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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 2, 1999
REGISTRATION NUMBER 333-90269
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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TRUETIME, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 3663 94-3343279
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
TRUETIME, INC.
2835 DUKE COURT
SANTA ROSA, CA 95407
(707) 528-1230
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
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ELIZABETH A. WITHERS
TRUETIME, INC.
2835 DUKE COURT
SANTA ROSA, CA 95407
(707) 528-1230
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
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CHARLES H. STILL J. KENNETH MENGES, JR., P.C.
FULBRIGHT & JAWORSKI L.L.P. AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
1301 MCKINNEY, SUITE 5100 1700 PACIFIC AVENUE, SUITE 4100
HOUSTON, TEXAS 77010-3095 DALLAS, TEXAS 75201
(713) 651-5151 (214) 969-2800
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT RELATING TO
THESE SECURITIES FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE
ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE OR OTHER
JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED DECEMBER 2, 1999
PROSPECTUS
3,000,000 SHARES
[TRUETIME LOGO]
COMMON STOCK
---------------------
This is the initial public offering of TrueTime, Inc. We are offering 1,500,000
shares of our common stock and the selling stockholder is offering 1,500,000
shares of our common stock for resale. No public market currently exists for our
shares. We anticipate that the initial public offering price will be between
$5.00 and $7.00 per share.
We have applied to have the shares we are offering approved for quotation on the
Nasdaq National Market under the symbol "TRUE."
---------------------
THIS INVESTMENT INVOLVES SUBSTANTIAL RISK. SEE "RISK FACTORS" BEGINNING ON PAGE
5.
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<CAPTION>
PER SHARE TOTAL
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Public offering price....................................... $ $
Underwriting discounts...................................... $ $
Proceeds, before expenses, to TrueTime...................... $ $
Proceeds, before expenses, to selling stockholder........... $ $
</TABLE>
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TrueTime has granted the underwriters a 30-day option to purchase up to 450,000
additional shares to cover over-allotments.
TrueTime has, as additional underwriting compensation, agreed to issue to C.E.
Unterberg, Towbin warrants to purchase up to 200,000 shares of common stock at
an initial exercise price for each share equal to 110% of the offering price.
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares against payment in New York, New York
on , 1999.
---------------------
C.E. UNTERBERG, TOWBIN
CRUTTENDEN ROTH
INCORPORATED
PENNSYLVANIA MERCHANT GROUP
, 1999
<PAGE> 3
The TrueTime logo in block print, "TrueTime" and "Products" directly
underneath it. Five pictures of TrueTime's products.
The picture of each product also contains a description of what each
product is. The products and descriptions in order from top to bottom are "time
displays," "computer network time servers," "computer plug-in cards," "time code
products," and "precise time and frequency products."
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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Prospectus Summary................... 1
Risk Factors......................... 5
Special Note Regarding
Forward-Looking Statements......... 12
Use of Proceeds...................... 13
Dividend Policy...................... 13
Capitalization....................... 14
Dilution............................. 15
Selected Financial Data.............. 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 17
Business............................. 23
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PAGE
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Management........................... 33
Relationship with OYO Japan and
Related Transactions............... 40
Security Ownership of Management and
Principal and Selling
Stockholder........................ 42
Description of Capital Stock......... 44
Shares Eligible for Future Sale...... 49
Underwriting......................... 51
Legal Matters........................ 53
Experts.............................. 53
Where You Can Find Additional
Information........................ 53
Index to Financial Statements........ F-i
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<PAGE> 5
PROSPECTUS SUMMARY
In the following summary, we will try to provide clear and concise
information which will help you decide whether you wish to buy our common stock.
However, the summary may not contain all the information that is important to
you and we therefore encourage you to read the entire prospectus and our
consolidated financial statements and the notes to those statements before
making your decision.
TRUETIME, INC.
OUR BUSINESS
TrueTime designs, develops, manufactures and markets precision time and
frequency products that are essential components used in many technology-based
markets. Our products use a variety of external timing references, including
most importantly the Global Positioning System, or GPS, together with advanced
timing devices to provide high quality signals (frequencies) and precise time.
We offer a wide variety of products, which can be divided into the following
broad categories:
- precise time and frequency products
- computer plug-in cards with precise timing capabilities
- computer network time servers
- time code products
- time displays
Our customers are businesses and government agencies that have
sophisticated and demanding needs for timing with greater accuracy and
resolution than available from conventional time measuring devices. A
substantial portion of our sales is made to numerous, and usually repeat,
customers who purchase small quantities of multiple types of products and who
often have custom or semi-custom specifications. Representative of typical
customers are some of the best-known enterprises engaged in
- telecommunications
- computer networking
- e-commerce
- power utilities
- aerospace
- national defense
- television broadcasting
In fiscal year 1999, we sold our products to more than 1,000 customers. We
believe that the size and diversity of our customer base reduces the business
risk inherent in dependence on a small number of large-volume customers.
In the fiscal year ended September 30, 1999, we achieved sales of $20.6
million, an increase of 26.7% over the prior fiscal year, resulting in net
income of $2.3 million, an increase of 40.0% over the same period.
OUR INDUSTRY AND MARKET
Our time and frequency products are integral to the expanding
communications infrastructure composed of wireline, wireless (including
satellite) and computer network technologies. We believe that the convergence of
wireline, wireless and computer network systems and the pervasive growth of the
Internet and e-commerce will lead to increased demand for precision time and
frequency devices.
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Our products use the highly accurate external time reference available from
GPS operated by the U.S. Department of Defense to maintain required accuracy. At
least two marketing research firms that follow the industry provide forecasts
for industry growth by segments, including timing products using GPS as a timing
reference. According to forecast data from their reports,
- the aggregate North American market for GPS related timing products is
projected to grow from $209 million to $368 million during the five-year
period from 2000 through 2004, reflecting a compound annual growth rate
of approximately 15% during such period (Source: Frost & Sullivan) and
- for the same five-year period, the aggregate U.S. market for GPS related
timing products is projected to grow from $238 million to $383 million,
reflecting a compound annual growth rate of approximately 13% during such
period (Source: Allied Business Intelligence).
OUR STRATEGY
We have already established name-recognition in the time and frequency
industry. Our investments in new technology have given us the capability to
enter new segments of the timing market and allow us to reduce the time needed
to market new products. Now, our goals are to
- introduce new products
- form strategic relationships with other enterprises in related
industries
- continue to gain market share in our existing markets.
CORPORATE INFORMATION
In 1991, OYO Corporation U.S.A., a Texas corporation and wholly-owned
subsidiary of OYO Corporation, a Japanese corporation, acquired our business as
part of its acquisition of Kinemetrics, Inc., which manufactures and sells
earthquake monitoring instrumentation. Shortly after acquiring Kinemetrics, OYO
established a new California corporation named TrueTime, Inc., and transferred
the ownership of the Kinemetrics/TrueTime business to the newly established
corporation. In November 1999, we were reincorporated in Delaware. We are
located at 2835 Duke Court, Santa Rosa, California 95407. Our telephone number
is (707) 528-1230.
In this prospectus, "OYO Japan" refers to OYO Corporation and "OYO U.S.A."
refers to OYO Corporation U.S.A. "OYO" refers to OYO Japan and its consolidated
subsidiaries, including OYO U.S.A., unless the context indicates otherwise.
2
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THE OFFERING
Common stock offered by TrueTime........ 1,500,000 shares
Common stock offered by the selling
stockholder............................. 1,500,000 shares
Common stock to be outstanding after
this offering........................... 5,500,000 shares(1)(2)
Use of proceeds......................... We plan to use the proceeds from
this offering for general corporate
purposes, including working
capital, expansion into new
technologies and markets, increased
marketing, sales and operations
capabilities and possible
acquisitions of complementary
businesses or technologies. We will
not receive any proceeds from the
sale of the shares of common stock
offered by the selling stockholder.
See "Use of Proceeds."
Proposed Nasdaq National Market
symbol.................................. TRUE
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(1) Assumes no exercise of the underwriters' over-allotment option. Unless we
specifically state otherwise, the information in this prospectus does not
take into account the issuance of up to 450,000 shares of common stock that
the underwriters have the option to purchase solely to cover
over-allotments. If the underwriters exercise their over-allotment option in
full, 5,950,000 shares of our common stock will be outstanding after this
offering.
(2) Excludes 1,650,000 shares of common stock reserved for issuance under our
stock option plans, of which up to 810,000 shares of common stock will be
issuable upon exercise of options that the board of directors intends to
grant to the directors, advisors, officers and certain key employees on or
about the date of this offering. These options will be exercisable at the
offering price. Also, excludes 200,000 shares issuable upon exercise of
warrants to be issued to the underwriters in connection with this offering.
For information on these warrants, see "Underwriting."
All information in this prospectus relating to the number of shares of our
common stock and options and warrants to purchase our common stock has been
adjusted to reflect the initial issuance of our common stock to our sole
stockholder on November 1, 1999, in connection with the reincorporation of our
predecessor, a California corporation of the same name, in Delaware.
3
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SUMMARY FINANCIAL DATA
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YEAR ENDED SEPTEMBER 30,
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1997 1998 1999
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(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Sales..................................................... $13,894 $16,297 $20,645
Cost of sales............................................. 5,783 7,537 9,076
------- ------- -------
Gross profit.............................................. 8,111 8,760 11,569
Operating expenses:
Selling, general and administrative..................... 3,906 4,395 5,905
Research and development................................ 1,855 1,873 2,155
------- ------- -------
Total operating expenses........................ 5,761 6,268 8,060
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Income from operations.................................... 2,350 2,492 3,509
Interest and other income (expense), net.................. 10 249 305
------- ------- -------
Income before income taxes................................ 2,360 2,741 3,814
Provision for income taxes................................ 964 1,122 1,547
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Net income................................................ $ 1,396 $ 1,619 $ 2,267
======= ======= =======
Earnings per share -- basic and diluted................... $ 0.35 $ 0.40 $ 0.57
Weighted average shares outstanding as adjusted for
reincorporation -- basic and diluted.................... 4,000 4,000 4,000
</TABLE>
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<CAPTION>
AS OF SEPTEMBER 30, 1999
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AS
HISTORICAL ADJUSTED(1)
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(IN THOUSANDS)
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BALANCE SHEET DATA
Cash and cash equivalents(2)................................ $ 3,539 $11,409
Working capital............................................. 10,808 18,678
Total assets................................................ 15,491 23,361
Stockholders' equity........................................ 12,753 20,623
</TABLE>
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(1) As adjusted to reflect this offering and the application of the net proceeds
therefrom.
(2) Includes $3,500,000 which was transferred in October 1999 to OYO U.S.A.
pursuant to a trust arrangement under which TrueTime was the sole beneficial
owner of the trust assets. The trust was established to maximize the return
on our assets available for investment until such time that we have
established our own short-term investment program. On December 1, 1999, the
trust agreement was terminated and the cash and cash equivalents held in
trust were distributed to TrueTime.
4
<PAGE> 9
RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should consider carefully the following information about these risks, together
with the financial and other information contained in this prospectus, before
you decide whether to buy our common stock.
RISKS RELATED TO OUR BUSINESS
OUR BUSINESS WILL SUFFER IF WE ARE UNABLE TO KEEP UP WITH RAPID TECHNOLOGICAL
CHANGE AND PRODUCT OBSOLESCENCE.
If we fail to maintain our technological leadership and good reputation
with our customers in the areas of GPS, real-time operating systems and network
technologies, the value of your investment will decrease. The markets for timing
and frequency products are characterized by continual and rapid technological
developments that have resulted in, and will likely continue to result in,
substantial improvements in product function and performance. Our success will
depend on our ability to anticipate changes in technology and industry
requirements and to respond to technological developments on a timely basis,
either internally or through strategic alliances.
We will likely be constantly threatened by current competitors or new
market entrants who may develop new technologies or products or establish new
standards that could render our products obsolete and unmarketable. Thus, we can
offer no assurances that we will be successful in developing and marketing, on a
timely and cost effective basis, product enhancements or new products that
respond to technological developments, that are accepted in the marketplace or
that comply with industry standards.
WE RELY ON A LIMITED NUMBER OF SUPPLIERS FOR CERTAIN CRITICAL COMPONENTS, AND WE
USE A SINGLE SUPPLIER FOR VIRTUALLY ALL OF ONE OF OUR GPS-BASED COMPONENTS,
MAKING US SUBJECT TO SUPPLY AND QUALITY CONTROL PROBLEMS.
Most of our products incorporate certain components or technology supplied
in part by third parties. From time to time, we experience delays and
disruptions in our supply chain, including some such disruptions in recent
periods. To date, these delays and disruptions have not materially adversely
affected our business. Wherever possible, we try to develop multiple sources of
supply, but we do not always succeed. To the extent that we experience
significant supply or quality control problems with our vendors, these problems
can cause us to have difficulty in controlling our quality and can have a
significant adverse effect on our ability to meet future production and delivery
commitments to our customers.
Currently, Trimble Navigation Limited provides virtually all of a key
component for our GPS-based products. In addition, we believe that Trimble has
begun competing in markets similar to our own. While we have attempted to
address this single-supplier risk by entering into purchase agreements with
Trimble that will secure our supply of the components for the next year or so,
by attempting to establish alternative supply arrangements and by taking steps
to develop our own proprietary products in this area, there can be no assurances
that we will be able to obtain adequate supplies of this component in the
future. If we are unable to obtain adequate supplies of this component for any
reason, we will likely experience delays or reductions in production and
increased expenses while we redesign our GPS-based products or accelerate the
introduction of new GPS-based products that do not use this component. Our
operations will be negatively affected if we experience inadequate supplies of
any key components.
OUR TRADE SECRETS, TRADEMARKS AND PATENTS MAY NOT BE ADEQUATE OR ENFORCEABLE AND
OTHERS MAY USE OUR PROPRIETARY TECHNOLOGY.
Historically, we have not filed patents to protect our intellectual
property. While we hope our intellectual property is adequately protected by our
confidential trade-secret protection plans and programs, we cannot be sure that
our competitors will be prevented from gaining access to our proprietary and
confidential technologies. Furthermore, although we have applied for a patent
related to a computer network timing product, we can offer no assurances that a
patent will be issued for this patent application
5
<PAGE> 10
or other future applications and, if issued, that any patents will be
enforceable. If the protection of our intellectual property proves to be
inadequate or unenforceable, others may use our proprietary developments without
compensation to us and in competition against us, giving cost advantages to our
competitors.
WE FACE THE RISK OF LITIGATION ALLEGING OUR INFRINGEMENT OF OTHER PEOPLE'S
INTELLECTUAL PROPERTY RIGHTS.
We do not know of any instances where our products violate the intellectual
property rights of others or inappropriately use their technology. However,
technology-based companies are often very litigious. Therefore, we face the risk
of adverse claims and litigation alleging infringement of other people's
intellectual property rights. These claims could result in costly litigation and
divert management's attention from other matters. Alternatively, these claims
could practically require us to obtain licenses in order to use, manufacture and
sell certain of our products, regardless of the merits of the infringement
claims, in order to maintain business levels or we could otherwise be excluded
from participation in certain markets. We cannot be certain that any necessary
licenses will be available or that, if available, they can be obtained on
reasonable terms acceptable to us.
OUR PRODUCTS AND SOFTWARE MAY NOT BE Y2K COMPLIANT AND CUSTOMERS MAY MAKE CLAIMS
AGAINST US.
We sell products and software that could fail at the transition between
December 31, 1999 and January 1, 2000, leading to claims against us by our
customers. At the Y2K transition date, certain computers and information
technology equipment may not continue to work properly. Although the latest
versions of our software are designed to be Y2K compliant, it is not possible to
determine with complete accuracy that all Y2K problems affecting our products
have been identified or corrected due to their complexity and the fact that
these products interact with other third party vendor products and operate on or
with computer systems that are not under our control.
A small number of customers who had older TrueTime products and had not
checked their equipment for Y2K compliance reported product failure following
August 21, 1999, the date when the GPS counter rolled over from 1024 to 0000, as
it was designed to do. While these customers had not had their products updated
and the costs of servicing the customers were not material, this could be
indicative of claims by customers having older TrueTime products on January 1,
2000. A significant number of operational inconveniences and inefficiencies may
result from the Y2K event and divert our time and attention and financial and
human resources from our ordinary activities. While we do not believe it likely,
serious system failures and customer claims may result from the Y2K issue.
Y2K ISSUES MAY ADVERSELY IMPACT OUR NEAR-TERM SALES.
While we have not to date experienced any declines in orders nor have our
customers advised us of any intentions in that regard, other companies in
technology-related industries have recently reported some decreases in sales and
orders and have attributed those decreases to the postponement of purchases
until after the Y2K event. There can, however, be no assurances that we will not
be adversely affected by any such decisions by our customers.
OUR COMPETITORS MAY USE THEIR GREATER RESOURCES AND BROADER PRODUCT OFFERINGS TO
INCREASE COMPETITION AND REDUCE OUR SALES AND PROFITABILITY.
Many of our existing and potential competitors have substantially greater
marketing, financial and technical resources than we have. In addition, some of
our competitors have broader product offerings and manufacture internally
certain critical components of time and frequency products. Currently, we do not
have a complete offering of precision time and frequency products nor do we
manufacture internally certain critical components, placing us at a disadvantage
to some of our competitors. In addition, we believe that some of our competitors
have obtained and maintained business that loses money -- "loss leading" -- in
order to maintain a competitive advantage with regard to specific customers or
products. If
6
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our competitors were to use such tactics in the future, we would be unable to
maintain our market position without incurring a negative impact on our
profitability.
The race for a leading position in new technological advances is always
very competitive. Advances in technology may reduce the cost for potential
competitors to gain market entry, particularly for less expensive time and
frequency products. We cannot assure you that sales of our products will
continue at current volumes or prices in any event but especially if our current
competitors or new market entrants introduce new products with better features,
better performance or lower prices or having other characteristics that are more
attractive than our own. Competitive pressures or other factors also may result
in significant price competition that could have a material adverse effect on
our results of operations.
OUR INDUSTRY MAY NOT GROW AS FORECASTED AND OUR REVENUES AND OPERATING RESULTS
MAY BE DIMINISHED.
Our future successful performance is inextricably tied to the growth of our
industry. While we do not disagree with the overall market growth forecasts
cited in this prospectus from Frost & Sullivan and Allied Business Intelligence
reports, we did not participate in making such forecasts or in developing the
assumptions upon which they are based or the methodology used in developing
necessary data. Accordingly, we cannot assure you that such forecasted growth
can be achieved or that assumptions upon which such forecasts are based will
prove to be accurate. As is the case with all forward-looking information
contained in this prospectus, actual events or results may differ materially
from forecasted data. Moreover, even if our industry grows as forecast, there
can be no assurance that we will be able to grow consistently with our industry.
OUR RELATIONSHIPS WITH OUR SALES REPRESENTATIVES COULD BE IMPAIRED AND CAUSE US
TO LOSE ORDERS.
More than 80% of our orders come through our 26 domestic and worldwide
sales representative organizations. Many of these representatives act as
relationship brokers and the loss of any key representatives could have a
negative effect on our sales.
WE MAY BE UNABLE TO ATTRACT AND RETAIN KEY EMPLOYEES, DELAYING PRODUCT
DEVELOPMENT AND MANUFACTURING.
Our success depends upon attracting and retaining highly skilled
professionals. A number of our employees are highly skilled engineers and other
technical professionals, and our failure to continue to attract and retain such
individuals could adversely affect our ability to compete in the industry. In
addition, our success will depend to a significant extent upon the abilities and
efforts of several members of our senior management.
BECAUSE MANY OF OUR KEY CUSTOMERS ARE UNITS OF THE U.S. GOVERNMENT AND ENTITIES
THAT ARE DEPENDENT UPON U.S. GOVERNMENT FUNDING FOR PURCHASES, DECREASED
GOVERNMENT SPENDING COULD ADVERSELY AFFECT OUR BUSINESS.
Our defense, military and aerospace based business depends largely on U.S.
government expenditures, whether directly with us or indirectly with our
customers who contract with the U.S. government. In recent years, units of the
U.S. government have collectively accounted for approximately 21% to 28% of our
annual revenues. There can be no assurances as to whether future governmental
spending will adequately support our business in those areas, and substantial
decreases in government spending or loss of U.S. governmental customers could
materially and adversely affect our operations.
OUR MARKET IS SEGMENTED INTO A LIMITED NUMBER OF CUSTOMER GROUPS, THE LOSS OR
CHANGE OF WHICH COULD SIGNIFICANTLY DECREASE OUR SALES.
While we sell our products to a large number of individual customers, the
number of customer groups is limited. These groups include telecommunications,
computer networking, aerospace, military, satellite, U.S. government and power
utility customers. The loss, or changes in the purchasing behavior, of one or
more of these groups of customers could cause a material decrease in the sale of
our products.
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THE FAILURE OF GPS AND OTHER TIME AND FREQUENCY REFERENCES WOULD CAUSE OUR
PRODUCTS TO FAIL TO PERFORM TO SPECIFICATION.
The time and frequency products that we manufacture rely upon the
availability of highly accurate timing references, primarily GPS operated by the
U.S. Department of Defense, and to a lesser degree, other timing references
operated by the U.S. National Institute of Science and Technology and other
outside signal sources. The failure of these timing references, particularly
GPS, would create many problems for our products and our customers and seriously
disrupt the sale of our products.
OUR PRODUCTS COULD FAIL TO PERFORM ACCORDING TO SPECIFICATION OR PROVE TO BE
UNRELIABLE, CAUSING DAMAGE TO OUR CUSTOMER RELATIONSHIPS AND INDUSTRY REPUTATION
AND RESULTING IN LOSS OF SALES.
Our customers require demanding specifications for product performance and
reliability. Because our precision time and frequency products are complex and
often use state-of-the-art components, processes and techniques, undetected
errors and design flaws may occur. Product defects result in higher product
service and warranty and replacement costs and may cause serious damage to our
customer relationships and industry reputation, all of which will negatively
impact our sales and business.
IF WE ARE UNABLE TO EXPAND OUR PRODUCTION CAPACITY TO MAINTAIN COMPETITIVE
DELIVERY TIMES, WE WILL LIKELY LOSE CUSTOMERS.
Our production capacity and ability to fill orders for our customers on a
timely basis is limited by our equipment, the size of our production facilities,
the ability of our suppliers to meet our needs and our human resources. These
resources in turn are limited by the availability of capital and the time
required to increase capacity, particularly to construct additional facilities
and to hire and train employees. We cannot assure you that we will have
sufficient capital and resources to expand our production capacity and to
maintain delivery times which our customers consider appropriate. Further, an
increase in our delivery times may result in loss of customers.
OUR RESULTS OF OPERATIONS WILL BE ADVERSELY AFFECTED IF WE DO NOT HAVE ENOUGH
DEMAND FOR OUR PRODUCTS TO JUSTIFY OUR INCREASED CAPACITY.
To meet our goals for future growth, we plan to move into new, larger
manufacturing and office facilities in the first half of 2000, using a portion
of our working capital to build out and equip the new facilities. The additional
manufacturing capacity provided by the new facilities and equipment will allow
us to more than double our output given sufficient market demand. However, after
increasing our production capacity, we may find that demand for our products
does not remain sufficiently high for us to realize a satisfactory return on the
capital we have spent to increase capacity.
OYO WILL BE IN A POSITION TO CONTROL MATTERS REQUIRING A STOCKHOLDER VOTE, WHICH
MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK OR PREVENT OUR
STOCKHOLDERS FROM REALIZING A PREMIUM ON THEIR SHARES.
Upon completion of this offering, OYO will beneficially own 45.5% of our
outstanding common stock (42.0% if the underwriters exercise their
over-allotment option in full). As a practical matter, with this substantial
ownership, OYO will have sufficient voting power to control our management, as
well as the outcome of matters submitted to our stockholders for approval,
including the election of directors and any merger, consolidation or sale of
substantially all our assets. The concentration of ownership of our common stock
could delay or prevent proxy contests, mergers, tender offers, open-market
purchase programs or other purchases of our common stock that could give you the
opportunity to realize a premium over the then-prevailing market price for our
common stock.
Several members of our board of directors also serve as officers or
directors of the selling stockholder and its parent company. Satoru Ohya, who
will be appointed as a member of our board of directors immediately prior to the
closing of this offering, is the President of OYO Japan, as well as a director
of various of its affiliates. Katsuhiko Kobayashi, the chairman of our board of
directors, is a managing director of OYO Japan and a director and officer of OYO
U.S.A. and serves in various other director and
8
<PAGE> 13
officer positions with respect to other subsidiaries of OYO U.S.A. Charles H.
Still, who will be appointed as a member of our board of directors immediately
prior to the closing of this offering and currently serves as our corporate
secretary, is the corporate secretary of OYO U.S.A. and of various of its other
subsidiaries and, through his law firm, serves as regular legal counsel to OYO
Japan, OYO U.S.A. and various of their other affiliates. While no specific
conflicts of interest are known to exist at present, it is possible that
conflicts of interest may arise in the future with respect to the relationship
between OYO and us. Future conflicts could include differences in views as to
mergers and acquisitions, transactions involving a change in control of TrueTime
and other strategic matters.
FOLLOWING THIS OFFERING, WE WILL NOT BE ABLE TO OBTAIN FINANCIAL ASSISTANCE FROM
OYO.
Prior to this offering, we have operated as a wholly owned subsidiary of
OYO. We have been a participant in various financing, cash management and
service arrangements provided by OYO to us and to its other subsidiaries and
have relied on the financial strength of OYO to assist us if financing needs
arose. In the past, we have not needed to call upon OYO for direct financial
assistance. However, we cannot be sure that additional financing will not be
required in the future, and if required, we may find that financing is not
available on terms that we consider acceptable. As a result of this offering,
OYO's stockholdings in TrueTime will be reduced from 100% to 45.5% or less, and
we will no longer rely on OYO for financial support.
FLUCTUATIONS IN QUARTERLY PERFORMANCE CAN RESULT IN INCREASES IN OUR INVENTORY
AND RELATED CARRYING COSTS, CAN DIMINISH OUR OPERATING RESULTS AND CASH FLOW AND
CAN RESULT IN A LOWER TRUETIME STOCK PRICE.
Historically, the rate of incoming orders for our products has varied
substantially from quarter to quarter. In past fiscal years, our highest sales
quarter has been as much as 250% of our lowest sales quarter. This quarter to
quarter variation is not seasonal or predictable. We attempt to accurately
forecast orders for our products and commence purchasing and manufacturing prior
to the receipt of such orders. However, it is highly unlikely that we will
consistently accurately forecast the timing and rate of orders. This aspect of
our business makes our planning inexact and, in turn, affects our shipments,
costs, inventories, operating results and cash flow for any given quarter. In
addition, our quarterly operating results are affected by competitive pricing,
announcements regarding new product developments and cyclical conditions in the
industry. Accordingly, we may experience wide quarterly fluctuations in our
operating performance and profitability, which may adversely affect our stock
price even if our year to year performance is more stable, which it also may not
be. In addition, many of our products require significant manufacturing time,
making it difficult to increase production on short notice. If we are unable to
satisfy unexpected customer orders, our business and customer relationships
could suffer.
OUR CUSTOMERS MAY NOT TIMELY PAY FOR THE PRODUCTS THEY RECEIVE, CAUSING US
FINANCIAL LOSSES AND NEGATIVE CASH FLOW.
We sell our products to customers on open terms. While such terms typically
obligate the purchaser to pay within 30 days of invoice, certain customers pay
later and some never pay. On average, payments are received approximately 60
days after shipment. While our history in collecting accounts receivable has
been satisfactory and our bad debt write-offs have been immaterial, we cannot
assure you that our accounts receivable collection experience will not worsen
and lead to bad debt write-offs which would seriously affect our profitability
and financial condition.
9
<PAGE> 14
WE MAY FAIL TO EFFECTIVELY INTEGRATE FUTURE ACQUISITIONS, IF ANY, THEREBY
DISRUPTING OUR BUSINESS, DILUTING SHAREHOLDER VALUE AND CAUSING FINANCIAL
LOSSES.
We may acquire other businesses in the future, which may complicate our
management tasks. These acquisitions may be in the precise timing industry or
other business areas that, although complimentary to our business, may be in
areas in which we currently do not compete and may not have prior management or
operating experience. We may need to integrate entirely new operations and
distinct corporate cultures. Such integration efforts may not succeed or may
distract our management from operating our existing business. Our failure to
manage future acquisitions successfully could seriously harm our operating
results. Further, our shareholders' equity could be diluted if we finance the
acquisitions by issuing equity securities.
WE MAY VIOLATE EXISTING OR FUTURE GOVERNMENT REGULATIONS, CAUSING INTERRUPTIONS
TO OUR OPERATIONS AND FINANCIAL LOSSES.
Our operations are subject to a variety of federal, state and local
environmental regulations related to the storage, use, discharge and disposal of
toxic or other hazardous substances used in our manufacturing process. Our
failure to comply with current or future regulations could result in the
imposition of substantial fines, suspension of production, alteration of our
manufacturing processes or cessation of operations. We could also be required to
undertake expensive remediation efforts. The imposition of liabilities or
penalties from noncompliance with environmental regulations will increase our
expenses and diminish our cash flows.
RISKS RELATED TO THIS OFFERING AND SECURITIES MARKETS
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION.
You will incur an immediate and substantial dilution of $2.40 per share in
the net tangible book value per share of our common stock from the initial
offering price, assuming an initial public offering price of $6.00 per share. In
addition, the exercise of options and warrants to be outstanding immediately
after the consummation of this offering could cause you additional substantial
dilution.
A SIGNIFICANT AMOUNT OF THE NET PROCEEDS OF THIS OFFERING ARE UNALLOCATED, AND
WE MAY NOT ULTIMATELY USE THESE PROCEEDS IN A MANNER THAT INCREASES OR MAINTAINS
STOCKHOLDER VALUE.
We have not designated any specific uses for a significant portion of our
net proceeds from this offering other than general working capital purposes.
Therefore, we will have broad discretion in how we use these net proceeds. While
we intend to use the remaining net proceeds for working capital in anticipation
of expanded business, we may ultimately use the proceeds for business expansion
in other ways and for other general corporate purposes. Investors will,
therefore, be relying on the judgment of our management regarding the
application of our net proceeds from this offering.
SINCE WE DO NOT CURRENTLY INTEND TO PAY DIVIDENDS, YOU WILL NOT HAVE ON-GOING
CASH FLOW FROM YOUR INVESTMENT.
We do not anticipate declaring or paying dividends on our common stock in
the foreseeable future because we plan to retain the cash generated from our
operations to support the cash demands which may be required to expand our
company. Investors who anticipate a need for regular cash flow from their
investments should not purchase shares of our common stock.
ANTI-TAKEOVER PROVISIONS IN OUR GOVERNING DOCUMENTS AND DELAWARE LAW COULD
PREVENT OR DELAY A CHANGE IN CONTROL OF OUR COMPANY, POSSIBLY REDUCING YOUR
OPPORTUNITY TO SELL YOUR SHARES AT A PREMIUM, SHOULD ONE BE OFFERED.
Our governing documents contain provisions that make it more difficult to
implement certain corporate actions and may delay, deter or prevent a change in
control. You might consider a change in
10
<PAGE> 15
control in your best interest because you might receive a premium for your
common stock. Examples of these provisions include
- a vote of more than two-thirds of the outstanding voting stock is
required for stockholders to amend specified provisions of our
certificate of incorporation and bylaws;
- our board of directors is divided into three classes, each serving
three-year terms; and
- members of our board of directors may be removed only for cause.
Our board of directors has the ability, without stockholder action, to
issue shares of common and preferred stock and rights to acquire such shares
that could, depending on the terms of preferred stock or rights to acquire
common or preferred stock, delay, discourage or prevent a change in control of
TrueTime. In addition, the Delaware General Corporation Law, under which we are
incorporated, contains provisions that impose restrictions on business
combinations, such as mergers, between us and a holder of 15% or more of our
voting stock. You should read "Description of Capital Stock" for a more complete
description of these provisions.
11
<PAGE> 16
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," and elsewhere in this prospectus constitute
forward-looking statements. These statements relate to future events or our
future financial performance. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential," "likely" or
"continue" or the negative of such terms or other comparable terminology. These
statements are only predictions. Actual events or results may differ materially.
In evaluating these statements, you should specifically consider various
factors, including the risks outlined under "Risk Factors." These factors may
cause our actual results to differ materially from any forward-looking
statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements, and you are encouraged to exercise
caution in considering such forward-looking statements. Moreover, neither we nor
any other person assumes responsibility for the accuracy and completeness of
these statements. We are not under any duty to update any of the
forwarding-looking statements after the date of this prospectus to conform these
statements to actual results.
12
<PAGE> 17
USE OF PROCEEDS
We estimate the net proceeds from the sale of the 1,500,000 shares of
common stock offered by us will be approximately $7.9 million, assuming an
initial public offering price of $6.00 per share, after deducting estimated
underwriting discounts and commissions and estimated offering expenses. Our net
proceeds from this offering are estimated to be $10.4 million if the
underwriters' over-allotment option is exercised in full. We will receive no
proceeds from the sale of the 1,500,000 shares of common stock offered by the
selling stockholder.
We plan to use the proceeds from this offering together with our existing
funds, for general corporate purposes, including working capital, expansion of
new technologies and markets, increased marketing, sales and operations
capabilities and possible acquisitions of complementary businesses or
technologies. Approximately $1.0 million of our working capital will be used to
build out and equip a new office and manufacturing facility that we plan to
occupy under a long-term lease in the first half of 2000. Pending these uses, we
will invest the net proceeds of this offering in U.S. government securities or
investment grade, interest-bearing securities. In addition, we anticipate that
this offering will create a public market for our common stock to facilitate our
future access to public capital markets and permit the creation of equity
incentives for our employees through stock plans tied to publicly traded
securities.
DIVIDEND POLICY
We currently intend to retain all available funds and any future earnings
for use in the operation and expansion of our business and do not anticipate
paying any cash dividends in the foreseeable future.
13
<PAGE> 18
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999:
- on an actual basis to reflect our capitalization as of September 30,
1999, with adjustments for the reincorporation of the company in Delaware
on November 1, 1999, and our resulting new certificate of incorporation,
providing for an authorized capital stock of 20,000,000 shares of common
stock and 1,000,000 shares of undesignated preferred stock, and a
conversion of all the outstanding common stock of our predecessor into
4,000,000 outstanding shares of our common stock upon such
reincorporation; and
- on an as adjusted basis to reflect our capitalization as of September 30,
1999, with the preceding adjustments reflected on the "actual" basis plus
the receipt of the estimated net proceeds from our sale of 1,500,000
shares of common stock at an assumed initial public offering price of
$6.00 per share.
None of the columns reflects (1) 1,650,000 shares of common stock reserved
for issuance under our stock-based award plans, of which approximately 810,000
shares are subject to options estimated to be outstanding immediately upon
consummation of this offering, (2) up to 200,000 shares which C.E. Unterberg,
Towbin may purchase at 110% of the offering price upon exercise of warrants to
be issued in connection with this offering or (3) 450,000 shares of common stock
that the underwriters have the option to purchase solely to cover
over-allotments.
The table below should be read in conjunction with our balance sheet as of
September 30, 1999, and the related notes, which are included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
---------------------------------
AS
ACTUAL ADJUSTED
---------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
Cash and cash equivalents(1)................................ $ 3,539 $11,409
======= =======
Stockholders' equity:
Preferred stock, Actual and As Adjusted -- $.01 par value,
1,000,000 shares authorized, no shares issued and
outstanding............................................ -- --
Common stock and additional paid-in capital,
Actual -- $.01 par value, 20,000,000 shares authorized,
4,000,000 shares issued and outstanding; As
Adjusted -- 20,000,000 shares authorized, 5,500,000
shares issued and outstanding.......................... $ 4,730 $12,600
Retained earnings......................................... 8,023 8,023
------- -------
Total stockholders' equity........................ 12,753 20,623
------- -------
Total capitalization.............................. $12,753 $20,623
======= =======
</TABLE>
(1) Includes $3,500,000 which was transferred in October 1999 to OYO U.S.A.
pursuant to a trust arrangement under which TrueTime was the sole beneficial
owner of the trust assets. The trust was established to maximize the return
on our assets available for investment until such time that we have
established our own short-term investment program. On December 1, 1999, the
trust agreement was terminated and the cash and cash equivalents held in
trust were distributed to TrueTime.
14
<PAGE> 19
DILUTION
Our net tangible book value as of September 30, 1999, was approximately
$11.9 million, or $2.98 per share after giving effect to the reincorporation in
Delaware on November 1, 1999. Net tangible book value per share represents the
amount of our total tangible assets at September 30, 1999, reduced by the amount
of our total liabilities and divided by the total number of shares of common
stock outstanding. Dilution in net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering and the pro forma net tangible book value per share of
common stock immediately after the completion of this offering. After giving
effect to the sale of 1,500,000 shares of common stock offered by us at an
assumed initial public offering price of $6.00 per share, and after deducting
the underwriting discount and estimated offering expenses payable by us, our pro
forma net tangible book value at September 30, 1999, would have been
approximately $19.8 million or $3.60 per share of common stock. This represents
an immediate increase in pro forma net tangible book value of $0.62 per share to
the existing stockholder and an immediate dilution of $2.40 per share to new
investors of common stock. The following table illustrates this dilution on a
per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $6.00
Net tangible book value per share before offering......... $2.98
Increase per share attributable to new investors.......... 0.62
-----
Pro forma net tangible book value per share after this
offering.................................................. 3.60
-----
Dilution per share to new investors......................... $2.40
=====
</TABLE>
15
<PAGE> 20
SELECTED FINANCIAL DATA
The following statement of operations data for the years ended September
30, 1997, 1998 and 1999, and the balance sheet data as of September 30, 1998 and
1999, are derived from our audited financial statements appearing elsewhere in
this prospectus. The selected financial data shown below as of September 30,
1995, 1996 and 1997, and for the years ended September 30, 1995 and 1996, are
derived from our unaudited financial statements. In our opinion, such unaudited
financial information includes all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation of our results of
operations for the periods then ended and our financial position as of such
date. This information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our financial statements and the related notes thereto included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------
1995 1996 1997 1998 1999
------------ ------------ ------------ ------- -------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Sales................................ $11,260 $11,292 $13,894 $16,297 $20,645
Cost of sales........................ 4,978 5,111 5,783 7,537 9,076
------- ------- ------- ------- -------
Gross profit......................... 6,282 6,181 8,111 8,760 11,569
Operating expenses:
Selling, general and
administrative.................. 2,960 2,960 3,906 4,395 5,905
Research and development........... 1,480 1,840 1,855 1,873 2,155
------- ------- ------- ------- -------
Total operating expenses... 4,440 4,800 5,761 6,268 8,060
------- ------- ------- ------- -------
Income from operations............... 1,842 1,381 2,350 2,492 3,509
Interest and other income (expense),
net................................ (5) 37 10 249 305
------- ------- ------- ------- -------
Income before income taxes........... 1,837 1,418 2,360 2,741 3,814
Provision for income taxes........... 754 588 964 1,122 1,547
------- ------- ------- ------- -------
Net income........................... $ 1,083 $ 830 $ 1,396 $ 1,619 $ 2,267
======= ======= ======= ======= =======
Earnings per share -- basic and
diluted............................ $ 0.27 $ 0.21 $ 0.35 $ 0.40 $ 0.57
Weighted average shares outstanding
as adjusted for
reincorporation -- basic and
diluted............................ 4,000 4,000 4,000 4,000 4,000
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
--------------------------------------------------------------
1995 1996 1997 1998 1999
------------ ------------ ------------ ------- -------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents.......... $ -- $ -- $ -- $ 38 $ 3,539(1)
Working capital.................... 3,981 6,030 7,381 8,641 10,808
Total assets....................... 6,701 9,071 11,018 12,160 15,491
Stockholders' equity............... 5,405 7,471 8,867 10,486 12,753
</TABLE>
- ---------------
(1) Includes $3,500,000 which was transferred in October 1999 to OYO U.S.A.
pursuant to a trust arrangement under which TrueTime was the sole beneficial
owner of the trust assets. The trust was established to maximize the return
on our assets available for investment until such time that we have
established our own short-term investment program. On December 1, 1999, the
trust agreement was terminated and the cash and cash equivalents held in
trust were distributed to TrueTime.
16
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial
statements and the related notes that appear elsewhere in this prospectus.
OVERVIEW
In recent years, the time and frequency industry has undergone changes in
- its conversion from other timing sources to primarily GPS sources,
- the increasing utilization of timing and frequency in computer networks
and the Internet, and
- the increasing need for higher-accuracy frequencies for
broader-communications bandwidth in wireline, wireless (cellular/radio)
and satellite communications.
We have developed and introduced products for these and other markets that
have contributed to increased sales. As a result, sales have increased from
$11.3 million in the fiscal year 1995 to $20.6 million in the fiscal year 1999.
We generate revenues primarily from sales of our products. We also receive
small amounts of revenue, which are included in sales, from service and
non-recurring engineering charges. We record sales when a product ships and
title passes. In fiscal 1999, our sales came from over 1,000 different customers
and we sold dozens of different products.
We ship most products within 60 days of the date they are ordered, so order
backlog is not a satisfactory predictor of our future performance. Since we do
not maintain a substantial backlog and customer ordering patterns fluctuate, we
experience variations in results from quarter to quarter.
Cost of goods sold includes direct material, direct labor and the overhead
associated with the manufacturing of products.
We expense selling, commissions, general and administrative costs in the
period in which they are incurred. Research and development costs are also
expensed as they are incurred. Capital expenditures are capitalized and
depreciated, usually over a five-year life.
Net income has increased from $1.1 million in fiscal year 1995 to $2.3
million in fiscal year 1999.
17
<PAGE> 22
RESULTS OF OPERATIONS
The following table sets forth for fiscal 1997, 1998 and 1999, the
percentage of income statement items to total sales:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Sales.................................................. 100.0% 100.0% 100.0%
Cost of sales.......................................... 41.6 46.2 44.0
----- ----- -----
Gross profit........................................... 58.4 53.8 56.0
Operating expenses:
Selling, general and administrative.................. 28.1 27.0 28.6
Research and development............................. 13.4 11.5 10.4
----- ----- -----
Total operating expenses.......................... 41.5 38.5 39.0
----- ----- -----
Income from operations................................. 16.9 15.3 17.0
Interest and other income, net......................... 0.1 1.5 1.5
----- ----- -----
Income before income taxes............................. 17.0 16.8 18.5
Provision for income taxes............................. 7.0 6.9 7.5
----- ----- -----
Net income............................................. 10.0% 9.9% 11.0%
===== ===== =====
</TABLE>
YEAR ENDED SEPTEMBER 30, 1999 COMPARED TO YEAR ENDED SEPTEMBER 30, 1998
Sales. Sales for fiscal 1999 were $20.6 million, an increase of $4.3
million, or 26.7%, from $16.3 million in fiscal 1998. The increase in sales is
attributable to increased demand for our products, the introduction of new
products and an increased number of customers purchasing our products during the
year.
Cost of Sales. Cost of sales for fiscal 1999 was $9.1 million, and increase
of $1.5 million, or 20.4%, from $7.5 million in fiscal 1998. Cost of sales
decreased as a percentage of total sales to 44.0% in fiscal 1999 from 46.2% in
fiscal 1998. Such percentage decrease is the result of decreased material, labor
and overhead costs as a percentage of sales resulting from economies of scale.
Operating Expenses. Operating expenses for fiscal 1999 were $8.1 million,
an increase of $1.8 million, or 28.6%, from $6.3 million in fiscal 1998.
Operating expenses increased as a percentage of total sales to 39.0% in fiscal
1999 from 38.5% in fiscal 1998. Selling, general and administrative expenses for
fiscal 1999 were $5.9 million, an increase of $1.5 million, or 34.4%, from $4.4
million in fiscal 1998. Selling, general and administrative expenses increased
as a percentage of total sales to 28.6% in fiscal 1999 from 27.0% in fiscal 1998
because we increased our sales, customer service and administration teams to
support further growth. Research and development expenses for fiscal 1999 were
$2.2 million, an increase of $300,000, or 15.1%, from $1.9 million in fiscal
1998. Research and development expenses decreased as a percentage of total sales
to 10.4% in fiscal 1999 from 11.5% in fiscal 1998 because we did not increase
research and development expenses as fast as we increased sales.
Interest and Other Income (Expense), Net. Interest and other income
(expense), net for fiscal 1999 was $305,000, an increase or $56,000 or 22.5%,
from $249,000 in fiscal 1998. This income was earned on our cash deposits held
in OYO U.S.A.'s central cash management system. Such increase is attributable to
an increase in the level of our deposits held by OYO U.S.A.
Income Taxes. TrueTime's effective income tax rate for the year ended
September 30, 1999 was 40.6% compared to 40.9% for the year ended September 30,
1998. Our effective income tax rate differs from the statutory federal rate of
34% primarily as a result of the effect of state income taxes.
18
<PAGE> 23
YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO YEAR ENDED SEPTEMBER 30, 1997
Sales. Sales for fiscal 1998 were $16.3 million, an increase of $2.4
million, or 17.3%, from $13.9 million in fiscal 1997. The increase in sales is
attributable to increased demand for our products, increased numbers of
customers and increased purchases per customer.
Cost of Sales. Cost of sales for fiscal 1998 was $7.5 million, an increase
of $1.8 million, or 30.3%, from $5.8 million in fiscal 1997. Cost of sales
increased as a percentage of total sales to 46.2% in fiscal 1998 from 41.6% in
fiscal 1997. Such percentage increase is the result of change in product mix and
manufacturing overhead costs including increased engineering costs to support
customer-specific applications.
Operating Expenses. Operating expenses for fiscal 1998 were $6.3 million,
an increase of $500,000, or 8.8%, from $5.8 million in fiscal 1997. Operating
expenses decreased as a percentage of total sales to 38.5% in fiscal 1998 from
41.5% in fiscal 1997. Selling, general and administrative expenses for fiscal
1998 were $4.4 million, an increase of $500,000, or 12.5%, from $3.9 million in
fiscal 1997. Selling, general and administrative expenses decreased as a
percentage of total sales to 27.0% in fiscal 1998 from 28.1% in fiscal 1997
because of lower relative sales and commission costs. Research and development
expenses for fiscal 1998 were $1.9 million, an increase of $19,000, or 1.0%,
from $1.9 million in fiscal 1997. Research and development expenses decreased as
a percentage of total sales to 11.5% in fiscal 1998 from 13.4% in fiscal 1997
because research and development expenses increased only slightly while sales
increased 17.3%.
Interest and Other Income (Expense), Net. Interest and other income
(expense), net for fiscal 1998 was $249,000, an increase of $239,000 from
$10,000 in fiscal 1997. This income was earned on our cash deposits held in OYO
U.S.A.'s central cash management system. The increase is attributable to the
implementation of OYO U.S.A.'s policy in fiscal 1998 (effective October 1, 1997)
of allocating the earnings on cash deposits from investments and borrowings made
to other OYO U.S.A. subsidiaries to those subsidiaries that maintain positive
cash balances in the central cash management system.
Income Taxes. TrueTime's effective income tax rate for the year ended
September 30, 1998 was 40.9% compared to 40.8% for fiscal 1997. Our effective
income tax rate differs from the statutory federal rate of 34% primarily as a
result of the effect of state income taxes.
TERMINATION OF CASH MANAGEMENT AND COST SHARING ARRANGEMENTS
As a wholly-owned subsidiary of OYO U.S.A., we have historically
participated in OYO U.S.A.'s central cash management system and have received an
allocation of investment earnings on our cash deposits held by OYO U.S.A. In
addition, we have been allocated our share of certain costs from OYO U.S.A.
related primarily to accounting, tax and employee benefit matters. In connection
with this offering, we will terminate all such arrangements with OYO U.S.A. and
operate as a stand-alone entity. The investment earnings and shared costs
allocated to us by OYO U.S.A. have not been materially different from the
investment earnings and costs that we would have earned and incurred as a
stand-alone entity. We do not expect that the termination of these arrangements
will have a material impact on our net sales or income from operations or cause
a material change in the relationship between costs and sales.
LIQUIDITY AND SOURCES OF CAPITAL
Historically, we have financed our operations through operating cash flow.
Cash provided by operating activities was $1.6 million in fiscal 1999 as
compared to $900,000 in fiscal 1998. The net increase of $700,000 is primarily
the result of an increase in net income of $600,000 during fiscal 1999, as
adjusted to include an increase in depreciation and amortization of $100,000
from investments made in machinery and equipment, an increase in the change in
operating assets in the amount of $1.5 million principally resulting from
accounts receivable and inventories related to increased sales, and an increase
in the change in operating liabilities of $1.5 million principally resulting
from trade accounts payable related to the increase in inventories and accrued
expenses related to an increase in employees. Cash provided by operating
activities was $900,000 in fiscal 1998 as compared to $100,000 in fiscal 1997.
The increase of $800,000 is
19
<PAGE> 24
the result of the increase in net income of $200,000 during fiscal 1998, as
adjusted to include an increase in depreciation and amortization of $100,000
from investments made in machinery and equipment, and a reduction in the net
increase in net operating assets of $500,000 related primarily to a small
increase in accounts receivable during fiscal 1998 as compared to fiscal 1997 as
a result of the timing of sales and related collections.
We currently participate in OYO U.S.A.'s central cash management system in
which the net cash provided or used by our operations is transferred to or from
OYO U.S.A. on a daily basis. We have a receivable from OYO U.S.A. for the
cumulative amount by which the cash provided by operating activities, including
current income taxes allocated from OYO U.S.A., has exceeded our working capital
and capital expenditure requirements. The change in this receivable is an
investing cash flow activity. The receivable was $433,000 at September 30, 1999
as compared to $2.7 million at September 30, 1998. The decrease resulted from
the collection of $3.5 million from OYO U.S.A. in September 1999 for the
preliminary and partial settlement of our receivable balance. The receivable was
$2.7 million at September 30, 1998 as compared to $2.5 million at September 30,
1997. The increase resulted from the excess of operating cash flows generated in
fiscal 1998 over capital expenditures. As soon as practical following the
closing of this offering, we will separate from OYO U.S.A.'s central cash
management system and the remaining receivable at that date will be collected in
cash. Beginning October 1, 1997, OYO U.S.A. implemented a policy of crediting
interest on the receivable balance, excluding the reduction in the receivable
balance for allocated current income taxes. Interest credited and added to the
receivable balance was $305,000 for fiscal 1999 and $249,000 for fiscal 1998.
In October 1999, we transferred $3.5 million to OYO U.S.A. subject to the
terms of a trust agreement with OYO U.S.A. Under the terms of the trust
agreement, OYO U.S.A. acknowledged and agreed that it held $3.5 million, plus
the investment income earned thereon, for our benefit and would manage the trust
assets as part of its other cash management activities. This action was taken to
maximize the return on our assets available for the investment until such time
that we have established our own short-term investment program. On December 1,
1999, the trust was terminated and the trust assets (consisting of cash and cash
equivalents) were distributed to us.
Other investing activities consist principally of capital expenditures in
the amount of $442,000 for fiscal 1999, $632,000 for fiscal 1998 and $245,000
for fiscal 1997 for investments in machinery and equipment. We are negotiating a
long-term lease agreement on a new larger manufacturing and office facility of
approximately 50,000 - 75,000 square feet, into which we intend to move in the
first half of calendar year 2000. We intend to use approximately $1.0 million of
our working capital to build out and equip the new manufacturing and office
facility. We also intend to retain an option to purchase the building. We expect
to incur $1.0 million in fiscal 2000 on other capital expenditures. A portion of
our working capital expected to be used to finance these planned capital
expenditures. Other than the use of the net proceeds of this offering for
planned capital expenditures or for other working capital purposes, we expect to
invest the net proceeds of this offering in U.S. governmental securities or
investment grade, interest-bearing securities until suitable uses are
determined.
We do not have any indebtedness since operating cash flow has satisfied our
working capital and capital expenditure requirements. Although we have no
current requirements for debt financing, in all likelihood, we will attempt to
establish a facility with a bank to provide funds in the future if needed.
We sell on open account with terms that usually require payment within 30
days of invoice. Many customers pay later than the agreed-upon terms allow, but
generally not later than 30 days after the original due date. We had no
write-offs for bad debt in fiscal years 1997 and 1999, and $14,000 in fiscal
1998. We have included the effects of anticipated increased accounts receivable
in our plans for future working capital requirements.
Cash and cash equivalents were $3.5 million at September 30, 1999 as
compared to less than $100,000 at September 30, 1998. The increase reflects a
$3.5 million collection from OYO U.S.A. in September 1999 related to the
preliminary and partial settlement of our receivable from OYO U.S.A. Cash
equivalents are invested on a short-term basis with a major bank. We expect that
the combination of
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cash and cash equivalents, cash flow from operations and the proceeds of this
offering should provide us with sufficient capital resources and liquidity to
fund our operations during fiscal 2000 and support our expansion and acquisition
strategy as described elsewhere in this prospectus.
Inflation has not had a significant impact on our operations to date.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We will be exposed to market risks related to changes in interest rates in
the future. Proceeds from this offering will be invested short term in financial
instruments, the value of which will be subject to interest rate risk and could
fall if interest rates rise. Additionally, while we have no plans for future
borrowings, any future borrowings will likely have a variable rate component
that will fluctuate as interest rates change. If market interest rates were to
increase immediately and uniformly by 10%, there would not be a material effect
on the results of operations or on our balance sheet because we currently have
no debt.
YEAR 2000 READINESS ISSUES
At the transition between December 31, 1999 and January 1, 2000, certain
computers and information technology equipment may not continue to work
properly. In particular, this may occur when programs and data that use
six-digit dates such as 12/31/99 should convert to 01/01/00, but fail to do so
or fail to properly process the date data. Similar problems were suspected at
the GPS Week Number Roll-Over (WNRO) which occurred August 21, 1999 when the GPS
week counter rolled over from 1024 to 0000 as it was designed to do; on
September 9, 1999 which was a common program test date; and on February 29, 2000
which is an unusual leap day. Most century years such as 1800, 1900 and 2100 do
not have leap days. These groups of problems are known collectively as Y2K.
GPS WNRO. No significant problems were found with the GPS WNRO. A small
number of customers who had older TrueTime products and had not checked their
equipment did later report their products failed to report the proper date and
have contacted TrueTime to have their products updated. There were no claims
against us and the costs of servicing the customers was not material.
9/9/99 Test Date. No problems have been reported related to the 9/9/99 test
date.
State of Readiness. We have completed extensive efforts related to
operations and products for Y2K.
Products. Our Y2K product effort has included the purchase of a GPS
simulator, the staffing of dedicated test program, testing of new and old
products, notification on the Internet of the status of each of our products,
and the modification and upgrade of products as appropriate. In some cases, we
provide modifications and upgrades at no charge. In other cases, a modest charge
for the modifications and upgrades is made to the customer. We have been
conducting our Y2K product program since November 1997 and believe all
significant products have been tested and the results have been reported.
Modifications and upgrades to old products will continue into the fiscal year
2000.
Product Costs. We have spent approximately $200,000 in each of fiscal years
1998 and 1999 on our Y2K product efforts. We estimate that we will spend
$200,000 in fiscal year 2000 on our Y2K product efforts. Such costs are
accounted for in the selling, general and administrative costs.
Insurance. We have reviewed our guarantee and warranty provisions and
determined that our exposure is limited to the original purchase prices of
equipment bought by our customers. We have specifically declined to indemnify,
hold harmless or be responsible for consequential damages when requested by
customers. We have evaluated our liability insurance and determined that Y2K
liability is explicitly excluded from insurance coverage and cannot be
reasonably added to our insurance coverages.
Operations. Our Y2K operations efforts have included supplier assessments,
internal information technology, or IT assessments and modifications and
upgrades, IT vendor assessments, and internal systems assessments.
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We have surveyed key suppliers and have received assurances that we will
continue to receive our uninterrupted supplies of goods and services.
We have, or have had, evaluated our internal information systems, including
network hardware and software and user hardware and software. Numerous
components were found to be non-Y2K compliant. We have purchased and installed
upgrades, modifications and replacements. A small number of non-critical work
stations were planned for replacement. The hardware has been purchased and the
installation is now complete.
IT vendors such as our value added reseller that provides electronic data
interchange services, its Internet service provider and payroll processing
provider have been surveyed and assure us that we will continue to receive
uninterrupted services.
Internal systems including heating, ventilation and air conditioning, alarm
system and process controls have been evaluated and found not to have Y2K
problems. The compliance of test equipment was completely evaluated during
October 1999.
We maintain a disaster recovery program, including tape back-up on IT
systems and other measures, that is applicable to any Y2K problems or other
disaster. We believe the program is adequate to prevent unrecoverable losses
from any disaster.
Operations Costs. We estimate we have spent about $100,000 in the fiscal
year 1998 and $200,000 in the fiscal year 1999 on our Y2K operations efforts. We
estimate that we will spend less than $100,000 in the fiscal year 2000 on our
Y2K operations efforts. The costs of our Y2K operations efforts are accounted
for in selling, general and administrative costs.
International Risks. We have about 15% of our installed base in
international locations and receive approximately 5% of our materials directly
from international locations. From our evaluations, the risks in the
international locations are similar to those in domestic locations because our
customers in these areas have up-to-date equipment and we do not have many
international vendors.
Risks. Should we not fully complete our efforts related to operations and
products, the results could include disruptions in business, lost revenue,
increased operating costs, loss of customers and other business interruptions,
any of which could have a material adverse effect on our business, financial
condition and results of operations.
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BUSINESS
TRUETIME
TrueTime designs, develops, manufactures and markets precision time and
frequency products that are essential components used in telecommunications,
computer networking, e-commerce, aerospace and various other commercial markets.
Our products use a variety of external timing references, including most
importantly GPS, together with advanced timing devices to provide high quality
frequencies and precise time. We offer a wide variety of products, which can be
divided into the following broad categories:
- precise time and frequency products
- computer plug-in cards with precise timing capabilities
- computer network time servers
- time code products
- time displays
Our products, incorporated as components in complex systems, allow
customers to
- improve clarity and quality of voice, video and data in wireline,
wireless and satellite communications,
- authenticate the time of stock market and other e-commerce transactions,
- monitor and control the frequency of electric utility power grids to
prevent power black-outs and quickly locate power line faults,
- transmit television signals at designated frequencies to meet regulatory
requirements,
- meet requirements for secure communications, particularly in national
defense and security contexts, and
- time high resolution data collected in military ranges and in space
launches with a high degree of accuracy.
During the past decade, we have strived to produce state-of-the-art precise
time and frequency technology. We have developed and implemented five
generations of precision time products based on GPS technology through the use
of our significant technology resources in the areas of GPS, frequency control,
real-time operating systems and computer networking. Our increased investments
in research and development have allowed us to develop a new platform -- a
combination of new hardware and software -- for many products, decrease time to
market for new products and improve product quality and robustness. Our new
platform also provides a means through which TrueTime can enter new markets.
Advanced technologies also offer opportunities to reduce manufacturing costs and
support expenses by increasing volumes of common products.
TrueTime is recognized in the industries we serve for our commitment to
customer satisfaction, broad product offerings and advanced technical
capabilities. We are recognized by our community and employees for stable
employment and a corporate culture that provides leadership, opportunity and a
shared commitment to success.
In the fiscal year ended September 30, 1999, we achieved sales of $20.6
million, an increase of 26.7% over the prior fiscal year, resulting in net
income of $2.3 million, an increase of 40.0% over the same period.
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MARKET OVERVIEW
Our time and frequency products are integral to the expanding
communications infrastructure composed of wireline, wireless (including
satellite) and computer network technologies. The increase in demand for
precision timing is due in part to the growth in communications and computer
network systems worldwide. Growth in data, voice and video transmissions on
these networks is anticipated to lead to an increased demand for substantial
bandwidth compared to traditional voice traffic. We believe that the convergence
of wireline, wireless and computer network systems and the pervasive growth of
the Internet and e-commerce will lead to increased demand for precision time and
frequency devices.
Precision time and frequency devices normally require use of an external
timing reference to maintain required accuracy. Currently, the predominantly
used standard is the highly accurate time reference available from GPS operated
by the U.S. Department of Defense. The demand for precision time and frequency
referenced to GPS has grown with the increased use of digital wireless
communication and is now, in addition to more traditional uses in the aerospace,
utility and broadcast industries, being incorporated into wireless, computer and
high-speed wireline networks.
Two marketing research firms that follow the GPS industry are Frost &
Sullivan and Allied Business Intelligence. These firms provide forecasts for
industry growth by segments, including forecasts in the growth in timing
products using GPS as a timing reference. Their forecasts for future growth of
the timing product segment are consistent, but not identical.
According to forecast data from a Frost & Sullivan report we obtained, the
aggregate North American market for GPS related timing products is projected to
grow from $209 million to $368 million during the five-year period from 2000
through 2004, reflecting a compound annual growth rate of approximately 15%
during such period.
According to forecast data from an Allied Business Intelligence report we
obtained, covering the same five-year period, the aggregate U.S. market for GPS
related timing products is projected to grow from $238 million to $383 million,
reflecting a compound annual growth rate of approximately 13% during such
period.
According to Frost and Sullivan, the European GPS timing market is trailing
the North American market in terms of total revenue, with the 2000 revenue
forecast in European markets being $11.2 million. However, the compound annual
growth rate for GPS timing products in Europe from 2000 through 2004 is forecast
to be 20%, as compared to 15% in North American markets. The strong growth
forecast for the GPS timing market reflects the strong growth of the
applications for which timing products are sold.
TECHNOLOGY OVERVIEW
THE PRECISION CLOCK
The basic clock consists of an oscillator and a counter. While early clocks
used pendulums as the oscillator, today, piezoelectric quartz crystals or atomic
atoms such as rubidium or cesium are used as the resonating reference. In either
instance, a counter tracks the number of oscillations and translates that into a
common time increment, usually a second. High quality quartz oscillators are the
most common oscillators found in precision time and frequency clocks.
Once a precision clock has been built it is possible to maintain accurate
time and generate precise signals, also called frequencies. Accurate time is
used in time stamping applications such as telecommunications billing and
electronic transactions and can be transferred to other devices for purposes of
synchronization. Frequency generation benefits from an accurate clock because it
becomes possible to create repetitive signals with respect to a very precise
time interval, including high frequency sine waves or digital pulses, both of
which are used in many telecommunications applications.
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IMPROVING ON THE PRECISION CLOCK
Quartz based clocks are subject to physical factors that effect the overall
clock accuracy and stability. The two primary contributors to clock error are
temperature changes and aging. The oscillation frequency of the quartz crystal
can speed up or slow down depending on variations in temperature. Similarly, the
oscillation frequency of a quartz crystal changes over time. Combined, these two
factors cause the clock to drift, resulting in incorrect time and a shift in the
output frequencies.
The resonant frequency of the quartz crystal can be adjusted to correct for
physical factors contributing to the clock error. Much like a person
periodically adjusts a wristwatch to the correct time, an oscillator can be
periodically adjusted to the correct frequency. This technique is called
oscillator disciplining. One factor that distinguishes one precision clock from
another is how well the oscillator is disciplined to an external time reference.
One of TrueTime's areas of expertise is in superior oscillator disciplining
technology to create extremely accurate and stable clocks.
An external time reference is typically another clock of higher accuracy
and precision than the local clock being disciplined. The time base used in all
precision clocks is known as Universal Time Coordinated, or UTC. UTC is
maintained in the United States by the U.S. Naval Observatory, or USNO, in
Washington, D.C. The National Institute of Standards and Technology, or NIST,
plays a major role in distributing that time for commercial use. Oscillator
disciplining focuses on the UTC time transfer mechanism from the reference to
the local clock and the accuracy of that time transfer.
UTC time is made available for synchronization in several different ways
with varying degrees of accuracy. The primary means of synchronization to UTC
are via the following references:
- GPS
- Internet/network clocks
- AM radio broadcasts
- Dial-up phone connections
Timing for GPS is maintained by the U.S. Air Force, using time directly
from the USNO. NIST is responsible for time distribution using the other
techniques. TrueTime manufactures clocks that use all of these references. The
timing accuracy provided by GPS, however, is so superior that it has become the
external timing reference of choice.
GPS AS A TIME REFERENCE
GPS is best known for its tremendous impact on markets that are focused on
geographical position. Aviation and marine navigation, as well as land surveying
and car navigation systems, now enjoy positioning accuracy levels never seen in
the past. However, very precise time is integral in determining an accurate
position when using a satellite based navigation system.
Each GPS satellite has on board several atomic clocks that are precisely
synchronized to UTC. Coded signals are broadcast by each of the 24 GPS
satellites with the exact time and the position of each satellite. GPS receivers
use an antenna to receive the signals and special semiconductor chip sets to
decode them to calculate the position of the antenna. By using a GPS receiver,
optimized for time and not position, it is possible to get timing accuracy's of
plus or minus 1 millionth of a second to UTC. TrueTime's low end products
provide this level of accuracy. By applying sophisticated GPS tracking
algorithms developed by TrueTime to discipline clock oscillators, an accuracy of
40 billionths of a second to UTC is routinely achieved in our products.
A significant advantage offered by GPS compared to any other time reference
is the worldwide availability of the signals. GPS satellites continuously orbit
the earth broadcasting the coded signals. Provided the GPS antenna on the
receiving device can receive the signals, precise synchronization to UTC is
possible anywhere on the planet. This facilitates an accurate and common time
base to synchronize systems across a country or around the world. Events on one
continent can be very closely correlated with
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events on others. Similarly, widely distributed networks such as the
Synchronized Optical Network, or SONET, that carries most of the long haul voice
traffic in the U.S., can be precisely synchronized to improve efficiency and
bandwidth use.
OUTPUTS OF THE PRECISION CLOCK
As a clock becomes more and more precise, the applications shift from
providing the precise time to generating very high quality frequencies.
Applications for precision clocks generally fall into one of three categories:
precise time, frequency generation, and time transfer.
Precise Time. Precise time is a measurement that tells the user what
the exact time is. A common application for precise time is time stamping of
electronic transactions or data. Electric power utilities also use precise time
to measure and maintain operating current and locate transmission faults in the
system. For scientific applications, precise time is used to time tag events
with very high resolution for comparison with other events. Even directives such
as the Emergency 911 initiative for locating cellular based callers will require
precision time stamping. Current state-of-the-art time stamping is to the
millionth of a second referenced to UTC.
Frequency Generation. The generation of signals such as high frequency sine
waves, or a once per second pulse, benefits from a precision clock. Externally
disciplined precision clocks can create near perfect wave forms and pulses and
can be precisely synchronized with a superior external reference, such as GPS.
The fastest growing application for GPS referenced precision clocks is the
generation of pulses and frequencies for telecommunications systems. For
example, many current wireless base stations use precision GPS references to
provide the signals used to create the carrier frequency and to coordinate
handoffs between cell sites. Frequency generation also includes high frequency
digital pulse generation. These signals are widely used to synchronize
communications networks and form the basis for signals that will carry data over
networks and satellite systems.
Time Transfer. Time transfer is an integral part of synchronization. It is
not feasible to place a precision clock with every computer or instrument that
requires precise time. Time distribution then becomes a critical role of the
precision clock. The most cost effective ways to distribute time are via wires
such as computer serial cables, coaxial cables or ethernet networks.
A popular time transfer technique in military and aerospace applications
involves time codes sent over coaxial cables. These codes have been standardized
and are known as Inter-Range Instrumentation Group, or IRIG, time codes. IRIG
codes are used to synchronize most of the military and government test ranges
and launch facilities across the U.S. They are also the primary means to
synchronize computers to one millionth of a second to each other.
The fastest growing time transfer technique, and the one with the greatest
potential, uses ethernet networks or the Internet as the transfer medium. Using
a client server technique known as the Network Time Protocol, or NTP, a single
precision clock configured as a time server can synchronize tens of thousands of
client computers per hour. A packet exchange initiated by the client computer to
the time server can synchronize the client to the satisfactory level for such
purposes of one thousandth of a second to the time server.
TRUETIME'S SOLUTIONS
TrueTime meets the growing timing and frequency needs of modern
communication and computer systems by using the following technologies:
GPS TECHNOLOGY -- We strive to develop state-of-the-art products using
current GPS timing references. GPS signals are the most accurate,
widely-available and cost-effective source of timing references today. We
are continually working on next-generation designs and applications to
maintain and advance our GPS technologies.
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OSCILLATOR SELECTION AND CONTROL -- We generally use a quartz crystal
oscillator as a fundamental component in our precision timing products.
Using and controlling an extremely stable oscillator is critical to
maintaining accurate time and frequencies, especially if synchronization
reference sources are lost (such as the loss of satellite signals when a
GPS antenna is accidentally damaged). We believe that we have strong
relationships with our oscillator suppliers and a variety of technological
advantages in the ability to test, select and control high-stability
oscillators.
REAL-TIME OPERATING SYSTEMS -- We incorporate real-time operating
systems in our newest products. These operating systems are required to
control precision timing devices and frequency sources and to process data
in real time without introducing timing delays and synchronization
problems. We believe this provides us with advantages in next-generation
applications that will speed the introduction of new products.
INTERNET INTERFACES -- We produce precision timing devices that can be
controlled using a browser over the Internet or through a local area
network. This permits the user to control the unit from anywhere in the
world. We believe this is an essential step in the future of networked
equipment. Additionally, we produce a series of NTP products that allow
customers to synchronize computers and other equipment over the Internet.
OUR STRATEGY
We have already established name-recognition in the time and frequency
industry. Our investments in new technology have given us the capability to
enter new segments of the timing market and allow us to reduce the time needed
to market new products. Now, our goals are to
-- Introduce new products by
- targeting the growing telecommunications, e-commerce, computer
networking and digital wireless market segments,
- increasing our research and development budget and capabilities, and
- applying core technologies in new markets.
-- Form strategic relationships by
- developing alliances with companies that offer complementary products
and technologies, and
- exploring opportunities to acquire companies with technologies that
will enhance our product lines, add new related products or add
economies of scale to our existing operations.
-- Continue to gain market share by
- developing, manufacturing and marketing the highest quality precision
time and frequency products,
- applying new technology to current applications,
- increasing international sales through increased marketing activities
abroad, and
- improving distribution channels.
TRUETIME'S PRODUCTS AND SERVICES
We offer a wide variety of precision clock products upon which we have
built a reputation for quality and diversity. Our products can generally be
divided into the following broad categories:
PRECISE TIME AND FREQUENCY PRODUCTS -- We manufacture precision time
products that allow our customers to keep accurate time within
40 billionths of a second. In many ways, our precise time products are
similar to clocks and stopwatches -- our clocks tell us the time of day and
allow us to
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measure the time interval between when an event starts and when it stops.
The difference between conventional time measuring devices and our precise
time products lies in the accuracy of the measurements. To place the
accuracy of our clocks in perspective, a clock which accumulates a 40
billionths of a second time error over a 24 hour period will require more
than 500,000 years to accumulate an error of one second.
In the last three fiscal years, more than 75% of our revenues were
from the sale of our timing products that use GPS as a timing reference for
continuously disciplining our oscillators, the fundamental component that
determines the accuracy of our time and frequency products. A schematic
illustrating how a TrueTime GPS synchronized timing device operates is
shown below.
THE ARCHITECTURE OF A PRECISION TIMING DEVICE
[SCHEMATIC]
Quartz-based clocks are subject to numerous physical factors that
affect the overall clock accuracy and stability, including temperature
changes and aging. We rely upon GPS as a reference for continuously
disciplining our oscillators. GPS provides 24 hour worldwide coverage that
is not affected by weather conditions. The coverage of the 24 satellites in
six near-polar orbits together with numerous ground monitoring/verifying
stations produces a readily available and highly accurate timing reference
with state-of-the-art reliability and performance. However, GPS navigation
receivers tend to deliver compromised results when used as a time and
frequency receiver. To overcome this shortcoming in a standard GPS
receiver, we have developed a product line which implements a suite of
operations that extract optimal accuracy and stability from the clock
measurements provided by the GPS core receiver. We believe our products
provide superior oscillator discipline and enable us to offer the most
accurate quartz oscillator timing products in the industry.
COMPUTER PLUG-IN CARDS -- We manufacture a broad line of precision
timing products in the form of plug-in cards for computers. These cards
provide precise timing capabilities to computers equipped with very common
bus components. Aside from providing accurate time measurement, these cards
can provide a variety of time and frequency and other time outputs and
functions, as well as time transfer for synchronization. Currently, plug-in
cards connected by cables provide one of the easiest and most accurate ways
to synchronize the clocks of two or more computers. We also offer
state-of-the-art software development tools to speed the integration of
these cards into software applications, which may save software developers
significant time and money.
COMPUTER NETWORK TIME SERVERS -- We manufacture two products for
computer network time distribution. These products provide an extremely
powerful and efficient manner in which to bring entire networks of
computers into precise time synchronization. Designated computers run
programs in the background that periodically correct the time of each local
computer to that of the time server. As a result, we believe that network
synchronization of thousands of computers to an accuracy of a second or
less is achievable using these products. With the pervasive growth of the
Internet and e-commerce and increasing electronic transactions, we believe
that the demand for such synchronization products will continue to
increase.
TIME CODE PRODUCTS -- We offer a wide variety of time code generation,
translation and synchronization products, including timing output options
for our precise clocks. A time code is a data
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format for recording and processing time measurements. Time codes arose
from the need to synchronize the instruments used to monitor the many
aspects of a real time weapons test and to share the collected data with
others monitoring the same test at different locations. Time codes provide
the digital data format necessary for computers to transfer and correlate
encoded time data among computers in a highly accurate manner.
TIME DISPLAYS -- We manufacture a variety of time displays. These
one-half-inch to four-inch light-emitting diode, or LED, displays often
present a variety of information, including the time of day, frequency
information regarding system electrical current or "countdown-to-launch"
arrays. In many cases, the display is sold as an accessory to a precision
clock to display the precise time in an instrument rack or control room.
TRUETIME'S CUSTOMERS
Our customers are businesses and government agencies that have
sophisticated and demanding needs for timing with greater accuracy and
resolution than available from conventional time measuring devices. Our major
customer groups include:
TELECOMMUNICATION COMPANIES -- Telecommunication companies are
continually seeking to deliver greater bandwidth and connectivity to
transmit data reliably at faster speeds. Wireline telephone companies that
transmit audio, video and other data over wires encounter many problems if
timing or synchronization is not precise. These problems include unreadable
facsimiles and corrupted or lost data as well as frozen images on video
conference screens. Similarly, wireless telephone carriers using cellular
or satellite communication need precise time and synchronization to avoid
static and blocked calls.
COMPUTER NETWORKS -- Our customers include computer network designers
and users because today's computer network technology is characterized by
increasingly faster data transfer and throughput rates. Most major national
and world-wide businesses operate large computer networks. The operation of
computer networks is also becoming standard for many smaller businesses.
Synchronization of timing in the network can increase the quality of data
transmission and reduce the risk of system downtime.
AEROSPACE INDUSTRY AND NATIONAL DEFENSE -- Among our long-standing
customers are many different government agencies, including the U.S.
Department of Defense, NASA and the State Department, as well as
organizations operating test ranges for the Department of Defense. These
customers make measurements of fast moving objects such as aircraft,
weaponry projectiles, missiles and spacecraft. These customers also need
highly accurate clocks to record critical, high resolution measurements and
gather required data for events that are changing rapidly.
E-COMMERCE -- The amount of data being transmitted over the Internet
is expanding rapidly because of the growing number of users and the
increasing range of data-intensive activities for which the Internet is
used. Businesses increasingly enhance their reach to customers and
suppliers with applications such as electronic commerce, supply chain
management, global marketing and customer support via the Internet.
Consumers use the Internet to communicate, collect and publish information,
make retail purchases and access online entertainment. These network-based
businesses and consumer activities require the transmission of increasingly
large amounts of data quickly and reliably. As a result, broadband access
is becoming increasingly important, and this creates a growing need for our
precise time and frequency products.
POWER UTILITIES -- Our power utility customers use precise time to
maintain a precise frequency of 60 Hz for the electricity that literally
runs our nation. Precise monitoring and control of the power line
alternating current frequency helps to prevent power brown-outs and
black-outs. Precise timing also aids in the location of power line faults.
TELEVISION BROADCASTING -- Television stations need both accurate time
and frequency references to keep their transmissions synchronized, their
transmitters operating at the correct frequency and to switch between feeds
cleanly. Our GPS timing products provide both time and frequency outputs
for these purposes.
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In fiscal year 1999, we sold our products to more than 1,000 customers. Our
customers include companies that order a large number of very similar products,
as well as customers that order a small number of special order products. The
majority of our sales are made to numerous and usually repeat, customers who
purchase small quantities of multiple types of products and who often have
custom or semi-custom specifications. For larger orders, we often deliver
multiple types of products to multiple locations. The diversity of our customers
requires significant customer support, flexible manufacturing and a wide array
of product inventory. Our engineering and manufacturing operations and business
systems have been adapted for fast-turn, customer-specific product variations.
We believe that the size and diversity of our customer base reduces the business
risk inherent in dependence on a small number of large-volume customers. While
the large number of our customers results in many customers generating
relatively small amounts of sales, typical customers are some of the best-known
enterprises engaged in
- telecommunications -- Lucent Technologies, PanAmSat Corporation and
companies which were part of the old AT&T system,
- computer networking -- Novell, Inc., Lucent Technologies and Cisco
Systems, Inc.,
- e-commerce -- NYSE, Nasdaq Stock Market, Chicago Mercantile Exchange,
Chicago Board of Trade and Ameritrade Information Service,
- power utilities -- PG&E Corporation and Bonneville Power Administration,
- aerospace -- The Boeing Company, Northrup Grumman Corporation, FAA and
Allied Signal Aerospace,
- national defense -- separate purchasing arms of the Department of Defense
and Hughes Network Systems, Lockheed Martin Corporation, Motorola, Inc.,
Raytheon Systems Company, Litton Denro (a subsidiary of Litton
Industries, Inc.) and NASA, and
- television broadcasting -- CNN, Westwood One and WHDTV, the
high-definition television model station.
Among our largest customers during the last three fiscal years have been
separate purchasing arms of the U.S. military services and Hughes Network
Systems, Lockheed Martin Corporation, Motorola, Inc., Raytheon Systems Company,
Litton Denro and NASA. Generally, our largest customers tend to change or rotate
from year to year, although U.S. governmental units are consistently among our
largest customers. During fiscal years 1998 and 1999, purchases by the U.S. Army
comprised approximately 10% and 18%, respectively, of our sales. Similarly,
during fiscal years 1997 and 1998, purchases by Hughes Network Systems accounted
for 10% of our sales each year. Sales to the U.S. government, as a whole,
comprised 21%, 23% and 28% of our sales during fiscal years 1997, 1998 and 1999,
respectively.
SALES AND MARKETING
In fiscal years 1997, 1998 and 1999, approximately 19%, 18% and 16%,
respectively, of our sales have been in international markets, but we are
attempting to increase our international marketing efforts. We market and sell
our products through three primary channels:
SALES REPRESENTATIVES -- More than 80% of our orders come through our
26 domestic and worldwide sales representative organizations. These
representatives are independent firms, each assigned a geographical area
for promoting and selling TrueTime products. Representatives covering our
domestic sales areas receive commissions on the sales generated in their
areas, but TrueTime actually confirms and invoices the sale to the
customer. Our arrangements with our international representatives are
different in that these representatives buy our products at a discount and
then resell the products to their customers at prices dictated by their
local market conditions.
DIRECT CONTACT BY TRUETIME EMPLOYEES -- We have 25 employees in our
Sales and Marketing Department, including our customer service personnel.
Six of these employees are Regional Managers and are in direct contact with
our customers. Most of the other employees work in customer service. We
place special emphasis on making sure our products are performing within
specifications and our customers are satisfied doing business with
TrueTime.
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SALES AND MARKETING VIA INTERNET -- We have established an Internet
website for extending the reach of our marketing and sales efforts.
Although customers are not yet able to order our products over the
Internet, our website provides added convenience for our customers who are
increasingly using the Internet for choosing products which meet their
needs. Because of the growing importance of our Internet link to customers,
we are committed to the continual enhancement of our website and
improvement of our procedures for responding to customer inquiries received
through our website.
Because we typically turn our orders on hand up to five or more times per
year, we do not regard so-called "backlog" as an indicator of our future
prospects.
TRUETIME'S COMPETITION
The development, manufacture and sale of precise time and frequency
products is an intensely competitive industry. According to the previously noted
Frost & Sullivan report, there are more than 20 companies offering products in
the GPS timing field. These companies range from separate timing divisions in
very large companies, such as Hewlett-Packard and Motorola, to small stand alone
companies with revenues of less than $1 million annually. Our principal
competitors are Bancomm/Timing (a division of Datum, Inc.), Odetics Telecom (an
Odetics, Inc. division), Trak Systems, Inc. (a Tech-Sym Corporation subsidiary)
and Brandywine Communications, Inc. In addition, more than a dozen companies
produce products that are sold into the time and frequency markets as indirect
competition. These competitors consist primarily of component suppliers or
integrated system suppliers. As we continue to grow, we will likely encounter
these firms as more direct competitors. In general, most of our competitors have
more financial resources than we do, and may be capable of offering more
attractive packages for retaining and recruiting employees.
INTELLECTUAL PROPERTY
Our success depends to a significant degree upon the preservation and
protection of our product and manufacturing process designs and other
proprietary technology. Historically, we have not filed patents to protect our
intellectual property, but have instead relied upon the confidential handling of
our designs, nondisclosure agreements with employees and trade secret law to
protect our product designs. Only recently have we decided to begin filing for
formal patents. Accordingly, our proprietary products are subject to examination
and possibly "reverse engineering" by our competitors. While we hope our
intellectual property is adequately protected by our confidential trade-secret
protection plans and programs, we cannot be sure that our competitors will be
prevented from gaining access to our proprietary and confidential technologies.
The use of our technology by others could eliminate any competitive advantages
we may have and cause us to lose sales. Moreover, the laws of other countries
where we market our products may afford even less protection for our
intellectual property.
Some of our trade identifiers and product names have been trademarked,
including our name, "TrueTime."
No single patent, trademark or group thereof is considered essential to the
success of TrueTime. If we resort to legal proceedings to enforce our
intellectual property rights, the proceedings could be burdensome and costly,
even if we were to prevail. There are no proceedings currently pending relating
to our intellectual property.
REGULATORY MATTERS
Our operations are subject to numerous local, state and federal laws and
regulations. While we do not foresee the need for significant expenditures to
ensure continued compliance with current environmental protection laws,
regulations in this area are subject to change, and we cannot be sure that
future laws and regulations will not have a material adverse effect on our
company. We use very few chemicals or other hazardous materials in our
operations and do not expect that significant costs will be incurred in
continuing to comply with existing environmental and other laws. We can offer no
assurance that future laws or regulations will not increase the costs of
compliance, and this could have a materially adverse effect on our company.
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Upon completion of this offering, we will no longer be a wholly owned
indirect subsidiary of OYO Japan. Therefore, TrueTime may enjoy some benefits by
no longer being considered a foreign-owned corporation for certain regulatory
purposes such as access to certain defense contracts and government purchases of
TrueTime products by system integrators.
MANUFACTURING OPERATIONS AND FACILITIES
We currently manufacture and service our products at our single leased
facility of about 25,000 square feet in Santa Rosa, California. We are
negotiating a long-term lease agreement on a new larger manufacturing and office
facility of approximately 50,000 - 75,000 square feet, into which we intend to
move in the first half of year 2000. Since the lease on our current facilities
does not expire until 2008, we plan to sublease the facility upon moving our
operations. In addition, we anticipate that the new lease agreement will provide
us with an option to purchase the new facility, which the board of directors may
choose to exercise in the future if it concludes that ownership of our facility
is an economic use of our general corporate funds. We plan to use approximately
$1.0 million of our working capital to build out and equip our new office and
manufacturing facility.
We use our production capacity to support top-level assembly and
modification and to conduct sophisticated tests of our products. We subcontract
base-level fabrication, low-level assembly and surface mount production to key
suppliers with expertise in these areas. All operations are performed under
TrueTime's ISO 9001 certification.
RESEARCH AND DEVELOPMENT
In fiscal 1999, we spent $2.2 million developing network time servers,
network interface features and higher levels of integration and capabilities in
GPS and real time operating systems. In fiscal 1998, we spent $1.9 million
building the research and development organization and developing the core
technology platform for new products. In fiscal 1997, we spent $1.9 million
developing high end data rate clock and distribution system products, updating
our GPS products and increasing the options offered in GPS products.
SUPPLIERS
We depend upon our suppliers for parts and services. Most of our parts and
services are obtainable from multiple sources, although some parts and services
are obtainable from only one source. Currently, Trimble Navigation Limited
provides virtually all of our supply of a key component for our GPS-based
products. While to date we have not had difficulty obtaining these parts and
services, if single-source products or services were to become unavailable, our
ability to provide products would be materially affected. We believe that
advances and investment in development technologies and modular designs will
allow us to respond quickly if part availability affects production, but there
can be no assurance as to that circumstance.
Our current delivery times have been affected from time to time by
disruptions in the supply chain. Current deliveries range from (1) one to two
weeks for standard products kept in inventory, (2) two weeks to 45 days for
products that require configuration and (3) 60 to 90 days for custom products
that must be specially built to our customers' specifications.
We sell on open account. Therefore, we use working capital to pay for the
wages of our employees and to carry inventories and accounts receivable pending
collections from our customers.
EMPLOYEES
As of November 27, 1999, we employed 120 people on a full-time basis, all
of whom work at our facility in Santa Rosa, California. We have never
experienced a work stoppage and none of our employees is unionized. Over one
half of our employees have scientific and technical backgrounds.
LEGAL PROCEEDINGS
From time to time, we may be a party to litigation and proceedings that may
be considered part of the ordinary course of our business. Since our
incorporation in 1991, we have not been a defendant in any lawsuit.
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<PAGE> 37
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
In connection with this offering, the board of directors of TrueTime will
be set at six positions. Our certificate of incorporation provides for the
classification of the board into three classes of directors (Class I, Class II
and Class III), with the term of each class expiring at successive annual
stockholders' meetings. Beginning with the annual meeting of stockholders
following the fiscal year ending September 30, 2000, all nominees of the class
standing for election will be elected for three-year terms. The directors named
below, other than Mr. Hall, will constitute the board of TrueTime at the time of
the consummation of this offering.
<TABLE>
<CAPTION>
CLASS/YEAR
TERM AS DIRECTOR
NAME AGE POSITION WILL EXPIRE(1)
- ---- --- -------- ----------------
<S> <C> <C> <C>
Satoru Ohya(2)......................... 67 Director Class III / 2002
Katsuhiko Kobayashi(3)(4).............. 54 Chairman of the Board and Director Class III / 2002
Elizabeth A. Withers................... 40 President and Chief Executive Officer Class II / 2001
and Director
Haresh C. Patnaik...................... 57 Senior Vice President and Chief
Technical Officer
Donald H. Mitchell..................... 64 Vice President and Director of Sales
and Marketing
Michael P. Von der Porten.............. 43 Vice President and Chief Financial
Officer
Ernest M. Hall, Jr.(5)................. 74 Director (retiring prior to the
closing of this offering)
Charles J. Abbe(2)(3)(4)............... 58 Director Class I / 2000
Charles H. Still(2)(3)................. 57 Director Class II / 2001
A. Robert Towbin(2)(3)(4).............. 64 Director Class I / 2000
</TABLE>
- ---------------
(1) Term of director expires when successor is elected at annual meeting of
stockholders following the end of the fiscal year indicated.
(2) To be elected as a director immediately prior to the closing of this
offering.
(3) Member of the compensation committee of the board of directors.
(4) Member of the audit committee of the board of directors.
(5) Mr. Hall will resign as a member of the board of directors immediately prior
to the effectiveness of the registration statement relating to this
offering.
Satoru Ohya will be elected, and has consented to serve, as a director of
TrueTime immediately prior to the closing of this offering. He has been
President of OYO Japan since 1993. For over 40 years, Mr. Ohya has been an
employee, officer or director of OYO Japan and various of its subsidiaries. He
is a director of OYO Geospace Corporation.
Katsuhiko Kobayashi joined OYO Japan in 1995 and has been a Managing
Director since March 1999. Mr. Kobayashi is responsible for OYO Japan's
international business activities. From 1996 to 1999, he served as Treasurer of
TrueTime's predecessor and he has served as a director thereof since 1999. From
1973 to 1995 he was employed by Sanwa Bank in its international banking area,
where he last held the position of general manager of the International Credit
Administration Department from 1993 to 1995. He is a director of OYO Geospace
Corporation.
Elizabeth A. Withers joined TrueTime in 1991. She has been a director and
President and Chief Executive Officer of TrueTime since September 1999. From
November 1998 until her appointment as
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<PAGE> 38
President and Chief Executive Officer, Ms. Withers served as Vice President of
Operations. She has also held the positions of Operations Manager and Materials
Supervisor. Ms. Withers was formerly Manufacturing Manager at Asea Brown Boveri,
Production Manager at Delphian Corporation and Field Engineering Supervisor at
Fortune Systems. She holds a B.S. degree in Organizational Behavior from the
University of San Francisco and the CPIM certification from the American
Production and Inventory Control Society (APICS). Ms. Withers filed a personal
bankruptcy proceeding under federal laws in 1995.
Haresh C. Patnaik has been Senior Vice President and Chief Technical
Officer of TrueTime since September 1999. From March 1998 until September 1999,
he served as Vice President of Research and Development. Mr. Patnaik joined
TrueTime in 1998 to build the Research and Development function and to assist
TrueTime with his broad management experience. From October 1991 until October
1997, Mr. Patnaik served as Vice President of Engineering at Tegal Corp.,
publicly-traded company in the semiconductor equipment manufacturing industry.
He has also served as the International Liaison and Program Director at Teradata
Corp., the Vice President of Engineering at Kennedy Co. and Director of
Engineering and Operations Program Manager at NCR Corporation. Mr. Patnaik holds
an M.S. degree in Electrical Engineering from Purdue University and a B.S.
degree in Electrical Engineering from IIT in Kharagpur, India. He has also
completed the Executive Management Program at UCLA Graduate School of Business.
Donald H. Mitchell joined TrueTime in 1991 and has served as Vice President
and Director of Sales and Marketing since September 1999. He was Vice President
of Sales from July 1999 until September 1999 and Time and Frequency Director
from November 1991 until July 1999. Prior to joining TrueTime, Mr. Mitchell was
Sales and Marketing Manager at Austron, Inc./Frequency and Time Systems, Sales
and Marketing Manager at Datum, Inc. and Program Manager at Kentron
International. At Ling Temco Vought, Mr. Mitchell performed several roles,
including Program Manager responsible for the Hill Wendover Dugway Test Range at
Hill Air Force Base, Dugway Proving Grounds and Yuma Proving Grounds. He served
as Electronic Support Systems Manager at Khalalein Missile Test Range. Mr.
Mitchell has previous experience as Systems Manager for NASA in Kauai, Hawaii
and as Data Reduction Manager at the Navy Parachute Test Facility in El Centro,
California.
Michael P. Von der Porten joined True Time in 1990 and has been Vice
President and Chief Financial Officer since September 1999. He served as Vice
President of Finance and Administration from November 1998 until September 1999.
He served as Controller and Manager of Administrative Services from June 1994
until November 1998. He served as Manager of Administrative Services from May
1991 until 1994. He has also held the position of Manufacturing Manager. Before
joining TrueTime, Mr. Von der Porten was the Director of Operations and
Secretary at Laser Scanning Products, Inc. and Materials Manager, Production
Manager and Program Manager at Microsource, Inc. Prior to that, he was
Headquarters Sales Manager and a Financial Analyst at Advanced Micro Devices.
Mr. Von der Porten holds an M.B.A. with concentrations in marketing and
production and operations management from the University of Chicago and a B.S.
in Engineering from Harvey Mudd College.
Ernest M. Hall, Jr. has been a director since the formation of TrueTime and
its predecessors in 1991. From August 1994 until his retirement in September,
1999, Mr. Hall was the President of TrueTime. He will retire as a director of
TrueTime immediately prior to the effectiveness of the registration statement
relating to this offering. He has held various positions with the OYO group of
companies since 1980. He was President of OYO U.S.A. from 1985 until 1995, and
from 1997 to the present. From 1980 to 1985, Mr. Hall served as a consultant to
OYO U.S.A. He is a director of OYO Geospace Corporation. Following the offering,
Mr. Hall will continue to serve as President of OYO U.S.A. and will be an
advisor to our management and Board.
Charles J. Abbe will be elected, and has consented to serve, as a director
of TrueTime immediately prior to the closing of this offering. Mr. Abbe has been
a director of Optical Coating Laboratory, Inc. (OCLI) since 1997, President
since November 1997 and Chief Executive Officer since April 1998. He served as
Vice President and General Manager of OCLI's Santa Rosa Division from April 1996
through October 1997 when he was appointed President, Chief Operating Officer
and director. Prior to joining
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<PAGE> 39
OCLI, Mr. Abbe held various senior management positions with Raychem Corporation
from 1989 to 1996. From 1971 to 1989, he was employed at McKinsey & Company,
Inc.
Charles H. Still will be elected, and has consented to serve, as a director
of TrueTime immediately prior to the closing of this offering and has been
corporate secretary of TrueTime since the formation of our predecessor in 1991.
He has been a partner in the law firm of Fulbright & Jaworski L.L.P., which
serves as legal counsel to both OYO and TrueTime in various matters, since 1975.
He is a director of OYO Geospace Corporation.
A. Robert Towbin will be elected, and has consented to serve, as a director
of TrueTime immediately prior to the closing of this offering. Mr. Towbin has
served as Co-Chairman of C.E. Unterberg, Towbin since November 1999. From
December 1995 until November 1999, Mr. Towbin served as Senior Managing Director
of C.E. Unterberg, Towbin. He was President and Chief Executive Officer of the
Russian-American Enterprise Fund from January 1994 to August 1995. From 1987
until 1993, he was a Managing Director at Lehman Brothers Inc. He is a director
of Bradley Real Estate Inc., Gerber Scientific, Inc., Globalstar
Telecommunications Ltd., Globecomm Systems Inc. and K&F Industries, Inc.
From August 1994 until September 1999, TrueTime was managed by a team of
either four or five persons. Together, this group of managers was responsible
for the typical functions of executive officers and they reported to Ernest M.
Hall, Jr., who served as President. In preparation for this offering, Mr. Hall
resigned as President on September 15, 1999, and Ms. Withers was elected
President and Chief Executive Officer. Prior to being elected President, Ms.
Withers was Vice President and Operations Manager, and a member of the four
person management team serving TrueTime. Messrs. Patnaik, Mitchell and Von der
Porten were also members of that management team.
BOARD COMMITTEES
Our board of directors has established an audit committee and a
compensation committee. The audit committee is charged with recommending to the
board of directors the appointment of our independent auditors, reviewing the
compensation of such auditors and reviewing with such auditors the plans for and
the results and scope of their auditing engagement. The compensation committee
reviews the performance and compensation of officers and makes recommendations
to the board of directors with respect thereto. It also administers our 1999
Employee Stock Plan. See "-- Employee Stock Option Plan."
DIRECTOR COMPENSATION
Directors of TrueTime currently are not compensated for their services as
directors. All directors of the Company are reimbursed, however, for ordinary
and necessary expenses incurred in attending board or committee meetings. We
intend to begin compensating non-employee directors and board advisors for their
services at a rate of $12,000 per year (plus expenses) and an initial grant of
options to purchase 10,000 shares of common stock pursuant to the 1999
Non-Employee Director Stock Plan. In addition, we will annually grant additional
stock options to such directors and advisors for the purchase of shares of
common stock pursuant to the terms of that plan.
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<PAGE> 40
EXECUTIVE COMPENSATION
The following table provides information about the current President and
Chief Executive Officer of TrueTime, the former President and Chief Executive
Officer of TrueTime and the three other executive officers of TrueTime who
received salary and bonus in the year ended September 30, 1999, that exceeded
$100,000, these persons being collectively referred to as "named executive
officers." The following compensation data includes bonuses awarded in fiscal
2000 for performance in fiscal 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
YEAR ENDED SEPTEMBER 30, 1999
--------------------------------------
ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
- --------------------------- -------- -------- ------------
<S> <C> <C> <C>
Elizabeth A. Withers
President and Chief Executive Officer(1)............. $ 98,077(2) $ 71,546 $4,617(3)
Ernest M. Hall, Jr.
Former President(1)(4)............................... -- -- --
Haresh C. Patnaik
Senior Vice President and Chief Technical Officer.... 135,193(2) 71,546 4,980(3)
Donald H. Mitchell
Vice President and Director of Sales and Marketing... 83,429(2) 207,272(5) 6,473(3)
Michael P. Von der Porten
Vice President and Chief Financial Officer........... 102,268(2) 71,546 4,764(3)
</TABLE>
- ---------------
(1) Mr. Hall retired from the office of President effective September 15, 1999.
Ms. Withers was appointed to that office effective the same date. Following
this offering, Mr. Hall will continue to serve as an advisor to TrueTime
management and our board.
(2) Beginning October 1, 1999, Ms. Withers' base annual salary is $160,000. Her
compensation for fiscal 1999 related to her position as Vice President of
Operations until September 15, 1999. In addition, effective October 1, 1999,
Messrs. Patnaik's, Mitchell's and Von der Porten's base annual salaries were
$155,000, $150,000 and $140,000, respectively.
(3) Represents contributions by TrueTime to a 401(k) savings plan and premiums
paid on group-term life insurance.
(4) Mr. Hall did not receive compensation from TrueTime for his services as
President. He was compensated by OYO U.S.A. for his services to OYO U.S.A.
and its subsidiaries, including TrueTime, since his duties were primarily
limited to overseeing the interests of OYO U.S.A. in TrueTime, and have not
included active involvement in our daily activities.
(5) Includes commissions from sales and bonuses.
EMPLOYEE STOCK OPTION PLAN
Our Board has established an incentive stock option and restricted stock
plan, the TrueTime, Inc. 1999 Employee Stock Plan (the Employee Plan), pursuant
to which options to purchase shares of common stock and awards of restricted
shares of common stock will be available for future grant to officers,
employees, consultants and advisors of TrueTime. The Employee Plan is designed
to provide selected employees, consultants and advisors, including officers,
with additional incentives to promote the success of our business and to enhance
our ability to attract and retain the services of qualified persons.
The Employee Plan will be administered by a committee of no less than two
persons appointed by the board. Under the Employee Plan, options to purchase
common stock and restricted stock awards up to an aggregate of 1,500,000 shares
of common stock may be granted by the committee. The exercise price of an option
granted pursuant to the Employee Plan may not be less than the fair market value
of the common stock on the date of grant and is determined by the committee on
the date the option is granted. In the case of a grant of an option designated
in the Employee Plan as an "incentive option" (which qualifies for special
treatment under federal tax law) to an employee who owns ten percent or more of
the outstanding shares of common stock (a 10% stockholder), the exercise price
of each such option under the Employee
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<PAGE> 41
Plan may not be less than 110% of the fair market value of the common stock on
the date of the grant. No option may be granted under the Employee Plan for a
period of more than ten years. In the case of a 10% stockholder, no option
designated as an incentive option may be granted for a period of more than five
years. Options designated as incentive options under the Employee Plan may not
be granted to the extent the aggregate fair market value of the stock, valued as
of the date of the grant, with respect to which options first are exercisable by
the option holder in any calendar year, under the Employee Plan or any other
incentive stock option plan of TrueTime, exceeds $100,000. Under the Employee
Plan, the committee may issue shares of restricted stock to employees for no
payment by the employee or for a payment below the fair market value on the date
of grant. The restricted stock is subject to certain restrictions described in
the Employee Plan, with no restrictions continuing for more than ten years from
the date of the award.
To date the Board has not granted any options or restricted stock awards
under the Employee Plan. In connection with this offering, however, the board
intends to grant options for shares of common stock to certain officers and,
employees, exercisable at the initial public offering price.
The following table provides information on stock options to be granted on
or about the closing date of this offering to our named executive officers.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF SHARES TOTAL OPTIONS
UNDERLYING OPTIONS GRANTED TO EXERCISE EXPIRATION
NAME GRANTED EMPLOYEES PRICE DATE
- ---- ------------------ ------------- -------- ----------
<S> <C> <C> <C> <C>
Elizabeth A. Withers......................... 105,000 14% (1) (2)
Haresh C. Patnaik............................ 90,000 12% (1) (2)
Donald H. Mitchell........................... 90,000 12% (1) (2)
Michael P. Von der Porten.................... 90,000 12% (1) (2)
</TABLE>
- ---------------
(1) Exercise price will be equal to the initial public offering price.
(2) Options will expire ten years from date of grant.
In the 1993 Omnibus Budget Reconciliation Act, Congress generally limited
to $1 million per year the tax deduction available to public companies for
certain compensation paid to designated executives. These executives include the
President and Chief Executive Officer and the next four highest compensated
officers of TrueTime. An exception is provided from this deduction limitation
for "performance-based" compensation if specified statutory requirements are
satisfied. The Employee Plan is generally designed to satisfy these statutory
requirements for stock options. We anticipate being entitled to deduct an amount
equal to the ordinary income reportable by an optionee on exercise of
nonqualified options and the early disposition of shares of stock acquired by
exercise of incentive stock options. Restricted stock awards become vested based
on service to TrueTime, and generally will not be exempt from the $1 million
deduction cap. Because of special transition rules applicable to companies which
first become public in an initial public offering, we do not anticipate that
application of this deduction cap will have a material impact on awards issued
under the Employee Plan.
The Employee Plan may be amended by the board of directors without any
requirement of stockholder approval, except as required by the incentive option
rules of the Internal Revenue Code of 1986.
DIRECTOR STOCK PLAN
Our board of directors has also established the 1999 Non-Employee Director
Plan (the Director Plan), pursuant to which options to purchase shares of common
stock will be available for future grant to non-employee directors and advisors
based on the fair market value thereof, as determined under the Director Plan,
at the date of grant. The Director Plan is designed to enhance our ability to
attract and retain the services of qualified persons as directors and to provide
such directors with a direct proprietary interest in our success. The Director
Plan will be administered by the board of directors. Under the
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<PAGE> 42
Director Plan, an aggregate of 150,000 shares of common stock will be available
for grant of options to purchase common stock and, possibly in the future, for
issuance in partial payment of directors' annual fees. The exercise price of an
option granted pursuant to the Director Plan may not be less than the fair
market value of the common stock on the date of grant and is determined by the
board on the date the option is granted. No option may be granted under such
Plan for a period of more than ten years. Shares issued to directors in payment
of part of their annual fees, if any, shall be issued based on the fair market
value thereof on the date of issuance.
To date the board has not granted options under the Director Plan and no
shares have been issued under such plan in respect of director fees. In
connection with this offering, however, the board intends to grant options to
each non-employee director and Mr. Hall, as an advisor to our board of
directors, to acquire 10,000 shares of common stock at an exercise price equal
to the initial public offering price as set forth on the cover page of this
prospectus. Thereafter, the Director Plan provides for the grant of an option to
acquire 10,000 to any newly elected member of the board of directors and an
annual grant of an option to acquire 3,000 shares of common stock to those
non-employee directors who are serving on the board and certain advisors to the
board following each annual meeting of the stockholders. The Director Plan
generally may be amended by the board of directors without any requirement of
stockholder approval except to the extent required by Rule 16b-3.
401(k) PLAN
We have adopted a 401(k) Plan, effective as of the closing of this
offering, under which substantially all employees of TrueTime and its
subsidiaries who have completed at least six months of service will be eligible
to participate. The TrueTime 401(k) Plan permits eligible employees to
contribute up to 17% of their annual compensation up to a maximum dollar amount
established in accordance with Section 401(k) of the Internal Revenue Code of
1986. We may, in our discretion, make matching contributions of up to 50 percent
of the employees' deferrals of up to six percent of their compensation, or other
amounts as approved by the board of directors. During the fiscal year ended
September 30, 1999, our predecessor made matching contributions under a 401(k)
plan sponsored by OYO U.S.A. in an aggregate amount of approximately $19,000 for
Ms. Withers and Messrs. Patnaik, Mitchell and Von der Porten.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our certificate of incorporation provides that the liability of the
directors for monetary damages shall be limited to the fullest extent
permissible under Delaware law.
Our bylaws provide that we indemnify our directors and officers to the
fullest extent possible under Delaware law. These indemnification provisions
require us to indemnify such persons against certain liabilities and expenses to
which they may become subject by reason of their service as a director or
officer of TrueTime or any of our affiliated enterprises. The provisions also
set forth certain procedures, including the advancement of expenses, that apply
in the event of a claim for indemnification. We also intend to enter into
indemnification agreements with each of our officers and directors pursuant to
which we will indemnify each such person to the fullest extent permitted by law.
Further, we intend to obtain insurance to protect our officers and directors
from liability.
EMPLOYMENT AGREEMENTS
We plan to enter into an employment agreement with each of Ms. Withers and
Messrs. Patnaik, Von der Porten and Mitchell effective as of October 1, 1999,
subject to the consummation of this offering. These employment agreements will
set Ms. Withers' base annual salary at $160,000, Mr. Patnaik's base annual
salary at $155,000, Mr. Mitchell's base annual salary at $150,000 and Mr. Von
der Porten's base annual salary at $140,000, in each case subject to adjustment
by our Board. Each of these employees will also be entitled to participate in
our 401(k) Plan and any bonus plan we adopt and to receive certain employee
benefits and vacation.
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Each employment agreement will provide that Ms. Withers and Messrs.
Patnaik, Von der Porten and Mitchell receive the severance benefits described
below upon termination of his or her employment unless the termination (a)
results from the death, disability or retirement of such employee, (b) is by
TrueTime for Cause (as defined in the employment agreement) or (c) is by such
employee other than for Good Reason (as defined in the employment agreement).
Under these employment agreements, "Cause" is defined to mean the employee's
willful and continued failure to perform his or her duties after a demand for
such performance or the employee's willfully engaging in gross misconduct
materially and demonstrably injurious to TrueTime. Under these employment
agreements, "Good Reason" is defined to mean a demotion, a reduction in base
salary, a relocation of the employee's base location of employment, the
discontinuation of any employee benefit without comparable substitution, the
failure of any successor of TrueTime to assume the employment agreement or a
purported termination not in compliance with the employment agreement. The
severance benefits to which Ms. Withers or Messrs. Patnaik, Mitchell or Von der
Porten would be entitled include (i) his or her salary through the date of
termination, (ii) his or her base salary and pro-rated bonus for the fiscal year
of termination multiplied by one and one-half, (iii) any relocation and
indemnity payments to which he or she is entitled and any costs and legal fees
incurred in connection with any dispute over the employment agreement and (iv) a
gross-up for any applicable "excess parachute payment" tax imposed on the
employee by the Internal Revenue Code of 1986.
Each employment agreement will have a two-year term and be automatically
renewable unless we timely elect not to renew. In these employment agreements,
each of Ms. Withers and Messrs. Patnaik, Mitchell and Von der Porten will agree
that he or she will not disclose or misappropriate any of our confidential
information. These employment agreements will also contain customary
non-competition provisions for a California-based enterprise and California
employees, which are limited by state law.
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<PAGE> 44
RELATIONSHIP WITH OYO JAPAN AND RELATED TRANSACTIONS
OFFICER AND DIRECTOR POSITIONS WITH OYO AFFILIATES
We are a wholly owned subsidiary of OYO U.S.A., which in turn is a wholly
owned subsidiary of OYO Japan. Mr. Kobayashi, the chairman of our board of
directors, is Managing Director of OYO Japan. He also holds offices with other
of its subsidiaries. Mr. Ohya, who is to become a director of the Company in
conjunction with the consummation of this offering, is president of OYO Japan.
Mr. Still is also to become a director of the Company in conjunction with the
consummation of this offering. Mr. Still serves as the corporate secretary of
TrueTime, OYO U.S.A. and most of the subsidiaries of OYO U.S.A. In addition, Mr.
Still is a partner in the law firm of Fulbright & Jaworski L.L.P., which
regularly acts as legal counsel to the OYO group of companies, including
TrueTime, in various matters and receives customary fees for its services.
Messrs. Ohya, Kobayashi and Still are also directors of OYO Geospace
Corporation, a majority-owned subsidiary of OYO U.S.A.
TRANSITION SERVICES AGREEMENT
To effect a complete separation of the administrative operation of TrueTime
from OYO and its affiliates, we have entered into a transition services
agreement with OYO U.S.A. Under this agreement, OYO U.S.A. and TrueTime have
each agreed to compensate the other for use of the other's personnel for up to
one year following the consummation of this offering. We anticipate that the
transition services will primarily be used for accounting, tax and employee
benefit matters. Under the agreement, no employee of either party will be
required to provide more than 50 hours per month in service for the benefit of
the other party. Our 401(k) Plan has been administered with affiliated companies
under OYO U.S.A.'s control. We have paid our proportionate share of related
costs (administration fees to third parties). Upon the consummation of this
offering, we will contract for all services on our own behalf.
TAX SEPARATION AGREEMENT
We also intend to enter into a tax separation agreement with OYO U.S.A.
Under the agreement
- any tax liability, assessments, adjustments or refunds relating to our
income, gains, losses, deductions or credits utilized or reflected or to
be utilized or reflected in OYO U.S.A.'s consolidated, combined, or
unitary returns for the current year or for any period which includes all
or any portion of the taxable period ended as of the closing date of this
offering will be allocated between us and OYO U.S.A.
- any tax assessments, adjustments or refunds relating to our tax
attributes reflected or utilized in OYO U.S.A.'s consolidated, combined
or unitary returns as a result of an audit by a taxing authority will be
allocated between us and OYO U.S.A.
CASH MANAGEMENT SYSTEM AND TRUST AGREEMENT
We currently participate in the central cash management system of OYO
U.S.A. in which the net cash provided or used by our operations is transferred
to or from OYO U.S.A. on a daily basis. We have a receivable from OYO U.S.A. for
the cumulative amount by which the cash provided by operating activities,
including current income taxes allocated from OYO U.S.A., has exceeded our
working capital and capital expenditure requirements. The receivable was
approximately $433,000 at September 30, 1999. This amount reflects a collection
of $3.5 million from OYO U.S.A. in September 1999 for the preliminary and
partial settlement of the receivable balance. To the extent not already done, as
soon as practical following the closing of this offering, we will separate from
OYO U.S.A.'s central cash management system and the remaining receivable at that
date will be collected in cash. Beginning October 1, 1997, OYO U.S.A.
implemented a policy of crediting interest on the receivable balance, excluding
the reduction in the receivable balance for allocated current income taxes.
Interest credited and added to the receivable balance was $305,000 for fiscal
1999.
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In October 1999, we transferred $3.5 million to OYO U.S.A. subject to the
terms of a trust agreement with OYO U.S.A. Under the terms of the trust
agreement, OYO U.S.A. acknowledged and agreed that it held $3.5 million, plus
the investment income earned thereon, for our benefit and would manage the trust
assets as part of its other cash management activities. This action was taken to
maximize the return on our assets available for investment until such time that
we have established our own short-term investment program. On December 1, 1999,
the trust was terminated and the cash and cash equivalents held in trust were
distributed to us.
OYO U.S.A. REGISTRATION RIGHTS AGREEMENT
In connection with this offering, we have entered into a registration
rights agreement pursuant to which we granted to OYO U.S.A. piggy-back and
demand registration rights for shares of our common stock owned by OYO U.S.A.
after the consummation of this offering. We are not obligated to effect a
registration if securities for which registration is demanded can be sold within
a single 90-day period pursuant to Rule 144 under the Securities Act of 1933. In
general, we will bear all registration expenses incurred in connection with
these registrations, but OYO U.S.A. will pay all underwriting discounts and
commissions applicable to the sale of securities sold by it. OYO U.S.A. has
entered into a lock-up agreement pursuant to which it has agreed not to offer or
sell shares of our common stock held by it for a period of one year from the
date of this prospectus without the prior written consent of C.E. Unterberg,
Towbin on behalf of the underwriters. OYO U.S.A. has advised us that it has no
plans at present to sell additional shares of our common stock following the
consummation of this offering, but it will not be restricted in doing so except
during the lock-up period pursuant to the lock-up agreement with the
underwriters.
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SECURITY OWNERSHIP OF MANAGEMENT
AND PRINCIPAL AND SELLING STOCKHOLDER
Of the shares of common stock being offered hereby, 1,500,000 are being
offered by OYO U.S.A., the selling stockholder. Prior to this offering, TrueTime
has been a wholly owned subsidiary of the selling stockholder, which held
4,000,000 shares. The selling stockholder is a wholly owned subsidiary of OYO
Japan. See "Relationship with OYO Japan and Related Transactions." Following
this offering, the selling stockholder will hold 2,500,000 shares of common
stock. TrueTime and the selling stockholder will proportionately share the
underwriting discount and the expenses of this offering.
Prior to this offering, our members of management owned no shares of our
common stock. Contemporaneously with this offering, members of management will
be issued options to acquire shares of common stock, as set forth below,
pursuant to the Employee Plan. See "Management -- Employee Stock Plan." The
following table sets forth as of the closing of this offering the beneficial
ownership of shares of common stock, and as a percentage of outstanding common
stock, of each of our directors, each named executive officer, each beneficial
owner of more than 5% of our outstanding common stock and all our directors and
executive officers as a group. Each person named has sole voting and investment
power with respect to the shares indicated except as otherwise stated in the
notes to the table.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP AFTER OFFERING
-------------------------------------------
PERCENTAGE
-------------------------------
IF UNDERWRITER IF UNDERWRITER
OVER-ALLOTMENT OVER-ALLOTMENT
OPTION IS NOT OPTION IS
NAME OF BENEFICIAL OWNER SHARES EXERCISED EXERCISED
- ------------------------ --------- -------------- --------------
<S> <C> <C> <C>
OYO Corporation(1)...................................... 2,500,000 45.5% 42.0%
Ichigaya Building
4-2-6 Kudan Kita
Chiyoda-ku, Tokyo 102
Japan
OYO Corporation U.S.A................................... 2,500,000 45.5% 42.0%
7334 N. Gessner Road
Houston, Texas 77040
Satoru Ohya(2)(6)....................................... 2,510,000 45.6% 42.0%
2-42-10 Takinagara
Kita-ku, Tokyo 114
Japan
Katsuhiko Kobayashi(3)(6)............................... 10,000 * *
Elizabeth A. Withers.................................... -- -- --
Haresh C. Patnaik....................................... -- -- --
Donald H. Mitchell...................................... -- -- --
Michael P. Von der Porten............................... -- -- --
Ernest M. Hall, Jr.(4).................................. 10,000 * *
Charles J. Abbe(5)(6)................................... 10,000 * *
Charles H. Still(5)(6).................................. 10,000 * *
A. Robert Towbin(5)(6).................................. 10,000 * *
Executive officers and directors as a group (9
people)(7)............................................ 2,550,000 45.9% 42.5%
</TABLE>
- ---------------
* Less than one percent.
(1) The shares indicated as beneficially owned by OYO Corporation, a Japanese
corporation, are held directly by its wholly owned subsidiary OYO
Corporation U.S.A.
(2) The shares indicated as beneficially owned by Mr. Ohya are owned directly by
OYO U.S.A. and are included because Mr. Ohya is an affiliate of OYO Japan.
Mr. Ohya disclaims beneficial ownership of the shares of common stock owned
by OYO U.S.A. within the meaning of Rule 13d-3 under the Securities Exchange
Act of 1934. Mr. Ohya owns 298,800 ordinary shares of OYO Japan, and his
wife and children collectively own 19,741 shares of OYO Japan. Mr. Ohya
disclaims beneficial
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<PAGE> 47
ownership of the shares of OYO Japan owned by his children within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934.
(3) Mr. Kobayashi owns 3,420 ordinary shares of OYO Corporation.
(4) Mr. Hall will resign as a member of the board of directors immediately prior
to the effectiveness of the registration statement relating to this
offering.
(5) To be elected as a director immediately prior to the closing of this
offering.
(6) Represents options to purchase 10,000 shares to be granted in connection
with this offering, which vest immediately.
(7) Does not include shares beneficially owned by Mr. Hall, who is retiring
prior to the closing of this offering.
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DESCRIPTION OF CAPITAL STOCK
The following is a summary description of the material terms of our capital
stock. This summary is not intended to be complete. Since the terms of our
capital stock must comply with the provisions of our certificate of
incorporation and bylaws, which are included as exhibits to the registration
statement of which this prospectus is a part, as well as the General Corporation
Law of the State of Delaware, you should read those two exhibit documents
carefully.
We have the authority to issue up to 20,000,000 shares of common stock, par
value $.01 per share, and 1,000,000 shares of preferred stock, par value $.01
per share.
COMMON STOCK
Subject to preferences that may be applicable to any preferred stock
outstanding at any time, if any, the holders of outstanding shares of common
stock are entitled to receive dividends out of assets legally available therefor
at such times and in such amounts as our board of directors from time to time
may determine. Holders of common stock are entitled to one vote for each share
held on all matters submitted to a vote of stockholders. Cumulative voting for
the election of directors is not authorized by our certificate of incorporation,
which means that the holders of a majority of the shares voted can elect all of
the directors then standing for election. The common stock is not entitled to
preemptive rights and is not subject to conversion or redemption. Upon our
liquidation, dissolution or winding-up the assets legally available for
distribution to stockholders would be distributable ratably among the holders of
our common stock after payment of liquidation preferences, if any, on any
outstanding preferred stock and payment of our creditors. Each outstanding share
of our common stock is, and all shares of our common stock to be outstanding
upon completion of this offering will be upon payment therefor, duly and validly
issued, fully paid and nonassessable.
PREFERRED STOCK
Our board of directors is authorized, subject to any limitations under
Delaware law that may apply, to issue shares of preferred stock in one or more
series. The board can fix the rights, preferences and privileges of the shares
of each series and any qualifications, limitations or restrictions thereon.
Our board may authorize the issuance of shares of preferred stock with
voting or conversion rights that could adversely affect the voting power or
other rights of the holders of our common stock. The issuance of shares of
preferred stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of delaying,
deferring or preventing a change in control of TrueTime. We have no current plan
to issue any shares of preferred stock.
DELAWARE ANTI-TAKEOVER LAW
We are subject to the provisions of Section 203 of the Delaware General
Corporation law regulating corporate takeovers. This statute prevents Delaware
corporations like us from engaging, under certain circumstances, in a business
combination, which includes a merger or sale of more than 10% of the
corporation's assets, with any interested stockholder, or a stockholder who owns
15% or more of the corporation's outstanding voting stock, as well as affiliates
and associates of any such persons, for three years following the date that such
stockholder became an "interested stockholder" unless
- the transaction in which such stockholder became an interested
stockholder is approved by the board of directors prior to the date the
interested stockholder attained such status;
- upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transactions commenced, excluding those shares owned by persons who
are directors and also officers and, under certain circumstances, shares
held in employee stock plans; or
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<PAGE> 49
- the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders by the
affirmative vote of at least two-thirds of the outstanding voting stock
not owned by the interested stockholder.
Under some circumstances, Section 203 makes it more difficult for a person
who would be an "interested stockholder" to effect various business combinations
with a corporation for a three-year period, although the stockholders may elect
to exclude a corporation from the restrictions imposed under Section 203. Our
certificate of incorporation does not exclude us from the restrictions imposed
under Section 203. It is anticipated that the provisions of Section 203 may
encourage companies interested in acquiring us to negotiate in advance with our
board of directors since the stockholder approval requirement would be avoided
if a majority of the directors then in office approves, prior to the date on
which a stockholder becomes an interested stockholder, either the business
combination or the transaction which results in the stockholder becoming an
interested stockholder.
CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
The summary below describes provisions of our certificate of incorporation
and bylaws. The provisions of our certificate of incorporation and bylaws
discussed below may have the effect, either alone or in combination with the
provisions of Section 203 discussed above, of making more difficult or
discouraging a tender offer, proxy contest or other takeover attempt that is
opposed by our board of directors but that you might consider to be in your best
interest. Those provisions include
- restrictions on the rights of stockholders to remove directors;
- prohibitions against stockholders calling a special meeting of
stockholders or acting by unanimous written consent in lieu of a meeting;
and
- requirements for advance notice of actions proposed by stockholders for
consideration at meetings of the stockholders.
CLASSIFIED BOARD OF DIRECTORS; REMOVAL; NUMBER OF DIRECTORS; FILLING VACANCIES
Our certificate of incorporation and bylaws provide that the Board shall be
divided into three classes of directors, designated Class I, Class II and Class
III, with the classes to be as nearly equal in number as possible. The term of
office of each class shall expire at the third annual meeting of stockholders
for the election of directors following the election of such class. See
"Management -- Directors and Officers" for identification of the directors in
each class. Each director is to hold office until his or her successor is duly
elected and qualified, or until his or her earlier resignation or removal.
Our certificate of incorporation provides that the number of directors will
be fixed from time to time by a resolution adopted by the board of directors;
provided that the number so fixed shall not be more than nine nor less than
three directors. Our certificate of incorporation also provides that any
vacancies will be filled only by the affirmative vote of two-thirds of the
remaining directors, even if less than a quorum. Accordingly, absent an
amendment to the certificate of incorporation, our board could prevent any
stockholder from enlarging the board and filling the new directorships with such
stockholder's own nominees. Moreover, our certificate of incorporation and
bylaws provide that directors may be removed only for cause and only upon the
affirmative vote of holders of at least a majority of our outstanding voting
stock at a special meeting of stockholders called expressly for that purpose.
The classification of directors could have the effect of making it more
difficult for stockholders to change the composition of the board of directors.
At least two annual meetings of stockholders, instead of one, would generally be
required to effect a change in a majority of the board. Such a delay may help
ensure that our directors, if confronted by a holder attempting to force a proxy
contest, a tender or exchange offer, or an extraordinary corporate transaction,
would have sufficient time to review the proposal as well as any available
alternatives to the proposal and to act in what they believe to be the best
interest of the stockholders. The classification provisions will apply to every
election of directors, however,
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<PAGE> 50
regardless of whether a change in the composition of the board would be
beneficial to us and our stockholders and whether or not a majority of our
stockholders believe that such a change would be desirable.
The classification provisions could also have the effect to discouraging a
third party from initiating a proxy contest, making a tender offer or otherwise
attempting to obtain control of us, even though such an attempt might be
beneficial to us and our stockholders. The classification of the board of
directors could thus increase the likelihood that incumbent directors will
retain their positions. In addition, because the classification provisions may
discourage accumulations of large blocks of our stock by purchasers whose
objective is to take control of us and remove a majority of the board, the
classification of the board could tend to reduce the likelihood of increases in
the market price of our common stock that might result from accumulations of
large blocks. Accordingly, you could be deprived of opportunities to sell your
shares of our common stock at a higher market price than might otherwise be the
case.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
Our certificate of incorporation provides that stockholder action can be
taken only at an annual or special meeting of stockholders and stockholder
action may not be taken by written consent in lieu of a meeting. Special
meetings of stockholders can be called only by our board of directors by a
resolution adopted by two-thirds of the members of the board, or by the chairman
of the board or the Chief Executive Officer. Moreover, the business permitted to
be conducted at any special meeting of stockholders is limited to the business
brought before the meeting under the notice of meeting given by us.
The provisions of our certificate of incorporation prohibiting stockholder
action by written consent and permitting special meetings to be called only by
the chairman of the board of directors or the Chief Executive Officer, or at the
request of two thirds of the members of the board, may have the effect of
delaying consideration of a stockholder proposal until the next annual meeting.
The provisions would also prevent the holders of a majority of our voting stock
from unilaterally using the written consent procedure to take stockholder
action. Moreover, a stockholder could not force stockholder consideration of a
proposal over the opposition of the chairman or President or two thirds of the
members of the board by calling a special meeting of stockholders prior to the
time such parties believe such consideration to be appropriate.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER
PROPOSALS
Our bylaws establish an advance notice procedure for stockholders to
nominate candidates for election as directors or bring other business before an
annual meeting of stockholders.
The stockholder notice procedure provides that only persons who are
nominated by, or at the direction of, the board of directors, or by a
stockholder who has given timely notice containing specified information to our
corporate secretary prior to the meeting at which directors are to be elected,
will be eligible for election as our directors. The stockholder notice procedure
also provides that at an annual meeting only business that has been brought
before the meeting by, or at the direction of, the board of directors or by a
stockholder who has given timely written notice containing specified information
to our corporate secretary may be conducted. For notice of stockholder
nominations or proposals to be made at an annual meeting to be timely, the
notice must be received by us not less than 90 days nor more than 180 days in
advance of the meeting. However, in the event that less than 100 days notice or
prior public disclosure of the date of the meeting of stockholders is given or
made to the stockholders, to be timely, notice of a nomination or proposal
delivered by the stockholder must be received by our corporate secretary not
later than the close of business on the tenth day following the day on which
notice of the date of the meeting of stockholders was mailed or such public
disclosure was made to the stockholders. If the board or, alternatively, the
presiding officer at a meeting (in the case of a stockholder proposal) or the
chairman of the meeting (in the case of a stockholder nomination to the board)
determines at or prior to the meeting that business was not brought before the
meeting, or a person was not nominated, in accordance with the stockholder
notice procedure, that business will not be conducted at the meeting, or that
person will not be eligible for election as a director.
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<PAGE> 51
By requiring advance notice of nominations by stockholders, the stockholder
notice procedure will afford our board of directors an opportunity to consider
the qualifications of the proposed nominees and, to the extent considered
necessary or desirable by the board, to inform stockholders about such
qualifications. By requiring advance notice of other proposed business, the
stockholder notice procedure will also provide a more orderly procedure for
conducting annual meetings of stockholders and, to the extent considered
necessary or desirable by the board, will provide the board with an opportunity
to inform stockholders, prior to such meetings, of any business proposed to be
conducted at such meetings, together with any recommendations as to the board's
position regarding action to be taken regarding such business, so that
stockholders can better decide whether to attend such a meeting or to grant a
proxy regarding the disposition of any such business.
Although our bylaws do not give the board any power to approve or
disapprove stockholder nominations for the election of directors or proposals
for action, they may have the effect of precluding a contest for the election of
directors or the consideration of stockholder proposals if the proper procedures
are not followed and of discouraging or deterring a third party from conducting
a solicitation of proxies to elect its own slate of directors or to approve its
own proposal, without regard to whether consideration of such nominees or
proposals might be harmful or beneficial to us and our stockholders.
AMENDMENTS
Our certificate of incorporation provides that we reserve the right to
amend, alter, change or repeal any provision contained in our certificate of
incorporation, and all rights conferred to stockholders are granted subject to
such reservation. The affirmative vote of holders of not less than two-thirds of
our voting stock, voting together as a single class, is required to alter,
amend, adopt any provision inconsistent with or repeal specified provisions of
our certificate of incorporation, including certain provisions discussed in this
section. In addition, our certificate of incorporation provides that
stockholders may only adopt, amend or repeal our bylaws by the affirmative vote
of holders of not less than a majority of our voting stock, voting together as a
single class. Our bylaws may also be amended by our board of directors.
RIGHTS TO PURCHASE SECURITIES AND OTHER PROPERTY
Our certificate of incorporation authorizes the board of directors to
create and issue rights, warrants and options entitling the holders of them to
purchase from us shares of any class or classes of our capital stock or other
securities or property on such terms and conditions as the board of directors
may deem advisable.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our certificate of incorporation limits the liability of directors to the
fullest extent permitted by Delaware law. In addition, our certificate of
incorporation and bylaws provide that we will indemnify our directors and
officers to the fullest extent permitted by Delaware law. We have also entered
into separate indemnification agreements with our directors and officers that
provide them indemnification protection to the maximum extent permitted by law
in the event our certificate of incorporation is subsequently amended or we are
taken over and also to provide for certain procedural matters for our directors
that safeguard or enhance their indemnity rights. The form of the indemnity
agreements is included as an exhibit to the registration statement of which this
prospectus is a part and you should read that document carefully, together with
our certificate of incorporation and bylaws, which are also included as
exhibits, if you want further information as to our indemnity arrangements
relating to directors and officers.
Our certificate of incorporation and bylaws provide that we will indemnify
officers and directors against losses that they may incur in investigations and
legal proceedings resulting from their services to us, which may include
services in connection with takeover defense measures. Such provisions may have
the effect of preventing changes in our management.
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LISTING
We are applying to have the shares we are offering approved for quotation
on the Nasdaq National Market under the symbol "TRUE."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Norwest Shareowner
Services and they can be reached at 161 North Concord Exchange, South St. Paul,
Minnesota 55075, (651) 450-4064.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering there has been no public market for our common
stock. The market price of our common stock could drop due to sales of a large
number of shares of our common stock or the perception that such sales could
occur. These factors could also make it more difficult to raise funds through
future offerings of common stock.
After this offering, 5,500,000 shares of our common stock will be
outstanding (5,950,000 shares if the underwriters exercise their over-allotment
option from us in full), and there are 810,000 estimated shares of common stock
issuable upon the exercise of authorized and outstanding options under our stock
plans (see "Management"), and 200,000 shares issuable under warrants issued to
the underwriters in connection with this offering (see "Underwriting"). Of these
shares, the 3,000,000 shares (3,450,000 shares if the underwriters exercise
their over-allotment options in full) sold in this offering will be freely
tradable without restrictions under the Securities Act, except for any shares
purchased by any of our affiliates, defined as any person that, directly or
indirectly, controls, or is controlled by, or is under common control with,
TrueTime. The remaining 2,500,000 shares (not including shares issuable under
options, warrants or pursuant to restricted stock awards as to which special
restrictions apply) are restricted securities, defined as
- securities acquired directly or indirectly from us, or from an affiliate
of ours, or in a transaction or chain of transactions not involving any
public offering; and
- securities acquired from us that are subject to the resale limitations
under the Securities Act.
Restricted securities generally may not be sold unless they are registered under
the Securities Act or are sold pursuant to an exemption from registration, such
as the exemption provided by Rule 144 under the Securities Act.
Our officers and directors and the selling stockholder have entered into
lock-up agreements pursuant to which they have agreed not to offer or sell any
shares of common stock for a period of one year after the date of this
prospectus without the prior written consent of C.E. Unterberg, Towbin, which
may, at any time and without notice, waive any of the terms of these lock-up
agreements. These shares will not be eligible for sale in the public market
without registration under the Securities Act unless such sales meet the
conditions and restrictions of Rule 144 as described below.
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
shares for a period of at least one year is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of (1)
1% of the then-outstanding shares of common stock and (2) the average weekly
trading volume of the common stock during the four calendar weeks immediately
preceding the date on which the notice of such sale on Form 144 is filed with
the SEC. Sales under Rule 144 are also subject to certain provisions relating to
notice and manner of sale and the availability of current public information
about the Company. In addition, a person (or persons whose shares are
aggregated) who has not been an affiliate of the Company at any time during the
90 days immediately preceding a sale of our common stock, and who has
beneficially owned the shares for at least two years, would be entitled to sell
shares owned thereby under Rule 144(k) without regard to the volume limitation
and other conditions described above. The foregoing summary of Rule 144 is not
intended to be a complete description.
As soon as practicable following the consummation of this offering, we
intend to file a registration statement under the Securities Act to register the
shares of our common stock available for issuance under our stock plans. Shares
issued under these plans and warrants generally will be available for sale in
the open market when options or warrants or exercised or restricted stock awards
vest, subject to the expiration of the one-year lock-up period.
49
<PAGE> 54
We will grant C.E. Unterberg, Towbin registration rights covering the
200,000 shares of our common stock they may acquire upon exercise of the
warrants to be issued to them in connection with this offering. We intend to
grant OYO U.S.A. piggyback and demand registration rights covering the 2,500,000
shares of common stock it will own after this offering.
50
<PAGE> 55
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
among us and the underwriters, each of the underwriters named below, for whom
C.E. Unterberg, Towbin, Cruttenden Roth Incorporated, and Pennsylvania Merchant
Group are acting as representatives, has severally agreed to purchase from us
the number of shares of common stock set forth below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ---------
<S> <C>
C.E. Unterberg, Towbin......................................
Cruttenden Roth Incorporated................................
Pennsylvania Merchant Group.................................
---------
Total............................................. 3,000,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are subject to certain conditions. The nature of the underwriters'
obligations is that they are committed to purchase and pay for all of the above
shares of common stock if any are purchased.
PUBLIC OFFERING PRICE AND DEALERS CONCESSION
The underwriters propose initially to offer the shares of common stock
offered by this prospectus to the public at the public offering price per share
set forth on the cover page of this prospectus and to certain dealers at that
price less a concession not in excess of $ per share. The underwriters may
allow, and these dealers may re-allow, a discount not in excess of $ per
share on sales to certain other dealers. After commencement of this offering,
the offering price, discount price and re-allowance may be changed by the
underwriters. No such change will alter the amount of proceeds to be received by
us as set forth on the cover page of this prospectus.
OVER-ALLOTMENT OPTION
We have granted the underwriters an option, which may be exercised within
30 days after the date of this prospectus, to purchase up to 450,000 additional
shares of common stock to cover over-allotments, if any, at the initial public
offering price, less the underwriting discount set forth on the cover page of
this prospectus. If the underwriters exercise their over-allotment option to
purchase any of these additional 450,000 shares of common stock, these
additional shares will be sold by the underwriters on the same terms as those on
which the shares offered by this prospectus are being sold. We will be
obligated, pursuant to the over-allotment option, to sell shares to the
underwriters if the underwriters exercise their over-allotment option. The
underwriters may exercise their over-allotment option only to cover over-
allotments made in connection with the sale of the shares of common stock
offered by this prospectus.
51
<PAGE> 56
UNDERWRITING COMPENSATION
The following table summarizes the compensation to be paid to the
underwriters by us and the selling shareholder in connection with this offering:
<TABLE>
<CAPTION>
TOTAL
-------------------------------
PER WITHOUT WITH
SHARE OVER-ALLOTMENT OVER-ALLOTMENT
----- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts paid by us.................. $ $ $
Underwriting discounts paid by the selling
stockholder......................................
Total.................................... $ $ $
</TABLE>
INDEMNIFICATION OF UNDERWRITERS
We have agreed to indemnify the underwriters against certain civil
liabilities, including liabilities under the Securities Act, or to contribute to
payments the underwriters may be required to make in connection with these
liabilities.
C.E. UNTERBERG, TOWBIN WARRANT
As additional underwriting compensation, we will issue C.E. Unterberg,
Towbin, for its own account, warrants covering an aggregate of up to 200,000
shares of common stock exercisable at the price per share equal to 110% of the
initial public offering price. C.E. Unterberg, Towbin may exercise these
warrants as to all or any lesser number of the underlying shares of common stock
commencing on the first anniversary of the date of this offering until the fifth
anniversary of the date of this offering. The terms of the warrants require us
to register the common stock for which the warrants are exercisable within one
year from the effective date of the registration statement.
The warrants are not transferable by the warrant holder other than to
officers and partners of C.E. Unterberg, Towbin or to one of the other
underwriters or its officers or partners. The exercise price of the warrants and
the number of shares of common stock for which the warrants are exercisable are
subject to adjustment to protect the warrant holder against dilution in certain
events.
LOCK-UP AGREEMENTS
We, the selling stockholder and all of our directors and officers have
agreed to a "lock-up" arrangement for a period of one year after the date of
this prospectus, subject to certain exceptions. Under this lock-up arrangement,
we may not, without the prior written consent of C.E. Unterberg, Towbin, enter
into or effect certain transactions involving the capital stock of TrueTime or
any securities convertible into or exchangeable for our capital stock. For
example, we and they may not offer, sell, pledge or otherwise dispose of, file a
registration statement with the SEC relating to any shares of our capital stock.
STABILIZATION AND OTHER TRANSACTIONS
In connection with this offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the market price of
the common stock. These transactions may include stabilization transactions
effected in accordance with Rule 104 of Regulation M under the Exchange Act,
pursuant to which the underwriters may bid for, or purchase, common stock for
the purpose of stabilizing the market price. The underwriters also may create a
short position by selling more common stock in connection with this offering
than they are committed to purchase from us, and in such case may purchase
common stock in the open market following completion of this offering to cover
all or a portion of such short position. In addition, the underwriters may
impose "penalty bids" whereby they may reclaim from a dealer participating in
this offering, the selling concession with respect to the common stock that it
distributed in this offering, but which was subsequently purchased for the
accounts of the underwriters in the open market. Any of the transactions
described in this paragraph may result in the maintenance of the price of the
common stock at a level above that which might otherwise prevail in the open
market. None of the
52
<PAGE> 57
transactions described in the paragraph is required, and, if they are
undertaken, they may be discontinued at any time.
At our request, the Underwriters have reserved for sale, at the initial
public offering price, up to 5% of the shares of common stock offered by this
prospectus for sale to our officers, directors, employees and their family
members friends and to business associates of TrueTime, including, customers,
sales representatives, suppliers and other friends. These persons must commit to
purchase after the registration statement has become effective but before the
open of business on the following business day. The number of shares available
for sale to the general public will be reduced to the extent these persons
purchase the reserved shares.
DISCRETIONARY ACCOUNTS
The underwriters have informed us that they do not intend to confirm sales
to any account over which they exercise discretionary authority.
DETERMINATION OF OFFERING PRICE
Prior to this offering, there has been no market for our common stock.
Accordingly, the initial public offering price for the common stock was
determined by negotiation between us and the underwriters. Among the factors
considered in determining the initial public offering price were our results of
operations, our current financial condition, our future prospects, the state of
the markets for our services, the experience of our management, the economics of
the precision timing industry in general, the general condition of the equity
securities market and the demand for similar securities of companies considered
comparable to us.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Fulbright & Jaworski L.L.P., Houston, Texas. Charles H. Still, a
partner in such firm, will become a member of our board of directors immediately
prior to the consummation of this offering and will be granted options to
purchase 10,000 shares of common stock under the 1999 Director Plan at the
offering price. Certain legal matters in connection with this offering will be
passed upon for the underwriters by Akin, Gump, Strauss, Hauer & Feld, L.L.P.
EXPERTS
The financial statements as of September 30, 1998 and 1999, and for each of
the three years in the period ended September 30, 1999, included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares of our
common stock being sold in this offering. This prospectus does not contain all
of the information set forth in the registration statement and the exhibits
filed with the registration statement. For further information with respect to
TrueTime and our common stock, we refer you to the registration statement and
the exhibits filed with the registration statement. Statements contained in this
prospectus regarding the contents of any contract or any other document filed as
an exhibit are not necessarily complete, and, in each instance, we refer you to
the copy of such contract or other document filed as an exhibit to the
registration statement and each such statement is qualified in all respects by
the contract or other document in question. A copy of the registration statement
and the exhibits and schedules filed with the registration statement may be
inspected without charge at the public
53
<PAGE> 58
reference facilities maintained by the SEC in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's regional offices located at the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60611 and Seven World Trade Center, 13th Floor, New York, New York
10048, and copies of all or any part of the registration statement may be
obtained from these offices upon the payment of the fees charged by the SEC. You
may obtain information on the operation of the SEC's public reference facilities
by calling 1-800-SEC-0330. The SEC also maintains a World Wide Web site that
contains registration statements, reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC.
The address of the site is http://www.sec.gov. We maintain a website at
www.truetime.com.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE YOU WRITTEN
INFORMATION OTHER THAN THIS PROSPECTUS OR TO MAKE REPRESENTATIONS AS TO MATTERS
NOT STATED IN THIS PROSPECTUS. YOU MUST NOT RELY ON UNAUTHORIZED INFORMATION.
THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SHARES OF COMMON STOCK OR OUR
SOLICITATION OF YOUR OFFER TO BUY THESE SHARES OF COMMON STOCK IN ANY
JURISDICTION WHERE IT WOULD NOT BE PERMITTED OR LEGAL. THE INFORMATION CONTAINED
IN THIS PROSPECTUS IS CURRENT ONLY AS OF THE DATE OF THIS PROSPECTUS. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALES MADE HEREUNDER AFTER THE DATE OF
THIS PROSPECTUS SHALL CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN OR THE AFFAIRS OF TRUETIME, INC. HAVE NOT CHANGED SINCE THE DATE OF THIS
PROSPECTUS.
54
<PAGE> 59
TRUETIME, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-1
Balance Sheets as of September 30, 1998 and 1999............ F-2
Statements of Operations for the Years Ended September 30,
1997, 1998 and 1999....................................... F-3
Statements of Changes in Stockholder's Equity for the Years
Ended September 30, 1997, 1998 and 1999................... F-4
Statements of Cash Flows for the Years Ended September 30,
1997, 1998 and 1999....................................... F-5
Notes to Financial Statements............................... F-6
</TABLE>
F-i
<PAGE> 60
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
TrueTime, Inc.:
In our opinion, the accompanying balance sheets and the related statements
of operations, changes in stockholder's equity and cash flows present fairly, in
all material respects, the financial position of TrueTime, Inc. (a wholly owned
subsidiary of OYO Corporation U.S.A.) at September 30, 1998 and 1999, and the
results of its operations and its cash flows for each of the three years in the
period ended September 30, 1999, in conformity with accounting principles
generally accepted in the United States. 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 of these statements in accordance with accounting principles generally
accepted in the United States, which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Houston, Texas
November 2, 1999, except for Note 8, as
to which the date is December 1, 1999
F-1
<PAGE> 61
TRUETIME, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 38,348 $ 3,538,851
Receivables:
Trade accounts, net of allowance of $10,000 at each
date.................................................. 2,945,038 4,270,985
Affiliates............................................. 3,171 42,760
Receivable from Parent.................................... 2,741,589 432,608
Inventories............................................... 4,217,828 5,064,779
Prepaid expenses and other current assets................. 148,655 23,753
Deferred income tax....................................... 220,151 172,791
----------- -----------
Total current assets.............................. 10,314,780 13,546,527
Property and equipment, net................................. 1,003,205 1,128,275
Goodwill, net of accumulated amortization of $188,906 and
$214,682.................................................. 842,327 816,552
----------- -----------
Total assets...................................... $12,160,312 $15,491,354
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Trade accounts payable.................................... $ 436,547 $ 767,337
Accrued expenses.......................................... 1,237,362 1,971,066
----------- -----------
Total current liabilities......................... 1,673,909 2,738,403
Commitments and contingencies
Stockholder's equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, no shares issued and outstanding........... -- --
Common stock, $.01 par value, 20,000,000 shares
authorized, 4,000,000 shares issued and outstanding.... 40,000 40,000
Additional paid-in capital................................ 4,689,838 4,689,838
Retained earnings......................................... 5,756,565 8,023,113
----------- -----------
Total stockholder's equity........................ 10,486,403 12,752,951
----------- -----------
Total liabilities and stockholder's equity........ $12,160,312 $15,491,354
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE> 62
TRUETIME, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Sales................................................. $13,893,904 $16,296,604 $20,645,240
Cost of sales......................................... 5,783,298 7,536,409 9,076,137
----------- ----------- -----------
Gross profit.......................................... 8,110,606 8,760,195 11,569,103
Operating expenses:
Selling, general and administrative................. 3,906,323 4,395,159 5,905,203
Research and development............................ 1,854,596 1,873,365 2,155,597
----------- ----------- -----------
Total operating expenses.................... 5,760,919 6,268,524 8,060,800
----------- ----------- -----------
Income from operations................................ 2,349,687 2,491,671 3,508,303
----------- ----------- -----------
Interest and other income (expense):
Interest income..................................... -- 259,824 300,109
Other, net.......................................... 9,972 (10,916) 4,982
----------- ----------- -----------
Total interest and other income, net........ 9,972 248,908 305,091
----------- ----------- -----------
Income before provision for income taxes.............. 2,359,659 2,740,579 3,813,394
Provision for income taxes............................ 963,410 1,121,608 1,546,846
----------- ----------- -----------
Net income............................................ $ 1,396,249 $ 1,618,971 $ 2,266,548
=========== =========== ===========
Weighted average shares outstanding as adjusted for
reincorporation:
Basic and diluted................................... 4,000,000 4,000,000 4,000,000
=========== =========== ===========
Earnings per share:
Basic and diluted................................... $ 0.35 $ 0.40 $ 0.57
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 63
TRUETIME, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Stockholder's equity, October 1,
1996............................... 4,000,000 $40,000 $4,689,838 $2,741,345 $ 7,471,183
Net income......................... -- -- -- 1,396,249 1,396,249
--------- ------- ---------- ---------- -----------
Stockholder's equity, September 30,
1997............................. 4,000,000 40,000 4,689,838 4,137,594 8,867,432
Net income......................... -- -- -- 1,618,971 1,618,971
--------- ------- ---------- ---------- -----------
Stockholder's equity, September 30,
1998............................. 4,000,000 40,000 4,689,838 5,756,565 10,486,403
Net income......................... -- -- -- 2,266,548 2,266,548
--------- ------- ---------- ---------- -----------
Stockholder's equity, September 30,
1999............................. 4,000,000 $40,000 $4,689,838 $8,023,113 $12,752,951
========= ======= ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 64
TRUETIME, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------
1997 1998 1999
----------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 1,396,249 $1,618,971 $2,266,548
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Deferred income taxes.............................. 47,382 47,531 47,360
Depreciation and amortization...................... 200,123 265,874 342,888
Effects of changes in operating assets and
liabilities:
Receivables...................................... (1,327,617) 127,736 (1,365,536)
Inventories...................................... (777,342) (675,414) (846,951)
Prepaid expenses and other current assets........ 5,917 (35,391) 124,902
Trade accounts payable........................... 275,335 (516,230) 330,790
Accrued expenses................................. 275,953 39,426 733,704
----------- ---------- ----------
Net cash provided by (used in) operating
activities.................................. 96,000 872,503 1,633,705
----------- ---------- ----------
Cash flows from investing activities:
Decrease (increase) in receivable from Parent......... 148,824 (201,936) 2,308,981
Capital expenditures.................................. (244,824) (632,219) (442,183)
----------- ---------- ----------
Net cash provided by (used in) investing
activities.................................. (96,000) (834,155) 1,866,798
----------- ---------- ----------
Increase in cash and cash equivalents................... -- 38,348 3,500,503
Cash and cash equivalents, beginning of period.......... -- -- 38,348
----------- ---------- ----------
Cash and cash equivalents, end of period................ $ -- $ 38,348 $3,538,851
=========== ========== ==========
Supplemental cash flow information:
Noncash settlement of cumulative allocated current
income taxes by offset against receivable from
Parent............................................. $ -- $ -- $4,229,878
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 65
TRUETIME, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
TrueTime, Inc. (the "Company") is a wholly owned subsidiary of OYO
Corporation U.S.A. (the "Parent"). The Parent is a wholly owned subsidiary of
OYO Corporation, a Japanese corporation. The Company designs, develops and
manufactures precision time products that are essential components in modern
communications and computer systems. The Company's products are used in its
telecommunications, computer networking and aerospace industries as well as in
various other commercial markets. The Company's products use a variety of
external timing references, including most importantly the Global Positioning
System, together with state-of-the-art clocks to provide high quality signals
(frequencies) and precision time.
The significant accounting policies followed by the Company are summarized
below:
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 and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenue is primarily derived from the sale of precision time and frequency
instruments. Revenue is recognized when products are shipped and title has
passed to the customer.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
ALLOCATION OF OPERATING EXPENSES FROM THE PARENT
The Company and the Parent have separate management, operating facilities
and administrative functions and do not conduct shared research and development
activities. The Parent arranges for specific shared services for its
subsidiaries related primarily to accounting, tax and employee benefit matters.
The costs of such shared services are charged directly to the subsidiaries when
the vendor provides a specific subsidiary breakout of the total costs or is
allocated to the subsidiaries based on total revenues or other reasonable
allocation bases. Management believes that the method for allocating the costs
of shared services is reasonable and that such costs allocated to the Company
for all periods presented in the accompanying financial statements are not
materially different from the costs that would have been incurred if the Company
had operated on a stand alone basis.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt securities purchased with an
original or remaining maturity at the time of purchase of three months or less
to be cash equivalents. Subsequent to September 30, 1999, cash and cash
equivalents include amounts held in trust with the Parent as more fully
described in Note 8.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk are primarily cash and cash equivalents and trade
accounts receivable.
The Company maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits. Management believes the financial strength
of the financial institutions minimizes the credit risk related to such
deposits.
F-6
<PAGE> 66
TRUETIME, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company sells products to customers throughout the United States and
various foreign countries. The Company's normal credit terms for trade
receivables are 30 days. In certain situations, credit terms may be extended to
60 days. The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. Allowances are maintained for estimated
credit losses. The Company's provision for bad debts was none, $13,700 and none
for the years ended September 30, 1997, 1998 and 1999, respectively. The
Company's write off of bad debts against the allowance for doubtful accounts was
none, $13,700 and none for the years ended September 30, 1997, 1998 and 1999,
respectively.
INVENTORIES
Inventories are stated at the lower of cost (as determined by a method that
approximates the first-in, first-out method) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation expense is provided
by the straight-line method over an estimated useful life of 5 years for all
property and equipment except leasehold improvements, which are depreciated over
the shorter of the economic life or the term of the lease.
Expenditures for renewals and betterments are capitalized. Repairs and
maintenance are charged to expense as incurred. The cost and accumulated
depreciation of assets sold or otherwise disposed of are removed from the
accounts and any gain or loss thereon is reflected in operations.
GOODWILL
The Parent acquired the Company in 1991. Goodwill represents the Parent's
purchase price of the Company in excess of the fair values of the Company's
assets and liabilities at the purchase date. Goodwill is amortized to expense
using the straight-line method over an estimated useful life of 40 years.
Goodwill and other long-lived assets are reviewed for impairment whenever
an event or change in circumstances indicates that the carrying amount of the
assets may not be recoverable. The impairment review includes comparison of
future cash flows expected to be generated by the Company's operations with the
carrying value of goodwill and other long-lived assets. If the carrying value of
such assets exceeds the expected undiscounted future cash flows, an impairment
loss is recognized to the extent the carrying amount of the assets exceeds their
fair values.
PRODUCT WARRANTIES
The Company sells products under one-year warranties. The estimated future
cost under existing warranties is accrued.
INCOME TAXES
The Company joins in the consolidated U.S. income tax return of the Parent,
which includes all U.S. subsidiaries of the Parent, and in the consolidated
California state income tax return, which includes all subsidiaries that are
included in the consolidated U.S. income tax return. Federal and state income
taxes are provided by the Company as if it filed separate income tax returns.
The Company follows the liability method of accounting for income taxes
whereby deferred tax assets and liabilities are determined based on the
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws. The Company provides a
valuation allowance, if necessary, to reduce deferred tax assets to their
estimated realizable value.
F-7
<PAGE> 67
TRUETIME, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. INVENTORIES:
Inventories consisted of the following:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
-----------------------
1998 1999
---------- ----------
<S> <C> <C>
Finished goods.............................................. $1,030,747 $ 948,393
Work in process............................................. 769,541 1,375,575
Raw materials............................................... 2,417,540 2,740,811
---------- ----------
$4,217,828 $5,064,779
========== ==========
</TABLE>
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
------------------------
1998 1999
---------- -----------
<S> <C> <C>
Machinery and equipment..................................... $1,451,660 $ 1,712,419
Furniture and fixtures...................................... 341,963 342,716
Transportation equipment.................................... 2,142 26,767
Leasehold improvements...................................... 132,716 141,728
---------- -----------
1,928,481 2,223,630
Accumulated depreciation.................................... (925,276) (1,095,355)
---------- -----------
$1,003,205 $ 1,128,275
========== ===========
</TABLE>
4. ACCRUED EXPENSES:
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
-----------------------
1998 1999
---------- ----------
<S> <C> <C>
Employee bonuses............................................ $ 530,331 $ 873,157
Payroll and other compensation.............................. 437,941 725,063
Compensated absences........................................ 230,213 246,984
Product warranty............................................ 12,000 12,000
Legal and professional fees................................. 25,867 26,102
Other accrued expenses...................................... 1,010 87,760
---------- ----------
$1,237,362 $1,971,066
========== ==========
</TABLE>
F-8
<PAGE> 68
TRUETIME, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES:
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
1997 1998 1999
-------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal......................................... $775,564 $ 909,378 $1,269,555
State........................................... 140,464 164,699 229,931
-------- ---------- ----------
916,028 1,074,077 1,499,486
-------- ---------- ----------
Deferred:
Federal......................................... 40,061 40,201 40,051
State........................................... 7,321 7,330 7,309
-------- ---------- ----------
47,382 47,531 47,360
-------- ---------- ----------
$963,410 $1,121,608 $1,546,846
======== ========== ==========
</TABLE>
The differences between the effective tax rate reflected in the total
provision for income taxes and the statutory federal tax rate of 34% were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
1997 1998 1999
-------- ---------- ----------
<S> <C> <C> <C>
Provision for income taxes at the statutory
rate.............................................. $802,284 $ 931,797 $1,296,554
State income taxes, net of federal income tax
benefit......................................... 147,785 172,029 237,240
Goodwill amortization............................. 8,764 8,764 8,764
Other............................................. 4,577 9,018 4,288
-------- ---------- ----------
Provision for income taxes........................ $963,410 $1,121,608 $1,546,846
======== ========== ==========
Effective income tax rate......................... 40.8% 40.9% 40.6%
======== ========== ==========
</TABLE>
Deferred income taxes under the liability method reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred income tax
liabilities and assets were as follows:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Deferred income tax assets:
Allowance for doubtful accounts........................... $ 4,000 $ 4,000
Accrued product warranty.................................. 5,000 5,000
Inventories............................................... 34,390 43,311
Accrued compensated absences.............................. 92,900 99,635
Other..................................................... 85,748 32,560
-------- --------
222,038 184,506
Deferred income tax liability:
Property and equipment.................................... (1,887) (11,715)
-------- --------
Net deferred income tax asset..................... $220,151 $172,791
======== ========
</TABLE>
Under the liability method, a valuation allowance is provided when it is
more likely than not that some portion or all of the deferred tax assets will
not be realized. Based on the Company's historical
F-9
<PAGE> 69
TRUETIME, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
taxable income record and taxable income available in carryback years,
management believes that the Company will realize the deferred tax assets.
6. STOCKHOLDER'S EQUITY:
Effective November 1, 1999, the Company was reincorporated from California
to Delaware under the name TrueTime, Inc. (also referred to as the "Company").
The reincorporation was accomplished by the issuance of 4,000,000 shares of $.01
par value common stock in a newly formed Delaware corporation to the Parent and
the tax-free merger of the California corporation into the Delaware corporation.
After the reincorporation, the Company has 20,000,000 authorized shares of $.01
par value common stock, of which 4,000,000 issued and outstanding common shares
are owned by the Parent. The accompanying financial statements reflect the
capital structure of the Company after the reincorporation and the assets,
liabilities, total stockholder's equity and results of operations of the
previous California corporation for all dates and periods presented. Earnings
per share information has been computed giving effect to the common shares
outstanding after the reincorporation for all periods presented.
Effective with the reincorporation, the Company has 1,000,000 authorized
shares of $0.01 par value preferred stock. No preferred shares have been issued.
In conjunction with a planned initial public offering, the Company has
filed a registration statement with the Securities and Exchange Commission to
offer 3,000,000 common shares, including 1,500,000 common shares owned by
Parent. The Company has agreed to grant options to the underwriters for the
purchase of up to 450,000 additional common shares to cover over-allotments, if
any. In addition, the Company has agreed to issue warrants to the underwriters
for the purchase of up to 200,000 common shares at an exercise price equal to
110% of the offering price.
The board of directors have established the TrueTime, Inc. 1999 Employee
Stock Plan and the 1999 Non-Employee Director Plan and have reserved an
aggregate of 1,500,000 common shares and 150,000 common shares, respectively,
for issuance thereunder. No stock awards have been granted under either plan.
7. RETIREMENT PLAN:
The Company's employees are participants in a 401(k) plan (the "Plan")
provided by the Parent, which covers substantially all eligible employees in the
United States. The Plan is a qualified salary reduction plan in which all
eligible participants may elect to have a percentage of their compensation
contributed to the Plan, subject to annual limitations. The Company's share of
discretionary contributions was approximately $92,000, $112,000 and $136,000 for
the years ended September 30, 1997, 1998 and 1999, respectively.
8. RELATED PARTY TRANSACTIONS:
Sales to the Parent and other affiliated companies were approximately
$97,000, $40,000 and $52,000 during the years ended September 30, 1997, 1998 and
1999, respectively.
The Company participates in the central cash management system of the
Parent in which the net cash provided or used by operations is transferred to or
from the Parent on a daily basis. Since the implementation of the central cash
management system, the Company's cash flow provided from operating activities
have exceeded capital expenditure and, as a result, the Company has maintained a
receivable from the Parent for the excess that is held in the cash management
system. Beginning October 1, 1997, the Parent implemented a policy of crediting
interest on the receivable balance. Interest credited and added to the
receivable balance was $259,824 and $300,109 for the years ended September 30,
1998 and 1999, respectively. For financial reporting purposes, the receivable
from the Parent represents the
F-10
<PAGE> 70
TRUETIME, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
cumulative amount of cash contributed to the central cash management system,
plus the interest credited thereon, net of the cumulative amount of current
federal income taxes that have been allocated from the Parent.
On September 30, 1999, the Company and the Parent conducted a partial and
preliminary settlement of the receivable from Parent. On that date, the Parent
formally settled the cumulative amount of allocated current income taxes of
$4,229,878 by offsetting such amount against the receivable from the Parent for
the cumulative amount of cash contributed to the central cash management system.
In addition, the Parent paid the Company $3,500,000 in cash as a partial
settlement of the resulting net receivable balance. At September 30, 1999, after
considering this transaction, the remaining receivable from Parent was $432,608.
In October 1999, the Company transferred $3,500,000 in cash to the Parent
subject to the terms of a Trust Agreement with the Parent. Under the terms of
the Trust Agreement, the Parent acknowledged and agreed that it held $3,500,000,
plus the investment income earned thereon, for the Company's benefit and managed
the trust assets as part of the Parent's other cash management activities. This
action was taken to maximize the return on the Company's assets available for
investment. On December 1, 1999, the Trust Agreement was terminated and the cash
and cash equivalents held in trust in the amount of $3,530,089 were distributed
to the Company.
9. COMMITMENTS:
OPERATING LEASES
The Company leases certain office space and manufacturing facilities under
noncancelable operating leases. For fiscal years ending after September 30,
1999, the approximate future minimum rental commitments under noncancelable
operating leases were as follows:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30,
-------------------------
<S> <C>
2000.................................................... $ 185,000
2001.................................................... 185,000
2002.................................................... 185,000
2003.................................................... 185,000
2004.................................................... 186,000
Thereafter.............................................. 783,000
----------
$1,709,000
==========
</TABLE>
Rent expense for the years ended September 30, 1997, 1998 and 1999, was
approximately $178,000, $191,000 and $353,000, respectively.
10. SEGMENT INFORMATION:
The Company manages its business on a total product-line basis and has one
reportable segment. The product-line and related accounting policies are
described in Note 1.
F-11
<PAGE> 71
TRUETIME, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Revenues related to continuing operations in the United States and foreign
countries are presented below:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Revenues from unaffiliated customers:
United States............................... $11,337,000 $13,445,000 $17,276,000
Foreign:
Europe................................... 1,524,000 1,387,000 1,869,000
Other.................................... 936,000 1,425,000 1,448,000
</TABLE>
All of the Company's long-lived assets related to continuing operations are
located in the United States.
Various branches and agencies of the U.S. Government utilize the Company's
products in varying applications. Total products sales to the U.S. Government
comprised 21%, 23% and 28% of revenues during the years ended September 30,
1997, 1998 and 1999, respectively. Sales to one branch of the U.S. Government
comprised 18% of the Company's revenues for the year ended September 30, 1999.
In addition, sales to a private-sector customer comprised 10% of revenues for
each of the two years in the period ended September 30, 1998.
F-12
<PAGE> 72
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3,000,000 SHARES
[TRUETIME LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
C.E. UNTERBERG, TOWBIN
CRUTTENDEN ROTH
INCORPORATED
PENNSYLVANIA MERCHANT GROUP
, 1999
UNTIL , 2000, 25 DAYS AFTER THE DATE OF THIS PROSPECTUS, ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 73
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions and other underwriter compensation,
payable by TrueTime in connection with the sale of common stock being
registered. All amounts are estimates except the SEC registration fee, the NASD
filing fees and the Nasdaq National Market listing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
---------
<S> <C>
SEC Registration fee..................................... $ 6,714
NASD filing fee.......................................... 2,915
Nasdaq National Market initial listing fee............... 63,725
Printing and engraving................................... 100,000
Legal fees and expenses.................................. 125,000
Accounting fees and expenses............................. 85,000
Directors and Officers Liability Insurance............... 50,000
Blue sky fees and expenses............................... 10,000
Transfer agent fees...................................... 25,000
Miscellaneous............................................ 31,646
--------
Total.......................................... $500,000
========
</TABLE>
- ---------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware Corporation Law permits a corporation to
include in its charter documents and in agreements between the corporation and
its directors and officers provisions as to the scope of indemnification.
Article 7 of TrueTime's Certificate of Incorporation, to be filed in
connection with this offering, provides for indemnification of officers and
directors to the fullest extent permissible under Delaware law.
Section 52 of TrueTime's By-laws provides for the indemnification of
officers and directors acting on behalf of TrueTime if any such person so
indemnified acted in good faith and in a manner reasonably believed to be in or
not opposed to the best interests of TrueTime, and, with respect to any criminal
action or proceeding, any such person had no reason to believe his or her
conduct was unlawful.
TrueTime has entered into indemnification agreements with its officers and
directors, in addition to indemnification provided for in TrueTime's By-laws,
and intends to enter into indemnification agreements with any new officers and
directors in the future.
Delaware law permits TrueTime to purchase and maintain insurance on behalf
of any director, officer, employee or agent of TrueTime against any liability
asserted against or incurred by any of them in such capacity or arising out of
the status thereof as such whether or not TrueTime would have the power to
indemnify such director, officer, employee or agent against such liability under
the applicable provisions of Delaware law, the Certificate of Incorporation or
the By-laws.
The general effect of the foregoing provisions is to reduce the
circumstances in which an officer or director may be required to bear the
economic burdens of the liabilities and expenses arising from his or her service
as such.
II-1
<PAGE> 74
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
TrueTime, Inc. was incorporated in Delaware on October 13, 1999, for the
purpose of effecting this offering. On November 1, 1999, its predecessor
TrueTime, Inc., a California corporation, was merged into TrueTime, Inc., a
Delaware corporation, to accomplish a reincorporation in Delaware. In connection
with such merger the single outstanding share of common stock of TrueTime, Inc.
(a California corporation) was converted into 4,000,000 newly issued shares of
common stock, $.01 par value, of TrueTime, Inc. (a Delaware corporation),
constituting all the outstanding shares thereof. The issuance of such shares
upon the reincorporation of TrueTime, Inc. in Delaware was exempt from the
registration provisions of the Securities Act of 1933 under Section 4(2)
thereof. Such issuance was a transaction not involving any public offering of
securities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1* -- Form of Underwriting Agreement.
1.2* -- Form of Warrant Agreement and Warrant (to be issued to
the C.E. Unterberg, Towbin).
3.1** -- Certificate of Incorporation of the Registrant.
3.2** -- By-laws of the Registrant.
4.1*** -- Specimen Certificate of the Registrant's common stock.
4.2 -- See Exhibit 3.1 for provisions of the Registrant's
Certificate of Incorporation defining the rights of the
holders of common stock.
4.3 -- See Exhibit 3.2 for provisions of the Registrant's
By-laws defining the rights of holders of common stock.
5.1* -- Opinion of Fulbright & Jaworski L.L.P., counsel to the
Registrant.
10.1*** -- Form of Indemnification Agreement between the Registrant
and its officers and directors.
10.2*** -- TrueTime, Inc. 1999 Key Employee Stock Option Plan.
10.3*** -- TrueTime, Inc. 1999 Non-Employee Director Plan.
10.4*** -- Form of Employment Agreement.
10.5*** -- Form of Tax Separation Agreement between the Registrant
and OYO Corporation U.S.A.
10.6*** -- Form of Transition Services Agreement between the
Registrant and OYO Corporation U.S.A.
10.7** -- Trust Agreement between the Registrant and OYO
Corporation U.S.A. for the benefit of the Registrant.
10.8*** -- Form of Registration Rights Agreement between the
Registrant and OYO Corporation U.S.A.
10.9** -- Standard Industrial Lease between Manor Development Co.
and the Registrant.
21.1 -- List of Subsidiaries of the Registrant -- None.
23.1*** -- Consent of PricewaterhouseCoopers LLP, public
accountants.
23.2* -- Consent of Fulbright & Jaworski L.L.P., counsel to the
Registrant. Reference is made to Exhibit 5.1.
23.3** -- Consent of named director (Satoru Ohya).
23.4** -- Consent of named director (Charles J. Abbe).
</TABLE>
II-2
<PAGE> 75
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
23.5** -- Consent of named director (Charles H. Still).
23.6** -- Consent of named director (A. Robert Towbin).
24.1** -- Power of Attorney. (Reference is made to page II-4 of the
original Registration Statement filed November 3, 1999).
27.1** -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
*** Filed herewith.
(b) FINANCIAL STATEMENT SCHEDULES
All financial statement schedules are omitted as the required information
is inapplicable or the information is presented in the Financial Statements or
the related Notes.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 76
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 1 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Santa Rosa, State of California, on this 2nd day of December, 1999.
TRUETIME, INC.
By /s/ ELIZABETH A. WITHERS
-----------------------------------
Elizabeth A. Withers
President and Chief Executive
Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* December 2, 1999
- ----------------------------------------------------- Chairman of the Board
Katsuhiko Kobayashi
/s/ ELIZABETH A. WITHERS President, Chief Executive December 2, 1999
- ----------------------------------------------------- Officer and Director
Elizabeth A. Withers (Principal Executive Officer)
/s/ MICHAEL P. VON DER PORTEN Vice President and Chief December 2, 1999
- ----------------------------------------------------- Financial Officer (Principal
Michael P. Von der Porten Financial and Accounting
Officer)
* December 2, 1999
- ----------------------------------------------------- Director
Ernest M. Hall, Jr.
* /s/ ELIZABETH A. WITHERS
---------------------------------------------------
Elizabeth A. Withers
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 77
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1* -- Form of Underwriting Agreement.
1.2* -- Form of Warrant Agreement and Warrant (to be issued to
the C.E. Unterberg, Towbin).
3.1** -- Certificate of Incorporation of the Registrant.
3.2** -- By-laws of the Registrant.
4.1*** -- Specimen Certificate of the Registrant's common stock.
4.2 -- See Exhibit 3.1 for provisions of the Registrant's
Certificate of Incorporation defining the rights of the
holders of common stock.
4.3 -- See Exhibit 3.2 for provisions of the Registrant's
By-laws defining the rights of holders of common stock.
5.1* -- Opinion of Fulbright & Jaworski L.L.P., counsel to the
Registrant.
10.1*** -- Form of Indemnification Agreement between the Registrant
and its officers and directors.
10.2*** -- TrueTime, Inc. 1999 Key Employee Stock Option Plan.
10.3*** -- TrueTime, Inc. 1999 Non-Employee Director Plan.
10.4*** -- Form of Employment Agreement.
10.5*** -- Form of Tax Separation Agreement between the Registrant
and OYO Corporation U.S.A.
10.6*** -- Form of Transition Services Agreement between the
Registrant and OYO Corporation U.S.A.
10.7** -- Trust Agreement between the Registrant and OYO
Corporation U.S.A. for the benefit of the Registrant.
10.8*** -- Form of Registration Rights Agreement between the
Registrant and OYO Corporation U.S.A.
10.9** -- Standard Industrial Lease between Manor Development Co.
and the Registrant.
21.1 -- List of Subsidiaries of the Registrant -- None.
23.1*** -- Consent of PricewaterhouseCoopers LLP, public
accountants.
23.2* -- Consent of Fulbright & Jaworski L.L.P., counsel to the
Registrant. Reference is made to Exhibit 5.1.
23.3** -- Consent of named director (Satoru Ohya).
23.4** -- Consent of named director (Charles J. Abbe).
23.5** -- Consent of named director (Charles H. Still).
23.6** -- Consent of named director (A. Robert Towbin).
24.1** -- Power of Attorney. (Reference is made to page II-4 of the
original Registration Statement filed November 3, 1999).
27.1** -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
*** Filed herewith.
<PAGE> 1
<TABLE>
<S> <C> <C>
NUMBER SHARES
[TRUETIME LOGO]
TRUETIME, INC.
Incorporated Under the Laws of the State of Delaware
TR CUSIP: 897868 10 5
SEE REVERSE FOR
CERTAIN DEFINITIONS
THIS CERTIFIES THAT [SPECIMEN]
Is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.01 EACH OF
TRUETIME, INC.
transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed. This certificate is not valid unless countersigned and registered by the Transfer Agent and
Registrar.
IN WITNESS WHEREOF, the Corporation has caused the facsimile signatures of its duly authorized officers and its facsimile seal to be
affixed hereto.
Dated:
Countersigned and Registered: [TRUETIME, INC. CORPORATE SEAL] Charles H. Still Elizabeth A. Withers
Norwest Shareowner Services /s/ CHARLES H. STILL /s/ ELIZABETH A. WITHERS
Transfer Agent and Registrar
Secretary President
By
Authorized Officer
</TABLE>
<PAGE> 2
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- _____________ Custodian ___________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act __________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, __________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
_______________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
_______________________________________________________________________________
_______________________________________________________________________________
________________________________________________________________________ Shares
of the Capital Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint ____________________________________________
_______________________________________________________________________________
Attorney to transfer the said stock on the books of the within named
Corporation with full power of substitution in the premises.
Dated:
------------------------------
X
---------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS
ASSIGNMENT MUST CORRESPOND WITH
THE NAME(S) AS WRITTEN UPON THE FACE
OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
X
---------------------------------------
-----------------------------------------
ALL GUARANTEES MUST BE MADE BY A
FINANCIAL INSTITUTION (SUCH AS A BANK OR
BROKER) WHICH IS A PARTICIPANT IN THE
SECURITIES TRANSFER AGENTS MEDALLION
PROGRAM ("STAMP") THE NEW YORK STOCK
EXCHANGE, INC. MEDALLION SIGNATURE
PROGRAM ("MSP"), OR THE STOCK EXCHANGES
MEDALLION PROGRAM ("SEMP") AND MUST NOT
BE DATED. GUARANTEES BY A NOTARY PUBLIC
ARE NOT ACCEPTABLE
-----------------------------------------
<PAGE> 1
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made as of the ______ day of December, 1999, between
TRUETIME, INC., a Delaware corporation ("Corporation") and
__________________________ ("Indemnified Party").
WITNESSETH:
WHEREAS, Indemnified Party is, or is about to become, a member of the
Board of Directors or an officer of the Corporation and in such capacity is
performing a valuable service for Corporation;
WHEREAS, Indemnified Party may from time to time serve as a director,
officer, employee, trustee or agent of other corporations, partnerships, joint
ventures, trusts or other enterprises, entities or plans at the request of
Corporation in order to pursue Corporation's interests;
WHEREAS, the Certificate of Incorporation (the "Certificate") and the
Bylaws (the "Bylaws") of Corporation provide for the mandatory indemnification
of the officers, directors, agents and employees of Corporation to the maximum
extent authorized by Section 145 of the Delaware General Corporation Statute, as
amended hereafter (the "State Statute");
WHEREAS, such Certificate, such Bylaws and the State Statute
specifically provide that they are not exclusive and thereby contemplate that
contracts or other arrangements not inconsistent with the State Statute may be
entered into between Corporation and the members of its Board of Directors and
its officers with respect to indemnification of such directors and officers;
WHEREAS, in accordance with the authorization provided by the State
Statute, Corporation is purchasing and will maintain a policy of Directors' and
Officers' Liability Insurance ("D&O Insurance"), covering certain liabilities
which may be incurred by its directors and officers in the performance of their
services for Corporation, possibly including certain liabilities for which
indemnification by the Corporation is not authorized or permitted under the
State Statute;
WHEREAS, uncertainties with respect to the terms and availability of
D&O Insurance and with respect to the application, amendment and enforcement of
statutory and by-law indemnification provisions make it desirable to supplement
and enhance the adequacy and reliability of the protection afforded to directors
and officers thereby;
WHEREAS, Corporation is in the process of accomplishing an initial
public offering ("IPO") of its common stock and desires to recruit new directors
and to continue the service of its existing directors to Corporation as a public
company;
WHEREAS, in order to supplement and enhance the protection afforded
Indemnified Party and to induce Indemnified Party to serve as a member of the
Board of Directors or as an officer of
<PAGE> 2
Corporation at and after the IPO (and to be named as a director or person
consenting to be a director in the IPO documents), Corporation has determined
and agreed to enter into this contract with Indemnified Party, which contract
has been approved and adopted by Corporation's Board and such Board action has
been ratified by Corporation's sole stockholder; and
WHEREAS, this contract has been so approved and ratified but shall not
become effective until the day one day prior to the consummation of the IPO;
NOW, THEREFORE, in consideration of Indemnified Party's continued
service as a director or an officer of Corporation after the date hereof the
parties hereto agree as follows:
1. DEFINITIONS.
"Litigation Costs" means costs, charges, expenses and obligations,
including, without limitation, all bonds, expenses of investigation,
fees and expenses of experts, accountants or other professionals,
travel and lodging expenses, and attorneys' fees and expenses,
reasonably incurred or contracted for in the investigation, defense or
prosecution of or other involvement in any Proceeding and any appeal
therefrom, and all costs of appeal, attachment, supersede as and other
bonds that may be relevant to any Proceeding.
"Losses" means the total of all amounts which Indemnified Party
becomes, or may become, legally obligated to pay in connection with any
Proceeding, including (without limitation) judgments, penalties, fines,
court or investigative costs, amounts paid in settlement, amounts lost
or ordered forfeited pursuant to injunctive sanctions, and all
Litigation Costs.
"Proceeding" means any threatened, pending or completed action, suit,
proceeding, subpoena compliance, inquiry or investigation, whether
civil, criminal, administrative or investigative (whether external and
involving outside parties or internal to the Corporation, including,
but not limited to, an action by or in the right of the Corporation and
any internal investigation conducted by the Board of Directors or any
committee or other designee thereof or any other person), and whether
formal or informal.
2. INDEMNITY OF INDEMNIFIED PARTY. Corporation hereby agrees to indemnify
Indemnified Party to the fullest extent authorized or permitted by the
provisions of the State Statute, including, but not limited to, (i) the
maximum extent permitted by the provisions of such Statute which
provide that such Statute is not the exclusive basis for
indemnification of directors and officers and (ii) the maximum extent
authorized or permitted by any amendment thereof or other statutory
provision authorizing or permitting such indemnification which is
adopted after the date hereof.
3. ADDITIONAL INDEMNITY. In addition to and not in substitution for or
diminution of the obligations of indemnification set forth in Section 2
hereof, Corporation hereby further agrees to indemnify Indemnified
Party, to the fullest extent permitted by law, against any and all
Litigation Costs and Losses of Indemnified Party in connection with any
Proceeding to which Indemnified Party is, was or at any time becomes a
party, or is threatened to be made
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<PAGE> 3
a party or otherwise becomes involved (other than as plaintiff except
where being a plaintiff or intervenor is necessary to avoid res
judicata or collateral estoppel or other estoppel or other result as to
matters which may adversely impact Indemnified Party) by reason of the
fact that Indemnified Party is, was or at any time becomes a director,
officer, employee or agent of Corporation, or is or was serving or at
any time serves at the request of Corporation as a director, officer,
employee, trustee or agent of another corporation, partnership, joint
venture, trust or other enterprise or any benefit plan related to the
business and affairs of Corporation, and specifically including any
Proceeding brought pursuant to the provisions of Section 16(b) of the
Securities Exchange Act of 1934 (the "1934 Act") or any other provision
under the 1934 Act and the Securities Act of 1933 and the rules and
regulations thereunder.
4. LIMITATIONS ON INDEMNITY. No amounts of Indemnity pursuant to Section 2
or 3 hereof shall be paid by Corporation:
(a) Except to the extent the aggregate of Litigation Costs and
Losses in any Proceeding or group of related Proceedings to be
indemnified thereunder exceeds the amount of Litigation Costs
and Losses for which the Indemnified Party actually receives
indemnification payments or on whose behalf indemnification
payments are made pursuant to any D&O Insurance policy or from
any other source;
(b) On account of any payments required to be paid by an
Indemnified Party as a result of any Proceeding in which a
final, non-appealable judgment is rendered against Indemnified
Party for an accounting or disgorgement of profits made from
the purchase or sale by Indemnified Party of securities of
Corporation pursuant to the provisions of Section 16(b) of the
1934 Act;
(c) On account of any claim made against Indemnified Party brought
about or contributed to by the dishonesty of Indemnified Party
seeking payment hereunder; however, notwithstanding the
foregoing, Indemnified Party shall be protected under this
Agreement as to any claims upon which suit may be brought
against him by reason of any alleged dishonesty on his part
unless a final adjudication adverse to Indemnified Party shall
establish that he committed (i) acts of active and deliberate
dishonesty (ii) with actual dishonest purpose and intent,
which acts were material to the cause of action so
adjudicated;
(d) If a final non-appealable decision by a court having
jurisdiction over the parties and the subject matter shall
determine that such indemnification is not lawful.
5. CONTINUATION OF INDEMNITY. All agreements and obligations of
Corporation contained herein and in the Certificate and the Bylaws
shall continue during the period Indemnified Party is a director,
officer, employee, trustee or agent of Corporation (or is or was
serving at the request of Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or
other enterprise or any benefit plan related to the business and
affairs of Corporation or of any of its affiliates, subsidiaries,
associates or other entities
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<PAGE> 4
in which it is interested) and shall continue thereafter so long as
Indemnified Party shall be subject to any possible Litigation Costs or
Losses in any Proceeding by reason of the fact that Indemnified Party
was a director, officer, employee, trustee or agent of Corporation (or
is or was serving at the request of Corporation as a director, officer,
employee, trustee or agent of another corporation, partnership, joint
venture, trust or other enterprise or any such benefit plan).
6. NOTIFICATION AND DEFENSE OF CLAIM. Promptly after receipt by
Indemnified Party of notice of the commencement of any Proceeding,
Indemnified Party will, if a claim in respect thereof is to be made
against Corporation under this Agreement, give reasonable notice to
Corporation of the commencement thereof; but the omission so to notify
Corporation will not relieve Corporation from any liability which it
may have to Indemnified Party unless Corporation can demonstrate by
clear and convincing evidence that it was materially prejudiced by the
failure to receive such notice. With respect to any such Proceeding as
to which Indemnified Party becomes involved:
(a) Corporation will be entitled to participate therein at its own
expense; and
(b) Except as otherwise provided below, to the extent that it may
wish, Corporation may, jointly with any other indemnifying
party, assume the defense thereof, with outside counsel which
must be reasonably satisfactory to Indemnified Party. After
notice from Corporation to Indemnified Party of its election
so to assume the defense thereof (and consent of Indemnified
Party as to Corporation's choice of outside counsel, which
consent will not be unreasonably withheld), Corporation will
be liable to Indemnified Party under this Agreement for all
Litigation Costs (subject to Section 4 above and other than as
provided below with respect to attorneys' fees) incurred in
connection therewith. Indemnified Party shall have the right
to employ personal counsel in such Proceeding, but the fees
and expenses of such counsel incurred after notice from
Corporation of its assumption of the defense thereof (and
consent of Indemnified Party as to Corporation's choice of
outside counsel) shall be at the expense of Indemnified Party,
unless (i) the employment of counsel for Indemnified Party has
been authorized by Corporation, (ii) Indemnified Party shall
have concluded in good faith that there may be a conflict of
interest between Corporation and Indemnified Party in the
conduct of the defense (or part of the defense) of such
action, or (iii) Corporation shall not in fact have employed
counsel to assume the defense of such action, in each of which
cases the fees and expenses of counsel shall be at the expense
of Corporation. Corporation shall not be entitled to assume
the defense of any Proceeding brought by or on behalf of
Corporation or as to which Indemnified Party shall have made
the conclusion provided for in (ii) above; and
(c) Corporation shall not be liable to indemnify Indemnified Party
under this Agreement for any Losses paid in settlement of any
Proceeding or claim effected without its written consent.
Corporation shall not settle any Proceeding or claim in any
manner which would impose any penalty, sanction or limitation
on Indemnified Party, or
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<PAGE> 5
otherwise effectively indicate the existence of any wrongful
act by Indemnified Party, without Indemnified Party's written
consent. Neither Corporation nor Indemnified Party will
unreasonably withhold its consent to any proposed settlement.
Without intending to limit the circumstances in which it would
be unreasonable for Corporation to withhold its consent to a
settlement, the parties hereto agree it would be unreasonable
for Corporation to withhold its consent to a settlement in an
amount that did not exceed, in the business judgment of the
Board of Directors of Corporation, the estimated amount of
Litigation Costs of Indemnified Party to litigate the
Proceeding to conclusion, provided that there is no other
materially adverse consequence to Corporation from such
settlement.
7. NO PRESUMPTIONS. The termination of any Proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption (i) that
Indemnified Party did not act in good faith, (ii) with respect to any
criminal action or proceeding, that Indemnified Party had reasonable
cause to believe that his conduct constituted a criminal violation or
(iii) that Indemnified Party was knowingly fraudulent, deliberately
dishonest or committed an act, or made an omission, involving willful
misconduct.
8. MANDATORY ADVANCEMENT OF EXPENSES. At the request of Indemnified Party,
Litigation Costs incurred or contracted for by him in any Proceeding
shall be paid by Corporation on a continuing and current basis, in
advance of the final disposition of such matter, with the undertaking
which Indemnified Party makes hereby that if it shall be ultimately
determined that Indemnified Party was not entitled to be indemnified
therefor, or was not entitled to be fully indemnified therefor,
Indemnified Party shall repay to Corporation the amount, or appropriate
portion thereof, so advanced. Such advancement and current payment of
Litigation Costs by Corporation shall be made promptly (but in any
event within 10 days) after receipt by Corporation of Indemnified
Party's request therefor.
9. REPAYMENT OF EXPENSES. Indemnified Party agrees that Indemnified Party
will reimburse Corporation for all Litigation Costs paid by Corporation
in connection with any Proceeding in which Indemnified Party is
involved in the event and only to the extent that it shall be
ultimately determined by final non-appealable judgment of a court of
competent jurisdiction that Indemnified Party is not entitled to be
indemnified by Corporation for such Litigation Costs under the
provisions of the State Statute, the Certificate, the Bylaws and this
Agreement.
10. PROCEDURE.
(a) Indemnification hereunder shall be made promptly, and in any
event within thirty days of Indemnified Party's written
request therefor, unless (i) an affirmative determination is
made reasonably and within such thirty-day period by
Corporation in the manner provided in subsection (b) below,
that Indemnified Party is not entitled to indemnity hereunder
for any reason other than as contemplated by clause (ii) of
this Section 10(a), or (ii) an affirmative determination is
required by the State Statute
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<PAGE> 6
or other applicable law that the Indemnified Party met an
applicable standard of conduct, in which case the Corporation
will cause such determination to be made within sixty days
from the date of the written request for indemnity.
(b) The determination to be made by Corporation under subsection
(a) above shall be based on the facts known at the time and
shall be made (i) by the Board, by a majority vote of a quorum
consisting of directors who are not parties to the Proceeding
("disinterested directors"), or (ii) if such a quorum is not
obtainable, by independent legal counsel in a written opinion,
or (iii) even if such a quorum is obtainable, by independent
legal counsel in a written opinion if the Board, by a majority
vote of a quorum consisting of disinterested directors, so
directs, or (iv) by the stockholders of Corporation. Any such
determination may be contested by Indemnified Party as
hereinafter contemplated.
(c) A failure to make any required determination within the period
of time specified shall be deemed to be a determination
favorable to the Indemnified Party.
11. ENFORCEMENT.
(a) Corporation expressly confirms and agrees that it has entered
into this Agreement and assumed the obligations imposed on
Corporation hereby and has obtained the approval of its Board
of Directors and the ratification of such approval by its sole
stockholder in order to induce Indemnified Party to serve as a
director or an officer of Corporation and acknowledges that
Indemnified Party is relying upon this Agreement in agreeing
to serve in such capacity.
(b) In the event Indemnified Party is required to bring any action
to enforce rights or to collect moneys due under this
Agreement, Corporation shall reimburse Indemnified Party, on a
continuing and current basis, for all of Indemnified Party's
reasonable fees and expenses in bringing and pursuing such
action and Indemnified Party shall have no obligation to
reimburse Corporation therefor unless Indemnified Party is not
successful in such action after rendition of a final,
non-appealable judgment by a court of competent jurisdiction.
(c) The right to indemnification hereunder shall be enforceable by
Indemnified Party in any court of competent jurisdiction if
Indemnified Party's claim therefor is denied, in whole or in
part, in the manner provided herein, or if no disposition of
such claim is made within sixty days from the receipt by
Corporation of Indemnified Party's request for indemnification
hereunder.
12. INSURANCE. Corporation shall maintain in full force and effect, at its
own expense, director and officer liability insurance ("Insurance")
coverage for each director and officer in amounts and scope at least as
favorable as that maintained by Corporation on the effective date of
its registration statement in connection with its initial public
offering or, to the extent more favorable, any Insurance policy entered
into or renewed by Corporation following such date.
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Notwithstanding the foregoing, if Corporation, after using its best
efforts, cannot obtain and purchase such coverage for an amount no more
than what it paid for the most recent expiring Insurance policy plus a
reasonable additional amount reflecting increased premium costs for
Companies situated at the time as Corporation, Corporation shall only
be required to purchase such Insurance coverage for any act or omission
occurring at or prior to the time of such date, sometimes referred to
in the insurance industry as "tail" coverage.
13. SEVERABILITY. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others so that if any
provision hereof shall be held to be invalid or unenforceable for any
reason, such invalidity or unenforceability shall not affect the
validity or enforceability of the other provisions hereof. To the
extent necessary to effectuate this Agreement, should any provision
hereof be held invalid or unenforceable, this Agreement shall be
reformed in such manner as to provide the maximum indemnity
contemplated hereby to Indemnified Party, it being the intention of the
parties hereto that this Agreement be otherwise given its maximum
effect consistent with the laws of the State of Delaware.
14. OBLIGATION TO AMEND. Corporation agrees to take all actions necessary
to amend this Agreement in the future to increase or otherwise maximize
the indemnity protections intended to be afforded hereby to the extent
then permitted by law. Corporation will take no action, however, to
amend the provisions of its Certificate or Bylaws pertaining to
indemnity with any retroactive effect without the consent of the
Indemnified Party.
15. NOTICE. Any notice, request or other communication hereunder to
Corporation or Indemnified Party shall be in writing and delivered or
sent by postage prepaid first class mail or by hand delivery or express
mail service or by facsimile copy to Corporation's facsimile phone
number as follows: (i) if to Corporation, addressed to TrueTime, Inc.,
2835 Duke Court, Santa Rosa, California 95407, and (ii) if to
Indemnified Party, to the address shown on the signature page hereof or
at such other address as Indemnified Party shall designate from time to
time to Corporation in writing.
16. GOVERNING LAW; BINDING EFFECT; AMENDMENT AND TERMINATION.
(a) This Agreement shall be interpreted and enforced in accordance
with the laws of the State of Delaware.
(b) This Agreement shall be binding upon Indemnified Party and
upon Corporation, its successors and assigns, and shall inure
to the benefit of Indemnified Party, his heirs, personal
representatives and assigns and to the benefit of Corporation,
its successors and assigns. Corporation will require any
successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or any substantial part of
the business and/or assets of Corporation, by agreement in
form and substance satisfactory to Indemnified Party, to
expressly assume and agree to perform this Indemnification
Agreement in the same manner and to the same extent that
Corporation would be required to perform it if no such
succession had taken place. Failure of Corporation to obtain
such agreement prior to effectiveness of any
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succession shall be a breach of this Indemnification Agreement
and shall entitle Indemnified Party to appropriate equitable
relief or monetary damages from Corporation in an amount
necessary to provide Indemnified Party with the protections to
which he would be entitled hereunder. As used in this
Indemnification Agreement, "Corporation" shall mean
Corporation as hereinbefore defined and any successor to its
business and/or assets as aforesaid that executes and delivers
the agreement provided for in this Section 14 or that
otherwise becomes bound by all the terms and provisions of
this Indemnification Agreement by operation of law.
(c) No amendment, modification, termination or cancellation of
this Agreement shall be effective unless in writing signed by
both parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
TRUETIME, INC.
By
-----------------------------------
Authorized Signatory
-------------------------------------
Indemnified Party
Address:
-----------------------------
-----------------------------
-----------------------------
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<PAGE> 1
EXHIBIT 10.2
TRUETIME, INC.
1999 KEY EMPLOYEE STOCK OPTION PLAN
<PAGE> 2
TRUETIME, INC.
1999 KEY EMPLOYEE STOCK OPTION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section
<S> <C>
ARTICLE I - PLAN
Purpose.......................................................................................1.1
Effective Date of Plan........................................................................1.2
ARTICLE II - DEFINITIONS
Affiliate.....................................................................................2.1
Board of Directors............................................................................2.2
Change of Control.............................................................................2.3
Code..........................................................................................2.4
Committee.....................................................................................2.5
Company.......................................................................................2.6
Employee......................................................................................2.7
Fair Market Value.............................................................................2.8
Incentive Option..............................................................................2.9
Nonqualified Option..........................................................................2.10
Option.......................................................................................2.11
Option Agreement.............................................................................2.12
Outside Director.............................................................................2.13
Plan.........................................................................................2.14
Restricted Stock.............................................................................2.15
Restricted Stock Agreement...................................................................2.16
Restricted Stock Purchase Price..............................................................2.17
Stock........................................................................................2.18
Stock Award..................................................................................2.19
Ten Percent Stockholder......................................................................2.20
Voting Stock.................................................................................2.21
ARTICLE III - ELIGIBILITY
ARTICLE IV - GENERAL PROVISIONS RELATING TO OPTIONS AND STOCK AWARDS
Authority to Grant Options and Stock Awards...................................................4.1
Dedicated Shares..............................................................................4.2
Non-Transferability...........................................................................4.3
Requirements of Law...........................................................................4.4
</TABLE>
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<TABLE>
<S> <C>
Changes in the Company's Capital Structure....................................................4.5
Election Under Section 83(b) of the Code......................................................4.6
ARTICLE V - OPTIONS
Type of Option................................................................................5.1
Option Price..................................................................................5.2
Duration of Options...........................................................................5.3
Amount Exercisable............................................................................5.4
Exercise of Options...........................................................................5.5
Exercise on Termination of Employment.........................................................5.6
Substitution Options..........................................................................5.7
No Rights as Stockholder......................................................................5.8
ARTICLE VI - STOCK AWARDS
Stock Awards..................................................................................6.1
Restrictions..................................................................................6.2
Stock Certificate.............................................................................6.3
Rights as Stockholder.........................................................................6.4
Lapse of Restrictions.........................................................................6.5
Restriction Period............................................................................6.6
ARTICLE VII - ADMINISTRATION
ARTICLE VIII - AMENDMENT OR TERMINATION OF PLAN
ARTICLE IX - MISCELLANEOUS
No Establishment of a Trust Fund..............................................................9.1
No Employment Obligation......................................................................9.2
Forfeiture and Disgorgement of Profits .......................................................9.3
Tax Withholding...............................................................................9.4
Written Agreement.............................................................................9.5
Indemnification of the Committee and the
Board of Directors...................................................................9.6
Gender........................................................................................9.7
Headings......................................................................................9.8
Other Compensation Plans......................................................................9.9
Other Options or Awards......................................................................9.10
Governing Law................................................................................9.11
</TABLE>
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ARTICLE I
PLAN
1.1 PURPOSE. The Plan is for key employees (including officers and
employee directors), consultants and advisors of the Company and its Affiliates
and is intended to advance the best interests of the Company, its Affiliates,
and its stockholders by providing those persons who have substantial
responsibility for the management and growth of the Company and its Affiliates
with additional incentives and an opportunity to obtain or increase their
proprietary interest in the Company, thereby encouraging them to continue in the
employ of the Company or any of its Affiliates.
1.2 EFFECTIVE DATE OF PLAN. The Plan is effective December 10, 1999, if
within one year of that date it shall have been approved by at least a majority
vote of stockholders voting in person or by proxy at a duly held stockholders'
meeting, or if the provisions of the corporate charter, by-laws or applicable
state law prescribes a greater degree of stockholder approval for this action,
the approval by the holders of that percentage, at a duly held meeting of
stockholders. No Incentive Option, Nonqualified Option, or Stock Award shall be
granted pursuant to the Plan after December 9, 2009.
ARTICLE II
DEFINITIONS
The words and phrases defined in this Article shall have the meaning
set out in these definitions throughout the Plan.
2.1 "AFFILIATE" means any parent corporation and any subsidiary
corporation. The term "parent corporation" means any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company if, at the
time of the action or transaction, each of the corporations other than the
Company owns stock possessing more than 50 percent of the total combined voting
power of all classes of stock in one of the other corporations in the chain. The
term "subsidiary corporation" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if, at the time of
the action or transaction, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing more than 50 percent of
the total combined voting power of all classes of stock in one of the other
corporations in the chain.
2.2 "BOARD OF DIRECTORS" means the board of directors of the Company.
2.3 "CHANGE OF CONTROL" means the occurrence of one or more of the
following events:
(a) Any "person" (other than the Company or a subsidiary thereof
or any employee benefit plan thereof or OYO Corporation (Japan) or OYO
Corporation
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U.S.A.), including a "syndicate" or "group" as those terms are used in
Section 13(d) of the Securities Exchange Act of 1934 (the"Exchange
Act"), is or becomes the "beneficial owner" (as that term is defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 20 percent or more of the
combined voting power of the Company's then outstanding Voting Stock;
(b) The Company is merged or consolidated or combined in any
other manner with another corporation or entity and immediately after
giving effect to the merger or consolidation either (i) less than 80
percent of the outstanding Voting Stock of the surviving or resulting
entity are then beneficially owned in the aggregate by (x) the
stockholders of the Company immediately prior to such merger or
consolidation, or (y) if a record date has been set to determine the
stockholders of the Company entitled to vote on such merger or
consolidation, the stockholders of the Company as of such record date,
or (ii) the Board of Directors, or similar governing body, of the
surviving or resulting entity does not have as a majority of its members
the persons specified in clause (c)(a) and (b) below;
(c) If at any time the following do not constitute a majority of
the Board of Directors of the Company (or any successor entity referred
to in clause (b) above):
a. persons who are directors of the Company on
December 10, 1999; and
b. persons who, prior to their election as directors
of the Company (or successor entity if applicable) were
nominated, recommended or endorsed by a formal resolution of
the Board of Directors of the Company;
(d) If at any time during a calendar year a majority of the
directors of the Company are not persons who were directors at the
beginning of the calendar year;
(e) the Company transfers (whether by sale, lease, exchange or
otherwise) substantially all of its assets to another corporation which
is a less than 80 percent-owned, direct or indirect, subsidiary of the
Company; or
(f) the Company shall adopt or undertake any plan of liquidation
or dissolution.
2.4 "CODE" means the Internal Revenue Code of 1986, as amended.
2.5 "COMMITTEE" means the Compensation Committee of the Board of
Directors or such other committee of two or more individuals, as designated by
the Board of Directors. The Committee shall be comprised (a) solely of at least
two members who are Outside Directors or (b) of the entire Board of Directors.
2.6 "COMPANY" means TrueTime, Inc., a Delaware corporation.
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2.7 "EMPLOYEE" means a person employed or retained by the Company or any
Affiliate to whom an Option or a Stock Award is granted.
2.8 "FAIR MARKET VALUE" of the Stock as of any date means (a) the
closing price of the Stock on that date on the principal securities exchange on
which the Stock is listed; or (b) if the Stock is not listed on a securities
exchange, the average of the high and low sale prices of the Stock on that date
as reported on the National Association of Securities Dealers Automated
Quotation National Market System (or successor system); or (c) if the Stock is
not listed on the National Association of Securities Dealers Automated Quotation
National Market System (or successor system), the average of the high and low
bid quotations for the Stock on that date as reported by the National Quotation
Bureau Incorporated; or (d) if none of the foregoing is applicable, an amount at
the election of the Committee equal to (x) the average between the closing bid
and ask prices per share of stock on the last preceding date on which those
prices were reported or (y) that amount as determined by the Committee.
2.9 "INCENTIVE OPTION" means an option granted under the Plan which is
designated as an "Incentive Option" and satisfies the requirements of section
422 of the Code.
2.10 "NONQUALIFIED OPTION" means an option granted under the Plan other
than an Incentive Option.
2.11 "OPTION" means an Incentive Option or a Nonqualified Option granted
under the Plan to purchase shares of Stock.
2.12 "OPTION AGREEMENT" means the written agreement which sets out the
terms of an Option.
2.13 "OUTSIDE DIRECTOR" means a member of the Board of Directors serving
on the Committee who satisfied the criteria of section 162(m) of the Code.
2.14 "PLAN" means the TrueTime, Inc. 1999 Key Employee Stock Option
Plan, as set out in this document and as it may be amended from time to time.
2.15 "RESTRICTED STOCK" means stock awarded or purchased under a
Restricted Stock Agreement entered into pursuant to the Plan, together with (i)
all rights, warranties or similar items attached or accruing thereto or
represented by the certificate representing the stock and (ii) any stock or
securities into which or for which the stock is thereafter converted or
exchanged. The terms and conditions of the Restricted Stock Agreement shall be
determined by the Committee consistent with the terms of the Plan.
2.16 "RESTRICTED STOCK AGREEMENT" means an agreement between the Company
or any Affiliate and the Employee pursuant to which the Employee receives a
Stock Award subject to Article VI.
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2.17 "RESTRICTED STOCK PURCHASE PRICE" means the purchase price, if any,
per share of Restricted Stock subject to an Award. The Restricted Stock Purchase
Price shall be determined by the Committee. It may be greater than or less than
the Fair Market Value of the Stock on the date of the Stock Award.
2.18 "STOCK" means the common stock of the Company, $.01 par value or,
in the event that the outstanding shares of common stock are later changed into
or exchanged for a different class of stock or securities of the Company or
another corporation, that other stock or security.
2.19 "STOCK AWARD" means an award of Restricted Stock.
2.20 "TEN PERCENT STOCKHOLDER" means an individual who, at the time an
Incentive Option is granted, owns stock possessing more than ten percent of the
total combined voting power of all classes of stock of the Company or of any
Affiliate. An individual shall be considered as owning the stock owned, directly
or indirectly, by or for his brothers and sisters (whether by the whole or half
blood), spouse, ancestors, and lineal descendants; and stock owned, directly or
indirectly, by or for a corporation, partnership, estate, or trust, shall be
considered as being owned proportionately by or for its stockholders, partners,
or beneficiaries.
2.21 "VOTING STOCK" means shares of capital stock of the Company the
holders of which are entitled to vote for the election of directors of the
Company, but excluding shares entitled to so vote only upon the occurrence of a
contingency unless that contingency shall have occurred.
ARTICLE III
ELIGIBILITY
The individuals who shall be eligible to receive Incentive Options,
Nonqualified Options, and Stock Awards shall be those key employees, consultants
and advisors of the Company or any of its Affiliates as the Committee shall
determine from time to time. The Board of Directors may designate one or more
individuals who shall not be eligible to receive any Option or Stock Award under
the Plan or under other similar plans of the Company.
ARTICLE IV
GENERAL PROVISIONS RELATING TO OPTIONS AND STOCK AWARDS
4.1 AUTHORITY TO GRANT OPTIONS AND STOCK AWARDS. The Committee may grant
to those key employees, consultants and advisors of the Company or any of its
Affiliates as it shall from time to time determine, Options or Stock Awards
under the terms and conditions of the Plan. Subject only to any applicable
limitations set out in the Plan, the number of shares of Stock to be covered by
any Option or Stock Award to be granted to an Employee shall be as determined by
the Committee.
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4.2 DEDICATED SHARES. The total number of shares of Stock with respect
to which Options and Stock Awards may be granted under the Plan shall be
1,500,000. The shares may be treasury shares or authorized but unissued shares.
The maximum number of shares subject to Options that may be issued to any
Employee under the Plan in any calender year is 400,000. The number of shares
stated in this Section 4.2 shall be subject to adjustment in accordance with the
provisions of Section 4.5.
In the event that any outstanding Option or Stock Award shall expire or
terminate for any reason or any Option or Stock Award is surrendered, the shares
of Stock allocable to the unexercised portion of that Option or Stock Award may
again be subject to an Option or Stock Award under the Plan.
4.3 RESTRICTIONS ON TRANSFERABILITY OF STOCK AWARDS AND OPTIONS. (a)
Except as set forth in this Section 4.3, Options shall not be transferable by
the Employee other than by will or under the laws of decent and distribution,
and shall be exercisable, during the Employee's lifetime, only by him. Any
attempt to transfer a Stock Award other than pursuant to the terms of the Plan
and the Restricted Stock Agreement shall entitle the Committee to terminate that
Stock Award and all rights of that Employee to the Restricted Stock included
therein.
(b) The Committee may, in its discretion, permit an Employee
to transfer all or any part of an Option, or may grant an Option with terms that
expressly permit all or any part of that Option to be transferred by the
Employee, in either case to (i) the spouse, children or grandchildren of the
Employee ("Immediate Family Members"), (ii) a trust or trusts for the exclusive
benefit of one or more of the Employee's Immediate Family Members, or (iii) a
partnership or other legal entity in which only the Employee's Immediate Family
Members have equity or ownership interests (collectively, "Permitted
Transferees"); provided that (x) there may be no consideration for any such
transfer and (y) subsequent transfers of Options so transferred (other than
transfers by will or under the laws of decent and distribution, transfers back
to the Employee to whom the Option was originally granted and transfers to other
Permitted Transferees of such Employee) shall be void.
(c) Following the transfer of any Option pursuant to paragraph
(b) above, that Option shall continue to have the same terms and provisions and
be subject to the same restrictions as were applicable immediately before that
transfer, except that references in the Plan and in the Option Agreement
applicable to such Option shall be deemed to be references to the Permitted
Transferee or Permitted Transferees; provided that any provision of Section 5.6
that would have been triggered by the termination, death, retirement or
disability of the Employee to whom the Option was originally granted will
continue to be triggered by the termination, death, retirement or disability of
such Employee."
4.4 REQUIREMENTS OF LAW. The Company shall not be required to sell or
issue any Stock under any Option or Stock Award if issuing that Stock would
constitute or result in a violation by the Employee or the Company of any
provision of any law, statute, or regulation of any governmental authority.
Specifically, in connection with any applicable statute or regulation relating
to the registration of securities, upon exercise of any Option or pursuant to
any Stock Award, the Company shall not be required to issue any Stock unless the
Committee has received evidence
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satisfactory to it to the effect that the holder of that Option or Stock Award
will not transfer the Stock except in accordance with applicable law, including
receipt of an opinion of counsel satisfactory to the Company to the effect that
any proposed transfer complies with applicable law. The determination by the
Committee on this matter shall be final, binding and conclusive. The Company
may, but shall in no event be obligated to, register any Stock covered by the
Plan pursuant to applicable securities laws of any country or any political
subdivision. In the event the Stock issuable on exercise of an Option or
pursuant to a Stock Award is not registered, the Company may imprint on the
certificate evidencing the Stock any legend that counsel for the Company
considers necessary or advisable to comply with applicable law. The Company
shall not be obligated to take any other affirmative action in order to cause
the exercise of an Option or vesting under a Stock Award, or the issuance of
shares under either of them, to comply with any law or regulation of any
governmental authority.
4.5 CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence of
outstanding Options or Stock Awards shall not affect in any way the right or
power of the Company or its stockholders to make or authorize any or all
adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Stock or its rights, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding, whether of a
similar character or otherwise.
If the Company shall effect a subdivision or consolidation of shares or
other capital readjustment, the payment of a stock dividend, or other increase
or reduction of the number of shares of the Stock outstanding, without receiving
compensation for it in money, services or property, then (a) the number, class,
and per share price of shares of Stock subject to outstanding Options under the
Plan shall be appropriately adjusted in such a manner as to entitle an Employee
to receive upon exercise of an Option, for the same aggregate cash
consideration, the equivalent total number and class of shares he would have
received had he exercised his Option in full immediately prior to the event
requiring the adjustment; and (b) the number and class of shares of Stock then
reserved to be issued under the Plan shall be adjusted by substituting for the
total number and class of shares of Stock then reserved, that number and class
of shares of Stock that would have been received by the owner of an equal number
of outstanding shares of each class of Stock as the result of the event
requiring the adjustment.
If while unexercised Options remain outstanding under the Plan (i) the
Company shall not be the surviving entity in any merger, consolidation or other
reorganization (or survives only as a subsidiary of an entity other than an
entity that was wholly-owned by the Company immediately prior to such merger,
consolidation or other reorganization), (ii) the Company sells, leases or
exchanges or agrees to sell, lease or exchange all or substantially all of its
assets to any other person or entity (other than an entity wholly-owned by the
Company), (iii) the Company is to be dissolved, or (iv) the Company is a party
to any other corporate transaction (as defined under section 424(a) of the Code
and applicable Treasury Regulations) that is not described in clauses (i), (ii)
or (iii) of this sentence (each such event is referred to herein as a "Corporate
Change"), then (x) except as otherwise provided in an Option Agreement or as a
result of the Board of Directors' effectuation of
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one or more of the alternatives described below, there shall be no acceleration
of the time at which any Option then outstanding may be exercised, and (y) no
later than ten days after the approval by the stockholders of the Company of
such Corporate Change, the Board of Directors, acting in its sole and absolute
discretion without the consent or approval of any Optionee, shall act to effect
one or more of the following alternatives, which may vary among individual
Optionees and which may vary among Options held by any individual Optionee:
(1) accelerate the time at which some or all of the Options
then outstanding may be exercised so that such Options may be exercised
in full for a limited period of time on or before a specified date
(before or after such Corporate Change) fixed by the Board of
Directors, after which specified date all such Options that remain
unexercised and all rights of Optionees thereunder shall terminate,
(2) require the mandatory surrender to the Company by all or
selected Optionees of some or all of the then outstanding Options held
by such Optionees (irrespective of whether such Options are then
exercisable under the provisions of the Plan or the Option Agreements
evidencing such Options) as of a date, before or after such Corporate
Change, specified by the Board of Directors, in which event the Board
of Directors shall thereupon cancel such Options and the Company shall
pay to each such Optionee an amount of cash per share equal to the
excess, if any, of the per share price offered to stockholders of the
Company in connection with such Corporate Change over the exercise
price(s) under such Options for such shares,
(3) with respect to all or selected Optionees, have some or
all of their then outstanding Options (whether vested or unvested)
assumed or have a new Option substituted for some or all of their then
outstanding Options (whether vested or unvested) by an entity which is
a party to the transaction resulting in such Corporate Change and which
is then employing him, or a parent or subsidiary of such entity,
provided that (A) such assumption or substitution is on a basis where
the excess of the aggregate fair market value of the shares subject to
the Option immediately after the assumption or substitution over the
aggregate exercise price of such shares is equal to the excess of the
aggregate fair market value of all shares subject to the Option
immediately before such assumption or substitution over the aggregate
exercise price of such shares, and (B) the assumed rights under such
existing Option or the substituted rights under such new Option as the
case may be will have the same terms and conditions as the rights under
the existing Option assumed or substituted for, as the case may be,
(4) provide that the number and class of shares of Stock
covered by an Option (whether vested or unvested) theretofore granted
shall be adjusted so that such Option when exercised shall thereafter
cover the number and class of shares of stock or other securities or
property (including, without limitation, cash) to which the Optionee
would have been entitled pursuant to the terms of the agreement and/or
plan relating to such Corporate Change if, immediately prior to such
Corporate
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Change, the Optionee had been the holder of record of the number of
shares of Stock then covered by such Option, or
(5) make such adjustments to Options then outstanding as the
Board of Directors deems appropriate to reflect such Corporate Change
(provided, however, that the Board of Directors may determine in its
sole and absolute discretion that no such adjustment is necessary).
In effecting one or more of alternatives (3), (4) or (5)
above, and except as otherwise may be provided in an Option Agreement,
the Board of Directors, in its sole and absolute discretion and without
the consent or approval of any Optionee, may accelerate the time at
which some or all Options then outstanding may be exercised.
In the event of changes in the outstanding Stock by reason of
recapitalizations, reorganizations, mergers, consolidations, combinations,
exchanges or other relevant changes in capitalization occurring after the date
of the grant of any Option and not otherwise provided for by this Section 4.5,
any outstanding Options and any agreements evidencing such Options shall be
subject to adjustment by the Board of Directors in its sole and absolute
discretion as to the number and price of shares of stock or other consideration
subject to such Options. In the event of any such change in the outstanding
Stock, the aggregate number of shares available under the Plan may be
appropriately adjusted by the Board of Directors, whose determination shall be
conclusive.
After a merger of one or more corporations into the Company or after a
consolidation of the Company and one or more corporations in which the Company
shall be the surviving corporation, each Employee shall be entitled to have his
Restricted Stock appropriately adjusted based on the manner the Stock was
adjusted under the terms of the agreement of merger or consolidation.
The issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, for cash or property, or for
labor or services either upon direct sale or upon the exercise of rights or
warrants to subscribe for them, or upon conversion of shares or obligations of
the Company convertible into shares or other securities, shall not affect, and
no adjustment by reason of such issuance shall be made with respect to, the
number, class, or price of shares of Stock then subject to outstanding Options
or Stock Awards.
4.6 ELECTION UNDER SECTION 83(b) OF THE CODE. If any Employee exercises
the election permitted under section 83(b) of the Code, that Employee shall,
within ten days of making the election, (i) notify the Committee that he has
made the election and (ii) pay to the Company, in immediately available funds,
an amount equal to the additional amount, if any, that the Company will be
required to withhold under applicable tax law as a result of such election. If
the Employee fails to make such payment or otherwise provide for such payment,
then the Company shall be entitled to deduct such sums from other compensation
payable to such Employee or the Committee shall be entitled to rescind the Stock
Award subject to such election.
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ARTICLE V
OPTIONS
5.1 TYPE OF OPTION. The Committee shall specify whether a given option
shall constitute an Incentive Option or a Nonqualified Option.
5.2 OPTION PRICE. The price at which Stock may be purchased under an
Incentive Option shall not be less than the greater of: (a) 100 percent of the
Fair Market Value of the shares of Stock on the date the Option is granted or
(b) the aggregate par value of the shares of Stock on the date the Option is
granted. The Committee in its discretion may provide that the price at which
shares of Stock may be purchased under an Incentive Option shall be more than
100 percent of Fair Market Value. In the case of any Ten Percent Stockholder,
the price at which shares of Stock may be purchased under an Incentive Option
shall not be less than 110 percent of the Fair Market Value of the Stock on the
date the Incentive Option is granted.
The price at which shares of Stock may be purchased under a
Nonqualified Option shall not be less than the greater of: (a) 100 percent of
the Fair Market Value of the shares of Stock on the date the Option is granted
or (b) the aggregate par value of the shares of Stock on the date the Option is
granted. The Committee in its discretion may provide that the price at which
shares of Stock may be purchased under a Nonqualified Option shall be more than
100 percent of Fair Market Value.
5.3 DURATION OF OPTIONS. No Option shall be exercisable after the
expiration of ten years from the date the Option is granted. In the case of a
Ten Percent Stockholder, no Incentive Option shall be exercisable after the
expiration of five years from the date the Incentive Option is granted.
5.4 AMOUNT EXERCISABLE. Each Option may be exercised from time to time,
in whole or in part, in the manner and subject to the conditions the Committee,
in its sole discretion, may provide in the Option Agreement, as long as the
Option is valid and outstanding, provided that no Option may be exercisable
within six months of the date of grant. Unless provided otherwise in the Option
Agreement, 25 percent of the shares of Stock in an Option shall become
exercisable on the first anniversary of the date of grant, and an additional 25
percent shall become exercisable on each of the next three anniversary dates.
Notwithstanding any other provisions of the Plan, in the event of a Change of
Control, each Option shall become immediately exercisable in full.
5.5 INCENTIVE OPTION. To the extent that the aggregate Fair Market Value
(determined as of the time an Incentive Option is granted) of the Stock with
respect to which Incentive Options first become exercisable by the Optionee
during any calendar year (under the Plan and any other incentive stock option
plan(s) of the Company or any Affiliate) exceeds $100,000, the Incentive Options
shall be treated as Nonqualified Options. In making this determination,
Incentive Options and such other incentive stock options shall be taken into
account in the order in which they were granted.
5.6 EXERCISE OF OPTIONS. Each Option shall be exercised by the delivery
of written notice to the Committee setting forth the number of shares of Stock
with respect to which the Option
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is to be exercised, together with: (a) cash, check, bank draft, or postal or
express money order payable to the order of the Company for an amount equal to
the option price of the shares, (b) Stock at its Fair Market Value on the date
of exercise, and/or (c) any other form of payment which is acceptable to the
Committee, and specifying the address to which the certificates for the shares
are to be mailed. As promptly as practicable after receipt of written
notification and payment, the Company shall deliver to the Employee certificates
for the number of shares with respect to which the Option has been exercised,
issued in the Employee's name. If shares of Stock are used in payment, the
aggregate Fair Market Value of the shares of Stock tendered must be equal to or
less than the aggregate exercise price of the shares being purchased upon
exercise of the Option, and any difference must be paid by cash, check, bank
draft, or postal or express money order payable to the order of the Company.
Delivery of the shares shall be deemed effected for all purposes when a stock
transfer agent of the Company shall have deposited the certificates in the
United States mail, addressed to the Employee, at the address specified by the
Employee.
Whenever an Option is exercised by exchanging shares of Stock owned by
the Employee, the Employee shall deliver to the Company certificates registered
in the name of the Employee representing a number of shares of Stock legally and
beneficially owned by the Employee, free of all liens, claims, and encumbrances
of every kind, accompanied by stock powers duly endorsed in blank by the record
holder of the shares represented by the certificates (with signature guaranteed
by a commercial bank or trust company or by a brokerage firm having a membership
on a registered national stock exchange). The delivery of certificates upon the
exercise of Options is subject to the condition that the person exercising the
Option provide the Company with the information the Company might reasonably
request pertaining to exercise, sale or other disposition.
5.7 EXERCISE ON TERMINATION OF EMPLOYMENT. Unless it is expressly
provided otherwise in the Option Agreement, Options shall terminate one day less
than three months after severance of employment of the Employee from the Company
and all Affiliates for any reason, with or without cause, other than death or
retirement or disability under the then established rules of the Company.
Whether authorized leave of absence or absence on military or government service
shall constitute severance of the employment of the Employee shall be determined
by the Committee at that time.
In determining the employment relationship between the Company and the
Employee, employment by any Affiliate shall be considered employment by the
Company, as shall employment by a corporation issuing or assuming a stock option
in a transaction to which section 424(a) of the Code applies, or by a parent
corporation or subsidiary corporation of the corporation issuing or assuming a
stock option (and for this purpose, the phrase "corporation issuing or assuming
a stock option" shall be substituted for the word "Company" in the definitions
of parent corporation and subsidiary corporation in Section 2.1, and the
parent-subsidiary relationship shall be determined at the time of the corporate
action described in section 424(a) of the Code).
5.8 DEATH. If, before the expiration of an Option, the Employee, whether
in the employ of the Company or after he has retired or was severed for
disability, dies, the Option shall continue until the earlier of the Option's
expiration date or one year following the date of his death, unless it is
expressly provided otherwise in the Option Agreement. After the death of the
Employee, his
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executors, administrators or any persons to whom his Option may be transferred
by will or by the laws of descent and distribution shall have the right, at any
time prior to the Option's expiration or termination, whichever is earlier, to
exercise it, to the extent to which he was entitled to exercise it immediately
prior to his death, unless it is expressly provided otherwise in the Option
Agreement.
5.9 RETIREMENT. If, before the expiration of an Incentive Option, the
Employee shall be retired in good standing from the employ of the Company under
the then established rules of the Company, the Incentive Option shall terminate
on the earlier of the Option's expiration date or one year after his retirement.
An Incentive Option may become a Nonqualified Option if exercised more than
three months after termination of employment.
Unless it is expressly provided otherwise in the Option Agreement, if
before the expiration of a Nonqualified Option, the Employee shall be retired in
good standing from the employ of the Company under the then established rules of
the Company, the Nonqualified Option shall terminate on the earlier of the
Nonqualified Option's expiration date or one year after his retirement. In the
event of retirement, the Employee shall have the right prior to the expiration
or termination of the Nonqualified Option to exercise the Nonqualified Option,
to the extent to which he was entitled to exercise it immediately prior to his
retirement, unless it is expressly provided otherwise in the Option Agreement.
5.10 DISABILITY. If, before the expiration of an Option, the Employee
shall be severed from the employ of the Company for disability, the Option shall
terminate on the earlier of the Option's expiration date or one day less than
one year after the date he was severed because of disability, unless it is
expressly provided otherwise in the Option Agreement. In the event that the
Employee shall be severed from the employ of the Company for disability, the
Employee shall have the right prior to the termination of the Option to exercise
the Option, to the extent to which he was entitled to exercise it immediately
prior to his severance of employment for disability, unless it is expressly
provided otherwise in the Option Agreement.
5.11 SUBSTITUTION OPTIONS. Options may be granted under the Plan from
time to time in substitution for stock options held by employees of other
corporations who are about to become employees of or affiliated with the Company
or any Affiliate as the result of a merger or consolidation of the employing
corporation with the Company or any Affiliate, or the acquisition by the Company
or any Affiliate of the assets of the employing corporation, or the acquisition
by the Company or any Affiliate of stock of the employing corporation as the
result of which it becomes an Affiliate of the Company. The terms and conditions
of the substitute Options granted may vary from the terms and conditions set out
in the Plan to the extent the Committee, at the time of grant, may deem
appropriate to conform, in whole or in part, to the provisions of the stock
options in substitution for which they are granted.
5.12 NO RIGHTS AS STOCKHOLDER. No Employee shall have any rights as a
stockholder with respect to Stock covered by his Option until the date a stock
certificate is issued for the Stock.
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ARTICLE VI
STOCK AWARDS
6.1 STOCK AWARDS. The Committee may issue shares of Stock to an eligible
employee, consultant or advisor subject to the terms of a Restricted Stock
Agreement. The Restricted Stock may be issued for no payment by the Employee or
for a payment below the Fair Market Value on the date of grant. Restricted Stock
shall be subject to restrictions as to sale, transfer, alienation, pledge or
other encumbrance and generally will be subject to vesting over a period of time
specified in the Restricted Stock Agreement. The Committee shall determine the
period of vesting, the number of shares, the price, if any, of Stock included in
a Stock Award, and the other terms and provisions which are included in a
Restricted Stock Agreement. Notwithstanding any other provisions of the Plan, in
the event of a Change of Control, each Stock Award shall become immediately
vested.
6.2 RESTRICTIONS. Restricted Stock shall be subject to the following
terms and conditions as determined by the Committee, including without
limitation any or all of the following:
(a) a prohibition against the sale, transfer, alienation,
pledge or other encumbrance of the shares of Restricted Stock, such
prohibition to lapse (i) at such time or times as the Committee shall
determine (whether in annual or more frequent installments, at the time
of the death, disability or retirement of the holder of such shares, or
otherwise);
(b) a requirement that the holder of shares of Restricted
Stock forfeit, or in the case of shares sold to an Employee, resell
back to the Company at his cost, all or a part of such shares in the
event of termination of the holder's employment during any period in
which the shares remain subject to restrictions;
(c) a prohibition against employment of the holder of
Restricted Stock by any competitor of the Company or its Affiliates, or
against such holder's dissemination of any secret or confidential
information belonging to the Company or an Affiliate; and
(d) unless stated otherwise in the Restricted Stock Agreement,
(i) if restrictions remain at the time of severance of employment with
the Company and all Affiliates, other than for reason of disability or
death, the Restricted Stock shall be forfeited; and (ii) if severance
of employment is by reason of disability or death, the restrictions on
the shares shall lapse and the Employee or his heirs or estate shall be
100 percent vested in the shares subject to the Restricted Stock
Agreement.
6.3 STOCK CERTIFICATE. Shares of Restricted Stock shall be registered in
the name of the Employee receiving the Stock Award and deposited, together with
a stock power endorsed in blank, with the Company. Each such certificate shall
bear a legend in substantially the following form:
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The transferability of this certificate and the shares of Stock
represented by it is restricted by and subject to the terms and
conditions (including conditions of forfeiture) contained in the
TrueTime, Inc. 1999 Key Employee Stock Option Plan, and an agreement
entered into between the registered owner and the Company. A copy of
the Plan and agreement is on file in the office of the Secretary of the
Company.
6.4 RIGHTS AS STOCKHOLDER. Subject to the terms and conditions of the
Plan, each Employee receiving a certificate for Restricted Stock shall have all
the rights of a stockholder with respect to the shares of Stock included in the
Stock Award during any period in which such shares are subject to forfeiture and
restrictions on transfer, including without limitation, the right to vote such
shares. Dividends paid with respect to shares of Restricted Stock in cash or
property other than stock in the Company or rights to acquire stock in the
Company shall be paid to the Employee currently. Dividends paid in stock in the
Company or rights to acquire stock in the Company shall be added to and become a
part of the Restricted Stock.
6.5 LAPSE OF RESTRICTIONS. At the end of the time period during which
any shares of Restricted Stock are subject to forfeiture and restrictions on
sale, transfer, alienation, pledge, or other encumbrance, such shares shall vest
and will be delivered in a certificate, free of all restrictions, to the
Employee or to the Employee's legal representative, beneficiary or heir;
provided the certificate shall bear such legend, if any, as the Committee
determines is reasonably required by applicable law.
By accepting a Stock Award and executing a Restricted Stock Agreement,
the Employee agrees to remit when due any federal and state income and
employment taxes required to be withheld or to satisfy this obligation in a
manner acceptable to the Committee.
6.6 RESTRICTION PERIOD. No Stock Award may provide for restrictions
continuing beyond ten years from the date of the Stock Award.
ARTICLE VII
ADMINISTRATION
The Plan shall be administered by the Committee. All questions of
interpretation and application of the Plan, Options or Stock Awards shall be
subject to the determination of the Committee. A majority of the members of the
Committee shall constitute a quorum. All determinations of the Committee shall
be made by a majority of its members. Any decision or determination reduced to
writing and signed and dated by all of the members shall be as effective as if
it had been made by a majority vote at a meeting properly called and held. The
Plan shall be administered in such a manner as to permit the Options granted
under it which are designated to be Incentive Options to qualify as Incentive
Options. In carrying out its authority under the Plan, the Committee shall have
full and final authority and discretion, including but not limited to the
following rights, powers and authorities, to:
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(a) determine the Employees to whom and the time or times at
which Options or Stock Awards will be made,
(b) determine the number of shares and the purchase price of
Stock covered in each Option or Stock Award, subject to the terms of
the Plan,
(c) determine the terms, provisions and conditions of each
Option and Stock Award, which need not be identical,
(d) accelerate the time at which any outstanding Option may be
exercised,
(e) define the effect, if any, on an Option or Stock Award of
the death, disability, retirement, or termination of employment of the
Employee,
(f) prescribe, amend and rescind rules and regulations
relating to administration of the Plan, and
(g) make all other determinations and take all other actions
deemed necessary, appropriate, or advisable for the proper
administration of the Plan.
The actions of the Committee in exercising all of the rights, powers, and
authorities set out in this Article and all other Articles of the Plan, when
performed in good faith and in its sole judgment, shall be final, conclusive and
binding on all parties.
ARTICLE VIII
AMENDMENT OR TERMINATION OF PLAN
The Board of Directors of the Company may amend, terminate or suspend
the Plan at any time, in its sole and absolute discretion; provided, however,
that, to the extent required to maintain the status of any Incentive Option
under the Code, no amendment that would (a) change the aggregate number of
shares of Stock which may be issued under Incentive Options, (b) change the
class of employees, consultants and advisors eligible to receive Incentive
Options, or (c) decrease the Option price for Incentive Options below the Fair
Market Value of the Stock at the time it is granted, shall be made without the
approval of the Company's stockholders. Subject to the preceding sentence, the
Board shall have the power to make any changes in the Plan and in the
regulations and administrative provisions under it or in any outstanding
Incentive Option as in the opinion of counsel for the Company may be necessary
or appropriate from time to time to enable any Incentive Option granted under
the Plan to continue to qualify as an incentive stock option or such other stock
option as may be defined under the Code so as to receive preferential federal
income tax treatment.
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ARTICLE IX
MISCELLANEOUS
9.1 NO ESTABLISHMENT OF A TRUST FUND. No property shall be set aside nor
shall a trust fund of any kind be established to secure the rights of any
Employee under the Plan. All Employees shall at all times rely solely upon the
general credit of the Company for the payment of any benefit which becomes
payable under the Plan.
9.2 NO EMPLOYMENT OBLIGATION. The granting of any Option or Stock Award
shall not constitute an employment contract, express or implied, nor impose upon
the Company or any Affiliate any obligation to employ or continue to employ any
Employee. The right of the Company or any Affiliate to terminate the employment
of any person shall not be diminished or affected by reason of the fact that an
Option or Stock Award has been granted to him.
9.3 FORFEITURE AND DISGORGEMENT OF PROFITS. Notwithstanding any other
provisions of the Plan, if the Committee finds by a majority vote after full
consideration of the facts that the Employee, before or after termination of his
employment with the Company or an Affiliate for any reason (a) committed or
engaged in fraud, embezzlement, theft, commission of a felony, or proven
dishonesty in the course of his employment by the Company or an Affiliate, which
conduct damaged the Company or Affiliate, or disclosed trade secrets of the
Company or an Affiliate, or (b) participated, engaged in or had a material,
financial or other interest, whether as an employee, officer, director,
consultant, contractor, stockholder, owner, or otherwise, in any commercial
endeavor in the United States which is competitive with the business of the
Company or an Affiliate without the written consent of the Company or Affiliate,
the Employee shall forfeit all outstanding Options and all outstanding Stock
Awards, and including all exercised Options and other situations pursuant to
which the Company has not yet delivered a stock certificate. Clause (b) shall
not be deemed to have been violated solely by reason of the Employee's ownership
of stock or securities of any publicly traded corporation, if that ownership
does not result in effective control of the corporation.
The decision of the Committee as to the cause of the Employee's
discharge, the damage done to the Company or an Affiliate, and the extent of the
Employee's competitive activity shall be final. No decision of the Committee,
however, shall affect the finality of the discharge of the Employee by the
Company or an Affiliate in any manner.
If an Option or Stock Award would be forfeited pursuant to this Section
9.3 but for the fact that the Option has been exercised or the Stock Award has
vested, the Employee must, upon demand by the Company, which demand must be made
within 90 days of the Company's discovery of the violation and within 24 months
of the Employee's severance of employment, (i) in the case of an Option, sell to
the Company, for the exercise price of the Option, the Stock purchased under the
Option, (ii) deliver to the Company cash in an amount equal to the proceeds the
Employee realized upon the Employee's sale of the Stock minus the amount the
Employee paid to purchase the Stock,
15
<PAGE> 19
or (iii) deliver to the Company all of the shares of Stock acquired under a
Stock Award or pursuant to the exercise of an Option.
9.4 TAX WITHHOLDING. The Company or any Affiliate shall be entitled to
deduct from other compensation payable to each Employee any sums required by
federal, state, or local tax law to be withheld with respect to the grant or
exercise of an Option or lapse of restrictions on Restricted Stock. In the
alternative, the Company may require the Employee (or other person exercising
the Option or receiving the Restricted Stock) to pay the sum directly to the
employer corporation. If the Employee (or other person exercising the Option or
receiving the Restricted Stock) is required to pay the sum directly, payment in
cash or by check of such sums for taxes shall be delivered within ten days after
the date of exercise or lapse of restrictions. The Company shall have no
obligation upon exercise of any Option or lapse of restrictions on Restricted
Stock until payment has been received, unless withholding (or offset against a
cash payment) as of or prior to the date of exercise or lapse of restrictions is
sufficient to cover all sums due with respect to that exercise. The Company and
its Affiliates shall not be obligated to advise an Employee of the existence of
the tax or the amount which the employer corporation will be required to
withhold.
9.5 WRITTEN AGREEMENT. Each Option and Stock Award shall be embodied in
a written Option Agreement or Restricted Stock Agreement which shall be subject
to the terms and conditions of the Plan and shall be signed (i) by the Employee
and (ii) by a member of the Committee on behalf of the Committee and the
Company, or by an executive officer of the Company other than the Employee on
behalf of the Company. The Option Agreement or Restricted Stock Agreement may
contain any other provisions that the Committee in its discretion shall deem
advisable which are not inconsistent with the terms of the Plan.
9.6 INDEMNIFICATION OF THE COMMITTEE AND THE BOARD OF DIRECTORS. With
respect to administration of the Plan, the Company shall indemnify each present
and future member of the Committee and the Board of Directors against, and each
member of the Committee and the Board of Directors shall be entitled without
further act on his part to indemnity from the Company for, all expenses
(including attorney's fees, the amount of judgments and the amount of approved
settlements made with a view to the curtailment of costs of litigation, other
than amounts paid to the Company itself) reasonably incurred by him in
connection with or arising out of any action, suit, or proceeding in which he
may be involved by reason of his being or having been a member of the Committee
and/or the Board of Directors, whether or not he continues to be a member of the
Committee and/or the Board of Directors at the time of incurring the expenses --
including, without limitation, matters as to which he shall be finally adjudged
in any action, suit or proceeding to have been found to have been negligent in
the performance of his duty as a member of the Committee or the Board of
Directors. However, this indemnity shall not include any expenses incurred by
any member of the Committee and/or the Board of Directors in respect of matters
as to which he shall be finally adjudged in any action, suit or proceeding to
have been guilty of gross negligence or willful misconduct in the performance of
his duty as a member of the Committee and the Board of Directors, or in respect
of any matter in which any settlement is effected, to an amount in excess of the
amount approved by the Company on the advice of its legal counsel. In addition,
no right of indemnification under the Plan shall be available to or enforceable
by any member of the Committee and the Board of Directors unless, within 60 days
after institution of any action, suit or proceeding,
16
<PAGE> 20
he shall have offered the Company, in writing, the opportunity to handle and
defend same at its own expense. This right of indemnification shall inure to the
benefit of the heirs, executors or administrators of each member of the
Committee and the Board of Directors and shall be in addition to all other
rights to which a member of the Committee and the Board of Directors may be
entitled as a matter of law, contract, or otherwise.
9.7 GENDER. If the context requires, words of one gender when used in
the Plan shall include the others and words used in the singular or plural shall
include the other.
9.8 HEADINGS. Headings of Articles and Sections are included for
convenience of reference only and do not constitute part of the Plan and shall
not be used in construing the terms of the Plan.
9.9 OTHER COMPENSATION PLANS. The adoption of the Plan shall not affect
any other stock option, incentive or other compensation or benefit plans in
effect for the Company or any Affiliate, nor shall the Plan preclude the Company
from establishing any other forms of incentive or other compensation for
employees, consultants and advisors of the Company or any Affiliate.
9.10 OTHER OPTIONS OR AWARDS. The grant of an Option or Stock Award
shall not confer upon the Employee the right to receive any future or other
Options or Stock Awards under the Plan, whether or not Options or Stock Awards
may be granted to similarly situated Employees, or the right to receive future
Options or Stock Awards upon the same terms or conditions as previously granted.
9.11 GOVERNING LAW. The provisions of the Plan shall be construed,
administered, and governed under the laws of the State of Delaware.
17
<PAGE> 1
EXHIBIT 10.3
TRUETIME, INC.
1999 NON-EMPLOYEE DIRECTOR PLAN
<PAGE> 2
TRUETIME, INC. 1999 NON-EMPLOYEE DIRECTOR PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section
-------
<S> <C>
PURPOSE......................................................................................................... 1
ADMINISTRATION.................................................................................................. 2
AVAILABLE SHARES................................................................................................ 3
AUTHORITY TO GRANT OPTIONS AND STOCK............................................................................ 4
ELIGIBILITY FOR OPTIONS AND STOCK............................................................................... 5
OPTION GRANT SIZE AND GRANT DATES............................................................................... 6
OPTION PRICE.................................................................................................... 7
FAIR MARKET VALUE............................................................................................... 8
DURATION OF OPTIONS............................................................................................. 9
WHEN EXERCISABLE............................................................................................... 10
EXERCISE OF OPTIONS............................................................................................ 11
TRANSFERABILITY OF OPTIONS..................................................................................... 12
TERMINATION OF DIRECTORSHIP OF OPTIONEE........................................................................ 13
ISSUANCE OF SHARES IN LIEU OF PAYMENT OF RETAINER FEE.......................................................... 14
REQUIREMENTS OF LAW............................................................................................ 15
NO RIGHTS AS STOCKHOLDERS...................................................................................... 16
NO EMPLOYMENT OR NOMINATION OBLIGATION......................................................................... 17
CHANGES IN THE COMPANY'S CAPITAL STRUCTURE..................................................................... 18
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
TERMINATION AND AMENDMENT OF PLAN.............................................................................. 19
WRITTEN AGREEMENT.............................................................................................. 20
COMPLIANCE WITH SEC REGULATIONS................................................................................ 21
GENDER......................................................................................................... 22
HEADINGS....................................................................................................... 23
GOVERNING LAW.................................................................................................. 24
</TABLE>
<PAGE> 4
TRUETIME, INC.
1999 Non-Employee Director Plan
1. PURPOSE. The 1999 Non-Employee Director Plan (the "Plan") is a plan
for non-employee directors and advisors to the Board of Directors (the "Board")
of TrueTime, Inc. (the "Company") and its subsidiary corporations and is
intended to advance the best interests of the Company, its subsidiaries and its
stockholders by providing the Company's non-employee directors an opportunity to
obtain or increase their proprietary interest in the success of the Company and
its subsidiaries by becoming owners of the common stock, $.01 par value, of the
Company (the "Stock") or, in the event that the outstanding shares of common
stock are later changed into or exchanged for a different class of stock or
securities of the Company or another corporation, that other stock or security.
2. ADMINISTRATION. The Plan shall be administered by the Board. Subject
to the terms of the Plan, the Board shall have the power to construe the
provisions of the Plan, or of options granted hereunder (the "Options") or Stock
issued hereunder, to determine all questions arising thereunder, and to adopt
and amend such rules and regulations for administering the Plan as the Board
deems desirable.
3. AVAILABLE SHARES. The total amount of the Stock with respect to with
Options and Stock paid in lieu of the directors' annual retainers that may be
granted under this Plan shall not exceed in the aggregate 150,000 shares;
provided, that the class and aggregate number of shares of Stock which may be
granted hereunder shall be subject to adjustment in accordance with the
provisions of Paragraph 18 hereof. Such shares of Stock may be treasury shares
or authorized but unissued shares of Stock. In the event that any outstanding
Option for any reason shall expire or is terminated or cancelled, the shares of
Stock allocable to the unexercised portion of such Option may again be subject
to an Option or Options or Stock issuance under the Plan.
4. AUTHORITY TO GRANT OPTIONS AND STOCK. All Options granted under the
Plan shall be non-qualified stock options which are not intended to be governed
by section 422 of the Internal Revenue Code of 1986, as amended. No Options or
stock shall be granted under the Plan subsequent to December 9, 2009.
5. ELIGIBILITY FOR OPTIONS AND STOCK. The individuals who shall be
eligible to receive Options under the Plan shall be the non-employee directors
("Non-Employee Directors") and those Board advisors as the Board shall from time
to time determine (together with the Non-Employee directors, the "Eligible
Directors") of the Company.
6. OPTION GRANT SIZE AND GRANT DATES. (a) An option to purchase 10,000
shares of stock (as adjusted pursuant to Paragraph 18) shall be granted to each
Eligible Director on
1
<PAGE> 5
the closing date of the initial public offering ("IPO") of the Stock of this
Company at an exercise price equal to the per share price to the public, subject
to the closing of the IPO. (b) Thereafter, an Option to purchase 3,000 shares of
Stock (as adjusted pursuant to Paragraph 18) shall be granted each year to each
Eligible Director who continues to serve the Company in that capacity on the
date following the Annual Meeting of the stockholders of the Company ("Annual
Grants").
7. OPTION PRICE. The price at which shares of Stock may be purchased by
an Eligible Director pursuant to an Option (the "Optionee") shall be the fair
market value of the shares of Stock on the date the Option is granted.
8. FAIR MARKET VALUE. With respect to the initial option grant described
in Section 6(a), fair market value shall mean the IPO price. Fair market value
of the Stock as of any date thereafter means (a) the closing price of the Stock
on that date on the principal securities exchange on which the Stock is listed;
or (b) if the Stock is not listed on a securities exchange, the average of the
high and low sale prices of the Stock on that date as reported on the National
Association of Securities Dealers Automated Quotation National Market System (or
successor system); or (c) if the Stock is not listed on the National Association
of Securities Dealers Automated Quotation National Market System (or successor
system), the average of the high and low bid quotations for the Stock on that
date as reported by the National Quotation Bureau Incorporated; or (d) if none
of the foregoing is applicable, an amount at the election of the Board equal to
(x) the average between the closing bid and ask prices per share of stock on the
last preceding date on which those prices were reported or (y) that amount as
determined by the Board.
9. DURATION OF OPTIONS. The term of each Option hereunder shall be ten
years, and no Option shall be exercisable after the expiration of ten years from
the date such Option is granted.
10. WHEN EXERCISABLE. An Option shall be fully exercisable from the date
of grant for all purposes of this Plan.
11. EXERCISE OF OPTIONS. Options shall be exercised by the delivery of
written notice to the Company setting forth the number of shares of Stock with
respect to which the Option is to be exercised, together with cash, wire
transfer, certified check, bank draft or postal or express money order payable
to the order of the Company (the "Acceptable Funds") for an amount equal to the
Option price of such shares of Stock, or at the election of the Optionee, by
exchanging shares of Stock owned by the Optionee, so long as the total fair
market value (determined in accordance with Paragraph 8, as of the date of
exercise) of the exchanged shares of Stock plus the Acceptable Funds paid, if
any, equals the purchase price of the shares to be acquired upon exercise of
that Option, and specifying the address to which the certificates for such
shares are to be mailed. Whenever an Option is exercised by exchanging shares of
Stock theretofore owned by the Optionee: (1) no shares of Stock received upon
exercise of that Option thereafter may be exchanged to pay the Option price for
additional shares of Stock within the following six months; (2) the aggregate
fair market value
2
<PAGE> 6
of the shares of Stock tendered must be equal to or less than the aggregate
exercise price of the shares being purchased upon exercise of the Option, and
any difference must be paid in Acceptable Funds; and (3) the Optionee shall
deliver to the Company certificates registered in the name of such Optionee
representing a number of shares of Stock legally and beneficially owned by such
Optionee, free of all liens, claims, and encumbrances of every kind, accompanied
by stock powers duly endorsed in blank by the record holder of the share
represented by such certificates, with signature guaranteed by a commercial bank
or trust company or by a brokerage firm having a membership on a registered
national stock exchange. Such notice may be delivered in person to the Secretary
of the Company, or may be sent by mail to the Secretary of the Company, in which
case delivery shall be deemed made on the date such notice is received. As
promptly as practicable after receipt of such written notification and payment,
the Company shall deliver to the Optionee certificates for the number of shares
with respect to which such Option has been so exercised, issued in the
Optionee's name; provided, that such delivery to the Optionee shall be deemed
effected for all purposes when a stock transfer agent of the Company shall have
deposited such certificates in the United States mail, addressed to the
Optionee, at the address specified by the Optionee. The delivery of certificates
upon the exercise of Options is subject to the condition that the person
exercising such Option provide the Company with such information as the Company
may reasonably request to such exercise, sale or other disposition.
12. TRANSFERABILITY OF OPTIONS. Options shall not be transferable by
the Optionee other than by will or under the laws of descent and distribution,
and shall be exercisable, during the Optionee's lifetime, only by the Optionee
or his legal guardian or representative.
13. TERMINATION OF DIRECTORSHIP OF OPTIONEE. If, before the date of
expiration of the Option, the Optionee shall cease to be a director of the
Company, the Option shall terminate on the earlier of the date of expiration or
three years after the date the Optionee ceases to be a director. In such event,
the Optionee shall have the right prior to the termination of such Option to
exercise all or any part of such Option, subject to Paragraph 10, if applicable.
14. ISSUANCE OF SHARES IN LIEU OF PAYMENT OF RETAINER FEE. At the
Company's option, all or any portion of each Eligible Director's annual retainer
fee for service as a member of the Company's Board of Directors may be paid in
Stock. If the Company elects to pay all or any portion of the annual retainer
fees in Stock, the shares of the Stock shall be issued the day following each
Annual Meeting of the stockholders of the Company, to each Eligible Director who
continues to serve on that date. The number of shares to be issued shall be that
number equal to (i) the lesser of all or that portion of the annual retainer fee
then in effect for service as a member of the Company's Board of Directors to be
paid in Stock divided by (ii) the fair market value of the Stock on that date,
as determined pursuant to Paragraph 8 above. No fractional shares shall be
issued, but the number of shares shall be rounded up to the nearest whole share.
15. REQUIREMENTS OF LAW. The Company shall not be required to issue
any shares under any Option or as partial payment for annual retainer fees if
the issuance of such shares
3
<PAGE> 7
would be violated by the Optionee or the Company of any provisions of any law or
regulation of any governmental authority.
16. NO RIGHTS AS STOCKHOLDERS. No Optionee shall have rights as a
stockholder with respect to shares covered by an Option until the date of
issuance of a stock certificate for such shares; and, except as otherwise
provided in Paragraph 18 hereof, no adjustment for dividends, or otherwise,
shall be made if the record date thereof is prior to the date of issuance of
such certificate.
17. NO EMPLOYMENT OR NOMINATION OBLIGATION. The granting of any
Option shall not require the Company or its stockholders to retain any Optionee
or to continue to nominate any Optionee for election as a director of the
Company.
18. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence of
outstanding Options or Stock Awards shall not affect in any way the right or
power of the Company or its stockholders to make or authorize any or all
adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Stock or its rights, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding, whether of a
similar character or otherwise.
If the Company shall effect a subdivision or consolidation of shares or
other capital readjustment, the payment of a stock dividend, or other increase
or reduction of the number of shares of the Stock outstanding, without receiving
compensation for it in money, services or property, then (a) the number, class,
and per share price of shares of Stock subject to outstanding Options under this
Plan shall be appropriately adjusted in such a manner as to entitle an Employee
to receive upon exercise of an Option, for the same aggregate cash
consideration, the equivalent total number and class of shares he would have
received had he exercised his Option in full immediately prior to the event
requiring the adjustment; and (b) the number and class of shares of Stock then
reserved to be issued under the Plan shall be adjusted by substituting for the
total number and class of shares of Stock then reserved, that number and class
of shares of Stock that would have been received by the owner of an equal number
of outstanding shares of each class of Stock as the result of the event
requiring the adjustment.
If while unexercised Options remain outstanding under the Plan (i) the
Company shall not be the surviving entity in any merger, consolidation or other
reorganization (or survives only as a subsidiary of an entity other than an
entity that was wholly-owned by the Company immediately prior to such merger,
consolidation or other reorganization), (ii) the Company sells, leases or
exchanges or agrees to sell, lease or exchange all or substantially all of its
assets to any other person or entity (other than an entity wholly-owned by the
Company), (iii) the Company is to be dissolved, or (iv) the Company is a party
to any other corporate transaction (as defined under section 424(a) of the Code
and applicable Treasury Regulations) that is not described in clauses (i), (ii)
or (iii) of
4
<PAGE> 8
this sentence (each such event is referred to herein as a "Corporate Change"),
then (x) except as otherwise provided in an Option Agreement or as a result of
the Board of Directors' effectuation of one or more of the alternatives
described below, there shall be no acceleration of the time at which any Option
then outstanding may be exercised, and (y) no later than ten days after the
approval by the stockholders of the Company of such Corporate Change, the Board
of Directors, acting in its sole and absolute discretion without the consent or
approval of any Optionee, shall act to effect one or more of the following
alternatives, which may vary among individual Optionees and which may vary among
Options held by any individual Optionee:
(1) accelerate the time at which some or all of the Options then
outstanding may be exercised so that such Options may be exercised in full
for a limited period of time on or before a specified date (before or after
such Corporate Change) fixed by the Board of Directors, after which
specified date all such Options that remain unexercised and all rights of
Optionees thereunder shall terminate,
(2) require the mandatory surrender to the Company by all or selected
Optionees of some or all of the then outstanding Options held by such
Optionees (irrespective of whether such Options are then exercisable under
the provisions of this Plan or the Option Agreements evidencing such
Options) as of a date, before or after such Corporate Change, specified by
the Board of Directors, in which event the Board of Directors shall
thereupon cancel such Options and the Company shall pay to each such
Optionee an amount of cash per share equal to the excess, if any, of the
per share price offered to stockholders of the Company in connection with
such Corporate Change over the exercise price(s) under such Options for
such shares,
(3) with respect to all or selected Optionees, have some or all of
their then outstanding Options (whether vested or unvested) assumed or have
a new Option substituted for some or all of their then outstanding Options
(whether vested or unvested) by an entity which is a party to the
transaction resulting in such Corporate Change and which is then employing
him, or a parent or subsidiary of such entity, provided that (A) such
assumption or substitution is on a basis where the excess of the aggregate
fair market value of the shares subject to the Option immediately after the
assumption or substitution over the aggregate exercise price of such shares
is equal to the excess of the aggregate fair market value of all shares
subject to the Option immediately before such assumption or substitution
over the aggregate exercise price of such shares, and (B) the assumed
rights under such existing Option or the substituted rights under such new
Option as the case may be will have the same terms and conditions as the
rights under the existing Option assumed or substituted for, as the case
may be,
(4) provide that the number and class of shares of Stock covered by
an Option (whether vested or unvested) theretofore granted shall be
adjusted so that
5
<PAGE> 9
such Option when exercised shall thereafter cover the number and class of
shares of stock or other securities or property (including, without
limitation, cash) to which the Optionee would have been entitled pursuant
to the terms of the agreement and/or plan relating to such Corporate Change
if, immediately prior to such Corporate Change, the Optionee had been the
holder of record of the number of shares of Stock then covered by such
Option, or
(5) make such adjustments to Options then outstanding as the Board of
Directors deems appropriate to reflect such Corporate Change (provided,
however, that the Board of Directors may determine in its sole and absolute
discretion that no such adjustment is necessary).
In effecting one or more of alternatives (3), (4) or (5) above, and
except as otherwise may be provided in an Option Agreement, the Board of
Directors, in its sole and absolute discretion and without the consent or
approval of any Optionee, may accelerate the time at which some or all
Options then outstanding may be exercised.
In the event of changes in the outstanding Stock by reason of
recapitalizations, reorganizations, mergers, consolidations, combinations,
exchanges or other relevant changes in capitalization occurring after the date
of the grant of any Option and not otherwise provided for by this Section 4.5,
any outstanding Options and any agreements evidencing such Options shall be
subject to adjustment by the Board of Directors in its sole and absolute
discretion as to the number and price of shares of stock or other consideration
subject to such Options. In the event of any such change in the outstanding
Stock, the aggregate number of shares available under this Plan may be
appropriately adjusted by the Board of Directors, whose determination shall be
conclusive.
After a merger of one or more corporations into the Company or after a
consolidation of the Company and one or more corporations in which the Company
shall be the surviving corporation, each Employee shall be entitled to have his
Restricted Stock appropriately adjusted based on the manner the Stock was
adjusted under the terms of the agreement of merger or consolidation.
The issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, for cash or property, or for
labor or services either upon direct sale or upon the exercise of rights or
warrants to subscribe for them, or upon conversion of shares or obligations of
the Company convertible into shares or other securities, shall not affect, and
no adjustment by reason of such issuance shall be made with respect to, the
number, class, or price of shares of Stock then subject to outstanding Options
or Stock Awards.
19. TERMINATION AND AMENDMENT OF PLAN. The Board of Directors of the
Company may amend, terminate or suspend the Plan at any time, in its sole and
absolute discretion.
6
<PAGE> 10
20. WRITTEN AGREEMENT. Each Option granted hereunder shall be embodied in
a written agreement (an "Option Agreement"), which shall be subject to the terms
and conditions prescribed above and shall be signed by the Eligible Director and
by the Chairman of the Board, the President or any Vice President of the Company
for and in the name and on behalf of the Company.
21. COMPLIANCE WITH SEC REGULATIONS. It is the Company's intent that the
Plan comply in all respects with Rule 16b-3 of the Exchange Act, and any
successor rule pursuant thereto. If any provision of this Plan is later found
not to be in compliance with the Rule, the provision shall be deemed null and
void or shall be reformed by the Board in such manner so as to comply. All
grants of Options and issuance of Stock and all exercises of Options under this
Plan shall be executed in accordance with the requirements of Section 16 of the
Exchange Act and any regulations promulgated thereunder, so as to avoid the
consequences of noncompliance to the Eligible Directors.
22. GENDER. If the context requires, words of one gender when used in this
Plan shall include the others and words used in the singular or plural shall
include the other.
23. HEADINGS. Headings of Articles and Sections are included for
convenience of reference only and do not constitute part of the Plan and shall
not be used in construing the terms of the Plan.
24. GOVERNING LAW. This Plan and all determinations made and actions taken
pursuant hereto shall be governed by the laws of the State of Delaware, without
reference to principles of conflict of laws, and shall be construed accordingly.
7
<PAGE> 1
EXHIBIT 10.4
(Form of Employment Agreement)
Note: This form of Employment Agreement is filed pursuant to the provisions of
Item 601(a)(4) of Regulation S-K. The salary provided in Section 2.3.2 of such
form of Employment Agreement for each executive officer executing such agreement
is as follows:
Elizabeth A. Withers $160,000
Haresh C. Patnaik $155,000
Donald H. Mitchell $150,000
Michael P. Von der Porten $140,000
<PAGE> 2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of the ____ day
of ________, 1999 between TRUETIME, INC., a Delaware corporation having its
principal operating offices at 2835 Duke Court, Santa Rosa, California 95407
(the "Company"), and ________________ ("Employee"), having a mailing address at
___________________________ .
W I T N E S S E T H:
WHEREAS, the Company considers the establishment and maintenance of a
sound and vital management to be essential to protecting and enhancing the best
interest of the Company and its stockholders; and
WHEREAS, in order to induce Employee to remain in the employ of the
Company under the terms as set forth herein, the Company is willing to agree to
provide certain severance benefits to Employee in the event Employee's
employment is terminated under the circumstances described below;
NOW, THEREFORE, in consideration of the mutual premises and conditions
contained herein, the parties hereto agree as follows:
1. TERM
1.1 Contract Term. This Agreement shall commence effective as
of October 1, 1999 and shall continue until September 30, 2001;
provided, however, that commencing October 1, 2001, and each October 1
thereafter the term of this Agreement shall automatically be extended
for an additional one year unless no fewer than thirty (30) days prior
to such October 1 date, the Company shall have given notice that it
does not wish to extend this Agreement.
1.2 Consideration by Employee. In consideration of the
Company's entering into this Agreement, Employee hereby agrees that,
for the period commencing on the date hereof and extending through
September 30, 2001, Employee will not voluntarily terminate employment
with the Company, except for "Good Reason" as defined in Section 2.3,
without
<PAGE> 3
the Company's consenting to such termination. As further consideration,
Employee hereby agrees to the Restrictions set forth in Section 4
hereof.
2. TERMINATION OF EMPLOYMENT
Employee shall be entitled to the benefits provided in Section
3 hereof upon the termination of his employment, unless such
termination is (a) because of his death, "Disability" or "Retirement"
(as defined in Section 2.1 below), (b) by the Company for "Cause" (as
defined in Section 2.2 below), or (c) by Employee other than for "Good
Reason" (as defined in Section 2.3 hereof).
2.1 Disability, Retirement.
2.1.1 If, as a result of Employee's incapacity due to
physical or mental illness, Employee shall have been absent
from his duties with the Company on a full-time basis for 120
consecutive business days, and within thirty (30) days after
written notice of termination is given Employee shall not have
returned to the full-time performance of his duties, the
Company may terminate his employment for "Disability."
2.1.2 Termination by the Company or Employee of his
employment based on "Retirement" shall mean termination
because Employee has retired after reaching age 65.
2.2 Cause. The Company may terminate Employee's employment for
"Cause." For the purposes of this Agreement, the Company shall have
"Cause" to terminate Employee's employment hereunder upon (A) the
willful and continued failure by Employee to perform his duties with
the Company (other than any such failure resulting from incapacity due
to physical or mental illness), after a demand for substantial
performance is delivered to Employee by the Board of Directors of the
Company (the "Board") which specifically identifies the manner in which
the Board believes that he has not substantially performed his duties,
or (B) the willful engaging by Employee in gross misconduct materially
and demonstrably injurious to the Company. For purposes of this
paragraph, no act, or failure to act, on Employee's part shall be
considered "willful" unless done, or omitted to be done, by him not in
good faith and without reasonable belief that his action or omission
was not in the best interest of the Company. Notwithstanding the
foregoing, Employee shall not be
-2-
<PAGE> 4
deemed to have been terminated for Cause unless and until there shall
have been delivered to him a copy of a resolution duly adopted by the
affirmative vote of not less than two-thirds (2/3) of the entire
authorized membership of the Board at a meeting of the Board called and
held for the purpose (after reasonable notice and an opportunity for
Employee, together with counsel, to be heard before the Board), finding
that in the good faith opinion of the Board he was guilty of conduct
set forth above in clauses (A) or (B) of the second sentence of this
paragraph and specifying the particulars thereof in detail.
2.3 Good Reason. Employee may terminate his employment for
Good Reason. For purposes of this Agreement, "Good Reason" shall mean:
2.3.1 Without his express written consent, the
assignment to Employee of any duties inconsistent with his
positions, duties, responsibilities and status with the
Company, or a change in his reporting responsibilities, titles
or offices, or any removal of Employee from or failure to
re-elect Employee to any of such positions, except in
connection with the termination of his employment for Cause,
Disability or Retirement or as a result of his death or by
Employee other than for Good Reason;
2.3.2 A reduction by the Company in Employee's base
salary below $____________ or such amount as Employee's salary
may be increased to from time to time;
2.3.3 The Company's requiring Employee to be based
anywhere other than the Company's office at which he was based
except for required travel on the Company's business to an
extent substantially consistent with the business travel
obligations of a company engaged in the Company's businesses,
as they may from time to time be engaged in or, in the event
Employee consents to any relocation, the failure by the
Company to pay (or reimburse Employee) for all reasonable
moving expenses incurred by him relating to a change of his
principal residence in connection with such relocation and to
indemnify Employee against any loss (defined as the difference
between the actual net sale price of such residence after
commissions and other closing costs and the higher of (a) his
aggregate investment in such residence or (b) the fair market
value of such residence as determined by a real estate
appraiser designated by Employee and reasonably satisfactory
to the Company) realized on the sale of Employee's principal
residence in connection with any such change of residence;
2.3.4 The failure by the Company to continue in
effect any benefit or compensation plan (including but not
limited to any stock option plan, 401(k) plan, life insurance
plan, health and accident plan or disability plan) in which
Employee is participating (or plans providing substantially
similar benefits) unless there is put
-3-
<PAGE> 5
in place by the Company a substitute plan therefor which is
designed to provide similar economic benefits to Employee, the
taking of any action by the Company which would adversely
affect Employee's participation in or materially reduce his
benefits under any of such plans or deprive him of any
material fringe benefit enjoyed by him unless the Employee is
given the opportunity to participate in a plan that provides a
similar economic benefit or is given an economically
equivalent fringe benefit, or the failure by the Company to
provide Employee with the number of paid vacation days to
which he is then entitled on the basis of years of service
with the Company in accordance with the Company's normal
vacation policy in effect on the date hereof;
2.3.5 Any failure of the Company to obtain the
assumption of, or the agreement to perform, this Agreement by
any successor as contemplated in Section 5 hereof; or
2.3.6 Any purported termination of Employee's
employment which is not affected pursuant to a Notice of
Termination satisfying the requirements of Section 2.4 below
(and, if applicable, Section 2.2 above).
2.4 Notice of Termination. Any termination by the Company
pursuant to Sections 2.1 and 2.2 above or by Employee pursuant to
Sections 2.1.2 and 2.3 above shall be communicated by written Notice of
Termination to the other party hereto. For purposes of this Agreement,
a "Notice of Termination" shall mean a notice which shall indicate the
specific termination provision in this Agreement relied upon and shall
set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Employee's employment under the
provision so indicated. In the event that Employee seeks to terminate
his employment with the Company pursuant to Section 2.3 above, he must
communicate his written Notice of Termination to the Company within
sixty (60) days of being notified of such action or actions by the
Company which constitute Good Reason for termination.
2.5 Date of Termination. "Date of Termination" shall mean (i)
if this Agreement is terminated for Disability, thirty (30) days after
Notice of Termination is given (provided that Employee shall not have
returned to the performance of his duties on a full-time basis during
such thirty (30) day period); and (ii) if Employee's employment is
terminated for any other reason, the date on which a Notice of
Termination is given.
-4-
<PAGE> 6
3. COMPENSATION UPON TERMINATION OR DURING DISABILITY.
3.1 Disability. During any period that Employee fails to
perform his duties hereunder as a result of incapacity due to physical
or mental illness, he shall continue to receive his full base salary at
the rate then in effect and any installments of deferred portions of
awards under any incentive, bonus, or other compensation plan paid
during such period until this Agreement is terminated pursuant to
Section 2 hereof. Thereafter, Employee's benefits shall be determined
in accordance with the Company's long term disability income insurance
plan, or a substitute plan then in effect.
3.2 Termination for Cause. If Employee's employment shall be
terminated for Cause, the Company shall pay Employee his full base
salary through the Date of Termination at the rate in effect at the
time Notice of Termination is given and the Company shall have no
further obligations to Employee under this Agreement.
3.3 Termination Without Cause. If the Company shall terminate
Employee's employment other than pursuant to Sections 2.1 or 2.2 hereof
or if Employee shall terminate his employment for Good Reason, then the
Company shall pay to Employee as severance pay in a lump sum not later
than the tenth (10th) day following the Date of Termination, the
following amounts:
3.3.1 Employee's full base salary through the Date of
Termination at the rate in effect at the time the Notice of
Termination is given;
3.3.2 In lieu of any further salary payments to
Employee for periods subsequent to the Date of Termination, an
amount equal to the product of (a) Employee's annual base
salary at the rate in effect as of the Date of Termination
plus the amount of the management incentive bonus to which
Employee would have been entitled for the fiscal year in which
the Notice of Termination is given, pro rated for his period
of service, or if higher the amount of the management
incentive bonus paid to Employee in respect of the previous
fiscal year, multiplied by (b) one-and-a-half (1.5);
3.3.3 The Company shall also pay (i) all relocation
and indemnity payments as set forth in Section 2.3.3 hereof,
and (ii) all legal fees and expenses incurred by Employee as a
result of such termination (including all such fees and
expenses, if any, incurred in contesting or disputing any such
termination or in seeking to obtain or enforce any right or
benefit provided by this Agreement plus pre-judgment and
-5-
<PAGE> 7
post-judgment interest at the prime rate of interest in effect
at the Date of Termination as announced by Bank of America,
N.A. (the "Prime Rate"); provided, however, that Employee
shall not be entitled to the payments provided for in clause
(ii) if Employee shall have given Notice of Termination for
Good Reason, but it shall finally be determined, pursuant to
Section 11 hereof, that Good Reason did not exist.
3.3.4 In the event the Employee is subject to the
excise tax imposed by Section 4999 of the Internal Revenue
Code of 1986, as amended (the "Code"), an amount equal to the
product of (a) 25% multiplied by (b) the amount of any "excess
parachute payment" received or receivable by the Employee
under this Agreement, under any stock option agreement, or
under any other agreement, arrangement, or plan in which the
Employee participates; for purposes of this Agreement, "excess
parachute payment" has the meaning given to such term by
Section 280G(b) of the Code.
3.4 Benefit Plans. Unless Employee is terminated for Cause,
the Company shall maintain in full force and effect for the continued
benefit of Employee, for a two-year period after the Date of
Termination, all employee benefit plans and programs or arrangements in
which Employee was entitled to participate immediately prior to the
Date of Termination provided that his continued participation is
possible under the general terms and provisions of such plans and
programs. In the event that Employee's participation in any such plan
or program is barred, the Company shall arrange to provide Employee
with benefits substantially similar to those which he is entitled to
receive under such plans and programs.
3.5 Mitigation of Amounts Payable Hereunder. Employee shall
not be required to mitigate the amount of any payment provided for in
this Section 3 by seeking other employment or otherwise, nor shall the
amount of any payment provided for in this Section 3 be reduced by any
compensation earned by Employee as the result of employment by another
employer after the Date of Termination, or otherwise.
3.6 Late Payments. In the event any amount to be paid to
Employee hereunder is not paid by the date specified herein, such
amount shall bear interest at the Prime Rate.
3.7 Determination of Base Salary. In the event Employee
terminates this Agreement pursuant to Section 2.3.2 hereof, Employee's
base salary for purposes of determining benefits pursuant to this
Section 3 shall be Employee's base salary in effect prior to its
reduction by the Company.
-6-
<PAGE> 8
4. OWNERSHIP OF INTELLECTUAL PROPERTY - CONFIDENTIALITY -
NON SOLICITATION
4.1 Definitions. As used in this Section 4, the following
words or phrases shall have the following definitions:
4.1.1 The term "Business Entity" shall mean any
corporation, partnership, joint venture, proprietorship, or
other incorporated or unincorporated organization, association
or entity, including any division or business operated by any
of the foregoing under a trade or assumed name.
4.1.2 The term "Subsidiaries" shall mean and include,
at any time, any Business Entities in which the Company owns
an interest, directly or indirectly.
4.1.3 The term "Company" shall mean and include
TRUETIME, INC., its successors and assigns, its Subsidiaries,
its parent companies, and any of the foregoing operating under
a trade or assumed name.
4.1.4 The term "Employee of the Company" shall mean
any person employed by the Company in any capacity at any time
during the term of this Agreement, or any renewal or extension
thereof.
4.1.5 The term "Customer" shall mean any person, or
Business Entity which has, in the past or at any time during
the term of this Agreement or any renewal or extension hereof,
contracted, including by purchase order, with the Company for
the development, manufacture, lease, repair, sale or purchase
of any Product or the license from the Company of any
Intellectual Property.
4.1.6 The term "Product" shall mean a precision time
or frequency product and/or any other equipment, machine,
service, product, instrument or system researched, developed,
conceived, manufactured, assembled, sold or distributed by the
Company at any time.
4.1.7 The term "Intellectual Property" shall mean all
methods, patents, formulae, patterns, compilations, programs,
devices, techniques, inventions, designs, systems, processes,
trade secrets, copyrights, know-how, proprietary information,
rights, trademarks, and trade names relating to any Product
conceived, developed, completed or established by the Company,
or by Employee (whether solely or jointly with others) during
the term of this Agreement (including any renewal or extension
hereof) (i) at the Company's expense, (ii) at the Company's
request, (iii) using the Company's time, data, facilities
and/or materials, or (iv) based upon knowledge or information
obtained from the Company, and shall include all modifications
and improvements thereof made at any time.
-7-
<PAGE> 9
4.2 Intellectual Property of the Company. Employee agrees:
4.2.1 That all Intellectual Property, and all notes,
drawings, software, prototypes or other objects, information
or writings relating thereto are the sole property of Company;
4.2.2 To communicate and explain to the Company,
promptly and fully, all Intellectual Property;
4.2.3 To execute and deliver to Company such
assignments or other documents as may be reasonably required
to evidence or confirm the ownership of all Intellectual
Property by the Company;
4.2.4 To perform such acts and execute such documents
as may be reasonably required to allow the Company to
prosecute an application for patent or registration of
copyright on any such Intellectual Property, from the United
States and from any other government, and to cooperate fully
with the company in the prosecution of any such application or
registration, which obligation shall survive the termination
of Employee's employment with the Company.
4.2.5 All inventions or discoveries, if any, patented
or unpatented, which Employee has made prior to this
employment by the Company are described on Exhibit "A". All
Intellectual Property other than those items specifically
described on Exhibit "A" shall constitute the property of the
Company.
4.3 Confidentiality.
4.3.1 Employee acknowledges that the Company's
continued operations and success in the development,
manufacture, leasing, repair, and sale of its Products is
dependent upon (i) certain processes, formulae, patterns,
compilations, programs, devices, methods, techniques,
specifications, designs, systems, and confidential information
of the Company which are valuable, special and unique assets
and (ii) the Company's continuing relationship with, and
knowledge about, Customers and prospective Customers and the
goodwill these relationships create. Employee acknowledges
that all of the following information is confidential and a
valuable, special, and unique asset of the Company's business:
(i) the names, addresses and telephone numbers of Customers,
their employees, and their representatives, (ii) the nature of
the business and operations of any Customer, (iii) the amount,
nature, volume, and other information regarding any Products
purchased, leased or otherwise acquired by any Customer or
required by any Customer; (iv) the nature of the internal
business operations of the Company; (v) the methods,
processes, formulae, specifications, designs, systems, and
know-how used, developed, or acquired by the Company for the
development, manufacture, and repair of any Product; (vi) the
Company's prices or charges to Customers for its Products;
(vii) the Intellectual
-8-
<PAGE> 10
Property developed or acquired by the Company and (viii)
information regarding the salaries, bonuses or other
compensation paid by the Company to its employees.
4.3.2 Employee acknowledges that all of the
information described in Section 4.3.1 is "Confidential
Information," which together with the Intellectual Property is
the sole and exclusive property of the Company. Employee
acknowledges that all Confidential Information and the
Intellectual Property is revealed to Employee in trust, based
solely upon the confidential relationship existing between the
Company and the Employee. Employee agrees: (i) that all
writings or other records concerning Confidential Information
and the Intellectual Property are the sole and exclusive
property of the Company; (ii) that all manuals, forms, and
supplies furnished to or used by the Employees and all data or
information placed thereon by Employee or any other person are
the Company's sole and exclusive property, (iii) that, upon
termination of this Agreement howsoever such termination is
brought about, or upon request of the Company at any time,
Employee shall deliver to the Company all such writings,
records, forms, manuals, and supplies and all copies of such
writings; (iv) that the Employee will not make or retain any
copies of such writings for his own or personal use, or take
the originals or copies of any such writings from the offices
of the Company upon termination of this Agreement; (v) that
Employee will not, either during or after the term of this
Agreement, publish, distribute or deliver any of such writings
or records to any other person or entity, or disclose to any
person or entity the contents of such records or writings or
any of the Confidential Information nor any information
regarding the Intellectual Property; and (vi) that, during the
term of Employee's employment with the Company and for a
period of five years thereafter, Employee will not, either
directly or indirectly, call on, solicit, or take away, or
attempt to call on, solicit or take away, any Customers.
4.4 Non-Solicitation of Other Employees. Employee agrees that during
the term of Employee's employment with the Company and for a period of
five years thereafter, Employee will not, directly or indirectly, (i)
solicit for employment or employ, or allow any corporation or business
entity controlled directly or indirectly by or affiliated with such
Employee to solicit for employment or employ, any person that at that
time is, or at any time during the past year immediately preceding such
time was, an Employee of the Company or a consultant or agent of the
Company or (ii) make known to any person, firm or corporation that is
engaged in the Company's business, or executive and key employee
recruiting or search firms that have clients engaged in the Company's
business, the names of any persons
-9-
<PAGE> 11
that at that time are, or at any time during the past year immediately
preceding such time were, Employees of the Company or consultants or
agents of the Company.
4.5 Reasonableness of Restrictions. Employee acknowledges that
the restrictions contained in Sections 4.2, 4.3 and 4.4 hereof (the
"Restrictions"), in view of the nature of the business in which the
Company is engaged, are reasonable and necessary in order to protect
the legitimate interests of the Company, and that any violation thereof
would result in irreparable injury to the Company, and Employee
therefore further acknowledges that, in the event Employee violates, or
threatens to violate, any of such Restrictions, the Company shall be
entitled to obtain from any court of competent jurisdiction, without
the posting of any bond or other security, preliminary and permanent
injunctive relief as well as damages and an equitable accounting of all
earnings, profits and other benefits arising from such violation, which
rights shall be cumulative and in addition to any other rights or
remedies in law or equity to which the Company or any affiliate or
subsidiary of the Company may be entitled. If Employee violates any of
the Restrictions, the restricted period shall not run in favor of
Employee from the time of commencement of any such violation until such
time as such violation shall be cured by Employee to the satisfaction
of the Company.
4.6 Severability of Restrictions. If any Restriction, or any
part thereof, is determined in any judicial or administrative
proceeding to be invalid or unenforceable, the remainder of the
Restrictions shall not thereby be affected and shall be given full
effect, without regard to the invalid provisions. If the period of time
or scope of activity in the Restrictions should be adjudged
unreasonable in any judicial or administrative proceeding, then the
court or administrative body shall have the power to reduce the period
of time or the scope covered and, in its reduced form, such provision
shall then be enforceable and shall be enforced.
4.7 Intellectual Property of Others. Employee recognizes that
the Company has a long standing policy to not knowingly violate the
valid intellectual property rights, including patents, trade secrets
and copyrights, of other persons. In order to comply with such policy,
Employee covenants that he will comply with such policy and that his
willful
-10-
<PAGE> 12
breach of this covenant could constitute "Cause" within the meaning of
Section 2.2 hereof. Employee covenants, represents and warrants in
these regards as follows:
4.7.1 Exhibit B hereto contains a true, complete and
accurate list of all inventions, copyrights and patents of
Employee relevant to the subject matter of the employment of
Employee by the Company that have been made or conceived or
first reduced to practice by Employee alone or jointly with
others prior to the employment of Employee by the Company. If
disclosure of any such inventions on Exhibit B would cause
Employee to violate any prior confidentiality agreement,
Employee understands that such inventions are not to be listed
on Exhibit B but the Company is to be informed that all such
inventions have not been listed for that reason.
4.7.2 Employee's performance of all of the duties and
obligations of employment at the Company does not and will not
breach any agreement or duty to keep in confidence
confidential information acquired by Employee in confidence or
in trust prior to the employment of Employee by the Company.
During Employee's work with the Company, Employee will not
improperly use or disclose any confidential information or
trade secrets of any former employer or any other person to
whom Employee has an obligation of confidentiality, and
Employee will not bring onto the premises of the Company any
unpublished documents or any property belonging to any former
employer or any other person to whom Employee has an
obligation of confidentiality unless consented to in writing
by that former employer or person. Employee will use in the
performance of duties only information which is generally
known and used by persons with training and experience
comparable to Employee's, which is common knowledge in the
industry or otherwise legally in the public domain, or which
is or was developed by Employee free of any confidential
obligations to former employers or other persons.
4.7.3 Employee is not restricted from being employed
by the Company or entering into this Agreement. Employee has
not entered into, and agrees not to enter into, any agreement
either written or oral in conflict herewith.
4.7.4 Employee represents and warrants that, other
than as set forth on Exhibit B hereto, Employee has not
brought to the Company and covenants that Employee will not
bring to the Company or use in the performance of Employee's
responsibilities any confidential information, materials or
documents of any former employers or other persons that are
not generally available to the public, unless Employee has
obtained prior written authorization from the former employers
or other persons. Employee hereby covenants that Employee
shall not breach any obligation of confidentiality or duty
that Employee may have to former employers or other persons.
-11-
<PAGE> 13
5. SUCCESSORS; BINDING AGREEMENT. The Company will require any
successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company, by agreement in form and substance
satisfactory to Employee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company
would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession shall be a breach of this
Agreement and shall entitle Employee to compensation from the Company
in the same amount and on the same terms as Employee would be entitled
hereunder if Employee terminated his employment for Good Reason, except
that for purposes or implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the Date of
Termination. As used in this Agreement, "Company" shall mean the
Company as defined in Section 4.1.3 and any successor to its business
and/or assets as aforesaid which executes and delivers the agreement
provided for in this Section 5 or which otherwise becomes bound by all
the terms and provisions of this Agreement by operation of law.
6. NOTICE. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing
and shall be deemed to have been duly given when delivered or mailed by
United States registered or certified mail, return receipt requested,
postage prepaid, addressed to the respective addresses set forth on the
first page of this Agreement, provided that all notices to the Company
shall be directed to the attention of the Chairman of the Board of the
Company with a copy to the Secretary of the Company, except that
notices of change of address shall be effective only upon receipt.
7. MISCELLANEOUS. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing signed by Employee and such officer
as may be specifically designated by the Board of Directors of the
Company. No waiver by either party hereto at any time of any breach by
the other
-12-
<PAGE> 14
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver
of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter
hereof have been made by either party which are not set forth expressly
in this Agreement.
8. VALIDITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force
and effect.
9. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all
of which together will constitute one and the same instrument.
10. GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of California.
11. ARBITRATION. Except as contemplated by Section 4.5 hereof,
any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in Los Angeles,
California (in accordance with the National Rules for the Resolution of
Employment Disputes of the American Arbitration Association then in
effect; provided, however, that the matter shall be arbitrated by a
panel of three arbitrators and that the Company and Employee shall,
promptly after any dispute or controversy arises, each appoint an
arbitrator and the arbitrators so appointed shall promptly appoint a
third arbitrator to be chairman of the arbitration panel).
Notwithstanding the pendency of any such dispute or controversy, the
Company will continue to pay Employee his full compensation in effect
when the notice giving rise to the dispute was given and continue
Employee as a participant in all compensation, benefit and insurance
plans in which he was participating when the notice giving rise to the
dispute was given, until the dispute is finally resolved. Amounts paid
under this paragraph are in addition to all other amounts due under
this Agreement and shall not be offset against or reduce any other
amounts due under this Agreement. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however,
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<PAGE> 15
that Employee shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of
any dispute or controversy arising under or in connection with this
Agreement.
12. CAPTIONS AND GENDER. The use of captions and Section headings
herein is for the purpose of convenience only and shall not affect the
interpretation or substance of any provision contained herein.
Similarly, the use of the masculine gender with respect to pronouns in
this Agreement is for the purpose of convenience and includes either sex
who may be a signatory.
13. PRIOR AGREEMENTS. This Agreement supersedes all prior
agreements entered into between the Company and Employee with regard to
the subject matter set forth herein.
IN WITNESS WHEREOF, the parties hereof have signed this
Agreement as of the _____ day of _________ 1999.
TRUETIME, INC.
By
----------------------
Name
----------------------
Title
----------------------
(EMPLOYEE)
----------------------
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<PAGE> 1
EXHIBIT 10.5
TAX SEPARATION AGREEMENT
dated as of _________ , 1999
by and among
OYO CORPORATION U.S.A.
and
TRUE TIME, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1. DEFINITIONS......................................................-1-
SECTION 2. PREPARATION AND FILING OF TAX RETURNS............................-6-
2.1 IN GENERAL........................................................-6-
2.2 MANNER OF PREPARING AND FILING TAX RETURNS........................-6-
2.3 AGENT.............................................................-7-
SECTION 3. PAYMENT OF TAXES TO TAX AUTHORITIES..............................-7-
3.1 FEDERAL INCOME TAXES..............................................-8-
3.2 NON-FEDERAL COMBINED TAXES........................................-8-
3.3 NON-FEDERAL SEPARATE TAXES........................................-8-
3.4 OTHER FEDERAL TAXES...............................................-8-
3.5 TRANSFER TAXES....................................................-8-
SECTION 4. ALLOCATION OF TAXES..............................................-8-
4.1 TRUE TIME LIABILITY FOR FEDERAL INCOME TAXES AND NON-FEDERAL
COMBINED TAXES....................................................-8-
4.2 TRUE TIME FEDERAL INCOME TAX LIABILITY............................-8-
4.3 TRUE TIME COMBINED TAX LIABILITY..................................-9-
4.4 COOPERATION.......................................................-9-
4.5 TAX SHARING INSTALLMENT PAYMENTS..................................-9-
4.6 TAX SHARING TRUE-UP PAYMENTS.....................................-10-
4.7 REDETERMINATION AMOUNTS..........................................-10-
4.8 PAYMENT OF TAXES FOR POST-DECONSOLIDATION PERIODS................-11-
SECTION 5. TAX ATTRIBUTES..................................................-11-
5.1 ALLOCATION OF TAX ITEMS..........................................-11-
5.2 POST-DECONSOLIDATION.............................................-12-
SECTION 6. ADDITIONAL OBLIGATIONS..........................................-12-
6.1 PROVISION OF INFORMATION AND MUTUAL COOPERATION..................-12-
6.2 INDEMNIFICATION. ................................................-13-
6.3 TAX CONSEQUENCES OF PAYMENTS.....................................-13-
6.4 INTEREST.........................................................-15-
SECTION 7. AUDITS..........................................................-15-
7.1 IN GENERAL.......................................................-15-
7.2 NOTICE...........................................................-16-
7.3 FAILURE TO NOTIFY................................................-16-
7.4 REMEDIES.........................................................-16-
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
SECTION 8. DISPUTE RESOLUTION..............................................-16-
SECTION 9. IPO RELATED ITEMS...............................................-16-
9.1 LIABILITY FOR DECONSOLIDATION TAXES; GOOD FAITH..................-16-
9.2 TAX REPORTING OF IPO RELATED ITEMS...............................-17-
9.3 AUDITS RELATING TO IPO...........................................-17-
SECTION 10. MISCELLANEOUS.................................................-17-
10.1 EFFECTIVENESS...................................................-17-
10.2 NOTICES.........................................................-17-
10.3 CHANGES IN LAW..................................................-18-
10.4 SUCCESSORS AND ASSIGNS..........................................-18-
10.5 AUTHORIZATION, ETC..............................................-18-
10.6 COMPLETE AGREEMENT..............................................-18-
10.7 INTERPRETATION..................................................-19-
10.8 GOVERNING LAW...................................................-19-
10.9 COUNTERPARTS....................................................-19-
10.10 LEGAL ENFORCEABILITY...........................................-19-
10.11 NO THIRD PARTY BENEFICIARIES...................................-19-
10.12 JURISDICTION; FORUM............................................-19-
10.13 AMENDMENT AND MODIFICATION.....................................-20-
</TABLE>
-ii-
<PAGE> 4
TAX SEPARATION AGREEMENT
TAX SHARING AGREEMENT (this "Agreement"), dated as of December __,
1999, by and among OYO Corporation, U.S.A. ("OYO"), a Texas corporation, and
True Time, Inc. ("True Time"), a Delaware corporation and wholly-owned
subsidiary of OYO Corporation.
RECITALS
WHEREAS, OYO is the common parent corporation of an affiliated group
of corporations within the meaning of Section 1504(a) of the Code (as defined
herein) and of consolidated, combined, unitary and other similar groups as
defined under similar laws of other jurisdictions, and True Time is a member of
such groups;
WHEREAS, the groups, of which OYO Corporation is the common parent and
True Time is a member, file or intend to file Consolidated Returns and Combined
Returns (as defined herein);
WHEREAS, the Board of Directors of OYO has determined that it is in
the best interests of OYO and its stockholders to offer 3,000,000 shares of
Common Stock, par value $.01 per share (the "Common Stock") of True Time for
sale to the public pursuant to an initial public offering (Registration No.
333-90269) (the "IPO");
WHEREAS, it is appropriate and desirable to set forth the principles
and responsibilities of the parties to this Agreement regarding the allocation
of Taxes (as defined herein) and other related liabilities and adjustments with
respect to Taxes, Audits (as defined herein) and other related Tax matters.
NOW THEREFORE, in consideration of the premises or promises and the
mutual covenants contained herein and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS - Capitalized terms shall have the following meanings
(such meanings to be equally applicable to both the singular and plural forms
of the terms defined).
"AUDIT" includes any audit, assessment of Taxes, other examination by
any Tax Authority, proceeding, or appeal of such a proceeding relating to
Taxes, whether administrative or judicial.
"CODE" means the United States Internal Revenue Code of 1986, as
amended, or any successor statute.
"COMBINED GROUP" means a group of corporations or other entities that
files a Combined Return or a corporation or other entity that files a Combined
Return described in clause (ii) of the definition of "Combined Return."
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"COMBINED RETURN" means any Tax Return with respect to Non-Federal
Taxes (i) filed on a consolidated, combined (including nexus combination,
worldwide combination, domestic combination, line of business combination or
any other form of combination) or unitary basis wherein True Time joins in the
filing of such Tax Return (for any taxable period or portion thereof) with OYO
or one or more OYO Affiliates, or (ii) pursuant to which Tax Items or Tax
Assets of (A) OYO (or any OYO Affiliate) are included on a separate Tax Return
of True Time or (B) True Time are included on a separate Tax Return of OYO (or
any OYO Affiliate).
"CONSOLIDATED GROUP" means an affiliated group of corporations within
the meaning of Section 1504(a) of the Code that files a Consolidated Return.
"CONSOLIDATED RETURN" means any Tax Return with respect to Federal
Income Taxes filed on a consolidated basis wherein True Time joins in the
filing of such Tax Return (for any taxable period or portion thereof) with OYO
or one or more OYO Affiliates.
"DECONSOLIDATION" means with respect to each Tax Return (i) any event
pursuant to which True Time ceases to be a subsidiary corporation includible in
the Consolidated Return, (ii) any event pursuant to which True Time ceases to
continue to be included in a Combined Return which includes OYO and/or an OYO
Affiliate, (iii) any event pursuant to which a Tax Return described in clause
(ii) of the definition of Combined Return no longer includes Tax Items or Tax
Assets of both OYO (or any OYO Affiliate) and True Time.
"DECONSOLIDATION DATE" means the day on which a Deconsolidation occurs
(such as IPO).
"DECONSOLIDATION TAX" means any Tax, resulting from a Deconsolidation,
taken into account under Section 1.1502-13 or Section 1.1502-19 or any
predecessor provision of the Treasury Regulations (or any similar provision
under Non-Federal Tax law).
"ESTIMATED FEDERAL INCOME TAX INSTALLMENT DATE" means the installments
due dates prescribed in Sections 6655(c), (i) of the Code (presently January
15, March 15, June 15 and September 15).
"FEDERAL INCOME TAX" means any Tax imposed under Subtitle A of the
Code or any other provision of United States federal Income Tax law (including
the Taxes imposed by Sections 11, 55, 59A, and 1201(a) of the Code), and any
interest, additions to Tax or penalties applicable or related thereto.
"FEDERAL TAX" means any Tax imposed under the Code or otherwise under
United States federal Tax law.
"FINAL DETERMINATION" means the final resolution of any Tax (or other
matter) for a taxable period, including related interest or penalties, that,
under applicable law, is not subject to further appeal, review or modification
through proceedings or otherwise, including (1) by the
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expiration of a statute of limitations or a period for the filing of claims for
refunds, amending Tax Returns, appealing from adverse determinations, or
recovering any refund(including by offset), (2) by a decision, judgment,
decree, or other order by a court of competent jurisdiction, which has become
final and unappealable, (3) by a closing agreement or an accepted offer in
compromise under Section 7121 or 7122 of the Code, or comparable agreements
under laws of other jurisdictions, (4) by execution of an Internal Revenue
Service Form 870 or 870AD, or by a comparable form under the laws of other
jurisdictions (excluding, however, with respect to a particular Tax Item for a
particular taxable period any such form that reserves (whether by its terms or
by operation of law) the right of the taxpayer to file a claim for refund
and/or the right of the Tax Authority to assert a further deficiency with
respect to such Tax Item for such period), or (5) by any allowance of a refund
or credit, but only after the expiration of all periods during which such
refund or credit may be recovered (including by way of offset).
"INCOME TAX" means (a) any Tax based upon, measured by, or calculated
with respect to (1) net income or profits (including, without limitation, any
capital gains Tax, minimum Tax and any Tax on items of Tax preference, but not
including sales, use, real or personal property, gross or net receipts,
transfer or similar Taxes) or (2) multiple bases if one or more of the bases
upon which such Tax may be based, measured by, or calculated with respect to,
is described in clause(1) above, or (b) any state or local franchise Tax.
"INDEMNIFIABLE LOSS DEDUCTION" has the meaning set forth in Section
6.3(b) of this Agreement.
"INDEMNIFIED LOSS" has the meaning set forth in Section 6.3(b) of this
Agreement.
"INDEMNITEE" has the meaning set forth in Section 6.3(b) of this
Agreement.
"INDEMNITOR" has the meaning set forth in Section 6.3(b) of this
Agreement.
"INDEPENDENT FIRM" has the meaning set forth in Section 8 of this
Agreement.
"INTEREST ACCRUAL PERIOD" has the meaning set forth in Section 6.4 of
this Agreement.
"IPO" has the meaning set forth in the Recitals.
"LOSS" means all liability for any reasonable legal, accounting,
appraisal, consulting or similar fees and expenses relating to any Tax which is
the subject of a claim for indemnification under Section 6.2.
"NON-FEDERAL COMBINED TAX" means any Non-Federal Tax with respect to
which a Combined Return is filed.
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"NON-FEDERAL SEPARATE TAX" means any Non-Federal Tax other than a
Non-Federal Combined Tax.
"NON-FEDERAL TAX" means any Tax other than a Federal Tax.
"OYO AFFILIATE" means any corporation or other entity in which OYO
owns more than fifty percent (50%) of the total combined voting power (at any
time after the completion of the IPO Restructuring), other than True Time or
any True Time Affiliate.
"OYO GROUP" means the affiliated group of corporations as defined in
Section 1504(a) of the Code, or similar group of entities as defined under
corresponding provisions of the laws of other jurisdictions, of which OYO is
the common parent, and any corporation or other entity which is a member of
such group for the relevant taxable period or portion thereof, but excluding
True Time.
"PAYMENT PERIOD" has the meaning set forth in Section 6.4 of this
Agreement.
"POST-DECONSOLIDATION PERIOD" means any taxable period with respect to
a Consolidated Return or Combined Return, as the case may be, beginning after a
Deconsolidation Date.
"PRE-DECONSOLIDATION PERIOD" means any taxable period with respect to
a Consolidated Return or Combined Return, as the case may be, beginning on or
before a Deconsolidation Date.
"PRIOR ARRANGEMENT" means Oyo's existing finance policy for allocation
of Taxes.
"PRIVILEGE" means any privilege that may be asserted under applicable
law including, any privilege arising under or relating to the attorney-client
relationship (including the attorney-client and work product privileges), the
accountant-client privilege, and any privilege relating to internal evaluation
processes.
"PRO FORMA TRUE TIME COMBINED RETURN" means a pro forma Non-Federal
Combined Tax return (or other schedule in connection therewith) prepared
pursuant to Section 4.3 of this Agreement.
"PRO FORMA TRUE TIME TAX RETURN" means a pro forma consolidated
Federal Income Tax return (or other schedule in connection therewith) prepared
pursuant to Section 4.2 of this Agreement.
"RESTATED TAX SAVING AMOUNT" has the meaning set forth in Section
6.3(c) of this Agreement.
"SEPARATE RETURN" means any Tax Return with respect to Non-Federal
Separate Taxes filed by OYO, True Time, or any of their respective affiliates.
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"SERVICE" means the Internal Revenue Service or any successor agency
or authority.
"STRADDLE PERIOD" means any taxable period with respect to a
Consolidated Return or Combined Return, as the case may be, beginning on or
before the Deconsolidation Date and ending after the Deconsolidation Date.
"TAX" means any charges, fees, levies, imposts, duties, or other
assessments of a similar nature, including income, alternative or add-on
minimum, gross receipts, profits, lease, service, service use, wage, wage
withholding, employment, workers compensation, business occupation, occupation,
premiums, environmental, estimated, excise, employment, sales, use, transfer,
license, payroll, franchise, severance, stamp, occupation, windfall profits,
withholding, social security, unemployment, disability, ad valorem, highway
use, commercial rent, capital stock, paid up capital, recording, registration,
property, real property gains, value added, business license, custom duties, or
other tax or governmental fee of any kind whatsoever, imposed or required to be
withheld by any Tax Authority including any interest, additions to tax, or
penalties applicable or related thereto.
"TAX ASSET" means any Tax Item that could reduce a Tax, including a
net operating loss, net capital loss, investment tax credit, foreign tax
credit, charitable deduction or credit related to alternative minimum tax or
any other Tax credit.
"TAX AUTHORITY" means a governmental authority or any subdivision,
agency, commission or authority thereof or any quasi-governmental or private
body having jurisdiction over the assessment, determination, collection or
imposition of any Tax (including, without limitation, the Service).
"TAX ITEM" means any item of income, gain, loss, deduction or credit,
or other attribute that may have the effect of increasing or decreasing any
Tax.
"TAX RETURN" means any return, report, certificate, form or similar
statement or document (including any related or supporting information or
schedule attached thereto and any information return, amended tax return, claim
for refund or declaration of estimated tax) required to be supplied to, or
filed with, a Tax Authority in connection with the determination, assessment or
collection of any Tax or the administration of any laws, regulations or
administrative requirements relating to any Tax.
"TAX SAVING AMOUNT" has the meaning set forth in Section 6.3(b) of
this Agreement.
"TRANSFER TAXES" means all transfer, documentary, sales, use,
registration, value-added and other similar Taxes (including any applicable
real estate transfer Taxes) and related amounts (including any penalties,
interest and additions to Tax) arising as a result of or otherwise incurred by
any of the parties hereto as a result of any of the transactions effected in
connection with the IPO.
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"TREASURY REGULATIONS" means the final, temporary and proposed income
tax regulations promulgated under the Code, as such regulations may be amended
from time to time (including corresponding provisions of succeeding
regulations).
"TRUE TIME COMBINED TAX LIABILITY" means, with respect to any taxable
period, True Time's liability for Non-Federal Combined Taxes as determined
under Section 4.3 of this Agreement.
"TRUE TIME FEDERAL INCOME TAX LIABILITY" means, with respect to any
taxable period, True Time's liability for Federal Income Taxes as determined
under Section 4.2 of this Agreement.
"TRUE TIME DECONSOLIDATION TAX RETURN" has the meaning set forth in
section 9.2(a) of this Agreement.
SECTION 2. PREPARATION AND FILING OF TAX RETURNS
2.1 IN GENERAL (a) OYO shall have the sole and exclusive
responsibility for the preparation (except to the extent provided in Sections
2.2(c) and (d) of this Agreement) and filing of: (1) all Consolidated Returns
and (2) all Combined Returns. [Notwithstanding the immediately preceding
sentence, True Time shall (subject to Section 2.2(b) of this Agreement) be
responsible for preparing and filing any Combined Return of True Time described
in clause (ii)(A) of the definition of "Combined Return."
(b) Except as otherwise provided in Section 2.1(a) of this Agreement,
True Time shall have the sole and exclusive responsibility for the preparation
and filing of all Tax Returns of True Time; provided that, for taxable periods
during all or part of which OYO owns directly or indirectly fifty percent (50%)
or more of the outstanding stock (by vote or value) of True Time, True Time
shall, at the request of OYO, submit such Tax Returns to OYO (no later than
fifteen (15) days prior to the due date for the filing of such Tax Returns
(taking into account applicable extensions)) for OYO's review and approval,
which approval shall not be unreasonably withheld.
2.2 MANNER OF PREPARING AND FILING TAX RETURNS (a) All Tax Returns
filed after the date of this Agreement by OYO, any OYO Affiliate, or True Time
shall be (1) prepared in a manner that is consistent with Section 5.1 of this
Agreement, and (2) filed on a timely basis (taking into account applicable
extensions) by the party responsible for such filing under Section 2.1 of this
Agreement.
(b) Subject to Sections 2.2(c) and (d) of this Agreement, OYO shall
have the exclusive right, in its sole discretion, with respect to any Tax
Return described in the first sentence of Section 2.1(a) of this
Agreement(without regard to which party is responsible for preparing and filing
such Tax Return) to determine (1) the manner in which such Tax Return shall be
prepared and filed, including the elections, methods of accounting, positions,
conventions and principles of taxation to be used and the manner in which any
Tax Item shall be reported, (2) whether any extensions may be
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requested, (3) the elections that will be made by OYO, any OYO Affiliate, and
True Time on such Tax Return, (4) whether any amended Tax Returns shall be
filed, (5) whether any claims for refund shall be made, (6) whether any refunds
shall be paid by way of refund or credited against any liability for the
related Tax, and (7) whether to retain outside firms to prepare or review such
Tax Return.
(c) True Time shall be responsible for preparing the portions of the
Consolidated Returns and Combined Returns (including making any related
elections) that relate exclusively to True Time. True Time shall submit (1) any
portions of the Tax Returns referred to in the immediately preceding sentence
or (2) any Combined Return referred to in the last sentence of Section 2.1(a)
of this Agreement to OYO at least forty-five (45) days (or such shorter period
as agreed to by OYO) prior to the due date for the filing of such Tax Returns
(taking into account applicable extensions) for OYO's review and approval,
which approval shall not be unreasonably withheld. True Time shall advise OYO,
each time that it delivers the portion of a Consolidated Return or Combined
Return for which it is responsible pursuant to this Section 2.2(c) or any
Combined Return referred to in the last sentence of Section 2.1(a) of this
Agreement, that there is substantial authority (within the meaning of Section
1.6662-4(d) of the Treasury Regulations) with respect to United States federal,
state and local Tax Returns or similar appropriate authoritative support with
respect to any Tax Return other than United States federal, state and local Tax
Returns for each of the positions set forth on such portion of the Tax Return
or such Combined Return.
(d) True Time shall have the right to request that OYO file an amended
Tax Return or claim for refund relating to the portion of any Consolidated
Return or Combined Return which True Time is responsible for preparing under
Section 2.2(c) of this Agreement. True Time shall be responsible for preparing
the portion of such amended Tax Return or claim for refund relating to the
portion of the Consolidated Return or Combined Return which True Time is
responsible for preparing under Section 2.2(c) of this Agreement. True Time
shall submit such portion of the amended Tax Return or claim for refund to OYO
no later than forty-five (45) days prior to its filing for OYO's review and
approval, which approval shall not be unreasonably withheld.
2.3 AGENT. Subject to the other applicable provisions of this
Agreement, True Time hereby irrevocably designates OYO as its sole and
exclusive agent and attorney-in-fact to take such action (including execution
of documents) as OYO, in its sole discretion, may deem appropriate in any and
all matters (including Audits) relating to any Tax Return described in Section
2.1(a) of this Agreement. True Time agrees to execute such powers of attorney
and to take such other actions as may be necessary to confirm Oyo's status as
its agent hereunder.
SECTION 3. PAYMENT OF TAXES TO TAX AUTHORITIES
3.1 FEDERAL INCOME TAXES. OYO shall pay (or cause to be paid) to the
Service all Federal Income Taxes with respect to any Consolidated Return due
and payable for all Pre-Deconsolidation Periods.
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3.2 NON-FEDERAL COMBINED TAXES. OYO shall pay (or cause to be paid)to
the appropriate Tax Authorities all Non-Federal Combined Taxes with respect to
any Combined Return due and payable for all Pre-Deconsolidation Periods;
provided that, with respect to those Tax Returns described in clauses (ii)
and(iii) of the definition of "Combined Return," OYO shall pay (or cause to be
paid) to the appropriate Tax Authorities all Taxes due with respect to any Tax
Return of OYO (or any OYO Affiliate) and True Time shall pay (or cause to be
paid) to the appropriate Tax Authorities all Taxes due with respect to any Tax
Return of True Time.
3.3 NON-FEDERAL SEPARATE TAXES. True Time shall pay (or cause to be
paid) to the appropriate Tax Authorities all Non-Federal Separate Taxes of True
Time.
3.4 OTHER FEDERAL TAXES. The parties shall each pay (or cause to be
paid) to the appropriate Tax Authorities all of their respective Federal Taxes
(excluding Federal Income Taxes for Pre-Deconsolidation Periods which are
governed by Section 3.1 of this Agreement).
3.5 TRANSFER TAXES. True Time shall pay (or cause to be paid) to the
appropriate Tax Authorities all the Transfer Taxes.
SECTION 4. ALLOCATION OF TAXES
4.1 TRUE TIME LIABILITY FOR FEDERAL INCOME TAXES AND NON-FEDERAL
COMBINED TAXES. For each Pre-Deconsolidation Period ending before the
Deconsolidation Date, True Time shall be liable for and shall pay to OYO an
amount equal to the sum of the True Time Federal Income Tax Liability and the
True Time Combined Tax Liability for such taxable period in accordance with the
Prior Arrangement.
4.2 TRUE TIME FEDERAL INCOME TAX LIABILITY. With respect to each
Pre-Deconsolidation Period beginning after September 30, 1999 (including the
Straddle Period), the True Time Federal Income Tax Liability for such taxable
period shall be True Time's liability for Federal Income Taxes for such taxable
period, as determined on a Pro Forma True Time Tax Return prepared: (a) on a
basis consistent with the preparation of the Tax Return for such period
(including whether regular Tax or federal alternative minimum Tax applies with
respect to the Tax Return), determined by including only Tax Items of members of
True Time which are included in the Tax Return and by allocating Tax Assets to
True Time to the extent that the Tax Asset was created by True Time and such Tax
Asset was actually utilized on the relevant Tax Return; and (b) applying the
highest statutory marginal corporate income Tax rate in effect for such taxable
period (or portion thereof); provided that, in the event that the federal
alternative minimum Tax applies to the Tax Return, the True Time Federal Income
Tax Liability shall equal the lesser of(i) the alternative minimum Tax liability
with respect to the Tax Return that would result by including only Tax Items and
Tax Assets of members of True Time included in the Tax Return or (ii) the
aggregate Tax liability payable with respect to such Tax Return.
4.3 TRUE TIME COMBINED TAX LIABILITY. With respect to any
Pre-Deconsolidation Period beginning on or before the Deconsolidation Date and
ending after the Deconsolidation Date,
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the True Time Combined Tax Liability shall be the sum for such taxable period
of True Time's liability for each Non-Federal Combined Tax, as determined on
Pro Forma True Time Combined Returns prepared in a manner consistent with the
principles and procedures set forth in Section 4.2 hereof.
4.4 COOPERATION. (a) OYO and True Time shall prepare jointly any Pro
Forma True Time Tax Returns and Pro Forma True Time Combined Returns. OYO and
True Time agree to cooperate in good faith in connection with the preparation
of such pro forma tax returns and agree to make reasonably available any
documents, information or employees in connection therewith.
(b) The Pro Forma True Time Tax Returns and Pro Forma True Time
Combined Returns shall be completed no later than sixty (60) days following the
date on which the related Tax Return or Combined Return, as the case may be, is
filed with the appropriate Tax Authority. Any disputes relating to the
reporting of any Tax Item on the pro forma tax returns that have not been
resolved within the sixty (60) day period referred to in the immediately
preceding paragraph shall be referred to the Independent Firm, in accordance
with the principles and procedures set forth in Section 8 of this Agreement.
4.5 TAX SHARING INSTALLMENT PAYMENTS. (a) FEDERAL INCOME TAXES.
Not later than two (2) business days prior to each Estimated Federal Income Tax
Installment Date with respect to any Pre-Deconsolidation Period, the parties
shall, consistent with past practice, determine under the principles of Section
6655 of the Code the estimated amount of the related installment of the True
Time Federal Income Tax Liability. True Time shall pay to OYO no later than
five (5) business days after such Estimated Tax Installment Date the amount
thus determined. The parties acknowledge and agree that, for purposes of this
Section 4.5(a), True Time has paid to OYO $__________ as of the date hereof,
with respect to the taxable period beginning October 1, 1999.
(b) NON-FEDERAL COMBINED TAXES. (1) OYO TAX RETURNS. OYO shall, in
connection with any installment payment (payable with respect to any Combined
Return prepared and filed by OYO) with respect to Non-Federal Combined Taxes
for any Pre-Deconsolidation Period, consistent with past practice, determine
the estimated amount of the related installment of the True Time Combined Tax
Liability. Within the first ten (10) business days of any month, OYO may
provide True Time with a written statement setting forth amounts owed by True
Time in connection with any installment payments with respect to Non-Federal
Combined Taxes made by OYO for the immediately preceding month and any other
month for which a statement has not previously been provided by OYO. True Time
shall pay the amounts set forth on any statement within seven (7) business days
following the receipt of such statement. The parties acknowledge and agree
that, for purposes of this Section 4.5(b)(1), True Time has paid to OYO
$_______________ in the aggregate as of the date hereof, with respect to the
taxable period beginning _______________, 1999.
(2) TRUE TIME TAX RETURNS. True Time shall, in connection
with any installment payment (payable with respect to any Combined Return
prepared and filed by True
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Time) with respect to Non-Federal Combined Taxes for any Pre-Deconsolidation
Period, consistent with past practice, determine the estimated amount of the
related installment of the True Time Combined Tax Liability. Within the first
ten (10) business days of any month, True Time may provide OYO with a written
statement setting forth amounts owed by OYO in connection with any installment
payments with respect to Non-Federal Combined Taxes made by True Time for the
immediately preceding month and any other month for which a statement has not
previously been provided by True Time. The amount payable by OYO pursuant to the
immediately preceding sentence shall equal the aggregate amount of the
installment payment made by True Time less the estimated amount of the True Time
Combined Tax Liability related to such installment as determined in the first
sentence of this Section 4.5(b)(2). OYO shall pay the amounts set forth on any
statement within seven (7) business days following the receipt of such
statement.
4.6 TAX SHARING TRUE-UP PAYMENTS (a) FEDERAL INCOME TAXES. Not
later than fifteen (15) days following the completion of any Pro Forma True Time
Tax Return (as prepared initially or as revised), True Time shall pay to OYO, or
OYO shall pay to True Time, as appropriate, an amount equal to the difference,
if any, between the True Time Federal Income Tax Liability for the
Pre-Deconsolidation Period and the aggregate amount paid by True Time with
respect to such period under Section 4.5(a) of this Agreement.
(b) NON-FEDERAL COMBINED TAXES. Not later than fifteen (15) days
following the completion of any Pro Forma True Time Combined Return, True Time
shall pay to OYO, or OYO shall pay to True Time, as appropriate, an amount equal
to the difference, if any, between the True Time Combined Tax Liability for the
Pre-Deconsolidation Period and the amounts paid by True Time with respect to
such period under Sections 4.5(b)(1) and (2) of this Agreement. For purposes of
this Section 4.6(b), the amounts paid by True Time under (i) Section 4.5(b)(1)
shall be the amounts paid to OYO and (ii) Section 4.5(b)(2) shall be the amounts
paid to the relevant Tax Authority less any amounts received from OYO.
4.7 REDETERMINATION AMOUNTS (a) PRE-DECONSOLIDATION PERIODS BEGINNING
BEFORE THE DECONSOLIDATION DATE AND ENDING ON OR AFTER THE DECONSOLIDATION DATE.
For any Pre-Deconsolidation Period beginning before the Deconsolidation Date and
ending on or after the Deconsolidation Date, in the event of a redetermination
of any Tax Item of any member of a Consolidated Group or Combined Group as
a result of a Final Determination, the filing of a Tax refund claim or the
filing of an amended Tax Return pursuant to which Taxes are paid to a Tax
Authority or a refund of Taxes is received from a Tax Authority, OYO and True
Time shall prepare jointly, in accordance with the principles and procedures set
forth in this Section 4,revised Pro Forma True Time Tax Returns and/or revised
Pro Forma True Time Combined Returns, as appropriate, to reflect the
redetermination of such Tax Item
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as a result of such Final Determination, filing of a Tax refund claim or filing
of an amended Tax Return no later than 60 days following the date of the Final
Determination, the filing of the tax refund claim or the amended tax return, as
the case may be. Following the completion of such revised pro forma tax returns,
True Time's obligations under Sections 4.1 and 4.6 hereof to make or receive
payments shall be redetermined, and True Time shall make or receive such
payments within 15 days of the completion of the revised Pro Forma True Time Tax
Returns.
(b) PRE-DECONSOLIDATION PERIODS BEGINNING BEFORE THE
DECONSOLIDATION DATE AND ENDING BEFORE THE DECONSOLIDATION DATE.
For any Pre-Deconsolidation Period beginning before the Deconsolidation Date and
ending before the Deconsolidation Date, in the event of a redetermination of any
Tax Item of any member of a Consolidated Group or Combined Group as a result of
a Final Determination, the filing of a Tax refund claim or the filing of an
amended Tax Return pursuant to which Taxes are paid to a Tax Authority or a
refund of Taxes is received from a Tax Authority, OYO and True Time shall
prepare jointly, in accordance with the principles and procedures set forth in
this Section 4, Pro Forma True Time Tax Returns and Pro Forma True Time Combined
Returns, as appropriate, both without regard to the redetermined Tax Item (which
may be different than the amount allocated to True Time under the Prior
Agreement) and with regard to the redetermined Tax Item no later than 60 days
following the date of the Final Determination, the filing of the Tax refund
claim or the amended Tax Return, as the case may be. True Time shall pay to OYO
the amount by which the Tax liability reflected on the pro forma tax return with
regard to the redetermined Tax Item exceeds the Tax liability reflected on the
pro forma tax return without regard to the redetermined Tax Item, and OYO shall
pay to True Time the amount by which the Tax liability reflected on the pro
forma tax return without regard to the redetermined Tax Item exceeds the Tax
liability reflected on the pro forma tax return with regard to the redetermined
Tax Item in either case such payment to be made within 15 days of the completion
of the pro forma tax returns dealing with the redetermined Tax Item.
4.8 PAYMENT OF TAXES FOR POST-DECONSOLIDATION PERIODS. Except as
otherwise provided in this Agreement, OYO shall pay or cause to be paid all
Taxes and shall be entitled to receive and retain all refunds of Taxes with
respect to Tax Returns relating to PostDeconsolidation Periods for which OYO has
filing responsibility, including under this Agreement. Except as otherwise
provided in this Agreement, True Time shall pay or cause to be paid all Taxes
and shall be entitled to receive and retain all refunds of Taxes with respect to
Tax Returns relating to Post- Deconsolidation Periods for which True Time has
filing responsibility, including under this Agreement.
SECTION 5. TAX ATTRIBUTES
5.1 ALLOCATION OF TAX ITEMS. (a) IN GENERAL. All Tax computations
for(i) any Pre-Deconsolidation Period ending on a Deconsolidation Date, (ii) the
immediately following taxable period of True Time or any True Time Affiliate and
(iii) any Straddle Period, shall be made pursuant to the principles of
Section1.1502-76(b) of the Treasury Regulations or of a corresponding
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provision under the laws of other jurisdictions and, to the extent possible, in
a manner consistent with the principles set forth in Section 4.2(a) and (b) of
this Agreement.
(b) REATTRIBUTION. In the event of a Deconsolidation, OYO may, at its
option, elect to reattribute to itself certain Tax Items of True Time pursuant
to Section 1.1502-20(g) of the Treasury Regulations. If OYO makes such election,
True Time shall comply with the requirements of Section1.1502-20(g)(5) of the
Treasury Regulations.
5.2 POST-DECONSOLIDATION. To the extent permitted by applicable law,
following any Deconsolidation and except as otherwise provided herein, the
relevant Tax Assets with respect to the Consolidated Group or Combined Group, as
the case may be, shall be allocated to the corporation or entity that created or
generated the Tax Asset.
SECTION 6. ADDITIONAL OBLIGATIONS
6.1 PROVISION OF INFORMATION AND MUTUAL COOPERATION. (a) OYO, OYO
Affiliates, and True Time shall (1) furnish to the other in a timely manner such
information, documents and other materials as the other may reasonably request
for purposes of (i) preparing any Tax Return (or pro forma Tax return prepared
in accordance with Section 4 hereof) or portion hereof for which the other has
responsibility for preparing under this Agreement, (ii) contesting or defending
any Audit, and (iii) making any determination or computation necessary or
appropriate under this Agreement, (2) make its employees available to the other
to provide explanations of documents and materials and such other information as
the other may reasonably request in connection with any of the matters described
in subclauses (i), (ii) and (iii)of clause (1) above, (3) reasonably cooperate
in connection with any Audit.
(b) OYO, OYO Affiliates and True Time shall retain and provide on
reasonable demand to each other books, records, documentation or other
information relating to any Tax Return or Audit, with respect to any taxable
period in which OYO owns, directly or indirectly, 50% or more (by vote or value)
of the outstanding stock of True Time, until the later of (i) the expiration of
the applicable statute of limitations (after giving effect to any extension,
waiver, or mitigation thereof) and (ii) in the event any claim is made under
this Agreement or by any Tax Authority for which such information is relevant,
until a Final Determination is reached with respect to such claim.
Notwithstanding anything to the contrary included in this Agreement, the parties
will comply in all respects with the requirements of any applicable record
retention agreement with the Service or other Tax Authority.
(c) Notwithstanding any other provision of this Agreement, no member of
the OYO Group shall be required to provide True Time access to or copies of (1)
any Tax information that relates exclusively to any member of the OYO Group, (2)
any Tax information as to which any member of the OYO Group is entitled to
assert the protection of any Privilege, or (3) any Tax information as to which
any member of the OYO Group is subject to an obligation to maintain the
confidentiality of such information. OYO shall use reasonable efforts to
separate any such information from any
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<PAGE> 16
other information to which True Time is entitled to access or to which True Time
is entitled to copy under this Agreement, to the extent consistent with
preserving its rights under this Section 6.1(c).
(d) Notwithstanding any other provision of this Agreement, with respect
to Tax information that relates to any taxable period in which True Time is no
longer included in the Consolidated Group of which OYO is the common parent and
no Combined Return is filed, no member of True Time shall be required to provide
OYO or any OYO Affiliate access to or copies of (1) any Tax information as to
which any member of True Time is entitled to assert the protection of any
Privilege or (2) any Tax information as to which any member of True Time is
subject to an obligation to maintain the confidentiality of such information.
True Time shall use reasonable efforts to separate any such information from any
other information to which OYO is entitled to access or to which OYO is entitled
to copy under this Agreement, to the extent consistent with preserving its
rights under this Section 6.1(d).
6.2 INDEMNIFICATION. (a) FAILURE TO PAY. OYO and each OYO Affiliate
shall jointly and severally indemnify True Time its directors, officers and
employees, and hold them harmless from and against any Tax or Loss that is
attributable to, or results from the failure of OYO or any OYO Affiliate to make
any payment required to be made under this Agreement. True Time shall jointly
and severally indemnify OYO, each OYO Affiliate and their respective directors,
officers and employees, and hold them harmless from and against any Tax or Loss
that is attributable to, or results from, the failure of True Time to make any
payment required to be made under this Agreement.
(b) INACCURATE OR INCOMPLETE INFORMATION. OYO and each OYO Affiliate
shall jointly and severally indemnify True Time and its directors, officers and
employees, and hold them harmless from and against any Tax or Loss attributable
to the negligence of OYO or any OYO Affiliate in supplying True Time with
inaccurate or incomplete information, in connection with the preparation of any
Tax Return or any Audit. True Time shall jointly and severally indemnify OYO,
each OYO Affiliate and their respective directors, officers and employees, and
hold them harmless from and against any Tax or Loss attributable to the
negligence of True Time in supplying OYO or any OYO Affiliate with inaccurate or
incomplete information, in connection with the preparation of any Tax Return or
any Audit.
6.3 TAX CONSEQUENCES OF PAYMENTS. (a) TAX CHARACTERIZATION OF PAYMENTS.
For all Tax purposes and notwithstanding any other provision of this Agreement,
to the extent permitted by applicable law, the parties hereto shall treat any
payment made pursuant to this Agreement (other than any payment made in
satisfaction of an inter-company obligation) as a payment of its share of Taxes
or as a capital contribution or dividend distribution, as the case may be,
immediately prior to the date hereon and, accordingly, as not includible in the
taxable income of the recipient. If, as a result of a Final Determination, it is
determined that the receipt or accrual of any payment made under this Agreement
is taxable to the Indemnitee (as defined in Section 6.3(b) of this Agreement),
the Indemnitor (as defined in Section 6.3(b) of this Agreement) shall pay to the
Indemnitee an amount equal to any increase in the Income Taxes of the Indemnitee
as a result of
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<PAGE> 17
receiving the payment from the Indemnitor (grossed up to take into account such
payment, if applicable).
(b) ADJUSTMENTS TO PAYMENTS. Any party that has received a
payment("Indemnitee") under this Agreement from another party ("Indemnitor")
with respect to any Taxes suffered or incurred by the Indemnitee ("Indemnified
Loss") shall pay to such Indemnitor an amount equal to any "Tax Saving Amount"
realized by the Indemnitee promptly upon its receipt. For purposes of his
Section 6.3(b), the Tax Saving Amount shall equal the amount by which the Income
Taxes of the Indemnitee or any of its affiliates are reduced (including, without
limitation, through the receipt of a refund, credit or otherwise), plus any
related interest received from a Tax Authority, as a result of claiming as a
deduction or offset on any relevant Tax Return amounts attributable to an
Indemnified Loss (the "Indemnifiable Loss Deduction"), net of the amount by
which the Income Taxes of the Indemnitee or any of its affiliates are increased
(including, without limitation, through the receipt of a refund, credit or
otherwise), plus any related interest assessed by a Tax Authority as a result of
reporting the indemnity payment on any relevant Tax Return.
(c) REPORTING OF INDEMNIFIABLE LOSS. In the event that an Indemnitee
incurs an Indemnified Loss, such Indemnitee shall claim as a deduction or offset
on any relevant Tax Return (including, without limitation, any claim for
refund)such Indemnified Loss to the extent such position is supported by
"substantial authority" (within the meaning of Section 1.6662-4(d) of the
Treasury Regulations) with respect to United States federal, state and local Tax
Returns or has similar appropriate authoritative support with respect to any Tax
Return other than United States federal, state and local Tax Returns. The
Indemnitee shall have primary responsibility for the preparation of its Tax
Returns and reporting thereon such Indemnifiable Loss Deduction; provided, that
the Indemnitee shall consult with, and provide the Indemnitor with a reasonable
opportunity to review and comment on the portion of the Indemnitee's Tax Return
relating to the Indemnified Loss. If a dispute arises between the Indemnitee and
the Indemnitor as to whether there is "substantial authority" (with respect to
United States federal, state and local Tax Returns) or similar appropriate
authoritative support (with respect to any Tax Return other than United States
federal, state and local Tax Returns) for the claiming of an Indemnifiable Loss
Deduction, such dispute shall be resolved in accordance with the principles and
procedures set forth in Section 8 of this Agreement. Both OYO and True Time
shall act in good faith to coordinate their Tax Return filing positions with
respect to the taxable periods that include an Indemnifiable Loss Deduction.
There shall be an adjustment to any Tax Saving Amount calculated under Section
6.3(b) hereof in the event of an Audit which results in a Final Determination
that increases or decreases the amount of the Indemnifiable Loss Deduction
reported on any relevant Tax Return of the Indemnitee. The Indemnitee shall
promptly inform the Indemnifying Party of any such Audit and shall attempt in
good faith to sustain the Indemnifiable Loss Deduction at issue in the Audit.
Upon receiving a written notice of a Final Determination in respect of an
Indemnifiable Loss Deduction, the Indemnitee shall redetermine the Tax Saving
Amount attributable to the Indemnifiable Loss Deduction under Section 6.3(b)
hereof, taking into account the Final Determination (the "Restated Tax Saving
Amount"). If the Restated Tax Saving Amount is greater than the Tax Saving
Amount, the Indemnitee shall promptly pay the Indemnitor an amount equal to the
difference between such amounts. If the Restated Tax Saving
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<PAGE> 18
Amount is less than the Tax Saving Amount, then the Indemnitor shall promptly
pay the Indemnitee an amount equal to the difference between such amounts.
6.4 INTEREST. Payments pursuant to this Agreement that are not made
within the period prescribed in this Agreement or, if no period is prescribed,
within fifteen (15) days after demand for payment is made (the "Payment Period")
shall bear interest for the period from and including the date immediately
following the last date of the Payment Period through and including the date of
payment (the "Interest Accrual Period") at a per annum rate equal to the
long-term applicable federal rate ("AFR") in effect on the last day of such
Payment Period, plus 200 basis points. Such interest will be payable at the same
time as the payment to which it relates and shall be calculated on the basis of
a year of 365 days and the actual number of days for which due.
SECTION 7. AUDITS
7.1 IN GENERAL (a) Subject to Section 7.1(b) of this Agreement, OYO
shall have the exclusive right, in its sole discretion, to control, contest, and
represent the interests of OYO, any OYO Affiliate, or True Time in any Audit
relating to any Tax Return described in Section 2.1(a) of this Agreement (other
than those returns described in clause (ii)(A) of the definition of "Combined
Returns") and to resolve, settle or agree to any deficiency, claim or adjustment
proposed, asserted or assessed in connection with or as a result of any such
Audit. OYO's rights shall extend to any matter pertaining to the management and
control of an Audit, including, without limitation, execution of waivers, choice
of forum, scheduling of conferences and the resolution of any Tax Item.
(b) True Time shall have the right to control, contest and represent
the interests of True Time or any True Time Affiliate in any Audit relating
directly to any Tax Item included on the portion of any Consolidated Return or
Combined Return (such as those returns described in clause (ii)(A) of the
definition of "Combined Return") which True Time is responsible for preparing
pursuant to Section2.2(c) of this Agreement and to resolve, settle or agree to
any deficiency, claim or adjustment proposed, asserted or assessed in connection
with or as a result of such Audit; provided that, the entering into of any such
resolution, settlement or agreement or any decision in connection with
(including the entering into of) any judicial or administrative proceeding
relating to Taxes shall be subject to the review and approval of OYO, which
approval shall not be unreasonably withheld.
(c) True Time shall have the exclusive right, in its sole discretion,
to control, contest, and represent the interests of True Time in any Audit
relating to any Tax Return described in Section2.1(b) of this Agreement as the
sole responsibility of True Time and to resolve, settle, or agree to any
deficiency, claim or adjustment proposed, asserted or assessed in connection
with or as a result of any such Audit; provided that, for taxable periods during
all or part of which OYO owns fifty percent (50%) or more of the outstanding
stock (by vote or value) of True Time, the entering into of any such resolution,
settlement or agreement or any decision in connection with (including the
entering into of) any judicial or administrative proceeding relating to Taxes
shall be subject to OYO's review and approval, which approval shall not be
unreasonably withheld.
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<PAGE> 19
7.2 NOTICE. If OYO or any member of the OYO Group receives written
notice of, or relating to, an Audit from a Tax Authority that asserts, proposes
or recommends a deficiency, claim or adjustment that, if sustained, would result
in the redetermination of a Tax Item of a member of True Time, OYO shall
promptly provide a copy of such notice to True Time (but in no event later than
thirty (30) days following the receipt of such notice). If any member of True
Time receives written notice of, or relating to, an Audit from a Tax Authority
with respect to a Tax Return described in Section 2.1(a) of this Agreement, True
Time shall promptly provide a copy of such notice to OYO (but in no event later
than thirty (30) days following the receipt of such notice).
7.3 FAILURE TO NOTIFY. The failure of OYO or True Time to notify the
other of any matter relating to a particular Tax for a taxable period or to take
any action specified in this Agreement shall not relieve such other party of any
liability and/or obligation which it may have under this Agreement with respect
to such Tax for such taxable period except to the extent that such other party's
rights hereunder are materially prejudiced by such failure.
7.4 REMEDIES. True Time agrees that no claim against OYO and no defense
to True Time's liabilities to OYO under this Agreement shall arise from the
resolution by OYO of any deficiency, claim or adjustment relating to the
redetermination of any Tax Item of OYO or an OYO Affiliate.
SECTION 8. DISPUTE RESOLUTION. In the event that OYO, on the one hand, and True
Time, on the other hand, disagree as to the amount or calculation of any payment
to be made under this Agreement, or the interpretation or application of any
provision under this Agreement, the parties shall attempt in good faith to
resolve such dispute. If such dispute is not resolved within sixty (60) days
following the commencement of the dispute, OYO and True Time shall jointly
retain a tax attorney that is a member of a nationally recognized law firm or
"big five" accounting firm, which firm is independent of both parties (the
"Independent Firm"), to resolve the dispute. The Independent Firm shall act as
an arbitrator to resolve all points of disagreement and its decision shall be
final and binding upon all parties involved. Following the decision of the
Independent Firm, OYO and True Time shall each take or cause to be taken any
action necessary to implement the decision of the Independent Firm. The fees and
expenses relating to the Independent Firm shall be borne equally by OYO and True
Time.
SECTION 9. IPO RELATED ITEMS.
9.1 LIABILITY FOR DECONSOLIDATION TAXES; GOOD FAITH.
Notwithstanding any other provision of this Agreement, OYO shall be responsible
for the payment of, and shall indemnify and hold True Time harmless from and
against Deconsolidation Taxes, except those Deconsolidation Taxes related to the
intercompany items attributed to True Time under section 1.1502-13 of the
Treasury Regulations which should be the liability and obligation of True Time.
Each of the parties hereto agrees to act in good faith and without negligence in
connection with the Tax reporting of and all other aspects related to the Tax
consequences of the IPO and
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<PAGE> 20
Deconsolidation and shall be responsible for any Taxes or Losses arising from
any failure to act in good faith or any negligent act or omission with respect
thereto.
9.2 TAX REPORTING OF IPO RELATED ITEMS. Any Tax Return (or portion
thereof) that includes any Tax Item relating to any Deconsolidation (to the
extent resulting in Deconsolidation Taxes) shall be prepared and filed by the
party responsible for preparing and filing such Tax Return (or portion thereof)
under Sections 2.1 and 2.2 of this Agreement; provided that, notwithstanding any
other provision of this Agreement, if True Time is the party responsible for
preparing any such Tax Return (or portion thereof) (each a "True Time
Deconsolidation Tax Return"), True Time shall provide any such True Time
Deconsolidation Tax Return (or portion thereof) to OYO (no later than forty-five
(45) days (or such shorter period as agreed to by OYO) prior to the due date for
the filing of such Tax Return (taking into account applicable extensions)), for
OYO's review and approval, which approval, to the extent it relates to any Tax
Item relating to any Deconsolidation (to the extent resulting in Deconsolidation
Taxes), may be withheld by OYO in its sole discretion and any such Tax Item
shall be reported as determined by OYO in its sole discretion (so long as such
reporting position is supported by "substantial authority" (within the meaning
of Section1.6662-4(d) of the Treasury Regulations) with respect to United States
federal, state and local Tax Returns or has similar appropriate authoritative
support with respect to any Tax Return other than United States federal, state
and local Tax Returns).
9.3 AUDITS RELATING TO IPO. Notwithstanding any other provision of this
Agreement, OYO shall have the exclusive right, or its sole discretion, to
control, contest, and represent the interests of OYO, any OYO Affiliate, or True
Time in any Audit with respect to Tax Items related to the Deconsolidation (to
the extent resulting in Deconsolidation Taxes), and to resolve, settle or agree
to any deficiency, claim or adjustment proposed, asserted or assessed in
connection with or as a result of any such Audit. OYO's rights shall extend to
any matter pertaining to the management and control of an Audit, including
execution of waivers, choice of forum, scheduling of conferences and there
solution of any Tax Item.
SECTION 10. MISCELLANEOUS
10.1 EFFECTIVENESS. This Agreement shall become effective upon
execution by both parties hereto.
10.2 NOTICES. All notices, requests, demands and other communications
under this Agreement shall be in writing and, unless otherwise provided herein,
shall be deemed to have been duly given (i) on the date of service if served
personally on the party to whom notice is given, (ii) on the day of transmission
if sent via facsimile transmission to the facsimile number given below;
provided, telephonic confirmation of receipt is obtained promptly after
completion of transmission, (iii) on the business day after delivery to an
overnight courier service or the Express mail service maintained by the United
States Postal Service; provided, receipt of delivery has been confirmed, or
(iv)on the fifth day after mailing; provided, receipt of delivery is confirmed,
if mailed to the party
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<PAGE> 21
to whom notice is to be given, by first class mail, registered or certified,
postage prepaid, properly addressed and return-receipt requested, to the party
as follows:
If to OYO or any OYO Affiliate, to:
OYO Corporation U.S.A.
Attn: Mr. Ernest M. Hall, Jr.
7334 Gessner Road
Houston, Texas 77040
Telephone: (713) 939-9700
If to True Time or any True Time Affiliate to:
TRUE TIME, INC.
2835 Duke Court
Santa Rose, CA 95407
Telephone: (707) 528-1230
Facsimile:
Any party may change its address or fax number by giving the other party written
notice of its new address or fax number in the manner set forth above.
10.3 CHANGES IN LAW. Any reference to a provision of the Code or a law
of another jurisdiction shall include a reference to any applicable successor
provision or law.
10.4 SUCCESSORS AND ASSIGNS. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by either
party without the prior written consent of the other party.
10.5 AUTHORIZATION, ETC. Each of the parties hereto hereby represents
and warrants that it has the power and authority to execute, deliver and perform
this Agreement, that this Agreement has been duly authorized by all necessary
corporate action on the part of such party, that this Agreement constitutes a
legal, valid and binding obligation of each such party and that the execution,
delivery and performance of this Agreement by such party does not contravene or
conflict with any provision of law or of its charter or bylaws or any agreement,
instrument or order binding on such party.
10.6 COMPLETE AGREEMENT. This Agreement shall constitute the entire
agreement between OYO or any OYO Affiliate and True Time with respect to the
subject matter hereof and shall supersede all previous agreements (including the
Prior Arrangement which shall be terminated
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<PAGE> 22
between Oyo and True Time on the effective date of the IPO), negotiations,
commitments and writings with respect to such subject matter. Notwithstanding
the Prior Arrangement shall be terminated on the effective date of the IPO, the
Taxes allocated to True Time under the Prior Arrangement for Pre-Deconsolidation
Periods ending before the Deconsolidation Date shall remain so allocated with
only the Pre-Deconsolidation Period redetermination amounts determined after the
effective date of the IPO and any ancillary effects thereto to be determined
under this Agreement. Unless the context indicates otherwise, any reference to
True Time in this Agreement shall refer to True Time and any reference to OYO in
this Agreement shall refer to OYO and the OYO Affiliates.
10.7 INTERPRETATION. The Section headings contained in this Agreement
are solely for the purpose of reference, are not part of the agreement of the
parties and shall not in any way affect the meaning or interpretation of this
Agreement. Whenever any words are used herein in the masculine gender, they
shall be construed as though they were also used in the feminine gender in all
cases where they would so apply.
10.8 GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Texas (regardless of
the laws that might otherwise govern under applicable principles of conflicts
law) as to all matters, including, without limitation, matters of validity,
construction, effect, performance and remedies.
10.9 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.10 LEGAL ENFORCEABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10.11 NO THIRD PARTY BENEFICIARIES. This Agreement is solely for the
benefit of OYO, the OYO Affiliates, and True Time, and is not intended to confer
upon any other person any rights or remedies hereunder.
10.12 JURISDICTION; FORUM (a) By the execution and delivery of this
Agreement, OYO, OYO Affiliates and True Time submit to the personal jurisdiction
of any state or federal court in the State of Texas in any suit or proceeding
arising out of or relating to this Agreement.
(b) To the extent that OYO, OYO Affiliates, and True Time, has or
hereafter may acquire any immunity from jurisdiction of any Texas court or from
any legal process (whether through service or notice, attachment prior to
judgment, attachment in aid of execution, execution or otherwise) with respect
to itself or its property, OYO, OYO Affiliates, or True Time, as the case
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<PAGE> 23
may be, hereby irrevocably waives such immunity in respect of its obligations
with respect to this Agreement.
(c) The parties hereto agree that an appropriate and convenient,
non-exclusive forum for any disputes between any of the parties hereto or the
OYO Affiliates arising out of this Agreement shall be in any state or federal
court in the State of Texas.
10.13 AMENDMENT AND MODIFICATION. This Agreement may be amended,
modified or supplemented only by written agreement of the parties.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by a duly authorized officer as of the date first above
written.
OYO CORPORATION U.S.A.
on behalf of itself and its affiliates
By_______________________________________
Name:____________________________________
Title:_____________________________________
TRUE TIME, INC.
By_______________________________________
Name:____________________________________
Title:_____________________________________
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<PAGE> 1
EXHIBIT 10.6
TRUETIME, INC.
2835 Duke Court
Santa Rosa, California 95407
December ___, 1999
Re: Transition Services
Ernest M. Hall, Jr.
President
OYO Corporation U.S.A
7334 N. Gessner Road
Houston, Texas 77040
Gentlemen:
TrueTime, Inc., a Delaware corporation ("TrueTime"), hereby agrees with OYO
Corporation U.S.A., a Texas corporation ("OYO USA"), on behalf of itself and the
affiliates of OYO USA (other than TrueTime) (the "Affiliates"), as follows:
1. In connection with the proposed public offering of shares of common
stock of TrueTime(the "Offering"), TrueTime and OYO USA desire the assistance of
personnel of each company to assist in the transition to entirely separate
operations of the companies. In this regard, TrueTime will cause its employees
to cooperate with OYO USA in providing management assistance for OYO USA and its
affiliates for up to one year following the Offering (the "Transition Period").
To the extent requested, if at all, OYO USA will cause its employees and the
employees of its Affiliates to cooperate with TrueTime and its subsidiaries in
performing various administrative, tax, accounting, treasury, bookkeeping and
employee benefit functions for a period of one year following the Offering.
2. As compensation for the services provided pursuant to Paragraph 1, OYO
USA will pay TrueTime, for each hour of time of an officer or employee of
TrueTime or its subsidiaries dedicated to work requested by OYO USA, an hourly
rate equal to 1/1920 of the annual salary of such officer or employee). As
compensation for the services provided pursuant to Paragraph 1, TrueTime will
pay OYO USA, for each hour of time of an officer or employee of OYO USA or an
Affiliate dedicated to work requested by TrueTime, an hourly rate equal to
1/1920 of the annual salary of such officer or employee).
3. In no event shall any officer or employee of either company or their
Affiliates be required to provide more than 50 hours per month of services under
this agreement. Services provided under this agreement are on an independent
contractor basis and no employer-employee or other relationship or agency
between the parties or their respective employees and the other party shall
arise or result from this agreement.
<PAGE> 2
Ernest M. Hall
President
OYO Corporation U.S.A.
_____________________,1999
Page 2
4. TrueTime and OYO USA agree to promptly pay the other for services
provided under this agreement upon receipt of an invoice therefor.
5. TrueTime and OYO USA also agree that certain employees of OYO USA or
its Affiliates possibly may occupy premises held by TrueTime or its affiliates
on a temporary basis during the Transition Period. OYO USA shall compensate
TrueTime for such occupancy, if any, at a fair and reasonable rate based on a
fair allocation of the costs of such occupancy to TrueTime.
6. This agreement embodies the entire agreement between TrueTime and OYO
USA with respect to the subject matter hereof and supersedes all prior
agreements and understandings related to that subject matter. This agreement
should be construed and enforced in accordance with, and governed by, the laws
of the state of Texas. This agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
If this agreement is satisfactory to you, please so indicate by signing the
accompanying counterparts of this agreement and return one of the same to
TrueTime, whereupon this letter shall become a binding agreement between
TrueTime and OYO USA in accordance with its terms.
Very truly yours,
TrueTime, Inc.
By:
----------------------------------
Name: Elizabeth A. Withers
Title: President
The foregoing agreement is hereby
agreed to as of the date hereof.
OYO Corporation U.S.A.
By:
-------------------------------
Name: Ernest M. Hall, Jr.
Title: President
<PAGE> 1
EXHIBIT 10.8
REGISTRATION RIGHTS AGREEMENT
BETWEEN
TRUETIME, INC.,
A DELAWARE CORPORATION
AND
OYO CORPORATION U.S.A.,
A TEXAS CORPORATION
DATED AS OF ________________, 1999
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
ARTICLE II
REGISTRATION RIGHTS
<TABLE>
<S> <C>
2.1 Registration of Registrable Securities..........................3
2.2 Registration Statement Form.....................................5
2.3 Expenses........................................................5
2.4 Effective Registration Statement................................6
2.5 Underwriters....................................................6
2.6 Apportionment in Registrations Requested........................6
ARTICLE III
REGISTRATION PROCEDURES
3.1 Procedures......................................................7
3.2 Underwriting Agreement..........................................8
3.3 Shareholder's Information.......................................9
3.4 Preparation; Reasonable Investigation...........................9
3.5 Nominees for Beneficial Owners..................................9
ARTICLE IV
INDEMNIFICATION
4.1 Indemnification by the Company.................................10
4.2 Indemnification by the Shareholder.............................10
4.3 Contribution...................................................11
4.4 Notices of Claims, etc.........................................12
ARTICLE V
MISCELLANEOUS
5.1 Notices........................................................13
5.2 Assignment; Other Benefits.....................................14
5.3 Amendments and Waivers.........................................14
5.4 Headings.......................................................14
5.5 Severability of Provisions.....................................14
5.6 Entire Agreement...............................................15
5.7 Counterparts...................................................15
5.8 Governing Law..................................................15
</TABLE>
<PAGE> 3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") dated
as of ____________, 1999, between TrueTime, Inc., a Delaware corporation (the
"Company"), and OYO Corporation U.S.A., a Texas corporation (the
"Shareholder").
W I T N E S S E T H:
WHEREAS, the Company is a wholly owned subsidiary of
Shareholder and the Company and the Shareholder desire to set forth the terms
and conditions by which the Company will register the shares of Common Stock
owned by the Shareholder following a contemplated initial public offering of
Common Stock;
NOW, THEREFORE, for and in consideration of the mutual
covenants and agreements hereinafter set forth, the Parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
Capitalized terms used in this Agreement shall (a) include
the singular as well as the plural, (b) include the masculine as well as the
feminine and neutral and (c) have the meanings given to them in this Article I,
unless defined elsewhere in this Agreement.
"Affiliate", with respect to any Person, means any other
Person directly or indirectly controlling, controlled by or under common
control with, such Person. For purposes of this definition, "control"
(including with correlative meanings, the terms "controlling", "controlled by"
or "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities or by contract or otherwise.
"Commission" means the Securities and Exchange Commission of
the United States of America or any other federal agency at the time
administering the Securities Act.
"Common Stock" means (a) all shares now or hereafter
authorized and designated as the Common Stock of the Company, including
(without limitation) the Company's presently authorized common stock, $.01 par
value per share, and (b) any securities issued or issuable with respect to any
such securities by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation, or
reorganization or otherwise upon any required adjustments, and securities of
any other class with which such securities may hereafter have been exchanged or
reclassified.
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"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the regulations promulgated from time to time thereunder.
"Governmental Entity" means the United States of America, any
state, province, territory, county, city, municipality and any subdivision
thereof, any court, administrative or regulatory agency, commission, department
or body or other governmental authority or instrumentality, the Commission, or
any entity or person exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Party" means the Company or the Shareholder and "Parties"
means the Company and the Shareholder.
"Permitted Transferee" means, in the case of any holder of
Registrable Securities, (a) any Affiliate, partner or shareholder of such
holder or (b) any Person with respect to which the Board of Directors of the
Company shall have adopted a resolution stating that the Board has no objection
if a sale of shares is made to such Person.
"Person" means any natural person or entity of any kind,
including (without limitation) corporations, partnerships, limited liability
companies, Governmental Entities and any other entity organized or formed under
the law of any jurisdiction.
"Registrable Securities" means the shares of Common Stock to
be held by the Shareholder or any Affiliate of the Shareholder following the
consummation of the initial public offering of Common Stock contemplated hereby
or held thereafter by any Permitted Transferee and any shares of Common Stock
issued or issuable in respect of such shares by way of a stock dividend or
stock split or in connection with a combination or subdivision of shares,
reclassification, recapitalization, merger, consolidation or other
reorganization of the Company. As to any particular Registrable Securities,
such securities shall cease to be Registrable Securities when (a) a
registration statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement, (b) they shall have
been distributed to the public pursuant to Rule 144 (or any successor
provision) under the Securities Act, (c) they shall have been otherwise
transferred and subsequent disposition of them shall not require registration
or qualification of them under the Securities Act or any similar law then in
force, (d) they shall have been otherwise transferred to any Person other than
a Permitted Transferee, or (e) they shall have ceased to be outstanding.
"Registration Expenses" means all out-of-pocket expenses
incident to the Company's performance of or compliance with Article III,
including, without limitation, all registration, filing and National
Association of Securities Dealers, Inc. fees, all fees and expenses of
complying with securities or blue sky laws (including reasonable fees and
disbursements of underwriters' counsel in connection with any blue sky
memoranda), all word processing, duplicating and printing expenses, all listing
fees, the fees and disbursements of counsel for the Company and of its
independent public accountants, including the expenses of any audits or "cold
comfort" letters
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required by or incident to such performance and compliance, the reasonable fees
and disbursements of one outside counsel retained by the holders of Registrable
Securities being registered (which counsel shall be satisfactory to the holders
of a majority of the shares of Registrable Securities being registered), and
the out-of-pocket expenses of underwriters typically paid by issuers of
securities, but excluding underwriting discounts and commissions and transfer
taxes, if any, relating solely to the Registrable Securities being registered.
Notwithstanding the foregoing, "Registration Expenses" shall not include the
expenses of any special audit by outside auditors of the Company as
distinguished from the expenses of an annual audit.
"Rule 144" means Rule 144 under the Securities Act, or any
successor.
"Securities Act" means the Securities Act of 1933, as
amended, and the regulations promulgated from time to time thereunder.
ARTICLE II
REGISTRATION RIGHTS
2.1 Registration of Registrable Securities.
(a) Request. Upon the written request of the holder or
holders of Registrable Securities holding at least 25% of the Registrable
Securities (the "Requesting Holders"), specifying the intended method of
disposition of such Registrable Securities, the Company shall effect the
registration under the Securities Act of the portion of such holders'
Registrable Securities specified in such request for disposition in accordance
with the intended method of disposition as specified in such request. The
Company shall promptly give written notice of any requested registration to the
other holders of Registrable Securities and shall use its reasonable best
efforts to effect, as expeditiously as possible, the registration under the
Securities Act of:
(i) the Registrable Securities that the Company
has been so requested to register by such Requesting Holder;
and
(ii) such Registerable Securities owned by other
holders that such holders request in writing, within 15 days
after receipt of written notice from the Company, to be
registered,
all to the extent requisite to permit the disposition of the Registrable
Securities and such other securities so to be registered.
Whenever the Company shall effect a registration pursuant to
this Section 2.1(a), no securities other than Registrable Securities shall be
included among the securities covered by such registration unless the holders
of not less than 50% of all Registrable Securities to be covered by such
registration shall have consented in writing to the inclusion of such other
securities.
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(b) Certain Limitations. The foregoing notwithstanding, the
Company shall not be obligated to file and cause to become effective any
registration statement pertaining to Registrable Securities that do not, in the
aggregate, equal or exceed 25% of the outstanding Registrable Securities. In
addition, with respect to any registration statement filed, or to be filed,
pursuant to Section 2.1(a), if the Board of Directors of the Company determines
that, in its reasonable judgment, it would (because of the existence of, or in
anticipation of, any acquisition involving the Company or any of its
subsidiaries or any financing activity, or the unavailability for reasons
substantially beyond the Company's control of any required financial
statements, or any other event or condition of similar significance to the
Company or any of its subsidiaries) be significantly disadvantageous (a
"Disadvantageous Condition") to the Company or any of its subsidiaries for such
a registration statement to become effective, or to be maintained effective,
the Company shall, notwithstanding any other provision of this Article II, be
entitled, upon the giving of a written notice (a "Delay Notice") to such effect
to each holder of Registrable Securities included or to be included in such
registration statement, to cause such registration statement to be withdrawn
and the effectiveness of such registration statement terminated, or, in the
event no registration statement has yet been filed, shall be entitled not to
file any such registration statement, until, in the reasonable judgment of the
Board of Directors, such Disadvantageous Condition no longer exists (notice of
which the Company shall promptly deliver to the holders of Registrable
Securities with respect to which any such registration statement has been
filed, or was to have been filed). Upon the reasonable request of any holder of
Registrable Securities included or to be included in such registration
statement, the Company will disclose to such holder the nature of such
Disadvantageous Condition in reasonable detail. Upon receipt of any notice of
the existence of a Disadvantageous Condition, such holders of Registrable
Securities selling securities pursuant to an effective registration statement
will forthwith discontinue use of the prospectus contained in such registration
statement and, if so directed by the Company, each such holder of Registrable
Securities will deliver to the Company all copies, other than permanent file
copies then in such holder's possession, of the prospectus then covering such
Registrable Securities current at the time of receipt of such notice, and, in
the event no registration statement has yet been filed, all drafts of the
prospectus covering such Registrable Securities. Notwithstanding the foregoing
provisions of this subparagraph (B): (1) the Company shall not be entitled to
delay any registration of Registrable Securities requested pursuant to Section
2.1(a) by reason of any existing or anticipated Disadvantageous Condition for a
period of more than 90 consecutive days from the giving of its Delay Notice to
the holders of such Registrable Securities with respect to such Disadvantageous
Condition, as above provided, and this subparagraph (B) shall have no further
force or effect from and after the end of such 90-day period with respect to
any registration statement filed or otherwise required to be filed pursuant to
Section 2.1(a), or with respect to any other obligation of the Company pursuant
to this Article II with respect to the request to which such registration
statement relates and (2) the Company shall be entitled to serve only one Delay
Notice within any period of 90 consecutive days.
(c) Piggyback Rights. If the Company shall at any time
propose the registration under the Securities Act of shares of Common Stock for
sale through underwriters (including the registration for a delayed offering (a
"Shelf Registration")), the Company shall give written notice of such proposed
registration (a "Piggyback Registration") to all holders of Registrable
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Securities and, if a registration statement is filed in connection with such
registration at the request of holders of Common Stock of the Company, subject
to the rights of such holders, will include in any such registration
Registrable Securities of any holder who, within 15 days after the giving of
such notice, shall request such inclusion, provided that if in the opinion of
the managing underwriter for such offering the inclusion of such Registrable
Securities therein would adversely affect the number of shares of Common Stock
the Company could sell or the price the Company could receive for such shares
or would in any other manner materially adversely affect such offering, the
number of Registrable Securities to be so included shall be reduced on a pro
rata basis (based on the number of Registrable Securities requested to be
included) so that each holder of Registrable Securities shall be entitled to
include only such number of Registrable Securities, if any, as such managing
underwriter has advised may be included in such registration without adversely
affecting the offering or the price or the number of shares of Common Stock to
be sold in such registration by the Company. In the event Registrable
Securities are included in a Shelf Registration and the holders of such
Registrable Securities subsequently elect not to sell such Registrable
Securities thereunder, the Company will de-register such Registrable Securities
(including filing a post-effective amendment to the Registration Statement for
such Shelf Registration) and such election shall not affect the rights of such
holders hereunder. Each holder of securities included in a Piggyback
Registration shall sell its Registrable Securities through the underwriters for
the shares of Common Stock otherwise sold thereunder pursuant to an
underwriting agreement acceptable to such underwriters and on the same terms
and conditions as the Company. Each holder of Registrable Securities included
in such registration shall otherwise be entitled to all the benefits of this
Agreement. A holder who has given notice to the Company hereunder requesting
inclusion of any Registrable Securities in a Piggyback Registration shall have
the right to withdraw its Registrable Securities from the Piggyback
Registration at any time prior to the effective date of the registration
statement for such Piggyback Registration. The Company shall have the right to
delay any offering or to withdraw any registration statement to which this
Section 2.1(c) relates at any time prior to the effective date thereof.
2.2 Registration Statement Form. Registrations under this
Article II shall be on such appropriate registration form of the Commission as
shall be selected by the Company. The Company agrees to include in any such
registration statement all information that holders of Registrable Securities
being registered shall reasonably request.
2.3 Expenses. The Company shall pay all Registration Expenses
in connection with registrations that become effective pursuant to this Article
II. The Company shall not be liable for Registration Expenses in connection
with a registration that shall not have become effective due to a revocation by
the holders of Registrable Securities. In such event, the obligation to pay the
Registration Expenses in connection with such revoked registration shall be due
and payable by the holders of Registrable Securities proposed to be included in
such registration, such expenses shall be borne by them in proportion to the
number of Registrable Securities requested by them to be registered, and the
Company's obligation to pay all Registration Expenses in connection with
registrations hereunder shall continue unabated to the extent unsatisfied by
any prior registrations.
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2.4 Effective Registration Statement. A registration
requested pursuant to this Article II shall not be deemed to have been effected
unless a registration statement relating thereto (a) has become effective under
the Securities Act and any of the Registrable Securities included in such
registration have actually been sold thereunder or (b) has remained effective
for a period of at least 90 days (or such shorter period in which all
Registrable Securities included in such registration have actually been sold
thereunder), provided that the Company may discontinue any effective
registration statement requested pursuant to this Article II if and so long as
a Disadvantageous Condition shall exist, and, in such event, such registration
statement shall be at the sole expense of the Company.
2.5 Underwriters. The managing underwriter or underwriters of
any underwritten public offering effected pursuant to Section 2.1(a) hereof
shall be determined by the holders of Registrable Securities holding at least
50% of the Registrable Securities to be included in such registration statement
and shall be reasonably acceptable to the Company.
2.6 Apportionment in Registrations Requested. With respect to
any registration requested pursuant to Section 2.1(a), if the managing
underwriter shall advise the Company in writing (with a copy to each holder
including Registrable Securities in such registration statement) that, in its
opinion, the number of securities requested to be included in such registration
exceeds the number that can be sold in such offering within a price range
acceptable to the holders of more than 50% of the Registrable Securities
requested to be included in such registration or would in any other manner
adversely affect such offering, the number of Registrable Securities requested
to be so included shall be reduced so that each seller shall be entitled to
include such number of Registrable Securities, as the case may be, determined
by multiplying the number of shares that such managing underwriter has advised
may be included in such registration without adversely affecting the offering
or the price range thereof by a fraction, the numerator of which is the number
of Registrable Securities held by such seller and the denominator of which is
the total number of Registrable Securities held by all Persons who are selling
securities in the offering.
ARTICLE III
REGISTRATION PROCEDURES
3.1 Procedures. If and whenever the Company is required to
use its reasonable best efforts to effect the registration of any Registrable
Securities under the Securities Act as provided in Article II, the Company
shall as expeditiously as possible:
(a) prepare and as soon thereafter as is reasonably
practicable file with the Commission the requisite registration statement to
effect such registration and thereafter use its reasonable best efforts to
cause such registration statement to become effective;
(b) prepare and file with the Commission such amendments
(including post-effective amendments) and supplements to such registration
statement and the prospectus used in connection
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therewith as may be necessary to keep such registration statement effective and
to comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement until such
time as all of such securities have been disposed of in accordance with the
intended method of disposition set forth in such registration statement or 90
days after the effective date of the registration statement, whichever is
shorter;
(c) furnish without charge to each seller of Registrable
Securities covered by such registration statement such number of conformed
copies of such registration statement and of each such amendment and supplement
thereto, such number of copies of the prospectus contained in such registration
statement (including each preliminary prospectus and any summary prospectus)
and any other prospectus filed under Rule 424 or Rule 430A under the Securities
Act, conforming with the requirements of the Securities Act and such other
documents as such seller may reasonably request;
(d) use its reasonable best efforts to register or qualify
all Registrable Securities and other securities covered by such registration
statement under such other securities or blue sky laws of such jurisdictions in
the United States as each seller thereof shall reasonably request, keep such
registration or qualification in effect for so long as such registration
statement remains in effect and take any other action that may be reasonably
necessary or advisable to enable such seller to consummate the disposition in
such jurisdictions of the securities owned by such seller, except that the
Company shall not for any such purpose be required to qualify generally to do
business as a foreign corporation in any jurisdiction wherein it would not but
for the requirements of this Section 3.1(d) be obligated to be so qualified or
to consent to general service of process in any such jurisdiction;
(e) furnish to each seller of Registrable Securities and the
underwriters (if applicable) a signed copy, addressed to such seller, except as
provided in Section 3.1(e)(ii) below, and the underwriters, of
(i) an opinion of qualified outside counsel for
the Company, dated the effective date of such registration
statement (or, if such registration involves an underwritten
public offering, dated the date of the closing under the
underwriting agreement) with respect to such matters as are
customarily covered in counsels' opinions to underwriters in
underwritten public offerings of securities, which shall be
reasonably satisfactory in form, scope and substance to the
sellers and the underwriters, and
(ii) a "comfort" letter, dated the effective
date of such registration statement (and, if such
registration includes an underwritten public offering, dated
the date of the closing under the underwriting agreement),
signed by the independent public accountants who have
certified the Company's financial statements included in such
registration statement, addressed to the underwriters
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and, to the extent the same can be reasonably obtained, to
each seller, covering substantially the same matters with
respect to such registration statement (and the prospectus
included therein) and with respect to events subsequent to
the date of such financial statements, as are customarily
covered in accountants' letters delivered to underwriters in
underwritten public offerings of securities and such other
financial, tabular and statistical matters as are typically
covered in such a "comfort" letter as the underwriters may
reasonably request;
(f) immediately notify each seller of Registrable Securities
covered by such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, upon discovery
that, or upon the happening of any event as a result of which, the prospectus
included in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in
the light of the circumstances under which they were made, and at the request
of any such seller or holder promptly prepare and furnish to such seller or
holder a reasonable number of copies of a supplement to or an amendment of such
prospectus, and use its best efforts to cause any such amendment, if a
post-effective amendment, to be declared effective, as may be necessary so
that, as thereafter delivered to the purchasers of such securities, such
prospectus, as amended or supplemented, shall not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances under which they were made; and
(g) otherwise use its reasonable best efforts to comply with
all applicable rules and regulations of the Commission, and make available to
its security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least 12 months, but not more than 18 months,
beginning with the first full calendar month after the effective date of such
registration statement, which earnings statement shall satisfy the provisions
of Section 11(a) of the Securities Act;
3.2 Underwriting Agreement. If requested by the underwriters
for any offering pursuant to a registration requested under Section 2.1(a), the
Company shall enter into an underwriting agreement with such underwriters for
such offering, such agreement to contain such representations and warranties by
the Company and such other terms as are generally prevailing in agreements of
this type, including, without limitation, indemnities to the effect and to the
extent provided in Article IV below. In connection with any registration
pursuant to Article II hereof, each holder of Registrable Securities agrees, by
acquisition of such Registrable Securities, if so required by the managing
underwriter, not to effect in any public sale or distribution (including any
sale pursuant to Rule 144) of Registrable Securities (other than as part of
such underwritten public offering) within seven days prior to the effective
date of such registration statement or 120 days after the effective date of
such registration statement. The Company agrees, if so required by the managing
underwriters, not to effect any public sale or distribution for its own account
of any of its equity securities or securities convertible into or exchangeable
or exercisable for any of such equity
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securities during the seven days prior to and the 120 days (or such other
number of days as the Company and such managing underwriters may agree) after
the effective date of any such registration statement, except in connection
with a stock option plan, stock purchase plan, savings or similar plan, or an
acquisition, merger or exchange offer.
3.3 Shareholder's Information. The Company may require each
proposed seller of Registrable Securities as to which any registration is being
effected, including the Shareholder, to promptly furnish the Company, as a
condition precedent to including such holder's Registrable Securities in any
registration, such information regarding such seller as the Company may from
time to time reasonably request in writing and as may be necessary in order for
the Company to comply with its obligations hereunder.
3.4 Preparation; Reasonable Investigation. In connection with
the preparation and filing of each registration statement under the Securities
Act pursuant to this Agreement, the Company shall give the holders of
Registrable Securities, their underwriters and their respective counsel and
accountants, the opportunity to participate in the preparation of such
registration statement, each prospectus included therein or filed with the
Commission, and each amendment thereof or supplement thereto, and will give
them such access to its books and records and such opportunities to discuss the
business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be necessary,
in the opinion of such holders' and such underwriters' respective counsel, to
conduct a reasonable investigation within the meaning of the Securities Act.
3.5 Nominees for Beneficial Owners. If any Registrable
Securities are held by a nominee for the holder as the beneficial owner
thereof, the holder may upon the giving of written notice to the Company, at
his election, be treated as the holder of such Registrable Securities for
purposes of any request or other action by him pursuant to this Agreement or
any determination of any number or percentage of shares of Registrable
Securities held by the holders contemplated by this Agreement. Without limiting
the foregoing, the Shareholder and the Company understand that the Shareholder
may choose to hold its shares of the Common Stock in one or more corporations
or entities controlled by it. For the purposes of this Agreement, such shares
held by such corporations or entities shall be deemed to be beneficially owned
by the Shareholder.
ARTICLE IV
INDEMNIFICATION
4.1 Indemnification by the Company. In the event of any
registration of Registrable Securities under the Securities Act pursuant to
this Agreement, the Company shall, and hereby does, to the fullest extent
permitted by law, indemnify and hold harmless the seller of any Registrable
Securities covered by such registration statement, its directors and officers,
general and limited partners (and directors and officers thereof and, if such
seller is a portfolio or an investment fund, its investment advisors), each
other Person who participates as an underwriter in the offering
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or sale of such securities, each officer and director of each such underwriter,
and each such other Person, if any, who controls such seller or any such
underwriter within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act, against any losses, claims, damages, liabilities and
expenses, joint or several, to which such seller or any such director or
officer or underwriter or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which such securities were registered under the
Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or any
document incorporated by reference therein, or any omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and the Company shall reimburse
such seller and each such director, officer, underwriter and controlling person
for any legal or any other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, liability, action or
proceeding, provided that the Company shall not be liable in any such case to
the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement in reliance upon and in
conformity with written information furnished to the Company for use in the
preparation thereof by such seller or underwriter, as the case may be, and,
provided further, that the foregoing indemnity agreement with respect to any
preliminary prospectus shall not inure to the benefit of any underwriter from
whom the person asserting any such losses, claims, damages or liabilities
purchased Registrable Securities, or any person controlling such underwriter,
if a copy of the final prospectus (as then amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) was not
sent or given by or on behalf of such underwriter to such person, if required
by law so to have been delivered, at or prior to the written confirmation of
the sale of the Registrable Shares to such person, and if the final prospectus
(as so amended or supplemented) would have cured the defect giving rise to such
losses, claims, damages or liabilities. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of such
seller or any such director, officer, partner, underwriter or controlling
person and shall survive the transfer of such securities by such seller.
4.2 Indemnification by the Shareholder. The Company may
require, as a condition to including any Registrable Securities in any
registration statement filed pursuant to this Agreement, that the Company shall
have received an undertaking from the holders of such Registrable Securities,
including the Shareholder, or any underwriters to indemnify and hold harmless
(in the same manner and to the same extent as set forth in Section 4.1), the
Company, each director of the Company, each officer of the Company and each
other person, if any, who controls the Company within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act, and all other
prospective sellers and their respective directors, officers, general and
limited partners (and directors and officers thereof and investment advisors)
and their respective controlling persons with respect to any statement or
alleged statement in or omission or alleged omission from
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such registration statement, any preliminary prospectus, final prospectus or
summary prospectus contained therein, or any amendment or supplement thereto,
if such statement or alleged statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company by such seller or underwriter specifically stating that it is for use
in the preparation of such registration statement, preliminary prospectus,
final prospectus, summary prospectus, amendment or supplement. Such indemnity
shall remain in full force and effect, regardless of any investigation made by
or on behalf of the Company or any such director, officer or controlling person
and shall survive the transfer of such securities by such seller. No person
selling Registrable Securities shall be liable hereunder for any amount in
excess of the product obtained by multiplying (a) the purchase price per
Registrable Security so sold by such person by (b) the number of Registrable
Securities so sold by such person.
4.3 Contribution. If the indemnification provided for in this
Article IV is unavailable to the indemnified party or parties in respect of any
losses, claims, damages or liabilities referred to therein, then the Company,
the sellers of Registrable Securities and the underwriters shall contribute to
the amount of such losses, claims, damages or liabilities (a) as between the
Company and the holders of Registrable Securities covered by a registration
statement, on the one hand, and the underwriters, on the other, in such
proportion as is appropriate to reflect the relative benefits received by the
Company and such holders, on the one hand, and the underwriters, on the other,
from the offering of the Registrable Securities, or if such allocation is not
permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits but also the relative fault of the Company and
such holders, on the one hand, and of the underwriters, on the other, in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations, and (b) as between the Company, on the one hand, and each
holder of Registrable Securities covered by a registration statement, on the
other, in such proportion as is appropriate to reflect the relative fault of
the Company and of each such holder in connection with such statements or
omissions, as well as any other relevant equitable considerations. The relative
benefits received by the Company and such holders, on the one hand, and the
underwriters, on the other, shall be deemed to be in the same proportion as the
total proceeds from the offering (net of underwriting discounts and commissions
but before deducting expenses) received by the Company and such holders bear to
the total underwriting discounts and commissions received by the underwriters.
The relative fault of the Company and such holders, on the one hand, and of the
underwriters, on the other, shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
the omission or alleged omission to state a material fact relates to
information supplied by the Company and such holders or by the underwriters.
The relative fault of the Company, on the one hand, and of each such holder, on
the other, shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact relates to information
supplied by such party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the holders of Registrable Securities agree
that it would not be just and equitable if contribution pursuant to this
Section 4.3 were determined by pro rata allocation
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(even if the underwriters were treated as one entity for such purpose) or by
any other method of allocation that does not take account of the equitable
considerations referred to in the next preceding paragraph. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages or
liabilities referred to in the next preceding paragraph shall be deemed to
include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 4.3, no underwriter shall be required to contribute
any amount in excess of the amount by which the total price at which the
Registrable Securities underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission, and no holder of Registrable
Securities shall be required to contribute any amount in excess of the amount
by which the total price at which the Registrable Securities of such holder
were offered to the public exceeds the amount of any damages that such holder
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. Each seller's obligation to contribute pursuant
to this Section 4.3 is several in the proportion that the proceeds of the
offering received by such seller bears to the total proceeds of the offering
received by all of the sellers and not joint.
4.4 Notices of Claims, etc. In case any proceeding (including
any governmental investigation) shall be instituted involving any person in
respect of which indemnity may be sought pursuant to Section 4.1 or 4.2, such
person (the "indemnified party") shall promptly notify the person against whom
such indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding
and shall pay the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel, but the fees and expenses of such counsel shall be
at the expense of such indemnified party unless (i) the indemnifying party and
the indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified
party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. It
is understood that the indemnifying party shall not in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for (a)
the fees and expenses of more than one separate firm (in addition to any local
counsel) for all underwriters and all persons, if any, who control any
underwriter within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act, (b) the fees and expenses of more than one
separate firm (in addition to any local counsel) for the Company, its
directors, its officers who sign the registration statement and each person, if
any, who controls the Company within the meaning of either such Section and (c)
the fees and expenses of more than one separate firm (in addition to any local
counsel) for all sellers of Registrable Securities and all persons, if any, who
control any
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<PAGE> 15
seller of Registrable Securities within the meaning of either such Section, and
that all such fees and expenses shall be reimbursed as they are incurred. In
the case of any such separate firm for the underwriters and such control
persons of underwriters, such firm shall be designated in writing by the
managing underwriter. In the case of any such separate firm for the Company,
and such directors, officers and control persons of the Company, such firm
shall be designated in writing by the Company. In the case of any such separate
firm for the sellers of Registrable Securities and such controlling persons of
the sellers of Registrable Securities, such firm shall be designated in writing
by the sellers of a majority of the Registrable Securities covered by the
registration statement. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnity
could have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such proceeding.
ARTICLE V
MISCELLANEOUS
5.1 Notices. Any notice, request, response, instruction or
other document to be given hereunder by any Party to any other Party shall be
in writing and delivered personally, via telecopy (with receipt confirmed), by
recognized international courier service (with receipt confirmed) or by
registered or certified United States mail, postage prepaid, as follows:
(a) if to the Company, to:
TrueTime, Inc.
2835 Duke Court
Santa Rosa, CA 95407
Attention: President
Telecopier: 707-527-6640
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<PAGE> 16
(b) if to the Shareholder, to:
OYO Corporation U.S.A.
7334 Gessner Drive
Houston, TX 77040
Attention: President
Telecopier: 713-937-8262
or at such other addresses for a Party as shall be specified by like notice.
Any notice that is delivered personally in the manner provided herein shall be
deemed to have been duly given to the Party to whom it is directed upon actual
receipt by such Party (or its agent for notices hereunder). Any notice that is
addressed and mailed in the manner herein provided shall be conclusively
presumed to have been duly given to the Party to which it is addressed at the
close of business, local time of the recipient, on the fifth day after the day
it is so placed in the mail. Any notice that is sent by telecopy shall be
deemed to have been duly given to the Party to which it is addressed upon
telephonic confirmation of the same as provided herein. A copy of any notices
delivered by telecopy shall promptly be mailed in the manner herein provided to
the Party to which such notice was given.
5.2 Assignment; Other Benefits. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the Parties and
their respective permitted assigns. Shareholder may not assign its rights under
this Agreement, except to Permitted Transferees of Registrable Securities.
5.3 Amendments and Waivers. This Agreement may be amended and
the Company may take any action herein prohibited or omit to perform any act
herein required to be performed by it, only if the Company shall have obtained
the written consent to such amendment, action or omission to act, of each
Person then holding outstanding Registrable Securities. No waiver of any of the
provisions of this Agreement shall be deemed to or shall constitute a waiver of
any other provisions hereof (whether or not similar) or the same provision
hereof at a later time. No failure by a party to insist upon the strict
performance of any term, covenant or condition of this Agreement, or to
exercise any right or remedy upon breach of any provision, and no acceptance of
payment or performance during the continuation of any such breach, shall
constitute a waiver of any term, covenant or condition herein or a waiver of
any subsequent breach or default in the performance of any term, covenant or
condition herein.
5.4 Headings. The headings of the Articles and Sections of
this Agreement are included for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction hereof or
thereof.
5.5 Severability of Provisions. If any term or other
provision of this Agreement is invalid, illegal or incapable of being enforced
by any rule of law or public policy, all other conditions and provisions of
this Agreement shall nevertheless remain in full force and effect so long as
the economic and legal substance of the transactions contemplated hereby is not
affected
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<PAGE> 17
in any manner materially adverse to any Party. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
Parties shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the Parties as closely as possible in an acceptable
manner to the end that transactions contemplated hereby are fulfilled to the
extent possible.
5.6 Entire Agreement. This Agreement constitutes the sole
understanding of the Parties with respect to the matters provided for herein
and supersedes any previous agreements and understandings between the Parties
with respect to the subject matter hereof.
5.7 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original and all of which shall constitute the same instrument.
5.8 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF TEXAS.
[Signatures on following page]
IN WITNESS WHEREOF, the Parties have hereunto executed this
Agreement as of the date first set forth in the introduction to this Agreement.
TRUETIME, INC.,
a Delaware corporation
By:
----------------------------------
Name:
Title:
OYO CORPORATION U.S.A.,
a Texas corporation
By:
----------------------------------
Name:
Title:
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<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated November 2, 1999, except for Note 8, as to which the date is
December 1, 1999, relating to the financial statements of TrueTime, Inc. which
appear in such Registration Statement. We also consent to the reference to us
under the heading "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
Houston, Texas
December 2, 1999
