UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
----- Exchange Act of 1934. For the quarterly period ended September 27,
1998.
or
Transition report pursuant to Section 13 or 15(d) of the Securities
----- Exchange Act of 1934. For the transition period from _________________
to ________________.
Commission file number: 0-24020
SYPRIS SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 61-1321992
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
455 South Fourth Street
Louisville, Kentucky 40202
(Address of principal executive offices, including zip code)
(502) 585-5544
(Registrant's telephone number, including area code)
________________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
As of October 15, 1998 there were 9,448,122 shares of the registrant's Common
Stock outstanding.
INDEX
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Operations for the Three and
Nine Months ended September 27, 1998 and September
28, 1997......................................................................... 2
Consolidated Balance Sheets at September 27, 1998 and
December 31, 1997................................................................ 3
Consolidated Statements of Cash Flows for the Nine Months
ended September 27, 1998 and September 28, 1997.................................. 4
Notes to Condensed Consolidated Financial Statements.............................. 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................... 8
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds......................................... 13
Item 6. Exhibits and Reports on Form 8-K.................................................. 13
Signatures.......................................................................................... 14
Page 1
Part I. Financial Information
Item 1. Financial Statements
Sypris Solutions, Inc.
Consolidated Statements of Operations
(in thousands, except for per share data)
Three Months Ended Nine Months Ended
------------------------------ ------------------------------
September 27, September 28, September 27, September 28,
1998 1997 1998 1997
-------------- -------------- -------------- --------------
(Unaudited) (Unaudited)
Net revenue........................................................ $46,936 $47,752 $157,622 $159,236
Cost of sales...................................................... 35,976 40,376 122,598 136,647
------- ------- -------- --------
Gross profit..................................................... 10,960 7,376 35,024 22,589
Selling, general and administrative expense........................ 5,930 7,015 20,785 19,750
Research and development........................................... 1,401 726 4,261 2,522
Amortization of intangible assets.................................. 330 38 814 169
------- ------- -------- --------
Operating income (loss).......................................... 3,299 (403) 9,164 148
Interest expense, net.............................................. 243 72 993 1,724
Other income, net.................................................. (58) (3,119) (150) (3,643)
------- ------- -------- --------
Income before income taxes, minority interests and discontinued
operations........................................................ 3,114 2,644 8,321 2,067
Income tax expense................................................. 1,194 582 3,254 750
------- ------- -------- --------
Income before minority interests and discontinued operations....... 1,920 2,062 5,067 1,317
Minority interests in (earnings) losses of consolidated
subsidiaries...................................................... -- (206) -- 717
------- ------- -------- --------
Income from continuing operations.................................. 1,920 1,856 5,067 2,034
Loss from discontinued operations (net of applicable tax of $26
and $164 for the three and nine months ended September 28, 1997,
respectively)..................................................... -- (51) -- (327)
Gain on disposal of discontinued operations (net of applicable tax
of $2,160)........................................................ -- -- -- 4,192
------- ------- -------- --------
Net income......................................................... $ 1,920 $ 1,805 $ 5,067 $ 5,899
======= ======= ======== ========
Pro forma net income per common share:
Basic............................................................ $0.20 $0.21 $0.54 $0.55
Diluted.......................................................... $0.20 $0.20 $0.52 $0.53
Pro forma shares used in computing per common share amounts:
Basic............................................................ 9,438 9,424 9,432 9,424
Diluted.......................................................... 9,784 9,826 9,797 9,826
The accompanying notes are an integral part of the condensed consolidated
financial statements.
Page 2
Sypris Solutions, Inc.
Consolidated Balance Sheets
(in thousands, except for share data)
September 27, December 31,
1998 1997
------------- ------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents................................................. $ 11,674 $ 9,836
Accounts receivable, net.................................................. 24,083 28,560
Inventory, net............................................................ 40,360 44,867
Other current assets...................................................... 1,195 2,062
-------- --------
Total current assets..................................................... 77,312 85,325
Property, plant and equipment, net......................................... 26,032 26,885
Other assets............................................................... 15,314 8,398
-------- --------
$118,658 $120,608
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable.......................................................... $ 11,311 $ 14,858
Accrued liabilities....................................................... 28,821 31,867
Current portion of long-term debt......................................... 9,731 3,477
-------- --------
Total current liabilities................................................ 49,863 50,202
Long-term debt............................................................. 15,057 27,863
Other noncurrent liabilities............................................... 5,540 10,325
-------- --------
Total liabilities........................................................ 70,460 88,390
Minority interests in subsidiaries......................................... -- 3,569
Redeemable common stock.................................................... -- 921
Shareholders' equity:
Common stock, $.01 par value, 20,000,000 shares authorized;
9,448,122 shares issued and outstanding in 1998.......................... 94 7,892
Additional paid-in capital................................................ 23,278 --
Retained earnings......................................................... 24,826 19,836
-------- --------
Total shareholders' equity.............................................. 48,198 27,728
-------- --------
$118,658 $120,608
======== ========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
Page 3
Sypris Solutions, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Nine Months Ended
------------------------------
September 27, September 28,
1998 1997
-------------- --------------
(Unaudited)
Cash flows from operating activities:
Net income................................................................................... $ 5,067 $ 5,899
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization............................................................. 5,389 5,832
Minority interests in losses of consolidated subsidiaries................................. -- (717)
Gain on disposal of discontinued operations, net of tax................................... -- (4,192)
Other noncash credits..................................................................... (284) (2,778)
Changes in operating assets and liabilities, net of dispositions:
Accounts receivable...................................................................... 4,307 7,631
Inventory................................................................................ 4,342 (5,300)
Other current and noncurrent assets...................................................... 867 (1,339)
Accounts payable......................................................................... (3,547) (5,940)
Accrued and other liabilities............................................................ (3,046) 178
------- --------
Net cash provided by (used in) operating activities..................................... 13,095 (726)
Cash flows from investing activities:
Capital expenditures......................................................................... (3,733) (4,094)
Proceeds from disposal of assets............................................................. -- 39,588
Other........................................................................................ (1,138) (323)
------- --------
Net cash (used in) provided by investing activities..................................... (4,871) 35,171
Cash flows from financing activities:
Net repayments under revolving credit agreements............................................. (4,719) (15,331)
Proceeds from long-term debt................................................................. -- 10,000
Repayments of notes payable and long-term debt............................................... (1,636) (23,483)
Proceeds from issuance of common stock....................................................... 32 --
Payments for redemption of common stock in subsidiaries, net................................. (63) (1,446)
------- --------
Net cash used in financing activities................................................... (6,386) (30,260)
------- --------
Net increase in cash and cash equivalents..................................................... 1,838 4,185
Cash and cash equivalents at beginning of period.............................................. 9,836 6,012
------- --------
Cash and cash equivalents at end of period.................................................... $11,674 $ 10,197
======= ========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
Page 4
Sypris Solutions, Inc.
Notes to Condensed Consolidated Financial Statements
(1) Organization
Effective March 30, 1998, Group Financial Partners, Inc. ("GFP") and its
majority-owned subsidiaries, Bell Technologies, Inc. ("Bell") and Tube Turns
Technologies, Inc. ("Tube Turns"), were merged with and into GFP's majority-
owned subsidiary, Group Technologies Corporation ("GTC"), or subsidiaries of
GTC, in a series of transactions pursuant to the Fourth Amended and Restated
Plan of Reorganization dated as of February 5, 1998 (the "Reorganization").
After completion of the Reorganization, GTC effected a 1-for-4 stock split (the
"Reverse Stock Split") and merged with and into Sypris Solutions, Inc. (the
"Company" or "Sypris"), a wholly-owned subsidiary incorporated in the state of
Delaware, and Bell, Metrum-Datatape, Inc. ("Metrum-Datatape"), Tube Turns and
GTC became wholly-owned subsidiaries of Sypris. Sypris thereafter assumed the
listing of GTC on the Nasdaq Stock Market under the new symbol SYPR.
Sypris is a diversified provider of specialized industrial products and
technical services. The Company's products range from integrated data
acquisition, storage and retrieval systems, magnetic instruments and current
sensors to high pressure closures and other industrial products. The Company's
technical services include a variety of specialized engineering, manufacturing,
testing, calibration and encryption capabilities.
(2) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
include the accounts of Sypris and its subsidiaries and have been prepared by
the Company in accordance with the rules and regulations of the Securities and
Exchange Commission (the "Commission"). All significant intercompany
transactions and accounts have been eliminated. These unaudited condensed
consolidated financial statements reflect, in the opinion of management, all
material adjustments (which include only normal recurring adjustments) necessary
to fairly state the results of operations, financial position and cash flows for
the periods presented, and the disclosures herein are adequate to make the
information presented not misleading. Preparing financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenue and expenses. Actual results for the three and nine
months ended September 27, 1998 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1998. These unaudited
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements, and notes thereto, for the year ended
December 31, 1997 as presented in the Company's report on Form 8-K filed with
the Commission on April 14, 1998, and as amended on Form 8-K/A filed with the
Commission on May 13, 1998.
The historical financial statements presented in this report as of and for
the periods ended prior to the Reorganization are the consolidated financial
statements of GFP, since GFP is deemed to be the acquirer from an accounting
point of view. During the year ended December 31, 1997, the Company operated on
a calendar monthly closing period except for GTC, which operated under a fiscal
monthly closing period that resulted in the third quarter ending on September
28, 1997. For ease of presentation, the Company has used GTC's third quarter
closing date of September 28, 1997 as the date for the accompanying financial
statements and notes thereto. Certain amounts in the Company's 1997 consolidated
financial statements have been reclassified to conform with the 1998
presentation.
Effective with the Reorganization, the purchase accounting adjustments
necessary to reflect the purchase of the minority interests of GTC and the
issuance of the common stock of GTC to the shareholders of Bell and Tube Turns
were recorded in the Company's consolidated financial statements. The final
purchase accounting allocation is dependent upon certain valuations that have
not progressed sufficiently to enable the Company to make a final allocation
and, accordingly, the entire amount is classified as other assets in the
accompanying balance sheet at September 27, 1998. The Company anticipates
adjustments related to the final purchase accounting allocation will not
materially change amounts presented in the accompanying consolidated financial
statements.
Page 5
(3) Pro Forma Net Income per Common Share
For the three and nine months ended September 28, 1997, the consolidated
statements of operations of GFP reflect minority interests in earnings and
losses of consolidated subsidiaries, respectively. Effective with the
Reorganization, all subsidiaries of GFP became wholly-owned subsidiaries of
Sypris and, accordingly, minority interests were eliminated. Per share amounts
for income from continuing operations and net income for periods ending prior to
the Reorganization have been computed excluding the effect of minority
interests.
For periods ended prior to the Reorganization, shares used in computing pro
forma basic and pro forma diluted net income per common share include the
outstanding shares of Sypris common stock as of the date of the Reorganization
and the dilution associated with common stock options issued prior to the
Reorganization. For the three and nine-month periods ended September 27, 1998,
the computation also gives effect to the dilution associated with the issuance
of common stock options subsequent to the Reorganization.
The following table presents information necessary to calculate pro forma
net income per common share for the three and nine-month periods ended September
27, 1998 and September 28, 1997.
Three Months Ended Nine Months Ended
---------------------------- -----------------------------
September 27, September 28, September 27, September 28,
1998 1997 1998 1997
------------- ------------- -------------- -------------
(Unaudited) (Unaudited)
Pro forma shares outstanding (in thousands):
Weighted average shares outstanding.............................. 9,438 9,424 9,432 9,424
Effect of dilutive employee stock options........................ 346 402 365 402
------ ------ ------ ------
Adjusted weighted average shares outstanding and assumed
conversions..................................................... 9,784 9,826 9,797 9,826
====== ====== ====== ======
Income applicable to pro forma common stock (in thousands):
Income from continuing operations................................ $1,920 $1,856 $5,067 $2,034
Discontinued operations.......................................... -- (51) -- 3,865
------ ------ ----- ------
Net income....................................................... 1,920 1,805 5,067 5,899
Minority interests in earnings (losses) of consolidated
subsidiaries.................................................... -- 206 -- (717)
------ ------ ------ ------
Net income applicable to pro forma common stock.................. $1,920 $2,011 $5,067 $5,182
====== ====== ====== ======
Pro forma income per common share:
Basic income per common share
Income from continuing operations............................... $ 0.20 $ 0.22 $ 0.54 $ 0.14
Discontinued operations......................................... -- (0.01) -- 0.41
------ ------ ------ ------
Net income per common share..................................... $ 0.20 $ 0.21 $ 0.54 $ 0.55
====== ====== ====== ======
Diluted income per common share
Income from continuing operations............................... $ 0.20 $ 0.21 $ 0.52 $ 0.14
Discontinued operations......................................... -- (0.01) -- 0.39
------ ------ ------ ------
Net income per common share..................................... $ 0.20 $ 0.20 $ 0.52 $ 0.53
====== ====== ====== ======
Page 6
(4) Inventory
Inventory consists of the following (in thousands):
September 27, December 31,
1998 1997
------------- -----------
(Unaudited)
Raw materials.................................................. $ 29,408 $ 27,007
Work in process................................................ 15,210 14,954
Finished goods................................................. 2,373 6,725
Costs relating to long-term contracts and programs, net of
amounts attributed to revenue recognized to date.............. 15,592 17,729
Progress payments related to long-term contracts and programs.. (5,282) (5,189)
LIFO reserve................................................... (720) (720)
Reserve for excess and obsolete inventory...................... (16,221) (15,639)
-------- --------
$ 40,360 $ 44,867
======== ========
(5) Long-term Debt
The Company's borrowings under its revolving credit agreements (the "BT
Revolver") as of September 27, 1998 and December 31, 1997 were $11,500,000 and
$16,150,000, respectively. Although there have been no modifications to the
Company's credit agreement with its bank during the nine months ended September
27, 1998 which affect the maturity date of the BT Revolver on September 30,
2002, outstanding borrowings of $6,500,000 under the BT Revolver were classified
as current maturities of long-term debt at September 27, 1998 due to the
periodic use of the Company's cash balances for repayments of borrowings under
the BT Revolver. At December 31, 1997, all borrowings on the BT Revolver were
classified as long-term debt.
(6) Commitments and Contingencies
Tube Turns is a co-defendant in two lawsuits in Louisiana arising out of an
explosion in a coker plant owned by Exxon Corporation located in Baton Rouge,
Louisiana. The suits are being defended for Tube Turns by its insurance carrier
and the Company intends to vigorously defend its case. Tube Turns believes that
a settlement or related judgement would not result in a material loss to Tube
Turns or the Company.
More specifically, according to the complaints, Tube Turns is the alleged
manufacturer of a carbon steel pipe elbow, which failed causing the explosion
which destroyed the coker plant and caused unspecified damages to surrounding
property owners. One of the actions was brought by Exxon and claims damages for
destruction of the plant which Exxon estimates exceed one hundred million
dollars. In this action, Tube Turns is a co-defendant with the fabricator who
built the pipe line in which the elbow was incorporated and with the general
contractor for the plant. The second action is a class action suit filed on
behalf of the residents living around the plant and claims damages in an amount
as yet undetermined. Exxon is a co-defendant with Tube Turns, the contractor and
the fabricator in this action. In both actions, Tube Turns maintains that the
carbon steel pipe elbow at issue was appropriately marked as carbon steel and
was improperly installed, without the knowledge of Tube Turns, by the fabricator
and general contractor in a part of the plant requiring a chromium steel elbow.
Page 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The following table sets forth certain financial data, expressed as a
percentage of net revenue, from the Company's Consolidated Statements of
Operations for the three and nine-month periods ended September 27, 1998 and
September 28, 1997.
Three Months Ended Nine Months Ended
------------------------------- -------------------------------
September 27, September 28, September 27, September 28,
1998 1997 1998 1997
------------- ------------- ------------- -------------
Net revenue................................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales................................................. 76.6 84.6 77.8 85.8
----- ----- ----- -----
Gross profit................................................ 23.4 15.4 22.2 14.2
Selling, general and administrative expense................... 12.7 14.7 13.2 12.4
Research and development...................................... 3.0 1.5 2.7 1.6
Amortization of intangible assets............................. 0.7 0.1 0.5 0.1
----- ----- ----- -----
Operating income (loss)..................................... 7.0 (0.9) 5.8 0.1
Interest expense, net......................................... 0.5 0.2 0.6 1.1
Other income, net............................................. (0.1) (6.5) (0.1) (2.3)
----- ----- ----- -----
Income before income taxes, minority interests and
discontinued operations...................................... 6.7 5.4 5.3 1.3
Income tax expense............................................ 2.5 1.2 2.1 0.5
----- ----- ----- -----
Income before minority interests and discontinued operations.. 4.2 4.2 3.2 0.8
Minority interests in (earnings) losses of consolidated
subsidiaries................................................. -- (0.4) -- 0.5
----- ----- ----- -----
Income from continuing operations............................. 4.2 3.8 3.2 1.3
Loss from discontinued operations............................. -- (0.1) -- (0.2)
Gain on disposal of discontinued operations................... -- -- -- 2.6
----- ----- ----- -----
Net income.................................................... 4.2% 3.7% 3.2% 3.7%
===== ===== ===== =====
For reporting purposes, the operations of Bell, GTC and Metrum-Datatape are
included in the Electronics Services segment, and Tube Turns' operations are
included in the Industrial segment. Segment discussion is included in the
following discussion and analysis of the Company's consolidated results of
operations.
Net revenue for the third quarter of 1998 was $46.9 million, a decrease of
$0.9 million, or 1.7%, from $47.8 million for the third quarter of 1997. Net
revenue for the first nine months of 1998 was $157.6 million, a decrease of $1.6
million, or 1.0%, from $159.2 million for the first nine months of 1997. For the
quarter and nine months ended September 27, 1998, the Electronic Services
segment experienced a decrease in net revenue of $1.9 million and $6.9 million,
respectively, while the Industrial segment experienced an increase of $1.0
million and $5.3 million, respectively, compared to the year-earlier periods.
The decrease in Electronic Services' net revenue for the third quarter of 1998
was primarily attributable to the curtailment of contracts and decreased
shipment volumes for certain products, offset by the increase in the Company's
revenue by the acquisition of certain assets of Datatape, Inc. on November 14,
1997 (the "Datatape Acquisition"). The decrease in the Electronic Services
segment net revenue for the first nine months of 1998 was primarily attributable
to the divestiture of the Company's Latin American operations on June 30, 1997
(the "Latin American Divestiture"), the curtailment of certain contracts and
decreased shipment volumes for certain products, offset by the increase in
revenue due to the Datatape Acquisition.
Page 8
The expansion of the data acquisition, storage and retrieval product lines
resulting from the Datatape Acquisition generated net revenue of $7.4 million
and $19.5 million for the third quarter and first nine months of 1998,
respectively. The Latin American Divestiture resulted in net revenue of $16.9
million in the first nine months of 1997. A factor contributing to the decrease
in net revenue in the Electronic Services segment was the decision to improve
profitability by divesting high-volume, low-margin manufacturing operations and
expanding profitable Electronics Services products and services. The increase in
net revenue recognized by the Industrial segment for the third quarter and nine
months of 1998 compared to 1997 resulted primarily from an increase in shipments
to a customer based upon its commitment to use the Company as its sole source
for truck axles in its North American market.
Gross profit for the third quarter of 1998 was $11.0 million, an increase
of $3.6 million, or 48.6%, compared to $7.4 million for the third quarter of
1997. Gross profit for the first nine months of 1998 was $35.0 million, an
increase of $12.4 million, or 55.0%, compared to $22.6 million for the first
nine months of 1997. The Electronics Services segment accounted for $3.0 million
and $10.8 million of the increase in gross profit for the comparable quarter and
nine-month periods, respectively. This improvement is primarily attributable to
a change in revenue mix to higher margin products and services, which resulted
from a combination of the Latin American Divestiture, the Datatape Acquisition
and an increase in manufacturing and encryption services provided to government
agencies. While net revenue for the Electronics Services segment decreased for
the comparable quarter and nine-month periods, the favorable revenue mix and
improved cost management controls yielded an improvement in the gross profit
percentage to 24.5% and 23.0% from 15.9% and 14.0% for the comparable quarter
and nine-month periods in 1998 and 1997, respectively. The Industrial segment
experienced an increase in gross profit of $0.6 million and $1.6 million for the
comparable third quarter and nine-month periods, respectively. In addition to
the increased gross profit associated with higher net revenue for this business
segment, the gross profit percentage improved to 18.1% and 18.4% from 13.1% and
15.5% for the quarter and nine-month periods of 1998 and 1997, respectively,
primarily due to increased capacity utilization, a favorable product mix and
cost reductions on certain programs.
Selling, general and administrative expense for the third quarter of
1998 was $5.9 million, a decrease of $1.1 million, or 15.5%, compared to $7.0
million for the third quarter of 1997. Selling, general and administrative
expense for the first nine months of 1998 was $20.8 million, an increase of $1.0
million, or 5.2%, compared to $19.8 million for the first nine months of 1997.
The decrease in third quarter selling, general and administrative expense is
primarily attributable to certain administrative charges recognized in the third
quarter of 1997 associated with the Reorganization. The change in revenue mix
occurring in the Electronics Services segment gave rise to an increase in
selling, general and administrative expense for the comparable nine-month
periods, because the data acquisition, storage and retrieval product line's
expenses resulting from the Datatape Acquisition exceed those of the disposed
Latin American operations as a percentage of net revenue.
Research and development expense for the third quarter of 1998 was
$1.4 million, an increase of $0.7 million, or 93.0%, compared to $0.7 million
for the third quarter of 1997. Research and development expense for the first
nine months of 1998 was $4.3 million, an increase of $1.8 million, or 69.0%,
compared to $2.5 million for the first nine months of 1997. The increases in the
comparable third quarter and nine-month periods are primarily attributable to
the increase in the Company's data acquisition, storage and retrieval business
as a result of the Datatape Acquisition and new product development efforts
associated with the expansion of this product line.
Amortization of intangible assets increased in the third quarter and first
nine months of 1998 due to goodwill recognized for the Datatape Acquisition and
the preliminary purchase accounting allocation of step-up in basis recorded in
connection with the Reorganization (see "Notes to Condensed Consolidated
Financial Statements").
Interest expense for the third quarter of 1998 was $243,000, an
increase of $171,000, or 238%, from $72,000 for the third quarter of 1997. In
the third quarter of 1998, compared to 1997, the Company's weighted average debt
outstanding increased as a result of debt incurred to facilitate the Datatape
Acquisition. Interest expense for the first nine months of 1998 was $1.0
million, a decrease of $0.7 million, or 42.4%, from $1.7 million for the
comparable prior year period. This decrease is primarily due to a reduction in
the weighted average debt outstanding, a reduction in the Company's overall
costs of borrowing and a decrease in amortization expense for debt issuance
costs and stock warrants issued to a previous lender. The reduction in debt
outstanding during these
Page 9
periods is attributable to the repayment of debt from proceeds generated by the
Latin American Divestiture coupled with repayments generated by the Company's
improved cash flow from operations in 1998, partially offset by the debt
incurred to finance the Datatape Acquisition. The divestiture proceeds were used
to repay in full a credit facility on which the effective interest rate was
approximately 300 basis points over the Company's cost of borrowing under its
consolidated credit facility during 1998.
Other income during the quarter and nine months ended September 28,
1997 includes a gain recognized on the Latin American Divestiture totaling $3.2
million, after giving consideration to an expected repayment to the buyer of
$2.9 million, which is subject to final determination to be made in accordance
with the purchase and sale agreement.
Income tax expense, on an interim basis, is provided for at the anticipated
effective tax rate for the year.
Minority interests in earnings or losses of consolidated subsidiaries
reported for the third quarter and nine-month periods ended September 28, 1997
represents the minority shareholders' proportionate share of the earnings or
losses incurred by GTC. As part of the Reorganization in 1998, GTC became a
wholly-owned subsidiary of the Company (see "Notes to Condensed Consolidated
Financial Statements").
During the first quarter of 1997, the Company completed the sale of all of
the assets of its real estate operations. The consolidated statement of
operations for the nine months ended September 28, 1997 includes the loss from
discontinued operations incurred prior to the divestiture, and the gain from
sale of the discontinued real estate operations.
Liquidity, Capital Resources and Financial Condition
Net cash provided by operating activities totaled $13.1 million for
the first nine months of 1998 compared to net cash used in operating activities
of $0.7 million for the comparable period of 1997. Contributing to the
improvement in operating cash flow in the nine-month periods was an increase in
operating income in 1998 to $9.2 million, an increase of $9.1 million from $0.1
million in 1997. In addition, the Company experienced reductions in its
inventory levels in the first nine months of 1998 compared to an increase in
inventory levels during the comparable period of 1997. The decrease in inventory
during the first nine months of 1998 is attributable to the Electronics Services
segment and resulted from the utilization of inventory acquired for certain
contracts prior to the beginning of the period and a reduction in the material
requirements on contracts currently in progress.
Net cash used in investing activities totaled $4.9 million for the
first nine months of 1998, compared to net cash provided by investing activities
of $35.2 million for the comparable period in 1997. The Company's divestiture of
its real estate and Latin American operations generated $21.6 million and $18.0
million of cash in 1997, respectively, while capital expenditures remained
relatively consistent for the year-to-year comparable periods.
Net cash used in financing activities totaled $6.4 million and $30.3
million during the first nine months of 1998 and 1997, respectively. During
1997, in connection with the funds generated by the divestiture of its real
estate and Latin American operations, the Company repaid debt amounting to $18.7
million and $11.2 million, respectively. During March 1997, the Company entered
into a credit agreement under which proceeds from borrowings on consolidated
debt facilities were utilized to repay $15.4 million of debt outstanding under
credit agreements of certain subsidiaries.
Under the terms of the credit agreement between the Company and its
bank, the Company had total availability for borrowings and letters of credit
under its revolving credit loan of $18.5 million at September 27, 1998. Maximum
borrowings on the revolving credit loan are $30.0 million, subject to a $5.0
million limit for letters of credit.
The Company's balance sheet at September 27, 1998 includes the effect
of the Reorganization and, accordingly, the comparison to the balance sheet at
December 31, 1997 for other assets, other noncurrent liabilities, minority
interests in consolidated subsidiaries, redeemable common stock, common stock,
and additional paid-in capital reflects changes resulting from the purchase
accounting adjustments recorded pursuant to the Reorganization (see "Notes to
Condensed Consolidated Financial Statements").
Page 10
Year 2000
Some of the Company's older computer programs were written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time-sensitive software which recognize a date using "00" as the
year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
Sypris has implemented a company-wide Year 2000 Project (the "Y2K Project")
to address the Year 2000 issue. The Y2K Project encompasses both information
technology ("IT") and non-IT systems. The Y2K Project is being addressed by
project teams at each of the Company's subsidiaries and by the Company's IT
Committee, which consists of senior members of the IT departments from each
subsidiary.
Beginning in 1997, the Company began a program of reviewing its enterprise
resource planning ("ERP") systems to reduce the number of ERP systems utilized
across its business units and improve overall access to information. During
1998, the Company selected three primary ERP systems and is in the process of
implementing the upgrades or conversions for these new systems. All new ERP
systems are Year 2000 compliant and the implementations are scheduled for
completion at various dates ranging from the fourth quarter of 1998 through the
second quarter of 1999. The Company has a contingency plan for the
implementation of one ERP system, which provides for a Year 2000 compliance
patch to its current system in the event an unforeseen problem is encountered
during the total system conversion, and as a result, the conversion could not be
completed in a timely manner. The implementation of the contingency plan would
only become necessary in the event the ERP system conversion would not be
complete by the second quarter of 1999.
A detailed assessment of all IT systems is expected to be complete by the
fourth quarter of 1998. The project teams are developing and implementing plans
to correct problems identified during the assessment phase of the Y2K Project.
The implementation of the new ERP systems and the related hardware modifications
have addressed the majority of the Company's business systems. The Company has
also upgraded or replaced the majority of its personal computers and
standardized its desktop software applications over the past three years. The
Company expects that the testing and remediation of all IT systems will be
complete by the second quarter of 1999.
A detailed assessment of all non-IT systems is expected to be complete by
the first quarter of 1999. The Company has identified the critical non-IT
systems, which includes microcontroller based systems and other devices with
embedded chips used in the engineering, manufacturing and testing processes and
expects to complete the assessment, testing and remediation on the critical
systems by the first quarter of 1999. Completion of testing and remediation on
certain of the lower priority non-IT systems will continue during the second and
third quarters of 1999. The Company is also reviewing phone, security, HVAC and
other facility related systems and will complete the testing and remediation of
these systems by the second quarter of 1999.
Except as noted above in reference to the ERP system implementation, the
Company has not developed detailed contingency plans for the IT and non-IT
systems of the Y2K Project based on the portion of the assessment phase
completed through September 30, 1998. The Company will continue to monitor the
status of the Y2K Project through the second quarter of 1999 and will develop
contingency plans as necessary during this timeframe.
The Company has identified and is communicating with customers, suppliers
and other critical service providers to determine if entities with which the
Company transacts business have an effective plan in place to address the Year
2000 issue, and to determine the extent of the Company's vulnerability to the
failure of third parties to remediate their own Year 2000 issue. The Company is
relying on statements from our service and goods suppliers and is not auditing
suppliers' preparation plans. Risks associated with this approach are being
identified and contingency plans will be developed as needed.
As of September 27, 1998, Sypris has spent less than $50,000 on the Y2K
Project on both internal and external resources, primarily on the assessment
phase of the Y2K Project. Total costs to be incurred in the remainder of 1998
and 1999 to fix Year 2000 problems are estimated at approximately $700,000 and
are being funded through operating cash flows. Such costs do not include normal
system upgrades and replacements. The costs incurred by the Company for the new
ERP systems are considered to be normal system upgrades and replacements and,
therefore, are not included in costs for the Y2K Project. Sypris does not expect
the costs relating to Year 2000 remediation to have a material effect on our
results of operations or financial condition.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party suppliers and customers,
the
Page 11
Company is unable to determine at this time whether the consequences of Year
2000 failures will have a material impact on the Company's results of
operations, liquidity or financial condition. The Y2K Project is expected to
significantly reduce the Company's level of uncertainty about the Year 2000
problem and, in particular, about the Year 2000 compliance and readiness of its
material third-party suppliers and customers. The Company believes that, with
the implementation of new ERP systems and completion of the Y2K Project as
scheduled, the possibility of significant interruptions of normal operations
should be reduced.
Forward-looking Statements
This report contains forward-looking statements (as defined in the Private
Securities Litigation Reform Act of 1995) based on current plans and
expectations of Sypris, relating to, among other matters, analyses and estimates
of amounts that are not yet determinable. Such statements involve risks and
uncertainties which may cause actual future activities and results of operations
to be materially different from those suggested in this report, including, among
others: the Company's dependence on its current management; the risks and
uncertainties present in the Company's business; business conditions and growth
in the advanced manufacturing, engineering and testing services industry and the
general economy; competitive factors and price pressures; availability of third
party component parts at reasonable prices; inventory risks due to shifts in
market demand and/or price erosion of purchased components; changes in product
mix; cost and yield issues associated with the Company's manufacturing
facilities; as well as other factors described elsewhere in this report and in
the Company's other filings with the Commission.
Page 12
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds
On July 13, 1998, the Company issued 16,200 restricted shares of its
common stock (the "Restricted Shares"), which were not registered under the
Securities Act of 1933 (the "1933 Act"). The Restricted Shares were issued to
persons who are executive officers of the Company's subsidiary, Tube Turns
Technologies, Inc., a Kentucky corporation. No cash consideration was paid for
the Restricted Shares but the shares were issued as compensation to the
recipients of the shares. The Restricted Shares are subject to certain
restrictions on transfer. The fair market value of the Restricted Shares on the
date of issuance was $137,700. No underwriter was used in connection with the
issuance of the Restricted Shares. The issuance of the Restricted Shares was
made pursuant to the exemption from registration provided by Section 4(2) of the
1933 Act based on the limited number of recipients of the shares and their
relationship with the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit
Number Note Description
------ ---- -----------
10.15 Sypris Solutions, Inc. 1994 Stock Option Plan for Key Employees
Restated, amended effective July 1, 1998, dated October 27,
1994.
11 (1) Computation of Pro Forma Net Income per Common Share.
27 Financial Data Schedule
- ----------
(1) Data required by Statement of Financial Accounting Standards No. 128,
Earnings Per Share, is provided in Note 3 to the condensed consolidated
financial statements in this report.
(b) Reports on Form 8-K:
The Company filed no reports on Form 8-K during the quarter ended September
27, 1998.
Page 13
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.
SYPRIS SOLUTIONS, INC.
(Registrant)
Date: November 3, 1998 By: /s/ David D. Johnson
---------------- ------------------------------------
(David D. Johnson)
Vice President & Chief Financial Officer
Date: November 3, 1998 By: /s/ Anthony C. Allen
---------------- ------------------------------------
(Anthony C. Allen)
Vice President, Controller & Chief
Accounting Officer
Page 14
EXHIBIT 10.15
SYPRIS SOLUTIONS, INC.
1994 STOCK OPTION PLAN FOR KEY EMPLOYEES
ADOPTED ON OCTOBER 27, 1994
AS AMENDED AND RESTATED EFFECTIVE JULY 1, 1998
PREAMBLE
--------
The Sypris Solutions, Inc. Stock Option Plan for Key Employees is a
restatement of the Group Technologies Corporation 1994 Stock Option Plan for Key
Employees adopted by Group Technologies Corporation effective October 27, 1994.
Group Technologies Corporation was merged into Sypris Solutions, Inc. effective
March 30, 1998, with Sypris Solutions, Inc. being the surviving corporation.
Pursuant to the provisions of the plan, Group Technologies Corporation common
stock subject to the plan and outstanding options under the plan are
automatically by virtue of the merger converted into and replaced by Sypris
Solutions, Inc. common stock. The plan was amended and restated, effective March
1, 1998, to reflect the changes caused by the merger. The Plan is further
amended, effective July 1, 1998, as set forth herein, to provide for the
granting of performance-based options under the Plan.
1. Purpose. The purpose of the Sypris Solutions, Inc. 1994 Stock Option
Plan for Key Employees is to promote the interests of the Company by affording
an incentive to certain key employees to remain in the employ of the Company and
its Subsidiaries and to use their best efforts in its behalf and to aid the
Company and its Subsidiaries in attracting, maintaining, and developing capable
personnel of a caliber required to ensure the continued success of the Company
and its Subsidiaries by means of an offer to such persons of an opportunity to
acquire or increase their proprietary interest in the Company through the
granting of incentive stock options, nonstatutory stock options or performance-
based options to purchase the Company's stock pursuant to the terms of the Plan.
2. Definitions.
A. "Board" means the Company's Board of Directors.
B. "Code" means the Internal Revenue Code of 1986, as amended.
C. "Committee" means the Compensation Committee of the Board that
administers the Plan, pursuant to Section 4.
D. "Common Stock" means the Company's common stock, $.01 par value,
or the common stock or securities of a Successor that have been substituted
theretofore pursuant to Section 9.
E. "Company" means Sypris Solutions, Inc., a Delaware corporation,
with its principal place of business at 455 South Fourth Street, Suite 350,
Louisville, Kentucky 40202.
F. "Disability" means, as defined by and to be construed in
accordance with Code Section 22(e)(3), any medically determinable physical
or mental impairment that can be expected to result in death or that has
lasted or can be expected to last for a continuous period of not less than
twelve (12) months, and that renders Optionee unable to engage in any
substantial gainful activity. An Optionee shall not be considered to have a
Disability unless Optionee furnishes proof of the existence thereof in such
form and manner, and at such time, as the Committee may require.
G. "ISO" means an option to purchase Common Stock which at the time
the option is granted under the Plan qualifies as an incentive stock option
within the meaning of Code Section 422.
1
H. "NSO" means a nonstatutory stock option to purchase Common Stock
which at the time the option is granted under the Plan does not qualify as
an ISO.
I. "Option Price" means the price to be paid for Common Stock upon
the exercise of an option granted under the Plan in accordance with Section
7.B.
J. "Optionee" means an employee to whom options have been granted
under the Plan.
K. "Optionee Representative" means the Optionee's estate or the
person or persons entitled thereto by will or by applicable laws of descent
and distribution.
L. "Performance-Based Option" means an option granted pursuant to
the provisions of Section 7.O.
M. "Plan" means the Sypris Solutions, Inc. 1994 Stock Option Plan
for Key Employees, as set forth herein, and as amended from time to time.
N. "Subsidiary" shall mean any corporation which at the time an
option is granted under the Plan qualifies as a subsidiary of the Company
under the definition of "subsidiary corporation" contained in Code Section
424(f), or any similar provision thereafter enacted.
O. "Successor" means the entity surviving a merger or consolidation
with the Company, or the entity that acquires all or a substantial portion
of the Company's assets or outstanding capital stock (whether by merger,
purchase or otherwise).
P. "Target Share Price" means the price per share of Common Stock
set by the Board in the option agreement that establishes the point at
which a Performance-Based Option vests in accordance with Section 7.O.
Q. "Ten Percent Shareholder" means an employee who, at the time an
option is granted, owns stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or
Subsidiary employing the Optionee or of its parent (within the meaning of
Code Section 424(e)) or subsidiary (within the meaning of Code Section
424(f)) corporation.
3. Shares Subject to Plan.
A. Authorized Unissued or Treasury Shares. Subject to the
provisions of Section 9, the shares to be delivered upon exercise of options
granted under the Plan shall be made available, at the discretion of the Board,
from the authorized unissued shares or treasury shares of Common Stock.
B. Aggregate Number of Shares. Subject to adjustments and
substitutions made pursuant to the provisions of Section 9, the aggregate number
of shares that may be issued upon exercise of all options that may be granted
under the Plan effective March 30, 1998 shall not exceed one million two hundred
fifty thousand (1,250,000) of the Company's authorized shares of Common Stock.
Effective as of the date of approval by shareholders of the Company holding not
less than a majority of the votes represented and entitled to be voted at a duly
held meeting of the Company's shareholders, the aggregate number of shares shall
be increased to two million five hundred thousand (2,500,000) of the Company's
authorized shares of Common Stock.
C. Shares Subject to Expired Options. If any option granted under
the Plan expires or terminates for any reason without having been exercised in
full in accordance with the terms of the Plan, the shares of Common Stock
subject to, but not delivered under, the option shall become available for any
lawful corporate purpose, including for transfer pursuant to other options
granted to the same employee or other employees without decreasing the aggregate
number of shares of Common Stock that may be granted under the Plan.
2
4. Administration. The Plan shall be administered by the Compensation
Committee of the Board. The Compensation Committee shall have full power and
authority to construe, interpret, and administer the Plan and to adopt such
rules and regulations for carrying out the Plan as it may deem proper and in the
best interests of the Company.
5. Grant of Options.
A. Board Authority. Subject to the terms, provisions and conditions
of the Plan, the Board shall have full and final authority in its discretion:
(i) to select the employees to whom options shall be granted; (ii) to authorize
the granting of ISOs, NSOs, Performance-Based Options, or a combination of ISOs,
NSOs and Performance-Based Options; (iii) to determine the number of shares of
Common Stock subject to each option; (iv) to determine the time or times when
options shall be granted, the manner in which each option shall be exercisable,
and the duration of the exercise period; (v) to fix such other provisions of the
option agreement as it may deem necessary or desirable consistent with the terms
of the Plan; and (vi) to determine all other questions relating to the
administration of the Plan. The interpretation of any provisions of the Plan by
either the Board or the Compensation Committee shall be final, conclusive, and
binding upon all persons and the officers of the Company shall place into effect
and shall cause the Company to perform its obligations under the Plan in
accordance with the determinations of the Board or the Compensation Committee in
administering the Plan.
B. $100,000 ISO Limitation. Notwithstanding the foregoing, the
aggregate fair market value (determined as of the date the option is granted) of
the Common Stock for which ISOs shall first become exercisable by an Optionee in
any calendar year under all ISO plans of the Company and its Subsidiaries shall
not exceed $100,000. Options in excess of this limitation shall constitute NSOs.
6. Eligibility. Key employees of the Company and its subsidiaries
including officers and directors, shall be eligible to receive options under the
Plan. No director of the Company who is not also an employee of the Company or a
Subsidiary shall be entitled to receive an option under the Plan. Key employees
to whom options may be granted under the Plan shall be those elected by the
Board from time to time who, in the sole discretion of the Board, have
contributed in the past or who may be expected to contribute materially in the
future to the successful performance of the Company and its Subsidiaries.
7. Terms and Conditions of Options. Each option granted under the Plan
shall be evidenced by an option agreement signed by the Optionee and by a member
of the Board on behalf of the Company. An option agreement shall constitute a
binding contract between the Company and the Optionee, and every Optionee, upon
acceptance of such option agreement, shall be bound by the terms and
restrictions of the Plan and of the option agreement. Such agreement shall be
subject to the following express terms and conditions and to such other terms
and conditions that are not inconsistent with the Plan and that the Board may
deem appropriate.
A. Option Period. Each option agreement shall specify the period
for which the option thereunder is granted and shall provide that the option
shall expire at the end of such period. The Board may extend such period
provided that, in the case of an ISO, such extension shall not in any way
disqualify the option as an ISO without the Optionee's consent. Except in the
case of a Performance-Based Option, such period, including any such extensions,
shall not exceed ten (10) years from the date of grant, provided, however, that
in the case of an ISO granted to a Ten Percent Stockholder, such period,
including extensions, shall not exceed five (5) years from the date of grant.
The option period in the case of a Performance-Based Option shall be as provided
in Section 7.O[4] and [5].
B. Option Price.
[1] ISOs and NSOs. The Option Price for ISOs and NSOs shall be:
(i) the fair market value of the Common Stock on the date the option
is granted, or (ii) in the case of an ISO granted to a Ten Percent
Shareholder, one hundred ten percent (110%) of the fair market value
of the Common Stock on the date the option is granted and shall be
subject to adjustments in accordance with the provisions of Section 9.
3
[2] Performance-Based Options. The Option Price for a
Performance-Based Option shall be the greater of: (i) the fair market
value of the Common Stock on the date the option is granted as
provided in Section 7.B[1]; or (ii) the Target Share Price; or (iii)
the fair market value of the Common Stock on the date the Target Share
Price is deemed to have been achieved, as determined in accordance
with Section 7.C and 7.O[3].
C. Fair Market Value. The fair market value of Common Stock on any
given measurement date shall be determined as follows:
[1] if the Common Stock is traded on the over-the-counter
market, the closing sale price for the Common Stock in the over-the-
counter market on the measurement date (or if there was no sale of the
Common Stock on such date, on the immediately preceding date on which
there was a sale of the Common Stock), as reported by the National
Association of Securities Dealers Automated Quotation System; or
[2] if the Common Stock is listed on a national securities
exchange, the closing sale price for the Common Stock on the Composite
Tape on the measurement date; or
[3] if the Common Stock is neither traded on the over-the-
counter market nor listed on a national securities exchange, such
value as the Board, in good faith, shall determine.
D. Payment of Option Price. Each option shall provide that the
purchase price of the shares as to which an option shall be exercised shall be
paid to the Company at the time of exercise either in cash or in such other
consideration as the Board deems acceptable, and which other consideration in
the Board's sole discretion may include: (i) Common Stock of the Company already
owned by the Optionee having a total fair market value on the date of exercise,
determined in accordance with Section 7.C., equal to the purchase price, (ii)
Common Stock of the Company issuable upon the exercise of a Plan option and
withheld by the Company having a total fair market value on the date of
exercise, determined in accordance with Section 7.C., equal to the purchase
price, or (iii) a combination of cash and Common Stock of the Company (either
shares already owned by the Optionee or shares being withheld upon the exercise
of a Plan option) having a total fair market value on the date of exercise,
determined in accordance with Section 7.C, equal to the amount of the purchase
price not paid in cash.
E. Manner of Exercise. Subject to the terms and conditions of any
applicable option agreement, any option granted under the Plan may be exercised
in whole or in part. To initiate the process for the exercise of an option: (i)
the Optionee shall deliver to the Company, or to a broker-dealer in the Common
Stock with the original copy to the Company a written notice specifying the
number of shares as to which the option is being exercised and, if determined by
counsel for the Company to be necessary, representing that such shares are being
acquired for investment purposes only and not for the purpose of resale or
distribution; and (ii) the Optionee, or the broker-dealer, shall pay for the
exercise price of such shares with cash, or if the Board in its discretion
agrees to so accept, by delivery to the Company of Common Stock of the Company
(either shares already owned by the Optionee or shares being withheld upon the
exercise of a Plan option), or in some combination of cash and such Common Stock
acceptable to the Board. If payment of the Option Price is made with Common
Stock, the value of the Common Stock used for such payment shall be the fair
market value of the Common Stock on the date of exercise, determined in
accordance with Section 7.C. The date of exercise of a stock option shall be
determined under procedures established by the Board, but in no event shall the
date of exercise precede the date on which both the written notice of intent to
exercise an option and full payment of the exercise price for the shares as to
which the option is being exercised have been received by the Company. Promptly
after receiving full payment for the shares as to which the option is being
exercised and, provided that all conditions precedent contained in the Plan are
satisfied, the Company shall, without transfer or issuance tax or other
incidental expenses to Optionee, deliver to Optionee a certificate for such
shares of the Common Stock. If an Optionee fails to accept delivery of the
Common Stock, the Optionee's rights to exercise the applicable portion of the
option shall terminate.
F. Exercises Causing Loss of Compensation Deduction. No part of an
option may be exercised to the extent the exercise would cause the Optionee to
have compensation from the Company and its affiliated companies for any year in
excess of $1 million and which is nondeductible by the Company and its
affiliated companies pursuant to Code Section 162(m). Any option not exercisable
because of this limitation shall
4
continue to be exercisable in any subsequent year in which the exercise would
not cause the loss of the Company's or its affiliated companies compensation tax
deduction, provided such exercise occurs before lapse of the option, and
otherwise complies with the terms and conditions of the Plan and option
agreement.
G. Investment Representation. Each option agreement may provide
that, upon demand by the Board for such a representation, the Optionee or
Optionee Representative shall deliver to the Board at the time of any exercise
of an option or portion thereof a written representation that the shares to be
acquired upon such exercise are to be acquired for investment and not for resale
or with a view to the distribution thereof. Upon such demand, delivery of such
representation before delivery of Common Stock issued upon exercise of an option
and before expiration of the option period shall be a condition precedent to the
right of the Optionee or Optionee Representative to purchase Common Stock.
H. ISOs. Each option agreement which provides for the grant of an
ISO to an employee, including a Performance-Based Option that is intended to be
an ISO, shall contain such terms and provisions as the Board deems necessary or
desirable to qualify such option as an ISO within the meaning of Code Section
422.
I. Exercise in the Event of Death or Termination of Employment.
Unless the Board, in its sole discretion, provides otherwise in the option
agreement, with these conditions shall apply to the ability of an Optionee to
exercise his or her options:
[1] If an Optionee dies; (i) while an employee of the Company or
a Subsidiary, or (ii) within three (3) months after termination of
employment with the Company or a Subsidiary because of a Disability,
the Optionee's options may be exercised by Optionee Representative, to
the extent that the Optionee shall have been entitled to do so on the
date of death or employment termination, but not later than the
expiration date specified in Section 7.A or one (1) year after the
Optionee's death, whichever date is earlier.
[2] If an Optionee's employment by the Company or a Subsidiary
terminates because of the Optionee's Disability and the Optionee has
not died within the following three (3) months, the Optionee may
exercise his or her options, to the extent that he or she shall have
been entitled to do so at the date of employment termination, at any
time, or from time to time, but not later than the expiration date
specified in Section 7.A or one (1) year after termination of
employment, whichever date is earlier.
[3] If an Optionee's employment terminates by reason of
retirement in accordance with the terms of the Company's tax-qualified
retirement plans or with the consent of the Board, all right to
exercise his or her options shall terminate at the expiration date
specified in Section 7.A or three (3) months after employment
termination, whichever date is earlier.
[4] If an Optionee's employment terminates for any reason other
than death, Disability, or retirement, all rights to exercise his or
her options shall terminate on the date of employment termination.
J. Leaves of Absence. The Board may, in its discretion, treat all or
any portion of any period during which an Optionee is on military or on an
approved leave of absence from the Company or a Subsidiary as a period of
employment of such Optionee by the Company or Subsidiary for purposes of accrual
of the Optionee's rights under the Plan. Notwithstanding the foregoing, if a
leave of absence exceeds ninety (90) days and reemployment is not guaranteed by
contract or statute, the Optionee's employment by the Company or a Subsidiary
for the purposes of the Plan shall be deemed to have terminated on the 91st day
of the leave.
K. Transferability of Options. An option granted under the Plan may
not be transferred by the Optionee otherwise than by will or the laws of descent
and distribution, and during the lifetime of the Optionee to whom granted, may
be exercised only by the Optionee.
5
L. No Rights as Shareholder. No Optionee or Optionee Representative
shall have any rights as a shareholder with respect to Common Stock subject to
option before the date of transfer to the Optionee of a certificate or
certificates for the shares.
M. No Rights To Continued Employment. The Plan and any option
granted under the Plan shall not confer upon any Optionee any right with respect
to continuance of employment by the Company or any Subsidiary, nor shall it
interfere in any way with the right of the Company or any Subsidiary by which an
Optionee is employed to terminate employment at any time.
N. Tax Withholding. To the extent required by applicable law, the
Optionee shall, on the date of exercise, make arrangements satisfactory to the
Company for the satisfaction of any withholding tax obligations that arise by
reason of an option exercise or any sale of shares. The Board, in its sole
discretion, may permit these obligations to be satisfied in whole or in part
with: (i) cash paid by the Optionee or by a broker-dealer on behalf of the
Optionee, (ii) shares of Common Stock that otherwise would be issued to the
Optionee upon exercise of the option, and/or (iii) shares of Common Stock
already owned by the Optionee. The Company shall not be required to issue shares
for the exercise of an option until such tax obligations are satisfied and the
Company may, to the extent permitted by law, deduct any such tax obligations
from any payment of any kind otherwise due to the Optionee.
O. Performance-Based Options. The Board may grant Performance-Based
Options under the Plan subject to the following terms and conditions and such
other terms and conditions provided by the Board in the option agreement that
are not inconsistent with the Plan:
[1] ISOs and NSOs. The option agreement shall state whether the
Performance-Based Options are intended to be NSOs or ISOs.
[2] Vesting. Performance-Based Options shall vest in equal
twenty percent (20%) annual installments over a five (5) year period,
beginning with vesting of the first 20% installment on the second
anniversary of the date the Target Share Price has been achieved, with full
vesting of the option occuring on the sixth anniversary of the date the
Target Share Price has been achieved.
[3] Achievement of Target Share Price. The Target Share Price
shall be deemed to have been achieved on the first business day following
the calendar quarter in which the average daily fair market value of the
Common Stock, determined in accordance with Section 7.C., equals or exceeds
the Target Share Price for the preceding calendar quarter. The Board will
confirm the achievement of the Target Share Price and the Option Price as
soon as administratively practicable after the Target Share Price has been
achieved.
[4] NSO Option Period. Performance-Based Options issued as NSOs
shall expire and cease to be exercisable at the earliest of the following
times: (i) failure to achieve the Target Share Price within such time
period as designated by the Board in the option agreement; or (ii) on the
eighth anniversary of the date the Target Share Price is achieved; or (iii)
the date provided in Section 7.I; or (iv) thirty (30) days after the Board
makes a determination that the optionee is no longer a "key employee"; or
(v)] any earlier time provided by the Board in the option agreement.
[5] ISO Option Period. Performance-Based Options issued as ISOs
shall expire and cease to be exercisable at the earliest of the following
times: (i) failure to achieve the Target Share Price within such time
period as designated by the Board in the option agreement; or (ii) the
earlier of ten (10) years from the date of grant of the option or the
eighth anniversary of the date the Target Share Price is achieved; or (iii)
the date provided in Section 7.I; or (iv) thirty (30) days after the Board
makes a determination that the optionee is no longer a "key employee"; or
(v) any earlier time provided by the Board in the option agreement.
8. Compliance With Other Laws and Regulations. The Plan, the grant and
exercise of options thereunder, and the obligation of the Company to sell and
deliver Common Stock under such options, shall be subject to all applicable
federal and state laws, rules and regulations and to such approvals by any
government or
6
regulatory agency as may be required. The Company shall not be required to issue
or deliver any certificates for Common Stock before: (i) the listing of the
Common Stock on any stock exchange or over-the-counter market on which the
Common Stock may then be listed and (ii) the completion of any registration or
qualification of any governmental body which the Company shall, in its sole
discretion, determine to be necessary or advisable. To the extent the Company
meets the then applicable requirements for the use thereof and to the extent the
Company may do so without undue cost or expense, and subject to the
determination by the Board of Directors of the Company that such action is in
the best interest of the Company, the Company intends to register the issuance
and sale of such Common Stock by the Company under federal and applicable state
securities laws using a Form S-8 registration statement under the Securities Act
of 1933, as amended, or such successor Form as shall then be available.
9. Capital Adjustments Affecting Stock, Mergers and Consolidations.
A. Capital Adjustments. In the event of a capital adjustment in the
Common Stock resulting from a stock dividend, stock split, reorganization,
merger, consolidation, or a combination or exchange of shares, the number of
shares of Common Stock subject to the Plan and the number of shares under option
shall be automatically adjusted to take into account such capital adjustment. By
virtue of such a capital adjustment, the price of any share under option shall
be adjusted so that there shall be no change in the aggregate purchase price
payable upon exercise of any such option.
B. Mergers and Consolidations. In the event the Company merges or
consolidates with another entity, or all or a substantial portion of the
Company's assets or outstanding capital stock are acquired (whether by merger,
purchase or otherwise) by a Successor, the kind of shares of Common Stock that
shall be subject to the Plan and to each outstanding option shall, automatically
by virtue of such merger, consolidation or acquisition, be converted into and
replaced by shares of common stock, or such other class of securities having
rights and preferences no less favorable than the Common Stock, of the
Successor, and the number of shares subject to the option and the purchase price
per share upon exercise of the option shall be correspondingly adjusted, so
that, by virtue of such merger, consolidation or acquisition, each Optionee
shall have the right to purchase (a) that number of shares of common stock of
the Successor that have a book value equal, as of the date of such merger,
conversion or acquisition, to the book value, as of the date of such merger,
conversion or acquisition, of the shares of Common Stock of the Company
theretofore subject to the Optionee's option, (b) for a purchase price per share
that, when multiplied by the number of shares of common stock of the Successor
subject to the option, shall equal the aggregate Option Price at which the
Optionee could have acquired all of the shares of Common Stock of the Company
theretofore optioned to the Optionee.
C. No Effect on the Company's Rights. The granting of an option
pursuant to the Plan shall not effect in any way the right and power of the
Company to make adjustments, reorganizations, reclassifications, or changes of
its capital or business structure or to merge, consolidate, dissolve, liquidate,
sell or transfer all or any part of its business or assets.
10. Amendment, Suspension, or Termination. The Board shall have the
right, at any time, to amend, suspend or terminate the Plan in any respect that
it may deem to be in the best interests of the Company, except that, without
approval by shareholders of the Company holding not less than a majority of the
votes represented and entitled to be voted at a duly held meeting of the
Company's shareholders, no amendment shall be made that would:
A. increase the maximum number of shares of Common Stock which may
be delivered under the Plan, except as provided in Section 9;
B. change the Option Price for an ISO, except as provided in Section
9;
C. extend the period during which an ISO may be exercised beyond the
period provided in Section 7.A;
D. make any changes in any outstanding option, without the consent
of the Optionee, which would adversely affect the rights of the Optionee;
or
E. extend the termination date of the Plan.
7
11. Effective Date, Term and Approval. The effective date of the Plan is
October 27, 1994 (the date of Board adoption of the Plan). The Plan was approved
by stockholders of the Company holding not less than a majority of the shares
present and voting at its 1995 annual meeting on April 21, 1995. The Plan shall
terminate ten (10) years after the effective date of the Plan and no options may
be granted under the Plan after such time, but any option granted prior thereto
may be exercised in accordance with its terms.
12. Governing Law; Severability. The Plan shall be governed by the laws
of the State of Delaware. The invalidity or unenforceability of any provision of
the Plan or any option granted pursuant to the Plan shall not affect the
validity and enforceability of the remaining provisions of the Plan and the
options granted hereunder, and such invalid or unenforceable provision shall be
stricken to the extent necessary to preserve the validity and enforceability of
the Plan and the options granted hereunder.
Dated this 25th day of August, 1998.
SYPRIS SOLUTIONS, INC.
By: /s/ Jeffrey T. Gill
-------------------
Jeffrey T. Gill
President and Chief Executive Officer
8
5
1,000
9-MOS
DEC-31-1998
JAN-01-1998
SEP-27-1998
11,674
0
24,083
0
40,360
77,312
26,032
0
118,658
49,863
15,057
0
0
94
48,104
118,658
157,622
157,662
122,598
122,598
0
170
993
8,321
3,254
5,067
0
0
0
5,067
0.54
0.52
