SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D.C 20549

                                FORM 10-KSB 

(Mark one) 
_X_  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
     ACT OF 1934 (FEE REQUIRED) 

For the fiscal year ended________September 30, 1997_____________________________
                                    OR
__TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

For the transition period from____________to____________________________________

Commission file number__________________0-10976_________________________________

_______________________________Microwave Filter Company, Inc____________________
           (Exact name of registrant as specified in its charter)

__________New York__________________________16-0928443__________________________
(State or other jurisdiction of incorporation or organization)
                                            (I.R.S. Employer Identification No.)

_____6743 Kinne Street,  East Syracuse, NY________13057_________________________
(Address of principal executive offices)          (Zip code)

Registrant's telephone number including area code____(315) 438-4700_____________

Securities registered pursuant to Section 12(b) of the Act:_____None____________

Securities registered pursuant to Section 12(g) of the Act:
                           
_________________________Common stock, par value $.10 per share_________________
                              Title of class

  Indicate by check mark whether the registrant (1) has filed all reports 
required to be filed by section 13 or 15(d) of  the Securities Exchange Act of 
1934 during the preceding 12 months (or for such shorter period that the 
registrant was required to file such reports, and (2) has been subject to such 
filing requirements for the past 90 days. 

YES __X__  NO____

  Indicate by check mark if disclosure of delinquent filers pursuant to Item 
405 of Regulation S-K is not contained herein, and will not be contained, to 
the best of registrant's knowledge, in definitive proxy or information 
statements incorporated by reference in Part III of this Form 10-K or any 
amendment to this Form 10-K.__ 







  The aggregate market value of the voting stock held by non-affiliates of the 
registrant at the close of business on  November 25, 1997 was $2,523,581. 

  Indicate the number of shares outstanding of each of the issuer's classes of 
common stock, as of the latest practicable date. 

  Shares of common stock outstanding at November 25, 1997:   3,545,057

  Documents incorporated by reference: None.

                                  1       
<PAGE>





                           PART I 
                                
ITEM 1. BUSINESS.

GENERAL DEVELOPMENT OF BUSINESS
-------------------------------
  Microwave Filter Company, Inc. (hereinafter referred to as MFC) was 
incorporated in New York State on September 26, 1967.  MFC is the successor of 
Microwave Filter Company which was founded in April of 1967. 

  On July 1, 1990, MFC acquired Niagara Scientific, Inc. (hereinafter referred 
to as NSI.) 

  MFC and its subsidiaries are sometimes referred to collectively as the 
"Company."

NARRATIVE DESCRIPTION OF BUSINESS
----------------------------------
Microwave Filter Company, Inc. (MFC)

  MFC designs, develops, manufactures and sells passive electronic filters, 
both for radio and microwave frequencies, to help process signal distribution 
and to prevent unwanted signals from disrupting transmit or receive 
operations.  Markets served include cable television, television and radio 
broadcast, satellite broadcast, mobile radio, commercial and defense 
electronics. 

  The company actively produces over 1,700 standard products and has designed 
over 5,000 custom products for specialized applications. 

  Four basic filter types comprise the building blocks for interference 
filters. 

  Low Pass Filters - Low pass filters have a designed "cutoff" frequency: all 
lower frequencies pass through the filter undiminished while higher 
frequencies are blocked. These filters may be used to protect a receiver from 
a wide range of higher, interfering frequencies.  They may be used to block 
out higher order harmonics or simply preselect a band of desired frequencies. 





  High Pass Filters - High pass filters also have a designed "cutoff" 
frequency, but their pass and block functions are reversed; all lower 
frequencies are blocked while all higher frequencies pass through the filter 
undiminished.  These filters are often used to protect a receiver from a wide 
range of lower, interfering frequencies. 

  Bandpass Filters - Bandpass filters pass a "window" of frequencies - a 
continuous segment of the radio frequency spectrum.  They reject all 
frequencies outside this window. 

  Band Rejection Filters - Band rejection filters have the reverse function of 
a bandpass filter; they reject all frequencies in a continuous "window" of the 
radio frequency spectrum and pass all higher and lower frequencies.  They may 
be used to remove several interfering frequencies when these are grouped in a 
limited portion of the radio frequency spectrum.  A band reject filter also 
removes a band of frequencies for the reinsertion of new programming on the 
same band of frequencies. 

                              2
<PAGE>

  Filter Networks - The company is often called upon to design filter networks 
to meet complex interference problems.  Each filter network utilizes the basic 
filters described in the preceding paragraphs, connected according to certain 
mathematical equations, to solve complex interference problems. 

  MFC's reputation for product service and quality has encouraged customers to 
engage us for their custom filters and program requirements.  Utilizing a well 
equipped design test facility within a 40,000 square foot physical plant, MFC 
offers a full range of production capability for large and small orders.  We 
also provide military specifications and quality assurance programs. 



Niagara Scientific, Inc. (NSI) 
------------------------------

  NSI also includes niche markets in its customer base: industrial customers 
not addressed by larger competitors and larger customers having special needs. 

  Schroeder Machine Division (SMD) - A leading activity is custom designing 
case packing machines to automatically pack products into shipping cases.  
Customers are processors of food and other commodity products with a need to 
reduce labor cost with modest investment and quick payback. Operations are 
also characterized by repeat orders as customer production expands.  "Smart" 
machines range from video inspection machines to the Model 8000 automatic 
pick and place packing machine. 

  Schroeder Machines has become a systems integrator for Adept Technology, 
Inc., San Jose, CA., a manufacturer of a variety of robotic systems for the 
material handling industry. In this new capacity, Schroeder personnel will 
implement robot technology into case packing equipment. They will also work 
with companies who want to add robotics to existing material handling 
equipment. This robotic technology is used in high speed, high accuracy pick 
and place operations and has been popular in automotive and pharmaceutical 
industries. 


                                      3
<PAGE>
MARKETS 
-------
Microwave Filter Company, Inc. (MFC) 
------------------------------------

  Cable Television (CATV) - MFC serves this industry largely with three product 
groups.  One popular area includes standard and custom filters used at the 
headend to process signals and remove interference.  A very popular 
application involves removing or re-routing channels to organize programming 
line-ups. 

  A family of trap filters, "Fastrap," is used by cable operators to restrict 
or permit the viewing of pay per view or other premium programming.  The traps 
can be ordered in small and large quantities, are 100% inspected and delivered 
overnight.  

  Since all operators initially receive programming via satellite, products 
from our satellite market cross over into cable television.  C-band satellite 
receive systems are prone to various types of terrestrial interference which 
are curable in many cases by applying filters. 

  Cable Television will become Cable Communications in the years ahead. No 
longer will it just be a one-way provider of video programming. Cable companies 
are in the process of reconfiguring their plants to offer two-way services such 
as telephony and data in addition to cable television. Certain existing cable 
plants have discovered with a modest expenditure in additional equipment, they 
can successfully offer clear telephone and fast internet service over 
combination coaxial and fiber optic cables already in place.

  With signals traveling in two different directions now, cable operators must 
deal with signal processing and interference issues that affect the return 
path. As in the past, Microwave Filter Company will be available to offer 
custom solutions to any problems that arise. 

  Over the last few years, direct broadcast satellite (DBS) has taken business 
away from cable television. DBS offers more channels and higher quality digital 
reception. Nevertheless, DBS cannot offer local stations and is strictly a 
one-way service so cable television is expected to regain lost ground in the 
years ahead particularly if it can offer high speed internet access. Wireless 
Cable and telephone companies also expect to enter into the arena and offer 
two-way services to compete with cable television.

                              4
<PAGE>

  Broadcast - Several areas of broadcast are served by Microwave Filter 
Company  with the most active being Wireless Cable.  

  Wireless Cable is a multichannel subscription television service that is a 
competitor to cable television.  This service delivers programming over-the-
air using microwave frequencies.  Television programming is received at 
customer sites via a small rooftop antenna.  The signals are then 
downconverted for reception at the viewers' television sets. There is no 
discernible difference between cable and wireless with respect to equipment 
installed in subscribers' homes.  This service differs from cable television 
by its delivery method and that it offers fewer channels. Currently, over 33 
channels can be delivered by Wireless Cable.  Digital compression techniques 
can increase these channels eight fold. 


  The most significant product sold to this market is our channel combiner used 
at the broadcast site to reduce tower costs.  By combining channels at the 
transmitter, additional expensive coaxial or waveguide runs up the tower 
become unnecessary. 

  MFC offers the widest selection of channel combiners to meet a variety of 
system specifications.  Combiners in different configurations and constructed 
of different materials offer the operator better or best options depending on 
budget or other system requirements. 

  Wireless Cable was a market challenged in 1997 and its future will depend 
upon its ability to mirror some of the new two-way services which cable 
television plans to implement. This market continues to be bogged down by 
limited financing which has continued to stall its development domestically, 
though business continues in foreign markets. The industry continues to remain 
optimistic about its future.  

  Cellular Television - A new wireless service. Most people are familiar with 
cellular phones but here's a new twist - cellular television or (LMDS). This 
system operates like cellular phone in theory. An omni-directional transmitter 
at the center of a six mile cell sends out a video signal carrying 49 channels 
of programming. Subscribers at locations throughout that cell can receive the 
signal with small, square, flat antennas. One system, Cellular Vision USA 
already exists in New York City. Now the FCC is preparing to auction off 
additional frequencies (between 29 and 31 GHz) for similar services to 
establish themselves. Last year Microwave Filter Company developed a notch and 
bandpass filter series to remove interference at the transmitter for this new 
market. 

                              5
<PAGE>

  LPTV - Low Power Television or LPTV is an option in the U.S. as a 
multichannel subscription television service.  A system similar to Wireless 
Cable can be configured to deliver channels of programming to areas 
where off air signals cannot be received.  The only difference between both 
services is broadcast frequency and the type of antenna located at the 
subscriber's home.  An LPTV receive antenna would look like any other off air 
broadcast antenna in contrast to the microwave antenna used for Wireless 
Cable. LPTV frequencies are easier to obtain and there are more LPTV than 
Wireless channels available. In fact, due to the limited number of Wireless 
Cable frequencies, Wireless Cable operators are using a combination of Wireless 
and LPTV frequencies to increase the number of channels offered to their 
subscribers.  As a broadcaster, LPTV differs from traditional television only 
in broadcast power.  With lower broadcast power, the service has a smaller 
reception area than high power broadcast stations.    

  Microwave Filter Company provides channel combiners and interference filters 
for this industry.  The channel combiners are used to group channels and 
eliminate additional coaxial runs to the broadcast tower.  Filters are also 
used in broadcast equipment to eliminate interference. 

  
  Radio and Television Broadcast - MFC primarily serves these broadcast areas 
with interference filters to reduce equipment harmonics.  An example is high 
power high Q cavity filters developed for interference applications. Other 
broadcast areas served also include AML, telemetry and STL/ENG relays. 

  Similar to cable television, the broadcast industry is also moving towards 
the digital delivery of both audio and video broadcast. 

  Satellite - Filters and traps for removing interference are provided to both 
commercial and home C-band TVRO antennas.  A variety of products are available 
that offer protection and or solutions to interference that affects the 
feedhorn, downconverter, and receiver. A variety of filters are also available 
for satellite services utilizing higher frequency bands such as 12, 13 and 18 
GHz.   

  Direct Broadcast Satellite or DBS is a version of home satellite programming 
delivered direct to the home.  It differs from C-band TVRO by the size of the 
receive antenna. DBS broadcasts at a higher frequency requiring a smaller 
satellite dish than C-band TVRO.  Both satellite dealers and cable television 
systems market the service to offer consumers television options. 

                                     6
<PAGE> 

  Mobile Radio - MFC provides filters to a variety of mobile radio services 
such as cellular telephone, two way radio and paging to eliminate interference 
in transmit or receive equipment.   "High Q" filters have become widely 
accepted by the market.  With the number of services increasing and our air 
waves becoming more congested, filters increasingly are important to many 
transmit operations.  Cellular telephone has been the largest mobile radio 
growth market. The Cellular market is beginning to level off and now Personal 
Communications Services (PCS) is an area of mobile radio on the rise. MFC 
plans to design and to reintroduce a full line of products for PCS and other 
mobile radio services that will be used for transmit and receive operations. 

  Microwave and RF - This market encompasses both commercial and military 
applications.  Filters in defense applications are used for such purposes as 
air to ground communications, radar and land communications.  In commercial 
areas, filters are used to protect such equipment as receivers, transmitters, 
transceivers and any other electronics used for signal processing. MFC also 
has a line of couplers.  In addition to filters, this market is also served 
with MFC's Ferrosorb product line.  Ferrosorb is a microwave absorbing 
material available in sheets, loads and a variety of other shapes.  The 
product is used to offer protection by shielding signals or absorbing 
selective bands. 

  In 1992, MFC's acquisition of certain assets of Chesterfield Products added 
an expanded line of products to enhance the RF filter line.  Many of MFC's 
traditional filters are components added onto a system.  Chesterfield provided 
MFC with the capability to manufacture miniature and subminiature filters 
which are components built into electronic systems.  Another Chesterfield 
capability has provided us with the resources to expand our filter design 
range down to 5 KHz. 

  Although defense spending is expected to decline over the next several 
years, there appears to be a shifting from military into commercial markets 
which shows great promise for expansion in the years ahead. Many of the 
technological developments in our other markets such as cable television will 
also provide business opportunities for our Microwave & RF market. New 
communications means the manufacture of new equipment that require filters. 
This situation presents new potential for MFC to serve the original equipment 
manufacturers (OEM) with the development of new products for inherent 
interference problems. 

Niagara Scientific, Inc. (NSI)
------------------------------

  NSI - Like MFC, NSI and its divisions seek niche markets arising from 
certain demographic changes in the industrial work force which promotes 
acceptance of automation in both large and small factories.  NSI's typical 
product is customized to the purchaser's operation and is the result of system 
engineering.  The product makes tactical use of precision mechanical movements 
or sensors of physical characteristics under microprocessor control.  These 
smart machines reduce labor costs through faster operation and increased 
quality. 

                             7 
<PAGE>

  Typical customers for case packing machines are food processors or makers of 
cosmetics, pharmaceuticals, candies or hardware whose product must be cased 
for shipping and storage.  Recent customers for typical machines include 
DuPont, Knorr and Planters-Lifesavers. 

  Other custom equipment is designed for inspection-rejection, counting, 
analyzing or otherwise monitoring, reporting or controlling a continuous 
manufacturing or industrial process. 

  Typical customers are commodity mass producers in the food, drug and paint 
industries. 

WORLD TRADE 
-----------

  Management believes that world marketing is a route to substantial expansion 
of sales for MFC/NSI. Export opportunities for MFC's communication related 
products are many - especially in areas of the world such as China, the 
Pacific Rim and South America. Marketing research reveals that the Company's 
products are in high demand in these areas of the world. 

  NSI products are less suitable for export for a number of reasons, including 
their large size and complexity, less demand in underdeveloped areas for 
automation and significant local competition.  However, NSI is well qualified 
to produce and or distribute complementary products under license. 

SUPPLIERS 
---------

  The Company purchases its raw materials and components from a variety of 
vendors.  Generally, there are multiple sources for such raw materials and 
components. 

PATENTS AND LICENSES 
--------------------

 The Company has no patents, trademarks, copyrights, licenses or franchises of 
material importance. 

SEASONAL FLUCTUATIONS 
---------------------

  There are no significant seasonal fluctuations in the Company's business. 

GOVERNMENT CONTRACTS 
--------------------

  The Company is not dependent in any material respect on government contracts. 

                             8
<PAGE>

BACKLOG 
-------

  At September 30, 1997, the Company's total backlog of orders was $1,190,048 
compared to $1,262,124 at September 30, 1996.  At September 30, 1997, MFC's 
backlog of orders was $1,190,048 compared to $921,598 at September 30, 1996.
At September 30, 1997, NSI's backlog of orders was $0 compared to 
$340,526 at September 30, 1996. Approximately 75% of the Company's backlog at 
September 30, 1997 is scheduled to ship during fiscal 1998. 

EMPLOYEES
---------

  At September 30, 1997, the Company employed 67 full-time permanent 
employees, 5 part-time permanent employees, and 12 full-time temporary 
employees. 

RESEARCH AND DEVELOPMENT 
------------------------

  The Company maintains and expects to continue to maintain an active research 
and development program.  The Company believes that such a program is needed 
to maintain its competitive position in existing markets and to provide 
products for emerging markets.  Costs in connection with research and 
development were $337,250, $359,934 and $408,425 for the fiscal years 1997, 
1996 and 1995, respectively. Research and development costs are charged to 
operations as incurred. 

MANUFACTURING 
-------------

  Products are produced by small teams specializing in product or customer 
type.  A full range of internal core facilities support the work of these 
teams to minimize dependence on outside facilities and to minimize customer 
order delivery time.  These consist of machine, metal forming and brazing 
shops, engraving and label making, electrical test and mechanical inspection 
facilities, product finishing and packing and a documentation center for 
export shipping. 

ENGINEERING 
-----------

  Combined MFC/NSI engineering facilities require few outside services which 
minimizes new product development cycles.  Facilities include computer-aided 
circuit design capable of product performance simulation.  It is used for both 
physical product development and for customer quotation preparation.  
Engineering work stations and AutoCad drafting terminals are linked by a 
plant-wide Local Area Network. Extensive electrical test equipment includes 
modern recording network analyzers with provisions for microprocessor control 
to collect extensive test data automatically, when desired.  A specially 
staffed computer programming center provides systems of programs for various 
business and technical functions.  A high power Radio Frequency test lab and 
environmental test chamber permit product testing under realistic conditions.  
Equipment for mechanical stress testing is also included.  An anechoic test 
chamber facilitates antenna measurement tests on relay antennas developed for 
the Wireless Cable market. Additionally, extensive nearby university and 
industrial facilities provide service for a spectrum of additional types of 
testing. 

COMPETITION
-----------

  The principal competitive factors facing both MFC and NSI are price, 
technical performance, service and the ability to produce in quantity to 
specific delivery schedules. Based on these factors, the Company believes it 
competes favorably in its markets. 

                             9
<PAGE>

ITEM 2. PROPERTIES. 

  MFC's office and manufacturing facility is located at 6743 Kinne Street, 
East Syracuse, New York.  This facility, which is beneficially owned by MFC, 
consists of 40,000 square feet of office and manufacturing space located on 
3.7 acres.  MFC presently occupies approximately 35,000 square feet with the 
balance (approximately 5,000 square feet) occupied by NSI. 

  MFC's purchase of the facility was financed through the issuance of Onondaga 
County Industrial Revenue Bonds. Because of the manner in which the 
transaction was structured and in order to afford MFC certain sales and real 
property tax abatements, record title to the facility is held by the Onondaga 
County Industrial Development Agency (OCIDA).  MFC leases the facility from 
OCIDA for nominal rent and, upon repayment of the bonds, is required to 
purchase the facility from OCIDA for $1.00. 

ITEM 3. LEGAL PROCEEDINGS. 

  There are currently no material pending legal proceedings against the company 
or its subsidiaries. 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 

  During the fourth quarter of the fiscal year covered by this Form 10-K, there 
were no matters submitted to a vote of security holders. 

                             10
<PAGE>

                           PART II 
                                 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.

  MFC's common stock is traded on the NASDAQ over-the-counter market under the 
symbol MFCO.  The information set forth was obtained from statements provided 
by the NASD. The following table shows the high and low sales prices for MFC's 
common stock for each full quarterly period within the two most recent fiscal 
years. The quotations represent prices in the over-the-counter market between 
dealers in securities.  They do not include retail mark-ups, mark-downs or 
commissions. 


                                         
Fiscal 1997                        High      Low 

Oct. 1, 1996 to Dec. 31, 1996   $  1.38  $  1.00     
Jan. 1, 1997 to Mar. 31, 1997      1.50     1.06 
Apr. 1, 1997 to June 30, 1997      1.75      .94   
July 1, 1997 to Sept. 30, 1997     1.38     1.00 


Fiscal 1996                        High      Low 

Oct. 1, 1995 to Dec. 31, 1995   $  1.61   $ 1.08 
Jan. 1, 1996 to Mar. 31, 1996      1.50     1.13 
Apr. 1, 1996 to June 30, 1996      2.25     1.25 
July 1, 1996 to Sept. 30, 1996     2.00     1.13 

Adjusted for all stock dividends. 

  The approximate number of stockholders on September 30, 1997 was 1,900. 

  On January 15, 1997, the Board of Directors declared a five cents per share
cash dividend to shareholders of record on February 3, 1997, to be distributed
on February 18, 1997.   

  On January 18, 1996, the Board of Directors declared a five cents per share 
cash dividend and a 5% per share stock dividend to shareholders of record on
February 1, 1996, to be distributed on February 15, 1996. Fractional shares 
were paid in cash.

   




                             11
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA.

  The following selected financial information is derived from and should be 
read in conjunction with the financial statements, including the notes 
thereto, appearing in Item 8. - "Financial Statements and Supplemental Data." 


Five Year Summary Of Financial Data


<TABLE>
<CAPTION>
                                                           September 30
                                     1997         1996         1995          1994         1993
<S>                              <C>          <C>          <C>           <C>           <C>
Net Sales                        $ 6,175,425  $ 7,532,710  $ 7,655,198   $ 8,616,861   $ 6,814,329
Net Income (loss)(1)(3)          $   434,772  $   504,295  $    19,164   $   117,529   $  (118,330)
Earnings (loss) Per Share        $       .12  $       .14  $       .01   $       .03   $      (.03)
Weighted Average Number of
Common Shares Outstanding*(2)      3,548,240    3,525,362    3,478,451     3,508,923     3,573,067
Stock (%) Dividends                                    5%           5%            5%            5%
Cash ($) Dividends Declared      $       .05  $       .05                                  
Total Assets(2)                  $ 5,173,481  $ 5,410,266  $ 5,273,931   $ 5,597,991   $ 4,761,044
Long Term Debt                   $    46,065  $   102,774  $   439,545   $   583,354   $   251,298
*Adjusted for all stock dividends.


Net income (loss) as a percentage of:   1997         1996         1995          1994           1993
Sales.............................       7.0          6.7          0.3           1.4           (1.7)
Assets............................       8.4          9.3          0.4           2.1           (2.5)
Equity............................      10.2         12.7          0.5           3.3           (3.4)

</TABLE>


(1) In the fourth quarter of 1993, the Company recorded an expense of
approximately $336,000 consisting principally of the writedown of certain
inventory items and a receivable.

(2) On February 26, 1993 the Company purchased 505,598 shares of stock at $1.055
per share in settlement of a $72,000 note receivable and paying cash in the
amount of $461,409.

(3)  In the fourth quarter of 1997, the Company received life insurance death 
benefits of $350,000 as a result of the death of a former officer.     

                                                12
<PAGE>


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RESULTS OF OPERATIONS
---------------------

  The following table sets forth the Company's net sales by major product 
groups for each of the fiscal years in the three year period ended September 
30, 1997. 

Product group  (in thousands)  Fiscal 1997    Fiscal 1996   Fiscal 1995
Niagara Scientific                $  588         $  609        $  826
Microwave Filter:
  Cable TV                         3,592          3,951         3,223
  Broadcast TV                     1,095          1,788         2,277
  RF/Microwave                       740          1,074         1,226
  Satellite Communications           160            111           103
  Total                           $6,175         $7,533        $7,655

Sales backlog at 9/30             $1,190         $1,262        $1,694



Fiscal 1997 compared to Fiscal 1996

  Consolidated net sales for the fiscal year ended September 30, 1997 equalled 
$6,175,425, a decrease of $1,357,285 or 18% when compared to consolidated net 
sales of $7,532,710 during the fiscal year ended September 30, 1996. 

  Microwave Filter Company, Inc. (MFC) sales decreased $1,335,644 or 19.3% to 
$5,587,862 during the fiscal year ended September 30, 1997 when compared to 
sales of $6,923,506 during the fiscal year ended September 30, 1996. 

  MFC's Cable TV product sales decreased $359,164 or 9.1% to $3,592,190 during 
the fiscal year ended September 30, 1997 when compared to sales of $3,951,534 
during the fiscal year ended September 30, 1996. The decrease in sales can 
primarily be attributed to market conditions. Competition in the form of Direct 
Broadcast Satellite (DBS) has enjoyed rapid growth at the expense of the Cable 
TV industry and this has impacted our sales. DBS offers more channels and high 
quality digital reception. However, DBS cannot offer local stations and is 
strictly a one-way service. In the next few years, Cable TV operators will 
begin to offer additional two-way services such as telephony and high speed 
internet access which will be beyond the technical capabilities of DBS, so 
Cable TV will regain some lost market share. Standards and technology are 
being developed by Cable TV operators for the implementation of these new 
services and once decisions are complete, additional investment in equipment 
to build up physical plant will be made and should again positively impact our 
sales to this market. MFC has also experienced stiffer competition from other 
suppliers. Management has been working diligently to recapture any lost 
business and to increase market share through more competitive pricing and an 
increased marketing effort. 

  MFC's Broadcast TV product sales, which includes wireless cable products, 
decreased $692,019 or 38.7% to $1,095,620 during the fiscal year ended 
September 30, 1997 when compared to sales of $1,787,639 during the fiscal year 
ended September 30, 1996. The decrease in sales can also be attributed 
primarily to market conditions. Demand in the Multichannel Multipoint 
Distribution Service (MMDS) has been low. Wireless cable system operators 
continue to wait for the successful testing and installation of digital 
compression technology. Digital compression technology will provide wireless 
cable with the ability to offer more channels. Wireless Cable is also a 
technology that shows promise in offering two-way data services such as 
internet access. The industry continues to remain optimistic about its future. 

                                  13
<PAGE>

  MFC's RF/Microwave product sales decreased $332,989 or 31% to $740,662 during 
the fiscal year ended September 30, 1997 when compared to sales of $1,073,651 
during the fiscal year ended September 30, 1996. The decrease in sales can 
primarily be attributed to the completion of a large order during the fiscal 
year ended September 30, 1996. 

  Niagara Scientific, Inc. (NSI), a wholly owned subsidiary, sales for the 
fiscal year ended September 30, 1997 were essentially identical to the same 
period last year. Net sales were $587,563 for the twelve months ended September 
30, 1997, a decrease of $21,641 or 3.6%, when compared to net sales of $609,204 
during the twelve months ended September 30, 1996. 

  Gross profit decreased $728,672 or 22.7% to $2,482,947 during the fiscal year 
ended September 30, 1997 when compared to gross profit of $3,211,619 during the 
fiscal year ended September 30, 1996. The decrease in gross profit during 
fiscal 1997 when compared to fiscal 1996 can primarily be attributed to the 
decrease in sales. As a percentage of sales, gross profit decreased to 40.2% 
during the fiscal year ended September 30, 1997 when compared to 42.6% during 
the fiscal year ended September 30, 1996. The decrease in gross profit as a 
percentage of sales during fiscal 1997 when compared to fiscal 1996 can 
primarily be attributed to higher manufacturing overhead costs per sales 
dollar due to the significant decline in sales during fiscal 1997 when 
compared to fiscal 1996. 

  Selling, general and administrative (SG&A) expenses decreased $87,927 or 3.4% 
to $2,472,765 during the fiscal year ended September 30, 1997 when compared to 
SG&A expenses of $2,560,692 during the fiscal year ended September 30, 1996.
As a percentage of sales, SG&A expenses increased to 40% during the fiscal year 
ended September 30, 1997 when compared to 34% during the fiscal year ended 
September 30, 1996, primarily due to the decrease in sales during fiscal 1997. 
Decreases were realized in salary and salary related expenses, amortization 
expense, bad debt expense, sales commissions and legal costs while increased 
costs were experienced in promotional and advertising expenses. 

  Income from operations decreased $640,745 to $10,182 during the fiscal year 
ended September 30, 1997 when compared to income from operations of $650,927 
during the fiscal year ended September 30, 1996 primarily due to the decrease 
in sales. 

  Other income increased $414,029 during the fiscal year ended September 30, 
1997 when compared to the fiscal year ended September 30, 1996 primarily due to 
the receipt of life insurance death benefits of $350,000 as a result of the 
death of a former officer.  

  The Company's effective income tax rate decreased to 4.1% during fiscal 1997 
primarily due to the lower levels of pre-tax income, the tax-free receipt of 
life insurance death benefits and a research and experimentation tax credit.   


Fiscal 1996 compared to Fiscal 1995

  Fiscal 1996 was a very profitable year for Microwave Filter Company, Inc., 
the second highest in Company history. Net income increased $485,131 to 
$504,295 or $.14 per share during the fiscal year ended September 30, 1996 
when compared to net income of $19,164 or $.01 per share during the same 
period last year. The increase in earnings can primarily be attributed to the 
improvement in gross profit and the reduction in selling, general and 
administrative expenses during fiscal 1996 when compared to last year. 
                              
                                  14
<PAGE>

  Consolidated net sales for the fiscal year ended September 30, 1996 totaled 
$7,532,710, a decrease of $122,488 or 1.6%, when compared to sales of 
$7,655,198 during the fiscal year ended September 30, 1995. 

  Microwave Filter Company (MFC) sales increased $94,557 to $6,923,506 during 
fiscal 1996 when compared to sales of $6,828,949 during fiscal 1995. The 
increase in MFC's sales can primarily be attributed to the increase in MFC's 
Cable TV product sales. 
 
  MFC's Cable TV product sales increased $727,933 or 22.6% to $3,951,354 
during the fiscal year ended September 30, 1996 when compared to sales of 
$3,223,421 during fiscal 1995. Management believes the increase is primarily 
due to Cable Systems upgrading their equipment and services in order to better 
compete against both Direct Broadcast Satellite (DBS) and Multichannel 
Multipoint Distribution Service (MMDS), commonly called wireless cable. 
  
  MFC's Broadcast TV product sales, which includes wireless cable products, 
decreased $489,157 or 21.5% to $1,787,639 during fiscal 1996 when compared to 
sales of $2,276,796 during fiscal 1995. The decrease in sales can primarily be 
attributed to market conditions and competition. As the Company experienced in 
fiscal 1995, many wireless cable system operators have restricted expansion 
and delayed purchasing in anticipation of digital compression becoming 
available for the wireless cable industry. Digital compression will provide 
wireless cable with the ability to offer as many channels as conventional 
cable at reduced or at least competitive prices. The Company is also 
experiencing increased competition in this product area; however, management 
believes its emphasis on technical superiority and customer service will keep 
it competitive. 

  MFC's RF/Microwave product sales decreased $181,799 or 14.5% to $1,073,651 
during fiscal 1996 when compared to sales of $1,255,450 during fiscal 1995. 
The decrease can primarily be attributed to the completion of a large order in 
February 1996, for which twelve months of shipments were recorded in fiscal 
1995.  

  Niagara Scientific Inc. (NSI), a wholly owned subsidiary, sales decreased 
$217,045 to $609,204 during fiscal 1996 when compared to sales of $826,249 
during fiscal 1995. The decrease in sales can primarily be attributed to 
competition.  

                              15 
<PAGE>

  As a percentage of sales, gross profit increased to 42.6% during fiscal 1996 
when compared to 35.5% during fiscal 1995. This substantial improvement can 
primarily be attributed to product sales mix and the reduction in the 
manufacturing costs which were associated with new product development in 
fiscal 1995.   

  Selling, general and administrative (SG&A) expenses decreased $126,568 or 
4.7% to $2,560,692 during fiscal 1996 when compared to $2,687,260 during 
fiscal 1995. The decrease can primarily be attributed to the decrease in legal 
costs during fiscal 1996 when compared to fiscal 1995. As a percentage of 
sales, SG&A expenses decreased to 34.0% of sales when compared to 35.1% of 
sales during fiscal 1995.  

  Interest income increased $26,730 to $44,292 during fiscal 1996 when 
compared to $17,562 during fiscal 1995. The increase is primarily due to 
higher average invested cash balances during fiscal 1996 when compared to 
fiscal 1995. Interest expense decreased $13,202 to $29,143 during fiscal 1996 
when compared to $42,345 during fiscal 1995. The decrease is primarily due to 
lower borrowing levels during fiscal 1996 when compared to fiscal 1995. 

  The Company's effective income tax rate decreased to 25.9% during fiscal 
1996 primarily as a result of the utilization of a research and 
experimentation tax credit carry forward. In 1996, no valuation allowance was 
recognized since sufficient taxable income is available in prior carryback 
years to realize a future tax benefit for deductible temporary differences. In 
1995, a valuation allowance had been recognized to offset the deferred tax 
asset related to the research and experimentation tax credit.  
 

                             16
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

  MFC defines liquidity as the ability to generate adequate funds to meet its 
operating and capital needs.  The company's primary source of liquidity has 
been funds provided by operations. 

                                            September 30
                                   1997          1996        1995
Cash & cash equivalents        $1,434,473    $1,280,999     $520,676
Working capital                $2,745,211    $2,579,910   $2,392,325
Current ratio                   4.20 to 1     3.07 to 1    3.01 to 1
Long-term debt                    $46,065      $102,774     $439,545

  Cash and cash equivalents increased $153,474 to $1,434,473 at September 30, 
1997 when compared to $1,280,999 at September 30, 1996. The increase was a 
result of $665,591, which includes $350,000 in life insurance death benefits 
received as a result of the death of a former officer, in net cash provided by 
operating activities, $280,717 in net cash used for capital expenditures and 
$231,400 in net cash used in financing activities. 

  At September 30, 1997, the Company had aggregate lines of credit totaling 
$600,000.  Of these lines, $100,000 is for the purchase of equipment and is 
collateralized by equipment and $500,000 is for working capital and is 
collateralized by accounts receivable, inventories and equipment.  In addition, 
the Company has a letter of credit facility, for up to $500,000, which is 
collateralized by specified inventory to be purchased.   

  Management believes that its working capital requirements for the foreseeable 
future will be met by its existing cash balances, future cash flows from 
operations and its current credit arrangements. 

ACCOUNTING STANDARDS NOT YET ADOPTED BY THE COMPANY
---------------------------------------------------
  
  The Financial Accounting Standards Board ("FASB") has issued several new 
pronouncements that are not yet adopted by the Company.

  In February 1997, the FASB issued SFAS No. 128. "Earnings Per Share." SFAS 
128 introduces the concept of basic earnings per share, which represents net 
income divided by the weighted average common shares outstanding without the 
dilutive effects of common stock equivalents. Diluted earnings per share, 
giving effect for common stock equivalents, will be reported when SFAS 128 is 
adopted for the first quarter of fiscal year ending September 30, 1998. The 
impact of adopting SFAS 128 is anticipated to be immaterial. 

  In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information 
about Capital Structure," to consolidate existing disclosure requirements. This 
new standard contains no change in disclosure requirements for the Company. It 
will be effective for the first quarter of fiscal year ending September 30, 
1998.

  In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," 
which establishes standards for reporting and display of comprehensive income 
and its components. The components of comprehensive income refer to revenues, 
expenses, gains and losses that are excluded from net income under current 
accounting standards. SFAS 130 requires that all items that are recognized 
under accounting standards as components of comprehensive income be reported 
in a financial statement displayed in equal prominence with other financial 
statements; the total of other comprehensive income for a period is required 
to be transferred to a component of equity that is separately displayed in a 
statement of financial position at the end of an accounting period. It will be 
effective for the Company for the first quarter of fiscal year ending 
September 30, 1998. SFAS 130 is not currently anticipated to have a 
significant impact on the Company's consolidated financial statements based on 
the current financial structure and operations of the Company. 

  In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an 
Enterprise and Related Information." SFAS 131 establishes standards for the way 
public enterprises are to report information about segments in annual financial 
statements and requires the reporting of selected information about operating 
segments in interim financial reports issued to shareholders. SFAS 131 also 
establishes standards for related disclosures about products and services, 
geographic areas and major customers. SFAS 131 is effective for the Company for 
the first quarter of fiscal year ending September 30, 1999. The Company does 
not expect SFAS 131 to have a material effect on its reported results. 


SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
--------------------------------------------------------------------------------

  Any statements contained in this report which are not historical facts are 
forward looking statements; and, many important factors could cause actual 
results to differ materially from those in the forward looking statements. Such 
factors include, but are not limited to, changes (legislative, regulatory and 
otherwise) in the MMDS, LPTV or Cable industry, demand for the Company's 
products (both domestically and internationally), the development of 
competitive products, competitive pricing, market acceptance of new product 
introductions, technological changes, general economic conditions, litigation 
and other factors, risks and uncertainties which may be identified in the 
Company's Securities and Exchange Commission filings. 




ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

  The Financial Statements and Financial Statement Schedules called for by this 
item are submitted as a separate section of this report. 



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
FINANCIAL DISCLOSURE. 

  None.

                             17
<PAGE>

                          PART III 
                                 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

  The names of, and certain information with respect to, the directors of MFC 
is set forth below: 

                                                         Common Shares 
                                                          Actually or   Percent 
                                                         Beneficially     of 
Director             Principal occupation               Owned 11/25/97   Class 


TRUDI B. ARTINI       Mrs. Artini is an independent         108,815       3.1%
(a)(b)(d)             investor in MFC and various other
Age 75                business enterprises in Syracuse,
Director since 1974   New York.                         
                                                        
DAVID B. ROBINSON MD  Dr. Robinson is Emeritus Professor    116,332       3.3%
(a)(b)(d)             of Psychiatry at the Health Science   
Age 73                Center, State University of New York  
Director since 1977   at Syracuse. He was a faculty member  
                      from 1958 until his retirement in     
                      1985 and served as Acting Chairman    
                      of the Dept. of Psychiatry for six    
                      of those years. Since 1989, he has    
                      served as a Skaneateles Town          
                      Councilman and in 1980 was a                             
                      founding Board Member of the                         
                      Skaneateles Festival of Chamber 
                      Music.                                 
                                                                               
LOUIS MISENTI         President and Principal               354,849      10.0% 
Age 70                shareholder of SCI Corp.,                                
Director since 1976   Syracuse, New York since 1984.                           
                      SCI manufactures polishing                               
                      compounds for the automobile and                         
                      silverware industries.  Mr.                              
                      Misenti is also the managing 
                      partner of Northern Pines Golf      
                      Course, Cicero, New York which was  
                      founded in 1970.  He was elected                         
                      Chairman of the Board of                                 
                      Directors of MFC on March 27,                            
                      1993.                                                    
                                                                               
CARL F. FAHRENKRUG PE Mr. Fahrenkrug was appointed          377,066      10.6%
(a)(d)                President and Chief Executive                            
Age 55                Officer of MFC on October 7,                             
Director since 1984   1992.  He has also served as                             
                      President and Chief Executive                            
                      Officer of NSI since prior to                            
                      1986.  He served as Vice                                 
                      President of Engineering at                              
                      Microwave Systems, Inc.,                                 
                      Syracuse, N.Y. from 1972-1976.                           
                      Mr. Fahrenkrug has a B.S. and                            
                      M.S. in Engineering and an MBA                           
                      from Syracuse University.                                

                             18
<PAGE>
                                                                               

                                                         Common Shares 
                                                          Actually or   Percent 
                                                         Beneficially     of 
Director             Principal occupation               Owned 11/25/97   Class 

MILO PETERSON         Mr. Peterson has served as            168,570       4.8%  
(a)(d)                Executive Vice President and       
Age 57                Corporate Secretary of NSI since   
Director since 1990   January 1, 1992. Mr. Peterson  
                      graduated from programs at Yale  
                      University and Syracuse          
                      University.  He served as Vice   
                      President of Manufacturing of    
                      Microwave Systems, Inc.,         
                      Syracuse, N.Y. from 1970-1976.   
                      He was elected Corporate         
                      Secretary of MFC on March 27,    
                      1993.                            
                      
FRANK S. MARKOVICH    Mr. Markovich is a consultant in        4,508        *
(c)(d)                the manufacturing operations  
Age 52                and training field. Prior to that 
Director since 1992   he was the Director of the 
                      Manufacturing Extension          
                      Partnership at UNIPEG Binghamton.
                      He held various high level       
                      positions in operations, quality 
                      and product management in a 20   
                      year career with BF Goodrich     
                      Aerospace, Simmonds Precision    
                      Engine Systems of Norwich, New   
                      York.  He completed US Navy      
                      Electronics and Communications   
                      Schools and received an MBA from 
                      Syracuse University.             
                      
ROBERT R. ANDREWS     Mr. Andrews is the President and        1,214        *
(a)(c)                Principal shareholder of Morse   
Age 56                Manufacturing Co., Inc., East    
Director since 1992   Syracuse, N.Y. which produces    
                      specialized material handling    
                      equipment and has served in that 
                      capacity since prior to 1985.  He
                      received a B.A degree from       
                      Arkansas University and has      
                      served as Vice President and a   
                      director of the Manufacturers'   
                      Association of Central New York, 
                      President of the Citizens        
                      Foundation, a Trustee of Dewitt  
                      Community Church, director of the
                      Salvation Army and Chairman of   
                      the Business and Industry        
                      Council of Onondaga Community    
                      College.                         
                      
SIDNEY CHONG          Mr. Chong is Manager of Corporate       6,171        *
(a)(b)(c)             Accounting for Carrols Corp. in 
Age 56                Syracuse. Prior to joining Carrols         
Director since 1995   Corp., he was a Senior Accountant       
                      with Price Waterhouse and Co. in 
                      New York City.  Mr. Chong has a 
                      Bachelor of Science degree in 
                      accounting from California State     
                      University.                      

                             19
<PAGE>


                                                         Common Shares 
                                                          Actually or   Percent 
                                                         Beneficially     of 
Director             Principal occupation               Owned 11/25/97   Class 

Daniel Galbally       Mr. Galbally is controller of           1,489        *
(b)(c)                Diamond Card Exchange, Inc. in  
Age 50                Syracuse, New York. He was the 
Director since 1995   controller of Evaporated Metal 
                      Films (EMF) in Ithaca, N.Y. Before      
                      joining EMF, he worked as controller
                      and acting vice president of finance 
                      at Philips Display Components Co.
                      He has a bachelor's degree in    
                      accounting and an MBA from       
                      Syracuse University.             

(a)Member of Executive Committee 
(b)Member of Compensation Committee 
(c)Member of Finance and Audit Committee 
(d)Member of Nominating Committee 

*  Denotes less than one percent of class.

The Directors listed above and executive officers as a group own 1,169,922   
shares or approximately 33% of the outstanding common shares of the Company. 


IDENTIFICATION OF EXECUTIVE OFFICERS 

        Name                   Age      Position 

        Carl F. Fahrenkrug      55      President and Chief Executive Officer 

        Richard L. Jones        49      Vice President and Chief Financial 
                                        Officer 

        Milo J. Peterson        57      Corporate Secretary 

All of the officers serve at the pleasure of the Board of Directors. 

Carl F. Fahrenkrug was elected President and Chief Executive Officer of MFC on 
October 7, 1992.  Prior to that date, he had been Executive Vice President and 
Chief Operating Officer of MFC.  Prior to January 1, 1992, he was President and 
CEO of NSI and Vice President of Corporate Development for MFC. 

Richard L. Jones joined MFC in August 1983 as controller. In February 1985, he 
was appointed Vice President and Treasurer of MFC.  On October 7, 1992, he was 
appointed Vice President and Chief Financial Officer. 

Milo J. Peterson was elected Corporate Secretary of MFC on March 27, 1993.  
Mr. Peterson has served as Executive Vice President and Corporate Secretary of 
NSI. Since January 1, 1992, he has also served as Production Consultant to the 
President.  Prior to January 1, 1992, he served as Executive Vice President of 
NSI. 



                             20
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION.

  The following table sets forth for the fiscal years ended September 30, 1997, 
1996 and 1995, compensation paid by MFC to the named executive officers in all 
capacities in which they served. 

                            SUMMARY COMPENSATION TABLE
                                Annual Compensation
                                            Salary    Bonus
   Name and principal position     Year    ___$___   ___$___

   Carl F. Fahrenkrug              1997    117,882       -
   President and CEO               1996    104,229    10,000
                                   1995     91,775       -


PROFIT SHARING 
--------------

  MFC has a profit sharing plan for all employees over the age of 21 with one 
year of service.  Annual contributions are determined by the Board of 
Directors and are made from current or accumulated net income.  Allocation of 
contributions to plan participants are based upon annual compensation.  
Participants vest on the basis of 20% after 3 years of service, 40% at 4 
years, 60% at 5 years, 80% at 6 years and 100% at 7 years. 
  
  MFC also has a voluntary 401-K plan.  Eligibility is the same as the Profit 
Sharing Plan. Contributions to the 401-K plan are currently matched at a rate 
of 50% of employee contributions limited to 3.0% of compensation. 

  MFC's contributions to the plans for the years ended September 30, 1997, 1996 
and 1995 amounted to $68,139, $81,470 and $28,167, respectively. 

STOCK OPTIONS
-------------

  There were no stock options outstanding at September 30, 1997. 

                             21
<PAGE>

COMPENSATION OF DIRECTORS 
-------------------------

  Non-officer directors received fees of $300.00 per board meeting and $200.00 
per committee meeting, with the exception of the executive committee which 
received $300.00 per committee meeting, during fiscal 1997. MFC also reimburses 
directors for reasonable expenses incurred in attending meetings.  Officer 
members receive no compensation for their attendance at meetings. During fiscal 
1997 the Company paid Louis S. Misenti $15,150 for consulting services. Non-
officer directors have the option of receiving their compensation for meetings 
in the form of investment letter stock.  The number of shares received will be 
based upon a value of 85% of the mean value between the bid and ask price of 
the stock at the beginning of each quarter. 

ITEM 12.  SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS 
AND MANAGEMENT. 

  The following table sets forth information as to the only persons known by 
the Company to own beneficially more than 5% of the Common Stock of the Company 
on November 25, 1997. 

                                                                       % of
                                                                  Outstanding
                                                                Number of Shares
                                                                     Common
Name of Beneficial Owner   Address           Beneficially Owned  _____Stock_____

Frederick A. Dix &         209 Watson Rd.          244,007             6.9%
Marjorie Dix               N. Syracuse, NY 13212

Carl F. Fahrenkrug &       Indian Hill Rd.         377,066            10.6% 
Rita Fahrenkrug            Manlius, NY 13104

Louis S. Misenti           140 Clearview Rd.       354,849            10.0% 
                           Dewitt, NY 13214

  The information relating to the ownership of common stock held by the 
directors and executive officers of the corporation is set forth in item 10 of 
this report. 

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. 

  None 
                             22
<PAGE>

                           PART IV 
                                 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. 

(a)    1. and 2.   Financial Statements and Schedules: 
         
                   Reference is made to the list of Financial Statements and
                   Financial Statement Schedule submitted as a separate
                   section of this report.

(b)    Reports On Form 8-K:

       There are no reports on Form 8-K for the three months ended 
       September 30, 1997.

(C)    Exhibits:

       Reference is made to the List of Exhibits submitted as a separate 
       section of this report. 

                             23
<PAGE>

SIGNATURES
  Pursuant to the requirements of Section 13 or 15(d) of the Securities 
Exchange Act of 1934, Microwave Filter Company, Inc. has duly caused this 
report to be signed on its behalf by the undersigned, thereunto duly 
authorized. 

MICROWAVE FILTER COMPANY, INC.

|S| Carl F. Fahrenkrug 
--------------------------
By:  Carl F. Fahrenkrug   
(President and Chief Executive Officer)

|S| Richard Jones    
---------------------                  
By:  Richard Jones                          
(Vice President and Chief Financial Officer)

Dated:  December 22, 1997

  Pursuant to the requirements Of the Securities Exchange Act of 1934, this 
report has been signed below by the following persons on behalf of the 
Registrant and in the capacities and on the date indicated: 

|S| Louis S. Misenti          |S| Carl F. Fahrenkrug 
------------------------      --------------------------
Louis S. Misenti              Carl F. Fahrenkrug
(Director)                    (Director)

|S| Milo J. Peterson          |S| Robert R. Andrews  
------------------------      -----------------------
Milo J. Peterson              Robert R. Andrews
(Director)                    (Director)

|S| Sidney Chong
--------------------
Sidney Chong
(Director)

Dated:  December 22, 1997

                             24
<PAGE>

                 ANNUAL REPORT ON FORM 10-KSB

               MICROWAVE FILTER COMPANY, INC.
                      AND SUBSIDIARIES

         INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
              AND FINANCIAL STATEMENT SCHEDULE

                 ITEM 8, ITEM 14(a)(1) and 2

CONSOLIDATED FINANCIAL STATEMENTS:                              Page

Independent Auditors' Report.....................................26
Consolidated Balance Sheets as of September 30, 1997 and 1996....27
Consolidated Statements of Operations for the Years
  Ended September 30, 1997, 1996 and 1995 .......................28
Consolidated Statements of Stockholders' Equity for the Years
  Ended September 30, 1997, 1996 and 1995 .......................29
Consolidated Statements of Cash Flows for the Years
  Ended September 30, 1997, 1996 and 1995 .......................30
Notes to Consolidated Financial Statements.......................31-37



SCHEDULE FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995:

Independent Auditors' Report on Schedules........................39
II-Valuation and Qualifying Accounts.............................40

  All other schedules for which provision is made in the applicable accounting 
regulation of the Securities and Exchange Commission are not required under the 
related instructions or are inapplicable and therefore have been omitted. 


                             25
<PAGE>

INDEPENDENT AUDITORS' REPORT



Board of Directors and Stockholders
Microwave Filter Company, Inc.
East Syracuse, New York

We have audited the accompanying consolidated balance sheets of MICROWAVE 
FILTER COMPANY, INC., AND SUBSIDIARIES as of September 30, 1997 and 1996, and 
the related consolidated statements of operations, stockholders' equity and 
cash flows for each of the three years in the period ended September 30, 1997.  
These financial statements are the responsibility of the Company's management.  
Our responsibility is to express an opinion on these financial statements based 
on our audits. 

We conducted our audits in accordance with generally accepted auditing 
standards.  Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free of 
material misstatement.  An audit includes examining, on a test basis, evidence 
supporting the amounts and disclosures in the financial statements.  An audit 
also includes assessing the accounting principles used and significant 
estimates made by management, as well as evaluating the overall financial 
statement  presentation.  We believe that our audits provide a reasonable basis 
for our opinion. 

In our opinion, the financial statements referred to above present fairly, in 
all material respects, the consolidated financial position of Microwave Filter 
Company, Inc., and Subsidiaries as of September 30, 1997 and 1996, and the 
consolidated results of their operations and their cash flows for each of the 
three years in the period ended September 30, 1997 in conformity with generally 
accepted accounting principles. 

 



Coopers & Lybrand L.L.P.


Syracuse, New York
November 21, 1997
                             26
<PAGE>

          Microwave Filter Company and Subsidiaries
                 Consolidated Balance Sheets

                                                              September 30
Assets                                                       1997       1996
------                                                       ----       ----
Current assets:
  Cash and cash equivalents                              $1,434,473  $1,280,999
  Accounts receivable-trade, net of allowance for 
    doubtful accounts of $57,905 and $75,000                544,590     723,855
  Inventories                                             1,261,942   1,498,978
  Deferred tax asset - current                              258,647     257,191
  Prepaid expenses and other current assets                 104,280      65,953
                                                          ---------   ---------
      Total current assets                                3,603,932   3,826,976
                                                         

Property, plant and equipment, net                        1,561,920   1,583,290
Deferred tax asset - noncurrent                               7,629           0
                                                          ---------   ---------
      Total Assets                                       $5,173,481  $5,410,266
                                                         ==========  ==========
    
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
  Current portion of long term debt                         $55,620     $52,670
  Accounts payable                                          320,166     299,859
  Customer deposits                                          50,036     174,158
  Accrued federal and state income taxes                     30,108     289,616
  Accrued payroll and related expenses                      102,591     127,692
  Accrued compensated absences                              222,492     197,835
  Other current liabilities                                  77,708     105,236
                                                          ---------   ---------
    Total current liabilities                               858,721   1,247,066
                                                          
                                                                     
Long term debt, less current portion                         46,065     102,774
Deferred tax liability - noncurrent                               0      58,756
Deferred compensation and other liabilities                  17,966      23,372 
                                                          ---------   ---------

  Total liabilities                                         922,752   1,431,968
                                                          ---------   ---------
Commitments

Stockholders' equity:
  Common stock, $.10 par value. Authorized 5,000,000 shares
    Issued 4,275,259 in 1997 and 4,259,446 in 1996          427,526     425,945
  Additional paid-in capital                              3,206,360   3,192,641
  Retained earnings                                       1,254,570     997,439
                                                          
  Common stock in treasury, at cost,
  730,202 shares in 1997 and 714,768 shares in 1996        (637,727)   (637,727)
                                                          ---------   ---------

  Total stockholders' equity                              4,250,729   3,978,298
                                                          ---------   ---------
  Total Liabilities and Stockholders' Equity             $5,173,481  $5,410,266
                                                         ==========  ==========
                                                      
                                            
The accompanying notes are an integral part of the consolidated financial 
statements. 
                             27
<PAGE>


                   Microwave Filter Company and Subsidiaries
                     Consolidated Statements of Operations

                                         For the Years Ended September 30
                                       1997             1996            1995
                                       ----             ----            ----

Net sales                           $6,175,425       $7,532,710      $7,655,198

Cost of goods sold                   3,692,478        4,321,091       4,936,219
                                     ---------        ---------       ---------

    Gross profit                     2,482,947        3,211,619       2,718,979

Selling, general 
  and administrative expenses        2,472,765        2,560,692       2,687,260
                                     ---------        ---------       ---------

    Income from operations              10,182          650,927          31,719


Non-operating Income (Expense)
    Interest income                     49,954           44,292          17,562
    Interest expense                    (9,529)         (29,143)        (42,345)
    Miscellaneous                       52,924           14,171          20,454
    Life insurance death 
      benefits                         350,000                0               0
                                     ---------        ---------       ---------

    Income before income taxes         453,531          680,247          27,390


Provision for income taxes              18,759          175,952           8,226
                                     ---------        ---------       ---------

NET INCOME                            $434,772         $504,295         $19,164
                                     ---------        ---------       ---------
                                                          
Earnings Per Share                       $0.12            $0.14           $0.01
                                     ---------        ---------       ---------

Weighted average number of shares
and common stock equivalents         3,548,240        3,525,362       3,478,451
                                     =========        =========       =========
                                        
                                                
                                                         
The accompanying notes are an integral part of the consolidated financial 
statements. 
                             28
<PAGE>

                   Microwave Filter Company and Subsidiaries  
                Consolidated Statements of Stockholders' Equity 
            For the Years Ended September 30, 1997, 1996 and 1995 
            -----------------------------------------------------


<TABLE>
<CAPTION>
                                                  Additional                                          Total
                               Common Stock        Paid-in       Retained      Treasury Stock      Stockholders'
                              Shares      Amt      Capital       Earnings      Shares     Amt         Equity
                              ------      ---      -------       --------      ------     ---         ------
<S>                         <C>         <C>        <C>          <C>          <C>      <C>          <C>
Balance,
September 30, 1994          3,763,182   $376,318   $2,636,582   $1,140,670   561,470  ($539,820)   $3,613,750

Net income                                                          19,164                             19,164
Stock issued to employees
        and officers           35,866      3,586       28,821                                          32,407
Stock issued to directors      14,636      1,464       14,137                                          15,601
Purchase of treasury stock                                                    86,461    (97,285)      (97,285)
5% stock dividend             190,049     19,005      201,452     (220,457)   32,370                       
                            ---------   --------   ----------     --------   -------  ----------   ----------

Balance,
September 30, 1995          4,003,733    400,373    2,880,992      939,377   680,301   (637,105)    3,583,637

Net income                                                         504,295                            504,295
Stock issued to employees
        and officers           37,161      3,716       35,700                                          39,416
Stock issued to directors      16,342      1,635       18,132                                          19,767
Purchase of treasury stock                                                       452       (622)         (622)
Cash dividend paid
     ($.05 per share)                                             (168,195)                          (168,195)    
5% stock dividend             202,210     20,221      257,817     (278,038)   34,015
                            ---------   --------   ----------     --------   -------  ----------   ----------

Balance,
September 30, 1996          4,259,446    425,945    3,192,641      997,439   714,768   (637,727)    3,978,298

Net income                                                         434,772                            434,772
Stock issued to directors      15,813      1,581       13,719                                          15,300
Donated capital                                                               15,434           
Cash dividend paid
        ($.05 per share)                                          (177,641)                          (177,641)
                            ---------   --------   ----------     --------   -------  ----------   ----------

Balance,
September 30, 1997          4,275,259   $427,526   $3,206,360   $1,254,570   730,202  ($637,727)   $4,250,729   
                            =========   ========   ==========    =========   =======  ==========   ==========
</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.
                             29
<PAGE>


                   Microwave Filter Company and Subsidiaries
                     Consolidated Statements of Cash Flows
                Increase (Decrease) in Cash and Cash Equivalents
                ------------------------------------------------

                                              For the Years Ended September 30
                                              --------------------------------
                                                   1997      1996       1995
                                                   ----      ----       ----

Cash flows from operating activities:
       Net income                                $434,772   $504,295    $19,164

Adjustments to reconcile net income to net cash
  provided by operating activities:
    Depreciation                                  302,087    333,105    360,124
    Amortization of intangible assets                   0     63,772     39,006
    Inventory obsolescence provision               19,763     48,744    103,643 
    Bad debt provision                              2,775     53,011     18,025 
    Stock compensation                             15,300     59,183     48,008
    Deferred income taxes                         (67,841)   (95,748)   (51,921)
  Changes in assets and liabilities:
    Accounts receivable-trade, net                176,490    102,294    180,266
    Accrued federal and state income taxes       (259,508)   246,808     37,831
    Inventories                                   217,273    420,788   (442,460)
    Other assets                                  (38,327)    17,249     17,328
    Accounts payable and customer deposits       (103,815)  (121,265)    60,790
    Accrued payroll, compensated absences and
      related expenses                               (444)    51,068    (28,159)
    Other current liabilities                     (27,528)   (26,980)  (122,725)
    Deferred compensation                          (5,406)    (4,894)    (4,010)
                                                ---------   --------   --------
    Net cash provided by operating activities     665,591  1,651,430    234,910
                                                ---------  ---------   --------
Cash flows from investing activities:
  Capital expenditures                           (280,717)  (291,633)  (134,456)
                                                 --------   --------    -------
    Net cash used in investing activities        (280,717)  (291,633)  (134,456)
                                                 --------   --------   --------
Cash flows from financing activities:
  Principal payments on long-term debt            (53,759)  (430,657)  (139,054)
  Purchase of treasury stock                            0       (622)   (97,285)
  Cash dividend paid                             (177,641)  (168,195)         0
                                                 --------   --------   --------
    Net cash used in financing activities        (231,400)  (599,474)  (236,339)
                                                 --------   --------   --------
    Net increase (decrease) 
         in cash and cash equivalents             153,474    760,323   (135,885)

Cash and cash equivalents at beginning of year  1,280,999    520,676    656,561
                                                ---------   --------   --------
CASH AND CASH EQUIVALENTS AT END OF YEAR       $1,434,473 $1,280,999   $520,676
                                               ==========  =========   ========
                                                    
                                                                
                                                                
Supplemental disclosures of cash flows:
  Cash paid during the year for (approximately):
    Interest                                      $10,000    $29,000    $39,000
    Income taxes                                 $346,000    $32,000    $22,000

   



  The accompanying notes are an integral part of the consolidated financial 
statements. 
                                 30
<PAGE>

                   Microwave Filter Company and Subsidiaries
                   Notes to Consolidated Financial Statements
                   ------------------------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


a. Nature of Business

 Microwave Filter Company, Inc. operates primarily in the United States and 
principally in two industries. The Company extends credit to business 
customers based upon ongoing credit evaluations. Microwave Filter Company, 
Inc. designs, develops, manufactures and sells electronic filters, both for 
radio and microwave frequencies, to help process signal distribution and to 
prevent unwanted signals from disrupting transmit or receive operations. 
Markets served include cable television, television and radio broadcast, 
satellite broadcast, mobile radio, commercial and defense electronics. Niagara 
Scientific, Inc. custom designs case packing machines to automatically pack 
products into shipping cases. Customers are processors of food and other 
commodity products with a need to reduce labor cost with a modest investment 
and quick payback. 

b.  Basis of Consolidation

  The consolidated financial statements include the accounts of Microwave 
Filter Company, Inc. (MFC) and its wholly-owned subsidiaries, Niagara 
Scientific, Inc. (NSI) and Microwave Filter International, LTD. (MFI); located 
in Syracuse, New York. All significant intercompany balances and transactions 
have been eliminated in consolidation. 

c. Cash Equivalents 

 The Company considers all highly liquid investments purchased with an original 
maturity of 90 days or less to be cash equivalents. The carrying value at 
September 30, 1997 and September 30, 1996 approximates fair value. Substantially
all cash balances were invested at one financial institution at September 30, 
1997 and 1996. 

d. Inventories

 Inventories are stated at the lower of cost determined on the first-in, first-
out method or market. 

e.  Research and Development

 Costs in connection with research and development, which amount to $337,250,
$359,934 and $408,425 for the fiscal years 1997, 1996 and 1995, respectively,
are charged to operations as incurred.   

f. Property, Plant and Equipment

 Property, plant and equipment are recorded at cost. Depreciation is provided 
using the straight-line method over the estimated useful lives of the 
respective assets.  At the time of sale or retirement, the cost and 
accumulated depreciation are removed from the respective accounts and the 
resulting gain or loss is recognized in income. 

g. Income Taxes

 The Company accounts for income taxes under Statement of Financial Accounting 
Standards (SFAS) No. 109.  Deferred tax assets and liabilities are based on 
the difference between the financial statement and tax basis of assets and 
liabilities as measured by the enacted tax rates which are anticipated to be 
in effect when these differences reverse. The deferred tax provision is the 
result of the net change in the deferred tax assets and liabilities.  A 
valuation allowance is established when it is necessary to reduce deferred tax 
assets to amounts expected to be realized.   

                             31
<PAGE>

h. Earnings Per Share

 Earnings per common share are calculated based upon the weighted average 
number of shares of common stock outstanding during the periods including, 
when significant, any common stock equivalents and after restatement of any 
stock dividends. 

i. Use of Estimates
  
 The preparation of financial statements in conformity with generally accepted 
accounting principles requires management to make estimates and assumptions 
that affect the reported amounts of assets and liabilities and disclosure of 
contingent assets and liabilities at the date of the financial statements. 
Estimates also affect the reported amounts of revenues and expenses during the 
reporting period. Actual results could differ from those estimates.   

j. Reclassifications

 Certain reclassifications have been made to conform prior year financial 
statements with the current year presentations.   


2. INVENTORIES

Inventories net of provision for obsolescence          
consisted of the following:                     September 30
                                          1997                 1996
                                          ----                 ----
  Raw materials and stock parts         $832,125             $958,040
  Work-in-process                        185,291              299,131
  Finished goods                         244,526              241,807
                                        --------            ---------
                                      $1,261,942           $1,498,978
                                      ==========           ==========
                                               
                                               
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:

                                                 September 30
                                          1997                 1996
                                          ----                 ----  

  Land                                  $143,000             $143,000
  Building and improvements            1,740,124            1,734,814
  Machinery and equipment              2,243,956            2,065,615
  Office equipment and fixtures        1,226,026            1,128,960
  Other                                   93,507               93,507
                                       ---------            ---------
                                       5,446,613            5,165,896
  Less: Accumulated depreciation       3,884,693            3,582,606
                                       ---------            ---------
                                      $1,561,920           $1,583,290
                                      ==========           ==========
                                    
                                               
                                               
                             32
<PAGE>

4. LONG-TERM DEBT

Long-term debt consisted of the following:                 September 30
                                                      1997             1996
  

 Capitalized lease obligation (a)                    $101,685        $155,444
       

  Less: current portion                                55,620          52,670
                                                      -------         -------
                                                     $ 46,065        $102,774
                                                      =======         =======
                                    
                                               
                                               
 

 (a) The capitalized lease obligation is comprised of the Company's obligation 
to the Onondaga County Industrial Agency (OCIDA) which the Company used to 
finance the purchase of its primary manufacturing facility, which serves as 
collateral for the debt.  The Company financed its purchase of the facilities 
through an Industrial Development Revenue Bond issued by OCIDA and purchased 
by a bank.  The Company has guaranteed the payment on the bonds to the bank on 
behalf of OCIDA.  Payments are scheduled to be made quarterly, through April 
1999, in an amount which would fully amortize the unpaid principal of the 
bonds.  The interest rate is adjusted quarterly and is equal to 2.5% plus 65% 
of the thirteen week average rate of interest for Treasury Bills (5.60% and 
5.60% at September 30, 1997 and 1996, respectively). 

 The following is a schedule of annual principal requirements on long-term 
debt: 

        Year Ended     Principal
       September 30     Payments
       ------------    ---------
           1998       $ 55,620
           1999         46,065
           
                       -------
                      $101,685 
                      ========
                              
                             
 The terms of the agreement contains certain covenants which limit both 
capital expenditures and the ability to obtain additional bank debt. In 
addition, the maintenance of certain financial ratios including current ratio 
and debt to net worth, as defined, are also required by the agreement. 

5. CREDIT FACILITIES

 The Company has unused aggregate lines of credit totaling $600,000.  Of these 
lines, $100,000 is for the purchase of equipment and is collateralized by 
equipment and $500,000 is for working capital and is collateralized by 
accounts receivable, inventories and equipment. The equipment line of credit 
provides for interest at the bank's base rate plus one half percent (1/2%). The 
working capital line of credit provides for interest at the bank's base rate 
plus one quarter percent (1/4%). In addition, the Company has a Letter of 
Credit Facility, for up to $500,000, which is collateralized by specified 
inventory to be purchased. There were no amounts outstanding at September 30, 
1997. 

6. PROFIT SHARING AND 401-K PLANS

 The Company maintains both a non-contributory profit sharing plan and a 
contributory 401-K plan for all employees over the age of 21 with one year of 
service.  Annual contributions to the profit sharing plan are

                             33
<PAGE>

determined by the Board of Directors and are made from current or accumulated 
earnings, while contributions to the 401-K plan are currently matched at a rate 
of 50% of employee contributions limited to 3.0% of compensation. 

 The Company's matching contributions to the 401-K plan for the years ended 
September 30, 1997, 1996 and 1995 were $48,139, $31,470 and $28,167 , 
respectively. Additionally, the Company may make discretionary contributions 
to the non-contributory profit sharing plan. These contributions were $20,000 
and $50,000 in 1997 and 1996, respectively. No discretionary contribution was 
made in 1995. 

7. OBLIGATIONS UNDER OPERATING LEASES

 The Company leases a motor vehicle and equipment under operating lease 
agreements expiring at various dates through September 30, 2001. Rental 
expenses under these leases for the years ended September 30, 1997, 1996 and 
1995 amounted to $97,948, $97,739 and $94,686, respectively. 

 Minimum rental commitments at September 30, 1997 for these leases are: 

        Year Ended     Principal
       September 30    Payments
       ------------    --------
           1998        $93,948
           1999         55,823
           2000         54,857
           2001         95,335
                      --------
                      $299,963   
                      ========       
                             
8. INCOME TAXES

 The provision for income taxes consisted of the following: 

                             Year Ended September 30
                          1997         1996         1995
Currently payable:
  Federal                $78,600     $250,700      $50,147
  State                    8,000       21,000       10,000
Deferred (credit)        (67,841)     (95,748)     (51,921) 
                         -------      -------      -------
                         $18,759     $175,952       $8,226
                        ========     ========      =======
                                     
                                                 
                                                 
                             34
<PAGE>

 A reconciliation of the statutory federal income tax rate and the Company's 
effective income tax rate is as follows: 

                                         Year ended September 30
                          ______1997______   ______1996______  ______1995______
                           Amount     %       Amount     %      Amount     %
Statutory tax rate       $154,201    34.0%  $231,284    34.0%    $9,312   34.0%
Surtax exemption                0       0          0       0     (5,204) (19.0%)
State income tax net of:
 Federal benefit            5,280     1.2%    13,860     2.0%     6,600   24.1%
Foreign sales corp 
 benefit                   (6,841)   (1.5%)   (6,854)   (1.0%)   (4,579) (16.7%)
Research and experimentation
 tax credits              (14,014)   (3.1%)  (54,344)   (8.0%)        0      0 
Life insurance death
 benefits                (119,000)  (26.2%)        0       0          0      0
Other                        (867)   (0.3%)   (7,994)   (1.1%)    2,097    7.6%
                         --------   ------   -------    ------  -------- -----
                          $18,759     4.1%  $175,952    25.9%    $8,226   30.0%
                         ========   ======  ========    ======  ======== ======
                        

 The temporary differences which give rise to deferred tax assets and 
liabilities at September 30 are as follows: 

                                            1997          1996
                                            ----          ----

  Inventory                              $189,201       $182,716
  Accrued vacation                         56,954         52,350
  Other                                    (1,522)        22,125      
  Research and experimentation
   tax credit carry forward                14,014              0
                                         --------       --------
                                          
  Net deferred tax assets - current      $258,647        $257,191
                                         ========        ========

  Accelerated depreciation                (47,104)       (71,971)
  AMT credit carry forward                 49,433
  Other                                     5,300         13,215
                                          --------      --------
  Net deferred tax assets (liabilities)
   - noncurrent                            $7,629       ($58,756)
                                          =======        =======

                                
 Based on the Company's history of taxable earnings and its expectations for 
the future, management has determined that operating income will more likely 
than not be sufficient to recognize its deferred tax assets. At September 30, 
1997, the Company's federal AMT credit can be carried forward indefinitely.   

                                      
                                      
                             35
<PAGE>

9. INDUSTRY SEGMENT DATA

  The Company's primary business segments involve (1) operations of Microwave 
Filter Company, Inc. (MFC) which manufactures electronic filters used for 
preventing interference or signal processing in cable television, satellite, 
broadcast, aerospace and government markets; and (2) operations of Niagara 
Scientific, Inc. (NSI) which manufactures industrial automation equipment. 

 Information by industry segment is as follows: (thousands of dollars) 
                                     1997          1996       1995
Net Sales (Unaffiliated):
  MFC                               $5,588        $6,924     $6,829
  NSI                                  587           609        826
  Total                             $6,175        $7,533     $7,655

Operating Profit (Loss): (a)
  MFC                                 $300          $987       $200
  NSI                                 (184)         (222)       (70)
  Corporate                           (106)         (114)       (98)
  Total                                $10          $651        $32

Identifiable Assets: (b)
  MFC                               $3,618        $3,812     $4,189
  NSI                                  121           317        564
  Subtotal                           3,739         4,129      4,753
  Corporate Assets-Cash and
  Cash Equivalents                   1,434         1,281        521
  Total                             $5,173        $5,410     $5,274

Depreciation & Amortization Expense:
  MFC                                $281           $275       $324
  NSI                                  21            122         75
  Total                              $302           $397       $399

Capital Expenditures:
  MFC                                $280           $291       $129
  NSI                                   1              1          5
                                     $281           $292       $134 

Significant Export Sales:
  MFC                                $602           $558       $508

Sales to Significant Customers:
  MFC:                  
  Communication Microwave Corp.         -              -     $1,103     


                                                       

                             36
<PAGE>

(a) Operating profit (loss) is total revenue less operating expenses. In 
computing operating profit, none of the following items have been added or 
deducted: general corporate expenses, interest expense, income taxes and 
miscellaneous income. Expenses incurred on behalf of both Companies are 
allocated based upon estimates of their relationship to each entity. 

(b) Identifiable assets by industry are those assets that are used in the 
Company's operations in each industry. 

10. LEGAL  MATTERS 

  There are currently no material pending legal proceedings against the 
Company or its subsidiaries. 

11.  FOURTH QUARTER ADJUSTMENTS

  In the fourth quarter of fiscal 1997, the Company received life insurance 
death benefits of $350,000 as a result of the death of a former officer.

  In the fourth quarter of fiscal 1996, management revised certain inventory 
reserve estimates which resulted in approximately $150,000 of pre-tax income.



 
                             37
<PAGE>

                        EXHIBIT INDEX
                                                                           Page
Exhibit No.   Description                                                 Number

3.1      MFC Certificate of Corporation, as amended.                          41

3.2      MFC Amended and Restated Bylaws.                                     54

10.1     Bond Purchase Agreement dated as of February 22,1984                  *
         among MFC, Onondaga County Industrial Development Agency
         ("OCIDA") and Key Bank of Central New York ("Bondholder").

10.2     Lease Agreement dated as of February 22, 1984 between MFC and OCIDA.  *

10.3     Mortgage and Security Agreement dated as of February 22, 1984 from    *
         MFC and OCIDA to the Bondholder.

10.4     Guaranty Agreement dated as of February 22, 1984 from MFC to OCIDA    *
         and the Bondholder.

10.5     Application by Debtor in Possession for Authority to Sell General     *
         Intangible Assets and Order (MFC's acquisition of CT-1000 System).

10.6     Stock Purchase Agreement dated February 8, 1993 between Glyn and      *
         Emily Bostick and MFC.

 * Previously filed
                             38
<PAGE>

INDEPENDENT AUDITORS' REPORT ON SCHEDULES





Board of Directors and Stockholders
Microwave Filter Company, Inc.
East Syracuse, New York

Our report on the consolidated financial statements of MICROWAVE FILTER 
COMPANY, INC., AND SUBSIDIARIES is on page 26 of this Form 10-K.  In connection 
with our audits of such financial statements, we have also audited the related 
financial statement schedule listed in the index on page 25 of this Form 10-K. 

In our opinion, the financial statement schedule referred to above, when 
considered in relation to the basic financial statements taken as a whole, 
presents fairly, in all material respects, the information required to be 
included therein. 



Coopers & Lybrand L.L.P.


Syracuse, New York
November 21, 1997
                             39
<PAGE>
Microwave Filter Company and Subsidiaries

Schedule II - VALUATION AND QUALIFYING ACCOUNTS

SEPTEMBER 30, 1997, 1996 and 1995



<TABLE>
<CAPTION>



Col. A                                         Col. B               Col. C                    Col. D        Col. E
                                                                           Additions
                                               Balance at           Charged to    Charged to
                                               Beginning            Costs and     Other                     Balance at
Description                                    of Period            Expenses      Accounts    Deductions    End of
Period
-----------                                    ---------            -----------------------   ----------    -------------

<S>                                            <C>                  <C>           <C>          <C>            <C>
Year ended September 30, 1997

Allowance for doubtful accounts                 $75,000              $ 2,775                    $19,870        $57,905
Inventory valuation reserves                    594,050               19,763                          0        613,813   
                                               --------             --------      -------       -------       --------
                                               $669,050             $ 22,538           $0       $19,870       $671,718
                                               ========             ========      =======       =======       ========


Year ended September 30, 1996

Allowance for doubtful accounts                 $50,000              $53,011                    $28,011        $75,000
Inventory valuation reserves                    545,306               48,744                          0        594,050
                                               --------             --------      -------       -------       --------
                                               $595,306             $101,755           $0       $28,011       $669,050
                                               ========             ========      =======       =======       ========


Year ended September 30, 1995

Allowance for doubtful accounts                 $75,000              $18,025                    $43,025        $50,000
Inventory valuation reserves                    441,663              103,643                          0        545,306
                                               --------             --------      -------       -------       --------
                                               $516,663             $121,668           $0       $43,025       $595,306
                                               ========             ========      =======       =======       ========


</TABLE>

                                      40
<PAGE>
                           CERTIFICATE OF AMENDMENT

                                      OF

                         CERTIFICATE  OF INCORPORATION

                                      OF

                        MICROWAVE  FILTER COMPANY, INC.

Under Section 805 of the Business Corporation Law.
------------------------------------------------------------------------------
----
        We, the undersigned, the President of Microwave Filter Company, Inc., 
and Secretary, respectively, hereby certify: 

              1.  The name of the Corporation is MICROWAVE FILTER COMPANY, 
INC.
              2.  The Certificate of Incorporation was filed with the 
Department of State on the 26th day of September, 1967 under the name, 
MICROWAVE FILTER COMPANY, INC. 
              3.  The following is adopted as a new Section 6 of the 
Certificate of Incorporation: . 

                                      41
<PAGE>

         6.  NOTICE OF SHAREHOLDER BUSINESS AND NOMINATIONS

              A.  Nominations of persons for election to the Board of 
Directors of the Corporation and the proposal of business to be considered by 
the shareholders may be made at an annual meeting of the shareholders (i) 
pursuant to the Corporation's notice of meeting, (ii) by or at the direction 
of the Board of Directors or (iii) by any shareholder of the Corporation who 
was a shareholder of record at the time of giving of notice provided for in 
this section of the Certificate of Incorporation, who is entitled to vote at 
the meeting and who complies with the notice procedures set forth in the 
Certificate of Incorporation. 

              B.  For nominations or other business to be properly brought 
before an annual meeting by a shareholder pursuant to clause (iii) of 
paragraph A of this section, the shareholder must have given timely notice 
thereof in writing to the Secretary of the Corporation and such other business 
must otherwise be a proper matter for shareholder action.  To be timely, a 
shareholder's notice shall be delivered to the Secretary at the principal 
executive offices of the Corporation not later than the close of business on 
the 60th day nor earlier than the close of business on the 90th day prior to 
the first anniversary of the preceding year's annual meeting; provided, 
however, that in the event that the date of the annual meeting is more than 30 
days before or more than 60 days after such anniversary date, notice by the 
shareholder to be timely must be delivered not earlier than the close of 
business on the 90th day prior to such annual meeting and not later than the 
close of business on the later of (i) the 60th day prior to such annual 
meeting or (ii) the 

                                      42
<PAGE>

10th day following the day on which public announcement of the date of such 
meeting is first made by the Corporation.  In no event shall the public 
announcement of an adjournment of an annual meeting commence a new time period 
for giving of a shareholder's notice as described above.  Such shareholder's 
notice shall set forth (x) as to each person whom the shareholder proposes to 
nominate for election or reelection as a director all information relating to 
such person that is required to be disclosed in solicitations of proxies for 
election of directors in an election contest, or is otherwise required, in 
each case pursuant to Regulation 14A under the Securities Exchange Act of 
1934, as amended (the "Exchange Act"), and Rule 14a-11 thereunder (including 
such person's written consent to being named in the proxy statement as a 
nominee and to serving as a director if elected); (y) as to any other business 
that the shareholder proposes to bring before the meeting, a brief description 
of the business desired to be brought before the meeting, the reasons for 
conducting such business at the meeting and any material interest in such 
business of such shareholder and the beneficial owner, if any, on whose behalf 
the proposal is made; and (z) as to the shareholder giving the notice and the 
beneficial owner, if any, on whose behalf the nomination or proposal is made 
(A) the name and address of such shareholder, as they appear on the 
Corporation's books, and of such beneficial owner, and (B) the class and 
number of shares of the Corporation which are owned beneficially and of record 
by such shareholder and such beneficial owner. 
         
         C.  Notwithstanding anything in the second sentence of paragraph B of 
this section to the contrary, in the event that the number of directors to be 
elected to the Board of Directors of the Corporation is increased and there is 
no public announcement of the 

                                      43
<PAGE>

Corporation naming all of the nominees for Director or specifying the size of 
the increased Board of Directors at least 70 days prior to the first 
anniversary of the preceding year's annual meeting, a shareholder's notice 
required by this section of the Certificate of Incorporation shall also be 
considered timely, but only with respect to nominees for any new positions 
created by such increase, if it shall be delivered to the Secretary at the 
principal executive office of the Corporation not later than the close of 
business on the 10th day following the day on which such public announcement 
is first made by the Corporation. 

         D.  Only such business shall be conducted at a special meeting of  
shareholders as shall have been  brought before the meeting pursuant to the 
Corporation's notice of meetings.  Nominations of persons for election to the 
Board of Directors may be made at a special meeting of shareholders at which 
directors are to be elected pursuant to the Corporation's notice of meeting 
(a) by or at the direction of the Board of Directors or (b) provided that the 
Board of Directors has determined that directors shall be elected at such 
meeting, by any shareholder of the Corporation who is a shareholder of record 
at the time of giving of notice provided for in this Bylaw, who shall be 
entitled to vote at the meeting and who complies with the notice procedures 
set forth in the Bylaw.  In the event the Corporation calls a special meeting 
of shareholders for the purpose of electing one or more directors to the Board 
of Directors, any such shareholder may nominate a person or persons (as the 
case may be), for the election to such positions(s) as specified in the 
Corporation's notice of meetings, if the shareholder's notice required by 
paragraph B of this section shall be delivered to the Secretary at the 
principal executive office of the 

                                      44
<PAGE>

Corporation not earlier than the close of business on the 90th day prior to 
such special meeting and not later than the close of business on the later of 
(i) the 60th day prior to such special meeting or (ii) the 10th day following 
the day on which public announcement is first made of the date of the special 
meeting and of the nominees proposed by the Board of Directors to be elected 
at such meeting.  In no event, shall the public announcement of an adjournment 
of a special meeting commence a new time period for the giving of shareholders 
notice. 

         E.  Only such persons who are nominated in accordance with procedures 
set forth in this section shall be eligible to serve as directors and only 
such business shall be conducted at a meeting of shareholders as shall have 
been brought before the meeting in accordance with the procedures set forth in 
this section. Except as otherwise provided by law, the Chairman of the meeting 
shall have the power and duty to determine whether a nomination or any 
business proposed to be brought before the meeting was made or proposed, as 
the case may be, in accordance with the procedures set forth in the 
Certificate of Incorporation and, if any proposed nomination or business is 
not in compliance with this section to declare that such defective proposal or 
nomination shall be disregarded. 

         F.  For purposes of the Certificate of Incorporation "public 
announcement" shall mean disclosure in a press release reported by the Dow 
Jones News Service, Associated Press or comparable national news service or in 
a document publicly filed by 

                                      45
<PAGE>

the Corporation with the Securities and Exchange Commission pursuant to 
Section 13, 15 or 15(d) of the Exchange Act. 

         G.  Notwithstanding the foregoing provisions of this section a 
shareholder shall also comply with all applicable requirements of the Exchange 
Act and the rules and regulations thereunder with respect to the matters set 
forth in this section.  Nothing in this section shall be deemed to affect any 
rights (a) of shareholders to request inclusion of proposals in the 
Corporation's proxy statement pursuant to the Rule 14a-8 under the Exchange 
Act or (b) of the holders of any series of Preferred Stock to elect directors 
under specified circumstances. 

4. The following is adopted as a new Section 7 of the Certificate of 
Incorporation: 

        7.  INDEMNIFICATION AND INSURANCE 

                A.  The Corporation shall indemnify to the fullest extent now 
or hereafter provided for or permitted by law each person involved in, or made 
or threatened to be made a party to, any action, suit, claim or proceeding, 
arbitration, alternative dispute resolution mechanism, investigation, 
administrative or legislative hearing or any other actual, threatened, pending 
or completed proceeding, whether civil or criminal, or whether formal or 
informal, and including an action by or in the right of the corporation or any 
other corporation, or any partnership, joint venture, trust, employee benefit 
plan or other enterprise, whether profit or nonprofit (any such entity, other 
than the corporation, being 

                                      46
<PAGE>

hereinafter referred to as an "Enterprise"), and including appeals therein 
(any such process being hereinafter referred to as a "Proceeding"), by reason 
of the fact that such person, such person's testator or intestate (i) is or 
was a Director or Officer of the corporation, or (ii) while serving as a 
Director or Officer of the corporation, is or was serving, at the request of 
the corporation, as a Director, Officer, or in any other capacity , in any 
other Enterprise, against any and all judgments, fines, penalties, amounts 
paid in settlement, and expenses, including attorneys' fees, actually and 
reasonably incurred as a result of or in connection with any Proceeding, or 
any appeal therein, except as provided in paragraph B below. 

                B.  No indemnification shall be made to or on behalf of any 
such person if a judgment or other final adjudication adverse to such person 
establishes that such person's acts were committed in bad faith or were the 
result of active and deliberate dishonesty and were material to cause of 
action so adjudicated, or that such person personally gained in fact a 
financial profit or other advantage to which such person was not legally 
entitled.  In addition, no indemnification shall be made with respect to any 
Proceeding initiated by any such person against the corporation, or a Director 
or Officer of the corporation, other than to enforce the terms of this 
section, unless such Proceeding was authorized by the Board of Directors.  
Further, no indemnification shall be made with respect to any settlement or 
compromise of any Proceeding unless and until the corporation has consented to 
such settlement or compromise. 

                                      47
<PAGE>

                C.  Written notice of any Proceeding for which indemnification 
may be sought by any person shall be given to the corporation as soon as 
practical.  The corporation shall then be permitted to participate in the 
defense of any such Proceeding or, unless conflicts of interest or position 
exist between such person and the corporation in the conduct of such defense, 
to assume such defense.   In the event that the corporation assumes the 
defense of any such proceeding, legal counsel selected by the corporation 
shall be acceptable to such person.  After such an assumption, the corporation 
shall not be liable to such person for any legal or other expenses 
subsequently incurred unless such expenses have been expressly authorized by 
the corporation.  In the event that the corporation participates in the 
defense of any such Proceeding, such person may select counsel to represent 
such person in regard to such a Proceeding; however, such person shall 
cooperate in good faith with any request that common counsel be utilized by 
the parties to any Proceeding who are similarly situated, unless to do so 
would be inappropriate due to actual or potential differing interests between 
or among such parties. 

                D.  In making any determination regarding any person's 
entitlement to indemnification hereunder, it shall be presumed that such 
person is entitled to indemnification, and the corporation shall have the 
burden of proving the contrary. 

                E.  The corporation shall indemnify any employee and agent to 
the extent such person shall be entitled to indemnification by law by reason 
of being successful on the merits or otherwise in defense of any action to 
which such person is named a party by reason of being an employee or other 
agent of the corporation, and the corporation may 

                                      48
<PAGE>

further indemnify any such person if it is determined on a case by case basis 
by the Board of Directors that indemnification is proper in the specific case. 

                F.  Notwithstanding anything to the contrary in this 
Certificate of Incorporation, no person shall be indemnified to the extent, if 
any, it is determined by the Board of Directors or by written opinion of legal 
counsel designated by the Board of Directors for such purpose that 
indemnification is contrary to applicable law. 

                G.  The corporation may, as the Board of Directors may direct, 
purchase and maintain such insurance on behalf of any person who is or at 
anytime has been a Director, Officer, employee or other agent of in a similar 
capacity with the corporation, or who is or at any time has been, at the 
direction or request of the corporation, a Director, Trustee, Officer, 
President, Manager, Advisor, or other agent of Enterprise against any 
liability asserted against and incurred by such person. 

                H.  Except in the case of a Proceeding against a Director or 
Officer specifically approved by the Board of Directors, the corporation 
shall, subject to Paragraphs A through G above, pay all expenses incurred by 
or on behalf of a Director or Officer in defending any Proceeding in advance 
of the final disposition of such Proceeding.  Such payments shall be made 
promptly upon receipt by the corporation, from time to time of a written 
demand of such person for such advancement, together with an undertaking by or 
on behalf of such person to repay any expenses so advanced to the extent that 
the 

                                      49
<PAGE>

person receiving the advancement is ultimately found not to be entitled to 
indemnification for part of all of such expenses. 

                I.  The rights to indemnification and advancement of expenses 
granted by or pursuant to this section 7 of the Certificate of Incorporation: 
(a) shall not limit or exclude, but shall be in addition to, any other rights 
which may be granted by or pursuant to any statute, corporate charter, bylaw, 
resolution of shareholders or directors or agreement; (b) shall be deemed to 
constitute contractual obligations of the corporation only to any Director or 
Officer who is serving in a capacity referred to in Paragraph A at any time 
after the Effective Date of this Section 7 of the Certificate of Incorporation 
which shall be April 4, 1996 and upon compliance with Section 725 of the NY 
Business Corporation Law; (c) shall continue to exist after the repeal or 
modification of Article XII of the Bylaws or this section 7 of the Certificate 
of  Incorporation with respect to events occurring after the Effective Date; 
and (d) shall continue as to a person who has ceased to be a Director or 
Officer after the Effective Date and shall inure to the benefit of the estate, 
spouse, heirs, executors, administrators or assigns of such person.  It is the 
intent of this section 7 of the Certificate of Incorporation to require the 
corporation to indemnify the persons referred to herein for aforementioned 
judgments, fines, penalties, amounts paid in settlement, and expenses, 
including attorneys' fees, in each and every circumstance in which such 
indemnification could lawfully be permitted by express provision of bylaws, 
and the indemnification required by this section shall not be limited by the 
absence of any express recital of such circumstance. 

                                      50
<PAGE>

5. The following is adopted as a new Section 8 of the Certificate of 
Incorporation: 

            8.  DIRECTORS' LIABILITY 
                
                To the fullest extent permitted by the New York Business 
Corporation Law as presently in effect or hereafter amended, a director of the 
Corporation shall not be personally liable to the Corporation or its 
shareholders for damages for any breach of duty as a director.  Any repeal or 
modification of this Article by the shareholders of the Corporation shall not 
adversely affect any right or protection of a director of the Corporation 
existing hereunder with respect to any act or omission occurring prior to such 
repeal or modification. 

6. The following is adopted as a new Section 9 of the Certificate of 
Incorporation: 

        9.  SHAREHOLDER VOTE REQUIRED TO ALTER, AMEND OR REPEAL 

                Notwithstanding anything contained in this Certificate of 
Incorporation to the contrary, the affirmative vote of the holders of at least 
two thirds (2/3) of the outstanding shares entitled to vote in the election of 
Directors shall be required to alter, amend or repeal this Certificate of 
Incorporation or Section 3 of Article II, and Sections 2, 3, 4 and 5 of 
Article IV of the Bylaws. 

                                      51
<PAGE>

7.  The above amendments to the Certificate of Incorporation were authorized 
by the Board of Directors followed by a vote of the holders of a majority of 
all outstanding shares entitled to vote thereon at a meeting of the 
shareholders. 

       IN WITNESS WHEREOF, this certificate has been subscribed this  _____  
day of               June, 1997, by the undersigned who affirms that the 
statements made herein are true under penalties of perjury. 
                                                _______________________________ 
                                                CARL FAHRENKRUG, PRESIDENT   
                                                        
                                                _______________________________ 
                                                MILO PETERSON, SECRETARY      
                        





                                      52
<PAGE>





STATE OF NEW YORK        ) 
COUNTY OF ONONDAGA)  SS: 
CITY OF SYRACUSE         ) 


        I, CARL FAHRENKRUG, being duly sworn, depose and state that I am the 
President of Microwave Filter Company, Inc., the corporation named in and 
described in the foregoing certificate and that I have read the foregoing 
certificate and know the contents thereof to be true, except as to matters 
therein stated to be alleged upon information and belief, and as to those 
matters, I believe them to be true. 

                                                        ________________________
                                                           CARL FAHRENKRUG 
Sworn to before me this                                                      
______ day of June, 1997. 

_____________________ 
     NOTARY PUBLIC 


                                      53
<PAGE>


                          AMENDED AND RESTATED BYLAWS 

                                      of 

                        MICROWAVE FILTER COMPANY, INC. 


                        Date of Adoption:  May 23, 1996 


                                   ARTICLE I 

                                    Offices 

        The principal office of the Corporation shall be in the Village of 
East Syracuse, County of Onondaga, State of New York.  The Corporation may 
also have offices at such other places within or without the State of New York 
as the Board may from time to time determine or the business of the 
Corporation may require 


                                      54
<PAGE>

                                  ARTICLE II 

                                 Shareholders 

        1.  PLACE OF MEETINGS 

             Meetings of the Shareholders shall be held at the principal 
office of the Corporation or at such place within or without the State of New 
York as the Board shall authorize. 

        2.  ANNUAL MEETING. 

             The annual meeting of the Shareholders shall be held on such date 
and at such time as shall be designated by the Board of Directors and stated 
in the notice of such meeting, when the Shareholders shall elect a Board and 
transact such other business as may properly come before the meeting. 

        3.  SPECIAL MEETINGS 

        .    Special meetings of the shareholders may be called by the 
Chairman of the Board of Directors or by the President, and shall be called by 
the Chairman of the Board or by the Secretary at the request in writing of a 
majority of the Board of Directors or two 

                                      55
<PAGE>

thirds (2/3) of the holders of the outstanding shares entitled to vote in the 
election of Directors.  Such meetings shall be held at such time as may be 
fixed in the call and stated in the notice of meetings.  Any such written 
request shall state the purpose or purposes of the proposed meeting.  Business 
transacted at a special meeting shall be confined to the purposes stated in 
the notice. 

        4.  FIXING RECORD DATE. 

             For the purpose of determining the Shareholders entitled to 
notice of or vote at any meeting of Shareholders or any adjournment thereof, 
or to express consent to or dissent from any proposal without a meeting, or 
for the purpose of determining shareholders entitled to receive payment of any 
dividend or the allotment of any rights, or for the purpose of any other 
action, the Board shall fix, in advance, a date at the record date for any 
such determination of Shareholders.  Such date shall not be more than fifty 
nor less than 10 days from the date of such meeting, nor more than fifty days 
prior to any other action.  If no record date is fixed it shall be determined 
in accordance with the provision of law. 

        5.  NOTICE OF MEETINGS OF SHAREHOLDERS 

             Written notice of each meeting of Shareholders shall state the 
purpose or purposes for which the meeting is called, the place, date and hour 
of the meeting and unless it is the annual meeting, shall indicate that it is 
being issued or at the direction of the 

                                      56
<PAGE>

person or persons calling the meeting.  Notice shall be given either 
personally or by mail to each Shareholder entitled to vote at such meeting, 
not less than ten nor more than fifty days before the date of the meeting.  If 
action is proposed to be taken that might entitle Shareholders to payment for 
their shares, the notice shall include a statement of that purpose and to that 
effect.  If mailed, the notice is given when deposited in the United States 
mail, with postage thereon prepaid, directed to the Shareholder at his address 
as it appears on the record of Shareholders, or if he shall have filed with 
the Secretary a written request that notices to him be mailed to some other 
address, then directed to him at such other address. 

        6.  WAIVERS 

             Notice of meeting need not be given to any Shareholder who signs 
a waiver of notice, in person or by proxy, whether before or after the 
meeting.  The attendance of any Shareholder at a meeting, in person or by 
proxy, without protesting prior to the conclusion of the meeting the lack of 
notice of such meeting, shall constitute a waiver of notice by him. 

        7.  QUORUM OF SHAREHOLDERS 

              Unless the Certificate of Incorporation provides otherwise, the 
holders of one-third of the shares entitled to vote thereat shall constitute a 
quorum at a meeting of Shareholders for the transaction of any business, 
provided that when a specified item of 

                                      57
<PAGE>

business is required to be voted on by a class or classes, the holders of a 
majority of the shares of such class or classes shall constitute a quorum for 
the transaction of such specified item of business. 

             When a quorum is once present to organize a meeting, it is not 
broken by the subsequent withdrawal of any Shareholders.  

             The Shareholders present may adjourn the meeting despite the 
absence of a quorum. 

        8.  PROXIES 

             Every Shareholder entitled to vote at a meeting of Shareholders 
or to express consent or dissent without a meeting may authorize another 
person or persons to act for him by proxy. 

             Every proxy must be signed by the Shareholder or his attorney-in-
fact.  No proxy shall be valid after expiration of eleven months from the date 
thereof unless otherwise provided in the proxy.  Every proxy shall be 
revocable at the pleasure of the Shareholder executing it, except as otherwise 
provided by law. 

                                      58
<PAGE>


        9.  QUALIFICATION OF VOTERS 

             Every Shareholder of record shall be entitled at every meeting of 
Shareholders to one vote for every share standing in his name on the record of 
Shareholders, unless otherwise provided in the Certificate of Incorporation. 

        10. VOTE OF SHAREHOLDERS. 

              Except as otherwise required by statute or by the Certificate of 
Incorporation: 

              (a)  Directors shall be elected by a plurality of the votes cast 
at a meeting of Shareholders by the holders of shares entitled to vote in the 
election; 

              (b)  All other corporate action shall be authorized by a 
majority of the votes cast. 

        11. WRITTEN CONSENT OF SHAREHOLDERS 

               Any action that may be taken by vote may be taken without a 
meeting on written consent, setting forth the action so taken, signed by the 
holders of all the 

                                      59
<PAGE>

outstanding shares entitled to vote thereon or signed by such lesser number of 
holders as may be provided for in the Certificate of Incorporation. 



                                  ARTICLE III 

                NOTICE OF SHAREHOLDERS BUSINESS AND NOMINATIONS 

        1.  ANNUAL MEETINGS OF SHAREHOLDERS. 

              (a)  Nominations of persons for election to the Board of 
Directors of the Corporation and the proposal of business to be considered by 
the shareholders may be made at an annual meeting of the shareholders (i) 
pursuant to the Corporation 
 notice of meeting, (ii) by or at the direction of the Board of Directors or 
(iii) by an shareholder of the Corporation who was a shareholder of record at 
the time of giving of notice provided for in this Bylaw, who is entitled to 
vote at the meeting and who complies with the notice procedures set forth in 
this Bylaw. 

             (b)  For nominations or other business to be properly brought 
before an annual meeting by a shareholder pursuant to clause (iii) of 
paragraph (1)(a) of this Bylaw, the shareholder must have given timely notice 
thereof in writing to the Secretary of the Corporation and such other business 
must otherwise be a proper matter for shareholder action.  To be timely a 
shareholder's notice shall be delivered to the Secretary at the principal 
executive offices of the Corporation not later than the close of business on 
the 

                                      60
<PAGE>

60h day nor earlier than the close of business on the 90th day prior to the 
first anniversary of the preceding year's annual meeting; provided, however, 
that in the event that the date of the annual meeting is more than 30 days 
before or more than 60 days after such anniversary date, notice by the 
shareholder to be timely must be delivered not earlier than the close of 
business on the 90th day prior to such annual meeting and not later than the 
close of business on the later of (i) the 60th day prior to such annual 
meeting or (ii) the 10th day following the day on which public announcement of 
the date of such meeting is first made by the Corporation.  In no event shall 
the public announcement of an adjournment of an annual meeting commence a new 
time period for the giving of a shareholder's notice as described above.  Such 
shareholder's notice shall set forth (x) as to each person whom the 
shareholder proposes to nominate for election or reelection as a Director all 
information relating to such person that is required to be disclosed in 
solicitations of proxies for election of Directors in an election contest, or 
is otherwise required, in each case pursuant to Regulation 14A under the 
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 
14a-11 thereunder (including such person's written consent to being named in 
the proxy statement as a nominee and to serving as a Director if elected); (y) 
as to any other business that the shareholder proposes to bring before the 
meeting, a brief description of the business desired to be brought before the 
meeting, the reasons for conducting such business at the meeting and any 
material interest in such business of such shareholder and the beneficial 
owner, if any, on whose behalf the proposal is made; and (z) as to the 
shareholder giving the notice and the beneficial owner, if any, on whose 
behalf the nomination or proposal is made (a) the name and address of such 
shareholder, as they appear on the corporation's books, and of such 

                                      61
<PAGE>

beneficial owner and (b) the class and number of shares of the Corporation 
which are owned beneficially and of record by such shareholder  and such 
beneficial owner. 
             (c)  Notwithstanding anything in the second sentence of paragraph 
(1)(b) of this Bylaw to the contrary, in the event that the number of 
Directors to be elected to the Board of Directors of the Corporation is 
increased and there is no public announcement of the Corporation naming all of 
the nominees for Director or specifying the size of the increased Board of 
Directors at least 70 days prior to the first anniversary of the preceding 
year's annual meeting, a shareholder's notice required by this Bylaw shall 
also be considered timely, but only with respect to nominees for any new 
positions created by such increase, if it shall be delivered to the Secretary 
at the principal executive offices of the Corporation not later than the close 
of business on the 10th day following the day on which such public 
announcement is first made by the Corporation. 

        2.  SPECIAL MEETINGS OF SHAREHOLDERS. 

              Only such business shall be conducted at a special meeting of 
shareholders as shall have been brought before the meeting pursuant to the 
Corporation's notice of meeting.  Nomination of persons for election to the 
Board of Directors may be made at a special meeting of shareholders at which 
Directors are to be elected pursuant to the Corporation's notice of meeting 
(a) by or at the direction of the Board of Directors or (b) provided that the 
Board of Directors has determined that Directors shall be elected at such 
meeting, by any shareholder of the Corporation who is a shareholder of record 
at the time of giving of notice provided for in this Bylaw, who shall be 
entitled to vote at the meeting 

                                      62
<PAGE>

and who complies with the notice procedures set forth in this Bylaw.  In the 
event the Corporation calls a special meeting of shareholders for the purpose 
of electing one or more Directors, any such shareholder may nominate a person 
or persons (as the case may be), for election to such positions as specified 
in the Corporation's notice of meeting, if the shareholder's notice required 
by paragraph (1)(b) of this Bylaw shall be delivered to the Secretary at the 
principal executive office of the Corporation not earlier than the close of 
business on the 90th day prior to such special meeting and not later than the 
close of business on the later of (i) the 60th day prior to such special 
meeting or (ii) the 10th day following the day on which public announcement is 
first made of the date of the special meeting and or the nominees proposed by 
the Board of Directors to be elected at such meeting.  In no event shall the 
public announcement of an adjournment of a special meeting commence a new time 
period for the giving of a shareholder's notice as described above. 

        3.  GENERAL. 

               (a)  Only such persons who are nominated in accordance with the 
procedures set forth in this Bylaw shall be eligible to serve as Directors and 
only such business shall be conducted at a meeting of shareholders as shall 
have been brought before the meeting in accordance with he procedures set 
forth in this Bylaw.  Except as otherwise provided by law, the Certificate of 
Incorporation or these Bylaws, the Chairman of the meeting shall have the 
power and duty to determine whether a nomination or any business proposed to 
be brought before the meeting was made or proposed, as the case may be, in 
accordance 

                                      63
<PAGE>

with the procedures set forth in this Bylaw and, if any proposed nomination or 
business is not in compliance with this Bylaw, to declare that such defective 
proposal or nomination shall be disregarded. 

               (b)  For purposes of this Bylaw, "public announcement" shall 
mean disclosure in a press release reported by the Dow Jones News Service, 
Associated Press or comparable national news service or in a document publicly 
filed by the Corporation with the Securities and Exchange Commission pursuant 
to Section 13, 15 or 15(d) of the Exchange Act. 

               (c)  Notwithstanding the foregoing provisions of this Bylaw, a 
shareholder shall also comply with all applicable requirements of the Exchange 
Act and the rules and regulations thereunder with respect to the matters set 
forth this Bylaw.  Nothing in this bylaw shall be deemed to affect any rights 
(a) of shareholders to request inclusion of proposals in the Corporation's 
proxy statement pursuant to Rule 14a-8 under the Exchange Act or (b) of the 
holders of any series of Preferred Stock to elect Directors under specified 
circumstances. 


                                  ARTICLE IV 

                                      64
<PAGE>



                                   DIRECTORS 

        1.  BOARD OF DIRECTORS. 

              Subject to any provision in the Certificate of Incorporation the 
business of the Corporation shall be managed by its Board of Directors, each 
of whom shall be at least 18 years of age. 

        2.  NUMBER OF DIRECTORS. 

             The number of Directors shall be fixed at nine or less. 

        3.  ELECTION AND TERM OF DIRECTORS. 

             Directors shall be elected at each annual meeting of the 
shareholders, or, if no such election shall be held, at a meeting called and 
held in accordance with the statutes of the State of New York.  Each Director 
shall be elected to hold office until the expiration of the term for which he 
is elected, and thereafter until a successor shall be elected and shall 
qualify.  The directors shall be divided, with respect to the terms for which 
they severally hold office, into three classes, hereby designated as Class I, 
Class II and Class III.  Each class shall have three directors and the three 
classes shall be as nearly equal in 

                                      65
<PAGE>

number as possible.  The initial terms of office of the Class I, Class II and 
Class III directors, elected at the 1996 annual meeting of shareholders, shall 
expire at the next succeeding annual meeting of shareholders, the second 
succeeding annual meeting of shareholders and the third succeeding annual 
meeting of shareholders, respectively.  At each annual meeting of shareholders 
after 1996 the successors of the class of directors whose term expires at that 
meeting shall be elected to hold office for a term expiring at the annual 
meeting of shareholders to be held in the third year following the year of 
their election. 

        4.  VACANCIES 
        
              Vacancies occurring in the Board of Directors for any reason may 
be filled by vote of a majority of the directors then in office, although less 
than a quorum exists or a vote of the holders of two-thirds (2/3) of the 
outstanding shares entitled to vote in the election of Directors.  A Director 
elected to fill a vacancy shall be elected to hold office until the next 
annual meeting of the shareholders and thereafter until a successor shall be 
elected and shall qualify. 

        5.  REMOVAL OF DIRECTORS. 

             Any of the directors may be removed from office, for cause only, 
by action of the Board of Directors or by vote of the shareholders holding 
two-thirds (2/3) of the outstanding shares entitled to vote in the election of 
Directors. 

                                      66
<PAGE>

        6.  RESIGNATION. 

             A Director may resign at any time by giving written notice to the 
Board, the President or the Secretary of the Corporation.  Unless otherwise 
specified in the notice, the resignation shall take effect upon receipt 
thereof by the Board or such officer, and the acceptance of the resignation 
shall not been necessary to make it effective. 

        7.  QUORUM OF DIRECTORS. 

              Unless otherwise provided in the Certificate of Incorporation, a 
majority of the entire Board shall constitute a quorum for the transaction of 
business or any specified item of business. 

        8.  ACTION OF THE BOARD. 

              Unless otherwise required by law, the vote of a majority of the 
Directors present at the time of the vote, if a quorum is present at such 
time, shall be the act of the Board. 

                                      67
<PAGE>




        9.  PLACE AND TIME OF BOARD MEETINGS. 

             The Board may hold its meeting at the office of the Corporation 
or at such other places, either within or without the State of New York, as it 
may from time to time determine. 

        10. REGULAR ANNUAL MEETING. 

              A regular annual meeting of the Board shall be held immediately 
following the annual meeting of Shareholders at the place of such annual 
meeting of Shareholders. 

        11. NOTICE OF MEETINGS OF THE BOARD, ADJOURNMENT. 

              (a)  Regular meetings of the Board may be held without notice at 
such time and place as it shall from time to time determine.  Special meetings 
of the Board shall be held upon notice to the Directors and may be called by 
the President upon three days notice to each Director either personally or by 
mail or by wire; special meetings shall be called by the President or by the 
Secretary in a like manner on written request of two Directors.  Notice of a 
meeting need not be given to any Director who submits a waiver of 

                                      68
<PAGE>

notice whether before or after the meeting or who attends the meeting without 
protesting prior thereof or at its commencement, the lack of notice to him. 

              (b)  A majority of the Directors present, whether or not a 
quorum is present, may adjourn any meeting to another time and place.  Notice 
of the adjournment shall be given all Directors who were absent at the time of 
the adjournment and, unless such time and place are announced at the meeting, 
to the other Directors. 

        12. CHAIRMAN. 

               At all meetings of the Board the President, or in his absence, 
the Chairman chosen by the Board shall preside. 

        13. EXECUTIVE AND OTHER COMMITTEES. 

              The Board, by resolution adopted by a majority of the entire 
Board, may designate from among its members an Executive Committee and other 
committees, each consisting of three or more Directors.  The Executive 
Committee may have all the authority of the Board except such specifically 
excluded in BCL 712 and shall have such powers as the Board may determine.  
Each such committee shall serve at the pleasure of the Board and shall have 
such powers as the Board may from time to time determine. 

                                      69
<PAGE>


        14. COMPENSATION. 

        Reasonable compensation may be paid to directors for their services as 
a director, including additional reimbursement for expenses, either as a fixed 
sum for attendance at meetings or, in the case of the Chairman of the Board, 
as an annual sum covering all the duties undertaken by the Chairman.  Nothing 
herein contained shall be construed to preclude a director from serving the 
Corporation in any other capacity and receiving compensation therefore. 

        
        15. ADVISORY BOARD. 

              The Board hereby establishes an Advisory Board, which shall be 
comprised of persons who are not officers or Directors of the Corporation, to 
render advice and counsel to the Board and its Committees.  Members of the 
Advisory Board shall serve at the pleasure of the Board and may receive such 
compensation or remuneration as from time to time determined by the Board.  
Members of the Advisory Board shall be nominated by the Chairman and confirmed 
by the Board. Attendance at Board or Committee meetings by Advisory Committee 
members shall be by invitation of the Chairman or the Committee Chair, as 
appropriate. 

        16.  TELEPHONIC MEETING. 

                                      70
<PAGE>


               Any one or more members of the Board of Directors or any 
committee thereof may participate in a meeting of the Board of Directors or 
such committee by means of a conference telephone or similar communications 
equipment by means of which all persons participating in the meeting can hear 
such other.  Participation by such means shall constitute presence in person 
at a meeting. 

                                   ARTICLE V 

                                   OFFICERS 


        1.  OFFICES, ELECTION, TERM. 

              (a) Unless otherwise provided for in the Certificate of 
Incorporation, the Board may elect or appoint a President, one or more Vice 
Presidents, a Secretary and a Treasurer, and such other Officers as it may 
determine, who shall have such duties, powers and functions as hereinafter 
provide. 

        2.  REMOVAL, RESIGNATION, SALARY, ET CETERA.    

              (a)  Any officer elected or appointed by the Board may be 
removed by the Board with or without cause. 

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              (b)  In the event of the death, resignation or removal of an 
officer, the Board, in its discretion, may elect or appoint a successor to 
fill the unexpired term. 

              (c)  Any two or more offices may be held by the same person, 
except the offices of President and Secretary. 

              (d)  The salaries of all officers shall be fixed by the Board. 

              (e)  The Directors may require any officer to give security for 
the faithful performance of his duties. 

        3.  PRESIDENT. 

             The President shall be the Chief Executive Officer of the 
Corporation; he shall preside at all meetings of the Shareholders and of the 
Board; he shall have the management of the business of the Corporation and see 
that all orders and resolutions of the Board are carried into effect. 

        4.  VICE PRESIDENTS. 

              During the absence or disability of the President, the Vice 
President, or if there are more than one, the Executive Vice President, shall 
have all the powers and functions 

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of the President.  Each Vice President shall perform such other duties as the 
Board shall prescribe. 


        5.  SECRETARY. 

             The Secretary shall: 

             (a)  attend all meetings of the Board and of the Shareholders; 

             (b)  record all votes and minutes of any proceedings in a book to 
be kept for that purpose. 

             (c)  give or cause to be given notice of all meetings of 
Shareholders and of special meetings of the Board; 

             (d)  keep in safe custody the seal of the Corporation and affix 
it to any instrument when authorized by the Board; 

             (e)  when required, prepare or cause to be prepared and available 
at each meeting of Shareholders a certified list in alphabetical order of the 
names of Shareholders entitled to vote thereat, indicating the number of 
shares of each respective class held by each; 

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             (f)  keep all the documents and records of the Corporation as 
required by law or otherwise in a proper and safe manner; and 

             (g)  perform such other duties as may be prescribed by the Board. 

        6.  ASSISTANT SECRETARIES. 

             During the absence or disability of the Secretary, the Assistant 
Secretary, or if there are more than one, the one so designated by the 
Secretary or by the Board, shall have all the powers and functions of the 
Secretary. 

        7.  TREASURER. 

             The Treasurer shall: 

             (a)  have the custody of the corporate funds and securities; 

             (b)  keep full and accurate accounts or receipts and 
disbursements in the corporate books; 

             (c)  deposit all money and other valuables in the name and to the 
credit of the Corporation in such depositories as may be designated by the 
Board; 

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             (d)  disburse the funds of the Corporation as may be ordered or 
authorized by the Board and preserve proper vouchers for such disbursements; 

             (e)  render to the President and the Board at the regular 
meetings of the Board, or whenever they require it, an account of all his 
transactions as Treasurer and of the financial condition of the Corporation; 

             (f)  render a full financial report at the annual meeting of the 
Shareholders if so requested; 

             (g)  be furnished by all corporate officers and agents at his 
request, with such reports and statements as he may require as to all 
financial transactions of the corporation; and 

             (h)  perform such other duties as are given to him by these 
Bylaws or as from time to time are assigned to him by the Board or the 
President. 

        8.  ASSISTANT TREASURER. 

             During the absence or disability of the Treasurer, the Assistant 
Treasurer, or if there are more than one, the one so designated by the 
Secretary or by the Board, shall have all the powers and functions of the 
Treasurer. 

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        9.  SURETIES AND BONDS. 

              In case the Board shall so require, any officer or agent of the 
Corporation shall execute to the Corporation a bond in such sum and with such 
surety or sureties as the Board may direct, conditioned upon the faithful 
performance of his duties to the Corporation and including responsibility for 
the negligence and for the accounting for all property, funds or securities of 
the Corporation which may come into his hands. 


                                  ARTICLE VI 

                            CERTIFICATE FOR SHARES 


        1.  CERTIFICATES. 

              The shares of the Corporation shall be represented by 
certificates.  They shall be numbered and entered into the books of the 
Corporation as they are issued. They shall 

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exhibit the holder's name and the number of shares and shall be signed by the 
President or Vice President and the Treasurer or the Secretary and shall bear 
the Corporate seal. 



        2.  LOST OR DESTROYED CERTIFICATES. 

             The Board may direct a new certificate or certificates to be 
issued in place of any certificate or certificates theretofore issued by the 
Corporation, alleged to have been lost or destroyed, upon the making of an 
affidavit of that fact by the person claiming the certificate to be lost or 
destroyed.  When authorizing such issue of a new certificate or certificates, 
the Board may, in its discretion and as a condition precedent to the issuance 
thereof, require the owner of such lost or destroyed certificate or 
certificates or his legal representative, to advertise the same in such manner 
as it shall require and/or give the corporation a bond in such sum and with 
such surety or sureties as it may direct as indemnity against any claim that 
may be made against the Corporation with respect to the certificate alleged to 
have been lost or destroyed. 

        3.  TRANSFER OF SHARES. 

             (a)  Upon surrender to the Corporation or the transfer agent of 
the Corporation of a certificate for shares duly endorsed or accompanied by 
proper evidence of succession, assignment or authority to transfer, it shall 
be the duty of the Corporation to issue a new 

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certificate to the person entitled thereto, and cancel the old certificate; 
every such transfer shall be entered on the transfer book of the Corporation 
which shall be kept at its principal office.  No transfer shall be made within 
ten days next preceding the annual meeting of Shareholders. 

             (b)  The Corporation shall be entitled to treat the holder of 
record of any share as the holder in fact thereof and, accordingly, shall not 
be bound to recognize any equitable or other claim to or interest in such 
share on the part of any other person whether or not it shall have express or 
other notice thereof, except as expressly provided by the laws of New York. 

        4.  CLOSING TRANSFER BOOKS. 

              The Board shall have the power to close the share transfer books 
of the Corporation for a period of not more than ten days during the thirty 
day period immediately preceding (1) any Shareholders' meeting or (2) any date 
upon which Shareholders shall be called upon to or have a right to take action 
without a meeting, or (3) any date fixed for the payment of a dividend or any 
other form of distribution, and only those Shareholders of record at the time 
the transfer books are closed, shall be recognized as such for the purpose of 
(1) receiving notice of or voting at such meeting, or (2) allowing them to 
take appropriate action, or (3) entitling them to receive any dividend or 
other form of distribution. 

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                                  ARTICLE VII 

                                   DIVIDENDS 


        Subject to the provisions of the Certificate of Incorporation and to 
applicable law, dividends on the outstanding shares of the Corporation may be 
declared in such amounts and at such time or times as the Board may determine.  
Before payment of any dividend, there may be set aside out of the net profits 
of the Corporation available for dividends such sum or sums as the Board from 
time to time in its absolute discretion deems proper as a reserve fund to meet 
contingencies, or for equalizing dividends, or for repairing or maintaining 
property of the Corporation or for such other purpose as the Board shall think 
conducive to the interest of the Corporation, and the Board may modify or 
abolish any such reserve. 

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                                 ARTICLE VIII 

                                CORPORATE SEAL 


        The seal  of the Corporation shall be circular in form and bear the 
name of the Corporation, the year of its organization and the words "Corporate 
Seal, New York".  The seal may be used by causing it to be impressed directly 
on the instrument or writing to be sealed, or upon adhesive substance affixed 
thereto.  The seal of the certificates for shares or on any corporate 
obligation for the payment of money may be a facsimile, engaged or printed.  


                                  ARTICLE IX 

                           EXECUTION OF INSTRUMENTS 

        All corporate instruments and documents shall be signed or 
countersigned, executed, verified or acknowledged by such officer or officers 
or other person or persons as the Board may from time to time designate. 

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                                   ARTICLE X 

                                  FISCAL YEAR 

        The fiscal year shall begin the first day of October in each year. 



                                  ARTICLE XI 

                  REFERENCES TO CERTIFICATE OF INCORPORATION 

        Reference to certificate of incorporation in these Bylaws shall 
include all amendments thereto or changes thereof unless specifically 
excepted. 


                                  ARTICLE XII 

                         INDEMNIFICATION AND INSURANCE 

        1.  INDEMNIFICATION 

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             (a)  The Corporation shall indemnify to the fullest extent now or 
hereafter provided for or permitted by law each person involved in, or made or 
threatened to be made a party to, any action, suit, claim or proceeding, 
arbitration, alternative dispute resolution mechanism, investigation, 
administrative or legislative hearing or any other actual, threatened, pending 
or completed proceeding, whether civil or criminal, or whether formal or 
informal, and including an action by or in the right of the Corporation or any 
other Corporation or any partnership, joint venture, trust, employee benefit 
plan or other enterprise, whether profit or non-profit (any such entity, other 
than the Corporation, being hereinafter referred to as an "Enterprise"), and 
including appeals therein (any such process being hereinafter referred to as a 
"Proceeding"), by reason of the fact that such person, such person's testator 
or intestate (a) is or was a Director or Officer of the Corporation, or (b) 
while serving as a Director or Officer of the Corporation, is or was serving, 
at the request of the Corporation, as a Director, Officer, or in any other 
capacity, any other Enterprise, against any and all judgments, fines, 
penalties, amounts paid in settlement, and expense, including attorneys' fees, 
actually and reasonably incurred as a result of or in connection with any 
Proceeding, or any appeal therein, except as provided in subsection (b) below. 

             (b)  No indemnification shall be made to or on behalf of any such 
person if a judgment or other final adjudication adverse to such person 
establishes that such person's acts were committed in bad faith or were the 
result of active and deliberate dishonesty and were material to the cause of 
action so adjudicated, or that such person personally gained 

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in fact a financial profit or other advantage to which such person was not 
legally entitled.  In addition, no indemnification shall be made with respect 
to any Proceeding initiated by any such person against the Corporation, or a 
Director or Officer of the Corporation, other than to enforce the terms of 
this Article XI, unless such Proceeding was authorized by the Board of 
Directors.  Further, no indemnification shall be made with respect to any 
settlement or compromise of any Proceeding unless and until the Corporation 
has consented to such settlement or compromise. 

             (c)  Written notice of any Proceeding of which indemnification 
may be sought by any person shall be given to the Corporation as soon as 
practicable.  The Corporation shall then be permitted to participate in the 
defense of any such Proceeding or, unless conflicts of interest or position 
exist between such person and the Corporation in the conduct of such defense, 
to assume such defense.  In the event that the Corporation assumes the defense 
of any such proceeding, legal counsel selected by the Corporation shall be 
acceptable to such person.  After such an assumption, the Corporation shall 
not be liable to such person for any legal or other expenses subsequently 
incurred unless such expenses have been expressly authorized by the 
Corporation. In the event that the Corporation participates in the defense of 
any such Proceeding, such person may select counsel to represent such person 
in regard to such a Proceeding; however, such person shall cooperate in good 
faith with any request that common counsel be utilized by parities to any 
Proceeding who are similarly situated, unless to do so would be inappropriate 
due to actual or potential differing interests between or among such parties. 

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             (d).  In making any determination regarding any person's 
entitlement to indemnification thereunder, it shall be presumed that such 
person is entitled to indemnification, and the Corporation shall have the 
burden of proving the contrary. 

             (e)  The Corporation shall indemnify any employee and agent to 
the extent such person shall be entitled to indemnification by law by reason 
of being successful on the merits or otherwise in defense of any action to 
which such person is named a party by reason of being an employee or other 
agent of the Corporation, the Corporation may further indemnify any such 
person if it is determined on a case by case basis by the Board of Directors 
that indemnification is proper in the specific case. 

             (f)  Notwithstanding anything to the contrary in these Bylaws, no 
person shall be indemnified to the extent, if any, it is determined by the 
Board of Directors or by written opinion of legal counsel designated by the 
Board of Directors for such purpose that indemnification is contrary to 
applicable law. 

        2.  INSURANCE. 

             The Corporation may, as the Board of Directors may direct, 
purchase and maintain such insurance on behalf of any person who is or at any 
time has been a Director, Officer, employee or other agent of or in a similar 
capacity with the Corporation, or who is or at any time has been, at the 
direction or request of the Corporation, a Director, 

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trustee, Officer, President, manager, advisor, or other agent of any 
Enterprise against any liability asserted against and incurred by such person. 

        3.  ADVANCEMENT OF EXPENSES. 

             Except in the case of a proceeding against a Director of Officer 
specifically approved by the Board of Directors, the Corporation shall, 
subject to section 1 above, pay all expenses incurred by or on behalf of a 
Director or Officer in defending any Proceeding in advance of the final 
disposition of such Proceeding.  Such payments shall be made promptly upon 
receipt by the Corporation, from time to time, of a written demand of such 
person for such advancement, together with an undertaking by or on behalf of 
such person to repay any expenses so advanced to the extent that the person 
receiving the advancement is ultimately found not to be entitled to 
indemnification for part or all of such expenses. 

        4.  RIGHTS NOT EXCLUSIVE. 

             The rights to indemnification and advancement of expenses granted 
by or pursuant to the Article XI:  (1) shall not limit or exclude, but shall 
be in addition to, any other rights which may be granted by or pursuant to any 
statute, corporate charter, bylaw, resolution of shareholders or directors or 
agreement; (2) shall be deemed to constitute contractual obligation of the 
Corporation to any Director or Officer who serves in a capacity referred to in 
section 1 at any time while this Article XI is in effect; (3) shall 

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continue to exist after the repeal or modification of this Article XI with 
respect to events occurring prior thereto; and (4) shall continue as to a 
person who has ceased to be a Director or Officer and shall inure to the 
benefit of the estate, spouse, heirs, executors, administrators or assigns of 
such person.  It is the intent of this Article XI to require the Corporation 
to indemnify the persons referred to herein for the aforementioned judgments, 
fines, penalties, amounts paid ins settlement, and expenses, including 
attorneys' fees, in each and every circumstance in which such indemnification 
could lawfully be permitted by express provisions of bylaws, and the 
indemnification required by this Article XI shall not be limited by the 
absence of any express recital of such circumstances. 


                                 ARTICLE XIII 

                                 BYLAW CHANGES 

              AMENDMENT, REPEAL, ADOPTION, ELECTION OF DIRECTORS 

        CONFORMING AMENDMENT 
        
        (a) Except as otherwise provided by these Bylaws or the Certificate of 
Incorporation, the Bylaws of the Corporation may be amended, repealed or 
adopted by vote of the holders of record of the shares at the time entitled to 
vote in the election of any Directors; provided that Section 3 of Article III, 
Sections 2, 3, 4, and 5 of Article IV and 

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Section (a) of Article XIII of the Bylaws shall not be altered, amended or 
repealed and no provision inconsistent therewith shall be adopted without the 
affirmative vote of the holders of a t least two-thirds (2/3) of the 
outstanding shares entitled to vote in the election of Directors.  Except as 
otherwise provided above, Bylaws may also be amended, repealed, or adopted by 
the Board of Directors, but any Bylaw adopted by the Board may be amended or 
repealed by the shareholders entitled to vote thereon as herein above 
provided. 

        (b)  If any Bylaw regulating an impending election of Directors is 
adopted, amended or repealed by the Board of Directors, there shall be set 
forth in the notice of the next meeting of shareholders for the election of 
Directors the Bylaws so adopted, amended or repealed, together with a concise 
statement of the changes made. 

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