<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 January 30, 2000
[ ] 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 January 30, 2000 there were 12,789,394 shares of the registrant's $.001
par value Common Stock outstanding.
Page 1 of 21 Pages
Exhibit Index on Page 19
<PAGE>
ORTEL CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION Page(s)
-------
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of January 30, 2000 and
April 30, 1999.................................................................. 3
Condensed Consolidated Statements of Operations for the fiscal quarter and
nine months ended January 30, 2000 and January 31, 1999......................... 4
Condensed Consolidated Statements of Cash Flows for the nine months ended
January 30, 2000 and January 31, 1999........................................... 5
Notes to Condensed Consolidated Financial Statements............................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................... 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......................... 17
PART II OTHER INFORMATION
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>
January 30, April 30,
2000 1999(1)
ASSETS (unaudited) (unaudited)
----------- -----------
<S> <C> <C>
Current assets:
Cash and equivalents.................................................................... $ 19,965 $13,115
Short term investments.................................................................. 7,041 11,066
Total receivables less allowance for doubtful accounts of $1,093 and $973 at
January 30, 2000 and April 30, 1999, respectively................................... 12,807 13,404
Inventories............................................................................. 15,272 9,716
Income taxes receivable................................................................. 9,756 2,900
Deferred tax assets..................................................................... 2,080 2,080
Prepaid expenses and other current assets............................................... 1,410 990
Current assets of discontinued operations............................................... --- 5,692
-------- -------
Total current assets............................................................... 68,331 58,963
Property, equipment and improvements (net)................................................... 17,627 17,704
Intangible assets, net....................................................................... 862 1,352
Other assets................................................................................. 13,593 9,717
Long-term assets of discontinued operations.................................................. --- 1,492
-------- -------
Total assets....................................................................... $100,413 $89,228
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................................ $ 8,344 $ 6,800
Accrued payroll and related costs....................................................... 5,924 1,824
Accrued liabilities..................................................................... 2,760 1,794
Liabilities related to discontinued operations.......................................... 1,133 2,356
Income taxes payable.................................................................... 36 188
-------- -------
Total current liabilities.......................................................... 18,197 12,962
Deferred income taxes........................................................................ 497 512
Long-term liabilities related to discontinued operations..................................... --- 305
-------- -------
Total liabilities.................................................................. 18,694 13,779
Minority interest in subsidiaries............................................................ --- 261
Stockholders' equity......................................................................... 81,719 75,188
-------- -------
Total liabilities and stockholders' equity......................................... $100,413 $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>
Three Months Ended Nine Months Ended
---------------------------- ---------------------------
January 30, January 31, January 30, January 31,
2000 1999 (1) 2000 1999 (1)
(unaudited) (unaudited) (unaudited) (unaudited)
------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues............................................................ $21,409 $15,149 $58,494 $49,333
Cost of revenues.................................................... 12,299 10,143 34,967 29,696
------- ------- ------- -------
Gross profit.................................................... 9,110 5,006 23,527 19,637
Operating expenses:
Research and development........................................ 3,743 2,617 10,972 7,681
Sales and marketing............................................. 2,985 2,246 8,695 7,445
General and administrative...................................... 1,657 1,066 6,796 3,810
Write-off facility architectural fees........................... --- --- 745 ---
------- ------- ------- -------
Total operating expenses...................................... 8,385 5,929 27,208 18,936
------- ------- ------- -------
Operating income (loss)......................................... 725 (923) (3,681) 701
Interest and other income, net...................................... 222 299 680 1,161
------- ------- ------- -------
Income (loss) from continuing operations before income taxes........ 947 (624) (3,001) 1,862
Provision (credit) for income taxes................................. 246 (132) (741) 372
------- ------- ------- -------
Income (loss) from continuing operations before cumulative effect
of accounting change............................................ 701 (492) (2,260) 1,490
Cumulative effect of accounting change (Note 8)..................... --- --- (989) ---
------- ------- ------- -------
Income (loss) from continuing operations............................ 701 (492) (3,249) 1,490
Discontinued operations (Note 7):
Loss from discontinued operations, net of tax benefit of $157 in
quarter ended 1999, $70 in nine months ended 2000 and $417
in nine months ended 1999....................................... --- (628) (558) (3,113)
Gain (loss) from disposal of discontinued operations, net of taxes
of $256 in quarter ended 2000, net of tax benefit of $837 in
nine months ended 2000 and $980 in nine months ended 1999....... 769 --- (2,511) (3,919)
------- ------- ------- --------
Net income (loss)................................................... $ 1,470 $(1,120) $(6,318) $(5,542)
======= ======= ======= ======
Income (loss) per common share - Basic
Income (loss ) from continuing operations....................... $ .06 $ (.04) $ (.19) $ .12
Cumulative effect of accounting change.......................... --- --- (.08) ----
Discontinued operations......................................... .06 (.05) (.26) (.59)
------- ------- ------- --------
Net income (loss) per share - Basic............................. $ .12 $ (.09) $ (.53) $ (.47)
======= ======= ======= ========
Income (loss) per common share - Diluted (2) (3)
Income (loss ) from continuing operations....................... $ .05 $ (.04) $ (.19) $ .12
Cumulative effect of accounting change.......................... --- --- (.08) ---
Discontinued operations......................................... .05 (.05) (.26) (.56)
------- ------- ------- -------
Net income (loss) per share - Diluted........................... $ .10 $ (.09) $ (.53) $ (.44)
======= ======= ======= =======
Shares used in per share computation:
Basic........................................................... 11,776 11,920 11,883 11,844
Diluted......................................................... 15,204 11,920 11,883 12,562
</TABLE>
(1) Certain amounts related to discontinued operations have been reclassified
to conform to current year presentation.
(2) Options to purchase 554,927 shares at or below the average price of the
common shares were outstanding at January 31, 1999 but were excluded from
the computation of diluted earnings per share as the Company reported a
loss from continuing operations and the effect would be anti-dilutive.
(3) Options to purchase 2,936,699 at or below the average price of the common
shares were outstanding at January 30, 2000 but were excluded from the
computation of diluted earnings per share for the nine months then ended as
the Company reported a loss from continuing operations and the effect would
be anti-dilutive.
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>
Nine Months Ended
--------------------------
January 30, January 31,
2000 1999(1)
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................................................ $(6,318) $(5,542)
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......................................... 3,349 6,697
Income tax related to discontinued operations......................................... (1,023) (1,339)
Stock-based compensation.............................................................. 379 80
Depreciation and amortization......................................................... 4,623 4,349
Increase (decrease) in minority interest in subsidiaries.............................. (261) (38)
Write-off of architectural fees....................................................... 745 ---
Cumulative effect of accounting change for start-up costs............................. 989 ---
Other................................................................................. (737) 120
Change in assets and liabilities:
Receivables and billed contract costs and fees........................................ 598 62
Inventories........................................................................... (5,557) (2,211)
Income tax receivable................................................................. (5,575) (789)
Deferred tax asset.................................................................... --- (70)
Prepaid expenses and other assets..................................................... (308) (832)
Accounts payable...................................................................... 1,544 1,226
Accrued payroll and related costs..................................................... 4,130 (273)
Accrued liabilities................................................................... 936 67
Liabilities related to discontinued operations........................................ (513) 1,896
Net of assets and liabilities of discontinued operations.............................. --- 669
Income taxes payable.................................................................. (165) (172)
Deferred income taxes................................................................. (2) (1,300)
------- -------
Net cash (used in) provided by continuing operating activities.................... (2,422) 2,600
Net cash used in discontinued operating activities................................ (1,358) (3,412)
------- -------
Net cash used in operating activities................................................... (3,780) (812)
Cash flows from investing activities:
Capital expenditures...................................................................... (4,995) (3,277)
Investment in subsidiaries and affiliates (net of cash acquired).......................... (1,609) ---
Short term investments.................................................................... 4,025 (606)
------- -------
Net cash used in investing activities................................................... (2,579) (3,883)
------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock, net............................................... 11,301 1,688
Proceeds from repayment of shareholder loans.............................................. 1,964 755
------- -------
Net cash provided by financing activities............................................... 13,265 2,443
Effect of exchange rate changes on cash and cash equivalents.............................. (56) (151)
------- -------
Net increase (decrease) in cash and equivalents......................................... 6,850 (2,403)
Cash and equivalents at beginning of period............................................... 13,115 12,591
------- -------
Cash and equivalents at end of period..................................................... $19,965 $10,188
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period by continuing operations for:
Interest................................................................................ $ 8 $ 4
Income taxes (refunded), net............................................................ $ (84) $ 636
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
January 30, 2000, and the condensed consolidated results of operations for the
three and nine months ended January 30, 2000 and 1999 and the condensed
consolidated cash flows for the nine months ended January 30, 2000 and 1999 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 accompanying unaudited interim financial statements reflect all
adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim periods presented. All such
adjustments are of a normal recurring nature, other than those disclosed in the
notes to condensed consolidated financial statements and management's discussion
and analysis.
The results of operations for the quarter and nine months ended January 30,
2000, 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 Nine Months Ended
January 30, January 31, January 30, January 31,
2000 1999(1) 2000(2) 1999
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Weighted average shares outstanding................... 11,776 11,920 11,883 11,844
Effect of dilutive securities - stock options (1)..... 3,428 -- -- 718
------ ------ ------ ------
Shares used for diluted per share computations........ 15,204 11,920 11,883 12,562
====== ====== ====== ======
</TABLE>
(1) Options to purchase 554,927 shares at or below the average price of the
common shares were outstanding at January 31, 1999, but were excluded from
the computation of diluted earnings per share as the Company reported a
loss from continuing operations and the effect would be anti-dilutive.
(2) Options to purchase 2,926,699 shares at or below the average price of the
common shares were outstanding at January 30, 2000, but were excluded from
the computation of diluted earnings per share as the Company reported a
loss from continuing operations and the effect would be anti-dilutive.
6
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
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 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>
January 30, 2000 April 30, 1999
-------------------- ------------------
(unaudited) (audited)
<S> <C> <C>
Raw materials...................... $ 9,335 $5,275
Work-in-process.................... 4,258 3,141
Finished goods..................... 1,679 1,300
------- ------
Total inventories............. $15,272 $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 $17.2 million and $10.3 million as of January 30, 2000, and April 30,
1999, respectively. Short-term investments (marketable securities with
maturities of more than 90 days) were $7.0 million and $11.1 million as of
January 30, 2000 and April 30, 1999, respectively.
Short-term investments consist of interest bearing securities with
maturities greater than 90 days. Under SFAS 115, the Company has
classified its short-term investments as available-for-sale. At January
30, 2000, the Company's marketable investment securities consisted principally
of highly liquid investments in tax-free municipal obligations with various
maturity dates through June 1, 2001. The difference between market value and
cost of these securities at January 30, 2000 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. Total comprehensive income for the three
and nine months ended January 30, 2000 was $75,000 and $389,000, respectively.
The nine month change in the components of other accumulated comprehensive
income (loss) before and after tax is shown below. (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 (continued)
--------------------------------------
<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 Nine Months
Ended January 30, 2000......... (16) 405 389 292
---- ----- ----- -----
Balance at January 30, 2000..... $(53) $(161) $(214) $(161)
==== ===== ===== =====
</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 estimated loss of $4.4 million.
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) are shown below. All
activity occurred during the first quarter of fiscal year 2000. (in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
January 30, 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)
-----------------------------------
During the second quarter of fiscal year 1999, the Company implemented a
plan to dispose of the 980nm pump laser operations. Fifteen months after the
discontinuance of these operations, the Company did not incur a substantial
portion of the warranty and sales returns it expected. In the third quarter of
fiscal 2000 the Company released approximately $1.1 million (before tax) of
amounts previously reserved, thereby reducing the total loss on the pump laser
discontinuance to $3.2 million after taxes.
At January 30, 2000, liabilities related to both the recently discontinued
wireless operations and the 980nm pump laser operations are summarized below.
See Management's Discussion and Analysis for disclosure of payments made for the
nine months ended January 30, 2000. (in thousands)
<TABLE>
<S> <C>
Warranty................................................ $ 680
Severance............................................... 132
Professional fees....................................... 174
All other............................................... 147
------
Total liabilities related to discontinued operations..... $1,133
======
</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 $989,000 ($.08 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 Minority Interests 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.
Recent Developments
On February 7, 2000, the Company entered into an Agreement and Plan of
Merger with Lucent Technologies, Inc. Under the terms of the definitive merger
agreement between Lucent and Ortel, each share of Ortel will be converted into
3.135 shares of Lucent upon the closing of the merger transaction. Based on
Lucent's closing stock price of $57 on February 4, the acquisition would be
valued at approximately $2.95 billion, or $177.125 per Ortel share, on a fully
diluted basis. The merger is expected to be consummated before June 30, 2000.
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. 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 were 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 January 30, 2000
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 third quarter ended January 30, 2000 were $21.4
million, a 41% increase over revenues of $15.1 million in the third quarter last
year, primarily due to strong revenue growth from broadband business,
particularly in sales of photo diodes, 1310nm transmitters, AWDM modules and
transmitters and analog DWDM 1550nm laser transmitters. Sales to
international customers totaled $6.4 million, or 30% of revenues, in the third
quarter of fiscal 2000, compared to $5.5 million, or 36% of revenues, in the
same period last year. The 17% increase in sales to international customers
when compared to last year was primarily due to stronger market conditions in
Europe.
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 $9.1 million in the quarter ended January 30, 2000 was 43%
of revenues compared to $5 million and 33% 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 some price erosion on certain of the Company's
key products beginning in late fiscal 1999.
Research and Development
R&D expense increased from $2.6 million, or 17% of revenues, in the third
quarter last year, to $3.7 million, or 17% of revenues, in the quarter ended
January 30, 2000, an increase of 43%. 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 million, or 14% revenues, in the
quarter ended January 30, 2000 increased from $2.2 million, or 15% of
revenues, in the same quarter 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 $1.7 million in the quarter ended
January 30, 2000, compared to $1.1 million in the same quarter last year. As a
percentage of revenues, General and Administrative expense increased from 7% in
the third quarter last year to 8% in the current quarter ended January 30, 2000.
Operating Income
Operating Income in the quarter ended January 30, 2000, was $725,000
compared to an Operating Loss of $923,000 in the same quarter last year.
Interest and Other Income
Interest and Other Income in the third fiscal quarter of 2000 was $222,000
compared to $299,000 in the same period last year. In the three months ended
January 30, 2000, no income from Photon Technology Co., Ltd. was recognized
whereas in the three months ended January 31, 1999, the Company recognized
$127,000 of such income. Additionally, lower cash investment balances in fiscal
year 2000 have resulted in lower interest income.
11
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Income From Continuing Operations After Cumulative Effect of Accounting Change
Income from continuing operations in the quarter ended January 30, 2000 was
$701,000 compared to net loss of $492,000 in the same quarter last year.
Loss from Disposal of Discontinued Operations, Net of Taxes
During the second quarter of fiscal year 1999, the Company implemented a
plan to dispose of the 980nm pump laser operations. Fifteen months after the
discontinuance of these operations, the Company did not incur a substantial
portion of the warranty and sales returns it expected. In the third quarter of
fiscal 2000 the Company released $769,000 (after taxes) of amounts previously
reserved, thereby reducing the total loss on the pump laser discontinuance to
$3.2 million.
First Quarter Special Charges
During the first quarter of fiscal 2000, the Company recorded special
charges 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 February 27,
Special Charge Cost Classification Charge 2000
- ---------------------------------------------------- ------------------------------- -------------- ----------
<S> <C> <C> <C>
Loss from disposal of discontinued
Operations Discontinued operations $4,374 $4,028
Changes in management and severance Cost of Sales 71 70
Research Development 341 141
Sales & Marketing 124 103
General & Administrative 2,129 1,480
------ ------
Total Mgmt Changes 2,665 1,794
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 $8,056
====== ======
</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.
12
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
First Quarter Special Charges (continued)
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 Vice President Operations and
Sandra Caraveo joined as Vice President Human Resources in July. The aggregate
charge for these management changes is approximately $2.7 million consisting
principally of severance and stock options charges.
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 adoption of a new accounting pronouncement, the
Company expensed the remaining $989,000 of unamortized startup costs relating
primarily to its joint venture 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.
Nine Months Ended January 30, 2000
Revenues
For the nine months ended January 30, 2000, revenues of $58.5 million were
19% higher than restated revenues of $49.3 million in first nine months 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 $16.1
million, or 28% of revenues, in the first nine months of fiscal 2000, compared
to $15.3 million, or 31% of revenues, in the same period last year. Sales in
Asia increased by 25% in the nine months ended January 30, 2000 compared to the
same period last year while sales in Europe were flat.
Gross Profit
Gross profit of $23.5 million in the nine months ended January 30, 2000 was
40% of revenues compared to $19.6 million, or 40% 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 nine months of fiscal 2000 would have been 41%. 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.
13
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Research and Development
R&D expense increased from $7.7 million, or 16% of revenues, in the first
nine months of last fiscal year, to $11 million, or 19% of revenues, in the nine
months ended January 30, 2000, 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 management changes.
Sales and Marketing
Sales and Marketing expense of $8.7 million for the nine months ended
January 30, 2000, increased from $7.4 million, in the same period last year but
remained approximately 15% of revenues. 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 $6.8 million, or 12% of revenues, in
the nine months ended January 30, 2000, compared to $3.8 million, or 8% of
revenues, in the same period last year. General and Administrative expense in
the first nine months of fiscal 2000 includes first quarter special charges of
$2.1 million related to certain management changes. Excluding the special
charge, General and Administrative expense would have been 8% of revenues in the
nine months ended January 3, 2000.
Write-off of Facility Architectural Fees
The results of operations for the nine months ended January 30, 2000,
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 in the nine months ended January 30, 2000, was $3.7 million
compared to an Operating Income of $701,000 in the same period last year.
Excluding first quarter special charges of $3.9 million, the Company recorded
operating income of approximately $230,000 in the nine months ended fiscal 2000.
Interest and Other Income
Interest and Other Income in the nine months ended January 30, 2000, was
$680,000 compared to $1.2 million in the same period last year. The majority of
the difference is related to lower interest income on reduced cash investment
balances in fiscal year 2000. Additionally, in the first nine months of fiscal
1999, the Company recorded $245,000 of income related to its investment in
Photon Technology Co., Ltd. while no comparable income was recorded in the first
nine months of fiscal 2000.
14
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Income (Loss) From Continuing Operations Before Cumulative Effect of Accounting
Change
Loss from Continuing Operations Before Cumulative Effect of Accounting
Change for the nine months ended January 30, 2000 was $2.3 million compared to
net income of $1.5 million in the same period last year. Excluding first quarter
after-tax special charges of $2.9 million, the net income from continuing
operations in the nine months ended fiscal 2000 was approximately $675,000.
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 $989,000 ($.08 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.
Income (Loss) From Continuing Operations After Cumulative Effect of Accounting
Change
Loss from Continuing Operations After Cumulative Effect of Accounting Change
for the nine months ended January 30, 2000 was $3.2 million compared to net
income of $1.5 million in the same period last year. Excluding first quarter
after-tax special charges of $3.9 million, the net loss from continuing
operations in first nine months of fiscal 2000 was approximately $675,000.
Liquidity and Capital Resources
Cash and equivalents increased $6.9 million from $13.1 million at April 30,
1999 to $20 million at January 30, 2000. In the nine months ended January 30,
2000, the Company used $3.8 million of cash in its operating activities for both
its continuing and discontinued operations primarily as a result of increases in
inventory and income tax receivable offset by an reduction in accrued payroll
and accounts payable.
In the nine months ended January 30, 2000, the Company used $2.6 million in
investing activities. Approximately $4 million was transferred to cash and
equivalents from short-term investments that consist of interest-bearing
securities with maturities greater than 90 days. During this period $5 million
was invested in capital equipment purchases. The Company invested a further $4.8
million in Tellium, Inc., comprised of $3.8 million in cash plus the conversion
of a $960,000 loan, made to Tellium in June, 1999, in exchange for shares of
Tellium Series D preferred stock. The Company now has a total investment of
$11.3 million in Series A through D preferred stock of 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 $13.3 million in cash in the nine months ended of fiscal 2000.
As of January 30, 2000, the Company's principal sources of liquidity
included cash and short-term investments of $27 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.
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. A simulation test of the
implementation phase of the contingency plan was conducted in December without
incident.
With respect to the Company's information technology systems and non-
information technology systems, the Company determined that its systems are Year
2000 compliant. With respect to its products, the Company 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 received
formal responses from all of its critical suppliers.
Risks
The Company created a contingency plan, which addressed the most significant
impacts that the Year 2000 issue might have had on the Company's business.
These included 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 shutdown all non-essential
systems just prior to January 1, 2000, and restored these systems on January 1,
2000. Once restored, these systems were tested and monitored throughout the
first week of January 2000. All systems performed properly in the first week
of January 2000 and continued to perform properly up to and after
February 29, 2000 .
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 $400,000 in connection with its
Year 2000 initiatives.
16
<PAGE>
PART I - FINANCIAL INFORMATION
Item 3. Quantitative and Qualitative Disclosures About Risk
The Company is exposed to the impact of interest rate changes and changes in the
market values of its investments. The Company's exposure to market rate risk
for changes in interest rates relates primarily to its investment portfolio.
The Company has not used derivative financial instruments in its investment
portfolio. The Company invests its excess cash in debt instruments of the
U.S.Government and its agencies, and in high-quality corporate issuers and, by
policy, limits the amount of credit exposure to any one issuer. The Company
protects and preserves its invested funds by limiting default, market and
reinvestment risk. Investments in both fixed rate and floating rate interest
earning instruments carry a degree of interest rate risk. Fixed rate securities
may have their fair market value adversely impacted due to a rise in interest
rates, while floating rate securities may produce less income than expected if
interest rates fall. Due in part to these factors, the Company's future
investment income may fall short of expectations due to changes in interest
rates or the Company may suffer losses in principal if forced to sell securities
which have declined in market value due to changes in interest rates.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits.
Reference is hereby made to the Exhibit Index commencing on page 19.
b. A form 8-K was filed on February 4, 2000, documenting the merger
agreement between the Company and Lucent Technologies, Inc.
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: March 14, 2000 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>
2.1 Agreement and Plan of Merger dated as of February 7, 2000, by and among Lucent (Note 13)
Technologies Inc., a Delaware corporation, Solara Acquisition Inc., a Delaware
corporation, and Ortel Corporation, a Delaware corporation.
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.
4.2 Amendment dated February 7, 2000, to the Rights Agreement dated March 3, 1995,
between Ortel Corporation and the American Stock Transfer and Trust Company.
10.1 Employment Agreement, dated September 14, 1990, between Ortel Corporation and (Note 1)
Nadav Bar-Chaim.
10.2 1990 Stock Option Plan of Ortel Corporation. (Note 1)
10.3 Form of Indemnification Agreement. (Note 1)
10.4 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.
10.5 Agreement Concerning Certain Financial and Business Arrangements, dated as of (Note 1)
March 26, 1990, between Sumitomo Cement Co., Ltd. and Ortel Corporation.
10.6 1994 Equity Participation Plan of Ortel Corporation. (Note 1)
10.7 Loan Agreement, dated June 2, 1995, between Ortel Corporation and Bank of (Note 4)
America.
10.8 Amendment No. 2 dated September 9, 1997, to Loan Agreement dated June 2, 1995, (Note 5)
between Ortel Corporation and Bank of America.
10.9 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
10.10 Severance Agreement, dated November 9, 1998, between Ortel Corporation and (Note 8)
George B. Holmes.
10.11 Severance Agreement dated March 5, 1999, between Ortel Corporation and Roger Hay. (Note 9)
10.12 Amendment No. 1 dated September 19, 1997, and Amendment No. 2 to the 1994 Equity (Note 10)
Participation Plan of Ortel Corporation.
10.13 Severance Agreement dated March 2, 1999, between Ortel Corporation and Stephen (Note 10)
K. Workman.
10.14 Employment Agreement dated June 18, 1999, between Ortel Corporation and Stephen (Note 10)
R. Rizzone.
10.15 Severance Agreement dated June 19, 1999, between Ortel Corporation and George (Note 10)
Pontiakos.
10.16 Agreement dated June 25, 1999, between Ortel Corporation and Wim H. J. Selders. (Note 10)
10.17 Severance Agreement dated July 30, 1999, between Ortel Corporation and Lyle B. (Note 11)
Boarts.
10.18 Severance Agreement and General Release of All Claims dated September 14, 1999, (Note 12)
between Ortel Corporation and Douglas H. Morais.
10.19 Stephen R. Rizzone Non-Qualified Stock Option Agreement effective June 18, 1999.
10.20 Addendum dated December 30, 1999, to Agreement dated June 25, 1999, between
Ortel Corporation and Wim H. J. Selders.
</TABLE>
19
<PAGE>
EXHIBIT INDEX - Continued
<TABLE>
<C> <S> <C>
10.21 Stock Option Agreement dated as of February 7, 2000, by and between Ortel (Note 13)
Corporation and Lucent Technologies Inc.
10.22 Letter Agreement among Steve Rizzone, Lucent Technologies, Inc. and Ortel
Corporation dated February 7, 2000.
21.1 Subsidiaries of Ortel Corporation. (Note 10)
23.1 Consent of KPMG LLP. (Note 10)
27.0 Financial Data Schedule.
</TABLE>
20
<PAGE>
EXHIBIT INDEX-Continued
<TABLE>
<S> <C>
Note 1 Previously filed by the Registrant in Registration No. 33-79188.
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.
Note 12 Previously filed by the Registrant in its 10-Q filing for the quarter ended October 31, 1999.
Note 13 Previously filed by the Registrant in its 8-K filing dated February 7, 2000.
</TABLE>
21
<PAGE>
EXHIBIT 4.2
RIGHTS AGREEMENT AMENDMENT
--------------------------
This Amendment, dated as of February 7, 2000, to the Rights Agreement
dated as of March 3, 1995 (the "Rights Agreement"), is between Ortel
Corporation, a Delaware corporation (the "Company"), and American Stock Transfer
and Trust Company, a New York corporation (the "Rights Agent").
Pursuant to this Amendment, the Company has appointed American Stock
Transfer and Trust Company, and American Stock Transfer and Trust Company
accepts such appointment, to serve as the Rights Agent pursuant to the terms of
the Rights Agreement, as hereby amended. American Stock Transfer and Trust
Company has thus assumed the obligations, and is thus referred to herein as, the
"Rights Agent."
Pursuant to Section 26 of the Rights Agreement, the Company and the
Rights Agent may from time to time supplement or amend the Rights Agreement in
accordance with the provisions of Section 26 thereof and the Company desires and
directs the Rights Agent to so amend the Rights Agreement. All acts and things
necessary to make this Amendment a valid agreement according to its terms have
been done and performed, and the execution and delivery of this Amendment by the
Company and the Rights Agent have been in all respects authorized by the Company
and the Rights Agent.
In consideration of the foregoing premises and mutual agreements set
forth in the Rights Agreement and this Amendment, the parties hereto agree as
follows:
1. The first two sentences of Section 1.1 of the Rights Agreement are hereby
replaced with the following:
1.1 "Acquiring Person" shall mean any Person (as such term is hereinafter
defined) who or which, together with all Affiliates and Associates (as
such terms are hereinafter defined) of such Person, shall be the
Beneficial Owner (as such term is hereinafter defined) of 15% or more of
the Common Shares of the Company then outstanding but shall not include
the Company, any Subsidiary of the Company or any employee benefit plan of
the Company or of any Subsidiary of the Company or any entity holding
shares of capital stock of the Company for or pursuant to the terms of any
such plan, in its capacity as an agent or trustee for any such plan.
Notwithstanding the foregoing, (i) Sumitomo Osaka Cement Co., Ltd., its
Affiliates or Associates (individually and collectively, "Sumitomo") shall
not be an "Acquiring Person" unless and until Sumitomo shall acquire, at
any time on or after the date hereof, Beneficial Ownership of any Common
Shares of the Company in addition to the Common Shares of the Company
Beneficially Owned by Sumitomo immediately prior to the date hereof and
(ii) Lucent Technologies Inc. ("Lucent"), its Affiliates or Associates,
including without limitation Solara Acquisition Inc. ("Merger Sub"), shall
not become an "Acquiring Person" as a result of (1) the approval,
execution or delivery of any of (A) that certain Agreement and Plan of
Merger dated February 7, 2000 among Lucent, Merger Sub and the Company
(the "Merger Agreement"), (B) that certain Stock Option Agreement dated
1
<PAGE>
February 7, 2000 among Lucent and the Company (the "Stock Option
Agreement") and (C) that certain Voting Agreement dated February 7, 2000
among Lucent, Merger Sub and Sumitomo (the "Voting Agreement") or (2) the
consummation of the transactions contemplated by the Merger Agreement, the
Stock Option Agreement or the Voting Agreement, including without
limitation the Merger (as defined in the Merger Agreement); provided,
--------
however, that Lucent will become an "Acquiring Person" in the event that
-------
Lucent becomes the Beneficial Owner of an aggregate of 15% or more of the
Common Shares of the Company then outstanding other than pursuant to the
terms of the Merger Agreement, the Stock Option Agreement or the Voting
Agreement.
2. Section 3.1 of the Rights Agreement is hereby amended by adding as the
final sentence thereof the following:
Notwithstanding anything in the Agreement to the contrary, no Distribution
Date shall be deemed to have occurred solely as a result of (i) the
approval, execution or delivery of the Merger Agreement, the Stock Option
Agreement or the Voting Agreement or (ii) the consummation of the
transactions contemplated by the Merger Agreement, the Stock Option
Agreement or the Voting Agreement, including without limitation the Merger
(as defined in the Merger Agreement).
3. Section 13.1 of the Rights Agreement is hereby amended by adding as the
final sentence thereof the following:
Notwithstanding anything in the Agreement to the contrary, a transaction of
the kind referred to in this Section 13.1 shall not be deemed to have
occurred solely as a result of (i) the approval, execution or delivery of
the Merger Agreement, the Stock Option Agreement or the Voting Agreement or
(ii) the consummation of the transactions contemplated by the Merger
Agreement, the Stock Option Agreement or the Voting Agreement, including
without limitation the Merger (as defined in the Merger Agreement).
4. Pursuant to Section 13.2, the Rights Agreement and the rights of holders of
Rights thereunder shall be terminated in accordance with Section 7.1 of the
Rights Agreement.
5. The seventh sentence of Section 21 of the Rights Agreement is hereby
deleted in its entirety and replaced as follows:
Any successor Rights Agent, whether appointed by the Company or by such a
court, shall be a corporation organized and doing business under the laws
of the United States or of the State of California or the State of New York
(or any other state of the United States so long as such corporation is
authorized to do business as a banking institution in the State of
California or the State of New York in good standing, having a principal
office in the State of California or State of New York), which is
authorized under such laws to exercise stock transfer or corporate trust
powers and is subject to supervision or
2
<PAGE>
examination by Federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least $10
million.
6. The Company hereby appoints American Stock Transfer and Trust Company, and
American Stock Transfer and Trust Company hereby accepts such appointment,
to serve as the Rights Agents pursuant to the terms of the Rights
Agreement, as hereby amended.
7. Except as expressly amended hereby, the Rights Agreement remains in full
force and effect in accordance with its terms.
8. This Amendment shall be governed by and construed in accordance with the
laws of the State of Delaware.
9. This Amendment may be executed in any number of counterparts and each of
such counterparts shall for all purposes be deemed an original, and all
such counterparts shall together constitute but one and the same
instrument.
10. Except as expressly set forth herein, this Amendment shall not by
implication or otherwise alter, modify, amend or in any way affect any of
the terms, conditions, obligations, covenants or agreements contained in
the Rights Agreement, all of which are ratified and affirmed in all
respects and shall continue in full force and effect.
11. Capitalized terms used herein but not defined shall have the meanings given
to them in the Rights Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
the Rights Agreement to be duly executed as of the day and year first above
written.
ORTEL CORPORATION
By: /s/ Nadav Bar-Chaim
------------------------------------
Name: Nadav Bar-Chaim
Title: Secretary
AMERICAN STOCK TRANSFER AND TRUST
COMPANY, as Rights Agent
By: /s/ Herb Lemmer
------------------------------------
Name: Herb Lemmer
Title: Vice President
3
<PAGE>
EXHIBIT 10.19
STEPHEN R. RIZZONE
NON-QUALIFIED STOCK OPTION AGREEMENT
This Agreement is made effective as of June 18, 1999, by and between
Ortel Corporation, a Delaware corporation (the "Company"), and Stephen R.
Rizzone (the "EXECUTIVE").
WHEREAS, on June 18, 1999, the Company and EXECUTIVE entered into an
Employment Agreement;
WHEREAS, the Company wishes to afford the EXECUTIVE the opportunity to
purchase shares of its $.001 par value Common Stock; and
WHEREAS, the Board has determined that it would be to the advantage
and best interest of the Company and its stockholders to grant the Option
provided for herein to the EXECUTIVE as an inducement to enter into and remain
in the service of the Company or its Subsidiaries and as an incentive for
increased efforts during such service, and has advised the Company thereof and
instructed the undersigned officers to issue said Option.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
DEFINITIONS
Whenever the following terms are used in this Agreement, they shall
have the meaning specified below unless the context clearly indicates to the
contrary.
Section 1.1 Board
-----
"Board" shall mean the Board of Directors of the Company, excluding the
EXECUTIVE.
Section 1.2 Cause
-----
"Cause" shall mean, for purposes of Section 3.3 hereof, the occurrence
of any of the following: (a) any intentional action or intentional failure to
act by EXECUTIVE which was performed in bad faith and to the material detriment
to the Company; or (b) EXECUTIVE is convicted of a felony crime involving moral
turpitude.
1
<PAGE>
Section 1.3 Change of Control
-----------------
(a) "Change of Control" shall mean the occurrence of any of the
following:
(i) any "person," including a "group" (as such terms are
used in Sections 13(d) and 14(d) of the Exchange Act, but excluding any group of
which the Executive is a member), is or becomes the "beneficial owner" (as
defined in Rule 13(d) (3) under the Exchange Act), directly or indirectly, of
securities of the Company representing 50% or more of the combined voting power
of the Company's then outstanding securities; or
(ii) any consolidation or merger of the Company or any
subsidiary where the stockholders of the Company, immediately prior to the
consolidation or merger, would not, immediately after the consolidation or
merger, beneficially own (as such term is defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, shares representing in the aggregate 50%
or more of the combined voting power of the securities of the corporation
issuing cash or securities in the consolidation or merger (or of its ultimate
parent corporation, if any); or
(iii) there shall occur (A) any sale, lease, exchange or other
transfer (in one transaction or a series of transactions contemplated or
arranged by any party as a single plan) of all or substantially all of the
assets of the Company, other than a sale or disposition by the Company of all or
substantially all of the Company's assets to an entity, at least 50% of the
combined voting power of the voting securities of which are owned by persons in
substantially the same proportion as their ownership of the Company immediately
prior to such sale or (B) the approval by stockholders of the Company of any
plan or proposal for the liquidation or dissolution of the Company; or
(iv) the members of the Board at the beginning of any
consecutive 24-calendar-month period (the "Incumbent Directors") cease for any
reason other than due to death to constitute at least a majority of the members
of the Board; provided that any director whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least a
majority of the members of the Board then still in office who were members of
the Board at the beginning of such 24-calendar-month period, shall be deemed to
be an Incumbent Director.
Section 1.4 Code
-----
"Code" shall mean the Internal Revenue Code of 1986, as amended.
Section 1.5 Common Stock
------------
"Common Stock" shall mean the common stock of the Company, par value
$.001 per share, and any equity security of the Company issued or authorized to
be issued in the future, but excluding any warrants, options or other rights to
purchase Common Stock. Debt securities
2
<PAGE>
of the Company convertible into Common Stock shall be deemed equity securities
of the Company.
Section 1.6 Company
-------
"Company" shall mean Ortel Corporation, a Delaware corporation, or any
successor corporation.
Section 1.7 Competing Relationship with the Company
---------------------------------------
"Competing Relationship with the Company" shall mean when EXECUTIVE,
anywhere in the world (i) engages in any business which competes directly with
the Company, (ii) renders any services to any person, corporation, partnership
or other entity (other than the Company or its affiliates) which competes
directly with the Company, or (iii) become interested in any such person,
corporation, partnership or other entity (other than the Company) as a partner,
shareholder, principal, agent, employee, consultant or in any other relationship
or capacity; provided, however, that, notwithstanding the foregoing, the
EXECUTIVE may invest in securities of any entity, solely for investment purposes
and without participating in the business thereof, if (A) such securities are
traded on any national securities exchange or the National Association of
Securities Dealers, Inc. Automated Quotation System, (B) the EXECUTIVE is not a
controlling person of, or a member of a group which controls, such entity and
(C) the EXECUTIVE does not, directly or indirectly, own 5% or more of any class
of securities of such entity.
Section 1.8 Employment Agreement
--------------------
"Employment Agreement" shall mean that certain Employment Agreement
between the Company and the EXECUTIVE dated June 18, 1999, as the same may be
amended from time to time.
Section 1.9 Exchange Act
------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
Section 1.10 Fair Market Value
-----------------
"Fair Market Value" of a share of the Common Stock as of a given date
shall be: (i) the closing price of a share of Common Stock on the principal
exchange on which shares of the Common Stock are then trading, if any (or as
reported on any composite index which includes such principal exchange), on such
date, or if shares were not traded on such date, then on the next preceding date
on which a trade occurred; or (ii) if the Common Stock is not traded on an
exchange but is (A) a Nasdaq National Market Security quoted on Nasdaq, the
closing price of a share of the Common Stock on such date as quoted on Nasdaq,
or if shares were not quoted on such date, then on the next preceding date on
which a quote occurred; or (B) otherwise quoted on Nasdaq or a successor
quotation system, the mean between the closing representative bid and asked
prices for the Common Stock on such date as reported by Nasdaq or such
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successor quotation system, or if shares were not quoted on such date, then on
the next preceding date on which a quote occurred; or (iii) if the Common Stock
is not publicly traded on an exchange and not quoted on Nasdaq or a successor
quotation system, the Fair Market Value of a share of Common Stock as
established by the Committee acting in good faith.
Section 1.11 Option
------
"Option" shall mean the non-qualified stock option granted under this
Agreement.
Section 1.12 EXECUTIVE
---------
"EXECUTIVE" shall mean Stephen R. Rizzone.
Section 1.13 Rule 16b-3
----------
"Rule 16b-3 " shall mean that certain Rule 16b-3 under the Exchange
Act, as such Rule may be amended from time to time.
Section 1.14 Secretary
---------
"Secretary" shall mean the Secretary of the Company.
Section 1.15 Subsidiary
----------
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing 50 percent
or more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
Section 1.16 Termination of Employment
-------------------------
"Termination of Employment" shall mean the time when the employee-
employer relationship between the EXECUTIVE and the Company or any Subsidiary is
terminated for any reason, including, but not by way of limitation, a
termination by resignation, discharge with or without Cause, death, disability
or retirement; but excluding (i) terminations where there is a simultaneous re-
employment or continuing employment of the EXECUTIVE by the Company or any
Subsidiary, (ii) at the discretion of the Board, terminations which result in a
temporary severance of the employee-employer relationship, and (iii) at the
discretion of the Board, terminations which are followed by the simultaneous
establishment of a consulting relationship by the Company or a Subsidiary with
the EXECUTIVE. The Board, in its absolute discretion, shall determine the
effect of all matters and questions relating to Termination of Employment,
including, but not by way of limitation, the question of whether a Termination
of Employment resulted from a discharge for Cause, and all questions of whether
particular leaves of absence constitute Terminations of Employment.
Notwithstanding any other provision of this Agreement, the Company or any
Subsidiary has an absolute and unrestricted right to terminate EXECUTIVE's
employment at any time for any reason whatsoever, with or without Cause, except
to the extent expressly provided otherwise in writing.
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ARTICLE II.
GRANT OF OPTION
Section 2.1 Grant of Option
---------------
In consideration of the EXECUTIVE's agreement to remain in the employ
of the Company or its Subsidiaries for a period of at least one year after the
Option is granted and for other good and valuable consideration, on June 18,
1999, the Company irrevocably grants to the EXECUTIVE the Option to purchase all
or any part of an aggregate of 600,000 shares of its Common Stock, upon the
terms and conditions set forth in this Agreement.
Section 2.2 Purchase Price
--------------
The purchase price of the shares of Common Stock covered by the Option
shall be $9.4375 per share, without commission or other charge, representing the
closing price of a share of Common Stock as quoted on The Nasdaq Stock Market on
June 17, 1999.
Section 2.3 Consideration to Company
------------------------
In consideration of the granting of this Option by the Company, the
EXECUTIVE agrees to render faithful and efficient services to the Company or a
Subsidiary, with such duties and responsibilities as the Company shall from time
to time prescribe, for a period of at least one (1) year from the date this
Option is granted. Nothing in this Agreement shall confer upon the EXECUTIVE
any right to continue in the employ of the Company or any Subsidiary or shall
interfere with or restrict in any way the rights of the Company and any
Subsidiary, which are hereby expressly reserved, to discharge the EXECUTIVE at
any time for any reason whatsoever, with or without Cause.
Section 2.4 Adjustments in Option
---------------------
(a) In the event that the outstanding shares of the stock subject to
the Option are changed into or exchanged for a different number or kind of
shares of the Company or other securities of the Company, or of another
corporation, by reason of reorganization, merger, consolidation,
recapitalization, reclassification, stock split-up, stock dividend or
combination of shares, the Board shall make an appropriate and equitable
adjustment in the number and kind of shares as to which the Option, or portions
thereof then unexercised, shall be exercisable, to the end that after such event
the EXECUTIVE's proportionate interest shall be maintained as before the
occurrence of such event. Such adjustment in the Option shall include any
necessary corresponding adjustment in the Option price per share, but shall be
made without change in the total price applicable to the unexercised portion of
the Option (except for any change in the aggregate price resulting from
rounding-off of share quantities or prices). Any such adjustment made by the
Board shall be final and binding upon the EXECUTIVE, the Company and all other
interested persons.
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(b) In the event of a "spin-off" or other substantial distribution of
assets of the Company which has a material diminutive effect upon the Fair
Market Value of the Company's Common Stock, the Board shall in its discretion
make an appropriate and equitable adjustment to the Option to reflect such
diminution.
Section 2.5 Covenant to Grant Additional Options
------------------------------------
In consideration of the EXECUTIVE's agreement to remain in the employ
of the Company or its Subsidiaries for a period of at least one year after the
Option is granted and for other good and valuable consideration, the Company
covenants and agrees to grant additional non-qualified stock options to the
EXECUTIVE throughout the period continuing until the earlier of (i) a Change in
Control or (b) a Termination of Employment, as follows:
(a) The first "Measurement Date" hereunder shall be October 8, 1999.
Each date as of which the Diluted Number of Shares has increased by more than
20,000 from the preceding Measurement Date, shall also be deemed to be a
"Measurement Date" hereunder. As of and on each Measurement Date, the Board of
Directors of the Company shall be deemed to have automatically granted
additional non-qualified stock options to the EXECUTIVE in an amount equal to
five percent (5%) of the increase in the Diluted Number of Shares from the
previous Measurement Date, or, in the case of the first Measurement Date, from
June 18, 1999. These additional non-qualified stock option grants are referred
to herein as the "Anti-Dilution Options." For the purpose of this Section 2.5,
the "Diluted Number of Shares" at any Measurement Date shall be an amount equal
to the number of outstanding shares of Common Stock on such date plus the number
of shares of Common Stock subject to outstanding options (excluding shares or
options held by or granted to EXECUTIVE) on such date, less any shares or
options issued pursuant to transactions described in Section 2.4(a) or (b).
(b) Each Anti-Dilution Option shall have an exercise price equal to
the Fair Market Value of the Common Stock on the date of automatic grant of such
Anti-Dilution Option.
(c) Each Anti-Dilution Option shall be granted substantially upon the
terms and conditions set forth in this Agreement. Thus, 12/48th of an Anti-
Dilution Option shall vest on the first anniversary of the date of grant of such
Anti-Dilution Option, and 1/48th shall vest on the first day of each full month
thereafter, so that such Anti-Dilution Option shall be fully vested on the first
day of the 48 th month after its date of grant.
(d) Each Anti-Dilution Option shall be deemed automatically granted
under the Company's 1994 Equity Participation Plan, as amended. To the extent
the Company is prohibited from granting all or any portion of an Anti-Dilution
Option due to the "Award Limit" constraints set forth in such plan, the Company
agrees to grant such portion of the Anti-Dilution Option that is so prohibited
from granting when due hereunder promptly in succeeding years, as permitted by
the "Award Limit" provisions of such plan.
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(e) Each Anti-Dilution Option shall be evidenced by and subject to the
terms and conditions substantially contained in the form of Option Agreement
attached hereto as Exhibit A.
(f) Notwithstanding anything herein to the contrary, no Anti-Dilution
Options shall be granted with respect to any increase in shares or options
resulting from any Change in Control. The automatic grant of Anti-Dilution
Options and the Company's obligations under this Section 2.5 shall cease and be
of no further force or effect as of the earlier of (i) a Change in Control or
(ii) a Termination of Employment.
ARTICLE III.
PERIOD OF EXERCISABILITY
Section 3.1 Commencement of Exercisability
------------------------------
(a) The Option shall become exercisable in cumulative installments as
follows:
(i) The first installment shall consist of twenty-five
percent (25%) of the shares covered by the Option and shall become exercisable
on June 18, 2000; and
(ii) The remaining installments shall consist of 1/48th of
the shares covered by the Option and shall become exercisable on the first day
of each full month thereafter, so that the Option shall become exercisable with
respect to all of the shares on June 1, 2003.
(b) No portion of the Option which is unexercisable at Termination of
Employment shall thereafter become exercisable.
Section 3.2 Duration of Exercisability
--------------------------
The installments provided for in Section 3.1 are cumulative. Each
such installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.
Section 3.3 Expiration of Option
--------------------
The Option may not be exercised to any extent by anyone after the
first to occur of the following events:
(a) The expiration of ten (10) years from the date the Option was
granted; or(b) The time of the EXECUTIVE's Termination of Employment for Cause;
or
(c) The earlier of (i) expiration of two (2) years from the date of
the EXECUTIVE's Termination of Employment other than Termination of Employment
for Cause
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(as defined in Section 1.2 hereof), or (ii) the date EXECUTIVE enters into a
Competing Relationship with the Company.
Section 3.4 Acceleration of Exercisability
------------------------------
Subject to Section 3.1(b), all of the unvested Option shares held by
the EXECUTIVE at such time shall be and become fully exercisable upon:
(a) the occurrence of a Change in Control prior to a Termination of
Employment, or
(b) a Termination of Employment, other than (x) a Termination of
Employment for cause as defined in the Employment Agreement, and (y) a
Termination of Employment by EXECUTIVE other than for any of the reasons
specified in Section 11(a)(2) of the Employment Agreement.
ARTICLE IV.
EXERCISE OF OPTION
Section 4.1 Person Eligible to Exercise
---------------------------
During the lifetime of the EXECUTIVE, only the EXECUTIVE may exercise
the Option or any portion thereof, or to the extent the Option or any portion
thereof is transferred in accordance with the terms hereof pursuant to a
qualified domestic relations order (a defined by the Code), by the transferee
thereof. After the death of the EXECUTIVE, any exercisable portion of the
Option may, prior to the time when the Option becomes unexercisable under
Section 3.3, be exercised by the EXECUTIVE's personal representative or by any
person empowered to do so under the EXECUTIVE's will or under the then
applicable laws of descent and distribution.
Section 4.2 Partial Exercise
----------------
Any exercisable portion of the Option or the entire Option, if then
wholly exercisable, may be exercised in whole or in part at any time prior to
the time when the Option or portion thereof becomes unexercisable under Section
3.3; provided, however, that each partial exercise shall be for not less than
one hundred (100) shares (or the minimum installment set forth in Section 3. 1,
if a smaller number of shares) and shall be for whole shares only.
Section 4.3 Manner of Exercise
------------------
The exercisable Option, or any exercisable portion thereof, may be
exercised solely by delivery to the Secretary or the Secretary's office of all
of the following prior to the time when the Option or such portion becomes
unexercisable under Section 3.3:
8
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(a) Notice in writing signed by the EXECUTIVE or the other person
then entitled to exercise the Option or portion, stating that the Option or
portion is thereby exercised, such notice complying with all applicable rules
established by the Board; and
(b)
(i) Full payment (in cash) for the shares with respect to
which such Option or portion is exercised;
(ii) With the consent of the Board, payment delayed for up to
thirty (30) days from the date the Option, or portion thereof, is exercised; or
(iii) With the consent of the Board, (A) shares of the
Company's Common Stock owned by the EXECUTIVE duly endorsed for transfer to the
Company or (B) shares of the Company's Common Stock issuable to the EXECUTIVE
upon exercise of the Option, with a Fair Market Value on the date of Option
exercise equal to the aggregate purchase price of the shares with respect to
which such Option or portion is exercised; or
(iv) With the consent of the Board, property of any kind
which constitutes good and valuable consideration; or
(v) With the consent of the Board, a full recourse
promissory note bearing interest (at no less than such rate as shall then
preclude the imputation of interest under the Code or successor provision) and
payable upon such terms as may be prescribed by the Board. The Board may also
prescribe the form of such note and the security, if any, to be given for such
note. The Option may not be exercised, however, by delivery of a promissory note
or by a loan from the Company when or where such loan or other extension of
credit is prohibited by law; or
(vi) With the consent of the Board, any combination of the
consideration provided in the foregoing subparagraphs; and
(c) A bona fide written representation and agreement, in a form
satisfactory to the Board, signed by the EXECUTIVE or other person then entitled
to exercise such Option or portion, stating that the shares of stock are being
acquired for the EXECUTIVE's own account, for investment and without any present
intention of distributing or reselling said shares or any of them except as may
be permitted under the Securities Act and then applicable rules and regulations
thereunder, and that the EXECUTIVE or other person then entitled to exercise
such Option or portion will indemnify the Company against and hold it free and
harmless from any loss, damage, expense or liability resulting to the Company if
any sale or distribution of the shares by such person is contrary to the
representation and agreement referred to above. The Board may, in its absolute
discretion, take whatever additional actions it deems appropriate to insure the
observance and performance of such representation and agreement and to effect
compliance with the Securities Act and any other federal or state securities
laws or regulations. Without limiting the generality of the foregoing, the
Board may require an opinion of counsel acceptable to it to the effect that any
subsequent transfer of shares acquired on an Option exercise
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does not violate the Securities Act, and may issue stop-transfer orders covering
such shares. Share certificates evidencing stock issued on exercise of this
Option shall bear an appropriate legend referring to the provisions of this
subsection (c) and the agreements herein. The written representation and
agreement referred to in the first sentence of this subsection (c) shall,
however, not be required if the shares to be issued pursuant to such exercise
have been registered under the Securities Act, and such registration is then
effective in respect of such shares; and
(d) Full payment to the Company (or other employer corporation) of
all amounts which, under federal, state or local tax law, it is required to
withhold upon exercise of the Option; with the consent of the Board, (i) shares
of the Company's Common Stock owned by the EXECUTIVE duly endorsed for transfer,
or (ii) shares of the Company's Common Stock issuable to the EXECUTIVE upon
exercise of the Option, having a Fair Market Value at the date of Option
exercise equal to the sums required to be withheld, may be used to make all or
part of such payment, provided that the number of shares so used for payment of
such withholding requirement shall be limited to the number necessary to pay the
tax withholding based on the minimum statutory withholding rates for federal and
state tax purposes, including payroll taxes, that are applicable to such
supplemental taxable income; and
(e) In the event the Option or portion shall be exercised pursuant to
Section 4.1 by any person or persons other than the EXECUTIVE, appropriate proof
of the right of such person or persons to exercise the Option.
Section 4.4 Conditions to Issuance of Stock Certificates
--------------------------------------------
The shares of stock deliverable upon the exercise of the Option, or
any portion thereof, may be either previously authorized but unissued shares or
issued shares which have then been reacquired by the Company. Such shares shall
be fully paid and nonassessable. The Company shall not be required to issue or
deliver any certificate or certificates for shares of stock purchased upon the
exercise of the Option or portion thereof prior to fulfillment of all of the
following conditions:
(a) The admission of such shares to listing on all stock exchanges or
markets on which such class of stock is then listed; and
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under rulings or regulations of the
Securities and Exchange Commission or of any other governmental regulatory body,
which the Board shall, in its absolute discretion, deem necessary or advisable;
and
(c) The obtaining of any approval or other clearance from any state
or federal governmental agency which the Board shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The receipt by the Company of full payment for such shares,
including payment of all amounts which, under federal, state or local tax law,
it is required to withhold upon exercise of the Option; and
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(e) The lapse of such reasonable period of time following the
exercise of the Option as the Board may from time to time establish for reasons
of administrative convenience.
Section 4.5 Rights as Stockholder
---------------------
The holder of the Option shall not be, nor have any of the rights or
privileges of, a stockholder of the Company in respect of any shares purchasable
upon the exercise of any part of the Option unless and until certificates
representing such shares shall have been issued by the Company to such holder.
ARTICLE V.
OTHER PROVISIONS
Section 5.1 Administration
--------------
The Board shall have the power to interpret this Agreement and to
adopt such rules for the administration, interpretation and application of the
Option granted hereunder and to interpret or revoke any such rules. All actions
taken and all interpretations and determinations made by the Board in good faith
shall be final and binding upon the EXECUTIVE, the Company and all other
interested persons. No member of the Board shall be personally liable for any
action, determination or interpretation made in good faith with respect to this
Agreement or the Option.
Section 5.2 Option Not Transferable
-----------------------
Neither the Option nor any interest or right therein or part thereof
shall be liable for the debts, contracts or engagements of the EXECUTIVE or his
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 5.2
shall not prevent transfers by will or by the applicable laws of descent and
distribution or pursuant to a qualified domestic relations order (as defined in
the Code).
Section 5.3 Shares to Be Reserved
---------------------
The Company shall at all times during the term of the Option reserve
and keep available such number of shares of stock as will be sufficient to
satisfy the requirements of this Agreement.
Section 5.4 Notices
-------
Any notice to be given under the terms of this Agreement to the
Company shall be addressed to the Board of Directors of the Company in care of
its Secretary, and any notice to be given to the EXECUTIVE shall be addressed to
him at the address given beneath his signature
11
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hereto. By a notice given pursuant to this Section 5.4, either party may
hereafter designate a different address for notices to be given to him. Any
notice which is required to be given to the EXECUTIVE shall, if the EXECUTIVE is
then deceased, be given to the EXECUTIVE's personal representative if such
representative has previously informed the Company of his status and address by
written notice under this Section 5.4. Any notice shall be deemed duly given
when enclosed in a properly sealed envelope or wrapper addressed as aforesaid,
deposited (with postage prepaid) in a post office or branch post office
regularly maintained by the United States Postal Service.
Section 5.5 Titles
------
Titles are provided herein for convenience only and are not to serve
as a basis for interpretation or construction of this Agreement.
Section 5.6 Construction
------------
This Agreement shall be administered, interpreted and enforced under
the internal laws of the State of Delaware.
Section 5.7 Conformity to Securities Laws
-----------------------------
The EXECUTIVE acknowledges that this Agreement is intended to conform
to the extent necessary with all provisions of the Securities Act of 1933, as
amended, and the Exchange Act and any and all regulations and rules promulgated
by the Securities and Exchange Commission thereunder, including without
limitation Rule 16b-3. Notwithstanding anything herein to the contrary, this
Agreement shall be administered, and the Option is granted and may be exercised,
only in such a manner as to conform to such laws, rules and regulations. To the
extent permitted by applicable law, this Agreement shall be deemed amended to
the extent necessary to conform to such laws, rules and regulations.
Section 5.8 Amendment
---------
This Agreement may be amended at any time by the Board, provided,
however, that without the consent of the EXECUTIVE, no such amendment may impair
any rights of the EXECUTIVE under this Agreement.
12
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto on March 1, 2000.
ORTEL CORPORATION,
a Delaware corporation
By: /s/ Anthony J. Iorillo
-----------------------
Anthony J. Iorillo,
Director and Authorized Agent
EXECUTIVE
/s/ Stephen R. Rizzone
---------------------------
Stephen R. Rizzone
1101 Ebbtide Road
Corona del Mar, CA 92656
(on file)
---------------------------
Social Security Number
13
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EXHIBIT A
FORM OF OPTION AGREEMENT TO EVIDENCE ANTI-DILUTION OPTIONS
STEPHEN R. RIZZONE
NON-QUALIFIED ANTI-DILUTION STOCK OPTION AGREEMENT
This Agreement is made effective as of ______________ by and between
Ortel Corporation, a Delaware corporation (the "Company"), and Stephen R.
Rizzone (the "EXECUTIVE").
WHEREAS, the Company and EXECUTIVE entered into the Stephen R. Rizzone
Non-Qualified Stock Option Agreement effective as of June 18, 1999 (the
"Original Option Agreement"), which calls for the automatic grant of non-
qualified stock options upon the happening of certain events;
WHEREAS, the events required to give rise to the automatic grant of
additional options under the Original Option Agreement have transpired, and the
Company wishes to afford the EXECUTIVE the opportunity to purchase shares of its
$.001 par value Common Stock; and
WHEREAS, the Board has determined that it would be to the advantage
and best interest of the Company and its stockholders to grant the Option
provided for herein to the EXECUTIVE as an inducement to enter into and remain
in the service of the Company or its Subsidiaries and as an incentive for
increased efforts during such service, and has advised the Company thereof and
instructed the undersigned officers to issue said Option.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
DEFINITIONS
Whenever the following terms are used in this Agreement, they shall
have the meaning specified below unless the context clearly indicates to the
contrary.
Section 1.1 Board
-----
"Board" shall mean the Board of Directors of the Company, excluding
the EXECUTIVE.
Section 1.2 Cause
-----
"Cause" shall mean, for purposes of Section 3.3 hereof, the occurrence
of any of the following: (a) any intentional action or intentional failure to
act by EXECUTIVE which was
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performed in bad faith and to the material detriment to the Company; or (b)
EXECUTIVE is convicted of a felony crime involving moral turpitude.
Section 1.3 Change of Control
(a) "Change of Control" shall mean the occurrence of any of the
following:
(i) any "person," including a "group" (as such terms are
used in Sections 13(d) and 14(d) of the Exchange Act, but excluding any group of
which the Executive is a member), is or becomes the "beneficial owner" (as
defined in Rule 13(d) (3) under the Exchange Act), directly or indirectly, of
securities of the Company representing 50% or more of the combined voting power
of the Company's then outstanding securities; or
(ii) any consolidation or merger of the Company or any
subsidiary where the stockholders of the Company, immediately prior to the
consolidation or merger, would not, immediately after the consolidation or
merger, beneficially own (as such term is defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, shares representing in the aggregate 50%
or more of the combined voting power of the securities of the corporation
issuing cash or securities in the consolidation or merger (or of its ultimate
parent corporation, if any); or
(iii) there shall occur (A) any sale, lease, exchange or other
transfer (in one transaction or a series of transactions contemplated or
arranged by any party as a single plan) of all or substantially all of the
assets of the Company, other than a sale or disposition by the Company of all or
substantially all of the Company's assets to an entity, at least 50% of the
combined voting power of the voting securities of which are owned by persons in
substantially the same proportion as their ownership of the Company immediately
prior to such sale or (B) the approval by stockholders of the Company of any
plan or proposal for the liquidation or dissolution of the Company; or
(iv) the members of the Board at the beginning of any
consecutive 24-calendar-month period (the "Incumbent Directors") cease for any
reason other than due to death to constitute at least a majority of the members
of the Board; provided that any director whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least a
majority of the members of the Board then still in office who were members of
the Board at the beginning of such 24-calendar-month period, shall be deemed to
be an Incumbent Director.
Section 1.4 Code
----
"Code" shall mean the Internal Revenue Code of 1986, as amended.
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<PAGE>
Section 1.5 Common Stock
------------
"Common Stock" shall mean the common stock of the Company, par value
$.001 per share, and any equity security of the Company issued or authorized to
be issued in the future, but excluding any warrants, options or other rights to
purchase Common Stock. Debt securities of the Company convertible into Common
Stock shall be deemed equity securities of the Company.
Section 1.6 Company
-------
"Company" shall mean Ortel Corporation, a Delaware corporation, or any
successor corporation.
Section 1.7 Competing Relationship with the Company
---------------------------------------
"Competing Relationship with the Company" shall mean when EXECUTIVE,
anywhere in the world (i) engages in any business which competes directly with
the Company, (ii) renders any services to any person, corporation, partnership
or other entity (other than the Company or its affiliates) which competes
directly with the Company, or (iii) become interested in any such person,
corporation, partnership or other entity (other than the Company) as a partner,
shareholder, principal, agent, employee, consultant or in any other relationship
or capacity; provided, however, that, notwithstanding the foregoing, the
EXECUTIVE may invest in securities of any entity, solely for investment purposes
and without participating in the business thereof, if (A) such securities are
traded on any national securities exchange or the National Association of
Securities Dealers, Inc. Automated Quotation System, (B) the EXECUTIVE is not a
controlling person of, or a member of a group which controls, such entity and
(C) the EXECUTIVE does not, directly or indirectly, own 5% or more of any class
of securities of such entity.
Section 1.8 Employment Agreement
--------------------
"Employment Agreement" shall mean that certain Employment Agreement
between the Company and the EXECUTIVE dated June 18, 1999, as the same may be
amended from time to time.
Section 1.9 Exchange Act
------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
Section 1.10 Fair Market Value
-----------------
"Fair Market Value" of a share of the Common Stock as of a given date
shall be: (i) the closing price of a share of Common Stock on the principal
exchange on which shares of the Common Stock are then trading, if any (or as
reported on any composite index which includes such principal exchange), on such
date, or if shares were not traded on such date, then on the next preceding date
on which a trade occurred; or (ii) if the Common Stock is not traded
3
<PAGE>
on an exchange but is (A) a Nasdaq National Market Security quoted on Nasdaq,
the closing price of a share of the Common Stock on such date as quoted on
Nasdaq or if shares were not quoted on such date, then on the next preceding
date on which a quote occurred; or (B) otherwise quoted on Nasdaq or a successor
quotation system, the mean between the closing representative bid and asked
prices for the Common Stock on such date as reported by Nasdaq or such successor
quotation system, or if shares were not quoted on such date, then on the next
preceding date on which a quote occurred; or (iii) if the Common Stock is not
publicly traded on an exchange and not quoted on Nasdaq or a successor quotation
system, the Fair Market Value of a share of Common Stock as established by the
Committee acting in good faith.
Section 1.11 Option
------
"Option" shall mean the non-qualified stock option granted under this
Agreement.
Section 1.12 EXECUTIVE
---------
"EXECUTIVE" shall mean Stephen R. Rizzone.
Section 1.13 Rule 16b-3
----------
"Rule 16b-3 " shall mean that certain Rule 16b-3 under the Exchange
Act, as such Rule may be amended from time to time.
Section 1.14 Secretary
---------
"Secretary" shall mean the Secretary of the Company.
Section 1.15 Subsidiary
----------
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing 50 percent
or more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
Section 1.16 Termination of Employment
-------------------------
"Termination of Employment" shall mean the time when the employee-
employer relationship between the EXECUTIVE and the Company or any Subsidiary is
terminated for any reason, including, but not by way of limitation, a
termination by resignation, discharge with or without Cause, death, disability
or retirement; but excluding (i) terminations where there is a simultaneous re-
employment or continuing employment of the EXECUTIVE by the Company or any
Subsidiary, (ii) at the discretion of the Board, terminations which result in a
temporary severance of the employee-employer relationship, and (iii) at the
discretion of the Board, terminations which are followed by the simultaneous
establishment of a consulting relationship by the Company or a Subsidiary with
the EXECUTIVE. The Board, in its absolute discretion, shall determine the
effect of all matters and questions relating to Termination of Employment,
including, but not by way of limitation, the question of whether a Termination
of Employment
4
<PAGE>
resulted from a discharge for Cause, and all questions of whether particular
leaves of absence constitute Terminations of Employment. Notwithstanding any
other provision of this Agreement, the Company or any Subsidiary has an absolute
and unrestricted right to terminate EXECUTIVE's employment at any time for any
reason whatsoever, with or without Cause, except to the extent expressly
provided otherwise in writing.
ARTICLE II.
GRANT OF OPTION
Section 2.1 Grant of Option
---------------
In consideration of the EXECUTIVE's agreement to remain in the employ
of the Company or its Subsidiaries for a period of at least one year after the
Option is granted and for other good and valuable consideration, on
______________, the Company irrevocably grants to the EXECUTIVE the Option to
purchase all or any part of an aggregate of ____________ shares of its Common
Stock, upon the terms and conditions set forth in this Agreement.
Section 2.2 Purchase Price
--------------
The purchase price of the shares of Common Stock covered by the Option
shall be $_______________per share, without commission or other charge,
representing the closing price of a share of Common Stock as quoted on The
Nasdaq Stock Market on _________________.
Section 2.3 Consideration to Company
------------------------
In consideration of the granting of this Option by the Company, the
EXECUTIVE agrees to render faithful and efficient services to the Company or a
Subsidiary, with such duties and responsibilities as the Company shall from time
to time prescribe, for a period of at least one (1) year from the date this
Option is granted. Nothing in this Agreement shall confer upon the EXECUTIVE
any right to continue in the employ of the Company or any Subsidiary or shall
interfere with or restrict in any way the rights of the Company and any
Subsidiary, which are hereby expressly reserved, to discharge the EXECUTIVE at
any time for any reason whatsoever, with or without Cause.
Section 2.4 Adjustments in Option
---------------------
(a) In the event that the outstanding shares of the stock subject to
the Option are changed into or exchanged for a different number or kind of
shares of the Company or other securities of the Company, or of another
corporation, by reason of reorganization, merger, consolidation,
recapitalization, reclassification, stock split-up, stock dividend or
combination of shares, the Board shall make an appropriate and equitable
adjustment in the number and kind of shares as to which the Option, or portions
thereof then unexercised, shall be exercisable, to the end that after such event
the EXECUTIVE's proportionate interest shall be maintained as before the
occurrence of such event. Such adjustment in the Option shall include any
necessary corresponding adjustment in the Option price per share, but shall be
made without change in the
5
<PAGE>
total price applicable to the unexercised portion of the Option (except for any
change in the aggregate price resulting from rounding-off of share quantities or
prices). Any such adjustment made by the Board shall be final and binding upon
the EXECUTIVE, the Company and all other interested persons.
(b) In the event of a "spin-off" or other substantial distribution of
assets of the Company which has a material diminutive effect upon the Fair
Market Value of the Company's Common Stock, the Board shall in its discretion
make an appropriate and equitable adjustment to the Option to reflect such
diminution.
ARTICLE III.
PERIOD OF EXERCISABILITY
Section 3.1 Commencement of Exercisability
------------------------------
(a) The Option shall become exercisable in cumulative installments as
follows:
(i) The first installment shall consist of twenty-five
percent (25%) of the shares covered by the Option and shall become exercisable
on the first anniversary of the date of grant or _______________; and
(ii) The remaining installments shall consist of 1/48th of
the shares covered by the Option and shall become exercisable on the first day
of each full month thereafter, so that the Option shall become exercisable with
respect to all of the shares on ______________.
(b) No portion of the Option which is unexercisable at Termination of
Employment shall thereafter become exercisable.
Section 3.2 Duration of Exercisability
--------------------------
The installments provided for in Section 3.1 are cumulative. Each
such installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.
Section 3.3 Expiration of Option
--------------------
The Option may not be exercised to any extent by anyone after the
first to occur of the following events:
(a) The expiration of ten (10) years from the date the Option was
granted; or
(b) The time of the EXECUTIVE's Termination of Employment for Cause;
or
6
<PAGE>
(c) The earlier of (i) expiration of two (2) years from the date of
the EXECUTIVE's Termination of Employment other than Termination of Employment
for Cause (as defined in Section 1.2 hereof) , or (ii) the date EXECUTIVE enters
into a Competing Relationship with the Company.
Section 3.4 Acceleration of Exercisability
------------------------------
Subject to Section 3.1(b), all of the unvested Option shares held by
the EXECUTIVE at such time shall be and become fully exercisable upon:
(a) the occurrence of a Change in Control prior to a Termination of
Employment, or
(b) a Termination of Employment, other than (x) a Termination of
Employment for cause as defined in the Employment Agreement, and (y) a
Termination of Employment by EXECUTIVE other than for any of the reasons
specified in Section 11(a)(2) of the Employment Agreement.
ARTICLE IV.
EXERCISE OF OPTION
Section 4.1 Person Eligible to Exercise
---------------------------
During the lifetime of the EXECUTIVE, only the EXECUTIVE may exercise
the Option or any portion thereof, or to the extent the Option or any portion
thereof is transferred in accordance with the terms hereof pursuant to a
qualified domestic relations order (a defined by the Code), by the transferee
thereof. After the death of the EXECUTIVE, any exercisable portion of the
Option may, prior to the time when the Option becomes unexercisable under
Section 3.3, be exercised by the EXECUTIVE's personal representative or by any
person empowered to do so under the EXECUTIVE's will or under the then
applicable laws of descent and distribution.
Section 4.2 Partial Exercise
----------------
Any exercisable portion of the Option or the entire Option, if then
wholly exercisable, may be exercised in whole or in part at any time prior to
the time when the Option or portion thereof becomes unexercisable under Section
3.3; provided, however, that each partial exercise shall be for not less than
one hundred (100) shares (or the minimum installment set forth in Section 3. 1,
if a smaller number of shares) and shall be for whole shares only.
Section 4.3 Manner of Exercise
------------------
The exercisable Option, or any exercisable portion thereof, may be
exercised solely by delivery to the Secretary or the Secretary's office of all
of the following prior to the time when the Option or such portion becomes
unexercisable under Section 3.3:
7
<PAGE>
(a) Notice in writing signed by the EXECUTIVE or the other person
then entitled to exercise the Option or portion, stating that the Option or
portion is thereby exercised, such notice complying with all applicable rules
established by the Board; and
(b)
(i) Full payment (in cash) for the shares with respect to
which such Option or portion is exercised;
(ii) With the consent of the Board, payment delayed for up to
thirty (30) days from the date the Option, or portion thereof, is exercised; or
(iii) With the consent of the Board, (A) shares of the
Company's Common Stock owned by the EXECUTIVE duly endorsed for transfer to the
Company or (B) shares of the Company's Common Stock issuable to the EXECUTIVE
upon exercise of the Option, with a Fair Market Value on the date of Option
exercise equal to the aggregate purchase price of the shares with respect to
which such Option or portion is exercised; or
(iv) With the consent of the Board, property of any kind
which constitutes good and valuable consideration; or
(v) With the consent of the Board, a full recourse
promissory note bearing interest (at no less than such rate as shall then
preclude the imputation of interest under the Code or successor provision) and
payable upon such terms as may be prescribed by the Board. The Board may also
prescribe the form of such note and the security, if any, to be given for such
note. The Option may not be exercised, however, by delivery of a promissory note
or by a loan from the Company when or where such loan or other extension of
credit is prohibited by law; or
(vi) With the consent of the Board, any combination of the
consideration provided in the foregoing subparagraphs; and
(c) A bona fide written representation and agreement, in a form
satisfactory to the Board, signed by the EXECUTIVE or other person then entitled
to exercise such Option or portion, stating that the shares of stock are being
acquired for the EXECUTIVE's own account, for investment and without any present
intention of distributing or reselling said shares or any of them except as may
be permitted under the Securities Act and then applicable rules and regulations
thereunder, and that the EXECUTIVE or other person then entitled to exercise
such Option or portion will indemnify the Company against and hold it free and
harmless from any loss, damage, expense or liability resulting to the Company if
any sale or distribution of the shares by such person is contrary to the
representation and agreement referred to above. The Board may, in its absolute
discretion, take whatever additional actions it deems appropriate to insure the
observance and performance of such representation and agreement and to effect
compliance with the Securities Act and any other federal or state securities
laws or regulations. Without limiting the generality of the foregoing, the
Board may require an opinion of counsel acceptable to it to the effect that any
subsequent transfer of shares acquired on an Option exercise
8
<PAGE>
does not violate the Securities Act, and may issue stop-transfer orders covering
such shares. Share certificates evidencing stock issued on exercise of this
Option shall bear an appropriate legend referring to the provisions of this
subsection (c) and the agreements herein. The written representation and
agreement referred to in the first sentence of this subsection (c) shall,
however, not be required if the shares to be issued pursuant to such exercise
have been registered under the Securities Act, and such registration is then
effective in respect of such shares; and
(d) Full payment to the Company (or other employer corporation) of
all amounts which, under federal, state or local tax law, it is required to
withhold upon exercise of the Option; with the consent of the Board, (i) shares
of the Company's Common Stock owned by the EXECUTIVE duly endorsed for transfer,
or (ii) shares of the Company's Common Stock issuable to the EXECUTIVE upon
exercise of the Option, having a Fair Market Value at the date of Option
exercise equal to the sums required to be withheld, may be used to make all or
part of such payment, provided that the number of shares so used for payment of
such withholding requirement shall be limited to the number necessary to pay the
tax withholding based on the minimum statutory withholding rates for federal and
state tax purposes, including payroll taxes, that are applicable to such
supplemental taxable income; and
(e) In the event the Option or portion shall be exercised pursuant to
Section 4.1 by any person or persons other than the EXECUTIVE, appropriate proof
of the right of such person or persons to exercise the Option.
Section 4.4 Conditions to Issuance of Stock Certificates
--------------------------------------------
The shares of stock deliverable upon the exercise of the Option, or
any portion thereof, may be either previously authorized but unissued shares or
issued shares which have then been reacquired by the Company. Such shares shall
be fully paid and nonassessable. The Company shall not be required to issue or
deliver any certificate or certificates for shares of stock purchased upon the
exercise of the Option or portion thereof prior to fulfillment of all of the
following conditions:
(a) The admission of such shares to listing on all stock exchanges or
markets on which such class of stock is then listed; and
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under rulings or regulations of the
Securities and Exchange Commission or of any other governmental regulatory body,
which the Board shall, in its absolute discretion, deem necessary or advisable;
and
(c) The obtaining of any approval or other clearance from any state
or federal governmental agency which the Board shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The receipt by the Company of full payment for such shares,
including payment of all amounts which, under federal, state or local tax law,
it is required to withhold upon exercise of the Option; and
<PAGE>
(e) The lapse of such reasonable period of time following the
exercise of the Option as the Board may from time to time establish for reasons
of administrative convenience.
Section 4.5 Rights as Stockholder
---------------------
The holder of the Option shall not be, nor have any of the rights or
privileges of, a stockholder of the Company in respect of any shares purchasable
upon the exercise of any part of the Option unless and until certificates
representing such shares shall have been issued by the Company to such holder.
ARTICLE V.
OTHER PROVISIONS
Section 5.1 Administration
--------------
The Board shall have the power to interpret this Agreement and to
adopt such rules for the administration, interpretation and application of the
Option granted hereunder and to interpret or revoke any such rules. All actions
taken and all interpretations and determinations made by the Board in good faith
shall be final and binding upon the EXECUTIVE, the Company and all other
interested persons. No member of the Board shall be personally liable for any
action, determination or interpretation made in good faith with respect to this
Agreement or the Option.
Section 5.2 Option Not Transferable
-----------------------
Neither the Option nor any interest or right therein or part thereof
shall be liable for the debts, contracts or engagements of the EXECUTIVE or his
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 5.2
shall not prevent transfers by will or by the applicable laws of descent and
distribution or pursuant to a qualified domestic relations order (as defined in
the Code).
Section 5.3 Shares to Be Reserved
---------------------
The Company shall at all times during the term of the Option reserve
and keep available such number of shares of stock as will be sufficient to
satisfy the requirements of this Agreement.
Section 5.4 Notices
-------
Any notice to be given under the terms of this Agreement to the
Company shall be addressed to the Board of Directors of the Company in care of
its Secretary, and any notice to be
10
<PAGE>
given to the EXECUTIVE shall be addressed to him at the address given beneath
his signature hereto. By a notice given pursuant to this Section 5.4, either
party may hereafter designate a different address for notices to be given to
him. Any notice which is required to be given to the EXECUTIVE shall, if the
EXECUTIVE is then deceased, be given to the EXECUTIVE's personal representative
if such representative has previously informed the Company of his status and
address by written notice under this Section 5.4. Any notice shall be deemed
duly given when enclosed in a properly sealed envelope or wrapper addressed as
aforesaid, deposited (with postage prepaid) in a post office or branch post
office regularly maintained by the United States Postal Service.
Section 5.5 Titles
------
Titles are provided herein for convenience only and are not to serve
as a basis for interpretation or construction of this Agreement.
Section 5.6 Construction
------------
This Agreement shall be administered, interpreted and enforced under
the internal laws of the State of Delaware.
Section 5.7 Conformity to Securities Laws
-----------------------------
The EXECUTIVE acknowledges that this Agreement is intended to conform
to the extent necessary with all provisions of the Securities Act of 1933, as
amended, and the Exchange Act and any and all regulations and rules promulgated
by the Securities and Exchange Commission thereunder, including without
limitation Rule 16b-3. Notwithstanding anything herein to the contrary, this
Agreement shall be administered, and the Option is granted and may be exercised,
only in such a manner as to conform to such laws, rules and regulations. To the
extent permitted by applicable law, this Agreement shall be deemed amended to
the extent necessary to conform to such laws, rules and regulations.
Section 5.8 Amendment
---------
This Agreement may be amended at any time by the Board, provided,
however, that without the consent of the EXECUTIVE, no such amendment may impair
any rights of the EXECUTIVE under this Agreement.
11
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto on _______________.
ORTEL CORPORATION,
a Delaware corporation
By: ________________________________
Anthony J. Iorillo,
Director and Authorized Agent
EXECUTIVE
___________________________________
Stephen R. Rizzone
1101 Ebbtide Road
Corona del Mar, CA 92656
(on file)
___________________________________
Social Security Number
12
<PAGE>
EXHIBIT 10.20
ADDENDUM TO AGREEMENT
THIS ADDENDUM TO AGREEMENT ("Agreement") is made effective as December
30, 1999 and is entered into by and between Ortel Corporation (the "Company")
and Wim H. J. Selders ("Executive").
WHEREAS, effective as of June 25, 1999, the Company and Executive
entered into an agreement specifying the terms of Executive's retirement (the
"Agreement");
WHEREAS, the parties have agreed that the final payments to Executive
under the Agreement be made by December 31, 1999. These payments relate to the
reimbursement and gross-up of tax payments to be made to Executive;
WHEREAS, Executive has worked closely with the Company and KPMG LLP to
determine the final amounts due to Executive, and the calculation of the
payments is dependent in large part on facts, circumstances and expectations
personal to Executive.
For and in consideration of the foregoing recitals and the mutual
covenants and agreements set forth herein, the Company and Executive agree as
follows:
1. FINAL PAYMENT UNDER THE AGREEMENT. Executive and the Company agree
---------------------------------
that the payment hereby delivered to Executive represents the complete and final
payment owing by the Company to Executive under the Agreement which is
calculated as $775,052 in gross less $211,238 taxes withheld based on tax
withholding and exemptions specified by the Executive plus a refund of $116 of
Medicare taxes erroneously withheld from a previous payment to Executive.
Executive hereby acknowledges receipt of a check for a net amount of $563,930
from the Company and agrees that the same represents the full, complete and
final payment owing by the Company to the Executive under the Agreement. The
Company shall promptly pay when due all tax withholdings made on the foregoing
sum and otherwise withheld from sums previously paid to Executive.
2. FINAL SATISFACTION OF CERTAIN OBLIGATIONS. As a result of the
-----------------------------------------
foregoing payments and payments previously made to Executive under the
Agreement, Executive agrees that all of the Company's
1
<PAGE>
obligations to Executive under Sections 2a, 2b, 2c, 2d, 2g and 2h have been
fully and completely satisfied and that the Company does not now, nor in the
future will it, owe anything further to Executive under such Sections. In
addition, the parties acknowledge and agree that (a) the loan contemplated by
Section 2g has been made by the Company and subsequently paid in full by
Executive, and all shares of stock held to secure such indebtedness have been
released by the Company to Executive, and neither of the parties has any further
obligation under Section 2g, and (b) the sale of the automobile contemplated by
Section 2i has been accomplished and there are no further obligations of either
party under Section 2i. The parties further acknowledge and agree, that the
Company is obligated to continue providing the benefits set forth in Sections
2e, and 2f as provided therein.
3. RELEASE IN THE EVENT THE ACTUAL TAX LIABILITY (AND GROSS-UP) IS
---------------------------------------------------------------
GREATER OR LESS THAN PAID HEREUNDER. Each party understands and agrees that the
- -----------------------------------
actual tax liabilities of Executive and the consequent gross-up payments that
may be required under the Agreement may be more or less than that the amount
paid hereunder. Executive hereby releases and forever discharges the Company
Releasees, and the Company hereby releases and forever discharges the Executive
Releasees, for any and all Claims, which they now have or may hereafter have
against the other by reason of the determination of the amount paid hereunder,
the payment of such amount, or if the amount of actual tax liabilities of
Executive and the consequent gross-up payments that may be required under the
Agreement differ from the amount paid to Executive under this Addendum.
4. MISCELLANEOUS. Capitalized terms used but not defined herein shall
--------------
have the respective meanings assigned to them in the Agreement. Except as
modified by this Addendum, the Agreement shall remain in full force and effect,
and shall be deemed to include this Addendum as of the date first written above.
Wim H. J. Selders Ortel Corporation
/s/ Wim H.J. Selders By: /s/ Stephen R. Rizzone
- --------------------------- --------------------------------
Stephen R. Rizzone, Chief Executive Officer
2
<PAGE>
ORTEL CORPORATION
2015 West Chestnut Street
Alhambra, California 91803
Telephone (626) 281-3636
February 7, 2000
Stephen R. Rizzone
Lucent Technologies Inc.
Gentlemen:
Reference is made to (i) the unanimous written consent of the
Compensation Committee of the Board of Directors (the "Compensation Committee")
----------------------
of Ortel Corporation (the "Company"), dated January 20, 2000, a copy of which is
-------
attached hereto as Annex A (the "Resolutions"), and (ii) the Agreement and Plan
------- -----------
of Merger dated as of February 7, 2000 (the "Merger Agreement"), by and among
----------------
Lucent Technologies Inc., Solara Acquisition Inc. and the Company. Capitalized
terms used but not defined herein shall have the respective meanings assigned to
such terms in the Merger Agreement.
In recognition of the contribution and importance of Stephen R.
Rizzone to the Company (both in the past and in the future), the Compensation
Committee approved the payment to Mr. Rizzone of cash in an aggregate amount
equal to 1% of the value of the Company (the "Bonus"), which Bonus shall become
-----
payable as a result of the transactions contemplated by the Merger Agreement,
upon the terms and subject to the conditions set forth in the Resolutions.
In lieu of payment by the Company to Mr. Rizzone of the Bonus and for
other good and valuable consideration described below, the Company agrees to pay
to Mr. Rizzone an aggregate amount equal to $15,000,000 as follows:
(i) the Company shall pay to Mr. Rizzone at the Closing $9,000,000 in
next-day funds by check, as consideration for Mr. Rizzone executing and
delivering to the Company a Non-Competition and Non-Disclosure Agreement
having a term of five years and otherwise in the form attached to the
Merger Agreement and in recognition of the contribution and importance of
Mr. Rizzone to the Company (both in the past and in the future); and
(ii) the Company shall pay to Mr. Rizzone an aggregate of $6,000,000
pursuant to a consulting agreement having a term of three years to be
entered into between Mr. Rizzone and the Company or its successor.
1
<PAGE>
In addition, the Company hereby agrees to pay, at the Closing, an
aggregate of $4,500,000 to the employees designated by Mr. Rizzone on or before
the Closing.
In the event that SoundView Technology Group, Inc., or its successor fees and
expenses exceed $3,000,000, then the $9,000,000 to be paid at the Closing to Mr.
Rizzone pursuant to paragraph (i) above shall be reduced by any such amount in
excess of $3,000,000.
In addition, this letter will serve to confirm:
(i) that in the event that any of the following members of the
executive staff of the Company is terminated by the Company other than for
Cause within one year of the date of the Closing, the Company shall take
all necessary action to cause all of the unvested options held by such
member at the time of such termination (and which are currently
outstanding) to be and become fully exercisable. The members of the
executive staff for this purpose shall be: Nadav Bar-Chaim, Hank Blauvelt,
Sandra Caraveo, John Dessel, George Holmes, George Pontiakos, Jeff
Rittichier and Jeff Schlageter. For the purposes hereof, "Cause" shall be
deemed to mean the occurrence of any of the following: (a) any intentional
action or intentional failure to act by any such person which was performed
in bad faith or to the material detriment of Lucent or any of its
Affiliates; (b) any such person willfully and habitually neglects the
duties of employment; or (c) any such person is convicted of a felony or
any crime involving moral turpitude. All other terminations by Lucent or
its Affiliates shall be treated as not for Cause;
(ii) that any payments to Mr. Rizzone described in this letter to the
extent that such payments are compensation will be subject to the benefits
of Section 12(c) of his employment agreement dated as of June 18, 1999; and
(iii) that the Company and Lucent are aware of and agree that the
Company as the Surviving Corporation will continue be bound by that certain
Change in Control Agreement between the Company and Roger Hay dated as of
March 5, 1999.
This letter may be amended, modified or supplemented only by a written
instrument executed by each of the parties hereto. This letter may be executed
in two or more counterparts, each of which shall be deemed to be an original and
together with this letter shall be deemed to be one and the same instrument.
This letter shall be governed by and interpreted and enforced in
accordance with the laws of the State of New York.
Very truly yours,
2
<PAGE>
ORTEL CORPORATION
By: /s/ Nadav Bar-Chaim
-----------------------------
Name: Nadav Bar-Chaim
Title: Vice President and Secretary
Acknowledged and agreed, as of this
7th day of February, 2000:
By: /s/ Stephen R. Rizzone
-----------------------------
Name: Stephen R. Rizzone
Title: President,CEO
LUCENT TECHNOLOGIES INC.
By: /s/ John T. Dickson
----------------------------
Name: John T. Dickson
Title: Executive VP and CEO, Microelectronics
and Communications Technologies
3
<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> 9-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-START> MAY-01-1999
<PERIOD-END> JAN-30-2000
<CASH> 19,965
<SECURITIES> 7,041
<RECEIVABLES> 13,900
<ALLOWANCES> 1,093
<INVENTORY> 15,272
<CURRENT-ASSETS> 68,331
<PP&E> 46,136
<DEPRECIATION> 28,509
<TOTAL-ASSETS> 17,627
<CURRENT-LIABILITIES> 18,197
<BONDS> 0
0
0
<COMMON> 67,225
<OTHER-SE> 14,494
<TOTAL-LIABILITY-AND-EQUITY> 100,413
<SALES> 58,494
<TOTAL-REVENUES> 58,494
<CGS> 34,967
<TOTAL-COSTS> 34,967
<OTHER-EXPENSES> 10,972<F1>
<LOSS-PROVISION> 150<F2>
<INTEREST-EXPENSE> 8
<INCOME-PRETAX> (3,001)
<INCOME-TAX> (741)
<INCOME-CONTINUING> (2,260)
<DISCONTINUED> (3,069)
<EXTRAORDINARY> 0
<CHANGES> (989)<F3>
<NET-INCOME> (6,318)
<EPS-BASIC> .53
<EPS-DILUTED> .53
<FN>
<F1>Research and Development
<F2>Provisions for Bad Debt
<F3>Cummulative Effect of Accounting Change
</FN>
</TABLE>
