<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
----------------------------------
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_________________ to ________________
Commission File Number 0-20215
MICROTOUCH SYSTEMS, INC.
(Exact name of Registrant as specified in its Charter)
Massachusetts 04-2802971
- ------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 Griffin Park, Methuen, MA 01844
- ----------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 508-659-9000
- --------------------------------------------------- ------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the last 90 days.
Yes X No
------ ------
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock as of the latest practical date.
As of July 21, 1997 there were outstanding 7,949,967 shares of common stock of
the Registrant.
<PAGE>
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
PART I FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1997
and December 31, 1996 3
Consolidated Statements of Operations - Three and Six
Months Ended June 30, 1997 and 1996 4
Consolidated Statement of Stockholders' Equity -
Six Months Ended June 30, 1997 5
Consolidated Statements of Cash Flows - Six
Months Ended June 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 13
Exhibit Index 14
</TABLE>
2
<PAGE>
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in 000s except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---- ----
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents...................... $ 9,241 $ 9,818
Marketable securities.......................... 24,007 26,922
Accounts receivable, net of allowances of
$4,935 at June 30, 1997 and $3,940 at
December 31, 1996........................... 19,033 15,976
Inventories.................................... 19,852 15,077
Deferred income taxes.......................... 5,668 5,505
Prepaid expenses and other
current assets.............................. 1,647 952
----- ---
Total current assets........................ 79,448 74,250
Property and equipment, net...................... 10,884 7,197
Other assets..................................... 4,005 3,601
----- -----
$ 94,337 $ 85,048
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................... $ 5,795 $ 7,026
Accrued expenses............................... 12,401 8,852
------ -----
Total current liabilities................... 18,196 15,878
Stockholders' equity
Preferred stock, $.01 par value per share--
500,000 shares authorized, none issued
and outstanding at June 30, 1997 and
December 31, 1996........................... --- ---
Common stock, $.01 par value per share--
authorized - 20,000,000 at June 30,
1997 and December 31, 1996;
8,220,623 issued at June 30, 1997
and December 31, 1996....................... 82 82
Additional paid-in capital..................... 61,519 60,096
Treasury stock at cost - 278,089 and 536,140
shares at June 30, 1997 and December 31,
1996........................................ (4,118) (7,963)
Cumulative translation adjustment.............. (639) (533)
Net unrealized gain on securities available for
sale........................................ 44 105
Retained earnings.............................. 19,253 17,383
------ ------
Total stockholders' equity.................. 76,141 69,170
------ ------
$ 94,337 $ 85,048
====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE>
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in 000's except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------- -------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales.................. $ 32,275 $ 22,891 $ 62,351 $ 43,946
Cost of sales.............. 20,288 14,268 39,016 27,397
---------- ---------- ---------- ----------
Gross profit............... 11,987 8,623 23,335 16,549
Operating expenses:
Research and development. 1,946 1,797 3,773 3,309
Sales and marketing...... 4,568 3,485 9,258 6,759
General and
administrative.......... 2,041 1,425 3,917 2,789
Amortization of
intangible assets....... 119 112 238 223
---------- ---------- ---------- ----------
Total operating
expenses............. 8,674 6,819 17,186 13,080
---------- ---------- ---------- ----------
Operating income........... 3,313 1,804 6,149 3,469
Other income............... 355 476 733 778
Arbitration costs.......... 595 591 595 718
---------- ---------- ---------- ----------
Income before provision
for income taxes.......... 3,073 1,689 6,287 3,529
Provision for income taxes. 1,106 616 2,263 1,288
---------- ---------- ---------- ----------
Net income................. $ 1,967 $ 1,073 $ 4,024 $ 2,241
========== ========== ========== ==========
Earnings per share:
Primary................. $ 0.24 $ 0.13 $ 0.49 $ 0.28
Fully diluted........... $ 0.24 $ 0.13 $ 0.49 $ 0.28
Weighted average common
and common equivalent shares:
Primary................. 8,279 8,122 8,273 8,071
Fully diluted........... 8,280 8,122 8,273 8,104
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE>
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(Amounts in 000s except share data)
(Unaudited)
<TABLE>
<CAPTION>
Net Unrealized
Gain(Loss) On
Common Stock Additional Cumulative Securities
------------------- Paid-in Translation Available for
Shares Amount Capital Adjustment Sale
----------- ------------------ -----------------------------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1996 8,220,623 $ 82 $ 60,096 $(533) $ 105
Exercise of stock options
Employee stock purchase plan 17
Compensation expense related
to common stock options 15
Effect of exchange rate changes (106)
Tax benefit related to exercise
of stock options and
disqualifying dispositions 1,391
Unrealized loss on securities
available for sale, net of tax (61)
Net income
----------- ------- ---------- ----------- ---------------
Balance June 30, 1997 8,220,623 $ 82 $ 61,519 $(639) $44
=========== ======= ========== =========== ===============
<CAPTION>
Treasury Stock Total
Retained ------------------------ Stockholders'
Earnings Shares Amount Equity
----------------------- ----------- ---------------
<S> <C> <C> <C> <C>
Balance December 31, 1996 $ 17,383 (536,140) $ (7,963) $ 69,170
Exercise of stock options (2,154) 242,666 3,617 1,463
Employee stock purchase plan 15,385 228 245
Compensation expense related
to common stock options 15
Effect of exchange rate changes (106)
Tax benefit related to exercise
of stock options and
disqualifying dispositions 1,391
Unrealized loss on securities
available for sale, net of tax (61)
Net income 4,024 4,024
----------- ----------- ----------- ---------------
Balance June 30, 1997 $ 19,253 (278,089) $(4,118) $ 76,141
=========== =========== =========== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE>
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in 000s)
<TABLE>
<CAPTION> Six Months Ended
June 30,
-------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,024 $ 2,241
Adjustments to reconcile net income to net cash provided by
(used in) operating activities--
Depreciation and amortization 1,420 827
Deferred income taxes (17) 368
Compensation expense related to common stock
options 15 27
(Increase) decrease in assets--
Accounts receivable (3,056) (1,671)
Inventories (4,775) (2,755)
Prepaid expenses and other assets (1,289) (578)
Increase (decrease) in liabilities--
Accounts payable (1,251) 1,096
Accrued expenses 3,425 266
--------- ---------
Net cash used in operating activities (1,504) (179)
Cash flows (used in) investing activities:
Purchase of property and equipment, net (4,752) (1,062)
Sale and maturity of marketable securities 10,007 10,057
Purchase of marketable securities (7,321) (6,012)
--------- ---------
Net cash (used in) provided by investing activities (2,066) 2,983
Cash flows provided by financing activities:
Exercise of stock options and employee stock purchase plan 1,708 406
Purchase of treasury stock ---- (486)
Tax benefit from exercise of stock options and
disqualifying dispositions 1,391 189
--------- ---------
Net cash provided by financing activities 3,099 109
Effect of exchange rates on cash (106) (257)
--------- ---------
Net (decrease) increase in cash (577) 2,656
Cash, beginning of period 9,818 5,706
--------- ---------
Cash, end of period $ 9,241 $ 8,362
========= =========
Supplemental disclosures of cash flow information:
Interest paid $ 96 $ 32
========= =========
Income taxes paid $ 557 $ 1,176
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
6
<PAGE>
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(1) Nature of Business
------------------
MicroTouch Systems, Inc. develops, manufactures and sells touch sensitive
input systems, including touch-sensitive screens, digitizers for pen computers
and kiosk enclosures as well as electronic digital PC based whiteboards.
(2) Consolidated Financial Statements
---------------------------------
The accompanying consolidated financial statements include the accounts of
MicroTouch Systems, Inc. and its wholly-owned subsidiaries (together,
"MicroTouch" or the "Company"). All significant intercompany accounts,
transactions and profits have been eliminated.
(3) Interim Consolidated Financial Statements
-----------------------------------------
The accompanying consolidated financial statements as of June 30, 1997 and
for the three and six-month periods ended June 30, 1997 and June 30, 1996
include the accounts of the Company, and have not been audited by independent
public accountants; however, these statements, prepared in accordance with
generally accepted accounting principles, reflect, in the opinion of management,
all adjustments (consisting only of normal recurring accruals) necessary to
present fairly the financial position as of June 30, 1997, and the results of
operations for the three-month and six-month periods ended June 30, 1997 and
1996. The results of operations for the three-month and six-month periods ended
June 30, 1997 are not necessarily indicative of the results to be expected for
the entire year.
These consolidated financial statements do not include all disclosures
associated with annual consolidated financial statements and, accordingly,
should be read in conjunction with the footnotes contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996.
(4) Earnings Per Share (EPS)
------------------------
Earnings per share data are computed using the weighted average number of
shares of common and dilutive common equivalent shares outstanding during the
year. Dilutive common equivalent shares consist of stock options and are
calculated using the treasury stock method.
(5) Recent Accounting Pronouncements
--------------------------------
In February 1997, SFAS No. 128 "Earnings Per Share" was released effective
for fiscal years ending after December 15, 1997. SFAS No. 128 requires the
presentation of basic and diluted EPS. Basic EPS replaces the primary EPS
calculation required under APB Opinion 15. Basic EPS excludes dilution and is
calculated by using the weighted average of common shares outstanding for the
period. Diluted EPS is computed similarly to fully diluted EPS pursuant to
Opinion 15. The pro-forma effect of this accounting change on the June 30, 1997
EPS data and the June 30 and December 31, 1996 previously reported EPS data is
as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended Year Ended
June 30, June 30, December 31,
------- ------- ------------
1997 1996 1997 1996 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Primary EPS as reported $ .24 $ .13 $ .49 $ .28 $.71
Effect of SFAS No. 128 .01 .01 .02 .01 .03
----- ----- ----- ----- ----
Basic EPS $ .25 $ .14 $ .51 $ .29 $.74
===== ===== ===== ===== ====
</TABLE>
7
<PAGE>
Management's Discussion and
Analysis of Financial Condition and
Results of Operations
Results of Operations:
The following table sets forth, for the fiscal periods indicated, the percentage
of net sales represented by certain items in MicroTouch's statements of
operations:
<TABLE>
<CAPTION>
Percentage of Total Revenue
----------------------------------------
Three Months Six Months
Ended Ended
June 30 June 30
----------------- ----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 62.9 62.3 62.6 62.3
------- ------- ------- -------
Gross Profit 37.1 37.7 37.4 37.7
Operating Expenses:
Research & Development 6.0 7.9 6.1 7.6
Sales & Marketing 14.2 15.2 14.8 15.4
General & Administrative 6.3 6.2 6.3 6.3
Amortization of Intangible Assets .4 .5 .4 .5
------- ------- ------- -------
Total Operating Expenses 26.9 29.8 27.6 29.8
------- ------- ------- -------
Operating Income 10.2 7.9 9.8 7.9
Other Income 1.1 2.1 1.2 1.8
Arbitration costs 1.8 2.6 1.0 1.6
------- ------- ------- -------
Income Before Provision for Income 9.5 7.4 10.0 8.1
Tax
Net Income 6.1 4.7 6.5 5.1
</TABLE>
Net Sales Net sales in the quarter ended June 30, 1997 increased over the
corresponding period of 1996 by $9,384,000 or 41.0% to $32,275,000. For the six-
month period ended June 30, 1997, net sales increased $18,405,000 or 41.9% to
$62,351,000. The increase in both the three and six-month periods ended June 30,
1997 reflected increases in international touchscreen sales, the domestic and
international entertainment markets and kiosk sales. For the three month period
ended June 30, 1997, international sales accounted for 43.4% of net sales, an
increase from 32.6% of net sales for the comparable period of 1996, reflecting
increased touchscreen volume primarily into Europe and Australia. For the six-
month period ended June 30, 1997, international sales accounted for 40.5% of net
sales as compared to 33.1% for the six-month period ended June 30, 1996.
Gross Profit Gross profit for the three and six-month periods ended June 30,
1997 was $11,987,000 and $23,335,000, which represents increases of 39.0% and
41.0%, respectively, over the corresponding periods of 1996. As a percentage of
net sales, gross profit decreased from 37.7% in the second quarter of 1996 to
37.1% in the second quarter of 1997. The decrease in second quarter gross
margins primarily reflects the lower margins associated with the production
start up of the Business Products Division's electronic whiteboard product
Ibid(TM). For the six-month period ended June 30, 1997, gross profit, as a
percentage of net sales, decreased to 37.4% from 37.7% in the same period in
1996. This decrease is also due to start up costs in the Business Products
Division.
Research and Development Research and development expenses for the quarter ended
June 30, 1997 increased over the corresponding period of 1996 by $149,000 or
8.3%. As a percentage of net sales, research and development expenses decreased
from 7.9% in the second quarter of 1996 to 6.0% in the second quarter of 1997,
primarily as a result of the 41.0% increase in net sales during the second
quarter of 1997 as compared to the second quarter of 1996. In addition, research
and development expenses for the new electronic whiteboard IBID(TM) have
decreased compared to last
8
<PAGE>
year's second quarter. For the six-month period ended June 30, 1997, research
and development spending increased $464,000 or 14.0% over the same period in
1996. The increase in research and development expenses resulted primarily from
continued development projects in touchscreen technologies, especially resistive
products.
Sales and Marketing Sales and marketing expenses in the quarter ended June 30,
1997 increased over the corresponding period of 1996 by $1,083,000 or 31.1%, to
$4,568,000. As a percentage of net sales, sales and marketing expenses decreased
from 15.2% in the second quarter of 1996 to 14.2% in the second quarter of 1997,
primarily as a result of the 41.0% increase in net sales over the same period.
For the six-month period ended June 30, 1997, sales and marketing expenses
increased by $2,499,000 or 37.0% to $9,258,000. As a percentage of net sales,
sales and marketing expenses decreased from 15.4% in the first six months of
1996 to 14.8% in the first six months of 1997. The absolute dollar increase in
sales and marketing expenses resulted primarily from new product introduction
costs and expanded infrastructure associated with the Ibid(TM) Business Products
Division, as well as expenses resulting from two new international sales offices
in Korea and Hong Kong, which opened during the quarter ended June 30, 1997, and
increased spending to support the sales growth, including commissions.
General and Administrative General and administrative expenses for the quarter
ended June 30, 1997 increased from the corresponding period of 1996 by $616,000
or 43.2% to $2,041,000. For the six-month period ended June 30, 1997, general
and administrative expenses increased over the corresponding period of 1996 by
$1,128,000 or 40.4% to $3,917,000. As a percentage of net sales, general and
administrative expenses increased slightly to 6.3% from 6.2% for the three-month
periods ended June 30, 1997 and 1996 and held constant at 6.3% for the six-month
periods ended June 30, 1997 and 1996. The absolute increase in spending reflects
costs associated with the expanding domestic and international operations and
with the Business Products Division.
Amortization of Intangible Assets For the quarter ended June 30, 1997,
operating expenses included $119,000 of amortization relating to various
acquisitions and purchases of technologies, as compared to $112,000 for the
quarter ended June 30, 1996. For the six-month period ended June 30, 1997,
amortization expense was $238,000 as compared to $223,000 for the comparable
period of 1996.
Operating Income Operating income in the quarter ended June 30, 1997 of
$3,313,000 represented an increase of $1,509,000 or 83.6% over the second
quarter of 1996. For the six-month period ended June 30, 1997, operating income
of $6,149,000 reflects an increase of $2,680,000 or 77.3% over the comparable
period of 1996. For the three-month period ended June 30, 1997 and 1996,
international operations accounted for 5.5% and 6.3%, respectively, of operating
income. For the six- month periods ended June 30, 1997, and June 30, 1996
international operations accounted for 3.3% and 1.2% respectively of operating
income.
Arbitration Costs During the second quarter of 1997, the Company recorded
$595,000 in one-time special charges related to the final settlement of an
arbitration case against Nissha Printing Company Ltd. During the second quarter
of 1996 the Company incurred $591,000 in arbitration costs related to the same
International Arbitration. For the six-month periods ended June 30, 1997 and
1996 arbitration cost were $595,000, and $718,000, respectively, reflecting the
one-time settlement charges in 1997 as compared to the on-going arbitration
costs in 1996. This completes the Company's obligations pursuant to this matter.
Provision for Income Taxes The Company's effective tax rate for both the three
and six-month periods ended June 30, 1997 was 36.0% as compared to 36.5% for the
comparable periods of 1996. The effective tax rates in all periods differed
from the federal statutory rate of 34% primarily as a result of the provision
for state income taxes and the inability of the Company to record a tax benefit
from certain foreign operating loss carryforwards, partially offset by the
benefit related to the Company's foreign sales corporation and tax-exempt
interest income.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the Company had net working capital of $61,252,000,
including approximately $33,248,000 in cash, cash equivalents and marketable
securities. The Company reported net cash used by operating activities of
$1,504,000 for the six-months ended June 30, 1997. The use of cash was required
to support both the expanding touchscreen business and the new Ibid product
line. Additionally, the Company maintains a $3,000,000 bank line of credit. As
of June 30, 1997, the Company had no borrowings outstanding under its bank line
of credit.
During 1997, the Company constructed and occupied a 57,000 square-foot facility
on land purchased in 1995. During the six months ended June 30, 1997, the
Company incurred approximately $2,500,000 of costs associated with this
construction.
Pending operating needs, the Company has invested its cash in investment grade,
interest bearing securities. The Company believes that these cash investments,
together with anticipated cash flows from operations pursuant to its current
operating plan, will be sufficient to meet the Company's working capital and
capital expenditure requirements, at least through 1998. While the Company
regularly evaluates acquisition candidates, conducts preliminary discussions
regarding acquisitions and intends to pursue acquisition opportunities available
to it, there can be no assurance that any such acquisition will be made or if
any such acquisition is completed, that cash consideration will be offered by
the Company.
The discussion contained in this section, as well as elsewhere in this Form
10-Q, may contain forward-looking statements based on the current expectations
of the Company's management. Such statements are subject to certain risks and
uncertainties which could cause actual results to differ materially from those
projected. Readers are cautioned not to place undue reliance on these forward-
looking statements which speak only as of the date hereof. The Company
undertakes no obligation to publicly release any revisions to these forward-
looking statements which may be necessary to reflect events or circumstances
occurring after the date hereof or to reflect the occurrence of unanticipated
events.
10
<PAGE>
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company was involved in an international arbitration entitled
MicroTouch Systems, Inc. vs. Nissha Printing Co. Ltd., ("Nissha") which was
under the auspices of the International Chamber of Commerce ("ICC"). The case
was based on the Company's claims that Nissha breached non-competition
provisions and other terms of a distribution agreement between the Company and
Nissha.
The Company was informed in January, 1997 that while it had won the case
based on the merits of its claim, any recovery of damages was time barred under
the terms of the original agreement between the two parties in the dispute. As a
result, the Company was required to pay a portion of Nissha's fees and costs
associated with the arbitration, which portion totaled $595,000 as determined by
the arbitrators in the case. This completes the company's obligations pursuant
to this matter.
ITEM 4. Submission of matters to a vote of security holders.
At the Annual Meetings of Stockholders held on June 12, 1997 and June 25, 1997,
the Company's stockholders voted as follows:
a) To reelect Messrs. Edward J. Stewart, III and Ronald D. Fisher to the
Board of Directors for respective three-year terms.
The terms of Messrs. James D. Logan, D. Westervelt Davis and Frank
Manning as directors continued after the meeting.
<TABLE>
<CAPTION>
Total Vote for Total Vote Against or Withheld
Each Nominee For Each Nominee
------------ ----------------
<S> <C> <C>
Edward J. Stewart 6,894,175 169,035
Ronald D. Fisher 6,890,202 173,008
</TABLE>
b) To approve the amendment to the 1992 Equity Incentive Plan to increase
the number of shares that may be subject to awards by 375,000 to an
aggregate of 2,375,000 shares.
<TABLE>
<S> <C>
Total vote for the proposal 4,162,336
Total vote against the proposal or withheld 2,503,777
Abstentions 25,879
Broker Non-votes 371,218
</TABLE>
c) To approve Arthur Andersen LLP as independent auditors of the Company
for the year ending December 31, 1997.
<TABLE>
<S> <C>
Total vote for the proposal 7,032,860
Total vote against the proposal or withheld 13,974
Abstentions 16,376
Broker Non-votes 0
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<S> <C>
(a) Exhibits
3.1 Restated Articles of Organization, as Amended(1)
3.2 Amended and Restated By-Laws, as Amended(2)
4.1 Form of Stock Certificate(2)
10.1 1992 Equity Incentive Plan as amended. Filed herewith
27 Financial Data Schedule. Filed herewith.
</TABLE>
(1) Filed as an Exhibit to the Annual Report on Form 10-K filed
for the year ended December 31, 1995 and incorporated herein by
reference.
(2) Filed as an exhibit to the Registration Statement on Form S-1
filed with the Securities and Exchange Commission on June 26, 1992
(Registration Statement No. 33-47874) and incorporated herein
by reference.
(b) Reports on Form 8-K
The Company filed no current reports on Form 8-K during the
quarter ended June 30, 1997.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MicroTouch Systems, Inc.
Dated: August 12, 1997 BY: /s/ Geoffrey P. Clear
---------------------------------
Geoffrey P. Clear
Vice President -
Finance & Administration,
Chief Financial Officer &
Treasurer
13
<PAGE>
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit
- -------
<S> <C>
3.1 Restated Articles of Organization, as Amended(1)
3.2 Amended and Restated By-laws(2)
4.1 Form of Stock Certificate(2)
10.1 1992 Equity Incentive Plan, as amended. Filed herewith
27 Financial Data Schedule. Filed herewith
</TABLE>
(1) Filed as an Exhibit to the Annual Report on Form 10-K filed
for the year ended December 31, 1995 and incorporated herein by
reference.
(2) Filed as an exhibit to the Registration Statement on Form S-1
filed with the Securities and Exchange Commission on June 26,
1992 (Registration Statement No. 33-47874) and incorporated
herein by reference.
14
<PAGE>
Exhibit 10.1
------------
MICROTOUCH SYSTEMS, INC.
1992 Equity Incentive Plan, As Amended
--------------------------------------
Section 1. Purpose
-------
The purpose of the MicroTouch Systems, Inc. 1992 Equity Incentive Plan (the
"Plan") is to attract and retain key employees and consultants to provide an
incentive for them to assist the Company to achieve long-range performance goals
and to enable them to participate in the long-term growth of the Company.
Section 2. Definitions
-----------
"Affiliate" means any business entity in which the Company owns directly or
indirectly 50% or more of the total combined voting power or has a significant
financial interest as determined by the Committee.
"Award" means any Option, Stock Appreciation Right, Performance Share or
Restricted Stock awarded under the Plan.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to time.
"Committee" means a committee of not less than three members of the Board
appointed by the Board to administer the Plan, provided that if and when the
Company is subject to Rule 16b-3 under the Securities Exchange Act of 1934, or
any successor provision ("Rule 16b-3"), each member of the Committee shall be a
non-employee director within the meaning of Rule 16b-3.
"Common Stock" or "Stock" means the Common Stock, $.01 par value per share, of
the Company.
"Company" means MicroTouch Systems, Inc.
"Designated Beneficiary" means the beneficiary designated by a Participant, in
a manner determined by the Committee, to receive amounts due or exercise rights
of the Participant in the event of the Participant's death. In the absence of
an effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
<PAGE>
"Fair Market Value" means, with respect to Common Stock or any other property,
the fair market value of such property as determined by the Committee in good
faith or in the manner established by the Committee from time to time.
"Incentive Stock Option" means an option to purchase shares of Common Stock
awarded to a Participant under Section 6 which is intended to meet the
requirements of Section 422 of the Code or any successor provision.
"Nonstatutory Stock Option" means an option to purchase shares of Common Stock
awarded to a Participant under Section 6 which is not intended to be an
Incentive Stock Option.
"Option" means an Incentive Stock Option or a Nonstatutory Stock Option.
"Participant" means a person selected by the Committee to receive an Award
under the Plan.
"Performance Cycle" or "Cycle" means the period of time selected by the
Committee during which performance is measured for the purpose of determining
the extent to which an award of Performance Shares has been earned.
"Performance Shares" mean shares of Common Stock which may be earned by the
achievement of performance goals awarded to a Participant under Section 8.
"Reporting Person" means a person subject to Section 16 of the Securities
Exchange Act of 1934 or any successor provision.
"Restricted Period" means the period of time selected by the Committee during
which an award of Restricted Stock may be forfeited to the Company.
"Restricted Stock" means shares of Common Stock subject to forfeiture awarded
to a Participant under Section 9.
"Stock Appreciation Right" or "SAR" means a right to receive any excess in
value of shares of Common Stock over the exercise price awarded to a Participant
under Section 7.
Section 3. Administration
--------------
The Plan shall be administered by the Committee. The Committee shall have
authority to adopt, alter and repeal such administrative rules, guidelines and
practices governing the operation of the Plan as it shall from time to time
consider advisable, and to interpret the provisions of the Plan. The
Committee's decisions
2
<PAGE>
shall be final and binding. To the extent permitted by applicable law, the
Committee may delegate to one or more executive officers of the Company the
power to make Awards to Participants who are not Reporting Persons and all
determinations under the Plan with respect thereto, provided that the Committee
shall fix the maximum amount of such Awards for the Group and a maximum for any
one Participant.
Section 4. Eligibility
-----------
All employees (including part-time employees), and in the case of Awards other
than Incentive Stock Options, consultants of the Company or any Affiliate
capable of contributing significantly to the successful performance of the
Company, other than a person who has irrevocable elected not to be eligible, are
eligible to be Participants in the Plan.
Section 5. Stock Available for Awards
--------------------------
(a) Subject to adjustment under subsection (b) below, Awards may be made under
the Plan for up to 2,375,000 shares of Common Stock. If any Award in respect of
shares of Common Stock expires or is terminated unexercised or is forfeited for
any reason or settled in a manner that results in fewer shares outstanding than
were initially awarded, the shares subject to such Award or so surrendered, as
the case may be, to the extent of such expiration, termination, forfeiture or
decrease, shall again be available for award under the Plan, subject, however,
in the case of Incentive Stock Options, to any limitation required under the
Code. Common Stock issued through the assumption or substitution of outstanding
grants from an acquired company shall not reduce the shares available for Awards
under the Plan. Shares issued under the Plan may consist in whole or in part of
authorized but unissued shares or treasury shares.
(b) In the event that the Committee determines that any stock dividend,
extraordinary cash dividend, creation of a class of equity securities,
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination, exchange of shares, warrants or rights offering to purchase Common
Stock at a price substantially below fair market value, or other similar
transaction affects the Common Stock at a price substantially below fair market
value, or other similar transaction affects the Common Stock such that an
adjustment is required in order to preserve the benefits or potential benefits
intended to be made available under the Plan, then the Committee, subject, in
the case of Incentive Stock Options, to any limitation required under the Code,
shall equitably adjust any or all of (i) the number and kind of shares in
respect of which Awards may be made under the Plan, (ii) the number and kind of
shares subject to outstanding Awards, and (iii) the award, exercise or
conversion price with respect to any of the foregoing, and if
3
<PAGE>
considered appropriate, the Committee may make provision for a cash payment with
respect to an outstanding award, provided that the number of shares subject to
any Award shall always be a whole number.
Section 6. Stock Options
(a) General.
-------
(i) Subject to the provisions of the Plan, the Committee may award
Incentive Stock Options and Nonstatutory Stock Options, and determine the number
of shares to be covered by each Option, the option price therefore and the
conditions and limitations applicable to the exercise of the Option. The terms
and conditions of Incentive Stock Options shall be subject to and comply with
Section 422 of the Code, or any successor provision, and any regulations
thereunder. See subsection (b) below.
(ii) The Committee shall establish the option price at the time each
Option is awarded. In the case of Incentive Stock Options, such price shall not
be less than 100% of the Fair Market Value of the Common Stock on the date of
award. In the case of Nonstatutory Stock Options granted at a time when the
Company is subject to Rule 16b-3, such price shall not be less than 50% of the
Fair Market Value of the Common Stock on the date of the award.
(iii) Each Option shall be exercisable at such times and subject to such
terms and conditions as the Committee may specify in the applicable Award or
thereafter. The Committee may impose such conditions with respect to the
exercise of Options, including conditions relating to applicable federal or
state securities laws, as it considers necessary or advisable.
(iv) No shares shall be delivered pursuant to any exercise of an Option
until payment in full of the option price therefore is received by the company.
Such payment may be made in whole or in part in case or, to the extent permitted
by the Committee at or after the award of the Option, by delivery of shares of
Common Stock owned by the optionee, valued at their Fair Market Value on the
date of delivery, or such other lawful consideration as the Committee may
determine.
(b) Incentive Stock Options.
-----------------------
Options granted under the Plan which are intended to be Incentive Stock
Options shall be subject to the following additional terms and conditions:
(i) All Incentive Stock Options granted under the Plan shall, at the time
of grant, be specifically designated as such in the option agreement covering
such
4
<PAGE>
Incentive Stock Options. The Option exercise period shall not exceed ten
years from the date of grant.
(ii) If any employee to whom an Incentive Stock Option is to be granted
under the Plan is, at the time of the grant of such option, the owner of stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company (after taking into account the attribution of stock
ownership rule of Section 424(b) and of the Code), then the following special
provisions shall be applicable to the Incentive Stock Option granted to such
individual:
(x) The purchase price per share of the Common Stock subject to such
Incentive Stock Option shall not be less than 110% of the Fair Market Value
of one share of Common Stock at the time of grant: and
(y) The option exercise period shall not exceed five years from the
date of grant.
(iii) For so long as the Code shall so provide, options granted to any
employee under the Plan (and any other incentive stock option plans of the
Company) which are intended to constitute Incentive Stock Options shall not
constitute Incentive Stock Options to the extent that such options, in the
aggregate, become exercisable for the first time in any one calendar year for
shares of Common Stock with an aggregate Fair Market Value (determined as of the
respective date or dates of grant) of more than $100,000.
(iv) No Incentive Stock Option many be exercised unless, at the time of
such exercise, the Participant is, and has been continuously since the date of
grant of his or her option, employed by the Company, except that:
(x) an Incentive Stock Option may be exercised within the period of
three months after the date the Participant ceases to be an employee of the
Company (or within such lesser period as may be specified in the applicable
option agreement), provided, that the agreement with respect to such Option
--------
may designate a longer exercise period and that the exercise after such
three-month period shall be treated as the exercise of a Nonstatutory Stock
Option under the Plan;
(y) if the Participant dies while in the employ of the Company, or
within three months after the Participant ceases to be such an employee,
the Incentive Stock Option may be exercised by the Participant's Designated
Beneficiary within the period of one year after the date of death (or
within such lesser period as may be specified in the applicable Option
agreement); and
5
<PAGE>
(z) if the Participant becomes disabled (within the meaning of Section
22(e)(3) of the Code or any successor provision thereto) while in the
employ of the Company, the Incentive Stock Option may be exercised within
the period of one year after the date of death (or within such lesser
period as may be specified in the Option agreement).
For all purposes of the Plan and any Option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations). Notwithstanding the
foregoing provisions, no Incentive Stock Option may be exercised after its
expiration date.
Section 7. Stock Appreciation Rights
-------------------------
(a) Subject to the provisions of the Plan, the Committee may award SARs in
tandem with an Option (at or after the award of the Option), or alone and
unrelated to an Option. SARs in tandem with an Option shall terminate to the
extent that the related Option is exercised, and the related Option shall
terminate to the extent that the tandem SARs are exercised. SARs granted in
tandem with Options shall have an exercise price of not less than the exercise
price of the related Option. SARs granted at a time when the Company is subject
to Rule 16b-3 shall have an exercise price of not less than 50% of the Fair
Market Value of the Common Stock on the date of award, or in the case of the
SARs grated in tandem with Options, the exercise price of the SAR shall not be
less than the exercise price of the related Option.
(b) An SAR related to an Option which can only be exercised during limited
periods following a change in control of the Company may entitle the Participant
to receive an amount based upon the highest price paid or offered for Common
Stock in any transaction relating to the change in control or paid during the
thirty-day period immediately preceding the occurrence of the change in control
in any transaction reported in any stock market in which the Common Stock is
usually traded.
Section 8. Performance Shares
------------------
(a) Subject to the provisions of the Plan, the Committee may award Performance
Shares and determine the number of such shares for each Performance Cycle and
the duration of each Performance Cycle. There may be more than one Performance
Cycle in existence at any one time, and the duration of Performance Cycles may
differ from each other. The payment value of Performance Shares shall be equal
to the Fair Market Value of the Common Stock on the date the Performance Shares
are
6
<PAGE>
earned or, in the discretion of the Committee, on the date the Committee
determines that the Performance Shares have been earned.
(b) The Committee shall establish performance goals for each Cycle, for the
purpose of determining the extent to which Performance Shares awarded for such
Cycle are earned, on the basis of such criteria and to accomplish such
objectives as the Committee may from time to time select. During any Cycle, the
Committee may adjust the performance goals for such Cycle as it deems equitable
in recognition of unusual or non-recurring events affecting the Company, changes
in applicable tax laws or accounting principles, or such other factors as the
Committee may determine.
(c) As soon as practicable after the end of a Performance Cycle, the Committee
shall determine the number of Performance Shares which have been earned on the
basis of performance in relation to the established performance goals. The
payment values of earned Performance Shares shall be distributed to the
Participator, if the Participant has died, to the Participant's Designated
Beneficiary, as soon as practicable thereafter. The Committee shall determine,
at or after the time of award, whether payment values will be settled in whole
or in part in cash or other property, including Common Stock or Awards.
Section 9. Restricted Stock
----------------
(a) Subject to the provisions of the Plan, the Committee may award shares of
Restricted Stock and determine the duration of the Restricted Period during
which, and the conditions under which, the shares may be forfeited to the
Company and the other terms and conditions of such Awards. Shares of Restricted
Stock shall be issued for no cash consideration or such minimum consideration as
may be required by applicable law.
(b) Shares of Restricted Stock may not be sold, assigned, transferred, pledged
or otherwise encumbered, except as permitted by the Committee, during the
Restricted Period. Shares of Restricted Stock shall be evidenced in such manner
as the Committee may determine. Any certificates issued in respect of shares of
Restricted Stock shall be registered in the name of the Participant and unless
otherwise determined by the Committee, deposited by the Participant, together
with a stock power endorsed in blank, with the Company. At the expiration of
the Restricted Period, the Company shall deliver such certificates to the
Participant or if the Participant has died, to the Participant's Designated
Beneficiary.
7
<PAGE>
Section 10. General Provisions Applicable to Awards
---------------------------------------
(a) Applicability of Rule 16b-3. Those provisions of the Plan which make an
---------------------------
express reference to Rule 16b-3 shall apply to the Company only at such time as
the Company's Common Stock is registered under the Securities Exchange Act of
1934, or any successor provision, and then only to Reporting Persons.
(b) Limitation on Transferability. Options shall not be transferable by the
-----------------------------
recipient other than by will or the laws of descent and distribution and are
exercisable during such person's lifetime only by such person or by such
person's guardian or legal representative; provided that the Committee may, in
its discretion, waive such restrictions in any case.
(c) Documentation. Each Award under the Plan shall be evidenced by a writing
-------------
delivered to the Participant specifying the terms and conditions thereof and
containing such other terms and conditions not inconsistent with the provisions
of the Plan as the Committee considers necessary or advisable to achieve the
purposes of the Plan or comply with applicable tax and regulatory laws and
accounting principles.
(d) Committee Discretion. Each type of Award may be made alone, in addition
--------------------
to or in relation to any other type of Award. the terms of each type of Award
need not be identical, and the Committee need not treat Participants uniformly.
Except as otherwise provided by the Plan or a particular Award, any
determination with respect to an Award may be made by the Committee at the time
of award or at any time thereafter.
(e) Settlement. The Committee shall determine whether Awards are settled in
----------
whole or in part in cash, Common Stock, other securities of the Company, Awards
or other property. The Committee may permit a Participant to defer all or any
portion of a payment under the Plan, including the crediting of interest on
deferred amounts denominated in cash and dividend equivalents on amounts
denominated in Common Stock.
(f) Dividends and Cash Awards. In the discretion of the Committee, any Award
-------------------------
under the Plan may provide the Participant with (i) dividends or dividend
equivalents payable currently or deferred with or without interest, and (ii)
cash payments in lieu of or in addition to an Award.
(g) Termination of Employment. The Committee shall determine the effect on an
-------------------------
Award of the disability, death, retirement or other termination of employment of
a Participant and the extent to which, and the period during which, the
Participant's
8
<PAGE>
legal representative, guardian or Designated Beneficiary may receive payment of
an Award or exercise rights thereunder.
(h) Change in Control. In order to preserve a Participant's rights under an
-----------------
Award in the event of a change in control of the Company, the Committee in its
discretion may, at the time an Award is made or at any time thereafter, take one
or more of the following actions: (i) provide for the acceleration of any time
period relating to the exercise or realization of the Award, (ii) provide for
the purchase of the Award upon the Participant's request for an amount of cash
or other property that could have been received upon the exercise or realization
of the Award had the Award been currently exercisable or payable, (iii) adjust
the terms of the Award in a manner determined by the Committee to reflect the
change in control, (iv) cause the Award to be assumed, or new rights substituted
therefore, by another entity, or (v) make such other provision as the Committee
may consider equitable and in the best interest of the Company.
(i) Withholding. The Participant shall pay to the Company, or make provision
-----------
satisfactory to the Committee for payment of, any taxes required by law to be
withheld in respect of Awards under the Plan no later than the date of the event
creating the tax liability. In the Committee's discretion, such tax obligations
may be paid in whole or in part in shares of Common Stock, including shares
retained from the Award creating the tax obligation, valued at their Fair Market
Value on the date of delivery. The Company and its Affiliates may, to the
extent permitted by law, deduct any such tax obligations from any payment of any
kind otherwise due to the Participant.
(j) Foreign Nationals. Awards may be made to Participants who are foreign
-----------------
nationals or employed outside the United States on such terms and conditions
different from those specified in the Plan as the Committee considers necessary
or advisable to achieve the purposes of the Plan or comply with applicable laws.
(k) Amendment of Award. The Committee may amend, modify or terminate any
------------------
outstanding Award, including substituting therefor another Award of the same or
a different type, changing the date of exercise or realization and converting an
Incentive Stock Option to a Nonstatutory Stock Option, provided that the
Participant's consent to such action shall be required unless the Committee
determines that the action, taking into account any related action, would not
materially and adversely affect the Participant.
Section 11. Miscellaneous
-------------
(a) No Right To Employment. No person shall have any claim or right to be
----------------------
granted an Award, and the grant of an Award shall not be construed as giving a
9
<PAGE>
Participant the right to continued employment. The Company expressly reserves
the right at any time to dismiss a Participant free from any liability or claim
under the Plan, except as expressly provided in the applicable Award.
(b) No Rights As Shareholder. Subject to the provisions of the applicable
------------------------
Award, no Participant or Designated Beneficiary shall have any rights as a
shareholder with respect to any shares of Common Stock to be distributed under
the Plan until he or she becomes the holder thereof. A Participant to whom
Common Stock is awarded shall be considered the holder of the Stock at the time
of the Award except as otherwise provided in the applicable Award.
(c) Effective Date. Subject to the approval of the shareholders of the
--------------
Company, the Plan shall be effective on January 1, 1992. Prior to such
approval, Awards may be made under the Plan expressly subject to such approval.
(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan or
-----------------
any portion thereof at any time, provided that no amendment shall be made
without shareholder approval if such approval is necessary to comply with any
applicable tax or regulatory requirement. Prior to any such approval, Awards
may be made under the Plan expressly subject to such approval.
(e) Governing Law. The provisions of the Plan shall be governed by and
-------------
interpreted in accordance with the laws of the Commonwealth of Massachusetts.
10
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<PAGE>
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<PERIOD-TYPE> 3-MOS 6-MOS
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<PERIOD-START> APR-01-1997 JAN-01-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<CASH> 9,241 0
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