1999
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
(MARK ONE)
|X| Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required] For the fiscal year ended December 31, 1999.
or
|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from ______________ to ______________
Commission file number: 0-12742
SPIRE CORPORATION
-----------------
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
Massachusetts 04-2457335
------------- ----------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
One Patriots Park, Bedford, Massachusetts 01730-2396
- ----------------------------------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
781-275-6000
------------
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
Not applicable Not applicable
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 par value, Nasdaq
------------------------------------
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 |_|
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. |_|
State issuer's revenues for its most recent fiscal year: $11,901,000.
Based on the closing average price for the registrant's voting stock on February
29, 2000, the aggregate market value of such voting stock held by non-affiliates
of the registrant was $9,587,190.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. There were 3,283,088 shares of the
issuer's only class of common equity, Common Stock, $.01 par value, on February
29, 2000.
Transitional Small Business Disclosure Format (Check One): Yes |_| No |X|
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the Special Meeting of
Stockholders in Lieu of 2000 Annual Meeting to be held on May 23, 2000 are
incorporated by reference into Part III of this Report.
================================================================================
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
- --------------------------------
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS AND THE TIMING OF CERTAIN EVENTS MAY
DIFFER MATERIALLY FROM THE RESULTS AND TIMING DISCUSSED IN THE FORWARD-LOOKING
STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE,
BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW AND IN "RISK FACTORS" AND
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
BUSINESS DEVELOPMENT
Spire Corporation ("Spire" or the "Company"), a Massachusetts corporation
incorporated in 1969, is organized into three business areas all of which have
developed out of the Company's expertise in semiconductor technologies:
o Photovoltaics equipment,
o Biomedical, and
o Optoelectronics.
The Company's revenues over the past three years have been between $12 and $23
million, but the sources of those revenues have varied among the Company's three
primary business areas.
On December 30, 1999, the Company sold substantially all of the assets of
its optoelectronics business for cash proceeds of $12,910,003. The assets that
were sold to the purchaser included machinery, equipment and technology. Until
December 30, 2004 the Company may not compete with the purchaser's
optoelectronics business. However, the restrictions on competition do not
prevent the Company from engaging in optoelectronics business activities in
conducting its terrestrial photovoltaic business relating to terrestrial solar
cells and related components, or in conducting its biomedical business relating
to implanted medical devices and related instrumentation and components. The
Company will continue to perform the project management element of its U.S.
government optoelectronics research and development contracts until they are
completed through 2001. The Company has entered into a subcontract with the
purchaser under each of the remaining government contracts for a portion of the
research and development services. In addition, the Company will continue to bid
on new optoelectronics U.S. government funded research and development contracts
which may include additional subcontracts with the purchaser.
BUSINESS OF ISSUER
Spire develops, manufactures and markets highly-engineered photovoltaic
module manufacturing equipment and provides biomedical processing services.
Spire is the world's leader in the design and manufacture of specialized
equipment for the production of terrestrial photovoltaic modules from solar
cells, with its equipment installed in 144 factories and in 39 countries.
Spire's value-added biomedical processing services offer surface treatments to
enhance the durability or antimicrobial characteristics of orthopedic and other
medical devices. Spire also conducts research and development activities,
primarily for the U.S. government.
PHOTOVOLTAICS
Photovoltaics, the technology of using solar cells to convert sunlight
directly into electricity, is a growing alternative energy production method and
an increasingly important component of world energy production, particularly in
the wireless telecommunications sector. With this technology, electricity is
produced by using photovoltaic modules, which consist of a number of solar cells
connected to each other and laminated in reliable and durable support
structures. The Company's module manufacturing equipment and production line
configurations offer its customers a range of manufacturing processes, from
labor intensive to fully automated systems. Spire's products include solar cell
testers, cell tabbing and stringing assemblers, laminators and sun simulator
module testers, as well as turnkey module production lines complete with
comprehensive technology, training and service support.
2
<PAGE>
Spire's market leadership and international reputation for quality
manufacturing and process technology position the Company to capitalize on the
photovoltaic market. From 1993 to 1997, global usage of terrestrial photovoltaic
power increased substantially, due to such factors as rural electrification in
the developing world, the accelerated growth of wireless telecommunications,
with its need for wireless power, and increased environmental concerns
encouraging the use of renewable energy sources. Awareness and acceptance of
photovoltaics as an energy source are growing as a result of receiving
significant support from initiatives such as the PV Rooftop Program in Japan,
the Building Integration Program in Germany and the Clinton Administration's
"Million Solar Roofs Initiative." During 1998, demand for photovoltaic
manufacturing equipment slowed due to global economic conditions and excess
photovoltaic production capacity. The Asian economic crisis, particularly in
Japan, slowed funding of government backed programs. Many European expansion
plans have also been delayed due to economic concerns. During 1999 demand showed
a resurgence particularly in the Asian and European markets. See "Risk Factors -
Dependence on Market Growth," "- Competition," and "Dependence on Export Sales."
BIOMEDICAL
The Biomedical division specializes in surface treatment to improve the
performance of medical devices such as catheters, orthopedic prostheses and
vascular grafts. The Company's processes reduce friction and wear, provide
infection resistance, and enhance tissue and blood compatibility by altering
surface composition and chemistry. The Company's surface treatment technologies
include proprietary ion beam and ion-beam-assisted deposition (IBAD) processes.
As the market leader in ion-beam processing, the Company can apply these
technologies to metals, polymers and ceramics.
The Company's IONGUARD(R) ion-beam processes are chosen by the orthopedic
industry when improved prosthesis performance is demanded. Currently, only a
small percentage of orthopedic devices are treated with the Company's
proprietary processing technologies. The aging of the American population and a
trend to more active lifestyles are driving the need for more durable,
long-lived prostheses.
SPI-Argent(TM) and SPI-Argent/Implant, two of the Company's surface
treatments for infection resistance, thromboresistance, and reduced friction,
are increasingly demanded as healthcare providers recognize the need to reduce
costs by eliminating device related complications. SPI-Argent processes
incorporate elemental silver, a widely useful antimicrobial agent, into the
surfaces of medical devices for long term efficacy and performance. See "Risk
Factors - Dependence on Market Growth ," and " - Government Regulation."
OPTOELECTRONICS BUSINESS
Optoelectronics involves the conversion of light into electricity, like
photovoltaics, and/or the conversion of electricity to light. Optoelectronics
uses thin film technology, such as metalorganic chemical vapor deposition
(MOCVD), to create semiconductor devices for telecommunications, biomedical and
electronics applications. In an MOCVD reactor, specialized in semiconductor
materials are deposited onto substrate wafers as single-crystal thin films.
These wafers are then further processed into various semiconductor devices.
During 1999, the Company utilized its optoelectronics technologies to
perform on various U.S. government funded research and development programs, to
continue to develop its optoelectronics technologies. The Company also produced
and commercially sold optoelectronic products in the form of diode lasers and
compound semiconductor wafers.
On December 30, 1999, the Company sold substantially all of the assets of
its optoelectronics business, retaining the project management element of its
U.S. government optoelectronics research and development contracts until they
are completed through 2001. See Note (9) of the financial statements and
"Description of Business - Business Development" on page two for a complete
description of the sale of the optoelectronics business.
3
<PAGE>
GENERAL INFORMATION
-------------------
RESEARCH AND DEVELOPMENT
The Company's policy is to support as much of its research and
development as possible through government contract funding, which it recognizes
as revenue. Revenues from the Company's research and development contracts
funded by the U.S. government, and their percent of net revenues, for the last
three years were as follows:
----------------------- ------------------------ ------------------------
1999 1998 1997
----------------------- ------------------------ ------------------------
$4,381,000 $6,092,000 $7,972,000
----------------------- ------------------------ ------------------------
37% 43% 35%
----------------------- ------------------------ ------------------------
As of December 31, 1999, the Company was performing 24 contracts and grants for
the U.S. government, compared with 17 as of December 31, 1998. All contracts
with U.S. government agencies have been audited through December 1996. The
audits for the years ended December 31, 1997, through December 31, 1999 have not
yet been performed.
The Company's contracts with the U.S. government grant to the Company
proprietary rights in any technology developed pursuant to such contracts and
grant to the U.S. government a non-exclusive license to utilize the technology
for its benefit. The U.S. government retains the right to obtain the patent on
any inventions made under these contracts as to which patent protection is not
sought and obtained by the Company. The Company's rights to technology developed
under contracts with private companies vary, depending upon negotiated terms.
See "Risk Factors - Dependence on Outside Funding for Research and Development,"
" - Protection of Proprietary Technology" and " - Government Regulation."
The Company's internally funded research and development expenditures for
the last three years were as follows:
----------------------- ------------------------ ------------------------
1999 1998 1997
----------------------- ------------------------ ------------------------
$184,000 $344,000 $133,000
----------------------- ------------------------ ------------------------
SALES AND MARKETING
The Company builds its photovoltaic module manufacturing equipment
generally to order, and usually requires 35% of the total purchase price on
order, 55% on shipment and the final 10% upon acceptance of the equipment by the
customer. The Company receives progress payments under its research and
development contracts on a cost reimbursement or per deliverable basis.
Biomedical processing services generally is sold on a net 30 day basis.
The Company markets its photovoltaics products and services through
non-exclusive commissioned sales representatives, as well as through its
internal staff. The outside sales representatives are responsible for making
initial contacts with potential customers, after which the representatives work
in conjunction with the Company's internal staff to consummate sales. The
Company believes that use of outside sales representatives is particularly
important in facilitating access into certain foreign countries. Most of the
Company's sales representatives have had long term relationships with the
Company, and work with the Company without written agreements. Sales initiated
through the Company's internal staff arise from a number of sources, including
trade shows, printed advertisements and telephone campaigns.
In the biomedical area, the Company concentrates on identifying and
serving the leading U.S. manufacturers of orthopedic and other medical devices.
Where possible, the Company seeks to be the sole provider of surface processing
services to its biomedical customers.
The optoelectronics division will no longer be offering commercial
products.
The Company's scientists are responsible for submitting proposals to the
U.S. government and other outside sources for sponsored research and development
work, particularly in the optoelectronics area. See "Risk Factors - Dependence
on Outside Funding for Research and Development," " - Reliance on Sales
Representatives" and " Technological Advances; Dependence on Future Product
Development and Market Acceptance."
4
<PAGE>
MANUFACTURING AND QUALITY CONTROL
The Company manufactures all of its products and performs all of its
biomedical processing services in a single facility. The fulfillment of each
customer order for the Company's photovoltaic module manufacturing equipment
requires customized engineering and systems design. While the time required to
fill orders is slightly different for each item of equipment, it generally takes
approximately six months from date of order to delivery to the customer. The
first few months of this process is devoted to customizing the design of the
item of equipment to meet the customer's requirements. The balance of the time
is spent on internal assembly, wiring and testing of the equipment. The Company
maintains quality control measures throughout each step of the manufacturing
process. Employees are responsible for reviewing incoming materials, conducting
interim testing throughout the Company's processing of the materials, and
servicing and testing final products before shipment to the Company's customers.
In the biomedical area, customers ship medical devices to be
surface-processed to the Company. These devices are reviewed for surface defects
prior to undergoing the Company's surface processing, and are reviewed again for
defects upon completion of the processing. The devices are then shipped back to
the customer.
The Company assembles its photovoltaic module manufacturing equipment
from a combination of components purchased from a variety of suppliers and
self-fabricated components. The Company has not experienced any major price
increases, or lack of availability, of its components. For many items, alternate
sources are available. The Company believes that the loss of any supplier would
not be material due to the ability to use alternate suppliers or to substitute
other items with minimal re-engineering. The Company anticipates that it will be
able to manufacture and procure all such parts and materials in sufficient
quantities to meet its needs. See "Risk Factors - Dependence on Single
Manufacturing Facility."
PROPRIETARY RIGHTS
Through 30 years of research and development, the Company has accumulated
extensive scientific and technological expertise. The Company protects its
technological advances as trade secrets, in part through confidentiality
agreements with employees, consultants and third parties. The Company also seeks
and enforces patents as appropriate. The Company currently has 26 U.S. patents,
of which one is jointly owned, one patent pending in the United States and two
foreign patents pending, all of which cover elements of its materials and
processing technologies.
The majority of the Company's research and development work is funded by
the U.S. government and other entities. The U.S. government retains the right to
obtain a patent on any invention developed under government contracts as to
which the Company does not seek and obtain a patent, and may require the Company
to grant a third party license of such invention if steps to achieving practical
application of the invention have not been taken. The U.S. government also
retains a non-exclusive, royalty-free, non-transferable license to all
technology developed under government contracts, whether or not patented, for
government use, including use by other parties to U.S. government contracts.
Furthermore, the Company's U.S. government contracts prohibit the Company from
granting exclusive rights to use or sell any inventions unless the grantee
agrees that any product using the invention will be manufactured substantially
in the United States. See "Risk Factors - Protection of Proprietary Technology"
and "Government Regulation."
COMPETITION
The Company sells its products and services in competitive markets.
Entities now operating in related markets can also enter the Company's markets.
Some of the Company's current and potential competitors have financial and
technical resources greater than those of the Company. Competitive factors for
the Company in its various markets include the amount and pace of technological
innovation, financial resources, product quality, timely delivery, service and
price. The Company believes that there are considerable barriers to entry into
the markets it serves, including a significant investment in specialized capital
equipment and product design and development, and the need for a staff with
sophisticated scientific and technological knowledge.
The Company faces competition from various companies in the terrestrial
photovoltaic module manufacturing equipment market. As an industry leader, the
Company has been subject to competitive pricing on some of the components of its
photovoltaic module manufacturing equipment product line. The Company's
automated equipment competes with
5
<PAGE>
more labor intensive, lower priced alternatives. Furthermore, the Company
competes in foreign countries where there may be a preference for doing business
with local companies. In addition, large manufacturers may produce items of
equipment for their own internal use, eliminating the purchase of such equipment
from commercial vendors. With respect to its biomedical services, the Company
competes on the basis of overall quality of service and price, and at times on
the basis of value added. The Company's services also compete against products
based on alternate technologies. In addition, the Company faces competition from
numerous other businesses, particularly small businesses throughout the United
States, for contracts for research and development funded by the U.S. government
and other outside sources.
Because the Company often markets its photovoltaic products to
governmental agencies or financiers in foreign countries, it faces risks
inherent in international sales, such as regulatory requirements, political and
economic changes and disruptions and transportation delays. The Company also
faces competition from government or private companies in these countries. The
Company addresses these issues by working with local commissioned sales
representatives, seeking to establish a local presence, such as through its
agreements with Marubeni, maintaining technological leadership, and quoting
prices and accepting payment only in U.S. dollars, generally against letters of
credit. Because the Company sells its products only in U.S. dollars, the
Company's sales could be adversely affected to the extent that its customers
have limited access to U.S. dollars and to the extent that fluctuations in
exchange rates may render the Company's prices less competitive relative to
competitors' prices. See "Risk Factors - Competition" and " - Dependence on
Export Sales."
EMPLOYEES
As of December 31, 1999, the Company employed 88 people, of whom 81 were
full-time. Six of the Company's employees hold Ph.D.'s. The Company has 28
employees on its technical staff and 16 on its manufacturing staff. The Company
has never experienced a work stoppage and considers its relationship with its
employees to be good. See "Risk Factors - Competition" and " - Dependence on
Export Sales."
GOVERNMENT REGULATION
The Company's government contracts are subject to a large number of
federal regulations and oversight requirements. Compliance with the array of
government regulations requires extensive record keeping and the maintenance of
complex policies and procedures relating to all aspects of the Company's
business, as well as to work performed for the Company by any subcontractors.
The Company believes that it has put in place systems and personnel to ensure
compliance with all U.S. government regulations relating to contracting.
The Company also is subject to export control regulations that govern the
export of Company products to designated countries, as well as the release of
technical information to non-U.S. individuals and entities. Further, the Company
is subject to federal, state and local governmental environmental regulations
and to federal OSHA regulations. The Company believes that it has complied in
all material respects with all applicable environmental and safety regulations
and has all permits necessary to conduct its business. The Company employs a
full-time Environmental and Safety Engineer to manage its compliance efforts.
The cost of such compliance has not been material to the Company.
The introduction by the Company's customers of new biomedical products
depends on passage of these products through various stages of review by the
FDA. The process of obtaining regulatory approvals involves lengthy and detailed
laboratory and clinical testing and other costly and time-consuming procedures.
The Company continues to refine its interaction with its customers in the
regulatory approval process in an effort to streamline its customers'
application process. See "Risk Factors - Government Regulation."
RISK FACTORS
------------
IN ADDITION TO THE OTHER INFORMATION IN THIS SEC FORM 10-KSB, THE
FOLLOWING RISK FACTORS INHERENT IN AND AFFECTING THE BUSINESS OF THE COMPANY
SHOULD BE CONSIDERED. THE DISCUSSION IN THIS SEC FORM 10-KSB CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS AND THE TIMING OF CERTAIN EVENTS MAY DIFFER MATERIALLY FROM THE
RESULTS AND TIMING DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT
COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO,
THOSE DISCUSSED BELOW AND IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS."
6
<PAGE>
DEPENDENCE ON MARKET GROWTH. The ability of the Company to sustain or
expand its business depends substantially on the stability and growth of the
various markets for the Company's products and services.
The size of the photovoltaic market depends on the amount of worldwide
need for wireless power, especially in developing countries, and on domestic and
international government funding of initiatives to invest in solar energy as an
alternative to the burning of fossil fuels and other energy production methods.
There can be no assurance that government funding for such initiatives will be
available, or that solar energy will prove to be a cost-effective alternative to
other energy sources and gain acceptance where traditional energy sources
continue to be available. Most of the Company's research and development
revenues are generated by contracts with the U.S. government. There can be no
assurance that the U.S. government will fund the Company's research and
development projects at the same level as it has in the past. The growth of the
Company's biomedical business depends on the condition of the health care system
and the industry sectors serving that system; and on the Company's ability to
introduce new products and services. The health care system recently has been
characterized by pricing pressures and consolidations which could reduce or
eliminate demand for the Company's processing services. The merger or
consolidation of manufacturers of orthopedic and other medical devices could
reduce the number of customers for the Company's biomedical processing services.
COMPETITION. The Company sells its products and services against existing
competitors, and entities now operating in related markets may enter the
Company's markets. Some of the Company's current and potential competitors have
financial and technical resources greater than those of the Company. Competitive
factors for the Company in its various markets include the amount and pace of
technological innovation, financial resources, product quality, timely delivery,
service and price. Although the Company believes that there are considerable
barriers to entry into the markets it serves, including a significant investment
in specialized capital equipment and product design and development, and the
need for a staff with sophisticated scientific and technological knowledge,
there can be no assurance that new or existing entities will not seek to enter
the Company's markets.
The Company faces competition from various companies in the terrestrial
photovoltaic module manufacturing equipment market. The Company's more
technologically sophisticated and highly automated photovoltaic module
manufacturing equipment competes with more labor intensive, lower priced
alternatives. Furthermore, the Company competes in foreign countries where there
may be a preference for doing business with local companies. In addition, large
manufacturers produce some of the equipment for their own internal use,
eliminating the purchase of such equipment from commercial vendors. With respect
to its biomedical services, the Company competes on the basis of overall quality
of service and price, and at times on the basis of value added. The Company's
products and services also compete against products based on alternate
technologies. In addition, the Company faces competition from numerous other
businesses, particularly small businesses throughout the United States, for
contracts for research and development funded by the U.S. government and other
outside sources.
DEPENDENCE ON OUTSIDE FUNDING FOR RESEARCH AND DEVELOPMENT. Substantially
all of the Company's research and development work is funded by the U.S.
government. Loss of outside funding may materially adversely affect the
Company's ability further to develop its proprietary technologies and
applications of these technologies to its current products and products under
development. If the Company is unable to maintain its current level of such
funding for any reason, the Company would need to generate funds for such
research from other sources, reduce its research and development effort or
increase its internal research and development. An increase in internally funded
research and development would have a negative impact on profitability. U.S.
government contracts are cancelable without the Company's consent. Furthermore,
all companies that are parties to cost-plus contracts with the U.S. government
are subject to annual government audit and possible recapture of payments. While
the Company has not incurred significant losses as a result of government audits
to date, the Defense Contract Audit Agency has not yet audited the Company for
the years ended after December 31, 1996 and the rates at which the Company is
reimbursed for future government contracts (see also "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Other Operating
Charges"). Loss of a number of U.S. government or other research and development
contracts could have a material adverse effect on the Company's business,
results of operations or financial condition. The number of contracts performed
by the Company for the U.S. government increased from 17 at December 31, 1998 to
25 at December 31, 1999, or an increase of 25%.
7
<PAGE>
DEPENDENCE ON EXPORT SALES. For the fiscal years ended December 31, 1999,
1998 and 1997, export sales from the United States accounted for approximately
the following percentages of the Company's net sales and revenues:
----------------------- ------------------------ ------------------------
1999 1998 1997
----------------------- ------------------------ ------------------------
22% 17% 34%
----------------------- ------------------------ ------------------------
The majority of the Company's international revenues are derived from sales of
its photovoltaic module manufacturing equipment. The Company anticipates that
international sales of photovoltaic products will continue to account for a
significant portion of net sales and revenues. The Company's operating results
are subject to the risks inherent in international sales, including, but not
limited to, regulatory requirements, political and economic changes and
disruptions, transportation delays, national preferences for locally
manufactured products and import duties or other taxes which may affect the
prices of the Company's products in other countries relative to competitors'
products. In addition, present or future U.S. government trade restrictions
relating to sales to certain countries may limit the Company's ability to sell
its products in the affected foreign countries.
The Company currently sells its products only in U.S. dollars. As a
result, the Company's sales could be negatively affected to the extent that its
customers have limited access to U.S. dollars and to the extent that
fluctuations in exchange rates may render the Company's prices less competitive
relative to competitors' prices. If the Company chooses to accept payment for
its products in other currencies, it may be subject to reduced profits from
adverse changes in exchange rates. These factors could have a material adverse
effect on the Company's business, results of operations or financial condition.
RELIANCE ON SALES REPRESENTATIVES. The Company markets its photovoltaic
manufacturing equipment products through non-exclusive commissioned sales
representatives, as well as though its internal staff. While the Company
believes it has good relationships with its sales representatives, there can be
no assurance that the Company will be able to retain such representatives. In
addition, under the Company's agreements with Marubeni Corporation of Nagoya,
Japan, Marubeni will distribute, and in some cases manufacture under a
technology license, certain Spire photovoltaic module manufacturing equipment
under Spire's name in Japan, and has rights to market this equipment line
throughout certain countries in Southeast Asia and the Pacific Rim. The loss of
a significant number of the Company's commissioned sales representatives or the
inability of Marubeni to market and distribute the Company's products
effectively in Japan, Southeast Asia and the Pacific Rim could adversely affect
the Company's ability to market its photovoltaic products and could have a
material adverse effect on the Company's business, results of operations or
financial condition.
FLUCTUATIONS IN OPERATING RESULTS. The Company has experienced a net loss
in one out of its most recent three full fiscal years. The Company's revenues
and operating results may vary significantly from quarter to quarter as a result
of a number of factors, many of which are outside of management's control. These
factors include, among others, timing of capital expenditures by customers,
changes in demand for the Company's products, long business procurement cycles,
changes in pricing policies by the Company and its competitors, cancellation or
delay by customers of contracts with the Company and access to U.S. currency by
the Company's customers.
TECHNOLOGICAL ADVANCES; DEPENDENCE ON FUTURE PRODUCT DEVELOPMENT AND
MARKET ACCEPTANCE. Each of the areas in which the Company maintains a
proprietary technology position is characterized by rapid technological advances
and improvements in manufacturing efficiencies. The Company's ability to operate
profitably depends in large part on its timely access to, or development of,
technological advances, and on its ability to use those advances to improve
existing products, develop new products and manufacture those products
efficiently. In addition, there can be no assurance that the Company will be
able to attain market acceptance for commercial products based on these
technologies. The failure to introduce new or enhanced products on a timely and
cost competitive basis, or to attain market acceptance for commercial products,
could have a material adverse effect on the Company's business, results of
operations or financial condition.
PROTECTION OF PROPRIETARY TECHNOLOGY. The Company actively protects its
intellectual property and technological advances as trade secrets, in part
through confidentiality agreements with employees, consultants and third
parties. The Company also seeks and enforces patents as it deems appropriate.
The Company currently has 26 U.S. patents, one of which is jointly owned, one
patent pending in the United States and two foreign patents pending, all of
which cover elements of its materials and processing technologies. There can be
no assurance that the Company will be able to assert its intellectual property
rights successfully against allegedly infringing competitors, and the inability
to assert its rights
8
<PAGE>
successfully may have a negative impact on the Company's competitive position
and financial condition. Furthermore, there can be no assurance that the
Company's intellectual property rights will deter others from developing
substantially equivalent or competitive products or from reverse-engineering the
Company's products. Even if a third party's products infringe upon the Company's
patents or other intellectual property, it may be costly to enforce such rights,
and such enforcement efforts may divert management attention from the operations
of the Company. In addition, the foreign legal protection afforded intellectual
property rights, including patents, if issued, may be different from that
afforded under U.S. laws. To the extent the Company relies on non-disclosure
agreements to protect its rights, there can be no assurance that such
information will not be disclosed in breach of these agreements or, if
disclosed, that the Company will be able to recover amounts sufficient to
compensate it for any damage such disclosure may cause.
Further, although no such claims are currently outstanding against the
Company, there can be no assurance that the Company will not be subject to
patent or other intellectual property rights infringement claims asserted by
others, or if asserted, that the Company will be successful in defending its
position or challenging such claims. In the event that the Company were to be
adjudged to infringe patents or other intellectual property rights of others,
the Company might be required to pay damages, and might be enjoined from making,
using or selling the infringing product or service, or might be required to
obtain a royalty-bearing license, if available on acceptable terms.
Alternatively, in the event a license is not offered or is not available on
commercially acceptable terms, the Company may be required to re-engineer the
affected products or processes to avoid such infringement. There can be no
assurance that any such re-engineering will be successful or will result in
commercially acceptable alternatives, and any such re-engineering may entail
significant or prohibitive expense to the Company.
In addition to the foregoing, the U.S. government retains the right to
obtain a patent on any invention developed under contract as to which patent
protection is not sought and obtained by the contractor, or to require the
contractor to grant a third party license of such invention if steps to achieve
practical application of the invention have not been taken. The Company has not
sought, and will not seek, patent protection for each of its inventions under
U.S. government contracts, either due to the nature of the invention or the cost
of applying for and obtaining a patent. This practice subjects the Company to
the potential of losing patent rights to the U.S. government. The Company also
may not achieve practical application of an invention in each instance, or in a
timely manner, thus leading to the possibility of a mandatory third party
license. Furthermore, the U.S. government retains a non-exclusive, royalty-free,
non-transferable license to all technology developed under government contracts,
whether or not patented, for government use, including use by other parties to
U.S. government contracts.
DEPENDENCE ON SINGLE MANUFACTURING FACILITY. The Company has only one
manufacturing facility, and the Company's revenues are dependent upon the
continued operation of such facility. The operation of a manufacturing plant
involves many risks, including potential damage from fire or natural disasters.
In addition, the Company has obtained certain permits to conduct its business as
currently operated at its facility. There can be no assurance that such permits
would continue to be effective at the current location if the facility were
destroyed and rebuilt, or that the Company will be able to obtain similar
permits to operate at another location. While the Company maintains insurance
covering such risks, including business interruption coverage, there can be no
assurance that the occurrence of these or any other operational problems at the
Company's facility would not materially adversely affect the Company's business,
results of operations or financial condition.
NEED TO MANAGE GROWTH. The future success of the Company will depend
upon, among other factors, the ability of the Company to identify and exploit
new product and services opportunities, to recruit, hire, train and retain
highly educated, skilled and experienced management and technical personnel, to
generate capital from operations and to manage the effects of growth on all
aspects of its business, including research, development, manufacturing,
distribution, sales and marketing, administration and finance. Any failure by
the Company to identify and exploit new product and service opportunities,
attract or retain necessary personnel, generate adequate revenues or conduct its
expansion or manage growth effectively could have a material adverse effect on
the Company's business, results of operations or financial condition.
DEPENDENCE ON KEY PERSONNEL. The Company's long-term success and its
growth strategy depend on the efforts and abilities of its senior management,
particularly Roger G. Little, the Company's founder and its Chairman, Chief
Executive Officer and President, and on its technical staff. The loss of
services of Mr. Little or one or more of the Company's technical staff, or an
ability of the Company to attract and motivate highly educated and skilled
employees, could result in
9
<PAGE>
the Company's inability to continue certain product offerings, and could have a
material adverse effect on the Company's business, results of operations or
financial condition. Further, there can be no assurance that former employees
will not compete with the Company or disclose Company confidential information,
whether or not in violation of any agreements. While the Company has sought to
enforce its rights, any such competition or disclosure could have a material
adverse effect on the Company's business, results of operations or financial
condition.
CONTROL BY PRINCIPAL STOCKHOLDER. Roger G. Little, the Chairman of the
Board, Chief Executive Officer and President of the Company, controls
approximately 38.5% of the Company's outstanding Common Stock. In addition, as
one of three Trustees of the Company's 401(k) Plan, Mr. Little may exercise
control over shares of Common Stock held by the Plan. As a result, Mr. Little is
in a position to exert significant influence over actions of the Company which
require stockholder approval and generally to direct the affairs of the Company,
including potential acquisitions, sales and changes in control of the Company.
GOVERNMENT REGULATION. The process of bidding for, obtaining, retaining
and performing U.S. government contracts is subject to a large number of U.S.
government regulations and oversight requirements. Compliance with these
government regulations requires extensive record keeping and the maintenance of
complex policies and procedures relating to all aspects of the Company's
business, as well as to work performed for the Company by any subcontractors.
Any failure by the Company to comply with applicable regulations, or to require
its subcontractors so to comply, could result in a variety of adverse
consequences, ranging from remedial requirements to termination of contracts,
reimbursement of fees, reduction of fees on a going forward basis and
prohibition from obtaining future U.S. government contracts. While the Company
believes that it has put in place systems and personnel to ensure compliance
with all U.S. government regulations relating to contracting, there can be no
assurance that it will at all times be in compliance or that any failure to
comply will not have a material adverse effect on the Company's business,
results of operations or financial condition. See Note (3) to the financial
statements in Item 7, below. Furthermore, the Company's U.S. government
contracts include provisions prohibiting the Company from granting exclusive
rights to use or sell any inventions unless the grantee agrees that any product
using the invention will be manufactured substantially in the United States.
The Company is subject to export control regulations, which govern the
export of Company products to certain countries, as well as the release of
technical information to non-U.S. individuals and entities. It also is subject
to the federal Occupational Safety and Health Act ("OSHA"). While the Company
has a full-time compliance officer monitoring compliance with these laws and
regulations, there can be no assurance that it will at all times be in
compliance. Failure to comply with these laws and regulations could result in
penalties to the Company, including fines and requirements to take remedial
action, which would have a material adverse effect on the Company's business,
results of operations or financial condition.
The Company is also subject to a number of federal, state and local
government regulations relating to the use, storage, discharge and disposal of
toxic, volatile or otherwise hazardous chemicals used in its business. Any
failure to comply with present or future regulations could result in the
imposition of fines and the suspension of production or a cessation of
operations. In addition, such regulations could restrict the Company's ability
to expand, or could require the Company to acquire costly equipment or incur
other significant expenses to comply with environmental regulations or to
remediate any pollution.
The introduction by the Company's customers of certain new biomedical
products depends on such products' passage through various stages of review by
the United States Food and Drug Administration ("FDA"). The process of obtaining
regulatory approvals involves lengthy and detailed laboratory and clinical
testing and other costly and time-consuming procedures. There can be no
assurance as to the timely or positive outcome of any such review process. The
inability of the Company's customers to obtain such approvals in a timely
manner, or at all, could impede or prevent the introduction of these biomedical
products into the marketplace, and could adversely affect the Company's revenues
from its biomedical services.
The extent of government regulation that may arise from future
legislative or administrative action cannot be predicted.
10
<PAGE>
RISK OF UNINSURED LOSS. The use of orthopedic and other medical devices
may entail a risk of physical injury to patients. To the extent the Company has
been involved in the manufacturing of these products, it may be exposed to
potential product liability and other damage claims. Furthermore, the use of the
Company's photovoltaic module manufacturing equipment could result in operator
injury. To date, no product liability or other damage claim has been initiated
against the Company. The Company maintains product liability and umbrella
insurance coverage; however, there can be no assurance that any product
liability claim assessed against the Company would not exceed its insurance
coverage, or that insurance coverage will continue to be available. While the
Company typically obtains agreements of indemnity from manufacturers of
biomedical products for which the Company provides services, there can be no
assurance that any such indemnity agreements will be enforceable or that such
manufacturers will have adequate funds to meet their obligations under such
agreements. The cost of defending a product liability, negligence or other
action, and/or assessment of damages in excess of insurance coverage, could have
a material adverse effect on the Company's business, results of operations, or
financial condition.
FLUCTUATIONS IN STOCK PRICE. The Company's Common Stock has recently
experienced price and volume fluctuations and may experience such fluctuations
in the future. Factors such as announcements of technological innovations or new
products by the Company or its competitors, changes in domestic or foreign
governmental regulations or regulatory approval processes and fluctuations in
quarterly operating results, have and may continue to have a significant impact
on the market price of the Common Stock. Moreover, the stock market (and in
particular the securities of technology companies such as the Company) has
experienced and could in the future experience extreme price and volume
fluctuations. These fluctuations may be unrelated to operating performance and
could have a significant impact on the market price of the Common Stock.
NO DIVIDENDS. The Company has paid no dividends since its inception. The
Company anticipates retaining any future earnings for operations and does not
anticipate that dividends will be paid in the foreseeable future. Under its
credit agreement with Silicon Valley Bank, the Company is prevented from paying
dividends without the prior written consent of the Bank.
ITEM 2. DESCRIPTION OF PROPERTY.
- --------------------------------
The Company leases 74,000 square feet in a building located at One
Patriots Park, Bedford, Massachusetts, and subleases approximately 22,000 square
feet of such space to the purchaser of the assets of its Optoelectronics
business. All of the Bedford space is subleased from Millipore Corporation on
what the Company believes are commercially reasonable terms. Millipore leases
the building from a trust of which Roger G. Little, Chairman, Chief Executive
Officer and President of the Company, is sole trustee and principal beneficiary.
The 1985 sublease originally was for a period of ten years, was extended by the
Company for a five year period expiring on November 30, 2000, and further
extended for an additional five-year period expiring on November 30, 2005. The
Company believes that its facilities are suitable for their present intended
purposes and adequate for the Company's current level of operations. See "Risk
Factors - Dependence on Single Manufacturing Facility" and " - Need to Manage
Growth."
ITEM 3. LEGAL PROCEEDINGS.
- --------------------------
The Company is subject, from time to time, to legal proceedings and
claims arising out of its business, which cover a wide range of matters.
Management, after review and consultation with counsel, considers that any
liability from all of these legal proceedings and claims would not materially
affect the consolidated financial position, results of operations or liquidity
of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------------------------------------------------------------
On December 21, 1999, the Company held a Special Meeting of Stockholders
to vote on the following proposals:
1. To approve a proposal to sell substantially all of the assets of the
Company's Optoelectronics Division.
2. To approve a proposal to restructure the Company, by creating subsidiaries
into which the Company would transfer its photovoltaics and biomedical
businesses.
3. To approve an amendment to the Company's 1996 Equity Incentive Plan to
increase the number of shares that may be offered thereunder from 300,000
to 500,000.
11
<PAGE>
<TABLE><CAPTION>
Shares Shares Voting Against Shares Broker
Proposal Voting For or Authority Withheld Abstaining Non-Votes
------------ --------------- -------------------------- -------------- -------------
<S> <C> <C> <C>
One 2,213,604 2,800 21,448
Two 2,212,646 4,535 20,670
Three 2,200,874 203,463 31,514
</TABLE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
- -----------------------------------------------------------------
The Company's Common Stock, $.01 par value ("Common Stock"), is traded on
the Nasdaq National Market under the symbol "SPIR." The following chart sets
forth the high and low closing sale prices for the Common Stock for the periods
shown:
Closing Sale Price Closing Sale Price
High Low
------------------ ------------------
1999
----
First Quarter $5.00 $2.75
Second Quarter 4.25 2.50
Third Quarter 4.69 3.25
Fourth Quarter 7.13 2.72
1998
----
First Quarter $17.38 $12.44
Second Quarter 14.00 3.50
Third Quarter 5.38 2.50
Fourth Quarter 3.88 2.63
These prices do not reflect retail mark-ups, mark-downs or commissions.
The closing price of the Common Stock on February 29, 2000 was $7.50, and on
that date, there were approximately 195 stockholders of record.
The Company did not pay any dividends during 1999 or 1998.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS.
-------------
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS SECTION AND OTHER PARTS OF THIS REPORT CONTAIN
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS AND THE TIMING OF CERTAIN EVENTS MAY DIFFER SIGNIFICANTLY FROM
THE RESULTS AND TIMING DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT
COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO,
THOSE DISCUSSED BELOW AND IN "RISK FACTORS" AND "BUSINESS." THE FOLLOWING
DISCUSSION IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN CONJUNCTION
WITH, THE DETAILED INFORMATION AND THE CONSOLIDATED FINANCIAL STATEMENTS,
INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE OR INCORPORATED BY REFERENCE IN
THIS REPORT.
OVERVIEW
Spire develops, manufactures and markets highly-engineered photovoltaic
module manufacturing equipment and provides biomedical processing services.
Spire is the world's leader in the design and manufacture of specialized
equipment for the production of terrestrial photovoltaic modules from solar
cells, with its equipment installed in 144 factories and in 39 countries.
Spire's value-added biomedical processing services offer surface treatments to
enhance the durability or the antimicrobial characteristics of orthopedic and
other medical devices.
The Company's net sales and revenues for the year ended December 31, 1999
decreased 16%, compared to the year ended December 31, 1998. All of the
Company's three areas of business declined in net sales and revenues.
12
<PAGE>
The Company's photovoltaics business area declined 2% during 1999 as
compared to 1998. The Company's optoelectronics business area declined 28%. In
this area, the decline was caused by a decrease in U.S. government research and
development programs.
The biomedical business area also declined 10% during 1999 as compared to
1998 due to: 1) a decline in customer service revenue; and 2) a decline in U.S.
government contract funded research development programs.
Operating results in any particular quarter will depend upon product mix,
as well as the timing of shipments of higher priced products from the Company's
equipment line. Export sales, which amounted to 22% of net sales and revenues
from the year ended December 31, 1999, continue to constitute a significant
portion of the Company's net sales and revenues.
On December 30, 1999, the Company sold substantially all of the assets of
its Optoelectronics business for cash proceeds of $12,910,003. The purchaser of
the Optoelectronics assets received machinery, equipment and technology. See
Note (9) of the financial statements and "Description of Business - Business
Development" on page two for a complete description of the sale of the
optoelectronics business.
The sale of the assets of the Optoelectronics business resulted in a
pre-tax net gain of $9,918,189.
RESULTS OF OPERATIONS
The following table sets forth certain items as a percentage of net sales
and revenues for the periods presented:
<TABLE><CAPTION>
Years Ended December 31,
-----------------------------------------------------
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net sales and revenues 100.0% 100.0% 100.0%
Cost of sales and revenues 89.1 79.3 66.5%
----------------- ----------------- -----------------
Gross profit 10.9 20.7 33.5
Selling, general and administrative expenses 39.3 36.4 24.4
Other operating charges -- 8.7 1.4
----------------- ----------------- -----------------
Earnings (loss) from operations (28.4) (24.4) 7.7
Gain on sale of assets 83.3 -- --
----------------- ----------------- -----------------
Earnings (loss) before income taxes 54.1 (24.4) 7.8
Income tax expense 9.0 2.5 0.6
================= ================= =================
Net earnings (loss) 5.1% (26.9%) 7.2%
================= ================= =================
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
NET SALES AND REVENUES
Net sales and revenues decreased $2,242,000 or 16% for the year ended
December 31, 1999 to $11,901,000, compared to $14,143,000 for the year ended
December 31, 1998. Contract research, service and license revenues decreased
$2,018,000 or 18% to $8,906,000 for the year ended December 31, 1999 compared to
$10,924,000 for 1998. Manufacturing equipment sales decreased $224,000 or 7% to
$2,995,000 for 1999, compared to $3,219,000 for 1998. The decline in research,
service and license revenue was attributed mostly to a decline in research and
development contracts with the U.S. Government, as well as a slight decline in
Biomedical processing services. The following table categorizes the Company's
net sales and revenues for the periods presented:
<TABLE><CAPTION>
Years Ended December 31,
----------------------------------
1999 1998 Change
---------------- ----------------- --------------
<S> <C> <C> <C>
Contract research, service and license revenues $8,906,000 $10,924,000 (18%)
Manufacturing equipment sales 2,995,000 3,219,000 (7%)
---------------- -----------------
Net sales and revenues $11,901,000 $14,143,000 (16%)
================ =================
</TABLE>
13
<PAGE>
COST OF SALES AND REVENUES
The cost of sales and revenues decreased $609,000 to $10,600,000, but
increased to 89% of net sales and revenues, for the year ended December 31,
1999, compared to $11,209,000 or 79% of net sales and revenues for the year
ended December 31, 1998.
The cost of contract research, service and license revenues decreased
$716,000 to $7,386,000, and increased to 83% of related revenues, for the year
ended December 31, 1999, compared to $8,102,000 or 74% of related revenues for
the year ended December 31, 1998. Cost of contract research, service and license
revenues decreased, but increased as a percentage of sales, due to a decline in
volume. Cost of manufacturing equipment sales increased $107,000 to $3,214,000,
and increased to 107% of related sales, for the year ended December 31, 1999,
compared to $3,107,000 or 97% of related sales, for the year ended December 31,
1998. The increase in total cost of sales and revenues as a percentage of
related sales and revenues is caused by product mix and lower volume, and a one
time write down to market value of certain work in process inventories.
The following table categorizes the Company's cost of sales and revenues
for the periods presented, stated in dollars and as a percentage of related
sales and revenues:
<TABLE><CAPTION>
December 31, 1999 % December 31, 1998 %
------------------------ -------- ----------------------- -------
<S> <C> <C> <C> <C>
Contract research, service and license revenues $ 7,386,000 83% $8,102,000 74%
Manufacturing equipment sales 3,214,000 107% 3,107,000 97%
======================== =======================
Total cost of sales and revenues $10,600,000 89% $11,209,000 79%
======================== =======================
</TABLE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the year ended December
31, 1999 decreased $465,000 to $4,682,000, and increased to 39% of sales and
revenues, compared to $5,147,000 or 36% of sales and revenues for the year ended
December 31, 1998. Selling, general and administrative expenses increased as a
percentage of sales due to the lower volume.
OTHER OPERATING CHARGES
Other operating charges in 1998 included expenses of a non-recurring
nature, and amounted to $1,244,000, or 9% of total revenues. Included in the
1998 charge are a $547,000 payment to the U.S. government to settle a dispute
involving contracting requirements in proposals and contract fulfillment,
associated legal costs, other legal costs incurred in the enforcement of
non-competition agreements of two former employees, and severance costs and
related fringe benefits incurred in downsizing the Company's workforce. These
downsizing efforts, which were completed in February 1999, included the
reduction of 24 employees and resulted in an annualized savings of $1,100,000,
primarily in the contract research and manufacturing areas. No such charges were
incurred in 1999.
GAIN ON SALE OF ASSETS
On December 30, 1999, the Company sold substantially all of the assets of
its Optoelectronics business for cash proceeds of $12,910,003. Additionally, the
purchaser of the Optoelectronics assets received machinery, equipment and
technology. The sale of the assets of the Optoelectronics business resulted in a
pre-tax net gain of $9,918,189. See "Description of Business - Business
Development" on page two and Note (9) of the financial statements for a complete
description of the sale of the optoelectronics business.
INTEREST
The Company earned $3,000 in interest income for the year ended December
31, 1999, compared to $22,000 for the year ended December 31, 1998. The Company
incurred interest expense of $132,000 in 1999 and $19,000 in 1998, of which
$28,000 was capitalized in 1999 related to internally constructed assets and $0
in 1998.
14
<PAGE>
INCOME TAXES
The Company recorded $1,070,000 of tax expense for the year ended
December 31, 1999, compared to $359,000 for the year ended December 31, 1998.
Tax expense for the year ended December 31, 1999 benefited from the realization
of a $1,668,000 deferred tax asset for net loss and other credit carryforwards,
which was fully reserved at December 31, 1998. At December 31, 1998, the Company
had gross deferred tax assets of $2,859,000, against which a valuation allowance
of $2,172,000 had been established. Total gross deferred tax liabilities of
$687,000 were applied against the net deferred tax asset resulting in a net
deferred tax asset of zero. At December 31, 1999, the Company had a gross
deferred tax asset of $807,000, against which a valuation allowance of $505,000
was applied. Gross deferred tax liability of $302,000 were applied against the
net deferred tax asset resulting in a net deferred tax asset of zero.
NET EARNINGS (LOSS)
The Company reported net earnings for the year ended December 31, 1999 of
$5,366,000, compared to net loss of $3,811,000 for the year ended December 31,
1998. Net earnings for the year ended December 31, 1999 resulted from the gain
on sale of assets of $9,918,189, which offset operating losses of $3,380,249.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
NET SALES AND REVENUES
Net sales and revenues decreased $8,871,000 or 39% for the year ended
December 31, 1998 to $14,143,000, compared to $23,014,000 for the year ended
December 31, 1997. Contract research, service and license revenues decreased
$1,718,000 or 14% to $10,924,000 for the year ended December 31, 1998 compared
to $12,642,000 for 1997. Manufacturing equipment sales decreased $7,153,000 or
69% to $3,219,000 for 1998, compared to $10,372,000 for 1997. The following
table categorizes the Company's net sales and revenues for the periods
presented:
<TABLE><CAPTION>
Years Ended December 31,
----------------------------------
1998 1997 Change
---------------- ----------------- --------------
<S> <C> <C> <C>
Contract research, service and license revenues $10,924,000 $12,642,000 (14%)
Manufacturing equipment sales 3,219,000 10,372,000 (69%)
---------------- -----------------
Net sales and revenues $14,143,000 $23,014,000 (39%)
================ =================
</TABLE>
COST OF SALES AND REVENUES
The cost of sales and revenues decreased $4,093,000 to $11,209,000, but
increased to 79% of net sales and revenues, for the year ended December 31,
1998, compared to $15,302,000 or 66% of net sales and revenues for the year
ended December 31, 1997.
The cost of contract research, service and license revenues decreased
$613,000 to $8,102,000, and increased to 74% of related revenues, for the year
ended December 31, 1998, compared to $8,715,000 or 69% of related revenues for
the year ended December 31, 1997. Cost of manufacturing equipment sales
decreased $3,480,000 to $3,107,000, but increased to 97% of related sales, for
the year ended December 31, 1998, compared to $6,587,000 or 64% of related
sales, for the year ended December 31, 1997. The increase in total cost of sales
and revenues as a percentage of related sales and revenues is caused by product
mix and lower volume.
The following table categorizes the Company's cost of sales and revenues
for the periods presented, stated in dollars and as a percentage of related
sales and revenues:
15
<PAGE>
<TABLE><CAPTION>
December 31, 1998 % December 31, 1997 %
------------------------ -------- ----------------------- -------
<S> <C> <C> <C> <C>
Contract research, service and license revenues $ 8,102,000 74% $ 8,715,000 69%
Manufacturing equipment sales 3,107,000 97% 6,587,000 64%
======================== =======================
Total cost of sales and revenues $11,209,000 79% $15,302,000 66%
======================== =======================
</TABLE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the year ended December
31, 1998 decreased $459,000 to $5,147,000, but increased to 36% of sales and
revenues, compared to $5,606,000 or 24% of sales and revenues for the year ended
December 31, 1997. Selling, general and administrative expenses decreased due to
decreases in staffing, commissions, marketing and travel costs related to
decreased sales of products and services.
OTHER OPERATING CHARGES
Other operating charges included expenses of a non-recurring nature, and
amounted to $1,244,000 and $332,000, or 9% and 1% of total revenues, for the
years 1998 and 1997, respectively. Other operating charges in 1997 included
outside costs incurred in an unsuccessful attempt at a secondary offering. The
following table summarizes other operating charges for the years 1998 and 1997:
<TABLE><CAPTION>
Year Ended December 31,
-------------------------------------
1998 1997
------------------ ------------------
<S> <C> <C>
Settlement of Government claim $ 547,000 $ --
Legal costs incurred in settlement of Government claim 159,000 --
Legal costs incurred in enforcing non-competition agreements
with former employees 295,000 --
Severance and associated fringe benefit costs incurred in
downsizing the Company 243,000 --
Costs incurred in unsuccessful secondary offering attempt -- 332,000
================== ==================
$1,244,000 $332,000
================== ==================
</TABLE>
INTEREST
The Company earned $23,000 in interest income for the year ended December
31, 1998, compared to $33,000 for the year ended December 31, 1997. The Company
incurred interest expense of $19,000 in 1998 and $2,000 in 1997.
INCOME TAXES
The Company recorded $359,000 of tax expense for the year ended December
31, 1998, compared to $141,000 for the year ended December 31, 1997. At December
31, 1998, the Company had gross deferred tax assets of $2,859,000, against which
a valuation allowance of $2,172,000 was applied. Total gross deferred tax
liabilities of $687,000 were applied against the net deferred tax asset
resulting in a net deferred tax asset of zero.
NET EARNINGS (LOSS)
The Company reported a net loss for the year ended December 31, 1998 of
$3,811,000, compared to net earnings of $1,667,000 for the year ended December
31, 1997. The loss resulted in large part from decreased net sales and revenues
in all areas of the Company's business, particularly in photovoltaic equipment
sales.
16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
To date the Company has been able to fund its liquidity requirements
using cash from operations and available lines of credit. On August 30, 1999,
the Company entered into a revolving credit agreement with the Silicon Valley
Bank, replacing its previous credit facility with the Bank. This agreement
provides for a $3 million revolving credit facility, based upon eligible
accounts receivable requirements and 50% of the liquidation value of the
Company's fixed assets. This line of credit has been established to provide the
Company with resources for general working capital purposes and Standby Letter
of Credit Guarantees for foreign customers. The line is secured by all assets of
the Company. At December 31, 1999, interest on the line was at the Bank's prime
rate plus two percent on receivable loans and prime plus 2 3/4% on fixed asset
loans. The line contains covenants including provisions relating to
profitability and net worth. The Company is currently compliant with the terms
of this credit agreement. As of December 31, 1999, the Company had no
outstanding debt under this revolving credit facility using proceeds from the
sale of assets to pay down the debt on December 30, 1999.
The Company believes it has sufficient resources to finance its current
operations for the foreseeable future through working capital, its existing line
of credit and available lease arrangements. In addition, the Company has taken
steps to conserve its resources by reducing its cost of operations. Cash and
cash equivalents increased $10,587,000 to $10,709,000 at December 31, 1999, from
$122,000 at December 31, 1998, as a result of the previously discussed sale of
assets. To date there are no material commitments by the Company for capital
expenditures. At December 31, 1999, the Company's retained earnings were
$3,188,000, compared to accumulated deficit of $2,179,000 as of December 31,
1998. Working capital as of December 31, 1999 increased 846% to $9,718,000,
compared to $1,501,000 as of December 31, 1998.
RECENT ACCOUNTING PRONOUNCEMENTS
In 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." The Company will
adopt SFAS 133 on January 1, 2001. The impact of SFAS 133 on the consolidated
financial statements is not expected to be material.
Also in 1998, the American Institute of Certified Public Accountants
issued SOP 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use", and SOP 98-5, "Reporting on the Costs of Start-Up
Activities". The Company adopted SOP 98-1 and SOP 98-5 on January 1, 1999. The
adoption of these statements did not have a material effect on the consolidated
financial statements.
IMPACT OF INFLATION AND CHANGING PRICES
Historically, the Company's business has not been materially impacted by
inflation. Manufacturing equipment sales are generally quoted, manufactured and
shipped within a cycle of approximately six months, allowing for orderly pricing
adjustments to the cost of labor and purchased parts. The Company has not
experienced any negative effects from the impact of inflation on long-term
contracts. The Company's service business is not expected to be seriously
affected by inflation because its procurement-production cycle typically ranges
from two weeks to several months, and prices generally are not fixed for more
than one year. Research and development contracts usually include cost
escalation provisions.
FOREIGN EXCHANGE FLUCTUATION
The Company sells only in U.S. dollars, generally against an irrevocable
confirmed letter of credit through a major U.S. bank. Therefore the Company is
not directly affected by foreign exchange fluctuations on its current orders.
However, fluctuations in foreign exchange rates do have an effect on the
Company's customers' access to U.S. dollars and on the pricing competition on
certain pieces of equipment that the Company sells in selected markets.
YEAR 2000
The Company's Year 2000 initiative was successful. No interruptions to
Spire business processes have occurred, and no material problem is expected.
Program spending was budgeted, expensed as incurred and not material.
17
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
- -----------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report 19
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1999 and 1998 20
Consolidated Statements of Operations for the Years Ended December 31, 1999, 1998 and 1997 21
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1999, 1998 and 1997 22
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997 23
Notes to Consolidated Financial Statements 24
</TABLE>
18
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Spire Corporation:
We have audited the consolidated balance sheets of Spire Corporation and
subsidiary as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Spire
Corporation and subsidiary at December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999 in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
---------------------------
KPMG LLP
Boston, Massachusetts
March 10, 2000
19
<PAGE>
SPIRE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE><CAPTION>
DECEMBER 31,
------------------------------
1999 1998
------------ ------------
ASSETS
<S> <C> <C>
Current assets
- --------------
Cash and cash equivalents $ 10,709,370 $ 121,866
Accounts receivable, trade (Notes 3 and 7):
Amounts billed 2,017,865 2,799,037
Retainage 50,878 62,173
Unbilled costs 343,242 355,716
------------ ------------
2,411,985 3,216,926
Less allowance for doubtful accounts 107,000 102,000
------------ ------------
Net accounts receivable 2,304,985 3,114,926
------------ ------------
Inventories (Note 4) 1,862,933 2,254,043
Prepaid expenses and other current assets 351,948 363,649
------------ ------------
Total current assets 15,229,236 5,854,484
------------ ------------
Property and equipment (Note 6) 14,640,003 25,675,700
Less accumulated depreciation and amortization 12,621,001 20,986,170
------------ ------------
Net property and equipment 2,019,002 4,689,530
------------ ------------
Patents (less accumulated amortization, $448,507 in 1999 and $611,650 in 1998) 106,956 214,758
Other assets 8,271 15,071
------------ ------------
115,227 229,829
------------ ------------
$ 17,363,465 $ 10,773,843
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
- -------------------
Accounts payable $ 1,280,951 $ 1,555,019
Accrued liabilities (Note 5) 1,197,624 836,846
Notes payable (Note 7) -- 850,000
Federal and State income taxes payable 1,070,000 --
Advances on contracts in progress 1,962,300 1,112,058
------------ ------------
Total current liabilities 5,510,875 4,353,923
------------ ------------
Commitments (Notes 7 and 11)
- ----------------------------
Stockholders' equity (Note 8)
- -----------------------------
Common stock, $.01 par value; shares authorized 20,000,000;
issued 3,818,926 shares in 1999 and 3,795,926 shares in 1998 38,189 37,959
Additional paid-in capital 9,846,239 9,780,494
Retained earnings (deficit) 3,187,850 (2,178,845)
------------ ------------
13,072,279 7,639,608
Treasury stock at cost, 552,160 shares in 1999 and 1998 (1,219,688) (1,219,688)
------------ ------------
Total stockholders' equity 11,852,591 6,419,920
------------ ------------
$ 17,363,465 $ 10,773,843
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
SPIRE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE><CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net sales and revenues
- ----------------------
Contract research, service and license revenues $ 8,905,528 $ 10,924,062 $ 12,642,251
Sales of manufacturing equipment 2,995,240 3,219,181 10,372,190
------------ ------------ ------------
Total sales and revenues 11,900,768 14,143,243 23,014,441
------------ ------------ ------------
Costs and expenses
- ------------------
Cost of contract research, services and licenses 7,385,649 8,102,075 8,714,713
Cost of manufacturing equipment 3,213,643 3,106,948 6,587,331
Selling, general and administrative expenses 4,681,725 5,146,930 5,605,507
Other operating charges (Note 14) -- 1,243,989 331,511
------------ ------------ ------------
Total costs and expenses 15,281,017 17,599,942 21,239,062
------------ ------------ ------------
Earnings (loss) from operations (3,380,249) (3,456,699) 1,775,379
- ------------------------------- ----------- ----------- ---------
Gain on sale of assets (Note 9) 9,918,189 -- --
Interest income (expense), net (Note 7) (101,245) 4,005 32,856
------------ ------------ ------------
Earnings (loss) before income taxes 6,436,695 (3,452,694) 1,808,235
Income tax expense (Note 10) 1,070,000 358,578 141,000
------------ ------------ ------------
Net earnings (loss) $ 5,366,695 $ (3,811,272) $ 1,667,235
- ------------------- ============ ============ ============
Earnings (loss) per share of common stock - basic $ 1.65 $ (1.18) $ 0.54
- ------------------------------------------------- ============ ============ ============
Earnings (loss) per share of common stock - diluted $ 1.64 $ (1.18) $ 0.52
- --------------------------------------------------- ============ ============ ============
Weighted average number of common shares outstanding - basic 3,246,112 3,235,271 3,086,326
============ ============ ============
Weighted average number of common and common equivalent
shares outstanding - diluted 3,274,713 3,235,271 3,217,467
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
SPIRE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE><CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK RETAINED
------------------ PAID-IN ---------------------- EARNINGS
SHARES AMOUNT CAPITAL SHARES AMOUNT (DEFICIT) TOTAL
--------- ------- ------------ ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 3,567,185 $35,672 $ 8,491,066 547,160 $ (1,199,063) $ (34,808) $ 7,292,867
Exercise of stock options 189,897 1,899 680,095 -- -- -- 681,994
Tax benefit of disqualifying
dispositions of stock option
exercises -- -- 474,307 -- -- -- 474,307
Repurchase of treasury stock -- -- -- 5,000 (20,625) -- (20,625)
Net earnings -- -- -- -- -- 1,667,235 1,667,235
--------- ------- ------------ ------- ------------ ------------ ------------
Balance, December 31, 1997 3,757,082 37,571 9,645,468 552,160 (1,219,688) 1,632,427 10,095,778
Exercise of stock options 38,844 388 135,026 -- -- -- 135,414
Net loss -- -- -- -- -- (3,811,272) (3,811,272)
--------- ------- ------------ ------- ------------ ------------ ------------
Balance, December 31, 1998 3,795,926 37,959 9,780,494 552,160 (1,219,688) (2,178,845) 6,419,920
Exercise of stock options 23,000 230 65,745 -- -- -- 65,975
Net earnings -- -- -- -- -- 5,366,695 5,366,696
--------- ------- ------------ ------- ------------ ------------ ------------
Balance, December 31, 1999 3,818,926 $38,189 $ 9,846,239 552,160 $ (1,219,688) $ 3,187,850 $ 11,852,590
========= ======= ============ ======= ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
SPIRE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE><CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 5,366,695 $ (3,811,272) $ 1,667,235
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Depreciation and amortization 970,646 1,018,112 1,079,572
Gain on sale of assets (9,918,189) -- --
Deferred income taxes -- 300,000 (300,000)
Changes in assets and liabilities (excluding the impact of assets
sold):
Accounts receivable 850,291 549,307 (650,085)
Inventories 289,910 (1,265,463) 32,348
Prepaid expenses and other current assets (11,701) 138,001 (214,137)
Income taxes payable 1,070,000 -- --
Accounts payable and accrued liabilities 86,711 629,191 (125,106)
Advances on contracts in progress 850,242 701,688 (975,092)
------------ ------------ ------------
Net cash (used in) provided by operating activities (445,395) (1,740,436) 514,735
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sale of assets (net of related expenses) 12,204,007 -- --
Additions to property and equipment (351,522) (798,654) (1,101,686)
Increase in patent costs (30,383) (24,793) (39,546)
Other assets (5,178) 4,608 215,551
------------ ------------ ------------
Net cash provided by (used in) investing activities 11,816,924 (818,839) (925,681)
------------ ------------ ------------
Cash flows from financing activities:
Net borrowings (payments) on short-term debt (850,000) 850,000 --
Tax benefit of disqualifying dispositions of stock
option exercises -- -- 474,307
Exercise of stock options 65,975 135,414 681,994
Repurchase of treasury stock -- -- (20,625)
------------ ------------ ------------
Net cash provided by (used in) financing activities (784,025) 985,414 1,135,676
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 10,587,504 (1,573,861) 724,730
Cash and cash equivalents, beginning of year 121,866 1,695,727 970,997
------------ ------------ ------------
Cash and cash equivalents, end of year $ 10,709,370 $ 121,866 $ 1,695,727
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 132,294 $ 19,030 $ 5,118
============ ============ ============
Income taxes $ 0 $ 44,400 $ 51,595
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
SPIRE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(1) NATURE OF THE BUSINESS
Spire develops, manufactures, and markets highly engineered photovoltaic
manufacturing equipment and provides biomedical processing services. Spire
designs and manufactures specialized equipment for the production of terrestrial
photovoltaic modules from solar cells. Spire's value-added service offerings to
biomedical customers provide surface treatments to enhance the performance of
medical products. Spire also conducts research and development activities,
primarily for the U.S. government.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Spire International Sales Corporation. All
significant intercompany balances and transactions have been eliminated in
consolidation.
(B) REVENUE RECOGNITION
Revenue for equipment sales is recognized upon shipment. Revenue for
service contracts is recognized upon performance of the service. Revenue on
government research contracts is recorded as costs are incurred and includes a
pro-rated portion of the estimated profit.
(C) INVENTORIES
Inventories are stated at the lower of cost or market, cost being
determined by the average cost method, on a first-in, first-out (FIFO) basis.
(D) PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation and amortization
are provided using the straight-line method over the estimated useful lives of
the respective assets, as follows:
Machinery and equipment 5 and 7 years
Furniture and fixtures 5 years
Leasehold improvements Lesser of 10 years or remaining
life of facility lease
Maintenance and repairs are charged to expense as incurred. Major
renewals and betterments are added to property and equipment accounts at cost.
(E) PATENT COSTS
Patent costs are capitalized and amortized over five years using the
straight-line method.
(F) INCOME TAXES
The Company accounts for income taxes under the asset and liability
method. Under this method, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
24
<PAGE>
SPIRE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(G) RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to operations as incurred,
except where such costs are reimbursable under customer funded contracts. During
the years ended December 31, 1999, 1998 and 1997, unfunded research and
development costs were $184,000, $344,000 and $133,000, respectively.
(H) EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing income available
to common stockholders by the weighted average number of common shares
outstanding during the period. Diluted earnings (loss) per share gives effect to
all dilutive potential common shares outstanding during the period. The
computation of diluted earnings (loss) per share does not assume conversion,
exercise or contingent exercise of securities that would have an antidilutive
effect on earnings.
(I) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
(J) FINANCIAL INSTRUMENTS
Financial instruments of the Company consist of cash and cash
equivalents, accounts receivable, accounts payable and notes payable. The
carrying amounts of these financial instruments approximate their fair value.
(K) LONG-LIVED ASSETS
The Company reviews its long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable.
(L) STOCK-BASED COMPENSATION
During 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation, which
permits entities to recognize as expense over the vesting period the fair value
of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also
allows entities to continue to apply the provisions of APB Opinion No. 25 and
provide pro forma net earnings (loss) and pro forma earnings (loss) per share
disclosures for employee stock option grants made in 1995 and future years as if
the fair-value-based method defined in SFAS No. 123 had been applied. The
Company has elected to continue to apply the provisions of APB Opinion No. 25
and provide the pro forma disclosure provisions of SFAS No. 123.
(M) RECLASSIFICATION OF PRIOR YEARS
Prior year financial statements have been reclassified to conform to the
1999 presentation.
(N) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash, time deposits and all highly
liquid debt with an original maturity of three months or less. Included in Cash
and Cash Equivalents on December 31, 1999 was $750,000 in an escrow account
relating to the sale of assets of the Optoelectronics business.
25
<PAGE>
SPIRE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(O) NEW ACCOUNTING STANDARDS
In 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." The Company will
adopt SFAS 133 on January 1, 2001. The impact of SFAS 133 on the consolidated
financial statements is not expected to be material.
Also in 1998, the American Institute of Certified Public Accountants
issued SOP 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use", and SOP 98-5, "Reporting on the Costs of Start-Up
Activities". The Company adopted SOP 98-1 and SOP 98-5 on January 1, 1999. The
adoption of these statements did not have a material effect on the consolidated
financial statements.
(3) ACCOUNTS RECEIVABLE
Unbilled costs on contracts in progress represent revenues recognized on
contracts for which billings have not been presented to customers as of each
balance sheet date. These amounts are billed and generally collected within one
year.
Retainage represents revenues on certain United States Government
sponsored research and development contracts. These amounts, which usually
represent 15% of the Company's research fee on each applicable contract, are not
collectible until a final cost review has been performed by government auditors.
Included in retainage are amounts expected to be collected after one year which
totaled $51,000 and $62,000 at December 31, 1999 and 1998, respectively. All
other accounts receivable are expected to be collected within one year.
All contracts with United States Government agencies have been audited
through December 1996. Except as discussed in the following paragraph, the
Company has not incurred significant losses as a result of government audits.
On March 2, 1998 the Company received a letter from the Office of the
United States Attorney for the Eastern District of Virginia stating that it was
considering the commencement of a civil action concerning seven research
initiatives undertaken by the Company in the period from 1990 to the present.
The letter alleged that, in certain instances, the Company had failed to inform
the government of pending or previously submitted proposals for work the
government alleges was related to proposals which were funded. Rather than
continuing to incur the legal costs and expend management resources in
litigating this matter, the Company settled with the government on August 18,
1998 for $547,000.
(4) INVENTORIES
Inventories consist of the following:
December 31,
------------------------------------
1999 1998
----------------- ------------------
Raw materials $ 653,695 $ 776,933
Work in process 1,044,331 1,307,088
Finished goods 164,907 170,022
----------------- ------------------
$1,862,933 $2,254,043
================= ==================
(5) ACCRUED LIABILITIES
Accrued liabilities include the following:
December 31,
------------------------------------
1999 1998
----------------- ------------------
Accrued payroll and payroll taxes $ 575,401 $568,193
Accrued other 622,223 268,653
================= ==================
$1,197,624 $836,846
================= ==================
26
<PAGE>
SPIRE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(6) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
December 31,
------------------------------------
1999 1998
----------------- ------------------
Machinery and equipment $10,416,381 $20,757,776
Furniture and fixtures 2,716,215 2,988,993
Leasehold improvements 1,503,452 1,765,043
Construction in progress 3,955 163,888
----------------- ------------------
$14,640,003 $25,675,700
================= ==================
(7) NOTES PAYABLE AND CREDIT ARRANGEMENTS
On August 30, 1999, the Company entered into a new revolving credit
agreement for a one year period with Silicon Valley Bank. This agreement
established a $3 million revolving credit facility, based upon eligible accounts
receivable requirements and 50% of the liquidation value of the Company's fixed
assets. This line of credit was established to provide the Company with
resources for general working capital purposes and standby letter of credit
guarantees for foreign customers. The line is secured by all assets of the
Company. Interest on the line is at the bank's prime rate plus two percent
(11.25% at December 31, 1999) on receivable loans and prime plus 2 3/4% on fixed
asset loans (12% at December 31, 1999). The line contains restrictive covenants
including provisions relating to profitability and net worth. The Company is
currently compliant with the terms of this credit agreement. As of December 31,
1999, the Company had no outstanding debt under this revolving credit line, and
the related interest expense in 1999 was $128,000.
As of December 31, 1998, the Company had $850,000 of outstanding debt
under a predecessor revolving credit line. Interest on the line was at the
bank's prime rate plus 1% (8.75% at December 31, 1998). Interest expense related
to this debt for the year ended December 31, 1998 was $19,000.
(8) STOCK COMPENSATION PLANS
The Company has two employee stock option plans: the 1985 Incentive Stock
Option Plan, and the 1996 Equity Incentive Plan. These plans provide that the
Board of Directors may grant options to purchase the Company's common stock to
key employees of the Company. Incentive options must be granted at least at the
fair market value of the common stock or, in the case of certain optionees, at
110% of such fair market value at the time of grant. The exercise price of
options is determined by the Board of Directors. The options may be exercised,
subject to certain vesting requirements, for periods up to ten years from the
date of issue.
Through December 31, 1999, the Company has outstanding under its
Directors Stock Option Plan and the 1996 Equity Incentive Plan, 60,150
non-qualified stock options to the unaffiliated directors of the Company for the
purchase of common stock at an average price of $8.58 per share. The options may
be exercised, subject to certain vesting requirements, for periods up to ten
years from the date of issue. The Company may no longer award options under any
plans except the 1996 Equity Incentive Plan.
27
<PAGE>
SPIRE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
A summary of the activity of these plans follows:
<TABLE><CAPTION>
Weighted
Number of Shares Average
Option Price
----------------- ----------------
<S> <C> <C>
Outstanding, December 31, 1996 359,175 $3.28
Granted 76,825 $5.36
Exercised (189,897) $3.57
Canceled (26,222) $3.24
----------------- ----------------
Outstanding, December 31, 1997 219,881 $3.75
Granted 99,663 $11.52
Exercised (38,844) $3.49
Canceled (40,850) $3.68
----------------- ----------------
Outstanding, December 31, 1998 239,850 $7.02
Granted 113,450 3.59
Exercised (23,000) 2.86
Canceled (30,950) 7.73
================= ================
Outstanding, December 31, 1999 299,350 $6.01
================= ================
Options Exercisable at December 31, 1999 88,403 $5.59
================= ================
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1999:
<TABLE><CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------ -------------------------------------
Weighted Average Weighted Average Weighted Average
Range of Number Remaining Contractual Exercise Number Exercise
Exercise Price Outstanding Life Price Exercisable Price
---------------------- ---------------- ----------------------- ------------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
$ 2.50 to $ 5.00 190,737 7.9 years $ 3.49 56,500 $3.16
$ 5.01 to $10.00 63,613 8.2 years $ 6.88 19,403 $6.48
$10.01 to $15.88 45,000 8.2 years $15.48 12,500 $15.19
---------------- ------------------
299,350 8.1 years $ 6.01 88,403 $5.62
================ ==================
</TABLE>
There were 491,787 shares reserved for issuance under all plans at
December 31, 1999. The per-share weighted-average fair value of stock options
granted in 1999, 1998 and 1997 was $3.28, $8.13 and $4.24, respectively, on the
date of grant using the Black Scholes option-pricing model with the following
weighted-average assumptions:
<TABLE><CAPTION>
Expected Risk-Free Expected Expected
Year Dividend Yield Interest Rate Option Life Volatility Factor
---- -------------- ------------- ----------- -----------------
<S> <C> <C> <C> <C>
1999 0% 5.89% 5 years 93.1%
1998 0% 5.50% 5 years 85.4%
1997 0% 5.50% 5 years 68.4%
</TABLE>
The Company applies APB Opinion No. 25 in accounting for its plans and,
accordingly, no compensation cost has been recognized for its stock options in
the consolidated financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its options under SFAS No.
123, the Company's net earnings (loss) would have been reduced (increased) to
the pro forma amounts indicated below.
28
<PAGE>
SPIRE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
<TABLE><CAPTION>
1999 1998 1997
--------------- ---------------- ---------------
<S> <C> <C> <C>
Net earnings (loss) as reported $5,366,695 $(3,811,272) $1,667,235
Earnings (loss) per share of common stock - diluted, as reported 1.64 (1.18) 0.52
Net earnings (loss) pro forma 4,467,018 (4,068,390) 1,592,349
Earnings (loss) per share of common stock - diluted, pro forma 1.39 (1.26) 0.49
</TABLE>
Pro forma net earnings (loss) reflect only options granted in 1999, 1998,
1997 and 1996. Therefore, the full impact of calculating compensation cost for
stock options under SFAS No. 123 is not reflected in the pro forma net earnings
(loss) amounts presented above because compensation cost is reflected over the
options' vesting period of five years and compensation cost for options granted
prior to January 1, 1995 is not considered.
(9) SALE OF ASSETS
On December 30, 1999, the Company sold substantially all of the assets of
its optoelectronics business for cash proceeds of $12,910,003. The assets that
were sold to the purchaser included machinery, equipment and technology. Until
December 30, 2004 the Company may not compete with the purchaser's
optoelectronics business. However, the restrictions on competition do not
prevent the Company from engaging in optoelectronics business activities in
conducting its terrestrial photovoltaic business relating to terrestrial solar
cells and related components, or in conducting its biomedical business relating
to implanted medical devices and related instrumentation and components. The
Company will continue to perform the project management element of its U.S.
government optoelectronics research and development contracts until they are
completed through 2001. The Company has entered into a subcontract with the
purchaser under each of the remaining government contracts for a portion of the
research and development services. In addition, the Company will continue to bid
on new optoelectronics U.S. government funded research and development contracts
which may include additional subcontracts with the purchaser.
Revenues for the optoelectronics business amounted to $4,419,000,
$6,106,000 and $7,241,000 for the years ended December 31, 1999, 1998 and 1997,
respectively. Operating income (loss) for the optoelectronics business was
$(1,047,000), $(1,421,000) and $132,000 for the years ended December 31, 1999,
1998 and 1997, respectively.
The sale of the assets of the Optoelectronics business resulted in a
pre-tax net gain of $9,918,189.
(10) INCOME TAXES
Total federal and state income tax expense (benefit) for the years ended
December 31, 1999, 1998 and 1997, consists of the following:
1999 1998 1997
----------------- --------------- --------------
Current:
State $ 317,234 $ 9,000 $ 68,663
Federal 752,766 49,578 372,337
----------------- --------------- --------------
1,070,000 58,578 441,000
----------------- --------------- --------------
Deferred:
State -- 46,474 (46,710)
Federal -- 253,526 (253,290)
----------------- --------------- --------------
-- 300,000 (300,000)
================= =============== ==============
$1,070,000 $ 358,578 $ 141,000
================= =============== ==============
Actual income tax expense (benefit) for the years ended December 31,
1999, 1998 and 1997 differs from the "expected" income tax expense (benefit) for
the year (computed by applying the U.S. federal corporate income tax rate of 34%
to earnings (loss) before income taxes) as follows:
<TABLE><CAPTION>
1999 1998 1997
--------------- ----------------- --------------
<S> <C> <C> <C>
Computed "expected" income tax expense (benefit) $ 2,188,477 $(1,114,746) $614,800
State tax, net of federal benefit 404,401 (89,660) 119,453
Increase (decrease) in valuation allowance (1,667,514) 1,582,790 (498,247)
Permanent differences 4,446 8,194 32,953
Increase in tax credit carryforwards -- (28,000) (103,089)
Other 140,190 -- (24,870)
=============== ================= ==============
$1,070,000 $358,578 $141,000
=============== ================= ==============
</TABLE>
29
<PAGE>
SPIRE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
The amount recorded as a deferred income tax asset as of December 31,
1999 represents the amount of tax benefits of existing deductible temporary
differences that are more likely than not to be realized through the generation
of sufficient future taxable income within the carryforward period. During 1999,
the valuation allowance decreased by $1,667,514. The decrease in the valuation
allowance resulted from a significant decrease in the Company's gross deferred
tax asset balance due to the utilization of net loss and credit carryforward to
off-set the gain on the sale of the Optoelectronics assets.
The tax effects of temporary differences that give rise to significant
portions of net deferred tax assets at December 31, 1998 and 1997 are presented
below:
<TABLE><CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
Deferred tax assets:
Charitable contributions $ -- $ 8,976
Accounts receivable 43,089 41,075
Accruals 95,310 90,498
Inventories 103,636 60,405
Federal net operating loss carryforwards -- 1,153,016
General business credit carryforwards 222,923 752,998
Alternative minimum tax credit carryforwards 342,030 342,030
Foreign tax credit -- 51,475
State net operating loss and investment tax credit -- 358,092
---------------- ----------------
Total gross deferred tax assets 806,988 2,858,565
Less: valuation allowance (504,531) (2,172,045)
---------------- ----------------
Net deferred tax assets 302,457 686,520
---------------- ----------------
Deferred tax liabilities:
Property and equipment (302,457) (686,520)
Patents -- --
Research agreements -- --
---------------- ----------------
Total gross deferred tax liabilities (302,457) (686,520)
---------------- ----------------
Net deferred tax assets $ -- $ --
================ ================
</TABLE>
The valuation allowance for deferred tax assets as of December 31, 1999
was $505,000. The net change in the total valuation allowance for the year ended
December 31, 1999 was a decrease of $1,668,000.
At December 31, 1999, the Company had no general business tax credits
available to offset future taxable income, and no net operating loss
carryforwards for federal and state purposes. The Company also had no
alternative minimum tax credits to offset future taxable income.
30
<PAGE>
SPIRE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(11) COMMITMENTS
The Company subleases the majority of its facilities from a company that
leases the building from a trust; the principal beneficiary of the trust is the
principal stockholder of the Company. The sublease originally was for a period
of ten years, after which the Company exercised its options to extend for
additional five-year periods expiring on November 30, 2005. The agreement
provides for minimum rental payments plus annual increases linked with the
Consumer Price Index. Total rent expense under this lease was $922,000, $907,000
and $889,000 in 1999, 1998 and 1997, respectively. The Company has entered into
a sublease with the purchaser of its Optoelectronics business. The sublease
expires on November 30, 2005. The purchaser subleases approximately 29% of the
total facility.
The Company has also entered into other noncancelable operating leases.
Total rent expense charged to these noncancelable leases was $133,000, $128,000,
and $110,000 in 1999, 1998 and 1997, respectively.
Future minimum lease payments under operating leases are as follows:
2000 $ 660,000
2001 653,000
2002 653,000
2003 653,000
2004 653,000
2005 and beyond 599,000
----------------
$3,871,000
================
(12) PROFIT SHARING PLAN
In 1985, the Company adopted a profit sharing plan under Section 401(k)
of the Internal Revenue Code. This plan allows employees to defer up to 17.5% of
their income up to certain dollar limits on a pretax basis through contributions
to the plan. Through December 31, 1998, the Company contributed its Common Stock
in an amount equal to 40% of the employee's contribution up to a maximum of 15%
of the employee's cash compensation. The Company temporarily suspended such
contribution beginning in 1999 and has reinstituted matching effective January
1, 2000. Expense recognized under the plan in 1999, 1998 and 1997 was $0,
$46,000 and $199,000, respectively.
(13) EARNINGS (LOSS) PER SHARE
The following table provides a reconciliation of the denominators of
diluted earnings (loss) per share computations for the years ended December 31:
<TABLE><CAPTION>
1999 1998 1997
---------------- --------------- ----------------
<S> <C> <C> <C>
Weighted average number of common shares outstanding 3,246,112 3,235,271 3,086,326
Add net additional common shares upon exercise of common
stock options 28,601 -- 131,141
================ =============== ================
Adjusted weighted average common shares outstanding 3,274,713 3,235,271 3,217,467
================ =============== ================
</TABLE>
31
<PAGE>
SPIRE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(14) OTHER OPERATING CHARGES
Other operating charges, which included expenses of a non-recurring
nature, consisted of the following:
<TABLE><CAPTION>
Years Ended December 31,
-------------------------------
1998 1997
---------------- --------------
<S> <C> <C>
Settlement of Government claim $ 547,000 $ --
Legal costs incurred in settlement of Government claim 158,895 --
Legal costs incurred in enforcing non-competition
agreements with former employees 294,489 --
Severances and associated fringe benefit costs incurred in
downsizing Company 243,605 --
Costs incurred in unsuccessful secondary offering attempt -- 332,000
================ ==============
$1,243,989 $332,000
================ ==============
</TABLE>
The downsizing program initiated by the Company during 1998 resulted in
the reduction of 24 employees. The program was completed in February 1999 and
the entire severance provision was utilized.
(15) OPERATING SEGMENTS AND RELATED INFORMATION
The following table presents certain operating division information in
accordance with the provisions of SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information", which was adopted in 1998.
<TABLE><CAPTION>
Photovoltaics Optoelectronics Biomedical Total
Division Division Division Other Company
------------------ ------------------- ------------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
December 31, 1999
- -----------------
Net sales and revenues $ 3,851,663 $ 4,353,711 $ 3,695,394 $ -- $11,900,768
Loss from operations (1,644,499) (1,046,647) (689,103) -- (3,380,249)
Identifiable assets 3,204,553 755,192 1,620,609 11,783,111 17,363,496
Capital expenditures 119,929 30,620 146,588 54,385 351,522
Depreciation 50,660 453,771 191,795 148,569 844,795
December 31, 1998
- -----------------
Net sales and revenues $ 3,949,000 $ 6,106,000 $ 4,088,000 $ -- $14,143,000
Loss from operations (1,465,000) (1,421,000) (571,000) -- (3,457,000)
Identifiable assets 3,822,000 3,690,000 1,942,000 1,320,000 10,774,000
Capital expenditures 126,000 290,000 197,000 186,000 799,000
Depreciation 133,000 577,000 308,000 -- 1,018,000
Other operating charges 396,000 497,000 351,000 -- 1,244,000
December 31, 1997
- -----------------
Net sales and revenues $ 9,701,000 $ 7,241,000 $ 6,072,000 $ -- $23,014,000
Earnings (loss) from operations 1,313,000 132,000 662,000 (332,000) 1,775,000
Identifiable assets 2,382,000 4,454,000 2,127,000 3,306,000 12,269,000
Capital expenditures 92,000 244,000 262,000 504,000 1,102,000
Depreciation 150,000 585,000 345,000 -- 1,080,000
Other operating charges -- -- -- 332,000 332,000
</TABLE>
32
<PAGE>
SPIRE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
During 1999, the Company's three separate operating divisions were:
Photovoltaics; Optoelectronics; and Biomedical. All divisions operated out of
the Company's facility in Bedford, Massachusetts.
The Photovoltaics division develops, manufactures and markets
photovoltaic module manufacturing equipment and production lines. The Biomedical
division uses ion beam technology to provide processing services to the medical
industry by treating the surfaces of products such as orthopedic devices and
catheters used in the human body. The Optoelectronics division uses thin film
technology such as metalorganic chemical vapor deposition (MOCVD) to create
semiconductor devices for total communications for biomedical and electronics
applications. On December 30, 1999, the Company sold substantially all the
assets of its optoelectronics business. See Note (9) of the financial statements
for a complete description of this transaction.
Each operating division is individually managed and has separate
financial results that are reviewed by the Board of Directors, Chief Executive
Officer, and the vice president and general manager of each operating division.
Profit (loss) from operations is net sales less cost of sales, selling,
general and administrative expenses and other operating charges (Note 14), but
is not affected either by non-operating income or by income taxes. Non-operating
income consists principally of net interest income. In calculating profit from
operations for individual operating divisions, substantial administrative
expenses incurred at the operating level that are common to more than one
statement are allocated on a net sales basis. Certain corporate expenses of an
operational nature are also allocated to the divisions based on factors
including occupancy, employment, and purchasing volume. All intercompany
transactions have been eliminated.
Revenues from contracts with United States government agencies for the
years ended December 31, 1999, 1998 and 1997 were $4,381,000, $6,092,000 and
$7,972,000 or 37%, 43% and 35% of consolidated net sales and revenues,
respectively. In 1999, 1998 and 1997, export revenues were $2,610,000,
$2,400,000 and $7,890,000, respectively, or 22%, 17% and 34% of consolidated net
sales and revenues, respectively.
(16) QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the consolidated quarterly results for the
years ended December 31, 1999 and 1998:
<TABLE><CAPTION>
1999
Three Months Ended
------------------------------------------------------------------------
March 31 June 30 September 30 December 31
------------------ ---------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Net sales and revenues $3,817,716 $ 2,681,578 $2,722,028 $2,679,446
Costs and expenses 3,940,070 3,218,571 3,550,823 4,571,553
Earnings (loss) before income taxes (149,153) (558,306) (862,104) (1,810,686)
Gain on sale of assets -- -- -- 9,918,189
Income tax expense -- -- -- 1,070,000
Net earnings (loss) (149,153) (558,306) (862,104) 6,936,259
Net earnings (loss) per share (0.05) (0.17) (0.27) 2.10
1998
Three Months Ended
------------------------------------------------------------------------
March 31 June 30 September 30 December 31
------------------ ---------------- ------------------ -----------------
Net sales and revenues $ 4,442,526 $ 3,445,291 $3,719,917 $2,535,509
Costs and expenses 4,428,704 5,226,785 4,057,225 3,887,228
Earnings (loss) before income taxes 26,159 (1,775,344) (335,278) (1,368,231)
Income tax expense (benefit) 9,000 -- -- 349,578
Net earnings (loss) 17,159 (1,775,344) (335,278) (1,717,809)
Net earnings (loss) per share 0.01 (0.55) (0.10) (0.53)
</TABLE>
33
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE.
--------------------
None.
PART III
--------
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
- ----------------------------------------------------------------------
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
-------------------------------------------------
Information concerning the directors and executive officers of the Company
is set forth under "Election of Directors" and "Executive Officers" in the Proxy
Statement for the Special Meeting in Lieu of 2000 Annual Meeting of Stockholders
("Proxy Statement") and is incorporated herein by reference. Information
concerning compliance with Section 16(a) of the Exchange Act during 1999 is set
forth under "Compliance with Section 16(a) of the Securities Exchange Act of
1934" in the Proxy Statement and is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION.
- --------------------------------
Information concerning executive compensation is set forth under
"Executive Compensation" in the Proxy Statement and is incorporated herein by
reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- ------------------------------------------------------------------------
Information concerning security ownership of certain beneficial owners and
management is set forth under "Ownership of Securities" in the Proxy Statement
and is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- --------------------------------------------------------
Information concerning certain relationships and related transactions is
set forth under "Other Transactions and Relationships" in the Proxy Statement
and is incorporated herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
- ------------------------------------------
(1) EXHIBITS
--------
The following Exhibits are either filed herewith or are incorporated
by reference as may be indicated.
3(a) Articles of Organization as amended, incorporated by
reference to Exhibit 3 (a) to the Company's Form 10-QSB for
the quarter ended June 30, 1997.
3(b) By-Laws, as amended, incorporated by reference to
Exhibit 3 (b) to the Company's Form 10-K for the year ended
December 31, 1989.
10(a) Sublease Agreement with Millipore Corporation as
landlord for facility at Bedford, Massachusetts dated
November 25, 1985, incorporated by reference to Exhibit 10
(a) to the Company's Form 10-K for the year ended December
31, 1985 ("1985 10-K").
10(b) Amendment to Sublease Agreement with Millipore
Corporation as landlord for facility at Bedford,
Massachusetts dated December 30, 1999.
10(c) Sublease Agreement with Methode Electronics, Inc. as tenant
for portion of facility at Bedford, Massachusetts dated
December 29, 1999.
34
<PAGE>
10(d) Asset Purchase Agreement dated as of November 18, 1999
with Methode Electronics, Inc. and Methode Massachusetts,
Inc., incorporated by reference to Exhibit 1 to the
Company's Form 8-K dated December 29, 1999.
10(e) Employment Agreement with Roger G. Little dated October 3,
1983, as amended.
Employee and Director Benefit Plans
-----------------------------------
10(f) Spire Corporation 1985 Incentive Stock Option Plan
incorporated by reference to Exhibit 10 (d) to the
Company's Form 10-K for the year ended December 31, 1984
("1984 10-K").
10(g) Spire Corporation 401(k) Profit Sharing Plan, including
Adoption Agreement, incorporated by reference to Exhibit 10
(e) to the 1984 10-K.
10(h) Spire Corporation Directors' Stock Option Plan,
incorporated by reference to Exhibit 10 (f) to the 1985
10-K.
10(i) Spire Corporation 1996 Equity Incentive Plan, incorporated
by reference to Exhibit 99 to Registration Statement
333-22223, filed February 21, 1997.
11 Statement Regarding Computation of Per Share Earnings
(Loss).
22 Subsidiary of the Company, incorporated by reference to
Exhibit 22 to the Company's Form 10-K for the year ended
December 31, 1988.
23.1 Accountants' Consent.
27 Financial Data Schedule.
(2) REPORTS ON FORM 8-K
-------------------
The Company filed one Report on Form 8-K during the last quarter of
1999.
PART IV
-------
11-K
Supplemental Information Pursuant to Rule 15d-21 Regarding Annual Report of
Employee Benefit Plans for the fiscal year ended December 31, 1999.
Spire Corporation 401(k) Profit Sharing Plan
Financial Statements
December 31, 1999
(With Independent Auditor's Report Thereon)
35
<PAGE>
SPIRE CORPORATION 401(K) PROFIT SHARING PLAN
TABLE OF CONTENT
Page Number
-----------
Independent Auditor's Report 37
Financial Statements:
Statements of Net Assets Available for Plan Benefits 38
Statement of Changes in Net Assets Available for Plan Benefits 39
Notes to the Financial Statements 42
36
<PAGE>
To the Participants and Administrator of
Spire Corporation 401(k) Profit Sharing Plan
Bedford, Massachusetts
We have audited the accompanying statements of net assets available for plan
benefits of the Spire Corporation 401(k) Profit Sharing Plan as of December 31,
1999 and 1998, and the related statements of changes in net assets available for
plan benefits for each of the three years in the period ended December 31, 1999.
These financial statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards requrie that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for plan benefits at December
31, 1999 and 1998, and the changes in net assets available for plan benefits for
each of the three years in the period ended December 31, 1999, in conformity
with generally accepted accounting principles.
CARLIN, CHARRON & ROSEN LLP
March 9, 2000
37
<PAGE>
SPIRE CORPORATION 401(k) PROFIT SHARING 401(k) PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
AS OF DECEMBER 31, 1999 AND 1998
1999 1998
--------------- --------------
ASSETS:
INVESTMENTS:
At fair value:
Common stock - Spire Corporation $1,293,359 $ 715,536
Mutual funds 5,467,156 4,314,473
At contract value:
Hartford Fixed Income Fund 287,724 288,937
--------------- --------------
TOTAL INVESTMENTS 7,048,239 5,318,946
RECEIVABLES:
Employer's contribution -- 17,120
Participant's contribution 39,843 43,160
Participants' loan receivables 149,292 176,238
--------------- --------------
TOTAL RECEIVABLES 189,135 236,518
--------------- --------------
CASH 10 65
=============== ==============
NET ASSETS AVAILABLE FOR BENEFITS $7,237,384 $5,555,529
=============== ==============
See accompanying notes to the financial statements.
38
<PAGE>
SPIRE CORPORATION 401(K) PROFIT SHARING PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
YEARS ENDED DECEMBER 31,
<TABLE><CAPTION>
1999 1998 1997
--------------------------------------------------------------- ------------ ------------
Fixed Company Mutual
Loans Income Stock Other Funds Total Total Total
--------------------------------------------------------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Additions to Net Assets attributed to:
Investment income:
Interest and dividends 13,906 68 22,409 36,383 77,965 21,351
Interest-other 14,675 14,675 13,732 8,837
Realized gains 14,161 14,161 148,391 5,022
Net appreciation(depreciation) in
fair value of investments as
determined by quoted market price 62,3047 1,128,137 1,751,184 -2,387,089 4,029,249
--------------------------------------------------------------- ------------ ------------
14,675 13,906 623,047 68 1,164,707 1,816,403 -2,147,001 4,064,459
Contributions:
Employer 48 48 97,517 162,411
Employees 889 393,984 394,873 509,294 663,519
--------------------------------------------------------------- ------------ ------------
Total additions 14,675 14,795 623,047 116 1,558,691 2,211,324 -1,540,190 4,890,389
--------------------------------------------------------------- ------------ ------------
Transfers -17,356 -7,503 29,627 -20,608 15,840 0 0 0
Deductions from Net Assets
attributed to:
Benefits paid to participants -24,265 -8,505 -74,851 -421,848 -529,469 -494,203 -1,259,334
--------------------------------------------------------------- ------------ ------------
Total deductions -24,265 -8,505 -74,851 0 -421,848 -529,469 -494,203 -1,259,334
--------------------------------------------------------------- ------------ ------------
Net increase(decrease) -26,946 -1,213 577,823 -20,492 1,152,683 1,681,855 -2,034,393 3,631,055
Net assets available for plan benefits:
Beginning of year 176,238 288,937 715,536 60,345 4,314,473 5,555,529 7,589,922 3,958,867
--------------------------------------------------------------- ------------ ------------
End of year 149,292 287,724 1,293,359 39,853 5,467,156 7,237,384 5,555,529 7,589,922
=============================================================== ============ ============
</TABLE>
See accompanying notes to the financial statements
39
<PAGE>
SPIRE CORPORATION 401(K) PROFIT SHARING PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
YEARS ENDED DECEMBER 31,
<TABLE><CAPTION>
1998
--------------------------------------------------------------------------
Fixed Company Mutual
Loans Income Stock Other Funds Total
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Additions to Net Assets attributed to:
Investment income:
Interest and dividends 13,255 232 64,478 77,965
Interest-other 13,732 13,732
Realized gains 148,391 148,391
Net appreciation(depreciation) in
fair value of investments as
determined by quoted market price -2,516,520 129,431 -2,387,089
--------------------------------------------------------------------------
13,732 13,255 -2,516,520 232 342,300 -2,147,001
Contributions:
Employer 80,396 17,121 97,517
Employees 445 3,797 4,160 461,892 509,294
--------------------------------------------------------------------------
Total additions 13,732 13,700 -2,432,327 60,513 804,192 -1,540,190
--------------------------------------------------------------------------
Transfers 32,630 -16,695 35,850 -14,990 -36,795 0
Deductions from Net Assets
attributed to:
Benefits paid to participants -23,129 -42,398 -170,860 -257,816 -494,203
--------------------------------------------------------------------------
Total deductions -23,129 -42,398 -170,860 0 -257,816 -494,203
--------------------------------------------------------------------------
Net increase(decrease) 23,233 -45,393 -2,567,337 45,523 509,581 -2,034,393
Net assets available for plan benefits:
Beginning of year 153,005 334,330 3,282,873 14,822 3,804,892 7,589,922
--------------------------------------------------------------------------
End of year 176,238 288,937 715,536 60,345 4,314,473 5,555,529
==========================================================================
</TABLE>
40
<PAGE>
SPIRE CORPORATION 401(K) PROFIT SHARING PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS(continued)
YEARS ENDED DECEMBER 31,
<TABLE><CAPTION>
1997
-------------------------------------------------------------------------------------
Group Fixed Company Mutual
Loans Annuity Income Stock Other Funds Total
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Additions to Net Assets attributed to:
Investment income:
Interest and dividends 21,351 21,351
Interest-other 8,122 251 464 8,837
Realized gains 5,022 5,022
Net appreciation(depreciation) in
fair value of investments as
determined by quoted market price 453,989 3,170,741 404,519 4,029,249
-------------------------------------------------------------------------------------
8,122 459,011 21,351 3,170,741 251 404,983 4,064,459
Contributions:
Employer 78,018 84,393 162,411
Employees 356,642 13,377 1,926 291,574 663,519
-------------------------------------------------------------------------------------
Total additions 8,122 815,653 34,728 3,248,759 86,570 696,557 4,890,389
-------------------------------------------------------------------------------------
Transfers 62,556 -3,590,738 2,580 99,147 -171,430 3,597,885 0
Deductions from Net Assets
attributed to:
Benefits paid to participants -3,665 -86,507 -109,560 -569,809 -243 -489,550 -1,259,334
-------------------------------------------------------------------------------------
Total deductions -3,665 -86,507 -109,560 -569,809 -243 -489,550 -1,259,334
-------------------------------------------------------------------------------------
Net increase(decrease) 67,013 -2,861,592 -72,252 2,778,097 -85,103 3,804,892 3,631,055
Net assets available for plan benefits:
Beginning of year 85,992 2,861,592 406,582 504,776 99,925 3,958,867
-------------------------------------------------------------------------------------
End of year 153,005 0 334,330 3,282,873 14,822 3,804,892 7,589,922
=====================================================================================
</TABLE>
41
<PAGE>
SPIRE CORPORATION 401(K) PROFIT SHARING PLAN
Notes to Financial Statements
1. DESCRIPTION OF PLAN
The following description of the Spire Corporation (Company) 401(k) Profit
Sharing Plan (Plan) provides only general information. Participants should
refer to the Plan agreement for a more complete description of the Plan's
provisions.
General
The Plan is a salary reduction (401(k)) plan covering all full-time
employees of the Company who have three months of service and are age
twenty-one or older. It is subject to the provisions of the Employee
Retirement Income Security Act of 1974 (ERISA).
Contributions
1. Employer Contribution
---------------------
The Company will contribute to the Plan an amount equal to 40% of an
employee's contributions up to a maximum of 6% of an employee's cash
compensation. The Company's contribution will always be used to
purchase/acquire Company common stock on the open market. As of
January 1, 1999 the Company has suspended the employer contribution.
2. Employee Contribution
---------------------
Employees electing to participate in the Plan may defer receipt of up
to 17.5% of their compensation subject to the limitation imposed by
the Internal Revenue Code in any one calendar year, by directing the
Company to invest the deferred amount in various investment vehicles.
The investment choices are the Company's common stock, several mutual
funds and a fixed income fund offered by Hartford Life Insurance
Company.
Participants' Accounts
----------------------
Each participant's account is credited with the participant's
contribution and the Company's match contribution, plus an allocation
of (a) plan earnings, and (b) forfeitures of terminated participants'
nonvested accounts. The benefit to which a participant is entitled is
the benefit that can be provided from the participant's account.
Vesting
-------
Participants are immediately vested in their voluntary contributions
plus actual earnings thereon. Vesting in other amounts is based on
years of continuous service. A participant is 100 percent vested
after six years of credited service.
Employee Loans
--------------
Participants may borrow from their fund accounts a loan up to a
maximum equal to the lesser of $50,000 or 50% of their vested account
balance. Loan transactions are treated as a transfer from the
investment fund to the Participant Loan fund. Loan terms range from
1-5 years or up to 25 years for the purchase of a primary residence.
The loans are secured by the balance in the participant's account and
bear interest at a rate commensurate with local prevailing rates as
determined by the Plan administrator. Interest rates range from 8% to
11%. Principal and interest is paid ratably through payroll
deductions.
Payments of Benefits
--------------------
On termination of service, a participant may elect to receive either
a lump-sum amount equal to the value of his or her account, or annual
installments over a period no longer than ten years.
In addition, a participant is eligible to receive distributions under
financial hardship rules for medical, housing and education needs.
42
<PAGE>
SPIRE CORPORATION 401(K) PROFIT SHARING PLAN
Notes to Financial Statements - Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires the plan administrator to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from
those estimates.
Concentration of Credit Risk
----------------------------
Financial instruments which subject the Plan to concentration of credit
risk principally consist of guaranteed investment contracts. The Plan
restricts investment of guaranteed investment contracts to financial
institutions with high credit standing.
3. INVESTMENTS AND ADMINISTRATION OF PLAN ASSETS
During 1997, the plan trustees entered into an agreement with USI
Consulting Group to provide investment options and record keeping for the
participants of the plan. Under the terms of the agreement, certain assets
of the plan are held in a Deposit Administration Account for the benefit
of the participants. The Deposit Administration Account consists of:
(a) The Fixed Income Fund, which includes amounts allocated to Hartford's
General Investment Account. These amounts are guaranteed as to
principal and minimum interest earnings. The interest rate guaranteed
for the year ended December 31, 1999 was 4.7%.
(b) The Direct Participation Account, which consists of amounts allocated
to Separate Investment Accounts. The Separate Investment Accounts
include investments in international and domestic equity growth
funds, balanced funds, income funds and money market funds. The
amounts invested in the Direct Participation Account are not
guaranteed as to principal or minimum interest earnings.
The common shares of the Company and the mutual fund shares are valued at
fair value on December 31 of each year. Fair value is determined by using
quoted market values. The fixed income fund and group annuity contracts
are stated at contract value, which approximates fair value, as reported
to the plan by Hartford. During the years ended December 31, the Plan's
investments appreciated (depreciated) in value by $1,751,184 in 1999 and
($2,387,089) in 1998 and $4,029,249 in 1997.
4. INCOME TAXES
The Plan qualifies for certain tax benefits under Section 401(a) and
401(k) of the Internal Revenue code. The Federal tax consequences to
employees participating in the Plan, and to the Company, under present tax
laws are as follows:
Salary reductions designated by employees to be contributed to the Plan
from their compensation are not includable in employees' taxable income
and are not subject to Federal tax withholding at the time such
contributions are made.
Additionally, interest, dividends and other earnings on such contributions
are not subject to tax when earned. Employees will be taxed on such
contributions and earnings at the time such amounts are returned as
withdrawals or distributions.
43
<PAGE>
SPIRE CORPORATION 401(K) PROFIT SHARING PLAN
Notes to Financial Statements - Continued
5. PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the
right under the Plan to discontinue its contribution at any time and to
terminate the Plan subject to the provisions of ERISA. In the event of
plan termination, participants will become 100 percent vested in their
accounts.
6. EXPENSES NOT INCLUDED IN THE FINANCIAL STATEMENTS
The Company pays all professional fees and other expenses related to the
Profit Sharing 401(k) Plan.
7. SUBSEQUENT EVENT
The Company has reinstated the employer contribution effective January 1,
2000.
44
<PAGE>
FINANCIAL STATEMENTS AND EXHIBITS.
- ---------------------------------
A. FINANCIAL STATEMENTS
--------------------
1. Audited Statements of Net Assets Available for Plan Benefits as of
December 31, 1999 and 1998.
2. Audited Statements of Changes in Net Assets Available for Plan
Benefits for each of the years in the three year period ended December
31, 1999.
B. EXHIBITS
--------
1. Statement Regarding Computation of Per Share Earnings (Loss).
2. Accountants' Consent.
3. Financial Data Schedules.
45
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SPIRE CORPORATION
(Registrant)
By: /s/ Roger G. Little March 30, 2000
-------------------------------------
Roger G. Little
President, Chief Executive Officer
and Chairman of the Board
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
<TABLE><CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Roger G. Little President ,Chief Executive Officer March 30, 2000
- --------------------------------- and Chairman of the Board
Roger G. Little
/s/ Richard S. Gregorio Vice President and Chief Financial March 30, 2000
- --------------------------------- Officer, Treasurer, Clerk,
Richard S. Gregorio Principal Accounting Officer
/s/ Michael T. Eckhart Director March 30, 2000
- ---------------------------------
Michael T. Eckhart
/s/ A. John Gale Director March 30, 2000
- ---------------------------------
A. John Gale
/s/ Udo Henseler Director March 30, 2000
- ---------------------------------
Udo Henseler
/s/ Roger W. Redmond Director March 30, 2000
- ---------------------------------
Roger W. Redmond
/s/ John A. Tarello Director March 30, 2000
- ---------------------------------
John A. Tarello
/s/ Anthony G. Viscogliosi Director March 30, 2000
- ---------------------------------
Anthony G. Viscogliosi
</TABLE>
46
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
10(b) Amendment to Sublease Agreement with Millipore Corporation as
landlord for facility at Bedford, Massachusetts dated December 30,
1999.
10(c) Sublease Agreement with Methode Electronics, Inc. as tenant for
portion of facility at Bedford, Massachusetts dated December 29,
1999.
10(e) Employment Agreement with Roger G. Little dated October 3, 1983,
as amended.
11 Statement Regarding Computation of Per Share Earnings (Loss).
23.1 Accountants' Consent.
27 Financial Data Schedule
EXHIBIT 10(b)
-------------
SECOND AMENDMENT TO LEASE
This Second Amendment, dated as of December 30, 1999, to that certain
sublease made and entered into as of the 25th day of November, 1985 (hereinafter
the "1985 Sublease") by and between Millipore Corporation, a Massachusetts
Corporation, with an address at 80 Ashby Road, Bedford, Massachusetts 01730 (the
"Lessor") and Spire Corporation, a Massachusetts corporation with an address of
Patriots Park, Bedford, Massachusetts 01730 (the "Tenant").
In consideration of Lessor not exercising its rights under Section 9 of the
1985 Sublease to recapture approximately 21,275 square feet of the Leased Space
by virtue of the sublease by the Tenant of such portion of the Leased Space to
Methode Electronics, Inc., and of the mutual promises and agreements herein
contained, Lessor and Tenant hereby agree that the following Paragraph 7(h)
shall be added to the 1985 Sublease as of the date first above written.
(h) Tenant hereby agrees to make advance payment of the Rental
specified in paragraphs 4(b), 4(c) and 4(d), calculated as herein provided,
on the first day of every month without demand or invoice. The amount of
such advance payment or rental shall be calculated by taking one-twelfth
(1/12) of the aggregate of the Rental due in accordance with paragraphs
4(b), 4(c) and 4(d) during the preceding calender year. Within thirty (30)
days following the end of each calendar quarter Lessor agrees to provide
Tenant with a statement reconciling the advance payments received as
provided herein against the actual amounts of such Rental for which Lessor
was billed during such calendar quarter. In the event that such
reconciliation statement shows that the advance payments made by Tenant
hereunder exceed the amounts of such Rental for which Tenant was billed,
then the amount of the advance payment of Rental due on the next succeeding
monthly payment date shall be reduced by the amount of such excess. In the
event that such reconciliation statement shows that the advance payments
made by Tenant hereunder are less than the amounts of such Rental for which
Lessor was billed, then Tenant shall promptly pay Lessor the amount of such
shortfall.
In all other respects the 1985 Sublease shall remain in full force and
effect in accordance with its terms.
SPIRE CORPORATION MILLIPORE CORPORATION
By: /s/ Roger G. Little By: /s/ Francis J. Lunger
-------------------------- --------------------------
Name: Roger G. Little Name: Francis J. Lunger
------------------------ ------------------------
Title: President & CEO Title: Executive VP & COO
----------------------- -----------------------
EXHIBIT 10 (C)
--------------
SUBLEASE AGREEMENT
------------------
SUBLEASE AGREEMENT made and entered into as of this 29th day of December
1999 (the "Sublease Agreement"), by and between Spire Corporation, a
Massachusetts corporation, with an address of One Patriots Park, Bedford,
Massachusetts 01730-2396 (the "Lessor") and Methode Massachusetts, LLC, a
Delaware limited liability company, with an address of 7444 West Wilson Avenue,
Chicago, Illinois 60656-4549 (the "Tenant").
W I T N E S S E T H :
---------------------
WHEREAS, Lessor holds approximately 72,244 square feet of leased space as
tenant under a Sublease Agreement dated as of November 25, 1985 (the "1985
Sublease") with Millipore Corporation ("Lessor's Landlord"), relating to certain
real estate hereinafter described; and
WHEREAS, Lessor is authorized by the 1985 Sublease to sublease less than
a substantial portion of such leased space without the consent of Lessor's
Landlord in certain circumstances; and
WHEREAS, Lessor and Tenant desire to enter into a sublease for less than
a substantial portion of such leased space;
1. Sublease of Space.
(a) Subject to all of the provisions herein contained, and in
consideration of the Rentals to be paid to Lessor by Tenant, and the other
covenants and agreements to be kept and performed by Tenant hereunder, as
hereinafter set forth, Lessor hereby leases to Tenant, and Tenant hereby leases
from Lessor, approximately 21,275 square feet (the "Leased Space") of the
premises situated in Bedford, Middlesex County, Massachusetts, located on the
Westerly side of Wiggins Avenue, known as Patriots Park, and bounded and
described in Exhibit A hereto (the "Premises"). The Leased Space is that portion
of the building located on the Premises as indicated on Exhibit B hereto and
includes Tenant's allocable portion of the shared common space as described on
Exhibit B.
(b) Tenant agrees that all of its rights under this Sublease are
subject to the terms of the 1985 Sublease, which shall govern in the event of
any conflict between the provisions hereof and the provisions of the 1985
Sublease. Tenant hereby assumes all of Lessor's obligations and burdens under
the 1985 Sublease with respect to the Leased Space for the duration of the term
hereof, as if all of such rights and obligations were set forth herein in their
entirety. In the event of a default by the Lessor of its obligations under the
1985 Sublease, Lessor and Tenant hereby agree, for the benefit of the Lessor's
Landlord, and upon written notice from the Lessor's Landlord, to make all
payments of Rental hereunder directly to the Lessor's Landlord in accordance
with instructions contained in such written notice.
<PAGE>
2. Term. The term of this Sublease Agreement shall be for a period
beginning on the 30th day of December 1999 (the "Commencement Date") and, unless
terminated as herein provided, continuing until expiration on November 30, 2005,
subject to the extension option granted to Lessor. Lessor hereby agrees that it
will provide appropriate notification to Lessor's Landlord for extension of the
1985 Sublease through November 30, 2005.
3. Occupancy of Leased Space. The Leased Space is comprised of a portion
of an existing building (the "Building") containing approximately 144,330 square
feet, of which Lessor occupies 72,744 square feet.
4. Rent. For the use and occupancy of the Leased Space, Tenant hereby
covenants and agrees to pay to or for the account of Lessor as rental ("Rental")
without deduction or offset (except as specifically set forth herein) the
following amounts:
(a) An annual fixed Rental calculated at the rate of $12.70 per
square foot of the Leased Space, being Two Hundred Seventy Thousand One Hundred
Eighty-eight and 69/100 Dollars ($270,188.69) per year (hereinafter the "Base
Rental"), due and payable in advance in monthly installments of Twenty-two
Thousand Five Hundred Fifteen and 72/100 Dollars ($22,515.72) at Lessor's
business premises located at One Patriots Park, Bedford, Massachusetts, on the
first day of each and every calendar month during the term of this Sublease
Agreement; a prorated and proportional rent shall be due for any periods of less
than a calendar month at the commencement and expiration of the lease term all
without set off or deduction except as may be required by law in order to
preserve any claim of Tenant thereto.
(b) Tenant's share of all real estate taxes or taxes in the nature of
real estate taxes, or taxes assessed in lieu of or in addition thereto (except
income taxes of general application, inheritance estate or like taxes) including
special and general assessments, however the same may be designated, levied or
to be levied by any taxing authority upon the Premises throughout the entire
term of this Sublease Agreement allocable to the Leased Space as determined in
accordance with Section 20; the same shall be paid to Lessor upon demand at the
time each bill for such taxes issues. If the first or last year of the term of
this Sublease Agreement shall not be co-extensive with the tax year the amount
of taxes payable by Tenant hereunder for such years shall be prorated in
proportion to the period of effectiveness of the Sublease Agreement during such
years. If requested by any first mortgagee of the Premises, Tenant agrees to
make monthly deposits to Lessor on account of such taxes in an amount reasonably
estimated to be sufficient to pay such taxes when they become due. In such
event, Lessor shall provide Tenant with written statements setting forth the
actual amounts of such taxes, and shall promptly reimburse Tenant for any
overpayment.
(c) The actual costs of all electricity, gas, fuel, water and sewage
services used by Tenant.
(d) Tenant's share of all other costs and expenses of every kind with
respect to operation, maintenance and repair of the Premises, including internal
and external common areas (excepting those not undertaken by Lessor pursuant to
Section 8(c)) allocable to the Leased
2
<PAGE>
Space as determined in accordance with Section 20. Tenant shall have the right,
upon reasonable notice and during normal business hours, to review Lessor's
books and records pertaining to such costs and to be reimbursed for any
overpayment.
5. Cost of Living Adjustment. In the event that as of any anniversary of
the Commencement Date (an "Anniversary Date") there shall have been an increase
in the CPI over the last Anniversary Date, the fixed Rental payable pursuant to
Section 4(a) for the succeeding year shall be subject to adjustment as herein
provided. The amount of such adjusted fixed Rental shall be equal to the sum of:
(i) the Base Rental; plus (ii) the Base Rental multiplied times the Adjustment
Percentage. In no event shall the adjusted fixed Rental calculated hereunder be
less than the Rental payable during the preceding year. As used herein: the term
"Base Rental" shall mean an annual Rental of $270,188,69; the term "CPI" shall
mean the Consumer Price Index for Urban Wage Earners and Clerical Workers for
Boston, published by the United States Department of Labor, Bureau of Labor
Statistics, using 1967 as base 100 (or any other index which supersedes such
index); the term "Adjustment Percentage" shall mean the percentage derived from
a ratio having as its denominator Y and as its numerator the difference between
X and Y where X is the monthly index number last established under the CPI prior
to the Anniversary Date in question and Y is the monthly index number last
established under the CPI prior to the Commencement Date.
6. Net Lease. It is the intention of the parties hereto that this is a
net lease and that all costs of ownership, maintenance and use of the Leased
Space shall be paid by Tenant in addition to the fixed rent specified above and
other sums payable by Tenant hereunder (each of which shall be treated as
additional Rental, for non-payment of which Lessor shall have all rights which
Lessor would have for non-payment of fixed rent hereunder, provided, however,
that Lessor has not assumed responsibility for and Tenant shall in turn not be
responsible for maintenance and repair of structural portions of the Building in
accordance with Section 8(c) hereof. Tenant shall pay to or on behalf of Lessor,
through the term of this Sublease Agreement the Rental, free of any charges,
assessments, impositions or deductions of any kind, all of which Tenant shall
pay or discharge, without abatement, deduction or set off (except as
specifically set forth herein), and Lessor shall not be required to make any
payment of any kind whatsoever hereunder (whether due to circumstances now
existing or beyond present contemplation of the parties), except as herein
otherwise set forth. No amendment of any overlease shall effect an amendment to
this Sublease Agreement without Tenant's consent. The rights of the parties in
the event of a casualty to the Leased Space shall be governed by Section 15
hereto.
7. Tenant's Covenants. Tenant further covenants and agrees as follows:
(a) To maintain the Leased Space including the doors and windows
thereof in good repair, condition and order in accordance with good maintenance
practices, and to yield peaceable possession to Lessor of the Leased Space at
termination or expiration of this Sublease Agreement free of all tenants and
occupants in as good repair and condition as at occupancy by Tenant or may be
put thereafter except for ordinary wear and tear, obsolescence, and damage
caused by fire (unless caused by Tenant's negligence or default and not insured
against or required to be insured against hereunder) or the elements.
3
<PAGE>
(b) To comply fully with any applicable statutes, ordinances, and
lawful regulations, rules or orders pertaining to the Leased Space, and to the
activities conducted thereon, to comply with all applicable rules or conditions
reasonably imposed with respect to the Leased Space by any insurance carrier,
and to prevent the existence of any nuisance, or the violation of any statute,
ordinance or valid rule, order or regulation with respect thereto and to save
Lessor harmless from any failure to do so.
(c) To keep the Leased Space insured to the extent of building
replacement costs, against loss or damage by fire, windstorm, hail, explosion
and the other risks included in extended coverage policies from time to time,
subject, however to a "deductible" clause in the amount of $50,000 or such other
amount as Tenant shall reasonably request and Lessor shall approve, which
approval shall not be unreasonably withheld or delayed; all of such policies
shall name as insured the owner ("Owner", being Roger G. Little, Trustee of
SPI-Trust, as of the date of this Sublease Agreement), any first mortgagee of
the Premises, Lessor's Landlord, Lessor and Tenant, as their respective
interests may appear and shall provide that they may not be canceled without at
least fifteen (15) days' prior written notice to Lessor, provided that such
additional notice does not result in the imposition of additional premiums or
charges by such insurer. Tenant agrees to furnish Lessor with a certificate by
the insurer as to the existence thereof together with a copy of such policy. In
lieu of such insurance coverage Tenant may pay Lessor as additional Rental a
share of Lessor's insurance costs under its extended coverage policies covering
the Premises allocable to the Leased Space as determined in accordance with
Section 20 plus the amount of any special or additional premiums required by
virtue of the nature of the business conducted by Tenant in the Leased Space.
(d) To the fullest extent permitted by law, to indemnify Lessor fully
against and to save Lessor harmless from loss, liability, costs, expenses,
attorney's fees and court costs, arising directly or indirectly from any claim
or lawsuit by any person, firm, corporation, association or governmental agency
or authority whomsoever, including (but not limited to) Tenant's officers,
agents, employees or invitees, for damages assertedly sustained to person or
property by reason of any activity conducted by Tenant upon the Leased Space, or
of any breach by Tenant, its officers, agents, employees, or invitees of the
terms, provisions and conditions of this Sublease Agreement or occurring upon
the Leased Space or areas controlled by the Tenant by reason of the conduct of
the Tenant, its officers, agents, employees, and invitees, regardless of the
merit or lack of merit of any such claim or lawsuit, of fault or lack of fault
on the part of Lessor and regardless of the amount of insurance carried; and
further, to procure and keep in force, at Tenant's sole expense, public
liability insurance covering the Premises, with minimum limits of at least
$5,000,000.00 for the death of or bodily injury to any one person, and
$5,000,000.00 for the death of or bodily injury to any number of persons
resulting from the same event, and of $1,250,000.00 for property damage naming
the Owner, any first mortgagee of the Premises, Lessor's Landlord, Lessor and
Tenant as insureds, as their respective interests may appear, provided that if
greater coverage limits are normally carried under similar circumstances, Tenant
agrees to increase such coverage limits appropriately.
4
<PAGE>
(e) To use its best efforts to prevent the filing or imposition of
any lien of any kind whatsoever upon or against the Leased Space or the Premises
based upon or arising out of Tenant's actions, except by Lessor or with Lessor's
prior written consent and in the event of the filing or imposition of such lien,
to discharge same or to obtain a surety bond sufficient to discharge same within
30 days following the date of any such filing or imposition.
(f) To permit Lessor to enter the Leased Space during normal business
hours and, subject to Tenant's reasonable security and confidentiality
requirements, where such entry will not unreasonably disturb or interfere with
Tenant's use of the Leased Space and the operation of Tenant's business, to
examine, inspect, provide services or make repairs, replacements, changes or
alterations as set out in this Sublease Agreement, and to take such steps as
Lessor may reasonably deem necessary for the safety, improvement or preservation
of the Leased Space. Lessor shall give reasonable notice to Tenant prior to any
such entry, except in the case of an emergency, but no such entry shall
constitute an eviction or entitle Tenant to any abatement of Rental.
(g) In the event that Tenant shall fail to perform any act required
by the foregoing covenants and such failure shall continue for a period of 30
days after notice thereof from Lessor, Lessor may (but shall not be obligated to
do so) perform such act without waiving or releasing Tenant from any of its
obligations with respect thereto. Landlord shall be entitled to recover from
Tenant all sums paid or costs incurred in performing such acts on demand.
(h) Tenant hereby agrees to make advance payment of the Rental
specified in paragraphs 4(b), 4(c) and 4(d), calculated as herein provided, on
the first day of every month without demand or invoice. The amount of such
advance payment or Rental shall be calculated by taking one-twelfth (1/12) of
the aggregate of the Rental due in accordance with paragraphs 4(b), 4(c) and
4(d) during the preceding calendar year. Within thirty (30) days following the
end of each calendar quarter Lessor agrees to provide Tenant with a statement
reconciling the advance payments received as provided herein against the actual
amounts of such Rental for which Lessor was billed during such calendar quarter.
In the event that such reconciliation statement shows that the advance payments
made by Tenant hereunder exceed the amounts of such Rental for which Lessor was
billed, then the amount of the advance payment of Rental due on the next
succeeding monthly payment date shall be reduced by the amount of such excess.
In the event that such reconciliation statement shows that the advance payments
made by Tenant hereunder are less than the amounts of such Rental for which
Lessor was billed, then Tenant shall promptly pay Lessor the amount of such
shortfall.
8. Lessor's Covenants. The Lessor hereby represents, warrants, covenants
and agrees as follows:
(a) That Lessor has full right and authority to lease the Leased
Space and to carry out its obligations under this Sublease Agreement.
(b) To the best of Lessor's knowledge, the Leased Space may be used
for warehouse, office, research and development and manufacturing purposes under
all applicable
5
<PAGE>
zoning, wetlands, conservation and other ordinances and regulations; Lessor
knows of no reason why an occupancy permit will not be issued with respect to
Tenant's use of the Leased Space.
(c) Lessor's Landlord has agreed with the Owner pursuant to the
overlease that the Owner will maintain all structural portions of the Premises
including foundations, roofs, exterior walls, structural members and other
supporting structures, provided that the Owner shall not be responsible (and
Tenant shall be responsible) for repair of (i) leaks occurring by reason of roof
penetrating structures installed or constructed by Tenant after the Commencement
Date; and (ii) isolated minor leaks occurring in roofs to the Leased Space which
are properly repaired by simple patching procedures (as opposed to a leak or
series of leaks which properly require replacement or restoration of all or any
portion of a roof), provided, further that the Owner and Lessor shall not be
obligated to make any repairs required by reason of the negligence or default of
Tenant, its officers, agents, employees, and invitees except to the extent that
the Owner shall be insured against the same and receive the proceeds of such
insurance and the Owner's mortgagees shall not retain the proceeds of such
insurance.
(d) To the best of Lessor's knowledge, the building on the Premises,
of which the Leased Space forms a portion, is in compliance with all applicable
federal, state and local laws, ordinances, rules and regulations.
(e) To the best of Lessor's knowledge, such building is free of
structural defects, and such building's systems, including but not limited to
HVAC, electrical and plumbing, are in good working order.
9. Subletting.
(a) Tenant shall not have the right to assign this Sublease Agreement
or to sublet the whole or a portion of the Leased Space, whether voluntarily or
by operation of law, or permit the use or occupancy of any of the Leased Space
by anyone other than the Tenant or the Lessor's Landlord, without the prior
written consents of Lessor and of Lessor's Landlord (which consent shall not be
unreasonably withheld) and such restrictions shall be binding upon any assignee
or subtenant to which Lessor and Lessor's Landlord have consented. In
determining whether to grant such consents to Tenant, Lessor and Lessor's
Landlord shall require that no such subtenant of Tenant shall be a direct or
indirect competitor of Lessor or of Lessor's Landlord or otherwise be of an
unsuitable or objectionable nature. Tenant shall be entitled to retain any
premium over the Rental hereunder which it receives under any such sublease. In
the event Tenant desires to sublet the Leased Space, or any portion thereof, or
assign this Sublease Agreement, Tenant shall give notice thereof to Lessor and
Lessor's Landlord within sixty (60) days prior to the proposed commencement date
of such subletting or assignment, which notice shall set forth the name of the
proposed subtenant or assignee, a detailed statement of the terms of any such
sublease and copies of financial reports and other relevant financial
information as to the proposed subtenant or assignee. Notwithstanding any
permitted assignment or subletting, Tenant shall at all times remain directly,
primarily and fully responsible for the payment of the rent herein specified and
for compliance with all of its other obligations under the terms, provisions and
covenants of this Sublease Agreement. Upon the occurrence of an "event of
default" (as hereinafter defined), if
6
<PAGE>
the Leased Space or any part thereof is then assigned or sublet, Lessor, in
addition to any other remedies herein provided by law, may, at its option,
collect directly from such assignee or subtenant all rents due and becoming due
to Tenant under such assignment or sublease and apply such rent against any sums
due to Lessor from Tenant hereunder, and no such collection shall be construed
to constitute a novation or a release of Tenant from the further performance of
Tenant's obligations hereunder.
(b) In addition to, but not in limitation of, Lessor's Landlord's and
Lessor's right to approve any subtenant or assignee, in the event that Tenant
desires to sublet the Leased Space, or any portion thereof, or assign this
Sublease Agreement, Tenant shall give written notice thereof to Lessor and
Lessor's Landlord, and Lessor's Landlord and Lessor shall have the right and
option, in its sole discretion, to terminate this Sublease Agreement, or in the
case of an actual or proposed subletting or assignment of less than the entire
Leased Space, to recapture the portion of the Leased Space sublet, as of the
date the proposed subletting or assignment is to be effective. The option shall
be exercised, if at all, by Lessor or Lessor's Landlord giving Tenant written
notice thereof within sixty (60) days following Lessor's receipt of Tenant's
written notice as provided above. If this Sublease Agreement shall be terminated
with respect to the entire Leased Space pursuant to this paragraph, the term of
this Sublease Agreement shall end on the date stated in Tenant's notice as the
effective date of the proposed sublease or assignment, as if that date had been
originally fixed in this Sublease Agreement for the expiration of the term
hereof. If Lessor recaptures under this paragraph only a portion of the Leased
Space, the Rental during the unexpired term shall abate proportionately based on
the rent contained in this Sublease Agreement as of the date immediately prior
to such recapture. Tenant shall, at Tenant's own cost and expense, discharge and
pay in full all expenses of such proposed or actual sublease or assignment
(including legal and brokerage fees and the cost of preparing the Leased Space
therefor). If Lessor or Lessor's Landlord does not exercise its option to
recapture the Leased Space under this paragraph, then Tenant shall have the
right to sublet the Leased Space, or any portion thereof, or assign this
Sublease Agreement, subject to Section 9(a) above.
10. Signs. Tenant shall be entitled to erect reasonable ground and
building signs, subject to approval of Lessor, which shall not be unreasonably
withheld. All signs installed by Tenant shall comply with all requirements of
appropriate governmental authorities, and all necessary permits or licenses
shall be obtained by Tenant. Tenant shall maintain all signs in good condition
and repair at all times, and shall save Lessor harmless from injury to person or
property, arising from the erection and maintenance of said signs. Upon vacating
the Leased Space, Tenant shall remove all signs and repair all damage caused by
such removal.
11. Alterations and Improvements by Tenant.
(a) Tenant shall have the right during the continuance of this
Sublease Agreement to make such alterations, changes and improvements to the
Leased Space as may be proper and necessary for the conduct of Tenant's business
and for the full beneficial use of the Leased Space. Tenant shall not make any
structural change in the Leased Space without first having obtained Lessor's
written consent thereto, without limitation Lessor may condition any such
7
<PAGE>
consent by reserving the right to require the Leased Space to be restored to the
same condition they were in prior to the making of any such structural change.
Tenant shall pay all costs and expenses of such alterations, changes, and
improvements, shall make the same in a good and workmanlike manner, and in
accordance with all applicable laws, codes, and building regulations, and shall,
prior to the making of such alterations, changes, and improvements, assure
Lessor and the Owner, in form satisfactory to each of them, that payment for the
same will be made by Tenant. Tenant hereby completely and fully indemnifies
Lessor and the Owner against any mechanic's liens or other liens or claims in
connection with the making of such alterations, changes, and improvements. Any
liens arising out of such alterations, changes, and improvements shall be
discharged of record by Tenant within thirty (30) days after the same have been
filed. Tenant shall pay any and all taxes relating to its personal property,
business, or improvements and alterations constructed as provided in this
Section 11.
(b) Except as otherwise provided, all signs, furnishings, trade
fixtures and other removable equipment installed in the Leased Space by Tenant
and paid for by Tenant shall remain the property of Tenant and shall be removed
by Tenant upon the termination of this Sublease Agreement provided that any of
such as are affixed to the Leased Space and require severance shall be removed
at Tenant's cost, and Tenant shall immediately repair any damage caused by such
removal.
12. Waiver of Subrogation. Each of Lessor and Tenant hereby releases the
other from any and all liability or responsibility to the other or anyone
claiming through or under them by way of subrogation or otherwise for any loss
or damage to property caused by fire or any other perils insured or required to
be insured against in policies of insurance covering such property, even if such
loss or damage shall have been caused by the fault or negligence of the other
party, or anyone for whom such party may be responsible; provided, however, that
this release shall be applicable and in force and effect only to the extent that
such release shall be lawful at that time and in any event only with respect to
loss or damage occurring during such times as the releasor's policies shall
contain a clause or endorsement to the effect that any such release shall not
adversely affect or impair said policies or prejudice the right of the releasor
to recover thereunder and then only to the extent of the insurance proceeds
payable under such policies. Each of Lessor and Tenant agrees that it will
request its insurance carriers to include in its policies such a clause or
endorsement. If extra cost shall be charged therefor, each party shall advise
the other thereof and of the amount of the extra cost, and the other party, at
its election, may pay the same, but shall not be obligated to do so. If such
other party fails to pay such extra cost, the release provisions of this
paragraph shall be inoperative against such other party to the extent necessary
to avoid invalidation of such releasor's insurance.
13. Subordination.
(a) Tenant, upon demand by Lessor, agrees to give a waiver of
priority of Tenant's lien arising by virtue of the within leasehold estate,
thereby subordinating Tenant's lien in favor of any mortgage loan, any mortgage
lien, or any refinancing or replacing of a mortgage loan that the Owner may
determine necessary or desirable from time to time, which election may be
changed from time to time. Tenant agrees to execute such instruments as may be
required by any lending institution or prospective first mortgagee in order to
effectuate such waiver of priority and subordination of Tenant's lien and such
certificates as to the status of this Sublease Agreement and other matters as
such mortgagees shall reasonably require. Tenant shall be bound by and observe
all conditions of said mortgage which shall require the giving of reports and
copies of notices to any such mortgagees, as well as those which afford such
mortgagees the opportunity to cure any default of Lessor hereunder and, subject
to paragraph (b) below, to take possession of the Leased Space without liability
if any default of the Lessor occurring prior thereto cannot reasonably be cured
by such mortgagee nor be subject to any offset or defenses on account thereof
nor bound by any prepayment of rent beyond the then current period.
8
<PAGE>
(b) Upon the request of Tenant, Lessor shall use its best efforts to
cause the Owner to procure from any such lending institution or mortgagee an
agreement in writing, which shall be delivered to Tenant, providing in substance
that so long as Tenant shall faithfully discharge the obligations on its part to
be kept and performed under the terms of this Sublease Agreement, Tenant's
tenancy will not be disturbed nor this Sublease Agreement affected by any
default under such mortgage, and Tenant agrees that this Sublease Agreement
shall remain in full force and effect even though default in the mortgage may
occur.
14. Limitation of Lessor Liability.
(a) If Lessor shall fail to perform any covenant, term or condition
of this Sublease Agreement upon Lessor's part to be performed and, as a
consequence of such default, Tenant shall recover a money judgment against
Lessor, such judgment shall be satisfied only out of the interest of Lessor in
the Premises or, subject to the prior rights of any first mortgagee, future
Rentals therefrom and Lessor shall not be liable for any deficiency. It is
understood and agreed that in no event shall Tenant have any right to levy
execution against any property of Lessor other than its interest in the Premises
as hereinbefore expressly provided. Upon receipt of written notice to do so from
any first mortgagee of the Premises, Tenant agrees to give written notice to
such mortgagee in the event of any default hereunder by Lessor. Nothing herein
contained shall be deemed to in any way limit or restrict Tenant's right to
obtain specific performance or other injunctive or equitable relief with respect
to the performance by Lessor of its covenant set forth in Section 19 hereof.
(b) To the fullest extent permitted by law, Tenant hereby agrees that
Lessor shall not be liable for any claim for damage to person or property
sustained by Tenant or any person claiming through Tenant resulting from any
accident or occurrence in, about, or upon the Leased Space unless due to the
fault or negligence of Lessor and Lessor's failure to make such repairs as it is
obligated to make within a reasonable period after notice from Tenant of the
need for such repairs. Said waiver shall include claims for unforeseen acts or
events resulting in damage or injury to person or property sustained by Tenant
or any person claiming through Tenant.
(c) The conveyance or assignment of any overlease shall operate to
release Lessor from liability, from and after the effective date thereof, upon
all of the covenants, terms and conditions of this Sublease Agreement, express
or implied, except as such may relate to the period prior to such effective
date, and Tenant shall with respect to claims arising thereafter look solely to
Lessor's successor in interest in and to this Sublease Agreement. This Sublease
Agreement shall not be affected by any such sale; conveyance or assignment, and
Tenant shall attorn to Lessor's successor in interest thereunder.
(d) Lessor shall not be deemed to be in default of its obligations
under this Sublease Agreement unless Lessor, Lessor's Landlord, the Owner or any
mortgagee of which Tenant has been given notice shall have received notice
thereof and such default shall continue uncured for a period of thirty (30) days
following receipt of such notice. No performance by the Owner or any such
mortgagee of Lessor's obligations or exercise of its rights, undertaken in a
9
<PAGE>
commercially reasonable manner, shall, in and of itself, subject the Owner or
such mortgagee to any liability under this Lease Agreement.
15. Casualty to Leased Space.
(a) If, during the term hereof, the Leased Space shall be destroyed
or so damaged by fire or other casualty as to be unfit, in whole or in part, for
occupancy and such destruction or damage can reasonably be repaired to
substantially the same form and condition and with substantially the same
materials as before such destruction or damage, within nine (9) months following
the date thereof, then Tenant shall not be entitled to surrender possession of
the Leased Space nor shall Tenant's liability to pay rent under this Sublease
Agreement cease without the mutual consent of the parties hereto. In the event
of any such destruction or injury, Lessor shall repair the same with all
reasonable speed and shall complete such repairs within nine (9) months from the
date of such damage or destruction. If during such period Tenant shall be
deprived of the use of all or any portion of the Leased Space, a proportionate
allowance shall be made to Tenant from the Rental corresponding to the time
during which and to the portion of the Leased Space of which Tenant shall be so
deprived.
(b) If such destruction or injury cannot reasonably be repaired to
such former condition within nine (9) months from the date of such damage or
destruction, Lessor shall notify Tenant within sixty (60) days after the
happening of such destruction or damage whether or not Lessor will repair or
rebuild. If Lessor shall elect to repair or rebuild, Lessor shall specify the
time within which such repairs or reconstruction will be completed, and Tenant
shall have the option, exercisable within thirty (30) days after the receipt of
such notice, to elect either to terminate this Lease Agreement and any further
liability hereunder or to extend the term of the Lease Agreement (at the Rental
in effect immediately preceding expiration of the normal term hereof) by a
period of time equivalent to the time from the happening of such destruction or
injury until the Leased Space is restored to such former condition. In the event
Tenant elects to extend the term of the Sublease Agreement, Lessor shall restore
the Leased Space to such former condition within the time specified in such
notice, and Tenant shall not be liable to pay Rental for the period from the
time of such destruction or injury until the Leased Space is so restored to such
former condition.
(c) In the event that Lessor does not elect to repair or rebuild the
Leased Space pursuant to paragraph (b) above, then Tenant may at its option: (i)
terminate this Sublease Agreement and any further liability hereunder; or (ii)
continue this Sublease Agreement with the Rental adjusted to reflect the
diminution in the value of the Leased Space effected by such destruction or
damage, effective as of the date of such destruction or damage after such
reconstruction. If Tenant determines to continue this Sublease Agreement
pursuant to this paragraph (c) then Tenant shall be entitled, at its cost and
expense, to repair or rebuild, provided, that if Tenant determines to so repair
or rebuild Lessor agrees to assign to Tenant for such purpose any rights it may
have in any insurance payable by reason of such destruction or damage to the
Leased Space. Reconstruction shall be substantially equal in quality to the
original construction of the building and shall, to the extent practical, be
wholly consistent in design and materials therewith. It shall be undertaken only
in full compliance with law after all permits and
10
<PAGE>
approvals have been obtained. It shall be further undertaken only after plans
and specifications therefor have been approved by Lessor, which approval shall
not be unreasonably withheld or delayed.
(d) In the event of any such destruction or damage, Tenant shall be
entitled to reduction or abatement of Rental only as provided in this Section
15; Tenant shall not be entitled to any reduction or abatement in Rental
hereunder if any such damage or destruction is caused by an act or omission of
Tenant, its officers, agents, employees or invitees except to the extent that
Lessor shall be insured against same and receive the proceeds of such insurance.
Lessor shall have no liability to Tenant by reason of any injury to or
interference with Tenant's business or property arising from any such
destruction or damage unless caused by an act or omission of Lessor. Lessor
shall in no event be liable for any such injury or interference resulting from
the making of any repairs to the Leased Space undertaken by Lessor in good
faith.
16. Condemnation.
(a) In the event that the entire of the Leased Space shall be taken
by condemnation or right of eminent domain, this Sublease Agreement shall
terminate as of the day possession shall be taken by the taking authority, and
Lessor and Tenant shall be released from any further liability hereunder
thereafter accruing.
(b) In the event that only a portion of the Leased Space shall be
taken by condemnation or right of eminent domain and the portion so taken
renders the balance unsuitable for the purpose of this Sublease Agreement, the
Tenant may, at its option, elect to terminate this Sublease Agreement effective
as of the day possession shall be taken, provided thirty (30) days notice of
such termination is given. If, in such case, this Sublease Agreement is not
terminated, Lessor may, at its option restore the Leased Space with reasonable
speed to an architectural unit as nearly like its condition prior to such taking
as shall be practicable, and if during and/or after the work of restoration,
Tenant is deprived of the use of all or a part of the Leased Space, an
appropriate reduction of Rental, depending upon the time during which and the
portion of said Leased Space of which Tenant is so deprived, shall be granted.
In the event Lessor elects not to so restore the Leased Space, then Tenant may
at its option: (i) terminate this Sublease Agreement and any further liability
hereunder; or (ii) continue this Sublease Agreement with the Rental adjusted to
appropriately reflect the diminution in value of the Leased Space effected by
such taking, effective as of the date thereof. If Tenant elects to continue this
Sublease Agreement then Tenant may, at its own cost and expense, so restore the
Leased Space.
(c) Tenant shall have no interest in any damages awarded in
connection with the taking of the Premises or the Leased Space, whether allowed
as compensation for diminution in value to the leasehold or to the fee of the
Premises or the Leased Space. Notwithstanding the foregoing Tenant shall be
entitled to make a separate claim for damage to merchandise and moveable trade
fixtures, and removal, re-installation, and moving expenses, provided that it
does not reduce the award payable to Lessor.
11
<PAGE>
17. Default. If: (i) there be default in payment of any Rental which
shall continue for ten (10) days following receipt by Tenant of written notice
thereof from Lessor; or (ii) there shall be default in any other of Tenant's
obligations hereunder or if the Leased Space be abandoned or vacated by Tenant,
and if such default or condition shall continue for thirty (30) days following
receipt by Tenant of notice from Lessor to make good such default or correct
such condition; or (iii) any proceedings under the present or any future
Bankruptcy Act be instituted by or against Tenant, or any receiver or trustee be
appointed for or ordered to dispose of Tenant's business or property, or if
Tenant makes any assignment or conveyance for benefit of creditors and if any
such proceeding instituted against Tenant shall not be dismissed within 20 days
following the date of such institution; then, in such event Lessor shall have
the right, immediately or at any time thereafter, to enter upon the Leased Space
in the name of the whole and repossess the same as of its former estate and
expel Tenant and all those claiming by, through or under it, and remove their
goods and effects (forcibly if necessary) and store the same on behalf of Tenant
without being deemed guilty of any manner of trespass and without prejudice to
any remedies which might otherwise be used for arrears of rent or other default
hereunder and upon entry as aforesaid this Sublease Agreement shall be
terminated. Lessor, at its election, may effect such termination by written
notice to Tenant to that effect, which shall have the same force as an entry for
breach as provided in this Section. In case of such termination, Lessor shall
become entitled to receive from Tenant, and Tenant shall pay to Lessor on
demand, as initial liquidated damages, a sum equal to the amount by which the
sum of the rent and other payments called for hereunder for the remainder of the
term exceeds the fair rental value of the Leased Space for the remainder of the
term. Further, Tenant shall, on demand of Lessor, from time to time indemnify
Lessor against all loss of rent, other payments and damages, however caused,
hereunder or under any overlease which it may incur by reason of such
termination during the remainder of the term, first giving credit to any
payments made by Tenant to Lessor on account of initial liquidated damages as
aforesaid. In computing such damages there shall be added such reasonable
expenses as Lessor may incur in connection with such termination and/or
reletting, such as legal expenses, brokerage, expenses for keeping the Leased
Space in good order and for preparing the same for reletting and expenses and/or
decorations in the Leased Space as may be necessary for the purpose of
reletting. Lessor shall also have the right to pursue such other rights and
remedies as may be allowed at law or equity against Tenant, and any and all
other parties who may be liable. All such remedies shall be cumulative.
Provided, however, if any such default be under clause (ii) above and it would
take more than thirty (30) days to cure the same, Lessor shall not forfeit the
lease created hereby, enter upon the Leased Space or exercise any of the other
remedies herein provided for such default if Tenant begins the cure thereof
within such period and pursues same with reasonable due diligence to completion.
Lessor agrees to use its best efforts to mitigate damages arising from any
default by Tenant.
18. Quiet Enjoyment. The Lessor covenants and agrees with Tenant that,
as long as the Tenant keeps and performs all of the covenants and conditions to
be performed by Tenant hereunder, during the term of this Sublease Agreement
Tenant shall have quiet and undisturbed and continued possession of the Leased
Space, free from any claims against the Lessor and all persons claiming under,
by or through the Lessor.
19. [Intentionally deleted]
12
<PAGE>
20. Allocations.
(a) Unless otherwise agreed in writing, the allocation of all
expenses and costs which, under the terms of this Sublease Agreement, are to be
allocated based upon Tenant's share allocable to the Leased Space including
without limitation real estate taxes, custodial maintenance costs, heating and
ventilation, external maintenance costs such as grounds keeping, snow plowing
and security, nonhazardous waste disposal, facility water, and all utility costs
shall be allocated in accordance with paragraph (c) below. Both the Tenant and
the Landlord agree to work jointly and share costs associated with separate
metering of all utility costs.
(b) Tenant's right to parking spaces, use of external common space
and the allocation of utility services in the event of a limitation or rationing
of availability thereof to the Premises shall likewise be allocated based upon
Tenant's share allocable to the Leased Space in accordance with paragraph (c)
below.
(c) All allocations under this Sublease Agreement based upon Tenant's
share allocable to the Leased Space shall be allocated on the basis of the
percentage derived from a ratio having as its denominator 72,744 and as its
numerator the number of square feet of space occupied by Tenant from time to
time or dedicated to serving such space; 21,275 as of the Commencement Date. In
the event that any portion of the interior or exterior common space is dedicated
exclusively to the use of one of the parties, that party shall bear all expenses
and costs with respect thereto.
21. Arbitration. If any controversy shall arise relating to the
provisions of this Sublease Agreement or the tenancy or other rights created
hereby, and such dispute shall not be resolved by the parties within fifteen
(15) days after either party shall notify the other in writing of its desire to
arbitrate the dispute, then the dispute shall be settled by arbitration. Such
arbitration shall be conducted at Boston, Massachusetts, under the rules then
obtaining of the American Arbitration Association. There shall be a board of
three arbitrators, one appointed by the Lessor, one appointed by Tenant, and a
third selected by the two so named. The arbitrators shall have no power to add
to, subtract from or modify any of the terms or conditions of this Sublease
Agreement. The award of the arbitrators shall be final and binding and
conclusive on the parties, provided, however, that nothing herein contained
shall limit Tenant's right to exercise the rights referred to in the last
sentence of Section 14(a) hereof.
22. Enforcement, Amendment of Overlease.
(a) Lessor covenants and agrees that it shall exercise its reasonable
best efforts to enforce, and shall not waive its rights and privileges under any
overlease in any case where the failure to enforce or the waiver of same would
effect a termination of such overlease or otherwise materially and adversely
affect Tenant's use, enjoyment, and quiet possession of the Leased Space and its
rights and privileges under this Sublease Agreement. Lessor agrees to notify
Tenant in writing promptly after receipt of same, of any claims or notices from
the Owner or Lessor's Landlord asserting a default or breach by Lessor under the
terms of the overlease. In the event
13
<PAGE>
that Lessor shall not have commenced the cure or remedy of any such alleged
default or breach prior to the expiration of seventy five percent (75%) of the
applicable grace period with respect thereto provided in the overlease, Tenant
may, but shall not be required to cure or remedy such default or breach for the
account of the Lessor and may recover from Lessor the reasonable costs incurred
by Tenant in effecting any such cure or remedy, or may offset such costs against
the next payment of Rental due to Lessor.
(b) Lessor further covenants and agrees that it will not agree to any
amendment or termination of the overlease where the effect thereof would be to
directly or indirectly adversely and materially affect Tenant's use, enjoyment
or quiet possession of the Leased Space or of its rights and privileges under
the Sublease Agreement unless such amendment or termination is agreed to in
writing by the Tenant.
23. General Provisions.
(a) Words of any gender used herein shall be construed to include any
other gender, and words in the singular number shall be held to include the
plural, unless the context otherwise requires;
(b) The terms and provisions of this Sublease Agreement shall inure
to the benefit of and be binding upon the parties hereto and their respective
successors, permitted assigns and legal representatives;
(c) The headings used herein are for reference purposes only and do
not affect the meaning or construction hereof;
(d) This Sublease Agreement may not be altered or amended and no
waiver of any of the provisions hereof shall be effective except by an
instrument in writing signed by both parties hereto;
(e) All notices, consents or demands hereunder shall be in writing
and shall be delivered or mailed by Registered or Certified mail, postage paid,
to the party to whom given at the address set forth above or at such other
address as such party may specify in accordance with this clause;
(f) If any provision of this Sublease Agreement shall be held to be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions of this Sublease Agreement shall not in any way be
affected or impaired thereby;
(g) This Sublease Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts;
(h) Each of the parties represents and warrants to the other that it
has not dealt with any broker or finder in connection with this Sublease
Agreement and agrees to indemnify and
14
<PAGE>
hold the other harmless from and against any claims, liabilities or losses
(including attorney's fees) arising out of a breach of this warranty;
(i) Lessor and Tenant shall each have the right to contest in good
faith the validity or amount of any tax, assessment, license fee, excise fee and
other charge for which it is responsible under this Sublease Agreement provided
that no contest by Tenant may be undertaken unless Tenant shall, upon Lessor's
request, deposit with Lessor adequate and sufficient security against any loss
or damage which may ensue or involve the reasonable possibility of forfeiture,
sale, or disturbance of Lessor's interest in the Leased Space and that upon the
final determination of any contest by Tenant, Tenant shall immediately pay and
satisfy the amount found to be due, together with any costs, penalties and
interest;
(j) In any case where either party hereto is required to do any act,
other than the making of any payment of Rental, the time for performance thereof
shall be extended for a period equal to any delay caused by or resulting from
any act of God, war, civil commotion, fire, casualty, labor difficulties,
shortages of labor, materials or equipment, governmental regulations or other
causes beyond such party's reasonable control, to the extent that the
performance of such obligation was actually prevented thereby;
(k) This instrument constitutes the entire agreement between the
parties relating to the subject matter hereof and supersedes all prior
negotiations, contracts or understandings; Tenant acknowledges that except for
the provisions of Section 8 hereof, it has not been induced to enter into this
Sublease Agreement based on any representations made by Lessor.
(l) In the event that the Leased Space is untenantable for a period
of three (3) or more consecutive days, a proportionate allowance shall be made
to Tenant from the Rental corresponding to the time during which and to the
position of the Leased Space of which Tenant was deprived. In the event that the
Leased Space in untenantable for a period of thirty (30) or more consecutive
days, Tenant may terminate this Sublease Agreement.
24. Hazardous Waste. Tenant agrees that it shall not dispose of
hazardous waste defined as such by any applicable law or ordinance, upon the
Leased Space or the Premises. Tenant further agrees that it shall indemnify,
defend and hold Lessor and Lessor's Landlord harmless of and from any breach of
this covenant. Tenant shall include this provision in any sublease and the same
shall be enforceable by and for the benefit of Lessor. For the purposes of this
Section 24, hazardous waste shall not be deemed to include general cleaning
supplies or copier or printing supplies.
25. Environmental and Safety. Tenant shall comply, and take all
necessary actions to cause its operations on the Leased Space to comply, with
all applicable federal, state and local requirements relating to the protection
of public health, safety and welfare, and with all applicable environmental laws
relating to the Premises, and shall indemnify Lessor's Landlord and Landlord
from any and all costs, claims and liabilities related to the presence of toxic
or hazardous substances in or on the Leased Space or the Premises caused by
Tenant. Lessor and
15
<PAGE>
Tenant further agree to reasonably cooperate with each other to assure the
Leased Space complies with all applicable environmental and safety laws and
regulations.
26. Further Agreements. Lessor and Tenant agree not to take or omit (or
permit to be taken or omitted) any action in violation of the terms and
conditions of any overlease, including without limitation the 1985 Sublease, and
Lessor and Tenant shall defend, indemnify and hold each other harmless from and
against any and all claims, expenses, damages and liabilities (including
reasonable attorney's fees) to which either may be subject by reason of any
failure by the other to comply with any of the terms and conditions of any
overlease and this Sublease.
EXECUTED as of the date first herein above stated.
METHODE MASSACHUSETTS, LLC
By:
-----------------------------
Name:
-----------------------------
Title:
-----------------------------
SPIRE CORPORATION
By:
-----------------------------
Name:
-----------------------------
Title:
-----------------------------
16
<PAGE>
COMMONWEALTH OF MASSACHUSETTS
____________, ss.
On this ___ day of December 1999, before me appeared ____________________,
who being duly sworn, did say that he is the _____________________________ of
Spire Corporation and that the seal affixed to said instrument is the corporate
seal of said corporation, and that said instrument was signed and sealed in
behalf of said corporation by authority of its board of directors, and said
_______________________________ acknowledged said instrument to be the free act
and deed of said corporation.
[Notarial Seal]
Notary Public:
------------------------
My Commission Expires:
----------------
<PAGE>
COMMONWEALTH OF MASSACHUSETTS
___________, ss.
On this day of December 1999, before me appeared ______________________,
who being duly sworn, did say that he is the _____________________________ of
Methode Massachusetts, LLC, and that said instrument was signed and sealed in
behalf of said limited liability company by authority of its management acting
pursuant to its governing documents, and said _______________________________
acknowledged said instrument to be the free act and deed of said limited
liability company.
[Notarial Seal]
Notary Public:
------------------------
My Commission Expires:
----------------
<PAGE>
EXHIBIT A
DESCRIPTION OF THE PREMISES
The Premises contain a total of 14.4 acres and is comprised of the following
parcels of land:
1. That certain parcel of land on the Westerly side of Wiggins Avenue in
Bedford, Middlesex County, Massachusetts, being shown as Parcels C & D on a
plan entitled "Plan of Land in Bedford, Mass. Owned by Moore & MacLeod"
drawn by Joseph W. Moore Inc., dated November 27, 1968, and recorded in the
Middlesex South District Registry of Deeds in Book 11622, Page 408,
containing together 6.27 acres.
Being the Premises conveyed to SPI-Trust by deed of James M. Fiore, dated
August 11, 1978, and recorded with said deeds in Book 13513, Page 256.
2. That certain parcel of land on the westerly side of said Wiggins Avenue
being shown as Parcel B on a plan entitled "Plan of Land in Bedford, Mass.
owned by Moore & MacLeod" drawn by Joseph W. Moore, Inc., dated Oct. 21,
1967, and recorded with Middlesex South District Registry of Deeds in Plan
Book 11450 as Plan 109 and bounded and described as follows:
NORTHWESTERLY by Wiggins Avenue, as shown on said plan, 179.08 feet;
SOUTHEASTERLY by land of Griffith Realty Trust, as shown on said plan,
608.30 feet; SOUTHWESTERLY by Parcel A, as shown on said plan, 408.95
feet; NORTHWESTERLY by Parcel A, as shown on said plan, 597.61 feet; and
NORTHEASTERLY by Parcel A, as shown on said plan, 42.01 feet.
Containing an area of 4.135 acres, according to said plan.
Being the premises conveyed to SPI-Trust by deed of Edmund H. Carnevale,
Charles A. Ziegler and David Chleck, dated April 30, 1976, and recorded
with said Deeds in Book 12970, Page 629.
3. That certain parcel of land on the Westerly side of said Wiggins avenue,
being shown as Parcel E on a plan entitled "Plan of Land in Bedford, Mass.
Owned by Moore & MacLeod" drawn by Joseph W. Moore, Inc., dated November
27, 1968, and recorded in the Middlesex South District Registry of Deeds in
Book 11622, Page 408, containing 4.03 acres.
Being the Premises conveyed to Roger G. Little, Trustee of SPI-Trust by
deed of Saint John's Preparatory School, dated December 10, 1982 and
recorded with said Deeds in Book 14818, Page 412.
<PAGE>
EXHIBIT B
DESCRIPTION OF LEASED SPACE
The Leased Space shall include the 21,275 square feet of space indicated
in the attached, comprising an aggregate of 21,275 out of a total of 72,744
square feet.
<PAGE>
NOTICE OF LEASE
LESSOR: Spire Corporation
One Patriots Park
Bedford, MA 01730-2396
TENANT: Methode Massachusetts, LLC
7444 West Wilson Avenue
Chicago, Illinois 60656-4549
PREMISES: Approximately 21,275 square feet of
the buildings located on premises
situated in Bedford, Middlesex
County, Massachusetts, located on the
Westerly side of Wiggins Avenue,
known as Patriots Park, bounded and
described as set forth in Exhibit A
hereto.
EXECUTION DATE: December 29, 1999
COMMENCEMENT DATE: December 30, 1999
TERM: From December 30, 1999 until November 30, 2005
ADDITIONAL PROVISIONS: N/A
WITNESS the execution under seal as of this 29th day of December 1999.
TENANT: LESSOR:
METHODE MASSACHUSETTS, LLC SPIRE CORPORATION
By: By:
----------------------- ----------------------
Name: Name:
----------------------- ----------------------
Title: Title:
----------------------- ----------------------
EXHIBIT 10(e)
-------------
SECOND AMENDMENT
SECOND AMENDMENT made as of the third day of October, 1993 by and between
Spire Corporation, a Massachusetts corporation having its principal place of
business at One Patriots Park, Bedford, Massachusetts 01730-2396 ("Company") and
Roger G. Little of 228 Dudley Road, Bedford, Massachusetts 01730 ("Employee").
WHEREAS, Company and Employee are parties to an Employment Agreement dated
October 3, 1983, which Agreement was amended by an Amendment in 1984 (the
Employment Agreement as so amended is hereinafter referred to as the
"Agreement"); and
WHEREAS, the Agreement expires on October 3, 1993; and
WHEREAS, Company and Employee desire to continue their employer-employee
relationship.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the parties, IT IS AGREED:
1. The termination date referred to in Paragraph 1 of the Agreement is
hereby amended by extending the term for an additional ten (10) years
to October 3, 2003.
2. Paragraph 3(a) of the Agreement is amended by increasing the "base
salary" referred to therein to One Hundred Thirty Five Thousand
Dollars ($135,000) per annum.
3. In all other respects, the Agreement is ratified and confirmed.
IN WITNESS WHEREOF, the parties hereunto set their hands and seals as of
the date first written above.
SPIRE CORPORATION
/s/ Roger G. Little By: /s/ Richard S. Gregorio
- ------------------------ ------------------------
Roger G. Little Richard S. Gregorio
Vice President & CFO
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------
AGREEMENT made this _____ day of __________, 1984 by and between SPIRE
CORPORATION, a Massachusetts Corporation, with its principal place of business
in Bedford, Massachusetts ("Company") and ROGER G. LITTLE residing at 228 Dudley
Road, Bedford, Massachusetts ("Employee").
WHEREAS, the Company and the Employee are parties to an Employment
Agreement dated October 3, l984 ("Agreement"); and
WHEREAS, the parties wish to amend the Agreement in the manner set forth
below;
NOW, THEREFORE, for good and valuable consideration, receipt whereof is
hereby acknowledged by each of the parties,
IT IS AGREED:
1. Paragraph 3(a) of the Agreement is hereby amended by changing the "base
salary" as stated in said Paragraph to Ninety Six Thousand Five Hundred Dollars
($96,500) per annum.
2. Said salary shall be effective as of January 1, 1985.
3. Paragraph 3(b) of the Agreement is hereby amended by deleting same in
its entirety and inserting the following:
(b) The Company shall review the base salary in effect in each year and
shall increase such base salary in effect by no less than a percentage
equal to the percentage annual increase (determined on a calendar year
basis) in the Consumer Price Index for all urban consumers for the City
of Boston published by the Bureau of Labor Statistics
<PAGE>
of the United States Department of Labor ("CPI"), or any successor
index. Each such annual increase shall be effective on the first day of
January in each year.
4. The parties acknowledge that the percentage increase in Employee's base
salary between the amount set forth in the Agreement and $96,500 (approximately
29%) is at least equal to the annual increase in the Consumer Price Index
referred to in Paragraph 3(b) of the Agreement.
5. Except as specifically amended hereby, the Agreement is hereby ratified
and confirmed in all respects and shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals on
the date and year first above written.
SPIRE CORPORATION
By: /s/ Andrew D. MacKay
------------------------
Andrew D. MacKay
Executive Vice-President
/s/ Roger G. Little
------------------------
Roger G. Little
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT made this 3rd day of October, 1983 by and between
SPIRE CORPORATION, a Massachusetts corporation having its usual place of
business in Bedford, Massachusetts ("the Company"), and ROGER G. LITTLE residing
at 228 Dudley Road, Bedford, Massachusetts ("the Employee").
W I T N E S S E T H :
In consideration of the mutual covenants herein contained, the parties
agree as follows:
1. The Company will employ the Employee as Chief Executive Officer and the
Employee will serve the Company upon the terms and conditions provided for
herein during a term of ten (l0) years, commencing as of October 3, 1983 and
ending on October 3, 1993 unless such employment is terminated earlier by either
party as herein provided.
2. During the term of employment hereunder, the Employee shall use his best
efforts in furtherance of the business of the Company and shall perform such
services as are customarily performed by a Chief Executive Officer of
enterprises similar to that of the Company, as well as any other executive
services not inconsistent herewith as may be determined from time to time by the
Board of Directors of the Company. The Employee
<PAGE>
shall not be required to work more than 25 miles from the principal office of
the Corporation at Bedford, Massachusetts, nor to engage in any services or
activities not customarily performed by Chief Executive Officers of enterprises
similar to the Company. Nothing herein shall be construed as preventing the
Employee from engaging in employments or activities which are not competitive
with the business of the Company.
3. (a) The Company shall pay, so long as the Employee shall be employed
hereunder, and the Employee shall accept, a base salary at the rate of
Seventy-five Thousand Dollars ($75,000) per annum (the "base salary"), payable
no less frequently than monthly as the Company shall determine. (The base salary
as it shall be increased from time to time hereunder shall be known as "the base
salary in effect".)
(b) The Company shall increase the base salary in effect every year not
later than the anniversary date of the effective date hereof, by a percentage
equal to the percentage annual increase (determined on the anniversary of the
effective date hereof) in the Consumer Price Index for all urban consumers for
the City of Boston published by the Bureau of Labor Statistics of the United
States Department of Labor ("CPI"), or any successor index.
(c) The Employee shall receive as a bonus for each fiscal year in which the
Company's net after-tax profits, as determined by the Company's independent
auditors, exceed Two Hundred Fifty Thousand Dollars ($250,000), a percentage
<PAGE>
of said net profits as determined according to the following schedule:
Net After-Tax Profits Bonus
--------------------- -----
$ 0 - $ 250,000 0%
250,000 - 500,000 1
500,001 - 1,000,000 2
1,000,001 - 2,000,000 3
Over 2,000,000 4
The foregoing formula shall be applied on a graduated basis so that, for
purposes of illustration only, if the Company's net after tax profit in a fiscal
year as $l,500,000, the Employee's bonus would be $27,500 ($0 for the first
$250,000; $2,500 for the next $250,000; $10,000 for the next $500,000; and
$15,000 for the last $500,000).
(d) In addition, the Company shall pay to the Employee such bonuses at such
times and in such amounts as the Board of Directors of the Company shall from
time to time determine.
(e) The Employee shall be entitled to paid vacations in accordance with the
regular policy of the Company, but in any event, no less than the aggregate of
four weeks per annum.
(f) The Company shall make available to the Employee, or furnish to him, as
the case may be, any and all fringe benefits, including any and all medical,
life and disability insurance and profit-sharing, pension and similar plans made
available or furnished by the Company to employees of standing comparable to the
Employee or to officers of the Company, on the same terms and conditions as such
benefits and plans are made available or furnished to such employees and
officers.
<PAGE>
(g) The Company shall provide a vehicle for the business use of the
Employee and shall defray all insurance, tax, operating, maintenance and other
costs and' expenses incurred in connection therewith.
4. Consistent with the business judgment of the Company's Board of
Directors or with the Company's obligations to any institutional lenders from
which the Company has (or may) borrowed money, the Company shall maintain in its
own name and for its own benefit, life insurance covering the Employee's life,
in any amount or amounts considered advisable, in which policy or policies of
insurance the Employee shall have no right, title or interest. The Employee.
shall submit to any medical or other examination, and shall execute and deliver
any application or other instrument in writing, reasonably necessary to
effectuate such insurance. The non-insurability of the Employee, however, shall
not serve as a default or cause for termination of this Agreement"
5. Employee shall be entitled to an outright assignment of the Company's
interest in any policies upon his life (whether or not maintained under
Paragraph 4 above) upon the termination of this Agreement or upon a creditor
seeking to reach the interest of the Company therein if the Company shall then
be insolvent; provided, however, that the Employee pays to the Company upon such
assignment and within thirty (30) days of such termination or creditor action
the amount of the Company's interest in the cash surrender value and accumulated
dividends of such
<PAGE>
policies, less any indebtedness chargeable against them, plus the proportionate
part of the gross premium on such policies last paid before assignment and
covering a period extending beyond assignment to the extent same did not
increase cash surrender value.
6. The Employee warrants and represents, to the best of his knowledge, that
the execution and performance of this Agreement by him will not constitute a
breach or default under any contract or instrument to which he is a party, or by
which he is bound, including, without limitation, any and all employment and
non-disclosure agreements with any former employer.
7. During the term of this Agreement, including any extension(s) thereof,
and for a period of eighteen months thereafter, or for a period of eighteen
months from the date of the earlier termination of this Agreement by the
Employee otherwise than pursuant to Paragraph 9 hereof, and irrespective of
whether such earlier termination is accepted or acted upon in any way by the
Board of Directors of the Company, the Employee will not, within the United
States, directly or indirectly, own, manage, operate, control, be employed by,
participate in or be connected in any manner with the ownership, management,
operation or control of any business similar to or competing with the type of
business conducted by the Company at the time of such termination, or by any
subsidiary or parent of the Company at such time; provided, however, that
nothing contained herein shall prevent the mere ownership by the Employee of a
five percent (5%)
<PAGE>
or smaller interest in any such similar or competing business. In the event of a
breach or threatened breach by the Employee of any of the provisions of this
paragraph, the Company, in addition to damages, shall be entitled to injunctive
relief.
8. This Agreement and the employment of the Employee hereunder may be
terminated by the Company only upon the Employee's death or permanent disability
or after proof of "cause" as defined herein after hearing before the Directors
upon seven days prior written notice and an opportunity for the Employee to be
represented and heard. The term "permanent disability" means the physical or
mental inability of the Employee to perform substantially all of his duties,
whether for the Company or for any other employer if so employed, for a period
of six consecutive months or six months in aver consecutive 12 month period, or
the written certification by two licensed Massachusetts physicians of the likely
continuation of such condition for such periods. The term "cause" means only the
occurrence of either of the following events:
(a) Employee's conviction by a court of the highest resort for a crime
constituting a felony in the Commonwealth of Massachusetts and the last
date for filing a last appeal from such conviction has expired without
an appeal having been taken; or
(b) A written determination by two licensed Massachusetts' physicians that
Employee is an alcoholic or drug-dependent person, as those terms are
defined in the Massachusetts General Laws.
9. Employee may terminate this Agreement, at his option, upon the
occurrence of any of the following events:
<PAGE>
(a) upon the filing of a petition by or against the Company for
adjudication as a bankrupt, or for an arrangement or for reorganization
under the Bankruptcy Code, and such petition is not dismissed within
thirty (30) days after filing; or
(b) upon the Company's making a general assignment or like arrangement for
the benefit of its creditors; or
(c) upon any merger, consolidation or other reorganization of the Company
or the sale or transfer of substantially all of the assets of the
Company or over 50% of its voting stock, wherein the Employee no longer
owns or has the right to acquire over 50% of the voting stock of the
Company or of the surviving entity, as the case may be; or
(d) upon the Company's election to liquidate, dissolve or wind-up its
business and operations.
10. Upon termination of this Agreement, all obligations of the Company that
have been accrued and not paid prior to the date of such termination shall be
paid promptly to the Employee, or his legal representative as the case may be,
within 30 days of such date of termination. Upon the permanent disability or
death of the Employee, the Company shall pay to the Employee, or his legal
representative, a bonus equal to the pro-rated portion of any and all bonuses
paid to the Employee pursuant to Paragraph 3 hereof during the completed fiscal
year next preceding the year of permanent disability or death of the Employee.
Furthermore, upon the death of the Employee, the Company shall pay to his widow
a death benefit In the amount of $5,OOO.
11. No provisions of this Agreement shall be changed, waived or modified,
nor shall this Agreement be discharged,
<PAGE>
in whole or in part, except by an agreement in writing signed by the party
against whom such change, waiver, modification or discharge is claimed or sought
to be enforced.
12. Upon its execution, this Agreement shall supersede all other Employment
Agreements, discussions or understandings relating to employment between the
parties hereto.
13. This Agreement is personal to the Employee and shall not be assigned by
the Employee or Company in whole or in part, and any attempt by the Employee or
Company to assign same, in whole or in part, shall be null and void and of no
force or effect.
14. This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts.
15. The waiver or failure of either party to execute in any respect any
right provided for by this Agreement shall not be deemed a waiver of any further
or future right hereunder.
16. This Agreement shall be binding upon and inure to the benefit of the
Employee, his heirs, executors, administrators and legal representatives, and
shall be binding upon and inure to the benefit of the Company, its successors
and assigns.
Executed under seal as of the day and year first above written.
SPIRE CORPORATION
By: /s/ Joseph E. Levangie
------------------------
/s/ Roger G. Little
------------------------
Roger G. Little
EXHIBIT 11
----------
SPIRE CORPORATION
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(LOSS) For Years Ended December 31, 1999, 1998
and 1997
<TABLE><CAPTION>
1999 1998 1997
---------------- --------------- ----------------
<S> <C> <C> <C>
NET EARNINGS (LOSS) PER COMMON SHARE - (BASIC)
Net earnings (loss) $ 5,366,695 $(3,811,272) $1,667,235
================ =============== ================
Weighted average number of common shares outstanding 3,246,112 3,235,271 3,086,326
================ =============== ================
Net earnings (loss) per common share $ 1.65 $ (1.18) $ 0.54
================ =============== ================
NET EARNINGS (LOSS) PER COMMON SHARE - (DILUTED)
Net earnings (loss) $ 5,366,695 $(3,811,272) $1,667,235
================ =============== ================
Weighted average number of common shares outstanding 3,276,112 3,235,271 3,086,326
Add net additional common shares upon exercise of common stock options 28,601 -- 131,141
---------------- --------------- ----------------
Adjusted average common shares outstanding 3,274,713 3,235,271 3,217,467
================ =============== ================
Net earnings (loss) per common share $ 1.64 $ (1.18) $ 0.52
================ =============== ================
</TABLE>
EXHIBIT 23.1
------------
ACCOUNTANTS' CONSENT
The Board of Directors
Spire Corporation:
We consent to incorporation by reference in the registration statement on
Form S-8 of Spire Corporation of our report dated March 10, 2000, relating to
the consolidated balance sheets of Spire Corporation and subsidiary as of
December 31, 1998 and 1999, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1999, which report appears in the December
31, 1999 annual report on Form 10-KSB of Spire Corporation.
/S/ KPMG LLP
-------------------------
KPMG LLP
Boston, Massachusetts
March 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONDENSED BALANCE SHEETS AND STATEMENTS OF OPERATIONS ON
FORM 10-KSB FOR THE PERIOD ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-KSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 10,709,370
<SECURITIES> 0
<RECEIVABLES> 2,411,985
<ALLOWANCES> 107,000
<INVENTORY> 1,862,933
<CURRENT-ASSETS> 15,229,236
<PP&E> 14,640,003
<DEPRECIATION> 12,621,001
<TOTAL-ASSETS> 17,363,465
<CURRENT-LIABILITIES> 5,510,875
<BONDS> 0
0
0
<COMMON> 38,189
<OTHER-SE> 11,814,402
<TOTAL-LIABILITY-AND-EQUITY> 17,363,465
<SALES> 2,995,240
<TOTAL-REVENUES> 11,900,768
<CGS> 3,213,643
<TOTAL-COSTS> 15,281,017
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (101,245)
<INCOME-PRETAX> 6,436,695
<INCOME-TAX> 1,070,000
<INCOME-CONTINUING> 5,366,695
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,366,695
<EPS-BASIC> 1.65
<EPS-DILUTED> 1.64
</TABLE>
