UNITED STATES
SECURITIES 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 November 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to ______________
Commission File No.: 0-25592
PERIPHONICS CORPORATION
(exact name of registrant as specified in its charter)
Delaware 11-2699509
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4000 Veterans Memorial Highway, Bohemia, New York 11716
(Address of principal executive offices)
Registrant's telephone number, including area code: (516) 468-9000
Check 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(s), and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: January 12, 1998
Class of Number
Common Equity of Shares
Common Stock, 13,768,684
par value $.01
<PAGE>
PERIPHONICS CORPORATION
AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - November 30, 1997
and May 31, 1997 3
Consolidated Statements of Earnings - Six Months
Ended November 30, 1997 and November 30, 1996 4
Consolidated Statements of Earnings - Three Months
Ended November 30, 1997 and November 30, 1996 5
Consolidated Statements of Cash Flows - Six Months
Ended November 30, 1997 and November 30, 1996 6
Notes to Unaudited Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 9-14
Part II. Other Information 15-16
Signatures 17
<PAGE>
PERIPHONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
November 30, 1997 May 31, 1997
(Unaudited) (Audited)
------------------ --------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................... $13,227 $25,092
Short-term investments.................................. 10,690
Accounts receivable, less allowance
for doubtful accounts of $878 and
$1,000, respectively ................................ 31,669 35,735
Inventories............................................. 14,676 12,858
Deferred income taxes................................ 1,338 1,357
Prepaid expenses and other current assets............... 1,344 1,211
------ -------
Total Current Assets.................................. 72,944 76,253
Property, Plant and Equipment, net...................... 18,028 16,952
Other Assets........................................... 423 378
------- -------
$91,395 $93,583
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable........................................ $ 6,625 $ 5,928
Accrued expenses and other current liabilities.......... 10,298 15,125
------- ------
Total Current Liabilities............................. 16,923 21,053
Deferred Income Taxes................................... 470 322
------- -------
17,393 21,375
------- -------
Stockholders' Equity:
Preferred stock, par value $.01 per share, --- ---
1,000 shares authorized, none issued
Common stock, par value $.01 per share, 137 137
30,000 shares authorized ; 13,769
shares outstanding as of November 30,
1997; 13,694 shares outstanding as of
May 31, 1997
Additional Paid-in Capital.............................. 43,346 42,559
Retained Earnings....................................... 30,519 29,512
------- -------
Total Stockholder's Equity 74,002 72,208
------- -------
$91,395 $93,583
======= =======
</TABLE>
<PAGE>
PERIPHONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
November 30,
1997 1996
---- ----
<S> <C> <C>
System sales................................................... $37,169 $40,449
Service revenues............................................... 13,982 11,493
------ ------
Total revenues............................................... 51,151 51,942
------ ------
Cost of system sales........................................... 18,609 18,929
Cost of service revenues....................................... 8,352 6,951
------ ------
Cost of revenues............................................. 26,961 25,880
------ ------
Gross profit................................................... 24,190 26,062
------ ------
Operating expenses:
Selling, general and administrative.......................... 16,466 13,279
Research and development..................................... 6,761 5,035
------ ------
23,227 18,314
------ ------
Earnings from operations....................................... 963 7,748
------ -----
Other income (expense):
Interest and other income.................................... 710 701
Foreign exchange (loss) gain ................................ (62) 328
------- -----
648 1,029
------- -----
Earnings before provision for income taxes..................... 1,611 8,777
Provision for income taxes..................................... 604 3,423
------ -----
Net earnings .................................................. $1,007 $5,354
====== ======
Net earnings per common and common equivalent share............ $0.07 $ 0.38
====== ======
Weighted average number of common and common
equivalent shares............................................ 13,860 13,951
====== ======
</TABLE>
<PAGE>
PERIPHONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
November 30,
1997 1996
----- -----
<S> <C> <C>
System sales........................................................ $21,753 $22,694
Service revenues.................................................... 6,838 5,989
------- -------
Total revenues.................................................... 28,591 28,683
------- ------
Cost of system sales................................................ 10,752 10,907
Cost of service revenues............................................ 4,343 3,647
------- -------
Cost of revenues.................................................. 15,095 14,554
------- -------
Gross profit........................................................ 13,496 14,129
------- -------
Operating expenses:
Selling, general and administrative............................... 9,017 7,114
Research and development.......................................... 3,548 2,615
------- -------
12,565 9,729
------- -------
Earnings from operations............................................ 931 4,400
------- -------
Other income (expense):
Interest and other income......................................... 331 372
Foreign exchange gain ............................................ 218 210
------- -------
549 582
------- -------
Earnings before provision for income taxes.......................... 1,480 4,982
Provision for income taxes.......................................... 555 1,943
------- -------
Net earnings........................................................ $ 925 $ 3,039
======= =======
Net earnings per common and common equivalent share................. $ 0.07 $ 0.22
======= =======
Weighted average number of common and common equivalent shares...... 13,864 13,956
======= =======
</TABLE>
<PAGE>
PERIPHONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
November 30,
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings..................................................................... $ 1,007 $ 5,354
Adjustments to reconcile net earnings to net cash and cash
equivalents used in operating activities:
Depreciation and amortization.................................................... 2,559 1,679
Deferred income taxes............................................................ 167 (159)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable .................................. 4,066 (8,907)
Increase in inventories...................................................... (1,818) (1,053)
Increase in prepaid expenses and other current assets........................ (133) (3)
(Increase) decrease in other assets.......................................... (45) 5
(Decrease) increase in accounts payable and accrued expenses and
other current liabilities................................................. (4,130) 1,452
------- ------
Net cash and cash equivalents provided by (used in) operating activities......... 1,673 (1,632)
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment........................................ (3,635) (4,028)
Proceeds from sales of short-term investments..................................... --- 9,573
Purchases of short-term investments............................................... (10,690) (6,283)
------- -------
Net cash and cash equivalents used in investing activities........................ (14,325) (738)
-------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from stock options exercised............................................. 787 185
------ ------
Net cash and cash equivalents provided by financing activities.................... 787 185
------ ------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS......................................... (11,865) (2,185)
CASH AND CASH EQUIVALENTS, beginning of period...................................... 25,092 18,664
------ ------
CASH AND CASH EQUIVALENTS, end of period............................................ $13,227 $16,479
======= ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ........................................................................ --- ---
Income Taxes..................................................................... $ 3,081 $ 2,534
</TABLE>
<PAGE>
PERIPHONICS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the financial position, the
results of operations, and the cash flows at November 30, 1997 and for all
periods presented.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. These financial statements should be read in
conjunction with the Consolidated Financial Statements and Notes included in the
Company's May 31, 1997 Annual Report on Form 10-K as filed with the Securities
and Exchange Commission.
The results of operations for the three and six months ended November 30,
1997 and November 30, 1996 are not necessarily indicative of the results to be
expected for the full year. Amounts are presented in thousands except per share
amounts.
2. STOCK SPLIT AND CHANGES IN AUTHORIZED CAPITAL
On September 20, 1996, the Board of Directors approved a two-for-one split
of its common stock effected as a stock dividend on October 31, 1996 to
shareholders of record at the close of business on October 15, 1996. After
giving effect to the stock split, the shares outstanding increased from
approximately 6,813 to approximately 13,625.
All historical share and per share data appearing in the consolidated
financial statements and notes thereto have been retroactively adjusted for the
stock split.
Also, on September 20, 1996, the Board of Directors determined it advisable
to amend the Company's Certificate of Incorporation to increase the number of
authorized shares of Common Stock from 15,000 shares to 30,000 shares. The
proposed amendment to the Amended and Restated Certificate of Incorporation was
submitted for shareholder approval. Shareholder approval was announced on
November 8, 1996 at the 1996 Annual Meeting of Stockholders.
3. INVENTORIES
Inventories consist of the following:
November 30, 1997 May 31, 1997
----------------- ------------
Raw materials $ 8,847 $ 7,624
Work-in-process 5,829 5,234
--------- ---------
$ 14,676 $ 12,858
======== ========
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Six Months Ended November 30, 1997 compared to Six Months Ended November
30, 1996
Total Revenues. Total revenues decreased by 1.5% to $51.2 million in the
first six months of fiscal 1998 from $51.9 million in the comparable period of
the prior fiscal year. System sales decreased by 8.1% to $37.2 million in the
first six months of fiscal 1998 from $40.4 million in the comparable period of
the prior fiscal year. The decrease in system sales was due to a 20.2% decrease
in domestic sales and offset by a 20.6% increase in international sales. The
decrease in system sales was primarily due to a decrease in unit sales volume.
Service revenues increased by 21.7% to $14.0 million in the first six months of
fiscal 1998 from $11.5 million in the comparable period of the prior fiscal
year, primarily due to the addition of more units to the service base.
Gross Profit. The Company's gross profit decreased by $1.9 million to $24.2
million in the first six months of fiscal 1998 from $26.1 million in the
comparable period of the prior fiscal year. Gross profit as a percentage of
total revenues decreased to 47.3% in the first six months of fiscal 1998 from
50.2% in the comparable period of the prior year. Gross profit on system sales
decreased by $2.9 million to $18.6 million in the first six months of fiscal
1998 from $21.5 million in the comparable period of the prior fiscal year. The
gross margin on system sales decreased to 49.9% in the first six months of
fiscal 1998 from 53.2% in the comparable period of the prior fiscal year. The
Company attributes this decrease primarily to the product mix during the current
six month period, with a higher percentage of revenue being derived from lower
margin programming than from hardware. Gross profit on service revenues
increased by $1.1 million, or 24.0%, to $5.6 million in the first six months of
fiscal 1998 from $4.5 million in the comparable period of the prior fiscal year.
Gross margin on service revenues increased to 40.3% in the first six months of
fiscal 1998 from 39.5% in the comparable period of the prior fiscal year. This
increase was primarily attributable to the addition of more units to the service
base partially offset by higher cost to support organizational growth.
Selling, General and Administrative Expenses. Selling, General and
Administrative ("SG&A") expenses were $16.5 million and $13.3 million for the
first six months of fiscal 1998 and 1997, respectively, or 32.2% and 25.6% of
total revenues, respectively. The increase in the dollar amount of SG&A expenses
was primarily related to the continued expansion of the Company's sales and
marketing efforts in domestic and international markets and to increases in SG&A
expenses necessary to support the planned increased level of sales.
Research and Development Expenses. Research and Development ("R&D")
expenses were $6.8 million and $5.0 million for the first six months of fiscal
1998 and 1997, respectively, or 13.2% and 9.7% of total revenues, respectively.
The increase in the dollar amount of R&D expenses reflects the continued
expansion of the Company's R&D staff which increased to 156 from 114 between
November 30, 1997 and 1996, respectively. R&D expenses are charged to operations
as incurred, and no software development costs have been capitalized. The
Company expects the dollar amount of R&D expenditures to continue to increase,
although such expenses as a percentage of total revenues will vary from period
to period.
<PAGE>
Other Income (Expense). Other income was $0.6 million and $1.0 million for
the six months ended November 30, 1997 and 1996, respectively. Interest and
other income was $0.7 million for both six month periods ended November 30, 1997
and 1996, respectively. The Company had a foreign exchange loss of $0.1 million
in the six months ended November 30, 1997 compared to a foreign exchange gain of
$0.3 million for the six months ended November 30, 1996. To the extent the
Company is unable to match revenue received in foreign currencies with expenses
paid in the same currency, it is exposed to fluctuations in international
currency transactions.
Income Taxes. Variations in the customary relationship between the
provision for income taxes and the statutory income tax rate primarily result
from the utilization of research and development tax credits, state and local
income taxes, and exempt income of the Company's foreign sales corporation. The
Company's effective income tax rates were 37.5% and 39.0% for the six months
ended November 30, 1997 and 1996, respectively.
Foreign Operations. The Company's European subsidiary operated at
approximately a $1.3 million loss during the six months ended November 30, 1997
as compared to a loss of $0.6 million during the six months ended November 30,
1996. The increase in such losses was attributed to an increase in the dollar
amount of SG&A expenses to support the expansion of the sales and marketing
effort. Transfers from the Company's North American operations to its European
subsidiary are accounted for at cost, plus a reasonable profit. The cost of
revenues for the Company's European subsidiary includes approximately $0.2
million and $0.2 million of intercompany gross profit earned by the Company's
North American operations on system sales by the European subsidiary to third
parties during the six months ended November 30, 1997 and 1996, respectively.
Three Months Ended November 30, 1997 compared to Three Months Ended
November 30, 1996
Total Revenues. Total revenues were $28.6 million in the three months ended
November 30, 1997, approximately the same as the $28.7 million reported in last
year's second quarter. System sales decreased by 4.1% to $21.8 million in the
three months ended November 30, 1997 from $22.7 million in the comparable period
of the prior fiscal year. The decrease in system sales was due to a 17.9%
decrease in domestic sales and offset by a 24.4% increase in international
sales. The decrease in system sales was primarily due to a decrease in unit
sales volume. Service revenues increased by 14.2% to $6.8 million in the three
months ended November 30, 1997 from $6.0 million in the comparable period of the
prior fiscal year, primarily due to the addition of more units to the service
base.
Gross Profit. The Company's gross profit decreased by $0.6 million to $13.5
million in the three months ended November 30, 1997 from $14.1 million in the
comparable period of the prior fiscal year. Gross profit as a percentage of
total revenues decreased to 47.2% in the three months ended November 30, 1997
from 49.3% in the comparable period of the prior year. Gross profit on system
sales decreased by $0.8 million to $11.0 million in the three months ended
November 30, 1997 from $11.8 million in the comparable period of the prior
fiscal year. The gross margin on system sales decreased to 50.6% in the three
months ended November 30, 1997 from 51.9% in the comparable period of the prior
fiscal year. The Company attributes this decrease primarily to the product mix
during the current three month period, with a higher percentage of revenue being
derived from lower margin programming than from hardware. Gross profit on
service revenues increased by $0.2 million, or 6.5%, to $2.5 million in the
three months ended November 30, 1997 from $2.3 million in the comparable period
of the prior fiscal year. Gross margin on service revenues decreased to 36.5% in
the three months ended November 30, 1997 from 39.1% in the comparable period of
the prior fiscal year. This decrease was attributable to higher cost to support
organizational growth and lower installation revenues partially offset by an
increase in the service base.
<PAGE>
Selling, General and Administrative Expenses. Selling, General and
Administrative ("SG&A") expenses were $9.0 million and $7.1 million for the
three months ended November 30, 1997 and 1996, respectively, or 31.5% and 24.8%
of total revenues, respectively. The increase in the dollar amount of SG&A
expenses was primarily related to the continued expansion of the Company's sales
and marketing efforts in domestic and international markets and to increases in
SG&A expenses necessary to support the planned increased level of sales.
Research and Development Expenses. Research and Development ("R&D")
expenses were $3.5 million and $2.6 million for the three months ended November
30, 1997 and 1996, respectively, or 12.4% and 9.1% of total revenues,
respectively. The increase in the dollar amount of R&D expenses reflects the
continued expansion of the Company's R&D staff which increased to 156 from 114
between November 30, 1997 and 1996, respectively. R&D expenses are charged to
operations as incurred, and no software development costs have been capitalized.
The Company expects the dollar amount of R&D expenditures to continue to
increase, although such expenses as a percentage of total revenues will vary
from period to period.
Other Income (Expense). Other income was $0.5 million and $0.6 million for
the three months ended November 30, 1997 and 1996, respectively. Interest and
other income decreased to $0.3 million in the three months ended November 30,
1997 from $0.4 million in the three months ended November 30, 1996 . The Company
had a foreign exchange gain of $0.2 million in the three months ended November
30, 1997 and 1996, respectively. To the extent the Company is unable to match
revenue received in foreign currencies with expenses paid in the same currency,
it is exposed to fluctuations in international currency transactions.
Income Taxes. Variations in the customary relationship between the
provision for income taxes and the statutory income tax rate primarily result
from the utilization of research and development tax credits, state and local
income taxes, and exempt income of the Company's foreign sales corporation. The
Company's effective income tax rates were 37.5% and 39.0% for the three months
ended November 30, 1997 and 1996, respectively.
Liquidity and Capital Resources
The Company's principal cash requirement to date has been to fund working
capital and capital expenditures in order to support the growth of revenues.
Historically, the Company has primarily financed this requirement through cash
flow from operations, bank borrowings and two public offerings for the Company's
common stock in 1995, which resulted in an aggregate of $41.1 million of net
proceeds to the Company. Cash flow from operations was $1.7 million and $(1.6)
million for the six months ended November 30, 1997 and 1996, respectively. At
November 30, 1997, the Company had working capital of $56.0 million, including
$23.9 million of cash and cash equivalents and short-term investments. The
Company expects its working capital needs to increase along with planned future
revenue growth.
At November 30, 1997, current assets and current liabilities decreased by
$3.3 million and $4.1 million, respectively, compared to May 31, 1997. Current
assets decreased primarily as a result of a decrease in accounts receivable.
Current liabilities decreased primarily due to reduced levels of accrued
expenses.
<PAGE>
The average days sales outstanding (calculated by dividing the net accounts
receivable at the balance sheet date for each period by the average sales per
day during the quarter immediately preceding the balance sheet date) for this
period were approximately 101 days. The average days sales outstanding were 111
days, 83 days and 98 days at May 31, 1997, 1996 and 1995, respectively.
The Company's inventory increased to $14.7 million as of November 30, 1997
from $12.9 million as of May 31, 1997 due to lower than anticipated system
sales.
The Company has a $15.0 million unsecured line of credit with a bank which
expires on November 30, 1998. As of November 30, 1997, the Company had no
borrowings under this line of credit. Any borrowing on this line of credit will
bear interest at the prime rate.
The Company made capital expenditures totaling $3.6 million and $4.0
million during the six months ended November 30, 1997 and November 30, 1996,
respectively.
The Company believes that its existing sources of working capital and
borrowings available under its revolving line of credit will be sufficient to
fund its operations and capital expenditures for at least 12 months.
Foreign Currency Transaction
The Company does not currently engage in international currency hedging
transactions to mitigate its foreign currency exposure. Included in the foreign
exchange gain (loss) are unrealized foreign exchange gains and losses resulting
from the currency remeasurement of the financial statements of the Company's
foreign subsidiaries into U.S. dollars. To the extent the Company is unable to
match revenue received in foreign currencies with expenses paid in the same
currency, it is exposed to possible losses on international currency
transactions.
Inflation
In the opinion of management, inflation has not had a material effect on
the operations of the Company.
Recent Financial Accounting Standards Board Statements
Recent pronouncements if the Financial Accounting Standards Board ("FASB")
which are not required to be adopted at this date include, Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information ("SFAS 131"), Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"),
Statement of Financial Accounting Standards No 129, "Disclosure of Information
about Capital Structure" ("SFAS 129") , and Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS 131 and SFAS 130 are
effective for fiscal years beginning after December 15, 1997 and SFAS 129 and
128 are effective for fiscal years ending December 31, 1997. The adoption of
these pronouncements is not expected to have a material impact on the Company's
consolidated financial statements.
Certain Factors That May Affect Future Results
From time to time, information provided by the Company, statements made by
its employees or information included in its filings with the Securities and
Exchange Commission (including this Form 10-Q) may contain statements which are
so-called "forward-looking statements" and not historical facts. These
forward-looking statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. The Company's actual
future results may differ significantly from those stated in any forward-looking
statements. Forward-looking statements involve a number of risks and
uncertainties, including, but not limited to, product demand, pricing, market
acceptance, litigation, risks in product and technology development and other
risk factors detailed from time to time in the Company's Securities and Exchange
Commission reports including this Form 10-Q for the fiscal quarter ended
November 30, 1997 and its Form 10-K for the fiscal year ended May 31, 1997.
<PAGE>
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
With particular regard to the possible variability of quarterly results,
fluctuations may occur as a result of factors including the length of the sales
cycle, the timing of orders from shipments to customers, delays in developments
and customer acceptance of custom software applications, new product
introductions or announcements by the products and the hiring and training of
additional staff as well as general economic conditions.
Historically, the size and timing of the Company's sales transactions have
varied substantially from quarter, with a substantial percentage of orders and
deliveries occurring in the final weeks of a quarter, and the Company expects
such variations to continue in future periods. Because a significant portion of
the Company's overhead is fixed in the short-term, the Company's results of
operations may be materially adversely affected if revenues fall below the
Company's expectations. Generally, the Compan s inventory of computer and
telephony hardware is determined by the Company's forecast of sales during the
future periods. If management's forecasts of product sales and product mix prove
to be inaccurate, the Company may not have the necessary inventory available to
deliver systems in a timely manner which may have a material adverse effect on
the Company's results of operations during such period.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In April, 1997, Lucent Technologies, Inc. ("Lucent") notified the Company
that certain of the Company's products were, in Lucent's opinion, infringing
certain Lucent patents. The Company has reviewed the information which Lucent
furnished concerning these patents, and the Company currently believes that its
products do not violate any valid claims of the identified patents. In
September, 1997, Lucent advised the Company that in Lucent's opinion additional
Lucent patents were being infringed by the Company's products and offered a
license on the identified patents. The Company is currently evaluating these
additional patents, and has not made a determination as to the validity of
Lucent's assertions.
If the Company does determine that, for business or legal reasons, it needs
to obtain licenses from Lucent for the use of one or more patents, there can be
no assurance that the terms of such licenses, including payments to Lucent for
products previously sold and for future sales, would not have a material adverse
affect on the Company's financial condition or results of operations. In the
event the Company decides not to seek such licenses, or if the Company cannot
reach a satisfactory agreement with Lucent as to the terms of one or more
licenses, the Company could become involved in litigation which could be costly
and distracting to its management. There can be no assurance as to the ultimate
outcome of any litigation, or that the costs and effects of such litigation
would not have a material adverse affect on the Company's business, financial
condition or results of operations.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
(a) On November 12, 1997, the Company held its Annual Meeting of
Stockholders (the "Meeting").
(b) At the Meeting, the Stockholders of the Company elected Peter J. Cohen
and Jayandra Patel as Class III directors.
(c) At the Meeting, the Stockholders of the Company approved the amendment
of the Company's 1995 Stock Option Plan to increase the number of shares
reserved for issuance thereunder from 1,200,000 to 2,200,000.
(d) The Stockholders of the Company then ratified the selection of Deloitte
& Touche LLP as the Company's independent auditors for the fiscal year ending
May 31 1998. The following sets forth the results of voting on each matter voted
upon at the meeting:
1. Election of Directors
For Against
Peter J. Cohen 10,415,030 317,250
Jayandra Patel 10,415,130 317,150
2. Amendment of the Company's 1995 Stock Option Plan
For Against
5,224,043 606,481
3. Ratification of Deloitte & Touche LLP as the Company's independent
auditors for the fiscal year ending May 31, 1998
For Against
10,666,731 48,795
<PAGE>
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 1995 Stock Option Plan as amended
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
<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.
PERIPHONICS CORPORATION
Registrant
By: s/Peter J. Cohen
----------------
Peter J. Cohen
Chairman of the Board, President
and Chief Executive Officer
(Principal Operating Officer)
By: s/Kevin J. O'Brien
------------------
Kevin J. O'Brien
Chief Financial Officer, Vice
President-Finance and Administration
(Principal Accounting Officer),
Secretary and Director
Dated: January 14, 1998
EXHIBIT 10.1
PERIPHONICS CORPORATION
1995 STOCK OPTION PLAN, AS AMENDED
1. PURPOSE.
The purpose of this Stock Option Plan, to be known as the 1995 Stock Option
Plan (the "Plan"), is to advance the interests of Periphonics Corporation (the
"Company") by enhancing the ability of the Company to attract and retain
selected employees, consultants, advisors to the Board of Directors and
qualified directors (collectively the "Participants") by creating for such
Participants incentives and rewards for their contributions to the success of
the Company, and by encouraging such Participants to become owners of shares of
the Company's Common Stock, par value $0.01 per share, as the title or par value
may be amended (the "Common Stock"). Options granted pursuant to the Plan may be
incentive stock options ("Incentive Options") as defined in the Internal Revenue
Code of 1986, as amended (the "Code") or non-qualified options, or both. The
proceeds received from the sale of Shares pursuant to the Plan shall be used for
general corporate purposes.
2. EFFECTIVE DATE OF PLAN.
The Plan will become effective upon approval by the Board of Directors (the
"Board"), and shall be subject to the approval of the shareholders of the
Company as provided under the Securities Act of 1933, as amended (the "Act").
3. AVAILABLE SHARES.
The total number of shares of Common Stock for which options may be granted
under the Plan shall not exceed 2,200,000 shares, subject to adjustment in
accordance with Paragraph 12 of the Plan. Shares of Common Stock subject to the
Plan are authorized but unissued shares of Common Stock or shares of Common
Stock that were once issued and subsequently reacquired by the Company. If any
options granted under the Plan are surrendered before exercise or lapse without
exercise, in whole or in part, the shares of Common Stock reserved therefor
shall continue to be available under the Plan.
4. ADMINISTRATION.
The Plan shall be administered by the Board or by a committee appointed by
the Board (the "Committee"). In the event the Board fails to appoint or refrains
from appointing a Committee, the Board shall have all power and authority to
administer the Plan. In such event, the word "Committee" wherever used shall be
deemed to mean the Board. The Committee shall, subject to the provisions of the
Plan, have the power to construe the Plan, to determine all questions hereunder,
and to adopt and amend such rules and regulations for the administration of the
Plan as it may deem desirable. The Committee shall consist of not fewer than two
members. Each of the members of the Committee must be a "disinterested person"
as that term is defined in Rule 16b-3 adopted pursuant to the Securities
Exchange Act of 1934 (the "Exchange Act"). A majority of the members of the
Committee shall constitute a quorum, and all determinations of the Committee
shall be made by the majority of its members present at a meeting. Any
determination of the Committee under the Plan may be made without notice or
meeting of the Committee by a writing signed by all of the Committee members.
5. ELIGIBILITY.
The Participants in the Plan shall be all employees, consultants, advisors
to the Board of Directors and qualified directors of the Company or any of its
present or future subsidiaries whether or not they are also officers of the
Company. Members of the Committee are eligible only if they do not exercise any
discretion in selecting Participants who receive grants of options, in
determining the number of shares to be granted to any Participant or in
determining the exercise price of any options, or if counsel to the Company may
otherwise advise the Committee that the taking of any such action does not
impair the status of such eligible Committee members as "disinterested persons"
within the meaning of Exchange Act Rule 16b-3.
<PAGE>
6. GRANTING OF OPTIONS.
(a) Subject to the provisions of the Plan, the Committee, with the approval
of the Chief Executive Officer of the Company, shall determine and designate
from time to time those persons to whom options are to be granted. Options shall
be granted on such terms as the Committee, with the approval of the Chief
Executive Officer of the Company, shall determine except that Incentive Options
shall be granted on terms that comply with the Code and Regulations thereunder.
(b) No options shall be granted after February 8, 2005 but options
previously granted may extend beyond that date.
7. EXERCISE PRICE.
The purchase price of the Common Stock covered by an option granted
pursuant to the Plan shall be 100% of the fair market value per share of a share
of Common Stock on the day the option is granted (the "Exercise Price").
Notwithstanding the foregoing, if any person to whom an option is to be granted
owns in excess of ten percent of the outstanding capital stock of the Company,
then no option may be granted to such person for less than 110% of the fair
market value on the date of grant as determined by the Board. The Exercise Price
will be subject to adjustment in accordance with the provisions of Paragraph 10
of the Plan. For purposes of the Plan, "fair market value" shall be (i) the
closing price of the Company's Common Stock appearing on a national securities
exchange if the Company's Common Stock is listed on such an exchange, or if not
listed, the closing bid price appearing on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"); or (ii) if the Shares
are not listed on NASDAQ, then the closing bid price for the Company's Common
Stock as listed in the National Quotation Bureau's pink sheets; or (iii) if
there are no listed bid prices published in the pink sheets, then the market
value shall be based upon the closing bid price as determined following a
polling of all dealers making a market in the Company's Common Stock.
8. PERIOD OF OPTION.
Unless sooner terminated in accordance with the provisions of Paragraph 10
of the Plan, an option granted hereunder shall be for a term of five (5) years.
9. VESTING OF SHARES AND NON-TRANSFERABILITY OF OPTIONS.
(a) Vesting. Options granted under the Plan shall not be exercisable until
they become vested. Options granted shall vest in the optionee and become
immediately exercisable by the optionee in four annual installments of 25% each
on the first, second, third and fourth anniversaries of the date of grant.
(b) Legend on Certificates. The certificates representing such shares of
Common Stock shall carry such appropriate legends, and such written instructions
shall be given to the Company's transfer agent, as may be deemed necessary or
advisable by counsel to the Company in order to comply with the requirements of
the Securities Act of 1933 or any state securities laws.
(c) Non-transferability. Any option granted pursuant to the Plan shall not
be assignable or transferable other than by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined by
the Code, or Title I of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or the rules thereunder, and shall be exercisable during the
optionee's lifetime only by him or her.
10. TERMINATION OF OPTION RIGHTS.
All previously unexercised options including options which have not vested
shall terminate and be forfeited automatically upon the termination for any
reason whatsoever of a Participant's status as an employee, consultant or
advisor to the Board other than termination by reason of the Participant's death
or permanent disability.
If a Participant dies or becomes permanently disabled at a time when he is
entitled to exercise an option, then at any time or times within one year after
his death or permanent disability such options may be exercised, as to all or
any of the Shares which the Participant was entitled to purchase immediately
prior to his death or Permanent Disability, by the Participant or, in the case
of death, by his personal representative or the person or persons to whom the
options are transferred by will or the applicable laws of descent and
distribution, and except as so exercised such options will expire at the end of
such period.
<PAGE>
11. EXERCISE OF OPTION.
Subject to the terms and conditions of the Plan and the option agreements,
an option granted hereunder shall, to the extent then exercisable, be
exercisable in whole or in part by giving written notice to the Company by mail
or in person addressed to Periphonics Corporation, 4000 Veterans Memorial
Highway, Bohemia, New York 11716, Attention: Chief Financial Officer, stating
the number of shares of Common Stock with respect to which the option is being
exercised, accompanied by payment in full for such shares of Common Stock.
Payment may be made:
(a) in United States dollars in cash or by certified check; or
(b) by tendering shares of Common Stock of the Company already owned by the
person or persons exercising the option (provided that such shares of Common
Stock have been owned for at least six months prior to tender), valued at fair
market value determined in accordance with the provisions of Paragraph 7; or
(c) by a combination of cash or certified check and Common Stock as
provided in (a) and (b) above; or
(d) in the discretion of the Committee, by the issuance by an optionee of a
promissory note, which shall be payable in more or more installments and over
such period of time (not in excess of five years) as determined by the Committee
and shall bear interest at such rate as shall be determined by the Committee,
which in no event shall be less than the minimum rate required by the provisions
of Section 483 of the Code to award the imputation of income to such optionee.
The Company's transfer agent shall, on behalf of the Company, prepare a
certificate or certificates representing such shares of Common Stock acquired
pursuant to exercise of the option, shall register the optionee as the owner of
such shares of Common Stock on the books of the Company and shall cause the
fully executed certificate(s) representing such shares of Common Stock to be
delivered to the optionee as soon as practicably after payment of the option
price in full.
The holder of an option shall not have any rights of a stockholder with
respect to the shares of Common Stock covered by the option, except to the
extent that one or more certificates for such shares of Common Stock shall be
delivered to him or her upon the due exercise of the option.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION AND OTHER MATTERS.
Upon the occurrence of any of the following events, an optionee's rights
with respect to options granted to him or her hereunder shall be adjusted as
hereinafter provided:
(a) Stock Dividends and Stock Splits. If the shares of Common Stock shall
be subdivided or combined into a greater or smaller number of shares or if the
Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock deliverable upon
the exercise of options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend.
<PAGE>
(b) Merger; Consolidation; Liquidation; Sale of Assets. In the event the
Company is merged into or consolidated with another corporation under
circumstances where the Company is not the surviving corporation, or if the
Company is liquidated or sells or otherwise disposes of all or substantially all
of its assets to another corporation while unexercised options remain
outstanding under the Plan:
(i) subject to the provisions of clauses (iii), (iv) and (v) below, after
the effective date of such merger, consolidation or sale, as the case may be,
each holder of an outstanding option shall be entitled, upon exercise of such
option, to receive in lieu of shares of Common Stock, shares of such stock or
other securities as the holders of the shares of Common Stock received pursuant
to the terms of the merger, consolidation or sale; or
(ii) the Committee may waive any discretionary limitations imposed with
respect to the exercise of the option so that all options from and after a date
prior to the effective date of such merger, consolidation, liquidation or sale,
as the case may be, specified by the Committee, shall be exercisable in full; or
(iii) all outstanding options may be cancelled by the Committee as of the
effective date of any such merger, consolidation, liquidation or sale, provided
that notice of such cancellation shall be given to each holder of an option, and
each holder thereof shall have the right to exercise such option in full
(without regard to any discretionary limitations imposed with respect to the
option) during a 30-day period preceding the effective date of such merger,
consolidation, liquidation or sale; or
(iv) all outstanding options may be cancelled by the Committee as of the
date of any such merger, consolidation, liquidation or sale, provided that
notice of such cancellation shall be given to each holder of an option and each
such holder thereof shall have the right to exercise such option but only to the
extent exercisable in accordance with any discretionary limitations imposed with
respect to the option prior to the effective date of such merger, consolidation,
liquidation or sale; or
(v) the Committee may provide for the cancellation of all outstanding
options and for the payment to the holders of some part or all of the amount by
which the value thereof exceeds the payment, if any, which the holder would have
been required to make to exercise such option.
(c) Issuance of Securities. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
subject to options, provided, however, in the event the Company issues or sells
any Common Stock or Common Stock Equivalents without consideration or for
consideration per share less than the current fair market value per share (as
defined in Paragraph 7 above) on the date of such issuance or sale, or fixes a
record date for the issuance of subscription rights, options or warrants to all
holders of Common Stock entitling them to purchase Common Stock (or Common Stock
Equivalents) at a price per share (or having an exercise or conversion price per
share) less than the then current fair market value per share, the Exercise
Price shall be adjusted so that it will equal the price determined by
multiplying the Exercise Price in effect immediately prior to the adjustment by
a fraction, of which the numerator shall be (i) the number of shares outstanding
on the record date for such sale or issuance, plus (ii) the number of additional
shares which the aggregate consideration received by the Company upon such
issuance or sale (plus the aggregate of any additional amount to be received by
the Company upon the exercise of such subscription rights, options or warrants)
would purchase at the fair market value, and of which the denominator shall be
(x) the number of shares outstanding on the record date for such issuance or
sale, plus (y) the number of additional shares offered for subscription or
purchase (or into which the Common Stock Equivalents so offered are exercisable
or convertible). Each adjustment shall become effective retroactively
immediately after the record date for the issuance. To the extent that Common
Stock (or Common Stock Equivalents) are not delivered after the expiration of
such subscription rights, options or warrants, the Exercise Price shall be
readjusted to the Exercise Price which would then be in effect had the
adjustments made upon the issuance of such rights, options or warrants been made
upon the basis of delivery of only the number of shares (or Common Stock
Equivalents) actually delivered. No adjustments shall be made for dividends paid
in cash or in property other than securities of the Company.
(d) Adjustments. Upon the happening of any of the foregoing events, the
class and aggregate number of shares set forth in Paragraph 3 of the Plan that
are subject to options which previously have been or subsequently may be granted
under the Plan shall also be appropriately adjusted to reflect such events. The
Committee shall determine the specific adjustments to be made under this
Paragraph 12 and its determination shall be conclusive.
<PAGE>
13. RESTRICTIONS ON ISSUANCE OF SHARES.
Notwithstanding the provisions of Paragraphs 9 and 11 of the Plan, the
Company shall not be obligated to deliver any Common Stock unless and until, in
the opinion of the Company's counsel, all applicable federal and state laws and
regulations have been complied with, nor, if the outstanding Common Stock is at
the time listed on any securities exchange, unless and until the Common Stock to
be delivered has been listed (or authorized to be added to the list upon
official notice of issuance) upon such exchange, nor unless or until all other
legal matters in connection with the issuance and delivery of the Common Stock
have been approved by the Company's counsel.
14. REPRESENTATION OF OPTIONEE.
If requested by the Company, the optionee shall deliver to the Company
written representations and warranties upon exercise of the option that are
necessary to show compliance with Federal and state securities laws, including
representations and warranties to the effect that a purchase of shares under the
option is made for investment and not with a view to their distribution (as that
term is used in Securities Act of 1933).
15. OPTION AGREEMENT.
Each option is granted under the provisions of the Plan shall be evidenced
by an option agreement, which agreement shall be duly executed and delivered on
behalf of the Company and by the optionee to whom such option is granted. The
option agreement shall contain such terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Committee.
16. TERMINATION AND AMENDMENT OF PLAN.
Options may no longer be granted under the Plan after February 8, 2005, and
the Plan shall terminate when all options granted or to be granted hereunder are
no longer outstanding. The Committee may at any time terminate the Plan or make
such modification or amendment thereof as it deems advisable; provided, however,
that the Committee may not, without approval by the affirmative vote of the
holders of a majority of the shares of Common Stock present in person or by
proxy and entitled to vote at the meeting:
(a) increase the maximum number of shares for which options may be granted
under the Plan (except by adjustment pursuant to Section 12);
(b) materially modify the requirements as to eligibility to participate in
the Plan;
(c) materially increase benefits accruing to option holders under the Plan;
or
(d) amend the Plan in any manner which would cause Rule 16b-3 to become
inapplicable to the Plan;
and provided further that the provisions of the Plan specified in Rule
16b-3(c)(2)(ii)(A) (or any successor or amended provision thereof) under the
Securities Exchange Act of 1934 (including, without limitation, provisions as to
eligibility, amount, price, and timing of awards) may not be amended more than
once every six months, other than to comport with changes in the Internal
Revenue Code, ERISA, or the rules thereunder. Termination or any modification or
amendment of the Plan shall not, without consent of a participant, affect his or
her rights under an option previously granted to him or her.
<PAGE>
17. WITHHOLDING OF INCOME TAXES.
Upon the exercise of an option, the Company, in accordance with Section
3402(a) of the Internal Revenue Code, may require the optionee to pay
withholding taxes in respect of amounts considered to be compensation includible
in the optionee's gross income.
18. COMPLIANCE WITH REGULATIONS.
It is the Company's intent that the Plan comply with all respects with Rule
16b-3 under the Securities Exchange Act of 1934 (or any successor or amended
version thereof) and any applicable Securities and Exchange Commission
interpretations thereof. If any provision of the Plan is deemed not be in
compliance with Rule 16b-3, the provision shall be null and void.
19. GOVERNING LAW.
The validity and construction of the Plan and the instruments evidencing
options shall be governed by the laws of the State of Delaware, without giving
effect to the principles of conflicts of law thereof.
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<NAME> Periphonics Corporation
<S> <C>
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