<PAGE>
SECURITES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1997
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File No. 0-22598
ORTEL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-3494360
(State or Other Jurisdiction of (I.R.S.Employer
Incorporation or Organization) Identification No.)
2015 WEST CHESTNUT STREET, ALHAMBRA, CALIFORNIA 91803-1542
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (626) 281-3636
not applicable
------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- -----
As of October 31, 1997, there were 11,673,985 shares of the registrant's
$.001 par value Common Stock outstanding.
<PAGE>
ORTEL CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page(s)
-------
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of October 31, 1997
(unaudited) and April 30, 1997 (audited)............................................ 3
Condensed Consolidated Statements of Income (unaudited) for the fiscal
quarter and six months ended October 31, 1997 and 1996.............................. 4
Condensed Consolidated Statements of Cash Flows (unaudited) for the six
months ended October 31,1997 and 1996............................................... 5
Notes to Condensed Consolidated Financial Statements................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations....................................................................... 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders................................. 14
Item 6. Exhibits and Reports on Form 8-K.................................................... 14
Signatures..................................................................................... 15
Index to Exhibits.............................................................................. 16
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ORTEL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
October 31, April 30,
1997 1997
------------------------------------
ASSETS (unaudited) (audited)
- ------
Current assets:
<S> <C> <C>
Cash and cash equivalents.............................................. $14,367 $18,865
Short-term investments................................................. 14,265 15,697
Accounts receivable (net).............................................. 15,157 13,762
Other receivables...................................................... 1,324 1,276
Inventories (note 4)................................................... 11,946 13,960
Deferred tax assets.................................................... 2,422 2,454
Prepaid and other current assets....................................... 1,011 987
------- -------
Total current assets.................................................. 60,492 67,001
Property, equipment and improvements (net)............................... 18,631 18,057
Intangible assets (note 5)............................................... 3,162 2,901
Other assets (note 5).................................................... 8,070 3,037
------- -------
Total assets.......................................................... $90,355 $90,996
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable....................................................... $ 3,107 $ 5,574
Accrued liabilities.................................................... 4,939 7,091
Income taxes payable................................................... 686 1,399
------- -------
Total current liabilities............................................. 8,732 14,064
Deferred income.......................................................... 413 395
Deferred income taxes.................................................... 1,426 1,409
Notes payable............................................................ - -
Minority interest........................................................ 308 245
Stockholders' equity:
Preferred stock, $.001 par value; authorized 5,000,000 shares, none - -
issued and outstanding.................................................
Common stock, $.001 par value; authorized 25,000,000 shares,
11,673,895 and 11,499,743 issued and outstanding at October 31, 1997
and April 30, 1997, respectively..................................... 11 11
Additional paid-in capital.............................................. 52,860 51,930
Retained earnings....................................................... 28,118 24,712
Loans receivable........................................................ (1,298) (1,341)
Unrealized gains/(losses)............................................... 40 (4)
Cumulative effect of foreign currency translation....................... (255) (425)
------- -------
Net stockholders' equity.............................................. 79,476 74,883
------- -------
Commitments and contingencies
Total liabilities and stockholders' equity............................ $90,355 $90,996
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
ORTEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
-------------------- --------------------
1997 1996 1997 1996
-------- --------- --------- --------
<S> <C> <C> <C> <C>
Revenues...................................................... $22,089 $20,874 $41,799 $38,126
Cost of revenues.............................................. 12,226 10,904 23,180 19,802
------- ------- ------- -------
Gross profit................................................ 9,863 9,970 18,619 18,324
Operating expenses:
Research and development.................................... 3,534 3,218 6,532 5,776
Sales and marketing......................................... 2,627 2,303 5,096 4,694
General and administrative.................................. 1,491 1,647 2,828 2,852
------- ------- ------- -------
Total operating expenses.................................. 7,652 7,168 14,456 13,322
------- ------- ------- -------
Operating income.............................................. 2,211 2,802 4,163 5,002
Interest income (net)......................................... 340 373 624 775
Other non-operating income (expense).......................... 28 (16) (69) 36
------- ------- ------- -------
Income before income taxes.................................... 2,579 3,159 4,718 5,813
Provision for income taxes.................................... 668 1,013 1,312 1,880
------- ------- ------- -------
Net income (note 3)........................................... $ 1,911 $ 2,146 $ 3,406 $ 3,933
======= ======= ======= =======
Shares and common equivalent shares used in computation of
net income per share (000s).................................. 12,932 12,589 12,787 12,607
======= ======= ======= =======
Net income per share (note 2)................................. $.15 $.17 $.27 $.31
======= ======= ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
ORTEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
---------------------------------------
October 31, October 31,
1997 1996
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................. $ 3,406 $ 3,933
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization............................................ 2,966 2,006
Gain on disposal of equipment............................................ 2 5
Minority interest in subsidiaries........................................ 62 48
Net effect of foreign currency translation............................ 157 -
Changes in operating assets and liabilities:
(Increase) decrease in:
Receivables.............................................................. (1,443) (4,560)
Inventories.............................................................. 2,014 (268)
Deferred tax asset....................................................... 32 (384)
Prepaid and other assets................................................. (135) 99
Intangible assets................................................... (74) (1,382)
Increase (decrease) in:
Accounts payable and accrued liabilities................................. (4,618) 897
Deferred income.......................................................... 18 15
Deferred income taxes.................................................... 18 285
Income taxes payable..................................................... (713) 468
------- -------
Net cash provided by operating activities................................... 1,692 1,162
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................................ (3,187) (4,550)
Investment in unconsolidated subsidiaries................................... (5,437) (1,698)
Short-term investments...................................................... 1,433 178
Increase in valuation of short-term investments............................. - (22)
------- -------
Net cash used in investing activities....................................... (7,191) (6,092)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net................................. 945 854
Notes receivable from stockholders.......................................... 43 334
------- -------
Net cash provided by financing activities................................... 988 1,188
Effect of exchange rate changes on cash..................................... 13 (10)
------- -------
Net increase (decrease) in cash and equivalents............................. (4,498) (3,752)
Cash and cash equivalents, beginning of period.............................. 18,865 15,573
------- -------
Cash and cash equivalents, end of period.................................... $14,367 $11,821
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for
Interest paid............................................................. $ 7 $ 3
Income taxes paid......................................................... $ 1,976 $ 1,512
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
ORTEL CORPORATION
Notes to Condensed Consolidated Financial Statements
1. Basis of Presentation
---------------------
The accompanying unaudited condensed consolidated financial statements have
been prepared by the Company without audit (except for the balance sheet
information as of April 30, 1997 which was derived from audited consolidated
financial statements) and, in the opinion of management, contain all adjustments
necessary to present fairly the consolidated financial position at October 31,
1997, and the condensed consolidated results of operations for the six-month
periods ended October 31, 1997 and October 31, 1996, and the condensed
consolidated cash flows for the six-month periods ended October 31, 1997 and
October 31, 1996 in accordance with generally accepted accounting principles.
Certain information and footnote disclosures normally included in financial
statements have been condensed or omitted pursuant to rules and regulations of
the Securities and Exchange Commission, although the Company believes that the
disclosures in the consolidated financial statements are adequate to ensure the
information presented is not misleading.
The results of operations for the six-month period ended October 31, 1997
are not necessarily indicative of the results to be expected for the entire
fiscal year and should be read in conjunction with a discussion of risk factors
in the Company's annual report for the fiscal year ended April 30, 1997.
2. Per Share Information
---------------------
Net income per share is based on the weighted average common and common
equivalent shares outstanding for each period including common shares issuable
upon the exercise of stock options.
Net income per share for all periods presented is summarized as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
October 31 October 31
---------------------------- --------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income................................ $ 1,911 $ 2,146 $ 3,406 $ 3,933
======= ======= ======= =======
Weighted average shares outstanding:
Common shares issued.................... 11,624 11,412 11,555 11,430
Stock options........................... 1,308 1,177 1,113 1,177
------- ------- ------- -------
Total................................ 12,932 12,589 12,668 12,607
======= ======= ======= =======
Net income per share...................... $ .15 $ .17 $ .27 $ .31
======= ======= ======= =======
</TABLE>
For the three-month and six-month periods ended October 31, 1997 and 1996,
fully diluted income per share did not differ materially from primary income per
share; accordingly, fully diluted income per share has not been presented.
6
<PAGE>
ORTEL CORPORATION
Notes to Condensed Consolidated Financial Statements (continued)
3. Income taxes
------------
Income taxes for the respective periods were computed using the effective
tax rate estimated to be applicable for the fiscal year, which is subject to
ongoing review and evaluation by management.
4. Inventories
-----------
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of the following (in thousands):
<TABLE>
<CAPTION>
October 31, 1997 April 30, 1997
--------------------- ------------------
(unaudited) (audited)
<S> <C> <C>
Raw materials...................................... $ 5,380 $ 6,412
Work-in-process.................................... 6,115 6,820
Finished goods..................................... 451 728
------- -------
Total inventories............................. $11,946 $13,960
======= =======
</TABLE>
5. Investments in unconsolidated subsidiaries
------------------------------------------
In May, 1997 Ortel made a $5 million investment in the launch of a new
telecommunications network equipment manufacturing company know as Tellium, Inc.
The Company's $5 million investment has been accounted for under the cost
method.
In October, 1996 the Company acquired a minority (34%) interest in Shenzhen
Photon Technology Co., Ltd. "Photon" based in Shenzhen, China, with a cash
investment of $2.4 million plus associated acquisition costs for a total
investment of $2.9 million. The investment includes net assets valued at $1.7
million with the remainder classified as goodwill to be amortized over ten
years. The operating results of Photon are presented based on the equity basis
of accounting.
In June, 1997 the Company made an additional $437,000 investment in Photon,
raising its ownership to approximately 43%.
6. Deferred distribution costs
---------------------------
During the period ended October 31, 1996 70,000 shares of non-qualified
stock options were issued to the management of Photon. The value of those
options under SFAS 123 "Accounting for Stock Options", was estimated to be
$731,000 which were to be amortized and incorporated into the operating results
over seven years. In May, 1997 these options were canceled and a new grant for
the same number of options was issued at a price of $13.25 with a new vesting
schedule. The value of these options was estimated to be $534,000 which is
being amortized over five years.
7
<PAGE>
ORTEL CORPORATION
Notes to Condensed Consolidated Financial Statements (continued)
7. Cash and cash equivalents
--------------------------
Cash consists of cash and cash equivalents (defined as marketable securities
with original maturities of 90 days or less) in the amount of $14.4 million and
$18.9 million as of October 31, 1997 and April 30, 1997 respectively, and short-
term investments (marketable securities with maturities of more than 90 days) of
$14.2 million and $15.7 million as of October 31, 1997 and April 30, 1997,
respectively.
Under Financial Accounting Standards Board Statement 115, the Company has
classified its short-term investments as available-for-sale. Available-for-sale
securities are stated at market value and unrealized holding gains and losses,
net of the related tax effect, are excluded from earnings and are reported as a
separate component of stockholders' equity until realized. A decline in the
market value of the security below cost that is deemed other than temporary is
charged to earnings resulting in the establishment of a new cost basis for the
security.
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results during the periods included in the unaudited condensed consolidated
financial statements included herein. The discussion in this section contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those discussed herein. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed in the Company's annual report for the year ended April 30,
1997.
8
<PAGE>
ORTEL CORPORATION
Notes to Condensed Consolidated Financial Statements (continued)
Results of Operations
The following table sets forth the statements of income as a percentage of
revenues.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
---------------------------- --------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues...................................................... 100.0% 100.0% 100.0% 100.0%
Cost of revenues 55.3 52.2 55.5 51.9
----- ----- ----- -----
Gross profit................................................ 44.7 47.8 44.5 48.1
Operating expenses:...........................................
Research and development.................................... 16.0 15.4 15.6 15.2
Sales and marketing......................................... 11.9 11.1 12.2 12.3
General and administrative.................................. 6.8 7.9 6.7 7.5
----- ----- ----- -----
Total operating expenses.................................... 34.7 34.4 34.5 35.0
----- ----- ----- -----
Operating income.............................................. 10.0 13.4 10.0 13.1
Other income, net............................................. 1.7 1.7 1.3 2.1
----- ----- ----- -----
Income before income taxes.................................. 11.7 15.1 11.3 15.2
Provision for income taxes.................................... 3.0 4.8 3.1 4.9
----- ----- ----- -----
Net income.................................................. 8.7% 10.3% 8.2% 10.3%
===== ===== ===== =====
</TABLE>
9
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. (continued)
The following table highlights certain aspects of the Company's revenues
for the three-month and six-month periods ended October 31, 1997 and 1996.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
---------------------------- --------------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues (thousands)........................... $22,089 $20,874 $41,799 $38,126
======= ======= ======= =======
Broadband products........................... $12,485 $17,150 $25,326 $30,818
Other products............................... 9,604 3,724 16,473 7,308
------- ------- ------- -------
Total................................ $22,089 $20,874 $41,799 $38,126
======= ======= ======= =======
Geographic coverage (thousands):
Domestic..................................... $10,674 $14,591 $19,435 $ 6,378
International................................ 11,415 6,283 22,364 11,748
------- ------- ------- -------
Total................................ $22,089 $20,874 $41,799 $38,126
======= ======= ======= =======
As a percent of revenues:
Broadband products........................... 56.5% 82.2% 60.6% 80.8%
Other products............................... 43.5 17.8 39.4 19.2
------- ------- ------- -------
Total................................ 100.0% 100.0% 100.0% 100.0%
======= ======= ======= =======
Geographic coverage:
Domestic..................................... 48.3% 69.9% 46.5% 69.2%
International................................ 51.7 30.1 53.5 30.8
------- ------- ======= -------
Total................................ 100.0% 100.0% 100.0% 100.0%
======= ======= ======= =======
</TABLE>
SECOND QUARTER
Revenues
Revenues of $22.1 million for the second quarter ended October 31, 1997,
increased by $1.2 million or 6% from $20.9 million in the comparable quarter of
the previous year. Total revenues from broadband products of $12.5 million were
$4.7 million or 27% lower than the prior year period, due primarily to decreased
domestic sales related to the slower pace of spending for CATV network upgrades
in the U.S. Revenues of $9.6 million from the sale of wireless, satellite
communications and other product applications increased by $5.9 million or 158%
compared to the prior year period.
10
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations. (continued)
Sales to international customers totaled $11.4 million or 52% of revenues
for the second quarter of fiscal 1998 compared to $6.3 million or 31% of
revenues for the comparable quarter last year, an increase of 82%. The Company
is aware that some sales to domestic customers ultimately have international
destinations.
Gross Profit
Gross profit of $9.9 million for the second quarter of fiscal 1998
represented 44.7% of revenue compared to 47.8% in the comparable period last
year. The decrease in gross margin compared to the prior year is primarily
related to a 27% decrease in broadband product sales compared to the prior year
quarter.
Research and Development
Research and development expenses of $3.5 million for the second quarter of
fiscal 1998 increased by $.3 million or 10% from the comparable quarter last
year compared to a 6% increase in revenue. The increase in spending is due
almost entirely to lower revenues from R&D contract work which the Company nets
against research and development costs. With revenues up 6% over the prior
year, research and development expense as a percentage of revenues increased to
16% compared to 15.4% in the comparable quarter last year.
Sales and Marketing
Sales and marketing expenses of $2.6 million for the second quarter of
fiscal 1998 increased by $.3 million or 14% from $2.3 million for the comparable
quarter last year, and increased as a percentage of revenues to 11.9% compared
to 11.1% for the comparable quarter of fiscal 1997. The increase in spending is
primarily related to hiring and relocation costs.
General and Administrative
General and administrative expenses of $1.5 million for the second quarter
of fiscal 1998 decreased by $.1 million or 10% from $1.6 million for the
comparable period last year and decreased as a percentage of revenues to 6.8%
compared to 7.9% for the same quarter of fiscal 1997. The decrease over the
prior year is primarily related to lower spending related to hiring and
relocation costs incurred in the prior year period.
11
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations. (continued)
Other Non-Operating Income (Expense)
Interest income, net of interest expense, of $340,000 for the second quarter
of fiscal 1998 decreased by $33,000 from the comparable period last year
primarily due to lower average cash balances. Other net income of $28,000 for
the first quarter was up from a $16,000 loss in the comparable quarter last year
is primarily due to favorable foreign currency swings during the quarter.
Year-to-Date
Revenues
Revenues of $41.8 million for the first six months ended October 31, 1997,
increased by $3.7 million or 10% from $38.1 million in the comparable period of
the previous year. Total revenues from broadband products were $25.3 million,
18% lower than the prior year period. This decrease primarily reflects the
slowdown in spending for CATV network upgrades in the U.S. Revenues of $16.5
million from the sale of wireless, satellite communications and other product
applications increased by $9.2 million or 125% compared to the prior year
period.
Sales to international customers totaled $22.4 million or 54% of revenues
for the first six months of fiscal 1998 compared to $11.7 million or
approximately 31% of revenues for the comparable period last year, an increase
of 90%. The Company is aware that some sales to domestic customers ultimately
have international destinations.
Gross Profit
Gross profit of $18.6 million for the first six months of fiscal 1998
represented 44.5% of revenue compared to 48.1% in the comparable period last
year. The decrease in gross margin compared to the prior year is primarily
related to a 18% decrease in broadband product sales compared to the prior
year period in conjunction with higher product costs associated with a shift in
the mix of broadband products sold and the introduction of a number of new
products.
12
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations. (continued)
Research and Development
Research and development expenses of $6.5 million for the first six months
of fiscal 1998 increased by $.7 million or 13% from the comparable period last
year. Almost all of the increase in spending primarily reflects lower revenues
from R&D contract work which the Company nets against research and development
costs. With a 10% increase in revenues, research and development expense as a
percentage of revenues increased to 15.6% compared to 15.2% in the comparable
period last year.
Sales and Marketing
Sales and marketing expenses of $5.1 million for the first six months of
fiscal 1998 increased by $.3 million or 14% from $2.3 million for the comparable
quarter last year. With a 6% increase in revenues, sales and marketing
expenses, as a percentage of revenue, increased to 11.9% for the second quarter
of fiscal 1998 from 11.1% for the comparable quarter of fiscal 1997. The
increase in spending compared to the prior year is primarily related to
additional hiring and relocation costs.
General and Administrative
General and administrative expenses of $2.8 million for the first six months
of fiscal 1998 increased by $.1 million or less than 1% compared to $2.9
million for the comparable period last year and decreased as a percentage of
revenues to 6.7% from 7.5% for the same period.
Other Non-Operating Income (Expense)
Interest income, net of interest expense, of $624,000 for the first six
months of 1998 decreased by $151,000 from the comparable period last year
primarily due to lower average cash balances. Other non-operating expense of
$69,000 for the first six months was off $105,000 from a net income of $36,000
in the comparable period last year and is primarily due to unfavorable foreign
currency swings during this period of time.
Liquidity and Capital Resources
At October 31, 1997, the Company had working capital of $51.8 million,
including $14.4 million in cash and cash equivalents and $14.3 million in short-
term investments. For the six-month period ended October 31, 1997, the Company's
operating activities generated $1.7 million in cash. Cash from operating
activities includes net income of $3.4 million plus depreciation and
amortization of $3.0 million offset by an increase in trade receivables and
billed contract costs of $1.4 million and a decrease in inventory, accounts
payable, taxes payable and other accrued liabilities totaling $6.6 million.
Cash flow from investing activities includes a $5 million investment in
Tellium, Inc. made in May, 1997 and an additional $437,000 investment in Photon
Technology Co., Ltd., made in June, 1997. Cash flow from financing activities
includes $249,000 proceeds from issuance of common stock through stock option
exercises.
13
<PAGE>
PART I - FINANCIAL INFORMATION
Through September 1, 1997, the Company maintained an unsecured line of
credit totaling $2.0 million with Wells Fargo Bank. There were no borrowings
outstanding under this credit facility.
On September 9, 1997, the Company renewed an unsecured line of credit
totaling $5 million with Bank of America, expiring on September 30, 1998.
Interest rates vary according to market rates of interest. There were no
borrowings outstanding under this credit facility at October 31, 1997.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Stockholders was Held September 26, 1997 for the
following purposes:
1. Proposal One: The election of the following members of the Board of
Directors was approved as follows:
Name For Withhold
---- --- --------
Nadav Bar-Chaim 10,326,832 48,545
Anthony J. Iorillo 10,327,132 48,245
Wayne L. Tyler 10,327,352 47,845
2. Proposal Two: The ratification of KPMG Peat Marwick LLP as the Company's
independent public accountants for the fiscal year ended April 30, 1998
was approved as follows:
For Against Abstain
--- ------- -------
10,338,830 4,300 32,247
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
Reference is hereby made to the Exhibit Index commencing on page 16.
b. No reports were filed on Form 8-K during the quarter ended October 31,
1997.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DATE: December 12, 1997 ORTEL CORPORATION
(Registrant)
By: /s/Wim H.J. Selders
-------------------
Wim H.J. Selders,
President and Chief Executive Officer
By: /s/Stephen K. Workman
---------------------
Stephen K. Workman,
Vice President, Finance and Chief
Financial Officer
15
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Document Description Page No.
- ----------- -------------------- --------
<S> <C> <C>
3.1 Certificate of Incorporation. (Note 1)
3.2 Bylaws of Ortel Corporation. (Note 1)
10.1 Lease, dated September 23, 1991, between Ortel Corporation and Rim (Note 1)
Development Co.
10.2 Lease, dated May 20, 1994, between Ortel Corporation and (Note 1)
Wai Fong Un.
10.3 Consulting Agreement, dated January 3, 1994, between Ortel (Note 1)
Corporation and Wayne Tyler.
10.4 Consulting Agreement, dated March 2, 1990, as amended, between (Note 1)
Ortel Corporation and Amnon Yariv.
10.5 Employment Agreement, dated September 14, 1990, between Ortel (Note 1)
Corporation and Wim H.J. Selders.
10.6 Employment Agreement, dated September 14, 1990, between Ortel (Note 1)
Corporation and Israel Ury.
10.7 Employment Agreement, dated September 14, 1990, between Ortel (Note 1)
Corporation and Nadav Bar-Chaim.
10.8 1981 Incentive Stock Option Plan of Ortel Corporation. (Note 1)
10.9 1990 Stock Option Plan of Ortel Corporation. (Note 1)
10.10 Loan Agreement, dated September 30, 1993, between Ortel Corporation (Note 1)
and First Interstate Bank.
10.11 Form of Indemnification Agreement. (Note 1)
10.12 Common Stock Purchase Agreement, dated March 26, 1990, between (Note 1)
Sumitomo Cement Co., Ltd. and Ortel Corporation.
10.13 Key Shareholders Agreement, dated as of March 26, 1990, among Wim (Note 1)
H.J. Selders, Dr. Ury, Dr. Yariv, Dr. Bar-Chaim, Sumitomo Cement
Co., Ltd., The Ury Family Trust and Ortel Corporation.
10.14 Agreement Concerning Certain Financial and Business Arrangements, (Note 1)
dated as of March 26, 1990 between Sumitomo Cement Co., Ltd. and
Ortel Corporation.
10.15 Voting Agreement of Sumitomo Cement Co., Ltd., dated as of March (Note 1)
26, 1990 between Sumitomo Cement Co., Ltd. and Ortel Corporation.
10.16 Agreement dated as of November 19, 1993, between Ortel Corporation (Note 1)
and General Instrument Corporation.
10.17 Agreement, dated as of January 24, 1994, between Ortel Corporation (Note 1)
and General Instrument Corporation.
10.18 Modification Agreement, dated 1985, between Ortel Corporation and (Note 1)
certain investors.
10.19 Class A Common Stock Purchase Agreement, dated as of December 14, (Note 1)
1981, between Ortel Corporation and certain investors.
10.20 1994 Equity Participation Plan of Ortel Corporation. (Note 1)
10.21 Severance Agreement, dated as of August 26, 1994, between Ortel (Note 1)
Corporation and Stephen K. Workman.
10.22 Stock Purchase Agreement dated March 12, 1996 between Hakan (Note 2)
Samuelsson and Ortel Corporation.
10.23 Stock Purchase Agreement dated March 12, 1996 between Christa (Note 2)
Samuelsson and Ortel Corporation.
10.24 Loan Agreement, dated June 2, 1995 between Ortel Corporation and (Note 3)
Bank of America.
</TABLE>
16
<PAGE>
EXHIBIT INDEX (CONTINUED)
<TABLE>
<CAPTION>
Exhibit No. Document Description Page No.
- --------- -------------------- -------
<S> <C> <C>
10.25 Amendment to Loan Agreement dated September 30, 1995 between (Note 3)
Ortel Corporation and First Interstate Bank.
10.26 Amendment to Loan Agreement dated September 30, 1995 between (Note 4)
Ortel Corporation and Wells Fargo Bank, National Association
(formerly First Interstate Bank)
10.27 Amendment To Loan Agreement dated June 2, 1995 between Ortel
Corporation and Bank of America.
11.1 Statement Regarding Computation of Per Share Earnings. (Note 1)
27.0 Financial Data Schedule
</TABLE>
__________________
Note 1 Previously filed by the Registrant in Registration No. 33-79188 and
incorporated by reference herein pursuant to Rule 12b-32 of the
Exchange Act.
Note 2 Previously filed by the Registrant in its 8K filing dated March 26,
1996
Note 3 Previously filed by the Registrant in its 10-K filing for the year
ended
April 30, 1996
Note 4 Previously filed by the Registrant in its 10-K filing for the year
ended
April 30, 1997
17
<PAGE>
[LOGO OF BANK OF AMERICA] AMENDMENT TO DOCUMENTS
- -------------------------------------------------------------------------------
AMENDMENT NO. 2 TO BUSINESS LOAN AGREEMENT
This Amendment No. 2 (the "Amendment") dated as of September 9, 1997 is
-----------
between BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (the "Bank") and
ORTEL CORPORATION (the "Borrower").
RECITALS
--------
A. The Bank and the Borrower entered into a certain Business Loan
Agreement dated as of June 2, 1995, as previously amended (the "Agreement").
B. The Bank and the Borrower desire to further amend the Agreement.
AGREEMENT
---------
1. DEFINITIONS. Capitalized terms used but not defined in the Amendment
-----------
shall have the meaning given to them in the Agreement.
2. AMENDMENTS. The Agreement is hereby amended as follows:
----------
2.1 In Paragraph 1.2 of the Agreement, the date "SEPTEMBER 30, 1998"
is substituted for the date "JUNE 1, 1997."
2.2 Paragraph 1.6 of the Agreement is deleted in its entirety.
2.3 In Paragraph 1.7 of the Agreement, the "SHORT TERM BASE RATE PLUS
ONE AND ONE HALF (1.50) PERCENTAGE POINTS" is substituted for the
"SHORT TERM BASE RATE PLUS ONE AND THREE-QUARTERS (1.75)
PERCENTAGE POINTS."
2.4 Paragraph 1.8 of the Agreement is amended to read in its entirety
as follows:
"1.8 LIBOR RATE. The Borrower may elect to have all or portions of
the principal balance bear interest at the LIBOR Rate plus one and
one half (1.50) percentage points.
Designated of a LIBOR Rate portion is subject to the following
requirements:
(a) The interest period during which the LIBOR Rate will be in
effect will be one, two, or three weeks, or one, two, three,
four, five, six, seven, eight, nine, ten, eleven, or twelve
months. The first day of the interest period must be a day
other than a Saturday or a Sunday on which the Bank is open
for business in California, New York and London and dealing
in offshore dollars (a "LIBOR Banking Day"). The last day of
the interest period and the actual number of days during the
interest period will be determined by the Bank using the
practices of the London inter-bank market.
(b) Each LIBOR Rate portion will be for an amount not less than
Five Hundred Thousand Dollars ($500,000) for interest periods
of one month or longer. For shorter maturities, each LIBOR
Rate portion will be for an amount which, when multiplied by
the number of days in the applicable interest period, is not
less than fifteen million (15,000,000) dollar-days.
- -------------------------------------------------------------------------------
-1-
<PAGE>
(c) The "LIBOR Rate" means the interest rate determined by the following
formula, rounded upward to the nearest 1/100 of one percent. (All
amounts in the calculation will be determined by the Bank as of the
first day of the interest period.)
LIBOR Rate = London Inter-Bank Offered Rate
------------------------------
(1.00-Reserve Percentage)
Where,
(i) "London Inter-Bank Offered Rate" means the interest rate at
which the Bank's London Branch, London, Great Britain, would offer
U.S. dollar deposits for the applicable interest period to other
major banks in the London inter-bank market at approximately 11:00
a.m. London time two (2) London Banking Days before the
commencement of the interest period. A "London Banking Day" is a
day on which the Bank's London Branch is open for business and
dealing in offshore dollars.
(ii) "Reserve Percentage" means the total of the maximum reserve
percentages for determining the reserves to be maintained by member
banks of the Federal Reserve System for Eurocurrency Liabilities,
as defined in Federal Reserve Board Regulation D, rounded upward
to the nearest 1/100 of one percent. The percentage will be
expressed as a decimal, and will include, but not be limited to,
marginal, emergency, supplemental, special, and other reserve
percentages.
(d) The Borrower shall irrevocably request a LIBOR Rate portion no later
than 12:00 noon San Francisco time on the LIBOR Banking Day preceding
the day on which the London Inter-Bank Offered Rate will be set, as
specified above.
(e) The Borrower may not elect a LIBOR Rate with respect to any principal
amount which is scheduled to be repaid before the last day of the
applicable interest period.
(f) Any portion of the principal balance already bearing interest at the
LIBOR Rate will not be converted to a different rate during its
interest period.
(g) Each prepayment of a LIBOR Rate portion, whether voluntary, by reason
of acceleration or otherwise, will be accompanied by the amount of
accrued interest on the amount prepaid and a prepayment fee as
described below. A "prepayment" is a payment of an amount on a date
earlier than the scheduled payment date for such amount as required by
this Agreement. The prepayment fee shall be equal to the amount (if
any) by which:
(i) the additional interest which would have been payable during the
interest period on the amount prepaid had it not been prepaid,
exceeds
(ii) the interest which would have been recoverable by the Bank by
placing the amount prepaid on deposit in the domestic
certificate of deposit market, the eurodollar deposit market, or
other appropriate money market selected by the Bank, for a
period starting on the date on which it was prepaid and ending
on the last day of the interest period for such portion (or the
scheduled payment date for the amount prepaid, if earlier).
(h) The Bank will have no obligation to accept an election for a LIBOR
Rate portion if any of the following described events has occurred and
is continuing:
(i) Dollar deposits in the principal amount, and for periods equal
to the interest period, of a LIBOR Rate portion are not
available in the London inter-bank market; or
(ii) the LIBOR Rate does not accurately reflect the cost of a LIBOR
Rate portion."
- --------------------------------------------------------------------------------
-2-
<PAGE>
2.5 Article 2 of the Agreement is deleted in its entirety. Any reference
in the Agreement to the terms "Facility No. 1 Commitment" and
"Facility No. 1 Expiration Date" shall mean the "Commitment" and the
"Expiration Date."
2.6 Paragraph 6.1 of the Agreement is amended to read in its entirety as
follows:
"6.1 USE OF PROCEEDS. To use the proceeds only for operating capital
and the issuance of letters of credit."
2.7 Subparagraph 6.2(c) of the Agreement is amended to read in its
entirety as follows:
"6.2(c) Copies of the Borrower's Form 10-K Annual Report within
120 days to include CPA audit opinion and Form 10-Q Quarterly
Report within 45 days after the date of filing with the Securities
and Exchange Commission."
2.8 Article 7 of the Agreement is amended to read in its entirety as
follows:
"7. HAZARDOUS WASTE INDEMNIFICATION. The Borrower will indemnify and
hold harmless the Bank from any loss or liability directly or
indirectly arising our of the use, generation, manufacture,
production, storage, release, threatened release, discharge, disposal
or presence of a hazardous substance. This indemnity will apply
whether the hazardous substance is on, under or about the Borrower's
property or operations or property leased to the Borrower. The
indemnity includes but is not limited to attorneys' fees (including
the reasonable estimate of the allocated cost of in-house counsel and
staff). The indemnity extends to the Bank, its parent, subsidiaries
and all of their directors, officers, employees, agents, successors,
attorneys and assigns. "Hazardous substances" means any substance,
material or waste that is or becomes designated or regulated as
"toxic," "hazardous," "pollutant," or "contaminant" or a similar
designation or regulation under any federal, state or local law
(whether under common law, statute, regulation or otherwise) or
judicial or administrative interpretation of such, including without
limitation petroleum or natural gas. This indemnity will survive
repayment of the Borrower's obligations to the Bank."
2.9 Paragraph 9.6 of the Agreement is amended to read in its entirety as
follows:
"9.6 ATTORNEYS' FEES. The Borrower shall reimburse the Bank for any
reasonable costs and attorneys' fees incurred by the Bank in
connection with the enforcement or preservation of any rights or
remedies under this Agreement and any other documents executed in
connection with this Agreement, and in connection with any amendment,
waiver, "workout" or restructuring under this Agreement. In the event
of a lawsuit or arbitration proceeding, the prevailing party is
entitled to recover costs and reasonable attorneys' fees incurred in
connection with the lawsuit or arbitration proceeding, as determined
by the court or arbitrator. In the event that any case is commenced by
or against the Borrower under the Bankruptcy Code (Title 11, United
States Code) or any similar or successor statute, the Bank is entitled
to recover costs and reasonable attorneys' fees incurred by the Bank
related to the preservation, protection, or enforcement of any rights
of the Bank in such a case. As used in this paragraph, "attorneys'
fees" includes the allocated costs of the Bank's in-house counsel."
3. CONDITIONS. This Amendment will be effective when the Bank receives the
----------
following items, in form and content acceptable to the Bank:
3.1 Statement of Purpose for an Extension of Credit Secured by Margin
Stock, duly executed by the Borrower and the Bank.
- -------------------------------------------------------------------------------
-3-
<PAGE>
4. EFFECT OF AMENDMENT. Except as provided in this Amendment, all of the
--------------------
terms and conditions of the Agreement shall remain in full force and effect.
This Amendment is executed as of the date stated at the beginning of
this Amendment.
BANK OF AMERICA
National Trust and Savings Association Ortel Corporation
/s/ Stephen L. Nelson /s/ Wim Selders
X_____________________________________ X______________________________
By: Stephen L. Nelson, Vice President By: Wim H.J. Selders, President
and Chief Executive Officer
/s/ S.K. Workman
X______________________________
By: Stephen K. Workman,
Vice-President-Finance and
Chief Financial Officer
- --------------------------------------------------------------------------------
-4-
<PAGE>
FRU-1
[LOGO OF BANK OF AMERICA] O.M.B. No. 7100-0115
Approval Expires July 31, 1998
REPORTING BURDEN
Public reporting burden for this collection of information is estimated to
average 4.2 minutes (0.07 hours) per response, including the time for reviewing
instructions, searching existing data sources, gathering and maintaining the
data needed, and completing and reviewing the collection of information. Send
comments regarding this burden estimate, including suggestions for reducing this
burden, to Secretary, Board of Governors of the Federal Reserve System, 20th and
C Streets, N.W., Washington, D.C. 20551; and to the Office of Management and
Budget, Paperwork Reduction Project (7100-0115), Washington D.C. 20503.
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
STATEMENT OF PURPOSE FOR AN EXTENSION OF CREDIT SECURED BY MARGIN STOCK
(FEDERAL RESERVE FORM U-1)
This form is required by law (15 U.S.C. (SS)78g and 78w; 12 CFR 221).
INSTRUCTIONS:
(1) This form must be completed when a bank extends credit in excess of $100,000
secured directly or indirectly, in whole or in part, by any margin stock.
(2) The term "margin stock" is defined in Regulation U (12 CFR 221) and
includes, principally: (1) stocks that are registered on a national
securities exchange or that are on the Federal Reserve Board's List of
Marginable OTC Stocks; (2) debt securities (bonds) that are convertible into
margin stocks; and (3) any over-the-counter security designated as qualified
for trading in the National Market System under a designation plan approved
by the Securities and Exchange Commission (NMS security); and (4) shares of
mutual funds, unless 95 per cent of the assets of the fund are continuously
invested in U.S. government, agency, state, or municipal obligations.
(3) Please print or type (if space is inadequate, attach separate sheet).
- --------------------------------------------------------------------------------
PART I To be completed by borrower(s):
(1) What is the amount of the credit being extended? $5,000,000
(2) Will any part of this credit be used to purchase or carry margin stock?
[_] Yes [X] No
If the answer is "no," describe the specific purpose of the credit:
TO PROVIDE FOR OPERATING CAPITAL AND THE ISSUANCE OF LETTERS OF CREDIT
I (we) have read this form and certify that to the best of my (our) knowledge
and belief the information given is true, accurate, and complete, and that the
margin stock and any other securities collateralizing this credit are authentic,
genuine, unaltered, and not stolen, forged or counterfeit.
Date: 9-9-97
------------
Ortel Corporation
x /s/ Wim H.J. Selders
------------------------------------------------------
By: Wim H.J. Selders, President/Chief Executive Officer
x /s/ Stephen K. Workman
---------------------------------------------------------------------
By: Stephen K. Workman, Vice President-Finance/Chief Financial Officer
THIS FORM SHOULD NOT BE SIGNED IF BLANK
A BORROWER WHO FALSELY CERTIFIES THE PURPOSE OF A CREDIT ON THIS FORM
OR OTHERWISE WILLFULLY OR INTENTIONALLY EVADES THE PROVISIONS OF REGULATION U
WILL ALSO VIOLATE FEDERAL RESERVE REGULATION X,
"BORROWERS OF SECURITIES CREDIT."
- --------------------------------------------------------------------------------
-1-
<PAGE>
PART II To be completed by bank only if the purpose of the credit is to
purchase or carry margin stock
(Part 1(2) answered "yes")
(1) List the margin stock securing this credit: do not include debt securities
convertible into margin stock. The maximum loan value of margin stock is
____ per cent of its current market value under the current Supplement to
Regulation U.
<TABLE>
<CAPTION>
DATE AND SOURCE
MARKET PRICE OF VALUATION TOTAL MARKET
NO. OF SHARES ISSUE PER SHARE (SEE NOTE BELOW) VALUE PER ISSUE
------------- ----- --------- ---------------- ---------------
<S> <C> <C> <C> <C>
</TABLE>
(2) List the debt securities convertible into margin stock securing this
credit. The maximum loan value of such debt securities is ____ per cent of
the current value under the current Supplement to Regulation U.
<TABLE>
<CAPTION>
DATE AND SOURCE
PRINCIPAL OF VALUATION TOTAL MARKET
AMOUNT ISSUE MARKET PRICE (SEE NOTE BELOW) VALUE PER ISSUE
------ ----- ------------ ---------------- ---------------
<S> <C> <C> <C> <C>
</TABLE>
(3) List other collateral including non-margin stock securing this credit.
<TABLE>
<CAPTION>
DATE AND SOURCE
OF VALUATION GOOD FAITH
DESCRIBE BRIEFLY MARKET PRICE (SEE NOTE BELOW) LOAN VALUE
---------------- ------------ ---------------- ----------
<S> <C> <C> <C>
</TABLE>
NOTE: Bank need not complete "Date and source of valuation" if the market value
was obtained from regularly published information in a journal of general
circulation.
PART III To be signed by a bank officer in all instances
I am a duly authorized officer of the bank and understand that this credit
secured by margin stock may be subject to the credit restrictions of Regulation
U. I have read this form and any attachments, and I have accepted the customer's
statement in Part I in good faith as required by Regulation U**, and I certify
that to the best of my knowledge and belief, all the information given is
true, accurate and complete. I also certify that if any securities that
directly secure the credit are not or will not be registered in the name of the
borrower or its nominee, I have or will cause to have examined the written
consent of the registered owner to pledge such securities. I further certify
that any securities that have been or will be physically delivered to the bank
in connection with this credit have been or will be examined, that all
validation procedures required by bank policy and the Securities Exchange Act of
1934 (section 17(f), as amended) have been or will be performed, and that I am
satisfied to the best of my knowledge and belief that such securities are
genuine and not stolen or forged and their faces have not been altered.
Signed:
Date: 9-9-97
----------
x /s/ Stephen L. Nelson
-------------------------------------
for Stephen L. Nelson, Vice President
** To accept the customer's statement in good faith, the officer of the bank
must be alert to the circumstances surrounding the credit and, if in possession
of any information that would cause a prudent person not to accept the statement
without inquiry, must have investigated and be satisfied that the statement is
truthful. Among the facts which would require such investigation are receipt of
the statement through the mail or from a third party.
THIS FORM MUST BE RETAINED BY THE BANK FOR AT LEAST THREE YEARS
AFTER THE CREDIT IS EXTINGUISHED
- --------------------------------------------------------------------------------
-2-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 14,367
<SECURITIES> 14,265
<RECEIVABLES> 16,858
<ALLOWANCES> 377
<INVENTORY> 11,946
<CURRENT-ASSETS> 60,492
<PP&E> 38,162
<DEPRECIATION> 19,531
<TOTAL-ASSETS> 90,355
<CURRENT-LIABILITIES> 8,732
<BONDS> 0
0
0
<COMMON> 11
<OTHER-SE> 79,465
<TOTAL-LIABILITY-AND-EQUITY> 90,355
<SALES> 90,355
<TOTAL-REVENUES> 41,799
<CGS> 23,150
<TOTAL-COSTS> 23,150
<OTHER-EXPENSES> 6,532<F1>
<LOSS-PROVISION> 30<F2>
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> 4,718
<INCOME-TAX> 1,312
<INCOME-CONTINUING> 3,406
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,406
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
<FN>
<F1>RESEARCH & DEVELOPMENT
<F2>PROVISION FOR BAD DEBT
</FN>
</TABLE>
