UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-7445
DATRON SYSTEMS INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 95-2582922
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3030 Enterprise Court, Vista, California 92083-8347
(Address of principal executive offices) (zip code)
(760) 734-5454
(Registrant's telephone number, including area code)
(Former name, former address and formal fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[ X ] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15 (d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
[ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
As of October 22, 1999, the Registrant had only one class
of common stock, par value $0.01, of which there were 2,701,466
shares outstanding.
<PAGE>1
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
<CAPTION>
DATRON SYSTEMS INCORPORATED
CONSOLIDATED BALANCE SHEETS (In thousands)
September 30,
1999 March 31,
(Unaudited) 1999
-------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $5,002 $5,548
Accounts receivable, net 11,230 10,967
Inventories 12,822 11,890
Deferred income taxes 2,998 2,998
Prepaid expenses and other current
assets 364 754
------ ------
Total current assets 32,416 32,157
Property, plant and equipment, net 9,683 10,248
Goodwill, net 5,339 5,442
Other assets 323 320
------ ------
Total assets $47,761 $48,167
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $3,140 $2,521
Accrued expenses 5,693 7,369
Customer advances 1,102 1,594
Income taxes payable 692 282
Current portion of long-term debt 87 84
------ ------
Total current liabilities 10,714 11,850
Long-term debt 3,125 3,170
Deferred income taxes 1,752 1,752
Deferred rent 73 ---
------ ------
Total liabilities 15,664 16,772
------ ------
Stockholders' equity:
Preferred stock -- par value $0.01;
authorized 2,000,000 shares, none
issued or outstanding --- ---
Common stock -- par value $0.01;
authorized 10,000,000 shares,
3,092,245 and 3,084,532 shares
issued in September and March,
respectively 31 31
Additional paid-in capital 10,805 10,758
Retained earnings 23,611 22,956
Treasury stock, at cost; 390,779
shares in September and March (2,106) (2,106)
Stock option plan and stock purchase
plan notes receivable (244) (244)
------ ------
Total stockholders' equity 32,097 31,395
------ ------
Total liabilities and stockholders'
equity $47,761 $48,167
====== ======
See notes to consolidated statements.
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
DATRON SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per-share amounts)
Three Months Ended Six Months Ended
September 30, September 30,
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales $14,130 $13,729 $27,653 $29,018
Cost of sales 10,412 9,661 20,050 20,872
------ ------ ------ ------
Gross profit 3,718 4,068 7,603 8,146
Selling, general and
administrative 2,796 2,870 5,603 6,102
Research and development 962 513 1,958 963
----- ----- ----- -----
Operating income (loss) (40) 685 42 1,081
Interest expense (54) (84) (109) (212)
Interest income 51 39 120 46
Other income 1,042 --- 1,033 ---
----- ----- ----- -----
Income before income taxes 999 640 1,086 915
Income taxes 396 261 431 373
----- ----- ----- -----
Net income $603 $379 $655 $542
===== ===== ===== =====
Earnings per common share --
basic $0.22 $0.14 $0.24 $0.20
===== ===== ===== =====
Weighted average number of
common shares outstanding 2,701 2,686 2,699 2,684
===== ===== ===== =====
Earnings per common share --
diluted $0.22 $0.14 $0.24 $0.20
===== ===== ===== =====
Weighted average number of
common and common
equivalent shares
outstanding 2,709 2,686 2,705 2,684
===== ===== ===== =====
See notes to consolidated financial statements.
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
DATRON SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Six Months Ended
September 30,
1999 1998
----- -----
<S> <C> <C>
Cash Flows from Operating Activities
Net income $655 $542
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,011 1,238
Changes in operating assets and
liabilities:
Accounts receivable (263) 1,228
Inventories (932) 627
Prepaid expenses and other assets 377 (220)
Accounts payable and accrued
expenses (1,057) (3,642)
Customer advances (492) 1,107
Income taxes payable 410 338
Restructuring reserve --- (320)
Deferred rent 73 ---
Other 31 8
----- -----
Net cash provided by (used in)
operating activities (187) 906
----- -----
Cash Flows from Investing Activities
Additions to property, plant and
equipment (737) (102)
Proceeds from sales of property,
plant and equipment 384 76
---- ----
Net cash used in investing activities (353) (26)
---- ----
Cash Flows from Financing Activities
Proceeds from long-term debt --- 3,300
Repayments of long-term debt (42) (7)
Decrease in revolving credit facility --- (4,000)
Issuance of common stock 36 38
----- -----
Net cash used in financing activities (6) (669)
----- ----
Increase (decrease) in cash and cash
equivalents (546) 211
Cash and cash equivalents at beginning
of period 5,548 634
----- -----
Cash and cash equivalents at end of
period $5,002 $845
===== =====
See notes to consolidated financial statements.
</TABLE>
<PAGE> 4
Datron Systems Incorporated
Notes to Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
---------------------
The unaudited consolidated financial statements included herein
contain the accounts of Datron Systems Incorporated and its
wholly owned subsidiaries (the "Company") and have been prepared
in accordance with the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have
been condensed or omitted pursuant to such rules and regulations.
It is suggested that these financial statements be read in
connection with the financial statements and notes thereto
included in the Company's annual report on Form 10-K for the
fiscal year ended March 31, 1999.
In the opinion of the Company's management, the accompanying
unaudited financial statements contain all adjustments,
consisting only of normal recurring adjustments, unless otherwise
stated, which are necessary to present fairly its financial
position at September 30, 1999 and the results of its operations
and its cash flows for the periods presented. Results of
operations for the periods presented herein are not necessarily
indicative of what results will be for the entire fiscal year.
The balance sheet at March 31, 1999 has been derived from audited
financial statements.
2. Earnings per Share
------------------
As required by Statement of Financial Accounting Standards No.
128, "Earnings per Share," the Company has presented basic and
diluted earnings per share ("EPS") amounts. Basic EPS is
calculated based on the weighted average number of shares
outstanding during the period. Diluted EPS is calculated based
on the weighted average number of shares outstanding during the
period plus equivalent shares issuable under the Company's stock
option plans. Options to purchase 232,000 shares of common stock
at prices ranging from $7.00 to $15.73 were not included in the
computation of diluted EPS at September 30, 1999 because the
effect of such options would be anti-dilutive. Such options
expire at various dates from May 16, 2000 to August 8, 2009.
3. Accounts Receivable
-------------------
At September 30, 1999 and March 31, 1999, accounts receivable
were as follows:
<TABLE>
<CAPTION>
September 30, March 31,
1999 1999
----------- -----------
<S> <C> <C>
Billed $ 8,798,000 $ 7,430,000
Unbilled 2,602,000 3,724,000
----------- -----------
Subtotal 11,400,000 11,154,000
Allowance for doubtful
accounts (170,000) (187,000)
----------- -----------
Total $11,230,000 $10,967,000
=========== ===========
</TABLE>
4. Inventories
At September 30, 1999 and March 31, 1999, inventories were as
follows:
<TABLE>
<CAPTION>
September 30, March 31,
1999 1999
----------- -----------
<S> <C> <C>
Raw materials $ 7,225,000 $ 6,807,000
Work-in-process 4,324,000 3,230,000
Finished goods 1,273,000 1,853,000
----------- ----------
Total $12,822,000 $11,890,000
=========== ==========
</TABLE>
<PAGE> 5
Inventories are presented net of allowances for obsolescence of
$1,361,000 and $1,380,000 at September 30, 1999 and March 31,
1999, respectively.
5. Property, Plant and Equipment
At September 30, 1999 and March 31, 1999, property, plant and
equipment was as follows:
<TABLE>
<CAPTION>
September 30, March 31,
1999 1999
----------- -----------
<S> <C> <C>
Land and buildings $ 8,892,000 $ 8,743,000
Machinery and equipment 14,800,000 15,110,000
Furniture and office
equipment 1,649,000 1,674,000
Leasehold improvements 710,000 1,328,000
Construction-in-process 136,000 52,000
---------- ----------
Subtotal 26,187,000 26,907,000
Accumulated depreciation
and Amortization (16,504,000) (16,659,000)
---------- ----------
Total $ 9,683,000 $10,248,000
========== ==========
</TABLE>
6. Segment Information
Segment information was as follows for the periods shown:
<TABLE>
<CATPION>
Three Months Ended Six Months Ended
September 30, September 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales:
Antenna and Imaging
Systems $ 9,856,000 $ 9,378,000 $19,718,000 $19,405,000
Communication Products 4,274,000 4,351,000 7,935,000 9,613,000
----------- ----------- ----------- -----------
Consolidated net sales $14,130,000 $13,729,000 $27,653,000 $29,018,000
=========== =========== =========== ===========
Operating income
(loss):
Antenna and Imaging
Systems $ 405,000 $ 749,000 $ 1,255,000 $ 1,099,000
Communication Products (109,000) 285,000 (547,000) 654,000
General corporate
expenses (336,000) (349,000) (666,000) (672,000)
---------- ---------- ---------- ----------
Consolidated operating
income (loss) (40,000) 685,000 42,000 1,081,000
Interest income
(expense), net (3,000) (45,000) 11,000 (166,000)
Other income 1,042,000 --- 1,033,000 ---
---------- -------- --------- ---------
Income before income
taxes $999,000 $640,000 $1,086,000 $915,000
========== ========== ========== =========
</TABLE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Datron Systems Incorporated and its wholly owned subsidiaries
(the "Company") report operations in two business segments:
Antenna and Imaging Systems, and Communication Products. The
Antenna and Imaging Systems business segment designs and
manufactures satellite communication systems, subsystems and
antennas that are sold worldwide to commercial and governmental
customers. Its major product lines are remote sensing satellite
earth stations, tracking antennas and systems for U.S. and
foreign governmental agencies (including the U.S. Department of
Defense ("DoD")) and commercial satellite service providers, and
mobile direct broadcast satellite ("DBS") television reception
systems for recreational vehicles, boats and large business jets.
The Communication Products business segment designs, manufactures
and distributes high frequency and very high frequency radios and
accessories for worldwide military and civilian purposes.
<PAGE>6
This Management's Discussion and Analysis of Financial Condition
and Results of Operations contains "forward-looking statements"
as defined in the Private Securities Litigation Reform Act of
1995. A variety of factors could cause the Company's actual
results to differ from the anticipated results expressed in such
forward-looking statements. These include, among others,
uncertainties stemming from the dependence of the Company on
foreign sales and on large orders from a relatively small number
of customers, risks relating to the decline in the Company's
traditional defense business and the Company's efforts to develop
and market consumer products, lack of timely development or
customer acceptance of new products, worldwide economic downturns
and currency devaluations, restrictions imposed by the U.S.
government on the export of Company products, and the impact of
competition. Investors are referred to the Company's periodic
reports under the Securities Exchange Act of 1934, including
without limitation the Investment Considerations set forth in the
Company's Annual Report on Form 10-K.
Results of Operations
- ---------------------
Net income for the second quarter of fiscal 2000 was $603,000, or
$0.22 per share, compared with net income of $379,000, or $0.14
per share, in the second quarter of fiscal 1999. Net sales in
the second quarter of fiscal 2000 were $14,130,000, a 3% increase
from second quarter net sales last fiscal year of $13,729,000.
The increase in sales was primarily due to higher sales of remote
sensing earth stations, partially offset by lower sales of
military antenna systems. The increase in net income for the
second quarter resulted primarily from the licensing of
manufacturing rights to the Company's airborne DBS-2100 antenna
for business jets, partially offset by higher new product
development expenses and lower gross margins.
Net income for the six months ended September 30, 1999 was
$655,000, or $0.24 per share, compared with net income of
$542,000, or $0.20 per share, for the comparable period last
fiscal year. Net sales for the six months were $27,653,000, a 5%
decrease from net sales of $29,018,000 for the first six months
last fiscal year. The decrease in sales was primarily due to
lower sales of radio products, partially offset by higher sales
of remote sensing earth stations. The increase in net income was
primarily due to the manufacturing rights license fee and lower
selling expenses, partially offset by higher new product
development expenses and lower gross profits on the lower sales.
Operating results for each business segment were as follows:
Antenna and Imaging Systems
- ---------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
1999 1998 1999 1998
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $9,856,000 $9,378,000 $19,718,000 $19,405,000
========== ========== =========== ===========
Gross profit $2,431,000 $2,420,000 $5,294,000 $4,775,000
========== ========== =========== ===========
Operating income $405,000 $749,000 $1,255,000 $1,099,000
========== ========== =========== ===========
</TABLE>
Sales of Antenna and Imaging Systems products increased 5% in the
second quarter of fiscal 2000 compared with the second quarter of
fiscal 1999. The increase was primarily due to higher sales of
remote sensing earth stations, partially offset by lower sales of
military antenna systems. Sales in the first six months of
fiscal 2000 were 2% higher than in the first six months of fiscal
1999. Higher sales of remote sensing earth stations were
partially offset by lower sales of DBS antenna products and
military antenna systems.
Gross profit percentage on sales of Antenna and Imaging Systems
products was 24.7% in the second quarter of fiscal 2000 compared
with 25.8% in the second quarter last fiscal year. The decrease
was primarily due to a less favorable product mix. Gross profit
percentage for the first six months of fiscal 2000 was 26.8% of
sales compared with 24.6% of sales for the first six months of
fiscal 1999. The increase was primarily due to more efficient
production and to a more favorable product mix.
<PAGE> 7
Operating income percentage on sales of Antenna and Imaging
Systems products was 4.1% in the second quarter of fiscal 2000
compared with 8.0% in the second quarter last fiscal year. The
decrease was primarily due to higher new product development
expenses. Operating income percentage for the first six months
of fiscal 2000 was 6.4% of sales compared with 5.7% of sales for
the first six months of fiscal 1999. The improvement was
primarily due to higher gross profits, partially offset by higher
new product development expenses.
Communication Products
- ----------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $4,274,000 $4,351,000 $7,935,000 $9,613,000
========== ========== ========== ==========
Gross profit $1,287,000 $1,648,000 $2,309,000 $3,371,000
========== ========== ========== ==========
Operating income
(loss) ($109,000) $285,000 ($547,000) $654,000
========== ========== ========= ==========
</TABLE>
Sales of Communication Products decreased 2% in the second
quarter of fiscal 2000 compared with the second quarter of fiscal
1999. The decrease was due to a lower order backlog at June 30,
1999 than at June 30, 1998 and to lower order bookings during the
recent quarter. Sales in the first six months of fiscal 2000
were 17% lower than in the first six months of fiscal 1999.
Several anticipated orders were delayed because of continued
economic weakness and instability in several of the Company's
international markets. The economies of some of the Company's
international customers are beginning to strengthen and it is
once again possible to arrange financing for some of them.
Successful completion of those financing arrangements should
result in an improvement in radio sales during the second half of
the fiscal year. Future results of operations may be adversely
affected if those financing arrangements cannot be completed, or
if the delayed orders are further delayed or canceled, or if
procurements the Company has identified as promising
opportunities are canceled.
Gross profit percentage on sales of Communication Products was
30.1% in the second quarter of fiscal 2000 compared with 37.9% in
the second quarter last fiscal year. The decrease was due to a
less favorable product mix. Gross profit percentage for the
first six months of fiscal 2000 was 29.1% of sales compared with
35.1% of sales for the first six months of fiscal 1999 due to
manufacturing inefficiencies related to a lower level of sales
and to move-related expenses associated with this business
segment's relocation to Vista, California.
Operating loss percentage on sales of Communication Products was
2.6% in the second quarter of fiscal 2000 compared with an
operating income percentage of 6.6% in the second quarter last
fiscal year. The decline from an operating income percentage to
an operating loss percentage was due to lower gross profits and
higher new product development expenses. Operating loss
percentage for the first six months of fiscal 2000 was 6.9% of
sales compared with an operating income percentage of 6.8% of
sales for the first six months of fiscal 1999. The decline from
an operating income percentage to an operating loss percentage
was due to lower gross profits and to a higher operating expense
percentage due to the lower sales base.
Consolidated expenses were as follows:
Selling, general and administrative expenses were $2,796,000 in
the second quarter of fiscal 2000, a 3% decrease compared with
second quarter of fiscal 1999 expenses of $2,870,000. The
decrease was primarily due to lower selling expenses at the
Antenna and Imaging Systems business segment. Selling, general
and administrative expenses for the first six months of fiscal
2000 were $5,603,000, an 8% decrease compared with first six
months of fiscal 1999 expenses of $6,102,000. The decrease was
primarily due to lower selling expenses at the Antenna and
Imaging Systems business segment.
<PAGE>8
Research and development ("R&D") expenses were $962,000 in the
second quarter of fiscal 2000 compared with $513,000 in the
second quarter last fiscal year. The 88% increase was due to
higher spending on development programs to improve land and sea
mobile DBS products and to continue development of new radio
products. R&D expenses in the first six months of fiscal 2000
were $1,958,000, a 103% increase compared with first six months
of fiscal 1999 expenses of $963,000. The increase was due to
higher spending on development programs to improve land and sea
mobile DBS products, to improve core tracking antenna
technologies and to continue development of new radio products.
Order backlog at September 30 was as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Antenna and Imaging Systems $20,809,000 $24,221,000
Communication Products 2,100,000 3,866,000
----------- -----------
Total $22,909,000 $28,087,000
=========== ===========
</TABLE>
The 14% decrease in Antenna and Imaging Systems backlog at
September 30, 1999 compared with September 30, 1998 was primarily
due to lower bookings of remote sensing earth stations.
The 46% decrease in Communication Products backlog at September
30, 1999 compared with September 30, 1998 was primarily due to a
lower order backlog at June 30, 1999 than at June 30, 1998. As
previously noted, several anticipated radio orders were delayed
because of continued economic weakness and instability in several
of the Company's international markets. In early October 1999, a
$10 million financing arrangement for one of the Company's
customers was authorized by the lender. This financing
arrangement had experienced long delays and was partially
responsible for the Company's low radio product sales during the
first half of fiscal 2000. The required contracts for this order
are not yet in place and the order has not yet been booked;
however, if the procurement proceeds as planned and is
not subjected to further delays, the Company
expects to book the order in the third quarter of fiscal 2000 and
ship much of it prior to the end of fiscal 2000.
Liquidity and Capital Resources
At September 30, 1999, working capital was $21,702,000 compared
with $20,307,000 at March 31, 1999, an increase of $1,395,000 or
7%. Major changes affecting working capital during this period
were the following: accounts receivable increased $263,000;
inventories increased $932,000 due to increases in both antenna
and radio products inventories; accounts payable and accrued
expenses decreased $1,057,000; and customer advances decreased
$492,000. The Company's cash position at September 30, 1999 was
$5,002,000 compared with $5,548,000 at March 31, 1999, a decrease
of 10%. At September 30, 1999, the Company had no borrowings
against its revolving line of credit.
Capital equipment expenditures were $737,000 during the first six
months of fiscal 2000 compared with $102,000 in the first six
months last fiscal year. Although capital expenditures in the
first six months of fiscal 2000 were higher than in the first six
months of fiscal 1999, the Company anticipates total capital
expenditures in fiscal 2000 will be comparable to the fiscal 1999
total of $1,535,000.
At September 30, 1999, the Company had a $16,000,000 revolving
line of credit with its bank. The line may be used for the
issuance of letters of credit and for direct working capital
advances in any combination up to the lesser of $16 million or an
availability limit determined by a borrowing base formula. At
September 30, 1999, the availability limit was $16,000,000.
Five million dollars of the total credit facility is restricted
to working capital and letters of credit required to finance non-
military international business. That portion of the line of
credit expires on April 1, 2000. The remaining $11,000,000
facility expires on April 1, 2001. At September 30, 1999, there
were no borrowings under the line and the bank had issued letters
of credit against the line totaling $2,384,000. The Company
believes its existing working capital, anticipated future cash
flows from operations and available credit with its bank are
sufficient to finance presently planned capital and working
capital requirements.
<PAGE>9
Year 2000 Issues
- ----------------
Some software included in products sold or licensed to the
Company's customers and certain portions of the Company's
internal operating systems may be subject to failure as a result
of what is commonly known as the Year 2000 date issue (the "Year
2000 issue"). A discussion of this issue follows.
The Company's state of readiness.
- --------------------------------
The Company believes all systems and products currently sold and
new products under development are Year 2000 compliant, and
believes its potential exposure to problems arising from the Year
2000 issue lies in three areas:
- Information technology ("IT") previously sold or licensed to
the Company's customers and non-IT components (such as computer
chips imbedded in hardware) previously sold to the Company's
customers.
- IT and non-IT components used in the Company's internal
operating systems.
- Compliance with the Year 2000 issue by third parties with
whom the Company has a material relationship.
Products sold or licensed to customers:
- --------------------------------------
Most of the Company's antenna and image processing products and
some of its radio communication products contain IT and non-IT
components that may be affected by the Year 2000 issue. The
Company is pursuing a three-phase program to identify and resolve
this exposure:
1. Identify all products that contain IT and non-IT systems
that are not Year 2000 compliant. To the extent practical,
identify all customers who are still using those products.
Status: Completed.
2. Determine appropriate solutions to remedy the non-compliant
products and systems. Those solutions may include software
upgrades, replacement of non-compliant components, referral of
problems relating to third party-provided software to the
original supplier, or determination that the age of the product
or nature of the problem is such that replacement of the product
or system is the only practical solution. Status: Completed.
3. Notify all identified customers of the Year 2000 issue
associated with their products and systems, and inform them of
the Company's policy regarding their situation. All products and
systems under warranty or service agreement as of December 31,
1998 will be made Year 2000 compliant by the Company. Other
customers who have products and systems that can economically be
made Year 2000 compliant will be offered software upgrades and
component replacement for a fee. Customers who have products or
systems that cannot economically be made Year 2000 compliant will
be so notified and informed of current product alternatives
offered by the Company. Status: Completed.
Internal operating systems:
- --------------------------
Some of the Company's internal operating systems are Year 2000
compliant and some are not. The Company is pursuing a two-phase
program to identify and resolve this exposure:
1. Systematically test and verify internal IT systems and
modules for Year 2000 compliance. To the extent practical,
systematically test and verify equipment and facility systems
that contain non-IT components. Status: Completed.
2. Use internal programmers and outside consultants to upgrade
those internal IT systems and modules that are not Year 2000
compliant. Replace non-IT components that are not Year 2000
compliant. Status: Estimated 80% complete. Estimated
completion date: December 31, 1999.
Third party relationships:
- -------------------------
Although the Company is rarely dependent on a single source of
supply for IT and non-IT components, the failure of a selected
supplier to timely deliver Year 2000 compliant IT and non-IT
components could jeopardize the Company's ability to meet its
required delivery schedules. (The Company is also dependent on
third party service providers, such as telephone companies, banks
and insurance carriers; however, the Company does not believe it
has significant Year 2000 exposure from those providers and has
not implemented any programs to assure Year 2000 compliance by
them.) The Company is pursuing a two-phase program to identify
and resolve Year 2000 exposure from third parties:
1. Develop a supplier compliance warranty for incorporation in
all purchase orders issued after March 31, 1999. That warranty
will require suppliers selling IT and non-IT components to the
Company to certify that items delivered are Year 2000 compliant
and require them to correct or replace any such item found to be
non-compliant. Status: Completed.
2. Develop alternative sources for IT and non-IT components
that are Year 2000 compliant in the event existing suppliers are
not able to meet compliance requirements. Status: Completed.
Costs to address the Company's Year 2000 issues.
- -----------------------------------------------
To date, the Company has spent approximately $146,000 in
identifying and fixing Year 2000 issues and estimates it will
incur an additional $88,000 for remediation of its remaining Year
2000 issues. Because the costs to complete the remaining tasks
are dependent on information not yet available, it is likely that
this estimate will change.
Risks of the Company's Year 2000 issues.
- ----------------------------------------
The Company believes the most reasonably likely worst case Year
2000 scenario would include a combination of some or all of the
following:
- - Products sold to some of its customers would fail to perform
some or all of their intended functions. The Company estimates
the maximum number of customers that may be affected is 100. In
such a situation, the Company's maximum obligation would be to
repair or replace the defective products to the extent the
Company is required to do so under its contracts with its
customers.
- - Internal IT modules or systems may fail to operate or may
give erroneous information. Such failure could result in
production and shipping delays, inability to generate or delays
in generation of financial reports and statements, and computer
network downtime resulting in numerous inefficiencies and higher
payroll expenses.
- - Non-IT components in HVAC, lighting, telephone, security and
similar systems might fail and cause the entire system to fail.
Non-IT components in production and test equipment might fail,
resulting in delays in production and new product development.
The Company's contingency plans.
- -------------------------------
The Company believes its plans for addressing the Year 2000 issue
as outlined above are adequate to handle the most reasonably
likely worst case scenario. The Company does not believe it will
incur a material financial impact for the risk of failure, or
from the costs associated with assessing the risks of failure,
arising from the Year 2000 issue. Consequently, the Company does
not intend to create a contingency plan other than as set forth
above.
PART II -- OTHER INFORMATION
Item 2. Changes in Securities.
Pursuant to a business loan agreement with a bank, the Company
must comply with certain financial covenants. The agreement also
prohibits the Company from declaration or payment of dividends or
other distributions on the Company's stock, except under certain
conditions specified in the agreement. The Company is in
compliance with both requirements.
Item 4. Submission of Matters to a Vote of Security Holders.
On August 9, 1999, the Company held its annual meeting of
stockholders, proxies for which were solicited pursuant to
Regulation 14a under the Act. Five directors were to be elected
to serve until the next annual meeting. The five existing
directors who were standing for re-election were elected.
At the meeting, the stockholders approved an amendment to the
Company's 1995 Stock Option Plan that increased by 200,000 the
number of option shares available for grant and required all
options be granted at the fair market value at date of grant.
Votes cast in favor of approval of the amendment were 1,284,928
and 371,442 votes were cast against approval.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
10.71 Amended and Restated 1995 Stock Option Plan.
10.72 Amended and Restated Employment Agreement between
the Registrant and David A. Derby.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
DATRON SYSTEMS INCORPORATED
Date: October 26, 1999 By: /s/WILLIAM L STEPHAN
Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
EXHIBIT 10.71
AMENDED AND RESTATED 1995 STOCK OPTION PLAN
1995 STOCK OPTION PLAN
OF
DATRON SYSTEMS INCORPORATED,
(As Amended through August 9, 1999)
1. PURPOSES OF THE PLAN
The purposes of the 1995 Stock Option Plan, as amended,
(the "Plan") of Datron Systems Incorporated (the
"Company") are to:
A. Encourage selected employees and directors to
improve operations and increase profits of the Company;
B. Encourage selected employees and directors to
accept or continue employment or association with the
Company or its Affiliates; and
C. Increase the interest of selected employees in the
Company's welfare through their participation in the
growth in value of the common stock, $0.01 par value, of
the Company ("Common Stock").
To accomplish the foregoing objectives, this Plan
provides a means whereby employees and directors may
receive options to purchase Common Stock, as well as
Stock Appreciation Rights ("SARs"). Options granted
under this Plan ("Options") will be either nonqualified
options ("NQOs") subject to federal income taxation upon
exercise or incentive stock options ("ISOs") not subject
to immediate federal income taxation upon exercise.
2. ELIGIBLE PERSONS
Every person who at the date of grant is an employee of
the Company or of any Affiliate of the Company or a
director of the Company is eligible to receive NQOs,
ISOs and SARs under this Plan, provided, however,
A. that nonemployee directors are ineligible to
receive ISOs at any time;
B. that an ISO may not be granted under this Plan to
any person who owns, directly or indirectly, stock of
the Company constituting more than ten percent of the
total combined voting power of all classes of
outstanding stock of the Company or of any Affiliate of
the Company, unless the exercise price of the ISO at the
time the Option is granted is at least 110 percent of
the fair market value of the stock subject to the
Option, and the Option is exercisable for no more than
five years after the date of grant, as set forth in
Section 6.2.
The term "Affiliate," as used in this Plan, means a
parent or subsidiary corporation, as defined in the
applicable provisions (currently Section 424) of the
Internal Revenue Code of 1986, as amended (the "Code").
The term "employee" shall have the meaning ascribed for
purposes of Section 3401(c) of the Code and the Treasury
Regulations promulgated thereunder and shall include an
officer or a director who is also an employee.
3. STOCK SUBJECT TO THIS PLAN
Subject to the provisions of Section 6.1.1 of the Plan,
the total number of shares of stock that may be (i)
issued upon the exercise of Options and (ii) covered by
options canceled or surrendered upon the exercise of
SARs is 406,700 shares of Common Stock. The shares
covered by the portions of any grants under this Plan or
the 1985 Stock Option Plan that are canceled or expire
unexercised shall become available again for grants
under this Plan. The number of shares reserved for
purchase under this Plan or covered by options that may
be canceled or surrendered upon the exercise of SARs is
subject to adjustment in accordance with the provisions
for adjustment in this Plan.
4. ADMINISTRATION
A. This Plan shall be administered by the Board of
Directors of the Company (the "Board") or, either in its
entirety or insofar as it relates to persons subject to
Section 16 of the Exchange Act ("Section 16"), by a
committee (the "Committee") comprised of disinterested
members as described in Section 4(b) (in either case,
the "Administrator").
B. The Committee shall consist of two or more Board
members, each of whom shall be a "disinterested person"
as defined in Rule 16b-3(c)(2)(i) under the Exchange
Act.
C. Subject to the provisions of this Plan, the
Administrator shall have the authority to select the
persons to receive Options or SARs under this Plan, to
fix the number of shares that each optionee may purchase
or that are subject to a SAR, to set the terms and
conditions of each Option (including whether each Option
should be a NQO or an ISO) and SAR, and to determine all
other matters relating to this Plan. No member of the
Administrator shall be liable for any act or omission on
such member's own part, including but not limited to the
exercise of any power or discretion given to such member
under this Plan, except for those acts or omissions
resulting from such member's own gross negligence or
willful misconduct. All questions of interpretation,
implementation, and application of this Plan shall be
determined by the Administrator. Such determinations
shall be final and binding on all persons. The
Administrator may delegate nondiscretionary
administrative duties to such employees of the Company
as it deems proper.
D. It is intended that this Plan shall be administered
in accordance with the disinterested administration
requirements of Rule 16b-3 promulgated by the Securities
and Exchange Commission ("Rule 16b 3"), or any successor
rule thereto. With respect to persons subject to
Section 16, if any, transactions under this Plan are
intended to comply with the applicable conditions of
Rule 16b-3, or any successor rule thereto. To the
extent any provision of this Plan or action by the
Administrator fails to so comply, it shall be deemed
null and void, to the extent permitted by law and deemed
advisable by the Administrator. Notwithstanding the
above, it shall be the responsibility of such persons,
not of the Company or the Administrator, to comply with
the requirements of Section 16; and neither the Company
nor the Administrator shall be liable if this Plan or
any transaction under this Plan fails to comply with the
applicable conditions of Rule 16b-3 or any successor
rule thereto, or if any such person incurs any liability
under Section 16.
5. GRANTING OF RIGHTS
5.1 Ten Year Limitation. No Options or SARs shall
be granted under this Plan after ten years from the date
of adoption of this Plan by the Board of Directors.
5.2 Written Agreement; Effect. Each Option or SAR
shall be evidenced by a written agreement in the form
satisfactory to the Company, executed by the Company and
the person to whom such Option or SAR is granted. If
the agreement relates to an Option (an "Option
Agreement"), it shall specify whether each Option it
evidences is a NQO or an ISO or SAR. Failure of the
grantee to execute an agreement shall not void or
invalidate the grant of an Option; SARs may be included
in the Option Agreement or may be evidenced by a
separate written agreement satisfactory to the Company,
executed by the Company and the person to whom such SAR
is granted; the Option or SAR may not be exercised,
however, until the agreement is executed.
5.3 Advance Approvals. Subject to Section 6.3.3
with respect to ISOs, the Administrator may approve the
grant of Options or SARs under this Plan to persons who
are expected to become employees or directors of the
Company, but are not employees or directors at the date
of approval. In such cases, the Option or SAR shall be
deemed granted (and the exercise price determined with
reference to the fair market value of the underlying
stock), without further approval, on the date the
grantee becomes an employee or director and must satisfy
all requirements of this Plan for Options or SARs
granted on that date.
6. TERMS AND CONDITIONS OF OPTIONS
Each Option shall be designated as an ISO or a NQO and
shall be subject to the terms and conditions set forth
in Section 6.1. NQOs shall be also subject to the terms
and conditions set forth in Section 6.2, but not those
set forth in Section 6.3. ISOs shall also be subject to
the terms and conditions set forth in Section 6.3, but
not those set forth in Section 6.2.
6.1 Terms and Conditions to Which All Options Are
Subject. All Options shall be subject to the following
terms and conditions:
6.1.1 Changes in Capital Structure.
Subject to Sections 6.1.2 and 6.1.3, if the stock of the
Company is changed by reason of a stock split, reverse
stock split, stock dividend, or recapitalization, or
converted into or exchanged for other securities as a
result of a merger, consolidation or reorganization,
appropriate adjustments shall be made in (A) the number
and class of shares of stock subject to this Plan and
each Option outstanding under this Plan, and (B) the
exercise price of each outstanding Option; provided,
however, that the company shall not be required to issue
fractional shares as a result of any such adjustment.
Each such adjustment shall be determined by the
Administrator in its sole discretion, which
determination shall be final and binding on all persons.
6.1.2 Corporate Transactions. Subject to
Section 6.1.3, new option rights may be substituted for
the Options granted under this Plan, or the Company's
obligations as to Options outstanding under this Plan
may be assumed, by an employer corporation other than
the Company, or by a parent or subsidiary of such
employer corporation, in connection with any merger,
consolidation, acquisition, separation, reorganization,
liquidation or like occurrence in which the Company is
involved and which the Administrator determines, in its
absolute discretion, would materially alter the
structure of the Company or its ownership. Such
assumption or substitution shall be done in such manner
that the then outstanding Options which are ISOs will
continue to be "incentive stock options" within the
meaning of Section 422 of the Code to the full extent
permitted thereby. Notwithstanding the foregoing or the
provisions of Section 6.1.1, if such employer
corporation, or parent or subsidiary of such employer
corporation, does not substitute new option rights for,
and substantially equivalent to, the Options granted
hereunder, or assume the Options granted hereunder, or
if there is no employer corporation, the Administrator
may upon 10 days' prior written notice to optionees in
its absolute discretion (i) shorten the period during
which options are exercisable (provided they remain
exercisable, to the extent otherwise exercisable, for at
least 10 days after the date the notice is given); or
(ii) subject to Rule 16b-3 in the case of optionees
subject to Section 16, cancel options upon payment to
the optionee in cash, with respect to each option to the
extent then exercisable, of an amount which, in the
absolute discretion of the Administrator, is determined
to be equivalent to any excess of (y) the fair market
value (at the effective time of the dissolution,
liquidation, merger, reorganization, sale or other
event) of the consideration that the optionee would have
received if the option had been exercised before the
effective time, over (z) the exercise price of the
option; provided, however, if there is a successor
corporation and replacement options are not granted by
the successor corporation, all outstanding Options shall
become exercisable prior to the consummation of the
transaction such that the optionees shall have not less
than ten days to exercise their options and become
shareholders of record entitled to participate as
shareholders of record in the proposed transaction. The
actions described in this Section may be taken without
regard to any resulting tax consequences to the
optionee.
6.1.3 Change of Control. In the event of
a "Change of Control," the Administrator may in its
discretion determine that any Options granted under this
plan outstanding as of the date such Change of Control
is determined to have occurred shall become exercisable
for all of the shares of stock subject to such Options
effective (a) immediately prior to the transaction
constituting a Change of Control (if the Administrator
has made, prior to such date, the election to accelerate
the vesting of Options pursuant to this Section) or (b)
the date that the Administrator determines to permit
acceleration of vesting pursuant to this Section (if
such determination is made concurrently with or after
the transaction constituting a Change of Control). For
purposes of this Section 6.1.3, a "Change of Control"
shall mean the occurrence of any one of the following:
(i) Any "person", as such term is used in Sections
13(d) and 14(d) of the Exchange Act (other than the
Company, a subsidiary, or a Company employee benefit
plan, including any trustee of such plan acting as
trustee) is or becomes the "beneficial owner" (as
defined in Rule 13D-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing
50% or more of the combined voting power of the
Company's then outstanding securities; or (ii) the
dissolution or liquidation (partial or total) of the
Company or a sale of assets involving 75% or more of the
assets of the Company, or any merger or reorganization
of the Company (whether or not another entity is the
survivor) or other transaction pursuant to which the
holders, as a group, of all the voting power of the
entity surviving the transaction prior to the
transaction hold, as a group, less than 50% of the
voting power of the Company after the transaction.
6.1.4 Option Grant Date. Each Option
Agreement shall specify the date as of which it shall be
effective (the "Effective Date"). The Effective Date
shall be the date as of which the Administrator approves
the grant, or, in the case of advance approvals pursuant
to Section 5.3, the date the optionee actually becomes
an employee of the Company.
6.1.5 Time of Option Exercise. Subject to
Sections 5.3 and 6.3.5, and except as otherwise provided
by the Administrator or in Section 6.1.3, an Option
shall be exercisable with respect to 33% of the shares
of stock covered by the Option on the first anniversary
of the Effective Date, with respect to another 33% of
the shares of stock subject to the Option on the second
anniversary of the Effective Date, and with respect to
all shares of stock subject to the Option on the third
anniversary of the Effective Date. Subject to the
foregoing, Options are exercisable in whole or in part.
6.1.6 Nonassignability of Option Rights.
No Option shall be assignable or otherwise transferable
by the optionee except by will or by the laws of descent
and distribution or, if the Option is a NQO, pursuant to
a qualified domestic relations order as defined by the
Code or Title I of the Employee Retirement Income
Security Act, or the rules thereunder. During the life
of the optionee, an Option shall be exercisable only by
the optionee or the optionee's guardian or legal
representative in the event of death or permanent
disability of the optionee or, in the case of a NQO, by
the optionee's transferee pursuant to a qualified
domestic relations order.
6.1.7 Payment. Except as provided below,
payment in full shall be made for all stock purchased at
the time written notice of exercise of an Option is
given to the Company either (a) in cash or (b) by
delivery by the optionee of Common Stock already owned
by the optionee for all or part of the aggregate
exercise price of the shares as to which the Option is
being exercised, provided the value (determined as set
forth in Section 6.1.12) of such Common Stock is equal
on the date of exercise to the aggregate exercise price
of the shares as to which the Option is being exercised;
provided, however, that if an optionee has exercised any
portion of any Option granted by the Company by delivery
of Common Stock, the Optionee may not, within six months
following such exercise, exercise any Option by delivery
of Common Stock. Proceeds of any payment shall
constitute general funds of the Company. At the time an
Option is granted or exercised, the Administrator, in
the exercise of its absolute discretion, may authorize
one or both of the following additional methods of
payment:
a) Acceptance of the optionee's full
recourse promissory note for a portion of the
aggregate exercise price of the shares as to which
the Option is being exercised, payable on such
terms and bearing such interest rate as determined
by the Administrator, which promissory note may be
either secured or unsecured in such manner as the
Administrator shall approve (including, without
limitation, by a security interest in the shares of
the Company) provided that at least the aggregate
par value of the shares of Common Stock to be
issued is received in cash;
b) Any other property, so long as such
property constitutes valid consideration under
applicable law for the shares as to which the
Option is being exercised and is surrendered in
good form for transfer.
6.1.8 Termination of Employment. Any
Option which has not vested on or before the date on
which an optionee ceases, for any reason and with or
without cause, to be an employee or director of the
Company or an Affiliate (an "Employment Termination"),
shall expire upon such Employment Termination. Option
rights granted to an optionee under this Plan that have
vested as of such Employment Termination, to the extent
such rights have not expired or been exercised, shall
terminate (a) three months, in the case of ISOs and for
any optionee who immediately prior to the date of
Employment Termination is not subject to Section 16, or
(b) seven months in the case of NQOs held by an optionee
who immediately prior to the date of Employment
Termination is subject to Section 16, after such
Employment Termination and shall not be exercisable on
or after such date. Notwithstanding the foregoing, if
Employment Termination is due to the permanent
disability (as determined by the Administrator) or death
of the optionee, the optionee, or the optionee's
personal representative or any other person who acquires
the option rights from the optionee by will or the
applicable laws of dissent and distribution, may, within
12 months after the date of Employment Termination,
exercise the rights to the extent they were exercisable
on the date of Employment Termination. The transfer of
an optionee from the Company to an Affiliate or vice
versa, or from one Affiliate to another, or a leave of
absence duly authorized by the Company, shall not be
deemed an Employment Termination or break in continuous
employment.
6.1.9 Other Provisions. Each Option
Agreement may contain such other terms, provisions, and
conditions not inconsistent with this Plan as may be
determined by the Administrator (including, without
limitation, rights of repurchase), and each ISO granted
under this Plan shall include such provisions and
conditions as are necessary to qualify the Option as an
"incentive stock option" within the meaning of Section
422 of the Code.
6.1.10 Tax Compensation Rights. In connection
with the grant of any Option under this Plan (the
"Associated Option"), the Administrator may grant the
optionee the right ("Tax Compensation Right") to receive
from the Company an amount (the "Tax Compensation
Amount") in cash equal to the then existing maximum
statutory Federal income tax rate (including any surtax
or similar charge or assessment) for corporations
multiplied by the amount of ordinary income, if any,
realized by the optionee for federal income tax purpose
as a result of exercise of the Associated Option. The
Tax Compensation Right is subject to any terms and
conditions the Administrator may deem appropriate
(including without limitation, the condition that such
Tax Compensation Right may be exercised only if the
optionee is subject to Section 16 at the time the
Associated Option is exercised), and may cancel or limit
the term or amount of such Tax Compensation Right at any
time. The Administrator may also, in its discretion,
loan to the optionee an amount equal to the Tax
Compensation amount in return for optionee's non-
recourse promissory note, payable on such terms and
bearing such interest rate as may be determined by the
Administrator, which promissory note the Administrator
may approve (including, without limitation, by a
security interest in the shares of the Company).
6.1.11 Withholding and Employment Taxes. At
the time of exercise of an Option or at such other time
as the amount of such obligations becomes determinable
(the "Tax Date"), the optionee shall remit to the
Company in cash all applicable federal and state
withholding and employment taxes. The Administrator
may, in the exercise of the Administrator's sole
discretion, permit an optionee to pay some or all of
such taxes by means of a promissory note on such terms
as the Administrator deems appropriate. If and to the
extent authorized by the Administrator in its sole
discretion, an optionee may make an election, by means
of a form of election to be prescribed by the
Administrator, (i) to have shares of Common Stock which
are acquired upon exercise of the Option withheld by the
Company or (ii) to tender other shares of Common Stock
or other securities of the Company owned by the optionee
to the Company, at the time the amount of such taxes is
determined, to pay the amount of such tax obligations,
subject to the following limitations:
a) Any election pursuant to clause (i)
above by an optionee subject to Section 16 shall
either (x) be made at least six months before the
Tax Date and shall be irrevocable; or (y) shall be
made in (or made earlier to take effect in) any ten-
day period beginning on the third business day
following the date of release by the Company for
publication of quarterly or annual summary
statements of sales or earnings of the Company and
shall be subject to approval by the Administrator.
In addition, in the case of (y), the Option shall
be held at least six months prior to the Tax Date.
b) Any election pursuant to clause (ii)
above, where the optionee is tendering Common Stock
issued pursuant to the exercise of an Option, shall
require that such shares be held at least six
months prior to the Tax Date.
Any of the foregoing limitations may be waived (or
additional limitations may be imposed) by the
Administrator, in its sole discretion, if the
Administrator determines that such foregoing limitations
are not required (or that such additional limitations
are required) in order that the transaction shall be
exempt from Section 16(b) of the Exchange Act pursuant
to Rule 16b-3, or any successor rule thereto. In
addition, any of the foregoing limitations may be waived
by the Administrator, in its sole discretion, if the
Administrator determines that Rule 16b-3, or any
successor rule thereto, is not applicable to the
exercise of the Option by the optionee or for any other
reason.
Any Common Stock or other securities of the Company
so withheld or tendered will be valued as of the Tax
Date in accordance with Section 6.1.12.
6.1.12 Determination of Value. For purposes
of the Plan, the fair market value of the common stock
covered by an Option shall be determined as follows:
a) If the common stock is listed on any
established stock exchange or a national market
system, including without limitation the National
Market System of the National Association of
Securities Dealers Automated Quotation System
("NASDAQ"), its fair market value shall be the
closing sales price or the mean between the high
bid and low asked prices if no sales were reported,
as quoted on such system or exchange (or the
largest such exchange) for the date the value is to
be determined (or if there are no sales or bid and
asked price quotations for such date, then for the
last preceding business day on which there were
sales or bid and asked price quotations), as
reported in the Wall Street Journal or similar
publication.
b) If the common stock is regularly
quoted by a recognized securities dealer, its fair
market value shall be (i) the mean between the
closing high bid and low asked quotations for the
stock on the date the value is to be determined (or
if there are no quoted prices for such date, then
for the last preceding business day on which there
were quoted prices) as quoted on NASDAQ or any
similar system of automated dissemination of
quotations of securities prices then in common use,
as reported in the Wall Street Journal or similar
publication, or (ii) if not quoted as described in
clause (i), the mean between the high bid and low
asked quotations for the stock as reported by the
National Quotation Bureau Incorporated if at least
two securities dealers have inserted both bid and
asked quotations for the security on at least five
trading days of the 20 trading days preceding the
date the value is to be determined; provided,
however, that if the stock is quoted on a national
securities or central market system, in lieu of a
market or quotation system described above, the
fair market value shall be determined in the manner
set forth in clause (i) if bid and asked quotations
are reported but actual transactions are not, and
in the manner set forth in paragraph (a) if actual
transactions are reported.
c) In the absence of an established
market for the common stock, the fair market value
thereof shall be determined in good faith by the
Administrator, with reference to the Company's net
worth, prospective earnings power, dividend-paying
capacity, and other relevant factors, including the
goodwill of the Company, the economic outlook in
the Company's industry, the Company's position in
the industry and its management, and the values of
stock of other corporations in the same or a
similar line of business.
6.2 Terms and Conditions to Which Only NQOs Are
Subject. Options granted under this Plan which are
designated as NQOs shall be subject to the following
terms and conditions:
6.2.1 Exercise Price. The exercise price
of an NQO shall be set by the Administrator at the time
of grant but shall in no event be less than the fair
market value (determined as described in Section 6.1.12)
of the stock covered by the NQO at the time the NQO is
granted.
6.2.2 Expiration. Subject to Section
6.1.2, each NQO granted under this Plan shall expire ten
years and two days from the date of its grant or such
earlier date as may be set by the Administrator on the
date of its grant.
6.3 Terms and Conditions to Which Only ISOs Are
Subject. Options granted under this Plan which are
designated as ISOs shall be subject to the following
terms and conditions:
6.3.1 Exercise Price. The exercise price
of an ISO, which shall be approved by the Board of
Directors, shall be determined in accordance with the
applicable provisions of the Code and shall in no event
be less than the fair market value (determined as
described in Section 6.1.12) of the stock covered by the
ISO at the time the ISO is granted, except that the
exercise price of an ISO granted to any person who owns,
directly or indirectly, (or is treated as owning by
reason of attribution rules, currently set forth in Code
Section 424) stock of the Company constituting more than
ten percent of the total combined voting power of all
classes of outstanding stock of the company or of any
Affiliate of the Company, shall in no event be less than
110 percent of such fair market value.
6.3.2 Expiration. Subject to Section
6.1.2, and unless an earlier expiration date is
specified by the Administrator at the time of grant,
each ISO granted under this Plan shall expire ten years
from the date of its grant, except that an ISO granted
to any person who owns, directly or indirectly, (or is
treated as owning by reason of applicable attribution
rules, currently set forth in Code Section 424) stock of
the company constituting more than ten percent of the
total combined voting power of the Company's outstanding
stock, or the stock of any Affiliate of the company,
shall expire five years from the date of its grant.
6.3.3 Grant Date. If an ISO is granted in
anticipation of employment as provided in Section 5(d),
the Option shall be deemed granted, without further
approval, on the date the grantee assumes the employment
relationship forming the basis for such grant, and, in
addition, satisfies all requirements of this Plan for
Options granted on that date.
6.3.4 Disqualifying Dispositions. If
stock acquired by exercise of an ISO granted pursuant to
this Plan is disposed of within two years from the date
of grant of the ISO or within one year after the
transfer of the stock to the optionee, the holder of the
stock immediately prior to the disposition shall
promptly notify the Company in writing of the date and
terms of the disposition and shall provide such other
information regarding the disposition as the Company may
require. Such holder shall pay to the Company any
withholding and employment taxes which the Company in
its sole discretion deems applicable to such
disposition. Any disposition not in accordance with
this Section 6.3.4. shall be void and of no effect. The
Company may instruct its stock transfer agent by
appropriate means, including placement of legends on
stock certificates, not to transfer stock acquired by
exercise of an ISO unless it has been advised by the
Company that the requirements of this Section 6.3.4 have
been satisfied.
6.3.5 Vesting. Notwithstanding any other
provision of this Plan, ISOs granted under all incentive
stock option plans of the Company and its subsidiaries
may not "vest" for more than $100,000 in fair market
value of stock (measured on the grant dates(s)) in any
calendar year, unless otherwise provided by the
Administrator. For purposes of the preceding sentence,
an option "vests" when it first becomes exercisable.
If, by their terms, such ISOs taken together would vest
to a greater extent in a calendar year, and unless
otherwise provided by the Administrator, the vesting
limitation described above shall be applied by deferring
the exercisability of those ISOs or portions of ISOs
which have the highest per share exercise prices; but in
no event shall more than $100,000 in fair market value
of stock (measured on the grant date(s)) vest in any
calendar year. The ISOs or portions of ISOs whose
exercisability is so deferred shall become exercisable
on the first day of the first subsequent calendar year
during which they may be exercised, as determined by
applying these same principles and all other provisions
of this Plan including those relating to the expiration
and termination of ISOs. In no event, however, will the
operation of this Section 6.3.5 cause an ISO to vest
before its terms or, having vested, cease to be vested.
7. MANNER OF EXERCISE
An optionee wishing to exercise an Option shall give
written notice to the Company at its principal executive
office, to the attention of the Chief Financial Officer
of the Company, accompanied by an executed stock
purchase agreement in form and substance satisfactory to
the Company and by payment of the exercise price as
provided in Section 6.1.7. The date the Company
receives written notice of an exercise hereunder
accompanied by payment of the exercise price will be
considered as the date such Option was exercised.
Promptly after receipt of written notice of exercise of
an Option, the Company shall, without stock issue or
transfer taxes to the optionee or the person entitled to
exercise the Option, deliver to the optionee or such
other person a certificate or certificates for the
requisite number of shares of stock. An optionee or
transferee of an Option shall not have any privileges as
shareholder with respect to any stock covered by the
Option until the date of issuance of a stock
certificate.
8. DEFINITIONS RELATING TO SARs
For purposes of this Plan, the following items shall
have the following meanings:
8.1 FMV per Share. The term "FMV per Share" shall
mean, for the day or period with respect to which the
FMV per Share is being determined, the fair market value
of the Common Stock determined in accordance with the
provisions of Section 6.1.12.
8.2 Related Right. The term "Related Right" shall
mean an option with respect to which a SAR is granted.
8.3 SAR Holder. The term "SAR Holder" shall mean
a person holding an option to acquire shares of Common
Stock to whom a SAR is granted pursuant to this Plan.
8.4 SAR Spread. The term "SAR Spread" shall mean
an amount (rounded to the nearest whole dollar) equal to
the product computed by multiplying (a) the excess of
(i) if the SAR may only be exercised during the Window
Period under Section 9.6 below, then the highest FMV per
Share on any day during the Window Period, and if
exercise of the SAR is not so limited under Section 9.6
below, then the FMV per Share on the date the SAR is
exercised, over (ii) the exercise price per share of
Common Stock at which the Related Right is exercisable,
or in the case of a SAR granted without reference to a
Related Right, such other price as the Administrator
establishes at the time the SAR is granted, by (b) the
number of shares of Common Stock with respect to which a
SAR is being exercised.
8.5 Window Period. The term "Window Period" shall
mean the periods specified in Rule 16b-3(e)(3), or any
successor rule, within which a SAR must be exercised in
order to be exempt from the operation of Section 16(b)
of the Exchange Act by virtue of paragraph (e) of Rule
16b-3 or any successor provision. This period is, as of
the date of this Plan, between the third and twelfth
business days following release by the Company of
quarterly or annual summary statements of sales and
earnings.
9. STOCK APPRECIATION RIGHTS
9.1 Grant of SAR. The Administrator may, in the
exercise of the Administrator's discretion, grant SARs
to eligible employees. A SAR may be granted either (i)
with respect to shares of Common Stock subject to a
Related Right held by the SAR Holder, whether or not the
Related Right is an Option granted pursuant to this
Plan, or (ii) without reference to any Related Right.
If a Related Right is an ISO, a SAR granted with respect
to such Related Right may be granted only at the time of
grant of the related ISO, but if the Related Right is a
non-qualified option, the SAR may be granted either
simultaneously with the grant of the related non-
qualified option, or may be granted at any time during
the term of such related non-qualified option, whether
or not the option is a NQO granted pursuant to this Plan
or a previously or subsequently granted non-qualified
option not granted pursuant to this Plan, and whether or
not the option is granted pursuant to a "plan" within
the meaning of Rule 16b-3. Notwithstanding any other
provision of the Plan, the Administrator shall have sole
discretion to specify a maximum limitation on the amount
of the SAR Spread, to determine the time at which any
SAR otherwise exercisable may be exercised, to determine
whether upon exercise of a SAR the SAR Holder may
receive cash or stock as provided in Sections 9.9 and
9.10 below or may elect to receive either cash or stock,
to establish a price other than the exercise price of
shares subject to a Related Right as a basis for
determining the amount of the SAR Spread, and to grant
any SAR subject to such additional terms and conditions
as are consistent with the provisions of this Plan.
9.2 Changes in Capital Structure. If, by virtue
of any event described in Section 6.1.1, an adjustment
is made to a Related Right held by a SAR Holder, then
the number of shares covered by the SAR shall also be
adjusted accordingly.
9.3 Corporate Transactions. Subject to Section
9.4, new SARs may be substituted for the SARs granted
under this Plan, or the Company's obligations as to
options outstanding under this Plan may be assumed, by
an employer corporation other than the Company, or by a
parent or subsidiary of such employer corporation, in
connection with any merger, consolidation, acquisition,
separation, reorganization, liquidation or like
occurrence in which the Company is involved and which
the Administrator determines, in its absolute
discretion, would materially alter the structure of the
Company or its ownership. Notwithstanding the foregoing
or the provisions of Section 9.2, if such employer
corporation, or parent or subsidiary of such employer
corporation, does not substitute new SARs for, and
substantially equivalent to, the SARs granted hereunder,
or assume the SARs granted hereunder, or if there is no
employer corporation, or if the Administrator
determines, in its sole discretion, that SARs
outstanding under this Plan should not then continue to
be outstanding, (A) upon dissolution or liquidation of
the Company, or similar occurrence, or (B) upon any
merger, consolidation, acquisition, separation, or
similar occurrence, where the Company, will not in
economic substance be the surviving corporation;
provided, however, that each SAR Holder shall be mailed
notice at least 15 days prior to such dissolution,
liquidation, merger, consolidation, acquisition,
separation, or similar occurrence, and shall have at
least 10 days after the mailing of such notice to
exercise any unexpired SARs granted hereunder to the
extent such SARs are then exercisable.
9.4 Change of Control. In the event of a "Change
of Control" as defined in Section 6.1.3, the
Administrator may in its discretion determine that all
SARs granted under this plan, except for SARs held by
SAR Holders who are subject to Section 16, shall become
exercisable at the same time that Options become
exercisable pursuant to Section 6.1.3.
9.5 SAR Grant Date. Except in the case of advance
approvals described in Section 5.3, the date of grant of
a SAR under this Plan shall be the date as of which the
Administrator approves the grant.
9.6 Time of SAR Exercise. A SAR shall generally
be exercisable six months from the date of grant of the
SAR and shall be exercisable in whole or in part. Any
election by a SAR Holder to receive cash in full or
partial settlement of a SAR, as well as any exercise by
the SAR Holder of a SAR for such cash, shall be made
only during the Window Period. Where a SAR is granted
with respect to a Related Right, unless the written
agreement pursuant to which the SAR is granted otherwise
provides, the SAR may be exercised only to the extent to
which the Related Right is exercisable and the shares
covered by the Related Right are not covered by any
right of repurchase. Except as otherwise provided in
Section 9.7, a SAR may be exercised immediately in the
event of the death or permanent disability of the SAR
Holder.
9.7 Effect on Related Right; Termination of SAR.
If a SAR granted with respect to a Related Right is
exercised, the Related Right shall cease to be
exercisable and shall be canceled to the extent of the
number of shares with respect to which the SAR was
exercised. The Company and the SAR Holder shall take
such actions and execute such documents as may be
necessary or appropriate to reflect such cancellation.
Upon the exercise or termination of a Related Right,
SARs granted with respect thereto shall terminate to the
extent of the number of shares as to which the Related
Right was exercised or terminated. Upon the death or
permanent disability of the SAR Holder, the SAR shall be
exercisable only by the SAR Holder's personal
representative or any other person who acquires the SAR
Holder's right by will or the applicable laws of descent
and distribution and, in the case of a SAR granted with
respect to a Related Right, only to the extent to which
the Related Right is then exercisable.
9.8 Nonassignability of SARs. No SAR granted
under this Plan shall be assignable or otherwise
transferable by the SAR Holder except by will or by the
laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the
Code or Title I of the Employee Retirement Income
Security Act, or the rules thereunder. During the life
of the SAR Holder, a SAR shall be exercisable only by
the SAR Holder or the SAR Holder's guardian or legal
representative or by the optionee's transferee pursuant
to a qualified domestic relations order.
9.9 Manner of Exercise; Election to Receive Cash
or Stock. A SAR Holder wishing to exercise a SAR shall
(i) give written notice to the Company at its principal
executive office, to the attention of the Secretary of
the Company, specifying the number of shares of Common
Stock with respect to which the SAR Holder is exercising
the SAR and if under the terms of the SAR the SAR Holder
may elect to receive either cash, stock, or a
combination of cash and stock upon exercise of the SAR,
stating the manner in which the SAR Holder has elected
to receive payment upon exercise; (ii) deliver to the
Company such written representations, warranties, and
covenants as the Company may reasonably require; and
(iii) if so requested by the Company, deliver to the
Chief Financial Officer of the Company any written
agreement that the Company may reasonably require
relating to the SAR being exercised or pertaining to the
Related Right. The date the Company receives all of the
instruments referred to in the preceding sentence shall
be considered as the date upon which the SAR was
exercised. A SAR Holder who receives stock upon
exercise of a SAR shall not have any privileges as a
stockholder with respect to any such shares of stock
until the date of issuance of a stock certificate.
9.10 Exercise of SARs; Market Price. Upon the
exercise of a SAR, the SAR Holder shall be entitled to
receive one of the following kinds of payments:
a) that number of whole shares of Common
Stock equal to the number computed by dividing the
SAR Spread by the highest FMV per Share during the
Window Period in which the SAR was exercised and an
amount of cash equal to the highest FMV per Share
during the Window Period in which the SAR was
exercised multiplied by the fraction (if any) of a
share of Common Stock not so issued (such payment
to be in lieu of issuance of fractional shares); or
b) An amount in cash equal to the SAR
Spread; or
c) A combination of cash and whole shares of
Common Stock (the combined value of which, however,
shall not exceed the SAR Spread) in the respective
amounts specified in the SAR Holder's notice of
exercise.
Notwithstanding any other provision of this Section 9,
if the terms of a SAR entitle the SAR Holder to elect
upon exercise of the SAR whether to receive cash in full
or partial settlement of the SAR, then the Administrator
shall have sole discretion to consent to or disapprove
such election ("Cash Election"). Such consent or
disapproval may be given at any time after the Cash
Election to which it relates. If the Administrator
shall disapprove a Cash Election, the exercise of the
SAR with respect to which the Cash Election was made
shall be of no effect but shall be without prejudice to
the right of the SAR Holder to exercise the SAR in the
future in accordance with its terms.
9.11 Withholding and Employment Taxes. At the time
of exercise of a SAR, the SAR Holder shall remit to the
Company in cash all applicable federal and state
withholding and employment taxes, and the Administrator
may, in its sole discretion, reduce the amount paid to a
SAR Holder upon exercise of the SAR by such amount. The
Administrator may, in the exercise of its sole
discretion, permit a SAR Holder to pay some or all of
such taxes by means of a promissory note on such terms
as the Administrator deems appropriate.
10. EMPLOYMENT RELATIONSHIP
Nothing in this Plan or any Option or SAR granted
hereunder shall interfere with or limit in any way the
right of the Company or of any of its Affiliates to
terminate any optionee's employment or status as a
director at any time, nor confer upon any optionee or
SAR Holder any right to continue in the employ of, or as
a director of, the Company or any of its Affiliates.
11. AMENDMENT OR ALTERATION OF PLAN
The Board may at any time amend, alter, suspend, or
discontinue this Plan, except to the extent that
shareholder approval is required by applicable law or
Rule 16b-3; provided, however, no amendment, alteration,
suspension, or discontinuation shall be made that would
impair the rights of any grantee, without the grantee's
consent, under any Option or SAR theretofore granted.
The Board shall have the power to make such changes in
this Plan and in the regulations and administrative
provisions hereunder or in any outstanding Option as in
the opinion of counsel for the Company may be necessary
or appropriate from time to time to enable any Option
granted pursuant to this Plan to qualify as an ISO under
Section 422 of the Code, subject in all events to the
consent of the holder of such Option.
12. INDEMNIFICATION OF ADMINISTRATOR
The Company shall indemnify each present and future
member of the group constituting the Administrator
against, and each member of the group constituting the
Administrator shall be entitled without further act on
his part to indemnity from the Company for, all expenses
(including 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 such person in
connection with or arising out of any action, suit, or
proceeding to the full extent permitted by the laws of
the State of California and by the Bylaws of the
Company.
13. EFFECTIVE DATE OF THIS PLAN
This Plan shall become effective upon adoption by the
Board; provided, however, that if this Plan is not
approved within 12 months after its adoption by the
Board, by unanimous written consent of the shareholders
of the Company or by the shareholders of the Company
voting at a validly called shareholders meeting by a
majority (or such greater number as may be required by
law or applicable governmental regulations or orders) of
the shares entitled to vote, then any options exercised
pursuant to this Plan shall constitute NQOs and not
ISOs, regardless of their status on the date of grant.
Options and SARs may be granted and exercised under this
Plan only after there has been compliance with all
applicable federal and state securities laws.
Date of Original Board Approval: February 7, 1995
Date of Original Stockholder Approval: August 15, 1995
Plan History
In May, 1995, the Plan was adopted by the Board of
Directors, and in August, 1995, the Plan was approved by
the shareholders. (The plan was adopted as the
successor to the Company's 1985 Stock Option Plan, which
had expired in May, 1995.)
In May, 1999, the Board of Directors approved amendments
to the Plan (i) increasing the number of shares reserved
for issuance, (ii) requiring that the exercise price for
all options be at least equal to the fair market value
at the time of the grant of the option. The amendments
were approved by the shareholders in August 1999.
EXHIBIT 10.72
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
AMENDED AND RESTATED AGREEMENT dated as of September 7,
1999, between DATRON SYSTEMS INCORPORATED ("Company") and David
A. Derby ("Employee").
1. Duties.
Employee is hereby employed by Company in the position
of Chairman of the Board, President and Chief Executive Officer
for the term set forth in Section 5. Employee shall work at
Company's place of business at 3030 Enterprise Court, Vista,
California 92083, or at such other place as Company may from time
to time designate. Employee shall perform such duties as
designated by Company.
2. Devotion by Employee of Full Time to Business.
During the term of this Agreement, Employee shall
devote his entire productive time, ability and attention to the
business of Company.
3. Compensation.
(a) During the term of this Agreement, Company shall
pay Employee a salary at the annual rate then in effect in equal
installments on a weekly basis; provided, however, that the
annual rate will not be less than $275,000.
(b) In the event of the termination of this Agreement
by the Company or Employee pursuant to subparagraph (d) of
Section 5 or by the Company for any reason other than pursuant to
subparagraphs (b) or (c) of Section 5, Employee shall be entitled
to receive severance compensation in a lump sum equal to three
times the amount of his base annual compensation then in effect.
4. Vacation, Holidays, Insurance and Fringe Benefits.
Employee shall be entitled vacation, holidays,
insurance and other fringe benefits as may be permitted other
employees in similar positions under policies to be established
by the Board of Directors, all without reduction in compensation.
5. Termination.
(a) This Agreement shall expire on April 30, 2002, and
shall be continuous thereafter unless written notice to terminate
the Agreement not less than two years from its next anniversary
date is given by Company or the Employee, or unless sooner
terminated in accordance with the provisions of this Section 5.
(b) The Company may terminate this Agreement at any
time without notice in the event Employee commits any material
act of dishonesty in connection with his employment.
(c) If Employee dies or becomes permanently disabled
because of sickness, physical or mental disability or any other
reason so that it reasonably appears that he will be unable to
perform his duties under this Agreement, Company shall have the
option to terminate this Agreement by giving 30-days' prior
written notice of termination.
` (d) If there is a Change of Control in the Company,
either the Company or the Employee may terminate this Agreement
upon 30-days' prior written notice to the other in which event
Employee shall be entitled to severance compensation as provided
in Section 3. "Change of Control" shall mean (i) the occurrence
of a transaction or series of related transactions whereby the
stockholders of the Company preceding the transaction or the
first of a series of related transactions hold fewer than 50% of
the voting power of the Company after the transaction or the last
of a series of related transactions or (ii) when during a year
subsequent to an annual meeting of stockholders the members of
the board of directors of the Company elected at such annual
meeting cease to constitute a majority of the members of the
board of directors then in office.
(e) Any termination by Company pursuant to this
Agreement shall be without prejudice to any right or remedy to
which Company may be entitled either at law or in equity.
6. Confidential Information.
Employee agrees not to make any unauthorized use or
disclosure prior to, during, or subsequent to his employment of
any trade secrets of Company or any confidential information
relating to the business of Company.
7. Survivorship of Benefits.
This Agreement shall be binding on and inure to the
benefit of the respective parties hereto and their executors,
administrators, heirs, personal representatives, successors and
assigns.
8. Assignment by Company.
Company may assign any of its rights, duties or
obligations under this Agreement, including the right to
Employee's services, to any affiliate, subsidiary or successor
entity, provided that such entity assumes in writing Company's
duties and obligations hereunder. Any such assignment and
assumption shall relieve Company of all further obligations under
this Agreement. Employee has the right to terminate this
Agreement in the event any successor entity is not acceptable to
Employee.
9. Prior Contracts.
This Agreement supersedes any and all previous
employment contracts between the parties.
10. Interpretation.
This Agreement is to be interpreted in accordance with
the laws of the State of California.
EXECUTED as of the day and year first above written.
COMPANY: DATRON SYSTEMS INCORPORATED
By: /s/ KENT AINSWORTH
Kent P. Ainsworth, Chairman
Compensation Committee
EMPLOYEE: By: /s/ DAVID A. DERBY
David A. Derby
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE REGISTRANT'S CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<PERIOD-TYPE> 6-MOS
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<PERIOD-END> SEP-30-1999
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<RECEIVABLES> 11,400
<ALLOWANCES> 170
<INVENTORY> 12,822
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