UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number: 0-28946
Vivid Technologies, Inc.
(Exact name of registrant as specified in its charter)
Delaware 04-3054475
(State of incorporation) (I.R.S. Employer Identification No.)
10E Commerce Way, Woburn, Massachusetts 01801
(Address of principal executive offices) (Zip Code)
(781) 938-7800
(Registrant's telephone number, including area code)
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 ___
As of April 30, 1999, 9,931,116 shares of the registrant's Common
Stock, $.01 par value, were issued and outstanding.
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1999 and September 30, 1998 3
Consolidated Statements of Operations
Three and Six Months Ended March 31, 1999
and 1998 4
Consolidated Statements of Cash Flows
Six Months Ended March 31, 1999
and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II - OTHER INFORMATION 13
SIGNATURES 15
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(unaudited) (audited)
March 31, September 30,
1999 1998
CURRENT ASSETS:
Cash and cash equivalents $11,064,122 $15,555,189
Short-term investments 5,242,486 10,407,209
Accounts receivable 4,981,538 7,316,863
Inventories 11,521,786 7,874,036
Deferred tax asset 606,790 606,790
Other current assets 3,049,616 1,593,021
Total current assets 36,466,338 43,353,108
PROPERTY AND EQUIPMENT, at cost:
Machinery and equipment 2,584,390 2,546,476
Leasehold improvements 243,396 228,374
Furniture and fixtures 117,570 129,479
2,945,356 2,904,329
Less - Accumulated depreciation
and amortization 1,643,323 1,488,893
1,302,033 1,415,436
Long-term investments 3,106,299 --
Other assets, net 242,761 1,155,945
$41,117,431 $45,924,489
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, September 30,
1999 1998
CURRENT LIABILITIES:
Accounts payable 1,407,983 846,457
Accrued expenses 2,716,852 2,766,268
Customer deposits 3,379,402 3,411,864
Total current liabilities 7,504,237 7,024,589
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value -
Authorized - 1,000,000 shares -- --
Common stock, $.01 par value -
Authorized - 30,000,000 shares
Issued and outstanding -
9,931,116 and 9,904,666 shares,
respectively 99,311 99,047
Capital in excess of par value 26,762,750 26,745,142
Treasury stock (171,563) --
Retained earnings 6,922,696 12,055,711
Total stockholders' equity 33,613,194 38,899,900
$41,117,431 $45,924,489
The accompanying notes are an integral part of these consolidated
financial statements.
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
1999 1998 1999 1998
Revenues $ 3,832,894 $ 9,746,939 $ 7,459,466 $19,146,251
Cost of revenues 3,165,428 4,031,177 5,842,765 7,887,821
Gross margin 667,466 5,715,762 1,616,701 11,258,430
Operating expenses:
Research and development 2,094,423 1,416,935 3,936,333 2,807,431
Restructuring and
asset write down 1,207,686 -- 1,207,686 --
Selling and marketing 1,038,183 1,058,351 2,197,783 2,354,173
General and administrative 945,659 1,068,029 2,102,454 2,166,677
Total operating
expenses 5,285,951 3,543,315 9,444,256 7,328,281
Income (loss) from
operations (4,618,485) 2,172,447 (7,827,555) 3,930,149
Other income, net 246,773 284,443 565,850 676,299
Income (loss) before
provision (benefit) for
income taxes (4,371,712) 2,456,890 (7,261,705) 4,606,448
Provision (benefit) for
income taxes (1,261,692) 737,067 (2,128,690) 1,379,723
Net income (loss) $(3,110,020) $ 1,719,823 $(5,133,015) $ 3,226,725
NET INCOME (LOSS) PER SHARE
Basic $ (.31) $ .18 $ (.52) $ .34
Diluted $ (.31) $ .17 $ (.52) $ .31
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING
Basic 9,917,766 9,647,410 9,912,545 9,578,329
Diluted 9,917,766 10,312,068 9,912,545 10,311,453
The accompanying notes are an integral part of these consolidated
financial statements.
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
March 31,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(5,133,015) $3,226,725
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities-
Depreciation and amortization 333,988 351,131
Gain on disposal of fixed assets 3,754 --
Write down of assets related to restructuring 1,080,050 --
Changes in assets and liabilities-
Accounts receivable 2,335,325 4,240,526
Inventories (3,723,683) (2,076,997)
Other current assets (1,495,484) (648,234)
Accounts payable 561,526 762,436
Accrued expenses (49,416) (320,642)
Customer deposits (32,462) 892,227
Net cash provided by (used in)
operating activities (6,119,417) 6,427,172
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (251,125) (413,972)
Purchases of investments (10,141,576) (14,840,856)
Maturity of investments 12,200,000 7,229,000
Increase in other assets (25,258) (1,252,336)
Net cash provided by (used in) in
investing activities 1,782,041 (9,278,164)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 17,872 200,154
Purchase of treasury stock (171,563) --
Net cash provided by (used in)
financing activities (153,691) 200,154
NET DECREASE IN CASH AND
CASH EQUIVALENTS (4,491,067) (2,650,838)
CASH AND CASH EQUIVALENTS, beginning of period 15,555,189 11,571,630
CASH AND CASH EQUIVALENTS, end of period $11,064,122 $ 8,920,792
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for -
Income tax $ 3,200 $ 1,179,184
The accompanying notes are an integral part of these consolidated
financial statements.
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
The consolidated financial statements of Vivid Technologies, Inc.
(the Company) presented herein have been prepared pursuant to the
rules of the Securities and Exchange Commission for quarterly reports
on Form 10-Q and do not include all of the information and note
disclosures required by generally accepted accounting principles.
These statements should be read in conjunction with the consolidated
financial statements and notes thereto for the year ended September
30, 1998, included in the Company's Form 10-K as filed with the
Securities and Exchange Commission.
The consolidated balance sheet as of March 31, 1999, the
consolidated statements of operations for the three months and six
months ended March 31, 1999 and 1998, and the consolidated statements
of cash flows for the six months ended March 31, 1999 and 1998, are
unaudited but, in the opinion of management, include all adjustments
(consisting of normal, recurring adjustments) necessary for a fair
presentation of results for these interim periods.
The results of operations for the six months ended March 31, 1999
are not necessarily indicative of the results to be expected for the
entire fiscal year ending September 30, 1999.
(2) Inventories
Inventories are stated at the lower of cost (first-in, first-out)
or market and consist of the following:
March 31, September 30,
1999 1998
Raw materials $4,991,883 $4,061,775
Work-in-process 1,658,753 1,440,435
Finished goods 4,871,150 2,371,826
$11,521,786 $7,874,036
Finished goods consist of material, labor and manufacturing
overhead.
(3) Significant Customer and Concentration of Credit Risk
In the six months ended March 31, 1999, the Company had two
customers who comprised 18% and 13% of revenues, respectively. These
customers had amounts due to the Company of approximately $612,000 and
$983,000, respectively, at March 31, 1999. Through May 7, 1999, the
Company received payments of $840,000 against these receivable
balances. In the six months ended March 31, 1998, the Company had two
customers who comprised 39% and 24% of revenues, respectively.
The Company may be affected, for the foreseeable future, by the
unstable economy caused by the currency volatility in the Asia Pacific
region. As a result, there are uncertainties that may affect future
operations, including the recoverability of receivables. It is not
possible to determine the future effect a continuation of the economic
crisis may have on the Company's liquidity and earnings. Related
effects will be reported in the financial statements as they become
known and estimable. As of March 31, 1999, the Company had
approximately $331,000 of receivables denominated in foreign
currencies. There are no outstanding forward foreign exchange
contracts.
(4) Earnings Per Share
A reconciliation of basic and diluted weighted average shares
outstanding is as follows:
Three Months Ended
March 31, March 31,
1999 1998
Basic weighted average shares outstanding 9,917,766 9,647,410
Weighted average common equivalent shares -- 664,658
Diluted weighted average shares outstanding 9,917,766 10,312,068
Six Months Ended
March 31, March 31,
1999 1998
Basic weighted average shares outstanding 9,912,545 9,578,329
Weighted average common equivalent shares -- 733,124
Diluted weighted average shares outstanding 9,912,545 10,311,453
Common equivalent securities of approximately 1,168,000 have been
excluded from the weighted average number of common and dilutive
potential common shares outstanding for the three and six months ended
March 31, 1999. Common equivalent securities of approximately 245,000
and 244,000 for the three and six months ended March 31, 1998,
respectively, have been excluded from the weighted average number of
common and dilutive potential common shares outstanding.
(5) Restructuring and Asset Write Down
In the second quarter of fiscal 1999, the Company implemented a
restructuring that included the shut down of a development facility
and the abandonment of certain technology, resulting in a nonrecurring
charge of approximately $1.2 million. The restructuring included a
$1.1 million write-off of unamortized license fees and fixed assets
related to an abandoned technology, $76,000 of lease termination and
certain other contractual termination costs and $52,000 of severance
costs for terminated research and development personnel.
The total cash impact of the restructuring amounted to
approximately $128,000, of which $28,000 was paid. As of March 31,
1999, approximately $100,000 of accrued restructuring costs remained,
which is comprised of approximately $29,000 of severance-related costs
and $71,000 of contractual termination costs. The accrued
restructuring costs will be paid by the end of fiscal 1999.
During the second quarter of fiscal 1999, the Company also
implemented a cost cutting plan to reduce operating costs. The cost
cutting plan included a 10% workforce reduction; the cost of which has
not been included in the restructuring, described above. The costs
associated with the workforce reduction were paid by March 31, 1999
and are included in the accompanying statements of operations in cost
of revenues, research and development, selling and marketing, and
general and administrative expenses.
(6) Comprehensive Income
The Company adopted Statement of Financial Accounting Standards
No. 130 ("SFAS 130"), Reporting Comprehensive Income, effective
October 1, 1998. SFAS No. 130 defines comprehensive income as the
change in equity of a business enterprise from transactions and other
economic events during a period from non-owner sources. During the
three and six month periods ended March 31, 1999 and 1998 there were
no such transactions or events that would require separate disclosure
in the Company's financial statements.
PART I - FINANCIAL INFORMATION (Continued)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
The Company's results of operations have and may continue to be
subject to significant quarterly fluctuation due to several factors,
known and unknown, including the overall demand for explosives
detection systems, market acceptance of the Company's products, timing
of the announcement, introduction and delivery of new products and
product enhancements by the Company and its competitors, variations in
component costs, timing of customer orders, adjustments of delivery
schedules to accommodate customers' programs, economic conditions in
the Company's targeted markets, the availability of components from
suppliers, the timing and level of expenditures in anticipation of
future sales, and pricing and other competitive conditions. Customers
may also cancel or reschedule shipments and production difficulties
could delay shipments. Relatively few system sales to relatively few
customers comprise a significant portion of the Company's revenues in
each quarter. Therefore, small variations in the number of systems
sold could have a significant effect on the Company's results of
operations. The Company is developing a next generation system that
is intended to meet FAA certification standards. There can be no
assurance that the Company will be able to develop such a system on a
timely basis, if at all. In addition, even if the system is
successfully developed, the anticipation of the next generation system
may have an adverse impact on financial results during the transition
period. Reference is made to the "Risk Factors" section of the
Company's report on Form 10-K for the year ended September 30, 1998
for additional discussion of factors which may affect the Company's
results of operations.
Results of Operations
Revenues. Revenues for the second quarter of fiscal 1999
decreased 61% to $3,832,894 from $9,746,939 for the second quarter of
fiscal 1998. Revenues for the current six month period decreased 61%
to $7,459,467 from $19,146,251 for the first six months of fiscal
1998. This decrease in revenues was the result of a decrease in
product sales and a decrease in revenue from an FAA development grant.
The Company attributes the slowdown in product sales primarily to the
extension by the European Civil Aviation Conference from 2000 to 2002
for all member states to implement 100% screening of international
checked luggage and the continuing economic troubles in Asia. In
addition, the Company believes that it will be difficult to complete
significant sales of its checked baggage screening systems in the
United States until such time as the Company has an FAA certified
system. During the second quarter of fiscal 1999 the Company shipped
5 VIS checked baggage systems and 19 APS hand baggage units, compared
to 22 VIS/VDS checked baggage systems and 2 APS hand baggage units in
the second quarter of fiscal 1998.
Gross Margin. Gross margin decreased as a percentage of sales
to 17% in the current quarter from 59% in the second quarter of fiscal
1998. Gross margin for the six months ended March 31, 1999 was 22%
compared to 59% in the corresponding period in fiscal 1998. The
decreases in gross margin in fiscal 1999 were primarily attributable
to the lower volume of checked baggage system sales. The decrease in
gross margin as a percentage of sales is due to significant fixed
manufacturing labor and overhead costs applied to a lower volume of
shipments of the Company's checked baggage products.
Research and Development Expenses. Research and development
expenses increased 48% to $2,094,423 in the current quarter from
$1,416,935 in the second quarter of fiscal 1998. For the current six
month period, research and development expenses increased 40% to
$3,936,333 from $2,807,431 for the first six months of fiscal 1998.
The overall increase in research and development expenses was
primarily due to the addition of engineering personnel and consultants
working on the development of new products, including the next
generation system, and product feature changes to the Model APS. The
increase is also due to the reduction in FAA grants for the next
generation system which offset costs in previous quarters.
Selling and Marketing Expenses. Selling and marketing expenses
decreased 2% to $1,038,183 in the current quarter from $1,058,351 in
the second quarter of fiscal 1998. For the current six month period,
selling and marketing expenses decreased 7% to $2,197,783 from
$2,354,173 for the first six months of fiscal 1998. The decrease in
selling and marketing expenses in fiscal 1999 was primarily due to the
decrease in commissions, trade show and travel related costs, and
advertising costs, slightly offset by an increase in personnel,
consulting and public relations costs.
General and Administrative Expenses. General and administrative
expenses decreased 11% to $945,659 in the current quarter from
$1,068,029 in the second quarter of fiscal 1998. For the current six
month period, general and administrative expenses decreased 3% to
$2,102,454 from $2,166,677 for the first six months of fiscal 1998.
The decrease in general and administrative expenses in the second
quarter of fiscal 1999 was primarily attributable to a decrease in
personnel and related costs, slightly offset by an increase in license
fees.
Restructuring and Asset Write Down. In the second quarter of
fiscal 1999, the Company implemented a restructuring that included the
shut down of a development facility and the abandonment of certain
technology, resulting in a nonrecurring charge of approximately $1.2
million. The restructuring included a $1.1 million write-off of
unamortized license fees and fixed assets related to an abandoned
technology, $76,000 of lease termination and certain other contractual
termination costs and $52,000 of severance costs for terminated
research and development personnel.
The total cash impact of the restructuring amounted to
approximately $128,000, of which $28,000 was paid. As of March 31,
1999, approximately $100,000 of accrued restructuring costs remained,
which is comprised of approximately $29,000 of severance-related costs
and $71,000 of contractual termination costs. The accrued
restructuring costs will be paid by the end of fiscal 1999.
Other Income. The Company recognized net other income of
$246,773 in the current quarter compared to $284,443 in the second
quarter of fiscal 1998. Net other income decreased to $565,850 in the
current six month period from $676,299 in the comparable period in
fiscal 1998. The decrease in fiscal 1999 was primarily attributable
to a decrease in interest income attributable to lower average cash
balances available for investments and a reduction in other income
including gains on foreign exchange.
Provision for Income Taxes. During the second quarter of fiscal
1999 and for the six months ended March 31, 1999, the Company
recognized a tax benefit of approximately $1,261,692 and $2,128,690,
respectively, based on an effective tax rate of 30%. The Company's
effective tax rate for the first three and six months of fiscal 1998
was also 30%. The Company expects that its effective tax rate will
continue to be slightly lower than the statutory tax rates primarily
due to the use of research and development tax credits and the tax
benefits associated with the Company's foreign sales corporation.
Liquidity and Capital Resources
The Company has funded its operations and capital expenditures
primarily through internally generated cash flows, proceeds from the
sale of securities and the availability of a working capital line of
credit. At March 31, 1999, the Company had working capital of $29.0
million including $16.3 million in cash and cash equivalents and short-
term investments. The Company also had $3.1 million of long-term
investments. The Company also has an unsecured $5.0 million bank line
of credit which had an original expiration of February 28, 1999 and
has been extended through May 31, 1999. The Company is currently in
negotiations with the bank to renew the credit facility. The
Company's bank line of credit bears interest at the bank's prime rate
(7.75% as of March 31, 1999). At March 31, 1999, the Company had no
amounts outstanding under this line of credit.
During the first six months of fiscal 1999, the Company's net
cash used in operating activities was approximately $6.1 million.
During that period, net loss adjusted for non-cash expenses including
depreciation and amortization and write down of assets totaling $3.7
million, a $3.7 million increase of inventories and $1.5 million
increase in other current assets were partially offset by a decrease
of $2.3 million in accounts receivable and an increase of $562,000 in
accounts payable. The increase in inventories in the first six months
of fiscal 1999 reflects increased inventory purchases associated with
the production of the next generation system and the increased sales
activity of the Model APS, and overall lower product sales of checked
baggage units.
The Company's capital expenditures for the first six months of
fiscal 1999 were approximately $251,000. While the Company does not
have any significant commitments for capital expenditures for the
remainder of fiscal 1999, the Company anticipates that it will
continue to purchase equipment to support its anticipated growth.
During the first six months of fiscal 1999, net cash provided by
investing activities was approximately $1.8 million. Net cash
provided by investing activities in the first six months of fiscal
1999 was primarily attributable to the net decrease in investment
balances of $2.1 million.
During the first six months of fiscal 1999, net cash used in
financing activities was approximately $154,000. Net cash used in
financing activities in the first six months of fiscal 1999 was
attributable to the purchase of treasury stock.
The Company may be affected, for the foreseeable future, by the
unstable economy caused by the currency volatility in the Asia Pacific
region. As a result, there are uncertainties that may affect future
operations, including the recoverability of receivables. It is not
possible to determine the future effect a continuation of the economic
crisis may have on the Company's liquidity and earnings.
The Company believes that existing sources of liquidity, funds
expected to be generated from operations and its line of credit will
provide adequate cash needs through at least the next twelve months.
However, for a brief discussion of the factors that could adversely
affect the Company's financial position and results of operations, see
the opening paragraph of Item 2 above.
Year 2000 Readiness Disclosure
The year 2000 issue is the potential for system and processing
failure of date-related data and the result of computer-controlled
systems using two digits rather than four to define the applicable
year. For example, computer programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than
the year 2000. This could result in system failure or miscalculations
causing disruptions of operations, including, among other things, a
temporary inability to process transactions, send invoices or engage
in similar normal business activities.
The Company may be affected by year 2000 issues related to non-
compliant information technology ("IT") systems or non-IT systems
operated or sold by the Company or by third parties. The Company has
substantially completed assessment of its internal IT systems and non-
IT systems. The Company has tested all products internally and has
adopted a Year 2000 Qualification Test Procedure to ensure that all
products operate properly through the year 2000 and beyond. In
addition to internal testing the Company has received compliance
certificates from the FAA and BAA confirming that the Company's
existing products are year 2000 compliant. The Company has also
submitted a survey to all vendors subject to year 2000 compliance. In
addition to the survey, the Company has internally tested components
supplied by outside vendors. The Company has also performed an
internal review of in-house computers, network, operating system and
financial reporting package confirming year 2000 compliance. At this
point in its assessment, the Company is not currently aware of any
year 2000 problems relating to systems operated or sold by the Company
that would have a material adverse effect on the Company's business,
results of operations or financial condition.
Although the Company believes that its systems are year 2000
compliant, the Company utilizes third-party equipment and software
that may not be year 2000 compliant. In addition, the Company's
products and software are often sold to be integrated into or
interface with third party equipment or software. Failure of third-
party equipment or software to operate properly with regard to the
year 2000 and thereafter could require the Company to incur
unanticipated expenses to remedy any problems, which could have a
material adverse effect on the Company business, results of operations
and financial condition. The Company may also be vulnerable to any
failures by its major suppliers, service providers and customers to
remedy their own internal IT and non-IT system year 2000 issues which
could, among other things, have a material and adverse affect on the
Company's supplies and orders. The Company is unable to estimate the
nature or extent of any potential adverse impact resulting from the
failure of third parties, such as its suppliers, service providers and
customers, to achieve year 2000 compliance. Moreover, such third
parties, even if year 2000 compliant, could experience difficulties
resulting from year 2000 issues that may affect their suppliers,
service providers and customers. As a result, although the Company
does not currently anticipate that it will experience any material
shipment delays from their major product suppliers or any material
sales delays from its major customers due to year 2000 issues, these
third parties may experience year 2000 problems. Any such problems
could have a material adverse effect on the Company's business,
results of operations and financial condition.
Other than its activities described above, the Company does not
have and does not plan to develop a contingency plan to address year
2000 issues. Should any unanticipated significant year 2000 issues
arise, the Company's failure to implement such a contingency plan
could have a material adverse affect on its business, financial
condition and results of operations.
To the extent that the Company does not identify any material non-
compliant IT systems or non-IT systems operated by the Company or by
third parties, such as the Company's suppliers, service providers and
customers, the most reasonably likely worst case year 2000 scenario is
a systemic failure beyond the control of the Company, such as a
prolonged telecommunications or electrical failure, or a general
disruption in United States or global business activities that could
result in a significant economic downturn. The Company believes that
the primary business risks, in the event of such failure or other
disruption, would include but not be limited to, loss of customers or
orders, increased operating costs, inability to obtain inventory on a
timely basis, disruptions in product shipments, or other business
interruptions of a material nature, as well as claims of
mismanagement, misrepresentation, or breach of contract, any of which
could have a material adverse effect on the Company's business,
results of operations and financial condition.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Foreign Exchange Hedging. The accounts of the foreign
subsidiary, Vivid Technologies UK Ltd., are translated in accordance
with SFAS No. 52, Foreign Currency Translation. In translating the
accounts of the foreign subsidiary into U.S. dollars, assets and
liabilities are translated at the rate of exchange in effect at
quarter-end, while stockholders' equity is translated at historical
rates. Revenue and expense accounts are translated using the weighted
average exchange rate in effect during the year. Foreign currency
transaction gains or losses for Vivid Technologies UK Ltd. are
included in the accompanying consolidated statements of operations
since the functional currency for this subsidiary is the U.S. dollar.
During the first half of fiscal 1999, no sales were denominated
in foreign currencies. As of March 31, 1999, the Company had
approximately $331,000 in accounts receivable denominated in foreign
currencies which had been marked to market. The net gain (loss) was
not material.
Investment Portfolio. The Company does not use derivative
financial instruments that meet high credit quality standards, as
specified in the Company's investment policy guidelines; the policy
also limits the amount of credit exposure to any one issue, issuer,
and type of instrument.
PART II - OTHER INFORMATION
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
Item 1. Legal Proceedings.
No material developments.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security-Holders.
The Company held its Annual Meeting of Stockholders on February
24, 1999. At the February 24th meeting, a total of 8,796,478 shares
or 89% of the Common Stock issued and outstanding as of the record
date, were represented at the meeting in person or by proxy. Set
forth below is a brief description of each matter voted upon at the
meeting and the voting results with respect to each matter.
1. A proposal to elect the following two persons to serve as
members of the Company's Board of Directors until the 2002 Annual
Meeting of Stockholders and until their respective successors are duly
elected and qualified:
Name For Withheld Abstain
L. Paul Bremer 8,750,835 45,643 0
Gerald Segel 8,713,835 82,643 0
2. A proposal to approve the Company's 1999 Equity Incentive
Plan.
For - 5,040,466 Against - 1,141,727 Abstain - 23,272
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits furnished:
(10) 1999 Equity Incentive Plan
(27) Financial Data Schedule.
(b) Reports on Form 8-K.
None.
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Vivid Technologies, Inc.
(Registrant)
May 14, 1999 /s/ S. David Ellenbogen
Date S. David Ellenbogen
Chief Executive Officer
May 14, 1999 /s/ William J. Frain
Date William J. Frain
Chief Financial Officer and Treasurer
(Principal Financial and Chief Accounting
Officer)
EXHIBIT 10
VIVID TECHNOLOGIES, INC.
1999 EQUITY INCENTIVE PLAN
Section 1. Purpose
The purpose of theVivid Technologies, Inc. 1999 Equity Incentive
Plan (the "Plan") is to attract and retain employees, directors,
advisors and consultants, to provide an incentive for them to assist
Vivid Technologies, Inc. (the "Corporation") to achieve long-range
performance goals, and to enable them to participate in the long-term
growth of the Corporation.
Section 2. Definitions
(a) "Affiliate" means any business entity in which the Corporation
owns directly or indirectly 50% or more of the total combined voting
power or has a significant financial interest as determined by the
Committee.
(b) "Annual Meeting" means the annual meeting of shareholders or
special meeting in lieu of annual meeting of shareholders at which one
or more directors are elected.
(c) "Award" means any Option, Stock Appreciation Right, Performance
Share, Restricted Stock, or Stock Award awarded under the Plan.
(d) "Award Share" means a share of Common Stock awarded to an
employee, director, advisor or consultant without payment therefor.
(e) "Board" means the Board of Directors of the Corporation.
(f) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(g) "Committee" means the Compensation Committee of the Board, or
such other committee of not less than two members of the Board
appointed by the Board to administer the Plan, provided that the
members of such Committee must be Non-Employee Directors as defined in
Rule 16b-3(b) promulgated under the Securities Exchange Act of 1934,
as amended.
(h) "Common Stock" or "Stock" means the Common Stock, par value $.01
per share, of the Corporation.
(i) "Corporation" means Vivid Technologies, Inc.
(j) "Designated Beneficiary" means the beneficiary designated by a
Participant, in a manner determined by the Board, to receive amounts
due or exercise rights of the Participant in the event of the
Participant's death. In the absence of an effective designation by a
Participant, Designated Beneficiary shall mean the Participant's
estate.
(k) "Eligible Director" means each director of the Corporation who is
not then an employee of the Corporation or affiliated with any holder
of more than 5% of the outstanding voting stock of the Corporation.
(l) "Fair Market Value" means, with respect to Common Stock, the last
sale price of the Common Stock as reported on the National Association
of Securities Dealers Automated Quotation System ("NASDAQ") or on a
national securities exchange on which the Common Stock may be traded
on the date of the granting of the Award, or if such date is not a
business day, the first business day preceding such grant. If the
Common Stock is not publicly traded, the fair market value shall mean
the fair market value of the Common Stock as determined by the Board
of Directors.
(m) "Incentive Stock Option" means an option to purchase shares of
Common Stock, awarded to a Participant under Section 6, which is
intended to meet the requirements of Section 422 of the Code or any
successor provision.
(n) "Nonqualified Stock Option" means an option to purchase shares of
Common Stock, awarded to a Participant under Section 6, which is not
intended to be an Incentive Stock Option.
(o) "Option" means an Incentive Stock Option or a Nonqualified Stock
Option.
(p) "Participant" means a person selected by the Board to receive an
Award under the Plan.
(q) "Performance Cycle" or "Cycle" means the period of time selected
by the Board during which performance is measured for the purpose of
determining the extent to which an award of Performance Shares has
been earned.
(r) "Performance Shares" mean shares of Common Stock which may be
earned by the achievement of performance goals, awarded to a
Participant under Section 8.
(s) "Restricted Period" means the period of time selected by the
Board during which an award of Restricted Stock may be forfeited to
the Corporation.
(t) "Restricted Stock" means shares of Common Stock subject to
forfeiture, awarded to a Participant under Section 9.
(u) "Stock Appreciation Right" or "SAR" means a right to receive any
excess in value of shares of Common Stock over the reference price,
awarded to a Participant under Section 7.
(v) "Stock Award" means an award of Common Stock, including an Award
Share, or an award of Common Stock and other rights granted as units
that are valued in whole or in part by reference to, or otherwise
based on, the value of Common Stock, awarded to a Participant under
Section 10.
Section 3. Administration
The Plan shall be administered by the Board, or if the Board so
determines, by the Committee. The Committee shall serve at the
pleasure of the Board, which may from time to time, and in its sole
discretion, discharge any member, appoint additional new members in
substitution for those previously appointed and/or fill vacancies
however caused. A majority of the Committee shall constitute a quorum
and the acts of a majority of the members present at any meeting at
which a quorum is present shall be deemed the action of the Committee.
The Board, including the Committee, shall have authority to adopt,
alter and repeal such administrative rules, guidelines and practices
governing the operation of the Plan as it shall from time to time
consider advisable, and to interpret the provisions of the Plan. The
Board's decisions shall be final and binding. To the extent permitted
by applicable law, the Board may delegate to the Committee the power
to make Awards to Participants and all determinations under the Plan
with respect thereto.
Section 4. Eligibility
All employees and, in the case of Awards other than Incentive
Stock Options, directors, advisors and consultants of the Corporation
or any Affiliate capable of contributing significantly to the
successful performance of the Corporation, other than a person who has
irrevocably elected not to be eligible, are eligible to be
Participants in the Plan.
Section 5. Stock Available for Awards
(a) Subject to adjustment under subsection (b), the maximum aggregate
number of shares of Common Stock available for issuance under the Plan
is 300,000 shares. If any Award in respect of shares of Common Stock
expires or is terminated unexercised or is forfeited for any reason or
settled in a manner that results in fewer shares outstanding than were
initially awarded, including without limitation the surrender of
shares in payment for the Award or any tax obligation thereon, the
shares subject to such Award or so surrendered, as the case may be, to
the extent of such expiration, termination, forfeiture or decrease,
shall again be available for award under the Plan, subject, however,
in the case of Incentive Stock Options, to any limitation required
under the Code. Common Stock issued through the assumption or
substitution of outstanding grants from an acquired corporation shall
not reduce the shares available for Awards under the Plan. Shares
issued under the Plan may consist in whole or in part of authorized
but unissued shares or treasury shares.
(b) In the event that the Board determines that any stock dividend,
extraordinary cash dividend, creation of a class of equity securities,
recapitalization, reorganization, merger, consolidation, split-up,
spin-off, combination, exchange of shares, warrants or rights offering
to purchase Common Stock at a price substantially below fair market
value, or other similar transaction affects the Common Stock such that
an adjustment is required in order to preserve the benefits or
potential benefits intended to be made available under the Plan, then
the Board, subject, in the case of Incentive Stock Options, to any
limitation required under the Code, shall equitably adjust any or all
of (i) the number and kind of shares in respect of which Awards may be
made under the Plan, (ii) the number and kind of shares subject to
outstanding Awards, and (iii) the award, exercise or conversion price
with respect to any of the foregoing, and if considered appropriate,
the Board may make provision for a cash payment with respect to an
outstanding Award, provided that the number of shares subject to any
Award shall always be a whole number.
Section 6. Stock Options
(a) Subject to the provisions of the Plan, the Board may award
Incentive Stock Options and Nonqualified Stock Options and determine
the number of shares to be covered by each Option, the option price
therefor and the conditions and limitations applicable to the exercise
of the Option. The terms and conditions of Incentive Stock Options
shall be subject to and comply with Section 422 of the Code, or any
successor provision, and any regulations thereunder.
(b) The Board shall establish the option price at the time each
Option is awarded.
(c) Each Option shall be exercisable at such times and subject to
such terms and conditions as the Board may specify in the applicable
Award or thereafter. The Board may impose such conditions with
respect to the exercise of Options, including conditions relating to
applicable federal or state securities laws, as it considers necessary
or advisable.
(d) No shares shall be delivered pursuant to any exercise of an
Option until payment in full of the option price therefor is received
by the Corporation. Such payment may be made in whole or in part in
cash or, to the extent permitted by the Board at or after the award of
the Option, by delivery of a note or shares of Common Stock owned by
the optionholder, including Restricted Stock, valued at their Fair
Market Value on the date of delivery, by the reduction of the shares
of Common Stock that the optionholder would be entitled to receive
upon exercise of the Option, such shares to be valued at their Fair
Market Value on the date of exercise, less their option price (a so-
called "cashless exercise"), or such other lawful consideration as the
Board may determine. In addition, to the extent permitted by the
Board, an optionholder may engage in a successive exchange (or series
of exchanges) in which the shares of Common Stock that such
optionholder is entitled to receive upon the exercise of an Option may
be simultaneously utilized as payment for the exercise of an
additional Option or Options.
(e) The Board may provide for the automatic award of an Option upon
the delivery of shares to the Corporation in payment of an Option for
up to the number of shares so delivered.
(f) In the case of Incentive Stock Options the following additional
conditions shall apply to the extent required under Section 422 of the
Code for the options to qualify as Incentive Stock Options:
(i) Such options shall be granted only to employees of the
Corporation, and shall not be granted to any person who owns stock
that possesses more than ten percent of the total combined voting
power of all classes of stock of the Corporation or of its parent or
subsidiary corporation (as those terms are defined in Section 422(b)
of the Internal Revenue Code of 1986, as amended, and the regulations
promulgated thereunder), unless, at the time of such grant, the
exercise price of such option is at least 110% of the fair market
value of the stock that is subject to such option and the option shall
not be exercisable more than five years after the date of grant;
(ii) The option price with respect to Incentive Stock Options shall
not be less than 100% of the Fair Market Value of the Common Stock on
the date of award.
(iii) Such options shall, by their terms, be transferable by the
optionholder only by the laws of descent and distribution, and shall
be exercisable only by such optionholder during his lifetime.
(iv) Such options shall not be granted more than ten years from the
effective date of the Plan and shall not be exercisable more than ten
years from the date of grant.
(v) To the extent that the aggregate Fair Market Value of Common
Stock with respect to which Incentive Stock Options (determined
without regard to this section) are exercisable for the first time by
any employee Participant during any calendar year exceeds $100,000 (or
such other amount as may be proscribed by the Code), such Incentive
Stock Options shall be treated as options which are not Incentive
Stock Options.
Section 7. Stock Appreciation Rights
Subject to the provisions of the Plan, the Board may award SARs
in tandem with an Option (at or after the award of the Option), or
alone and unrelated to an Option. SARs in tandem with an Option shall
terminate to the extent that the related Option is exercised, and the
related Option shall terminate to the extent that the tandem SARs are
exercised.
Section 8. Performance Shares
(a) Subject to the provisions of the Plan, the Board may award
Performance Shares and determine the number of such shares for each
Performance Cycle and the duration of each Performance Cycle. There
may be more than one Performance Cycle in existence at any one time,
and the duration of Performance Cycles may differ from each other.
Unless otherwise determined by the Board, the payment value of
Performance Shares shall be equal to the Fair Market Value of the
Common Stock on the date the Performance Shares are earned or, in the
discretion of the Board, on the date the Board determines that the
Performance Shares have been earned.
(b) The Board shall establish performance goals for each Cycle, for
the purpose of determining the extent to which Performance Shares
awarded for such Cycle are earned, on the basis of such criteria and
to accomplish such objectives as the Board may from time to time
select. During any Cycle, the Board may adjust the performance goals
for such Cycle as it deems equitable in recognition of unusual or non-
recurring events affecting the Corporation, changes in applicable tax
laws or accounting principles, or such other factors as the Board may
determine.
(c) As soon as practicable after the end of a Performance Cycle, the
Board shall determine the number of Performance Shares which have been
earned on the basis of performance in relation to the established
performance goals. The payment values of earned Performance Shares
shall be distributed to the Participant or, if the Participant has
died, to the Participant's Designated Beneficiary, as soon as
practicable thereafter. The Board shall determine, at or after the
time of award, whether payment values will be settled in whole or in
part in cash or other property, including Common Stock or Awards.
Section 9. Restricted Stock
(a) Subject to the provisions of the Plan, the Board may award shares
of Restricted Stock and determine the duration of the Restricted
Period during which, and the conditions under which, the shares may be
forfeited to the Corporation and the other terms and conditions of
such Awards. Shares of Restricted Stock may be issued for no cash
consideration or such minimum consideration as may be required by
applicable law.
(b) Shares of Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered, except as permitted by
the Board, during the Restricted Period. Shares of Restricted Stock
shall be evidenced in such manner as the Board may determine. Any
certificates issued in respect of shares of Restricted Stock shall be
registered in the name of the Participant and unless otherwise
determined by the Board, deposited by the Participant, together with a
stock power endorsed in blank, with the Corporation. At the expiration
of the Restricted Period, if the Corporation holds such certificates,
the Corporation shall deliver such certificates to the Participant or
if the Participant has died, to the Participant's Designated
Beneficiary.
Section 10. Stock Awards
(a) Subject to the provisions of the Plan, the Board may award Stock
Awards subject to such terms, restrictions, conditions, performance
criteria, vesting requirements and payment rules, if any, as the Board
shall determine.
(b) Shares of Common Stock awarded in connection with a Stock Award
shall be issued for no cash consideration or such minimum
consideration as may be required by applicable law. Such shares of
Common Stock may be designated as Award Shares by the Board.
Section 11. Options Granted to Non-Employee Directors
(a) Unless otherwise determined by the Board, each Eligible Director
shall automatically be granted a Nonqualified Option to acquire 10,000
shares of Common Stock effective as of the date he or she is first
elected to the Board or, with respect to Eligible Directors serving on
the Board as of the Effective Date of the Plan, as of the date of the
1999 Annual Meeting of the Corporation, in each case, the option price
for which shall be the Fair Market Value of the Common Stock on such
date and the expiration of which shall be the tenth anniversary
thereof. Each Nonqualified Option issued pursuant to this Section
11(a) shall become exercisable in 20% installments beginning on
January 1 of the first year after the grant date, and on January 1 of
each year thereafter, until such option is fully exercisable on
January 1 of the fifth year following the grant date.
(b) Unless otherwise determined by the Board, each Eligible Director
who has served as a Director for six months shall automatically be
granted a Nonqualified Option to acquire 2,500 shares of Common Stock
as of January 1 of each year, beginning with a Nonqualified Option
granted as of the date of the 1999 Annual Meeting, the option price
for which shall be the Fair Market Value of the Common Stock on such
date and the expiration of which shall be the tenth anniversary
thereof. Each Nonqualified Option granted pursuant to this Section
11(b) may be exercised on and after the date that is six months after
the date of grant.
(c) In addition, the Board may provide for such other terms and
conditions of the Options granted pursuant to this Section 11 as it
may determine in its sole discretion and as shall be set forth in the
applicable Option agreements, including, without limitation,
acceleration of exercise upon a change of control, termination of the
Options, and the effect on such Options of the death, retirement or
other termination of service as a director of the option holder.
Notwithstanding the foregoing, nothing herein shall preclude the Board
from granting Awards to such non-employee directors in addition to, or
in substitution for, those provided for in this Section 11.
Section 12. General Provisions Applicable to Awards
(a) Documentation. Each Award under the Plan shall be evidenced by a
written document delivered to the Participant specifying the terms and
conditions thereof and containing such other terms and conditions not
inconsistent with the provisions of the Plan as the Board considers
necessary or advisable to achieve the purposes of the Plan or comply
with applicable tax and regulatory laws and accounting principles.
(b) Securities Laws. The Participant shall make such representations
and furnish such information as may, in the opinion of counsel for the
Corporation, be appropriate to permit the Corporation to issue or
transfer the Stock in compliance with the provisions of applicable
federal or state securities laws. The Corporation, in its discretion,
may postpone the issuance and delivery of any Stock until completion
of such registration or other qualification of such shares under any
federal or state laws, or stock exchange listing as the Corporation
may consider appropriate. The Corporation may require that prior to
the issuance or transfer of Stock, the Participant enter into a
written agreement to comply with any restrictions on subsequent
disposition that the Corporation deems necessary or advisable under
any applicable federal and state securities laws. Certificates of
Stock issued hereunder may be legended to reflect such restrictions.
(c) Board Discretion. Each type of Award may be made alone, in
addition to or in relation to any other type of Award. The terms of
each type of Award need not be identical, and the Board need not treat
Participants uniformly. Except as otherwise provided by the Plan or a
particular Award, any determination with respect to an Award may be
made by the Board at the time of award or at any time thereafter.
Without limiting the foregoing, an Award may be made by the Board, in
its discretion, to any 401(k), savings, pension, profit sharing or
other similar plan of the Corporation in lieu of or in addition to any
cash or other property contributed or to be contributed to such plan.
(d) Settlement. The Board shall determine whether Awards are settled
in whole or in part in cash, Common Stock, other securities of the
Corporation, Awards, other property or such other methods as the Board
may deem appropriate. The Board may permit a Participant to defer all
or any portion of a payment under the Plan, including the crediting of
interest on deferred amounts denominated in cash and dividend
equivalents on amounts denominated in Common Stock. If shares of
Common Stock are to be used in payment pursuant to an Award and such
shares were acquired upon the exercise of a stock option (whether or
not granted under this Plan), such shares must have been held by the
Participant for at least six months.
(e) Dividends and Cash Awards. In the discretion of the Board, any
Award under the Plan may provide the Participant with (i) dividends or
dividend equivalents payable currently or deferred with or without
interest, and (ii) cash payments in lieu of or in addition to an
Award.
(f) Termination of Employment. The Board shall determine the effect
on an Award of the disability, death, retirement or other termination
of employment of a Participant and the extent to which, and the period
during which, the Participant's legal representative, guardian or
Designated Beneficiary may receive payment of an Award or exercise
rights thereunder. The Board shall have complete discretion,
exercisable either at the time the Award is made or at any time while
the Award remains outstanding, to accelerate the vesting of any Award
or any part of any Award remaining unvested upon the termination of
employment of a Participant or to extend the period of time for which
an Option is to remain exercisable following the termination of
employment of a Participant, provided, however, that in no event shall
such Option be exercisable after the specified expiration date of such
Option.
(g) Change in Control. In order to preserve a Participant's rights
under an Award in the event of a Change in Control of the Corporation,
the Board in its discretion may, at the time an Award is made or at
any time thereafter, take one or more of the following actions: (i)
provide for the acceleration of any time period relating to the
exercise or realization of the Award, (ii) provide for the purchase of
the Award for an amount of cash or other property that could have been
received upon the exercise or realization of the Award had the Award
been currently exercisable or payable, (iii) adjust the terms of the
Award in a manner determined by the Board to reflect the Change in
Control, (iv) cause the Award to be assumed, or new rights substituted
therefor, by another entity, or (v) make such other provision as the
Board may consider equitable and in the best interests of the
Corporation, provided that, in the case of an action taken with
respect to an outstanding Award, the Participant's consent to such
action shall be required unless the Board determines that the action,
taking into account any related action, would not materially and
adversely affect the Participant. Unless otherwise provided in any
Award, for purposes hereof a "Change in Control" of the Corporation
shall mean: (i) the acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of the then outstanding shares of common
stock of the Corporation (the "Outstanding Corporation Common Stock");
provided, however, that any acquisition by the Corporation or its
subsidiaries, or any employee benefit plan (or related trust) of the
Corporation or its subsidiaries of 20% or more of Outstanding
Corporation Common Stock shall not constitute a Change in Control; and
provided, further, that any acquisition by a corporation with respect
to which, following such acquisition, more than 50% of the then
outstanding shares of common stock of such corporation, is then
beneficially owned, directly or indirectly, by all or substantially
all of the individuals and entities who were the beneficial owners of
the Outstanding Corporation Common Stock immediately prior to such
acquisition in substantially the same proportion as their ownership,
immediately prior to such acquisition, of the Outstanding Corporation
Common Stock, shall not constitute a Change in Control; or (ii) any
transaction which results in the Continuing Directors (as defined in
the Certificate of Incorporation of the Corporation) constituting less
than a majority of the Board; or (iii) consummation by the Corporation
of (i) a reorganization, merger or consolidation, in each case, with
respect to which all or substantially all of the individuals and
entities who were the beneficial owners of the Outstanding Corporation
Common Stock immediately prior to such reorganization, merger or
consolidation do not, following such reorganization, merger or
consolidation, beneficially own, directly or indirectly, more than 50%
of the then outstanding shares of common stock of the corporation
resulting from such a reorganization, merger or consolidation or (ii)
the sale or other disposition of all or substantially all of the
assets of the Corporation, excluding a sale or other disposition of
assets to a subsidiary of the Corporation.
(h) Withholding. The Corporation shall have the power and the right
to deduct or withhold, or require a Participant to remit to the
Corporation an amount sufficient to satisfy federal, state and local
taxes (including the Participant's FICA obligation) required to be
withheld with respect to an Award or any dividends or other
distributions payable with respect thereto. In the Board's discretion,
such tax obligations may be paid in whole or in part in shares of
Common Stock, including shares retained from the Award creating the
tax obligation, valued at their Fair Market Value on the date of
delivery. The Corporation and its Affiliates may, to the extent
permitted by law, deduct any such tax obligations from any payment of
any kind otherwise due to the Participant.
(i) Amendment of Award. The Board may amend, modify or terminate any
outstanding Award, including substituting therefor another Award of
the same or a different type, changing the date of exercise or
realization and converting an Incentive Stock Option to a Nonqualified
Stock Option, provided that the Participant's consent to such action
shall be required unless the Board determines that the action, taking
into account any related action, would not materially and adversely
affect the Participant.
(j) Awards Not Transferable. Except as otherwise provided by the
Board, Awards under the Plan are not transferable other than as
designated by the participant by will or by the laws of descent and
distribution.
Section 13. Miscellaneous
(a) No Right To Employment. No person shall have any claim or right
to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment.
The Corporation expressly reserves the right at any time to dismiss a
Participant free from any liability or claim under the Plan, except as
expressly provided in the applicable Award.
(b) No Rights As Shareholder. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have
any rights as a shareholder with respect to any shares of Common Stock
to be distributed under the Plan until he or she becomes the holder
thereof. A Participant to whom Common Stock is awarded shall be
considered the holder of the Stock at the time of the Award except as
otherwise provided in the applicable Award.
(c) Effective Date. Subject to the approval of the shareholders of
the Corporation, the Plan shall be effective on February 24, 1999 (the
"Effective Date"). Prior to such approval, Awards may be made under
the Plan expressly subject to such approval. Awards under the Plan may
be made for a period of ten years commencing on the Effective Date.
The period during which an Award may be exercise may extend beyond
that time as provided herein.
(d) Amendment of Plan. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time, provided that no amendment
shall be made without shareholder approval if such approval is
necessary to comply with any applicable requirement of the laws of the
jurisdiction of incorporation of the Corporation, any applicable tax
requirement, any applicable rules or regulation of the Securities and
Exchange Commission, including Rule 16(b)-3 (or any successor rule
thereunder), or the rules and regulations of The Nasdaq Stock Market
or any other exchange or stock market over which the Corporation's
securities are listed.
(e) Governing Law. The provisions of the Plan shall be governed by
and interpreted in accordance with the laws of the jurisdiction of
incorporation of the Corporation.
(f) Indemnity. Neither the Board nor the Committee, nor any members
of either, nor any employees of the Corporation or any parent,
subsidiary, or other affiliate, shall be liable for any act, omission,
interpretation, construction or determination made in good faith in
connection with their responsibilities with respect to this Plan, and
the Corporation hereby agrees to indemnify the members of the Board,
the members of the Committee, and the employees of the Corporation and
its parent or subsidiaries in respect of any claim, loss, damage, or
expense (including reasonable counsel fees) arising from any such act,
omission, interpretation, construction or determination to the full
extent permitted by law.
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