<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
[_]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-17995
AMTECH CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 75-2216818
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION
NUMBER)
19111 DALLAS PARKWAY
SUITE 300
DALLAS, TEXAS 75287-3106
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(972) 733-6600
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE NOT APPLICABLE
(TITLE OF CLASS) (NAME OF EXCHANGE ON WHICH
REGISTERED)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK
$0.01 PAR VALUE
(TITLE OF CLASS)
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. [X]
As of February 27, 1998, there were 16,944,563 shares of Amtech Corporation
$0.01 par value Common Stock outstanding, 14,382,766 of which having an
aggregate market value of $49,440,758 were held by non-affiliates. For
purposes of the above statement, all directors and officers of the Registrant
are presumed to be affiliates.
Portions of the Proxy Statement for the Registrant's 1998 Annual Meeting of
Shareholders are incorporated by reference into Part III of this Form 10-K.
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<PAGE>
PART I
ITEM 1. BUSINESS.
OVERVIEW
Amtech Corporation (the "Company") designs, manufactures, markets, installs
and supports a wide array of the Company's proprietary wireless data and
security technology products and solutions for a variety of industries. These
products and solutions make high-value assets and scarce resources more
productive and secure. Today, the Company is a leading global supplier of
wireless data technologies and solutions for the intelligent transportation
and electronic security markets. The Company is organized into two market-
oriented groups, each with a core competency in a radio frequency technology:
the Electronic Security Group ("ESG"), encompassing the Cardkey Systems and
Cotag International product and service lines, and the Transportation Systems
Group ("TSG"), comprised of Amtech Systems Corporation, Amtech International
S.A. and Amtech World Corporation. In July 1997, the Company withdrew from the
wireless LAN terminal market and sold its Interactive Data Group ("IDG")
business, formerly comprised of WaveNet, Inc. and WaveNet International, Inc.,
in November 1997. The Company also continues to explore new markets and
business opportunities based on these core competencies.
Effective November 3, 1997, the Company and UNOVA, Inc. ("UNOVA") entered
into an agreement whereby UNOVA purchased 2,211,900 shares of the Company's
common stock for $10,000,000 in a private placement transaction, and the
Company and UNOVA agreed to negotiate in good faith a strategic alliance
relationship which contemplated product development. The parties were unable
to conclude on mutually agreeable terms the contemplated strategic
relationship and related product development undertaking. Subsequent to the
conclusion of these negotiations, the Company and UNOVA have begun discussions
regarding other possible business arrangements.
The Company was incorporated in Texas in 1988. The Company's executive
offices are located at 19111 Dallas Parkway, Suite 300, Dallas, Texas 75287-
3106 (telephone (972) 733-6600). The Company has seven directly wholly-owned
operating subsidiaries: Amtech Systems Corporation; Amtech World Corporation;
AMGT Corporation; Amtech International S.A.; Cardkey Systems, Inc.; Amtech
Europe Limited; and Cardkey Systems Pacific Pty. Limited.
MARKET GROUPS
Electronic Security Group ("ESG")
The Company's ESG, whose principal offices are located in Cambridge and
Reading, England, and in Simi Valley, California, designs, manufactures,
markets, installs and supports its electronic security equipment and full-
service solutions for electronic security needs to corporate and government
markets throughout the world. The ESG's products and services are marketed
under the "Cardkey(R)" and "Cotag(R)" brand-names directly to end users and
through resellers. Primary target markets are as follows: electronic access
control; other facilities management applications such as video badging,
attendance management, and alarm monitoring; and healthcare security. In 1997,
the ESG accounted for approximately 55% of the Company's sales.
Cardkey, whose name has been synonymous with access control for nearly 50
years, is a leading supplier of electronic access control and integrated
security management solutions, which it sells through a global network of
direct sales offices and resellers. Cardkey has supplied products and systems
to thousands of corporate, as well as national and state government,
customers. Representative customers include the Coca-Cola Company; CNN, a
subsidiary of Time/Warner System, Inc.; Sony Corporation; Schering--Plough;
Tennessee Valley Authority; Pharmacia & Upjohn; and Toyota Motor Corporation.
1
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Cotag specializes in advanced hands-free proximity cards, tags and readers
and has developed systems using these products for electronic access control
and security management, which it sells through a global network of resellers
and installers. Cotag's applications of low frequency electronic radio
frequency identification ("RFID") technology have made it a leader in hands-
free proximity devices. Representative users of Cotag's products include
Barclays Bank; Beijing International Airport; Brussels National Airport;
Compaq Computers; EDS (Electronic Data Systems); Nortel (Northern Telecom,
Inc.); and Tennessee Valley Authority.
The ESG's radio frequency proximity electronic security technologies compete
against a variety of "traditional" modes of security access control, such as
magnetic stripe cards and Wiegand cards. There are thousands of suppliers of
magnetic stripe cards but relatively few suppliers of Wiegand cards. Within
the proximity segment of the security access control market, there are
numerous suppliers, including HID Corporation, which is believed to be the
dominant supplier of proximity security equipment and is considerably larger
than Cotag. The market for the ESG's full-service solutions for electronic
security needs is served by a variety of suppliers, and hence is extremely
competitive. The Company believes that the principal competitive factors in
the ESG's market are brand-name identification, product performance, quality,
price and customer service.
The ESG employs nearly 450 people. Some ESG products (including hands-free
proximity cards and readers) are manufactured at the Company's manufacturing
facility located in Cambridge, England, which is registered by the British
Standards Institute to the International Standards Organization ("ISO") 9002
standard for quality management systems. Other system components (including
certain non-hands-free cards and readers) are manufactured and supplied by
third parties in the United States and Europe. Cardkey's full-service
solutions for electronic security needs also meet Underwriters Laboratories'
standards 1076 and 294. Final assembly and test of certain products takes
place at the ESG facility in Simi Valley, California.
Transportation Systems Group ("TSG")
The Company's TSG, whose principal offices are located in Dallas, Texas, and
Albuquerque, New Mexico, designs, manufactures, markets, installs and supports
wireless equipment and systems that permit the remote identification of, and
communication with, objects through the use of high frequency radio frequency
signals rather than bar codes, magnetic cards or other means. When an object
with an attached tag passes through an area covered by a reader, data is
electronically retrieved from, or written to, the tag through the Company's
patented implementation of a technique referred to as "modulated backscatter."
These products, which are marketed under the "Amtech(R)" brand-name, directly
and through resellers, are targeted primarily to the electronic toll
collection and traffic management ("ETTM"); motor freight; access control for
parking, security, airports and ground transportation; rail; and intermodal
markets and is the foundation for today's intelligent transportation systems.
In 1997, the TSG accounted for 43% of the Company's sales.
The Company has been selected to provide solutions and equipment for more
than 35 ETTM systems worldwide and has distributed more than 2,200,000 tags
for ETTM use alone. The TSG's electronic toll collection ("ETC") automated
systems not only increase convenience, traffic flow, and safety for motorists,
they also reduce operating costs for toll operators, traffic congestion,
commute times, fuel costs, pollution and need for new roads. The TSG's
electronic traffic monitoring and management systems help manage congestion
and improve traffic flow by automatically providing current data on traffic
flows. The TSG's products also allow motor freight fleets to operate more
efficiently and profitably with functions such as electronic pre-clearance,
on-board safety monitoring, hazardous materials incident response, weigh-in
motion, automated fuel distribution and electronic vehicle number and driver
interface. The TSG's wireless technology automatically tracks, identifies, and
monitors cargo in trucks, thus increasing equipment use and reducing re-
handles, dwell time and overhead. The variety of competing systems have
resulted in intense competition and low margins.
In January 1997, the TSG was awarded a multi-year $38,600,000 contract by
the Florida Department of Transportation ("FDOT") to install a state-wide ETC
system. The FDOT system will head the TSG's growing list of large-scale ETC
systems worldwide, including installations in New York and Oklahoma, as well
as
2
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systems in place in Hong Kong, Spain, Brazil, Argentina, France, Mexico,
Thailand and the United Kingdom. The TSG recorded a contract loss provision of
$5,700,000 in the fourth quarter of 1997 relating to its FDOT contract based
upon anticipated contract cost growth primarily attributable to schedule
delays and increased design and installation costs estimates. See "ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
The TSG's wireless identification technology is also used to automatically
identify and monitor rail and intermodal equipment, allowing companies to
track and monitor their equipment and the cargo in containers and railcars
more effectively. The TSG's systems help increase asset utilization rates and
reduce re-handles, dwell time and overhead. In addition to railcar and
equipment tracking, these automatic equipment identification ("AEI") systems
provide many benefits, including nonstop, hands-free, paperless gate control
access; perpetual inventory control and yard management; train positioning,
classification, and status; automated data collection, fuel terminal
authorization and record management; chassis management; train automatic
weigh-in motion; reduced maintenance; and improved customer relations. More
than 95% of all railcars in interchange service in North America are being
tracked with the TSG's wireless identification system. In addition to AEI, the
TSG's automatic equipment monitoring ("AEM") systems, which are primarily
targeted to the rail and intermodal market, provide quick, accurate data to
streamline preventive maintenance and to utilize and manage equipment. The TSG
has provided over 3,700,000 tags and 6,000 readers worldwide for the rail
industry.
The TSG's wireless identification technology provides nonstop, hands-free
and paperless systems for revenue collection and access control for parking,
security, airports and ground transportation, thus maximizing traffic flow,
reducing overhead costs and increasing cost recovery. The TSG is recognized
worldwide as the leader in wireless identification technology systems for, and
provides viable solutions to, the airport ground-based traffic problems of
today and tomorrow. More than a dozen international airports use the TSG's
wireless identification technology system for tracking and controlling
commercial ground transportation vehicles, while simultaneously recognizing
vast improvements in revenue collection and reductions in congestion. The
TSG's systems provide accurate entry and exit records for collection of
parking and usage fees and determining dwell times within the airport terminal
area. With the wireless identification technologies noted above, traffic flow
information can also be collected continuously from electronic RFID tags
onboard motorists' vehicles. The TSG's wireless identification technology
system also provides businesses and communities with authorized, controlled
access and security, as well as automatic administering of daily and monthly
parking fees. The TSG has parking and access control, as well as ground
transportation, installations throughout the United States, Korea, Japan and
the United Kingdom. The fragmented nature of the parking and access control,
airport, and ground transportation markets, the absence of industry-wide
standards, and the variety of competing systems have resulted in intense
competition and low margins in this business.
The TSG's technology is compatible with a variety of national and
international standards, as follows: (i) the standard for AEI adopted by the
Association of American Railroads ("AAR"), which requires that all railcars,
locomotives and other rail equipment operating in interchange service in North
America be equipped with two AEI tags; (ii) the standard for AEI adopted by
the Union Internationale des Chemins de fer ("UIC"), which selected the TSG's
high-speed read/write Dynicom(TM) RFID technology as a standard for the UIC's
32-member railroads in greater Europe that choose to implement AEI for
international vehicles; (iii) the international standard for automatic
identification of intermodal containers adopted by the ISO; (iv) the national
standard for automatic identification of intermodal containers adopted by the
American National Standards Institute ("ANSI"); and (v) the standard adopted
by the American Trucking Associations ("ATA") for automatic equipment
identification of tractors, trailers and related motor carrier equipment.
Except for the mandatory AEI standard adopted by the AAR, compliance with the
standards outlined above is voluntary. Taken together, however, the TSG
believes these standards create a disincentive for participants in these
markets to make significant investments in systems that are not compatible
with the standards.
The TSG has committed to the AAR, ISO, ANSI and the UIC that, if requested,
it will license certain technology underlying the standard on reasonable
commercial terms to qualified companies. Pursuant to the commitment to the
ISO, the Company has granted non-exclusive licenses to certain of the TSG's
technologies
3
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for intermodal container identification applications to Savi Technology, Inc.
and Thomson-CSF Communications. Also, pursuant to its commitment to the UIC,
the Company has granted non-exclusive licenses to ABB Signal AB and Thomson-
CSF, S.A. to certain of the TSG's Dynicom technologies for European railroad
applications. The Company has also granted Alcatel Schweiz, AG and GEC Alsthom
Transport, S.A., affiliates of Alcatel AVI, S.A., the Company's former
European joint venture partner, an option to acquire non-exclusive licenses to
certain of the TSG's technologies for intermodal container and European
railroad identification applications.
The ETTM and motor freight markets are extremely competitive. The TSG has
not encountered any material competition from competing AEI manufacturers in
offering its AEI systems to the rail and intermodal markets, since the TSG's
AEI equipment and systems are the only products that, to the TSG's knowledge,
comply with the AEI industry standards referenced above. Significant
competition in providing AEI systems to the rail and intermodal markets may be
encountered in the future to the extent that licenses are granted to competing
vendors pursuant to the license offers noted above or alternate technology
solutions become viable. The Company believes that the principal competitive
factors in the TSG's markets are price, product performance, quality, brand-
name identification and customer service.
The TSG employs approximately 350 employees. The TSG's products are
manufactured at the Company's 75,000 square-foot manufacturing facility
located in Albuquerque, New Mexico. The TSG, including its manufacturing
process, is quality-certified by the AAR to its Quality Standard M-1003 and by
the ISO to its 9001 Quality Standard certification for the field of
electronics.
RESEARCH AND DEVELOPMENT; PATENTS AND TRADEMARKS
Research and development expenses for the Company amounted to $11,332,000,
$10,314,000 and $9,334,000 in 1997, 1996 and 1995, respectively.
The Company owns numerous patents and has filed patent applications in the
United States and a number of foreign countries covering features of the
Company's tags and reader systems and specific products marketed by the TSG
and ESG, as well as certain other market applications for such products.
Although management believes that its patents provide some competitive
advantages, the Company believes that its success is primarily dependent on
the skills, technical competence and marketing abilities of the Company's
personnel. In addition, "Amtech," "Cardkey," "Cotag," "Dynicom," "PassKey,"
"Tolltag," "Granta," "Pegasys" and other marks are registered trademarks of
the Company in the United States and various foreign countries. The Company
also licenses certain cryptographic technologies from a third party.
CUSTOMERS
During 1997, no customer accounted for 10% or more of sales.
SALES BACKLOG
The Company's backlog, calculated as the aggregate of sales prices of orders
received from customers, less revenue recognized, was approximately
$60,500,000 at February 28, 1998, as compared with approximately $44,000,000
at February 28, 1997. Approximately 80% of the February 28, 1998, backlog is
anticipated to be realized as revenue in 1998.
4
<PAGE>
GEOGRAPHIC INFORMATION AND EXPORT SALES
The following table presents information about the Company's operations in
different geographic areas for the indicated years (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------
CANADA
U.S. EUROPE AND OTHER ELIMINATIONS TOTAL
-------- ------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
Sales:
Unaffiliated customers.... $ 85,213 $31,370 $ 1,123 $ -- $117,706
Inter-area transfers...... 2,751 1,683 -- (4,434) --
-------- ------- ------- ------- --------
$ 87,964 $33,053 $ 1,123 $(4,434) $117,706
======== ======= ======= ======= ========
Operating loss.............. $(14,248) $ (375) $(1,175) $ -- $(15,798)
======== ======= ======= ======= ========
Identifiable assets......... $ 71,388 $13,793 $ 342 $ -- $ 85,523
======== ======= ======= ======= ========
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------
CANADA
U.S. EUROPE AND OTHER ELIMINATIONS TOTAL
-------- ------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
Sales:
Unaffiliated customers.... $ 85,923 $28,743 $ 1,842 $ -- $116,508
Inter-area transfers...... 2,476 2,220 173 (4,869) --
-------- ------- ------- ------- --------
$ 88,399 $30,963 $ 2,015 $(4,869) $116,508
======== ======= ======= ======= ========
Operating loss.............. $ (1,008) $ (927) $(1,213) $ -- $ (3,148)
======== ======= ======= ======= ========
Identifiable assets......... $ 73,624 $15,233 $ 2,184 $ -- $ 91,041
======== ======= ======= ======= ========
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------
CANADA
U.S. EUROPE AND OTHER ELIMINATIONS TOTAL
-------- ------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
Sales:
Unaffiliated customers.... $ 64,916 $14,763 $ 392 $ -- $ 80,071
Inter-area transfers...... 586 230 208 (1,024) --
-------- ------- ------- ------- --------
$ 65,502 $14,993 $ 600 $(1,024) $ 80,071
======== ======= ======= ======= ========
Operating loss.............. $ (2,488) $(2,182) $(1,372) $ -- $ (6,042)
======== ======= ======= ======= ========
Identifiable assets......... $ 78,863 $12,803 $ 1,713 $ -- $ 93,379
======== ======= ======= ======= ========
</TABLE>
Sales and transfers between geographic areas were generally priced to
recover cost plus an appropriate mark-up for profit. These inter-area
transfers were eliminated from consolidated sales.
United States export sales summarized by geographic area are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
The Americas (excluding the U.S.).......... $ 6,509,000 $ 7,998,000 $ 6,593,000
Far East................................... 3,630,000 5,434,000 3,938,000
Europe..................................... 1,416,000 1,340,000 2,867,000
----------- ----------- -----------
$11,555,000 $14,772,000 $13,398,000
=========== =========== ===========
</TABLE>
5
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GOVERNMENT REGULATION
The Federal Communications Commission ("FCC") regulates the radio frequency
emissions of electronic devices in the United States. The FCC generally
requires that certain of the Company's products be issued a grant of equipment
authorization before the products may be marketed for use in the United States
(i.e., imported, sold, leased or advertised for sale or lease). To date, the
TSG's and ESG's products have been demonstrated to operate within the FCC's
regulatory standards. Furthermore, the FCC requires that a license be obtained
for each site at which certain of the TSG's products are to be installed or
used. Neither the TSG, the ESG, nor to the Company's knowledge, their
customers, have experienced any material difficulty in operating the products
in compliance with relevant FCC regulations or in obtaining the necessary site
licenses.
Many foreign jurisdictions also require "type approval" by radio regulatory
agencies prior to the sale or shipment of radio frequency transmitting
products, as well as an operating license for each site. Type approvals have
been obtained for the TSG's and the ESG's products in many of the major
industrial nations in the world, and the Company believes that these products
can be readily adapted to applicable regulations in most, if not all, other
countries.
The Company's products are required to operate within established national
and international standards for electrical safety and radio frequency non-
ionizing radiation emissions promulgated by, among others, the European Union,
the FCC, the Occupational Safety and Health Administration and the
International Electrotechnical Commission. In addition, there are other
applicable safety standards such as those of the Underwriters Laboratories.
ITEM 2. PROPERTIES.
The Company leases approximately 60,000 square feet of space for its and the
TSG's corporate offices and a branch office for the ESG in Dallas, Texas,
under a lease that expires in November 2007. The TSG also owns an
approximately 75,000 square foot manufacturing, product engineering, and
research and development facility located on an 8.33 acre site in Albuquerque,
New Mexico. The ESG has two facilities used for manufacturing and corporate
offices in Cambridge, England, of approximately 15,800 and 11,800 square feet
under, respectively, a lease expiring in 2005 with a termination option in
December 2000, and a 125-year ground lease that commenced in September 1979.
The ESG also has two facilities used for corporate offices in Reading,
England, of approximately 23,200 and 13,400 square feet under 25-year ground
leases that commenced in 1979. In addition, the ESG leases an approximately
48,000 square foot corporate office and product assembly facility in Simi
Valley, California, under a five-year lease that commenced in October 1995.
The Company also leases a variety of smaller office spaces in various
locations throughout the United States, Europe, and Australia.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
None.
6
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The Company's common stock trades on The Nasdaq Stock Market under the
symbol AMTC. The following table shows the high and low sales prices by
quarter for 1997 and 1996. These prices do not include adjustments for retail
mark-ups, mark-downs or commissions.
<TABLE>
<CAPTION>
1997 1996
----------- -----------
QUARTER ENDED HIGH LOW HIGH LOW
------------- ----- ----- ----- -----
<S> <C> <C> <C> <C>
March 31........................................... $8.38 $5.63 $6.75 $5.13
June 30............................................ $6.13 $4.00 $9.88 $5.38
September 30....................................... $5.13 $4.25 $8.38 $5.50
December 31........................................ $5.63 $3.69 $8.25 $5.75
</TABLE>
Effective November 3, 1997, the Company and UNOVA entered into an agreement
whereby UNOVA purchased 2,211,900 shares of the Company's common stock for
$10,000,000 in a private placement transaction. See "PART I, ITEM 1.,
OVERVIEW." The shares were issued in a transaction exempt from registration
under the Securities Act of 1933 by virtue of Section 4(2) thereof and
Regulation D thereunder. The proceeds realized from the issuance of the shares
are being used for the Company's general working capital purposes. The shares
issued to UNOVA carry piggyback registration rights and three demand
registration rights. The demand registration rights are immediately
exercisable, but may not be exercised unless the gross proceeds of sale are
expected to yield at least $8,000,000. The demand registration rights expire
on the fifth anniversary of the issuance of the shares or at such time as
UNOVA ceases to hold at least 5% of the Company's outstanding shares,
whichever is earlier.
At February 27, 1998, there were 16,944,563 shares of common stock
outstanding held by 678 stockholders of record. On that date, the last
reported sales price of the common stock was $3.44.
The Company suspended its payment of dividends after the quarter ended March
31, 1995. Future dividends, if any, are dependent on the Company's future
earnings, capital requirements, and overall financial condition.
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected financial data regarding the
Company's results of operations and financial position for, and as of the end
of, each of the years in the five-year period ended December 31, 1997, which
are derived from the consolidated financial statements of the Company and its
subsidiaries, which have been audited. The consolidated financial statements
and notes thereto as of December 31, 1997 and 1996, and for the years ended
December 31, 1997, 1996 and 1995, and the report of Ernst & Young LLP thereon
are included elsewhere in this Annual Report. The selected financial data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements and notes thereto included elsewhere herein.
7
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1997 1996 1995(3) 1994 1993
-------- -------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales............................. $117,706 $116,508 $80,071 $61,457 $59,424
Operating costs and expenses(1):
Cost of sales................... 80,557 68,055 53,656 31,288 28,678
Research and development........ 11,332 10,314 9,334 6,222 4,407
Marketing, general and
administrative................. 41,615 41,287 23,123 13,991 13,978
-------- -------- ------- ------- -------
133,504 119,656 86,113 51,501 47,063
-------- -------- ------- ------- -------
Operating income (loss)........... (15,798) (3,148) (6,042) 9,956 12,361
Investment income................. 1,133 3,065 2,308 2,104 1,735
Interest expense.................. (65) (272) (181) -- --
-------- -------- ------- ------- -------
Income (loss) before income taxes
and cumulative effect of change
in accounting for income taxes... (14,730) (355) (3,915) 12,060 14,096
Provision for income taxes(2)..... 2,887 289 172 4,398 3,729
-------- -------- ------- ------- -------
Income (loss) before cumulative
effect of change in accounting
for income taxes................. (17,617) (644) (4,087) 7,662 10,367
Cumulative effect of change in
accounting for income taxes...... -- -- -- -- 6,000
-------- -------- ------- ------- -------
Net income (loss)................. $(17,617) $ (644) $(4,087) $ 7,662 $16,367
======== ======== ======= ======= =======
Earnings (loss) per share(4)(5)
Basic............................ $ (1.17) $ (0.04) $ (0.28) $ 0.52 $ 1.13
Diluted.......................... $ (1.17) $ (0.04) $ (0.28) $ 0.52 $ 1.11
Shares used in computing earnings
(loss) per share
Basic............................ 15,081 14,637 14,655 14,596 14,471
Diluted.......................... 15,081 14,637 14,655 14,764 14,756
Cash dividends declared per common
share............................ -- -- $ 0.02 $ 0.08 $ 0.06
BALANCE SHEET DATA:
Working capital................... $ 38,465 $ 43,047 $49,349 $63,558 $47,625
Total assets...................... 85,523 91,041 93,379 80,622 76,720
Total stockholders' equity........ 63,696 71,756 72,561 75,336 66,805
Stockholders' equity per share.... 3.76 4.87 4.97 5.16 4.59
</TABLE>
- --------
(1) Operating costs and expenses for 1997 include special charges of $3.8
million related to the disposition of the Company's Interactive Data Group
and a $5.7 million contract loss provision related to a multi-year
implementation of an electronic toll collection system by the Company's
Transportation Systems Group.
(2) In 1997, the provision for income taxes includes $4.7 million representing
the effect of establishing a valuation allowance for U.S. deferred tax
assets at the end of the second quarter.
(3) In 1995, the Company acquired Cotag International Limited, Cardkey
Systems, Inc., Cardkey Systems Limited (collectively, the Company's
Electronic Security Group) and WaveNet International, Inc., which
established the Company's Interactive Data Group.
(4) Amount for 1993 includes the cumulative effect of a change in accounting
for income taxes which increased basic and diluted earnings per share by
$0.41 and $0.40, respectively.
(5) Earnings per share amounts for all periods have been restated and
presented to conform to Statement of Financial Accounting Standards No.
128, "Earnings Per Share."
8
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
The Company is currently organized into two market-oriented groups. The
Transportation Systems Group ("TSG"), which includes Amtech Systems
Corporation, Amtech World Corporation and Amtech International S.A., develops
and provides high-frequency radio frequency identification solutions to the
transportation markets. These markets include electronic toll and traffic
management ("ETTM"), rail, airport, parking and access control, intermodal and
motor freight. In October 1996, the Company acquired the remaining 51%
interest in its European joint venture, Amtech International S.A. Prior to
October 1996, the Company accounted for its investment in Amtech International
using the equity method of accounting. Since October 1996, the Company has
included 100% of Amtech International's accounts in its consolidated financial
statements.
The Electronic Security Group ("ESG"), which focuses on products and
services for electronic access control applications, includes Amtech Europe
Limited and Cardkey Systems, Inc. Amtech Europe Limited combines Cotag
International Limited (acquired in January 1995) and Cardkey Systems Limited
(acquired in August 1995 along with Cardkey Systems, Inc.). The 1995
acquisitions impact the comparability of the Company's 1996 results with those
of 1995.
The Interactive Data Group ("IDG"), consisting of WaveNet, Inc. and WaveNet
International, Inc. (collectively, "WaveNet"), was an enterprise started in
1995 to develop a line of products targeted to the interactive data
marketplace consisting of mobile radio frequency data communications terminals
using wireless local area networks for use in portable computing in logistics,
warehousing, transportation, and medical applications. The Company sold its
IDG business in late 1997 and recorded special charges of $3,725,000 for
employee severance costs, winding-up of operating activities and the writedown
of assets to their net realizable values.
RESULTS OF OPERATIONS
Comparison of the Year Ended December 31, 1997 to the Year Ended December 31,
1996
Sales--Sales increased slightly from $116,508,000 in 1996 to $117,706,000 in
1997. Sales for the ESG increased from $63,393,000 in 1996 to $65,265,000 in
1997 primarily in its U.S.-based operations. The TSG's sales decreased from
$51,490,000 in 1996 to $50,745,000 in 1997 as sales under a single systems
integration services contract decreased from $12,682,000 in 1996 to $5,277,000
in 1997, which was substantially offset by inclusion of the sales of Amtech
International S.A. for the full year.
Gross profit--Gross profit as a percentage of sales decreased from 42% in
1996 to 32% in 1997, primarily due to a 1997 contract loss provision of
$5,700,000 related to the TSG's Florida Department of Transportation ("FDOT")
electronic toll collection system contract attributable primarily to schedule
delays and projected increases in design and installation costs. Also
affecting the decrease are special charges of $1,800,000 to adjust certain IDG
assets to their net realizable values. Excluding the effect of these special
charges, the Company's gross profit margin would have been 38% in 1997. The
TSG's gross profit margin decreased from 37% in 1996 to 32% in 1997, exclusive
of the special contract charge in 1997, primarily due to a reduction in the
percentage of TSG sales attributable to its manufactured products, and a
larger percentage of TSG sales being attributable to lower margin systems
integration project work in the ETTM market. The ESG's gross profit margin was
41% in 1997 compared to 42% in 1996.
In the first quarter of 1997, the TSG was awarded a multi-year contract by
the FDOT for an estimated $38,600,000 to design, install, and maintain a
state-of-the-art electronic toll collection system. At year end 1997, while
only approximately 10% of the projected overall contract cost has been
incurred, management's estimate of the costs to complete the contract exceeds
the contract revenues by approximately $5,700,000. As a result, the Company
recorded a fourth quarter 1997 contract loss provision of $5,700,000 which
will cause gross profit margins in 1998, 1999, and 2000 to be negatively
impacted as significant FDOT revenues are recorded with no
9
<PAGE>
margin. The on-going assessment of the estimated costs to complete this multi-
year contract requires significant judgment by management. Actual results
could differ from current estimates.
Research and development--Research and development expenses increased by 10%
from $10,314,000 in 1996 to $11,332,000 in 1997, primarily due to an increase
in development activities in the TSG including its next generation read/write
electronic toll collection products. Expenditures by the TSG increased from
$5,183,000 in 1996 to $6,698,000 in 1997. This increase was partially offset
by a reduction of approximately $450,000 in IDG expenditures due to its
disposal in 1997.
Marketing, general and administrative--Marketing, general and administrative
expenses increased less than 1% from $41,287,000 in 1996 to $41,615,000 in
1997. The increase is primarily due to special charges of $1,725,000 relating
to the IDG for employee severance costs, winding-up of operating activities
and adjusting certain assets to their estimated net realizable values. This
increase was partially offset by an $843,000 decrease attributable to the TSG
and ESG for certain cost reductions and overall expense controls affecting
discretionary expenditures.
Operating loss--As a result of the foregoing, the Company experienced total
operating losses of $15,798,000 in 1997 as compared to $3,148,000 in 1996.
Only the ESG recorded a profit from operations in 1997.
Investment income--Investment income decreased from $3,065,000 in 1996 to
$1,133,000 in 1997, primarily attributable to non-recurring gains of
$2,150,000 realized in 1996 from the sale of remaining U.S. corporate equity
securities in the Company's investment portfolio.
Income taxes--The provision for income taxes in 1997 of $2,887,000 is
different from the U.S. statutory rate of 34%, primarily due to providing a
valuation allowance for all of the Company's U.S. deferred tax assets in
accordance with the requirements of Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes." In 1997, in light of
continued operating losses, the Company determined that future taxable income
in the U.S. was uncertain. The provision for income taxes in 1996 of $289,000
is different from the U.S. statutory rate of 34%, primarily due to the effect
of certain goodwill not being deductible for tax purposes, state taxes, and
unbenefitted foreign losses.
Net loss--As a result of the foregoing, the Company experienced a net loss
of $17,617,000 in 1997 compared to a net loss of $644,000 in 1996.
Comparison of the Year Ended December 31, 1996 to the Year Ended December 31,
1995
Sales--Sales increased by 45% from $80,071,000 in 1995 to $116,508,000 in
1996, primarily as a result of the acquisition of Cardkey in August 1995. In
1995, the ESG included post-acquisition sales of $31,687,000 as compared to
$63,393,000 for the entire twelve month period in 1996. The TSG sales
increased 9% from $47,348,000 in 1995 to $51,490,000 in 1996, which includes
$16,942,000 and $12,682,000, respectively, from a single systems integration
services contract. IDG's initial start-up sales in 1996 were $762,000.
Gross profit--Gross profit as a percentage of sales increased from 33% in
1995 to 42% in 1996, primarily due to an increase in ESG's gross profit margin
from 33% in 1995 to 42% in 1996. The ESG improvement results primarily from a
combination of targeting higher-margin business and enhancing operational
efficiencies, and the 1995 disposition of certain operations unrelated to
Cardkey's core business that yielded lower margins. Also contributing to the
overall increase is an improvement in the TSG gross profit margin from 31% in
1995 to 37% in 1996, primarily as a result of a greater percentage of sales
being attributable to the Company's manufactured products.
Research and development--Research and development expenses increased by 10%
from $9,334,000 in 1995 to $10,314,000 in 1996, primarily due to a full year
of ESG expenses in 1996 from the acquisition of Cardkey and an increase in
product development activities in the IDG. Expenses in 1995 include one-time
charges of $1,382,000 for purchased in-process research and development as a
result of the Cardkey and WaveNet acquisitions.
10
<PAGE>
Marketing, general and administrative--Marketing, general and administrative
expenses increased 79% from $23,123,000 in 1995 to $41,287,000 in 1996. The
increase was primarily attributable to increased ESG expenditures from
$10,642,000 in 1995 to $23,628,000 in 1996 as a result of the Cardkey
acquisition. In addition, the Company's pro-rata share of the losses
attributable to its European joint venture, Amtech International S.A., prior
to its acquisition by the TSG in October 1996 increased from $535,000 in 1995
to $1,301,000 in 1996 primarily due to a decline in sales in that market.
Additionally, the IDG began building a sales and administrative infrastructure
in 1996 resulting in $1,942,000 of expenditures. Also contributing to the
increase was an expense of $446,000 recognized by the Company relating to
stock options granted in December 1995 to certain of the Company's outside
directors under a plan that was approved by the shareholders on April 25,
1996.
Operating loss--As a result of the foregoing, the Company reduced its
operating loss of $6,042,000 in 1995 to $3,148,000 in 1996. Excluding
corporate holding company expenses, the ESG and TSG were profitable for the
year after sustaining losses in 1995. These improvements were offset by the
increased losses experienced by the IDG due to low initial sales volumes,
continuing product development efforts and the building of a sales and
administrative infrastructure to support new product introductions.
Investment income--Investment income increased from $2,308,000 in 1995 to
$3,065,000 in 1996. The increase is primarily attributable to an increase in
the gains realized from the sale of corporate equity securities from
$1,040,000 in 1995 to $2,150,000 in 1996. The effect of a reduction in
invested cash and marketable securities resulting from the Company's 1995
business acquisitions partially offset the overall increase.
Income taxes--The provision for income taxes in 1996 of $289,000 is
different from the U.S. statutory rate of 34%, primarily due to the effect of
certain goodwill not being deductible for tax purposes, state taxes and
unbenefitted foreign losses. The provision for income taxes in 1995 of
$172,000 is different from the U.S. statutory rate of 34%, primarily due to
the effect of unbenefitted foreign losses.
Net loss--As a result of the foregoing, the Company experienced a net loss
of $644,000 in 1996 compared to a net loss of $4,087,000 in 1995.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company's principal source of liquidity is its net
working capital position of $38,465,000. The Company's cash position increased
significantly in November 1997 when UNOVA purchased 2,211,900 shares of the
Company's common stock for $10,000,000. The Company has no significant
borrowings and believes a significant working capital line of credit could be
obtained if desired. For the year ended December 31, 1997, the Company used
cash of $5,332,000 for operating activities, primarily to fund operating
losses, including approximately $5,600,000 related to the IDG which was sold
in late 1997.
The Company believes that its existing net working capital position and
other capital funding alternatives will be sufficient to meet the capital
requirements for the current businesses for the next two years. The Company's
near-term liquidity will be impacted by the investment of up to $3,600,000 in
1998 for property and equipment and the requirement for several million
dollars of working capital to support large systems integration services
contracts of the TSG. Additionally, cash flow will be negatively impacted in
1998, 1999 and 2000 by an estimated $5,700,000, representing expected costs to
be incurred in excess of revenues to be received on the FDOT electronic toll
collection system contract. The provisions of a former executive's severance
agreement and various stock options resulted in a first quarter 1998 expense
charge of approximately $1,000,000, including a cash payment of approximately
$650,000.
IMPACT OF THE YEAR 2000
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000.
Based on a recent assessment, the Company determined that it will be
required to modify or replace portions of its internal management information
software so that its computer systems will function properly with respect
11
<PAGE>
to dates in the Year 2000 and thereafter. The Company expects to purchase
property and equipment of up to $400,000 in 1998 which will enhance the
Company's operations as well as remedy the Year 2000 Issue. The Company
believes that with modifications to existing software and conversions to new
software, the Year 2000 Issue will not pose significant operational problems
for its internal computer systems.
Certain of the Company's products have software which may require
modification to enable the products to function properly with respect to dates
in the Year 2000 and thereafter. The ESG has reviewed the products it has sold
or is currently selling and believes it has no material liability related to
the Year 2000 Issue. The TSG has not completed its assessment of the Year 2000
Issue as it relates to its products.
NEW FINANCIAL ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130") and Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"), both effective for years beginning after December 15, 1997. SFAS 130
establishes standards for reporting and display of comprehensive income and
its components in a full set of financial statements and is not expected to
have a significant impact on the Company. SFAS 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. The Company will adopt the new requirements retroactively in 1998.
The Company's results of operations and cash flows will not be affected by the
adoption of SFAS 131.
RISKS AND UNCERTAINTIES
The following is a "safe harbor" statement under the Private Securities
Litigation Reform Act of 1995: Certain matters discussed in this Annual Report
on Form 10-K contain statements that constitute forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended. The words "expect," "estimate," "anticipate," "predict," "believe,"
and similar expressions and variations thereof are intended to identify
forward-looking statements. Readers are cautioned that any such forward-
looking statements are not guarantees of future performance and involve risks
and uncertainties, and that actual results may differ materially from those
projected in the forward-looking statements as a result of various factors.
These risks and uncertainties include, but are not limited to, the following:
ESG OPERATIONS. The continuing profitability of the Company's ESG is
dependent upon certain factors, including the ability of the ESG to sustain
current gross margin levels by (i) achieving planned margins in export markets
in light of exchange rate movements; (ii) maintaining current levels of
operational efficiency in field installation and maintenance; (iii)
controlling manufacturing and purchasing costs; and (iv) maintaining the
current ratio of proprietary ESG products to third-party products and systems.
TSG OPERATIONS. The TSG's profitability is dependent upon the ability of the
TSG to (i) increase the sales of its higher margin, manufactured products;
(ii) win and perform in a timely and cost-effective manner an acceptable share
of public agency procurements for large-scale toll collection systems; and
(iii) successfully implement on a large scale its PassKey Payment Services(TM)
product, a new financial clearinghouse for parking garage and other RFID
payment transactions. The Company has capitalized approximately $3,200,000 in
software costs for the PassKey software, and if the Company is not successful
in implementing the PassKey program on a large scale, it may be required to
write off all or a portion of this software.
PRODUCT DEVELOPMENT AND MARKET ACCEPTANCE. The Company's growth depends in
part on the development and market acceptance of new products and the
procurement of new customers. There is no assurance that the Company will
continue to develop successful products, that delays in product introduction
will not be experienced, or that once such products are introduced, the market
will accept them.
GOVERNMENT REGULATION AND STANDARDS. The Company's business and products are
subject to government regulation, principally by the FCC, and are subject to a
variety of national and international
12
<PAGE>
standards. Sale of the Company's products in foreign jurisdictions may require
the approval of domestic and foreign regulatory agencies, which may impede or
preclude the Company's efforts to penetrate such markets. New regulations and
standards could be adopted that might negatively impact the Company's business
and products.
SINGLE-SOURCED COMPONENTS. The Company relies on a single supplier for
certain components included in its products, including application specific
integrated circuits used in certain of the TSG's products. A sudden disruption
in supply from the integrated circuit supplier and any other suppliers could
adversely affect the Company's ability to deliver finished products on time.
COMPETITION AND TECHNOLOGICAL CHANGE. Certain of the Company's markets are
highly competitive. The Company competes with many larger companies that have
access to greater capital, research and development, marketing, distribution,
and other resources than the Company. In addition, this market is
characterized by extensive research efforts and rapid product development and
technological change that could render the Company's products obsolete or
noncompetitive.
INTELLECTUAL PROPERTY RIGHTS. The Company relies in part on patents, trade
secrets, and proprietary technology to remain competitive. It may be necessary
to defend these rights or to defend against claims that the Company is
infringing the rights of others. Intellectual property litigation and
controversies are disruptive and expensive.
FDOT CONTRACT. Actual costs to complete the FDOT contract could vary
significantly from management's current cost estimates. See "ITEM 7., RESULTS
OF OPERATIONS."
INTERNATIONAL SALES. A significant portion of the Company's sales are made
internationally. International trade is subject to numerous risks, including
labor strikes, shipping delays, currency risk, political or economic
instability, military action, and export and import regulations and embargoes.
The Company believes that the strength of the United Kingdom pound sterling in
relation to other European currencies had an adverse impact on its United
Kingdom-based ESG operations in 1997 by making Cotag and Cardkey exports from
the United Kingdom into continental Europe much less competitive. The Company
also believes that the ongoing economic crisis in Asia could have an adverse
effect in 1998 across the Company as a whole.
YEAR 2000 COMPLIANCE. As noted, the Company's TSG has not completed its
assessment of the TSG's products for Year 2000 compliance, and there is no
assurance that the costs of Year 2000 compliance will not be significant. The
estimated costs of Year 2000 compliance are based on management's best
estimates, which were derived using numerous assumptions about future events,
including the continued availability of certain resources and other factors.
However, actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are
not limited to, the availability and cost of personnel trained in this area,
the ability to locate and correct all relevant computer codes, and similar
uncertainties.
OTHER UNCERTAINTIES. Other operating, financial or legal risks or
uncertainties are discussed in this Form 10-K in specific contexts and in the
Company's other periodic SEC filings. The Company is, of course, also subject
to general economic risks, the risk of interruption in the source of supply,
the risk of loss of a major customer, dependence on key personnel, and other
risks and uncertainties.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item begins on page F-1 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
13
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item is incorporated by reference from the
section "MANAGEMENT--Directors and Executive Officers" in the Company's 1998
Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated by reference from the
section "MANAGEMENT--Compensation of Directors and Executive Officers" in the
Company's 1998 Proxy Statement. Information in the section and subsection
titled "REPORT OF BOARD OF DIRECTORS ON ANNUAL COMPENSATION" and "Performance
Graph" is not incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is incorporated by reference from the
section "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS" in the Company's
1998 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated by reference from the
section "MANAGEMENT--Compensation of Directors and Executive Officers--
Transactions with Management and Related Parties" in the Company's 1998 Proxy
Statement.
14
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A)(1) FINANCIAL STATEMENTS
See Index to Consolidated Financial Statements on page F-1 hereof.
(A)(2) FINANCIAL STATEMENT SCHEDULES
All schedules for which provision is made in the applicable accounting
regulations of the SEC have been omitted because of the absence of the
conditions under which they are required or because the information required
is included in the consolidated financial statements or notes thereto.
(A)(3) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3.1* -- Articles of Incorporation of the Company, together with all
amendments thereto.
3.2 -- Restated Bylaws of the Company, dated February 25, 1997. Filed
under exhibit number 3.2 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996, and incorporated
herein by reference.
4.1 -- Specimen Certificate for Common Stock of the Company. Filed
under exhibit number 4.1 in the Company's Registration Statement
on Form S-1 (Commission No. 33-31209) and incorporated herein by
reference.
10.1* -- 1990 Stock Option Plan of the Company.
10.2 -- Amended and Restated 1992 Stock Option Plan of the Company.
Filed under exhibit number 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended March 31,
1996, and incorporated herein by reference.
10.3 -- 401(k) Retirement Plan of the Company and related Adoption
Agreement. Filed under exhibit number 10.5 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996,
and incorporated herein by reference.
10.4 -- Amended and Restated 1995 Long-Term Incentive Plan of the
Company. Filed under exhibit number 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1996, and incorporated herein by reference.
10.5 -- 1996 Directors' Stock Option Plan of the Company. Filed under
Annex I in the Company's Proxy Statement for the Annual Meeting
of Shareholders held April 25, 1996, and incorporated herein by
reference.
10.6 -- 1996 Employee Stock Purchase Plan of the Company. Filed under
Annex II in the Company's Proxy Statement for the Annual Meeting
of Shareholders held April 25, 1996, and incorporated herein by
reference.
10.7 -- Director Retainer Plan. Filed under exhibit number 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1993, and incorporated herein by reference.
10.8 -- Severance Agreement, dated November 4, 1996, between Amtech
Corporation and G. Russell Mortenson. Filed under exhibit number
10.17 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, and incorporated herein by reference.
10.9 -- Severance Agreement, dated November 4, 1996, between Amtech
Corporation and Jeremy A. Landt. Filed under exhibit number
10.22 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, and incorporated herein by reference.
10.10 -- Severance Agreement, dated November 4, 1996, between Amtech
Corporation and Steve M. York. Filed under exhibit number 10.28
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, and incorporated herein by reference.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.11 -- Severance Agreement, dated November 4, 1996, between Amtech
Corporation and Stuart M. Evans. Filed under exhibit number
10.32 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, and incorporated herein by reference.
10.12 -- Severance Agreement, dated November 4, 1996, between Amtech
Corporation and Michael H. Wolpert. Filed under exhibit number
10.34 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, and incorporated herein by reference.
10.13 -- Lease Agreement, dated November 14, 1996, between Amtech
Corporation and Rosemeade Office Development, L.P. Filed under
exhibit number 10.35 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996, and incorporated herein by
reference.
10.14 -- 1997 Executive Management Cash Bonus Plan. Filed under exhibit
number 10.1 to the Company's Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 1997, and incorporated
herein by reference.
10.15 -- Agreement between Amtech Corporation and UNOVA, Inc., dated as
of October 31, 1997. Filed under exhibit number 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1997, and incorporated herein by reference.
21.1* -- Subsidiaries of the Company.
23.1* -- Consent of Independent Auditors.
24.1 -- Power of Attorney (included on page 18 of this Annual Report on
Form 10-K).
27.1* -- Financial Data Schedule.
</TABLE>
- --------
* Filed herewith
(B) REPORTS ON FORM 8-K
No reports of the registrant on Form 8-K have been filed with the SEC during
the three months ended December 31, 1997.
16
<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, IN THE CITY OF
DALLAS, STATE OF TEXAS, ON MARCH 31, 1998.
Amtech Corporation
/s/ Steve M. York
By: _________________________________
Steve M. York
Senior Vice President,
Chief Financial Officer and Treasurer
17
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and officers of Amtech Corporation (the
"Company"), do hereby severally constitute and appoint David P. Cook and Steve
M. York, and each or either of them, our true and lawful attorneys and agents,
with full power 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
the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1997, and to file the same with all exhibits thereto, and all other
documents in connection therewith, with the SEC, granting unto said attorneys
and agents, and each or either of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys and agents, and each of them,
or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
PURSUANT TO THE REQUIREMENTS 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.
SIGNATURE TITLE DATE
/s/ David P. Cook Chairman, President March 31, 1998
- ------------------------------------- and Chief Executive
(DAVID P. COOK) Officer (Principal
Executive Officer)
/s/ Steve M. York Senior Vice March 31, 1998
- ------------------------------------- President, Chief
(STEVE M. YORK) Financial Officer
and Treasurer
(Principal
Financial and
Accounting Officer)
/s/ Stuart M. Evans Director March 31, 1998
- -------------------------------------
(STUART M. EVANS)
/s/ Michael E. Keane Director March 31, 1998
- -------------------------------------
(MICHAEL E. KEANE)
/s/ Dr. Jeremy A. Landt Director March 31, 1998
- -------------------------------------
(DR. JEREMY A. LANDT)
/s/ James S. Marston Director March 31, 1998
- -------------------------------------
(JAMES S. MARSTON)
/s/ Antonio R. Sanchez, Jr. Director March 31, 1998
- -------------------------------------
(ANTONIO R. SANCHEZ, JR.)
18
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors............................................ F-2
Consolidated Balance Sheets at December 31, 1997 and 1996................. F-3
Consolidated Statements of Operations for the years ended December 31,
1997, 1996 and 1995...................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1996 and 1995......................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995...................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders Amtech Corporation
We have audited the accompanying consolidated balance sheets of Amtech
Corporation as of December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Amtech
Corporation at December 31, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Dallas, Texas
February 27, 1998
F-2
<PAGE>
AMTECH CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1996
------------ -----------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents......................... $ 15,163,000 $ 5,296,000
Short-term marketable securities.................. 1,010,000 11,852,000
Accounts receivable, net of allowance for doubtful
accounts of $1,113,000 in 1997 and $1,006,000 in
1996............................................. 31,559,000 28,030,000
Inventories....................................... 11,759,000 13,497,000
Deferred income taxes............................. -- 2,401,000
Prepaid expenses.................................. 801,000 1,256,000
------------ -----------
Total current assets............................ 60,292,000 62,332,000
Property and equipment, net......................... 12,743,000 14,644,000
Intangible assets, net of amortization of $2,134,000
in 1997 and $1,407,000 in 1996..................... 6,746,000 8,214,000
Deferred income taxes............................... -- 1,003,000
Other assets........................................ 5,742,000 4,848,000
------------ -----------
$ 85,523,000 $91,041,000
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable.................................. $ 6,167,000 $ 6,815,000
Note payable...................................... -- 1,839,000
Accrued expenses.................................. 13,832,000 8,391,000
Deferred income................................... 1,828,000 2,240,000
------------ -----------
Total current liabilities....................... 21,827,000 19,285,000
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1 par value, 10,000,000 shares
authorized; none outstanding..................... -- --
Common stock, $0.01 par value, 30,000,000 shares
authorized; 17,024,563 issued, 16,944,563
outstanding in 1997 and 14,802,663 issued,
14,722,663 outstanding in 1996................... 170,000 148,000
Additional paid-in capital........................ 86,045,000 76,510,000
Treasury stock, at cost........................... (393,000) (393,000)
Accumulated deficit............................... (22,126,000) (4,509,000)
------------ -----------
Total stockholders' equity...................... 63,696,000 71,756,000
------------ -----------
$ 85,523,000 $91,041,000
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
AMTECH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Sales................................ $117,706,000 $116,508,000 $80,071,000
Operating costs and expenses:
Cost of sales...................... 80,557,000 68,055,000 53,656,000
Research and development........... 11,332,000 10,314,000 9,334,000
Marketing, general and administra-
tive.............................. 41,615,000 41,287,000 23,123,000
------------ ------------ -----------
133,504,000 119,656,000 86,113,000
------------ ------------ -----------
Operating loss....................... (15,798,000) (3,148,000) (6,042,000)
Investment income.................... 1,133,000 3,065,000 2,308,000
Interest expense..................... (65,000) (272,000) (181,000)
------------ ------------ -----------
Loss before provision for income tax-
es.................................. (14,730,000) (355,000) (3,915,000)
Provision for income taxes........... 2,887,000 289,000 172,000
------------ ------------ -----------
Net loss............................. $(17,617,000) $ (644,000) $(4,087,000)
============ ============ ===========
Basic and diluted loss per share..... $ (1.17) $ (0.04) $ (0.28)
============ ============ ===========
Shares used in computing basic and
diluted loss per share.............. 15,080,669 14,636,605 14,654,681
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
AMTECH CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS) RETAINED
COMMON STOCK ADDITIONAL ON EARNINGS TOTAL
------------------- PAID-IN MARKETABLE TREASURY (ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL SECURITIES STOCK DEFICIT) EQUITY
---------- -------- ----------- ----------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1994................... 14,607,408 $146,000 $75,086,000 $ (411,000) $ -- $ 515,000 $ 75,336,000
Exercise of stock
options for cash...... 77,628 1,000 300,000 -- -- -- 301,000
Payment of cash
dividends ($0.02 per
share)................ -- -- -- -- -- (293,000) (293,000)
Tax benefit from
exercise of stock
options............... -- -- 101,000 -- -- -- 101,000
Unrealized gain on
marketable securities
(net of tax effect of
$892,000)............. -- -- -- 1,734,000 -- -- 1,734,000
Purchase of treasury
stock (80,000
shares)............... -- -- -- -- (393,000) -- (393,000)
Other.................. -- -- (138,000) -- -- -- (138,000)
Net loss............... -- -- -- -- -- (4,087,000) (4,087,000)
---------- -------- ----------- ----------- --------- ------------ ------------
Balance, December 31,
1995................... 14,685,036 147,000 75,349,000 1,323,000 (393,000) (3,865,000) 72,561,000
Exercise of stock
options for cash...... 117,627 1,000 112,000 -- -- -- 113,000
Tax benefit from
exercise of stock
options............... -- -- 35,000 -- -- -- 35,000
Stock option
compensation.......... -- -- 446,000 -- -- -- 446,000
Realized gain on
marketable securities
(net of tax effect of
$681,000)............. -- -- -- (1,323,000) -- -- (1,323,000)
Other.................. -- -- 568,000 -- -- -- 568,000
Net loss............... -- -- -- -- -- (644,000) (644,000)
---------- -------- ----------- ----------- --------- ------------ ------------
Balance, December 31,
1996................... 14,802,663 148,000 76,510,000 -- (393,000) (4,509,000) 71,756,000
Stock option
compensation.......... 10,000 -- 92,000 -- -- -- 92,000
Sale of common stock,
net of expenses....... 2,211,900 22,000 9,945,000 -- -- -- 9,967,000
Other.................. -- -- (502,000) -- -- -- (502,000)
Net loss............... -- -- -- -- -- (17,617,000) (17,617,000)
---------- -------- ----------- ----------- --------- ------------ ------------
Balance, December 31,
1997................... 17,024,563 $170,000 $86,045,000 $ -- $(393,000) $(22,126,000) $ 63,696,000
========== ======== =========== =========== ========= ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-5
<PAGE>
AMTECH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................ $(17,617,000) $ (644,000) $ (4,087,000)
Adjustments to reconcile net loss to
net cash used by
operating activities:
Depreciation and amortization...... 5,017,000 4,605,000 3,614,000
Deferred income taxes.............. 3,404,000 (91,000) (603,000)
Realized gain on sale of marketable
securities........................ -- (2,150,000) (1,040,000)
Stock option compensation.......... -- 446,000 --
Tax benefit from exercise of stock
options........................... -- 35,000 101,000
Purchased in-process research and
development....................... -- -- 1,382,000
Changes in operating assets and
liabilities:
Accounts receivable............... (4,045,000) (2,284,000) (4,062,000)
Inventories....................... 1,738,000 (2,114,000) 2,788,000
Prepaid expenses.................. 455,000 (531,000) 280,000
Intangibles and other assets...... 1,335,000 (1,871,000) 603,000
Accounts payable and accrued
expenses......................... 4,793,000 1,417,000 1,629,000
Deferred income................... (412,000) (268,000) (1,233,000)
------------ ------------ ------------
Net cash used by operating
activities...................... (5,332,000) (3,450,000) (628,000)
Cash flows from investing activities:
Purchases of property and
equipment, net.................... (2,167,000) (4,184,000) (3,315,000)
Purchase of Cardkey Systems, net of
cash acquired..................... (1,868,000) (952,000) (15,096,000)
Purchase of Cotag International
Limited........................... -- -- (5,784,000)
Purchase of WaveNet International
Inc., net of cash acquired........ -- -- (428,000)
Purchases of marketable
securities........................ (4,916,000) (14,729,000) (3,000,000)
Sales and maturities of marketable
securities........................ 15,758,000 13,191,000 32,193,000
Increase in other assets........... (1,681,000) (1,884,000) (79,000)
Other.............................. -- (599,000) --
------------ ------------ ------------
Net cash provided (used) by
investing activities............ 5,126,000 (9,157,000) 4,491,000
Cash flows from financing activities:
Proceeds from sale of common stock,
net of expenses................... 9,967,000 -- --
Payment of cash dividends.......... -- -- (293,000)
Proceeds from exercise of stock
options........................... -- 113,000 301,000
Purchase of treasury stock......... -- -- (393,000)
------------ ------------ ------------
Net cash provided (used) by
financing activities............ 9,967,000 113,000 (385,000)
Effect of exchange rate changes on
cash and cash equivalents........... 106,000 121,000 (26,000)
------------ ------------ ------------
Increase (decrease) in cash and cash
equivalents......................... 9,867,000 (12,373,000) 3,452,000
Cash and cash equivalents, beginning
of year............................. 5,296,000 17,669,000 14,217,000
------------ ------------ ------------
Cash and cash equivalents, end of
year................................ $ 15,163,000 $ 5,296,000 $ 17,669,000
============ ============ ============
Supplemental cash flow information:
Income taxes paid (net of
refunds).......................... $ (681,000) $ 765,000 $ 148,000
Interest paid...................... $ 405,000 $ 113,000 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
AMTECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation--The accompanying consolidated financial statements include
the accounts of the Company and its majority owned subsidiaries. Intercompany
balances and transactions have been eliminated. Investees in which the Company
owns 50% or less of the outstanding securities are accounted for using the
equity method of accounting.
Cash investments and marketable securities--Cash investments with maturities
of three months or less when purchased are considered cash equivalents.
Marketable securities, which are available-for-sale and have stated maturities
within two years, are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
Bank certificate of deposit........................ $1,010,000 $ --
U.S. Treasury securities........................... -- 9,882,000
U.S. corporate debt securities..................... -- 1,970,000
---------- -----------
$1,010,000 $11,852,000
========== ===========
</TABLE>
Marketable securities are carried at amortized cost, which approximates fair
market value.
Inventories--Inventories are stated at the lower of costs (first-in, first-
out) or market.
Property and equipment--Property and equipment are recorded at cost and
depreciated using the straight- line method over their estimated useful lives
ranging from three to twenty-five years.
Intangible assets--Intangible assets, primarily goodwill, are amortized
using the straight-line method over their estimated useful lives ranging from
seven to fifteen years.
Capitalized software -- At December 31, 1997, other assets include
approximately $3,200,000 ($1,600,000 at December 31, 1996) for the costs to
acquire specialized software for use in its PassKey Payment Services products
("PassKey"). PassKey is a new product which provides automatic payment
collection for parking garages and other radio frequency identification
payment transactions. This asset will begin amortizing over five years in
1998. The ongoing assessment of recoverability of capitalized software
requires considerable judgment by management with respect to certain external
factors, including, but not limited to, successful market penetration of these
new products and their anticipated future revenues, estimated economic life
and changes in software and hardware technologies. If the Company is not
successful in implementing the PassKey program on a large scale, it may be
required to write off all or a portion of this software.
Revenue recognition--Generally, sales are recorded when products are shipped
or services are rendered. Sales under long-term contracts are recorded as
costs are incurred and include estimated profits calculated on the basis of
the relationship between costs incurred and total estimated costs (cost-to-
cost type of percentage-of-completion method of accounting). Revenues
recognized in excess of amounts billed to customers are included in accounts
receivable and amounted to approximately $6,260,000 and $4,700,000 at December
31, 1997 and 1996, respectively. In the period in which it is determined it is
probable that a loss will result from the performance of a contract, the
entire amount of the estimated ultimate loss is charged against income.
Stock-based employee compensation--As permitted by Statement of Financial
Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation," the Company accounts for stock-based compensation plans under
the provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and related interpretations because, as discussed
in Note 6, the alternative fair value
F-7
<PAGE>
AMTECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
accounting provided for under SFAS 123 requires use of option valuation models
that were not developed for use in valuing employee stock options.
Earnings per share--In 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 (SFAS 128) "Earnings Per
Share." SFAS 128 replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of
stock options. Diluted earnings per share is similar to the previously
reported fully diluted earnings per share. Earnings per share amounts for all
periods have been restated and presented to conform to the SFAS 128
requirements. The exercise of outstanding stock options is not assumed in the
diluted earnings per share calculation as the effect would be antidilutive for
all periods presented.
Concentration of credit risk--The Company purchases cash investments and
marketable securities that are of high credit quality and limits the amount
invested in any one institution. The Company sells products and services to
various governmental and commercial customers covering a wide range of
industries throughout the world. The Company continuously evaluates the
creditworthiness of its customers' financial condition and generally does not
require collateral. The Company's allowance for doubtful accounts is based on
current market conditions and losses on uncollectible accounts have
consistently been within management's expectations.
Use of estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Long-lived assets--In accordance with Financial Accounting Standards Board
Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," the Company reviews the original
assumptions and rationale utilized in the establishment of the carrying value
and estimated life of certain long-lived assets. The carrying value would be
adjusted to fair value if facts and circumstances indicating an impairment
were present.
Reclassifications--Certain prior year balances have been reclassified to
conform with the 1997 presentation.
2. BUSINESS ACQUISITIONS AND DISPOSITIONS
Interactive Data Group
The Company withdrew from the wireless LAN terminal market and sold its
Interactive Data Group ("IDG") in late 1997. The IDG incurred pretax operating
losses of approximately $5,600,000 for the year ended December 31, 1997,
including special charges of $900,000 for employee severance costs and
winding-up of operating activities as well as $2,825,000 to write down the
assets of the IDG to their net realizable values. These special charges
increased cost of sales by $1,800,000, research and development expense by
$300,000, and marketing, general and administrative expense by $1,725,000,
offset by $100,000 in sales. The IDG incurred pre-tax operating losses of
approximately $3,400,000 and $1,400,000 for the years ended December 31, 1996
and 1995, respectively.
Amtech International
In October 1996, the Company acquired the remaining 51% interest in its
European joint venture, Amtech International S.A. for a nominal amount. Prior
to October 1996, the Company accounted for its investment in Amtech
International using the equity method of accounting and recognized $1,301,000
in 1996 as marketing,
F-8
<PAGE>
AMTECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
general and administrative expense. Since October 1996, the Company has been
including 100% of Amtech International's accounts in its consolidated
financial statements.
3. INVENTORIES
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Raw materials.................................. $ 4,956,000 $ 7,355,000
Work in process................................ 3,107,000 2,307,000
Finished goods................................. 3,696,000 3,835,000
------------ ------------
$ 11,759,000 $ 13,497,000
============ ============
4. PROPERTY AND EQUIPMENT
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Land........................................... $ 690,000 $ 690,000
Buildings...................................... 4,984,000 4,810,000
Manufacturing, test and other equipment........ 11,124,000 10,636,000
Computer equipment and software................ 8,554,000 7,743,000
Office equipment, furniture, and fixtures...... 2,548,000 2,294,000
Leasehold improvements and other............... 1,007,000 1,465,000
------------ ------------
28,907,000 27,638,000
Less: accumulated depreciation and
amortization.................................. (16,164,000) (12,994,000)
------------ ------------
$ 12,743,000 $ 14,644,000
============ ============
The Company has pledged the real property of its manufacturing and
engineering facility in Albuquerque, New Mexico, having a carrying value of
approximately $3,650,000, to collateralize a $3,855,000 bank letter of credit
which supports a performance bond for a large systems integration services
contract.
5. ACCRUED EXPENSES
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Payroll and related benefits................... $ 2,154,000 $ 2,473,000
Warranty reserves.............................. 1,831,000 2,599,000
Estimated loss on uncompleted contract......... 5,093,000 --
Other.......................................... 4,754,000 3,319,000
------------ ------------
$ 13,832,000 $ 8,391,000
============ ============
</TABLE>
In the first quarter of 1997, the TSG was awarded a multi-year contract by
the Florida Department of Transportation ("FDOT") for an estimated $38,600,000
to design, install, and maintain a state-of-the-art electronic toll collection
system. At year end 1997, while only approximately 10% of the projected
overall contract cost has been incurred, management's estimate of the costs to
complete the contract exceeds the contract revenues by approximately
$5,700,000. As a result, the Company recorded a fourth quarter 1997 contract
loss provision of $5,700,000 which will cause gross profit margins in 1998,
1999, and 2000 to be negatively impacted as significant FDOT revenues are
recorded with no margin. The ongoing assessment of the estimated costs to
complete this multi-year contract requires significant judgment by management.
Actual results could differ from current estimates.
F-9
<PAGE>
AMTECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. STOCKHOLDERS' EQUITY
Sale of Stock
Effective November 3, 1997, the Company and UNOVA, Inc. ("UNOVA") entered
into an agreement whereby UNOVA purchased 2,211,900 shares of the Company's
common stock for $10,000,000 in a private placement transaction, and the
Company and UNOVA agreed to negotiate in good faith a strategic alliance
relationship which contemplated product development. The parties were unable
to conclude on mutually agreeable terms the contemplated strategic
relationship and related product development undertaking. Subsequent to the
conclusion of these negotiations, the Company and UNOVA have begun discussions
regarding other possible business arrangements. The shares issued are subject
to certain piggyback registration rights and demand registration rights. The
demand registration rights are immediately exercisable, but may not be
exercised unless the gross proceeds of the sale are expected to yield at least
$8,000,000. The demand registration rights expire on the fifth anniversary of
the issuance of the shares or at such time as UNOVA ceases to hold at least
five percent of the Company's outstanding shares, whichever is earlier.
Stock Options
The Company has non-qualified stock options outstanding to employees and
directors under various shareholder approved Stock Option Plans. Options
granted under these plans are generally not less than the fair market value at
the date of grant, and subject to termination of employment generally expire
ten years from date of grant. Employee options are generally exercisable in
annual installments over four to five years or are exercisable at rates of 45%
in three years and 55% in five and one-half years, unless accelerated due to
the Company's common stock trading at appreciated price targets. Annual grants
to certain directors are exercisable within six months from the date of the
grant. At December 31, 1997, 178,434 shares were available for future grants
under the Company's Stock Option Plans, excluding 186,946 shares reserved for
possible issuance as restricted stock in tandem with the exercise of certain
stock options outstanding. In 1997 and 1996, 5,000 and 47,700 shares of
restricted stock, respectively, were issued pursuant to the plans.
The following is a summary of transactions in these plans for 1997, 1996 and
1995:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding at December 31, 1994................... 867,188 $9.20
Granted.......................................... 765,500 $6.13
Cancelled........................................ (277,712) $9.16
Exercised........................................ (77,628) $3.88
---------
Outstanding at December 31, 1995................... 1,277,348 $7.69
Granted.......................................... 330,750 $6.29
Cancelled........................................ (128,650) $7.36
Exercised........................................ (69,927) $4.98
---------
Outstanding at December 31, 1996................... 1,409,521 $7.53
Granted.......................................... 515,767 $4.48
Cancelled........................................ (276,594) $7.09
Exercised........................................ (5,000) $5.75
---------
Outstanding at December 31, 1997................... 1,643,694 $6.65
=========
</TABLE>
F-10
<PAGE>
AMTECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Summarized information about stock options outstanding under the plans at
December 31, 1997 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------------------------------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 3.18-$ 7.07 1,185,968 8.3 years $ 5.14 273,901 $ 5.43
$ 7.80-$10.75 428,976 5.9 years $ 9.91 300,001 $ 9.83
$16.50-$25.40 28,750 5.5 years $18.77 28,750 $18.77
--------- -------
1,643,694 602,652
========= =======
</TABLE>
At December 31, 1996, 391,581 options were exercisable.
In December 1995, stock options were granted to certain of the Company's
outside directors under a plan that was approved by the shareholders on April
25, 1996. The Company recognized compensation expense of $446,000 based on the
excess of the fair market value of the Company's common stock on the date of
plan approval, which was $9.00, over the exercise price of the options of
$5.13, which was fair market value of the Company's common stock on the date
of the grant.
In accordance with the terms of Accounting Principles Board Opinion No. 25,
the Company does not record compensation expense for its stock option plans
unless the market price exceeds the exercise price on the date of grant. As
required by Financial Accounting Standards Board Statement No. 123,
"Accounting and Disclosure of Stock-Based Compensation," the Company provides
the following disclosure of hypothetical values for stock option grants made
pursuant to the Company's stock option plans. These values were estimated
using the Black-Scholes option pricing model with the following weighted
average assumptions in 1997, 1996 and 1995, respectively: expected future
stock-price volatility of 55%, 51% and 57%; risk-free interest rate of 5.85%,
6.05% and 6.24%; expected lives of 3.4 years, 3.7 years and 5.0 years; and no
expected dividend yield for all periods. The Black-Scholes option valuation
model was developed for use in estimating the fair value of traded options
which have no vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective assumptions.
Because the Company's employee stock options have characteristics
significantly different from those of traded options and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
The weighted average exercise price of options granted under the plans
during 1997, 1996 and 1995 with a market price equal to the exercise price was
$4.48, $6.29, and $6.29, respectively. The estimated weighted average grant
date value of these grants was $1.84, $2.74 and $3.41, respectively. The
directors' options approved by the shareholders on April 25, 1996, with a
market price exceeding the exercise price, have a weighted average exercise
price of $5.13 and an estimated weighted average grant date value of $4.48.
Had compensation expense been recorded based on these hypothetical values, the
Company's pro forma results would be as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Net loss:
As reported............................. $17,617,000 $ 644,000 $4,087,000
Pro forma............................... $17,923,000 $1,112,000 $4,275,000
Basic and diluted net loss per share:
As reported............................. $ 1.17 $ 0.04 $ 0.28
Pro forma............................... $ 1.19 $ 0.08 $ 0.29
</TABLE>
F-11
<PAGE>
AMTECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As required, the pro forma disclosures above include only options granted
since January 1, 1995. Because options vest over several years and additional
option grants are expected, the effects of these hypothetical calculations are
not likely to be representative of similar future calculations.
7. INCOME TAXES
Components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- -------- ---------
<S> <C> <C> <C>
Current:
U.S....................................... $ (660,000) $183,000 $ 775,000
Foreign................................... 143,000 197,000 --
Deferred:
U.S....................................... 3,404,000 (91,000) (603,000)
---------- -------- ---------
$2,887,000 $289,000 $ 172,000
========== ======== =========
</TABLE>
Approximately $35,000 and $101,000 in 1996 and 1995, respectively, represent
the tax benefit from the Company's stock option exercises which directly
increased paid-in capital and did not reduce the provision for income taxes.
A reconciliation of the expected U.S. tax benefit to the actual consolidated
tax provision is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- --------- -----------
<S> <C> <C> <C>
Expected tax benefit at U.S. statutory
rate.................................... $(5,008,000) $(121,000) $(1,331,000)
State taxes.............................. 58,000 50,000 15,000
Foreign taxes............................ 128,000 51,000 75,000
Unbenefitted U.S. losses, net............ 4,810,000 -- --
Increase in U.S. valuation allowance,
net..................................... 3,404,000 -- --
Unbenefitted (utilization of) foreign
losses, net............................. (530,000) 40,000 1,171,000
Non-deductible goodwill.................. 158,000 165,000 130,000
Other, net............................... (133,000) 104,000 112,000
----------- --------- -----------
$ 2,887,000 $ 289,000 $ 172,000
=========== ========= ===========
</TABLE>
F-12
<PAGE>
AMTECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Components of the
Company's deferred tax assets and liabilities as of December 31, 1997 and 1996
are as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Deferred tax assets:
Non-deductible reserves.......................... $ 3,796,000 $ 1,742,000
Losses of foreign subsidiaries and joint
ventures........................................ 7,271,000 10,473,000
U.S. net operating loss carryforwards............ 3,021,000 --
Tax credit carryforwards......................... 2,193,000 490,000
Amortization of intangibles...................... -- 256,000
Other, net....................................... 483,000 536,000
------------ ------------
Total deferred tax assets...................... 16,764,000 13,497,000
Valuation allowance for deferred tax assets........ (15,680,000) (10,093,000)
------------ ------------
1,084,000 3,404,000
Deferred tax liabilities:
Amortization of intangibles...................... 1,084,000 --
------------ ------------
Net deferred tax assets.......................... $ -- $ 3,404,000
============ ============
</TABLE>
In 1996, the valuation allowance primarily represented losses from foreign
operations due to the uncertainty of future taxable income in these
jurisdictions. In the second quarter of 1997, in light of continued operating
losses, the Company determined that future taxable income in the U.S. was
uncertain. As a result, all of the Company's U.S. deferred tax assets have
been fully reserved in 1997.
The foreign subsidiaries have net operating loss carryforwards which begin
to expire in the year 1998. The U.S. subsidiaries have net operating loss
carryforwards which expire in 2012. Tax credit carryforwards in the U.S.
include research tax credits which are available through 2012 and alternative
minimum tax credits that do not expire.
8. LEASE COMMITMENTS
The Company leases certain of its office facilities and various automobiles.
Rental expense for 1997, 1996 and 1995 was $3,427,000, $3,325,000, and
$1,521,000, respectively. Certain facility leases have renewal options from
one to five years. Future minimum lease payments under noncancelable operating
leases are as follows:
<TABLE>
<S> <C>
1998......................... $ 3,160,000
1999......................... 3,060,000
2000......................... 2,852,000
2001......................... 2,045,000
2002......................... 1,819,000
Thereafter................... 10,944,000
</TABLE>
9. RELATED PARTY TRANSACTIONS
Sales to affiliates accounted for 1%, 1% and 5% of sales for 1997, 1996 and
1995, respectively.
In December 1995, Mr. David P. Cook was appointed a director of the Company.
In April 1994 the Company invested $5,000,000 of cash and cash equivalents in
a Limited Partnership investment fund managed
F-13
<PAGE>
AMTECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
by Mr. Cook. The fund invested in U.S. Treasury securities, financial futures
contracts and index options. The Company's investment was valued at $5,299,000
at December 31, 1995. Mr. Cook personally guaranteed the Company's $5,000,000
investment. The Company's investment subsequently declined in value, and the
Company liquidated its investment in the fund on March 31, 1996 for $5,000,000
to avoid any potential conflict of interest or the appearance of a conflict of
interest.
10. GEOGRAPHIC OPERATIONS AND SIGNIFICANT CUSTOMERS
The Company operates in one industry segment, the provision of systems and
solutions for the intelligent transportation, electronic security and other
markets through the design, manufacturing, installation and support of
hardware and software products utilizing the Company's wireless data and
security technologies.
The following presents information about the Company's operations in
different geographic areas:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------
CANADA
U. S. EUROPE AND OTHER ELIMINATIONS TOTAL
-------- ------- --------- ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales:
Unaffiliated customers.... $ 85,213 $31,370 $ 1,123 $ -- $117,706
Inter-area transfers...... 2,751 1,683 -- (4,434) --
-------- ------- ------- ------- --------
$ 87,964 $33,053 $ 1,123 $(4,434) $117,706
======== ======= ======= ======= ========
Operating loss.............. $(14,248) $ (375) $(1,175) $ -- $(15,798)
======== ======= ======= ======= ========
Identifiable assets......... $ 71,388 $13,793 $ 342 $ -- $ 85,523
======== ======= ======= ======= ========
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------
CANADA
U. S. EUROPE AND OTHER ELIMINATIONS TOTAL
-------- ------- --------- ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales:
Unaffiliated customers.... $ 85,923 $28,743 $ 1,842 $ -- $116,508
Inter-area transfers...... 2,476 2,220 173 (4,869) --
-------- ------- ------- ------- --------
$ 88,399 $30,963 $ 2,015 $(4,869) $116,508
======== ======= ======= ======= ========
Operating loss.............. $ (1,008) $ (927) $(1,213) $ -- $ (3,148)
======== ======= ======= ======= ========
Identifiable assets......... $ 73,624 $15,233 $ 2,184 $ -- $ 91,041
======== ======= ======= ======= ========
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------
CANADA
U. S. EUROPE AND OTHER ELIMINATIONS TOTAL
-------- ------- --------- ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales:
Unaffiliated customers.... $ 64,916 $14,763 $ 392 $ -- $ 80,071
Inter-area transfers...... 586 230 208 (1,024) --
-------- ------- ------- ------- --------
$ 65,502 $14,993 $ 600 $(1,024) $ 80,071
======== ======= ======= ======= ========
Operating loss.............. $ (2,488) $(2,182) $(1,372) $ -- $ (6,042)
======== ======= ======= ======= ========
Identifiable assets......... $ 78,863 $12,803 $ 1,713 $ -- $ 93,379
======== ======= ======= ======= ========
</TABLE>
Sales and transfers between geographic areas were generally priced to
recover cost plus an appropriate mark-up for profit. These inter-area
transfers were eliminated from consolidated sales.
F-14
<PAGE>
AMTECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
U.S. export sales, summarized by geographic area, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
The Americas (excluding the United
States).............................. $ 6,509,000 $ 7,998,000 $ 6,593,000
Far East.............................. 3,630,000 5,434,000 3,938,000
Europe................................ 1,416,000 1,340,000 2,867,000
----------- ----------- -----------
$11,555,000 $14,772,000 $13,398,000
=========== =========== ===========
</TABLE>
In 1997, FDOT, a state government transportation agency, accounted for 3% of
sales and 11% of year-end accounts receivable. In 1996, MTA Bridges and
Tunnels, a state government transportation agency, accounted for 11% of sales
and 16% of year-end accounts receivable. In 1995, MTA Bridges and Tunnels
accounted for 21% of sales and 22% of year-end accounts receivable.
11. EMPLOYEE BENEFIT PLANS
The Company has a retirement savings plan structured under Section 401(k) of
the Internal Revenue Code. The plan covers substantially all U.S. employees
meeting minimum service requirements. Under the plan, contributions are
voluntarily made by employees, and the Company may provide matching
contributions based on the employees' contributions. The Company incurred
$220,000, $125,000, and $79,000 in 1997, 1996, and 1995, respectively, for
matching contributions to this plan.
The Company has an employee stock purchase plan for substantially all
employees that meet minimum service requirements. The plan provides for the
purchase of up to 300,000 previously issued shares of the Company's common
stock. The employee contributes 85% of the purchase price through payroll
deduction with the difference paid by the Company. Since inception of the plan
in 1996, a total of 101,045 shares have been purchased of which 85,152 shares
were purchased in 1997.
12. SUBSEQUENT EVENT
On February 27, 1998, Mr. David P. Cook replaced the former chairman,
president and chief executive officer of the Company. The provisions of the
former executive's severance agreement and various stock options resulted in a
first quarter 1998 expense charge of approximately $1,000,000, including a
cash payment of approximately $650,000.
13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the
years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
1997
Sales................... $24,153,000 $28,877,000 $30,185,000 $34,491,000
Cost of sales........... 15,358,000 17,790,000 19,363,000 28,046,000
Net loss................ (3,200,000) (6,819,000) (1,667,000) (5,931,000)
Basic and diluted loss
per share.............. (0.22) (0.46) (0.11) (0.37)
1996
Sales................... $28,276,000 $29,867,000 $27,971,000 $30,394,000
Cost of sales........... 17,279,000 16,937,000 15,961,000 17,878,000
Net income (loss)....... 353,000 (20,000) (63,000) (914,000)
Basic and diluted income
(loss) per share....... 0.02 0.00 0.00 (0.06)
</TABLE>
F-15
<PAGE>
EXHIBIT 3.1
<PAGE>
ARTICLES OF INCORPORATION
OF
AMTECH CORPORATION
------------------
ARTICLE I
The name of the Corporation is Amtech Corporation.
ARTICLE II
The period of its duration is perpetual.
ARTICLE III
The purpose for which the Corporation is organized is to engage in any act,
activity or business for which corporations may be organized under the Texas
Business Corporation Act, as the same exists or may hereafter be amended;
provided, however, the Corporation shall not be authorized to transact any
business in this State which is prohibited by Article 2.01-B of the Texas
Business Corporation Act.
ARTICLE IV
The total number of shares of capital stock which the Corporation shall
have the authority to issue is Ten Million (10,000,000) shares of Common Stock,
$.0l par value, and Ten Million (10,000,000) shares of Preferred Stock, $1.00
par value. The Board of Directors of the Corporation is authorized, subject to
limitations prescribed by law and the provisions of this Article IV, to provide
for the issuance of the Preferred Stock from time to time in one or more series,
to establish the number of shares to be included in each series, and to fix the
designations, powers, relative rights, qualifications, preferences, limitations
and restrictions of the shares of each such series not fixed hereby.
ARTICLE V
No stockholder of the Corporation shall, by reason of his holding shares of
any class of capital stock of the Corporation, have any preferential right to
purchase or subscribe to any shares of any class of capital stock of the
Corporation, or any notes, debentures, bonds, warrants, options or other
securities of the Corporation, now or hereafter to be authorized.
<PAGE>
ARTICLE VI
Cumulative voting for the election of directors shall be permitted.
ARTICLE VII
The Corporation will not commence business until it has received for the
issuance of its shares consideration of the value of at least One Thousand
Dollars ($1,000.00), consisting of money, labor done or property actually
received.
ARTICLE VIII
The address of the initial registered office of the Corporation is 4514
Cole Avenue, Suite 1200, Dallas, Texas 75205, and the name of its initial
registered agent at such address is G. Russell Mortenson.
ARTICLE IX
The number of directors from time to time constituting the Board of
Directors of the Corporation shall be fixed in the manner provided in the Bylaws
of the Corporation. The number of directors constituting the initial Board of
Directors is four (4), and the names of the persons who are to serve as
directors until the first annual meeting of shareholders or until their
successors are duly elected and qualified are as follows:
Name Address
------------------------ ------------------------
David P. Cook 4514 Cole Avenue
Suite 1200
Dallas, Texas 75205
Kenneth W. Anderson 4514 Cole Avenue
Suite 1200
Dallas, Texas 75205
Michael P. Corboy 4514 Cole Avenue
Suite 1200
Dallas, Texas 75205
Gary L. Seawright 2530 Camino Entrada
Santa Fe, New Mexico 87505
ARTICLE X
The incorporator is G. Russell Mortenson, whose mailing address is 4514
Cole Avenue, Suite 1200, Dallas, Texas 75205.
-2-
<PAGE>
ARTICLE XI
A director of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, except liability for (i) any breach of the director's duty
of loyalty to the Corporation or its shareholders, (ii) any act or omission not
in good faith or which involves intentional misconduct or a knowing violation of
law, (iii) any transaction from which the director derived any improper personal
benefit, (iv) any act or omission where the liability of the director is
expressly provided for by statute; or (v) any act related to an unlawful stock
repurchase or payment of a dividend. If the Texas Business Corporation Act or
other applicable law of the State of Texas is amended after the filing of these
Articles of Incorporation to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of a director
of the Corporation shall be eliminated or limited to the fullest extent
permitted by the Texas Business Corporation Act or other applicable law of the
State of Texas, as so amended.
Any repeal or modification of the foregoing paragraph by the shareholders
of the Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or modification.
ARTICLE XII
A. Each person who was or is made a party or is threatened to be made
a party to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director or officer of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan (hereinafter an
"indemnitee"), whether the basis of such proceeding is alleged action in an
official capacity as a director or officer or in any other capacity while
serving as a director or officer shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Texas Business Corporation
Act or other applicable law of the State of Texas, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than permitted prior thereto), against all expense, liability and loss
(including, without limitation, attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such indemnitee in connection therewith and such
indemnification shall continue as to an indemnitee who has ceased to be a
director or officer and shall
-3-
<PAGE>
inure to the benefit of the indemnitee's heirs, executors and administrators;
provided, however, that, except for a proceeding brought by an indemnitee to
enforce his rights to indemnification, the Corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated by such
indemnitee only if such proceeding (or part thereof) was authorized by the Board
of Directors of the Corporation. The right to indemnification conferred in this
Article XII shall be a contract right and shall include the right to be paid by
the Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition (hereinafter an "advancement of expenses");
provided, however, that, if the Texas Business Corporation Act or other
applicable law of the State of Texas requires, an advancement of expenses
incurred by an indemnitee in his or her capacity as a director or officer (and
not in any other capacity in which service was or is rendered by such
indemnitee, including, without limitation, service to an employee benefit plan)
shall be made only upon delivery to the Corporation of an undertaking
(hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal (hereinafter a "final
adjudication") that such indemnitee is not entitled to be indemnified for such
expenses under this Article or otherwise.
B. If a claim under this Article XII is not paid in full by the
Corporation within a reasonable time after a written claim has been received by
the Corporation, the indemnitee may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim. If successful in
whole or in part in any such suit, or advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid also the
expense of prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that, and (ii) in any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking the Corporation
shall be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met the applicable standard of conduct set forth in the Texas
Business Corporation Act or other applicable law of the State of Texas. Neither
the failure of the Corporation (including its Board of Directors, independent
legal counsel or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification met the applicable standard of
conduct set forth in the Texas Business Corporation Act or other applicable law
of the State of Texas, nor an actual determination by the Corporation (including
its Board of Directors, independent legal counsel, or its shareholders) that the
indemnitee has not met such applicable standard of conduct, shall create a
presumption that the indemnitee has not met the applicable standard of conduct
or, in the case of such a suit brought by the indemnitee, be a defense to such
suit. In any suit brought by the
-4-
<PAGE>
indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder or by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the burden of proving that the
indemnitee is not entitled to be indemnified, or to such advancement of
expenses, under this Article XII or otherwise shall be on the Corporation.
C. The rights to indemnification and to the advancement of expenses
conferred in this Article XII shall not be exclusive of any other right which
any person may have or hereafter acquire under these Articles of Incorporation
or any bylaw, agreement, vote of shareholders or disinterested directors or
otherwise.
D. The Corporation may maintain insurance, at its expense, to protect
itself and any director or officer of the Corporation or another corporation,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under the Texas
Business Corporation Act or other applicable law of the State of Texas.
E. The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification and to the advancement
of expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article XII with respect to the indemnification and
advancement of expenses of directors and officers of the Corporation.
ARTICLE XIII
The initial Bylaws of the Corporation shall be adopted by the Board of
Directors. The power to alter, amend or repeal the Bylaws or adopt new Bylaws is
vested in the Board of Directors.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 28th day
of January, 1988
/s/ G. RUSSELL MORTENSON
-----------------------------------
G. Russell Mortenson, Incorporator
-5-
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
Before me, a Notary Public, on this day personally appeared G. Russell
Mortenson, known to me to be the person whose name is subscribed to the
foregoing document, and being by me first duly sworn, declared that the
statements therein contained are true and correct.
Given under my hand and seal of office this 28th day of January, 1988.
/s/ CHERYL M. SMITH
-----------------------------------
[NOTARY SEAL APPEARS HERE] Name (Printed)
--------------------
Notary Public, State of Texas
My commission expires:
- --------------------------
-6-
<PAGE>
CERTIFICATION OF DESIGNATION
OF RIGHTS AND PREFERENCES
OF THE 7% CUMULATIVE
CONVERTIBLE PREFERRED STOCK,
$1.00 PAR VALUE
OF AMTECH CORPORATION
--------------
Pursuant to Article 2.13 of the
Texas Business Corporation Act
AMTECH CORPORATION, a corporation organized and existing under the Texas
Business Corporation Act (the "Corporation"), does hereby certify that, pursuant
to the authority conferred upon the Board of Directors by the Articles of
Incorporation of the Corporation, and pursuant to the provisions of Article 2.13
of the Texas Business Corporation Act, the Board of Directors of the Corporation
duly adopted a resolution by unanimous written consent dated as of February 1,
1988, providing for the issuance of a series of Five Hundred Thousand (500,000)
shares of 7% Series A Cumulative Convertible Preferred Stock, $1.00 par value,
which resolution is as follows:
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of this Corporation in accordance with the
provision of its Articles of Incorporation, a series of Preferred Stock of
the Corporation be, and it hereby is, given the distinctive designation of
"7% Series A Cumulative Convertible Preferred Stock, $1.00 Par Value"
(hereinafter referred to as the "Series A Preferred Stock"), said series to
consist of Five Hundred Thousand (500,000) shares of the par value of one
dollar ($1.00) per share, of which the voting powers, preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof, shall be as follows:
1. Dividends on Series A Preferred Stock.
The holders of the Series A Preferred Stock shall be entitled to
receive, when and as declared by the Board of Directors out of the
funds of the Corporation legally available therefor, cumulative
dividends at the annual rate of 7% per share, payable quarterly on the
15th day of January, April, July and October in each year. Such
dividends shall be payable in shares of the Series A Preferred Stock.
For purposes of such dividends,
<PAGE>
the value of a share of the Series A Preferred Stock shall be deemed
to be $9.55 per share. If the dividend on the Series A Preferred Stock
for any dividend period shall not have been paid or set apart in full
for the Series A Preferred Stock, the aggregate deficiency shall be
cumulative and shall be fully paid or set apart for payment before any
dividends shall be paid upon or set apart for the Common Stock of the
Corporation. Accumulations of dividends on the Series A Preferred
Stock shall bear interest at the rate of 7% per annum. The initial
dividend paid after the date of original issuance of any shares of
Series A Preferred Stock shall accrue from such date of issuance.
2. Redemption of Series A Preferred Stock.
(a) The Series A Preferred Stock shall be redeemable, in whole
or in part, at the option of the Corporation by resolution of its
Board of Directors, at any time at the redemption price of $9.55 per
share plus all dividends accrued and unpaid on such Series A Preferred
Stock up to the date fixed for redemption, along with accrued and
unpaid interest thereon, upon giving the notice hereinafter provided.
(b) In the event that less than the entire amount of the Series
A Preferred Stock outstanding is redeemed at any one time, then a pro
rata portion of the shares of the Series A Preferred Stock held by
each holder of Series A Preferred Stock shall be redeemed. Not less
than thirty (30) nor more than sixty (60) days prior to the date fixed
for redemption of the Series A Preferred Stock or any part thereof, a
notice specifying the time and place thereof shall be given by mail to
the holders of record of the shares of Series A Preferred Stock
selected for redemption at their respective addresses as the same
shall appear on the stock books of the Corporation, but no failure to
mail such notice or any defect therein or in the mailing thereof shall
affect the validity of the proceedings for redemption. Any notice
which was mailed in the manner herein provided shall be conclusively
presumed to have been duly given whether or not the holder receives
the notice. Upon the redemption date stated in the redemption notice
of the Corporation or the exercise notices of a holder of shares of
Series A Preferred Stock, or upon such earlier date as the Board of
Directors shall designate for payment of the redemption price
-2-
<PAGE>
(unless the Corporation shall default in the payment of the redemption
price as set forth in such notice), the holders of shares of Series A
Preferred Stock to be redeemed shall cease to be shareholders with
respect to the shares that have been redeemed and shall have no
interest in or claim against the Corporation by virtue thereof, other
than the right of the holders thereof to exercise the privilege of
conversion, if any, not theretofore expiring, and shall have no voting
or other rights with respect to such shares except the right to
receive the moneys payable upon such redemption from the Corporation
or otherwise, without interest thereon, upon surrender (and
endorsement, if required by the Corporation) of the certificates
therefor, and the shares represented thereby shall no longer be deemed
to be outstanding. After giving any notice of redemption by the
Corporation of its redemption right and prior to the close of business
on the tenth (10th) calendar day prior to the redemption date as
hereinafter provided, the holders of Series A Preferred Stock so
called for redemption may convert such stock into Common Stock of the
Corporation in accordance with the conversion privileges set forth in
Section 4 hereof.
3. Priority of Series A Preferred Stock in Event of Dissolution.
In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or otherwise, after
payment or provision for payment of the debts and other liabilities of
the Corporation, the holders of the Series A Preferred Stock shall be
entitled to receive out of the remaining net assets of the
Corporation, $9.55 per share of the Preferred Stock in cash for each
share of Series A Preferred Stock, plus an amount equal to all
dividends accrued and unpaid on each such share up to the date fixed
for distribution along with accrued and unpaid interest thereon,
before any distribution shall be made to the holders of any other
shares of capital stock of the Corporation. After payment in full to
the holders of the Series A Preferred Stock of the amounts
distributable to them as aforesaid, the holders of the other shares of
capital stock of the Corporation shall be entitled, to the exclusion
of the holders of the Series A Preferred Stock, to share in the
remaining assets of the Corporation in the manner set forth in the
Articles of
-3-
<PAGE>
Incorporation and the Texas Business Corporation Act.
Neither the consolidation nor merger of the Corporation with or
into any other corporation, nor any sale, lease, exchange or
conveyance of all or any part of the property, assets or business of
the Corporation, shall be deemed to be a voluntary liquidation,
dissolution or winding up of the Corporation within the meaning of
this Section 3.
4. Conversion of Series A Preferred Stock.
(a) Each share of the Series A Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after
the third anniversary of the date of initial issuance of any shares of
Series A Preferred Stock, into shares of Common Stock.
(b) For each share of Series A Preferred Stock converted as
provided in Section 4(a) above, the Corporation shall deliver to the
holder thereof one share of Common Stock. The Corporation shall not be
required, in connection with any such conversion, to issue a fraction
of a share of its Common Stock nor to deliver any stock certificate
representing a fraction thereof, but in lieu thereof, the Corporation
may make a cash payment equal to the product determined by multiplying
the effective per share conversion price by such fraction. The term
"effective per share conversion price" as used herein is defined to
mean $9.55 per share.
(c) Any holder of the Series A Preferred Stock electing to
convert pursuant to Section 4(a) above shall deposit the certificates
for the Series A Preferred Stock at the Corporation's principal
office, with the form of written notice to the Corporation endorsed on
such certificates of his election to convert such Series A Preferred
Stock into Common Stock duly filled out and executed. The conversion
right in respect of any such Series A Preferred Stock shall be deemed
to have been exercised at the date on which the certificates
therefore, with such notice of election duly filled out and executed,
shall have been so deposited, and the person entitled to receive the
Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder of such Common Stock on such date;
provided, however, that the
-4-
<PAGE>
conversion right in respect of any certificate so deposited after the
close of business on any day shall not be deemed to have been
exercised until the next succeeding business day. As soon as
practicable, and in any event within ten business days after the date
of conversion of any Series A Preferred Stock into Common Stock
pursuant to Section 4(a) above, the Corporation shall deliver to the
person entitled thereto, certificates representing the shares of
Common Stock and the cash, if any, to which such person shall be
entitled on such conversion. The Corporation, as a condition to the
exercise of such rights of conversion, may require the payment of a
sum equal to any transfer tax or other governmental charge (but not
including any tax payable upon the issue of stock deliverable upon
such conversion) that may be imposed or required by law, upon any
transfer incidental or prior thereto, or the submission of proper
proof that the same has been paid;
(d) The number of shares of Common Stock into which, under the
conversion ratio stated in Section 4(b) above, each share of the
Series A Preferred Stock is convertible, is based upon an assigned
conversion ratio of one to one and an assigned conversion value of the
Common Stock of $9.55 per share (the "basic conversion value"). Such
conversion ratio and such basic conversion value shall be subject to
adjustment from time to time in certain instances, as follows:
(i) In case the Corporation shall at any time issue any
of its Common Stock as a dividend or in subdivision of outstanding
Common Stock, by reclassification or otherwise, the number of shares
of Common Stock in the conversion ratio then in effect shall be
increased proportionately and the basic conversion value shall be
decreased proportionately, and in like manner, in case of any
combination of Common Stock, by reclassification or otherwise, such
number of shares of Common Stock in the conversion ratio shall be
proportionately reduced and the basic conversion value shall be
increased proportionately.
(ii) In case of any capital reorganization other than in
the cases referred to in subparagraph (i) of this paragraph (d), or
reclassification of the capital stock of the Corporation or in case of
the merger or consolidation of the Corporation with another
corporation,
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<PAGE>
there shall thereafter be deliverable upon the conversion of a share
of the Series A Preferred Stock (in lieu of the number of shares of
Common Stock theretofore deliverable) the number of shares of stock or
other securities or property to which the holder of the number of
shares of Common Stock of the Corporation which would otherwise have
been deliverable upon the conversion of such share of the Series A
Preferred Stock at the time would have been entitled upon such capital
reorganization or reclassification of capital stock, merger or
consolidation, and in any such case appropriate adjustment shall be
made in the application of the provisions herein set forth with
respect to rights and interests thereafter of the holders of the
Series A Preferred Stock to the end that the provisions set forth
herein shall thereafter be applicable, as nearly as possible, in
relation to any shares or other property thereafter deliverable upon
the conversion of the Series A Preferred Stock.
(iii) If at any time after the date of issuance of the
Series A Preferred Stock the Corporation issues any additional shares
of Common Stock and sells such shares for cash at a price per share
which is less than the basic conversion value thereof then in effect,
or issues for property or services having a fair value that is less
per share than the basic conversion value thereof then in effect, the
basic conversion value shall then be adjusted in the following manner:
There shall be added to the aggregate value (based on the basic
conversion value then in effect) of the number of shares of Common
Stock outstanding immediately prior to such sale or issue, the
aggregate amount of money and/or the fair value in money of the
property or services actually received by the Corporation from the
sale and/or issue of such additional shares, and the resulting sum
shall be divided by the number of shares of Common Stock outstanding
immediately prior to such sale and/or issue, increased by the
aggregate number of additional shares of Common Stock so sold and/or
issued, and the quotient resulting from such division shall then
become the basic conversion value, and shall result in an adjustment
in the conversion ratio in the manner provided in Section 4(d)(v)
below.
(iv) If at any time after the date of issuance of the
Series A Preferred Stock the
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<PAGE>
Corporation grants any right or option to purchase shares of Common
Stock, or issues any security convertible into or exchange for shares
of Common Stock, at a price or value per share of less than the basic
conversion value, then the basic conversion value shall be adjusted in
the same manner as provided in Section 4(d)(iii) as if all the shares
of Common Stock issuable upon the exercise of such right or option, or
into which such security is convertible or exchangeable, had been
issued at such right or option exercise price or such conversion or
exchange value per share.
(v) Upon the adjustment of the basic conversion value, as
provided in Sections 4(d)(iii) and (iv) above, the conversion ratio at
the time in effect shall be adjusted in the following manner: The
number of shares of Common Stock into which each share of Series A
Preferred Stock is then convertible shall be divided by a fraction,
the numerator of which shall be the basic conversion value after said
adjustment and the denominator of which shall be the basic conversion
value immediately prior to said adjustment, and the quotient resulting
therefrom shall be the adjusted conversion ratio.
(vi) Upon conversion of each share of Series A Preferred
Stock, all dividends accrued thereon shall be paid in shares of Series
A Preferred Stock on the basis of $9.55 per share to the holder
thereof at such time or times as funds are legally available therefor.
(e) In case at any time:
(i) the Corporation shall declare any dividend payable in
cash or in shares upon its Common Stock or make any distribution to
the holders of its Common Stock; or
(ii) the Corporation shall offer for subscription pro rata
to the holders of its Common Stock any additional shares of any class
or any other rights; or
(iii) of any capital reorganization, or reclassification of
the shares of the Corporation or of the merger or consolidation of the
Corporation with another corporation; or
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<PAGE>
(iv) of the voluntary dissolution, liquidation or winding
up of the Corporation;
then, and in any one or more of said cases, the Corporation shall
cause at least twenty days' prior notice to be mailed to the holders
of record of the outstanding Series A Preferred Stock of the date on
which (x) a record date for such dividend, distribution or
subscription rights, or (y) such capital reorganization,
reclassification, merger, consolidation, dissolution, liquidation or
winding up shall take place, as the case may be. Such notice shall
also specify the date as of which holders of record of Common Stock
shall participate in said dividend, distribution or subscription
rights or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such capital
reorganization, reclassification, merger, consolidation, dissolution,
liquidation, or winding up, as the case may be.
(f) In each case where reference is made to the Common Stock of
the Corporation in these provisions, unless a different intention is
expressed, such reference is to the class of Common Stock of the
Corporation as such class of stock exists at the date of the adoption
of these provisions, or stock into which the same may be changed from
time to time.
(g) So long as any shares of the Series A Preferred Stock shall
remain outstanding and the holders thereof shall have the right to
convert said shares in accordance with the provisions of this Section
4, the Corporation will at all times reserve from the authorized and
unissued shares of its Common Stock a sufficient number of shares to
provide for such conversions, and will take such other corporate
action as may be necessary from time to time in order that it may
validly and legally issue fully paid and non-assessable shares of
such Common Stock upon conversion of the Series A Preferred Stock.
5. Any shares of the Series A Preferred Stock which shall have been
converted into Common Stock in accordance with the provisions of Section 4
shall assume the status of authorized but unissued Preferred Stock and
shall not be reissued as shares of the Series A Preferred Stock.
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<PAGE>
6. The number of shares of Series A Preferred Stock may not be
increased.
7. In no event shall any other series of the Preferred Stock, $1.00
par value, of the Corporation be created that shall be preferred over the
Series A Preferred Stock in the right to receive dividends and to
participate in the assets of the Corporation upon liquidation of the
Corporation.
8. So long as any shares of the Series A Preferred Stock shall
remain outstanding, the holders thereof, voting separately as a class,
shall have the right and power and shall be entitled to vote upon any
amendment to the Articles of Incorporation of the Corporation.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by G. Russell Mortenson, its President, and attested by Phillip A. Wylie,
its Secretary, this ____ day of March, 1988.
AMTECH CORPORATION
By /s/ G. RUSSELL MORTENSON
---------------------------------
G. Russell Mortenson,
President
ATTEST:
By /s/ PHILLIP A. WYLIE
--------------------------------------
Phillip A. Wylie
Secretary
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<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
AMTECH CORPORATION
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, the undersigned corporation adopts the following Articles of
Amendment to its Articles of Incorporation:
ARTICLE ONE
The name of the corporation is Amtech Corporation.
ARTICLE TWO
The following amendment to the Articles of Incorporation was adopted
by each of the shareholders of the corporation by signed Waiver and Consent, and
relates to an increase in the authorized shares of Common Stock. The amendment
alters Article IV of the Articles of Incorporation, and the full text of Article
IV as amended is as follows:
ARTICLE IV.
The total number of shares of capital stock which the Corporation
shall have the authority to issue is Thirty Million (30,000,000) shares of
Common Stock, $.01 par value, and Ten Million (10,000,000) shares of
Preferred Stock, $1.00 par value. The Board of Directors of the Corporation
is authorized, subject to limitations prescribed by law and the provisions
of this Article IV, to provide for the issuance of Preferred Stock from
time to time in one or more series, to establish the number of shares to be
included in each series, and to fix the designations, powers, relative
rights, qualifications, preferences, limitations and restrictions of the
shares of each such series not fixed hereby.
ARTICLE THREE
The following amendment to the Articles of Incorporation was adopted
by each of the shareholders of the corporation by signed Waiver and Consent, and
relates to cumulative voting. The amendment alters Article VI of the Articles of
Incorporation, and the full text of Article VI as amended is as follows:
ARTICLE VI.
No shareholder of the Corporation will be entitled to cumulative
voting with respect to the election of directors.
<PAGE>
ARTICLE FOUR
The number of shares of the Corporation outstanding at the time of
such adoption was:
No. of Shares Class/Series
------------- -----------------------------------------------------
824,762 7% Series A Cumulative Convertible Preferred Stock
144,006 7% Series B Cumulative Convertible Preferred Stock
144,006 7% Series C Cumulative Convertible Preferred Stock
3,474,649 Common Stock
The number of shares entitled to vote thereon was:
No. of Shares Class/Series
------------- -----------------------------------------------------
824,762 7% Series A Cumulative Convertible Preferred Stock
144,006 7% Series B Cumulative Convertible Preferred Stock
144,006 7% Series C Cumulative Convertible Preferred Stock
3,474,649 Common Stock
ARTICLE FIVE
The holders of all of the shares outstanding and entitled to vote on
said amendments have each signed a Waiver and Consent adopting said amendments.
Dated November 7, 1989.
AMTECH CORPORATION
/s/ PHILLIP A. WYLIE
-----------------------------------
Secretary
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<PAGE>
EXHIBIT 10.1
<PAGE>
AMTECH CORPORATION
1990 STOCK OPTION PLAN
----------------------
1. Purpose. The purpose of the Plan is to benefit the Company and its
Subsidiaries by offering certain present and future Employees a favorable
opportunity to acquire shares of Stock of the Company over a period of years,
thereby giving such Employees a permanent stake in the growth and prosperity of
the Company, encouraging such Employees to continue their services with the
Company and its Subsidiaries, and motivating such Employees to devote their
best efforts to the business and profitability of the Company and its
Subsidiaries.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Change of Control" shall mean the occurrence, at any time during
the specified term of an Option, of any of the following events:
(1) The Company is merged or consolidated or reorganized into or
with another Person and as a result of such merger, consolidation or
reorganization less than seventy-five percent (75%) of the outstanding
voting securities or other material capital interests of the
surviving, resulting or acquiring Person are owned in the aggregate by
Persons who were shareholders of the Company immediately prior to such
merger, consolidation or reorganization;
(2) The Company sells all or substantially all of its business
or assets to any other Person, less than seventy-five percent (75%) of
the outstanding voting securities or other material capital interests
of which are owned in the aggregate by Persons who were shareholders
of the Company, directly or indirectly, immediately prior to such
sale; or
(3) Any Person (or group of Persons acting in concert), other
than the Company, becomes the beneficial owner, directly or
indirectly, of thirty-five percent (35%) or more of the issued and
outstanding shares of voting securities of the Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(d) "Company" shall mean Amtech Corporation, a Texas corporation.
(e) "Date of Grant" shall mean, with respect to each Option granted by
the Plan Administrator pursuant to the Plan, the date specified in Section 1 of
the Option Agreement relating to such Option.
(f) "Director" shall mean any duly elected and qualified member of the
Board.
<PAGE>
(g) "Disability" shall mean any medically determinable physical or
mental impairment that, in the opinion of the Plan Administrator, based upon
medical reports and other evidence satisfactory to the Plan Administrator, can
reasonably be expected to prevent an Employee from performing substantially all
of his customary duties of employment for a continuous period of not less than
twelve (12) months.
(h) "Employee" shall mean any salaried employee of the Company or any
Subsidiary, except a salaried employee who is serving as a Director.
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(j) "Fair Market Value" shall mean the closing price of the Stock as
quoted on NASDAQ/NMS on the last business day immediately preceding the date on
which the Option is granted or the date of exercise, as the case may be.
(k) "NASDAQ/NMS" shall mean the NASDAQ National Market System.
(l) "Option" shall mean any right to purchase Stock which has been granted
pursuant to the Plan.
(m) "Option Agreement" shall mean an agreement executed by an officer of
the Company and an Optionee evidencing the grant of an Option pursuant to the
Plan.
(n) "Optionee" shall mean any Employee who receives an Option or any
Person who acquires an Option by reason of the death of an Employee.
(o) "Person" shall mean an individual, a corporation, a partnership, an
association, a joint-stock company, a trust, an unincorporated organization or a
government or political subdivision thereof.
(p) "Plan" shall mean the Amtech Corporation 1990 Stock Option Plan.
(q) "Plan Administrator" shall mean the Board or, in the alternative,
any committee of three or more Directors authorized by the Board to administer
the Plan.
(r) "Resignation" shall mean the voluntary termination by an Employee
of his employment relationship with the Company under circumstances other than
voluntary Retirement.
(s) "Retirement" shall mean the termination of an Employee's employment
in accordance with the requirements of a written retirement plan, policy or rule
of the Company which has been duly adopted by the Board.
(t) "Rule 16b-3" shall mean Rule 16b-3 of the rules and regulations
under the Exchange Act as it may be amended from time to time and any successor
provision to Rule 16b-3 under the Exchange Act.
(u) "Securities Act" shall mean the Securities Act of 1933, as amended.
(v) "Stock" shall mean the $.01 par value Common Stock of the Company.
(w) "Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company in which each of the corporations (other
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<PAGE>
than the last corporation) in the unbroken chain owns shares of capital stock
possessing fifty percent (50%) or more of the total combined voting power of all
classes of capital stock of one of the other corporations in such chain at the
date of grant of an Option.
3. Shares Subject to the Plan. Except as otherwise required by the
provisions of Section 9 hereof, the aggregate number of shares of Stock issuable
upon the exercise of Options granted pursuant to the Plan shall not exceed
345,045 shares. Such shares may either be authorized but unissued shares or
treasury shares.
The exercise price of each Option granted pursuant to the Plan shall be
determined by the Plan Administrator and, subject to the provisions of Section 9
hereof, shall be not less than the Fair Market Value, at the time the Option is
granted, of the shares of Stock subject to the Option.
Subject to the limitations provided above, if an Option should expire or
become unexercisable for any reason without having been exercised in full, the
unpurchased shares of Stock that were subject thereto shall, unless the Plan
shall have terminated, be available for the grant of other Options under the
Plan.
4. Administration of the Plan. The following provisions shall govern the
administration of the Plan:
(a) The Plan shall be administered by the Plan Administrator.
(b) The Plan Administrator is authorized (but only to the extent not
contrary to the express provisions of the Plan) to interpret the Plan, to
prescribe, amend and rescind rules and regulations relating to the Plan and
to the Options granted under the Plan, to determine the form and content of
Options to be issued under the Plan (including the exercise price, the
exercise period and the exercise increments of each such Option) and to
make such other determinations and exercise such other powers and authority
as may be necessary or advisable for the administration of the Plan. Each
Option granted pursuant to the Plan shall be evidenced by the Option
Agreement in such form as may be determined by the Plan Administrator.
(c) A majority of the members of the Plan Administrator eligible to
act shall constitute a quorum for purposes of acting with respect to the
Plan, and the action of a majority of the members present who are eligible
to act at any meeting at which a quorum is present shall be deemed the
action of the Plan Administrator.
(d) All decisions, determinations and interpretations of the Plan
Administrator with respect to the Plan and Option Agreements executed
pursuant thereto shall be final and conclusive on all persons affected
thereby.
(e) Neither the Plan Administrator nor any member thereof shall be
liable for any act, omission, interpretation, construction or determination
made in connection with the Plan in good faith, and the members of the Plan
Administrator shall be entitled to indemnification and reimbursement by the
Company in respect of any claim, loss, damage or expense (including counsel
fees) arising therefrom to the full extent permitted by law. The members of
the
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<PAGE>
Plan Administrator shall be named as insureds under any directors and
officers liability insurance coverage that may be in effect from time to
time.
5. Eligibility. All Employees of the Company and its Subsidiaries are
eligible to receive Options under the Plan. The Plan Administrator is authorized
to select from the Employees who are eligible to receive Options under the Plan
the particular Employees who will receive Options and to determine the number of
Options and the number of shares of Stock under each Option. In granting
Options, the Plan Administrator shall take into consideration the contribution
an Employee has made or may make to the success of the Company or its
Subsidiaries and such other factors as the Plan Administrator shall determine.
The Plan Administrator shall also have the authority to consult with and receive
recommendations from Directors and Employees of the Company and its Subsidiaries
with regard to these matters. In no event shall any Employee or his legal
representatives, heirs, legatees, distributees or successors have any right to
participate in the Plan except to such extent, if any, as the Plan Administrator
shall determine.
6. Term of the Plan. The Plan shall continue in effect until
terminated pursuant to Section 15; provided, however, that all Options granted
pursuant to the Plan must be granted within 10 years from the effective date of
the Plan.
7. Termination of Employment - Exercise Thereafter. In the event of
termination of an Optionee's employment due to death, Retirement, Resignation,
Disability or termination by the Company for any reason other than "cause" (such
five events each being a "Qualified Termination"), the Option may be exercised
by the Optionee or his estate, personal representative or beneficiary to the
full extent that the Optionee was entitled to exercise the same on the day
immediately prior to such termination (i) at any time within the one-year period
commencing on the day next following such termination if such termination is due
to death of the Optionee; (ii) at any time within the thirty-day period
commencing on the day next following the effective date of such termination if
such termination is due to the Resignation of the Optionee; or (iii) at any time
within the six-month period commencing on the day next following such
termination in the case of any other Qualified Termination. In the event that
the Optionee's employment is terminated for any reason other than a Qualified
Termination, the Option shall automatically expire simultaneously with such
termination. For purposes of this Section, "cause" shall mean (x) the failure,
in the sole opinion of the Company or the Subsidiary which employs Optionee, of
Optionee to adequately perform the duties assigned to Optionee (other than any
such failure resulting from Optionee's Disability); (y) the engagement by
Optionee in misconduct which, in the sole opinion of the Company or the
Subsidiary which employs Optionee, is or may have the effect of being materially
injurious to the Company or its Subsidiaries; or (z) the conviction of Optionee
of any felony or crime of moral turpitude.
8. Transferability. An Option granted pursuant to the Plan shall not
be transferable by the Optionee otherwise than by will or the laws of descent
and distribution, and the Option shall be exercisable, during the Optionee's
lifetime, only by Optionee or his legal representative or guardian. More
particularly (but without limiting the generality of the foregoing), an Option
may not be assigned, transferred (except as aforesaid), pledged or hypothecated
in any way (whether by operation of law or otherwise), and shall not be subject
to execution, attachment or similar process, without the prior written consent
of the Company. Any attempted assignment, contrary to the provisions hereof, and
the levy of any attachment or
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<PAGE>
similar process upon the Option, which would otherwise affect a change in the
ownership of the Option, shall terminate the Option.
9. Adjustment. The number of shares subject to the Plan and to Options
granted pursuant to the Plan shall be adjusted as follows: (a) in the event that
the outstanding Stock is changed by reason of a stock dividend, stock split,
recapitalization or combination of shares, the number of shares of Stock subject
to the Plan and to Options granted pursuant to the Plan shall be proportionately
adjusted; or (b) in the event of any merger, consolidation or reorganization of
the Company with any other corporation or corporations, there shall be
substituted for each share of Stock then subject to the Plan and to Options
granted pursuant to the Plan the number and kind of shares of stock or other
securities to which the holders of shares of Stock will be entitled pursuant to
the transaction. In the event of any such adjustment, the purchase price per
share shall be proportionately adjusted.
10. Change of Control. Any Option previously granted under the Plan to an
Optionee who is an Employee on the date of a Change in Control shall become
exercisable in full on such date and, except in the case of a termination of
employment for cause in conjunction with or following the Change of Control, may
be exercised by the Optionee at any time during the remainder of the term of the
Option, without regard to any exercise increments established pursuant to any
applicable Option Agreement. In the case of a termination of employment for
cause in conjunction with or following a Change of Control, the Option may be
exercised by the Optionee at any time within a period of not less than six
months nor more than three (3) years (the length of which period shall be within
the discretion of the Plan Administrator and shall be evidenced conclusively by
the giving of appropriate and timely notice to the Optionee in accordance with
the terms of the applicable Option Agreement) after the date of such
termination.
11. Exercise of Option. An Option may be exercised by giving written
notice to the Company, attention of the Treasurer. The notice shall (i) state
the election to exercise the Option and the number of shares in respect of which
it is being exercised; (ii) be signed by the Optionee; and (iii) be accompanied
by the representation and covenant required under Section 12 hereof and any
other written representations, covenants, and undertakings that the Company may
prescribe to satisfy securities laws and regulations or other requirements. In
addition, the notice shall be accompanied by (a) cash in an amount equal to the
full purchase price of the shares to be purchased, a certified or bank cashier's
check payable to the order of the Company in an amount equal to the full
purchase price of the shares to be purchased, shares of Stock or a combination
of these methods of payment; or (b) if the shares to be purchased are covered by
an effective registration statement under the Securities Act, a written
statement signed by the Optionee that the exercise is a "cashless exercise"
through a brokerage firm in accordance with Section 220.3(e)(4) of Regulation T
issued by the Board of Governors of the Federal Reserve System ("Reg T")
pursuant to the Exchange Act, in which latter event the Company will use its
best efforts to comply with the requirements of Reg T. In the event that shares
of Stock are used as a method of payment, the per share value of Stock shall be
the Fair Market Value on the date of exercise. The certificate or certificates
for the shares as to which the Option shall have been so exercised shall be
registered in the name of the Optionee or his designee and shall be delivered to
or upon the written order of the Optionee. The Company shall be entitled to
place the following legend (or a legend which is substantially similar to the
following legend) upon, and to issue appropriate
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<PAGE>
stop transfer instructions with respect to, the certificate or certificates
representing the shares issued upon exercise of the Option:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY APPLICABLE STATE SECURITIES LAWS (THE "STATE LAWS"), AND SUCH
SHARES MAY NOT BE TRANSFERRED UNLESS (A) A REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND APPLICABLE STATE LAWS COVERING SUCH
TRANSFER IS THEN IN EFFECT; OR (B) AN OPINION OF COUNSEL, SATISFACTORY
TO THE ISSUER, HAS BEEN FURNISHED STATING THAT SUCH TRANSFER IS
EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
APPLICABLE STATE LAWS."
All shares of Stock issued as provided herein shall be duly and validly issued,
fully paid and non-assessable.
12. Securities Law Restrictions. The Company shall not be obligated to
issue any shares purchased upon exercise of an Option until, in the opinion of
the Company and its counsel, such issuance will not involve any violation of
applicable federal and state securities laws, the rules and regulations
promulgated thereunder and the requirements of any stock exchange upon which the
Stock may then be listed. Acceptance of an Option by an Optionee shall
constitute the Optionee's agreement that any shares of Stock purchased upon the
exercise of the Option shall be acquired for the Optionee's own account and not
with a view to distribution and that each notice of the exercise of any portion
of the Option shall be accompanied by a written representation and covenant
signed by the Optionee, in such form as may be specified by the Company,
confirming such agreement and containing such other provisions as may be
prescribed by the Company. The Company may, at its election, release an Optionee
from the Optionee's agreement to take for the Optionee's own account and not
with a view to distribution of the shares of Stock purchased upon exercise of
the Option, if in the opinion of the Company such covenant ceases to be
necessary for compliance with the applicable federal and state securities laws
(including the rules and regulations promulgated thereunder) and the
requirements of any stock exchange upon which the Stock may be then listed.
13. Listing or Registration of Stock. Each Option granted pursuant to
the Plan is subject to the requirement that, if at any time the Board shall
determine, in its discretion, that the listing, registration or qualification of
the shares of Stock subject to the Option upon any securities exchange or under
any state or federal law, or the consent or approval of any government
regulatory body, is necessary or desirable as a condition of, or in connection
with, the granting or exercise of the Option or the issue or purchase of shares
under the Option, the Option may not be exercised in whole or in part until such
listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Board. The
Company shall be under no obligation to effect or obtain any such
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<PAGE>
listing, registration, qualification, consent or approval if the Board shall
determine, in its discretion, that such action would not be in the best
interests of the Company. The Company shall not be liable for damages due to a
delay in the delivery or issuance of any stock certificates for any reason
whatsoever, including, but not limited to, a delay caused by listing,
registration or qualification of the shares of Stock subject to an Option upon
any securities exchange or under any federal or state law or the effecting or
obtaining of any consent or approval of any governmental body with respect to
the granting or exercise of the Option or the issue or purchase of shares under
the Option.
14. Modification of Options. At any time and from time to time the Plan
Administrator may execute an instrument providing for modification, extension,
or renewal of any outstanding Option, provided that no such modification,
extension or renewal shall (i) impair the Option in any respect without the
consent of the holder of the Option or (ii) conflict with the provisions of Rule
16b-3.
15. Amendment and Termination of the Plan. The Board may alter, suspend
or discontinue the Plan, except that no action of the Board may increase the
benefits accruing to Employees under the Plan, increase (other than as provided
in Section 9) the maximum number of shares permitted to be issued upon the
exercise of Options granted pursuant to the Plan or materially modify the
requirements as to eligibility for participation in the Plan unless such action
of the Board shall be subject to approval by the shareholders of the Company.
16. Shareholder Rights. The holder of an Option shall have none of the
rights of a shareholder with respect to the shares of Stock subject to the
Option until such shares shall have been issued to him upon the due exercise of
the Option.
17. Withholding of Taxes. The Plan Administrator may make such provisions
and take such steps as it may deem necessary or appropriate for the withholding
of any taxes which the Company or any Subsidiary is required by any law or
regulation of any governmental authority, whether federal, state or local,
domestic or foreign, to withhold in connection with any Option, including, but
not limited to, the withholding of the issuance of all or any portion of the
shares of Stock subject to the Option until the Optionee reimburses the Company
or the applicable Subsidiary for the amount the Company or the applicable
Subsidiary is required to withhold with respect to such taxes, canceling any
portion of the issuance in an amount sufficient to reimburse the Company or the
applicable Subsidiary for the amount it is required to so withhold, or taking
any other action reasonably required to satisfy the withholding obligation of
the Company or the applicable Subsidiary.
18. Restrictions on Stock. The Plan Administrator may impose such
restrictions on the ownership and transfer of shares of Stock issued upon
exercise of Options granted pursuant to the Plan as it deems desirable and any
such restrictions shall be set forth in the Option Agreement evidencing the
Options; provided, however, that any such restrictions shall not be materially
more burdensome than the restrictions imposed upon the other outstanding,
unregistered shares of Stock.
19. Reservation of Stock. The Company during the term of the Plan will
reserve and keep available such number of shares of Stock as shall be sufficient
to satisfy the requirements of the Plan.
20. Continued Employment Not Presumed. Nothing in the Plan or any document
describing it nor the grant of an Option shall give an Optionee the right to
-7-
<PAGE>
continue in employment with the Company or any of its Subsidiaries or affect the
right of the Company or a Subsidiary to terminate the employment of any Optionee
with or without cause.
21. Effective Date. The Plan shall become effective on the date of the
later of adoption by the Board and adoption by the shareholders of the Company
in accordance with Rule 16b-3.
CERTIFICATE
-----------
The foregoing Amtech Corporation 1990 Stock Option Plan was adopted by
the Board (as therein defined) on March 28, 1990 and by the shareholders of the
Company on May 24, 1990.
/s/ PHILLIP A. WYLIE
-----------------------------------
Phillip A. Wylie, Secretary
-8-
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
---------------------------
AMGT Corporation
(Delaware corporation)
Amtech Europe Limited
(United Kingdom corporation)
Amtech IDG, Inc.
(Delaware corporation)
Amtech International, S.A.
(French corporation)
Amtech Systems Corporation
(Delaware corporation)
Amtech Systems (Hong Kong) Limited
(Hong Kong corporation)
Amtech World Corporation
(Delaware corporation)
Cardkey Systems Pacific Pty. Limited
(Australian corporation)
Cardkey Sicherheitssysteme GmbH
(German corporation)
Cardkey Systems, Inc.
(Delaware corporation)
Cardkey Systems Limited
(United Kingdom corporation)
Cotag International, Inc.
(Delaware corporation)
Cotag International Limited
(United Kingdom corporation)
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-34451) pertaining to the 1988 Stock Option Plan, 1989 Stock Option
Plan, 1990 Stock Option Plan, and the Original Stock Plan of Amtech Corporation;
the Registration Statement (Form S-8 No. 33-53010) pertaining to the Amtech
Corporation 1992 Stock Option Plan; the Registration Statements (Form S-8 No.
33-65061 and Form S-8 No. 333-06507) pertaining to the Amtech Corporation 1995
Long-Term Incentive Plan; the Registration Statement (Form S-8 No. 333-06503)
pertaining to the Amtech Corporation 1996 Directors' Stock Option Plan; the
Registration Statement (Form S-8 No. 333-06505) pertaining to the Amtech
Corporation 401(k) Plan; and the Registration Statement (Form S-8 No. 333-06511)
pertaining to the Amtech Corporation 1996 Employee Stock Purchase Plan of our
report dated February 27, 1998, with respect to the consolidated financial
statements of Amtech Corporation included in this Annual Report (Form 10-K) for
the year ended December 31, 1997.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
Dallas, Texas
March 25, 1998
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