2016
Proxy Statement
& Annual Report
Aviat Networks, Inc.
Letter to Stockholders
October 3, 2016
To Our Stockholders:
Fiscal 2016 was challenging for our Company and our results were not what we had anticipated as we
entered the fiscal year. We continued to feel pressure in our Mobile Operator business and the
anticipated recovery in the international markets did not materialize as planned. While we were
successful in winning several long-term Private Network awards in North America, it was not enough to
offset the impact of the Mobile Operator decline, resulting in lower revenues and continued losses.
Our Fiscal Year 2016 Financial Results
For fiscal year 2016, we reported revenue of $268.7 million, compared with revenue of $335.9 million in
the prior year. On a GAAP basis, our gross margins of 23.0% declined by 100 basis points and on a Non-
GAAP basis, gross margins of 24.9% improved by 80 basis points. We took steps to lower our fixed
expenses throughout the year and reported GAAP operating expenses of $89.2 million, a 16.4% year-
over-year improvement. Our Non-GAAP operating expenses of $85.0 million resulted in a reduction of
$14.3 million year-over-year, an improvement of 14.4%.
We reported a GAAP operating loss of $(27.4) million in fiscal 2016, as compared to a GAAP operating
loss of $(25.9) million reported in fiscal 2015. On a Non-GAAP basis, our operating loss of $(18.1)
million, marked an improvement of approximately $0.4 million year-over-year. We also reported a GAAP
loss from continuing operations attributable to Aviat Networks of $(30.4) million, as compared to $(24.7)
million in fiscal 2015 and a Non-GAAP loss from continuing operations attributable to Aviat Networks of
$(19.4) million, an improvement of $1.2 million compared to fiscal 2015. Lastly, we reported Adjusted
EBITDA of $(11.5) million as compared to $(11.0) million in the prior year.
Turnaround Initiatives
While our results were down year-over-year, we did not stand still and took aggressive actions to return
our Company to profitability. We set in motion a series of events to strengthen our market position,
enhance our solutions portfolio, lower fixed expenses, and improve our bottom-line performance.
• We reorganized our operating structure, lowered our headcount, and consolidated our footprint
without impacting technology innovation and customer support services.
• We instituted Lean methodologies across our global footprint, resulting in significantly greater
efficiencies and improved operational performance.
• We reallocated investment dollars to strengthen our Private Network offerings near-term and
position us for success with Mobile Operator customers long-term.
Equally important, we strengthened our position with our global customers.
•
Product Initiatives
During the year, we saw wide-scale market adoption of previously launched products including our
IRU600 EHP radio, the CTR microwave router platform, and IP/MPLS software solutions. IRU600
remains the highest power digital radio ever built and CTR is still the first and only integrated IP/MPLS
microwave router on the market. These products, along with our services expertise, allow Aviat to lead
the industry in simplifying microwave networks and their operations. This year we continued our history of
1
“industry firsts” with the introduction of AviatCloud – a revolutionary automation and virtualization software
application used by customers in network design. AviatCloud strengthens our services portfolio and
further simplifies microwave network design, deployment, service delivery, and management. These
products and services continue to provide significant competitive differentiation for our Company and
have driven many of our recent contract wins, most notably in North America, as we have and continue to
expand our reach and customer base within the Private Network vertical. With new contracts awarded
throughout fiscal 2016 and others secured since year-end, we enter fiscal 2017 with strong momentum.
Fiscal 2017 – Looking Ahead
We have executed the turnaround plan with precision and we enter fiscal 2017 in far better shape. With
new Private Network contracts in place, a strengthening global pipeline and longer-term opportunities with
our Mobile Operator customers on the horizon, we believe our Company’s future is bright. All of our
process and organizational reforms should result in year-over-year savings of $14.0 - $16.0 million,
positive Adjusted EBITDA and cash flow this fiscal year. We remain laser-focused on supporting our
customers, managing our expenses, investing for the future, and delivering profitability in fiscal 2017.
• We will continue to have a relentless focus on our cost structure.
• We will continue to focus investments to grow our Private Networks business globally, and
believe we have the solutions that provide us with a clear competitive advantage to take market
share.
• We will defend our position with our Mobile Operator customers through service excellence, while
continuing to invest in product development that improves our customers’ network, business
performance and total cost of ownership (TCO).
• We will continue to institute a mindset of continuous improvements and implement Lean Six
Sigma principles to become a more efficient, leaner, and a more agile global organization.
• We will continue to focus on positive cash generation to increase the value of our Company.
Summary
Aviat has over 50 years of wireless networking excellence and a reputation for delivering best in class
TCO and proven mission-critical microwave networking solutions. With new and innovative hardware,
software and services, and a continuing need to transport data across telecom networks every day, the
longer-term opportunities are limitless. Fueling our optimism near-term is our growing backlog with
Private Network accounts in North America and the rate at which we are winning competitive deals and
taking share. Our technology roadmap is aligned with both near- and longer-term opportunities and we
continue to invest in innovation. We are confident that fiscal 2017 will be a stronger year for our
Company. I personally want to thank all employees around the world for the dedication and commitment
in servicing our customers and exceeding their expectations. To our stockholders, I thank you for your
continued support and belief in our organization.
Michael Pangia
President and Chief Executive Officer
Aviat Networks, Inc.
This Letter to Stockholders contains statements that qualify as “forward-looking statements” under the Private
Securities Litigation Reform Act of 1995, including, but not limited to our plans, strategies and objectives for future
operations; expectations regarding future performance; and opportunities to improve business processes. These and
other risks, uncertainties and factors may cause our actual results to be materially different from those expressed or
implied by each forward-looking statement. These other risks, uncertainties and other factors are discussed in our
fiscal year 2016 Form 10-K and in our other filings with the Securities and Exchange Commission.
2
AVIAT NETWORKS, INC.
Fiscal Year Ended July 1, 2016 Summaries
SCHEDULE A
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES AND REGULATION G DISCLOSURE
To supplement the consolidated financial statements presented in accordance with accounting principles generally
accepted in the United States (“GAAP”), we provide additional measures of gross margin, research and development expenses,
selling and administrative expenses, operating loss, income tax provision or benefit, loss from continuing operations
attributable to Aviat Networks, basic and diluted loss per share from continuing operations attributable to Aviat Networks'
stockholders, and adjusted losses before interest, tax, depreciation and amortization ("Adjusted EBITDA") attributable to Aviat
Networks, adjusted to exclude certain costs, charges, gains and losses, as set forth below. We believe that these non-GAAP
financial measures, when considered together with the GAAP financial measures provide information that is useful to investors
in understanding period-over-period operating results separate and apart from items that may, or could, have a disproportionate
positive or negative impact on results in any particular period. We also believe these non-GAAP measures enhance the ability of
investors to analyze trends in our business and to understand our performance. In addition, we may utilize non-GAAP financial
measures as a guide in our forecasting, budgeting and long-term planning process and to measure operating performance for
some management compensation purposes. Any analysis of non-GAAP financial measures should be used only in conjunction
with results presented in accordance with GAAP. Reconciliations of these non-GAAP financial measures with the most directly
comparable financial measures calculated in accordance with GAAP follow.
AVIAT NETWORKS, INC.
Fiscal Year 2016 Summary
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES (1)
Condensed Consolidated Statements of Operations
(Unaudited)
Fiscal Year Ended
July 1,
2016
% of
Revenue
July 3, 2015
% of
Revenue
(in thousands, except percentages and per share amounts)
GAAP gross margin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
61,717
23.0 % $
80,690
24.0 %
WTM inventory write-down . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-GAAP gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,057
154
66,928
—
151
24.9 %
80,841
24.1 %
GAAP research and development expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
20,806
7.7 % $
25,368
7.6 %
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-GAAP research and development expenses . . . . . . . . . . . . . . . . . . . . . . .
(110)
20,696
7.7 %
(108)
25,260
7.5 %
GAAP selling and administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
65,902
24.5 % $
76,005
22.6 %
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-GAAP selling and administrative expenses . . . . . . . . . . . . . . . . . . . . . . .
(1,572)
64,330
23.9 %
(1,928)
74,077
22.1 %
GAAP operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(27,446)
(10.2)% $
(25,930)
(7.7)%
WTM inventory write-down . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,057
1,836
—
2,455
—
2,187
380
4,867
Non-GAAP operating loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(18,098)
(6.7)%
(18,496)
(5.5)%
GAAP income tax provision (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Adjustment to reflect pro forma tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-GAAP income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,635
(435)
1,200
0.6 % $
(1,310)
(0.4)%
0.4 %
3,310
2,000
0.6 %
Fiscal Year Ended
July 1,
2016
% of
Revenue
July 3, 2015
% of
Revenue
(in thousands, except percentages and per share amounts)
GAAP loss from continuing operations attributable to Aviat Networks . . . .
$
(30,448)
(11.3)% $
(24,719)
(7.4)%
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nigeria FX loss on dividend receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
WTM inventory write-down . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment to reflect pro forma tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,836
—
2,455
1,245
5,057
435
2,187
380
4,867
—
—
(3,310)
Non-GAAP loss from continuing operations attributable to Aviat Networks
$
(19,420)
(7.2)% $
(20,595)
(6.1)%
Basic and diluted loss per share from continuing operations attributable to Aviat Networks stockholders:
Basic and diluted:
GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
(5.81)
(3.71)
$
$
(4.77)
(3.97)
Weighted average shares outstanding, basic and diluted:
Basic and Diluted:
GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,238
5,238
5,184
5,184
ADJUSTED EBITDA:
GAAP loss from continuing operations attributable to Aviat Networks . . . .
$
(30,448)
(11.3)% $
(24,719)
(7.4)%
Depreciation and amortization of property, plant and equipment . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nigeria FX loss on dividend receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
WTM inventory write-down . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for (benefit from) income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,648
104
1,836
—
2,455
1,245
5,057
1,635
7,242
388
2,187
380
4,867
—
—
(1,310)
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(11,468)
(4.3)% $
(10,965)
(3.3)%
_____________________________________________________
(1) The adjustments above reconcile our GAAP financial results to the non-GAAP financial measures used by us. Our non-
GAAP loss from continuing operations attributable to Aviat Networks excluded share-based compensation, foreign
exchange loss on intercompany dividend receivable, amortization of intangible assets, specific one-time inventory write-
down, restructuring charges and adjustment to reflect pro forma tax rate. Adjusted EBITDA attributable to Aviat
Networks was determined by excluding depreciation and amortization on property, plant and equipment, interest
expense, provision for or benefit from income taxes, and non-GAAP pre-tax adjustments, as set forth above, from the
GAAP loss from continuing operations attributable to Aviat Networks. We believe that the presentation of these non-
GAAP items provides meaningful supplemental information to investors, when viewed in conjunction with, and not in
lieu of, our GAAP results. However, the non-GAAP financial measures have not been prepared under a comprehensive
set of accounting rules or principles. Non-GAAP information should not be considered in isolation from, or as a
substitute for, information prepared in accordance with GAAP. Moreover, there are material limitations associated with
the use of non-GAAP financial measures.
AVIAT NETWORKS, INC.
860 N. McCarthy Blvd., Suite 200, Milpitas, California 95035
Notice of 2016 Annual Meeting of Stockholders
To Be Held on Wednesday, November 16, 2016
TO THE HOLDERS OF COMMON STOCK OF AVIAT NETWORKS, INC.
NOTICE IS HEREBY GIVEN that the 2016 Annual Meeting of Stockholders (the “Annual Meeting”) of Aviat
Networks, Inc. (the “Company”) will be held at our facilities, located at 860 N. McCarthy Blvd., Suite 200, Milpitas, California
95035, on Wednesday, November 16, 2016, at 12:30 p.m., local time, for the following purposes:
1. To elect six directors to serve until the Company’s 2017 Annual Meeting of Stockholders or until their successors have
been elected and qualified.
2. To vote on the ratification of the appointment by our Audit Committee of BDO USA, LLP (“BDO”) as the Company’s
independent registered public accounting firm for fiscal year 2017.
3. To hold an advisory, non-binding vote to approve the Company’s named executive officer compensation.
4. To approve amendments to the Company’s Amended and Restated Certificate of Incorporation, as amended, to restrict
certain transfers of the Company’s common stock in order to protect the substantial tax benefits of the Company’s net
operating loss carryforwards.
5. To approve the Company’s tax benefit preservation plan designed to protect the substantial tax benefits of the
Company’s net operating loss carryforwards.
6. To transact such other business as may properly come before the Annual Meeting or any adjournment or postponement
or other delay thereof.
Only holders of common stock at the close of business on September 22, 2016 are entitled to notice of and to vote at
the Annual Meeting.
Whether or not you expect to attend the Annual Meeting in person, we urge you to submit a proxy to vote your shares.
This will help ensure the presence of a quorum at the Annual Meeting.
October 3, 2016
By Order of the Board of Directors
/s/ Meena Elliott
Senior Vice President, Chief Legal &
Administrative Officer, Corporate Secretary
Important Notice Regarding the Availability of Proxy Materials
for the Stockholder Meeting to Be Held on November 16, 2016
The proxy statement and annual report to stockholders are available at
https://materials.proxyvote.com/05366Y
Your vote is important regardless of the number of shares you own. The Board of Directors urges you to sign, date and
return the enclosed proxy card by mail (using the enclosed postage-paid envelope) as promptly as possible, or vote
electronically or by telephone as described in the attached proxy statement. If you have any questions or need assistance
in voting your shares, please contact Broadridge, toll-free at 1-800-690-6903.
[This page intentionally left blank]
TABLE OF CONTENTS
Page
ABOUT THE ANNUAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
What is the purpose of the Annual Meeting? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
What is the record date, and who is entitled to vote at the Annual Meeting? . . . . . . . . . . . . . . . . . . . . . . . . . . .
What are the voting rights of the holders of common stock at the Annual Meeting? . . . . . . . . . . . . . . . . . . . . .
Who may attend the Annual Meeting? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
How do I vote? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Why did I receive a one-page notice in the mail regarding the Internet availability of proxy
materials this year instead of a full set of proxy materials? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
How can I access the proxy materials and annual report on the Internet? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Why is Aviat soliciting proxies? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
How do I revoke my proxy? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
What vote is required to approve each item? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
How is the majority voting standard applied to the election of directors? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
What constitutes a quorum, abstention, and broker “non-vote”? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Who pays for the cost of solicitation? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
What is the deadline for submitting proposals and director nominations for the 2016 Annual
Meeting? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Who will count the votes? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CORPORATE GOVERNANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board and Committee Meetings and Attendance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board Member Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Directors’ Biographies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board Leadership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Board’s Role in Risk Oversight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principles of Corporate Governance, Bylaws and other Governance Documents . . . . . . . . . . . . . . . . . . . . . . . .
Board of Directors Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Committee Interlock and Insider Participation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Governance and Nominating Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholder Communications with the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Code of Conduct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TRANSACTIONS WITH RELATED PERSONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DIRECTOR COMPENSATION AND BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year 2016 Compensation of Non-Employee Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . . .
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Committee Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Considerations in Our Compensation Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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TABLE OF CONTENTS
(continued)
Summary Compensation Table. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity Compensation Plan Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Potential Payments Upon Termination or Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Section 16(a) Beneficial Ownership Reporting Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL NO. 1: ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Director Nominees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Agreement with Certain Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL NO. 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL NO. 3: ADVISORY, NON-BINDING VOTE ON NAMED EXECUTIVE OFFICER
COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BACKGROUND TO PROPOSALS 4 AND 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL NO. 4: APPROVAL OF AMENDMENTS TO THE AMENDED AND RESTATED CERTIFICATE
OF INCORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL NO. 5: APPROVAL OF THE TAX BENEFIT PRESERVATION PLAN . . . . . . . . . . . . . . . . . . . . . . . .
CERTAIN CONSIDERATIONS RELATED TO THE PROTECTIVE AMENDMENT AND THE RIGHTS
AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 Annual Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Form 10-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Annex A Amendment to Amended and Restated Certificate of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . .
Annex B Tax Benefit Preservation Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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AVIAT NETWORKS, INC.
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON WEDNESDAY, NOVEMBER 16, 2016
This proxy statement (this “Proxy Statement”) applies to the solicitation of proxies by the Board of Directors (the
“Board”) of Aviat Networks, Inc. (which we refer to as “Aviat,” the “Company,” “we,” “our,” and “ours”) for use at the 2016
Annual Meeting of Stockholders and any adjournment, postponement or other delay thereof (the “Annual Meeting”), to be held
at 12:30 p.m., local time, on Wednesday, November 16, 2016. The Annual Meeting will be held at our facilities located at 860
N. McCarthy Blvd., Suite 200, Milpitas, California 95035. The telephone number at that location is (408) 941-7000. These
proxy materials are being made available on or about October 3, 2016, to our stockholders entitled to notice of and to vote at
the Annual Meeting.
ABOUT THE ANNUAL MEETING
What is the purpose of the Annual Meeting?
The purpose of the Annual Meeting is to obtain stockholder action on the matters outlined in the notice of meeting
included with this Proxy Statement. All holders of shares of common stock at the close of business on September 22, 2016 are
entitled to notice of and to vote at the Annual Meeting. At the Annual Meeting, our stockholders will vote (i) to elect six
directors; (ii) on the ratification of the appointment by our Audit Committee of BDO USA, LLP (“BDO”) as our independent
registered public accounting firm for fiscal year 2017; (iii) on an advisory, non-binding resolution to approve the Company’s
named executive officer compensation; (iv) on amendments to the Company’s Amended and Restated Certificate of
Incorporation, as amended, to restrict certain transfers of the Company’s common stock in order to protect the substantial tax
benefits of the Company’s net operating loss carryforwards; and (v) on the ratification the Company’s tax benefit preservation
plan designed to protect the substantial tax benefits of the Company’s net operating loss carryforwards.
What is the record date, and who is entitled to vote at the Annual Meeting?
The record date for the stockholders entitled to vote at the Annual Meeting is September 22, 2016 (the “Record Date”).
The Record Date was established by the Board as required by the Delaware General Corporation Law and our Bylaws. Owners
of shares of our common stock at the close of business on the Record Date are entitled to receive notice of the Annual Meeting
and to vote at the Annual Meeting. You may vote all shares that you owned as of the Record Date.
What are the voting rights of the holders of common stock at the Annual Meeting?
Each outstanding share of our common stock is entitled to one vote on each matter considered at the Annual Meeting.
As of the Record Date, there were 5,261,041 shares of our common stock outstanding.
Who may attend the Annual Meeting?
Subject to space availability, all stockholders as of the Record Date, or their duly appointed proxies, may attend the
Annual Meeting. Since seating is limited, admission to the Annual Meeting will be on a first-come, first-served basis.
If your shares are held in “street name” (that is, through a bank, broker or other holder of record) and you wish to
attend the Annual Meeting, you must bring to the Annual Meeting a copy of a bank or brokerage statement reflecting your stock
ownership as of the Record Date.
Each stockholder may be asked to present valid picture identification, such as a driver’s license or passport. Cameras,
recording devices and other electronic devices will not be permitted at the Annual Meeting. You may contact us by calling (408)
941-7000 for directions to the Annual Meeting.
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How do I vote?
Stockholders of record can vote by proxy as follows:
• Via the Internet: Stockholders may submit voting instructions through the Internet by following the instructions
included with the proxy card.
• By Telephone: Stockholders may submit voting instructions by telephone by following the instructions included
with the proxy card.
• By Mail: Stockholders may sign, date and return their proxy card in the pre-addressed, postage-paid envelope
provided.
• At the Annual Meeting: If you attend the Annual Meeting, you may vote in person by ballot, even if you have
previously returned a proxy card.
If you hold your shares in “street name,” the bank, broker or other holder of record holding your shares will send you
separate instructions describing the procedure for voting your shares. If you hold your shares in “street name,” you will not be
able to vote in person by ballot at the Annual Meeting unless you have previously requested and obtained a “legal proxy” from
your broker, bank or other holder of record and present it at the Annual Meeting.
Why did I receive a one-page notice in the mail regarding the Internet availability of proxy materials this year instead of
a full set of proxy materials?
Pursuant to Securities and Exchange Commission rules, we have provided access to our proxy materials over the
Internet. Accordingly, we are sending a Notice of Internet Availability of Proxy Materials (the “Notice”) to our stockholders of
record and beneficial owners of shares held in “street name.” All stockholders will have the ability to access the proxy materials
on a website referred to in the Notice or request a printed set of the proxy materials. Instructions on how to access the proxy
materials over the Internet or to request a printed copy may be found in the Notice. In addition, the Notice contains information
on how stockholders may request delivery of proxy materials in printed form by mail or electronically by email on an ongoing
basis.
How can I access the proxy materials and annual report on the Internet?
This Proxy Statement, the form of proxy card, the Notice and our annual report on Form 10-K for the fiscal year ended
July 1, 2016 are available at www.Proxyvote.com.
Why is Aviat soliciting proxies?
In lieu of personally attending and voting at the Annual Meeting, you may appoint a proxy to vote on your behalf. The
Board has designated proxy holders to whom you may submit your voting instructions. The proxy holders for the Annual
Meeting are John Mutch, Chairman of the Board, Michael Pangia, President and CEO, and Meena Elliott, Senior Vice
President, Chief Legal & Administrative Officer, Corporate Secretary.
How do I revoke my proxy?
If you are a stockholder of record, you may revoke your proxy at any time before your shares are voted at the Annual
Meeting by:
•
•
•
delivering a written notice of revocation to the Company’s Secretary, Meena Elliott, at 860 N. McCarthy Blvd.,
Suite 200, Milpitas, CA 95035;
signing, dating and returning a proxy card bearing a later date;
submitting another proxy by Internet or telephone (the latest dated proxy will control); or
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•
attending the Annual Meeting and voting in person by ballot.
If you hold your shares in “street name,” you should follow the directions provided by the bank, broker or other holder
of record to revoke your proxy. Regardless of how you hold your shares, your attendance at the Annual Meeting after having
executed and delivered a valid proxy card will not in and of itself constitute a revocation of your proxy.
What vote is required to approve each item?
•
•
•
•
•
Proposal No. 1 (election of directors): the director nominees will be elected by a majority of the votes cast.
Stockholders may not cumulate votes in the election of directors. The Board recommends a vote “FOR” all
nominees.
Proposal No. 2 (ratification of BDO as the Company’s independent registered public accounting firm): the
affirmative vote by the holders of common stock entitled to cast a majority of the voting power of all of the
common stock present in person or represented by proxy at the Annual Meeting and entitled to vote on the
proposal is necessary for approval of Proposal No. 2. The Board recommends a vote “FOR” Proposal No. 2.
Proposal No. 3 (advisory, non-binding vote on named executive officer compensation): the affirmative vote by the
holders of common stock entitled to cast a majority of the voting power of all of the common stock present in
person or represented by proxy at the Annual Meeting and entitled to vote on the proposal is necessary for
approval of Proposal No. 3. The Board recommends a vote “FOR” Proposal No. 3.
Proposal No. 4 (approval of amendments to the Company’s Amended and Restated Certificate of Incorporation, as
amended, to restrict certain transfers of our common stock in order to protect the substantial tax benefits of our net
operating loss carryforwards): the affirmative vote by the holders of a majority of the shares outstanding and
entitled to vote as of the Record Date is necessary for approval of Proposal No. 4. The Board recommends a
vote “FOR” Proposal No. 4.
Proposal No. 5 (approval of the Company’s tax benefit preservation plan designed to protect the substantial tax
benefits of the Company’s net operating loss carryforwards): the affirmative vote by the holders of common stock
entitled to cast a majority of the voting power of all of the common stock present in person or represented by
proxy at the Annual Meeting and entitled to vote on the proposal is necessary for approval of Proposal No. 5. The
Board recommends a vote “FOR” Proposal No. 5.
What happens if a director does not receive a sufficient number of votes?
Aviat’s Corporate Governance Guidelines provide that a director nominee who receives a greater number of votes
“AGAINST” his or her election than votes “FOR” his or her election must promptly offer his or her resignation to the Board.
The Board will determine whether to accept the nominee’s resignation. See “Majority Vote Policy in Director Elections” for
additional information.
What constitutes a quorum, abstention and broker “non-vote”?
The presence at the Annual Meeting either in person or by proxy of the holders of common stock entitled to cast a
majority of the voting power of all of the common stock issued and outstanding and entitled to vote at the Annual Meeting
constitutes a quorum for the transaction of business at the Annual Meeting.
Abstentions and broker “non-votes” are counted as present and are, therefore, included for purposes of determining
whether a quorum is present at the Annual Meeting. An abstention occurs when a stockholder does not vote for or against a
proposal but specifically abstains from voting. A broker “non-vote” occurs when a bank, broker or other holder of record
holding shares in street name for a beneficial owner signs and submits a proxy or votes with respect to shares of common stock
held in a fiduciary capacity, but does not vote on a particular matter because the bank, broker or other holder of record does not
have discretionary voting power with respect to that matter and has not received instructions from the beneficial owner or
because the bank, broker or other holder of record elects not to vote on a matter as to which it does have discretionary voting
power. Under the rules governing banks, brokers and other holders of record who are voting with respect to shares held in street
name, such entities have the discretion to vote such shares on routine matters but not on non-routine matters. Only Proposal No.
2 is a routine matter.
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For Proposal No. 1, abstentions and broker “non-votes”, if any, will be disregarded and have no effect on the outcome
of the vote. For Proposals No. 2, No.3 and No. 5, abstentions will have the same effect as voting against the proposal, and
broker “non-votes”, if any, will be disregarded and have no effect on the outcome of the vote. For Proposal No. 4, abstentions
and broker “non-votes,” if any, will have the will have the same effect as a vote against a proposal.
Who pays for the cost of solicitation?
We will bear the entire cost of solicitation, including the preparation, assembly, printing, and mailing of this Proxy
Statement, the proxy card, the Notice and any additional solicitation materials that may be furnished to our stockholders and the
maintenance and operation of the website providing Internet access to these proxy materials. We will reimburse banks, brokers
and other holders of record for reasonable expenses incurred in sending proxy materials to beneficial owners of our common
stock and maintaining Internet access for such materials and the submission of proxies. We may supplement the original
solicitation of proxies by mail through solicitation by telephone, email, over the Internet or by other means by our directors,
officers and other employees. No additional compensation will be paid to these individuals for any such services.
In addition, the Company has retained D.F. King & Co. to assist it in the solicitation of proxies. The Company has
agreed to pay D.F. King & Co. a fee of $10,500, plus reimbursement for their reasonable out-of-pocket expenses. The Company
has also agreed to indemnify D.F. King & Co. against certain liabilities and expenses, including certain liabilities and expenses
under the federal securities laws.
What is the deadline for submitting proposals and director nominations for the 2017 Annual Meeting?
In order for any stockholder to submit nominations of directors or propose business to be considered before our 2017
Annual Meeting, a stockholder of record must submit a written notice thereof, which notice must be received by our Corporate
Secretary at our principal executive offices not earlier than August 18, 2017, or later than September 17, 2017. The full
requirements for the submission of nominations of directors and proposals of business to be considered are contained in Article
II, Sections 13 and 14, respectively, of our Bylaws, which are available for review at our website, www.aviatnetworks.com.
Stockholder proposals intended for inclusion in next year’s proxy statement pursuant to Rule 14a-8 under the
Securities Exchange Act of 1934 (the “Exchange Act”) must be directed to the Corporate Secretary, Aviat Networks, Inc., at our
principal executive offices, and must be received by June 5, 2017.
In accordance with the rules of the SEC, the proxies solicited by the Board for the 2017 Annual Meeting will confer
discretionary authority on the proxy holders to vote on any director nomination or stockholder proposal presented at the 2017
Annual Meeting if the Company fails to receive notice of such matter in accordance with the periods specified above.
Who will count the votes?
Broadridge will tabulate the votes cast by proxy. The Company has retained an independent inspector of elections in
connection with Aviat’s solicitation of proxies for the Annual Meeting. Aviat intends to notify stockholders of the results of the
Annual Meeting by filing a Form 8-K with the SEC.
CORPORATE GOVERNANCE
We believe in and are committed to sound corporate governance principles. Consistent with our commitment to and
continuing evolution of corporate governance principles, we adopted a Code of Business Ethics, corporate governance
guidelines and written charters for the Governance and Nominating Committee, Audit Committee and Compensation
Committee. Each of our Board committees is required to conduct an annual review of its charter and applicable guidelines.
Board Members
The authorized size of the Board is currently seven. Following the closing of the polls at the Annual Meeting, the
authorized size of the Board will be six. Directors are nominated by the Governance and Nominating Committee of the Board.
The following are the members of the Board as of the date of this Proxy Statement. See Proposal No. 1 for additional
information regarding the nominees for director.
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Name
Title and Positions
John Mutch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Director, Chairman of the Board
William A. Hasler. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Director
James R. Henderson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Director
Michael A. Pangia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Director, President and Chief Executive Officer
Robert G. Pearse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Director
John J. Quicke. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Director
Dr. James C. Stoffel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Director
Messrs. Hasler, Henderson and Pearse are concluding their service on the Board at the Annual Meeting. We thank
them for their dedication and service to Aviat.
The Board has determined that each of our current directors except Mr. Pangia has no relationship that would interfere
with the exercise of independent judgment in carrying out the responsibilities of a director and is otherwise independent in
accordance with listing rules of the NASDAQ Stock Market (the “NASDAQ Listing Rules”).
All of our directors are requested to attend our annual meetings of stockholders. Eight of our directors serving at that
time attended the 2015 Annual Meeting, either in person or via telephone.
Board and Committee Meetings and Attendance
In fiscal year 2016, the Board held eleven meetings. Each of the Board members attended at least 82% of the Board
meetings and at least 91% of the total number of meetings of the committee or committees on which the member served.
Board Member Qualifications
Our Board believes that its members should encompass a range of talents, skills and expertise, which enables the
Board to provide sound guidance with respect to the Company’s operations and interest. Our Board prefers a variety of
professional experiences and backgrounds among its members. In addition to considering a candidate’s experiences and
background, candidates are reviewed in the context of the current composition of the Board and evolving needs of our
businesses. In particular, the Board has sought to include members that have experience in establishing, growing and leading
communications companies in senior management positions and serving on the board of directors of other companies. In
determining that each of the members of the Board is qualified to be a director, the Board has relied on the attributes listed
below and, where applicable, on the direct personal knowledge of each of the members’ prior service on the Board.
Our bylaws provide that a director may not be older than 75 years of age on the date of his or her election or
appointment to the Board unless otherwise specifically approved by a resolution passed by the Board.
Directors’ Biographies
The following is a brief description of the business experience and background of each nominee for director, including
the capacities in which each has served during at least the past five years:
Mr. John Mutch, age 60, currently serves as Chairman of the Board and has served on the Board since January 2015.
He has served on the Board of Directors of Steel Excel Inc. (“Steel Excel”), a provider of drilling and production services to the
oil and gas industry and a provider of event-based sports services and other health-related services, since 2007. From December
2008 to January 2014, he served as Chairman of the Board of Directors and Chief Executive Officer of Beyondtrust Software, a
privately-held security software company. Mr. Mutch has been the founder and managing partner of MV Advisors LLC (“MV
Advisors”), a strategic block investment firm that provides focused investment and strategic guidance to small and mid-cap
technology companies, since December 2005. Prior to founding MV Advisors, in March 2003, Mr. Mutch was appointed by the
U.S. Bankruptcy court to the Board of Directors of Peregrine Systems, Inc. (“Peregrine Systems”), a provider of enterprise asset
and service management solutions. He assisted that company in a bankruptcy work-out proceeding and was named President
and Chief Executive Officer in July 2003. Previous to running Peregrine Systems, Mr. Mutch served as President, Chief
Executive Officer and a director of HNC Software, an enterprise analytics software provider. Before HNC Software, Mr. Mutch
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spent seven years at Microsoft Corporation in a variety of executive sales and marketing positions. Mr. Mutch previously
served on the Boards of Directors of Phoenix Technologies Ltd., a leader in core systems software products, services and
embedded technologies, Edgar Online, Inc., a provider of financial data, analytics and disclosure management solutions,
Aspyra, Inc., a provider of clinical and diagnostic information systems for the healthcare industry, Overland Storage, Inc., a
provider of unified data management and data protection solutions, and Brio Software, Inc., a provider of business intelligence
software. He has served as a director at Agilysys, Inc., a provider of information technology solutions, since March 2009.
Mr. Mutch brings to the Board extensive experience as an executive in the technology sector. He also has experience
as a director at several public companies in the technology sector. He is or has been a member of the audit committee of various
public and private companies, and brings valuable financial expertise to the Board.
Mr. Wayne Barr, Jr., age 52, has served as a consultant to HC2 Holdings, Inc. (“HC2”), a diversified holding company,
since July 2016 and has served on the HC2 Board of Directors since January 2014. From January 2014 until July 2016, Mr.
Barr served on the Audit Committee (chairman), Compensation Committee and Nominating and Governance Committee of the
HC2 Board of Directors. Mr. Barr also serves as a director of four HC2 private portfolio companies. Mr. Barr has also served as
the Managing Director of Alliance Group of NC, LLC, a full-service real estate brokerage firm in Raleigh, NC since January
2013, and as the Principal of Oakleaf Consulting Group LLC, a management consulting firm focusing on technology and
telecommunications companies, since he founded the company in 2001. He previously served as a founder and President of
Capital & Technology Advisors, Inc. from October 2003 until 2006 and served as Senior Managing Director of Communication
Technology Advisors LLC from May 2001 to June 2005. From 1999 until 2001, Mr. Barr was a member of TechOne Capital
Group, a private investment firm. From 1995 until 1999, Mr. Barr served as an Associate General Counsel of CAI Wireless
Systems Inc., which was acquired by WorldCom Inc. in August 1999. He began his career as an attorney in private practice. Mr.
Barr is a director of Concurrent Computer Corporation, a global software and solutions company. Mr. Barr was a director of
Evident Technologies Inc. from 2005 until 2016, and has served on the Boards of Directors of Globix Corporation from 2004 to
2005, Anacomp from 2002 to 2003, Leap Wireless International Inc. from 2003 to 2004 and NEON Communications Group,
Inc. in 2005.
Mr. Barr brings to the Board his extensive experience as a senior executive and a member of various boards of
directors.
Mr. Kenneth Kong, age 42, is a Senior Vice President at Steel Partners, Ltd. (“Steel Partners”), a management and
advisory company that provides management services to Steel Partners Holdings, L.P. and its affiliates. As an investment
professional at Steel Partners, Mr. Kong sources and analyzes investment opportunities in publicly traded securities in a diverse
number of industries. He is also a member of the Mergers and Acquisitions team at Steel Partners focused on deal sourcing, due
diligence and analysis. Since joining Steel Partners in 1997 as an investment analyst, Mr. Kong also performed in various key
positions in managing investor relations, marketing and administration for Steel Partners II, L.P., Steel Partners Japan Strategic
Fund, L.P. and Steel Partners China Access I, L.P. From 2006 to 2016, he managed Steel Partners China Access I, L.P., a
private investment fund focused on investing in publicly listed state owned enterprises in the Peoples Republic of China. Mr.
Kong currently serves as a Trustee BNS Holding Liquidating Trust, Inc. since 2012 and as a Director of Ore Holdings, Inc.
since October 2010. Additionally, he has served as a Director on several private companies.
Mr. Kong’s brings to the Board an extensive knowledge of capital allocation and related matters.
Mr. Michael A Pangia, age 55, has been our President and CEO and a member of the Board since July 2011. From
March 2009 to July 2011, he served as our Chief Sales Officer where he was responsible for company-wide operations of the
Global Sales and Services organization. Prior to joining Aviat, Mr. Pangia served as senior vice president, Global Sales
Operations and Strategy, at Nortel, where he was responsible for all operational aspects of the Global Sales function. Prior to
that, he was president of Nortel’s Asia region, where his key responsibilities included sales and overall business management
for all countries in the region where Nortel did business.
Mr. Pangia’s current and prior service as a senior executive officer with large technology driven companies with
international operations provide him with an extensive knowledge base of complex management, financial, operational and
governance issues faced by public companies with global operations. He also brings a high level of financial literacy to the
Board through both formal education and over 15 years’ experience in multiple finance functional areas, including cost
accounting, financial planning and analysis, and mergers and acquisitions.
Mr. John J. Quicke, age 67, has served as a member of the Board since January 2015. Mr. Quicke has served as a
director of Rowan Companies, plc, an offshore contract drilling company, since January 2009. Since January 2016, he has
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served as Chairman of Steel Energy Services LTD, a wholly owned subsidiary of Steel Excel. He served on the Board of
Directors of Steel Excel from 2007 to July 2016, and served as its Interim President and Chief Executive Officer from January
2010 to March 2013. In March 2013, he was named President and Chief Executive Officer of Steel Excel’s Steel Energy
segment and served in that capacity until December 2015. Mr. Quicke served as Managing Director and operating partner of
Steel Partners LLC, a subsidiary of Steel Partners Holdings L.P. from September 2005 until December 2015. Mr. Quicke has
been associated with Steel Partners and its affiliates since September 2005. Previously, Mr. Quicke served in various capacities
at Sequa Corporation, a diversified manufacturer, including Vice Chairman and Executive Officer, President, and as a director
of the company. Mr. Quicke previously served as a Vice President and director of Handy & Harman Ltd. (“H&H”), director,
President and Chief Executive Officer of DGT and as a director of Angelica Corporation, a provider of health care linen
management services, Layne Christensen Company, a global solutions provider for essential natural resources, NOVT
Corporation, a vascular brachytherapy business, JPS Industries, Inc., a manufacturer of mechanically formed glass and aramid
substrate materials for specialty applications and H&H.
Mr. Quicke’s extensive experience, including board service on ten public companies over 20 years, over 25 years of
significant operating experience, which includes participation in acquisition and disposition transactions, as well as his financial
and accounting expertise, enable him to assist in the effective management of the Company.
Dr. James C. Stoffel, age 70, has served as a member of the Board since January 2007 and a lead independent director
from July 2010 to February 2015. Presently, Dr. Stoffel is on the Board of Directors of Harris Corporation, of which he has
been a member since August 2003, and is also a member of its Corporate Governance Committee. Additionally, since 2006 he
has served as General Partner of Trillium International, LLC, a private equity company, and is a senior advisor to other private
equity companies. He also serves on the boards of the following privately held companies: Display Data, Omni-ID Ltd., Quintel
Ltd., and Intrinsiq Ltd. Prior to his retirement, Dr. Stoffel was Senior Vice President, Chief Technical Officer and Director of
Research and Development of Eastman Kodak Company (“Kodak”). He held this position from 2000 to April 2005. He joined
Kodak in 1997 as Vice President and Director, Electronic Imaging Products Research and Development, and became Director
of Research and Engineering in 1998. Prior to joining Kodak, he was with Xerox Corporation (“Xerox”), where he began his
career in 1972. His most recent position with Xerox was Vice President, Corporate Research and Technology. Dr. Stoffel serves
on the Advisory Board for Research and Graduate Studies at the University of Notre Dame and is a member of the advisory
board of the Applied Science and Technology Research Institute, Hong Kong.
Dr. Stoffel’s prior service as a senior executive of large, publicly traded, technology driven companies, and his more
than 30 years’ experience focused on technology development, provide him with an extensive knowledge of the complex
technical research and development, management, financial and governance issues faced by a public company with
international operations. This experience brings our Board important knowledge and expertise related to research and
development, new product introductions, strategic planning, manufacturing, operations and corporate finance. His experience as
an advisor to private equity firms also provides him with additional knowledge related to strategic planning, capital raising,
mergers and acquisitions and economic analysis. Dr. Stoffel also has gained an understanding of public company governance
and executive compensation through his service on public company boards, including as a lead independent director.
Board Leadership
The Board does not have a policy regarding the separation of the roles of CEO and Chairman of the Board as the
Board believes that it is in the best interests of the Company for the Board to make that determination based on the position and
direction of the Company and the membership of the Board. The members of the Board possess considerable experience and
unique knowledge of the challenges and opportunities that the Company faces, and are in the best position to evaluate the needs
of the Company and how to best organize the capabilities of the directors and management to meet those needs.
When the CEO also serves as Chairman of the Board, our Corporate Governance Guidelines provide for the
appointment of a lead independent director.
The Board has determined that having Mr. Mutch serve as Chairman is in the best interest of the Company at this time.
This structure ensures a greater role for the independent directors in the oversight of the Company and active participation of
the independent directors in setting agendas and establishing Board priorities and procedures, and is useful in establishing a
system of corporate checks and balances. Separating the Chairman position from the CEO position allows the CEO to focus on
setting the strategic direction of the Company and the day-to-day leadership and performance of the Company, while the
Chairman leads the Board in its role of, among other things, providing advice to, and overseeing the performance of, the CEO.
In addition, managing the Board can be a time-intensive responsibility, and this structure permits Mr. Pangia, our CEO, to focus
on the management of the Company’s day-to-day operations.
7
The Board’s Role in Risk Oversight
Assessing and managing risk is the responsibility of the management of the Company. The Board, through the
Governance and Nominating Committee, oversees and reviews certain aspects of the Company’s risk management efforts,
focusing on the adequacy of the Company’s risk management and risk mitigation processes. At the Board’s request,
management proposed a process for identifying, evaluating and monitoring material risks and such process has been approved
by the Board and is currently in effect. This risk management program is overseen by senior management who, in connection
with their regular review of the overall business, identify and prioritize a broad range of material risks (e.g., financial, strategic,
compliance and operational). Senior management also discusses mitigation plans to address such material risks. Prioritized risks
and management’s plans for mitigating such risks are regularly presented to the full Board for discussion and in order to ensure
monitoring. In addition to the risk management program, the Board encourages management to promote a corporate culture that
incorporates risk management into the Company’s corporate strategy and day-to-day business operations.
A discussion of risk factors in the Company’s compensation design can be found below under the heading “Risk
Considerations in Our Compensation Program.”
Principles of Corporate Governance, Bylaws and Other Governance Documents
The Board has adopted Corporate Governance Guidelines and other corporate governance documents that supplement
certain provisions of our Bylaws and relate to, among other things, the composition, structure, interaction and operation of the
Board. Some of the key governance features of our Corporate Governance Guidelines, Bylaws and other governance documents
are summarized below.
Majority Voting in Director Elections. In an uncontested election of directors, to be elected to the Board, each nominee
must receive the affirmative vote of shares representing a majority of the votes cast, meaning that the number of votes “FOR” a
director nominee must exceed the number of votes “AGAINST” that director nominee.
Aviat’s Corporate Governance Guidelines provide that any director nominee in an uncontested election who does not
receive a greater number of votes “FOR” his or her election than votes “AGAINST” such election must, promptly following
certification of the stockholder vote, offer his or resignation to the Board for consideration in accordance with the following
procedures. All of these procedures will be completed within 90 days following certification of the stockholder vote.
The Board, through its Qualified Independent Directors (as defined below), will evaluate the best interests of the
Company and its stockholders and decide the action to be taken with respect to such offered resignation, which can include,
without limitation: (i) accepting the resignation; (ii) accepting the resignation effective as of a future date not later than 180
days following certification of the stockholder vote; (iii) rejecting the resignation but addressing what the Qualified
Independent Directors believe to be the underlying cause of the withhold votes; (iv) rejecting the resignation but resolving that
the director will not be re-nominated in the future for election; or (v) rejecting the resignation.
In reaching their decision, the Qualified Independent Directors will consider all factors they deem relevant, including
but not limited to: (i) any stated reasons why stockholders did not vote for such director; (ii) the extent to which the
“AGAINST” votes exceed the votes “FOR” the election of the director and whether the “AGAINST” votes represent a majority
of the outstanding shares of common stock; (iii) any alternatives for curing the underlying cause of the “AGAINST” votes;
(iv) the director’s tenure; (v) the director’s qualifications; (vi) the director’s past and expected future contributions to the
Company; (vii) the overall composition of the Board, including whether accepting the resignation would cause the Company to
fail or potentially fail to comply with any applicable law, rule or regulation of the SEC or the NASDAQ Listing Rules; and
(viii) whether such director’s continued service on the Board for a specified period of time is appropriate in light of current or
anticipated events involving the Company.
Following the Board’s determination, the Company will, within four business days, disclose publicly in a document
furnished or filed with the SEC the Board’s decision as to whether or not to accept the resignation offer. The disclosure will also
include a description of the process by which the decision was reached, including, if applicable, the reason or reasons for
rejecting the offered resignation.
A director who is required to offer his or her resignation in accordance with this policy may not be present during the
deliberations or voting whether to accept his or her resignation or, except as otherwise provided below, a resignation offered by
any other director in accordance with this policy. Prior to voting, the Qualified Independent Directors may afford the affected
director an opportunity to provide any information or statement that he or she deems relevant.
8
For purposes of this policy, “Qualified Independent Directors” means all directors who (i) are independent directors
(as defined in accordance with the NASDAQ Listing Rules) and (ii) are not required to offer their resignation in connection
with an election in accordance with this policy. If there are fewer than three independent directors then serving on the Board
who are not required to offer their resignations in accordance with this policy, then the Qualified Independent Directors means
all of the independent directors, and each independent director who is required to offer his resignation in accordance with this
policy must recuse himself from the deliberations and voting only with respect to his individual offer to resign.
All nominees for election as a director in an uncontested election are deemed to have agreed to abide by this policy
and will offer to resign and will resign if requested to do so in accordance with this policy (and will if requested submit an
irrevocable resignation letter, subject to this majority voting policy, as a condition to being nominated for election).
Prohibition Against Pledging Aviat Securities and Hedging Transactions. In accordance with Aviat’s Code of Conduct,
directors and executive officers are prohibited from pledging Aviat securities and engaging in hedging transactions with respect
to Aviat securities. Aviat specifically prohibits directors and executive officers from holding Aviat securities in any margin
account for investment purposes or otherwise using Aviat securities as collateral for a loan. Such persons are also prohibited
from purchasing certain instruments (including prepaid variable forward contracts, equity swaps, and collars) and engaging in
transactions designed to hedge or offset any decrease in the value of Aviat securities.
Board Committees
The Board maintains an Audit Committee, a Compensation Committee and a Governance and Nominating Committee.
Copies of the charters for the Audit Committee, the Compensation Committee and the Governance and Nominating Committee
are available on our website at www.investors.aviatnetworks.com/documents.cfm.
9
The following table shows, at the conclusion of fiscal year 2016, the Chairman and members of each committee, the
number of committee meetings held and the principal functions performed by each committee.
Committee
Audit. . . . . . . . . . .
Number of
Meetings in
Fiscal 2016
11
Members
John Mutch*
James R. Henderson
William A. Hasler
Dr. James C. Stoffel**
Principal Functions
• Selects our independent registered public accounting
firm
• Reviews reports of our independent registered public
accounting firm
• Reviews and pre-approves the scope and cost of all
services, including all non-audit services, provided by
the firm selected to conduct the audit
• Monitors the effectiveness of the audit process
• Reviews management’s assessment of the adequacy of
financial reporting and operating controls
• Monitors corporate compliance program
Compensation. . . .
Governance and
Nominating . . .
6
4
Dr. James C. Stoffel*
John J. Quicke
Robert G. Pearse
• Reviews our executive compensation policies and
strategies
• Oversees and evaluates our overall compensation
structure and programs
John J. Quicke*
Robert G. Pearse
William A. Hasler***
James R. Henderson***
• Develops and implements policies and practices relating
to corporate governance
• Reviews and monitors implementation of our policies
and procedures
• Reviews the process by which management identifies
and mitigates key areas of risk and reviews critical risk
areas with the Board
• Assists in developing criteria for open positions on the
Board
• Reviews and recommends nominees for election of
directors to the Board
• Reviews and recommends policies, if needed for
selection of candidates for directors
______________________
* Chairman of Committee
** Mr. Stoffel was appointed to the Audit Committee after the November 2015 Annual Meeting.
*** Mr. Hasler served on the Governance and Nominating Committee through the 2nd quarter of fiscal year 2016. Mr.
Henderson began serving on the committee beginning 3rd quarter of fiscal year 2016, at which time Mr. Hasler stepped down
from the committee.
Audit Committee
The Audit Committee is primarily responsible for selecting, and approving the services performed by, our independent
registered public accounting firm, as well as reviewing our accounting practices, corporate financial reporting and system of
internal controls over financial reporting. No material amendments to the Audit Committee Charter were made during fiscal
year 2016. During fiscal year 2016, the Audit Committee was comprised of independent, non-employee members of our Board
who were “financially sophisticated” under the NASDAQ Listing Rules.
The Board has determined that each of Messrs. Mutch and Hasler qualifies as an “audit committee financial expert,” as
defined under Item 407(d)(5)(i) of Regulation S-K under the Securities Act of 1933 and the Exchange Act. Such status does not
impose on any director duties, liabilities or obligations that are greater than the duties, liabilities or obligations otherwise
imposed on a director as members of our Audit Committee and the Board.
10
Compensation Committee
The Compensation Committee has the authority and responsibility to approve our overall executive compensation
strategy, to administer our annual and long-term compensation plans and to review and make recommendations to the Board
regarding executive compensation. The Compensation Committee is comprised of independent, non-employee members of the
Board in accordance with NASDAQ Listing Rules. During fiscal year 2016, the Compensation Committee utilized Pearl Meyer
& Partners, LLC (“Pearl Meyer”) as an independent, third-party consulting firm.
Compensation Committee Interlock and Insider Participation
No member of the Compensation Committee was an officer or employee or former officer of the Company. None of
our executive officers currently serves or in the past year has served as a member of the board of directors or compensation
committee of any entity that has one or more executive officers serving on our Board or Compensation Committee.
Governance and Nominating Committee
Each member of the Governance and Nominating Committee met the independence requirements of the NASDAQ
Listing Rules.
The Governance and Nominating Committee develops and implements policies and practices related to corporate
governance consistent with sound corporate governance principles. The Governance and Nominating Committee also reviews
the process by which management identifies and mitigates key areas of risk and reviews critical risk areas with the Board.
The Governance and Nominating Committee also recommends candidates to the Board and periodically reviews
whether a more formal selection policy should be adopted. There is no difference in the manner in which the committee
members evaluate nominees for director based on whether the nominee is recommended by a stockholder. We currently do not
pay a third party to identify or assist in identifying or evaluating potential nominees, although we may in the future utilize the
services of such third parties.
In reviewing potential candidates for the Board, the Governance and Nominating Committee considers the individual’s
experience and background. Candidates for the position of director should exhibit proven leadership capabilities, high integrity,
exercise high level responsibilities within their chosen career, and possess an ability to quickly grasp complex principles of
business, finance, international transactions and communications technologies. In general, candidates who have held an
established executive level position in business, finance, law, education, research, government or civic activity will be
preferred.
Although the Governance and Nominating Committee has not adopted a formal diversity policy with regard to the
selection of director nominees, diversity is one of the factors that the committee considers in identifying director nominees.
When identifying and recommending director nominees, the Governance and Nominating Committee views diversity
expansively to include, without limitation, concepts such as race, gender, national origin, differences of viewpoint, professional
experience, education, skill and other qualities or attributes that contribute to board diversity. As part of this process, the
Governance and Nominating Committee evaluates how a particular candidate would strengthen and increase the diversity of the
Board in terms of how that candidate may contribute to the Board’s overall balance of perspectives, backgrounds, knowledge,
experience, skill sets and expertise in substantive matters pertaining to the Company’s business.
In making its recommendations, the Governance and Nominating Committee bears in mind that the foremost
responsibility of a director of a corporation is to represent the interests of the stockholders as a whole. The Governance and
Nominating Committee intends to continue to evaluate candidates for election to the Board on the basis of the foregoing
criteria.
11
Stockholder Communications with the Board
Stockholders who wish to communicate directly with the Board may do so by submitting a comment via the
Company’s website at www.investors.aviatnetworks.com/contactBoard.cfm or by sending a letter addressed to: Aviat Networks,
Inc., c/o Corporate Secretary, 860 N. McCarthy Blvd., Suite 200, Milpitas, California 95035. The Corporate Secretary monitors
these communications and provides a summary of all received messages to the Board at its regularly scheduled meetings. When
warranted by the nature of communications, the Corporate Secretary will request prompt attention by the appropriate committee
or independent director of the Board, independent advisors or management. The Corporate Secretary may decide in her
judgment whether a response to any stockholder communication is appropriate.
Code of Conduct
We implemented our Code of Conduct effective January 26, 2007. All of our employees, including the CEO, CFO and
Principal Accounting Officer, are required to abide by the Code of Conduct to help ensure that our business is conducted in a
consistently ethical and legal manner. The Audit Committee has adopted a written policy, and management has implemented a
reporting system, intended to encourage our employees to bring to the attention of management and the Audit Committee any
complaints regarding the integrity of our internal system of controls over financial reporting, or the accuracy or completeness of
financial or other information related to our financial statements.
TRANSACTIONS WITH RELATED PERSONS
During fiscal year 2016, we believe there were no transactions, or series of similar transactions, to which we were or
are to be a party in which the amount exceeded $120,000, and in which any of our directors or executive officers, any holders of
more than 5% of our common stock or any members of any such person’s immediate family, had or will have a direct or
indirect material interest, other than compensation described in the sections titled “Director Compensation and Benefits” and
“Executive Compensation.”
It is the policy and practice of our Board to review and assess information concerning transactions involving related
persons. Related persons include our directors and executive officers and their immediate family members. If the determination
is made that a related person has a material interest in a transaction involving us, then the disinterested members of our Board
would review and approve or ratify it, and we would disclose the transaction in accordance with SEC rules and regulations. If
the related person is a member of our Board, or a family member of a director, then that director would not participate in any
discussion involving the transaction at issue.
Our Code of Conduct prohibits all employees, including our executive officers, from benefiting personally from any
transactions with us other than approved compensation benefits.
DIRECTOR COMPENSATION AND BENEFITS
The form and amount of director compensation is reviewed and assessed from time to time by the Compensation
Committee with changes, if any, recommended to the Board for action. Director compensation may take the form of cash,
equity, and other benefits ordinarily available to directors.
Directors who are not employees of ours received the following fees, as applicable, for their services on our Board
during fiscal year 2016:
•
•
•
•
$60,000 basic annual cash retainer, payable on a quarterly basis, which a director may elect to receive in the form
of shares of common stock;
$25,000 annual cash retainer, payable on a quarterly basis, for service as Chairman of the Board;
$10,000 annual cash retainer, payable on a quarterly basis, for service as Chairman of the Audit Committee;
$5,000 annual cash retainer, payable on a quarterly basis, for service as Chairman of the Governance and
Nominating Committee;
12
•
$8,000 annual cash retainer, payable on a quarterly basis, for service as Chairman of the Compensation
Committee; and
• Annual grant of restricted shares of common stock valued (based on market prices on the date of grant) at
$60,000, with 100% vesting at the earlier of (1) the day before the annual stockholders’ meeting, or (2) one year
from grant date, subject to continuing service as a director.
Directors are eligible to defer payment of all or a portion of the retainer fees and restricted stock awards that are
payable to them. Directors may choose either a lump sum or installment distribution of such fees and awards. Installment
distributions are payable in annual installments over a period no longer than 10 years.
We reimburse each non-employee director for reasonable travel expenses incurred and in connection with attendance
at Board and committee meetings on our behalf, and for expenses such as supplies and continuing director education costs,
including travel for one course per year. Employee directors are not compensated for service as a director.
Fiscal Year 2016 Compensation of Non-Employee Directors
Our non-employee directors received the following aggregate amounts of compensation in respect of fiscal year 2016:
Name
Fees Earned or Paid
in Cash
Stock Awards (2)
($)
($)
Total
($)
William A. Hasler . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
James R. Henderson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charles D. Kissner (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
John Mutch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Robert G. Pearse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
John J. Quicke . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dr. James C. Stoffel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
60,000
60,000
30,000
95,000
60,000
65,000
68,000
63,555
63,555
—
63,555
63,555
63,555
63,555
123,555
123,555
30,000
158,555
123,555
128,555
131,555
__________________
1. Mr. Kissner did not stand for re-election as a director in November 2015.
2. The amounts shown in this column reflect the aggregate grant date fair value of the stock awards and option awards
granted to our non-employee directors computed in accordance with FASB ASC Topic 718. The assumptions made in
determining the fair values of our stock awards and option awards are set forth in Notes 1 and 8 to our fiscal year 2016
Consolidated Financial Statements in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended July 1,
2016, as filed with the SEC on September 8, 2016.
As of July 1, 2016, our non-employee directors held the following numbers of unvested restricted shares of common
stock and stock options, all of which were granted under the 2007 Plan:
Name
William A. Hasler. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
James R. Henderson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
John Mutch. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Robert G. Pearse. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
John J. Quicke . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dr. James C. Stoffel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested Stock
Awards
7,462
7,462
7,462
7,462
7,462
7,462
13
Indemnification
Our Bylaws require us to indemnify each of our directors and officers with respect to their activities as a director,
officer, or employee of ours, or when serving at our request as a director, officer, or trustee of another corporation, trust, or
other enterprise, against losses and expenses (including attorney fees, judgments, fines, and amounts paid in settlement)
incurred by them in any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, to which they are, or are threatened to be made, a party(ies) as a result of their service to us. In addition, we carry
directors’ and officers’ liability insurance, which includes similar coverage for our directors and executive officers. We will
indemnify each such director or officer for any one or a combination of the following, whichever is most advantageous to such
director or officer:
• The benefits provided by our Bylaws in effect on the date of the indemnification agreement or at the time
expenses are incurred by the director or officer;
• The benefits allowable under Delaware law in effect on the date the indemnification bylaw was adopted, or as
such law may be amended;
• The benefits available under liability insurance obtained by us; and
•
Such benefits as may otherwise be available to the director or officer under our existing practices.
Under our Bylaws, each director or officer will continue to be indemnified even after ceasing to occupy a position as
an officer, director, employee or agent of ours with respect to suits or proceedings arising from his or her service with us.
14
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Except as noted below, the following table sets forth information with respect to the beneficial ownership of our
common stock as of September 22, 2016 by each person or entity known by us to beneficially own more than 5 percent of our
common stock, by our directors, by our nominees for director, by our named executive officers and by all our directors,
nominees for director and executive officers as a group. Except as indicated in the footnotes to this table, and subject to
applicable community property laws, the persons listed in the table below have sole voting and investment power with respect
to all shares of our common stock shown as beneficially owned by them. Unless otherwise indicated, the address of each of the
beneficial owners identified is c/o Aviat Networks, Inc., 860 N. McCarthy Blvd., Suite 200, Milpitas, California 95035. As of
September 22, 2016, there were 5,261,041 shares of our common stock outstanding.
Shares Beneficially Owned as of September 22, 2016
(1)
Number of Shares
of Common Stock(2)
Percentage of Voting
Power of Common
Stock
Name and Address of Beneficial Owner
Steel Partners Holdings L.P.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
670,241 (3)
12.74%
590 Madison Avenue, 32nd Floor
New York, NY
Schneider Capital Management Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
438,206 (4)
8.33%
460 E. Swedesford Road, Suite 2000
Wayne, PA 19087
Group comprised of Julian Singer, JDS1, LLC and David S. Oros . . . . . . . . . . .
345,291 (5)
6.56%
c/o Julian Singer
2200 Fletcher Avenue, Suite 501
Fort Lee, NJ 07024
Royce and Associates, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
340,498 (6)
6.47%
745 Fifth Avenue
New York, NY 10151
Named Executive Officers, Nominees for Director, and Directors
Wayne Barr, Jr.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Meena Elliott . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
William A. Hasler. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
James R. Henderson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kenneth Kong . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ralph S. Marimon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shaun McFall . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
John Mutch. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Michael Pangia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Robert G. Pearse. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
John J. Quicke . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dr. James C. Stoffel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Heinz H. Stumpe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All directors, nominee for director and executive officers as a group (13
persons) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
__________________________
* Less than one percent
—
36,693 (7)
27,195 (8)
14,771 (9)
—
1,105 (10)
43,814 (11)
14,771 (9)
120,278 (12)
15,605 (9)
23,105 (9)
26,471 (8)
44,471 (13)
368,279 (14)
*
*
*
*
*
*
*
*
2.25%
*
*
*
*
6.68%
(1)
Beneficial ownership is determined under the rules and regulations of the SEC, and generally includes voting or
dispositive power with respect to such shares.
15
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
Shares of common stock that a person has the right to acquire within 60 days are deemed to be outstanding and
beneficially owned by that person for the purpose of computing the total number of shares beneficially owned by that
person and the percentage ownership of that person, but are not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person or group. Accordingly, the amounts in the table include
shares of common stock that such person has the right to acquire within 60 days of September 22, 2016 by the exercise
of stock options.
Based solely on a review of Amendment No. 6 to the Schedule 13D filed with the SEC on January 13, 2015 by Steel
Excel Inc., Steel Partners Holdings L.P., SPH Group LLC, SPH Group Holdings LLC and Steel Partners Holdings GP
Inc. Each of the foregoing entities reported shared voting and dispositive power with respect to all of such shares.
Based solely on a review of Amendment No. 2 to the Schedule 13G filed with the SEC on February 12, 2016 by
Schneider Capital Management Corporation. Schneider Capital Management Corporation reported sole voting power
with respect to 429,873 of such shares and sole dispositive power with respect to all of such shares.
Based solely on a review of the Schedule 13D filed with the SEC on September 14, 2016, by Julian Singer, JDS1, LLC
and David S. Oros. Mr. Singer and JDS1, LLC reported sole voting and dispositive power with respect to 295,291
shares. Mr. Oros reported sole voting and dispositive power with respect to 50,000 shares.
Based solely on a review of Amendment No. 3 to the Schedule 13G filed with the SEC on January 7, 2016 by Royce &
Associates, LLC. Royce & Associates, LLC reported sole voting and dispositive power with respect to all such shares.
Includes 28,626 shares of common stock that are subject to option that may be exercised within 60 days of
September 22, 2016.
Includes 16,111 shares of common stock that are subject to option or restricted stock units that may be exercised or
that will vest within 60 days of September 22, 2016.
Includes 7,462 shares of common stock that are subject to restricted stock units that will vest within 60 days of
September 22, 2016.
Information is as of September 22, 2016. There were no option or restricted stock units that may be exercised or that
will vest within 60 days of September 22, 2016.
Includes 32,852 shares of common stock that are subject to option that may be exercised within 60 days of
September 22, 2016.
Includes 87,730 shares of common stock that are subject to option that may be exercised within 60 days of
September 22, 2016.
Includes 36,927 shares of common stock that are subject to option that may be exercised within 60 days of
September 22, 2016.
Includes 248,205 shares of common stock that are subject to option or restricted stock units that may be exercised or
that will vest within 60 days of September 22, 2016.
16
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
For fiscal year 2016, the Audit Committee consisted of four members of the Board, each of whom was independent of
the Company and its management, as defined in the NASDAQ Listing Rules. The Board has adopted, and periodically reviews,
the Audit Committee charter. The charter specifies the scope of the Audit Committee’s responsibilities and how it carries out
those responsibilities.
The Audit Committee reviews management’s procedures for the design, implementation, and maintenance of a
comprehensive system of internal controls over financial reporting and disclosure controls and procedures focused on the
accuracy of our financial statements and the integrity of our financial reporting systems. The Audit Committee provides the
Board with the results of its examinations and recommendations and reports to the Board as it may deem necessary to make the
Board aware of significant financial matters requiring the attention of the Board.
The Audit Committee does not conduct auditing reviews or procedures. The Audit Committee monitors management’s
activities and discusses with management the appropriateness and sufficiency of our financial statements and system of internal
control over financial reporting. Management has primary responsibility for the Company’s financial statements, the overall
reporting process and our system of internal control over financial reporting. Our independent registered public accounting firm
audits the financial statements prepared by management, expresses an opinion as to whether those financial statements fairly
present our financial position, results of operations and cash flows in conformity with accounting principles generally accepted
in the United States (“U.S. GAAP”) and discusses with the Audit Committee any issues they believe should be raised with us.
The Audit Committee reviews reports from our independent registered public accounting firm with respect to their
annual audit and approves in advance all audit and non-audit services provided by our independent auditors in accordance with
applicable regulatory requirements. The Audit Committee also considers, in advance of the provision of any non-audit services
by our independent registered public accounting firm, whether the provision of such services is compatible with maintaining
their independence.
In accordance with its responsibilities, the Audit Committee has reviewed and discussed with management the audited
financial statements for the year ended July 1, 2016 and the process designed to achieve compliance with Section 404 of the
Sarbanes-Oxley Act of 2002. The Audit Committee has also discussed with our independent registered public accounting firm,
BDO, the matters required to be discussed by Auditing Standard No. 16, “Communications with Audit Committees” issued by
the Public Company Accounting Oversight Board (“PCAOB”). The Audit Committee has received the written disclosures and
letter from BDO required by applicable requirements of the PCAOB regarding the communications of BDO with the Audit
Committee concerning independence, and has discussed with BDO its independence, including whether the provision by BDO
of non-audit services, as applicable, is compatible with its independence.
Based on these reviews and discussions, the Audit Committee recommended to the Board that the Company’s audited
financial statements for the year ended July 1, 2016 be included in Company’s Annual Report on Form 10-K.
Audit Committee of the Board of Directors
John Mutch, Chairman
James R. Henderson
William A. Hasler
Dr. James C. Stoffel
17
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEES
BDO has been approved by our Audit Committee to act as our independent registered public accounting firm for the
fiscal year ending July 1, 2016. Representatives of BDO will be present at the Annual Meeting, will have opportunity to make a
statement should they so desire and will be available to respond to appropriate questions.
The following table sets forth the fees billed for services rendered by our auditors, BDO, for each of our last two fiscal
years:
Audit Fees(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit-Related Fees(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax Fees(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other Fees(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Fees for Services Provided. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year 2016(1)
1,408,000
$
Fiscal Year 2015(1)
1,475,000
$
—
9,000
—
—
14,000
—
$
1,417,000
$
1,489,000
________________________
(1)
(2)
(3)
(4)
(5)
Includes fees to be billed to us by BDO and BDO’s international affiliates for fiscal 2016 and 2015 integrated audit
and quarterly reviews.
Audit fees include fees associated with the annual audit, as well as reviews of our quarterly reports on Form 10-Q,
SEC registration statements, accounting and reporting consultations and statutory audits required internationally for
our subsidiaries.
Fees for audit-related services that are not categorized as audit fees.
Tax fees were for services related to tax compliance and tax planning services.
Other fees include fees billed for other services rendered not included within Audit Fees, Audit Related Fees or Tax
Fees.
BDO did not perform any professional services related to financial information systems design and implementation for
us in fiscal year 2016 or fiscal year 2015.
The Audit Committee has determined in its business judgment that the provision of non-audit services described above
is compatible with maintaining BDO’s independence.
Change in Independent Registered Public Accounting Firm
On February 26, 2015, the Company dismissed KPMG LLP (“KPMG”) as our independent registered public
accounting firm. The decision to change accountants was approved by the Audit Committee. A representative of KPMG is not
expected to be present at the Annual Meeting.
During the fiscal years ended June 27, 2014, and June 28, 2013, and the subsequent interim period through February
26, 2015, there were no: (1) disagreements with KPMG on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures, which disagreements if not resolved to their satisfaction would have caused them to
make reference in connection with their opinion to the subject matter of the disagreement, or (2) reportable events, except that
KPMG advised the Company of material weaknesses related to the Company’s control environment, risk assessment processes,
information and communication, monitoring activities, as well as control activities specific to manual journal entries, account
reconciliations, and revenue recognition related to percentage-of-completion contracts.
The audit reports of KPMG on the consolidated financial statements of the Company and its subsidiaries as of and for
the fiscal years ended June 27, 2014, and June 28, 2013 did not contain any adverse opinion or disclaimer of opinion, nor were
they qualified or modified as to uncertainty, audit scope or accounting principles. The audit reports of KPMG on the
effectiveness of internal control over financial reporting as of June 27, 2014, and June 28, 2013 did not contain any adverse
opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles,
except that KPMG’s report indicates that the Company did not maintain effective internal control over financial reporting as of
June 27, 2014, because of the effect of material weaknesses on the achievement of the objectives of the control criteria and
contains an explanatory paragraph that states that material weaknesses related to the Company’s control environment, risk
assessment processes, information and communication, monitoring activities, as well as control activities specific to manual
18
journal entries, account reconciliations, and revenue recognition related to percentage-of-completion contracts have been
identified.
We provided KPMG with a copy of the foregoing disclosures. A copy of KPMG’s letter to the SEC dated February 26,
2015, regarding its agreement with the foregoing statements was filed as Exhibit 16.1 to our Current Report on Form 8-K filed
with the SEC on March 3, 2015.
On February 26, 2015, the Audit Committee approved the selection of BDO to serve as the Company’s independent
registered public accounting firm for the fiscal year ending July 3, 2015, and the interim quarterly periods beginning February
26, 2015. This appointment was effective as of February 26, 2015. During the fiscal years ended June 27, 2014, and June 28,
2013, and the subsequent interim period through February 26, 2015, neither the Company nor anyone on its behalf consulted
with BDO regarding either (1) the application of accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, in any case where a
written report or oral advice was provided to the Company that BDO concluded was an important factor considered by the
Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (2) any matter that was either the
subject of a “disagreement,” as that term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item
304 of Regulation S-K or a “reportable event,” as that term is defined in Item 304(a)(1)(v) of Regulation S-K.
Audit Committee Pre-Approval Policy
Section 10A(i)(1) of the Exchange Act and related SEC rules require that all auditing and permissible non-audit
services to be performed by a company’s principal accountants be approved in advance by the Audit Committee of the Board,
subject to a “de minimis” exception set forth in the SEC rules (the “De Minimis Exception”). Pursuant to Section 10A(i)(3) of
the Exchange Act and related SEC rules, the Audit Committee has established procedures by which the Chairperson of the
Audit Committee may pre-approve such services provided the pre-approval is detailed as to the particular service or category of
services to be rendered and the Chairperson reports the details of the services to the full Audit Committee at its next regularly
scheduled meeting. All audit-related and non-audit services in fiscal year 2016 and 2015, if any, were pre-approved by the
Audit Committee at regularly scheduled meetings of the Audit Committee, or through the process described in this paragraph,
and none of such services was performed pursuant to the De Minimis Exception.
19
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Overview and Summary
This Compensation Discussion and Analysis, which has been prepared by management, is intended to help our
stockholders understand our executive compensation philosophy, objectives, policies, practices, and decisions. It is also intended
to provide context for the compensation information for our CEO, CFO and the three other most highly compensated executive
officers (our “named executive officers”) detailed in the Summary Compensation Table below and in the other tables and
narrative discussion that follow.
To understand our approach to executive compensation, you should read the entire Compensation Discussion and
Analysis that follows. The following brief summary introduces the major topics covered:
•
•
•
•
•
•
the cornerstone of our executive compensation program is pay for performance. Accordingly, while we pay
competitive base salaries and other benefits, the majority of our named executive officers’ compensation opportunity
is based on variable pay.
the objectives of our executive compensation program are to reward superior performance, motivate our executives
to achieve our goals and attract and retain a strong management team.
the Compensation Committee oversees our compensation program. The Compensation Committee makes the
majority of executive compensation decisions, but also makes recommendations on certain aspects of the program to
the full Board. The Compensation Committee is composed solely of independent directors. In its work, the
Compensation Committee is assisted by independent compensation consultants engaged by the Compensation
Committee.
in reviewing the elements of our executive compensation program — base salary, annual incentives, long-term
incentives and post-termination compensation — our Compensation Committee reviews market data from similar
companies.
our competitive positioning philosophy is to set compensation at approximately the 50th percentile of compensation
at peer group companies with allowances for internal factors such as tenure, individual performances and the
specific importance of the job to the Company.
our annual incentive program is based on specific Company financial performance goals for the fiscal year, and
includes provisions to “claw back” any excess amounts paid in the event of a later correction or restatement of our
financial statements.
The Company believes the compensation program for the named executive officers supported our strategic priorities and
aligned compensation earned with the Company’s financial performance in fiscal year 2016. Moreover, we believe that in
emphasizing long term stockholder value creation over short term operating results the structure of our executive compensation
program is beneficial to our Company and our stockholders.
Compensation Governance Best Practices
The Compensation Committee believes that a demonstrated commitment to best practices in compensation governance is
itself an essential component of our approach to executive compensation. The following practices are some examples of this
commitment:
• Pay for Performance: A substantial portion of our executives’ compensation opportunity is tied to achieving specified
corporate objectives. In fiscal year 2016, for example, 100% of the cash that could be earned by our executive officers
under the Annual Incentive Plan (“AIP”) was performance based and at-risk, subject to achievement of certain financial
objectives. Under the Long Term Incentive Plan (“LTIP”), 50% of fiscal year 2016 equity awards were in the form of
performance shares subject to achievement of a targeted stock price for each of fiscal years 2016, 2017 and 2018,
providing value to our executives only to the extent that those share prices and certain service based requirements are
met, reinforcing the long-term focus of our executive compensation programs.
• Mix of short term and long-term compensation: Short term compensation for our executive officers is comprised of
base salaries and the AIP, which pays out only to the extent that the Company meets its financial targets. In fiscal year
20
2016, the AIP was composed of cash and the LTIP was composed of performance based restricted stock, which vest over
a three year period.
•
Independent Compensation Consultant: The Compensation Committee directly retains the services of Pearl Meyer, an
independent compensation consultant, to advise it in determining reasonable and market-based compensation policies.
• Prohibition on hedging and pledging: Our executive officers, together with all other employees, are prohibited from
engaging in hedging, pledging or similar transactions with respect to our securities.
• No perquisites: Our executive officers are not provided with club memberships, personal use of corporate aircraft or any
other perquisite or special benefits other than our occasional provision of relocation expense reimbursement.
• No single trigger change of control acceleration: All change of control arrangements with our executive officers
provide for acceleration of vesting for outstanding equity awards only in the event that we are both subject to a change in
control and the executive officer’s employment terminates thereafter for specified reasons.
• Clawback: We have a clawback policy that entitles us to recover all or a portion of any performance-based
compensation, which included cash and equity, if our financial statements are restated as a result of errors, omissions or
fraud.
•
Strong compensation risk management: The Compensation Committee reviews and analyzes the risk profile of our
compensation programs and practices at least annually.
Compensation Philosophy and Objectives
The primary objectives of our total executive compensation program are to use compensation as a tool to recruit, retain,
and develop outstanding executives and create long term value for our shareholders. The following principles guide our overall
compensation program:
•
reward superior performance;
• motivate our executives to achieve strategic, operational, and financial goals;
•
•
enable us to attract and retain a world-class management team; and
align outcomes and rewards with stockholder expectations.
The Compensation Committee annually reviews the executive compensation program to ensure our executive
compensation policies and programs remain appropriately aligned with evolving business needs and to consider best
compensation practices. Our executive compensation programs are reviewed to ensure that they achieve a balance between
providing strong retention and performance incentives to our executives while accommodating a meaningful and continuing effort
to manage both the Company’s share burn rate and the dilutive effects of equity awards to the Company’s stockholders.
Executive Compensation Process
The Compensation Committee is responsible for establishing and implementing executive compensation policies and
programs in a manner consistent with our compensation objectives and principles. The Compensation Committee, which is
comprised solely of independent directors, reviews and approves the features and design of our executive compensation program,
and approves the compensation levels, individual AIP objectives and total compensation targets for our executive officers other
than our CEO. The independent members of the Board approve the compensation level, individual AIP objectives, and financial
targets for our CEO. The Compensation Committee also monitors executive succession planning and monitors our performance as
it relates to overall compensation policies for employees, including benefit and savings plans.
In discharging its responsibilities, the Compensation Committee may engage outside consultants and consult with our
Human Resources Department as well as internal and external legal or accounting advisors, as the Compensation Committee
determines to be appropriate. The Compensation Committee considers recommendations from our CEO and senior management
when making decisions regarding our executive compensation program and compensation of our executive officers. Following
each fiscal year end, our CEO, assisted by our Human Resources Department, assesses the performance of all named executive
officers and other officers. Following this annual performance review process, our CEO recommends base salary and incentive
and equity awards for our named executive officers and other officers to the Compensation Committee. Based on input from our
CEO and management, as well as from independent consultants, if any are used, and, in the case of the CEO’s compensation, the
Compensation Committee’s evaluation of the CEO’s performance, the Compensation Committee determines what changes, if any,
should be made to the executive compensation program and either sets or recommends to the full Board the level of each
compensation element for all of our officers.
21
Independent Compensation Consultant for Compensation Committee
The Compensation Committee has the authority under its charter to engage the services of outside advisors, experts and
others to assist it. Accordingly, the Compensation Committee has hired Pearl Meyer as an independent consultant to advise the
Compensation Committee on matters related to the compensation of the Company’s executive officers. All services that Pearl
Meyer provided Aviat in fiscal year 2016 were approved by the Compensation Committee and were related to executive or Board
compensation. Pearl Meyer provides an annual review of the Company’s compensation practices, reviews and makes
recommendations regarding the compensation peer groups, and provides independent input to the Compensation Committee on
programs and practices.
Compensation Committee Advisor Independence
The Compensation Committee has considered the independence of Pearl Meyer pursuant to the NASDAQ Listing Rules
and related SEC rules finalized in 2012, and has found no conflict of interest in Pearl Meyer continuing to provide advice to the
Compensation Committee. The Compensation Committee is also regularly advised by the Company’s primary outside counsel,
Wilson Sonsini Goodrich & Rosati Professional Corporation (“WSGR”). Pursuant to the NASDAQ Listing Rules and related
SEC rules finalized in 2012, the Compensation Committee has found no conflict of interest in WSGR continuing to provide
advice to the Compensation Committee. The Compensation Committee reassesses the independence of its advisors at least
annually.
Consideration of Say on Pay Results
We conducted our advisory vote on executive compensation last year at our annual meeting. Although this vote was not
binding on the Board or us, we believe that it is important for our stockholders to have an opportunity to express their views
regarding our executive compensation philosophy, program and practices as disclosed in our proxy statement on an annual basis.
The Board and our Compensation Committee value stockholders’ opinions and, to the extent there is any significant vote against
the compensation of our named executive officers, the Compensation Committee will evaluate whether any actions are warranted
or appropriate.
At our 2015 Annual Meeting, 86.6% of the votes cast on the advisory vote on executive compensation supported our
named executive officers’ compensation as disclosed in the proxy statement. Our Compensation Committee evaluated these
results, considered investor feedback and took into account many other factors in evaluating our executive compensation
programs as discussed in the Compensation Discussion and Analysis. Although none of our Compensation Committee’s
subsequent actions or decisions with respect to the compensation of our executive officers were directly attributable to the results
of the vote, our Compensation Committee took the vote outcome into consideration in the course of its deliberations. Our
Compensation Committee believes that stockholder feedback and concerns on executive compensation matters should be
considered as part of its deliberations and intends to consider the results of future advisory votes in its compensation review
process.
Competitive Benchmarking
Our compensation program for all of our officers is addressed in the context of competitive compensation practices. Our
management and Compensation Committee consider external data to assist in benchmarking total target compensation. For fiscal
year 2016, targets for total cash and cash based compensation (base salary and short-term incentive), long-term incentives and
total direct compensation (base salary and short-term and long-term incentives) for all officers were set based on data collected
from our peer group companies (for Messrs. Pangia, Marimon, and Stumpe) and from a published survey source, the Radford
Global Technology Survey for our other named executive officers. In considering data from the Radford Global Technology
Survey, we focused on results for technology companies with annual revenues of less than $500 million. The peer group
companies selected and used for compensation comparisons are reflective of our market for executive talent and business line
competitors. Also, the overall composition of the peer group reflects companies of similar complexity and size to us.
22
For fiscal year 2016, these peer group companies included:
ADTRAN Inc.
Bel Fuse, Inc.
Calix, Inc.
Comtech Telecommunications Corp.
Emulex Corporation
Harmonic Inc.
Ixia
NeoPhotonics Corporation
Sonus Networks, Inc.
Aruba Networks, Inc.
CalAmp Corp.
Cohu, Inc.
DragonWave, Inc.
Extreme Networks, Inc.
Infinera Corporation
MRV Communications
ShoreTel, Inc.
The Compensation Committee annually reviews the appropriateness of the comparison group used for assessing the
compensation of our CEO and other named executive officers. We made significant modifications to the peer group since fiscal
year 2015 so that our peer group roster better reflects our company size and business model, and also reflects merger and
acquisition activity in our sector. We removed Anaren, Inc. following its acquisition by Veritas Capital. We added MRV
Communications and NeoPhotonics Corporation to position peer median revenue and market capitalization more closely to that
of the Company.
Data for our peer group companies was collected directly from these companies’ proxy statements.
Total Compensation Elements
Our executive compensation program includes four major elements:
•
•
•
•
base salary
annual incentive program
long-term compensation — equity incentives
post-termination compensation
Each named executive officer’s performance is measured against factors such as long and short-term strategic goals and
financial measures of our performance, including factors such as revenue, operating income, cash flow from operations, earnings
before interest, taxes, depreciation and amortization (“EBITDA”) and earnings per share.
Our compensation policy and practice is to target total compensation levels for all officers, including our named
executive officers, nominally at the 50th percentile for similar positions as derived from the market composite data, assuming
experience in the position and competent performance. The Compensation Committee may decide to target total compensation
above or below the 50th percentile for similar positions in unique circumstances based on an individual’s background, experience,
or position. Though compensation levels may differ among our named executive officers based upon competitive factors and the
role, responsibilities and performance of each named executive officer, there are no material differences in our compensation
policies or in the manner in which total direct compensation opportunity is determined for any of our named executive officers.
Because our CEO has significantly greater duties, responsibilities and accountabilities than our other named executive officers,
the total compensation opportunity for the CEO is higher than for our other named executive officers. In determining CEO and
other named executive officer compensation, the Board also considers the ratio between our CEO’s compensation and the average
compensation of our other named executive officers as compared with similar ratios for peer group companies. For fiscal year
2016, that ratio was 1.95, compared to a median ratio of 2.18 in the peer group companies.
Base Salary
Base salaries are provided as compensation for day-to-day responsibilities and services to us. Executive salaries are
reviewed annually. Our CEO generally makes recommendations to the Compensation Committee in August of each year
regarding the base pay of each named executive officer, other than himself. The Compensation Committee considers each
executive officer’s responsibilities, as well as the Company’s performance and recommended increases in base salary for select
named executive officers and other officers. In fiscal year 2016, the CEO recommended and the Compensation Committee
approved, that the base salaries for named executive officers be held flat at fiscal 2015 levels. Additional details concerning the
compensation for our named executive officers for fiscal year 2016 are set forth in the Summary Compensation Table.
23
Annual Incentive Plan
The short-term incentive element of our executive compensation program is currently comprised of our Annual Incentive
Plan (“AIP”). The CEO reviews his recommendations for each named executive officer with the Compensation Committee,
taking into account market data obtained from Pearl Meyer, the Compensation Committee’s independent consultant. Based on
recommendations by the CEO, and as specified in any applicable employment agreement, the Compensation Committee
recommends to the Board an annual incentive compensation target, expressed as a percentage of base salary, for each executive
officer in August. Each named executive officer’s target annual incentive percentage is benchmarked against the 50th percentile
within the market composite for his or her specific role. The Compensation Committee also recommends to the Board specific
Company financial performance measures and targets including the relative weighting and payout thresholds. The financial
targets are aligned with our Board-approved annual operating plan, and during the year periodic reports are made to the Board
about our performance compared with the targets. Under the AIP, a significant portion of the executive’s annual compensation is
tied directly to our financial performance. The target amount of annual incentive compensation under our AIP, expressed as a
percentage of base salary, generally increases with an executive’s level of management responsibility. AIP target incentive can
represent up to 100% of the base cash compensation for our named executive officers and may be paid in the form of cash, stock
or a combination of the two. For fiscal year 2016, AIP target incentives were set at 100% of base salary for Mr. Pangia, 70% of
base salary for Mr. Stumpe and 65% of base salary for our other named executive officers. If performance results meet target
levels, our executives can earn up to a maximum of 100% of their target incentive. No incentive can be earned for performance
below the minimum threshold.
For fiscal year 2016, the AIP provided for an all cash payout. The performance metric was based on the achievement of
an adjusted EBITDA target with a potential payout triggered at threshold adjusted EBITDA targets. The total available cash pool
was restricted to specific percentages of Adjusted EBITDA. Adjusted EBITDA was calculated by excluding charges for share-
based compensation, restructuring, some excess and obsolete inventories, depreciation, interest expense, income taxes and other
expenses from GAAP-based EBITDA. The threshold amounts were established in August 2015 and approved in October 2015.
The plan provided for no payout if the minimum Adjusted EBITDA threshold was not met, and a total available cash pool equal
to 20% of Adjusted EBITDA for achievement, between the minimum threshold and a target threshold. For achievement between
the target threshold and a maximum threshold, an additional 15% of Adjusted EBITDA would accrue to the total available cash
pool.
Fiscal Year 2016 Annual Incentive Plan - Minimum, Target and Maximum Thresholds
Table 1
Fiscal Year 2016 Annual Incentive Plan
Metric
Adjusted EBITDA
Tiers
Minimum Threshold . . . .
Target Threshold . . . . . . .
Maximum Threshold . . . .
Results-Driven Entitlement
Performance
(As % of
Financial Target)
57%
100%
143%
Payout
(As % of
Award Target)
0.57%
100%
122%
The minimum threshold target required the Company to achieve an Adjusted EBITDA target of $9.92 million while
target threshold required $17.40 million and maximum threshold was set at $24.80 million as described in Table 2. The
participant group also included executives who are named executive officers.
Table 2
Fiscal Year 2016 Annual Incentive Plan
Performance
Components
Adjusted EBITDA
Total Available Cash Pool based on Threshold Adjusted EBITDA Achievement
No Achievement
Minimum Threshold
Target Threshold
Maximum Threshold
< $9,920,000 =
$0 Cash Pool
$9,920,000 =
$1,984,000 Cash Pool
$17,400,000 =
$3,480,000 Cash Pool
>$24,800,000=
$4,230,000 Cash Pool
In fiscal year 2016, the AIP did not guarantee payout of the target amounts, and the Compensation Committee considered
the Adjusted EBITDA thresholds to be challenging. During the 2016 fiscal year, we did not achieve the minimum threshold target
24
for AIP awards; therefore, no named executive officer received a cash payout and the performance based restricted stock awards
were canceled.
Long-Term Compensation — Equity Incentives
The Compensation Committee uses the Long Term Incentive Plan (“LTIP”) as a means for determining awards of stock
appreciation rights, restricted shares, restricted stock units, performance shares, and other stock-based awards to our officers and
other executives based on multi-year performance. All of the awards are granted under our 2007 Stock Equity Plan (“2007 Plan”).
Our LTIP is designed to motivate our executives to focus on achievement of our long-term financial goals. Equity
awards motivate our executives to achieve our long-term goals and to the extent our results affect our stock price, link such results
with the performance of our stock over a three to four -year period. Using equity awards helps us to retain executives, encourage
share ownership and maintain a direct link between our executive compensation program and the value and appreciation in the
value of our stock.
Performance Shares. In past fiscal years, the Compensation Committee recommended performance share awards that are
earned, if the performance criteria are met, at the end of a three year plan cycle. The maximum possible entitlement to
performance shares will occur if 100% of the target is achieved. In addition, irrespective of Company performance versus target,
there is no entitlement to performance shares unless the award recipient continues to be employed throughout the multi-year
period. Performance shares are subject to repurchase by the Company at $0.01 per share if eligible employment ends during the
performance measurement period and to the extent the maximum performance is not achieved during the performance
measurement period.
Service-Based Restricted Stock. Service-based restricted stock awards are awards of stock at the start of a vesting period
which is subject to repurchase for nominal consideration if the specified vesting conditions are not satisfied. In addition to their
use as a component of the LTIP, awards of service-based restricted stock may be made on a selective basis to individual
executives primarily to facilitate retention and succession planning or to replace the value of equity awards that may have been
forfeited as a result of the executive’s leaving a former employer. For compensation planning purposes, awards of service-based
restricted stock are valued at the fair market value of the shares on the date of award, which is the closing price on the NASDAQ
Global Select Market on that date, without reduction to reflect vesting or other conditions.
In fiscal year 2016, LTIP awards were composed of 50% performance based and 50% service-based restricted stock.
The performance based restricted shares required both achievement of stock price targets and certain service requirements. One
third of the performance shares were linked to stock price targets for the end of each of fiscal years 2016, 2017 and 2018. The
stock price targets (adjusted for our reverse stock split) were:
•
•
•
For fiscal year 2016, average closing price of $15.20 for final 20 business days following the release of fiscal year-
end earnings.
For fiscal year 2017, average closing price of $21.30 for final 20 business days following the release of fiscal year-
end earnings.
For fiscal year 2018, average closing price of $30.50 for final 20 business days following the release of fiscal year-
end earnings.
Vesting of service-based restricted stock required continued employment through the third anniversary of date of grant.
Recovery of Executive Compensation
Our executive compensation program permits us to recover or “clawback” all or a portion of any performance-based
compensation, including equity awards, if our financial statements are restated as a result of errors, omissions, or fraud. The
amount which may be recovered will be the amount by which the affected compensation exceeded the amount that would have
been payable had the financial statements been initially filed as restated, or any greater or lesser amount that the Compensation
Committee or our Board shall determine. In no case will the amount to be recovered by us be less than the amount required to be
repaid or recovered as a matter of law. Recovery of such amounts by us would be in addition to any actions imposed by law,
enforcement agencies, regulators, or other authorities.
25
Hedging and Pledging Prohibition
Our executive officers, as well as all other employees, are prohibited from engaging in hedging, pledging or similar
transactions with respect to our securities where the transaction is designed or intended to decrease the risks associated with
holding our securities. This prohibition includes transactions involving puts, call, collars or other derivative securities.
Perquisites
Our executive officers participate in the same group insurance and employee benefit plans as our other full-time U.S.
employees. We do not provide special benefits or other perquisites to our executive officers.
Stock Ownership Guidelines
While we do not have a minimum stock ownership requirement for members of the Board and our named executive
officers, the corporate governance guidelines adopted by the Board encourage the ownership of our common stock. The
Compensation Committee is satisfied that the stock and other equity holdings among our executive officers are sufficient at this
time to provide appropriate motivation to align this group’s long-term interests with those of our stockholders.
Tax and Accounting Considerations
Tax Considerations. The Compensation Committee generally considers the federal income tax and financial accounting
consequences of the various components of the executive compensation program in making decisions about executive
compensation. The Compensation Committee believes that achieving the compensation objectives discussed above is more
important than the benefit of tax deductibility and the executive compensation programs may, from time to time, limit the tax
deductibility of compensation. Nevertheless, when not inconsistent with these objectives, the Compensation Committee
endeavors to award compensation that will be deductible for income tax purposes. Internal Revenue Code Section 162(m) may
limit the tax deductions that a public company can claim for compensation to some of its named executive officers. The Company
does not guarantee that any compensation intended to qualify as deductible performance-based compensation under Section 162
(m) so qualifies.
Accounting Considerations. The Compensation Committee also considers the accounting implications of various forms
of executive compensation. In its financial statements, the Company records salaries and performance-based compensation such
as bonuses as expenses in the amount paid or to be paid to the named executive officers. Accounting rules also require the
Company to record an expense in its financial statements for equity awards, even though equity awards are not paid as cash to
employees. The accounting expense of equity awards to employees is calculated in accordance with GAAP. The Compensation
Committee believes that the many advantages of equity compensation, as discussed above, more than compensate for the non-
cash accounting expense associated with them.
Benefits under the 401(k) Plan and Generally Available Benefit Programs
In fiscal year 2016, our named executive officers were eligible to participate in the health and welfare programs that are
generally available to all full-time U.S.-based employees, including medical, dental, vision, life, short-term and long-term
disability, employee assistance, flexible spending and accidental death and dismemberment.
In addition, the named executive officers and all other eligible U.S.-based employees can participate in our tax-qualified
401(k) Plan. Under the 401(k) Plan, all eligible employees can receive matching contributions from the Company of 2.5%.
Employees under the age of 50 can contribute a maximum per participating employee of $17,500 during each calendar year, and
employees over the age of 50 can contribute a maximum per participating employee of $23,000. We do not provide defined
benefit pension plans or defined contribution retirement plans to the named executive officers or other employees other than the
401(k) Plan, or as required in certain countries other than the United States, for legal or competitive reasons.
We adopted an employee stock purchase plan effective November 19, 2009 and commencing on July 3, 2010, under
which named executive officers and all other eligible U.S.-based employees can elect, on a quarterly basis, to apply a portion of
their cash compensation to purchase shares of our common stock at a 5% discount. An employee’s total purchases in any year
cannot exceed $25,000 in value or 15% of his or her salary, whichever is less. Furthermore, an employee may not purchase more
than 48 shares of common stock annually under the employee stock purchase plan.
26
The 401(k) Plan, employee stock purchase plan and the other benefit programs allow us to remain competitive and
enhance employee loyalty and productivity. These benefit programs are primarily intended to provide all eligible employees with
competitive and quality healthcare, financial contributions for retirement and to enhance hiring and retention.
Post-Termination Compensation
Employment agreements have been established with each of our named executive officers. These agreements provide for
certain payments and benefits to the employee if his or her employment with us is terminated. These arrangements are discussed
in more detail below. We have determined that such payments and benefits are an integral part of a competitive compensation
package for our named executive officers. For additional information regarding our employment agreements with our named
executive officers, see the discussion under “Potential Payments Upon Termination or Change of Control.”
Compensation Committee Report
The Compensation Committee has reviewed and discussed with management the Compensation Discussion and
Analysis included in this Proxy Statement. Based on this review and discussion, the Compensation Committee recommended to
the Board that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference
into our Annual Report on Form 10-K for the fiscal year ended July 1, 2016.
Compensation Committee of the Board of Directors
Dr. James C. Stoffel, Chairman
John J. Quicke
Robert G. Pearse
Risk Considerations in Our Compensation Program
The Compensation Committee, pursuant to its charter, is responsible for reviewing and overseeing the compensation
benefits structure applicable to our employees, generally. We do not believe that our compensation policies and practices for our
employees give rise to risks that are reasonably likely to have a material adverse effect on our company. In reaching this
conclusion, we considered the following factors:
• Our compensation program is designed to provide a mix of both fixed and “at risk” incentive compensation.
• The incentive elements of our compensation program (annual incentives and multi-year equity LTIP awards) are
designed to reward both annual performance (under the annual incentive plan) and longer-term performance
(under the LTIP). We believe this design mitigates any incentive for short-term risk-taking that could be
detrimental to our company’s long-term best interests.
• Maximum payouts under our annual incentive plan are currently capped at 100% of the target payout amounts set
by the Compensation Committee and are only payable if the Company reaches 122% of its financial target. We
believe these limits mitigate excessive risk-taking, since the maximum amount that can be earned is limited.
•
Finally, our annual incentive plan and our long-term incentive plan both contain provisions under which awards
may be recouped or forfeited if the recipient has not complied with our policies. In addition, our performance-
based plans (cash incentive and performance shares) both contain provisions under which awards may be
recouped or forfeited if the financial results for a period affecting the calculation of an award are later restated.
27
Summary Compensation Table
The following table summarizes the total compensation for each of our fiscal years ended July 1, 2016, July 3, 2015
and June 27, 2014 of our named executive officers, who consisted of our CEO, CFO and three other most highly compensated
executive officers.
Name/Principal Position
Michael Pangia
Chief Executive Officer . . . . . . . . . . . . . . . . . . . . . . . .
Ralph Marimon
Senior Vice President and Chief Financial Officer (2) .
Heinz H. Stumpe
Senior Vice President and Chief Sales Officer . . . . . . .
Shaun McFall
Senior Vice President, Chief Marketing and Strategy
Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Meena Elliott
Senior Vice President, Chief Legal and
Administrative Officer, Corporate Secretary . . . . . . . .
_______________________
Fiscal Year
(1)
Salary
(3)
($)
2016
2015
2014
2016
2015
2014
2016
2015
2014
2016
2015
2014
2016
2015
2014
550,000
571,154
550,000
300,000
33,462
—
345,000
358,269
345,000
320,000
332,308
320,000
320,000
319,616
300,000
Stock
Awards
(4)
($)
333,086
—
—
118,094
114,000
—
146,255
—
—
125,968
—
—
125,968
—
—
Option
Awards
(5)
($)
—
149,286
495,542
—
—
—
—
65,550
217,588
—
56,457
187,405
—
48,857
162,178
All Other
Compensation
(6)
($)
3,073
2,224
2,142
2,064
238
—
3,707
3,204
2,415
9,270
1,792
5,940
6,421
1,227
4,569
Total
($)
886,159
722,664
1,047,684
420,158
147,700
—
494,962
427,023
565,003
455,238
390,557
513,345
452,389
369,700
466,747
(1)
(2)
(3)
Our fiscal year 2016 ended July 1, 2016, fiscal year 2015 ended July 3, 2015 and fiscal year 2014 ended June 27,
2014. The amounts in the Summary Compensation Table represent total compensation paid or earned for our fiscal
year as included in our annual financial statements.
Effective May 26, 2015, Mr. Marimon was appointed as our Senior Vice President and Chief Financial Officer.
The annual base salary for Mr. Pangia is $550, 000. The additional amount is due to the extra pay period in our fiscal
year 2015.
The annual base salary for Mr. Marimon is $300,000. The amount in the Summary Compensation Table for fiscal year
2015 reflects Mr. Marimon’s salary for the period from May 26, 2015 to July 3, 2015.
The annual base salary for Mr. Stumpe is $345,000. The additional amount is due to the extra pay period in our fiscal
year 2015.
The annual base salary for Mr. McFall is $320,000. The additional amount is due to the extra pay period in our fiscal
year 2015.
The annual base salary for Ms. Elliott is $320,000 effective February 9, 2015. The amount shown takes into account
the additional pay period for fiscal year 2015.
(4)
The “Stock Awards” column shows the full grant date fair value of the market-based shares, performance shares, and
restricted stock granted in fiscal 2016 and fiscal 2015, respectively.
For fiscal 2015, the grant date fair value of the performance shares was reduced to zero or no value since subsequent to
the grant date we estimated that the minimum threshold performance will not be achieved. If we had estimated that the
fiscal 2015 performance shares would be earned by exceeding the target metrics (the maximum pay-out under the
Plan), the following amounts would have been included in the amount under this column and as part of the named
executive officers total compensation:
28
Mr. Pangia
Mr. Stumpe
Mr. McFall
Ms. Elliott
$ 278,572
87,595
$
66,858
$
49,524
$
The grant date fair value of the market-based shares, performance shares and restricted stock was determined under
FASB ASC Topic 718 and represents the amount we would expense in our financial statements over the entire vesting
schedule for the awards. The grant date fair value of market-based shares was estimated using a Monte-Carlo
simulation model. The grant date fair value for performance awards and restricted stock was based on the closing
market price of our common stock on the respective award dates, except for the performance shares granted during
fiscal year 2015 as discussed above. The assumptions used for determining values are set forth in Notes 1 and 8 to our
audited consolidated financial statements in Part II, Item 8 of our Annual Report on Form 10-K for fiscal year 2016.
These amounts reflect our accounting for these grants and do not correspond to the actual values that may be
recognized by the named executive officers.
(5)
The “Option Awards” column shows the full grant date fair value of the stock options granted in fiscal years 2015 and
2014, respectively. No option was granted in fiscal year 2016. The grant date fair value of the stock option awards was
determined under FASB ASC Topic 718 and represents the amount we would expense in our financial statements over
the entire vesting schedule for the awards. The assumptions used for determining values are set forth in Notes 1 and 8
to our audited consolidated financial statements in Part II, Item 8 of our Annual Report on Form 10-K for fiscal year
2016. These amounts reflect our accounting for these grants and do not correspond to the actual values that may be
recognized by the named executive officers.
(6)
The following table describes the components of the “All Other Compensation” column.
Name
Michael Pangia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ralph Marimon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Heinz H. Stumpe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shaun McFall . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Meena Elliott . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
_____________________
Year
2016
2015
2014
2016
2015
2014
2016
2015
2014
2016
2015
2014
2016
2015
2014
Life Insurance (a)
Company Matching
Contributions Under
401(k) Plan (b)
($)
($)
Total All Other
Compensation
($)
3,073
2,224
2,142
2,064
238
—
3,707
3,204
2,415
2,224
1,792
1,190
1,190
1,227
1,107
—
—
—
—
—
—
—
—
—
7,046
—
4,750
5,231
—
3,462
3,073
2,224
2,142
2,064
238
—
3,707
3,204
2,415
9,270
1,792
5,940
6,421
1,227
4,569
(a)
(b)
Represents premiums paid for life insurance that represent taxable income for the named executive officer.
Represents matching contributions made by us to the 401(k) account of the respective named executive.
29
Grants of Plan-Based Awards in Fiscal Year 2016
The following table lists our grants and incentives during our fiscal year ended July 1, 2016 of plan-based awards, both
equity and non-equity based and including our Annual Incentive Plan and Long-Term Incentive Plan, to the named executive
officers listed in the Summary Compensation Table. There is no assurance that the grant date fair value of stock and option
awards will ever be realized.
Name
Type of
Award
Estimated Possible Payouts Under
Short-Term Non-Equity Incentive
Plan Awards in Fiscal Year 2016
(1)
Estimated Future Payments Under
Equity Incentive Plan Awards in
Fiscal Year 2016
(2)
Grant Date
Threshold
Target
Maximum Threshold
Target
Maximum
All Other Stock
Awards:
Number of
Shares of Stock
or Units (3)
Fair Value of
Stock and
Option
Awards (4)
($)
($)
($)
(#)
(#)
(#)
(#)
Michael Pangia. . . Cash Bonus
10/7/2015
313,500
550,000
786,500
RSU
PSU
10/23/2015
11/20/2015
—
—
—
—
—
—
Ralph Marimon . . Cash Bonus
10/7/2015
111,150
195,000
278,850
RSU
PSU
10/23/2015
11/20/2015
—
—
—
—
—
—
Heinz H. Stumpe . Cash Bonus
10/7/2015
137,655
241,500
345,345
RSU
SU
10/23/2015
11/20/2015
—
—
—
—
—
—
Shaun McFall . . . . Cash Bonus
10/7/2015
118,560
208,000
297,440
RSU
PSU
10/23/2015
11/20/2015
—
—
—
—
—
—
Meena Elliott . . . . Cash Bonus
10/7/2015
118,560
208,000
297,440
RSU
PSU
10/23/2015
11/20/2015
—
—
—
—
—
—
______________________
—
—
—
—
—
—
7,563
22,689
22,689
—
—
—
—
—
—
2,681
8,043
8,043
—
—
—
—
—
—
3,320
9,960
9,960
—
—
—
—
—
—
2,859
8,577
8,577
—
—
—
—
—
—
2,859
8,577
8,577
—
20,833
—
—
7,386
—
—
9,147
—
—
7,878
—
—
7,878
—
($)
—
275,000
58,086
—
97,500
20,594
—
120,750
25,505
—
104,001
21,967
—
104,001
21,967
(1)
(2)
(3)
(4)
The amounts shown under Estimated Possible Payouts Under Short-Term Non-Equity Incentive Plan Awards reflect
possible payouts under our fiscal 2016 AIP. During fiscal 2016, we didn’t achieve the minimum threshold target for the
AIP awards; therefore, no named executive officers received a cash payout.
Market-based share units eligible to vest were based on multiple target closing prices of the Company’s common stock
for fiscal year 2016, fiscal year 2017, and fiscal year 2018, respectively. Once the shares are earned for fiscal year
2016 and 2017, they will be vested on the last day of fiscal 2018. For the shares earned for the fiscal year ending 2018,
they will be vested on the date that the Compensation Committee certifies achievement of the performance metrics.
Vesting of these shares is dependent on continuous employment with us through the vesting dates.
Restricted stock units vest 100% on the third anniversary of the grant date.
The “Grant Date Fair Value of Stock and Option Awards” column shows the full grant date fair value of the stock
options granted in fiscal year 2016. The grant date fair value of the stock options was determined under FASB ASC
Topic 718 and represents the amount we would expense in our financial statements over the entire vesting schedule for
the awards in the event the vesting provisions are achieved.
The assumptions used for determining values are set forth in Notes 1 and 8 to our audited consolidated financial
statements in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal 2016. These amounts reflect our
accounting for these grants and do not correspond to the actual values that may be recognized by the named executive
officers.
Outstanding Equity Awards at Fiscal Year-End 2016
The following table provides information regarding outstanding unexercised stock options and unvested stock awards
held by each of our named executive officers as of July 1, 2016. Each grant of options or unvested stock awards is shown
separately for each named executive officer. The vesting schedule for each award of options is shown in the footnotes following
this table based on the option grant date. The material terms of the option awards, other than exercise price and vesting are
generally described in the 2007 Plan.
30
Option Awards
Stock Awards
Number of
Securities
Underlying
Unexercised
Options
Exercisable
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
(#)
Option
Exercise
Price
($)
—
—
10,458
23,148
11,458
25,107
4,166
4,087
—
—
—
—
—
4,592
10,162
5,031
6,676
4,583
2,508
—
—
3,955
8,754
4,333
6,162
4,583
2,183
—
—
3,423
7,576
3,750
6,162
3,333
1,858
—
—
11,367 (1)
11,574 (2)
— (3)
— (3)
— (3)
— (3)
—
—
—
—
—
4,991 (1)
5,082 (2)
— (3)
— (3)
— (3)
— (3)
—
—
4,299 (1)
4,377 (2)
— (3)
— (3)
— (3)
— (3)
—
—
3,719 (1)
3,787 (2)
— (3)
— (3)
— (3)
— (3)
—
—
15.60
31.20
27.36
28.44
52.32
72.00
—
—
—
—
—
15.60
31.20
27.36
28.44
52.32
72.00
—
—
15.60
31.20
27.36
28.44
52.32
72.00
—
—
15.60
31.20
27.36
28.44
52.32
72.00
Award Grant
Date
Name
Michael Pangia . .
11/20/2015
10/23/2015
02/02/2015
09/09/2013
10/03/2012
09/08/2011
11/11/2010
11/12/2009
Ralph Marimon . .
11/20/2015
10/23/2015
05/26/2015
Heinz H. Stumpe .
11/20/2015
10/23/2015
02/02/2015
09/09/2013
10/03/2012
09/08/2011
11/11/2010
11/12/2009
Shaun McFall . . .
11/20/2015
10/23/2015
02/02/2015
09/09/2013
10/03/2012
09/08/2011
11/11/2010
11/12/2009
Meena Elliott. . . .
11/20/2015
10/23/2015
02/02/2015
09/09/2013
10/03/2012
09/08/2011
11/11/2010
11/12/2009
______________________
Number of
Shares or
Units of
Stock that
have not
Vested
(#)
Market Value of
Shares or Units of
Stock that have
not Vested (7)
Equity Incentive
Plan Awards:
Number of
Unearned Shares
Units or Other
Rights that have
not Vested (6)
Equity Incentive
Plan Awards:
Market or Payout
Value of Unearned
Shares, Units or
Other Rights that
have not Vested (7)
($)
(#)
($)
22,689
182,646.45
20,833 (5)
167,706
—
—
—
—
—
—
—
—
—
—
—
—
7,386 (5)
6,249 (4)
59,457
50,304
9,147 (5)
73,633
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8,043
—
9,960
—
—
—
—
—
—
—
—
—
—
—
—
64,746
—
80,178
—
—
—
—
—
—
7,878 (5)
63,418
8,577
69,045
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
7,878 (5)
63,418
8,577
69,045
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Option
Expiration
Date
—
—
2/2/2022
9/9/2020
10/3/2019
9/8/2018
11/11/2017
11/12/2016
—
—
—
—
—
2/2/2022
9/9/20
10/3/2019
9/8/2018
11/11/2017
11/12/2016
—
—
2/2/2022
9/9/2020
10/3/2019
9/8/2018
11/11/2017
11/12/2016
—
—
2/2/2022
9/9/2020
10/3/2019
9/8/2018
11/11/2017
11/12/2016
(1)
(2)
(3)
(4)
(5)
(6)
Stock options vest in installments of 25% on August 1, 2015, and 1/48 each month thereafter over the remaining three-
year period based on continuous employment through those dates.
Stock options vest in installments of 33 1/3% one year from the grant date, 33 1/3% two years from the grant date and
33 1/3% three years from the grant date based on continuous employment through those dates.
Stock options vest in installments of 50% one year from the grant date, 25% two years from the grant date and 25%
three years from the grant date based on continuous employment through those dates.
Restricted stocks vest in installments of 25% one year from the grant date, and 25% annually on each anniversary
thereafter over the remaining three-year period based on continuous employment through those dates.
Restricted stock units vest 100% on the third anniversary of the grant date.
Market-based share units eligible to vest were based on multiple target closing prices of the Company’s common stock
for fiscal year 2016, fiscal year 2017, and fiscal year 2018, respectively. Once the shares are earned for fiscal year
2016 and 2017, they will be vested on the last day of fiscal 2018. For the shares earned for the fiscal year ending 2018,
31
they will be vested on the date that the Compensation Committee certifies achievement of the performance metrics.
Vesting of these shares is dependent on continuous employment with us through the vesting dates.
(7)
Market value is based on the $8.05 closing price of a share of our common stock on July 1, 2016, as reported on the
NASDAQ Global Select Market.
Option Exercised and Stock Vested in Fiscal Year 2016
The following table provides information for each of our named executive officers regarding the number of shares of
our common stock acquired upon the vesting of stock awards during fiscal year 2016. No options to purchase common stock
were exercised during fiscal year 2016. Stock awards vesting during fiscal year2016 consisted of restricted stock with service-
based vesting provisions.
Stock Awards
Name
Ralph Marimon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of Shares Acquired on Vesting
(#) (1)
Value Received on Vesting
($) (2)
2,084
15,026
_________________________
(1)
(2)
Vested number of shares of service-based restricted common stock.
Amount shown is the aggregate market value of the vested shares of restricted common stock based on the closing
price of our stock on the vesting date.
32
Equity Compensation Plan Summary
The following table provides information as of July 1, 2016, relating to our equity compensation plan:
Plan Category
Equity Compensation plan approved by security holders(1) . .
Equity Compensation plans not approved by security holders
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
_____________________
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options, Warrants
and Rights
Weighted-Average
Exercise Price of
Outstanding
Options
Number of Securities
Remaining Available
for Further Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected in the First
Column)
808,126 (2) $
$
—
808,126
$
32.95 (3)
—
32.95
712,231
—
712,231
(1)
(2)
Consists solely of the 2007 Plan.
The number includes 448,359 shares to be issued upon exercise of options, 210,598 shares to be issued upon vesting of
restricted stock units, and 149,169 shares to be issued upon vesting of market-condition share units.
(3)
Excludes weighted average fair value of market-condition share units and restricted stock units at issuance date.
Potential Payments Upon Termination or Change of Control
Employment agreements have been established with each of the continuing named executive officers, which provide
for such executives to receive certain payments and benefits if their employment with us is terminated. These arrangements are
set forth in detail below assuming a termination event on July 1, 2016 and based on our stock price on that date. The Board has
determined that such payments and benefits are an integral part of a competitive compensation package for our executive
officers.
The table below reflects the compensation and benefits due to each of the named executive officers in the event of
termination of employment by us without cause or termination by the executive for good reason (other than within 18 months
after a Change of Control, as defined below) and in the event of disability and in the event of termination of employment by us
without cause or termination by the executive for good reason within 18 months after a Change of Control. The amounts shown
in the table are estimates of the amounts that would be paid upon termination of employment. There are no compensation and
benefits due to any named executive officer in the event of death, or of termination of employment by us for cause or voluntary
termination. The actual amounts would be determined only at the time of the termination of employment.
33
Number
of
Months
(#)
Base per
Month
(1)
($)
Months
Times
Base
($)
Total
Severance
Payments
($)
Accelerated
Equity
Vesting (2)
($)
Continuation
of Insurance
Benefit (3)
($)
Out-
Placement
Services
(4)
($)
Total
($)
12
45,833
550,000
550,000
—
20,506
30,000
600,506
24
45,833
1,100,000
1,100,000
167,706
41,012
30,000
1,338,718
12
25,000
300,000
300,000
—
25,362
30,000
355,362
12
25,000
300,000
300,000
109,762
25,362
30,000
465,124
12
28,750
345,000
345,000
—
9,904
30,000
384,904
24
28,750
690,000
690,000
73,633
19,808
30,000
813,441
12
26,667
320,000
320,000
—
25,362
30,000
375,362
24
26,667
640,000
640,000
63,418
50,724
30,000
784,142
12
26,667
320,000
320,000
—
14,173
30,000
364,173
24
26,667
640,000
640,000
63,418
28,346
30,000
761,764
Name
Michael Pangia . . . . . .
Ralph Marimon . . . . . .
Heinz H. Stumpe . . . . .
Shaun McFall . . . . . . .
Meena Elliott . . . . . . . .
Conditions
for Payouts
Termination
without cause
or for good
reason, or due
to disability
Within 18
months after
Change of
Control
Termination
without cause
or for good
reason, or due
to disability
Within 18
months after
Change of
Control
Termination
without cause
or for good
reason, or due
to disability
Within 18
months after
Change of
Control
Termination
without cause
or for good
reason, or due
to disability
Within 18
months after
Change of
Control
Termination
without cause
or for good
reason, or due
to disability
Within 18
months after
Change of
Control
______________________
(1)
(2)
(3)
(4)
The monthly base salary represents the total gross monthly payments to each named executive officer at the current
salary.
Reflects acceleration of outstanding equity awards as of July 1, 2016.
The insurance benefit provided is paid directly to the insurer benefit provider and includes amounts for COBRA.
The estimated dollar amounts for outplacement services would be paid directly to an outplacement provider selected
by us.
34
The employment agreements with our named executive officers define a “Change of Control” as follows:
•
•
•
•
•
any merger, consolidation, share exchange or acquisition, unless immediately following such merger,
consolidation, share exchange or acquisition, at least 50% of the total voting power (in respect of the election of
directors, or similar officials in the case of an entity other than a corporation) of (i) the entity resulting from such
merger, consolidation or share exchange, or the entity which has acquired all or substantially all of our assets (in
the case of an asset sale that satisfies the criteria of an acquisition) (in either case, the “Surviving Entity”) or (ii) if
applicable, the ultimate parent entity that directly or indirectly has beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the total voting power (in respect of the
election of directors, or similar officials in the case of an entity other than a corporation) of the Surviving Entity is
represented by our securities that were outstanding immediately prior to such merger, consolidation, share
exchange or acquisition (or, if applicable, is represented by shares into which such Company securities were
converted pursuant to such merger, consolidation, share exchange or acquisition); or
any person or group of persons (within the meaning of Section 13(d)(3) of the Exchange Act) directly or indirectly
acquires beneficial ownership (determined pursuant to SEC Rule 13d-3 promulgated under the Exchange Act) of
securities possessing more than 30% (50% in the case of Mr. Marimon) of the total combined voting power of our
outstanding securities other than: (i) an employee benefit plan of ours or any of our affiliates; (ii) a trustee or other
fiduciary holding securities under an employee benefit plan of our or any of our affiliates; or (iii) an underwriter
temporarily holding securities pursuant to an offering of such securities; or
over a period of 36 consecutive months or less, there is a change in the composition of the Board such that a
majority of the Board members (rounded up to the next whole number, if a fraction) ceases, by reason of one or
more proxy contests for the election of Board members, to be composed of individuals each of whom meet one of
the following criteria: (i) have been a Board member continuously since the adoption of this plan or the beginning
of such 36-month period; or (ii) have been elected or nominated during such 36-month period by at least a
majority of the Board members and satisfied the criteria of this bullet when they were elected or nominated; or
a majority of the Board determines that a Change of Control has occurred; or
the complete liquidation or dissolution of the Company.
Employment agreements are in effect for the named executive officers and provide that if they are terminated without
cause or should they resign for good reason or become disabled and they sign a general release they will be entitled to receive
the following severance benefits:
•
•
•
•
severance payments at their final base salary for a period of 12 months following termination;
payment of premiums necessary to continue their group health insurance under COBRA (or to purchase other
comparable health coverage on an individual basis if the employee is no longer eligible for COBRA coverage)
until the earlier of (i) 12 months; or (ii) the date on which they first became eligible to participate in another
employer’s group health insurance plan;
the prorated portion of any incentive bonus they would have earned during the incentive bonus period in which
their employment was terminated;
any equity compensation subject to service-based vesting granted to the executive officer will stop vesting as of
their termination date; however, they will be entitled to purchase any vested share(s) of stock that are subject to
the outstanding options until the earlier of: (i) 12 months; or (ii) the date on which the applicable option(s) expire;
and
•
outplacement assistance selected and paid for by us.
In addition, these agreements provide that if there is a Change of Control, and employment with us is terminated by us
without cause or by the employee for good reason within 18 months after the Change of Control and they sign a general release
of known and unknown claims in a form satisfactory to us, (i) the severance benefits described shall be increased by an
additional 12 months for Ms. Elliott and Messrs. Pangia, Stumpe and McFall; (ii) they will receive a payment equal to the
greater of (a) the average of the annual incentive bonus payments received by them, if any, for the previous three years; or (b)
35
their target incentive bonus for the year in which their employment terminates; and (iii) the vesting of all unvested stock option
(s) and unvested equity-compensation awards subject to service-based vesting will accelerate, such that all of such stock option
(s) and equity-compensation awards will be fully vested as of the date of their termination/resignation.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors, executive officers and persons who own more than 10% of a
registered class of the Company’s equity securities to file with the SEC initial reports of ownership and reports of changes in
ownership of our common stock and other equity securities. Directors, executive officers and greater than 10% holders are
required by SEC regulation to furnish us with copies of all Section 16(a) reports they file. Based solely on our review of Forms
3 and 4 received during fiscal year 2016, and Forms 5 (or any written representations) received with respect to fiscal year 2016,
we believe that all directors, officers, executive officers and 10% stockholders complied with all applicable Section 16(a) filing
requirements during fiscal year 2016.
36
PROPOSAL NO. 1
ELECTION OF DIRECTORS
At the Annual Meeting, directors are being nominated for election to serve until the 2017 Annual Meeting or until their
successors are elected and qualified.
In the unanticipated event that a nominee is unable or declines to serve as a director at the time of the Annual Meeting,
all proxies received by the proxy holders will be voted for any subsequent nominee named by the Board to fill the vacancy
created by the earlier nominee’s withdrawal from the election. As of the date of this Proxy Statement, the Board is not aware of
any director nominee who is unable or will decline to serve as a director. Each of the nominees has consented to being named in
this Proxy Statement and to serve as a director if elected. Ages are as of the date of this Proxy Statement.
Director Nominees
Name
John Mutch. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wayne Barr, Jr.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kenneth Kong . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Michael A. Pangia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Director, President and CEO
John J. Quicke . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Director
Dr. James C. Stoffel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Director
Title
Chairman of the Board
Director Nominee
Director Nominee
Age
60
52
42
55
67
70
Agreement with Certain Stockholders
On September 13, 2016, the Company entered into an agreement (the “Settlement Agreement”) with JDS1, LLC,
Julian Singer and David S. Oros (collectively, the “JDS Group”). Pursuant to the Settlement Agreement, the Company agreed to
include Mr. Barr in its slate of director nominees for election at the Annual Meeting.
Pursuant to the Settlement Agreement, the members of JDS Group have agreed to vote for each of the proposals set
forth in this proxy statement. If the Company re-nominates Mr. Barr to stand for election as a director at the 2017 Annual
Meeting, then the members of the JDS Group have agreed to vote for the Company’s slate of director nominees at the 2017
Annual Meeting.
The members of the JDS Group have agreed, until 15 business days prior to the advance notice deadline for the
submission of director nominations and stockholder proposals in respect of the 2017 Annual Meeting, to customary standstill
provisions during that time that provide, among other things, that the members of the JDS Group will not (1) engage in or in
any way participate in a solicitation of proxies or consents with respect to the Company; or (2) initiate any shareholder
proposals. If the Company re-nominates Mr. Barr to stand for election as a director at the 2017 Annual Meeting, then the
standstill restrictions continue until 15 business days prior to the advance notice deadline for the submission of director
nominations and stockholder proposals in respect of the 2018 Annual Meeting.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE ELECTION OF EACH OF THE
DIRECTOR NOMINEES AND UNANIMOUSLY RECOMMENDS A VOTE “FOR” EACH OF THE DIRECTOR
NOMINEES.
37
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Audit Committee has appointed BDO as our independent registered public accounting firm to audit our
consolidated financial statements for the fiscal year ending June 30, 2017 and our Board has ratified such appointment. See
“Independent Registered Public Accounting Firm Fees.”
Notwithstanding its selection, the Audit Committee, in its discretion, may appoint another independent registered
public accounting firm at any time during the year if the Audit Committee believes that such a change would be in the best
interests of the Company and its stockholders. If the appointment is not ratified by our stockholders, the Audit Committee may
reconsider whether it should appoint another independent registered public accounting firm.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE RATIFICATION
OF THE AUDIT COMMITTEE’S APPOINTMENT OF BDO AS THE
COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
FOR FISCAL YEAR 2017.
38
PROPOSAL NO. 3
ADVISORY, NON-BINDING VOTE ON NAMED EXECUTIVE OFFICER COMPENSATION
A “say on pay” advisory vote is required for all U.S. public companies under Section 14A of the Exchange Act . We
are asking stockholders to approve, on an advisory, non-binding basis, the compensation of the Company’s named executive
officers disclosed in the Compensation Discussion and Analysis section, and the related compensation tables, notes and
narrative, in this Proxy Statement.
The Board recommends that you vote “FOR” approval of the advisory, non-binding vote on executive compensation
because it believes that the policies and practices described in the Compensation Discussion and Analysis section are effective
in achieving the Company’s goals of rewarding sustained financial and operating performance and leadership excellence,
aligning the executives’ long-term interests with those of the stockholders and motivating the executives to remain with the
Company for long and productive careers. Named executive officer compensation of the past three years reflects amounts of
cash and long-term equity awards consistent with periods of economic stress and lower earnings, and equity incentives aligning
with our actions to stabilize the Company and to position it for a continued recovery.
We urge stockholders to read the Compensation Discussion and Analysis section of this Proxy Statement, as well as
the Summary Compensation Table and related compensation tables, notes and narrative, which provide detailed information on
the Company’s compensation policies and practices and the compensation of our named executive officers.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” APPROVAL OF THE
ADVISORY, NON-BINDING VOTE ON NAMED EXECUTIVE OFFICER COMPENSATION.
39
BACKGROUND TO PROPOSALS 4 AND 5
Our business operations have generated significant net operating losses and unrealized tax losses (collectively,
“NOLs”), and we may generate additional NOLs in future years. Under federal tax laws, we generally can use our NOLs and
certain related tax credits to offset ordinary income tax paid in our prior two tax years or on our future taxable income for up to
20 years when they “expire” for such purposes. Until they expire, we can “carry forward” NOLs and certain related tax credits
that we do not use in any particular year to offset taxable income in future years. As of July 1, 2016, we had more than $340
million in NOLs. Although we cannot estimate the exact amount of NOLs that we can use to reduce our future income tax
liability because we cannot predict the amount and timing of our future taxable income, we believe our NOLs are very valuable
assets.
Our ability to utilize our NOLs to offset future taxable income may be significantly limited if we experience an
“ownership change,” as determined under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). Under
Section 382, an “ownership change” occurs if a stockholder or a group of stockholders that is deemed to own at least five
percent of our common stock increases its ownership by more than 50 percentage points over its lowest ownership percentage
within a rolling three-year period. If an ownership change occurs, Section 382 would impose an annual limit on the amount of
our NOLs that we can use to offset taxable income equal to the product of the total value of our outstanding equity immediately
prior to the ownership change (reduced by certain items specified in Section 382) and the federal long-term tax-exempt interest
rate in effect for the month of the ownership change. A number of complex rules apply to calculating this annual limit.
If an ownership change were to occur, the limitations imposed by Section 382 could result in a material amount of our
NOLs expiring unused and, therefore, significantly impair the value of our NOLs. Although the complexity of Section 382’s
provisions and the limited knowledge any public company has about the ownership of its publicly traded stock make it difficult
to determine whether an ownership change has occurred, we currently believe that an ownership change has not occurred.
However, if no action is taken, we believe it is possible that we could experience an ownership change in the future.
After careful consideration, the Board determined that the most effective way to protect the benefits of our NOLs for
long-term stockholder value is to adopt both the amendment to our Amended and Restated Certificate of Incorporation, as
amended (the “Protective Amendment”), and the Tax Benefit Preservation Plan (the “Rights Agreement”). The Protective
Amendment, which is designed to prevent certain transfers of our securities that could result in an ownership change, is
described below under Proposal 4, and its full terms can be found in Annex A to this Proxy Statement. The Protective
Amendment will not be put into effect unless it is approved by our stockholders at the Annual Meeting.
On September 6, 2016, our Board approved, and the Company entered into, the Rights Agreement, which is described
below under Proposal 5 and the full terms of which can be found in Annex B to this Proxy Statement. Subject to certain limited
exceptions, the Rights Agreement is designed to deter any person from buying our common stock (or any interest in our
common stock) if the acquisition would result in a stockholder (or several stockholders, in the aggregate, who hold their stock
as a “group” under the federal securities laws) beneficially owning 4.9% or more of our then-outstanding common stock
without approval of the Board. The Rights Agreement will expire immediately following the final adjournment of the Annual
Meeting if stockholder approval of the Rights Agreement is not received.
The Board urges our stockholders to carefully read each proposal, the items discussed below under the heading
“Certain Considerations Related to the Protective Amendment and the Rights Agreement,” and the full terms of the Protective
Amendment and the Rights Agreement, attached as Annex A and Annex B, respectively, to this Proxy Statement. It is important
to note that neither measure offers a complete solution, and an ownership change may occur even if the Protective Amendment
and the Rights Agreement are approved. There may be limitations on the enforceability of the Protective Amendment against
stockholders who do not vote to approve it that may allow an ownership change to occur. The Rights Agreement may deter, but
ultimately cannot block, transfers of our common stock that might result in an ownership change. The limitations of these
measures are described in more detail below. Because of their individual limitations, the Board believes that the adoption of
both measures is appropriate and that together they will serve as important tools to help prevent an ownership change that could
substantially reduce or eliminate the significant long-term potential benefits of our NOLs. Accordingly, the Board
recommends that stockholders approve the Protective Amendment and the Rights Agreement.
40
PROPOSAL NO. 4
APPROVAL OF AMENDMENTS TO THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
For the reasons discussed above under “Background to Proposals 4 and 5,” the Board recommends that stockholders
approve the Protective Amendment. The Protective Amendment is designed to prevent certain transfers of our common stock
that could result in an ownership change under Section 382, which in turn could materially inhibit our ability to use our NOLs
to reduce any future income tax liability. The Board believes it is in our and our stockholders’ best interests to adopt the
Protective Amendment to help protect our NOLs.
The purpose of the Protective Amendment is to assist us in protecting long-term value to the Company of its
accumulated NOLs by limiting direct or indirect transfers of our common stock that could affect the percentage of stock that is
treated as being owned by a direct or indirect holder of 4.9% of our stock. In addition, the Protective Amendment includes a
mechanism to block the impact of such transfers while allowing purchasers an opportunity to receive their money back from
prohibited purchases. The Board has adopted resolutions approving and declaring the advisability of amending the Amended
and Restated Certificate of Incorporation as described below and as provided in Annex A to this Proxy Statement. However, in
order for the Protective Amendment to be implemented, it must be approved by stockholders at the Annual Meeting.
Description of the Protective Amendment
The following description of the Protective Amendment is qualified in its entirety by reference to the full text of the
Protective Amendment, which is contained in a proposed new Article IX of our Amended and Restated Certificate of
Incorporation, as amended, and can be found in Annex A to this Proxy Statement. Please read the Protective Amendment in
its entirety as the discussion below is only a summary.
Prohibited Transfers. The Protective Amendment generally will restrict any direct or indirect transfer (such as transfers
of our stock that result from the transfer of interests in other entities that own our stock) if the effect would be to:
•
•
increase the direct or indirect ownership of our stock by any Person (as defined below) from less than 4.9% to 4.9% or
more of our common stock; or
increase the percentage of our common stock owned directly or indirectly by a Person owning or deemed to own 4.9%
or more of our common stock.
“Person” means any individual, firm, corporation or other legal entity, including persons treated as an entity pursuant
to Treasury Regulation § 1.382-3(a)(1)(i); and includes any successor (by merger or otherwise) of such entity.
Restricted transfers include sales to Persons whose resulting percentage ownership (direct or indirect) of our common
stock would exceed the 4.9% thresholds discussed above, or to Persons whose direct or indirect ownership of our common
stock would by attribution cause another Person to exceed such threshold. Complicated common stock ownership rules
prescribed by the Code (and regulations promulgated thereunder) will apply in determining whether a Person is a 4.9%
stockholder under the Protective Amendment. A transfer from one member of a “public group” (as that term is defined under
Section 382) to another member of the same public group does not increase the percentage of our common stock owned directly
or indirectly by the public group and, therefore, such transfers are not restricted. For purposes of determining the existence and
identity of, and the amount of our common stock owned by, any stockholder, we will be entitled to rely on the existence or
absence of certain public securities filings as of any date, and our actual knowledge of the ownership of our common stock. The
Protective Amendment includes the right to require a proposed transferee, as a condition to registration of a transfer of our
common stock, to provide all information reasonably requested regarding such person’s direct and indirect ownership of our
common stock.
These transfer restrictions may result in the delay or refusal of certain requested transfers of our common stock, or
prohibit ownership (thus requiring dispositions) of our common stock due to a change in the relationship between two or more
persons or entities or to a transfer of an interest in an entity other than us that, directly or indirectly, owns our common stock.
The transfer restrictions will also apply to proscribe the creation or transfer of certain “options” (which are broadly defined by
Section 382) with respect to our common stock to the extent that, in certain circumstances, the creation, transfer or exercise of
the option would result in a proscribed level of ownership.
41
Consequences of Prohibited Transfers. Upon the adoption of the Protective Amendment by stockholders and filing
with the Delaware Secretary of State, any direct or indirect transfer attempted in violation of the Protective Amendment would
be void as of the date of the prohibited transfer as to the purported transferee (or, in the case of an indirect transfer, the
ownership of the direct owner of our common stock would terminate simultaneously with the transfer), and the purported
transferee (or in the case of any indirect transfer, the direct owner) would not be recognized as the owner of the shares owned in
violation of the Protective Amendment for any purpose, including for purposes of voting and receiving dividends or other
distributions in respect of such common stock, or in the case of options, receiving our common stock in respect of their
exercise. In this Proxy Statement, our common stock purportedly acquired in violation of the Protective Amendment is referred
to as “excess securities.”
In addition to a prohibited transfer being void as of the date it is attempted, upon demand, the purported transferee
must transfer the excess securities to our agent along with any dividends or other distributions paid with respect to such excess
securities. Our agent is required to sell such excess securities in an arm’s-length transaction (or series of transactions) that
would not constitute a violation under the Protective Amendment. The net proceeds of the sale, together with any other
distributions with respect to such excess securities received by our agent, after deduction of all costs incurred by the agent, will
be transferred first to the purported transferee in an amount, if any, up to the cost (or in the case of gift, inheritance or similar
transfer, the fair market value of the excess securities on the date of the prohibited transfer) incurred by the purported transferee
to acquire such excess securities, and the balance of the proceeds, if any, will be transferred to a charitable beneficiary. If the
excess securities are sold by the purported transferee, such person will be treated as having sold the excess securities on behalf
of the agent, and will be required to remit all proceeds to our agent (except to the extent we grant written permission to the
purported transferee to retain an amount not to exceed the amount such person otherwise would have been entitled to retain had
our agent sold such shares).
To the extent permitted by law, any stockholder who knowingly violates the Protective Amendment will be liable for
any and all damages we suffer as a result of such violation, including damages resulting from any limitation in our ability to use
our NOLs and any professional fees incurred in connection with addressing such violation.
With respect to any transfer of common stock that does not involve a transfer of our securities within the meaning of
the Delaware General Corporation Law but that would cause a person to violate the Protective Amendment, the following
procedure will apply in lieu of those described above: in such case, such person whose ownership of our securities is attributed
to such proscribed person will be deemed to have disposed of (and will be required to dispose of) sufficient securities,
simultaneously with the transfer, to cause such proscribed person not to be in violation of the Protective Amendment, and such
securities will be treated as excess securities to be disposed of through the agent under the provisions summarized above,
except that the amount payable to such stockholder that was the direct holder of such excess securities from the proceeds of sale
by the agent shall be the fair market value of such excess securities at the time of the prohibited transfer.
Public Groups; Modification and Waiver of Transfer Restrictions. In order to facilitate sales by stockholders into the
market, the Protective Amendment permits otherwise prohibited transfers of our common stock where the transferee is a
“public group” as such is defined in Treasury Regulation § 1.382-2T(f)(13).
In addition, the Board will have the discretion to approve a transfer of our common stock that would otherwise violate
the transfer restrictions if it determines that the transfer is in our best interests. If the Board decides to permit such a transfer,
that transfer or later transfers may result in an ownership change that could limit our use of our NOLs. In deciding whether to
grant a waiver, the Board may seek the advice of counsel and tax experts with respect to the preservation of our federal tax
attributes pursuant to Section 382. In addition, the Board may request relevant information from the acquirer and/or selling
party in order to determine compliance with the Protective Amendment or the status of our federal income tax benefits,
including an opinion of counsel selected by the Board (the cost of which will be borne by the transferor and/or the transferee)
that the transfer will not result in a limitation on the use of the NOLs under Section 382. If the Board decides to grant a waiver,
it may impose conditions on the acquirer or selling party.
In the event of a change in law, the Board will be authorized to modify the applicable allowable percentage ownership
interest (currently 4.9%) or modify any of the definitions, terms and conditions of the transfer restrictions or to eliminate the
transfer restrictions, provided that the Board determines, by adopting a written resolution, that such action is reasonably
necessary or advisable to preserve the NOLs or that the continuation of these restrictions is no longer reasonably necessary for
such purpose, as applicable. Our stockholders will be notified of any such determination through a filing with the SEC or such
other method of notice as the Secretary of the Company shall deem appropriate.
42
The Board may establish, modify, amend or rescind bylaws, regulations and procedures for purposes of determining
whether any transfer of common stock would jeopardize our ability to use our NOLs.
Implementation and Expiration of the Protective Amendment
If our stockholders approve the Protective Amendment, we intend to promptly file the Protective Amendment with the
Secretary of State of the State of Delaware, whereupon the Protective Amendment will become effective. We intend to
immediately thereafter enforce the restrictions in the Protective Amendment to preserve the future use of our NOLs. We also
intend to include a legend reflecting the transfer restrictions included in the Protective Amendment on certificates representing
newly issued or transferred shares, to disclose such restrictions to persons holding our common stock in uncertificated form and
to disclose such restrictions to the public generally.
The Protective Amendment would expire on the earliest of (i) the close of business on the date that is the third
anniversary of the filing of the Protective Amendment with the Secretary of State of the State of Delaware, (ii) the Board’s
determination that the Protective Amendment is no longer necessary for the preservation of our NOLs because of the repeal of
Section 382 or any successor statute, (iii) the beginning of a taxable year to which the Board determines that none of our NOLs
may be carried forward and (iv) the adjournment of the Annual Meeting of Stockholders if stockholder approval is not received
by a majority of the stockholders voting at the meeting. The Board may also accelerate or extend the expiration date of the
Protective Amendment in the event of a change in the law if the Board has determined that such action is reasonably necessary
or advisable to preserve our NOLs or that the continuation of the restrictions contained in the Protective Amendment is no
longer reasonably necessary for the preservation of our NOLs.
Effectiveness and Enforceability
Although the Protective Amendment is intended to reduce the likelihood of an ownership change, we cannot eliminate
the possibility that an ownership change will occur even if the Protective Amendment is adopted given that:
• The Board can permit a transfer to an acquirer that results or contributes to an ownership change if it determines that
such transfer is in our and our stockholders’ best interests.
• A court could find that part or all of the Protective Amendment is not enforceable, either in general or as to a particular
fact situation. Under the laws of the State of Delaware, our jurisdiction of incorporation, a corporation is conclusively
presumed to have acted for a reasonable purpose when restricting the transfer of its securities in its certificate of
incorporation for the purpose of maintaining or preserving any tax attribute (including NOLs). Delaware law provides
that transfer restrictions with respect to shares of our common stock issued prior to the effectiveness of the restrictions
will be effective against (i) stockholders with respect to shares that were voted in favor of this proposal and (ii)
purported transferees of shares that were voted for this proposal if (A) the transfer restriction is conspicuously noted
on the certificate(s) representing such shares or (B) the transferee had actual knowledge of the transfer restrictions
(even absent such conspicuous notation). We intend to cause shares of our common stock issued after the effectiveness
of the Protective Amendment to be issued with the relevant transfer restriction conspicuously noted on the certificate
(s) representing such shares, and therefore under Delaware law such newly issued shares will be subject to the transfer
restriction. We also intend to disclose such restrictions to persons holding our common stock in uncertificated form.
For the purpose of determining whether a stockholder is subject to the Protective Amendment, we intend to take the
position that all shares issued prior to the effectiveness of the Protective Amendment that are proposed to be
transferred were voted in favor of the Protective Amendment, unless the contrary is established. We may also assert
that stockholders have waived the right to challenge or otherwise cannot challenge the enforceability of the Protective
Amendment, unless a stockholder establishes that it did not vote in favor of the Protective Amendment. Nonetheless, a
court could find that the Protective Amendment is unenforceable, either in general or as applied to a particular
stockholder or fact situation.
• Despite the adoption of the Protective Amendment, there is still a risk that certain changes in relationships among
stockholders or other events could cause an ownership change under Section 382. Accordingly, we cannot assure you
that an ownership change will not occur even if the Protective Amendment is made effective. However, the Board has
adopted the Rights Agreement, which is intended to act as a deterrent to any person acquiring more than 4.9% of our
stock and endangering our ability to use our NOLs.
As a result of these and other factors, the Protective Amendment is intended to reduce, but does not eliminate, the risk
that we will undergo an ownership change that would limit our ability to utilize our NOLs.
43
Section 382 Ownership Change Determinations
The rules of Section 382 are very complex and are beyond the scope of this summary discussion. Some of the factors
that must be considered in determining whether a Section 382 ownership change has occurred include the following:
Waiver for the JDS Group
Pursuant to the Settlement Agreement, we have agreed to permit the members of the JDS Group to acquire up to 7.9%
of our common stock. Promptly following the effectiveness of the Protective Amendment, the Board will take appropriate
action to permit the members of the JDS Group to make such acquisition.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE APPROVAL
OF THE COMPANY’S PROTECTIVE AMENDMENT.
44
PROPOSAL NO. 5
APPROVAL OF THE TAX BENEFIT PRESERVATION PLAN
On September 6, 2016, the Board adopted the Rights Agreement. The Rights Agreement will expire immediately
following the final adjournment of the Annual Meeting if stockholder approval of the Rights Agreement has not been received.
Subject to certain limited exceptions, the Rights Agreement is designed to deter any person from buying our common stock (or
any interest in our common stock) if the acquisition would result in a stockholder (or several stockholders, in the aggregate,
who hold their stock as a “group” under the federal securities laws) beneficially owning 4.9% or more of our then-outstanding
common stock without approval of the Board.
The Rights Agreement is intended to protect stockholder value by attempting to preserve our ability to use our NOLs
to reduce our future income tax liability. Because of the possible limitations of the Protective Amendment in preventing
transfers of our common stock that may result in an ownership change, as further described above under Proposal 4, the Board
believes it is in our and our stockholders’ best interests to approve the Rights Agreement.
THE FAILURE TO OBTAIN STOCKHOLDER APPROVAL FOR THIS PROPOSAL WILL RESULT IN
TERMINATION OF THE TAX BENEFIT PRESERVATION PLAN ON AND THE POTENTIAL FOR SUBSTANTIAL
IMPAIRMENT OF THE TAX BENEFITS. THAT COULD NEGATIVELY IMPACT THE COMPANY, AND,
CONSEQUENTLY, ITS STOCKHOLDERS.
The following description of the Rights Agreement is qualified in its entirety by reference to the text of the Rights
Agreement, which can be found in Annex B to this Proxy Statement. Please read the Rights Agreement in its entirety, as the
discussion below is only a summary.
Description of the Tax Benefit Preservation Plan
Distribution and Transfer of Rights; Rights Certificates
The Board has declared a dividend of one Right (“Right”) for each outstanding Common Share. Prior to the Distribution Date
referred to below:
•
•
•
the Rights will be evidenced by and trade with the certificates for the Common Shares (or, with respect to any
uncertificated Common Shares registered in book entry form, by notation in book entry), and no separate rights
certificates will be distributed;
new Common Shares certificates issued after the Record Date will contain a legend incorporating the Plan by
reference (for uncertificated Common Shares registered in book entry form, this legend will be contained in a notation
in book entry); and
the surrender for transfer of any certificates for Common Shares (or the surrender for transfer of any uncertificated
Common Shares registered in book entry form) will also constitute the transfer of the Rights associated with such
Common Shares.
Rights will accompany any new Common Shares that are issued after the Record Date.
Distribution Date
Subject to certain exceptions specified in the Plan, the Rights will separate from the Common Shares and become
exercisable following (1) the 10th business day (or such later date as may be determined by the Board) after the public
announcement that a person or group of affiliated or associated persons (an “Acquiring Person”) has acquired beneficial
ownership of 4.9% or more of the Common Shares or (2) the 10th business day (or such later date as may be determined by the
Board) after a person or group announces a tender or exchange offer that would result in ownership by a person or group of
4.9% or more of the Common Shares. For purposes of the Plan, beneficial ownership is defined to include the ownership of
derivative securities. Any person or group of affiliated or associated persons who beneficially owns 4.9% or more of the
outstanding Common Shares as of the announcement of the Plan will not be an Acquiring Person, but only for so long as such
person or group does not become the beneficial owner of any additional Common Shares.
The date on which the Rights separate from the Common Shares and become exercisable is referred to as the
“Distribution Date.”
45
After the Distribution Date, the Company will mail Rights certificates to the Company’s stockholders as of the close of
business on the Distribution Date and the Rights will become transferable apart from the Common Shares. Thereafter, such
Rights certificates alone will represent the Rights.
Preferred Shares Purchasable Upon Exercise of Rights
After the Distribution Date, each Right will entitle the holder to purchase, for the Exercise Price, one one-thousandth
of a Preferred Share having economic and other terms similar to that of one Common Share. This portion of a Preferred Share is
intended to give the stockholder approximately the same dividend, voting and liquidation rights as would one Common Share,
and should approximate the value of one Common Share.
More specifically, each one one-thousandth of a Preferred Share, if issued, will:
not be redeemable;
entitle holders to quarterly dividend payments of $0.01 per share, or an amount equal to the dividend paid on one
Common Share, whichever is greater;
entitle holders upon liquidation either to receive $1.00 per share or an amount equal to the payment made on one
Common Share, whichever is greater;
have the same voting power as one Common Share; and
entitle holders to a per share payment equal to the payment made on one Common Share if the Common Shares are
exchanged via merger, consolidation or a similar transaction.
•
•
•
•
•
Flip-In Trigger
If an Acquiring Person obtains beneficial ownership of 4.9% or more of the Common Shares, except pursuant to an
offer for all outstanding Common Shares that the independent members of the Board determine to be fair and not inadequate
and to otherwise be in the best interests of the Company and its stockholders after receiving advice from one or more
investment banking firms, then each Right will entitle the holder thereof to purchase, for the Exercise Price, a number of
Common Shares (or, in certain circumstances, cash, property or other securities of the Company) having a then-current market
value of twice the Exercise Price. However, the Rights are not exercisable following the occurrence of the foregoing event until
such time as the Rights are no longer redeemable by the Company, as further described below.
Following the occurrence of an event set forth in preceding paragraph, all Rights that are or, under certain
circumstances specified in the Plan, were beneficially owned by an Acquiring Person or certain of its transferees will be null
and void.
Flip-Over Trigger
If, after an Acquiring Person obtains 4.9% or more of the Common Shares, (1) the Company merges into another
entity, (2) an acquiring entity merges into the Company or (3) the Company sells or transfers more than 50% of its assets, cash
flow or earning power, then each Right (except for Rights that have previously been voided as set forth above) will entitle the
holder thereof to purchase, for the Exercise Price, a number of shares of common stock of the person engaging in the
transaction having a then-current market value of twice the Exercise Price.
Redemption of the Rights
The Rights will be redeemable at the Company’s option for $0.01 per Right (payable in cash, Common Shares or other
consideration deemed appropriate by the Board) at any time on or prior to the 10th business day (or such later date as may be
determined by the Board) after the public announcement that an Acquiring Person has acquired beneficial ownership of 4.9% or
more of the Common Shares. Immediately upon the action of the Board ordering redemption, the Rights will terminate and the
only right of the holders of the Rights will be to receive the $0.01 redemption price. The redemption price will be adjusted if the
Company undertakes a stock dividend or a stock split.
46
Exchange Provision
At any time after the date on which an Acquiring Person beneficially owns 4.9% or more of the Common Shares and
prior to the acquisition by the Acquiring Person of 50% of the Common Shares, the Board may exchange the Rights (except for
Rights that have previously been voided as set forth above), in whole or in part, for Common Shares at an exchange ratio of one
Common Share per Right (subject to adjustment). In certain circumstances, the Company may elect to exchange the Rights for
cash or other securities of the Company having a value approximately equal to one Common Share.
Expiration of the Rights
The Rights expire on the earliest of (1) 5:00 p.m., New York City time, on September 6, 2019 (unless such date is
extended); (2) the redemption or exchange of the Rights as described above; (3) following (a) the first annual meeting of the
stockholders of the Company after the adoption of the Plan if stockholders do not approve the Plan or (b) the first anniversary
of the adoption of the Plan if the stockholders have not otherwise approved the Plan; (4) the repeal of Section 382 of the Code
or any other change if the Board determines that the Plan is no longer necessary or desirable for the preservation of the Tax
Benefits; (5) the time at which the Board determines that the Tax Benefits are fully utilized or no longer available pursuant to
Section 382 of the Code or that an ownership change pursuant to Section 382 of the Code would not adversely impact in any
material respect the time period in which the Company could use the Tax Benefits, or materially impair the amount of the Tax
Benefits that could be used by the Company in any particular time period, for applicable tax purposes; or (6) a determination by
the Board that the Plan is no longer in the best interests of the Company and its stockholders.
Amendment of Terms of the Plan and the Rights
The terms of the Rights and the Plan may be amended in any respect without the consent of the holders of the Rights
on or prior to the Distribution Date. Thereafter, the terms of the Rights and the Plan may be amended without the consent of the
holders of Rights in order to (1) cure any ambiguities, (2) shorten or lengthen any time period pursuant to the Plan or (3) make
changes that do not adversely affect the interests of holders of the Rights.
Voting Rights; Other Stockholder Rights
The Rights will not have any voting rights. Until a Right is exercised, the holder thereof, as such, will have no separate
rights as stockholder of the Company.
Anti-Dilution Provisions
The Board may adjust the Exercise Price, the number of Preferred Shares issuable and the number of outstanding
Rights to prevent dilution that may occur from a stock dividend, a stock split or a reclassification of the Preferred Shares or
Common Shares.
With certain exceptions, no adjustments to the Exercise Price will be made until the cumulative adjustments amount to
at least 1% of the Exercise Price. No fractional Preferred Shares will be issued and, in lieu thereof, an adjustment in cash will
be made based on the current market price of the Preferred Shares.
Taxes
The distribution of Rights should not be taxable for federal income tax purposes. However, following an event that
renders the Rights exercisable or upon redemption of the Rights, stockholders may recognize taxable income.
Waiver for the JDS Group
Pursuant to the Settlement Agreement, the Board adopted a waiver of the Rights Agreement to permit the members of
the JDS Group to acquire up to 7.9% of our common stock without triggering the Rights Agreement.
47
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE APPROVAL
OF THE TAX BENEFIT PRESERVATION PLAN
48
CERTAIN CONSIDERATIONS RELATED TO THE PROTECTIVE AMENDMENT AND THE RIGHTS
AGREEMENT
The Board believes that attempting to protect the tax benefits of our NOLs as described above under “Background to
Proposals 4 and 5” is in our and our stockholders’ best interests. However, we cannot eliminate the possibility that an ownership
change will occur even if the Protective Amendment and the Rights Agreement are approved. Please consider the items
discussed below in voting on Proposals 4 and 5.
The Internal Revenue Service (“IRS”) could challenge the amount of our NOLs or claim we experienced an ownership
change, which could reduce the amount of our NOLs that we can use or eliminate our ability to use them altogether.
The IRS has not audited or otherwise validated the amount of our NOLs. The IRS could challenge the amount of our
NOLs, which could limit our ability to use our NOLs to reduce our future taxable income. In addition, the complexity of
Section 382’s provisions and the limited knowledge any public company has about the ownership of its publicly traded stock
make it difficult to determine whether an ownership change has occurred. Therefore, we cannot assure you that the IRS will not
claim that we experienced an ownership change and attempt to reduce or eliminate the benefit of our NOLs even if the
Protective Amendment and the Rights Agreement are in place.
Continued Risk of Ownership Change
Although the Protective Amendment and the Rights Agreement are intended to reduce the likelihood of an ownership
change, we cannot assure you that they would prevent all transfers of our common stock that could result in such an ownership
change. In particular, absent a court determination, we cannot assure you that the Protective Amendment’s restrictions on
acquisition of our common stock will be enforceable against all our stockholders, and they may be subject to challenge on
equitable grounds, as discussed above under Proposal 4.
Potential Effects on Liquidity
The Protective Amendment will restrict a stockholder’s ability to acquire, directly or indirectly, additional shares of
our common stock in excess of the specified limitations. Furthermore, a stockholder’s ability to dispose of our common stock
may be limited by reducing the class of potential acquirers for such common stock. In addition, a stockholder’s ownership of
our common stock may become subject to the restrictions of the Protective Amendment upon actions taken by persons related
to, or affiliated with, them. Stockholders are advised to carefully monitor their ownership of our stock and consult their own
legal advisors and/or us to determine whether their ownership of our stock approaches the restricted levels.
Potential Impact on Value
If the Protective Amendment is adopted, the Board intends to include a legend reflecting the transfer restrictions
included in the Protective Amendment on certificates representing newly issued or transferred shares, to disclose such
restrictions to persons holding our common stock in uncertificated form, and to disclose such restrictions to the public
generally. Because certain buyers, including persons who wish to acquire more than 5% of our common stock and certain
institutional holders who may not be comfortable holding our common stock with restrictive legends, may not choose to
purchase our common stock, the Protective Amendment could depress the value of our common stock in an amount that could
more than offset any value preserved from protecting our NOLs. The Rights Agreement could have a similar effect if investors
object to holding our common stock subject to the terms of the Rights Agreement.
49
Potential Anti-Takeover Impact
The reason the Board approved the Protective Amendment and the Rights Agreement is to preserve the long-term
value of our NOLs. The Protective Amendment and the Rights Agreement are not intended to prevent a takeover of the
Company. However, the Protective Amendment, if approved by our stockholders, could be deemed to have an anti-takeover
effect because, among other things, it will restrict the ability of a person, entity or group to accumulate more than 4.9% of our
common stock and the ability of persons, entities or groups now owning more than 4.9% of our common stock to acquire
additional shares of our common stock without the approval of the Board. Similarly, the Rights Agreement could be deemed to
have a potential anti-takeover effect because an Acquiring Person may be diluted upon the occurrence of a triggering event.
Accordingly, the overall effects of the Protective Amendment, if approved by our stockholders, and the Rights Agreement may
be to render more difficult, or discourage, a merger, tender offer, proxy contest or assumption of control by a substantial holder
of our securities. The Protective Amendment and the Rights Agreement proposals are not the result of any potential takeover
transaction known to us and are not part of a plan by us to adopt a series of anti-takeover measures.
Stockholders should be aware that we are subject to Section 203 of the Delaware General Corporation Law, which
provides, in general, that a transaction constituting a “business combination” within the meaning of Section 203 involving a
person owning 15% or more of our outstanding voting stock (referred to as an “interested stockholder”) cannot be completed
for a period of three years after the time the person became an interested stockholder unless (i) prior to such time, our Board
approved either the business combination or the transaction that resulted in the person becoming an interested stockholder, (ii)
upon consummation of the transaction that resulted in the person becoming an interested stockholder, that person owned at least
85% of our outstanding voting stock (excluding shares owned by persons who are both directors and officers of the Company
and shares owned by certain of our employee benefit plans), or (iii) the business combination was approved by our Board of
Directors and by the affirmative vote of the holders of at least 66-2/3% of our outstanding voting stock not owned by the
interested stockholder.
Our Amended and Restated Certificate of Incorporation, as amended, and our bylaws contain certain provisions that
may also be deemed to have a potential anti-takeover effect, including:
•
Stockholders have no preemptive right to acquire our securities.
• Our bylaws contain advance notice requirements for any stockholder to present a nomination for director or other
proposal at an annual or special meeting of stockholders.
• Our authorized but unissued shares of common stock and preferred stock may be issued without additional stockholder
approval and may be utilized for a variety of corporate purposes.
Effect of the Protective Amendment If You Vote For It and Already Directly or Indirectly Own More Than 4.9% of our
Common Stock
If you already own more than 4.9% of our common stock, you would be able to transfer shares of our common stock
only if the transfer does not increase the percentage of stock ownership of another holder of 4.9% or more of our common stock
or create a new holder of 4.9% or more of our common stock. You will also be able to transfer your shares of our common stock
through open-market sales to a public group. Shares acquired in any such transaction will be subject to the Protective
Amendment’s transfer restrictions. You would not be permitted, without prior Board approval, to acquire additional shares of
our common stock so long as you continue to hold 4.9% or more of our common stock.
Effect of the Protective Amendment If You Vote For It and Directly or Indirectly Own Less Than 4.9% of our Common
Stock
The Protective Amendment will apply to you, but, so long as you own less than 4.9% of our common stock you can
transfer your shares to a purchaser who, after the sale, also would own less than 4.9% of our common stock. You can also
acquire additional shares of our common stock so long as you would continue to hold less than 4.9% of our common stock.
Effect of the Protective Amendment If You Vote Against It
Delaware law provides that the transfer restrictions of the Protective Amendment with respect to shares of our
common stock issued prior to its effectiveness will be effective as to (i) stockholders with respect to shares that were voted in
favor of approving the Protective Amendment and (ii) purported transferees of such shares if (A) the transfer restriction is
50
conspicuously noted on the certificate(s) representing such shares or (B) the transferee had actual knowledge of the transfer
restrictions (even absent such conspicuous notation). We intend to cause shares of our common stock issued after the
effectiveness of the Protective Amendment to be issued with the relevant transfer restriction conspicuously noted on the
certificate(s) representing such shares, and therefore under Delaware law such newly issued shares will be subject to the
transfer restriction. We also intend to disclose such restrictions to persons holding our common stock in uncertificated form. For
the purpose of determining whether a stockholder is subject to the Protective Amendment, we intend to take the position that all
shares issued prior to the effectiveness of the Protective Amendment that are proposed to be transferred were voted in favor of
the Protective Amendment, unless the contrary is established. We may also assert that stockholders have waived the right to
challenge or otherwise cannot challenge the enforceability of the Protective Amendment, unless a stockholder establishes that it
did not vote in favor of the Protective Amendment. Nonetheless, a court could find that the Protective Amendment is
unenforceable, either in general or as applied to a particular stockholder or fact situation.
51
2016 Annual Report
OTHER MATTERS
Our annual report for the fiscal year ended July 1, 2016 will be available over the Internet and is being mailed with this
Proxy Statement.
Form 10-K
We filed an annual report on Form 10-K for the fiscal year ended July 1, 2016 with the SEC on September 8, 2016.
Stockholders may obtain a copy of the annual report on Form 10-K, without charge, by writing to our Corporate Secretary, at
the address of our offices located at 860 N. McCarthy Blvd., Suite 200, Milpitas, California 95035, or through our website at
www.aviatnetworks.com.
Other Business
The Board is not aware of any other matter that may be presented for consideration at the Annual Meeting. Should any
other matter properly come before the Annual Meeting, your shares of common stock will be voted in accordance with the
discretion of the proxy holders.
52
ANNEX A
CERTIFICATE OF AMENDMENT
TO THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
AVIAT NETWORKS, INC.
Aviat Networks, Inc., a corporation organized and existing under and by virtue of the Delaware General
Corporation Law (the “Corporation”) DOES HEREBY CERTIFY THAT:
FIRST: This Amendment to the Amended and Restated Certificate of Incorporation, as amended (the
“Certificate of Incorporation”), of the Corporation has been duly adopted in accordance with the provisions of Section
242 of the General Corporation Law of the State of Delaware.
SECOND: The Certificate of Incorporation of the Corporation is hereby amended by adding the following
“Article IX”, which shall read in its entirety as follows:
Article IX
Part 1. Definitions. As used in this Article IX, the following capitalized terms have the following meanings
when used herein with initial capital letters (and any references to any portions of Treasury Regulation § 1.382-2T
shall include any successor provisions):
(i) “4.9-percent Transaction” means any Transfer described in clause (a) or (b) of Part 2 of this Article IX.
(ii) “4.9-percent Stockholder” means a Person who owns a Percentage Stock Ownership equal to or exceeding
4.9% of the Corporation’s then-outstanding Stock, whether directly or indirectly, and including Stock such Person
would be deemed to constructively own or which otherwise would be aggregated with shares owned by such Person
pursuant to Section 382 of the Code, or any successor provision or replacement provision and the applicable Treasury
Regulations and Internal Revenue Service guidance thereunder.
(iii) “Agent” has the meaning set forth in Part 5 of this Article IX.
(iv) “Board of Directors” or “Board” means the board of directors of the Corporation.
(v) “Code” means the United States Internal Revenue Code of 1986, as amended from time to time.
(vi) “Corporation Security” or “Corporation Securities” means any (i) Stock; (ii) shares of Preferred Stock
issued by the Corporation (other than Preferred Stock described in Section 1504(a)(4) of the Code); and (iii) warrants,
rights, or options (including options within the meaning of Treasury Regulation § 1.382-2T(h)(4)(v)) to purchase
Securities of the Corporation.
(vii) “Effective Date” means the date of filing of this Certificate of Amendment of the Certificate of
Incorporation of the Corporation with the Secretary of State.
(viii) “Excess Securities” has the meaning given such term in Part 4 of this Article IX.
(ix) “Expiration Date” means the earliest of (i) the close of business on the date that is the third anniversary
of the Effective Date; (ii) the repeal of Section 382 of the Code or any successor statute if the Board of Directors
determines that this Article IX is no longer necessary or desirable for the preservation of Tax Benefits; (iii) the close
of business on the first day of a taxable year of the Corporation as to which the Board of Directors determines that no
Tax Benefits may be carried forward; (iv) such date as the Board of Directors shall fix in accordance with Part 12 of
A- 1
this Article IX; or (v) the final adjournment of the 2016 Annual Meeting of Stockholders if approval by a majority of
the voting power of the stockholders voting at such meeting has not been received for the continuation of the applicability
of this Article IX.
(x) “Percentage Stock Ownership” means the percentage Stock Ownership interest of any Person or group (as
the context may require) for purposes of Section 382 of the Code as determined in accordance with the Treasury
Regulation § 1.382-2T(g), (h), (j) and (k) or any successor provision and other pertinent Internal Revenue Service
guidance.
(xi) “Person” means any individual, firm, corporation or other legal entity, including persons treated as an
entity pursuant to Treasury Regulation § 1.382-3(a)(1)(i); and includes any successor (by merger or otherwise) of such
entity.
(xii) “Prohibited Distributions” means any and all dividends or other distributions paid by the Corporation
with respect to any Excess Securities received by a Purported Transferee.
(xiii) “Prohibited Transfer” means any Transfer or purported Transfer of Corporation Securities to the extent
that such Transfer is prohibited and/or void under this Article IX.
(xiv) “Public Group” has the meaning set forth in Treasury Regulation § 1.382-2T(f)(13).
(xv) “Purported Transferee” has the meaning set forth in Part 4 of this Article IX.
(xvi) “Securities” and “Security” each has the meaning set forth in Part 7 of this Article IX.
(xvii) “Stock” means any interest that would be treated as “stock” of the Corporation pursuant to Treasury
Regulation § 1.382-2T(f)(18).
(xviii) “Stock Ownership” means any direct or indirect ownership of Stock, including any ownership by virtue
of application of constructive ownership rules, with such direct, indirect, and constructive ownership determined under
the provisions of Section 382 of the Code and the regulations thereunder.
(xix) “Tax Benefits” means the net operating loss carryforwards, capital loss carryforwards, general business
credit carryforwards, alternative minimum tax credit carryforwards and foreign tax credit carryforwards, as well as
any loss or deduction attributable to a “net unrealized built-in loss” of the Corporation or any direct or indirect subsidiary
thereof, within the meaning of Section 382 of the Code.
(xx) “Transfer” means, any direct or indirect sale, transfer, assignment, conveyance, pledge or other disposition
or other action taken by a Person, other than the Corporation, that alters the Percentage Stock Ownership of any Person
or group. A Transfer also shall include the creation or grant of an option (including an option within the meaning of
Treasury Regulation § 1.382-4(d). For the avoidance of doubt, a Transfer shall not include the creation or grant of an
option by the Corporation, nor shall a Transfer include the issuance of Stock by the Corporation.
(xxi) “Transferee” means any Person to whom Corporation Securities are Transferred.
(xxii) “Treasury Regulations” means the regulations, including temporary regulations or any successor
regulations promulgated under the Code, as amended from time to time.
Part 2. Transfer and Ownership Restrictions. In order to preserve the Tax Benefits, from and after the
Effective Date any attempted Transfer of Corporation Securities prior to the Expiration Date and any attempted Transfer
of Corporation Securities pursuant to an agreement entered into prior to the Expiration Date shall be prohibited and
void ab initio to the extent that, as a result of such Transfer (or any series of Transfers of which such Transfer is a part),
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either (a) any Person or Persons would become a 4.9-percent Stockholder or (b) the Percentage Stock Ownership in
the Corporation of any 4.9-percent Stockholder would be increased.
Part 3. Exceptions.
(i) Notwithstanding anything to the contrary herein, Transfers to a Public Group (including a new Public Group
created under Treasury Regulation § 1.382-2T(j)(3)(i)) shall be permitted.
(ii) The restrictions set forth in Part 2 of this Article IX shall not apply to an attempted Transfer that is a 4.9-
percent Transaction if the transferor or the Transferee obtains the written approval of the Board of Directors or a duly
authorized committee thereof. As a condition to granting its approval pursuant to this Part 3 of Article IX, the Board
of Directors, may, in its discretion, require (at the expense of the transferor and/or transferee) an opinion of counsel
selected by the Board of Directors that the Transfer shall not result in a limitation on the use of the Tax Benefits as a
result of the application of Section 382 of the Code; provided that the Board may grant such approval notwithstanding
the effect of such approval on the Tax Benefits if it determines that the approval is in the best interests of the Corporation.
The Board of Directors may grant its approval in whole or in part with respect to such Transfer and may impose any
conditions that it deems reasonable and appropriate in connection with such approval, including, without limitation,
restrictions on the ability of any Transferee to Transfer Stock acquired through a Transfer. Approvals of the Board of
Directors hereunder may be given prospectively or retroactively. The Board of Directors, to the fullest extent permitted
by law, may exercise the authority granted by this Article IX through duly authorized officers or agents of the
Corporation. Nothing in this Part 3 of this Article IX shall be construed to limit or restrict the Board of Directors in
the exercise of its fiduciary duties under applicable law.
Part 4. Excess Securities.
(i) No employee or agent of the Corporation shall record any Prohibited Transfer, and the purported transferee
of such a Prohibited Transfer (the “Purported Transferee”) shall not be recognized as a stockholder of the Corporation
for any purpose whatsoever in respect of the Corporation Securities which are the subject of the Prohibited Transfer
(the “Excess Securities”). Until the Excess Securities are acquired by another person in a Transfer that is not a Prohibited
Transfer, the Purported Transferee shall not be entitled, with respect to such Excess Securities, to any rights of
stockholders of the Corporation, including, without limitation, the right to vote such Excess Securities and to receive
dividends or distributions, whether liquidating or otherwise, in respect thereof, if any, and the Excess Securities shall
be deemed to remain with the transferor unless and until the Excess Securities are transferred to the Agent pursuant to
Part 5 of this Article IX or until an approval is obtained under Part 3 of this Article IX. After the Excess Securities have
been acquired in a Transfer that is not a Prohibited Transfer, the Corporation Securities shall cease to be Excess
Securities. For this purpose, any Transfer of Excess Securities not in accordance with the provisions of Parts 4 or 5 of
this Article IX shall also be a Prohibited Transfer.
(ii) The Corporation may require as a condition to the registration of the Transfer of any Corporation Securities
or the payment of any dividend or distribution on any Corporation Securities that the proposed Transferee or payee
furnish to the Corporation all information reasonably requested by the Corporation with respect to its direct or indirect
ownership interests in such Corporation Securities. The Corporation may make such arrangements or issue such
instructions to its stock transfer agent as may be determined by the Board of Directors to be necessary or advisable to
implement this Article IX, including, without limitation, authorizing such transfer agent to require an affidavit from a
Purported Transferee regarding such Person’s actual and constructive ownership of Corporation Securities and other
evidence that a Transfer will not be prohibited by this Article IX as a condition to registering any Transfer.
Part 5. Transfer to Agent. If the Board of Directors determines that a Transfer of Corporation Securities
constitutes a Prohibited Transfer then, upon written demand by the Corporation sent within thirty days of the date on
which the Board of Directors determines that the attempted Transfer would result in Excess Securities, the Purported
Transferee shall transfer or cause to be transferred any certificate or other evidence of ownership of the Excess Securities
within the Purported Transferee’s possession or control, together with any Prohibited Distributions, to an agent
designated by the Board of Directors (the “Agent”). The Agent shall thereupon sell to a buyer or buyers, which may
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include the Corporation, the Excess Securities transferred to it in one or more arm’s-length transactions (on the public
securities market on which such Excess Securities are traded, if possible, or otherwise privately); provided, however,
that any such sale must not constitute a Prohibited Transfer and provided, further, that the Agent shall effect such sale
or sales in an orderly fashion and shall not be required to effect any such sale within any specific time frame if, in the
Agent’s discretion, such sale or sales would disrupt the market for the Corporation Securities or otherwise would
adversely affect the value of the Corporation Securities. If the Purported Transferee has resold the Excess Securities
before receiving the Corporation’s demand to surrender Excess Securities to the Agent, the Purported Transferee shall
be deemed to have sold the Excess Securities for the Agent, and shall be required to transfer to the Agent any Prohibited
Distributions and proceeds of such sale, except to the extent that the Corporation grants written permission to the
Purported Transferee to retain a portion of such sales proceeds not exceeding the amount that the Purported Transferee
would have received from the Agent pursuant to Part 6 of this Article IX if the Agent rather than the Purported Transferee
had resold the Excess Securities.
Part 6. Application of Proceeds and Prohibited Distributions. The Agent shall apply any proceeds of a sale
by it of Excess Securities and, if the Purported Transferee has previously resold the Excess Securities, any amounts
received by it from a Purported Transferee, together, in either case, with any Prohibited Distributions, as follows: (a)
first, such amounts shall be paid to the Agent to the extent necessary to cover its costs and expenses incurred in
connection with its duties hereunder; (b) second, any remaining amounts shall be paid to the Purported Transferee, up
to the amount paid by the Purported Transferee for the Excess Securities (or the fair market value at the time of the
Transfer, in the event the purported Transfer of the Excess Securities was, in whole or in part, a gift, inheritance or
similar Transfer) which amount shall be determined at the discretion of the Board of Directors; and (c) third, any
remaining amounts shall be paid to one or more organizations qualifying under section 501(c)(3) of the Code (or any
comparable successor provision) selected by the Board of Directors. The Purported Transferee of Excess Securities
shall have no claim, cause of action or any other recourse whatsoever against any transferor of Excess Securities. The
Purported Transferee’s sole right with respect to such shares shall be limited to the amount payable to the Purported
Transferee pursuant to this Part 6 of Article IX. In no event shall the proceeds of any sale of Excess Securities pursuant
to this Part 6 of Article IX inure to the benefit of the Corporation or the Agent, except to the extent used to cover costs
and expenses incurred by Agent in performing its duties hereunder.
Part 7. Modification of Remedies for Certain Indirect Transfers. In the event of any Transfer which does
not involve a transfer of securities of the Corporation within the meaning of Delaware law (“Securities,” and individually,
a “Security”) but which would cause a 4.9-percent Stockholder to violate a restriction on Transfers provided for in this
Article IX, the application of Parts 5 and 6 of this Article IX shall be modified as described in this Part 7 of this Article
IX. In such case, no such 4.9-percent Stockholder shall be required to dispose of any interest that is not a Security, but
such 4.9-percent Stockholder and/or any Person whose ownership of Securities is attributed to such 4.9-percent
Stockholder shall be deemed to have disposed of and shall be required to dispose of sufficient Securities (which
Securities shall be disposed of in the inverse order in which they were acquired) to cause such 4.9-percent Stockholder,
following such disposition, not to be in violation of this Article IX. Such disposition shall be deemed to occur
simultaneously with the Transfer giving rise to the application of this provision, and such number of Securities that
are deemed to be disposed of shall be considered Excess Securities and shall be disposed of through the Agent as
provided in Parts 5 and 6 of this Article IX, except that the maximum aggregate amount payable either to such 4.9-
percent Stockholder, or to such other Person that was the direct holder of such Excess Securities, in connection with
such sale shall be the fair market value of such Excess Securities at the time of the purported Transfer. All expenses
incurred by the Agent in disposing of such Excess Securities shall be paid out of any amounts due such 4.9-percent
Stockholder or such other Person. The purpose of this Part 7 of Article IX is to extend the restrictions in Part 2 and 5
of this Article IX to situations in which there is a 4.9-percent Transaction without a direct Transfer of Securities, and
this Part 7 of Article IX, along with the other provisions of this Article IX, shall be interpreted to produce the same
results, with differences as the context requires, as a direct Transfer of Corporation Securities.
Part 8. Legal Proceedings; Prompt Enforcement. If the Purported Transferee fails to surrender the Excess
Securities or the proceeds of a sale thereof to the Agent within thirty days from the date on which the Corporation
makes a written demand pursuant to Part 5 of this Article IX (whether or not made within the time specified in Part 5
of this Article IX), then the Corporation may take such actions as it deems appropriate to enforce the provisions hereof,
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including the institution of legal proceedings to compel the surrender. Nothing in this Part 8 of Article IX shall (1) be
deemed inconsistent with any Transfer of the Excess Securities provided in this Article IX being void ab initio, (2)
preclude the Corporation in its discretion from immediately bringing legal proceedings without a prior demand or (3)
cause any failure of the Corporation to act within the time periods set forth in Part 5 of this Article IX to constitute a
waiver or loss of any right of the Corporation under this Article IX. The Board of Directors may authorize such additional
actions as it deems advisable to give effect to the provisions of this Article IX.
Part 9. Liability. To the fullest extent permitted by law, any stockholder subject to the provisions of this Article
IX who knowingly violates the provisions of this Article IX and any Persons controlling, controlled by or under common
control with such stockholder shall be jointly and severally liable to the Corporation for, and shall indemnify and hold
the Corporation harmless against, any and all damages suffered as a result of such violation, including but not limited
to damages resulting from a reduction in, or elimination of, the Corporation’s ability to utilize its Tax Benefits, and
attorneys’ and auditors’ fees incurred in connection with such violation.
Part 10. Obligation to Provide Information. As a condition to the registration of the Transfer of any Stock,
any Person who is a beneficial, legal or record holder of Stock, and any proposed Transferee and any Person controlling,
controlled by or under common control with the proposed Transferee, shall provide such information as the Corporation
may request from time to time in order to determine compliance with this Article IX or the status of the Tax Benefits
of the Corporation.
Part 11. Legends. The Board of Directors may require that any certificates issued by the Corporation evidencing
ownership of shares of Stock that are subject to the restrictions on transfer and ownership contained in this Article IX
bear the following legend:
“THE CERTIFICATE OF INCORPORATION (THE “CERTIFICATE OF INCORPORATION”) OF THE
CORPORATION CONTAINS RESTRICTIONS PROHIBITING THE TRANSFER (AS DEFINED IN THE
CERTIFICATE OF INCORPORATION) OF STOCK OF THE CORPORATION (INCLUDING THE CREATION
OR GRANT OF CERTAIN OPTIONS, RIGHTS AND WARRANTS) WITHOUT THE PRIOR AUTHORIZATION
OF THE BOARD OF DIRECTORS OF THE CORPORATION (THE “BOARD OF DIRECTORS”) IF SUCH
TRANSFER AFFECTS THE PERCENTAGE OF STOCK OF THE CORPORATION (WITHIN THE MEANING OF
SECTION 382 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”) AND THE
TREASURY REGULATIONS PROMULGATED THEREUNDER), THAT IS TREATED AS OWNED BY A 4.9
PERCENT STOCKHOLDER (AS DEFINED IN THE CERTIFICATE OF INCORPORATION). IF THE TRANSFER
RESTRICTIONS ARE VIOLATED, THEN THE TRANSFER WILL BE VOID AB INITIO AND THE PURPORTED
TRANSFEREE OF THE STOCK WILL BE REQUIRED TO TRANSFER EXCESS SECURITIES (AS DEFINED
IN THE CERTIFICATE OF INCORPORATION) TO THE CORPORATION’S AGENT. IN THE EVENT OF A
TRANSFER WHICH DOES NOT INVOLVE SECURITIES OF THE CORPORATION WITHIN THE MEANING
OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE (“SECURITIES”) BUT WHICH
WOULD VIOLATE THE TRANSFER RESTRICTIONS, THE PURPORTED TRANSFEREE (OR THE RECORD
OWNER) OF THE SECURITIES WILL BE REQUIRED TO TRANSFER SUFFICIENT SECURITIES PURSUANT
TO THE TERMS PROVIDED FOR IN THE CORPORATION’S CERTIFICATE OF INCORPORATION TO CAUSE
THE 4.9 PERCENT STOCKHOLDER TO NO LONGER BE IN VIOLATION OF THE TRANSFER
RESTRICTIONS. THE CORPORATION WILL FURNISH WITHOUT CHARGE TO THE HOLDER OF RECORD
OF THIS CERTIFICATE A COPY OF THE CERTIFICATE OF INCORPORATION, CONTAINING THE ABOVE-
REFERENCED TRANSFER RESTRICTIONS, UPON WRITTEN REQUEST TO THE CORPORATION AT ITS
PRINCIPAL PLACE OF BUSINESS.”
The Board of Directors may also require that any certificates issued by the Corporation evidencing
ownership of shares of Stock that are subject to conditions imposed by the Board of Directors under Part 3 of this
Article IX also bear a conspicuous legend referencing the applicable restrictions.
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Part 12. Authority of the Board of Directors.
(a) The Board of Directors shall have the power to determine all matters necessary for assessing compliance
with this Article IX, including, without limitation, (1) the identification of 4.9-percent Stockholders; (2) whether a
Transfer is a 4.9-percent Transaction or a Prohibited Transfer; (3) the Percentage Stock Ownership in the Corporation
of any Person; (4) whether an instrument constitutes a Corporation Security; (5) the amount (or fair market value) due
to a Purported Transferee pursuant to Part 6 of this Article IX; and (6) any other matters that the Board of Directors
determines to be relevant. The good faith determination of the Board of Directors (or any duly authorized committee
thereof) on such matters shall be conclusive and binding for all the purposes of this Article IX. In addition, the Board
of Directors may, to the extent permitted by law, from time to time establish, modify, amend or rescind Bylaws,
regulations and procedures of the Corporation not inconsistent with the provisions of this Article IX for purposes of
determining whether any Transfer of Corporation Securities would jeopardize or endanger the Corporation’s ability to
preserve and use the Tax Benefits and for the orderly application, administration and implementation of this Article
IX.
(b) Nothing contained in this Article IX shall limit the authority of the Board of Directors to take such other
action to the extent permitted by law as it deems necessary or advisable to protect the Corporation and its stockholders
in preserving the Tax Benefits. Without limiting the generality of the foregoing, in the event of a change in law making
one or more of the following actions necessary or desirable, the Board of Directors may, by adopting a written resolution,
(1) accelerate or extend the Expiration Date; (2) modify the ownership interest percentage in the Corporation or the
Persons or groups covered by this Article IX; (3) modify the definitions of any terms set forth in this Article IX; or (4)
modify the terms of this Article IX as appropriate, in each case, in order to prevent an ownership change for purposes
of Section 382 of the Code as a result of any changes in applicable Treasury Regulations or otherwise; provided,
however, that the Board of Directors shall not cause there to be such acceleration, extension or modification unless it
determines, by adopting a written resolution, that such action is reasonably necessary or advisable to preserve the Tax
Benefits or that the continuation of these restrictions is no longer reasonably necessary for the preservation of the Tax
Benefits. Stockholders of the Corporation shall be notified of such determination through a filing with the Securities
and Exchange Commission or such other method of notice as the Secretary of the Corporation shall deem appropriate.
(c) In the case of an ambiguity in the application of any of the provisions of this Article IX, including any
definition used herein, the Board of Directors shall have the power to determine the application of such provisions
with respect to any situation based on its reasonable belief, understanding or knowledge of the circumstances. In the
event this Article IX requires an action by the Board of Directors but fails to provide specific guidance with respect to
such action, the Board of Directors shall have the power to determine the action to be taken so long as such action is
not contrary to the provisions of this Article IX. All such actions, calculations, interpretations and determinations which
are done or made by the Board of Directors in good faith shall be conclusive and binding on the Corporation, the Agent,
and all other parties for all other purposes of this Article IX. The Board of Directors may delegate all or any portion
of its duties and powers under this Article IX to a committee of the Board of Directors as it deems necessary or advisable
and, to the fullest extent permitted by law, may exercise the authority granted by this Article IX through duly authorized
officers or agents of the Corporation. Nothing in this Article IX shall be construed to limit or restrict the Board of
Directors in the exercise of its fiduciary duties under applicable law.
Part 13. Reliance. To the fullest extent permitted by law, the Corporation and the members of the Board of
Directors shall be fully protected in relying in good faith upon the information, opinions, reports or statements of the
chief executive officer, the chief financial officer, the chief accounting officer or the corporate controller of the
Corporation and the Corporation’s legal counsel, independent auditors, transfer agent, investment bankers or other
employees and agents in making the determinations and findings contemplated by this Article IX. The members of the
Board of Directors shall not be responsible for any good faith errors made in connection therewith. For purposes of
determining the existence and identity of, and the amount of any Corporation Securities owned by any stockholder,
the Corporation is entitled to rely on the existence and absence of filings of Schedule 13D or 13G under the Securities
and Exchange Act of 1934, as amended (or similar filings), as of any date, subject to its actual knowledge of the
ownership of Corporation Securities.
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Part 14. Benefits of This Article IX. Nothing in this Article IX shall be construed to give to any Person other
than the Corporation or the Agent any legal or equitable right, remedy or claim under this Article IX. This Article IX
shall be for the sole and exclusive benefit of the Corporation and the Agent.
Part 15. Severability. The purpose of this Article IX is to facilitate the Corporation’s ability to maintain or
preserve its Tax Benefits. If any provision of this Article IX or the application of any such provision to any Person or
under any circumstance shall be held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction,
such invalidity, illegality or unenforceability shall not affect any other provision of this Article IX.
Part 16. Waiver. With regard to any power, remedy or right provided herein or otherwise available to the
Corporation or the Agent under this Article IX, (i) no waiver will be effective unless expressly contained in a writing
signed by the waiving party; and (ii) no alteration, modification or impairment will be implied by reason of any previous
waiver, extension of time, delay or omission in exercise, or other indulgence.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment of the Amended and
Restated Certificate of Incorporation to be executed on this ___ day of ________, 2016.
Aviat Networks, Inc.
By:
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ANNEX B
TAX BENEFIT PRESERVATION PLAN
Dated as of September 6, 2016
by and between
AVIAT NETWORKS, INC.
and
COMPUTERSHARE INC.,
as Rights Agent
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Section 1.
Section 2.
Section 3.
Section 4.
Section 5.
Section 6.
Section 7.
Section 8.
Section 9.
Section 10.
Section 11.
Section 12.
Section 13.
Section 14.
Section 15.
Section 16.
Section 17.
Section 18.
Section 19.
Section 20.
Section 21.
Section 22.
Section 23.
Section 24.
Section 25.
Section 26.
Section 27.
Section 28.
Section 29.
Section 30.
Section 31.
Section 32.
Section 33.
Section 34.
Section 35.
Section 36.
Section 37.
Section 38.
EXHIBITS
Exhibit A
Exhibit B
Exhibit C
TABLE OF CONTENTS
Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Appointment of Rights Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of Rights Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Form of Rights Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Countersignature and Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer, Split Up, Combination and Exchange of Rights Certificates; Mutilated, Destroyed,
Lost or Stolen Rights Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercise of Rights; Exercise Price; Expiration Date of Rights . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancellation and Destruction of Rights Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reservation and Availability of Preferred Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Record Date for Securities Issued. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment of Exercise Price, Number and Kind of Shares or Number of Rights . . . . . . . . . . .
Certificate of Adjusted Exercise Price or Number of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidation, Merger or Sale or Transfer of Assets, Cash Flow or Earning Power. . . . . . . . . .
Fractional Rights and Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rights of Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Agreement of Rights Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Holder of Rights Certificate Not Deemed to be a Stockholder . . . . . . . . . . . . . . . . . . . . . . . . . .
Concerning the Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merger, Consolidation or Change of Name of Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Duties of Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change of Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of New Rights Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exchange. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Process to Seek Exemption Prior to Trigger Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notice of Certain Events. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplements and Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Successors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Determinations and Actions by the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits of this Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Governing Law; Exclusive Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Descriptive Headings; Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs of Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Force Majeure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
USA PATRIOT Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Form of Certificate of Designation of Rights, Preferences and Privileges of Series A
Participating Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Form of Rights Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Form of Summary of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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TAX BENEFIT PRESERVATION PLAN
This TAX BENEFIT PRESERVATION PLAN (this “Plan”), dated as of September 6, 2016, is by and between Aviat
Networks, Inc., a Delaware corporation (the “Company”), and Computershare Inc., a Delaware corporation, as rights agent (the
“Rights Agent”). All capitalized terms used in this Plan have the meanings given thereto in Section 1.
RECITALS
WHEREAS, on September 6, 2016 (the “Rights Dividend Declaration Date”), the Board of Directors of the
Company (the “Board”) adopted this Plan and authorized and declared a dividend of one preferred share purchase right (a
“Right”) for each Common Share outstanding as of the Close of Business on September 16, 2016 (the “Record Date”), each
Right initially representing the right to purchase one one-thousandth of a Preferred Share (as such number may be adjusted
pursuant to the provisions of this Plan) and having the rights, preferences and privileges set forth in the form of Certificate of
Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock attached hereto as Exhibit A, upon
the terms and subject to the conditions set forth herein;
WHEREAS, the Board further authorized and directed the issuance of one Right (as such number may be adjusted
pursuant to the provisions of this Plan) with respect to each Common Share that becomes outstanding (whether as an original
issuance or from the Company’s treasury) between the Record Date and the earlier of the (a) Distribution Date and
(b) Expiration Date, and in certain circumstances after the Distribution Date;
WHEREAS, if the Company experiences an “ownership change,” as defined in Section 382 of the Internal Revenue
Code of 1986, as amended, or any successor statute (the “Code”), its ability to use Tax Benefits (as defined below) for income
tax purposes could be substantially limited or lost altogether; and
WHEREAS, the Company views the Tax Benefits as highly valuable assets of the Company that are likely to inure to
the benefit of the Company and its stockholders, and the Company believes that it is in the best interests of the Company and its
stockholders that the Company provide for the protection of the Tax Benefits on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereby
agree as follows:
Section 1.
Certain Definitions. For purposes of this Plan, the following terms have the meanings indicated:
(a)
“Acquiring Person” means any Person who or that, together with all Affiliates and Associates of
such Person, is the Beneficial Owner of 4.9% or more of the Common Shares then outstanding, but not including (i) any
Exempt Person; or (ii) any Existing Holder, unless and until such time as such Existing Holder becomes the Beneficial Owner
of one or more additional Common Shares (other than pursuant to a dividend or distribution paid or made by the Company on
the outstanding Common Shares in Common Shares or pursuant to a split or subdivision of the outstanding Common Shares),
unless upon becoming the Beneficial Owner of such additional Common Shares, such Existing Holder does not Beneficially
Own 4.9% or more of the Common Shares then outstanding. Notwithstanding the foregoing, no Person will be deemed to be an
Acquiring Person as the result of an acquisition of Common Shares by an Exempt Person that, by reducing the number of
Common Shares then outstanding, increases the proportionate number of Common Shares that are Beneficially Owned by such
Person to 4.9% or more of the Common Shares then outstanding; provided, however, that if a Person becomes the Beneficial
Owner of 4.9% or more of the Common Shares then outstanding solely as the result of a reduction in the number of Common
Shares then outstanding due to an acquisition of Common Shares by an Exempt Person and, after such acquisition by such
Exempt Person, becomes the Beneficial Owner of one or more additional Common Shares (other than pursuant to a dividend or
distribution paid or made by the Company on the outstanding Common Shares in Common Shares or pursuant to a split or
subdivision of the outstanding Common Shares), then such Person will be deemed to be an Acquiring Person unless, upon
becoming the Beneficial Owner of such additional Common Shares, such Person does not Beneficially Own 4.9% or more of
the Common Shares then outstanding. Notwithstanding the foregoing, if the Board determines in good faith that a Person who
would otherwise be an Acquiring Person has become such inadvertently (including because (A) such Person was unaware that it
Beneficially Owned a percentage of the Common Shares that would otherwise cause such Person to be an Acquiring Person or
(B) such Person was aware of the extent of the Common Shares that it Beneficially Owned but had no actual knowledge of the
consequences of such Beneficial Ownership pursuant to this Plan) and without any intention of changing or influencing control
of the Company, and if such Person divested or divests (including by entering into an agreement with the Company, which
B- 3
agreement is satisfactory to the Board in its sole discretion, to divest and subsequently divests in accordance with the terms of
such agreement, without exercising or retaining any power, including voting power, with respect to such Common Shares) as
promptly as practicable a sufficient number of Common Shares so that such Person would no longer be an Acquiring Person,
then such Person will not be deemed to be or to have become an Acquiring Person at any time for any purposes of this Plan. For
all purposes of this Plan, any calculation of the number of Common Shares outstanding at any particular time, including for
purposes of determining the particular percentage of the outstanding Common Shares of which any Person is the Beneficial
Owner, will be calculated in accordance with Section 382 and the Treasury Regulations promulgated thereunder.
(b)
“Adjustment Shares” has the meaning set forth in Section 11(a)(ii).
(c)
“Affiliate” and “Associate” have the respective meanings ascribed to such terms in Rule 12b-2 of
the General Rules and Regulations promulgated under the Exchange Act, as in effect on the Rights Dividend Declaration Date
and, to the extent not included within the foregoing, will also include, with respect to any Person, any other Person (other than
an Exempt Person or an Existing Holder) whose Stock or other securities (i) would be deemed owned constructively or
indirectly by such first Person for purposes of Section 382; (ii) would be deemed owned by a single “entity” as defined in
Treasury Regulations § 1.382-3(a)(1) in which both such first Person and such other Person are included; or (iii) otherwise
would be deemed aggregated with the Stock or other securities owned by such first Person pursuant to the provisions of Section
382; provided, however, that a Person will not be deemed to be an Affiliate or Associate of another Person solely because either
or both such Persons are or were directors of the Company.
(d)
A Person will be deemed to be the “Beneficial Owner” of, and will be deemed to “Beneficially
Own” and have “Beneficial Ownership” of, any securities:
(i)
that such Person or any of such Person’s Affiliates or Associates, directly or indirectly,
owns or has the legal, equitable or contractual right or obligation to acquire (whether directly or indirectly and whether
exercisable immediately or only after the passage of time, compliance with regulatory requirements, satisfaction of one or more
conditions (whether or not within the control of such Person) or otherwise) (A) pursuant to any agreement, arrangement or
understanding whether or not in writing (other than customary agreements with and between underwriters and selling group
members with respect to a bona fide public offering of securities); (B) upon the exercise of any conversion rights, exchange
rights, rights (other than the Rights), warrants or options, or otherwise; (C) pursuant to the power to revoke a trust, discretionary
account or similar arrangement; (D) pursuant to the power to terminate a repurchase or similar so-called “stock borrowing”
agreement, arrangement or understanding; (E) pursuant to the automatic termination of a trust, discretionary account or similar
arrangement; or (F) any securities (including rights, options or warrants) that are convertible or exchangeable into, or
exercisable for, Common Shares until such time as such securities are converted, exchanged or exercised, except to the extent
that the acquisition or transfer of securities (including rights, options or warrants) would be treated as exercised on the date of
its acquisition or transfer pursuant to Treasury Regulations § 1.382-4(d); provided, however, that a Person will not be deemed
pursuant to this Section 1(d)(i) to be the Beneficial Owner of, or to Beneficially Own, securities (1) tendered pursuant to a
tender or exchange offer made by or on behalf of such Person or any of such Person’s Affiliates or Associates until such
tendered securities are accepted for purchase or exchange; (2) issuable upon the exercise of Rights at any time prior to the
occurrence of a Triggering Event; (3) issuable upon the exercise of Rights from and after the occurrence of a Triggering Event
if such Rights were acquired by such Person or any of such Person’s Affiliates or Associates prior to the Distribution Date or
pursuant to Section 3(a) or Section 22 (the “Original Rights”) or pursuant to Section 11(g) in connection with an adjustment
made with respect to any Original Rights; or (4) that a Person or any of such Person’s Affiliates or Associates may be deemed to
have the right to acquire pursuant to any merger or other acquisition agreement between the Company and such Person (or one
or more of its Affiliates or Associates), or any tender, voting or support agreement entered into by such Person (or one or more
of its Affiliates or Associates) in connection therewith, if such agreement has been approved by the Board prior to there being
an Acquiring Person;
(ii)
that such Person or any of such Person’s Affiliates or Associates, directly or indirectly, has
the right to vote (including the power to vote or to direct the voting of) or dispose (or direct the disposition) of or has
“beneficial ownership” of (as determined pursuant to Rule 13d-3 of the General Rules and Regulations promulgated under the
Exchange Act, as in effect on the Rights Dividend Declaration Date), including pursuant to any agreement, arrangement or
understanding whether or not in writing; provided, however, that a Person will not be deemed the Beneficial Owner of, or to
Beneficially Own, any security pursuant to this Section 1(d)(ii) as a result of an agreement, arrangement or understanding
whether or not in writing to vote such security if such agreement, arrangement or understanding (A) arises solely from a
revocable proxy or consent given to such Person in response to a public proxy or consent solicitation made pursuant to, and in
accordance with, the applicable provisions of the General Rules and Regulations promulgated under the Exchange Act; and
(B) is not also then reportable by such Person on Schedule 13D pursuant to the Exchange Act (or any comparable or successor
report);
B- 4
(iii)
that are Beneficially Owned, directly or indirectly, by any other Person (or any of such
Person’s Affiliates or Associates) with which such first Person (or any of such first Person’s Affiliates or Associates) has any
agreement, arrangement or understanding whether or not in writing (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide public offering of securities) for the purpose of acquiring,
holding, voting (except pursuant to a revocable proxy to the extent contemplated by the proviso to Section 1(d)(ii)) or disposing
of any securities of the Company, but only if the effect of such agreement, arrangement or understanding is to treat such
Persons as an “entity” pursuant to Treasury Regulations § 1.382-3(a)(1); provided, however, that no person who is an officer,
director or employee of an Exempt Person will be deemed, solely by reason of such person’s status or authority as such, to be a
Beneficial Owner of, to have Beneficial Ownership of or to Beneficially Own any securities of the Company that are
Beneficially Owned (including in a fiduciary capacity) by an Exempt Person or by any other such officer, director or employee
of an Exempt Person; provided further, however, that any stockholder of the Company, together with any Affiliate, Associate or
other person who may be deemed to be a representative of such stockholder then serving as a director of the Company, will not
be deemed to be the Beneficial Owner of, to have Beneficial Ownership of or to Beneficially Own any securities of the
Company held by any other Person as a result of any Person affiliated or otherwise associated with such stockholder serving as
a director of the Company or taking any action in connection therewith; or
(iv)
that are the subject of a derivative transaction entered into by such Person or any of such
Person’s Affiliates or Associates, including, for these purposes, any derivative security acquired by such Person or any of such
Person’s Affiliates or Associates that gives such Person or any of such Person’s Affiliates or Associates the economic equivalent
of ownership of an amount of securities due to the fact that the value of the derivative security is explicitly determined by
reference to the price or value of such securities, or that provides such Person or any of such Person’s Affiliates or Associates an
opportunity, directly or indirectly, to profit or to share in any profit derived from any change in the value of such securities, in
any case without regard to whether (A) the derivative security conveys any voting rights in such securities to such Person or
any of such Person’s Affiliates or Associates; (B) the derivative security is required to be, or capable of being, settled through
delivery of such securities; or (C) such Person or any of such Person’s Affiliates or Associates may have entered into other
transactions that hedge the economic effect of the derivative security. In determining the number of Common Shares that are
Beneficially Owned by virtue of the operation of this Section 1(d)(iv), the subject Person will be deemed to Beneficially Own
(without duplication) the notional or other number of Common Shares that, pursuant to the documentation evidencing the
derivative security, may be acquired upon the exercise or settlement of the applicable derivative security or as the basis upon
which the value or settlement amount of such derivative security, or the opportunity of the holder of such derivative security to
profit or share in any profit, is to be calculated, in whole or in part, and in any case (or if no such number of Common Shares is
specified in such documentation or otherwise) as determined by the Board in good faith to be the number of Common Shares to
which the derivative security relates. Notwithstanding anything in this Plan to the contrary, to the extent not within the
foregoing provisions of this Section 1(e), a Person will be deemed to be the Beneficial Owner of, and will be deemed to
Beneficially Own or have Beneficial Ownership of, Stock held by any other Person that such Person would be deemed to own
constructively or indirectly or otherwise would be aggregated with Stock owned by such Person pursuant to Section 382.
(e)
(f)
“Board” has the meaning set forth in the recitals at the beginning of this Plan.
“Book Entry Shares” has the meaning set forth in Section 3(a)
(g)
Reserve Bank of New York is closed.
“Business Day” means any day other than a Saturday, Sunday or a day on which the Federal
(h)
“Close of Business” on any given date means 5:00 p. m., New York City time, on such date;
provided, however, that if such date is not a Business Day, it means 5:00 p.m., New York City time, on the next succeeding
Business Day.
(i)
(j)
“Code” has the meaning set forth in the recitals at the beginning of this Plan.
“Common Shares” means, unless otherwise specified, the shares of common stock, par value $0.01
per share, of the Company. When used with reference to any Person other than the Company, Common Shares means the
capital stock with the greatest voting power, or the equity securities or other equity interest having power to control or direct the
management, of such Person or, if such Person is a Subsidiary of another Person, of the Person that ultimately controls such
first-mentioned Person.
(k)
“Common Share Equivalents” has the meaning set forth in Section 11(a)(iii).
(l)
“Company” has the meaning set forth in the preamble hereto, subject to the terms of Section 13(a).
B- 5
(m)
“Current Per Share Market Price” of any security (a “Security” for purposes of this definition),
for all computations other than those made pursuant to Section 11(a)(iii), means the average of the daily closing prices per share
of such Security for the 30 consecutive Trading Days immediately prior to but not including such date, and for purposes of
computations made pursuant to Section 11(a)(iii), the Current Per Share Market Price of any Security on any date will be
deemed to be the average of the daily closing prices per share of such Security for the 10 consecutive Trading Days
immediately following but not including such date; provided, however, that in the event that the Current Per Share Market Price
of the Security is determined during any period following the announcement by the issuer of such Security of (i) a dividend or
distribution on such Security payable in shares of such Security or securities convertible into such shares (other than the
Rights); or (ii) any subdivision, combination, consolidation, reverse stock split or reclassification of such Security, and the ex-
dividend date for such dividend or distribution, or the record date for such subdivision, combination, consolidation, reverse
stock split or reclassification, has not occurred prior to the commencement of the requisite 30 Trading Day or 10 Trading Day
period as set forth above, then, and in each such case, the Current Per Share Market Price will be appropriately adjusted to take
into account ex-dividend trading. The closing price for each day will be the last sale price, regular way, reported at or prior to
4:00 p.m., New York City time, or, if no such sale takes place on such day, the average of the bid and asked prices, regular way,
reported as of 4:00 p.m. New York City time, in either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on NASDAQ or, if the Security is not listed or admitted to trading
on NASDAQ, as reported in the principal consolidated transaction reporting system with respect to securities listed on the
principal national securities exchange on which the Security is listed or admitted to trading or, if the Security is not listed or
admitted to trading on any national securities exchange, the last quoted price reported at or prior to 4:00 p.m., New York City
time, or, if on such date the Security is not so quoted, the average of the high bid and low asked prices in the over-the-counter
market, as reported as of 4:00 p.m., New York City time, by NASDAQ or such other system then in use, or, if on any such date
the Security is not quoted by any such organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Security selected by the Board. If on any such date no market maker is
making a market in the Security, the fair value of the Security on such date as determined in good faith by the Board will be
used, which determination will be described in a statement filed with the Rights Agent and will be conclusive and binding on
the Rights Agent and the holders of the Rights. If the Current Per Share Market Price of the Preferred Shares cannot be
determined in the manner provided above or if the Preferred Shares are not publicly held or not listed or traded in a manner
described above, then the Current Per Share Market Price of the Preferred Shares will be conclusively deemed to be (x) the
Current Per Share Market Price of the Common Shares as determined pursuant to this Section 1(m) multiplied by (y) 1,000 (as
such number may be appropriately adjusted to reflect any subdivision, combination, consolidation, reverse stock split or
reclassification of Common Shares occurring after the Rights Dividend Declaration Date). If the Security (other than the
Preferred Shares) is not publicly held or not so listed or traded, or if on any such date the Security is not so quoted and no such
market maker is making a market in the Security, then the Current Per Share Market Price means the fair value per Security as
determined in good faith by the Board, after consultation with a nationally recognized investment banking firm, whose
determination will be described in a statement filed with the Rights Agent and will be conclusive and binding on the Rights
Agent and the holders of the Rights.
(n)
“Current Exchange Value” means the product of the Current Per Share Market Price of Common
Shares on the date of the occurrence of an Exchange Determination (or the next Business Day, if such date is not a Business
Day) multiplied by the number of Common Shares for which the Right would otherwise be exchangeable (without regard to
whether there were sufficient Common Shares available therefor).
(o)
“Current Value” has the meaning set forth in Section 11(a)(iii).
(p)
“Distribution Date” means the earlier of (i) the Close of Business on the 10th Business Day (or
such later date as may be determined by action of the Board, which action must be taken prior to the Distribution Date that
otherwise would have occurred) after the Shares Acquisition Date (or, if the 10th Business Day after the Shares Acquisition
Date occurs before the Record Date, then the Record Date); or (ii) the Close of Business on the 10th Business Day (or such
later date as may be determined by the Board) after the date that a tender or exchange offer by any Person (other than an
Exempt Person) is first published, sent or given within the meaning of Rule 14d-2(a) of the General Rules and Regulations
promulgated under the Exchange Act if, assuming the successful consummation thereof, such Person would be an Acquiring
Person; provided, however, that if any tender or exchange offer referred to in clause (ii) of this Section 1(p) is cancelled,
terminated or otherwise withdrawn prior to the Distribution Date without the purchase or exchange of any Common Shares
pursuant thereto, then such offer will be deemed, for purposes of this paragraph, never to have been made.
(q)
“Equivalent Shares” means any class or series of capital stock of the Company having the same
rights, privileges and preferences as the Preferred Shares.
(r)
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
B- 6
(s)
(t)
“Exchange Determination” has the meaning set forth in Section 24(a).
“Exchange Ratio” has the meaning set forth in Section 24(a).
(u)
“Exemption Request” has the meaning set forth in Section 25.
(v)
“Exempt Person” means (i) the Company or any Subsidiary of the Company, in each case including
the officers and members of the board of directors thereof acting in their fiduciary capacities; or (ii) any employee benefit plan
of the Company or of any Subsidiary of the Company, or any entity or trustee holding (or acting in a fiduciary capacity in
respect of) shares of capital stock of the Company for or pursuant to the terms of any such plan or for the purpose of funding
other employee benefits for employees of the Company or any Subsidiary of the Company.
“Exercise Price” is initially $35.00 for each one one-thousandth of a Preferred Share issuable
pursuant to the exercise of a Right and is subject to adjustment from time to time as provided in Section 11 or Section 13.
(w)
(x)
“Existing Holder” means any Person who or that, together with all Affiliates and Associates of such
Person, is, immediately prior to the first public announcement of the adoption of this Plan, the Beneficial Owner of 4.9% or
more of the Common Shares then outstanding. Notwithstanding anything to the contrary in this Plan, any Existing Holder who,
together with all Affiliates and Associates of such Person, becomes at any time the Beneficial Owner of less than 4.9% of the
Common Shares then outstanding will cease to be an Existing Holder and will be subject to all the provisions of this Plan in the
same manner as any Person who is not and was not an Existing Holder.
(y)
“Expiration Date” means the earliest to occur of (i) the Close of Business on the Final Expiration
Date; (ii) the Redemption Date; (iii) the time at which the Board orders the exchange of the Rights as provided in Section 24;
(iv) if Stockholder Approval is not obtained at the first annual meeting of the stockholders of the Company following the date
of this Plan, the Close of Business on the date of such stockholder meeting, or the Close of Business on first anniversary of the
date of this Plan, if Stockholder Approval has not otherwise been obtained by that date; (v) the close of business on the effective
date of the repeal of Section 382 or any other change if the Board, in its sole discretion, determines that this Plan is no longer
necessary or desirable for the preservation of the Tax Benefits; (vi) the time at which the Board determines that the Tax Benefits
are fully utilized or no longer available pursuant to Section 382 or that an ownership change pursuant to Section 382 would not
adversely impact in any material respect the time period in which the Company could use the Tax Benefits, or materially impair
the amount of the Tax Benefits that could be used by the Company in any particular time period, for applicable tax purposes; or
(vii) a determination by the Board, in its sole discretion and prior to the Distribution Date, that this Plan and the Rights are no
longer in the best interests of the Company and its stockholders.
(z)
“Final Expiration Date” means September 6, 2019.
(aa)
“NASDAQ” means The NASDAQ Stock Market LLC.
(bb)
“Original Rights” has the meaning set forth in Section 1(d)(i).
(cc)
“Person” means any individual, firm, corporation, partnership, limited liability company, joint
venture, business trust, trust, association, syndicate, group (as such term is used in Rule 13d-5 of the General Rules and
Regulations promulgated under the Exchange Act, as in effect on the Rights Dividend Declaration Date), other entity or any
group of Persons making a “coordinated acquisition” of Common Shares within the meaning of Treasury Regulations § 1.382-3
(a)(1) or who are otherwise treated as an “entity” within the meaning of Treasury Regulations § 1.382-3(a)(1), and, in each
case, will include any successor (by merger or otherwise) of any such Person, but will not include a Public Group (as defined in
Treasury Regulations § 1.382-2T(f)(13)).
(dd)
“Plan” has the meaning set forth in the preamble at the beginning of this Plan.
(ee)
“Post-Event Transferee” has the meaning set forth in Section 7(e).
(ff)
“Pre-Event Transferee” has the meaning set forth in Section 7(e).
(gg)
“Preferred Shares” means shares of Series A Participating Preferred Stock, par value $0.01 per
share, of the Company and, to the extent that there are not a sufficient number of shares of Preferred Shares authorized to
permit the full exercise of the Rights, any other series of preferred stock of the Company designated for such purpose
containing terms substantially similar to the terms of the Preferred Shares.
B- 7
(hh)
“Principal Party” has the meaning set forth in Section 13(b).
(ii)
(jj)
“Record Date” has the meaning set forth in the recitals at the beginning of this Plan.
“Redemption Date” has the meaning set forth in Section 23(a).
(kk)
“Redemption Price” has the meaning set forth in Section 23(a).
(ll)
“Requesting Person” has the meaning set forth in Section 25(a).
(mm)
“Right” has the meaning set forth in the recitals at the beginning of this Plan.
(nn)
“Rights Agent” has the meaning set forth in the preamble hereto.
(oo)
“Rights Certificate” means a certificate substantially in the form attached as Exhibit B.
(pp)
“Rights Dividend Declaration Date” has the meaning set forth in the recitals at the beginning of
this Plan.
(qq)
“Section 11(a)(ii) Event” means any event described in Section 11(a)(ii).
(rr)
“Section 11(a)(ii) Trigger Date” has the meaning set forth in Section 11(a)(iii).
(ss)
“Section 13 Event” means any event described in clause (i), (ii) or (iii) of Section 13(a).
(tt)
“Section 382” means Section 382 of the Code or any successor or replacement provision and the
Treasury Regulations promulgated thereunder.
(uu)
“Securities Act” means the Securities Act of 1933, as amended.
(vv)
“Security” has the meaning set forth in Section 1(m).
(ww)
“Shares Acquisition Date” means the first date of public announcement (which, for purposes of this
definition, includes the filing or amending of a report pursuant to Section 13(d) of the Exchange Act or pursuant to a
comparable successor statute) by the Company or an Acquiring Person that an Acquiring Person has become such or that
discloses information that reveals the existence of an Acquiring Person.
(xx)
“Spread” means the excess of (i) the Current Value over (ii) the Exercise Price.
“Stock” means with respect to any Person, such Person’s (i) common shares; (ii) preferred shares
(other than preferred shares described in Section 1504(a)(4) of the Code); and (iii) any other interest that would be treated as
“stock” of such Person pursuant to Treasury Regulations § 1.382-2T(f)(18).
(yy)
(zz)
“Stockholder Approval” means the approval of this Plan by the affirmative vote of the majority of
shares of Common Stock present in person or represented by proxy and entitled to vote on the proposal at a meeting of the
stockholders of the Company (or any adjournment or postponement thereof) duly held in accordance with the Company’s
Amended and Restated Certificate of Incorporation, as amended, the Company’s Amended and Restated Bylaws, and applicable
law.
(aaa)
“Subsequent Transferee” has the meaning set forth in Section 7(e).
(bbb)
“Subsidiary” of any Person means any firm, corporation, partnership, limited liability company,
joint venture, business trust, trust, association, syndicate or other entity (whether or not incorporated) of which an amount of
voting securities sufficient to elect a majority of the directors or Persons having similar authority, or a majority of the equity or
ownership interests, is Beneficially Owned, directly or indirectly, by such Person, or any firm, corporation, partnership, limited
liability company, joint venture, business trust, trust, association, syndicate or other entity (whether or not incorporated)
otherwise controlled by such Person.
(ccc)
“Substitution Period” has the meaning set forth in Section 11(a)(iii).
B- 8
(ddd)
“Summary of Rights” means a summary of this Plan substantially in the form attached as
Exhibit C.
(eee)
“Tax Benefits” means net operating losses, capital loss carryovers, general business credit
carryovers, alternative minimum tax credit carryovers, foreign tax credit carryovers or any loss or deduction attributable to a
“net unrealized built-in loss” within the meaning of Section 382, in each case of the Company or any of its Subsidiaries, and
any other tax attribute the benefit of which is subject to possible limitation pursuant to Section 382.
(fff)
“Trading Day” means a day on which the principal national securities exchange on which a
referenced security is listed or admitted to trading is open for the transaction of business or, if a referenced security is not listed
or admitted to trading on any national securities exchange, a Business Day.
(ggg)
“Treasury Regulations” means the final, temporary and proposed income tax regulations
promulgated by the United States Department of the Treasury pursuant to the Code, as amended or superseded from time to
time.
(hhh)
“Triggering Event” means any Section 11(a)(ii) Event or Section 13 Event.
(iii)
“Trust” has the meaning set forth in Section 24(b)(ii).
(jjj)
“Trust Agreement” has the meaning set forth in Section 24(b)(ii).
(kkk)
“Waiver Request” has the meaning set forth in Section 25(a).
B- 9
Section 2.
Appointment of Rights Agent. . The Company hereby appoints the Rights Agent to act as rights agent
for the Company and the holders of the Rights (who, in accordance with Section 3, will prior to the Distribution Date also be
the holders of the Common Shares) in accordance with the express terms and conditions hereof, and the Rights Agent hereby
accepts such appointment. Upon 10 days’ prior written notice to the Rights Agent, the Company may from time to time appoint
such co-rights agents as it may deem necessary or desirable. If the Company appoints one or more co-rights agents, then the
respective duties of the Rights Agent and such co-rights agents will be as the Company determines, and the Company will
promptly notify each rights agent of its respective duties. The Rights Agent will have no duty to supervise, and will in no event
be liable for the acts or omissions of, any co-rights agent.
Section 3.
Issuance of Rights Certificates.
(a).
Rights Evidenced by Certificates for Common Shares and Book Entry Shares. Until the Distribution
Date, (i) the Rights (unless earlier expired, redeemed or terminated) will be evidenced (subject to the provisions of Section 3(b)
and Section 3(c)) by the certificates for Common Shares registered in the names of the holders thereof or, in the case of
uncertificated Common Shares registered in book entry form (“Book Entry Shares”), by notation in book entry accounts
reflecting the ownership of such Common Shares (which certificates and Book Entry Shares, as applicable, will also be deemed
to be Rights Certificates) and not by separate Rights Certificates; and (ii) the Rights (and the right to receive Rights
Certificates) will be transferable only in connection with the transfer of the underlying Common Shares (including a transfer to
the Company). As soon as practicable after the Distribution Date, the Company will prepare and execute, the Rights Agent will
countersign, by manual or facsimile signature, and the Company will send or cause to be sent (and the Rights Agent will, if so
requested and provided with all necessary information and documents, at the Company’s expense send) (by mailing, in
accordance with Section 27 or by such reasonable means as may be selected by the Company) to each record holder of
Common Shares as of the Close of Business on the Distribution Date (other than any Acquiring Person or any of its Affiliates or
Associates), at the address of such holder shown on the transfer books of the Company or the transfer agent for the Common
Shares, one or more Rights Certificates evidencing one Right for each Common Share so held, subject to adjustment as
provided herein. Receipt of a Rights Certificate by any Person will not preclude a later determination that all or part of the
Rights represented thereby are null and void pursuant to Section 7(e). To the extent that a Section 11(a)(ii) Event has also
occurred, the Company may implement such procedures as it deems appropriate in its sole discretion to minimize the possibility
that Rights are received by any Person whose Rights are null and void pursuant to Section 7(e). In the event that an adjustment
in the number of Rights per Common Share has been made pursuant to Section 11, then at the time of distribution of the Rights
Certificates, the Company will make the necessary and appropriate rounding adjustments (in accordance with Section 14(a)) so
that Rights Certificates representing only whole numbers of Rights are distributed and cash is paid in lieu of any fractional
Rights (in accordance with Section 14(a)). As of and after the Distribution Date, the Rights will be evidenced solely by the
Rights Certificates and may be transferred by the transfer of the Rights Certificates as permitted hereby, separately and apart
from any transfer of Common Shares, and the holders of such Rights Certificates as shown on the transfer books of the
Company or the transfer agent for the Rights (which may be the Rights Agent) will be the record holders thereof. The Company
will promptly notify the Rights Agent in writing upon the occurrence of the Distribution Date. Until such notice is provided to
the Rights Agent, it may presume conclusively for all purposes that the Distribution Date has not occurred.
(b).
Summary of Rights; Outstanding Common Shares. The Company will make available, or cause to be
made available, promptly after the Record Date, a copy of the Summary of Rights to any holder of Rights who may so request
from time to time prior to the Expiration Date. With respect to certificates for Common Shares and Book Entry Shares, as
applicable, outstanding as of the Record Date or issued subsequent to the Record Date, until the earlier of the Distribution Date
or the Expiration Date, the Rights will be evidenced by such certificates or Book Entry Shares, and the registered holders of the
Common Shares will also be the registered holders of the associated Rights. Until the earlier of the Distribution Date or the
Expiration Date, the surrender for transfer of any Common Shares in respect of which Rights have been issued (with or without
a copy of the Summary of Rights) will also constitute the transfer of the Rights associated with such Common Shares.
Notwithstanding anything to the contrary in this Plan, upon the effectiveness of a redemption pursuant to Section 23 or an
exchange pursuant to Section 24, the Company will not thereafter issue any additional Rights and, for the avoidance of doubt,
no Rights will be attached to or will be issued with any Common Shares (including any Common Shares issued pursuant to an
exchange) at any time thereafter.
(c).
Legend. Rights will be issued in respect of all Common Shares that are issued (whether as an
original issuance or from the Company’s treasury) after the Record Date but prior to the earlier of the Distribution Date or the
Expiration Date. Certificates representing such Common Shares will also be deemed to be certificates for Rights, and will bear
substantially the following legend if such certificates are issued after the Record Date but prior to the earlier of the Distribution
Date or the Expiration Date:
B- 10
THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO CERTAIN
RIGHTS AS SET FORTH IN A TAX BENEFIT PRESERVATION PLAN, DATED AS OF SEPTEMBER 6,
2016, BETWEEN AVIAT NETWORKS, INC. (THE “COMPANY”) AND COMPUTERSHARE INC., AS
RIGHTS AGENT (OR ANY SUCCESSOR RIGHTS AGENT THEREUNDER), AS THE SAME MAY BE
AMENDED OR SUPPLEMENTED FROM TIME TO TIME (THE “PLAN”), THE TERMS OF WHICH
ARE HEREBY INCORPORATED HEREIN BY REFERENCE AND A COPY OF WHICH IS ON FILE AT
THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY. UNDER CERTAIN CIRCUMSTANCES,
AS SET FORTH IN THE PLAN, SUCH RIGHTS (AS DEFINED IN THE PLAN) MAY BE REDEEMED,
MAY BECOME EXERCISABLE FOR SECURITIES OR ASSETS OF THE COMPANY OR SECURITIES
OF ANOTHER ENTITY, MAY BE EXCHANGED FOR SHARES OF COMMON STOCK OR OTHER
SECURITIES OR ASSETS OF THE COMPANY, MAY EXPIRE OR MAY BE EVIDENCED BY
SEPARATE CERTIFICATES AND MAY NO LONGER BE EVIDENCED BY THIS CERTIFICATE. THE
COMPANY WILL MAIL TO THE HOLDER OF THIS CERTIFICATE A COPY OF THE PLAN AS IN
EFFECT ON THE DATE OF MAILING WITHOUT CHARGE AFTER RECEIPT OF A WRITTEN
REQUEST THEREFOR. UNDER CERTAIN CIRCUMSTANCES AS SET FORTH IN THE PLAN,
RIGHTS THAT ARE BENEFICIALLY OWNED BY, TRANSFERRED TO OR HAVE BEEN
OWNED BY AN ACQUIRING PERSON (AS DEFINED IN THE PLAN) OR ANY OF ITS
AFFILIATES (AS DEFINED IN THE PLAN) OR ASSOCIATES (AS DEFINED IN THE PLAN)
WILL BE NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE.
With respect to any Book Entry Shares, a legend in substantially similar form will be included in a notice to the record holder of
such shares in accordance with applicable law. With respect to such certificates for Common Shares or Book Entry Shares, as
applicable, containing the foregoing legend, until the earlier of the Distribution Date or the Expiration Date, (i) the Rights
associated with the Common Shares represented by such certificates or Book Entry Shares will be evidenced solely by such
certificates or Book Entry Shares; (ii) the registered holders of the Common Shares will also be the registered holders of the
associated Rights; and (iii) the surrender for transfer of any such certificates or Book Entry Shares (with or without a copy of
the Summary of Rights) will also constitute the transfer of the Rights associated with the Common Shares represented thereby.
Notwithstanding this Section 3(c), the omission of the legend required hereby, the inclusion of a legend that makes reference to
a rights agreement or tax benefit preservation plan other than this Plan or the failure to provide notice thereof will not affect the
enforceability of any part of this Plan or the rights of any holder of Rights.
(d).
Acquisitions of Rights by the Company. In the event that the Company purchases or acquires any
Common Shares after the Record Date but prior to the earlier of the Distribution Date or the Expiration Date, any Rights
associated with such Common Shares will be deemed cancelled and retired so that the Company will not be entitled to exercise
any Rights associated with the Common Shares that are no longer outstanding.
Section 4.
Form of Rights Certificates
(a)
Rights Certificates. The Rights Certificates (and the form of election to purchase and form of
assignment, including the certifications therein, to be printed on the reverse thereof) will be substantially in the form of
Exhibit B, and may have such marks of identification or designation and such legends, summaries or endorsements printed
thereon as the Company may deem appropriate (but which do not affect the rights, duties, responsibilities or liabilities of the
Rights Agent) and are not inconsistent with the provisions of this Plan, or as may be required to comply with any applicable law
or with any rule or regulation made pursuant thereto, with any applicable rule or regulation of any applicable stock exchange or
trading system or the Financial Industry Regulatory Authority, or to conform to customary usage. Subject to the provisions of
Section 11 and Section 22, the Rights Certificates, whenever distributed, will be dated as of the Record Date (or in the case of
Rights issued with respect to Common Shares issued by the Company after the Record Date, as of the date of issuance of such
Common Shares) and on their face will entitle the holders thereof to purchase such number of one one-thousandths of a
Preferred Share as will be set forth therein at the Exercise Price, but the number and type of securities purchasable upon the
exercise of each Right and the Exercise Price will be subject to adjustment as provided herein.
(b)
Certain Legends. Any Rights Certificate issued pursuant to Section 3(a), Section 11(g) or Section 22
that represents Rights that are Beneficially Owned by an Acquiring Person, an Affiliate or Associate of an Acquiring Person, a
Post-Event Transferee, a Pre-Event Transferee, a Subsequent Transferee or any nominee of any of the foregoing, and any Rights
Certificate issued pursuant to Section 6 or Section 11 upon transfer, exchange, replacement or adjustment of any other Rights
Certificate referred to in this sentence, will contain (to the extent that the Rights Agent has notice thereof and to the extent
feasible) substantially the following legend:
B- 11
THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY
OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR
ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE PLAN).
ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS (AS SUCH TERMS ARE DEFINED
IN THE PLAN) REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE
CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF THE PLAN.
Uncertificated Rights. Notwithstanding anything to the contrary in this Plan, the Company and the
Rights Agent may amend this Plan to provide for uncertificated Rights in addition to or in place of Rights evidenced by Rights
Certificates.
(c)
Section 5.
Countersignature and Registration.
(a)
Countersignature. The Rights Certificates will be executed on behalf of the Company by its
Chairman of the Board, Chief Executive Officer, President, Chief Financial Officer, Secretary, Assistant Secretary or any Senior
Vice President, which execution will be attested to by the Secretary or an Assistant Secretary of the Company, in each case
either manually or by facsimile signature, and will have affixed thereto the Company’s seal (if any) or a facsimile thereof. The
Rights Certificates will be countersigned, either manually or by facsimile signature, by an authorized signatory of the Rights
Agent, but it will not be necessary for the same signatory to countersign all of the Rights Certificates. No Rights Certificate will
be valid for any purpose unless countersigned by the Rights Agent. If any director or officer of the Company who has signed or
attested to any of the Rights Certificates ceases to be such director or officer of the Company before countersignature by the
Rights Agent and issuance and delivery by the Company, such Rights Certificates nevertheless may be countersigned by the
Rights Agent and issued and delivered by the Company with the same force and effect as though the person who signed or
attested to such Rights Certificates on behalf of the Company had not ceased to be a director or officer of the Company. Any
Rights Certificate may be signed or attested to on behalf of the Company by any person who, as of the actual date of the
execution of such Rights Certificate, is a proper director or officer of the Company to sign such Rights Certificate, although at
the date of the execution of this Plan any such person was not such a director or officer.
(b)
Transfer Books. Following the Distribution Date, the Rights Agent will keep or cause to be kept, at
its office designated for such purposes, books for registration and transfer of the Rights Certificates issued hereunder. Such
books will show the names and addresses of the respective holders of the Rights Certificates, the number of Rights evidenced
on its face by each of the Rights Certificates, the certificate number of each of the Rights Certificates and the date of each of the
Rights Certificates. The Rights Agent will not register, or permit to be registered, any transfer or exchange of any Rights
Certificates (or the underlying Rights) that have become null and void pursuant to Section 7(e), have been redeemed pursuant to
Section 23 or have been exchanged pursuant to Section 24.
Section 6.
Stolen Rights Certificates.
Transfer, Split Up, Combination and Exchange of Rights Certificates; Mutilated, Destroyed, Lost or
(a)
Transfer, Split Up, Combination and Exchange of Rights Certificates. Subject to the provisions of
Section 4(b), Section 7(e), Section 14 and Section 24, at any time after the Close of Business on the Distribution Date, and at or
prior to the Close of Business on the Expiration Date, any Rights Certificate (other than any Rights Certificate representing
Rights that have become null and void pursuant to Section 7(e), that have been redeemed pursuant to Section 23 or that have
been exchanged pursuant to Section 24) may be transferred, split up, combined or exchanged for another Rights Certificate
entitling the registered holder to purchase a like number of one one-thousandths of a Preferred Share (or, following a Triggering
Event, other securities, cash or other assets, as the case may be) as the Rights Certificate surrendered then entitled such holder
(or former holder in the case of a transfer) to purchase. Any registered holder desiring to transfer, split up, combine or exchange
any Rights Certificate will make such request in writing delivered to the Rights Agent, and will surrender the Rights Certificate,
together with any required form of assignment duly executed and properly completed, to be transferred, split up, combined or
exchanged at the office of the Rights Agent designated for such purpose. The Rights Certificates are transferable only on the
books and records of the Rights Agent. Notwithstanding anything in this Plan to the contrary, neither the Rights Agent nor the
Company will be obligated to take any action whatsoever with respect to the transfer of any such surrendered Rights Certificate
until the registered holder has properly completed and duly executed the certificate contained in the form of assignment on the
reverse side of such Rights Certificate and has provided such additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) or Affiliates or Associates thereof, in each case as the Company or the Rights Agent reasonably
requests. Thereupon, subject to Section 4(b), Section 7(e), Section 14 and Section 24, the Rights Agent will countersign (by
B- 12
manual or facsimile signature) and deliver to the Person entitled thereto a Rights Certificate as so requested. The Company or
the Rights Agent may require payment from the holder of a Rights Certificate of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer, split up, combination or exchange of any Rights
Certificate. If and to the extent that the Company does require payment of any such tax or charge, the Company will provide the
Rights Agent prompt written notice thereof and the Rights Agent will not deliver any Right Certificate unless and until the
Rights Agent is satisfied that all such payments have been made, and the Rights Agent will forward any such sum collected by
it to the Company or to such Person as the Company specifies by written notice. The Rights Agent will not have any duty or
obligation to take any action pursuant to any Section of this Plan related to the issuance or delivery of Rights Certificates unless
and until it is satisfied that all such taxes or charges have been paid.
(b)
Mutilated, Destroyed, Lost or Stolen Rights Certificates. Subject to the provisions of Section 7(e),
Section 11(a)(ii) and Section 24, at any time after the Distribution Date and prior to the Expiration Date, upon receipt by the
Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a
Rights Certificate and such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or
Affiliates or Associates thereof as the Company or the Rights Agent may request, and, in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to them, and reimbursement to the Company and the Rights Agent of all
reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Rights Certificate if
mutilated, the Company will make and deliver a new Rights Certificate of like tenor to the Rights Agent for countersignature
and delivery to the registered holder in lieu of the Rights Certificate so lost, stolen, destroyed or mutilated. Every new Rights
Certificate issued pursuant to this Section 6(b) in lieu of any lost, stolen, destroyed or mutilated Rights Certificate will evidence
an original additional contractual obligation of the Company, whether or not the lost, stolen, destroyed or mutilated Rights
Certificate will be at any time enforceable by anyone, and, subject to Section 7(e) will be entitled to all the benefits of this Plan
equally and proportionately with any and all other Rights duly issued hereunder.
Section 7.
Exercise of Rights; Exercise Price; Expiration Date of Rights.
(a)
Exercise of Rights. Subject to Section 7(e), Section 23(b) and Section 24(a), the registered holder of
any Rights Certificate may exercise the Rights evidenced thereby (except as otherwise provided herein) in whole or in part on
any Business Day at or after the Distribution Date and prior to the Close of Business on the Expiration Date by surrender of the
Rights Certificate, with the form of election to purchase and certificate on the reverse side thereof properly completed and duly
executed, to the Rights Agent at the office of the Rights Agent designated for such purpose, together with payment of the
Exercise Price for each one one-thousandth of a Preferred Share (or, following a Triggering Event, other securities, cash or
other assets, as the case may be) as to which the Rights are exercised.
(b)
Exercise Price. The Exercise Price is payable in accordance with Section 7(c).
(c)
Payment. Except as otherwise provided in this Plan, upon receipt of a Rights Certificate representing
exercisable Rights, with the form of election to purchase and certification properly completed and duly executed, accompanied
by payment of the aggregate Exercise Price for the total number of one one-thousandths of a Preferred Share (or, following a
Triggering Event, other securities, cash or other assets, as the case may be) to be purchased and an amount equal to any
applicable transfer tax or governmental charge required to be paid by the holder of such Rights Certificate in accordance with
Section 9(e), the Rights Agent will, subject to Section 7(f) and Section 20(j), thereupon promptly (i) (A) requisition from any
transfer agent of the Preferred Shares (or make available, if the Rights Agent is the transfer agent for the Preferred Shares) a
certificate for the total number of one one-thousandths of a Preferred Share (or, following a Triggering Event, other securities,
cash or other assets, as the case may be) to be purchased (or, in the case of uncertificated shares or other securities, requisition
from the transfer agent a notice setting forth such number of shares or other securities to be purchased for which registration
will be made on the transfer books of the Company), and the Company hereby irrevocably authorizes its transfer agent to
comply with all such requests; or (B) if the Company has elected to deposit the total number of one one-thousandths of a
Preferred Share (or, following a Triggering Event, other securities, cash or other assets, as the case may be) issuable upon
exercise of the Rights hereunder with a depositary agent, requisition from such depositary agent depositary receipts
representing interests in such number of one one-thousandths of a Preferred Share (or, following a Triggering Event, other
securities, cash or other assets, as the case may be) as are to be purchased (in which case certificates for the Preferred Shares
(or, following a Triggering Event, other securities, cash or other assets, as the case may be) represented by such receipts will be
deposited by the transfer agent with such depositary agent) and the Company hereby irrevocably directs such depositary agent
to comply with such request; (ii) when necessary to comply with the terms of this Plan, requisition from the Company the
amount of cash, if any, to be paid in lieu of the issuance of fractional shares in accordance with Section 14; (iii) after receipt of
such certificates, notices, or depositary receipts, cause the same to be delivered to or upon the order of the registered holder of
B- 13
such Rights Certificate, registered in such name or names as may be designated by such holder; and (iv) when necessary to
comply with the terms of this Plan, after receipt thereof, deliver such cash to or upon the order of the registered holder of such
Rights Certificate. The payment of the Exercise Price (as such amount may be reduced (including to zero) pursuant to
Section 11(a)(iii)), and an amount equal to any applicable transfer tax or governmental charge required to be paid by the holder
of such Rights Certificate in accordance with Section 9(e), may be made by certified bank check, money order, cashier’s check
or bank draft payable to the order of the Company. In the event that the Company is obligated to issue securities of the
Company other than Preferred Shares, pay cash or distribute other property pursuant to Section 11(a), then the Company will
make all arrangements necessary so that such other securities, cash or other property are available for distribution by the Rights
Agent, if and when necessary to comply with the terms of this Plan. Notwithstanding anything to the contrary in this Plan, the
Company reserves the right to require that prior to the occurrence of a Triggering Event, upon any exercise of Rights, a number
of Rights be exercised so that only whole Preferred Shares would be issued.
(d)
Partial Exercise. If the registered holder of any Rights Certificate exercises less than all the Rights
evidenced thereby, then a new Rights Certificate evidencing Rights equivalent to the Rights remaining unexercised will be
issued by the Rights Agent and delivered to or upon the order of the registered holder of such Rights Certificate, registered in
such name as may be designated by such holder, subject to the provisions of Section 14.
(e)
Prohibited Issuances. Notwithstanding anything to the contrary in this Plan, from and after the first
occurrence of a Triggering Event, any Rights that are or were acquired or Beneficially Owned by (i) an Acquiring Person or an
Affiliate or Associate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or an Affiliate or Associate of an
Acquiring Person) who becomes a transferee after the Acquiring Person becomes such (a “Post-Event Transferee”), (iii) a
transferee of an Acquiring Person (or an Affiliate or Associate of an Acquiring Person) who becomes a transferee prior to or
concurrently with the Acquiring Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or
not for consideration) from the Acquiring Person (or an Affiliate or Associate of the Acquiring Person) to holders of equity
interests in such Acquiring Person (or an Affiliate or Associate of such Acquiring Person) or to any Person with whom the
Acquiring Person (or an Affiliate or Associate of the Acquiring Person) has any continuing agreement, arrangement or
understanding whether or not in writing regarding the transferred Rights or (B) a transfer that the Board has determined is part
of a plan, arrangement or understanding that has as a primary purpose or effect the avoidance of this Section 7(e) (a “Pre-Event
Transferee”), (iv) any subsequent transferee receiving transferred Rights from a Post-Event Transferee or a Pre-Event
Transferee, either directly or through one or more intermediate transferees (a “Subsequent Transferee”), or (v) any nominee of
any of the foregoing will, in each case, become null and void without any further action, and no holder (whether or not such
holder is an Acquiring Person or an Affiliate or Associate of an Acquiring Person) of such Rights will have any rights
whatsoever (including the right to exercise) with respect to such Rights or any Rights Certificates that formerly evidenced such
Rights, whether pursuant to any provision of this Plan or otherwise. From and after the first occurrence of a Triggering Event,
no Rights Certificate will be issued pursuant to this Plan (including to an Acquiring Person, an Affiliate or Associate of an
Acquiring Person, a Post-Event Transferee, a Pre-Event Transferee, a Subsequent Transferee or any nominee of any of the
foregoing) that represents one or more Rights that are or have become null and void pursuant to this Section 7(e) or with respect
to any Common Shares otherwise deemed to be Beneficially Owned by any of the foregoing, and any Rights Certificate
delivered to the Rights Agent that represents Rights that are or have become null and void pursuant to this Section 7(e) will be
cancelled. The Company will use all reasonable efforts to ensure that the provisions of this Section 7(e) and Section 4(b) are
complied with, but neither the Company nor the Rights Agent will have any liability to any holder of Rights Certificates or to
any other Person as a result of the Company’s failure to make any determinations with respect to an Acquiring Person, an
Affiliate or Associate of an Acquiring Person, a Post-Event Transferee, a Pre-Event Transferee, a Subsequent Transferee or any
nominee of any of the foregoing. The Company will provide the Rights Agent with written notice of the identity of any such
Acquiring Person, Affiliate or Associate of an Acquiring Person, Post-Event Transferee, Pre-Event Transferee, Subsequent
Transferee or any nominee of any of the foregoing, and the Rights Agent may rely on such notice in carrying out its duties
pursuant to this Plan and will be deemed not to have any knowledge of the identity of any such Person unless and until it has
received such notice.
(f)
Information Concerning Ownership. Notwithstanding anything to the contrary in this Plan or any
Rights Certificate, neither the Rights Agent nor the Company is obligated to undertake any action with respect to a registered
holder of Rights upon the occurrence of any purported exercise or transfer of Rights as set forth in this Section 7 unless such
registered holder, in addition to having complied with the requirements of Section 7(a), has (i) properly completed and duly
executed the certificate contained in the form of election to purchase or form of assignment, as applicable, set forth on the
reverse side of the Rights Certificate surrendered for such exercise or assignment; and (ii) provided such additional evidence
(including the identity of the Beneficial Owner (or former Beneficial Owner) thereof and of the Rights evidenced thereby, and
the Affiliates or Associates of such Beneficial Owner or former Beneficial Owner) as the Company or the Rights Agent may
reasonably request. If such registered holder does not comply with the foregoing requirements, then the Company will be
B- 14
entitled to conclusively deem such Rights to be Beneficially Owned by an Acquiring Person (or an Affiliate or Associate of an
Acquiring Person, a Post-Event Transferee, a Pre-Event Transferee, a Subsequent Transferee or any nominee of any of the
foregoing, as applicable) and, accordingly, such Rights will be null and void and not exercisable or transferable.
Section 8.
Cancellation and Destruction of Rights Certificates. All Rights Certificates surrendered for the
purpose of exercise, transfer, split up, combination, redemption or exchange will, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form, or, if surrendered to the Rights Agent, will be
cancelled by it, and no Rights Certificates will be issued in lieu thereof except as expressly permitted by any of the provisions
of this Plan. The Company will deliver to the Rights Agent for cancellation and retirement, and the Rights Agent will so cancel
and retire, any Rights Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. Subject to
applicable law, the Rights Agent will maintain electronic or physical records of all Rights Certificates that have been cancelled
or destroyed by the Rights Agent. At the Company’s expense, the Rights Agent must maintain such electronic or physical
records for the time period required by applicable law. The Rights Agent must deliver all cancelled Rights Certificates to the
Company or, at the written request of the Company, must destroy, or cause to be destroyed, such cancelled Rights Certificates,
and in such case must deliver a certificate evidencing the destruction thereof to the Company (or, at the Company’s option,
appropriate copies of the electronic or physical records relating to Rights Certificates so cancelled or destroyed by the Rights
Agent).
Section 9.
Reservation and Availability of Preferred Shares.
(a)
Reservation. The Company covenants and agrees that it will use all reasonable efforts to cause to be
reserved and kept available out of its authorized and unissued Preferred Shares not reserved for another purpose (and, following
the occurrence of a Triggering Event, out of its authorized and unissued Common Shares or other securities, or out of its
authorized and issued shares held in treasury), the number of Preferred Shares (and, following the occurrence of a Triggering
Event, Common Shares or other securities) that will be sufficient to permit the exercise in full of all outstanding Rights.
(b)
Listing. So long as the Preferred Shares (and, following the occurrence of a Triggering Event,
Common Shares or other securities) issuable and deliverable upon the exercise of the Rights may be listed on any national
securities exchange, the Company must use all reasonable efforts to cause, from and after such time as the Rights become
exercisable (but only to the extent that it is reasonably likely that the Rights will be exercised), all shares reserved for such
issuance to be listed on such exchange upon official notice of issuance upon such exercise.
(c)
Registration. The Company must use all reasonable efforts to (i) file, as soon as practicable
following the earliest date after the first occurrence of a Section 11(a)(ii) Event in which the consideration to be delivered by
the Company upon exercise of the Rights is described in Section 11(a)(ii) or Section 11(a)(iii), or as soon as is required by law
following the Distribution Date, as the case may be, a registration statement pursuant to the Securities Act with respect to the
securities purchasable upon exercise of the Rights on an appropriate form; (ii) cause such registration statement to become
effective as soon as practicable after such filing; and (iii) cause such registration statement to remain effective (with a
prospectus at all times meeting the requirements of the Securities Act) until the earlier of (A) the date as of which the Rights are
no longer exercisable for such securities and (B) the Expiration Date. The Company may temporarily suspend (with prompt
written notice of any suspension provided to the Rights Agent), from time to time for a period not to exceed 120 days after the
date set forth in clause (i) of the first sentence of this Section 9(c), the exercisability of the Rights in order to prepare and file
such registration statement and permit it to become effective or in order to prepare and file any supplement or amendment to
such registration statement that the Board determines to be necessary pursuant to applicable law. Upon any such suspension, the
Company will issue a public announcement stating, and promptly notify the Rights Agent in writing, that the exercisability of
the Rights has been temporarily suspended, as well as issue a public announcement, and promptly notify the Rights Agent in
writing, at such time as the suspension is no longer in effect. In addition, if the Company determines that a registration
statement is required following the Distribution Date, then the Company may temporarily suspend the exercisability of the
Rights until such time as such registration statement has been declared effective. The Company will also take such action as
may be appropriate under, or to ensure compliance with, the securities or “blue sky” laws of the various states in connection
with the exercisability of the Rights, as well as any other applicable law, rule or regulation. Notwithstanding anything to the
contrary in this Plan, the Rights will not be exercisable in any jurisdiction unless the requisite qualification in such jurisdiction
has been obtained (and the exercise thereof is permitted pursuant to applicable law), or an exemption therefrom is available, and
until a registration statement in respect thereof has been declared and remains effective.
B- 15
(d)
Valid Issuance. The Company covenants and agrees that it will take all such action as may be
necessary to ensure that all Preferred Shares (and, following the occurrence of a Triggering Event, Common Shares or other
securities of the Company) delivered upon exercise of Rights will, at the time of delivery of the certificates for such securities
(or registration on the transfer books of the Company or the transfer agent for such securities) (subject to payment of the
Exercise Price, if any), be duly and validly authorized and issued and fully paid and nonassessable.
(e)
Transfer Taxes and Governmental Charges. The Company further covenants and agrees that it will
pay when due and payable any and all transfer taxes and governmental charges that may be payable in respect of the original
issuance or delivery of Rights Certificates (or any Preferred Share, Common Share or other security of the Company, as the
case may be) upon the exercise or exchange of Rights. Notwithstanding the foregoing, the Company is not required to (i) pay
any transfer tax or governmental charge that may be payable in respect of any transfer or delivery of Rights Certificates (or
certificates or depositary receipts for Preferred Shares, Common Shares or other securities of the Company, as the case may be)
in a name other than, or the issuance or delivery of certificates or depositary receipts for Preferred Shares, Common Shares or
other securities of the Company, as the case may be, in a name other than, that of the registered holder of the Rights Certificate
evidencing Rights surrendered for exercise or exchange; or (ii) issue or deliver any certificates or depositary receipts for
Preferred Shares, Common Shares or other securities of the Company, as the case may be, upon the exercise or exchange of any
Rights until any such transfer tax or charge has been paid (any such transfer tax or charge being payable by the registered
holder of such Rights Certificate at the time of surrender or exchange) or it has been established to the Company’s and the
Rights Agent’s satisfaction that no such tax or charge is due. The foregoing also apply to any transfer taxes and governmental
charges that may be payable in respect of any uncertificated Rights Certificates, shares or other securities.
Section 10.
Record Date for Securities Issued. Each Person in whose name any certificate for a number of one
one-thousandths of a Preferred Share (or any other security of the Company, including Common Shares) is issued (or
registration on the transfer books of the Company or the applicable transfer agent is effected) upon the exercise or exchange of
Rights will for all purposes be deemed to have become the holder of record of such fractional Preferred Share (or other security
of the Company) represented thereby on, and such certificate will be dated (or registration on the transfer books of the
Company or the applicable transfer agent effected), the date on which the Rights Certificate evidencing such Rights was duly
surrendered and payment of the applicable Exercise Price, if any, together with any applicable transfer tax or governmental
charge required to be paid by the holder of such Rights Certificate in accordance with Section 9(e), was made; provided,
however, that if the date of such surrender and payment is a date upon which the transfer books of the Company (or the
applicable transfer agent) are closed, then such Person will be deemed to have become the record holder of such fractional
Preferred Shares (or other securities of the Company) on, and such certificate will be dated (or registration on the transfer books
of the Company or the applicable transfer agent effected), the next succeeding Business Day on which the transfer books of the
Company (or the applicable transfer agent) are open. Prior to the exercise of the Rights evidenced thereby, the holder of a
Rights Certificate is not entitled to any rights of a holder of Preferred Shares (or any other security of the Company) for which
the Rights are exercisable, including the right to vote, to receive dividends or other distributions, or to exercise any preemptive
rights, and is not entitled to receive any notice of any proceedings of the Company, except as provided herein.
Section 11.
Adjustment of Exercise Price, Number and Kind of Shares or Number of Rights. The Exercise Price,
the number and kind of shares or other property covered by each Right and the number of Rights outstanding are subject to
adjustment from time to time as provided in this Section 11.
(a)
Certain Events.
(i)
Certain Adjustments to Preferred Shares. Notwithstanding anything to the contrary in this
Plan, in the event that the Company at any time after the Rights Dividend Declaration Date (A) declares a dividend on the
Preferred Shares payable in Preferred Shares, (B) subdivides or splits the outstanding Preferred Shares, (C) combines or
consolidates the outstanding Preferred Shares (by reverse stock split or otherwise) into a smaller number of Preferred Shares or
(D) issues any shares of its capital stock in a reclassification of the Preferred Shares (including any such reclassification in
connection with a share exchange, consolidation or merger in which the Company is the continuing or surviving corporation),
then, in each such event, except as otherwise provided in this Section 11(a)(i) and Section 7(e), (1) the Exercise Price in effect
at the time of the record date for such dividend or of the effective date of such subdivision, split, combination, consolidation or
reclassification, and the number and kind of Preferred Shares or capital stock of the Company, as the case may be, issuable on
such date, will be proportionately adjusted so that the holder of any Right exercised after such time will be entitled to receive,
upon payment of the Exercise Price then in effect, the aggregate number and kind of Preferred Shares or securities of the
Company, as the case may be, that, if such Right had been exercised immediately prior to such date (and at a time when the
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Preferred Shares transfer books of the Company were open), such holder would have owned upon such exercise and been
entitled to receive by virtue of such dividend, subdivision, split, combination, consolidation or reclassification; provided,
however, that in no event will the consideration to be paid upon the exercise of one Right be less than the aggregate par value of
the shares of capital stock of the Company issuable upon the exercise of one Right. If an event occurs that would require an
adjustment pursuant to both this Section 11(a)(i) and Section 11(a)(ii), then the adjustment provided for in this Section 11(a)(i)
will be in addition to, and will be made prior to, any adjustment required pursuant to Section 11(a)(ii).
(ii)
Exercise of Rights Following Certain Events. Subject to Section 23 and Section 24, in the
event that any Person, at any time after the Rights Dividend Declaration Date, becomes an Acquiring Person, unless the event
causing such Person to become an Acquiring Person is a transaction set forth in Section 13(a) then promptly following the
occurrence of such event each holder of a Right, except as provided below and in Section 7(e), will thereafter have the right to
receive for each Right, upon exercise thereof in accordance with the terms of this Plan and payment of the Exercise Price in
effect immediately prior to the occurrence of such event, in lieu of a number of one one-thousandths of a Preferred Share, such
number of Common Shares as equals the quotient obtained by dividing (A) the product obtained by multiplying (1) the Exercise
Price in effect immediately prior to the first occurrence of such event by (2) the number of one one-thousandths of a Preferred
Share for which a Right was exercisable (or would have been exercisable if the Distribution Date had occurred) immediately
prior to the first occurrence of such event by (B) 50% of the Current Per Share Market Price for Common Shares on the date of
such first occurrence of such event (such number of shares, the “Adjustment Shares”); provided, however, that the Exercise
Price and the number of Common Shares so receivable upon the exercise of a Right will be subject to further adjustment as
appropriate in accordance with Section 11(e). In the event that a Section 11(a)(ii) Event has occurred and the Rights are
outstanding, then, subject to Section 28, the Company may not take any action that would eliminate or diminish the benefits
intended to be afforded by the Rights. The Company will promptly notify the Rights Agent in writing when this Section 11(a)
(ii) applies.
(iii)
Insufficient Common Shares. In the event that the number of Common Shares that are
authorized by the Company’s Amended and Restated Certificate of Incorporation, as amended, but not outstanding or reserved
for issuance for purposes other than upon exercise of the Rights are not sufficient to permit the exercise in full of the Rights in
accordance with Section 11(a)(ii), or if any necessary regulatory or stockholder approval for such issuance has not been
obtained by the Company, then, in the event that the Rights become exercisable, the Company will (A) determine the value of
the Adjustment Shares issuable upon the exercise of a Right (the “Current Value”) and (B) with respect to each Right (subject
to Section 7(e)), make adequate provision to substitute for the Adjustment Shares issuable pursuant thereto, upon the exercise of
a Right and the payment of the applicable Exercise Price, (1) cash, (2) a reduction in the Exercise Price, (3) Preferred Shares,
(4) other equity securities of the Company (including shares or units of shares of any series of preferred stock that, by virtue of
having dividend, voting and liquidation rights substantially comparable to those of the Common Shares, the Board has deemed
in good faith to have substantially the same value or economic rights as the Common Shares (such shares or units of shares of
preferred stock, “Common Share Equivalents”)), (5) debt securities of the Company, (6) other assets or (7) any combination
of the foregoing, in each case having an aggregate value equal to the Current Value (less the amount of any reduction in the
Exercise Price), where such aggregate value has been determined by the Board based upon the advice of a nationally
recognized investment banking firm selected by the Board, which determination will be described in a written statement filed
with the Rights Agent and will be binding on the Rights Agent and the holders of the Rights; provided, however, that if the
Company has not made adequate provision to deliver value pursuant to clause (B) above within 30 days following the later of
(x) the first occurrence of a Section 11(a)(ii) Event and (y) the date on which the Company’s right of redemption pursuant to
Section 23(a) expires (the later of (x) or (y), the “Section 11(a)(ii) Trigger Date”), then the Company will be obligated to
deliver, upon the surrender for exercise of a Right and without requiring payment of the Exercise Price, Common Shares (to the
extent available and except to the extent that the Company has not obtained any necessary stockholder or regulatory approval
for such issuance) and such number or fractions of Preferred Shares and then, if necessary, cash, which shares or cash have an
aggregate value equal to the Spread. If the Board determines in good faith that it is likely that sufficient additional Common
Shares could be authorized for issuance upon exercise in full of the Rights or that any necessary stockholder or regulatory
approval for such issuance could be obtained, the 30 day period set forth above may be extended and re-extended to the extent
necessary (with prompt written notice of any such extension provided to the Rights Agent) from time to time, but not more than
120 days after the Section 11(a)(ii) Trigger Date, so that the Company may seek stockholder approval for the authorization of
such additional Common Shares or take such action necessary to obtain such regulatory approval (such period, as it may be
extended, the “Substitution Period”). To the extent that the Company determines that some action need be taken pursuant to
the first or second sentences of this Section 11(a)(iii), the Company (a) will provide, subject to Section 7(e), that such action
applies uniformly to all outstanding Rights and (b) may suspend the exercisability of the Rights until the expiration of the
Substitution Period in order to seek such stockholder approval, to take any action necessary to obtain such regulatory approval
or to decide the appropriate form of distribution to be made pursuant to such first sentence and to determine the value thereof.
In the event of any such suspension, the Company will issue a public announcement (and promptly provide written notice to the
Rights Agent) stating that the exercisability of the Rights has been temporarily suspended, as well as issue a public
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announcement (and promptly provide written notice to the Rights Agent) at such time as the suspension is no longer in effect.
For purposes of this Section 11(a)(iii), the value of the Common Shares will be the Current Per Share Market Price of the
Common Shares on the Section 11(a)(ii) Trigger Date and any Common Share Equivalent will be deemed to have the same
value as the value of the Common Shares on such date. The Board may, but will not be required to, establish procedures to
allocate the right to receive Common Shares upon the exercise of the Rights among holders of Rights pursuant to this
Section 11(a)(iii).
(iv)
Dilutive Rights Offering. If the Company, at any time after the Rights Dividend Declaration
Date, fixes a record date for the issuance of rights, options or warrants to all holders of Preferred Shares entitling such holders
(for a period expiring within 45 days after such record date) to subscribe for or purchase Preferred Shares or Equivalent Shares,
or securities convertible into Preferred Shares or Equivalent Shares, at a price per share (or having a conversion or exercise
price per share, if a security that is convertible into or exercisable for Preferred Shares or Equivalent Shares) less than the
Current Per Share Market Price of the Preferred Shares on such record date, then, in each such case, the Exercise Price to be in
effect after such record date will be determined by multiplying the Exercise Price in effect immediately prior to such record
date by a fraction, the numerator of which will be the number of Preferred Shares and Equivalent Shares (if any) outstanding on
such record date, plus the number of Preferred Shares or Equivalent Shares, as the case may be, that the aggregate offering price
of the total number of Preferred Shares or Equivalent Shares, as the case may be, to be offered or issued (or the aggregate initial
conversion price of the convertible securities to be offered or issued) would purchase at such Current Per Share Market Price,
and the denominator of which will be the number of Preferred Shares and Equivalent Shares (if any) outstanding on such record
date, plus the number of additional Preferred Shares or Equivalent Shares, as the case may be, to be offered for subscription or
purchase (or into which the convertible securities so to be offered are initially convertible); provided, however, that in no event
will the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital
stock of the Company issuable upon the exercise of one Right. If such subscription price may be paid in a consideration part or
all of which is in a form other than cash, then the value of such consideration will be as determined in good faith by the Board,
whose determination will be described in a written statement filed with the Rights Agent and will be binding on the Rights
Agent and the holders of the Rights. Preferred Shares and Equivalent Shares owned by or held for the account of the Company
will not be deemed outstanding for the purpose of any such computation. Such adjustment will be made successively whenever
such a record date is fixed, and in the event that such rights, options or warrants are not so issued, then the Exercise Price will
be adjusted to be the Exercise Price that would then be in effect if such record date had not been fixed.
(b)
Distributions. If the Company, at any time after the Rights Dividend Declaration Date, fixes a record
date for the making of a distribution to all holders of Preferred Shares (including any such distribution made in connection with
a share exchange, consolidation or merger in which the Company is the continuing or surviving corporation) of cash (other than
a periodic cash dividend out of the earnings or retained earnings of the Company), assets (other than a dividend payable in
Preferred Shares, but including any dividend payable in stock other than Preferred Shares), evidences of indebtedness,
subscription rights, options or warrants (excluding those referred to in Section 11(a)(iv)), then, in each such case, the Exercise
Price to be in effect after such record date will be determined by multiplying the Exercise Price in effect immediately prior to
such record date by a fraction, the numerator of which will be the Current Per Share Market Price of a Preferred Share on such
record date, less the fair market value per Preferred Share (as determined in good faith by the Board, whose determination will
be described in a statement filed with the Rights Agent and will be conclusive and binding on the Rights Agent and the holders
of the Rights) of the portion of the cash, assets or evidences of indebtedness to be so distributed or of such subscription rights,
options or warrants applicable to one Preferred Share, and the denominator of which will be such Current Per Share Market
Price of a Preferred Share on such record date; provided, however, that in no event will the consideration to be paid upon the
exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon the
exercise of one Right. Such adjustment will be made successively whenever such a record date is fixed, and in the event that
such distribution is not so made, then the Exercise Price will be adjusted to be the Exercise Price that would have been in effect
if such record date had not been fixed.
(c)
Insignificant Changes. Notwithstanding anything to the contrary in this Plan, no adjustment in the
Exercise Price is required unless such adjustment would require an increase or decrease of at least 1% of the Exercise Price;
provided, however, that any adjustments that by reason of this Section 11(c) are not required to be made will be carried forward
and taken into account in any subsequent adjustment. All calculations pursuant to this Section 11 must be made to the nearest
cent or to the nearest ten-millionth of a Preferred Share or ten-thousandth of any other share or security, as the case may be.
Notwithstanding the first sentence of this Section 11(c), any adjustment required by this Section 11 must be made no later than
the earlier of (i) three years from the date of the transaction that requires such adjustment or (ii) the Expiration Date.
(d)
Shares Other Than Preferred Shares. If as a result of an adjustment made pursuant to Section 11(a)
or Section 13(a), the holder of any Right thereafter exercised will become entitled to receive any shares of capital stock other
than Preferred Shares, then thereafter the number of such other shares so receivable upon exercise of any Right and, if required,
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the Exercise Price thereof, will be subject to adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Preferred Shares contained in Section 11(a), Section 11(a)(iv), Section 11(b),
Section 11(c), Section 11(f), Section 11(g), Section 11(h), Section 11(i), Section 11(j) and Section 11(k), and the provisions of
Section 7, Section 9, Section 10 and Section 13 with respect to the Preferred Shares will apply on like terms to any such other
shares.
(e)
Rights Issued Subsequent to Adjustment. All Rights originally issued by the Company subsequent to
any adjustment made to the Exercise Price hereunder will evidence the right to purchase, at the adjusted Exercise Price, the
number of one one-thousandths of a Preferred Share (and other shares of other capital stock or other securities, assets or cash of
the Company, if any) purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as
provided herein.
(f)
Effect of Adjustments on Existing Rights. Unless the Company has exercised its election as provided
in Section 11(g), upon each adjustment of the Exercise Price as a result of the calculations made in Section 11(a)(iv) and
Section 11(b), each Right outstanding immediately prior to the making of such adjustment will thereafter evidence the right to
purchase, at the adjusted Exercise Price, that number of Preferred Shares (calculated to the nearest ten-millionth of a Preferred
Share) obtained by (i) multiplying (A) the number of one one-thousandths of a Preferred Share covered by a Right immediately
prior to this adjustment by (B) the Exercise Price in effect immediately prior to such adjustment of the Exercise Price; and
(ii) dividing the product so obtained by the Exercise Price in effect immediately after such adjustment of the Exercise Price.
(g)
Adjustment in Number of Rights. The Company may elect on or after the date of any adjustment of
the Exercise Price to adjust the number of Rights, in substitution for any adjustment in the number of one one-thousandths of a
Preferred Share purchasable upon the exercise of a Right. Each of the Rights outstanding after such adjustment of the number
of Rights will be exercisable for the number of one one-thousandths of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights will become
that number of Rights (calculated to the nearest ten-thousandth) obtained by dividing the Exercise Price in effect immediately
prior to adjustment of the Exercise Price by the Exercise Price in effect immediately after adjustment of the Exercise Price. The
Company will make a public announcement (and promptly provide written notice to the Rights Agent) of its election to adjust
the number of Rights, indicating the record date for the adjustment and, if known at the time, the amount of the adjustment to
be made. This record date may be the date on which the Exercise Price is adjusted or any day thereafter, but, if any Rights
Certificates have been issued, will be at least 10 days later than the date of the public announcement. If any Rights Certificates
have been issued, upon each adjustment of the number of Rights pursuant to this Section 11(g), the Company will, as promptly
as practicable, distribute or cause to be distributed to holders of record of Rights Certificates on such record date Rights
Certificates evidencing, subject to Section 14, the additional Rights to which such holders will be entitled as a result of such
adjustment, or, at the option of the Company, will distribute or cause to be distributed to such holders of record in substitution
and replacement for the Rights Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if
required by the Company, new Rights Certificates evidencing all the Rights to which such holders will be entitled after such
adjustment. Rights Certificates to be so distributed will be issued, executed and delivered by the Company, and countersigned
and delivered by the Rights Agent, in the manner provided for herein (and may bear, at the option of the Company, the adjusted
Exercise Price), and will be registered in the names of the holders of record of Rights Certificates on the record date specified in
the public announcement.
(h)
Rights Certificates Unchanged. Irrespective of any adjustment or change in the Exercise Price or the
number of one one-thousandths of a Preferred Share issuable upon the exercise of the Rights, the Rights Certificates theretofore
and thereafter issued may continue to express the Exercise Price per one one-thousandth of a Preferred Share and the number of
one one-thousandths of a Preferred Share that were expressed in the initial Rights Certificates issued hereunder.
(i)
Par Value Limitations. Before taking any action that would cause an adjustment reducing the
Exercise Price below the par or stated value, if any, of the number of one one-thousandths of a Preferred Share issuable upon
exercise of the Rights, the Company will take any corporate action that may, in the opinion of its counsel, be necessary in order
that the Company may duly and validly issue as fully paid and nonassessable shares such number of one one-thousandths of a
Preferred Share at such adjusted Exercise Price.
(j)
Deferred Issuance. In any case in which this Section 11 requires that an adjustment in the Exercise
Price be made effective as of a record date for a specified event, the Company may elect to defer (with prompt written notice to
the Rights Agent) until the occurrence of such event the issuance to the holder of any Right exercised after such record date of
the number of one one-thousandths of a Preferred Share and other capital stock or securities, assets or cash of the Company, if
any, issuable upon such exercise over and above the number of one one-thousandths of a Preferred Share and other capital stock
or securities, assets or cash of the Company, if any, issuable upon such exercise on the basis of the Exercise Price in effect prior
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to such adjustment; provided, however, that the Company must deliver to such holder a due bill or other appropriate instrument
evidencing such holder’s right to receive such additional shares (fractional or otherwise) or securities upon the occurrence of
the event requiring such adjustment.
(k)
Reduction in Exercise Price. Notwithstanding anything to the contrary in this Section 11, the
Company is entitled to make such reductions in the Exercise Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that it, in its sole discretion, determines to be advisable in order that any (i) consolidation or
subdivision of the Preferred Shares or Common Shares, (ii) issuance wholly for cash of any Preferred Shares or Common
Shares at less than the applicable Current Per Share Market Price, (iii) issuance wholly for cash of Preferred Shares or Common
Shares or securities that by their terms are convertible into or exchangeable for Preferred Shares or Common Shares, (iv) stock
dividend or (v) issuance of rights, options or warrants referred to in this Section 11 hereafter made by the Company to holders
of Preferred Shares or Common Shares is not taxable to such stockholders.
(l)
No Diminishment of Benefit of Rights. The Company covenants and agrees that, after the
Distribution Date, it will not, except as permitted by Section 23, Section 24 or Section 28, take (or permit to be taken) any
action if at the time that such action is taken it is reasonably foreseeable that such action will diminish substantially or
otherwise eliminate the benefits intended to be afforded by the Rights.
(m)
Certain Adjustments to Common Shares. Notwithstanding anything to the contrary in this Plan, in the
event that the Company, at any time after the Rights Dividend Declaration Date and prior to the Distribution Date, (i) declares
or pays a dividend on the Common Shares payable in Common Shares, (ii) subdivides or splits the outstanding Common Shares
(other than by the payment of dividends payable in Common Shares), (iii) combines or consolidates the outstanding Common
Shares (by reverse stock split or otherwise) into a lesser number of Common Shares or (iv) issues any shares of its capital stock
in a reclassification of the Common Shares (including any such reclassification in connection with a share exchange,
consolidation or merger in which the Company is the continuing or surviving corporation), then, in each such event, except as
otherwise provided in this Section 11 or Section 7(e): (A) each Common Share (or shares of capital stock issued in such
reclassification of the Common Shares) outstanding immediately following such time will have associated with it the number of
Rights as were associated with one Common Share immediately prior to the occurrence of such event; (B) the Exercise Price in
effect at the time of the record date for such dividend or of the effective date of such subdivision, split, combination,
consolidation or reclassification will be adjusted so that the Exercise Price thereafter equals the result obtained by multiplying
the Exercise Price in effect immediately prior to such time by a fraction, the numerator of which will be the total number of
Common Shares outstanding immediately prior to such event and the denominator of which will be the total number of
Common Shares outstanding immediately after such event; provided, however, that in no event will the consideration to be paid
upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon
the exercise of such Right; and (C) the number of one one-thousandths of a Preferred Share (or shares of such other capital
stock) issuable upon the exercise of each Right outstanding after such event equals the number of one one-thousandths of a
Preferred Share (or shares of such other capital stock) as were issuable with respect to one Right immediately prior to such
event. Each Common Share that becomes outstanding after an adjustment has been made pursuant to this Section 11(m) will
have issued with it that number of Rights, exercisable at the Exercise Price and for the number of one one-thousandths of a
Preferred Share (or shares of such other capital stock), as one Common Share has associated with it immediately following the
adjustment made pursuant to this Section 11(m). If an event occurs that would require an adjustment pursuant to both this
Section 11(m) and Section 11(a)(ii), then the adjustment provided for in this Section 11(m) will be in addition to, and will be
made prior to, any adjustment required pursuant to Section 11(a)(ii). The adjustments provided for in this Section 11(m) will be
made successively whenever such a dividend is declared or paid or such a subdivision, split, combination, consolidation or
reclassification is effected.
(n)
Adjustment of Rights Associated with Certain Distributions. Other than in connection with a
transaction contemplated by Section 11(m), in the event that the Company, at any time after the Rights Dividend Declaration
Date and prior to the Distribution Date, issues or distributes any securities or assets in respect of Common Shares (other than
(A) a distribution or dividend of its capital stock and (B) pursuant to any non-extraordinary periodic cash dividend), then the
Company will make such adjustments, if any, in the Exercise Price or the number of Rights or securities or other property
purchasable upon exercise of Rights as the Board, in its sole discretion, may deem to be appropriate under the circumstances in
order to adequately protect the interests of the holders of the Rights generally, and the Company and the Rights Agent will
amend this Plan as reasonably necessary to provide for such adjustments.
Section 12.
Certificate of Adjusted Exercise Price or Number of Shares. Whenever an adjustment is made, or any
event affecting the Rights or their exercisability (including an event that causes the Rights to become null and void) occurs as
provided in Section 11 or Section 13, the Company must promptly (a) prepare a certificate setting forth such adjustment or
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describing such event and providing a reasonably detailed statement of the facts, computations and methodology accounting for
such adjustment or event; (b) provide the Rights Agent and each transfer agent for the Common Shares or Preferred Shares a
copy of such certificate; and (c) if a Distribution Date has occurred, mail a brief summary of such adjustment or event to each
holder of a Rights Certificate in accordance with Section 26. Notwithstanding the foregoing, the failure of the Company to
make or provide such certification or notice will not affect the validity of such adjustment or the force or effect of the
requirement for such adjustment. The Rights Agent will (i) be fully protected in relying on any such certificate and on any
adjustment or statement contained therein; (ii) have no duty or liability with respect thereto; and (iii) not be deemed to have
knowledge of any such adjustment or event unless and until it has received such certificate.
Section 13.
Consolidation, Merger or Sale or Transfer of Assets, Cash Flow or Earning Power.
(a)
Certain Transactions. In the event that, following a Shares Acquisition Date, directly or indirectly,
(i) the Company consolidates with, or merges with and into, any other Person (other than a wholly owned Subsidiary of the
Company in a transaction that complies with Section 11(l)) and the Company is not the continuing or surviving entity of such
consolidation or merger; (ii) any Person (other than a wholly owned Subsidiary of the Company in a transaction that complies
with Section 11(l)) consolidates with, or merges with and into, the Company, and the Company is the continuing or surviving
entity of such consolidation or merger and, in connection with such consolidation or merger, all or part of the Common Shares
are changed into or exchanged for stock or other securities of any other Person or the Company, or cash or any other property;
or (iii) the Company sells, exchanges, mortgages or otherwise transfers (or one or more of its Subsidiaries sells, exchanges,
mortgages or otherwise transfers), in one transaction or a series of related transactions, assets, cash flow or earning power
aggregating to 50% or more of the assets, cash flow or earning power of the Company and its Subsidiaries (taken as a whole) to
any other Person or Persons (other than the Company or one or more of its wholly owned Subsidiaries in one or more
transactions, each of which individually (and together) complies with Section 11(l)), then, concurrent with and in each such
case, proper provision must be made so that (A) each holder of a Right (except as provided in Section 7(e)) thereafter has the
right to receive, upon the exercise thereof at a price per Right equal to the Exercise Price multiplied by the number of one one-
thousandths of a Preferred Share for which a Right was exercisable immediately prior to the occurrence of such Section 13
Event in accordance with the terms of this Plan, and in lieu of Preferred Shares, such number of duly and validly authorized and
issued and fully paid and nonassessable and freely tradable Common Shares of the Principal Party, free of any liens,
encumbrances, rights of first refusal or other adverse claims, as will be equal to the result obtained by (1) multiplying the then
current Exercise Price by the number of one one-thousandths of a Preferred Share for which a Right is exercisable immediately
prior to the first occurrence of a Section 13 Event (or, if a Section 11(a)(ii) Event has occurred prior to the first occurrence of a
Section 13 Event, multiplying the number of such one one-thousandths of a Preferred Share for which a Right was exercisable
immediately prior to the first occurrence of a Section 11(a)(ii) Event by the Exercise Price in effect immediately prior to such
first occurrence of a Section 11(a)(ii) Event); and (2) dividing that product (which, following the first occurrence of a
Section 13 Event, will be referred to as the “Exercise Price” for each Right and for all purposes of this Plan) by 50% of the
Current Per Share Market Price of the Common Shares of such Principal Party on the date of consummation of such Section 13
Event; provided, however, that the price per Right so payable and the number of Common Shares of such Principal Party so
receivable upon exercise of a Right will be subject to further adjustment as appropriate in accordance with Section 11(d) to
reflect any events covered thereby occurring in respect of the Common Shares of such Principal Party after the occurrence of
such Section 13 Event; (B) such Principal Party will thereafter be liable for, and must assume, by virtue of such Section 13
Event, all the obligations and duties of the Company pursuant to this Plan; (C) the term “Company” will thereafter be deemed
to refer to such Principal Party, it being specifically intended that the provisions of Section 11 will apply only to such Principal
Party following the first occurrence of a Section 13 Event; (D) such Principal Party must take such steps (including the
reservation of a sufficient number of its Common Shares) in connection with the consummation of any such transaction as may
be necessary to ensure that the provisions hereof will thereafter be applicable, as nearly as reasonably may be, in relation to its
Common Shares thereafter deliverable upon the exercise of the Rights; (E) the provisions of Section 11(a)(ii) will be of no
effect following the first occurrence of any Section 13 Event; and (F) upon the subsequent occurrence of any consolidation,
merger, sale, exchange, mortgage, transfer or other extraordinary transaction in respect of such Principal Party, each holder of a
Right will thereupon be entitled to receive, upon exercise of a Right and payment of the Exercise Price as provided in this
Section 13(a), such cash, shares, rights, warrants and other property that such holder would have been entitled to receive had
such holder, at the time of such transaction, owned the Common Shares of the Principal Party receivable upon the exercise of a
Right pursuant to this Section 13(a), and such Principal Party must take such steps (including reservation of a sufficient number
of shares of its capital stock) as may be necessary to permit the subsequent exercise of the Rights in accordance with the terms
hereof for such cash, shares, rights, warrants and other property. For purposes hereof, the “earning power” of the Company and
its Subsidiaries will be determined in good faith by the Board on the basis of the operating income of each business operated by
the Company and its Subsidiaries during the three fiscal years preceding the date of such determination (or, in the case of any
B- 21
business not operated by the Company or any of its Subsidiaries during the three fiscal years preceding such date, during the
period that such business was operated by the Company or any of its Subsidiaries).
(b)
Principal Party. For purposes of this Plan, the term “Principal Party” means (i) in the case of any
transaction described in clause (i) or (ii) of Section 13(a) (A) the Person that is the issuer of the securities into which the
Common Shares are converted in the consolidation or merger, or, if there is more than one such issuer, the issuer whose
Common Shares have the greatest aggregate market value of shares outstanding; or (B) if no securities are so issued, (1) the
Person that is the other party to the consolidation or merger, if such Person survives the consolidation or merger, or, if there is
more than one such Person, the Person whose Common Shares have the greatest aggregate market value of shares outstanding;
(2) if the Person that is the other party to the merger does not survive such consolidation or merger, the Person that does survive
such consolidation or merger (including the Company if it survives); or (3) the Person resulting from the consolidation or
merger; and (ii) in the case of any transaction described in clause (iii) of Section 13(a), the Person that is the party receiving the
greatest portion of the assets, cash flow or earning power transferred pursuant to such transaction or transactions, or, if more
than one Person that is a party to such transaction or transactions receives the same portion of the assets or earning power so
transferred and each such portion would, were it not for the other equal portions, constitute the greatest portion of the assets or
earning power so transferred, or if the Person receiving the greatest portion of the assets or earning power cannot be
determined, whichever of such Persons is the issuer of Common Shares having the greatest aggregate market value of shares
outstanding; provided, however, that in the case of each of clause (i) and (ii) of this Section 13(b), if the Common Shares of
such Person are not at such time, or have not been continuously over the preceding 12-month period, registered pursuant to
Section 12 of the Exchange Act, then if such Person is (x) a direct or indirect Subsidiary of another Person whose Common
Shares are and have been so registered, the term “Principal Party” will refer to such other Person, (y) a direct or indirect
Subsidiary of more than one Person whose Common Shares are and have been so registered, the term “Principal Party” will
refer to whichever of such Persons is the issuer of Common Shares having the greatest aggregate market value of shares
outstanding, or (z) if such Person is owned, directly or indirectly, by a joint venture formed by two or more Persons that are not
owned, directly or indirectly, by the same Person, the rules set forth in clauses (x) and (y) above will apply to each of the
owners having an interest in the venture as if the Person owned by the joint venture was a Subsidiary of both or all of such joint
venturers, and the Principal Party in each such case must bear the obligations set forth in this Section 13 in the same ratio as its
interest in such Person bears to the total of such interests.
(c)
Certain Arrangements. The Company will not consummate or permit to occur any Section 13 Event
unless (A) the Principal Party has a sufficient number of authorized, unissued and unreserved Common Shares to permit the
exercise in full of the Rights in accordance with this Section 13 and (B) prior thereto the Company and the Principal Party have
executed and delivered to the Rights Agent a supplemental agreement confirming that (1) the requirements of this Section 13
will be promptly performed in accordance with their terms, (2) the Principal Party will, upon consummation of such Section 13
Event, assume this Plan in accordance with Section 13(a) and Section 13(b), (3) such Section 13 Event will not result in a
default by the Principal Party pursuant to this Plan (as it has been assumed by the Principal Party) and (4) the Principal Party, as
soon as practicable after the date of such Section 13 Event and at its own expense, will:
(i)
prepare and file a registration statement pursuant to the Securities Act with respect to the
Rights and the securities purchasable upon exercise of the Rights on an appropriate form, and use its best efforts to cause such
registration statement to (x) become effective as soon as practicable after such filing and (y) remain effective (with a prospectus
at all times meeting the requirements of the Securities Act) until the Expiration Date, and similarly comply with applicable state
securities laws;
(ii)
use its best efforts to list (or continue the listing of) the Rights and the securities
purchasable upon exercise of the Rights on a national securities exchange or to meet the eligibility requirements for quotation
on a national securities exchange and to list (and continue the listing of) the Rights and the securities purchasable upon exercise
of the Rights on a national securities exchange;
(iii)
deliver to holders of the Rights historical financial statements for the Principal Party and its
Affiliates that comply in all respects with the requirements for registration on Form 10 (or any successor form) promulgated
under the Exchange Act; and
(iv)
take all other action as may be necessary to allow the Principal Party to issue the securities
purchasable upon exercise of the Rights.
(d)
Prohibited Transactions.
B- 22
(i)
Notwithstanding anything to the contrary in this Plan, if the Principal Party has a provision
in any of its authorized securities or in its organizational documents that would have the effect of (i) causing the Principal Party
to issue (other than to holders of Rights pursuant to Section 13), in connection with, or as a consequence of, the consummation
of a Section 13 Event, Common Shares or common stock equivalents of the Principal Party at less than the then Current Per
Share Market Price thereof or securities exercisable for, or convertible into, Common Shares or common stock equivalents of
the Principal Party at less than such Current Per Share Market Price; or (ii) providing for any special payment, tax, charge or
similar provision in connection with the issuance of the Common Shares of the Principal Party pursuant to the provisions of this
Section 13, then the Company hereby agrees with each holder of Rights that it will not consummate any such Section 13 Event
unless prior thereto the Company and such Principal Party have executed and delivered to the Rights Agent a supplemental
agreement providing that such provision has been cancelled, waived, amended or rescinded, or that such authorized securities
will be redeemed, so that such provision will have no effect in connection with, or as a consequence of, the consummation of
such Section 13 Event.
(ii)
Notwithstanding anything to the contrary in this Plan, the Company hereby agrees with
each holder of Rights that it will not consummate or permit to occur any Section 13 Event if (A) at the time or immediately
after such Section 13 Event there are any rights, warrants, instruments or securities outstanding, or any agreements or
arrangements, that, as a result of the consummation of such Section 13 Event, would eliminate or diminish in any material
respect the benefits intended to be afforded by the Rights; (B) all rights of first refusal or preemptive rights in respect of the
issuance of Common Shares or common stock equivalents of the Principal Party upon exercise of outstanding Rights have not
been irrevocably waived or rendered inapplicable; (C) prior to, simultaneously with or immediately after such Section 13 Event,
the stockholders of the Person who constitutes, or would constitute, the Principal Party have received a distribution of Rights
previously owned by such Person or any of its Affiliates or Associates; or (D) the form or nature of organization of the Principal
Party would preclude or limit the exercisability of the Rights.
(e)
Continued Applicability. The provisions of this Section 13 will similarly apply to successive
mergers, consolidations, sales, exchanges, mortgages, transfers or other extraordinary transactions. In the event that a
Section 13 Event occurs at any time after the occurrence of a Section 11(a)(ii) Event, then the Rights that have not previously
been exercised will thereafter become exercisable in the manner described in Section 13(a) (without taking into account any
prior adjustment required by Section 11(a)(ii)).
Section 14.
Fractional Rights and Fractional Shares.
(a)
Cash in Lieu of Fractional Rights. The Company will not be required to issue fractions of Rights
(except prior to the Distribution Date as provided in Section 11(m)) or to distribute Rights Certificates that evidence fractional
Rights. In lieu of such fractional Rights, the Company will pay to the registered holders of the Rights Certificates with regard to
which such fractional Rights would otherwise be issuable an amount in cash equal to the same fraction of the Current Per Share
Market Price of a whole Right, calculated as of the Trading Day immediately prior to the date on which such fractional Rights
would have been otherwise issuable.
(b)
Cash in Lieu of Fractional Preferred Shares. The Company will not be required to issue fractions of
Preferred Shares (other than fractions that are integral multiples of one one-thousandth of a Preferred Share) upon exercise or
exchange of the Rights or to distribute certificates that evidence fractional Preferred Shares (other than fractions that are
integral multiples of one one-thousandth of a Preferred Share). Interests in fractions of Preferred Shares in integral multiples of
one one-thousandth of a Preferred Share may, at the election of the Company, be evidenced by depositary receipts pursuant to
an appropriate agreement between the Company and a depositary selected by the Company; provided, however, that such
agreement must provide that the holders of such depositary receipts have all of the rights, privileges and preferences to which
they are entitled as Beneficial Owners of the Preferred Shares represented by such depositary receipts. In lieu of fractional
Preferred Shares that are not integral multiples of one one-thousandth of a Preferred Share, the Company may pay to the
registered holders of Rights Certificates at the time that such Rights are exercised or exchanged as provided herein an amount
in cash equal to the same fraction of the current market value of one one-thousandth of a Preferred Share. For purposes of this
Section 14(b), the current market value of one one-thousandth of a Preferred Share will be one one-thousandth of the Current
Per Share Market Price of a Preferred Share, calculated as of the Trading Day immediately prior to the date of such exercise or
exchange.
(c)
Cash in Lieu of Fractional Common Shares. The Company is not required to issue fractions of
Common Shares or to distribute certificates that evidence fractional Common Shares upon the exercise or exchange of Rights.
In lieu of such fractional Common Shares, the Company may pay to the registered holders of Rights Certificates at the time
B- 23
such Rights are exercised or exchanged as provided herein an amount in cash equal to the same fraction of the current market
value of a Common Share. For purposes of this Section 14(c), the current market value of a Common Share will be the Current
Per Share Market Price of a Common Share, calculated as of the Trading Day immediately prior to the date of such exercise or
exchange.
(d)
Waiver of Fractional Rights. Except as permitted by this Section 14, the holder of a Right, by the
acceptance of such Right, expressly waives such holder’s right to receive any fractional Rights or any fractional shares of any
security upon the exercise or exchange of a Right.
(e)
Procedure for Payment. Whenever a payment for fractional Rights, Preferred Shares or Common
Shares is to be made by the Rights Agent pursuant to this Plan, the Company will (i) promptly prepare and deliver to the Rights
Agent a certificate setting forth in reasonable detail the facts related to such payment and the prices or formulas utilized in
calculating such payments; and (ii) provide sufficient monies to the Rights Agent to make such payments. The Rights Agent
will be fully protected in relying upon such certificate and will have no duty with respect thereto or the contents therein, and
will not be deemed to have knowledge of any payment for fractional Rights, Preferred Shares or Common Shares pursuant to
this Plan unless and until the Rights Agent has received such certificate and sufficient monies.
Section 15.
Rights of Action. All rights of action in respect of this Plan, except those rights of action given to the
Rights Agent pursuant to this Plan, are vested in the respective registered holders of the Rights Certificates (and, prior to the
Distribution Date, the registered holders of Common Shares). Any registered holder of any Rights Certificate (or, prior to the
Distribution Date, any registered holder of Common Shares), without the consent of the Rights Agent or of the holder of any
other Rights Certificate (or, prior to the Distribution Date, any other holder of Common Shares), may, on such holder’s own
behalf and for such holder’s own benefit and the benefit of other holders of Rights, enforce, and may institute and maintain any
suit, action or proceeding against the Company to enforce, this Plan or otherwise act in respect of such holder’s right to exercise
such holder’s Rights evidenced by such Rights Certificate in the manner provided in such Rights Certificate and in this Plan.
Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the
holders of Rights would not have an adequate remedy at law for any breach of this Plan and will be entitled to specific
performance of the obligations of any Person (including the Company) subject to this Plan, and injunctive relief against actual
or threatened breaches or violations of this Plan by the Company, in each case without having to post a bond.
Section 16.
Agreement of Rights Holders. Every holder of a Right, by accepting the same, consents and agrees
with the Company and the Rights Agent and with every other holder of a Right that:
(a)
prior to the Distribution Date, the Rights will not be evidenced by a Rights Certificate and will be
transferable only in connection with the transfer of the Common Shares;
(b)
after the Distribution Date, the Rights Certificates are transferable only on the transfer books of the
Rights Agent if surrendered at the office of the Rights Agent designated for such purpose, duly endorsed or accompanied by a
proper instrument of transfer and with the appropriate forms and certificates fully completed;
(c)
subject to Section 6(a) and Section 7(f), the Company and the Rights Agent may deem and treat the
Person in whose name the Rights Certificate (or, prior to the Distribution Date, the associated certificate for Common Shares or
Book Entry Shares, as applicable) is registered as the absolute owner thereof and of the Rights evidenced thereby
(notwithstanding any notations of ownership or writing on the Rights Certificates or the associated certificate for Common
Shares or Book Entry Shares, as applicable, made by anyone other than the Company or the Rights Agent) for all purposes
whatsoever, and neither the Company nor the Rights Agent (subject to Section 7(e)) will be affected by any notice to the
contrary;
(d)
notwithstanding anything to the contrary in this Plan, neither the Company nor the Rights Agent will
have any liability to any holder of a Right (or a beneficial interest in a Right) or other Person as a result of the inability of the
Company or the Rights Agent to perform any of their respective obligations pursuant to this Plan by reason of any preliminary
or permanent injunction or other order, judgment, decree or ruling (whether interlocutory or final) issued by a court of
competent jurisdiction or by a governmental, regulatory, self-regulatory or administrative agency or commission, or any statute,
rule, regulation or executive order promulgated or enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; provided, however, that the Company will use all reasonable efforts to have any such
injunction, order, judgment, decree or ruling lifted or otherwise overturned as promptly as practicable;
B- 24
(e)
Section 7(e), become null and void; and
Rights that are Beneficially Owned by certain Persons will, under the circumstances set forth in
(f)
this Plan may be supplemented or amended from time to time in accordance with Section 28.
Section 17.
Holder of Rights Certificate Not Deemed to be a Stockholder. No holder, as such, of any Rights
Certificate will be entitled to vote or receive dividends or be deemed for any purpose to be the holder of the number of one one-
thousandths of a Preferred Share or any other securities of the Company that may at any time be issuable on the exercise or
exchange of the Rights represented thereby, nor will anything contained herein or in any Rights Certificate be construed to
confer upon the holder of any Rights Certificate, as such, any of the rights of a stockholder of the Company or any right to vote
for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent
to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as specifically provided
in Section 26), or to receive dividends or subscription rights, or otherwise, until the Rights evidenced by such Rights Certificate
have been exercised or exchanged in accordance with the provisions hereof.
Section 18.
Concerning the Rights Agent.
(a)
Compensation; Reimbursement; Indemnification. The Company agrees to pay to the Rights Agent
reasonable compensation for all services rendered by it hereunder and, from time to time, on demand by the Rights Agent, the
reasonable and documented out-of-pocket expenses and counsel fees and other disbursements incurred by the Rights Agent in
connection with the preparation, negotiation, delivery, execution, amendment and administration of this Plan and the exercise
and performance of its duties hereunder, including any taxes or governmental charges imposed on it as a result of any action
taken by it pursuant to this Plan (other than taxes and governmental charges on the fees payable to it). The Company also agrees
to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability, damage, judgment, fine, penalty, claim,
demand, settlement, cost or expense (including the reasonable and documented expenses and fees of its outside counsel)
incurred without gross negligence, bad faith or willful misconduct on the part of the Rights Agent (which gross negligence, bad
faith or willful misconduct must be determined by a final, non-appealable judgment of a court of competent jurisdiction) for
any action taken, suffered or omitted to be taken by the Rights Agent in connection with the execution, acceptance,
administration, exercise and performance of its duties pursuant to this Plan, including the costs and expenses of defending
against any claim of liability. Notwithstanding anything contained in this Plan to the contrary, the Right Agent’s aggregate
liability during any term of this Plan with respect to, arising from, or arising in connection with this Plan, or from all services
provided or omitted to be provided under this Plan, whether in contract, tort or otherwise, is limited to, and shall not exceed, the
amounts paid by the Company to the Rights Agent as fees and charges, but not including reimbursable expenses, during the 12
months immediately preceding the event for which recovery from the Rights Agent is being sought. In no event will the Rights
Agent be liable for special, punitive, indirect, incidental or consequential loss or damage of any kind whatsoever (including lost
profits), even if the Rights Agent has been advised of the possibility or likelihood of such loss or damage. The provisions of this
Section 18 and Section 20 will survive the termination of this Plan, the exercise, exchange or expiration of the Rights and the
resignation, replacement or removal of the Rights Agent.
(b)
Reliance by the Rights Agent. The Rights Agent is authorized to rely conclusively on, and will be
protected and incur no liability for, or in respect of, any action taken, suffered or omitted to be taken by it in connection with its
acceptance and administration of this Plan, and the exercise and performance of its duties pursuant to this Plan, in reliance upon
any (i) Rights Certificate; (ii) certificate (or registration on the transfer books of the Company, including, in the case of
uncertificated shares, by notation in book entry accounts reflecting ownership) for Preferred Shares, Common Shares or other
securities of the Company issuable upon exercise of Rights; or (iii) instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate, statement or other paper or document reasonably believed
by it, in the absence of gross negligence, bad faith or willful misconduct (which gross negligence, bad faith or willful
misconduct must be determined by a final, non-appealable judgment of a court of competent jurisdiction), to be genuine and to
be duly executed and, where necessary, verified or acknowledged, by the proper Person, or otherwise upon the advice of
counsel as set forth in Section 20. The Rights Agent will not be required to take notice, or be deemed to have any knowledge, of
any fact, event or determination of which it was supposed to receive notice hereunder (including any dates or events defined in
this Plan or the designation of any Person as an Acquiring Person or an Affiliate or Associate of an Acquiring Person), and the
Rights Agent will be fully protected and will incur no liability for failing to take action in connection therewith, unless and until
it has received such notice in writing.
B- 25
Section 19.
Merger, Consolidation or Change of Name of Rights Agent.
(a)
Merger or Consolidation of Rights Agent. Any Person into which the Rights Agent or any successor
Rights Agent may be merged or with which it may effect a share exchange or be consolidated, or any Person resulting from any
merger, share exchange or consolidation to which the Rights Agent or any successor Rights Agent is a party, or any Person
succeeding to the corporate trust, stock transfer or stockholder services business of the Rights Agent or any successor Rights
Agent, will be the successor to the Rights Agent pursuant to this Plan without the execution or filing of any paper or any further
act on the part of any of the parties hereto so long as such Person is eligible for appointment as a successor Rights Agent
pursuant to the provisions of Section 21. The purchase of all or substantially all of the Rights Agent’s assets employed in the
performance of this Plan, or transfer or rights agent services generally, will be deemed to be a merger, share exchange or
consolidation for purposes of this Section 19. If at the time that such successor Rights Agent succeeds to the agency created by
this Plan any of the Rights Certificates have been countersigned but not delivered, then any such successor Rights Agent may
adopt the countersignature of any predecessor Rights Agent and deliver such Rights Certificates so countersigned, and if at that
time any of the Rights Certificates have not been countersigned, then any successor Rights Agent may countersign such Rights
Certificates either in the name of the predecessor Rights Agent or in the name of the successor Rights Agent. In all such cases,
such Rights Certificates will have the full force and effect provided in the Rights Certificates and in this Plan.
(b)
Change of Name of Rights Agent. If at any time the name of the Rights Agent is changed and at such
time any of the Rights Certificates have been countersigned but not delivered, then the Rights Agent may adopt the
countersignature under its prior name and deliver such Rights Certificates so countersigned, and if at any time any of the Rights
Certificates have not have been countersigned, then the Rights Agent may countersign such Rights Certificates either in its prior
name or in its changed name. In all such cases, such Rights Certificates will have the full force and effect provided in the Rights
Certificates and in this Plan.
Section 20.
Duties of Rights Agent. The Rights Agent undertakes to perform only the duties and obligations
expressly imposed by this Plan (and no implied duties or obligations) upon the following terms and conditions, all of which the
Company and the holders of Rights Certificates, by their acceptance thereof, will be bound:
(a)
Before the Rights Agent acts or refrains from acting, the Rights Agent may consult with legal
counsel that it selects (who may be legal counsel for the Company or an employee of the Rights Agent), and the advice or
opinion of such counsel will be full and complete authorization and protection to the Rights Agent, and the Rights Agent will
incur no liability for or in respect of, any action taken, suffered or omitted to be taken by it in the absence of gross negligence,
bad faith or willful misconduct (which gross negligence, bad faith or willful misconduct must be determined by a final, non-
appealable judgment of a court of competent jurisdiction) in accordance with such advice or opinion.
(b)
Whenever in the performance of its duties pursuant to this Plan the Rights Agent deems it necessary
or desirable that any fact or matter (including the identity of any Acquiring Person and the determination of the Current Per
Share Market Price of any security) be proved or established by the Company prior to taking, suffering or omitting to take any
action hereunder, such fact or matter (unless other evidence in respect thereof is specifically prescribed herein) may be deemed
to be conclusively proved and established by a certificate signed by any one of the Chairman of the Board, Chief Executive
Officer, President, Chief Financial Officer, Secretary, Assistant Secretary or any Senior Vice President of the Company and
delivered to the Rights Agent, and such certificate will be full and complete authorization and protection to the Rights Agent,
and the Rights Agent will incur no liability for or in respect of any action taken, suffered or omitted to be taken in the absence
of gross negligence, bad faith or willful misconduct (which gross negligence, bad faith or willful misconduct must be
determined by a final, non-appealable judgment of a court of competent jurisdiction) by it pursuant to the provisions of this
Plan in reliance upon such certificate.
(c)
The Rights Agent will not be liable hereunder for or by reason of any of the statements of fact or
recitals contained in this Plan, the Rights Certificates or any certificate (or registration on the transfer books of the Company,
including, in the case of uncertificated shares, by notation in book entry accounts reflecting ownership) for Preferred Shares,
Common Shares or other securities of the Company issuable upon exercise of Rights, or be required to verify the same (except,
in each case, its countersignature thereof, if applicable), and all such statements and recitals are and will be deemed to have
been made by the Company only.
(d)
The Rights Agent will not (i) have any liability for or be under any responsibility in respect of the
validity of this Plan or the execution and delivery hereof (except the due authorization, execution and delivery hereof by the
Rights Agent) or in respect of the validity or execution of any Rights Certificate (except its countersignature thereof) or any
B- 26
certificate (or registration on the transfer books of the Company, including, in the case of uncertificated shares, by notation in
book entry accounts reflecting ownership) for Preferred Shares, Common Shares or other securities of the Company issuable
upon exercise of Rights (except, in each case, its countersignature thereof, if applicable); (ii) be responsible for any change in
the exercisability or exchangeability of Rights (including certain Rights becoming null and void pursuant to Section 7(e)),
except with respect to the exercise of Rights evidenced by Rights Certificates after notice of such change has been provided by
the Company; (iii) be responsible for any breach by the Company of any covenant or failure by the Company to satisfy any
condition contained in this Plan or any Rights Certificate; (iv) be responsible for (A) any adjustment or change required
pursuant to Section 3, Section 11, Section 13, Section 23 or Section 24; (B) the manner, method or amount of any such
adjustment or change; or (C) ascertaining the existence of facts that would require any such adjustment or change (except with
respect to the exercise of Rights evidenced by Rights Certificates after receipt by the Rights Agent of a certificate furnished
pursuant to Section 12 describing such adjustment or change); (v) be responsible for any determination by the Board of the
Current Per Share Market Price of any security pursuant to this Plan; or (vi) by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any securities to be issued pursuant to this Plan or any Rights
Certificate or as to whether any such securities will, when issued, be duly and validly authorized and issued and fully paid and
nonassessable.
(e)
The Company agrees that it will perform, execute, acknowledge and deliver, or cause to be
performed, executed, acknowledged and delivered, all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of its duties pursuant to this
Plan.
(f)
The Rights Agent is hereby authorized and directed to accept instructions with respect to the
performance of its duties hereunder from any of the Chairman of the Board, Chief Executive Officer, President, Chief Financial
Officer, Secretary, Assistant Secretary or any Senior Vice President of the Company, and it is authorized to apply to any such
director or officer for advice or instructions in connection with its duties pursuant to this Plan. Such advice and instructions will
be full and complete authorization and protection to the Rights Agent, and the Rights Agent will not be liable for or in respect
of any action taken, suffered or omitted to be taken by it in accordance with the written advice or instructions of any such
director or officer or for any delay in acting while waiting for those instructions, in each case in the absence of its own gross
negligence, bad faith or willful misconduct (which gross negligence, bad faith or willful misconduct must be determined by a
final, non-appealable judgment of a court of competent jurisdiction). The Rights Agent will be fully and completely authorized
and protected in relying on the latest-dated instructions received from any such director or officer. Any application by the
Rights Agent for written instructions from the Company may, at the option of the Rights Agent, set forth in writing any action
proposed to be taken, suffered or omitted to be taken by the Rights Agent pursuant to this Plan and the date on or after which
such action will be taken, suffered or omitted to be taken. The Rights Agent will not be liable for any action taken or suffered
by, or omission of, the Rights Agent in accordance with a proposal included in any such application on or after (but not
including) the date specified in such application (which date must not be less than five Business Days after, but not including,
the date on which any such director or officer of the Company actually receives such application, unless any such director or
officer has consented in writing to an earlier date) unless, prior to taking or suffering any such action (or the effective date in
the case of an omission), the Rights Agent has received, in response to such application, written instructions with respect to the
proposed action or omission specifying a different action to be taken, suffered or omitted to be taken.
(g)
In the event that the Rights Agent believes any ambiguity or uncertainty exists under this Plan or in
any notice, instruction, direction, request or other communication, paper or document received by the Rights Agent under this
Plan, the Rights Agent, may, in its sole discretion, refrain from taking any action, and shall be fully protected and shall not be
liable in any way to Company, the holder of any Rights Certificate or Book Entry Shares or any other person for refraining from
taking such action, unless the Rights Agent receives written instructions signed by the Company that eliminates such ambiguity
or uncertainty to the satisfaction of the Rights Agent.
(h)
The Rights Agent and any member, stockholder, director, officer, employee or Affiliate of the Rights
Agent (in each case, other than an Acquiring Person) may buy, sell or deal in any of the Rights or other securities of the
Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were not the Rights Agent pursuant to this Plan.
Nothing herein will preclude the Rights Agent or any such member, stockholder, director, officer, employee or Affiliate from
acting in any other capacity for the Company or for any other Person.
(i)
The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or
perform any duty hereunder either itself (including through its directors, officers and employees) or by or through its attorneys
or agents, and the Rights Agent will not be answerable or accountable for any act, omission, default, neglect or misconduct of
B- 27
any such attorneys or agents or for any loss to the Company, to the holders of Rights or to any other Person resulting from any
such act, omission, default, neglect or misconduct in the absence of gross negligence, bad faith or willful misconduct in the
selection and continued employment thereof (which gross negligence, bad faith or willful misconduct must be determined by a
final, non-appealable judgment of a court of competent jurisdiction).
(j)
No provision of this Plan requires the Rights Agent to expend or risk its own funds or otherwise
incur any financial liability in the performance of any of its duties hereunder (other than costs and expenses incurred by the
Rights Agent in providing services to the Company in the ordinary course of its business as the Rights Agent and for which the
Rights Agent shall be compensated pursuant to Section 18) or in the exercise of its rights if it reasonably believes that
repayment of such funds or adequate indemnification against such risk or liability is not reasonably assured to it.
(k)
If, with respect to any Rights Certificate surrendered to the Rights Agent for exercise or transfer, the
certificate contained in the form of election to purchase or form of assignment, as the case may be, has either (i) not been
properly completed or (ii) indicates an affirmative response to clause (1) or clause (2) thereof, then the Rights Agent will not
take any further action with respect to such requested exercise or transfer without first consulting with the Company; provided,
however, that the Rights Agent shall not be liable for any delays arising from the duties under this Section 20(k).
(l)
From time to time after the Distribution Date, upon the written request of the Company, the Rights
Agent will promptly deliver to the Company a list, as of the most recent practicable date (or as of such earlier date as may be
specified by the Company), of the record holders of Rights and Rights Certificates.
(m)
The Rights Agent will not be required to take notice or be deemed to have notice of any fact, event
or determination (including any dates or events defined in this Plan or the designation of any Person as an Acquiring Person or
an Affiliate or Associate of an Acquiring Person) pursuant to this Plan unless and until the Rights Agent is specifically notified
in writing of such fact, event or determination by the Company or by receipt of a properly completed and duly executed Rights
Certificate (and form of election to purchase or form of assignment).
(n)
The Rights Agent may rely on and be fully authorized and protected in acting or failing to act upon
(i) any guaranty of signature by an “eligible guarantor institution” that is a member or participant in the Securities Transfer
Agents Medallion Program or other comparable “signature guarantee program” or insurance program in addition to, or in
substitution for, the foregoing; or (ii) any law, act, regulation or any interpretation of the same even though such law, act or
regulation may thereafter have been altered, changed, amended or repealed.
(o)
The Rights Agent shall not be liable or responsible for any failure of the Company to comply with
any of its obligations relating to any registration statement filed with the Securities and Exchange Commission or this Plan,
including obligations under applicable regulation or law.
Section 21.
Change of Rights Agent. The Rights Agent or any successor Rights Agent may resign and be
discharged from its duties pursuant to this Plan upon 30 days’ written notice to the Company (or such lesser notice as is
acceptable to the Company) and to each transfer agent of the Preferred Shares and the Common Shares (in the event that the
Rights Agent or one of its Affiliates is not also such transfer agent), delivered to the Company in accordance with Section 27. In
the event that any transfer agency relationship in effect between the Company and the Rights Agent or any of its Affiliates
terminates, the Rights Agent will be deemed to have automatically resigned, and be discharged from its duties pursuant to this
Plan, on the effective date of such termination, and the Company will be responsible for sending any required notices. The
Company may remove the Rights Agent or any successor Rights Agent, with or without cause, upon 30 days’ notice in writing
to the Rights Agent or any successor Rights Agent, as the case may be, and to each transfer agent of the Preferred Shares and
the Common Shares (in the event that the Rights Agent or one of its Affiliates is not also such transfer agent), delivered to the
Rights Agent in accordance with Section 27. If the Rights Agent resigns or is removed or otherwise becomes incapable of
acting, then the resigning, removed or incapacitated Rights Agent must remit to the Company, or to any successor Rights Agent,
all books, records, funds (other than any funds owed to the Rights Agent or its Affiliates under this Plan or under any other
agreement or arrangement with the Company or its Affiliates), certificates or other documents or instruments of any kind then
in its possession that were acquired by such resigning, removed or incapacitated Rights Agent in connection with its services as
the Rights Agent; provided, however, that the Rights Agent may keep copies of same in accordance with applicable law or its
document retention policies or conventions. Following such removal, resignation or incapacity of the Rights Agent, the
Company will appoint a successor to the Rights Agent. If the Company fails to make such appointment within a period of 30
days after giving written notice of such removal or after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the registered holder of a Rights Certificate (who must, together with such notice,
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submit such registered holder’s Rights Certificate for inspection by the Company), then such registered holder or the incumbent
Rights Agent may apply, at the Company’s expense, to a court of competent jurisdiction for the appointment of a new Rights
Agent. Any successor Rights Agent, whether appointed by the Company or by such court, must be either (a) a Person
organized, in good standing and doing business pursuant to the laws of the United States or any state of the United States that is
authorized pursuant to such laws to exercise corporate trust, stock transfer or stockholder services, is subject to supervision or
examination by federal or state authorities and has at the time of its appointment as Rights Agent a combined capital and
surplus of at least $50,000,000 or (b) an Affiliate or direct or indirect wholly owned Subsidiary of such Person. After
appointment, the successor Rights Agent will be vested with the same powers, rights, duties and responsibilities as if it had been
originally named as Rights Agent without further act or deed, and the predecessor Rights Agent must deliver and transfer to the
successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for such purpose, but such predecessor Rights Agent shall not be required to make any
additional expenditure or assume any additional liability in connection with the foregoing. Not later than the effective date of
any such appointment, the Company will file notice thereof in writing with the predecessor Rights Agent and each transfer
agent of the Preferred Shares and the Common Shares (in the event that the Rights Agent or one of its Affiliates is not also such
transfer agent), and deliver such notice to the holders of Rights Certificates in accordance with Section 27. Notwithstanding
anything to the contrary in this Plan, failure to give any notice provided for in this Section 21, or any defect therein, will not
affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights
Agent, as the case may be. Upon appointment, any successor Rights Agent will, unless the context requires otherwise, be
deemed to be the Rights Agent for all purposes of this Plan.
Section 22.
Issuance of New Rights Certificates. Notwithstanding anything to the contrary in this Plan or the
Rights, the Company may, at its option, issue new Rights Certificates evidencing Rights in such form as may be approved by
the Board to reflect any adjustment or change in the Exercise Price and the number or kind or class of shares or other securities
or property purchasable pursuant to the Rights Certificates made in accordance with the provisions of this Plan. In addition, in
connection with the issuance or sale of Common Shares following the Distribution Date and prior to the Expiration Date, the
Company will, with respect to Common Shares so issued or sold (whether pursuant to the exercise of stock options or pursuant
to any employee benefit plan or arrangement or upon the exercise, conversion or exchange of other securities of the Company
outstanding as of the Rights Dividend Declaration Date or upon the exercise, conversion or exchange of securities issued by the
Company after the Rights Dividend Declaration Date (except, in each case, as may otherwise be provided in the instruments
governing such securities)), and may, in any other case, if deemed necessary or appropriate by the Board, issue Rights
Certificates representing the appropriate number of Rights in connection with such issuance or sale; provided, however, that
(a) no such Rights Certificate will be issued if, and to the extent that, the Company is advised by counsel that such issuance
would create a significant risk of or result in material adverse tax consequences to the Company or the Person to whom such
Rights Certificate would be issued or would create a significant risk of or result in such options or employee plans or
arrangements failing to qualify for otherwise available special tax treatment; (b) no such Rights Certificate will be issued if, and
to the extent that, appropriate adjustment will otherwise have been made in lieu of the issuance thereof; and (c) the Company
will have no obligation to distribute Rights Certificates to any Acquiring Person, Affiliate or Associate of an Acquiring Person,
Post-Event Transferee, Pre-Event Transferee, Subsequent Transferee or any nominee of any of the foregoing.
Section 23.
Redemption.
(a)
Right to Redeem. The Board may, at its option, at any time prior to the earlier of (i) the Distribution
Date or (ii) the Close of Business on the Final Expiration Date, redeem all but not less than all of the then outstanding Rights at
a redemption price of $0.01 per Right, as such amount may be appropriately adjusted to reflect any stock split, stock dividend,
recapitalization or similar transaction occurring after the Rights Dividend Declaration Date (such redemption price, the
“Redemption Price”). Notwithstanding anything to the contrary in this Plan, the Rights will not be exercisable after the first
occurrence of a Section 11(a)(ii) Event until such time as the Company’s right of redemption pursuant to this Section 23 has
expired. The Company may, at its option, pay the Redemption Price in Common Shares (based on the Current Per Share Market
Price of Common Shares at the time of redemption), cash or any other form of consideration deemed appropriate by the Board,
in its sole discretion, to be at least equivalent to the Redemption Price. Such redemption of the Rights by the Board may be
made effective at such time, on such basis and with such conditions as the Board in its sole discretion may establish. The date
on which the Board elects to make the redemption effective is referred to as the “Redemption Date.”
General Redemption Procedures. Immediately upon the action of the Board ordering the redemption
of the Rights (or at such later time as the Board may establish for the effectiveness of such redemption), evidence of which will
have been filed with the Rights Agent, and without any further action and without any notice, the right to exercise the Rights
(b)
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will terminate and the only right thereafter of the holders of Rights will be to receive the Redemption Price for each Right so
held. The Company will promptly give public notice of any such redemption (with prompt written notice thereof also provided
to the Rights Agent). Promptly after the action of the Board ordering the redemption of the Rights, the Company will give, or
cause to be given, notice of such redemption to the holders of Rights Certificates in accordance with Section 27; provided,
however, that any notice that is so provided will be deemed given, whether or not the holder receives the notice. Each such
notice of redemption must state the method by which the payment of the Redemption Price is to be made. The failure to give, or
any defect in, any notice required by this Section 23 will not affect the legality or validity of the action taken by the Board or of
the redemption.
(c)
Discharge of Obligations. Notwithstanding anything to the contrary in this Plan, in the event of a
redemption pursuant to Section 23(a), the Company may, at its option, discharge all of its obligations with respect to the Rights
by (i) issuing a press release or making a publicly-available filing with the Securities and Exchange Commission announcing
the manner of redemption of the Rights and (ii) mailing payment of the Redemption Price to the holders of Rights at the
addresses of such holders as shown on the transfer books of the Rights Agent or, prior to the Distribution Date, on the transfer
books of the Company or the transfer agent for the Common Shares, and upon such action, all outstanding Rights Certificates
will be null and void without any further action by the Company.
(d)
Prohibited Purchases. Notwithstanding anything to the contrary in this Plan, neither the Company
nor any of its Affiliates or Associates may redeem, acquire or purchase for value any Rights at any time in any manner other
than as specifically set forth in this Section 23 or in Section 24, or other than in connection with the purchase or repurchase of
Common Shares prior to the Distribution Date.
Section 24.
Exchange.
(a)
Exchange of Common Shares for Rights. The Board may, at its option, at any time after any Person
becomes an Acquiring Person, exchange all or part of the then outstanding and exercisable Rights (which will not include
Rights that have become null and void pursuant to the provisions of Section 7(e)) for Common Shares at an exchange ratio of
one Common Share per Right, appropriately adjusted to reflect any stock split, stock dividend, recapitalization or similar
transaction occurring after the Rights Dividend Declaration Date (such exchange ratio, the “Exchange Ratio,” and such
determination by the Board to effect such exchange, an “Exchange Determination”). Notwithstanding the foregoing, the
Board is not empowered to effect an Exchange Determination at any time after any Person (other than any Exempt Person),
together with all Affiliates and Associates of such Person, becomes the Beneficial Owner of 50% or more of the Common
Shares then outstanding. Notwithstanding the foregoing, from and after the occurrence of a Section 13 Event, any Rights that
theretofore have not been exchanged pursuant to this Section 24(a) will thereafter be exercisable only in accordance with
Section 13 and may not be exchanged (or eligible for exchange) pursuant to this Section 24(a).
(b)
Exchange Procedures.
(i)
Immediately following an Exchange Determination and without any further action or
notice, the right to exercise such Rights will terminate and the only right thereafter of a holder of such Rights is to receive that
number of Common Shares equal to the number of such Rights held by such holder multiplied by the Exchange Ratio. The
Company will promptly give public notice of any such exchange (with prompt written notice thereof also provided to the Rights
Agent), and thereafter will promptly give, or cause to be given, notice of such exchange to the holders of the then outstanding
Rights (other than Rights that have become null and void pursuant to the provisions of Section 7(e)) by mailing such notice, in
accordance with Section 27; provided, however, that any notice that is so provided will be deemed given, whether or not the
holder receives the notice. Each such notice of exchange must state the method by which the exchange of Common Shares for
Rights is to be effected (including the actions that must be taken by the holders of Rights to receive Common Shares in
exchange for Rights) and, in the event of any partial exchange, the number of Rights that are to be exchanged. Any partial
exchange will be effected pro rata based on the number of Rights (other than Rights that have become null and void pursuant to
the provisions of Section 7(e)) held by each holder of Rights. Following an Exchange Determination, the Company may
implement such procedures as it deems appropriate, in its sole discretion, to minimize the possibility that any Common Shares
(or other consideration) issuable pursuant to this Section 24 are received by Persons whose Rights are null and void pursuant to
Section 7(e). Prior to effecting any exchange, the Company may require, or cause the trustee of the Trust to require, as a
condition thereof, that any registered holder of Rights provide such evidence (including the identity of the Beneficial Owner (or
former Beneficial Owner) thereof and the Affiliates or Associates of such Beneficial Owner or former Beneficial Owner) as the
Company may reasonably request in order to determine if such Rights are null and void pursuant to Section 7(e). If such
registered holder does not comply with the foregoing requirements, then the Company will be entitled to conclusively deem
such Rights to be Beneficially Owned by an Acquiring Person (or an Affiliate or Associate of an Acquiring Person, a Post-Event
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Transferee, a Pre-Event Transferee, a Subsequent Transferee or any nominee of any of the foregoing) and, accordingly, such
Rights will be null and void and not exchangeable in connection herewith. Any Common Shares (or other securities) issued at
the direction of the Board in connection with an Exchange Determination will be duly and validly authorized and issued and
fully paid and nonassessable, and the Company will be deemed to have received as consideration for such issuance a benefit
having a value that is at least equal to the aggregate par value of the Common Shares (or other securities) so issued. The failure
to give, or any defect in, any notice required by this Section 24 will not affect the legality or validity of the action taken by the
Board or of such exchange.
(ii)
The exchange of the Rights pursuant to Section 24(a) may be made effective at such time,
on such basis and with such conditions as the Board, in its sole discretion, may establish. Without limiting the foregoing, prior
to effecting an exchange pursuant to Section 24(a), the Board may direct the Company to enter into a trust agreement in such
form and with such terms as the Board approves (the “Trust Agreement”). If the Board so directs, then the Company must
enter into the Trust Agreement and must issue to the trust created by such agreement (the “Trust”) all of the Common Shares
(or other consideration) issuable pursuant to the exchange (or any portion thereof that has not theretofore been issued in
connection with the exchange). From and after the time at which such Common Shares (or other consideration) are issued to the
Trust, all stockholders then entitled to receive Common Shares (or other consideration) pursuant to the exchange will be
entitled to receive such shares or consideration (and any dividends or distributions made thereon after the date on which such
shares or consideration are deposited into the Trust) only from the Trust and solely upon compliance with the relevant terms and
provisions of the Trust Agreement.
(c)
Insufficient Shares. In the event that there are not sufficient Common Shares issued but not
outstanding or authorized but unissued to permit any exchange of Rights as contemplated in accordance with Section 24(a),
then the Company will either take such action as may be necessary to authorize additional Common Shares for issuance upon
exchange of the Rights or alternatively, at the option of the Board, with respect to each Right (i) pay cash in an amount equal to
the Current Exchange Value in lieu of issuing Common Shares in exchange therefor; (ii) issue debt or equity securities (or a
combination thereof) having a value equal to the Current Exchange Value in lieu of issuing Common Shares in exchange for
each such Right, where the value of such securities will be determined by the Board based upon the advice of a nationally
recognized investment banking firm selected by the Board, which determination will be described in a written statement filed
with the Rights Agent and will be binding on the Rights Agent and the holders of Rights; or (iii) deliver any combination of
cash, property, Common Shares, Preferred Shares, Equivalent Shares or other securities having a value equal to the Current
Exchange Value in exchange for each Right. To the extent that the Company determines that some action need be taken
pursuant to this Section 24(c), then the Board may temporarily suspend the exercisability of the Rights for a period of up to 120
days following the date on which the Exchange Determination has occurred in order to seek any authorization of additional
Common Shares or to decide the appropriate form of distribution to be made pursuant to the above provision and to determine
the value thereof. Upon any such suspension, the Company will issue a public announcement stating, and notify the Rights
Agent in writing, that the exercisability of the Rights has been temporarily suspended, as well as issue a public announcement,
and notify the Rights Agent in writing, at such time as the suspension is no longer in effect.
(d)
Cash in Lieu of Fractional Common Shares. In connection with an Exchange Determination, the
Company will not be required to issue fractions of Common Shares or to distribute certificates that evidence fractional
Common Shares. In lieu of such fractional Common Shares, the Company may pay to the registered holders of Rights
Certificates with regard to which such fractional Common Shares would otherwise be issuable an amount in cash equal to the
same fraction of the Current Per Share Market Price of a Common Share, calculated as of the Trading Day immediately prior to
the date of the Exchange Determination
Section 25.
Process to Seek Exemption Prior to Trigger Event.
(a)
Waiver Prior to a Stock Acquisition Date. Any Person who desires to effect any acquisition of
Common Stock that would, if consummated, result in such Person beneficially owning 4.9% or more of the then outstanding
Common Shares (a “Requesting Person”) may, prior to the Stock Acquisition Date and in accordance with this Section 25(a),
request that the Board grant an exemption with respect to such acquisition under this Plan so that such Person would be deemed
to be an “Exempt Person” under subsection (ii) of Section 1(u) for purposes of this Plan (an “Exemption Request”). An
Exemption Request must be in proper form and must be delivered by overnight delivery service or first-class mail, postage
prepaid, to the Secretary of the Company at the principal executive office of the Company. The Exemption Request must be
deemed made upon receipt by the Secretary of the Company. To be in proper form, an Exemption Request must set forth (i) the
name and address of the Requesting Person, (ii) the number and percentage of Common Shares then Beneficially Owned by the
Requesting Person, together with all Affiliates and Associates of the Requesting Person, and (iii) a reasonably detailed
B- 31
description of the transaction or transactions by which the Requesting Person would propose to acquire Beneficial Ownership
of Common Shares aggregating 4.9% or more of the then outstanding Common Shares and the maximum number and
percentage of shares of Common Shares that the Requesting Person proposes to acquire. The Board will make a determination
whether to grant an exemption in response to an Exemption Request as promptly as practicable (and, in any event, within ten
(10) Business Days) after receipt thereof; provided, however, that the failure of the Board to make a determination within such
period will be deemed to constitute the denial by the Board of the Exemption Request. The Requesting Person must respond
promptly to reasonable and appropriate requests for additional information from the Board and its advisors to assist the Board
in making its determination. For purposes of considering the Exemption Request, any calculation of the number of Common
Shares outstanding at any particular time, including for purposes of determining the particular percentage of such outstanding
Common Shares of which any Person is the Beneficial Owner, will be made pursuant to and in accordance with Section 382.
The Board will only grant an exemption in response to an Exemption Request if the Board determines in its sole discretion that
the acquisition of Beneficial Ownership of Common Shares by the Requesting Person (A) will not adversely impact in any
material respect the time period in which the Company could use the Tax Benefits or limit or impair the availability to the
Company of the Tax Benefits; or (B) is in the best interests of the Company despite the fact that it may adversely impact in a
material respect the time period in which the Company could use the Tax Benefits or limit or impair the availability to the
Company of the Tax Benefits. Any exemption granted hereunder may be granted in whole or in part, and may be subject to
limitations or conditions (including a requirement that the Requesting Person agree that it will not acquire Beneficial
Ownership of Common Shares in excess of the maximum number and percentage of shares approved by the Board), in each
case as and to the extent the Board determines necessary or desirable to provide for the protection of the Tax Benefits. Any
Exemption Request may be submitted on a confidential basis and, except to the extent required by applicable law, the Company
will maintain the confidentiality of such Exemption Request and the Board’s determination with respect thereto, unless the
information contained in the Exemption Request or the Board’s determination with respect thereto otherwise becomes publicly
available. The Exemption Request will be considered and evaluated by directors serving on the Board who are independent of
the Company and the Requesting Person and disinterested with respect to the Exemption Request, and the action of a majority
of such independent and disinterested directors will be deemed to be the determination of the Board for purposes of such
Exemption Request.
(b)
Waiver Subsequent to Stock Acquisition Date. The Board may, of its own accord or upon the request
of a stockholder (a “Waiver Request”), subsequent to a Stock Acquisition Date and prior to the Distribution Date, and in
accordance with this Section 25(b), grant an exemption with respect to any Acquiring Person under this Plan so that such
Acquiring Person would be deemed to be an “Exempt Person” under subsection (ii) of Section 1(u) for purposes of this Plan. A
Waiver Request must be in proper form and must be delivered by overnight delivery service or first-class mail, postage prepaid,
to the Secretary of the Company at the principal executive office of the Company. The Waiver Request will be deemed made
upon receipt by the Secretary of the Company. To be in proper form, a Waiver Request must set forth (i) the name and address
of the Acquiring Person, (ii) the number and percentage of Common Shares then Beneficially Owned by the Acquiring Person,
together with all Affiliates and Associates of the Acquiring Person, and (iii) a reasonably detailed description of the transaction
or transactions by which the Acquiring Person acquired Beneficial Ownership of Common Shares aggregating 4.9% or more of
the then outstanding Common Stock and the maximum number and percentage of Common Shares that the Acquiring Person
proposes to acquire. The Board will make a determination whether to grant an exemption in response to a Waiver Request as
promptly as practicable (and, in any event, within 10 Business Days) after receipt thereof; provided, however, that the failure of
the Board to make a determination within such period will be deemed to constitute the denial by the Board of the Waiver
Request. The Acquiring Person must respond promptly to reasonable and appropriate requests for additional information from
the Board and its advisors to assist the Board in making its determination. For purposes of considering the Waiver Request, any
calculation of the number of Common Shares outstanding at any particular time, including for purposes of determining the
particular percentage of such outstanding Common Shares of which any Person is the Beneficial Owner, will be made pursuant
to and in accordance with Section 382. The Board will only grant an exemption for an Acquiring Person if the Board
determines in its sole discretion that the acquisition of Beneficial Ownership of Common Stock by such Acquiring Person does
not adversely impact in any material respect the time period in which the Company could use the Tax Benefits or limit or impair
the availability to the Company of the Tax Benefits. Any exemption granted hereunder may be granted in whole or in part, and
may be subject to limitations or conditions (including a requirement that such Acquiring Person agree that it will not acquire
Beneficial Ownership of Common Shares in excess of the maximum number and percentage of shares approved by the Board),
in each case as and to the extent the Board determines necessary or desirable to provide for the protection of the Tax Benefits.
The facts and circumstances with respect to the Triggering Event, including whether to grant an exemption, will be considered
and evaluated by directors serving on the Board, or a duly constituted committee thereof, who are independent of the Company
and such Acquiring Person and disinterested with respect to the Triggering Event, and the action of a majority of such
independent and disinterested directors will be deemed to be the determination of the Board for purposes of any exemption
granted pursuant to this Section 25(b).
B- 32
Section 26.
Notice of Certain Events.
(a)
Certain Distributions. If the Company proposes, at any time after the Distribution Date, to (i) declare
or pay any dividend payable in stock of any class to the holders of Preferred Shares or to make any other distribution to the
holders of Preferred Shares (other than a regular quarterly or periodic cash dividend out of earnings or retained earnings of the
Company); (ii) offer to the holders of Preferred Shares rights or warrants to subscribe for or to purchase any additional
Preferred Shares or shares of stock of any class or any other securities, rights or options; (iii) effect any reclassification of the
Preferred Shares (other than a reclassification involving only the subdivision of outstanding Preferred Shares); (iv) effect any
share exchange, consolidation or merger into or with any other Person (other than a wholly owned Subsidiary of the Company
in a transaction that complies with Section 11(l)); (v) effect any sale or other transfer (or permit one or more of its Subsidiaries
to effect any sale or other transfer), in one transaction or a series of related transactions, of more than 50% of the assets, cash
flow or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person; (vi) effect the liquidation,
dissolution or winding up of the Company; (vii) declare or pay any dividend on the Common Shares payable in Common
Shares; or (viii) effect a subdivision, combination or consolidation of the Common Shares (by reclassification or otherwise than
by payment of dividends in Common Shares), then, in each such case, the Company will give written notice of such proposed
action to the Rights Agent and the holders of Rights Certificates in accordance with Section 27, which notice must specify the
record date for the purposes of such stock dividend, distribution of rights or warrants, or the date on which such subdivision,
combination, reclassification, share exchange, consolidation, merger, sale, transfer, liquidation, dissolution or winding up is to
take place and the date of participation therein by the holders of Preferred Shares or Common Shares, if any such date is to be
fixed, and such notice must be so given in the case of any action covered by clause (i) or (ii) above at least 10 Business Days
prior to but not including the record date for determining holders of Preferred Shares for purposes of such action, and in the
case of any such other action, at least 10 Business Days prior to but not including the date of the taking of such proposed action
or the date of participation therein by the holders of Preferred Shares or Common Shares, whichever is earlier.
(b)
Certain Events. If any Triggering Event has occurred, then (i) the Company will as soon as
practicable thereafter give, or cause to be given, to each holder of Rights Certificates a notice in accordance with Section 27 of
the occurrence of such Triggering Event, which notice must specify the event and the consequences of the event to holders of
Rights pursuant to Section 11(a)(ii) or Section 13; and (ii) all references in this Section 26 to Preferred Shares will thereafter be
deemed to be references to Common Shares or, if appropriate, other securities.
Section 27.
Notices. Notices or demands authorized by this Plan to be given or made by the Rights Agent or by
the holder of any Rights Certificate (or, prior to the Distribution Date, of any Common Share) to or on the Company will be
sufficiently given or made if in writing and when sent by a recognized national overnight delivery service or first-class mail,
postage prepaid, addressed (in each case, until another address is filed in writing with the Rights Agent by the Company) as
follows:
Aviat Networks, Inc.
5200 Great America Parkway
Santa Clara, CA 95054
Attn: Meena Elliot, Senior Vice President, Chief Legal & Administrative Officer
with a copy (which will not constitute notice) to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304-1050
Attn: Robert G. Day
Douglas K. Schnell
Subject to the provisions of Section 21, any notice or demand authorized by this Plan to be given or made by the Company or
by the holder of any Rights Certificate (or, prior to the Distribution Date, of any Common Share) to or on the Rights Agent will
be sufficiently given or made if in writing and sent by a recognized national overnight delivery service or first-class mail,
postage prepaid, addressed (in each case, until another address is filed in writing with the Company by the Rights Agent) as
follows:
B- 33
Computershare Inc.
250 Royall Street
Canton, MA 02021
Attn: Client Services
Notices or demands authorized by this Plan to be given or made by the Company or the Rights Agent to the holders of Rights or
Rights Certificates (or, if prior to the Distribution Date, to the holders of Common Shares) will be sufficiently given or made if
in writing and when sent by a recognized national overnight delivery service or first-class mail, postage prepaid, addressed to
such holder at the address of such holder as shown on the transfer books of the Rights Agent or the Company or the transfer
agent for the Common Shares. Any notice that is sent or mailed in the manner herein provided will be deemed given whether or
not the holder receives the notice. Notwithstanding anything to the contrary in this Plan, prior to the Distribution Date, the
issuance of a press release or the making of a publicly-available filing by the Company with the Securities and Exchange
Commission will constitute sufficient notice by the Rights Agent or the Company to the holders of securities of the Company,
including the Rights, for all purposes of this Plan and no other notice need be given.
Section 28.
Supplements and Amendments. Prior to the occurrence of a Distribution Date, the Company may in
its sole discretion supplement or amend this Plan in any respect without the approval of any holders of Rights Certificates,
Preferred Shares or Common Shares, and the Rights Agent must, if the Company so directs, execute such supplement or
amendment. From and after the occurrence of a Distribution Date, the Company and the Rights Agent may from time to time
supplement or amend this Plan without the approval of any holders of Rights Certificates in order to (i) cure any ambiguity;
(ii) correct or supplement any provision contained herein that may be defective or inconsistent with any other provisions herein
or otherwise defective, including any change in order to satisfy any applicable law, rule or regulation; (iii) shorten or lengthen
any time period hereunder; or (iv) change or supplement the provisions hereunder in any manner that the Company may deem
necessary or desirable and that does not adversely affect the interests of the Rights Agent or the holders of Rights (other than an
Acquiring Person, an Affiliate or Associate of an Acquiring Person, a Post-Event Transferee, a Pre-Event Transferee, a
Subsequent Transferee or any nominee of any of the foregoing), including extending the Final Expiration Date; provided,
however, that this Plan may not be supplemented or amended to lengthen, pursuant to clause (iii) of this sentence, a time period
relating to when the Rights may be redeemed at a time when the Rights are not then redeemable; provided further, however,
that the right of the Board to extend the Distribution Date does not require any amendment or supplement hereunder. Upon the
delivery of a certificate from the Chairman of the Board, Chief Executive Officer, President, Chief Financial Officer, Secretary,
Assistant Secretary or any Senior Vice President of the Company that states that the proposed supplement or amendment is in
compliance with the terms of this Section 28. Notwithstanding anything to the contrary in this Plan, the Rights Agent may, but
will not be required to, execute any such supplement or amendment that it has determined would adversely affects its rights,
duties, obligations or immunities under this Plan. No supplement or amendment to this Plan shall be effective unless duly
executed by the Rights Agent. Prior to the Distribution Date, the interests of the holders of Rights and Rights Certificates will
be deemed to be coincident with the interests of the holders of Common Shares.
Section 29.
Successors. All the covenants and provisions of this Plan by or for the benefit of the Company or the
Rights Agent will bind and inure to the benefit of their respective successors and assigns hereunder.
Section 30.
Determinations and Actions by the Board. The Board (or an authorized committee thereof) has the
exclusive power and authority to administer this Plan and to exercise all rights and powers specifically granted to the Board or
the Company pursuant hereto, or as may be necessary or advisable in the administration of this Plan, including the right and
power to (a) interpret the provisions of this Plan and (b) make all determinations deemed necessary or advisable for the
administration of this Plan (including a determination as to whether to redeem the Rights or to amend this Plan). All such
actions, calculations, interpretations and determinations (including, for purposes of clause (ii) below, all omissions with respect
to the foregoing) that are done or made by the Board (or an authorized committee thereof) in good faith will (i) be final,
conclusive and binding on the Company, the Rights Agent (except with respect to the rights, obligations, duties and immunities
of the Rights Agent under this Plan), the holders of Rights Certificates and all other Persons; and (ii) not subject the Board (or
an authorized committee thereof) or any of the directors serving on the Board to any liability to any Person, including the
Rights Agent and the holders of Rights Certificates. In administering this Plan and exercising the rights and powers specifically
granted to the Board and to the Company hereunder, and in interpreting this Plan and making any determination hereunder, the
Board (or an authorized committee thereof) may consider any and all facts, circumstances or information that it deems to be
necessary, useful or appropriate. The Rights Agent is always entitled to assume that the Board acted in good faith and will be
fully protected and incur no liability in reliance thereon.
B- 34
Section 31.
Benefits of this Plan. Nothing in this Plan may be construed to give to any Person other than the
Company, the Rights Agent and the registered holders of Rights Certificates (and, prior to the Distribution Date, the registered
holders of Common Shares) any legal or equitable right, remedy or claim pursuant to this Plan. This Plan is for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of Rights Certificates (and, prior to the
Distribution Date, the registered holders of Common Shares).
Section 32.
Severability. If any term, provision, covenant or restriction of this Plan is held by a court of
competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants
and restrictions of this Plan will remain in full force and effect and will in no way be affected, impaired or invalidated;
provided, however, that notwithstanding anything to the contrary in this Plan, if any such term, provision, covenant or
restriction is held by such court or authority to be invalid, void or unenforceable and the Board determines in its good faith
judgment that severing the invalid language from this Plan would adversely affect the purpose or effect of this Plan, then the
right of redemption set forth in Section 23 will be reinstated and will not expire until the Close of Business on the 10th Business
Day following the date of such determination by the Board; provided, further, that if such excluded provision shall affect the
rights, immunities, liabilities, duties or obligations of the Rights Agent, then the Rights Agent shall be entitled to resign
immediately upon written notice to the Company.
Section 33.
Governing Law; Exclusive Jurisdiction.
(a)
Governing Law. This Plan and each Right and Rights Certificate issued hereunder will be deemed to
be a contract made pursuant to the laws of the State of Delaware and for all purposes will be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts made and to be performed entirely within the State of
Delaware.
(b)
Exclusive Jurisdiction.
(i)
The Company and the registered holders of Rights Certificates (and, prior to the
Distribution Date, the registered holders of Common Shares) each hereby irrevocably submits to the exclusive jurisdiction of
the Court of Chancery of the State of Delaware, or, if such court lacks subject matter jurisdiction, the United States District
Court for the District of Delaware, over any suit, action or proceeding arising out of or relating to or concerning this Plan. The
Company and the registered holders of Rights Certificates (and, prior to the Distribution Date, the registered holders of
Common Shares) each acknowledge that the forum designated by this Section 33(b)(i) has a reasonable relation to this Plan and
to such Persons’ relationship with one another.
(ii)
The Company and the registered holders of Rights Certificates (and, prior to the
Distribution Date, the registered holders of Common Shares) each hereby waive, to the fullest extent permitted by applicable
law, any objection that they now or hereafter have to personal jurisdiction or to the laying of venue of any such suit, action or
proceeding brought in any court referred to in Section 33(b)(i) (or the appellate courts thereof). The Company and the registered
holders of Rights Certificates (and, prior to the Distribution Date, the registered holders of Common Shares) each undertake not
to commence any action subject to this Plan in any forum other than the forum described in Section 33(b)(i). The Company and
the registered holders of Rights Certificates (and, prior to the Distribution Date, the registered holders of Common Shares) each
hereby agree that, to the fullest extent permitted by applicable law, a final and non-appealable judgment in any such suit, action
or proceeding brought in any such court will be conclusive and binding upon such Persons.
Section 34.
Counterparts. This Plan and any supplements or amendments hereto may be executed in any number
of counterparts and each of such counterparts will for all purposes be deemed to be an original, and all such counterparts will
together constitute one and the same instrument, it being understood that all parties need not sign the same counterpart. A
signature to this Plan transmitted electronically (including by fax and .pdf) will have the same authority, effect and
enforceability as an original signature. No party hereto may raise the use of such electronic transmission to deliver a signature,
or the fact that any signature or agreement or instrument was transmitted or communicated through such electronic
transmission, as a defense to the formation of a contract, and each party forever waives any such defense, except to the extent
such defense relates to lack of authenticity.
B- 35
Section 35.
Descriptive Headings; Interpretation.
Descriptive Headings. The table of contents and descriptive headings of the several Sections of this
Plan are inserted for convenience only and will not control or affect the meaning or construction of any of the provisions hereof.
(a)
(b)
Interpretation.
(i)
Unless otherwise indicated, all references herein to Sections or Exhibits will be deemed to
refer to Sections or Exhibits of or to this Plan, as applicable. Any capitalized terms used in any Exhibit but not otherwise
defined therein have the meaning set forth in this Plan. All Exhibits attached hereto or referred to herein are hereby incorporated
in and made a part of this Plan as if fully set forth herein.
herein, are deemed in each case to be followed by the words “without limitation.”
(ii)
Unless otherwise indicated, the words “include,” “includes” and “including,” when used
otherwise stated, be constructed to refer to this Plan as whole and not to any particular provision of this Plan.
(iii)
The words “hereof,” “herein,” “herewith” and words of similar import will, unless
otherwise, the terms “or,” “any” and “either” are not exclusive.
(iv)
The word “or” is used in the inclusive sense of “and/or.” Unless the context requires
(v)
Whenever the context may require, any pronouns used in this Plan include the
corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns includes the plural and vice
versa.
meaning.
(vi)
Where a word or phrase is defined, each of its other grammatical forms has a corresponding
(vii)
References to “$” are to the lawful currency of the United States of America.
(viii)
References to any statute will be deemed to refer to such statute as amended from time to
time and any rules or regulations promulgated thereunder. References to any agreement or contract will be to that agreement or
contract as amended, modified or supplemented from time to time.
Section 36.
Costs of Enforcement. The Company agrees with each registered holder of Rights Certificates (and,
prior to the Distribution Date, the registered holders of Common Shares) that if the Company or any other Person the securities
of which are purchasable upon exercise of the Rights fails to fulfill any of its obligations pursuant to this Plan, then the
Company or such other Person must reimburse any registered holder of Rights Certificates for the costs and expenses
(including legal fees) incurred by such holder in any action to enforce such holder’s rights pursuant to any Right or this Plan.
Section 37.
Force Majeure. Notwithstanding anything to the contrary in this Plan, the Rights Agent will not be
liable for any delays or failures in performance resulting from acts beyond its reasonable control, including fires, floods, natural
disasters, acts of God, terrorist acts, shortage of supply, legal restrictions, breakdowns or malfunctions, interruptions or
malfunction of computer facilities, or loss of data due to power failures or mechanical difficulties with information storage or
retrieval systems, labor difficulties, war or civil unrest.
Section 38.
USA PATRIOT Act. The Company acknowledges that the Rights Agent is subject to the customer
identification program requirements pursuant to the USA PATRIOT Act and its implementing regulations, and that the Rights
Agent must obtain, verify and record information that allows the Rights Agent to identify the Company. Accordingly, prior to
accepting an appointment hereunder, the Rights Agent has received information from the Company that will help the Rights
Agent to identify the Company, including the Company’s physical address, tax identification number, organizational
documents, certificate of good standing, license to do business or such other information that the Rights Agent deems necessary
and, pending verification of such received information, the Rights Agent may request additional such information. The
Company agrees to provide all reasonably requested information necessary for the Rights Agent to verify the Company’s
identity in accordance with such customer identification program requirements.
[Signature page follows.]
B- 36
IN WITNESS WHEREOF, the parties hereto have caused this Plan to be duly executed as of the day and year first above
written.
AVIAT NETWORKS, INC.
By:
/s/ Ralph Marimon
Name:Ralph S. Marimon
Title:Senior Vice President and Chief
Financial Officer
COMPUTERSHARE, INC.
By:
/s/ Dennis V. Moccia
Name:Dennis V. Moccia
Title:Manager, Contract Administration
[Signature Page to Tax Benefit Preservation Plan]
B- 37
[This page intentionally left blank]
CERTIFICATE OF DESIGNATION OF RIGHTS, PREFERENCES AND PRIVILEGES
FORM OF
Exhibit A
OF SERIES A PARTICIPATING PREFERRED STOCK OF
AVIAT NETWORKS, INC.
___________________________________________________________
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
____________________________________________________________
Aviat Networks, Inc., a corporation organized and existing under the General Corporation Law of the State of
Delaware (the “Corporation”), in accordance with the provisions of Section 103 thereof, does hereby certify:
That pursuant to the authority conferred upon the Board of Directors of the Corporation (the “Board”) by the
Amended and Restated Certificate of Incorporation of the Corporation, as amended, on September 6, 2016, the Board adopted
the following resolutions creating a series of preferred stock, par value $0.01 per share (“Preferred Stock”), of the Corporation
designated as Series A Participating Preferred Stock:
RESOLVED: That pursuant to the authority vested in the Board by the Amended and Restated Certificate of
Incorporation of the Corporation, as amended (the “Charter”), the Board does hereby provide for the issuance of a series of
Preferred Stock of the Corporation and does hereby fix and herein state and express the designations, powers, preferences and
relative and other special rights, and the qualifications, limitations and restrictions, of such series of Preferred Stock as follows:
Section 1.
Designation and Amount. The shares of such series shall be designated as “Series A Participating
Preferred Stock.” The Series A Participating Preferred Stock shall have a par value of $0.01 per share, and the number of
shares constituting such series shall be 100,000. Such number of shares may be increased or decreased by resolution of the
Board; provided, however, that no decrease shall reduce the number of shares of Series A Participating Preferred Stock to a
number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of
outstanding options, rights or warrants or upon the exercise of any options, rights or warrants issuable upon conversion of any
outstanding securities issued by the Corporation convertible into Series A Participating Preferred Stock.
Section 2.
Proportional Adjustment. In the event that the Corporation shall at any time after the issuance of any
share or shares of Series A Participating Preferred Stock (the “Rights Declaration Date”) (a) declare any dividend on the
common stock of the Corporation, par value $0.01 per share (the “Common Stock”), payable in shares of Common Stock,
(b) subdivide the outstanding Common Stock or (c) combine the outstanding Common Stock into a smaller number of shares,
then in each such case the Corporation shall simultaneously effect a proportional adjustment to the number of outstanding
shares of Series A Participating Preferred Stock by an amount the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
Section 3.
Dividends and Distributions.
(a)
Subject to Section 2 and to the prior and superior rights of the holders of any shares of any series of
Preferred Stock ranking prior and superior to the shares of Series A Participating Preferred Stock with respect to dividends, the
holders of shares of Series A Participating Preferred Stock shall be entitled to receive, when, as and if declared by the Board out
of funds legally available for the purpose, quarterly dividends payable in cash on the last day of October, January, April and
July in each year (each such date being referred to herein as a “Quarterly Dividend Payment Date”), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Participating Preferred
Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (i) $1.00 and (ii) subject to Section 2, 1,000
times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of
all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately
preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A Participating Preferred Stock.
(b)
The Corporation shall declare a dividend or distribution on the Series A Participating Preferred Stock
as provided in paragraph (a) above immediately after it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided, however, that, in the event that no dividend or distribution shall have
been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Series A Participating Preferred Stock shall
nevertheless be payable on such subsequent Quarterly Dividend Payment Date.
(c)
Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Participating
Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A
Participating Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the
date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares
of Series A Participating Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment
Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment
Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Participating Preferred
Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board may fix a record date for
the determination of holders of shares of Series A Participating Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be no more than 60 days prior to the date fixed for the payment thereof.
Section 4.
Voting Rights. The holders of shares of Series A Participating Preferred Stock shall have the
following voting rights:
(a)
Subject to the provision for adjustment hereinafter set forth, each share of Series A Participating
Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters submitted to a vote of the stockholders of the
Corporation. In the event that the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on
Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case the number of votes per share to which
holders of shares of Series A Participating Preferred Stock were entitled immediately prior to such event shall be adjusted by
multiplying such number by a fraction the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(b)
Except as otherwise provided herein, in any other Certificate of Designation creating a series of
Preferred Stock or any similar stock, the Charter or the Amended and Restated Bylaws of the Corporation (the “Bylaws”), or by
law, the holders of shares of Series A Participating Preferred Stock and the holders of shares of Common Stock shall vote
together as one class on all matters submitted to a vote of stockholders of the Corporation.
(c)
Except as set forth herein or as required by law, the holders of Series A Participating Preferred Stock
shall have no special voting rights and their consent shall not be required (except to the extent that they are entitled to vote with
holders of Common Stock as set forth herein) for taking any corporate action.
(d)
(i)
If at any time dividends on any Series A Participating Preferred Stock shall be in arrears in
an amount equal to six quarterly dividends thereon, then the occurrence of such contingency shall mark the beginning of a
period (herein called a “default period”) that shall extend until such time as all accrued and unpaid dividends for all previous
quarterly dividend periods and for the current quarterly dividend period on all shares of Series A Participating Preferred Stock
then outstanding shall have been declared and paid or set apart for payment. During each default period, all holders of Preferred
Stock (including holders of Series A Participating Preferred Stock) with dividends in arrears in an amount equal to six quarterly
dividends thereon, voting as a class, irrespective of series, shall have the right to elect two directors.
(ii)
During any default period, such voting right of the holders of Series A Participating
Preferred Stock may be exercised initially at a special meeting called pursuant to subparagraph (iii)of this Section 4(d) or at any
annual meeting of stockholders, and thereafter at annual meetings of stockholders; provided, however, that such voting right
shall not be exercised unless the holders of at least one-third in number of shares of Preferred Stock outstanding shall be present
in person or by proxy. The absence of a quorum of the holders of Common Stock shall not affect the exercise by the holders of
Preferred Stock of such voting right. At any meeting at which the holders of Preferred Stock shall exercise such voting right
initially during an existing default period, they shall have the right, voting as a class, to elect directors to fill such vacancies, if
any, in the Board as may then exist up to two directors or, if such right is exercised at an annual meeting of stockholders, to
elect two directors. If the number that may be so elected at any special meeting does not amount to the required number, the
holders of Preferred Stock shall have the right to make such increase in the number of directors as shall be necessary to permit
the election by them of the required number. After the holders of Preferred Stock shall have exercised their right to elect
directors in any default period and during the continuance of such period, the number of directors shall not be increased or
decreased except by vote of the holders of Preferred Stock as herein provided or pursuant to the rights of any equity securities
ranking senior to or pari passu with the Series A Participating Preferred Stock.
(iii)
Unless the holders of Preferred Stock shall, during an existing default period, have
previously exercised their right to elect directors, the Board may order, or any stockholder or stockholders owning in the
aggregate not less than 10% of the total number of shares of Preferred Stock outstanding, irrespective of series, may request, the
calling of a special meeting of the holders of Preferred Stock, which meeting shall thereupon be called by the Chairman of the
Board, Chief Executive Officer, President, Chief Financial Officer, Secretary, Assistant Secretary or any Senior Vice President
of the Corporation. Notice of such meeting and of any annual meeting at which holders of Preferred Stock are entitled to vote
pursuant to this paragraph (d)(iii) shall be given to each holder of record of Preferred Stock by mailing a copy of such notice to
such holder at such holder’s last address as the same appears on the books of the Corporation. Such meeting shall be called for
a time not earlier than 20 days and not later than 60 days after such order or request, or in default of the calling of such meeting
within 60 days after such order or request, such meeting may be called on similar notice by any stockholder or stockholders
owning in the aggregate not less than 10% of the total number of shares of Preferred Stock outstanding. Notwithstanding the
provisions of this paragraph (d)(iii), no such special meeting shall be called during the period within 60 days immediately
preceding the date fixed for the next annual meeting of the stockholders.
(iv)
In any default period, the holders of Common Stock and other classes of stock of the
Corporation, if applicable, shall continue to be entitled to elect the whole number of directors until the holders of Preferred
Stock shall have exercised their right to elect two directors voting as a class, after the exercise of which right (A) the directors
so elected by the holders of Preferred Stock shall continue in office until their successors shall have been elected by such
holders or until the expiration of the default period, and (B) any vacancy in the Board may (except as provided in
subparagraph (ii) of this Section 4(d)) be filled by vote of a majority of the remaining directors theretofore elected by the
holders of the class of stock that elected the director whose office shall have become vacant. References in this Section 4(d) to
directors elected by the holders of a particular class of stock shall include directors elected by such directors to fill vacancies as
provided in clause (B) of the foregoing sentence.
(v)
Immediately upon the expiration of a default period, (A) the right of the holders of
Preferred Stock as a class to elect directors shall cease, (B) the term of any directors elected by the holders of Preferred Stock as
a class shall terminate and (C) the number of directors shall be such number as may be provided for in the Charter or the
Bylaws irrespective of any increase made pursuant to the provisions of subparagraph (ii) of this Section 4(d) (such number
being subject, however, to change thereafter in any manner provided by law or in the Charter or Bylaws). Any vacancies in the
Board effected by the provisions of clauses (B) and (C) in the preceding sentence may be filled by a majority of the remaining
directors.
Section 5.
Certain Restrictions.
(a)
The Corporation shall not declare any dividend on, make any distribution on, or redeem or purchase
or otherwise acquire for consideration any shares of Common Stock after the first issuance of a share or fraction of a share of
Series A Participating Preferred Stock unless concurrently therewith it shall declare a dividend on the Series A Participating
Preferred Stock as required by Section 3 hereof.
(b)
Whenever quarterly dividends or other dividends or distributions payable on the Series A
Participating Preferred Stock as provided in Section 3 hereof are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of Series A Participating Preferred Stock outstanding shall have
been paid in full, the Corporation shall not:
(i)
declare or pay dividends on, make any other distributions on, or redeem or purchase or
otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Participating Preferred Stock;
(ii)
declare or pay dividends, or make any other distributions, on any shares of stock ranking on
a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Participating Preferred Stock,
except dividends paid ratably on the Series A Participating Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled;
(iii)
redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a
parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Participating Preferred Stock;
provided, however, that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock
in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or
winding up) to the Series A Participating Preferred Stock; or
(iv)
redeem or purchase or otherwise acquire for consideration any shares of Series A
Participating Preferred Stock, or any shares of stock ranking on a parity with the Series A Participating Preferred Stock, except
in accordance with a purchase offer made in writing or by publication (as determined by the Board) to all holders of such shares
upon such terms as the Board, after consideration of the respective annual dividend rates and other relative rights and
preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among
the respective series or classes.
(c)
The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire
for consideration any shares of stock of the Corporation unless the Corporation could, pursuant to paragraph (a) of this
Section 5, purchase or otherwise acquire such shares at such time and in such manner.
Section 6.
Reacquired Shares. Any shares of Series A Participating Preferred Stock purchased or otherwise
acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All
such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part
of a new series of Preferred Stock to be created by resolution or resolutions of the Board, subject to the conditions and
restrictions on issuance set forth herein, in the Charter or in any other Certificate of Designation creating a series of Preferred
Stock or any similar stock or as otherwise required by law.
Section 7.
Liquidation, Dissolution or Winding Up.
(a)
Upon any liquidation (voluntary or otherwise), dissolution or winding up of the Corporation, no
distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution
or winding up) to the Series A Participating Preferred Stock unless, prior thereto, the holders of shares of Series A Participating
Preferred Stock shall have received an amount equal to $1,000 per share of Series A Participating Preferred Stock, plus an
amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment
(the “Series A Liquidation Preference”). Following the payment of the full amount of the Series A Liquidation Preference, no
additional distributions shall be made to the holders of shares of Series A Participating Preferred Stock unless, prior thereto, the
holders of shares of Common Stock shall have received an amount per share (the “Common Adjustment”) equal to the
quotient obtained by dividing (i) the Series A Liquidation Preference by (ii) 1,000 (as appropriately adjusted to reflect events as
stock splits, stock dividends and recapitalizations with respect to the Common Stock) (such number in clause (ii), the
“Adjustment Number”). Following the payment of the full amount of the Series A Liquidation Preference and the Common
Adjustment in respect of all outstanding shares of Series A Participating Preferred Stock and Common Stock, respectively,
holders of Series A Participating Preferred Stock and holders of shares of Common Stock shall receive their ratable and
proportionate share of the remaining assets to be distributed in the ratio of the Adjustment Number to one with respect to such
Preferred Stock and Common Stock, on a per share basis, respectively.
(b)
In the event, however, that there are not sufficient assets available to permit payment in full of the
Series A Liquidation Preference and the liquidation preferences of all other series of Preferred Stock, if any, that rank on a
parity with the Series A Participating Preferred Stock, then such remaining assets shall be distributed ratably to the holders of
such parity shares in proportion to their respective liquidation preferences. In the event, however, that there are not sufficient
assets available to permit payment in full of the Common Adjustment, then such remaining assets shall be distributed ratably to
the holders of Common Stock.
(c)
In the event that the Corporation shall at any time after the Rights Declaration Date (i) declare any
dividend on the Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock or
(iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Corporation shall
simultaneously effect a proportional adjustment to the Adjustment Number in effect immediately prior to such event by an
amount the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
Section 8.
Consolidation, Merger, etc. In the event that the Corporation shall enter into any consolidation,
merger, combination, conversion, share exchange or other transaction in which the shares of Common Stock are exchanged for
or changed into other stock, securities, cash and/or any other property (payable in kind), then in any such case the shares of
Series A Participating Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject
to Section 2) equal to 1,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as
the case may be, into which or for which each share of Common Stock is changed or exchanged.
Section 9.
No Redemption. The shares of Series A Participating Preferred Stock shall not be redeemable.
Section 10.
Ranking. The Series A Participating Preferred Stock shall rank junior to all other series of the
Preferred Stock as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provide
otherwise.
Section 11.
Amendment. At any time when any shares of Series A Participating Preferred Stock are outstanding,
neither the Charter nor this Certificate of Designation shall be amended in any manner that would materially alter or change the
powers, preferences or special rights of the Series A Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A Participating Preferred Stock, voting
separately as a class.
Section 12.
Fractional Shares. Series A Participating Preferred Stock may be issued in fractions of a share that
shall entitle the holder, in proportion to such holder’s fractional shares, to exercise voting rights, receive dividends, participate
in distributions and to have the benefit of all other rights of holders of Series A Participating Preferred Stock.
*
*
*
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of the 6th day of September, 2016.
AVIAT NETWORKS, INC.
By:
______________________
Name:
Title:
Certificate No. R-[•]
FORM OF
RIGHTS CERTIFICATE
Exhibit B
[•] Rights
NOT EXERCISABLE AFTER SEPTEMBER 6, 2019, OR SUCH EARLIER DATE AS THE RIGHTS ARE
REDEEMED, EXCHANGED OR TERMINATED. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT
THE OPTION OF THE COMPANY (AS DEFINED BELOW), AT $0.01 PER RIGHT, AND EXCHANGE,
IN EACH CASE PURSUANT TO THE TERMS SET FORTH IN THE PLAN (AS DEFINED BELOW).
UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING
PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE
DEFINED IN THE PLAN) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME
NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE
BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN
AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON. ACCORDINGLY, THIS RIGHTS
CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND VOID IN
THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF THE PLAN.] 1
________________________
1.
The portion of the legend in brackets is to be inserted only if applicable and will replace the
preceding sentence
RIGHTS CERTIFICATE
AVIAT NETWORKS, INC.
This certifies that ______________________________, or registered assigns, is the registered owner of the number of
Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Tax
Benefit Preservation Plan, dated as of September 6, 2016 (the “Plan”), between Aviat Networks, Inc., a Delaware corporation
(the “Company”), and Computershare Inc., a Delaware corporation (the “Rights Agent,” which term shall include any
successor Rights Agent pursuant to the Plan), to purchase from the Company at any time after the Distribution Date (as such
term is defined in the Plan) and prior to the Expiration Date (as such term is defined in the Plan) at the office of the Rights
Agent designated for such purpose, or at the office of its successor as Rights Agent, one one-thousandth of a fully paid and
nonassessable share of Series A Participating Preferred Stock, par value $0.01 per share (the “Preferred Shares”), of the
Company, at an exercise price of $35.00 per one one-thousandth of a Preferred Share (the “Exercise Price”), upon presentation
and surrender of this Rights Certificate with the Form of Election to Purchase and related Certificate duly executed. The
number of Rights evidenced by this Rights Certificate (and the number of one one-thousandths of a Preferred Share that may be
purchased upon exercise hereof) set forth above, and the Exercise Price per share set forth above, are the number and Exercise
Price as of September 6, 2016, based on the Preferred Shares as constituted at such date. As provided in the Plan, the Exercise
Price and the number and kind of Preferred Shares or other securities that may be purchased upon the exercise of the Rights
evidenced by this Rights Certificate are subject to modification and adjustment upon the occurrence of certain events. The
Company reserves the right to require prior to the occurrence of a Triggering Event (as such term is defined in the Plan) that a
number of Rights be exercised so that only whole Preferred Shares will be issued. Capitalized terms used in this Rights
Certificate without definition shall have the meanings ascribed to them in the Plan.
Upon the occurrence of a Section 11(a)(ii) Event, if the Rights evidenced by this Rights Certificate are beneficially
owned by an Acquiring Person, an Affiliate or Associate of an Acquiring Person, a Post-Event Transferee, a Pre-Event
Transferee, a Subsequent Transferee or any nominee of any of the foregoing, such Rights shall become null and void and no
holder hereof shall have any right with respect to such Rights from and after the occurrence of such Section 11(a)(ii) Event.
This Rights Certificate is subject to all of the terms, provisions and conditions of the Plan, which terms, provisions and
conditions are hereby incorporated herein by reference and made a part hereof and to which Plan reference is hereby made for a
full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the
Company and the holders of the Rights Certificates, which limitations of rights include the temporary suspension of the
exercisability of such Rights under the specific circumstances set forth in the Plan. Copies of the Plan are on file at the principal
executive offices of the Company and the above-mentioned office of the Rights Agent and are available without cost upon
written request.
Subject to the provisions of the Plan, the Rights evidenced by this Rights Certificate may be redeemed by the
Company, at its option, at a redemption price of $0.01 per Right at any time prior to the earlier of (i) the Distribution Date or
(ii) the Close of Business on the Final Expiration Date. In addition, under certain circumstances after any Person becomes an
Acquiring Person, the Rights may be exchanged, in whole or in part, for Common Shares, or cash other securities of the
Company having essentially the same value or economic rights as such shares. Immediately upon the action of the Board
authorizing any such exchange, and without any further action or any notice, the Rights (other than Rights that are not subject
to such exchange) will terminate and the Rights will only enable holders to receive the Common Shares (or cash or other
securities or assets of the Company) issuable upon such exchange.
This Rights Certificate, with or without other Rights Certificates, upon surrender at the office of the Rights Agent
designated for such purpose, may be exchanged for another Rights Certificate or Rights Certificates of like tenor and date
evidencing Rights entitling the holder to purchase a like number of one one-thousandths of a Preferred Share as the Rights
evidenced by the Rights Certificate or Rights Certificates surrendered shall have entitled such holder to purchase. If this Rights
Certificate is exercised in part, then the holder will be entitled to receive upon surrender hereof another Rights Certificate or
Rights Certificates for the number of whole Rights not exercised.
No fractions of Preferred Shares (other than fractions that are integral multiples of one one-thousandth of a Preferred
Share, which may, at the election of the Company, be evidenced by depositary receipts) will be issued upon the exercise of any
Right or Rights evidenced hereby. In lieu thereof, a cash payment will be made as provided in the Plan. The Company, at its
election, may require that a number of Rights be exercised so that only whole Preferred Shares would be issued.
No holder of this Rights Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any
purpose the holder of the number of one one-thousandths of a Preferred Share or any other securities of the Company that may
at any time be issuable on the exercise or exchange hereof, nor shall anything contained in herein or in the Plan be construed to
confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate
action, or to receive notice of meetings or other actions affecting stockholders (except as specifically provided in the Plan), or to
receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by this Rights Certificate shall have
been exercised or exchange in accordance with the Plan.
This Rights Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the
Rights Agent.
*
*
*
WITNESS the facsimile signature of the proper officers of the Company and its corporate seal.
Dated as of _______________, 20[•].
ATTEST:
AVIAT NETWORKS, INC.
By: ____________________________________
By: ___________________________________
Name:
Title:
Name:
Title:
Countersigned:
COMPUTERSHARE INC.,
as Rights Agent
By:_____________________________________
Name:
Title:
[Form of Reverse Side of Rights Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate.)
FOR VALUE RECEIVED _____________________ hereby sells, assigns and transfers unto
____________________________________________________________________________________________________
(Please print name and address of transferee)
this Rights Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint
__________________________ as attorney-in-fact to transfer the within Rights Certificate on the books of the Company, with
full power of substitution.
Dated: ____________________.
Signature Medallion Guaranteed:
______________________
Signature
Signatures must be guaranteed by an “Eligible Guarantor Institution” (with membership in an approved signature
guarantee medallion program at a level acceptable to the Rights Agent) pursuant to Rule 17Ad-15 of the Securities Exchange
Act of 1934, as amended. All guarantees must be by a financial institution (such as a bank or broker) that is a participant in the
Securities Transfer Agents Medallion Program (STAMP), the NASDAQ Medallion Signature Program (MSP) or the Stock
Exchanges Medallion Program (SEMP) and must not be dated. Guarantees by a notary public are not acceptable.
CERTIFICATE
The undersigned hereby certifies, for the benefit of the Company and all holders of Rights and Common Shares, by checking
the appropriate boxes that:
(1)
the Right(s) evidenced by this Rights Certificate are not Beneficially Owned and
are
are not
being sold, assigned and transferred by or on behalf of a Person who is or was an Acquiring Person, an
Affiliate or Associate of an Acquiring Person, a Post-Event Transferee, a Pre-Event Transferee, a Subsequent
Transferee or any nominee of any of the foregoing; and
after due inquiry and to the best knowledge of the undersigned, it
(2)
did
did not
acquire the Rights evidenced by this Rights Certificate from any Person who is, was or subsequently became
an Acquiring Person, an Affiliate or Associate of an Acquiring Person, a Post-Event Transferee, a Pre-Event
Transferee, a Subsequent Transferee or any nominee of any of the foregoing.
Dated: ____________________.
Signature Medallion Guaranteed:
______________________
Signature
Signatures must be guaranteed by an “Eligible Guarantor Institution” (with membership in an approved signature
guarantee medallion program at a level acceptable to the Rights Agent) pursuant to Rule 17Ad-15 of the Securities Exchange
Act of 1934, as amended. All guarantees must be by a financial institution (such as a bank or broker) that is a participant in the
Securities Transfer Agents Medallion Program (STAMP), the NASDAQ Medallion Signature Program (MSP) or the Stock
Exchanges Medallion Program (SEMP) and must not be dated. Guarantees by a notary public are not acceptable.
[Form of Reverse Side of Rights Certificate - continued]
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to
exercise Rights represented by the Rights Certificate.)
To: Aviat Networks, Inc.
The undersigned hereby irrevocably elects to exercise _________________________ Rights represented by this Rights
Certificate to purchase the number of one one-thousandths of a Preferred Share (or such other securities of the Company or of
any other Person that may be issuable upon the exercise of the Rights) issuable upon the exercise of such Rights and requests
that certificates for such shares be issued in the name of and delivered to:
Please insert social security
or other identifying number
_____________________________________________________________________________________________
(Please print name and address)
If such number of Rights shall not be all of the Rights evidenced by this Rights Certificate, a new Rights Certificate for the
balance remaining of such Rights shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
_____________________________________________________________________________________________
(Please print name and address)
Dated: ____________________.
Signature Medallion Guaranteed:
______________________
Signature
Signatures must be guaranteed by an “Eligible Guarantor Institution” (with membership in an approved signature
guarantee medallion program at a level acceptable to the Rights Agent) pursuant to Rule 17Ad-15 of the Securities Exchange
Act of 1934, as amended. All guarantees must be by a financial institution (such as a bank or broker) that is a participant in the
Securities Transfer Agents Medallion Program (STAMP), the NASDAQ Medallion Signature Program (MSP) or the Stock
Exchanges Medallion Program (SEMP) and must not be dated. Guarantees by a notary public are not acceptable.
CERTIFICATE
The undersigned hereby certifies, for the benefit of the Company and all holders of Rights and Common Shares, by
checking the appropriate boxes that:
(1)
the Right(s) evidenced by this Rights Certificate are not Beneficially Owned and
are
are not
being sold, assigned and transferred by or on behalf of a Person who is or was an Acquiring Person, an Affiliate or
Associate of an Acquiring Person, a Post-Event Transferee, a Pre-Event Transferee, a Subsequent Transferee or any
nominee of any of the foregoing; and
after due inquiry and to the best knowledge of the undersigned, it
(2)
did
did not
acquire the Rights evidenced by this Rights Certificate from any Person who is, was or subsequently became an
Acquiring Person, an Affiliate or Associate of an Acquiring Person, a Post-Event Transferee, a Pre-Event Transferee, a
Subsequent Transferee or any nominee of any of the foregoing.
Dated: ____________________.
Signature Medallion Guaranteed:
______________________
Signature
Signatures must be guaranteed by an “Eligible Guarantor Institution” (with membership in an approved signature
guarantee medallion program at a level acceptable to the Rights Agent) pursuant to Rule 17Ad-15 of the Securities Exchange
Act of 1934, as amended. All guarantees must be by a financial institution (such as a bank or broker) that is a participant in the
Securities Transfer Agents Medallion Program (STAMP), the NASDAQ Medallion Signature Program (MSP) or the Stock
Exchanges Medallion Program (SEMP) and must not be dated. Guarantees by a notary public are not acceptable.
[Form of Reverse Side of Rights Certificate - continued]
NOTICE
The signature in the foregoing Forms of Assignment and Election to Purchase, as the case may be, must conform to the
name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change
whatsoever.
IN THE EVENT THAT THE CERTIFICATIONS SET FORTH IN THE FOREGOING FORMS OF
ASSIGNMENT AND ELECTION TO PURCHASE, AS THE CASE MAY BE, ARE NOT COMPLETED, THEN THE
COMPANY AND THE RIGHTS AGENT WILL DEEM THE BENEFICIAL OWNER OF THE RIGHTS EVIDENCED
BY THIS RIGHT CERTIFICATE TO BE AN ACQUIRING PERSON, AN AFFILIATE OR ASSOCIATE OF AN
ACQUIRING PERSON, A POST-EVENT TRANSFEREE, A PRE-EVENT TRANSFEREE, A SUBSEQUENT
TRANSFEREE OR ANY NOMINEE OF ANY OF THE FOREGOING, AS THE CASE MAY BE, AND SUCH
ASSIGNMENT OR ELECTION TO PURCHASE WILL NOT BE HONORED AND THE RIGHTS EVIDENCED BY
THIS RIGHTS CERTIFICATE WILL BE DEEMED TO BE NULL AND VOID.
Exhibit C
FORM OF
SUMMARY OF RIGHTS
SUMMARY OF
TAX BENEFIT PRESERVATION PLAN
OF
AVIAT NETWORKS, INC.
On September 6, 2016, the Board of Directors (the “Board”) of Aviat Networks, Inc. (the “Company”) authorized and
declared a dividend distribution of one right (a “Right”) for each outstanding share of common stock, par value $0.01 per share
(the “Common Shares”), of the Company to stockholders of record as of the close of business on September 16, 2016 (the
“Record Date”). Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of
Series A Participating Preferred Stock, par value $0.01 per share (the “Preferred Shares”), of the Company at an exercise price
of $35.00 (the “Exercise Price”) per one one-thousandth of a Preferred Share, subject to adjustment. The complete terms of the
Rights are set forth in a Tax Benefit Preservation Plan (the “Plan”), dated as of September 6, 2016, between the Company and
Computershare Inc., as rights agent.
By adopting the Plan, the Board is seeking to protect the Company’s ability to use its net operating losses, any loss or
deducting attributable to a “net unrealized built-in loss” and other tax attributes (collectively, “Tax Benefits”). The Company
views its Tax Benefits as highly valuable assets of the Company that are likely to inure to the benefit of the Company and its
stockholders. However, if the Company experiences an “ownership change,” as defined in Section 382 of the Internal Revenue
Code (the “Code”), its ability to use the Tax Benefits could be substantially limited, and the timing of the usage of the Tax
Benefits could be substantially delayed, which could significantly impair the value of the Tax Benefits. Generally, an
“ownership change” occurs if the percentage of the Company’s stock owned by one or more “five percent stockholders”
increases by more than 50 percentage points over the lowest percentage of stock owned by such stockholders at any time during
the prior three-year period or, if sooner, since the last “ownership change” experienced by the Company. The Plan is intended to
act as a deterrent to any person acquiring 4.9% or more of the outstanding Common Shares without the approval of the Board.
This would protect the Tax Benefits because changes in ownership by a person owning less than 4.9% of the Common Shares
are not included in the calculation of “ownership change” for purposes of Section 382 of the Code. The Board believes that it is
in the best interest of the Company and its stockholders that the Company provide for the protection of the Tax Benefits by
adopting the Plan.
For those interested in the specific terms of the Plan, the following is a summary description. Please note, however,
that this description is only a summary and is not complete, and should be read together with the entire Plan, which will be filed
by the Company with the Securities and Exchange Commission as an exhibit to a Registration Statement on Form 8-A and a
Current Report on Form 8-K. A copy of the Plan is available free of charge from the Company.
Distribution and Transfer
of Rights; Rights
Certificates:
The Board has declared a dividend of one Right for each outstanding Common Share. Prior to
the Distribution Date referred to below:
• the Rights will be evidenced by and trade with the certificates for the Common Shares (or,
with respect to any uncertificated Common Shares registered in book entry form, by
notation in book entry), and no separate rights certificates will be distributed;
• new Common Shares certificates issued after the Record Date will contain a legend
incorporating the Plan by reference (for uncertificated Common Shares registered in book
entry form, this legend will be contained in a notation in book entry); and
• the surrender for transfer of any certificates for Common Shares (or the surrender for
transfer of any uncertificated Common Shares registered in book entry form) will also
constitute the transfer of the Rights associated with such Common Shares.
Rights will accompany any new Common Shares that are issued after the Record Date.
Distribution Date:
Subject to certain exceptions specified in the Plan, the Rights will separate from the Common
Shares and become exercisable following (1) the 10th business day (or such later date as may
be determined by the Board) after the public announcement that a person or group of affiliated
or associated persons (an “Acquiring Person”) has acquired beneficial ownership of 4.9% or
more of the Common Shares or (2) the 10th business day (or such later date as may be
determined by the Board) after a person or group announces a tender or exchange offer that
would result in ownership by a person or group of 4.9% or more of the Common Shares. For
purposes of the Plan, beneficial ownership is defined to include the ownership of derivative
securities.
Any person or group of affiliated or associated persons who beneficially owns 4.9% or more of
the outstanding Common Shares as of the announcement of the Plan will not be an Acquiring
Person, but only for so long as such person or group does not become the beneficial owner of
any additional Common Shares.
The date on which the Rights separate from the Common Shares and become exercisable is
referred to as the “Distribution Date.”
After the Distribution Date, the Company will mail Rights certificates to the Company’s
stockholders as of the close of business on the Distribution Date and the Rights will become
transferable apart from the Common Shares. Thereafter, such Rights certificates alone will
represent the Rights.
Preferred Shares
Purchasable Upon Exercise
of Rights:
After the Distribution Date, each Right will entitle the holder to purchase, for the Exercise
Price, one one-thousandth of a Preferred Share having economic and other terms similar to that
of one Common Share. This portion of a Preferred Share is intended to give the stockholder
approximately the same dividend, voting and liquidation rights as would one Common Share,
and should approximate the value of one Common Share.
More specifically, each one one-thousandth of a Preferred Share, if issued, will:
• not be redeemable;
• entitle holders to quarterly dividend payments of $0.01 per share, or an amount equal to the
dividend paid on one Common Share, whichever is greater;
• entitle holders upon liquidation either to receive $1.00 per share or an amount equal to the
payment made on one Common Share, whichever is greater;
• have the same voting power as one Common Share; and
• entitle holders to a per share payment equal to the payment made on one Common Share if
the Common Shares are exchanged via merger, consolidation or a similar transaction.
If an Acquiring Person obtains beneficial ownership of 4.9% or more of the Common Shares,
except pursuant to an offer for all outstanding Common Shares that the independent members
of the Board determine to be fair and not inadequate and to otherwise be in the best interests of
the Company and its stockholders after receiving advice from one or more investment banking
firms, then each Right will entitle the holder thereof to purchase, for the Exercise Price, a
number of Common Shares (or, in certain circumstances, cash, property or other securities of
the Company) having a then-current market value of twice the Exercise Price. However, the
Rights are not exercisable following the occurrence of the foregoing event until such time as
the Rights are no longer redeemable by the Company, as further described below.
Following the occurrence of an event set forth in preceding paragraph, all Rights that are or,
under certain circumstances specified in the Plan, were beneficially owned by an Acquiring
Person or certain of its transferees will be null and void.
If, after an Acquiring Person obtains 4.9% or more of the Common Shares, (1) the Company
merges into another entity, (2) an acquiring entity merges into the Company or (3) the
Company sells or transfers more than 50% of its assets, cash flow or earning power, then each
Right (except for Rights that have previously been voided as set forth above) will entitle the
holder thereof to purchase, for the Exercise Price, a number of shares of common stock of the
person engaging in the transaction having a then-current market value of twice the Exercise
Price.
Flip-In Trigger:
Flip-Over Trigger:
Redemption of the Rights:
Exchange Provision:
Expiration of the Rights:
The Rights will be redeemable at the Company’s option for $0.01 per Right (payable in cash,
Common Shares or other consideration deemed appropriate by the Board) at any time on or
prior to the 10th business day (or such later date as may be determined by the Board) after the
public announcement that an Acquiring Person has acquired beneficial ownership of 4.9% or
more of the Common Shares. Immediately upon the action of the Board ordering redemption,
the Rights will terminate and the only right of the holders of the Rights will be to receive the
$0.01 redemption price. The redemption price will be adjusted if the Company undertakes a
stock dividend or a stock split.
At any time after the date on which an Acquiring Person beneficially owns 4.9% or more of
the Common Shares and prior to the acquisition by the Acquiring Person of 50% of the
Common Shares, the Board may exchange the Rights (except for Rights that have previously
been voided as set forth above), in whole or in part, for Common Shares at an exchange ratio
of one Common Share per Right (subject to adjustment). In certain circumstances, the
Company may elect to exchange the Rights for cash or other securities of the Company having
a value approximately equal to one Common Share.
The Rights expire on the earliest of (1) 5:00 p.m., New York City time, on September 6, 2019
(unless such date is extended); (2) the redemption or exchange of the Rights as described
above; (3) following (a) the first annual meeting of the stockholders of the Company after the
adoption of the Plan if stockholders do not approve the Plan or (b) the first anniversary of the
adoption of the Plan if the stockholders have not otherwise approved the Plan; (4) the repeal of
Section 382 of the Code or any other change if the Board determines that the Plan is no longer
necessary or desirable for the preservation of the Tax Benefits; (5) the time at which the Board
determines that the Tax Benefits are fully utilized or no longer available pursuant to Section
382 of the Code or that an ownership change pursuant to Section 382 of the Code would not
adversely impact in any material respect the time period in which the Company could use the
Tax Benefits, or materially impair the amount of the Tax Benefits that could be used by the
Company in any particular time period, for applicable tax purposes; or (6) a determination by
the Board that the Plan is no longer in the best interests of the Company and its stockholders.
Amendment of Terms of
Plan and Rights:
The terms of the Rights and the Plan may be amended in any respect without the consent of
the holders of the Rights on or prior to the Distribution Date. Thereafter, the terms of the
Rights and the Plan may be amended without the consent of the holders of Rights in order to
(1) cure any ambiguities, (2) shorten or lengthen any time period pursuant to the Plan or
(3) make changes that do not adversely affect the interests of holders of the Rights.
Voting Rights; Other
Stockholder Rights:
The Rights will not have any voting rights. Until a Right is exercised, the holder thereof, as
such, will have no separate rights as stockholder of the Company.
Anti-Dilution Provisions:
The Board may adjust the Exercise Price, the number of Preferred Shares issuable and the
number of outstanding Rights to prevent dilution that may occur from a stock dividend, a stock
split or a reclassification of the Preferred Shares or Common Shares.
With certain exceptions, no adjustments to the Exercise Price will be made until the
cumulative adjustments amount to at least 1% of the Exercise Price. No fractional Preferred
Shares will be issued and, in lieu thereof, an adjustment in cash will be made based on the
current market price of the Preferred Shares.
Taxes:
The distribution of Rights should not be taxable for federal income tax purposes. However,
following an event that renders the Rights exercisable or upon redemption of the Rights,
stockholders may recognize taxable income.
[This page intentionally left blank]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________
(Mark One)
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 1, 2016
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-33278
______________________________
AVIAT NETWORKS, INC.
(Exact name of registrant as specified in its charter)
______________________________
Delaware
(State or other jurisdiction of incorporation or organization)
5200 Great America Parkway
Santa Clara, California
(Address of principal executive offices)
20-5961564
(I.R.S. Employer Identification No.)
95054
(Zip Code)
Registrant’s telephone number, including area code: (408) 567-7000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $0.01 per share
Preferred Shares Purchase Rights
Name of Each Exchange on Which Registered
NASDAQ Stock Market LLC
(NASDAQ Global Select Market)
Securities registered pursuant to Section 12(g) of the Act: None
_____________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
No
Act. Yes
No
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
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of January 1, 2016 (the last business day of the registrant’s most recently completed second fiscal quarter), the aggregate market
value of the registrant’s common stock held by non-affiliates was approximately $31.0 million based upon the closing price for shares of the
registrant’s common stock as reported by the NASDAQ Global Select Market on that date. For purposes of this calculation, the registrant has
assumed that its directors, executive officers and holders of 5% or more of the outstanding common stock are affiliates.
No
The number of shares outstanding of the registrant’s common stock as of August 18, 2016 was 5,261,041 shares.
_________________________________
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for its Annual Meeting of Stockholders, which will be filed with the Securities and
Exchange Commission within 120 days after the end of the registrant’s fiscal year ended July 1, 2016, are incorporated by reference into
Part III of this Annual Report on Form 10-K.
AVIAT NETWORKS, INC.
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended July 1, 2016
Table of Contents
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1.
Item 1A.
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B.
Unresolved Staff Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Item 3.
Item 4.
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 5.
Item 6.
Item 7.
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . .
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Item 9.
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. . . . . . . . . .
Item 9A.
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B.
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . . . . .
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 15.
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Schedule II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
5
14
26
26
27
27
28
28
30
31
45
46
82
82
84
85
85
85
85
85
85
86
86
87
88
89
2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, including “Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations,” contains forward-looking statements that involve risks and uncertainties, as well as assumptions
that, if they do not materialize or prove correct, could cause our results to differ materially from those expressed or implied
by such forward-looking statements. All statements other than statements of historical fact are statements that could be
deemed forward-looking statements, including statements of, about, concerning or regarding: our plans, strategies and
objectives for future operations, including with respect to growing our business and sustaining profitability; our restructuring
efforts; our research and development efforts and new product releases and services; trends in revenue; drivers of our
business and the markets in which we operate; future economic conditions; performance or outlook and changes in our
industry and the markets we serve; the outcome of contingencies; the value of our contract awards; beliefs or expectations;
the sufficiency of our cash and our capital needs and expenditures; our intellectual property protection; our compliance with
regulatory requirements and the associated expenses; expectations regarding litigation; our intention not to pay cash
dividends; seasonality of our business; the impact of foreign exchange and inflation; taxes; and assumptions underlying any
of the foregoing. Forward-looking statements may be identified by the use of forward-looking terminology, such as
“anticipates,” “believes,” “expects,” “may,” “should,” “would,” “will,” “intends,” “plans,” “estimates,” “strategy,” “projects,”
“targets,” “goals,” “seeing,” “delivering,” “continues,” “forecasts,” “future,” “predict,” “might,” “could,” “potential,” or the
negative of these terms, and similar words or expressions.
These forward-looking statements are based on estimates reflecting the current beliefs of the senior management of
Aviat Networks. These forward-looking statements involve a number of risks and uncertainties that could cause actual results
to differ materially from those suggested by the forward-looking statements. Forward-looking statements should therefore be
considered in light of various important factors, including those set forth in this Annual Report on Form 10-K. Important
factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking
statements include, but are not limited to, the following:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
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continued price and margin erosion as a result of increased competition in the microwave transmission industry;
the impact of the volume, timing and customer, product and geographic mix of our product orders;
our ability to meet financial covenant requirements which could impact, among other things, our liquidity;
the timing of our receipt of payment for products or services from our customers;
our ability to meet projected new product development dates or anticipated cost reductions of new products;
our suppliers’ inability to perform and deliver on time as a result of their financial condition, component
shortages or other supply chain constraints;
customer acceptance of new products;
the ability of our subcontractors to timely perform;
continued weakness in the global economy affecting customer spending;
retention of our key personnel;
our ability to manage and maintain key customer relationships;
uncertain economic conditions in the telecommunications sector combined with operator and supplier
consolidation;
our failure to protect our intellectual property rights or defend against intellectual property infringement claims
by others;
the results of our restructuring efforts;
the ability to preserve and use our net operating loss carryforwards;
the effects of currency and interest rate risks; and
the impact of political turmoil in countries where we have significant business.
Other factors besides those listed here also could adversely affect us. See “Item 1A. Risk Factors” in this Annual Report
on Form 10-K for more information regarding factors that may cause our results to differ materially from those expressed or
implied by the forward-looking statements contained in this Annual Report on Form 10-K.
You should not place undue reliance on these forward-looking statements, which reflect our management’s opinions
only as of the date of the filing of this Annual Report on Form 10-K. Forward-looking statements are made in reliance upon
the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, along with provisions of the Private Securities Litigation Reform Act of 1995, and we
undertake no obligation, other than as imposed by law, to update any forward-looking statements to reflect further
3
developments or information obtained after the date of filing of this Annual Report on Form 10-K or, in the case of any
document incorporated by reference, the date of that document.
4
Item 1. Business
PART I
Aviat Networks, Inc., together with its subsidiaries, is a global supplier of microwave networking solutions, backed
by an extensive suite of professional services and support. Aviat Networks, Inc. may be referred to as “the Company,”
“AVNW,” “Aviat Networks,” “we,” “us” and “our” in this Annual Report on Form 10-K.
We were incorporated in Delaware in 2006 to combine the businesses of Harris Corporation’s Microwave
Communications Division (“MCD”) and Stratex Networks, Inc. (“Stratex”). On January 28, 2010, we changed our
corporate name from Harris Stratex Networks, Inc. to Aviat Networks, Inc.
Our principal executive offices are located at 5200 Great America Parkway, Santa Clara, California 95054, and our
telephone number is (408) 567-7000. Our common stock is listed on the NASDAQ Global Select Market under the
symbol AVNW. As of July 1, 2016, we employed approximately 720 people, compared with approximately 780 people
as of July 3, 2015.
Overview and Description of the Business
We design, manufacture and sell a range of wireless networking products, solutions and services to mobile and
fixed public network operators, private network operators, Federal, State and Local government agencies, transportation,
energy and utility companies, public safety agencies and broadcast network operators around the world. We sell products
and services directly to our customers and also use agents and resellers.
Our products utilize microwave and millimeter wave technologies to create point to point wireless links for short,
medium and long distance interconnections. Our products incorporate Ethernet switching and IP routing capabilities to
form complete networking solutions. We also provide network management software tools to enable our customers to
deploy, monitor and manage our systems; third party equipment such as antennas, routers, optical transmission
equipment and other equipment necessary to build and deploy a complete telecommunications transmission network. We
provide a full suite of professional services for planning, deployment, operations and maintenance of our customers’
networks.
Our wireless systems deliver urban, suburban, regional and country-wide communications links as the primary
alternative to fiber optic connections. In dense urban and suburban areas, short range wireless solutions are faster to
deploy and lower cost per mile than new fiber deployments. In developing nations, fiber infrastructure is scarce and
wireless systems are used for both long and short distance connections. Wireless systems also have advantages over
optical fiber in areas with rugged terrain, and to provide connections over bodies of water such as between islands or
even oil and gas production platforms.
Revenue from our North America and international regions represented approximately 47% and 53%, respectively,
of our revenue in fiscal 2016, 46% and 54%, respectively, of our revenue in fiscal 2015, and 41% and 59%, respectively,
of our revenue in fiscal 2014. Information about our revenue attributable to our geographic regions is set forth in “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in “Note 9. Segment and
Geographic Information” of the accompanying consolidated financial statements in this Annual Report on Form 10-K.
Market Overview
We believe that future demand for microwave and millimeter wave transmission systems will be influenced by a
number of factors across several market segments.
Mobile Networks
As mobile networks expand, add subscribers and increase the number of wirelessly connected devices, sensors and
machines, they require investment in backhaul infrastructure. Whether mobile network operators choose to self-build this
backhaul infrastructure or lease backhaul services from other network providers, the evolution of the network drives
demand for transmission technologies such as microwave and millimeter wave wireless backhaul. Within this overall
scope there are multiple individual drivers for investment in backhaul infrastructure.
• New RAN Technologies. Mobile Radio Access Network (“RAN”) technologies are continually evolving.
With evolution from 2G to 3G (HSPA), 4G (HSPA+ and LTE), and next 5G standards, technology is
rapidly advancing and providing subscribers with higher speed access to the Internet, social media, and
5
video streaming services. The rapid increases in data to be transported through the RAN and across the
backhaul infrastructure drives requirements for higher data transport links necessitating upgrades to or
replacement of the existing backhaul infrastructure.
•
Subscriber Growth. Traffic on the backhaul infrastructure increases as the number of unique subscribers
grows.
• Connected Devices. The number of devices such as smart phones and tablets connected to the mobile
network is far greater than the number of unique subscribers and is continuing to grow as consumers adopt
multiple mobile device types. There is also rapid growth in the number and type of wireless enabled sensors
and machines being connected to the mobile network creating new revenue streams for network operators
in healthcare, agriculture, transportation and education. As a result, the data traffic crossing the backhaul
infrastructure continues to grow rapidly.
•
IoT. The Internet of Things (“IoT”) brings the potential of massive deployment of wireless end points for
sensing and reporting data and remotely controlling machines and devices. The increase of data volume
drives investment in network infrastructure.
• RAN Capacity. RAN frequency spectrum is a limited resource and shared between all of the devices and
users within the coverage area of each base station. Meeting the combined demand of increasing
subscribers and devices will require the deployment of much higher densities of base stations with smaller
and smaller range (small cells) each requiring backhaul.
• Geographic Coverage. Expanding the geographic area covered by a mobile network requires the
deployment of additional Cellular Base Station sites. Each additional base station site also needs to be
connected to the core of the mobile network through expansion of the backhaul system.
•
License Mandates. Mobile Operators are licensed telecommunications service providers. Licenses will
typically mandate a minimum geographic footprint within a specific period of time and/or a minimum
proportion of a national or regional population served. This can pace backhaul infrastructure investment
and cause periodic spikes in demand.
• Evolution to IP. Network Infrastructure capacity, efficiency and flexibility is greatly enhanced by
transitioning from legacy SDH (synchronous digital hierarchy) / SONET (synchronous optical network) /
TDM (time division multiplexing) to IP (internet protocol) infrastructure. Our products offer integrated IP
transport and routing functionality increasing the value they bring in the backhaul network.
•
Expansion of Offered Services. Mobile network operators especially in emerging markets now own and
operate the most modern communications networks within their respective regions. These network assets
can be further leveraged to provide high speed broadband services to fixed locations such as small, medium
and large business enterprises, airports, hotels, hospitals, and educational institutions. Microwave and
millimeter wave backhaul is ideally suited to providing high speed broadband connections to these end
points due to the lack of fiber infrastructure.
Other Vertical Markets
In addition to mobile backhaul, we see demand for microwave technology in other vertical markets, including
utility, public safety, financial institutions and broadcast.
• Many utility companies around the world are actively investing in Smart Grid solutions and energy demand
management, which drive the need for network modernization and increased capacity of networks.
• The investments in network modernization in the public safety market can significantly enhance the
capabilities of security agencies. Improving border patrol effectiveness, enabling inter-operable emergency
communications services for local or state police, providing access to timely information from centralized
databases, or utilizing video and imaging devices at the scene of an incident requires a high bandwidth and
reliable network. The mission critical nature of Public Safety and National security networks can require
that these networks are built, operated and maintained independently of other public network infrastructure
and microwave is very well suited to this environment because it is a cost-effective alternative to fiber.
• Microwave technology can be used to engineer long distance and more direct connections than Optical
Cable. Microwave signals also travel through the air much faster than light through glass and the combined
effect of shorter distance and higher speed reduces latency, which is valued for trading applications in the
6
financial industry. Our products have already been used to create low latency connections between major
centers in the United States (“U.S.”), Europe and Asia and we see long-term interest in the creation of
further low latency routes in various geographies around the world.
• The enhancement of Border Security and Surveillance networks to counter terrorism and insurgency is
aided by the use of wireless technologies including microwave backhaul.
These factors are combining to create a range of opportunities for continued investment in backhaul and transport
networks favoring microwave and millimeter wave technologies. As we focus on our execution of the future generations
of our technology, our goal is to make wireless a viable choice for an ever broadening range of network types.
Strategy
Over the past year, we continued to invest in our microwave and IP Routing solutions, especially in expanding the
software enabled features and functions of our CTR 8000 platform. The CTR is a transformational microwave product
line since it efficiently integrates microwave transport and IP routing in a single solution. The software defined
functionality of the CTR platform allows us to expand its capability over time and create further revenue generating
software releases in the future. This is the first product in the industry to integrate Layer 3 MPLS and Microwave
transmission functions in a single solution. We have continued to invest in our Eclipse IRU 600 platform which is
targeted for our North America customer base with expansion of our industry leading power output capability across
multiple frequency bands. We continue to invest in covering frequency bands to specifically address the needs of Federal
Agencies facing the relocation of services from bands subject to Federal Communications Commission auction.
Our longer term technology development roadmap positions us for future network evolution and is crafted to
maximize design re-use of critical hardware and software elements.
We continued to develop our professional services portfolio as a key to our long-term strategy and differentiation.
During the year, we continued to expand the number of customer networks managed from our North America Network
Operations Center. We began offering cloud based network management to select customers and we continue to offer
training and accreditation programs for microwave and IP network design, deployment and maintenance.
Our strategy includes partnering with companies with technical expertise in areas outside of our core competencies
to meet our customers’ demand for an end-to-end solution. Our partner product strategy enables us to go beyond wireless
transmission to address the vendor consolidation trend whereby customers are “buying more from fewer vendors” and in
doing so providing expanding market share opportunity. A comprehensive solutions portfolio comprised of our wireless
product and intelligent partner products can allow us to compete with vendors that offer turnkey solution portfolios and
serve to focus our research and development (“R&D”) efforts on core competency wireless innovations. Having a
broader portfolio will enable us to further differentiate our offerings from other independent microwave equipment
suppliers.
We expect to continue to serve and expand upon our existing customer base and develop business with new
customers. We have sold more than 1,000,000 microwave radios in over 140 countries and are present in more than 350
mobile networks worldwide. We intend to leverage our customer base, our longstanding presence in many countries, our
distribution channels, our comprehensive product line, our superior customer service and our turnkey solution capability
to continue to sell existing and new products and services to current and future customers.
Products and Solutions
We offer a comprehensive product and solutions portfolio that meets the needs of service providers and network
operators in every region of the world and addresses a broad range of applications, frequencies, capacities and network
topologies. Our product categories include point-to-point microwave and millimeter wave radios that are licensed
(subject to local frequency regulatory requirements), lightly-licensed and license-exempt (operating in license-exempt
frequencies), and element and network management software. In addition, we provide a full suite of professional services
enabling us to deliver end-to-end turnkey networks, including complete design, deployment, maintenance, and managed
services, while being an attentive and adaptable partner for our customers — a key competitive differentiator for us.
• Broad product and solution portfolio. We offer a comprehensive suite of wireless transmission networking
systems for microwave and millimeter wave networking applications. Our solution consists of tailored
offerings of our own wireless products and our own integrated ancillary equipment or that of other
manufacturers and providers of element and network management systems and professional services. These
7
solutions address a wide range of transmission frequencies, ranging from 2.4 GHz to 90 GHz, and a wide
range of transmission capacities, ranging up to over 4 Gbps. The major product families included in these
solutions are CTR 8000, Eclipse, IRU 600 and ProVision, our network management software including the
AviatCloud solution.
•
Low total cost of ownership. Our wireless-based solutions offer a relatively low total cost of ownership,
including savings on the combined costs of initial acquisition, installation and ongoing operation and
maintenance. Our latest generation system designs reduce rack space requirements, require less power, are
software-configurable to reduce spare parts requirements, and are simple to install, operate, upgrade and
maintain. Our advanced wireless features can also enable operators to save on related costs, including
spectrum fees and tower rental fees.
• Futureproof network. Our solutions are designed to protect the network operator’s investment by
incorporating software-configurable capacity upgrades and plug-in modules that provide a smooth
migration path to Carrier Ethernet and IP/MPLS (multiprotocol label switching)-based networking, without
the need for costly equipment substitutions and additions. Our products include key technologies we
believe will be needed by operators for their network evolution to support new broadband services.
• Flexible, easily configurable products. We use flexible architectures with a high level of software
configurable features. This design approach produces high-performance products with reusable components
while at the same time allowing for a manufacturing strategy with a high degree of flexibility, improved
cost and reduced time-to-market. The software features of our products offer our customers a greater degree
of flexibility in installing, operating and maintaining their networks.
• Comprehensive network management. We offer a range of flexible network management solutions, from
element management to enterprise-wide network management and service assurance that we can optimize
to work with our wireless systems.
• Complete professional services. In addition to our product offerings, we provide network planning and
design, site surveys and builds, systems integration, installation, maintenance, network monitoring,
training, customer service and many other professional services. Our services cover the entire evaluation,
purchase, deployment and operational cycle and enable us to be one of the few complete turnkey solution
providers in the industry.
• AviatCloud. We have introduced AviatCloud which is an application based platform to automate and
virtualize networks and their operations. Initial applications include cloud based network management and
microwave network design. Further simplification of network planning, purchasing and lifecycle
management will become available as we expand the scope of this application.
Business Operations
Sales and Service
Our primary route to market is through our own direct sales, service and support organization. This provides us
with the best opportunity to leverage our role as a technology specialist and differentiate ourselves from competitors. Our
focus on key customers and geographies allows us to consistently achieve high customer satisfaction ratings leading to a
high level of customer retention and repeat business. Our highest concentrations of Sales and Service resources are in the
United States, Western and Southern Africa, the Philippines, and the European Union. We maintain a presence in a
number of other countries, some of which are based on customer locations and include, but not limited to, Nigeria,
Kenya, Ghana, Ivory Coast, Algeria, South Africa, the United Arab Emirates, Saudi Arabia, Australia, Malaysia, New
Zealand, Singapore, Slovenia and the Philippines.
In addition to our direct channel to market, we also have informal, and in some cases formal, relationships with
original equipment manufacturers (“OEMs”) and system integrators especially towards large and complex projects in
National Security and Government related applications, which include, but not limited to, Nigeria, Kenya, Ghana, Ivory
Coast, Algeria, South Africa, the United Arab Emirates, Saudi Arabia, Australia, Malaysia, New Zealand, Singapore,
Slovenia and the Philippines. Our role in these relationships ranges from equipment supply only to being a sub-
contractor for a portion of the project scope where we will supply equipment and a variety of design, deployment and
maintenance services.
We also use indirect sales channels, including dealers, resellers and sales representatives, in the marketing and sale
of some lines of products and equipment on a global basis. These independent representatives may buy for resale or, in
8
some cases, solicit orders from commercial or governmental customers for direct sales by us. Prices to the ultimate
customer in many instances may be recommended or established by the independent representative and may be above or
below our list prices. These independent representatives generally receive a discount from our list prices and are free to
set the final sales prices paid by the customer.
We have repair and service centers in India, Nigeria, Ghana, Mexico, the Philippines, the United Kingdom and the
United States. We have customer service and support personnel who provide customers with training, installation,
technical support, maintenance and other services on systems under contract. We install and maintain customer
equipment directly in some cases and contract with third-party service providers in other cases, depending on the
equipment being installed and customer requirements.
The specific terms and conditions of our product warranties vary depending upon the product sold and country in
which we do business. On direct sales, warranty periods generally start on the delivery date and continue for one to three
years.
Manufacturing
Our global manufacturing strategy follows an outsourced manufacturing model using contract manufacturing
partners in both the United States and Asia. Our strategy is based on balancing cost and supplier performance as well as
taking into account qualification for localization requirements of certain market segments such as the Buy America
statute.
In accordance with our global logistics requirements and customer geographic distribution, we are engaged with
contract manufacturing partners in Asia and the United States. All manufacturing operations have been certified to
International Standards Organization 9001, a recognized international quality standard. We have also been certified to the
TL 9000 standard, a telecommunication industry-specific quality system standard.
Backlog
Our backlog by geographic region is as follows:
(In thousands)
North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total backlog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
July 1, 2016
July 3, 2015
97,360
56,271
153,631
$
$
88,242
63,489
151,731
Our backlog consists primarily of contracts or purchase orders for both product and service deliveries and extended
service warranties. We regularly review our backlog to ensure that our customers continue to honor their purchase
commitments and have the financial means to purchase and deploy our products and services in accordance with the
terms of their purchase contracts.
We expect to substantially fill the backlog as of July 1, 2016 during fiscal 2017, but we cannot be assured that this
will occur. Product orders in our current backlog are subject to changes in delivery schedules or to cancellation at the
option of the purchaser without significant penalty. Accordingly, although useful for scheduling production, backlog as
of any particular date may not be a reliable measure of sales for any future period because of the timing of orders,
delivery intervals, customer and product mix and the possibility of changes in delivery schedules and additions or
cancellations of orders. The backlog figures exclude advance payments and unearned income amounts.
Customers
Although we have a large customer base, during any given fiscal year or quarter, a small number of customers may
account for a significant portion of our revenue.
During fiscal 2016, the Mobile Telephone Networks Group (“MTN Group”) in Africa accounted for 18% of our
total revenue compared with 14% in fiscal 2015 and 17% in fiscal 2014. We have entered into separate and distinct
contracts with MTN Group as well as separate arrangements with MTN Group subsidiaries. The loss of all or a
substantial portion of MTN Group’s business could adversely affect our results of operations, cash flows and financial
position.
9
Competition
The microwave and millimeter wave wireless networking business is a specialized segment of the wireless
telecommunications industry that is sensitive to technological advancements and is extremely competitive. Our principal
competitors include business units of large mobile and IP network infrastructure manufacturers such as Ericsson,
Huawei, NEC and Nokia, as well as a number of other smaller public and other microwave specialists companies such as
Ceragon, DragonWave and privately-held SIAE Microelectronica.
Some of our larger competitors may have greater name recognition, broader product lines (some including non-
wireless telecommunications equipment and managed services), a larger installed base of products and longer-standing
customer relationships. They may from time to time leverage their extensive overall portfolios into completely
outsourced and managed network offerings restricting opportunities for specialist suppliers. In addition, some
competitors may offer seller financing, which can be a competitive advantage under certain economic climates.
Some of our larger competitors may also act as systems integrators through which we sometimes distribute and sell
products and services to end users.
The smaller independent private and public specialist competitors typically leverage new technologies and low
products costs, but are generally less capable of offering a complete solution including professional services, especially
in the North America and Africa regions which form the majority of our addressed market.
We concentrate on market opportunities that we believe are compatible with our resources, overall technological
capabilities and objectives. Principal competitive factors are cost-effectiveness, product quality and reliability,
technological capabilities, service, ability to meet delivery schedules and the effectiveness of dealers in international
areas. We believe that the combination of our network and systems engineering support and service, global reach,
technological innovation, agility and close collaborative relationships with our customers are the key competitive
strengths for us. However, customers may still make decisions based primarily on factors such as price, financing terms
and/or past or existing relationships, where it may be difficult for us to compete effectively or profitably.
Research and Development
We believe that our ability to enhance our current products, develop and introduce new products on a timely basis,
maintain technological competitiveness and meet customer requirements is essential to our success. Accordingly, we
allocate, and intend to continue to allocate, a significant portion of our resources to research and development efforts in
two major product areas: backhaul solutions and network management systems. In addition, we are investing in key
innovation that will help separate these products from the competition. The majority of such research and development
resources will be used for point-to-point digital microwave radio systems for access, backhaul, trunking and license-
exempt applications.
Our research and development expenditures totaled $20.8 million, or 7.7% of revenue, in fiscal 2016, $25.4
million, or 7.6% of revenue, in fiscal 2015, and $35.5 million, or 10.3% of revenue, in fiscal 2014.
Research and development are primarily directed to the development of new products and to building
technological capability. We are an industry innovator and intend to continue to focus significant resources on product
development in an effort to maintain our competitiveness and support our entry into new markets.
Our product development teams numbered 134 employees as of July 1, 2016, and were located in Santa Clara,
California; Wellington, New Zealand; Ljubljana, Slovenia; and Montreal, Canada.
Raw Materials and Supplies
Because of the range of our products and services, as well as the wide geographic dispersion of our facilities, we
use numerous sources for the wide array of raw materials needed for our operations and for our products, such as
electronic components, printed circuit boards, metals and plastics. We are dependent upon suppliers and subcontractors
for a large number of components and subsystems and upon the ability of our suppliers and subcontractors to adhere to
customer or regulatory materials restrictions and meet performance and quality specifications and delivery schedules.
Our strategy for procuring raw material and supplies includes dual sourcing on strategic assemblies and
components. In general, we believe this reduces our risk with regard to the potential financial difficulties in our supply
base. In some instances, we are dependent upon one or a few sources, either because of the specialized nature of a
particular item or because of local content preference requirements pursuant to which we operate on a given project.
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Examples of sole or limited source categories include metal fabrications and castings, for which we own the tooling and
therefore limit our supplier relationships, ASIC’s and MMICs (types of integrated circuit used in manufacturing
microwave radios), which we procure at volume discount from a single source. Our supply chain plan includes
mitigation plans for alternative manufacturing sources and identified alternate suppliers.
Although we have been affected by performance issues of some of our suppliers and subcontractors, we have not
been materially adversely affected by the inability to obtain raw materials or products. In general, any performance
issues causing short-term material shortages are within the normal frequency and impact range experienced by high-tech
manufacturing companies. They are due primarily to the highly technical nature of many of our purchased components.
Looking ahead, we anticipate standard lead times for our raw materials and supplies.
Patents and Other Intellectual Property
We consider our patents and other intellectual property rights, in the aggregate, to constitute an important asset. We
own a portfolio of patents, trade secrets, know-how, confidential information, trademarks, copyrights and other
intellectual property. We also license intellectual property to and from third parties. As of July 1, 2016, we held 167
U.S. patents and 65 international patents and had 31 U.S. patent applications pending and 50 international patent
applications pending. We do not consider our business to be materially dependent upon any single patent, license or other
intellectual property right, or any group of related patents, licenses or other intellectual property rights. From time to
time, we might engage in litigation to enforce our patents and other intellectual property or defend against claims of
alleged infringement. Any of our patents, trade secrets, trademarks, copyrights and other proprietary rights could be
challenged, invalidated or circumvented, or may not provide competitive advantages. Numerous trademarks used on or
in connection with our products are also considered to be valuable assets.
In addition, to protect confidential information, including our trade secrets, we require our employees and
contractors to sign confidentiality and invention assignment agreements. We also enter into non-disclosure agreements
with our suppliers and appropriate customers to limit access to and disclosure of our proprietary information.
Although our ability to compete may be affected by our ability to protect our intellectual property, we believe that,
because of the rapid pace of technological change in the wireless telecommunications industry, our innovative skills,
technical expertise and ability to introduce new products on a timely basis will be more important in maintaining our
competitive position than protection of our intellectual property. Trade secret, trademark, copyright and patent
protections are important but must be supported by other factors such as the expanding knowledge, ability and
experience of our personnel, new product introductions and product enhancements. Although we continue to implement
protective measures and intend to vigorously defend our intellectual property rights, there can be no assurance that these
measures will be successful.
Environmental and Other Regulations
Our facilities and operations, in common with those of our industry in general, are subject to numerous domestic
and international laws and regulations designed to protect the environment, particularly with regard to wastes and
emissions. We believe that we have complied with these requirements and that such compliance has not had a material
adverse effect on our results of operations, financial condition or cash flows. Based upon currently available information,
we do not expect expenditures to protect the environment and to comply with current environmental laws and regulations
over the next several years to have a material impact on our competitive or financial position, but can give no assurance
that such expenditures will not exceed current expectations. From time to time, we receive notices from the
U.S. Environmental Protection Agency or equivalent state or international environmental agencies that we are a
potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act, which
is commonly known as the Superfund Act, and equivalent laws. Such notices may assert potential liability for cleanup
costs at various sites, which include sites owned by us, sites we previously owned and treatment or disposal sites not
owned by us, allegedly containing hazardous substances attributable to us from past operations. We are not presently
aware of any such liability that could be material to our business, financial condition or operating results, but due to the
nature of our business and environmental risks, we cannot provide assurance that any such material liability will not arise
in the future.
Electronic products are subject to environmental regulation in a number of jurisdictions. Equipment produced by
us is subject to domestic and international requirements requiring end-of-life management and/or restricting materials in
products delivered to customers. We believe that we have complied with such rules and regulations, where applicable,
with respect to our existing products sold into such jurisdictions.
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Radio communications are also subject to governmental regulation. Equipment produced by us is subject to
domestic and international requirements to avoid interference among users of radio frequencies and to permit
interconnection of telecommunications equipment. We believe that we have complied with such rules and regulations
with respect to our existing products, and we intend to comply with such rules and regulations with respect to our future
products. Reallocation of the frequency spectrum also could impact our business, financial condition and results of
operations.
We are in the process of developing comprehensive policies and procedures concerning conflict minerals
compliance.
Employees
As of July 1, 2016 we employed approximately 720 people, compared with approximately 780 as of the end of
fiscal 2015 and approximately 960 as of the end of fiscal 2014. Approximately 270 of our employees are located in the
U.S. We also utilized approximately 70 independent contractors as of July 1, 2016. None of our employees in the
U.S. are represented by a labor union. In certain international subsidiaries, our employees are represented by workers’
councils or statutory labor unions. In general, we believe that our employee relations are good.
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Executive Officers of the Registrant
The name, age, position held with us, and principal occupation and employment during at least the past 5 years for
each of our executive officers as of September 8, 2016, are as follows:
Name and Age
Michael A. Pangia, 55 . . . . . . Mr. Pangia has been our President and Chief Executive Officer and a member of the
Position Currently Held and Past Business Experience
Board since July 18, 2011. From March 2009 to July 2011, he served as our Chief
Sales Officer responsible for company-wide operations of the global sales and services
organization. Prior to joining Aviat Networks, from 2008 to 2009, Mr. Pangia served as
Senior Vice President, global sales operations and strategy at Nortel, where he was
responsible for all operational aspects of the global sales function. From 2006 to 2008,
he was President of Nortel’s Asia region where his key responsibilities included sales
and overall business management for all countries where Nortel did business in the
region.
Ralph Marimon, 59 . . . . . . . . Mr. Marimon joined Aviat Networks in May 2015 as our Senior Vice President,
Finance and Chief Financial Officer and is responsible for the finance and IT
organizations. Before joining Aviat, Mr. Marimon served as Vice President, Finance
and Chief Financial Officer of QuickLogic, a provider of ultra-low power,
customizable semiconductor solutions for smartphone, tablet, wearable, and mobile
enterprise OEMs, since 2008. Prior to QuickLogic, Mr. Marimon served as Chief
Financial Officer within a variety of organizations including Anchor Bay
Technologies, Inc., Tymphany Corporation, and Scientific Technologies Incorporated.
From 1999 to 2003, he served at Com21 Corporation, a global supplier of system
solutions for the broadband access market, where he was promoted from Corporate
Controller to Vice President of Finance and Chief Financial Officer. Prior to Com21,
Mr. Marimon was at KLA-Tencor Corporation for 11 years in a variety of senior
executive financial management positions.
Meena Elliott, 53 . . . . . . . . . . Ms. Elliott was appointed Senior Vice President, Chief Legal and Administrative
Officer, Corporate Secretary in February 2015 and is responsible for the global legal
and human resources organizations. From September 2011 to February 2015, she
served as Senior Vice President, General Counsel, Secretary and had responsibilities
for the global legal organization and took on responsibilities for global human
resources organizations in 2014. From July 2009 to August 2011, she served as Vice
President, General Counsel and Secretary. She joined our company as Associate
General Counsel and Assistant Secretary in January 2007 when Harris Corporation’s
MCD and Stratex Networks merged. Ms. Elliott joined MCD as Division Counsel in
March 2006. Prior to joining MCD, she was Chief Counsel at the Department of
Commerce from 2002 to 2006.
Heinz H. Stumpe, 61 . . . . . . . Mr. Stumpe was appointed Chief Sales Officer on June 25, 2012. Before his
appointment as Chief Sales Officer, Mr. Stumpe was our Senior Vice President and
Chief Operation Officer since June 30, 2008. Previously, he was Vice President,
Global Operations for Aviat Networks and Stratex Networks. He joined Stratex
Networks as Director of Marketing in 1996. He was promoted to Vice President,
Global Accounts in 1999, Vice President, Strategic Accounts in 2002 and Vice
President, Global Operations in April 2006.
Shaun McFall, 56 . . . . . . . . . . Mr. McFall was appointed Chief Strategy Officer in 2015. He was our Chief
Marketing Officer since July 2008. Previously, from 2000 to 2008, he served as Vice
President, Marketing for Aviat Networks and Stratex Networks. He has been with us
since 1989.
There is no family relationship between any of our executive officers or directors, and there are no arrangements or
understandings between any of our executive officers or directors and any other person pursuant to which any of them
was appointed or elected as an officer or director, other than arrangements or understandings with our directors.
Web site Access to Aviat Networks’ Reports; Available Information
We maintain an Internet Web site at http://www.aviatnetworks.com. Our annual reports on Form 10-K, proxy
statements, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports, filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) are available
free of charge on our Web site as soon as reasonably practicable after these reports are electronically filed with, or
furnished to, the Securities and Exchange Commission (“SEC”). Our website and the information posted thereon are not
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incorporated into this Annual Report on Form 10-K or any current or other periodic report that we file or furnish to the
SEC.
We will also provide the reports in electronic or paper form, free of charge upon request. All reports we file with or
furnish to the SEC are also available free of charge via EDGAR through the SEC’s website at http://www.sec.gov. The
public may read and copy any materials filed by us with the SEC at the SEC’s Public Reference Room, 100 F. Street,
N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330.
Additional information relating to our business and operations is set forth in “Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K.
Item 1A. Risk Factors
In addition to the risks described elsewhere in this Annual Report on Form 10-K and in certain of our other filings
with the SEC, the following risks and uncertainties, among others, could cause our actual results to differ materially from
those contemplated by us or by any forward-looking statement contained herein. Prospective and existing investors are
strongly urged to carefully consider the various cautionary statements and risks set forth in this Annual Report on
Form 10-K and our other public filings.
We have many business risks including those related to our financial performance, investments in our common
stock, operating our business and legal matters. The risks and uncertainties described below are not the only ones facing
us. Additional risks and uncertainties may also impair our business operations. If any of these risks actually occur, our
financial condition and results of operations could be materially and adversely affected.
We have not been profitable and must increase our revenues and reduce costs if we hope to achieve profitability.
As measured under U.S. generally accepted accounting principles (“U.S. GAAP”), we incurred net losses of $29.6
million in fiscal 2016, $24.6 million in fiscal 2015 and $51.1 million in fiscal 2014 and have been unprofitable since we
became a public company in January 2007. We also have incurred losses from operations in all fiscal years since we
became a public company, although we previously generated cash from operations in fiscal 2013, 2012, 2010 and 2009.
Throughout fiscal 2016 we experienced strong price competition for new business in all regions while major
customer consolidations from prior years also put pressure on revenue and gross margin. We saw pricing pressures in all
markets, with increased pressure in international markets. Customer consolidation may have an increasing negative
impact on our revenue if Aviat is not selected as a vendor for the products and/or services we provide. In order to counter
pricing pressures, we invested heavily in product improvements to reduce unit costs and enhance product features,
decreased overall company expenses, and worked with our vendors to attain more favorable pricing. If we are unable to
reduce product unit costs associated with enhanced product features, including payments to contract manufacturers and
other suppliers, or achieve the projected cost reductions, we may not achieve profitability.
We cannot be certain that these actions or others that we may take in the future will result in operating profitability
or net income as determined under U.S. GAAP.
Our sales cycle may be lengthy, and the timing of sales, along with additional services such as warehousing, inventory
management, installation and implementation of our products within our customers’ networks, may extend over more
than one period, which can make our operating results difficult to predict.
We anticipate difficulty in accurately predicting the timing of the sale of products and amounts of revenue generated
from sales of our products, primarily in developing countries. The establishment of a business relationship with a potential
customer is a lengthy process, generally taking several months and sometimes longer. Following the establishment of the
relationship, the negotiation of purchase terms can be time-consuming, and a potential customer may require an extended
evaluation and testing period. We expect that our product sales cycle, which results in our products being designed into
our customers’ networks, could take 12 to 24 months. A number of factors can contribute to the length of the sales cycle,
including technical evaluations of our products, the design process required to integrate our products into our customers’
networks and warehousing and/or inventory management services that may be requested by certain large customers. In
anticipation of product orders, we may incur substantial costs before the sales cycle is complete and before we receive any
customer payments. Specifically, should a customer require warehousing and/or inventory management services, such
services may impact our operating results in any period due to the costs associated with providing such services and the
fact that the timing of the revenue recognition may be delayed. As a result, in the event that a sale is not completed or is
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canceled or delayed, we may have incurred substantial expenses, making it more difficult for us to become profitable or
otherwise negatively impacting our financial results. Furthermore, because of our lengthy sales cycle, our recognition of
revenue from our selling efforts may be substantially delayed, our ability to forecast our future revenue may be more
limited and our revenue may fluctuate significantly from quarter to quarter.
Once a purchase agreement has been executed, the timing and amount of revenue, if applicable, may remain difficult
to predict. The completion of services such as warehousing and inventory management, installation and testing of the
customer’s networks and the completion of all other suppliers network elements are subject to the customer’s timing and
efforts and other factors outside our control, each of which may prevent us from making predictions of revenue with any
certainty and could cause us to experience substantial period-to-period fluctuations in our operating results.
Our average sales prices may decline in the future.
We are experiencing, and are likely to continue to experience, declining sales prices. This price pressure is likely to
result in downward pricing pressure on our products and services. As a result, we are likely to experience declining
average sales prices for our products. Our future profitability will depend upon our ability to improve manufacturing
efficiencies, reduce costs of materials used in our products and to continue to introduce new lower-cost products and
product enhancements and if we are unable to do so, we may not be able to respond to pricing pressures. If we are unable
to respond to increased price competition, our business, financial condition and results of operations will be harmed.
Because customers frequently negotiate supply arrangements far in advance of delivery dates, we may be required to
commit to price reductions for our products before we are aware of how, or if, cost reductions can be obtained. As a result,
current or future price reduction commitments and any inability on our part to respond to increased price competition
could harm our business, financial condition and results of operations.
We may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our stockholders.
We believe that our existing cash and cash equivalents, the available line of credit under our credit facility and future
cash collections from customers will be sufficient to provide for our anticipated requirements for working capital and
capital expenditures for the next 12 months and the foreseeable future. However, it is possible that we may not generate
sufficient cash flow from operations or otherwise have the capital resources to meet our longer term capital needs. If this
occurs, we may need to sell assets, reduce capital expenditures, or obtain additional equity or debt financing. We cannot
assure you that additional financing will be available on terms favorable to us, or at all. If adequate funds are not available
or are not available on acceptable terms if and when needed, our business, financial condition and results of operations
could be harmed.
If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership
of our stockholders could be significantly diluted, and these newly-issued securities may have rights, preferences or
privileges senior to those of existing stockholders.
Due to the volume of our international sales, we may be susceptible to a number of political, economic and geographic
risks that could harm our business.
We are highly dependent on sales to customers outside the U.S. In fiscal 2016, 2015 and 2014, our sales to
international customers accounted for 55%, 55% and 60%, respectively, of total revenue. Significant portions of our
international sales are in less developed countries. Our international sales are likely to continue to account for a large
percentage of our products and services revenue for the foreseeable future. As a result, the occurrence of any
international, political, economic or geographic event could result in a significant decline in revenue. In addition,
compliance with complex foreign and U.S. laws and regulations that apply to our international operations increases our
cost of doing business in international jurisdictions. These numerous and sometimes conflicting laws and regulations
include internal control and disclosure rules, data privacy and filtering requirements, anti-corruption laws, such as the
Foreign Corrupt Practices Act, and other local laws prohibiting corrupt payments to governmental officials, and anti-
competition regulations, among others. Violations of these laws and regulations could result in fines and penalties,
criminal sanctions against us, our officers, or our employees, prohibitions on the conduct of our business and on our
ability to offer our products and services in one or more countries, and could also materially affect our brand, our
international expansion efforts, our ability to attract and retain employees, our business, and our operating results.
Although we have implemented policies and procedures designed to ensure compliance with these laws and regulations,
there can be no assurance that our employees, contractors, or agents will not violate our policies.
Some of the risks and challenges of doing business internationally include:
•
unexpected changes in regulatory requirements;
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•
•
fluctuations in international currency exchange rates including its impact on unhedgeable currencies and our
forecast variations for hedgeable currencies;
imposition of tariffs and other barriers and restrictions;
• management and operation of an enterprise spread over various countries;
•
•
the burden of complying with a variety of laws and regulations in various countries;
application of the income tax laws and regulations of multiple jurisdictions, including relatively low-rate and
relatively high-rate jurisdictions, to our sales and other transactions, which results in additional complexity
and uncertainty;
•
general economic and geopolitical conditions, including inflation and trade relationships;
• war and acts of terrorism;
•
•
•
•
kidnapping and high crime rate;
natural disasters;
availability of U.S. dollars especially in countries with economies highly dependent on resource exports,
particularly oil; and
changes in export regulations.
While these factors and the impacts of these factors are difficult to predict, any one or more of them could adversely
affect our business, financial condition and results of operations in the future.
Credit and commercial risks and exposures could increase if the financial condition of our customers declines.
A substantial portion of our sales are to customers in the telecommunications industry. These customers may require
their suppliers to provide extended payment terms, direct loans or other forms of financial support as a condition to
obtaining commercial contracts. In addition, if local currencies cannot be hedged, we have an inherent exposure in our
ability to convert monies at favorable rates from or to U.S. dollars. More generally, we expect to routinely enter into long-
term contracts involving significant amounts to be paid by our customers over time. Pursuant to these contracts, we may
deliver products and services representing an important portion of the contract price before receiving any significant
payment from the customer. As a result of the financing that may be provided to customers and our commercial risk
exposure under long-term contracts, our business could be adversely affected if the financial condition of our customers
erodes. Over the past few years, certain of our customers have filed with the courts seeking protection under the
bankruptcy or reorganization laws of the applicable jurisdiction, or have experienced financial difficulties. The financial
healthiness may be exacerbated in many emerging markets, where our customers are being affected not only by recession,
but by deteriorating local currencies and a lack of credit. Upon the financial failure of a customer, we may experience
losses on credit extended and loans made to such customer, losses relating to our commercial risk exposure and the loss of
the customer’s ongoing business. If customers fail to meet their obligations to us, we may experience reduced cash flows
and losses in excess of reserves, which could materially adversely impact our results of operations and financial position.
We may undertake further restructuring activities, which may adversely impact our operations, and we may not realize
all of the anticipated benefits of these activities or any potential future restructurings. Any restructuring activities may
harm our business.
We continue to evaluate our business to determine the potential need to realign our resources as we continue to
transform our business in order to achieve desired cost savings in an increasingly competitive market. In prior years and
again in fiscal 2016, we have undertaken a series of steps to restructure our operations involving, among other things and
depending on the year, reductions of our workforce, the relocation of our corporate headquarters and the reduction and
outsourcing of manufacturing activities. We incurred restructuring charges of $2.5 million, $4.9 million and $11.2 million
in fiscal 2016, 2015 and 2014, respectively.
We have based our restructuring efforts on assumptions and plans regarding the appropriate cost structure of our
business based on our product mix and projected sales, among other factors. Some of our assumptions include the
elimination of jobs and the outsourcing of certain functions to reduce our operating expenses. These assumptions may not
be accurate and we may not be able to operate in accordance with our plans. Should this occur we may determine that we
must incur additional restructuring charges in the future. Moreover, we cannot assure you that we will realize all of the
anticipated benefits of our restructuring actions or that we will not further reduce or otherwise adjust our workforce or
exit, or dispose of, certain businesses and product lines. Any decision to further limit investment, exit, or disposal of
businesses or product lines may result in the recording of additional restructuring charges. Consequently, the costs
actually incurred in connection with the restructuring efforts may be higher than originally planned and may not lead to
the anticipated cost savings and/or improved results. For example, if we consolidate additional facilities in the future, we
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may incur additional restructuring and related expenses, which could have a material adverse effect on our business,
financial condition or results of operations.
Our restructuring actions could harm our relationships with our employees and impact our ability to recruit new
employees.
Employees, whether or not directly affected by any restructuring actions that we undertake, may seek employment
with our business partners, customers or competitors. We cannot assure you that the confidential nature of our proprietary
information will not be compromised by any such employees who terminate their employment with us. Further, we
believe that our future success will depend in large part upon our ability to attract, motivate and retain highly skilled
personnel. We may have difficulty attracting and retaining such personnel as a result of a perceived risk of future
workforce reductions, and we may terminate the employment of employees as part of a restructuring and later determine
that such employees were important to the success of the ongoing business.
Our business could be adversely affected if we are unable to attract and retain key personnel.
Our success and ability to invest and grow depend largely on our ability to attract and retain highly skilled technical,
professional, managerial, sales and marketing personnel. Historically, competition for these key personnel has been
intense. The loss of services of any of our key personnel, the inability to retain and attract qualified personnel in the
future, delays in hiring required personnel, particularly engineering and sales personnel, or the loss of key personnel to
competitors could make it difficult for us to meet key objectives, such as timely and effective product introductions and
financial goals.
Our success will depend on new products introduced to the marketplace in a timely manner, successfully completing
product transitioning and achieving customer acceptance.
The market for our products and services is characterized by rapid technological change, evolving industry
standards and frequent new product introductions. Our future success will depend, in part, on continuous, timely
development and introduction of new products and enhancements that address evolving market requirements and are
attractive to customers. If we fail to develop or introduce on a timely basis new products or product enhancements or
features that achieve market acceptance, our business may suffer. Additionally, we work closely with a variety of third
party partners to develop new product features and new platforms. Should our partners face delays in the development
process, then the timing of the rollout of our new products may be significantly impacted which may negatively impact
our revenue and gross margin. Another factor impacting our future success is the growth in the customer demand of our
new products. Rapidly changing technology, frequent new products introductions and enhancements, short product life
cycles and changes in customer requirements characterize the markets for our products. We believe that successful new
product introductions provide a significant competitive advantage because of the significant resources committed by
customers in adopting new products and their reluctance to change products after these resources have been expended. We
have spent, and expect to continue to spend, significant resources on internal research and development to support our
effort to develop and introduce new products and enhancements.
As we transition to new product platforms, we face significant risk that the development of our new products may
not be accepted by our current customers or by new customers. To the extent that we fail to introduce new and innovative
products that are adopted by customers, we could fail to obtain an adequate return on these investments and could lose
market share to our competitors, which could be difficult or impossible to regain. Similarly we may face decreased
revenue, gross margins and profitability due to a rapid decline in sales of current products as customers hold spending to
focus purchases on new product platforms. We could incur significant costs in completing the transition, including costs
of inventory write-downs of the current product as customers transition to new product platforms. In addition, products or
technologies developed by others may render our products noncompetitive or obsolete and result in significant reduction
in orders from our customers and the loss of existing and prospective customers.
Our quarterly results may be volatile, which can adversely affect the trading price of our common stock.
Our quarterly operating results may vary significantly for a variety of reasons, many of which are outside our
control. These factors could harm our business and include, among others:
•
•
•
seasonality in the purchasing habits of our customers;
the volume and timing of product orders and the timing of completion of our product deliveries and
installations;
our ability and the ability of our key suppliers to respond to changes on demand as needed;
• margin variability based on geographic and product mix;
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•
•
•
•
•
•
•
•
•
•
our suppliers’ inability to perform and deliver on time as a result of their financial condition, component
shortages or other supply chain constraints;
retention of key personnel;
the length of our sales cycle;
litigation costs and expenses;
continued timely rollout of new product functionality and features;
increased competition resulting in downward pressure on the price of our products and services;
unexpected delays in the schedule for shipments of existing products and new generations of the existing
platforms;
failure to realize expected cost improvement throughout our supply chain;
order cancellations or postponements in product deliveries resulting in delayed revenue recognition;
restructuring and streamlining of our operations;
• war and acts of terrorism;
•
•
•
•
•
•
natural disasters;
the ability of our customers to obtain financing to enable their purchase of our products;
fluctuations in international currency exchange rates;
regulatory developments including denial of export and import licenses;
general economic conditions worldwide that affect demand and financing for microwave and millimeter
wave telecommunications networks; and
the timing and size of future restructuring plans and write-offs.
Our quarterly results are expected to be difficult to predict and delays in product delivery or closing a sale can cause
revenue, margins and net income or loss to fluctuate significantly from anticipated levels. A substantial portion of our
contracts are completed in the latter part of a quarter and a significant percentage of these are large orders. Because a
significant portion of our cost structure is largely fixed in the short term, revenue shortfalls tend to have a
disproportionately negative impact on our profitability and can increase our inventory. The number of large new
transactions also increases the risk of fluctuations in our quarterly results because a delay in even a small number of these
transactions could cause our quarterly revenues and profitability to fall significantly short of our predictions. In addition,
we may increase spending in response to competitive actions or in pursuit of new market opportunities. Accordingly, we
cannot provide assurances that we will be able to achieve profitability in the future or that if profitability is attained, that
we will be able to sustain profitability, particularly on a quarter-to-quarter basis.
We face strong competition for maintaining and improving our position in the market, which can adversely affect our
revenue growth and operating results.
The wireless access, interconnection and backhaul business is a specialized segment of the wireless
telecommunications industry and is extremely competitive. Competition in this segment is intense, and we expect it to
increase. Some of our competitors have more extensive engineering, manufacturing and marketing capabilities and
significantly greater financial, technical and personnel resources than we have. In addition, some of our competitors have
greater name recognition, broader product lines, a larger installed base of products and longer-standing customer
relationships. Our competitors include established companies, such as Ericsson, Huawei, NEC and Nokia, as well as a
number of other public and private companies, such as Ceragon, DragonWave and SIAE. Some of our competitors are
OEMs or systems integrators through whom we market and sell our products, which means our business success may
depend on these competitors to some extent. One or more of our largest customers could internally develop the capability
to manufacture products similar to those manufactured or outsourced by us and, as a result, the demand for our products
and services may decrease.
In addition, we compete for acquisition and expansion opportunities with many entities that have substantially
greater resources than we have. Our competitors may enter into business combinations in order to accelerate product
development or to compete more aggressively and we may lack the resources to meet such enhanced competition.
Our ability to compete successfully will depend on a number of factors, including price, quality, availability,
customer service and support, breadth of product lines, product performance and features, rapid time-to-market delivery
capabilities, reliability, timing of new product introductions by us, our customers and competitors, the ability of our
customers to obtain financing and the stability of regional sociopolitical and geopolitical circumstances, and the ability of
large competitors to obtain business by providing more seller financing especially for large transactions. We can give no
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assurances that we will have the financial resources, technical expertise, or marketing, sales, distribution, customer
service and support capabilities to compete successfully, or that regional sociopolitical and geographic circumstances will
be favorable for our successful operation.
If we fail to accurately forecast our manufacturing requirements or customer demand, we could incur additional costs,
which would adversely affect our business and results of operations.
If we fail to accurately predict our manufacturing requirements or forecast customer demand, we may incur
additional costs of manufacturing and our gross margins and financial results could be adversely affected. If we
overestimate our requirements, our contract manufacturers may experience an oversupply of components and assess us
charges for excess or obsolete components that could adversely affect our gross margins. If we underestimate our
requirements, our contract manufacturers may have inadequate inventory or components, which could interrupt
manufacturing and result in higher manufacturing costs, shipment delays, damage to customer relationships and/or our
payment of penalties to our customers. Our contract manufacturers also have other customers and may not have sufficient
capacity to meet all of their customer’s needs, including ours, during periods of excess demand.
Part of our inventory may be written off, which would increase our cost of revenues. In addition, we may be exposed to
inventory-related losses on inventories purchased by our contract manufacturers.
During fiscal 2016, 2015 and 2014, we recorded charges to reduce the carrying value of our inventory which totaled
$9.9 million, $8.0 million and $7.2 million, respectively. Such charges equaled 3.7%, 2.4% and 2.1% of our revenue in
fiscal 2016, 2015 and 2014, respectively. These charges were primarily due to excess and obsolete inventory resulting
from lower forecast, product transitioning or discontinuance.
Inventory of raw materials, work in-process or finished products may accumulate in the future, and we may
encounter losses due to a variety of factors, including:
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rapid technological change in the wireless telecommunications industry resulting in frequent product
changes;
the need of our contract manufacturers to order raw materials that have long lead times and our inability to
estimate exact amounts and types of items thus needed, especially with regard to the frequencies in which
the final products ordered will operate; and
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cost reduction initiatives resulting in component changes within the products.
Further, our inventory of finished products may accumulate as the result of inaccuracies in the forecasting process,
cancellation of customer orders or our customers’ refusal to confirm the acceptance of our products. Our forecasting
process is based on information discussed with customers concerning future orders. If a customer chooses to revise or
hold on placing the order, we may see an unfavorable impact on our inventory given the customization that is involved in
our products. Our contract manufacturers are required to purchase inventory based on manufacturing projections we
provide to them. If actual orders from our customers are lower than these manufacturing projections, our contract
manufacturers will have excess inventory of raw materials or finished products which we would be required to purchase.
In addition, we require our contract manufacturers from time to time to purchase more inventory than is immediately
required, and to partially assemble components, in order to shorten our delivery time in case of an increase in demand for
our products. In the absence of such increase in demand, we may need to compensate our contract manufacturers. If we
are required to purchase excess inventory from our contract manufacturers or otherwise compensate our contract
manufacturers for purchasing excess inventory, our business, financial condition and results of operations could be
materially adversely affected. We also may purchase components or raw materials from time to time for use by our
contract manufacturers in the manufacturing of our products. These purchases are based on our own manufacturing
projections. If our actual orders are lower than these manufacturing projections, we may accumulate excess inventory,
which we may be required to write down. If we are forced to write down inventory other than in the normal course of
business, our business, financial condition and results of operations could be materially adversely affected.
The effects of the poor global financial and economic conditions in certain markets has had, and may continue to
have, significant effects on our customers and suppliers, and has in the past, and may in the future have, a material
adverse effect on our business, operating results, financial condition and stock price.
The effects of poor global financial and economic conditions in certain markets include, among other things,
significant reductions in available capital and liquidity from banks and other providers of credit, substantial reductions
and/or fluctuations in equity and currency values worldwide.
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Poor economic conditions in certain markets have adversely affected and may continue to adversely affect our
customers’ access to capital and/or willingness to spend capital on our products, and/or their levels of cash liquidity and/or
their ability and/or willingness to pay for products that they will order or have already ordered from us, or result in their
ceasing operations. Further, we have experienced an increasing number of our customers, principally in emerging
markets, requesting longer payment terms, lease or vendor financing arrangements, longer terms for the letters of credit
securing purchases of our products and services, which could potentially negatively impact our orders, revenue
conversion cycle, and cash flows.
In seeking to reduce their expenses, we have also seen significant pressure from our customers to lower prices for
our products as they try to improve their operating performance and procure additional capital equipment within their
reduced budget levels. To the extent that we lower prices on our products and services, our orders, revenues, and gross
margins may be negatively impacted. Additionally, certain emerging markets are particularly sensitive to pricing as a key
differentiator. Where price is a primary decision driver, we may not be able to effectively compete or we may choose not
to compete due to unacceptable margins.
In addition, poor economic conditions in certain markets could materially adversely affect our suppliers’ access to
capital and liquidity with which to maintain their inventories, production levels, and/or product quality, could cause them
to raise prices or lower production levels, or result in their ceasing operations. Further, with respect to our credit facility
discussed under “Liquidity, Capital Resources and Financial Strategies” in Item 7 of this Annual Report on Form 10-K, if
continued uncertain economic conditions adversely affect Silicon Valley Bank, our ability to access the funds available
under our credit facility could be materially adversely affected.
The potential effects of these economic factors are difficult to forecast and mitigate. As a consequence, our
operating results for a particular period are difficult to predict, and, therefore, prior results are not necessarily indicative of
results to be expected in future periods. Any of the foregoing effects could have a material adverse effect on our business,
results of operations, and financial condition and could adversely affect our stock price.
If we fail to effectively manage our contract manufacturer relationships, we could incur additional costs or be unable
to timely fulfill our customer commitments, which would adversely affect our business and results of operations and,
in the event of an inability to fulfill commitments, would harm our customer relationships.
We outsource all of our manufacturing and a substantial portion of our repair service operations to independent
contract manufacturers and other third parties. Our contract manufacturers typically manufacture our products based on
rolling forecasts of our product needs that we provide to them on a regular basis. The contract manufacturers are
responsible for procuring components necessary to build our products based on our rolling forecasts, building and
assembling the products, testing the products in accordance with our specifications and then shipping the products to us.
We configure the products to our customer requirements, conduct final testing and then ship the products to our
customers. Although we currently partner with multiple major contract manufacturers, there can be no assurance that we
will not encounter problems as we are dependent on contract manufacturers to provide these manufacturing services or
that we will be able to replace a contract manufacturer that is not able to meet our demand.
In addition, if we fail to effectively manage our relationships with our contract manufacturers or other service
providers, or if one or more of them should not fully comply with their contractual obligations or should experience
delays, disruptions, component procurement problems or quality control problems, then our ability to ship products to our
customers or otherwise fulfill our contractual obligations to our customers could be delayed or impaired which would
adversely affect our business, financial results and customer relationships.
We depend on sole or limited sources for some key components and failure to receive timely delivery of any of these
components could result in deferred or lost sales.
In some instances, we are dependent upon one or a few sources, either because of the specialized nature of a
particular item or because of local content preference requirements pursuant to which we operate on a given project.
Examples of sole or limited sourcing categories include metal fabrications and castings, for which we own the tooling and
therefore limit our supplier relationships, and MMICs (a type of integrated circuit used in manufacturing microwave
radios), which we procure at a volume discount from a single source. Our supply chain plan includes mitigation plans for
alternative manufacturing sources and identified alternate suppliers. However, if these alternatives cannot address our
requirements when our existing sources of these components fail to deliver them on time, we could suffer delayed
shipments, canceled orders and lost or deferred revenues, as well as material damage to our customer relationships.
Should this occur, our operating results, cash flows and financial condition could be materially adversely affected.
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As a result of changes in tax laws, treaties, rulings, regulations or agreements, or their interpretation, of any country
in which we operate, the loss of a major tax dispute or a successful challenge to our operating structure, intercompany
pricing policies or the taxable presence of our key subsidiaries in certain countries, or other factors, our effective tax
rate could be highly volatile and could adversely affect our operating results.
We operate in multiple jurisdictions and our profits are taxed pursuant to the tax laws of these jurisdictions. Our
future effective tax rate may be adversely affected by a number of factors, many of which are outside of our control,
including:
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the jurisdictions in which profits are determined to be earned and taxed;
adjustments to estimated taxes upon finalization of various tax returns;
increases in expenses not deductible for tax purposes, including write-offs of acquired in-process research and
development and impairment of goodwill in connection with acquisitions;
ability to utilize net operating loss;
changes in available tax credits;
changes in share-based compensation expense;
changes in the valuation of our deferred tax assets and liabilities;
changes in domestic or international tax laws or the interpretation of such tax laws;
the resolution of issues arising from tax audits with various tax authorities;
the tax effects of purchase accounting for acquisitions and restructuring charges that may cause fluctuations
between reporting periods; and
taxes that may be incurred upon a repatriation of cash from foreign operations.
Any significant increase in our future effective tax rates could impact our results of operations for future periods
adversely.
Our ability to use net operating loss carryforwards to offset future taxable income for U.S. federal income tax purposes
and other tax benefits may be limited.
Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”) imposes an annual limitation on the
amount of taxable income that may be offset if a corporation experiences an “ownership change” as defined in Section
382 of the Code. An ownership change occurs when a company’s “five-percent shareholders” (as defined in Section 382
of the Code) collectively increase their ownership in the company by more than 50 percentage points (by value) over a
rolling three-year period. Additionally, various states have similar limitations on the use of state net operating losses
(“NOL”) following an ownership change.
If we experience an ownership change, our ability to use our NOLs, any loss or deducting attributable to a “net
unrealized built-in loss” and other tax attributes (collectively, the “Tax Benefits”) could be substantially limited, and the
timing of the usage of the Tax Benefits could be substantially delayed, which could significantly impair the value of the
Tax Benefits. There is no assurance that we will be able to fully utilize the Tax Benefits and we could be required to
record an additional valuation allowance related to the amount of the Tax Benefits that may not be realized, which could
adversely impact our result of operations.
We believe that these Tax Benefits are a valuable asset for us. On September 6, 2016, our Board of Directors
approved a Tax Benefit Preservation Plan (the “Plan”) in an effort to protect our Tax Benefits during the effective period
of the Plan. Further, on September 6, 2016, our Board of Directors adopted certain amendments to our Amended and
Restated Certificate of Incorporation, as amended (the “Charter Amendments”), which are intended to preserve the Tax
Benefits by restricting certain transfers of our common stock. The Plan and the Charter Amendments will be submitted to
a stockholder vote at our 2016 annual meeting of stockholders. If our stockholders do not approve the Plan, it will expire.
If our stockholders do not approve the Charter Amendments, they will not become effective. Although the Plan and the
Charter Amendments are intended to reduce the likelihood of an “ownership change” that could adversely affect us, there
is no assurance that the restrictions on transferability in the Plan and the Charter Amendments will prevent all transfers
that could result in such an “ownership change.” There also can be no assurance that the transfer restrictions in the Charter
Amendments, if they become effective, will be enforceable against all of our stockholders absent a court determination
confirming such enforceability. The transfer restrictions may be subject to challenge on legal or equitable grounds.
The Plan and the Charter Amendments could make it more difficult for a third party to acquire, or could discourage
a third party from acquiring, us or a large block of our common stock. A third party that acquires 4.9% or more of our
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common stock could suffer substantial dilution of its ownership interest under the terms of the Plan through the issuance
of common stock or common stock equivalents to all stockholders other than the acquiring person. The acquisition may
also be void under the Charter Amendments.
The foregoing provisions may adversely affect the marketability of our common stock by discouraging potential
investors from acquiring our stock. In addition, these provisions could delay or frustrate the removal of incumbent
directors and could make more difficult a merger, tender offer or proxy contest involving us, or impede an attempt to
acquire a significant or controlling interest in us, even if such events might be beneficial to us and our stockholders.
Our customers may not pay for products and services in a timely manner, or at all, which would decrease our cash
flows and adversely affect our working capital.
Our business requires extensive credit risk management that may not be adequate to protect against customer
nonpayment. A risk of non-payment by customers is a significant focus of our business. We expect a significant amount of
future revenue to come from international customers in developing countries. We do not generally expect to obtain
collateral for sales, although we require letters of credit or credit insurance as appropriate for international customers. For
information regarding the percentage of revenue attributable to certain key customers, see the risks discussed in the
following risk factor. Our historical accounts receivable balances have been concentrated in a small number of significant
customers. Unexpected adverse events impacting the financial condition of our customers, bank failures or other
unfavorable regulatory, economic or political events in the countries in which we do business may impact collections and
adversely impact our business, require increased bad debt expense or receivable write-offs and adversely impact our cash
flows, financial condition and operating results, which could also result in a breach of our bank covenants.
Because a significant amount of our revenue may come from a limited number of customers, the termination of any of
these customer relationships may adversely affect our business.
Sales of our products and services historically have been concentrated in a small number of customers. Principal
customers for our products and services include domestic and international wireless/mobile service providers, OEMs, as
well as private network users such as public safety agencies; government institutions; and utility, pipeline, railroad and
other industrial enterprises that operate broadband wireless networks. During fiscal 2016, 2015 and 2014, we had one
international customer in Africa, MTN Group that accounted for 18%, 14% and 17%, respectively, of our total revenue.
Although we have a large customer base, during any given quarter a small number of customers may account for a
significant portion of our revenue.
It is possible that a significant portion of our future product sales also could become even more concentrated in a
limited number of customers. In addition, product sales to major customers have varied widely from period to period. The
loss of any existing customer, a significant reduction in the level of sales to any existing customer, or our inability to gain
additional customers could result in declines in our revenue or an inability to grow revenue. In addition, further
consolidation of our potential customer base could result in purchasing decision delays as consolidating customers
integrate their operations and could generally reduce our opportunities to win new customers to the extent that the number
of potential customers decreases. Furthermore, as our customers become larger, they may have more leverage to negotiate
better pricing which could adversely affect our revenues and gross margins.
Consolidation within the telecommunications industry could result in a decrease in our revenue.
The telecommunications industry has experienced significant consolidation among its participants, and we expect
this trend to continue. Some operators in this industry have experienced financial difficulty and have filed, or may file, for
bankruptcy protection. Other operators may merge and one or more of our competitors may supply products to the
customers of the combined company following those mergers. This consolidation could result in purchasing decision
delays and decreased opportunities for us to supply products to companies following any consolidation. This
consolidation may also result in lost opportunities for cost reduction and economies of scale.
We continually evaluate strategic opportunities which could involve merger and/or acquisition activities that could
disrupt our operations and harm our operating results.
Our growth depends upon market growth, our ability to enhance our existing products and our ability to introduce
new products on a timely basis. We intend to continue to address the need to develop new products and enhance existing
products through acquisitions, or “tuck-ins,” product lines, technologies, and personnel. Acquisitions involve numerous
risks, including the following:
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difficulties in integrating the operations, systems, technologies, products, and personnel of the acquired
companies, particularly companies with large and widespread operations and/or complex products;
diversion of management’s attention from normal daily operations of the business and the challenges of
managing larger and more widespread operations resulting from acquisitions;
potential difficulties in completing projects associated with in-process research and development
intangibles;
difficulties in entering markets in which we have no or limited direct prior experience and where
competitors in each market have stronger market positions;
initial dependence on unfamiliar supply chains or relatively small supply partners;
insufficient revenue to offset increased expenses associated with acquisitions; and
the potential loss of key employees, customers, resellers, vendors and other business partners of the
companies we acquire following and continuing after announcement of acquisition plans.
Acquisitions may also cause us to:
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issue common stock that would dilute our current stockholders;
use a substantial portion of our cash resources, or incur debt;
significantly increase our interest expense, leverage and debt service requirements if we incur additional
debt to pay for an acquisition;
assume material liabilities;
record goodwill and non-amortizable intangible assets that are subject to impairment testing on a regular
basis and potential periodic impairment charges;
incur amortization expenses related to certain intangible assets;
incur tax expenses related to the effect of acquisitions on our intercompany R&D cost sharing arrangement
and legal structure;
incur large and immediate write-offs and restructuring and other related expenses; and
become subject to intellectual property or other litigation.
Mergers and acquisitions of high-technology companies are inherently risky and subject to many factors outside of
our control. No assurance can be given that our previous or future acquisitions will be successful and will not materially
adversely affect our business, operating results or financial condition. Failure to manage and successfully integrate
acquisitions could materially harm our business and operating results. Even when an acquired company has already
developed and marketed products, there can be no assurance that product enhancements will be made in a timely fashion
or that pre-acquisition due diligence will have identified all possible issues that might arise with respect to such products.
If we are unable to adequately protect our intellectual property rights, we may be deprived of legal recourse against
those who misappropriate our intellectual property.
Our ability to compete will depend, in part, on our ability to obtain and enforce intellectual property protection for
our technology in the U.S. and internationally. We rely upon a combination of trade secrets, trademarks, copyrights,
patents and contractual rights to protect our intellectual property. In addition, we enter into confidentiality and invention
assignment agreements with our employees, and enter into non-disclosure agreements with our suppliers and appropriate
customers so as to limit access to and disclosure of our proprietary information. We cannot give assurances that any steps
taken by us will be adequate to deter misappropriation or impede independent third-party development of similar
technologies. In the event that such intellectual property arrangements are insufficient, our business, financial condition
and results of operations could be harmed. We cannot provide assurances that the protection provided to our intellectual
property by the laws and courts of particular nations will be substantially similar to the protection and remedies available
under U.S. law. Furthermore, we cannot provide assurances that third parties will not assert infringement claims against
us based on intellectual property rights and laws in other nations that are different from those established in the U.S.
If we fail to develop and maintain distribution and licensing relationships, our revenue may decrease.
Although a majority of our sales are made through our direct sales force, we also market our products through
indirect sales channels such as independent agents, resellers, OEMs and systems integrators. These relationships enhance
our ability to pursue major contract awards and, in some cases, are intended to provide our customers with easier access to
financing and a greater variety of equipment and service capabilities, which an integrated system provider should be able
to offer. We may not be able to maintain our current relationships or develop new ones. If additional relationships are
23
developed, they may not be successful. Furthermore, as we consider increasing licensing revenue based on upgraded
technology, we may not be successful in transitioning customers to the planned software upgrades. Our inability to
establish or maintain these distribution and licensing relationships could restrict our ability to market our products and
thereby result in significant reductions in revenue. If these revenue reductions occur, our business, financial condition and
results of operations would be harmed.
If sufficient radio frequency spectrum is not allocated for use by our products, or we fail to obtain regulatory approval
for our products, our ability to market our products may be restricted.
We will be affected by the allocation and auction of the radio frequency spectrum by governmental authorities both
in the U.S. and internationally. These governmental authorities may not allocate sufficient radio frequency spectrum for
use by our products or we may not be successful in obtaining regulatory approval for our products from these authorities.
Historically, in many developed countries, the unavailability of frequency spectrum has inhibited the growth of wireless
telecommunications networks. In addition, to operate in a jurisdiction, we must obtain regulatory approval for our
products. Each jurisdiction in which we market our products has its own regulations governing radio communications.
Products that support emerging wireless telecommunications services can be marketed in a jurisdiction only if permitted
by suitable frequency allocations, auctions and regulations. The process of establishing new regulations is complex and
lengthy. If we are unable to obtain sufficient allocation of radio frequency spectrum by the appropriate governmental
authority or obtain the proper regulatory approval for our products, our business, financial condition and results of
operations may be harmed.
Radio communications are subject to regulation by U.S. and foreign laws and international treaties. Generally, our
products need to conform to a variety of United States and international requirements established to avoid interference
among users of transmission frequencies and to permit interconnection of telecommunications equipment. Any delays in
compliance with respect to our future products could delay the introduction of such products.
Our business is subject to changing regulation of corporate governance, public disclosure and anti-bribery measures
which have resulted in increased costs and may continue to result in additional costs in the future and/or potential
liabilities.
We are subject to rules and regulations of federal and state regulatory authorities, The NASDAQ Stock Market LLC
(“NASDAQ”) and financial market entities charged with the protection of investors and the oversight of companies
whose securities are publicly traded, and foreign and domestic legislative bodies. During the past few years, these entities,
including the Public Company Accounting Oversight Board, the SEC, NASDAQ and several foreign governments such as
the governments of the United Kingdom and Brazil, have issued requirements, laws and regulations and continue to
develop additional requirements, laws and regulations, most notably the Sarbanes-Oxley Act of 2002 (“SOX”), and recent
laws and regulations regarding bribery and unfair competition. Our efforts to comply with these requirements and
regulations have resulted in, and are likely to continue to result in, increased general and administrative expenses and a
diversion of substantial management time and attention from revenue-generating activities to compliance activities.
Moreover, because these laws, regulations and standards are subject to varying interpretations, their application in
practice may evolve over time as new guidance becomes available. This evolution may result in continuing uncertainty
regarding compliance matters and additional costs potentially necessitated by ongoing revisions to our disclosure and
governance practices. Finally, if we are unable to ensure compliance with such requirements, laws, or regulations, we may
be subject to costly prosecution and liability, and resulting reputational harm, from such noncompliance.
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In previous periods, we identified material weaknesses in our internal control over financial reporting and, if we are
unable to satisfy regulatory requirements relating to internal controls or if our internal control over financial
reporting is not effective, our business and stock price could be adversely affected.
In connection with Section 404 of the Sarbanes-Oxley Act, we have identified in the past and may, in the future,
identify deficiencies in our internal control over financial reporting. In connection with the audit of our consolidated
financial statements as of and for the years ended July 3, 2015 and June 27, 2014, we have concluded that there were
material weaknesses related to our internal control over financial reporting. A material weakness is defined as a
deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable
possibility that a material misstatement of the company’s annual or interim consolidated financial statements will not be
prevented or detected on a timely basis. As a result of these material weaknesses, our management concluded that our
internal control over financial reporting was not effective as of July 3, 2015 and June 27, 2014, based on criteria set forth
by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-An Integrated
Framework (2013). Although we believe that we have remediated these material weaknesses as of July 1, 2016, if we
identify additional material weaknesses in our internal controls are identified in the future, our consolidated financial
statements may contain material misstatements and we could be required to restate our financial results. We could also be
subject to litigation which, whether meritorious or not, could be time consuming, costly or divert significant operational
resources. Further, we could lose investor confidence in the accuracy and completeness of our financial reports, and our
reputation, business, results of operations and stock price could be adversely affected.
Our products are used in critical communications networks which may subject us to significant liability claims.
Because our products are used in critical communications networks, we may be subject to significant liability
claims if our products do not work properly. We warrant to our current customers that our products will operate in
accordance with our product specifications. If our products fail to conform to these specifications, our customers could
require us to remedy the failure or could assert claims for damages. The provisions in our agreements with customers that
are intended to limit our exposure to liability claims may not preclude all potential claims. In addition, any insurance
policies we have may not adequately limit our exposure with respect to such claims. Liability claims could require us to
spend significant time and money in litigation or to pay significant damages. Any such claims, whether or not successful,
would be costly and time-consuming to defend, and could divert management’s attention and seriously damage our
reputation and our business.
We may be subject to litigation regarding our intellectual property. This litigation could be costly to defend and resolve,
and could prevent us from using or selling the challenged technology.
The wireless telecommunications industry is characterized by vigorous protection and pursuit of intellectual
property rights, which has resulted in often protracted and expensive litigation. Any litigation regarding patents or other
intellectual property could be costly and time-consuming and could divert our management and key personnel from our
business operations. The complexity of the technology involved and the uncertainty of intellectual property litigation
increase these risks. Such litigation or claims could result in substantial costs and diversion of resources. In the event of
an adverse result in any such litigation, we could be required to pay substantial damages, cease the use and transfer of
allegedly infringing technology or the sale of allegedly infringing products and expend significant resources to develop
non-infringing technology or obtain licenses for the infringing technology. We can give no assurances that we would be
successful in developing such non-infringing technology or that any license for the infringing technology would be
available to us on commercially reasonable terms, if at all. This could have a materially adverse effect on our business,
results of operation, financial condition, competitive position and prospects.
System security risks, data protection breaches, and cyber attacks could compromise our proprietary information,
disrupt our internal operations and harm public perception of our security products, which could cause our business
and reputation to suffer and adversely affect our stock price.
In the ordinary course of business, we store sensitive data, including intellectual property, our proprietary business
information and proprietary information of our customers, suppliers and business partners, on our networks. The secure
maintenance of this information is critical to our operations and business strategy. Increasingly, companies, including
ours, are subject to a wide variety of attacks on their networks on an ongoing basis. Despite our security measures, our
information technology and infrastructure may be vulnerable to penetration or attacks by computer programmers and
hackers, or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our
networks, creating system disruptions or slowdowns and exploiting security vulnerabilities of our products, and the
information stored on our networks could be accessed, publicly disclosed, lost or stolen, which could subject us to
liability to our customers, suppliers, business partners and others, and cause us reputational and financial harm. In
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addition, sophisticated hardware and operating system software and applications that we produce or procure from third
parties may contain defects in design or manufacture, including “bugs” and other problems that could unexpectedly
interfere with the operation of our networks.
If an actual or perceived breach of network security occurs in our network or in the network of a customer of our
security products, regardless of whether the breach is attributable to our products, the market perception of the
effectiveness of our products could be harmed. Because the techniques used by computer programmers and hackers, many
of whom are highly sophisticated and well-funded, to access or sabotage networks change frequently and generally are
not recognized until after they are used, we may be unable to anticipate or immediately detect these techniques. This
could impede our sales, manufacturing, distribution or other critical functions. In addition, the economic costs to us to
eliminate or alleviate cyber or other security problems, bugs, viruses, worms, malicious software systems and security
vulnerabilities could be significant and may be difficult to anticipate or measure because the damage may differ based on
the identity and motive of the programmer or hacker, which are often difficult to identify.
Anti-takeover provisions of Delaware law, the Plan, and provisions in our Amended and Restated Certificate of
Incorporation, as amended, and Amended and Restated Bylaws could make a third-party acquisition of us difficult.
Because we are a Delaware corporation, the anti-takeover provisions of Delaware law could make it more difficult
for a third party to acquire control of us, even if the change in control would be supported by our stockholders. We are
subject to the provisions of Section 203 of the General Corporation Law of Delaware, which prohibits us from engaging
in certain business combinations, unless the business combination is approved in a prescribed manner. In addition, our
Amended and Restated Certificate of Incorporation, as amended, and Amended and Restated Bylaws also contain certain
provisions that may make a third-party acquisition of us difficult, including the ability of the Board of Directors to issue
preferred stock and the requirement that nominations for directors and other proposals by stockholders must be made in
advance of the meeting at which directors are elected or the proposals are voted upon.
In addition, the Plan and the Charter Amendments could make an acquisition of us more difficult, and certain
acquisitions may also be void under the Charter Amendments. The risks associated with the Plan and the Charter
Amendments are described in more detail above under the heading “Our ability to use net operating loss carryforwards to
offset future taxable income for U.S. federal income tax purposes and other tax benefits may be limited.”
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
As of July 1, 2016, we leased approximately 294,000 square feet of facilities worldwide, with approximately 62%
in the United States, mostly in California, Texas, and North Carolina. Our corporate headquarters is located in Santa
Clara, California, and consists of a building of approximately 129,000 square feet. In June 2016, we entered into a lease
agreement for our new corporate headquarters in Milpitas, California with a term of 60 months which consists of
approximately 19,000 square feet office space. In the same month, we signed a lease termination agreement for our
current headquarters lease. We expect to complete the move of our corporate headquarters to Milpitas, California by
September 2016. We also lease approximately 54,000 square feet of office, assembly facilities and warehouse in certain
locations in Texas. Internationally, we lease approximately 111,000 square feet of facilities throughout Europe, Canada,
Central America, South America, Africa and Asia regions, including offices in Singapore, Slovenia, Philippine Islands,
India, Mexico, Brazil, South Africa, Ghana, Ivory Coast, Kenya, Nigeria, Algeria, France, Netherlands, Poland, Russia,
Australia, Dubai, Saudi Arabia, Lebanon, China, and Thailand. In addition, we own approximately 108,000 square feet of
facilities in Wellington, New Zealand and Lanarkshire, Scotland.
We maintain our facilities in good operating condition, and believe that they are suitable and adequate for our
current and projected needs. We continuously review our anticipated requirements for facilities and may, from time to
time, acquire additional facilities, expand existing facilities, or dispose of existing facilities or parts thereof, as we deem
necessary.
For more information about our lease obligations, see “Note 12. Commitments and Contingencies” of the notes to
consolidated financial statements, which are included in Item 8 in this Annual Report on Form 10-K.
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Item 3. Legal Proceedings
We are subject from time to time to disputes with customers concerning our products and services. In May 2016,
we received notification of a claim for $1.0 million in damages from a customer in Austria alleging that certain of our
products were defective. We are continuing to investigate this claim, and at this time an estimate of the reasonably
possible loss or range of loss cannot be made. In August 2016, we received a correspondence from a customer in Africa
demanding that certain inventory aggregating $1.0 million be repurchased under the terms of an inventory management
agreement that we believe has expired. We are continuing to investigate this demand, and at this time an estimate of the
reasonably possible loss or range of loss cannot be made. We believe that we have numerous contractual and legal
defenses to these disputes, which are in their early stages, and we intend to dispute them vigorously.
From time to time, we may be involved in various other legal claims and litigation that arise in the normal course
of our operations. We are aggressively defending all current litigation matters. Although there can be no assurances and
the outcome of these matters is currently not determinable, we currently believe that none of these claims or proceedings
are likely to have a material adverse effect on our financial position. We expect to defend each of these disputes
vigorously. There are many uncertainties associated with any litigation and these actions or other third-party claims
against us may cause us to incur costly litigation and/or substantial settlement charges. As a result, our business, financial
condition, results of operations, and cash flows could be adversely affected. The actual liability in any such matters may
be materially different from our estimates, if any.
We record accruals for our outstanding legal proceedings, investigations or claims when it is probable that a
liability will be incurred and the amount of loss can be reasonably estimated. We evaluate, at least on a quarterly basis,
developments in legal proceedings, investigations or claims that could affect the amount of any accrual, as well as any
developments that would result in a loss contingency to become both probable and reasonably estimable. We have not
recorded any accrual for loss contingencies associated with such legal claims or litigation discussed above.
Item 4. Mine Safety Disclosures
Not applicable.
27
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market Information and Price Range of Common Stock
Our common stock, with a par value of $0.01 per share, is listed and primarily traded on the NASDAQ Global
Select Market, under the ticker symbol AVNW (prior to January 28, 2010 our ticker symbol was HSTX). There was no
established trading market for shares of our common stock prior to January 29, 2007.
According to the records of our transfer agent, as of August 18, 2016, there were 2,666 holders of record of our
common stock. The following table sets forth the high and low closing prices for a share of our common stock on
NASDAQ Global Select Market for the periods indicated during our fiscal years 2016 and 2015, as adjusted for the 1-
for-12 reverse stock split discussed in “Note 1. The Company and Summary of Significant Accounting Policies” of the
notes to consolidated financial statements, which are included in Item 8 in this Annual Report on Form 10-K:
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend Policy
Fiscal 2016
Fiscal 2015
High
$15.96
$14.04
$9.57
$9.31
Low
$12.48
$8.92
$6.60
$6.18
High
$21.36
$22.80
$18.24
$15.84
Low
$13.92
$15.84
$13.20
$13.44
We have not paid cash dividends on our common stock and do not intend to pay cash dividends in the foreseeable
future. We intend to retain any earnings for use in our business. In addition, the covenants of our credit facility may
restrict us from paying dividends or making other distributions to our stockholders under certain circumstances.
Sales of Unregistered Securities
During fiscal 2016, we did not issue or sell any unregistered securities.
Issuer Repurchases of Equity Securities
During fiscal 2016, we did not repurchase any equity securities.
Performance Graph
The following graph and accompanying data compares the cumulative total return on our common stock with the
cumulative total return of the Total Return Index for The NASDAQ Composite Market (U.S. Companies) and the
NASDAQ Telecommunications Index for the five-year period ended July 1, 2016. The stock price performance shown
on the graph below is not necessarily indicative of future price performance. Note that this graph and accompanying data
is “furnished,” not “filed,” with the SEC.
28
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Aviat Networks, Inc., the NASDAQ Composite Index
and the NASDAQ Telecommunications Index
Aviat Networks, Inc. . . . . . . . . . . . . . . .
NASDAQ Composite . . . . . . . . . . . . . .
NASDAQ Telecommunications. . . . . . .
100.00
100.00
100.00
70.70
105.37
87.44
66.15
123.92
112.30
31.57
162.15
130.47
33.21
186.87
136.62
16.93
183.65
138.62
7/1/2011
6/29/2012
6/28/2013
6/27/2014
7/3/2015
7/1/2016
____________________________
*
Assumes (i) $100 invested on July 1, 2011 in Aviat Networks, Inc. common stock, the Total Return Index for The
NASDAQ Composite Market (U.S. companies) and the NASDAQ Telecommunications Index; and (ii) immediate
reinvestment of all dividends.
29
Item 6. Selected Financial Data
The following table summarizes our selected historical financial information for each of the last five fiscal years
that has been derived from our consolidated financial statements. All per-share data have been retroactively adjusted for
the 1-for-12 reverse stock split discussed in “Note 1. The Company and Summary of Significant Accounting Policies” of
the notes to consolidated financial statements, which are included in Item 8 of this Annual Report on Form 10-K. Data
presented for fiscal years 2016, 2015 and 2014 are included elsewhere in this Annual Report on Form 10-K. This table
should be read in conjunction with our other financial information, including “Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes, included
elsewhere in this Annual Report on Form 10-K.
July 1, 2016
July 3, 2015
Fiscal Year Ended
June 27, 2014
(1)
June 28, 2013
(1)
(In thousands)
Revenue from product sales and services . . . . . $
Cost of product sales and services. . . . . . . . . . .
Loss from continuing operations (2) (3) . . . . . . . .
Net loss (2) (3) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling
interests, net of tax . . . . . . . . . . . . . . . . . . . . .
Net loss attributable to Aviat Networks (2) (3) . . .
Basic and diluted loss per common share:
$
268,690
206,973
(30,178)
(29,637)
$
335,878
255,188
(24,648)
(24,554)
$
346,032
260,844
(52,018)
(51,100)
270
(29,907)
71
(24,625)
—
(51,100)
471,255
332,913
(12,647)
(16,725)
—
(16,725)
$
June 29, 2012
(Unaudited)
(1)
444,032
312,639
(15,822)
(24,466)
—
(24,466)
Loss from continuing operations . . . . . . . . $
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5.81) $
(5.71)
(4.77) $
(4.75)
(10.13) $
(9.95)
(2.53) $
(3.34)
(3.22)
(4.97)
_______________________
(1) As revised, during the fourth quarter of fiscal 2015, these amounts have been revised as we identified and corrected
errors around our accrued liability related to cost of services revenue.
(2) Include share-based compensation expense $1.8 million, $2.2 million, $3.4 million, $6.4 million and $5.2 million for
fiscal 2016, 2015, 2014, 2013 and 2012 respectively.
(3) Include restructuring charges of $2.5 million, $4.9 million, $11.2 million, $3.1 million and $2.3 million for fiscal
2016, 2015, 2014, 2013 and 2012 respectively.
July 1, 2016
July 3, 2015
June 27, 2014
(1)
June 28, 2013
(1)
As of
(In thousands)
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Long-term liabilities . . . . . . . . . . . . . . . . . . . . .
_______________________
166,111
12,707
$
224,715
18,198
$
253,184
19,574
$
305,816
24,825
June 29, 2012
(Unaudited)
(1)
329,634
24,747
$
(1) As revised, during the fourth quarter of fiscal 2015, these amounts have been revised as we identified and corrected
errors around our accrued liability related to cost of services revenue.
30
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview of Business; Operating Environment and Key Factors Impacting Fiscal 2015 and 2016 Results
The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand our
results of operations and financial condition. MD&A is provided as a supplement to, and should be read in conjunction
with, our consolidated financial statements and the accompanying notes. In the discussion below, our fiscal year ending
June 30, 2017 is referred to as “fiscal 2017” or “2017”; our fiscal year ended July 1, 2016 is referred to as “fiscal 2016”
or “2016”; our fiscal year ended July 3, 2015 is referred to as “fiscal 2015” or “2015”; and our fiscal year ended June 27,
2014 is referred to as “fiscal 2014” or “2014.”
Overview
We generate revenue by designing, developing, manufacturing and supporting a range of wireless networking
products, solutions and services for mobile and fixed communications service providers, private network operators,
government agencies, transportation and utility companies, public safety agencies and broadcast system operators across
the globe. Our products include point-to-point digital microwave transmission systems designed for first/last mile access,
middle mile/backhaul, and long distance trunking applications. We also provide network management software solutions
to enable operators to deploy, monitor and manage our systems, third party equipment such as antennas, routers, and
multiplexers, necessary to build and deploy a wireless transmission network, and a full suite of turnkey support services.
We work continuously to improve our established brands and to create new products that meet our customers’
evolving needs and preferences. Our fundamental business goal is to generate superior returns for our stockholders over
the long term. We believe that increases in revenue, operating profits and earnings per share are the key measures of
financial performance for our business.
Our strategic focus in fiscal 2017 will be to continue to accelerate innovation and optimize our product portfolio,
improve costs and operational efficiencies, grow our revenue and create a sustainable, profitable business model. To do
this, we continue to examine our products, markets, facilities, development programs, and operational flows to ensure we
are focused on what we do well and what will differentiate us in the future. We will continue working to streamline
management processes to attain the efficiency levels required by the markets in which we do business.
Although the general trend of increasing demand for bandwidth to support mobile networks applies in all markets,
we expect to see quarter-to-quarter fluctuations within markets and with individual customers based on customers’ past
purchasing patterns. Seasonality is also a factor that impacts our business. Our fiscal third quarter revenue and orders
have historically been lower than the revenue and orders in our second fiscal quarter because many of our customers
utilize a significant portion of their capital budgets at the end of their fiscal years, which is typically the calendar year
end and coincides with our second fiscal quarter. The majority of our customers begin a new fiscal year on January 1,
and capital expenditures tend to be lower in an organization’s first quarter than in its fourth quarter. We anticipate that
this seasonality will continue. The seasonality between the second quarter and third quarter may be affected by a variety
of additional factors, including changes in the global economy.
In line with industry trends, we expect to provide increased managed services, including network design, inventory
management, final configuration and warehousing services, to certain customers in certain geographies. Our
operating results may be impacted by providing these services to the extent that we may need to postpone the recognition
of revenue and incur upfront and ongoing expenses that are not offset with additional revenue from product sales
associated with these services until a future period.
Operations Review
The market for mobile backhaul continues to be our primary addressable market segment and, over the long term,
the demand for increasing the backhaul capacity in our customers’ networks continues to grow. In North America we
supported long-term evolution (“LTE”) deployments of our mobile operator customers, public safety network
deployments for state and local governments, and private network implementations for utilities and other customers. Our
international business was adversely affected in fiscal 2016 by constrained availability of U.S. dollars in countries with
economies highly dependent on resource exports, particularly oil. This condition limited capital spending and slowed
payments from customers in those locations. In international markets, our business continued to rely on a combination
of customers increasing their capacity to handle subscriber growth, the ongoing build-out of some large 3G deployments,
and the emergence of early stage LTE deployments. Our position continues to be to support our customers for LTE
readiness and ensure that our technology roadmap is well aligned with evolving market requirements. We continue to
31
find that our strength in turnkey and after-sale support services is a differentiating factor that wins business for us and
enables us to expand our business with existing customers in all markets. However, as disclosed above and in the “Risk
Factors” section in Item 1A of this Annual Report on Form 10-K, a number of factors could prevent us from achieving
our objectives, including ongoing pricing pressures attributable to competition and macroeconomic conditions in the
geographic markets that we service.
Revenue
We manage our sales activities primarily on a geographic basis in North America and three international
geographic regions: (1) Africa and Middle East, (2) Europe and Russia and (3) Latin America and Asia Pacific. Revenue
by region for fiscal 2016, 2015 and 2014 and the related changes were shown in the table below:
2016
(In thousands, except percentages)
North America . . . . . . . . . . . . . $ 125,482
82,742
Africa and Middle East. . . . . . .
Europe and Russia . . . . . . . . . .
Latin America and Asia Pacific
39,927
Total Revenue . . . . . . . . . . . . . $ 268,690
20,539
Fiscal Year
$ Change
% Change
2015
2014
$ 153,239
$ 142,027
97,112
35,990
49,537
108,906
36,043
59,056
$ 335,878
$ 346,032
2016/2015
2015/2014
$ (27,757) $ 11,212
(11,794)
(53)
(9,519)
$ (67,188) $ (10,154)
(14,370)
(15,451)
(9,610)
2016/2015
2015/2014
(18.1)%
7.9 %
(14.8)% (10.8)%
(42.9)%
(0.1)%
(19.4)% (16.1)%
(20.0)%
(2.9)%
Our revenue in North America decreased $27.8 million, or 18.1%, in fiscal 2016 compared with fiscal 2015. While
our order volume increased in North America compared to fiscal 2015, we experienced a shift in the mix of business
away from wireless operator customers and toward private networks operated by governments and utilities. The decrease
in the North America wireless operator customers revenue was due primarily to them reaching the end of their LTE
network build cycle. In addition, orders from private networks generally have a longer cycle time from order placement
to completion for revenue than orders from the wireless operators, owing to the larger degree of service content included
with the private network projects. In fiscal 2016 we saw a decrease in revenue both from the lower volume of business
with wireless operator customers and from the longer cycle time to revenue from the larger volume of business with
private network customers. Revenue in North America increased $11.2 million, or 7.9%, in fiscal 2015 compared with
fiscal 2014. The increase in North America primarily resulted from increase of revenue from the government and utility
markets, while revenue from network operator customers declined in fiscal 2015 compared with fiscal 2014.
Revenue in Africa and Middle East decreased $14.4 million, or 14.8%, in fiscal 2016 compared with fiscal 2015.
The fiscal 2016 decrease in revenue came from decreased sales volume to our private network customers in the Middle
East and across several customers in Africa. Revenue with our major wireless operator customers in the region remained
relatively low, and slightly down in fiscal 2016 compared to fiscal 2015. Revenue in Africa and Middle East decreased
$11.8 million, or 10.8%, in fiscal 2015 compared with fiscal 2014, reflecting network operator capital spending restraint
in fiscal 2015 compared with fiscal 2014.
Revenue in Europe and Russia was down $15.5 million, or 42.9%, in fiscal 2016 compared with fiscal 2015. The
decrease came from lower sales to our large customers in the region compared with the same periods in fiscal 2015. Both
the unfavorable currency exchange rate change on our U.S. dollar based prices and limited customer capital spending in
the region contributed to lower revenue volume during fiscal 2016. Revenue in Europe and Russia remained
approximately the same for fiscal 2015 compared with fiscal 2014.
Revenue in Latin America and Asia Pacific declined $9.6 million, or 19.4%, in fiscal 2016 compared with fiscal
2015, mostly due to lower product sales to several mid-size customers in Asia Pacific, partially offset by a large increase
with one of our major customers in the region. The decrease was also attributable to a year-to-year reduction in sales to
private network customers in Latin America. Revenue in Latin America and Asia Pacific declined $9.5 million, or 16.1%,
in fiscal 2015 compared with fiscal 2014, mostly due to lower product sales to our customers in Latin America.
Fiscal Year
$ Change
% Change
(In thousands, except percentages)
Product sales . . . . . . . . . . . . . . . $ 167,827
Services. . . . . . . . . . . . . . . . . . .
100,863
Total Revenue . . . . . . . . . . . . . $ 268,690
2016
2015
2014
$ 214,874
$ 222,628
121,004
123,404
$ 335,878
$ 346,032
32
2015/2014
2016/2015
$ (47,047) $ (7,754)
(2,400)
$ (67,188) $ (10,154)
(20,141)
2016/2015
2015/2014
(21.9)%
(16.6)%
(20.0)%
(3.5)%
(1.9)%
(2.9)%
Our revenue from product sales decreased $47.0 million, or 21.9%, in fiscal 2016 compared with fiscal 2015.
Product volumes were lower in all sectors, but the majority of the decrease was in North America and Europe. In North
America this decline reflected fewer orders from wireless operators and the extended cycle time to complete large
projects. In Europe, this decline reflected constrained capital spending mentioned above. Our service revenue decreased
$20.1 million, or 16.6%, in fiscal 2016 compared with fiscal 2015, due to reduced service activities in all sectors, but
particularly in North America, Middle East and Africa.
Our revenue from product sales decreased $7.8 million, or 3.5%, in fiscal 2015 compared with fiscal 2014. The
decrease came primarily from weaker product sales in Africa and Latin America, offset in part by stronger product sales
in North America, Europe and Asia. Our services revenue decreased $2.4 million, or 1.9%, in fiscal 2015 compared with
fiscal 2014, due to reduced service activities in Asia Pacific, Europe and Latin America, partially offset by increased
service activities in Africa and North America.
During fiscal 2016, the MTN Group in Africa accounted for 18% of our total revenue compared with 14% in fiscal
2015 and 17% in fiscal 2014. We have entered into separate and distinct contracts with MTN Group as well as separate
arrangements with various MTN Group subsidiaries. The loss of all or a substantial portion of MTN Group’s business
could adversely affect our results of operations, cash flows and financial position.
Gross Margin
2016
(In thousands, except percentages)
Revenue . . . . . . . . . . . . . . . . . . $ 268,690
Cost of revenue . . . . . . . . . . . . .
206,973
Gross margin. . . . . . . . . . . . . . . $ 61,717
% of revenue . . . . . . . . . . . . . . .
Product margin % . . . . . . . . . . .
Service margin % . . . . . . . . . . .
23.0%
23.3%
22.4%
$ Change
% Change
2015/2014
2016/2015
$ (67,188) $ (10,154)
(5,656)
$ (18,973) $ (4,498)
(48,215)
2016/2015
(20.0)%
(18.9)%
(23.5)%
2015/2014
(2.9)%
(2.2)%
(5.3)%
Fiscal Year
2015
$ 335,878
255,188
$ 80,690
2014
$ 346,032
260,844
$ 85,188
24.0%
23.7%
24.5%
24.6%
22.4%
28.6%
Gross margin for fiscal 2016 decreased $19.0 million, or 23.5%, compared with fiscal 2015, primarily due to
decreased revenue volume across all business sectors during fiscal 2016, partially offset by reduced supply chain costs
compared with fiscal 2015. Gross margin as a percentage of revenue decreased in fiscal 2016 compared with fiscal 2015
primarily due to the large drop in revenue volume relative to supply chain costs during the year. Product margin as a
percentage of product revenue decreased from fiscal 2015 primarily due to supply chain costs being absorbed by a
substantially smaller volume of product sales during the year and an increase in inventory write-down of $2.9 million.
Service margin as a percentage of service revenue declined primarily due to a less profitable service business in
international markets.
Gross margin for fiscal 2015 decreased $4.5 million, or 5.3%, compared with fiscal 2014, primarily due to
decreased profitability in Africa, Middle East, Europe and Latin America and a $2.5 million increase in foreign exchange
loss, partially offset by improved profitability in North America and Asia along with reduced supply chain costs
compared with fiscal 2014. Gross margin as a percentage of revenue decreased in fiscal 2015 compared with fiscal 2014
primarily due to lower profitability in Africa, Middle East, Europe and Latin America and increased foreign exchange
losses compared with fiscal 2014, partially offset by higher gross margin rates in North America and Asia. Product
margin as a percentage of product revenue increased over fiscal 2014 primarily to a greater portion of the overall
business coming from North America along with improved pricing in that market, and better pricing on sales in Asia.
Service margin as a percentage of service revenue declined primarily due to a less profitable service business in
international markets.
Research and Development Expenses
(In thousands, except percentages)
2016
2015
2014
2016/2015
2015/2014
2016/2015
2015/2014
Research and development
expenses . . . . . . . . . . . . . . . . . $ 20,806
$ 25,368
$ 35,478
$ (4,562) $ (10,110)
(18.0)% (28.5)%
Fiscal Year
$ Change
% Change
% of revenue . . . . . . . . . . . . . . .
7.7%
7.6%
10.3%
33
Our R&D expenses decreased $4.6 million, or 18.0%, in fiscal 2016 compared with fiscal 2015. The decrease in
R&D expenses was primarily due to a $4.4 million reduction in personnel and related expenses due to the restructuring
programs implemented, and $1.8 million facility expense reassigned to restructuring accounts. The decreases were
partially offset by a $1.7 million increase in professional services and material spending for new products. We continue
to invest in new product features, new functionality and lower cost platforms that we believe will enable our product
lines to retain their technology leads in a cost effective manner.
Our R&D expenses decreased $10.1 million, or 28.5%, in fiscal 2015 compared with fiscal 2014. The decrease in
R&D expenses was primarily due to a $7.2 million reduction in personnel and related expenses, a $1.2 million decrease
in new product development costs, a $2.0 million decrease in facility expense, a $0.2 million decrease in travel expense
and a $0.2 million decrease in share-based compensation expenses. These decreases were primarily due to restructuring
initiatives implemented in Santa Clara, California.
Selling and Administrative Expenses
(In thousands, except percentages)
Selling and administrative
Fiscal Year
$ Change
% Change
2016
2015
2014
2016/2015
2015/2014
2016/2015
2015/2014
expenses . . . . . . . . . . . . . . . . . $ 65,902
$ 76,005
$ 88,776
$ (10,103) $ (12,771)
(13.3)% (14.4)%
% of revenue . . . . . . . . . . . . . . .
24.5%
22.6%
25.7%
Our selling and administrative expenses decreased $10.1 million, or 13.3%, in fiscal 2016 compared with fiscal
2015. The decrease was primarily due to a $3.8 million decrease in personnel and related expenses, a $6.5 million
reduction in professional fees primarily associated with accounting, IT, legal, and marketing consulting services, a $1.4
million decrease in sales commission and incentive compensation, and a $0.4 million decrease in share-based
compensation expenses. The decreases were partially offset by a $1.9 million increase in professional fees primarily
associated with process improvements, and a $0.6 million increase in bad debt expenses. We will continue to seek ways
to improve our operating efficiency in fiscal 2017.
Our selling and administrative expenses decreased $12.8 million, or 14.4%, in fiscal 2015 compared with fiscal
2014. The decrease was due primarily to a $7.1 million decrease in personnel and related expenses, a $1.8 million
decrease in IT consulting expenses as result of the completion of our ERP system implementation, a $1.7 million
reduction in travel expenses, a $3.6 million decrease in sales commission and incentive compensation, and a $1.0 million
decrease in share-based compensation expenses resulting from employee terminations and full vesting of prior stock
awards. The decreases were partially offset by a $3.4 million increase in professional fees.
Restructuring Charges
During the fourth quarter of fiscal 2016, we initiated a restructuring plan (the “Fiscal 2016-2017 Plan”) to
streamline our operations and align expense with current revenue levels. Activities under the Fiscal 2016-2017 Plan
primarily include reductions in force in marketing, selling and general and administrative functions across the Company.
During the third quarter of fiscal 2015, with the intent to bring our operational cost structure in line with the
changing dynamics of the microwave radio and telecommunications markets, we initiated a restructuring plan (“the
Fiscal 2015-2016 Plan”) to lower fixed overhead costs and operating expenses and to preserve cash flow. Activities
under the Fiscal 2015-2016 Plan primarily include reductions in force across the Company, but primarily in operations
outside the United States.
During the third quarter of fiscal 2014, in line with the decrease in revenue that we experienced and our reduced
forecast for the immediate future, we initiated a restructuring plan (“the Fiscal 2014-2015 Plan”) to reduce our operating
costs, primarily in North America, Europe and Asia. Activities under the Fiscal 2014-2015 Plan primarily include
reductions in force and additional facility downsizing of our Santa Clara, California headquarters.
During the fourth quarter of fiscal 2013, we initiated a restructuring plan (the “Fiscal 2013-2014 Plan”) that was
intended to reduce our operating expenses primarily in North America, Europe and Asia. Activities under the Fiscal
2013-2014 Plan included reductions in force and the downsizing of our Santa Clara, California headquarters and certain
international field offices.
34
Our restructuring charges by plan for fiscal 2016, 2015 and 2014 are summarized in the table below:
Fiscal Year
$ Change
% Change
(In thousands, except percentages)
Fiscal 2016-2017 Plan . . . . . . . . $
Fiscal 2015-2016 Plan . . . . . . . .
Fiscal 2014-2015 Plan . . . . . . . .
Fiscal 2013-2014 Plan . . . . . . . .
Fiscal 2011 Plan. . . . . . . . . . . . .
2016
2015
2014
2,210
$
— $
— $
2015/2014
—
$
2016/2015
N/A
2015/2014
N/A
2016/2015
2,210
(3,221)
(1,200)
(201)
—
3,503
(4,575)
(5,320)
61
$ (2,412) $ (6,331)
—
5,852
5,407
(61)
11,198
(91.9)%
N/A
(94.0)% (78.2)%
(231.0)% (98.4)%
N/A (100.0)%
(49.6)% (56.5)%
282
77
(114)
—
3,503
1,277
87
—
Total. . . . . . . . . . . . . . . . . . . . . $
2,455
$
4,867
$
Our restructuring expenses consisted primarily of severance and related benefit charges, facilities costs related to
obligations under non-cancelable leases for facilities that we ceased to use, and lease termination charges. During June
2016, we entered into a lease termination agreement for our current headquarters lease in Santa Clara, California. We
ceased using parts of the building under the Fiscal 2014-2015 Plan and under the Fiscal 2013-2014 Plan, and recognized
lease impairment liabilities in fiscal 2015 and 2014, respectively.
Restructuring charges for fiscal 2016 included $2.5 million employee severance and benefits costs primarily
related to the Fiscal 2016-2017 Plan and the Fiscal 2015-2016 Plan, a $1.9 million lease termination payable, offset by a
$1.2 million deferred rent liability write-off and a net decrease of $0.7 million lease impairment liabilities both resulted
from the termination of our Santa Clara headquarters building. Restructuring charges for fiscal 2015 included a $2.9
million employee termination charge primarily related to the Fiscal 2015-2016 Plan, a $1.4 million facility charge related
to ceasing to use portion of our Santa Clara headquarters building and a $0.6 million Slovenia government fund penalty
charge related to the workforce reduction. Restructuring charges for fiscal 2014 included a $4.8 million facilities charge
primarily related to ceasing to use a portion of our Santa Clara headquarters building and a $6.4 million employee
termination charge related to our Fiscal 2014-2015 Plan and Fiscal 2013-2014 Plan.
We intend to substantially complete the remaining restructuring activities under all Plans by the end of fiscal 2017.
Interest Income, Interest Expense and Other Expense
(In thousands)
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
$
252
(104)
(1,245)
Fiscal Year
2015
2014
$
360
(388)
—
480
(389)
—
Interest income reflected interest earned on our cash equivalents which were comprised of money market funds
and certificates of deposit.
Interest expense was primarily related to interest associated with borrowings and term loans under the Silicon
Valley Bank (“SVB”) Credit Facility and discounts on customer letters of credit.
Other expense related to the foreign exchange loss on a dividend declared by our Nigeria entity (a partnership for
U.S. tax purpose) to Aviat U.S. entity which was caused by a significant devaluation of the Nigerian Naira in June 2016.
Income Taxes
(In thousands, except percentages)
2016
2015
2014
2016/2015
2015/2014
Fiscal Year
$ Change
Loss from continuing operations before income taxes. . . $(28,543)
1,635
Provision for (benefit from) income taxes . . . . . . . . . . . .
As % of loss from continuing operations before income
taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5.7)%
$ (25,958)
(1,310)
$(50,553)
1,465
$ (2,585) $ 24,595
(2,775)
2,945
5.0%
(2.9)%
35
Our income tax expense (benefit) from continuing operations was $1.6 million of expense for fiscal 2016
compared to $1.3 million of benefit for fiscal 2015 and $1.5 million of expense for fiscal 2014. The difference between
our income tax expense (benefit) from continuing operations and income tax expense at the statutory rate of 35% was
primarily attributable to losses in tax jurisdictions in which we cannot recognize a tax benefit and increase in foreign
withholding taxes. During fiscal 2015, we released approximately $4.4 million of its deferred tax valuation allowance in
jurisdictions where management believed the utilization of deferred tax assets was more likely than not based on the
weighting of positive and negative evidence which resulted in an income tax benefit in fiscal 2015.
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in
determining our worldwide provision for income taxes and recording the related assets and liabilities. In the ordinary
course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain.
Income from Discontinued Operations
(In thousands)
Income from discontinued operations, net of tax . . . . . . . . $
2016
2015
2014
2016/2015
541
$
94
$
918
$
447
2015/2014
(824)
$
Fiscal Year
$ Change
Our discontinued operations consisted of the WiMAX business, which was sold to EION Networks, Inc. (“EION”)
on September 2, 2011. We completed the business transition with EION in fiscal 2012. The income recognized in fiscal
2015 was primarily due to a $0.1 million write-off of accrued liabilities due to EION. The income recognized in fiscal
2016 and fiscal 2014 was primarily due to recovery of certain WiMAX customer receivables that were previously written
down.
Liquidity, Capital Resources and Financial Strategies
As of July 1, 2016, our total cash and cash equivalents and short-term investments totaled $30.7 million.
Approximately $18.5 million, or 60.2%, was held by entities domiciled in the United States. The remaining balance of
$12.2 million, or 39.8%, was held by entities outside the United States. In June of 2016, the Nigeria Central Bank
allowed the Naira to float freely after being fixed at approximately 197 Naira to one U.S. dollar. This event caused a
devaluation in the Naira to approximately 280 Naira to one U.S. dollar and reduced our Nigerian cash balance by
approximately $1.5 million. Of the amount of cash and cash equivalents held by our foreign subsidiaries at July 1, 2016,
$8.2 million was held in jurisdictions where our undistributed earnings are indefinitely reinvested, and if repatriated,
would be subject to U.S. taxes.
Operating Activities
Cash used in operating activities is net loss adjusted for certain non-cash items and changes in assets and liabilities.
Net cash used in operating activities was $0.1 million for fiscal 2016, $9.0 million for fiscal 2015 and $29.3 million for
fiscal 2014.
For fiscal 2016 compared to fiscal 2015, the $8.8 million decrease in cash used operating activities was due to
changes in working capital and adjustments for non-cash items offset by a higher net loss. The adjustments for non-cash
items were higher than fiscal 2015 due primarily to deferred income taxes, and inventory and customer service inventory
write-downs, partially offset by lower depreciation and amortization of property, plant and equipment, amortization of
identifiable intangible assets and share-based compensation.
Changes in assets and liabilities for fiscal 2016 compared to fiscal 2015 included a decrease in accounts receivable,
unbilled costs, accounts payable, advance payments and unearned income and accrued expenses. These decreases were
offset by an increase in inventories and other assets and liabilities. In addition, we used $3.3 million in cash during fiscal
2016 on expenses related to restructuring liabilities. Our accounts receivable and unbilled costs fluctuate from period to
period depending on the amount and timing of billing activity and cash collections. The change in accounts payable and
accrued expenses were due to timing of additional liabilities and payments in general. The change in advance payments
and unearned income were due to timing of payment from customers and revenue recognition. Inventory balance
fluctuates depending on demand.
For fiscal 2015 compared to fiscal 2014, the $20.3 million decrease in cash used in operating activities was due to
lower net loss and adjustment for non-cash items, offset by changes in working capital.
36
Investing Activities
Investing cash flows consist primarily of capital expenditures. Net cash used in investing activities was $1.8
million for fiscal year 2016, $3.7 million for fiscal 2015 and $9.4 million for fiscal 2014.
For fiscal 2017, we expect to spend approximately $3.0 million for capital expenditures, primarily on equipment
for development and manufacturing of new products and to support customer managed services.
Financing Activities
Financing cash flows consist primarily of proceeds and repayments of short-term debt and proceeds from sale of
share of common stock through employee equity plans. Net cash provided by (used in) financing activities was $13
thousand for fiscal year 2016, $2.9 million for fiscal 2015 and $(2.8) million for fiscal 2014.
As of July 1, 2016, our principal sources of liquidity consisted of the $30.7 million in cash, cash equivalents and
short-term investments, $4.8 million of available credit under our $30.0 million credit facility with Silicon Valley Bank
(“SVB”) which expires on June 30, 2018, and future collections of receivables from customers. We regularly require
letters of credit from some customers and, from time to time, these letters of credit are discounted without recourse
shortly after shipment occurs in order to meet immediate liquidity requirements and to reduce our credit and sovereign
risk. Historically our primary sources of liquidity have been cash flows from operations and credit facilities.
We believe that our existing cash and cash equivalents, the available line of credit under the SVB Credit Facility (as
defined below) and future cash collections from customers will be sufficient to provide for our anticipated requirements
for working capital and capital expenditures for at least the next 12 months. There can be no assurance, however, that our
business will generate cash flow from operations, we will be in compliance with the quarterly financial covenants
contained in the SVB Credit Facility, or that anticipated operational improvements will be achieved. If we are not in
compliance with the financial covenants, the availability of our credit facility is not certain or may be diminished. Over
the longer term, if we are unable to maintain cash balances or generate sufficient cash flow from operations to service
our obligations that may arise in the future, we may be required to sell assets, reduce capital expenditures, or obtain
financing. If we need to obtain additional financing, we cannot be assured that it will be available on favorable terms, or
at all. Our ability to make scheduled principal payments or pay interest on or refinance any future indebtedness depends
on our future performance and financial results, which, to a certain extent, are subject to general conditions in or
affecting the microwave communications market and to general economic, political, financial, competitive, legislative
and regulatory factors beyond our control.
Available Credit Facility, Borrowings and Repayment of Debt
On March 28, 2014, we entered into a Second Amended and Restated Loan Agreement with SVB (the “SVB Credit
Facility”). The SVB Credit Facility was amended on September 25, 2014, October 30, 2014 and December 2, 2014 to
provide for extensions to the deadline for preparing and filing our fiscal 2014 financial statements with the SEC. On
February 27, 2015, the SVB Credit Facility was further amended to provide for certain amendments to the financial
covenants, borrowing base and an early termination fee if the SVB Credit Facility is terminated prior to its expiration. In
March 2016, we amended the SVB Credit Facility to amend financial covenants and to reduce the maximum borrowing
capacity from $40.0 million to $30.0 million. In June 2016, we amended the SVB Credit Facility to amend the minimum
Earnings before Interest, Tax, Depreciation and Amortization (“EBITDA”) covenant; to create a new sub-limit for letters
of credit issued under the revolving credit facility of $12.0 million; to reduce the advance rate applicable to Singapore
Borrower’s eligible accounts in the calculation of the borrowing base of the revolving credit facility; to increase the
interest rate margins applicable to revolving loans made to Singapore Borrower by 2.00% above the applicable margin;
and to extend the facility maturity date to June 30, 2018. The SVB Credit Facility carries an interest rate computed at the
daily prime rate as published in the Wall Street Journal plus a spread of 0.50% to 1.50%, with such spread determined
based on our adjusted quick ratio. During fiscal 2016, the weighted average interest rate on our outstanding loan was
3.88%. As of July 1, 2016 and July 3, 2015, our outstanding debt balance under the SVB Credit Facility was $9.0 million
in each fiscal year, and the interest rate was 4.00% and 3.75% respectively.
The SVB Credit Facility provides for a committed amount of up to $30.0 million, with a $30.0 million sublimit
that can be borrowed by our Singapore subsidiary. Borrowings that may be advanced under the SVB Credit Facility at
the lesser of $30.0 million or a borrowing base equal to a specified percentage of the value of eligible accounts
receivable and U.S. unbilled accounts of the Company, subject to certain reserves and eligibility criteria. The SVB Credit
Facility can also be utilized to issue letters of credit with a $12.0 million sublimit. If the SVB Credit Facility is
terminated by us in certain circumstances prior to its expiration, we are subject to an early termination fee equal to 1% of
37
the revolving line. As of July 1, 2016, available credit under the SVB Credit Facility was $4.8 million reflecting the
calculated borrowing base of $20.0 million less existing borrowings of $9.0 million and outstanding letters of credit of
$6.2 million.
The SVB Credit Facility contains quarterly financial covenants including minimum adjusted quick ratio and
minimum profitability (EBITDA) requirements. In the event our adjusted quick ratio falls below a certain level, cash
received in our accounts with SVB may be directly applied to reduce outstanding obligations under the SVB Credit
Facility. The SVB Credit Facility also imposes certain restrictions on our ability to dispose of assets, permit a change in
control, merge or consolidate, make acquisitions, incur indebtedness, grant liens, make investments, make certain
restricted payments and enter into transactions with affiliates under certain circumstances. Certain of our assets,
including accounts receivable, inventory, and equipment, are pledged as collateral for the SVB Credit Facility. Upon an
event of default, outstanding obligations would be immediately due and payable. Under certain circumstances, a default
interest rate will apply on all obligations during the existence of an event of default at a per annum rate of interest equal
to 2.00% above the applicable interest rate.
As of July 1, 2016, we were in compliance with the quarterly financial covenants contained in the SVB Credit
Facility, as amended. However, as a result of uncertainty on our ability to continue to meet the financial covenants in the
future and the fact that the SVB Credit Facility contains subjective acceleration clauses that could be triggered by the
lender, the $9.0 million borrowing was classified as a current liability as of July 1, 2016 and July 3, 2015.
Restructuring Payments
We have a liability for restructuring activities totaling $4.8 million as of July 1, 2016, of which $3.9 million is
classified as current liability and expected to be paid in cash over the next 12 months. We expect to fund these future
payments with available cash and cash equivalents and short-term investments.
Contractual Obligations
As of July 1, 2016, cash payments due under our contractual obligations were estimated as follows:
(In thousands)
Borrowings under credit facility . . . . . . $
Purchase obligations (1)(4) . . . . . . . . . . . .
Other purchase obligations (3)(4) . . . . . . .
Operating lease commitments (4) . . . . . .
Reserve for uncertain tax positions (2) . .
Total
< 1 year
1 - 3 years
3 - 5 years
> 5 years
Other
Obligations Due by Fiscal Year
9,000
$
9,000
$
— $
— $
— $
21,668
2,160
11,722
1,414
21,316
1,334
4,217
—
352
826
3,548
—
—
—
1,726
—
—
—
2,231
—
Total contractual cash obligations . . . . $
45,964
$
35,867
$
4,726
$
1,726
$
2,231
$
___________________________
—
—
—
1,414
1,414
(1)
(2)
(3)
(4)
From time to time in the normal course of business we may enter into purchasing agreements with our suppliers
that require us to accept delivery of, and remit full payment for, finished products that we have ordered, finished
products that we requested be held as safety stock, and work in process started on our behalf in the event we
cancel or terminate the purchasing agreement. Because these agreements do not specify fixed or minimum
quantities, do not specify minimum or variable price provisions, and do not specify the approximate timing of
the transaction, and we have no present intention to cancel or terminate any of these agreements, we currently
do not believe that we have any future liability under these agreements.
Liabilities for uncertain tax positions of $1.4 million were included in long-term liabilities in the consolidated
balance sheet. At this time, we are unable to make a reasonably reliable estimate of the timing of payments
related to this amount due to uncertainties in the timing of tax audit outcomes.
Contractual obligation related to software licenses.
These items are not recorded on our consolidated balance sheet.
38
Commercial Commitments
We have entered into commercial commitments in the normal course of business including surety bonds, standby
letters of credit and other arrangements with financial institutions and insurers primarily relating to the guarantee of
future performance on certain tenders and contracts to provide products and services to customers. As of July 1, 2016, we
had commercial commitments on outstanding surety bonds and standby letters of credit as follows:
(In thousands)
Standby letters of credit used for:
Bids . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax and payment guarantees . . . . . . . . . . . . . . . . . . . .
Surety bonds used for:
Bids . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax and payment guarantees . . . . . . . . . . . . . . . . . . . .
Total commercial commitments. . . . . . . . . . . . . . . $
Expiration of Commitments by Fiscal Year
Total
2017
2018
2019
After 2020
4
6,511
303
6,818
8
19,328
3,669
23,005
29,823
$
$
4
3,777
190
3,971
8
8,146
3,634
11,788
15,759
$
$
— $
176
5
181
—
—
35
35
216
$
— $
2,538
—
2,538
—
11,182
—
11,182
13,720
$
—
20
108
128
—
—
—
—
128
As we have not historically had to pay out on any of our performance guarantees, the outstanding commercial
commitments have not been recorded in our consolidated balance sheet.
Off-Balance Sheet Arrangements
In accordance with the definition under SEC rules (Item 303(a) (4) (ii) of Regulation S-K), any of the following
qualify as off-balance sheet arrangements:
•
•
•
•
any obligation under certain guarantee contracts;
a retained or contingent interest in assets transferred to an unconsolidated entity or similar entity or similar
arrangement that serves as credit, liquidity or market risk support to that entity for such assets;
any obligation, including a contingent obligation, under certain derivative instruments; and
any obligation, including a contingent obligation, under a material variable interest held by the registrant in
an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the
registrant, or engages in leasing, hedging or research and development services with the registrant.
Currently we are not participating in transactions that generate relationships with unconsolidated entities or
financial partnerships, including variable interest entities, and we do not have any material retained or contingent interest
in assets as defined above. As of July 1, 2016, we did not have material financial guarantees or other contractual
commitments that are reasonably likely to adversely affect liquidity. In addition, we are not currently a party to any
related party transactions that materially affect our results of operations, cash flows or financial condition.
Due to the downsizing of certain of our operations pursuant to restructuring plans or otherwise, some properties
leased by us have been sublet to third parties. In the event any of these third parties vacate any of these premises, we
would be legally obligated under master lease arrangements. We believe that the financial risk of default by such
sublessors is not likely to be individually or in the aggregate material to our financial position, results of operations or
cash flows.
Financial Risk Management
In the normal course of doing business, we are exposed to the risks associated with foreign currency exchange
rates and changes in interest rates. We employ established policies and procedures governing the use of financial
instruments to manage our exposure to such risks.
39
Exchange Rate Risk
We conduct business globally in numerous currencies and are therefore exposed to foreign currency risks. We use
derivative instruments to reduce the volatility of earnings and cash flows associated with changes in foreign currency
exchange rates. We do not hold or issue derivatives for trading purposes or make speculative investments in foreign
currencies.
We use foreign exchange forward contracts to hedge forecasted foreign currency transactions relating to forecasted
sales and purchase transactions. Prior to the fourth quarter of fiscal 2015, these derivatives were designated as cash flow
hedges and are carried at fair value. The effective portion of the gain or loss was initially reported as a component of
accumulated other comprehensive income (loss), and upon occurrence of the forecasted transaction, was subsequently
reclassified into the income or expense line item to which the hedged transaction relates. Beginning the fourth quarter of
fiscal 2015, we no longer prepared contemporaneous documentation of hedges therefore the foreign exchange hedges no
longer qualified as cash flow hedge. The changes in fair value related to the hedges were recorded in income or expenses
line items on our statements of operations. We also enter into foreign exchange forward contracts to mitigate the change
in fair value of specific non-functional currency assets and liabilities on the balance sheet. All balance sheet hedges are
marked to market through earnings every period. Changes in the fair value of these derivatives are largely offset by re-
measurement of the underlying assets and liabilities.
As of July 1, 2016, we had foreign currency forward contracts outstanding with a total notional amount of $1.7
million consisting of two different currencies. The following is a summary of the gross notional amount of our
outstanding contracts grouped by the underlying foreign currency as of July 1, 2016:
Currency
British Pound . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Euro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total of all currency forward contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notional Contract
Amount
(Local Currency)
Notional
Contract
Amount
(USD)
(In thousands)
750
600
$
$
1,005
669
1,674
Net foreign exchange loss recorded in our consolidated statements of operations during fiscal 2016, 2015 and 2014
was as follows:
(In thousands)
Amount included in costs of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $
Amount included in other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total foreign exchange loss, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2016
(556) $
(1,245)
(1,801) $
Fiscal Year
2015
2014
(3,308) $
—
(3,308) $
(772)
—
(772)
A 10% adverse change in currency exchange rates for our foreign currency derivatives held as of July 1, 2016
would have an impact of approximately $0.2 million on the fair value of such instruments. Certain of our international
business was transacted in non-U.S. dollar currency. As discussed above, we utilize foreign currency hedging
instruments to minimize the currency risk of international transactions. The impact of translating the assets and liabilities
of foreign operations to U.S. dollars is included as a component of stockholders’ equity. As of July 1, 2016 and July 3,
2015, the cumulative translation adjustment decreased our stockholders’ equity by $11.2 million and $8.7 million,
respectively.
In June of 2016, the Nigeria Central Bank allowed the Naira to float freely after being fixed at approximately 197
Naira to one U.S. dollar. This event caused a devaluation in the Naira to approximately 280 Naira to one U.S. dollar
resulting in the year over year losses in foreign exchange and cumulative translation adjustments for our Nigeria
transactions.
During fiscal 2015 the company experienced increased volatility in foreign currency markets, resulting in the
increased year over year losses in foreign exchange and cumulative translation adjustments, particularly in countries
where there is no available market to hedge the local currency.
40
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to our cash equivalents and borrowings
under our credit facility.
Exposure on Cash Equivalents
We had $30.5 million in total cash and cash equivalents as of July 1, 2016. Cash equivalents totaled $18.8 million
as of July 1, 2016 and were comprised of money market funds and certificates of deposit. Cash equivalents have been
recorded at fair value on our balance sheet.
We do not use derivative financial instruments in our short-term investment portfolio. We invest in high-credit
quality issues and, by policy, limit the amount of credit exposure to any one issuer and country. The portfolio includes
only marketable securities with active secondary or resale markets to ensure portfolio liquidity. The portfolio is also
diversified by maturity to ensure that funds are readily available as needed to meet our liquidity needs. This policy
reduces the potential need to sell securities in order to meet liquidity needs and therefore the potential effect of changing
market rates on the value of securities sold.
The primary objective of our short-term investment activities is to preserve principal while maximizing yields,
without significantly increasing risk. Our cash equivalents earn interest at fixed rates; therefore, changes in interest rates
will not generate a gain or loss on these investments unless they are sold prior to maturity. Actual gains and losses due to
the sale of our investments prior to maturity have been immaterial. The weighted average days to maturity for cash
equivalents held as of July 1, 2016 was 348 days, and these investments had an average yield of 6.77% per annum. A
10% change in interest rates on our cash and cash equivalents is not expected to have a material impact on our financial
position, results of operations or cash flows.
Exposure on Borrowings
During fiscal 2016, we had $9.0 million of demand borrowings outstanding under our credit facility that incurred
interest at the prime rate or prime rate plus a spread of 0.50% to 1.50%, with such spread determined based on our
adjusted quick ratio. During fiscal 2016, our weighted average interest rate was 3.88% and we recorded total interest
expense of less than $0.1million on these borrowings.
A 10% change in interest rates on the current borrowings or on future borrowings is not expected to have a
material impact on our financial position, results of operations or cash flows since interest on our borrowings is not
material to our overall financial position.
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with U.S. GAAP. These accounting principles
require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and
assumptions upon which we rely are reasonable based upon information available to us.
These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date
of the consolidated financial statements as well as the reported amounts of revenues and expenses during the periods
presented. To the extent there are material differences between these estimates, judgments or assumptions and actual
results, our financial statements will be affected.
The accounting policies that reflect our more significant estimates, judgments and assumptions and which we
believe are the most critical to aid in fully understanding and evaluating our reported financial results include the
following:
•
•
•
•
revenue recognition and valuation of accounts receivable;
inventory valuation and provision for excess and obsolete inventory losses;
impairment of long-lived assets; and
income taxes and tax valuation allowances.
In some cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP and does
not require management’s judgment in its application. There are also areas in which management’s judgment in selecting
41
among available alternatives would not produce a materially different result. Our senior management has reviewed these
critical accounting policies and related disclosures with the Audit Committee of the Board of Directors.
The following is not intended to be a comprehensive list of all of our accounting policies or estimates. Our
significant accounting policies are more fully described in “Note 1. The Company and Summary of Significant
Accounting Policies” in the notes to consolidated financial statements. In preparing our financial statements and
accounting for the underlying transactions and balances, we apply those accounting policies. We consider the estimates
discussed below as critical to an understanding of our financial statements because their application places the most
significant demands on our judgment, with financial reporting results relying on estimates about the effect of matters that
are inherently uncertain.
Besides estimates that meet the “critical” accounting estimate criteria, we make many other accounting estimates
in preparing our financial statements and related disclosures. All estimates, whether or not deemed critical, affect
reported amounts of assets, liabilities, revenue and expenses as well as disclosures of contingent assets and liabilities.
Estimates are based on experience and other information available prior to the issuance of the financial statements.
Materially different results can occur as circumstances change and additional information becomes known, including for
estimates that we do not deem “critical.”
Revenue Recognition and Valuation of Accounts Receivable
We generate substantially all of our revenue from the sales or licensing of our microwave radio and wireless access
systems, network management software, and professional services including installation, commissioning, maintenance
and support services and training. Maintenance and support services are generally offered to our customers over a
specified period of time and from sales and subsequent renewals of maintenance and support contracts. We recognize the
related revenue ratably over the maintenance or service period. Professional services revenue consists of fees we earn
related to consulting and educational services. We recognize revenue from professional services as the services are
performed or upon written acceptance from customers, if applicable, assuming all other conditions for revenue
recognition noted above have been met. Principal customers for our products and services include domestic and
international wireless/mobile service providers, original equipment manufacturers, resellers, system integrators, as well
as private network users such as public safety agencies, government institutions, and utility, pipeline, railroad and other
industrial enterprises that operate broadband wireless networks. Our customers generally purchase a combination of our
products and services as part of a multiple element arrangement. Our assessment of which revenue recognition guidance
is appropriate to account for each element in an arrangement can involve significant judgment. This assessment has a
significant impact on the amount and timing of revenue recognition.
Revenue is recognized when all of the following criteria have been met:
•
Persuasive evidence of an arrangement exists. Contracts and/or customer purchase orders are generally
used to determine the existence of an arrangement.
• Delivery has occurred or services have been delivered. Shipping documents and customer acceptance,
when applicable, are used to verify delivery.
• The fee is fixed or determinable. We assess whether the fee is fixed or determinable based on the payment
terms associated with the transaction and whether the sales price is subject to refund or adjustment.
• Collectability is reasonably assured. We assess collectability based primarily on the creditworthiness of the
customer as determined by credit checks and analysis, as well as the customer’s payment history.
We often enter into multiple contractual agreements with the same customer. Such agreements are reviewed to
determine whether they should be evaluated as one arrangement. If an arrangement, other than a long-term contract,
requires the delivery or performance of multiple deliverables or elements, we determine whether the individual elements
represent “separate units of accounting”. The determination as to whether multiple contractual agreements should be
evaluated as one arrangement and the identification of units of accounting in an arrangement requires significant
judgment and impacts the amount of product and service revenue recognized in a given period.
In accordance with Financial Accounting Standards Board Accounting Standards Codification(“ASC”) 605-25,
Revenue Recognition — Multiple-Element Arrangements, based on the terms and conditions of the product
arrangements, we believe that our products and services can be accounted for separately as our products and services
have value to our customers on a stand-alone basis. Accordingly, the arrangement consideration is allocated among
deliverables based on their relative selling price. We generally determine relative selling price using estimated selling
price (“ESP”). Revenue from each deliverable is recognized when all requirements are met for that specific deliverable.
42
There is generally no customer right of return in our sales agreements. The sequence for typical multiple-element
arrangements is as follows: we deliver our products, perform installation services and then provide post-contract support
services.
The selling price for each element is based upon the following selling price hierarchy: Vendor-specific objective
evidence (“VSOE”) if available, third party evidence (“TPE”) if VSOE is not available or ESP if neither VSOE nor TPE
are available. Generally, we are not able to determine TPE because our go-to-market strategy differs from that of our
peers and our offerings contain a significant level of differentiation such that the comparable pricing of products with
similar functionality cannot be obtained. In determining ESP, we apply significant judgment as we weigh a variety of
factors including our pricing policies, internal costs and gross margin objectives, method of distribution, information
gathered from experience in customer negotiations, market research and information, recent technological trends,
competitive landscape and geographies. The determination of ESP is approved by our management taking into
consideration our pricing strategy. We regularly review VSOE, TPE and ESP and maintain internal controls over the
establishment and updates of these estimates. We do not expect a material impact in future periods from changes in
VSOE, TPE or ESP.
Revenues related to long-term contracts for customized network solutions are recognized using the percentage-of-
completion method. In using the percentage-of-completion method, we generally apply the cost-to-cost method of
accounting where sales and profits are recorded based on the ratio of costs incurred to estimated total costs at
completion. Contracts are combined when specific aggregation criteria are met including when the contracts are in
substance an arrangement to perform a single project with a customer; the contracts are negotiated as a package in the
same economic environment with an overall profit objective; the contracts require interrelated activities with common
costs that cannot be separately identified with, or reasonably allocated to the elements, phases or units of output and the
contracts are performed concurrently or in a continuous sequence under the same project management at the same
location or at different locations in the same general vicinity. Recognition of profit on long-term contracts requires
estimates of the total contract value, the total cost at completion and the measurement of progress towards completion.
Significant judgment is required when estimating total contract costs and progress to completion on the arrangements as
well as whether a loss is expected to be incurred on the contract. Amounts representing contract change orders, claims or
other items are included in sales only when they can be reliably estimated and realization is probable. When adjustments
in contract value or estimated costs are determined, any changes from prior estimates are reflected in earnings in the
current period. Anticipated losses on contracts or programs in progress are charged to earnings when identified.
We reserve for estimated product returns as an offset to revenue or deferred revenue based primarily on historical
trends. Actual product returns may be different than what was estimated. These factors and unanticipated changes in the
economic and industry environment could make actual results differ from our return estimates.
Accounts receivable is presented net of allowance for estimated uncollectible accounts to reflect any loss
anticipated on the collection of accounts receivable balances. Unbilled amounts include amounts associated with
percentage-of-completion accounting and other earned revenues not currently billable due to contractual provisions. We
calculate the allowance for doubtful accounts based on our history of write-offs, level of past due accounts and the
economic status of the customers. We regularly review the adequacy of these allowances by considering internal factors
such as historical experience, credit quality and age of the receivable balances as well as external factors such as
economic conditions that may affect a customer’s ability to pay and their expected default frequency rates, which are
published by major third-party credit-rating agencies and are generally updated on a quarterly basis. If a major
customer’s creditworthiness deteriorates, actual defaults are higher than our historical experience, or other circumstances
arise, then our estimates of the recoverability of amounts due to us could be overstated, and additional allowances could
be required, which could have an adverse impact on our operating results.
Inventory Valuation and Provisions for Excess and Obsolete Losses
Our inventories have been valued at the lower of cost or market. We balance the need to maintain prudent
inventory levels to ensure competitive delivery performance with the risk of excess or obsolete inventory due to
changing technology and customer requirements, and new product introductions. The manufacturing of our products is
handled primarily by contract manufacturers. Our contract manufacturers procure components and manufacture our
products based on our forecast of product demand. We regularly review inventory quantities on hand and record a
provision for excess and obsolete inventory based primarily on our estimated forecast of product demand, the stage of
the product life cycle, anticipated end of product life and production requirements. Several factors may influence the sale
and use of our inventories, including decisions to exit a product line, technological change, new product development
and competing product offerings. These factors could result in a change in the amount of obsolete inventory quantities on
43
hand. Additionally, our estimates of future product demand may prove to be inaccurate, in which case the provision
required for excess and obsolete inventory may be overstated or understated. In the future, if we determine that our
inventory is overvalued, we would be required to recognize such costs in cost of product sales and services in our
consolidated statement of operations at the time of such determination. In the case of goods which have been written
down below cost at the close of a fiscal quarter, such reduced amount is considered the new lower cost basis for
subsequent accounting purposes, and subsequent changes in facts and circumstances do not result in the restoration or
increase in that newly established cost basis. We did not make any material changes in the valuation methodology during
the past three fiscal years.
Our customer service inventories are stated at the lower of cost or market. We carry service parts because we
generally provide product warranty for 12 to 36 months and earn revenue by providing enhanced and extended warranty
and repair service during and beyond this warranty period. Customer service inventories consist of both component parts,
which are primarily used to repair defective units, and finished units, which are provided for customer use permanently
or on a temporary basis while the defective unit is being repaired. We record adjustments to reduce the carrying value of
customer service inventories to their net realizable value. Factors influencing these adjustments include product life
cycles, end of service life plans and volume of enhanced or extended warranty service contracts. Estimates of net
realizable value involve significant estimates and judgments about the future, and revisions would be required if these
factors differ from our estimates.
Impairment of Long-Lived Assets
We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. Impairment is considered to exist if the total estimated future cash
flows on an undiscounted basis are less than the carrying amount of the assets. If impairment exists, the impairment loss
is measured and recorded based on discounted estimated future cash flows. In estimating future cash flows, assets are
grouped at the lowest levels for which there are identifiable cash flows that are largely independent of cash flows from
other asset groups.
Our estimate of future cash flows is based upon, among other things, certain assumptions about expected future
operating performance, growth rates and other factors. The actual cash flows realized from these assets may vary
significantly from our estimates due to increased competition, changes in technology, fluctuations in demand,
consolidation of our customers, reductions in average selling prices and other factors. Assumptions underlying future
cash flow estimates are therefore subject to significant risks and uncertainties.
Income Taxes and Tax Valuation Allowances
We record the estimated future tax effects of temporary differences between the tax basis of assets and liabilities of
amounts reported in our consolidated balance sheet, as well as operating loss and tax credit carryforwards. Significant
judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. Although
we believe our reserves are reasonable, no assurance can be given that the final tax outcome of these matters will not be
different from that which is reflected in our historical income tax provisions and accruals. We adjust these reserves in
light of changing facts and circumstances, such as the opening and closing of a tax audit or the refinement of an estimate.
To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences may
result in an increase or decrease to our tax provision in a subsequent period in which such determination is made.
We record deferred taxes by applying enacted statutory tax rates to the respective jurisdictions and follow specific
and detailed guidelines in each tax jurisdiction regarding the recoverability of any tax assets recorded on the balance
sheet and provide necessary valuation allowances as required. Future realization of deferred tax assets ultimately
depends on meeting certain criteria in ASC 740, Income Taxes. One of the major criteria is the existence of sufficient
taxable income of the appropriate character (for example, ordinary income or capital gain) within the carryback or
carryforward periods available under the tax law. We regularly review our deferred tax assets for recoverability based on
historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary
differences and tax planning strategies. Our judgments regarding future profitability may change due to many factors,
including future market conditions and our ability to successfully execute our business plans and/or tax planning
strategies. Should there be a change in our ability to recover our deferred tax assets, our tax provision would increase or
decrease in the period in which the assessment is changed.
The accounting estimates related to the liability for uncertain tax position require us to make judgments regarding
the sustainability of each uncertain tax position based on its technical merits. It is inherently difficult and subjective to
estimate our reserves for the uncertain tax positions. Although we believe our estimates are reasonable, no assurance can
44
be given that the final tax outcome of these matters will be same as these estimates. These estimates are updated
quarterly based on factors such as change in facts or circumstances, changes in tax law, new audit activity, and
effectively settled issues.
Impact of Recently Issued Accounting Pronouncements
See “Note 1. The Company and Summary of Significant Accounting Policies” in the notes to consolidated financial
statements for a full description of recently issued accounting pronouncements, including the respective expected dates
of adoption and effects on our consolidated financial position and results of operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
In the normal course of doing business, we are exposed to the risks associated with foreign currency exchange
rates and changes in interest rates. We employ established policies and procedures governing the use of financial
instruments to manage our exposure to such risks. For a discussion of such policies and procedures and the related risks,
see “Financial Risk Management” in “Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations,” which is incorporated by reference into this Item 7A.
45
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements
Report of BDO USA, LLP, Independent Registered Public Accounting Firm. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of KPMG LLP, Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for Fiscal Years Ended July 1, 2016, July 3, 2015 and June 27, 2014 . . . .
Consolidated Statements of Comprehensive Loss for Fiscal Years Ended July 1, 2016, July 3, 2015 and June 27,
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of July 1, 2016 and July 3, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for Fiscal Years Ended July 1, 2016, July 3, 2015 and June 27, 2014. . . .
Consolidated Statements of Equity for Fiscal Years Ended July 1, 2016, July 3, 2015 and June 27, 2014 . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
47
48
49
50
51
52
53
54
46
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Aviat Networks, Inc.
Santa Clara, California:
We have audited the accompanying consolidated balance sheets of Aviat Networks, Inc. as of July 1, 2016 and July
3, 2015, and the related consolidated statements of operations, comprehensive loss, equity and cash flows for the years
ended July 1, 2016 and July 3, 2015. In connection with our audits of the financial statements, we have also audited the
financial statement schedule - Valuation and Qualifying Accounts as of and for the years ended July 1, 2016 and July 3,
2015 listed in the Index at Item 15(a)(2). These financial statements and schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial statements and schedule. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Aviat Networks, Inc. as of July 1, 2016 and July 3, 2015 and the results of its operations and its cash
flows for the years ended July 1, 2016 and July 3, 2015, in conformity with accounting principles generally accepted in
the United States of America.
Also, in our opinion, the financial statement schedule - Valuation and Qualifying Accounts as of and for the years
ended July 1, 2016 and July 3, 2015, when considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth therein.
San Jose, California
September 8, 2016
/s/ BDO USA, LLP
47
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Aviat Networks, Inc.:
We have audited the accompanying consolidated statements of operations, comprehensive loss, equity and cash
flows of Aviat Networks, Inc. and subsidiaries (“the Company”) for the year ended June 27, 2014. In connection with our
audit of the consolidated financial statements, we also have audited the financial statement schedule of valuation and
qualifying accounts. These consolidated financial statements and consolidated financial statement schedule are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial
statements and consolidated financial statement schedules based on our audit.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
results of Aviat Networks, Inc. and subsidiaries operations and their cash flows for the year ended June 27, 2014, in
conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
Santa Clara, California
December 19, 2014
/s/ KPMG LLP
48
AVIAT NETWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Revenues:
Revenue from product sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 167,827
100,863
Revenue from services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
268,690
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
July 1,
2016
Fiscal Year Ended
July 3,
2015
June 27,
2014
$ 214,874
121,004
335,878
$ 222,628
123,404
346,032
128,727
78,246
206,973
61,717
163,890
91,298
255,188
80,690
172,783
88,061
260,844
85,188
Cost of revenues:
Cost of product sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
35,478
Research and development expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
88,776
Selling and administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
380
Amortization of identifiable intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,198
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
135,832
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(50,644)
480
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(389)
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from continuing operations before income taxes . . . . . . . . . . . . . . . . . . .
(50,553)
1,465
Provision for (benefit from) income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(52,018)
918
Income from discontinued operations, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(51,100)
Less: Net income attributable to noncontrolling interests, net of tax . . . . . . . . . . .
—
Net loss attributable to Aviat Networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (29,907) $ (24,625) $ (51,100)
25,368
76,005
380
4,867
106,620
(25,930)
360
(388)
—
(25,958)
(1,310)
(24,648)
94
(24,554)
71
20,806
65,902
—
2,455
89,163
(27,446)
252
(104)
(1,245)
(28,543)
1,635
(30,178)
541
(29,637)
270
Amount attributable to Aviat Networks
Net loss from continuing operations, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . $ (30,448) $ (24,719) $ (52,018)
918
Net income from discontinued operations, net of tax . . . . . . . . . . . . . . . . . . . . . $
541
94
$
$
Basic and diluted loss per share attributable to Aviat Networks’ common stockholders:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Weighted average shares outstanding, basic and diluted . . . . . . . . . . . . . . . . .
(5.81) $
$
0.10
(5.71) $
5,238
(4.77) $
$
0.02
(4.75) $
5,184
(10.13)
0.18
(9.95)
5,136
See accompanying notes to consolidated financial statements
49
AVIAT NETWORKS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Fiscal Year Ended
(In thousands)
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (29,637) $ (24,554) $ (51,100)
Other comprehensive income (loss):
July 1,
2016
July 3,
2015
June 27,
2014
Cash flow hedges:
Change in unrealized loss on cash flow hedges . . . . . . . . . . . . . . . . . . . . . . .
Reclassification adjustments for (gain) loss included in net loss . . . . . . . . . .
Net change in unrealized (loss) gain on hedging activities . . . . . . . . . . . . . . . . .
Net change in cumulative translation adjustment . . . . . . . . . . . . . . . . . . . . . . . .
366
Other comprehensive (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(50,734)
Comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income attributable to noncontrolling interests, net of tax . . . . . .
—
Comprehensive loss attributable to Aviat Networks. . . . . . . . . . . . . . . . . . . . . $ (32,436) $ (30,290) $ (50,734)
—
(41)
(41)
(2,488)
(2,529)
(32,166)
270
7
(5,672)
(5,665)
(30,219)
71
(266)
162
(104)
470
(314)
321
See accompanying notes to consolidated financial statements
50
AVIAT NETWORKS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and par value amounts)
July 1, 2016
July 3, 2015
ASSETS
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Short-term investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unbilled costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer service inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets, including restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total long-term assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
LIABILITIES AND EQUITY
Current Liabilities:
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advance payments and unearned income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unearned income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserve for uncertain tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies (Note 12)
Equity:
$
$
$
30,479
222
63,449
5,117
27,293
3,064
—
10,790
140,414
18,162
6,068
1,467
25,697
166,111
9,000
33,217
23,205
30,615
—
3,910
99,947
8,387
1,409
1,414
1,497
112,654
34,735
—
83,532
17,289
32,933
6,180
1,462
14,997
191,128
24,255
7,627
1,705
33,587
224,715
9,000
46,580
27,214
35,894
169
3,851
122,708
9,837
2,243
1,435
4,683
140,906
Preferred stock, $0.01 par value; 50,000,000 shares authorized; none issued . . . . . .
Common stock, $0.01 par value; 300,000,000 shares authorized; 5,261,041 and
5,208,200 shares issued and outstanding as of as of July 1, 2016 and July 3,
2015, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in-capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Aviat Networks stockholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL LIABILITIES AND EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
—
—
53
811,601
(747,381)
(11,157)
53,116
341
53,457
166,111
$
52
809,788
(717,474)
(8,628)
83,738
71
83,809
224,715
See accompanying notes to consolidated financial statements
51
AVIAT NETWORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Ended
(In thousands)
Operating Activities
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (29,637) $ (24,554) $ (51,100)
July 1,
2016
July 3,
2015
June 27,
2014
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of identifiable intangible assets. . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization of property, plant and equipment. . . . . . . . . .
Provision for uncollectible receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charges for inventory and customer service inventory write-downs . . . . . . .
Gain on disposition of WiMAX business . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss (gain) on disposition of property, plant and equipment, net . . . . . . . . . .
Changes in operating assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unbilled costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer service inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advance payments and unearned income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable or receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investing Activities
Payments for acquisition of property, plant and equipment . . . . . . . . . . . . . .
Purchase of short-term investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing Activities
Proceeds from borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments of borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of common stock under employee stock plans . . . . .
Payments on capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . .
Net decrease in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
—
6,648
1,532
1,836
(334)
9,868
—
827
17,023
12,041
(4,995)
2,419
(13,976)
(599)
(4,425)
2
1,644
(126)
(1,574)
(222)
(1,796)
36,000
(36,000)
13
—
13
(2,347)
(4,256)
34,735
30,479
Non-cash investing activities
Reclassification of property, plant and equipment to inventory . . . . . . . . . . . . . $
1,094
Supplemental disclosures of cash flow information:
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
111
1,964
380
7,242
880
2,187
(4,711)
8,043
(85)
384
(8,816)
6,125
(663)
2,285
1,562
(4,140)
4,666
1,450
(1,207)
(8,972)
(3,693)
—
(3,693)
54,000
(51,000)
13
(140)
2,873
(4,246)
(14,038)
48,773
34,735
$
380
7,139
835
3,421
(337)
7,171
—
(55)
8,238
5,117
(7,020)
1,509
(2,739)
(6,452)
14,602
(11,940)
1,979
(29,252)
(9,414)
—
(9,414)
—
(2,752)
98
(144)
(2,798)
254
(41,210)
89,983
48,773
— $
—
387
2,042
$
$
389
14,727
$
$
$
$
See accompanying notes to consolidated financial statements
52
AVIAT NETWORKS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
Aviat Networks Stockholders’ Equity
(In thousands, except share amounts)
Shares
$
Amount
Additional
Paid-in
Capital
Accumulated
Deficit
Common Stock
Accumulated
Other
Comprehensive
Income (Loss)
Total Aviat
Networks
Stockholders’
Equity
Noncontrolling
Interests
Total Equity
Balance as of June 28, 2013 . . . . . . . . . .
5,104,374
$
51
$ 804,069
$
(641,749) $
(3,329) $
159,042
$
— $
159,042
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income, net of tax
Issuance of common stock under
employee stock plans . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . .
80,478
1
98
3,421
(51,100)
366
(51,100)
366
99
3,421
Balance as of June 27, 2014 . . . . . . . . . .
5,184,852
52
807,588
(692,849)
(2,963)
111,828
Net (loss) income . . . . . . . . . . . . . . . . . .
Other comprehensive loss, net of tax . . .
Issuance of common stock under
employee stock plans . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . .
23,348
13
2,187
(24,625)
(5,665)
Balance as of July 3, 2015 . . . . . . . . . . .
5,208,200
52
809,788
(717,474)
(8,628)
Net (loss) income . . . . . . . . . . . . . . . . . .
Other comprehensive loss, net of tax . . .
Issuance of common stock under
employee stock plans . . . . . . . . . . . . .
Fractional shares buyback and other. . . .
Share-based compensation . . . . . . . . . . .
54,498
(1,657)
1
12
(35)
1,836
(29,907)
(2,529)
(24,625)
(5,665)
13
2,187
83,738
(29,907)
(2,529)
13
(35)
1,836
—
71
71
270
(51,100)
366
99
3,421
111,828
(24,554)
(5,665)
13
2,187
83,809
(29,637)
(2,529)
13
(35)
1,836
Balance as of July 1, 2016 . . . . . . . . . . .
5,261,041
$
53
$ 811,601
$
(747,381) $
(11,157) $
53,116
$
341
$
53,457
See accompanying notes to consolidated financial statements
53
AVIAT NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The Company and Summary of Significant Accounting Policies
The Company
We design, manufacture and sell a range of wireless networking solutions and services to mobile and fixed
telephone service providers, private network operators, government agencies, transportation and utility companies,
public safety agencies and broadcast system operators across the globe. Our products include broadband wireless access
base stations and customer premises equipment for fixed and mobile, point-to-point digital microwave radio systems for
access, backhaul, trunking and license-exempt applications, supporting new network deployments, network expansion,
and capacity upgrades.
We were incorporated in Delaware in 2006 to combine the businesses of Harris Corporation’s Microwave
Communications Division (“MCD”) and Stratex Networks, Inc. (“Stratex”). On January 28, 2010, we changed our
corporate name from Harris Stratex Networks, Inc. to Aviat Networks, Inc. (“the Company”, “Aviat Networks,” “Aviat”,
“we,” “us,” and “our”) to more effectively reflect our business and communicate our brand identity to customers.
Additionally, the change of our corporate name was to comply with the termination of the Harris Corporation (“Harris”)
trademark licensing agreement resulting from the spin-off by Harris of its interest in our stock to its stockholders in May
2009.
Basis of Presentation
The consolidated financial statements include the accounts of Aviat Networks and its wholly-owned and majority
owned subsidiaries. Significant intercompany transactions and accounts have been eliminated.
Our fiscal year ends on the Friday nearest June 30. This was July 1 for fiscal 2016, July 3 for fiscal 2015 and June
27 for fiscal 2014. Fiscal years 2016 and 2014 presented each included 52 weeks, and fiscal year 2015 included 53
weeks. In these notes to consolidated financial statements, we refer to our fiscal years as “fiscal 2016”, “fiscal 2015” and
“fiscal 2014.”
Use of Estimates
The preparation of consolidated financial statements in accordance with accounting principles generally accepted
in the United States (“U.S. GAAP”) requires us to make estimates, assumptions and judgments affecting the amounts
reported and related disclosures. Estimates are based upon historical factors, current circumstances and the experience
and judgment of our management. We evaluate our estimates and assumptions on an ongoing basis and may employ
outside experts to assist us in making these evaluations. Changes in such estimates, based on more accurate information,
or different assumptions or conditions, may affect amounts reported in future periods. Such estimates affect significant
items, including revenue recognition, provision for uncollectible receivables, inventory valuation, valuation allowances
for deferred tax assets, uncertainties in income taxes, restructuring obligations, product warranty obligations, share-based
awards, contingencies, recoverability of long-lived assets and useful lives of property, plant and equipment.
Reclassifications
During the first quarter of fiscal 2016, we recorded a $1.2 million reclassification to increase long term unearned
income and decrease current advance payments and unearned income as of July 3, 2015. This reclassification had no
impact on our total assets, total liabilities, results of operations or cash flows.
During the second quarter of fiscal 2016, we recorded a $4.7 million reclassification to decrease both accounts
receivable and current unearned income in our consolidated balance sheet as of July 3, 2015. This reclassification had no
impact on our results of operations. In our consolidated statements of cash flow, the reclassification increased changes in
accounts receivable and decreased changes in advance payments and unearned income by $4.7 million; however, the net
cash used in operating activities was not impacted by this reclassification. This reclassification was immaterial to the
previously issued financial statements; therefore, we revised our consolidated balance sheet for comparative purposes.
54
Reverse Stock Split
On June 14, 2016, we effected a reverse stock split of all of the outstanding shares of our common stock at a ratio
of 1-for-12 (“Reverse Stock Split”). The authorized shares of 300 million and par value per share of the common stock
at $0.01 per share remain unchanged after the reverse stock split. All share and per-share data in our consolidated
financial statements and applicable disclosures have been retroactively adjusted to reflect this reverse stock split.
To reflect the reverse stock split on shareholders' equity, we reclassified an amount equal to the par value of the
reduced shares from the common stock par value account to the additional paid in capital account, resulting in no net
impact to shareholders' equity on our consolidated balance sheets.
Cash, Cash Equivalents and Investments
We consider all highly liquid investments with an original maturity of three months or less at the date of purchase
to be cash equivalents. Cash equivalents are carried at amortized cost, which approximates fair value due to the short-
term nature of these investments. We hold cash and cash equivalents at several major financial institutions, which often
significantly exceed Federal Deposit Insurance Corporation insured limits. However, a substantial portion of the cash
equivalents is invested in prime money market funds which are backed by the securities in the fund.
We may invest our excess cash in high-quality marketable debt securities to ensure that cash is readily available for
use in our current operations. Investments with original maturities greater than three months are accounted for as short-
term and are classified as such at the time of purchase. Marketable securities are classified as “available-for-sale” and are
classified as short-term because we view our entire portfolio as available for use in our current operations.
As of July 1, 2016 and July 3, 2015, all of our high-quality marketable debt securities were invested in prime
money market funds and were classified as cash equivalents except for $0.2 million in short-term investments.
Cash and cash equivalents that are restricted as to withdrawal or usage under the terms of contractual agreements
are recorded as restricted cash. At July 1, 2016, restricted cash included cash balances in our disability insurance
voluntary plan account that cannot be used by us for any operating purposes other than to pay benefits to the insured
employees and was recorded in other assets in our consolidated balance sheets and the corresponding liabilities were
included in other long-term liabilities in our consolidated balance sheets. In addition, there was $0.6 million of restricted
cash in one of our Africa subsidiaries related to a severance amount paid to a former employee in July 2016. We accrued
the severance in restructuring liabilities as of July 1, 2016.
Significant Concentrations
We typically invoice our customers for the sales order (or contract) value of the related products delivered at
various milestones, including order receipt, shipment, installation and acceptance and for services when rendered. Our
trade receivables are derived from sales to customers located in North America, Africa, Europe, the Middle East, Russia,
Asia-Pacific and Latin America.
Accounts receivable is presented net of allowance for estimated uncollectible accounts to reflect any loss
anticipated on the collection of accounts receivable balances. We calculate the allowance based on our history of write-
offs, level of past due accounts and the economic status of the customers. The fair value of our accounts receivable
approximates their net realizable value.
We regularly require letters of credit from some customers and, from time to time, we discount these letters of
credit issued by customers through various financial institutions. The discounting of letters of credit depends on many
factors, including the willingness of financial institutions to discount the letters of credit and the cost of such
arrangements. Under these arrangements, collection risk is fully transferred to the financial institutions. We record the
financing charges on discounting these letters of credit as interest expense.
During fiscal 2016, 2015 and 2014, we had one international customer in Africa, Mobile Telephone Networks
Group (“MTN Group”) that accounted for 18%, 14% and 17%, respectively, of our total revenue. As of July 1, 2016 and
July 3, 2015, MTN Group accounted for approximately 22% and 10%, respectively, of our accounts receivable. As of
July 1, 2016, Motorola also accounted for 11% of our accounts receivable. No other customers accounted for more than
10% of our revenue or accounts receivable for the years presented. The loss of any existing customer or a significant
reduction in the level of sales to any existing customer could result in declines in our revenue.
Financial instruments that potentially subject us to a concentration of credit risk consist principally of cash
equivalents, marketable debt securities, trade accounts receivable and financial instruments used in foreign currency
55
hedging activities. We invest our excess cash primarily in prime money market funds and certificates of deposit. We are
exposed to credit risks related to such instruments in the event of default or decrease in credit-worthiness of the issuers of
the investments.
We perform ongoing credit evaluations of our customers and generally do not require collateral on accounts
receivable, as the majority of our customers are large, well-established companies. However, in certain circumstances,
we may require letters of credit, additional guarantees or advance payments. We maintain allowances for collection
losses, but historically have not experienced any significant losses related to any particular geographic area. Our
customers are primarily in the telecommunications industry, so our accounts receivable are concentrated within one
industry and exposed to concentrations of credit risk within that industry. Accounts receivable are written off when
attempts to collect outstanding amounts have been exhausted or there are other indicators that the amounts are no longer
collectible.
We rely on third parties to manufacture our products and we purchase raw materials from third-party vendors. We
outsourced our manufacturing services to two independent manufacturers. In addition, we purchase certain strategic
component inventory which is consigned to our third-party manufacturers. Other components included in our products
are sourced from various suppliers and are principally industry standard parts and components that are available from
multiple vendors. The inability of a contract manufacturer or supplier to fulfill our supply requirements or changes in
their financial or business condition could disrupt our ability to supply quality products to our customers, and thereby
may have a material adverse effect on our business and operating results.
We have entered into agreements relating to our foreign currency contracts with Silicon Valley Bank, a
multinational financial institution. The amounts subject to credit risk arising from the possible inability of any such
parties to meet the terms of their contracts are generally limited to the amounts, if any, by which such party’s obligations
exceed our obligations to that party.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined using standard cost, which approximates
actual cost on a weighted-average first-in-first-out basis. We regularly review inventory quantities on hand and record
adjustments to reduce the cost of inventory for excess and obsolete inventory based primarily on our estimated forecast
of product demand and production requirements. Inventory adjustments are measured as the difference between the cost
of the inventory and estimated market value based upon assumptions about future demand and charged to the provision
for inventory, which is a component of cost of sales. At the point of the loss recognition, a new, lower-cost basis for that
inventory is established, and any subsequent improvements in facts and circumstances do not result in the restoration or
increase in that newly established cost basis.
Customer Service Inventories
Our customer service inventories are stated at the lower of cost or market. We carry service parts because we
generally provide product warranty for 12 to 36 months and earn revenue by providing enhanced and extended warranty
and repair service during and beyond this warranty period. Customer service inventories consist of both component parts,
which are primarily used to repair defective units, and finished units, which are provided for customer use permanently
or on a temporary basis while the defective unit is being repaired. We record adjustments to reduce the carrying value of
customer service inventories to their net realizable value. Factors influencing these adjustments include product life
cycles, end of service life plans and volume of enhanced or extended warranty service contracts. Estimates of net
realizable value involve significant estimates and judgments about the future, and revisions would be required if these
factors differ from our estimates.
Property, Plant and Equipment
Property, plant and equipment are stated on the basis of cost less accumulated depreciation and amortization. We
capitalize costs of software, consulting services, hardware and other related costs incurred to purchase or develop
internal-use software. We expense costs incurred during preliminary project assessment, re-engineering, training and
application maintenance.
Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the
respective assets. Leasehold improvements are amortized on the straight-line method over the shorter of the remaining
lease term or the estimated useful life of the improvements. The useful lives of the assets are generally as follows:
56
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 years
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 to 10 years
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 to 5 years
Machinery and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 to 5 years
Expenditures for maintenance and repairs are charged to expense as incurred. Cost and accumulated depreciation
of assets sold or retired are removed from the respective property accounts, and any gain or loss is reflected in the
consolidated statements of operations.
Impairment of Long-Lived Assets
We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. Impairment is considered to exist if the total estimated future cash
flows on an undiscounted basis are less than the carrying amount of the assets. If impairment exists, the impairment loss
is measured and recorded based on discounted estimated future cash flows. In estimating future cash flows, assets are
grouped at the lowest levels for which there are identifiable cash flows that are largely independent of cash flows from
other asset groups.
Our estimate of future cash flows is based upon, among other things, certain assumptions about expected future
operating performance, growth rates and other factors. The actual cash flows realized from these assets may vary
significantly from our estimates due to increased competition, changes in technology, fluctuations in demand,
consolidation of our customers, reductions in average selling prices and other factors. Assumptions underlying future
cash flow estimates are therefore subject to significant risks and uncertainties.
Warranties
On product sales, we provide for future warranty costs upon product delivery. The specific terms and conditions of
those warranties vary depending upon the product sold and country in which we do business. In the case of products sold
by us, our warranties generally start from the delivery date and continue for one to three years, depending on the terms.
Many of our products are manufactured to customer specifications and their acceptance is based on meeting those
specifications. Factors that affect our warranty liabilities include the number of product units subject to warranty
protection, historical experience and management’s judgment regarding anticipated rates of warranty claims and cost per
claim. We assess the adequacy of our recorded warranty liabilities every quarter and make adjustments to the liabilities
as necessary.
Noncontrolling interests
A noncontrolling interest represents the equity interest in a subsidiary that is not attributable, either directly or
indirectly, to Aviat Networks and is reported as our equity, separately from our controlling interests. The noncontrolling
interests relate to our ownership interest in a subsidiary company in South Africa with a local partner, where we are the
majority owner at 51%. Revenues, expenses, gains, losses, net loss and other comprehensive income (loss) are reported
in the consolidated financial statements at the consolidated amounts, which include the amounts attributable to both the
controlling and noncontrolling interests.
Operating Leases
We lease facilities and equipment under various operating leases. These lease agreements generally include rent
escalation clauses, and many include renewal periods at our option. We recognize expense for scheduled rent increases
on a straight-line basis over the lease term beginning with the date we take possession of the leased space. Leasehold
improvements made either at the inception of the lease or during the lease term are amortized over the current lease term,
or estimated life, if shorter.
Foreign Currency Translation
The functional currency of our subsidiaries located in the United Kingdom, Singapore, Mexico, Algeria and New
Zealand is the United States (“U.S.”) dollar. Determination of the functional currency is dependent upon the economic
environment in which an entity operates as well as the customers and suppliers the entity conducts business with.
Changes in facts and circumstances may occur which could lead to a change in the functional currency of that entity.
Accordingly, all of the monetary assets and liabilities of these subsidiaries are re-measured into U.S. dollars at the
57
current exchange rate as of the applicable balance sheet date, and all non-monetary assets and liabilities are re-measured
at historical rates. Income and expenses are re-measured at the average exchange rate prevailing during the period. Gains
and losses resulting from the re-measurement of these subsidiaries’ financial statements are included in the consolidated
statements of operations.
Our other international subsidiaries use their respective local currency as their functional currency. Assets and
liabilities of these subsidiaries are translated at the local current exchange rates in effect at the balance sheet date, and
income and expense accounts are translated at the average exchange rates during the period. The resulting translation
adjustments are included in accumulated other comprehensive loss.
Gains and losses resulting from foreign exchange transactions and revaluation of monetary assets and liabilities in
non-functional currencies are included in either cost of product sales and services or other expense in the accompanying
consolidated statements of operations, based on the nature of the transactions. Net foreign exchange loss recorded in our
consolidated statements of operations during fiscal 2016, 2015 and 2014 was as follows:
(In thousands)
Amount included in costs of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $
Amount included in other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total foreign exchange loss, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2016
(556) $
(1,245)
(1,801) $
Fiscal Year
2015
2014
(3,308) $
—
(3,308) $
(772)
—
(772)
Retirement Benefits
As of July 1, 2016, we provided retirement benefits to substantially all employees primarily through our defined
contribution retirement plans. These plans have matching and savings elements. Contributions by us to these retirement
plans are based on profits and employees’ savings with no other funding requirements. We halted making matching
contributions to the U.S. plan from the second quarter of fiscal 2014 through the end of fiscal 2015. We resumed making
contributions to the plans in fiscal 2016.
Contributions to retirement plans are expensed as incurred. Retirement plan expense amounted to $2.0 million,
$1.7 million and $2.5 million in fiscal 2016, 2015 and 2014, respectively.
Revenue Recognition
We generate substantially all of our revenue from the sales or licensing of our microwave radio and wireless access
systems, network management software, and professional services including installation, commissioning, maintenance
and support services and training. Principal customers for our products and services include domestic and international
wireless/mobile service providers, original equipment manufacturers, resellers, system integrators, as well as private
network users such as public safety agencies, government institutions, and utility, pipeline, railroad and other industrial
enterprises that operate broadband wireless networks. Our customers generally purchase a combination of our products
and services as part of a multiple element arrangement. Our assessment of which revenue recognition guidance is
appropriate to account for each element in an arrangement can involve significant judgment.
Revenue from product sales is generated predominately from the sales of products manufactured by third party
manufacturers to whom we have outsourced our manufacturing processes. In general, printed circuit assemblies,
mechanical housings, and packaged modules are manufactured by contract manufacturing partners, with periodic
business reviews of material levels and obsolescence. Product assembly, product testing, complete system integration
and system testing may either be performed within our own facilities or at the locations of our third party manufacturers.
Revenue from services includes certain installation, extended warranty, customer support, consulting, training and
education. It also can include certain revenue generated from the resale of equipment purchased on behalf of customers
for installation service contracts we perform for customers. Such equipment may include towers, antennas, and other
related materials. Maintenance and support services are generally offered to our customers over a specified period of
time and from sales and subsequent renewals of maintenance and support contracts. We recognize the related revenue
ratably over the maintenance or service period. Professional services revenue consists of fees we earn related to
consulting and educational services. We generally recognize revenue from professional services as the services are
performed or upon written acceptance from customers, if applicable, assuming all other conditions for revenue
recognition noted above have been met.
Under our revenue recognition policy, revenue is recognized when all of the following criteria have been met:
58
•
Persuasive evidence of an arrangement exists. Contracts and/or customer purchase orders are generally
used to determine the existence of an arrangement.
• Delivery has occurred or services have been delivered. Shipping documents and customer acceptance,
when applicable, are used to verify delivery.
• The fee is fixed or determinable. We assess whether the fee is fixed or determinable based on the payment
terms associated with the transaction and whether the sales price is subject to refund or adjustment.
• Collectibility is reasonably assured. We assess collectibility based primarily on the creditworthiness of the
customer as determined by credit checks and analysis, as well as the customer’s payment history.
We often enter into multiple contractual agreements with the same customer. Such agreements are reviewed to
determine whether they should be evaluated as one arrangement. If an arrangement, other than a long-term contract,
requires the delivery or performance of multiple deliverables or elements, we determine whether the individual elements
represent “separate units of accounting”. Based on the terms and conditions of our typical product sales arrangement, we
believe that our products and services can be accounted for as separate units because our products and services have
value to our customers on a stand-alone basis.
When a sale involves multiple deliverables, the entire fee from the arrangement is allocated to each unit of
accounting based on the relative selling price of each deliverable. When applying the relative selling price method, the
accounting principles establish a hierarchy to determine the selling price to be used for allocating revenue to deliverables
as follows: (i) vendor-specific objective evidence (“VSOE”), (ii) third-party evidence of selling price (“TPE”) and
(iii) best estimate of the selling price (“ESP”). Generally, we are not able to determine TPE because our go-to-market
strategy differs from that of our peers and our offerings contain a significant level of differentiation such that the
comparable pricing of products with similar functionality cannot be obtained. When we are unable to establish a selling
price using VSOE or TPE, we use ESP to allocate the arrangement fees to the deliverables. Revenue allocated to each
element is then recognized when the other revenue recognition criteria are met for each element. There is generally no
customer right of return in our sales agreements. The sequence for typical multiple element arrangements: we deliver our
products, perform installation services and then provide post-contract support services.
ESP is determined by considering a number of factors including our pricing policies, internal costs and gross
margin objectives, method of distribution, information gathered from experience in customer negotiations, market
research and information, recent technological trends, competitive landscape and geographies. The determination of ESP
is approved by our management taking into consideration our pricing strategy. We regularly review VSOE, TPE and ESP
and maintain internal controls over the establishment and updating of these estimates.
Revenues related to long-term contracts for customized network solutions are recognized using the percentage-of-
completion method. In using the percentage-of-completion method, we generally apply the cost-to-cost method of
accounting where sales and profits are recorded based on the ratio of costs incurred to estimated total costs at
completion. Recognition of profit on long-term contracts requires estimates of the total contract value, the total cost at
completion and the measurement of progress towards completion. Significant judgment is required when estimating total
contract costs and progress to completion on the arrangements as well as whether a loss is expected to be incurred on the
contract. Amounts representing contract change orders, claims or other items are included in sales only when they can be
reliably estimated and realization is probable. When adjustments in contract value or estimated costs are determined, any
changes from prior estimates are reflected in earnings in the current period. Anticipated losses on contracts or programs
in progress are charged to earnings when identified. We establish billing terms at the time project deliverables and
milestones are agreed. Revenues recognized in excess of the amounts invoiced to clients are classified as unbilled costs
in our consolidated balance sheets.
We reserve for estimated product returns as an offset to revenue or deferred revenue based primarily on historical
trends. Actual product returns may be different than what was estimated. These factors and unanticipated changes in the
economic and industry environment could make actual results differ from our return estimates.
We also consider whether contracts should be combined when specific aggregation criteria are met including when
the contracts are in substance an arrangement to perform a single project with a customer; the contracts are negotiated as
a package in the same economic environment with an overall profit objective; and the contracts require interrelated
activities with common costs that cannot be separately identified with, or reasonably allocated to the elements, phases or
units of output and the contracts are performed concurrently or in a continuous sequence under the same project
management at the same location or at different locations in the same general vicinity.
Royalty income is recognized on the basis of terms specified in the contractual agreements.
59
Cost of Product Sales and Services
Cost of sales consists primarily of materials, labor and overhead costs incurred internally and amounts incurred for
contract manufacturers to produce our products, personnel and other implementation costs incurred to install our
products and train customer personnel, and customer service and third party original equipment manufacturer costs to
provide continuing support to our customers. Also included in cost of sales is the amortization of purchased technology
intangible assets.
Shipping and handling costs are included as a component of costs of product sales in our consolidated statements
of operations because they are also included in revenue that we bill our customers.
Advertising Costs
We expense all advertising costs as incurred. Advertising costs were immaterial during fiscal 2016, 2015 and
2014.
Presentation of Transactional Taxes Collected from Customers and Remitted to Government Authorities
We present transactional taxes such as sales and use tax collected from customers and remitted to governmental
authorities on a net basis.
Research and Development Costs
Our research and development costs, which include costs in connection with new product development,
improvement of existing products, process improvement, and product use technologies, are charged to operations in the
period in which they are incurred.
Share-Based Compensation
We have issued stock options, restricted stock and performance shares under our 2007 Stock Equity Plan. We
estimate the grant date fair value of our share-based awards and amortize this fair value to compensation expense over
the requisite service period or vesting term.
To estimate the fair value of our stock option awards, we use the Black-Scholes option pricing model. The
determination of the fair value of stock option awards on the date of grant using an option pricing model is affected by
our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include
our expected stock price volatility over the expected term of the awards, actual and projected employee stock option
exercise behaviors, risk-free interest rate and expected dividends. Due to the inherent limitations of option valuation
models, including consideration of future events that are unpredictable and the estimation process utilized in determining
the valuation of the share-based awards, the ultimate value realized by our employees may vary significantly from the
amounts expensed in our financial statements. For restricted stock and performance share awards, we measure the grant
date fair value based upon the market price of our common stock on the date of the grant. The fair value of each market-
based stock unit with market condition was estimated using a Monte-Carlo simulation model.
We generally recognize compensation cost for share-based payment awards on a straight-line basis over the
requisite service period. For an award that have a graded vesting schedule, compensation expense is recognized on a
straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was,
in-substance, multiple awards. For awards with a performance condition vesting feature, we recognize share-based
compensation costs for the performance awards when achievement of the performance conditions is considered probable.
Any previously recognized compensation cost would be reversed if the performance condition is not satisfied or if it is
not probable that the performance conditions will be achieved. For awards with market condition vesting feature, we
recognize share-based compensation costs over the period the requisite service is rendered, regardless of when, if ever,
the market condition is satisfied.
We estimate forfeitures at the time of grant and revise, if necessary, in subsequent periods if actual forfeitures
differ significantly from initial estimates. Share-based compensation expense is recorded net of estimated forfeitures
such that expense was recorded only for those share-based awards that are expected to vest.
Cash flows, if any, resulting from the gross benefit of tax deductions related to share-based compensation in excess
of the grant date fair value of the related share-based awards are presented as part of cash flows from financing activities.
This amount is shown as a reduction to cash flows from operating activities and an increase to cash flow from financing
activities.
60
Restructuring Charges
Our restructuring charges represent expenses incurred in connection with certain cost reduction programs that we
have implemented, and consisted of the costs of employee termination costs, lease and other contract termination charges
and other costs of exiting activities or geographies. A liability for costs associated with an exit or disposal activity is
measured at its fair value when the liability is incurred. Expenses for one-time termination benefits are recognized at the
date we notify the employee, unless the employee must provide future service, in which case the benefits are expensed
ratably over the future service period. We recognize severance benefits provided as part of an ongoing benefit
arrangement when the payment is probable and the amounts can be reasonably estimated. Liabilities related to
termination of an operating lease or contract are measured and recognized at fair value when the contract does not have
any future economic benefit to the entity and the fair value of the liability is determined based on the present value of the
remaining lease obligations, adjusted for the effects of deferred items recognized under the lease, and reduced by
estimated sublease rentals that could be reasonably obtained for the property. The assumptions in determining such
estimates include anticipated timing of sublease rentals and estimates of sublease rental receipts and related costs based
on market conditions. We expense all other costs related to an exit or disposal activity as incurred.
Income Taxes and Related Uncertainties
We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are determined
based on the estimated future tax effects of temporary differences between the financial statement and tax bases of assets
and liabilities, as measured by tax rates at which temporary differences are expected to reverse as well as operating loss
and tax credit carry forwards. Deferred tax expense (benefit) is the result of changes in deferred tax assets and liabilities.
A valuation allowance is established to offset any deferred tax assets if, based upon the available information, it is more
likely than not that some or all of the deferred tax assets will not be realized.
We are required to compute our income taxes in each federal, state, and international jurisdiction in which we
operate. This process requires that we estimate the current tax exposure as well as assess temporary differences between
the accounting and tax treatment of assets and liabilities, including items such as accruals and allowances not currently
deductible for tax purposes as well as operating loss and tax credit carry forwards. The income tax effects of the
differences we identify are classified as current or long-term deferred tax assets and liabilities in our consolidated
balance sheets. Our judgments, assumptions, and estimates relative to the current provision for income taxes take into
account current tax laws, our interpretation of current tax laws, and possible outcomes of current and future audits
conducted by foreign and domestic tax authorities. Changes in tax laws or our interpretation of tax laws and the
resolution of current and future tax audits could significantly impact the amounts provided for income taxes in our
consolidated balance sheets and consolidated statements of operations. We must also assess the likelihood that deferred
tax assets will be realized from future taxable income and, based on this assessment, establish a valuation allowance, if
required. Our determination of our valuation allowance is based upon a number of assumptions, judgments, and
estimates, including forecasted earnings, future taxable income, and the relative proportions of revenue and income
before taxes in the various domestic and international jurisdictions in which we operate. To the extent we establish a
valuation allowance or change the valuation allowance in a period, we reflect the change with a corresponding increase
or decrease to our tax provision in our consolidated statements of operations.
We use a two-step process to determine the amount of tax benefit to be recognized. The first step is to evaluate the
tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not
that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The
second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50% likely of
being realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as this requires
us to determine the probability of various possible outcomes. We reevaluate these uncertain tax positions on a quarterly
basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax
law, effectively settled issues under audit, and new audit activity. Such a change in recognition or measurement would
result in the recognition of a tax benefit or an additional charge to the tax provision in the period.
Recently Issued Accounting Standards
In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) No. 2016-15 Statement of Cash Flows, Clarification of Certain Cash Receipts and Cash Payments, which
provides guidance on the presentation and classification of eight specific cash flow issues. Those issues are cash payment
for debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instrument or other debt instrument
with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent
consideration payments made after a business combination; cash received from settlement of corporate-owned life
61
insurance policies; distribution received from equity method investees; beneficial interest in securitization transactions;
and classification of cash receipts and payments that have aspect of more than one class of cash flows. The guidance is
effective for annual periods and interim periods within those annual periods beginning after December 15, 2017 with
early adoption permitted. We will be evaluating the effect of the adoption of the standard will have on our consolidated
financial statements and related disclosures.
In May 2014, the FASB issued ASU No. 2014-09 (ASC Topic 606) Revenue from Contracts with Customers, which
will supersede nearly all existing revenue recognition guidance under GAAP. Under the new standard, recognition of
revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services. Additional disclosures
regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers,
and assets recognized from costs incurred to obtain or fulfill a contract will also be required. The FASB subsequently
issued an update to this standard in August 2015, ASU 2015-14 (ASC Topic 606) Revenue from Contracts with
Customers, Deferral of the Effective Date, which provides deferral of the effective date by one year. The standard is now
effective for us beginning in our fiscal 2019 and allows for either full retrospective or modified retrospective adoption.
Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016 and including
interim reporting periods within such reporting period.
The FASB has since issued additional updates of its new standard on revenue recognition issued in May 2014. In
March 2016, an amendment was issued to clarify the implementation guidance on principal versus agent consideration.
ASU 2016-08 (ASC Topic 606) Revenue from Contracts with Customers: Principal versus Agent Considerations
(Reporting Revenue Gross versus Net) requires entities to determine whether the nature of its promise to provide goods
or services to a customer is performed in a principal or agent capacity and to recognize revenue in a gross or net manner
based on its principal/agent designation. In April 2016, ASU 2016-10 (ASC Topic 606) Revenue from Contracts with
Customers, Identifying Performance Obligations and Licensing was issued to clarify the identification of performance
obligations and the licensing implementation guidance in the initial standard. ASU 2016-12 (ASC Topic 606) Revenue
from Contracts with Customers, Narrow-Scope Improvements and Practical Expedients was issued in May 2016 related
to its guidance on assessing collectability, presentation of sales tax, noncash consideration, and completed contracts and
contract modification at transition, which reduce the potential for diversity in practice, and the cost and complexity of
application at transition and on an ongoing basis. We are evaluating the effects of the new guidance and has not yet
selected a transition method nor has it determined the potential effects of adoption on its consolidated financial
statements.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting
(Topics 718), which requires the recognition of the income tax effects of awards in the income statement when the
awards vest or are settled, thus eliminating additional paid in capital pools. The guidance also allows for the employer to
repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting. In
addition, the guidance allows for a policy election to account for forfeitures as they occur rather than on an estimated
basis. The guidance is effective for annual periods and interim periods within those annual periods beginning after
December 15, 2016 with early adoption permitted. We are evaluating the effect of the adoption of the standard will have
on our consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases (Topics 842), which introduces the recognition of lease
assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. This
standard will become effective for interim and annual periods beginning after December 15, 2018, with early adoption
permitted. The guidance is required to be adopted at the earliest period presented using a modified retrospective
approach. We are evaluating the effect of the adoption of the standard will have on our consolidated financial statements
and related disclosures.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition
and Measurement of Financial Assets and Financial Liabilities. This guidance retains the current accounting for
classifying and measuring investments in debt securities and loans, but requires equity investments to be measured at fair
value with subsequent changes recognized in net income, except for those accounted for under the equity method or
requiring consolidation. The guidance also changes the accounting for investments without a readily determinable fair
value and that do not qualify for the practical expedient to estimate fair value. A policy election can be made for these
investments whereby estimated fair value may be measured at cost and adjusted in subsequent periods for any
impairment or changes in observable prices of identical or similar investments. This ASU is effective for fiscal years
beginning after December 15, 2017. We are currently evaluating the impact this guidance will have on our consolidated
financial statements and it will become effective for us at the beginning of our first quarter of fiscal 2019.
62
In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740) - Balance Sheet Classification of
Deferred Taxes, which amends the existing guidance on income taxes to require the classification of all deferred tax
assets and liabilities as non-current on the balance sheet. The amendments are effective for financial statements issued
for the annual periods beginning after December 15, 2016 and interim periods within those annual periods, and may be
applied either prospectively or retrospectively. Early adoption is permitted. We have early adopted this accounting
guidance on a prospective basis during the fourth quarter of fiscal 2016. Prior periods are therefore not adjusted.
In July 2015, the FASB issued ASU No. 2015-11 (Subtopic 330), Simplifying the Measurement of Inventory, which
provides guidance to companies who account for inventory using either the first-in, first-out (“FIFO”) or average cost
methods. The guidance states that companies should measure inventory at the lower of cost and net realizable value. Net
realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable
costs of completion, disposal and transportation. This ASU is effective for fiscal years beginning after December 15,
2016. Early adoption is permitted. We are currently evaluating the effect of the adoption of the standard will have on our
consolidated financial statements and related disclosures.
In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30), Simplifying
the Presentation of Debt Issuance Costs, which provides guidance on the balance sheet presentation for debt issuance
costs and debt discounts and debt premiums. To simplify the presentation of debt issuance costs, the standard requires
that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from
the carrying amount of that debt liability, consistent with debt discounts. The standard is effective for us beginning in our
fiscal year 2017. We are currently evaluating the effect of the adoption of the standard will have on our consolidated
financial statements and related disclosures.
In August 2014, FASB issued ASU No. 2014-15, Disclosure of Uncertainties About an Entity’s Ability to Continue
as a Going Concern, which provides guidance on determining when and how to disclose going concern uncertainties in
the financial statements. The guidance requires management to perform interim and annual assessments of an entity’s
ability to continue as a going concern. This standard is effective for annual reporting periods beginning after December
15, 2016, including interim periods during those annual periods. Early application is permitted. We have early adopted
this accounting guidance during the fourth quarter of fiscal 2016 and it has no financial impact on our consolidated
financial statements and related disclosures.
Note 2. Accumulated Other Comprehensive Loss
The changes in components of our accumulated other comprehensive loss during fiscal 2016, 2015 and 2014 were
as follows:
(In thousands)
Balance as of June 28, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other comprehensive income (loss) before reclassification . . . . . . . . . .
Less: reclassification for amounts included in net loss. . . . . . . . . . . . . .
Balance as of June 27, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss before reclassification. . . . . . . . . . . . . . . . . .
Less: reclassification for amounts included in net loss. . . . . . . . . . . . . .
Balance as of July 3, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss before reclassification. . . . . . . . . . . . . . . . . .
Less: reclassification for amounts included in net loss. . . . . . . . . . . . . .
Balance as of July 1, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Foreign
Currency
Translation
Adjustment
(“CTA”)
Total
Accumulated
Other
Comprehensive
Income (Loss)
Hedging
Derivatives
(3,467) $
470
—
(2,997)
(5,672)
—
(8,669)
(2,488)
—
(11,157) $
$
138
(266)
162
34
(314)
321
41
—
(41)
— $
(3,329)
204
162
(2,963)
(5,986)
321
(8,628)
(2,488)
(41)
(11,157)
63
No income tax benefits were allocated to the other comprehensive loss in fiscal 2016, 2015 and 2014.
In fiscal 2016, 2015 and 2014, the realized gain or loss on cash flow hedges were reclassified out of accumulated
other comprehensive loss into the following line item locations in our consolidated statements of operations:
(In thousands)
Reclassification adjustment for gain (loss) on cash flow hedges included in:
Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2016
Fiscal Year
2015
2014
— $
41
41
$
(378) $
57
(321) $
(163)
1
(162)
Beginning the fourth quarter of fiscal 2015, we no longer prepared contemporaneous documentation of hedges
therefore the foreign exchange hedges no longer qualified as cash flow hedge. The changes in fair value related to the
hedges were insignificant for fiscal 2015 and were recorded in income or expense line item on our statements of
operations to which the hedged transaction related.
Note 3. Net Loss per Share of Common Stock
We compute net loss per share attributable to Aviat Networks’ common stockholders using the two-class method.
Basic net loss per share is computed using the weighted average number of common shares and participating securities
outstanding during the period. Our unvested restricted shares contain rights to receive non-forfeitable dividends and
therefore are considered to be participating securities and would be included in the calculations of net income per basic
and diluted common share. However, we incurred a net loss in all periods presented. In accordance with ASC subtopic
260-10, undistributed losses are not allocated to unvested restricted shares due to the fact that the unvested restricted
shares are not contractually obligated to share in the losses of the company.
As we incurred net loss for all periods in fiscal 2016, 2015 and 2014, the effect of outstanding stock options,
restricted stocks and units and performance shares and units were anti-dilutive and therefore were excluded from the
diluted net loss per share calculations. The potential shares of common stock that were excluded from the diluted net loss
per share calculations, as adjusted for the Reverse Stock Split, is as follows:
(In thousands)
Stock options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stocks and units and performance shares and units . . . . . . . .
Total potential shares of common stock excluded . . . . . . . . . . . . . . . .
2016
Fiscal Year
2015
2014
538
258
796
613
42
655
621
51
672
Note 4. Balance Sheet Components
Accounts Receivable, net
Our net accounts receivable is summarized below:
(In thousands)
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Less: allowances for collection losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
July 1,
2016
July 3,
2015
71,416
(7,967)
63,449
$
$
90,173
(6,641)
83,532
64
Inventories
Our inventories are summarized below:
(In thousands)
Finished products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Raw materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Deferred cost of revenue included within finished goods . . . . . . . . . . . . . . . . . . . . . . . . . $
Consigned inventories included within raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
July 1,
2016
July 3,
2015
20,044
5,104
2,145
27,293
5,984
2,035
$
$
$
$
21,125
3,775
8,033
32,933
2,214
6,760
During fiscal 2016, 2015 and 2014, we recorded charges to adjust our inventory and customer service inventory
due to excess and obsolete inventory resulting from lower sales forecast, product transitioning or discontinuance. Such
charges incurred during fiscal 2016, 2015 and 2014 were classified in cost of product sales as follows:
(In thousands)
Excess and obsolete inventory charges . . . . . . . . . . . . . . . . . . . . . . . . . . $
Customer service inventory write-downs . . . . . . . . . . . . . . . . . . . . . . . .
$
2016
9,175
693
9,868
$
$
Fiscal Year
2015
6,291
1,752
8,043
As % of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.7%
2.4%
Property, Plant and Equipment, net
Our property, plant and equipment, net are summarized below:
(In thousands)
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Buildings and leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
July 1,
2016
710
11,714
14,620
42,960
70,004
(51,842)
18,162
2014
3,955
3,216
7,171
2.1%
July 3,
2015
710
9,727
13,565
45,197
69,199
(44,944)
24,255
$
$
$
$
Depreciation and amortization expense related to property, plant and equipment, including amortization of internal
use software, was $6.6 million, $7.2 million and $7.1 million, respectively, in fiscal 2016, 2015 and 2014.
Accrued Expenses
Our accrued expenses are summarized below:
(In thousands)
Accrued compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accrued commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
July 1,
2016
July 3,
2015
7,161
3,551
3,944
8,549
23,205
$
$
7,528
4,380
4,221
11,085
27,214
65
We accrue for the estimated cost to repair or replace products under warranty. Changes in our warranty liability,
which is included as a component of accrued expenses in the consolidated balance sheets, during fiscal 2016 and 2015
were as follows:
(In thousands)
Balance as of the beginning of the fiscal year. . . . . . . . . . . . . . . . . . . . . $
Warranty provision recorded during the period . . . . . . . . . . . . . . . . . . .
Consumption during the period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of the end of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2016
4,221
3,462
(3,739)
3,944
$
$
Fiscal Year
2015
3,777
5,595
(5,151)
4,221
$
$
2014
3,267
5,234
(4,724)
3,777
Advanced payments and Unearned Income
Our advanced payments and unearned income are summarized below:
(In thousands)
Advanced payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Unearned income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
July 1,
2016
July 3,
2015
12,124
18,491
30,615
$
$
9,529
26,365
35,894
Note 5. Fair Value Measurements of Assets and Liabilities
We determine fair value as the price that would be received to sell an asset or paid to transfer a liability in the
principal market (or most advantageous market, in the absence of a principal market) for the asset or liability in an
orderly transaction between market participants as of the measurement date. We maximize the use of observable inputs
and minimize the use of unobservable inputs in measuring fair value and establish a three-level fair value hierarchy that
prioritizes the inputs used to measure fair value. The three levels of inputs used to measure fair value are as follows:
• Level 1 — Observable inputs such as quoted prices in active markets for identical assets or liabilities;
• Level 2 — Observable market-based inputs or observable inputs that are corroborated by market data; and
• Level 3 — Unobservable inputs reflecting our own assumptions.
The carrying amounts, estimated fair values and valuation input levels of our assets and liabilities that are
measured at fair value on a recurring basis as of July 1, 2016 and July 3, 2015 were as follows:
(In thousands)
Assets:
Cash and cash equivalents:
July 1, 2016
July 3, 2015
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Valuation
Inputs
Bank certificates of deposit. . . . . . . . . . . . . . . . . . . . $
Money market funds . . . . . . . . . . . . . . . . . . . . . . . . . $
11
18,800
Short-term investments:
Bank certificates of deposit. . . . . . . . . . . . . . . . . . . . $
222
Other current assets:
Foreign exchange forward contracts . . . . . . . . . . . . . $
5
$
$
$
$
11
18,800
222
5
$
$
$
$
598
12,499
$
$
598
12,499
— $
64
$
—
64
Level 2
Level 1
Level 2
Level 2
Liabilities:
Other accrued expenses:
Foreign exchange forward contracts . . . . . . . . . . . . . $
9
$
9
$
46
$
46
Level 2
We classify items within Level 1 if quoted prices are available in active markets. Our Level 1 items include shares
in money market funds purchased from two major financial institutions. As of July 1, 2016, these money market shares
were valued at $1.00 net asset value per share by these financial institutions.
We classify items in Level 2 if the observable inputs to quoted market prices, benchmark yields, reported trades,
broker/dealer quotes or alternative pricing sources are available with reasonable levels of price transparency. Our bank
66
certificates of deposit and foreign exchange forward contracts are classified within Level 2. Foreign currency forward
contracts are measured at fair value using observable foreign currency exchange rates. The assets and liabilities related to
our foreign currency forward contracts were not material as of July 1, 2016 and July 3, 2015. We did not have any
recurring assets whose fair value was measured using significant unobservable inputs.
Our policy is to recognize asset or liability transfers among Level 1, Level 2 and Level 3 as of the actual date of
the events or change in circumstances that caused the transfer. During fiscal 2016, 2015 and 2014, we had no transfers
between levels of the fair value hierarchy of our assets or liabilities measured at fair value.
Note 6. Credit Facility and Debt
On March 28, 2014, we entered into a Second Amended and Restated Loan Agreement with Silicon Valley Bank
(the “SVB Credit Facility”). The SVB Credit Facility was amended on September 25, 2014, October 30, 2014 and
December 2, 2014 to provide for extensions to the deadline for preparing and filing our fiscal 2014 financial statements
with the SEC. On February 27, 2015, the SVB Credit Facility was further amended to provide for certain amendments to
the financial covenants, borrowing base and an early termination fee if the SVB Credit Facility is terminated prior to its
expiration. In March 2016, we amended the SVB Credit Facility to amend financial covenants and to reduce the
maximum borrowing capacity from $40.0 million to $30.0 million. In June 2016, we amended the SVB Credit Facility to
amend the minimum EBITDA covenant; to create a new sub-limit for letters of credit issued under the revolving credit
facility of $12.0 million; to reduce the advance rate applicable to Singapore Borrower’s eligible accounts in the
calculation of the borrowing base of the revolving credit facility; to increase the interest rate margins applicable to
revolving loans made to Singapore Borrower by 2.00% above the applicable margin; and to extend the maturity date to
June 30, 2018. The SVB Credit Facility carries an interest rate computed at the daily prime rate as published in the Wall
Street Journal plus a spread of 0.50% to 1.50%, with such spread determined based on our adjusted quick ratio. During
fiscal 2016, the weighted average interest rate on our outstanding loan was 3.88%. As of July 1, 2016 and July 3, 2015,
our outstanding debt balance under the SVB Credit Facility was $9.0 million in each fiscal year, and the interest rate was
4.00% and 3.75% respectively.
The SVB Credit Facility provides for a committed amount of up to $30.0 million, with a $30.0 million sublimit
that can be borrowed by our Singapore subsidiary. Borrowings may be advanced under the SVB Credit Facility at the
lesser of $30.0 million or a borrowing base equal to a specified percentage of the value of eligible accounts receivable
and U.S. unbilled accounts of the Company, subject to certain reserves and eligibility criteria. The SVB Credit Facility
can also be utilized to issue letters of credit with a $12.0 million sublimit. If the SVB Credit Facility is terminated by us
in certain circumstances prior to its expiration, we are subject to an early termination fee equal to 1% of the revolving
line. As of July 1, 2016, available credit under the SVB Credit Facility was $4.8 million reflecting the calculated
borrowing base of $20.0 million less existing borrowings of $9.0 million and outstanding letters of credit of $6.2 million.
The SVB Credit Facility contains quarterly financial covenants including minimum adjusted quick ratio and
minimum profitability (EBITDA) requirements. In the event our adjusted quick ratio falls below a certain level, cash
received in our accounts with SVB may be directly applied to reduce outstanding obligations under the SVB Credit
Facility. The SVB Credit Facility also imposes certain restrictions on our ability to dispose of assets, permit a change in
control, merge or consolidate, make acquisitions, incur indebtedness, grant liens, make investments, make certain
restricted payments and enter into transactions with affiliates under certain circumstances. Certain of our assets,
including accounts receivable, inventory, and equipment, are pledged as collateral for the SVB Credit Facility. Upon an
event of default, outstanding obligations would be immediately due and payable. Under certain circumstances, a default
interest rate will apply on all obligations during the existence of an event of default at a per annum rate of interest equal
to 2.00% above the applicable interest rate. As of July 1, 2016, we were in compliance with the quarterly financial
covenants contained in the SVB Credit Facility, as amended. However, as a result of uncertainty on our ability to
continue to meet the financial covenants in the future and the fact that the SVB Credit Facility contains subjective
acceleration clauses that could be triggered by the lender, the $9.0 million borrowing was classified as a current liability
as of July 1, 2016 and July 3, 2015.
We also obtained an uncommitted short-term line of credit of $0.4 million from a bank in New Zealand to support
the operations of our subsidiary located there in fiscal 2015. This line of credit provides for $0.3 million in short-term
advances at various interest rates, all of which was available as of July 1, 2016. The line of credit also provides for the
issuance of standby letters of credit and company credit cards, of which $0.1 million was outstanding as of July 1, 2016.
This facility may be terminated upon notice, is reviewed annually for renewal or modification, and is supported by a
corporate guarantee.
67
Note 7. Restructuring Activities
The following tables summarize our restructuring related activities during fiscal year 2016, 2015 and 2014:
(In thousands)
Severance and Benefits
Fiscal
2016-2017
Plan
Fiscal
2015-2016
Plan
Fiscal
2014-2015
Plan
Fiscal
2013-2014
Plan
Fiscal
2011
Plan
Total
Balance as of June 28, 2013 . . . . . . . . . . . . . . . . $
— $
— $
— $
1,814
$
81
$
Charges, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of June 27, 2014 . . . . . . . . . . . . . . . .
Charges, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of July 3, 2015 . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
Charges, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments . . . . . . . . . . . . . . . . . . . . . . . . .
2,210
(698)
—
—
—
2,862
(2,212)
650
344
(637)
5,406
(4,116)
1,290
(29)
(1,261)
—
—
—
1,032
(2,632)
214
(43)
(65)
106
(6)
(32)
(28)
(53)
—
—
—
—
—
—
1,895
6,410
(6,801)
1,504
2,790
(3,538)
756
2,548
(1,367)
Balance as of July 1, 2016 . . . . . . . . . . . . . . . . . $
1,512
$
357
$
— $
68
$
— $
1,937
(In thousands)
Facilities and Other
Fiscal
2015-2016
Plan
Fiscal
2014-2015
Plan
Fiscal
2013-2014
Plan
Fiscal
2011
Plan
Total
Balance as of June 28, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
— $
472
$
291
$
Charges, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of June 27, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charges, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of July 3, 2015. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charges, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncash adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
641
(8)
633
(62)
(21)
—
Balance as of July 1, 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
550
$
446
(354)
92
1,306
(608)
790
77
(584)
299
582
4,375
(1,275)
3,572
130
(1,371)
2,331
(108)
(1,373)
896
(33)
(258)
—
—
—
—
—
—
—
$
1,746
$
— $
763
4,788
(1,887)
3,664
2,077
(1,987)
3,754
(93)
(1,978)
1,195
2,878
In June 2016, we entered into a lease termination agreement for our current headquarters lease in Santa Clara,
California (“Termination Agreement”). The noncash adjustments in the table above represents a $1.2 million deferred
rent credit write-off to the restructuring expenses. Under the Termination Agreement, the Company will surrender its
current headquarters in exchange for a termination fee of $1.9 million payable over 14 months. The termination fee was
included in the restructuring liabilities as of July 1, 2016 under the Fiscal 2014-2015 Plan and the Fiscal 2013-2014 Plan.
As of July 1, 2016, $3.9 million of the accrual balance was in short-term restructuring liabilities while $0.9 million
was included in other long-term liabilities on the consolidated balance sheets.
Fiscal 2016-2017 Plan
During the fourth quarter of fiscal 2016, we initiated a restructuring plan (the “Fiscal 2016-2017 Plan”) to
streamline our operations and align expense with current revenue levels. Activities under the Fiscal 2016-2017 Plan
primarily include reductions in force in marketing, selling and general and administrative functions. We intend to
substantially complete the remaining restructuring activities under the Fiscal 2016-2017 Plan by the third quarter of
fiscal 2017.
68
Fiscal 2015-2016 Plan
During the third quarter of fiscal 2015, with the intent to bring our operational cost structure in line with the
changing dynamics of the microwave radio and telecommunications markets, we initiated a restructuring plan (the
“Fiscal 2015-2016 Plan”) to lower fixed overhead costs and operating expenses and to preserve cash flow. Activities
under the Fiscal 2015-2016 Plan primarily include reductions in force across the Company, but primarily in operations
outside the United States. We have substantially completed the restructuring activities under the Fiscal 2015-2016 Plan
as of July 1, 2016. Payments related to the accrued restructuring liability balance for this plan is expected to be paid
through fiscal 2020.
Fiscal 2014-2015 Plan
During the third quarter of fiscal 2014, in line with the decrease in revenue that we experienced and our reduced
forecast for the immediate future, we initiated a restructuring plan (the “Fiscal 2014-2015 Plan”) to reduce our operating
costs, primarily in North America, Europe and Asia. Activities under the Fiscal 2014-2015 Plan primarily include
reductions in force and additional facility downsizing of our Santa Clara, California headquarters. We have substantially
completed the restructuring activities under the Fiscal 2014-2015 Plan as of July 1, 2016. Payment related to the accrued
restructuring liability balance for this plan will be paid through fiscal 2018.
Fiscal 2013-2014 Plan
During the fourth quarter of fiscal 2013, we initiated a restructuring plan (the “Fiscal 2013-2014 Plan”) that was
intended to reduce our operating expenses primarily in North America, Europe and Asia. Activities under the Fiscal
2013-2014 Plan included reductions in force and facility downsizing of our Santa Clara, California headquarters and
certain international field offices. We have substantially completed the restructuring activities under the Fiscal
2013-2014 Plan as of June 27, 2014. Payment related to the accrued restructuring liability balance for this plan will be
paid through fiscal 2018.
Note 8. Stockholders’ Equity
As discussed in Note 1, on June 14, 2016, we effected a 1-for-12 reverse stock split of our common stock. All
share and per share data in this note have been retroactively adjusted to reflect this reverse stock split.
Stock Incentive Programs
2007 Stock Equity Plan
As of July 1, 2016, we had one stock incentive plan for our employees and nonemployee directors, the 2007 Stock
Equity Plan, as amended and restated effective November 17, 2011 (the “2007 Stock Plan”). The 2007 Stock Plan
provides for accelerated vesting of certain share-based awards if there is a change in control of the Company. The 2007
Stock Plan also provides for the issuance of share-based awards in the form of stock options, stock appreciation rights,
restricted stock awards and units, and performance share awards and units. We have various incentive programs under
the 2007 Stock Plan, including annual and long-term incentive programs (“AIP” or “LTIP”), a global equity program
(“GEP”) and product development incentive programs (“PDIP”).
Under the 2007 Stock Plan, option exercise prices are equal to the fair market value on the date the options are
granted using our closing stock price. Options may be exercised for a period set at the time of grant, which is generally
seven years after the date of grant. Options generally vest in installments on one of four vesting schedules: (1) 25% one
year from the grant date and 1/48 each month thereafter over the remaining three-year period; (2) 50% one year from the
grant date and 25% each year thereafter over the remaining two-year period; (3) one-third annually over a three-year
period from the date of grant; or (4) 25% annually over a four-year period from date of grant. In fiscal 2014, stock
options were issued to directors and vested on the day before the annual stockholders’ meeting.
Restricted stock is not transferable until vested and the restrictions lapse upon the achievement of continued
employment or service over a specified time period. Restricted stock issued to employees generally vests on one of three
vesting schedules: (1) one-third annually over a three-year period from the date of grant (2) 25% annually over a four-
year period from date of grant; or (3) in full three years after the grant date. Restricted stock issued to directors annually
and generally vests on the day before the annual stockholders’ meeting.
Vesting of performance shares under our AIP, LTIP or GEP is subject to financial performance criteria including
revenue, operating income, or cash flow targets for the periods as defined in the programs and continued employment
69
through the end of the applicable period. Performance shares under our PDIPs are issued to employees related to certain
new product development projects and vest upon achievement of the product development milestones as defined in the
programs.
For the market-based stock units, the performance criteria are based on multiple target closing prices of the
Company’s common stock for the fiscal years ending 2016, 2017 and 2018. Once the shares are earned for fiscal years
ending 2016 and 2017, they will be vested on the last day of fiscal 2018. For the shares earned for the fiscal year ending
2018, they will be vested on the date that the Compensation Committee certifies achievement of the performance
metrics. Vesting of these shares is dependent on continuous employment with us through the date the performance metric
is achieved.
Upon the exercise of stock options, vesting of restricted stock awards and units, or vesting of performance share
awards and units, we issue new shares of our common stock to our employees. All awards that are canceled prior to
vesting or expire unexercised are returned to the approved pool of reserved shares under the 2007 Stock Plan and made
available for future grants. Shares of our common stock remaining available for future issuance under the 2007 Stock
Plan totaled 710,748 as of July 1, 2016.
Employee Stock Purchase Plan
Under the Employee Stock Purchase Plan (“ESPP”), employees are entitled to purchase shares of our common
stock at a 5% discount from the fair market value at the end of a three-month purchase period. As of July 1, 2016, 62,039
shares were reserved for future issuances under the ESPP. We issued 1,346 shares under the ESPP during fiscal 2016.
Share-Based Compensation
Total compensation expense for share-based awards included in our consolidated statements of operations for fiscal
2016, 2015 and 2014 was as follows:
(In thousands)
By Expense Category:
Cost of product sales and services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling and administrative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total share-based compensation expense . . . . . . . . . . . . . . . . . . . . $
By Types of Award:
Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Restricted stock awards and units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance shares and market condition shares . . . . . . . . . . . . . . . . . .
2016
Fiscal Year
2015
2014
$
$
$
154
110
1,572
1,836
837
933
66
$
$
$
151
108
1,928
2,187
1,459
688
40
196
273
2,952
3,421
1,909
748
764
Total share-based compensation expense . . . . . . . . . . . . . . . . . . . . $
1,836
$
2,187
$
3,421
Compensation expense for an award with only service conditions is recognized over the requisite service period,
which is usually the vesting period of the award. For an award that have a graded vesting schedule, compensation
expense is recognized on a straight-line basis over the requisite service period for each separately vesting portion of the
award as if the award was, in-substance, multiple awards. The amount of compensation cost recognized at any date must
at least equal the portion of the grant-date value of the award that is vested at that date.
70
Stock Options
A summary of the combined stock option activity under our equity plans during fiscal 2016 is as follows:
Shares
Weighted
Average
Exercise Price
Options outstanding as of July 3, 2015 . . . . . . . . . . . . . . .
Granted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options outstanding as of July 1, 2016 . . . . . . . . . . . . . . .
Options exercisable as of July 1, 2016 . . . . . . . . . . . . . . .
Options vested and expected to vest as of July 1, 2016 . .
614,232
—
—
(143,308)
(22,565)
448,359
364,353
442,063
$34.61
N/A
N/A
$31.69
$86.16
$32.95
$35.52
$33.17
Weighted
Average
Remaining
Contractual
Life
(Years)
4.05
Aggregate
Intrinsic
Value
($ in thousands)
$0
3.37
3.01
3.34
$0
$0
$0
The aggregate intrinsic value represents the total pre-tax intrinsic value or the aggregate difference between the
closing price of our common stock on July 1, 2016 of $8.05 and the exercise price for in-the-money options that would
have been received by the optionees if all options had been exercised on July 1, 2016. The options expected to vest are
the result of applying the pre-vesting forfeiture rate assumptions to total outstanding options. As of July 1, 2016, there
was $0.4 million of total unrecognized compensation expense related to nonvested stock options granted under our 2007
Stock Plan. This expense is expected to be recognized over a weighted-average period of 1.23 years.
Additional information related to our stock options is summarized below:
(In thousands)
Fair value of options vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2016
Fiscal Year
2015
2014
1,395
$
1,990
$
2,234
The fair value of each option grant under our 2007 Stock Plan was estimated using the Black-Scholes option
pricing model on the date of grant. A summary of the significant weighted average assumptions we used in the Black-
Scholes valuation model is as follows:
Expected dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected term (years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average grant date fair value per share granted . . . . . . . . . . .
2016
Fiscal Year
2015
2014
N/A
N/A
N/A
N/A
N/A $
—%
53.9%
1.13%
4.25
—%
54.1%
1.26%
4.43
6.60
$
12.72
Expected volatility is based on implied volatility for the expected term of the options from our stock price. The
expected term of the options is calculated using the simplified method described in the SEC’s Staff Accounting Bulletin
Topic 14.D.2. We use the simplified method because we do not have sufficient stock option exercise data and the types
of employees that receive share option grants have been significantly changed due to the implementation of our GEP in
fiscal 2012, under which we granted share-based awards to employees who are not eligible for the long-term incentive
programs. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the
time of grant. The expected dividend yield is zero because we have not historically paid dividends on our common stock
and have no intention to pay dividends in the foreseeable future. The following summarizes all of our stock options
outstanding and exercisable as of July 1, 2016:
71
Options Outstanding
Options Exercisable
Actual Range of Exercise Prices
Number
Outstanding
$14.88 — $15.60 . . . . . . . . . . . . . . .
$20.64 — $26.28 . . . . . . . . . . . . . . .
$27.36 — $30.72 . . . . . . . . . . . . . . .
$31.20 — $31.20 . . . . . . . . . . . . . . .
$32.52 — $72.00 . . . . . . . . . . . . . . .
$77.28 — $80.76 . . . . . . . . . . . . . . .
$14.88 — $80.76 . . . . . . . . . . . . . . .
87,501
73,297
100,045
74,462
87,137
25,917
448,359
Restricted Stock
Weighted
Average
Remaining
Contractual
Life
(Years)
Weighted
Average
Exercise Price
Number
Exercisable
Weighted
Average
Exercise Price
5.50
3.79
2.76
4.19
1.68
0.63
3.37
$15.35
$25.59
$28.88
$31.20
$49.75
$77.48
$32.95
42,235
59,474
99,948
49,642
87,137
25,917
364,353
$15.35
$25.45
$28.88
$31.20
$49.75
$77.48
$35.52
A summary of the status of our restricted stock as of July 1, 2016 and changes during fiscal 2016 were as follows:
Restricted stock outstanding as of July 3, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested and released. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock outstanding as of July 1, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
79,767
197,549
(53,094)
(13,624)
210,598
Weighted Average
Grant Date
Fair Value
$13.86
$11.84
$13.76
$13.55
$12.01
The fair value of each restricted stock grant is based on the closing price of our common stock on the date of grant.
The total fair value of restricted stock that vested during fiscal 2016, 2015 and 2014 was $0.7 million, $0.6 million and
$0.7 million, respectively. As of July 1, 2016, there was $1.5 million of total unrecognized compensation expense related
to nonvested restricted stock units granted under our 2007 Stock Plan. This expense is expected to be recognized over a
weighted-average period of 1.92 years.
Market -Based Stock Units
A summary of the status of our market-based stock units as of July 1, 2016 and changes during fiscal 2016 were as
follows:
Market-based stock unit outstanding as of July 3, 2015 . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market-based stock unit outstanding as of July 1, 2016 . . . . . . . . . . . . . . . . . . . . . . .
Shares
—
158,766
(9,597)
149,169
Weighted Average
Grant Date
Fair Value
N/A
$2.56
$2.56
$2.56
The fair value of each market-based stock unit with market condition was estimated using a Monte-Carlo
simulation model. A summary of the significant weighted average assumptions we used in the Monte Carlo simulation
model is as follows:
Expected Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average grant date fair value per share granted . . . . . . . . . . . $
—%
52.4%
1.21%
2.56
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
2016
Fiscal Year
2015
2014
72
The fair value of the market-based stock units with market condition criteria is expensed over the derived service
period for each separate vesting tranche. If the derived service period is rendered, the total fair value of the award at the
date of the grant is recognized as compensation expense even if the market condition is not achieved. As of July 1, 2016,
there was $0.2 million of total unrecognized compensation expense related to nonvested market-based stock units
granted under our 2007 Stock Plan. This expense is expected to be recognized over a weighted-average period of
2.10 years.
Performance Share Awards
A summary of the status of our performance shares as of July 1, 2016 and changes during fiscal 2016 were as
follows:
Performance shares outstanding as of July 3, 2015. . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited due to target thresholds not achieved. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited due to terminations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance shares outstanding as of July 1, 2016. . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted
Average
Grant Date
Fair Value
$14.98
$14.98
$14.98
—
Shares
66,901
(66,725)
(176)
—
The fair value of each performance share was based on the closing price of our common stock on the date of grant
and was amortized over its vesting period. We began to recognize share-based compensation costs for the performance
shares when achievement of the performance conditions is considered probable. Any previously recognized
compensation cost would be reversed if the performance condition is not satisfied or if it is not probable that the
performance conditions will be achieved.
No performance shares award vested during fiscal 2016. The total fair value of performance share awards that
vested during fiscal 2015 and 2014 was $0.1 million and $3.0 million, respectively.
Note 9. Segment and Geographic Information
We operate in one reportable business segment: the design, manufacturing and sale of a range of wireless
networking products, solutions and services. We conduct business globally and our sales and support activities are
managed on a geographic basis. Our Chief Executive Officer is the Chief Operating Decision Maker (the “CODM”). Our
CODM manages our business primarily by function globally and reviews financial information on a consolidated basis,
accompanied by disaggregated information about revenues by geographic region, for purposes of allocating resources
and evaluating financial performance. The profitability of our geographic region is not a determining factor in allocating
resources and the CODM does not evaluate profitability below the level of the consolidated company.
We report revenue by region and country based on the location where our customers accept delivery of our
products and services. Revenue by region for 2016, 2015 and 2014 were as follows:
(In thousands)
North America. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Africa and Middle East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe and Russia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Latin America and Asia Pacific. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2016
125,482
82,742
20,539
39,927
268,690
$
$
2015
153,239
97,112
35,990
49,537
335,878
$
$
2014
142,027
108,906
36,043
59,056
346,032
Fiscal Year
73
Revenue by country comprising more than 5% of our total revenue for fiscal 2016, 2015 and 2014 were as follows:
(In thousands, except percentages)
Fiscal 2016:
Revenue
% of
Total Revenue
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Nigeria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
121,283
28,862
Fiscal 2015:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Nigeria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
151,066
36,459
Fiscal 2014:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Nigeria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
139,234
52,189
45.1%
10.7%
45.0%
10.9%
40.2%
15.1%
Our long-lived assets, consisting primarily of property, plant and equipment, by geographic areas based on the
physical location of the assets as of July 1, 2016 and July 3, 2015 were as follows:
(In thousands)
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
United Kingdom. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New Zealand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other countries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
July 1,
2016
July 3,
2015
11,353
2,946
2,618
1,245
18,162
$
$
17,581
3,094
1,797
1,783
24,255
Note 10. Divestiture
In March 2011, our board of directors approved a plan for the sale of our WiMAX business. On September 2, 2011,
we sold to EION Networks, Inc. (“EION”) our WiMAX business and related assets consisting of certain technology,
inventory and equipment. As consideration for the sale of assets, EION agreed to pay us $0.4 million in cash and up to
$2.8 million in additional cash payments contingent upon specific factors related to future WiMAX business
performance. We had received $0.1 million in total of such contingent payments through June 27, 2014 and do not
expect any further payments from EION. In addition, EION is entitled to receive cash payments up to $2.0 million upon
collection of certain WiMAX accounts receivable. As of September 26, 2014, we made $1.6 million in total of such
payments to EION and wrote-off the remaining $0.4 million balance resulting from the write-downs of the
corresponding WiMAX accounts receivable. As of July 1, 2016 and July 3, 2015, our accrued liabilities related to the
disposition of WiMAX business were zero.
In the third quarter of fiscal 2011, we began accounting for the WiMAX business as a discontinued operation and,
therefore, the operating results of our WiMAX business were included in discontinued operations in our consolidated
financial statements for all years presented. The income recognized in fiscal 2015 was primarily due to a $0.1 million
write-off of accrued liabilities due to EION. The income recognized in fiscal 2016 and 2014 was primarily due to the
recovery of certain WiMAX customer receivables that was previously written down.
Summary results of operations for the WiMAX business were as follows:
(In thousands)
Income from operations of WiMAX. . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Gain on disposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from discontinued operations, net of tax . . . . . . . . . . . . . . . . . $
2016
Fiscal Year
2015
2014
652
—
(111)
541
$
$
30
85
(21)
94
$
$
1,225
—
(307)
918
74
Note 11. Income Taxes
Loss from continuing operations before provision for income taxes during fiscal year 2016, 2015 and 2014 is as
follows:
(In thousands)
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loss from continuing operations before income taxes. . . . . . . . . $
2016
(4,248) $
(24,295)
(28,543) $
Fiscal Year
2015
(18,603) $
(7,355)
(25,958) $
2014
(26,735)
(23,818)
(50,553)
Provision for (benefit from) income taxes from continuing operations for fiscal year 2016, 2015 and 2014 were
summarized as follows:
(In thousands)
Current provision (benefit):
Federal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred provision (benefit):
Federal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
Fiscal Year
2015
2014
131
1,814
24
1,969
(468)
134
(334)
$
— $
3,378
23
3,401
(216)
(4,495)
(4,711)
(125)
1,932
(5)
1,802
—
(337)
(337)
Total provision for (benefit from) income taxes from continuing
operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1,635
$
(1,310) $
1,465
The following table summarizes the significant differences between the U.S. Federal statutory tax rate and our
effective tax rate from continuing operations for fiscal year 2016, 2015 and 2014:
2016
Fiscal Year
2015
2014
Statutory U.S. federal tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign non-deductible expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local taxes, net of U.S. federal tax benefit. . . . . . . . . . . . . . . .
Foreign income taxed at rates less than the U.S. statutory rate. . . . . . . .
Dividend from foreign subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign branch income/withholding taxes . . . . . . . . . . . . . . . . . . . . . . .
Change in uncertain tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective tax rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(35.0)%
23.1 %
0.4 %
(0.5)%
21.1 %
(6.2)%
1.0 %
1.5 %
0.3 %
5.7 %
(35.0)%
(15.1)%
(0.3)%
(1.9)%
38.5 %
— %
5.2 %
2.4 %
1.2 %
(5.0)%
(35.0)%
30.0 %
0.9 %
(1.3)%
8.5 %
— %
2.0 %
(1.7)%
(0.5)%
2.9 %
The income tax expense (benefit) from continuing operations for fiscal 2016 was $1.6 million of expense, for fiscal
2015 was $1.3 million of benefit and for fiscal 2014 was $1.5 million of expense. The difference between our income tax
expense (benefit) from continuing operations and income tax expense at the statutory rate of 35% was primarily
attributable to losses in tax jurisdictions in which we cannot recognize a tax benefit and increase in foreign withholding
taxes. During fiscal 2015, the Company released approximately $4.4 million of its deferred tax valuation allowance in
jurisdictions where management believed the utilization of deferred tax assets was more likely than not based on the
weighting of positive and negative evidence which resulted in an income tax benefit in fiscal 2015.
75
The components of deferred tax assets and liabilities were as follows:
(In thousands)
Deferred tax assets:
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accruals and reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bad debts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized exchange gain/loss . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax assets before valuation allowance . . . . . .
Valuation allowance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities:
Branch undistributed earnings reserve . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
As Reported on the Consolidated Balance Sheets
Deferred income taxes assets . . . . . . . . . . . . . . . . . . . . . . . . . . $
Deferred income taxes liabilities. . . . . . . . . . . . . . . . . . . . . . . .
Total net deferred income taxes. . . . . . . . . . . . . . . . . . . . . $
July 1, 2016
July 3, 2015
Current
Non-Current
Current
Non-Current
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
— $
—
— $
6,652
2,497
1,091
3,148
2,599
1,759
3,422
6,623
18,016
167,468
213,275
(202,824)
10,451
822
4,596
462
5,880
4,571
6,068
1,497
4,571
$
$
$
$
7,681
4,641
1,412
—
—
—
3,648
1,123
—
—
18,505
(17,043)
1,462
75
—
94
169
1,293
1,462
169
1,293
$
$
$
$
—
66
—
2,589
3,358
1,906
—
5,030
17,876
154,270
185,095
(177,468)
7,627
1,215
3,468
—
4,683
2,944
7,627
4,683
2,944
Consistent with the intent of ASU 2015-17 to simplify the presentation of deferred income taxes, we have early
adopted ASU 2015-17 on a prospective basis during the fourth quarter of fiscal year 2016. As a result of this accounting
update, our current deferred tax assets were reclassified to non-current. Prior periods were not retrospectively adjusted.
Our valuation allowance related to deferred income taxes, as reflected in our consolidated balance sheet, was
$202.8 million as of July 1, 2016 and $194.5 million as of July 3, 2015. The increase in valuation allowance in fiscal
2016 was primarily due to the losses in tax jurisdictions in which we cannot recognize tax benefits.
Tax loss and credit carryforwards as of July 1, 2016 have expiration dates ranging between one year and no
expiration in certain instances. The amount of U.S. federal tax loss carryforwards as of July 1, 2016 and July 3, 2015
were $345.3 million and $328.7 million, respectively, and begin to expire in fiscal 2023. Credit carryforwards as of
July 1, 2016 were $23.8 million, and certain credits will begin to expire in fiscal 2017. The amount of foreign tax loss
carryforwards as of July 1, 2016 was $175.1 million.
United States income taxes have not been provided on basis differences in foreign subsidiaries of $5.6 million and
$5.4 million, respectively, as of July 1, 2016 and July 3, 2015, because of our intention to reinvest these earnings
indefinitely. The residual U.S. tax liability, if such amounts were remitted, would be nominal.
We entered into a tax sharing agreement with Harris effective on January 26, 2007, the date of the acquisition of
Stratex. The tax sharing agreement addresses, among other things, the settlement process associated with pre-merger tax
liabilities and tax attributes that are attributable to the Microwave Communication Division when it was a division of
Harris. There were no settlement payments recorded in fiscal year 2016, 2015, or 2014.
As of July 1, 2016 and July 3, 2015, we had unrecognized tax benefits of $27.0 million and $26.9 million,
respectively, for various federal, foreign, and state income tax matters. Unrecognized tax benefits decreased by $0.1
76
million. Our total unrecognized tax benefits that, if recognized, would affect our effective tax rate were $1.4 million and
$1.4 million, respectively, as of July 1, 2016 and July 3, 2015. These unrecognized tax benefits are presented on the
accompanying consolidated balance sheet net of the tax effects of net operating loss carryforwards.
We account for interest and penalties related to unrecognized tax benefits as part of our provision for income taxes.
The interest accrued was immaterial as of July 1, 2016 and $0.1 million as of July 3, 2015. No penalties have been
accrued.
Our unrecognized tax benefit activity for fiscal 2016, 2015 and 2014 is as follows:
(In thousands)
Unrecognized tax benefit as of June 28, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Additions for tax positions in prior periods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decreases for tax positions in prior periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increases related to change of foreign exchange rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized tax benefit as of June 27, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions for tax positions in prior periods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decreases for tax positions in prior periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decreases related to change of foreign exchange rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized tax benefit as of July 3, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions for tax positions in current periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions for tax positions in prior periods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decreases related to change of foreign exchange rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized tax benefit as of July 1, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Amount
28,698
8,705
(12,055)
2,861
28,209
673
(227)
(1,745)
26,910
397
246
(515)
27,038
During the fiscal year 2014, we received an assessment letter from the Inland Revenue Authority of Singapore
(“IRAS”) related to deductions claimed in prior years and made a payment of $13.2 million related to tax years 2007
through 2010, reflecting all of the taxes incrementally assessed by IRAS. Since the initial assessment, we continue to
pursue remedies to challenge this assessment. There was no settlement in fiscal year 2016. During the next twelve
months, it is reasonably possible that an ultimate settlement will be achieved which would result in our unrecognized tax
benefits changing by up to $14.0 million. During the first quarter of fiscal year 2017, we received an initial refund of
$3.7 million from IRAS. We will continue our discussion with IRAS to resolve the remaining tax positions. We believe
that we have adequately provided for any reasonably foreseeable outcomes related to our tax audits.
We have a number of years with open tax audits which vary from jurisdiction to jurisdiction. Our major tax
jurisdictions include the U.S., Singapore and Nigeria. The earliest years still open and subject to potential audits for these
jurisdictions are as follows: U.S. —2003; Singapore — 2006; Nigeria — 2011, and Ivory Coast — 2013.
Note 12. Commitments and Contingencies
Operating Lease Commitments
We lease office and manufacturing facilities under non-cancelable operating leases expiring at various dates
through 2024. We lease approximately 129,000 square feet of office space in Santa Clara, California as our corporate
headquarters. On June 8, 2016, we leased a new corporate headquarters in Milpitas, California with a term of 60 months.
In the same month, we entered into a lease termination agreement for our current headquarters lease. We expect to
complete the move of our corporate headquarters by September 2016. As of July 1, 2016, future minimum lease
payments for our Santa Clara headquarters total $2.7 million.
77
As of July 1, 2016, our future minimum lease payments under all non-cancelable operating leases with an initial
lease term in excess of one year were as follows:
Fiscal Years
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Amount
(In thousands)
4,217
2,333
1,215
852
874
2,231
11,722
These commitments do not contain any material rent escalations, rent holidays, contingent rent, rent concessions,
leasehold improvement incentives or unusual provisions or conditions. We sublease a portion of our facilities to third
parties and total minimum rentals to be received in the future under our non-cancelable subleases were immaterial as of
July 1, 2016.
Rental expense for operating leases, including rentals on a month-to-month basis was $5.1 million, $6.5 million
and $7.7 million in fiscal 2016, 2015 and 2014, respectively.
Purchase Orders and Other Commitments
From time to time in the normal course of business, we may enter into purchasing agreements with our suppliers
that require us to accept delivery of, and remit full payment for, finished products that we have ordered, finished
products that we requested be held as safety stock, and work in process started on our behalf in the event we cancel or
terminate the purchasing agreement. Because these agreements do not specify fixed or minimum quantities, do not
specify minimum or variable price provisions, and do not specify the approximate timing of the transaction, and we have
no present intention to cancel or terminate any of these agreements, we currently do not believe that we have any future
liability under these agreements. As of July 1, 2016, we had outstanding purchase obligations with our suppliers or
contract manufacturers of $21.7 million. In addition, we had contractual obligations of approximately $2.2
million associated with software licenses as of July 1, 2016.
Financial Guarantees and Commercial Commitments
Guarantees issued by banks, insurance companies or other financial institutions are contingent commitments issued
to guarantee our performance under borrowing arrangements, such as bank overdraft facilities, tax and customs
obligations and similar transactions or to ensure our performance under customer or vendor contracts. The terms of the
guarantees are generally equal to the remaining term of the related debt or other obligations and are generally limited to
two years or less. As of July 1, 2016, we had no guarantees applicable to our debt arrangements.
We have entered into commercial commitments in the normal course of business including surety bonds, standby
letters of credit agreements and other arrangements with financial institutions primarily relating to the guarantee of future
performance on certain contracts to provide products and services to customers. As of July 1, 2016, we had commercial
commitments of $29.8 million outstanding that were not recorded in our consolidated balance sheets. We do not believe,
based on historical experience and information currently available, that it is probable that any amounts will be required
to be paid on the performance guarantees.
Indemnifications
Under the terms of substantially all of our license agreements, we have agreed to defend and pay any final
judgment against our customers arising from claims against such customers that our software products infringe the
intellectual property rights of a third party. As of July 1, 2016, we have not received any notice that any customer is
subject to an infringement claim arising from the use of our software products; we have not received any request to
defend any customers from infringement claims arising from the use of our software products; and we have not paid any
final judgment on behalf of any customer related to an infringement claim arising from the use of our software products.
Because the outcome of infringement disputes is related to the specific facts of each case, and given the lack of previous
or current indemnification claims, we cannot estimate the maximum amount of potential future payments, if any, related
78
to our indemnification provisions. As of July 1, 2016, we had not recorded any liabilities related to these
indemnifications.
Legal Proceedings
We are subject from time to time to disputes with customers concerning our products and services. In May 2016,
we received notification of a claim for $1.0 million in damages from a customer in Austria alleging that certain of our
products were defective. We are continuing to investigate this claim, and at this time an estimate of the reasonably
possible loss or range of loss cannot be made. In August 2016, we received a correspondence from a customer in Africa
demanding that certain inventory aggregating $1.0 million be repurchased under the terms of an inventory management
agreement that we believe has expired. We are continuing to investigate this demand, and at this time an estimate of the
reasonably possible loss or range of loss cannot be made. We believe that we have numerous contractual and legal
defenses to these disputes, which are in their early stages, and we intend to dispute them vigorously.
From time to time, we may be involved in various other legal claims and litigation that arise in the normal course
of our operations. We are aggressively defending all current litigation matters. Although there can be no assurances and
the outcome of these matters is currently not determinable, we currently believe that none of these claims or proceedings
are likely to have a material adverse effect on our financial position. We expect to defend each of these disputes
vigorously. There are many uncertainties associated with any litigation and these actions or other third-party claims
against us may cause us to incur costly litigation and/or substantial settlement charges. As a result, our business, financial
condition, results of operations, and cash flows could be adversely affected. The actual liability in any such matters may
be materially different from our estimates, if any.
We record accruals for our outstanding legal proceedings, investigations or claims when it is probable that a
liability will be incurred and the amount of loss can be reasonably estimated. We evaluate, at least on a quarterly basis,
developments in legal proceedings, investigations or claims that could affect the amount of any accrual, as well as any
developments that would result in a loss contingency to become both probable and reasonably estimable. We have not
recorded any accrual for loss contingencies associated with such legal claims or litigation discussed above.
Contingent Liabilities
We record a loss contingency as a charge to operations when (i) it is probable that an asset has been impaired or a
liability has been incurred at the date of the financial statements; and (ii) the amount of the loss can be reasonably
estimated. Disclosure in the notes to the financial statements is required for loss contingencies that do not meet both
those conditions if there is a reasonable possibility that a loss may have been incurred. Gain contingencies are not
recorded until realized. We expense all legal costs incurred to resolve regulatory, legal and tax matters as incurred.
Periodically, we review the status of each significant matter to assess the potential financial exposure. If a potential
loss is considered probable and the amount can be reasonably estimated, we reflect the estimated loss in our results of
operations. Significant judgment is required to determine the probability that a liability has been incurred or an asset
impaired and whether such loss is reasonably estimable. Further, estimates of this nature are highly subjective, and the
final outcome of these matters could vary significantly from the amounts that have been included in our consolidated
financial statements. As additional information becomes available, we reassess the potential liability related to our
pending claims and litigation and may revise estimates accordingly. Such revisions in the estimates of the potential
liabilities could have a material impact on our results of operations and financial position.
79
Note 13. Quarterly Financial Data (Unaudited)
The following financial information reflects all normal recurring adjustments, which are, in the opinion of
management, necessary for a fair statement of the results of the interim periods. Our fiscal quarters end on the Friday
nearest the end of the calendar quarter. The third quarter of fiscal year 2015 included 14 weeks and other quarters each
included 13 weeks. Summarized quarterly data for fiscal 2016 and 2015 were as follows:
(In thousands, except per share amounts)
Fiscal 2016
Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net loss attributable to Aviat Networks . . . . . . . . . . . . . . . . . . . $
Per share data:
Q1
Ended
10/2/2015
Q2
Ended
1/1/2016
Q3
Ended
4/1/2016
Q4
Ended
7/1/2016
$
79,555
$
21,011
(1,598) $
(1,154) $
(1,203) $
$
70,416
$
16,424
(4,998) $
(5,534) $
(5,679) $
58,252
$
60,467
9,869
$
14,413
(7,594) $ (13,256)
(7,808) $ (15,141)
(7,874) $ (15,151)
Basic and diluted net loss per common share (1) . . . . . . . . . $
(0.23) $
(1.09) $
(1.50) $
(2.88)
(In thousands, except per share amounts)
Fiscal 2015
Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net loss attributable to Aviat Networks . . . . . . . . . . . . . . . . . . . $
Per share data:
Q1
Ended
9/26/2014
Q2
Ended
12/26/2014
Q3
Ended
4/3/2015
Q4
Ended
7/3/2015
$
82,441
$
22,042
(5,379) $
(5,466) $
(5,466) $
$
$
74,839
16,046
$
90,868
$
23,974
(3,748) $ (11,699) $
(4,549) $ (13,167) $
(4,549) $ (13,167) $
87,730
18,628
(5,104)
(1,372)
(1,443)
Basic and diluted net loss per common share (1) . . . . . . . . . $
(1.06) $
(0.88) $
(2.54) $
(0.28)
_______________________
(1) All per share data in this note have been retroactively adjusted for the Reverse Stock Split discussed in Note 1.
The following tables summarize certain charges, expenses and loss (income) from discontinued operations included
in our results of operations for each of the fiscal quarters presented:
(In thousands)
Fiscal 2016
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Share-based compensation expense . . . . . . . . . . . . . . . . . . . . . .
$
Income from discontinued operations. . . . . . . . . . . . . . . . . . . . . $
Q1
Ended
10/2/2015
Q2
Ended
1/1/2016
Q3
Ended
4/1/2016
Q4
Ended
7/1/2016
21
493
514
359
$
$
$
34
429
463
$
$
— $
804
460
1,264
94
$
$
$
1,596
454
2,050
88
(In thousands)
Fiscal 2015
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . $
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation expense . . . . . . . . . . . . . . . . . . . . . .
$
Income (loss) from discontinued operations . . . . . . . . . . . . . . . . $
Q1
Ended
9/26/2014
Q2
Ended
12/26/2014
Q3
Ended
4/3/2015
Q4
Ended
7/3/2015
95
$
1,497
580
2,172
141
$
$
95
(52)
449
$
95
$
3,218
696
492
$
(62) $
4,009
$
(29) $
95
204
462
761
44
80
Note 14. Subsequent Events
During the first quarter of fiscal year 2017, we received an initial refund of $3.7 million from IRAS. For more
information about the tax refund, see “Note 11. Income Taxes”.
On September 6, 2016, our Board of Directors (the “Board”) authorized and declared a dividend distribution of one
right (a “Right”) for each outstanding share of our common stock, par value $0.01 per share (the “Common Shares”), to
our stockholders of record as of the close of business on September 16, 2016. Each Right entitles the registered holder to
purchase from the Company one one-thousandth of a share of Series A Participating Preferred Stock, par value $0.01 per
share (the “Preferred Shares”), of the Company at an exercise price of $35.00 (the “Exercise Price”) per one one-
thousandth of a Preferred Share, subject to adjustment. The complete terms of the Rights are set forth in a Tax Benefit
Preservation Plan (the “Plan”), dated as of September 6, 2016, between the Company and Computershare Inc., as rights
agent. By adopting the Plan, we are helping to preserve the value of certain deferred tax benefits, including those
generated by net operating losses (collectively, the “Tax Benefits”), which could be lost in the event of an “ownership
change” as defined under Section 382 of the Internal Revenue Code of 1986, as amended. The Plan reduces the
likelihood that changes in our investor base have the unintended effect of limiting our use of the Tax Benefits.
Also, on September 6, 2016, our Board of Directors adopted certain amendments to our Amended and Restated
Certificate of Incorporation, as amended (the “Charter Amendments”). The Charter Amendments are designed to
preserve the Tax Benefits by restricting certain transfers of our common stock.
We intend to submit both the Plan and the Charter Amendments to a stockholder vote at our 2016 annual meeting
of stockholders. If our stockholders do not approve the Plan, it will expire. If our stockholders do not approve the
Charter Amendments, they will not become effective.
In connection with the adoption of the Plan, on September 7, 2016, we filed with the Secretary of State of the State
of Delaware a Certificate of Elimination with respect to our existing Series A Junior Participating Preferred Stock (the
“Existing Series A Preferred Stock”) to eliminate from our Amended and Restated Certificate of Incorporation, as
amended, all references to the Existing Series A Preferred Stock. No shares of the Existing Series A Preferred Stock were
ever issued or outstanding. In addition, on September 7, 2016, in connection with the adoption of the Plan, we filed with
the Secretary of State of Delaware a Certificate of Designation of Rights Preferences and Privileges of Series A
Participating Preferred Stock to set forth the rights, powers and preferences of our Series A Participating Preferred Stock.
81
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report on Form 10-K, Aviat carried out an evaluation, under the
supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial
Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities
and Exchange Act of 1934, as amended, (the Exchange Act). Disclosure controls and procedures are controls and other
procedures designed to reasonably assure that information required to be disclosed in our reports filed or submitted under
the Exchange Act, such as this Annual Report on Form 10-K, is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures
are also designed to reasonably assure that this information is accumulated and communicated to our management,
including the Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required
disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting
(as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended). Internal control
over financial reporting is a process designed by, or under the supervision of, the Chief Executive Officer and Chief
Financial Officer, or persons performing similar functions, and effected by the Board of Directors, management and
other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with U.S. GAAP and includes those policies and procedures
that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of management and directors of the Company; and (iii)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of
the Company’s assets that could have a material effect on the financial statements.
Under the supervision and with the participation of management, including our Chief Executive Officer and Chief
Financial Officer, management has assessed the effectiveness of the Company’s internal control over financial reporting
based on the criteria set forth in the Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, management has
concluded that the Company’s internal control over financial reporting was effective as of July 1, 2016.
Changes in Internal Controls over Financial Reporting:
Our management, with the oversight of our Audit Committee, has implemented the following remediation steps to
address previously disclosed material weaknesses and to improve our internal control over financial reporting:
•
COSO Components - Risk Assessment and Monitoring Activities. We determined that our controls
pertaining to risk assessment and monitoring activities as of July 3, 2015 (our prior fiscal year end) did not
operate effectively, resulting in a material weakness pertaining to these COSO components. Specifically, (i)
with respect to risk assessment, we did not sufficiently identify and address risks associated with (a) the
adequacy of training needs of employees whose job functions bear upon our accounting and financial
reporting; (b) segregation of duty conflicts and the adequacy and effectiveness of compensating controls; and
(c) certain processes, further noted in the Control Activities discussion below, resulted in inadequately
designed control activities; and (ii) with respect to monitoring activities, (a) we did not design and maintain
effective controls for the review, supervision and monitoring of our international accounting operations and
for evaluating the adequacy of our internal control over financial reporting, including adequate documentation
of control performance; and (b) there were insufficient procedures to effectively determine the adequacy of
our internal control over financial reporting. The deficiencies in these COSO components are interrelated and
represent a material weakness. This material weakness contributed to the other material weaknesses
described below and an environment where there was more than a remote likelihood that a material
misstatement of the interim and annual consolidated financial statements could occur and not be prevented or
82
detected. As a result, adjustments to various accounts were made to correct errors that were determined to be
immaterial to the prior period financial statements.
Remedial actions. Our Board of Directors directed our senior management to ensure that a proper, consistent tone from
the top is communicated throughout the organization, which tone emphasizes the expectation that previously existing
control deficiencies will be rectified through implementation of controls and process improvements to ensure strict
compliance with US GAAP and regulatory requirements. We made the following changes to effect a proper tone from
the top through changes in our personnel, policies and processes:
•
Strengthened the oversight of the finance organization by hiring a new Vice President, Corporate Controller
and Principal Accounting Officer, and a Senior Director of SEC Reporting and Compliance to supervise the
design and execution of internal controls within the organization.
• Enhanced the oversight of the SOX Compliance function through the leadership of the Senior Director of
SEC Reporting and Compliance, who has direct access to our Audit Committee.
• Aligned financial reporting control design with both the COSO 2013 framework and PCAOB standards,
specifically related to management review controls.
•
Implemented changes in our IT infrastructure to require proper segregation of duties and change management
procedures.
• Completed the assessment of the existing roles and responsibilities and remediated system access and
functionality issues.
• Developed processes to monitor all remaining segregation of duties conflicts on an on-going basis.
• Completed the related internal control design and implementation activities that included financial statement
analytical reviews, review and approval controls in these areas, and an enhanced and expanded internal control
certification by business process owners.
•
Increased and enhanced balance sheet reviews to allow more focus on quality account reconciliations and
enhanced monitoring over international activities.
•
Increased communication of our accounting policies through on-going training.
•
Control Activities - Account Reconciliations. The design and operating effectiveness of our controls were
inadequate to ensure that account reconciliations were reviewed and approved for accuracy and completeness
and that we identified, accumulated and documented appropriate information necessary to support account
balances.
Remedial actions. We enhanced our account reconciliation procedures and controls, which now include reviews of all
balance sheet accounts in a timely manner. We also enhanced the documentation requirements in support of the account
reconciliation review process including account reconciliations at our foreign locations, and ensured that the reports
generated by our enterprise resource planning system which support the account reconciliations are complete and
accurate.
•
Control Activities - Revenue Recognition. The design and operating effectiveness of our controls were
inadequate to ensure that the terms and conditions of all negotiated customer discounts were agreed upon with
the customer in advance of recognizing revenue to ensure that the reported amount and timing of revenue
recognition was accurate.
Remedial actions. We provided additional training to employees whose job functions impact our financial reporting close
process, including members of the sales and operations organizations, to ensure that our employees developed a greater
understanding of revenue recognition rules and related control activities that they perform. We also enhanced and
expanded our internal certification by requiring senior level employees and all Sales, Finance and Accounting personnel
to complete detailed questionnaires quarterly. Any feedback received is reviewed by the accounting group so appropriate
actions are initiated and resolved timely.
83
•
Control Activities - Revenue Cut-off Procedures. The design and operating effectiveness of our controls
were inadequate to ensure that all revenue recognized on shipments made under FOB Destination terms was
recognized in the proper period.
Remedial actions. We expanded the cut-off period over which FOB Destination shipments are reviewed at quarter end to
ensure revenue is recognized in the proper period.
•
Control Activities - Project Accruals. The design and operating effectiveness of our controls were inadequate
to ensure that the project accrual balances were accurate.
Remedial actions. We implemented additional internal reporting procedures, including enhancement of analytical
reviews to assess the reasonableness of period-end accruals. We also enhanced and increased the frequency of cross-
functional communication and coordination between finance and the rest of the Company to ensure current data are
analyzed for the completeness and accuracy of the accrual.
•
Control Activities - Inventory Existence. The design and operating effectiveness of our controls over
inventory cycle counts and inventory at consigned locations were inadequate to ensure that the underlying
quantities in support of inventory balances were accurate.
Remedial actions. We reviewed and expanded our inventory count procedures for both cycle count and year end wall-to-
wall count locations. In addition, we physically observed the inventory count and reviewed the count procedures, to
ensure all relevant risks, procedures and count results are adequately documented, variances are investigated and
adjusted, and are monitored on an on-going basis.
After completing our testing of the design and operating effectiveness of the new procedures, we concluded that we
have remediated the previously identified material weaknesses as of July 1, 2016.
Except for the items noted above, we have made no changes to our internal control over financial reporting during
the fiscal year ended July 1, 2016 that have materially affected, or that are reasonably likely to materially affect, our
internal control over financial reporting.
This Annual Report on Form 10-K does not include an attestation report of our independent registered public
accounting firm regarding internal controls over financial reporting because Aviat is a non-accelerated filer and is not
subject to auditor attestation requirements under the applicable rules of the Securities Exchange Commission.
Limitations on the Effectiveness of Controls
The Company's management, including the Chief Executive Officer and Chief Financial Officer, does not expect
that the Company's disclosure controls and procedures or internal control over financial reporting will prevent all errors
and all fraud. Internal control over financial reporting, no matter how well designed and operated, can provide only
reasonable, not absolute, assurance that the objectives will be met. Because of the inherent limitations in internal control
over financial reporting, no evaluation of controls can provide absolute assurance that all control issues and instances of
fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in
decision making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be
circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of
the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future
conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree
of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected.
Item 9B. Other Information
None.
84
PART III
Certain information required by Part III is omitted from this Annual Report on Form 10-K because we will file a
definitive Proxy Statement with the SEC within 120 days after the end of our fiscal year ended July 1, 2016.
Item 10. Directors, Executive Officers and Corporate Governance
We adopted a Code of Conduct that is available at www.aviatnetworks.com. No amendments to our Code of
Business Ethics or waivers from our Code of Conduct with respect to any of our executive officers or directors have been
made. If, in the future, we amend our Code of Conduct or grant waivers from our Code of Conduct with respect to any of
our executive officers or directors, we will make information regarding such amendments or waivers available on our
corporate website (www.aviatnetworks.com) for a period of at least 12 months.
For information with respect to Executive Officers, see Part I, Item 1 of this Annual Report on Form 10-K, under
“Executive Officers of the Registrant.”
Information regarding our directors and compliance with Section 16(a) of the Exchange Act by our directors and
executive officers will appear in our definitive Proxy Statement and is incorporated herein by reference.
Item 11. Executive Compensation
Information regarding our executive compensation will appear in our definitive Proxy Statement and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information regarding security ownership of certain beneficial owners and management and related stockholder
matters will appear in our definitive Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information regarding certain relationships and related transactions, and director independence will appear in our
definitive Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
Information regarding our principal accountant fees and services will appear in our definitive Proxy Statement and
is incorporated herein by reference.
85
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this report.
1. Financial Statements
The financial statements of Aviat Networks, Inc. are set forth in Item 8 of this Annual Report on Form 10-K.
2. Financial Statement Schedules
Schedule
Schedule II — Valuation and Qualifying Accounts for the three fiscal years ended July 1, 2016. . . . . . . . . . . . . . .
Page
88
All other schedules have been omitted because the required information is not present or is not present in amounts
sufficient to require submission of the schedules or because the information required is included in the consolidated
financial statements or notes thereto.
(b) Exhibits.
The information required by this Item is set forth on the Exhibit Index (following the Signatures section of this
report) and is included, or incorporated by reference, in this Form 10-K.
86
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: September 8, 2016
AVIAT NETWORKS, INC.
(Registrant)
By:
/s/ Ralph S. Marimon
Ralph S. Marimon
Senior Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Michael A. Pangia
Michael A. Pangia
/s/ Ralph S. Marimon
Ralph S. Marimon
/s/ Eric Chang
Eric Chang
/s/ John Mutch
John Mutch
/s/ William A. Hasler
William A. Hasler
/s/ James R. Henderson
James R. Henderson
/s/ Robert G. Pearse
Robert G. Pearse
/s/ John Quicke
John Quicke
/s/ James C. Stoffel
James C. Stoffel
President and Chief Executive Officer
(Principal Executive Officer)
September 8, 2016
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
September 8, 2016
Vice President, Corporate Controller and
Principal Accounting Officer
(Principal Accounting Officer)
September 8, 2016
Chairman of the Board
September 8, 2016
Director
September 8, 2016
Director
September 8, 2016
Director
September 8, 2016
Director
September 8, 2016
Director
September 8, 2016
87
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
AVIAT NETWORKS, INC.
Years Ended July 1, 2016, July 3, 2015 and June 27, 2014
(In thousands)
Allowances for collection losses:
Year ended July 1, 2016. . . . . . . . . . . . . . . . . . . . . $
Year ended July 3, 2015. . . . . . . . . . . . . . . . . . . . . $
Year ended June 27, 2014 . . . . . . . . . . . . . . . . . . . $
____________________________
Balance at
Beginning of
Period
Additions
Charged to
Costs and
Expenses
Deductions
Balance
at End
of Period
6,641
7,442
10,256
$
$
$
2,431
1,302
1,535
$
$
$
1,105 (A) $
2,103 (B) $
4,349 (C) $
7,967
6,641
7,442
Note A - Consisted of changes to allowance for collection losses of $308 thousand for foreign currency translation losses
and $797 thousand for uncollectible accounts charged off, net of recoveries on accounts previously charged off.
Note B - Consisted of changes to allowance for collection losses of $250 thousand for foreign currency translation losses
and $1,853 thousand for uncollectible accounts charged off, net of recoveries on accounts previously charged
off.
Note C - Consisted of changes to allowance for collection losses of $25 thousand for foreign currency translation losses
and $4,324 thousand for uncollectible accounts charged off, net of recoveries on accounts previously charged
off.
88
The following exhibits are filed herewith or are incorporated herein by reference to exhibits previously filed with
EXHIBIT INDEX
the SEC:
Ex. #
2.1
2.2
2.3
2.4
3.1
3.2
3.3
3.4
4.1
4.1.1
4.2
4.3
4.4
10.1
10.2
10.3
10.4
10.5
10.6
10.6.1
10.7
10.8
10.9
10.10
10.11
10.12*
10.13*
10.13.1*
10.14*
Description
Intentionally omitted
Intentionally omitted
Intentionally omitted
Asset Purchase Agreement by and among Aviat U.S., Inc. and EION Networks, Inc., dated as of September
2, 2011 (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the SEC on
September 9, 2011, File No. 001-33278)
Certificate of Amendment of Amended and Restated Certificate of Incorporation of Aviat Networks, Inc.,
as filed with the Secretary of State of the State of Delaware on June 10, 2016 (incorporated by reference to
Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on June 13, 2016, File No. 001-33278)
Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock
(incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed with the SEC on
September 7, 2016)
Amended and Restated Bylaws of Aviat Networks, Inc. (incorporated by reference to Exhibit 3.2 to the
Current Report on Form 8-K filed with the SEC on October 2, 2015, File No. 001-33278)
Certificate of Ownership and Merger Merging Aviat Networks, Inc. into Harris Stratex Networks, Inc.,
effective January 27, 2010, as filed with the Secretary of State of the State of Delaware on January 27,
2010 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on
January 28, 2010, File No. 001-33278)
Intentionally omitted
Specimen common stock certificate, adopted as of January 29, 2010 (incorporated by reference to Exhibit
4.1.1 to the Annual Report on Form 10-K for fiscal year end July 2, 2010 filed with the SEC on September
9, 2010, File No. 001-33278)
Intentionally omitted
Intentionally omitted
Tax Benefit Preservation Plan, dated September 6, 2016, by and between Aviat Networks, Inc. and
Computershare Inc., as Rights Agent (incorporated by reference to Exhibit 4.1 to the Current Report on
Form 8-K filed with the SEC on September 7, 2016)
Intentionally omitted
Intentionally omitted
Intellectual Property Agreement between Harris Stratex Networks, Inc. and Harris Corporation dated
January 26, 2007 (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed with
the SEC on February 1, 2007, File No. 001-33278)
Intentionally omitted
Intentionally omitted
Intentionally omitted
Intentionally omitted
Intentionally omitted
Intentionally omitted
Intentionally omitted
Tax Sharing Agreement between Harris Stratex Networks, Inc. and Harris Corporation dated January 26,
2007 (incorporated by reference to Exhibit 10.11 to the Current Report on Form 8-K filed with the SEC on
February 1, 2007, File No. 001-33278)
Intentionally omitted
Intentionally omitted
Intentionally omitted
Intentionally omitted
Standard Form of Executive Employment Agreement between Harris Stratex Networks, Inc. and certain
executives (incorporated by reference to Exhibit 10.16 to the Current Report on Form 8-K filed with the
SEC on February 1, 2007, File No. 001-33278)
89
Ex. #
10.15
10.16
10.17*
10.18*
10.18.1
10.18.2
10.19
10.19.1
10.20
10.20.1
10.20.2
10.20.3
10.20.4
10.20.5
10.20.6
10.20.7
10.20.8
10.20.9
10.21
10.22*
10.22.1*
10.23*
10.24*
10.24.1*
10.24.2*
Description
Form of Indemnification Agreement between Harris Stratex Networks, Inc. and its directors and certain
officers (incorporated by reference to Exhibit 10.16 to the Registration Statement on Form S-1 of Stratex
Networks, Inc., File No. 33-13431)
Intentionally omitted
Harris Stratex Networks, Inc. Annual Incentive Plan (incorporated by reference to Exhibit 10.17 to the
Annual Report on Form 10-K for the fiscal year ended June 27, 2008 filed with the SEC on September 25,
2008, File No. 001-33278)
Intentionally omitted
Intentionally omitted
Aviat Networks, Inc. 2007 Stock Equity Plan (as Amended and Restated Effective November 13, 2015)
(incorporated by reference to Appendix A to Schedule 14A filed with the SEC on October 1, 2015, File No.
001-33278)
Intentionally omitted
Intentionally omitted
Intentionally omitted
Intentionally omitted
Intentionally omitted
Second Amended and Restated Loan and Security Agreement, dated as of March 28, 2014, by and among
Aviat Networks, Inc., Aviat U.S., Inc., Aviat Networks (S) Pte. Ltd., and Silicon Valley Bank (incorporated
by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on March 31, 2014,
File No. 001-33278)
Amendment #1 to Second Amended and Restated Loan and Security Agreement, dated as of September 25,
2014, by and among Aviat Networks, Inc., Aviat U.S., Inc., Aviat Networks (S) Pte. Ltd. and Silicon Valley
Bank (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on
September 29, 2014, File No. 001-33278)
Amendment #2 to Second Amended and Restated Loan and Security Agreement, dated as of October
30,2014, by and among Aviat Networks, Inc., Aviat U.S., Inc., Aviat Networks (S) Pte. Ltd. and Silicon
Valley Bank (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the
SEC on October 30, 2014, File No. 001-33278)
Amendment #3 to Second Amended and Restated Loan and Security Agreement, dated as of December 2,
2014, by and among Aviat Networks, Inc., Aviat U.S., Inc., Aviat Networks (S) Pte. Ltd., and Silicon
Valley Bank (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the
SEC on December 5, 2014, File No. 001-33278)
Amendment #4 to Second Amended and Restated Loan and Security Agreement, dated February 27, 2015,
by and among Aviat Networks, Inc., Aviat U.S., Inc., Aviat Networks (S) Pte. Ltd., and Silicon Valley Bank
(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on March
3, 2015, File No. 001-33278)
Amendment #5 to Second Amended and Restated Loan and Security Agreement, dated as of March 30,
2016, by and among Aviat Networks, Inc., Aviat U.S., Inc., Aviat Networks (S) Pte. Ltd. and Silicon Valley
Bank (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on
April 1, 2016, File No. 001-33278)
Amendment #6 to Second Amended and Restated Loan and Security Agreement, dated as of June 30,
2016, by and among Aviat Networks, Inc., Aviat U.S., Inc., Aviat Networks (S) Pte. Ltd. and Silicon Valley
Bank (incorporate by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on
July 1, 2016, File No. 001-33278)
Intentionally omitted
Intentionally omitted
Intentionally omitted
Employment Agreement, dated as of April 1, 2006, between Harris Stratex Networks, Inc. and Heinz
Stumpe (incorporated by reference to Exhibit 10.15.2 to the Quarterly Report on Form 10-Q for the fiscal
quarter ended March 30, 2007 filed with the SEC on May 8, 2007, File No. 001-33278)
Intentionally omitted
Intentionally omitted
Intentionally omitted
90
Ex. #
10.25*
10.25.1*
10.26*
10.26.1*
10.27*
10.28*
10.29*
10.30*
10.31*
10.32
10.33*
10.34
10.35
16.1
16.2
21
23.1
23.2
31.1
31.2
32.1
32.2
Description
Employment Agreement, dated as of May 14, 2002, between Stratex Networks, Inc. and Shaun McFall
(incorporated by reference to Exhibit 10.25 to the Annual Report on Form 10-K for the fiscal year ended
July 3, 2009 filed with the SEC on September 4, 2009, File No. 001-33278)
Amendment, effective April 1, 2006, to Employment Agreement, dated May 14, 2002, between Stratex
Networks, Inc. and Shaun McFall (incorporated by reference to Exhibit 10.25.1 to the Annual Report on
Form 10-K for the fiscal year ended July 3, 2009 filed with the SEC on September 4, 2009, File No.
001-33278)
Intentionally omitted
Intentionally omitted
Intentionally omitted
Employment Agreement, dated July 18, 2011, between Aviat Networks, Inc. and Michael Pangia
(incorporated by reference to the Current Report on Form 8-K filed with the SEC on July 20, 2011, File
No. 001-33278)
Employment Agreement, dated December 30, 2010, between Aviat Networks, Inc. and John Madigan
(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on
January 4, 2011, File No. 001-33278)
Employment Agreement, dated December 29, 2014, between Aviat Networks, Inc. and Michael Shahbazian
(incorporated by reference to the Current Report on Form 8-K filed with the SEC on December 29, 2014,
File No. 001-33278)
Employment Agreement, dated April 29, 2015, between Aviat Networks, Inc. and Ralph S. Marimon
(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on May
14, 2015, File No. 001-33278)
Letter Agreement, dated as of January 11, 2015, among Aviat Networks, Inc., Steel Partners Holdings L.P.,
Lone Star Value Management, LLC and certain other parties (incorporated by reference to Exhibit 10.1 to
the Current Report on Form 8-K filed with the SEC on January 12, 2015, File No. 001-33278)
Employment Agreement, dated January 20, 2016, between Aviat Networks, Inc. and Eric Chang
(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on
January 21, 2016, File No. 001-33278)
Lease Agreement, dated June 8, 2016, between Aviat Networks, Inc., through its wholly owned subsidiary
Aviat U.S., Inc., and The Irvine Company LLC
Lease Termination Agreement, dated June 1, 2016, between Aviat Networks, Inc., through its wholly
owned subsidiary Aviat U.S., Inc., and Aslan Newcastle Great America Owner, L.L.C.
Intentionally omitted
Letter from KPMG LLP to the Securities and Exchange Commission dated February 26, 2015
(incorporated by reference to Exhibit 16.1 to the Current Report on Form 8-K filed with the SEC on March
3, 2015)
List of Subsidiaries of Aviat Networks, Inc.
Consent of BDO USA, LLP
Consent of KPMG LLP
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
Section 1350 Certification of Chief Executive Officer
Section 1350 Certification of Chief Financial Officer
XBRL Instance Document
101.INS
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
______________________________
* Management compensatory contract, arrangement or plan required to be filed as an exhibit pursuant to Item 15(b)
of this report.
91
Exhibit 31.1
I, Michael A. Pangia, certify that:
CERTIFICATION
1.
I have reviewed this Annual Report on Form 10-K for the fiscal year ended July 1, 2016, of Aviat Networks, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: September 8, 2016
/s/ Michael A. Pangia
Name:
Title:
Michael A. Pangia
President and Chief Executive Officer
I, Ralph S. Marimon, certify that:
CERTIFICATION
Exhibit 31.2
1.
I have reviewed this Annual Report on Form 10-K for the fiscal year ended July 1, 2016, of Aviat Networks, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: September 8, 2016
/s/ Ralph S. Marimon
Name:
Title:
Ralph S. Marimon
Senior Vice President and Chief
Financial Officer, Principal Financial
Officer
Certification
Exhibit 32.1
Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
In connection with the filing of the Annual Report on Form 10-K of Aviat Networks, Inc. (“Aviat Networks”) for the
fiscal year ended July 1, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the
undersigned, Michael A. Pangia, hereby certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. §1350,
that:
1.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange
Act of 1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of Aviat Networks as of the dates and for the periods expressed in the Report
Date: September 8, 2016
/s/ Michael A. Pangia
Name:
Title:
Michael A. Pangia
President and Chief Executive Officer
Certification
Pursuant to Section 1350 of Chapter 63 of Title 18 of the
United States Code as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
Exhibit 32.2
In connection with the filing of the Annual Report on Form 10-K of Aviat Networks, Inc. (“Aviat Networks”) for the
fiscal year ended July 1, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the
undersigned, Ralph S. Marimon, hereby certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. §1350,
that:
1.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange
Act of 1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of Aviat Networks as of the dates and for the periods expressed in the Report
Date: September 8, 2016
/s/ Ralph S. Marimon
Name:
Title:
Ralph S. Marimon
Senior Vice President and Chief
Financial Officer, Principal Financial
Officer
[This page intentionally left blank]
Appendix
A-1
Stockholder Information
Executive Offices
Aviat Networks, Inc.
860 N. McCarthy Blvd., Suite 200
Milpitas, CA 95035
(408) 941-7100
Independent Public Accountants
BDO USA LLP
Transfer Agent and Registrar
Computershare
PO Box 30170
College Station, TX 77842
Investor Relations Contact
Investor Relations
408-941-7117
InvestorInfo@aviatnet.com
Overnight Correspondence to:
Computershare
211 Quality Circle
Suite 210
College Station, TX 77845
Tel: (800) 522-6645
TDD for hearing Impaired: 800-231-5469
Foreign Shareowners: 201-680-6578
TDD Foreign Shareowners: 201-680-6610
Shareholder website: www.computershare.com/investor
Shareholder online inquiries: https://www-us.computershare.com/investor/contact
Stockholder Inquiries
Questions relating to stockholder records, change of ownership or change of address should be sent to
our transfer agent, Computershare, whose address appears above.
Financial Information
Securities analysts, investment managers and stockholders should direct financial information inquiries to
the Investor Relations contact listed above.
SEC Form 10-K
A copy of the Company’s Form 10-K filed with the Securities and Exchange
Commission is available by downloading from our website, Aviatnetworks.com or by writing to:
Aviat Networks, Inc.
Attn: Investor Relations
860 N. McCarthy Blvd., Suite 200
Milpitas, California 95035
2016 Annual Report
We have published this 2016 Annual Report to Stockholders, including the Consolidated Financial
Statements and Management’s Discussion and Analysis, as an appendix to our Proxy Statement. Further
information regarding various aspects of our business can be found on our website
(www.Aviatnetworks.com).
Electronic Delivery
In an effort to reduce paper mailed to your home, we offer stockholders the convenience of viewing the
Proxy Statement, Annual Report to Stockholders and related materials online. With your consent, we can
stop sending future paper copies of these documents to you by mail. To participate, follow the instructions
at www.icsdelivery.com.
A-2
To Ourareholders
Online Voting at www.Proxyvote.com
If you are a registered stockholder, you may now use the Internet to transmit your voting instructions
any time before 11:59 p.m. EST on November 15, 2016. Have your proxy card in hand when you access
the Web site. You will be prompted to enter your Control Number to obtain your records and create an
electronic voting instruction form.
www.Aviatnetworks.com
The Aviat Networks Web site provides access to a wide variety of information, including
products, new releases and financial information. A principal feature of the Web site is the Investor
Relations section, which contains general financial information and access to the current Proxy Statement
and Annual Report to Stockholders. The site also provides archived information (for example, historical
financial releases and stock prices) and access to conference calls and analyst group presentations.
Other interesting features are the press release alerts and SEC filings email alerts, which allow users to
receive automatic updates informing them when new items such as news releases, financial event
announcements and SEC documents are added to the site.
www.computershare.com/investor
The Computershare Web site provides access to an Internet self-service product, Investor
Centre. Through Investor Centre, registered stockholders can view their account profiles, stock
certificate histories, Form 1099 tax information, current stock price quote (20-minute delay) and historical
stock prices. Stockholders may also request the issuance of stock certificates, duplicate Form 1099s,
safekeeping of stock certificates or an address change.
A-3
Corporate Directory
Officers
Michael Pangia
President and Chief Executive Officer
Ralph Marimon
Sr. Vice President Chief Financial Officer
Shaun McFall
Sr. Vice President Chief Marketing &
Strategy Officer
Heinz H. Stumpe
Sr. Vice President and Chief Sales Officer
Meena Elliott
Sr. Vice President Chief Legal & Administrative
Officer, Corporate Secretary
Eric Chang
Vice President, Corporate Controller, Principal
Accounting Officer
Directors
John Mutch
Director & Chairman of the Board
Managing Partner
MV Advisors LLC
Director
Steel Excel, Inc.
Agilysis, Inc.
William A. Hasler
Director
Rubicon, Ltd.
Globalstar, Inc.
James R. Henderson
Director & Chairman of the Boa rd
School Specialty, Inc.
RELM Wireless Corporation
Director
Aerojet Rocketdyne Holding, Inc. (f/k/a GenCorp,
Inc.)
Armor Express
CEO
Moduslink Corporation
Moduslink Global Solutions
Robert G. Pearse
Managing Partner
Yucatan Rock Ventures
Director
Crossroads Systems, Inc.
AMERI Holdings, Inc.
Novation Companies, Inc.
John J. Quicke
Chairman of Board
Steel Energy Services LTD
Director
Rowan Companies, plc
Dr. James C. Stoffel
Director
Harris Corporation
Outside Legal Counsel
Wilson Sonsini Goodrich & Rosati, PC
Palo Alto, CA
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Headquarters and Operations
Corporate Headquarters
Aviat Networks, Inc.
860 N. McCarthy Blvd., Suite 200
Milpitas, CA 95035
United States
International Headquarters, Singapore
Aviat Networks (S) Pte. Ltd.
51 Changi Business Park Central 2
#04-10 The Signature
Singapore 486066
Asia & Pacific Rim
Bangkok, Thailand
Colombo, Sri Lanka
Gurgaon, India
Jakarta, Indonesia
Kuala Lumpur, Malaysia
Manila, Philippines
Pampanga, Philippines
Shenzhen, China
Singapore
Sydney, Australia
Wellington, New Zealand
Offices
North America
Montréal, Canada
Durham, NC
San Antonio, TX
Mexico
Mexico D.F.
Europe
Meudon, France
Glasgow, Scotland
Schiphol, The Netherlands
London, United Kingdom
Madrid, Spain
Moscow, Russia
Trzin-Ljubljana, Slovenia
Warsaw, Poland
Africa
Abidjan, Côte d’Ivoire
Accra, Ghana
Alger, Algeria
Lagos, Nigeria
Midrand, South Africa
Nairobi, Kenya
Middle East
Dubai, United Arab Emirates
Riyadh, Saudi Arabia
Forward-looking Statements
This Annual Report, including the letter to
shareholders, contains forward-looking
statements that are based on the views of
management regarding future events at the
time of publication of this report. These
forward-looking statements, which include,
but are not limited to: our plans, strategies
and objectives for future operations; new
products, services or developments; future
economic conditions; outlook; impact on
operating results due to the volume, timing,
customer, product and geographic mix of
our product orders; our growth potential
and the potential of industries and the
markets we serve, are subject to the known
and unknown risks, uncertainties and other
factors that may cause our actual results to
be materially different from those
expressed or implied by each forward-
looking statement. These risks,
uncertainties and other factors are
discussed in the 2016 Form 10-K.
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WWW.AVIATNETWORKS.COM
860 N. McCarthy Blvd., Suite 200, Milpitas, CA 95035
Tel: 408-941-7100
BR05366Y-1016-COMBO