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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
Form 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(k) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
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Commission file number: 0-20215
MICROTOUCH SYSTEMS, INC.
(Exact name or registrant as specified in its charter)
___________
Massachusetts 04-2802971
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
300 Griffin Park 01844
Methuen, MA -----
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(Address of principal executive offices)
(978) 659-9000
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: Common Stock, $0.01
par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K.[ ]
The aggregate market value of voting stock held by nonaffiliates of the
registrant as of January 8, 1999, was approximately $92,660,000 (based on the
last price of such stock as reported by NASDAQ Stock Market on such date).
The number of shares outstanding of each of the registrant's classes of capital
stock, as of January 8, 1999 was:
Common Stock, $0.01 par value 7,296,651
Portions of the Registrant's proxy statement for the Annual Meeting of
Stockholders to be held June 24, 1999 are incorporated by reference into Part
III of this Form 10-K.
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ITEM I BUSINESS
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General
MicroTouch Systems, Inc. (the "Company" or "MicroTouch") is a leading
supplier of touch and pen sensitive input systems including touchscreens and
electronic whiteboards. The Company's principal products are its touch sensitive
screens, which are based on the Company's two primary technologies - analog
capacitive sensing (referred to as ClearTek(R)) and resistive membrane (known as
TouchTek/(TM)/). In both the capacitive and resistive membrane cases, the
screens are configured to CRT monitors and flat panel displays. The Company
believes its touchscreens are well suited for a wide variety of markets and
applications where ease of use, speed, accuracy and durability are desirable.
Over the last decade, the use of personal computers has grown in a wide
range of applications. As a result, demand has increased for products that make
these systems more accessible to a broader range of users. For example, the
development of graphical user interfaces ("GUIs"), such as Microsoft Windows,
has allowed information to be displayed in an easy to understand graphic manner.
Touch products address this demand by allowing both trained and untrained
computer users to interact with computers in a natural and intuitive manner.
Touchscreens allow individuals to access information and interact with a
computer simply by touching the computer's screen with a finger. Because
pointing is a natural instinct, touch screens offer a highly intuitive computer
interface. Touchscreens are designed to allow users to interact with their
system without the use of a keyboard, mouse or trackball. Accordingly, the ease
of use offered by touchscreen-based systems makes them well suited both for
applications for the general public and for specialized applications for trained
computer users.
The Company has expanded its product line primarily through internal
development as well as acquisitions in the past. Technologies acquired through
acquisition include kiosk and resistive membrane technology. Over the past three
years, the Company has developed and begun marketing a new product referred to
as an electronic P.C. whiteboard. This new product, marketed under the trademark
of Ibid, allows the user to write or draw information on a whiteboard and then
to electronically view and transfer the written information to a desktop or
notebook P.C.
The discussion contained in this section and elsewhere in this Annual
Report on Form 10-K 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 the result of any revisions to
these forward-looking statements, which may be made to reflect events or
circumstances occurring after the date hereof or to reflect the occurrence of
unanticipated events.
Strategy
MicroTouch's objective is to be the leading worldwide supplier of touch
products and to exploit opportunities in other touch and related markets through
the development and acquisition of complementary technologies and product lines.
The key elements of the Company's strategies are as follows:
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Focus on Vertical Markets. The Company's strategy for its touch products is
to focus on vertical markets in which the Company believes touch technology
offers significant benefits and appeals to a broad customer base. The Company's
sales force is organized into geographic territories that focus on customers
within these distinct vertical markets. In addition, specialized experts exist
within the sales force for several of the vertical markets including point-of-
sale cash registers, interactive kiosks, medical applications, mobile
information devices and gaming and entertainment equipment.
Target Developers of End User Applications. The Company directs its sales
efforts for its touch products toward original equipment manufacturers (OEMs),
value added resellers (VARs), system integrators and high-volume end users,
which the Company believes are best able to develop and market applications for
the Company's targeted vertical markets. The Company seeks to have its products
designed into the end user systems or products of these customers.
Provide Flexible Product Offerings. The Company works closely with its
customers to understand their businesses and product requirements. The Company
offers its ClearTek and TouchTek touchscreens, and TouchPen sensors in a variety
of standard and customized configurations to meet the diverse needs of the
markets which it serves. The ThruGlass products which allows for gloved touch
operation of a computer through up to an inch of glass, can also be customized
to meet the requirements of emerging end user applications. The Company's
Factura kiosk products are offered in both standard off-the-shelf format, as
well as in customized versions.
Enhance and Expand Technology. The Company's traditional technology is its
proprietary analog capacitive sensing technology. MicroTouch seeks to improve
its products by enhancing this technology through the development of new glass
coating techniques, custom ASICs, controllers, software algorithms and software
drivers. The Company also seeks to develop new technologies through internal
development, licensing or acquisitions. The Company has developed TouchPen, a
touch and stylus sensitive device used for pen-based applications. The Company
is also continuing to market ThruGlass, which allows touch to be sensed through
other conductive media. During the past year, the Company has significantly
enhanced its resistive membrane technology through product development programs
similar to those undertaken for the capacitive product line. Finally, the
electronic whiteboard product was developed based on resistive technology
obtained in the 1995 Touch Technology acquisition, a business engaged in the
development and marketing of touch sensitive sccreens primarily using resistive
membrane technology.
Pursue New Market Opportunities. The Company is currently applying its
existing technologies to new market opportunities where it believes these
technologies can have significant growth potential. These opportunities include
consumer devices for resistive technology and, with respect to TouchPen
applications, use for pen computing, videoconferencing and image manipulation in
interactive kiosks, a market in which the Company also offers its Factura
products.
Expand International Markets. The Company has increased its international
presence through the opening of foreign sales offices and manufacturing
facilities. The Company currently has touchscreen sales and manufacturing
facilities in the United Kingdom and Australia and sales offices in France,
Germany, Italy, Spain, Japan, Taiwan, Korea and Hong Kong. The Company's
international sales, including U.S. export sales, increased from $36.2 million
in 1996 to $57.4 million in 1997 and to $71.4 million in 1998.
Technology
Analog Capacitive Technology. The Company's primary touchscreen technology
is its proprietary analog capacitive sensing technology. This technology creates
a uniform voltage field on the conductive surface of the touch sensor. When a
finger comes into capacitive contact with the conductive layer, it draws a small
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amount of current to the point of contact. A controller attached to the
conductive surface determines the point of contact by measuring the relative
current flows from the four corners of the surface.
The Company implements this technology on a glass panel that has a
transparent conductive coating fused to its surface. In most of the Company's
products, a proprietary glass overcoat is then laid over the conductive coating
for additional protection. The conductive glass panel, or sensor, is driven at
its four corners by an A/C sine wave voltage which is dispersed linearly over
the sensor by an electrode pattern located on the perimeter of the sensor. When
a user touches the screen, the controller determines the point of contact and
transmits the location to the computer for processing.
The Company's analog capacitive sensing technology has many favorable
attributes, including:
High Touch Sensitivity. Because the Company's touchscreens rely on
capacitive contact rather than activation by pressure, they offer a high degree
of sensitivity to input from a finger. This is important in applications
characterized by continuous usage such as cash registers, where a requirement to
exert pressure on the screen might be uncomfortable over time and slow down
input and, therefore, customer service.
Fast Touch Speed. The Company's proprietary software algorithms enable the
controller to detect quickly a touch on the screen. This capability can enable
operators of products such as touch-based cash registers to input numbers as
quickly as they could using buttons or keypads.
High Resolution. The Company's touch screens have a resolution of at least
1,024 by 1,024 points. Because the controller averages the entire area of finger
contact and reports a single point, even a finger is able to obtain pixel-level
control of the cursor on a display. This resolution allows for the creation of
detailed menus and greater flexibility in screen design.
Resistant Properties. The capacitive nature of the Company's touchscreens
allows them to function unimpaired even when contaminants such as water, dirt or
grease build up on the surface. This is an important feature in factory
environments, public locations and restaurants.
Durability. With its proprietary glass overcoat, the Company's
touchscreens are scratch, wear and chemical resistant. In addition, the glass
sensor may be optically bonded to the computer screen in a process designed to
give structural support to the screen. Durability is an important feature in
applications such as entertainment and point of sale, which are characterized by
frequent use.
Ease of Integration. The Company's glass sensors are easily fabricated
into a variety of shapes and sizes and are readily installed in displays in a
manner that results in a professional looking fit and finish.
Resistive Membrane Technology. The Company's TouchTek "resistive membrane"
technology has several attributes that are similar to those of its capacitive
systems. TouchTek screens work by creating a uniform voltage field on a glass
substrate. When a plastic top sheet is compressed into contact with the glass
layer, current is drawn from each side of the glass layer in proportion to the
distance from the edge. An electronic controller calculates the position of the
finger based on the current flows. Some of the Company's resistive products fall
into a category known as 5-wire resistive and the Company has recently placed
more emphasis on offering 4-wire resistive products for certain specialty
consumer device applications as customer requirements dictate.
ThruGlass Technology. MicroTouch's ThruGlass technology operates by
projecting voltage fields out from the conductive surfaces of transparent glass
connected to a controller. When an individual touches the window in front of the
projected capacitive touchscreen, minute changes in the voltage field are
detected and the touch is assigned to a location on the sensor.
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TouchPen Technology. TouchPen utilizes a modified form of the Company's
analog capacitive technology to sense both a finger and a pen touch. TouchPen's
controller is able to electrically distinguish the hand from the pen signal,
allowing it to reject the hand signal when writing. The touch performance of
TouchPen is equal to the Company's analog capacitive ClearTek product, while the
pen offers even higher resolution of 2,048 by 2,048 to capture handwriting.
There are several alternative touch technologies currently in use by other
manufacturers. These technologies include (i) resistive membrane products
similar to the Company's; (ii) scanning infrared, which uses a grid of infrared
beams; (iii) surface acoustic wave or "SAW" screens, which are based on the
transmission of acoustic waves across a glass overlay; (iv) guided acoustic wave
or "GAW" screens, which are based on the transmission of acoustic waves through
a glass surface; and (v) piezo technology, in which piezo, or pressure, sensors
convert touch forces into electrical signals.
Products
Markets, Applications and Customers
The Company sells its products into a variety of markets, including self-
service kiosks, point of information displays, point of sale equipment, gaming
and entertainment systems, industrial and medical systems and training and
business systems. Specific customer applications include; airline and movie
theatre ticketing, exhibits and trade shows, tourist information centers, museum
exhibit guides, restaurant and merchandise cash registers, customer self
service, casino video gaming machines, bartop entertainment gaming, children's
entertainment kiosks, process control, video banking and ATM's, financial
trading and portable information devices.
Touchscreens
The Company's principal product line over the last several years has been
the ClearTek 2000 Touch Screen. The Company recently introduced its next
generation capacitive product, the ClearTek 3000 touchscreen, in a variety of
configurations, including kits comprised of touch sensors and controllers or
chipsets, and fully configured touchscreen monitors. In addition, the Company
customizes its products to accommodate particular customer needs.
The new ClearTek 3000 Touch Screen system has a resolution of 1,024 by
1,024 points and interprets the entire area of touch contact as a single point,
giving a finger the ability to select targets as small as a single pixel. The
screen detects a touch in as little as 8-12 milliseconds making it fast in
operations such as hitting buttons on a touchscreen-based cash register. The
TouchTek resistive touchscreen systems utilize a conductively coated plastic top
sheet over a conductively coated and rigid bottom sheet, usually glass.
Resistive kits are configured similarly to capacitive kits. The principal
elements of both the ClearTek 3000 and the TouchTek product lines include the
following:
Sensors. The Company's glass sensors, which are installed on the face of
computer screens, are offered in a large number of curved and flat screen sizes,
as well as in custom sizes. Screens may be optically bonded to monitors through
a process developed by the Company to fill the space between the touchscreen and
the monitor with a transparent bonding compound. Optically bonded sensors
increase optical clarity and provide greater structural support. The Company's
ClearTek sensors are overcoated with the Company's exclusive glass top-coating
for added durability and optical clarity.
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Controllers. Controllers offered by the Company have USB, serial, PC bus,
ADB or TTL interfaces and will operate with any of the Company's touchscreens.
Capacitive chipsets, which include a proprietary ASIC, are sold to larger volume
OEMs for incorporation into the electronics of their systems.
Software Drivers and Tools. GUI drivers and software tools provided by the
Company include an MS-DOS mouse emulator; Windows, OS/2, Macintosh, Windows NT,
Amiga, and various UNIX drivers; and an MS-DOS software tool for creating and
defining touch zones.
Options. The Company sells a variety of options and accessories, including
power supplies, cables and privacy shields, and also offers retrofitting and
optical bonding services.
Touch Enabled Monitors
The Company also sells several lines of fully integrated standard monitors
which range in size from 13 to 25 inches and support popular graphics standards.
These monitors are typically purchased from display manufacturers and equipped
by the Company with an optically bonded sensor and a controller. The Company
also provides integration services for monitor customers.
Electronic Whiteboard
The Company markets a line of electronic PC whiteboards including both
personal (2 foot by 3 foot) boards as well as larger (3 foot by 4 foot and 4
foot by 6 foot) conference room boards. The Company's electronic whiteboard
product is a variation of the resistive membrane technology used in the TouchTek
line.
Sales and Marketing
MicroTouch markets and sells its touch products primarily through VARs,
OEMs and systems integrators, and to high volume end-users. The Company employs
a direct sales force for domestic sales and supports its marketing efforts with
trade show attendance, telemarketing, advertising and public relations.
As of December 31, 1998, the Company's sales and support function consisted
of 134 persons. The sales force is organized into several geographic sales
groups, each focusing on a separate set of regional customers, and is augmented
by several vertical market specialists.
The Company markets its touch products in Europe through its U.K.
subsidiary, MicroTouch Systems, Ltd. MicroTouch Systems, Ltd. sells through
various European distributors and sells direct in the U.K., Germany, France,
Spain and Italy. This subsidiary also assembles touch monitors from touchscreen
kits exported from the U.S. and monitors purchased in Europe. During 1996, the
Company established a direct sales office in Italy and an office was established
in Spain in 1998. In Japan, the Company sells its products through MicroTouch
Systems, KK. In 1994 MicroTouch established a direct sales and manufacturing
presence to serve the Australian and New Zealand touchscreen markets providing a
base from which to continue sales of MicroTouch products primarily to the
Australian gaming market. The Company opened a sales office in Taiwan in 1995
and in Korea and Hong Kong in 1997. The Company's total international sales,
including U.S. export sales, accounted for approximately 38%, 45% and 49% of
total sales in 1996 ,1997 and 1998, respectively.
The Company plans to continue to increase its sales presence, both
domestically and overseas, in an effort to broaden its potential customer base
and to intensify its efforts in its targeted markets. As part of this plan, the
Company intends to increase its worldwide sales force and add additional
distributors and agents.
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The Company offers a 30-day money back guaranty on its touchscreen products
to first-time buyers. This offer pertains only to the first unit purchased and
is void if the unit is altered by the customer in any way. Additionally, the
Company generally replaces products not meeting its specifications that are
returned by any customer within 30 days of receipt. The Company provides
reserves for estimated returns and believes that such reserves are adequate. The
amount of product returns was approximately $4.1 million, $4.5 million and $4.9
million for the years ended December 31, 1996, 1997 and 1998, respectively.
While the Company believes that its reserves for product returns are adequate,
there can be no assurance that the Company will not experience increased product
returns. Any such increase in product return claims could have a material
adverse effect on the Company's results of operations.
The Company's customers generally provide direct support to end users for
the Company's products while MicroTouch, in turn, supports its resellers with
application engineers and phone support from its customer service group of
trained technicians. The Company typically offers its customers a product
warranty of up to five years. While the Company believes that its reserves for
warranty claims are adequate, there can be no assurance that the Company will
not experience increased warranty claims. Any such increase in warranty claims
could have a material adverse effect on the Company's results of operations.
Research and Development
The Company's future success depends in large part upon the timely
enhancement of existing products and the continued development of new products
to address new market opportunities. Accordingly, the Company intends to
continue to devote significant resources to increasing the performance of its
existing products, especially its capacitive technology, developing new products
from its existing technologies and developing new technologies. The Company has,
in the past, augmented and may continue to augment its research and development
efforts through the acquisition or licensing of new technologies. The Company's
research and development efforts in the touch screen area are primarily focused
on expanding the range of configurations offered, enhancing product features,
expanding the capability of drivers to interact with different types of computer
operating systems and refining existing products to increase manufacturing
efficiency and reduce costs. The Company's development efforts are also directed
toward improving the product features and enhancing the underlying technology of
its various product lines. There can be no assurance that the Company will
successfully complete such development efforts or that these product
developments will achieve market acceptance.
As of December 31, 1998, 75 full-time employees of the Company were engaged
in research and development activities. In addition, the Company frequently
engages independent consultants to supplement its own research and development
efforts and to gain access to expertise in specific technical areas.
Proprietary Rights and Licenses
The Company relies on a combination of patents, trade secrets and know how
to establish and protect its proprietary rights.
The Company acquired exclusive rights to its core analog capacitive
technology under a worldwide license from Peptek, Inc. and its affiliate, Mr.
Jim Zeeger (the "Peptek License"). Under the Peptek License, the Company has the
exclusive right to use all technology covered by the patent claims in the
manufacture and sale of the Company's touchscreen and similar products. The
patents licensed under the Peptek License include claims of rights to the
configuration of the electrodes installed around the perimeter of the glass
sensor of a touchscreen and in the method used to determine the point of finger
contact on the surface of the glass sensor. The Peptek License requires the
Company to pay royalties based on annual product sales and sublicensing revenues
and includes minimum royalty payment provisions. The Peptek License may be
terminated by the
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licensor only in the event of a breach of the license agreement by the Company,
which is not remedied within applicable cure periods and in the event of the
Company's bankruptcy.
MicroTouch holds exclusive rights to the patents covering its core
proprietary technology until the respective expiration dates of such patents,
which currently range from 1999 to 2015. The Company also owns certain other
patents and patent applications, related primarily to improvements on, and
extensions of, its core technology, as well as certain software algorithms used
with the Company's products. Two of the Company's patents expired in 1998. The
first is one of two which covers the configuration of the electrodes installed
around the perimeter of the glass sensor used in the Company's analog capcitive
products. The other perimeter patent expires in the year 2000. The second patent
which expired in 1998 covered a video game apparatus, which is not currently
used in the Company's products. Several other patents related to the Company's
core analog capacitive technology will expire during the period from 1999 to
2000. Although the Company has developed considerable know-how and has
substantial experience in the field of analog capacitive technology, which it
believes will enable the Company to compete effectively in the future, the
expiration of patents covering the Company's core proprietary technology during
the next several years may lead to the development by third parties of products
that are competitive with those of the Company. The successful development and
marketing by third parties of competitive products could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company acquired exclusive rights to use its ThruGlass proprietary
technology in the touchscreen field, including rights under pending patent
applications, under a worldwide license from Moonstone Designs, Ltd. (the
"Moonstone License"). Under the Moonstone License, the Company has the exclusive
right to use all technology covered by the claims of any patent that may issue
in the manufacture and sale of the Company's projected capacitive products.
There can be no assurance that such patents will issue or that the claims under
such patents may not be reduced from the claims in the patent applications.
The Company acquired exclusive rights to use certain force based
proprietary technology in the touchscreen field, including rights under three
patents, under a worldwide license. The Company has the exclusive right to use
all technology covered by the claims of the patents in the manufacture and sale
of the Company's projected capacitive products.
Other rights held by the Company include nonexclusive rights to use its
resistive technology, including rights under several patents acquired in 1995.
In addition, two patents have been granted and applications for two additional
U.S. patents on various technology related to whiteboard products have been
submitted. The Company was also granted three patents covering software for
Internet public access computers and kiosks during 1998.
The Company typically requires persons such as customers, licensees and
employees who have access to proprietary information concerning the Company's
products to sign nondisclosure agreements that prohibit the use of the Company's
proprietary information other than for the specific purpose for which it was
provided.
Other companies are engaged in the development of technologies that may
result in products competitive with those made by the Company. These development
efforts may result in proprietary technology, and possibly patents, that could
impair the value of, or render obsolete, technology owned or licensed by the
Company. Furthermore, there can be no assurance that any patent owned or
licensed by the Company will withstand challenges or otherwise provide the
Company with adequate protection from competitors, or that the Company will be
able to afford the expense of enforcing these patents.
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Manufacturing
MicroTouch's touchscreen manufacturing operations consist primarily of the
procurement of glass (coated and fabricated to its specifications) and the
manufacture of touch sensors from that glass, the procurement and testing of
electrical components specified or designed by MicroTouch, and the assembly,
including optical bonding, of completely integrated touchscreen monitors. The
majority of the manufacturing activities for both analog and resistive
touchscreens are performed at the Company's principal facility in Methuen,
Massachusetts. The Company also exports touchscreen kits to its foreign
operations for final integration with monitors for distribution in Europe,
Japan, the Pacific Rim and Australia. Factura's kiosk manufacturing operations
consist primarily of the custom design and manufacture of kiosk enclosures
according to customer specifications. The kiosk manufacturing activities are
performed at the Factura facility in Rochester, New York. In addition, certain
resistive products are manufactured in Austin, Texas on a special project basis.
Although the Company generally uses standard parts for its products,
certain components, such as ASICs and the coated glass used in the production of
touch sensors are currently available only from a single source. In the event
that suppliers are unable to fulfill the Company's requirements, the resulting
interruption in production would have an adverse impact on the Company's
operating results. The Company maintains an inventory of ASICs, coated glass and
other components in order to limit the potential impact of such interruptions.
While the Company believes that there are other companies that are capable of
manufacturing these sole source components, the inability to obtain sufficient
components as required, or to develop alternative sources if and when needed,
would adversely affect the Company's operating results.
Competition
The markets for touch products are highly competitive and subject to rapid
technological change. The Company believes that the principal competitive
factors in its markets are product characteristics such as touch performance,
durability, optical clarity and price, as well as supplier characteristics such
as quality, service, delivery time and reputation. The Company believes that it
competes favorably with respect to these factors, although there can be no
assurance that the Company will be able to continue to compete successfully in
the future.
The Company faces competition from several established touch product
vendors as well as a number of smaller companies. Some of these competitors
utilize analog capacitive sensing and resistive membrane technologies similar to
the Company's technologies. Two of the Company's principal touchscreen
competitors, Elo Touch Systems, Inc., a subsidiary of Raychem Corporation, and
Carroll Touch Technology, a subsidiary of AMP Incorporated, are operating
divisions of larger, diversified industrial companies with greater financial,
technical, manufacturing and marketing resources than the Company. Elo Touch
Systems markets touchscreens based primarily on resistive and surface acoustic
wave technology, and Carroll Touch Technology markets touchscreens based
primarily on infrared and guided acoustic wave technology. In addition, several
manufacturers, most notably IBM, have developed proprietary touchscreen products
in the past but are not currently marketing proprietary products. In the market
for pen-based computers, the Company's TouchPen product competes with digitizers
marketed by several companies and could compete with products that may be
developed in the future by manufacturers that have more significant resources
than the Company. While the Company believes that its Factura division is the
largest U.S. supplier of kiosk enclosures for touchscreens, the kiosk market is
quite fragmented and market share data is not readily available. Products
similar to ThruGlass are marketed by at least one competitor to the Company,
especially in the European market. Several other companies market electronic
whiteboard products similar to those of the Company.
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Backlog
The Company maintains most standard products in inventory and manufactures
other standard, modified standard and custom products pursuant to orders from
customers. Backlog consists of orders for products, which have a scheduled
shipment date within twelve months of the order. Because a large percentage of
the Company's orders require products to be shipped in the same quarter in which
the order was received, and because orders in the backlog may be canceled and
delivery schedules may be changed, the Company's backlog at any particular date
is not necessarily indicative of actual sales for any succeeding period. As of
December 31, 1997 and 1998, the Company had a backlog of $24.0 million and $23.3
million, respectively.
Employees
As of December 31, 1998, the Company had 833 full-time employees, of which
522 were engaged in manufacturing, 160 were in sales, marketing and customer
service and 75 were in research and development. The Company considers its
relations with its employees to be good.
ITEM 2. PROPERTIES
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The Company leases approximately 96,000 square feet of office, engineering
and manufacturing space located at 300 Griffin Park, Methuen, Massachusetts. The
lease covering these properties expires in April 2003. In addition, the Company
is leasing approximately 78,000 square feet in Rochester, New York, the lease
for which expires in November, 2002. The Company also leases an aggregate of
approximately 89,000 square feet of additional space at its other locations
including those in the U.K., France, Germany, Italy, Japan, Australia, Spain,
Hong Kong and Taiwan.
During 1998 the Company expanded the building it owns, which is adjacent to
the Methuen, Massachusetts corporate headquarters. This facility now has 70,000
square feet of space and houses its' information technology function,
administrative staff and additional touchscreen manufacturing and warehouse
space.
ITEM 3. LEGAL PROCEEDINGS
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The Company had been involved in an international arbitration entitled
MicroTouch Systems, Inc. v. 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.
In January 1997, the Company was informed that while it had won the case
based on the merits of its claims, 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 ($595,000) of Nissha's fees
and costs associated with the arbitration. The Company expensed these fees and
costs awarded to Nissha as part of its second quarter 1997 financial results.
During the period from mid 1995 to early 1997, the Company was involved in
a case entitled Elo Touch Systems, Inc. v. The Graphics Technology Company,
Inc., MicroTouch Systems, Inc. et al, which was in the United States District
Court in Knoxville, Tennessee. The case arose from claims by Elo Touch Systems
("Elo") that The Graphics Technology Company, Inc. (the predecessor to the
Company's Touch Technology business) manufactured and sold, and that the Company
intended to manufacture and sell in the future, certain products which infringe
certain patent rights held by Elo. This case was settled by a cross-licensing
agreement reached among the parties during 1997.
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The Company was a plaintiff in a pending case entitled MicroTouch Systems, Inc.
and Peptek, Inc. v. Elo Touch Systems, Inc. which was in the United States
District Court in Knoxville, Tennessee. The case arose from claims by the
Company and Peptek, Inc. ("Peptek") that Elo manufactured and sold products that
infringed certain patent rights held by Peptek and exclusively licensed to the
Company. This case was settled by a cross-licensing agreement reached among the
parties during 1997.
The Company is a defendant in a case entitled Behne v. MicroTouch Systems, Inc.,
which is in the United States District Court in the Northern District of
California. The case arose from claims by Ms. Behne, a former employee of
MicroTouch that the Company had discriminated against her during her employment
at the Company. The case is scheduled for hearing in late February/early March,
1999. The Company believes that the claims are without merit but no assurances
can be given as to the outcome of this legal matter.
In addition to the matters described above, the Company is subject to various
investigations, claims and legal proceedings covering a wide range of matters
that arise in the ordinary course of its business activities. Each of these
matters is subject to various uncertainties, and it is possible that some of
these matters may be resolved unfavorably to the Company. The Company has
established accruals for loss contingencies that are probable and reasonably
estimable. Management believes that any liability that may ultimately result
from the resolution of these matters in excess of amounts provided will not have
a material adverse effect on the financial position or results of operations of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
The Company submitted no matters to a vote of its shareholders during
the fourth quarter of 1998.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
--------------------------------------------------------------------
MATTERS
-------
The Company's common stock is quoted on the Nasdaq Stock Market under the
symbol "MTSI." The following table sets forth the range of high and low sales
prices per share.
<TABLE>
<CAPTION>
High Low
- --------------------------------------------------------------------------
<S> <C> <C>
1998
First Quarter $19.63 $13.38
Second Quarter $20.94 $14.50
Third Quarter $18.63 $10.88
Fourth Quarter $16.88 $12.25
1997
First Quarter $28.75 $18.50
Second Quarter $26.00 $17.13
Third Quarter $34.88 $22.75
Fourth Quarter $31.00 $13.00
- --------------------------------------------------------------------------
</TABLE>
The Company has never paid a cash dividend on its common stock and
currently expects that future earnings will be retained for use in its business.
As of January 28, 1999, the Company had 289 stockholders of record.
11
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for each of the
five years in the period ended December 31, 1998 have been derived from the
Company's consolidated financial statements. The consolidated financial
statements for each of the five years in the period ended December 31, 1998 have
been audited by Arthur Andersen LLP, independent public accountants. This data
should be read in conjunction with the Consolidated Financial Statements and the
Notes thereto and other financial information appearing elsewhere in this
document.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- -------- --------
As
Restated
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales....................................... $58,855 $76,718 $95,045 $128,481 $144,370
Cost of sales................................... 35,464 47,735 58,995 83,553 88,950
------- ------- ------- -------- --------
Gross profit............................... 23,391 28,983 36,050 44,928 55,420
Operating expenses:
Research and development..................... 3,411 5,027 7,225 7,985 10,904
Sales and marketing.......................... 8,240 11,607 13,568 18,765 21,235
General and administrative................... 3,413 5,314 6,360 7,944 10,012
Amortization of intangible assets and
purchased technology...................... 104 381 460 477 502
Write-off of purchased technology and
related assets............................ --- 1,985 --- --- ---
Purchased in-process research and
development and related costs............. --- 3,000 --- --- ---
------- ------- ------- -------- --------
Total operating expenses................... 15,168 27,314 27,613 35,171 42,653
------- ------- ------- -------- --------
Operating income................................ 8,223 1,669 8,437 9,757 12,767
Other income, net .............................. 786 2,014 1,464 579 1,009
Arbitration costs............................... --- 1,019 954 595 ---
------- ------- ------- -------- --------
Income before provision for income taxes........ 9,009 2,664 8,947 9,741 13,776
Provision for income taxes...................... 3,336 980 3,250 3,330 4,408
------- ------- ------- -------- --------
Net income...................................... $ 5,673 $ 1,684 $ 5,697 $ 6,411 $ 9,368
======= ======= ======= ======== ========
Earnings per share:
Basic................................... $ 0.84 $ 0.21 $ 0.74 $ 0.81 $ 1.22
Diluted................................. $ 0.77 $ 0.20 $ 0.71 $ 0.77 $ 1.20
Weighted average common shares
outstanding and dilutive potential common
shares outstanding
Basic................................... 6,722 8,114 7,695 7,941 7,672
Diluted................................. 7,321 8,607 8,066 8,349 7,815
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ------- --------
As
Restated
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital.................................. $63,245 $55,748 $58,372 $63,265 $ 59,060
Total assets..................................... 77,647 76,353 85,048 94,837 104,345
Stockholders' equity............................. 67,856 63,851 69,170 78,948 78,369
</TABLE>
12
<PAGE>
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
The discussion contained in this section as well as elsewhere in this Annual
Report on Form 10-K 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 the result of
any revisions to these forward-looking statements which may be made to reflect
events or circumstances occurring after the date hereof or to reflect the
occurrence of unanticipated events.
The following table sets forth for the fiscal periods indicated, the percentage
of total revenues represented by certain items in MicroTouch's statement of
operations:
<TABLE>
<CAPTION>
Percentage of Total Revenues
Years Ended December 31,
------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Total Revenues 100.0% 100.0% 100.0%
Cost of Sales 62.1% 65.0% 61.6%
Gross Profit 37.9% 35.0% 38.4%
Operating Expenses:
Research and Development 7.6% 6.2% 7.6%
Sales and Marketing 14.2% 14.6% 14.7%
General and Administrative 6.7% 6.2% 6.9%
Amortization of intangible assets and purchased technology .5% .4% .4%
Total Operating Expenses 29.0% 27.4% 29.6%
Operating Income 8.9% 7.6% 8.8%
Other Income, net 1.5% .5% .7%
Arbitration costs 1.0% .5% ---
Income Before Provision for Income Taxes 9.4% 7.6% 9.5%
Net Income 6.0% 5.0% 6.5%
</TABLE>
Years Ended December 31, 1998 and 1997
Net Sales. Net sales in the fiscal year ended December 31, 1998 increased from
the corresponding period of 1997 by $15.9 million, or 12%, to $144.4 million.
The increase in net sales primarily reflects increased international sales
volume. Sales from international operations were $68.9 million or 48% of total
sales and represented an increase of $15.0 million or 28% over international
sales in the comparable period of 1997. This increase primarily reflects higher
touchscreen volume into the European and Asia Pacific (excluding Japan) markets.
Gross Profit. Gross profit for the fiscal year ended December 31, 1998
increased over the fiscal year ended December 31, 1997 by $10.5 million or 23%,
to $55.4 million. As a percentage of net sales, gross profit increased from
35.0% in the fiscal year ended December 31, 1997 to 38.4% in the fiscal year
ended December 31, 1998. The increase in gross margin percent primarily reflects
the impact of a $2.3 million (pretax) special non-recurring charge related to
the Company's whiteboard products in 1997, as well as increased touchscreen
product yields and improved manufacturing efficiencies in 1998.
Research and Development. Research and development expenses for the fiscal year
ended December 31, 1998 increased over the corresponding period of 1997 by $2.9
million, or 37%, to $10.9 million. As a percentage of net sales, research and
development expenses increased from 6.2% in the fiscal year ended December 31,
1997 to 7.6% in the fiscal year ended December 31, 1998. The increase in
spending both on an absolute dollar basis and as a percentage of net sales
reflects the initiation of a program to develop a next generation capacitive
product line with improved performance and cost savings over the existing
product line, as well as advancing its resistive technology. The Company expects
that total research and development expenses will most likely increase in the
future on an absolute spending basis and as a percentage of net sales primarily
due to the research on the Company's core touchscreen technology.
13
<PAGE>
Sales and Marketing. Sales and marketing expenses for the fiscal year ended
December 31, 1998 increased over the corresponding period of 1997 by $2.5
million, or 13%, to $21.2 million. As a percentage of net sales, sales and
marketing expenses increased slightly from 14.6% for the fiscal year ended
December 31, 1997 to 14.7% for the corresponding period of 1998. The increase in
absolute spending in 1998 was also the result of sales costs associated with
supporting large OEM customers and expanding the Company's Internet presence, as
well as the development of a remote sales information systems sales program.
General and Administrative. General and administrative expenses for the fiscal
year ended December 31, 1998 increased from the corresponding period of 1997 by
$2.1 million, or 26%, to $10.0 million. As a percentage of net sales, general
and administrative expenses increased from 6.2% for the fiscal year ended
December 31, 1997 to 6.9% for the corresponding period of 1998, primarily as a
result of spending to improve systems supporting the Company's infrastructure in
the Information Technology and E-commerce areas and legal expenses.
Amortization of Intangible Assets. For the fiscal year ended December 31, 1998,
operating expenses included $502,000 of amortization relating to various
acquisitions and purchases of technologies, as compared to $477,000 for the
corresponding period of 1997.
Operating Income. Operating income for the fiscal year ended December 31, 1998
of $12.8 million represented an increase of $3.0 million, or 31%, over the
fiscal year ended December 31, 1997. This increase is primarily due to the
revenue increase discussed above and the absence of the previously discussed
special whiteboard restructuring charge of $2.3 million taken in 1997.
Other Income, net. Other income in the fiscal year ended December 31, 1998
was $1.0 million as compared to $.6 million for the corresponding period of
1997. Other income in the 1998 period included $1.5 million in interest income,
net of interest expenses, as compared to $1.4 million of net interest income for
the fiscal year ended December 31, 1997. Foreign exchange losses were $340,000
in the fiscal year ended December 31, 1998, primarily due to currency
fluctuations in the Far East, as compared to a loss of $999,000 for the
corresponding period of 1997.
Arbitration Costs. During 1997, the Company expensed a final payment amounting
to $595,000 in its international arbitration versus Nissha Printing Company Ltd.
(See Note 8 to Consolidated Financial Statements)
Provision for Income Taxes. The Company's effective tax rate for the fiscal
years ended December 31, 1998 and 1997 was 32.0% and 34.2%, respectively. The
effective tax rates differed from the federal statutory rate of 34% primarily as
a result of the provision for state income taxes partially offset by the benefit
related to tax-exempt interest income.
Geographic Segments. Domestic pre-tax income of $9.3 million represented an
increase of $1.8 million or 24% over 1997. This increase in pre-tax profit
primarily reflects the impact of the $2.3 million non-recurring charge taken in
1997. International pretax income of $4.4 million represented an increase of
$2.2 million or 100% over the corresponding period of 1997 on the strength of
the previously discussed international sales increases and improved gross
margins.
Years Ended December 31, 1997 and 1996
Net Sales. Net sales in the fiscal year ended December 31, 1997 increased from
the corresponding period of 1996 by $33.4 million, or 35.2%, to $128.5 million.
The increase in net sales primarily reflects increased international sales
volume as well as increased domestic touchscreen volume. Sales from
international operations were $53.9 million and represented an increase of $22.5
million or 71.7% over the comparable period of 1996. This increase primarily
reflects higher volume into the Japanese market due to the one-time Nagano
Olympics project, as well as increased touchscreen volume in Europe.
Gross Profit. Gross profit for the fiscal year ended December 31, 1997
increased over the fiscal year ended December 31, 1996 by $8.9 million or 24.6%,
to $44.9 million. As a percentage of net sales, gross profit decreased from
37.9% in the fiscal year ended December 31, 1996 to 35.0% in the fiscal year
ended December 31, 1997. The decrease in gross margin percent primarily reflects
the impact of a $2.3 million (pretax) special fourth quarter non-recurring
charge for the Company's whiteboard operation, as well as the effect of lower
margin whiteboard sales throughout the year. The non-recurring charge consisted
primarily of a $1.0 million writedown of inventory and a $1.2 million write-off
of capitalized software development costs.
14
<PAGE>
Research and Development. Research and development expenses for the fiscal year
ended December 31, 1997 increased over the corresponding period of 1996 by $0.8
million, or 10.5%, to $8.0 million. As a percentage of net sales, research and
development expenses decreased from 7.6% in the fiscal year ended December 31,
1996 to 6.2% in the fiscal year ended December 31, 1997. The decrease as a
percentage of net sales reflects the achievement of technological feasibility in
1996 of the Company's initial whiteboard development project.
Sales and Marketing. Sales and marketing expenses for the fiscal year ended
December 31, 1997 increased over the corresponding period of 1996 by $5.2
million, or 38.3%, to $18.8 million. As a percentage of net sales, sales and
marketing expenses increased slightly from 14.2% for the fiscal year ended
December 31, 1996 to 14.6% for the corresponding period of 1997, primarily as a
result of spending to introduce the Ibid whiteboard product line. The increase
in absolute spending in 1997 was also the result of sales costs associated with
growth in the touchscreen business and marketing programs to reinforce the
Company's worldwide leadership position in the touchscreen market.
General and Administrative. General and administrative expenses for the fiscal
year ended December 31, 1997 increased from the corresponding period of 1996 by
$1.6 million, or 24.9%, to $7.9 million. As a percentage of net sales, general
and administrative expenses decreased from 6.7% for the fiscal year ended
December 31, 1996 to 6.2% for the corresponding period of 1997, primarily as a
result of the revenue increase and tight spending controls. The increase on an
absolute spending basis primarily reflects the expansion of infrastructure to
support both the domestic and international revenue growth.
Amortization of Intangible Assets. For the fiscal year ended December 31, 1997,
operating expenses included $477,000 of amortization relating to various
acquisitions and purchases of technologies, as compared to $460,000 for the
corresponding period of 1996.
Operating Income. Operating income for the fiscal year ended December 31, 1997
of $9.8 million represented an increase of $1.3 million, or 15.6%, over the
fiscal year ended December 31, 1996. This increase is primarily due to the
revenue increase discussed above, partially offset by the previously discussed
special whiteboard restructuring charge of $2.3 million (pretax).
Other Income, net. Other income in the fiscal year ended December 31, 1997
was $0.6 million as compared to $1.5 million for the corresponding period of
1996. Other income in the 1997 period included $1.4 million in interest income,
net of interest expenses, as compared to $1.3 million of net interest income for
the fiscal year ended December 31, 1996. Foreign exchange losses were $999,000
in the fiscal year ended December 31, 1997, primarily due to currency
fluctuations in the Far East, as compared to a gain of $143,000 for the
corresponding period of 1996.
Arbitration Costs. During 1997, the Company expensed a final payment amounting
to $595,000 in its international arbitration versus Nissha Printing Company Ltd.
as compared to $1.0 million in arbitration costs incurred in the corresponding
period of 1996. (See Note 8 to Consolidated Financial Statements.)
Provision for Income Taxes. The Company's effective tax rate for the fiscal
years ended December 31, 1997 and 1996 was 34.2% and 36.3%, respectively. The
effective tax rates 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.
Geographic Segments. Domestic pretax income for the fiscal year ended December
31, 1997 of $7.5 million decreased 20.0% over the comparable period of 1996 due
primarily to the $2.3 million nonrecurring charge recorded in 1997 (discussed
above) as well as the effect of lower gross margins. International pretax income
of $2.2 million represented an increase of $2.7 million over the $462,000 loss
for the corresponding period of 1996 on the strength of the previously discussed
international sales increases.
15
<PAGE>
Liquidity and Capital Resources
As of December 31, 1998, the Company had net working capital of $59.1 million,
including approximately $37.7 million in cash and marketable securities. The
Company reported a net cash flow from operating activities of $18.7 million for
the fiscal year ended December 31, 1998. Additionally, the Company maintains a
$6.0 million bank line of credit, including letters of credit, in the U.S. and a
$2.5 million bank line of credit in the U.K. As of December 31, 1998, the
Company had $2.3 million outstanding under the U.S. line of credit and $1.5
million outstanding under the U.K. line of credit.
The Company's capital expenditures were approximately $9.5 million in 1998.
In November, 1998 the Board of Directors of the Company extended for the second
time a repurchase program of the Company's common stock, originally approved in
December, 1997 and extended in August, 1998. The amount of common stock to be
repurchased under the 1997 program is not to exceed $13.0 million. In the fiscal
year ended December, 1998, the Company repurchased approximately 763,000 shares
at an aggregate cost of $10.5 million under this program. These shares have been
and will be used for the Company's stock option plans, employee stock purchase
plan and for other corporate purposes, possibly including acquisitions.
Pending operational needs, the Company has invested its cash in investment
grade, short term, interest-bearing securities. The Company believes that these
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 2000. 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 made, whether such acquisition will be
financially successful.
Foreign Exchange Exposure
Significant portions of the Company's operations are conducted in foreign
countries, including the United Kingdom of Great Britain, Germany, France,
Italy, Spain, Australia, Taiwan, Japan, Hong Kong and Korea. Exchange rate
fluctuations between the U.S. dollar and the currencies of these countries,
including various European currencies and the Australian dollar, result in
fluctuations in the amounts relating to foreign operations reported in the
Company's consolidated financial statements. In general, the Company's policy is
not to enter into derivative financial instruments or other financial
instruments to manage foreign currency exchange rate risk. The Company can
provide no assurances that it will not enter into such financial instruments in
the future.
Readiness for Year 2000
The Company has taken actions to understand the nature and extent of the work
required to make its systems, products and infrastructure Year 2000 compliant.
The Company does not believe that any material year 2000 issues exist with
software or embedded technology contained within its product offerings. System
hardware, software and microprocessor controlled equipment that support the
Company's infrastructure have been inventoried and assessed for Year 2000
compliance. To the extent necessary to address material year 2000 issues, the
Company is in the process of obtaining and installing current releases or
upgrades from software vendors. All business systems have been upgraded and are
believed to be compliant. Work continues on international facilities systems,
and these conversions are expected to be completed by the end of the second
quarter of 1999. During the second quarter of 1999, the Company also plans to
conduct a testing program to confirm that all installed software upgrades, which
have been represented by software vendors as compliant, will indeed function
with dates posted as 2000. Because the upgrades are being installed by existing
employees and consultants of the Company in conjunction with their normal
duties, and the software upgrades would have been purchased in the normal course
of business, the Company has not segregated the cost of making these systems
compliant. Based on available information, including assurances from software
vendors that their products are compliant, the Company believes that it will be
able to manage its total Year 2000 transition without any material adverse
effect on its business operations, products, operating results or financial
condition.
The Company has not fully determined the extent to which the systems of
customers and vendors with whom the Company has material relationships may not
be compliant. There can be no assurance that the systems of other companies
which the Company deals with will be converted on a timely basis. No assurance
can be given that such failure to convert by another company will not have a
material negative effect on the Company's consolidated financial position,
results of operations or cash flows.
16
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
1. Financial Statements
Page No.
Report of Independent Public Accountants F-1
Consolidated Balance Sheets as of
December 31, 1997 and 1998 F-2
Consolidated Statements of Operations for each of the
three years in the period ended December 31, 1998 F-3
Consolidated Statements of Stockholders' Equity for each of the
three years in the period ended December 31, 1998 F-4
Consolidated Statements of Cash Flows for each of the
three years in the period ended December 31, 1998 F-5
Consolidated Statements of Comprehensive Income for each of
the three years in the period ended December 31, 1998 F-6
Notes to Consolidated Financial Statements F-7
17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To MicroTouch Systems, Inc:
We have audited the accompanying consolidated balance sheets of MicroTouch
Systems, Inc. (a Massachusetts corporation) and subsidiaries as of December 31,
1998 and 1997, and the related consolidated statements of operations,
stockholders' equity, cash flows and comprehensive income for each of the three
years in the period ended December 31, 1998. These consolidated financial
statements and the schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedule 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 MicroTouch Systems,
Inc. and subsidiaries as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Item 14(a)(2) is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Boston, Massachusetts
January 22, 1999
F-1
<PAGE>
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in 000s, except share data)
<TABLE>
<CAPTION>
December 31,
1997 1998
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 1)............................. $ 9,477 $ 5,471
Marketable securities (Note 1)................................. 25,274 32,191
Accounts receivable, net of allowances of $5,169 at December
31, 1997 and $4,955 at December 31, 1998 17,348 23,265
Inventories (Note 1).......................................... 19,075 15,954
Deferred income taxes (Note 4)................................. 6,869 6,837
Prepaid expenses and other current assets...................... 1,111 1,217
------- --------
Total current assets........................................ 79,154 84,935
Property and equipment, at cost (Note 1)
Machinery and equipment........................................ 11,343 16,070
Furniture and fixtures......................................... 1,421 1,560
Leasehold improvements......................................... 2,979 4,283
Land and buildings............................................. 4,770 6,426
------- --------
20,513 28,339
Less--Accumulated depreciation and amortization................... 7,205 10,887
------- --------
Net property and equipment................................... 13,308 17,452
Other assets...................................................... 2,375 1,958
------- --------
$94,837 $104,345
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable (Note 2)........................................ $ --- $ 3,760
Accounts payable.............................................. 5,849 9,336
Accrued payroll and related costs............................. 3,087 3,011
Accrued expenses.............................................. 6,953 9,768
------- --------
Total current liabilities................................... 15,889 25,875
Long-term notes payable........................................... --- 101
------- --------
Total liabilities........................................... 15,889 25,976
Stockholders' equity (Note 3)
Preferred stock, $.01 par value per share--
500,000 shares authorized, none issued and outstanding at
December 31, 1997 and 1998.................................... --- ---
Common stock, $.01 par value per share--
20,000,000 shares authorized at December 31, 1997 and 1998;
8,220,623 issued at December 31, 1997 and 8,256,128 issued at
December 31, 1998............................................ 82 82
Additional paid-in capital...................................... 61,963 62,613
Treasury stock at cost 220,049 and 959,576 shares at
December 31, 1997 and 1998.................................... (3,333) (13,503)
Cumulative translation adjustment (Note 1)...................... (1,091) (1,614)
Net unrealized gain on securities available for sale............ 84 232
Retained earnings............................................... 21,243 30,559
------- --------
Total stockholders' equity.................................. 78,948 78,369
------- --------
$94,837 $104,345
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in 000s, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1996 1997 1998
--------------- ---------------- ----------------
<S> <C> <C> <C>
Net sales (Notes 1 and 6)...................... $95,045 $128,481 $144,370
Cost of sales.................................. 58,995 83,553 88,950
------- -------- --------
Gross profit.............................. 36,050 44,928 55,420
Operating expenses:
Research and development..................... 7,225 7,985 10,904
Sales and marketing.......................... 13,568 18,765 21,235
General and administrative................... 6,360 7,944 10,012
Amortization of intangible assets and
purchased technology..................... 460 477 502
------- -------- --------
Total operating expenses................ 27,613 35,171 42,653
------- -------- --------
Operating income..................... 8,437 9,757 12,767
Other income (expense):
Interest expense............................. (173) (30) (135)
Interest income.............................. 1,485 1,400 1,662
Other income/(expense) ...................... 152 (791) (518)
------- -------- --------
1,464 579 1,009
Arbitration costs (Note 8 ).................... 954 595 ---
------- -------- --------
Income before provision for income
taxes....................................... 8,947 9,741 13,776
Provision for income taxes (Note 4)............ 3,250 3,330 4,408
------- -------- --------
Net income..................................... $ 5,697 $ 6,411 $ 9,368
======= ======== ========
Earnings per share (Note 1):
Basic.................................... $ 0.74 $ 0.81 $ 1.22
Diluted.................................. $ 0.71 $ 0.77 $ 1.20
Weighted average common shares outstanding and
dilutive potential common shares outstanding
(Note 1):
Basic.................................... 7,695 7,941 7,672
Diluted.................................. 8,066 8,349 7,815
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(Amounts in 000s except share data)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other Treasury Stock Total
----------------- Paid-in Comprehensive Retained -------------------- Stockholders
Shares Amount Capital Income (loss) Earnings Shares Amount Equity
--------- ------ ---------- -------------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1995 8,220,623 $ 82 $58,984 $ (506) $12,804 (508,634) $ (7,513) $ 63,851
Exercise of stock options (1,072) 112,143 1,630 558
Employee stock purchase plan (46) 24,295 358 312
Compensation expense
related to common stock options 40 40
Effect of exchange rate changes 115 115
Tax benefit related to exercise of
stock options and disqualifying
dispositions 1,072 1,072
Unrealized loss on securities
available for sale, net of tax (37) (37)
Purchase of treasury stock (163,944) (2,438) (2,438)
Net income 5,697 5,697
--------- ------ ------- ------- ------- -------- -------- --------
Balance December 31, 1996 8,220,623 82 60,096 (428) 17,383 (536,140) (7,963) 69,170
Exercise of stock options (2,551) 310,979 4,560 2,009
Employee stock purchase plan 42 28,112 416 458
Compensation expense related to
common stock options 30 30
Effect of exchange rate changes (558) (558)
Tax benefit related to exercise of
stock options and disqualifying
dispositions 1,795 1,795
Unrealized loss on securities
available for sale, net of tax (21) (21)
Purchase of treasury stock (23,000) (346) (346)
Net income 6,411 6,411
--------- ------ ------- ------- ------- -------- -------- --------
Balance December 31, 1997 8,220,623 82 61,963 (1,007) 21,243 (220,049) (3,333) 78,948
Exercise of stock options 15,623 247 (52) 8,725 111 306
Employee stock purchase plan 19,873 205 15,048 227 432
Compensation expense related to
common stock options 198 198
Effect of exchange rate changes (523) (523)
Unrealized loss on securities
available for sale, net of tax 148 148
Purchase of treasury stock (763,300) (10,508) (10,508)
Net income 9,368 9,368
--------- ------ ------- ------- ------- -------- -------- --------
Balance December 31, 1998 8,256,128 $ 82 $62,613 $(1,382) $30,559 (959,576) $(13,503) $ 78,369
========= ====== ======= ======= ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in 000s)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1996 1997 1998
------------ ---------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,697 $ 6,411 $ 9,368
Adjustments to reconcile net income to net cash provided by
operating activities--
Depreciation and amortization 1,739 3,116 5,870
Compensation expense related to common stock options 40 30 198
(Increase) decrease in assets--
Accounts receivable (3,217) (1,372) (5,917)
Inventories (3,542) (3,998) 3,121
Prepaid expenses and other current assets 480 (52) (106)
Deferred income taxes (194) (1,364) 32
Other assets (1,138) 750 (60)
Increase (decrease) in liabilities--
Accounts payable 1,000 (1,177) 3,487
Accrued expenses 2,376 1,188 2,739
-------- -------- --------
Net cash provided by operating activities 3,241 3,532 18,732
Cash flows from investing activities:
Purchase of property and equipment, net (3,063) (8,551) (9,540)
Sale and maturity of marketable securities 18,038 16,287 12,240
Purchase of marketable securities (13,723) (14,967) (19,006)
-------- -------- --------
Net cash provided by (used in) investing activities 1,252 (7,231) (16,306)
Cash flows from financing activities:
Exercise of stock options and sale of common stock, net 870 2,467 738
Increase in notes payable ------- ------- 3,861
Purchase of treasury stock (2,438) (346) (10,508)
Tax benefit from exercise of stock options
and disqualifying dispositions 1,072 1,795 ---
-------- -------- --------
Net cash provided by (used in) financing activities (496) 3,916 (5,909)
Effect of exchange rates on cash 115 (558) (523)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 4,112 (341) (4,006)
Cash and cash equivalents, beginning of period 5,706 9,818 9,477
-------- -------- --------
Cash and cash equivalents, end of period $ 9,818 $ 9,477 $ 5,471
======== ======== ========
Supplemental disclosures of cash flow information:
Interest paid $ 84 $ 30 $ 135
======== ======== ========
Income taxes paid $ 2,404 $ 3,369 $ 1,929
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Net Income $5,697 $6,411 $9,368
Currency translation adjustment 115 (558) (523)
Unrealized gain/(loss) on marketable securities,
net of tax (37) (21) 148
------ ------ ------
Comprehensive Income $5,775 $5,832 $8,993
====== ====== ======
</TABLE>
F-6
<PAGE>
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) Summary of Significant Accounting Policies
a) Nature of the Business
MicroTouch Systems, Inc. develops, manufactures and sells touch and pen
input systems, including touch sensitive screens, digitizers for pen computers,
ThruGlass products, kiosk systems and electronic P.C. whiteboards.
b) Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of MicroTouch Systems, Inc. and its wholly owned subsidiaries (together the
"Company"). All significant intercompany accounts, transactions and profits have
been eliminated.
c) Earnings per Share
Basic earnings per share data are computed using the weighted average
number of common shares outstanding during the year. Diluted earnings per share
are computed using the weighted average number of common shares outstanding
during the year and dilutive potential common shares. Dilutive potential common
shares consist of stock options and are calculated using the treasury stock
method.
Effective January 1, 1997 the Company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share.
The calculation of basic and diluted earnings per share is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Basic Earnings Per Share
Net Income: $5,697,000 $6,411,000 $9,368,000
Weighted Average Common Shares
Outstanding: 7,695,000 7,941,000 7,672,000
---------- ---------- ----------
Basic Earnings Per Share $ 0.74 $ 0.81 $ 1.22
---------- ---------- ----------
Diluted Earnings Per Share
Net Income: $5,697,000 $6,411,000 $9,368,000
Weighted Average Common Shares
Outstanding: 7,695,000 7,941,000 7,672,000
Weighted Average Number of Dilutive
Potential Common Shares: 371,000 408,000 143,000
---------- ---------- ----------
Weighted Average Number of Shares
Outstanding as Adjusted: 8,066,000 8,349,000 7,815,000
---------- ---------- ----------
Diluted Earnings Per Share: $ 0.71 $ 0.77 $ 1.20
---------- ---------- ----------
</TABLE>
F-7
<PAGE>
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)
d) Cash and Cash Equivalents
The Company held no liquid investments with original maturities of less
than 90 days at December 31, 1997 or December 31, 1998. Cash equivalents are
stated at cost, which approximates market value.
e) Marketable Securities
Marketable securities consist of investment-grade, federal tax-exempt
municipal bonds. The aggregate market value, cost basis, and unrealized gains
and losses of securities available for sale, by major security type, as of
December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized
Market Value Cost Basis Gains Losses
---------------- ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Tax Exempt Securities
at December 31, 1998 $32,191,000 $31,850,000 $344,000 $ 3,000
=========== =========== ======== =======
Tax Exempt Securities
at December 31, 1997 $25,274,000 $25,143,000 $141,000 $10,000
=========== =========== ======== =======
</TABLE>
Securities available for sale in the accompanying balance sheet at
December 31, 1998 and 1997 include $7,782,000 and $7,341,000, respectively, with
contractual maturities of one year or less, $23,346,000 and $17,933,000,
respectively, with contractual maturities of one through five years and
$1,063,000 and none, respectively, with maturities of more than five years.
Expected maturities may differ from contractual maturities as a result of the
Company's intent to sell these securities prior to maturity and as a result of
call options that enable the issuer to redeem these securities at an earlier
date.
f) Inventories
Inventories, consisting of material, material overhead, labor and
manufacturing overhead, are stated at the lower of cost (first-in, first-out) or
market and consist of the following:
<TABLE>
<CAPTION>
December 31,
------------
1997 1998
---- ----
<S> <C> <C>
Raw materials.............................. $ 9,826,000 $ 6,286,000
Work-in-process............................ 3,061,000 1,167,000
Finished goods............................. 6,188,000 8,501,000
----------- -----------
$19,075,000 $15,954,000
=========== ===========
</TABLE>
g) Property and Equipment
The Company provides for depreciation and amortization, using the
straight-line method, through charges to operations in amounts that allocate the
cost of property and equipment over their estimated useful lives. The estimated
useful life for property and equipment is 3 to 5 years except for a building
owned by the Company, the life of which is 25 years.
Maintenance and repairs are charged to operations as incurred. When
property and equipment is sold or otherwise disposed of, the asset cost and
accumulated depreciation are removed from the accounts, and the resulting gain
or loss, if any, is included in the results of operations.
h) Revenue Recognition
The Company recognizes product revenue upon shipment. Service revenues
are recognized as the services are provided. The Company provides allowances for
estimated sales returns and bad debts and provides for the estimated cost of
warranty at the time of product shipment.
F-8
<PAGE>
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
1) Summary of Significant Accounting Policies - (Continued)
i) Foreign Currency Translation
The Company translates the assets and liabilities of its foreign
subsidiaries at the exchange rates in effect at year end. Revenues and expenses
are translated using exchange rates in effect during the year. Gains and losses
from foreign currency translation are credited or charged to cumulative
translation adjustment included in stockholders' equity in the accompanying
consolidated balance sheets. Gains and losses from foreign currency transactions
are included in other income and amounted to a gain of approximately $143,000
for the year ended December 31,1996, a loss of approximately $999,000 for the
year ended December 31, 1997 and a loss of approximately $340,000 for the year
ended December 31, 1998.
j) Use of Estimates in the Preparation of Financial Statements
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
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
periods. Actual results could differ from those estimates.
k) Disclosures About Fair Value of Financial Instruments
SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
requires that disclosure be made of estimates of the fair value of each class of
financial instrument. Financial instruments held by the Company as of December
31, 1998 consist primarily of cash equivalents and marketable securities, short-
term trade receivables, payables and notes payable for which the carrying
amounts approximate fair values.
l) Capitalized Software Development Costs
Software development costs for new software and for enhancements to
existing software are expensed as incurred prior to the establishment of
technological feasibility and subsequent to general release of the product.
Otherwise software development costs have been capitalized and will be amortized
over the estimated life of the product. As of December 31, 1997 the Company had
approximately $30,000 of capitalized software included in Other Assets in the
accompanying balance sheet. There were no capitalized software costs as of
December 31, 1998. In December, 1997 the Company wrote off $1.2 million of
development costs associated with its whiteboard products.
m) Other Assets
The Company periodically assesses the realizability of its long-lived
assets in accordance with SFAS No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of. At each balance sheet
date, the Company evaluates the realizability of goodwill based on expectations
of non-discounted future cash flows for each subsidiary having a material
goodwill balance. If the sum of the expected non-discounted cash flows is less
than the carrying amount of goodwill, the Company would recognize an impairment
loss. Based on its review, the Company does not believe that any material
impairment of its long-lived assets has occurred at December 31, 1998.
F-9
<PAGE>
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
n) Comprehensive Income
Effective January 1, 1998 the Company adopted the provisions of SFAS No.
130, Reporting Comprehensive Income, which establishes standards for the
reporting and display of comprehensive income and its components in the
financial statements. Comprehensive income includes all non-owner related
changes in a company's equity including, among other things, foreign currency
translation adjustments and unrealized gains and losses on marketable securities
classified as available-for-sale. Because cumulative translation adjustments are
considered a component of permanently invested unremitted earnings of
subsidiaries outside of the United States, no taxes are provided on such
amounts.
o) Recent Accounting Pronouncements
In March, 1998 The American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP 98-1 requires
computer software costs associated with internal use software to be expensed as
incurred until certain capitalization criteria are met. The Company does not
believe that adoption of SOP 98-1 will have a material impact on the Company's
financial statements.
In April 1998, the AICPA issued SOP 98-5, Reporting on the Costs of
Start-up Activities. SOP 98-5 requires all costs associated with pre-opening,
pre-operating and organization activities to be expensed as incurred. The
Company will adopt SOP 98-5 beginning January 1, 1999. The Company believes that
adoption of SOP 98-5 will have no material impact on the Company's financial
statements.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedge allows a derivative's gains and losses to offset
related results on the hedged item in the income statement, and requires that a
company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. SFAS No. 133 is effective for fiscal
years beginning after June 15, 1999. SFAS No. 133 cannot be applied
retroactively. SFAS No. 133 must be applied to (a) derivative instruments and
(b) certain derivative instruments embedded in hybrid contracts that were
issued, acquired or substantially modified after December 31, 1997 (and, at the
Company's election, before January 1, 1998). The Company does not expect that
the adoption of this statement will have a material impact on the Company's
financial position and results of operations. The Company does not believe SFAS
No. 133 is currently applicable but will continue to review the impact on its
financial position or results of operation.
F-10
<PAGE>
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
2) Line of Credit
The Company has demand bank lines of credit in the U.S. totalling
$6,000,000, including letters of credit, under which the Company may borrow on
an unsecured basis at the bank's prime rate. There was nothing outstanding under
these lines at December 31, 1997 and $2,264,000 outstanding under the lines at
December 31, 1998.
The Company has a demand bank line of credit in the United Kingdom in
the amount of approximately $2,500,000 under which the Company may borrow on a
secured basis at a negotiated rate. There was nothing outstanding under this
line at December 31, 1997 and $1,500,000 outstanding under this line at December
31, 1998.
3) Stockholders' Equity
a) Equity Incentive Plans
On April 17, 1992, the stockholders of the Company approved, effective
January 1, 1992, the 1992 Equity Incentive Plan (the 1992 Plan) which replaced
the Company's 1983 Incentive Stock Option Plan (the 1983 Plan). On June 25, 1997
and June 25, 1998, the 1992 Plan was amended by the stockholders of the Company.
The 1992 Plan, as amended, authorizes the grant of stock options
(incentive and non-qualified), stock appreciation rights (SARs), performance
shares or restricted stock (the Awards) for the purchase of an aggregate of
2,750,000 shares of common stock, including shares that are issuable pursuant to
outstanding stock options under the 1983 Plan. The Board of Directors has
appointed the Compensation Committee (the Committee) to administer the 1992
Plan. Awards under the 1992 Plan are granted at the discretion of the Committee,
which shall determine the eligible persons to whom, and the times at which,
Awards shall be granted, the type of Award to be granted and all other related
terms, conditions and provisions of each Award granted. In the case of incentive
stock options, the exercise price will not be less than the fair market value of
the common stock on the date of Award. In the case of non-qualified stock
options, the exercise price will not be less than 50% of the fair market value
of the common stock on the date of the award.
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.
The Committee may award performance shares and determine the performance
cycles and performance goals. The value of performance shares will be equal to
the fair market value of the common stock on the date the performance shares are
earned.
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.
F-11
<PAGE>
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
3) Stockholders' Equity - (Continued)
In 1993, options to purchase 200,000 shares were granted to the
Company's Chairman of the Board of Directors under a 10 year performance
incentive agreement pursuant to the 1992 Plan. These options became exercisable
in various installments based on the achievement of certain financial milestones
over five years. As of December 31, 1998, 160,000 shares have been exercised and
the remaining 40,000 shares were exercisable under this grant.
Options to purchase 1,425,900 shares of common stock are outstanding
under the 1992 Plan at December 31, 1998 and have generally vested at a rate of
25% per year for four years. Options granted after July 31, 1998 vest at a rate
of 20% in the first year, 40% in the second year and 40% in the third year.
Options to purchase 3,200 shares of common stock were subject to this vesting
schedule at December 31, 1998. At December 31, 1998, no SARs, performance shares
or other restricted stock have been awarded under the 1992 Plan. As of December
31, 1998, 438,364 shares of common stock are available for future awards under
the 1992 Plan.
Effective February 8, 1994, the Board of Directors adopted the 1994
Director Stock Option Plan (the 1994 Plan). This 1994 Plan was approved by the
stockholders of the Company at the annual stockholders' meeting held on June 16,
1995. The 1994 Plan authorizes the grant of non qualified stock options to all
directors of the Company who are not employees of the Company or any of its
subsidiaries. An aggregate of 200,000 shares of common stock have been
authorized for issuance under the 1994 Plan. The Board of Directors administers
the 1994 Plan. Under the terms of the 1994 Plan, as amended, each non-employee
director, upon initial election to the Board of Directors, shall receive options
to purchase 10,000 shares of common stock. In lieu of grants upon election,
current directors received initial grants upon the effective date of the
adoption of the 1994 Plan. Immediately following the annual meeting of the
stockholders each year, each non-employee director of the Company continuing in
office shall automatically be granted options to purchase 5,000 shares of common
stock. Options are granted at an exercise price equal to the fair market value
of the underlying common stock and have generally vested over two years. Options
granted on or after June 24, 1998 vest over three years. Options to purchase
25,000 shares of common stock were subject to this vesting schedule as of
December 31, 1998.
Options to purchase 97,500 shares of common stock are outstanding under
the 1994 Plan at December 31, 1998. As of December 31, 1998, 82,500 shares of
common stock are available for future grants under the 1994 Plan.
Effective July 31, 1998, the Board of Directors approved the 1998 Stock
Option Plan (the 1998 Plan). The 1998 Plan authorizes the grant of non-qualified
stock options (the Awards) for the purchase of an aggregate of 1,000,000 shares
of common stock. The Board of Directors has appointed the Compensation Committee
(the Committee) to administer the 1998 Plan. Awards under the 1998 Plan are
granted at the discretion of the Committee, which shall determine the eligible
persons to whom, and the times at which, Awards shall be granted, the amount of
the Award to be granted and all other related terms, conditions and provisions
of each Award granted. The exercise price of each non-qualified stock option
granted will not be less than the fair market value of the common stock on the
date of the award. Options generally vest over 3 years.
Options to purchase 27,600 shares of common stock were outstanding under the
1998 Plan at December 31, 1998. As of December 31, 1998 972,400 shares of common
stock are available for future grants under the 1998 Plan.
The Company has also granted other non-qualified stock options to
purchase shares of common stock, of which options to purchase 15,000 shares of
common stock are outstanding at December 31, 1998.
F-12
<PAGE>
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
3) Stockholders' Equity - (Continued)
The following is a summary of the stock option activity for the years ended
December 31, 1996, 1997 and 1998:
<TABLE>
<CAPTION>
Number of Exercise Price
Shares per Share
------ ---------
<S> <C> <C> <C>
Outstanding at December 31, 1995........................... 913,868 $ 1.50 - $36.88
Granted................................................ 489,400 13.00 - 24.00
Terminated............................................. (121,925) 6.00 - 21.00
Exercised.............................................. (112,143) 1.50 - 16.89
---------
Outstanding at December 31, 1996........................... 1,169,200 1.75 - 36.88
Granted............................................... 385,307 15.75 - 31.50
Terminated............................................ (60,043) 6.19 - 26.00
Exercised............................................. (310,979) 1.75 - 17.81
---------
Outstanding at December 31, 1997........................... 1,183,485 1.75 - 31.50
Granted............................................... 516,745 11.81 - 19.25
Terminated............................................ (109,873) 7.75 - 31.50
Exercised............................................. (24,357) 6.19 - 16.89
---------
Outstanding at December 31, 1998........................... 1,566,000 1.75 - 31.50
========= ====== ======
Exercisable at December 31,1998.................................... 573,782 $ 1.75 - $31.50
========= ====== = ======
</TABLE>
331,650 of the 1,566,000 options outstanding at December 31, 1998 have
an exercise price of between $1.75 and $14.50, with a weighted average exercise
price of $7.27 and a remaining contractual life of 5 years. Of these options,
280,400 are exercisable. 278,812 options have exercise prices between $14.56
and $15.25 with a weighted average exercise price of $14.89 and a weighted
average remaining contractual life of 7 years. 130,618 of these options are
exercisable. 356,245 options have an exercise price of $15.50 and a weighted
average remaining contractual life of 6 years. Of these options, none are
exercisable. 430,043 options have exercise prices between $15.56 and $19.75
with a weighted average exercise price of $18.07 and a remaining contractual
life of 7 years. 106,201 of these options are exercisable. The remaining
169,250 options have exercise prices of between $20.56 and $31.50 with a
weighted average exercise price of $23.77 and a weighted average remaining
contractual life of 8 years. 56,563 of these options are exercisable.
Effective January 1, 1996, the Company adopted the provisions of SFAS
No. 123, Accounting for Stock-Based Compensation. The Company has elected to
continue to account for stock options at intrinsic value with disclosure of the
effects of fair value accounting on net income and earnings per share on a pro
forma basis. Had compensation costs for the stock option plans been determined
using the fair value method, the Company's pro forma net income, basic and
diluted earnings per share would have been $7.0 million, $.91 and $.89
respectively for the fiscal year ended December 31, 1998, $3.9 million, $.49 and
$.47, respectively for the fiscal year ended December 31, 1997 and $4.4 million,
$.57 and $.55, respectively for the fiscal year ended December 31, 1996.
Consistent with SFAS No. 123, pro forma net income and earnings per share have
not been calculated for options granted prior to January 1, 1995. Pro forma
compensation cost may not be representative of that to be expected in future
years.
The Company has computed the pro forma disclosures required under SFAS
No. 123 using the Black-Sholes option pricing model prescribed by SFAS No. 123.
The weighted average assumptions used for 1998 are as follows: risk free
interest rate of 5.7%, expected dividend yield of zero, expected option life of
5 years and expected volatility of 66%. The weighted average assumptions used
for 1997 are as follows: risk free interest rate of 6.3%, expected dividend
yield of zero, expected option life of 5 years and expected volatility of 69%.
The weighted average assumptions used for 1996 are as follows: risk free
interest rate of 6.2%, expected dividend yield of zero and expected option life
of 6 years and expected volatility of 65%. The weighted average fair values of
all options granted in 1996, 1997 and 1998 were $9.56, $9.79 and $7.22,
respectively.
F-13
<PAGE>
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
3) Stockholders' Equity - (Continued)
b) Shareholder Rights Plan. In January 1996, the Company adopted a
Shareholder Rights Plan and declared a dividend distribution of one right for
each outstanding share of the Company's common stock to stockholders of record
on January 19, 1996 and authorized the issuance of one right for each share of
the Company's common stock issued between January 19, 1996 and the date on which
the right becomes separable from the common stock. Each right entitles the
shareholders to buy from the Company 1/100 of a share of Series A Junior
Participating Preferred Stock, $.10 par value, at a purchase price of $75 per
right. The rights will be exercisable or separable from the common stock until
ten business days after a party acquires beneficial ownership of 20% or more of
the Company's common stock or announces a tender offer for at least 20% of its
common shares outstanding.
The rights are subject to adjustment and may be redeemed by the Company
at a price of $0.01 per right at any time until the tenth day following the
point at which they become exercisable. In the event that the Company is
acquired in a merger or other business combination transaction, each right,
other than those held by the acquiring party, will entitle its holders to
purchase an amount of shares of the Company's common stock which equals the
exercise price of the rights divided by one-half of the current market price of
the common stock. The rights will expire, unless earlier redeemed or exchanged,
on January 19, 2006, or earlier in certain circumstances.
4) Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Provisions for income taxes recognize the tax
effect of all revenue and expense transactions as well as any changes during the
period in deferred tax assets and liabilities. The effects of changes in tax
rates and laws on deferred tax assets and liabilities are reflected in net
income in the period in which such changes are enacted.
The components of domestic and foreign income (loss) before the provision for
income taxes are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1997 1998
----- ---- ----
<S> <C> <C> <C>
Domestic..................................... $9,409,000 $7,531,000 $ 9,336,000
Foreign...................................... (462,000) 2,210,000 4,440,000
---------- ---------- -----------
Total................................... $8,947,000 $9,741,000 $13,776,000
========== ========== ===========
</TABLE>
The provision for federal and state income taxes consists of the following:
<TABLE>
<CAPTION>
1996 1997 1998
------------------------------- ---------------------------------- --------------------------------
Federal State Foreign Federal State Foreign Federal State Foreign
---------- -------- ------- ----------- --------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current $2,711,000 $733,000 $ ---- $ 2,903,000 $ 862,000 $929,000 $2,449,000 $247,000 $1,680,000
Deferred/
(Prepaid) (163,000) (31,000) ---- (1,052,000) (312,000) ---- 20,000 12,000 ----
---------- -------- ------- ----------- --------- -------- ---------- -------- ----------
$2,548,000 $702,000 $ ---- $ 1,851,000 $ 550,000 $929,000 $2,469,000 $259,000 $1,680,000
========== ======== ======= =========== ========= ======== ========== ======== ==========
</TABLE>
F-14
<PAGE>
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
4) Income Taxes - (Continued)
Significant items making up net deferred tax assets as of December 31,
1997 and 1998 are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1997 1998
---- ----
<S> <C> <C>
Reserves for inventories $1,174,000 $1,410,000
Reserves for accounts receivable 1,567,000 1,569,000
Reserves for warranty 837,000 790,000
Other reserves and accruals 3,291,000 3,068,000
---------- ----------
Net deferred tax assets $6,869,000 $6,837,000
========== ==========
</TABLE>
The amount computed by applying the federal statutory income tax rate of
34% to income before provision for income taxes differs from the Company's
provision for income taxes due to the following:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Provision at federal statutory rate...................... $3,042,000 $3,312,000 $4,684,000
State taxes, net of federal benefit...................... 504,000 479,000 171,000
Foreign operating losses not benefited................... 325,000 135,000 138,000
Tax-exempt interest benefit.............................. (493,000) (392,000) (436,000)
Foreign sales corporation benefit........................ (294,000) (551,000) ------
Other, net............................................... 166,000 347,000 (149,000)
---------- ---------- ----------
$3,250,000 $3,330,000 $4,408,000
========== ========== ==========
</TABLE>
5) Commitments
a) Royalty Agreement
The Company is a party to a licensing agreement in which it has acquired
the rights to various touch screen products and technologies. The licensing
agreement provides for the payment of royalties based on annual product sales
and sublicensing revenue and includes minimum royalty payment provisions. The
agreement will be in effect until the expiration of the last-to-expire patent
licensed under this agreement, which is in 2005.
b) Lease - Facility
During 1993, the Company entered into a lease agreement expiring in
April 2003 under which the Company leases its main operating facility in
Methuen, Massachusetts. In addition to the lease payments, the Company is also
responsible for its share of real estate taxes and operating expenses, as
defined. The Company also leases space in Rochester, New York under a lease
expiring in November 2002. The Company also leases space at its operations in
the United Kingdom, France, Germany, Italy, Australia, Japan, Spain, Hong Kong
and Taiwan. Total rent expense under all leases for the years ended December 31,
1996, 1997 and 1998 was approximately $1,368,000, $1,889,000 and $1,543,000,
respectively.
F-15
<PAGE>
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
5) Commitments - (Continued)
Future minimum lease payments for all noncancelable leases are as follows:
<TABLE>
<CAPTION>
Fiscal Year Ending Amount
------------------ ------
<S> <C>
1999.......................................... $1,613,000
2000.......................................... 1,373,000
2001.......................................... 1,296,000
2002.......................................... 1,238,000
2003.......................................... 579,000
2004 and thereafter........................... 1,047,000
----------
Total......................................... $7,146,000
==========
</TABLE>
c) Post-retirement Benefits
The Company does not offer any post-retirement or post-employment benefits to
its employees.
6) Segment Information
Effective January 1, 1998, the Company adopted SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information. SFAS No. 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. Operating segments are defined as components of an enterprise about
which separate financial information is available that is evaluated regularly by
the chief operating decision maker, or decision making group, in deciding how to
allocate resources and in assessing their performance. The Company's chief
operating decision maker is the Chief Executive Officer (CEO).
The Company operates in one industry segment consisting of the
development, manufacture and sale of touch sensitive input systems. The
Company's technologies are managed as one segment, or one strategic unit,
because it offers similar products in similar markets and the factors
determining strategic decisions are comparable for all products and markets.
F-16
<PAGE>
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Geographic area information for the years ended December 31, 1996, 1997
and 1998 is as follows:
<TABLE>
<CAPTION>
Domestic United Kingdom Other Consolidated
----------- -------------- ----- ------------
of Great Britain International
---------------- -------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996
Net sales........................................... $63,634,000 $19,320,000 $12,091,000 $ 95,045,000
Income (loss) before provision for income taxes..... $ 9,409,000 $ 413,000 $ (875,000) $ 8,947,000
Identifiable assets................................. $66,933,000 $12,106,000 $ 6,009,000 $ 85,048,000
Year Ended December 31, 1997
Net sales........................................... $74,555,000 $35,011,000 $18,915,000 $128,481,000
Income (loss) before provision for income taxes..... $ 7,531,000 $ (211,000) $ 2,421,000 $ 9,741,000
Identifiable assets................................. $71,649,000 $16,235,000 $ 6,953,000 $ 94,837,000
Year Ended December 31, 1998
Net sales........................................... $75,511,000 $50,108,000 $18,751,000 $144,370,000
Income before provision for income taxes............ $ 9,336,000 $ 4,119,000 $ 321,000 $ 13,776,000
Identifiable assets................................. $78,065,000 $14,984,000 $11,296,000 $104,345,000
</TABLE>
Intercompany transfers to the Company's foreign subsidiaries are
transacted at prices intended to allow the subsidiaries' earnings to be
comparable to unaffiliated distributors. Sales to unaffiliated customers outside
the United States, including U.S. export sales, were approximately $36,198,000
in 1996, which represented 38% of net sales, $57,409,000 in 1997, which
represented 45% of net sales and $71,351,000 in 1998, which represented 49% of
net sales.
No single customer represented more than 10% of total sales during the
years ended December 31, 1997 or 1998.
7) Retirement Savings Plan
The Company has a 401(k) employee savings plan established in 1993
covering substantially all employees. Matching company contributions are at the
discretion of the Board of Directors. Effective in 1998, the Board authorized
matching contributions up to $900 of participants' contributions. Company
contributions and other expenses of the Plan amounted to $89,000 in 1996,
$156,000 in 1997 and $306,000 in 1998.
8) Legal Proceedings
The Company had been involved in an international arbitration entitled
MicroTouch Systems, Inc. v. 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 noncompetition provisions and
other terms of a distribution agreement between the Company and Nissha.
In January 1997, the Company was informed that while it had won the case
based on the merits of its claims, 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
related to the arbitration, in the amount of $595,000. The Company expensed
these fees and costs awarded to Nissha as a part of its second quarter 1997
financial results. This payment completes the Company's involvement in the
matter.
F-17
<PAGE>
The Company is a defendant in a case entitled Behne v. MicroTouch
Systems, Inc., which is in the United States District Court in the Northern
District of California. The case arose from claims by Ms. Behne, a former
employee of MicroTouch that the Company had discriminated against her during her
employment at the Company. The case is scheduled for hearing in late
February/early March, 1999. The Company believes that the claims are without
merit but no assurances can be given as to the outcome of this legal matter.
The Company is subject to various investigations, claims and legal
proceedings covering a wide range of matters that arise in the ordinary course
of its business activities. Each of these matters is subject to various
uncertainties, and it is possible that some of these matters may be resolved
unfavorably to the Company. The Company has established accruals for matters
that are probable and reasonably estimable. Management believes that any
liability that may ultimately result from the resolution of these matters in
excess of amounts provided will not have a material adverse effect on the
financial position or results of operations of the Company.
F-18
<PAGE>
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES
SELECTED QUARTERLY FINANCIAL DATA
(Unaudited - in thousands, except per share amounts)
<TABLE>
<CAPTION>
1997
-------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------ ------- -------
<S> <C> <C> <C> <C>
Net Sales $30,076 $32,275 $32,829 $33,301
Gross Profit 11,348 11,987 12,080 9,513 (a)
Net Income 2,057 1,967 2,370 17 (a)
Diluted Earnings per Share 0.25 0.24 0.28 ---- (a)
</TABLE>
<TABLE>
<CAPTION>
1998
-------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------ ------- -------
<S> <C> <C> <C> <C>
Net Sales $35,727 $37,125 $34,948 $36,570
Gross Profit 13,043 14,336 13,595 14,446 (b)
Net Income 2,270 2,259 2,341 2,498
Diluted Earnings per Share 0.28 0.28 0.30 0.33
</TABLE>
(a) Reflects non-recurring charge of $2.3 million related to the electronic
whiteboard operation. This charge consisted primarily of a $1.0 million
writedown of inventory and a $1.2 million write-off of capitalized software
development costs.
(b) Certain reclassifications have been made to the quarterly 1998 consolidated
statements of operation to conform to the full year 1998 presentation.
F-19
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The sections entitled "Nomination and Election of Directors," "Executive
Officers" and "Compliance with Section 16(a) of the Securities Exchange Act of
1934" contained in the registrant's Proxy Statement for the 1999 Annual Meeting
of Stockholders to be filed with the Securities and Exchange Commission by April
30, 1999, are incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The section entitled "Executive Compensation" contained in the Proxy
Statement for the 1999 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission by April 30, 1999, is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section entitled "Security Ownership of Officers, Directors and
Principal Stockholders" contained in the Proxy Statement for the 1999 Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission
by April 30, 1999, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
The following documents are filed as a part of this Report:
(a)(1) Index to Consolidated Financial Statements
------------------------------------------
The following consolidated financial statements of MicroTouch
Systems, Inc. and subsidiaries are included pursuant to Item 8:
<TABLE>
<CAPTION>
Page in Form 10K
----------------
<S> <C>
Report of Independent Public Accountants F - 1
Consolidated Balance Sheets as of December 31, 1997 and 1998 F - 2
Consolidated Statements of Operations for each of the three years
in the period ended December 31, 1998 F - 3
Consolidated Statements of Stockholders' Equity for each of the three years
in the period ended December 31, 1998 F - 4
Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 1998 F - 5
Consolidate Statements of Comprehensive Income for each of the three years
in the period ended December 31, 1998 F - 6
Notes to Consolidated Financial Statements F - 7
</TABLE>
(a)(2) Index to Consolidated Financial Statement Schedules
---------------------------------------------------
The following consolidated financial statement schedules of
MicroTouch Systems, Inc. and subsidiaries are included pursuant to
Item 8:
Schedule II Valuation and Qualifying Accounts for each of the three years in
the period ended December 31, 1998
Schedules not listed above have been omitted because they are not
applicable, not required or the information required to be set forth therein is
included in the consolidated financial statements or notes thereto.
(b) The Company filed no current reports on Form 8-K during the quarter
ended December 31, 1998.
(c) Exhibits
--------
3.1 Restated Articles of Organization, as amended to date. (5)
3.2 Amended and Restated By-laws. (1)
4.1 Shareholder Rights Agreement (5)
10.1 1992 Equity Incentive Plan. (1) (4)
<PAGE>
10.7 Lease Agreement between the Company and Griffin Brook Park
Associates Joint Venture dated November 6, 1992. (2)
10.8 Letter Agreement with State Street Bank & Trust Co. dated
August 29, 1994. (3)
10.9 Money Market Note dated August 29, 1994. (3)
10.10 Purchase Agreement between the Company and Griffin Brook
Two Associates Joint Venture dated August 2, 1995. (5)
10.11 1994 Directors Stock Option Plan. (4) (5)
10.12 1995 Employee Stock Purchase Plan. (4) (5)
10.13 1998 Employee and Consultant Non-Qualified Stock Option
Plan. Filed herewith
10.14 Letter Agreement with Barclays Bank PLC dated April 7,
1998. Filed herewith
21 Subsidiaries of the Registrant.
23 Consent of Independent Public Accountants. Filed herewith.
24 Power of Attorney (included on signature page).
27 Financial Data Schedule. Filed herewith.
(1) Filed as an exhibit to a Registration Statement on Form S-1
filed on June 26, 1992 (Registration No. 33-47874) and
incorporated herein by reference.
(2) Filed as an exhibit to the Annual Report on Form 10K filed
for the year ended December 31, 1992 and incorporated
herein by reference.
(3) Filed as an exhibit to Form 10-Q filed for the quarter
ended September 30, 1994 and incorporated herein by
reference.
(4) Indicates management contracts or compensatory plans in
which the executive officers or directors of the Company
participate.
(5) Filed as an Exhibit to the Annual Report on Form 10K filed
for the year ended December 31, 1995 and incorporated
herein by reference.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
BY /s/ D. Westervelt Davis
-----------------------------------
D. Westervelt Davis
President, Chief Executive Officer
and Director
February 22, 1999
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Geoffrey P. Clear and William T. Whelan, and each
of them his true and lawful attorneys-in-fact and agents, each acting alone,
with full powers of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments to
this Annual Report on Form 10K, including amendments, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, and hereby ratifies and
confirms all his said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirement of the Securities Exchange Act of 1934, 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/ James D. Logan
- -----------------------------------
James D. Logan Chairman of the Board of Directors February 22, 1999
/s/ D. Westervelt Davis
- -----------------------------------
D. Westervelt Davis President, Chief Executive Officer February 22, 1999
and Director
/s/ Geoffrey P. Clear
- -----------------------------------
Geoffrey P. Clear Vice President, Finance and February 22, 1999
Administration, Chief Financial Officer
and Treasurer
/s/ Edward J. Stewart III
- -----------------------------------
Edward J. Stewart III Director February 22, 1999
/s/ Frank Manning
- -----------------------------------
Frank Manning Director February 22, 1999
/s/ Peter Brumme
- -----------------------------------
Peter Brumme Director February 22, 1999
</TABLE>
<PAGE>
EXHIBIT INDEX
3.1 Restated Articles of Organization as amended to date (5)
3.2 Amended and Restated By-laws. (1)
4.1 Shareholder Rights Agreement (5)
10.1 1992 Equity Incentive Plan. (1) (4)
10.5 License Agreement between the Company, Peptek, Inc. and Mr. Jim Zeeger
dated July 1, 1988. (1)
10.7 Lease Agreement between the Company and Griffin Brook Park Associates
Joint Venture dated November 6, 1992. (2)
10.8 Letter Agreement with State Street Bank & Trust Co. dated August 29,
1994. (3)
10.9 Money Market Note dated August 29, 1994. (3)
10.10 Purchase and Sale Agreement between the Company and Griffin Brook Two
Associates Joint Venture dated August 2, 1995. (5)
10.11 1994 Directors Stock Option Plan. (4) (5)
10.12 1995 Employee Stock Purchase Plan (4) (5)
10.13 1998 Employee and Consultant Non-Qualified Stock Opton Plan. Filed
herewith
10.14 Letter Agreement with Barclays Bank PLC dated April 7, 1998. Filed
herewith
21 Subsidiaries of the Registrant.
23 Consent of Independent Public Accountants filed herewith. Filed herewith
24 Power of Attorney (included on signature page).
27 Financial Data Schedule. Filed herewith.
(1) Filed as an exhibit to a Registration Statement on Form S-1 filed on June
26, 1992 (Registration No. 33-47874) and incorporated herein by
reference.
(2) Filed as an exhibit to the Annual Report on Form 10K filed for the year
ended December 31, 1992 and incorporated herein by reference.
(3) Filed as an exhibit to Form 10-Q filed for the quarter ended September
30, 1994 and incorporated herein by reference.
(4) Indicates management contracts or compensatory plans in which the
executive officers or directors of the Company participate.
(5) Filed as an Exhibit to the Annual Report on Form 10K filed for the year
ended December 31, 1995 and incorporated herein by reference.
<PAGE>
SCHEDULE II
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED
DECEMBER 31, 1996, 1997 AND 1998
(Amounts in thousands)
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Cost & Charged Returns/ End of
of Period Expense to Sales Write-offs Period
--------- ------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts and
Sales Returns
Year Ended December 31, 1996 $2,669 $255 $5,219 $(4,203) $3,940
Year Ended December 31, 1997 $3,940 $127 $1,249 $ (147) (a) $5,169
Year Ended December 31, 1998 $5,169 $529 $ 305 $(1,048) (a) $4,955
</TABLE>
(a) Effective January 1, 1997 the Company changed its accounting procedures to
allow the value of product returns to be offset as a credit directly to sales,
rather than charged against the sales return allowance as had been previously
done. The actual value of product returns in 1997 and 1998 was $4.5 million and
$4.9 million, respectively.
<PAGE>
Exhibit 10.13
-------------
Mintz Levin Draft 9/14/98
- -------------------------
MICROTOUCH SYSTEMS, INC.
1998 EMPLOYEE AND CONSULTANT NON-QUALIFIED STOCK OPTION PLAN
1. DEFINITIONS.
-----------
Unless otherwise specified or unless the context otherwise requires, the
following terms, as used in this 1998 Employee and Consultant Non-Qualified
Stock Option Plan, have the following meanings:
Administrator means the Board of Directors, unless it has delegated
-------------
power to act on its behalf to the Committee, in which case the
Administrator means the Committee.
Affiliate means a corporation which, for purposes of Section 424 of
---------
the Code, is a parent or subsidiary of the Company, direct or
indirect.
Board of Directors means the Board of Directors of the Company.
------------------
Code means the United States Internal Revenue Code of 1986, as
----
amended.
Committee means the committee of the Board of Directors to which the
---------
Board of Directors has delegated power to act under or pursuant to the
provisions of the Plan.
Common Stock means shares of the Company's common stock, $.01 par
------------
value per share.
Company means MicroTouch Systems, Inc., a Massachusetts corporation.
-------
Disability or Disabled means permanent and total disability as defined
---------- --------
in Section 22(e)(3) of the Code.
Fair Market Value of a Share of Common Stock means:
-----------------
(1) If the Common Stock is listed on a national securities exchange
or traded in the over-the-counter market and sales prices are
regularly reported for the Common Stock, the closing or last price of
the Common Stock on the Composite Tape or other comparable reporting
system for the trading day immediately preceding the applicable date;
1
<PAGE>
(2) If the Common Stock is not traded on a national securities
exchange but is traded on the over-the-counter market, if sales prices
are not regularly reported for the Common Stock for the trading day
referred to in clause (1), and if bid and asked prices for the Common
Stock are regularly reported, the mean between the bid and the asked
price for the Common Stock at the close of trading in the over-the-
counter market for the trading day on which Common Stock was traded
immediately preceding the applicable date; and
(3) If the Common Stock is neither listed on a national securities
exchange nor traded in the over-the-counter market, such value as the
Administrator, in good faith, shall determine.
ISO means an option meant to qualify as an incentive stock option
---
under Section 422 of the Code.
Employee means any employee of the Company or of an Affiliate who is
--------
not also a director or officer of the Company or such Affiliate,
designated by the Administrator to be eligible to be granted one or
more Options under the Plan.
Non-Qualified Option means an option which is not intended to qualify
--------------------
as an ISO.
Option means a Non-Qualified Option granted under the Plan.
------
Option Agreement means an agreement between the Company and a
----------------
Participant delivered pursuant to the Plan, in such form as the
Administrator shall approve.
Participant means an Employee to whom one or more Options are granted
-----------
under the Plan. As used herein, "Participant" shall include
"Participant's Survivors" where the context requires.
Plan means this MicroTouch 1998 Employee and Consultant Non-Qualified
----
Stock Option Plan.
Shares means shares of the Common Stock as to which Options have been
------
or may be granted under the Plan or any shares of capital stock into
which the Shares are changed or for which they are exchanged within
the provisions of Paragraph 3 of the Plan. The Shares issued upon
exercise of Options granted under the Plan may be authorized and
unissued shares or shares held by the Company in its treasury, or
both.
Survivors means a deceased Participant's legal representatives and/or
---------
any person or persons who acquired the Participant's rights to an
Option by will or by the laws of descent and distribution.
2
<PAGE>
2. PURPOSES OF THE PLAN.
--------------------
The Plan is intended to encourage ownership of Shares by Employees and
certain consultants to the Company in order to attract such people, to induce
them to work for the benefit of the Company or of an Affiliate and to provide
additional incentive for them to promote the success of the Company or of an
Affiliate. The Plan provides exclusively for the granting of Non-Qualified
Options.
3. SHARES SUBJECT TO THE PLAN.
--------------------------
The number of Shares which may be issued from time to time pursuant to this
Plan shall be one million (1,000,000), or the equivalent of such number of
Shares after the Administrator, in its sole discretion, has interpreted the
effect of any stock split, stock dividend, combination, recapitalization or
similar transaction in accordance with Paragraph 16 of the Plan.
If an Option ceases to be "outstanding", in whole or in part, the Shares
which were subject to such Option shall be available for the granting of other
Options under the Plan. Any Option shall be treated as "outstanding" until such
Option is exercised in full, or terminates or expires under the provisions of
the Plan, or by agreement of the parties to the pertinent Option Agreement.
4. ADMINISTRATION OF THE PLAN.
--------------------------
The Administrator of the Plan will be the Board of Directors, except to the
extent the Board of Directors delegates its authority to the Committee, in which
case the Committee shall be the Administrator. Subject to the provisions of the
Plan, the Administrator is authorized to:
a. Interpret the provisions of the Plan or of any Option or Option
Agreement and to make all rules and determinations which it deems
necessary or advisable for the administration of the Plan;
b. Determine which of the Employees and consultants shall be granted
Options;
c. Determine the number of Shares for which an Option or Options shall be
granted; and
d. Specify the terms and conditions upon which an Option or Options may
be granted.
The interpretation and construction by the Administrator of any provisions of
the Plan or of any Option granted under it shall be final, unless otherwise
determined by the Board of Directors, if the Administrator is the Committee.
3
<PAGE>
5. ELIGIBILITY FOR PARTICIPATION.
-----------------------------
The Administrator will, in its sole discretion, name the Participants in
the Plan, provided, however, that each Participant must be an Employee or
consultant of the Company or of an Affiliate at the time an Option is granted.
Notwithstanding the foregoing, the Administrator may authorize the grant of an
Option to a person not then an employee or consultant of the Company or of an
Affiliate; provided, however, that the actual grant of such Option shall be
conditioned upon such person becoming eligible to become a Participant at or
prior to the time of the delivery of the Option Agreement evidencing such
Option. The granting of any Option to any individual shall neither entitle that
individual to, nor disqualify him or her from, participation in any other grant
of Options.
6. TERMS AND CONDITIONS OF OPTIONS.
-------------------------------
Each Option shall be set forth in writing in an Option Agreement, duly
executed by the Company and, to the extent required by law or requested by the
Company, by the Participant. Each Option shall be subject to the terms and
conditions which the Administrator determines to be appropriate and in the best
interest of the Company, subject to the following minimum standards:
a. Option Price: Each Option Agreement shall state the option price
(per share) of the Shares covered by each Option, which option
price shall be determined by the Administrator but shall not be
less than the Fair Market Value per share of Common Stock;
b. Each Option Agreement shall state the number of Shares to which
it pertains;
c. Each Option Agreement shall state the date or dates on which it
first is exercisable and the date after which it may no longer be
exercised, and may provide that the Option rights accrue or
become exercisable in installments over a period of months or
years, or upon the occurrence of certain conditions or the
attainment of stated goals or events; and
d. Exercise of any Option may be conditioned upon the Participant's
execution of a Share purchase agreement in form satisfactory to
the Administrator providing for certain protections for the
Company and its other shareholders, including requirements that:
i. The Participant's or the Participant's Survivors' right to
sell or transfer the Shares may be restricted; and
ii. The Participant or the Participant's Survivors may be
required to execute letters of investment intent.
4
<PAGE>
7. EXERCISE OF OPTIONS AND ISSUE OF SHARES.
---------------------------------------
An Option (or any part or installment thereof) shall be exercised by giving
written notice to the Company at its principal executive office address,
together with provision for payment of the full purchase price in accordance
with this Paragraph for the Shares as to which the Option is being exercised,
and upon compliance with any other condition(s) set forth in the Option
Agreement. Such written notice shall be signed by the person exercising the
Option, shall state the number of Shares with respect to which the Option is
being exercised and shall contain any representation required by the Plan or the
Option Agreement. Payment of the purchase price for the Shares as to which such
Option is being exercised shall be made (a) in United States dollars in cash or
by check, or (b) at the discretion of the Administrator, through delivery of
shares of Common Stock having a Fair Market Value equal as of the date of the
exercise to the cash exercise price of the Option, or (c) at the discretion of
the Administrator, by having the Company retain from the shares otherwise
issuable upon exercise of the Option, a number of shares having a Fair Market
Value equal as of the date of exercise to the exercise price of the Option, or
(d) at the discretion of the Administrator, by delivery of the grantee's
personal recourse note bearing interest payable not less than annually at no
less than 100% of the applicable Federal rate, as defined in Section 1274(d) of
the Code, or (e) at the discretion of the Administrator, in accordance with a
cashless exercise program established with a securities brokerage firm, and
approved by the Company's management, or (f) at the discretion of the
Administrator, by any combination of (a), (b), (c), (d) and (e) above.
The Company shall then reasonably promptly deliver the Shares as to which
such Option was exercised to the Participant (or to the Participant's Survivors,
as the case may be). In determining what constitutes "reasonably promptly," it
is expressly understood that the delivery of the Shares may be delayed by the
Company in order to comply with any law or regulation (including, without
limitation, state securities or "blue sky" laws) which requires the Company to
take any action with respect to the Shares prior to their issuance. The Shares
shall, upon delivery, be evidenced by an appropriate certificate or certificates
for fully paid, non-assessable Shares.
The Administrator shall have the right to accelerate the date of exercise
of any installment of any Option. The Administrator may, in its discretion,
amend any term or condition of an outstanding Option provided (i) such term or
condition as amended is permitted by the Plan and (ii) any such amendment shall
be made only with the consent of the Participant to whom the Option was granted,
or in the event of the death of the Participant, the Participant's Survivors, if
the amendment is adverse to the Participant.
8. RIGHTS AS A SHAREHOLDER.
-----------------------
No Participant to whom an Option has been granted shall have rights as a
shareholder with respect to any Shares covered by such Option, except after due
exercise of the Option and tender of the full purchase price for the Shares
being purchased pursuant to such exercise and registration of the Shares in the
Company's share register in the name of the Participant.
5
<PAGE>
9. ASSIGNABILITY AND TRANSFERABILITY OF OPTIONS.
--------------------------------------------
By its terms, an Option granted to a Participant shall not be transferable
by the Participant other than (i) by will or by the laws of descent and
distribution, or (ii) as otherwise determined by the Administrator and set forth
in the applicable Option Agreement. The designation of a beneficiary of an
Option by a Participant shall not be deemed a transfer prohibited by this
Paragraph. Except as provided above, an Option shall be exercisable, during the
Participant's lifetime, only by such Participant (or by his or her legal
representative) and shall not be assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process. Any attempted transfer, assignment,
pledge, hypothecation or other disposition of any Option or of any rights
granted thereunder contrary to the provisions of this Plan, or the levy of any
attachment or similar process upon an Option, shall be null and void.
10. EFFECT OF TERMINATION OF SERVICE OTHER THAN "FOR CAUSE" OR DEATH OR
-------------------------------------------------------------------
DISABILITY.
----------
Except as otherwise provided in the pertinent Option Agreement, in the
event of a termination of service (whether as an employee or consultant) with
the Company or an Affiliate before the Participant has exercised all Options,
the following rules apply:
a. A Participant who ceases to be an employee or consultant of the
Company or of an Affiliate (for any reason other than termination "for
cause", Disability, or death for which events there are special rules
in Paragraphs 11, 12, and 13, respectively), may exercise any Option
granted to him or her to the extent that the Option is exercisable on
the date of such termination of service, but only within such term as
the Administrator has designated in the pertinent Option Agreement.
b. The provisions of this Paragraph, and not the provisions of Paragraph
12 or 13, shall apply to a Participant who subsequently becomes
Disabled or dies after the termination of employment or consultancy,
provided, however, in the case of a Participant's Disability or death
within three (3) months after the termination of employment or
consultancy, the Participant or the Participant's Survivors may
exercise the Option within one (1) year after the date of the
Participant's termination of employment, but in no event after the
date of expiration of the term of the Option.
c. Notwithstanding anything herein to the contrary, if subsequent to a
Participant's termination of employment or termination of consultancy,
but prior to the exercise of an Option, the Board of Directors
determines that, either prior or subsequent to the Participant's
termination, the Participant engaged in conduct which would constitute
"cause", then such Participant shall forthwith cease to have any right
to exercise any Option.
6
<PAGE>
d. A Participant to whom an Option has been granted under the Plan who is
absent from work with the Company or with an Affiliate because of
temporary disability (any disability other than a permanent and total
Disability as defined in Paragraph 1 hereof), or who is on leave of
absence for any purpose, shall not, during the period of any such
absence, be deemed, by virtue of such absence alone, to have
terminated such Participant's employment or consultancy with the
Company or with an Affiliate, except as the Administrator may
otherwise expressly provide.
e. Except as required by law or as set forth in the pertinent Option
Agreement, Options granted under the Plan shall not be affected by any
change of a Participant's status within or among the Company and any
Affiliates, so long as the Participant continues to be an employee or
consultant of the Company or any Affiliate.
11. EFFECT OF TERMINATION OF SERVICE "FOR CAUSE".
--------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, the
following rules apply if the Participant's service (whether as an employee or
consultant) with the Company or an Affiliate is terminated "for cause" prior to
the time that all his or her outstanding Options have been exercised:
a. All outstanding and unexercised Options as of the time the Participant
is notified his or her service is terminated "for cause" will
immediately be forfeited.
b. For purposes of this Plan, "cause" shall include (and is not limited
to) dishonesty with respect to the Company or any Affiliate,
insubordination, substantial malfeasance or non-feasance of duty,
unauthorized disclosure of confidential information, and conduct
substantially prejudicial to the business of the Company or any
Affiliate. The determination of the Administrator as to the existence
of "cause" will be conclusive on the Participant and the Company.
c. "Cause" is not limited to events which have occurred prior to a
Participant's termination of service, nor is it necessary that the
Administrator's finding of "cause" occur prior to termination. If the
Administrator determines, subsequent to a Participant's termination of
service but prior to the exercise of an Option, that either prior or
subsequent to the Participant's termination the Participant engaged in
conduct which would constitute "cause," then the right to exercise any
Option is forfeited.
d. Any definition in an agreement between the Participant and the Company
or an Affiliate, which contains a conflicting definition of "cause"
for termination and which is in effect at the time of such
termination, shall supersede the definition in this Plan with respect
to such Participant.
7
<PAGE>
12. EFFECT OF TERMINATION OF SERVICE FOR DISABILITY.
-----------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, a
Participant who ceases to be an employee or consultant of the Company or of an
Affiliate by reason of Disability may exercise any Option granted to such
Participant:
a. To the extent exercisable but not exercised on the date of Disability;
and
b. In the event rights to exercise the Option accrue periodically, to the
extent of a pro rata portion of any additional rights as would have
accrued had the Participant not become Disabled prior to the end of
the accrual period which next ends following the date of Disability.
The proration shall be based upon the number of days of such accrual
period prior to the date of Disability.
A Disabled Participant may exercise such rights only within the period
ending one (1) year after the date of the Participant's termination of
employment or consultancy, as the case may be, notwithstanding that the
Participant might have been able to exercise the Option as to some or all of the
Shares on a later date if the Participant had not become disabled and had
continued to be an employee or consultant or, if earlier, within the originally
prescribed term of the Option.
The Administrator shall make the determination both of whether Disability
has occurred and the date of its occurrence (unless a procedure for such
determination is set forth in another agreement between the Company and such
Participant, in which case such procedure shall be used for such determination).
If requested, the Participant shall be examined by a physician selected or
approved by the Administrator, the cost of which examination shall be paid for
by the Company.
13. EFFECT OF DEATH WHILE AN EMPLOYEE OR CONSULTANT.
-----------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, in the
event of the death of a Participant while the Participant is an employee or
consultant of the Company or of an Affiliate, such Option may be exercised by
the Participant's Survivors:
a. To the extent exercisable but not exercised on the date of death; and
b. In the event rights to exercise the Option accrue periodically, to the
extent of a pro rata portion of any additional rights which would have
accrued had the Participant not died prior to the end of the accrual
period which next ends following the date of death. The proration
shall be based upon the number of days of such accrual period prior to
the Participant's death.
8
<PAGE>
If the Participant's Survivors wish to exercise the Option, they must take
all necessary steps to exercise the Option within one (1) year after the date of
death of such Participant, notwithstanding that the decedent might have been
able to exercise the Option as to some or all of the Shares on a later date if
he or she had not died and had continued to be an employee or consultant or, if
earlier, within the originally prescribed term of the Option.
14. PURCHASE FOR INVESTMENT.
-----------------------
Unless the offering and sale of the Shares to be issued upon the particular
exercise of an Option shall have been effectively registered under the
Securities Act of 1933, as now in force or hereafter amended (the "1933 Act"),
the Company shall be under no obligation to issue the Shares covered by such
exercise unless and until the following conditions have been fulfilled:
a. The person(s) who exercise(s) such Option shall warrant to the
Company, prior to the receipt of such Shares, that such person(s) are
acquiring such Shares for their own respective accounts, for
investment, and not with a view to, or for sale in connection with,
the distribution of any such Shares, in which event the person(s)
acquiring such Shares shall be bound by the provisions of the
following legend which shall be endorsed upon the certificate(s)
evidencing their Shares issued pursuant to such exercise or such
grant:
"The shares represented by this certificate have been taken for
investment and they may not be sold or otherwise transferred by
any person, including a pledgee, unless (1) either (a) a
Registration Statement with respect to such shares shall be
effective under the Securities Act of 1933, as amended, or (b)
the Company shall have received an opinion of counsel
satisfactory to it that an exemption from registration under such
Act is then available, and (2) there shall have been compliance
with all applicable state securities laws."
b. At the discretion of the Administrator, the Company shall have
received an opinion of its counsel that the Shares may be issued upon
such particular exercise in compliance with the 1933 Act without
registration thereunder.
15. DISSOLUTION OR LIQUIDATION OF THE COMPANY.
-----------------------------------------
Upon the dissolution or liquidation of the Company, all Options granted
under this Plan which as of such date shall not have been exercised will
terminate and become null and void; provided, however, that if the rights of a
Participant or a Participant's Survivors have not otherwise terminated and
expired, the Participant or the Participant's Survivors will have the right
immediately prior to such dissolution or liquidation to exercise any Option to
the extent that the Option is exercisable as of the date immediately prior to
such dissolution or liquidation.
9
<PAGE>
16. ADJUSTMENTS.
-----------
Upon the occurrence of any of the following events, a Participant's rights
with respect to any Option granted to him or her hereunder which has not
previously been exercised in full shall be adjusted as hereinafter provided,
unless otherwise specifically provided in the pertinent Option Agreement:
A. Stock Dividends and Stock Splits. If (i) the shares of Common Stock
--------------------------------
shall be subdivided or combined into a greater or smaller number of shares or if
the Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, or (ii) additional shares or new or different shares
or other securities of the Company or other non-cash assets are distributed with
respect to such shares of Common Stock, the number of shares of Common Stock
deliverable upon the exercise of such Option may be appropriately increased or
decreased proportionately, and appropriate adjustments may be made in the
purchase price per share to reflect such events.
B. Consolidations or Mergers. If the Company is to be consolidated with
-------------------------
or acquired by another entity in a merger, sale of all or substantially all of
the Company's assets or otherwise (an "Acquisition"), the Administrator or the
board of directors of any entity assuming the obligations of the Company
hereunder (the "Successor Board"), shall, as to outstanding Options, either (i)
make appropriate provision for the continuation of such Options by substituting
on an equitable basis for the Shares then subject to such Options either the
consideration payable with respect to the outstanding shares of Common Stock in
connection with the Acquisition or securities of any successor or acquiring
entity; or (ii) upon written notice to the Participants, provide that all
Options must be exercised (either to the extent then exercisable or, at the
discretion of the Administrator, all Options being made fully exercisable for
purposes of this Subparagraph), within a specified number of days of the date of
such notice, at the end of which period the Options shall terminate; or (iii)
terminate all Options in exchange for a cash payment equal to the excess of the
Fair Market Value of the shares subject to such Options (either to the extent
then exercisable or, at the discretion of the Administrator, all Options being
made fully exercisable for purposes of this Subparagraph) over the exercise
price thereof.
C. Recapitalization or Reorganization. In the event of a recapitalization
----------------------------------
or reorganization of the Company (other than a transaction described in
Subparagraph B above) pursuant to which securities of the Company or of another
corporation are issued with respect to the outstanding shares of Common Stock, a
Participant upon exercising an Option shall be entitled to receive for the
purchase price paid upon such exercise the securities which would have been
received if such Option had been exercised prior to such recapitalization or
reorganization.
10
<PAGE>
17. ISSUANCES OF SECURITIES.
-----------------------
Except as expressly provided herein, no issuance by the Company of shares
of stock of any class, or securities convertible into shares of stock of any
class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares subject to Options. Except as
expressly provided herein, no adjustments shall be made for dividends paid in
cash or in property (including without limitation, securities) of the Company.
18. FRACTIONAL SHARES.
-----------------
No fractional shares shall be issued under the Plan and the person
exercising such right shall receive from the Company cash in lieu of such
fractional shares equal to the Fair Market Value thereof.
19. WITHHOLDING.
-----------
In the event that any federal, state, or local income taxes, employment
taxes, Federal Insurance Contributions Act ("F.I.C.A.") withholdings or other
amounts are required by applicable law or governmental regulation to be withheld
from the Participant's salary, wages or other remuneration in connection with
the exercise of an Option, the Company may withhold from the Participant's
compensation, if any, or may require that the Participant advance in cash to the
Company, or to any Affiliate of the Company which employs or employed the
Participant, the amount of such withholdings unless a different withholding
arrangement, including the use of shares of the Company's Common Stock or a
promissory note, is authorized by the Administrator (and permitted by law). For
purposes hereof, the fair market value of the shares withheld for purposes of
payroll withholding shall be determined in the manner provided in Paragraph 1
above, as of the most recent practicable date prior to the date of exercise. If
the fair market value of the shares withheld is less than the amount of payroll
withholdings required, the Participant may be required to advance the difference
in cash to the Company or the Affiliate employer. The Administrator in its
discretion may condition the exercise of an Option for less than the then Fair
Market Value on the Participant's payment of such additional withholding.
20. TERMINATION OF THE PLAN.
-----------------------
The Plan will terminate on August 6, 2008.
21. AMENDMENT OF THE PLAN AND AGREEMENTS.
------------------------------------
The Plan may be amended by the Administrator, including, without
limitation, to the extent necessary to qualify any or all outstanding Options
granted under the Plan or Options to be granted under the Plan for favorable
federal income tax treatment, and to the extent necessary
11
<PAGE>
to qualify the shares issuable upon exercise of any outstanding Options granted,
or Options to be granted, under the Plan for listing on any national securities
exchange or quotation in any national automated quotation system of securities
dealers. Any amendment approved by the Administrator which the Administrator
determines is of a scope that requires shareholder approval shall be subject to
obtaining such shareholder approval. Any modification or amendment of the Plan
shall not, without the consent of a Participant, adversely affect his or her
rights under an Option previously granted to him or her. With the consent of the
Participant affected, the Administrator may amend outstanding Option Agreements
in a manner which may be adverse to the Participant but which is not
inconsistent with the Plan. In the discretion of the Administrator, outstanding
Option Agreements may be amended by the Administrator in a manner which is not
adverse to the Participant.
22. EMPLOYMENT OR OTHER RELATIONSHIP.
--------------------------------
Nothing in this Plan or any Option Agreement shall be deemed to prevent the
Company or an Affiliate from terminating the employment or consultancy status of
a Participant, nor to prevent a Participant from terminating his or her own
employment or consultancy status or to give any Participant a right to be
retained in employment or other service by the Company or any Affiliate for any
period of time.
23. GOVERNING LAW.
-------------
This Plan shall be construed and enforced in accordance with the law of The
Commonwealth of Massachusetts.
Agreements: 1998 Stock Option Plan
12
<PAGE>
[LOGO OF BARCLAYS APPEARS HERE]
[LETTERHEAD OF BARCLAYS BANK APPEARS HERE]
Exhibit 10.14
PRIVATE & CONFIDENTIAL Your Ref:
G Duffy Esq Our Ref:
Director Direct Dial: ALLEN SPALDING
Microtouch Systems Ltd 01923 482551
163 Milton Park
Milton
ABINGDON
Oxon OX14 4SD 7th April 1998
Dear Gerry
I believe Jan Harrison has already confirmed to you verbally that your request
for an increase in the gross overdraft limit for both Sterling and Currency
accounts has been increased to (P)1.5 million. In addition to this, I would also
confirm that I have obtained the agreement from my Credit Committee to reduce
------
the interest margin from 1.75% down to 1.5%. With regard to the Bonds,
- ------------------------------------------- -----
Guarantees and Indemnities limit of (P)1 million, this is now available to you
- ------------------------------------------------------------------------------
without the requirement for Cash Cover. We no longer need to hold (P) 700K in
- --------------------------------------
the bank as security for VAT payments. By way of security, the Bank will look
to the outstanding amount of any liabilities to be covered twice times by Good
Debtors after deducting Preferential Creditors.
In respect of the above amendments, I now enclose revised Facility Letters and,
subject to your agreement to the Terms and Conditions, I should be grateful if
you would arrange for the second copies to be signed and returned to this office
for my attention.
Finally, I would ask you to let me know if there are any other issues or service
concerns which you have.
With kind regards
Yours sincerely
/s/ ALLEN SPALDING
---------------
A F SPALDING
SENIOR CORPORATE MANAGER
<PAGE>
[LETTERHEAD OF BARCLAYS BANK PLC APPEARS HERE]
The Directors Your Ref: Allen Spalding
Microtouch Systems Limited Our Ref: 01923 482551
163 Milton Park Direct Dial:
Abingdon
Oxon
OX14 4SD
7th April 1998
Dear Sirs
We are pleased to advice you that Barclays Bank PLC (the "Bank") has agreed to
provide in aggregate short term facilities of up to (pounds)1,500,000 Gross (one
million five hundred thousand pounds sterling) and (pounds)Nil Net (the
"Facility") to Microtouch Systems Limited (the "Borrower") as detailed below.
The Schedules attached hereto form part of the terms and conditions of this
letter.
Following completion of the acceptance formalities detailed below, the Facility
will be available for drawing by the Borrower, subject to the following terms
and conditions:
1. (a) Options Available Within and Utilisation of the Facility
The Facility may be utilised by way of the following options and in
accordance with the provisions of the Schedules related thereto:
Sterling Overdraft (see Schedule A) and/or
Foreign Currency Overdraft (see Schedule A) and/or
Currency Money Market Loan (please see separate facility letter dated
3rd April 1998 for terms and conditions) and/or
Negotiation Facility (see Schedule B) and/or
Within the Facility the aggregate of the liabilities due, owing or
incurred thereunder shall not at any time exceed (pounds)1,500,000 (or
its currency equivalent).
The Sterling equivalent of the currencies utilised or available to be
utilised under the Facility may be calculated by the Bank at any time by
reference to the Bank's spot rate of exchange in the London Foreign Exchange
Market for the sale of the relevant currency or currencies for Sterling.
<PAGE>
(b) Ancillary Facilities ("the Facility")
BACS (pounds) 150,000 monthly
Company Barclayard (pounds) 10,000
Documentary Letters of Credit (pounds) 1,000,000 (see Schedule B)
Bonds (pounds) 1,000,000 (see Schedule B)
The Bank is also prepared to provide the Borrower with a Spot &
Forward Exchange Transaction facility of up to (pounds) 1,000,000
("the SFET") (the Facility) utilisation under the SFET shall be in
accordance with Schedule C attached hereto.
BusinessMaster II limits: (pounds) 4,910,000
Inter Account Transfer-Single transfer limit (pounds) 1,500,000
U.K.3 Day Payments
Monthly application limit
Salaries (pounds) 150,000
Fortnightly application limit
Trade payments (pounds) 350,000
International Payments
Single payment limit (pounds) 1,500,000
Daily limit (pounds) 1,500,000
2. Availability
All monies owing under the Facility are repayable upon written demand by
the Bank and/or any undrawn portion of the Facility may be cancelled by the
Bank, at any time. Following demand and/or cancellation, no further
utilisation may be made under the Facility.
The Borrower shall indemnify the Bank on demand against any loss or expense
which the Bank may reasonably sustain or incur as a consequence of making
such demand or as a consequence of non-performance by the Borrower or any
obligation under this letter.
Any monies not paid following a demand under this clause shall continue to
bear interest in respect of any outstanding interest period under the
Sterling Overdraft, and the Foreign Currency Overdraft as calculated in the
respective Schedules.
The Bank reserves the right, at any time following a demand under this
clause, to purchase with Sterling and currency necessary to convert any
amounts outstanding under the Facility, together with interest accrued
thereon, to Sterling, whereupon the Borrower shall then become liability to
pay the Bank forthwith the relevant Sterling amounts, together with all
costs and expenses incurred by the Bank. Interest will continue to be
charged as detailed above
<PAGE>
In the absence of demand or cancellation by the Bank, the Facilities are
available for utilisation until the 28 February 1999. However, the Bank will
be pleased to discuss the Borrower's future requirements shortly before that
date.
3. Fees
A lending fee of (Pounds)1500 is to be charged to the Borrower's current
account in quarterly amounts of (Pounds)375. Any subsequent monitoring and
control of borrowings will be subject to Management Time Charges. If the
Borrower's account exceeds the agreed Facility limit the Bank will normally
make separate additional charges to cover the cost incurred as a result.
4. Security and/or Guarantee(s)
The Borrower's obligations hereunder will be secured by:
a) The existing Debenture given on the Bank's standard form,
b) The existing Letter of Set-Off between all accounts held in the name of
Microtouch Systems Limited in sterling or any currency,
Letter of Credit exposure is to be fully cash covered in the same currency
as the relevant liability.
This security together with any other security which is now held, or
hereafter may be held, by the Bank will secure all moneys and liabilites
which shall from time to time be due, owing or incurred to the Bank by the
Borrower, whether actually or contingently.
The Bank reserves the right to obtain an up-to-date professional valuation
on any assets held as security at the Borrower's expense.
5. Information
The Borrower undertakes to provide the Bank with copies of.
a) audited Consolidated Profit and Loss account and Balances Sheet as soon
as they are available and not later than 180 days from the end of each
accounting reference period,
b) quarterly management accounts within 28 days of the quarter end, along
with any other information which the Bank may reasonably request from
time to time.
c) debenture figures on a quarterly basis. Outstanding Liabilities, based
on face amount of Bonds, Guarantees, and Indemnities to be covered twice
by good debtors (less than 90 days) after deducting preferential
creditors.
6. Change of Circumstances
<PAGE>
MICROTOUCH-SYSTEMS
MICROTOUCH
In the event of any change in applicable law or regulation or the existing
requirements of, or any new requirements being imposed by, the Bank of
England or other regulatory authority the result of which, in the sole
opinion of the Bank, is to increase the cost of it of funding, maintaining
or making available the Facility (or any undrawn amount thereof) or to
reduce the effective return to the Bank, then the Borrower shall pay to the
Bank such sum as may be certified by the Bank to the Borrower as shall
compensate the Bank for such increased cost or such reduction.
7. Set-Off
Any sum of money at any time standing to the credit of the Borrower with the
Bank in any currency upon any account or otherwise (whether or not any such
account is held in the Borrower's name) or provided to the Bank as cover for
any bills may be applied by the Bank at any time (without notice to the
Borrower) in or towards the discharge of any money or liabilities now or
hereafter due, owing or incurred to the Bank by the Borrower hereunder
(whether presently payable or not).
8. Currency Indemnity
If, for any reason, any amount payable to the Bank is received or recovered
in a currency other than the contractual currency in which it is due, then,
to the extent that the amount actually received or recovered by the Bank
(when converted to the Bank into the contractual currency, the Borrower
shall, as a separate and independent obligation, reimburse the Bank on
demand (on a full indemnity basis) for the amount of such shortfall.
9. Applicable Law
This letter shall be governed by and construed and take effect in accordance
with English Law.
10. Acceptance
Prior to the Facility being utilised, the Borrower shall provide the
Watford Corporate Banking Centre (the "Branch") with the following:
<PAGE>
(a) the enclosed duplicate of this letter duly signed on the Borrower's
behalf as evidence of acceptance of the terms and conditions stated
herein, and
(b) a certified true copy of a resolution of the Borrower's Board of
Directors:-
i. accepting the Facility on the terms and conditions stated herein,
ii. authorising a specified person, or persons, to sign and return to
the Bank the duplicate of this letter,
iii. authorising the Bank to accept instructions and confirmations in
connection with the Facility signed in accordance with the Bank's
signing mandate current from time to time.
(c) confirmed specimens of the signatures of those officers referred to in
b. ii above.
This offer will remain available for a period of one month from the date of this
letter after which it will lapse if not accepted.
Yours faithfully
FOR AND ON BEHALF OF
BARCLAYS BANK PLC
/s/ Allen Spalding
ALLEN SPALDING
SENIOR CORPORATE MANAGER
Accepted on the above terms and conditions contained therein, pursuant to a
resolution of the Board of Directors, a certified copy of which is attached
hereto.
FOR AND ON BEHALF OF
MICROTOUCH SYSTEMS LIMITED
/s/ R. SENIOR DIRECTOR
- -----------------------------
15 May 98 DATE
- -----------------------------
<PAGE>
Microtouch Systems Limited
- --------------------------
Minutes of a meeting of the Board of Directors held on 15/5/98 at 163 MILTON
PARK, ABINGDON.
PRESENT: R. SENIOR
G. DUFFY
There was produced to the meeting a Facility Letter dated 7th April 1998 from
Barclays Bank Plc. ("the Bank"), Corporate Banking Centre to the Company setting
out the terms and conditions upon which the Bank has agreed to provide in
aggregate short term facilities of up to (Pound)1,500,000.00 until 28th February
1999.
IT WAS RESOLVED
1. THAT the terms and conditions of the Facility as set out in the said
Facility Letter be and they are hereby approved and accepted.
2. THAT R. SENIOR be and hereby authorised to sign on behalf of the Company
the copy of the said Facility Letter to indicate acceptance of the terms
and conditions.
3. THAT the Bank be and is hereby authorised to act in all matters relating
to the Facility upon instructions from the Company signed in accordance
with the Bank's mandate for the Company's account with the Bank, current
from time to time.
I hereby certify the above to be true extract from the minutes of the Board of
Directors held on the date shown above.
/s/ R. SENIOR - Director Date: 15 May 98
............................... ...............................
G. Duffy 15/5/98
............................... ...............................
COMPANY SECRETARY
<PAGE>
SCHEDULE A
Sterling Overdraft
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The Sterling Overdraft will be available on the Borrower's current account at
the Branch with interest charge at a rate of 1.50% per annum over the Bank's
Base Rate current from time to time. Borrowing in excess of the agreed facility
will be charged at a rate of 15% over Barclays Base Rate. Interest together with
other charges will be debited to the Borrower's current account at the Branch
quarterly in arrears in March, June, September and December each year or at such
other times as may be determined by the Bank, and such interest will be
calculated on the basis of actual days elapsed over a 365 day year.
Foreign Currency Overdraft
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The Foreign Currency Overdraft will be made available in any currency (other
than sterling) as previously agreed by and arranged with the Bank, and which
currency is freely transferable and available to the Bank in the normal course
of business.
The Foreign Currency Overdraft will be available on the Borrower's foreign
currency account with interest charged at 1.50% per annum over the Bank's call
loan rate current from time to time. Interest together with other charges will
be debited to the Borrower's foreign currency account quarterly in arrears in
March, June, September and December each year or at such other times as may be
determined by the Bank, and such interest will be calculated on the basis of
actual days elapsed over a 360 day year.
<PAGE>
SCHEDULE B
Documentary Letters of Credit
- -----------------------------
The Bank is prepared to open Documentary Letters of Credit on instructions from
the Borrower to provide for the purchase of commodities as may be agreed by the
Bank from time to time. All Documentary Letters of Credit are issued subject to
the terms and conditions set out in the Bank's standard form for opening
Documentary Letters of Credit and are also subject to the "Uniform Customs and
Practice for Documentary Credits (1993 Revision)", or any subsequent revision
as issued by the International Chamber of Commerce. Pricing will be decided on a
case by case basis.
Guarantees, Bonds and Indemnities
- ---------------------------------
The Bank is prepared to consider issuing guarantees, bonds and indemnities on
behalf of the Borrower in respect of normally accepted and commercial
transactions, subject to prior agreement with the Bank and receipt of the
necessary counter indemnities. Pricing is agreed at 0.60%.
Negotiation of Sterling/Foreign Currency Cheques and Bills of Exchange Payable
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Abroad
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The Bank will purchase, with recourse, suitable foreign currency and sterling
cheques payable abroad and/or approved foreign currency or sterling bills of
exchange payable abroad. The suitability of those cheques and bills of exchange
which the Bank is prepared to purchase is entirely at the discretion of the
Bank, and is subject to the Uniform Rules for the Collection of Commercial Paper
(1996 REvision). Pricing will be decided on a case by case basis.
<PAGE>
SCHEDULE C
SFET
- ----
The SFET facility covers the maximum liability of the Borrower to the Bank
outstanding at any time under contracts of not more than 12 months duration for
the forward purchase of sale of foreign currency for delivery at a future date
and spot purchase or sale of foreign currencies, but excludes purchases or sales
where the Bank is required irrevocably to pay away funds prior to receiving firm
confirmation of incoming cover.
When wishing to utilise the SFET facility the Borrower should telephone St
Albans International Banking Centre on 01727 775659/5660. All payments and
delivery instructions are to be advised to and processed by the Branch and
confirmed by letter at the earliest opportunity.
<PAGE>
EUROCURRENCY LOAN AGREEMENT (Corporate)
We are pleased to advise you that Barclays Bank PLC ("the Bank") has agreed to
provide a medium term eurocurrency loan facility ("the Facility") upon and
subject to the terms and conditions set out below and overleaf and the attached
Special Conditions, if any, to:
NAME MICROTOUCH SYSTEMS LIMITED ADDRESS 163 MILTON PARK
------------------------------ ---------------------------------
ABINGDON
------------------------------ ---------------------------------
OXON OX14 4SD
------------------------------ ------------------("The Borrower")
Full names of company as registered
- --------------------------------------------------------------------------------
THE LOAN AND DRAWDOWN
Deutschemark/French Franc/
Currency: (the "Currency")
Amount:" OR
-----------------------------------------------------------
Please see facility letter dated 7 April 1998
"The Currency equivalent of (P)
----------------------
The aggregate principal amount advanced (including any capitalised interest) and
for the time being outstanding in the Currency, or (if converted under condition
II overleaf) in sterling, is referred to as the "Loan."
The Facility may be drawn, following completion of the acceptance formalities
and any security formalities in each case as set out herein, "in one amount OR
"in Minimum amounts and multiples of ("the Currency equivalent of)
-------------
by 28/12/99 after which date the Bank's commitment to provide any undrawn amount
---------
will lapse.
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PURPOSE OF LOAN
To cover translation risk on trading by subsidiary companies.
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REPAYMENT
The Loan will be repaid in the following installments (subject to adjustment
under condition 7 overleaf where applicable):
"Installments of principal ("the Currency equivalent of)
----------------------
By expiry of this facility on 28th February 1999
OR
"as a single repayment in full on the rollover of the facility (with interst
paid separately).
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PREPAYMENT
- --------------------------------------------------------------------------------
FEES
(a) A negotiation of NIL payable on acceptance of this offer.
--------
(b) A commitment fee of NIL % p.a. payable in accordance with condition 4
---------
overleaf.
- --------------------------------------------------------------------------------
INTEREST
Rate: 1.50 % p.a.
------
over the rate at which deposits in the relevant currency are offered to the Bank
in the London Inter-Bank Market two Business Days prior to the first day of an
Interest Period for value on such date for a similar amount and Interest Period
("LIBOR").
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SECURITY/GUARANTEE(S)
The Loan is to be secured/guaranteed by:
See facility letter dated 7 April 1998. All currency borrowing is to be fully
- --------------------------------------------------------------------------------
cash covered by credit balances charged on the Bank's standard form.
- ------------------------------------------------------------------
and any other security which is now held or hereafter may be held by the Bank,
all of which is to secure all money and liabilities which shall from time to
time be due, owing or incurred, whether actual or contingent, to the Bank by the
Borrower.
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UNDERTAKINGS
The undertaking set out under condition 9 overleaf "will not apply. or "will
apply as follows":
"9(a) with the reference to Subsidiaries applying to
"ALL Subsidiaries, and
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SPECIAL CONDITIONS
"The enclosed Special Conditions sheet(s) form(s) part of this Agreement".
- --------------------------------------------------------------------------------
THIS OFFER WILL LAPSE IF NOT ACCEPTED WITHIN ONE MONTH OF THE DATE SHOWN BELOW.
- --------------------------------------------------------------------------------
SIGNATURES
for BARCLAYS BANK PLC
This offer is accepted by the Borrower
By /s/ Signature appear here
-----------------------------------------------------------------------------
FOR AND ON BEHALF OF MICROTOUCH SYSTEMS LTD.
-----------------------------------------------------------------------------
DATE 15 MAY 98
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Borrower should return the top copy together with a CERTIFIED true copy of a
Board Resolution (as detailed over) and the attached unammended duplicate
Special Conditions (white), if any, and retain the bottom copy of the offer
letter and the copy, if any, of the Special Conditions (pink). Blue copies to
be retained by branch.
*Delete as appropriate ____ Insert as appropriate
<PAGE>
Exhibit 21
MICROTOUCH SYSTEMS, INC.
SUBSIDIARIES OF THE REGISTRANT
Name Jurisdiction
MicroTouch Systems, Ltd. United Kingdom of Britain
MicroTouch Systems, Pty., Ltd. Australia
MicroTouch Systems, Ltd. Hong Kong
MicroTouch Systems, Inc. Taiwan
MicroTouch Systems, KK Japan
MicroTouch Systems, SARL France
MicroTouch Systems, GMBH Germany
MicroTouch Systems, SRL Italy
MicroTouch Systems, SL Spain
MicroTouch Resistive Products, Inc. Texas, U.S.A.
MicroTouch Investments, Inc. Massachusetts, U.S.A.
MicroTouch FSC Saipan
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated January 22, 1999, included in this Form 10-K, into the Company's
previously filed Registration Statements on Form S-8, File Nos. 33-80436, 33-
94268, 33-94284, 333-65523, 333-36439.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 22 , 1999
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<PAGE>
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<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<CASH> 9,477 5,471
<SECURITIES> 25,274 32,191
<RECEIVABLES> 22,517 28,220
<ALLOWANCES> 5,169 4,955
<INVENTORY> 19,075 15,954
<CURRENT-ASSETS> 79,154 84,935
<PP&E> 20,513 28,339
<DEPRECIATION> 7,205 10,887
<TOTAL-ASSETS> 94,837 104,345
<CURRENT-LIABILITIES> 15,889 25,875
<BONDS> 0 0
0 0
0 0
<COMMON> 82 82
<OTHER-SE> 78,866 78,369
<TOTAL-LIABILITY-AND-EQUITY> 94,837 104,345
<SALES> 128,481 144,370
<TOTAL-REVENUES> 128,481 144,370
<CGS> 83,553 88,950
<TOTAL-COSTS> 83,553 88,950
<OTHER-EXPENSES> 35,029 40,980
<LOSS-PROVISION> 155 529
<INTEREST-EXPENSE> 30 135
<INCOME-PRETAX> 9,741 13,776
<INCOME-TAX> 3,330 4,408
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,411 9,368
<EPS-PRIMARY> 0.81 1.22
<EPS-DILUTED> 0.77 1.20
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