UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 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
N/A
(Former name, former address and former fiscal year,
if changed since last report)
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 ___
The number of shares of Registrant's Common Stock outstanding on October
20, 1997 was 4,235,042
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ANAREN MICROWAVE, INC.
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statement (Unaudited)
Consolidated Condensed Balance Sheets as of 3
September 30, 1997 and June 30, 1997
Consolidated Condensed Statements of Earnings for the 4
Three months ended September 30, 1997 and
September 30, 1996
Consolidated Condensed Statements of Cash Flows for the 5
Three months ended September 30, 1997 and
September 30, 1996
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis 9
of Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
2
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PART I.
Item I.
ANAREN MICROWAVE, INC.
AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
September 30, 1997 and June 30, 1997
Unaudited
Sept. 30, 1997 June 30, 1997
------------ ------------
Assets
Current assets:
Cash and cash equivalents $ 3,997,516 $ 3,807,004
Receivables, less allowance of $13,000 6,879,953 6,717,106
Inventories 8,924,219 7,736,007
Prepaid expenses 278,303 197,152
Deferred income taxes 394,458 532,054
------------ ------------
Total current assets 20,474,449 18,989,323
Property, plant and equipment 30,457,781 30,080,173
Less accumulated depreciation and amortization (23,423,416) (23,110,872)
------------ ------------
Net property, plant and equipment 7,034,365 6,969,301
Other assets, net 12,759 13,919
------------ ------------
$ 27,521,573 $ 25,972,543
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt $ 227,015 $ 228,723
Accounts payable 2,013,466 1,500,863
Income taxes payable 281,325 493,553
Accrued expenses 894,411 719,416
Customer advance payments 1,018,586 1,003,539
------------ ------------
Total current liabilities 4,434,803 3,946,094
Postretirement benefit obligation 1,181,276 1,181,276
Long-term debt, less current installments 453,335 453,335
Deferred income taxes 21,855 64,508
------------ ------------
Total liabilities 6,091,269 5,645,213
------------ ------------
Stockholders' equity:
Common stock of $.01 par value. Authorized
12,000,000 shares; issued 5,125,716 shares
at September 30, 1997 and 5,012,116 shares
at June 30, 1997 51,257 50,121
Additional paid-in capital 15,926,501 15,584,262
Retained earnings 7,464,623 6,705,024
------------ ------------
23,442,381 22,339,407
Less cost of 892,274 shares in treasury
at September 30, 1997 and June 30, 1997 2,012,077 2,012,077
------------ ------------
Total stockholders' equity 21,430,304 20,327,330
------------ ------------
$ 27,521,573 $ 25,972,543
============ ============
See accompanying notes to consolidated condensed financial statements.
3
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ANAREN MICROWAVE, INC.
AND SUBSIDIARIES
Consolidated Condensed Statements of Earnings
Three Months Ended
September 30, 1997 and 1996
Unaudited
1997 1996
-------------- --------------
Net Sales $ 7,721,323 $ 5,065,641
Cost of sales 4,853,726 3,572,094
-------------- --------------
Gross profit 2,867,597 1,493,547
Operating expenses:
Marketing 939,966 668,118
Research and development 188,768 108,340
General and administrative 641,305 504,176
-------------- --------------
Total operating expenses 1,770,039 1,280,634
-------------- --------------
Operating income 1,097,558 212,913
Interest expense (24,586) (22,452)
Other income 61,627 19,067
-------------- --------------
Income before income taxes 1,134,599 209,528
Income tax expense 375,000 --
-------------- --------------
Net income $ 759,599 $ 209,528
============== ==============
Net income per common and common
share equivalent $ .17 $ .05
============== ==============
Shares used in computing net income per
common and common equivalent share 4,504,401 4,103,190
============== ==============
Dividends per share $ -- $ --
============== ==============
See accompanying notes to consolidated condensed financial statements.
4
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ANAREN MICROWAVE, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
Three Months Ended
September 30, 1997 and September 30, 1996
Unaudited
1997 1996
----------- -----------
Cash Flows from operating activities:
Net income $ 759,599 $ 209,528
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 312,544 322,085
Deferred income taxes 94,943 --
Changes in operating assets and liabilities:
Receivables (162,847) (953,067)
Refundable income taxes -- 320,945
Inventories (1,188,212) 222,293
Prepaid expenses (81,151) (41,579)
Other assets 1,160 2,515
Accounts payable 512,603 343,927
Income taxes payable (212,228) --
Accrued expenses 174,995 68,359
Customer advance payments 15,047 123,697
----------- -----------
Net cash provided by
operating activities 226,453 618,703
----------- -----------
Cash flows from investing activities:
Capital expenditures (377,608) (215,130)
----------- -----------
Net cash used in
investing activities (377,608) (215,130)
----------- -----------
Cash flows from financing activities:
Principal payments on long-term debt (1,708) (97,343)
Proceeds from issuance of common stock 343,375 5,500
----------- -----------
Net cash provided by (used in)
financing activities 341,667 (91,843)
----------- -----------
Net increase in cash
and cash equivalents 190,512 311,730
Cash and cash equivalents
at beginning of period 3,807,004 1,739,569
----------- -----------
Cash and cash equivalents
at end of period $ 3,997,516 $ 2,051,299
=========== ===========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash Paid During the Period For:
Interest $ 8,037 $ 8,115
=========== ===========
Income taxes $ 492,285 $ --
=========== ===========
See accompanying notes to consolidated condensed financial statements.
5
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
The consolidated condensed financial statements are unaudited (except for the
balance sheet information as of June 30, 1997, which is derived from the
Company's audited consolidated financial statements) and reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the financial position and
operating results for the interim periods. The consolidated condensed financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto, together with management's discussion and analysis
of financial condition and results of operations, contained in the Company's
fiscal 1997 Annual Report to Stockholders. The result of operations for the
three months ended September 30, 1997 are not necessarily indicative of the
results for the entire fiscal year ending June 30, 1998, or any future interim
period.
The income tax rate of 33% utilized for interim financial statement purposes for
the three months ended September 30, 1997 is based on estimates of income and
utilization of tax credits for the entire year.
NOTE 1: Inventories
Inventories at September 30, 1997 and June 30, 1997 are summarized as
follows:
Sept. 30 June 30
----------- -----------
Raw materials $ 3,719,940 $ 3,684,807
Work in process 4,084,331 3,072,231
Finished goods 1,119,948 978,969
----------- -----------
$ 8,924,219 $ 7,736,007
=========== ===========
NOTE 2: Property, Plant and Equipment
Property, plant and equipment at September 30, 1997 and June 30, 1997
are summarized as follows:
Sept. 30 June 30
------------ ------------
Land and land improvements $ 1,362,050 $ 1,362,050
Buildings and improvements 5,129,221 5,129,221
Machinery and equipment 23,966,510 23,588,902
------------ ------------
$ 30,457,781 $ 30,080,173
============ ============
6
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NOTE 3: Long-Term Debt
Long-term debt at September 30, 1997 and June 30, 1997 is comprised of
the following:
Sept. 30 June 30
--------- ---------
Term loan $ 680,001 $ 680,001
Capitalized lease obligation 349 2,057
--------- ---------
680,350 682,058
Less current installments 227,015 228,723
--------- ---------
$ 453,335 $ 453,335
========= =========
NOTE 4: Net Income Per Share
Net income 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.
NOTE 5: Income Taxes
Deferred tax assets and liabilities at September 30, 1997 and June 30,
1997 are summarized as follows:
Sept. 30 June 30
----------- -----------
Gross deferred tax assets $ 1,690,380 $ 1,889,632
Less valuation allowance 468,928 583,104
----------- -----------
Net deferred tax assets 1,221,452 1,306,528
Gross deferred tax liabilities (848,849) (838,982)
----------- -----------
Net deferred taxes $ 372,603 $ 467,546
Presented as:
Current deferred tax asset 394,458 532,054
Long-term deferred tax liability (21,855) (64,508)
----------- -----------
$ 372,603 $ 467,546
=========== ===========
The valuation allowance for the deferred tax assets as of September
30, 1997 and June 30, 1997 was $468,928 and $583,104, respectively.
The net change in the total valuation allowance for the three months
ended September 30, 1997 was a decrease of $114,176. 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
7
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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 September 30, 1997.
NOTE 6: 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. Net research and development expense for the
three months ended September 30, 1997 and 1996 are summarized as
follows:
Sept. 30 Sept. 30
1997 1996
--------- ---------
Gross research and development expenses $ 306,601 $ 174,323
Technology development contract fees (117,833) (65,983)
--------- ---------
Net research and development expense $ 188,768 $ 108,340
========= =========
8
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Management's Discussion and Analysis of Financial and Results of Operations
Management's discussion and analysis reviews the Company's operating results for
the three months ended September 30, 1996 and 1997 and its financial condition
at September 30, 1997. This review should be read in conjunction with the
accompanying consolidated condensed financial statements, the related notes to
consolidated condensed financial statements. Statements contained in
management's discussion and analysis, other than historical facts, are
forward-looking statements that are qualified by the cautionary statements at
the end of this discussion.
Overview
The consolidated condensed financial statements present the financial condition
of the Company as of September 30 and June 30, 1997 and the consolidated results
of operations and cash flows of the Company for the three months ended September
30, 1997 and 1996.
Operations for the first quarter of fiscal 1998 were highlighted by continuing
escalation of commercial Wireless sales, a resurgence of Defense Electronics
sales and a significant improvement in net income over the first quarter of
fiscal 1997.
Net sales for the first quarter ended September 30, 1997 were $7,721,000, up
52%, from net sales of $5,066,000 for the same quarter in the previous year. The
Company recorded earnings of $760,000 for the first quarter of fiscal 1998, a
262% increase over earnings of $210,000 for the first quarter of fiscal 1997.
Results of Operations
The following table sets forth the percentage relationships of certain items
from the Company's consolidated condensed statements as a percentage of net
sales.
Three Months Ended
------------------------
Sept. 30 Sept. 30
1997 1996
------- -------
Net sales 100.0% 100.0%
Cost of sales 62.9% 70.5%
------- -------
Gross profit 37.1% 29.5%
Operating expenses
Marketing 12.2% 13.2%
Research and development 2.4% 2.2%
General and administrative 8.3% 9.9%
------- -------
Total operating expenses 22.9% 25.3%
Operating income 14.2% 4.2%
Other income (expense) 0.5% -0.1%
------- -------
Income before income taxes 14.7% 4.1%
Income tax expense 4.9% 0.0%
------- -------
Net income 9.8% 4.1%
======= =======
9
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The following table summarizes the Company's net sales by various product lines
for the periods indicated.
Three Months Ended
---------------------
Sept. 30 Sept. 30
1997 1996
-------- --------
Wireless $ 3,599 $ 862
Satellite Communications 1,496 2,478
Defense Electronics 2,626 1,726
-------- --------
$ 7,721 $ 5,066
======== ========
Three Months ended September 30, 1997 Compared to Three Months Ended
September 30, 1996
Net Sales. Net sales increased 51.0% to $7.7 million for the three months ended
September 30, 1997 from $5.1 million for the three months ended September 30,
1996. Sales of wireless products consist of surface mount and custom components
used in building wireless base station equipment. Wireless sales increased
317.6% to $3.6 million for the three months ended September 30, 1997 form
$862,000 for the three months ended September 30, 1996. The increase was due to
continued strong demand in the worldwide market for base station equipment.
Sales of Satellite Communications products consist of custom multi-layer
components, such as Butler matrices and beamforming networks for commercial and
military communication. Satellite Communications sales decreased 40.0% to $1.5
million for the three months ended September 30, 1997 from $2.5 million for the
three months ended September 30, 1996. The decrease was a result of the
completion of the initial product order for the Iridium program in the last
quarter of fiscal 1997, and a delay from the first to the second quarter of
approximately $900,000 in shipments of parts for satellite programs for Harris
and Hughes Space and Communications International, Inc. Sales of Defense
Electronic products consist of Digital Frequency Discriminators ("DFDs"),
Digital RF Memories ("DRFMs"), ESM receivers and Microwave Integrated Circut
components ("MICs"). Defense Electronics sales increased 52.9% to $2.6 million
for the three months ended September 30, 1997 from $1.7 million for the three
months ended September 30, 1996. The increase was a result of increased
shipments of DFDs and DRFMs for foreign sales of the Airborne Self Protection
Jammer ("ASPJ") system.
Gross Profit. Cost of sales consists primarily of engineering design costs,
material, fabrication costs, assembly costs and test costs. Gross profit
increased 91.7% to $2.9 million for the three months ended September 30, 1997
from $1.5 million for the three months ended September 30, 1996. Gross margin
was 37.1% for the three months ended September 30, 1997 compared to 29.5% for
the three months ended September 30, 1996. The increase in gross margin was due
to economies of scale achieved due to higher volume in the Wireless group.
Marketing. Marketing expenses consist mainly of employee related expenses,
commissions paid to sales representatives, trade show expenses, advertising
expenses and related travel expenses. Marketing expenses increased 40.7% to
$940,000 (12.2% of net sales) for the three months ended September 30, 1997 from
$668,000 (13.2% of net sales) for the three months ended September 30, 1996. The
increase is a result of higher commission and advertising expenses related to
increased sales volume and further development of the marketing organization to
support the Company's expanding commercial markets.
10
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Research and Development. Research and development expenses consist of material
and salaries and related overhead costs of employees engaged in ongoing
research, design and development activities associated with new products and
technology development. Gross research and development costs are reduced by
expense reimbursements received under a Technology Reinvestment Program through
Raytheon, for the Advance Research Project Agency of the United States
Government. Net research and development expenses increased 75.0% to $189,000
(2.4% of net sales) for the three months ended September 30, 1997, from $108,000
(2.2% of net sales) for the three months ended September 30, 1996. Research and
development expesnes expanded to support the increased development expenses
expanded to support the increased development of wireless infrastructure
products.
General and Administrative. General and administrative expenses increased 27.2%
to $641,000 (8.3% of net sales) for the three months ended September 30, 1997
compared to $504,000 (9.9% of net sales) for the three months ended September
30, 1996. General and administrative expense increased due to the hiring of
additional employees, increased staffing levels, higher professional fees and
increased compensation levels for existing personnel.
Interest Expense. Interest expense represents interest paid on the Company's
outstanding term loan and letter of credit. Interest expense increased 13.7% to
$25,000 (0.3% of net sales) for the three months ended September 30, 1997 from
$22,000 (0.4% of net sales) for the three months ended September 30, 1996.
11
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Other Income. Other income is primarily interest income received on invested
cash balances. Other income increased 221.4% to $61,000 (0.8% of net sales) for
the three months ended September 30, 1997 from $19,000 (0.3% of net sales) for
the three months ended September 30, 1996, due to a higher level of investable
cash balances in the current year.
Income Taxes. Income tax expense for the three months ended September 30, 1997
was $375,000 (4.9% of net sales), an effective tax rate of 33%. The Company
incurred no income tax for the three months ended September 30, 1996 due to the
utilization of the remainder of its available loss carryforwards and
substantially all of its available tax credits in fiscal 1997.
Liquidity and Capital Resources
The Company has financed its operations for the three months ended September 30,
1997 primarily from cash flow from operations. Net cash provided by operations
for the three months ended September 30, 1997 and the three months ended
September 30, 1996 were $227,000 and $619,000, respectively. The positive cash
flow from operations in both the first three months of fiscal 1997 and 1996 was
due primarily to the profit attained in both years. The relatively lower level
of cash provided by operations in the first three months ended September 30,
1997, compared to the first three months of fiscal 1997, resulted primarily from
continuing increases in inventory levels due to the higher production levels.
Net cash used in investing activities consists soley of capital expenditures.
Capital equipment additions in the three months ended September 30, 1997 and the
three months ended September 30, 1996 were $378,000 and $215,000, respectively.
These capital investments primarily consisted of equipment needed to further
automate production for the Company's new Wireless and Satellite Communications
products, as well as, test and production equipment for the initial production
of the ASPJ program.
Cash Provided by financing activities for the three months ended September 30,
1997 was $342,000 and was primarily cash generated by the exercise of stock
options, while cash used in financing activities for the three months ended
September 30, 1996 was $92,000 and mainly consisted of payment on capitalized
lease obligations.
During the remainder of fiscal 1998, the Company's major cash requirements will
be for additions to capital equipment; inventory growth and repayment of
long-term debt. Capital equipment additions for the current year have been
budgeted at $1,500,000 and, through the first three months of fiscal 1998,
approximately $378,000 has been expended, all of which was funded by cash
generated from operations. Capital equipment additions for the remainder of
fiscal 1998 will continue to be funded through cash generated by operations as
projected operating cash flows are expected to be more than adequate to meet
these financing needs.
In October 1996, the Company entered into an agreement for a credit facility
with a bank providing for a $3,000,000 working capital revolving line of credit
bearing interest at prime + 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 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.
12
<PAGE>
The terms of the credit facility require maintenance of 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 September 30, 1997.
The company believes that its cash requirements for the foreseeable future will
be satisfied by currently invested cash balances, expected cash flows from
operations and funds available under its credit facilities.
Recently Issued Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standard No. 123,
Accounting for Stock-based Compensation ("SFAS 123"), beginning with the first
quarter of fiscal 1997. Upon adoption of SFAS 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. The Consolidated Financial Statements appearing elsewhere
in this Prospectus include pro forma disclosures of the effect on net income and
earnings per share as if the fair value-based method prescribed by SFAS 123 has
been applied in measuring compensation expense.
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 first quarter report includes
comments by the Company's management about future performance. Because these
statements are forward-looking statements, management's forecasts 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 in 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 that meet specific
customer requirements, price pressures, the level of worldwide spending on
military defense products, growth of wireless telephone and satellite
communications systems, acceptance of new products, and actual orders compared
to annual blanket contracts from wireless customers.
Management believes 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.
13
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Item 6(a) Exhibits
Exhibit No. 10.12 Employment Agreement dated as of October 7, 1997 between
the Company and Hugh A. Hair.
Exhibit No. 27 Financial Data Schedule for the three month period ended
September 30, 1997.
Item 6(b) Reports on Form 8K
The registrant was not required to file an 8-K during the current fiscal period.
14
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused the report to be signed on its behalf by the
undersigned thereunto duly authorized.
Anaren Microwave, Inc.
(Registrant)
Date: October 29, 1997 /s/ Lawrence A. Sala
------------------
President & Chief Executive Officer
Date: October 29, 1997 /s/Joseph E. Porcello
--------------------
Vice President of Finance & Controller
15
<PAGE>
Exhibit Index
Number Description
- ------ -----------
10.12 Employment Agreement dated October 7, 1997 between the Company
and Hugh A. Hair.
27 Financial Data Schedule for the three month period ended
September 30, 1997.
EMPLOYMENT AGREEMENT
This sets forth the Employment Agreement ("Agreement") made
effective as of October 6, 1997 between Anaren Microwave, Inc. ("Employer"), a
New York corporation with common stock publicly traded on the NASDAQ, and Hugh
A. Hair ("Mr. Hair"), an individual currently residing at 6941 Lymekiln Road,
Fayetteville, New York 13066.
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 Mr. Hair, and Mr.
Hair shall continue to serve Employer, for a thirty-three (33) month term
commencing October 6, 1997 and ending on June 30, 2000 ("Period of Employment"),
subject to termination as provided in this Agreement. Mr. Hair will continue to
serve as Employer's Chairman subject to annual re-election by Employer's
Shareholders and Board of Directors, through June 30, 2000.
(b) Salary. During the period October 6 1997 through November
30, 1998, Employer shall pay Mr. Hair Base Salary at an annual rate of $225,000
("Base Salary"). Mr. Hair's Base Salary for the remaining Period of Employment,
shall be determined by the Employer's Board of Directors but shall not be set
below $225,000 annually. Mr. Hair's Base Salary is payable in accordance with
Employer's regular payroll procedures for executive employees.
<PAGE>
(c) Incentive Bonuses. From time to time Mr. Hair may be
entitled to incentive bonuses as recommended by the Compensation Committee and
as approved by the Board of Directors of Employer.
(d) Deferred Compensation. In consideration for Mr. Hair's
past and continued services, Employer shall pay Mr. Hair deferred compensation
equal to $65,000 per fiscal year, beginning July 1, 2000, and continuing through
June 30, 2015. If Mr. Hair deceases prior to June 30, 2015, Employer shall pay
Mr. Hair's spouse, Renee Hair, any remaining deferred compensation payments that
were otherwise owed to Mr. Hair as provided above.
(e) Directors' Fees. Mr. Hair, if elected to Employer's Board
of Directors shall be paid an amount equal to the fee paid to outside Directors
for any year during the fifteen (15) year period Mr. Hair is paid deferred
compensation, and if Mr. Hair is elected Chairman of Employer's Board of
Directors, he shall be paid an additional $10,000 each year he is election
Chairman.
2. Duties During The Period Of Employment.
(a) As Chairman of Employer's Board of Directors, Mr. Hair
shall continue to perform all functions of the Chairman position and shall
additionally provide advice and counsel to Employer's CEO and President. Mr.
Hair shall report directly to the Board of Directors of Employer. Mr. Hair shall
devote his best efforts to the affairs of Employer, serve faithfully and to the
best of Mr. Hair's ability, knowledge and experience.
3. Termination. Mr. Hair's employment by Employer shall be subject
to termination as follows:
-2-
<PAGE>
(a) Expiration of the Term. This Agreement shall terminate
automatically at the expiration of the Period of Employment except for the
continuing obligation of the parties as specified hereunder.
(b) Termination Upon Death. This Agreement shall terminate
upon Mr. Hair's death. In the event this Agreement is terminated as a result of
Mr. Hair's death, Employer shall continue payments of Mr. Hair's Base Salary for
a period of six (6) months following Mr. Hair's death to Mr. Hair's spouse,
Renee Hair. Mrs. Hair shall be free to dispose of any restricted stock granted
to Mr. Hair. Additionally, Employer shall treat as immediately exercisable all
unexpired stock options held by Mr. Hair that are not exercisable or that have
not been exercised, so as to permit Mrs. Hair to purchase the balance of
Employer's common stock not yet purchased pursuant to said options until the end
of the one year period that follows Mr. Hair's date of death.
(c) Termination Upon Disability. Employer may terminate this
Agreement upon Mr. Hair's disability. For the purpose of this Agreement, Mr.
Hair's inability to perform Mr. Hair's regular duties by reason of physical or
mental 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 Mr. Hair; 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.
-3-
<PAGE>
During the Disability Period, Employer shal pay Mr. Hair 100%
of his Base Salary pursuant to Anaren's short term disability policy (and
supplemented, if necessary, by Mr. Hair's accrued but unused sick leave),
reduced by any other benefits to which Mr. Hair 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, Mr.
Hair shall be free to dispose of any restricted stock granted to Mr. Hair.
Additionally, Employer shall treat as immediately exercisable all unexpired
stock options held by Mr. Hair that are not exercisable or that have not been
exercised, so as to permit Mr. Hair to purchase the balance of Employer common
stock not yet purchased pursuant to said options until the end of the one year
period following Mr. Hair's termination due to Disability.
(d) Termination for Cause. Employer may terminate Mr. Hair's
employment immediately for "cause" by written notice to Mr. Hair. 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 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 Mr. Hair has
an interest which is adverse to the interest of
Employer, unless, in either case,
-4-
<PAGE>
Mr. Hair 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 Mr. Hair;
(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 Mr. Hair's employment is terminated for cause, Mr. Hair shall
forfeit all rights to Base Salary otherwise provided pursuant to this Agreement;
provided, however, that Base Salary will be paid to Mr. Hair through the date of
termination.
(e) Termination for Reasons Other Than Cause. In the event
Employer terminates Mr. Hair for reasons other than cause, Mr. Hair shall be
entitled to receive his Base Salary through June 30, 2000, and shall
additionally be entitled to all deferred compensation payments otherwise owed to
Mr. Hair pursuant to paragraph 1(d) above.
-5-
<PAGE>
4. Fringe Benefits.
(a) Benefit Plans. During the Period of Employment, Mr. Hair
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) Annual Physical. Mr. Hair shall be eligible for an annual
physical, to be performed by a physician of his own choosing. Mr. Hair shall be
reimbursed up to $1,000 for related expenses not covered by Employer's health
insurance plan, or any other plan in which Mr. Hair is enrolled.
(c) Expenses. Upon submission to Employer of receipts or other
required documentation, Mr. Hair shall be reimbursed for Mr. Hair's actual
out-of-pocket travel and other expenses reasonably incurred and paid by Mr. Hair
in connection with Mr. Hair's duties as Chairman. Mr. Hair shall additionally be
reimbursed during the Period of Employment for additional expenses incurred in
connection with his executive position, including country club membership dues,
travel, and meals not to exceed $25,000 in any one fiscal year.
(d) Other Benefits. During the Period of Employment, Mr. Hair
shall be entitled to receive the following additional benefits:
-6-
<PAGE>
(i) $9,600, plus an appropriate tax adjustment amount
(gross- up), which will be paid to Mr. Hair once each
calendar year for Mr. Hair to pay annual premiums on a
$1 million whole life insurance policy, which is owned
by Mr. Hair.
(ii) Use of an Employer provided automobile, including
gasoline, repairs and insurance paid for by Employer;
and
(iii) Paid vacation for a period to be mutually determined by
Mr. Hair and the Board of Directors each calendar year,
in addition to any holidays that may be provided to all
employees of Employer.
5. Post Employment.
(a) Chairmanship. Effective July 1, 2000, Mr. Hair shall
retire from active employment with Employer, but shall continue to serve as
Chairman of Employer's Board of Directors provided he is duly elected by the
shareholders and the Board of Directors.
(b) Compensation. Upon retirement, Employer shall pay Mr. Hair
the same fee paid to other outside Directors to serve on its Board of Directors,
plus an additional $10,000 annually, if Mr. Hair is elected to the Board and
elected Chairman.
(c) Expenses. Upon submission to Employer of receipts or other
required documentation, Mr. Hair's actual out-of-pocket travel and other
expenses reasonably incurred and paid by Mr. Hair shall be reimbursed in
connection with his duties as Chairman.
-7-
<PAGE>
(d) Benefit Plans. As a retiree, Mr. Hair shall be entitled to
participate in Employer's medical plans, dental plans and other fringe benefit
programs maintained by Employer for its eligible retirees. Participation in any
of Employer's plans and programs shall be based on, and subject to satisfaction
of the eligibility requirements and other conditions of such plans and programs.
6. Withholding. Employer shall deduct and withhold from compensation
and benefits provided under this Agreement all legally required taxes and any
benefit contributions required. Employer shall issue Mr. Hair IRS form 1099s to
reflect monies paid to Mr. Hair pursuant to paragraph 5(b) of this Agreement.
7. Covenants.
(a) Confidentiality. Mr. Hair 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 Mr. Hair's employment by Employer. Mr.
Hair acknowledges and agrees that it 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. Mr. Hair 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
-8-
<PAGE>
or their dealings, transactions or affairs which may come to Mr. Hair's
knowledge in the pursuance of its duties on behalf of Employer.
(b) No Competition. Mr. Hair's employment is subject to the
condition that during the term of his employment and for the fifteen year period
during which Mr. Hair receives deferred compensation under this Agreement, Mr.
Hair 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. Ownership
by Mr. Hair 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 Mr.
Hair 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. Mr. Hair commits that he shall not, during the term of
his employment by Employer and for the fifteen year period during which Mr. Hair
receives deferred compensation, in any way, 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 aid or assist anyone else
in any business or operation which competes with or engages in the business of
such an affiliate.
-9-
<PAGE>
(d) Termination of Payments. Upon the breach by Mr. Hair of
any covenant under this paragraph 7, Employer's obligation to continue any
payments provided under this Agreement immediately ceases and Employer may
offset and/or recover from Mr. Hair any and all benefits paid to Mr. Hair 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 Mr. Hair 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 Mr. Hair
or Employer may, by similar notice, designate.
9. Rules, Regulations and Policies. Mr. Hair 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. Mr. Hair affirms and represents that Mr.
Hair 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 Mr. Hair by Employer, or Mr. Hair's undertakings under this
Agreement.
11. Return of Employer's Property. After Mr. Hair has received
notice of termination or at the end of the term of this Agreement whichever
first occurs, Mr. Hair shall immediately return to Employer all documents and
other property in his possession belonging to Employer.
-10-
<PAGE>
12. Construction and Severability. The invalidity of any one or more
provisions of this Agreement or any part thereof, all of which are inserted
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 Mr. Hair 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 Mr. Hair'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 Mr. Hair are special and
unique; it is agreed that any breach of this Agreement by Mr. Hair 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.
-11-
<PAGE>
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.
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: October 7, 1997 ANAREN MICROWAVE, INC.
By: /s/ Lawrence A. Sala
-------------------------
Lawrence A. Sala
Dated: October 7, 1997 /s/ Hugh A. Hair
-------------------------
Hugh A. Hair
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for Anaren Microwave, Inc. filed with form 10Q for the
Three months ended September 30, 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 3,997,516
<SECURITIES> 0
<RECEIVABLES> 6,879,953
<ALLOWANCES> 13,000
<INVENTORY> 8,924,219
<CURRENT-ASSETS> 20,474,449
<PP&E> 30,457,781
<DEPRECIATION> (23,423,416)
<TOTAL-ASSETS> 27,521,573
<CURRENT-LIABILITIES> 4,434,803
<BONDS> 680,001
0
0
<COMMON> 51,257
<OTHER-SE> 21,379,047
<TOTAL-LIABILITY-AND-EQUITY> 27,521,573
<SALES> 7,721,323
<TOTAL-REVENUES> 7,721,323
<CGS> 4,853,726
<TOTAL-COSTS> 6,623,765
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,586
<INCOME-PRETAX> 759,599
<INCOME-TAX> 375,000
<INCOME-CONTINUING> 759,599
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 759,599
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
