SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 2000
Commission File Number 0-7092
RELIABILITY INCORPORATED
------------------------------------------------------
(Exact name of registrant as specified in its charter)
TEXAS 75-0868913
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
16400 Park Row
Post Office Box 218370
Houston, Texas 77218-8370
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(281) 492-0550
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding twelve 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 ninety days.
YES X NO
----------- -----------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
6,668,265 -- Common Stock -- No Par Value
as of May 12, 2000
10Q12K.doc
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RELIABILITY INCORPORATED
FORM 10-Q
TABLE OF CONTENTS
March 31, 2000
PART I - FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements:
Consolidated Balance Sheets:
March 31, 2000 and December 31, 1999 3-4
Consolidated Statements of Operations:
Three Months Ended March 31, 2000 and 1999 5
Consolidated Statements of Cash Flows:
Three Months Ended March 31, 2000 and 1999 6
Notes to Consolidated Financial Statements 7-13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14-18
Item 3. Quantitative and Qualitative Disclosure About Market Risk 18
PART II - OTHER INFORMATION
Item 1.
through
Item 3. Not applicable. 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Not applicable. 19
Item 6. Exhibits and Reports on Form 8-K. 19
Signatures 20
The information furnished in this report reflects all adjustments (none of
which were other than normal recurring accruals) which are, in the opinion of
management, necessary to a fair statement of the results of the interim periods
presented.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
RELIABILITY INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
March 31, December 31,
2000 1999
(unaudited) (Note 1)
Current assets:
Cash and cash equivalents $13,237 $13,573
Accounts receivable 3,156 1,267
Inventories 1,331 1,616
Refundable income taxes 551 551
Other current assets 827 580
Deferred tax assets 196 351
------ ------
Total current assets 19,298 17,938
------ ------
Property, plant and equipment, at cost:
Machinery and equipment 14,006 13,981
Buildings and improvements 5,021 5,021
Land 530 530
------ ------
19,557 19,532
Less accumulated depreciation 12,494 11,937
------ ------
7,063 7,595
------ ------
Assets held for sale 2,135 2,135
Investments 730 647
Goodwill, net of accumulated amortization
of $75 and $61 in 2000 and 1999, respectively 320 334
------ ------
$29,546 $28,649
====== ======
See accompanying notes
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RELIABILITY INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
2000 1999
(unaudited) (Note 1)
Current liabilities:
Accounts payable $ 443 $ 291
Accrued liabilities 1,250 1,029
Income taxes payable 238 145
Accrued shut-down and restructuring costs 38 72
------ ------
Total current liabilities 1,969 1,537
------ ------
Deferred tax liabilities 667 718
Stockholders' equity:
Common stock, without par value;
20,000,000 shares authorized;
6,678,765 and 6,631,765 shares issued
in 2000 and 1999, respectively 9,573 9,389
Retained earnings, net of $7,772 in
treasury stock retired in 1999 17,099 17,053
Accumulated other comprehensive income (loss) 238 (48 )
------ ------
Total stockholders' equity 26,910 26,394
------ ------
$29,546 $28,649
====== ======
See accompanying notes
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RELIABILITY INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three Months Ended March 31,
2000 1999
(unaudited)
Revenues $4,602 $4,320
Costs and expenses:
Cost of revenues 2,897 2,759
Marketing, general and administrative 1,385 1,503
Research and development 393 476
----- -----
4,675 4,738
----- -----
Operating income (loss) (73 ) (418 )
Interest income, net 224 158
----- -----
Income (loss) before income taxes 151 (260 )
----- -----
Provision (benefit) for income taxes:
Current 145 (118 )
Deferred (40 ) 120
----- -----
105 2
----- -----
Net income (loss) $ 46 $ (262 )
===== =====
Earnings (loss) per share:
Basic $ .01 $ (.04 )
===== =====
Diluted $ .01 $ (.04 )
===== =====
Weighted average shares:
Basic 6,646 6,616
===== =====
Diluted 6,779 6,616
===== =====
See accompanying notes
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RELIABILITY INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended March 31,
2000 1999
(unaudited)
Cash flows from operating activities:
Net income (loss) $ 46 $ (262 )
Adjustments to reconcile net income (loss) to
cash (used) by operating activities:
Depreciation and amortization 574 604
Provision for deferred income taxes (40 ) 120
Provision for inventory obsolescence 42 2
(Gain) loss on disposal of fixed assets (37 ) 19
Changes in operating asset and liabilities:
Accounts receivable (1,889 ) 29
Inventories 243 28
Other current assets 87 (43 )
Accounts payable 152 92
Accrued liabilities 221 (1,585 )
Income taxes payable 93 (147 )
Cash payments charged to
restructuring reserve (34 ) (29 )
------ ------
Total adjustments (588 ) (910 )
------ ------
Net cash (used) by operating activities (542 ) (1,172 )
------ ------
Cash flows from investing activities:
Expenditures for property and equipment (28 ) (390 )
Proceeds from sale of equipment 37 -
(Decrease) in other long-term assets - (19 )
------ ------
Net cash provided (used) by investing activities 9 (409 )
------ ------
Cash flows from financing activities:
Proceeds from issuance of common stock
pursuant to stock option plan 238 128
Borrowings under revolving credit facility 446 -
Payments under revolving credit facility (446 ) -
Payments on long-term debt - (274 )
Other (54 ) (7 )
------ ------
Net cash provided (used) by financing activities 184 (153 )
------ ------
Effect of exchange rate changes on cash 13 (4 )
------ ------
Net (decrease) in cash (336 ) (1,738 )
Cash and cash equivalents:
Beginning of period 13,573 15,702
------ ------
End of period $13,237 $13,964
====== ======
Supplemental disclosures:
Interest paid $ - $ 10
====== ======
Income taxes paid $ 39 $ 35
====== ======
See accompanying notes
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RELIABILITY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of business
- -----------------------
Reliability Incorporated ("Reliability" or the "Company") is a United
States based corporation with operations in the United States, Singapore and
Costa Rica. The Company and its subsidiaries are principally engaged in the
design, manufacture and sale of equipment used to test and condition integrated
circuits. In addition, a subsidiary of the Company operates a service facility
which conditions and tests integrated circuits as a service to others. The
Company's testing products are sold to companies that manufacture semiconductor
products and are shipped to locations in the U.S., Europe, Asia and Pacific Rim
countries. Services, as of March 31, 2000, are provided principally to two
customers in Singapore. The Company acquired, in December 1998, assets of a
company that provided services to customers in Austin, Texas and Singapore. The
Company closed the Austin facility in September 1999. Another subsidiary
manufactures and sells power sources, primarily a line of DC to DC power
converters. Power sources are sold to U.S., European and Asian based companies
that design and sell electronic equipment.
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly owned. All significant
intercompany balances and transactions have been eliminated in consolidation.
Certain amounts in the consolidated financial statements for the period ended
December 31, 1999 have been reclassified to conform to the 2000 presentation.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the interim
period ended March 31, 2000 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2000.
The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. For further information, refer to the financial
statements and footnotes thereto included in the Company's annual report on
Form 10-K for the year ended December 31, 1999.
Accounting 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 may differ from those estimates.
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RELIABILITY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
Income Taxes
- ------------
Deferred income taxes are provided under the liability method and reflect
the net tax effects of temporary differences between the tax basis of assets
and liabilities and their reported amounts in the consolidated financial
statements.
The differences between the effective rate reflected in the provision
(benefit) for income taxes and the amounts determined by applying the statutory
U.S. tax rate of 34% to income (loss) before income taxes are analyzed below
(in thousands) for the three month periods ended:
March 31,
2000 1999
Provision (benefit) at statutory rate $ 51 $ (88 )
Tax effects of:
Foreign losses for which a tax benefit is
not available 65 83
Lower effective income tax rates related
to undistributed foreign earnings (16 ) (1 )
Other 5 8
---- ---
Provision for income taxes $ 105 $ 2
==== ===
Inventories
- -----------
Inventories are stated at the lower of standard cost (which approximates
first-in, first-out) or market (replacement cost or net realizable value) and
include (in thousands):
March 31, December 31,
2000 1999
Raw materials $ 706 $ 966
Work-in-progress 513 149
Finished goods 112 501
----- -----
$1,331 $1,616
===== =====
Inventories are presented net of reserves for excess and obsolete
inventories of $465,000 and $428,000 at March 31, 2000 and December 31, 1999,
respectively.
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RELIABILITY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
Investments in Marketable Equity and Debt Securities
- ----------------------------------------------------
Investments are classified as held to maturity or available-for-sale
securities under the provisions of Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities."
Management determines the appropriate classification of its investments in
equity and debt securities at the time of purchase and re-evaluates such
determinations at each balance sheet date.
Equity securities are classified as available-for-sale and are carried at
their fair value on the balance sheet, with unrealized gains and losses (net of
applicable income taxes (benefit) of $120,000 and $(24,000) at March 31, 2000
and December 31, 1999), if any, reported as a separate component of
stockholders' equity. Equity securities are stated at market value, as
determined by the most recently published trade price of the securities at the
balance sheet date. The preferred stock is classified as a held to maturity
security. The preferred stock represents a convertible bond that was converted
into 562,000 shares of preferred stock of the issuer in January 2000 and is
stated at cost. It is not practicable to estimate the fair value of the
preferred stock, as the issuer is in the early stages of product development.
The following table summarizes the Company's investment in securities (in
thousands) at the dates indicated.
March 31, December 31,
2000 1999
Preferred stock, at cost $ 500 $500
Marketable equity securities, at cost 422 422
Unrealized net gains (losses) on
marketable securities 358 (72)
----- ---
1,280 850
Amount classified as current 550 203
----- ---
$ 730 $647
===== ===
2. CREDIT AGREEMENTS AND NOTE PAYABLE TO SHAREHOLDER
Reliability maintains a line of credit with Wells Fargo Bank Texas, N.A.
which permits the Company to borrow up to $1 million until April 1, 2001.
Interest is payable at the bank's prime rate minus 1/4% (8.75% at March 31,
2000). Any unpaid principal of the note is due April 1, 2001. The loan
agreement provides for a revolving line of credit, secured by substantially all
assets of the Company which are located in the U.S., except for land and
buildings. The credit facility requires compliance with certain financial
covenants related to the Company's current ratio, debt service coverage and
funded debt to net income (as defined) and total liabilities to total net
worth. The agreement prohibits the payment of cash dividends by the Company
unless otherwise agreed to by the bank. The Company was in compliance with the
financial requirements of the agreement at March 31, 2000, and there were no
balances outstanding under the agreement at March 31, 2000 or December 31,
1999.
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RELIABILITY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
The Company's Singapore subsidiary maintains an agreement with a Singapore
bank to provide an overdraft facility to the subsidiary of 500,000 Singapore
dollars (U.S. $293,000) at the bank's prime rate plus 2% (7.5% at March 31,
2000). There were no balances outstanding at March 31, 2000, but amounts
utilized under letter of credit commitments totaled $242,000, resulting in
credit availability of $51,000 at March 31, 2000. The loan is collateralized by
all assets of the subsidiary and requires maintenance of a minimum net worth of
the Singapore subsidiary. Payment of dividends requires written consent from
the bank, and continuation of the credit facility is at the discretion of the
bank.
Interest income (expense) for the three month periods ended March 31, is
presented net as follows (in thousands):
2000 1999
Interest income $225 $168
Interest (expense) (1 ) (10 )
--- ---
Interest income, net $224 $158
=== ===
3. SEGMENT INFORMATION
The following table sets forth reportable segment information (in
thousands) for the periods indicated:
Three Months Ended
March 31,
2000 1999
Revenues from external customers:
Testing Products $2,105 $ 966
Services 2,002 2,832
Power Sources 495 522
Inter-segment revenues:
Testing Products 22 55
Services - 6
Eliminations (22 ) (61 )
----- -----
$4,602 $4,320
===== =====
Operating income (loss):
Testing Products (43 ) $ (677 )
Services 238 468
Power Sources (169 ) (116 )
General corporate expenses (99 ) (93 )
----- -----
Operating income (loss) $ (73 ) $ (418 )
===== =====
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RELIABILITY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
Total assets by reportable segment as of the dates indicated are as follows
(in thousands):
March 31, December 31,
2000 1999
Testing Products $ 7,828 $ 6,687
Services 5,367 5,783
Power Sources 1,656 1,647
General corporate assets 14,695 14,532
------ ------
$29,546 $28,649
====== ======
For the periods indicated above, there were no material changes in the
accounting policies and procedures used to determine segment income or loss.
4. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings (loss) per share (in thousands, except per share data):
Three Months Ended
March 31,
2000 1999
Net income (loss) $ 46 $ (262 )
===== =====
Weighted average shares outstanding 6,646 6,616
Net effect of dilutive stock options
based on the treasury stock method 133 -
----- -----
Weighted average shares and
assumed conversions 6,779 6,616
===== =====
Earnings (loss) per share:
Basic $ .01 $ (.04 )
===== =====
Diluted $ .01 $ (.04 )
===== =====
Options to purchase 191,000 and 608,000 shares of common stock of the
Company were excluded from the computation of diluted earnings (loss) per share
during 2000 and 1999, respectively, as inclusion of these options in the
calculations would have been anti-dilutive.
11
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RELIABILITY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
5. SHUT-DOWN AND RESTRUCTURING OF FACILITIES
The following table reports activity in the accrued shut-down and
restructuring accounts during the three month period ended March 31, 2000 and
year ended December 31, 1999 (in thousands):
2000 1999
Accrued costs at beginning of period $ 72 $ 300
Provision for shut-down and restructuring:
Employee severance - 30
Other expenses - 80
---- ----
- 110
---- ----
Cash payments charged to accounts:
Employee severance - (72 )
Lease payments (20 ) (101 )
Other payments (14 ) (27 )
---- ----
(34 ) (200 )
---- ----
Disposal of Singapore assets - (138 )
---- ----
Accrued costs at end of period $ 38 $ 72
==== ====
The Company's Austin, Texas facility (which was part of the Services
segment) provided services principally to one customer. The facility was closed
on September 30, 1999 because the customer notified the Company that it would
cease sending product to the facility. The Company recorded an $800,000
provision for shut-down in September 1999 related to the closing of this
facility. The Company did not include an accrual for future rent obligations
related to the leased facility in Austin because it has entered into a sublease
agreement with a third party equal to the Company's remaining obligation under
the lease agreement.
Services provided to Texas Instruments Incorporated accounted for
substantially all of the revenues of the Company's Singapore Services facility.
On October 1, 1998, Micron Technology acquired the Texas Instruments facility
in Singapore and informed the Company that it would continue to utilize the
Company's burn-in services, but at a significantly reduced level. Micron
accounted for 8% of 1999 fiscal year consolidated revenues and completely
discontinued utilizing the Company's services during the fourth quarter of
1999. In connection with the decrease in volumes at the Singapore facility, a
$507,000 provision for restructuring was recorded in the fourth quarter of
1998. The restructuring provision included $207,000 for severance costs paid to
employees who were terminated during 1998, $100,000 related to disposal of
excess equipment and $200,000 related to costs associated with excess leased
facilities.
12
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RELIABILITY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
6. COMPREHENSIVE INCOME
The only difference between total comprehensive income (loss) and net
income (loss) that is reported on the Consolidated Statements of Operations
arises from unrealized gains and losses on available-for-sale securities. The
Company's total comprehensive income for the three months ended March 31, 2000
was $391,000. There were no items of comprehensive income during the three
month period ended March 31, 1999; thus, comprehensive income was equal to the
$262,000 loss for the 1999 three month period.
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RELIABILITY INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 2000
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Management's Discussion and Analysis of Financial Condition and
Results of Operations and other parts of this document contain forward-looking
statements that involve risks and uncertainties. All forward-looking statements
included in this document are based on information available to the Company on
the date hereof, and the Company assumes no obligation to update any such
forward-looking statements. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of a number of factors, including those set forth elsewhere in this
document.
FINANCIAL CONDITION
The primary sources of Reliability's liquidity are cash provided by
operations and working capital. The parent Company and its Singapore subsidiary
have substantial cash available to support anticipated liquidity requirements.
The Company maintains lines of credit to supplement the primary sources of
capital. Changes in the Company's financial condition since December 31, 1999
and March 31, 1999 are generally attributable to changes in cash flows from
operating activities, including the effect of operating at revenue levels below
historical levels, the effects of changes in operations related to the
acquisition of certain assets in the Services segment in December 1998 and
accelerating payments on and payment in full of a mortgage during 1999. In
addition, the shut-down of the Company's Austin, Texas Services facility in
1999 and changes in operations at the Company's Singapore subsidiary,
throughout 1999, did and will in the future, affect the Company's financial
condition. In addition, purchasing marketable equity securities and changes in
the levels of capital expenditures affected the Company's financial condition.
Certain ratios and amounts monitored by management in evaluating the
Company's financial performance and resources are presented in the following
chart. The periods presented related to the profitability ratios are for the
three months ended March 31, and twelve months ended December 31, 1999:
March 31, December 31, March 31,
2000 1999 1999
Working capital:
Working capital (in thousands) $17,329 $16,401 $15,442
Current ratio 9.8 to 1 11.7 to 1 6.2 to 1
Equity ratios:
Total liabilities to equity 0.1 0.1 0.1
Assets to equity 1.1 1.1 1.1
Profitability ratios:
Gross profit 37% 35 % 36 %
Return on revenues 1% (8)% (6)%
Return on assets (annualized) 1% (4)% (3)%
Return on equity (annualized) 1% (5)% (4)%
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RELIABILITY INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 2000
The Company's financial condition remained strong during 2000. Working capital
increased to $17.3 million at March 31, 2000, from $16.4 million at December
31, 1999, and the ratio of current assets to current liabilities increased from
6.2 to 1 at March 31, 1999, to 9.8 to 1 at March 31, 2000. The increase in the
current ratio resulted from a decline in the level of operations during 1999
and 2000 compared to 1998, resulting in current liabilities declining at a
faster rate than the decline in current assets. Beginning in the fourth quarter
of 1998, the Company's revenues and level of operations, compared to the
corresponding prior year periods, declined. Assets such as accounts receivable
and inventories decreased during the period of declining production and were
converted to cash. Cash provided by certain components of cash flows from
operations in 1999 were used to reduce and pay off a mortgage payable, acquire
assets in the Services segment, purchase fixed assets, maintain the amount of
short-term interest-bearing cash investments and, in 1999, reduce accrued
liabilities, pay off a note and purchase certain equity securities. The Company
continues to maintain stringent expense control measures, thus minimizing the
negative impact on the Company's financial condition while the Company is
operating at reduced revenue levels.
The Company maintains a credit facility with a financial institution to
provide credit availability to supplement cash provided by operations, if
required. Credit availability provided by the facility was reduced by the
Company from $4.0 million to $1.0 million in 1999. The Company's Singapore
subsidiary maintains a small overdraft facility to support the subsidiary's
credit commitments.
Net cash used by operating activities for the three months ended March 31,
2000 was $0.5 million, compared with $1.2 million used by operations in the
first three months of 1999. The principal item contributing to the cash used by
operations in 2000 was a $1.9 million increase in accounts receivable. Cash
used by operations in 2000 was reduced by $0.6 million of depreciation and
amortization and a $0.3 million decrease in inventories. Accrued liabilities
increased $0.2 million in 2000, resulting from a general increase in most items
included in accrued liabilities due to accrual throughout the year of various
items, such as property taxes, that are paid in the following year. The
increase in accounts receivable resulted from the fact that the Company sold
$2.0 million of Testing Products in January 2000 and the accounts receivable
related to that sale will be collected in 23 monthly installments. Inventories
decreased due to shipments in the first quarter of 2000 of Testing Products
items that were included in inventory at December 31, 1999. The increase in
other current assets and investments relates to an increase in the unrealized
gains on marketable securities as of March 31, 2000.
Increases in demand for the Company's products resulted in backlog increasing
from $0.7 million at September 30, 1999, to $2.4 million at December 31, 1999
and to $3.2 million at March 31, 2000. The current forward-looking forecast
indicates revenues for the second quarter of 2000 will be between $3.6 and $4.5
million, compared to revenues of $2.3 million for the fourth quarter of 1999
and $4.3 million for the first quarter of 1999, resulting in net income being a
breakeven or a small loss. The Company is beginning to see some signs that new
orders may increase in the near future. Some of these signs are increases in
demand
15
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RELIABILITY INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 2000
for products sold by the semiconductor industry, increases in inquiries by
certain customers and forecasts by certain customers needing new or retrofit
capacity. In general, these signs provide some visibility that demand for the
Company's products should increase, but actual timing of the increase is
difficult to forecast. In addition, changes in product mix and increases in
demand for ICs that are sold by customers of the Singapore Services facility
have resulted in increased demand for services provided by the facility. The
Company is currently negotiating with a customer to provide upgraded and
additional capacity at the facility. These changes could result in an increase
in revenues in the Services segment.
During January 2000, the Company's common stock traded between $3.00 and
$4.00 per share. The Company announced, on February 1, 2000, a plan to
repurchase for cash up to 1.5 million shares of its common stock. Shares that
are repurchased would be used to issue stock when stock options are exercised,
make contributions to the Company's 401(k) plan, or for acquisitions. The stock
has traded above the January 2000 price range during most of the time since the
announcement was made. The stock traded in the $4.00 range during April 2000
and the Company has repurchased a total of 14,500 shares as of May 12, 2000.
Capital expenditures during the first three months of 2000 and 1999 were
$28,000 and $390,000, respectively. A significant portion of expenditures in
both years included equipment required by the Singapore subsidiary to support
services provided by the subsidiary. Current projections indicate that capital
expenditures for 2000 may be between $3.0 and $4.0 million. A significant
portion of the expenditures would be for equipment required by the Singapore
subsidiary to support changes and increases in services provided to its
customers, as noted earlier in this discussion.
Current projections indicate that the Company's cash and cash equivalent
balances and available lines of credit will be sufficient to meet the projected
cash requirements of the Company for the remainder of 2000.
RESULTS OF OPERATIONS
Three months ended March 31, 2000 compared to three months ended March 31,
1999.
Revenues. Revenues for the 2000 three month period were $4.6 million compared
to $4.3 million for the 1999 period. Revenues in the Testing Products segment
increased $1.1 million, Power Sources revenues decreased slightly and Services
revenues decreased $0.8 million.
Revenues in the Testing Products segment were $2.1 million for the first
quarter of 2000, which is an increase of 118% from the first quarter of 1999.
Revenues from the sale of CRITERIA products increased $0.2 million or 40% and
revenues from the sale of INTERSECT products increased $0.9 million or 175%. An
increase in demand for IC products sold by customers of the Company's Testing
Products segment resulted in an increase in the number of Criteria systems
upgraded during the 2000 quarter and the sale of upgraded Intersect systems to
a customer.
16
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RELIABILITY INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 2000
Revenues in the Services segment for the 2000 period were $2.0 million, a
decrease of 29% compared to the corresponding 1999 period. The decrease
resulted from the closing of the Company's Austin, Texas Services facility at
the end of the third quarter of 1999. Revenues at the Singapore Services
facility increased 5% in the 2000 period compared to the 1999 period and
increased 33% in the 2000 period compared to the fourth quarter of 1999. The
increase at the Singapore facility resulted from product mix changes and
increased demand for products sold by a customer of the subsidiary, resulting
from the customer introducing a new generation of microprocessors.
Revenues in the Power Sources segment were $0.5 million for the first
quarter of 2000, reflecting a 5% decrease from the 1999 period. Revenues were
affected by general reductions in demand, price competition, an aging product
line and a decline in market penetration.
Costs and Expenses. Total costs and expenses for the first quarter of 2000
decreased $0.1 million or 1% compared to the 7% revenue increase of $0.3
million. Cost of revenues increased $0.1 million; marketing, general and
administrative expenses decreased $0.1 million and research and development
expenses decreased $0.1 million.
The increase in gross profit from 36% in the 1999 period to 37% in the 2000
period is attributable to an increase in the gross profit in the Testing
Products segment resulting from volume increases reduced by decreases in the
gross profit in the Services and Power Sources segments. The decrease in the
Power Sources segment relates to price decreases related to price competition
and the decrease in the Services segment relates to an increase in depreciation
expense resulting from a faster write-off of certain IC testers, due to an
anticipated shorter product life of the ICs that are processed on the testers.
Marketing, general and administrative expenses for the 2000 period
decreased $0.1 million. The decrease is related to a decrease in expenses due
to closing of the Austin Services facility and the effect of stringent expense
controls, reduced somewhat by increases in volume related expenses, such as
commissions, warranty and similar expenses resulting from the increase in
revenues in the Testing Products segment
Research and development expenses for the 2000 period decreased $0.1
million. Reliability is committed to a significant research and development
program and development costs are projected to remain at current levels or
increase somewhat during the remainder of the year.
The increase in interest income during the 2000 period relates primarily to
interest earned on an accounts receivable amount that is being collected over a
two-year period and a general increase in interest rates paid on investments,
reduced by a 6% decrease in cash investments.
The Company's effective tax rate was 70% for the three-month period ended
March 31, 2000, compared to a $2,000 provision related to the $260,000 loss for
the 1999 period. The principal items affecting the Company's tax rate in both
years were tax benefits not available to a foreign subsidiary due to
limitations on net operating loss deductions and a lower effective tax rate
related to earnings of the Singapore subsidiary.
17
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RELIABILITY INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 2000
SAFE HARBOR STATEMENT
"Safe Harbor" Statement under the Private Securities Litigation Reform Act
of 1995: Statements in this Form 10-Q regarding Reliability's business which
are not historical facts are "forward looking statements" that involve risk and
uncertainties, including, but not limited to, market acceptance of Company
products and services, the effects of general economic conditions, the impact
of competition, product development schedules, problems with technology,
delivery schedules, future results related to acquisitions and supply and
demand changes for Company products and services and its customers' products
and services. Actual results may materially differ from projections.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
There have been no material changes in the market risk disclosures
reported in the Company's Annual Report on Form 10-K filed for the year ended
December 31, 1999.
18
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RELIABILITY INCORPORATED
OTHER INFORMATION
PART II. OTHER INFORMATION
Items 1 through 3.
Not applicable.
Item 4. Submission of Matters to a Vote of Securities Holders.
(a) Reliability Incorporated held its annual meeting of shareholders on
April 26, 2000
(b) At the meeting, shareholders elected the following persons as
directors; no other director continued in office except those elected at
the meeting:
Larry Edwards
W. L. Hampton
John R. Howard
Thomas L. Langford
Philip Uhrhan
(c) The shareholders of Reliability Incorporated also approved an
amendment to the Reliability Incorporated 1997 Stock Option Plan. The
amendment increased the maximum number of shares of Common Stock reserved
for issuance from 1,000,000 to 1,500,000. A copy of the amended Plan is
attached to this report as Exhibit 10.1.
The results of the votes of shareholders are as follows:
Director Nominee: For Abstain
Larry Edwards 5,440,274 594,783
W. L. Hampton 4,952,234 1,082,823
John R. Howard 5,440,346 594,711
Thomas L. Langford 4,968,046 1,067,011
Philip Uhrhan 4,966,096 1,068,961
Stock Option Plan: For Against Abstain
2,003,424 (1) 1,460,771 493,856
(1) A total of 2,077,006 shares did not cast votes on the proposal. In
accordance with the Company's by-laws, 3,958,051 shares were
represented and entitled to vote on the proposal.
Item 5. Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit No. Description
10.1 Reliability Incorporated Amended and Restated 1997
Stock Option Plan
27. Financial Data Schedule
(b) Reports on Form 8-K. On February 15, 2000, the Company filed a
Current Report on Form 8-K, with respect to its announcement on February 1,
2000 of a plan to repurchase up to 1,500,000 shares of its common stock.
19
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RELIABILITY INCORPORATED
SIGNATURES
March 31, 2000
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.
RELIABILITY INCORPORATED
(Registrant)
May 12, 2000 /s/Larry Edwards
President and
Chief Executive Officer
May 12, 2000 /s/Max T. Langley
Sr. Vice President - Finance
and Chief Financial Officer
20
RELIABILITY INCORPORATED
1997 STOCK OPTION PLAN
February 26, 1997
Amended and Restated February 23, 2000
10QX102K.doc
1
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TABLE OF CONTENTS
PAGE
ARTICLE I. GENERAL 3
Section 1.1. Purpose. 3
Section 1.2. Administration. 3
Section 1.3. Eligibility for Participation. 4
Section 1.4. Types of Awards Under Plan. 4
Section 1.5. Aggregate Limitation on Awards. 4
Section 1.6. Effective Date and Term of Plan. 4
ARTICLE II. STOCK OPTIONS 5
Section 2.1. Award of Stock Options. 5
Section 2.2. Stock Option Agreements. 5
Section 2.3. Stock Option Price. 5
Section 2.4. Term and Exercise. 5
Section 2.5. Manner of Payment. 5
Section 2.6. Issuance of Certificates. 5
Section 2.7. Death, Retirement and Termination of Employment
of Optionee 5
ARTICLE III. INCENTIVE STOCK OPTIONS 6
Section 3.1. Award of Incentive Stock Options. 6
Section 3.2. Incentive Stock Option Agreements. 6
Section 3.3. Incentive Stock Option Price. 7
Section 3.4. Term and Exercise. 7
Section 3.5. Maximum Amount of Incentive Stock Option Grant. 7
Section 3.6. Death of Optionee. 7
Section 3.7. Retirement or Disability. 7
Section 3.8. Termination for Other Reasons. 7
Section 3.9. Applicability of Stock Option Sections. 8
Section 3.10. Code Requirements. 8
ARTICLE IV. MISCELLANEOUS 8
Section 4.1. General Restriction. 8
Section 4.2. Non-Assignability. 8
Section 4.3. Withholding Taxes. 8
Section 4.4. Right to Terminate Employment. 8
Section 4.5. Non-Uniform Determinations. 9
Section 4.6. Rights as a Stockholder. 9
Section 4.7. Definitions. 9
Section 4.8. Leaves of Absence. 9
Section 4.9. Newly Eligible Employees. 10
Section 4.10. Adjustments. 10
Section 4.11. Changes in the Company's Capital Structure. 10
Section 4.12. Amendment of the Plan. 11
2
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RELIABILITY INCORPORATED
1997 STOCK OPTION PLAN
Amended and Restated February 23, 2000
ARTICLE I. GENERAL
Section 1.1. Purpose. The purposes of this Stock Option Plan (the
"Plan") are to: (1) associate the interests of the officers, directors and key
employees of RELIABILITY INCORPORATED and its subsidiaries (collectively
referred to as the "Company") closely with the Company's stockholders to
generate an increased incentive to contribute to the Company's future success
and prosperity, thus enhancing the value of the Company for the benefit of its
stockholders; (2) provide management with a proprietary ownership interest in
the Company commensurate with Company performance, as reflected in increased
stockholder value; (3) maintain competitive compensation levels thereby
attracting and retaining highly competent and talented directors and employees;
and (4) provide an incentive to management for continuous employment with the
Company. Certain capitalized terms are defined in Section 4.7.
Section 1.2. Administration.
(a) The Plan shall be administered by (i) the Board of Directors of the
Company, (ii) any duly constituted committee of the Board of Directors
consisting of at least two members of the Board of Directors, all of whom shall
be Non-Employee Directors, or (iii) any other duly constituted committee of the
Board of Directors. Such administrating party shall be referred to herein as
the "Plan Administrator".
(b) The Plan Administrator shall have the authority, in its sole
discretion and from time to time to:
(i) designate the directors, officers and key employees of the
Company eligible to participate in the Plan;
(ii) grant Awards provided in the Plan in such form and amount as
the Plan Administrator shall determine;
(iii) impose such limitations, restrictions and conditions, not
inconsistent with this Plan, upon any such Award as the Plan Administrator
shall deem appropriate; and
(iv) interpret the Plan and any agreement, instrument or other
document executed in connection with the Plan, adopt, amend and rescind rules
and regulations relating to the Plan, and make all other determinations and
take all other action necessary or advisable for the implementation and
administration of the Plan.
(c) Decisions and determinations of the Plan Administrator on all matters
relating to the Plan shall be in its sole discretion and shall be final,
conclusive and binding upon all persons, including the Company, any
participant, any stockholder of the Company, any director and any employee. No
member of any committee acting as Plan Administrator shall be liable for any
action taken or decision made relating to the Plan or any Award thereunder.
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Section 1.3. Eligibility for Participation. Participants in the Plan
shall be selected by the Plan Administrator from the directors, executive
officers and other key employees of the Company. In making this selection and
in determining the form and amount of awards, the Plan Administrator shall
consider any factors deemed relevant, including the individual's functions,
responsibilities, value of services to the Company and past and potential
contributions to the Company's profitability and growth.
Section 1.4. Types of Awards Under Plan. Awards under the Plan may be in
the form of either or both of the following:
(i) Stock Options, as described in Article II; and/or
(ii) Incentive Stock Options, as described in Article III.
Awards under the Plan shall be evidenced by an Award Agreement between
the Company and the recipient of the Award, in form and substance satisfactory
to the Plan Administrator, and not inconsistent with this Plan. Award
Agreements may provide such vesting schedules for Stock Options and Incentive
Stock Options, and such other terms, conditions and provisions as are not
inconsistent with the terms of this Plan. Subject to the express provisions of
the Plan, and within the limitations of the Plan, the Plan Administrator may
modify, extend or renew outstanding Award Agreements, or accept the surrender
of outstanding Awards and authorize the granting of new Awards in substitution
therefor. However, except as provided in this Plan, no modification of an Award
shall impair the rights of the holder thereof without his consent.
Section 1.5. Aggregate Limitation on Awards.
(a) Shares of stock which may be issued under the Plan shall be
authorized and unissued or treasury shares of Common Stock of the Company
("Common Stock"). The maximum number of shares of Common Stock which may be
issued pursuant to Awards issued under the Plan shall be 1,500,000.
(b) For purposes of calculating the maximum number of shares of Common
Stock which may be issued under the Plan at any time, all the shares issued
(including the shares, if any, withheld for tax withholding requirements) under
the Plan as well as all shares subject to Option shall be counted.
(c) Shares tendered by a participant as payment for shares issued upon
exercise of a Stock Option or Incentive Stock Option shall be available for
issuance under the Plan. Any shares of Common Stock subject to a Stock Option
or Incentive Stock Option which for any reason is terminated unexercised or
expires shall again be available for issuance under the Plan.
Section 1.6. Effective Date and Term of Plan.
(a) The Plan shall become effective on the date adopted by the Board of
Directors, subject to approval by the holders of a majority of the shares of
Common Stock present in person or by proxy at a meeting at which a quorum is
present.
(b) The Plan and all Awards made under the Plan shall remain in effect
until such Awards have been satisfied or terminated in accordance with the Plan
and the terms of such Awards.
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ARTICLE II. STOCK OPTIONS
Section 2.1. Award of Stock Options. The Plan Administrator may from
time to time, and subject to the provisions of the Plan and such other terms
and conditions as the Plan Administrator may prescribe, grant to any
participant in the Plan one or more options to purchase for cash or shares the
number of shares of Common Stock ("Stock Options") allotted by the Plan
Administrator. The date a Stock Option is granted shall mean the date selected
by the Plan Administrator as of which the Plan Administrator allots a specific
number of shares to a participant pursuant to the Plan.
Section 2.2. Stock Option Agreements. The grant of a Stock Option shall
be evidenced by a written Award Agreement, executed by the Company and the
holder of a Stock Option (the "Optionee"), stating the number of shares of
Common Stock subject to the Stock Option evidenced thereby, and in such form as
the Plan Administrator may from time to time determine.
Section 2.3. Stock Option Price. The Option Price per share of Common
Stock deliverable upon the exercise of a Stock Option shall be 100% of the Fair
Market Value of a share of Common Stock on the date the Stock Option is
granted.
Section 2.4. Term and Exercise. A Stock Option shall not be exercisable
prior to six months from the date of its grant, unless a shorter period is
provided by the Plan Administrator or by another Section of this Plan, and may
be subject to such vesting scheduling and term ("Option Term") as the Plan
Administrator may provide in an Award Agreement. No Stock Option shall be
exercisable after the expiration of its Option Term.
Section 2.5. Manner of Payment. Each Award Agreement providing for Stock
Options shall set forth the procedure governing the exercise of the Stock
Option granted thereunder, and shall provide that, upon such exercise in
respect of any shares of Common Stock subject thereto, the Optionee shall pay
to the Company, in full, the Option Price for such shares with cash or, if duly
authorized by the Plan Administrator, Common Stock.
Section 2.6. Issuance of Certificates. As soon as practicable after
receipt of payment, the Company shall deliver to the Optionee a certificate or
certificates for such shares of Common Stock. Upon issuance of a certificate,
the Optionee shall become a stockholder of the Company with respect to Common
Stock represented by such share certificates and as such shall be fully
entitled to receive dividends, to vote and to exercise all other rights of a
stockholder.
Section 2.7. Death, Retirement and Termination of Employment of
Optionee. Unless otherwise provided in an Award Agreement or otherwise agreed
to by the Plan Administrator:
(a) Upon the death of the Optionee, any rights to the extent exercisable
on the date of death may be exercised by the Optionee's estate, or by a person
who acquires the right to exercise such Stock Option by bequest or inheritance
or by reason of the death of the Optionee, provided that such exercise occurs
within the sooner of (i) the remaining Option Term of the Stock Option, and
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(ii) the expiration of one year from the date of death. The provisions of this
Section shall apply notwithstanding the fact that the Optionee's employment may
have terminated prior to death, but only to the extent of any rights
exercisable on the date of death.
(b) Upon termination of the Optionee's employment by reason of retirement
or permanent disability (as each is determined by the Plan Administrator), the
Optionee may exercise any Stock Options exercisable on the date of termination
of employment, provided such option exercise occurs within the sooner of (i)
the remaining Option Term of the Stock Option, and (ii) the expiration of six
months (in the case of permanent disability) or three months (in the case of
retirement) of the date of termination.
(c) Upon termination of the Optionee's employment for any reason other
than death, disability or retirement, the Optionee may exercise any Stock
Options exercisable on the date of termination of employment, provided such
option exercise occurs within the sooner of (i) the remaining Option Term of
the Stock Option, and (ii) the expiration of thirty days of the date of
termination.
ARTICLE III. INCENTIVE STOCK OPTIONS
Section 3.1. Award of Incentive Stock Options. The Plan Administrator
may, from time to time and subject to the provisions of the Plan and such other
terms and conditions as the Plan Administrator may prescribe, grant to any
officer or key employee who is a participant in the Plan one or more "incentive
stock options" (intended to qualify as such under the provisions of Section 422
of the Internal Revenue Code of 1986 ("Code"), as amended ("Incentive Stock
Options")) to purchase for cash or shares the number of shares of Common Stock
allotted by the Plan Administrator. No Incentive Stock Options shall be granted
under the Plan after the tenth anniversary of the effective date of the Plan.
The date an Incentive Stock Option is granted shall mean the date selected by
the Plan Administrator as of which the Plan Administrator allots a specific
number of shares to a participant pursuant to the Plan. Notwithstanding the
foregoing, Incentive Stock Options shall not be granted to any officer or
employee who owns 10% or more of the Company's voting stock (directly or
beneficially) unless the requirements of the code are met.
Section 3.2. Incentive Stock Option Agreements. The grant of an
Incentive Stock Option shall be evidenced by a written Award Agreement,
executed by the Company and the holder of an Incentive Stock Option (the
"Optionee"), stating the number of shares of Common Stock subject to the
Incentive Stock Option evidenced thereby, and in such form as the Plan
Administrator may from time to time determine.
Section 3.3. Incentive Stock Option Price. The Option Price per share of
Common Stock deliverable upon the exercise of an Incentive Stock Option shall
be 100% of the Fair Market Value of a share of Common Stock on the date the
Incentive Stock Option is granted, except as otherwise required by Section 422
of the Code, as amended.
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Section 3.4. Term and Exercise. Each Incentive Stock Option shall not be
exercisable prior to six months from the date of its grant, unless a shorter
period is provided by the Plan Administrator or another Section of this Plan,
may be exercised during a period, established by the Plan Administrator, of up
to ten years from the date of grant thereof (the "Option Term") and may be
subject to such vesting scheduling as the Plan Administrator may provide in an
Award Agreement. No Incentive Stock Option shall be exercisable after the
expiration of its Option Term.
Section 3.5. Maximum Amount of Incentive Stock Option Grant. The
aggregate Fair Market Value (determined on the date the Incentive Stock Option
is granted) of Common Stock with respect to which Incentive Stock Options first
become exercisable by an Optionee during any calendar year (under all plans of
the Optionee's employer corporations and their parent and subsidiary
corporations) shall not exceed $100,000.
Section 3.6. Death of Optionee.
(a) Upon the death of the Optionee, any Incentive Stock Option
exercisable on the date of death may be exercised by the Optionee's estate or
by a person who acquires the right to exercise such Incentive Stock Option by
bequest or inheritance or by reason of the death of the Optionee, provided that
such exercise occurs within the sooner of the remaining Option Term of the
Incentive Stock Option and one year after the Optionee's death.
(b) The provisions of this Section shall apply notwithstanding the fact
that the Optionee's employment may have terminated prior to death, but only to
the extent of any Incentive Stock Options exercisable on the date of death.
Section 3.7. Retirement or Disability. Unless otherwise provided in an
Award Agreement or otherwise agreed to by the Plan Administrator, upon the
termination of the Optionee's employment by reason of permanent disability or
retirement (as each is determined by the Plan Administrator), the Optionee may
exercise any Incentive Stock Options exercisable on the date of termination,
provided such option exercise occurs within the sooner of (i) the remaining
Option Term of the Incentive Stock Option, and (ii) six months (in the case of
permanent disability) or three months (in the case of retirement) of
termination. Notwithstanding the terms of an Award Agreement, the tax treatment
available pursuant to Section 422 of the Code, as amended, upon the exercise of
an Incentive Stock Option shall not be available to an Optionee who exercises
any Incentive Stock Options more than (i) one year after the date of
termination of employment due to permanent disability or (ii) three months
after the date of termination of employment due to retirement.
Section 3.8. Termination for Other Reasons. Upon termination of the
Optionee's employment for any reason other than death, disability or
retirement, the Optionee may exercise any Incentive Stock Options exercisable
on the date of termination of employment, provided such option exercise occurs
within the sooner of (i) the remaining Option Term of the Incentive Stock
Option, and (ii) the expiration of thirty days of the date of termination.
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Section 3.9. Applicability of Stock Option Sections. Sections 2.5,
Manner of Payment, and 2.6, Issuance of Certificates, applicable to Stock
Options, shall apply equally to Incentive Stock Options. Said Sections are
incorporated by reference in this Article III as though fully set forth herein
Section 3.10. Code Requirements. The terms of any Incentive Stock Option
granted under the Plan shall comply in all respects with the provisions of Code
Section 422. Anything in the Plan to the contrary notwithstanding, no term of
the Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be
exercised, so as to disqualify either the Plan or any Incentive Stock Option
under Code Section 422, unless the participant has first requested the change
that will result in such disqualification.
ARTICLE IV. MISCELLANEOUS
Section 4.1. General Restriction. Each Award under the Plan shall be
subject to the requirement that, if at any time the Plan Administrator shall
determine that (i) the listing, registration or qualification of the shares of
Common Stock subject or related thereto upon any securities exchange or under
any state or Federal law, or (ii) the consent or approval of any government
regulatory body, or (iii) an agreement by the grantee of an Award with respect
to the disposition of shares of Common Stock, is necessary or desirable as a
condition of, or in connection with, the granting of such Award or the issue or
purchase of shares of Common Stock thereunder, such Award may not be
consummated in whole or in part unless such listing, registration,
qualification, consent, approval or agreement shall have been effected or
obtained free of any conditions not acceptable to the Plan Administrator.
Section 4.2. Non-Assignability. No Award under the Plan shall be
assignable or transferable by the recipient thereof, except by will or by the
laws of descent and distribution. During the life of the recipient, such Award
shall be exercisable only by such person or by such person's guardian or legal
representative.
Section 4.3. Withholding Taxes. Whenever the Company proposes or is
required to issue or transfer shares of Common Stock under the Plan, the
Company shall have the right to require the grantee to remit to the Company an
amount sufficient to satisfy any Federal, state and/or local withholding tax
requirements prior to the delivery of any certificate or certificates for such
shares. Alternatively, the Company may issue, transfer or vest only such number
of shares of the Company net of the number of shares sufficient to satisfy the
withholding tax requirements. For withholding tax purposes, the shares of
Common Stock shall be valued on the date the withholding obligation is
incurred.
Section 4.4. Right to Terminate Employment. Nothing in the Plan or in
any agreement entered into pursuant to the Plan shall confer upon any
participant the right to continue in the employment of the Company or affect
any right which the Company may have to terminate the employment of such
participant.
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Section 4.5. Non-Uniform Determinations. The Plan Administrator's
determinations under the Plan (including without limitation determinations of
the persons to receive Awards, the form, amount and timing of such Awards, the
terms and provisions of such Awards and the agreements evidencing same) need
not be uniform and may be made by it selectively among persons who receive, or
are eligible to receive, Awards under the Plan, whether or not such persons are
similarly situated.
Section 4.6. Rights as a Stockholder. The recipient of any Award under
the Plan shall have no rights as a stockholder with respect thereto unless and
until certificates for shares of Common Stock are issued to him.
Section 4.7. Definitions. In this Plan the following definitions shall
apply:
(a) "Award" shall mean a grant of Stock Options or Incentive Stock
Options under the Plan.
(b) "Fair Market Value" as of any date and in respect of any share of
Common Stock means the closing price on such date or on the previous business
day, if such date is not a business day, of a share of Common Stock reflected
in the consolidated trading tables of The Wall Street Journal or any other
publication selected by the Plan Administrator provided that, if shares of
Common Stock shall not have been traded on the National Association of
Securities Dealers, Inc. Automated Quotation System/National Market System or
other public securities market for more than 10 days immediately preceding such
date or if deemed appropriate by the Plan Administrator for any other reason,
the fair market value of shares of Common Stock shall be as determined by the
Plan Administrator in such other manner as it may deem appropriate. In no event
shall the Fair Market Value of any share of Common Stock be less than its par
value.
(c) "Non-Employee Director" shall mean a director who (i) is not an
officer of the Company or a parent or subsidiary of the Company, or otherwise
employed by the Company or parent or subsidiary of the Company; (ii) does not
receive compensation, either directly or indirectly, from the Company or a
parent or subsidiary of the Company, for services rendered as a consultant or
in any capacity other than as a director, except for an amount not exceeding
$60,000; (iii) does not possess an interest in any transaction for which
disclosure would be required under Item 404(a) of Regulation S-K of the
Securities Act of 1933, as amended ("Securities Act"); and (iv) is not engaged
in a business relationship for which disclosure would be required pursuant to
Item 404(b) of Regulation S-K of the Securities Act.
(d) "Option" means a Stock Option or Incentive Stock Option.
(e) "Option Price" means the purchase price per share of Common Stock
deliverable upon the exercise of a Stock Option or Incentive Stock Option.
Section 4.8. Leaves of Absence. The Plan Administrator shall be entitled
to make such rules, regulations and determinations as it deems appropriate
under the Plan in respect of any leave of absence taken by the recipient of any
Award. Without limiting the generality of the foregoing, the Plan Administrator
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shall be entitled to determine (i) whether or not any such leave of absence
shall constitute a termination of employment within the meaning of the Plan,
and (ii) the impact, if any, of any such leave of absence on Awards under the
Plan theretofore made to any recipient who takes such leave of absence.
Section 4.9. Newly Eligible Employees. The Plan Administrator shall be
entitled to make such rules, regulations, determinations and Awards as it deems
appropriate in respect of any director, officer or employee who becomes
eligible to participate in the Plan or any portion thereof after the
commencement of an Award or incentive period.
Section 4.10. Adjustments. In the event of any change in the outstanding
Common Stock by reason of a stock dividend or distribution, recapitalization,
merger, consolidation, split-up, combination, exchange of shares or the like,
the Plan Administrator may appropriately adjust the number of shares of Common
Stock which may be issued under the Plan, the number of shares of Common Stock
subject to Options or Performance Shares theretofore granted under the Plan,
and any and all other matters deemed appropriate by the Plan Administrator.
Section 4.11. Changes in the Company's Capital Structure.
(a) The existence of outstanding Options or Performance Shares 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 Common Stock or the rights
thereof, 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.
(b) If, while there are outstanding Options, the Company shall effect a
subdivision or consolidation of shares or other increase or reduction in the
number of shares of the Common Stock outstanding without receiving compensation
therefor in money, services or property, then, subject to the provisions, if
any, in the Award Agreement (a) in the event of an increase in the number of
such shares outstanding, the number of shares of Common Stock then subject to
Options hereunder shall be proportionately increased; and (b) in the event of a
decrease in the number of such shares outstanding, the number of shares of
Common Stock then subject to Option hereunder shall be proportionately
decreased.
(c) 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, (i) each holder of an outstanding
Option shall, at no additional cost, be entitled upon exercise of such Option
to receive (subject to any required action by stockholders) in lieu of the
number of shares as to which such Option shall then be so exercisable, the
number and class of shares of stock, other securities or consideration to which
such holder would have been entitled to receive pursuant to the terms of the
agreement of merger or consolidation if, immediately prior to such merger or
consolidation, such holder had been the holder of record of a number of shares
of the Company equal to the number of shares as to which such Option had been
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exercisable, and (ii) unless otherwise provided by the Plan Administrator,
the number of shares of Common Stock, other securities or consideration to be
received with respect to unvested Performance Shares shall continue to be
subject to the Award Agreement, including any vesting provisions thereof.
(d) If the Company is about to be merged into or consolidated with
another corporation or other entity under circumstances where the Company is
not the surviving corporation, or if the Company is about to sell or otherwise
dispose of substantially all of its assets to another corporation or other
entity while unvested Performance Shares or unexercised Options remain
outstanding, then the Plan Administrator may direct that any of the following
shall occur:
(i) If the successor entity is willing to assume the obligation to
deliver shares of stock or other securities after the effective date of the
merger, consolidation or sale of assets, as the case may be, each holder of an
outstanding Option shall be entitled to receive, upon the exercise of such
Option and payment of the Option Price, in lieu of shares of Common Stock,
such shares of stock or other securities as the holder of such Option would
have been entitled to receive had such Option been exercised immediately prior
to the consummation of such merger, consolidation or sale, and the terms of
such Option shall apply as nearly as practicable to the shares of stock or
other securities purchasable upon exercise of the Option following such
merger, consolidation or sale of assets;
(ii) The Plan Administrator may waive any limitations set forth in or
imposed pursuant to this Plan or any Award Agreement with respect to such
Option or Performance Share such that (A) such Option shall become exercisable
prior to the record or effective date of such merger, consolidation or sale of
assets or (B) the vesting of such Performance Share shall occur upon such
merger, consolidation or sale of assets; and/or
(iii) The Plan Administrator may cancel all outstanding Options as of
the effective date of any such merger, consolidation or sale of assets,
provided that prior notice of such cancellation shall be given to each holder
of an Option at least 30 days prior to the effective date of such merger,
consolidation or sale of assets, and each holder of an Option shall have the
right to exercise such Option in full during a period of not less than 30 days
prior to the effective date of such merger, consolidation or sale of assets.
(e) Except as herein provided, the issuance by the Company of Common
Stock or any other shares of capital stock or securities convertible into
shares of capital stock, for cash, property, labor done or other consideration,
shall not affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock then subject to
outstanding Options.
Section 4.12. Amendment of the Plan. The Board of Directors may, without
further approval by the stockholders and without receiving further
consideration from the participants, amend this Plan or condition or modify
Awards under this Plan.
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
applicable SEC Form and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 13237
<SECURITIES> 0
<RECEIVABLES> 3156
<ALLOWANCES> 0
<INVENTORY> 1331
<CURRENT-ASSETS> 19298
<PP&E> 19557
<DEPRECIATION> 12494
<TOTAL-ASSETS> 29546
<CURRENT-LIABILITIES> 1969
<BONDS> 0
0
0
<COMMON> 9573
<OTHER-SE> 17337
<TOTAL-LIABILITY-AND-EQUITY> 29546
<SALES> 4602
<TOTAL-REVENUES> 4602
<CGS> 2897
<TOTAL-COSTS> 2897
<OTHER-EXPENSES> 1778
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (224)
<INCOME-PRETAX> 151
<INCOME-TAX> 105
<INCOME-CONTINUING> 46
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46
<EPS-BASIC> .01
<EPS-DILUTED> .01
</TABLE>
