<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant To Section 13 or 15(d) of the
----- Securities Exchange Act of 1934 for the quarterly period ended
September 26, 1998
----- 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 1-12912
CENTENNIAL TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 04-2978400
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
7 LOPEZ ROAD, WILMINGTON, MASSACHUSETTS 01887
(Address of Principal Executive Offices) (Zip Code)
(978) 988-8848
(Registrant's Telephone Number, Including Area Code)
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 [ ]
As of October 13, 1998, there were 20,546,683 shares of Common Stock,
$.01 par value per share (the "Common Stock"), of the Registrant
outstanding.
<PAGE>
CENTENNIAL TECHNOLOGIES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I. Financial Information (Unaudited) Page Number
<S> <C>
Item 1. Financial Statements 3
Consolidated Balance Sheets at September 26, 1998 and 3
March 31, 1998
Consolidated Statements of Operations for three and six 4
months ended September 26, 1998 and September 27, 1997
Consolidated Statements of Cash Flows for six months 5
ended September 26, 1998 and September 27, 1997
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Part II. Other Information
Item 1. Legal Proceedings 21
Item 2. Changes in Securities and Use of Proceeds 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
</TABLE>
2
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
CENTENNIAL TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
September 26, March 31,
1998 1998
------------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 7,990 $ 5,358
Trade accounts receivable............................................. 3,499 3,677
Less allowances.................................................. (909) (868)
---------- ---------
2,590 2,809
Recoverable income taxes.............................................. 337 337
Inventories........................................................... 1,459 2,309
Other current assets.................................................. 173 684
---------- ---------
Total current assets....................................................... 12,549 11,497
Equipment and leasehold improvements....................................... 4,222 3,973
Less accumulated depreciation and amortization........................ (1,781) (1,242)
----------- ----------
2,441 2,731
Other assets............................................................... 387 417
Investment in former affiliate............................................. 1,700 2,433
---------- ---------
Total assets............................................................... $ 17,077 $ 17,078
----------- ----------
----------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Obligations under capital leases...................................... $ 71 $ 70
Accounts payable and accrued expenses................................. 6,804 8,070
---------- ---------
Total current liabilities.................................................. 6,875 8,140
Long-term obligations under capital leases................................. -- 36
Contingencies (Note 8)
Stockholders' equity:
Preferred Stock, $.01 par value; 1,000,000 shares
authorized, none issued............................................... -- --
Common Stock, $.01 par value; 50,000,000 shares authorized,
20,549,000 issued and outstanding at September 26, 1998 and
18,499,000 issued and outstanding at March 31, 1998................... 205 185
Additional paid-in capital............................................ 84,200 84,220
Accumulated deficit................................................... (74,203) (75,503)
----------- ----------
Total stockholders' equity................................................. 10,202 8,902
---------- ---------
Total liabilities and stockholders' equity................................. $ 17,077 $ 17,078
----------- ----------
----------- ----------
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
3
<PAGE>
CENTENNIAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------- ----------------------------
September 26, September 27, September 26, September 27,
1998 1997 1998 1997
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Net sales ................................... $ 6,151 $ 6,901 $ 12,386 $ 13,474
Cost of goods sold...................... 4,241 5,993 8,831 12,504
-------- -------- -------- --------
Gross profit....................... 1,910 908 3,555 970
Operating expenses:
Engineering, research and
development costs ...................... 167 215 369 434
Selling, general and
administrative expenses ................ 1,490 2,803 2,898 4,460
-------- -------- -------- --------
Operating income/(loss) ............... 253 (2,110) 288 (3,924)
Provision for loss on
inventory subject to customer
dispute ................................... -- 1,841 -- 1,841
Proceeds from resolution of
customer dispute .......................... (1,600) -- (1,600) --
Loss on investment activities ............... 733 5,424 733 8,909
Special investigation costs ................. -- -- -- 597
Lease cancellation charge ................... -- 258 -- 258
Net interest (income)/expense ............... (81) 69 (145) 147
-------- -------- -------- --------
Income/(loss) before
equity in earnings of
affiliate ............................... 1,201 (9,702) 1,300 (15,676)
Equity in earnings (loss) of
affiliate ............................... -- (77) -- 423
-------- -------- -------- --------
Net income/(loss) ..................... $ 1,201 $ (9,779) $ 1,300 $(15,253)
-------- -------- -------- --------
-------- -------- -------- --------
Net income/(loss) per share -
basic ..................................... $ .06 $ (.52) $ .07 $ (.83)
Net income/(loss) per share
-diluted .................................. $ .06 $ (.52) $ .07 $ (.83)
Weighted average shares
outstanding - basic ....................... 20,031 18,648 19,278 18,412
Weighted average shares
outstanding - diluted ..................... 20,034 18,648 19,445 18,412
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
4
<PAGE>
CENTENNIAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
--------------------------------
September 26, September 27,
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income/(loss) ......................... $ 1,300 $(15,253)
Adjustments to reconcile net income/(loss)
to net cash from operating
activities:
Depreciation and amortization ............. 539 514
Equity in earnings of affiliate ........... -- (423)
Provision for loss on accounts receivable . 90 128
Provision for loss on investments ......... 733 7,019
Change in operating assets and liabilities:
Accounts receivable ..................... 129 1,864
Inventories ............................. 850 5,394
Notes receivable from affiliate ......... -- 4,129
Recoverable income taxes ................ -- 7,019
Other assets ............................ 541 1,131
Accounts payable and accrued expenses ... (1,266) (2,397)
-------- --------
Net cash provided by operating activities 2,916 9,125
Cash flows from investing activities:
Capital expenditures ...................... (261) (667)
Disposal of capital equipment ............. 12 477
Investment in affiliates .................. -- (1,141)
-------- --------
Net cash used in investing activities ... (249) (1,331)
Cash flows from financing activities:
Net borrowings under line of credit ....... -- (8,464)
Borrowings from term loans ................ -- 938
Payments on term loans .................... -- (19)
Payments on capital leases ................ (35) (532)
Proceeds from exercise of stock options ... -- 208
Foreign currency translation adjustment ... -- 77
-------- --------
Net cash used in financing activities ... (35) (7,792)
-------- --------
Net increase in cash and cash equivalents ... 2,632 2
Cash and cash equivalents at beginning of
period .................................... 5,358 57
-------- --------
Cash and cash equivalents at end of period .. $ 7,990 $ 59
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
5
<PAGE>
CENTENNIAL TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND CHANGE IN FISCAL YEAR
Basis of Presentation
The consolidated financial statements of Centennial Technologies, Inc. (the
"Company") include the accounts of the Company and all wholly owned
subsidiaries. Investments in companies in which ownership interests range from
20 to 50 percent and the Company exercises significant influence over operating
and financial policies are accounted for using the equity method. Other
investments are accounted for using the cost method. All significant
intercompany balances and transactions have been eliminated. Certain
reclassifications have been made to prior reported financial statements to
conform to the fiscal 1999 presentation.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all financial information and
disclosures required by generally accepted accounting principles for complete
financial statements. In the opinion of management, these financial statements
include all adjustments (consisting only of normal recurring accruals) necessary
for a fair presentation of the results of operations for the interim periods
reported and of the financial condition of the Company as of the date of the
interim balance sheet. The results of operations for interim periods are not
necessarily indicative of the results to be expected for the full year.
These financial statements should be read in conjunction with the Company's
consolidated financial statements and related notes included in the Company's
Annual Report on Form 10-K for the fiscal period ended March 31, 1998.
Change in Fiscal Year
On March 24, 1997, the Company's Board of Directors voted to change the
fiscal year end from June 30 to March 31. All references to fiscal 1999 and
fiscal 1998 in the accompanying financial statements relate to the twelve months
ended March 31, 1999 and 1998, respectively. All references to fiscal 1997 in
the accompanying financial statements relate to the nine months ended March 31,
1997. References to fiscal 1996, 1995 and 1994 relate to the respective years
ended June 30.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The Company
has no requirements for compensating balances. At September 26, 1998, all of the
Company's cash was on account with the Company's secured lender.
2. CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of trade receivables. If any
of the Company's major customers fail to pay the Company on a timely basis, it
could have a material adverse effect on the Company's business, financial
condition and results of operations.
For the three and six months ended September 26, 1998, one customer
accounted for approximately 19% and 26% of the Company's sales, respectively. At
September 26, 1998, this customer accounted for approximately $.5 million, or
18% of the Company's net accounts receivable balance.
For the three and six months ended September 27, 1997, one customer
accounted for approximately 29% and 28% of the Company's sales, respectively. At
September 27, 1997, this customer accounted for approximately $1.0 million, or
29% of the Company's net accounts receivable balance.
6
<PAGE>
Approximately 12% and 8% of the Company's sales for the three months ended
September 26, 1998 and September 27, 1997, respectively, and approximately 10%
of the Company's sales for each of the six months ended September 26, 1998 and
September 27, 1997, were outside the United States, primarily in several Western
European countries. No one area comprised more than 10% of the Company's sales.
3. INVENTORIES
Inventories consisted of (in thousands):
<TABLE>
<CAPTION>
September 26, March 31,
1998 1998
------------- ---------
<S> <C> <C>
Raw material, primarily electronic components....... $ 874 $ 1,239
Work in process..................................... 312 620
Finished goods...................................... 273 450
--------- --------
$ 1,459 $ 2,309
--------- --------
--------- --------
</TABLE>
The Company maintains levels of inventories that it believes are necessary
based upon assumptions concerning its growth, mix of sales and availability of
raw materials. Changes in those underlying assumptions could affect management's
estimates of inventory valuation.
In the quarter ended September 27, 1997, the Company reserved fully $1.8
million of costs related to inventory specifically purchased and manufactured
pursuant to a customer purchase order (the "Custom Inventory"). The customer
later attempted to cancel the purchase order. The Company disputed the
customer's claim that the purchase order cancellation was effective, and sought
legal remedies related thereto. During the quarter ended September 26, 1998, the
Company agreed to settle its claims against the customer, in return for a $1.6
million cash payment and the right to retain and sell the Custom Inventory at
issue. The Company sold a portion of the Custom Inventory during the quarter
ended September 26, 1998 for approximately $0.5 million, which has been included
in net sales. At September 26, 1998, the costs related to the Custom Inventory
still on hand remained fully reserved.
4. INVESTMENT IN CENTURY ELECTRONICS MANUFACTURING, INC.
During fiscal 1997, the Company completed three separate business
acquisitions of contract manufacturing activities. On July 10, 1996, the Company
acquired a majority equity position in Design Circuits, Inc. ("DCI") for
approximately $3.2 million in cash, 250,000 shares of the Company's Common Stock
and assumption of certain liabilities.
In October 1996, the Company and the minority shareholders in DCI exchanged
their DCI shares for shares of capital stock in a newly formed entity, Century
Electronics Manufacturing, Inc. ("Century").
Pursuant to a joint venture agreement executed in May 1996, the Company
invested $1.3 million during fiscal 1997 as its initial capital contribution
into its 51% owned contract manufacturing joint venture in Thailand. The
Company's joint venture partner's initial capital contribution was $3.7 million.
On November 5, 1996, Century purchased Triax Technology Group Limited
("Triax"), a provider of contract manufacturing services located in the United
Kingdom for approximately $4.2 million in cash and approximately 2.2 million
shares of common stock of Century. The Company also contributed 25,000 shares of
Centennial Common Stock as a finder's fee. At the conclusion of the Triax
transaction, Triax and DCI were wholly-owned subsidiaries of Century, and
Centennial owned approximately 67% of Century.
On March 14, 1997, Century entered into an agreement in principal with
the Company, whereby Century agreed to redeem a portion of its shares in
exchange for $1.3 million in cash and a $6.0 million subordinated debenture,
reducing the Company's equity ownership position to 45%. The debentures bore
interest at a rate of 6% and were to mature in ten years. Under certain
conditions, the debentures would have been convertible into the capital stock
of an entity with which Century might merge. In addition, the Company agreed
to contribute to Century its interest in the Thailand joint venture. Century
also agreed to repay an 8.5% note payable to Centennial in the amount of $4.1
million and to take the necessary steps to remove all outstanding guarantees
of third-party indebtedness.
7
<PAGE>
On July 1, 1997, the aforementioned transaction was completed. In order to
remove certain guarantees of equipment subleased to DCI, Centennial executed
lease buyouts amounting to $2.4 million and sold the underlying equipment to
Century for cash and a $1.9 million 9% promissory note due December 1998.
On February 4, 1998, the Company entered into a transaction with Century
whereby Century redeemed the Company's remaining holdings of Century common
stock, repurchased its $1.9 million 9% promissory note due December 1998,
recovered a warrant for the purchase of 250,000 shares of Century common stock,
and satisfied its $6 million 6% Convertible Subordinated Debenture due June
2007, in exchange for $9.7 million in cash and $4.0 million of Century Series B
Convertible Preferred Stock and the forgiveness of interest due on the note and
debenture. The Series B Convertible Preferred Stock is equivalent upon
conversion to approximately 7%, non-diluted, of Century's outstanding shares, is
non-voting, has no dividend, and has a liquidation preference of $4 million
senior to the common shareholders and subordinate to the holders of Century
Series A Convertible Preferred Stock. The Company recorded a loss on investment
activities of $5.1 million during fiscal 1998 to reflect the difference between
the fair value of the consideration received from Century and the carrying value
of the Company's investment in Century.
During the second quarter of fiscal 1999, the Company reduced the carrying
value of its investment in Century by $733,000, reflecting management's
assessment of the deterioration in value of contract manufacturing businesses in
general and a permanent decline in the value of its investment. Management has
been negotiating with Century regarding redemption of the Company's remaining
interest in its former affiliate, and expects to finalize such redemption
consistent with the remaining carrying value of the investment before the end of
calendar 1998.
5. OTHER INVESTMENTS
During fiscal 1996, the Company began a strategy of making investments,
financed through a combination of cash and common stock, in technology companies
for the expressed purpose of market development for its PC card business as well
as investment gain. Management has decided to focus its financial resources on
its core business, and to suspend new investment activities. The Company fully
reserved the carrying value of its investments in these development stage
companies during fiscal 1997 and 1998.
On December 13, 1996, the Company completed merger agreements with
Intelligent Truck Project, Inc., Fleet.Net, Inc. and Smart Traveler Plazas, Inc.
(collectively, "ITP/Fleet.Net") agreeing to exchange 792,960 shares of Common
Stock of the Company for all of the outstanding common stock of the acquired
businesses. Subsequent to the Company's February announcement of financial
irregularities, the principal shareholder of ITP/Fleet.Net filed suit, alleging,
among other things, breach of representations and warranties as to the financial
statements of Centennial. On March 4, 1997, the Company and the principal
shareholder of ITP/Fleet.Net entered into a memorandum of understanding pursuant
to which the companies would unwind the merger agreements. The parties were
unable to reach mutually satisfactory terms to complete the unwinding and on May
15, 1997 agreed to complete the merger and exchange mutual releases of certain
claims. Based on the material uncertainties surrounding the value of
consideration on the original merger date, which uncertainties were not resolved
until the execution of a settlement and mutual release agreement, the Company
recorded the merger and corresponding issuance of Common Stock as of May 15,
1997. Advances to ITP/Fleet.Net made during fiscal 1996 and fiscal 1997, certain
of which were previously characterized as advance payments for technology
license arrangements, were included in loss on investment activities in the
periods the advances were made. The merger was recorded using purchase
accounting, and the excess (approximately $3.2 million) of the purchase price
over the fair value of assets acquired was written off as of the agreement date
(May 15, 1997) because of the uncertainties related to the future operations of
ITP/Fleet.Net.
6. DEBT
On August 14, 1997, the Company entered into a credit agreement, effective
through August 13, 2000 unless terminated sooner, with Congress Financial Corp.
("Congress Financial"), a commercial credit institution, for a revolving credit
facility and term loan facility of up to $4.1 million and $0.9 million,
respectively, and a $2.0 million capital equipment acquisition facility, based
on certain limitations and covenants. On August 15, 1997, the Company paid in
full its line of credit and lease financing obligations with the bank that was
previously providing the Company with its credit facilities. At September 26,
1998 and March 31, 1998, the Company had no outstanding borrowings under the
Congress Financial credit agreement.
On September 9, 1998, the Company announced that it had received a
commitment from Fleet National Bank ("Fleet"), subject to satisfaction of
certain conditions and completion of documentation, for a revolving credit
facility, equipment term loan facility and foreign exchange facility of $3.5
million, $1.5 million and $2.0 million, respectively. The Company plans to
terminate its current
8
<PAGE>
credit facilities with Congress Financial and replace them with the Fleet credit
facilities upon closing. Allowable borrowings would be based on accounts
receivable and the cost of equipment, would be secured by substantially all of
the Company's assets, and would be based on certain limitations and covenants.
The terms of these facilities remain subject to negotiation and agreement, and
no assurance can be given that the Company will be successful in securing these
replacement borrowing facilities.
7. EARNINGS (LOSS) PER SHARE
The Company computes basic and diluted earnings per share in accordance
with Statement of Financial Accounting Standards ("SFAS") 128, "Earnings Per
Share," which the Company adopted as of March 31, 1998. Basic earnings per share
is computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. The computation of
diluted earnings per share is similar to the computation of basic earnings per
share except that the denominator is generally increased to include the number
of additional common shares that would have been outstanding if the dilutive
potential common shares had been issued. Common equivalent shares result from
the assumed exercise of outstanding stock options and warrants, the proceeds of
which are then assumed to have been used to repurchase outstanding common stock
using the treasury stock method. The following table reconciles the numerator
and denominator of the basic and diluted earnings per share computations shown
on the Consolidated Statements of Operations:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------- -----------------------------
September 26, September 27, September 26, September 27,
1998 1997 1998 1997
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Basic Earnings Per Share
Numerator
Net income/(loss) $ 1,201 $ (9,779) $ 1,300 $(15,253)
Denominator
Weighted average common
shares outstanding 20,031 18,648 19,278 18,412
-------- -------- -------- ---------
Basic earnings (loss) per share $ 0.06 $ (0.52) $ 0.07 $ (0.83)
-------- -------- -------- ---------
-------- -------- -------- ---------
Diluted Earnings Per Share
Numerator
Net income/(loss) $ 1,201 $ (9,779) $ 1,300 $(15,253)
Denominator
Weighted average common
shares outstanding 20,031 18,648 19,278 18,412
Effective of dilutive securities:
Employee stock options 3 -- 167 --
-------- -------- -------- ---------
Denominator for diluted
earnings per share 20,034 18,648 19,445 18,412
-------- -------- -------- ---------
Diluted earnings (loss) per share $ 0.06 $ (0.52) $ 0.07 $ (0.83)
-------- -------- -------- ---------
</TABLE>
Options to purchase 2,070,000 shares of Common Stock on September 27,
1997 were excluded from the three and six months ended calculations of
diluted net income/(loss) per share as the effect of their inclusion would
have been anti-dilutive. Earnings per share data have been restated for all
periods presented to reflect the adoption of SFAS 128.
8. CONTINGENCIES
Class Action Litigation. Since the Company's announcement on February 11,
1997 that it was undertaking an inquiry into the accuracy of its prior reported
financial results, and that preliminary information had raised questions as to
whether reported results contained material misstatements, approximately 35
purported class action lawsuits have been filed in or transferred to the United
States District Court for the District of Massachusetts. These complaints assert
claims against the Company under Section 10(b) of the Securities Exchange Act of
1934 (the "1934 Act") and Rule 10b-5 promulgated thereunder, and related state
law claims of fraud, deceit and negligent misrepresentation. The complaints also
assert claims against some or all of the Company's Board of Directors, and some
complaints assert claims against certain of the Company's nondirector officers,
under Section 20(a) of the 1934 Act, as well
9
<PAGE>
as the same state law claims asserted against the Company. The Company's
independent accountants, Coopers & Lybrand L.L.P. ("Coopers & Lybrand"), the
Company's lead underwriter for its March 1996 subsequent public offering,
Needham & Company, Inc., and a financial advisory subscription company, Cabot
Heritage Corporation, have also been named in some of the suits. These class
action lawsuits were purportedly brought by and on behalf of purchasers of the
Company's Common Stock between the Company's initial public offering on April
12, 1994 and February 10, 1997 (the "Centennial Securities Litigation").
On February 20, 1997, the Company received a subpoena from the United
States Department of Justice ("DOJ") to produce documents in connection with a
grand jury investigation regarding various irregularities in the Company's
previous press releases and financial statements. The DOJ also requested certain
information regarding some of the Company's former officers, certain stock
transactions by the Company's former Chief Executive Officer, and correspondence
with the Company's auditors. The DOJ has subsequently subpoenaed additional
Company records and files. The Company has not been notified by the DOJ that it
is a target or subject of this investigation.
On and after February 26, 1997, four complaints were filed in the United
States District Court for the District of Massachusetts by plaintiffs purporting
to represent classes of shareholders who purchased the Company's Common Stock on
February 25, 1997. The complaint also names the Company's former Interim Chief
Executive Officer, Lawrence J. Ramaekers, and alleges violations of Sections
10(b) and 20(a) of the 1934 Act (the "February 25 Securities Litigation").
In mid-February 1997, the Company was notified that the Boston District
Office of the Securities and Exchange Commission ("SEC") was conducting an
investigation of the Company. The SEC has requested that the Company provide the
SEC with certain documents concerning the Company's public reports and financial
statements. The SEC indicated that its inquiry should not be construed as an
indication by the SEC or its staff that any violations have occurred, or as a
reflection upon the merits of the securities involved or upon any person who
effected transactions in such securities. The Company is cooperating with the
SEC in connection with this investigation, the outcome of which cannot yet be
determined.
On and after March 26, 1997, several complaints were filed in the United
States District Court for the District of Massachusetts by plaintiffs purporting
to represent classes of shareholders who purchased stock of WebSecure, Inc.
("WebSecure") between December 5, 1996 and February 27, 1997 (the "WebSecure
Complaints"). The WebSecure Complaints assert claims against WebSecure, certain
officers, directors and underwriters of WebSecure, and the Company. Claims
against the Company include alleged violations of Sections 11 and 15 of the
Securities Act of 1933 (the "1933 Act") (the "WebSecure Securities Litigation").
In addition, several shareholder derivative lawsuits have been filed by
purported holders of the Company's Common Stock seeking recovery for certain
alleged breach of fiduciary duties, alleged gross negligence, alleged breach of
contract and alleged insider trading by members of the Company's Board of
Directors between August 21, 1996 and February 10, 1997 (the "Derivative
Litigation").
On January 13, 1998, a plaintiff purporting to represent classes of
shareholders who purchased the Company's Common Stock on February 27, 1997 filed
a complaint in the United States District Court for the District of
Massachusetts. The complaint also names the Company's former Interim Chief
Executive Officer, Lawrence J. Ramaekers, and Mr. Ramaekers' employer, Jay Alix
& Co., and alleges violations of Sections 10(b) and 20(a) of the 1934 Act (the
"February 27 Securities Litigation").
On February 9, 1998, a consolidated amended complaint combining the
Centennial Securities Litigation, the February 25 Securities Litigation, the
February 27 Securities Litigation and the Derivative Litigation was filed in the
United States District Court for the District of Massachusetts (the
"Consolidated Litigation"). Also on February 9, 1998, the Company and lead
counsel representing the plaintiffs in the Consolidated Litigation filed a
Stipulation of Settlement (the "Settlement Agreement"), whereby the Company and
certain of its officers and directors would be released from liability arising
from the allegations included in the Consolidated Litigation. In return, the
Company agreed to pay the plaintiffs in the Consolidated Litigation $1.475
million in cash and to issue to these plaintiffs 37% of the Company's Common
Stock. The Company also agreed to adopt certain corporate governance policies
and procedures.
The plaintiffs in the Consolidated Litigation have not yet reached an
agreement with the Company's former Interim Chief Executive Officer, Lawrence J.
Ramaekers, regarding their alleged claims against him. The plaintiffs have
agreed to release the Company from any direct liability related to those alleged
claims. In the agreement under which Mr. Ramaekers provided services to the
Company, the Company agreed to provide Mr. Ramaekers with the same
indemnification as is applicable to other officers of the
10
<PAGE>
Company pursuant to the Company's By-Laws. The Company has agreed to indemnify,
hold harmless, and defend Mr. Ramaekers from and against certain claims arising
out of his engagement with the Company.
The plaintiffs have also retained their claims against the Company's former
Chief Executive Officer, Emanuel Pinez, the Company's former Chief Financial
Officer, James M. Murphy, the Company's former independent accountants, Coopers
& Lybrand L.L.P., and others.
The Court granted final approval of the Settlement Agreement of the
Consolidated Litigation on April 29, 1998, which became effective on July 20,
1998.
As of March 31, 1997, the Company recorded a provision for the
settlement of the Consolidated Litigation of $20.0 million, representing the
cash portion of the Settlement Agreement, together with an amount equal to
37% of the estimated market capitalization of the Company. The Company
satisfied its obligations regarding the cash portion ($1,475,000) of the
Settlement Agreement by remitting that amount into a settlement fund during
fiscal 1998. The Company distributed 2,050,321 shares of the common stock
component of the Settlement Agreement during the second quarter of fiscal
1999, and expects to satisfy its remaining obligation to distribute 4,784,083
shares of Common Stock by the end of fiscal 1999.
A significant number of class members opted not to participate in the
Settlement Agreement. No assurance can be given that claims by class members
who declined to participate in the Settlement Agreement will not have a
material adverse effect on the Company's business, financial condition and
results of operations.
On June 19, 1997, the Company announced that it had reached an agreement in
principle to settle the WebSecure Securities Litigation. The agreement in
principle contemplates that the Company and certain of its officers and
directors would be released from any and all liability arising from the
allegations included in the WebSecure Securities Litigation in return for the
issuance to the WebSecure Securities Litigation class of 345,000 shares of the
Company's Common Stock and the payment to the class of up to $50,000 for notice
and administrative costs. A binding commitment to these terms must await the
execution of a final settlement agreement. Furthermore, any settlement agreement
must be submitted to the Court for review and approval and, thereafter,
presented to class members for consideration. If a sufficiently large number of
class members opt not to participate in the settlement agreement, the agreement
may by withdrawn. No assurance can be given that the parties will be able to
reach such a final settlement agreement, that any such agreement, if reached,
will be approved by the Court, or that, if such approval is obtained, that a
material number of class members will not decline to participate in the
settlement.
9. COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Financial Accounting
Standards Board Statement No. 130, "Reporting Comprehensive Income." Statement
130 establishes rules for the reporting and display of comprehensive income and
its components; however, the adoption of this Statement had no impact on the
Company's net income (loss) or stockholders' equity. During the second quarter
and first six months of 1999, total comprehensive income was the same as net
income.
10. SEGMENT DISCLOSURES
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (Statement 131), which is effective for
years beginning after December 15, 1997. Statement 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. It also establishes standards for related disclosures about products
and services, geographic areas, and major customers. Statement 131 is effective
for financial statements for fiscal years beginning after December 15, 1997, and
therefore the company will adopt the new requirements retroactively in fiscal
1999. Management has not completed its review of Statement 131, but does not
anticipate that the adoption of this statement will have a significant effect on
the Company's reported segments.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENT
Except for historical information contained herein, the discussions
contained in this document include forward-looking statements. For this purpose,
any statements contained herein that are not statements of historical fact may
be deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes," "anticipates," "plans," "expects," and similar expressions are
intended to identify forward-looking statements. Such statements involve a
number of risks and uncertainties, including, but not limited to, those (i)
discussed below, (ii) discussed under the heading "Risk Factors", and (iii)
identified from time to time in the Company's filings with the Securities and
Exchange Commission including those set forth in the Company's Annual Report on
Form 10-K for the fiscal period ended March 31, 1998 under the heading "Risk
Factors." These risks and uncertainties could cause actual results to differ
materially from those projected. Readers are cautioned not to place undue
reliance on these forward-looking statements. The Company assumes no obligation
to update these forward-looking statements to reflect events or circumstances
after the date hereof.
OVERVIEW
The Company designs, manufacturers and markets an extensive line of PC cards
used primarily by OEMs in industrial and commercial applications. The Company's
PC cards provide added functionality to devices containing microprocessors by
supplying increased storage capacity, communications capabilities and programmed
software for specialized applications.
The following discussion and analysis should be read in conjunction with the
unaudited Consolidated Financial Statements and Notes thereto.
RESULTS OF OPERATIONS
The following table sets forth certain consolidated condensed statements of
income data of the Company expressed as a percentage of net sales:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------------- ---------------------------------
September 26, September 27, September 26, September 27,
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales......................................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................................ 69.0 86.9 71.3 92.8
----------- ----------- ----------- -----------
Gross profit................................... 31.0 13.1 28.7 7.2
Operating expenses:
Engineering, research and development costs..... 2.7 3.1 3.0 3.2
Selling, general and administrative expenses.... 24.2 40.6 23.4 33.1
----------- ----------- ----------- -----------
Operating income/(loss) ..................... 4.1 (30.6) 2.3 (29.1)
Provision for loss on inventory subject to
customer dispute.............................. -- 26.7 -- 13.7
Proceeds from resolution of customer dispute...... (26.0) -- (12.9) --
Loss on investment activities..................... 11.9 78.6 5.9 66.1
Special investigation costs....................... -- -- -- 4.4
Lease cancellation charge......................... -- 3.7 -- 1.9
Net interest (income)/expense..................... (1.3) 1.0 (1.2) 1.1
------------ ----------- ------------ -----------
Income/(loss) before equity in earnings
of affiliate.................................. 19.5 (140.6) 10.5 (116.3)
Equity in earnings (loss) of affiliate............ -- (1.1) -- 3.1
----------- ------------ ----------- -----------
Net income (loss)............................... 19.5% (141.7)% 10.5% (113.2)%
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
</TABLE>
12
<PAGE>
Net Sales
Net sales consist of sales of PC cards, embedded computer modules and
specialty and standard memory products, less returns and discounts. Net sales
for the second quarter of fiscal 1999 decreased 11% to $6.2 million from $6.9
million for the same period of fiscal 1998. Net sales for the six months ended
September 26, 1998 decreased 8% to $12.4 million from $13.5 million for the same
period of fiscal 1998. A portion of the decrease in net sales resulted from a
decline in the cost of certain memory devices used in the production of the
Company's products. Decreasing component costs led to a decrease in the average
selling price of the Company's products between the periods, which was partially
offset by an increase in the volume of PC cards sold to both new and existing
customers. The Company expects that further decreases in component costs and
reductions in the average selling price of its products will continue into
fiscal 1999, and no assurances can be given that the Company will be successful
in its efforts to offset this trend with increases in the volume of PC cards
sold during the remainder of fiscal 1999.
A significant customer represented 19% and 26% of total sales in the three
and six month periods ended September 26, 1998, respectively, and 29% and 28% of
total sales in the same periods last year. If this customer were to reduce
significantly the amount of business it conducts with the Company, it could have
a material adverse effect on the Company's business, financial condition and
results of operations. No other customer or group of related customers accounted
for more than 10% of the Company's sales.
Sales outside of the United States represented 12% and 10% of sales for the
three and six month periods ended September 26, 1998 compared to 8% and 10% of
sales for the same periods in the previous year. The Company expects that sales
outside the United States will continue to represent a percentage of the
Company's sales consistent with that of these periods.
Costs of Goods Sold
Cost of goods sold decreased 29% to $4.2 million for the second quarter
compared to $6.0 million for the same period in fiscal 1998, primarily due to a
decline in the cost of certain memory devices used in the Company's PC card
products. Cost of goods sold decreased 29% to $8.8 million for the six months
ended September 26, 1998 compared to $12.5 million for the same period last
year. Gross margins were 31% and 29% for the three and six month periods ended
September 26, 1998, respectively, compared to 13% and 7% for the same periods
last year. During the second quarter of fiscal 1999, the Company sold for
approximately $0.5 million a portion of some customized inventory, the cost of
which had been previously fully reserved due to a dispute with the customer for
whom the customized cards were originally produced and who had attempted to
cancel the order. Gross margins for the three and six month periods ended
September 26, 1998, excluding this sale of fully reserved inventory, were 25%
and 26%, respectively. Costs of goods sold for the three and six months ended
September 27, 1997 include provisions for inventory obsolescence of $0.4 million
and $0.8 million, respectively, representing 7% and 6% of sales in these
periods, respectively. Cost of goods sold for the six months ended September 27,
1997 was also negatively impacted by inventory revaluation adjustments of $0.9
million, or 7% of sales, primarily due to declining electronic component prices
and changes in overhead absorption rates. During fiscal 1998, the Company
instituted policies that have resulted in significantly decreasing the amount of
inventory purchased in advance of receipt of customer orders. In addition,
during fiscal 1998 the Company instituted new procurement practices reflecting
increased emphasis on reducing inventory levels, and established on-site stores
of raw materials consigned by several of the Company's major vendors. The
Company also instituted several policies that have resulted in increased
production efficiencies.
Engineering, Research and Development Costs
Engineering, research and development costs were $167,000 and $369,000 for
the three and six month periods ended September 26, 1998, respectively, and
$215,000 and $434,000 for the same periods last year.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $1.5 million and $2.9
million for the three and six months periods ended September 26, 1998,
respectively, and $2.8 million and $4.5 million for the same periods last year.
Legal expenses between periods decreased significantly as the Company
successfully settled the securities class action pending against the Company and
resolved several other litigation issues. Expenses related to audit fees and
consultants has also decreased significantly between periods as the Company
completed its special investigation and hired new senior management. The Company
also incurred significantly lower bad debt expenses compared to last year as the
Company continues to improve its credit extension policies.
13
<PAGE>
Provision for Loss on Inventory Subject to Customer Dispute/Proceeds from
Resolution of Customer Dispute
During fiscal 1998, the Company filed suit against a customer regarding
inventory specifically purchased and manufactured pursuant to a purchase order
from the customer (the "Custom Inventory"). The customer attempted to cancel a
portion of the purchase order. The Company disputed the customer's claim that
the purchase order cancellation was effective. During fiscal 1998, the Company
fully reserved the cost of the Custom Inventory of approximately $1.8 million
due to the legal costs and inherent uncertainties involved in litigation.
During the second quarter of fiscal 1999, the Company and the customer
agreed to settle the litigation. As a result of this settlement, the Company
received $1.6 million in cash and the customer agreed that the Company would
retain all rights with regard to the Custom Inventory. During the second quarter
of fiscal 1999, the Company recognized the cash payment of $1.6 million as
income.
During the second quarter of fiscal 1999 and after the settlement agreement
was reached, the Company sold a portion of the Custom Inventory for
approximately $0.5 million, which the Company has included in net sales for the
period.
Lease Cancellation Charge
During fiscal 1998, the Company paid in full its line of credit and lease
financing obligations with the bank that was previously providing the Company
with its credit facilities. That bank required the Company to pay lease
cancellation charges of approximately $258,000 in order to release its lien on
the equipment being financed pursuant to those leases.
Net Interest Income/Expense
Net interest income was $81,000 and $145,000 for the three and six month
periods ended September 26, 1998 compared to net interest expense of $69,000 and
$147,000 for the same periods last year, reflecting cash available for
investment in fiscal 1999 and outstanding borrowings during fiscal 1998.
Loss on Investment Activities
Loss on investment activities consists of write-downs, valuation adjustments
and accruals for losses recorded associated with certain investments. During the
second quarter of fiscal 1999, the Company reduced the carrying value of its
investment in Century by $733,000, reflecting management's assessment of the
deterioration in value of contract manufacturing businesses in general and a
permanent decline in the value of its investment. Management has been
negotiating with Century regarding redemption of the Company's remaining
interest in its former affiliate, and expects to finalize such redemption
consistent with the remaining carrying value of the investment before the end of
calendar 1998.
The following table describes the elements and the amounts reflected in this
category during fiscal 1998 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 27, September 27,
1997 1997
------------------ ----------------
<S> <C> <C>
Costs incurred in connection with ITP/Fleet.Net..... $ 608 $ 3,819
Loss on investment in ViA........................... 4,165 4,415
Loss on other investments........................... 651 675
-------------- -------------
TOTAL............................................... $ 5,424 $ 8,909
-------------- -------------
-------------- -------------
</TABLE>
Equity Interest in Earnings (Loss) of Affiliate
The equity interest in earnings (loss) of affiliate of $(77,000) and
$423,000 for the three and six month periods ended September 27, 1997,
respectively, reflect the Company's net interest in loss of its former
affiliate, Century Electronics Manufacturing, Inc.
14
<PAGE>
Special Investigation Costs
Due to incremental costs, the Company increased its accrual for Special
Investigation Costs by $597,000 during the first quarter of fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operating activities
primarily from public and private offerings of equity securities and loans from
financial institutions.
Fiscal 1999 Liquidity Outlook
The Company has experienced significant losses from operations prior to
fiscal 1999 and has taken measures to reduce those losses, including reducing
various expenses and implementing new cost controls. The Company believes that
its present cash balances, bank financing, and anticipated future cash flows
will be sufficient to fund operations for the foreseeable future.
Operating Activities
At September 26, 1998, working capital increased to approximately $5.7
million, compared to working capital of $3.4 million at March 31, 1998. The
Company experienced cash flow provided by operations during the first six months
of fiscal 1999 of approximately $2.9 million, compared to cash flow provided by
operations of approximately $9.1 million for the comparable period last year.
Days of sales outstanding in accounts receivable amounted to 38 days at
September 26, 1998 compared to 36 days at March 31, 1998. The Company's
inventories represent approximately 4 weeks of manufacturing output at September
26, 1998, compared to 5 weeks at March 31, 1998.
Investing Transactions
Net capital expenditures amounted to $249,000 in the first six months of
fiscal 1999 and $190,000 in the same period last year. As of September 26, 1998,
the Company had remaining obligations of $71,000 on equipment financing leases.
As of September 26, 1998, the Company had commitments for future capital
equipment expenditures in fiscal year 1999 of approximately $300,000.
Financing Transactions
On August 14, 1997, the Company entered into a credit agreement, effective
through August 13, 2000 unless terminated sooner, with Congress Financial Corp.
("Congress Financial"), a commercial credit institution, for a revolving credit
facility and term loan facility of up to $4.1 million and $0.9 million,
respectively, and a $2.0 million capital equipment acquisition facility, based
on certain limitations and covenants. On August 15, 1997, the Company paid in
full its line of credit and lease financing obligations with the bank that was
previously providing the Company with its credit facilities. At September 26,
1998 and March 31, 1998, the Company had no outstanding borrowings under the
Congress Financial credit agreement.
On September 9, 1998, the Company announced that it had received a
commitment from Fleet National Bank ("Fleet"), subject to satisfaction of
certain conditions and completion of documentation, for a revolving credit
facility, equipment term loan facility and foreign exchange facility of $3.5
million, $1.5 million and $2.0 million, respectively. The Company plans to
terminate its current credit facilities with Congress Financial and replace them
with the Fleet credit facilities upon closing. Allowable borrowings would be
based on accounts receivable and the cost of equipment, would be secured by
substantially all of the Company's assets, and would be based on certain
limitations and covenants. The terms of these facilities remain subject to
negotiation and agreement, and no assurance can be given that the Company will
be successful in securing these replacement borrowing facilities.
15
<PAGE>
Investment in Century Electronics Manufacturing, Inc.
During fiscal 1997, the Company completed three separate business
acquisitions of contract manufacturing activities. On July 10, 1996, the Company
acquired a majority equity position in Design Circuits, Inc. ("DCI") for
approximately $3.2 million in cash, 250,000 shares of the Company's Common Stock
and assumption of certain liabilities.
In October 1996, the Company and the minority shareholders in DCI exchanged
their DCI shares for shares of capital stock in a newly formed entity, Century
Electronics Manufacturing, Inc. ("Century").
Pursuant to a joint venture agreement executed in May 1996, the Company
invested $1.3 million during fiscal 1997 as its initial capital contribution
into its 51% owned contract manufacturing joint venture in Thailand. The
Company's joint venture partner's initial capital contribution was $3.7 million.
On November 5, 1996, Century purchased Triax Technology Group Limited
("Triax"), a provider of contract manufacturing services located in the United
Kingdom for approximately $4.2 million in cash, and approximately 2.2 million
shares of common stock of Century. The Company also contributed 25,000 shares of
Centennial Common Stock as a finder's fee. At the conclusion of the Triax
transaction, Triax and DCI were wholly-owned subsidiaries of Century, and
Centennial owned approximately 67% of Century.
On March 14, 1997, Century entered into an agreement in principal with
the Company, whereby Century agreed to redeem a portion of its shares in
exchange for $1.3 million in cash and a $6.0 million subordinated debenture,
reducing the Company's equity ownership position to 45%. The debentures bore
interest at a rate of 6% and were to mature in ten years. Under certain
conditions, the debentures would have been convertible into the capital stock
of an entity with which Century might merge. In addition, the Company agreed
to contribute to Century its interest in the Thailand joint venture. Century
also agreed to repay an 8.5% note payable to Centennial in the amount of $4.1
million and to take the necessary steps to remove all outstanding guarantees
of third-party indebtedness.
On July 1, 1997, the aforementioned transaction was completed. In order to
remove certain guarantees of equipment subleased to DCI, Centennial executed
lease buyouts amounting to $2.4 million and sold the underlying equipment to
Century for $0.5 million in cash and a $1.9 million 9% promissory note due
December 1998.
On February 4, 1998, the Company entered into a transaction with Century
whereby Century redeemed the Company's remaining holdings of Century common
stock, repurchased its $1.9 million 9% promissory note due December 1998,
recovered a warrant for the purchase of 250,000 shares of Century common stock,
and satisfied its $6 million 6% Convertible Subordinated Debenture due June
2007, in exchange for $9.7 million in cash and $4.0 million of Century Series B
Convertible Preferred Stock and the forgiveness of interest due on the note and
debenture. The Series B Convertible Preferred Stock is equivalent upon
conversion to approximately 7%, non-diluted, of Century's outstanding shares, is
non-voting, has no dividend, and has a liquidation preference of $4 million
senior to the common shareholders and subordinate to the holders of Century
Series A Convertible Preferred Stock. The Company recorded a loss on investment
activities of $5.1 million in the third quarter of fiscal 1998 to reflect the
difference between the fair value of the consideration received from Century and
the carrying value of the Company's investment in Century.
During the second quarter of fiscal 1999 the Company reduced the carrying
value of its investment in Century by $733,000, reflecting management's
assessment of the deterioration in value of contract manufacturing businesses in
general. Management has been negotiating with Century regarding redemption of
the Company's remaining interest in its former affiliate, and expects to
finalize such redemption consistent with the remaining carrying value of the
investment before the end of calendar 1998.
Contingencies
The Company is a defendant in numerous lawsuits alleging violations of
securities and other laws in connection with the Company's prior reported
financial results and certain other related matters. See "Part II, Item 1
- --Legal Proceedings." The Company has been granted final approval of its
proposed settlement of the Consolidated Litigation, has entered an agreement
in principle to settle the WebSecure Securities Litigation, and believes that
such lawsuits will be settled substantially in accordance with the
description contained in "Part II, Item 1 -- Legal Proceedings." The Company
believes that such settlements will not have a material adverse impact on its
liquidity. As of March 31, 1997, the Company recorded a provision for the
settlement of the Consolidated Securities
16
<PAGE>
Litigation of $20.0 million, representing the cash portion of the settlement,
together with an amount equal to 37% of the estimated market capitalization
of the Company. The Company satisfied its obligations regarding the cash
portion ($1,475,000) of the Settlement Agreement by remitting that amount
into a settlement fund during fiscal 1998. The Company distributed 2,050,321
shares of the common stock component of the Settlement Agreement during the
second quarter of fiscal 1999, and expects to satisfy its remaining
obligation to distribute 4,784,083 shares of Common Stock by the end of
fiscal 1999.
There can be no assurance that claims by shareholders who opted not to
participate in the class action settlement will not be material, or that the
claims against Lawrence J. Ramaekers, the Company's former interim Chief
Executive Officer, in connection with the February 25 Securities Litigation and
the February 27 Securities Litigation, as to which the Company may have
indemnification obligations will be settled, and such inability to settle
pending litigation could have a material adverse effect on the Company's
liquidity, business, financial condition and results of operations.
RISK FACTORS
From time to time, information provided by the Company or statements made by
its employees may contain forward-looking information. The Company's actual
future results may differ materially from those projections or suggestions made
in such forward-looking information as a result of various potential risks and
uncertainties including, but not limited to, the factors discussed below.
Losses in Prior Periods; Liquidity and Financing Risks.
The Company has experienced significant losses from operations from fiscal
1994 through fiscal 1998. The Company has taken measures since the firing of its
former Chief Executive Officer in February 1997 to reduce those losses,
including the following:
- appointing a turnaround specialist - reducing various expenses
- hiring new senior management - implementing new cost controls.
If cost savings are not achieved or revenues are not increased, the operating
plan for the Company could include further cost reductions. If cost savings are
not achieved, or revenues are not increased, it would significantly impair the
ability of the Company to continue as a going concern. The Company believes that
its cash balances, bank financing, and anticipated future cash flows will be
sufficient to fund operations for the foreseeable future. The Company can make
no assurances that measures taken to date or to be taken in the future will be
sufficient to stem losses or that future financing will be available to the
Company or, if available, on terms that will be satisfactory to the Company.
Dependence on Major Customers; Concentration of Credit Risk.
Bay Networks, Inc., which merged with and became a subsidiary of Northern
Telecom during the second quarter of fiscal 1999, accounted for approximately
26% of the Company's sales for the six months ended September 26, 1998. This
customer accounted for 28% of the Company's sales for the six months ended
September 27, 1997. The loss of, or a significant curtailment of purchases by
this customer, or any other significant customer of the Company, could have a
material adverse effect on the Company's business, financial condition and
results of operations. The industries served by the Company are characterized by
frequent mergers, consolidations, acquisitions, corporate restructuring and
changes in management, and the Company has from time to time experienced
reductions in purchase orders from customers as a result of such events. There
can be no assurance that such events involving customers of the Company will not
result in a significant reduction in the level of sales by the Company to such
customers or the termination of the Company's relationship with such customers.
In addition, the percentage of the Company's sales to individual customers may
fluctuate from period to period. Customer orders can be canceled and volume
levels can be changed or delayed. The timely replacement of canceled, delayed,
or reduced orders with new customers cannot be assured. These risks are
exacerbated because a majority of the Company's sales are to customers in the
electronics industry, which is subject to rapid technological change and product
obsolescence. The electronics industry is also subject to economic cycles and
has experienced, and is likely to experience, fluctuations in demand. The
Company anticipates that a significant portion of its sales will continue for
the foreseeable future to be concentrated in a small number of customers in the
electronics industry.
17
<PAGE>
Fluctuations in Quarterly Results.
The Company's results of operations may be subject to quarterly fluctuations
due to a number of factors, including the following:
- timing of receipt and delivery - competitive pricing pressures
of significant orders for the - increases in raw material costs
Company's products - changes in customer and
- costs associated with the product mix
expansion of operations - quality of the Company's products
- production difficulties. - exchange rate fluctuations
- write-downs or write-offs of - market acceptance of new or
investments in other companies enhanced versions of the
Company's products
Other factors, some of which are beyond the Company's control, may also cause
fluctuations in the Company's results of operations. Additionally, as is the
case with many high technology companies, a significant portion of the Company's
orders and shipments typically occurs in the last few weeks of a quarter. As a
result, revenues for a quarter are not predictable, and the Company's revenues
may shift from one quarter to the next, having a significant effect on reported
results.
The trading price of the Company's Common Stock may fluctuate widely in
response to, among other things, the following:
- quarter-to-quarter operating results - industry conditions
- awards of orders to the Company - new product or product
or its competitors development announcements by the
- changes in earnings estimates Company or its competitors
by analysts
There can be no assurance that the Company's future performance will meet the
expectations of analysts or investors. In addition, the volatility of the stock
markets may cause wide fluctuations in trading prices of securities of high
technology companies.
Dependence on Key Personnel.
The Company's success depends to a significant degree upon the efforts and
abilities of members of its senior management and other key personnel, including
technical personnel. The loss of any of these individuals could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company's business also depends upon its ability to continue to
attract and retain senior managers and skilled technical employees. Failure to
attract and retain such senior personnel could materially and adversely affect
the Company's business, financial condition and results of operations.
Need to Respond to Rapid Technological Change; Historical Single Product
Concentration.
The markets for the Company's products are characterized by rapid
technological change, evolving industry standards and rapid product
obsolescence. Rapid technological development substantially shortens product
life cycles, and the Company's growth and future success will depend upon its
ability, on a timely basis, to develop and introduce new products, to enhance
existing products and to adapt products for various industrial applications and
equipment platforms, as well as upon customer acceptance of these products,
enhancements and adaptations. The Company, having more limited resources than
many of its competitors, focuses its development efforts at any given time to a
relatively narrow scope of development projects. There can be no assurance that
the Company will select the correct projects for development or that the
Company's development efforts will be successful. In addition, no assurance can
be given that the Company will not experience difficulties that could delay or
prevent the successful development, introduction or marketing of new products,
that new products and product enhancements will meet the requirements of the
marketplace and achieve market acceptance, or that the Company's current or
future products will conform to applicable industry standards. Any inability of
the Company to introduce on a timely basis new products or enhancements that
contribute to profitable sales would have a material adverse effect on the
Company's business, financial condition and results of operations.
PC cards and related services constitute 100% of the Company's sales for
fiscal 1999 and 1998. The market for PC cards is still developing and there can
be no assurance that computing and electronic equipment that utilize PC cards
will not be modified to render the Company's PC cards obsolete or otherwise have
the effect of reducing demand for the Company's PC cards. In addition, the
Company faces intense competition from competitors that have greater financial,
marketing and technological resources than the
18
<PAGE>
Company, which competition may reduce demand for the Company's PC cards.
Decreased demand for the Company's PC cards as a result of technological change,
competition or other factors would have a material adverse effect on the
Company's business, financial condition and results of operations.
Competition.
Each of the markets in which the Company competes is intensely competitive.
The Company competes with manufacturers of PC cards and related products,
including SanDisk Corporation and Smart Modular Technologies, Inc., as well as
with electronic component manufacturers who also manufacture PC cards, including
Advanced Micro Devices, Inc., Epson America, Inc., Intel Corporation and
Mitsubishi Electric Corporation. Certain of these competitors supply the Company
with raw materials, including electronic components, which are occasionally
subject to industry wide allocation. These competitors may have the ability to
manufacture products at lower costs than the Company as a result of their higher
levels of integration. In addition, many of the Company's competitors or
potential competitors have greater name recognition, a larger installed base of
customers, more extensive engineering, manufacturing, marketing, distribution
and support capabilities and greater financial, technological and personnel
resources than the Company. The Company expects competition to increase in the
future from existing competitors and from other companies that may enter the
Company's existing or future markets with similar or alternative products that
may be less costly or provide additional features. The Company believes that its
ability to compete successfully depends on a number of factors, including the
following:
- product quality and performance - order turnaround
- provision of competitive design - timely response to
capabilities advances in technology
- adequate manufacturing capacity - production efficiency
- timing of new product introductions - number and nature of the
by the Company, its customers Company's competitors
and its competitors in a given market
- price - general market and economic
conditions
In addition, market conditions are expected to lead to intensified price
competition for the Company's products and services, resulting in lower prices
and gross margins, which could materially and adversely affect the Company's
business, financial condition and results of operations. There can be no
assurance that the Company will compete successfully in the future.
Raw Material Shortages and Dependence on Single Source Suppliers.
The Company has from time to time experienced shortages in the supply of
computer memory chips and other electronic components used to manufacture PC
cards. The Company expects that such supply shortages may continue, particularly
with respect to computer memory chips and other electronic components used in
products targeted at high-growth market segments. Occasionally, certain memory
chips important to the Company's products are on industry-wide allocation by
suppliers. Any such shortages could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company purchases certain key components from single source vendors for
which alternative sources are not currently available. The Company does not
maintain long-term supply agreements with any of its vendors. The inability to
develop alternative sources for these single source components or to obtain
sufficient quantities of components could result in delays or reductions in
product shipments, or higher prices for these components, or both, any of which
could materially and adversely affect the Company's business, financial
condition and results of operations. No assurance can be given that one or more
of the Company's vendors will not reduce supplies to the Company.
Year 2000 Compliance.
The Company is aware of problems associated with computer systems as the
year 2000 approaches. "Year 2000" problems are the result of common computer
programming techniques that result in systems that do not function properly when
manipulating dates later than December 31, 1999. The issue is complex and
wide-ranging. The problem may affect transaction processing computer
applications used by the Company for accounting, distribution, manufacturing,
planning and other applications. Problems may also affect embedded systems such
as building security systems, machine controllers and production test equipment.
Year 2000 problems with any or all of these systems may affect the effectiveness
or efficiency with which the Company can perform many significant functions,
including but not limited to:
19
<PAGE>
- order processing - material planning
- product assembly - product test
- invoicing - payroll and financial reporting
In addition, the problem may affect the computer systems of vendors and
customers, disrupting their operations and possibly impairing the Company's
sources of supply and demand.
The Company has established a Year 2000 readiness team to assess the
impact of the Year 2000 issue on the Company, and to coordinate testing and
remediation activities. In general, the Company's products do not perform
date related processing and are not materially affected by Year 2000 issues.
Product testing has uncovered no Year 2000 problems, and investigation into
product design, specifically firmware and microcode, has uncovered no design
assumptions or application programming interfaces that would cause Year 2000
problems. The Company has also sample tested 100% of its manufacturing,
testing and labeling equipment and uncovered no Year 2000 problems. The
Company has not specifically tested software obtained from its customers that
is incorporated into its products for such customers, which may in some cases
involve date related processing, but the Company intends to seek assurances
from its customers that the software is Year 2000 compliant, as well as a
disclaimer of liability and indemnification should any Year 2000 issues arise
with regard to the customer's software.
The Company has completed its Year 2000 compliance assessment and
remediation of the Company's management information system. The Company upgraded
its core management information systems to address the Year 2000 issues with
respect to internal budgeting, financial planning, material planning, sales
order processing, accounting, inventory control, shop floor accounting and
purchasing. All of the modules of this new system are currently operational. The
Company has tested the upgrade to verify its Year 2000 compliance. The cost of
this management information system was approximately $450,000, of which
approximately $394,000 is attributable to the purchase of new software, which
has been capitalized; the balance has been expensed as incurred. The Company has
used operating cash flows as the source of funds for Year 2000 compliance
issues.
The assessment and remediation of Year 2000 problems in tertiary business
information systems is on-going. The Company believes that over 95% of its
desktop PC hardware units are Year 2000 compliant. The majority of the software
used on these systems and network servers is composed of recent versions of
vendor supported, commercially available products that the Company believes are
Year 2000 compliant. Upgrading these applications as respective vendors release
Year 2000 compliant patches has not been a significant burden on the Company.
The Company has determined that it will need to replace one operating system
that is not and cannot be modified to become year 2000 compliant. The Company
plans to replace and test this new system by the end of calendar 1998. The
Company believes the cost for this new system will not be material.
The Company has completed its assessment and remediation of Year 2000
problems with computer systems used for facilities control. The Company has
recently purchased a Year 2000 compliant telephone system. The cost to
purchase and install the new telephone systems was approximately $106,000,
which has been capitalized. The Company has also tested its building security
system and determined that it is Year 2000 compliant.
During the third quarter of fiscal 1999, the Company will initiate formal
communications with its key suppliers and customers regarding their Year 2000
readiness status. The Company plans to complete this assessment phase by the end
of fiscal 1999. While suppliers and customers may indicate that their products
are or will be Year 2000 compliant prior to the year 2000 and that they expect
their operations and services will continue uninterrupted, the Company can
provide no assurances that the Company's key suppliers and customers have, or
will have technology systems, non-information technology systems and products
that are Year 2000 compliant. Any Year 2000 compliance problem facing the
Company's customers or suppliers could have a material adverse effect on the
Company's business, financial condition and results of operations.
Any additional expenses related to the management of the Company's Year
2000 compliance program are not expected to be material to the Company's
quarterly operating results.
The Company has not deferred or delayed any information technology projects
due to Year 2000 efforts.
The costs and time schedules for the Company's Year 2000 problem abatement
are based on management's best estimates for the implementation of its new
operating system and Year 2000 problems uncovered to date. These estimates were
derived from utilizing
20
<PAGE>
numerous assumptions, including that the most significant Year 2000 risks have
already been identified, that certain resources will continue to be available,
that third party plans will be fulfilled, and other factors. However, there can
be no assurance that these estimates will be achieved or that the anticipated
time schedule will be met. Actual results could differ materially from those
anticipated.
Because computer systems may involve different hardware, firmware and
software components from different manufacturers, it may be difficult to
determine which component in a computer system may cause a Year 2000 issue. As a
result, the Company may be subjected to Year 2000-related lawsuits independent
of whether its products and services are Year 2000 ready. The outcomes of any
such lawsuits and the impact on the Company cannot be determined at this time.
The Company has identified no significant risks to systems that support the
Company's on-going operations, and therefore has developed no contingency plans
related thereto. Should previously undetected Year 2000 problems be found in
these or other systems, these systems will be upgraded, replaced, turned off, or
operated in place with manual procedures to compensate for their deficiencies.
While the Company believes that these alternative plans would be adequate to
meet the Company's need without materially impacting its operations, there can
be no assurance that such alternatives would be successful or that the Company's
results of operations would not be materially adversely affected by the delays
and inefficiencies inherent in conducting operations in this manner.
There may be additional Year 2000 problems that are as yet unknown to the
Company and for which remediation plans have not yet been made. Any such Year
2000 compliance problem of the Company, its suppliers or its customers could
materially adversely affect the Company's business, results of operations,
financial condition, and prospects. There can be no assurance that the Company's
insurance will cover losses from business interruptions arising from year 2000
problems of the Company or its suppliers or customers.
Euro Currency.
The participating member countries of the European Union have agreed to
adopt the Euro as the common legal currency on January 1, 1999. On that same
date, they will establish the fixed conversion rates between their existing
sovereign currencies and the Euro. The Company has begun to assess the potential
impact on the Company that may result from the Euro conversion. At this early
stage of its assessment, the Company cannot yet predict the impact of the Euro
conversion.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Since the Company's announcement on February 11, 1997 that it was
undertaking an inquiry into the accuracy of its prior reported financial
results, and that preliminary information had raised questions as to whether
reported results contained material misstatements, approximately 35 purported
class action lawsuits have been filed in or transferred to the United States
District Court for the District of Massachusetts. These complaints assert claims
against the Company under Section 10(b) of the Securities Exchange Act of 1934
(the "1934 Act") and Rule 10b-5 promulgated thereunder, and related state law
claims of fraud, deceit and negligent misrepresentation. The complaints also
assert claims against some or all of the Company's Board of Directors, and some
complaints assert claims against certain of the Company's nondirector officers,
under Section 20(a) of the 1934 Act, as well as the same state law claims
asserted against the Company. The Company's independent accountants, Coopers &
Lybrand L.L.P. ("Coopers & Lybrand"), the Company's lead underwriter for its
March 1996 subsequent public offering, Needham & Company, Inc., and a financial
advisory subscription company, Cabot Heritage Corporation, have also been named
in some of the suits. These class action lawsuits were purportedly brought by
and on behalf of purchasers of the Company's Common Stock between the Company's
initial public offering on April 12, 1994 and February 10, 1997 (the "Centennial
Securities Litigation").
On February 20, 1997, the Company received a subpoena from the United
States Department of Justice ("DOJ") to produce documents in connection with a
grand jury investigation regarding various irregularities in the Company's
previous press releases and financial statements. The DOJ also requested certain
information regarding some of the Company's former officers, certain stock
21
<PAGE>
transactions by Mr. Pinez, and correspondence with the Company's auditors. The
DOJ has subsequently subpoenaed additional Company records and files. The
Company has not been notified by the DOJ that it is a target or subject of this
investigation.
On and after February 26, 1997, four complaints were filed in the United
States District Court for the District of Massachusetts by plaintiffs purporting
to represent classes of shareholders who purchased the Company's Common Stock on
February 25, 1997. The complaint also names the Company's former Interim Chief
Executive Officer, Lawrence J. Ramaekers, and alleges violations of Sections
10(b) and 20(a) of the 1934 Act (the "February 25 Securities Litigation").
In mid-February 1997, the Company was notified that the Boston District
Office of the Securities and Exchange Commission ("SEC") was conducting an
investigation of the Company. The SEC has requested that the Company provide the
SEC with certain documents concerning the Company's public reports and financial
statements. The SEC indicated that its inquiry should not be construed as an
indication by the SEC or its staff that any violations have occurred, or as a
reflection upon the merits of the securities involved or upon any person who
effected transactions in such securities. The Company is cooperating with the
SEC in connection with this investigation, the outcome of which cannot yet be
determined.
On and after March 26, 1997, several complaints were filed in the United
States District Court for the District of Massachusetts by plaintiffs purporting
to represent classes of shareholders who purchased stock of WebSecure, Inc.
("WebSecure") between December 5, 1996 and February 27, 1997 (the "WebSecure
Complaints"). The WebSecure Complaints assert claims against WebSecure, certain
officers, directors and underwriters of WebSecure, and the Company. Claims
against the Company include alleged violations of Sections 11 and 15 of the
Securities Act of 1933 (the "1933 Act") (the "WebSecure Securities Litigation").
In addition, several shareholder derivative lawsuits have been filed by
purported holders of the Company's Common Stock seeking recovery for certain
alleged breach of fiduciary duties, alleged gross negligence, alleged breach of
contract and alleged insider trading by members of the Company's Board of
Directors between August 21, 1996 and February 10, 1997 (the "Derivative
Litigation").
On January 13, 1998, a plaintiff purporting to represent classes of
shareholders who purchased the Company's Common Stock on February 27, 1997 filed
a complaint in the United States District Court for the District of
Massachusetts. The Complaint also names the Company's former Interim Chief
Executive Officer, Lawrence J. Ramaekers, and Mr. Ramaekers' employer, Jay Alix
& Co., and alleges violations of Sections 10(b) and 20(a) of the 1934 Act (the
"February 27 Securities Litigation").
On February 9, 1998, a consolidated amended complaint combining the
Centennial Securities Litigation, the February 25 Securities Litigation, the
February 27 Securities Litigation and the Derivative Litigation was filed in the
United States District Court for the District of Massachusetts (the
"Consolidated Litigation"). Also on February 9, 1998, the Company and lead
counsel representing the plaintiffs in the Consolidated Litigation filed a
Stipulation of Settlement (the "Settlement Agreement"), whereby the Company and
certain of its officers and directors would be released from liability arising
from the allegations included in the Consolidated Litigation. In return, the
Company agreed to pay the plaintiffs in the Consolidated Litigation $1.475
million in cash and to issue to these plaintiffs 37% of the Company's Common
Stock. The Company also agreed to adopt certain corporate governance policies
and procedures.
The plaintiffs in the Consolidated Litigation have not yet reached an
agreement with the Company's former Interim Chief Executive Officer, Lawrence J.
Ramaekers, regarding their alleged claims against him. The plaintiffs have
agreed to release the Company from any direct liability related to those alleged
claims. In the agreement under which Mr. Ramaekers provided services to the
Company, the Company agreed to provide Mr. Ramaekers with the same
indemnification as is applicable to other officers of the Company pursuant to
the Company's By-Laws. The Company has agreed to indemnify, hold harmless, and
defend Mr. Ramaekers from and against certain claims arising out of his
engagement with the Company.
The plaintiffs have also retained their claims against Mr. Pinez; the
Company's former Chief Financial Officer, James M. Murphy; the Company's former
independent accountants, Coopers & Lybrand L.L.P.; and others.
The Court granted final approval of the Settlement Agreement of the
Consolidated Litigation on April 29, 1998, which became effective on July 20,
1998.
22
<PAGE>
As of March 31, 1997, the Company recorded a provision for the settlement of
the Consolidated Litigation of $20.0 million, representing the cash portion of
the Settlement Agreement, together with an amount equal to 37% of the estimated
market capitalization of the Company. The Company satisfied its obligations
regarding the cash portion ($1,475,000) of the Settlement Agreement by remitting
that amount into a settlement fund during fiscal 1998. The Company distributed
2,050,321 shares of the common stock component of the Settlement Agreement
during the second quarter of fiscal 1999, and expects to satisfy its remaining
obligation to distribute 4,784,083 shares of common stock by the end of fiscal
1999.
A significant number of class members opted not to participate in the
Settlement Agreement. No assurance can be given that claims by class members who
declined to participate in the Settlement Agreement will not have a material
adverse effect on the Company's business, financial condition and results of
operations.
On June 19, 1997, the Company announced that it had reached an agreement in
principle to settle the WebSecure Securities Litigation. The agreement in
principle contemplates that the Company and certain of its officers and
directors would be released from any and all liability arising from the
allegations included in the WebSecure Securities Litigation in return for the
issuance to the WebSecure Securities Litigation class of 345,000 shares of the
Company's Common Stock and the payment to the class of up to $50,000 for notice
and administrative costs. A binding commitment to these terms must await the
execution of a final settlement agreement. Furthermore, any settlement agreement
must be submitted to the Court for review and approval and, thereafter,
presented to class members for consideration. If a sufficiently large number of
class members opt not to participate in the settlement agreement, the agreement
may by withdrawn. No assurance can be given that the parties will be able to
reach such a final settlement agreement, that any such agreement, if reached,
will be approved by the Court, or that, if such approval is obtained, that a
material number of class members will not decline to participate in the
settlement.
Items 2 and 3. None.
Item 4. Submission of Matters to a Vote of Security Holders
On September 9, 1998, the Company held is Annual Meeting of
Stockholders (the "Annual Meeting") to vote on several proposals. Of the
18,493,362 shares of the Company's Common Stock of record on July 13, 1998 able
to be voted at the Annual Meeting, a total of 16,948,412 were represented by
person or by proxy, or approximately 92% of the Company's issued and outstanding
shares of Common Stock entitled to vote on these matters.
The following proposals were adopted, with the vote totals as follows:
Proposal 1: To elect seven (7) Directors of the Company for the ensuing year,
the nominees being:
William J Shea
Eugene M. Bullis
Steven M. DePerrior
Jay M. Eastman, Ph.D.
L. Michael Hone
David A. Lovenheim
John J. Shields
<TABLE>
<CAPTION>
Votes For Votes Withheld
--------- --------------
<S> <C> <C>
William J. Shea ......... 16,667,563 280,849
Eugene M. Bullis ......... 16,666,933 279,082
Steven M. DePerrior........ 16,671,798 276,614
Jay M. Eastman ......... 16,680,683 267,729
L. Michael Hone ......... 16,665,498 282,914
David A. Lovenheim......... 16,680,183 268,229
John J. Shields ......... 16,670,498 277,914
</TABLE>
23
<PAGE>
Proposal 2: To approve an amendment to the Company's 1994 Stock Option Plan to
increase the number of shares of Common Stock reserved for issuance under the
plan from 3,000,000 shares to 6,000,000 shares.
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions Broker Nonvotes
---------- ------------- ----------- ---------------
<S> <C> <C> <C>
3,739,527 2,173,573 132,150 10,903,162
</TABLE>
Proposal 3: To approve an amendment to the Company's 1994 Formula Stock Option
Plan to increase the number of shares of Common Stock reserved for issuance
under the plan from 180,000 shares to 300,000 shares.
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions Broker Nonvotes
---------- ------------- ----------- ---------------
<S> <C> <C> <C>
3,827,446 2,087,168 130,636 10,903,162
</TABLE>
Proposal 4: To ratify the appointment of Ernst & Young L.L.P. as the independent
accountants for the Company for the fiscal year ending March 31, 1999.
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions
---------- ------------- -----------
<S> <C> <C>
16,684,819 156,828 106,765
</TABLE>
Item 5. Other Information
Shareholder Proposals for 1999 Annual Meeting
As set forth in the Company's Proxy Statement for its 1998 Annual
Meeting of Stockholders, stockholder proposals pursuant to Rule 14a-8 under
the Securities Exchange Act of 1934 for inclusion in the Company's proxy
material for its 1999 Annual Meeting of Stockholders must be received by the
Secretary of the Company at the principal offices of the Company no later
than February 10, 1999.
In addition, in accordance with recent amendments to Rules 14a-4,
14a-5 and 14a-8 under the Securities Exchange Act of 1934, written notice of
stockholder proposals submitted outside the processes of Rule 14a-8 for
consideration at the 1999 Annual Meeting of Stockholders must be received by
the Company on or before June 4, 1999 in order to be considered timely for
purposes of Rule 14a-4. The persons designated in the Company's proxy
statement and management proxy card will be granted discretionary authority
with respect to any shareholder proposal with respect to which the Company
does not receive timely notice.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
ITEM
NO. DESCRIPTION
- ---- -----------
3.1 -- Certificate of Incorporation
10.1 -- 1994 Stock Option Plan, as amended
10.2 -- 1994 Formula Stock Option Plan, as amended
27 -- Financial Data Schedule
(b) Reports on Form 8-K. During the quarter ended September 26, 1998,
the Company filed a Form 8-K on July 13, 1998 regarding a change in the
Company's independent auditors.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTENNIAL TECHNOLOGIES, INC.
Dated: November 6, 1998 By: /s/ L. MICHAEL HONE
------------------- ------------------------------------
L. Michael Hone
President and Chief Executive Officer
Dated: November 6, 1998 By: /s/ DONALD R. PECK
---------------- ----------------------------------------
Donald R. Peck
Secretary, Treasurer and General Counsel
25
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
CENTENNIAL TECHNOLOGIES, INC.
*******
1. The name of the corporation is CENTENNIAL TECHNOLOGIES, INC.
2. The address of its registered office in the State of Delaware is
1209 Orange Street, in the City of Wilmington, County of New Castle. The name of
its registered agent at such address is The Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted
is:
To engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware.
4. The total number of shares of stock which the corporation shall have
authority to issue is Five Million (5,000,000) shares of Common Stock, of the
par value of One Cent ($.01) per share and One Million (1,000,000) shares of
Preferred Stock, of the par value of One Cent ($.01) per share, amounting in the
aggregate to Sixty Thousand and 00/100 Dollars ($60,000.00).
Additional designations and powers, preferences and rights and
qualifications, limitations or restrictions thereof of the shares of each class
shall be determined by the Board of Directors of the corporation from time to
time.
5. The name and mailing address of the corporation's incorporator is
Emanuel Pinez, c/o Centennial Technologies, Inc., 37 Manning Road, Billerica,
Massachusetts 01821.
6. The name and address of the persons who are to serve as the
directors of the Corporation until the first annual meeting of the stockholders
or until his successor(s) is elected and qualified are:
Emanuel Pinez
237 Dodge Street
Beverly, Massachusetts 01915
7. The corporation is to have perpetual existence.
<PAGE>
8. In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized:
To make, alter or repeal the bylaws of the corporation.
To authorize and cause to be executed mortgages and liens upon
the real and personal property of the corporation.
To set apart out of any of the funds of the corporation
available for dividends a reserve or reserves for any proper purpose and to
abolish any such reserve in the manner in which it was created.
By a majority of the whole board, to designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. The bylaws may provide that in the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such agent or disqualified
member. Any such committee, to the extent provided in the resolution of the
board of directors, or in the bylaws of the corporation, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers which may require it; but no
such commitee shall have the power or authority in reference to amending the
certificate of incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease, or exchange of all or
substantially all of the corporation's property and assets, recommending to the
stockholders a dissolution of the corporation or a revocation of a dissolution,
or amending the bylaws of the corporation; and, unless the resolution or bylaws
expressly so provide, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock.
When and as authorized by the stockholders in accordance with statute,
to sell, lease or exchange all or substantially all of the property and assets
of the corporation, including its goodwill and its corporate franchises, upon
such terms and conditions and for such consideration, which may consist in whole
or in part of money or property, including shares of stock in, and/or other
securities of, any other corporation or corporation, as its board of directors
shall deem expedient and for the best interests of the corporation.
9. To the maximum extent permitted by Section 102(b) (7) of the General
Corporation Law of Delaware, a director of this Corporation shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's
<PAGE>
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit.
10. Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court or equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders of this corporation, as the case may be, to be summoned in such
manner as the said court directors. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may be,
agree to any compromise or arrangement to any reorganization of this corporation
as consequences of such compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned by the court to
which the said application has been made, be binding on all the creditors or
class of creditors, and/or on all the stockholders or class of stockholders of
this corporation, as the case may be, and also on this corporation.
11. Meetings of the stockholders may be held within or without the
State of Delaware, as the bylaws may provide. The books of the corporation may
be kept (subject to any provision contained in the statutes) outside the State
of Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the bylaws of the corporation. Elections of
directors need not be by written ballot unless the bylaws of the corporation
shall so provide.
12. The corporation reserves the right to amend, alter, change, or
repeal any provision contained in this certificate of incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation; except that any
such amendment shall be made by the holders of at least two-thirds of the
outstanding shares of Common Stock of the Corporation.
THE UNDERSIGNED, being the incorporator named hereinbefore, for the
purposes of forming a corporation pursuant to the General Corporation Law of the
<PAGE>
State of Delaware, does make this certificate, hereby declaring and certifying
that this is his act and deed and the facts herein state are true, and
accordingly, has hereunto set his hand this 5th day of January, 1994.
/s/ Emanuel Pinez
--------------------------------------------
Emanuel Pinez
COMMONWEALTH OF MASSACHUSETTS)
) ss.:
COUNTY OF MIDDLESEX )
BE IT REMEMBERED that on this 5th day of January, 1994, personally came
before me, a Notary Public for the Commonwealth of Massachusetts, Emanuel Pinez,
the party to the foregoing Certificate of Incorporation, known to me personally
to be such, and acknowledged the said certificate to be his act and deed and
that the facts stated therein are true.
GIVEN under my hand and seal of office the day and year aforesaid.
/s/ Janet M. Davenport
--------------------------------------------
Janet M. Davenport
Notary Public
My Commission Expires: 3/04/94
<PAGE>
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER ("Merger Agreement"), dated as of January 21,
1994 is between C. CENTENNIAL, INC., a Massachusetts corporation ("Centennial of
Massachusetts") and CENTENNIAL TECHNOLOGIES, INC., a Delaware corporation
("Centennial of Delaware"). Centennial of Massachusetts and Centennial of
Delaware are hereafter sometimes collectively referred to as the "Constituent
Corporation".
WHEREAS, Centennial of Massachusetts is a corporation duly organized
and existing under the laws of the Commonwealth of Massachusetts;
WHEREAS, Centennial of Delaware is a corporation duly organized and
existing under the laws of the State of Delaware;
WHEREAS, on the date of this Merger Agreement, Centennial of
Massachusetts has authority to issue one hundred thousand (100,000) shares of
Common Stock, $.01 par value per share ("Centennial of Massachusetts Common
Stock"), 100,000 of which shares are issued and outstanding;
WHEREAS, on the date of this Merger Agreement, Centennial of Delaware
has authority to issue 5,000,000 shares of Common Stock, $.01 par value per
share ("Centennial of Delaware Common Stock"), 100 shares of which are issued
and outstanding and 1,000,000 shares of Preferred Stock, $.01 par value per
share ("Centennial of Delaware Preferred Stock"), no shares of which are issued
and outstanding;
WHEREAS, the respective Boards of Directors of Centennial of
Massachusetts and Centennial of Delaware have determined that it is advisable
and in the best interests of each of such corporations that Centennial of
Massachusetts merge in a tax-free reorganization with and into Centennial of
Delaware upon the terms and subject to the conditions of this Merger Agreement;
and
WHEREAS, the respective Boards of Directors of Centennial of
Massachusetts and Centennial of Delaware have, by resolutions duly adopted,
approved this Merger Agreement, and the shareholders of Centennial of
Massachusetts have duly approved this Merger Agreement by unanimous written
consent dated January 10, 1994 and the shareholders of Centennial of Delaware
have, by unanimous written consent, duly approved this Merger Agreement;
NOW, THEREFORE, in consideration of the mutual agreements and covenants
set forth herein, Centennial of Massachusetts and Centennial of Delaware hereby
agree as follows:
<PAGE>
1. Merger. Centennial of Massachusetts will be merged with and into
Centennial of Delaware (the "Merger"), and Centennial of Delaware shall be the
surviving corporation (hereinafter sometimes referred to as the "Surviving
Corporation"). The merger shall become effective upon the time and date of
filing of such documents as may be required under applicable law ("Effective
Time").
2. Governing Documents. The Certificate of Incorporation of Centennial
of Delaware as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation without change or
amendment until thereafter amended in accordance with the provisions thereof and
applicable laws, and the Bylaws of Centennial of Delaware as in effect
immediately prior to the Effective Time shall be the Bylaws of the Surviving
Corporation without change or amendment until thereafter amended in accordance
with the provisions thereof and applicable laws.
3. Succession. At the Effective Time, the separate corporate existence
of Centennial of Massachusetts shall cease, and Centennial of Delaware shall
possess all the rights, privileges, powers and franchises of a public and
private nature and be subject to all the restrictions, disabilities and duties
of Centennial of Massachusetts; and all and singular, the rights, privileges,
powers and franchises of Centennial of Massachusetts and all property, real,
personal and mixed, and all debts due to Centennial of Massachusetts on whatever
account, as well as for share subscriptions and all other things in action or
belonging to Centennial of Massachusetts shall be vested in the Surviving
Corporation; and all property, rights, privileges, powers and franchises, and
all and every other interest shall be thereafter as effectually the property of
the Surviving Corporation s they were of Centennial of Massachusetts, and the
title to any real estate vested by deed or otherwise, under the laws of the
State of Delaware, in Centennial of Massachusetts shall not revert or be in any
way impaired by reason of the General Corporation Law of the State of Delaware;
but all rights of creditors and all liens upon any property of Centennial of
Massachusetts shall be preserved unimpaired; and all debts, liabilities and
duties of Centennial of Massachusetts shall thenceforth attach to the Surviving
Corporation and may be enforced against it to the same extent as if such debts,
liabilities and duties had been incurred or contracted by it. All corporate
acts, plans, policies, agreements, arrangements, approvals and authorizations of
Centennial of Massachusetts, its shareholders, Board of Directors and committees
thereof, officers and agents which were valid and effective immediately prior to
the Effective Time, shall be taken for all purposes as the acts, plans,
policies, agreements, arrangements, approvals and authorizations of Centennial
of Delaware and shall be as effective and binding thereon as the same were with
respect to Centennial of Massachusetts. The employees and agents of Centennial
of Massachusetts shall become the employees and agents of Centennial of Delaware
and continue to be entitled to the same rights and benefits which they enjoyed
as employees of Centennial of Massachusetts.
4. Further Assurance. From time to time, as and when required by
Centennial of Delaware or by its successors and assigns, there shall be executed
and
<PAGE>
delivered on behalf of Centennial of Massachusetts such deeds and other
instruments, and there shall be taken or caused to be taken by it all such
further and other action, as shall be appropriate or necessary in order to vest,
perfect or confirm, or record or otherwise, in Centennial of Delaware the title
to an possession of all property, interest, assets, rights, privileges,
immunities, powers, franchises and authority of Centennial of Massachusetts and
otherwise to carry out the purposes of this Merger Agreement, and the officers
and directors of Centennial of Delaware are fully authorized in the name and on
behalf of Centennial of Massachusetts to take any and all such action and to
execute and delivery any and all deeds and other instruments.
5. Conversion of Shares. At the Effective Time, by virtue of the Merger
and without any action on the part of the holder thereof:
(a) Each of the shares of Centennial of Massachusetts Common
Stock outstanding immediately prior to the Effective Time shall be
changed and converted into and one (1) fully-paid and non-assessable
share of Centennial of Delaware Common Stock. No fractional shares will
be issued.
(b) The 100 shares of Centennial of Delaware Common Stock
presently issued and outstanding shall be given to Centennial of
Delaware as a capital contribution and shall be cancelled and resume
the status of authorized and unissued shares of Centennial of Delaware
Common Stock, and no shares of Centennial of Delaware Common Stock or
other securities of Centennial of Delaware shall be issued in respect
thereof.
6. Conversion of Warrants and Options. At the Effective Time, by virtue
of the Merger and without any action on the part of the holder thereof, unless
the Board of Directors determines otherwise, each option and/or warrant to
purchase Centennial of Massachusetts Common Stock outstanding immediately prior
to the Effective Time shall be changed and converted into an option and/or
warrant to purchase Centennial of Delaware Common Stock on the basis of the
following ratio:
(a) Options to purchase one (1) share of Centennial of
Massachusetts Common Stock shall be converted into an option to
purchase one (1) share of Centennial of Delaware Common Stock.
(b) Warrants to purchase one (1) share of Centennial of
Massachusetts Common Stock shall be converted into a warrant to
purchase one (1) share of Centennial of Delaware Common Stock.
7. Stock Certificates. At an after the Effective Time, all of the
outstanding certificates which immediately prior to the Effective Time
represented shares of Centennial of Massachusetts Common Stock shall be
presented to Centennial of Delaware to be exchanged for certificates
representing shares of Centennial of Delaware Common Stock as converted as
herein provided. The registered owner of any such outstanding certificate shall,
until such certificate shall have been
<PAGE>
surrendered for transfer or otherwise accounted for to Centennial of Delaware or
its transfer agents, have and be entitled to exercise any voting and other
rights with respect to and to receive any dividends and other distributions upon
the shares of Centennial of Delaware Common Stock evidenced by such outstanding
certificate as above provided. All certificates representing shares of
Centennial of Delaware outstanding immediately prior to the Effective Time shall
be surrendered to Centennial of Delaware for cancellation; at and after the
Effective Time, the shares represented by such certificates shall be deemed to
be cancelled whether or not the certificates have been surrendered or otherwise
accounted for.
8. Employee Benefit Plans. As of the Effective Time, Centennial of
Delaware hereby assumes all obligations of Centennial of Massachusetts under all
employee benefit plans in effect, if any, as of the Effective Time or with
respect to which employee rights or accrued benefits are outstanding, if any, as
of the Effective Time.
9. Amendment. Subject to applicable law, this Merger Agreement may be
amended, modified or supplemented by written agreement of the parties hereto at
any time prior to the Effective Time with respect to any of the terms contained
herein.
10. Abandonment. At any time prior to the Effective Time, this Merger
Agreement may be terminated and the Merger may be abandoned by the Board of
Directors of either of Centennial of Massachusetts or Centennial of Delaware, or
either of them, notwithstanding approval of this Merger Agreement by the
stockholders of any of said corporations if circumstances arise which, in the
opinion of the Board of Directors of Centennial of Massachusetts or Centennial
of Delaware make the Merger inadvisable.
11. Counterparts. In order to facilitate the filing and recording of
this Merger Agreement, the same may be executed in two or more counterparts,
each of which shall be deemed to be an original and the same agreement.
<PAGE>
IN WITNESS WHEREOF, Centennial of Massachusetts and Centennial of
Delaware have caused this Merger Agreement to be signed by their respective duly
authorized officers as of the date first above written.
C. CENTENNIAL, INC.
a Massachusetts corporation
ATTEST: By: /s/ Emanuel Pinez
--------------------------
/s/ Carole Ouellette Emanuel Pinez
- ---------------------
Carole Ouellette
Clerk
CENTENNIAL TECHNOLOGIES, INC.
a Delaware corporation
ATTEST:
By: /s/ Emanuel Pinez
---------------------------
Emanuel Pinez, President
/s/ Andrew D. Myers
- -------------------------
Andrew D. Myers
Assistant Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CENTENNIAL TECHNOLOGIES, INC.
**********
CENTENNIAL TECHNOLOGIES, INC., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting on June 30, 1995, all of the directors and
at a meeting on August 9, 1995, a majority of the stockholders
of CENTENNIAL TECHNOLOGIES, INC., adopted the following
resolution amending the Certificate of Incorporation of said
corporation:
"RESOLVED: That the Certificate of Incorporation of the
Corporation be amended by change of the article
thereof numbered "4" so that, as amended, said
Article 4 shall be, and read, in its entirety, as
follows:
"4. The total number of shares of stock
which the corporation shall have authority
to issue is sixteen million (16,000,000)
shares, fifteen million (15,000,000) shares
of which shall be Common Stock, of the par
value of ($.01) per share, and one million
(1,000,000) shares of Preferred Stock, of
the par value of ($.01) per share, amounting
in the aggregate to One Hundred Sixty
Thousand and 00/100 Dollars ($160,000.00).
Additional designations and powers,
preferences and rights and qualifications,
limitations or restrictions of the shares of
stock shall be determined by the Board of
Directors of the Corporation from time to
time."
SECOND: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of
the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, said CENTENNIAL TECHNOLOGIES, INC., has caused this
Certificate of Amendment to be signed by Emanuel Pinez, its Chief Executive
Officer and Andrew D. Myers, its Assistant Secretary this 9th day of August,
1995.
/s/ Emanuel Pinez
----------------------------
Emanuel Pinez
President
/s/ Andrew D. Myers
- ----------------------------
Andrew D. Myers
Assistant Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CENTENNIAL TECHNOLOGIES, INC.
*******
CENTENNIAL TECHNOLOGIES, INC., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting on August 1, 1996, all of the directors and
at a meeting on November 6, 1996, a majority of the
stockholders of CENTENNIAL TECHNOLOGIES, INC., adopted the
following resolution amending the Certificate of Incorporation
of said corporation:
RESOLVED: That the Certificate of Incorporation of the
Corporation be amended by change of the article
thereof numbered "4" so that, as amended, said
Article 4 shall be, and read, in its entirety, as
follows:
"4. The total number of shares of stock
which the corporation shall have authority
to issue is fifty-one million (51,000,000)
shares, fifty million (50,000,000) shares of
which shall be Common Stock, of the par
value of $.01 per share, and one-million
(1,000,000) shares of Preferred Stock, of
the par value of $.01 per share, amounting
in the aggregate to Five Hundred Ten
Thousand ($510,000.00).
Additional designations and powers,
preferences and rights and qualifications,
limitations or restrictions of the shares of
stock shall be determined by the Board of
Directors of the Corporation from time to
time."
<PAGE>
SECOND: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, said CENTENNIAL TECHNOLOGIES, INC., has caused this
Certificate of Amendment to be signed by John J. McDonald, its President and
Andrew D. Myers, its Assistant Secretary this 12th day of November, 1996.
/s/ John J. McDonald
--------------------------------
John J. McDonald, President
/s/ Andrew D. Myers
- ----------------------------------------
Andrew D. Myers, Assistant Secretary
<PAGE>
Exhibit 10.1
CENTENNIAL TECHNOLOGIES, INC.
1994 STOCK OPTION PLAN
ARTICLE I
Purpose of the Plan
The purpose of this Plan is to encourage and enable employees,
consultants, directors and others who are in a position to make significant
contributions to the success of CENTENNIAL TECHNOLOGIES, INC. and of its
affiliated corporations upon whose judgment, initiative and efforts the
Corporation depends for the successful conduct of its business, to acquire a
closer identification of their interests with those of the Corporation by
providing them with opportunities to purchase stock in the Corporation pursuant
to options granted hereunder, thereby stimulating their efforts on behalf of the
Corporation and strengthening their desire to remain involved with the
Corporation. Any employee, consultant or advisor designated to participate in
the Plan is referred to as a "Participant."
ARTICLE II
Definitions
2.1 "Affiliated Corporation" means any stock corporation of which a
majority of the voting common or capital stock is owned directly or indirectly
by the Corporation.
2.2 "Award" means an Option granted under Article V.
<PAGE>
2.3 "Board" means the Board of Directors of the Corporation or, if one
or more has been appointed, a Committee of the Board of Directors of the
Corporation.
2.4 "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
2.5 "Committee" means a Committee of not less than two members of the
Board appointed by the Board to administer the Plan.
2.6 "Corporation" means CENTENNIAL TECHNOLOGIES, INC., a Delaware
corporation, or its successor.
2.7 "Employee" means any person who is a regular full-time or part-time
employee of the Corporation or an Affiliated Corporation on or after January 7,
1994.
2.8 "Incentive Stock Option" ("ISO") means an option which qualifies as
an incentive stock option as defined in Section 422 of the Code, as amended.
2.9 "Non-Qualified Option" means any option not intended to qualify as
an Incentive Stock Option.
2.10 "Option" means an Incentive Stock Option or Non-Qualified Option
granted by the Board under Article V of this Plan in the form of a right to
purchase Stock evidenced by an instrument containing such provisions as the
Board may establish. Except as otherwise expressly provided with respect to an
Option grant, no Option granted pursuant to the Plan shall be an Incentive Stock
Option.
2.11 "Participant" means a person selected by the Committee to receive
an award under the Plan.
2.12 "Plan" means this 1994 Stock Option Plan.
2
<PAGE>
2.13 "Reporting Person" means a person subject to Section 16 of the
Securities Exchange Act of 1934 or any successor provision.
2.14 "Restricted Period" means the period of time selected by the
Committee during an award may be forfeited by the person.
2.15 "Stock" means the Common Stock, $.01 par value per share, of the
Corporation or any successor, including any adjustments in the event of changes
in capital structure of the type described in Article XI.
ARTICLE III
Administration of the Plan
3.1 Administration by Board. This Plan shall be administered by the
Board of Directors of the Corporation. The Board may, from time to time,
delegate any of its functions under this Plan to one or more Committees. All
references in this Plan to the Board shall also include the Committee or
Committees, if one or more have been appointed by the Board. From time to time,
the Board may increase the size of the Committee or committees and appoint
additional members thereto, remove members (with or without cause) and appoint
new members in substitution therefor, fill vacancies however caused, or remove
all members of the Committee or Committees and thereafter directly administer
the Plan. No member of the Board or a Committee shall be liable for any action
or determination made in good faith with respect to the Plan or any options
granted hereunder.
If a Committee is appointed by the Board, a majority of the members of
the Committee shall constitute a quorum, and all determinations of the Committee
under
3
<PAGE>
the Plan may be made without notice or meeting of the Committee by a writing
signed by a majority of Committee members. On or after registration of the Stock
under the Securities Exchange Act of 1934, as amended, the Board shall delegate
the power to select directors and officers to receive Awards under the Plan, and
the timing, pricing and amount of such Awards to a Committee, all members of
which shall be "disinterested persons" within the meaning of Rule 16b-3 under
that Act.
3.2 Powers. The Board of Directors and/or any Committee appointed by
the Board shall have full and final authority to operate, manage and administer
the Plan on behalf of the Corporation. This authority includes, but is not
limited to:
(a) The power to grant Awards conditionally or unconditionally,
(b) The power to prescribe the form or forms of any instruments
evidencing Awards granted under this Plan,
(c) The power to interpret the Plan,
(d) The power to provide regulations for the operation of the
incentive features of the Plan, and otherwise to prescribe and
rescind regulations for interpretation, management and
administration of the Plan,
(e) The power to delegate responsibility for Plan operation,
management and administration on such terms, consistent with
the Plan, as the Board may establish,
(f) The power to delegate to other persons the responsibility of
performing ministerial acts in furtherance of the Plan's
purpose, and
4
<PAGE>
(g) The power to engage the services of persons, companies, or
organizations in furtherance of the Plan's purpose, including
but not limited to, banks, insurance companies, brokerage
firms and consultants.
3.3 Additional Powers. In addition, as to each Option to buy Stock of
the Corporation, the Board shall have full and final authority in its
discretion: (a) to determine the number of shares of Stock subject to each
Option; (b) so determine the time or times at which Options will be granted; (c)
to determine the option price of the shares of Stock subject to each Option,
which price shall be not less than the minimum price specified in Article V of
this Plan; (d) to determine the time or times when each Option shall become
exercisable and the duration of the exercise period (including the acceleration
of any exercise period), which shall not exceed the maximum period specified in
Article V; (e) to determine whether each Option granted shall be an Incentive
Stock Option or a Non-Qualified Option; and (f) to waive compliance by a
Participant with any obligation to be performed by him under an Option, to waive
any condition or provision of an Option, and to amend or cancel any Option (and
if an Option is cancelled, to grant a new Option on such terms as the Board may
specify), except that the Board may not take any action with respect to an
outstanding option that would adversely affect the rights of the Participant
under such Option without such Participant's consent. Nothing in the preceding
sentence shall be construed as limiting the power of the Board to make
adjustments required by Article XI.
5
<PAGE>
In no event may the Company grant an Employee any Incentive Stock
Option that is first exercisable during any one calendar year to the extent the
aggregate fair market value of the Stock (determined at the time the options are
granted) exceeds $100,000 (under all stock option plans of the Corporation and
any Affiliated Corporation); provided, however, that this paragraph shall have
no force and effect if its inclusion in the Plan is not necessary for Incentive
Stock Options issued under the Plan to qualify as such pursuant to Section
422(d)(1) of the Code.
ARTICLE IV
Eligibility
4.1 Eligibility Employees. All Employees (including Directors who are
Employees) are eligible to be granted Incentive Stock Option and Non-Qualified
Option Awards under this Plan.
4.2 Consultants, Directors and other Non-Employees. Any Consultant,
director (whether or not an Employee) and any other Non-Employee is eligible to
be granted Non-Qualified Option Awards under the Plan, provided the person has
not irrevocably elected to be ineligible to participate in the Plan.
4.3 Relevant Factors. In selecting individual Employees, Consultants,
Directors and other Non-Employees to whom Awards shall be granted, the Board
shall weigh such factors as are relevant to accomplish the purpose of the Plan
as stated in Article I. An individual who has been granted an Award may be
granted one or more additional Awards, if the Board so determines. The granting
of an
6
<PAGE>
Award to any individual shall neither entitle that individual to, nor disqualify
him from, participation in any other grant of Awards.
ARTICLE V
Stock Option Awards
5.1 Number of Shares. Subject to the provisions of Article XI of this
Plan, the aggregate number of shares of Stock for which options may be granted
under this Plan shall not exceed three hundred thousand (300,000) shares, the
shares to be delivered upon exercise of Options under this Plan shall be made
available, at the discretion of the Board, either from authorized but unissued
shares or from previously issued and reacquired shares of Stock held by the
Corporation as treasury shares, including shares purchased in the open market.
Stock issuable upon exercise of an option granted under the Plan may be
subject to such restrictions on transfer, repurchase rights or other
restrictions as shall be determined by the Board of Directors.
5.2 Effect of Expiration, Termination or Surrender. If an Option under
this Plan shall expire or terminate unexercised as to any shares covered
thereby, or shall cease for any reason to be exercisable in whole or in part, or
if the Company shall reacquire any unvested shares issued pursuant to Options
under the Plan, such shares shall thereafter be available for the granting of
other Options under this Plan.
5.3 Term of Options. The full term of each Option granted hereunder
shall be for such period as the Board shall determine. In the case of Incentive
Stock Options granted hereunder, the term shall not exceed ten (10) years from
the date of
7
<PAGE>
granting thereof. Each Option shall be subject to earlier termination as
provided in Sections 6.3 and 6.4. Notwithstanding the foregoing, the term of
options intended to qualify as "Incentive Stock Options" shall not exceed five
(5) years from the date of granting hereof if such option is granted to any
employee who at the time such option is granted to any employee who at the time
such option is granted owns more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company.
5.4 Option Price. The Option price shall be determined by the Board at
the time may Option is granted. In the case of Incentive Stock Options, the
exercise price shall not be less than one hundred percent (100%) of the fair
market value of the shares covered thereby at the time the Incentive Stock
Option is granted (but in no event less than par value), provided that no
Incentive Stock Option shall be granted hereunder to any Employee if at the time
of grant the Employee, directly or indirectly, owns Stock possessing more than
ten percent (10%) of the combined voting power of all classes of stock of the
Corporation and its Affiliated Corporations unless the Incentive Stock Option
price equals not less than one hundred ten percent (110%) of the fair market
value of the shares covered thereby at the time the Incentive Stock Option is
Granted.
5.5 Fair Market Value. If, at the time an Option is granted under the
Plan, the Corporation's Stock is publicly traded, "fair market value" shall be
determined as of the last business day for which the prices or quotes discussed
in this sentence are available prior to the date such Option is granted and
shall mean (i) the average (on
8
<PAGE>
that date) of the high and low prices of the Stock on the principal national
securities exchange on which the Stock is traded if the Stock is then traded on
a national securities exchange; or (ii) the last reported sale price (on that
date) of the Stock on the NASDAQ National Market List, if the Stock is not then
traded on a national securities exchange; or (iii) the closing bid price (or
average of bid prices) last quoted (on that date) by an established quotation
service for over-the counter securities, if the Stock is not reported on the
NASDAQ National Market List. However, if the Stock is not publicly traded at the
time an Option is granted under the Plan, "fair market value" shall be deemed to
be the fair value of the Stock as determined by the Board after taking into
consideration all factors which it deems appropriate, including, without
limitation, recent sale and offer prices of the Stock in private transactions
negotiated at arm's length.
5.6 Non-Transferability of Options. No Options granted under this Plan
shall be transferable by the grantee otherwise then by will or the laws of
descent and distribution, and such Option may be exercised during the grantee's
lifetime only by the grantee.
5.7 Foreign Nationals. Awards may be granted to Participants who are
foreign nationals or employed outside the United States on such terms and
conditions different from those specified in the Plan as the Committee considers
necessary or advisable to achieve the purposes of the Plan or comply with
applicable laws.
9
<PAGE>
ARTICLE VI
Exercise of Option
6.1 Exercise. Each Option granted under this Plan shall be exercisable
on such date or dates and during such period and for such number of shares as
shall be determined pursuant to the provisions of the instrument evidencing such
Option. The Board shall have the right to accelerate the date of exercise of any
option, provided that, the Board shall not accelerate the exercise date of any
Incentive Stock Option granted if such acceleration would violate the annual
vesting limitation contained in Section 422(d)(1) of the Code.
6.2 Notice of Exercise. A person electing to exercise an Option shall
give written notice to the Corporation of such election and of the number of
shares he or she has elected to purchase and shall at the time of exercise
tender the full purchase price of the shares he or she has elected to purchase.
The purchase price can be paid partly or completely in shares of the
Corporation's stock valued at Fair Market Value as defined in Section 5.5
hereof, or by any such other lawful consideration as the Board may determine.
Until such person has been issued a certificate or certificates for the shares
so purchased and has fully paid the purchase price for such shares, he or she
shall possess no rights of a record holder with respect to any of such shares.
In the event that the Corporation elects to receive payment for such shares by
means of a promissory note, such note, if issued to an officer, director or
holder of 5% or more of the Company's outstanding Common Stock, shall provide
for payment of interest at a rate no less than the interest rate then payable by
the Company to its
10
<PAGE>
principal commercial lender, or if the Company has no loan outstanding to a
commercial lender, then the interest rate payable shall equal the prevailing
prime rate of interest then charged by commercial banks headquartered in
Massachusetts (as determined by the Board of Directors in its reasonable
discretion) plus two percent (2%).
6.3 Option Unaffected by Change in Duties. No Incentive Stock Option
(and, unless otherwise determined by the Board of Directors, no Non-Qualified
Option granted to a person who is, on the date of the grant, an Employee of the
Corporation or an Affiliated Corporation) shall be affected by any change of
duties or position of the optionee (including transfer to or from an Affiliated
Corporation), so long as he or she continues to be an Employee. Employment shall
be considered as continuing uninterrupted during any bona fide leave of absence
(such as those attributable to illness, military obligations or governmental
service) provided that the period of such leave does not exceed ninety (90) days
or, if longer, any period during which such optionee's right to reemployment is
guaranteed by statute. A bona fide leave of absence with the written approval of
the Board shall not be considered as interruption of employment under the Plan,
provided that such written approval contractually obligates the Corporation or
any Affiliated Corporation to continue the employment of the optionee after the
approved period of absence.
If the optionee shall cease to be an Employee for any reason other than
death, such Option shall thereafter be exercisable only to the extent of the
purchase rights, if any, which have accrued as of the date of such cessation;
provided that (i) the Board
11
<PAGE>
may provide in the instrument evidencing any Option that the Board may in its
absolute discretion, upon any such cessation of employment, determine (but be
under no obligation to determine) that such accrued purchase rights shall be
deemed to include additional shares covered by such Option; and (ii) unless the
Board shall otherwise provided in the instrument evidencing any Option, upon any
such cessation of employment, such remaining rights to purchase shall in any
event terminate upon the earlier of (A) the expiration of the original term of
the Option; or (B) where such cessation of employment is on account of
disability, the expiration of one year from the date of such cessation of
employment and, otherwise, the expiration of three months from such date. For
purposes of the Plan, the term "disability" shall mean "permanent and total
disability" as defined in Section 22(e)(3) of the Code.
In the case of a Participant who is not an employee, provisions
relating to the exercisability of an Option following termination of service
shall be specified in the award. If not so specified, all Options held by such
Participant shall terminate on termination of services to the Corporation.
6.4 Death of Optionee. Should an optionee die while in possession of
the legal right to exercise an Option nor Options under this Plan, such persons
as shall have acquired, by will or by the laws of descent and distribution, the
right to exercise any Options theretofore granted, may, unless otherwise
provided by the Board in any instrument evidencing any Option, exercise such
Options at any time prior to one year from the date of death; provided, that
such Option or Options shall expire in all
12
<PAGE>
events no later than the last day of the original term of such Option; provided,
further, that any such exercise shall be limited to the purchase rights which
have accrued as of the date when the optionee ceased to be an Employee, whether
by death or otherwise, unless the Board provides in the instrument evidencing
such Option that, in the discretion of the Board, additional shares covered by
such Option may become subject to purchase immediately upon the death of the
optionee.
ARTICLE VII
Reporting Person Limitations
To the extent required to qualify for the exemption provided by Rule
16b-3 under the Securities Exchange Act of 1934, and any successor provision, at
least six months must elapse from the date of acquisition of an Option by a
Reporting Person to the date of disposition of such Option (other than upon
exercise) or its underlying Common Stock.
ARTICLE VIII
Terms and Conditions of Options
Options shall be evidenced by instruments (which need not be identical)
in such forms as the Board may from time to time approve. Such instruments shall
conform to the terms and conditions set forth in Articles V and VI hereof and
may contain such other provisions as the Board deems advisable which are not
inconsistent with the Plan, including restrictions applicable to shares of Stock
issuable upon exercise of Options. In granting any Non-Qualified Option, the
Board may specify that such Non-Qualified Option shall be subject to the
restrictions set forth
13
<PAGE>
herein with respect to Incentive Stock Options, or to such other termination and
cancellation provisions as the Board may determine. The Board may from time to
time confer authority and responsibility on one or more of its own members
and/or one or more officers of the Corporation to execute and deliver such
instruments. The proper officers of the Corporation are authorized and directed
to take any and all action necessary or advisable from time to time to carry out
the terms of such instruments.
ARTICLE IX
Benefit Plans
Awards under the Plan are discretionary and are not a part of regular
salary. Awards may not be used in determining the amount of compensation for any
purpose under the benefit plans of the Corporation, or an Affiliated
Corporation, except as the Board may from time to time expressly provide.
Neither the Plan, an Option or any instrument evidencing an Option confers upon
any Participant any right to continue as an employee of, or consultant or
advisor to, the Company or an Affiliated Corporation or affect the right of the
Corporation or any Affiliated Corporation to terminate them at any time. Except
as specifically provided by the Board in any particular case, the loss of
existing or potential profits granted under this Plan shall not constitute an
element of damages in the event of termination of the relationship of a
Participant even if the termination is in violation of an obligation of the
Corporation to the Participant by contract or otherwise.
14
<PAGE>
ARTICLE X
Amendment, Suspension or Termination of the Plan
The Board may suspend the Plan or any part thereof at any time or may
terminate the Plan in its entirety. Awards shall not be granted after Plan
termination. The Board may also amend the Plan from time to time, except that
amendments which affect the following subjects must be approved by stockholders
of the Corporation:
(a) Except as provided in Article XI relative to capital changes,
the number of shares as to which Options may be granted
pursuant to Article V;
(b) The maximum term of Options granted;
(c) The minimum price at which Options may be granted;
(d) The term of the Plan; and
(e) The requirements as to eligibility for participation in the Plan.
Awards granted prior to suspension or termination of the Plan may not be
cancelled solely because of such suspension or termination, except with the
consent of the grantee of the Award.
ARTICLE XI
Changes in Capital Structure
The instruments evidencing Options granted hereunder shall be subject
to adjustment in the event of changes in the outstanding Stock of the
Corporation by reason of Stock dividends, Stock splits, recapitalizations,
reorganizations, mergers, consolidations, combinations, exchanges or other
relevant changes in capitalization
15
<PAGE>
occurring after the date of an Award to the same extent as would affect an
actual share of Stock issued and outstanding on the effective date of such
change. Such adjustment to outstanding Options shall be made without change in
the total price applicable to the unexercised portion of such options, and a
corresponding adjustment in the applicable option price per share shall be made.
In the event of any such change, the aggregate number and classes of shares for
which Options may thereafter be granted under Section 5.1 of this Plan may be
appropriately adjusted as determined by the Board so as to reflect such change.
Notwithstanding the foregoing, any adjustments made pursuant to this
Article XI with respect to Incentive Stock Options shall be made only after the
board, after consulting with counsel for the Corporation, determines whether
such adjustments would constitute a "modification" of such Incentive Stock
Options (as that term is defined in Section 424 of the Code) or would cause any
adverse tax consequences for the holders of such Incentive Stock Options. If the
Board determines that such adjustments made with respect to Incentive Stock
Options would constitute a modification of such Incentive Stock Options, it may
refrain from making such adjustments.
In the event of the proposed dissolution of liquidation of the
Corporation, each Option will terminate immediately prior to the consummation of
such proposed action or at such other time and subject to such other conditions
as the Board shall determine.
16
<PAGE>
Except as expressly provided herein, no issuance by the Corporation of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares subject to Options. No adjustments
shall be made for dividends paid in cash or in property other than securities of
the Corporation.
No fractional shares shall be issued under the Plan and the optionee
shall receive from the Corporation cash in lieu of such fractional shares.
ARTICLE XII
Effective Date and Term of the Plan
The Plan shall become effective on January 10, 1994. The Plan shall
continue until such time as it may be terminated by action of the Board or the
Committee; provided, however, that no Options may be granted under this Plan on
or after the tenth anniversary of the effective date hereof.
ARTICLE XIII
Conversion of ISOs into Non-Qualified
Options; Termination of ISOs
The Board, at the written request of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's
Incentive Stock Options, that have not been exercised on the date of conversion,
into Non-Qualified Options at any time prior to the expiration of such Incentive
Stock Options, regardless of whether the optionee is an employee of the
Corporation or an Affiliated Corporation at the time of such conversion. Such
actions may include, but not be limited to,
17
<PAGE>
extending the exercise period or reducing the exercise price of such Options. At
the time of such conversion, the Board or the Committee (with the consent of the
optionee) may impose such conditions on the exercise of the resulting
Non-Qualified Options as the Board or the Committee in its discretion may
determine, provided that such conditions shall not be inconsistent with the
Plan. Nothing in the Plan shall be deemed to give any optionee the right to have
such optionee's Incentive Stock Options converted into Non-Qualified Options,
and no such conversion shall occur until and unless the Board or the Committee
takes appropriate action. The Board, with the optionee's consent, may also
terminate any portion of any incentive Stock Option that has not been exercised
at the time of such termination.
ARTICLE XIV
Application of Funds
The proceeds received by the Corporation from the sale of shares
pursuant to Options granted under the Plan shall be used for general corporate
purposes.
ARTICLE XV
Governmental Regulation
The Corporation's obligation to sell and deliver shares of Stock under
this Plan is subject to the approval of any governmental authority required in
connection with the authorization, issuance or sale of such shares.
18
<PAGE>
ARTICLE XVI
Withholding of Additional Income Taxes
Upon the exercise of a Non-Qualified Option or the making of a
Disqualifying Disposition (as defined in Article XVII) the Corporation, in
accordance with Section 3402(a) of the Code, may require the optionee to pay
additional withholding taxes in respect of the amount that is considered
compensation includible in such person's gross income. The Board in its
discretion may condition the exercise of an Option on the payment of such
additional withholding taxes.
ARTICLE XVII
Notice to Company of Disqualifying Disposition
Each employee who receives an Incentive Stock Option must agree to
notify the Corporation in writing immediately after the employee makes a
Disqualifying Disposition of any Stock acquired pursuant to the exercise of an
Incentive Stock Option. A Disqualifying Disposition is any disposition
(including any sale) of such Stock before the later of (a) two years after the
date the employee was granted the Incentive Stock Option or (b) one year after
the date the employee acquired Stock by exercising the Incentive Stock Option.
If the employee has died before such stock is sold, these holding period
requirements do not apply and no Disqualifying Disposition can occur thereafter.
19
<PAGE>
ARTICLE XVIII
Governing Law; Construction
The validity and construction of the Plan and the instruments
evidencing Options shall be governed by the laws of the Commonwealth of
Massachusetts (without regard to the conflict of law principles thereof). In
construing this Plan, the singular shall include the plural and the masculine
gender shall include the feminine and neuter, unless the context otherwise
requires.
20
<PAGE>
Centennial Technologies, Inc.
AMENDMENT NO. 1
1994 STOCK OPTION PLAN
The 1994 Stock Option Plan, as amended (the "Plan"), is hereby amended as
set forth below:
1. Article V of the Plan is hereby amended by deleting the first sentence
thereof and substituting the following therefor:
"Subject to the provisions in Article XI of this Plan, the
aggregate number of shares of Stock for which options may be granted
under the Plan shall not exceed 500,000 shares."
2. In all other respects, the Plan shall remain in full force and effect.
Adopted by the
Board of Directors
on June 30, 1995
Approved by shareholders
August 9, 1995
<PAGE>
Centennial Technologies, Inc.
AMENDMENT NO. 2
1994 STOCK OPTION PLAN
The 1994 Stock Option Plan, as amended (the "Plan"), is hereby amended as
set forth below:
1. Article V of the Plan is hereby amended by deleting the first sentence
thereof and substituting the following therefor:
"Subject to the provisions in Article XI of this Plan, the
aggregate number of shares of Stock for which options may be granted
under the Plan shall not exceed 750,000 shares."
2. In all other respects, the Plan shall remain in full force and effect.
Effective August 30, 1995 by virtue
of a 3:2 stock split, in the form
of a dividend, approved by the
Board of Directors on June 30, 1995
<PAGE>
Centennial Technologies, Inc.
AMENDMENT NO. 3
1994 STOCK OPTION PLAN
The 1994 Stock Option Plan, as amended (the "Plan"), is hereby amended as
set forth below:
1. Article V of the Plan is hereby amended by deleting the first sentence
thereof and substituting the following therefor:
"Subject to the provisions in Article XI of this Plan, the
aggregate number of shares of Stock for which options may be granted
under the Plan shall not exceed 1,500,000 shares."
2. In all other respects, the Plan shall remain in full force and effect.
Adopted by the
Board of Directors
on September 26, 1996
Approved by shareholders
November 6, 1996
<PAGE>
Centennial Technologies, Inc.
AMENDMENT NO. 4
1994 STOCK OPTION PLAN
The 1994 Stock Option Plan, as amended (the "Plan"), is hereby amended as
set forth below:
1. Article V of the Plan is hereby amended by deleting the first sentence
thereof and substituting the following therefor:
"Subject to the provisions in Article XI of this Plan, the
aggregate number of shares of Stock for which options may be granted
under the Plan shall not exceed 3,000,000 shares."
2. In all other respects, the Plan shall remain in full force and effect.
Adopted by the Board of Directors
on November 6, 1996 to be effective
November 25, 1996 by virtue
of a 2:1 stock split on November 25, 1996
<PAGE>
Centennial Technologies, Inc.
AMENDMENT NO. 5
1994 STOCK OPTION PLAN
The 1994 Stock Option Plan, as amended (the "Plan"), is hereby amended as
set forth below:
1. Article V of the Plan is hereby amended by deleting the first sentence
thereof and substituting the following therefor:
"Subject to the provisions in Article XI of this Plan, the
aggregate number of shares of Stock for which options may be granted
under the Plan shall not exceed 6,000,000 shares."
2. In all other respects, the Plan shall remain in full force and effect.
Adopted by the
Board of Directors
on October 23, 1997
Approved by shareholders
September 9, 1998
<PAGE>
Exhibit 10.2
CENTENNIAL TECHNOLOGIES, INC.
1994 FORMULA STOCK OPTION PLAN
ARTICLE I
Purpose of the Plan
The purposes of this Plan is to encourage and enable non-employee
Directors who are in a position to make significant contributions to the success
of CENTENNIAL TECHNOLOGIES, INC. and of its affiliated corporations upon whose
judgment, initiative and efforts the Corporation depends for the successful
conduct of its business, to acquire a closer identification of their interests
with those of the Corporation by providing them with opportunities to purchase
stock in the Corporation pursuant to options granted hereunder, thereby
stimulating their efforts on behalf of the Corporation and strengthening their
desire to remain involved with the Corporation. Any non-employee Director
designated to participate in the Plan is referred to as a "Participant."
ARTICLE II
Definitions
2.1 "Affiliated Corporation" means any stock corporation of which a
majority of the voting common or capital stock is owned directly or indirectly
by the Corporation.
2.2 "Award" means an Option granted under Article V.
2.3 "Board" means the Board of Directors of the Corporation or, if one
or more has been appointed, a Committee of the Board of Directors of the
Corporation.
<PAGE>
2.4 "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
2.5 "Committee" means a Committee of not less than two members of the
Board appointed by the Board to administer the Plan.
2.6 "Corporation" means CENTENNIAL TECHNOLOGIES, INC. a Delaware
corporation.
2.7 "Non-Employee" means any person who is not a regular full-time or
part-time employee of the Corporation or an Affiliated Corporation on or after
January 1, 1994.
2.8 "Non-Qualified Option" means any option to intended to qualify as
an Incentive Stock Option.
2.9 "Option" means a Non-Qualified Option granted by the Board under
Article V of this Plan in the form of a right to purchase Stock evidenced by an
instrument containing such provisions as the Board may establish.
2.10 "Participant" means a person who is to receive an award under
the Plan.
2.11 "Plan" means this 1994 Formula Stock Option Plan.
2.12 "Reporting Person" means a person subject to Section 16 of the
Securities Exchange Act of 1934 or any successor provision.
2.13 "Restricted Period" means the period of time selected by the
Committee during which an award may be forfeited by the person.
-2-
<PAGE>
2.14 "Stock" means the Common Stock, $.01 par value, of the Corporation
or any successor, including any adjustments in the event of changes in capital
structure of the type described in Article XI.
ARTICLE III
Administration of the Plan
3.1 Administration by Board. This Plan may be administered by the Board
of Directors or by a committee of the Board of Directors of the Corporation. If
a committee administers this Plan, the Board may, from time to time, increase
the size of the Committee or committees and appoint additional members thereto,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies however caused, or remove all members of the Committee
or committees and thereafter directly administer the Plan. No member of the
Board or a committee shall be liable for any action or determination made in
good faith with respect to the Plan or any options granted hereunder.
3.2 Powers. The Board of Directors and/or any committee appointed by
the Board shall have full and final authority to operate, manage and administer
the Plan on behalf of the Corporation. This authority includes, but is not
limited to:
(a) The power to grant Awards conditionally or unconditionally,
(b) The power to prescribe the form or forms of any instruments
evidencing Awards granted under this Plan,
(c) The power to interpret the Plan,
-3-
<PAGE>
(d) The power to delegate responsibility for Plan operation,
management and administration on such terms, consistent with
the Plan, as the Board may establish,
(e) The power to delegate to other persons the responsibility of
performing ministerial acts in furtherance of the Plan's
purpose, and
(f) The power to engage the services of persons, companies, or
organizations in furtherance of the Plan's purpose, including
but not limited to, banks, insurance companies, brokerage
firms and consultants.
ARTICLE IV
Eligibility
4. Eligible Persons. All non-employee Directors are eligible to be
granted Non-Qualified Option Awards under this Plan provided the person has not
irrevocably elected to be ineligible to participate in the Plan.
ARTICLE V
Stock Option Awards
5.1 Number of Shares. Subject to the provisions of Article XI of this
Plan, the aggregate number of shares of Stock for which Options may be granted
under this Plan shall not exceed Thirty Five Thousand (35,000) shares. Options
shall be granted under this Plan, without approval or discretion on the part of
the Board, to non-employee Directors as follows: Effective June 1, 1995, on the
first business day immediately following the Corporation's annual meeting of
shareholders, the Corporation shall grant, to each of its non-employee Directors
who has served as a
-4-
<PAGE>
Director of the Corporation for at least one full year, options to purchase a
total of 1,000 shares of Stock. The options shall be granted to a non-employee
Director only if the Director is a Director on the date of the grant and has
attended, during the Corporation's fiscal year immediately preceding the grant,
at least 75% of meetings of the Board of Directors and the Committees on which
the Director has served. The exercise price of options granted to non-employee
Directors shall be the fair market value of the shares of Stock on the date of
the grant and said options shall vest completely and be exercisable one year
from the date of the grant, subject to the Director's continued service as a
Director on such date.
Each non-employee Director who becomes a Director after January 1, 1994
will receive, on the later of (i) the date he or she becomes a Director or (ii)
the effective date of this Plan, options to purchase a total of 15,000 shares of
Stock. The exercise price of such options will be 85% of the fair market value
of the shares of Stock on the date of the grant. Said options shall vest
completely and be exercisable immediately on the date of the grant.
The shares to be delivered upon exercise of Options under this Plan
shall be made available, at the discretion of the Board, either from authorized
but unissued shares or from previously issued and reacquired shares of Stock
held by the Corporation as treasury shares, including shares purchased in the
open market.
Stock issuable upon exercise of an option granted under the Plan may be
subject to such restrictions on transfer or repurchase rights as shall be
determined by the Board of Directors.
-5-
<PAGE>
5.2 Effect of Expiration, Termination or Surrender. If an Option under
this Plan shall expire or terminate unexercised as to any shares covered
thereby, or shall cease for any reason to be exercisable in whole or in part, or
if the Corporation shall reacquire any unvested shares issued pursuant to
Options under the Plan, such shares shall thereafter be available for the
granting of other Options under this Plan.
5.3 Term of Options. Each Option granted hereunder shall be for a term
five (5) years from the date of granting thereof. Each Option shall be subject
to earlier termination as provided in Sections 6.3 and 6.4.
5.4 Fair Market Value. If, at the time an Option is granted under the
Plan, the Corporation's Stock is publicly traded, "fair market value" shall be
determined as of the last business day for which the prices or quotes discussed
in this sentence are available prior to the date such Option is granted and
shall mean (i) the average (on that date) of the high and low prices of the
Stock on the principal national securities exchange on which the Stock is
traded, if the Stock is then traded on a national securities exchange; or (ii)
the last reported sale price (on that date) of the Stock on the NASDAQ National
Market List, if the Stock is not then traded on a national securities exchange;
or (iii) the average of the bid and asked prices last quoted (on that date) by
an established quotation service for over-the-counter securities, if the Stock
is not reported on the NASDAQ National Market List. However, if the Stock is not
publicly traded at the time an Option is granted under the Plan, "fair market
value" shall be deemed to be the fair value of the Stock as determined by the
Board after taking into consideration all factors which it deems appropriate,
including,
-6-
<PAGE>
without limitation, recent sale and offer prices of the Stock in private
transactions negotiated at arm's length.
5.5 Non-Transferability of Options. No Option granted under this Plan
shall be transferable by the grantee otherwise than by will or the laws of
descent and distribution, and such Option may be exercised during the grantee's
lifetime only by the grantee.
5.6 Foreign Nationals. Awards may be granted to Participants who are
foreign nationals or employed outside the United States on such terms and
conditions different from those specified in the Plan as the Committee considers
necessary or advisable to achieve the purposes of the Plan or comply with
applicable laws.
ARTICLE VI
Exercise of Option
6.1 Exercise. Each Option granted under this Plan shall be exercisable
on such date or dates and during such period and for such number of shares as
shall be determined pursuant to the provisions of the instrument evidencing such
Option. The Board shall have the right to accelerate the date of exercise of any
option.
6.2 Notice of Exercise. A person electing to exercise an Option shall
give written notice to the Corporation of such election and of the number of
shares he or she has elected to purchase and shall at the time of exercise
tender the full purchase price of the shares he or she has elected to purchase.
The purchase price can be paid partly or completely in shares of the
Corporation's stock valued at Fair Market Value as defined in Section 5.4
hereof, or by any such other lawful consideration as the
-7-
<PAGE>
Board may determine. Until such person has been issued a certificate or
certificates for the shares so purchased and has fully paid the purchase price
for such shares, he or she shall possess no rights of a record holder with
respect to any of such shares. If the Corporation elects to receive payment for
such shares by means of a promissory note, such note, if issued to an officer,
director or holder of 5% or more of the Corporation's outstanding Common Stock,
shall provide for payment of interest at a rate no less than the interest rate
then payable by the Corporation to its principal commercial lender, or if the
Corporation has no loan outstanding to a commercial lender, then the interest
rate payable shall equal the prevailing prime rate of interest then charged by
commercial banks headquartered in Massachusetts (as determined by the Board of
Directors in its reasonable discretion) plus two percent.
6.3 Option Unaffected by Certain Changes. A Director's term shall be
considered as continuing uninterrupted during any bona fide leave of absence
(such as those attributable to illness, military obligations or governmental
service) provided that the period of such leave does not exceed 90 days or, if
longer, any period during which such optionee's right to reemployment is
guaranteed by statute. A bona fide leave of absence with the written approval of
the Board shall not be considered an interruption of service under the Plan.
6.4 Death of Optionee. Should an optionee die while in
possession of the legal right to exercise an Option or Options under this Plan,
such persons as shall have acquired, by will or by the laws of descent and
distribution, the right to exercise any Options therefore granted, may, unless
otherwise provided by the Board
-8-
<PAGE>
in any instrument evidencing any Option, exercise such Options until the
expiration of the original term of the Options, provided, further, that any such
exercise shall be limited to the purchase rights that have accrued as of the
date when the optionee ceased to be a Director whether by death or otherwise.
ARTICLE VII
Reporting Person Limitations
To the extent required to qualify for the exemption provided by Rule
16b-3 under the Securities Exchange Act of 1934, and any successor provision, at
least six months must elapse from the date of acquisition of an Option by a
Reporting Person to the date of disposition of such Option (other than upon
exercise) or its underlying Common Stock.
ARTICLE VIII
Terms and Conditions of Options
Options shall be evidenced by instruments (which need not be identical)
in such forms as the Board may from time to time approve. Such instruments shall
conform to the terms and conditions set forth in Articles V and VI hereof and
may contain such other provisions as the Board deems advisable that are not
inconsistent with the Plan, including restrictions applicable to shares of Stock
issuable upon exercise of Options. In granting any Non-Qualified Option, the
Board may specify that such Non-Qualified Option shall be subject to such other
termination and cancellation provisions as the Board may determine. The Board
may from time to time confer authority and responsibility on one or more of its
own members and/or
-9-
<PAGE>
one or more officers of the Corporation to execute and deliver such instruments.
The proper officers of the Corporation are authorized and directed to take any
and all action necessary or advisable from time to time to carry out the terms
of such instruments.
ARTICLE IX
Benefit Plans
Awards under the Plan are not discretionary. Awards may not be used in
determining the amount of compensation for any purpose under the benefit plans
of the Corporation, or an Affiliated Corporation, except as the Board may from
time to time expressly provide. Neither the Plan, an Option or any instrument
evidencing an Option confers upon any Participant any right to continue as a
Director of, or consultant or advisor to, the Corporation or an Affiliated
Corporation. Except as specifically provided by the Board in any particular
case, the loss of existing or potential profits granted under this Plan shall
not constitute an element of damages in the event of termination of the
relationship of a Participant even if the termination is in violation of an
obligation of the Corporation to the Participant by contract or otherwise.
ARTICLE X
Amendment, Suspension or Termination of the Plan
The Board may suspend the Plan or any part thereof at any time or may
terminate the Plan in its entirety. Awards shall not be granted after Plan
termination. The Plan may not be amended more than once every six months, unless
such changes
-10-
<PAGE>
are necessary to comport with changes in the Code, the Employee Retirement
Income Security Act, or the rules thereunder. Subject to the foregoing, the
Board may also amend the Plan from time to time, except that amendments that
affect the following subjects must be approved by stockholders of the
Corporation:
(a) Except as provided in Article XI relative to capital changes,
the number of shares as to which Options may be granted
pursuant to Article V;
(b) The maximum term of Options granted;
(c) The minimum price at which Options may be granted;
(d) The term of the Plan; and
(e) The requirements as to eligibility for participation in the
Plan.
Awards granted prior to suspension or termination of the Plan may not be
cancelled solely because of such suspension or termination, except with the
consent of the grantee of the Award.
ARTICLE XI
Changes in Capital Structure
The instruments evidencing Options granted hereunder shall be subject
to adjustment in the event of changes in the outstanding Stock of the
Corporation by reason of stock dividends, Stock splits, recapitalizations,
reorganizations, mergers, consolidations, combinations, exchanges or other
relevant changes in capitalization occurring after the date of an Award to the
same extent as would affect an actual share of Stock issued and outstanding on
the effective date of such change. Such adjustment to outstanding Options shall
be made without change in the total price
-11-
<PAGE>
applicable to the unexercised portion of such options, and a corresponding
adjustment in the applicable option price per share shall be made. In the event
of any such change, the aggregate number and classes of shares for which Options
may thereafter be granted under Section 5.1 of this Plan may be appropriately
adjusted as determined by the Board so as to reflect such change.
ARTICLE XII
Effective Date and Term of the Plan
The Plan shall become effective on October 5, 1994. The Plan shall
continue until such time as it may be terminated by action of the Board of the
Committee; provided, however, that no Options may be granted under this Plan on
or after the tenth anniversary of the effective date hereof.
ARTICLE XIII
Application of Funds
The proceeds received by the Corporation from the sale of shares
pursuant to Options granted under the Plan shall be used for general corporate
purposes.
ARTICLE XIV
Governmental Regulation
The Corporation's obligation to sell and deliver shares of Stock under
this Plan is subject to the approval of any governmental authority required in
connection with the authorization, issuance or sale of such shares.
-12-
<PAGE>
ARTICLE XV
Withholding of Additional Income Taxes
Upon the exercise of a Non-Qualified Option the Corporation, in
accordance with Section 3402(a) of the Code, may require the optionee to pay
additional withholding taxes in respect of the amount that is considered
compensation includible in such person's gross income. The Board in its
discretion may condition the exercise of an Option on the payment of such
additional withholding taxes.
ARTICLE XVI
Governing Law; Construction
The validity and construction of the Plan and the instruments
evidencing Options shall be governed by the internal laws of the Commonwealth of
Massachusetts (without regard to the conflict of law principles thereof). In
construing this Plan, the singular shall include the plural and the masculine
gender shall include the feminine and neuter, unless the context otherwise
requires.
-13-
<PAGE>
Centennial Technologies, Inc.
AMENDMENT NO. 1
1994 FORMULA STOCK OPTION PLAN
The 1994 Formula Stock Option Plan, as amended (the "Plan"), is hereby
amended as set forth below:
1. Article V of the Plan is hereby amended by deleting the first sentence
thereof and substituting the following therefor:
"Subject to the provisions in Article XI of this
Plan, the aggregate number of shares of Stock for which
options may be granted under the Plan shall not exceed 60,000
shares."
2. Article 5.1 of the Plan is hereby amended by deleting the second
paragraph thereof and substituting the following therefor:
"Each non-employee Director who becomes a Director
after January 1, 1994 will receive, on the later of (i) the
date he or she becomes a Director or (ii) the effective date
of this Plan, options to purchase a total of 5,000 shares of
Stock. The exercise price of such options will be 85% of the
fair market value of the shares of Stock on the date of the
grant. Said options shall vest completely and be exercisable
immediately on the date of the grant."
3. In all other respects, the Plan shall remain in full force and effect.
Adopted by the
Board of Directors
on June 30, 1995
Approved by shareholders
August 9, 1995
<PAGE>
Centennial Technologies, Inc.
AMENDMENT NO. 2
1994 FORMULA STOCK OPTION PLAN
The 1994 Formula Stock Option Plan, as amended (the "Plan"), is hereby
amended as set forth below:
1. Article V of the Plan is hereby amended by deleting the first sentence
thereof and substituting the following therefor:
"Subject to the provisions in Article XI of this Plan, the
aggregate number of shares of Stock for which options may be granted
under the Plan shall not exceed 90,000 shares."
2. The second sentence of Article 5.1 of the Plan is hereby amended by
deleting the number "1,000" set forth therein and inserting in lieu thereof the
number "1,500."
3. In all other respects, the Plan shall remain in full force and effect.
Effective August 30, 1995 by virtue
of a 3:2 Stock Split, in the form
of a dividend, approved by the
Board of Directors on June 30, 1995
<PAGE>
Centennial Technologies, Inc.
AMENDMENT NO. 3
1994 FORMULA STOCK OPTION PLAN
The 1994 Formula Stock Option Plan, as amended (the "Plan"), is hereby
amended as set forth below:
1. Article V of the Plan is hereby amended by deleting the second paragraph
thereof and substituting the following therefor:
"The exercise price of such options will be the fair market
value of the shares of Stock on the date of the grant. Said
options shall vest completely and be exercisable immediately on
the date of the grant."
2. In all other respects, the Plan shall remain in full force and effect.
Adopted by the
Board of Directors
on September 26, 1996
Approved by shareholders
November 6, 1996
<PAGE>
Centennial Technologies, Inc.
AMENDMENT NO. 4
1994 FORMULA STOCK OPTION PLAN
The 1994 Formula Stock Option Plan, as amended (the "Plan"), is hereby
amended as set forth below:
1. Article V of the Plan is hereby amended by deleting the first sentence
thereof and substituting the following therefor:
"Subject to the provisions in Article XI of this Plan, the aggregate
number of shares of Stock for which options may be granted under the Plan
shall not exceed 180,000 shares."
2. The second sentence of Article 5.1 of the Plan is hereby amended by
deleting the number "1,500" set forth therein and inserting in lieu thereof the
number "3,000."
3. The second paragraph of Article 5.1 of the Plan is hereby amended by
deleting the number "7,500" set forth therein and inserting in lieu thereof the
number "15,000."
4. In all other respects, the Plan shall remain in full force and effect.
Effective November 25, 1996 by virtue
of a 2:1 stock split, in the form
of a dividend, Approved by the
Board of Directors
on November 6, 1996
<PAGE>
Centennial Technologies, Inc.
AMENDMENT NO. 5
1994 FORMULA STOCK OPTION PLAN
The 1994 Formula Stock Option Plan, as amended (the "Plan"), is hereby
amended as set forth below:
1. Article V of the Plan is hereby amended by deleting the first sentence
thereof and substituting the following therefor:
"Subject to the provisions in Article XI of this Plan, the
aggregate number of shares of Stock for which options may be granted
under the Plan shall not exceed 300,000 shares."
2. In all other respects, the Plan shall remain in full force and effect.
Adopted by the
Board of Directors
on October 23, 1997
Approved by shareholders
September 9, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-26-1998
<EXCHANGE-RATE> 1
<CASH> 7,990
<SECURITIES> 0
<RECEIVABLES> 3,499
<ALLOWANCES> 909
<INVENTORY> 1,459
<CURRENT-ASSETS> 12,549
<PP&E> 4,222
<DEPRECIATION> 1,781
<TOTAL-ASSETS> 17,077
<CURRENT-LIABILITIES> 6,875
<BONDS> 0
0
0
<COMMON> 205
<OTHER-SE> 9,997
<TOTAL-LIABILITY-AND-EQUITY> 17,077
<SALES> 12,386
<TOTAL-REVENUES> 12,386
<CGS> 8,831
<TOTAL-COSTS> 8,831
<OTHER-EXPENSES> 4,000
<LOSS-PROVISION> 51
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,300
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,300
<EPS-PRIMARY> .070
<EPS-DILUTED> .070
</TABLE>
