately 60,000 square foot building it constructed on approximately 9.5
acres of land in the New Horizons Business Center in Amityville, New York.
The building provides an integrated plant for the Company's operations
including executive offices and research and manufacturing facilities.
Substantially all of the estimated cost of the acquisition,
construction and equipping of the Amityville building was financed through
variable rate industrial development revenue bonds issued by the Town of
Babylon Industrial Development Agency (New York). General Microwave is
leasing the facility from the issuer of the Bonds at a rental equal to the
amounts due from time to time under the Bonds. At the expiration of the
lease term on October 1, 1999, the Company may buy the facility for nominal
consideration. The indebtedness with respect to the Bonds is secured by a
mortgage of the premises. See Note 8 to Consolidated Financial Statements in
this Annual Report on Form 10-K for additional information concerning the
Bonds.
The Company conducts its Israeli operations from an approximately
12,000 square foot plant in the Talpiot Industrial Zone of Jerusalem. See
Note 8 to Consolidated Financial Statements in this Annual Report on Form
10-K for additional information concerning the Talpiot facility. General
Microcircuits Corporation conducts its operations from an approximately 8,000
square foot leased facility in Billerica, Massachusetts.
ITEM 3. LEGAL PROCEEDINGS
-----------------
There are no material pending legal proceedings to which the
Company or any of its subsidiaries is a party or of which any of their
property is the subject and no such proceeding was terminated during the
fourth quarter of the fiscal year covered by this Annual Report on Form 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
There were no matters submitted to a vote of security holders
through the solicitation of proxies or otherwise during the fourth quarter of
the fiscal year covered by this Annual Report on Form 10-K.
Page 8
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Executive Officers of the Registrant.
- -------------------------------------
The following is a list of the names, ages, principal occupations
and positions with the Company of its executive officers and the positions
held by such officers during the past five years. All executive officers of
the Company have terms of office which run until the next succeeding meeting
of the Board of Directors following the annual meeting of stockholders or
until their successors are elected and qualified unless they are removed
sooner by the Board.
Principal Occupation; Position
and Office (current and during
past five years with the
Name Age Company unless otherwise stated)
---- --- --------------------------------
Sherman A. Rinkel (1) 72 Chairman of the Board
Mitchell Tuckman (2) 47 President-Chief Executive Officer
Howard Cohen 61 Vice President-Administration and
Assistant Secretary
Robert E. DeBrecht (3) 54 Vice President-Engineering
Arnold H. Levine (4) 59 Vice President-Finance, Treasurer,
Chief Financial Officer and
Assistant Secretary
Rozalie Schachter (5) 51 Vice President-Business Development
(1) Mr. Rinkel was President of the Company from its inception until his
retirement on March 1, 1995. He became Chairman of the Board in May,
1995.
(2) Mr. Tuckman became President-Chief Executive Officer of the Company in
March, 1995. He was Executive Vice President and Chief Operating Officer
of the Company from August, 1994 until then. From June 1993 until
August, 1994, Mr. Tuckman was Vice President-Microwave Engineering of the
Company. He was Chief Microwave Engineer of the Company before that.
(3) Mr. DeBrecht became Vice President-Engineering of the Company in May,
1996. He was a computer consultant in the securities, financial,
insurance benefits and office productivity areas from 1987 until then.
Before that, he was a product and engineering manager at Narda Microwave
Co. and a chief engineer at the Company.
(4) Mr. Levine became Vice President-Finance, Chief Financial Officer,
Treasurer and Assistant Secretary of the Company in March, 1995. From
1989 until then, he was Vice President, Finance and a director of Cardion
Inc., a subsidiary of Siemens Corporation.
(5) Dr. Schachter became Vice President-Business Development of the Company
in December, 1991. Prior to joining the Company in 1990, Dr. Schachter
was a technical director at American Cyanimid Corporation.
General Microwave is not aware of any family relationship between any of
the executive officers or directors of the Company or any person nominated or
chosen by General Microwave to become a director or executive officer.
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PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
-------------------------------------------------
STOCKHOLDER MATTERS.
--------------------
The Company's Common Stock is traded on the American Stock Exchange.
The following table sets forth the high and low sales prices (AMEX) for the
Company's Common Stock for the fiscal quarters indicated.
Sales Price (AMEX)
------------------
High Low
---- ---
Fiscal 1998:
- ------------
First Quarter................... 6.88 3.75
Second Quarter.................. 8.88 6.13
Third Quarter................... 13.50 6.75
Fourth Quarter.................. 9.75 6.88
Fiscal 1997:
- ------------
First Quarter................... 8.25 6.00
Second Quarter.................. 8.13 6.25
Third Quarter................... 6.19 4.50
Fourth Quarter.................. 5.38 4.50
General Microwave has not declared or paid any cash dividends during the
past two fiscal years. See Note 8 to Consolidated Financial Statements in
this Annual Report on Form 10-K for information concerning the financial
covenants contained in the agreements relating to the Company's industrial
development revenue bond financing and their effect on the Company's ability
to pay cash dividends.
As of May 4, 1998, there were 168 record holders of the Common Stock of
the Company.
General Microwave did not sell any equity securities of General
Microwave during the period covered by this report that were not registered
under the Securities Act of 1933.
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ITEM 6. SELECTED FINANCIAL DATA.
------------------------
<TABLE>SELECTED FINANCIAL DATA
<CAPTION>
<S> <C> <C> <C> <C> <C>
Year Ended
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February 28, February 28, February 29, February 28, February 28,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Net sales $21,317,582 $20,060,888 $17,427,610 $19,069,364 $18,694,205
Earnings (loss) from
continuing operations 1,917,390 201,730 (1,142,126) 466,960 993,833
Net earnings (loss) from
discontinued operations * 952,811 (3,287,466) (634,665) (292,284) 48,857
Net earnings (loss) 2,870,201 (3,085,736) (1,776,791) 174,676 1,042,690
Basic per share data:
- ---------------------
Net earnings (loss) from
continuing operations 1.59 0.17 (0.95) 0.38 0.73
Net earnings (loss) from
discontinued operations * 0.79 (2.73) (0.53) (0.24) 0.03
Net earnings (loss) 2.38 (2.56) (1.48) 0.14 0.76
Diluted per share data:
- -----------------------
Net earnings (loss) from
continuing operations 1.56 0.17 (0.95) 0.38 0.73
Net earnings (loss) from
discontinued operations * 0.78 (2.73) (0.53) (0.24) 0.03
Net earnings (loss) 2.34 (2.56) (1.48) 0.14 0.76
Balance Sheet Data:
- -------------------
Total assets 20,037,152 19,289,511 21,581,608 23,441,828 25,182,150
Working capital 9,292,152 6,843,799 9,949,822 11,902,533 13,336,263
Long-term debt, less
current installments 806,250 1,627,141 2,325,589 2,631,250 3,206,250
Stockholders' equity 14,440,211 11,545,010 14,574,516 16,337,373 17,565,712
Basic weighted average
common shares outstanding 1,207,704 1,203,592 1,196,682 1,228,838 1,358,985
Diluted weighted average
common shares outstanding 1,229,098 1,206,277 1,196,682 1,234,596 1,366,258
</TABLE>
General Microwave paid a special cash dividend of $0.25 per share on
February 9, 1994. No other dividends were declared or paid during the past
five fiscal years.
* See Note 2 to the Consolidated Financial Statements.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATION.
---------------------
Results of Operations
- ---------------------
In fiscal 1998 the Company had net earnings from continuing operations of
$1,917,390 or $1.59 basic and $1.56 diluted net earnings per share, as well as
a net gain of $952,811 from disposal of Math Associates, Inc., resulting in net
earnings of $2,870,201 or $2.38 basic net earnings per share and $2.34 diluted
net earnings per share. In fiscal 1997 the Company had net earnings of $201,730
or $.17 basic and diluted net earnings per share from continuing operations and
a net loss of $3,085,736 or $2.56 basic and diluted net loss per share, after a
loss of $3,287,466 from discontinued operations. In fiscal 1996, the Company
had a net loss from continuing operations of $1,142,126 or $.95 basic and
diluted net earnings per share, and a net loss of $1,776,791 or $1.48 basic and
diluted net earnings per share, after a loss of $634,665 from discontinued
operations.
The current year sales from continuing operations of $21,317,582 increased by
6.3% over the prior year. Sales of microwave components, hybrid microcircuits
and power measuring instruments all increased in fiscal 1998 as compared to
fiscal 1997. Fiscal 1997 sales ($20,060,888) had increased 15.1% over the
fiscal 1996 sales level ($17,427,610) because of increased production levels
and shipments to a significant customer.
Fiscal 1998's operating earnings from continuing operations improved
dramatically (311%) in comparison to fiscal 1997 primarily due to gross profit
margins increasing to 36.3% in fiscal 1998 in comparison to 31.6% in the prior
year on increased sales. This improvement resulted from manufacturing
efficiencies, successful customer sponsored development activities and
reductions of overhead expenditures relative to production labor at the
Amityville, New York facility, as well as production efficiencies at the
Billerica, Massachusetts facility. Fiscal 1997's operating earnings from
continuing operations improved substantially in comparison to fiscal 1996
primarily due to increased gross profit margins, increased sales and reductions
in Company sponsored research and development expenses. Fiscal 1996's
operating losses from continuing operations resulted principally from technical
problems which delayed shipments, increased production costs on a development
program for hybrid microcircuits products, inventory valuation reserves, as
well as increased selling expenses. In fiscal 1996, the Company recorded
valuation reserves and write offs related to the disposal of obsolete inventory
of approximately $440,000 and incurred one-time severance expenses aggregating
$158,000. Operating losses from discontinued operations in fiscal 1997 and
fiscal 1996 resulted from additional inventory valuation reserves, low gross
profit margins and cost overruns on a fiber optic development program.
In February 1997, the Company decided to concentrate on its core businesses and
adopted a plan to exit the fiber optics business, which was operated by its
Math Associates, Inc. subsidiary (see Note 2 to Consolidated Financial
Statements). Accordingly, unless otherwise indicated, all of the information
herein has been reclassified to present the assets, liabilities and results of
operations of the fiber optics business as a discontinued operation. On
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September 24, 1997, a sale of certain of the assets of Math Associates, Inc.
was completed, which resulted in a gain from discontinued operations of
$952,811 as recorded in the consolidated financial statements for the year
ended February 28, 1998. This gain relates principally to the proceeds from
the sale of assets and the reversal of estimated costs of liquidation which
will no longer be incurred as a result of the sale, and a provision for
operating losses during the phase out period that did not materialize.
New orders booked during the current year from continuing operations were
approximately $18.3 million compared to approximately $26.2 million last year.
The backlog of orders at February 28, 1998 was $13.9 million compared to $16.9
million at February 28, 1997. In the opinion of management, the strong
performance exhibited by the Company during fiscal 1998 is the result of its
focused effort to bring the Company back to growth and profitability. Although
new orders booked during fiscal 1998 did not achieve the levels of the prior
year, the Company does not believe that such reduction in orders in fiscal 1998
will have a material adverse impact on its sales development in fiscal 1999.
In fiscal 1996, orders booked from continuing operations were $19.4 million
and the backlog was $10.9 million at the year end.
General and administrative expenses, as a percentage of sales, were relatively
consistent in fiscal 1998 and 1997. Selling expenses as a percentage of sales
decreased in fiscal 1998 compared to 1997 as part of planned cost control
efforts. In fiscal 1997, while both selling and general and administrative
expenses increased, when compared to the prior year, they both decreased as a
percentage of sales due to budget and cost control efforts. Although Company
sponsored research and development expenditures were reduced in fiscal 1998 to
$296,000 in comparison to $496,000 in fiscal 1997 and $1,094,000 in fiscal
1996, customer-sponsored research and development projects aggregated
$1,075,000 in fiscal 1998, as compared to $350,000 in fiscal 1997 and $625,000
in fiscal 1996. Research and development expenditures were significantly
reduced in fiscal 1997 in comparison to fiscal 1996 as the Israeli operation
moved from development efforts to increased production.
Interest expense decreased in fiscal 1998 as compared to fiscal 1997 as a
result of repayments of both short and long-term borrowings. Interest expense
increased in fiscal 1997 as compared to fiscal 1996 as a result of increased
short term borrowings at the Israeli operation. Dividend and interest income
were significantly higher in fiscal 1998 compared to the prior year as a result
of increased cash flow with resulting average higher investment balances.
The fiscal 1998 tax benefit results principally from the impact of previously
unrecognized tax benefits, generated primarily from the net loss on disposal
of Math Associates, Inc., net of state and foreign taxes of approximately
$76,000. In fiscal 1997 the Company recorded a tax provision related to
continuing operations of $40,000, as compared to a tax benefit of $222,000 for
fiscal 1996. The fiscal 1997 tax provision principally represents taxes on
the earnings of the Company's Israeli operations. The fiscal 1996 tax benefit
resulted primarily from a tax loss carryback claim to recover Federal taxes
paid for a three-year period and the reduction of net deferred tax liabilities.
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During the three-year period covered by this discussion, inflation did not have
any significant effect on the Company's business.
Liquidity and Capital Resources
- -------------------------------
At February 28, 1998, after giving effect to discontinued operations, the
Company had working capital of $9.3 million compared to $6.8 million at the end
of fiscal 1997.
Cash flows provided by operating activities amounted to approximately
$2,141,000 and cash flows provided by discontinued operations amounted to
approximately $954,000 during fiscal 1998. Funds were used primarily for the
purchase of $381,000 of capital assets and repayments of long term debt of
$856,000 and repayments of short term debt of $361,000. Net cash flow resulted
in an increase in cash of $1,530,000. During fiscal 1997, cash flows provided
by operating activities amounted to approximately $1,893,000 and cash flows
provided by discontinued operations amounted to approximately $134,000. Funds
were used primarily for the purchase of $409,000 of capital assets and
repayments of long term debt of $698,000 partially offset by proceeds from
short term borrowings of $269,000. Net cash flow resulted in an increase in
cash of $1,244,000. During fiscal 1996, cash flows provided by operating
activities amounted to approximately $703,000, offset by cash flows used in
discontinued operations of $713,000. During fiscal 1996, the Company utilized
funds primarily for the payment of $575,000 of long term debt, to acquire
$550,000 of capital assets, and to acquire an additional interest in General
Microcircuits for $279,000.
Fiscal 1998 cash flows from operations were impacted principally by an increase
in accounts receivable of $319,000 due primarily to higher year-end sales
compared to the prior year, a decrease in accounts payable and accrued
liabilities of $326,000 resulting principally from reduced expenditures, and a
customer's advance payments of $314,000. During fiscal 1997, inventories
decreased $283,000 due primarily to improved inventory and purchase controls
and accounts receivable increased slightly due to increased sales.
During fiscal 1998, the Company acquired capital assets of $381,000 compared
with $409,000 and $550,000 during fiscal 1997 and 1996, respectively. During
fiscal 1999, the Company anticipates expenditures of approximately $800,000 for
capital equipment. A large portion of the Company's property, plant and
equipment is encumbered by an Industrial Revenue Bond agreement, as discussed
in Note 8 to the Consolidated Financial Statements.
In fiscal 1998 and 1997, the Company's only short term borrowings
(approximately $230,000 and $592,000, at February 28, 1998 and 1997) were at
its Israeli subsidiary at an interest rate of 6.05%. The short term borrowings
were repaid in full in March 1998. The Company believes that its cash on hand
plus anticipated sources of funds will be sufficient to fund its working
capital, capital expenditures and debt service requirements for fiscal 1999.
As a measure of the Company's ability to meet its short term obligations, the
Company has the following:
Page 14
<PAGE>
February 28, February 28,
1998 1997
---- ----
Working Capital
(in thousands) $9,292 $6,844
Current Ratio 3.2 to 1 2.2 to 1
Year 2000 Conversion
- --------------------
The Company is evaluating the risks and costs associated with the year 2000
conversion. Based on the Company's ongoing evaluation, management currently
believes that the costs to achieve year 2000 compliance will not result in
costs significantly in excess of historical and/or planned levels of capital
expenditures. The Company intends to communicate with its customers,
suppliers, financial institutions and others with which it does business to
ensure that year 2000 issues will be resolved in a timely manner. If necessary
modifications and conversions by those with which the Company does business are
not completed timely, the year 2000 conversion issue may have a material
adverse effect on the Company's consolidated financial position and results of
operations.
Recent Accounting Pronouncements
- --------------------------------
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 130, "Reporting Comprehensive Income" (SFAS No. 130),
which is effective for fiscal years beginning after December 15, 1997. SFAS
No. 130 requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The Company does not believe that the implementation of
SFAS No. 130 will have a significant impact on its previously reported results
of operations.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (SFAS No. 131). SFAS No. 131 established standards to
report information about operating segments and related discussions about
products and services, geographic areas and major customers. SFAS No. 131 is
effective for financial statements for the reporting periods beginning after
December 15, 1997. This statement permits early application and requires
restatement for all prior periods. The Company is currently evaluating the
requirements of SFAS No. 131 and has not yet determined what impact this
statement will have on information reported regarding industry segments.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" (SFAS No. 132). SFAS No. 132 revises disclosures
about pension and other postretirement benefit plans. Management of the
Company does not believe that the implementation of SFAS No. 132 will have a
significant impact on previously reported information regarding its employee
pension plan.
Page 15
<PAGE>
Forward-Looking Information
- ---------------------------
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
general economic conditions; the level of domestic and worldwide spending on
military defense products; timing and volume of incoming orders; shipment
volumes; competitive factors such as rival component manufacturers' competing
technologies; acceptance of new Company products; price pressures; the
Company's ability to invest in new product development and new processes and
its ability to integrate these processes in its manufacturing operations;
manufacturing capacity and the ability to "ramp" to meet anticipated demand;
engineering development costs; availability of third party supplier parts at
reasonable prices; obsolescence of inventory due to changes in customer demand;
efficiencies of manufacturing processes; and availability of financial
resources to fund anticipated growth.
Page 16
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
---------------------------------------------------------
Not applicable.
Page 17
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
Page 18
<PAGE>
GENERAL MICROWAVE CORPORATION
AND SUBSIDIARIES
Consolidated Financial Statements
February 28, 1998 and 1997
(With Independent Auditors' Report Thereon)
Page 19
<PAGE>
Independent Auditors' Report
To the Stockholders and Board of Directors
General Microwave Corporation:
We have audited the consolidated financial statements of General
Microwave Corporation and subsidiaries as listed in the accompanying
index. In connection with our audits of the consolidated financial
statements, we have also audited the financial statement schedule as
listed in the accompanying index. 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 did not audit the consolidated
financial statements of General Microwave Israel Corporation, an
indirect wholly-owned subsidiary, as of and for the years ended
February 28, 1998 and 1997 and February 29, 1996, which statements
reflect total assets constituting 19%, 26% and 17% and total revenues
constituting 18%, 15% and 11%, respectively, after elimination of
intercompany balances and sales, of the related consolidated totals.
Those statements were audited by other auditors whose reports have been
furnished to us, and our opinion, insofar as it relates to the amounts
included for General Microwave Israel Corporation, is based solely on
the reports of the other auditors.
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 opnion, based on our audits and the reports of the other
auditors, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
General Microwave Corporation and subsidiaries as of February 28, 1998
and 1997 and the results of their operations and their cash flows for
each of the years in the three-year period ended February 28, 1998, in
conformity with generally accepted accounting principles. Also in our
opinion, based on our audits and the reports of the other auditors,
the related 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
Jericho, New York
MAY 11, 1998
Page 20
<PAGE>
AUDITORS' REPORT TO THE SHAREHOLDERS OF
GENERAL MICROWAVE (ISRAEL) CORPORATION AND SUBSIDIARY
We have audited the accompanying consolidated balance sheets of General
Microwave (Israel) Corporation ("the Company") and subsidiary as of February
28, 1998 and February 28, 1997, and the related consolidated statements of
operations, changes in shareholders' deficiency and cash flows for the years
then ended. These financial statements are the responsibility of the
Company's Board of Directors and management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed under the Israeli Auditors' Regulations
(Auditor's Mode of Performance) - 1973, which auditing standards are
substantially identical to generally accepted auditing standards in the United
States. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by the Board of Directors and management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
The aforementioned financial statements have been prepared in U.S. dollars as
described in Note 2A.
As stated in Note 1B, the consolidated financial statements were prepared at
the request of the parent company and for its use only. The financial
statements do not include activities of the Company, if any, that are not
directly reflected in its books and records maintained in Israel.
In our opinion, except for the matter discussed in the preceding paragraph,
the financial statements present fairly, in all material respects, the
consolidated financial position of the Company and subsidiary as of February
28, 1998 and February 28, 1997, and the consolidated results of operations,
changes in shareholders' deficiency and cash flows for the years then ended in
accordance with generally accepted accounting principles in Israel. As
applicable to these financial statements, such accounting principles are
substantially identical in all material respects to generally accepted
accounting principles in the United States, except as otherwise described in
Note 22 to the consolidated financial statements.
Pursuant to Section 211 of the Companies Ordinance (New Version) - 1983, we
hereby state that we received all the information and explanations which we
requested and that our opinion on the consolidated financial statements is
given based on the best of the information and explanations which we received
and as reflected in the books of the Company.
Igal Brightman & Co.
Certified Public Accountants
Jerusalem, May 11, 1998.
Page 21
<PAGE>
<TABLE>STATEMENT OF CONSOLIDATED BALANCE SHEETS
<CAPTION>
GENERAL MICROWAVE CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
February 28, 1998 and 1997
<S> <C> <C>
Assets 1998 1997
Current assets: ---- ----
Cash $ 3,275,497 1,745,362
Restricted cash 200,000 200,000
Accounts receivable, net of allowance for doubtful accounts
of approximately $45,700 in 1998 and $27,150 in 1997 4,440,355 4,121,809
Current assets of discontinued operations 13,942 1,012,050
Inventories 4,440,889 4,535,832
Prepaid expenses and other current assets 287,437 250,417
Deferred income taxes, net 794,083 523,676
---------- ----------
Total current assets 13,452,203 12,389,146
Property, plant and equipment, net 5,714,943 5,990,992
Debt issuance costs, net 35,629 56,497
Costs in excess of fair value of net assets acquired, net 604,173 679,773
Other intangible assets, net 137,686 144,392
Other assets 92,518 28,711
---------- ----------
$ 20,037,152 19,289,511
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt 675,000 709,670
Short-term borrowing 230,319 591,739
Accounts payable 656,387 945,145
Customer advance payments 314,474 -
Current liabilities of discontinued operations 205,363 1,195,193
Accrued payroll and other employee benefits 816,487 691,227
Accrued expenses and other current liabilities 1,072,426 1,117,973
Accrued commissions 189,595 294,400
---------- ----------
Total current liabilities 4,160,051 5,545,347
---------- ----------
Long-term debt, less current installments 806,250 1,627,141
Deferred income taxes 589,995 547,303
Minority interest 40,645 24,710
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized
and unissued - -
Common stock, $.01 par value; 5,000,000 shares authorized;
issued 1,677,761 in 1998 and 1,672,761 in 1997 16,778 16,728
Additional paid-in capital 9,630,499 9,605,549
Retained earnings 7,981,583 5,111,382
---------- ----------
17,628,860 14,733,659
Less treasury stock, at cost 3,188,649 3,188,649
---------- ----------
14,440,211 11,545,010
---------- ----------
$ 20,037,152 19,289,511
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 22
<PAGE>
<TABLE>CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>
GENERAL MICROWAVE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended February 28, 1998 and 1997 and February 29, 1996
<S> <C> <C> <C>
1998 1997 1996
---- ---- ----
Net sales $ 21,317,582 20,060,888 17,427,610
---------- ---------- ----------
Costs and expenses:
Cost of sales 13,570,598 13,727,368 12,434,854
Selling 2,406,503 2,414,014 2,259,367
General and administrative 3,197,464 2,973,517 2,820,194
Research and development 295,500 496,419 1,093,627
---------- ---------- ----------
19,470,065 19,611,318 18,608,042
---------- ---------- ----------
Operating earnings (loss) 1,847,517 449,570 (1,180,432)
---------- ---------- ----------
Other expenses (income):
Interest expense 134,960 219,283 148,682
Dividend and interest income (120,274) (48,620) (57,060)
Minority interest in earnings (loss) of
consolidated subsidiary 15,935 6,539 (6,399)
Other, net 51,006 30,638 98,471
---------- ---------- ----------
81,627 207,840 183,694
---------- ---------- ----------
Earnings (loss) from continuing operations
before income taxes (benefit) 1,765,890 241,730 (1,364,126)
Income taxes (benefit) (151,500) 40,000 (222,000)
---------- ---------- ----------
Earnings (loss) from continuing operations 1,917,390 201,730 (1,142,126)
Discontinued operations (note 2):
Loss from operations of discontinued Math
Associates, Inc., net of applicable income
tax benefits of $332,000 in 1996 - (627,011) (634,665)
Gain (loss) on disposal of Math Associates, Inc.,
including provision of $319,725 for operating
losses during phase-out period in 1997 952,811 (2,660,455) -
---------- ---------- ----------
Net earnings (loss) $ 2,870,201 (3,085,736) (1,776,791)
========== ========== ==========
Basic net earnings (loss) per share:
From continuing operations 1.59 .17 (.95)
From discontinued operations .79 (2.73) (.53)
---------- ---------- ----------
Basic net earnings (loss) per share $ 2.38 (2.56) (1.48)
========== ========== ==========
Diluted net earnings (loss) per share:
From continuing operations 1.56 .17 (.95)
From discontinued operations .78 (2.73) (.53)
---------- ---------- ----------
Diluted net earnings (loss) per share $ 2.34 (2.56) (1.48)
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 23
<PAGE>
<TABLE>CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
GENERAL MICROWAVE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended February 28, 1998 and 1997 and February 29, 1996
<S> <C> <C> <C> <C> <C>
Additional Total
Common stock paid-in Retained Treasury stock stockholders'
Shares Amount capital earnings Shares Amount equity
------ ------ ------- -------- ------ ------ ------
Balances, February 28, 1995 1,661,292 $ 16,613 9,531,034 9,973,909 466,464 $ (3,184,183) 16,337,373
Net loss - - - (1,776,791) - - (1,776,791)
Exercise of stock options, net of
shares tendered 3,200 32 18,368 - 638 (4,466) 13,934
--------- ------ --------- --------- ------- --------- ----------
Balances, February 29, 1996 1,664,492 16,645 9,549,402 8,197,118 467,102 (3,188,649) 14,574,516
Net loss - - - (3,085,736) - - (3,085,736)
Shares purchased from Employee
Stock Purchase Plan 8,269 83 56,147 - - - 56,230
--------- ------ --------- --------- ------- --------- ----------
Balances, February 28, 1997 1,672,761 16,728 9,605,549 5,111,382 467,102 (3,188,649) 11,545,010
Net earnings - - - 2,870,201 - - 2,870,201
Exercise of stock options 5,000 50 24,950 - - - 25,000
--------- ------ --------- --------- ------- --------- ----------
Balances, February 28, 1998 1,677,761 $ 16,778 9,630,499 7,981,583 467,102 $ (3,188,649) 14,440,211
========= ====== ========= ========= ======= ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 24
<PAGE>
<TABLE>CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
GENERAL MICROWAVE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended February 28, 1998 and 1997 and February 29, 1996
<S> <C> <C> <C>
1998 1997 1996
---- ---- ----
Cash flows from operating activities:
Net earnings (loss) from continuing operations $ 1,917,390 201,730 (1,142,126)
Adjustments to reconcile net earnings (loss) to net
cash provided by continuing operations:
Deferred income tax provision (benefit) (227,715) - 152,000
Depreciation and amortization 756,041 809,265 883,467
Bad debt expense (recovery) 18,550 1,450 (14,239)
(Gain) loss on disposal of equipment (3,624) 545 (4,867)
Minority interest in earnings (loss) of
consolidated subsidiary 15,935 6,539 (6,399)
Changes in assets and liabilities:
Accounts receivable (318,546) (141,037) 571,147
Inventories 94,943 283,443 620,399
Prepaid expenses and other current assets (37,020) 17,910 131,708
Accounts payable and accrued liabilities (325,590) 671,793 (285,689)
Customer advance payments 314,474 - -
Other, net (63,807) 41,776 (202,026)
Net cash provided by continuing --------- --------- ---------
operations 2,141,031 1,893,414 703,375
--------- --------- ---------
Net cash provided by (used in) discontinued
operations 954,279 133,851 (712,647)
--------- --------- ---------
Cash flows from investing activities:
Purchases of property, plant and equipment (380,670) (409,012) (550,306)
Proceeds from sale of fixed assets 15,087 19,533 13,511
Purchase of additional interest in subsidiary - - (279,000)
Purchases of intangible assets (7,611) (17,137) (18,480)
Sale of short-term investments, net - - 757,909
--------- --------- ---------
Net cash used in investing activities (373,194) (406,616) (76,366)
--------- --------- ---------
Net cash used in investing activities of
discontinued operations - (2,221) (26,272)
--------- --------- ---------
Cash flows from financing activities:
Principal payments on long-term debt (855,561) (698,448) (575,000)
Proceeds from long-term debt - - 404,009
Principal payments on short-term debt (361,420) - -
Net proceeds from short-term borrowings - 268,276 78,751
Proceeds from issuance of common stock - 56,230 13,934
Proceeds from the exercise of stock options 25,000 - -
--------- --------- ---------
Net cash used in financing activities (1,191,981) (373,942) (78,306)
--------- --------- ---------
Net increase (decrease) in cash 1,530,135 1,244,486 (190,216)
Cash at beginning of year 1,945,362 700,876 891,092
--------- --------- ---------
Cash at end of year $ 3,475,497 1,945,362 700,876
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 25
<PAGE>
GENERAL MICROWAVE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended February 28, 1998 and 1997 and February 29, 1996
(1) Summary of Significant Accounting Policies and Practices
(a) Description of Business
General Microwave Corporation and its subsidiaries (the Company) are
engaged primarily in the design, development, manufacture and marketing
of microwave equipment and components. The Company is organized into
three operating divisions in separate locations. A majority of the
Company's microwave products are sold to manufacturers and users of
microwave systems and equipment for applications in the defense
electronics industry. The Company also sells these components and
equipment for use in the industrial sector, as well as in commercial
telecommunications industries. Typical applications for the Company's
microwave products include electronic warfare and countermeasures;
airborne and shipboard navigation and communications; radar systems;
missile guidance systems; automatic test equipment; and satellite
communications. On February 25, 1997, the Board of Directors of the
Company adopted a plan to discontinue its fiber optics business
operated by its wholly-owned subsidiary, Math Associates, Inc. On
September 24, 1997, a sale of certain assets of Math Associates, Inc.
was completed (note 2).
A substantial portion of the Company's revenues is derived from
military sources. The Company manufactures components and instruments
for a number of ongoing military programs and is currently engaged in
the design and manufacture of prototypes in connection with various
electronic countermeasures, electronic warfare, radar, navigation and
communications programs of the United States Government and foreign
governments and agencies thereof.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of General
Microwave Corporation (GMC), its wholly-owned subsidiaries, General
Microwave Foreign Sales Corporation (FSC), Micro-El Patent Corporation
and GMC Associates, Inc. (formerly known as Math Associates, Inc.
(Math)); its indirect wholly-owned subsidiaries, General Microwave
Israel Corporation (GMIC) and General Microwave Israel (1987) Ltd.
(GMIL); and its majority-owned subsidiary, General Microcircuits
Corporation (GMCC). All inter-company accounts and transactions have
been eliminated in consolidation.
(c) Revenue Recognition
Sales are recorded as units are delivered with the cost of sales
recognized on each shipment based upon an average estimated final
contract unit cost, including overhead costs. Losses on contracts are
recorded when known.
(Continued)
Page 26
<PAGE>
(1), Continued
(d) Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. There were no cash
equivalents at February 28, 1998 and 1997.
(e) Inventories
Work-in-process inventory reflects all accumulated production costs,
which are comprised of direct production costs and overhead, reduced by
amounts attributable to units delivered. Work-in-process inventory is
reduced to its estimated net realizable value by a charge to cost of
sales in the period excess costs are identified. Raw materials and
finished goods inventories are reflected at the lower of cost or
market, computed on the first-in, first-out (FIFO) method.
(f) Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is
charged to operations over the estimated service lives of the related
assets (ranging from three to twenty-five years) using the straight-
line method. Assets acquired under capital lease and leasehold
improvements are amortized over the life of the lease or the estimated
life of the asset, whichever is less.
(g) Debt Issuance Costs
Costs incurred in connection with the issuance of Industrial
Development Revenue Bonds, amounting to $313,000, are being amortized
over the life of the bonds (fifteen years) on a straight-line basis.
(h) Intangible Assets
Intangible assets include patents recorded at cost which are amortized
on a straight-line basis over a period not to exceed seventeen years.
Accumulated amortization aggregated $92,629 and $78,311 at February 28,
1998 and 1997, respectively.
The costs in excess of fair value of net assets acquired relate to the
acquisition of GMCC and are amortized on a straight-line basis over
fifteen years. Additionally, these costs include the cost of
additional ownership of GMCC increasing from 80% to 97% (note 6), which
are amortized on a straight-line basis over the remaining life of the
original asset. Accumulated amortization aggregated $387,109 and
$311,578 at February 28, 1998 and 1997, respectively.
(Continued)
Page 27
<PAGE>
(1), Continued
(i) Pension Expense
Pension expense for eligible employees is provided under an actuarial
cost method. The Company's policy is to make annual contributions to
the plan in accordance with actuarially determined funding
requirements.
(j) Research and Development
Company funded research and development, net of research and
development grants, is charged directly to expense as incurred.
Customer funded research and development is recognized in net sales
while the applicable costs are charged to cost of sales.
(k) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized.
(l) Earnings Per Share
Earnings per share is computed in accordance with the provisions of
Statement of Financial Accounting Standards No.128 (SFAS 128),
"Earnings per Share", which became effective for the Company as of
February 28, 1998. SFAS 128 requires the presentation of basic and
diluted earnings per share. As required by SFAS 128, earnings per
share for all prior periods presented have been restated. Basic
earnings per share is computed by dividing income available to common
shareholders (which for the Company equals its recorded net income) by
the weighted average number of common shares outstanding during the
period. Diluted earnings per share reflects the potential dilution
that could occur if securities or other contracts to issue common
stock, such as stock options, were exercised, converted into common
stock or otherwise resulted in the issuance of common stock.
(Continued)
Page 28
<PAGE>
(1), Continued
(m) Reconciliation to United States Generally Accepted Accounting
Principles
The financial statements of the Company's Israeli operations, GMIC and
GMIL, were prepared in accordance with generally accepted accounting
principles in Israel. The differences between generally accepted
accounting principles in Israel and generally accepted accounting
principles in the United States as they pertain to GMIC and GMIL
are not considered material to the consolidated financial statements
of the Company.
(n) Foreign Currency Translation
The financial position and the results of operations of the Company's
Israeli operations are measured using the dollar as the functional
currency. Gains or losses resulting from translating transactions
denominated in a foreign currency were immaterial in fiscal 1998, 1997,
and 1996.
(o) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," on March 1, 1996. SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying amount of
the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less
costs to sell. SFAS No. 121 did not have a material impact on the
Company's financial position or results of operations in fiscal 1998
or 1997.
(p) Stock Option Plan
Prior to March 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees", and related
interpretations. As such, compensation expense would be recorded on
the date of grant only if and to the extent that the current market
price of the underlying stock exceeded the exercise price. On March 1,
1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of
grant.
(Continued)
Page 29
<PAGE>
(1), Continued
(p), Continued
Alternatively, SFAS No. 123 also allows entities to continue to apply
the provisions of APB Opinion No. 25 and provide pro forma net income
and pro forma earnings per share disclosures for employee stock option
grants as if the fair-value-based method defined in SFAS No. 123 had
been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS No. 123.
(q) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company's management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
(r) Reclassifications
Reclassifications are made whenever necessary to conform with the
current year's presentation.
(2) Discontinued Operations
Pursuant to a Board of Directors resolution on February 25, 1997, the
Company adopted a plan to discontinue its electronic fiber optic systems
and components business. At February 28, 1997, a provision for loss on
disposal of $2,660,455 was recorded in the accompanying consolidated
financial statements principally relating to the anticipated disposal of
inventory and other assets, estimated losses during the phase-out period
and estimated costs of liquidation. This business was operated by Math.
On September 24, 1997, a sale of certain of the assets of Math was
completed, which resulted in a gain from discontinued operations as
recorded in the consolidated financial statements as of February 28, 1998.
This gain relates principally to the proceeds of $353,855 from the sale of
assets and $598,956 from the reversal of estimated costs of liquidation
which will no longer be incurred as a result of the sale and provision for
operating losses during the phase out period that did not materialize.
The consolidated financial statements of the Company have been reclassified
to reflect the effects of the Company's decision to account for the
disposal of its Math operations as discontinued operations. Accordingly,
the net sales, costs and expenses, assets and liabilities, and cash flows
associated with Math have been excluded from the respective captions in the
accompanying consolidated balance sheets, statements of operations and
statements of cash flows.
(Continued)
Page 30
<PAGE>
(2), Continued
Net sales of the discontinued operations were $1,917,298, $4,735,586 and
$4,908,579 for fiscal 1998, 1997 and 1996, respectively.
The following summarizes assets and liabilities of the discontinued
operations which have been segregated in the accompanying consolidated
balance sheets:
1998 1997
Current assets - discontinued operations: ---- ----
Cash $ 3,077 148,583
Accounts receivable, net 10,865 863,467
------- ---------
$ 13,942 1,012,050
======= =========
Current liabilities - discontinued operations:
Accounts payable - 186,084
Accrued expenses 205,363 1,009,109
------- ---------
$ 205,363 1,195,193
======= =========
Discontinued operations include management's best estimates of amounts
expected to be realized on the remaining liquidation of the Math business.
While these estimates are based on an analysis of the recoverability of
assets and estimated expenses, actual results may differ.
(3) Supplemental Cash Flow Information
Following is supplemental information relating to the consolidated
statements of cash flows:
1998 1997 1996
---- ---- ----
Cash paid during the year for:
Interest $ 130,940 205,274 193,668
======= ======= =======
Income taxes $ 31,416 86,253 146,161
======= ======= =======
(4) Inventories
Inventories are comprised of the following:
1998 1997
---- ----
Raw materials $ 2,106,835 1,802,020
Work-in-process 2,484,041 2,371,040
Finished goods 421,619 568,132
--------- ---------
5,012,495 4,741,192
Less progress billings and advanced
payments (571,606) (205,360)
--------- ---------
$ 4,440,889 4,535,832
========= =========
(Continued)
Page 31
<PAGE>
(5) Property, Plant and Equipment
A summary of property, plant and equipment is as follows:
1998 1997
---- ----
Land $ 1,169,299 1,169,299
Buildings and improvements 5,905,493 5,832,699
Test equipment 1,522,271 1,406,230
Machinery and equipment 3,319,337 3,273,314
Furniture and office equipment 1,709,148 1,587,777
Leasehold improvements 266,165 266,165
Transportation equipment 227,473 229,107
Tooling 90,196 86,596
Construction-in-process - 25,172
---------- ----------
14,209,382 13,876,359
Less accumulated depreciation
and amortization 8,494,439 7,885,367
---------- ----------
$ 5,714,943 5,990,992
========== ==========
Depreciation expense aggregated $645,255, $698,609 and $774,006 in fiscal
1998, 1997 and 1996, respectively. Repairs and maintenance costs are
expensed as incurred and amounted to approximately $454,000, $410,000 and
$362,000 in fiscal 1998, 1997, and 1996, respectively.
The Company's Israeli operations were granted "approved enterprise status"
and are therefore entitled to investment grants from the Israeli government
for investments in production facilities. Such approval is conditional
upon meeting certain export requirements, once implementation of the
investment program has been completed. Investment grants reflected as an
offset against the cost of property and equipment amounted to $1,120,666
and $1,063,523 at February 28, 1998 and 1997, respectively. The conditions
for receipt of grants in the amount of $713,097 were fulfilled as of
February 28, 1997. Should the Company not fulfill the conditions
applicable to receipt of the remaining grants, the Israeli government is
permitted to demand refund of the balance of $407,569, plus interest. The
Company is required to invest an additional $210,000 to comply with the
existing investment program. In management's opinion, the Company will
fulfill the relevant conditions relating to investment grants received.
(6) Majority-Owned Subsidiary
At February 28, 1998, the Company owns 97% of GMCC's outstanding common
stock (291,000 shares). Additionally, the Company owns all of the
outstanding preferred stock of GMCC. The interest in the investment in
GMCC outstanding common stock not owned by the Company is recorded as
minority interest on the accompanying consolidated balance sheets.
(Continued)
Page 32
<PAGE>
(7) Income Taxes
The components of income tax expense (benefit) from continuing
operations are as follows:
1998 1997 1996
---- ---- ----
Current:
Federal $ 5,000 - (346,000)
State 36,800 8,000 (29,000)
Foreign 34,400 32,000 1,000
-------- ------- --------
76,200 40,000 (374,000)
-------- ------- --------
Deferred:
Federal and State (227,700) - 152,000
-------- ------- --------
$ (151,500) 40,000 (222,000)
======== ======= ========
A reconciliation of income taxes (benefit) from continuing operations
computed at the Federal statutory rate to reported income taxes
(benefit) is as follows:
<TABLE>NOTE 7 TO CONSOLIDATED FINANCIAL STATEMENTS
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
--------------- -------------- -----------------
Tax at Federal statutory rate $ 600,000 34.0% $ 82,000 34.0% $ (463,800) (34.0)%
Change in beginning of the year
balance of the valuation
allowance (698,000) (39.9) (42,000) (17.4) 322,700 23.7
Benefit of lower tax rate
on foreign income (99,000) (5.6) (36,000) (14.9) - -
Earnings of subsidiary not
consolidated for tax purposes - - - - 58,600 4.3
State income taxes (benefit), net 24,000 1.4 5,000 2.0 (115,000) (8.4)
Amortization of costs in excess of
fair value of net assets acquired 26,000 1.5 26,000 10.8 25,700 1.9
Reversal of prior years' over
provisions - - - - (67,000) (4.9)
Other, net (4,500) - 5,000 2.0 16,800 1.2
-------- ---- ------ ---- -------- -----
Income taxes (benefit) $ (151,500) (8.6)% $ 40,000 16.5% $ (222,000) (16.2)%
======== ==== ====== ==== ======== =====
</TABLE>
(Continued)
Page 33
<PAGE>
(7), Continued
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
February 28 are presented as follows:
1998 1997
---- ----
Deferred tax assets:
Inventories, principally due to
obsolescence reserve $ 303,000 318,484
Net operating loss carryforwards 397,410 77,400
Tax credit carryforwards 243,000 248,000
Discontinued operations - 1,380,216
Allowance for doubtful accounts receivable 19,700 9,867
Warranty reserve 60,442 25,135
Other 13,531 -
--------- ---------
Total deferred tax assets 1,037,083 2,059,102
Less valuation allowance (243,000) (1,518,555)
--------- ---------
Net deferred tax assets $ 794,083 540,547
========= =========
Deferred tax liabilities:
Plant and equipment, principally due to
differences in depreciation and
capitalized interest $ (577,621) (547,303)
Other (12,374) (16,871)
--------- ---------
Total deferred tax liabilities (589,995) (564,174)
--------- ---------
Net deferred assets (liabilities) $ 204,088 (23,627)
========= =========
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization
of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences
become deductible. Management considered the scheduled reversal of
deferred tax assets and liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon
projections of future taxable income over the periods which the deferred
tax assets are deductible, management believes it is more likely than
not that the Company will realize the benefits of the net deferred tax
assets. The amount of the deferred tax assets considered realizable,
however, could be reduced in the near term if estimates of future
taxable income are reduced.
At February 28, 1998, the Company has Federal net operating loss
carryforwards of approximately $990,000, New York State net operating
loss carryforwards of approximately
(Continued)
Page 34
<PAGE>
(7), Continued
$578,000 and New York State tax credits of $243,000 which are available
to offset future taxable income, if any. These Federal and state net
operating loss carryforwards and state tax credits, which arose from
both continuing and discontinued operations, are available to offset
future taxable income of continuing operations. The Federal and New
York State net operating loss carryforwards expire starting in fiscal
2010.
Earnings before provision for (benefit of) income taxes, without giving
effect to inter-company eliminations, include income (losses) from
foreign operations of $343,872, $515,471 and ($541,212) in fiscal 1998,
1997 and 1996, respectively.
(8) Long-term Debt
Long-term debt consists of the following:
1998 1997
---- ----
Industrial Development Revenue Bonds $ 1,200,000 1,700,000
Bank loans payable 281,250 636,811
--------- ---------
1,481,250 2,336,811
Less current installments 675,000 709,670
--------- ---------
$ 806,250 1,627,141
========= =========
Under the terms of an agreement with the Town of Babylon Industrial
Development Agency and a bank, the Agency issued 1984 Variable Rate
7-Day Demand Industrial Development Revenue Bonds in the amount of
$6,000,000 to provide a substantial portion of the funds for the
construction and equipping of the Company's manufacturing facility in
Amityville, New York. Interest is payable semi-annually at a variable
rate which approximates 65% of the yield on 13-week U.S. Treasury bills.
Such rate was 3.40% and 3.25% at February 28, 1998 and 1997,
respectively. Under the terms of the agreement, the Company obtained an
irrevocable bank letter of credit for the amount of the bonds plus
certain interest. The letter of credit, which amounted to approximately
$1,373,000 and $1,877,000 at February 28, 1998 and 1997, respectively,
will be drawn on in the event the Town of Babylon defaults on its
obligations to the bondholders. This letter of credit expires on
September 15, 1998 and management is presently negotiating the letter of
credit with the bank. At any time prior to maturity, the bonds are
redeemable at the option of the Company at a redemption price of 100%.
The bonds are due on October 1, 1999 with annual payment requirements of
$600,000 in fiscal 1999 and 2000. All property, plant and equipment
acquired or constructed by the Company with the proceeds of the bonds
collateralize the obligation.
The aforementioned bond agreement includes certain restrictive
covenants, as amended. The Company must, among other things, maintain
profitable operations, a minimum ratio of current assets to current
liabilities, a minimum level of tangible net worth, as defined and
amended, and must not exceed a specified debt to equity ratio. The
tangible net worth covenant limits the ability of the Company to pay
cash dividends. As a result of such
(Continued)
Page 35
<PAGE>
(8), Continued
covenant there is approximately $1,652,623 of unrestricted funds
available for the payment of cash dividends as of February 28, 1998. In
addition, commencing April 1, 1996, the Company is required to make
monthly sinking fund payments of $40,000 towards its annual bond
payment. Such amount is reflected as restricted cash on the
accompanying consolidated balance sheet as of February 28, 1998.
During fiscal 1992 the Company's subsidiary, GMIL, entered into a
capital lease on its operating facility in the Talpiot Industrial Zone
of Jerusalem, Israel at a cost of $841,875. This transaction was
primarily financed with a $750,000 long-term bank loan at an interest
rate of LIBOR plus 1.5% (7.20% at February 28, 1997), of which $281,250
and $356,250 was outstanding at February 28, 1998 and 1997,
respectively. The loan is secured by the premises, all of GMIL's assets
and a guarantee by the Company of $300,000.
Required principal payments on long-term debt are summarized as follows:
1999 $ 675,000
2000 675,000
2001 75,000
2002 56,250
--------
$ 1,481,250
=========
(9) Short-term Borrowing
The Company's Israeli subsidiary has outstanding short-term borrowings
with a bank aggregating $230,319 and $591,739 at interest rates of 6.05%
and ranging from 6.95% to 8.40% at February 28, 1998 and 1997,
respectively. The short-term borrowings were repaid in full in March
1998.
(10) Earnings Per Share
As discussed in note 1(l), the Company adopted SFAS No.128, which
replaces the calculation of primary and fully diluted earnings (loss)
per share with basic and diluted earnings (loss) per share. Prior
periods have been restated to conform to SFAS No.128 requirements.
A reconciliation between numerators and denominators of the basic and
diluted earnings (loss) per share is as follows:
1998 1997 1996
---- ---- ----
Basic earnings (loss) per share
computation:
Net earnings (loss) $ 2,870,201 (3,085,736) (1,776,791)
Weighted average common
shares outstanding 1,207,704 1,203,592 1,196,682
Basic earnings (loss) per
share 2.38 (2.56) (1.48)
========= ========= =========
(Continued)
Page 36
<PAGE>
(10), Continued
1998 1997 1996
---- ---- ----
Diluted earnings (loss) per share
computation:
Net earnings (loss) $ 2,870,201 (3,085,736) (1,776,791)
Weighted average common
shares outstanding 1,207,704 1,203,592 1,196,682
Dilutive stock options 21,394 2,685 -
--------- --------- ---------
Diluted common shares
outstanding 1,229,098 1,206,277 1,196,682
Diluted earnings (loss)
per share 2.34 (2.56) (1.48)
========= ========= =========
(11) Employee Pension Plan
The Company has a noncontributory defined benefit pension plan covering
all eligible employees of GMC. Pension expense is accrued in accordance
with the projected unit credit actuarial cost method. Although the
Company reserves the right to terminate the plan at any time, it is
obligated to fund the recommended contribution as long as the plan
remains in effect.
The net pension expense includes the following components:
1998 1997 1996
---- ---- ----
Service cost - benefits earned during
the period $ 119,700 137,700 128,900
Interest cost on projected benefit
obligation 283,100 278,500 267,000
Actual return on assets (828,100) (597,900) (506,200)
Net amortization and deferral 535,500 360,700 288,300
-------- -------- --------
Net pension expense $ 110,200 179,000 178,000
======== ======== ========
Assumptions used in the accounting for net pension expense in fiscal
1998, 1997 and 1996 were:
Weighted average discount rate 7.5%
Average rate of increase in compensation levels 5.0
Expected long-term rate of return on assets 8.5
===
(Continued)
Page 37
<PAGE>
(11), Continued
The following table sets forth the funded status and the prepaid pension
asset of the Company's defined benefit plan at February 28:
<TABLE>Note 11 TO CONSOLIDATED FINANCIAL STATEMENTS
<CAPTION>
<S> <C> <C>
1998 1997
Actuarial present value of accumulated benefit ---- ----
obligation, including vested benefits of
$3,458,700 in 1998 and $3,178,100 in 1997 $ (3,556,500) (3,249,700)
========== ==========
Projected benefit obligation for services
rendered to date (4,244,000) (4,019,200)
Plan assets at fair value 4,362,200 3,720,100
---------- ----------
Funded status - plan assets in excess of (less
than) projected benefit obligation 118,200 (299,100)
Unrecognized net (gain) loss from past experience
different from that assumed (146,800) 142,600
Unrecognized prior service cost 170,800 240,300
Unrecognized net asset as of March 1, 1987 being
recognized over approximately 20 years (50,000) (55,400)
---------- ----------
Prepaid pension asset included in other assets $ 92,200 28,400
========== ==========
</TABLE>
Pension plan assets consist principally of United States Government
securities.
(12) Stockholders' Equity
The 1990 Stock Option Plan (1990 Plan) provides for the issuance of up
to 125,000 shares of common stock to key employees including officers
and directors who are employees. Options under the 1990 Plan, which
expires on June 26, 2000, may be either incentive stock options (ISO) or
options not qualified under the Internal Revenue Code. The purchase
price of common stock under each option shall be determined by the Stock
Option Committee of the Board of Directors; provided, however, that the
stock purchase price pursuant to an ISO may not be less than the fair
market value of the common stock subject to the option on the date that
the option was granted, and may in no event be less than the par value
of the stock. Options granted to date under the 1990 Plan were at the
fair market value at the date of grant. Options vest 25% after nine
months from the date of grant and every nine months, thereafter. The
1990 Plan permits option holders to pay the option exercise price with
previously owned common stock of the Company or a combination of cash
and common stock. If any employee to whom an ISO is granted owns common
stock amounting to more than 10% of the total voting power of all
classes of stock of the Company, the option exercise price must be at
least 110% of the fair market value of common stock at the time the
option is granted and the option must terminate no later than five years
from the date the option is granted. At February 28, 1998, 39,250
options outstanding are exercisable under the 1990 Plan.
In January 1997, the Company adjusted the exercise price of all
outstanding options to $5.00 per share, the then fair market value of
the stock.
(Continued)
Page 38
<PAGE>
(12), Continued
A summary of stock option transactions follows:
1990 Plan
-------------------
Number Weighted-average
of shares exercise price
--------- --------------
Outstanding, February 28, 1995 42,950 $ 6.35
Granted 16,000 6.79
Exercised (3,200) (5.75)
Canceled (2,500) (7.50)
------
Outstanding, February 29, 1996 53,250 6.34
Granted 8,000 6.77
Canceled (9,500) (6.44)
------
Outstanding, February 28, 1997 51,750 5.00
Granted 22,000 6.26
Exercised (5,000) (5.00)
Canceled (3,000) (5.00)
------
Outstanding, February 28, 1998 65,750 $ 5.42
======
The 1997 Non-Employee Director Stock Option Plan (1997 Plan) provides
for the issuance of options to purchase 2,500 shares of common stock
to each non-employee director of the Company on the date of each annual
meeting of shareholders, up to an aggregate of 60,000 shares, at the
fair market value of the common stock on the date of grant. 33% of the
options are exercisable on the first day of the calendar year following
the annual meeting of shareholders, 33% on the first day of the second
year; and 34% on the first day of the third year. Generally options
expire ten years after the option grant date or three months after
termination of service as a director, which ever is earlier.
A summary of stock option transactions follows:
1997 Plan
--------------------
Number Weighted-average
of shares exercise price
--------- --------------
Outstanding, February 28, 1997 - $ -
Granted 15,000 6.97
------
Outstanding, February 28, 1998 15,000 $ 6.97
======
(Continued)
Page 39
<PAGE>
(12), Continued
The Company has an Employee Stock Purchase Plan which offers eligible
employees options to purchase common stock of the Company at a purchase
price of 85% of the lesser of the average market value of the common
stock on the date of grant or on the exercise date. The exercise date
is the last business day of the twenty-fifth month following the date of
grant. Payment for the shares is made through payroll deductions over a
two-year period. The maximum number of shares that may be issued under
this Plan, as amended, is 140,000.
A summary of employee stock purchase transactions follows:
Number Weighted-average
of shares exercise price
--------- --------------
Outstanding, February 28, 1995 13,283 $ 7.44
Canceled (4,839) (7.44)
------
Outstanding, February 29, 1996 8,444 7.44
Exercised (8,269) (6.80)
Granted 6,049 5.74
Canceled (175) (6.80)
------
Outstanding, February 28, 1997 6,049 5.75
Canceled (2,677) (5.75)
------
Outstanding, February 28, 1998 3,372 $ 5.75
======
The Company applies APB Opinion No. 25 and related interpretations in
accounting for stock option plans. Accordingly, no compensation cost
has been recognized. The Company's net earnings (loss) and net earnings
(loss) per share would have increased to the following pro forma amounts
had compensation cost been recorded for the stock option and stock
purchase plans based on the fair value at the grant dates for awards, as
well as the January 1997 repricing of the outstanding stock options:
1998 1997 1996
---- ---- ----
Net earnings (loss):
As reported $ 2,870,201 (3,085,736) (1,776,791)
Pro forma $ 2,830,093 (3,119,570) (1,810,625)
Basic net earnings (loss) per
share:
As reported $ 2.38 (2.56) (1.48)
Pro forma $ 2.34 (2.59) (1.51)
(Continued)
Page 40
<PAGE>
(12), Continued
1998 1997 1996
---- ---- ----
Diluted net earnings (loss)
per share:
As reported $ 2.34 (2.56) (1.48)
Pro forma $ 2.30 (2.59) (1.51)
The per share weighted average fair value of stock options granted
during fiscal 1998, 1997 and 1996 was $3.37, $3.36 and $3.43
respectively. The fair value of each option grant is estimated on the
date of grant using the Black-Scholes option pricing model with the
following weighted-average assumptions used for grants in fiscal 1998,
1997 and 1996, respectively: expected volatility of 27%, 15% and 20%;
risk-free interest rates of 6.66%, 6.41% and 6.33%; expected lives of
10.0, 7.1 and 10.0 years; and no dividend yields.
Pro forma net income reflects only options granted in fiscal 1998, 1997
and 1996. Therefore, the full impact of calculating compensation cost
for stock options under SFAS No. 123 is not reflected in the pro forma
net earnings (loss) amounts presented above because compensation cost is
reflected over the options' vesting period and compensation cost for
options granted prior to March 1, 1995 is not considered.
(13) Financial Instruments
SFAS Statement No. 107, Disclosures about Fair Value of Financial
Instruments, defines the fair value of a financial instrument as the
amounts at which the instrument could be exchanged in a current
transaction between willing parties. The carrying value of all
financial instruments classified as a current asset or current liability
are deemed to approximate fair value because of the short maturity of
these instruments. In the opinion of management, the carrying value of
the Company's bank loan payable (note 8) approximates fair value as the
interest rate is based on the current LIBOR rate and such rate is
believed to approximate the rates that would be offered to GMIL for debt
of the same remaining maturities.
It is not practicable to estimate the fair value of the Company's
Industrial Development Revenue Bonds of $1,200,000 and $1,700,000 as of
February 28, 1998 and 1997, respectively. The fair value of such bonds
would be based upon the rates an Industrial Development Agency would
charge the Company to finance the construction and/or equipping of a new
manufacturing facility. Such rates are not readily determinable,
without incurring excessive cost. However, because the carrying value
of the bonds are based upon a rate that fluctuates with a U.S. Treasury
rate, management is of the opinion that the difference between the
carrying value and fair value would not be material.
(14) Royalties
The Office of the Chief Scientist (OCS) of the Ministry of Commerce and
Industry in Israel has approved grants to GMIC and GMIL for research and
development projects, which resulted in the manufacturing of products
for sale.
(Continued)
Page 41
<PAGE>
(14), Continued
For such projects which are commercially successful, the OCS is to be
paid royalties of 2% of gross annual sales, up to the amount of the
grant received. In fiscal 1998, GMIC and GMIL paid royalties of
$117,739 to the OCS.
The Israel - United Bi-national Industrial Research & Development
Foundation (BIRD) approved grants for research and development projects,
which resulted in the manufacturing of products for sale. The Company
is required to pay royalties to BIRD up to a maximum of 150% of the
grant received from the sale of such products. In fiscal 1998, the
Company paid royalties of approximately $99,000 to BIRD.
(15) Business and Credit Concentrations
The Company's operations are in a single industry segment and involve
the manufacture of various types of microwave, electronic equipment and
components. The majority of the Company's business is defense related
and consists of direct and indirect sales to the United States
Government and foreign governments or to other companies that are
manufacturing products for the defense industry.
(a) Foreign and Domestic Operations and Export Sales
Net sales to customers by geographic area are as follows:
Year ended February 28 or 29,
-----------------------------
1998 1997 1996
---- ---- ----
United States $ 14,122,235 13,213,276 13,047,519
Other Western Hemisphere 197,887 96,664 55,638
Europe 2,459,366 2,719,076 2,473,485
Asia 4,316,637 3,675,478 1,476,305
Other 221,457 356,394 374,663
---------- ---------- ----------
$ 21,317,582 20,060,888 17,427,610
========== ========== ==========
Information concerning foreign and domestic continuing operations
for fiscal 1998, 1997 and 1996 is as follows:
1998 1997 1996
---- ---- ----
Net sales:
United States $ 17,416,718 17,019,006 14,935,708
Israel 6,207,651 6,671,661 3,732,718
Transfers between geographic
areas (eliminated in
consolidation) (2,306,787) (3,629,779) (1,240,816)
---------- ---------- ----------
$ 21,317,582 20,060,888 17,427,610
========== ========== ==========
(Continued)
Page 42
<PAGE>
(15), Continued
(a), Continued
1998 1997 1996
---- ---- ----
Operating earnings (loss):
United States $ 1,401,591 (234,641) (744,942)
Israel 445,926 684,211 (435,490)
---------- ---------- ----------
$ 1,847,517 449,570 (1,180,432)
========== ========== ==========
Identifiable assets of
continuing operations:
United States 15,953,247 13,525,361 14,058,281
Israel 4,069,963 4,788,497 3,773,171
---------- ---------- ----------
$ 20,023,210 18,313,858 17,831,452
========== ========== ==========
In determining operating earnings (loss) for each geographic area, sales
and purchases between areas have been accounted for on the basis of
internal prices set by the Company. Identifiable assets are those
tangible and intangible assets used in operations in each geographic
area. Identifiable assets of the Israeli operations include trade
accounts receivable from GMC of $201,476, $603,125 and $116,464 as of
February 28, 1998 and 1997 and February 29, 1996, respectively.
(b) Credit Concentrations
During fiscal 1998, 1997 and 1996, after giving effect to discontinued
operations, one customer represented 16%, 26% and 10% of net sales,
respectively, of the Company. In addition, the Company had six and five
customers with individual balances in excess of 5% of accounts
receivable, which aggregated approximately $2,758,000 and $2,200,000, at
February 28, 1998 and 1997, respectively.
The Company grants credit to customers based upon analysis of their
financial position and other factors. Consequently, an adverse change
in those factors could affect the Company's estimate of its bad debts.
The Company estimates an allowance for doubtful accounts based upon the
creditworthiness of its customers as well as general economic
conditions. As the majority of the Company's sales are made and credit
is granted to the United States Government and customers in the defense
industry, the Company considers the credit risks associated with its
customers to be minimal.
(Continued)
Page 43
<PAGE>
(16) Unaudited Quarterly Financial Information
The following is a summary of quarterly operating results for fiscal
1998 and 1997 (in thousands, except per share amounts):
1998
----------------------------------
First Second Third Fourth
quarter quarter quarter quarter
------- ------- ------- -------
Net sales $ 4,987 5,488 4,623 6,220
Gross profit 1,768 1,876 1,550 2,553
Net earnings:
Continuing operations 168 317 218 1,214
Discontinued operations - 953 - -
----- ----- ----- -----
Total $ 168 1,270 218 1,214
===== ===== ===== =====
Basic net earnings per share:
Continuing operations .14 .26 .18 1.00
Discontinued operations - .79 - -
----- ----- ----- -----
Total $ .14 1.05 .18 1.00
===== ===== ===== =====
Diluted net earnings per share:
Continuing operations .14 .26 .17 .98
Discontinued operations - .78 - -
----- ----- ----- -----
Total $ .14 1.04 .17 .98
===== ===== ===== =====
1997
----------------------------------
First Second Third Fourth
quarter quarter quarter quarter
------- ------- ------- -------
Net sales $ 4,288 4,875 4,868 6,030
Gross profit 1,553 1,322 1,321 2,138
Net earnings (loss):
Continuing operations 50 (254) (191) 597
Discontinued operations 5 (435) (196) (2,661)
----- ----- ----- -----
Total $ 55 (689) (387) (2,064)
===== ===== ===== =====
Basic and diluted net earnings
(loss) per share:
Continuing operations .04 (.21) (.16) .50
Discontinued operations .01 (.36) (.16) (2.21)
----- ----- ----- -----
Total $ .05 (.57) (.32) (1.71)
===== ===== ===== =====
(Continued)
Page 44
<PAGE>
(16), Continued
Earnings per share calculations for each of the quarters are based on
weighted average number of shares outstanding in each period, therefore,
the sum of the quarters does not necessarily equal the years' earnings
(loss) per share.
Page 45
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE.
---------------------
Not applicable.
Page 46
<PAGE>
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
---------------------------------------------------
Information relating to directors of the Registrant and Section 16(a)
Beneficial Ownership Reporting Compliance will be contained in a definitive
Proxy Statement involving the election of directors which the Registrant will
file with the Securities and Exchange Commission pursuant to Regulation 14A
under the Securities Exchange Act of 1934 not later than 120 days after the
Company's fiscal year end and such information is incorporated herein by
reference. Information relating to Executive Officers of the Registrant
appears at page 9 of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
-----------------------
Information relating to executive compensation will be contained in the
Proxy Statement referred to above in "Item 10. Directors and Executive
Officers of the Registrant", and such information is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
---------------------------------------------------------------
Information relating to security ownership of certain beneficial owners
and management will be contained in the Proxy Statement referred to above in
"Item 10. Directors and Executive Officers of the Registrant", and such
information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-----------------------------------------------
Information relating to certain relationships and related transactions
will be contained in the Proxy Statement referred to above in "Item 10.
Directors and Executive Officers of the Registrant", and such information is
incorporated herein by reference.
Page 47
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
-----------------------------------------------------------------
(a) The following documents are filed as part of this report:
1. Financial Statements Page
. Independent Auditors' Reports 86 - 87
. Consolidated Balance Sheets - February 22
28, 1998 and February 28, 1997
. Consolidated Statements of Operations 23
years ended February 28, 1998, February
28, 1997 and February 29, 1996
. Consolidated Statements of Stockholders' 24
Equity - years ended February 28, 1998,
February 28, 1997 and February 29, 1996
. Consolidated Statements of Cash Flows - 25
years ended February 28, 1998, February
28, 1997 and February 29, 1996
. Notes to Consolidated Financial Statements 26 - 45
2. Financial Statement Schedules
The following consolidated financial statement
schedule is filed as part of this report:
Page
II - Valuation and Qualifying Accounts 51
Schedules other than those listed above are omitted because
they are not applicable or the information required is included in
the consolidated financial statements or the notes thereto.
Page 48
<PAGE>
3. Exhibits
(a) See the exhibit index to this Annual Report on
Form 10-K. The following exhibits on the
Exhibit Index are filed with this Annual Report
on Form 10-K.
Exhibit No.
-----------
3(ii) By-laws of General Microwave
Corporation.
10(f) Consulting Agreement dated as of
March 1, 1998 between General
Microwave Corporation and Sherman
Rinkel.
22 Subsidiaries of the Registrant.
23 Independent Auditors' Consents.
27 Financial Data Schedule (filed with
electronically filed copy only)
(b) Reports on Form 8-K
None.
(c) The following management contracts or
compensatory plans, contracts or arrangements
are filed with or incorporated by reference in
this Annual Report on Form 10-K.
Exhibit No.
-----------
10(c) 1990 Stock Option Plan, As Amended -
Incorporated by reference to Quarterly Report
on Form 10-Q for the quarter ended November
30, 1996, filed January 14, 1997.
10(d) General Microwave Corporation Executive
Incentive Bonus Plan adopted May 28, 1996 -
Incorporated by reference to Annual Report on
Form 10-K for the fiscal year ended February
29, 1996, filed May 29, 1996.
10(e) General Microwave Corporation 1997 Non-Employee
Director Stock Option Plan -
Incorporated by reference to Proxy Statement
dated May 29, 1997, filed June 6, 1997.
10(f) Consulting Agreement dated as of March 1,
1998 between General Microwave Corporation
and Sherman Rinkel.
Page 49
<PAGE>
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
GENERAL MICROWAVE CORPORATION
By: s/Mitchell Tuckman
---------------------------
Mitchell Tuckman, President
and Chief Executive Officer
Date: May 26, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signatures Title Date
---------- ----- ----
By: s/Mitchell Tuckman President, Chief Executive May 26, 1998
---------------------- Officer and Director (Prin-
Mitchell Tuckman cipal Executive Officer)
By: s/Arnold H. Levine Vice President-Finance, May 26, 1998
---------------------- Treasurer, Chief Financial
Arnold H. Levine Officer and Director (Principal
Financial and Accounting Officer)
By: s/Sherman A. Rinkel Director May 26, 1998
----------------------
Sherman A. Rinkel
By: s/Moe Wind Director May 26, 1998
----------------------
Moe Wind
By: s/Stanley Simon Director May 26, 1998
----------------------
Stanley Simon
By: s/Edmond D. Franco Director May 26, 1998
----------------------
Edmond D. Franco
By: s/Michael I. Stolzar Director May 26, 1998
----------------------
Michael I. Stolzar
By: s/Michael D. Magidson Director May 26, 1998
----------------------
Michael D. Magidson
By: s/Rozalie Schachter Director May 26, 1998
----------------------
Rozalie Schachter
Page 50
<PAGE>
Schedule II
GENERAL MICROWAVE CORPORATION
AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
THREE YEAR PERIOD ENDED FEBRUARY 28, 1998
INVENTORY
- ---------
Additions
Balance at charged to Balance at
beginning costs and end of
Year Ended of period expenses Deductions period
- ---------- --------- ---------- ---------- ----------
Inventory
February 28, 1998 $ 890,000 --- 161,000 729,000
Inventory
February 28, 1997 $ 825,000 65,000 --- 890,000
Inventory
February 29, 1996 $ 887,000 438,000 500,000 825,000
ACCOUNTS RECEIVABLE
- -------------------
Additions
Balance at charged to Balance at
beginning costs and end of
Year Ended of period expenses Deductions period
- ---------- --------- ---------- ---------- ----------
Accounts
Receivable
February 28, 1998 $ 27,200 18,500 --- 45,700
Accounts
Receivable
February 28, 1997 $ 25,700 1,500 --- 27,200
Accounts
Receivable
February 29, 1996 $ 40,000 --- 14,300 25,700
Page 51
<PAGE>
EXHIBIT INDEX
-------------
Page Number
in Sequential
Exhibit No. Numbering
- ----------- -------------
3(i)(a) Certificate of Incorporation of General *
Microwave Corporation dated June 13, 1960 -
Incorporated by reference to Annual Report
on Form 10-K for the fiscal year ended
February 28, 1995, filed May 26, 1995.
3(i)(b) Certificate of Amendment of Certificate of *
Incorporation of General Microwave Corpora-
tion dated December 21, 1961 - Incorporated
by reference to Annual Report on Form 10-K
for the fiscal year ended February 28, 1995,
filed May 26, 1995.
3(i)(c) Certificate of Change of General Microwave *
Corporation dated September 24, 1981 -
Incorporated by reference to Annual Report
on Form 10-K for the fiscal year ended
February 28, 1995, filed May 26, 1995.
3(i)(d) Certificate of Amendment of Certificate of *
of Incorporation of General Microwave Cor-
poration dated June 25, 1985 - Incorporated
by reference to Annual Report on Form 10-K
for the fiscal year ended February 28, 1995,
filed May 26, 1995.
3(i)(e) Certificate of Change of General Microwave *
Corporation dated June 24, 1986 - Incorporated
by reference to Annual Report on Form 10-K
for the fiscal year ended February 28, 1995,
filed May 26, 1995.
3(i)(f) Certificate of Amendment of Certificate *
of Incorporation of General Microwave
Corporation dated June 28, 1988 - Incorporated
by reference to Annual Report on Form 10-K
for the fiscal year ended February 28, 1995,
filed May 26, 1995.
3(ii) By-laws of General Microwave Corporation. 58 - 79
_________
* Incorporated by reference
Page 52
<PAGE>
4 Not applicable.
9 Not applicable.
10(a)(1) Indenture of Mortgage and Trust dated as of *
October 1, 1984 by and between Town of Baby-
lon Industrial Development Agency and National
Westminster Bank USA, as Trustee - Incorporated
by reference to Annual Report on Form 10-K
for the fiscal year ended February 28, 1995,
filed May 26, 1995.
10(a)(2) Lease Agreement dated as of October 1, 1984 *
by and between Town of Babylon Industrial
Development Agency and General Microwave
Corporation - Incorporated by reference to
Annual Report on Form 10-K for the fiscal
year ended February 28, 1995, filed May 26,
1995.
10(a)(3) Lease Modification Agreement dated as of *
April 1, 1986 between Town of Babylon
Industrial Development Agency and General
Microwave Corporation - Incorporated by
reference to Annual Report on Form 10-K for
the fiscal year ended February 28, 1995,
filed May 26, 1995.
10(a)(4) Reimbursement Agreement dated as of October *
1, 1984 between General Microwave Corporation
and National Westminster Bank USA, as Letter
of Credit Issuer - Incorporated by reference
to Annual Report on Form 10-K for the fiscal
year ended February 28, 1995, filed May 26,
1995.
10(a)(5) Guaranty dated as of October 1, 1984 of *
General Microwave Corporation to National
Westminster Bank USA, as Trustee - Incorporated
by reference to Annual Report on Form 10-K
for the fiscal year ended February 28, 1995,
filed May 26, 1995.
10(a)(6) Remarketing Agreement dated as of April *
2, 1990 among Citicorp Securities Markets,
Inc., General Microwave Corporation and
Town of Babylon Industrial Development
Agency - Incorporated by reference to Annual
Report on Form 10-K for the fiscal year
ended February 28, 1995, filed May 26, 1995.
__________
* Incorporated by reference
Page 53
<PAGE>
10(a)(7) Second Mortgage dated as of October 1, 1984 *
from the Town of Babylon Industrial Develop-
ment Agency to National Westminster Bank USA,
as Letter of Credit Issuer - Incorporated by
reference to Annual Report on Form 10-K for
the fiscal year ended February 28, 1995,
filed May 26, 1995.
10(a)(8) Second Pledge and Assignment dated as of *
October 1, 1984 from the Town of Babylon
Industrial Development Agency to National
Westminster Bank USA, as Letter of Credit
Issuer - Incorporated by reference to Annual
Report on Form 10-K for the fiscal year
ended February 28, 1995, filed May 26, 1995.
10(a)(9) Assignment of Mortgage and Pledge and assign- *
ment dated as of October 1, 1984 from National
Westminster Bank USA, as Letter of Credit
Issuer, to National Westminster Bank USA,
as Trustee - Incorporated by reference to
Annual Report on Form 10-K for the fiscal year
ended February 28, 1995, filed May 26, 1995.
10(a)(10) Acknowledgment and Acceptance dated as of *
September 26, 1990 among National Westminster
Bank USA, The Connecticut National Bank, Town
of Babylon Industrial Development Agency and
General Microwave Corporation - Incorporated
by reference to Annual Report on Form 10-K
for the fiscal year ended February 28, 1995,
filed May 26, 1995.
10(a)(11) Security Agreement dated as of July 20, 1995 *
between General Microwave Corporation and
Shawmut Bank N.A., as Trustee - Incorporated
by reference to Quarterly Report on Form 10-Q
for the quarter ended September 2, 1995,
filed October 16, 1995.
10(a)(12) Security Agreement dated as of July 20, 1995 *
between General Microwave Corporation and
Natwest Bank N.A. - Incorporated by reference
to Quarterly Report on Form 10-Q for the
quarter ended September 2, 1995, filed
October 16, 1995.
________
Incorporated by reference
Page 54
<PAGE>
10(a)(13) Amendment and Waiver of Reimbursement Agree- *
ment dated July 17, 1995 between Natwest Bank,
N.A. and General Microwave Corporation -
Incorporated by reference to Quarterly Report
on Form 10-Q for the quarter ended September
2, 1995, filed October 16, 1995.
10(a)(14) Security Agreement dated as of January 16, *
1996 between General Microcircuits Corp. and
Shawmut Bank N.A. - Incorporated by reference
to Annual Report on Form 10-K for fiscal year
ended February 29, 1996, filed May 29, 1996.
10(a)(15) Security Agreement dated as of January 16, *
1996 between Math Associates, Inc. and
Shawmut Bank N.A. - Incorporated by reference
to Annual Report on Form 10-K for fiscal year
ended February 29, 1996, filed May 29, 1996.
10(a)(16) Security Agreement dated as of January 16, *
1996 between General Microcircuits Corp. and
Natwest Bank N.A. - Incorporated by reference
to Annual Report on Form 10-K for fiscal year
ended February 29, 1996, filed May 29, 1996.
10(a)(17) Security Agreement dated as of January 16, *
1996 between Math Associates, Inc. and
Natwest Bank N.A. - Incorporated by reference
to Annual Report on Form 10-K for fiscal year
ended February 29, 1996, filed May 29, 1996.
10(a)(18) Guarantee of General Microcircuits Corp. *
dated January 16, 1996 to Shawmut Bank N.A. -
Incorporated by reference to Annual Report
on Form 10-K for fiscal year ended February
29, 1996, filed May 29, 1996.
10(a)(19) Guarantee of Math Associates, Inc. dated *
January 16, 1996 to Shawmut Bank N.A. -
Incorporated by reference to Annual Report
on Form 10-K for fiscal year ended February
29, 1996, filed May 29, 1996.
10(a)(20) Guarantee of General Microcircuits Corp. *
dated January 16, 1996 to Natwest Bank N.A. -
Incorporated by reference to Annual Report
on Form 10-K for fiscal year ended February
29, 1996, filed May 29, 1996.
________
Incorporated by reference
Page 55
<PAGE>
10(a)(21) Guarantee of Math Associates, Inc. dated *
January 16, 1996 to Natwest Bank N.A. -
Incorporated by reference to Annual Report
on Form 10-K for fiscal year ended February
29, 1996, filed May 29, 1996.
10(a)(22) Cash Collateral Agreement dated as of *
January 16, 1996 between General Microwave
Corporation and NatWest Bank N.A. -
Incorporated by reference to Annual Report
on Form 10-K for fiscal year ended February
29, 1996, filed May 29, 1996.
10(a)(23) Amendment and Waiver of Reimbursement Agree- *
ment dated January 16, 1996 between Natwest
Bank N.A. and General Microwave Corporation -
Incorporated by reference to Annual Report
on Form 10-K for fiscal year ended February
29, 1996, filed May 29, 1996.
10(a)(24) Amendment and Waiver of Reimbursement Agree- *
ment and Cash Collateral Agreement dated
October 11, 1996 between Fleet Bank, N.A.
and General Microwave Corporation - Incor-
porated by reference to Quarterly Report on
Form 10-Q for the quarter ended November 30,
1996, filed January 14, 1997.
10(a)(25) Amendment and Waiver of Reimbursement *
Agreement dated January 10, 1997 between
Fleet Bank, N.A. and General Microwave
Corporation - Incorporated by reference
to Annual Report on Form 10-K for fiscal
year ended February 28, 1997, filed May 29,
1997.
10(a)(26) Amendment and Waiver of Reimbursement *
Agreement dated May 20, 1997 between
Fleet Bank, N.A. and General Microwave
Corporation - Incorporated by reference
to Annual Report on Form 10-K for fiscal
Year ended February 28, 1997, filed May
29, 1997.
10(c) 1990 Stock Option Plan, As Amended - *
Incorporated by reference to Quarterly
Report on Form 10-Q for the quarter ended
November 30, 1996, filed January 14, 1997.
________
Incorporated by reference
Page 56
<PAGE>
10(d) General Microwave Corporation Executive *
Incentive Bonus Plan adopted May 28, 1996 -
Incorporated by reference to Annual Report
on Form 10-K for fiscal year ended February
29, 1996, filed May 29, 1996.
10(e) General Microwave Corporation 1997 Non- *
Employee Director Stock Option Plan -
Incorporated by reference to Proxy State-
ment dated May 29, 1997, filed June 6, 1997.
10(f) Consulting Agreement dated as of March 1, 80 - 84
1998 between General Microwave Corporation
and Sherman Rinkel.
11 Not applicable.
12 Not applicable.
13 Not applicable.
16 Not applicable.
18 Not applicable.
19 Not applicable.
22 Subsidiaries of the Registrant. 85
23 Independent Auditors' Consents. 86 - 87
24 Not applicable.
25 Not applicable.
27 Financial Data Schedule (filed with 88
electronically filed copy only)
28 Not applicable.
99 Not applicable.
____________
* Incorporated by reference
Page 57
<PAGE>
<PAGE>
EFF. 1/12/98
Exhibit 3(ii)
-------------
BY-LAWS
-------
GENERAL MICROWAVE CORPORATION
-----------------------------
ARTICLE I
Office and Seal
---------------
Section 1. The principal office of the corporation
----------
in the State of New York shall be located in the Town of Babylon,
County of Suffolk and State of New York. The corporation may also
have offices at such other places, within or without the State of
New York, as the Board of Directors from time to time may appoint
or the business of the corporation may require.
Section 2. The corporate seal of the corporation
----------
shall be circular in form and shall have inscribed thereon, around
the inner circumference thereof, the name of the corporation and
inside the circle the words "Corporate Seal 1960 New York."
ARTICLE II
Stockholders
------------
Section 1. All meetings of the stockholders shall be
----------
held at the office of the corporation in the City and State of New
York, or at such other place within the said State as shall be
specified in the notice of call thereof.
Section 2. The Annual Meeting of Stockholders for the
----------
election of directors and the transaction of other business shall
be held on the fourth Tuesday in June of each year at 5:00 p.m. at
Page 58
<PAGE>
a place fixed by the Board of Directors. At their discretion, the
Board of Directors may substitute any other date, time or place for
the annual meeting.
Section 3. Special meetings of the stockholders, for
----------
any purpose or purposes, unless otherwise prescribed by statute,
may be called at any time by the president or any vice-president
and shall be called by the president, vice-president or secretary
at the request in writing or by vote of a majority of the Board of
Directors.
Section 4. The holders of a majority of the shares of
----------
the capital stock of the corporation issued and outstanding and
entitled to vote thereat, present in person or represented by
proxy, shall be requisite for and shall constitute a quorum for the
transaction of business at all meetings of the stockholders, except
as is otherwise provided by law.
Section 5. At all meetings of the stockholders every
----------
stockholder having the right to vote shall be entitled to vote in
person or by proxy appointed by an instrument in writing subscribed
by such stockholder. Each stockholder shall be entitled to one
vote for each share of stock having voting power registered in his
name upon the books of the corporation.
Section 6. Notice of any meeting of stockholders
----------
shall be in writing signed by the president or vice-president or
the secretary or an assistant secretary. Such notice shall state
the purpose or purposes for which the meeting is called and shall
state the time when and the place within the State where it is to
be held, and a copy of such notice shall be served either
Page 59
<PAGE>
personally or by mail, upon each stockholder of record entitled to
vote at such meeting not less than ten days nor more than forty
days before the meeting. If mailed, it shall be directed to each
stockholder at his address as it appears upon the stock book of the
corporation, unless he shall have filed with the Secretary of the
corporation a written request that notices intended for him be
mailed to some other address, in which case it shall be mailed to
the address designated in such request.
Section 7. The Board of Directors may fix a day not
----------
more than fifty days prior to the date of the holding of any
meeting of stockholders as the day as of which stockholders
entitled to notice of, and to vote at, such meeting shall be
determined, and all persons who are holders of record of voting
stock on such day, and no others, shall be entitled to notice of
and to vote at, such meeting.
Section 8.
----------
(a) (1) Nominations of persons for election to the
Board of Directors and the proposal of business to be
considered by the stockholders may be made at an annual
meeting of stockholders (i) pursuant to the corporation's
notice of meeting, (ii) by or at the direction of the
directors, or (iii) by any stockholder of the corporation
who was a stockholder of record at the time of giving of
notice provided for in this Section 8(a), who is entitled
to vote at the meeting and who complied with the notice
procedures set forth in this Section 8(a).
(2) For nominations or other business to be
Page 60
<PAGE>
properly brought before an annual meeting by a
stockholder pursuant to clause (iii) of paragraph (a)(1)
of this Section 8, the stockholder must have given timely
notice thereof in writing to the Secretary of the
corporation. To be timely, a stockholder's notice shall
be delivered to the secretary at the principal executive
offices of the corporation not less than 60 days nor more
than 90 days prior to the first anniversary of the
preceding year's annual meeting; provided, however, that
in the event that the date of the annual meeting is
advanced by more than 30 days or delayed by more than 60
days from such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier
than the 90th day prior to such annual meeting and not
later than the close of business on the later of the 60th
day prior to such annual meeting or the tenth day
following the day on which public announcement of the
date of such meeting is first made. Such stockholder's
notice shall set forth (i) as to each person whom the
stockholder proposes to nominate for election or
reelection as a director all information relating to such
person that is required to be disclosed in solicitations
of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (including such person's written consent
to being named in the proxy statement as a nominee and to
Page 61
<PAGE>
serving as a director if elected); (ii) as to any other
business that the stockholder proposes to bring before
the meeting, a brief description of the business desired
to be brought before the meeting, the reasons for
conducting such business at the meeting and any material
interest in such business of such stockholder and of the
beneficial owner, if any, on whose behalf the nomination
or proposal is made; and (iii) as to the stockholder
giving the notice and the beneficial owner, if any, on
whose behalf the nomination or proposal is made, (x) the
name and address of such stockholder, as they appear on
the corporation's books, and of such beneficial owner and
(y) the number of shares of stock of each class of the
corporation which are owned beneficially and of record by
such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second
sentence of paragraph (a)(2) of this Section 8 to the
contrary, in the event that the number of directors to be
elected to the Board of Directors is increased and there
is no public announcement naming all of the nominees for
director or specifying the size of the increased Board of
Directors made by the corporation at least 70 seventy
days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by
this Section 8(a) shall also be considered timely, but
only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the
Page 62
<PAGE>
secretary at the principal executive offices of the
corporation not later than the close of business on the
tenth day following the day on which such public
announcement is first made by the corporation.
(b) Only such business shall be conducted at a
special meeting of stockholders as shall have been brought before
the meeting pursuant to the corporation's notice of meeting.
Nominations of persons for election to the Board of Directors may
be made at a special meeting of stockholders at which directors are
to be elected (i) pursuant to the corporation's notice of meeting,
(ii) by or at the direction of the Board of Directors, or (iii)
provided that the Board of Directors has determined that directors
shall be elected at such special meeting, by any stockholder of the
corporation who was a stockholder of record at the time of giving
of notice provided for in this Section 8(b), who is entitled to
vote at the meeting and who complied with the notice procedures set
forth in this Section 8(b). In the event the corporation calls a
special meeting of stockholders for the purpose of electing one or
more directors to the Board of Directors, any such stockholder may
nominate a person or persons (as the case may be) for election to
such position as specified in the corporation's notice of meeting,
if the stockholders notice containing the information required by
paragraph (a)(2) of this Section 8 shall be delivered to the
secretary at the principal executive offices of the corporation not
earlier than the 90th day prior to such special meeting and not
later than the close of business on the later of the 60th day prior
to such special meeting or the tenth day following the day on which
Page 63
<PAGE>
public announcement is first made of the date of the special
meeting and of the nominees proposed by the directors to be elected
at such meeting.
(c) (1) Only such persons who are nominated in
accordance with the procedures set forth in this Section
8 shall be eligible to serve as directors and only such
business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in
accordance with the procedures set forth in this Section
8. The presiding officer of the meeting shall have the
power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was
made in accordance with the procedures set forth in this
Section 8 and, if any proposed nomination or business is
not in compliance with this Section 8, to declare that
such defective nomination or proposal be disregarded.
(2) For purposes of this Section 8, "public
announcement" shall mean disclosure in a press release
reported by the Dow Jones News Service, Associated Press
or comparable news service or in a document publicly
filed by the corporation with the Securities and Exchange
Commission pursuant to Sections 13, 14 or 15(d) of the
Exchange Act.
(3) Notwithstanding the foregoing provisions
of this Section 8, a stockholder shall also comply with
all applicable requirements of state law and of the
Exchange Act and the rules and regulations thereunder
Page 64
<PAGE>
with respect to the matters set forth in this Section 8.
Nothing in this Section 8 shall be deemed to affect any
rights of stockholders to request inclusion of proposals
in the corporation's proxy statement pursuant to Rule
14a-8 under the Exchange Act.
ARTICLE III
Directors
---------
Section 1. The property and affairs of the
----------
Corporation shall be managed and controlled by its Board of
Directors who shall be elected by the stockholders at the annual
meeting, or at a special meeting called for such purpose as
provided by law and each of whom shall hold office until the next
annual election or until his successor shall be duly elected and
qualified, unless sooner displaced pursuant to law or these by-laws.
Each director need not be a stockholder of the corporation.
Following the adoption of these by-laws, the number of directors
shall be eight. Such number of directors may be altered from time
to time within the maximum limits prescribed in the certificate of
incorporation by amendment of these by-laws as hereinafter
provided.
Section 2. The Board of Directors of the Corporation
----------
shall consist of nine (9) directors.
Section 3. Newly elected directors may hold their
----------
first meeting for the purpose of organization and the transaction
of business, if a quorum be present, immediately after the annual
meeting of the stockholders; or the time and place of such meeting
Page 65
<PAGE>
may be fixed by notice in writing to all the directors.
Section 4. Regular meeting of the directors may be
----------
held without notice at such places and times as shall be determined
from time to time by resolution of the Board.
Section 5. Special meetings of the Board of Directors
----------
may be called at any time by the president and shall be called by
the president or the secretary at the written request of any two
directors, on notice to each director mailed at least three days,
or telegraphed or delivered personally at least one day, before the
meeting.
Section 6. At all meetings of the Board a majority of
----------
the directors shall be necessary and sufficient to constitute a
quorum for the transaction of business, and the act of a majority
of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be
otherwise provided by statute or by these by-laws.
Section 7. Except where it is required by statute,
----------
the certification of incorporation or these by-laws, that action
shall be taken by the stockholders of the corporation, all
corporate powers shall be exercised by the Board of Directors.
Subject to the provisions of statute, the certificate of
incorporation, and these by-laws, the Board of Directors shall have
absolute and entire management of the business of the corporation
of every kind, nature and description, and may exercise all such
powers and do all such acts or things as may be exercised or done
by the corporation. It may from time to time, so far as is
permitted by law, delegate the exercise and doing thereof or of any
Page 66
<PAGE>
one or more of such powers, acts or things to any executive or
other committee, officers or other person or persons as it may deem
proper.
Section 8. Any one or more members of the Board of
----------
Directors or any committee thereof may participate in a meeting of
the Board or committee by means of a conference telephone or
similar communications equipment allowing all persons participating
in the meeting to hear each other at the same time. Participation
by such means shall constitute presence in person at a meeting.
ARTICLE IV
Officers
--------
Section 1. The officers of the corporation shall be
----------
a president, a vice-president, a secretary and a treasurer. Such
officers shall be elected by the directors annually at the first
meeting of the Board following the annual meeting of stockholders
at which a quorum is present and each shall hold office for one
year or until such successor is elected and has qualified, subject
to the provisions of these by-laws.
Section 2. The Board of Directors may from time to
----------
time appoint, and similarly remove, one or more additional vice
presidents and such assistant or subordinate officers and agents as
it may deem desirable, with such titles and with such powers and
duties as the Board may by resolution from time to time declare.
Section 3. One person may hold more than one office.
----------
Section 4. Any officer may be removed, with or
----------
without cause, at any regular or special meeting of the Board by
Page 67
<PAGE>
vote of a majority of the entire membership of the Board.
ARTICLE V
Duties of the Officers
----------------------
Section 1. The president shall have general and
----------
active management of the business of the corporation, shall see
that all orders and resolutions of the Board are carried into
effect, shall execute all contracts and agreements authorized by
the Board, shall be subject to the approval of the directors,
appoint and discharge employees and agents of the company and fix
their compensation, and shall generally do and perform all acts
incident to the office of president.
Section 2. The vice-president shall be vested with
----------
all powers and shall perform all the duties of the president during
his absence or inability to act, and whenever the office of
president shall be vacant, unless or until the directors shall
otherwise determine, he shall have such other duties as shall be
prescribed by the directors. If there is more than one vice-
president, then the duties of the vice-president shall be deemed to
apply to the first vice-president, and if he is absent or unable to
act, then to the second vice-president, and so on in order.
Section 3. The secretary shall attend all meetings of
----------
the directors and stockholders when so requested and act as clerk
thereof and record all votes and minutes of all proceedings in a
book to be kept for that purpose. He shall perform like duties for
all committees when required. He shall give or cause to be given,
notice of all meetings of stockholders and directors and all other
Page 68
<PAGE>
notices required by law or by these by-laws, and in case of his
absence or refusal or neglect so to do, any such notice may be
given by any person thereunto directed by the president or by the
directors or stockholders upon whose request the meeting is called,
as provided in these by-laws.
Section 4. The treasurer shall have the custody of
----------
all funds, securities, evidences of indebtedness and other valuable
documents of the corporation, and shall deposit the same in the
name and to the credit of the corporation in such depositaries as
may from time to time be designated by the Board of Directors; he
shall receive and give, or cause to be given, receipts and
acquittances for moneys paid in on account of the corporation and
shall pay out of the funds on hand all just debts of the
corporation of whatever nature upon maturity of the same; he shall
enter or cause to be entered in the books of the corporation to be
kept for that purpose full and accurate accounts of all moneys
received and paid out on account of the corporation, and whenever
required by the president or the directors, he shall keep or cause
to be kept such other books as will show a true record of the
expenses, losses, gains, assets and liabilities of the corporation;
he shall, unless otherwise determined by the directors, have charge
of the original stock books, transfer books and stock ledgers and
act as transfer agent in respect of the stock and securities of the
corporation; and he shall perform all of the other duties incident
to the office of treasurer and such other duties as may from time
to time be prescribed by the Board of Directors.
Section 5. In case of the absence or inability to act
----------
Page 69
<PAGE>
of any officer of the corporation, the Board of Directors may
delegate the power or duties of such officer to any other officer
or to any director or other person for the time being.
ARTICLE VI
Resignations and Filling of Vacancies
-------------------------------------
Section 1. Any director, member of any committee or
----------
officer may resign at any time. Such resignation shall be made in
writing and shall take effect at the time specified therein, and if
no time be specified, at the time of its receipt by the president
or secretary. The acceptance of a resignation shall not be
necessary to make it effective.
Section 2. If the position or office of any director,
----------
member of any committee, or officer becomes vacant, the directors
in office may appoint any qualified person to fill such vacancy,
who shall hold office for the unexpired term and until his
successor shall be duly chosen, provided, however, that in case of
a vacancy in the Board of Directors, the stockholder may elect any
qualified person to fill such vacancy, and the person so elected
shall ipso facto take the place of the persons appointed by the
---- -----
board of directors.
ARTICLE VII
Stock Certificates and Transfers
--------------------------------
Section 1. The stock certificates of the corporation
----------
shall be signed by the president or a vice-president and by the
secretary or the treasurer, and shall be sealed with the corporate
Page 70
<PAGE>
seal of the corporation. All transfers of stock shall be made upon
the books of the corporation by the holders of the shares in person,
or by their legal representatives. Certificates of stock shall be
surrendered and cancelled at the time of transfer. The board of
directors may appoint such registration or transfer agents of the
stock of the corporation as it may deem proper.
Section 2. The Board of Directors may, in its
----------
discretion, order the transfer books of the corporation closed for
not more than fifty days preceding the date set for the payment of
any dividend or dividends, or the date set for any stockholders'
meeting, or, in lieu of closing the transfer books, the Board of
Directors may, in its discretion, fix a day not more than fifty days
preceding the date set for the payment of any dividend or dividends,
or the date set for any stockholders' meeting, as the day as of
which stockholders entitled to notice of and to vote at any such
meeting shall be determined, and all persons who are holders of
record of such stock on such day, and no others, shall be entitled
to participate in such dividend or dividends, or shall be entitled
to notice of or to vote at such meeting.
Section 3. The corporation shall be entitled to treat
----------
the holder of record of any share or shares of stock as the holder
in fact thereof, and accordingly shall not be bound to recognize any
equitable or other claim to or interest in such shares on the part
of any other person, whether or not it shall have express or other
notice thereof, save as expressly provided by the laws of the State
of New York.
Page 71
<PAGE>
ARTICLE VIII
Miscellaneous Provisions
------------------------
Section 1. The fiscal year of the corporation shall be
----------
from March 1st to the following February 28th.
Section 2. All checks, drafts, or other orders for the
----------
payment of money, notes or other evidences of indebtedness issued in
the name of the corporation shall be signed by such officer or
officers, agent or agents of the corporation and in such other
manner as shall from time to time be determined by resolution of the
Board of Directors.
Section 3. Whenever under the provisions of statute,
----------
of the certificate of incorporation or of these by-laws, notice is
required to be given to any director, officer or stockholder, it
shall be construed to mean personal notice, unless so stated, but
such notice may, unless otherwise expressly provided, be given in
writing by depositing the same in any United States post office or
letter box, in a first class, postpaid sealed wrapper, properly
addressed, or by delivering the same to a telegraph company for
transmission by wire, the cost thereof being prepaid, addressed to
such director, officer or stockholder, as the case may be, at his
last known post office address. The time when any notice shall be
so mailed, or shall be so delivered to a telegraph company, shall be
deemed to be the time of the giving of such notice. Any
stockholder, director or officer of the corporation may at any time,
either before or after the event, waive in writing any notice
required to be given under the provisions of any statute, or of the
certificate of incorporation or of these by-laws, so far as is
Page 72
<PAGE>
permitted by law. Stockholders not entitled to vote shall not be
entitled to receive notice of any meeting unless otherwise provided
by statute.
Section 4. The term Capital Stock, within the meaning
----------
of these By-laws, shall be deemed to refer to the total of Common
Stock and Preferred Stock. The term stockholders, within the
meaning of these By-laws, shall refer to the holders of both Common
Stock and Preferred Stock.
ARTICLE IX
Amendments
----------
Section 1. The stockholders, by the affirmative vote
----------
of holders of a majority of the stock issued and outstanding, or the
board of directors, by the affirmative vote of a majority of the
directors, may at any meeting, alter, repeal or amend any of these
by-laws or enact new by-laws.
ARTICLE X
Indemnification
---------------
Section 1. To the extent permitted by law, the
----------
corporation shall indemnify any person made, or, threatened to be
made, a party to an action by or in the right of the corporation to
procure a judgment in its favor, by reason of the fact that he, his
testator or intestate, is or was a director or officer of the
corporation, or is or was serving at the request of the corporation
as a director or officer of any other corporation of any type or
kind, domestic or foreign, of any partnership, joint venture, trust,
Page 73
<PAGE>
employee benefit plan or other enterprise against amounts paid in
settlement and reasonable expenses, including attorneys' fees,
actually and necessarily incurred by him in connection with the
defense or settlement of such action, or in connection with an
appeal therein, if such director or officer acted in good faith, for
a purpose which he reasonably believed to be in, or, in the case of
service for any other corporation or any partnership, joint venture,
trust, employee benefit plan or other enterprise, not opposed to,
the best interests of the corporation, except that no
indemnification under this Section shall be made in respect of (a)
a threatened action or a pending action which is settled or
otherwise disposed of, or (b) any claim, issue or matter as to which
such person shall have been adjudged to be liable to the
corporation, unless and only to the extent that the court in which
the action was brought, or, if no action was brought, any court of
competent jurisdiction, determines upon application that, in view of
all the circumstances of the case, the person is fairly and
reasonably entitled to indemnity for such portion of the settlement
amount and expenses as the court deems proper.
Section 2. (a) To the extent permitted by law, the
----------
corporation shall indemnify any person made, or threatened to be
made, a party to an action or proceeding (other than one by or in
the right of the corporation to procure a judgment in its favor),
whether civil or criminal, including an action by or in the right of
any other corporation of any type or kind, domestic or foreign, or
any partnership, joint venture, trust, employee benefit plan or
other enterprise, which any director or officer of the corporation
Page 74
<PAGE>
served in any capacity at the request of the corporation, by reason
of the fact that he, his testator or intestate, was a director or
officer of the corporation, or served such other corporation
partnership, joint venture, trust, employee benefit plan or other
enterprise in any capacity, against judgments, fines, amounts paid
in settlement and reasonable expenses including attorneys' fees,
actually and necessarily incurred as a result of such action or
proceeding, or any appeal therein, if such director or officer
acted, in good faith, for a purpose which he reasonably believed to
be in, or, in the case of service for any other corporation or any
partnership, joint venture, trust, employee benefit plan or other
enterprise, not opposed to, the best interests of the corporation
and, in criminal actions or proceedings, in addition, had no
reasonable cause to believe that his conduct was unlawful.
(b) The termination of any such civil or
criminal action or proceeding by judgment, settlement, conviction or
upon a plea of nolo contendere, or its equivalent, shall not in
itself create a presumption that any such director or officer did
not act, in good faith, for a purpose which he reasonably believed
to be in, or, in the case of service for any other corporation or
any partnership, joint venture, trust, employee benefit plan or
other enterprise, not opposed to, the best interests of the cor-
poration or that he had reasonable cause to believe that his conduct
was unlawful.
Section 3. For the purpose of this Article, the
----------
corporation shall be deemed to have requested a person to serve an
employee benefit plan where the performance by such person of his
Page 75
<PAGE>
duties to the corporation also imposes duties on, or otherwise
involves services by, such person to the plan or participants or
beneficiaries of the plan; excise taxes assessed on a person with
respect to an employee benefit plan pursuant to applicable law shall
be considered fines; and action taken or omitted by a person with
respect to an employee benefit plan in the performance of such
person's duties for a purpose reasonably believed by such person to
be in the interest of the participants and beneficiaries of the plan
shall be deemed to be for a purpose which is not opposed to the best
interests of the corporation.
Section 4. A person who has been successful, on the
----------
merits or otherwise, in the defense of a civil or criminal action or
proceeding of the character described in Section 1 or 2 shall be
entitled to indemnification as authorized in such Sections.
Section 5. Except as provided by Section 4, any
----------
indemnification under Sections 1, 2 and/or 3 or otherwise permitted
by Sections 6 and 9, unless ordered by a court, shall be made by the
corporation, only if authorized in the specific case:
(a) By the Board of Directors of the corporation
acting by a quorum consisting of directors who are not parties to
such action or proceeding upon a finding that the director or
officer has met the standard of conduct set forth in Section 1, 2
and/or 3 or established pursuant to Section 4, as the case may be,
or
(b) If a quorum under subsection (a) is not obtain-
able or, even if obtainable, a quorum of disinterested directors so
directs,
Page 76
<PAGE>
(1) By the Board upon the opinion in writing of
independent legal counsel that indemnification is proper
in the circumstances because the applicable standard of
conduct set forth in such sections has been met by such
director or officer, or
(2) By the stockholders upon a finding that the
director or officer has met the applicable standard of
conduct set forth in such sections.
Section 6. Expenses incurred in defending a civil or
----------
criminal action or proceeding may be paid by the corporation in
advance of the final disposition of such action or proceeding upon
receipt of an undertaking by or on behalf of such director or
officer to repay such amount as, and to the extent, required by
Section 7.
Section 7. All expenses incurred in defending a civil
----------
or criminal action or proceeding which are advanced by the
corporation in accordance with Section 6 shall be repaid in case the
person receiving such advancement or allowance is ultimately found
under the procedure set forth in this Article or by law not to be
entitled to indemnification or, where indemnification is granted, to
the extent the expenses so advanced by the corporation exceed the
indemnification to which he is entitled.
Section 8. No indemnification, advancement or
----------
allowance shall be made under this Article in any circumstance where
it appears:
(a) That the indemnification would be inconsistent
with the law of the jurisdiction of incorporation of a foreign
Page 77
<PAGE>
corporation which prohibits or otherwise limits such indemnifica-
tion;
(b) That the indemnification would be inconsistent
with a provision of the certificate of incorporation of the cor-
poration, these by-laws, a resolution of the Board of Directors of
the corporation or of the stockholders, an agreement or other proper
corporate action, in effect at the time of the accrual of the
alleged cause of action asserted in threatened or pending action or
proceeding in which the expenses were incurred or other amounts were
paid, which prohibits or otherwise limits indemnification; or
(c) If there has been a settlement approved by the
court, that the indemnification would be inconsistent with any
condition with respect to indemnification expressly imposed by the
court in approving the settlement.
Section 9. The indemnification and advancement of
----------
expenses granted pursuant to, or provided by, this Article shall not
be deemed exclusive of any other rights to which a director or
officer seeking indemnification or advancement of expenses may be
entitled, whether contained in the certificate of incorporation of
the corporation or these by-laws, or, when authorized by the
certificate of incorporation of the corporation or these by-laws,
(a) a resolution of stockholders, (b) a resolution of directors, or
(c) an agreement providing for such indemnification, provided that
no indemnification may be made to or on behalf of any director or
officer if a judgment or other final adjudication adverse to the
director or officer establishes that his acts were committed in bad
faith or were the result of active and deliberate dishonesty and
Page 78
<PAGE>
were material to the cause of action so adjudicated, or that he
personally gained in fact a financial profit or other advantage to
which he was not legally entitled. Nothing contained in this
Article shall affect any rights to indemnification to which
corporate personnel other than directors and officers may be
entitled by contract or otherwise under law.
Page 79
<PAGE>
<PAGE>
Exhibit 10(f)
-------------
Consulting Agreement
--------------------
Agreement dated as of March 1, 1998 between General
Microwave Corporation and Sherman Rinkel.
The parties agree as follows:
1. The Parties
-----------
(a) The parties to this agreement are General Microwave
Corporation and Sherman Rinkel.
(b) General Microwave Corporation is a New York
corporation. It has an office at 5500 New Horizons Boulevard,
Amityville, New York 11701. It is referred to below as the
"Corporation".
(c) Sherman Rinkel is an individual person. His address
is 71 Northgate Circle, Melville, New York 11747. He is referred
to below as "Mr. Rinkel".
2. Mr. Rinkel's Position
---------------------
Before the effective date of this agreement, Mr. Rinkel
was the non-executive Chairman of the Board of Directors of the
Corporation. Pursuant to this agreement and as of the date hereof,
Mr. Rinkel shall be a part-time consultant to the Corporation; he
shall also continue as the non-executive Chairman of the Board of
Directors of the Corporation so long as he continues to be elected
as a director of the Corporation by its shareholders.
3. The Engagement
--------------
(a) The Corporation hereby continues the engagement of
Mr. Rinkel as a part-time consultant to the Corporation, and Mr.
Rinkel accepts the engagement.
(b) During the term of this agreement, Mr. Rinkel shall
serve as a part-time consultant to the Corporation on all matters
pertaining to its business. Mr. Rinkel shall make himself
available for consultation with the officers of the Corporation at
times reasonably and mutually convenient to the parties.
(c) During the term of this agreement and for as long as
he continues to be elected as a director of the Corporation by its
shareholders and as Chairman of the Board of Directors by its Board
of Directors, Mr. Rinkel shall serve as the non-executive Chairman
of the Board of Directors of the Corporation.<PAGE>
Page 80
<PAGE>
4. Compensation
------------
(a) As full compensation for his services under this
agreement (whether or not he continues to be elected as a director
or as Chairman of the Board of Directors of the Corporation), the
Corporation shall pay Mr. Rinkel during the term hereof at the rate
of Sixty Thousand ($60,000.00) Dollars per year. This compensation
shall be payable in equal monthly installments. So long as Mr.
Rinkel continues to be a director of the Corporation, the
compensation provided for hereunder shall be in lieu of fees paid
to non-employee directors of the Corporation.
(b) In addition, the Corporation shall reimburse Mr.
Rinkel for authorized out-of-pocket expenses incurred by him in
performing his duties under this agreement and provide him with an
automobile comparable to the one provided to him prior to the date
hereof.
(c) This agreement shall not entitle Mr. Rinkel to
receive any benefits made available by the Corporation to its
employees or executives.
5. Covenant Not to Compete
-----------------------
(a) Mr. Rinkel acknowledges that during the course of
his employment with the Corporation and thereafter, he gained and
continues to gain extensive knowledge concerning several aspects of
the Corporation's business. In addition, Mr. Rinkel acknowledges
that he gained and continues to gain information of a confidential
and proprietary nature relating to the Corporation and its
business.
(b) In consideration of the payments provided for
herein, Mr. Rinkel shall be bound by the covenants set forth
herein.
(c) During the term of this agreement, Mr. Rinkel shall
not do any of the following:
(i) Mr. Rinkel shall not conduct any business
involving the manufacture or sale of any product manufactured or
sold by the Corporation or any of its subsidiaries during his
employment or engagement as a consultant by the Corporation.
(ii) Mr. Rinkel shall not directly or indirectly
render any services of any nature, including advisory services, to
any manufacturer or seller of any product manufactured or sold by
the Corporation or any of its subsidiaries at any time during his
employment or engagement as a consultant by the Corporation.
(iii) Mr. Rinkel shall not invest in, solicit others
to invest in or otherwise render financial assistance to any
Page 81
<PAGE>
manufacturer or seller of any product manufactured or sold by the
Corporation or any of its subsidiaries during his employment or
engagement as a consultant by the Corporation.
(d) During the term of this agreement and for two years
thereafter, Mr. Rinkel shall not do any of the following:
(i) Mr. Rinkel shall not disclose any information
reasonably known to him to be proprietary or confidential
information belonging to the Corporation or any of its
subsidiaries.
(ii) Mr. Rinkel shall not hire or solicit the
employment of any person who was employed by the Corporation at any
time during the calendar year preceding the hiring or solicitation.
(e) The prohibitions set forth in subsections (c) and
(d) shall apply to the acts of Mr. Rinkel individually or the acts
of Mr. Rinkel through any corporation, partnership or other entity
with which he may be associated. Mr. Rinkel shall be deemed to be
associated with any entity of which he is an officer, director,
consultant, agent, employee, stockholder or partner.
(f) (i) The prohibitions set forth in subsections (c),
(d) and (e) shall not apply to actions taken at the request, or
with the consent or for the benefit of the Corporation.
(ii) The prohibitions set forth in subsections (c),
(d) and (e) shall not prohibit Mr. Rinkel from owning publicly
traded investment securities in any corporation if he owns no more
than five (5%) percent of the total outstanding securities of any
class of that corporation or no more than five (5%) percent of the
total voting securities of that corporation.
(g) The Corporation and Mr. Rinkel are parties to an
Employee Patent Agreement dated February 4, 1963. The agreement is
referred to below as the "Patent Agreement". Although Mr. Rinkel
shall no longer be an employee of the Corporation, his obligations
under the Patent Agreement shall continue as if he were an employee
of the Corporation during the term of this agreement.
(h) Mr. Rinkel acknowledges that the rights of the
Corporation under this agreement are of a specialized and unique
character and that a breach, or threatened breach of this agreement
by Mr. Rinkel, will cause the Corporation irreparable injury and
damage which cannot be reasonably or adequately compensated in
damages or in action at law. In the event of a violation of the
terms of this agreement, the Corporation shall, in addition to any
other relief, be entitled to injunctive relief in any court of
competent jurisdiction.
(i) The failure of either party to require performance
by the other party of any provision of this agreement shall in no
way affect the right of that party to enforce that provision at any
Page 82
<PAGE>
other time, nor shall it affect the party's right to enforce any
other provision of this agreement. The waiver by any party of a
breach of any provision of this agreement shall not be taken or
held to be a waiver of any subsequent breach of the provision or as
a waiver of the provision itself.
(j) If it is determined that any provision of this
agreement is too broad or otherwise unenforceable for any reason,
Mr. Rinkel expressly agrees that any court of competent
jurisdiction may narrow the terms of the provision so as to render
them enforceable according to their intent and purpose.
6. Term
----
(a) The term of this agreement shall continue until
February 29, 2000.
(b) This agreement shall terminate automatically upon
the death of Mr. Rinkel, and the Corporation shall not be required
to pay Mr. Rinkel or his estate any amounts payable to him which
accrue after that date.
(c) This agreement shall also terminate if Mr. Rinkel is
unable to perform the services required of him by this agreement
for any period exceeding or aggregating 40 days during any 160 day
period for any reason not caused by the Corporation.
7. Choice of Law
-------------
This agreement shall be governed by and construed in
accordance with the laws of the State of New York.
8. Notices
-------
Notices given under this agreement shall be valid only if
in writing and properly mailed. A notice shall be properly mailed
if postage is prepaid, and if the notice is properly addressed. A
notice to a party shall be properly addressed only if addressed to
the address of the party set forth on page 1 or to any other
address as the party may designate by giving notice to the other
party.
Page 83
<PAGE>
To signify his agreement to the foregoing, Sherman Rinkel
has executed this agreement.
To signify its agreement to the foregoing, General
Microwave Corporation has caused this agreement to be executed and
attested to by its duly authorized officers.
s/ SHERMAN RINKEL
---------------------------
Sherman Rinkel
Attest:
General Microwave Corporation
s/ ARNOLD H. LEVINE By:s/ MITCHELL TUCKMAN
- ------------------------- ---------------------------
Arnold H. Levine Mitchell Tuckman, President
Page 84
<PAGE>
Exhibit 22
----------
Subsidiaries of the Registrant
------------------------------
State or Other
Jurisdiction of Percentage
Name of Subsidiary Incorporation of Ownership
------------------ --------------- ------------
General Microwave Foreign Sales Corporation Guam 100%
General Microcircuits Corporation Delaware 97%
Micro-El Patent Corporation Delaware 100%
General Microwave Israel Corporation Delaware 100%
General Microwave Israel (1987) Limited Israel 100%
GMC Associates, Inc. New York 100%
(formerly known as Math Associates, Inc.)
General Microwave Export Corporation and General Microwave Foreign
Sales Corporation do business under their own names or the name General
Microwave. Micro-El Patent Corporation, General Microwave Israel Corporation,
General Microcircuits Corporation, General Microwave Israel (1987) Limited and
GMC Associates, Inc. do business under their own names.
Page 85
<PAGE>
Exhibit 23
----------
Independent Auditors' Consent
-----------------------------
The Stockholders and Board of Directors
General Microwave Corporation:
We consent to the incorporation by reference in the Registration
Statements (Nos. 33-15327, 333-08541, 33-35631, 33-81176 and 333-31661) on
Form S-8 of General Microwave Corporation and subsidiaries of our report
dated May 11, 1998, which is based partially upon the report of other
auditors, relating to the consolidated balance sheets of General Microwave
Corporation and subsidiaries as of February 28, 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
February 28, 1998, which report appears in the February 28, 1998 annual report
on Form 10-K of General Microwave Corporation and subsidiaries.
KPMG PEAT MARWICK LLP
Jericho, New York
May 27, 1998
Page 86
<PAGE>
Exhibit 23
----------
Independent Auditors' Consent
-----------------------------
We consent to the incorporation by reference in the Registration
Statements Nos. 33-15327, 333-08541, 33-35631, 33-81176 and 333-31661 of our
report dated May 11, 1998 (relating to the financial statements of General
Microwave (Israel) Corporation and Subsidiary not included herein) appearing
in this annual report on Form 10-K of General Microwave Corporation and
Subsidiaries for the year ended February 28, 1998.
IGAL BRIGHTMAN & CO.
May 11, 1998
Jerusalem, Israel
Page 87
<PAGE>
Exhibit 27
----------
GENERAL MICROWAVE CORPORATION
AND SUBSIDIARIES
FINANCIAL DATA SCHEDULE
Page 88 of 88.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> FEB-28-1998 FEB-28-1998 FEB-28-1997 FEB-29-1996
<PERIOD-START> NOV-30-1997 MAR-1-1997 MAR-1-1996 MAR-1-1995
<PERIOD-END> FEB-28-1998 FEB-28-1998 FEB-28-1997 FEB-29-1996
<CASH> 3475 3475 1945 701
<SECURITIES> 0 0 0 0
<RECEIVABLES> 4486 4486 4149 4008
<ALLOWANCES> 46 46 27 26
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0 0 0 0
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