<PAGE> 1
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: JUNE 30, 1999
Commission File Number: 0-11309
GALILEO CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 04-2526583
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
STURBRIDGE BUSINESS PARK, P.O. BOX 550, STURBRIDGE, MASSACHUSETTS 01566
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (508) 347-9191
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO _____
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 11, 1999
- ----------------------------- -------------------------------
COMMON STOCK, PAR VALUE $.01 10,210,034 SHARES
PAGE 1 OF 18
Index to Exhibits appears on Page 18
<PAGE> 2
GALILEO CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
PART I. Financial Information:
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets at June 30, 1999 and
September 30, 1998 ................................................. 3
Condensed Consolidated Statements of Operations for the Three and
Nine Months Ended June 30, 1999 and 1998 ........................... 4
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended June 30, 1999 and 1998 ................................ 5
Notes to Condensed Consolidated Financial Statements ................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations .............................................. 10
PART II. Other Information:
Item 1. Legal Proceedings .................................................... 14
Item 4. Submission of Matters to a Vote of Security Holders................... 15
Item 5. Other Information .................................................... 15
Item 6. Exhibits and Reports on Form 8-K...................................... 15
Signatures ........................................................... 17
</TABLE>
-2-
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GALILEO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(Unaudited)
June 30, 1999 Sept. 30, 1998
------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,281 $ 710
Accounts receivable, net 6,609 7,952
Inventories, net 7,665 8,828
Other current assets 841 1,092
Assets held for sale 9,020 --
-------- --------
Total current assets 25,416 18,582
Property, plant and equipment, net 8,230 16,128
Excess of cost over the fair value of assets acquired, net 18,865 19,396
Other assets, net 1,141 1,548
-------- --------
Total assets $ 53,652 $ 55,654
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable (See Notes 2 and 6) $ 9,763 $ 11,846
Current portion of other notes payable 44 1,458
Accounts payable 2,917 4,283
Accrued liabilities 5,267 4,400
-------- --------
Total current liabilities 17,991 21,987
Other liabilities 920 1,008
Commitments and contingencies (See Note 8) -- --
Shareholders' equity:
Common stock 101 81
Additional paid-in capital 58,057 52,176
Accumulated deficit (23,161) (19,545)
Accumulated other comprehensive loss (256) (53)
-------- --------
Total shareholders' equity 34,741 32,659
-------- --------
Total liabilities and shareholders' equity $ 53,652 $ 55,654
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
-3-
<PAGE> 4
GALILEO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended June 30, June 30,
1999 1998 1999 1998
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 9,586 $ 12,500 $ 31,189 $ 32,540
Cost of sales 5,308 8,586 18,503 21,859
------------------------------------------------------------------
Gross profit 4,278 3,914 12,686 10,681
Engineering expense 314 1,320 1,218 3,954
Selling and administrative expense 3,440 5,718 12,460 11,815
Reduction in carrying value of certain
long-lived assets -- -- 1,841 --
------------------------------------------------------------------
3,754 7,038 15,519 15,769
------------------------------------------------------------------
Operating profit (loss) 524 (3,124) (2,833) (5,088)
Interest expense, net (243) (208) (791) (278)
Other income, net 89 29 177 37
------------------------------------------------------------------
Profit (loss) before income taxes 370 (3,303) (3,447) (5,329)
Provision (benefit) for income taxes 25 (44) 169 (64)
------------------------------------------------------------------
Net income (loss) $ 345 $ (3,259) $ (3,616) $ (5,265)
==================================================================
Net income (loss) per share - basic and
assuming dilution $ 0.03 $ (0.41) $ (0.39) $ (0.70)
==================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
-4-
<PAGE> 5
GALILEO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
For the Nine Months
Ended June 30,
1999 1998
-------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,616) $ (5,265)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Depreciation and amortization 2,167 2,230
Reduction in carrying value of certain long-lived assets 1,841 --
Provision (recovery)for potential uncollectible receivables (204) 984
Non-cash compensation 204 --
Other adjustments, net (26) 8
Increase (Decrease) in cash from changes in operating assets
and liabilities:
Accounts receivable 1,547 35
Inventories 870 (1,659)
Accounts payable and accrued liabilities (1,199) (224)
Other changes, net 434 36
-------------------------------
Total adjustments 5,634 1,410
-------------------------------
Net cash provided (used) by operating activities 2,018 (3,855)
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired -- (10,562)
Capital expenditures (3,560) (2,227)
Other investing activities 136 --
-------------------------------
Net cash used in investing activities (3,424) (12,789)
Cash flows from financing activities:
Proceeds from notes payable 2,550 10,300
Payments on notes payable (6,047) (2,219)
Exercise of stock options 305 --
Proceeds from issuance of common stock, net 5,372 178
Other financing, net -- (15)
-------------------------------
Net cash provided by financing activities 2,180 8,244
Effect of exchange rate changes on cash (203) --
-------------------------------
Net increase (decrease) in cash and cash equivalents 571 (8,400)
Cash and cash equivalents at beginning of period 710 9,546
-------------------------------
Cash and cash equivalents at end of period $ 1,281 $ 1,146
===============================
</TABLE>
See Notes to Condensed Consolidated Financial Statements
-5-
<PAGE> 6
GALILEO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
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, as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments (consisting of normal
recurring adjustments except as disclosed in Note 7) considered necessary for a
fair presentation. The Company's accounting policies are described in the Notes
to Consolidated Financial Statements in the Company's 1998 Form 10-K, which
should be read in conjunction with these financial statements.
The results of operations for the three and nine months ended June 30,
1999, are not necessarily indicative of the results to be expected for the full
year.
Certain reclassifications have been made to amounts reported in
previous quarters in order to conform with the current quarter's presentation.
2. GOING CONCERN
The accompanying condensed consolidated financial statements were
prepared assuming the Company will continue as a going concern. As a result of a
number of developments which have had a materially adverse effect on the results
of operations, the Company has incurred recurring operating losses, working
capital deficiencies and, as of December 31, 1998 and September 30, 1998, was in
violation of certain covenants of loan agreements with a bank. These conditions
raised substantial doubt about the Company's ability to continue as a going
concern.
As a result of the aforementioned, the Company has taken a number of
steps to improve its financial condition, which are summarized as follows:
Private Placement - On January 26, 1999, the Company completed the sale of
2,000,000 shares of the Company's common stock, together with warrants for an
additional 2,000,000 shares, to an investment entity formed by the principals of
Andlinger & Company, Inc. for an aggregate purchase price of $6.0 million. The
warrants are exercisable for a period of 7 1/2 years at a price of $1.50 per
share, subject to an antidilution adjustment.
-6-
<PAGE> 7
Loan Agreement - Also on January 26, 1999, the Company's bank loan agreement was
amended to reduce maximum borrowings to $13.0 million through June 30, 1999 and
$6.0 million thereafter and to extend the term of the loan through October 31,
2000. The financial covenants were also amended, and the bank agreed to waive
specified previous events of default. As discussed in Note 9, the Company sold
certain non-strategic assets on July 1, 1999, with the sales proceeds of $8.6
million being applied against its bank borrowings. The Company had received an
extension from the bank with respect to reducing its maximum borrowings to $6.0
million and, therefore, was not in default at June 30, 1999.
Sale of Non-Strategic Assets - In addition to the sale of non-strategic assets
on July 1, 1999 (Note 9), the Company is also evaluating the possibility of the
sale of its Sturbridge, Massachusetts facility. There can be no assurance as to
whether or how quickly the Company will reach an agreement for the sale of that
facility.
Cost Reductions - During the three months ended December 31, 1998, the Company
terminated its Telecommunications business and further reduced the workforce by
49 employees. These reductions, coupled with reductions-in-force of 61 employees
in the fourth quarter of fiscal 1998, are expected to result in annualized cost
savings of approximately $5.3 million.
While the Company's management believes that it has taken the
appropriate steps to alleviate the liquidity issue, certain of these steps are
contingent upon future events, some of which are not within the Company's
control. Actual results may differ from management's expectations.
3. EARNINGS PER SHARE DATA
The following table sets forth the computation of basic and diluted
earnings per share (amounts in thousands, except per share data):
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
June 30, June 30,
1999 1998 1999 1998
--------------------------------------------- ---------------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) $ 345 $(3,259) $(3,616) $(5,265)
-------------------------------------------------------------
Denominator:
Weighted average shares - basic 10,109 8,042 9,232 7,509
Dilutive employee stock options and warrants 1,436 -- -- --
-------------------------------------------------------------
Weighted average shares - assuming dilution 11,545 8,042 9,232 7,509
=============================================================
Net income (loss) per common share - basic and
assuming dilution $ 0.03 $ (0.41) $ (0.39) $ (0.70)
=============================================================
</TABLE>
-7-
<PAGE> 8
Common stock equivalents were antidilutive and therefore were not
included in the computation of weighted average shares used in computing the
diluted loss per share for the three and nine months ended June 30, 1998 and the
nine months ended June 30, 1999.
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
As of
June 30, September 30,
1999 1998
-------------------------------------------
(Amounts in 000's)
<S> <C> <C>
Finished Goods $4,680 $5,223
Work-in-progress 1,772 1,819
Raw Materials 1,213 1,786
-------------------------------------------
$7,665 $8,828
===========================================
</TABLE>
5. COMPREHENSIVE INCOME (LOSS)
Total comprehensive income (loss) was $0.3 million and ($3.8) million
for the three and nine months ended June 30, 1999 and ($3.3) million and ($5.3)
million for the three and nine months ended June 30, 1998.
6. REVOLVING CREDIT FACILITY
In January 1998, the Company entered into a revolving credit facility
with a bank (as amended in August 1998 and January 1999, the "Loan Agreement").
The Loan Agreement provides for a maximum commitment of $13.0 million through
June 30, 1999 and $6.0 million thereafter with interest payable on a monthly
basis at the bank's base rate plus 2% per year. The loan, which is secured by
substantially all assets of the Company, also includes provisions which require
the Company to remit all of the net cash proceeds of asset sales (as defined) to
the bank. The maximum commitment will be reduced by an amount equal to the net
cash proceeds of asset sales and may not be reinstated. The then outstanding
balance of the loan is due and payable in full on October 31, 2000. The
outstanding balance of this facility at June 30, 1999 and September 30, 1998 was
$9.8 million and $11.8 million, respectively. The carrying value of this debt as
of June 30, 1999 and September 30, 1998 approximated its fair market value.
In compliance with the Loan Agreement, a $0.1 million amendment fee was
paid to the bank on January 2, 1999 in addition to a fee totaling $0.2 million
payable quarterly in 1999.
-8-
<PAGE> 9
As discussed in Note 2, as of December 31, 1998 and September 30, 1998
the Company was in violation of certain covenants contained in the Loan
Agreement. The bank waived these violations in the amendment to the Loan
Agreement executed in January 1999. As a result of the mandatory reduction in
the Loan Agreement to $6.0 million at June 30, 1999 and uncertainties associated
with the sale of non-strategic assets, the loan balance of $9.8 million and
$11.8 million is recorded as a current liability at June 30, 1999 and September
30, 1998, respectively. As discussed in Notes 2 and 9, bank borrowings were
reduced by $8.6 million on July 1, 1999 to approximately $1.1 million.
7. NONRECURRING CHARGES
In December 1998, the Company recorded a charge of $1.8 million to
reduce the carrying value of certain long-lived assets to estimated fair market
value primarily related to land and buildings, as well as maintenance and
engineering equipment, at the Company's Sturbridge, Massachusetts facility.
During the three months ended December 31, 1998, the Company terminated
its Telecommunications business and further reduced the workforce. The Company
has suspended all investments for this business and related activities. In
addition, the Company incurred operating losses related to the
Telecommunications business of $0.4 million for the three months ended December
31, 1998. No additional losses were incurred during the three-month period
ending June 30, 1999, and none are expected in subsequent quarters.
The Company reduced its workforce by 49 employees during the three
months ended December 31, 1998. The Company recorded a one-time operating
expense associated with the reduction-in-force and other consolidation costs of
approximately $0.8 million. No additional reductions or costs were incurred
during the quarter ended June 30, 1999.
8. COMMITMENTS AND CONTINGENCIES
Legal Proceedings - There is one class action lawsuit pending against
the Company and certain of its former officers alleging violations of federal
securities laws, which was filed on June 21, 1999. This lawsuit consolidates and
amends four class action lawsuits filed during the first quarter of fiscal year
1999. The Company is in the process of responding to the allegations contained
in the lawsuit. As indicated previously, the Company will vigorously defend this
lawsuit and believes that it is without merit.
Environmental Matters - Related to the completed clean-up and continued
monitoring of a previously environmentally contaminated area, the Company has
completed the removal of contaminated soil from what is believed to be an
isolated disposal of certain industrial wastes on its property in an area which
is now part of a parking lot. Additional monitoring will be required to confirm
that the remediated area was the single source of the contamination. The Company
estimates that the cost to complete the work now underway is in the $0.1 million
to $0.2 million range, which has been provided for in the financial statements
for the period ending June 30, 1999.
-9-
<PAGE> 10
9. SUBSEQUENT EVENTS
On July 1, 1999, subsequent to the end of the third quarter, the
Company sold its Scientific Detector and Spectroscopy Products (SDP) Business
and certain assets related to a previously discontinued business. The proceeds
from those transactions, totaling approximately $8.6 million, were applied to
the Company's indebtedness under its revolving credit agreement with its
principal lender reducing its indebtedness to approximately $1.1 million as of
July 1, 1999. The Company will recognize the gain from these transactions in its
fourth quarter financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - FOR THE THREE MONTHS ENDED JUNE 30, 1999
Revenues for the three months ended June 30, 1999, decreased to $9.6
million from $12.5 million for the comparable prior-year period due to lower
sales to a major medical products distributor and the elimination of revenues
from discontinued businesses.
Gross profit (as a percentage of revenues) for the three months ended
June 30, 1999, of 44.6%, increased from 31.3% from the comparable prior-year
period primarily due to the impact of cost reduction programs, including the
benefit of previously announced restructuring programs.
Engineering expense decreased to $0.3 million for the three months
ended June 30, 1999 from $1.3 million in the comparable prior-year period as a
result of the discontinuance of the Company's Medical Endoscope Imaging Products
and Telecommunications businesses in 1998 ($1.0 million) and the
reclassification of certain engineering expenses more properly classified as
selling and administrative expense ($0.3 million).
Selling and administrative expense decreased to $3.4 million for the
three months ended June 30, 1999 from $5.7 million in the comparable prior-year
period primarily due to (1) the benefits of previously announced restructuring
programs and on-going cost reduction programs ($1.0 million), (2) $1.0 million
that had been recorded in the previous year for a potentially uncollectible
receivable and, (3) the engineering expense reclassification mentioned above
($0.3 million).
During the quarter ended June 30, 1999, approximately $0.5 million of
compensation expense was incurred due to the resignation and termination of
certain key executives of the Company. Also during the quarter, the Company
recorded recoveries of $0.2 million from certain previously reserved accounts
receivable.
For both the current and comparable prior-year periods, the Company's
effective tax rate differs from the statutory rate primarily due to available
tax loss carry-forwards. The provision for income taxes for the current year
period relates to foreign taxes.
-10-
<PAGE> 11
RESULTS OF OPERATIONS - FOR THE NINE MONTHS ENDED JUNE 30, 1999
Revenues for the nine months ended June 30, 1999, decreased to $31.2
million from $32.5 million for the comparable prior-year period. The
acquisitions of Les Entreprises Galenica, Inc., ("Galenica") and OFC Corporation
("OFC") in the second quarter of fiscal 1998 contributed an additional $1.1
million and $3.8 million of revenues for the nine months ended June 30, 1999,
respectively. The increased revenues from the acquisitions were offset by a
reduction in revenues of $2.1 million attributable to the overall SDP business
and impacted by foreign shipment restrictions on the Company's microchannel
plate products by the U.S. Department of Defense and a reduction in revenues of
$2.4 million related to the discontinuance of the Company's Medical Endoscope
Imaging Products business. Also, sales to a major medical distributor were lower
during the nine month period ending June 30, 1999 by $1.7 million.
Gross profit (as a percentage of revenues) for the nine months ended
June 30, 1999, of 40.7%, increased from 32.8% from the comparable prior-year
period primarily due to the impact of a more favorable product mix from the
acquired businesses, improved operating efficiencies and benefits from cost
reduction programs.
Engineering expense decreased to $1.2 million for the nine months ended
June 30, 1999 from $3.9 million in the comparable prior-year period as a result
of the discontinuance of the Company's Medical Endoscope Imaging Products and
Telecommunications businesses in 1998 ($2.0 million) and the reclassification of
certain engineering expenses ($0.7 million) to selling and administrative
expense.
Selling and administrative expense increased to $12.5 million for the
nine months ended June 30, 1999 from $11.8 million in the comparable prior-year
period due to, among other things, the inclusion of $1.4 million of operating
expenses and goodwill amortization from the acquisitions, severance and other
consolidation costs of $0.8 million, and the reclassification of engineering
expenses ($0.7 million). Offsetting those increases were the elimination of the
$1.0 million charge in 1998 for a potentially uncollectible receivable and an
approximate $1.0 million benefit realized in 1999 from cost reduction and
restructuring programs.
Interest expense, net amounted to $0.8 million during the nine months
ended June 30, 1999 compared with $0.3 million during the comparable prior-year
period. The increase in interest expense is primarily related to increased
borrowings under the Company's revolving line of credit.
For both the current and comparable prior-year periods, the Company's
effective tax rate differs from the statutory rate primarily due to available
tax loss carry-forwards. The provision for income taxes for the current year
period principally relates to foreign taxes.
-11-
<PAGE> 12
FINANCIAL CONDITION
Beginning in 1997 and continuing through the first quarter of fiscal
1999, the Company experienced a number of developments which have had a
materially adverse effect on the results of operations. The Company has incurred
recurring operating losses through the first quarter of fiscal year 1999, and as
of December 31, 1998 and September 30, 1998 was in violation of certain
financial covenants of loan agreements. These conditions have raised substantial
doubt about the Company's ability to continue as a going concern. See Note 2 of
the Notes to Condensed Consolidated Financial Statements for additional
discussion.
On January 26, 1999, the Company completed the sale of 2,000,000 shares
of the Company's common stock, together with warrants for an additional
2,000,000 shares, to an investment entity formed by the principals of Andlinger
& Company, Inc. for an aggregate purchase price of $6.0 million. The warrants
are exercisable for a period of 7 1/2 years at a price of $1.50 per share,
subject to antidilution adjustment.
In January 1998, the Company entered into a revolving credit facility
with a bank (as amended in August 1998 and January 1999, the "Loan Agreement").
The Loan Agreement provides for a maximum commitment of $13.0 million through
June 30, 1999 and $6.0 million thereafter with interest payable on a monthly
basis at the bank's base rate plus 2% per year. The loan, which is secured by
substantially all assets of the Company, also includes provisions which require
the Company to remit all of the net cash proceeds of asset sales (as defined) to
the bank. The maximum commitment will be reduced by an amount equal to the net
cash proceeds of asset sales and may not be reinstated. The then outstanding
balance of the loan is due and payable in full on October 31, 2000. The
outstanding balances of this facility at June 30, 1999 and September 30, 1998
were $9.8 million and $11.8 million, respectively. The carrying values of this
debt as of June 30, 1999 and September 30, 1998 approximated their fair market
values. In compliance with the Loan Agreement, a $0.1 million amendment fee was
paid to the bank on January 2, 1999, in addition to a fee totaling $0.2 million
payable quarterly in 1999.
As discussed in Note 2, the Company was in violation of certain
covenants contained in the Loan Agreement. The bank waived these violations in
the amendment to the Loan Agreement executed in January 1999. As a result of the
mandatory reduction in the Loan Agreement to $6.0 million at June 30, 1999 and
uncertainties associated with the sale of non-strategic assets, the loan balance
of $9.8 million and $11.8 million is recorded as a current liability at June 30,
1999 and September 30, 1998, respectively.
As further discussed in Notes 2 and 9 of the Company's Condensed
Consolidated Financial Statements, the Company sold certain non-strategic assets
as of July 1, 1999 with the cash sales proceeds of $8.6 million being applied
against its bank borrowings. Those payments reduced its borrowings to
approximately $1.1 million on July 1, 1999. The Company had received an
extension until July 14, 1999 for the debt reduction and, therefore, was not in
default at June 30, 1999. The Company is evaluating the sale of the Sturbridge,
Massachusetts facility. There can be no assurance whether or how quickly the
Company could complete that sale.
-12-
<PAGE> 13
Giving effect to reclassifying the loan outstanding to current
liabilities and assets held for sale to current assets, the Company's working
capital at June 30, 1999 increased to $7.4 million from a working capital
deficit of $3.4 million at September 30, 1998.
Capital spending for the nine months ended June 30, 1999, amounted to
$3.6 million. This compares with $2.2 million of capital expenditures for the
comparable prior-year period. Capital spending during the current nine-month
period primarily relates to machinery and equipment to support the development
of new products at OFC Corporation.
Cash flows provided by operating activities amounted to $2.0 million
for the nine months ended June 30, 1999, as compared with cash flows used in
operating activities of $3.9 million in the comparable prior-year period.
YEAR 2000
The Year 2000 issue is the result of computer programs using two digits
rather than four to define the applicable year. Such software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
system failures or miscalculations leading to disruptions in the Company's
activities and operations. If the Company, its significant customers, or
suppliers, fail to make necessary modifications and conversions on a timely
basis, the Year 2000 issue could have a material adverse effect on Company
operations. However, the impact cannot be quantified at this time. The Company
believes that its competitors face a similar risk.
In December 1997, the Company established a corporate-wide strategy to
address and remedy technology issues relating to the Year 2000. This strategy
encompasses four areas: internal technology systems and applications used in its
business operations, manufacturing control systems, external systems of vendors
and service providers, and technology systems of existing customers.
The Company has completed an inventory and assessment of all critical
internal business systems and applications. With the exception of a system
upgrade at Leisegang GmbH, the majority of remedies consisting of upgrades or
replacements is complete. The Company expects to have all actions and
implementations complete by October 1, 1999, with ongoing testing and
verification to continue through December 31, 1999.
The current assessment process for the inventory, testing and
remediation of manufacturing control and data control systems will continue
throughout calendar year 1999. Additionally, the Company is investigating the
Year 2000 compliance status of vendors and service providers, and an aggressive
survey has been completed. The Company will attempt to minimize risk and
exposure based on responses from these critical vendors and service providers
through alternative sources and contingency plans.
In the event the Company is unable to fully meet Year 2000 compliance,
the manufacturing operations at its Leisegang GmbH subsidiary in Germany will be
adversely impacted. Any potential future business interruptions, costs, damages
or losses related thereto, are dependent, to a significant degree, upon the Year
2000 compliance of third parties, both domestic and international, such as
government agencies, customers, vendors and suppliers. While efforts will be
made to minimize risk, no assurance can be
-13-
<PAGE> 14
made that companies in the entire supply chain will not be affected. In that
respect, failures and disruptions of the business process remain a possibility,
and no assurance can be provided that Year 2000 compliance can be achieved
without significant additional costs.
Previous costs related to Year 2000 compliance were funded through
operating cash flows and the Company's revolving debt facility. Through June 30,
1999, the Company expended approximately $0.2 million paid to third party
consultants and vendors in remediation efforts. Internal expenditures are not
tracked separately. The Company estimates remaining costs should not exceed $0.1
million
The Company believes it is taking appropriate steps to achieve Year
2000 compliance. As previously discussed, many of the compliance issues rely on
the uninterrupted delivery of products and services of third parties.
Consequently, there can be no assurance of uninterrupted business processes, or
additional costs, losses, or damages occurring as a result of the Year 2000
compliance.
FORWARD-LOOKING STATEMENTS
This Form 10-Q includes forward-looking statements concerning the sale
of certain non-strategic assets, costs of testing and verification relating to
Year 2000 compliance, costs relating to environmental clean-up, pending legal
proceedings and other aspects of future operations. These forward-looking
statements are based on certain underlying assumptions and expectations of
management. Certain factors could cause actual results to differ materially from
the forward-looking statements included in this Form 10-Q. For additional
information on those factors which could affect actual results, please refer to
the Company's Form 10-K for the fiscal year ended September 30, 1998.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There is one class action lawsuit pending against the Company and
certain of its former officers alleging violations of federal securities laws
which was filed on June 21, 1999. This lawsuit consolidates and amends four
class action lawsuits filed during the first quarter of fiscal year 1999. The
Company is in the process of responding to the allegations contained in the
lawsuit. As indicated previously, the Company will vigorously defend this
lawsuit and believes that it is without merit.
-14-
<PAGE> 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders was held on April 6, 1999.
Information regarding the matters voted on at the Annual Meeting of Shareholders
and the voting results for each matter are set forth in the Company's Form 10-Q
for the quarterly period ended March 31, 1999, previously filed with the
Commission and incorporated herein by reference.
ITEM 5. OTHER INFORMATION
ENVIRONMENTAL MATTERS
Related to the completed clean-up and continued monitoring of a
previously environmentally contaminated area, the Company has completed the
removal of contaminated soil from what is believed to be an isolated disposal of
certain industrial wastes on its property in an area which is now part of a
parking lot. Additional monitoring will be required to confirm that the
remediated area was the single source of the contamination. The Company
estimates that the cost to complete the work now underway is in the $0.1 million
to $0.2 million range, which has been provided for in the financial statements
for the period ending June 30, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
2.1 Consulting and Settlement Agreement and Full and Final Release
dated as of July 6, 1999 between Galileo Corporation and W. Kip
Speyer.
2.2 Employee Agreement dated as of July 6, 1999 between
John D. Barlow, Jr. and Leisegang Medical, Inc.
27 Financial Data Schedule (EDGAR filing only).
b. Reports on Form 8-K
1. Current Report on Form 8-K dated June 30, 1999 and filed on July
12, 1999, with press releases dated July 1, 1999 and July 6,
1999, attached as exhibits thereto, regarding (i) the sale of
the Company's Scientific Detector and Spectroscopy Products
Business to Burle Industries, Inc. for a cash sale price of
approximately $7.1 million; (ii) the Company's sale of certain
manufacturing assets relating to a previously discontinued
business to IPG Photonics Corporation for a sales price of
approximately $1.5 million; (iii) the amendment to the Company's
revolving credit agreement to extend until July 14, 1999 the
applicable dates of certain covenants in the revolving credit
agreement, including the Company's obligation to reduce the
maximum borrowings thereunder to below $6.0 million, and (iv)
the
-15-
<PAGE> 16
assumption by Gerhard R. Andlinger of the additional titles of
President and Chief Executive Officer and the appointment of
John D. Barlow as President and Chief Executive Officer of the
Company's Leisegang Medical, Inc. subsidiary, both succeeding W.
Kip Speyer, who resigned from each of these positions.
-16-
<PAGE> 17
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.
GALILEO CORPORATION
Dated: August 11, 1999 /s/ Gerhard R. Andlinger
--------------------------------------------
Gerhard R. Andlinger, Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Thomas J. Mathews
---------------------------------------------
Thomas J. Mathews, Chief Financial Officer
(Principal Financial and Accounting Officer)
-17-
<PAGE> 18
GALILEO CORPORATION
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. PAGE NO.
----------- --------
<S> <C> <C>
2.1 Consulting and Settlement Agreement and Full and Final EDGAR Filing Only
Release dated as of July 6, 1999 between Galileo
Corporation and W. Kip Speyer.
2.2 Employee Agreement dated as of July 6, 1999 between John EDGAR Filing Only
D. Barlow, Jr. and Leisegang Medical, Inc.
27 Financial Data Schedule EDGAR Filing Only
</TABLE>
-18-
<PAGE> 1
EXHIBIT 2.1
CONSULTING AND SETTLEMENT AGREEMENT
AND FULL AND FINAL RELEASE
This Consulting and Settlement Agreement and Full and Final Release
(the "Agreement") is entered into as of the 6th day of July, 1999, by and
between W. KIP SPEYER (hereinafter referred to as "Employee") and GALILEO
CORPORATION (hereinafter referred to as "Employer"). In consideration of the
mutual promises and covenants contained herein, the parties agree as follows:
1. The parties agree and acknowledge that Employee shall resign
and Employee's employment with Employer shall terminate as of September 30, 2001
(the "Resignation Date"). Further, as of July 6, 1999 (the "Change Date"),
Employee shall resign as Director, President, Chief Executive Officer and all
other offices or positions with Employer and its subsidiaries and cease to serve
as an executive officer of Employer and its subsidiaries. From the Change Date
through the Resignation Date, Employee shall continue as an employee of Employer
and serve as an internal consultant to Employer, without being a corporate
officer, and shall assist in various matters as directed by Employer's Chairman
and President from time to time. During such period, Employee shall report to
Gerhard R. Andlinger, the Chairman and President of Employer, or his successor
as either Chairman or President, as to his activities hereunder and shall pursue
only those activities and projects as assigned by said Chairman and President
from time to time. The parties acknowledge that the nature of this employment
relationship shall not require the presence of Employee at Employer's place of
business, except on a limited basis, and that Employee is not expected to devote
any particular portion of his time to the performance of his duties hereunder.
The parties agree that Employee shall be free to pursue other consulting and
business opportunities subject to the limitations contained in Section 6 and
that Employee's duties hereunder shall not require Employee to spend any
particular time in the performance of services hereunder, all of which, except
for (i) certain transitional consulting to be performed prior to July 15, 1999,
and (ii) Employee's assistance in litigation matters, as described below, shall
be subject to Employee's availability and own schedule, in his sole discretion.
Employee shall assist Employer with respect to any litigation involving Employer
arising out of actions prior to the Resignation Date (including the pending
shareholder litigation) and shall make himself reasonably available for
interviews and testimony when reasonably requested by Employer or its counsel
and Employer shall reimburse Employee for all expenses incurred in connection
with such assistance.
2. In lieu of compensation otherwise due to Employee under that
certain Employment Agreement dated as of November 16, 1998 between Employer and
Employee (the "1998 Agreement") and under agreements relating to the Options, as
hereinafter defined, Employer will provide Employee an employment separation and
consulting package as follows:
(a) Severance compensation as follows;
(i) base compensation at the rate of $250,000 per
annum, continuing from the Change Date until September 30, 2000;
(ii) continuing base compensation at the rate of
$120,000 per annum, from October 1, 2000 through September 30, 2001; and
-19-
<PAGE> 2
(iii) bonus compensation of $50,000, payable on
October 29, 1999, provided that Leisegang Medical, Inc. achieves net sales of
$9.2 million for the fiscal year ending September 30, 1999.
All such base compensation shall be payable in substantially equal
weekly installments (or on such other schedule as Employer shall establish for
paying compensation to its senior executives) beginning on the Change Date, but
effective as of July 1, 1999, and continuing on each subsequent Employer pay
date until the entire amount due has been paid to Employee (the period of time
beginning on the Change Date and ending on the date of payment of the last
installment of the severance compensation payable pursuant to this subparagraph
2(a) shall be hereinafter referred to as the "Severance Period"), subject to the
termination provisions hereof.
(b) Payment on or before July 12, 1999 for all vacation
days accrued through June 30, 1999. No vacation days will be accrued from and
after July 1, 1999; and
(c) Employer reimbursement for all ordinary and necessary
business expenses incurred by Employee prior to the Change Date in performing
duties under the 1998 Agreement as well as the automobile expenses for which
reimbursement is provided under this Agreement in accordance with the Employer's
terms and conditions regarding accountability as in effect on the Change Date.
All such payments shall be made consistent with Employer's
current payroll schedule and subject to federal income tax, Employee's
contributions to FICA, and other required withholdings for medical coverage,
etc. Employer shall continue to make the payments referred to in Sections 2(a)
through 2(c) above to Employee (or in the event of his incapacity or disability
to his written designee on file with Employer or if there is no such designee,
to his legal representative) notwithstanding the death, incapacity or disability
of Employee.
(e) The following benefits currently available to
Employee shall continue from the date hereof through the expiration of the
Severance Period or the date on which Employee secures other employment or the
Employee's death, whichever occurs first:
(i) Entitlement to all Employer medical and dental
insurance benefits in accordance with the same terms and conditions as
in effect on the Change Date;
(ii) Entitlement to a leased car for personal and
business use with an annual rental not exceeding $7,500 and
reimbursement of all reasonable expenses in operating said leased car;
(iii) continued participation in Employer's 401(k)
retirement plan for the balance of the current plan year (but not
thereafter).
Except for the benefits provided in this subparagraph 2(e), Employee
shall not participate in any other benefit programs of Employer during
the Severance Period.
(f) Employee is currently the holder of the stock options
to purchase shares of Common Stock of Employer which are listed on Schedule A
attached hereto (the "Options"). As consideration for the benefits provided to
Employee hereunder, and at the time of execution of this
-20-
<PAGE> 3
Agreement, Employee will forfeit and surrender to Employer all of the Options
with the exception of the 50,000 Options granted to Employee on December 31,
1998 and the 10,000 Options granted to Employee on August 20, 1998 (the 60,000
Options which Employee will retain following the execution of this Agreement
shall hereinafter be referred to as the "Retained Options"), as indicated on
Schedule A attached hereto. The parties agree that the Retained Options shall be
fully vested as of the date hereof, provided, however, that the exercise
provisions relating to the Retained Options shall be, and hereby are, modified
to provide that such Options must be exercised by Employee (or in the event of
Employee's disability, by his legal representative) on or prior to December 31,
2000 (or in the event of Employee's death, by his personal or legal
representative within six months after the date of death). Employer and Employee
shall promptly take such additional actions, if any, on its part as are
necessary to modify the exercise provisions of the Retained Options in
accordance with the terms of this subparagraph 2(f). Employee shall promptly
take such further actions, if any, on his part as are reasonably requested by
Employer to confirm the surrender, forfeiture and cancellation of all of the
Options other than the Retained Options. For purposes of provisions of the
Employer's 1991 Stock Option Plan which require that modification of the terms
of a particular Option be agreed to in a writing between Employer and Employee,
the parties agree that this subparagraph 2(f) shall constitute such a writing
between the parties.
3. Employer agrees that except for a Material Breach (as defined
below) no action will be taken through the Resignation Date to terminate this
Agreement, or Employee's employment hereunder or which would interfere with or
defeat or terminate the benefits derived and to be derived by Employee
hereunder, including but not limited to the vesting or exercisability of the
Options. Employee and Employer each acknowledge and agree that upon the
occurrence of any Material Breach (as defined below) by the Employee, the
Employee will not be entitled to any further salary continuation, or any other
monies, benefits or entitlements as described herein, and specifically in
Sections 2(a), (c), (d) and (e) above (in addition to any actions which may be
taken in connection with matters in Section 2(f)). For purposes of this
Agreement, the term "Material Breach" shall mean that there has been a breach by
Employee (and the Employer's Board of Directors has made a good faith
determination that such a breach has occurred) of the non-compete provisions of
Section 6 or Employee shall have sought to rescind or deny the acknowledgment
set forth in Section 4 or the release of Employer set forth in Section 5 hereof;
provided, however, in the event of any such alleged breach, the Employer will
provide the Employee with written notice of such alleged breach and provide
Employee reasonable opportunity (consisting of at least fifteen (15) business
days) to cure such alleged breach or explain or satisfactorily demonstrate to
Employer in its reasonable judgment that no such breach has occurred and if so
timely cured, explained or demonstrated as set forth above then no such Material
Breach shall be deemed to have occurred.
The parties agree and acknowledge that Employee would not be
entitled to all or part of this separation and consulting package but for this
Agreement and that Employee would not waive certain claims or release Employer
as provided herein but for this Agreement,
4. Employee specifically acknowledges the following:
(a) The Employee has waived his right to at least
twenty-one (21) full days within which to consider this Agreement prior to the
execution of this Agreement.
(b) Employee is advised that Employee has the right and
may consult with an attorney prior to executing this Agreement and acknowledges
the opportunity to consult an attorney.
-21-
<PAGE> 4
(c) The Employee has seven (7) days following the
execution of this Agreement to revoke the Agreement and the Agreement will not
become effective or enforceable until after this seven-day period has expired.
To revoke the Agreement, the Employee must advise the Employer in writing of his
election to revoke it within the seven-day period. Such written notice must be
addressed and delivered to Gerhard R. Andlinger, the Chairman and President, by
facsimile at (914) 332-4977. In the event of revocation, the terms of the 1998
Agreement will control as to the benefits and compensation to which the Employee
is entitled. The parties acknowledge that this Agreement shall serve as
Employer's notice of termination of the 1998 Agreement as of the date of this
Agreement.
(d) Employee recognizes that he is specifically
releasing, among other claims, any claims under the Age Discrimination in
Employment Act of 1967 and all amendments thereto.
(e) Employee acknowledges that by executing this
Agreement, and in consideration of the severance compensation provided for in
subparagraph 2(a) hereof and the other consideration and benefits provided to
Employee hereunder, Employee is waiving any and all rights and claims to any
annual incentive cash bonus or any other type or form of bonus or incentive
compensation for the fiscal year ended September 30, 1999 (except as
specifically provided herein), or any prior or future fiscal year.
(f) Employee is not waiving rights or claims that may
arise after the date of this Agreement except for the waiver of severance and
other compensation, including without limitation that due under the 1998
Agreement and rights to the Options other than the Retained Options.
Specifically, Employee shall be entitled to indemnification by Employer for any
and all liabilities, suits, claims and demands arising from or in any manner
relating to actions taken by Employee prior to the Change Date in his capacity
as an executive officer or director of Employer to the same extent and in
accordance with the same terms, conditions and limitations as apply to the
Employer's indemnification of its directors and officers from time to time.
5. Except for the rights, duties, and obligations of the parties
under this Agreement, each of the parties (and, in the case of the Employer, all
past and present subsidiaries and affiliates and their divisions and
departments, and their directors, officers, employees and agents, and their
predecessors, successors and assigns, or any of them) hereby unconditionally and
irrevocably releases and forever discharges the other party of and from and each
of the parties agrees not to sue and not to assert against the other party any
causes of action, claims and demands whatsoever, known or unknown at law, in
equity, or before any agency or commission of local, state or federal
governments, arising, alleged to have arisen or which might have been alleged to
have arisen or which may arise (i) in connection with Employee's employment with
Employer and the events and circumstances leading to this Agreement that
occurred prior to the date hereof, (ii) Employee's performance of the duties of
his employment with Employer that occurred prior to the date hereof or (iii)
under any law including, but not limited to, federal, state, or municipal
anti-discrimination laws such as The Americans With Disabilities Act, Title VII
of the Civil Rights Act of 1964, as amended in 1972 and 1991, and the Age
Discrimination In Employment Act of 1967, that such party on its own behalf and
on behalf of his heirs, executors, administrators or assigns, in the case of the
Employee, and its subsidiaries, affiliates, directors, officers, employees,
agents, successors or assigns, in the case of the Employer, ever had, now has or
hereafter can, shall or may have for or by reason or any cause whatsoever, to
the effective date of this Agreement.
-22-
<PAGE> 5
6. For a period of two years following the Change Date, Employee
agrees he will not, without the prior written consent of the Chairman and
President of the Employer, directly or indirectly compete either as a principal,
owner, partner, shareholder, director, employee or consultant, with any of
Employer's lines of business existing as of the date hereof namely, (i) the
development, manufacture and marketing of women's health-related medical
products, and (ii) the optical filter and diamond point turning business.
7. Each of the parties agrees not to comment upon, discuss, or
disclose to any person any information concerning the terms, conditions and
provisions of this Agreement (except as may be required by legal process) except
that each party may make the statements regarding the other as provided in the
attached Exhibits 1 and 2. Notwithstanding the above, Employer or Employee may
disclose the terms, conditions and provisions of this Agreement to its bankers
pursuant to the terms of any of its loan or credit agreements, to its investment
bankers, counsel and accountants or as may be required to comply with the
requirements of its financing arrangements or federal securities laws. Employee
shall not make disparaging comments about the Employer which could reasonably be
anticipated to cause material harm to the Employer, and Employee agrees to not
comment or discuss, except in a positive manner, with any person or entity any
matters that arose in connection with Employee's employment or resignation from
employment with Employer. Employer shall use reasonable efforts to assure that
any public comments made by Employer concerning Employee are limited to the
substance of the attached letter plus the basic information concerning
Employee's date of employment, position and compensation.
8. In the event that either party breaches any of the covenants
contained in this Agreement the non-breaching party may institute legal
proceedings against the breaching party. The prevailing party in any such
litigation shall be entitled to injunctive relief and any other remedies
available at law. In addition, the prevailing party shall be entitled to receive
repayment of all its expenses, including reasonable attorney's fees, incurred in
the prosecution of such actions, Both the Employer and the Employee acknowledge
and agree that the proper place of venue of any litigation which may arise due
to any breach hereto or any attempt to enforce this Agreement shall be in Palm
Beach County, Florida. In the event of a final order by any court that Employee
has breached the non-disparagement prohibitions of this Agreement, the Employer
is entitled to recover from the Employee any payments paid to Employee by
Employer after the first date on which such disparaging comments are determined
by the Court to have been made.
9. Employee agrees to return all of Employer's property in
Employee's possession on the Change Date. Employee may retain the personal
computer and related peripherals which Employee has been using, but such
equipment shall only be delivered after Employer has removed from such equipment
all data and information related to Employer or constituting the proprietary or
confidential information of Employer. Employee may retain and remove all office
furniture and furnishings which were purchased by Employee, and Employer shall
make arrangements for Employee's access to the premises outside of regular
business hours to effect such removal.
10. Employer and Employee shall use their best efforts to amend
the terms of the existing Stockholders' Agreement, dated as of December 22,
1998, among Andlinger Capital XIII, LLC, John F. Blais Jr. and Employee so that
Employee shall be permitted to "Transfer" (as defined in such Agreement) up to
50,000 shares of Employer's Common Stock in any fiscal quarter of Employer.
-23-
<PAGE> 6
11. This Agreement constitutes the complete understanding between
the parties. Employee especially acknowledges and declares that no other
contract, promise or inducement has been made to Employee. In this regard, the
parties agree that this Agreement terminates and supersedes the 1998 Agreement
and, accordingly, each party's rights and obligations under the 1998 Agreement
are terminated upon the execution of, and replaced by the terms of, this
Agreement. This Agreement may not be amended except in a writing signed by each
of the parties.
12. The parties acknowledge that they have entered into this
Agreement voluntarily and on their own free will and that they understand fully
all the terms of the Agreement.
13. This Agreement may be executed in several counterparts, each
of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
14. This Agreement has been executed and delivered in, and shall
be governed in all respects, whether as to validity, construction, capacity,
performance, or otherwise, by the laws of the Commonwealth of Massachusetts,
without regard to its conflict of law provisions.
-24-
<PAGE> 7
In testimony whereof, the parties hereto set their hands and seals the
day and year first written above.
EMPLOYEE
/s/ Charles T. Ball /s/ W. Kip Speyer
- -------------------------------- -----------------------------------
Witness W. Kip Speyer
GALILEO CORPORATION
/s/ Stephen A. Magida By: /s/ Gerhard R. Andlinger
- -------------------------------- -----------------------------------
Witness Gerhard R. Andlinger
Chairman and President
-25-
<PAGE> 8
Schedule A
Stock Options Held by W. Kip Speyer at July 6, 1999
<TABLE>
<CAPTION>
Date of Grant Number of Type of Option Exercise Price Plan or Agreement under
Share Granted which Option was Granted
<S> <C> <C> <C> <C>
8/6/96 20,000* ISO $ 21.50 1991 SOP
3/10/97 20,000* ISO $ 7.25 1991 SOP
8/20/98 10,000 ISO $ 4.875 1991 SOP
12/31/98 50,000 NQSO $ 3.875 1991 SOP
2/23/99 50,000* NQSO $ 5.25 1991 SOP
2/23/99 100,000* NQSO $ 5.25 Outside 1991 SOP
- --------------------------------------------------------------------------------------------------------------
TOTAL 250,000
</TABLE>
* To be Surrendered and Forfeited Pursuant to this Agreement
-26-
<PAGE> 1
EXHIBIT 2.2
EMPLOYEE AGREEMENT
AGREEMENT made as of the 6th day of July, 1999, by and between JOHN D. BARLOW,
JR. (the "Employee") having an address at 68 Rolling Meadow, E. Amherst, New
York 14051 and LEISEGANG MEDICAL, INC. (the "Company"), a Florida corporation
having an address at 6401 Congress Avenue, Boca Raton, Florida 33487. WHEREAS,
the Company is a wholly-owned subsidiary of Galileo Corporation ("Galileo"); and
WHEREAS, the parties desire to set forth the terms of the Employee's employment
with the Company. NOW, THEREFORE, for good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged, and in consideration
of the mutual covenants and obligations herein contained, the parties hereto
agree as follows:
1. POSITION, RESPONSIBILITIES AND TITLE. During the Employee's
employment by the Company, the Employee agrees to serve as Chief Executive
Officer of the Company and, at the pleasure of the Board of Directors of Galileo
(the "Board"), shall serve as President and a Director of the Company, and as a
director and/or officer of other subsidiaries of Galileo (the "Affiliates") as
designated by the Chief Executive Officer of Galileo from time to time,
presently consisting of those positions listed on Exhibit A attached hereto. The
Employee shall comply with and perform such directions and duties in relation to
the business and affairs of the Company and the Affiliates as may from time to
time be requested by the Board or the Chief Executive Officer of Galileo and
shall use the Employee's best efforts to improve and extend the business of the
Company and the Affiliates. The Employee shall at all times report to, and the
Employee's activities shall at all times be subject to the direction and control
of, the Board and the Chief Executive Officer of Galileo. The Employee agrees to
devote the Employee's full business time, attention and services to the
competent discharge of such duties for the successful operation of the business
of the Company and the Affiliates.
2. COMPENSATION: SALARY, BONUSES, STOCK OPTIONS AND OTHER BENEFITS. During
the Employee's employment by the Company, the Company shall pay the Employee the
following compensation:
2.1. SALARY. The Company will pay to the Employee a salary at the
annual rate of $181,500 commencing as of the date hereof payable in conformity
with the Company's customary practices for executive compensation for officers
of the Company as such practices shall be established or modified from time to
time. Salary payments shall be subject to all applicable withholdings.
2.2. FRINGE BENEFITS. The Employee will be entitled to participate
on the same basis with all other officers and employees of the Company in the
Company's standard benefits package generally available for other officers and
employees of the Company, including group health, disability and life insurance
coverage consistent with that received by Employee in connection with Employee's
previous employment position with Ethox Corp. and an automobile allowance in the
amount of $550 per month. The Employee shall receive four (4) weeks of paid
vacation per year, which shall accrue in accordance with the Company's normal
vacation policies applicable to senior executives.
2.3 STOCK OPTIONS. The Board has approved the grant to Employee of
non-qualified stock options under Galileo's 1991 Stock Option Plan to purchase
35,000 shares of Galileo's Common
-27-
<PAGE> 2
Stock at an exercise price equal to the fair market value of Galileo's Common
Stock on the date of grant and subject to the terms and conditions as set forth
on the Nonstatutory Stock Option Certificate which is attached hereto as Exhibit
B.
2.4 SIGNING BONUS. On or before August 5, 1999, the Company shall
pay Employee a signing bonus in the amount of fifty thousand dollars ($50,000).
2.5 ANNUAL INCENTIVE CASH BONUS. During the term of this
Agreement, Employee shall have the opportunity to earn an annual incentive cash
bonus to be paid annually following the close of the Company's fiscal year. The
amount of the annual incentive cash bonus shall be determined by the Board, or
the Compensation Committee thereof, in the sole discretion of the Board or the
Compensation Committee, as the case may be. Notwithstanding the terms of this
Section 2.5, the Company does not anticipate an annual incentive cash bonus
being awarded to Employee for the Company's fiscal year ending September 30,
1999.
2.6 TRANSACTION BONUS. Employee shall be entitled to a transaction
bonus ("Transaction Bonus") in the event of the sale of the women's
health-related medical products business of the Company and the Affiliates
(hereinafter referred to as the "Leisegang Companies") during Employee's
employment with the Company and under certain conditions, as outlined below. The
Transaction Bonus shall be paid pursuant to the following terms:
(a) In the event of the consummation of a sale of the
Leisegang Companies during Employee's employment with the
Company as to which the Company has entered into a letter of
intent or binding agreement on or before November 6, 1999, the
Company shall pay Employee a Transaction Bonus in the amount of
$200,000, irrespective of the total amount of consideration paid
by the buyer in connection with such sale.
(b) In the event of the consummation of a sale of the
Leisegang Companies during Employee's employment with the
Company as to which the Company has not entered into a letter of
intent or binding agreement on or before November 6, 1999, the
Company shall pay Employee a Transaction Bonus in an amount
equal to the greater of (i) ten percent (10%) of the amount by
which the Net Proceeds (as defined below) of such sale exceed
$14.5 million or (ii) $200,000.
For purposes of calculating the Transaction Bonus to be paid
pursuant to this Section 2.6, "Net Proceeds" means the total cash consideration
received by the Company in connection with the sale of the Leisegang Companies,
less the amount of liabilities, debt or other obligations of the Leisegang
Companies which the Company is obligated to pay following the sale ("Leisegang
Liabilities"). For example, if the buyer pays $16,000,000 for the Leisegang
Companies and assumes all liabilities of the Leisegang Companies as part of the
transaction, the Net Proceeds for purposes of the Transaction Bonus will be
$16,000,000. On the other hand, if the buyer in such transaction buys only
assets, assumes no liabilities, pays $19,000,000 for the assets and the
Leisegang Liabilities are $6,000,000, the Net Proceeds for purposes of the
Transaction Bonus will be $13,000,000. In addition, the Company's legal and
accounting fees incurred in connection with such a sale shall not be deducted
from the consideration paid by the buyer in calculating the Net Proceeds under
this Section 2.6.
In the event Employee's employment with the Company is terminated by
the Company without Cause pursuant to Section 4.3 hereof prior to the
consummation of a sale of the Leisegang Companies
-28-
<PAGE> 3
for which Employee would otherwise be entitled to a Transaction Bonus, Employee
shall be paid a Transaction Bonus with respect to such sale in accordance with
the terms of this Section 2.6, provided (i) there is a letter of intent in
effect for such sale at the time of the Company's without-Cause termination of
Employee's employment with the Company and (ii) such sale is consummated within
three (3) months following the termination of Employee's employment with the
Company without Cause.
The Company and Employee acknowledge and agree that any Transaction
Bonus payable under this Section 2.6 shall be payable only from the proceeds of
a sale of the Leisegang Companies which are actually received in cash by the
Company, whether in the form of progress payments, partial payment or otherwise,
and that the Company's Transaction Bonus payment obligation to Employee
hereunder shall apply only to the extent that the Company receives payment in
cash of the Net Proceeds from the buyer.
Notwithstanding anything to the contrary contained elsewhere in this
Agreement, in the event the proceeds received by the Company in connection with
a sale of the Leisegang Companies consist of property or other non-cash
consideration, the Board or the Compensation Committee thereof shall make a good
faith determination as to the fair market value of such non-cash consideration
and the extent to which such valuation amount exceeds $14.5 million. In the
event of such a transaction involving the receipt of non-cash consideration, the
Employee shall be entitled to a Transaction Bonus based on the fair market value
of the non-cash consideration received by the Company, as determined by the
Board in good faith, whose determination as to the fair market value of the
non-cash consideration and the amount of the Transaction Bonus will be final and
binding. In addition, in the event the Company receives sales proceeds in the
form of progress payments, partial payments or some other type of installment
payments, the Transaction Bonus owed to Employee with respect to such
transaction shall also be paid in installments, the timing and amount of which
to be determined by the Board in its sole discretion, whose determination will
be final and binding.
2.7 MOVING EXPENSES. In the event the Employee relocates to the
Boca Raton, Florida area in connection with his employment with the Company, the
Company shall reimburse the Employee for the Employee's reasonable costs and
expenses of movement of the Employee's household goods and effects from E.
Amherst, New York to the Boca Raton, Florida area, provided that the Employee
shall submit to the Company satisfactory documentation or support of such
reasonable moving expenses.
3. ERM. The term of the Employee's employment with the Company shall
commence July 6, 1999 and shall continue until July 6, 2000, unless earlier
terminated as hereinafter provided. Thereafter, the term of the Employee's
employment with the Company shall be renewed for successive additional
twelve-month periods, subject to earlier termination as provided herein.
4. EMPLOYMENT TERMINATION. The Employee's employment under this Agreement
may be earlier terminated as follows:
4.1. TERMINATION FOR CAUSE. At the election of the Company, the
Employee's employment with the Company may be terminated for "Cause" immediately
upon written notice by the Company to the Employee. For the purposes of this
Agreement, "Cause" for termination shall be deemed to exist upon (i) the
continuing failure of Employee to render services to the Company in accordance
with the Employee's assigned duties consistent with this Agreement, and such
failure of
-29-
<PAGE> 4
performance continues for a period of more than 30 days after notice thereof has
been provided to the Employee by the Board of Directors or the Company; (ii)
willful misconduct or gross negligence of the Employee in the performance of his
duties and services to the Company or any of its subsidiaries; (iii) the
conviction of the Employee of a felony, whether or not committed in the course
of performing services for the Company or any of its subsidiaries; (iv)
disloyalty, deliberate dishonesty, breach of fiduciary duty or breach of the
terms of this Agreement; (v) the commission by the Employee in the course of
performing any services for the Company or any of its subsidiaries of
embezzlement, theft or any other fraudulent act; (vi) the commission by the
Employee of an act in deliberate disregard of the rules or policies of the
Company which results in loss, damage or injury to the Company or any of its
subsidiaries or adversely affects the business activities, reputation, goodwill
or image of the Company or any of its subsidiaries; (vii) the unauthorized
disclosure by Employee of any trade secret or confidential information of the
Company or any of its subsidiaries; (viii) the commission by Employee of an act
which constitutes unfair competition with the Company or any of its subsidiaries
or which induces any employee or customer of the Company to breach a contract
with the Company or any of its subsidiaries or (ix) the material breach by the
Employee of any agreement to which the Company and the Employee are parties.
4.2. DEATH OR DISABILITY. The Employee's employment with the
Company shall terminate upon the Employee's death or, at the election of the
Company by written notice to the Employee, upon the Disability of the Employee.
As used in this Agreement, the term "Disability" shall mean the inability or
failure of the Employee to perform the essential functions of the position with
or without reasonable accommodation as a result of a mental or physical
disability for a period of ninety (90) or more days (whether or not consecutive)
during any twelve (12) months, all as determined in good faith by a majority of
the disinterested members of the Board of Directors of the Company.
4.3. TERMINATION WITHOUT CAUSE. The Company may terminate the
Employee's employment with the Company at any time for any reason by written
notice to the Employee.
5. EFFECT OF TERMINATION.
5.1. TERMINATION FOR CAUSE. In the event of a termination for
"Cause" under Section 4.1, the Employee shall be entitled to no severance or
other termination benefits, or any other benefits (except for any health
insurance benefits as required by applicable law).
5.2. TERMINATION FOR DEATH OR DISABILITY. If the Employee's
employment is terminated by death or Disability pursuant to Section 4.2, the
Company shall pay to the Employee or the Employee's estate the compensation
which would otherwise be payable to the Employee up to the day as of which the
Employee's employment is terminated.
5.3. TERMINATION WITHOUT CAUSE. In the event Employee's employment
is terminated by the Company without Cause pursuant to Section 4.3, the Company
shall continue to pay to the Employee the base salary then payable to the
Employee for a period of one year after the last day of the Employee's
employment by the Company. All payments are expressly conditioned upon the
Employee's compliance with the terms of any other agreement to which the Company
and the Employee are parties on the last day of the Employee's employment by the
Company.
6. NOTICES. All notices required or permitted under this Agreement shall
be in writing and shall be deemed effective upon personal delivery or upon
deposit with any reliable overnight courier
-30-
<PAGE> 5
service, transfer by electronic facsimile transmission, or upon deposit by first
class mail, postage prepaid addressed as follows:
IF TO EMPLOYEE, ADDRESSED TO:
----------------------------
John D. Barlow, Jr.
c/o Leisegang Medical, Inc.
6401 Congress Avenue
Boca Raton, FL 33487
IF TO THE COMPANY, ADDRESSED TO:
-------------------------------
Leisegang Medical, Inc.
c/o Galileo Corporation
Galileo Park
P.O. Box 550
Sturbridge, MA 01566
Attention: President
WITH A COPY TO:
--------------
Edwards & Angell, LLP
250 Royal Palm Way, Suite 300
Palm Beach, FL 33480
Attention: Jonathan E. Cole, Esq.
Facsimile: (561) 655-8719
7. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and supersedes all prior agreements and understandings,
whether written or oral, relating to the subject matter of this Agreement.
8. WAIVER AND MODIFICATION. This Agreement may be amended or modified only
by a written instrument executed by both the Company and the Employee. No waiver
by either party of any breach by the other or any provision hereof shall be
deemed to be a waiver of any later or other breach thereof or as a waiver of any
other provision of this Agreement.
9. GOVERNING LAW. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of the State of Florida.
10. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of both parties and their respective successors and assigns,
including any corporation with which or into which the Company may be merged or
which may succeed to its assets or business; provided, however, that the
obligations of the Employee are personal and shall not be assigned or delegated
by the Employee.
11. Miscellaneous.
11.1. WAIVERS. No delay or omission by the Company in exercising any
right under this Agreement shall operate as a waiver of that or any other right.
A waiver or consent given by the Company on any one occasion shall be effective
only in that instance and shall not be construed as a bar or waiver of any right
on any other occasion.
-31-
<PAGE> 6
11.2. CAPTIONS. The captions of the sections of this Agreement are
for convenience of reference only and in no way define, limit or affect the
scope or substance of any section of this Agreement.
11.3. SEVERABILITY. In the case any provision of this Agreement
shall be invalid, illegal or otherwise unenforceable, the validity, legality and
enforceability of the remaining provisions shall in no way be affected or
impaired thereby.
11.4. GENDER AND NUMBER. The gender and number used in this
Agreement are used as reference terms only and shall apply with the same effect
whether the parties are of the masculine, neuter or feminine gender, corporate
or other form, and the singular shall likewise include the plural.
11.5 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
EXPRESSLY AND KNOWINGLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER MATTER PERTAINING TO OR
ARISING DURING THE EMPLOYMENT OF THE EMPLOYEE BY THE COMPANY.
11.6 NO CONFLICT. The Employee hereby represents and warrants that
the Employee is not a party to or bound by any agreement or understanding of any
type with any other person or entity that in any way restricts the Employee's
involvement with the Company and its subsidiaries as an employee, stockholder or
otherwise.
11.7 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, and each of which together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written as an instrument under seal.
LEISEGANG MEDICAL, INC. EMPLOYEE:
By: /s/ Thomas J. Mathews /s/ John D. Barlow
-------------------------------- -----------------------------
Title: TREASURER Name: JOHN D. BARLOW, JR.
-32-
<PAGE> 7
EXHIBIT A
ENTITY POSITIONS
- ------ ---------
Leisegang Medical, Inc. Chairman of Board
President & CEO
Leisegang GmbH Advisory Board Member
Galenica Inc. (Canada) Chairman of Board
Galenica, Inc. (U.S.) Chairman of Board
President
-33-
<PAGE> 8
EXHIBIT B
---------
35,000 Shares
GALILEO CORPORATION
1991 Stock Option Plan
NONSTATUTORY STOCK OPTION CERTIFICATE
-------------------------------------
Galileo Corporation, Inc. (the "Company"), a Delaware corporation,
hereby grants to the person named below an option (the "Option") to purchase
shares of Common Stock, $.01 par value of the Company (the "Common Stock")
subject to the following terms and conditions and those attached to this
certificate:
<TABLE>
<S> <C>
Name of Optionholder: John D. Barlow, Jr.
Address: 68 Rolling Meadow
E. Amherst, New York 14051
Social Security No. ###-##-####
Number of Shares: 35,000
Option Price: $7.438
Date of Grant: July 1, 1999
Exercisability Schedule: On or after July 1, 2000 as to 8,750 shares
On or after July 1, 2001 as to 8,750 additional shares.
On or after July 1, 2002 as to 8,750 additional shares
On or after July 1, 2003 as to 8,750 additional shares
Expiration Date: July 1, 2009
</TABLE>
Notwithstanding the foregoing, in the event of a Change in Control of
the Company (as defined in Section 3 of the attached terms and conditions), this
Option shall become exercisable as to all shares without regard to any deferred
exercise period.
This Option shall not be treated as an Incentive Stock Option under
section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
By acceptance of this Option, the Optionholder agrees to the terms and
conditions hereof.
GALILEO CORPORATION
By: /s/ Josef W. Rokus
--------------------------------
Vice President
-34-
<PAGE> 9
NONSTATUTORY STOCK OPTION TERMS AND CONDITIONS
1. PLAN INCORPORATED BY REFERENCE. This Option is issued under and
subject to the terms of the Plan and may be amended as provided in the Plan.
Capitalized terms used and not otherwise defined in this certificate have the
meanings given to them in the Plan. This certificate does not set forth all of
the terms and conditions of the Plan, which are incorporated herein by
reference. The Committee administers the Plan and its determinations regarding
the operation of the Plan are final and binding. Copies of the Plan may be
obtained upon written request without charge from the Company.
2. OPTION PRICE. The price to be paid for each share of Common Stock
issued upon exercise of the whole or any part of this Option is the Option Price
set forth on the first page of this certificate.
3. EXERCISABILITY SCHEDULE. This Option may be exercised at any time
and from time to time for the number of shares and in accordance with the
exercisability schedule set forth on the first page of this certificate;
provided, however, that in the event of a Change in Control of the Company, this
Option shall become exercisable as to all shares without regard to any deferred
exercise period. For this purpose, "Change in Control" means a change in control
of the Company of a nature that would be required to be reported in response to
Item 6(e) of Schedule 14A of Regulation 14A under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), whether or not the Company is in fact
required to comply therewith; provided that without limitation, a Change in
Control shall be deemed to have occurred if:
(a) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the shareholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) directly or indirectly of securities of the Company representing
40% or more of the combined voting power of the Company's then outstanding
securities;
(b) during any period of 24 consecutive months (not including any
period prior to the date of this Option), individuals who at the beginning of
such period constitute the Board of Directors of the Company and any new
director (other than a director designated by a person who has entered into an
agreement with the Company to effect a transaction described in subsections (a),
(c) or (d) of this Section 3) whose election by the Board of Directors of the
Company or nomination for election by the shareholders of the Company was
approved by a vote of at least two-thirds of the directors then still in office
who either were directors at the beginning of such period or whose election or
nomination for election was previously so approved cease for any reason to
constitute a majority thereof;
-35-
<PAGE> 10
(c) the shareholders of the Company approve a merger or consolidation
of the Company with any other corporation other than (i) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 50% of the combined voting securities of the Company
or such surviving entity outstanding immediately after such merger or
consolidation or (ii) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no "person"
(as defined above) acquires 40% or more of the combined voting power of the
Company's then outstanding securities; or
(d) the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets.
(e) the Company sells its women's health-related medical products
business.
This Option may be exercised only for the purchase of whole shares and
may not be exercised as to any shares after the Expiration Date.
4. METHOD OF EXERCISE. To exercise this Option, the Optionholder must
deliver written notice of exercise to the Company specifying the number of
shares with respect to which the Option is being exercised accompanied by
payment of the Option Price for such shares in cash, by certified check or in
such other form, including shares of Common Stock valued at their Fair Market
Value on the date of delivery, as the Committee may approve. Promptly following
such notice, the Company will deliver to the Optionholder a certificate
representing the number of shares for which the Option is being exercised.
5. RIGHTS AS A STOCKHOLDER OR EMPLOYEE. The Optionholder has no rights
in shares as to which the Option has not been exercised and payment made as
provided above. The Optionholder has no rights to continued employment by the
Company or its Affiliates by virtue of the grant of this Option.
6. RECAPITALIZATION, MERGERS, ETC. As provided in the Plan, in the
event of corporate transactions affecting the Company's outstanding Common
Stock, the Committee will equitably adjust the number and kind of shares subject
to this Option and the exercise price hereunder or make provision for a cash
payment. If such transaction involves a consolidation or merger of the Company
with another entity, the sale or exchange of all or substantially all of the
assets of the Company or a reorganization or liquidation of the Company, then in
lieu of the foregoing, the Committee may upon written notice to the Optionholder
provide that this Option shall terminate on a date not less than 20 days after
the date of such notice unless theretofore exercised. In connection with such
notice, the Committee may in its discretion accelerate or waive any deferred
exercise period.
-36-
<PAGE> 11
7. OPTION NOT TRANSFERABLE. Except as otherwise permitted by the
Committee, this Option is not transferable by the Optionholder otherwise than by
will or the laws of descent and distribution, and is exercisable during the
Optionholder's lifetime only by the Optionholder. The naming of a Designated
Beneficiary does not constitute a transfer.
8. EXERCISE OF OPTION AFTER TERMINATION OF EMPLOYMENT. If the
Optionholder's status as an employee or consultant of the Company or an
Affiliate (as defined in Rule 144 under the Securities Act of 1933, as amended)
is terminated for any reason other than by disability, death, or a Change of
Control due to the sale of the Company's women's health-related medical products
business as described in subsection 3(e) above (hereinafter referred to as a
"Leisegang Companies Sale") the Optionholder may exercise the rights which were
available to the Optionholder at the time of such termination only within three
months from the date of termination. If such status is terminated as a result of
disability or a Leisegang Companies Sale, such rights may be exercised only
within twelve months from the date of termination. Upon the death of the
Optionholder, his or her Designated Beneficiary shall in lieu of any other
rights hereunder have the right, at any time within twelve months after the date
of death, to exercise in whole or in part any rights that were available to the
Optionholder at the time of death. Notwithstanding the foregoing, no rights
under this Option may be exercised after the Expiration Date.
9. COMPLIANCE WITH SECURITIES LAWS. As a condition to the
Optionholder's right to purchase shares of Common Stock hereunder, the Company
may, in its discretion, require that (a) the shares of Common Stock reserved for
issue upon the exercise of this Option shall have been duly listed, upon
official notice of issuance, upon any national securities exchange or automated
quotation system on which the Company's Common Stock may then be listed or
quoted, (b) either (i) a registration statement under the Securities Act of 1933
with respect to the shares shall be in effect, or (ii) in the opinion of counsel
for the Company, the proposed purchase shall be exempt from registration under
that Act and the Optionholder shall have made such undertakings and agreements
with the Company as the Company may reasonably require, and (c) such other
actions, if any, as counsel for the Company shall consider necessary to comply
with any law applicable to the issue of such shares by the Company shall have
been taken by the Company or the Optionholder, or both. The certificates
representing the shares purchased under this Option may contain such legends as
counsel for the Company considers necessary to comply with any applicable law.
10. PAYMENT OF TAXES. The Optionholder must pay to the Company, or make
provision satisfactory to the Company for payment of, any taxes required by law
to be withheld with respect to the exercise of this Option. The Committee may,
in its discretion, require any other Federal or state taxes imposed on the sale
of the shares to be paid by the Optionholder. In the Committee's discretion,
such tax obligations may be paid in whole or in part in shares of Common Stock,
including shares retained from the exercise of this Option, valued at their Fair
Market Value on the date of delivery. The Company and its Affiliates may, to the
extent permitted by law, deduct any such tax obligations from any payment of any
kind otherwise due to the Optionholder.
-37-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 1,281
<SECURITIES> 0
<RECEIVABLES> 7,459
<ALLOWANCES> 850
<INVENTORY> 7,665
<CURRENT-ASSETS> 25,416
<PP&E> 28,302
<DEPRECIATION> 20,072
<TOTAL-ASSETS> 53,652
<CURRENT-LIABILITIES> 17,991
<BONDS> 0
0
0
<COMMON> 101
<OTHER-SE> 34,640
<TOTAL-LIABILITY-AND-EQUITY> 53,652
<SALES> 31,189
<TOTAL-REVENUES> 31,189
<CGS> 18,503
<TOTAL-COSTS> 19,721
<OTHER-EXPENSES> (177)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 791
<INCOME-PRETAX> (3,447)
<INCOME-TAX> 169
<INCOME-CONTINUING> (3,616)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,616)
<EPS-BASIC> (0.39)
<EPS-DILUTED> (0.39)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 1,230
<SECURITIES> 0
<RECEIVABLES> 7,509
<ALLOWANCES> 1,130
<INVENTORY> 7,699
<CURRENT-ASSETS> 23,689
<PP&E> 36,685
<DEPRECIATION> 28,239
<TOTAL-ASSETS> 52,367
<CURRENT-LIABILITIES> 17,331
<BONDS> 0
0
0
<COMMON> 101
<OTHER-SE> 33,978
<TOTAL-LIABILITY-AND-EQUITY> 52,367
<SALES> 21,603
<TOTAL-REVENUES> 21,603
<CGS> 13,195
<TOTAL-COSTS> 14,099
<OTHER-EXPENSES> (88)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 548
<INCOME-PRETAX> (3,817)
<INCOME-TAX> 144
<INCOME-CONTINUING> (3,961)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,961)
<EPS-BASIC> (0.45)
<EPS-DILUTED> (0.45)
</TABLE>
