2020
Proxy Statement
& Annual Report
Aviat Networks, Inc.
September 25, 2020
To Our Stockholders:
Our fiscal 2020 was marked with many accomplishments and an unprecedented disruption as a result of the COVID-
19 pandemic. Upon joining the company in January 2020, I saw significant opportunity to improve the foundation,
define a strategic plan and pursue a more rigorous focus on growth. Throughout the year, we bolstered our
foundation, launched new offerings, won new customers and demonstrated improved profitability. In fact, we
delivered the highest annual profitability, 5.7% of Adjusted EBITDA, in the last 10 years of Aviat’s history. We achieved
this amidst COVID-19, a cyberattack at one of our contract manufacturers and transitions of the executive
management team. We are proud of the team’s performance in the face of these challenges.
Our foundation has been improved by the following:
• Upgrade of the executive leadership team and the overall talent of Aviat;
• Optimization of the sales and operations process;
• Deepening the understanding of the value of our offerings;
•
•
• Refresh of Aviat’s values and culture.
Improvement in our voice of the customer process;
Implementation of a performance management system;
Development and Implementation of our Corporate Strategy
We recognized that to drive growth, there was a need to develop a corporate strategy. A significant part of our
strategy, voice of the customer process and understanding value, was focused on improving our products and
offerings. These foundational improvements resulted in the rollout of products with compelling value propositions:
• Multi-band radio platform which improves total cost of ownership particularly where spectrum costs are high;
• Frequency assurance software (FAS) solves a critical interference problem and creates a base to build a
software as a service business;
• North America mission-critical radio platform upgrade to enhance our position as the leader in public safety,
utility, and transportation segments;
• All-outdoor solution for 5G which leads the industry in system gain RF performance for lowest overall total
cost of ownership.
Our strategy, execution and process improvements translated into new customer and commercial wins including:
• Network rollout for Virginia State Police demonstrating Aviat’s leading position in mission critical networks;
• Our first microwave upgrade agreement (MUA) subscription offering with a large county government which
ensures long term business and generates recurring cash flow;
• Multi-band wins at Safaricom and Globe for 5G emanating from our focus on total cost of ownership;
• New commercial partners to expand our reach in Middle East and Latin America;
• Market validation and first orders for new frequency assurance software (FAS).
We improved our profitability on an Adjusted EBITDA basis primarily by cost containment. We announced and
executed our restructuring plans and expect to see significant savings on an annualized basis in fiscal 2021. We also
improved our sales and operations process which led to improved gross margin.
We are well-positioned in fiscal 2021 as we continue to execute our corporate strategy. We have the recipe to grow
as demonstrated by North America where revenue grew 14% in FY20. North America business performance is
highlighted by new wins, realizing our differentiated product offerings, and capturing three strong demand drivers:
5G mobile, mission critical networks and rural broadband.
Our North America business expanded into new states, cities, and applications. The North America team has seized
upon our differentiation. We have won initial business with FAS in public safety, utility, and service provider accounts.
FAS is the industry’s only software expert system for the detection and reporting of interference on microwave links
and is patent pending. FAS can prevent outages by identifying interference events and arm our customers with data
analysis to deal with regulators on interference issues. FAS is critical to the reliability of mission critical microwave
links especially with the emergence of WiFi 6e that allows unlicensed devices to operate in a key microwave band in
the US.
The North America team is capitalizing on additional opportunities. We are leveraging our core products to capture
5G growth and serving our rural internet customers via the Aviat Store, the industry’s only e-commerce platform for
wireless transport solutions.
Our strategic plan addresses the need to improve growth internationally. Our international opportunity for growth
is sizable since we currently hold approximately a 2% share of a $2.3B market. We will capture this opportunity by
executing our strategy: defend tier one accounts, leverage our value proposition at tier two accounts, and improve
customers cost of ownership with offerings such as FAS, multi-band, and the Aviat Store. In the second half of fiscal
2020, we progressed in all these areas. Key evidence are the wins in Africa and Asia Pacific with the multi-band
offering, securing local reseller partnerships that extend sales reach, and we expect to get traction with FAS and Aviat
Store shortly. 5G demand is picking up and we see many international operators investing in their transport networks
now to support 5G rollouts in the coming months and years. Aviat’s radios lead the industry in RF performance which
will be a key requirement as networks evolve to 5G.
Fiscal 2020 Financial Results
In fiscal 2020, we reported total revenue of $238.6 million, compared to revenue of $243.9 million in the prior year.
Revenue in North America increased by $18.8 million year-over-year or 14%. This helped offset a decline in
international revenue as we had expected but the decline in the second half of the fiscal year was smaller than what
we had experienced in the first half of the fiscal year. We exited fiscal 2020 with a book to bill well above 1, due in
part to our strong performance in North America and a strong backlog.
For fiscal 2020, GAAP gross margin of 35.5% and non-GAAP gross margins of 35.6% compared to GAAP and non-GAAP
margin in Fiscal 2019 of 32.5%, represented an increase of 300 basis points and 310 basis points, respectively.
For fiscal 2020, the Company reported GAAP total operating expenses of $81.3 million, compared to $77.9 million in
the comparable fiscal 2019 period, an increase of $3.4 million or 4.4%. On a non-GAAP basis, excluding the impact
of restructuring charges and share-based compensation, total operating expenses for the twelve months ended July
3, 2020 were $75.8 million, compared to $75.0 million in the fiscal 2019 period, an increase of $0.7 million or 1.0%.
Operating expenses increased primarily due to fiscal 2020 containing an extra week.
We reported Adjusted Earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) of $13.5
million in fiscal 2020, as compared to $8.8 million in the prior year, a year-over-year increase of approximately $4.8M.
We ended fiscal 2020 with $41.6 million in cash and cash equivalents on our balance sheet, compared to $31.9 million
for fiscal 2019, an increase of $9.7 million. We also invested approximately $1.8 million to repurchase shares from
our stock repurchase program, and $3.4 million remains available under the program. Our net cash of $32.6 million
at the end of fiscal 2020 was the highest level exiting a fiscal year since fiscal 2014.
We continued to generate positive cash flow from operations and our working capital metrics remain among the best
in our history, with further improvements anticipated.
Fiscal 2021 Outlook
We anticipate modest growth in both revenue and Adjusted EBITDTA in fiscal 2021. We have a strong backlog entering
fiscal 2021. Our company and our products are well-positioned to benefit from key market drivers:
•
•
•
Rollout of 5G;
Increased importance of mission-critical networks;
Expansion of rural broadband networks.
We anticipate continuing our strong momentum across these verticals. We have great relationship and history with
global and domestic 5G players. We will continue to focus on share gains in our mission-critical network business.
Lastly, we will leverage increased funding for rural broadband and the Aviat Store to participate in the expansion of
these developing networks.
Aviat’s goals are clearly defined: growth, margin expansion, expense reductions and meaningful bottom-line
improvements. We expect to deliver on these goals in fiscal year 2021.
Sincerely,
President and CEO, Aviat Networks
This letter to stockholders contains statements that qualify as “forward looking statements” under the U.S. Private
Securities Litigation Reform Act of 1995, including, but not limited to our plans, strategies and objectives for future
operations: expectations regarding future performance; plans for new products; services or developments; expectations
of future economic conditions; opportunities to improve business processes; expected impacts on our 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. 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. These risks, uncertainties and other factors are discussed in our fiscal year 2020 Form 10-K and in our other
filings with the Securities and Exchange Commission. You should not rely on any forward-looking statements, which
reflect the Company’s opinions only as of the date of this letter. We undertake no obligation to update publicly any
forward-looking statement, whether written or oral, for any reason, except as required by law, even as new information
becomes available or other events occur in the future.
[This page intentionally left blank]
AVIAT NETWORKS, INC.
Fiscal Year 2020 Summary
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 income, provision for or benefit from income taxes, net income, diluted net in come per share and adjusted income
before interest, tax, depreciation and amortization (Adjusted EBITDA), 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 2020 Summary
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES (1)
Consolidated Statements of Operations
(Unaudited)
GAAP gross margin
WTM inventory write-down recovery
Share-based compensation
Non-GAAP gross margin
GAAP research and development expenses
Share-based compensation
Non-GAAP research and development expenses
GAAP selling and administrative expenses
Share-based compensation
Strategic alternative costs
Non-GAAP selling and administrative expenses
GAAP operating income
WTM inventory write-down recovery
Share-based compensation
Strategic alternative costs
Restructuring charges (recovery), net
Non-GAAP operating income
Twelve Months Ended
July 3, 2020
% of
Revenue
June 28, 2019
% of
Revenue
(In thousands, except percentages and per share amounts)
$
84,696
—
182
84,878
35.5 % $ 79,270
(155)
35.6 %
170
79,285
$
19,284
8.1 % $ 21,111
32.5 %
32.5 %
8.7 %
(112)
19,172
$
57,985
(1,392)
—
56,593
(150)
8.0 %
20,961
8.6 %
24.3 % $ 56,055
(1,403)
(593)
23.0 %
23.7 %
54,059
22.2 %
$
3,378
1.4 % $
—
1,686
—
4,049
9,113
3.8 %
1,368
(155)
1,723
593
736
4,265
0.6 %
1.7 %
GAAP income tax provision (benefit)
$
3,452
1.4 % $
(8,188)
(3.4) %
Tax receivable from Department of Federal Revenue of Brazil
Release of valuation allowance
—
—
1,646
7,486
Twelve Months Ended
July 3, 2020
% of
Revenue
June 28, 2019
% of
Revenue
(In thousands, except percentages and per share amounts)
Adjustment to reflect pro forma tax rate
Non-GAAP income tax provision
(2,252)
1,200
0.5 %
256
1,200
GAAP net income
Share-based compensation
Strategic alternative costs
Restructuring charges (recovery)
WTM inventory write-down recovery
Release of valuation allowance
Tax receivable from Department of Federal Revenue of Brazil
Adjustment to reflect pro forma tax rate
$
257
0.1 % $
1,686
—
4,049
—
—
—
2,252
9,738
1,723
593
736
(155)
(7,486)
(1,646)
(256)
0.5 %
4.0 %
Non-GAAP net income
Diluted net income per share:
GAAP
Non-GAAP
$
8,244
3.5 % $
3,247
1.3 %
$
$
0.05
1.51
$
$
1.73
0.58
Shares used in computing diluted net income per share
GAAP/Non-GAAP
5,468
5,618
Adjusted EBITDA:
GAAP net income
Depreciation and amortization of property, plant, and equipment
Interest income, net
Share-based compensation
Strategic alternative costs
Restructuring charges (recovery)
WTM inventory write-down recovery
Provision for (benefit from) income taxes
Adjusted EBITDA
$
257
0.1 % $
9,738
4.0 %
4,387
(331)
1,686
—
4,049
—
3,452
4,468
(165)
1,723
593
736
(155)
(8,188)
$
13,500
5.7 % $
8,750
3.6 %
_____________________________________________________
(1)
The adjustments above reconcile our GAAP financial results to the non-GAAP financial measures used by Aviat Networks. Aviat
monitors the non-GAAP financial measures included above, and our management believes they are helpful to investors because
they provide an additional tool to use in evaluating Aviat’s financial and business trends and operating results. In addition,
Aviat’s management uses these non-GAAP measures to compare Aviat’s performance to that of prior periods for trend analysis
and for budgeting and planning purposes. Our non-GAAP net income excludes share-based compensation, and other non-
recurring charges (recovery) and Adjusted EBITDA is determined by excluding depreciation and amortization on property, plant
and equipment, interest, provision for or benefit from income taxes, and non-GAAP pre-tax adjustments, as set forth above, from
the GAAP net income. 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.
200C Parker Dr. Suite 100A
Austin, Texas 78728
Notice of Annual Meeting of Stockholders for Fiscal Year 2020
To Be Held on November 11, 2020
TO THE HOLDERS OF COMMON STOCK OF AVIAT NETWORKS, INC.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders for fiscal year 2020 (the “Annual Meeting”)
of Aviat Networks, Inc. (the “Company”) will be held at 2801 Via Fortuna, Suite 100, Austin, Texas 78746, on November
11, 2020, at 12:30 p.m. Central time. For your convenience, you may either attend the Annual Meeting in-person or online
via webcast by visiting www.virtualshareholdermeeting.com/AVNW2020 and entering your 16-digit control number
included with the Notice of Internet Availability or proxy card. You will be able to vote your shares while attending the
Annual Meeting, whether in-person or online, for the following purposes:
1. To elect six directors to serve until the Company’s 2021 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 2021.
3. To hold an advisory, non-binding vote to approve the Company’s named executive officer compensation (“Say-on-
Pay”).
4. To approve the Amended and Restated Tax Benefit Preservation Plan (the “Tax Benefit Preservation Plan”) dated as
of August 27, 2020, by and between the Company and Computershare Inc., as Rights Agent.
5. 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 15, 2020, are entitled to notice of and to vote at
the Annual Meeting or any adjournment, postponement or other delay thereof.
We are monitoring developments regarding the novel coronavirus (“COVID-19”) and preparing in the event any
changes for our Annual Meeting are necessary or appropriate. If we decide to make any change, such as to the date or
location or to hold the meeting solely online via webcast, we will announce the change in advance by issuing a press release
which will be filed with the Securities and Exchange Commission (“SEC”) and by posting details, including instructions on
how stockholders can participate, on our website at https://investors.aviatnetworks.com/. We also recommend that you visit
our website to confirm the status of the Annual Meeting before planning to attend in-person.
Whether or not you expect to attend the Annual Meeting in-person or online, we urge you to submit a proxy to vote
your shares. This will help ensure the presence of a quorum at the Annual Meeting.
September 25, 2020
By Order of the Board of Directors
/s/ Peter A. Smith
President and Chief Executive Officer
Important Notice Regarding the Availability of Proxy Materials
for the Stockholder Meeting to Be Held on November 11, 2020
This Proxy Statement for the 2020 Annual Meeting of Stockholders and
our Annual Report to Stockholders for the Fiscal Year Ended July 3, 2020 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.
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? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
What happens if a director does not receive a sufficient number of votes? . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 2021 Annual
Meeting? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Who will count the votes? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CORPORATE GOVERNANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Director Selection Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 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 2020 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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TABLE OF CONTENTS
(continued)
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Considerations in Our Compensation Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity Compensation Plan Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Potential Payments Upon Termination or Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CEO Pay Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL NO. 1: ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Director Nominees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL NO. 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL NO. 3: ADVISORY, NON-BINDING VOTE ON NAMED EXECUTIVE OFFICER
COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL NO. 4: APPROVAL OF THE TAX BENEFIT PRESERVATION PLAN . . . . . . . . . . . . . . . . . . . . . .
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 Annual Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Form 10-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Annex A Tax Benefit Preservation Plan
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AVIAT NETWORKS, INC.
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 11, 2020
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
Annual Meeting of Stockholders for fiscal year 2020 and any adjournment, postponement or other delay thereof (the “Annual
Meeting”), to be held at 12:30 p.m., local time, on November 11, 2020. The Annual Meeting will be held at 2801 Via
Fortuna, Suite 100, Austin, Texas 78746. The telephone number is (408) 941-7100. You may also attend the meeting online
via webcast, at www.virtualshareholdermeeting.com/AVNW2020. Stockholders attending the meeting online via webcast
will be able to submit questions and vote their shares live at the meeting. These proxy materials are being made available on
or about September 28, 2020, 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 15, 2020,
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 2021; (iii) on an advisory, non-binding resolution to approve the Company’s
named executive officer compensation (“Say-on-Pay”); (iv) to approve the Company’s Tax Benefit Preservation Plan; and (v)
to transact such other business as may properly come before the Annual Meeting or any adjournment or postponement or
other delay thereof.
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 15, 2020 (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 5,423,007 shares of our common stock outstanding.
Who may attend the Annual Meeting?
All stockholders as of the Record Date, or their duly appointed proxies, may attend the Annual Meeting subject to
space availability for in-person attendance. Because seating is limited, admission in-person for the Annual Meeting will be on
a first-come, first-served basis. Stockholders will be able to participate in the Annual Meeting online via webcast by visiting
www.virtualshareholdermeeting.com/AVNW2020 and entering the 16-digit control number included in your notice of
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Internet availability of the proxy materials, or on your proxy card or in the instructions that accompanied your proxy
materials.
The Annual Meeting will begin promptly at 12:30 p.m. Central time. Online check-in will be available beginning at
12:15 p.m. Central time. Please allow ample time for online check-in procedures. If you encounter any difficulties accessing
the webcast Annual Meeting during login or in the course of the meeting, please contact the phone number found on the login
page at www.virtualshareholdermeeting.com/AVNW2020.
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 in-person, 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 attending the Annual Meeting in-person 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) 941-7100 for directions to the Annual Meeting.
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 in-person, you may vote in-person by ballot, even if you
have previously returned a proxy card. You may attend the Annual Meeting, vote, and submit a question during the
Annual Meeting online by visiting www.virtualshareholdermeeting.com/AVNW2020 and using your 16-digit
control number to enter the meeting.
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. If you hold shares in a “street
name” or other holder of record holding and wish to attend the Annual Meeting online, you may be required to provide proof
of beneficial ownership, such as your most recent account statement as of the Record Date, a copy of the voting instruction
form provided by your broker, bank, trustee, or nominee, or other similar evidence of ownership. If you do not comply with
the procedures outlined above, you will not be admitted to the online 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 SEC 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 entitled to vote at the Annual Meeting 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 of record may request delivery of proxy materials in printed form by mail or
electronically by email on an ongoing basis. Please note that, while our proxy materials are available at the website
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referenced in the Notice of Internet Availability and on our website, no other information contained on either website is
incorporated by reference into or considered to be a part of this document.
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 3, 2020 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, and Peter Smith, Director, President and Chief Executive Officer (“CEO”).
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, at 200 Parker Drive, Suite C100A, Austin,
TX 78728;
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
attending the Annual Meeting and voting in-person or online 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 a majority of the voting power 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 a majority of the voting power 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 the Company’s Tax Benefit Preservation Plan): the affirmative vote by the holders
of a majority of the voting power of the common stock present in-person or represented by proxy at the Annual
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Meeting and entitled to vote on the proposal is necessary for approval of Proposal No. 4. The Board
recommends a vote “FOR” Proposal No. 4.
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, virtually through the webcast, 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.
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. 4, 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.
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 2021 Annual Meeting?
For stockholder proposals that are not intended to be included in next year’s proxy statement and for director
nominations that are intended to be included in next year’s proxy statement, a stockholder of record must submit a written
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notice thereof, which notice must be received by our Corporate Secretary at our principal executive offices not earlier than
August 13, 2021, or later than September 12, 2021. The full requirements for the submission of nominations of directors and
proposals of business not intended to be included in the Company’s proxy 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 May 28, 2021.
In accordance with the rules of the SEC, the proxies solicited by the Board for the 2021 Annual Meeting will confer
discretionary authority on the proxy holders to vote on any director nomination or stockholder proposal properly presented at
the 2021 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 Conduct, Corporate Governance Guidelines
and written charters for the Governance and Nominating Committee, Audit Committee and Compensation Committee which
are available in the Governance subsection of the Investor page of our website at https://aviatnetworks.com. 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 six. Our Bylaws require that the Board have a minimum of three
directors. Directors are nominated by the Governance and Nominating Committee of the Board. To further continue our
commitment to Board diversity, the Board elected Dahlia Loeb on May 19, 2020.
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.
Name
Title and Positions
John Mutch Director, Chairman of the Board
Kenneth Kong
Director
Dahlia Loeb
John J. Quicke
Peter Smith
Dr. James C. Stoffel
Director
Director
Director, President and Chief Executive Officer
Director
The Board has determined that each of our current directors other than Mr. Smith has no relationship that would
interfere with the exercise of independent judgment in carrying out the responsibilities of a director and is otherwise
5
independent in accordance with listing rules of the NASDAQ Stock Market (the “NASDAQ Listing Rules”). Our
independent directors regularly meet in executive session without members of management present.
All of our directors are requested to attend our annual meetings of stockholders. Four of our six directors,
representing all of our current directors who were directors at the time of the 2019 Annual Meeting, attended our 2019
Annual Meeting either in-person or via telephone.
Director Selection Process
The Governance and Nominating Committee is responsible for leading the search for qualified individuals for
election as directors to ensure the Board has an optimal mix of skills, expertise and diversity of background. The Governance
and Nominating Committee recommends candidates to the full Board for election. Any formal invitation to a director
candidate is authorized by the full Board. The Governance and Nominating Committee identifies candidates through a variety
of means, including recommendations from members of the Board, suggestions from Company management and, from time
to time, a third-party search firm. The Governance and Nominating Committee also considers candidates recommended by
stockholders. Stockholders wishing to recommend director candidates for consideration by the Governance and Nominating
Committee may do so by writing to the Secretary of the Company, giving the recommended candidate’s name, biographical
data and qualifications.
Recently Appointed Directors
Dahlia Loeb was recommended to the Governance and Nominating Committee through a Board member. Ms. Loeb
brings over two decades of investment and capital markets experience, and a wealth of knowledge of both public and private
companies in a wide range of industries, including telecommunications, communications infrastructure, wireless and tech-
enabled services.
Peter Smith was recommended to the Board by the Company after joining the Company as President and CEO. Mr.
Smith has more than 25 years of leadership experience in business management and a proven track record of creating value
for companies.
Board and Committee Meetings and Attendance
In fiscal year 2020, the Board held eleven meetings. Each of the Board members attended 100% of the Board
meetings and 100% of the total number of meetings of the committee or committees on which the member served, in each
case, with respect to Board and committee meetings that took place while such director was a member of the Board.
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. Each director shall have the ability
to apply good business judgement and must be able to exercise his or her duties of loyalty and care. Candidates for the
position of director should exhibit proven leadership capabilities, high integrity, exercise high level responsibilities within
their chosen careers, and have an ability to quickly grasp complex principles of business, finance, international transactions,
and communication technologies. 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.
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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 64, currently serves as Chairman of the Board and has served on the Board since January 2015.
He 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, from 2007 to 2016. 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 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. From April 2017 to May 2019, Mr. Mutch served as a director at
Maxwell Technologies, Inc., a manufacturer of energy storage and power delivery solutions for automotive, heavy
transportation, renewable energy, backup power, wireless communications and industrial and consumer electronics
applications. From July 2017 to March 2018, he served as a director at YuMe, Inc., a provider of digital video brand
advertising solutions, at which time YuMe was acquired by RhythmOne plc, a technology-enabled digital media company,
and Mr. Mutch continued serving as a director on the RhythmOne board until January 2019.
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.
Dahlia Loeb, age 47, was appointed to the Board in May 2020. Ms. Loeb has been a managing director of Arcadia
Investment Partners ("Arcadia"), an investment firm since May 2016. Ms. Loeb is responsible for evaluating and overseeing
investments across Arcadia's private equity, alternative fixed income, and real estate holdings. She has also been a managing
partner at Reveille Capital Management, an investment firm, since February 2008, where she is responsible for overseeing
investments across public equity, private equity, and venture capital. Before Arcadia, Ms. Loeb was a portfolio manager at
Arrowgrass Capital Partners LLP, a hedge fund sponsor, and was a managing director and portfolio manager at Intrepid
Capital Management, a hedge fund sponsor. She holds a B.A. in Economics from Harvard College and an M.B.A. from
Harvard Business School.
Ms. Loeb brings over two decades of investment and capital markets knowledge, and a wealth of experience with
both public and private companies in a wide range of industries, including telecommunications, communications
infrastructure, wireless and tech-enabled services.
Mr. Kenneth Kong, age 46, has served as a member of the Board since November 2016. He is a Senior Vice
President at Steel Services, Ltd. (“Steel Services”), a management and advisory company that provides management services
to Steel Partners Holdings, L.P. and its affiliates. As an investment professional at Steel Services, 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 Services focused on deal sourcing, due diligence and analysis. Since joining the firm
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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 People’s Republic of China. Mr. Kong currently serves as a of
Trustee BNS Holding Liquidating Trust, Inc. since 2012, and served as a director of Ore Holdings, Inc. from October 2010 to
August 2017. 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. John J. Quicke, age 71, has served as a member of the Board since January 2015. Mr. Quicke served as a
director of Rowan Companies, plc, an offshore contract drilling company, from January 2009 to March 2019. From January
2016 to May 2019, he served as a consultant, and as Chairman of Steel Energy Services LTD, a subsidiary of Steel Partners
Holdings, L.P. 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. 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 Holdings Corp. 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.
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.
Mr. Peter Smith, age 54, has been our President and CEO since January 2020 and a member of the Board since
February 2020. Mr. Smith has more than 25 years of leadership experience in business management and a proven track
record of creating value for companies. He most recently served as Senior Vice President, US Windows and Canada for Jeld-
Wen from March 2017 to December 2019, where he had full profit and loss responsibility for Jeld-Wen’s $1B+ windows
business, implementing lean manufacturing principles and strategic development programs to deliver growth and improved
profitability. Prior to Jeld-Wen, from October 2013 to March 2017, he served as President of Polypore International’s
Transportation and Industrial segment and oversaw transformative initiatives that helped prepare the former public company
for sale to the Asahi Kasei Group. Previously, he served as Chief Executive Officer and a director of Voltaix Inc., until its
sale to Air Liquide.
Earlier in his career, Mr. Smith held various executive leadership positions at Fortune 100 and Fortune 500
companies, including Cooper Industries, Dover Knowles Electronics and Honeywell Specialty Materials. In these roles, his
responsibilities ran the gamut of operations, sales and marketing, business development, and mergers and acquisitions. Mr.
Smith also served on the board of Soleras Advanced Coatings from 2015 to 2018. He has both a Bachelor of Science degree
in Material (Ceramics) Engineering and PhD in Material Science and Engineering from Rutgers University, and holds a
Master of Business Administration degree from Arizona State University.
Dr. James C. Stoffel, age 74, has served as a member of the Board since January 2007 and was the lead independent
director for Aviat from July 2010 to February 2015. In addition, Dr. Stoffel currently serves on the board of directors of PAR
Technology Corporation, a NYSE listed company which provides software as a service (SaaS) and related solutions to the
hospitality industry. He has been on the PAR board of directors since November 2017 and is currently the Lead Independent
Director of PAR and chairman of the Compensation Committee. Since June 1, 2020, Dr. Stoffel has served as a director on
the board of EZAccess MD. Dr. Stoffel retired from the board of directors of Harris Corporation in October 2018, having
served since August 2003. He also retired in December 2018 from Trillium International, LLC, a private equity company,
where he served as co-founding General Partner since 2006. He continues to be an advisor to multiple private equity firms.
Prior to his private equity work, 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
8
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’s prior service as a senior executive of large, publicly traded, technology driven companies and his more
than 30 years of 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
our CEO to focus on the management of the Company’s day-to-day operations.
The Board’s Role in Risk Oversight
Assessing and managing risk is the responsibility of the management of the Company. The Board’s oversight of
major risks occurs at both the full Board level and at the Board committee level. The Board 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. Management is responsible for establishing the Company’s business strategy, identifying and assessing
the related risks and implementing appropriate risk management practices. 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.
In addition, each of our Board committees also oversees the management of risks that fall within the committee’s
areas of responsibility. In performing this function, each committee has full access to management, as well as the ability to
engage advisors. The Audit Committee oversees the Company’s compliance with legal and regulatory requirements. The
Governance and Nominating Committee assists the Board in shaping the corporate governance of the Company. The
Compensation Committee oversees the management of risks relating to the Company’s executive compensation plans and
incentive structure.
9
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.
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.
10
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 Insider
Trading Policy directors and executive officers are prohibited from short sales of Aviat securities, entering into puts, calls or
other derivative securities, 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. An exception to this prohibition may be
granted where a person wishes to pledge Company securities as collateral for a loan (not including margin debt) and clearly
demonstrates the financial capacity to repay the loan without resort to the pledged securities. Insiders 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.
11
Board Committees
The Board maintains an Audit Committee, a Compensation Committee and a Governance and Nominating
Committee as its regular committees. Copies of the charters for the Audit Committee, the Compensation Committee and the
Governance and Nominating Committee are available on our website at https://investors.aviatnetworks.com/corporate-
governance/documents-charters.
The following table shows, at the conclusion of fiscal year 2020, the Chairman and members of each committee, the
number of committee meetings held, and the principal functions performed by each committee as described in such
committee’s charter:
Committee
Audit
Number of
Meetings in
Fiscal 2020
5
Members
John Mutch*
John J. Quicke
Dr. James C. Stoffel
Compensation
7
Dr. James C. Stoffel*
John J. Quicke
Kenneth Kong
Dahlia Loeb
Governance and
Nominating
5
John J. Quicke*
Dr. James C. Stoffel
John Mutch
_____________________
* Chairman of Committee
•
•
•
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 independent registered public accounting
firm’s and management’s assessment of the adequacy
of financial reporting and operating controls
• Monitors corporate compliance program
Reviews the process by which management identifies
and mitigates key areas of risk
Reviews our executive compensation policies and
strategies
Oversees and evaluates our overall compensation
structure and programs
Reviews and oversees management’s continuity
planning processes
Develops and implements policies and practices
relating to corporate governance
Reviews and monitors implementation of our
governance policies and procedures
Establish, implement, and monitor the processes for (a)
effective communication with stockholders and (b)
consideration of stockholder proposals
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
•
•
•
•
•
•
•
•
•
•
12
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 2020. During fiscal year 2020, 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 Mr. Mutch and Mr. Quicke qualify as “audit committee financial experts,” as defined
under Item 407(d)(5)(i) of Regulation S-K under the Securities Act of 1933 and the Exchange Act and that Mr. Mutch and
Mr. Quicke are independent under Nasdaq listing standards and Rule 10A-3(b)(1) of 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.
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 2020, the Compensation Committee utilized Pearl
Meyer & Partners, LLC (“Pearl Meyer”) as an independent, third-party consulting firm.
Compensation Committee Interlocks 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. For a
description of transactions between us and members of our Compensation Committee and affiliates of such members, please
see “Transactions with Related Persons.”
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 establishes,
implements, and monitors the processes for (a) effective communication with stockholders and (b) consideration of
stockholder proposals.
The Governance and Nominating Committee also recommends candidates to the Board and periodically reviews
whether a more formal selection policy should be adopted. The Governance and Nominating Committee does not have a
specific policy with regard to the consideration of any director candidates recommended by security holders, and 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.
13
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.
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 https://investors.aviatnetworks.com/investor-resources/contact-us or by sending a letter addressed to:
Aviat Networks, Inc., c/o Corporate Secretary, 200 Parker Drive, Suite C100A, Austin, TX 78728. 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 and as amended July 1, 2020. All of our
employees, including the CEO and CFO, 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 Company 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 2020, 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,” other than a third party software solution with a value of $173,000 over two years purchased
through a 10% shareholder in order to receive preferential pricing.
The Company does not have a formal written policy with respect to the review, approval, or ratification of
transactions with related persons, but has established procedures to identify these transactions, if any, and bring them to the
attention of the Board for consideration. These procedures include a quarterly assessment in connection with our quarterly
financial risk assessments. The Board considers the following regulatory guidance: (i) Item 404(a) of Regulation S-K of the
Securities Act of 1933, as amended (Transactions with Related Persons); (ii) Accounting Standards Codification Topic 850
(Related Party Disclosures); (iii) Public Company Accounting Oversight Board Auditing Standard No. 18 (Related Parties);
and (iv) the NASDAQ’s governance standards related to independence determinations.
14
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 Board has delegated responsibility to the Compensation Committee to determine the form and amount of
director compensation, which 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 2020:
•
•
•
•
•
•
$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;
$20,000 annual cash retainer, payable on a quarterly basis, for service as Chairman of the Audit Committee;
$10,000 annual cash retainer, payable on a quarterly basis, for service as Chairman of the Governance and
Nominating Committee;
$15,000 annual cash retainer, payable on a quarterly basis, for service as Chairman of the Compensation
Committee; and
Annual grant of restricted stock units (“RSUs”) under our 2018 Incentive Plan (the “2018 Plan”) valued at
$75,000, with 100% vesting at the earlier of (1) the day before the date of the Annual Meeting, or (2) the first
anniversary of the 2019 annual stockholders’ meeting, subject to continuing service as a director through such
earlier date.
As a result of the COVID-19 pandemic, in the fourth quarter of fiscal year 2020, the Board approved a one-time
25% reduction of the cash retainers payable to the non-employee directors for their service during the fourth quarter of fiscal
year 2020, including any additional cash retainers payable to the Chairman of the Board and to non-employee directors for
their service as committee chairs during such quarter. The Board approved these reductions after reviewing market data and
receiving advice from its independent compensation consultant, Pearl Meyer, regarding reductions in director compensation
as a result of current market conditions due to the COVID-19 pandemic.
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.
As adopted by the Company’s Board of Directors in November 2019, members of the Board shall achieve
ownership of three times (3x) such director’s annual cash retainer (exclusive of chairperson or committee fees). A director is
required to achieve compliance with the foregoing ownership requirement by the later of (a) five years from the date of
adoption of the guidelines, or (b) five years from the start of such director’s directorship with the Company. All vested RSUs
or Company shares purchased by a director in the open market shall be counted toward a director’s ownership requirement.
15
Fiscal Year 2020 Compensation of Non-Employee Directors
Our non-employee directors received the following aggregate amounts of compensation in respect of fiscal year
2020:
Name
Kenneth Kong
Dahlia Loeb(1)
John Mutch
John J. Quicke
Dr. James C. Stoffel
__________________
Fees Earned in Cash
($)
Stock Awards (2)
($)
Total
($)
56,250
11,250
98,438
65,625
70,313
74,483
36,285
74,483
74,483
74,483
130,733
47,535
172,921
140,108
144,796
1. Ms. Loeb was appointed by the Board as a non-employee director and a member of the Compensation Committee,
effective May 19, 2020. She received a pro-rated annual cash retainer and equity award for her service on the Board
during the fourth quarter of fiscal year 2020.
2. The amounts shown in this column reflect the aggregate grant date fair value of RSUs granted to our non-employee
directors computed in accordance with FASB ASC Topic 718, determined without regard to estimated forfeitures.
The assumptions made in determining the fair values of our stock awards and option awards are set forth in Notes 1
and 9 to our fiscal year 2020 Consolidated Financial Statements in Part II, Item 8 of our Annual Report on Form 10-
K for the fiscal year ended July 3, 2020, as filed with the SEC on August 27, 2020.
As of July 3, 2020, our non-employee directors held the following numbers of unvested RSUs, all of which were
granted under the 2018 Plan:
Name
Kenneth Kong
Dahlia Loeb
John Mutch
John J. Quicke
Dr. James C. Stoffel
Unvested Stock
Awards
5,293
2,460
5,293
5,293
5,293
16
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.
In addition, the Company has entered into indemnification agreement with each director and officer.
17
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 15, 2020 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., 200 Parker Drive. Suite C100A. Austin, TX 78728. As of
September 15, 2020, there were 5,423,007 shares of our common stock outstanding.
Name and Address of Beneficial Owner
Common
Shares
Currently
Held(1)
Common Shares That May
Be Acquired Within 60
Days of the Record Date(2)
Total
Beneficial
Ownership
Percentage
Beneficially
Owned
Steel Partners Holdings L.P
670,240
590 Madison Avenue, 32nd Floor
New York, NY
Kennedy Capital Management, Inc
528,238
10829 Olive Blvd.,
St. Louis, MO 63141
Thomas A. Satterfield, Jr.
2609 Caldwell Mill Lane, Birmingham,
Alabama 35243
Renaissance Technologies
800 Third Avenue
New York, New York 10022
Named Executive Officers and Directors
John J. Quicke.
Dr. James C. Stoffel
John Mutch .
Kenneth Kong
Dahlia Loeb
Peter Smith
Eric Chang
Michael Pangia
Walter Stanley Gallagher, Jr.
Shaun McFall
All directors, nominee for director and
executive officers as a group (10 persons)
__________________________
* Less than one percent
361,474
291,085
35,230
29,947
26,896
12,125
—
—
8,478
—
3,394
29,135
(3)
(4)
(5)
(6)
670,240
12.4 %
528,238
9.7 %
361,474
6.7 %
291,085
5.4 %
5,293
8,326
5,293
5,293
2,460
—
4,894
—
14,541
9,219
40,523
38,273
32,189
17,418
2,460
—
13,372
—
17,935
38,354
*
*
*
*
*
*
*
*
*
*
145,205
55,319
200,524
3.7 %
(1)
(2)
Beneficial ownership is determined under the rules and regulations of the SEC, and generally includes voting or
dispositive power with respect to such shares.
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
18
shares of common stock that such person has the right to acquire within 60 days of September 15, 2020 by the
exercise of stock options or vesting of restricted stock units.
(3)
(4)
(5)
(6)
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. 1 to Schedule 13G, filed with the SEC on February 14, 2020 by
Kennedy Capital Management, Inc. Kennedy Capital Management, Inc. reported sole voting power and sole
dispositive power with respect to all 528,238 shares.
Based solely on a review of Amendment No. 1 to Schedule 13G, filed with the SEC on February 13, 2020, by
Thomas A. Satterfield, Jr. Thomas A. Satterfield, Jr. reported shared voting power and shared dispositive power with
respect to 361,474 shares and reported sole voting power and sole dispositive power with respect to 20,000 shares.
Based solely on a review of Amendment No. 2 to Schedule 13G, filed with the SEC on February 13, 2020, by
Renaissance Technologies LLC. Renaissance Technologies LLC reported sole voting power and sole dispositive
power with respect to all 291,085 shares.
19
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
For fiscal year 2020, the Audit Committee consisted of three 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 (“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 3, 2020 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 the applicable requirements of the Public Company
Accounting Oversight Board (“PCAOB”) and the SEC. 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 3, 2020 be included in Company’s Annual Report on Form 10-K.
Audit Committee of the Board of Directors
John Mutch, Chairman
John J. Quicke
Dr. James C. Stoffel
20
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEES
BDO was our independent registered public accounting firm for the fiscal years ended July 3, 2020 and June 28,
2019. 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
Total Fees for Services Provided
________________________
Fiscal Year 2020(1)
$
1,071,000 $
Fiscal Year 2019(1)
1,219,000
—
5,000
—
122,000
79,000
—
$
1,076,000 $
1,420,000
(1)
(2)
(3)
(4)
Includes fees to be billed to us by BDO and BDO’s international affiliates for fiscal 2020 and 2019 financial
statement audits, quarterly reviews and statutory audits.
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.
Audit-Related fees consisted primarily of financial due diligence services.
Tax fees were for services related to tax compliance and tax planning services.
BDO did not perform any professional services related to financial information systems design and implementation
for us in fiscal year 2020 or fiscal year 2019.
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.
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 years 2020 and 2019, 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.
21
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 awarded to, earned by, or paid to each of our named executive officers (our
“named executive officers”) during fiscal 2020 (defined as June 29, 2019 – July 3, 2020) as detailed in the Summary
Compensation Table below and in the other tables and narrative discussion that follow.
Named Executive Officer
Position
Peter A. Smith
Eric Chang
Michael Pangia
Walter Stanley Gallagher, Jr
Director, President and Chief Executive Officer
Senior Vice President and Chief Financial Officer
Former President and Chief Executive Officer
Former Senior Vice President, Chief Operating Officer and Principal Financial
Officer and former Interim President and Chief Executive Officer
Shaun McFall
Former Senior Vice President and Chief Marketing and Strategy Officer
Over the past year our Company has gone through certain leadership changes. Mr. Pangia, our Chief Executive
Officer (“CEO”) at the beginning of the 2020 fiscal year, stepped down on September 18, 2019, and Mr. Gallagher was
appointed Interim President and CEO to serve in that role while the Company conducted a search for a new CEO. During that
time, Mr. Gallagher continued to serve as our Senior Vice President, Chief Operating Officer and Principal Financial Officer.
Mr. Chang was promoted in September 2019 to Senior Vice President. On January 2, 2020, the Company appointed Peter
Smith as President and CEO and Mr. Gallagher transitioned back to serving only as the Senior Vice President, Chief
Operating Officer and Principal Financial Officer. On April 3, 2020, Mr. Gallagher resigned from his role as Senior Vice
President, Chief Operating Officer and Principal Financial Officer, and Mr. Chang was appointed Senior Vice President and
Chief Financial Officer effective as of such date. On July 3, 2020, Mr. McFall resigned from his role as the Senior Vice
President and Chief Marketing and Strategy Officer.
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 compensation and other benefits, our named executive officers’ compensation opportunity is
weighted toward 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. We believe that our emphasis
on long term stockholder value creation results in an executive compensation program structure that is
beneficial to our Company and our stockholders.
The Compensation Committee is made up of independent, non-employee members of the Board and oversees
the executive compensation program for our named executive officers. The Compensation Committee works
closely with its independent compensation consultant and management to evaluate the effectiveness of the
Company’s executive compensation program throughout the year. The Compensation Committee’s specific
responsibilities are set forth in its charter, which can be found on the Company’s website at http://
investors.aviatnetworks.com/committee-details/compensation-committee. In reviewing the elements of our
executive compensation program - base salary, annual cash incentives, long-term incentives and post-
termination compensation - our Compensation Committee reviews market data from similar companies.
22
•
•
•
Our competitive positioning philosophy is to set compensation fairly, as compared to the compensation of our
peer group companies, with allowances for internal factors such as tenure, individual performance, the nature of
the relative scope and complexity of the role and tenure.
Our annual incentive program is based on specific Company financial performance goals for the fiscal year and
includes provisions to “clawback” any excess amounts paid in the event of a later correction or restatement of
our financial statements.
As a result of the novel coronavirus disease (“COVID-19”) pandemic, the Company implemented certain
compensation adjustments as part of an overall plan to protect its cash flow. These adjustments, which impacted
the named executive officers, included a one-time, five-day furlough, and a temporary suspension of the
Company’s matching program for the U.S. 401(k) plan during the fourth quarter of fiscal 2020. The U.S. 401(k)
matching program was reinstated in July 2020 following the end of fiscal year 2020.
• We believe 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 2020.
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 2020, 100% of the annual bonuses granted pursuant to the Annual
Incentive Plan (the “AIP”) were performance-based and at-risk, subject to the Company’s achievement of
certain financial objectives. Under the 2018 Plan, one-third of the equity awards granted to the executives
during fiscal year 2020 were performance share units (“PSUs”), the vesting of which is subject to the
Company’s achievement of certain financial objectives.
• Mix of short-term and long-term compensation: Short-term compensation for our named executive officers
is comprised of base salaries and bonuses payable pursuant to the AIP, which pays out only to the extent that the
Company meets its financial targets. Long-term compensation comprised of PSUs (one-third), stock options
(one-third) and time-based RSUs (one-third) was granted under our 2018 Plan during fiscal year 2020. PSUs are
earned at the end of a three-year performance period based upon the Company’s achievement of certain
performance criteria put in place for each fiscal year within the applicable performance period. Stock options
and RSUs granted in fiscal year 2020 cliff vest three years from the date of grant.
•
•
•
•
•
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 and practices.
Prohibition on hedging and pledging: Our named 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 named executive officers are not provided any perquisites or special benefits other than
our occasional provision of relocation expense reimbursement.
No single trigger change of control acceleration: Change of control arrangements in our employment
agreements include “double trigger” vesting provisions providing for acceleration of vesting of outstanding
unvested equity awards only in the event that both a change of control occurs, and the named executive officer’s
employment terminates thereafter for reasons specified in the employment agreements.
No tax gross-ups: We do not provide gross-up payments to cover our named executive officers’ personal
income taxes that may pertain to any of the compensation or benefits paid or provided by the Company.
23
•
•
Clawback: We have a clawback policy that entitles us to recover all or a portion of any performance-based
compensation, including cash and equity components, for any excess amounts paid in the event of a later
correction or misstatement of our financial statements, omissions or fraud.
Compensation risk management: The Compensation Committee reviews and analyzes the risk profile of our
compensation programs and practices on an annual basis.
Compensation Philosophy and Objectives
The primary objectives of our total executive compensation program are to use compensation as a tool to recruit and
retain outstanding executives and incentivize them to create longer-term value for our stockholders. 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.
Each year, the Compensation Committee reviews the executive compensation program to ensure its design and
policies remain appropriately aligned with our evolving business needs and to consider best compensation practices. Our
executive compensation program is also reviewed to ensure that it achieves a balance between providing meaningful retention
and performance incentives to our executives while managing 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 in
a manner consistent with our compensation objectives and principles. The Compensation Committee 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 named executive officers other than our CEO. The independent members of
the full Board approve the compensation level, individual AIP objectives, and financial targets for our CEO, based on
recommendations from the Compensation Committee. The Compensation Committee also monitors executive succession
planning and monitors our performance as it relates to overall compensation policies for employees, including benefit 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 named
executive officers. Following each fiscal year end, our CEO, assisted by our Human Resources Department, assesses the
performance of all executives other than the CEO. Following this annual performance review process, our CEO recommends
base salary and incentive awards for executives (other than himself) to the Compensation Committee. The CEO, with the help
of management and the independent consultant, makes recommendations to the Compensation Committee regarding the plan
design of the overall executive compensation program for review, discussion and approval. The Compensation Committee is
also responsible for developing pay recommendations for the CEO and in securing the full Board’s approval of these
recommendations annually.
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 for assistance. 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 named executive officers. All
services that Pearl Meyer provided to Aviat in fiscal year 2020 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 Aviat’s compensation peer groups and provides independent input
to the Compensation Committee on programs and practices.
24
Compensation Committee Advisor Independence
The Compensation Committee has considered the independence of Pearl Meyer pursuant to NASDAQ Listing Rules
and related SEC rules 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, Vinson &
Elkins LLP (“V&E”) and Olshan Frome Wolosky LLP (“Olshan”). We appointed V&E as our primary outside counsel and
terminated Olshan in April 2020. Pursuant to the NASDAQ Listing Rules and related SEC rules, the Compensation
Committee has found no conflict of interest in V&E continuing to provide advice to the Compensation Committee. The
Compensation Committee reassesses the independence of its advisors annually.
Consideration of Say on Pay Results
Each year at our annual meeting, we conduct an advisory vote of our stockholders on our executive compensation
program. Although this vote is 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 evaluates whether any actions are warranted or appropriate.
At our 2019 Annual Meeting, 95% 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 and considered 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 named 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 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 management and Compensation Committee consider external data provided by Pearl Meyer to assist in
benchmarking total target compensation. Our compensation policies and practices are to target total compensation levels for
all officers, including our named executive officers, at competitive levels 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 of the market data for similar positions in unique
circumstances based on an individual’s background, experience, and relative complexity and scope of the applicable role.
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 way total direct compensation opportunity is determined for any of our named executive officers.
For fiscal year 2020, targets for total cash and cash-based compensation (base salary and short-term incentive
compensation pursuant to the AIP), long-term incentives and total direct compensation (base salary, and short- and long-term
incentive compensation) for our named executive officers were set based on data collected by Pearl Meyer from our proxy
peer group companies and from a proprietary survey source, using results for technology companies with annual revenues
between $200 million and $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.
For fiscal year 2020, our peer group companies included:
25
ADTRAN, Inc.
Bel Fuse, Inc.
Casa Systems, Inc.
Applied Optoelectronics, Inc.
Calix, Inc.
Clearfield, Inc.
Comtech Telecommunications Corp.
DASAN Zhone Solutions, Inc.
Digi International, Inc.
Harmonic, Inc.
Park Aerospace Corp.
EMCORE Corp.
Inseego Corp.
PCTEL, Inc.
Ribbon Communications, Inc.
Richardson Electronics, Ltd.
Each year, the Compensation Committee and Pearl Meyer review the appropriateness of the comparison group used
for assessing the compensation of our CEO and other named executive officers. For fiscal year 2020, we removed five
companies (Aerohive Inc., CalAmp Corp., Cohu Inc., KVH Industries, Inc. and NeoPhotonics Corp.) and added eight
companies (ADTRAN, Inc., Applied Optoelectronics, Inc., Casa Systems, Inc., Clearfield, Inc., DASAN Zhone Solutions,
Inc., Park Aerospace Corp., Ribbon Communications Inc., and Richardson Electronics, Ltd.) to position peer median revenue
and market capitalization more closely to that of our 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 compensation pursuant to the AIP
long-term compensation (equity incentives)
post-termination compensation
Each named executive officer’s performance is measured against factors such as short- and long-term strategic goals
and financial measures of our performance, including factors such as revenue, non-GAAP net income and adjusted earnings
before interest, taxes, depreciation and amortization, AIP expense and other non-GAAP items (“Gross Adjusted EBITDA”).
Base Salary
Base salaries are provided as compensation for day-to-day responsibilities and services. Executive salaries are
reviewed annually. Our CEO generally makes recommendations to the Compensation Committee in August of each year
regarding the base salary of each named executive officer, other than himself. The Compensation Committee considers each
named 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 2020, the CEO recommended, and the Compensation
Committee approved, that the base salaries for named executive officers be held flat at fiscal 2019 levels, except for Mr.
Gallagher, who received an increased base salary when he was appointed as the Interim President and CEO in addition to his
role as the Senior Vice President, Chief Operating Officer and Principal Financial Officer and Mr. Chang, whose base salary
was increased in connection with his promotion to Senior Vice President. The base salary amounts and additional details
concerning the compensation for our named executive officers for fiscal year 2020 are set forth in the Summary
Compensation Table below.
Annual Incentive Plan (AIP)
Our AIP is designed to motivate our executives to focus on achievement of our short-term financial goals. The CEO
reviews his recommendations for each named executive officer with the Compensation Committee, considering market data
obtained from Pearl Meyer. 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 named executive officer.
26
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 and is paid in the form of cash. For fiscal year
2020, individual AIP target incentives for our named executive officers were set at 70% of base salary for Mr. Smith and
50% for Mr. Chang, 90% for Mr. Pangia, 50% for Mr. Gallagher and 50% for Mr. McFall, in each case, prorated for the
number of days employed by the Company and salary adjustments during fiscal year 2020. Executives can earn more or less
than target if threshold or maximum performance levels are achieved. Threshold performance achievement results in a 25%
of target bonus award opportunity and maximum performance, generally, results in 120% of target award opportunity. No
incentive can be earned if the Company does not achieve the threshold performance objective for Gross Adjusted EBITDA,
even if revenue targets are met.
For fiscal year 2020, the AIP provided for an all cash payout. The performance metric was 100% based on Gross
Adjusted EBITDA, with an additional payout totaling $200,000 in the event a revenue target was achieved, with no payout
triggered if the threshold for Gross Adjusted EBITDA was not achieved. Gross Adjusted EBITDA is adjusted earnings before
interest, taxes, depreciation and amortization, AIP expense and other non-GAAP items. Revenue was calculated on a GAAP
basis. The following table outlines the threshold, target and maximum performance and payout levels approved by the
Compensation Committee for fiscal year 2020.
Fiscal Year 2020 Annual Incentive Plan - Minimum, Target and Maximum Thresholds
Fiscal Year 2020 Annual Incentive Plan
Metric
Gross Adjusted EBITDA (100% weight
before AIP Expense)
Tiers
Threshold
Target
Maximum
Results-Driven Entitlement
Performance
($)
Payout
(As % of Award Target)
$10,500,000
$14,500,000
$16,500,000
25%
100%
120%
Revenue (additional funding only if
threshold is achieved)
Threshold
$250,000,000
During fiscal year 2020, the Company experienced significant events that could have impacted achievement of the
targeted Gross Adjusted EBITDA, including a cybersecurity attack at one of the Company’s contract manufacturers that
impacted our deliveries and the COVID-19 pandemic which significantly impacted worldwide economic conditions. No
adjustments were made to the performance objectives, the target performance or the actual results for these significant events.
During the 2020 fiscal year, partially as a result of management’s swift actions to counter the aforementioned events, we
achieved target performance for the Gross Adjusted EBITDA metric, but the revenue threshold was not achieved. All named
executive officers earned a payout as shown in the Summary Compensation Table below. However, in order to assist the
Company in managing cash flow during the COVID-19 pandemic, management recommended, and the Compensation
Committee concurred, to defer 50% of the AIP cash payout until December 2020 for all named executive officers, whether or
not employed by the Company as of such date.
Long-Term Compensation - Equity Incentives
The Compensation Committee uses the 2018 Plan as a means for determining awards of stock options, RSUs, PSUs,
and other stock-based awards to our executives. Equity awards have been granted under either our 2007 Stock Equity Plan
(“2007 Plan”) or the 2018 Plan. The 2007 Plan was discontinued following stockholder approval of the 2018 Plan. As of
September 1, 2020, 463,195 shares were available for issuance under the 2018 Plan.
Our equity awards are 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 longer period. Using equity awards helps us to retain executives,
27
encourage share ownership and maintain a direct link between our executive compensation program and stockholder value
creation.
For fiscal year 2020, the named executive officers were eligible to receive equity awards. As has historically been
the Company’s practice, these equity awards were granted in September 2019 following the filing of the Annual Report on
Form 10-K using a combination of PSUs, stock options and RSUs, as follows:
Equity Vehicle
PSUs
Weighting
1/3
Purpose/Description
Three-year cliff vesting from the issuance date assuming achievement of annual non-
GAAP net income target over a three-year performance period starting fiscal year
2020 and continued employment through the vesting date in September 2022
Stock options
1/3
Strike price: Determined based on the closing stock price on the date of grant
Vesting: Three-year cliff vesting from the issuance date assuming continued
employment through the vesting date
Expiration: Seven years from date of grant if not exercised
RSUs
1/3
Three-year cliff vesting from the issuance date assuming continued employment
through the vesting date
The table below shows the equity incentive award values granted to each of the named executive officers during
fiscal year 2020:
Named Executive Officer
Peter Smith4
Eric Chang5
Michael Pangia
Walter Stanley Gallagher, Jr.
Shaun McFall
PSUs (at target)(1)
$
$
$
$
$
664,485 $
44,376 $
— $
51,211 $
54,621 $
Stock Options(2)
RSUs(3)
Total Value
— $
87,748 $
— $
52,772 $
56,289 $
— $
44,376 $
— $
51,211 $
54,621 $
664,485
176,500
—
155,194
165,531
1 The grant date fair value of the PSUs was determined under FASB ASC Topic 718 excluding the effect of estimated
forfeitures.
2 Individual award amounts were calculated based on Black-Scholes values.
3 The grant date fair value of the RSUs was determined under FASB ASC Topic 718 and was calculated using the
closing market price of our common stock on the respective grant dates.
4 Mr. Smith received a sign-on equity award of PSUs upon joining the Company on January 2, 2020. Per the terms of
his award, he received 46,500 stock awards. 18,750 of these awards will be earned if the stock price reaches $22.50
within two years of his start date and the remaining 27,750 will be earned if the stock price reaches $30.00 within
three years of his start date. The grant date fair value was determined using the Monte Carlo simulation based on the
probable outcome of achieving the performance condition.
5 Mr. Chang received a one-time additional award of stock options on May 19, 2020 valued at $42,000 in connection
with his promotion to Senior Vice President and Chief Financial Officer of the Company.
Annual performance metrics and payout levels for the three-year performance period starting fiscal year 2020 were
established at the beginning of the performance period.
28
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.
Hedging and Pledging Prohibition
Our named 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, calls, collars or other derivative
securities.
Perquisites
Our named executive officers participate in the same group insurance and employee benefit plans as our other full-
time U.S. employees. Historically we have not provided special benefits or other perquisites to our named executive officers,
but due to the move of the Company’s headquarters to Austin, Texas in fiscal year 2020, we provided Mr. Gallagher a one-
time allowance for home office needs so that he would not be required to relocate to Austin, Texas. See the Summary
Compensation Table below.
Stock Ownership Guidelines
While we do not have a minimum stock ownership requirement for our named executive officers, the Corporate
Governance Guidelines adopted by the Board encourage the ownership of our common stock.
Tax and Accounting Considerations
Tax Considerations. The Compensation Committee annually reviews and considers the deductibility of the
compensation paid to our named executive officers, which includes each of the Named Officers, under Section 162(m) of the
Internal Revenue Code. Pursuant to Section 162(m), compensation paid to certain named executive officers in excess of $1
million generally is not deductible.
As a result, compensation paid to our named executive officers in future years in excess of $1 million may not be
deductible unless it qualifies for certain transition relief. While the Company will monitor guidance and developments in this
area, the Compensation Committee believes that its primary responsibility is to provide a compensation program that attracts,
retains and rewards the executive talent necessary for our success. Consequently, the Compensation Committee may pay or
provide, and has paid or provided, compensation that is not tax deductible or is otherwise limited as to tax deductibility.
Accounting Considerations. The Compensation Committee also considers the accounting implications of various
forms of executive compensation under GAAP. 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 share-based compensation in its financial statements for equity awards.
Generally Available Benefit Programs
In fiscal year 2020, 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 insurance, employee counseling assistance, flexible spending accounts and accidental death and dismemberment
insurance.
The named executive officers and all other eligible U.S.-based employees 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% of
29
compensation contributed. Each employee under the age of 50 can contribute a maximum of $19,000 during each calendar
year, and each employee over the age of 50 can contribute a maximum of $25,000. Due to the COVID-19 pandemic, the
Company’s U.S. 401(k) plan matching program was temporarily suspended from April 6, 2020 to July 3, 2020.
The 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 under the Harris Stratex
Networks, Inc. 2010 Employee Stock Purchase Plan (our “employee stock purchase plan”). 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.
The 401(k) plan, employee stock purchase plan and the other benefits generally available to all other U.S.-based
employees 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 upon certain terminations of his or her employment. 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.
The severance payments and benefits provided to each of Messrs. Pangia, Gallagher, and McFall were determined in
accordance with each of their employment agreements. The Company did not enter into any separate severance agreement or
arrangement with such individuals. For additional information regarding our employment agreements with our named
executive officers, see the discussion under “Potential Payments Upon Termination or Change of Control.”
Actions Taken Following 2020 Fiscal Year End
In connection with Mr. Chang’s April 3, 2020 promotion from Senior Vice President, Corporate Controller and
Principal Accounting Officer to Senior Vice President and Chief Financial Officer, the Company entered into an amendment
to Mr. Chang’s employment agreement effective as of such date (the “Chang Amendment”). The Chang Amendment
provided for an increase to Mr. Chang’s annualized base salary from $280,000 to $300,000, effective July 4, 2020.
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 in the Company’s
annual report on Form 10-K for the fiscal year ended July 3, 2020.
Compensation Committee of the Board of Directors
Dr. James C. Stoffel, Chairman
Kenneth Kong
Dahlia Loeb
John J. Quicke
Risk Considerations in Our Compensation Program
The Compensation Committee, pursuant to its charter, is responsible for reviewing and overseeing the compensation
and benefits structure applicable to our employees, generally. We believe that our compensation policies and practices for our
30
employees are structured in such a way as to discourage excessive risk-taking and do not create 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.
Our Compensation Committee is responsible for managing the administration, determination and approval of
total and, in the case of the named executive officers, individual approval of payouts under the incentive plans.
The incentive elements of our compensation program (annual incentives and multi-year equity awards) are
designed to reward both annual performance (under the AIP) and longer-term performance (under the 2018
Plan). We believe this design mitigates any incentive for short-term risk-taking that could be detrimental to our
company’s long-term best interests.
The performance periods for our PSUs overlap, and our time-vested RSUs generally cliff vest after three years.
This mitigates the motivation to maximize performance in any one period at the expense of others.
• Maximum payouts under our AIP are currently capped at 120% of the target award opportunity set by the
Compensation Committee. We believe these limits mitigate excessive risk-taking, since the maximum amount
that can be earned is limited.
•
Finally, our AIP and our 2018 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 downward.
•
The Compensation Committee retains an independent compensation consultant.
31
Summary Compensation Table
The following table summarizes the total compensation for each of our fiscal years ended July 3, 2020, June 28,
2019 and June 29, 2018 of our named executive officers, who for fiscal year 2020 consisted of all individuals who served as
our principal executive officer and our principal financial officer during fiscal year 2020 and Mr. McFall, who was our only
other executive officer during fiscal year 2020.
Fiscal
Year
Salary(6) Bonus(7)
($)
($)
Stock
Awards(8)
($)
Option
Awards(9)
($)
Non-Equity
Incentive Plan
Compensation
(10)
($)
All Other
Compensatio
n(11)
($)
Total
($)
2020
187,692
—
664,485
—
138,113
3,996
994,286
2020
2019
2018
2020
2019
2018
2020
2019
2018
2020
2019
2018
270,231
260,000
240,000
120,577
550,000
550,000
—
—
—
—
—
—
88,752
65,344
87,748
65,591
—
—
—
—
259,150
260,165
—
258,269
29,148
102,422
300,000
5,769
320,000
320,000
320,000
—
—
—
—
—
78,534
81,250
109,242
83,767
—
—
52,772
78,841
—
56,289
84,095
—
137,736
—
41,426
109,407
—
237,338
127,804
—
—
160,000
—
89,757
5,929
8,148
7,267
590,396
399,083
288,693
480,304
710,288
3,613
1,072,928
3,380
137,094
2,064
79
27,944
10,617
9,562
790,718
707,509
459,439
87,098
673,475
498,479
419,319
Name/Principal Position
Peter A. Smith,
Director, President and Chief Executive
Officer(1)
Eric Chang,
Senior Vice President and Chief
Financial Officer(2)
Michael Pangia,
Former President and Chief Executive
Officer(3)
Walter Stanley Gallagher, Jr.
Former Senior Vice President and Chief
Operating Officer (4)
Shaun McFall,
Former Senior Vice President and Chief
Marketing and Strategy Officer(5)
_______________________
* Our fiscal year 2020 ended July 3, 2020, fiscal year 2019 ended June 28, 2019 and fiscal year 2018 ended June 29, 2018.
The amounts in the Summary Compensation Table represent total compensation paid or earned for our fiscal years as
included in our annual financial statements.
(1)
Mr. Smith’s employment with the Company commenced on January 2, 2020.
(2)
(3)
(4)
(5)
(6)
Mr. Chang was appointed as our Senior Vice President and Chief Financial Officer on April 3, 2020.
Mr. Pangia’s employment with the Company ended on September 18, 2019.
Mr. Gallagher was appointed as our Interim President and CEO on September 18, 2019, and served in this role (in
addition to serving as our Senior Vice President, Chief Operating Officer and Principal Financial Officer until
January 2, 2020, when the Company appointed Peter Smith as the President and CEO. At this time, Mr. Gallagher
continued to serve as our Senior Vice President, Chief Operating Officer and Principal Financial Officer until his
employment with the Company ended on April 3, 2020.
Mr. McFall served as our Senior Vice President, Chief Marketing and Strategy Officer through the end of fiscal
year 2020, but he resigned effective July 3, 2020.
The annual base salary for Mr. Smith was $400,000.
The annual base salary for Mr. Chang was $260,000 until his appointment as Senior Vice President in September
2019, at which time his annual base salary was increased to $280,000.
The annual base salary for Mr. Pangia was $550,000.
The annual base salary for Mr. Gallagher was $300,000 until his appointment as Interim President and CEO in
September 2019, at which time his annual base salary was increased to $350,000.
The annual base salary for Mr. McFall was $320,000.
32
(7)
(8)
(9)
(10)
(11)
Mr. Gallagher received a bonus in recognition for his service as Interim President and CEO during fiscal year
2020.
The “Stock Awards” column shows the aggregate grant date fair value of the market-based PSUs, granted to Mr.
Smith in fiscal 2020 and the performance-based PSUs and RSUs granted to the other named executive officers in
fiscal 2020.
The grant date fair value of the PSUs and RSUs 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 the PSUs was determined using a Monte Carlo simulation based on the probable outcome of
achieving the performance condition, excluding the effect of estimated forfeitures, and the grant date fair value of
the RSUs was calculated using the closing market price of our common stock on the respective grant dates. 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 2020. 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. The value of the PSUs granted to each of Messrs. Chang, Gallagher and McFall during fiscal
year 2020 included in the Summary Compensation Table assumes 100% performance objectives will be met.
The “Option Awards” column shows the aggregate grant date fair value of the stock options granted in fiscal 2020,
determined using Black-Scholes values. The assumptions used for determining values are set forth in Notes 1 and 9
to our audited consolidated financial statements in Part II, Item 8 of our Annual Report on Form 10-K for fiscal year
2020.
The “Non-Equity Incentive Plan Compensation” column shows the cash award earned under the AIP for fiscal year
2020, determined based on achievement of the applicable performance metrics. Fifty percent of the awards earned
for fiscal year 2020 will not be paid to the named executive officers until December 2020 in light of the COVID-19
pandemic. The cash awards earned under the AIP by Messrs. Pangia and Gallagher during fiscal year 2020 are
based upon actual performance achieved during fiscal year 2020 and are prorated based on their days of service
during fiscal year 2020.
The following table describes the components of the “All Other Compensation” column for fiscal year 2020.
Name
Peter A. Smith
Eric Chang
Michael Pangia
Walter Stanley Gallagher, Jr.
Shaun McFall
_____________________
Year
2020
2020
2019
2018
2020
2019
2018
2020
2019
2018
2020
2019
2018
Life Insurance(a)
($)
Company Matching
Contributions Under
401(k) Plan(b)
($)
Home Office
Allowance(c)
($)
Severance(d)
($)
Total All
Other
Compensation
($)
1,419
654
612
460
834
3,613
3,380
1,796
2,064
79
2,812
2,219
2,049
2,577
5,275
7,536
6,807
—
—
—
—
—
—
6,154
8,398
7,513
—
—
—
—
—
—
—
30,000
—
—
—
—
—
—
—
—
—
3,996
5,929
8,148
7,267
479,470
480,304
—
—
105,298
—
—
18,978
—
—
3,613
3,380
137,094
2,064
79
27,944
10,617
9,562
(a)
(b)
(c)
(d)
Represents premiums paid for life insurance that represent taxable income for the named executive officer.
Represents matching contributions made by the Company to the 401(k) account of the named executive officer.
Represents an allowance for Mr. Gallagher to work from home due to the move of the Company’s corporate
headquarters to Austin, TX.
Represents cash severance payments paid to Messrs. Pangia and Gallagher during fiscal year 2020, including
COBRA payments of $23,499 and $7,083, respectively, and the payout of accrued but unused paid time off in the
33
amount of $32,894 and $17,446, respectively. Represents cash payment to Mr. McFall for the payout of accrued but
unused paid time off in the amount of $18,978.
Grants of Plan-Based Awards in Fiscal Year 2020
The following table lists the grants and incentives made to the named executive officers during our fiscal year ended
July 3, 2020, of plan-based awards, both equity and non-equity based under our AIP and 2018 Plan. There is no assurance
that the grant date fair value of stock and option awards will ever be realized.
Estimated Possible Payouts Under
Non-Equity Incentive Plan
Awards1)
Target
Threshold
Maximum
Grant Date
Estimated Future Payments
Under Equity Incentive Plan
Awards(2)
Target
Maximum
Threshold
All Other
Stock
Awards:
Number of
Shares of
Stock or
Units(3)
All Other
Option
Awards:
Number of
Securities
Underlying
Options(4)
Grant Date,
Fair Value of
Stock and
Option
Awards(5)
Name
Peter A. Smith
Eric Chang
Michael Pangia
Walter Stanley
Gallagher, Jr.
Type of
Award
PSU
AIP
Options
Options
RSU
PSU
AIP
AIP
Options
RSU
PSU
AIP
($)
($)
($)
(#)
1/2/2020
—
—
—
—
35,000
140,000
168,000
5/19/2020
9/20/2019
9/20/2019
9/20/2019
—
—
—
—
—
—
—
—
—
—
—
—
—
—
34,434
137,736
165,283
27,352
109,407
131,288
9/20/2020
9/20/2019
9/20/2019
—
—
—
—
—
—
—
—
—
—
31,951
127,804
153,365
Shaun McFall
Options
9/20/2019
9/20/2019
9/20/2019
RSU
PSU
AIP
—
—
—
—
—
—
—
—
—
—
40,000
160,000
192,000
(#)
46,500
—
—
—
—
3,071
—
—
—
—
3,544
—
—
—
3,780
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(#)
(#)
(#)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,071
—
—
—
—
3,544
—
—
—
3,780
—
—
—
—
7,058
7,491
—
—
—
—
8,643
—
—
—
9,219
—
—
—
($)
664,485
—
42,009
45,739
44,376
44,376
—
—
52,772
51,211
51,211
—
56,289
54,621
54,621
—
______________________
(1)
(2)
(3)
The amounts shown under Estimated Possible Payouts Under Non-Equity Incentive Plan Awards reflect possible
payouts under our fiscal 2020 AIP. For Mr. Smith, these columns represent the pro-rata portion of his AIP award for
the portion of fiscal year 2020 following his appointment. For Messrs. Gallagher and Chang, these columns have
been adjusted to take into account the value of their potential annual cash incentive calculated based on the portion
of the year they served in different roles. For Messrs. Pangia and Gallagher, these columns represent the pro-rata
portion of their respective AIP awards for the portion of fiscal year 2020 during which they were employed by the
Company. Finally, the columns for Mr. McFall’s AIP award are not prorated because he was employed until the last
day of fiscal year 2020. The target AIP awards were earned by each of the named executive officers.
These amounts represent the threshold, target and maximum number of PSUs granted to the named executive
officers during fiscal year 2020. For Mr. Smith, the number of PSUs which ultimately are earned and vest is based
on the Company’s achievement of certain stock price within two or three years of his start date. For Messrs. Chang,
Gallagher and McFall, the number of PSUs which ultimately are earned, vest 100% on the third anniversary of the
grant date based on the achievement of the performance criteria applicable to each fiscal year within the three-year
performance period, subject to the named executive officer’s continued employment through such vesting date.
Pursuant to the terms of the employment agreements and 2018 Plan, Messrs. Gallagher and McFall each received
pro rata vesting of their respective PSUs assuming target performance was achieved for the period of time worked
during the performance period, as described below in “Outstanding Equity Awards for Fiscal Year Ended July 3,
2020” and “Potential Payments Upon Termination or Change of Control—2020 Named Executive Officer
Departures.”
These amounts represent the number of RSUs granted to the named executive officers during fiscal year 2020,
which vest in full on the third anniversary of the date of grant, subject to the named executive officer’s continued
employment through such vesting date. Pursuant to the terms of the employment agreements and 2018 Plan, these
34
(4)
(5)
unvested RSUs were accelerated for Messrs. Gallagher and McFall, as described below in “Outstanding Equity
Awards for Fiscal Year Ended July 3, 2020” and “Potential Payments Upon Termination or Change of Control—
2020 Named Executive Officer Departures.”
These amounts represent the number of stock options granted to the named executive officers during fiscal year
2020, which vest in full on the third anniversary of the date of grant, subject to the named executive officer’s
continued employment through such vesting date. Pursuant to the terms of the employment agreements and 2018
Plan, these unvested stock options were accelerated for Messrs. Gallagher and McFall, as described below in
“Outstanding Equity Awards for Fiscal Year Ended July 3, 2020” and “Potential Payments Upon Termination or
Change of Control—2020 Named Executive Officer Departures.”
The “Fair Value of Stock and Option Awards” column shows the aggregate grant date fair value of the PSUs, RSUs
and stock options granted in fiscal year 2020. The grant date fair value of these awards was determined under FASB
ASC Topic 718, disregarding estimated forfeitures, 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 grant
date fair value of the PSUs is based on probable outcome with regard to applicable performance metrics.
The assumptions used for determining values are set forth in Notes 1 and 9 to our audited consolidated financial
statements in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal 2020. 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 2020
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 3, 2020. Each grant of options or unvested stock awards is
shown separately for each named executive officer. The vesting schedule for each award of options and unvested stock
awards 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 and the 2018 Plan.
35
Option Awards
Number of
Securities
Underlying
Unexercised
Options
Exercisable
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
(#)
—
—
—
—
Option
Exercise
Price
Option
Expiration
Date
($)
—
—
7,058 (2)
12.84
5/19/2027
Number of
Shares or
Units of
Stock that
have not
Vested
(#)
—
—
Stock Awards
Equity Incentive
Plan Awards:
Number of
Unearned Shares
Units or Other
Rights that have
not Vested
Market Value
of Shares or
Units of Stock
that have not
Vested(7)
Equity Incentive
Plan Awards:
Market or Payout
Value of Unearned
Shares, Units or
Other Rights that
have not Vested(7)
($)
(#)
($)
—
—
7,491 (3)
14.45
9/20/2026
3,071 (4)
57,090
2,447
4,894 (2)
17.80
9/7/2025
—
8,643
2,942
9,219
3,138
8,254
13,131
—
—
—
—
—
—
—
—
14.45
17.80
14.45
17.80
15.60
31.20
—
4/2/2021
4/2/2021
7/2/2021
7/2/2021
7/2/2021
9/9/2020
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
46,500 (1)
—
3,071 (5)
2,447 (6)
—
—
—
—
—
—
—
864,435
—
57,090
45,490
—
—
—
—
—
—
—
Name
Peter A. Smith
Eric Chang
Michael Pangia(8)
Walter Stanley
Gallagher, Jr.(8)
Shaun McFall(8)
Grant Date
01/02/2020
05/19/2020
09/20/2019
09/07/2018
—
09/20/2019
09/07/2018
09/20/2019
09/07/2018
02/02/2015
09/09/2013
______________________
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Mr. Smith received a sign-on equity award of 46,500 target PSUs upon joining the Company on January 2, 2020.
18,750 of these PSUs will be earned and vested if the stock price reaches $22.50 within two years of his start date,
and the remaining 27,750 PSUs will be earned and vested if the stock price reaches $30.00 within three years of his
start date.
Stock options that vest annually over three years from date of grant.
Stock options that cliff vest three years from date of grant.
RSUs that cliff vest three years from date of grant.
PSUs eligible to vest based on the Company’s non-GAAP net income. From 0% to 150% of the target PSUs will
vest in September 2022 following the end of the fiscal year July 1, 2022, that the Compensation Committee certifies
achievement of the performance measure. Vesting of these PSUs is dependent on continuous employment with us
through the vesting date. The number of PSUs reported in the table above reflects 100% of the target number of
granted PSUs based on the Company’s annual non-GAAP net income for the performance periods.
PSUs eligible to vest based on the Company’s non-GAAP net income. The shares will vest on the date that the
Compensation Committee certifies the achievement of the performance measure. Fifty percent of the second tranche
of grants representing 612 PSUs were canceled subsequent to July 3, 2020 as we did not meet the performance
metrics in full. Vesting of these PSUs is dependent on continuous employment with us through the vesting date in
September 2021.
Market value is based on the $18.59 closing price of a share of our common stock on July 2, 2020 (July 3, 2020 was
a holiday), as reported on the NASDAQ Global Select Market.
Except for the accelerated vesting of a pro-rata portion of their respective PSU awards, Messrs. Gallagher and
McFall forfeited all outstanding and unvested equity awards as of their respective resignation dates. The vested
stock options previously granted to each of Messrs. Gallagher and McFall will remain outstanding and exercisable
for the shorter of the expiration date or one year following their respective termination dates. See “Options
Exercised and Stock Vested in Fiscal Year 2020” and “Potential Payments Upon Termination or Change of Control
—2020 Named Executive Officer Departures.”
36
Option Exercised and Stock Vested in Fiscal Year 2020
The following table provides information for each of our named executive officers regarding the number of shares of
our common stock acquired upon the vesting of stock awards during fiscal year 2020. No options to purchase common stock
were exercised during fiscal year 2020. Stock awards vesting during fiscal year 2020 consisted of RSUs and PSUs. There
were no shares vested for Peter Smith during fiscal year 2020.
Name
Peter A. Smith
Eric Chang
Michael Pangia
Walter Stanley Gallagher, Jr.
Shaun McFall
_________________________
Stock Awards
Number of Shares Acquired on Vesting (#) (1)
Value Received on Vesting ($) (2)
—
7,259
43,446
7,392
22,279
—
103,440
613,458
62,093
346,043
(1)
(2)
Vested number of shares of RSUs and PSUs.
Amount shown is the aggregate market value of the vested RSUs and PSUs, calculated by multiplying the number of
RSUs and PSUs that vested by the closing price of our stock on the applicable vesting date or, if the vesting date is
not a NASDAQ trading day, the previous trading day.
Pension Benefits
Other than our U.S. 401(k) plan, we do not have any plan that provides for payments or other benefits at, following,
or in connection with retirement to our named executive officers.
Nonqualified Deferred Compensation
We do not have any plan that provides for the deferral of compensation by named executive officers on a basis that
is not tax qualified.
37
Equity Compensation Plan Summary
The following table provides information as of July 3, 2020, relating to our equity compensation plan:
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)
524,815
(2)
—
524,815
$
$
$
(3)
17.30
711,362
(4)
—
17.30
—
711,362
Plan Category
Equity Compensation plan approved by security holders(1)
Equity Compensation plans not approved by security
holders
Total
_____________________
(1)
(2)
(3)
(4)
Consists of the 2007 Plan, the 2018 Plan and our employee stock purchase plan.
The number includes 321,718 shares to be issued upon exercise of options, 80,829 shares to be issued upon vesting
of RSUs, 122,268 shares to be issued upon vesting of PSUs (based on achievement of target performance metrics).
Excludes weighted average fair value of RSUs and PSUs.
Includes 57,598 shares reserved for future issuances under the employee stock purchase plan.
Potential Payments Upon Termination or Change of Control
We entered into employment agreements with each of the named executive officers, which provide for such
executives to receive certain payments and benefits if their employment with us is terminated.
Quantification of Severance and Benefits Payable to Current Named Executive Officers.
The employment agreements with Messrs. Smith and Chang are set forth in detail below and assume a termination
event on July 3, 2020, and refer to 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 named executive officers.
The table below reflects the compensation and benefits due to each of Messrs. Smith and Chang in the event of his
termination of employment by us without cause or termination by the executive for good reason (other than within 12 months
or 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 12 months or within 18 months
after a Change of Control (depending on individual employment agreements). 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.
38
Name
Peter Smith . . . . .
Eric Chang . . . . . .
Conditions for Payouts
Termination without cause or
for good reason, or due to
disability
Within 12 months after
Change of Control
Termination without cause or
for good reason, or due to
disability
Within 18 months after
Change of Control
______________________
Base Salary
Component(1)
$
400,000 $
Cash
Incentive
Component(2)
Accelerated
Equity
Vesting(3)
Insurance
Benefit(4)
Out-
Placement
Services(5)
Total
138,113 $
— $
27,228 $
30,000 $
595,341
$
$
$
400,000 $
280,000 $
— $
54,456 $
30,000 $
764,456
300,000 $
137,736 $
118,510 $
— $
30,000 $
586,246
300,000 $
150,000 $
162,948 $
— $
30,000 $
642,948
(1)
(2)
(3)
(4)
(5)
The base salary component represents the total gross monthly payments to each named executive officer at the
current salary. Mr. Chang’s salary as of July 4, 2020 in connection with his promotion to Senior Vice President and
Chief Financial Officer on April 3, 2020.
The cash incentive component represents the cash bonus due at target under the fiscal year 2020 AIP.
Reflects acceleration of outstanding equity awards, including pro-rata vesting of the equity awards granted during
fiscal year 2020 and 2019 and outstanding as of July 3, 2020 in accordance with Mr. Chang’s employment
agreement.
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.
(6) Messrs. Pangia, Gallagher and McFall are not included in the above table as their employment ended on September
19, 2019, April 3, 2020, and July 3, 2020, respectively.
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% 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
39
•
•
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 named executive officer will stop
vesting as of their termination date; however, they will be entitled to exercise any vested stock options until the
earlier of: (i) 12 months; or (ii) the date on which the applicable option(s) expire; and
outplacement assistance up to $30,000.
In addition, these agreements provide that if there is a Change of Control, and employment is terminated by us
without cause or by the employee for good reason within 12 months or 18 months after the Change of Control (depending on
individual employment agreements) and they sign a general release of known and unknown claims in a form satisfactory to
us, (i) they will receive a payment equal to the greater of (a) the average of the annual actual incentive bonus payments
received by them, if any, for the previous three years; or (b) their target incentive bonus for the year in which their
employment terminates; and (ii) accelerated vesting of all unvested stock option(s), RSUs and PSUs (assuming performance
criteria previously met or pro-rata vesting at target for the period of time worked during the performance period based on
individual employment agreements). For Mr. Smith, the total cash compensation shall not exceed $750,000.
2020 Named Executive Officer Departures.
In accordance with their employment agreements, Messrs. Pangia, Gallagher and McFall are entitled to receive
severance payments equal to one year of his current base salary paid in installments over the course of twelve months from
their respective departure dates, prorated AIP awards for fiscal 2020 payable based on actual performance achieved at the
time other executives receive such payments, accelerated equity vesting, insurance benefit and outplacement services.
The table set forth below reflects the value of the severance payments and benefits owed to Messrs. Pangia,
Gallagher and McFall in connection with their respective resignations.
Accelerated Equity Vesting
Base Salary
Component
$550,000
$350,000
$320,000
Cash
Incentive
Component
$109,407
$127,804
$160,000
RSUs / PSUs
(#)
—
7,392
5,824
Stock
Options
(#)
—
8,643
9,219
Exercise
price
Insurance
Benefit
Out-Placement
Services
—
$14.45
$14.45
$31,332
$28,332
$28,332
$30,000
$30,000
$30,000
Name
Michael Pangia
Walter Stanley Gallagher, Jr.
Shaun McFall
CEO Pay Ratio
Pursuant to Item 402(u) of Regulation S-K, the Company is required to provide the following information with
respect to the year ended July 3, 2020:
•
The median of the annual total compensation of all employees of the Company (other than Mr. Smith, the
Company’s President and CEO), determined in accordance with Item 402(c)(2)(x) of Regulation S-K, was
$64,461.
40
•
•
The annualized total compensation of Mr. Smith, the Company’s President and CEO, determined in accordance
with Item 402(c)(2)(x) of Regulation S-K, was $1,352,477, which includes $664,485 for the value of unvested
stock awards issued to Mr. Smith as a sign-on incentive upon joining Aviat on January 2, 2020.
Based on this information, the ratio of the annual total compensation of the Company’s CEO to the median of
the annual total compensation of all employees was 20.98 to 1.
The Company elected to calculate the median employee as of the end of the 2020 fiscal year. To identify the median
paid employee and determine such employee’s annual total compensation in the last fiscal year, the Company assessed its
employee population as of July 3, 2020 and determined employee compensation using the 12-month period ending July 3,
2020. On this date, the Company’s employee population consisted of 673 individuals.
The Company determined its median employee by: (i) calculating total target cash compensation as the sum of
salary and target variable compensation, including target sales bonus, for each of the Company’s employees, (ii) ranking the
total target cash compensation of all employees except for the CEO from lowest to highest, and (iii) picking the employee
who was in the middle of the list.
SEC rules do not specify a single methodology for identification of the median employee, and other companies may
use assumptions and methodologies that are different from those used by us in calculating their pay ratio.
41
PROPOSAL NO. 1
ELECTION OF DIRECTORS
At the Annual Meeting, directors are being nominated for election to serve until the 2021 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
Kenneth Kong
Dahlia M. Loeb
John J. Quicke
Peter Smith
Title
Age
Chairman of the Board
Director
Director
Director
Director, President and Chief Executive Officer
64
46
47
71
54
74
Dr. James C. Stoffel Director
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.
42
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 July 2, 2021 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 2021.
43
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
which we request annually during our Annual Meeting of Stockholders. 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.
As this vote is advisory, it will not be binding on our Board or our Compensation Committee, and neither our Board
nor our Compensation Committee will be required to take any action as a result of the outcome of the vote. However, our
Compensation Committee will carefully consider the outcome of this vote when considering future executive compensation
policies and decisions.
Based on the voting results at the Company’s 2018 Annual Meeting of Stockholders with respect to the frequency
(the “Frequency Vote”) of future stockholder advisory votes to approve the compensation of the Company’s named executive
officers, the Company includes an advisory, non-binding vote to approve the compensation of its named executive officers in
its proxy materials on an annual basis. The next required Frequency Vote is scheduled for the Company’s 2024 Annual
Meeting of Shareholders.
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.
BACKGROUND TO PROPOSAL 4
Our business operations have generated significant net operating losses (“NOLs”), credit carry-forwards and other
tax attributes (collectively, the “Tax Benefits”), and we may generate additional Tax Benefits in future years. Under federal
tax laws, subject to certain Tax Benefits expiring, we generally can use the Tax Benefits to reduce our future federal income
tax obligations. . As of July 3, 2020, we had approximately $320 million in federal NOLs, approximately $8 million of
federal and state tax credit carryforwards, and approximately $185 million of foreign tax loss carryforwards. Although we
cannot estimate the exact amount of Tax Benefits that we can use to reduce our future income tax obligations because we
cannot predict the amount and timing of our future taxable income, we believe the Tax Benefits are very valuable assets.
Our ability to utilize the Tax Benefits 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 of the
Code, a corporation generally will experience an “ownership change” if the percentage of the corporation’s stock owned by
its “5-percent shareholders,” as defined in Section 382 of the Code, increases by more than 50 percentage points over their
lowest ownership percentage within a rolling three-year period. If an “ownership change” occurs, the Tax Benefits would be
subject to an annual limitation.
44
If an ownership change were to occur, the limitations imposed by Section 382 could result in a material amount of
our Tax Benefits expiring unused and, therefore, significantly impairing the value of the Tax Benefits. Although the
complexity of Section 382 of the Code 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 Tax Benefits for long-
term stockholder value is to adopt the Tax Benefit Preservation Plan.
On August 27, 2020, our Board approved, and the Company entered into, the Tax Benefit Preservation Plan, which
amended and restated the Tax Benefit Preservation Plan dated as of March 3, 2020 (the “Original Plan”). The Tax Benefit
Preservation Plan clarified definitions, removed duplicate language and made certain administrative amendments to the
Original Plan. The Tax Benefit Preservation Plan is described below under Proposal 4 and the full terms of the Tax Benefit
Preservation Plan can be found in Annex A to this Proxy Statement. Subject to certain limited exceptions, the Tax Benefit
Preservation Plan is designed to reduce the likelihood that the Company will experience an ownership change under Section
382 of the Code by (i) discouraging any person or group of persons from acquiring beneficial ownership of 4.9% or more of
our then-outstanding common stock and (ii) discouraging any existing person or groups of persons currently beneficially
holding 4.9% or more of our then-outstanding common stock from acquiring additional shares of the common stock, in each,
without approval of the Board. The Tax Benefit Preservation Plan will expire at 5:00 p.m. New York City time following the
final adjournment of the Annual Meeting if stockholder approval of the Tax Benefit Preservation Plan is not received.
The Board urges our stockholders to carefully read the proposal, the discussion below under the heading “Certain
Considerations Related to the Tax Benefit Preservation Plan,” and the full terms of the Tax Benefit Preservation Plan
attached as Annex A to this Proxy Statement. It is important to note this measure does not offer a complete solution, and an
ownership change may occur even if the Tax Benefit Preservation Plan is approved. The Tax Benefit Preservation Plan may
deter, but ultimately cannot block, transfers of our common stock that might result in an ownership change. The limitation of
this measure is described in more detail below. The Board believes that the adoption of Tax Benefit Preservation Plan will
serve as an important tool to help prevent an ownership change that could substantially reduce or eliminate the significant
long-term potential value of the Tax Benefits. Accordingly, the Board recommends that stockholders approve the Tax
Benefit Preservation Plan.
PROPOSAL NO. 4
APPROVAL OF THE TAX BENEFIT PRESERVATION PLAN
On March 3, 2020, the Board adopted the Original Plan which was then amended and restated on August 27, 2020
by the Tax Benefit Preservation Plan. The Tax Benefit Preservation Plan will expire at 5:00 p.m. New York City time
following the final adjournment of the Annual Meeting if stockholder approval of the Tax Benefit Preservation Plan has not
been received. Subject to certain limited exceptions, the Tax Benefit Preservation Plan is designed to reduce the likelihood
that the Company will experience an ownership change under Section 382 of the Code by (i) discouraging any person or
group of persons from acquiring beneficial ownership of 4.9% or more of our then-outstanding common stock and (ii)
discouraging any existing person or groups of persons currently beneficially holding 4.9% or more of our then-outstanding
common stock from acquiring additional shares of the common stock, in each, without approval of the Board.
The Tax Benefit Preservation Plan is intended to protect stockholder value by attempting to preserve our ability to
use the Tax Benefits to reduce our future income tax obligations. By adopting the Tax Benefit Preservation Plan, the Board is
seeking to protect the Company’s ability to use the Tax Benefits. We view our Tax Benefits as highly valuable assets of the
Company that are likely to inure to the benefit of the Company and our stockholders.
THE FAILURE TO OBTAIN STOCKHOLDER APPROVAL FOR THIS PROPOSAL WILL RESULT IN
TERMINATION OF THE TAX BENEFIT PRESERVATION PLAN AND THE POTENTIAL FOR SUBSTANTIAL
IMPAIRMENT OF THE TAX BENEFITS, WHICH COULD NEGATIVELY IMPACT THE COMPANY, AND,
CONSEQUENTLY, OUR STOCKHOLDERS.
45
The following description of the Tax Benefit Preservation Plan is qualified in its entirety by reference to the text of
the Tax Benefit Preservation Plan, which can be found in Annex A to this Proxy Statement. Please read the Tax Benefit
Preservation Plan 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 share of the Company’s common
stock, par value $0.01 per share (each, a “Common Share” and collectively, the “Common Shares”). Prior to the Distribution
Date (as defined 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 close of business on March 13, 2020 (the “Rights Record
Date”) will contain a legend incorporating the Tax Benefit Preservation 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 Rights Record Date.
Distribution Date
Subject to certain exceptions specified in the Tax Benefit Preservation 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 Tax Benefit Preservation 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 Tax Benefit
Preservation 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
Subject to the terms of the Tax Benefit Preservation Plan, 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 for an exercise price of $35.00 (the “Exercise Price”) per one one-thousandth of a
Preferred Share, subject to adjustment. 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:
46
•
•
•
•
•
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 Tax Benefit Preservation 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.
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 March 3, 2023 (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 Tax Benefit Preservation Plan if stockholders do not approve the Tax
47
Benefit Preservation Plan or (b) the first anniversary of the adoption of the Tax Benefit Preservation Plan if the stockholders
have not otherwise approved the Tax Benefit Preservation Plan; (4) the repeal of Section 382 of the Code or any other change
if the Board determines that the Tax Benefit Preservation 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 Tax Benefit Preservation Plan is no longer in the best interests of the Company and
its stockholders.
Amendment of the Terms of the Rights and the Tax Benefit Preservation Plan
The terms of the Rights and the Tax Benefit Preservation 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 Tax Benefit
Preservation 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 Tax Benefit Preservation 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.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE APPROVAL
OF THE TAX BENEFIT PRESERVATION PLAN
CERTAIN CONSIDERATIONS RELATED TO THE TAX BENEFIT PRESERVATION PLAN
The Board believes that attempting to protect the Tax Benefits as described above under “Background to Proposal
4” is in and the best interests of the Company and our stockholders. However, we cannot eliminate the possibility that an
ownership change will occur even if the Tax Benefit Preservation Plan is approved. Please consider the items discussed
below in voting on Proposal 4.
The Internal Revenue Service (“IRS”) could challenge the amount of the Tax Benefits or claim we experienced an
ownership change, which could reduce the amount of the Tax Benefits that we can use or eliminate our ability to use
them altogether.
The IRS has not audited or otherwise validated the amount of the Tax Benefits. The IRS could challenge the amount
of the Tax Benefits, which could limit our ability to use the Tax Benefits to reduce our future income tax obligations. In
addition, the complexity of Section 382 of the Code 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 the Tax Benefits even if the Tax Benefit Preservation Plan is in place.
48
Continued Risk of Ownership Change
Although the Tax Benefit Preservation Plan is 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.
Potential Effects on Liquidity
The Tax Benefit Preservation Plan will restrict a stockholder’s ability to acquire, directly or indirectly, additional
shares of our common stock in excess of the specified limitations. 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
Because certain buyers, may object to holding our common stock subject to the terms of the Tax Benefit
Preservation Plan, some 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 restrictions in place, may not choose to purchase our common
stock, the Tax Benefit Preservation Plan could depress the value of our common stock in an amount that could more than
offset any value preserved from protecting the Tax Benefits.
Potential Anti-Takeover Impact
The reason the Board approved the Tax Benefit Preservation Plan is to preserve the long-term value of the Tax
Benefits. The Tax Benefit Preservation Plan is not intended to prevent a takeover of the Company. However, the Tax Benefit
Preservation Plan 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 Right Agreement, if approved by our
stockholders, 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 Tax Benefit Preservation Plan 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.
49
2020 Annual Report
OTHER MATTERS
Our annual report for the fiscal year ended July 3, 2020, including audited financial statements, will be available
over the Internet through our website at www.aviatnetworks.com 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 3, 2020 with the SEC on August 27,
2020. 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 200 Parker Drive, Suite C100A, Austin, TX 78728, 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 or any
adjournment thereof. 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.
50
Householding of Proxy Materials
To reduce costs and the environmental impact of the Annual Meeting, a single proxy statement and annual report,
along with individual proxy cards, will be delivered in one envelope to certain stockholders having the same last name and
address, and to individuals with more than one account registered with our transfer agent with the same address, unless
contrary instructions have been received from an affected stockholder. Stockholders participating in householding will
continue to receive separate proxy cards. If you are a registered stockholder and would like to enroll in this service or receive
individual copies of this year's and/or future proxy materials, please contact Broadridge Financial Solutions, Inc. 51 Mercedes
Way, Edgewood, New York 11717; or contact our Corporate Secretary at 408-941-7100 or at our headquarters at 200 Parker
Drive, Suite C100A, Austin, TX 78728. If you are a beneficial stockholder, you may contact the broker or bank where you
hold the account.
ANNEX A
AMENDED AND RESTATED
TAX BENEFIT PRESERVATION PLAN
Dated as of August 27, 2020
by and between
AVIAT NETWORKS, INC.
and
COMPUTERSHARE INC.,
as Rights Agent
Section 1. Certain Definitions.......................................................................................................................
Section 2. Appointment of Rights Agent......................................................................................................
Section 3. Issuance of Rights Certificates....................................................................................................
Section 4. Form of Rights Certificates.........................................................................................................
Section 5. Countersignature and Registration..............................................................................................
Section 6. Transfer, Split Up, Combination and Exchange of Rights Certificates; Mutilated, Destroyed,
Lost or Stolen Rights Certificates.................................................................................................................
Section 7. Exercise of Rights; Exercise Price; Expiration Date of Rights...................................................
Section 8. Cancellation and Destruction of Rights Certificates....................................................................
Section 9. Reservation and Availability of Preferred Shares........................................................................
Section 10. Record Date for Securities Issued..............................................................................................
Section 11. Adjustment of Exercise Price, Number and Kind of Shares or Number of Rights...................
Section 12. Certificate of Adjusted Exercise Price or Number of Shares....................................................
Section 13. Consolidation, Merger or Sale or Transfer of Assets, Cash Flow or Earning Power................
Section 14. Fractional Rights and Fractional Shares....................................................................................
Section 15. Rights of Action.........................................................................................................................
Section 16. Agreement of Rights Holders....................................................................................................
Section 17. Holder of Rights Certificate Not Deemed to be a Stockholder.................................................
Section 18. Concerning the Rights Agent.....................................................................................................
Section 19. Merger, Consolidation or Change of Name of Rights Agent....................................................
Section 20. Duties of Rights Agent..............................................................................................................
Section 21. Change of Rights Agent.............................................................................................................
Section 22. Issuance of New Rights Certificates..........................................................................................
Section 23. Redemption................................................................................................................................
Section 24. Exchange....................................................................................................................................
Section 25. Process to Seek Exemption Prior to Trigger Event...................................................................
Section 26. Notice of Certain Events............................................................................................................
Section 27. Notices.......................................................................................................................................
Section 28. Supplements and Amendments..................................................................................................
Section 29. Successors..................................................................................................................................
Section 30. Determinations and Actions by the Board.................................................................................
Section 31. Benefits of this Plan...................................................................................................................
Section 32. Severability................................................................................................................................
Section 33. Governing Law; Exclusive Jurisdiction.....................................................................................
Section 34. Counterparts...............................................................................................................................
Section 35. Descriptive Headings; Interpretation.........................................................................................
Section 36. Costs of Enforcement................................................................................................................
Section 37. Force Majeure............................................................................................................................
Section 38. USA PATRIOT Act...................................................................................................................
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EXHIBITS
Exhibit A
Exhibit B
Exhibit C
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
A-1
B-1
C-1
3
[This page intentionally left blank]
TAX BENEFIT PRESERVATION PLAN
This AMENDED AND RESTATED TAX BENEFIT PRESERVATION PLAN (this “Plan”), dated as of
August 27, 2020, 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 March 3, 2020 (the “Rights Dividend Declaration Date”), the Board of Directors of the
Company (the “Board”) adopted the Tax Benefit Preservation Plan, dated as of March 3, 2020 (the “Original
Plan”);
WHEREAS, pursuant to Section 28 of the Original Plan, the Company and the Rights Agent desire to
amend and restate the Original Plan in its entirety with this Plan to, among other things, amend the defined term
“Exempt Person” pursuant to Section 25, add the defined term “Excluded Person” and correct certain section
references;
WHEREAS, the Board previously 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 March 13, 2020 (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.
NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the
AGREEMENT
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, (ii) any Excluded Person or (iii) 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
1
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 Excluded 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
Excluded Person and, after such acquisition by such Excluded 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 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)
(c)
“Adjustment Shares” has the meaning set forth in Section 11(a)(ii).
“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, an Excluded 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
2
(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);
(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
Excluded 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 Excluded Person or by any other such officer, director
or employee of an Excluded 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
3
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(d), 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)
(g)
“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).
“Business Day” means any day other than a Saturday, Sunday or a day on which the
Federal Reserve Bank of New York is closed.
(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)
“Code” has the meaning set forth in the recitals at the beginning of this Plan.
(j)
“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)
(l)
Section 13(a).
“Common Share Equivalents” has the meaning set forth in Section 11(a)(iii).
“Company” has the meaning set forth in the preamble hereto, subject to the terms of
(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
4
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)
(p)
“Current Value” has the meaning set forth in Section 11(a)(iii).
“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 or an Excluded 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)
(s)
(t)
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Exchange Determination” has the meaning set forth in Section 24(a).
“Exchange Ratio” has the meaning set forth in Section 24(a).
5
(u)
“Excluded 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.
(v)
“Exempt Person” means any Person determined by the Board to be an “Exempt Person”
in accordance with the requirements set forth in Section 25 hereof for so long as such Person complies with any
limitations or conditions required by the Board in making such determination.
(w)
(x)
“Exemption Request” has the meaning set forth in Section 25(a).
“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.
(y)
“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.
(z)
“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.
(aa)
“Final Expiration Date” means March 3, 2023.
(bb)
“NASDAQ” means The NASDAQ Stock Market LLC.
(cc)
“Original Rights” has the meaning set forth in Section 1(d)(i).
(dd)
“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)).
(ee)
“Plan” has the meaning set forth in the preamble at the beginning of this Plan.
6
(ff)
“Post-Event Transferee” has the meaning set forth in Section 7(e).
(gg)
“Pre-Event Transferee” has the meaning set forth in Section 7(e).
(hh)
“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.
(ii)
(jj)
“Principal Party” has the meaning set forth in Section 13(b).
“Record Date” has the meaning set forth in the recitals at the beginning of this Plan.
(kk)
“Redemption Date” has the meaning set forth in Section 23(a).
(ll)
“Redemption Price” has the meaning set forth in Section 23(a).
(mm)
“Requesting Person” has the meaning set forth in Section 25(a).
(nn)
“Right” has the meaning set forth in the recitals at the beginning of this Plan.
(oo)
“Rights Agent” has the meaning set forth in the preamble hereto.
(pp)
“Rights Certificate” means a certificate substantially in the form attached as Exhibit B.
(qq)
beginning of this Plan.
“Rights Dividend Declaration Date” has the meaning set forth in the recitals at the
(rr)
“Section 11(a)(ii) Event” means any event described in Section 11(a)(ii).
(ss)
“Section 11(a)(ii) Trigger Date” has the meaning set forth in Section 11(a)(iii).
(tt)
“Section 13 Event” means any event described in clause (i), (ii) or (iii) of Section 13(a).
(uu)
and the Treasury Regulations promulgated
“Section 382” means Section 382 of the Code or any successor or replacement provision
(vv)
“Securities Act” means the Securities Act of 1933, as amended.
(ww)
“Security” has the meaning set forth in Section 1(m).
(xx)
“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.
(yy)
“Spread” means the excess of (i) the Current Value over (ii) the Exercise Price.
(zz)
“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).
“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
(aaa)
7
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.
(bbb)
“Subsequent Transferee” has the meaning set forth in Section 7(e).
(ccc)
“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.
(ddd)
“Substitution Period” has the meaning set forth in Section 11(a)(iii).
(eee)
“Summary of Rights” means a summary of this Plan substantially in the form attached
as Exhibit C.
(fff)
“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.
(ggg)
“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.
(hhh)
“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.
(iii)
“Triggering Event” means any Section 11(a)(ii) Event or Section 13 Event.
(jjj)
“Trust” has the meaning set forth in Section 24(b)(ii).
(kkk)
“Trust Agreement” has the meaning set forth in Section 24(b)(ii).
(lll)
“Waiver Request” has the meaning set forth in Section 25(b).
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
.
8
(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 Date1:
1 NTD: To discuss with Computershare. The defined term “Plan” includes any amendments thereto. Computershare
therefore may prefer to use the Legend from the Original Plan.
9
THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO CERTAIN
RIGHTS AS SET FORTH IN AN AMENDED AND RESTATED TAX BENEFIT PRESERVATION
PLAN, DATED AS OF AUGUST 27, 2020, 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
10
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:
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.
(c)
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.
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.
Transfer, Split Up, Combination and Exchange of Rights Certificates; Mutilated,
Destroyed, Lost or Stolen Rights Certificates
.
11
(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 accompanied by a signature guarantee from
an eligible guarantor institution participating in a signature guarantee program approved by the Securities Transfer
Association. 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 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
12
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 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
13
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 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
14
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.
(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.
15
(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 applies 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
16
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 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
17
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 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
18
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, 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
19
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 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.
Plan, in the event that the Company, at any time after the Rights Dividend Declaration Date and prior to the
(m)
Certain Adjustments to Common Shares. Notwithstanding anything to the contrary in this
20
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 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
21
.
(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 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).
22
(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, 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 (y) 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 ventures, 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
23
(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.
(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
24
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 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
the Company, 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:
and will be transferable only in connection with the transfer of the Common Shares;
(a)
prior to the Distribution Date, the Rights will not be evidenced by a Rights Certificate
25
(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;
(e)
Rights that are Beneficially Owned by certain Persons will, under the circumstances set
forth in Section 7(e), become null and void; and
(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 in accordance with a mutually
acceptable fee schedule 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
26
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.
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.
27
(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 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
28
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 any such attorneys or agents or for any loss to the Company, to the holders of
29
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
30
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, 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
31
.
(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.”
(b)
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 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 Excluded Person or any Exempt Person), together with all Affiliates and
32
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 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
33
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 Shares 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 Shares 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” 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 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
34
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 Shares Acquisition Date. The Board may, of its own accord or
upon the request of a stockholder (a “Waiver Request”), subsequent to a Shares 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” 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).
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
35
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.
200C Parker Dr. Suite 100A Austin
Texas 78728
Attn: Erin Boase, Vice President, Legal Affairs
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:
Computershare Inc.
150 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
36
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
. Without limiting any of the rights and immunities of the Rights Agent, 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
37
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.
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.
38
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.
Section 35.
Descriptive Headings; Interpretation
.
(a)
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.
(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
(iii)The words “hereof,” “herein,” “herewith” and words of similar import will, unless
otherwise stated, be constructed to refer to this Plan as whole and not to any particular provision of this Plan.
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.
corresponding meaning.
(vi)Where a word or phrase is defined, each of its other grammatical forms has a
(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
39
(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, epidemic, pandemic, 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.]
40
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/ Eric Chang
Name: Eric Chang
Title:
Senior Vice President and Chief Financial
Officer
COMPUTERSHARE, INC.
By:
/s/ Patrick Hayes
Name: Patrick Hayes
Title: Manager, Contract Administration
[Signature Page to Tax Benefit Preservation Plan]
[This page intentionally left blank]
Exhibit A.
FORM OF
CERTIFICATE OF DESIGNATION OF RIGHTS, PREFERENCES AND PRIVILEGES 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,
1
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.
2
(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.
3
(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
4
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.
5
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.
6
Section 13
of September, 2016.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of the 7th day
AVIAT NETWORKS, INC.
By:
/s/ Ralph S. Marimon
Name: Ralph S. Marimon
Title:
Senior Vice President and Chief Financial
Officer
7
[This page intentionally left blank]
FORM OF
RIGHTS CERTIFICATE
Certificate No. R-[•] [•] Rights
EXHIBIT B
NOT EXERCISABLE AFTER MARCH 3, 2023, 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.]2
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
Amended and Restated Tax Benefit Preservation Plan, dated as of AUGUST 27, 2020 (as the same may be
amended or supplemented from time to time, 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 AUGUST 27, 2020, 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.
1.
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.
2 The portion of the legend in brackets is to be inserted only if applicable and will replace the preceding sentence.
1
2.
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.
3.
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.
4.
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.
5.
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.
6.
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.
7.
This Rights Certificate shall not be valid or obligatory for any purpose until it shall have been
countersigned by the Rights Agent.
2
8.
WITNESS the facsimile signature of the proper officers of the Company and its corporate seal.
Dated as of , 20[●].
ATTEST:
By:
Name:
Title:
Countersigned:
COMPUTERSHARE, INC.
as Rights Agent
By:
Name:
Title:
AVIAT NETWORKS, INC.
By:
Name:
Title:
3
[Form of Reverse Side of Rights Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
FOR VALUE RECEIVED hereby sells, assigns and transfers unto
Rights Certificate.)
(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
Signature Medallion Guaranteed:
9.
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.
4
that:
CERTIFICATE
The undersigned hereby certifies, for the benefit of the Company and all holders of Rights and Common
Shares, by checking the appropriate boxes
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
2.
after due inquiry and to the best knowledge of the undersigned, it
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
Signature Medallion Guaranteed:
10.
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.
5
[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.
11.
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
Signature Medallion Guaranteed:
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.
6
that:
CERTIFICATE
The undersigned hereby certifies, for the benefit of the Company and all holders of Rights and Common
Shares, by checking the appropriate boxes
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
2.
after due inquiry and to the best knowledge of the undersigned, it
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
Signature Medallion Guaranteed:
12.
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.
7
[Form of Reverse Side of Rights Certificate – continued]
NOTICE
13.
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.
14.
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.
8
EXHIBIT C
FORM OF
SUMMARY OF RIGHTS
SUMMARY OF
TAX BENEFIT PRESERVATION PLAN
OF
AVIAT NETWORKS, INC.
1.
On March 3, 2020, 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 March 13, 2020 (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 an
Amended and Restated Tax Benefit Preservation Plan (as the same may be amended or supplemented from time to
time, the “Plan”), dated as of August 27, 2020, between the Company and Computershare Inc., as rights agent.
2.
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.
3.
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
1
•
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.
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
2
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.
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 March 3, 2023 (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
3
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.
4
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________
Form 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 3, 2020 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
20-5961564
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
200 Parker Drive, Suite C100A, Austin, Texas
(Address of principal executive offices)
78728
(Zip Code)
Registrant’s telephone number, including area code: (408) 941-7100
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $0.01 per share
Trading Symbol(s)
AVNW
Name of Each Exchange on Which Registered
NASDAQ Stock Market LLC
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 ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the 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 every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Emerging growth company
☐
☒
☐
Accelerated filer
Smaller reporting company
☐
☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of
its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of December 28, 2019, the aggregate market value of the registrant’s common stock held by non-affiliates was approximately
$65.0 million. For purposes of this calculation, the registrant has assumed that its directors, executive officers and holders of 10% or more of
the outstanding common stock are affiliates.
As of August 21, 2020, there were 5,401,668 shares of the registrant’s common stock outstanding.
_________________________________
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for its fiscal 2020 Annual Meeting of Stockholders (“Proxy Statement”), which
will be filed with the Securities and Exchange Commission within 120 days after the end of the registrant’s fiscal year ended July 3, 2020, are
incorporated by reference into Part III of this Annual Report on Form 10-K.
[This page intentionally left blank]
AVIAT NETWORKS, INC.
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended July 3, 2020
Table of Contents
PART I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Item 5.
Item 6.
Item 7.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
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
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Directors, Executive Officers and Corporate Governance
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
Item 15.
Exhibits and Financial Statement Schedules
Signatures
Schedule II
Exhibit Index
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28
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29
30
30
32
33
47
48
89
90
91
92
92
92
92
92
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93
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94
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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, Inc. 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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the impact of COVID-19 on our business, operations and cash flows;
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, the effects of COVID-19 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;
the effects of current and future government regulations, including the effects of current restrictions on various
commercial and economic activities in response to the COVID-19 pandemic;
general economic conditions, including uncertainty regarding the timing, pace and extent of an economic
recovery in the United States and other countries where we conduct business;
the conduct of unethical business practices in developing countries;
the impact of political turmoil in countries where we have significant business;
4
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the impact of tariffs, the adoption of trade restrictions affecting our products or suppliers, a United States
withdrawal from or significant renegotiation of trade agreements, the occurrence of trade wars, the closing of
border crossings, and other changes in trade regulations or relationships; and
our ability to implement our stock repurchase program or that it will enhance long-term stockholder value.
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
expressly disclaim any obligation, other than as required by law, to update any forward-looking statements to reflect further
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.
5
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,” “Aviat,” “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 200 Parker Dr., Suite C100A, Austin, Texas 78728, and our
telephone number is (408) 941-7100. Our common stock is listed on the NASDAQ Global Select Market under the
symbol AVNW. As of July 3, 2020, we had 674 employees compared with 708 employees as of June 28, 2019.
Overview and Description of the Business
We design, manufacture and sell a range of wireless networking products, solutions and services to two principal
customer types.
1. Communications Service Providers (CSPs): These include mobile and fixed telecommunications network
operators, broadband and internet service providers and network operators which generate revenues from
the communications services that they provide.
2. Private network operators: These are customers which do not resell communications services but build
networks for reasons of economics, autonomy, and or security to support a wide variety of mission critical
performance applications. Examples include federal, state and local government agencies, transportation
agencies, energy and utility companies, public safety agencies and broadcast network operators around the
world.
We sell products and services directly to our customers, and, to a lesser extent, 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
optimized for a microwave and millimeter wave environment and for hybrid applications of microwave and optical fiber
transport, to form complete networking solutions. We provide software tools and applications to enable deployment,
monitoring, network management and optimization of our systems as well as to automate network design and
procurement. We also source, qualify, supply and support 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, optimization 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 to
offshore oil and gas production platforms. Through the air wireless transmission is also inherently lower in latency than
transmission through optical cables and can be leveraged in time sensitive networking applications.
Revenue from our North America and international regions represented approximately 64% and 36% of our
revenue in fiscal 2020, respectively, 54% and 46% of our revenue in fiscal 2019, respectively, and 54% and 46% of our
revenue in fiscal 2018, respectively. 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.
6
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 ongoing 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.
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5G Deployments. Mobile Radio Access Network (“RAN”) technologies are continually evolving. With the evolution
from 4G (HSPA+ and LTE) to 5G, technology is continuously advancing and providing subscribers with higher
speed access to the Internet, social media, and 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.
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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.
Network Densification. 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 interconnection and proportionally driving increased demand for wireless backhaul and or
fronthaul solutions as the primary alternative to optical fiber connectivity.
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.
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
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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
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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 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.
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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.
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 executing future generations of our
technology, our goal is to make wireless technology a viable choice for an ever-broadening range of network types.
Strategy
As we continue executing our technology roadmap, we are engaging more deeply with customers on the evolution
of use cases and applications as 5G mobile and broadband networks edge closer to implementation and begin to factor
more strongly in the vendor selection process. We are confident in our ability to address current and future 5G market
needs.
We are focused on building a sustainable and profitable business with growth potential. We have invested in our
people and processes to create a platform for operational excellence across sales, services, product development and
supply chain areas while continuing to make investments in strengthening our product and services portfolio and
expanding our reach into targeted market areas.
Our technology strategy has three main elements aligned to deliver a compelling Total Cost of Ownership
(“TCO”) value proposition. The first is the integration of network routing functions into our wireless transport solution
allowing our customers increased flexibility with a much better total cost solution. Second, we are expanding the data-
carrying capacity of our wireless products to address the increasing data demand in networks of all types. Third, in order
to address the operational complexity of planning, deploying, owning and operating microwave networks, we are
investing in a combination of software applications, tools and services where simplification, process automation and our
unique expertise in wireless technology can make a significant difference for our customers and partners.
We continue to develop our professional services portfolio as key to our long-term strategy and differentiation.
We offer a portfolio of hosted expert services and we continue to offer training and accreditation programs for
microwave and IP network design, deployment and maintenance.
We expect to continue to serve and expand upon our existing customer base and develop business with new
customers. 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
Our strong product and solutions portfolio is key to building and maintaining our marquee base of customers. 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 that addresses a broad range of applications, frequencies, capacities and network
topologies.
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Broad product and solution portfolio. We offer a comprehensive suite of wireless transmission systems for
microwave and millimeter wave networking applications. These solutions utilize a wide range of transmission
frequencies, ranging from 5 GHz to 90 GHz, and can deliver a wide range of transmission capacities, ranging up to
20 Gigabits per second (Gbps). The major product families included in these solutions are CTR 8000, WTM 4000
and AviatCloud. Our CTR 8000 platform merges the functionality of an indoor microwave modem unit and a cell
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site router into a single integrated solution, simplifying IP/MPLS deployments and creating a better performing
network. The newest addition to our product portfolio is the WTM 4000, the highest capacity microwave radio ever
produced, and purpose built for software-defined networks (“SDN.”) SDN technology is an approach to networking
management that enables dynamic, programmatically efficient networking configuration in order to improve
networking performance and monitoring, making it more like cloud computing than traditional networking
management. We have now introduced multiple important variants to the WTM 4000 platform; WTM4100 & 4200
providing single and dual frequency microwave links with advanced XPIC and MIMO capabilities; WTM4500 for
multi-channel aggregation of microwave channels in long distance applications; WTM4800 is the latest addition to
address 5G network requirements and is capable of operating in the 80GHz E Band at up to 20Gbps capacity, with a
unique Multi-Band capability which simultaneously uses microwave and E Band frequencies for maximum
robustness. WTM 4800 is the industry’s only single box multi-band solution for lowest total cost of ownership
deployments. To address the issues of operational complexity in our customers’ networks, AviatCloud is a platform
with secure hosted software and services to automate networks and their operations.
Low total cost of ownership. Our wireless-based solutions are focused on achieving a 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.
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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 in customer locations and include, but not limited to, Canada,
Mexico, Kenya, India, Saudi Arabia, Australia, New Zealand, and Singapore.
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 focused towards large and complex
projects in national security and government-related applications. 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 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
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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 introduced a direct online sales option through our online “AviatStore” for our WTM radio platform,
initially in North America and targeted at wireless internet service providers delivering broadband services in rural and
underserved areas. We provide online design tools for radio link planning and on-line ordering tools, which we fulfill
directly from our AviatStore with multiple options of product available for next day shipment. Shipments from
AviatStore commenced late in 2018.
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 American
Act.
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 was approximately $210 million at July 3, 2020 and $160.1 million at June 28, 2019 consisting
primarily of contracts or purchase orders for both product and service deliveries and extended service warranties.
Services include management’s initial estimate of the value of a customer’s commitment under a services contract. The
calculation used by management involves estimates and judgments to gauge the extent of a customer’s commitment,
including the type and duration of the agreement, and the presence of termination charges or wind down costs. Contract
extensions and increases in scope are treated as backlog only to the extent of the new incremental value. 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.
Backlog estimates are subject to change and are affected by several factors, including terminations, changes in the scope
of contracts, periodic revalidation, adjustments for revenue not materialized and adjustments for currency.
We expect to substantially fill the backlog as of July 3, 2020 during fiscal 2021, 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.
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.
Mobile Telephone Networks Group (“MTN Group”) in Africa accounted for 11% of total revenue in fiscal 2019
and 13% in fiscal 2018. No customer accounted for more than 10% of our revenue in fiscal 2020. We have entered into
separate and distinct contracts with MTN Group as well as separate arrangements with MTN Group subsidiaries.
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Competition
The microwave and millimeter wave wireless networking business is a specialized segment of the
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 Corporation and Nokia Corporation, as well as a number of smaller microwave specialist companies such
as Ceragon Networks Ltd. and SIAE Microelectronica S.p.A.
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
product 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
key technology areas and innovation to differentiate our overall portfolio from our competition. The majority of such
research and development resources will be focused on technologies in microwave and millimeter wave RF, digital
signal processing, networking protocols and software applications.
Our research and development expenditures totaled $19.3 million, or 8.1% of revenue, in fiscal 2020, $21.1
million, or 8.7% of revenue, in fiscal 2019, and $19.8 million, or 8.1% of revenue, in fiscal 2018.
Research and development are primarily directed to the development of new products and to build 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 totaled 149 employees as of July 3, 2020, and were located primarily in New
Zealand and Slovenia.
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 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 customers’
requirements or regulatory restrictions and to 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.
Examples of sole or limited source categories include metal fabrications and castings, for which we own the tooling and
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therefore limit our supplier relationships, and 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 sites which would also mitigate COVID-19 risks.
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 and are due primarily to the highly technical nature of many of our purchased components.
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 3, 2020, we held 413 U.S.
patents and 496 international patents and had 10 U.S. patent applications pending and 22 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.
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
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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 could impact our business, financial condition and results of
operations.
We have a comprehensive policy and procedures in effect concerning conflict minerals compliance.
Employees
As of July 3, 2020, we employed 674 people compared with 708 people as of the end of fiscal 2019, and 704 as of
the end of fiscal 2018. As of July 3, 2020, 272 of our employees were located in the U.S. Of the 674 employees
employed as of July 3, 2020, 656 were full-time employees. We also utilized 18 and 30 independent contractors as of
July 3, 2020 and June 28, 2019, respectively. 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.
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 August 27, 2020, are as follows:
Name and Age
Peter A. Smith, 54
Eric Chang, 47
Position Currently Held and Past Business Experience
Mr. Smith was appointed President and Chief Executive Officer in January 2020. Prior
to joining Aviat Networks, Mr. Smith served as Senior Vice President, US Windows
and Canada for Jeld-Wen from March 2017 to December 2019. Prior to Jeld-Wen, he
served as President of Polypore International’s Transportation and Industrial segment
from October 2013 to March 2017. Previously, he served as Chief Executive Officer
and a director of Voltaix Inc. from September 2011 to October 2013. Earlier in his
career, Mr. Smith held various executive leadership positions at Fortune 100 and
Fortune 500 companies, including Cooper Industries, Dover Knowles Electronics and
Honeywell Specialty Materials. Mr. Smith also served on the board of Soleras
Advanced Coatings from August 2015 to October 2018. He has both a Bachelor of
Science degree in Material (Ceramics) Engineering and PhD in Material Science and
Engineering from Rutgers University, and holds a Master of Business Administration
degree from Arizona State University.
Mr. Chang was appointed Senior Vice President and Chief Financial Officer in April
2020. Mr. Chang joined Aviat Networks in February 2016 as our Vice President,
Corporate Controller and Principal Accounting Officer. Prior to joining Aviat
Networks, from 2013 to 2016, Mr. Chang was the Senior Director, Corporate
Controller at Micrel, Incorporated. From 2007 to 2013, he served as Senior Director,
Assistant Controller and Business Unit Controller at Atmel Corporation. From 2003 to
2007, he was at Ernst & Young LLP, most recent as Senior Audit Manager. Mr. Chang
is a Certified Public Accountant in California and holds a Bachelor of Science degree
in Accounting and Computer Information Systems from Indiana University Kelley
School of Business.
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.
Website Access to Aviat Networks’ Reports; Available Information
We maintain a website 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 website 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 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.
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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
The nature of the business activities conducted by the Company subjects us to certain hazards and risks. The
following is a summary of some of the material risks relating to the Company’s business activities. Other risks are
described in “Item 1. Business,” “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and “Item 7A. Quantitative and Qualitative Disclosures About Market Risk.” 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 in our other public filings.
We face 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 not currently known to us or that we currently deem immaterial may also impair
our business operations. If any of these risks occur, our financial condition and results of operations could be materially
and adversely affected. In that case, the market price of the Company’s common stock could decline.
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 experience 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, usually taking several months or more. 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. Once a purchase agreement has been executed, the timing and amount of revenue, if
applicable, may remain difficult to predict. Our typical product sales cycle, which results in our products being designed
into our customers’ networks, can take 12 to 24 months. A number of factors 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 inventory management services that may be requested by certain large customers. The
completion of services such as 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.
Additionally, in anticipation of product orders, we may incur substantial costs before the sales cycle is complete
and before we receive any customer payments. Specifically, warehousing and inventory management services can affect
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. In the event that a sale is not completed or is canceled or delayed, we may have
already incurred substantial expenses, making it more difficult for us to become profitable or otherwise negatively
impacting our financial results. Because of the challenges 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.
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.
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We are highly dependent on sales to customers outside the U.S. In fiscal 2020, our sales to international customers
accounted for 38% 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;
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;
the conduct of unethical business practices in developing countries;
general economic and geopolitical conditions, including inflation and trade relationships;
restrictions on travel to locations where we conduct business, including those imposed due to COVID-19;
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.
The ongoing global COVID-19 pandemic could adversely affect our business, financial condition and results of
operations.
In March 2020, the World Health Organization characterized the current respiratory illness caused by novel
coronavirus disease, known as COVID-19, as a pandemic. The pandemic has resulted in government authorities
implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-
place or stay-at-home orders, and business shutdowns. Our global operations expose us to risks associated with public
health crises and epidemics/pandemics, such as the COVID-19 pandemic. The COVID-19 pandemic has, and is expected
to continue to have, an impact on our operations, supply chains and distribution systems. The extent to which the
COVID-19 pandemic continues to affect our business, prospects and results of operations will depend on future
developments, many of which are highly uncertain, including, but not limited to, the duration and spread of the
pandemic, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal
economic and operating activities can resume. Management is actively monitoring the impact of COVID-19 on the
Company’s financial condition, liquidity, operations, suppliers, industry, and workforce.
Our first priority remains the health and safety of our employees and their families. Employees whose tasks can be
done off-site have been instructed to work from home. Our sites support essential businesses and remain operational. We
15
are maintaining social distancing for workers on-site and have enhanced cleaning protocols and usage of personal
protective equipment, where appropriate. There is no certainty that such measures will be sufficient to mitigate the risks
posed by COVID-19, and our ability to perform critical functions could be harmed as a result.
The impact to our supply chain lead times and ability to fulfill orders was minimal for the second half of fiscal
2020. However, depending on pandemic-related factors like the uncertain duration of temporary manufacturing
restrictions as well as our ability to perform field services during shelter in place orders, we could/may continue to
experience constraints and delays in fulfilling customer orders in future periods.
While the ultimate effects of the pandemic on our business are uncertain, the pandemic and related government
actions, including restrictions on travel, temporary closure of businesses and stay at home orders have, and are likely to
continue to have, an adverse impact on global economic conditions and consumer confidence and spending, which could
materially affect demand for our products. Our customers could become more conservative in response to the pandemic
and economic conditions and may seek to reduce their purchases. Our results of operations depend upon, among other
things, our ability to maintain and increase sales volume with existing customers, our ability to attract new customers and
the financial condition of our customers. Decreases in demand for our products without a corresponding decrease in costs
would negatively impact our operating margins and financial results.
We are monitoring, assessing and adapting to the situation and have prepared for implications to our business,
supply chain and customer demand. We expect these challenges to continue until business and economic activities return
to more normal levels. The financial results for the fiscal year reflect some of the reduced activity experienced during the
period in various locations around the world and are not necessary indicative of the results for the next fiscal period or
fiscal year.
To the extent the COVID-19 pandemic continues to adversely affect the global economy, and/or adversely affects
our business, operations or financial performance, it may also have the effect of increasing the likelihood and/or
magnitude of other risks described in the “Risk Factors” set forth in this Item 1A.
The negative effects of COVID-19 on the global economy may adversely affect our business, results of operations and
financial condition.
Our business and operating results are affected by the global business environment and economic conditions,
including changes in interest rates, availability of capital from credit providers, consumer confidence, rates of inflation,
geopolitical issues and other macro-economic factors. The United States and global economies continue to experience a
period of economic and financial uncertainty, in part due to COVID-19 and the related public health actions taken by
many governments and businesses. The pandemic is negatively affecting, and is expected to continue to negatively
affect, at least in the short term, global economic conditions, and a continued economic downturn could lead to decreased
customer demand, inability to execute installs and/or service, or the inability of our customers to pay for our products,
the inability of suppliers to deliver the components necessary to manufacture our products, and reduced access to capital
from credit providers and through the capital markets, among other things, which could adversely affect our business,
results of operations and financial condition. Additionally, a prolonged economic downturn may exacerbate certain other
risks described in the “Risk Factors” set forth in this Item 1A that affect our business, results of operations and financial
condition.
Natural disasters or other catastrophic events could have an adverse effect on our business.
Natural disasters, such as hurricanes, earthquakes, fires, and floods, could adversely affect our operations and
financial performance. Such events could result in physical damage to one or more of our facilities, the temporary
closure of one or more of our facilities or those of our suppliers, a temporary lack of an adequate work force in a market,
a temporary or long-term disruption in the supply of products from local or overseas suppliers, a temporary disruption in
the transport of goods from overseas, and delays in the delivery of goods. Public health issues, whether occurring in the
United States or abroad, could disrupt our operations, disrupt the operations of suppliers or customers, or have an adverse
impact on customer demand. As a result of any of these events, we may be required to suspend operations in some or all
of our locations, which could have an adverse effect on our business, financial condition, results of operations, and cash
flows. These events could also reduce demand for our products or make it difficult or impossible to receive components
from suppliers. Although we maintain business interruption insurance and other insurance intended to cover some or all
of these risks, such insurance may be inadequate, whether because of coverage amount, policy limitations, the financial
viability of the insurance companies issuing such policies, or other reasons.
Tension in U.S.-China trade relations may adversely impact our supply chain operations and business.
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The U.S. government has taken certain actions that change U.S. trade policies, including recently-imposed tariffs
affecting certain products manufactured in China. Some components manufactured by our Chinese suppliers are subject
to tariffs if imported into the United States. In addition, the Chinese government has taken certain reciprocal actions,
including recently imposed tariffs affecting certain products manufactured in the United States. Certain of our products
manufactured in our U.S. operations have been included in the tariffs imposed on imports into China from the United
States. Although some of the products and components we import are affected by the tariffs, at this time, we do not
expect these tariffs to have a material impact on our business, financial condition or results of operations. It is unknown
whether and to what extent additional new tariffs (or other new laws or regulations) will be adopted that increase the cost
of importing and/or exporting products and components from China to the United States and vice versa. Further, the
effect of any such new tariffs or retaliatory actions on our industry and customers is unknown and difficult to predict. As
additional new tariffs, legislation and/or regulations are implemented, or if existing trade agreements are renegotiated or
if China or other affected countries take retaliatory trade actions, such changes could have a material adverse effect on
our business, financial condition, results of operations or cash flows.
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, 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 $4.0 million, $0.7 million and $1.3 million in fiscal 2020,
2019 and 2018, 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
may incur additional restructuring and related expenses, which could have a material adverse effect on our business,
financial condition or results of operations.
We must increase our revenues and/or reduce costs if we hope to maintain profitability.
As measured under U.S. generally accepted accounting principles (“U.S. GAAP”), we recorded net income
attributable to our stockholders of $0.3 million in fiscal 2020, compared to $9.7 million in fiscal 2019 and $1.8 million in
fiscal 2018. We generated cash from operations of $17.5 million, $2.9 million and $8.2 million in fiscal 2020, 2019 and
2018, respectively.
Throughout fiscal 2020, 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. In addition, we saw pricing
pressures in all markets, particularly 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 will allow us to maintain operating profitability
or net income as determined under U.S. GAAP in the future.
Our quarterly results may be volatile, which can adversely affect the trading price of our common stock.
17
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;
•
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;
• maintaining appropriate inventory levels and purchase commitments;
•
•
failure to realize expected cost improvement throughout our supply chain;
order cancellations or postponements in product deliveries, including due to the COVID-19 pandemic,
resulting in delayed revenue recognition;
restructuring and streamlining of our operations;
•
• war and acts of terrorism;
•
•
•
•
•
•
natural disasters;
diseases or pandemics, such as the COVID-19 pandemic, and corresponding governmental actions;
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.
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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 cannot guarantee that our stock repurchase program will be fully implemented or that it will enhance long-term
stockholder value.
In May 2018, our Board of Directors approved a stock repurchase program for the repurchase of up to $7.5
million. The repurchase program has been suspended temporarily since February 2020. Our repurchase program even if
fully implemented, may not enhance long-term stockholder value. During fiscal 2020 and 2019, we repurchased $1.8
million and $2.3 million of our common stock in the open market respectively. As of July 3, 2020, $3.4 million
remained available for repurchase under our stock repurchase program.
Our success will depend on new products introduced to the marketplace in a timely manner, successfully completing
product transitioning and achieving customer acceptance.
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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 product 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 non-competitive or obsolete and result in
significant reduction in orders from our customers and the loss of existing and prospective customers.
Changes in accounting standards issued by the Financial Accounting Standards Board (“FASB”) could adversely
affect our financial condition and results of operations, and could require a significant expenditure of time, attention
and resources, especially by senior management.
Our accounting and financial reporting policies conform to U.S. GAAP, which are periodically revised and/or
expanded. The application of accounting principles is also subject to varying interpretations over time. Accordingly, we
are required to adopt new or revised accounting standards or comply with revised interpretations that are issued from
time to time by various parties, including accounting standard setters and those who interpret the standards, such as the
FASB and the SEC and our independent registered public accounting firm. New financial accounting standards which
may be adopted by FASB could result in significant changes to our accounting and/or financial reporting practices that
could adversely affect our financial condition and results of operations.
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, to reduce the 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.
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, including the Company, 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
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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. Our customers’ financial conditions face additional challenges in many emerging markets, where
our customers are being affected not only by recession, but by deteriorating local currencies and a lack of credit and,
more broadly, by the COVID-19 pandemic and related economic effects. Upon the financial failure of a customer, we
may experience losses on credit extended 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 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 have no assurance 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 ownership of our
existing stockholders could be significantly diluted, and these newly-issued securities may have rights, preferences or
privileges senior to those of existing stockholders.
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 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.
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 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.
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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
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.
Our ability to sell our products and compete successfully is highly dependent on the quality of our customer service
and support, and our failure to offer high quality service and support could have a material adverse effect on our
sales and results of operations.
Once our products are delivered, our customers depend on our service and support to resolve any issues relating to
our products. Our support personnel includes employees in various geographic locations, who provide general technical
support to our customers. A high level of support is important for the successful marketing and sale of our products. If
we do not effectively help our customers quickly resolve issues or provide effective ongoing support, it could adversely
affect our ability to sell our products to existing customers as well as demand for maintenance and renewal contracts and
could harm our reputation with existing and potential customers.
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 customers’ needs, including ours, during periods of excess demand.
The effects of 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 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.
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.
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In addition, economic conditions in certain markets could materially adversely affect our suppliers’ access to
capital and liquidity with which to maintain their inventories, production levels, 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 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. There can be no assurance that we will not encounter problems with our contract manufacturer related to
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 they do 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.
Changes in tax laws, treaties, rulings, regulations or agreements, or their interpretation in any country in which we
operate; the loss of a major tax dispute; a successful challenge to our operating structure, intercompany pricing
policies or the taxable presence of our key subsidiaries in certain countries; or other factors could cause volatility in
our effective tax rate 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;
our ability to utilize net operating loss;
changes in available tax credits;
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changes in share-based compensation expense;
changes in the valuation of our deferred tax assets and liabilities;
changes in domestic or international tax laws, treaties, rulings, regulations or agreements or the
interpretation of such tax laws, treaties, rulings, regulations or agreements, including the impact of the Tax
Cuts and Jobs Act of 2017;
the resolution of issues arising from tax audits with various tax authorities, including the loss of a major tax
dispute;
local tax authority challenging our operating structure, intercompany pricing policies or the taxable presence
of our key subsidiaries in certain countries;
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 deduction 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 March 3, 2020, the Board 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 March 3, 2020, the Board adopted certain rights to the agreement which are intended to preserve the Tax
Benefits by restricting certain transfers of our common stock. The Company expects to submit the Plan to a stockholder
vote at the Company’s 2020 Annual Meeting of Stockholders. 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 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 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.
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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 2019 and 2018, we had one customer
in Africa, MTN Group, that accounted for 11% and 13% of our total revenue, respectively. No customer accounted for
more than 10% of our total revenue in fiscal 2020. 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.
In addition, 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, 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.
It is possible that a significant portion of our future product sales could become even more concentrated in a
limited number of customers due to the factors described above. 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, the consolidation of existing customers, or our inability to gain additional customers could result in declines in
our revenue or an inability to grow revenue.
We continually evaluate strategic transaction opportunities which could involve merger, restructuring, divestiture,
sale 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. Strategic transactions involve
numerous risks, including the following:
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difficulties in integrating the operations, systems, technologies, products, and personnel of the combined
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 business combinations, sales, divestitures
and /or restructurings;
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
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the potential loss of key employees, customers, resellers, vendors and other business partners of our
company or the companies with which we engage in strategic transactions following and continuing after
announcement of an anticipated strategic transaction.
Strategic transactions may also cause us to:
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issue common stock that would dilute our current stockholders or cause a change in control of the
combined company;
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, restructurings, sales and acquisitions of high-technology companies are inherently risky and subject to
many factors outside of our control. No assurance can be given that any future strategic transactions will be successful
and will not materially adversely affect our business, operating results or financial condition. Failure to manage and
successfully complete a strategic transaction could materially harm our business and operating results. Even when an
acquired or acquiring 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 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.
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We may be affected by the allocation and auction of the radio frequency spectrum by governmental authorities
both in the U.S. and internationally. The unavailability of sufficient radio frequency spectrum may inhibit the future
growth of wireless communications networks. In addition, to operate in a jurisdiction, we must obtain regulatory
approval for our products and each jurisdiction in which we market our products has its own regulations governing radio
communications. 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.
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 or potential liabilities in the
future.
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, 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.
There are inherent limitations on the effectiveness of our controls.
We do not expect that our disclosure controls or our internal control over financial reporting will prevent or detect
all errors and all fraud. A control system, no matter how well-designed and operated, can provide only reasonable, not
absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact
that resource constraints exist, and the benefits of controls must be considered relative to their costs. Further, because of
the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that
misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, 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 errors or mistakes. Controls can also be circumvented by individual acts of
some persons, by collusion of two or more people, or by management’s 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. Projections of
any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become
inadequate due to changes in conditions or deterioration in the degree of compliance with policies or procedures. If our
controls become inadequate, we could fail to meet our financial reporting obligations, our reputation may be adversely
affected, our business and operating results could be harmed, and the market price of our stock could decline.
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.
26
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
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. Due to the COVID-19 pandemic, an increased number of our employees are
working from home and connecting to our networks remotely, which we believe may further increase the risk of, and our
vulnerability to, a cyber-attack or breach on our network.
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.
As cyber-attacks become more sophisticated, the need to develop our infrastructure to secure our business can
lead to increased cybersecurity protection costs. Such costs may include making organizational changes, deploying
additional personnel and protection technologies, training employees, and engaging third party experts and consultants.
These efforts come at the potential cost of revenues and human resources that could be utilized to continue to enhance
our product offerings, and such increased costs may adversely affect our operating margins.
Additionally, certain of our suppliers have in the past and may in the future experience cybersecurity attacks that
can constrain their capacity and ability to meet our product demands. If our contract manufacturers and suppliers suffer
future cyberattacks, 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.
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.
27
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 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 3, 2020, we leased approximately 164,000 square feet of facilities worldwide, with approximately 37%
in the United States, mostly in California, and Texas. Our corporate headquarters is located in Austin, Texas, and
consists of approximately 18,000 square feet office space. We also lease approximately 24,000 square feet of office,
assembly facilities and warehouse in multiple locations in Texas and 19,000 square feet of office space in Milpitas,
California. Internationally, we lease approximately 103,000 square feet of facilities throughout Europe, North America,
South America, Africa and Asia regions, including offices in Singapore, Slovenia, Philippine Islands, India, Mexico,
Brazil, Canada, South Africa, Ghana, Ivory Coast, Kenya, Nigeria, Algeria, Congo, France, Netherlands, 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 leases, see “Note 4. Leases” of the notes to consolidated financial statements,
which are included in Item 8 in this Annual Report on Form 10-K.
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 damages from a customer alleging that certain of our products were defective.
Although we believe that we have numerous contractual and legal defenses to these disputes, at this time we have
accrued an immaterial amount representing the estimated probable loss for which we would settle the matter. We
currently cannot form an estimate of the range of loss in excess of our amounts already accrued. If the outcome of this
matter is greater than the current immaterial amount accrued, we intend to dispute it vigorously.
In March 2016, an enforcement action by the Indian Department of Revenue, Ministry of Finance was brought
against our subsidiary Aviat Networks (India) Private Limited (“Aviat India”) relating to the non-realization of
intercompany receivables and non-payment of intercompany payables, which originated from 1999 to 2012, within the
time frames dictated by the Indian regulations under the Foreign Exchange Management Act ("FEMA"). In November
2017, the Indian Department of Revenue, Ministry of Finance also initiated a similar action against Telsima
28
Communications Private Limited (“Telsima India”), a subsidiary of the Company, relating to the non-realization of
intercompany receivables and non-payment of intercompany payables which originated from the period prior to our
acquisition of Telsima India in February 2009. In September 2019, our directors of Aviat India appeared before the
Ministry of Finance Enforcement Directorate. No settlement offers were discussed at the meeting and the matter is still
ongoing with no subsequent hearing date currently scheduled. We have accrued an immaterial amount representing the
estimated probable loss for which we would settle the matter. We currently cannot form an estimate of the range of loss
in excess of our amounts already accrued. If the outcome of this matter is greater than the current immaterial amount
accrued, we intend to dispute it 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.
29
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market Information on 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 21, 2020, there were 2,204 holders of record of our
common stock.
Dividend Policy
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 2020, we did not issue or sell any unregistered securities.
Issuer Repurchases of Equity Securities
In May 2018, our board of directors approved a repurchase program, which does not have an expiration date, for
the repurchase of up to $7.5 million of our common stock. In February 2020, we temporarily suspended the stock
repurchase program. During the fourth quarter of fiscal 2020, we did not repurchase any shares of our common stock in
the open market. As of July 3, 2020, $3.4 million remained available for repurchases under our stock repurchase
program.
Performance Graph
The following graph and accompanying data compare 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 3, 2020. 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.
30
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
7/3/2015
7/1/2016
6/30/2017
6/29/2018
6/28/2019
7/3/2020
$ 100.00 $
50.98 $ 110.20 $ 103.67 $
86.76 $ 117.73
$ 100.00 $
98.28 $ 125.56 $ 155.19 $ 167.27 $ 215.50
NASDAQ Telecommunications
$ 100.00 $ 101.45 $ 117.97 $ 142.72 $ 171.47 $ 179.06
____________________________
*
Assumes (i) $100 invested on June 3, 2015 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.
31
Aviat Networks, Inc.NASDAQ CompositeNASDAQ Telecommunications07/03/1507/01/1606/30/1706/29/1806/28/1907/03/20050100150200250 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 of the per-share data have been retroactively
adjusted for the 1-for-12 reverse stock split discussed in footnote 3 below. Data presented for fiscal years 2020, 2019 and
2018 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.
(In thousands, except per share amounts)
Revenue from product sales and services
Cost of product sales and services
Income (loss) from continuing operations (1) (2)
Net income (loss) (1) (2)
Net income attributable to noncontrolling
interests, net of tax
Net income (loss) attributable to Aviat
Networks (1) (2)
Basic and diluted net income (loss) per
common share(3):
Net income (loss) - basic
Net income (loss) - diluted
_______________________
July 3, 2020
June 28, 2019
Fiscal Year Ended
June 29, 2018
June 30, 2017
July 1, 2016
$ 238,642 $ 243,858 $ 242,506 $ 241,874 $ 268,690
153,946
164,588
162,003
166,402
206,973
257
257
—
257
9,738
9,738
2,302
2,302
(621)
(30,178)
(621)
(29,637)
—
457
202
270
9,738
1,845
(823)
(29,907)
$
$
0.05 $
0.05 $
1.81 $
1.73 $
0.35 $
0.33 $
(0.16) $
(0.16) $
(5.71)
(5.71)
(1) Includes share-based compensation expense of $1.7 million, $1.7 million, $2.4 million, $2.1 million and $1.8
million for fiscal 2020, 2019, 2018, 2017, and 2016, respectively.
(2) Includes restructuring charges of $4.0 million, $0.7 million, $1.3 million, $0.6 million, and $2.5 million for fiscal
2020, 2019, 2018, 2017, and 2016, respectively.
(3) 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 number of shares of 300 million and par value per share of our
common stock of $0.01 per share remained unchanged after the Reverse Stock Split.
(In thousands)
Total assets
Long-term liabilities
_______________________
July 3, 2020
June 28, 2019
As of
June 29, 2018
June 30, 2017
July 1, 2016
$ 179,801 $ 169,193 $ 156,061 $ 152,576 $ 166,111
17,150
15,466
12,077
12,218
12,707
32
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview of Business; Operating Environment and Key Factors Impacting Fiscal 2020 and 2019 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
July 2, 2021 is referred to as “fiscal 2021” or “2021”; our fiscal year ended July 3, 2020 is referred to as “fiscal 2020” or
“2020”; our fiscal year ended June 28, 2019 is referred to as “fiscal 2019” or “2019”; and our fiscal year ended June 29,
2018 is referred to as “fiscal 2018” or “2018.” Our fiscal year ends on the Friday nearest to June 30. Fiscal 2020
presented included 53 weeks while fiscal 2019 and fiscal 2018 each included 52 weeks. This one extra week has
impacted both our fiscal 2020 revenue and expenses.
Overview
We anticipate modest growth in revenue in fiscal 2021. We have a healthy backlog entering fiscal 2021 for North
America private network projects and we anticipate continuing our strong momentum across these verticals. We have
made inroads into the U.S. rural broadband and wireless internet service provider areas and there is further evidence now
of investment to support 5G deployments with our U.S. service provider customers. Internationally, we are continuing a
more conservative view of our revenue opportunity based on a variety of factors that have led to an overall capital
spending decline and increased competitive intensity, especially from vendors based in China.
Operations Review
The market for mobile backhaul continued to be our primary addressable market segment globally in fiscal 2020.
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. 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 LTE deployments. Our
position continues to be to support our customers for 5G and LTE readiness and ensure that our technology roadmap is
well aligned with evolving market requirements. We continue to 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 the Middle East, (2) Europe and Russia and (3) Latin America and Asia Pacific.
Revenue by region for fiscal 2020, 2019 and 2018 and the related changes are shown in the table below:
(In thousands, except percentages)
2020
2019
2018
2020/2019
2019/2018
2020/2019
2019/2018
North America
$ 151,709 $ 132,884 $ 131,078 $ 18,825 $ 1,806
14.2 %
1.4 %
Fiscal Year
$ Change
% Change
Africa and the Middle East
Europe and Russia
Latin America and Asia Pacific
37,595
11,157
38,181
48,305
16,933
45,736
58,459
(10,710) (10,154)
(22.2) % (17.4) %
18,205
34,764
(5,776)
(1,272)
(34.1) %
(7,555) 10,972
(16.5) %
Total Revenue
$ 238,642 $ 243,858 $ 242,506 $ (5,216) $ 1,352
(2.1) %
(7.0) %
31.6 %
0.6 %
During fiscal 2020 and 2019, we recognized revenue based on Accounting Standards Codification (“ASC”) 606
but revenue for fiscal 2018 was recognized based on ASC 605. Therefore, the periods are not directly comparable. See
“Critical Accounting Estimates—Revenue Recognition” in “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations” for additional information on our revenue recognition.
33
Our revenue from North America increased by $18.8 million, or 14.2%, in fiscal 2020 compared with fiscal 2019.
The increase in North America revenue during fiscal 2020 was due to revenue growth with private network customers, as
well as increased sales to mobile operators. Revenue from North America increased $1.8 million, or 1.4%, in fiscal 2019
compared with fiscal 2018. The increase in North America revenue during fiscal 2019 was due to stronger order flow
from private network customers.
Our revenue from Africa and the Middle East decreased by $10.7 million, or 22.2%, in fiscal 2020 compared with
fiscal 2019. The decrease in revenue was primarily due to decreased sales to our large mobile operator customers in the
region. Revenue from Africa and the Middle East decreased $10.2 million, or 17.4%, in fiscal 2019 compared with fiscal
2018. The decrease in revenue was primarily due to decreased sales to our large mobile operator customers in the region
and completion of a one-time large Middle East project in fiscal 2018.
Revenue from Europe and Russia decreased by $5.8 million, or 34.1%, in fiscal 2020 compared with fiscal 2019.
The decrease was due to lower sales to mobile operator customers, offset in part by increased sales to private network
customers in the region. Revenue in Europe and Russia decreased $1.3 million, or 7.0%, in fiscal 2019 compared with
fiscal 2018. The decrease during fiscal 2019 was due to lower sales to mobile and private network customers in the
region.
Revenue from Latin America and Asia Pacific decreased by $7.6 million, or 16.5%, in fiscal 2020 compared with
fiscal 2019. The decrease was primarily due to lower sales volume from certain mobile operator customers in Asia
Pacific offset in part by increased revenue in Latin America. Revenue from Latin America and Asia-Pacific increased
$11.0 million, or 31.6%, in fiscal 2019 compared with fiscal 2018. The increase was primarily due to higher sales
volume from certain mobile operator customers in Asia Pacific.
Fiscal Year
$ Change
% Change
(In thousands, except percentages)
2020
2019
2018
2020/2019
2019/2018
2020/2019
2019/2018
Product sales
Services
Total Revenue
$ 153,793 $ 156,724 $ 151,685 $ (2,931) $ 5,039
84,849
87,134
90,821
(2,285)
(3,687)
$ 238,642 $ 243,858 $ 242,506 $ (5,216) $ 1,352
(1.9) %
(2.6) %
(2.1) %
3.3 %
(4.1) %
0.6 %
Our revenue from product sales decreased by $2.9 million, or 1.9%, in fiscal 2020 compared with fiscal 2019.
Product volume decreased with customers in international markets and was offset in part by increased product sales in
North America. Our services revenue decreased by $2.3 million, or 2.6%, in fiscal 2020 compared with fiscal 2019.
Decreased sales in international markets were offset in part by increased sales in North America.
Our revenue from product sales increased $5.0 million, or 3.3%, in fiscal 2019 compared with fiscal 2018.
Product volume increased primarily with mobile operators in Asia Pacific and a small increase in North America
offsetting volume reductions in the other regions compared with fiscal 2018. Our services revenue decreased by $3.7
million, or 4.1%, in fiscal 2019 compared with fiscal 2018. Decreased sales in Africa and the Middle East were offset in
part by increased sales in other regions.
Gross Margin
(In thousands, except percentages)
2020
2019
2018
2020/2019
2019/2018
2020/2019
2019/2018
Fiscal Year
$ Change
% Change
Revenue
Cost of revenue
Gross margin
% of revenue
Product margin %
Service margin %
$ 238,642
$ 243,858
$ 242,506
$ (5,216) $ 1,352
153,946
164,588
162,003
(10,642)
2,585
$ 84,696
$ 79,270
$ 80,503
$ 5,426 $ (1,233)
(2.1) %
(6.5) %
6.8 %
0.6 %
1.6 %
(1.5) %
35.5 %
38.0 %
30.9 %
32.5 %
33.9 %
29.9 %
33.2 %
34.0 %
31.9 %
Gross margin for fiscal 2020 increased by $5.4 million, or 6.8%, compared with fiscal 2019. Gross margin as a
percentage of revenue for fiscal 2020 increased to 35.5%, compared with 32.5% in fiscal 2019, primarily due to higher
34
margin rates for product sales and implementation of cost savings initiatives. The increased volume of product sales in
North America, which generally has a higher gross margin compared to international, contributed most of the overall
gross margin improvement in fiscal 2020.
Gross margin for fiscal 2019 decreased $1.2 million, or 1.5%, compared with fiscal 2018. Gross margin as a
percentage of revenue for fiscal 2019 decreased to 32.5%, compared with 33.2% in fiscal 2018, primarily due to lower
margin rates for services. Service margin as a percentage of service revenue declined in fiscal 2019 compared to fiscal
2018, primarily due to decreased margins in North America, the Middle East and Africa.
Research and Development Expenses
(In thousands, except percentages)
Research and development
expenses
% of revenue
Fiscal Year
$ Change
% Change
2020
2019
2018
2020/2019
2019/2018
2020/2019
2019/2018
$ 19,284
$ 21,111
$ 19,750
$ (1,827) $ 1,361
(8.7) %
6.9 %
8.1 %
8.7 %
8.1 %
Our research and development (“R&D”) expenses decreased by $1.8 million, or 8.7%, in fiscal 2020 compared
with fiscal 2019. The decrease was primarily due to consolidation of product development, lower variable compensation
and costs reduction initiatives associated with COVID-19, offset in part by expenses associated with one extra week in
our fiscal 2020 calendar.
Our R&D expenses increased $1.4 million, or 6.9%, in fiscal 2019 compared with fiscal 2018. The increase was
primarily due to increased development activity on new product lines.
Selling and Administrative Expenses
(In thousands, except percentages)
Selling and administrative
expenses
% of revenue
Fiscal Year
$ Change
% Change
2020
2019
2018
2020/2019
2019/2018
2020/2019
2019/2018
$ 57,985
$ 56,055
$ 58,157
$ 1,930 $ (2,102)
3.4 %
(3.6) %
24.3 %
23.0 %
24.0 %
Our selling and administrative expenses increased by $1.9 million, or 3.4%, in fiscal 2020 compared with fiscal
2019. The increase was primarily due to higher variable compensation and expenses associated with one extra week in
our fiscal 2020 calendar, partially offset by cost reductions initiatives associated with COVID-19.
Our selling and administrative expenses decreased $2.1 million, or 3.6%, in fiscal 2019 compared with fiscal
2018. The decrease was primarily due to lower variable compensation.
Restructuring Charges
During the fourth quarter of fiscal 2020, our Board of Directors approved a restructuring plan (the “Q4 2020
Plan”) in order to continue to reduce our operating costs and improve profitability to optimize our business model and
increase efficiencies. The Q4 2020 Plan is being implemented starting with our fourth fiscal quarter of 2020 through the
second fiscal quarter of 2021. We recorded restructuring charges of $1.9 million related to the Q4 2020 Plan in fiscal
2020. Payments related to the accrued restructuring liability balance for this plan are expected to be fully paid in fiscal
2021.
During the third quarter of fiscal 2020, our Board of Directors approved a restructuring plan (the “Q3 2020 Plan”)
in order to reduce our operating costs and improve profitability to optimize our business model and increase efficiencies.
We recorded restructuring charges of $0.6 million related to the Q3 2020 Plan in fiscal 2020. Payments related to the
accrued restructuring liability balance for this plan are expected to be fully paid in fiscal 2021.
During the fourth quarter of fiscal 2019, our Board of Directors approved a restructuring plan (the “Fiscal 2020
Plan”) to primarily consolidate product development, right size our resources to support our International business and
35
other support functions. Payments related to the accrued restructuring liability balance for this plan are expected to be
fully paid in fiscal 2021.
During the fourth quarter of fiscal 2018, our Board of Directors approved a restructuring plan (the “Fiscal
2018-2019 Plan”) to consolidate back-office support functions and align resources by geography to lower our expense
structure. We completed the restructuring activities under the Fiscal 2018-2019 Plan at the end of fiscal 2019. The
remaining payments related to the accrued restructuring liability balance for this plan are expected to be fully paid in
fiscal 2021.
Our restructuring charges by plan for fiscal 2020, 2019 and 2018 are summarized in the table below:
Fiscal Year
$ Change
% Change
(In thousands, except percentages)
2020
2019
2018
2020/2019
2019/2018
2020/2019
2019/2018
Q4 2020 Plan
Q3 2020 Plan
Fiscal 2020 Plan
Fiscal 2018-2019 Plan
Fiscal 2016-2017 Plan
Other prior years plans
$
$
$
$
1,879 $
595 $
1,725 $
— $
— $
— $
— $ 1,879 $
— $
595 $
— $ 1,725 $
—
—
—
N/A
N/A
N/A
(150) $
736 $
1,532 $
(886) $
(796)
(120.4) %
N/A
N/A
N/A
N/A
—
—
—
—
(5)
(248)
—
—
5
248
N/A (100.0) %
N/A (100.0) %
Total
$
4,049 $
736 $
1,279 $ 3,313 $
(543)
450.1 % (42.5) %
Restructuring charges in fiscal 2020 of $4.0 million relate to employee severance and benefits for the Q4 2020
Plan, Q3 2020 Plan and the Fiscal 2020 Plan. Restructuring charges for fiscal 2019 included $0.7 million of employee
severance and benefits costs related to the Fiscal 2018-2019 Plan. Restructuring charges for fiscal 2018 included $1.5
million of employee severance and benefits costs primarily related to the Fiscal 2018-2019 Plan and a reduction in the
previously estimated accrual of $0.3 million of an older plan.
Interest Income, Interest Expense and Other Income (Expense), Net
Fiscal Year
$ Change
% Change
(In thousands, except percentages)
2020
2019
2018
2020/2019
2019/2018
2020/2019
2019/2018
Interest income
Interest expense
Other income (expense), net
$
385 $
267 $
198 $
118 $
(54)
(102)
—
17
(29)
(220)
48
(17)
69
(73)
237
44 %
(47) %
N/A
35 %
252 %
N/A
Interest income reflected interest earned on our cash equivalents which were comprised of money market funds
and bank certificates of deposit.
Interest expense was primarily related to interest associated with borrowings under our Silicon Valley Bank
(“SVB”) credit facility and discounts on customer letters of credit.
Other expense in fiscal 2018 included $0.2 million related to the foreign exchange loss on a dividend declared by
our Nigeria entity (a partnership for U.S. tax purposes) to our Aviat U.S. entity.
Income Taxes
(In thousands, except percentages)
2020
2019
2018
2020/2019
2019/2018
Income before income taxes
Provision for (benefit from) income taxes
As % of income before income taxes
$ 3,709
3,452
$ 1,550
(8,188)
$ 1,266
(1,036)
$ 2,159 $
11,640
284
(7,152)
93.1 % (528.3) %
(81.8) %
Fiscal Year
$ Change
36
Our provision for (benefit from) income taxes was $3.5 million of expense for fiscal 2020, $8.2 million of benefit
for fiscal 2019 and $1.0 million of benefit for fiscal 2018. The tax expense for fiscal 2020 was primarily due to tax
expense related to profitable foreign subsidiaries and an increase in our reserve for uncertain tax positions.
Our tax benefit for fiscal 2019 was primarily due to the release of certain U.S. federal and state valuation
allowances of $7.5 million and a refundable foreign withholding tax credit, partially offset by losses in tax jurisdictions
in which we cannot recognize tax benefits. During the first quarter of fiscal 2019, we received notification from the
Department of Federal Revenue of Brazil that our withholding tax refund request had been approved. We recorded a net
discrete income tax benefit of $1.6 million for the release of valuation allowance previously recorded as a deferred tax
asset for the withholding tax credits. This consisted of an income tax benefit of $1.9 million for the refundable
withholding tax credit, less tax expense of $0.3 million from recognizing an ASC 740-10 reserve previously recorded as
a reduction to the withholding tax credits. We expect to receive the refundable withholding tax credit during our fiscal
year 2021.
Liquidity, Capital Resources and Financial Strategies
As of July 3, 2020, our cash and cash equivalents and short-term investments totaled $41.6 million.
Approximately $25.2 million, or 60.5%, was held in the United States. The remaining balance of $16.4 million, or
39.5%, was held by entities outside the United States. Of the amount of cash and cash equivalents held by our foreign
subsidiaries at July 3, 2020, $16.0 million was held in jurisdictions where our undistributed earnings are indefinitely
reinvested, and if repatriated, would be subject to foreign withholding taxes.
Operating Activities
Cash provided by operating activities is presented as net income adjusted for certain non-cash items and changes
in assets and liabilities. Net cash provided by operating activities was $17.5 million for fiscal 2020, $2.9 million for
fiscal 2019 and $8.2 million for fiscal 2018.
For fiscal 2020 compared to fiscal 2019, cash provided by operating activities increased by $14.5 million. The net
contribution of non-cash items to cash provided by operating activities increased by $9.3 million and the net contribution
of changes in operating assets and liabilities to cash provided by operating activities increased by $10.3 million in fiscal
2020 as compared to fiscal 2019.
The $9.3 million increase in the net contribution of non-cash items to cash provided by operating activities was
primarily attributable to a $8.6 million net change in deferred tax assets.
Changes in operating assets and liabilities resulted in an increase of $10.3 million to cash provided by operating
activities for fiscal 2020 compared to fiscal 2019. Accounts receivable and unbilled costs fluctuate from period to period,
depending on the amount and timing of sales and billing activities and cash collections. The fluctuations in accounts
payable and accrued expenses during fiscal 2020 were primarily due to the timing of liabilities incurred and vendor
payments. The change in inventories and in customer service inventories during fiscal 2020 were primarily driven by
forecasted demand and to secure component parts in shortage. The increase in customer advance payments and unearned
revenue during fiscal 2020 was due to the timing of payment from customers and revenue recognition. We used $2.6
million in cash during fiscal 2020 on expenses related to restructuring liabilities.
For fiscal 2019 compared to fiscal 2018, cash provided by operating activities declined by $5.3 million. The net
contribution of non-cash items to cash provided by operating activities decreased by $7.2 million and the net contribution
of changes in operating assets and liabilities to cash provided by operating activities decreased by $5.5 million in fiscal
2019 as compared to fiscal 2018.
The $7.2 million decrease in the net contribution of non-cash items to cash provided by operating activities was
primarily attributable to a $5.6 million net change in deferred tax assets, a $0.7 million decrease in depreciation and
amortization and a $0.6 million decrease in share based compensation.
Investing Activities
Net cash used in investing activities was $4.6 million for fiscal year 2020, $5.2 million for fiscal 2019 and $6.3
million for fiscal 2018, which consisted primarily of capital expenditures.
37
For fiscal 2021, we expect to spend between $5.0 million to $6.0 million for capital expenditures, primarily on
equipment for development and manufacturing of new products and IT infrastructure.
Financing Activities
Financing cash flows consist primarily of proceeds and repayments of short-term debt, repurchase of stock and
proceeds from the sale of shares of common stock through employee equity plans. Net cash used in financing activities
was $2.5 million for fiscal year 2020, which was primarily attributable to $1.8 million for the repurchases of our
common stock and a $0.8 million payment for taxes related to the net settlement of equity awards. Net cash used by
financing activities was $3.0 million for fiscal 2019 and net cash provided by financing activities was $12,000 for fiscal
2018.
As of July 3, 2020, our principal sources of liquidity consisted of the $41.6 million in cash and cash equivalents,
$13.3 million of available credit under our $23.8 million credit facility with Silicon Valley Bank (“SVB Credit Facility”)
which matures on June 28, 2021, and future collections of receivables from customers. We regularly require letters of
credit from certain 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
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. On May 4, 2020, we entered into Amendment No. 3 to
Third Amended and Restated Loan and Security Agreement which extended the expiration date to June 28, 2021. While
we intend to continue to renew the SVB Credit Facility annually, there can be no assurance that the SVB Credit Facility
will be renewed. In addition, there can be no assurance that our business will generate cash flow from operations, that we
will be in compliance with the quarterly financial covenants contained in the SVB Credit Facility, or that we will have a
sufficient borrowing base under such facility. If we are not in compliance with the financial covenants or do not have
sufficient eligible accounts receivable to support our borrowing base, 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 May 4, 2020, we entered into Amendment No. 3 to Third Amended and Restated Loan and Security
Agreement with Silicon Valley Bank. The SVB Credit Facility provides for a $23.8 million accounts receivable formula-
based revolving credit facility that can be borrowed by the U.S. company, with a $25.0 million sub-limit that can be
borrowed by our U.S. and Singapore entities. Loans may be advanced under the SVB Credit Facility based on a
borrowing base equal to a specified percentage of the value of eligible accounts of all borrowers under the SVB Credit
Facility. The borrowing base is subject to certain eligibility criteria. Availability under the accounts receivable formula-
based revolving credit facility can also be utilized to issue letters of credit with a $12.0 million sub-limit. We may prepay
loans under the SVB Credit Facility in whole or in part at any time without premium or penalty. As of July 3, 2020,
available credit under the SVB Credit Facility was $13.3 million reflecting the calculated borrowing base of $23.8
million less existing borrowings of $9.0 million and outstanding letters of credit of $1.5 million.
The SVB Credit Facility carries an interest rate, at our option, computed (i) at the prime rate reported in the Wall
Street Journal plus a spread of 0.50% to 1.50%, with such spread determined based on our adjusted quick ratio; or (ii) if
we satisfy a minimum adjusted quick ratio, a LIBOR rate determined in accordance with the SVB Credit Facility, plus a
spread of 2.75%. Any outstanding Singapore subsidiary-borrowed loans shall bear interest at an additional 2.00% above
the applicable prime or LIBOR rate. During fiscal 2020, the weighted-average interest rate on our outstanding loan was
3.97%. As of July 3, 2020 and June 28, 2019, our outstanding debt balance under the SVB Credit Facility was $9.0
million, and the interest rate was 3.75% and 6.00%, respectively.
The SVB Credit Facility contains monthly and quarterly financial covenants for minimum adjusted quick ratio and
minimum profitability (EBITDA) requirements, respectively. 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
38
Credit Facility. The SVB Credit Facility also imposes certain restrictions on our ability to dispose of assets, enter into a
transaction resulting in 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 5.00% above the applicable interest rate.
As of July 3, 2020, we were in compliance with the quarterly financial covenants, as amended, contained in the
SVB Credit Facility. The $9.0 million borrowing was classified as a current liability as of July 3, 2020 and June 28,
2019. We repaid the $9.0 million in July 2020.
Due to the current economic uncertainty stemming from the impact of the COVID-19 pandemic, on April 21,
2020, we entered into a Paycheck Protection Program Note (the “Note”) with Silicon Valley Bank as the lender
(“Lender”) in an aggregate principal amount of $5.9 million pursuant to the Paycheck Protection Program under the
CARES Act (the “PPP Loan”). On April 22, 2020, we received proceeds of $5.9 million from the PPP Loan. At the time
when we applied for the PPP Loan, we had qualified to receive the funds pursuant to the then-published qualification
requirements. On April 23, 2020, the SBA, in consultation with the Department of Treasury, issued new guidance
regarding qualification requirements for public companies. Based on our assessment of the new guidance, on May 5,
2020, we repaid the principal and interest on the PPP Loan.
We also obtained an uncommitted short-term line of credit of $0.3 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 $0.2 million in short-term
advances at various interest rates, all of which was available as of July 3, 2020. 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 3, 2020.
This facility may be terminated upon notice, is reviewed annually for renewal or modification, and is supported by a
corporate guarantee.
Restructuring Payments
We had liabilities for restructuring activities totaling $2.7 million as of July 3, 2020, which was 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 provided by operations.
39
Contractual Obligations
The following table summarizes our contractual obligations and commitments as of July 3, 2020:
(In thousands)
Total
< 1 year
1 - 3 years
3 - 5 years
> 5 years
Other
Obligations Due by Fiscal Year
Borrowings under credit facility
Purchase obligations (1)(4)
Other purchase obligations (3)(4)
Operating lease commitments
Reserve for uncertain tax positions (2)
Total contractual cash obligations
___________________________
$
9,000 $
9,000 $
— $
— $
— $
22,088
21,851
1,626
4,933
5,759
1,626
1,711
—
165
—
970
—
72
—
472
—
—
—
1,780
—
$ 43,406 $ 34,188 $
1,135 $
544 $
1,780 $
—
—
—
—
5,759
5,759
(1) 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.
(2) Liabilities for uncertain tax positions of $5.8 million were included in long-term liabilities in the consolidated
balance sheets. 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.
(3) Contractual obligation related to software as a service and software maintenance support.
(4) These items are not recorded on our consolidated balance sheets.
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 3, 2020,
we had commercial commitments on outstanding surety bonds and standby letters of credit as follows:
(In thousands)
Standby letters of credit used for:
Bids
Payment guarantees
Performance
Surety bonds used for:
Performance
Payment guarantees
Tax bonds
Expiration of Commitments by Fiscal Year
Total
2021
2022
2023
After 2023
$
35 $
35 $
— $
— $
781
686
781
555
1,502
1,371
53,389
51,907
98
2,247
55,734
—
8
51,915
—
131
131
1,482
—
2,239
3,721
—
—
—
—
—
—
—
—
—
—
—
—
98
—
98
98
Total commercial commitments
$ 57,236 $ 53,286 $
3,852 $
— $
Historically, we have not paid out any significant amount of our performance guarantees. As such, the outstanding
commercial commitments have not been recorded in our consolidated balance sheets.
40
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, arising out of a material variable interest held by us in an
unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or engages
in leasing, hedging or research and development services with us.
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 3, 2020, 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.
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.
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 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 3, 2020, we had three foreign currency forward contracts outstanding as follows:
Currency
New Zealand dollar
British pound
Singapore dollar
Total of all currency forward contracts
Notional Contract
Amount
(Local Currency)
Notional
Contract
Amount
(USD)
(In thousands)
1,000
$
600
300
643
742
216
$
1,601
Net foreign exchange gain (loss) recorded in our consolidated statements of operations during fiscal 2020, 2019
and 2018 was as follows:
(In thousands)
Amount included in costs of revenues
Amount included in other (expense) income, net
Total foreign exchange gain (loss), net
2020
Fiscal Year
2019
2018
$
$
419 $
(664) $
—
—
419 $
(664) $
402
(188)
214
41
A 10% adverse change in currency exchange rates for our foreign currency derivatives held as of July 3, 2020
would have an impact of approximately $0.2 million on the fair value of such instruments.
Certain of our international business are 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 3, 2020 and June 28, 2019, the cumulative translation adjustment decreased our stockholders’ equity
by $15.2 million and $12.7 million, respectively.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to our cash equivalents, short-term
investments and borrowings under our credit facility.
Exposure on Cash Equivalents and Short-term Investments
We had $41.6 million in total cash and cash equivalents and short-term investments as of July 3, 2020. Cash
equivalents and short-term investments totaled $21.4 million as of July 3, 2020 and were comprised of money market
funds and certificates of deposit. Cash equivalents and short-term investments have been recorded at fair value on our
balance sheets.
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 and short-term investments 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
investments held as of July 3, 2020, had weighted-average days to maturity of 40 days, and an average yield of
5.72% per annum. A 10% change in interest rates on our cash equivalents and short-term investments is not expected to
have a material impact on our financial position, results of operations or cash flows.
Exposure on Borrowings
During fiscal 2020, we had $9.0 million of demand borrowings outstanding under our credit facility that incurred
interest at the prime rate plus a spread of 0.50% to 1.50%, with such spread determined based on our adjusted quick
ratio. During fiscal 2020, our weighted average interest rate was 3.97% and we recorded total interest expense of less
than $0.1 million 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.
42
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 valuation.
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
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.
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
Effective June 30, 2018, we adopted Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) 606, using the modified retrospective method applied to those contracts that were not completed as
of June 29, 2018. Results for the reporting periods after June 29, 2018 are presented under ASC 606, while prior period
amounts are not adjusted and continue to be reported in accordance with our historical accounting under ASC 605.
We recognize revenue by applying the following five-step approach: (1) identification of the contract with a
customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4)
allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when, or
as, we satisfy a performance obligation.
Contracts and customers purchase orders are used to determine the existence of an arrangement.
Revenue from product sales, recognized at a point-in-time, is generated predominately from the sales of products
manufactured by third-party manufacturers to whom we have outsourced our manufacturing processes. 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 network planning and design, engineering,
installation and
commissioning, extended warranty, customer support, consulting, training, and education. Maintenance and support
services are generally offered to our customers and recognized over a specified period of time and from sales and
subsequent renewals of maintenance and support contracts. The network planning and design, engineering and
installation related services noted are recognized based on an over-time recognition model using the cost-input method.
Revenues related to certain contracts for customized network solutions are recognized over time using the cost
input method. In using this input method, we generally apply the cost-to-cost method of accounting where sales and
43
profits are recorded based on the ratio of costs incurred to estimated total costs at completion. Recognition of profit on
these 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. If circumstances
arise that change the original estimates of revenues, costs, or extent of progress toward completion, revisions to the
estimates are made. These revisions may result in increases or decreases in estimated revenues or costs, and such
revisions are reflected in income in the period in which the circumstances that gave rise to the revision become known to
us. We perform ongoing profitability analysis of our service contracts accounted for under this method in order to
determine whether the latest estimates of revenues, costs, and profits require updating. If at any time these estimates
indicate that the contract will be unprofitable, the entire estimated loss for the remainder of the contract is recorded
immediately. 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 receivables on the unaudited condensed
consolidated balance sheet.
In addition, shipping documents and customer acceptances, when applicable, are used to verify delivery and
transfer of control. We typically satisfy our performance obligations upon shipment or delivery of product depending on
the contractual terms. Payment terms to customers generally range from net 30 to 120 days from invoice, which are
considered to be standard payment terms. We assess our ability to collect from our customers based primarily on the
creditworthiness and past payment history of the customer.
While our customers do not have the right of return, we reserve for estimated product returns as an offset to
revenue based primarily on historical trends. Actual product returns may be different than what was estimated. These
factors and unanticipated changes in economic and industry condition could make actual results differ from our return
estimates.
We present transactional taxes such as sales and use tax collected from customers and remitted to government
authorities on a net basis.
Bill-and-Hold Sales
Certain customer arrangements consist of bill-and-hold characteristics under which transfer of control has been
met (including the passing of title and significant risk and reward of ownership to the customers). Therefore, the
customers can direct the use of the bill-and-hold inventory while we retain physical possession of the product until it is
installed at a customer site at a point in time in the future.
Termination Rights
The contract term is determined on the basis of the period over which the parties to the contract have present
enforceable rights and obligations. Certain customer contracts include a termination for convenience clause that allows
the customer to terminate services without penalty, upon advance notification. We concluded that the duration of support
contracts does not extend beyond the non-cancellable portion of the contract.
Variable Consideration
The consideration associated with customer contracts is generally fixed. Variable consideration includes
discounts, rebates, refunds, credits, incentives, penalties, or other similar items. The amount of consideration that can
vary is not a substantial portion of total consideration.
Variable consideration estimates are re-assessed at each reporting period until a final outcome is determined. The
changes to the original transaction price due to a change in estimated variable consideration will be applied on a
retrospective basis, with the adjustment recorded in the period in which the change occurs. Changes to variable
consideration will be tracked and material changes disclosed.
Stand-alone Selling Price
Stand-alone selling price is the price at which an entity would sell a good or service on a stand-alone (or separate)
basis at contract inception. Under the model, the observable price of a good or service sold separately provides the best
evidence of stand-alone selling price. However, in certain situations, stand-alone selling prices will not be readily
observable and the entity must estimate the stand-alone selling price.
44
When allocating on a relative stand-alone selling price basis, any discount provided in the contract is allocated
proportionately to all of the performance obligations in the contract.
The majority of products and services that we offer have readily observable selling prices. For products and
services that do not, we estimate stand-alone selling price using the market assessment approach based on expected
selling price and adjust those prices as necessary to reflect our costs and margins. As part of our stand-alone selling price
policy, we review product pricing on a periodic basis to identify any significant changes and revise our expected selling
price assumptions as appropriate.
Shipping and Handling
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.
Costs to Obtain a Contract
We have assessed the treatment of costs to obtain or fulfill a contract with a customer. Under ASC 606, we
capitalize sales commissions related to multi-year service contracts and amortize the asset over the period of benefit,
which is the estimated service period. Sales commissions paid on contract renewals, including service contract renewals,
is commensurate with the sales commissions paid on the initial contracts.
We elected the practical expedient to expense sales commissions as incurred when the amortization period of the
related asset is one year or less. These costs are recorded as sales and marketing expense and included in our
consolidated balance sheet as accrued expenses until paid. Our amortization expense was not material for the fiscal year
ended July 3, 2020.
Inventory Valuation and Provisions for Excess and Obsolete Losses
Our inventories have been valued at the lower of cost and net realizable value. Net realizable value is defined as
the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal
and transportation. 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 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 and net realizable value. 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.
45
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 Valuation
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 sheets, 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
sheets 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.
Realization of deferred tax assets is dependent upon future earnings in applicable tax jurisdictions. Prior to fiscal
2019, due to our U.S. operating losses in previous years and continuing U.S. earnings volatility which did not allow
sustainable profitability, we had established and maintained a full valuation allowance for our U.S. deferred tax assets.
While there had been a trend of positive evidence that had been strengthening in prior to fiscal 2019, it was not
sufficiently persuasive to outweigh the negative evidence in future periods. During the third quarter of fiscal 2019, we
generated our third consecutive profitable year from a U.S. pre-tax book income perspective. Accordingly, we
determined that it was more likely than not that we would realize a portion of our U.S. deferred tax assets, primarily
relating to certain net operating loss carryforwards and current temporary differences. The positive evidence as
of March 29, 2019, which outweighed the negative evidence to release a portion of the valuation allowance, included our
fiscal 2019 and three-year cumulative U.S. profitability driven by continued demand for our products in North America
that have historically resulted in higher margins than international sales, reductions in operating expenses resulting from
our previous restructurings, and our forecasted U.S. operating profits in future periods. The negative evidence primarily
relates to certain net operating loss carryforwards and credits that are expected to expire prior to utilization. We believed
that our positive evidence was strong and continues to be strong in fiscal 2020. The improved financial performance as it
relates to U.S. profitability in recent years is an objectively verifiable piece of positive evidence and is the result of a
number of factors which have been present to a greater or lesser extent in prior years but had only gathered sufficient
weight to deliver objectively verifiable, consistent U.S. pre-tax book profits in fiscal 2019. In performing our analysis,
we used the most updated plans and estimates that we currently use to manage the underlying business and calculated the
utilization of our deferred tax assets. Accordingly, during fiscal 2019, we released $7.5 million of U.S. valuation
46
allowance as a discrete item on certain deferred tax assets. The remaining valuation allowance relates to deferred tax
assets, for which we believe it is not more likely than not to be realized in future periods. We performed this analysis in
fiscal 2020, which resulted in no additional U.S. valuation allowance release.
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
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.
47
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations
Consolidated Statements of Comprehensive (Loss) Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Equity
Notes to Consolidated Financial Statements
Note 1. The Company and Summary of Significant Accounting Policies
Note 2. Net Income per Share of Common Stock
Note 3. Revenue Recognition
Note 4. Leases
Note 5. Balance Sheet Components
Note 6. Fair Value Measurements of Assets and Liabilities
Note 7. Credit Facility and Debt
Note 8. Restructuring Activities
Note 9. Stockholders’ Equity
Note 10. Segment and Geographic Information
Note 11. Income Taxes
Note 12. Commitments and Contingencies
Note 13. Quarterly Financial Data (Unaudited)
Page
49
50
51
52
53
55
56
56
64
65
64
72
74
75
76
77
81
82
86
89
48
Report of Independent Registered Public Accounting Firm
Stockholders and Board of Directors
Aviat Networks, Inc.
Austin, Texas
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Aviat Networks, Inc. (the “Company”) as of
July 3, 2020 and June 28, 2019, the related consolidated statements of operations, comprehensive (loss) income, equity,
and cash flows for each of the three fiscal years in the period ended July 3, 2020, the related notes and the financial
statement schedule - Valuation and Qualifying Accounts (collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of the Company at July 3, 2020 and June 28, 2019, and the results of its operations and its cash flows for each of
the three fiscal years in the period ended July 3, 2020, in conformity with accounting principles generally accepted in the
United States of America.
Change in Accounting Principle
As discussed in Note 1 and Note 4 to the consolidated financial statements, the Company has changed its
accounting method for accounting for leases in fiscal year 2020 due to the adoption of Topic 842: Leases, using a
modified retrospective approach, and as discussed in Note 1 to the consolidated financial statements, the Company
changed its method for recognizing revenue in fiscal year 2019 due to the adoption of Topic 606: Revenue from
Contracts with Customers.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility
is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public
accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that
our audits provide a reasonable basis for our opinion.
We have served as the Company's auditor since 2015.
San Jose, California
August 27, 2020
/s/ BDO USA, LLP
49
AVIAT NETWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Revenues:
Revenue from product sales
Revenue from services
Total revenues
Cost of revenues:
Cost of product sales
Cost of services
Total cost of revenues
Gross margin
Operating expenses:
Research and development expenses
Selling and administrative expenses
Restructuring charges
Total operating expenses
Operating income
Interest income
Interest expense
Other income (expense), net
Income before income taxes
Provision for (benefit from) income taxes
Net income
Less: Net income attributable to noncontrolling interest, net of tax
Fiscal Year Ended
July 3,
2020
June 28,
2019
June 29,
2018
$ 153,793 $ 156,724 $ 151,685
84,849
87,134
90,821
238,642
243,858
242,506
95,321
103,517
100,112
58,625
61,071
61,891
153,946
164,588
162,003
84,696
79,270
80,503
19,284
57,985
4,049
81,318
3,378
385
21,111
56,055
736
77,902
1,368
267
(54)
(102)
19,750
58,157
1,279
79,186
1,317
198
(29)
(220)
1,266
—
3,709
3,452
257
—
17
1,550
(8,188)
(1,036)
9,738
—
2,302
457
Net income attributable to Aviat Networks
$
257 $
9,738 $
1,845
Net income per share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
$
$
0.05 $
0.05 $
1.81 $
1.73 $
0.35
0.33
5,391
5,468
5,377
5,618
5,336
5,647
See accompanying Notes to Consolidated Financial Statements
50
AVIAT NETWORKS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In thousands)
Net income
Other comprehensive loss:
Net change in cumulative translation adjustments
Other comprehensive loss
Comprehensive (loss) income
Fiscal Year Ended
July 3,
2020
June 28,
2019
June 29,
2018
$
257 $
9,738 $
2,302
(2,233)
(2,233)
(131)
(131)
(1,976)
9,607
(820)
(820)
1,482
Less: Comprehensive income attributable to noncontrolling interests, net of
tax
—
—
457
Comprehensive (loss) income attributable to Aviat Networks
$
(1,976) $
9,607 $
1,025
See accompanying Notes to Consolidated Financial Statements
51
AVIAT NETWORKS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and par value amounts)
ASSETS
Current Assets:
Cash and cash equivalents
Accounts receivable, net
Unbilled receivables
Inventories
Customer service inventories
Other current assets
Total current assets
Property, plant and equipment, net
Deferred income taxes
Right of use assets
Other assets
TOTAL ASSETS
LIABILITIES AND EQUITY
Current Liabilities:
Short-term debt
Accounts payable
Accrued expenses
Short-term lease liabilities
Advance payments and unearned revenue
Restructuring liabilities
Total current liabilities
Unearned revenue
Long-term lease liabilities
Other long-term liabilities
Reserve for uncertain tax positions
Deferred income taxes
Total liabilities
Commitments and contingencies (Note 12)
Equity:
July 3, 2020
June 28,
2019
$ 41,618 $ 31,946
44,661
28,085
13,997
1,234
10,355
51,937
27,780
8,573
936
4,825
139,950
125,997
16,911
12,799
3,474
6,667
17,255
13,864
—
12,077
$ 179,801 $ 169,193
$
9,000 $
9,000
31,995
26,920
1,445
21,872
2,738
93,970
8,142
2,303
401
5,759
545
35,605
22,555
—
13,962
1,089
82,211
9,662
—
820
3,606
1,378
111,120
97,677
Preferred stock, $0.01 par value; 50,000,000 shares authorized; none issued
Common stock, $0.01 par value; 300,000,000 shares authorized; 5,400,487 and 5,359,695
shares issued and outstanding as of July 3, 2020 and June 28, 2019, respectively
—
54
—
54
Additional paid-in-capital
Accumulated deficit
Accumulated other comprehensive loss
Total equity
TOTAL LIABILITIES AND EQUITY
814,337
815,196
(730,741) (730,998)
(14,969)
(12,736)
68,681
71,516
$ 179,801 $ 169,193
See accompanying Notes to Consolidated Financial Statements
52
AVIAT NETWORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization of property, plant and equipment
Provision for (recovery from) uncollectible receivables
Share-based compensation
Deferred tax assets, net
Charges for inventory and customer service inventory write-downs
Loss on disposition of property, plant and equipment, net
Noncash lease expense
Changes in operating assets and liabilities:
Accounts receivable
Unbilled receivables
Inventories
Customer service inventories
Accounts payable
Accrued expenses
Advance payments and unearned revenue
Income taxes payable or receivable
Other assets and liabilities
Net cash provided by operating activities
Investing Activities
Payments for acquisition of property, plant and equipment
Maturities of short-term investments
Net cash used in investing activities
Financing Activities
Proceeds from borrowings
Repayments of borrowings
Payments for repurchase of common stock
Payments for taxes related to net settlement of equity awards
Proceeds from issuance of common stock under employee stock plans and
exercises of stock options
Net cash (used in) provided by financing activities
Fiscal Year Ended
July 3,
2020
June 28,
2019
June 29,
2018
$
257 $
9,738 $
2,302
4,387
23
1,686
4,468
(359)
1,723
5,199
(17)
2,357
(172)
(8,760)
(3,155)
945
56
4,416
553
4
—
364
75
—
7,043
(6,395)
2,828
(304)
(4,976)
(2,067)
(5,651)
1,228
(1,023)
(357)
615
(445)
(3,122)
5,074
(2,225)
(2,585)
2,772
4,285
6,304
1,978
4,170
338
(3,615)
(920)
17,493
2,944
(995)
1,253
(652)
8,209
(4,608)
(5,246)
(6,563)
—
—
264
(4,608)
(5,246)
(6,299)
41,911
(41,911)
36,000
(36,000)
36,000
(36,000)
(1,772)
(802)
(2,316)
(671)
29
35
(2,545)
(2,952)
(8)
—
20
12
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
(669)
(309)
(727)
Net increase (decrease) in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash, beginning of year
9,671
32,201
(5,563)
1,195
37,764
36,569
Cash, cash equivalents, and restricted cash, end of year
$ 41,872 $ 32,201 $ 37,764
53
(In thousands)
Non-cash investing activities:
Unpaid property, plant and equipment
Noncontrolling interests buyout
Supplemental disclosures of cash flow information:
Cash paid for interest
Cash paid for income taxes, net
Fiscal Year Ended
July 3,
2020
June 28,
2019
June 29,
2018
$
$
$
$
277 $
578 $
— $
— $
805
603
60 $
70 $
29
1,057 $
687 $
1,282
See accompanying Notes to Consolidated Financial Statements
54
AVIAT NETWORKS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
Common Stock
Shares
$
Amount
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total Aviat
Networks
Stockholders’
Equity
Noncontrolling
Interests
Total
Equity
5,317,766 $
53 $ 813,733 $
(748,204) $
(11,785) $
53,797 $
543 $ 54,340
(In thousands, except share amounts)
Balance as of June 30, 2017
Net income
Other comprehensive loss, net of tax
Issuance of common stock under
employee stock plans
Stock repurchase
Share-based compensation
Noncontrolling interests buyout
Balance as of June 29, 2018
Cumulative-effect adjustment for ASC
Topic 606
Net income
Other comprehensive loss, net of tax
Issuance of common stock under
employee stock plans
Shares withheld for taxes related to
vesting of equity awards
Stock repurchase
Share-based compensation
Net income
Other comprehensive loss, net of tax
Issuance of common stock under
employee stock plans
Shares withheld for taxes related to
vesting of equity awards
Stock repurchase
Share-based compensation
Exercise of options
Balance as of July 3, 2020
—
—
33,889
(500)
—
—
5,351,155
—
—
—
172,703
(7,894)
(156,269)
—
—
—
224,224
(56,241)
(128,023)
—
832
Balance as of June 28, 2019
5,359,695
—
—
1
—
—
—
54
—
—
—
2
(1)
(1)
—
54
—
—
2
(1)
(1)
—
—
—
—
19
(8)
2,357
325
1,845
—
—
—
—
—
—
(820)
—
—
—
—
816,426
(746,359)
(12,605)
—
—
—
33
(671)
(2,315)
1,723
5,623
9,738
—
—
—
—
—
815,196
(730,998)
—
—
15
(801)
(1,771)
1,686
12
257
—
—
—
—
—
—
—
—
(131)
—
—
—
—
(12,736)
—
(2,233)
—
—
—
—
—
1,845
(820)
20
(8)
2,357
325
57,516
5,623
9,738
(131)
35
(672)
(2,316)
1,723
71,516
257
(2,233)
17
(802)
(1,772)
1,686
12
457
—
—
—
—
(1,000)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,302
(820)
20
(8)
2,357
(675)
57,516
5,623
9,738
(131)
35
(672)
(2,316)
1,723
71,516
257
(2,233)
17
(802)
(1,772)
1,686
12
5,400,487 $
54 $ 814,337 $
(730,741) $
(14,969) $
68,681 $
— $ 68,681
See accompanying Notes to Consolidated Financial Statements
55
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 3 for fiscal 2020, June 28 for fiscal 2019 and
June 29 for fiscal 2018. Fiscal 2020 presented included 53 weeks while fiscal 2019 and fiscal 2018 presented each
included 52 weeks. In these notes to consolidated financial statements, we refer to our fiscal years as “fiscal 2020”,
“fiscal 2019” and “fiscal 2018.”
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.
Cash, Cash Equivalents and Restricted Cash
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. Investments with an original maturity of greater than three months are accounted for as
short-term investments and are classified as such at the time of purchase.
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.
As of July 3, 2020 and June 28, 2019, all of our high-quality marketable debt securities were invested in prime
money market funds.
56
Cash and cash equivalents that are restricted as to withdrawal or usage under the terms of contractual agreements
are recorded as restricted cash. Our long-term restricted cash included the cash balance 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 on our consolidated balance sheets and the corresponding liabilities were
included in other long-term liabilities on our consolidated balance sheets.
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 certain 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 2020, there were no customers that accounted for more than 10% of our total revenue. During fiscal
2019 and 2018, Mobile Telephone Networks Group (“MTN Group”) in Africa accounted for 11% and 13%, respectively,
of our total revenue. As of July 3, 2020 and June 28, 2019, MTN Group accounted for approximately 21% and 13%,
respectively, of our accounts receivable.
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
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. 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 and net realizable value. Net realizable value is defined as the estimated
selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and
transportation. Cost is determined using standard cost, which approximates actual cost on a weighted-average first-in-
57
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 net realizable
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 and net realizable value. 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:
Buildings
Leasehold improvements
Software
Machinery and equipment
40 years
2 to 10 years
3 to 5 years
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
58
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 the 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 related to our ownership interest in a subsidiary company in South Africa with a local partner, where we were
the majority owner at 51% prior to our acquisition of the remaining interest of this subsidiary in the fourth quarter of
2018. 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. During the fourth quarter of fiscal year 2018, we acquired the remaining interest of this
subsidiary for $0.6 million which was recorded as “Accrued expenses” on our consolidated balance sheets as of June 29,
2018. This amount was fully paid during fiscal 2019.
Leases
On June 29, 2019, the first day of our fiscal 2020, we adopted ASC 842 using the modified retrospective transition
method, which requires a cumulative-effect adjustment, if any, to the opening balance of accumulated deficit to be
recognized on the date of adoption with prior periods not restated.
We lease facilities under non-cancelable operating lease agreements. These leases have varying terms that range
from one to 20 years and contain leasehold improvement incentives, rent holidays and escalation clauses. In addition,
some of these leases have renewal options for up to 3 years.
We determine if an arrangement contains a lease at inception. These operating leases are included in Right of use
assets (ROU assets) on our July 3, 2020 consolidated balance sheets and represent our right to use the underlying asset
for the lease term. Our obligation to make lease payments are included in "Short-term lease liabilities" and "Long-term
lease liabilities" on our July 3, 2020 consolidated balance sheets. We did not enter into any finance leases during fiscal
2020.
Operating lease ROU assets and lease liabilities are recognized based on the present value of the future minimum
lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we used
the incremental borrowing rate based on the remaining lease term at commencement date in determining the present
value of future payments. The operating lease ROU assets also include any lease payments made and exclude lease
incentives and initial direct costs incurred. Variable lease payments are expensed as incurred and are not included within
the ROU asset and lease liability calculation. Lease expense for minimum lease payments is recognized on a straight-line
basis over the lease term. Certain of our lease arrangements include non-lease components and we account for non-lease
components together with lease components for all such lease arrangements.
Leases with an initial term of 12 months or less are not recorded on our balance sheet. We recognize lease expense
for these leases on a straight-line basis over the lease term.
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
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
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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) income, net in the
accompanying consolidated statements of operations, based on the nature of the transactions. Net foreign exchange gain
(loss) recorded in our consolidated statements of operations during fiscal 2020, 2019 and 2018 was as follows:
(In thousands)
Amount included in costs of revenues
Amount included in other (expense) income, net
Total foreign exchange gain (loss), net
Retirement Benefits
2020
Fiscal Year
2019
2018
$
$
419 $
(664) $
—
—
419 $
(664) $
402
(188)
214
As of July 3, 2020, 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. Contributions to retirement plans
are expensed as incurred. Retirement plan expense amounted to $1.7 million, $2.0 million and $1.9 million in fiscal
2020, 2019 and 2018, respectively.
Revenue Recognition
Effective June 30, 2018, we adopted Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) 606, using the modified retrospective method applied to those contracts that were not completed as
of June 29, 2018. Results for the reporting periods after June 29, 2018 are presented under ASC 606, while prior period
amounts are not adjusted and continue to be reported in accordance with our historical accounting under ASC 605.
We recognize revenue by applying the following five-step approach: (1) identification of the contract with a
customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price;
(4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when,
or as, we satisfy a performance obligation.
Revenue from product sales, recognized at a point-in-time, is generated predominately from the sales of products
manufactured by third-party manufacturers to whom we have outsourced our manufacturing processes. 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 network planning and design, engineering,
installation and
commissioning, extended warranty, customer support, consulting, training, and education. Maintenance and support
services are generally offered to our customers and recognized over a specified period of time and from sales and
subsequent renewals of maintenance and support contracts. The network planning and design, engineering and
installation related services noted are recognized based on an over-time recognition model using the cost-input method.
Revenues related to certain contracts for customized network solutions are recognized over time using the cost
input method. In using the cost input 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
these 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. If circumstances
60
arise that change the original estimates of revenues, costs, or extent of progress toward completion, revisions to the
estimates are made. These revisions may result in increases or decreases in estimated revenues or costs, and such
revisions are reflected in income in the period in which the circumstances that gave rise to the revision become known to
us. We perform ongoing profitability analysis of our service contracts accounted for under this method in order to
determine whether the latest estimates of revenues, costs, and profits require updating. If at any time these estimates
indicate that the contract will be unprofitable, the entire estimated loss for the remainder of the contract is recorded
immediately. 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 receivables on our consolidated balance sheet.
Contracts and customer purchase orders are used to determine the existence of an arrangement. In addition,
shipping documents and customer acceptances, when applicable, are used to verify delivery and transfer of control. We
typically satisfy our performance obligations upon shipment or delivery of product depending on the contractual terms.
Payment terms to customers generally range from net 30 to 120 days from invoice, which are considered to be standard
payment terms. We assess our ability to collect from our customers based primarily on the creditworthiness and past
payment history of the customer.
While our customers generally do not have the right of return, we reserve for estimated product returns as an
offset to revenue based primarily on historical trends. Actual product returns may be different than what was estimated.
These factors and unanticipated changes in economic and industry condition could make actual results differ from our
return estimates.
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.
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 2020, 2019 and
2018.
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 generally charged to
operations in the period in which they are incurred. For certain of our software projects under development, we capitalize
the development costs during the period between determining technological feasibility of the product and commercial
release. We amortize the capitalized development cost upon commercial release, generally over three years. To date, the
amount of development costs capitalized have not been material.
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Share-Based Compensation
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 awards and
units and performance share awards and units, 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 conditions was
estimated using the Monte-Carlo simulation model. We elected to account for forfeitures as they occur.
We generally recognize compensation cost for share-based payment awards on a straight-line basis over the
requisite service period. For an award that has 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.
For awards with a performance condition vesting feature, we recognize share-based compensation costs for the
performance awards and units 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 a 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.
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
basis 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
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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 for uncertain tax positions. 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.
Accounting Standards Adopted
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASC 842, which amends the
existing accounting standards for leases. The new standard requires lessees to record a right-of-use asset and a
corresponding lease liability on the balance sheet (with the exception of short-term leases). For lessees, leases will
continue to be classified as either operating or financing in the income statement. We adopted ASC 842, effective June
29, 2019, using the modified retrospective transition method with the cumulative effect recognized as an adjustment to
the opening balance of our accumulated deficit. Prior-period financial statements were not retrospectively restated. We
elected the package of practical expedients permitted under the transition guidance, which allowed us to carryforward
our historical lease classification, assessment of whether a contract was or contains a lease, and initial direct costs for
leases that existed prior to June 28, 2019. We also elected not to recognize right-of-use (“ROU”) assets and lease
liabilities for leases with an initial term of 12 months or less. We elected not to apply the hindsight practical expedient
when determining lease term and assessing impairment of ROU assets. See Note 4, “Leases” to the Notes to our
consolidated financial statements for more information.
In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation: Improvement to
Nonemployees Share-Based Payment Accounting (ASU 2018-07), which expands the scope of Topic 718 to include all
share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 specifies that
Topic 718 applies to all share-based payment transactions in which the grantor acquires goods and services to be used or
consumed in its own operations by issuing share-based payment awards. ASU 2018-07 also clarifies that Topic 718 does
not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in
conjunction with selling goods or services to customers as part of a contract accounted for under ASC 606. This ASU is
effective for fiscal years beginning after December 15, 2018. We adopted this update during the first quarter of fiscal
2020. The adoption had no material impact on our consolidated financial statements.
Accounting Standards Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). This guidance provides
optional guidance related to reference rate reform, which provides practical expedients for contract modifications and
certain hedging relationships associated with the transition from reference rates that are expected to be discontinued. This
guidance is applicable for our borrowing instruments, which use LIBOR as a reference rate, and was effective March 12,
2020 through December 31, 2022. We are currently evaluating the potential impact of ASU 2020-04 will have on our
consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740). This guidance simplifies the
accounting for income taxes by removing certain exceptions to the general principles and also simplifies areas such as
franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enactment
of tax laws and rate changes. ASU 2019-12 will be effective for us in our first quarter of fiscal 2022. We are currently
evaluating the potential impact that adopting ASU 2019-12 will have on our consolidated financial statements.
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In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic
350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a
Service Contract. This guidance aligns the requirements for capitalizing implementation costs incurred in a hosting
arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or
obtain internal-use software. ASU 2018-15 will be effective for us in our first quarter of fiscal 2021, with early adoption
permitted. The standard can be adopted either using the prospective or retrospective transition approach. We are
evaluating the potential impact adopting ASU 2018-15 will have on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework -
Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13). The update eliminates, adds, and
modifies certain disclosure requirements for fair value measurements. ASU 2018-13 will be effective for us in our first
quarter of fiscal 2021 and early adoption is permitted of the entire standard or only the provisions that eliminate or
modify disclosure requirements. We are evaluating the impact the adoption of ASU 2018-13 will have on our
consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments (ASU 2016-13) and also issued subsequent amendments to the initial guidance:
ASU 2018-19, ASU 2019-04, and ASU 2019-05 (collectively, Topic 326). Topic 326 requires measurement and
recognition of expected credit losses for financial assets held. Topic 326 will be effective for us in our first quarter of
fiscal 2024, and earlier adoption is permitted. We are evaluating the impact adopting Topic 326 will have on our
consolidated financial statements.
Note 2. Net Income per Share of Common Stock
Net income per share is computed using the two-class method, by dividing net income attributable to us by the
weighted average number of shares of our outstanding common stock and participating securities outstanding. Our
restricted shares contain rights to receive non-forfeitable dividends and therefore are considered to be participating
securities and included in the calculations of net income per basic and diluted common share. Undistributed losses are
not allocated to unvested restricted shares because the unvested restricted shares are not contractually obligated to share
our losses. The impact on earnings per share of the participating securities under the two-class method was immaterial.
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The following table presents the computation of basic and diluted net income per share attributable to our
common stockholders:
(In thousands, except per share amounts)
Numerator:
Net income attributable to Aviat Networks
Denominator:
Weighted average shares outstanding, basic
Effect of potentially dilutive equivalent shares
Weighted average shares outstanding, diluted
2020
Fiscal Year
2019
2018
$
257 $
9,738 $
1,845
5,391
77
5,468
5,377
241
5,618
5,336
311
5,647
Net income per share attributable to Aviat Networks:
Basic
Diluted
$
$
0.05 $
0.05 $
1.81 $
1.73 $
0.35
0.33
The following table summarizes the weighted-average equity awards that were excluded from the diluted net
income per share calculations since they were antidilutive:
(In thousands)
Stock options
Restricted stock units and performance stock units
Total shares of common stock excluded
2020
Fiscal Year
2019
2018
356
2
358
390
32
422
270
—
270
Note 3. Revenue Recognition
We recognize revenue by applying the following five-step approach: (1) identification of the contract with a
customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4)
allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when, or
as, we satisfy a performance obligation.
Contracts and customer purchase orders are used to determine the existence of an arrangement.
Revenue from product sales, recognized at a point-in-time, is generated predominately from the sales of products
manufactured by third-party manufacturers to whom we have outsourced our manufacturing processes. 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 network planning and design, engineering,
installation and
commissioning, extended warranty, customer support, consulting, training, and education. Maintenance and support
services are generally offered to our customers and recognized over a specified period of time and from sales and
subsequent renewals of maintenance and support contracts. The network planning and design, engineering and
installation related services noted are recognized based on an over-time recognition model using the cost-input method.
Revenues related to certain contracts for customized network solutions are recognized over time using the cost
input method. In using this input 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
these contracts requires estimates of the total contract value, the total cost at completion, and the measurement of
65
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. If circumstances
arise that change the original estimates of revenues, costs, or extent of progress toward completion, revisions to the
estimates are made. These revisions may result in increases or decreases in estimated revenues or costs, and such
revisions are reflected in income in the period in which the circumstances that gave rise to the revision become known to
us. We perform ongoing profitability analysis of our service contracts accounted for under this method in order to
determine whether the latest estimates of revenues, costs, and profits require updating. If at any time these estimates
indicate that the contract will be unprofitable, the entire estimated loss for the remainder of the contract is recorded
immediately. 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 receivables on the unaudited condensed
consolidated balance sheet.
In addition, shipping documents and customer acceptances, when applicable, are used to verify delivery and
transfer of control. We typically satisfy our performance obligations upon shipment or delivery of product depending on
the contractual terms. Payment terms to customers generally range from net 30 to 120 days from invoice, which are
considered to be standard payment terms. We assess our ability to collect from our customers based primarily on the
creditworthiness and past payment history of the customer.
While our customers do not have the right of return, we reserve for estimated product returns as an offset to
revenue based primarily on historical trends. Actual product returns may be different than what was estimated. These
factors and unanticipated changes in economic and industry condition could make actual results differ from our return
estimates.
We present transactional taxes such as sales and use tax collected from customers and remitted to government
authorities on a net basis.
Bill-and-Hold Sales
Certain customer arrangements consist of bill-and-hold characteristics under which transfer of control has been
met (including the passing of title and significant risk and reward of ownership to the customers). Therefore, the
customers can direct the use of the bill-and-hold inventory while we retain physical possession of the product until it is
installed at a customer site at a point in time in the future.
Termination Rights
The contract term is determined on the basis of the period over which the parties to the contract have present
enforceable rights and obligations. Certain customer contracts include a termination for convenience clause that allows
the customer to terminate services without penalty, upon advance notification. We concluded that the duration of support
contracts does not extend beyond the non-cancellable portion of the contract.
Variable Consideration
The consideration associated with customer contracts is generally fixed. Variable consideration includes
discounts, rebates, refunds, credits, incentives, penalties, or other similar items. The amount of consideration that can
vary is not a substantial portion of total consideration.
Variable consideration estimates are re-assessed at each reporting period until a final outcome is determined. The
changes to the original transaction price due to a change in estimated variable consideration are applied on a
retrospective basis, with the adjustment recorded in the period in which the change occurs. Changes to variable
consideration are tracked and material changes disclosed.
Stand-alone Selling Price
Stand-alone selling price is the price at which an entity would sell a good or service on a stand-alone (or separate)
basis at contract inception. Under the model, the observable price of a good or service sold separately provides the best
evidence of stand-alone selling price. However, in certain situations, stand-alone selling prices will not be readily
observable and the entity must estimate the stand-alone selling price.
When allocating on a relative stand-alone selling price basis, any discount provided in the contract is allocated
proportionately to all of the performance obligations in the contract.
66
The majority of products and services that we offer have readily observable selling prices. For products and
services that do not, we estimate stand-alone selling price using the market assessment approach based on expected
selling price and adjust those prices as necessary to reflect our costs and margins. As part of our stand-alone selling price
policy, we review product pricing on a periodic basis to identify any significant changes and revise our expected selling
price assumptions as appropriate.
Shipping and Handling
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.
Costs to Obtain a Contract
We have assessed the treatment of costs to obtain or fulfill a contract with a customer. Under ASC 606, we
capitalize sales commissions related to multi-year service contracts, and amortize the asset over the period of benefit,
which is the estimated service period. Sales commissions paid on contract renewals, including service contract renewals,
is commensurate with the sales commissions paid on the initial contracts. The capitalized sales commissions are included
in Other Current Assets and Other Assets on the consolidated balance sheets.
We elected the practical expedient to expense sales commissions as incurred when the amortization period of the
related asset is one year or less. These costs are recorded as sales and marketing expense and included in our
consolidated balance sheet as accrued expenses until paid. Our amortization expense was not material for the fiscal years
ended July 3, 2020 and June 28, 2019.
Contract Balances, Performance Obligations, and Backlog
The following table provides information about receivables and liabilities from contracts with customers (in
thousands):
Contract Assets
Accounts receivable, net
Unbilled receivables
Capitalized commissions
Contract Liabilities
Advance payments and unearned revenue
Unearned revenue, long-term
July 3, 2020
June 28, 2019
$
$
$
$
$
44,661 $
28,085 $
1,157 $
51,937
27,780
955
21,872 $
8,142 $
13,962
9,662
Significant changes in contract balances may arise as a result of recognition over time for services, transfer of
control for equipment, and periodic payments (both in arrears and in advance).
From time to time, we may experience unforeseen events that could result in a change to the scope or price
associated with an arrangement. We would update the transaction price and measure of progress for the performance
obligation and recognize the change as a cumulative catch-up to revenue. Because of the nature and type of contracts we
engage in, the timeframe to completion and satisfaction of current and future performance obligations can shift; however,
this will have no impact on our future obligation to bill and collect.
As of July 3, 2020, we had $30.0 million in advance payments and unearned revenue and long-term unearned
revenue, of which approximately 70% is expected to be recognized as revenue in fiscal 2021 and the remainder
thereafter. During fiscal 2020, we recognized approximately $14.0 million which was included in advance payments and
unearned revenue at June 28, 2019.
Remaining Performance Obligations
The aggregate amount of transaction price allocated to the unsatisfied performance obligations (or partially
unsatisfied) was approximately $83.4 million at July 3, 2020. Of this amount, we expect to recognize approximately 60%
as revenue during fiscal 2021, with the remaining amount to be recognized as revenue within two to five years.
67
ASC 606 Adoption
We recorded a net reduction to the opening balance of our accumulated deficit of $5.6 million as of June 30, 2018
due to the cumulative impact of adopting ASC 606, with the impact primarily related to our bill-and-hold and services
revenue. Our revenue was $243.9 million for fiscal 2019 under ASC 606, compared to $231.4 million under ASC 605.
The details of the significant changes and quantitative impact of our adoption of ASC 606 are set out below:
•
•
•
Bill-and-Hold Sales: ASC 606 requires consideration of the indicators of when control has been transferred and
sets forth additional criteria to be met in a bill-and-hold arrangement potentially resulting in revenue being
recognized earlier than under ASC 605. Upon adoption of ASC 606, we recorded a cumulative effect
adjustment to June 30, 2018 opening accumulated deficit consisting of bill-and-hold backlog of $10.5 million
that will not be recognized as revenue under ASC 606, less related cost of product sales and income taxes,
resulting in a net decrease to accumulated deficit of $1.7 million.
Professional Services Revenue: We historically recognized certain professional services revenue upon
completion under ASC 605 which changed to over time revenue recognition under ASC 606. We use the input
method based on costs incurred, where revenue is calculated based on the percentage of total costs incurred in
relation to total estimated costs at completion of the contract. The input method is reasonable because the costs
incurred best reflect our efforts toward satisfying the performance obligation over time. The use of the input
method requires us to make reasonably dependable estimates. Upon adoption of ASC 606, we recorded a
cumulative effect adjustment to June 30, 2018 opening accumulated deficit of $4.7 million that will not be
recognized as revenue under ASC 606, less related cost of services and income taxes, resulting in a net decrease
to accumulated deficit of $1.6 million.
Transfer of Control: Certain of our contracts include penalties, acceptance provisions, or other price variability
that precluded revenue recognition under ASC 605 because of the requirement for amounts to be fixed or
determinable. ASC 606 requires us to estimate and account for variable consideration as a reduction of the
transaction price. Upon adoption of ASC 606, we recorded a cumulative effect adjustment to June 30, 2018
opening accumulated deficit of $0.6 million that will not be recognized as revenue under ASC 606, less related
cost of revenues and income taxes, resulting in a net decrease to accumulated deficit of $0.4 million.
In addition, revenue allocation under ASC 606 requires an allocation of revenue between deliverables, or
performance obligations, within an arrangement. Under ASC 605, the allocation of revenue was restricted to the amount
which was not contingent on future deliverables; however, ASC 606 removes this restriction. Upon adoption of ASC
606, we recorded a cumulative effect adjustment to decrease June 30, 2018 opening accumulated deficit by $0.5 million.
Under ASC 605, we deferred revenue for stand-alone software licenses where vendor-specific objective evidence
(VSOE) of fair value had not been established for undelivered items, and revenue was recognized straight line over the
term of the maintenance agreement. Under ASC 606, software revenue is allocated to delivered and undelivered
elements based on relative fair value resulting in more software arrangement revenue being recognized earlier. Upon
adoption of ASC 606, we recorded a cumulative effect adjustment to decrease June 30, 2018 opening accumulated deficit
by $0.7 million.
Previously, we expensed the majority of our commission expense as incurred. Under ASC 606, we capitalize and
amortize incremental commission costs to obtain the contract over a benefit period. We elected a practical expedient to
exclude contracts with a benefit period of a year or less from this deferral requirement. Upon adoption of ASC 606, we
recorded a cumulative effect adjustment to decrease June 30, 2018 opening accumulated deficit by $0.7 million.
68
Impacts on Financial Statements
The following tables summarize the impacts of adopting ASC 606 on our consolidated statements of operations
for fiscal 2019 and our consolidated balance sheet as of June 28, 2019 (in thousands):
(In thousands)
Income Statement
Revenues:
Revenue from product sales
Revenue from services
Total revenues
Cost of revenues:
Cost of product sales
Cost of services
Total cost of revenues
Selling and administrative expenses
Net income
As Reported
Adjustments
Balances without
adoption of ASC 606
Fiscal 2019
$
$
$
$
$
$
156,724 $
87,134
243,858 $
(7,387) $
(5,098)
(12,485) $
103,517 $
61,071
164,588 $
(4,967) $
(3,355)
(8,322) $
149,337
82,036
231,373
98,550
57,716
156,266
56,055 $
295 $
56,350
9,738 $
(7,253) $
2,485
See Note 10, “Segment and Geographic Information” to the Notes to Consolidated Financial Statements for
discussion on the impact of additional information, including disaggregated revenue disclosures.
(In thousands)
Balance Sheet
Assets
Accounts receivable, net
Unbilled receivables
Inventories
Other current assets
Deferred income taxes
Other assets
Liabilities
Advance payments and unearned revenue
Unearned revenue - long term
Equity
Accumulated deficit
Balances as of June
29, 2018
Adjustments due to
ASC 606
As Adjusted as of June
30, 2018
$
$
$
$
$
$
$
$
43,068 $
14,167 $
21,290 $
6,006 $
5,600 $
9,816 $
2,503 $
8,627 $
(11,516) $
476 $
(545) $
180 $
45,571
22,794
9,774
6,482
5,055
9,996
19,300 $
6,593 $
(6,600) $
702 $
12,700
7,295
$
(746,359) $
5,623 $
(740,736)
69
The effects of the adoption of the new revenue recognition guidance on our June 28, 2019 consolidated balance
sheet were as follows:
(In thousands)
Balance Sheet
Assets
Accounts receivable, net
Unbilled receivables
Inventories
Other current assets
Deferred income taxes
Other assets
Liabilities
Accrued expenses
Advance payments and unearned revenue
Unearned revenue - long term
Reserve for uncertain tax positions
Equity
Accumulated deficit
Note 4. Leases
Adoption of ASC 606
As Reported
Adjustments due to
ASC 606
Balances without
Adoption of ASC 606
$
$
$
$
$
$
$
$
$
$
$
51,937 $
27,780 $
8,573 $
4,825 $
13,864 $
12,077 $
22,555 $
13,962 $
9,662 $
3,606 $
(6,079) $
(16,567) $
19,289 $
(587) $
(2,274) $
(368) $
(45) $
8,414 $
(2,022) $
(55) $
45,858
11,213
27,862
4,238
11,590
11,709
22,510
22,376
7,640
3,551
(730,998) $
(12,877) $
(743,875)
On June 29, 2019, the first day of our fiscal 2020, we adopted ASC 842 using the modified retrospective transition
method as of the effective date, which requires a cumulative-effect adjustment, if any, to the opening balance of
accumulated deficit to be recognized on the date of adoption with prior periods not restated.
We lease facilities under non-cancelable operating lease agreements. These leases have varying terms that range
from one to 20 years and contain leasehold improvement incentives, rent holidays and escalation clauses. In addition,
some of these leases have renewal options for up to 3 years. We lease approximately 18,000 square feet of office space in
Austin, Texas as our corporate headquarters with an original term of 36 months.
We determine if an arrangement contains a lease at inception. These operating leases are included in "Right of use
assets" (ROU assets) on our July 3, 2020 consolidated balance sheet and represent our right to use the underlying asset
for the lease term. Our obligation to make lease payments are included in "Short-term lease liabilities" and "Long-term
lease liabilities" on our July 3, 2020 consolidated balance sheet. We did not enter into any finance leases during fiscal
2020.
Operating lease ROU assets and lease liabilities are recognized based on the present value of the future minimum
lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we used
the incremental borrowing rate based on the remaining lease term at commencement date in determining the present
value of future payments. The operating lease ROU assets also include any lease payments made and exclude lease
incentives and initial direct costs incurred. Variable lease payments are expensed as incurred and are not included within
the ROU asset and lease liability calculation. Lease expense for minimum lease payments is recognized on a straight-line
basis over the lease term. Certain of our lease arrangements include non-lease components and we account for non-lease
components together with lease components for all such lease arrangements.
Leases with an initial term of 12 months or less are not recorded on our balance sheet. We recognize lease expense
for these leases on a straight-line basis over the lease term.
70
Adoption of ASC 842
Upon our adoption of ASC 842, we recorded total ROU assets of $7.9 million, with corresponding liabilities of
$8.3 million, on our consolidated balance sheet. The ROU assets include adjustments for prepayments and accrued lease
payments. The adoption did not impact our prior year consolidated statements of operations and statements of cash
flows. As of July 3, 2020, total ROU assets were approximately $3.5 million, and short-term lease liabilities and long-
term lease liabilities were approximately $1.4 million and $2.3 million, respectively. Cash paid for lease liabilities was
$5.3 million for fiscal 2020. During fiscal 2020, we obtained $0.3 million, of right-of-use assets in exchange for new
operating lease obligations.
The following summarizes our lease costs, lease term and discount rate for fiscal 2020 (in thousands, except for
weighted average):
Operating lease costs
Short-term lease costs
Variable lease costs
Total lease costs
Weighted average remaining lease term
Weighted average discount rate
Fiscal 2020
$
$
5,241
1,541
351
7,133
6.8
6.8 %
Rental expense for operating leases, including rentals on a month-to-month basis was $3.7 million for each of
fiscal 2020, 2019 and 2018.
As of July 3, 2020, our future minimum lease payments under all non-cancelable operating leases with an initial
term in excess of one year were as follows (in thousands):
Fiscal years
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less: interest
Present value of lease liabilities
Amount
1,651
617
353
233
239
1,780
4,873
(1,125)
3,748
$
$
Prior to our adoption of the new lease accounting standard, as of June 28, 2019, our future minimum lease
payments under all non-cancelable operating leases were as follows (in thousands):
71
Fiscal years
2020
2021
2022
2023
2024
Thereafter
Total
Amount
2,052
1,268
456
243
249
2,090
6,358
$
$
Note 5. Balance Sheet Components
Cash, Cash Equivalents, and Restricted Cash
The following table provides a summary of cash, cash equivalents, and restricted cash reported within the
Consolidated Balance Sheets that reconciles to the corresponding amount in the Consolidated Statements of Cash Flows:
(In thousands)
Cash and cash equivalents
Restricted cash included in Other assets
Total cash, cash equivalents, and restricted cash in the Statements of Cash Flows
Accounts Receivable, net
Our net accounts receivable are summarized below:
(In thousands)
Accounts receivable
Less: Allowances for collection losses
Total accounts receivable, net
Inventories
Our inventories are summarized below:
(In thousands)
Finished products
Raw materials and supplies
Total inventories
Consigned inventories included within raw materials
July 3,
2020
June 28,
2019
41,618 $
31,946
254
255
41,872 $
32,201
July 3,
2020
June 28,
2019
46,502 $
53,539
(1,841)
(1,602)
44,661 $
51,937
July 3,
2020
June 28,
2019
9,055 $
4,942
13,997 $
1,931 $
4,894
3,679
8,573
1,649
$
$
$
$
$
$
$
During fiscal 2020, 2019 and 2018, we recorded charges to adjust our inventory and customer service inventory
due to excess and obsolete inventory resulting from lower sales forecasts, product transitioning or discontinuance. Such
charges incurred during fiscal 2020, 2019 and 2018 were classified in cost of product sales as follows:
72
(In thousands)
Excess and obsolete inventory charges (recovery)
Customer service inventory write-downs
Total charges
2020
Fiscal Year
2019
2018
$
$
233 $
(352) $
712
945 $
905
553 $
(443)
807
364
Property, Plant and Equipment, net
Our property, plant and equipment, net is summarized below:
(In thousands)
Land
Buildings and leasehold improvements
Software
Machinery and equipment
Less accumulated depreciation and amortization
Total Property, Plant and Equipment, net
July 3,
2020
June 28,
2019
$
710 $
11,737
17,887
52,293
82,627
710
11,668
17,556
49,733
79,667
(65,716)
(62,412)
$
16,911 $
17,255
Included in the total plant, property and equipment above were $3.5 million and $2.8 million of assets in progress
which have not been placed in service as of July 3, 2020 and June 28, 2019, respectively. Depreciation and amortization
expense related to property, plant and equipment, including amortization of internal use software and capital lease
equipment, was $4.4 million, $4.5 million and $5.2 million in fiscal 2020, 2019 and 2018, respectively.
Accrued Expenses
Our accrued expenses are summarized below:
(In thousands)
Accrued compensation and benefits
Accrued agent commissions
Accrued warranties
Other
July 3,
2020
June 28,
2019
$
11,814 $
2,356
3,196
9,554
7,583
2,035
3,323
9,614
$
26,920 $
22,555
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, were as follows:
2020
Fiscal Year
2019
$
$
3,323 $
3,196 $
1,564
1,974
(1,691)
(1,847)
3,196 $
3,323 $
2018
3,056
2,529
(2,389)
3,196
(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
Advance payments and Unearned Income
73
Our advance payments and unearned income are summarized below:
(In thousands)
Advance payments
Unearned income
July 3,
2020
June 28,
2019
$
$
2,529 $
19,343
21,872 $
1,534
12,428
13,962
Note 6. Fair Value Measurements of Assets and Liabilities
Fair value is defined 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 that are supported by little or no market activity and that are significant to
the fair value of the assets or liabilities.
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 3, 2020 and June 28, 2019 were as follows:
(In thousands)
Assets:
Cash and cash equivalents:
Money market funds
Bank certificates of deposit
Liabilities:
Other accrued expenses:
July 3, 2020
June 28, 2019
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Valuation
Inputs
$ 18,189 $ 18,189 $ 15,121 $ 15,121
$
3,250 $
3,250 $
1,989 $
1,989
Level 1
Level 2
Foreign exchange forward contracts
$
14 $
14 $
7 $
7
Level 2
We classify items within Level 1 if quoted prices are available in active markets. Our Level 1 items mainly are
money market funds purchased from two major financial institutions. As of July 3, 2020, these money market funds 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
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 3, 2020 and June 28, 2019. We did not have any
recurring assets or liabilities that were valued 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 2020, 2019 and 2018, we had no transfers
between levels of the fair value hierarchy of our assets or liabilities measured at fair value.
74
Note 7. Credit Facility and Debt
On May 4, 2020, we entered into Amendment No. 3 to Third Amended and Restated Loan and Security
Agreement with Silicon Valley Bank (the “SVB Credit Facility”) which extended the expiration date to June 28, 2021.
The SVB Credit Facility provides for a $23.8 million accounts receivable formula based revolving credit facility that can
be borrowed by our U.S. company, with a $25.0 million sublimit that can be borrowed by our U.S. and Singapore
entities. Loans may be advanced under the SVB Credit Facility based on a borrowing base equal to a specified
percentage of the value of eligible accounts of the borrowers under the SVB Credit Facility. The borrowing base is
subject to certain eligibility criteria. Availability under the accounts receivable formula based revolving credit facility
can also be utilized to issue letters of credit with a $12.0 million sub limit. We may prepay loans under the SVB Credit
Facility in whole or in part at any time without premium or penalty. As of July 3, 2020, available credit under the SVB
Credit Facility was $13.3 million reflecting the calculated borrowing base of $23.8 million less existing borrowings of
$9.0 million and outstanding letters of credit of $1.5 million.
The SVB Credit Facility carries an interest rate, at our option, computed (i) at the prime rate reported in the Wall
Street Journal plus a spread of 0.50% to 1.50%, with such spread determined based on our adjusted quick ratio; or (ii) if
we satisfy a minimum adjusted quick ratio, a LIBOR rate determined in accordance with the SVB Credit Facility, plus a
spread of 2.75%. Any outstanding Singapore subsidiary borrowed loans shall bear interest at an additional 2.00% above
the applicable prime or LIBOR rate. During fiscal 2020, the weighted average interest rate on our outstanding loan was
3.97%. As of July 3, 2020 and June 28, 2019, our outstanding debt balance under the SVB Credit Facility was $9.0
million, and the interest rate was 3.75% and 6.00%, respectively.
The SVB Credit Facility contains monthly and 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 Silicon Valley Bank 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 5.00% above the applicable interest rate. As of July 3, 2020, we were in compliance with the quarterly financial
covenants, as amended, contained in the SVB Credit Facility. The $9.0 million borrowing was classified as a current
liability as of July 3, 2020 and June 28, 2019. We repaid the $9.0 million outstanding as of July 3, 2020 in July 2020.
Due to the current economic uncertainty stemming from the impact of the COVID-19 pandemic, on April 21,
2020, we entered into a Paycheck Protection Program Note (the “Note”) with Silicon Valley Bank as the lender
(“Lender”) in an aggregate principal amount of $5.9 million pursuant to the Paycheck Protection Program under the
CARES Act (the “PPP Loan”). On April 22, 2020, we received proceeds of $5.9 million from the PPP Loan. At the time
when we applied for the PPP Loan, we had qualified to receive the funds pursuant to the then published qualification
requirements. On April 23, 2020, the SBA, in consultation with the Department of Treasury, issued new guidance
regarding qualification requirements for public companies. Based on our assessment of the new guidance, on May 5,
2020, we repaid the principal and interest on the PPP Loan.
We also obtained an uncommitted short-term line of credit of $0.3 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 $0.2 million in short-term
advances at various interest rates, all of which was available as of July 3, 2020. 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 3, 2020.
This facility may be terminated upon notice, is reviewed annually for renewal or modification, and is supported by a
corporate guarantee.
75
Note 8. Restructuring Activities
The following table summarizes our restructuring related activities during fiscal year 2020, 2019 and 2018:
(In thousands)
Severance and Benefits
Q4 2020
Plan
Q3 2020
Plan
Fiscal 2020
Plan
Fiscal
2018-2019
Plan
Prior
Years'
Plans
Facilities and Other
Prior
Fiscal
Years'
2015-2016
Plans
Plan
Total
Balance as of June 30, 2017
$
— $ — $ — $ — $
478 $
563 $
673 $ 1,714
Charges, net
Cash payments
Foreign currency translation
loss
Balance as of June 29, 2018
Charges, net
Cash payments
Foreign currency translation
gain
Balance as of June 28, 2019
Charges, net
Cash payments
Foreign current translation
gain
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,879
595
1,725
(322)
(164)
(1,365)
1,532
—
—
1,532
736
(5)
(361)
2
114
—
(1,245)
(48)
—
1,023
(150)
(783)
—
66
—
(2)
—
—
—
—
—
(253)
(63)
5
1,279
(678)
(1,102)
19
266
—
(23)
(5)
238
—
—
(2)
—
—
—
—
—
—
—
—
—
21
1,912
736
(1,316)
(5)
1,327
4,049
(2,636)
(2)
Balance as of July 3, 2020
$ 1,557 $
431 $
360 $
90 $
64 $
236 $ — $ 2,738
As of July 3, 2020, the sum of the accrual balance of $2.7 million was in short-term restructuring liabilities on the
consolidated balance sheets.
Q4 2020 Plan
During the fourth quarter of fiscal 2020, our Board of Directors approved a restructuring plan (the “Q4 2020
Plan”) in order to continue to reduce our operating costs and improve profitability to optimize our business model and
increase efficiencies. The Q4 2020 Plan is being implemented starting with our fourth fiscal quarter of 2020 through the
second fiscal quarter of 2021. Payments related to the accrued restructuring liability balance for this plan are expected to
be fully paid in fiscal 2021.
Q3 2020 Plan
During the third quarter of fiscal 2020, our Board of Directors approved a restructuring plan (the “Q3 2020 Plan”)
in order to reduce our operating costs and improve profitability to optimize our business model and increase efficiencies.
Payments related to the accrued restructuring liability balance for this plan are expected to be fully paid in fiscal 2021.
Fiscal 2020 Plan
During the fourth quarter of fiscal 2019, our Board of Directors approved a restructuring plan (the “Fiscal 2020
Plan”) to primarily consolidate product development, right size our resources to support our international business and
other support functions. Payments related to the accrued restructuring liability balance for this plan are expected to be
fully paid in fiscal 2021.
Fiscal 2018-2019 Plan
During the fourth quarter of fiscal 2018, our Board of Directors approved a restructuring plan (the “Fiscal
2018-2019 Plan”) to consolidate back-office support functions and align resources by geography to lower our expense
structure. We completed the restructuring activities under the Fiscal 2018-2019 Plan at the end of fiscal 2019. Payments
related to the accrued restructuring liability balance for this plan are expected to be fully paid in fiscal 2021.
76
Fiscal 2015-2016 Plan
In January 2018, we reached a settlement with certain foreign government for grant liabilities which allowed us to
reduce our estimated payments relating to prior years’ restructuring plan by $0.3 million. 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
included reductions in workforce across the Company, but primarily in operations outside the United States. We
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 are expected to be paid in fiscal 2021.
Note 9. Stockholders’ Equity
Stock Repurchase Program
In May 2018, our board of directors approved a repurchase program pursuant to which authorized repurchase of
up to $7.5 million of our common stock.
The following table summarizes the repurchase of our common stock:
(In thousands, except share and per-share amounts)
Fiscal 2020
Fiscal 2019
Shares
Weighted-Average
Price Paid per Share
Aggregate
purchase price
128,023 $
156,269 $
13.82 $
14.78 $
1,769
2,309
All repurchased shares were retired. As of July 3, 2020, $3.4 million remained available for repurchase under our
stock repurchase program. The repurchase program has been suspended temporarily since February 2020.
Stock Incentive Programs
Stock Equity Plan
At July 3, 2020, we had one stock incentive plan for our employees and non-employee directors, the 2018
Incentive Plan (the “2018 Plan”). The 2018 Plan was approved by the stockholders at the fiscal year 2017 Annual
Stockholders’ Meeting and it added 500,000 shares to the equity pool of shares available to grant to employees and non-
employee directors. The 2018 Plan replaced the 2007 Plan as our primary long-term incentive program (“LTIP”). The
2007 Plan was discontinued following stockholder approval of the 2018 Plan, but the outstanding awards under the 2007
Plan will continue to remain in effect in accordance with their terms; provided that, as shares are returned under the 2007
Plan upon cancellation, termination or otherwise of awards outstanding under the 2007 Plan, such shares will be
available for grant under the 2018 Plan. The 2018 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.
Under the 2018 Plan, option exercise prices are equal to the fair market value of our common stock on the date the
options are granted using our closing stock price. After vesting, options generally may be exercised within seven years
after the date of grant.
Restricted stock units are not transferable until vested and the restrictions lapse upon the achievement of continued
employment or service over a specified time period. Restricted stock units issued to employees generally vest three years
from the date of grant (three-year cliff or annually over three years). Restricted stock units issued to non-executive board
members annually generally vest on the day before the annual stockholders’ meeting.
Vesting of performance share awards and units is subject to the achievement of predetermined financial
performance criteria and continued employment through the end of the applicable period. Market-based stock units vest
upon meeting certain predetermined share price performance criteria and continued employment through the end of the
applicable period.
77
We issue new shares of our common stock to our employees upon the exercise of stock options, vesting of
restricted stock awards and units or vesting of performance share awards and units. All awards that are canceled prior to
vesting or expire unexercised are returned to the approved pool of reserved shares and made available for future grants
under the 2018 Plan. Shares of our common stock remaining available for future issuance under the 2018 Plan totaled
653,764 as of July 3, 2020.
On September 6, 2016, our Board of Directors 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 (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. Until the rights become exercisable, they will not be
evidenced by separate certificates and will trade automatically with shares of the Company’s common stock. The Rights
have a de minimis fair value. 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. The Plan expired on September 6, 2019.
On March 3, 2020, our Board of Directors reauthorized the Plan at the same term with a Record Date of March 13, 2020.
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. The Plan, reauthorized by our Board of
Directors on March 3, 2020, will be subject to our shareholders approval at our upcoming Annual Shareholders’ Meeting
to be held in November 2020.
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 3, 2020, 57,598
shares were reserved for future issuances under the ESPP. We issued 1,248 shares under the ESPP during fiscal 2020.
Share-Based Compensation
Total following table presents the compensation expense for share-based awards included in our consolidated
statements of operations for fiscal 2020, 2019 and 2018:
(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 share awards and units and market-based stock units
Total share-based compensation expense
2020
Fiscal Year
2019
2018
$
$
$
$
182 $
170 $
112
1,392
150
1,403
1,686 $
1,723 $
588 $
389 $
743
355
879
455
1,686 $
1,723 $
201
147
2,009
2,357
139
1,696
522
2,357
78
The following table summarizes the unamortized compensation expense and the remaining years over which such
expense would be expected to be recognized, on a weighted-average basis, by type of award:
Options
Restricted stock awards and units
Performance share awards and units
Stock Options
Unamortized
Expense
(In thousands)
$
$
$
818
838
696
July 3, 2020
Weighted-Average Remaining
Recognition Period
(Years)
1.91
1.62
1.89
A summary of the combined stock option activity under our equity plans during fiscal 2020 is as follows:
Options outstanding as of June 28, 2019
Granted
Exercised
Forfeited
Expired
Options outstanding as of July 3, 2020
Options vested and expected to vest as of July 3, 2020
Options exercisable as of July 3, 2020
Shares
Weighted-
Average
Exercise Price-
369,004 $
142,485 $
(832) $
(41,459) $
(147,480) $
321,718 $
321,718 $
134,955 $
21.85
14.27
14.88
17.62
25.68
17.30
17.30
19.81
Weighted-
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value
(Years)
(In thousands)
3.37 $
—
4.20 $
4.20 $
1.83 $
798
798
219
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 2, 2020 of $18.59, in place of July 3, 2020 as the stock market was closed in
observance of Independence Day, 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 3, 2020.
The fair value of each option grant under our 2018 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
2020
—
51.7 %
1.7 %
Fiscal Year
2019
2018
—
59.0 %
2.8 %
Weighted-average grant date fair value per share granted
$
14.45
$
8.93
N/A
N/A
N/A
N/A
79
The following summarizes all of our stock options outstanding and exercisable as of July 3, 2020:
Options Outstanding
Options Exercisable
Actual Range of Exercise Prices
Number
Outstanding
$12.84
$14.45
$14.88
$17.80
$23.52
$27.72
$31.20
$12.48
— $12.84
— $14.45
— $15.60
— $17.80
— $26.28
— $27.72
— $31.20
— $31.20
16,367
122,545
34,296
105,393
29,695
291
13,131
321,718
Weighted-
Average
Remaining
Contractual
Life
(Years)
Weighted-
Average
Exercise Price
Number
Exercisable
Weighted-
Average
Exercise Price
6.88
5.44
1.27
4.90
0.32
0.50
0.19
4.20
$
$
$
$
$
$
$
$
12.84
14.45
15.28
17.80
25.85
27.72
31.20
17.30
—
17,862
34,296
39,680
29,695
291
13,131
134,955
$
$
$
$
$
$
$
$
—
14.45
15.28
17.80
25.85
27.72
31.20
19.81
Additional information related to our stock options is summarized below:
(In thousands)
Intrinsic value of options exercised
Fair value of options vested
Restricted Stock Awards and Units
2020
$
$
3 $
499 $
Fiscal Year
2019
2018
2 $
23 $
1
140
A summary of the status of our restricted stock as of July 3, 2020 and changes during fiscal 2020 is as follows:
Restricted stock outstanding as of June 28, 2019
Granted
Vested and released
Forfeited
Restricted stock outstanding as of July 3, 2020
Shares
Weighted-Average
Grant Date
Fair Value
171,567 $
86,662 $
(173,679) $
(3,721) $
80,829 $
9.90
14.23
9.93
9.86
14.28
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 2020, 2019 and 2018 was $1.7 million, $2.2 million
and $0.4 million, respectively.
Market-Based Stock Units
A summary of the status of our market-based stock units granted during fiscal 2020 as of July 3, 2020 is as
follows:
80
Restricted stock outstanding as of June 28, 2019
Granted
Restricted stock outstanding as of July 3, 2020
Shares
Weighted-Average
Grant Date
Fair Value
— $
46,500
46,500 $
—
7.13
7.13
The fair value for each market-based stock units with market condition was estimated using the 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
Performance Share Awards and Units
Fiscal Year
2020
—
36.4% - 47.3%
1.6 %
$
14.29
A summary of the status of our performance shares awards and units as of July 3, 2020 and changes during fiscal
2020 is as follows:
Performance share awards and units outstanding as of June 28, 2019
Granted
Vested and released
Forfeited/Cancelled
Performance share awards and units outstanding as of July 3, 2020
Shares
Weighted-Average
Grant Date
Fair Value
124,597 $
51,706 $
(49,297) $
(51,238) $
75,768 $
14.59
14.45
9.55
17.37
15.90
Note 10. 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 regions 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 2020, 2019 and 2018 were as follows:
(In thousands)
North America
Africa and Middle East
Europe and Russia
Latin America and Asia Pacific
Total Revenue
2020
151,709 $
37,595
11,157
38,181
238,642 $
$
$
Fiscal Year
2019
132,884 $
48,305
16,933
45,736
243,858 $
2018
131,078
58,459
18,205
34,764
242,506
81
Revenue by country comprising more than 5% of our total revenue for fiscal 2020, 2019 and 2018 was as
follows:
(In thousands, except percentages)
Fiscal 2020:
United States
Philippines
Fiscal 2019:
United States
Philippines
Fiscal 2018:
United States
South Africa
Philippines
Revenue
% of
Total Revenue
$
$
$
$
$
$
$
147,795
12,550
129,929
24,368
128,269
13,929
13,838
61.9 %
5.3 %
53.3 %
10.0 %
52.9 %
5.7 %
5.7 %
Our long-lived assets, consisting primarily of net property, plant and equipment, by geographic areas based on the
physical location of the assets as of July 3, 2020 and June 28, 2019 were as follows:
(In thousands)
New Zealand
United States
United Kingdom
Other countries
Total
Note 11. Income Taxes
July 3,
2020
June 28,
2019
$
8,342 $
4,829
2,420
1,320
8,368
4,984
2,654
1,249
$
16,911 $
17,255
Income before provision for income taxes during fiscal year 2020, 2019 and 2018 consisted of the following:
(In thousands)
United States
Foreign
Total income before income taxes
2020
Fiscal Year
2019
$
$
9,497 $
5,827 $
(5,788)
(4,277)
3,709 $
1,550 $
2018
7,718
(6,452)
1,266
Provision for (benefit from) income taxes from continuing operations for fiscal year 2020, 2019 and 2018 were
summarized as follows:
82
(In thousands)
Current provision (benefit):
Federal
Foreign
State and local
Deferred provision (benefit):
Federal
Foreign
2020
Fiscal Year
2019
2018
$
(10) $
— $
3,589
45
3,624
527
45
572
(744)
572
(172)
(7,482)
(1,278)
(8,760)
—
2,043
76
2,119
(3,397)
242
(3,155)
(1,036)
Total provision for (benefit from) income taxes
$
3,452 $
(8,188) $
The provision for (benefit from) income taxes differed from the amount computed by applying the federal
statutory rate of 21.0%, 21.0% and 28.1% for fiscal 2020, 2019 and 2018, respectively, to our income before provision
for (benefit from) income taxes as follows:
(In thousands)
Tax provision at statutory rate
Valuation allowances
Permanent differences
State and local taxes, net of U.S. federal tax benefit
Foreign income taxed at rates different than the U.S. statutory rate
Tax credit/deductions - generated and expired
Foreign withholding taxes
Brazil withholding tax receivable
Singapore refund
Change in uncertain tax positions
Impact from tax reform
Deferred true-up adjustments
Other
2020
Fiscal Year
2019
2018
$
779 $
308 $
442
(6,577)
(13,461)
(53,308)
(347)
542
764
99
303
—
—
2,674
—
5,634
664
2,008
1,488
2,167
911
(1,877)
—
859
—
(1,371)
(419)
116
348
441
22
—
1,287
—
(1,325)
508
50,115
—
434
Total provision for (benefit from) income taxes
$
3,452 $
(8,188) $
(1,036)
Our provision for (benefit from) income taxes was $3.5 million of expense for fiscal 2020, $8.2 million of benefit
for fiscal 2019 and $1.0 million of benefit for fiscal 2018. The tax expense for fiscal 2020 was primarily due to tax
expense related to profitable foreign subsidiaries and increase in our reserve for uncertain tax positions.
During fiscal year 2020, we corrected the prior year balance of deferred tax assets and liabilities relating to
property and equipment, accruals and reserves, stock compensation, unrealized exchange loss and tax loss and credit
carryforwards, as well as the valuation allowance related to these assets by an equal and offsetting amount. As a result,
certain items that comprised our prior year tax benefit reconciliation have been revised as of June 28, 2019, with no
change to the tax benefit amount of $8.2 million. As a result, the previously reported amounts were revised as follows:
valuation allowance decreased by $0.7 million, tax credit/deductions - generated and expired increased by $0.2 million
and deferred true-up adjustments increased by $0.5 million as of June 28, 2019 in the table above. There was also a
reclassification of $1.9 million between deferred true-up adjustments and other. These immaterial adjustments to the
disclosures had no effect on the consolidated balance sheets, statements of operations and cash flows for any periods
presented.
83
Our tax benefit for fiscal 2019 was primarily due to the release of certain U.S. federal and state valuation
allowances of $7.5 million and refundable foreign withholding tax credit, partially offset by losses in tax jurisdictions in
which we cannot recognize tax benefits. During the first quarter of fiscal 2019, we received notification from the
Department of Federal Revenue of Brazil that our withholding tax refund request had been approved. We recorded a net
discrete income tax benefit of $1.6 million for the release of valuation allowance previously recorded as a deferred tax
asset for the withholding tax credits. This consisted of an income tax benefit of $1.9 million for the refundable
withholding tax credit, less tax expense of $0.3 million from recognizing an ASC 740-10 reserve previously recorded as
a reduction to the withholding tax credits. We expect to receive the refundable withholding tax credit during our fiscal
year 2021.
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
Inventory
Right of Use Asset
Other
Total deferred tax liabilities
Net deferred tax assets
As Reported on the Consolidated Balance Sheets
Deferred income tax assets
Deferred income tax liabilities
Total net deferred income tax assets
July 3, 2020
June 28, 2019
$
4,849 $
2,923
201
1,585
465
2,124
129
4,845
5,498
—
889
6
1,916
1,021
2,583
58
4,547
5,876
126,550
149,169
141,685
158,581
(136,097)
(142,865)
13,072
15,716
57
142
—
556
63
818
$
12,254 $
801
619
1,810
—
—
3,230
12,486
$
$
12,799 $
545
12,254 $
13,864
1,378
12,486
During fiscal year 2020, we corrected the prior year balance of deferred tax assets and liabilities relating to
property and equipment, accruals and reserves, stock compensation, unrealized exchange loss and tax loss and credit
carryforwards, as well as the valuation allowance related to these assets by an equal and offsetting amount. As a result,
the previously reported amounts were revised as follows: deferred tax assets decreased by $0.2 million, valuation
allowance decreased by $0.7 million and deferred tax liabilities increased by $0.5 million as of June 28, 2019 in the table
above. These immaterial adjustments to the disclosures had no effect on the consolidated balance sheets, statements of
operations and cash flows for any periods presented.
84
Our valuation allowance related to deferred income taxes, as reflected in our consolidated balance sheets, was
$136.1 million as of July 3, 2020 and $142.9 million as of June 28, 2019. The change in valuation allowance for the
fiscal years ended July 3, 2020 and June 28, 2019 was a decrease of $6.8 million and $14.4 million, as revised for the
correction to the deferred tax assets in table above, respectively. The decrease in the valuation allowance in fiscal 2020
was primarily due to the release of certain U.S. federal, state, and foreign valuation allowances, partially offset by losses
in tax jurisdictions in which we cannot recognize tax benefits.
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, including tax loss carryforwards that are attributable to the Microwave Communication
Division when it was a division of Harris. There were no settlement payments recorded since the acquisition date.
Realization of deferred tax assets is dependent upon future earnings in applicable tax jurisdictions. Prior to fiscal
2019, due to our U.S. operating losses in previous years and continuing U.S. earnings volatility which did not allow
sustainable profitability, we had established and maintained a full valuation allowance for our U.S. deferred tax assets.
While there had been a trend of positive evidence that had been strengthening prior to fiscal 2019, it was not sufficiently
persuasive to outweigh the negative evidence in future periods. During the third quarter of fiscal 2019, we generated our
third consecutive profitable year from a U.S. pre-tax book income perspective. Accordingly, we determined that it was
more likely than not that we would realize a portion of our U.S. deferred tax assets, primarily relating to certain net
operating loss carryforwards and current temporary differences. The positive evidence as of March 29, 2019, which
outweighed the negative evidence to release a portion of the valuation allowance, included our fiscal 2019 and three-year
cumulative U.S. profitability driven by continued demand for our products in North America that have historically
resulted in higher margins than international sales, reductions in operating expenses resulting from our previous
restructurings, and our forecasted U.S. operating profits in future periods. The negative evidence primarily relates to
certain net operating loss carryforwards and credits that are expected to expire prior to utilization. We believed that our
positive evidence was strong and continues to be strong in fiscal 2020. The improved financial performance as it relates
to U.S. profitability in recent years is an objectively verifiable piece of positive evidence and is the result of a number of
factors which have been present to a greater or lesser extent in prior years but had only gathered sufficient weight to
deliver objectively verifiable, consistent U.S. pre-tax book profits in fiscal 2019. In performing our analysis, we used the
most updated plans and estimates that we currently use to manage the underlying business and calculated the utilization
of our deferred tax assets. Accordingly, during fiscal 2019, we released $7.5 million of U.S. valuation allowance as a
discrete item on certain deferred tax assets. The remaining valuation allowance relates to deferred tax assets, for which
we believe it is not more likely than not to be realized in future periods. We also performed this analysis in fiscal 2020,
which resulted in no additional U.S. valuation allowance release.
Tax loss and credit carryforwards as of July 3, 2020 have expiration dates ranging between one year and no
expiration in certain instances. The amounts of U.S. federal tax loss carryforwards as of July 3, 2020 and June 28, 2019
were $404.1 million ($325.6 million and $78.5 million related to Harris tax attributes) and $408.5 million
($330.0 million and $78.5 million to Harris tax attributes), respectively, and begin to expire in fiscal 2023. The amount
of U.S. federal and state tax credit carryforwards as of July 3, 2020 was $8.0 million, and certain credits will begin to
expire in fiscal 2021. The amount of foreign tax loss carryforwards as of July 3, 2020 was $189.1 million and certain
losses begin to expire in fiscal 2021. The amount of foreign tax credit carryforwards as of July 3, 2020 was $2.6 million,
and certain credits will begin to expire in fiscal 2023.
United States income taxes have not been provided on basis differences in foreign subsidiaries of $1.6 million and
$0.8 million as of July 3, 2020 and June 28, 2019, respectively, because of our intention to reinvest these earnings
indefinitely. The residual U.S. tax liability, if such amounts were remitted, would be nominal.
As of July 3, 2020 and June 28, 2019, we had unrecognized tax benefits of $18.0 million and $13.0 million,
respectively, as revised for correction to unrecognized tax benefits in the table below, for various federal, foreign, and
state income tax matters. Unrecognized tax benefits increased by $5.0 million. Our total unrecognized tax benefits that, if
recognized, would affect our effective tax rate were $5.8 million and $3.6 million, respectively, as of July 3, 2020 and
June 28, 2019. These unrecognized tax benefits are presented on the accompanying consolidated balance sheets 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 $0.7 million as of July 3, 2020 and $0.6 million as of June 28, 2019. An immaterial
amount of penalties have been accrued.
85
Our unrecognized tax benefit activity for fiscal 2020, 2019 and 2018 was as follows:
(In thousands)
Unrecognized tax benefit as of June 30, 2017
Additions for tax positions in prior periods
Additions for tax positions in current periods
Decreases for tax positions in prior periods
Decreases related to change of foreign exchange rate
Unrecognized tax benefit as of June 29, 2018
Additions for tax positions in prior periods
Additions for tax positions in current periods
Decreases for tax positions in prior periods
Decreases related to change of foreign exchange rate
Unrecognized tax benefit as of June 28, 2019
Additions for tax positions in prior periods
Additions for tax positions in current periods
Decreases for tax positions in prior periods
Decreases related to change of foreign exchange rate
Unrecognized tax benefit as of July 3, 2020
Amount
$
15,432
509
349
(3,481)
31
12,840
287
1,501
(1,674)
33
12,987
7,023
3,094
(4,692)
(365)
$
18,047
During fiscal year 2020, we corrected the prior year balance of unrecognized tax benefits relating to certain
reserves, as well as the deferred tax asset and valuation allowance related to these reserves by an equal and offsetting
amount. As a result, the net unrecognized tax benefit as of June 30, 2017 and June 28, 2019 have both been adjusted in
the table above and decreased by $3.3 million and $0.2 million, respectively.
We have a number of years with open tax audits which vary from jurisdiction to jurisdiction. Our major tax
jurisdictions that are open and subject to potential audits include the U.S., Singapore, Nigeria, Saudi Arabia and the Ivory
Coast. The earliest years for these jurisdictions are as follows: U.S. - 2003; Singapore - 2015; Nigeria - 2006: Saudi
Arabia - 2014, and Ivory Coast - 2017.
During the fourth quarter of fiscal 2020, we completed our audit with the Inland Revenue of Singapore (IRAS) for
fiscal years 2011 to 2014, which resulted in a reduction to net operating loss carryforward of $9.7 million and recorded
no tax expense due to a full valuation allowance against Singapore’s deferred tax assets.
On March 27, 2020, the US enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act which
provided certain tax relief measures including, but not limited to, (1) a five-year net operating loss carryback, (2) changes
in the deduction of interest, (3) acceleration of alternative minimum tax credit (AMT) refunds, and (4) a technical
correction to allow accelerated deductions for qualified improvement property. The Tax Cuts and Jobs Act repealed the
corporate AMT credit and allowed taxpayers to claim any unused AMT credit over four tax years beginning in tax year
2018. The CARES Act allows for acceleration of the refundable AMT credit up to 100% of the AMT credit to be
refunded in tax year 2018. During the third quarter of fiscal 2020, in connection with our analysis of the impact of the
CARES Act, we reclassified the refundable AMT credit of $3.4 million from long-term to short-term receivable and
recorded no income tax effects on the other tax relief measures of the CARES Act.
Note 12. Commitments and Contingencies
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
86
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 3, 2020, we had outstanding purchase obligations with our suppliers or
contract manufacturers of $22.1 million. In addition, we had contractual obligations of approximately $1.6
million associated with software as a service and software maintenance support as of July 3, 2020.
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 3, 2020, 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 3, 2020, we had commercial
commitments of $57.2 million outstanding that were not recorded on our consolidated balance sheets. During the second
quarter of fiscal 2017, we recorded a payout in cost of revenues of $0.4 million on the performance guarantees to a
contractor in the Middle East region. We believe the customer improperly drew down on the performance bond and
intend to pursue all remedies available to recover the payment. We do not believe, based on historical experience and
information currently available, that it is probable that any significant amounts will be required to be paid on the
performance guarantees in the future.
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 products infringe the intellectual
property rights of a third party. As of July 3, 2020, we have not received any notice that any customer is subject to an
infringement claim arising from the use of our products; we have not received any request to defend any customers from
infringement claims arising from the use of our 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 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 to our indemnification provisions. As
of July 3, 2020, 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 damages from a customer alleging that certain of our products were defective.
Although we believe that we have numerous contractual and legal defenses to these disputes but at this time we have
accrued an immaterial amount representing the estimated probable loss for which we would settle the matter. We
currently cannot form an estimate of the range of loss in excess of our amounts already accrued. If the outcome of this
matter is greater than the current immaterial amount accrued, we intend to dispute it 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.
87
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.
In March 2016, an enforcement action by the Indian Department of Revenue, Ministry of Finance was brought
against our subsidiary Aviat India relating to the non-realization of intercompany receivables and non-payment of
intercompany payables, which originated from 1999 to 2012, within the time frames dictated by the Indian regulations
under FEMA. In November 2017, the Indian Department of Revenue, Ministry of Finance also initiated a similar action
against Telsima India, a subsidiary of the Company, relating to the non-realization of intercompany receivables and non-
payment of intercompany payables which originated from the period prior to our acquisition of Telsima India in
February 2009. In September 2019, our directors of Aviat India appeared before the Ministry of Finance Enforcement
Directorate. No settlement offers were discussed at the meeting and the matter is still ongoing with no subsequent
hearing date currently scheduled. We have accrued an immaterial amount representing the estimated probable loss for
which we would settle the matter. We currently cannot form an estimate of the range of loss in excess of our amounts
already accrued. If the outcome of this matter is greater than the current immaterial amount accrued, we intend to dispute
it vigorously.
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.
COVID-19
In March 2020, the World Health Organization characterized a recent pandemic of respiratory illness caused by
novel coronavirus disease, known as COVID-19, as a pandemic. The pandemic has resulted in government authorities
implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-
place or stay-at-home orders, and business shutdowns. Our global operations expose us to risks associated with public
health crises and epidemics/pandemics, such as the COVID-19 virus. The COVID-19 virus may have an impact on our
operations, supply chains and distribution systems and increase our expenses, including as a result of impacts associated
with preventive and precautionary measures that we, other businesses and governments are taking or requiring. The
extent to which the COVID-19 pandemic impacts our business, prospects and results of operations will depend on future
developments, which are highly uncertain, including, but not limited to, the duration and spread of the pandemic, its
severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and
operating activities can resume. Management is actively monitoring the impact of COVID-19 on our financial condition,
liquidity, operations, suppliers, industry, and workforce.
Our first priority remains the health and safety of our employees and their families. Employees whose tasks can be
done off-site have been instructed to work from home. Our manufacturing sites support essential businesses and remain
operational. We are maintaining social distancing for workers on-site and have enhanced cleaning protocols and usage
of personal protective equipment, where appropriate.
The impact to our supply chain lead times and ability to fulfill orders was minimal for the second half of fiscal
2020. However, depending on pandemic-related factors like the uncertain duration of temporary manufacturing
restrictions as well as our ability to perform field services during shelter in place orders, we could experience constraints
and delays in fulfilling customer orders in future periods. We are monitoring, assessing and adapting to the situation and
preparing for implications to our business, supply chain and customer demand. We expect these challenges to continue
until business and economic activities return to more normal levels. The financial results for the second half of fiscal
2020 reflect some of the reduced activity experienced during the period in various locations around the world.
88
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. Summarized quarterly data for fiscal 2020 and 2019 were as follows:
(In thousands, except per share amounts)
Fiscal 2020
Revenue
Gross margin
Operating income (loss)
Net income (loss)
Per share data:
Q1
Ended
9/27/2019
Q2
Ended
12/27/2019
Q3
Ended
4/3/2020
Q4
Ended
7/3/2020
$
58,614 $
55,997 $
61,379 $
62,652
22,556
1,519
54
18,319
(1,497)
(1,671)
21,961
1,236
731
21,860
2,120
1,143
Basic net income (loss) per common share
Diluted net income (loss) per common share
$
$
0.01 $
0.01 $
(0.31) $
(0.31) $
0.14 $
0.13 $
0.21
0.21
(In thousands, except per share amounts)
Fiscal 2019
Revenue
Gross margin
Operating (loss) income
Net (loss) income
Per share data:
Q1
Ended
9/28/2018
Q2
Ended
12/28/2018
Q3
Ended
3/29/2019
Q4
Ended
6/28/2019
$
60,504 $
65,088 $
54,037 $
64,229
17,925
22,490
16,255
22,600
(1,514)
(750)
2,883
2,310
(2,503)
4,339
2,502
3,839
Basic net (loss) income per common share
Diluted net (loss) income per common share
$
$
(0.14) $
(0.14) $
0.43 $
0.41 $
0.81 $
0.78 $
0.71
0.69
The following tables summarize charges (recoveries) included in our results of operations for each of the fiscal
quarters presented:
(In thousands)
Fiscal 2020
Restructuring charges
(In thousands)
Fiscal 2019
Restructuring charges (recovery)
WTM inventory recovery
Strategic alternative costs
Q1
Ended
9/27/2019
Q2
Ended
12/27/2019
Q3
Ended
4/3/2020
Q4
Ended
7/3/2020
$
1,177 $
381 $
617 $
1,874
Q1
Ended
9/28/2018
Q2
Ended
12/28/2018
Q3
Ended
3/29/2019
Q4
Ended
6/28/2019
$
$
$
796 $
(88) $
— $
— $
(2) $
— $
— $
— $
— $
— $
491 $
— $
(7,054) $
(60)
(65)
102
—
(432)
Tax receivable from Department of Federal Revenue of Brazil $
$
Release of valuation allowance
(1,646) $
— $
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
89
Not applicable.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on management’s evaluation, with participation of our Chief Executive Officer (CEO) and Chief Financial
Officer (CFO), as of the end of the period covered by this report, our CEO and CFO have concluded that our disclosure
controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), are effective to provide reasonable assurance that the information required to be
disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission’s rules and forms, and is accumulated and
communicated to management, including our principal executive officer and principal financial officer, as appropriate to
allow timely decisions regarding required disclosures.
Changes in Internal Controls Over Financial Reporting
There were no changes to our internal control over financial reporting as defined in Rules 13a-15(f) or 15d-15(f)
that occurred during the quarter ended July 3, 2020 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
Management 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 Exchange Act) to provide reasonable assurance regarding the
reliability of our financial reporting and the preparation of consolidated financial statements for external purposes in
accordance with U.S. GAAP.
Management, including our CEO and CFO, assessed our internal control over financial reporting as of July 3,
2020, the end of our fiscal year. Management based its assessment on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).
Management’s assessment included evaluation of elements such as the design and operating effectiveness of key
financial reporting controls, process documentation, accounting policies, and our overall control environment.
Based on this assessment, management has concluded that our internal control over financial reporting was
effective as of the end of the fiscal year to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of consolidated financial statements for external reporting purposes in accordance with U.S. GAAP.
We reviewed the results of management’s assessment with the Audit Committee of our Board of Directors.
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.
Inherent Limitations on Effectiveness of Controls
Our management, including our CEO and CFO, does not expect that our disclosure controls and procedures or our
internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how
well-designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives
will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all
control issues and instances of fraud, if any, have been detected. 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. Projections of any evaluation of the effectiveness of
controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in
conditions or deterioration in the degree of compliance with policies or procedures.
90
Item 9B. Other Information
None.
91
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 3, 2020.
PART III
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,” which is incorporated herein by reference.
All information required to be disclosed in this Item 10 that is not otherwise contained herein 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.
92
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 3, 2020
Page
95
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.
93
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: August 27, 2020
By:
/s/ Eric Chang
AVIAT NETWORKS, INC.
(Registrant)
Eric Chang
Senior Vice President, 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/ Peter A. Smith
Peter A. Smith
/s/ Eric Chang
Eric Chang
/s/ John Mutch
John Mutch
/s/ Kenneth Kong
Kenneth Kong
/s/ Dahlia M. Loeb
Dahlia M. Loeb
/s/ John Quicke
John Quicke
/s/ James C. Stoffel
James C. Stoffel
President and Chief Executive Officer
(Principal Executive Officer)
August 27, 2020
Senior Vice President, Chief Financial Officer
(Principal Financial Officer)
August 27, 2020
Chairman of the Board
August 27, 2020
Director
August 27, 2020
Director
August 27, 2020
Director
August 27, 2020
Director
August 27, 2020
94
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
AVIAT NETWORKS, INC.
Years Ended July 3, 2020, June 28, 2019 and June 29, 2018
(In thousands)
Allowances for collection losses:
Year ended July 3, 2020
Year ended June 28, 2019
Year ended June 29, 2018
____________________________
Balance at
Beginning of
Period
Charged to
(Credit from)
Costs and
Expenses
Deductions
Balance
at End
of Period
$
$
$
1,602
1,588
3,919
$
$
$
$
248
120
$
(513) $
9 (1) $
106 (2) $
1,818 (3) $
1,841
1,602
1,588
(1) - Consisted of changes to allowance for collection losses of $0 for foreign currency translation gain and $9,000 for
uncollectible accounts charged off, net of recoveries on accounts previously charged off.
(2) - Consisted of changes to allowance for collection losses of $0 for foreign currency translation gain and $107,000
for uncollectible accounts charged off, net of recoveries on accounts previously charged off.
(3) - Consisted of changes to allowance for collection losses of $3,000 for foreign currency translation losses and
$1,820,000 for uncollectible accounts charged off, net of recoveries on accounts previously charged off.
95
The following exhibits are filed or furnished herewith or are incorporated herein by reference to exhibits
previously filed with the SEC:
EXHIBIT INDEX
Ex. #
3.1
3.2
4.1
4.2
4.3
4.4*
10.1
10.2
10.3
10.4+
10.5+
10.6
10.6.1
10.6.2
10.6.3
Description
Amended and Restated Certificate of Incorporation of Aviat Networks, Inc., as amended (incorporated
by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q filed with the SEC on February 10,
2017, File No. 001-33278)
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 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. File No. 001-33278)
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)
Tax Benefit Preservation Plan, dated as of March 3, 2020, 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 March 3, 2020, File No. 001-33278)
Description of Registered Securities
Letter Agreement, dated September 13, 2016, among Aviat Networks, Inc., JDS 1, LLC, Julian Singer
and David S. Oros (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed
with the SEC on September 15, 2016 and to Exhibit 10.1 to the Current Report Form 8-K/A filed with
the SEC on September 16, 2016, File No. 001-33278)
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)
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)
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)
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)
Third Amended and Restated Loan and Security Agreement, dated as of June 29, 2018, 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
June 29, 2018, File No. 001-33278)
Amendment #1 to Third Amended and Restated Loan and Security Agreement, dated as of September
28, 2018, 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 4, 2018, File No. 001-33278)
Amendment #2 to Third Amended and Restated Loan and Security Agreement, dated as of June 10,
2019, 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 June 12, 2019, File No. 001-33278)
Third Amendment to Third Amended and Restated Loan and Security Agreement, dated as of May 4,
2020, 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 May 5, 2020, File No. 001-33278)
96
Ex. #
10.8+
10.8.1+
10.9+
10.11
10.12+
10.12.1+
10.12.2+
10.13+
10.14
10.15+
10.16+
21*
23.1*
31.1*
31.2*
32.1**
32.2**
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
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)
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)
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)
Amendment to Employment Agreement, dated June 20, 2018, between Aviat Networks, Inc. and Eric
Chang (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the
SEC on June 25, 2018, File No. 001-33278)
Amendment to Employment Agreement, dated April 3, 2020, 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 April 3, 2020, File No. 001-33278)
Employment Agreement, dated June 20, 2018, between Aviat Networks, Inc. and Stan Gallagher
(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on
June 25, 2018, 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 (incorporated by reference to Exhibit 10.34
to the Annual Report on Form 10-K for fiscal year end July 1, 2016 filed with the SEC on September
9, 2016, File No. 001-33278)
Employment Agreement, dated January 2, 2020, between Aviat Networks, Inc. and Peter Smith
(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on
January 2, 2020, File No. 001-33278)
Aviat Networks, Inc. 2018 Incentive Plan (incorporated by reference to Appendix A to the
Registrant’s Proxy Statement on schedule 14A filed with the SEC on February 12, 2018, File No.
001-33278)
List of Subsidiaries of Aviat Networks, Inc.
Consent of BDO USA, 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
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
97
______________________________
+ Management compensatory contract, arrangement or plan required to be filed as an exhibit pursuant to Item 15(b)
of this report.
*
Filed herewith.
** Furnished herewith.
98
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Appendix
A-1
Stockholder Information
Executive Offices
Aviat Networks, Inc.
200 Parker Drive, Suite C100A
Austin, TX 78728
(408) 941-7100
Transfer Agent and Registrar
Computershare
PO Box 505000
Louisville, KY 40233-5002
Independent Public Accountants
BDO USA LLP
Investor Relations Contact
Investor Relations
InvestorInfo@aviatnet.com
Overnight Correspondence to:
Computershare
462 South 4th Street
Suite 1600
Louisville, KY 40202
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
200 Parker Drive, Suite C100A
Austin, TX 78728
2020 Annual Report
We have published this 2020 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
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. ET on November 10, 2020. 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
Directors
John Mutch
Chairman of the Board,
Aviat Networks
Peter Smith
CEO & President,
Aviat Networks
Dahlia Loeb
Managing Director,
Arcadia Investment Partners
Kenneth Kong
Sr. Vice President,
Steel Services, Ltd.
John J. Quicke
Former Chairman,
Steel Energy Services, Ltd.
Dr. James C. Stoffel
Lead Independent Director,
PAR Technology Corporation
Management
Peter Smith
CEO & President
Eric Chang
Senior Vice President and
Chief Financial Officer
Ola Gustafsson
Senior Vice President and
Chief Product Officer
Bryan C. Tucker
Senior Vice President, Americas
Sales & Services
Steven Toteda
Vice President, EMEA Sales &
Services
Wen Lien
Vice President, Asia Pacific
Sales & Services
Gary Croke
Vice President, Marketing
Christy Cornet
Vice President, Global
Operations & Supply Chain
Erin Boase
Vice President, Legal Affairs
Wendell Sherrill
Chief Human Resource Officer
Outside Legal Counsel
Vinson & Elkins LLP
Austin, TX
A-4
Headquarters and Operations
Corporate Headquarters
Aviat Networks, Inc.
200 Parker Dr., Suite C100A
Austin, TX 78728
United States
International Headquarters, Singapore
Aviat Networks (S) Pte. Ltd.
51 Changi Business Park Central 2
#04-10 The Signature
Singapore 486066
Offices
North America
Milpitas, CA
Montréal, Canada
San Antonio, TX
Mexico
Mexico D.F.
Europe
Meudon, France
Glasgow, Scotland
Schiphol, The Netherlands
London, United Kingdom
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
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
Forward-looking Statements
This letter to stockholders contains
statements that qualify as “forward
looking statements” under the U.S.
Private Securities Litigation Reform Act of
1995, including, but not limited to: our
plans, strategies and objectives for future
operations; expectations regarding future
performance; plans for new products,
services or developments; expectations
of future economic conditions;
opportunities to improve business
processes; expected impacts on our
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. 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. These risks,
uncertainties and other factors are
discussed in our fiscal year 2020 Form
10-K and in our other filings with the
Securities and Exchange Commission.
You should not rely on any forward-
looking statements, which reflect our
company’s opinions only as of the date of
this report. We undertake no obligation to
update publicly any forward-looking
statement, whether written or oral, for any
reason, except as required by law, even
as new information becomes available or
other events occur in the future.
A-5
WWW.AVIATNETWORKS.COM
200 Parker Dr., Suite C 100A, Austin, TX 78728
Tel: 408-941-7100
BR05366Y-0920-COMBO