<PAGE>
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 January 31, 1995
-------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to _________
Commission File Number 1-8342
----------
PICO PRODUCTS, INC.
- - -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW YORK 15-0624701
- - ---------------------------------- ---------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12500 Foothill Blvd.
Lakeview Terrace, California 91342
- - --------------------------------------- ---------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 897-0028
---------------
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
requirement for the past 90 days.
YES X NO
-------- --------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of March 3, 1995.
Common Stock, $0.01 par value 3,637,046
- - ------------------------------ ------------------
Class Number of Shares
This report consists of 26 pages.
<PAGE>
PICO PRODUCTS, INC.
INDEX
-----
Page No.
---------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
January 31, 1995 and July 31, 1994 3-4
Condensed Consolidated Statements
of Income - Three and Six Months
Ended January 31, 1995 and 1994 5
Condensed Consolidated Statements
of Cash Flows - Six Months Ended
January 31, 1995 and 1994 6
Notes to Condensed Consolidated Financial
Statements 7-10
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial
Condition 11-13
PART II OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security
Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PICO PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
January 31, July 31,
ASSETS 1995 1994
------------ ----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 289,623 $ 441,609
Accounts receivable (less allowance
for doubtful accounts: January 31,
1995, $360,000; July 31, 1994,
$295,000) 4,962,357 4,417,712
Inventories (Note 2) 7,063,132 7,170,944
Prepaid expenses and other current
assets 98,137 381,242
----------- ------------
Total Current Assets 12,413,249 12,411,507
Property, Plant and Equipment:
Buildings 217,255 217,255
Leasehold improvements 313,244 308,310
Machinery and equipment 3,170,524 3,043,880
----------- ------------
3,701,023 3,569,445
Less accumulated depreciation 2,870,711 2,774,336
----------- ------------
830,312 795,109
Other Assets:
Patents and licenses (less accumulated
amortization: January 31, 1995,
$53,226; July 31, 1994, $1,170,757)
(Note 6) 167,984 241,407
Excess of cost over net assets of
businesses acquired (less accumulated
amortization: January 31, 1995,
$323,370; July 31, 1994, $308,850) 254,065 268,585
Deposits and other miscellaneous assets 118,274 136,405
----------- ------------
540,323 646,397
----------- ------------
$13,783,884 $13,853,013
----------- -----------
----------- -----------
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
PICO PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(continued)
(Unaudited)
<TABLE>
<CAPTION>
January 31, July 31,
1995 1994
------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Notes payable $ 5,260,767 $ 5,787,282
Accounts payable 2,336,050 1,886,757
Accrued expenses:
Legal and accounting 66,023 201,051
Payroll and payroll taxes 394,236 619,018
Other accrued expenses 263,801 261,214
Other liabilities (Note 5) 457,817 403,699
Current portion of long-term debt 109,822 101,547
------------ ------------
Total Current Liabilities 8,888,516 9,260,568
Long-Term Debt 585,734 631,654
Commitments and Contingencies (Note 5) - -
Shareholders' Equity:
Preferred shares, $.01 par value;
authorized 500,000 shares;
no shares issued - -
Common shares, $.01 par value;
authorized 15,000,000 shares;
issued and outstanding 3,637,046
shares at January 31, 1995 and
3,632,046 at July 31, 1994 36,370 36,320
Additional paid-in capital 21,565,255 21,561,555
Accumulated deficit (17,202,766) (17,535,970)
Cumulative translation adjustment (89,225) (101,114)
------------ ------------
Total Shareholders' Equity 4,309,634 3,960,791
------------ ------------
$13,783,884 $13,853,013
----------- -----------
----------- -----------
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
PICO PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended January 31, Ended January 31,
------------------------- --------------------------
1995 1994 1995 1994
------------------------- --------------------------
<S> <C> <C> <C> <C>
Sales $8,007,041 $7,183,306 $16,098,943 $14,946,221
Cost of sales 6,077,534 5,441,358 12,253,806 11,565,516
Selling and
administrative
expenses 1,744,164 1,528,429 3,453,869 2,942,145
---------- ---------- ---------- -----------
Income from operations 185,343 213,519 391,268 438,560
Other income
(Notes 3, 6) 121,077 129,401 250,899 283,996
Interest expense (156,120) (130,414) (308,963) (257,572)
----------- ---------- ---------- --------
Net income $ 150,300 $ 212,506 $ 333,204 $ 464,984
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income per common
and common
equivalent share:
Primary $ 0.04 $ 0.05 $ 0.08 $ 0.11
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Fully diluted $ 0.04 $ 0.05 $ 0.08 $ 0.11
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average common
and equivalent
shares outstanding:
Primary 4,220,171 4,368,646 4,275,765 4,270,944
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Fully diluted 4,220,171 4,368,646 4,275,765 4,336,704
---------- ---------- --------- ----------
---------- ---------- --------- ----------
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
PICO PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
January 31,
------------------------
1995 1994
---------- ----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 333,204 $ 464,984
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 218,253 263,570
Changes in operating assets
and liabilities 2,802 (241,806)
--------- ----------
Net cash provided by operating
activities 554,259 486,748
--------- ---------
Cash Flows From Investing Activities:
Capital expenditures (145,085) (17,288)
---------- ----------
Cash Flows From Financing Activities:
Net payments under a line of credit
agreement (526,515) (265,437)
Principal payments on long-term debt (37,645) (489,434)
Change in restricted cash - 209,993
Proceeds from exercise of stock options 3,000 34,000
---------- ----------
Net cash used by financing activities (561,160) (510,878)
---------- ----------
Net decrease in cash and cash equivalents (151,986) (41,418)
Cash and cash equivalents at
beginning of period 441,609 209,415
----------- -----------
Cash and cash equivalents at
end of period $ 289,623 $ 167,997
---------- -----------
---------- -----------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 303,329 $ 256,515
Income taxes - -
</TABLE>
The Company financed its new management information system, totaling
$247,561, during the fiscal quarter ended October 31, 1993.
See notes to condensed consolidated financial statements.
<PAGE>
PICO PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) GENERAL
The Company's primary industry is the manufacturing and distribution of
equipment and parts for the cable television (CATV) and satellite master antenna
television (SMATV) markets. The accompanying unaudited condensed consolidated
financial statements include all adjustments which are, in the opinion of the
Company's management, necessary to present fairly the Company's financial
position as of January 31, 1995, and the results of its operations and its cash
flows for the three and six month periods ended January 31, 1995 and 1994. All
significant intercompany accounts and transactions have been eliminated. All
such adjustments are of a normal recurring nature.
The Company has made certain reclassifications to the condensed consolidated
financial statements for the three and six month periods ended January 31, 1994
to conform with classifications used in the condensed consolidated financial
statements for the three and six month periods ended January 31, 1995.
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 the rules and regulations of the
Securities and Exchange Commission. These condensed consolidated financial
statements should be read in conjunction with the financial statements and
related notes contained in the Company's Annual Report on Form 10-K for the
fiscal year ended July 31, 1994.
The results of operations for the interim periods shown in this Report are not
necessarily indicative of the results to be expected for the fiscal year.
(2) INVENTORIES
The composition of inventories was as follows:
<TABLE>
<CAPTION>
January 31, July 31,
1995 1994
----------- -----------
<S> <C> <C>
Raw materials $ 2,338,395 $ 2,229,884
Work in process 152,662 86,551
Finished goods 4,572,075 4,854,509
----------- -----------
$ 7,063,132 $ 7,170,944
----------- -----------
----------- -----------
</TABLE>
<PAGE>
(3) OTHER INCOME
Other income consisted of the following:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
January 31, January 31,
----------------------- -----------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Royalty income $114,854 $124,198 $239,141 $275,498
Interest income 6,223 5,203 11,758 8,498
---------- ---------- ---------- ----------
$121,077 $129,401 $250,899 $283,996
---------- ---------- ----------- ----------
---------- ---------- ---------- -----------
</TABLE>
(4) INCOME TAXES
Neither U.S. nor foreign income taxes have been provided for the three and six
month periods ended January 31, 1995 and 1994 due to the Company's U.S. Federal
and State net operating loss carryforward positions and tax holidays granted the
Company's foreign subsidiaries.
(5) LITIGATION AND CONTINGENCIES
In November 1991, Arrow Communication Laboratories, Inc. (Arcom) of Syracuse,
New York initiated a lawsuit in the Supreme Court in the County of Onondaga,
New York. The suit, which was amended in June 1992, alleges that Arcom has a
paid-up license with respect to the Company's patent for positive trapping
systems, that Arcom is entitled to unspecified damages based on overpayment of
royalty amounts, and that Arcom has incurred damages in excess of $250,000 as
a result of a Company press release announcing termination of the license
agreement. The suit also asserts that Arcom is entitled to punitive damages of
$3,000,000. The Company responded by denying all liability and asserting
certain common law and statutory defenses.
In December 1993, in response to a summary judgment motion filed by the Company,
the New York State Court rejected Arcom's claim that it had a paid-up license.
Instead, the Court held that when Arcom "defaulted in making royalty payments
on or about November 15, 1991, the license terminated by its own terms 30
days later as asserted by the Company in its termination letter dated January
13, 1992." Following the New York State Court's summary judgment decision, the
Company initiated a patent infringement lawsuit against Arcom in the United
States District Court for the Northern District of New York. In its suit,
the Company asked the Federal Court to award it treble damages for willful
infringement plus attorney's fees. The Company also filed a motion for a
preliminary injunction against further infringement by Arcom. At a court
hearing on February 15, 1994, the parties agreed, and it was ordered by the
Court, that Arcom would post as security amounts equal to the royalties due to
the Company for the manufacture and sale of product covered by the license
agreement from December 15, 1991, the
<PAGE>
date that the license would have terminated, until the expiration of the patent
in February 1995. Through February 28, 1995 Arcom has made cash
payments of $449,817 covering royalties through December 31, 1994, and an
estimate of $8,000 has been recorded for royalties for the month of January
1995. The Company has not included these amounts in income in any fiscal period
but has recorded a current liability for $457,817 at January 31, 1995. In
addition, Arcom posted an irrevocable letter of credit in an amount deemed
sufficient to permit recovery of a significant portion of the Company's damages
if it were to prevail on its willful infringement claim. In exchange, the
Company withdrew its request for a preliminary injunction. In the event that
the Company does not prevail on its infringement claims, the Company has agreed
to refund all security payments made by Arcom.
In July 1994, the Appellate Division, Fourth Department of the New York Supreme
Court ruled that parts of the license agreement relating to Arcom's paid-up
license claims involve questions of fact that must be resolved at trial.
Management anticipates that a trial will be scheduled in the fall of 1995.
Management believes that the outcome of this matter will not have a material
adverse effect on the Company's consolidated financial statements.
On March 6, 1995, a subsidiary of the Company received a Joint Request for
Information (the "Information Request") from the United States Environmental
Protection Agency, Region II (the "EPA"), under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), with
respect to the release and/or threatened release of hazardous substances,
hazardous wastes, pollutants or contaminants into the environment at the
Onondaga Lake Site, Syracuse, Onondaga County, New York. The Company has
learned that the EPA added the Onondaga Lake Site to the Superfund National
Priorities List on December 6, 1994, and has completed an onsite assessment of
the degree of hazard. The EPA has indicated that the Company is only one of 26
companies located in the vicinity of Onondaga Lake or its tributaries that
have received a similar Information Request.
The Company believes that the Information Request relates to the activities of
the Company's Printed Circuit Board Division, which was sold to a third party in
1992, and which conducted operations within the specified area. Under the
Agreement of Sale with the buyer, the Company retained liability for
environmental obligations which occurred prior to the sale.
The Company intends to comply with the Information Request and to investigate
the extent of any potential liability. However, because it appears that the EPA
has not completed any feasibility study or remediation assessment, the Company
is not in a position to estimate its potential liability. In addition, the
Company is unable to state whether any liability would be shared with others.
The Company is involved, from time to time, in certain other legal actions
arising in the normal course of business. Management believes that the outcome
of other litigation will not have material adverse affect on the Company's
consolidated financial statements.
<PAGE>
(6) PATENT EXPIRATION
On February 14, 1995, the Company's patent for positive trapping systems
expired. As of January 31, 1995, the Company has fully amortized the cost of
this patent and has written off the patent's cost and accumulated amortization
from its books and records. Royalty income from license holders of the
Company's patent totaled $239,141 and $114,854 for the six and three month
periods ended January 31, 1995. Royalty income in future fiscal periods will
end once the royalties earned through the patent's expiration date have been
received.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
The following discussion compares the operations of the Company for the three
and six month periods ended January 31, 1995 with the operations for the three
and six month periods ended January 31, 1994, as shown by the unaudited
condensed consolidated statements of income included in this quarterly report.
RESULTS OF OPERATIONS
Sales increased by approximately $1,153,000, or 8%, for the six months ended
January 31, 1995 compared with the six months ended January 31, 1994, and sales
increased by approximately $824,000, or 12%, for the fiscal quarter ended
January 31, 1995 compared to the same period in the previous fiscal year. The
Company's Pico Macom subsidiary recorded sales increases of approximately 12%
and 15%, respectively, for the six and three month periods ended January 31,
1995 compared to the same periods in the previous fiscal year. These increases
reflect a continued strong demand for Satellite Master Antenna Television
(SMATV) equipment and products both internationally and domestically. The
Company's CATV division recorded sales decreases of approximately 15% and 11%,
respectively, for the six and three month periods ended January 31, 1995
compared to the same periods in the previous fiscal year. These decreases were
primarily due to the purchasing reductions by U.S. cable TV system operators as
a result of subscriber fee reductions mandated by the U.S. Federal
Communications Commission. Management anticipates that the Company's sales
growth will continue during the second half of fiscal year 1995 compared to the
second half of fiscal year 1994 due to new product introductions and increased
sales to customers in the Far East.
Cost of sales increased by approximately $688,000, or 6%, for the six months
ended January 31, 1995 compared with the six months ended January 31, 1994, and
cost of sales increased by $636,000, or 12%, for the fiscal quarter ended
January 31, 1995 compared with the same fiscal quarter in the previous year.
Cost of sales as a percentage of sales decreased by 1% (from 77% to 76%) for the
six months ended January 31, 1995 compared with the six months ended January 31,
1994, and cost of sales as a percentage of sales remained unchanged at 76% for
the fiscal quarter ended January 31, 1995 compared with the same fiscal quarter
in the previous year. The dollar increases in cost of sales for the three and
six month periods were primarily attributable to the increase in sales volume.
The decrease in cost of sales as a percentage of sales for the six month period
was primarily due to a change in product mix between Pico Macom and the CATV
Division.
Selling and administrative expenses increased by approximately $512,000, or 17%,
for the six months ended January 31, 1995 compared to the six months ended
January 31, 1994, and increased by approximately $216,000, or 14%, for the
fiscal quarter ended January 31, 1995 compared to the
<PAGE>
same fiscal quarter of the previous year. The primary reasons for the increases
were increased investment in product development and expenditures related to
development of new markets in Asia, and the opening of a new Asia regional
office in Hong Kong. Management anticipates that this current level of selling
and administrative expenses will continue throughout the second half of fiscal
year 1995.
Other income decreased by approximately $33,000, or 12%, for the six months
ended January 31, 1995 compared to the six months ended January 31, 1994, and
other income decreased by approximately $8,000, or 6%, for the fiscal quarter
ended January 31, 1995 compared to the same fiscal quarter in the previous year.
The decreases in other income for both the six and three month periods primarily
related to decreases in royalty payments due to reduced sales volume by license
holders of the Company's patent for positive trapping systems. This patent
expired in February, 1995, and thus royalty income will decrease in fiscal year
1995 compared to fiscal year 1994.
Interest expense increased by approximately $51,000, or 20% for the six months
ended January 31, 1995 compared with the six months ended January 31, 1994, and
interest expense increased by $26,000, or 20%, for the fiscal quarter ended
January 31, 1995 compared with the fiscal quarter ended January 31, 1994. The
increase was primarily due to higher borrowing levels on the Company's bank line
of credit to support the Company's working capital requirements, and due to
several increases in the prime rate during the six months ended January 31,
1995.
The Company's effective income tax rate for the three and six month periods
ended January 31, 1995 and 1994 was 0%, due to U.S. federal and state income tax
net operating loss carryforwards for the Company's U.S. operations and tax
exemptions from foreign taxes.
LIQUIDITY AND CAPITAL RESOURCES
As of January 31, 1995, the Company had working capital of approximately
$3,525,000 and a ratio of current assets to current liabilities of approximately
1.40:1, compared with working capital of approximately $3,151,000 and a ratio of
1.34:1 as of July 31, 1994. During the six months ended January 31, 1995, the
Company recorded positive cash flow from operating activities primarily due to
profitable operations.
During the six months ended January 31, 1995 and 1994, cash used for capital
expenditures was approximately $145,000 and $17,000, respectively. During the
first half of fiscal year 1994, the Company financed approximately $250,000 for
the acquisition of a new management information system.
At January 31, 1995, Pico Macom had a $10,000,000 revolving bank line of credit
which provides for interest at the prime rate (8.5% at January 31, 1995) plus
1.25%. The bank line of credit is used to fund operating expenses, product
purchases, and letters of credit for import purchases. The line is structured as
a $10,000,000 line of credit with a sublimit of $1,500,000 for outstanding
letters of credit. The amount available is based on various percentages of
eligible accounts receivable and
<PAGE>
inventories as defined in the agreement, which expires on May 25, 1996. The
credit facility is subject to certain financial tests and covenants. At January
31, 1995, Pico Macom had approximately $5,261,000 in revolving loans and
approximately $71,000 in letters of credit outstanding, and the unused portion
of the borrowing base was approximately $1,580,000.
Despite the expiration of the Company's patent for positive trapping systems in
February 1995, management believes that continued profitable operations along
with the current credit arrangements will provide sufficient cash to fund the
Company's operational needs for the balance of the fiscal year 1995. Should the
Company identify opportunities that require cash beyond that generated
internally or available from its credit line, the Company would seek to increase
its current credit line. Alternatively, the Company would consider seeking other
sources of cash, including, but not limited to, a public offering or a private
placement.
Profitability of operations is subject to various uncertainties including
general economic conditions, favorable settlement of ongoing litigation and the
actions of actual or potential competitors and customers. The Company's future
depends on the growth of the cable TV market in the U.S. and internationally.
In the U.S., a number of factors could affect the future profitability of the
Company, including changes in the regulatory climate for cable TV, changes in
the competitive structure of the cable and telecommunications industries or
changes in the technology base of the industry. Internationally, the
Company's profitability depends on its ability to penetrate new markets in
the face of competition from other U.S. and foreign companies.
<PAGE>
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
Incorporated by reference from financial statement footnote number 5 of Part I.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On December 15, 1994, the Company held its 1994 annual meeting of stockholders.
Management's nominees for director were elected by the following votes: Charles
G. Emley, Jr. 2,840,815 (19,750 withheld); Everett T. Keech, 2,836,315 (24,250
withheld); George M. Knapp, 2,838,215 (22,350 withheld); E.B. Leisenring, Jr.
2,839,515 (21,050 withheld); William W. Mauritz, 2,840,515 (20,050 withheld);
Peter J. Moerbeek, 2,843,815 (16,750 withheld); J. Michael Sills, 2,843,715
(16,850 withheld). Management's proposal to ratify the appointment of Deloitte
and Touche LLP as the Company's independent accountants for the fiscal year
ending July 31, 1995, was approved by the following vote: 2,847,765 for; 5,550
against; and 7,250 abstentions.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
10(M) Employment Agreement between Pico Products, Inc. and
Joseph T. Kingsley, dated January 1, 1995.
11.1 Computation of Per Share Earnings.
27 Financial Data Schedule (included only in the EDGAR
filing).
(b) Reports on Form 8-K:
None.
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.
PICO PRODUCTS, INC.
REGISTRANT
DATE: March 13, 1995 Joseph T. Kingsley
--------------------------------
Senior Vice President of Finance
Chief Financial Officer
<PAGE>
FORM 10-Q
QUARTER ENDED JANUARY 31, 1995
EXHIBITS
10(M) Employment Agreement between Pico Products, Inc. and Joseph T.
Kingsley, dated January 1, 1995. (10 pages)
11.1 Computation of Per Share Earnings
27 Financial Data Schedule (included only in the EDGAR
filing).
<PAGE>
Exhibit 10(M)
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement") dated as of January 1, 1995,
between PICO PRODUCTS, INC., a New York corporation ("Employer"), and JOSEPH T.
KINGSLEY ("Employee").
BACKGROUND. Employee is currently employed by Employer as its Senior
Vice President - Finance and Chief Financial Officer. Employer and Employee
mutually agree to continue the employment of Employee as Senior Vice President -
Finance and Chief Financial Officer upon the terms and conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements hereinafter set forth, the parties hereto, intending to
be legally bound hereby, agree as follows:
EMPLOYMENT. Employer hereby employs Employee, and Employee hereby
accepts such employment and agrees to perform his duties and responsibilities
hereunder, in accordance with the terms and conditions hereinafter set forth.
1.1 EMPLOYMENT TERM. The employment term of this Agreement shall be
for a period of one year (the "Employment Term"). The initial Employment Term
shall commence on the date hereof and shall continue until and end on the first
anniversary date of this Agreement, unless terminated prior thereto in
accordance with Section 7 hereof.
1.2 RENEWAL. This Agreement shall be automatically renewed for
successive one year terms at the expiration of each Employment Term unless
written notice to the contrary is provided by either the Employer or the
Employee at least sixty days prior to the expiration of such Employment Term.
1.3 DUTIES AND RESPONSIBILITIES.
(a) During the Employment Term, Employee shall serve as Senior
Vice President - Finance and Chief Financial Officer of Employer and shall
perform all duties and accept all responsibilities incidental to such position
or as may be assigned to him by Employer's Board of Directors, and he shall
cooperate fully with the Board of Directors and other executive officers of the
Employer.
(b) Notwithstanding the provisions of Section 1.3(a) hereof,
Employer's Board of Directors may alter the titles, duties and responsibilities
of Employee as long as Employee is retained in an executive capacity with
Employer.
(c) Employee represents and covenants to Employer that he is
subject to or a party to only those employment agreements, non-competition
covenants, and non-disclosure agreements listed on Exhibit "A" hereto. Employee
represents and covenants to Employer that neither those documents nor any
<PAGE>
other similar agreement, covenant, understanding or restriction to which
Employee is subject would prohibit Employee from executing this Agreement and
performing his duties and responsibilities hereunder, or would in
any manner, directly or indirectly, limit or affect the duties and
responsibilities which may now or in the future be assigned to Employee by
Employer.
1.4 EXTENT OF SERVICE. During the Employment Term, Employee agrees
to use his best efforts to carry out his duties and responsibilities under
Section 1.3 hereof and to devote his full time, attention and energy thereto.
The foregoing shall not be construed as preventing Employee from making
investments in other businesses or enterprises provided that Employee agrees not
to become engaged in any other business activity which may interfere with his
ability to discharge his duties and responsibilities to Employer. Employee
further agrees not to work either on a part time or independent contracting
basis for any other business or enterprise during the Employment Term without
the prior written consent of the Board of Directors of Employer.
1.5 BASE COMPENSATION. For all the services rendered by Employee
hereunder, Employer shall pay Employee an annual salary at the rate of $105,000
for the one-year Employment Term, plus such additional amounts, if any, as may
be approved by the Employer's Board of Directors, less withholding required by
law or agreed to by Employee, payable in installments at such times as Employer
customarily pays its other executive officers.
1.6 BENEFITS.
(a) During the Employment Term, Employee shall be entitled to
fifteen working days of paid vacation during the Employment Term in accordance
with Employer's then existing vacation policy.
(b) Employee shall be entitled to all normal and usual benefits
provided by Employer to its employees, including, but not limited to,
participation in profit sharing, disability, health, dental, hospitalization and
retirement plans and such other benefits as the Board of Directors of Employer
may from time to time determine based upon the benefits paid to other officers
of Employer.
1.7 CHANGE IN CONTROL.
(a) For purposes of this paragraph 1.7, "Change in Control"
shall mean (i) a merger or consolidation of Employer, with any entity other than
an entity with which Employer is affiliated at the date of execution of this
Agreement; (ii) a sale of substantially all of the assets of Employer to any
person or entity other than a person or entity with which Employer is affiliated
at the date of execution of this Agreement; or (iii) individuals who were
members of the Board of Directors of Employer on the date of execution of this
Agreement no longer constitute a majority of Employer's Board of Directors.
<PAGE>
(b) In the event of a Change in Control, Employee may elect to
terminate this Agreement for Good Cause. For purposes of this Agreement, "Good
Cause" shall mean:
(i) the assignment to Employee of any duties inconsistent
with his positions, duties, responsibilities and status with Employer as in
effect immediately prior to such Change in Control;
(ii) a change in Employee's reporting responsibilities,
titles or offices as in effect immediately prior to such Change in Control;
(iii) a reduction in Employee's base salary as in effect
immediately prior to such Change in Control; or
(iv) a relocation of Employee's office to a city other
than the city where Employee was based immediately prior to such Change in
Control.
(c) Employee shall provide written notice to Employer of his
election to terminate this Agreement for Good Cause, and shall specify in such
written notice the date upon which this Agreement shall terminate.
(d) If Employee terminates this Agreement following a Change in
Control for any reason other than Good Cause, Employer shall pay Employee his
base salary through the effective date of termination.
(e) If Employee elects to terminate this Agreement for Good
Cause:
(i) Employer shall pay Employee, as severance compensation,
an amount equal to twelve times Employee's base monthly cash compensation. Such
severance compensation shall be paid in twelve equal monthly installments,
commencing thirty days after the date of termination of this Agreement; and
(ii) Employer shall continue to provide Employee with all
health, dental, hospitalization and disability benefits which Employee received
pursuant to Section 1.6(b) hereof, for a period of twelve months following the
termination of this Agreement.
1.8 SEVERANCE COMPENSATION. If Employer terminates this Agreement,
other than pursuant to Section 7 hereof:
(a) Employer shall pay Employee an amount equal to twelve times
Employee's base monthly cash compensation. Such severance compensation shall be
payable in twelve equal monthly installments, commencing thirty days after the
date of termination of this Agreement; and
<PAGE>
(b) Employer shall continue to provide Employee with all health,
dental, hospitalization and disability benefits which Employee received pursuant
to Section 1.6(b) hereof, for a period of twelve months following the
termination of this Agreement.
EXPENSES. Employee shall be reimbursed for the reasonable business
expenses incurred by him in connection with his performance of services
hereunder during the Employment Term upon presentation of an itemized account
and written proof of such expenses.
3. DEVELOPMENTS. Employee will disclose promptly in writing to Employer
all inventions, ideas, discoveries, and improvements, whether or not patentable,
conceived by Employee during the period of Employee's employment with Employer,
or a parent or subsidiary thereof, whether alone or with others, and whether or
not during regular business hours, or on Employer premises or with the aid of
Employer materials, which pertain in any way to Employee's work with Employer or
to any business activity which is or at the time of such conception may be
carried on by Employer or a parent or subsidiary thereof. All such inventions,
ideas, discoveries, and improvements are the property of Employer to which
Employee hereby assigns and transfers forever all Employee's rights, titles and
interests.
Employee, upon request by Employer and at Employer's sole expense,
will prepare and execute applications for patents for such inventions, ideas,
discoveries, and improvements, both in the United States and in foreign
countries, and will do everything necessary to ensure the issuance of such
patents, irrespective of whether required to be done during or after the
termination of Employee's period of employment with Employer.
Any inventions, ideas, discoveries, and improvements conceived or made
by Employee prior to the execution of this Agreement and not intended to be
included within its provisions are listed or described on Exhibit "B" attached
to this Agreement, and the absence of any such list or description indicates
that there are no inventions, ideas, discoveries, or improvements not covered by
this Agreement.
Employee has read the attached provisions of California law (Chapter
2, Div. 3 Labor Code Sec. 1 Art. 3.5, Sections 2870, 2871 and 2872) and
understands that under its provisions Employee may retain ownership of certain
inventions that Employee may make during the term of employment. Such
inventions shall not be subject to the terms of this Agreement. Any such
inventions which Employee desires to retain as Employee's property will be
reported and disclosed to the Employer with the understanding, however, that the
Employer may require Employee to disclose such information about such
inventions, as in Employer's opinion is necessary to enable it to determine if
the invention qualifies under this law for retention as Employee's property. It
is further understood that information disclosed by Employee will be held in
confidence by Employer. However, Employer need not treat any such disclosed
information as confidential if it has previously been known to it, or if at the
time of Employee's disclosure or thereafter it is disclosed in patents or other
publications, imparted to it by other parties having lawful possession of the
same, or is well known to the trade to which it relates.
<PAGE>
4. TRADE SECRETS. The Employee agrees that he will not at any time,
either during or subsequent to the Employment Term, unless given express consent
in writing by the Employer, either directly or indirectly use or communicate to
any person or entity any confidential information of any kind concerning matters
affecting or relating to the names, addresses, buying habits or practices of any
of Employer's clients or customers; Employer's marketing methods, programs,
formulas, patterns, compilations, devices, methods, techniques or processes and
related data; the amount of compensation paid by Employer to employees and
independent contractors and other terms of their employment or contractual
relationships; other information concerning Employer's manner of operations.
The Employee agrees that the above information and items are important, material
and confidential trade secrets and that they affect the successful conduct of
the Employer's business and its good will. The Employee agrees that all
business procured by the Employee while employed by the Employer is and shall
remain the permanent and exclusive property of the Employer. Employee further
agrees that Employer's relationship with each of its employees and independent
contractors is a significant and
valuable asset of the Employer. Any interference with the Employer's business,
property, confidential information, trade secrets, clients, customers, employees
or independent contractors by the Employee or any of Employee's agents during or
after the term of this Agreement shall be deemed a material breach of this
Agreement.
5. NONSOLICITATION. The Employee hereby acknowledges and agrees that he
is likely to be exposed to a significant amount of confidential information
concerning the Employer's business methods, operations, employment relationships
and customers while employed under this Agreement, that such information might
be retained by Employee in tangible form or simply retained in the Employee's
memory, and that the protection of the Employer's exclusive rights to such
confidential information and the benefits flowing from it can best be ensured by
means of a restriction on the Employee's activities after termination of
employment. Therefore, the Employee agrees that for the one-year period
following termination of employment (whether with or without cause) he shall not
solicit, divert or initiate (or attempt to solicit, divert or initiate) any
contact with any customer, client or vendor of the Employer for any commercial
or business reason whatsoever. The Employee also agrees that for such period he
will not directly or indirectly solicit the employment of any employee of the
Employer and will not attempt to persuade any employee to leave the employment
of the Employer.
6. EQUITABLE RELIEF.
(a) Employee acknowledges that the restrictions contained in Sections
4 and 5 hereof are reasonable and necessary to protect the legitimate interests
of Employer and that any violation of such restrictions would result in
irreparable injury to Employer. If the period of time or other restrictions
specified in Sections 4 and 5 should be adjudged unreasonable at any proceeding,
then the period of time or such other restrictions shall be reduced by the
elimination or reduction of such portion thereof so that such restrictions may
be enforced in a manner adjudged to be reasonable. Employee acknowledges that
Employer shall be entitled to preliminary and permanent injunctive relief for a
violation of any such restrictions without having to prove actual damages or to
post a bond; Employer shall also be entitled to an equitable accounting of all
earnings, profits and other benefits arising from such violation, which rights
shall be cumulative and in addition to any other rights or remedies to which
Employer may be entitled in law or equity. In the event of a violation,
<PAGE>
the period referred to in Section 5 hereof shall be extended by a period of time
equal to that period beginning with the commencement of any such violation and
ending when such violation shall have been finally terminated in good faith.
(b) Employee agrees that until the expiration of the covenants
contained in Sections 4 and 5 of this Agreement, he will provide, and that
Employer may similarly provide, a copy of the covenants contained in such
Sections to any business or enterprise (i) which he may directly or indirectly
own, manage, operate, finance, join, control or participate in the ownership,
management, operation, financing, control or control of, or (ii) with which he
may be connected with as an officer, director, employee, partner, principal,
agent, representative, consultant or otherwise, or in connection with which he
may use or permit his name to be used.
7. TERMINATION. This Agreement shall terminate prior to the expiration
of the term set forth in Section 1.1 above upon the occurrence of any one of the
following events:
7.1 DISABILITY. In the event that Employee is unable fully to
perform his duties and responsibilities hereunder to the full extent required by
the Board of Directors of the Employer by reason of illness, injury or
incapacity for four consecutive months, during which time he shall continue to
be compensated as provided in Section 1.5 hereof (less any payments due Employee
under disability benefit programs, including Social Security disability,
workers' compensation and disability retirement benefits), this Agreement may be
terminated by Employer, and Employer shall have no further liability or
obligation to Employee for compensation hereunder; provided, however, that
Employee will be entitled to receive the payments prescribed under any
disability benefit plan which may be in effect for employees of Employer and in
which he participated. Employee agrees, in the event of any dispute under this
Section 7.1, to submit to a physical examination by a licensed physician
selected by the Board of Directors of Employer.
7.2 DEATH. In the event that Employee dies during the Employment
Term, Employer shall pay to his executors, legal representatives or
administrators an amount equal to the installment of his salary set forth in
Section 1.5 hereof for the month in which he dies, and thereafter Employer shall
have no further liability or obligation hereunder to his executors, legal
representatives, administrators, heirs or assigns or any other person claiming
under or through him; provided, however, that Employee's estate or designated
beneficiaries shall be entitled to receive the payments prescribed for such
recipients under any death benefit plan which may be in effect for employees of
the Employer and in which Employee participated.
7.3 CAUSE. Notwithstanding any other provision hereof, Employer may
terminate this Agreement at any time for "cause." For purposes of this
Agreement, "cause" shall include, but not be limited to, the failure of Employee
to perform or observe any of the terms or provisions of this Agreement,
dishonesty, misconduct, conviction of a crime involving moral turpitude,
habitual insobriety, misappropriation of funds, disparagement of the Employer,
its management or its employees or financial inability of the Employer to
continue to do business. The Employer's liability, if any, for payment to
Employee as a consequence of termination of Employee's employment pursuant to
this Agreement shall be reduced by and to the extent of any
<PAGE>
earnings received by or accrued for the benefit of Employee during any unexpired
part of the Employment Term.
8. SURVIVAL. Notwithstanding the termination of this Agreement by reason
of Employee's disability under Section 7.1 or for cause under Section 7.3, his
obligations under Sections 4 and 5 hereof shall survive and remain in full force
and effect for the periods therein provided, and the provisions for equitable
relief against Employee in Section 6 hereof shall continue in force.
9. GOVERNING LAW. This Agreement shall be governed by and interpreted
under the laws of the State of California.
10. DISPUTES AND ARBITRATION. Any disputes arising hereunder, including
disputes arising from or relating to termination, shall be resolved by binding
arbitration. Notice of the demand for arbitration by either party shall be
given in writing to the other party to this Agreement. Upon such demand, the
dispute shall be settled by arbitration before a single arbitrator pursuant to
the rules of the American Arbitration Association (the "AAA"). Discovery shall
be permitted prior to arbitration and California law shall be applied. The
arbitrator shall be selected by the joint agreement of the parties, but if the
parties do not so agree within twenty days after the date of the notice referred
to above, the selection shall be made pursuant to the rules of, and from the
panels of arbitrators maintained by the AAA. Any award rendered by the
arbitrator shall be conclusive and
binding upon the parties hereto; provided, however, that any such award shall be
accompanied by written opinion of the arbitrator giving the reasons for the
award. Each party shall pay its own expenses of arbitration and the expenses of
the arbitrator shall be equally shared by the parties. Nothing herein shall
prevent the parties from settling any dispute by mutual agreement at any time.
11. NOTICES. All notices and other communications required or permitted
hereunder or necessary or convenient in connection herewith shall be in writing
and shall be deemed to have been given when hand delivered or mailed by
registered or certified mail, as follows (provided that notice of change of
address shall be deemed given only when received):
If to Employer, to: Pico Macom, Inc.
12500 Foothill Boulevard
Lakeview Terrace, CA 91342
With a required copy to: Spencer W. Franck, Jr., Esquire
Saul, Ewing, Remick & Saul
3800 Centre Square West
Philadelphia, PA 19102
<PAGE>
If to Employee, to: Mr. Joseph T. Kingsley
4154 La Venta Drive
Westlake Village, CA 91361
or to such other names or addresses as Employer or Employee, as the case may be,
shall designate by notice to each other person entitled to receive notices in
the manner specified in this Section.
12. CONTENTS OF AGREEMENT; AMENDMENT AND ASSIGNMENT.
(a) This Agreement supersedes all prior agreements and sets forth the
entire understanding among the parties hereto with respect to the subject matter
hereof and cannot be changed, modified, extended or terminated except upon
written amendment approved by the Board of Directors of Employer and executed on
its behalf by a duly authorized officer. Without limitation, nothing in this
Agreement shall be construed as giving Employee any right to be retained in the
employ of Employer beyond the expiration of the Employment Term, and Employee
specifically acknowledges that, unless this Agreement is renewed in accordance
with Section 1.2 hereof, he shall be an employee-at-will of Employer thereafter,
and thus subject to discharge by Employer with or without cause and without
compensation of any nature.
(b) Employee acknowledges that from time to time, Employer may
establish, maintain and distribute employee manuals or handbooks or personnel
policy manuals, and officers or other representatives of Employer may make
written or oral statements relating to personnel policies and procedures. Such
manuals, handbooks and statements are intended only for general guidance. No
policies, procedures or statements of any nature by or on behalf of Employer
(whether written or oral, and whether or not contained in any employee manual or
handbook or personnel policy manual), and no acts or practices of any nature,
shall be construed to modify this Agreement or to create express or implied
obligations of any nature to Employee.
(c) All of the terms and provisions of this Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
heirs, executors, administrators, legal representatives, successors and assigns
of the parties hereto, except that the duties and responsibilities of Employee
hereunder are of a personal nature and shall not be assignable or delegatable in
whole or in part by Employee.
13. SEVERABILITY. If any provision of this Agreement or application
thereof to anyone or under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provision or application of this Agreement which can be given
effect without the invalid or unenforceable provision or application and shall
not invalidate or render unenforceable such provision or application in any
other jurisdiction.
14. REMEDIES CUMULATIVE; NO WAIVER. No remedy conferred upon Employer by
this Agreement is intended to be exclusive of any other remedy, and each and
every such remedy shall be cumulative and shall be in addition to any other
remedy given hereunder or now or hereafter existing at law or in equity. No
delay or
<PAGE>
omission by Employer in exercising any right, remedy or power hereunder or
existing at law or in equity shall be construed as a waiver thereof, and any
such right, remedy or power may be exercised by Employer from time to time and
as often as may be deemed expedient or necessary by Employer in its sole
discretion.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
Attest: PICO PRODUCTS, INC.
Spencer W. Franck, Jr. By: Everett T. Keech
- - --------------------------- ---------------------------
Secretary
Joseph T. Kingsley
------------------------------
JOSEPH T. KINGSLEY
<PAGE>
EXHIBIT "A"
EMPLOYMENT AGREEMENTS, NON-COMPETITION AGREEMENTS AND NON-DISCLOSURE AGREEMENTS
<PAGE>
EXHIBIT 11.1
PICO PRODUCTS, INC.
COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
Three Months Six Months
Ended January 31, Ended January 31,
-------------------- --------------------
1995 1994 1995 1994
--------- --------- -------- --------
<S> <C> <C> <C> <C>
NET INCOME ATTRIBUTABLE
TO COMMON STOCK $ 150 $ 213 $ 333 $ 465
--------- --------- -------- --------
--------- --------- -------- --------
PRIMARY EARNINGS PER SHARE:
Weighted average number
of common shares
outstanding 3,636 3,604 3,634 3,591
Dilutive effect of stock
options and warrants
after application of
treasury stock method 584 765 642 680
-------- -------- -------- --------
Number of shares used to
compute primary
earnings per share 4,220 4,369 4,276 4,271
Primary earnings per share $ 0.04 $ 0.05 $ 0.08 $ 0.11
-------- -------- -------- --------
-------- -------- -------- --------
FULLY DILUTED EARNINGS PER SHARE:
Weighted average number
of common shares
outstanding 3,636 3,604 3,634 3,591
Dilutive effect of stock
options and warrants
after application of
treasury stock method 584 765 642 746
-------- -------- -------- --------
Number of shares used to
compute fully diluted
earnings per share 4,220 4,369 4,276 4,337
Fully diluted earnings per share $ 0.04 $ 0.05 $ 0.08 $ 0.11
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JAN-31-1995
<EXCHANGE-RATE> 1
<CASH> 290
<SECURITIES> 0
<RECEIVABLES> 5,322
<ALLOWANCES> 360
<INVENTORY> 7,063
<CURRENT-ASSETS> 12,413
<PP&E> 3,701
<DEPRECIATION> 2,871
<TOTAL-ASSETS> 13,784
<CURRENT-LIABILITIES> 8,889
<BONDS> 586
<COMMON> 36
0
0
<OTHER-SE> 4,274
<TOTAL-LIABILITY-AND-EQUITY> 13,784
<SALES> 16,099
<TOTAL-REVENUES> 16,350
<CGS> 12,254
<TOTAL-COSTS> 15,640
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 68
<INTEREST-EXPENSE> 309
<INCOME-PRETAX> 333
<INCOME-TAX> 0
<INCOME-CONTINUING> 333
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 333
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
