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 December 31, 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 February
6, 1998 was 5,550,292.
<PAGE>
ANAREN MICROWAVE, INC.
INDEX
PART I - FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets 3
December 31, 1997 and June 30, 1997
Consolidated Condensed Statements of Earnings 4
Three months ended December 31, 1997 and
December 31, 1996
Consolidated Statements of Earnings 5
Six months ended December 31, 1997 and
December 31, 1996
Consolidated Condensed Statements of Cash Flows - 6
Six months ended December 31, 1997 and
December 31, 1996
Notes to Consolidated Condensed Financial 7
Statements - December 31, 1997
Item 2. Management's Discussion and Analysis 10
of Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 4. Submission of matters to a 16
vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K 17
2
<PAGE>
ANAREN MICROWAVE, INC.
AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
December 31, 1997 and June 30, 1997
Unaudited
Assets Dec. 31, 1997 June 30, 1997
------------- -------------
Current assets:
Cash and cash equivalents $ 15,196,891 $ 3,807,004
Short-term investments 7,574,967 --
Receivables, less allowance of $13,000 7,310,058 6,717,106
Inventories 9,886,543 7,736,007
Prepaid expenses 194,243 197,152
Deferred income taxes, current 394,458 532,054
------------ ------------
Total current assets 40,557,160 18,989,323
------------ ------------
Property, plant and equipment 31,050,338 30,080,173
Less accumulated depreciation and amortization (23,750,397) (23,110,872)
------------ ------------
Net property, plant and equipment 7,299,941 6,969,301
------------ ------------
Other assets, net 11,599 13,919
------------ ------------
$ 47,868,700 $ 25,972,543
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt $ -- $ 228,723
Accounts payable 2,082,983 1,500,863
Income taxes payable 137,108 493,553
Accrued expenses 1,270,835 719,416
Customer advance payments 904,200 1,003,539
------------ ------------
Total current liabilities 4,395,126 3,946,094
Postretirement benefit obligation 1,181,276 1,181,276
Long-term debt, less current installments -- 453,335
Deferred income taxes 21,855 64,508
------------ ------------
Total liabilities 5,598,257 5,645,213
------------ ------------
Stockholders' equity:
Common stock of $.01 par value. Authorized
12,000,000 shares; issued 6,318,566 shares
at December 31, 1997 and 5,012,116 shares
at June 30, 1997 63,185 50,121
Additional paid-in capital 35,796,848 15,584,262
Retained earnings 8,422,487 6,705,024
------------ ------------
44,282,520 22,339,407
Less cost of 892,274 shares in treasury
at December 31, 1997 and June 30, 1997 (2,012,077) (2,012,077)
------------ ------------
Total stockholders' equity 42,270,443 20,327,330
------------ ------------
$ 47,868,700 $ 25,972,543
============ ============
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
ANAREN MICROWAVE, INC.
AND SUBSIDIARIES
Consolidated Condensed Statements of Earnings
Unaudited
For the Three Months Ended:
Dec. 31, 1997 Dec. 31, 1996
(Current Year) (Preceding Year)
----------- -----------
Net sales $ 9,361,780 $ 5,313,722
Costs of goods sold 6,034,971 3,481,193
----------- -----------
Gross profit 3,326,809 1,832,529
----------- -----------
Operating expenses
Marketing, including sales commissions 987,889 762,292
Research and development 268,115 121,913
General and administrative 737,254 563,784
----------- -----------
Total operating expenses 1,993,258 1,447,989
----------- -----------
Operating income 1,333,551 384,540
----------- -----------
Other income 166,287 16,319
Interest expense (18,974) (30,470)
----------- -----------
Income before income taxes 1,480,864 370,389
Income tax expense 523,000 --
----------- -----------
Net income $ 957,864 $ 370,389
=========== ===========
Net income per common and common
share equivalent:
Basic $ 0.20 $ 0.09
=========== ===========
Fully diluted $ 0.19 $ 0.09
=========== ===========
Shares used in computing net income per common
and common share equivalent:
Basic 4,680,885 4,103,842
=========== ===========
Fully diluted 4,970,595 4,304,861
=========== ===========
Dividends per share $ -- $ --
=========== ===========
See accompanying notes to consolidated condensed financial statements.
4
<PAGE>
ANAREN MICROWAVE, INC.
AND SUBSIDIARIES
Consolidated Condensed Statements of Earnings
Unaudited
For the Six Months Ended:
Dec. 31, 1997 Dec. 31, 1996
(Current Year) (Preceding Year)
------------ ------------
Net sales $ 17,083,103 $ 10,379,363
Costs of goods sold 10,888,697 7,053,287
------------ ------------
Gross profit 6,194,406 3,326,076
------------ ------------
Operating expenses
Marketing, including sales commissions 1,927,855 1,430,410
Research and development 456,883 230,253
General and administrative 1,378,559 1,067,960
------------ ------------
Total operating expenses 3,763,297 2,728,623
------------ ------------
Operating income 2,431,109 597,453
------------ ------------
Other income 227,914 35,386
Interest expense (43,560) (52,922)
------------ ------------
Income before income taxes 2,615,463 579,917
Income tax expense 898,000 --
------------ ------------
Net income $ 1,717,463 $ 579,917
============ ============
Net income per common and common
share equivalent:
Basic $ 0.39 $ 0.14
============ ============
Fully diluted $ 0.36 $ 0.14
============ ============
Shares used in computing net income per common
and common share equivalent:
Basic 4,427,019 4,103,516
============ ============
Fully diluted 4,741,123 4,287,705
============ ============
Dividends per share $ -- $ --
============ ============
See accompanying notes to consolidated condensed financial statements.
5
<PAGE>
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
Six Months Ended:
December 31, 1997 and December 31, 1996
Unaudited
1997 1996
------------ ------------
Cash Flows from operating activities:
Net income $ 1,717,463 $ 579,917
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization of
property, plant and equipment 639,525 643,301
Deferred income taxes 94,943 --
Amortization of intangibles 2,320 2,359
Changes in:
Receivables (592,952) (67,169)
Refundable income taxes -- 320,945
Inventories (2,150,536) (437,349)
Prepaid expenses 2,909 49,418
Accounts payable 582,120 379,690
Accrued expenses 551,419 258,931
Income taxes payable (356,445) --
Customer advance payments (99,339) 498,350
Other assets -- (53,418)
------------ ------------
Net cash provided by
operating activities 391,427 2,174,975
------------ ------------
Cash flows from investing activities:
Capital expenditures (970,165) (463,865)
Purchase of Short-term investments (7,574,967) --
------------ ------------
Net cash used in investing activities (8,545,132) (463,865)
------------ ------------
Cash flows from financing activities:
Principal payments on long-term debt (682,058) (243,899)
Proceeds from issuance of common stock 20,225,650 5,500
------------ ------------
Net cash provided by (used in)
financing activities 19,543,592 (238,399)
------------ ------------
Net increase in cash
and cash equivalents 11,389,887 1,472,711
Cash and cash equivalents at beginning of period 3,807,004 1,739,569
------------ ------------
Cash and cash equivalents at end of period $ 15,196,891 $ 3,212,280
============ ============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash Paid During the Period For:
Interest $ 54,494 $ 49,657
============ ============
Income taxes $ 1,142,285 $ --
============ ============
See accompanying notes to consolidated condensed financial statements.
6
<PAGE>
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 and six months ended December 31, 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 rates of 33 - 35% utilized for interim financial statement
purposes for the three months and six months ended December 31, 1997 are based
on estimates of income and utilization of tax credits for the entire year.
NOTE 1: Inventories
Inventories at December 31, 1997 and June 30, 1997 are summarized as
follows:
Dec. 31 June 30
----------- -----------
Raw Materials $ 3,816,232 $ 3,684,807
Work in process 4,750,077 3,072,231
Finished Goods 1,320,234 978,969
----------- -----------
$ 9,886,543 $ 7,736,007
=========== ===========
NOTE 2: Property, Plant and Equipment
Property, plant and equipment at December 31, 1997 and June 30, 1997
are summarized as follows:
Dec. 31 June 30
----------- -----------
Land and Land improvements $ 1,362,050 $ 1,362,050
Buildings and improvements 5,164,178 5,129,221
Machinery and equipment 24,524,110 23,588,902
----------- -----------
$31,050,338 $30,080,173
=========== ===========
7
<PAGE>
NOTE 3: Long-Term Debt
Long-term debt at December 31, 1997 and June 30, 1997 is comprised of
the following:
Dec. 31 June 30
----------- -----------
Term Loan $ --- $ 680,001
Capitalized lease obligations --- 2,057
----------- -----------
$ --- $ 682,058
Less Current Installments --- 228,723
----------- -----------
$ --- $ 453,335
=========== ===========
NOTE 4: Net Income Per Share
Net income per share is computed based on the weighted average number
of common shares and common stock options (using the treasury stock
method) outstanding in accordance with the requirements of FASB
Statement No. 128 "Earnings Per Share."
The following table sets forth the computation of basic and fully
diluted earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------- -----------------------
Dec. 31 Dec. 31 Dec. 31 Dec. 31
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Numerator:
Net income available to
common stockholders $ 957,864 $ 370,389 $1,717,463 $ 579,917
========== ========== ========== ==========
Denominator:
Denominator for basic net income
per share:
Weighted average shares outstanding 4,680,885 4,103,842 4,427,019 4,103,516
========== ========== ========== ==========
Denominator for fully diluted net income
per share:
Weighted average shares outstanding 4,680,885 4,103,842 4,427,019 4,103,516
Common stock options 289,710 201,019 314,104 184,199
---------- ---------- ---------- ----------
Weighted average shares
and conversions 4,970,595 4,304,861 4,741,123 4,287,705
========== ========== ========== ==========
</TABLE>
Options to purchase 245,940 shares at market prices ranging from
$4.125 to $19.875 were outstanding during the quarter but were not
included in the computation of fully diluted earnings per share
because the options are not yet exercisable.
8
<PAGE>
NOTE 5: Income Taxes
Deferred tax assets and liabilities at December 31, 1997 and June 30,
1997 are summarized as follows:
Dec. 31 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 December 31,
1997 and June 30, 1997 was $468,928 and $583,104, respectively. The
net change in the total valuation allowance for the six months ended
December 31, 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 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 December 31, 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 expenses for the
six months ended December 31, 1997 and 1996 are summarized as follows:
Dec. 31 Dec. 31
1997 1996
-------- --------
Gross research and development expenses $638,193 $385,978
Technology development contract fees 181,310 155,725
-------- --------
Research and development expense $456,883 $230,253
======== ========
9
<PAGE>
Item 2.
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 and six months ended December 31, 1996 and 1997 and its
financial condition at December 31, 1997. This review should be read in
conjunction with the accompanying 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 December 31 and June 30, 1997 and the consolidated results
of operations and cash flows of the Company for the six months ended December
31, 1997 and 1996.
Operations for the second 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 second quarter of
fiscal 1997.
Net Sales for the first quarter ended December 31, 1997 were $9,362,000, up 76%,
from net sales of $5,314,000 for the same period in fiscal 1997, while net sales
for the first six months of fiscal 1998 were $17,083,000, up 65% over sales of
$10,379,000 for the first six months in the previous year. The Company recorded
earnings of $958,000 for the second quarter of fiscal 1998, compared to net
earnings of $370,000 for the same quarter in fiscal 1997, while earnings for the
first six months ended December 31, 1997 amounted to $1,717,000, an increase of
196% over earnings of $580,000 for the first half 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 Six Months Ended
------------------ ----------------
Dec. 31 Dec. 31 Dec. 31 Dec. 31
1997 1996 1997 1996
------ ------ ------ ------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 64.5 65.5 63.7 68.0
------ ------ ------ ------
Gross profit 35.5 34.5 36.3 32.0
------ ------ ------ ------
Operating expenses
Marketing 10.5 14.4 11.3 13.8
Research and development 2.9 2.3 2.7 2.2
General and administrative 7.9 10.6 8.1 10.3
------ ------ ------ ------
Total operating expenses 21.3 27.3 22.1 26.3
------ ------ ------ ------
Operating income 14.2 7.2 14.2 5.7
Other income (expense) 1.6 (0.2) 1.1 (0.1)
------ ------ ------ ------
Income before income taxes 15.8 7.0 15.3 5.6
Income tax expense 5.6 0.0 5.3 0.0
------ ------ ------ ------
Net income 10.2% 7.0% 10.0% 5.6%
====== ====== ====== ======
10
<PAGE>
The following table summarizes the Company's net sales by various product lines
for the periods indicated. Amounts are in thousands.
Three Months Ended Six Months Ended
------------------ -------------------
Dec. 31 Dec. 31 Dec. 31 Dec. 31
1997 1996 1997 1996
------- ------- ------- -------
Wireless $ 4,013 $ 1,566 $ 7,612 $ 2,428
Satellite Communications 2,317 1,737 3,813 4,214
Defense Electronics 3,032 2,011 5,658 3,737
------- ------- ------- -------
$ 9,362 $ 5,314 $17,083 $10,379
======= ======= ======= =======
Three Months Ended December 31, 1997 Compared To Three Months Ended December 31,
1996
Net Sales. Net sales increased 76.0% to $9.4 million for the three months ended
December 31, 1997 from $5.3 million for the second quarter of the previous year.
This increase was led by a 156% increase in sales of Wireless products, a 51%
rise in sales of Defense Electronic products and a 33% increase in shipments of
Satellite Communications products during the current second quarter compared to
the second quarter of fiscal 1997. The increase in sales of Wireless products,
which consist of catalog surface mount and custom components for use in building
wireless base station equipment, was due to continuing strong demand by the
major wireless base station OEM's. Sales of Satellite Communications products,
which consist of custom multilayer components such as butler matrixes and
beamforming networks for commercial and military communication satellites, rose
33% over the second quarter last year due to shipments on two programs for
Harris Corp. and Hughes Space and Communications International Inc. totaling
over $900,000 which had been delayed in the previously completed first quarter.
Sales of Defense Electronics products, which consist of Digital Frequency
Discriminators, ("DFD's"), Digital RF Memories ("DRFM's"), ESM receivers and
Microwave Integrated Circuit Components ("MIC's"), rose 51% to $3.0 million for
the three months ended December 31, 1997 compared to $2.0 million for the second
quarter of last year as a result of the first full quarter of shipments of DRFMs
for foreign sales of the Airborne Self Protection Jammer ("ASPJ") system.
Gross Profit. Cost of sales consists primarily of engineering design costs,
material, material fabrication costs, assembly costs and test costs. Cost of
sales rose 73.3% to $6.0 million (64.5% of net sales) for the second quarter
ended December 31, 1997 from $3.5million (65.5% of net sales) for the second
quarter of fiscal 1996. Gross profit was 35.5% of net sales for the three months
ended December 31, 1997 compared to 34.5% of net sales for the same period in
fiscal 1997. The improvement in gross profit was due to continuing economies of
scale in the Wireless group resulting from the higher sales volume.
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 29.6% to
$988,000 (10.5% of net sales) for the three months ended December 31, 1997 from
$668,000 (14.4% of net sales) for the three months ended December 31, 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.
11
<PAGE>
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 120.0% to $268,000
(2.9% of net sales) for the three months ended December 31, 1997, from $122,000
(2.3% of net sales) for the three months ended December 31, 1996. Research and
development expenses 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 30.8%
to $737,000 (7.9% of net sales) for the three months ended December 31, 1997
compared to $564,000 (10.6% of net sales) for the three months ended December
31, 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.
Other income. Other income is primarily interest income received on invested
cash balances. Other income increased 919.0% to $166,000 (1.8% of net sales) for
the three months ended December 31, 1997 from $16,000 (0.3% of net sales) for
the three months ended December 31, 1996, due to a higher level of investable
cash balances in the current year as a reuslt of the public offering completed
in November 1997.
Interest Expense. Interest expenses represents interest paid on the Company's
outstanding term loan and letter of credit. Interest expenses decreased 37.7% to
$19,000 (0.2% of net sales) for the three months ended December 31, 1997 from
$30,000 (0.6% of net sales) for the three months ended December 31, 1996.
Income Taxes. Income tax expense for the three months ended December 31, 1997
was $523,000 (5.6% of net sales), an effective tax rate of 35.3%. The Company
incurred no income tax for the three months ended December 31, 1996 due to the
utilization of the remainder of its available loss carryforwards and
substantially all of its available tax credits in fiscal 1997.
Six Months Ended December 31, 1997 Compared To Six Months Ended December 31,
1996
Net Sales. Net sales increased 65.0% to $17.1 million for the six months ended
December 31, 1997 from $10.4 million for the first half of the previous year.
This increase resulted from a 214% rise in sales of wireless commercial products
and a 51% increase in shipments of Defense Electronics products during the
period compared to the first half of fiscal 1997. Wireless sales have risen due
mainly to the demand from the major basestation infrastructure OEMs, while
Defense Electronic sales have rebounded from fiscal 1997 levels due to the first
production shipments of DRFMs for the foreign sales of the "ASPJ" program.
During this same six month period shipments of Satellite Communication products
decline 10% from $4.2 million in the first half of fiscal 1997 to $3.8 million
in the first half of fiscal 1998. This small decline was due to the completion
of the production portion of the Iridium beamformer program in the latter part
of fiscal 1997.
Gross Profit. Gross profit for the first six months of fiscal 1998 was $6.2
million (36.3% of net sales) up from $3.3 million (32.0% of net sales) for the
first six months of fiscal 1997. This improvement is a result of the 65.0%
increase in sales volume which resulted in significant economies of scale in the
manufacturing operations.
12
<PAGE>
Marketing Expense. Marketing expense increased 34.8% to $1.9 million (11.3% of
net sales) for the first six months of fiscal 1998 from $1.4 million (13.8% of
net sales) for the first six months of fiscal 1997. This increase is a result of
the higher sales volume which generated larger commission expense and an
increase in advertising expenditures for commercial business. Additionally, the
Company is expanding its Marketing organization to support the expanding order
volume.
Research and Development. Research and development expense rose 98.3% to
$456,000 (2.7% of net sales) in the first half of fiscal 1998 from $230,000
(2.2% of net sales) for the first half of fiscal 1997. Research and development
expenditures are expanding to support further development of wireless
infrastructure products and expanding satellite communications opportunities.
General and Administrative. General and administrative expense increased 29.1%
to $1.4 million (8.0% of net sales) for the six months ended December 31, 1997
from $1.1 million (10.3% for net sales) for the six months ended December 31,
1996. General and administrative expense has increased due to the hiring
additional personnel and rise in professional fees due to the growth of the
Company.
Other income. Other income increased 544.1% to $228,000 (1.3% of net sales) for
the first six months of fiscal 1998 from $35,000 (0.3% of net sales) for the
first six months of fiscal 1997, due to the large increase in investable cash
resulting from the public offering completed by the Company during the just
finished second quarter.
Interest Expense. Interest expense fell 17.7% to $44,000 (0.3% of net sales)
during the six months ended December 31, 1997 from $53,000 (0.5% of net sales)
for the six months ended December 31, 1996, due to the continuing decline in
Company debt balances.
Income Taxes. Income tax expense for the first six months of fiscal 1998 was
$898,000 (5.3% of net sales), an effective tax rate of 34.3%. The Company had no
tax expense in the first six months of fiscal 1997 due to the utilization of
remaining loss carry forwards and tax credits.
Liquidity and Capital Resources
During the second quarter end December 31, 1997 the Company completed a
secondary public offering of common stock. This offering resulted in the sale of
1,165,450 new shares and provided net proceeds to the Company after underwriters
fees and offering expenses of $19,750,000.
Net cash provided by operations for the six months ended December 31, 1997 and
the six months ended December 31, 1996 were $391,000 and $2,175,000,
respectively. The positive flow from operations in both the first six months of
fiscal 1998 and 1997 was due primarily to the profit attained in both years. The
relatively lower level of cash provided by operations in the first six months of
fiscal 1998, compared to the first six months of fiscal 1997, resulted primarily
from increases in inventory levels due to the higher production levels.
Net cash used in investing activities consists of funds from the public offering
which were use to purchase short-term investment and capital equipment
expenditures. Capital equipment additions in the six months end December 31,
1997 and the six months ended December 31, 1996 were $970,000 and $464,000,
respectively.
13
<PAGE>
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 six months ended December 31, 1997
was, $19,544,000 and consisted of funds generated from the Company's public
stock offering and the exercise of Company incentive stock options. Of these
funds, $682,000 was used to pay-off the balance on the Company's term loan at
the end of December. Cash used in Financing activities for the six months ended
December 31, 1996 was $464,000 and consisted of payments on the Company's term
loan and capitalized lease obligations.
During the remainder of fiscal 1998, the Company's major cash requirements will
be for additions to capital equipment and inventory growth. Capital equipment
additions for the current year have been budgeted at $1,750,000 and, through the
first six months of fiscal 1998, approximately $970,000 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.
During December, 1997 the Company renegotiated its credit facility with its
bank, increasing the size of the facility and obtaining more favorable terms.
The new credit facility is an unsecured $10,000,000 working capital revolving
line of credit bearing interest at prime and maturing December 31, 2000.
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 December 31, 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. 128, Earnings
Per Share (statement 128), beginning with the second quarter of fiscal 1998.
Statement 128 specifies the computation, presentation and disclosure
requirements for earnings per share. Adoption of statement 128 did not 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,
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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.
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Item 4. Submission of Matters to a vote of Security Holders
The Company's annual shareholders' meeting was held on
November 10, 1997, at which time the election of Directors
was conducted. The following named individuals were
nominated and elected Directors of the Company:
Hugh A. Hair Herbert I. Corkin
Carl W. Gerst, Jr. Abraham Manber
Lawrence A. Sala Dale F. Eck
David Wilemon
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Item 6. Exhibits and Reports on Form 8-K
Item 6(a) Exhibits
Exhibit No. 10.13 Credit Facility Agreement dated as of December 23, 1997
between the Company and Manufacturers and Traders Trust
Company, together with the Revolving Credit Note dated
December 23, 1997 executed by the Company to Manufacturers
and Traders Trust Company.
Exhibit No. 27 Financial Data Schedule for the six month period ended
December 31, 1997.
Item 6(b) Reports on Form 8K
The registrant was not required to file an 8-K during the current fiscal period.
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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: February 10, 1998 S/Lawrence A. Sala
------------------
President & Chief Executive Officer
Date: February 10, 1998 S/Joseph E. Porcello
--------------------
Vice President of Finance & Controller
18
AMENDED AND RESTATED
CREDIT FACILITY AGREEMENT
THIS AGREEMENT is made as of the 23 day of December, 1997 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.
"Aggregate Consideration" shall mean (i) in the case of a purchase of a
company's equity securities, the total consideration paid for such securities
(including amounts paid to holders of options, warrants and convertible
securities) plus the principal amount of all liabilities (including indebtedness
for borrowed money) as set forth on the most recent consolidated balance sheet
of the company being acquired prior to consummation of such sale, exchange or
purchase, and (ii) in the case of a purchase of assets, the total consideration
paid for such assets plus the principal amount of all indebtedness for borrowed
money and other liabilities assumed by the Borrower.
"Bank" shall mean Manufacturers and Traders Trust Company, its successors,
legal representatives, and assigns.
"Borrower" shall mean Anaren Microwave, Inc. and its successors, legal
representatives, and assigns.
"Business Day" means any day other than a Saturday, Sunday or other day on
which commercial banks in Syracuse, New York are authorized or required to close
under the laws of the State of New York and, if the applicable day relates to a
LIBOR Loan, LIBOR Interest Period or notice with respect to a LIBOR Loan, a day
on which dealings in Dollar deposits are also carried on in the London Interbank
market and banks are open for business in London.
"Capital Lease" means all leases which have been or should be capitalized
on the books of the lessee in accordance with GAAP.
"Cash Flow" shall mean net income plus depreciation and amortization less
distributions, dividends, stock repurchases and the like.
<PAGE>
"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.
"Dollars" and the symbol "$" mean and refer to lawful money of the United
States of America.
"Environment" shall mean any water including but not limited to surface
water 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.
"Eurocurrency Reserve Requirement" means, with respect to the Interest
Period for any LIBOR Loan, the daily average of the stated maximum rate
(expressed as a decimal) at which reserves (including any marginal,
supplemental, or emergency reserves) are required to be maintained during such
Interest Period under Regulation D by member banks of the Federal Reserve System
with deposits exceeding one billion Dollars against "Eurocurrency Liabilities"
(as such term is used in Regulation D) but without benefit or credit of
proration, exemptions, or offsets that might otherwise be available from time to
time under Regulation D. Without limiting the effect of the foregoing, the
Eurocurrency Reserve Requirement shall reflect any other reserves
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required to be maintained against (i) any category of liabilities that includes
deposits by reference to which the LIBOR Interest Rate for LIBOR Loans is to be
determined, or (ii) any category of extension of credit or other assets that
include LIBOR Loans.
"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.
"Includes" or "including," with respect to any matter or thing, means
"including without limitation" such matter or thing.
"Interest Period" means, with respect to any LIBOR Loan, the period
commencing on the date such Loan is made and ending, as the Borrower may select,
pursuant to Section 2.3, 30, 60, 90 or 180 days thereafter, provided that:
(1) no Interest Period may extend beyond the Termination Date; and
(2) if an Interest Period would end on a day that is not a Business
Day, such Interest Period shall be extended or shortened, as the case
may be, to the nearest Business Day.
"Letter of Credit" shall mean any standby or documentary Letter of Credit
issued by the Bank pursuant to Article 3 hereof.
"LIBOR Interest Rate" means, with respect to any Interest Period for a
LIBOR Loan, the rate per annum equal to the quotient obtained by dividing (and
rounding upward to the nearest 1/100 of 1%) (i) LIBOR (as determined below) on a
date two Business Days prior to the beginning of an Interest Period ("Interest
Setting Date"), at which deposits in Dollars for the period and in an amount
comparable to the Interest Period and the principal amount of the LIBOR Loan are
offered to prime banks in the London Interbank market at 11:00 a.m. (London
time) on that day ("Reference Bank") by (ii) 1 minus the Eurocurrency Reserve
Rate. LIBOR shall be determined by the Bank on the Interest Setting Date from
Telerate Page 3750 as of 11:00 a.m. (London time) on such
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date, or if such page or such service ceases to display such information, from
such other service or method as the Bank may select.
"LIBOR Loan" means any Revolving Credit Loan when and to the extent that
the interest rate is determined by reference to the LIBOR Interest Rate.
"Lien" means any mortgage, deed of trust, pledge, security interest,
hypothecation assignment, deposit arrangement, encumbrance, lien (statutory or
other), or preference, priority, or other security agreement or preferential
arrangement, charge, or encumbrance of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing, and the filing of any financing statement under the Uniform
Commercial Code or comparable law of any jurisdiction to evidence any of the
foregoing).
"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.
"Person" means an individual, partnership, corporation, business trust,
joint stock company, unincorporated association, joint venture, governmental
authority or other entity of whatever nature.
"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.
"Prime Loan" means any Revolving Credit Loan when and to the extent that
the interest rate is determined by reference to the Prime Rate.
"Prior Credit Facility Agreement" means the Credit Facility Agreement dated
October 1, 1996 between the Bank and the Borrower, and any notes, instruments or
agreements executed and delivered in connection therewith.
"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.
"Security Agreement" shall mean the Security Agreement entered into between
Bank and Borrower concurrently herewith.
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"Subsidiary" means, as to any person, a corporation of which shares of
stock having ordinary voting power to elect a majority of the board of directors
or other managers of such corporation are at the time owned, or the management
of which is otherwise controlled directly or indirectly, through one or more
intermediaries, by the Borrower.
"Tangible Net Worth" shall mean total tangible assets (excluding accounts
from employees and Affiliates) less total liabilities as determined by GAAP.
"Termination Date" shall mean the earlier of (i) December 31, 2000 or (ii)
the date of an Event of Default.
ARTICLE 2 REVOLVING LINE
2.1 Revolving Credit Loans. The Bank agrees, on the terms and conditions
hereinafter set forth, to make loans (the "Revolving Credit Loans") to the
Borrower from time to time during the period from the date of this Agreement up
to but not including the Termination Date in an aggregate principal amount not
to exceed at any time Ten Million Dollars ($10,000,000.00) (the "Maximum
Principal Amount"). Each borrowing (except with respect to a Letter of Credit),
repayment and reborrowing under the Revolving Line shall be in an amount of at
least $100,000.
2.2 Letters of Credit. Subject to the terms and conditions of this
Agreement and upon satisfactory completion of a letter of credit application,
the Revolving Line may be utilized by the Borrower for the issuance of Letters
of Credit for the account of the Borrower. The aggregate face amount of all
Letters of Credit outstanding at any one time shall be treated as a Revolving
Credit Loan for purposes of determining the borrowing availability under Section
2.1.
2.3 Notice and Manner of Borrowing. The Borrower shall give the Bank verbal
notice of any Revolving Credit Loan under this Agreement on the same Business
Day of each Prime Loan, and at least two (2) Business Days before each LIBOR
Loan, specifying: (i) the date of such Revolving Credit Loan; (ii) the amount of
such Revolving Credit Loan; (iii) the type of Revolving Credit Loan; and (iv) in
the case of a LIBOR Loan, the duration of the Interest Period applicable
thereto. Not later than 3:00 p.m. (Eastern Standard Time) on the date of the
Revolving Credit Loan and upon fulfillment of the applicable conditions set
forth in Article 8, the Bank will make the Revolving Credit Loan available to
the Borrower in immediately available funds by crediting the amount thereof to
the Borrower's account with the Bank.
All notices given under this Section 2.3 shall be irrevocable and shall be
given not later than 11:00 A.M. (Eastern Standard Time) on the day which is not
less than the number of Business Days specified above for such notice.
2.4 Conversions and Renewals. The Borrower may elect from time to time to
convert all or a part of a Prime or LIBOR Loan into another type of Revolving
Credit Loan or to renew all or part of a LIBOR Loan by giving the Bank notice at
least one (1) Business Day before the conversion into a Prime Loan, and at least
two (2) Business
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Days before the conversion into, or renewal of, a LIBOR Loan, specifying (i) the
renewal or conversion date; (ii) the amount of the Revolving Credit Loan to be
converted or renewed; and (iii) in the case of renewals of or a conversion to a
LIBOR Loan, the duration of the Interest Period applicable thereto; provided
that LIBOR Loans may be converted only on the last day of an Interest Period.
All notices given under this Section 2.4 shall be irrevocable and shall be
given not later than 11:00 A.M. (Eastern Standard Time) on the day which is not
less than the number of Business Days specified above for such notice. If the
Borrower shall fail to give the Bank the notice as specified above for the
renewal or conversion of a LIBOR Loan prior to the end of the Interest Period
with respect thereto, such LIBOR Loan shall automatically be converted into a
Prime Loan on the last day of the Interest Period for such Loan.
2.5 Interest. The Borrower shall pay interest to the Bank on the
outstanding and unpaid principal amount of the Revolving Credit Loans made under
this Agreement as follows: (i) for Prime Loans, at a rate per annum equal to the
Prime Rate; and (ii) for LIBOR Loans, at a rate per annum equal to the LIBOR
Interest Rate plus two and one-half percent (2.50%).
Any change in the interest rate resulting from a change in the Prime Rate
shall be effective as of the opening of business on the day on which such change
in the Prime Rate becomes effective. Interest on each Revolving Credit Loan
shall be calculated on the basis of a year of three hundred sixty (360) days for
the actual number of days elapsed. Interest shall be paid on the first Business
Day of each month in the case of Prime Loans and on the last day of the Interest
Period in the case of LIBOR Loans.
Upon acceleration of the Notes pursuant to Article 13, the rate of interest
on all Revolving Credit Loans shall be increased to a rate at all times equal to
three percent (3%) above the rate of interest which would otherwise be in
effect, such increased rate to remain in effect through and including payment in
full of all of the Revolving Credit Loans and cancellation of further
commitments to lend under this Agreement.
2.6 Revolving Credit Note. All Revolving Credit Loans made by the Bank
under this Agreement shall be evidenced by, and repaid with interest in
accordance with, a single promissory note of the Borrower in substantially the
form of Exhibit A, duly completed, in the principal amount of Ten Million and
00/100 Dollars ($10,000,000.00) dated the date of this Agreement, payable to the
Bank, and maturing as to principal on the Termination Date (the "Revolving
Credit Note"). The Bank is hereby authorized by the Borrower to endorse on the
schedule attached to the Revolving Credit Note the amount and type of each
Revolving Credit Loan and each renewal, conversion, and payment of principal
received by the Bank on account of the Revolving Credit Loans, which endorsement
shall, in the absence of manifest error, be conclusive as to the outstanding
balance of the Revolving Credit Loans made by the Bank; provided, however, that
the failure to make such notation with respect to any Revolving Credit Loan or
renewal, conversion, or payment shall not limit or otherwise affect the
obligations of the Borrower under this Agreement or the Revolving Credit Note
held by the Bank.
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2.7 Prepayments. The Borrower may, upon at least one (1) Business Days'
notice to the Bank in the case of Prime Loans, and at least three (3) Business
Days' notice to the Bank in the case of LIBOR Loans, prepay Revolving Credit
Loans in whole or in part with accrued interest to the date of such prepayment
on the amount prepaid, provided that LIBOR Loans may be prepaid only on the last
day of the Interest Period for such Loans.
2.8 Method of Payment. The Borrower shall make each payment under this
Agreement and under the Revolving Credit Note not later than 3:00 p.m. (Eastern
Standard Time) on the date when due in immediately available funds. All payments
of accrued interest shall be due on the first day of each month and at the
Termination Date. The Borrower hereby authorizes the Bank, if an to the extent
payment is not made when due, to charge from time to time against any account of
the Borrower with the Bank any amount due.
Whenever any payment to be made under this Agreement or under the Note
shall be stated to be due on a day other than a Business Day, such payment shall
be made on the next succeeding Business Day, and such extension of time shall be
included in the computation of the payment of interest.
Payments of principal and/or interest not received within five (5) days of
the date such payment is due shall be subject to a late charge equal to three
percent (3%) of such payment.
2.9 Use of Proceeds. The proceeds of any Revolving Credit Loans shall be
used for working capital and general corporate purposes, including the issuance
of Letters of Credit pursuant to Article 3. The Borrower will not, directly or
indirectly, use any part of such proceeds for the purpose of purchasing or
carrying any margin stock within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System or to extend credit to any Person for
the purpose of purchasing or carrying any such margin stock, or for any purpose
which violates, or is inconsistent with, Regulation X of such Board of
Governors.
2.10 Illegality. Notwithstanding any other provision in this Agreement, if
the Bank determines that any applicable law, rule, or regulation, or any change
therein, or any change in the interpretation or administration thereof, by any
governmental authority, central bank, or comparable agency charged with the
interpretation or administration thereof, or compliance by the Bank with any
request or directive of any such authority, central bank, or comparable agency
shall make it unlawful or impossible for the Bank to maintain or fund its LIBOR
Loans, then upon written notice to the Borrower by the Bank, the outstanding
principal amount of all LIBOR Loans, together with interest accrued thereon, and
any other amounts payable to the Bank under this Agreement shall be repaid (a)
immediately upon demand of the Bank if such change or compliance with such
request, in the reasonable judgment of the Bank, requires immediate repayment;
or (b) at the expiration of the last Interest Period to expire before the
effective date of any such change or request. Provided there is no Event of
Default hereunder, any LIBOR Loan required to be repaid under this section may
be repaid by the Borrower by automatic conversion to a Prime Loan at the time of
such repayment.
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2.11 Disaster. Notwithstanding anything to the contrary herein, if the Bank
determines (which determination shall be conclusive) that: (i) quotations of
interest rates for the relevant deposits referred to in the definition of LIBOR
Interest Rate are not being provided in the relevant amounts or for the relevant
maturities for purposes of determining the rate of interest on a LIBOR Loan as
provided in this Agreement; or (ii) the relevant rates of interest referred to
in the definition of LIBOR Interest Rate upon the basis of which the rate of
interest for any LIBOR Loan is to be determined do not accurately cover the cost
to the Bank of making or maintaining LIBOR Loans; then the Bank shall forthwith
give written notice thereof to the Borrower, whereupon (a) the obligation of the
Bank to make LIBOR Loans shall be suspended until the Bank notifies the Borrower
that the circumstances giving rise to such suspension no longer exist, and (b)
the Borrower shall repay in full the then outstanding principal amount of each
LIBOR Loan, together with accrued interest thereon, on the last day of the
Interest Period applicable to such Loan. Provided there is no Event of Default
hereunder, any LIBOR Loan required to be repaid under this section may be repaid
by the Borrower by automatic conversion to a Prime Loan at the time of such
repayment.
2.12 Increased Cost. From time to time upon notice to the Borrower from the
Bank, the Borrower shall pay to the Bank such amounts as the Bank may determine
to be necessary to compensate the Bank for any costs incurred by the Bank which
the Bank reasonably determines are attributable to its making or maintaining
LIBOR Loans hereunder or its obligation to make any LIBOR Loans hereunder, or
any reduction in any amount receivable by the Bank under this Agreement or the
Note in respect of any LIBOR Loans or such obligation (such increases in costs
and reductions in amounts receivable being herein called "Additional Costs"),
resulting from any change after the date of this Agreement in U.S. federal,
state or municipal laws or regulations (including Regulation D), or the adoption
or making after such date of any interpretations, directives, or requirements
applying to a class of banks including the Bank under U.S. federal, state or
municipal laws or regulations by any court or governmental or monetary authority
charged with the interpretation or administration thereof (a "Regulatory
Change"), which (i) changes the basis of taxation of any amounts payable to the
Bank under this Agreement or the Note in respect of any of LIBOR Loans (other
than taxes imposed on the overall net income of the Bank for any LIBOR Loans by
the jurisdiction where the Principal Office is located); or (ii) imposes or
modifies any reserve, special deposit, compulsory loan, or similar requirements
relating to any extensions of credit or other assets of, or any deposits with or
other liabilities of, the Bank (including any of LIBOR Loans or any deposits
referred to in the definition of LIBOR Interest Rate); or (iii) imposes any
other condition affecting this Agreement or the Note (or any of such extensions
of credit or liabilities). The Bank will notify the Borrower of any event
occurring after the date of this Agreement which will entitle the Bank to
compensation pursuant to this Section 2.12 as promptly as practicable after it
obtains knowledge thereof and determines to request such compensation, and upon
the receipt of such notice the Borrower shall have the right to convert any
LIBOR Loans to Prime Loans without paying such increased cost subject, however,
to the provisions of Section 2.14.
Determination by any Bank for purposes of this Section 2.12 of the effect
of any
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Regulatory Change on its costs of making or maintaining LIBOR Loans or on
amounts receivable by it in respect of LIBOR Loans, and of the additional
amounts required to compensate any the Bank in respect of any Additional Costs,
shall be conclusive, provided that such determinations are made on a reasonable
basis.
2.13 Risk-Based Capital. In the event that any Bank determines that (i)
compliance with any judicial, administrative, or other governmental
interpretation of any law or regulation, or (ii) compliance by the Bank or any
corporation controlling the Bank with any guideline or request from any central
bank or other governmental authority has the effect of requiring an increase in
the amount of capital required or expected to be maintained by the Bank or any
corporation controlling the Bank, and the Bank determines that such increase is
based upon its obligations hereunder, and other similar obligations, the
Borrower shall pay to the Bank, such additional amount as shall be certified by
the Bank to be the amount allocable to the Bank's obligations to the Borrower
hereunder. The Bank will notify the Borrower of any event occurring after the
date of this Agreement that will entitle the Bank to compensation pursuant to
this Section 2.13 as promptly as practicable after it obtains knowledge thereof
and determines to request such compensation, and upon the receipt of such notice
the Borrower shall have the right to convert any LIBOR Loans to Prime Loans
subject, however, to the provisions of Section 2.14.
Determinations by the Bank for purposes of this Section 2.13 of the effect
of any increase in the amount of capital required to be maintained by the Bank
and of the amount allocable to the Bank's obligations to the Borrower hereunder
shall be conclusive, provided that such determinations are made on a reasonable
basis.
2.14 Funding Loss Indemnification. Upon notice to the Borrower from the
Bank the Borrower shall pay to the Bank, such amount or amounts as shall be
sufficient (in the reasonable opinion of the Bank) to compensate it for any
loss, cost, or expense incurred as a result of:
(a) Any payment of a LIBOR Loan on a date other than the last day of the
Interest Period for such LIBOR Loan including, but not limited to, acceleration
of the Loans by the Bank pursuant to Section 9.1; provided, however, that
Borrower shall not be required to compensate the Bank for any loss, cost or
expense incurred as a result of a mandatory prepayment pursuant to Section
2.7(2); or
(b) Any failure by the Borrower to borrow or convert, as the case may be, a
LIBOR Loan on the date for borrowing or conversion, specified in the relevant
notice under Section 2.3 or 2.4, as the case may be.
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ARTICLE 3 - LETTERS OF CREDIT
3.1 Letters of Credit. Subject to the terms and conditions of this
Agreement, the 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 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 (2 of 1%) of the face amount of any documentary or "trade" Letter
of Credit and one percent (1%) 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.
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ARTICLE 4 - [INTENTIONALLY OMITTED]
ARTICLE 5 - EXPENSES/DEFAULT RATE INCREASES
With respect to the Revolving Line and any Letters of Credit issued
hereunder:
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.
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 - [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.
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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 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, 1997.
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
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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 10.1 to this 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, 1997, 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 (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.
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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 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. 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 any 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.
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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. 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.
8.12 Term Loan. Borrower shall have paid in full the Term Loan (as that
term is defined in the Prior Credit Facility Agreement).
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 ninety (90) 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.
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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, 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.
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9.8 ERISA Compliance. Comply in all material respects with the provisions
of 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 $4,000,000 in any fiscal year with the 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 Liens. Create, incur, assume, or suffer to exist, or permit any
Subsidiary to create, incur, assume, or suffer to exist, any Lien, upon or with
respect to any of its assets or properties, now owned or hereafter acquired,
except:
0.0.1 Liens in favor of the Bank;
b. Liens for taxes or assessments or other government charges or
levies if not yet due and payable or, if due and payable, if they are being
contested in good faith by appropriate proceedings and for which appropriate
reserves are maintained;
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c. Liens imposed by law, such as mechanics', material men's,
landlords', warehouse men's, and carriers' Liens, and other similar Liens,
securing obligations incurred in the ordinary course of business which are not
past due for more than thirty (30) days or which are being contested in good
faith by appropriate proceedings and for which reserves satisfactory to the
Borrower's independent accountants have been established;
d. Liens under workers' compensation, unemployment insurance, Social
Security, or similar legislation;
e. Judgment and other similar Liens arising in connection with court
proceedings, provided the execution or other enforcement of such Liens is
effectively stayed and the claims secured thereby are being actively contested
in good faith and by appropriate proceedings;
f. Easements, rights-of-way, restrictions, and other similar
encumbrances which, in the aggregate. do not materially interfere with the
occupation, use and enjoyment by the Borrower or any Subsidiary of the property
or assets encumbered thereby in the normal course of its business or materially
impair the value of the property subject thereto;
g. Purchase-money Liens on any property hereafter acquired or the
assumption of any Lien on property existing at the time of such acquisition (and
not created in contemplation of such acquisition), or a Lien incurred in
connection with any conditional sale or other title retention agreement or a
Capital Lease; provided that
(i) Any property subject to any of the foregoing is acquired by
the Borrower in the ordinary course of its business and the Lien on
any such property attaches to such asset concurrently or within ninety
(90) days after the acquisition thereof;
(ii) The obligation secured by a Lien so created, assumed, or
existing shall not exceed 100% of the lesser of the cost or the fair
market value as of the time of acquisition of the property covered
thereby to the Borrower acquiring the same;
(iii) Each such Lien shall attach only to the property so
acquired and fixed improvements thereto; and
(iv) The amount of such purchase-money Liens shall not exceed
$350,000 in the aggregate in any fiscal year.
h. Liens set forth in Schedule 10.1 and existing on the date hereof.
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
$250,000, 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.
10.10 Consolidations, Mergers, Acquisitions and Sales of Assets.
Consolidate or merge with or into, or sell, lease or otherwise dispose of any of
its assets to, any Person, or acquire all or any substantial portion of the
properties, assets or shares of stock of any other organization or permit any
Subsidiary to do any of the above (any of the above being an "Acquisition"),
unless the Borrower is the surviving entity, the transaction is on a friendly
basis and immediately thereafter the Borrower is in compliance with all terms
and provisions of this Agreement and except that:
(a) any Subsidiary may consolidate or merge with the Borrower or any
wholly-owned subsidiary of the Borrower;
(b) The Borrower or any Subsidiary may sell, lease or otherwise
dispose of any of its inventory in the ordinary course of business and any of
its assets which are obsolete, excess or unserviceable;
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(c) The Borrower or any Subsidiary may sell, pledge or discount
customer notes;
(d) The Borrower or any Subsidiary may sell, lease or otherwise
dispose of any of its assets (other than as permitted by clauses (a) to (c)
inclusive), provided that the aggregate net book value of all assets of the
Borrower and its Subsidiaries sold, leased or otherwise disposed of during any
fiscal year of the Borrower pursuant to this clause (d) shall not exceed 5% of
the Consolidated Tangible Net Worth of the Borrower and its Subsidiaries at the
end of the preceding fiscal year.
All sales, leases or dispositions of assets pursuant to clause (b), (c) or
(d) shall be at fair market value.
Notwithstanding the foregoing, the total amount of Aggregate Consideration
paid by the Borrower for Acquisitions (net of amounts paid for with the
Borrower's stock) permitted under this section from and after January 1, 1998
shall not in any fiscal year be greater than $5,000,000. if the acquired company
is located in the United States and $3,500,000. if the acquired company is
located outside the United States, without the prior written consent of the
Bank.
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:
From closing through 6/29/98 $37,750,000
From 6/30/98 through 6/29/99 $39,500,000
From 6/30/99 through 6/29/00 $41,500,000
From 6/30/00 and thereafter $44,000,000
11.2 Cash Flow To Current Maturities. Maintain minimum Cash Flow to current
maturities of long term debt, determined according to GAAP, of 1.75 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 .6 to 1.0.
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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 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
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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 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
-22-
<PAGE>
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 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
-23-
<PAGE>
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 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.
-24-
<PAGE>
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:
(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
-25-
<PAGE>
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.
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
-26-
<PAGE>
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: Joseph E. Porcello, Vice President
of Finance
With a copy to: Bond, Schoeneck & King, LLP
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,
including the Prior Credit Facility Agreement. 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.
-27-
<PAGE>
14.8 Oral and Telecopy Requests. As a convenience to Borrower, Borrower
hereby authorizes Bank to rely upon requests made by Borrower through its
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
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]
-28-
<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
-29-
<PAGE>
STATE OF NEW YORK )
COUNTY OF ONONDAGA )ss.:
On this 23 day of December, 1997, 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.
___________________________________
Notary Public
STATE OF NEW YORK )
COUNTY OF ONONDAGA )SS.:
On this 23 day of December, 1997, 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.
___________________________________
Notary Public
-30-
<PAGE>
REVOLVING CREDIT NOTE
December 23, 1997 $10,000.000.00
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 December 23, 1997 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 Termination Date or upon the occurrence of an Event of Default, if
earlier, the principal sum of Ten Million and 00/100 Dollars ($10,000,000.00)
(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: (i) the Prime Rate, in
the case of Prime Loans, or (ii) the LIBOR Interest Rate plus two and one half
percent (2.50%), in the case of LIBOR Loans.
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, which are incorporated herein by
reference. 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 its 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
Borrower is bound; and that Borrower's performance is not threatened by any
pending or threatened litigation.
- 2 -
<PAGE>
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 23rd day of December, 1997, 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.
___________________________________
Notary Public
FOR BANK USE ONLY
Credit A/C # Off Ck # Payoff Obligation #
$ $ $
Prepared by Reviewed by
Authorization Confirmed:
- 4 -
<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 Six
months ended December 31, 1997 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> $15,196,891
<SECURITIES> 7,574,967
<RECEIVABLES> 7,310,058
<ALLOWANCES> 13,000
<INVENTORY> 9,886,543
<CURRENT-ASSETS> 40,557,160
<PP&E> 31,050,338
<DEPRECIATION> (23,750,397)
<TOTAL-ASSETS> 47,868,700
<CURRENT-LIABILITIES> 4,395,126
<BONDS> 0
0
0
<COMMON> 63,185
<OTHER-SE> 42,207,258
<TOTAL-LIABILITY-AND-EQUITY> 47,868,700
<SALES> 17,083,103
<TOTAL-REVENUES> 17,083,103
<CGS> 10,888,697
<TOTAL-COSTS> 14,651,994
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,560
<INCOME-PRETAX> 2,615,463
<INCOME-TAX> 898,000
<INCOME-CONTINUING> 1,717,463
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,717,463
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.36
</TABLE>
