UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 1997
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to ________________________
Commission file number 0-6620
ANAREN MICROWAVE, INC.
(Exact name of Registrant as specified in its Charter)
New York 16-0928561
(State of incorporation) (I.R.S Employer Identification No.)
6635 Kirkville Road 13057
East Syracuse, New York (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code: 315-432-8909
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Securities Act:
Common Stock, $.01 Par Value
----------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ___
The aggregate market value of the voting stock held by non-affiliates of
the Registrant at September 22, 1997 was approximately $94,648,000.
The number of shares of Registrant's Common Stock outstanding on
September 22, 1997 was 4,233,442.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for use in connection with its
1997 Annual Meeting of Shareholders are incorporated into Part III of this
Annual Report on Form 10-K.
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PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Anaren Microwave, Inc. (hereinafter referred to as "Anaren" or "the
Company") was incorporated in 1967 as Micronetics, Inc., a name that changed to
Anaren Microwave, Inc. during 1967.
Anaren designs, develops, manufactures and markets "RF" Radio Frequency,
microwave components and subsystems for the wireless communications, satellite
communications, and defense electronics markets. The Company utilizes advanced
stripline manufacturing technology to produce components and subsystems for
wireless infrastructure equipment, communications satellites, radar, radar
warning receivers, and radar jammers. The Company's products are used in a wide
array of both commercial and defense applications and vary significantly in
terms of cost and complexity.
Microwaves are electromagnetic waves similar to ordinary radio waves except
that the wavelengths are very short and the frequency of oscillation is very
high. These high frequencies of oscillation enable microwave signals to carry
large amounts of information. This and other unique properties make them
especially suitable for radar and communications applications and for other
technologies.
To better serve its emerging commercial markets, the Company reorganized,
during the first quarter of fiscal 1996 into three internal business groups.
These business groups are Defense Electronics (formerly Electronic Warfare),
Satellite Communications (formerly Radar and Telecommunications) and Wireless.
Products in the Defense Electronics business group consist of the Company's line
of military products, which include Digital Frequency Discriminators (DFD's),
Digital RF Memories (DRFM's), ESM receivers and military Microwave Integrated
Circuit components (MIC's). Satellite Communications products consist of signal
distribution networks for phase array antennas and customized commercial
multilayer components such as Butler Matrices and beamforming networks for
commercial telecommunications satellites. Wireless products are microwave
components and assemblies for use in building cellular base station equipment.
These products are a forward evolution of the old military microwave components
and are significantly smaller and lighter, while providing better performance.
Each business groups is composed of an independent engineering and
marketing/sales team whose purpose is to develop, market and deliver product to
its customers. This action was taken to optimize responsiveness to customer
needs and to provide extended fiscal accountability downward throughout the
organization.
PRODUCTS
Anaren has a wide range of products covering RF, microwave, and millimeter
wave frequencies for both commercial and defense applications. The Company's
products range from individual components to advanced subsystems that are
integrated vertically within the Company incorporating both wideband signal
processing and advanced stripline technologies. These products are used in land
based communications systems, satellite communications systems, as well as
military ships, aircraft, and land based systems.
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Wireless
The Company's wireless products utilize advanced multi-layer stripline
technology and include microwave signal distribution components and subsystems,
microwave signal switching networks and antenna feed networks that are used to
split and combine microwave signals within wireless infrastructure systems.
These products include both general use type products developed by the Company
and custom assemblies developed for the applications of specific customers.
As wireless technologies have moved higher in frequency for spectrum
availability and increased in complexity to support the rapidly increasing
demand for service, demand for Anaren's microwave design and manufacturing
expertise has increased significantly. As a result of recently developed
proprietary manufacturing techniques, Anaren is able to provide very
competitively priced microwave components and assemblies in high volume, meeting
the very challenging price and delivery demands of wireless infrastructure
original equipment manufacturers (OEMs).
Satellite Communications (formerly Radar and Telecommunications)
Anaren is a supplier of Passive Antenna Beamforming Networks for
communications satellite applications. Utilizing advanced multi-layer stripline
technology the Company produces Butler Matrices and other beamforming networks
that are compact and light weight for high performance multi-element array
antenna applications. These products determine the number, size and quality of
beams that can be produced from a single antenna array.
Satellite antenna feed networks are microwave signal distribution networks
comprised of passive signal splitters and combiners. These networks,
traditionally large, complex, and heavy, are widely utilized in modern
communications satellites to allow for multiple beams of differing sizes to be
supported for a single antenna array. Anaren's proprietary stripline technology
and expertise in designing these complex structures has allowed the Company to
rapidly penetrate this growing market. These networks are utilized on the
proposed Low Earth Orbiting (LEO) satellite wireless communications networks as
well as geosynchronous communications satellites.
Additionally, the Company produces signal distribution networks for land
based phased array antennas. These devices are used to distribute a microwave
signal to each element of a phased array antenna. Phased array antennas are
being utilized increasingly for radar and communications applications in both
commercial and defense applications.
Defense Electronics (formerly Electronic Warfare)
The Company produces a wide range of component products utilizing advanced
stripline technology. These products include mixers, couplers, power dividers,
pin attenuators, and correlators that are utilized in a variety of electronic
warfare applications to perform various RF and microwave functions including
signal distribution, signal measurement, and signal frequency conversion.
The Company is a well known supplier of subsystem products including
Digital Frequency Discriminators (DFD), Digital Radar Frequency Memory (DRFM),
and other custom designed subsystems used in electronic warfare applications.
These products are vertically integrated within the Company utilizing advanced
stripline, Application Specific Integrated Circuits (ASIC), digital and signal
processing technologies.
DFD products rapidly measure the frequency and other characteristics of
radar signals. This information is used in electronic warfare systems to
identify, classify and/or counter radar systems. DRFM products digitize and
store radar signals and can reproduce them in real time to counter advanced
radar systems. DRFM products are currently the only technology available that
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can replicate radar signals with sufficient fidelity to counter today's advanced
coherent radar systems.
MARKETING AND CUSTOMERS
The Company currently sells its Defense Electronics products to the United
States and foreign governments through prime contractors and by utilizing
independent sales representatives in both the United States and foreign
countries. Satellite Communications products and Wireless products are sold to
satellite and wireless infrastructure original equipment manufacturers through
independent sales representatives in both the United States and foreign
countries. The Company's business group managers and senior engineering
personnel provide technical sales support. Anaren Microwave, Ltd., the Company's
wholly-owned subsidiary in Waterlooville, England is responsible for marketing
and sales in Europe.
Anaren's principal customers are manufacturers of electronic equipment that
is based on the transmission and reception of RF, microwave, and millimeter wave
signals. The Company supplies a broad base of customers, both commercial and
defense based, with a wide array of applications including cellular, personal
communications systems and wireless local loop communications systems, Low Earth
Orbiting (LEO) and geosynchronous satellite communications systems, radar, radar
warning receivers, radar jamming, and electronic support measures systems.
During the fiscal year ended June 30, 1997, approximately 16% of the
Company's sales were attributable to contracts with prime contractors to
numerous offices and agencies of the United States government. The Company had
two customers who received shipments in excess of 10% of consolidated net sales.
Approximately 14% of the Company's consolidated net sales resulted from
shipments to Raytheon Company under several contracts, and 11% resulted from
shipments to Motorola, Inc. under several contracts. No one other contract and
no other customer accounted for more than 10% of consolidated net sales.
During fiscal year 1997, sales to foreign customers, most of which were
prime contractors to foreign governments, accounted for approximately 19% of the
Company's consolidated net sales and included shipments to twenty-one countries.
All the Company's contracts with foreign customers are payable in U.S. dollars.
See note 13 to the consolidated financial statements for the sales to foreign
customers for each of the last three fiscal years.
Export sales of military reconnaissance systems must be approved by the
United States Department of State. Any tightening of restrictions on the export
of military hardware could adversely affect the Company's sales of defense
electronics products to foreign customers.
All of the Company's contracts with prime contractors to United States and
foreign governmental departments or their agencies, as well as satellite
communication and wireless infrastructure equipment customer contracts are fixed
price contracts, some of which require delivery over time periods in excess of
one year. With this type of contract, the Company agrees to deliver products at
an agreed upon price except for costs incurred because of change orders issued
by the customer. Some of these contracts contain provisions for escalation due
to inflation incurred between the effective contract date and the delivery date,
and some are subject to various statutes, regulations and provisions governing
defense contracts. All of these contracts contain termination clauses which
allow the customer to terminate the contract for convenience upon proper notice
and payment of predetermined charges.
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BACKLOG
At June 30, 1997, the Company's backlog of orders was $32,827,000 as
compared with $23,287,000 at June 30, 1996. All of the orders included in
backlog are covered by signed contracts, most of which contain customary
provisions permitting termination at any time at the customer's convenience upon
the making of a termination payment to the Company.
The Company's Defense Electronics products accounted for 57% and 66% of the
backlog at June 30, 1997 and June 30, 1996, respectively; Satellite
Communications products comprised approximately 37% of the backlog in 1997 and
18% of the backlog in 1996 and Wireless products amounted to 6% and 16% of the
backlog at June 30, 1997 and June 30, 1996, respectively. Approximately 82% of
the June 30, 1997 backlog is expected to be recognized as revenue during fiscal
1998.
MANUFACTURING AND ENGINEERING
The Company's manufacturing operations are vertically integrated from the
production of specialized hybrid circuits to the final assembly of complete
subsystems, such as Digital RF Memories and antenna beamforming networks.
The Company manufactures its products from standard components as well as
from items which are manufactured by vendors to the Company's specifications. A
majority of the Company's commercial and defense electronics assemblies and
subsystem products contain multi-layer stripline technology which is designed
and tested by the Company's engineers and technicians and is manufactured at the
Company's own facilities.
The Company utilizes skilled permanent and contract personnel in the
manufacture of its products. Quality assurance checks are performed on purchased
items, work in process, and finished products. Because of the complexity of the
Company's products, final tests are performed on some products by highly skilled
engineers and technicians.
Most of the Company's contracts for assemblies and subsystems have required
engineering efforts to modify existing Company products to meet a particular
customer's specific technical and installation requirements.
COMPETITION
The microwave component industry is highly competitive and the Company
competes against many companies, both foreign and domestic, many of which are
larger, have greater financial resources, and are better known than Anaren. The
principal competitive factors in both the domestic and foreign markets are
technical performance, reliability, ability to produce, on time delivery, and
price. Based on a combination of these factors, the Company believes that it
competes favorably in its markets. The Company's most important competitive
attributes are its emphasis on technical superiority and its ability to produce
in quantity to specific delivery schedules. Once a particular supplier's
products have been selected for incorporation in a military radar or commercial
satellite system, further competition by other vendors during the life cycle of
the program typically becomes more limited. Commercial component products for
wireless infrastructure are subject to continuous technological and price
competition from other vendors.
Major competitors include Amp, Inc., Lockheed Martin, Inc., S. T.
Microwave, Inc., RF Power Inc., Mini Circuits Inc. and Filtronics, Inc. for
Defense Electronics products; Merrimac Industries, Inc. and EMS, Inc. for
Satellite Communications products; Merrimac Industries, Inc. and the in-house
capabilities of the Company's major customers, such as Motorola, Inc., Raytheon
Company, Hughes Space and Communications International, Inc. and Nortel, Inc.,
for wireless products.
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RESEARCH, DEVELOPMENT AND NEW PRODUCTS
The Company believes that its continued success depends in large part on
its ability to develop new products and extend its technology to additional
product applications. The Company's primary efforts in this regard are focused
on development, design, engineering and implementation activities rather than
pure research. Most of the Company's professional staff have been involved at
various times and to varying degrees in these activities. Research and
development expenses were approximately $540,000 in fiscal 1997, $1,185,000 in
fiscal 1996 and $939,000 in fiscal 1995 and were funded solely from the
Company's current operating budget.
Existing development efforts are focused on (i) the development of advanced
multilayer stripline manufacturing processes for use in low cost light weight
commercial and space applications; (ii) the development of advanced
manufacturing technology to produce millimeter wave stripline structures for
communication satellite applications; (iii) evolutions of current technologies
to aid airborne receiver systems in the location and unambiguous identification
of radar platforms; (iv) variants of existing products for use in additional
cellular and PCS infrastructure applications and on additional military
platforms. The Company believes that it is at the forefront of microwave signal
processing technology in terms of ability to deal with complex signal
environments.
SUPPLIERS
The raw materials utilized in the Company's various product areas are
equally accessible. The Company purchases most of its raw materials from a
variety of vendors and most of these raw materials are available from a number
of sources. The Company has one vendor from which the Company purchases
approximately 10% of the Company's total raw material purchases, but the Company
believes that substitute sources of supply are readily available for these and
all other products purchased.
EFFECTS OF INFLATION
The Company does not believe that its operations are materially effected by
inflation. Contract prices for items deliverable over a period in excess of one
year are normally indexed for inflation, thereby offsetting any increase in
operating costs due to inflation.
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EMPLOYEES
As of June 30, 1997, the Company employed 217 persons full time. Of these
employees, approximately 186 comprise the engineering and manufacturing staff,
and approximately 31 are in management and support functions.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of the Company's executive officers, their ages and
their positions as of June 30, 1997. Each executive officer is elected for a
term of one year at the reorganizational meeting of the board of directors
following the annual shareholders meeting.
Name Age Position
---- --- --------
Hugh A. Hair 62 Chairman &
Chief Executive Officer, Director
Carl W. Gerst, Jr. 60 Vice Chairman, Chief
Technical Officer, Treasurer
Lawrence A. Sala 34 President, Director
Gert R. Thygesen 42 Vice President Operations
Joseph E. Porcello 45 Vice President Finance
Stanley S. Slingerland 50 Vice President Human Resources
ITEM 2. PROPERTIES
The Company's principal facility is a 105,000 square foot building located
in East Syracuse, New York. The plant was constructed during fiscal 1981 and
expanded during fiscal year 1985. This facility houses all of the Company's
marketing, manufacturing, administrative, research and development, systems
design and engineering experimentation activities. The construction of this
facility was originally financed through the issuance of Onondaga County
Industrial Revenue Bonds in the original amount of $5,940,000 (see note 5 to the
consolidated financial statements for information concerning encumbrances on the
facility).
Anaren Microwave, Ltd., the Company's wholly-owned subsidiary in the United
Kingdom, leases a 20, 000 square foot facility in Frimley, England which
previously housed the administrative, marketing, and manufacturing operations of
that subsidiary prior to the Company's divestiture of its electronic warfare
simulator manufacturing operation in March 1996. Annual rental cost of this
facility is approximately $385,000 and the Company is presently subletting a
portion of the facility for approximately $192,000 annually (see note 11 to the
consolidated financial statements).
The foregoing facilities are regarded by management as adequate for the current
and anticipated short-term future requirements of the Company's business.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings against the Company or its
subsidiaries.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this Annual Report
on Form 10-K there were no matters submitted to a vote of security holders.
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Company's common stock is traded in the over-the-counter market under
the NASDAQ symbol "ANEN".
The following table sets forth the range of quarterly high and low sales
prices on the NASDAQ Stock Market for the Company's common stock for the
quarters indicated. Quotations represent prices between dealers and do not
include retail mark-ups, mark- downs or commissions.
Fiscal 1996 Fiscal 1997
Quarter Quarter
1st 2nd 3rd 4th 1st 2nd 3rd 4th
High 8-1/2 8-3/8 7-1/4 8-3/4 7-5/8 8 9-1/8 14-1/4
Low 5-1/4 5-1/2 5-1/2 5-3/4 4-1/4 5 6-1/4 7-5/8
The Company has approximately 610 security holders of record at September
23, 1997.
The Company has never paid a cash dividend on its common stock and the
Company's Board of Directors has not set a policy with regard to the payment of
dividends.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below have been derived from the
Company's consolidated financial statements referred to under "Item 14.
Exhibits, Financial Statements and Reports on Form 8-K" of this Annual Report on
Form 10-K and on previously published historical financial statements not
included herein.
The selected financial data should be read in connection with "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's consolidated financial statements, including the
notes thereto referred to herein.
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<TABLE>
<CAPTION>
Selected Financial Data
-----------------------
Fiscal Year Ended
-----------------
June 30, June 30 July 1, July 2, June 26,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Summary of Consolidated Statements of Operations:
Net Sales ..................................................... $ 24,227 $ 17,082 $ 17,996 $ 20,237 $ 26,996
-------- -------- -------- -------- --------
Costs and Expenses:
Costs of Sales ........................................... 16,243 11,147 13,081 14,415 19,306
Marketing, Research and Development ...................... 3,711 4,155 3,967 3,490 4,081
General and Administrative ............................... 2,238 2,075 2,041 2,266 2,399
Provision for losses on contracts ........................ -- -- 300 1,570 --
Restructuring Costs ...................................... -- 810 360 -- 452
-------- -------- -------- -------- --------
Total Costs and Expenses ............................. 22,192 18,187 19,749 21,741 26,238
-------- -------- -------- -------- --------
Operating Income (Loss) ....................................... 2,035 (1,105) (1,753) (1,504) 758
Interest Expense .............................................. 94 123 213 271 434
Other Income, Primarily Interest .............................. (114) (148) (164) (298) (134)
Income (Loss) before income taxes and
cumulative effect of change in accounting
principle ................................................... 2,055 (1,080) (1,802) (1,477) 458
Income tax Expense (benefit) .................................. -- -- (330) (115) 180
-------- -------- -------- -------- --------
Income (loss) before cumulative effect
of change in accounting principle ........................... 2,055 (1,080) (1,472) (1,362) 278
Cumulative effect of change in accounting
for post-retirement benefits ................................ -- -- -- (995) --
-------- -------- -------- -------- --------
Net Earnings (loss) .................................. $ 2,055 $ (1,080) $ (1,472) $ (2,357) $ 278
======== ======== ======== ======== ========
Earnings (loss) Per Common and
Common Equivalent Share:
Primary .................................................. $ .50 $ (.27) $ (.36) $ (.53) $ .06
======== ======== ======== ======== ========
Assuming Full Dilution ................................... $ .46 $ (.27) $ (.36) $ (.53) $ .06
======== ======== ======== ======== ========
Shares Used in Computing Earnings (loss) Per
Common and Common Equivalent Shares:
Primary .................................................. 4,106 4,057 4,047 4,435 4,530
======== ======== ======== ======== ========
Assuming Full Dilution ................................... 4,440 4,057 4,047 4,435 4,530
======== ======== ======== ======== ========
June 30, June 30 July 1, July 2, June 26,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In Thousands)
Consolidated Balance Sheet Data:
Working Capital ............................................... $ 15,043 $ 12,914 $ 13,258 $ 16,245 $ 17,592
Total Assets .................................................. $ 25,973 $ 21,793 $ 23,365 $ 27,942 $ 28,470
Long-Term Debt (less current installments) .................... $ 453 $ 680 $ 1,052 $ 1,760 $ 2,482
Stockholders' Equity .......................................... $ 20,327 $ 18,195 $ 18,824 $ 21,679 $ 24,098
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis reviews the Company's operating results for
each of the three years in the period ended June 30, 1997, and its financial
condition at June 30, 1997. This review should be read in conjunction with the
accompanying consolidated financial statements, the related notes to the
consolidated financial statements, and the other information provided in this
annual report Form 10-K. Statements contained in management's discussion and
analysis, other than historical facts, are forward looking statements which are
qualified by the cautionary statement at the end of this discussion.
Results of Operations
The following table sets forth the Company's net sales by product line for
each of the years in the three year period ended June 30, 1997.
Fiscal Year Ended
(In Thousands)
June 30, 1997 June 30, 1996 July 1, 1995
------------- ------------- ------------
Defense Electronics $8,064 $9,343 $14,416
Satellite Communications 8,518 5,642 3,239
Wireless 7,645 2,097 341
------- ------- -------
$24,227 $17,082 $17,996
======= ======= =======
New sales historically associated with particular product lines may not be
indicative of future trends because of the relative size of individual orders
and changes in the Company's emphasis on specific product lines. See "Business -
Company Products" and "Business - Backlog."
To better serve its emerging commercial markets, the Company reorganized,
during the first quarter of fiscal 1996 into three internal business groups.
These business groups are Defense Electronics (formerly Electronic Warfare),
Satellite Communications (formerly Radar and Telecommunications) and Wireless.
Products in the Defense Electronics business unit consist of the Company's line
of military products, which include Digital Frequency Discriminators (DFD's),
Digital RF Memories (DRFM's), ESM receivers and military Microwave Integrated
Circuit components (MIC's). Satellite Communications products consist of signal
distribution networks for phase array antennas and customized commercial
multilayer components such as Butler matrices and beamforming networks for
commercial telecommunication satellites. Wireless products are microwave
components and assemblies for use in building wireless base station equipment.
These products are a forward evolution of the military microwave components and
are significantly smaller and lighter, while providing better performance.
Each business group is composed of an independent engineering and
marketing/sales team whose purpose is to develop, market and deliver product to
its customers. This action was taken to optimize responsiveness to customer
needs and to provide extended fiscal accountability downward throughout the
organization.
Fiscal Year 1997 Compared to Fiscal Year 1996
Consolidated results of operations for fiscal 1997 were highlighted by
significant increases in sales of the Company's commercial products and the
highest net earnings and backlog achieved by the Company in the past ten years.
Net sales for fiscal 1997 were $24,227,000, up
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42% from fiscal 1996 net sales of $17,082,000 and the Company recorded net
earnings of $2,055,000 compared to a loss of $1,080,000 for the prior year.
During fiscal 1997, sales in both the Company's commercial Satellite
Communications group and Wireless group increased substantially over the prior
year's levels, while during this same period, sales of the Defense Electronics
group continued the decline seen over the past five years.
Sales of Wireless products, which are mainly surface mount and custom
components for use in building cellular base station equipment, increased
$5,548,000 in fiscal 1997, a 265% rise over sales of $2,097,000 in fiscal 1996.
The rise in sales in this product group is currently being fueled by significant
increases in shipments of custom base station components being built for Lucent
Technologies, Inc., Motorola, Inc. and Nortel, Inc. under a number of continuing
contracts with a projected current annual shipment value of over $9,000,000.
Shipments under these contracts totaled over $4,600,000 in fiscal 1997, compared
to less than $200,000 in the previous fiscal year. Additionally, shipments of
off-the-shelf surface mount catalog components, which are used mainly in the
construction of cellular base station amplifiers, rose 80% in fiscal 1997
compared to fiscal 1996, as amplifier manufacturers' demands continue to
increase for these products.
New orders for Wireless products totaled approximately $6,200,000 during
fiscal 1997, resulting in a firm backlog of $2,060,000 at June 30, 1997, all of
which is expected to ship in the first quarter of fiscal 1998.
It is typical procedure for the Company's large base station manufacturing
customers to negotiate an annual blanket contract for price and delivery using
an estimated expected annual demand for a particular product. These
manufacturers then provide the Company with a firm purchase order for the
products required on a quarterly, monthly or weekly basis. It has been the
Company's internal policy to only book orders for the Wireless group upon
receipt of these short-term firm purchase orders. In July 1997, the first
quarter of fiscal 1998, the Company recorded firm orders for the Wireless group
totaling over $3,400,000, all of which is scheduled to ship in the first half of
fiscal 1998.
Sales of Satellite Communications products, which consist of custom
multi-layer components such as butler matrices and beamforming networks for
commercial telecommunications and military communications satellites, rose
$2,876,000 or 51% in fiscal 1997 compared to fiscal 1996. This substantial rise
in shipments is attributed to sales of over $3,800,000 for contract engineering
design work on two beamformers for commercial satellite applications for Space
Systems Loral, Inc. and Martin Marietta Overseas Corp. Sales in fiscal 1996
included approximately $690,000 in billings for initial design work on these two
programs.
Of the remaining $4,700,000 shipped by this group in fiscal 1997,
approximately $3,200,000 represented production under the final phase of the
$6,000,000 Iridium program and spares production for the Ground Based Radar
military program, both of which are being built for Raytheon Company. These two
programs amounted to over $4,500,000 in sales in fiscal 1996.
New orders for the Satellite Communications group amounted to $16,545,000
in fiscal 1997 compared to $2,850,000 in the previous fiscal year. The two
largest of these orders were a firm fixed price contract for over $6,000,000
from Martin Marietta Overseas Corp. for the design and production of antenna
beamforming networks for the Asia Cellular Satellite System (ACeS) and a
$3,800,000 contract from Hughes Space and Communications International, Inc. for
the manufacture of microwave signal distribution networks for the ICO system.
The ACeS system is a space based cellular communications system, to serve Asia
via two geosynchronous satellites, while the Hughes ICO program is a medium
earth orbit constellation of 12 satellites to provide world-wide cellular
telephone service starting in 1999.
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Firm backlog for this group was $12,121,000 at June 30, 1997, up 193% over
firm backlog of $4,125,000 at June 30, 1996. Of this amount, approximately
$10,000,000 is expected to ship in fiscal 1998 and the remainder in fiscal 1999.
Sales of Defense Electronics products fell $1,279,000 to $8,064,000 in
fiscal 1997 compared to $9,343,000 in the previous year. Shipments in this
business area, which include Digital Frequency Discriminators (DFD's), Digital
RF Memories (DRFM's), ESM Receivers and Microwave Integrated Circuit Components
(MIC's), have been declining over the past three years due to the continuing
decline in the overall worldwide defense market. The drop in sales in fiscal
1997 was spread over all the above mentioned product areas in the Defense
Electronics group and was a result of the completion of one of the Company's
remaining large DFD programs in fiscal 1996 and a general 25% decline in demand
for off-the-shelf catalog military MIC's during the last quarter of fiscal 1996
and continuing in fiscal 1997.
New orders for Defense Electronics products totaled approximately
$11,047,000 in fiscal 1997 and firm backlog for this product area was
$18,646,000 at June 30, 1997. Of this backlog amount, $12,140,000 represented
two orders from the ASPJ Joint Venture Team of ITT Avionics Division of I.T.T.
Industries and Northrop Grumman Corp. for foreign sales of the Airborne Self
Protection Jammer System. These orders should serve to help stabilize sales in
this business area when shipments begin in the first quarter of fiscal 1998.
Approximately $13,760,000 of the firm backlog of $18,646,000 at June 30,
1997 is expected to ship in fiscal 1998 and the remainder in fiscal 1999.
Net earnings for fiscal 1997 were $2,055,102, compared to a net loss of
$(1,080,069) for fiscal 1996. The net loss for the prior year included a one
time charge totaling $810,000 to recognize the cost of the divestiture of the
Company's Electronic Warfare Simulator manufacturing operation in England. This
improvement in earnings was a result of the 42% rise in revenues and was
achieved despite a two percentage point decline in gross margins and small
increase in both marketing and general and administrative costs.
Gross margin on sales for fiscal 1997 was 33% compared to 35% for fiscal
1996. This decline was a direct result of lower margins on initial product runs
of Wireless custom components during the period due to excess scrap costs and
rework costs incurred in repairing production units above normal experience
levels in fiscal 1997. The Company expects that gross margins will improve in
fiscal 1998 with higher production rates and increased experience with high
volume production products.
Research and development expense was $540,000 for fiscal 1997, down
$645,000 from $1,185,000 for fiscal 1996. This decline resulted from a
significant increase in customer funded engineering design work in both the
Defense Electronics and Satellite Communications groups during the period which
consumed all available engineering resources in these groups. Customer funded
design and development work in fiscal 1997 represented approximately $6,200,000
in sales, a three fold increase over engineering revenues of $2,030,000 in
fiscal 1996. Additionally, the Company is currently participating in a
Technology Reinvestment Program through Raytheon Company, for the Advanced
Research Project Agency of the United States Government. Under this project, the
Company was reimbursed for approximately $339,000 of research and development
costs incurred during fiscal 1997 for investigating the development of
manufacturing processes for thin, multilayer millimeter wave signal distribution
networks. This program is expected to run through all of fiscal 1998 at the rate
of approximately $125,000 per quarter.
Current internal research and development efforts are being targeted on
adapting existing Company technologies to produce new Satellite and Wireless
products which fit specific customers' requirements. Future research and
development expenditures are expected to rise with
13
<PAGE>
increasing sales volume and to fluctuate based on identified market
opportunities, customer funding for custom engineering development projects and
the level of government supported research development projects.
Marketing expense rose 7% in fiscal 1997 compared to fiscal 1996. This
increase was caused mainly by additions to marketing personnel in Europe to
better serve the Company's emerging commercial markets in that part of the
world, a rise in commission expense due to the a 42% increase in sales and a 23%
increase in advertising expenditures targeted mainly for the Company's wide
variety of new commercial Wireless products. Marketing expense is expected to
rise in fiscal 1998 as the Company intends to expand its sales force and
advertising program to further penetrate the wireless base station equipment
market.
General and administrative expense rose 8%, or $162,000, in fiscal 1997
compared to the prior year. Approximately half of this increase was attributable
to normal increases in payroll costs for existing personnel, while the remaining
increase represents a small increase in personnel, as well as minor increases in
professional services and shareholders expense. General and administrative
expenses are expected to increase modestly in fiscal 1998 as the general level
of Company business continues to rise.
Interest expense fell 23% in fiscal 1997 compared to fiscal 1996. The
decline in interest expense reflects the continuing reduction in long-term debt
over the past year. During this same period, other income was down 23% due to
lower investable cash balances during the current year compared to the previous
fiscal year.
Consolidated income tax expense was $0 in fiscal 1997 versus an expected
tax expense of approximately $699,000 based on 34% of income before income
taxes. The difference between the actual tax expense recognized in the financial
statements and the expected tax calculated on net income was due to the
utilization of net operating loss carry forwards and to a decrease in the
deferred tax asset valuation allowance. Under tax accounting rules the company
must assess the realizability of deferred tax assets, considering whether it is
more likely than not that some portion or all of the deferred tax assets will be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income in the period in which those temporary
differences become deductible. Management of the Company has considered the
scheduled reversal of deferred tax liabilities and projected future taxable
income in making the assessment of the realizability of the deferred tax asset
balances at June 30, 1997. Based upon the level of historical taxable income and
projections for future taxable income over the periods which the deferred tax
assets are deductible, the Company believes it is more likely than not that it
will realize the benefit of these deductible differences, net of the existing
valuation allowances, at June 30, 1997.
The Company adopted Statement of Financial Accounting Standard No. 123,
Accounting for Stock-based Compensation (Statement 123), beginning with the
Company's first quarter of fiscal 1997. Upon adoption of Statement 123, the
Company continued to measure compensation expense for its stock-based employee
compensation plans using the intrinsic value method prescribed by APB No. 25,
Accounting for Stock Issued to Employees, and has provided pro forma disclosures
of the effect on net income and earnings per share as if the fair value-based
method prescribed by Statement 123 has been applied in measuring compensation
expense. (See Note 6 of Notes to the Consolidated Financial Statements.)
14
<PAGE>
Fiscal Year 1996 Compared to Fiscal Year 1995
Consolidated results of operations for fiscal 1996 showed a loss of
slightly less than $1.1 million resulting from poor sales performance by the
Company's English subsidiary and the decision by the Company to close this
European repair facility at Anaren Microwave, Ltd. and liquidate its Electronic
Warfare (EW) Simulator manufacturing operation headquartered there. Net sales
for fiscal 1996 were $17,082,000, down 5% from fiscal 1995 sales levels, while
the net loss for fiscal 1996 was $1,080,000 compared to a net loss of $1,472,000
for the prior year. Included in the fiscal 1996 loss was an $810,000 third
quarter restructuring charge against earnings related to the divestiture of the
Company's EW Simulator manufacturing operation in the United Kingdom.
During the year ended June 30, 1996, sales in the Satellite Communications
group rose $2,400,000, or 74% over fiscal 1995 levels, while shipments for the
Company's new Wireless group rose $1,750,000 to $2,100,000 compared to only
$340,000 in fiscal 1995. During this same period sales of Defense Electronics
products fell approximately $5,100,000 compared to the previous fiscal year,
resulting in an overall sales decline of $900,000 in fiscal 1996.
Sales of Satellite Communications products, which consist of customized
commercial multilayer components such as Butler matrices and beamforming
networks for commercial satellites, increased $2,400,000 to $5,640,000 in fiscal
1996 compared to approximately $3,240,000 in fiscal 1995. This increase is
attributable to over $980,000 in shipments in fiscal 1996 under the Army Ground
Based Radar program (GBR) and over $3,550,000 in shipments of satellite
beamforming networks under a $6,000,000 production contract with Raytheon
Company for the Iridium project. These two programs accounted for approximately
$2,500,000 in shipments in fiscal 1995.
New orders for Satellite Communications products total $2,850,000 during
fiscal 1996 and included initial engineering funding for development of antenna
beamforming networks for satellite telecommunications systems being developed by
TRW, Inc.; Martin Marietta Overseas Corp. and Space Systems Loral, Inc. At June
30, 1996 firm backlog for Satellite Communications products was $4,125,000.
Sales of Wireless products, which consist of components for use in building
cellular base station equipment, rose from $340,000 in fiscal 1995 to almost
$2,100,000 in fiscal 1996. These sales consisted mainly of catalog microwave
components and pilot production runs of custom components for base station
equipment manufacturers.
The Wireless business unit received significant initial production orders
totaling over $3,000,000 from Nortel, Inc. and Motorola, Inc. during fiscal 1996
for custom base station components. These orders began initial low level
production runs in the latter part of the fourth quarter of fiscal 1996 and
reached full production at the end of the second quarter of fiscal 1997. Firm
backlog for Wireless products was approximately $3,735,000 at June 30, 1996.
Sales of Defense Electronics products fell $5,100,000 to $9,343,000 in
fiscal 1996, compared to sales of approximately $14,400,000 in fiscal 1995.
Shipments in this business area, which include Digital Frequency Discriminators
(DFD's), Digital RF Memories (DRFM's), ESM Receivers, Military Simulators and
Microwave Integrated Circuit components (MIC's) have been steadily declining
over the past three fiscal years due to the decline in the overall worldwide
defense market. The drop in sales in fiscal 1996 was spread over all of the
above mentioned product areas, except for MIC's and DRFM's due to the completion
of a number of large DFD programs in the latter part of fiscal 1994 and early
fiscal 1995, and a drop off in new orders for ESM receivers in fiscal 1995.
15
<PAGE>
During fiscal 1996, the Company received a number of new orders in the
Defense Electronics business area totaling over $18,400,000. The most
significant of these was from the ASPJ Joint Venture Team of I.T.T. Avionics
Division of I.T.T. Industries and Northrop Grumman Corp. for foreign sales of
the Airborne Self Protection Jammer. Firm backlog in this product area at June
30, 1996 was $15,427,000.
During 1996, the Company booked new orders totaling approximately
$26,700,000 compared to new orders of approximately $15,100,000 for all of
fiscal 1995. Firm backlog for all business lines as of June 30, 1996 stood at
$23,287,000 a 69% increase over firm backlog of $13,800,000 at the end of fiscal
1995.
The loss for fiscal 1996 was $1,080,069 compared to a loss of $1,471,682
for fiscal 1995. The 1996 fiscal year loss consisted of a $270,000 operating
loss caused by the low level of sales and margins at the Company's European
subsidiary and an $810,000 non-recurring restructuring charge against earnings
recorded in the third quarter required to recognize the divestiture of the
Company's Electronic Warfare (EW) Simulator manufacturing operation in the
United Kingdom.
This restructuring charge, which included provisions for the write-down of
EW Simulator assets to realizable value, legal and professional fees and costs
to complete an existing EW Simulator contract in excess of expected revenue,
reduced earnings for both the three months ended March 31, 1996 and the year end
June 30, 1996. These actions were necessitated by the severe down sizing of the
military budgets in Europe which resulted in a substantial reduction in new
orders for EW simulators during the past two years and has resulted in ongoing
losses from operations at Anaren Microwave, Ltd. including a $686,000 operating
loss for fiscal 1996. This divestiture allowed the Company to focus its efforts
on its growing domestic operations.
Gross margin on sales for fiscal 1996 was 35% compared to 27% in fiscal
1995. This substantial improvement was the result of higher sales volume at the
Company's U.S. manufacturing facility which allowed for better absorption of
fixed overhead costs and personnel reductions made in the second quarter of
fiscal 1995 which were specifically targeted at reducing manufacturing overhead
and engineering costs.
Additionally, during fiscal 1996, approximately $588,000 of costs incurred
in building products for shipment during this period were charged against the
allowance for contract losses established in fiscal 1994 and 1995. These
expenses represent cost overruns incurred on products shipped in the first three
quarters of fiscal 1996 which had previously been identified and provided for
when the allowance was established.
Research and development expense was $1,185,000 for fiscal 1996, up 26%
from $939,000 for the same period in fiscal 1995. This increase represented the
continuing rise in the prototype development efforts for the Company's new
Wireless commercial product line. Development efforts were being targeted on
adapting existing Company technologies to produce new wireless component
products which fit a specific customer's requirements.
Marketing expense fell 2% in fiscal 1996 compared to the previous fiscal
year. This decrease was due mainly to the reassignment of marketing personnel to
other functions within the company due to the business group realignment
undertaken in the first quarter of the current year.
General and administrative expenses rose 1.6% in fiscal 1996 compared to
fiscal 1995. This increase represented normal period to period fluctuation in
expenditures. Fiscal 1996 levels of general and administrative spending reflect
the same level or lower of that experienced by the Company in fiscal 1995.
Interest expense fell 42% in fiscal 1996 compared to the same period in
fiscal 1995. The decline in interest expense reflects the reduction in long-term
debt over the year. During this same
16
<PAGE>
period, other income fell 10% due to lower investable cash balances during
fiscal 1996 compared to fiscal 1995.
Consolidated income tax expense was $0 in fiscal 1996 versus an expected
tax benefit of approximately $(367,000) based on 34% of the loss before income
taxes. The primary difference between the actual tax expense recognized in the
financial statements and the expected tax benefit calculated on the loss
incurred was due to the Company's equity in the operating loss of its English
subsidiary which is not subject to U.S. taxation and offset by a decrease in the
deferred tax asset valuation allowance. Under the new tax accounting rules the
Company must assess the realizability of deferred tax assets, considering
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 in the period in which
those temporary differences become deductible. Management of the Company has
considered the scheduled reversal of deferred tax liabilities and projected
future taxable income in making the assessment of the realizability of the
deferred tax asset balances at June 30, 1996.
Liquidity and Capital Resources
At June 30, 1997, the Company had net working capital of $15,043,000, which
included $3,807,000 in cash and cash equivalents, compared to working capital of
$12,914,000 which included cash and cash equivalents of $1,740,000 at June 30,
1996. Net cash surplus was $2,067,000 for fiscal 1997 compared to a net cash
usage of $400,000 in fiscal 1996. Cash flow was positive in fiscal 1997 due to
the growth in earnings and accounts payable, the receipt of a $321,000 tax
refund from the U.S. government and an increase in advance payments from
customers of over $750,000 during the period.
Long-term liabilities, which consist of the Company's unfunded liability
for post-retirement health care costs, long-term debt in the form of a term loan
and deferred income taxes, decreased $119,000 and $309,000 in fiscal 1997 and
1996, respectively. The decline in both fiscal years 1997 and 1996 represents
scheduled repayment of debt as the Company, presently, has no plans to fund the
long-term liability recognized for post-retirement healthcare costs. No new
long-term debt, other than the transfer of its term loan to its new bank, was
taken on during this two year period as the Company's cash balances were more
than adequate to fund both long- and short-term cash needs.
Capital equipment additions in fiscal 1997 amounted to $1,154,000 and
consisted primarily of equipment needed to further automate production for the
Company's new Wireless and Satellite Communications products as well as test and
production equipment required to produce Defense Electronics products for the
initial production of the ASPJ program in the first quarter of fiscal 1998. The
additions were funded entirely by cash generated by operations. Capital
equipment expenditures for fiscal 1998 have been budgeted at approximately
$1,500,000 and will consist, primarily, of additional automated high volume
production equipment to further expand production capacity for the new Wireless
products. These additions will continue to be funded by cash generated from
operations and currently existing cash balances as management believes that
these cash resources will be adequate to meet these financing needs.
In fiscal 1994, the Company obtained a revolving line of credit with a bank
which provided for principal drawings of up to $3,500,000. This credit agreement
carried interest on outstanding borrowings at the prime rate plus 3/4% and was
secured by all assets of the Company which were not otherwise pledged under
other agreements. This credit facility expired at December 31, 1994. In October
1996, the Company signed an agreement for a new credit facility with a bank
providing for a $3,000,000 working capital revolving line of credit bearing
interest at prime plus 1% maturing on November 30, 1998, and a $907,000 term
loan payable in semi-annual installments of $113,333 through May, 2000, bearing
interest at prime plus 1.25%. The proceeds
17
<PAGE>
of the term loan were used to refinance the existing Onondaga County Industrial
Development Agency Revenue bonds of the Company, while the revolving credit
facility will be used to supplement short-term working capital needs brought
about by the expected growth in production and sales volumes. Borrowings under
the new credit facility are secured by substantially all the assets of the
Company. The terms of the credit facility require the Company to maintain a
minimum tangible net worth, ratio of cash flows to maturities, and leverage
ratio, as defined in the respective agreements. The Company was in compliance
with all restrictions and covenants at June 30, 1997.
The Company believes that its cash requirements for the foreseeable future
will be satisfied by currently invested cash balances, expected cash flow from
operations and funds available under its credit facilities.
Recently Issued Accounting Pronouncements
Statement of Financial Accounting Standard No. 128, Earnings Per Share
(Statement 128), was issued in February 1997. Statement 128 specifies the
computation, presentation, and disclosure requirements for earnings per share.
Adoption of Statement 128 will be required for the Company beginning in the
second quarter of fiscal 1998. Adoption of Statement 128 is not expected to have
a material effect on the Company's operating results.
Additionally, Statement of Financial Accounting Standard No. 131, Disclosures
About Segments of an Enterprise and Related Information (Statement 131) was
issued in 1997. Statement 131 establishes standards for the reporting of
information about operating segments and related disclosures about products and
services, geographic areas, and major customers. Adoption of Statement 131 will
be required in fiscal 1999 and require interim disclosures beginning in fiscal
2000. Adoption of Statement 131 is not expected to have a material effect on the
Company's financial statement disclosures.
Forward Looking Cautionary Statement
In an effort to provide investors a balanced view of the Company's current
condition and future growth opportunities, this annual report on Form 10-K
includes comments by the Company's management about future performance. Because
these statements are forward-looking statements, management's forecast involve
risks and uncertainties and actual results could differ materially from those
predicted in the forward looking statements. Among the factors that could cause
actual results to differ materially are the following: general market
conditions, including demand for the Company's products, manufacturing capacity
and the ability to "ramp" to meet anticipated demand, fluctuations yield,
availability of third party supplier parts at reasonable prices, availability of
financial resources to fund anticipated growth, ability to maintain sole
supplier positions with certain defense sectors, successful adaptation of
existing Company technologies to produce new products which meet specific
customer requirements, price pressures, the level of world-wide spending on
military defense products, growth of cellular telephone and satellite
communication systems, acceptance of new products, and actual orders compared to
annual blanket contracts from wireless customers.
Management believes that the Company has the products, human resources,
facilities, and financial resources to continue its growth, but future revenues,
margins and profits are all influenced by a number of risk factors, including,
but not limited to, those discussed above.
18
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and financial statement schedules called for by
this item are submitted under "Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K" which information is incorporated herein by reference.
The unaudited supplementary financial information required by this item is
contained in note 4 to the consolidated financial statements which have been
submitted as a separate section of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
19
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Information required by this item, other than executive officers which
appears in Part I hereof, is contained in the Registrant's proxy statement to be
filed with respect to the 1997 Annual Meeting of Shareholders and is
incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is contained in the Registrant's proxy
statement to be filed with respect to the 1997 Annual Meeting of Shareholders
and is incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is contained in the Registrant's proxy
statement to be filed with respect to the 1997 Annual Meeting of Shareholders
and is incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is contained in the Registrant's proxy
statement to be filed with respect to the 1997 Annual Meeting of Shareholders
and is incorporated by reference herein.
20
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page
----
(a) 1. and 2. Financial Statements and Schedules:
Reference is made to the List of Financial
Statements hereinafter contained .......................... 23
3. Exhibits:
Reference is made to the List of Schedules
hereinafter contained ..................................... 23
(b) Current Reports on Form 8-K:
No Current Reports on Form 8-K were filed by the Company
during the last quarter of the fiscal year ended June 30, 1997.
(c) Exhibits:
Reference is made to the List of Exhibits hereinafter contained ....... 43
21
<PAGE>
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, Anaren Microwave, Inc. has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Anaren Microwave, Inc.
S/Hugh A. Hair
------------------------------------
Chief Executive Officer
S/Carl W. Gerst, Jr.
------------------------------------
Treasurer
S/Joseph E. Porcello
------------------------------------
Vice President of Finance/Controller
Date: September 26, 1997
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:
S/Lawrence A. Sala S/Abraham Manber
- ------------------ ----------------
Director Director
S/Dale F. Eck S/Herbert I. Corkin
- ------------- -------------------
Director Director
Date: September 26, 1997
22
<PAGE>
ANAREN MICROWAVE, INC.
AND SUBSIDIARIES
Index to Consolidated Financial Statements
Consolidated Financial Statements:
Independent Auditors' Report
Consolidated Balance Sheets as of June 30, 1997 and 1996
Consolidated Statements of Operations for the Years ended June 30, 1997,
June 30, 1996, and July 1, 1995
Consolidated Statements of Stockholders' Equity for the Years ended June
30, 1997, June 30, 1996, and July 1, 1995
Consolidated Statements of Cash Flows for the Years ended June 30, 1997,
June 30, 1996, and July 1, 1995
Notes to Consolidated Financial Statements
23
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Anaren Microwave, Inc.:
We have audited the consolidated financial statements of Anaren Microwave, Inc.
and subsidiaries as listed in the accompanying index. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Anaren Microwave,
Inc. and subsidiaries as of June 30, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 1997, in conformity with generally accepted accounting
principles.
Syracuse, New York
August 14, 1997
24
<PAGE>
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1997 and 1996
Assets 1997 1996
---- ----
Current assets:
Cash and cash equivalents $ 3,807,004 1,739,569
Receivables, less allowance for bad debts of
$13,000 in 1997 and 1996 6,717,106 5,167,996
Refundable income taxes -- 320,945
Inventories (note 2) 7,736,007 7,210,320
Prepaid expenses 197,152 255,723
Deferred income taxes (note 9) 532,054 --
----------- -----------
Total current assets 18,989,323 14,694,553
Net property, plant and equipment (note 3) 6,969,301 7,054,870
Other assets, net 13,919 43,793
----------- -----------
$25,972,543 21,793,216
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt (note 5) 228,723 394,633
Accounts payable 1,500,863 663,848
Income taxes payable 493,553 --
Accrued expenses (note 4) 719,416 471,665
Customer advance payments 1,003,539 250,000
----------- -----------
Total current liabilities 3,946,094 1,780,146
Postretirement benefit obligation (note 8) 1,181,276 1,138,215
Long-term debt, less current installments (note 5) 453,335 680,001
Deferred income taxes (note 9) 64,508 --
----------- -----------
Total liabilities 5,645,213 3,598,362
----------- -----------
Stockholders' equity:
Common stock of $.01 par value
Authorized 12,000,000 shares;
issued 5,012,116 and 4,992,116
shares in 1997 and 1996, respectively 50,121 49,921
Additional paid-in capital 15,584,262 15,507,088
Retained earnings 6,705,024 4,649,922
----------- -----------
22,339,407 20,206,931
Less cost of 892,274 treasury shares
in 1997 and 1996 2,012,077 2,012,077
----------- -----------
Total stockholders' equity 20,327,330 18,194,854
----------- -----------
Commitments and concentrations (notes 11 and 12)
$25,972,543 21,793,216
=========== ===========
See accompanying notes to consolidated financial statements.
25
<PAGE>
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended June 30, 1997, June 30, 1996, and July 1, 1995
1997 1996 1995
---- ---- ----
Net sales $ 24,226,792 17,081,901 17,995,752
------------ ------------ ------------
Costs and expenses:
Cost of sales 16,242,884 11,146,510 13,081,115
Marketing 3,170,373 2,969,726 3,027,667
Research and development 540,189 1,185,168 938,927
General and administrative 2,237,876 2,075,461 2,041,097
Provision for losses on contracts -- -- 300,000
Restructuring (note 10) -- 810,000 360,000
------------ ------------ ------------
Total costs and expenses 22,191,322 18,186,865 19,748,806
------------ ------------ ------------
Operating income (loss) 2,035,470 (1,104,964) (1,753,054)
------------ ------------ ------------
Other income (expense):
Interest expense (94,086) (122,759) (212,588)
Other, primarily interest income 113,718 147,654 163,960
------------ ------------ ------------
Total other income (expense) 19,632 24,895 (48,628)
------------ ------------ ------------
Income (loss) before income taxes 2,055,102 (1,080,069) (1,801,682)
Income tax benefit (note 9) -- -- (330,000)
------------ ------------ ------------
Net income (loss) $ 2,055,102 (1,080,069) (1,471,682)
============ ============ ============
Earnings (loss) per common and
common equivalent share:
Primary $ .50 (.27) (.36)
============ ============ ============
Assuming full dilution $ .46 (.27) (.36)
============ ============ ============
Shares used in computing earnings
(loss) per common and common
equivalent share:
Primary 4,106,245 4,057,300 4,046,729
============ ============ ============
Assuming full dilution 4,439,632 4,057,300 4,046,729
============ ============ ============
See accompanying notes to consolidated financial statements.
26
<PAGE>
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended June 30, 1997, June 30, 1996, and July 1, 1995
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock Total
------------------- Paid-in Retained ------------------- Stockholders'
Shares Amount Capital Earnings Shares Amount Equity
------ ------ --------- -------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 1, 1995 4,850,016 $ 48,500 15,057,521 5,729,991 892,274 $(2,012,077) 18,823,935
Net loss -- -- -- (1,080,069) -- -- (1,080,069)
Stock options exercised (note 6) 142,100 1,421 449,567 -- -- -- 450,988
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at June 30, 1996 4,992,116 49,921 15,507,088 4,649,922 892,274 (2,012,077) 18,194,854
Net income -- -- -- 2,055,102 -- -- 2,055,102
Stock options exercised (note 6) 20,000 200 77,174 -- -- -- 77,374
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at June 30, 1997 5,012,116 $ 50,121 15,584,262 6,705,024 892,274 $(2,012,077) 20,327,330
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE>
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended June 30, 1997, June 30, 1996, and July 1, 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,055,102 (1,080,069) (1,471,682)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 1,239,864 1,564,466 1,722,686
Deferred income taxes (467,546) -- --
Net loss on disposition of Anaren
Microwave, Ltd. net assets -- 810,000 --
Changes in operating assets and
liabilities, exclusive of disposition
of Anaren Microwave, Ltd. net assets:
Provision for losses on contracts -- (588,031) (981,969)
Receivables (1,549,110) 944,544 947,587
Refundable income taxes 320,945 9,055 (228,810)
Inventories (525,687) (748,111) 1,870,386
Prepaid expenses 58,571 (20,676) 55,884
Other assets 29,874 33,969 88,547
Accounts payable 837,015 (41,253) 168,647
Income taxes payable 493,553 -- --
Accrued expenses 247,751 (219,407) 119,120
Customer advance payments 753,539 250,000 --
Postretirement benefit obligation 43,061 62,381 61,838
----------- ----------- -----------
Net cash provided by operating
activities 3,536,932 976,868 2,352,234
----------- ----------- -----------
Net cash used in investing activities
- capital expenditures (1,154,295) (1,138,571) (1,296,587)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from long-term debt 906,667 -- --
Principal payments on long-term debt (1,299,243) (689,511) (725,526)
Net repayments under revolving line of credit -- -- (363,352)
Proceeds from the issuance of common stock 77,374 450,988 75,787
Purchase of treasury stock -- -- (1,459,278)
----------- ----------- -----------
Net cash used in financing activities (315,202) (238,523) (2,472,369)
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents 2,067,435 (400,226) (1,416,722)
Cash and cash equivalents at beginning of year 1,739,569 2,139,795 3,556,517
----------- ----------- -----------
Cash and cash equivalents at end of year $ 3,807,004 1,739,569 2,139,795
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE>
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1997, June 30, 1996, and July 1, 1995
(1) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of Anaren
Microwave, Inc. and its wholly-owned subsidiaries ("the Company").
All significant intercompany balances and transactions have been
eliminated in consolidation. In fiscal 1996, the Company changed its
financial reporting period to a calendar month end.
(b) Operations
The Company is engaged in the design, development and manufacture of
microwave signal processing devices which receive and analyze radar
signals and other microwave transmissions. Its primary products
include devices and systems used in the wireless communications
market, the satellite communications market, and defense electronics
market.
Anaren Microwave, Ltd., a wholly-owned subsidiary, is incorporated in
England. As discussed in note 10, during fiscal 1996, the Company
disposed of substantially all of the net assets of Anaren Microwave,
Ltd. and discontinued its manufacturing operations. Currently, the
Company continues to maintain its marketing function in England to
serve the European marketplace.
(c) Sales Recognition
The Company recognizes sales at the time products are shipped to its
customers. Provisions for estimated losses on uncompleted contracts
are made in the period in which such losses are determined.
(d) Cash Equivalents
Cash equivalents of $3,776,312 and $1,383,021 at June 30, 1997 and
1996, respectively, consist of certificates of deposit and money
market instruments having maturities of three months or less. Cash
equivalents are stated at cost which approximates fair value.
(e) Inventories
Inventories are stated at the lower of cost or market, cost being
determined on a first-in, first-out basis.
(f) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation of land
improvements and buildings is calculated by the straight-line method
over an estimated service life of 25 years. Machinery and equipment
are depreciated primarily by the straight-line method based on
estimated useful lives of 5 to 10 years.
29 (Continued)
<PAGE>
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, Continued
(g) Earnings Per Share
Earnings per common and common equivalent share are computed using the
weighted average number of shares outstanding adjusted for the
incremental shares attributed to outstanding options to purchase
common stock pursuant to the treasury stock method, unless the
results would be anti-dilutive or not material. Common equivalent
shares consist of outstanding stock options.
(h) Pension Plan
The projected unit credit method is utilized for measuring net periodic
pension costs over the employees' service life. Contributions are
intended to provide not only for benefits attributed to service to
date but also for those expected to be earned in the future, and such
contributions meet the minimum funding requirements set forth in the
Employee Retirement Income Security Act of 1974.
(i) Research and Development Costs
Research and development costs are charged to expense as incurred. The
Company receives fees under a technology development contract and
such fees are recorded as a reduction of research and development
costs as work is performed pursuant to the related contract and as
defined milestones are attained. In fiscal 1997, the Company
recognized product development fees of $338,939 under the contract,
which were netted with research and development costs. Prior to
fiscal 1997, the Company did not engage in technology development
contracts.
(j) Income Taxes
The Company utilizes the asset and liability method of accounting for
income taxes. Under this 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.
(k) Financial Instruments
The Company's financial instruments, which include cash and cash
equivalents, accounts receivable, accounts payable, and long-term
debt, are stated at cost which approximates their fair values at June
30, 1997 and 1996.
(l) Stock-based Compensation
The Company adopted Statement of Financial Accounting Standard No. 123,
Accounting for Stock-based Compensation (Statement 123), beginning
with the Company's first quarter of fiscal 1997. Upon adoption of
Statement 123, the Company continued to measure compensation expense
for its stock-based employee compensation plans using the intrinsic
value method prescribed by APB No. 25, Accounting for Stock Issued to
Employees, and has provided pro forma disclosures of the effect on
net income and earnings per share as if the fair value-based method
prescribed by Statement 123 has been applied in measuring
compensation expense.
30 (Continued)
<PAGE>
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, Continued
(m) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of certain assets
and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of
sales and expenses during the reporting period. Actual results could
differ from those estimates.
(n) Recent Pronouncements
Statement of Financial Accounting Standard No. 128, Earnings Per Share
(Statement 128), was issued in February 1997. Statement 128 specifies
the computation, presentation, and disclosure requirements for
earnings per share. Adoption of Statement 128 will be required for
the Company beginning in the second quarter of fiscal 1998. Adoption
of Statement 128 is not expected to have a material effect on the
Company's operating results.
Additionally, Statement of Financial Accounting Standard No. 131,
Disclosures About Segments of an Enterprise and Related Information
(Statement 131) was issued in 1997. Statement 131 establishes
standards for the reporting of information about operating segments
and related disclosures about products and services, geographic
areas, and major customers. Adoption of Statement 131 will be
required in fiscal 1999 and require interim disclosures beginning in
fiscal 2000. Adoption of Statement 131 is not expected to have a
material effect on the Company's financial statement disclosures.
(2) Inventories
Inventories are summarized as follows:
1997 1996
---- ----
Raw materials $ 3,684,807 3,027,700
Work-in-process 3,072,231 3,031,441
Finished goods 978,969 1,151,179
----------- -----------
$ 7,736,007 7,210,320
=========== ===========
(3) Property, Plant and Equipment
Components of property, plant and equipment are as follows:
1997 1996
---- ----
Land and land improvements $ 1,362,050 1,362,050
Buildings 5,129,221 5,120,245
Machinery and equipment 23,588,902 22,443,583
----------- -----------
30,080,173 28,925,878
Less accumulated depreciation
and amortization 23,110,872 21,871,008
----------- -----------
$ 6,969,301 7,054,870
=========== ===========
31 (Continued)
<PAGE>
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Accrued Expenses
Accrued expenses are summarized as follows:
1997 1996
---- ----
Compensation $313,477 168,901
Commissions 242,005 180,002
Other 163,934 122,762
-------- ---------
$719,416 471,665
======== =========
(5) Long-term Debt
Long-term debt is comprised as follows:
1997 1996
---- ----
Industrial Development Revenue Bonds $ -- 906,667
Term loan 680,001 --
Capitalized lease obligations 2,057 167,967
-------- ---------
682,058 1,074,634
Less current installments 228,723 394,633
-------- ---------
$453,335 680,001
======== =========
In August 1985, Onondaga County Industrial Development Agency (OCIDA)
issued revenue bonds bearing interest at 75% of the prime rate in the
amount of $3,400,000. The proceeds from the bonds were used to construct
additions to the Company's manufacturing facility and for the purchase
of additional land and equipment. The related lease agreement, which was
to mature on May l, 2000, required semi-annual principal payments of
$113,333, plus interest. In October 1996, the bonds were extinguished
with the proceeds of the term loan described below.
In October 1996, the Company entered into an agreement for a credit
facility providing for (1) a $3,000,000 working capital revolving line
of credit bearing interest at prime plus 1% (9.5% at June 30, 1997),
maturing on November 30, 1998, and (2) a $906,667 term loan payable in
semi-annual installments of $13,333 through May 1, 2000, bearing
interest at prime plus 1.25% (9.75% at June 30, 1997). The proceeds of
the term loan were used to refinance the OCIDA revenue bonds. Borrowings
under the credit facility are secured by substantially all assets of the
Company.
The terms of the credit facility require maintenance of a minimum tangible
net worth, ratio of cash flow to current maturities, and leverage ratio,
as defined in the respective agreement. The Company was in compliance
with all restrictions and covenants at June 30, 1997.
Maturities of long-term debt are $228,723 in 1998; $226,667 in 1999 and
2000.
Cash payments for interest were $92,358, $110,959 and $186,824 during
fiscal 1997, 1996 and 1995, respectively.
32 (Continued)
<PAGE>
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Stock Option Plans
Under the Company's 1988 Incentive Stock Option Plan (1988 ISO), 1,000,000
shares of common stock were reserved for the granting of options to
officers and key employees. Options were granted at the fair market price
of shares at the date of grant, become exercisable 20% at the date of
grant and 20% per year thereafter, and must be exercised within ten years
of the date of grant. No shares are available for grant under the 1988
plan as of June 30, 1997.
During fiscal 1996, an Incentive Stock Option Plan (1996 ISO) was approved,
under which 400,000 shares of common stock were reserved for issuance to
eligible employees. Options are granted at a price not less than fair
market value of shares at the date of grant, become exercisable 20%
twelve months from the date of grant and 20% per year thereafter, and
must be exercised within ten years of the date of grant.
The Company also has a Non-Statutory Stock Option Plan (NSO) which allows
for the granting of options to Board members and nonemployees. Under the
Plan, 100,000 shares of common stock were reserved for the granting of
options at prices to be determined by the Board (options granted to Board
members may not be less than the fair market value on the date of grant).
Options become exercisable immediately and must be exercised within five
years of the date of grant.
Information for the three years ended June 30, 1997 with respect to these
plans are as follows:
<TABLE>
<CAPTION>
Weighted
Shares Average
------------------------------------ Exercise
ISO NSO Total Option Price Price
--- --- ----- ------------ -----
<S> <C> <C> <C> <C> <C>
Outstanding at July 2, 1994 621,550 82,500 704,050 $ 1.38 to 6.88 3.78
Issued 100,000 -- 100,000 4.13 4.13
Canceled (25,930) (7,500) (33,430) $ 1.38 to 6.88 4.70
Exercised (10,800) (15,000) (25,800) $ 1.38 to 4.13 2.97
--------- --------- ----------
Outstanding at July 1, 1995 684,820 60,000 744,820 $ 1.38 to 6.88 3.81
Issued 68,000 -- 68,000 $ 6.50 to 7.50 7.43
Canceled (30,000) -- (30,000) $ 1.38 to 6.88 4.90
Exercised (82,100) (60,000) (142,100) $ 1.38 to 6.88 3.19
Expired (12,850) -- (12,850) $ 6.00 6.00
--------- --------- ----------
Outstanding at June 30, 1996 627,870 -- 627,870 $ 1.38 to 7.50 4.25
Issued 95,000 10,000 105,000 $ 6.50 to 8.25 6.95
Exercised (20,000) -- (20,000) $ 1.38 to 7.50 2.97
Expired (31,870) -- (31,870) $ 6.88 6.88
--------- --------- ----------
Outstanding at June 30, 1997 671,000 10,000 681,000 $ 1.38 to 8.25 4.58
========= ========= ==========
Shares exercisable at
June 30, 1997 461,600 10,000 471,600 $ 1.38 to 8.25 3.86
========= ========= ==========
Shares available for grant at
June 30, 1997 137,000 14,000 151,000
========= ========= ==========
</TABLE>
33 (Continued)
<PAGE>
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Stock Option Plans, Continued
The following table summarizes significant ranges of outstanding and
exercisable options at June 30, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------- --------------------------
Weighted
average Weighted Weighted
Range of remaining average average
exercise life in exercise exercise
prices Shares years price Shares price
------ ------ ----- ----- ------ -----
<S> <C> <C> <C> <C> <C>
$ 1.38 to 4.12 205,000 3.25 1.38 205,000 1.38
$ 4.13 to 6.00 306,000 3.45 5.30 246,000 5.30
$ 6.01 to 8.25 170,000 8.64 7.13 20,600 7.82
--------- ---------
681,000 471,600
========= =========
</TABLE>
The per share weighted average fair value of stock options granted during
fiscal year 1997 and 1996 was $4.71 and $4.94, respectively. The fair
value of options at the date of the grant was estimated using the
Black-Scholes model with the following weighted average assumptions for
the respective fiscal year:
1997 1996
---- ----
Expected life 5 5
Interest rate 6.08% 5.63%
Volatility 78% 77%
Dividend yield 0% 0%
Stock based compensation costs would have reduced pretax income by $166,106
and $67,135 in fiscal 1997 and 1996 ($161,678 and $67,135 after tax and
$.04 and $.02 per share in fiscal 1997 and 1996, respectively) if the
fair values of options granted in that year had been recognized as
compensation expense on a straight-line basis over the vesting period of
the grant. The pro forma effect on net income for fiscal 1997 and 1996 is
not representative of the pro forma effect on net income in future years
because it does not take into consideration pro forma compensation
expense related to grants made prior to fiscal 1996.
34 (Continued)
<PAGE>
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Employee Benefit Plans
The Company has a non-contributory defined benefit pension plan covering
substantially all of its employees. Benefits under this plan generally
are based on the employee's years of service and compensation. The
following table sets forth the plan's funded status at June 30, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Actuarial present value of accumulated benefit
obligation (vested $4,195,715 in 1997 and
$3,885,557 in 1996) $4,259,753 3,944,861
Effect of assumed increase in compensation levels 368,532 341,289
---------- -----------
Projected benefit obligation for services rendered
to date 4,628,285 4,286,150
Plan assets at fair value 4,970,705 4,400,776
---------- -----------
Plan assets in excess of projected
benefit obligation 342,420 114,626
Unrecognized net gain (501,657) (270,153)
Unrecognized prior service cost 133,633 151,872
Unrecognized net transition asset (15 year
amortization) 56,793 66,259
---------- -----------
Prepaid pension asset $ 31,189 62,604
========== ===========
</TABLE>
The following table details the components of net periodic pension cost:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost $ 140,609 148,893 146,354
Interest cost 316,779 292,138 259,167
Actual return on plan assets (549,333) (406,032) (794,687)
Net amortization and deferral 223,654 114,897 571,524
---------- -------- --------
Net periodic pension cost $ 131,709 149,896 182,358
========== ======== ========
</TABLE>
The projected benefit obligation was determined using an assumed discount
rate of 7.5% and an assumed long-term rate of increase in compensation of
5.0% for 1997 and 1996. The assumed long-term rate of return on plan
assets was 8.0% for 1997 and 1996.
Plan assets consist principally of equity securities, and U.S. government
and corporate obligations.
The Company maintains a voluntary contributory salary savings plan to which
participants may contribute up to 15% of their total compensation. During
fiscal 1996 and 1995, the Company contributed an amount equal to 50% of
the participants' contribution up to a maximum of 3% of the participants'
compensation. In fiscal 1997, the Company increased its matching
contribution to an amount equal to 50% of the participants' contribution
up to a maximum of 5% of the participants' compensation. During fiscal
1997, 1996 and 1995, the Company contributed $129,115, $80,645 and
$112,255, respectively, to this plan.
35 (Continued)
<PAGE>
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Postretirement Benefits
The Company provides medical coverage for current and future eligible
retirees of the Company plus their eligible dependents. Employees
generally become eligible for retiree medical coverage by retiring from
the Company after attaining at least age 55 with 15 years of service
(active employees at June 27, 1993 were eligible by retiring after
attaining at least age 55 with 10 years of service). Retirees at June 27,
1993 pay approximately $30 per month for health care coverage and the
Company is responsible for paying the remaining costs. For this group,
any increase in health care coverage costs for retired employees will be
shared by the Company and retirees on a fifty-fifty basis, while any
increase in coverage costs for retiree dependents will be totally paid by
the retirees. For eligible employees retiring after June 26, 1993, the
Company contributes a fixed dollar amount towards the cost of the medical
plan. Any future cost increases for the retiree medical program for these
participants will be charged to the retiree.
The following table presents the accumulated postretirement benefit
obligation at June 30, 1997 and 1996:
1997 1996
---- ----
Retirees $ 553,511 550,312
Fully eligible active plan participants 144,310 284,056
Other active participants 493,811 295,552
Unrecognized net gain (loss) (10,356) 8,295
---------- ----------
Accumulated postretirement benefit
obligation $1,181,276 1,138,215
========== ==========
The following table details the components of net periodic postretirement
benefit cost:
1997 1996 1995
---- ---- ----
Service cost $ 32,784 29,296 30,522
Interest cost 84,744 78,151 71,089
-------- -------- --------
Net periodic postretirement
benefit cost $117,528 107,447 101,611
======== ======== ========
For measurement purposes, a 10% annual rate of increase in the per capita
cost of covered benefits (i.e., health care cost trend rate) was assumed
for fiscal 1997; the rate was assumed to decrease gradually to 5% by the
year 2013 and remain at that level thereafter. The health care cost trend
rate assumption has an effect on the amounts reported. However, as the
Company contributes a fixed dollar amount to the plan for the active
employee group, this impact is minimized. For example, increasing the
assumed health care cost trend rates by one percentage point in each year
would increase the accumulated postretirement benefit obligation as of
June 30, 1997 by approximately $83,000 and the aggregate of the service
and interest cost components of net periodic postretirement benefit cost
for the year ended June 30, 1997 by approximately $6,300.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% at June 30, 1997 and 1996.
36 (Continued)
<PAGE>
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Income Taxes
Income tax expense (benefit) consists of:
Current Deferred Total
------- -------- -----
Year ended June 30, 1997:
U.S. Federal $ 450,262 (738,824) (288,562)
State 17,284 271,278 288,562
--------- -------- --------
$ 467,546 (467,546) --
========= ======== ========
Year ended June 30, 1996:
U.S. Federal $ -- -- --
State -- -- --
--------- -------- --------
$ -- -- --
========= ======== ========
Year ended July 1, 1995:
U.S. Federal $(330,000) -- (330,000)
State -- -- --
--------- -------- --------
$(330,000) -- (330,000)
========= ======== ========
A reconciliation of the expected consolidated income tax expense (benefit),
computed by applying the U.S. Federal corporate income tax rate of 34% to
income (loss) before income taxes, to income tax expense (benefit), is as
follows:
1997 1996 1995
---- ---- ----
Expected consolidated income
tax expense (benefit) $ 698,735 (367,223) (612,572)
State income taxes, net of
federal income tax benefit 190,451 -- --
Foreign tax effect, net 137,722 496,520 198,662
Change in valuation allowance (1,060,599) (140,552) 58,336
Other, net 33,691 11,255 25,574
----------- -------- --------
$ -- -- (330,000)
=========== ======== ========
37 (Continued)
<PAGE>
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Income Taxes, Continued
The tax effects of temporary differences that give rise to the deferred tax
assets and deferred tax liabilities at June 30, 1997 and 1996 are
presented below:
1997 1996
---- ----
Deferred tax assets:
Inventories $ 53,711 43,425
Retirement benefits -- 6,638
Postretirement benefits 460,698 443,904
General business credit carryforwards 30,594 30,594
Federal net operating loss carryforwards -- 723,565
State net operating loss carryforwards 36,636 170,717
State investment tax credit carryforwards 804,631 766,037
Alternative minimum tax credit
carryforwards 491,902 211,952
Nondeductible reserves 11,460 11,459
----------- ----------
Total deferred tax assets 1,889,632 2,408,291
Less valuation allowance 583,104 1,643,703
----------- ----------
Net deferred tax asset 1,306,528 764,588
----------- ----------
Deferred tax liabilities:
Plant and equipment, principally due to
differences in depreciation (838,319) (764,588)
Retirement benefits (663) --
----------- ----------
Total deferred tax liabilities (838,982) (764,588)
----------- ----------
Net deferred taxes $ 467,546 --
=========== ==========
Presented as:
Current deferred tax asset 532,054 --
Long-term deferred tax liability (64,508) --
----------- ----------
$ 467,546 --
=========== ==========
38 (Continued)
<PAGE>
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Income Taxes, Continued
The valuation allowance for deferred tax assets as of June 30, 1997 and
1996 was $583,104 and $1,643,703, respectively. The net change in the
total valuation allowance for the years ended June 30, 1997 and 1996 was
a decrease of $1,060,599 and $140,552, respectively. 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 considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies in making
this assessment. Based upon the level of historical taxable income and
projections for future taxable income over the periods which the
deferred tax assets are deductible, management believes it is more
likely than not the Company will realize the benefits of these
deductible differences, net of the existing valuation allowances at June
30, 1997.
At June 30, 1997, the Company has net operating loss carryforwards for
state income tax purposes of $403,001 which are available to offset
future state taxable income, if any, through 2012. The Company also has
investment tax credit carryforwards for state income tax purposes of
$804,631 which are available to reduce future state income taxes, if
any, through 2006. In addition, the Company has alternative minimum tax
credit carryforwards of $491,902 which are available to reduce future
federal regular income taxes, if any, over an indefinite period.
Cash payments for income taxes were $0 in fiscal 1997 and 1996, and $30,113
in 1995.
(10) Restructuring
In fiscal 1995, the Company implemented cost cutting measures designed to
reduce overhead costs and improve operating efficiencies. This program
included severance of employees and reorganization of the manufacturing
and engineering functions of the Company. A restructuring charge
amounting to $360,000, consisting of severance costs, was recognized as
a result of the restructuring program.
During the third quarter of fiscal 1996, the Company recorded a
restructuring charge of $810,000 resulting from the disposition of the
net assets of the Company's European subsidiary, Anaren Microwave, Ltd.
The charge includes provisions for the writedown of assets to net
realizable value, legal and professional fees, and costs to complete an
existing electronic warfare simulator contract in excess of expected
revenues.
39 (Continued)
<PAGE>
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Commitments
The Company is obligated under an operating lease for a building. Future
minimum payments under the noncancelable operating lease for the next
five years and thereafter are summarized as follows:
Year ending June 30,
1998 $ 384,835
1999 384,835
2000 384,835
2001 384,835
2002 384,835
Thereafter 4,489,746
---------
6,413,921
Less amounts representing
sublease income 336,731
----------
$6,077,190
==========
Rent expense for the years ended June 30, 1997, June 30, 1996 and July 1,
1995 was $384,835, $373,531, and $378,483, respectively. Rent expense for
fiscal 1997 and 1996 was offset by sublease income of $125,667 and
$53,032, respectively.
The Company maintains a letter of credit arrangement with a bank. Under the
arrangement, the bank issued a letter of credit in the amount of
approximately $600,000 as required under a contract between the Company
and a customer. At June 30, 1997, the Company was required to maintain a
compensating balance of approximately $600,000 in support of this letter
of credit.
As discussed in note 1(i), the Company is currently engaged under a
technology development contract. Under this contract, the Company is
committed to provide research and development services through September
1998. Technology development fees and related costs under the contract are
anticipated to aggregate approximately $500,000 and $107,000 in fiscal
1998 and 1999, respectively.
(12) Concentrations
In 1997, sales to two customers (approximately $3,400,000 and $2,700,000,
respectively) exceeded 10% of consolidated net sales. In 1996, sales to
two customers (approximately $4,380,000 and $1,720,000, respectively)
exceeded 10% of consolidated net sales. In 1995, sales to two customers
(approximately $4,570,000 and $3,020,000, respectively) exceeded 10% of
consolidated net sales.
40 (Continued)
<PAGE>
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) Concentrations, Continued
The Company and others, which are engaged in supplying defense-related
equipment to the United States Government (the Government), are subject
to certain business risks peculiar to the defense industry. Sales to the
Government may be affected by changes in procurement policies, budget
considerations, changing concepts of national defense, political
developments abroad and other factors. Sales to the Government accounted
for approximately 16%, 20% and 48% of consolidated net sales in fiscal
1997, 1996 and 1995, respectively. While management believes there is a
high probability of continuation of the Company's current defense-related
programs, it continues to reduce its dependence on sales to the
Government through development of its commercial electronic business.
(13) Foreign Operations
The following table shows financial information about the Company's foreign
operations:
<TABLE>
<CAPTION>
Years ended
` -----------------------------------------------
June 30, 199 June 30, 1996 July 1, 1995
------------- ------------- ------------
<S> <C> <C> <C>
Net sales:
United States $ 24,226,792 15,900,956 14,929,495
European subsidiary -- 1,180,945 3,066,257
------------ ---------- ----------
Consolidated $ 24,226,792 17,081,901 17,995,752
============ ========== ==========
Operating profit (loss):
United States $ 2,055,102 392,015 (1,425,730)
European subsidiary* -- (1,496,979) (327,324)
------------ ---------- ----------
Consolidated $ 2,055,102 (1,104,964) (1,753,054)
============ ========== ==========
</TABLE>
* Includes the net loss on dissolution of the net assets of $810,000 in
fiscal 1996 (see note 10).
<TABLE>
<CAPTION>
Years ended
---------------------------------------------
June 30, 1997 June 30, 1996 July 1, 1995
------------- ------------- ------------
<S> <C> <C> <C>
Identifiable assets:
United States $25,972,543 20,674,207 20,941,042
European subsidiary -- 1,119,009 2,424,064
---------- ----------- -----------
Consolidated $25,972,543 21,793,216 23,365,106
========== =========== ===========
</TABLE>
Sales to customers located outside the United States amounted to $4,701,094
in 1997, $6,108,024 in 1996 and $9,498,737 in 1995.
41 (Continued)
<PAGE>
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) Quarterly Financial Data (Unaudited)
The following table sets forth certain unaudited quarterly financial
information for the years ended June 30, 1997 and 1996, respectively:
<TABLE>
<CAPTION>
1997 Quarter Ended
----------------------------------------------------
Sept. 30 Dec. 31 March 31 June 30
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Net sales $5,065,641 5,313,722 6,059,502 7,787,927
========== ========= ========= =========
Cost of sales $3,572,094 3,481,193 3,995,195 5,194,402
========== ========= ========= =========
Net earnings $ 209,528 370,389 464,733 1,010,452
========== ========= ========= =========
Earnings per common and common equivalent share:
Primary $ .05 .09 .11 .25
========== ========= ========= =========
Assuming full dilution $ .05 .09 .11 .21
========== ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
1996 Quarter Ended
----------------------------------------------------
Sept. 30 Dec. 31 March 31 June 30
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Net sales $4,449,465 4,441,629 4,101,685 4,089,122
========== ========= ========= =========
Cost of sales $2,808,833 2,745,411 2,913,676 2,678,590
========== ========= ========= =========
Restructuring $ -- -- 810,000 --
========== ========= ========= =========
Net earnings (loss) $ 65,947 10,844 (1,197,795) 40,935
========== ========= ========= =========
Earnings (loss) per common and common
equivalent share:
Primary $ .02 -- (.30) .01
========== ========= ========= =========
Assuming full dilution $ .02 -- (.30) .01
========== ========= ========= =========
</TABLE>
As noted in note 1(b) and note 10, during the third quarter ended March 31,
1996, the Company recorded a restructuring charge of $810,000 for costs
associated with the disposition of the net assets of the Company's
European subsidiary.
42
<PAGE>
INDEX TO EXHIBITS (1)
Exhibit No. Description
- ----------- -----------
3.1 Certificate of Incorporation of Registrant and amendments
thereof.
(i) Restated Certificate of Incorporation is incorporated
by reference to Exhibit 3(a) to Registrant's
Registration Statement of Form S-1 (No. 2-42704).
(ii) Amendment, filed December 19, 1980, is incorporated by
referenced to Exhibit 4.1(ii) to Registrant's
Registration Statement of Form S-2 (No. 2-86025).
(iii) Amendment, filed March 18, 1985 is incorporated by
reference to the identically numbered exhibit to the
Registrant's Annual Report on Form 10-K (Commission
File No. 0-6620) for the year ended June 30, 1987.
(iv) Amendment, filed December 14, 1987, is incorporated by
reference to Exhibit 4(a)(iv) to the Registrant's
Registration Statement on Form S-8 (33-19618).
a 3.2 Registrant's By-Laws, as amended.
b,c 10.1 Lease Agreement between the Registrant and the Onondaga
County Industrial Development Agency, dated June 1, 1980
together with Amendment, dated August 21, 1985 to Lease
Agreement between the Registrant and the Onondaga County
Industrial Development Agency.
h,I,k 10.2 Loan Agreement, dated June 15, 1990, by and between Fleet
National Bank and the Registrant, as amended by First
amendment to loan agreement, dated July 15, 1993, by and
between Fleet National Bank and the Registrant, and Second
amendment to loan agreement, dated June 24, 1994, by and
between Fleet National Bank and the Registrant.
10.3 Credit Facility Agreement dated as of October 1, 1996
between the Company and Manufacturers and Traders Trust
Company, together with Term Note and Revolving Credit Note
each dated October 1, 1996 executed by the Compamy to
Manufacturers and Traders Trust Company and Security
Agreement dated Ocyober 1, 1996 between the Company and
Manufacturers and Traders Trust Company.
10.4 Employment Agreement dated as of July 1, 1997 between the
Company and Lawrence A. Sala.
10.5 Consulting Agreement dated as of March 1, 1997 between the
Company and Dale F. Eck.
a 10.6 Registrant's Pension Plan and Trust. (2)
j 10.7 Registrant's Incentive Stock Option Plan. (2)
d 10.8 Registrant's Employee Stock Purchase Plan. (2)
e 10.9 Registrant's Non-Statutory Stock Option Plan (2)
f 10.10 Registrant's Severance Compensation Plan (2)
10.11 Registrant's Management Incentive Plan for 1998 (2)
g 21 Subsidiaries of Registrant
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule for the twelve month period ended
June 30, 1997, which is submitted electronically to the
Securities and Exchange Commission for information only and
is not filed.
43
<PAGE>
EXHIBIT INDEX (Continued)
a Incorporated herein by reference to exhibit 4(b) to the
Registrant's Registration Statement on Form S-8
(Registration No. 33-19618).
b Incorporated herein by reference to exhibit 4.4 to the
Registrant's Registration Statement on Form S-2
(Registration No. 2-86025)
c Incorporated herein by reference to the identically numbered
exhibit to the Registrant's Annual Report on Form 10-K for
the year ended June 30, 1985.
d Incorporated herein by reference from Exhibit No. 4(c) to
the Registrant's Registration Statement on Form S-8
(Registration No. 33-1768)
e Incorporated herein by reference from Exhibit No. 4 to the
Registrant's Registration Statement on Form S-8
(Registration No. 33-36761).
f Incorporated herein by reference to the identically numbered
exhibit to the Registrant's Annual Report on Form 10-K for
the year ended June 30, 1990.
g Incorporated herein by reference to exhibit No. 22 to the
Registrant's Annual Report on Form 10-K for the year ended
June 30, 1991.
h Incorporated herein by reference to exhibit No. 4.6 to the
Registrant's Annual Report on Form 10-K for the year ended
June 30, 1991.
i Incorporated herein by reference to exhibit No. 4.6 to the
Registrant's Annual Report on Form 10-K for the year ended
June 26, 1993.
j Incorporated herein by reference to exhibit to the
Registrant's Registration Statement on Form S-8
(Registration No. 333-03193)
k Incorporated herein by reference to exhibit 4.8 to the
Registrant's Annual Report on Form 10-K for the year ended
July 2, 1994
(1) The Company's quarterly and annual reports are filed
with the Securities and Exchange Commission under file
no. 0-6620
(2) Management contract or compensatory plan arrangement.
44
CREDIT FACILITY AGREEMENT
THIS AGREEMENT is made as of the 1st day of October, 1996 by and among
ANAREN MICROWAVE, INC., a corporation formed under the laws of the State of New
York, with an office at 6635 Kirkville Road, East Syracuse, New York 13057 and
MANUFACTURERS AND TRADERS TRUST COMPANY, a New York State banking corporation
with an office at Pioneer Business Park, 5000 Campuswood Drive, East Syracuse,
New York 13057.
The parties hereby agree as follows:
ARTICLE 1 - DEFINITIONS
1.1 The following terms shall have the following meanings unless otherwise
expressly stated herein:
"Affiliate" shall mean any entity which directly or indirectly, or through
one or more intermediaries, Controls or is Controlled By or is Under Common
Control with Borrower.
"Bank" shall mean Manufacturers and Traders Trust Company, its successors,
legal representatives, and assigns.
"Bonds" shall mean Onondaga County Industrial Development Agency 1985
Industrial Development Revenue Bonds (Anaren Microwave Inc. Project - Series
1985) dated August 22, 1985 in the original principal amount of $3,400,000.
"Borrower" shall mean Anaren Microwave, Inc. and its successors, legal
representatives, and assigns.
"Cash Flow" shall mean net income plus depreciation and amortization less
distributions, dividends, stock repurchases and the like.
"Controls" (including the terms "Controlled By" or "Under Common Control")
shall mean but not be limited to the ownership of ten percent (10%) or more of
the outstanding shares of capital stock of any corporation having voting power
for the election of directors, whether or not at the same time stock of any
other class or classes has or might have voting power by reason of the happening
of any contingency, or ownership of ten percent (10%) or more of any interest in
any partnership, or any other interest by reason of which a controlling
influence over the affairs of the entity may be exercised.
"Environment" shall mean any water including but not limited to surface
water
<PAGE>
and ground water or water vapor; any land including land surface or subsurface;
stream sediments; air; fish; wildlife; plants; and all other natural resources
or environmental media.
"Environmental Laws" shall mean all federal, state and local environmental,
land use, zoning, health, chemical use, safety and sanitation laws, statutes,
ordinances, regulations, codes and rules relating to the protection of the
Environment and/or governing the use, storage, treatment, generation,
transportation, processing, handling, production or disposal of Hazardous
Substances and the regulations, rules, ordinances, bylaws, policies, guidelines,
procedures, interpretations, decisions, orders and directives of federal, state
and local governmental agencies and authorities with respect thereto.
"Environmental Permits" shall mean all licenses, permits, approvals,
authorizations, consents or registrations required by any applicable
Environmental Laws and all applicable judicial and administrative orders in
connection with ownership, lease, purchase, transfer, closure, use and/or
operation of the Improvements and/or as may be required for the storage,
treatment, generation, transportation, processing, handling, production or
disposal of Hazardous Substances.
"Environmental Report" shall mean written reports, if any, prepared for
Bank by an environmental consulting or environmental engineering firm.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" shall mean the occurrence of any event described in
Article 13 hereof.
"GAAP" shall mean generally accepted accounting principles.
"Hazardous Substances" shall mean, without limitation, any explosives,
radon, radioactive materials, asbestos, urea formaldehyde foam insulation,
polychlorinated biphenyls, petroleum and petroleum products, methane, hazardous
materials, hazardous wastes, hazardous or toxic substances and any other
material defined as a hazardous substance in the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Sections
9601, et. seq.; the Hazardous Materials Transportation Act, as amended, 49
U.S.C. Sections 1801, et. seq.; the Resource Conservation and Recovery Act, as
amended, 42 U.S.C. Sections 6901, et. seq.; Articles 15 and 27 of the New York
State Environmental Conservation Law or any other federal, state, or local law,
regulation, rule, ordinance, bylaw, policy, guideline, procedure,
interpretation, decision, order, or directive, whether existing as of the date
hereof, previously enforced or subsequently enacted.
"Improvements" shall mean any real property owned or used by Borrower.
"Letter of Credit" shall mean any standby or documentary Letter of Credit
issued
- 2 -
<PAGE>
by the Bank pursuant to Article 3 hereof.
"Obligations" shall include all of Borrower's obligations of any kind or
nature, arising now or in the future, related to this Agreement including
without limitation obligations under the Revolving Credit Note and the Term Loan
Note.
"Prime Rate" shall mean the rate of interest designated by Bank as its
prime rate from time to time as a guide for establishing lending rates to
customers, irrespective of the actual rate charged to any specific customer with
respect to any specific transaction.
"Property" shall mean Borrower's property and plant at 6635 Kirkville Road,
East Syracuse, New York.
"Release" has the same meaning as given to that term in Section 101(22) of
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, 42 U.S.C. Section 9601(22), and the regulations promulgated
thereunder.
"Revolving Line" shall mean the revolving line of credit established
pursuant to Section 2.1 of this Agreement.
"Revolving Credit Note" shall mean the note evidencing Obligations related
to the Revolving Line as described in Section 2.2 of this Agreement.
"Revolving Line Termination Date" shall mean the date on which the
Revolving Line terminates as described in Section 2.5 of this Agreement.
"Security Agreement" shall mean the Security Agreement entered into between
Bank and Borrower concurrently herewith.
"Tangible Net Worth" shall mean total tangible assets (excluding accounts
from employees and Affiliates) less total liabilities as determined by GAAP.
"Term Loan" shall mean the term loan made pursuant to Article 4 of this
Agreement.
"Term Loan Note" shall mean the note evidencing Obligations related to the
Term Loan as described in Section 4.2 of this Agreement.
ARTICLE 2 - REVOLVING LINE
2.1 Revolving Line. Subject to the terms and conditions of this Agreement,
Bank hereby establishes for the benefit of Borrower a revolving line of credit
in the maximum principal amount of Three Million and 00/100 Dollars
($3,000,000.00) (the "Maximum Principal Amount") outstanding at any one time.
The proceeds of the Revolving Line shall be used for Borrower's working capital
purposes. For purposes of determining availability to Borrower under the
Revolving Line from time to time, the face amount of any Letters of Credit then
issued and outstanding under Article 3 hereof
- 3 -
<PAGE>
shall be treated as a borrowing under the Revolving Line. Each borrowing (except
with respect to a Letter of Credit), repayment and reborrowing (except with
respect to a Letter of Credit) under the Revolving Line shall be in an amount of
at least $100,000.
2.2 Revolving Credit Note. Borrower shall execute, together with this
Agreement, a note (the "Revolving Credit Note") evidencing Obligations related
to the Revolving Line in the form of Exhibit A attached hereto and made a part
hereof.
2.3 Interest Rate and Payments. Except as specifically provided herein, all
amounts outstanding under the Revolving Line from time to time (including any
Draft Amount, as hereinafter defined) shall bear interest until paid in full at
one percent (1%) above the Prime Rate. Changes in the rate of interest
applicable to the Revolving Credit Note shall become effective automatically and
without notice at the time of changes in the Prime Rate.
2.4 Payments. Payments of accrued interest under the Revolving Credit Note
shall be made on the first day of each month.
In the event Borrower becomes aware, or receives notice (oral or written)
from Bank, that principal amounts outstanding under the Revolving Line at any
time exceed the Maximum Principal Amount available hereunder, Borrower promptly
shall make a principal payment to Bank sufficient to reduce outstanding
principal amounts below the applicable Maximum Principal Amount.
All remaining outstanding principal and accrued interest shall be due and
payable in full on the Revolving Line Termination Date.
2.5 Revolving Line Termination. Unless extended in writing by Bank on terms
and conditions then acceptable to Bank, the Revolving Line will terminate on,
the earlier of (i) November 30, 1998, or (ii) the date of an Event of Default.
2.6 Revolving Line Facility Fee. Annually, Borrower shall pay to Bank a
Revolving Line facility fee equal to one-half of one percent (1/2 of 1%) of the
Maximum Principal Amount, or $15,000.00, which fee shall be paid by Borrower in
four (4) quarterly installments of $3,750 each in advance due on the first day
of each November, February, May and August for so long as the Revolving Line is
in effect.
ARTICLE 3 - LETTERS OF CREDIT
3.1 Letters of Credit. Subject to the terms and conditions of this
Agreement, Bank hereby agrees, upon request by Borrower, to issue to such
beneficiaries as designated by Borrower irrevocable standby Letters of Credit of
Bank in an original face amount not exceeding the Maximum Principal Amount. Any
such Letters of Credit are intended and shall be deemed to have been issued
under and in accordance with, and subject to all of the terms and conditions
applicable to loans made under, the Revolving Line, and for purposes of
determining availability to Borrower under the Revolving Line from time to time,
the face amount of any Letters of Credit then issued
- 4 -
<PAGE>
and outstanding shall be treated as a borrowing under the Revolving Line.
3.2 Borrower Responsible for Fees. In connection with the issuance of
Letters of Credit, Borrower shall be responsible for, and hereby covenants and
agrees to pay upon demand by Bank, a letter of credit issuance fee of one-half
of one percent (1/2 of 1%) of the face amount of any documentary or "trade"
Letter of Credit and two (2%) per annum of the face amount of any standby Letter
of Credit (pro rated to the nearest whole month for any period of less than
twelve (12) months such Letter of Credit is outstanding).
3.3 Repayment of Amounts Drawn Under Letters of Credit. The amount of any
drafts honored or paid by Bank and which are drawn under any Letter of Credit
("Draft Amount") shall be treated as loans under, and shall accrue interest in
accordance with the terms of, the Revolving Line from the date of payment of
such draft by Bank.
3.4 Lender's Responsibilities for Letters of Credit. Except to the extent
of its own gross negligence or willful misconduct, Bank shall not be responsible
for the validity, sufficiency, correctness or genuineness of documents presented
in connection with any Letter of Credit, even if such documents should in fact
prove to be in any or all respects incorrect, defective, invalid, insufficient,
fraudulent or forged; for any breach of contract or disputes between the party
or parties in whose favor any such Letter of Credit is drawn and Borrower; for
failure for any draft to bear reference or adequate reference to a Letter of
Credit; for errors, omissions, interruptions or delays in transmission or
delivery of any messages by mail or otherwise; or for any consequences arising
from causes beyond Bank's control; and none of the above shall affect, impair or
prevent the fixing of any of Bank's rights or powers hereunder. Any provision
with respect to any of the foregoing matters which is contained in a Letter of
Credit itself may be waived by Bank. Borrower will indemnify and hold Bank
harmless from all liabilities, losses and damages in respect of any of the
foregoing matters, and from any and all liabilities, losses and damages
whatsoever suffered by Bank by reason of any and all action taken by Bank in
good faith and without gross negligence.
3.5 Rights Under Letter of Credit. All rights under any Letter of Credit
and this Agreement as it relates to Letters of Credit shall be determined by the
Uniform Customs and Practice for Commercial Documentary Credits of the
International Chamber of Commerce in effect from time to time. Any sums refunded
or rebated by a beneficiary to Bank shall be applied by Bank as a credit to
Borrower's obligations under the Revolving Note.
ARTICLE 4 - TERM LOAN
4.1 Term Loan. Subject to the terms and conditions of this Agreement, Bank
shall make a term loan to Borrower in the principal amount of Nine Hundred Six
Thousand Six Hundred Sixty-Eight and 00/100 Dollars ($906,668.00). The proceeds
of the Term Loan shall be used to satisfy in full Borrower's obligations under
the Bonds.
- 5 -
<PAGE>
4.2 Term Loan Note. The Term Loan shall be evidenced by a note dated the
date hereof in the form of Exhibit B attached hereto and made a part hereof.
4.3 Interest Rate. Except as otherwise provided herein, all outstanding
principal amounts under the Term Loan Note shall bear interest until paid in
full, at one and one-quarter percent (1 1/4%) above the Prime Rate, with changes
in the rate of interest applicable to the Term Loan Note becoming effective
automatically and without prior notice at the time of changes in the Prime Rate.
Interest shall be calculated on the basis of a year of 360 days for the actual
number of days elapsed.
4.4 Payments/Maturity/Prepayments. The principal balance of the Term Loan
payable in semi-annual installments of $113,333 each, together with accrued
interest, due on the first day of each November and May, beginning November 1,
1996 and continuing until May 1, 2000, at which time the outstanding principal
balance of the Term Loan, together with accrued interest, shall be paid in full.
Borrower may prepay, in whole or in part, the Term Loan Note at any time without
premium. Principal prepayments shall be applied first to principal in inverse
order of maturity.
ARTICLE 5 - EXPENSES/DEFAULT RATE INCREASES
With respect to the Revolving Line, any Letters of Credit issued hereunder,
and the Term Loan:
5.1 Administrative Expenses. Borrower shall pay any fees, expenses and
disbursements, including reasonable legal fees, of Bank related to this
Agreement, the Obligations, the perfection of any collateral security required
hereunder, and the transactions contemplated by this Agreement, except as
expressly provided otherwise herein. Such payments shall be due from time to
time upon Bank giving Borrower notice of the amount of such expenses.
5.2 Collection Costs. At the request of Bank, Borrower shall promptly pay
any expenses, reasonable attorney's fees, costs, or disbursements in connection
with administration of the Obligations, or collection of any of the Obligations
or enforcement of any of Bank's rights hereunder or under any note, security
agreement, mortgage, reimbursement agreement, guarantee, or other agreement
related hereto. This obligation shall survive the payment of any notes executed
hereunder. Bank may apply any payments of any nature received by it first to the
payment of Obligations under this Section 5.2, notwithstanding any conflicting
provision contained in this Agreement or any other agreement with Borrower.
5.3 Default Interest Rate. Upon the occurrence of an Event of Default, the
rate of interest on each of the Obligations shall be increased to a rate at all
times equal to two percent (2%) above the rate of interest which would be in
effect absent such failure of compliance, such increased rate to remain in
effect through and including payment in full of all of the Obligations and
cancellation of further commitments to lend under this Agreement, or written
waiver of such Event of Default by Bank.
- 6 -
<PAGE>
5.4 Late Payment Fees. Payments of principal and/or interest not received
within ten (10) days of the date such payment is due shall be subject to a late
charge of five percent (5%) of such payment.
ARTICLE 6 - COLLATERAL
6.1 Security Interests. As collateral for all Obligations, Borrower shall
provide to Bank a first security interest and lien on all assets of Borrower
(other than the Property or any real property), including without limitation
machinery, equipment, furniture, fixtures, vehicles, accounts, inventory,
chattel paper, interests in leases and property under lease, intellectual
property and proprietary interests, documents, instruments, and general
intangibles.
6.2 [Intentionally Omitted]
ARTICLE 7 - REPRESENTATIONS OF BORROWER
Borrower represents and warrants to Bank, and shall be deemed to
continuously represent and warrant to Bank for so long as it has any Obligations
hereunder, as follows:
7.1 Organization and Power. Borrower is duly organized, validly existing
and in good standing under the laws of the State of New York, and is duly
qualified to transact business and in good standing in all states in which it is
required to qualify or in which failure to qualify could have a material adverse
impact on its business. Borrower has full power and authority to own its
properties, to carry on its business as now being conducted, to execute, deliver
and perform this Agreement and all related documents and instruments, and to
consummate the transactions contemplated hereby. Borrower has no subsidiaries or
Affiliates except those listed on Schedule 7.1.
7.2 Proceedings of Borrower. All necessary action on the part of Borrower,
including shareholder approval to the extent required, relating to authorization
of and the execution and delivery of this Agreement and all related documents
and instruments, and the performance of the Obligations of Borrower hereunder
and thereunder has been taken. This Agreement and all related documents and
instruments constitute legal, valid and binding obligations of Borrower,
enforceable in accordance with their respective terms. Borrower has no defenses,
offsets, claims, or counterclaims with respect to its obligations arising under
this Agreement and all related documents and instruments. The execution and
delivery by Borrower of this Agreement and all related documents and agreements,
and the performance by Borrower of its obligations under this Agreement and all
related documents and agreements will not violate any provision of law or
Borrower's Certificate of Incorporation or By-laws or organizational or other
documents or agreements. The execution, delivery and performance of this
Agreement and all related documents and agreements, and the consummation of the
transactions contemplated hereby will not violate, be in conflict with, result
in a breach of, or constitute a default under any agreement to which Borrower is
a party or by which any of its properties are bound, or
- 7 -
<PAGE>
any order, writ, injunction, or decree of any court or governmental
instrumentality, and will not result in the creation or imposition of any lien,
charge or encumbrance upon any of its properties.
7.3 Capitalization. All of the outstanding shares and other equity
interests of Borrower are duly authorized, validly issued, and fully paid. There
is no existing contract, debenture, security, right, option, warrant, call or
similar commitment of any character calling for or relating to the issuance or
purchase of shares or other equity interests of Borrower except for stock option
plans disclosed in Borrower's financial statements for its fiscal year ended
June 30, 1996.
7.4 Litigation. There is no action, suit or proceeding at law or in equity
or by or before any governmental instrumentality or other agency pending or, to
the knowledge of Borrower, threatened against or affecting Borrower that brings
into question the legality, validity or enforceability of this Agreement or the
transactions contemplated hereby or that, if adversely determined, would have a
material adverse effect on the financial condition or the business of Borrower.
7.5 Financial Statements. All financial statements furnished by Borrower to
Bank are complete and correct, have been prepared in accordance with GAAP
principles consistently applied throughout the periods indicated, and fairly
present the financial condition of Borrower, as of the respective dates thereof
and the results of its operation for the respective periods covered thereby.
7.6 Adverse Changes. Since the most recent financial statements described
in Section 7.5 hereof, there has been no material adverse change in the
condition, financial or otherwise, of Borrower.
7.7 Taxes. Borrower has filed or caused to filed when due all federal tax
returns and all state and local tax returns that are required to be filed, and
has paid or caused to be paid all taxes as shown on said returns or any
assessment received. Borrower's tax returns are not being audited on the date of
this Agreement and Borrower has not been notified of any intention by any taxing
authority to conduct such an audit.
7.8 Properties. Except as set forth on Schedule B to the Security
Agreement, Borrower has good and marketable title to all of its properties and
assets, including without limitation, the properties and assets reflected in the
most recent financial statements referred to in Section 7.5 hereof. Borrower has
undisturbed peaceful possession under all leases under which it is operating,
none of which contain unusual or burdensome provisions that may materially
affect the operations of Borrower, and all such leases are in full force and
effect.
7.9 Indebtedness. Except as disclosed in Borrower's financial statements
for its fiscal year ended June 30, 1996, Borrower: (i) has no outstanding
indebtedness or contingent liabilities (including without limitation
"off-balance sheet" liabilities), other than trade payables not yet due, and
incurred in the ordinary course of business, and
- 8 -
<PAGE>
(ii) is not the account party with respect to Letters of Credit.
7.10 Franchises, Permits. Borrower has all franchises, permits, licenses
and other authority as are necessary to enable Borrower to conduct its business
as now being conducted, and is not in default under any such franchise, permit,
license or authority.
7.11 ERISA. No action, event, or transaction has occurred that could give
rise to a lien or encumbrance on the assets of Borrower as a result of the
application of relevant provisions of ERISA, and Borrower is in material
compliance with all requirements of ERISA.
7.12 Margin Securities. No proceeds of the Obligations have been or will be
used for the purpose of purchasing or carrying Margin Securities as defined in
Regulation U of the Federal Reserve Board
7.13 Compliance With Law. Borrower is not in violation of any laws,
ordinances, governmental rules, requirements, or regulations to which it is
subject which violation might materially adversely affect the condition
(financial or otherwise) of Borrower. Borrower has obtained and is in compliance
with all licenses, permits, franchises, and governmental authorizations
necessary for the ownership of its properties and the conduct of its business,
for which failure to comply could materially adversely affect the condition
(financial or otherwise) of Borrower.
7.14 Patents, Trademarks, and Authorizations. Borrower owns or possesses
all patents, trademarks, service marks, trade names, copyrights, licenses,
authorizations, and all rights with respect to the foregoing, necessary to the
conduct of its business as now conducted without any material conflict with the
rights of others.
7.15 Contracts and Agreements. Borrower is not a party to any contract or
agreement that materially adversely affects its business, property, assets, or
condition, financial or otherwise, and Borrower is in compliance in all material
respects with all contracts and agreements to which it is a party.
ARTICLE 8 - CONDITIONS OF LENDING
The following conditions must be satisfied before Bank shall have any
obligation to make any advance or issue any Letter of Credit under this
Agreement:
8.1 Representations and Warranties. The representations and warranties of
Borrower contained herein shall be true and correct as of the date of making of
each such advance, with the same effect as if made on and as of such date.
8.2 No Defaults. There shall exist no condition or event that constitutes
(or that, with the giving of notice or the passage of time or both, would
constitute) an Event of Default under Article 13 hereof, and Borrower shall have
delivered a certificate to the Bank to such effect, signed by the Chief
Executive Officer, Chief
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Operating Officer or Chief Financial Officer.
8.3 Opinion of Counsel. Upon the request of Bank, Borrower shall have
delivered an opinion of its counsel, dated the date of the first advance
hereunder, in form and substance reasonably satisfactory to Bank.
8.4 Documents to be Delivered. Borrower shall have delivered to Bank all
security agreements and any related documents necessary or desirable in
connection with the requirements of Article 6 hereof. All notes evidencing the
Obligations shall have been delivered to Bank at the time of the making of the
respective loans.
8.5 Certified Resolutions. Borrower shall have delivered a certificate of
its corporate secretary certifying, as of the date of the first advance,
resolutions duly adopted by the Board of Directors of Borrower authorizing the
execution, delivery and performance of this Agreement and all related documents
and agreements, and the consummation of the transactions contemplated hereby,
which resolutions shall remain in full force and effect so long as any of the
Obligations are outstanding or any commitment to lend exists under this
Agreement.
8.6 Fees and Taxes. Borrower shall have paid all filing fees, taxes, and
assessments related to the borrowings and the perfection of any interests in
collateral security required hereunder.
8.7 Insurance. Borrower shall have delivered evidence satisfactory to Bank
of the existence of insurance required hereby.
8.8 Organizational Documents. Borrower shall have delivered to Bank copies
of its then-effective Certificate of Incorporation, By-laws, d/b/a certificates,
and other organizational documents and instruments, or in the case of advances
after the date of this Agreement, a written certificate that such documents and
instruments have not been changed or amended since the last advance to Borrower
pursuant to the terms of this Agreement.
8.9 Other Documents and Agreements. On or before the date of this
Agreement, Borrower shall have delivered such other documents, instruments, and
agreements as Bank and its legal counsel may require in connection with the
transactions contemplated hereby.
8.10 Financial Statements. On or before the date of this Agreement,
Borrower shall have delivered to Bank copies of Borrower's most recent audited
year end and unaudited quarterly financial statements.
8.11 Certificates of Good Standing. On or before the date of this Agreement
Borrower shall have delivered to Bank certificates of good standing from
appropriate state officials to the effect that Borrower is in good standing in
the state of its formation as well as in all other states in which qualification
is necessary for Borrower to carry on its business in such states.
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8.12 Satisfaction of Bonds; Title to Property. On or before the date of
this Agreement Borrower shall have taken all necessary actions such that upon
Bank's advance of the Term Loan, the Bonds shall have been paid in full and
title to the Property shall be vested in Borrower.
ARTICLE 9 - AFFIRMATIVE COVENANTS OF BORROWER
So long as any Obligations to Bank shall be outstanding or this Agreement
remains in effect, unless Bank otherwise consents in writing, Borrower shall:
9.1 Financial Statements. Furnish to Bank as soon as available, but in no
event later than one hundred twenty (120) days after the end of each of
Borrower's fiscal years in which this Agreement remains in effect, copies of
annual financial statements of Borrower in reasonable detail satisfactory to
Bank prepared in accordance with GAAP audited by and with an unqualified opinion
from an independent certified public accountant satisfactory to Bank. Said
financial statements shall include at least a balance sheet and a statement of
profit and loss, and shall be accompanied by a schedule showing computation of
financial covenants and a copy of any management letter prepared by such
accountants. Such financial statements shall be accompanied by a certificate of
the Chief Executive Officer, Chief Operating Officer or Chief Financial Officer
of Borrower to the effect that no Event of Default has occurred and no condition
exists which with the passage of time or the giving of notice would constitute
an Event of Default.
Borrower also shall furnish to Bank unaudited financial statements not more
than forty-five (45) days after the close of each fiscal quarter. Said
statements shall be in reasonable detail satisfactory to Bank, shall be prepared
in accordance with GAAP, shall include at least a balance sheet and a statement
of profit and loss. Such financial statements shall be certified as true and
correct to the best knowledge of the Chief Financial Officer of Borrower.
Within forty-five (45) days after the close of each of Borrower's fiscal
quarters, Borrower shall furnish to Bank a schedule showing computation of
financial covenants, accompanied by a certificate of the Chief Executive
Officer, Chief Operating Officer, or Chief Financial Officer of Borrower to the
effect that no Event of Default has occurred and no condition exists which with
the passage of time or the giving of notice would constitute an Event of
Default.
Borrower shall provide to Bank interim financial statements, if any,
prepared by Borrower's independent accountants.
9.2 Other Reports and Inspections. Furnish to Bank such additional
information, reports, or financial statements as Bank may, from time to time,
reasonably request.
Borrower shall permit any person designated by Bank to inspect the
property,
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assets, and books of Borrower at reasonable times and, prior to an Event of
Default, upon reasonable notice. Borrower shall discuss its affairs, finances,
and accounts at reasonable times with Bank at reasonable times and as often as
may be reasonably requested.
9.3 Taxes. Pay and discharge all taxes, assessments, levies, and
governmental charges upon Borrower, its income and property, prior to the date
on which penalties are attached thereto; provided, however, that Borrower may in
good faith contest any such taxes, assessments, levies, or charges so long as
such contest is diligently pursued and no lien or execution exists or is levied
against any of Borrower's assets related to the contested items.
9.4 Insurance. Maintain appropriate insurance in amounts satisfactory to
Bank, with responsible insurance companies on all of its real and personal
properties against such risks as are prudent, including but not limited to,
full-risk extended coverage hazard insurance to the full insurable value of real
property (coinsurance not being permitted without the prior written consent of
Bank), all-risk coverage for personal property, business interruption or loss of
rents coverage, worker's compensation insurance, and comprehensive general
liability and products liability insurance. Borrower also shall maintain flood
insurance covering any of its real properties located in flood zones. Borrower
shall provide to Bank, no less often than annually and upon its request, a
detailed list and evidence satisfactory to Bank of its insurance carriers and
coverage and shall obtain such additional insurance as Bank may reasonably
request. Hazard insurance policies for personal property shall name Bank as an
additional insured, as its interests may appear, and liability insurance
policies shall name Bank as additional insured, and all policies shall provide
for at least thirty (30) days prior notice of cancellation to Bank.
9.5 Existence. Cause to be done all things necessary to preserve and to
keep in full force and effect its existence, rights, and franchises and to
comply in all material respects with all valid laws and regulations now in
effect or hereafter promulgated by any properly constituted governmental
authority having jurisdiction.
9.6 Maintenance of Properties. At all times maintain, preserve, protect,
and keep its property used or useful in conducting its business, in good repair,
working order, and condition and, from time to time, make all needful and proper
repairs, renewals, replacements, betterments, and improvements thereto, so that
the business carried on may be properly and advantageously conducted at all
times.
9.7 Material Changes, Judgments. Notify Bank immediately of any material
adverse change in the financial condition of Borrower and of the filing of any
suits, judgments, or liens which, if adversely determined, could have a material
adverse effect on the business or financial condition of Borrower. Borrower also
shall notify Bank immediately of any change in the name, identity, or
organizational structure of Borrower.
9.8 ERISA Compliance. Comply in all material respects with the provisions
of
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ERISA and regulations and interpretations related thereto.
9.9 Franchises/Permits/Laws. Preserve and keep in full force and effect all
franchises, permits, licenses, and other authority as are necessary to enable it
to conduct its business as being conducted on the date of this Agreement and
comply in all material respects with all laws, regulations, and requirements now
in effect or hereafter promulgated by any properly constituted governmental
authority having jurisdiction over it.
9.10 Payments. Make all payments as and when required by this Agreement and
the notes and other agreements related hereto or to the Obligations.
9.11 Deposits/Bank Services. Borrower shall maintain all of its main
depository and transactional accounts at Bank.
9.12 Amendments. Borrower shall continue to operate and do business as
being conducted on the date of this Agreement and Borrower shall give Bank
written notice of an amendment or modification to its Certificate of
Incorporation or other governing documents or agreements.
9.13 Shareholder and Officer Loans. Borrower shall provide to Bank
subordination agreements in form satisfactory to Bank covering any shareholder,
employee, officer, or Affiliate loans to Borrower or other obligations of
Borrower to its respective shareholders, employees, officers, or Affiliates in
existence from time to time.
9.14 Financing of Capital Expenditures. Borrower shall finance capital
expenditures beyond $1,500,000 in any fiscal year with Bank.
ARTICLE 10 - NEGATIVE COVENANTS OF BORROWER
So long as any Obligations shall be outstanding, or this Agreement shall
remain in effect, unless Bank otherwise consents in writing, Borrower shall not,
directly or indirectly:
10.1 Sale, Lease or Mortgage on Property. (i) Sell, lease, transfer or
otherwise dispose of, or (ii) create, incur, assume, or allow to exist,
voluntarily or involuntarily, any (A) obligation for borrowed money or its
equivalent relating to, or (B) mortgage, pledge, lien or other encumbrance on or
with respect to, all or any portion of the Property, or title thereto or any
interest therein.
10.2 Contingent Liabilities. (i) assume, guarantee, endorse, contingently
agree to purchase, or otherwise become liable in any manner upon any obligation,
contingent or otherwise, whether funded or current except for endorsement of
negotiable instruments for deposit, collection, or similar transactions in the
ordinary course of business, (ii) guarantee the dividends, of any person, firm,
corporation, or other entity, or (iii) become the general partner in any
partnership.
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10.3 Loans and Investments. Make any loan or advance to, or any investment
in, any person, firm, joint venture, corporation or other entity whatsoever,
except short-term investments in certificates of deposit of financial
institutions and similar investments made in the ordinary course of business.
10.4 Mergers, Sales and Acquisitions/Change in Ownership Interests. Enter
into any merger or consolidation, or acquire all or substantially all the stock
or other ownership interests or assets of any person, firm, joint venture,
corporation, or other entity, or sell, lease, transfer, or otherwise dispose of
any material portion of its assets except in the ordinary course of business.
10.5 Amendments. Allow the amendment or modification of its Certificate of
Incorporation, By-laws, or other governing documents and agreements in any
respect which would be materially adverse to the interests of Bank without the
prior written consent of Bank.
10.6 Material Changes. Permit any material change to be made in the
character of the business of Borrower, or in its principal management unless an
alternative management plan has been approved by Bank, or in the nature of its
operations as carried on at the date hereof.
10.7 Compensation. Compensate any person or entity, including without
limitation salaries, bonuses, consulting fees, or otherwise, in excess of
amounts reasonably related to services rendered to Borrower.
10.8 Judgments. Allow to exist any judgments against Borrower in excess of
$100,000, which are not fully covered by insurance or for which an appeal or
other proceeding for the review thereof shall not have been taken and for which
a stay of execution pending such appeal shall not have been obtained.
10.9 Margin Securities. Allow any proceeds of the Obligations to be used
for the purpose of carrying any Margin Securities as defined in Regulation U of
the Board of Governors of the Federal Reserve.
ARTICLE 11 - FINANCIAL COVENANTS
So long as any Obligations to Bank shall be outstanding or this Agreement
remains in effect, unless Bank otherwise consents in writing, Borrower shall:
11.1 Minimum Tangible Net Worth. Maintain a minimum Tangible Net Worth of
the following amounts during the following periods, measured quarterly as shown
on the monthly financial statements provided to Bank showing results as of the
end of each of Borrower's fiscal quarters:
Tangible Net Worth
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From closing through 6/29/97 $18,000,000.00
From 6/30/97 through 6/29/98 $18,750,000.00
From 6/30/98 through 6/29/99 $19,500,000.00
From 6/30/99 and thereafter $20,000,000.00
11.2 Cash Flow To Current Maturities. Maintain minimum Cash Flow to current
maturities of long term debt, determined according to GAAP, of 1.25 to 1.0,
measured as of the end of the second and fourth quarters of each fiscal year.
11.3 Leverage Ratio. Borrower will maintain at all times a ratio of total
liabilities to tangible net worth of not greater than 0.75 to 1.0.
ARTICLE 12 - ENVIRONMENTAL MATTERS; INDEMNIFICATION
12.1 Environmental Representations. Borrower represents and warrants that,
to the best of Borrowers's knowledge:
(a) Neither the Improvements nor any property adjacent to the
Improvements is being or has been used for the storage, treatment,
generation, transportation, processing, handling, production or disposal of
any Hazardous Substance, or as a landfill or other waste disposal site or
for the storage of petroleum or petroleum based products, except in
compliance with all Environmental Laws.
(b) Underground storage tanks are not and have not been located on the
Improvements except in compliance with all Environmental Laws.
(c) The soil, subsoil, bedrock, surface water and groundwater of the
Improvements are free of any Hazardous Substances.
(d) There has been no Release, nor is there the threat of a Release of
any Hazardous Substance on, at or from the Improvements or any property
adjacent to or within the immediate vicinity of the Improvements which
through soil, subsoil, bedrock, surface water or groundwater migration
could come to be located on the Improvements, and Borrower has not received
any form of notice or inquiry from any federal, state or local governmental
agency or authority, any operator, tenant, subtenant, licensee or occupant
of the Improvements or any property adjacent to or within the immediate
vicinity of the Improvements or any other person with regard to a Release
or the threat of a Release of any Hazardous Substance on, at or from the
Improvements or any property adjacent to the Improvements.
(e) All Environmental Permits relating to Borrower and the
Improvements have been obtained and are in full force and effect.
(f) No event has occurred with respect to the Improvements which, with
the passage of time or the giving of notice, or both, would constitute a
violation of
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any applicable Environmental Law or non-compliance with any Environmental
Permit.
(g) There are no agreements, consent orders, decrees, judgments,
license or permit conditions or other orders or directives of any federal,
state or local court, governmental agency or authority relating to the
past, present or future ownership, use, operation, sale, transfer or
conveyance of the Improvements which require any change in the present
condition of the Improvements or any work, repairs, construction,
containment, clean up, investigations, studies, removal or other remedial
action or capital expenditures with respect to the Improvements.
(h) There are no actions, suits, claims or proceedings, pending or
threatened, which could cause the occurrence of expenses or costs of any
name or description or which seek money damages, injunctive relief,
remedial action or any other remedy that arise out of, relate to or result
from (i) a violation or alleged violation of any applicable Environmental
Law or non-compliance or alleged non-compliance with any Environmental
Permit, (ii) the presence of any Hazardous Substance or a Release or the
threat of a Release of any Hazardous Substance on, at or from the
Improvements or any property adjacent to or within the immediate vicinity
of the Improvements or (iii) human exposure to any Hazardous Substance,
noises, vibrations or nuisances of whatever kind to the extent the same
arise from the condition of the Improvements or the ownership, use,
operation, sale, transfer or conveyance thereof.
12.2 Environmental Covenants. Borrower covenants and agrees with Bank that,
so long as this Agreement remains in effect, Borrower shall:
(a) Comply with, and shall cause all operators, tenants, subtenants,
licensees and occupants of the Improvements to comply with all applicable
Environmental Laws and shall obtain and comply with, and shall cause all
operators, tenants, subtenants, licensees and occupants of the Improvements
to obtain and comply with, all Environmental Permits.
(b) Not cause or permit any change to be made in the present or
intended use of the Improvements which would (i) violate any applicable
Environmental Law, (ii) constitute non-compliance with any Environmental
Permit or (iii) materially increase the risk of a Release of any Hazardous
Substance.
(c) Promptly provide Bank with a copy of all notifications which it
gives or receives with respect to any past or present Release or the threat
of a Release of any Hazardous Substance on, at or from the Improvements or
any property adjacent to the Improvements.
(d) Undertake and complete all investigations, studies, sampling and
testing and all removal and other remedial actions required by law to
contain, remove and clean up all Hazardous Substances that are determined
to be present
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at the Improvements in accordance with all applicable Environmental Laws
and all Environmental Permits.
(e) At all times allow Bank and its officers, employees, agents,
representatives, contractors and subcontractors reasonable access to the
Improvements for the purposes of ascertaining site conditions, including,
but not limited to, subsurface conditions.
(f) Deliver promptly to Bank: (i) copies of any documents received
from the United States Environmental Protection Agency, or any state,
county or municipal environmental or health agency concerning Borrower's
operations or the Improvements; and (ii) copies of any documents submitted
by Borrower to the United States Environmental Protection Agency or any
state, county or municipal environmental or health agency concerning its
operations or the Improvements.
(g) If at any time Bank obtains any reasonable evidence or information
which suggests that a material potential environmental problem may exist at
the Improvements, Bank may require that a full or supplemental
environmental inspection and audit report with respect to the Improvements
of a scope and level of detail satisfactory to Bank be prepared by an
environmental engineer or other qualified person acceptable to Bank at
Borrower's expense. Such audit may include a physical inspection of the
Improvements, a visual inspection of any property adjacent to or within the
immediate vicinity of the Improvements, personnel interviews and a review
of all Environmental Permits. If Bank requires, such inspection shall also
include a records search and/or subsurface testing for the presence of
Hazardous Substances in the soil, subsoil, bedrock, surface water and/or
groundwater. If such audit report indicates the presence of any Hazardous
Substance or a Release or the threat of a Release of any Hazardous
Substance on, at or from the Improvements, Borrower shall promptly
undertake and diligently pursue to completion all necessary, appropriate
and legally authorized investigative, containment, removal, clean up and
other remedial actions, using methods recommended by the engineer or other
person who prepared said audit report and acceptable to the appropriate
federal, state and local agencies or authorities.
12.3 Indemnity. Borrower agrees to indemnify, defend, and hold harmless
Bank from and against any and all liabilities, claims, damages, penalties,
expenditures, losses, or charges, including, but not limited to, all costs of
investigation, monitoring, legal representation, remedial response, removal,
restoration or permit acquisition of any kind whatsoever, which may now or in
the future be undertaken, suffered, paid, awarded, assessed, or otherwise
incurred by Bank (or any other person or entity affiliated with Bank or
representing or acting for Bank or at Bank's behest, or with a claim on Bank or
to whom Bank has liability or responsibility of any sort related to this Section
12.3) relating to, resulting from or arising out of (a) the use of the
Improvements for the storage, treatment, generation, transportation, processing,
handling, production or disposal of any Hazardous Substance or as a landfill or
other waste disposal site, (b) the presence of any Hazardous Substance or a
Release or the threat of a Release of any
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Hazardous Substance on, at or from the Improvements, (c) the failure to promptly
undertake and diligently pursue to completion all necessary, appropriate and
legally authorized investigative, containment, removal, clean up and other
remedial actions with respect to a Release or the threat of a Release of any
Hazardous Substance on, at or from the Improvements, (d) human exposure to any
Hazardous Substance, noises, vibrations or nuisances of whatever kind to the
extent the same arise from the condition of the Improvements or the ownership,
use, operation, sale, transfer or conveyance thereof, (e) a violation of any
applicable Environmental Law, (f) non-compliance with any Environmental Permit
or (g) a material misrepresentation or inaccuracy in any representation or
warranty or a material breach of or failure to perform any covenant made by
Borrower in this Agreement. Such costs or other liabilities incurred by Bank or
other entity described in this Section 12.3 shall be deemed to include, without
limitation, any sums which Bank deems it necessary or desirable to expend to
protect its security interests and liens.
12.4 No Limitation. The liability of Borrower under this Article 12 shall
in no way be limited, abridged, impaired or otherwise affected by (a) any
amendment or modification of this Agreement or any other document relating to
the Obligations by or for the benefit of Borrower or any subsequent owner of the
Improvements except for an amendment or modification which expressly refers to
this Article 12, (b) any extensions of time for payment or performance required
by this Agreement or any other document relating to the Obligations, (c) the
release of Borrower, any guarantor or any other person from the performance or
observance of any of the agreements, covenants, terms or conditions contained in
this Agreement or any other document relating to the Obligations by operation of
law, Bank's voluntary act or otherwise, (d) the invalidity or unenforceability
of any of the terms of provisions of this Agreement or any other document
relating to the Obligations, (e) any exculpatory provision contained in this
Agreement or any other document relating to the Obligations limiting Bank's
recourse to property encumbered by any mortgage or to any other security or
limiting Bank's rights to a deficiency judgment against Borrower, (f) any
applicable statute of limitations, (g) any investigation or inquiry conducted by
or on the behalf of Bank or any information which Bank may have or obtain with
respect to the environmental or ecological condition of the Improvements, (h)
the sale, assignment or foreclosure of any interest in collateral for the
Obligations, (i) the sale, transfer or conveyance of all or part of the
Improvements, (j) the dissolution and liquidation of Borrower, (k) the death or
legal incapacity of any individual, (l) the release or discharge, in whole or in
part, of Borrower in any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or similar proceeding, or (m) any other
circumstances which might otherwise constitute a legal or equitable release or
discharge of Borrower, in whole or in part.
12.5 Survival. Notwithstanding anything to the contrary contained herein,
Borrower's liability and obligations under Section 12.4 shall survive the
discharge, satisfaction or assignment of this Agreement by Bank and the payment
in full of all of the Obligations.
12.6 Investigations. If Borrower defaults on any of its Obligations
pursuant to
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this Agreement or any other loan document, Bank or its designee shall have the
right, upon reasonable notice to Borrower, to enter upon the Improvements and
conduct such tests, investigation and sampling, including but not limited to
installation of monitoring wells, as shall be reasonably necessary for Bank to
determine whether any disposal of Hazardous Substances has occurred on, at or
near the Improvements. The costs of all such tests, investigations and samplings
shall be considered as additional indebtedness secured by all collateral for the
Obligations and shall become immediately due and payable without notice and with
interest thereon at highest rate then borne by any of the Obligations.
12.7 No Warranty Regarding Information. Borrower agrees that Bank shall not
be liable in any way for the completeness or accuracy of any Environmental
Report or the information contained therein. Borrower further agrees that Bank
has no duty to warn Borrower or any other person or entity about any actual or
potential environmental contamination or other problem that may have become
apparent or will become apparent to Bank.
ARTICLE 13 - DEFAULTS
13.1 Defaults. The following events ("Events of Default") shall constitute
defaults under this Agreement.
(a) Nonpayment. Failure of Borrower to make any payment of any type
required under the terms of this Agreement, any of the notes related hereto, or
of any of the agreements contemplated hereunder, within ten (10) days after the
same becomes due and payable.
(b) Performance. Failure of Borrower to observe or perform any
condition, covenant or term of this Agreement and all related agreements and
documents; provided, however, that if such failure is susceptible to cure, an
Event of Default shall not occur unless such failure is not cured within fifteen
(15) days after Bank gives Borrower notice of same.
(c) Other Obligations. Failure of Borrower to observe or perform any
other condition, covenant, or term of any other agreement with Bank after any
applicable cure or grace period related thereto, or default by Borrower under
any material agreement involving borrowed money or the like or any other
material agreement with any third person or entity.
(d) Representations. Failure of any representation or warranty made by
Borrower in connection with the execution and performance of this Agreement, or
any certificate of officers pursuant hereto, to be truthful, accurate or correct
in all material respects.
(e) Financial Difficulties. Financial difficulties of Borrower as
evidenced by:
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(i) any admission in writing of inability to pay debts as they
become due; or
(ii) the filing of a voluntary or involuntary petition in
bankruptcy, or under any chapters of Bankruptcy Code, or
under any federal or state statute providing for the relief
of debtors; or
(iii) making an assignment for the benefit of creditors; or
(iv) consenting to the appointment of a trustee or receiver for
all or a major part of any of its property; or
(v) the entry of a court order appointing a receiver or a
trustee for all or a major part of its property; or
(vi) the occurrence of any event, action, or transaction that
could give rise to a lien or encumbrance on the assets of
Borrower as a result of application of relevant provisions
of ERISA.
(f) Material Change. Material change in (i) Borrower's business or
operations, or in any material factor affecting Borrower's business or
operations, or (ii) regarding any other material obligation or agreement of
Borrower, or (iii) in the financial condition of Borrower or in the collateral
for the Obligations, or any other condition by reason of which Bank reasonably
believes Borrower's ability to timely repay any Obligations to Bank is impaired.
13.2 Remedies. If any one or more Events of Default occur, Bank may, at its
option, take either or both of the following actions at the same or different
times: (i) terminate any further commitments or obligations of Bank, and (ii)
accelerate all Obligations of Borrower to Bank such that the same become
forthwith due and payable without presentment, demand, protest, or other notice
of any kind, all of which are hereby expressly waived.
In case any such Events of Default shall occur, Bank shall be entitled to
recover judgment against Borrower for all Obligations of Borrower to Bank either
before, or after, or during the pendency of any proceedings for the enforcement,
of any security interests, mortgages, pledges, or guarantees and, in the event
of realization of any funds from any security or guarantee and application
thereof to the payment of the Obligations due, Bank shall be entitled to enforce
payment of and recover judgment for all amounts remaining due and unpaid on such
Obligations. Bank shall be entitled to exercise any other legal or equitable
right which it may have, and may proceed to protect and enforce its rights by
any other appropriate proceedings, including action for the specific performance
of any covenant or agreement contained in this Agreement and other agreements
held by Bank.
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ARTICLE 14 - MISCELLANEOUS
14.1 Waiver. No delay or failure of Bank to exercise any right, remedy,
power or privilege hereunder shall impair the same or be construed to be a
waiver of the same or of any Event of Default or an acquiescence therein. No
single or partial exercise of any right, remedy, power or privilege shall
preclude other or further exercise thereof by Bank. All rights, remedies,
powers, and privileges herein conferred upon Bank shall be deemed cumulative and
not exclusive of any others available.
14.2 Survival of Representations. All representations and warranties
contained herein shall survive the execution and delivery of this Agreement and
the execution and delivery of other agreements hereunder.
14.3 Additional Security/Setoff. Bank shall have a security interest in and
right of set off with respect to all deposits or other sums credited by or due
from Bank to Borrower and a security interest in all securities or other
property of Borrower in Bank's possession for safekeeping or otherwise. Bank's
security interest shall secure payment of the Obligations. Upon an Event of
Default under this Agreement, regardless of the adequacy of collateral, without
any demand or notice, except as required by applicable law, Bank may apply or
set off such deposits or other sums and may sell or dispose of any or all of
such securities or other property and may exercise any and all rights it may
have under the New York Uniform Commercial Code, as in effect from time to time.
The rights of Bank under this Agreement are in addition to, and not exclusive
of, any other rights it may have with respect to such deposits, sums,
securities, or other property under other agreements or applicable principles of
law. Bank shall have no duty to take steps to preserve rights against prior
parties as to such securities or other property.
14.4 Notices. Any notice or demand upon any party hereto shall be deemed to
have been sufficiently given or served for all purposes hereof when delivered in
person or by nationally recognized overnight courier with receipt requested, or
two business days after it is mailed certified mail postage prepaid, return
receipt requested, addressed as follows:
If to Bank: Manufacturers and Traders Trust Company
Pioneer Business Park
5000 Campuswood Drive
East Syracuse, New York 13057
Attention: David E. McKeon, Vice President
If to Borrower: Anaren Microwave, Inc.
6635 Kirkville Road
East Syracuse, New York 13057
Attention: Vice President of Finance
With a copy to: Bond, Schoeneck & King, LLP
- 21 -
<PAGE>
One Lincoln Center
Syracuse, New York 12302
Attention: David M. Ferrara, Esq.
Any party may change, by notice in writing to the other parties, the address to
which notices to it shall be sent.
14.5 Entire Agreement. This Agreement and the documents referred to herein
embody the entire agreement and understanding among the parties and supersede
all prior agreements and understandings relating to the subject matter hereof.
This Agreement shall not be changed or amended without the written agreement of
all parties hereto. This Agreement embodies all commitments to lend between Bank
and Borrower and supersedes any prior commitments.
14.6 Parties in Interest. All the terms and provisions of this Agreement
shall inure to the benefit of and be binding upon and be enforceable by the
parties and their respective successors and assigns and shall inure to the
benefit of and be enforceable by any holder of notes executed hereunder. Upon
any transfer of any Obligation or any interest therein Bank may deliver or
otherwise transfer or assign to the holder any collateral or guarantees for the
Obligation, which holder shall thereupon have all the rights of Bank.
14.7 Business Days. Whenever any payment or obligation hereunder is due to
be performed on a Saturday, Sunday, or banking holiday in the State of New York,
such payment may be made or obligation performed on the next succeeding business
day. Such extension of time shall be included in the computation of any interest
or fees.
14.8 Oral and Telecopy Requests. As a convenience to Borrower, Borrower
hereby authorizes Bank to rely upon requests made by Borrower through its Chief
Executive Officer, President, or Vice President of Finance in writing or by
telecopy, and to treat such requests as if they were made in a writing delivered
to Bank. Any advance of funds made by Bank pursuant to any such request shall be
deemed to be authorized by Borrower unless immediately repaid in full.
14.9 Severability. In the event that any one or more of the provisions
contained in this Agreement or any other agreement, document, or guarantee
related hereto shall, for any reason, be held invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement or such other agreement, document or
guarantee.
14.10 Governing Law. This Agreement and the notes and agreements hereunder,
together with all of the rights and obligations of the parties hereto, shall be
construed, governed and enforced in accordance with the laws of the State of New
York.
14.11 Participations. Bank shall have the right to sell or repurchase
- 22 -
<PAGE>
participations in the Obligations without giving prior notice to Borrower, so
long as Bank retains servicing responsibility with respect to this Agreement and
the transactions contemplated hereby.
14.12 Jurisdiction/Trial By Jury. Borrower consents to jurisdiction and
service of process, which may be effected by certified mail, in the courts of
the State of New York and in the courts of the United States sitting in Onondaga
County, New York.
Borrower waives trial by jury of any claims or proceedings with
respect to this agreement, the obligations, and all document, agreement,
and matters related hereto to the fullest extent allowed by law.
[signatures on next page]
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
ANAREN MICROWAVE, INC.
By: s/ Joseph E. Porcello
-------------------------
Joseph E. Porcello
Vice President of Finance
MANUFACTURERS AND TRADERS TRUST COMPANY
By: s/ David E. McKeon
-------------------------
David E. McKeon
Vice President
- 23 -
<PAGE>
STATE OF NEW YORK )
COUNTY OF ONONDAGA )ss.:
On this 1 day of October, 1996, before me personally came JOSEPH E.
PORCELLO, to me known, who, being by me duly sworn did depose and say that he
resides in Fayetteville, New York, that he is VICE PRESIDENT OF FINANCE of
ANAREN MICROWAVE, INC., the corporation described in and which executed the
foregoing instrument and that he signed thereto by order of the Board of
Directors of said corporation.
s/ Gary L. Karl
---------------------------
Notary Public
STATE OF NEW YORK )
COUNTY OF ONONDAGA )SS.:
On this 1 day of October, 1996, before me personally came DAVID E.
MCKEON, to me known, who, being by me duly sworn did depose and say that he
resides in Camillus, New York, that he is VICE PRESIDENT of MANUFACTURERS AND
TRADERS TRUST COMPANY, the corporation described in and which executed the
foregoing instrument and that he signed thereto by order of the Board of
Directors of said corporation.
s/ Gary L. Karl
---------------------------
Notary Public
- 24 -
<PAGE>
TERM NOTE
October 1, 1996 $906,668.00
Unless otherwise expressly provided herein, all capitalized terms in this Term
Note shall have the meanings given to them in the Credit Facility Agreement
dated October 1, 1996 between ANAREN MICROWAVE, INC. ("Borrower") and
MANUFACTURERS AND TRADERS TRUST COMPANY ("Bank"), as the same may be amended,
extended, replaced, or modified from time to time (the "Credit Agreement").
Promise to Pay. For value received, Borrower promises to pay to the order of the
Bank, on the dates set forth below, the principal sum of Nine Hundred Six
Thousand Six Hundred Sixty Eight and no/100 Dollars ($906,668.00) (the
"Principal") plus interest thereon as provided for in the Credit Agreement; plus
all fees and costs (including without limitation reasonable attorneys' fees and
disbursements, whether for internal or outside counsel) the Bank incurs in order
to collect any amount due under this Note, to negotiate or document a workout or
to preserve its rights or realize upon any guaranty or other security for the
payment of this Note ("Expenses").
Interest. The unpaid Principal balance of this Note shall earn interest
calculated on the basis of a 360-day year for the actual number of days of each
year (365 or 366) from and including the date the proceeds of this Note were
disbursed to but not including the date all amounts hereunder are paid in full
at a rate per year that shall on each day be one and one-quarter percent (1
1/4%) above the rate in effect on that day as the rate announced by the Bank as
its prime rate of interest.
Interest Rate Cap. It is the intent of the Bank and Borrower that in no event
shall interest be payable at a rate in excess of the maximum rate permitted by
applicable law (the "Maximum Legal Rate"). Solely to the extent necessary to
prevent interest under this Note from exceeding the Maximum Legal Rate, any
amount that would be treated as excessive under a final judicial interpretation
of applicable law shall be deemed to have been a mistake and automatically
canceled, and, if received by the Bank, shall be refunded to Borrower. If no
rate is specified, interest shall accrue at the Maximum Legal Rate.
Repayment; Late Charge. Borrower shall pay the Principal in consecutive
semi-annual payments due on each May 1 and November 1 commencing on November 1,
1996. In addition, until the outstanding Principal is paid in full, payments of
all accrued and unpaid interest in amounts which will vary will become due and
payable semi-annually on the same dates as the Principal repayment installments
are payable. Each Principal payment will equal $113,333.00 except that the last
Principal payment will also include all other amounts due hereunder. Payments
shall be made in immediately available United States funds at any banking office
of the Bank. Interest will continue to accrue until payment is actually
received. If payment is not received within ten (10) days of the date due by
acceleration or otherwise, Borrower shall pay a late charge equal to the
greatest of (a) $50.00, (b) 5% of the delinquent amount or (c) the Bank's then
current late charge as announced from time to time. Payments may be applied in
any order in the sole discretion of the Bank but prior to default shall be
applied first to past due interest, Expenses, late charges and principal, then
to current interest, Expenses, late charges and principal, and last to remaining
principal and future fees.
<PAGE>
Default Rate. If an Event of Default occurs, the interest rate on the unpaid
Principal shall immediately be increased to 2% per year above the otherwise
applicable rate per year.
Maturity Date. The Maturity Date of this Note is May 1, 2000.
Prepayment. This Term Note is prepayable to the extent allowed by, and on the
terms provided by the Credit Agreement.
Events of Default; Acceleration. Any event of default under the Credit Agreement
shall be an event of default ("Event of Default") hereunder. All amounts
hereunder shall become immediately due and payable upon the occurrence of an
Event of Default.
Right of Setoff. If an Event of Default occurs, the Bank shall have in addition
to its other rights the right to set off against the amounts owing under this
Note any deposit account or other property held by the Bank in any capacity for
Borrower or any Guarantor in any capacity.
Cumulative Nature of Bank's Rights and Remedies. All rights and remedies of the
Bank under applicable law and this and other agreements of Borrower are
cumulative and not exclusive. No single, partial or delayed exercise by the Bank
of any right or remedy shall preclude full and timely exercise by the Bank at
any time of any right or remedy of the Bank without notice. No course of dealing
or other conduct, no oral agreement or representation made by the Bank or usage
of trade shall operate as a waiver of any right or remedy of the Bank. No waiver
shall be effective unless made specifically in writing by the Bank.
Notices. Notices to Borrower by the Bank may be delivered in person, in writing
or by telephone with subsequent confirmation by mail or teletransmission.
Written notice shall be deemed delivered when deposited in the United States
mail or transmitted to Borrower at the last address of Borrower shown on the
Bank's records. Notice to the Bank by Borrower must be in writing, refer
specifically to this Note and be delivered in person or by registered mail
directed to the Bank at the address stated on page one. Notices shall be deemed
delivered only when actually received by an officer of the Bank. Borrower will
notify the Bank promptly of any change of address.
Miscellaneous. This Note, together with Credit Agreement and any related
security agreements and guaranties, contains the entire agreement between the
Bank and Borrower with respect to the Note, and supersedes every course of
dealing, other conduct, oral agreement and representation previously made by the
Bank. No change in this Note shall be effective unless made in a writing duly
executed by both parties. This Note shall be governed by the laws of the State
of New York, without regard to its principles of conflict of laws. This Note is
a binding obligation enforceable against Borrower and its successors and assigns
and shall inure to the benefit of the Bank and its successors and assigns. Each
provision of this Note shall survive until all amounts due are paid to the
Bank's satisfaction, shall be interpreted as consistent with existing law and
shall be deemed amended to the extent necessary to comply with any conflicting
law. If a court deems any provision invalid, the remainder of the Note shall
remain in effect. Section headings are for convenience only. Singular number
includes plural and neuter gender includes masculine and feminine as
appropriate.
- 2 -
<PAGE>
Borrower's Waivers and Consents. In any action or other legal proceeding
relating to this Note, Borrower (1) consents to the personal jurisdiction of any
State or federal court located in Onondaga County, New York and (2) agrees that
in any legal proceeding, a copy of this Note kept in the Bank's course of
business may be admitted into evidence as an original.
Waiver of Jury Trial. BORROWER AND THE BANK EACH WAIVE ANY RIGHT TO TRIAL BY
JURY IN ANY ACTION IN CONNECTION WITH THIS NOTE.
Preauthorized Transfers from Deposit Account. If a deposit account number is
provided in the following blank Borrower hereby authorizes the Bank to debit
available funds in Borrower's deposit account # ____________ with the Bank
automatically for the full amount of each payment which becomes due under this
Note.
BORROWER:
ANAREN MICROWAVE, INC.
Tax ID 16-0928561 By: s/ Joseph E. Porcello
-------------------------
Joseph E. Porcello,
Vice President of Finance
STATE OF NEW YORK )
COUNTY OF ONONDAGA )SS.:
On this 1 day of October, 1996, before me personally came JOSEPH E.
PORCELLO, to me known, who, being by me duly sworn did depose and say that the
above-named person resides in Fayetteville, New York, that said person is VICE
PRESIDENT OF FINANCE of ANAREN MICROWAVE, INC., the corporation described in and
which executed the foregoing instrument; and that the above-named person signed
thereto by order of the Board of Directors of said corporation.
s/ Gary L. Karl
---------------------------
Notary Public
FOR BANK USE ONLY
Credit A/C # _____________ Off Ck # _______ Payoff Obligation # ____________
$ _____________ $ _______ $ ____________
Prepared by _________________________ Reviewed by _______________________
Authorization Confirmed: _______________________________________________________
- 3 -
<PAGE>
REVOLVING CREDIT NOTE
October 1, 1996 $3,000.000.00
Unless otherwise expressly provided herein, all capitalized terms in this
Revolving Credit Note shall have the meanings given to them in that certain
Credit Facility Agreement dated October 1, 1996 between ANAREN MICROWAVE, INC.
("Borrower") and MANUFACTURERS AND TRADERS TRUST COMPANY ("Bank"), as the same
may be amended, extended, replaced, or modified from time to time (the "Credit
Agreement").
Promise to Pay. For value received, Borrower promises to pay to the order of the
Bank, on November 30, 1998, or upon the occurrence of an Event of Default, if
earlier, the principal sum of Three Million and 00/100 Dollars ($3,000,000.00)
(referred to in the Credit Agreement as the "Maximum Principal Amount") or the
outstanding principal amount of this Note (the "Outstanding Principal Amount"),
if less; plus interest thereon as provided for in the Credit Agreement; plus all
fees and costs (including without limitation reasonable attorneys' fees and
disbursements, whether for internal or outside counsel) the Bank incurs in order
to collect any amount due under this Note, to negotiate or document a workout or
to preserve its rights or realize upon any guaranty or other security for the
payment of this Note ("Expenses").
Interest. The Outstanding Principal Amount of this Note shall earn interest
calculated on the basis of a 360-day year for the actual number of days of each
year (365 or 366) from and including the date the proceeds of this Note were
disbursed to but not including the date all amounts hereunder are paid in full,
at a rate per year that shall on each day be equal to one percent (1%) above the
rate in effect on that day as the rate announced by the Bank as its prime rate
of interest.
Interest Rate Cap. It is the intent of the Bank and of Borrower that in no event
shall interest be payable at a rate in excess of the maximum rate permitted by
applicable law (the "Maximum Legal Rate"). Solely to the extent necessary to
prevent interest under this Note from exceeding the Maximum Legal Rate, any
amount that would be treated as excessive under a final judicial interpretation
of applicable law shall be deemed to have been a mistake and automatically
canceled, and, if received by the Bank, shall be refunded to Borrower.
Payments; Late Charge; Default Rate. Payments shall be made in immediately
available United States funds at any banking office of the Bank. Absent demand
for payment in full, interest shall be due and payable monthly. If payment is
not received within ten (10) days of demand or due date, Borrower shall pay a
late charge equal to the greatest of (a) five percent (5%) of the delinquent
amount, (b) the Bank's then current late charge as announced by the Bank from
time to time, or (c) $50.00. In addition, if the Bank has not actually received
any payment under this Note within thirty days after it is due or demanded, from
and after such thirtieth day the interest rate for all amounts outstanding under
this Note shall automatically increase to two percent (2%) above the otherwise
applicable rate per year. Payments may be applied in any order in the sole
discretion of the Bank but prior to demand shall be applied first to past due
interest Expenses and late charges, then to scheduled principal payments, if
any, which are past due, then to current interest and Expenses, and last to
remaining principal and future fees.
<PAGE>
Set off. The Bank's rights and remedies under applicable law and this Note are
cumulative and not exclusive and shall include without limitation the right to
set off against the amounts owing under this Note any property held in a deposit
or other account with the Bank or otherwise owing by the Bank in any capacity to
Borrower or any guarantor or endorser of this Note in any capacity.
Authorized Representatives. This Note is issued by Borrower to the Bank in
connection with Revolving Line made available by the Bank to Borrower pursuant
to the terms of the Credit Agreement. The Bank may make any loan pursuant to the
Revolving Line (the "Loan(s)") in reliance upon any oral (including but not
limited to telephonic), written (including but not limited to teletransmitted)
or other request (the "Request(s)") that the Bank in good faith believes to be
valid and to have been made by Borrower or in the name or on behalf of Borrower
by the Chief Executive Officer, President or Vice President of Finance (each an
"Authorized Person"). The Bank shall remain authorized to act on the Request of
each Authorized Person until the Bank shall have received from Borrower and had
a reasonable time to act on written notice revoking the authority of any
Authorized Person. The Bank shall incur no liability to Borrower or to any other
person as a direct or indirect result of making any Loan pursuant to this
paragraph.
Acceleration. The Outstanding Principal Amount of this Note and all accrued and
unpaid interest and Expenses shall automatically become immediately due and
payable if Borrower or any guarantor or endorser of this Note commences or has
commenced against it any bankruptcy or insolvency proceeding. Borrower hereby
waives protest, presentment and notice of any kind in connection with this Note.
Bank Records Conclusive. The Holder shall set forth on a schedule attached to
this Note or maintained on computer, the date and original principal amount of
each Loan and the date and amount of each payment to be applied to the
Outstanding Principal Amount of this Note. The Outstanding Principal Amount set
forth on any such schedule shall be presumptive evidence of the Outstanding
Principal Amount of this Note and of all Loans. No failure by Bank to make, and
no error by Bank in making, any annotation on any such schedule shall affect
Borrower's obligation to pay the principal and interest of each Loan or any
other obligation of Borrower to Bank pursuant to this Note.
Purpose. Borrower certifies (1) that no Loan will be used to purchase margin
stock except with the Bank's express prior written consent for each such
purchase and (2) that all Loans shall be used for a business purpose, and not
for any personal, family or household purpose.
Authorization. Borrower represents that it is duly organized and in good
standing or duly constituted in the state of its organization and is duly
authorized to do business in all jurisdictions material to the conduct of its
business; that the execution, delivery and performance of this Note have been
duly authorized by all necessary regulatory and corporate or partnership action
or by its governing instrument; that this Note has been duly executed by an
authorized officer and constitutes a binding obligation enforceable against
Borrower and not in violation of any law, court order or agreement by which
- 2 -
<PAGE>
Borrower is bound; and that Borrower's performance is not threatened by any
pending or threatened litigation.
Miscellaneous. This Note, together with the Credit Agreement and any related
security agreements, contains the entire agreement between the Bank and Borrower
with respect to each Loan, and supersedes every course of dealing, other
conduct, oral agreement and representation previously made by the Bank. No
change in this Note shall be effective unless made in a writing duly executed by
both parties. This Note shall be governed by the laws of the State of New York,
without regard to its principles of conflict of laws. This Note is a binding
obligation enforceable against Borrower and its successors and assigns and shall
inure to the benefit of the Bank and its successors and assigns. Each provision
of this Note shall survive until all amounts due are paid to the Bank's
satisfaction, shall be interpreted as consistent with existing law and shall be
deemed amended to the extent necessary to comply with any conflicting law. If a
court deems any provision invalid, the remainder of the Note shall remain in
effect. Section headings are for convenience only. Singular number includes
plural and neuter gender includes masculine and feminine as appropriate. No
single, partial or delayed exercise by the Bank of any right or remedy shall
preclude full and timely exercise by the Bank at any time of any right or remedy
of the Bank without notice. No waiver of any right or remedy of the Bank shall
be effective unless made specifically in writing by the Bank.
Borrower's Waivers and Consents. In any action or other legal proceeding
relating to this Note, Borrower (1) consents to the personal jurisdiction of any
State or federal court located in Onondaga County, New York, and (2) agrees that
a copy of this Note kept in the Bank's course of business may be admitted into
evidence as an original.
Waiver Of Jury Trial. BORROWER AND THE BANK EACH WAIVE ANY RIGHT TO TRIAL BY
JURY IN ANY ACTION IN CONNECTION WITH THIS NOTE.
Preauthorized Transfers from Deposit Account. If a deposit account number is
provided in the following blank Borrower hereby authorizes the Bank to debit
available funds in Borrower's deposit account # with the Bank automatically for
the full amount of each interest payment which becomes due under this Note and
for any scheduled principal payment or as directed by Borrower's Authorized
Representative for such account, by telephone.
BORROWER:
Anaren Microwave, Inc.
Tax ID# 16-0928561 By: s/ Joseph E. Porcello
-------------------------
Joseph E. Porcello,
Vice President of Finance
- 3 -
<PAGE>
STATE OF NEW YORK )
COUNTY OF ONONDAGA )SS.:
On this 1 day of October, 1996, before me personally came JOSEPH E.
PORCELLO, to me known, who, being by me duly sworn did depose and say that the
above-named person resides in Fayetteville, New York, that said person is VICE
PRESIDENT OF FINANCE of Anaren Microwave, Inc., the corporation described in and
which executed the foregoing instrument; and that the above-named person signed
thereto by order of the Board of Directors of said corporation.
Gary L. Karl
--------------------------
Notary Public
FOR BANK USE ONLY
Credit A/C # _____________ Off Ck # _______ Payoff Obligation # ____________
$ _____________ $ _______ $ ____________
Prepared by _________________________ Reviewed by _______________________
Authorization Confirmed: _______________________________________________________
- 4 -
<PAGE>
SECURITY AGREEMENT
AGREEMENT made this 1st day of October, 1996, between ANAREN MICROWAVE,
INC., a New York corporation (hereinafter called the "Debtor"), and
MANUFACTURERS AND TRADERS TRUST COMPANY, a bank organized under the laws of the
State of New York (hereinafter called the "Secured Party").
In consideration of the extension of credit by Secured Party to Debtor, and
particularly the extensions of credit provided for in a certain Credit Facility
Agreement dated October 1, 1996, between Debtor and Secured Party (hereinafter
called the "Credit Agreement"), it is hereby agreed as follows:
ARTICLE 1 - SECURITY INTEREST
Debtor hereby grants a present security interest in and assigns to Secured
Party the collateral described in Article 2 (hereinafter called the "Security
Interest") to secure payment and performance of all debts, liabilities and
obligations of any kind, whenever and however incurred, of Debtor to Secured
Party, including more particularly, but not limited to, the indebtedness
described in the Credit Agreement, and whether such indebtedness is from time to
time reduced and thereafter increased or entirely extinguished and thereafter
reincurred, including, without limitation, any sums advanced by Secured Party
for taxes, assessments, insurance and other charges and expenses as hereinafter
provided (hereinafter called the "Indebtedness").
ARTICLE 2 - COLLATERAL
The collateral of this Security Agreement is all of Debtor's personal
property, tangible or intangible, of every kind and description, wherever
located, including but not limited to all goods, machinery, equipment,
inventory, furniture, fixtures, documents, instruments, securities, cash,
general intangibles, contract rights, trademarks, patents, licenses, franchises,
chattel paper, and accounts, which are owned by Debtor or in which Debtor has an
interest, or which Debtor may purchase or in which Debtor may acquire an
interest at any time from time to time in the future, and all additions and
accessions thereto and any and all profits and products thereof or accruing
thereto; together with all the proceeds thereof in any form, including insurance
proceeds (hereinafter collectively called the "Collateral").
ARTICLE 3 - DEBTOR'S WARRANTIES AND REPRESENTATIONS
Debtor represents and warrants and, so long as any Indebtedness remains
unpaid, shall be deemed to continuously represent and warrant that:
3.1 Debtor is the owner of the Collateral free of all security interests,
liens or
<PAGE>
other encumbrances, except the Security Interest and except for the existing
security interests reflected on Schedule B annexed hereto.
3.2 Debtor is authorized to enter into this Security Agreement.
3.3 This Security Agreement is effective to vest in Secured Party the
Security Interest in the Collateral as set forth herein.
3.4 Debtor is authorized to enter into the transactions evidenced by the
Credit Agreement.
3.5 Debtor is engaged in business operations which are carried on at the
address(es) specified in Schedule A annexed hereto.
3.6 Debtor's records concerning the Collateral are kept at the address(es)
specified in Schedule A annexed hereto.
3.7 The Collateral is located at the address(es) specified in Schedule A
annexed hereto.
3.8 Each account is genuine and enforceable in accordance with its terms
against the party obligated to pay or perform it (the "account debtor").
3.9 The amounts or performance represented by Debtor to Secured Party as
owing by each account debtor or all account debtors is the correct amount or
performance actually owing by the account debtor or all account debtors, except
for normal cash discounts where applicable.
3.10 To the best of Debtor's knowledge, no account debtor has any defense,
set off, claim or counterclaim against Debtor which can be successfully asserted
against Secured Party, whether in any proceeding to enforce this Security
Agreement and the rights conferred hereunder or otherwise.
3.11 Each account or all accounts arose in the ordinary course of Debtor's
business.
3.12 No notice of the bankruptcy, insolvency or financial embarrassment of
any account debtor has been received by Debtor.
3.13 The Collateral is used or bought for use primarily for Debtor's
business operations.
- 2 -
<PAGE>
3.14 If the Collateral is of a type normally used in more than one state
(such as automotive equipment, rolling stock, airplanes, road building
equipment, commercial harvesting equipment, construction machinery and the like)
and Debtor has a place of business in more than one state, the chief place of
business is that indicated on Schedule A annexed hereto.
3.15 If the Collateral is or will become a fixture, it will be affixed to
real property which is located at the address(es) described in Schedule A
annexed hereto; and such real property is owned by Debtor.
ARTICLE 4 - COVENANTS OF DEBTOR
So long as any Indebtedness remains unpaid, Debtor:
4.1 will defend the Collateral against the claims and demands of all other
parties, except that the Debtor need not so defend the Collateral against
purchasers and lessees of inventory in the ordinary course of Debtor's business.
4.2 will keep the Collateral free from all security interests, liens or
other encumbrances, except the Security Interest and except as reflected in
Schedule B annexed hereto.
4.3 will not sell, transfer, assign or otherwise dispose of any Collateral
or any interest therein, except as reflected in Schedule B annexed hereto,
except that Debtor may, until the occurrence of an event of default as
hereinafter provided, sell or lease inventory, or equipment no longer needed for
its operations, in the ordinary course of Debtor's business.
4.4 will indemnify Secured Party against all claims arising out of or in
connection with Debtor's ownership or use of the Collateral.
4.5 will at all times maintain, in accordance with generally accepted
accounting principles consistently applied, complete and accurate books and
records concerning the Collateral, and at Secured Party's request will mark all
books and records and any or all accounts to indicate the Security Interest.
4.6 will permit the Secured Party or its agents to inspect the Collateral,
to audit the books and records of Debtor relating to the Collateral and to make
extracts from them or from any of Debtor's books, reports, records and
correspondence upon reasonable notice and at reasonable times, and to inspect
Debtor's business locations and operations at any reasonable time Secured Party
deems proper.
4.7 will deliver to Secured Party upon demand any documents of title,
chattel paper, invoices, shipping or delivery receipts, purchase orders,
contracts or other documents
- 3 -
<PAGE>
representing or concerning the Collateral or any part thereof and any proceeds
and any and all other schedules, documents and statements which Secured Party
may from time to time reasonably request.
4.8 will advise Secured Party promptly in writing, in sufficient detail, of
any substantial change in the Collateral and of the occurrence of any event
which would have a material effect on the value of the Collateral as a whole or
on the lien and Security Interest granted to the Secured Party herein.
4.9 will, on Secured Party's reasonable request, execute and deliver to
Secured Party such financing statements and other papers and do all acts as in
Secured Party's judgment may be necessary or appropriate to establish and
maintain a valid and prior security interest in the Collateral; and on Debtor's
failure to do so, Secured Party may sign any financing statements or other
papers on Debtor's behalf; and Debtor will pay all costs of any filings of
financing statements or other papers.
4.10 will insure the Collateral against any and all risks which might
reasonably be expected and in coverage, form and amount reasonably satisfactory
to Secured Party with Secured Party named as additional insured, or loss payee
as its interests may appear, with provision for ten (10) days' minimum
cancellation notice to Secured Party; should the Collateral consist in whole or
in part of real property the Secured Party is to be named as mortgagee, and, at
Secured Party's written request, will deliver each such policy or certificate of
insurance to Secured Party.
4.11 will promptly notify Secured Party in writing of any change in
Debtor's business address(es) specified in Schedule A annexed hereto and of any
changes in the location(s) specified therein or of the existence of additional
locations at which the Collateral or records concerning it are kept; and, if any
such change in location requires a refiling of a financing statement to perfect
the Security Interest in any of the Collateral or is to a place without the
state or province in which the Collateral is located on the date hereof, will
not change such location without at least thirty (30) days prior written notice
to Secured Party.
4.12 will promptly notify Secured Party in writing of any condition or
event which constitutes, or would constitute with the passage of time or giving
of notice or both, default under this Security Agreement, and shall promptly
inform Secured Party of any events or changes in Debtor's financial condition
occurring since the date of this Security Agreement which individually or
cumulatively may result in a material adverse change in the financial condition
of Debtor.
4.13 will pay prior to delinquency all taxes, charges, liens and
assessments against the Collateral; and on Debtor's failure to do so Secured
Party at its option may pay any of such items and shall be the sole judge, as
between it and Debtor, of the legality or validity
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<PAGE>
thereof and the amount necessary to discharge the same. Such payment shall
become part of the Indebtedness secured by the Security Agreement.
4.14 will reimburse Secured Party for any action elected hereunder and
taken by Secured Party to remedy a default hereunder.
4.15 will at all times while a default exists under this Security Agreement
and after demand of Secured Party, keep the Collateral and its proceeds separate
and distinct from other property of Debtor; and will at all times (before or
after any default) keep accurate and complete records of the Collateral and its
proceeds.
4.16 for so long as any event of default exists under this Security
Agreement, before or after notification to account debtors, will hold in trust
for Secured Party all proceeds in the forms of cash and negotiable instruments
for the payment of money received by Debtor in payment of any account and,
following demand of Secured Party, will not later than the next business day
following the day of their receipt pay the same over to Secured Party for
application against the Indebtedness of Debtor to Secured Party, the order and
method of application to be in the sole discretion of Secured Party.
4.17 for so long as any event of default exists under this Security
Agreement, will, following demand of Secured Party, immediately notify Secured
Party of any default by any account debtor in performance of his obligation with
respect to any account.
4.18 for so long as any event of default exists under this Agreement, and
following demand of Secured Party, will not, without Secured Party's written
consent, make or agree to make any alteration, modification, cancellation of,
substitution for, credit, adjustment or allowance on any account.
4.19 will, if the Collateral is of a type normally used in more than one
state and Debtor has a place of business in more than one state, immediately
notify Secured Party in writing of any change in Debtor's chief place of
business from that shown on Schedule A annexed hereto.
4.20 [this Section intentionally omitted.]
4.21 will prevent the Collateral or any part of it from being or becoming
an accession to other goods not covered by this Security Agreement.
4.22 will keep the Collateral in good condition and repair, will not allow
it to be misused or abused, wasted or allowed to deteriorate, except for the
ordinary wear and tear of its intended primary use, and will not use it in
violation of any provisions of this Security Agreement, any applicable statute,
regulation, ordinance or of any policy insuring it.
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<PAGE>
4.23 if the Collateral is not a fixture, will prevent the Collateral or any
part of it from becoming a fixture except as indicated on Schedule A annexed
hereto.
ARTICLE 5 - DEFAULT
Subject to any applicable provision for notice and/or a grace period or
time to cure contained in the Credit Agreement, any of the following events or
conditions shall constitute a default hereunder:
5.1 nonpayment when due, whether by acceleration or otherwise, of principal
or interest on any Indebtedness;
5.2 default by Debtor in the prompt performance of any of the terms,
obligations, covenants or provisions contained or referred to in this Security
Agreement or the Credit Agreement between Debtor and Secured Party;
5.3 nonpayment when due of any tax imposed on Debtor or on any asset of
Debtor;
5.4 Debtor shall (a) fail to pay any indebtedness for borrowed money (other
than the Indebtedness) of the Debtor or any interest or premium thereon, when
due (whether by scheduled maturity, required prepayment, acceleration, demand,
or otherwise), or (b) fail to perform or observe any term, covenant, or
condition on its part to be performed or observed under any agreement or
instrument relating to any such indebtedness, when required to be performed or
observed, if the effect of such failure to perform or observe is to accelerate,
or to permit the acceleration after the giving of notice or passage of time, or
both, of the maturity of such indebtedness, whether or not such failure to
perform or observe shall be waived by the holder of such indebtedness; or any
such indebtedness shall be declared to be due and payable, or required to be
prepaid (other than by a regularly scheduled required prepayment), prior to the
stated maturity thereof;
5.5 the Debtor (a) shall generally not, or shall be unable to, or shall
admit in writing its inability to pay its debts as such debts become due; or (b)
shall make an assignment for the benefit of creditors; petition or apply to any
tribunal for the appointment of a custodian, receiver, or trustee for it or a
substantial part of its assets; or (c) shall commence any proceeding under any
bankruptcy, reorganization, arrangement, readjustment of debt, dissolution, or
liquidation law or statute of any jurisdiction, whether now or hereafter in
effect; or (d) shall have any such petition or application filed or any such
proceeding commenced against it in which an order for relief is entered or
adjudication or appointment is made and which remains undismissed for a period
of forty (40) days or more; or (e) by any act or omission shall indicate its
consent to, approval of, or acquiescence in any such petition, application, or
proceeding or order for relief or the appointment of a custodian, receiver, or
trustee for
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<PAGE>
all or any substantial part of its properties; or (f) shall suffer any such
custodianship, receivership, or trusteeship to continue undischarged for a
period of forty (40) days or more;
5.6 one or more judgments, decrees, or orders for the payment of money in
excess of One Hundred Thousand Dollars ($100,000) in the aggregate (unless
covered by insurance) shall be rendered against the Debtor and such judgments,
decrees, or orders shall continue unsatisfied and in effect for a period of
forty (40) consecutive days without being vacated, discharged, satisfied, or
stayed or bonded pending appeal;
5.7 this Security Agreement shall at any time after its execution and
delivery and for any reason cease (a) to create a valid and perfected first
priority security interest in and to the property purported to be subject to
such Security Agreement; or (b) to be in full force and effect or shall be
declared null and void, or the validity or enforceability thereof shall be
contested by the Debtor, or the Debtor shall deny it has any further liability
or obligation under this Security Agreement, or the Debtor shall fail to perform
any of its obligations under the Security Agreement;
5.8 the sale, assignment, transfer or delivery of all or substantially all
of Debtor's assets; or the cessation by Debtor as a going business concern;
5.9 any certificate, statement, representation, warranty or audit
heretofore or hereafter furnished by or on behalf of Debtor, any guarantor or
any other party liable for payment, of any Indebtedness pursuant to or in
connection with this Security Agreement or otherwise, proves to have been false
in any material respect at the time as of which the facts therein set forth were
stated or certified, or to have omitted any substantial contingent or
unliquidated liability or claim against Debtor or any guarantor or other party;
or upon the date of execution of this Security Agreement, there shall have been
any materially adverse change in any of the facts disclosed by any such
certificate, statement, representation, warranty or audit, which shall not have
been disclosed to Secured Party at or prior to the time of such execution; or
5.10 loss, theft, damage or destruction of any material portion of the
Collateral for which there is either no or insufficient insurance coverage.
ARTICLE 6 - SECURED PARTY'S REMEDIES ON DEFAULT
6.1 Subject to any applicable provision for notice and/or a grace period or
time to cure contained in the Credit Agreement, on the occurrence of an event of
default, and at any time thereafter while an event of default remains uncured,
Secured Party may, without notice to Debtor, declare any or all of the
obligations secured by this Security Agreement immediately due and payable; and
Secured Party's rights and remedies with respect to the Collateral shall be
those of a Secured Party under the Uniform Commercial Code and under any other
applicable law, as the same may from time to time be in effect, in addition to
those rights granted herein and in any other
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<PAGE>
agreement now or hereafter in effect between Debtor and Secured Party.
6.2 Subject to any applicable provision for notice and/or a grace period or
time to cure contained in the Credit Agreement, after any default by Debtor
under this Security Agreement, Secured Party may notify all or any account
debtors of the Security Interest and may also direct such account debtors to
make all payments on accounts to Secured Party. Secured Party may, upon written
notice, require Debtor to so notify and direct the account debtors. All payments
on and other proceeds from accounts received by Secured Party directly or from
Debtor shall be applied to the Indebtedness in such order and manner and at such
times as Secured Party shall, in its sole discretion, determine reasonably
necessary to comply with the terms of repayment of any Indebtedness. Subject to
any applicable provision for notice and/or a grace period or time to cure
contained in the Credit Agreement, after any default by Debtor under this
Security Agreement, any payments on or other proceeds of accounts received by
Debtor, before or after notification to account debtors, shall be held by Debtor
in trust for Secured Party in the same medium in which received, shall not be
commingled with any assets of Debtor and shall be turned over to Secured Party
not later than the next business day following the day of their receipt. Debtor
shall also promptly notify Secured Party of the return to or repossession by
Debtor of any inventory or goods underlying any account, and Debtor shall hold
the same in trust for Secured Party and shall dispose of the same as Secured
Party directs. Subject to any applicable provision for notice and/or a grace
period or time to cure contained in the Credit Agreement, after any default,
Secured Party may also demand, collect and sue on the accounts in either
Debtor's or Secured Party's name at the latter's option, with the right to
enforce, compromise, settle or discharge any account, and may endorse Debtor's
name on any and all checks, commercial paper and any other instruments
pertaining to the accounts.
6.3 Without in any way requiring notice to be given in the following time
and manner, Debtor agrees that any notice by Secured Party of any sale,
disposition or other intended action hereunder or in connection herewith,
whether required by the Uniform Commercial Code or otherwise, shall constitute
reasonable notice to Debtor (to each of them if there are more than one) if such
notice is mailed by regular or certified mail, postage prepaid, at least ten
(10) days prior to such action, to Debtor's address first specified in Schedule
A annexed hereto and to any other address which Debtor has specified in writing
to Secured Party as the address at which notices hereunder shall be given to
Debtor.
6.4 On Secured Party's written notice to Debtor, Debtor will assemble the
Collateral and make it available to Secured Party at such place, to be
designated in said notice, as is reasonably convenient to both parties.
6.5 Debtor agrees to pay all costs and expenses actually incurred by
Secured Party in enforcing this Security Agreement, in realizing upon any
Collateral and in enforcing and collecting any Indebtedness, including, without
limitation, reasonable
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<PAGE>
attorneys' fees if Secured Party retains counsel for any such purpose.
6.6 No act, delay, omission, or course of dealing between Debtor and
Secured Party will be a waiver of any of Secured Party's rights or remedies
under this Security Agreement; and no single or partial exercise of any right or
remedy hereunder shall preclude any other or further exercise thereof or the
exercise of any other right or remedy. A waiver by Secured Party of any rights
or remedies under the terms of this Security Agreement or with respect to any
obligation secured by this Security Agreement on any occasion will not be a bar
to the exercise of any right or remedy on any subsequent occasion. Secured Party
may remedy any default by Debtor hereunder or with respect to any Indebtedness
in any reasonable manner without waiving the default remedied and without
waiving any other prior or subsequent default by Debtor.
ARTICLE 7 - OTHER RIGHTS OF SECURED PARTY
7.1 Secured Party shall have the right to verify all or any accounts in any
manner and through any medium Secured Party may consider reasonably appropriate
and Debtor agrees to furnish all assistance and information and perform any acts
which Secured Party may reasonably require in connection therewith.
7.2 Debtor hereby authorizes Secured Party, at Debtor's expense, to file
such financing statement or statements relating to the Collateral without
Debtor's signature thereon as Secured Party at its option may reasonably deem
necessary in order to perfect its Security Interest hereunder, and appoints
Secured Party as Debtor's attorney-in-fact (without requiring Secured Party) to
execute any such financing statement or statements in Debtor's name and to
perform all other acts which Secured Party reasonably deems necessary in order
to perfect and continue the Security Interest and to protect and preserve the
Collateral.
7.3 As further security for payment of the Indebtedness, Debtor hereby
grants to Secured Party a security interest in and lien on any and all property
of Debtor which is or may hereafter be in Secured Party's possession in any
capacity, including, without limitation, all moneys owed or to be owed by
Secured Party to Debtor; and with respect to all of such property, Secured Party
shall have the same rights hereunder as it has with respect to the Collateral.
7.4 Without limiting any other right of Secured Party, whenever Secured
Party has the right to declare any Indebtedness to be immediately due and
payable (whether or not it has so declared), Secured Party at its sole election
may set off against the Indebtedness any and all moneys then owed to Debtor by
Secured Party in any capacity, whether or not due, and Secured Party shall be
deemed to have exercised such right of setoff immediately at the time of such
election even though any charge therefor is made or entered on Secured Party's
records subsequent thereto.
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<PAGE>
7.5 The rights and benefits of Secured Party hereunder shall, if Secured
Party so agrees, inure to any party acquiring any interest in the Indebtedness
or any part thereof.
7.6 Secured Party shall have no obligation to take, and Debtor shall have
the sole responsibility for taking, any and all steps to preserve rights against
any and all prior parties to any instrument or chattel paper in Secured Party's
possession as proceeds in connection with this Security Agreement. Debtor waives
protest of any instrument constituting Collateral at any time held by Secured
Party on which Debtor is in any way liable and waives notice of any other action
taken by Secured Party.
ARTICLE 8 - GENERAL PROVISIONS
8.1 All rights and remedies of Secured Party inure to the benefit of its
successors or assigns and Debtor may assert no claims or defenses against the
assignee which it may have against the Secured Party except those granted by
this Security Agreement or the Credit Agreement.
8.2 As used in this Security Agreement, "Debtor" means singular or plural
according to the number of persons signing this Security Agreement and includes
Debtor's heirs, executors, administrators, successors, representatives,
receivers and trustees; "Secured Party" includes its successors and assigns.
8.3 If this Security Agreement is signed by more than one person as Debtor,
it will be the joint and several agreement of all signing.
8.4 If any provision of this Security Agreement is invalid or unenforceable
under any law, such provision is and will be totally ineffective to that extent,
but the remaining provisions will be unaffected.
8.5 Division headings used in this Security Agreement are for convenience
only and are to be given no substantive meaning or significance whatever in
construing the terms and provisions of this Security Agreement.
8.6 Any notice to Secured Party will be effective only on its receipt by
Secured Party.
8.7 This Security Agreement and the transactions evidenced by it shall be
interpreted, construed, applied and enforced in accordance with the laws of the
State of New York, as they may from time to time be in effect.
8.8 This Security Agreement together with the Credit Agreement constitutes
the entire understanding between the parties to it with respect to the
transactions contemplated herein; and no modification, rescission, release,
amendment, or waiver (except as indicated in this Security Agreement) of any
provision of this Security
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<PAGE>
Agreement shall be made except by a written agreement subscribed by Debtor and
by Secured Party or their agents.
8.9 This Security Agreement is and is intended to be a continuing Security
Agreement and shall remain in full force and effect until Secured Party shall
actually receive written notice of its discontinuance; and shall remain in full
force and effect thereafter until all of the Indebtedness contracted for or
created before the receipt of such notice by Secured Party, and any extensions
or renewals thereof (whether made before or after receipt of such notice)
together with interest accruing thereon after such notice, shall be paid in
full.
8.10 In the event the Secured Party seeks to take possession of any or all
of the Collateral by court process, Debtor hereby irrevocably waives any bonds
and any surety or security relating thereto required by any statute, court rule
or otherwise as an incident to such possession, and waives any demand for
possession prior to the commencement of any suit or action to recover with
respect thereto and waives the right to demand a jury in the trial of any action
in which the Secured Party and Debtor are parties.
8.11 All pronouns and any variations thereof shall be deemed to refer to
the masculine, feminine, neuter, singular or plural, as the identity of the
person or persons may require.
8.12 The exercise by the Secured Party or failure to exercise any authority
granted it hereunder shall in no way affect Debtor's liability to the Secured
Party hereunder or under the Credit Agreement; and Secured Party shall not be
under any obligation or duty to exercise any of the powers hereby conferred upon
it and it shall be without liability for any act or failure to act in connection
with the collection of, or the preservation of any rights with regard to, any of
the Collateral.
ANAREN MICROWAVE, INC.
By: s/ Joseph E. Porcello
--------------------------------
STATE OF NEW YORK )
COUNTY OF ONONDAGA ) ss.:
On this 1 day of October, 1996 before me personally came JOSEPH E.
PORCELLO, who being by me duly sworn, did depose and say: that he resides in
Fayetteville, New York; that he is the VICE PRESIDENT OF FINANCE of ANAREN
MICROWAVE, INC., the corporation described in and which executed the foregoing
instrument; and that he signed his name thereto by order of the Board of
Directors of said corporation.
s/ Gary L. Karl
-----------------------------------
Notary Public
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<PAGE>
SCHEDULE A
1. Name and mailing address of each Debtor:
6635 Kirkville Road
East Syracuse, New York 13057
2. Address of each location of the business operations of each
Debtor:
6635 Kirkville Road
East Syracuse, New York 13057
3. Address of each location where each Debtor maintains or keeps
records concerning the Collateral:
6635 Kirkville Road
East Syracuse, New York 13057
4. Each address where any Collateral is located:
6635 Kirkville Road
East Syracuse, New York 13057
5. Chief place of business and chief executive office of each
Debtor:
6635 Kirkville Road
East Syracuse, New York 13057
6. Address of each location where each Debtor has any Collateral
which is a fixture:
6635 Kirkville Road
East Syracuse, New York 13057
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<PAGE>
SCHEDULE B
OTHER SECURITY INTERESTS IN THE COLLATERAL
See attached information request response from the New York Department of
State dated September 24, 1996, and the attached computer print-out from the
Onondaga County Clerk dated September 23, 1996.
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EMPLOYMENT AGREEMENT
This sets forth the Employment Agreement ("Agreement") made
effective as of July 1, 1997 between Anaren Microwave, Inc. ("Employer"), a New
York corporation with common stock publicly traded on the NASDAQ, and Lawrence
A. Sala ("Employee"), an individual currently residing at _____________________,
__________________.
IN CONSIDERATION of the mutual covenants and representations
contained herein, and other good and valuable consideration, receipt of which is
acknowledged, the parties agree as follows:
1. Employment.
(a) Term. Employer shall continue to employ Employee,
and Employee shall continue to serve, as President for a fifty-three (53) month
term commencing on July 1, 1997 and ending on November 30, 2001 ("Period of
Employment"), subject to termination as provided in this Agreement.
(b) Salary. During the period July 1, 1997 through
November 30, 1997, Employer shall pay Employee Base Salary at an annual rate of
$180,000 ("Base Salary"). Employee's Base Salary for the period December 1, 1997
through November 30, 1998, and for each succeeding 12 month period through
November 30, 2001, shall be determined by the Employer's Board of Directors but
shall not be set below $180,000 annually. Employee's Base Salary is payable in
accordance with Employer's regular payroll procedures for executive employees.
(c) Incentive Bonuses. Employee shall be entitled to
annual incentive bonuses pursuant to the terms of the Management Incentive Plan
which has been approved by the Board of Directors of Employer to cover key
management personnel of Employer. Upon termination of Employee's employment
pursuant to
<PAGE>
subparagraph 3(a), (b), or (c), Employee shall be entitled to a pro
rata portion (based on Employee's complete months of active employment in the
applicable year) of the annual incentive bonus that is payable with respect to
the year during which the termination occurs, or in the case of a termination
upon Employee's disability pursuant to subparagraph 3(c), six months after the
disability period began.
(d) Successor Agreement. Beginning July 1, 2001,
Employee and Employer shall commence good faith negotiations, to be completed by
September 30, 2001, for Employee's continued employment by Employer after the
end of the Period of Employment. If Employee and Employer cannot agree on the
terms of Employee's continued employment by November 30, 2001, Employee shall be
entitled to be paid, as severance compensation, two years of the Base Salary in
effect on November 30, 2001, plus $50,000 for each fiscal year ending June 30,
2002 and June 30, 2003 (total of $100,000) in lieu of incentive bonuses that
Employee could have earned had he remained employed through the end of each
fiscal year. Payments required pursuant to the preceding sentence shall be paid
in accordance with Employer's regular payroll and incentive bonus payment
procedures from December 1, 2001 through November 30, 2003. For any period
during which Employee's Base Salary is continued as severance compensation,
Employee shall be eligible to continue to participate in Employer's group health
benefit and group term life insurance plans as if Employee was an active, full
time Employee. Employee's right to "COBRA" continuation coverage under
Employer's group health benefit plan shall commence the month following the end
of the period during which Employee received severance compensation and
continued health benefits.
2. Duties During The Period Of Employment. Employee shall have
full responsibility, subject to the control of Employer's Board of Directors,
for the management of all aspects of Employer's business and operations, and the
discharge of such other duties and responsibilities to Employer as may from time
to time be reasonably assigned to Employee by Employer's Board of Directors.
Employee shall report directly to the Board of Directors of Employer. Employee
shall devote his best efforts
<PAGE>
to the affairs of Employer, serve faithfully and to the best of Employee's
ability, and devote all of Employee's working time and attention, knowledge,
experience, energy and skill to the business of Employer, except that Employee
may affiliate with professional associations, and civic organizations. Employee
shall continue to serve as a Director of Employer's Board of Directors provided
he is duly elected by the shareholders of Employer, but shall receive only the
compensation and other benefits described in this Agreement.
3. Termination. Employee's employment by Employer shall be
subject to termination as follows:
(a) Expiration of the Term. This Agreement shall
terminate automatically at the expiration of the Period of Employment, unless
the parties enter into a written agreement extending Employee's employment,
except for the continuing obligation of the parties as specified hereunder.
(b) Termination Upon Death. This Agreement shall
terminate upon Employee's death. In the event this Agreement is terminated as a
result of Employee's death, Employer shall continue payments of Employee's Base
Salary for a period of ninety (90) days following Employee's death to the
beneficiary designated by Employee on the "Beneficiary Designation Form"
attached to this Agreement as Appendix A. Employee's beneficiary shall be free
to dispose of any restricted stock granted to Employee. Additionally, Employer
shall treat as immediately exercisable all unexpired stock options held by
Employee that are not exercisable or that have not been exercised, so as to
permit the beneficiary to purchase the balance of Employer common stock not yet
purchased pursuant to said options until the end of the one year period that
follows Employee's date of death.
(c) Termination Upon Disability. Employer may
terminate this Agreement upon Employee's disability. For the purpose of this
Agreement, Employee's inability to perform Employee's regular duties by reason
of physical or mental
<PAGE>
illness or injury for a period of twenty-six (26) successive weeks ("Disability
Period") shall constitute "Disability." The determination of Disability shall be
made by a physician selected by Employer and a physician selected by Employee;
provided, however, that if the two physicians so selected shall disagree, the
determination of Disability shall be submitted to Arbitration in accordance with
the rules of the American Arbitration Association, and the decision of the
Arbitrator shall be binding on both parties.
During the Disability Period, Employee shall be
entitled to 100% of Employee's Base Salary pursuant to Anaren's short term
disability policy (and supplemented, if necessary, by Employee's accrued but
unused sick leave), reduced by any other benefits to which Employee may be
entitled for the disability period on account of such disability, including, but
not limited to, benefits provided under New York's Workers' Compensation law.
Upon termination pursuant to this Disability
provision, Employee shall be free to dispose of any restricted stock granted to
Employee. Additionally, Employer shall treat as immediately exercisable all
unexpired stock options held by Employee that are not exercisable or that have
not been exercised, so as to permit the Employee to purchase the balance of
Employer common stock not yet purchased pursuant to said options until the end
of the one year period following Employee's termination due to Disability.
(d) Termination for Cause. Employer may terminate
Employee's employment immediately for "cause" by written notice to Employee. For
purpose of this Agreement, termination shall be for "cause" if the termination
results from any of the following events:
(i) material breach of this Agreement;
(ii) documented misconduct as an executive
or director of Employer, including, but not limited
to, misappropriating any
<PAGE>
funds or property of Employer, or attempting to
obtain any personal benefit from any transaction to
which Employer is a party or from any transaction
which any third party in which Employee has an
interest which is adverse to the interest of
Employer, unless, in either case, Employee shall have
first obtained the written consent of the Board of
Directors of Employer;
(iii) unreasonable neglect or refusal to
perform the duties assigned to Employee;
(iv) conviction of a crime other than a
vehicle and traffic misdemeanor;
(v) adjudication as bankrupt, which
adjudication has not been contested in good faith,
unless bankruptcy is caused directly by Employer's
unexcused failure to perform its obligations under
this Agreement;
(vi) documented failure to follow the
reasonable, written instructions of the Board of
Directors of Employer; or
(vii) any knowing violation of the Security
and Exchange Commissions or NASDAQ's rules or
regulations.
Notwithstanding any other term or provision of this Agreement
to the contrary, if Employee's employment is terminated for cause, Employee
shall forfeit all rights to payments and benefits otherwise provided pursuant to
this Agreement; provided, however, that Base Salary will be paid to Employee
through the date of termination.
(e) Termination for Reasons Other Than Cause. In the
event Employer terminates Employee for reasons other than cause, Employee shall
be entitled to:
(i) the greater of (A) severance pay
determined in accordance with the provisions of
Section 1(d) of
<PAGE>
this Agreement (i.e., Base Salary and
payments in lieu of incentive bonus for two years
which shall be the two fiscal year ends following the
date of termination) and payable beginning with
Employer's first payroll period that begins following
Employee's date of termination, or (B) Employee's
regular Base Salary for the balance of the Period of
Employment,
(ii) an amount equal to the difference
between the total purchase price paid by Employee for
the home currently owned and occupied by him in the
Syracuse area and the proceeds of the sale of such
home by Employee following the termination of his
employment if he elects to move outside of the
Metropolitan Syracuse area to take other employment,
and he establishes to the satisfaction of the Board
of Directors that he is unable despite reasonable
efforts to sell the home within one year from the
termination of his employment for a sum equal or
greater to the purchase price, or, in lieu thereof,
Employer may purchase the home for a sum equal to the
price Employee paid for it;
(iii) dispose of any restricted stock
granted to Employee and exercise all unexpired stock
options held by Employee that are not exercisable or
that have not been exercised, so as to permit the
Employee to purchase the balance of Employer common
stock not yet purchased pursuant to said options
until the end of the one year period following
Employee's termination; and
(iv) Employer-paid professional outplacement
services through a company of Employee's choice for a
period of 12 months following termination, not to
exceed $15,000.
<PAGE>
4. Fringe Benefits.
(a) Benefit Plans. During the period of employment,
Employee shall be eligible to participate in any employee pension benefit plans
(as determined and defined under Section 3(2) of the Employee Retirement Income
Security Act of 1974 as amended), Employer paid group life insurance plans,
medical plans, dental plans, short term and long term disability plans, business
travel insurance programs and other fringe benefit programs maintained by
Employer for the benefit of its executive employees. Participation in any of
Employer's benefit plans and programs shall be based on, and subject to
satisfaction of, the eligibility requirements and other conditions of such plans
and programs.
(b) Employee shall be eligible for an annual
physical, to be performed by a physician of his own choosing. Employee shall be
reimbursed up to $1,000 for related expenses not covered by Employer's health
insurance plan, or any other plan in which Employee is enrolled.
(c) Expenses. Upon submission to Employer of vouchers
or other required documentation, Employee shall be reimbursed for Employee's
actual out-of-pocket travel and other expenses reasonably incurred and paid by
Employee in connection with Employee's duties.
(d) Other Benefits. During the Period of Employment,
Employee shall be entitled to receive the following additional benefits:
(i) $7,400, plus an appropriate tax
adjustment amount (gross- up), which will be paid to
Employee once each calendar year for Employee to pay
Northwestern Mutual Life Insurance Company for
premiums on a $500,000 whole life insurance policy,
which shall be owned by Employee.
<PAGE>
(ii) Employer paid insurance premiums of
$1,368.30 per year for a supplemental disability
insurance policy provided by Northwestern Mutual Life
Insurance Company; and
(iii) paid vacation of 4 weeks during each
calendar year and any holidays that may be provided
to all employees of Employer.
5. Stock Options.
(a) Prior Stock Option Grants.Pursuant to employer's
1988 and 1996 incentive stock option plans, employee has been granted options to
purchase shares of common stock of Employer. The parties hereby agree that the
Plans and any implementing option grant agreement shall be amended, if
necessary, to incorporate specific terms of this Agreement regarding the
exercise of options following Employee's termination of employment.
(b) Future grants. Employer shall request the
Compensation Committee of the Board of Directors of Employer to review whether
Employee should be granted additional options to purchase shares of common stock
of Employer.
6. Withholding. Employer shall deduct and withhold
from compensation and benefits provided under this Agreement all legally
required taxes and any benefit contributions required.
7. Covenants.
(a) Confidentiality. Employee shall not, without the
prior written consent of Employer, disclose or use in any way, either during his
employment by Employer or thereafter, except as required in the course of his
employment by Employer, any confidential business or technical information or
trade secrets acquired in the course of Employee's employment by Employer.
Employee acknowledges and agrees that it
<PAGE>
would be difficult to fully compensate Employer for damages resulting from the
breach or threatened breach of the foregoing provision and, accordingly, that
Employer shall be entitled to temporary preliminary injunctions and permanent
injunctions to enforce this provision. Employer's right to obtain injunctive
relief shall not, however, diminish Employer's right to claim and recover
damages. Employee commits to use his best efforts to prevent the publication or
disclosure of any trade secret or any confidential information concerning the
business or finances of Employer or Employer's affiliates, or any of its or
their dealings, transactions or affairs which may come to Employee's knowledge
in the pursuance of its duties on behalf of Employer.
(b) No Competition. Employee's employment is subject
to the condition that during the term of his employment and for a period of
twelve months from the date of the termination of his employment (the "Date of
Termination") Employee shall not, directly or indirectly, own, manage, operate,
control or participate in the ownership, management, operation or control of or
be connected as an officer, employee, partner, director, individual proprietor,
lender, consultant or otherwise, or have any financial interest in, or aid or
assist anyone else in the conduct of any entity or business ("a Competitive
Operation") which principal business directly competes with Employer on the Date
of Termination. Ownership by Employee of not more than 5% of the voting stock of
any publicly held corporation shall not constitute a violation of this
paragraph.
(c) Certain Affiliates of Employer. It is understood
that Employee may have access to technical knowledge, trade secrets and customer
lists of affiliates of Employer or companies which Employer may acquire in the
future and may serve as a member of the board of directors or as an officer or
employee of an affiliate of Employer. Employee commits that he shall not, during
the term of his employment by Employer or for a period of 12 months thereafter,
in any way, directly or indirectly, own, manage, operate, control or participate
in the ownership, management, operation or
<PAGE>
control of, or be connected as an officer, employee, partner, director,
individual proprietor, lender, consultant or otherwise aid or assist anyone else
in any business or operation which competes with or engages in the business of
such an affiliate.
(d) Termination of Payments. Upon the breach by
Employee of any covenant under this paragraph 7, Employer may offset and/or
recover from Employee immediately any and all severance benefits paid to
Employee under paragraph 1(d) hereof in addition to any and all other remedies
available to Employer under law or in equity.
8. Notices. Any notice which may be given hereunder shall be
sufficient if in writing and mailed by certified mail, return receipt requested,
to Employee at his residence and to Employer at P.O. Box 178, 6635 Kirkville
Road, E. Syracuse, New York 13057 or at such other addresses as either Employee
or Employer may, by similar notice, designate.
9. Rules, Regulations and Policies. Employee shall abide by
and comply with all of the rules, regulations, and policies of Employer,
including without limitation Employer's policy of strict adherence to, and
compliance with, any and all requirements of the Security and Exchange
Commission and the NASDAQ.
10. No Prior Restrictions. Employee affirms and represents
that Employee is under no obligation to any former employer or other third party
which is in any way inconsistent with, or which imposes any restriction upon,
the employment of Employee by Employer, or Employee's undertakings under this
Agreement.
11. Return of Employer's Property. After Employee has received
notice of termination or at the end of the term of this Agreement whichever
first occurs, Employee shall immediately return to Employer all documents and
other property in his possession belonging to Employer.
12. Construction and Severability. The invalidity of any one
or more provisions of this Agreement or any part thereof, all of which are
inserted
<PAGE>
conditionally upon their being valid in law, shall not affect the validity of
any other provisions to this Agreement; and in the event that one or more
provisions contained herein shall be invalid, as determined by a court of
competent jurisdiction, this instrument shall be construed as if such invalid
provisions had not been inserted.
13. Governing Law. This Agreement was executed and delivered
in New York and shall be construed and governed in accordance with the laws of
the State of New York.
14. Assignability and Successors. This Agreement may not be
assigned by Employee or Employer, except that this Agreement shall be binding
upon, and shall inure to the benefit of the successor of Employer through
merger, acquisition or corporate reorganization.
15. Miscellaneous.
a. This Agreement constitutes the entire
understanding and agreement between the parties with respect to Employee's
employment with Employer and shall supersede all prior understandings and
agreements.
b. This Agreement cannot be amended, modified or
supplemented in any respect, except by a subsequent written agreement entered
into by the parties.
c. The services to be performed by Employee are
special and unique; it is agreed that any breach of this Agreement by Employee
shall entitle Employer (or any successor or assigns of Employer), in addition to
any other legal remedies available to it, to apply to any court of competent
jurisdiction to enjoin such breach.
d. The provisions of paragraph 1(d), and 7 shall
survive the termination of this Agreement.
16. Counterparts. This Agreement may be executed in
counterparts, which together shall constitute one in the same instrument.
<PAGE>
17. Jurisdiction and Venue. The jurisdiction of any proceeding
between the parties arising out of, or with respect to this Agreement, shall be
with New York State Supreme Court, and venue shall be in Onondaga County. Each
party shall be subject to the personal jurisdiction of Onondaga County Supreme
Court.
Dated: ANAREN MICROWAVE, INC.
By: /s/ Hugh A. Hair
----------------------
CEO
Chairman of the Board
Dated: June 26, 1997 Lawrence A. Sala
-----------------------------
<PAGE>
APPENDIX A
BENEFICIARY DESIGNATION FORM
Pursuant to the Employment Agreement between ANAREN MICROWAVE,
INC. and LAWRENCE A. SALA, dated as of July 1, 1997 ("Agreement"), I, Lawrence
A. Sala, hereby designate ________________________, as the beneficiary of
amounts payable upon my death in accordance with paragraph 3(b) of the
Agreement. My beneficiary's current address ___________________.
Dated: ___________________ _______________________________
Lawrence A. Sala
_________________________
Witness
CONSULTING AGREEMENT
This is a Consulting Agreement (the "Agreement") made this 1st
day of March, 1997 by and between Anaren Microwave, Inc. ("Anaren"or "Company"),
a New York Corporation, with its principal place of business at 6635 Kirkville
Road, E. Syracuse, New York 13057, and Dale F. Eck ("Eck"), an independent
financial consultant, with a place of business at 32 Warren Street, Boyleston,
Massachusetts 01505.
RECITALS
1. Eck is a current outside Director on Anaren's Board of
Directors.
2. Eck possess substantial knowledge and experience dealing
with a wide spectrum of financial issues, including, financing, investing,
mergers, acquisitions and divestitures. Eck has been employed as Vice President
of Finance, Treasurer, for the Entwistle Company since 1978, and has developed
considerable experience dealing with government contracts. In his capacity at
Entwistle, Eck has additionally served as chief financial officer of various
companies owned and/or managed by Entwistle.
3. During the past five year period, Eck has provided Anaren's
management various degrees of financial related advice. Eck has been
particularly helpful in assisting Anaren's management restructure Anaren's core
businesses.
4. Anaren desires to retain Eck as a financial consultant to
more fully benefit from Eck's knowledge, skills, and abilities beyond what would
reasonably be provided by Eck as a member of Anaren's Board of Directors.
5. Eck has expressed a willingness to provide consulting
services to Anaren on a limited basis.
TERMS
<PAGE>
NOW THEREFORE, in consideration of the mutual covenants and
representations contained in this Agreement, the parties agree as follows:
1. SERVICES. Eck will use his best efforts to provide sound
financial advice to Anaren's management, as requested, in implementing strategic
financial controls to enhance the operational effectiveness and overall
profitability of the Company. Eck will also consult with management, if
requested, on issues involving reorganizations, potential mergers and
acquisitions, divestitures, stock buy back programs, and secondary financing
issues.
2. EFFECTIVE DATE; TERM. Eck shall provide the Services
outlined above for a period of five (5) years commencing on the date stated
above, and ending on February 28, 2002, unless this Agreement is sooner
terminated as provided below. During the term of this Agreement, Eck shall be
available to provide services to Anaren up to two (2) days per month.
3. COMPENSATION. Eck will charge, and Anaren will pay Eck a
monthly fee of ONE THOUSAND SIX HUNDRED SIXTY-SIX AND 66/100 DOLLARS ($1,666.66)
for services rendered, plus reasonable and customary business expenses,
including meals, transportation and lodging incurred by Eck directly related to
activities on behalf of Anaren. The monthly fee shall be payable regardless of
the number of days of service provided by Eck.
a. Eck shall submit monthly
invoices to Anaren which shall include
itemized reimbursable business expenses
incurred by Eck during the applicable
invoice period.
4. NON-EXCLUSIVE AGREEMENT. It is understood that Services
provided by Eck will be provided on a non-exclusive basis. It is additionally
understood that during the term of this Agreement, Eck will be employed by the
Entwistle Company
<PAGE>
and will consult with companies other than Anaren, but Eck has not and will not
accept or make other agreements that present a conflict of interest with Anaren.
5. TERMINATION AND COMPENSATION. Either party may cancel this
Agreement prior to the "termination date" by providing the other with twelve
(12) months advance written notice.
a. Termination Date. The
term "termination date" shall mean the
earlier of (i) the expiration date; or (ii)
if Eck's employment is terminated by his
death, the date of his death, or (iii) for
any other reason, the date on which such
termination is to be effective pursuant to
the notice of termination given by the party
terminating the relationship.
b. Incapacity. If in the
reasonable judgment of the Board of
Directors of the Company, as a result of
Eck's incapacity due to physical or mental
illness or otherwise, Eck should become
unable to perform his duties under this
Agreement, Anaren may terminate this
Agreement by written notice to Eck.
c. In the event of
termination, for any reason, Eck or his
estate, shall be entitled to receive
compensation on a pro rata basis for
Services performed up through the effective
date of the termination date.
6. RELATIONSHIP OF THE PARTIES. The parties to this Agreement
are independent contractors and not employees of each other. Except as otherwise
provided in this Agreement, neither party shall hold itself out as having the
power or authority to bind or create liability for the other by its acts or
omissions.
<PAGE>
a. Eck, in his sole
discretion, shall determine the method and
manner with which he will satisfy his
obligations under this Agreement. Anaren
shall neither have the right, nor exercise
any control of, or direction over, the
particular method or manner by which Eck
shall perform the services required under
this Agreement.
b. Anaren will not withhold
on behalf of Eck any sums for income tax,
unemployment insurance, social security, or
any other amount required to be withheld
pursuant to any legal requirement of any
governmental body. Anaren will issue Eck an
IRS form 1099 to record payments made to Eck
pursuant to this Agreement.
7. TAXES AND INSURANCE. Eck shall be solely responsible to pay
all applicable taxes and insurance, and workers' compensation, if required by
law.
8. NO CLAIM FOR BENEFITS. Eck acknowledges that he is not
entitled to, and waives any right to participate in, join, or benefit from any
Anaren welfare, benefit or pension plan that is otherwise provided to Anaren
employees. Eck shall therefore have no claim under this Agreement or otherwise
against Anaren for vacation pay, paid sick leave, Federal Insurance
Contributions Act ("FICA") contributions, workers' compensation benefits, or
health, disability, or unemployment insurance benefits, or any other Anaren
provided benefit of any kind.
9. ANAREN DIRECTOR. Nothing in this Agreement is intended to
change or otherwise modify Eck's responsibilities and obligations to Anaren as a
member of Anaren's Board of Directors. Similarly, this Agreement is intended not
to alter or otherwise modify any benefit Eck is entitled to as a member of
Anaren's Board of Directors.
<PAGE>
10. CONFIDENTIAL INFORMATION. Eck warrants and represents that
during the term of this Agreement, and in perpetuity thereafter, he shall
safeguard and shall not disclose to any third person or use for his own benefit
or the benefit of others, Confidential Information of Anaren however acquired
during or prior to the term of this Agreement.
a. "Confidential
information" shall mean any information
owned by Anaren, or acquired in connection
with this Agreement by Anaren, or entrusted
to Anaren, that provides economic value,
actual or potential, to Anaren by reason of
it not being generally known to other
persons who can obtain economic value from
its disclosure or use. Such information may
include, by way of example, but is not
limited to pricing data, cost data, other
financial data, technical design,
manufacturing and application information,
customer information, personnel information,
and new product developments and business
plans.
b. The parties expressly
agree that in order to protect its
confidential information, Anaren shall have
the right to bring an action to enjoin the
disclosure by Eck of confidential
information; it being acknowledged that a
suit for monetary damages alone would be an
inadequate remedy.
11. NOTICES. All notices and other communications provided for
in this Agreement shall be in writing and shall be deemed given when received by
the other party. Notices to Anaren shall be sent to the attention of Larry A.
Sala at Anaren,
<PAGE>
6635 Kirkville Road, E. Syracuse, New York 13057, and Eck at 32 Warren Street,
Boyleston, MA 01505.
12. GOVERNING LAW. This Agreement is to be governed,
construed, and enforced in accordance with the laws (other than the conflict of
law rules) of the State of New York. Any action or proceeding arising out of or
related to this Agreement shall be brought in Supreme Court, Onondaga County,
New York, and the parties hereby consent to the jurisdiction of this court.
13. ENTIRE AGREEMENT.This Agreement constitutes the entire
understanding between the parties and supersedes all prior and contemporaneous
agreements, understandings, and negotiations and discussions, whether oral or
written, and shall not be modified, except by written agreement, signed by the
parties.
14. MISCELLANEOUS. Any term or provision of this Agreement is
deemed invalid or unenforceable by a court of competent jurisdiction, it shall
not affect the validity or enforceability of any other term or provision. The
headings in this Agreement are for convenience of reference only and shall not
alter or otherwise affect the meaning of this Agreement. This Agreement may be
executed in any number of counter-parts which together shall constitute one
instrument and shall bind and inure to the benefit of the parties hereto and
their respective successors and assigns.
IN WITNESS WHEREOF, the parties execute this Agreement as of
the date first written above.
ANAREN MICROWAVE, INC.
By: /s/ Larry A. Sala /s/ Dale F. Eck
--------------------- -------------------
President
ANAREN MICROWAVE, INC.
MANAGEMENT INCENTIVE PLAN FOR 1998
1. Objective
The principal objective of Anaren's Management Incentive Plan
is to provide a meaningful financial incentive, on an annual basis, to key
management employees to reward them for their contribution toward Anaren's
profitability.
2. Eligibility
Eligibility is limited to key members of management who
because of their position have the ability to substantially impact the
profitability and overall success of the Company. The Company President shall
select employees eligible to participate in the Plan on an annual basis, subject
to the Board of Directors' approval. Employees eligible to participate in
Anaren's Performance Incentive Plan are not eligible to participate in this
Plan.
3. Target Bonus
All participants in the Plan will have a "target" bonus
opportunity based on their job function which will equal a percentage of their
base salary earned during the Company's fiscal year (July 1 through June 30).
The target bonus amount established each year is subject to change.
4. Incentive Award Payouts
Incentive awards shall be based on a combination of overall
corporate, functional and individual performance measured against
pre-established targeted goals. The corporate performance factor shall carry a
weighting of at least 50% of the total
<PAGE>
incentive opportunity. Any participant who is an officer of the Company shall
not receive any bonus payment unless 75% of the corporate annual earnings target
is attained.
(a) Prior to the beginning of each fiscal year, a corporate
goal will be set by the Company President and approved by the Board of
Directors. Corporate goals will be based on various factors, including but not
limited to, earnings, revenue, appreciation in stock value, and order targets.
The amount of incentive earned will be based on achievement of the subfactors
that comprise the corporate goal. Each subfactor will be assigned a separate
target, and total incentive payment will depend on the number of subfactor
targets achieved.
(b) Functional and individual performance objectives will be
based on each participant's functional responsibilities, and will be jointly
established by the Company and the participant prior to the beginning of the
fiscal year as part of Anaren's annual performance evaluation program.
Individual performance measured against personal and functional objectives shall
determine the actual amount of incentive earned for the functional and
individual performance factors.
(c) A management incentive matrix shall be prepared for each
participant clearly designating both the corporate, functional and personal
targets and the associated incentive opportunities.
(d) All payouts shall be based on attainment of the specified
goal within the matrix and shall be determined by the participant's immediate
manager together with the Company President. Final approval of all incentive
awards shall be made by the Company President, except the President's bonus
award shall be approved by the compensation committee of the Board of Directors.
5. Timing of Payment
All payments shall be made on or about September 1 following
the end of the fiscal year.
<PAGE>
6. Termination of Employment
If an eligible participant's employment is terminated for any
reason other than death or retirement, at any time prior to the payment date,
all rights under the Plan will be terminated and the participant shall not be
eligible to receive any incentive payment.
A. Death and Retirement
If a participant is terminated during the fiscal year due to
death or retirement, the Company will pay a pro rata share of the incentive
earned to the participant's beneficiary (in the case of death), or directly to
the participant in the event of retirement. In either case, payment shall be
made at the time all other incentive payments are made.
7. Plan Administration
The Company President together with the Company Vice President
of Human Resources and the Vice President of Finance will administer this plan.
8. Employment At-Will
An employee's participation in this plan does not alter the
employee's "at-will" status with the Company. Accordingly, the employee's
employment relationship can be terminated at any time by either the Company or
the employee, absent a valid written contract to the contrary.
9. Reservation of Rights
The Company reserves the exclusive right to interpret the
plan, in its sole discretion, and any determination it shall make regarding the
interpretation and
<PAGE>
application of the plan shall be final and binding. While the Company intends to
continue this plan, it reserves the right to terminate the plan at the end of
any fiscal year, at its sole discretion.
Exhibit 23
Independent Auditors' Consent
The Board of Directors
Anaren Microwave, Inc.:
We consent to incorporation by reference in the Registration Statements (No.
33-19618, No. 33-1768, No. 33-36761 and No. 333-03193) on Form S-8 of Anaren
Microwave, Inc. of our report dated August 14, 1997, relating to the
consolidated balance sheets of Anaren Microwave, Inc. and subsidiaries as of
June 30, 1997 and June 30, 1996, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the years in the
three-year period ended June 30, 1997, which report appears in the June 30, 1997
annual report on Form 10-K of Anaren Microwave, Inc.
KPMG Peat Marwick LLP
Syracuse, New York
September 18, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for Anaren Microwave, Inc. submitted with Form 10-K
for the twelve months ended June 30, 1997 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,807,004
<SECURITIES> 0
<RECEIVABLES> 6,717,106
<ALLOWANCES> 13,000
<INVENTORY> 7,736,007
<CURRENT-ASSETS> 18,989,323
<PP&E> 30,080,173
<DEPRECIATION> (23,110,872)
<TOTAL-ASSETS> 25,972,543
<CURRENT-LIABILITIES> 3,946,094
<BONDS> 453,335
0
0
<COMMON> 50,121
<OTHER-SE> 20,277,209
<TOTAL-LIABILITY-AND-EQUITY> 25,972,543
<SALES> 24,226,792
<TOTAL-REVENUES> 24,226,792
<CGS> 16,242,884
<TOTAL-COSTS> 22,191,322
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 94,086
<INCOME-PRETAX> 2,055,102
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,055,102
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,055,102
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.46
</TABLE>