<PAGE>
EDITTED THRU 12/13/99 6pm
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, 1999
[ ] 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 November 28, 1999, there were 12,448,209 shares of the registrant's
$.001 par value Common Stock outstanding.
1
<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, 1999 and
April 30, 1999............................................................... 3
Condensed Consolidated Statements of Operations for the fiscal quarter and
six months ended October 31, 1999 and 1998................................... 4
Condensed Consolidated Statements of Cash Flows for the fiscal quarter and
six months ended October 31, 1999 and 1998................................... 5
Notes to Condensed Consolidated Financial Statements......................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................. 10
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders............................... 17
Item 6. Exhibits and Reports on Form 8-K.................................................. 17
Signatures.................................................................................. 18
Index to Exhibits........................................................................... 19
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ORTEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
October 31, April 30,
1999/(1)/ 1999/(1)/
(unaudited) (unaudited)
---------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents............................................................. $ 10,130 $ 13,115
Short term investments........................................................... 16,225 11,066
Total receivables less allowance for doubtful accounts of $1,285 and $973 at
October 31, 1999 and April 30, 1999, respectively.............................. 10,518 13,404
Inventories...................................................................... 11,439 9,716
Income taxes receivable.......................................................... 4,671 2,900
Deferred tax assets.............................................................. 2,080 2,080
Prepaid expenses and other current assets........................................ 1,194 990
Current assets of discontinued operations........................................ --- 5,692
---------- ----------
Total current assets........................................................... 56,257 58,963
Property, equipment and improvements (net)........................................... 17,046 17,704
Intangible assets, net............................................................... 894 1,352
Other assets......................................................................... 9,858 9,717
Long-term assets of discontinued operations.......................................... --- 1,492
---------- ----------
Total assets................................................................... $ 84,055 $ 89,228
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................. $ 4,635 $ 6,800
Accrued liabilities.............................................................. 6,150 3,618
Liabilities related to discontinued operations................................... 2,909 2,356
Income taxes payable............................................................. 191 188
---------- ----------
Total current liabilities...................................................... 13,885 12,962
Deferred income taxes................................................................ 496 512
Long-term liabilities of discontinued operations..................................... --- 305
---------- ----------
Total liabilities.............................................................. 14,381 13,779
Minority interest in subsidiaries.................................................... --- 261
Stockholders' equity................................................................. 69,674 75,188
---------- ----------
Total liabilities and stockholders' equity..................................... $ 84,055 $ 89,228
========== ==========
</TABLE>
(1) Certain amounts related to discontinued operations have been reclassified to
conform to current year presentation.
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ORTEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
------------------------------------------------------------
October 31, October 31, October 31, October 31,
1999/(1)/ 1998 /(1)/ 1999/(1)/ 1998 /(1)/
(unaudited) (unaudited) (unaudited) (unaudited)
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenues........................................................... $ 19,424 $ 17,695 $ 37,085 $34,184
Cost of revenues................................................... 11,338 10,417 22,668 19,553
---------- ----------- ---------- -------
Gross profit................................................... 8,086 7,278 14,417 14,631
Operating expenses:
Research and development....................................... 3,596 2,415 7,229 5,064
Sales and marketing............................................ 2,948 2,900 5,710 5,199
General and administrative..................................... 1,438 1,414 5,139 2,744
Write-off facility architectural fees.......................... --- --- 745 ---
---------- ----------- ---------- -------
Total operating expenses................................... 7,982 6,729 18,823 13,007
---------- ----------- ---------- -------
Operating income (loss)........................................ 104 549 (4,406) 1,624
Interest and other income, net..................................... 295 566 458 862
---------- ----------- ---------- -------
Income (loss) from continuing operations before income taxes....... 399 1,115 (3,948) 2,486
Provision (credit) for income taxes................................ 146 223 (987) 504
---------- ----------- ---------- -------
Income (loss) from continuing operations before cumulative effect
of accounting change............................................ 253 892 (2,961) 1,982
Cumulative effect of accounting change (Note 8).................... --- --- (989) ---
---------- ----------- ---------- -------
Income (loss) from continuing operations........................... 253 892 (3,950) 1,982
Discontinued operations (Note 7):
Loss from discontinued operations, net of tax benefits of
$400 in quarter ended 1998, $186 in six months ended 1999
and $621 in six months ended 1998............................. --- (1,602) (558) (2,485)
Loss from disposal of discontinued operations, net of tax
benefits of $980 in quarter ended 1998, $1,094 in six months
ended 1999 and $980 in six months ended 1998................ --- (3,919) (3,280) (3,919)
---------- ----------- ---------- -------
Net income (loss).................................................. $ 253 $ (4,629) $ (7,788) $(4,422)
========== =========== ========== =======
Income (loss) per common share - Basic
Income (loss ) from continuing operations....................... $ .02 $ .08 $ (.22) $ .17
Cumulative effect of accounting change.......................... --- --- (.07) ---
Discontinued operations......................................... --- (.47) (.28) (.54)
---------- ----------- ---------- -------
Net income (loss) per share - Basic............................. $ .02 $ (.39) $ (.57) $ (.37)
========== =========== ========== =======
Income (loss) per common share - Diluted (2)
Income (loss ) from continuing operations....................... $ .02 $ .07 $ (.22) $ .16
Cumulative effect of accounting change.......................... --- --- (.07) ---
Discontinued operations......................................... --- (.44) (.28) (.51)
---------- ----------- ---------- -------
Net income (loss) per share - Diluted........................... $ .02 $ (.37) $ (.57) $ (.35)
========== =========== ========== =======
Shares used in per share computation:
Basic...................................................... 13,901 11,860 13,550 11,897
Diluted.................................................... 14,813 12,631 13,550 12,720
</TABLE>
(1) Certain amounts related to discontinued operations have been reclassified
to conform to current year presentation.
(2) Options to purchase 1,304,903 shares at or below the average price of the
common shares were outstanding at October 31, 1999, but were excluded from
the computation of diluted earnings per share as the Company reported a
loss position and the effect would be antidilutive.
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ORTEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
--------------------------
October 31, October 31,
1999/(1)/ 1998/(1)/
(unaudited) (unaudited)
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).................................................................... $ (7,788) $ (4,422)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Loss from discontinued operations................................................. 744 ---
Loss from disposal of discontinued operations..................................... 4,374 6,697
Income tax related to discontinued operations..................................... (1,280) (1,339)
Stock-based compensation.......................................................... 326 53
Depreciation and amortization..................................................... 3,072 2,920
Increase (decrease) in minority interest in subsidiaries.......................... (118) 60
Gain on disposal of equipment..................................................... 15 12
Write-off of architectural fees................................................... 745 ---
Cumulative effect of accounting change for start-up costs......................... 989 ---
Other............................................................................. (177) ---
Change in assets and liabilities:
Receivables and billed contract costs and fees.................................... 2,886 (2,065)
Inventories....................................................................... (1,723) (1,199)
Income tax receivable............................................................. (491) (79)
Deferred tax asset................................................................ --- (70)
Prepaid expenses and other assets................................................. 543 822
Intangible assets................................................................. (678) ---
Accounts payable.................................................................. (2,165) 2,387
Accrued payroll and related costs................................................. 1,271 (839)
Liabilities related to discontinued operations.................................... 1,263 2,854
Net of assets and liabilities of discontinued operations.......................... --- 339
Other accrued liabilities......................................................... 1,261 256
Deferred income taxes............................................................. (355) (1,767)
Income taxes payable.............................................................. 199 11
----------- -----------
Net cash provided by continuing operating activities........................... 2,913 4,631
Net cash used by discontinued operating activities............................. (2,127) (3,412)
----------- -----------
Net cash provided by operating activities........................................ 786 1,219
Cash flows from investing activities:
Capital expenditures................................................................. (2,955) (2,531)
Investment in subsidiaries and affiliates (net of cash acquired)..................... 2,232 ---
Short term investments............................................................... (5,159) (59)
----------- -----------
Net cash used in investing activities............................................ (5,882) (2,590)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock, net.......................................... 1,876 1,610
Proceeds from repayment of shareholder loans......................................... 321 488
----------- -----------
Net cash provided by financing activities........................................ 2,197 2,098
Effect of exchange rate changes on cash and cash equivalents........................... (86) (21)
----------- -----------
Net increase (decrease) in cash and equivalents.................................. (2,985) 706
Cash and equivalents at beginning of period............................................ 13,115 12,591
----------- -----------
Cash and equivalents at end of period.................................................. $ 10,130 $ 13,297
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period by continuing operations for:
Interest paid.................................................................... $ 3 $ 21
Income taxes paid (refunded), net income taxes paid.............................. $ (347) $ 337
Supplemental disclosure of non-cash financing activities:
Loans to related parties for stock option exercises.................................. $ 900 $ 17
</TABLE>
(1) Certain amounts related to discontinued operations have been
reclassified to conform to current year presentation.
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
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, 1999, which was derived from audited consolidated
financial statements) and, in the opinion of management, contain all adjustments
necessary to present fairly the condensed consolidated financial position at
October 31, 1999, and the condensed consolidated results of operations for the
six months ended October 31, 1999 and 1998 and the condensed consolidated cash
flows for the six months ended October 31, 1999 and 1998 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 condensed
consolidated financial statements are adequate to ensure the information
presented is not misleading.
The Company changed its fiscal quarter to a thirteen-week period ending on
the Sunday nearest to the end of each quarter. The Company's fiscal year end
will remain April 30. This change did not have a significant impact on the
comparability of the Company's operating results between periods.
The results of operations for the quarter and six months ended October 31,
1999, 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, 1999.
2. Per Share Information
---------------------
Net income (loss) 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. Common equivalent shares are
excluded from the computation if the effect is antidilutive. (in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31, October 31, October 31,
1999 1998 1999 1998
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average shares outstanding.................. 13,901 11,860 13,550 11,897
Effect of dilutive securities - stock options (1).... 912 771 --- 823
------ ------ ------ ------
Shares used for diluted per share computations....... 14,813 12,631 13,550 12,720
====== ====== ====== ======
</TABLE>
(1) Options to purchase 1,304,903 shares at or below the average price of the
common shares were outstanding at October 31, 1999, but were excluded from the
computation of diluted earnings per share as the Company reported a loss
position and the effect would be antidilutive.
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.
6
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ORTEL CORPORATION
Notes to Condensed Consolidated Financial Statements (continued)
4. Inventories
-----------
Inventories are stated at the lower of cost (first-in, first-out method) or
market and for continuing operations are summarized below. Prior years amounts
have been reclassified to conform to current year presentation. (in thousands)
<TABLE>
<CAPTION>
October 31, 1999 April 30, 1999
------------------ ------------------
(unaudited) (audited)
<S> <C> <C>
Raw materials..................................... $ 6,723 $ 5,275
Work-in-process................................... 2,810 3,141
Finished goods.................................... 1,906 1,300
---------- -----------
Total inventories.............................. $ 11,439 $ 9,716
========== ===========
</TABLE>
5. Cash Equivalents
----------------
Cash equivalents (defined as marketable securities with original maturities
of 90 days or less which can be liquidated in a manner that is equivalent to
cash) were $9.2 million and $10.3 million as of October 31, 1999, and April 30,
1999, respectively. Short-term investments (marketable securities with
maturities of more than 90 days) were $16.2 million and $11.1 million as of
October 31, 1999, and April 30, 1999, respectively.
Short-term investments consist of interest bearing securities with
maturities greater than 90 days. The Company adopted the provisions of Statement
of Financial Accounting Standard No. 115, "Accounting for Certain Investments in
Debt and Equity Securities (SFAS 115)" at May 1, 1994. Under SFAS 115, the
Company has classified its short-term investments as available-for-sale. At
October 31, 1999, the Company's marketable investment securities consisted
principally of highly liquid investments in tax free municipal obligations with
various maturity dates through February 1, 2002. The difference between market
value and cost of these securities at October 31, 1999 was immaterial.
6. Other Comprehensive Income
--------------------------
In fiscal 1999, the Company adopted SFAS No. 130, Reporting Comprehensive
Income. Accumulated other comprehensive income of the Company consists of net
unrealized gains (losses) on available for sale investments and the cumulative
effect of foreign currency translation. The change in the components of other
accumulated comprehensive income (losses) are shown below. Current period
activity as shown includes the reclassification of $432,000 in foreign currency
translation gains and losses related to discontinued operations. (in thousands)
7
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ORTEL CORPORATION
Notes to Condensed Consolidated Financial Statements (continued)
6. Other Comprehensive Income Cont'd
---------------------------------
<TABLE>
<CAPTION>
Unrealized Gain Cumulative Effect Accumulated Other Accumulated Other
(Loss) on of Foreign Currency Comprehensive Comprehensive
Available for Translation Gain Income/(Loss) Income/(Loss)
Sale Investments (Loss) Before Tax Net of Tax
---------------- ------------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Balance at April 30, 1999....... $ (37) $ (566) $ (603) $ (453)
Activity for the six months
Ended October 31, 1999........ (59) 412 353 265
-------- --------- --------- ---------
Balance at October 31, 1999..... $ (96) $ (154) $ (250) $ (188)
======== ========= ========= =========
</TABLE>
7. Discontinued Operations
-----------------------
During the first quarter of fiscal year 2000, the Company implemented its
plan to sell the U.S. and international wireless operations which detracted from
the Company's focus on fiberoptic markets. In addition to the operating losses
incurred during the first quarter, the Company expected to incur sale
transaction costs as well as losses on the sale of the businesses at prices
potentially below net book value. In the first quarter of fiscal 2000, the
Company recorded a loss of $4.4 million, before income tax benefit of $1.1
million, from the disposal of assets related to the discontinued wireless
businesses. Significant costs related to the sale of the businesses included
brokers fees, severance and expected product warranty costs.
By August 30, 1999, the wireless businesses were sold in two separate
transactions. Losses on the sales and costs associated with the transactions
were commensurate with the $4.4 million estimated. Domestic wireless operations
were sold for cash to an unrelated party. The Company agreed to provide certain
services on a temporary basis to facilitate the operation of the business by the
new owner, CI Wireless, Incorporated, of Fort Worth, Texas. These services
include subletting a portion of a building at the Company's Alhambra facility
and agreeing to sell certain key components which incorporate technology not
included in the sale of the business. The Company's stock in Avitec AB, the
wireless operations headquartered in Sweden, was sold to one of Avitec's
founders. The Company has no continuing obligations with regard to the Avitec
wireless operations but may continue to sell to Avitec certain of the Company's
products, which have been incorporated into Avitec systems designs.
These wireless operations have been separately reported as discontinued
operations in the accompanying condensed consolidated financial statements for
all periods presented. Summarized results of operations of the discontinued
wireless businesses (excluding losses on disposal) for the six months ended
October 31, 1999, are shown below. (in thousands)
<TABLE>
<CAPTION>
Six Months Ended
October 31, 1999
----------------
<S> <C>
Revenues........................................... $ 1,109
========
Loss before income taxes........................... (744)
Income tax benefit................................. (186)
--------
Loss after tax benefit............................ $ (558)
========
</TABLE>
8
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ORTEL CORPORATION
Notes to Condensed Consolidated Financial Statements (continued)
7. Discontinued Operations (continued)
-----------------------------------
At October 31, 1999, liabilities related to both the recently discontinued
wireless operations and the 980nm pump laser operations, which were discontinued
in the second quarter of fiscal year 1999, are summarized below. (in thousands)
<TABLE>
<S> <C>
Warranty.................................................. $ 1,536
Severance................................................. 270
Professional fees......................................... 744
All other................................................. 359
--------
Total liabilities related to discontinued operations..... $ 2,909
========
</TABLE>
8. Change in Accounting for Start-up Costs
---------------------------------------
The Company adopted Statement of Position No. 98-5, Reporting on the Costs
of Start-up Activities, effective May 1, 1999. SOP 98-5 provides guidance on the
financial reporting of start-up costs and organization costs. It requires costs
of start-up activities and organization costs to be expensed as incurred. The
Company recognized a charge to results of operations of $989,000 ($.07 per basic
share), as the cumulative effect of a change in accounting in the first quarter
of fiscal year 2000. For tax purposes, this item is non-deductible.
9. Buy-out of Foreign Subsidiaries
-------------------------------
The Company previously owned 90% of Ortel SARL and 75% of Ortel Vertriebs
GmbH. During the second quarter of fiscal year 2000, the Company purchased the
minority interests of both of its European subsidiaries for cash values of
approximately $95,000 for Ortel SARL and $185,000 for Ortel Vertriebs. Minority
shareholders were compensated based on values determined at April 30, 1999.
There was no goodwill in either transaction.
9
<PAGE>
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, 1999.
Results of Operations
Overview
The Company is in the process of refocusing its resources in order that it
may leverage the strengths of its core fiberoptic technology in niche broadband,
data and telecommunications markets. It is concentrating its energies on
aggressively developing and introducing leapfrog, best-of-breed technology
solutions in these niche markets. As part of this strategy, the Company sold its
wireless businesses in August 1999. The Company recorded a special charge of
$9.3 million, or approximately $7.3 million after tax, in its first fiscal
quarter ended August 1, 1999. Included in this charge are amounts related to the
sale of the Company's wireless businesses, recent management changes and
required accounting policy changes. These costs are discussed in the "Year-to-
Date" section of Management Discussion and Analysis.
Continuing Operations
Three months ended October 31, 1999
The discussion that follows is based on continuing operations using the
reclassified Condensed Consolidated Balance Sheets and Condensed Consolidated
Statements of Operations presented in this report.
Revenues
Total revenues for the second quarter ended October 31, 1999 were $19.4
million, a 10% increase over revenues of $17.7 million in the second quarter
last year, primarily due to strong revenue growth from broadband business,
particularly in sales of photo diodes, 1310nm transmitters and analog DWDM
1550nm laser transmitters. Sales to international customers totaled $5.5
million, or 28% of revenues, in the second quarter of fiscal 2000, compared to
$5.1 million, or 29% of revenues, in the same period last year. The 8% increase
in sales to international customers when compared to last year was primarily due
to stronger market conditions in Asia.
10
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Gross Profit
Gross profit of $8.1 million in the quarter ended October 31, 1999 was 42%
of revenues compared to 41% and $7.3 million in the prior year period. The
Company continued to focus on its core competencies and elected in the first
quarter of fiscal year 2000 to discontinue the sale of certain low-volume, low-
margin models that are not strategically important to the Company's future.
Overall, margins were higher year-to-year due partly to the discontinuance of
certain low-margin models and from improved manufacturing processes, cycle times
and productivity gains, offset by price erosion on certain of the Company's key
products in late fiscal 1999.
Research and Development
R&D expense increased from $2.4 million, or 14% of revenues, in the second
quarter last year, to $3.6 million, or 19% of revenues, in the quarter ended
October 31, 1999, which is an increase of 49%. The increase reflects the
Company's ongoing commitment to maintain its leadership position in broadband
communications and to aggressively pursue emerging opportunities in data and
telecommunications.
Sales and Marketing
Sales and Marketing expense of $3.0 million, or 15.2% revenues, in the
quarter ended October 31, 1999 increased marginally from $2.9 million, or 16.4%
of revenues, in the same quarter last year. The increase is due primarily to the
addition of marketing personnel in the US and sales personnel in the U.S. and
Asia.
General and Administrative
General and Administrative expense was $1.4 million, in the quarter ended
October 31, 1999, which is approximately the same as in the prior year period.
As a percentage of revenues, General and Administrative expense decreased from
8% in the second quarter last year to 7.4% in the current quarter ended October
31, 1999.
Operating Income
Operating Income from continuing operations, in the quarter ended October
31, 1999, was $104,000 compared to an Operating Income of $549,000 in the same
quarter last year. The major factor affecting this reduction was the Company's
increase in R&D expense which was substantially offset by the increase in gross
profit.
Interest and Other Income
Interest and Other Income in the second fiscal quarter of 2000 was $295,000
compared to $566,000 in the same period last year. Lower cash balances in fiscal
year 2000 have resulted in less interest income. Foreign exchange rates were
immaterial in the second quarter of this fiscal year compared to significantly
favorable rates in the second quarter of fiscal year 1999.
11
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Net Income From Continuing Operations After Cumulative Effect of Accounting
Change
Net income from continuing operations in the quarter ended October 31,
1999 was $253,000 compared to net income of $892,000 in the same quarter last
year.
First Quarter Special Charges
During the first quarter of the fiscal year, the Company recorded a special
charge of $9.3 million, or $7.3 million after tax. Included in this charge are
amounts related to the sale of the Company's wireless businesses, management
changes and required accounting policy changes. These costs are summarized as
follows: (in thousands)
<TABLE>
<CAPTION>
Quarter Ended Costs Paid
August 1, 1999 Through
Estimated November 28,
Special Charge Cost Classification Charge 1999
- ------------------------------------- ------------------------- ------------------ -------------------
<S> <C> <C> <C>
Loss from disposal of discontinued
operations Discontinued operations $ 4,374 $ 3,447
Changes in management and severance Cost of Sales 71 70
Research Development 341 140
Sales & Marketing 124 102
General & Administrative 2,129 1,480
---------- ----------
Total Mgmt Changes 2,665 1,792
Inventory Write-off, Model Phase-Out Cost of Sales 500 500
Write-off Architectural Fees Other Operating Expense 745 745
Change in accounting for start-up costs Cumulative Effect of
Accounting Change 989 989
---------- ----------
Total Special Charges $ 9,273 $ 7,473
========== ==========
</TABLE>
The Company completed the sale of the assets of its U.S. wireless business
to CI Wireless, Inc., a Fort Worth, Texas company, on August 16, 1999. In this
transaction, CI Wireless purchased inventory and fixed assets and assumed
contractual and other liabilities. The Company completed the sale of the stock
of its European wireless subsidiary, Avitec AB, to one of the original founders,
Hakan Samuelsson, on August 30, 1999. The total charge related to this
discontinuance was approximately $4.4 million. The majority of the charge
related to losses from the sale of the wireless businesses and, secondarily, the
estimated operating losses incurred from the beginning of the second quarter
through the completion dates for each sale.
There were a number of management changes at the Company in the first
fiscal quarter ended August 1, 1999. Wim Selders, President and Chief Executive
Officer, retired from the Company in June and Steve Rizzone joined the Company
as its new Chairman, Chief Executive Officer and President. Additionally George
Pontiakos joined the Company in June as Senior VP Operations and Sandra Caraveo
joined as VP Human Resources in July. The aggregate charge for these management
changes is approximately $2.7 million consisting principally of severance and
stock options charges.
12
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
First Quarter Special Charges Cont'd
The Company booked a $500,000 inventory reserve related to the phase out of
certain low sales volume and low-margin models that it has identified in its
fiber optics product offering.
In accordance with the change in accounting practices, the Company expensed
the remaining $989,000 of unamortized startup costs relating primarily to its
joint venture agreement with Photon Technology Co., Ltd.
The Company owns land in Alhambra, California that it had planned for its
new headquarters facility. The Company recently determined that it will not
build on this site and accordingly wrote off $745,000 in architectural fees and
plans previously capitalized.
Six Months Ended October 31, 1999
Revenues
For the six months ended October 31, 1999, revenues of $37.1 million were
8% higher than restated revenues of $34.2 million in first half of last fiscal
year, primarily due to strong revenue growth from broadband business,
particularly in sales of photo diodes, 1310nm transmitters and analog DWDM
1550nm laser transmitters. Sales to international customers totaled $9.7
million, or 26% of revenues, in the first six months of fiscal 2000, compared to
$9.8 million, or 29% of revenues, in the same period last year. The slight
decrease in sales to international customers during this period was primarily
due to weaker market conditions in Europe during the first quarter of fiscal
2000, offset by stronger market conditions in Asia during the quarter ended
October 31, 1999.
Gross Profit
Gross profit of $14.4 million in the six months ended October 31, 1999 was
39% of revenues compared to $14.6 million, or 43% of revenues, in the prior year
period. Excluding first quarter special charges of $571,000, primarily related
to the write down of certain inventory that is being phased out, the gross
margin in the first half of fiscal 2000 would have been 40%. The Company
continued to focus on its core competencies and elected in the first fiscal
quarter of fiscal year 2000 to discontinue the sale of certain low-volume, low-
margin models that are not strategically important to the Company's future.
Overall, margins were lower year-to-year due partly to price erosion on certain
of the Company's key products in late fiscal 1999, offset by the discontinuance
of certain low-margin models and improved manufacturing processes, cycle times
and productivity gains during the first six months of fiscal 2000.
Research and Development
R&D expense increased from $5.1 million, or 15% of revenues, in the first
six months of last fiscal year, to $7.2 million, or 19% of revenues, in the six
months ended October 31, 1999, an increase of 43%. The increase reflects Ortel's
ongoing commitment to maintain it's leadership position in broadband
communications and to aggressively pursue emerging opportunities in data and
telecommunications. Included in this increase is a first quarter special charge
of $341,000 related to R&D management and other changes.
13
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Sales and Marketing
Sales and Marketing expense of $5.7 million, or 15.4% of revenues, for the
six months ended October 31, 1999, increased from $5.2 million, or 15.2% of
revenues, in the same period last year. The increase is due primarily to the
addition of marketing personnel in the U.S. and sales personnel in the U.S. and
Asia.
General and Administrative
General and Administrative expense was $5.1 million, or 13.9% of revenues,
in the six months ended October 31, 1999, compared to $2.7 million, or 8% of
revenues in the same period last year. General and Administrative expense in the
first half of fiscal 2000 includes first quarter special charges of $2.2 million
related to certain management changes. Excluding the special charge, General and
Administrative expense would have been 7.8% of revenues.
Write-off of Facility Architectural Fees
The results of operations for the six months ended October 31, 1999,
included a special charge of $745,000 related to the Company's decision not to
build a new headquarters facility on land that it owns in Alhambra. The charge
relates to the write-off of previously capitalized architectural fees and was
recorded in the first quarter of fiscal 2000.
Operating Income (Loss)
Operating Loss from continuing operations in the six months ended
October 31, 1999, was $4.4 million compared to an Operating Income of $1.6
million in the same period last year. Excluding first quarter special charges of
$4 million, the Company recorded an operating loss of $400,000 in the first half
of fiscal 2000.
Interest and Other Income
Interest and Other Income in the six months ended October 31, 1999, was
$458,000 compared to $862,000 in the same period last year. The majority of the
difference is related to lower interest income on lower cash balances in fiscal
year 2000. Additionally, in the first six months of fiscal 1999, the Company
recorded income related to its investment in Photon Technology Co., Ltd.
Net Income (Loss) From Continuing Operations Before Cumulative Effect of
Accounting Change
Net Loss from Continuing Operations Before Cumulative Effect of Accounting
Change for the six months ended October 31, 1999 was $3 million compared to net
income of $2 million in the same period last year. Excluding first quarter
after-tax special charges of $3.1 million, the net income from continuing
operations in the first half of fiscal 2000 was approximately $50,000.
14
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Cumulative Effect of Accounting Change
The Company adopted Statement of Position No. 98-5, Reporting on the Costs
of Start-up Activities, effective May 1, 1999. SOP 98-5 provides guidance on the
financial reporting of start-up costs and organization costs. It requires costs
of start-up activities and organization costs to be expensed as incurred. The
Company recognized a charge to results of operations of $989,000 ($.07 per basic
share), as the cumulative effect of a change in accounting in the first quarter
of fiscal year 2000. For tax purposes, this item is non-deductible.
Net Income (Loss) From Continuing Operations After Cumulative Effect of
Accounting Change
The Net Loss from Continuing Operations After Cumulative Effect of
Accounting Change for the six months ended October 31, 1999 was $4 million
compared to net income of $2 million in the same period last year. Excluding
first quarter after-tax special charges of $4.1 million, the net income from
continuing operations in the first half of fiscal 2000 was approximately
$50,000.
Liquidity and Capital Resources
Cash and equivalents decreased $3 million from $13.1 million at April 30,
1999 to $10.1 million at October 31, 1999. In the six months ended October 31,
1999, the Company generated $786,000 of cash in its operating activities for
both its continuing and discontinued operations primarily as a result of a
reduction in accounts receivable, offset by an increase in inventory.
In the first six months ended October 31, 1999, the Company used $5.9
million in investing activities. Approximately $5.2 million was transferred from
cash and equivalents to short-term investments that consist of interest-bearing
securities with maturities greater than 90 days. During this period, the Company
invested $3 million in capital equipment purchases and a further $960,000 in
Tellium, Inc. These investments were offset by $3.2 million of net cash received
from the sale of its wireless businesses.
The exercise of stock options and repayment of employee stockholder loans
generated $2.2 million in cash in the first six months of fiscal 2000.
As of October 31, 1999, the Company's principal sources of liquidity
included cash and short-term investments of $26.4 million. The Company believes
that cash, short-term investments and funds generated from operations will be
sufficient to satisfy its projected working capital and capital expenditure
requirements during this fiscal year.
The Company had a credit facility for $5 million consisting of an unsecured
revolving line of credit that expired on September 30, 1998. Periodically the
Company reviews opportunities to establish a new credit facility. No such credit
facility is in place at this time.
Subsequent to the close of the quarter ended October 31, 1999, the Company
invested a further $4.8 million in Tellium, Inc. The Company invested $3.8
million in cash and converted a $960,000 loan, made to Tellium in June 1999,
for shares of Tellium Series D preferred stock.
15
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Year 2000
State of Readiness
The Company established a Year 2000 project committee to focus on potential
Year 2000 issues and to coordinate various programs established to address these
issues. In response to the risks posed by the Year 2000 problem, the Company
instituted initiatives focusing on four primary areas of potential impact: (1)
internal information technology systems;.(2) internal non-information technology
systems and processes, including services and embedded chips, known as
"controllers"; (3) the Company's products and services; and (4) the readiness of
significant third parties with whom the Company has material business
relationships.
The Company approached its Year 2000 readiness initiatives in four phases:
assessment, planning, preparation, and implementation. All phases of the
Company's Year 2000 readiness initiatives had been completed by the target date
of September 30, 1999, except for the simulation test of the implementation
phase of the contingency plan described below.
With respect to the Company's information technology systems and non-
information technology systems, the Company has determined that its systems are
Year 2000 compliant. With respect to its products, the Company has determined
that its newly introduced products are Year 2000 compliant and most of the
Company's other products do not contain any reference to a date nor do they
access or manipulate a date. With respect to the readiness of significant third
parties with whom the Company has material business relationships, the Company
has received formal responses from all of its critical suppliers.
Risks
The Company has created a contingency plan which address the most
significant impacts that the Year 2000 issue could have on the Company's
business. These include contingencies related to a potential failure with the
Company's control, as well as failures which are outside the Company's control,
including such failures as utility interruption, telecommunication failures, and
foreign banking delays.
Contingency Plans
As part of the contingency plan, the Company intends to shutdown all non-
essential systems just prior to January 1, 2000 , and restore these systems on
January 1, 2000. Once restored, these systems will be tested and monitored
throughout the first week of January 2000 or until the Company has confirmed
that these systems are performing properly. The Company will conduct a
simulation of the calendar year-end system shutdown prior to December 31, 1999.
The simulation is currently scheduled for December 19, 1999. The simulation will
test the Company's planned shutdown and subsequent restoration of its critical
systems.
Costs
The costs associated with the Company's readiness actions were a
combination of incremental external spending and use of existing internal
resources. The Company estimates that it spent approximately $340,000 in
connection with its Year 2000 initiatives.
16
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held September 24, 1999, 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
-----------------------------------------------
John R. Gaulding 10,406,152 20,643
Tatsutoka Honda 10,406,152 20,643
Luther J. Nussbaum 10,406,152 20,643
2. Proposal Two: The ratification of KPMG LLP as the Company's independent
public accountants for the fiscal year ended April 30, 2000 was approved as
follows:
For Against Abstain
--- ------- -------
10,413,519 7,468 5,808
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits.
Reference is hereby made to the Exhibit Index commencing on page 19.
17
<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 14, 1999 ORTEL CORPORATION
(Registrant)
By: /s/ Stephen R. Rizzone
---------------------------------
Stephen R. Rizzone,
Chairman, President and
Chief Executive Officer
By: /s/ Roger Hay
---------------------------------
Roger Hay,
Vice President, Finance and Chief
Financial Officer
18
<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)
4.1 Rights Agreement between Ortel Corporation and First Interstate Bank of (Note 2)
California dated March 3, 1995.
10.1 Employment Agreement, dated September 14, 1990, between Ortel Corporation and (Note 1)
Israel Ury.
10.2 Employment Agreement, dated September 14, 1990, between Ortel Corporation and (Note 1)
Nadav Bar-Chaim.
10.3 1990 Stock Option Plan of Ortel Corporation. (Note 1)
10.4 Form of Indemnification Agreement. (Note 1)
10.5 Key Shareholders Agreement, dated as of March 26, 1990, among Wim H.J. Selders, (Note 1)
Dr. Ury, Dr. Yariv, Dr. Bar-Chaim, Sumitomo Cement Co., Ltd., The Ury Family
Trust and Ortel Corporation.
10.6 Agreement Concerning Certain Financial and Business Arrangements, dated as of (Note 1)
March 26, 1990, between Sumitomo Cement Co., Ltd. and Ortel Corporation.
10.7 1994 Equity Participation Plan of Ortel Corporation. (Note 1)
10.8 Loan Agreement, dated June 2, 1995, between Ortel Corporation and Bank of America. (Note 4)
10.9 Amendment No. 2 dated September 9, 1997, to Loan Agreement dated June 2, 1995, (Note 5)
between Ortel Corporation and Bank of America.
10.10 Amendment No. 3 dated August 20, 1998, to Loan Agreement dated June 2, 1995, (Note 8)
between Ortel Corporation and Bank of America NT & SA
10.11 Severance Agreement, dated November 9, 1998, between Ortel Corporation and (Note 8)
George B. Holmes.
10.12 Severance Agreement dated March 5, 1999, between Ortel Corporation and Roger Hay. (Note 9)
10.13 Amendment No. 1 dated September 19, 1997, and Amendment No. 2 to the 1994 Equity (Note 10)
Participation Plan of Ortel Corporation.
10.14 Severance Agreement dated March 2, 1999, between Ortel Corporation and Stephen (Note 10)
K. Workman.
10.15 Employment Agreement dated June 18, 1999, between Ortel Corporation and Stephen (Note 10)
R. Rizzone.
10.16 Severance Agreement dated June 19, 1999, between Ortel Corporation and George (Note 10)
Pontiakos.
10.17 Agreement dated June 25, 1999, between Ortel Corporation and Wim J. H. Selders (Note 10)
10.18 Severance Agreement dated July 30, 1999, between Ortel Corporation and Lyle B. (Note 11)
Boarts.
10.19 Severance Agreement and General Release of All Claims dated September 14, 1999,
between Ortel Corporation and Douglas H. Morais.
21.1 Subsidiaries of Ortel Corporation. (Note 10)
23.1 Consent of KPMG LLP. (Note 10)
27.0 Financial Data Schedule.
</TABLE>
19
<PAGE>
EXHIBIT INDEX--Continued
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 10-Q filing for the
quarter ended January 21, 1995.
Note 3 Previously filed by the Registrant in its 8K filing dated March
26, 1996.
Note 4 Previously filed by the Registrant in its 10-K filing for the year
ended April 30, 1996.
Note 5 Previously filed by the Registrant in its 10-Q filing for the
quarter ended October 31, 1997.
Note 6 Previously filed by the Registrant in its 10-Q filing for the
quarter ended January 31, 1998.
Note 7 Previously filed by the Registrant in its 10-K filing for the year
ended April 30, 1998.
Note 8 Previously filed by the Registrant in its 10-Q filing for the
quarter ended October 31, 1998.
Note 9 Previously filed by the Registrant in its 10-Q filing for the
quarter ended January 31, 1999.
Note 10 Previously filed by the Registrant in its 10-K filing for the year
ended April 30, 1999.
Note 11 Previously filed by the Registrant in its 10-Q filing for the
quarter ended August 1, 1999.
20
<PAGE>
Exhibit 10.19
SEVERANCE AGREEMENT
--------------------
AND GENERAL RELEASE OF ALL CLAIMS
---------------------------------
This Severance Agreement and General Release of All Claims
("Agreement") is hereby entered into by and between Douglas H. Morais
("Employee") and Ortel Corporation (the "Company").
Termination Date. Employee's employment by the Company will terminate
----------------
effective 12/02/1999. However, in consideration for Employee's execution of
this Agreement, Employee's employment by the Company will terminate effective
06/08/2000. The Company will issue Employee all wages, accrued PTO, salary
continuance, severance and bonuses to which Employee is entitled according to
the attached Payment Schedule. Employee acknowledges and agrees that he has
received or will receive (according to the Payment Schedule) all monies,
bonuses, severance pay, or other compensation he earned or was due during
Employee's employment by the Company.
Entitlement to Benefits. Employee's entitlement to benefits from the
-----------------------
Company, and eligibility to participate in the Company's benefits plans, cease
effective 01/01/2000 except to the extent Employee elects to and is eligible to
continue his medical benefits at his sole expense pursuant to COBRA. However, in
consideration for Employee's execution of this Agreement, Employee's entitlement
to benefits from the Company, and eligibility to participate in the Company's
benefits plans, cease effective 07/01/2000 except to the extent Employee elects
to and is eligible to continue his medical benefits at his sole expense pursuant
to COBRA.
Severance Pay. In consideration for Employee's execution of this
-------------
Agreement, the Company shall pay Employee additional severance pay in a lump sum
or in installment payments equivalent to two weeks base salary per year of
service (or 2.9 years), less applicable withholding, which Employee acknowledges
is above and beyond any accrued compensation and benefits to which Employee is
entitled, pursuant to Company policy or otherwise. The Company shall issue a
check to Employee, according to the attached Payment Schedule, in the
appropriate amount following the expiration of the revocation period set forth
in paragraph 6.
General Release. In consideration for the Company's payment of the
---------------
six-month salary continuance (detailed in the 09/10/1999 letter) and the
severance pay (set forth in paragraph 3), the adequacy of which is hereby
acknowledged, Employee, on behalf of himself and his heirs, executors,
administrators, successors, agents, and assigns, hereby fully and without
limitation releases and forever discharges the Company, and its respective
shareholders, parents, owners, subsidiaries, divisions, officers, directors,
agents, employees, consultants, insurers, representatives, lawyers, affiliates,
predecessors, successors and assigns, employee welfare benefit plans and pension
or deferred compensation plans under Section 401 of the Internal Revenue Code of
1986, as amended, and their trustees, administrators and other fiduciaries, and
all persons acting by, through, under or in concert with them, or any of them
("Releasees"), both individually and collectively, from any and all rights,
claims, demands, liabilities, actions, causes of action, damages, losses, costs,
expenses and compensation, of whatever nature whatsoever, known or unknown,
fixed or contingent ("Claims"), which Employee may have, or now claim to have
against, or in the future claim from the Company by reason of any matter, cause,
or thing whatsoever, from the beginning of time to the date hereof, including,
without limiting the generality of the foregoing, any Claims arising out of,
based upon, or relating to Employee's recruitment, hire, employment, benefits,
remuneration (including salary; bonus; incentive or other compensation;
vacation, sick leave or medical insurance benefits; and/or benefits from any
employee stock ownership, stock option, profit-sharing and/or any deferred
compensation plan under Section 401 of the Internal Revenue Code of 1986, as
amended), relocation, or termination by the Company, or any contract, agreement,
or compensation arrangement between Employee and the Company. As part of this
Agreement, Employee expressly waives any Claims arising out of Title VII of the
Civil Rights Act of 1964, as amended; the Equal Pay Act, as amended; the Age
Discrimination in Employment Act, as amended; the California Fair Employment and
Housing Act, as amended; the California Labor Code (including but not limited to
Section 970); the Fair Labor Standards Act, as amended; the federal and state
wage and hour laws; the Americans With Disabilities Act, as amended; the
Employee Retirement Income Security Act of 1974, as amended; the Family and
Medical Leave Act; the California Family Rights Act; the Worker Adjustment and
Retraining Notification Act; the California common law of fraud,
misrepresentation, negligence, defamation, infliction of emotional distress, or
1
<PAGE>
wrongful termination; and/or any other local, state or federal law, rule, or
regulation governing employment, discrimination in employment or the payment of
wages and benefits.
Waiver of Unknown Claims. Employee is aware of California Civil Code
------------------------
Section 1542, which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
With full awareness and understanding of the above provisions,
Employee hereby waives any rights he may have under Section 1542, as well as
under any other statutes or common law principles of similar effect. Employee
intends to, and hereby does, release Releasees from claims which he does not
presently know or suspect to exist at this time.
Older Workers Benefit Protection Act. In accordance with the Older Workers
------------------------------------
Benefit Protection Act of 1990, Employee acknowledges that:
(a) This Agreement includes a waiver and release of Employee's
claims under the Age Discrimination in Employment Act, 29 U.S.C. (S) 621
et seq.
(b) Employee has the right to consult with an attorney before
signing this Agreement.
(c) Employee has twenty-one (21) days from 12/02/1999 to
consider this Agreement but he may waive that period by signing it
earlier.
(d) Employee has seven (7) days after signing this Agreement to
revoke this Agreement and this Agreement will not be effective until that
revocation period has expired. Notice of revocation must be delivered in
person to the Company's Human Resources Department.
Confidentiality of Agreement. Except as may be required by law, neither
----------------------------
Employee, his attorney (if any), nor any person acting by, through, under or in
concert with him/her, shall disclose the terms of this Agreement to any
individual or entity. In the event any such disclosure is made (excluding
disclosures made between Employee, his attorney, his spouse, children, tax
advisors or individuals who fall into this exclusive categorization), Employee
shall forfeit his right to receive any further payments under this Agreement,
shall return to the Company all sums paid hereunder and shall reimburse the
Company for all costs, including court costs and attorneys' fees, if any,
incurred in establishing that such disclosure was made.
Proprietary Information. Employee agrees to continue to be bound by the
-----------------------
"Employment Agreement" that he signed when employed by the Company. To that
end, Employee acknowledges the information, observations, and data obtained by
him during the course of or related to his employment with the Company are the
sole property of the Company and constitute trade secrets of the Company.
Employee agrees to promptly return all files or other Company property without
making copies thereof which are in Employee's possession or control. Further
the Employee acknowledges that any unauthorized use of the above described
confidential information will cause irreparable harm to the Company and will
give rise to an immediate action by the Company for injunctive relief.
Unfair Competition.
------------------
(a) Employee agrees that names and addresses of the Company's
customers and employees constitute trade secrets of the Company and that
the unauthorized use of trade secrets obtained during the course of
Employee's employment with the Company constitutes unfair competition.
(b) For a period of one (1) year following the execution of this
Agreement, Employee agrees not to directly or indirectly (whether as
employee, director, owner, stockholder, consultant, limited or general
partner, or otherwise) solicit, entice or make known to any other
organization or firm the names of employees of the Company, customers or
the Company or former customers of the Company for any purpose, or to
engage in any unfair competition with the Company.
2
<PAGE>
Cooperation. Employee agrees to cooperate with the Company in any future
-----------
litigation brought against the Company.
Integration. This Agreement sets forth the sole and entire agreement
-----------
between Employee and the Company and supersedes any and all prior oral or
written agreements or understandings between Employee and the Company concerning
the subject matter of this Agreement. This Agreement may not be altered,
amended, or modified, except by a further writing signed by Employee and the
Company.
Voluntary. Employee acknowledges and agrees that he has read this
---------
Agreement carefully, understands all of its terms, and agrees to those terms
voluntarily.
Miscellaneous Provisions.
------------------------
The provisions of this Agreement are severable. If any
provision is held to be invalid or unenforceable, it shall not affect the
validity or enforceability of any other provision.
This Agreement shall be construed as a whole in accordance
with its fair meaning and in accordance with the laws of the State of
California. The language in the Agreement shall not be construed for or
against any particular party.
Both Employee and the Company understand and agree that
neither the payment of any sum of money nor the execution of this
Agreement shall constitute or be construed as an admission of any
liability by either party.
If any party to this Agreement brings an action to enforce
his or its rights hereunder, the prevailing party shall be entitled to
recover his or its costs and expenses, including court costs and
attorneys' fees, if any, incurred in connection with such suit.
The parties agree that any and all disputes, controversies
or claims based on, arising out of, or relating to this Agreement, or
breach thereof, shall be submitted to final and binding arbitration. The
arbitration shall take place in the County of Los Angeles, and may be
compelled and enforced according to the California Arbitration Act (Code
of Civil Procedure (S)(S) 1280 et seq.). Unless the parties mutually
agree otherwise, the arbitration shall be conducted before the American
Arbitration Association, according to its Commercial Arbitration Rules.
Judgment on the award the arbitrator renders may be entered in any court
having jurisdiction over the parties. Arbitration shall be initiated in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association.
3
<PAGE>
EMPLOYEE ACKNOWLEDGES AND UNDERSTANDS THAT THIS AGREEMENT INCLUDES A
GENERAL RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.
IN WITNESS WHEREOF, and intending to be bound, the parties hereto have
executed this Agreement on the dates indicated below.
ORTEL CORPORATION
DOUGLAS H. MORAIS /s/ Morna A. Sanoy
- --------------------------------- ---------------------------------
Employee Name (please print) Witnessed By
/s/ Douglas H. Morais Benefits Manager
- --------------------------------- ---------------------------------
Signature Title
September 14, 1999 September 14, 1999
- --------------------------------- ----------------------------------
Date Date
4
<PAGE>
EXHIBIT 10.19
SEVERANCE AGREEMENT
-------------------
AND GENERAL RELEASE OF ALL CLAIMS
---------------------------------
PAYMENT SCHEDULE
Last Day Worked 9/10/99
Use of Paid Time Off 9/13/99 - 12/2/99
Six Months Salary Continuance 12/2/99 through 6/8/2000
Payment of Bonus Related to Sale of
Wireless Operations 1/7/2000
Termination Date 6/8/2000
Severance Paid in Lump Sum 6/9/2000
5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10-K AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-START> MAY-01-1999
<PERIOD-END> OCT-31-1999
<CASH> 26,355
<SECURITIES> 0
<RECEIVABLES> 11,398
<ALLOWANCES> 1,285
<INVENTORY> 11,439
<CURRENT-ASSETS> 56,257
<PP&E> 44,097
<DEPRECIATION> 27,051
<TOTAL-ASSETS> 84,055
<CURRENT-LIABILITIES> 13,884
<BONDS> 0
0
0
<COMMON> 56,680
<OTHER-SE> 69,674
<TOTAL-LIABILITY-AND-EQUITY> 84,055
<SALES> 37,085
<TOTAL-REVENUES> 37,085
<CGS> 22,668
<TOTAL-COSTS> 22,668
<OTHER-EXPENSES> 7,229<F1>
<LOSS-PROVISION> 150<F2>
<INTEREST-EXPENSE> 5
<INCOME-PRETAX> (3,948)
<INCOME-TAX> (987)
<INCOME-CONTINUING> (2,961)
<DISCONTINUED> (3,838)
<EXTRAORDINARY> (989)<F3>
<CHANGES> (989)
<NET-INCOME> (7,788)
<EPS-BASIC> (.57)
<EPS-DILUTED> (.57)
<FN>
<F1>Research and Development.
<F2>Provision for Bad Debt.
<F3>Cumulative Effect of Accounting Change.
</FN>
</TABLE>
