<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
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[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACTS OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 25, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACTS OF 1934 FOR
THE TRANSITION PERIOD FROM ______ TO ________.
COMMISSION FILE NUMBER 1-12912
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CENTENNIAL TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 04-2978400
(State Or Other Jurisdiction (IRS 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 ISSUER (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 November 4, 1999, there were 3,167,529 shares of Common Stock, $.01
par value per share (the "Common Stock"), of the registrant outstanding.
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CENTENNIAL TECHNOLOGIES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION (UNAUDITED) PAGE NUMBER
-----------
<S> <C> <C>
Item 1. Financial Statements 3
Consolidated Balance Sheets at September 25, 1999 and March 3
31, 1999
Consolidated Statements of Income for three and six months 4
ended September 25, 1999 and September 26, 1998
Consolidated Statements of Cash Flows for six months ended 5
September 25, 1999
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 11
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
</TABLE>
2
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
CENTENNIAL TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 25, MARCH 31,
1999 1999
---- ----
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 5,471 $ 4,922
Short-term investments................................................. 2,898 2,500
Trade accounts receivable, net......................................... 3,975 3,726
Recoverable income taxes............................................... 125 125
Inventories............................................................ 3,811 3,049
Other current assets................................................... 142 231
-------- ---------
Total current assets........................................................ 16,422 14,553
Equipment and leasehold improvements........................................ 3,815 3,967
Less: accumulated depreciation and amortization........................ (1,725) (1,508)
--------- ----------
2,090 2,459
Other assets................................................................ 80 92
Investment in former affiliate.............................................. 1,700 1,700
-------- ---------
Total assets................................................................ $ 20,292 $ 18,804
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses................................... $ 7,796 $ 7,072
Current portion of obligations under capital leases..................... 70 36
-------- ---------
Total current liabilities.................................................... 7,866 7,108
Long-term obligations under capital leases................................... 255 --
Contingencies (Note 7)
Stockholders' equity:
Preferred Stock, $.01 par value; 1,000,000 shares
authorized, none issued................................................. -- --
Common Stock, $.01 par value; 6,250,000 shares authorized, 3,168,000
issued and outstanding at September 25, 1999 and 2,569,000 issued and
outstanding at March 31, 1999.............................................. 32 26
Additional paid-in capital................................................... 83,797 84,379
Accumulated deficit.......................................................... (71,628) (72,697)
Accumulated other comprehensive loss......................................... (30) (12)
--------- ----------
Total stockholders' equity................................................... 12,171 11,696
-------- ---------
Total liabilities and stockholders' equity................................... $ 20,292 $ 18,804
======== =========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
3
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CENTENNIAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
SEPTEMBER 25, SEPTEMBER 26, SEPTEMBER 25, SEPTEMBER 26,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales.............................................. $ 7,633 $ 6,151 $ 14,314 $ 12,386
Cost of goods sold .................................... 5,137 4,241 9,693 8,831
----------- ----------- ----------- -----------
Gross profit................................... 2,496 1,910 4,621 3,555
Operating expenses:
Research and development.......................... 417 167 621 369
Selling, general and administrative expenses...... 1,910 1,490 3,695 2,898
----------- ----------- ----------- -----------
Operating income............................. 169 253 305 288
Loss on disposal of equipment.......................... (344) - (306) -
Proceeds from resolution of customer dispute........... - 1,600 - 1,600
Loss on investment activity............................ - (733) - (733)
Revision of an estimate of a litigation settlement..... 940 - 940 -
Net interest income.................................... 83 81 150 145
----------- ----------- ----------- -----------
Income before taxes.......................... 848 1,201 1,089 1,300
Income taxes........................................... 10 - 20 -
----------- ----------- ----------- -----------
Net income................................... $ 838 $ 1,201 $ 1,069 $ 1,300
=========== =========== =========== ===========
Net income per share - basic........................... $ .26 $ .41 $ .34 $ .49
Net income per share - diluted......................... $ .26 $ .41 $ .33 $ .49
Weighted average shares outstanding - basic............ 3,172 2,951 3,170 2,637
Weighted average shares outstanding - diluted.......... 3,221 2,951 3,248 2,658
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
4
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CENTENNIAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------------
SEPTEMBER 25, SEPTEMBER 26,
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 1,069 $ 1,300
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization........................... 567 539
Loss on disposal of equipment........................... 344 -
Provision for (Recovery of) loss on accounts receivable. (75) 90
Provision for loss on investments....................... - 733
Recovery of loss on inventory........................... (145) -
Revision of an estimate of a litigation settlement...... (940) -
Change in operating assets and liabilities:
Accounts receivable................................ (174) 129
Inventories........................................ (617) 850
Other assets....................................... 101 541
Income taxes payable............................... (7) -
Accounts payable and accrued expenses.............. 591 (1,266)
----------- ------------
Net cash used in operating activities.............. 1,255 2,916
Cash flows from investing activities:
Capital expenditures.................................... (182) (261)
Disposal of capital equipment........................... - 12
Proceeds from sale of securities held to maturity....... 2,500 -
Purchase of short-term investments...................... (2,898) -
------------ -----------
Net cash used in investing activities.............. (581) (249)
Cash flows from financing activities:
Payments for fractional shares resulting from split..... (40) -
Proceeds from ESPP shares issued........................ 4 -
Payments on equipment lease financing................... (71) (35)
------------ ------------
Net cash used in financing activities.............. (107) (35)
------------ ------------
Effect of exchange rate changes on cash..................... (18) -
------------ ------------
Net decrease in cash and cash equivalents.................... 549 2,632
Cash and cash equivalents at beginning of period............. 4,922 5,358
----------- -----------
Cash and cash equivalents at end of period................... $ 5,471 $ 7,990
=========== ===========
Supplemental disclosure of noncash investing and financing
activities :
Acquisition of equipment through capital lease transaction $360 $ -
=========== -----------
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
5
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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 the company's ownership
interests range from 20 to 50 percent and in which 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 2000 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 year ended March 31, 1999 along with
any other filing with the Securities and Exchange Commission since March 31,
1999.
FISCAL YEAR
The Company's fiscal year begins on April 1. Each fiscal quarter ends on the
Saturday of the thirteenth week following the beginning of the quarter, except
for the fourth quarter, which ends on March 31.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash equivalents include highly liquid temporary cash investments having
maturities of three months or less at date of acquisition. Short-term
investments include commercial paper having a maturity longer than three months
but less than one year at date of acquisition.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of cash and cash equivalents,
short-term investments and trade receivables. At September 25, 1999,
substantially all of the Company's cash, cash equivalents and short-term
investments were held by one financial institution. The Company primarily sells
and grants credit to domestic and foreign original equipment manufacturers and
distributors. The Company extends credit based on an evaluation of the
customer's financial condition and generally does not require collateral. The
Company monitors its exposure for credit losses and maintains allowances for
anticipated losses. At September 25, 1999 and March 31, 1999, the allowance for
doubtful accounts was $520,000 and $795,000, respectively.
6
<PAGE>
For the three and six months ended September 25, 1999, no individual
customer represented 10% of the Company's sales. For the three and six months
ended September 26, 1998, one customer represented 19% and 26%, respectively of
the Company's sales. For the three and six months ended September 25, 1999,
sales to this customer represented 4% of the Company's sales. During fiscal
1999, this customer engaged several contract manufacturers to complete the final
assembly of a majority of its products for which the Company has historically
supplied PC cards. The Company's sales to these contract manufacturers for the
three and six months ended September 25, 1999 represented 15% and 14%,
respectively of the Company's sales. For the three and six months ended
September 26, 1998 sales to these contract manufacturers represented 7% and 5%,
respectively of the Company's sales. One of these contract manufacturers
recently announced a merger with one of the Company's competitors, which could
result in a decrease of sales to this contract manufacturer. If these customers
were to reduce significantly the amount of business they conduct with the
Company, it could have a material adverse effect on the Company's business,
financial condition and results of operations.
Approximately 19% and 12% of the Company's sales for the three months ended
September 25, 1999 and September 26, 1998, respectively, were outside the United
States. For the six months ended September 25, 1999 and September 26, 1998,
sales outside the United States were approximately 19% and 10%, respectively, of
the Company's sales. Sales outside the United States are primarily in several
Western European countries. No one country comprised more than 10% of the
Company's sales in any of the three and six month periods ended September 25,
1999 or September 26, 1998.
3. NET INCOME PER SHARE
The Company computes net income per share in accordance with Statement
of Financial Accounting Standards ("SFAS") 128, "Earnings Per Share." Basic
net income per share excludes any dilutive effect of options, warrants and
convertible securities. Diluted net income per share includes all potentially
dilutive securities.
On July 20, 1999, the Company's shareholders approved a one-for-eight
reverse split of the common stock for shareholders of record as of the close of
business on July 22, 1999. In this report, all per share amounts and numbers of
shares have been restated to reflect a one-for-eight reverse stock split of the
Company's common stock, which was effective as of the opening of the
over-the-counter Bulletin Board on July 23, 1999.
The following table sets forth the computation of net income per share (in
thousands, except per share data). All shares issuable in connection with the
settlement of the Consolidated Litigation described in Note 7 are included in
the weighted average shares outstanding calculation as of July 20, 1998, the
date on which the Company's settlement of the Consolidated Litigation became
effective.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
SEPTEMBER 25, SEPTEMBER 26, SEPTEMBER 25, SEPTEMBER 26,
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
BASIC NET INCOME PER SHARE
Numerator
Net income .............................. $ 838 $1,201 $1,069 $1,300
Denominator
Common shares outstanding ............... 3,172 2,951 3,170 2,637
------ ------ ------ ------
Basic net income per share ................. $ .26 $ .41 $ .34 $ .49
====== ====== ====== ======
DILUTED NET INCOME PER SHARE
Numerator
Net income .............................. $ 838 $1,201 $1,069 $1,300
Denominator
Common shares outstanding ............... 3,172 2,951 3,170 2,637
Stock options ........................... 49 -- 78 21
------ ------ ------ ------
Shares used in computing diluted earnings
per share ............................. 3,221 2,951 3,248 2,658
------ ------ ------ ------
Diluted net income per share ............... $ .26 $ .41 $ .33 $ .49
====== ====== ====== ======
</TABLE>
7
<PAGE>
4. INVENTORIES
Inventories consisted of (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 25, MARCH 31,
1999 1999
---- ----
<S> <C> <C>
Raw material, primarily electronic components....... $ 2,717 $ 1,709
Work in process..................................... 454 399
Finished goods...................................... 640 941
--------- --------
$ 3,811 $ 3,049
========= ========
</TABLE>
The Company maintains levels of inventories that it believes are necessary
based upon assumptions concerning its growth, mix of sales and availability and
pricing of raw materials. Changes in those underlying assumptions could affect
management's estimates of inventory valuation.
In fiscal 1998, 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"), as to which 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 fiscal 1999, the Company agreed to settle its
claims against the customer, in return for a $1.6 million cash payment, which
was included in other income in the second quarter of fiscal 1999, and the right
to retain and sell the Custom Inventory at issue. The Company sold portions of
the Custom Inventory during the six months ended September 26, 1998 and
September 25, 1999 for approximately $0.5 million and $0.8 million,
respectively, which have been included in net sales.
5. INVESTMENT IN CENTURY ELECTRONICS MANUFACTURING, INC.
Since October 1996, the Company has held an equity interest in Century
Electronics Manufacturing, Inc. ("Century"), a contract manufacturer.
On February 4, 1998, Century redeemed a portion of the Company's debt and
equity holdings in Century in exchange for $9.7 million in cash, $4.0 million of
Century Series B Convertible Preferred Stock and the forgiveness of certain
interest. The Series B Convertible Preferred Stock is equivalent upon conversion
to approximately 5%, non-diluted, of Century's outstanding shares, is
non-voting, has no dividend, and has a liquidation preference of $4.0 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 fiscal 1999, the Company reduced the carrying value of its investment
in Century by $733,000 to $1.7 million, 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. In August 1999, Century filed
a registration statement with the Securities and Exchange Commission in
preparation for a planned initial public offering of Century's common stock at
an estimated price between $8.00 and $10.00 per share. The preferred shares that
Centennial owns are convertible into 667,667 shares of Century's common stock.
Centennial's shares of Century stock are subject to certain restrictions on
sales and are not readily saleable for a period of 180 days following the
consummation of Century's initial public offering. There can be no assurance
that the initial public offering of Century common stock will occur at the
estimated price range or at all.
6. DEBT
On November 24, 1998, the Company entered into a credit agreement with Fleet
National Bank 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. This arrangement contains certain limitations and covenants,
including a covenant regarding the maintenance of the Company's liquidity, as
defined. Allowable borrowings are based on accounts receivable and the cost of
equipment, and are secured by substantially all of the Company's assets. At
September 25, 1999 and March 31, 1999, the Company had no outstanding borrowings
under these credit facilities.
8
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LEASES
In April, 1999, the Company entered into a five year capital lease for a new
piece of manufacturing equipment. Monthly payments under this lease are $6,683.
In October 1999, the Company entered into another five-year capital lease for
additional manufacturing equipment. Monthly payments under this lease of $16,567
will commence in November 1999.
7. 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 40 purported
class action lawsuits were filed in or transferred to the United States District
Court for the District of Massachusetts. These complaints asserted claims
against the Company and the Company's Board of Directors, officers and former
independent accounts, among others, under Section 10(b) and 20(a) 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. These class action lawsuits were purportedly brought by and
on behalf of purchasers of the Company's Common Stock (i) between the Company's
initial public offering on April 12, 1994 and on February 10, 1997 or (ii) on
February 25, 1997.
On February 9, 1998, these class action lawsuits were consolidated (the
"Consolidated Litigation"), and 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 Settlement
Agreement became effective on July 20, 1998. The Company has issued 854,300
shares of common stock pursuant to the Settlement Agreement. All shares issued
in connection with the Consolidated Litigation are included in the weighted
average shares outstanding calculation from July 20, 1998 forward.
A significant number of class members elected not to participate in the
Settlement Agreement described above. In September 1999, the Company reached an
agreement with a number of these parties which calls for the Company to pay
$500,000 in cash to settle these claims (the "Additional Settlement Agreement").
For the remaining parties who did not participate in the Settlement Agreement or
the Additional Settlement Agreement, the Company believes that the applicable
Federal statue of limitations has likely expired and that it does not have
material exposure to these parties. In connection with the above, the Company
has revised its original estimate of the allocation between cash and common
stock of the $20 million provision for settlement of all such shareholder
litigation recorded during its fiscal year ended March 31, 1997 related to the
Class Action Litigation. Accordingly, the Company has reclassified $750,000 in
this quarter from the original settlement reserve to accrued liabilities,
representing the $500,000 Additional Settlement Agreement described above and a
remaining estimate of the probable costs to be incurred in connection with the
remaining parties not a party to the Settlement Agreement or the Additional
Settlement Agreement.
The plaintiffs in the Consolidated Litigation have reached an agreement with
the Company's former Interim Chief Executive Officer, Lawrence J. Ramaekers, and
his employer, Jay Alix & Associates ("Jay Alix"), regarding the plaintiffs'
alleged claims against them. In return for the Company's agreement to reimburse
Jay Alix and Mr. Ramaekers in the third quarter of fiscal 2000 $1.0 million for
legal fees incurred, Jay Alix and Mr. Ramaekers have released any and all claims
against the Company and its affiliates and directors, including any claims to
indemnification and defense costs incurred by Jay Alix and Mr. Ramaekers in
defending the claims brought by the plaintiffs against them. The Plaintiffs in
the Consolidated Litigation have retained their claims against the Company's
former Chief Executive Officer, Emanuel Pinez, and the Company's former Chief
Financial Officer, James M. Murphy.
SECURITIES AND EXCHANGE COMMISSION INVESTIGATION
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.
9
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WEBSECURE LITIGATION
On and after March 26, 1997, several complaints were filed against
WebSecure, certain officers, directors and underwriters of WebSecure, and the
Company 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 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 fiscal 1997, the Company established
a reserve of $1.2 million in connection with the expected settlement of the
WebSecure Securities Litigation.
On September 17, 1999, the Company's agreement to settle the WebSecure
Securities Litigation received final approval by the Court. The settlement
agreement contemplates that the Company and certain of its officers and
directors will 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 43,125 shares of the
Company's common stock and the payment to the class of up to $50,000 for notice
and administrative costs. In the second quarter ended September 25, 1999, the
Company revised its estimate of the expected cost to resolve this matter
resulting in income of $940,000. This revision of an estimate was based on the
final settlement amounts approved by the court.
8. COMPREHENSIVE INCOME
As of April 1, 1998, the Company adopted FASB Statement No. 130, REPORTING
COMPREHENSIVE INCOME (FASB 130). FASB 130 establishes new 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 or
stockholders' equity. FASB 130 requires the Company's foreign currency
translation adjustments, which prior to adoption were reported separately in
shareholders' equity, to be included in other comprehensive income. Accumulated
other comprehensive loss is comprised of cumulative translation adjustments.
Comprehensive Income was $835,000 and $1,051,000 for the three and six month
periods ended September 25, 1999, respectively, and was $1,201,000 and
$1,300,000 for the three and six month periods ended September 26, 1998,
respectively.
9. SEGMENTS OF BUSINESS ENTERPRISE
Effective April 1, 1998, the Company adopted the FASB Statement No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION (FASB 131).
FASB 131 superseded FASB 14, FINANCIAL REPORTING FOR SEGMENTS OF A BUSINESS
ENTERPRISE. FASB 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. FASB 131 also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. The Company operates in a single industry segment, the
design and manufacture of high technology memory chip based products used in
industrial and commercial applications. As such, the adoption of FASB 131 did
not affect results of operations, financial position or the disclosure of
segment information.
10
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CENTENNIAL TECHNOLOGIES, INC.
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. By way of
example, the discussions include statements regarding price competition and
erosion, expansion into new markets, future sales mix, future supply of raw
materials, gross margins, raw materials inventory procurement practices, the
Company's customer base, future developments involving certain investments,
assessments regarding systems required to address Year 2000 issues, and future
availability of financing. Such statements involve a number of risks and
uncertainties, including, but not limited to, those (i) discussed below, (ii)
discussed under the heading "Factors That May Affect Future Results", 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 year ended March 31, 1999 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 25, SEPTEMBER 26, SEPTEMBER 25, SEPTEMBER 26,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales......................................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................................ 67.3 69.0 67.7 71.3
----------- ----------- ----------- -----------
Gross profit................................... 32.7 31.0 32.3 28.7
Operating expenses:
Research and development costs.................. 5.5 2.7 4.3 3.0
Selling, general and administrative expenses.... 25.0 24.2 25.8 23.4
----------- ----------- ----------- -----------
Operating income ............................ 2.2 4.1 2.2 2.3
Other income, net................................. 7.8 14.1 4.4 7.0
Net interest income............................... 1.1 1.3 1.0 1.2
----------- ----------- ----------- -----------
Income before taxes.......................... 11.1 19.5 7.6 10.5
Income taxes...................................... .1 -- .1 --
----------- ----------- ----------- -----------
Net income................................... 11.0% 19.5% 7.5% 10.5%
=========== =========== =========== ===========
</TABLE>
11
<PAGE>
QUARTER AND SIX MONTHS ENDED SEPTEMBER 25, 1999 AND SEPTEMBER 26, 1998
NET SALES.
Net sales increased 23% to $7.6 million for the three months ended September
25, 1999 compared to $6.2 million for the same period a year ago. Net sales
increased 15% to $14.3 million for the six months ended September 25, 1999
compared to $12.4 million in the same period a year ago. During the three and
six months ended September 25, 1999, units shipped increased 7% and 16%,
respectively, from the same periods in fiscal 1999. Average selling prices
increased 10% in the second quarter of fiscal 2000 and declined 2% for the first
half of fiscal 2000 compared to the same periods of the prior year. Increasing
component costs between the second quarter of fiscal 1999 compared to the second
quarter of fiscal 2000 contributed to the increase in the average selling price
of the Company's products. The Company expects component costs to increase for
the remainder of fiscal 2000, which the Company believes should continue to
cause an increase in its average selling price. There can be no assurance that
if component costs rise the Company will be able to increase its average selling
price or that competitive pricing pressures will not adversely affect the
average selling price. The Company believes there will be shortages of certain
of its components, particularly with respect to flash memory. Any such shortages
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company continues to experience limited bookings visibility as customers
continue to expect short lead-times, particularly with the Company's major
customers. A majority of the Company's anticipated third quarter revenues are
expected to be orders that will be received and fulfilled in the same quarter.
Due to a number of factors described herein and in "Factors That May Affect
Future Results," the Company's ability to adjust its operating expenses is
limited in the short term. As a result, if product revenues are lower than
anticipated, the Company's results of operations will be adversely affected.
For the three and six months ended September 25, 1999, no individual
customer represented 10% of the Company's sales. For the three and six months
ended September 26, 1998, one customer represented 19% and 26%, respectively of
the Company's sales. For the three and six months ended September 25, 1999 sales
to this customer represented 4% of the Company's sales. During fiscal 1999, this
customer engaged several contract manufacturers to complete the final assembly
of a majority of its products for which the Company has historically supplied PC
cards. The Company's sales to these contract manufacturers for the three and six
months ended September 25, 1999 represented 15% and 14%, respectively of the
Company's sales. For the three and six months ended September 26, 1998 sales to
these contract manufacturers represented 7% and 5%, respectively of the
Company's sales. One of these contract manufacturers recently announced a merger
with one of the Company's competitors, which could result in a decrease of sales
to this contract manufacturer. If these customers were to reduce significantly
the amount of business they conduct with the Company, it could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Sales outside of the United States represented 19% and 12% of sales for the
quarters ended September 25, 1999 and September 26, 1998, respectively.
GROSS PROFIT.
Gross profit increased 32% to $2.5 million for the three months ended
September 25, 1999 compared to $1.9 million for the same period a year ago.
Gross profit percent increased to 33% for the three months ended September 25,
1999 from 31% for the same period a year ago. Gross profit increased 28% to $4.6
million for the six months ended September 25, 1999 compared to $3.6 million for
the same period a year ago. Gross profit percent increased to 32% for the first
six months of fiscal 2000 from 29% for the comparable period of fiscal 1999. The
Company believes costs of certain of its component memory devices will increase
during fiscal 2000. There can be no assurance the Company will be able to
increase its average selling price to offset such component cost increases which
might adversely affect the Company's gross profit amounts and percent.
RESEARCH AND DEVELOPMENT COSTS.
Research and development costs increased 150% to $417,000 for the three
months ended September 25, 1999 compared to $167,000 for the three months ended
September 26, 1998. For the first half of fiscal 2000, research and development
costs increased 68% to $621,000 from $369,000 in the same period of fiscal 1999.
The higher research and development costs for the three and six months ended
September 25, 1999 are due generally to increased spending on outside
consultants combined with an increased percentage of employees focused on
development projects. The Company expects that it will continue to spend
significant amounts on research and development in the future.
12
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.
Selling, general and administrative expenses increased 27% million to $1.9
million for the second quarter of fiscal 2000 from $1.5 million in the same
period of fiscal 1999. Selling, general and administrative expenses increased
28% to $3.7 million for the first half of fiscal 2000 from $2.9 million in the
same period of fiscal 1999. The $0.4 million increase in the second quarter of
fiscal 2000 is primarily due to a charge for the termination of an executive.
The $0.8 million increase in expenses for the first half of fiscal 2000 is
attributed to the previously mentioned termination costs combined with $0.5
million refund in directors and officers liability insurance premiums on
policies that were rescinded in February 1997, which refund was recorded in the
first quarter of fiscal 1999 and higher operating costs due to an increase in
personnel for the quarter ended September 25, 1999. Selling, general and
administrative expenses are expected to be slightly lower in absolute dollars
for the remainder of fiscal 2000 as compared to the second fiscal quarter of
2000.
OTHER INCOME.
Net interest income was $83,000 for the quarter ended September 25, 1999
compared to $81,000 for the quarter ended September 26, 1998.
On September 17, 1999, the Company's agreement to settle the WebSecure
Securities Litigation received final approval by the Court. The settlement
agreement contemplates that the Company and certain of its officers and
directors will 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 43,125 shares of the
Company's common stock and the payment to the class of up to $50,000 for notice
and administrative costs. In the second quarter ended September 25, 1999, the
Company revised its estimate of the expected cost to resolve this matter
resulting in income of $940,000. This revision of an estimate was based on the
final settlement amounts approved by the court.
NET INCOME PER SHARE.
On July 20, 1999, the Company's shareholders approved a one-for-eight
reverse stock split of its common stock, which was effective as of the opening
of the stock markets on July 23, 1999. In this report, all per share amounts and
numbers of shares have been restated to reflect the reverse stock split.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operating activities primarily
from public and private offerings of equity securities, loans from financial
institutions and positive cash flows from operations. Management believes the
existing cash and cash equivalents, short-term investments and available
financing arrangements will be sufficient to meet the Company's currently
anticipated working capital and capital expenditure requirements for the
foreseeable future.
OPERATING ACTIVITIES
At September 25, 1999, working capital increased to $8.6 million, compared
to working capital of $7.4 million at March 31, 1999, due principally to net
income of $1.1 million for the six months ended September 25, 1999, depreciation
and amortization of $0.6 million offset by net capital expenditures of $0.2
million.
On November 24, 1998, the Company entered into a credit agreement with Fleet
National Bank 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. This arrangement contains certain limitations and covenants, the
most restrictive of which is a covenant regarding the maintenance of the
Company's liquidity, as defined. Allowable borrowings are based on accounts
receivable and the cost of equipment, are secured by substantially all of the
Company's assets. At September 25, 1999 and March 31, 1999, the Company had no
outstanding borrowings under these credit facilities.
INVESTING TRANSACTIONS
Net capital expenditures amounted to $183,000 in the six months ended
September 25, 1999 compared to $261,000 in the six months ended September 26,
1998. The Company had no significant commitments as of September 25, 1999 for
future capital equipment expenditures and had remaining obligations of $325,000
on equipment financing leases.
13
<PAGE>
FINANCING TRANSACTIONS
In April 1999, the Company entered into a five-year lease for a new piece of
manufacturing equipment. Monthly payments under this lease are $6,318. In
October 1999, the Company entered into another five-year lease for additional
manufacturing equipment. Monthly payments under this lease of $16,217 will
commence in November 1999.
INVESTMENT IN CENTURY ELECTRONICS MANUFACTURING, INC.
Since October 1996, the Company has held an equity interest in Century
Electronics Manufacturing, Inc. ("Century"), a contract manufacturer.
On February 4, 1998, Century redeemed a portion of the Company's debt and
equity holdings in Century in exchange for $9.7 million in cash, $4.0 million of
Century Series B Convertible Preferred Stock and the forgiveness of certain
interest. The Series B Convertible Preferred Stock is equivalent upon conversion
to approximately 5%, non-diluted, of Century's outstanding shares, is
non-voting, has no dividend, and has a liquidation preference of $4.0 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 fiscal 1999, the Company reduced the carrying value of its investment
in Century by $733,000 to $1.7 million, 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. In August 1999, Century filed
a registration statement with the Securities and Exchange Commission in
preparation for a planned initial public offering of Century's common stock at
an estimated price between $8.00 and $10.00 per share. The preferred shares that
Centennial owns are convertible into 666,667 shares of Century common stock.
Centennial's shares of Century stock are subject to certain restrictions on
sales and are not readily saleable for a period of 180 days following the
consummation of Century's initial public offering. There can be no assurance
that the public offering of Century common stock will occur within the estimated
price range or at all.
CONTINGENCIES
The Company has been 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. These lawsuits are
described more fully in "Item 1 -- Legal Proceedings" which is incorporated
herein by this reference. The Company has been granted final approval of its
proposed settlement of these suits, has issued cash and stock in satisfaction of
its obligations to the class action plaintiffs in the Consolidated Litigation.
As of March 31, 1997, the Company recorded a provision for the settlement of the
Consolidated Litigation of $20.0 million, representing its estimate of 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 has issued
854,300 shares of common stock pursuant to the Settlement Agreement. The
Company's agreement with the opt outs calls for the Company to pay $500,000 to
settle these claims, and the Company has this amount reserved as of September
25, 1999. The Company reached an agreement with the Company's former Interim
Chief Executive Officer, Lawrence J. Ramaekers, and his employer, Jay Alix &
Associates, which calls for the Company to pay $1.0 million in the third quarter
of fiscal 2000. The Company's agreement to settle the Websecure litigation calls
for the Company to issue 43,125 shares of the Company's common stock and for a
payment of $50,000, which has already been made.
FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by the Company or statements made by
its employees may contain forward-looking information. The Company's actual
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.
14
<PAGE>
DEPENDENCE ON MAJOR CUSTOMERS.
A relatively small number of customers have accounted for a significant
percentage of the Company's net sales. If these customers were to reduce
significantly the amount of business they conduct with the Company, 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 25, 1999, no individual
customer represented 10% of the Company's sales. For the three and six months
ended September 26, 1998, one customer represented 19% and 26%, respectively of
the Company's sales. For the three and six months ended September 25, 1999,
sales to this customer represented 4% of the Company's sales. During fiscal
1999, this customer engaged several contract manufacturers to complete the final
assembly of a majority of its products for which the Company has historically
supplied PC cards. The Company's sales to these contract manufacturers for the
three and six months ended September 25, 1999 represented 15% and 14%,
respectively of the Company's sales. For the three and six months ended
September 26, 1998 sales to these contract manufacturers represented 7% and 5%,
respectively of the Company's sales. One of these contract manufacturers
recently announced a merger with one of the Company's competitors, which could
result in a decrease of sales to this contract manufacturer. If these customers
were to reduce significantly the amount of business they conduct with the
Company, it could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company has no firm long-term volume commitments from any of its major
customers and generally enters into individual purchase orders with its
customers. The Company has experienced fluctuations in order levels from period
to period and expects it will continue to experience such cancellations and
fluctuations in the future. The Company's business, financial condition and
results of operations will depend in significant part on its ability to obtain
orders from new customers, as well as on financial condition and success of its
customers. Therefore, any adverse factors affecting any of the Company's
customers or their customers 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.
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 is currently experiencing supply shortages, particularly with
respect to computer memory chips and other electronic components used in
products targeted at high-growth market segments. Currently, certain memory
chips important to the Company's products are on industry-wide allocation by
suppliers. Such shortages could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company believes it
will be able to substantially meet customers' orders for the Company's fiscal
third quarter. At this time the Company is unable to determine what the impact
will be thereafter.
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.
COMPETITION.
The market 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., Hitachi Semiconductor, Inc., Intel
15
<PAGE>
Corporation and Mitsubishi Electric Corporation. Certain of these competitors
supply the Company with raw materials, including electronic components, which
are occasionally and are at present, 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:
<TABLE>
<S> <C>
- product quality and performance - order turnaround
- provision of competitive design capabilities - timely response to advances in technology
- adequate manufacturing capacity - production efficiency
- timing of new product introductions by the - number and nature of the Company's competitors
Company, its customers and its competitors in a given market
- price - general market and economic conditions
</TABLE>
In addition, market conditions are expected to lead to intensified price
competition for the Company's products and services, 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.
HISTORICAL SINGLE PRODUCT CONCENTRATION.
PC cards and related services constitute 100% of the Company's sales for
fiscal 1999 and the first half of fiscal 2000. 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 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.
DECLINING AVERAGE SALES PRICES.
The Company has experienced, and may in the future experience, declining
average sales prices for its products. The data storage markets in which the
Company competes are characterized by intense competition. Therefore, the
Company expects to incur increasing pricing pressures from its customers in
future periods, which may result in a further decline in average sales prices
for the Company's products. The Company believes that it must continue to
achieve manufacturing costs reductions, develop new products that incorporate
customized features and increase its volume of PC card sales in order to offset
the effect of these declining average sales prices. If the Company were not able
to achieve such cost reductions, develop new customized products or increase its
unit sales volumes, each of these factors could have a material adverse effect
on the Company's business, financial condition and results of operations.
FLUCTUATIONS IN QUARTERLY RESULTS.
The Company's quarterly and annual operating results have fluctuated
significantly in the past and we expect that they will continue to fluctuate in
the future. This fluctuation is a result of a variety of factors, including the
following:
<TABLE>
<S> <C>
- timing of receipt and delivery of - competitive pricing pressures
significant orders for the Company's products - increases in raw material costs
- changes in customer and product mix - production difficulties
- quality of the Company's products - write-downs or write-offs of investments in other companies
- exchange rate fluctuations - market acceptance of new or enhanced versions
- litigation settlements and revisions of the Company's products
estimates thereon in connection with - raw material shortages
the company's legal matters
</TABLE>
16
<PAGE>
Other factors, some of which are beyond the Company's control, may also
cause fluctuations in the Company's results of operations. The Company has short
lead times from customers, and accordingly does not have a significant backlog.
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.
FLUCTUATIONS IN TRADING PRICE.
The trading price of the Company's Common Stock may fluctuate widely in
response to, among other things, the following:
<TABLE>
<S> <C>
- quarter-to-quarter operating results - industry conditions
- awards of orders to the Company - new product or product development
or its competitors announcements by the Company or its competitors
- changes in earnings estimates by analysts - resolution of pending SEC investigation
</TABLE>
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. The Company's Common Stock is currently traded at the
over-the-counter Bulletin Board, which the Company believes has resulted in a
minimal amount of analyst coverage. Although the Company has applied to have its
common stock listed on the NASDAQ National Market, there can be no assurance
that the common stock will be so listed on a timely basis or at all.
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.
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.
ANTI-TAKEOVER PROVISIONS.
The Company has taken a number of actions that could have the effect of
discouraging a takeover attempt. For example, the Company has adopted a
Shareholder Rights Plan that would cause substantial dilution to a stockholder
who attempts to acquire the Company on terms not approved by the Company's Board
of Directors. In addition, the Company's Certificate of Incorporation grants the
Board of Directors the authority to fix the rights, preferences and privileges
of and issue up to 1,000,000 shares of Preferred Stock without stockholder
action. The Board of Directors has reserved 50,000 shares of Preferred Stock for
issuance pursuant to the Company's Shareholder Rights Plan. Although the Company
has no present intention of issuing shares of Preferred Stock, such an issuance
could have the effect of making it more difficult and less attractive for a
third party to acquire a majority of our outstanding voting stock. Preferred
Stock may also have other rights, including economic rights senior to the Common
Stock that could have a material adverse effect on the market value of the
Common Stock. In addition, the Company is subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law. This section
provides that a corporation shall not engage in any business
17
<PAGE>
combination with any interested shareholder during the three-year period
following the time that such stockholder becomes an interested shareholder. This
provision could have the effect of delaying or preventing a change in control of
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:
- 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 the Company therefore believes that its products will not be
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 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 has sought
assurances from all of its customers that provide the Company with software for
incorporation into the Company's products 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
received responses from most of its key customers and has not found any issues
with these responses. There can be no assurance that the Company will be
successful in obtaining from these customers such assurance or indemnification.
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 Company believes its tertiary business information system is Year 2000
compliant. 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 also replaced and
tested one operating system that was not and could not be modified to become
year 2000 compliant. The cost for this new system was not 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 $108,000, which has been
capitalized. The Company has also tested its building security system and
determined that it is Year 2000 compliant.
During fiscal 1999, the Company initiated formal communications with its
key suppliers and customers regarding their Year 2000 readiness status. The
Company has received responses from all of its key suppliers and has found these
responses to indicate suppliers to be Year 2000 compliant. The Company has also
received responses from most of its key customers. While suppliers and customers
18
<PAGE>
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 estimates that it has spent in
aggregate approximately $600,000 in addressing Year 2000 readiness issues. These
expenditures have been funded through operations.
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 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. Any Year 2000 related
lawsuits, if adversely determined, could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company has prepared contingency plans for critical areas to address
Year 2000 failures if remedial efforts are not fully successful. Should
previously undetected Year 2000 problems be found in systems that support the
Company's on-going operations 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. If, for example, third party suppliers were
unable to deliver necessary components, the Company may be unable to manufacture
products in a timely manner. Similarly, if shipping and freight forwarders were
unable to ship product, the Company would be unable to deliver product to its
customers. 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.
The foregoing discussion of the Company's Year 2000 readiness includes
forward-looking statements, including estimates of the timeframes and costs for
addressing the known Year 2000 issues confronting the Company, and is based on
management's current estimates, which were derived using numerous assumptions.
There can be no assurance that these estimates will be achieved, and actual
events and results could differ materially from those anticipated. Specific
factors that might cause such material differences include, but are not limited
to, the ability of the Company to identify and correct all relevant computer
code and the success of third parties with whom the Company does business in
addressing their Year 2000 issues.
RISKS OF INTERNATIONAL OPERATIONS AND EURO CURRENCY.
For the six months ended September 25, 1999 and September 26, 1998, the
Company derived approximately 19% and 10%, respectively, of its sales from
outside the United States. The Company's international operations subject the
Company to the risks of doing business abroad, including currency fluctuations,
export duties, import controls and trade barriers, restrictions on the transfer
of funds, greater difficulty in accounts receivable collection, burdens of
complying with a wide variety of foreign laws and, in certain parts of the
world, political instability.
19
<PAGE>
Beginning in 1999, 11 member countries of the European union established
fixed conversion rates between their existing sovereign currencies and adopted
the Euro as their common legal currency. During the three year transition, the
Euro will be available for non-cash transactions and legacy currencies will
remain legal tender. The Company is continuing to assess the Euro's impact on
its business. The Company is reviewing the ability of its accounting and
information systems to handle the conversion, the legal and contractual
implications of agreements, as well as pricing strategies. The Company expects
that any additional modifications to its operations and systems will be
completed on a timely basis and do not believe the conversion will have a
material adverse impact on its operations. However, there can be no assurance
that the Company will be able to modify successfully all systems and contracts
to comply with Euro requirements.
PROTECTION OF PROPRIETARY INFORMATION.
The Company's products require technical know-how to engineer and
manufacture. To the extent proprietary technology is involved, the Company
relies on trade secrets that it seeks to protect, in part, through
confidentiality agreements with certain employees, consultants and other
parties. There can be no assurance that these agreements will not be breached,
that the Company will have adequate remedies for any breach, or that the
Company's trade secrets will not otherwise become known to, or independently
developed by, existing or potential competitors of the Company. The Company
historically has not sought to protect its proprietary information through
patents or registered trademarks, although it instituted a patent program in
fiscal 1999. There can be no assurance that the Company's products will not
infringe on patents held by others. The Company may be involved from time to
time in litigation to determine the enforceability, scope and validity of its
rights. Litigation could result in substantial cost to the Company and could
divert the attention and time of the Company's management and technical
personnel from the operations of the Company.
The Company currently licenses certain proprietary and patented technology
from third parties. There can be no assurance that the Company will be able to
continue to license such technology, that such licenses will be or remain
exclusive or that any patented technology licensed by the Company will provide
meaningful protection from competitors. In the event that a competitor's
products were to infringe on patents licensed by the Company, it would be costly
for the Company to enforce its rights in an infringement action and such an
action would divert funds and management resources from the Company's
operations.
RISKS OF ACQUISITIONS AND INVESTMENTS IN OTHER COMPANIES.
The Company has terminated its earlier program of acquiring interests in
companies and related technologies, and has written-off or provided valuation
reserves for many such investments. However, the Company may determine that it
is in the best interests to acquire or invest in other companies in the future.
There can be no assurance that the companies in which the Company has invested
(or may invest) will develop successful products or technologies beneficial to
the Company or that such investments will be economically justified.
ENVIRONMENTAL COMPLIANCE.
The Company is subject to a variety of environmental regulations relating
to the use, storage and disposal of hazardous chemicals used during its
manufacturing processes. Any failure by the Company to comply with present and
future regulations could subject the Company to significant liabilities. In
addition, such regulations could restrict the Company's ability to expand its
facilities or could require the Company to acquire costly equipment or to incur
other significant expenses in order to comply with regulations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's financial instruments consist principally of cash and cash
equivalents, short-term investments, accounts receivable, and accounts payable
and other accrued expenses. The Company believes all of the carrying amounts
approximate fair value.
20
<PAGE>
PART II- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 40 purported
class action lawsuits were filed in or transferred to the United States District
Court for the District of Massachusetts. These complaints asserted claims
against the Company and the Company's Board of Directors, officers and former
independent accounts, among others, under Section 10(b) and 20(a) 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. These class action lawsuits were purportedly brought by and
on behalf of purchasers of the Company's Common Stock (i) between the Company's
initial public offering on April 12, 1994 and on February 10, 1997 or (ii) on
February 25, 1997.
On February 9, 1998, these class action lawsuits were consolidated (the
"Consolidated Litigation"), and 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 Settlement
Agreement became effective on July 20, 1998. The Company has issued 854,300
shares of common stock pursuant to the Settlement Agreement. All shares issued
in connection with the Consolidated Litigation are included in the weighted
average shares outstanding calculation from July 20, 1998 forward.
A significant number of class members elected not to participate in the
Settlement Agreement described above. In September 1999, the Company reached an
agreement with a number of these parties which calls for the Company to pay
$500,000 in cash to settle these claims (the "Additional Settlement Agreement").
For the remaining parties who did not participate in the Settlement Agreement or
the Additional Settlement Agreement, the Company believes that the applicable
Federal statue of limitations has likely expired and that it does not have
material exposure to these parties. In connection with the above, the Company
has revised its original estimate of the allocation between cash and common
stock of the $20 million provision for settlement of all such shareholder
litigation recorded during its fiscal year ended March 31, 1997 related to the
Class Action Litigation. Accordingly, the Company has reclassified $750,000 in
this quarter from the original settlement reserve to accrued liabilities,
representing the $500,000 Additional Settlement Agreement described above and a
remaining estimate of the probable costs to be incurred in connection with the
remaining parties not a party to the Settlement Agreement or the Additional
Settlement Agreement
The plaintiffs in the Consolidated Litigation have reached an agreement with
the Company's former Interim Chief Executive Officer, Lawrence J. Ramaekers, and
his employer, Jay Alix & Associates ("Jay Alix"), regarding the plaintiffs'
alleged claims against them. In return for the Company's agreement to reimburse
Jay Alix and Mr. Ramaekers in the third quarter of fiscal 2000 $1.0 million for
legal fees incurred, Jay Alix and Mr. Ramaekers have released any and all claims
against the Company and its affiliates and directors, including any claims to
indemnification and defense costs incurred by Jay Alix and Mr. Ramaekers in
defending the claims brought by the plaintiffs against them. The Plaintiffs in
the Consolidated Litigation have retained their claims against the Company's
former Chief Executive Officer, Emanuel Pinez, and the Company's former Chief
Financial Officer, James M. Murphy.
SECURITIES AND EXCHANGE COMMISSION INVESTIGATION
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.
WEBSECURE LITIGATION
On and after March 26, 1997, several complaints were filed against
WebSecure, certain officers, directors and underwriters of WebSecure, and the
Company in the United States District Court for the District of Massachusetts by
plaintiffs purporting to represent
21
<PAGE>
classes of shareholders who purchased stock of WebSecure, Inc. ("WebSecure")
between December 5, 1996 and February 27, 1997 (the "WebSecure Complaints"). The
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 fiscal 1997, the Company established a reserve of $1.2 million
in connection with the expected settlement of the WebSecure Securities
Litigation.
On September 17, 1999, the Company's agreement to settle the WebSecure
Securities Litigation received final approval by the Court. The settlement
agreement contemplates that the Company and certain of its officers and
directors will 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 43,125 shares of the
Company's common stock and the payment to the class of up to $50,000 for notice
and administrative costs. In the second quarter ended September 25, 1999, the
Company revised its estimate of the expected cost to resolve this matter
resulting in income of $940,000. This revision of an estimate was based on the
final settlement amounts approved by the court.
ITEM 2. CHANGES IN SECURITIES
On July 20, 1999, the Company's stockholders approved a one-for-eight
reverse split of its Common Stock, which was effective as of July 23, 1999.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held on July 20, 1999, the
following proposals were adopted by the vote specified below:
(a) The election of the following directors:
<TABLE>
<CAPTION>
WITHHELD
FOR AUTHORITY
--- ---------
<S> <C> <C>
William J. Shea 2,309,159 21,052
Eugene M. Bullis 2,309,298 20,913
Stephen M. DePerrior 2,307,148 23,063
Jay M. Eastman, Ph.D. 2,308,826 21,385
L. Michael Hone 2,308,614 21,597
David A. Lovenheim 2,308,992 21,219
John J. Sheilds 2,308,291 21,920
</TABLE>
(b) Approval of an amendment to the Company's Certificate of
Incorporation to effect a one-for-eight reverse split of the
Company's Common Stock.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST ABSTAIN NON-VOTES
--- ------- ------- ---------
<S> <C> <C> <C>
2,198,226 119,461 12,522 -
</TABLE>
(c) Adoption of the Company's 1999 Qualified Employee Stock
Purchase Plan
BROKER
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NON-VOTES
--- ------- ------- ---------
<S> <C> <C> <C>
2,039,303 260,288 30,620 -
</TABLE>
(d) Ratification of Selection of Independent Auditors
<TABLE>
<CAPTION>
BROKER
FOR AGAINST ABSTAIN NON-VOTES
--- ------- ------- ---------
<S> <C> <C> <C>
2,292,452 10,133 27,626 -
</TABLE>
22
<PAGE>
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The exhibits listed on the Exhibit Index filed as a part of
this Quarterly Report on Form 10-Q are incorporated herein by
reference.
(b) Reports on Form 8-K. During the quarter ended September 25, 1999 the
Company filed the following reports on Form 8-K.
1. On July 20, 1999, the Company filed a Current Report on Form
8-K with the Securities and Exchange Commission announcing
that the stockholders of the Company had approved a
one-for-eight reverse split of the Company's Common Stock.
2. On July 23, 1999, the Company filed a Current Report on Form
8-K with the Securities and Exchange Commission announcing the
effectiveness of the one-for-eight reverse split of the
Company's Common Stock.
23
<PAGE>
SIGNATURES
IN ACCORDANCE WITH SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED, THE REGISTRANT CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
CENTENNIAL TECHNOLOGIES, INC.
Dated: November 9, 1999 By: /s/ L. Michael Hone
------------------------------
L. Michael Hone
President and Chief Executive Officer
Dated: November 9, 1999 By: /s/ Richard J. Pulsifer
-------------------------------
Richard J. Pulsifer
Chief Financial Officer
24
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
ITEM
NO. DESCRIPTION
- --- -----------
<S> <C>
3.1 Certificate of Amendment of Certificate of Incorporation of Centennial
Technologies, Inc. dated July 21, 1999.
10.1 Separation Agreement between the Centennial Technologies, Inc. and
Donald R. Peck dated October 19, 1999
10.2 Key Employment Agreement between Centennial Technologies, Inc. and
Richard J. Pulsifer dated September 13, 1999
27 Financial Data Schedule
</TABLE>
25
<PAGE>
Exhibit 3.1
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CENTENNIAL TECHNOLOGIES, INC.
Pursuant to Section 242 of the
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
CENTENNIAL TECHNOLOGIES, INC., (hereinafter called the "Corporation"),
a corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware, does hereby certify as follows:
At a meeting of the Board of Directors of the Corporation on May 5,
1999, the Board of Directors duly adopted resolutions, pursuant to Section 242
of the General Corporation Law of the State of Delaware ("DGCL"), setting forth
an amendment to the Certificate of Incorporation of the Corporation and
declaring said amendment to be advisable. The stockholders of the Corporation
duly approved, pursuant to Section 242 of the DGCL, said proposed amendment at
the Annual Meeting of Stockholders held on July 20, 1999. The resolutions
setting forth the amendment are as follows:
RESOLVED: That the first paragraph of Article 4. of the Certificate of
Incorporation of the Corporation, as amended, be and hereby is
deleted in its entirety and the following paragraphs are inserted
in lieu thereof:
<PAGE>
"4. That upon the filing date of this Certificate of Amendment of
this Certificate of Incorporation (the "Effective Date"), a
one-for-eight reverse stock split of the Corporation's Common
Stock shall become effective, pursuant to which each eight shares
of Common Stock outstanding and held of record by each
stockholder of the Corporation (including treasury shares)
immediately prior to the Effective Date shall be reclassified and
combined into one share of Common Stock automatically and without
any action by the holder thereof upon the Effective Date and
shall represent one share of Common Stock from and after the
Effective Date. No fractional shares of Common Stock shall be
issued as a result of such reclassification and combination. In
lieu of any fractional shares to which the stockholder would
otherwise be entitled, the Corporation shall pay cash equal to
such fraction multiplied by the then fair market value of the
Common Stock as determined by the Board of Directors of the
Corporation.
The total number of shares of all classes of stock
which the Corporation shall have the 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."
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by its President this _____ day of _______, 1999.
CENTENNIAL TECHNOLOGIES, INC.
By:
---------------------------------
L. Michael Hone
<PAGE>
Exhibit 10.1
October 19, 1999
Mr. Donald R. Peck
Six Doran Farm Lane
Lexington, MA 02420
Dear Don:
The purpose of this letter agreement (this "Agreement") is to set forth our
mutual understanding and agreement with respect to: (i) your separation from
Centennial Technologies, Inc. (the "Company"); and (ii) the establishment of the
terms of your severance and separation from employment. We have agreed as
follows:
1. SEPARATION FROM EMPLOYMENT. Effective as of the close of business on
Friday, September 10, 1999, or such other date that is mutually agreed upon by
you and the Company (the "Separation Date"), you will no longer be a full-time
employee of the Company, as the Company will terminate your employment without
cause, and you will relinquish as of that date any positions that you hold with
the Company or any of its subsidiaries and affiliates.
2. SEVERANCE BENEFITS.
a. STOCK ACCELERATION. Upon your Separation Date, (1) each
outstanding option to purchase shares of Common Stock of the Company held by
you, not otherwise fully exercisable or automatically exercisable in full, shall
become immediately exercisable in full, and (2) notwithstanding any provision in
any applicable option agreement to the contrary, each such option shall continue
to be exercisable by you through March 10, 2001.
b. COMPENSATION. You shall be entitled to the following
additional benefits:
(1) the Company shall pay you in a lump sum in
cash immediately after this Agreement becomes effective and enforceable:
<PAGE>
Mr. Donald R. Peck
October 19, 1999
Page 2
(a) the sum of (i) your base salary
through the Separation Date, and (ii) the amount of any compensation
previously deferred by you (together with any accrued interest or earnings
thereon) and any accrued vacation or compensatory time off pay, in each case
to the extent not previously paid (the sum of the amounts described in
clauses (i) and (ii) shall be hereinafter referred to as the "Accrued
Obligations"); and
(b) $505,475.
(2) for 18 months after the Separation Date, or
such longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue to provide benefits
to you and your family at least equal to those which would have been provided
to you if your employment had not been terminated, in accordance with the
applicable Benefit Plans in effect on your Separation Date or, if more
favorable to you and your family, in effect generally at any time thereafter
with respect to other peer executives of the Company and its affiliated
companies; PROVIDED, however, that if you become reemployed with another
employer and become eligible to receive a particular type of benefit (e.g.,
health insurance benefits) from such employer on terms at least as favorable
to you and your family as those being provided by the Company, then the
Company shall no longer be required to provide those particular benefits to
you and your family and FURTHER PROVIDED that you shall be deemed to have
elected COBRA medical benefit continuation which the Company agrees to
provide on a fully subsidized basis and the provision of such benefits shall
be deemed to satisfy all obligations of the Company hereunder to continue
health benefits;
(3) the Company shall timely pay or provide to you
outplacement assistance having a value of no more than $30,000 as well as any
other amounts or benefits required to be paid or provided or which you are
eligible to receive following your termination of employment under any plan,
program, policy, practice, contract or agreement of the Company and its
affiliated companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits"); and
(4) for purposes of determining your eligibility
(but not the time of commencement of benefits) for retiree benefits to which
you are entitled, you shall be considered to have remained employed by the
Company until eighteen (18) months after the Separation Date.
<PAGE>
Mr. Donald R. Peck
October 19, 1999
Page 3
3. [Intentionally Omitted].
4. CONSULTING. You agree that $50,000 of the payment made to you upon
your termination of employment is a retainer (the "Retainer") paid to you to
make yourself available as you schedule permits for a period of six (6) months
beginning on the Separation Date at reasonable times and places to provide
consulting services to the Company. In addition to the Retainer paid to you
solely for your availability the Company will pay you $200 for each hour of
consulting services that you actually render as requested by the Company during
said 6 month period plus the reasonable associated costs incurred by you as a
result of the rendering of such consulting services including, but not limited
to, travel and lodging.
5. TRANSFER OF RESPONSIBILITIES AND CONTINUING COOPERATION. You shall
cooperate fully with the Company and its personnel on an as needed and as
required basis through the Separation Date to provide an orderly transfer of
your duties and responsibilities and to provide continuing assistance in
connection with on-going litigation and investigation matters. This cooperation
includes timely compliance with all reasonable requests for information and
other materials. This cooperation also includes timely compliance with all
reasonable requests for information and assistance in connection with any and
all on-going Company litigation, investigations, and legal inquiries. The
Company agrees to reimburse you for any reasonable travel costs and expenses,
including meals and lodging, incurred by you in connection with any request by
the Company for cooperation and assistance either before or after the Separation
Date, and to make available to you upon reasonable request and notice pertinent
records and documents related to such litigation, investigations and legal
inquiries, which you agree will be used solely in relation thereto and for no
other purpose. To the extent that you require legal representation in connection
with any of these or other legal matters that cannot be practically provided by
the Company's counsel, the Company will advance to your attorneys and reimburse
you for any reasonable attorneys' fees and expenses related thereto as they are
incurred.
6. CONFIDENTIALITY. You agree that you will keep the confidential,
proprietary information of the Company, including but not limited to, customer
lists, supplier lists, pricing and cost information, sales and marketing plans
and strategies, manufacturing processes and techniques, product designs and
specifications and computer programs (collectively, "Confidential Information")
secret and confidential and refrain from divulging, disclosing or using any
<PAGE>
Mr. Donald R. Peck
October 19, 1999
Page 4
Confidential Information for any reason or purpose without the Company's prior
written consent.
7. RETURN OF PROPERTY. On the Separation Date, you will return to the
Company all property of the Company that is in your possession or under your
control, including, without limitation, any and all files, documents and other
information with respect to the Company's management, operations or customers,
including all files, documents, or other information containing Confidential
Information. You may keep copies of non-confidential documents.
8. REMEDIES OF THE COMPANY. You acknowledge that the restrictions
contained in paragraph 6 of this Agreement are reasonable and necessary for the
protection of the legitimate interests of the Company. In addition, you
recognize and agree that the Company's remedy at law for material breaches of
the restrictions contained in paragraph 6 of this Agreement is inadequate, that
the damages for any material breach thereof would be irreparable, and that the
Company shall be entitled to preliminary and permanent injunctive relief and
specific performance thereof, in addition to any remedies it may have for
monetary damages or other relief. You further recognize and agree that the
covenants contained in paragraph 6 shall be construed as independent of any
other provision of this Agreement and that the existence of any claim or cause
of action by you against the Company shall not constitute a defense to the
enforcement by the Company of said covenants.
9. REFERENCES. In response to inquiries from your prospective
employers, the Company shall state that it is the policy of the Company to
verify only dates of employment and titles. Upon receipt from you of a proposed
letter of reference, the Company agrees to execute and deliver such a letter to
you, so long as such letter is acceptable to the Company in its exercise of
reasonable judgment.
10. GENERAL RELEASES.
a. In consideration of the payments set forth in this
Agreement, a majority of which you acknowledge that you would not otherwise be
entitled to receive indemnification, the receipt and sufficiency of which
consideration you hereby acknowledge, and except for the rights granted under
this Agreement and any indemnification rights that you may have pursuant to the
By-Laws of the Company and as provided by law, which rights, if any, are
specifically excepted from the scope of this release, you, for yourself and your
<PAGE>
Mr. Donald R. Peck
October 19, 1999
Page 5
heirs, legal representatives, beneficiaries, assigns and successors in
interest, hereby knowingly and voluntarily fully, forever, irrevocably and
unconditionally release, remise and discharge the Company and its successors,
assigns, former, current or future shareholders, officers, directors,
employees, agents, attorneys and representatives, whether in their individual
or official capacities (the "Released Parties"), from any and all actions or
causes of action, suits, debts, claims, complaints, contracts, controversies,
agreements, promises, damages, claims for attorneys' fees, punitive damages
or reinstatement, judgments and demands whatsoever, in law or equity, you
ever had from the beginning of the world to this date against any of the
Released Parties, including, without limitation, all claims arising out of
your employment and the termination of your employment, all claims under
Title VII of the Civil Rights Act of 1964, 42 U.S.C. Section 2000e ET SEQ.;
the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C.
Section 1000 ET SEQ.; the Age Discrimination in Employment Act, 29 U.S.C.
Section 621 ET SEQ., Massachusetts General Laws, Chapter 151B, Section 1
ET SEQ.; the Americans with Disabilities Act, 42 U.S.C. Section 12101 ET SEQ.;
all claims arising under the Massachusetts Civil Rights Act, M.G.L. c. 12
Sections 11H and 11I and the Massachusetts Equal Rights Act, c. 93 Section
102 and M.G.L. c. 214 Section 1C, all other employment discrimination claims,
wrongful disclosure, common law tort, defamation, breach of contract and
other common law claims, and all claims under any other federal, state or
local statutes or ordinances not expressly mentioned above. You hereby
acknowledge and understand that this is a General Release.
b. In consideration of the good and valuable consideration set
forth in this Agreement, the receipt and sufficiency of which consideration the
Company hereby acknowledges, and except for the rights granted under this
Agreement, which rights, if any, are specifically excepted from the scope of
this release, the Company and its subsidiaries and affiliates knowingly and
voluntarily, fully, forever irrevocably and unconditionally release, remise and
forever discharge you, your heirs, legal representatives, beneficiaries, assigns
and successors in interest, whether in your or their individual or official
capacities, from any and all actions or causes of action, suits, debts, claims,
complaints, contracts, controversies, agreements, promises, damages, claims for
attorneys' fees, punitive damages or reinstatement, judgments and demands
whatsoever, in law or equity, that the Company or any of its subsidiaries or
affiliates ever had from the beginning of the world to this date, including all
claims arising from your actions or omissions as an officer or employee of the
Company or any of its subsidiaries or affiliates, it being fully understood that
your termination is being requested by the Company without
<PAGE>
Mr. Donald R. Peck
October 19, 1999
Page 6
cause. The Company hereby acknowledges and understands that this is a General
Release.
11. ACKNOWLEDGMENTS. You acknowledge that you have been given at least
twenty-one (21) days to consider this Agreement and that the Company advised you
to consult with an attorney of your own choosing prior to signing this
Agreement. You understand that you may revoke this Agreement for a period of
seven (7) days after you sign this letter, and this Agreement shall not be
effective or enforceable until the expiration of this seven (7) day revocation
period.
12. VOLUNTARY ASSENT. You affirm that no other promises or agreements
of any kind have been made to or with you by any person or entity whatsoever to
cause you to sign this Agreement, and that you fully understand the meaning and
intent of this Agreement. You state and represent that you have had an
opportunity to fully discuss and review the terms of this Agreement with an
attorney. You further state and represent that you have carefully read this
letter, understand the contents herein, freely and voluntarily assent to all of
the terms and conditions hereof, and sign your name of your own free act.
13. ENTIRE AGREEMENT AND APPLICABLE LAW. This Agreement shall be
interpreted and construed by the laws of the Commonwealth of Massachusetts,
without regard to conflict of laws provisions. You hereby irrevocably submit to
and acknowledge and recognize the jurisdiction of the courts of the Commonwealth
of Massachusetts, or, if appropriate, a federal court located in Massachusetts,
(which courts, together with all applicable appellate courts, for purposes of
this Agreement, are the only courts of competent jurisdiction) over any suit,
action or other proceeding arising out of, under or in connection with this
Agreement or the subject matter hereof. This Agreement contains and constitutes
the entire understanding and agreement between the parties hereto with respect
to your severance benefits and the settlement of claims against the Company and
cancels all previous oral and written negotiations, agreements, commitments, and
writings in connection therewith including without limitation the Executive
Retention Agreement.
14. WITHHOLDING. The Company shall be entitled to withhold from any
payments required to be made hereunder all amounts required to be withheld under
any federal, state, local or other applicable laws.
15. SUCCESSORS. This Agreement shall bind and inure to the benefit of
the parties and their legal heirs and successors.
<PAGE>
Mr. Donald R. Peck
October 19, 1999
Page 7
Please indicate your agreement to the terms of this letter agreement by signing
and dating the last page of the enclosed copy of this letter agreement, and
return it to me.
Sincerely,
L. Michael Hone
President and Chief Executive Officer
AGREED TO AND EXECUTED UNDER SEAL THIS ____ day of October, 1999.
-------------------------------
Donald R. Peck
<PAGE>
Exhibit 10.2
CENTENNIAL TECHNOLOGIES, INC.
EXECUTIVE RETENTION AGREEMENT
RICHARD J. PULSIFER
<PAGE>
CENTENNIAL TECHNOLOGIES, INC.
EXECUTIVE RETENTION AGREEMENT
THIS EXECUTIVE RETENTION AGREEMENT by and between Centennial
Technologies, Inc., a Delaware corporation (the "Company"), and Richard J.
Pulsifer (the "Executive") is made as of September 13, 1999 (the "Effective
Date").
WHEREAS, the Company recognizes that, as is the case with many
publicly-held corporations, the possibility of a change in control of the
Company exists and that such possibility, and the uncertainty and questions
which it may raise among key personnel, may result in the departure or
distraction of key personnel to the detriment of the Company and its
stockholders, and
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that appropriate steps should be taken to reinforce and encourage the
continued employment and dedication of the Company's key personnel without
distraction from the possibility of a change in control of the Company and
related events and circumstances.
NOW, THEREFORE, as an inducement for and in consideration of the
Executive remaining in its employ, the Company agrees that the Executive shall
receive the severance benefits set forth in this Agreement in the event the
Executive's employment with the Company is terminated under the circumstances
described below subsequent to a Change in Control (as defined in Section 1.1).
1. KEY DEFINITIONS.
As used herein, the following terms shall have the following respective
meanings:
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1.1 "CHANGE IN CONTROL" means an event or occurrence set forth
in any one or more of subsections (a) through (d) below (including an event or
occurrence that constitutes a Change in Control under one of such subsections
but is specifically exempted from another such subsection):
(a) the acquisition by an individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership of any capital stock of the Company if, after such
acquisition, such Person beneficially owns (within the meaning of Rule 13d-3
promulgated under the Exchange Act) 30% or more of either (i) the
then-outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the
then-outstanding securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting Securities");
PROVIDED, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change in Control: (i) any acquisition
directly from the Company (excluding an acquisition pursuant to the exercise,
conversion or exchange of any security exercisable for, convertible into or
exchangeable for common stock or voting securities of the Company, unless the
Person exercising, converting or exchanging such security acquired such
security directly from the Company or an underwriter or agent of the
Company), (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company, or (iv) any acquisition
by any corporation pursuant to a transaction which complies with clauses (i)
and (ii) of subsection (c) of this Section 1.1; or
(b) such time as the Continuing Directors (as
defined below) do not constitute a majority of the Board (or, if applicable,
the Board of Directors of a successor corporation to the Company), where the
term "Continuing Director" means at any date a member of the Board (i) who
was a member of the Board on the date of the execution of this Agreement or
(ii) who was nominated or elected subsequent to such date by at least a
majority of the directors who were Continuing Directors at the time of such
nomination or election or whose election to the Board was recommended or
endorsed by at least a majority of the directors who were Continuing
Directors at the time of such nomination or election; PROVIDED, HOWEVER, that
there shall be excluded from this clause (ii) any individual whose initial
assumption of office occurred as a result of an actual or threatened election
contest with respect to the election or removal of directors or other actual
or threatened solicitation of proxies or consents, by or on behalf of a
person other than the Board; or
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(c) the consummation of a merger, consolidation,
reorganization, recapitalization or statutory share exchange involving the
Company or a sale or other disposition of all or substantially all of the
assets of the Company (a "Business Combination"), unless, immediately
following such Business Combination, each of the following two conditions is
satisfied: (i) all or substantially all of the individuals and entities who
were the beneficial owners of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 60% of the
then-outstanding shares of common stock and the combined voting power of the
then-outstanding securities entitled to vote generally in the election of
directors, respectively, of the resulting or acquiring corporation in such
Business Combination (which shall include, without limitation, a corporation
which as a result of such transaction owns the Company or substantially all
of the Company's assets either directly or through one or more subsidiaries)
(such resulting or acquiring corporation is referred to herein as the
"Acquiring Corporation") in substantially the same proportions as their
ownership, immediately prior to such Business Combination, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, respectively;
and (ii) no Person (excluding the Acquiring Corporation or any employee
benefit plan (or related trust) maintained or sponsored by the Company or by
the Acquiring Corporation) beneficially owns, directly or indirectly, 20% or
more of the then outstanding shares of common stock of the Acquiring
Corporation, or of the combined voting power of the then-outstanding
securities of such corporation entitled to vote generally in the election of
directors (except to the extent that such ownership existed prior to the
Business Combination); or
(d) approval by the stockholders of the Company of
a complete liquidation or dissolution of the Company.
1.2 "CHANGE IN CONTROL DATE" means the first date during the
Term (as defined in Section 2) on which a Change in Control occurs. Anything in
this Agreement to the contrary notwithstanding, if (a) a Change in Control
occurs, (b) the Executive's employment with the Company is terminated prior to
the date on which the Change in Control occurs, and (c) it is reasonably
demonstrated by the Executive that such termination of employment (i) was at the
request of a third party who has taken steps reasonably calculated to effect a
Change in Control or (ii) otherwise arose in connection with or in anticipation
of a Change in Control, then for all purposes of this Agreement the "Change in
Control Date" shall mean the date immediately prior to the date of such
termination of employment.
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1.3 "CAUSE" means:
(a) the Executive's willful and continued failure
substantially to perform his reasonable assigned duties as an officer of the
Company (other than any such failure resulting from incapacity due to
physical or mental illness or any failure after the Executive gives notice of
termination for Good Reason), which failure is not cured within 30 days after
a written demand for substantial performance is received by the Executive
from the Board of Directors of the Company which specifically identifies the
manner in which the Board of Directors believes the Executive has not
substantially performed the Executive's duties; or
(b) the Executive's willful engagement in illegal
conduct or gross misconduct which is materially and demonstrably injurious to
the Company.
For purposes of this Section 1.3, no act or failure to act by the
Executive shall be considered "willful" unless it is done, or omitted to be
done, in bad faith and without reasonable belief that the Executive's action or
omission was in the best interests of the Company.
1.4 "GOOD REASON" means the occurrence, without the
Executive's written consent, of any of the events or circumstances set forth in
clauses (a) through (g) below. Notwithstanding the occurrence of any such event
or circumstance, such occurrence shall not be deemed to constitute Good Reason
if, prior to the Date of Termination specified in the Notice of Termination
(each as defined in Section 3.2(a)) given by the Executive in respect thereof,
such event or circumstance has been fully corrected and the Executive has been
reasonably compensated for any losses or damages resulting therefrom (provided
that such right of correction by the Company shall only apply to the first
Notice of Termination for Good Reason given by the Executive).
(a) the assignment to the Executive of duties
inconsistent in any material respect with the Executive's position (including
status, offices, titles and reporting requirements), authority or
responsibilities in effect immediately prior to the earliest to occur of (i)
the Change in Control Date, (ii) the date of the execution by the Company of
the initial written agreement or instrument providing for the Change in
Control or (iii) the date of the adoption by the Board of Directors of a
resolution providing for the Change in Control (with the earliest to occur of
such dates referred to herein as the "Measurement Date"), or any other action
or omission by the Company which results in a diminution in such position,
authority or responsibilities;
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(b) a reduction in the Executive's annual base
salary as in effect on the Measurement Date or as the same was or may be
increased from time to time;
(c) the failure by the Company to (i) continue in
effect any material compensation or benefit plan or program (including
without limitation any life insurance, medical, health and accident or
disability plan and any vacation program or policy) (a "Benefit Plan") in
which the Executive participates or which is applicable to the Executive
immediately prior to the Measurement Date, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been made with
respect to such plan or program, (ii) continue the Executive's participation
therein (or in such substitute or alternative plan) on a basis not materially
less favorable, both in terms of the amount of benefits provided and the
level of the Executive's participation relative to other participants, than
the basis existing immediately prior to the Measurement Date or (iii) award
cash bonuses to the Executive in amounts and in a manner substantially
consistent with past practice in light of the Company's financial performance;
(d) a change by the Company in the location at
which the Executive performs his principal duties for the Company to a new
location that is both (i) outside a radius of 35 miles from the Executive's
principal residence immediately prior to the Measurement Date and (ii) more
than 20 miles from the location at which the Executive performed his
principal duties for the Company immediately prior to the Measurement Date;
or a requirement by the Company that the Executive travel on Company business
to a substantially greater extent than required immediately prior to the
Measurement Date;
(e) the failure of the Company to obtain the
agreement, in a form reasonably satisfactory to the Executive, from any
successor to the Company to assume and agree to perform this Agreement, as
required by Section 6.1;
(f) a purported termination of the Executive's
employment which is not effected pursuant to a Notice of Termination
satisfying the requirements of Section 3.2(a), which purported termination
shall not be effective for purposes of this Agreement; or
(g) any failure of the Company to pay or provide
to the Executive any portion of the Executive's compensation or benefits due
under any
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Benefit Plan within seven days of the date such compensation or benefits are
due, or any material breach by the Company of any employment agreement with the
Executive.
In addition, the termination of employment by the Executive for any
reason or no reason during the 30-day period beginning on the first anniversary
of the Change in Control Date shall be deemed to be termination for Good Reason
for all purposes under this Agreement.
For purposes of this Agreement, any good faith determination of "Good
Reason" made by the Executive shall be conclusive, binding and final. The
Executive's right to terminate his employment for Good Reason shall not be
affected by his incapacity due to physical or mental illness.
1.5 "DISABILITY" means the Executive's absence from the
full-time performance of the Executive's duties with the Company for 180
consecutive calendar days as a result of incapacity due to mental or physical
illness which is determined to be total and permanent by a physician selected by
the Company or its insurers and acceptable to the Executive or the Executive's
legal representative.
2. TERM OF AGREEMENT. This Agreement, and all rights and obligations of
the parties hereunder, shall take effect upon the Effective Date and shall
expire upon the first to occur of (a) the expiration of the Term (as defined
below) if a Change in Control has not occurred during the Term, (b) the date 24
months after the Change in Control Date, if the Executive is still employed by
the Company as of such later date, or (c) the fulfillment by the Company of all
of its obligations under Sections 4 and 5.2 and 5.3 if the Executive's
employment with the Company terminates within 24 months following the Change in
Control Date. "Term" shall mean the period commencing as of the Effective Date
and continuing in effect through March 31, 2001; PROVIDED, however, that
commencing on April 1, 2001 and each April 1 thereafter, the Term shall be
automatically extended for one additional year unless, not later than 90 days
prior to the scheduled expiration of the Term (or any extension thereof), the
Company shall have given the Executive written notice that the Term will not be
extended.
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3. EMPLOYMENT STATUS; TERMINATION FOLLOWING CHANGE IN CONTROL.
3.1 NOT AN EMPLOYMENT CONTRACT. The Executive acknowledges
that this Agreement does not constitute a contract of employment or impose on
the Company any obligation to retain the Executive as an employee and that this
Agreement does not prevent the Executive from terminating employment at any
time. If the Executive's employment with the Company terminates for any reason
and subsequently a Change in Control shall occur, the Executive shall not be
entitled to any benefits hereunder except as otherwise provided pursuant to
Section 1.2.
3.2 TERMINATION OF EMPLOYMENT.
(a) If the Change in Control Date occurs during
the Term, any termination of the Executive's employment by the Company or by
the Executive within 24 months following the Change in Control Date (other
than due to the death of the Executive) shall be communicated by a written
notice to the other party hereto (the "Notice of Termination"), given in
accordance with Section 7. Any Notice of Termination shall: (i) indicate the
specific termination provision (if any) of this Agreement relied upon by the
party giving such notice, (ii) to the extent applicable, set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated
and (iii) specify the Date of Termination (as defined below). The effective
date of an employment termination (the "Date of Termination") shall be the
close of business on the date specified in the Notice of Termination (which
date may not be less than 15 days or more than 120 days after the date of
delivery of such Notice of Termination), in the case of a termination other
than one due to the Executive's death, or the date of the Executive's death,
as the case may be.
(b) The failure by the Executive or the Company to
set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the
Executive or the Company, respectively, from asserting any such fact or
circumstance in enforcing the Executive's or the Company's right hereunder.
(c) Any Notice of Termination for Cause given by the
Company must be given within 90 days of the occurrence of the event(s) or
circumstance(s) which constitute(s) Cause. Prior to any Notice of Termination
for Cause being given (and prior to any termination for Cause being effective),
the Executive shall be entitled to a
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hearing before the Board of Directors of the Company at which he may, at his
election, be represented by counsel and at which he shall have a reasonable
opportunity to be heard. Such hearing shall be held on not less than 15 days
prior written notice to the Executive stating the Board of Directors' intention
to terminate the Executive for Cause and stating in detail the particular
event(s) or circumstance(s) which the Board of Directors believes constitutes
Cause for termination. Any such Notice of Termination for Cause must be approved
by an affirmative vote of two-thirds of the members of the Board of Directors.
(d) Any Notice of Termination for Good Reason
given by the Executive must be given within 90 days of the occurrence of the
event(s) or circumstance(s) which constitute(s) Good Reason.
4. BENEFITS TO EXECUTIVE.
4.1 STOCK ACCELERATION. If the Change in Control Date occurs
during the Term, then, effective upon the Change in Control Date, (a) each
outstanding option to purchase shares of Common Stock of the Company held by the
Executive, not otherwise fully exercisable or automatically exercisable in full
upon a Change in Control, shall become immediately exercisable in full, (b) each
outstanding restricted stock award shall be deemed to be fully vested and no
longer subject to a right of repurchase by the Company and (c) notwithstanding
any provision in any applicable option agreement to the contrary, each such
option shall continue to be exercisable by the Executive (to the extent such
option was exercisable on the Date of Termination) for a period of six months
following the Date of Termination.
4.2 COMPENSATION. If the Change in Control Date occurs during
the Term and the Executive's employment with the Company terminates within 24
months following the Change in Control Date, the Executive shall be entitled to
the following benefits:
(a) TERMINATION WITHOUT CAUSE OR FOR GOOD REASON.
If the Executive's employment with the Company is terminated by the Company
(other than for Cause, Disability or Death) or by the Executive for Good
Reason within 24 months following the Change in Control Date, then the
Executive shall be entitled to the following benefits:
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(i) the Company shall pay to the
Executive in a lump sum in cash within 30 days after the Date of Termination
the aggregate of the following amounts:
(1) the sum of (A) the
Executive's base salary through the Date of Termination, (B) the product of
(x) the annual bonus paid or payable (including any bonus or portion thereof
which has been earned but deferred) for the most recently completed fiscal
year and (y) a fraction, the numerator of which is the number of days in the
current fiscal year through the Date of Termination, and the denominator of
which is 365 and (C) the amount of any compensation previously deferred by
the Executive (together with any accrued interest or earnings thereon) and
any accrued vacation or compensatory time off pay, in each case to the extent
not previously paid (the sum of the amounts described in clauses (A), (B),
and (C) shall be hereinafter referred to as the "Accrued Obligations"); and
(2) the amount equal to (A) two
and one-half multiplied by (B) the sum of (x) the Executive's highest annual
base salary from the Company during the five-year period prior to the Change
in Control Date and (y) the Executive's highest annual bonus from the Company
during the five-year period prior to the Change in Control Date.
(ii) for 30 months after the Date of
Termination, or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall continue to
provide benefits to the Executive and the Executive's family at least equal to
those which would have been provided to them if the Executive's employment had
not been terminated, in accordance with the applicable Benefit Plans in effect
on the Measurement Date or, if more favorable to the Executive and his family,
in effect generally at any time thereafter with respect to other peer executives
of the Company and its affiliated companies; PROVIDED, however, that if the
Executive becomes reemployed with another employer and is eligible to receive a
particular type of benefits (e.g., health insurance benefits) from such employer
on terms at least as favorable to the Executive and his family as those being
provided by the Company, then the Company shall no longer be required to provide
those particular benefits to the Executive and his family;
(iii) to the extent not previously paid or
provided, the Company shall timely pay or provide to the Executive outplacement
assistance commensurate with the Executive's position as well as any other
amounts or benefits required to be paid or provided or which the Executive is
eligible to receive following
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the Executive's termination of employment under any plan, program, policy,
practice, contract or agreement of the Company and its affiliated companies
(such other amounts and benefits shall be hereinafter referred to as the "Other
Benefits"); and
(iv) for purposes of determining eligibility
(but not the time of commencement of benefits) of the Executive for retiree
benefits to which the Executive is entitled, the Executive shall be considered
to have remained employed by the Company until 30 months after the Date of
Termination.
(b) RESIGNATION WITHOUT GOOD REASON; TERMINATION
FOR DEATH OR DISABILITY. If the Executive voluntarily terminates his
employment with the Company within 24 months following the Change in Control
Date, excluding a termination for Good Reason, or if the Executive's
employment with the Company is terminated by reason of the Executive's death
or Disability within 24 months following the Change in Control Date, then the
Company shall (i) pay the Executive (or his estate, if applicable), in a lump
sum in cash within 30 days after the Date of Termination, the Accrued
Obligations and (ii) timely pay or provide to the Executive the Other
Benefits.
(c) TERMINATION FOR CAUSE. If the Company
terminates the Executive's employment with the Company for Cause within 24
months following the Change in Control Date, then the Company shall (i) pay
the Executive, in a lump sum in cash within 30 days after the Date of
Termination, the sum of (A) the Executive's annual base salary through the
Date of Termination and (B) the amount of any compensation previously
deferred by the Executive, in each case to the extent not previously paid,
and (ii) timely pay or provide to the Executive the Other Benefits.
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4.3 TAXES.
(a) In the event that the Company undergoes a
"Change in Ownership or Control" (as defined below), the Company shall,
within 30 days after each date on which the Executive becomes entitled to
receive (whether or not then due) a Contingent Compensation Payment (as
defined below) relating to such Change in Ownership or Control, determine and
notify the Executive (with reasonable detail regarding the basis for its
determinations) (i) which of the payments or benefits due to the Executive
(under this Agreement or otherwise) following such Change in Ownership or
Control constitute Contingent Compensation Payments, (ii) the amount, if any,
of the excise tax (the "Excise Tax") payable pursuant to Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), by the Executive with
respect to such Contingent Compensation Payment and (iii) the amount of the
Gross-Up Payment (as defined below) due to the Executive with respect to such
Contingent Compensation Payment. Within 30 days after delivery of such notice
to the Executive, the Executive shall deliver a response to the Company (the
"Executive Response") stating either (A) that he agrees with the Company's
determination pursuant to the preceding sentence or (B) that he disagrees
with such determination, in which case he shall indicate which payment and/or
benefits should be characterized as a Contingent Compensation Payment, the
amount of the Excise Tax with respect to such Contingent Compensation Payment
and the amount of the Gross-Up Payment due to the Executive with respect to
such Contingent Compensation Payment. The amount and characterization of any
item in the Executive Response shall be final; provided, however, that in the
event that the Executive fails to deliver an Executive Response on or before
the required date, the Company's initial determination shall be final. Within
90 days after the due date of each Contingent Compensation Payment to the
Executive, the Company shall pay to the Executive, in cash, the Gross-Up
Payment with respect to such Contingent Compensation Payment, in the amount
determined pursuant to this Section 4.3(a).
(b) For purposes of this Section 4.3, the following
terms shall have the following
respective meanings:
(i) "Change in Ownership or Control"
shall mean a change in the ownership or effective control of the Company or
in the ownership of a substantial portion of the assets of the Company
determined in accordance with Section 280G(b)(2) of the Code.
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(ii) "Contingent Compensation Payment" shall
mean any payment (or benefit) in the nature of compensation that is made or
supplied (under this Agreement or otherwise) to a "disqualified individual" (as
defined in Section 280G(c) of the Code) and that is contingent (within the
meaning of Section 280G(b)(2)(A)(i) of the Code) on a Change in Ownership or
Control of the Company.
(iii) "Gross-Up Payment" shall mean an
amount equal to the sum of (i) the amount of the Excise Tax payable with respect
to a Contingent Compensation Payment and (ii) the amount necessary to pay all
additional taxes imposed on (or economically borne by) the Executive (including
the Excise Taxes, state and federal income taxes and all applicable withholding
taxes) attributable to the receipt of such Gross-Up Payment. For purposes of the
preceding sentence, all taxes attributable to the receipt of the Gross-Up
Payment shall be computed assuming the application of the maximum tax rates
provided by law.
4.4 MITIGATION. The Executive shall not be required to
mitigate the amount of any payment or benefits provided for in this Section 4 by
seeking other employment or otherwise. Further, except as provided in Section
4.2(a)(ii), the amount of any payment or benefits provided for in this Section 4
shall not be reduced by any compensation earned by the Executive as a result of
employment by another employer, by retirement benefits, by offset against any
amount claimed to be owed by the Executive to the Company or otherwise.
5. DISPUTES.
5.1 SETTLEMENT OF DISPUTES; ARBITRATION. All claims by the
Executive for benefits under this Agreement shall be directed to and determined
by the Board of Directors of the Company and shall be in writing. Any denial by
the Board of Directors of a claim for benefits under this Agreement shall be
delivered to the Executive in writing and shall set forth the specific reasons
for the denial and the specific provisions of this Agreement relied upon. The
Board of Directors shall afford a reasonable opportunity to the Executive for a
review of the decision denying a claim. Any further dispute or controversy
arising under or in connection with this Agreement shall be settled exclusively
by arbitration in Boston, Massachusetts, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction.
5.2 EXPENSES. The Company agrees to pay as incurred, to the
full extent permitted by law, all legal, accounting and other fees and expenses
which the
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Executive may reasonably incur as a result of any claim or contest (regardless
of the outcome thereof) by the Company, the Executive or others regarding the
validity or enforceability of, or liability under, any provision of this
Agreement or any guarantee of performance thereof (including as a result of any
contest by the Executive regarding the amount of any payment or benefits
pursuant to this Agreement), plus in each case interest on any delayed payment
at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the
Code.
5.3 COMPENSATION DURING A DISPUTE. If the Change in Control
Date occurs during the Term and the Executive's employment with the Company
terminates within 24 months following the Change in Control Date, and the right
of the Executive to receive benefits under Section 4 (or the amount or nature of
the benefits to which [he is entitled to receive) are the subject of a dispute
between the Company and the Executive, the Company shall continue (a) to pay to
the Executive his base salary in effect as of the Measurement Date and (b) to
provide benefits to the Executive and the Executive's family at least equal to
those which would have been provided to them, if the Executive's employment had
not been terminated, in accordance with the applicable Benefit Plans in effect
on the Measurement Date, until such dispute is resolved either by mutual written
agreement of the parties or by an arbitrator's award pursuant to Section 5.1.
Following the resolution of such dispute, the sum of the payments made to the
Executive under clause (a) of this Section 5.3 shall be deducted from any cash
payment which the Executive is entitled to receive pursuant to Section 4; and if
such sum exceeds the amount of the cash payment which the Executive is entitled
to receive pursuant to Section 4, the excess of such sum over the amount of such
payment shall be repaid (without interest) by the Executive to the Company
within 60 days of the resolution of such dispute.
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6. SUCCESSORS.
6.1 SUCCESSOR TO COMPANY. The Company shall require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business or assets of the Company
expressly to assume and agree to perform this Agreement to the same extent that
the Company would be required to perform it if no such succession had taken
place. Failure of the Company to obtain an assumption of this Agreement at or
prior to the effectiveness of any succession shall be a breach of this Agreement
and shall constitute Good Reason if the Executive elects to terminate
employment, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Date of
Termination. As used in this Agreement, "Company" shall mean the Company as
defined above and any successor to its business or assets as aforesaid which
assumes and agrees to perform this Agreement, by operation of law or otherwise.
6.2 SUCCESSOR TO EXECUTIVE. This Agreement shall inure to the
benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amount would still
be payable to the Executive or his family hereunder if the Executive had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the executors, personal
representatives or administrators of the Executive's estate.
7. NOTICE. All notices, instructions and other communications given
hereunder or in connection herewith shall be in writing. Any such notice,
instruction or communication shall be sent either (i) by registered or certified
mail, return receipt requested, postage prepaid, or (ii) prepaid via a reputable
nationwide overnight courier service, in each case addressed to the Company, at
7 Lopez Road, Wilmington, Massachusetts 01887, and to the Executive at 104
Granville Ave., Malden, MA 02148 (or to such other address as either the Company
or the Executive may have furnished to the other in writing in accordance
herewith). Any such notice, instruction or communication shall be deemed to have
been delivered five business days after it is sent by registered or certified
mail, return receipt requested, postage prepaid, or one business day after it is
sent via a reputable nationwide overnight courier service. Either party may give
any notice, instruction or other communication hereunder using any other means,
but no such notice, instruction or other communication shall be deemed to
15
<PAGE>
have been duly delivered unless and until it actually is received by the party
for whom it is intended.
8. MISCELLANEOUS.
8.1 EMPLOYMENT BY SUBSIDIARY. For purposes of this Agreement,
the Executive's employment with the Company shall not be deemed to have
terminated solely as a result of the Executive continuing to be employed by a
wholly-owned subsidiary of the Company.
8.2 SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
8.3 INJUNCTIVE RELIEF. The Company and the Executive agree
that any breach of this Agreement by the Company is likely to cause the
Executive substantial and irrevocable damage and therefore, in the event of any
such breach, in addition to such other remedies which may be available, the
Executive shall have the right to specific performance and injunctive relief.
8.4 GOVERNING LAW. The validity, interpretation, construction
and performance of this Agreement shall be governed by the internal laws of the
Commonwealth of Massachusetts, without regard to conflicts of law principles.
8.5 WAIVERS. No waiver by the Executive at any time of any
breach of, or compliance with, any provision of this Agreement to be performed
by the Company shall be deemed a waiver of that or any other provision at any
subsequent time.
8.6 COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original but both of which
together shall constitute one and the same instrument.
8.7 TAX WITHHOLDING. Any payments provided for hereunder shall
be paid net of any applicable tax withholding required under federal, state or
local law.
8.8 ENTIRE AGREEMENT. This Agreement sets forth the entire
agreement of the parties hereto in respect of the subject matter contained
herein and supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any
16
<PAGE>
party hereto; and any prior agreement of the parties hereto in respect of the
subject matter contained herein is hereby terminated and cancelled.
8.9 AMENDMENTS. This Agreement may be amended or modified only
by a written instrument executed by both the Company and the Executive.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first set forth above.
CENTENNIAL TECHNOLOGIES, INC.
By:
---------------------------------
Title:
------------------------------
------------------------------------
[Executive Name]
17
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