-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LSl5IMRujwFi7QcqsXUq+34jbwMWrUxk6d33RblTxf+wi01xdxHUZ6IAUz1Jcy5i WcQxDppc2mUYiQ8Jh3mcuw== 0000719733-00-000001.txt : 20000216 0000719733-00-000001.hdr.sgml : 20000216 ACCESSION NUMBER: 0000719733-00-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20000101 FILED AS OF DATE: 20000215 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEY TRONIC CORP CENTRAL INDEX KEY: 0000719733 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 910849125 STATE OF INCORPORATION: WA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-11559 FILM NUMBER: 545388 BUSINESS ADDRESS: STREET 1: N 4424 SULLIVAN RD CITY: SPOKANE STATE: WA ZIP: 99216 BUSINESS PHONE: 5099288000 MAIL ADDRESS: STREET 1: P O BOX 14687 CITY: SPOKANE STATE: WA ZIP: 99214 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended January 1, 2000 Commission File Number Number 0-11559 KEY TRONIC CORPORATION Washington 91-0849125 (State of Incorporation) (I.R.S. Employer Identification Number) --------------------- North 4424 Sullivan Spokane, Washington 99216 (509) 928-8000 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 / / . At January 12, 2000, 9,636,330 shares of Common Stock, no par value (the only class of common stock), were outstanding.
KEY TRONIC CORPORATION Index Page No. PART I. FINANCIAL INFORMATION: Item 1. Financial Statements: Consolidated Balance Sheets - January 1, 2000 (Unaudited) and July 3, 1999 3-4 Consolidated Statements of Income (Unaudited) Second Quarters Ended January 1, 2000 and December 26, 1998 5 Consolidated Statements of Income (Unaudited) Two Quarters Ended January 1, 2000 and December 26, 1998 6 Consolidated Statements of Cash Flows (Unaudited) Two Quarters Ended January 1, 2000 and December 26, 1998 7 Notes to Consolidated Financial Statements (Unaudited) 8-9 Item 2. Management's Discussion and Analysis of the Financial Condition and Results of Operations 10-14 PART II. OTHER INFORMATION: Item 1. Legal Proceedings 14 Item 4. Submission of Matters to a Vote of Security Holders 14 Item 5. Other Events 14 Item 6. Exhibits and Reports on Form 8-K 14 SIGNATURES 15
KEY TRONIC CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands) January 1, July 3, 2000 1999 - ---------------------------------------------------------------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $1,349 $1,866 Trade receivables, less allowance for doubtful Accounts of $582 and $542 29,618 31,285 Inventories 25,971 24,896 Real estate held for sale 1,915 1,988 Deferred income tax asset - current, net 765 1,033 Customer tooling 1,389 2,449 Other 7,090 6,720 - ---------------------------------------------------------------------- Total current assets $68,097 70,237 Property, plant and equipment - at cost 104,040 102,681 Less accumulated depreciation 80,381 78,159 - ---------------------------------------------------------------------- Total property, plant and 23,659 24,522 equipment Other assets: Deferred income tax asset, net 3,751 3,604 Other (net of accumulated amortization of $645 and $540) 1,334 1,436 Goodwill (net of accumulated amortization of $671 and $639) 1,084 1,148 - ---------------------------------------------------------------------- $97,925 $100,947 ====================================================================== See accompanying notes to consolidated financial statements.
KEY TRONIC CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (continued, in thousands) January 1, July 3, 2000 1999 - ---------------------------------------------------------------------- (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term $2,380 $2,105 obligations Accounts payable 18,116 18,720 Accrued compensation and vacation 2,122 3,269 Accrued taxes other than income taxes 1,123 1,099 Interest payable 51 27 Other 3,000 3,227 - ---------------------------------------------------------------------- Total current liabilities 26,792 28,447 Long-term obligations, less current 20,839 20,596 portion Commitments and contingencies (Note 2) Shareholders' equity: Common stock, no par value, authorized 25,000 shares; issued and outstanding 9,635 and 9,631 shares 38,286 38,273 Retained earnings 11,763 13,386 Accumulated other comprehensive 245 245 - ---------------------------------------------------------------------- Total shareholders' equity 50,294 51,904 - ---------------------------------------------------------------------- $97,925 $100,947 ====================================================================== See accompanying notes to consolidated financial statements.
KEY TRONIC CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Second Quarters Ended January 1, December 26, 2000 1998 - ------------------------------------------------------------------------ (in thousands, except per share amounts) Net sales $41,285 $47,973 Cost of sales 37,946 40,384 - ------------------------------------------------------------------------ Gross profit on sales 3,339 7,589 Operating expenses: Research, development and engineering 867 1,383 Selling 1,595 2,344 General and administrative 2,244 2,167 - ------------------------------------------------------------------------ Operating income (1,367) 1,695 Interest expense 492 464 Other income (39) (57) - -------------------------------------------------------------------------- Earnings before income tax provision (1,820) 1,288 Income tax provision 13 429 Net income ($1,833) $859 ========================================================================= Earnings per share: Earnings per common share - basic and ($0.19) $0.09 diluted See accompanying notes to consolidated financial statements.
KEY TRONIC CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Two Quarters Ended January 1, December 26, 2000 1998 - ------------------------------------------------------------------------ (in thousands, except per share amounts) Net sales $83,060 $90,278 Cost of sales 73,753 75,693 - ------------------------------------------------------------------------ Gross profit on sales 9,307 14,585 Operating expenses: Research, development and engineering 1,747 2,876 Selling 3,778 4,536 General and administrative 4,488 4,235 - ------------------------------------------------------------------------ Operating income (706) 2,938 Interest expense 987 992 Other income (158) (113) - ------------------------------------------------------------------------ Earnings before income tax provision (1,535) 2,059 Income tax provision 88 707 Net income ($1,623) $1,352 ======================================================================== Earnings per share: Earnings per common share _ basic and ($0.17) $0.14 diluted See accompanying notes to consolidated financial statements.
KEY TRONIC CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Two Quarters Ended January 1, December 26, 2000 1998 - ------------------------------------------------------------------- (in thousands) Increase (decrease) in cash and cash equivalents: Cash flows from operating activities: Net income ($1,623) $1,352 Adjustments to reconcile net income to Cash provided by operating activities: Depreciation and amortization 3,341 3,475 Provision for obsolete inventory (249) 875 Provision for doubtful receivables 55 143 Provision for warranty 172 670 Gain on disposal of property and (27) (10) equipment Deferred income tax asset 121 631 Changes in operating assets and liabilities: Trade receivables 1,612 (5,302) Inventories (826) (372) Customer tooling 1,060 3,170 Other assets (1,675) (1,206) Accounts payable (604) (219) Employee compensation and accrued (1,147) 50 vacation Other liabilities (351) 483 - ------------------------------------------------------------------- Cash provided (used) by operating (141) 3,740 activities Cash flows from investing activities: Proceeds from sale of property and equip. 76 10 Purchase of property and equipment (983) (874) - ------------------------------------------------------------------- Cash used in investing activities (907) (864) Cash flows from financing activities: Proceeds from issuance of common stock 13 0 Proceeds from long-term obligations 1,644 0 Payments on long-term obligations (1,126) (2,603) - ------------------------------------------------------------------- Cash provided (used) by financing 531 (2,603) activities Net increase (decrease) in cash and (517) 273 cash equivalents Cash and cash equivalents, beginning of 1,866 288 period - ------------------------------------------------------------------- Cash and cash equivalents, end of period $1,349 $561 =================================================================== See accompanying notes to consolidated financial statements.
KEY TRONIC CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (Unaudited) The interim financial statements are unaudited but, in the opinion of management, reflect all adjustments of a normal and recurring nature necessary for a fair presentation of results of operations for such periods. The results of operations for any interim period are not necessarily indicative of results for the full year. These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company's annual report for the year ended July 3, 1999. 1. INVENTORIES
Components of inventories were as follows: January 1, July 3, 2000 1999 - ------------------------------------------------------------------------- (in thousands) Finished goods $12,229 $13,008 Work-in-process 2,335 2,134 Raw materials and supplies 13,830 12,820 Reserve for obsolescence (2,423) (3,066) - ------------------------------------------------------------------------- $25,971 $24,896 =========================================================================
2. COMMITMENTS The amount of firm commitments to contractors and suppliers for capital expenditures was approximately $496,000 at January 1, 2000. 3. LONG-TERM OBLIGATIONS
Long-term obligations consist of: January 1, July 3, 2000 1999 - ------------------------------------------------------------------------- (in thousands) Note payable - GECC $4,433 $5,559 Revolving line 17,712 16,524 Other 456 0 Deferred compensation obligation 618 618 - ------------------------------------------------------------------------- $23,219 $22,701 Less current portion (2,380) (2,105) - ------------------------------------------------------------------------- $20,839 $20,596 =========================================================================
4. SUPPLEMENTAL CASH FLOW INFORMATION Two Quarters Ended January 1, December 26, 2000 1998 - ----------------------------------------------------------------------- (in thousands) Interest payments $963 $1,018 Income tax payments 205 322
5. INCOME TAXES The income tax provisions were $13,000 for the second quarter of fiscal 2000 and $429,000 for the second fiscal quarter of 1999. The $13,000 provision for the second quarter of fiscal 2000 is the net result of both provisions and benefits on the earnings and losses of foreign subsidiaries. The Company's tax benefit associated with the domestic loss reported for the second quarter was offset by a corresponding valuation allowance. $132,000 of expenses in the second quarter of fiscal 1999 provision relates to taxes on earnings. For the six months ended January 1, 2000 and December 26, 1998, the income tax provisions were $88,000 and $707,000 respectively. Included in the six months ended January 1, 2000 provision is $ 197,000 of net benefits resulting from foreign subsidiaries' losses. Included in the six months ended December 26, 1998 is $31,000 for taxes on foreign earnings. The Company has tax loss carryforwards of approximately $26.7 million that expire in varying amounts in the years 2006 through 2019. 6. ADOPTION OF FINANCIAL ACCOUNTING STANDARDS NO. 128 Financial Accounting Standards No. 128 requires the presentation of "basic EPS" and "diluted EPS." The objective of basic EPS is to measure the performance of an entity over the reporting period. Basic EPS is computed by dividing income available to common shareholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) during the period. Diluted EPS is computed by dividing income available to common shareholders by the weighted- average number of common shares and common share equivalents outstanding during the period. Key Tronic uses the treasury stock method in calculating the dilutive effect of common stock equivalents. Because of the dilutive nature of outstanding options and warrants, the current quarter's loss creates an antidilutive effect. Therefore the weighted average diluted shares equals the basic weighted average shares. There are no adjustments to the income available to common shareholders for the second quarters and two quarters ended January 1, 2000 and December 26, 1998. The following table presents the Company's calculations of weighted average shares (number of shares):
Adjustments For For The Quarters Weighted Avg. Potential Common Total Ended: Shares Shares - ----------------------------------------------------------------------- January 1, 2000 9,634,830 172,992 9,807,822 December 26, 1998 9,630,830 74,357 9,705,187 For Two Quarters Ended: - ----------------------- January 1, 2000 9,634,034 226,799 9,860,833 December 26, 1998 9,630,830 27,947 9,658,777
FORWARD-LOOKING STATEMENTS This Quarterly Report contains forward-looking statements in addition to historical information. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. Risks and uncertainties that might cause such differences include, but are not limited to those outlined in "Management's Discussion and Analysis of Financial Condition and Results of Operations-Risks and Uncertainties that May Affect Future Results." Readers are cautioned not to place undue reliance on forward-looking statements, which reflect management's opinions only as of the date hereof. The Company undertakes no obligation to revise or publicly release the results of any revision to forward-looking statements. Readers should carefully review the risk factors described in other documents the Company files from time to time with the Securities and Exchange Commission, including Quarterly Reports on Form 10-Q. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CAPITAL RESOURCES AND LIQUIDITY Operating activities used $0.1 million of cash during the first two quarters of fiscal 2000 versus $3.7 million of cash provided by operating activities during the same period of the prior year. This change in available cash is due primarily to increased inventories to support anticipated sales that did not materialize in the quarter and decreased accounts payable. During the first two quarters of fiscal 2000, $1.0 million was spent in capital additions versus $0.9 million spent in capital additions in the same period in the previous fiscal year. The Company anticipates capital expenditures of approximately $1.2 million through the remainder of the current fiscal year ending July 1, 2000. Actual capital expenditures may vary from anticipated expenditures depending upon future results of operations. See RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE RESULTS, pages 11-12. Capital expenditures are expected to be financed with internally generated funds. On December 31, 1996, the Company entered into a secured financing agreement with General Electric Capital Corporation (GECC). This agreement contains a term note for up to $11 million and a revolving loan for up to $30 million. During the second quarter of fiscal year 1998, the Company entered into an operating lease agreement with GECC, which reduced the borrowing limit on the revolving loan by $4.2 million. The revolving loan agreement and the term note are secured by the assets of the Company. The agreement contains financial covenants that relate to maximum capital expenditures, minimum debt service coverage, minimum earnings before interest expense, income tax, depreciation, and amortization, and maximum leverage percentages. In addition to these financial covenants, the financing agreement restricts investments, disposition of assets, and payment of dividends. At January 1, 2000 and July 3, 1999, the Company was in compliance with all debt covenants. The term note is payable in quarterly installments of principal, each in the amount of $500,000 commencing in March 1998 and maturing in December 2002. In addition to these scheduled payments, the Company is also paying $21,000 per month against the term note to GECC under a separate agreement with GECC resulting from the Company's lease of its Cheney facility. If debt service coverage is greater than 1.4, this note bears interest at one and three-quarters percent (1.75%) in excess of the applicable London Interbank Offered Rate (LIBOR). If debt service coverage is less than or equal to 1.4, this note bears interest at two percent (2.00%) in excess of the applicable LIBOR rate. At January 1, 2000, the applicable LIBOR rate was 6.49%, and the applicable interest rate was 8.24%. The revolving loan with GECC is renewable and covers an initial period of five years expiring on December 31, 2001. If debt service coverage is greater than 1.4, the applicable interest rate is one and one-half percent (1.5%) in excess of the applicable LIBOR rate. If debt service coverage is less than or equal to 1.4, the applicable interest rate is one and three-quarters percent (1.75%) in excess of the applicable LIBOR rate. At January 1, 2000, the applicable LIBOR rate was 6.48%, and the applicable interest rate was 7.98%. At January 1, 2000, approximately $8.0 million was available for use under the revolving loan. The Company is required to pay fees of three and three-quarters of one percent (.375%) on the unused revolving loan balance. The revolving loan balance has increased $1.2 million since the Company's fiscal year end at July 3, 1999. This increase can be attributed primarily to increased inventories and decreased accounts payable. Real estate held for sale is carried at the lower of cost or net realizable value. In September of 1997, the Company signed a five-year operating lease with a local company for this property. The lease terms include an option to buy the property upon notice at any time during the course of the lease. The Company believes that cash, cash equivalents, funds available under the line of credit, and internally generated funds can satisfy cash requirements for a period in excess of 12 months. YEAR 2000 MATTERS The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. The Company has an internal committee made up of representatives from seven strategic areas that have been dedicated to the Year 2000 issue, and the committee met on a regular basis to discuss the Company's progress on any remaining projects that were considered potential problem areas. The Company started its Y2000 readiness program in 1993 with the upgrade of its business systems. Total budgeted cost associated with this upgrade was $500,000 and this project was completed as scheduled in 1993. Other costs associated with upgrades of PC's and other communication equipment, security systems, software, facilities, and equipment was budgeted at less than $1.5 million. The costs have been expensed as incurred over fiscal years 2000, 1999, 1998 and 1997. The committee, at this time, has determined that its readiness programs are virtually complete. The Company contacted all suppliers by survey regarding their year 2000 readiness several months ago. All suppliers responded to the survey, but not all of the responses were sufficient to confirm their readiness, so the committee requested test data from some of the Company's suppliers and has reviewed some of the Company's more critical suppliers in order to confirm their compliance. The Company has also communicated with its banks and other external agencies that provide critical services to the company. Assurances and documentation have been received to indicate full compliance. Production and test equipment as well as production facilities have been evaluated for compliance and, at this time, are considered to be compliant. These statistics include the Company's foreign subsidiaries. Any embedded systems have been identified and remediated as a part of the production facilities evaluation. The Company believes that completed modifications and conversions of its internal systems and equipment allow it to be Year 2000 compliant. The Company can give no guarantee that the systems of other companies on which the Company's systems rely will be converted on time or a failure to convert by another company or a conversion that is incompatible with the Company's systems would not have a material adverse effect on the Company. There can also be no assurance that contingency plans will mitigate the effects of any non- compliance. It is believed that the most reasonably likely worst case scenario for Year 2000 non-compliance to the Company will be that the supply of goods and services by third parties to the Company would be interrupted or delayed resulting in interruption or delay in the Company's manufacture of products. All interruptions or delays could interfere with the Company's ability to make shipments and therefore impact sales and cash flows. As of February 4, 2000, the Company has had no problems as a result of Year 2000, nor have we been informed of any problems experienced by our suppliers of goods or services. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is subject to the risk of fluctuating interest rates in the normal course of business. The Company's major market risk relates to its secured debt. A portion of the Company's accounts receivable and inventories are used as collateral for its term and revolving debt. The interest rates applicable to the Company's debt fluctuate with the London Interbank Offered Rate (LIBOR). Over the past fiscal quarter the highest LIBOR rate was 6.49% at January 1, 2000. LIBOR rates fluctuate on a daily basis. The Company does not enter into derivative transactions or leveraged swap agreements. Although the Company does have international operations, the functional currency for all active subsidiaries is the U.S. dollar. The Company imports for its own use raw materials that are used in its manufacturing operations. Such purchases are denominated in U.S. dollars and are paid for under normal trade terms. NET SALES Net sales for the fiscal 2000 second quarter, which ended January 1, 2000 were $41.3 million compared to $48.0 million for the second quarter of the previous year. For the six months ended January 1, 2000, sales were $83.1 million compared to $90.3 million for the same period of the previous year. Keyboard shipments decreased 36.9% from the second quarter of the prior year while the average selling price decreased approximately 15.7%. For the six months ended January 1, 2000, unit shipments decreased approximately 32.3% over the same period of the prior year while the average selling price decreased 12.1%. The decrease in units shipped and average selling price is due primarily to our second and third tier-manufacturing customers that are losing market share to brand-name manufacturers who have cut prices dramatically. The decrease in keyboard revenues was offset in part by the increase in contract design and manufacturing (CDM) revenue. CDM sales accounted for 52.3% of total revenue in the second quarter versus 17.1% in the second quarter of the prior year. For the six months ended January 1, 2000, CDM revenue accounted for 49.0% of total revenue versus 21.1% of total revenue for the same time period of the prior fiscal year. COST OF SALES Cost of sales were 91.9% of revenue in the second quarter of 2000 compared to 84.2% for the second quarter of 1999. Cost of sales were 88.8% of revenue for the six months ended January 1, 2000 compared to 83.8% for the same period of the prior year. The cost of sales percentage increased in part as a result of lower sales volume and reduced prices through the Company's direct distribution channels. The Company continues to emphasize cost reduction whenever feasible by increasing capacity in its Juarez, Mexico facility. This facility was expanded during fiscal 1997 to increase available manufacturing and molding capacity. Continued emphasis was placed on material cost reductions through negotiations with major suppliers, as well as, changes to product designs that were conducive to lower costs. During fiscal 1999 much of the Company's keyboard products were produced by a subcontractor in Mainland China. It is anticipated that over half of the keyboard production for fiscal 2000 will be in China. The Company continues to use its facility in Mexico to increase available capacity for new and existing CDM products. This facility, in conjunction with a newly organized subsidiary in Shanghai, China, which began activity in the third quarter of fiscal 1999, will enable the Company to increase its presence in this growing market. RESEARCH, DEVELOPMENT AND ENGINEERING Research, development and engineering expenses were $.9 million in the second quarter of fiscal 2000 and $1.4 million for the same period of fiscal 1999. As a percentage of sales, R, D & E expenditures were 2.1% in the second quarter of 2000 compared to 2.9% in the second quarter of 1999. Research, development, and engineering expenses were $1.7 million for the six months ended January 1, 2000, compared to $2.9 million for the same period of the prior year. As a percentage of sales, RD&E expenditures were 2.1% for the current six-month period versus 3.2% for the same period of the prior fiscal year. The decrease in spending is primarily due to project delays and cost controls during the first quarter of fiscal 2000. SELLING EXPENSES Selling expenses were $1.6 million in the second quarter of fiscal 2000 compared to $2.3 million in the second quarter of fiscal 1999. Selling expenses as a percentage of revenue were 3.9% for the quarter compared to 4.9% in the same quarter of fiscal year 1999. For the six months ended January 1, 2000, selling expenses were $3.8 million compared to $4.5 million for the same period of the prior year. As a percentage of revenue for the current six-month period, selling expenses were 4.5% compared to 5.0% for the same period of the prior year. The decrease in both dollars and percentage can be attributed to decreased sales volume resulting in decreased commissions and decreased promotional expenses (volume incentive programs) for the Company's retail product lines. GENERAL AND ADMINISTRATIVE General and administrative expenses in dollars remained fairly consistent. These expenses were $2.2 million in the second quarter of fiscal 2000 and fiscal 1999. As a percent of revenue, G&A expenses were 5.4% in the second quarter compared to 4.5% during the second quarter of the prior year. For the six months ended January 1, 2000, G&A expenses were $4.5 million compared to $4.2 million for the same period of the prior year. As a percentage of revenue G&A expenses for the first six months of fiscal 2000 were 5.4% versus 4.7% for the same period of the prior year. As a percentage of revenue the decrease is primarily due to decreased sales. INTEREST Interest expense was $493,000 in the second quarter of 2000 compared to $464,000 for the second quarter of 1999. For the six months ended January 1, 2000, interest expense was $988,000 compared to $992,000 for the same period of the prior year. The level of long-term debt has decreased due to scheduled term loan payments and the revolving line has increased. The changes in the long- term debt and the revolving debt has resulted in minor fluctuations in interest expense. INCOME TAXES The income tax provisions were $13,000 for the second quarter of fiscal 2000 and $429,000 for the second fiscal quarter of 1999. The $13,000 provision for the second quarter of fiscal 2000 is the net result of both provisions and benefits on the earnings and losses of foreign subsidiaries. The Company's tax benefit associated with the domestic loss reported for the second quarter was offset by a corresponding valuation allowance. $132,000 of expenses in the second quarter of fiscal 1999 provision relates to taxes on earnings. For the six months ended January 1, 2000 and December 26, 1998, the income tax provisions were $88,000 and $707,000 respectively. Included in the six months ended January 1, 2000 provision is $ 197,000 of net benefits resulting from foreign subsidiaries' losses. Included in the six months ended December 26, 1998 is $31,000 for taxes on foreign earnings. The Company has tax loss carryforwards of approximately $26.7 million that expire in varying amounts in the years 2006 through 2019. ESOP No contributions to the Employee Stock Ownership Plan (ESOP) were made during the first quarter of fiscal years 2000 and 1999. KEY TRONIC CORPORATION EMPLOYEES STOCK OPTION PLAN The Company's Board of Directors approved an employee stock option plan in November 1999 (see Exhibit "2000 Key Tronic Corporation Employee Stock Option Plan"). BACKLOG The Company's backlog at the end of the second fiscal quarter of 2000 was $12.0 million compared to $11.2 million at the end of the 1999 fiscal year and $9.4 million at the end of the second quarter of fiscal 1999. The increase in the backlog from fiscal year end is attributable in part to increased customer orders for the Company's non-keyboard CDM products. RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE RESULTS The following risks and uncertainties could affect the Company's actual results and could cause results to differ materially from past results or those contemplated by the Company's forward-looking statements. When used herein, the words "expects", "believes", "anticipates" and similar expressions are intended to identify forward-looking statements. Potential Fluctuations in Quarterly Results. The Company's quarterly operating results have varied in the past and may vary in the future due to a variety of factors, including changes in overall demand for computer products, success of customers' programs, timing of new programs, new product introductions or technological advances by the Company, its customers and its competitors and changes in pricing policies by the Company, its customers and its competitors. For example, the Company relies on customers' forecasts to plan its business. If those forecasts are overly optimistic, the Company's revenues and profits may fall short of expectations. Conversely, if those forecasts are too conservative, the Company could have an unexpected increase in revenues and profits. Competition. The keyboard and other input device industry are intensely competitive. Most of the Company's principal competitors are headquartered in Asian countries that have a low cost labor force. Those competitors may be able to offer customers lower prices on certain high volume programs. This could result in price reductions, reduced margins and loss of market share, all of which would materially and adversely affect the Company's business, operating results and financial condition. In addition, competitors can copy the Company's non-proprietary designs after the Company has invested in development of products for customers, thereby enabling such competitors to offer lower prices on such products due to savings in development costs. Concentration of Major Customers. At present, the Company's customer base is highly concentrated, and there can be no assurance that its customer base will not become more concentrated. Three of the Company's original equipment manufacturer (OEM) customers accounted for 24%, 13% and 11% of net sales during fiscal year 1999. In 1998, these same customers accounted for 31%, 8% and 13% of net sales. There can be no assurance that the Company's principal customers will continue to purchase products from the Company at current levels. Moreover, the Company typically does not enter into long-term volume purchase contracts with its customers, and the Company's customers have certain rights to extend or delay the shipment of their orders. The loss of one or more of the Company's major customers or the reduction, delay or cancellation of orders from such customers could materially and adversely affect the Company's business, operating results and financial condition. Dependence on Key Personnel. The Company's future success depends in large part on the continued service of its key technical, marketing and management personnel and on its ability to continue to attract and retain qualified employees. The competition for such personnel is intense, and there can be no assurance that the Company will be successful in attracting and retaining such personnel. The loss of key employees could have a material adverse effect on the Company's business, operating results and financial condition. Litigation. The Company currently has eighteen lawsuits by computer keyboard users, which are in state or federal court in Illinois, New Jersey, New York, and Pennsylvania. These suits allege that specific keyboard products manufactured by the Company were sold with manufacturing, design and warning defects, which caused or contributed to injury. The alleged injuries are not specifically identified but are referred to as repetitive stress injuries (RSI) or cumulative trauma disorders (CTD). These suits seek compensatory damages and some seek punitive damages. It is more likely than not that compensatory damages, if awarded, will be covered by insurance; however, the likelihood that punitive damages, if awarded, will be covered by insurance is remote. A total of 120 lawsuits have been dismissed in California, Connecticut, Florida, Illinois, Kansas, Kentucky, Maryland, Massachusetts, Michigan, New Jersey, New York, Pennsylvania and Texas. One of the 120 dismissed lawsuits is on appeal in New York. Technological Change and New Product Risk. The market for the Company's products is characterized by rapidly changing technology, evolving industry standards, frequent new product introductions and relatively short product life cycles. The introduction of products embodying new technologies or the emergence of new industry standards can render existing products obsolete or unmarketable. The Company's success will depend upon its ability to enhance its existing products and to develop and introduce, on a timely and cost-effective basis, new products that keep pace with technological developments and emerging industry standards and address evolving and increasingly sophisticated customer requirements. Failure to do so could substantially harm the Company's competitive position. There can be no assurance that the Company will be successful in identifying, developing, manufacturing and marketing products that respond to technological change, emerging industry standards or evolving customer requirements. Dilution and Stock Price Volatility. As of January 1, 2000, there were outstanding options and warrants for the purchase of approximately 2,000,000 shares of common stock of the Company ("Common Stock"), of which options and warrants for approximately 1,500,000 shares were vested and exercisable. Holders of the Common Stock will suffer immediate and substantial dilution to the extent outstanding options and warrants to purchase the Common Stock are exercised. The stock price of the Company may be subject to wide fluctuations and possible rapid increases or declines over a short time period. These fluctuations may be due to factors specific to the Company such as variations in quarterly operating results or changes in analysts' earnings estimates, or to factors relating to the computer industry or to the securities markets in general, which, in recent years, have experienced significant price fluctuations. These fluctuations often have been unrelated to the operating performance of the specific companies whose stocks are traded. Year 2000 Matters. The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in 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 formal business activities. Many of the Company's systems include hardware and packaged software purchased from vendors who have represented that these systems are already Year 2000 compliant. The Company has also initiated a conversion from existing software to programs that are represented to be Year 2000 compliant. The Company has communicated with all of its significant suppliers and other external agencies to determine the extent to which the Company is vulnerable to those third parties' failure to remedy their Year 2000 issues. The Company can give no guarantee that the systems of other companies on which the Company's systems rely will be converted on time, or a failure to convert by another company, or a conversion that is incompatible with the Company's systems, would not have a material adverse effect on the Company. As of February 4, 2000, the Company has had no problems as a result of Year 2000, nor have we been informed of any problems experienced by our suppliers of goods or services. PART II. OTHER INFORMATION: Item 1. Legal Proceedings None Item 4. Submission of Matters to a Vote of Security Holders Election of Officers Ratification of Auditors Item 5. Other Events Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 2000 Key Tronic Corporation Employee Stock Option Plan Addendum To Employment Contract - President & Chief Executive Officer Addendum To Employment Contract - Executive Vice President of Marketing Addendum To Employment Contract - Executive Vice President of Administration and Chief Financial Officer Addendum To Employment Contract - Vice President of Southwest Operations SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
KEY TRONIC CORPORATION /s/ Jack W. Oehlke 2/15/00 Jack W. Oehlke Date: (Director, President and Chief Executive Officer) /s/ Ronald F. Klawitter 2/15/00 Ronald F. Klawitter Date: Principal Financial Officer /s/ Keith D. Cripe 2/15/00 Keith D. Cripe Date: Principal Accounting Officer
EX-10 2 Exhibit 10 2000 KEY TRONIC CORPORATION EMPLOYEE STOCK OPTION PLAN ARTICLE I NAME AND PURPOSE 1.1 Name. The name of this Plan is the "2000 Key Tronic Corporation Employee Stock Option Plan". 1.2 Purpose. The purpose of the Plan is to enhance the profitability and value of the Company for the benefit of its shareholders by providing equity ownership opportunities and performance based incentives to better align the interests of employees with those of shareholders. The Plan is also designed to enhance the profitability and value of the Company for the benefit of its shareholders by providing a means to attract, retain and motivate employees who make important contributions to the success of the Company. ARTICLE II DEFINITIONS OF TERMS AND RULES OF CONSTRUCTION 2.1 General Definitions. The following terms, when used in the Plan, unless otherwise specifically defined or unless the context clearly otherwise requires, shall have the following respective meanings: (a) Affiliate. A Parent or Subsidiary of the Company or any other entity designated by the Committee in which the Company owns at least a 50% interest (including, but not limited to, partnerships and joint ventures). (b) Agreement. The document which evidences the grant of an Option under the Plan and which sets forth the Option and the terms, conditions and provisions of, and restrictions relating to, such Option. (c) Board. The Board of Directors of the Company. (d) Change of Control. A "Change of Control" as defined in any Agreement. (e) Code. The Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder. (f) Company. Key Tronic Corporation. (g) Committee. The Board's Committee or any successor committee appointed by the Board to administer this Plan. (h) Common Stock. The Company's common stock, no par value. (i) Effective Date. The date that the Plan is approved by the Board. (j) Employee. Any person employed by the Employer. (k) Employer. The Company and all Affiliates. (1) Exchange Act. The Securities Exchange Act of 1934, as amended from time to time and the regulations promulgated thereunder. (m) Fair Market Value. The closing price of a Share on the National Association of Securities Dealers Automated Quotation ("NASDAQ") National Market System on a given date, or, in the absence of sales on a given date, the closing price on NASDAQ on the last day on which a sale occurred prior to such date. (n) Fiscal Year. The taxable year of the Company which is its fiscal year ending on or around June 30. (0) Officer. All Employees who are subject to the reporting rules under Section 16(a) of the Exchange Act and all other Employees who are officers of the Company. (p) Option. An option to purchase Shares granted under the Plan. Each Option granted hereunder shall be a Non-Qualified Stock Option which is an Option that does not meet the statutory requirements of an Incentive Stock Option under Code Section 422. (q) Parent. Any corporation (other than the Company or a Subsidiary) in an unbroken chain of corporations ending with the Company it, at the time of the grant of an Option, each of the corporations (other than the Company or a Subsidiary) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. (r) Participant. An Employee who is granted an Option under the Plan. Options may be granted only to Employees. (s) Plan. The 2000 Key Tronic Corporation Employee Stock Option Plan and all amendments and supplements to it. (t) Rule 1 6a. Rule 1 6a, as amended from time to time, or any successor rule promulgated under the Exchange Act. (u) Securities Act. The Securities Act of 1933, as amended from time to time, and the regulations promulgated thereunder. (v) SEC. The Securities and Exchange Commission. (w) Share. A share of Common Stock. (x) Subsidiary. Any corporation, other than the Company, in an unbroken chain of corporations beginning with the Company if at the time of grant of an Option, each of the corporations, other than the last corporation in the unbroken chain, owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 2.2 Other Definitions. In addition to the above definitions, certain terms used in the Plan and any Agreement may be defined in other portions of the Plan or in such Agreement. 2.3 Conflicts in Provisions. In the case of any conflict between different provisions of the Plan or between provisions of the Plan and any Agreement, the provisions in the Article of the Plan which specifically governs the applicable Option shall control over those in a different Article of the Plan or in such Agreement. ARTICLE III COMMON STOCK SUBJECT TO PLAN 3.1 Number of Shares. The aggregate number of Shares for which Options may be granted under the Plan shall be four hundred twenty five thousand (425,000), no more than 208,250 of which may be awarded to Officers. During any Fiscal Year within the term of this Plan, no more than 49% of the total shares granted to Participants may be granted to Participants who are Officers. Such Shares may be authorized but unissued Shares, reacquired Shares, Shares acquired on the open market specifically for distribution under this Plan, or any combination thereof. 3.2 Resale. If an Option expires or is terminated, surrendered or canceled without having been fully exercised, the unused Shares covered by any such Option shall again be available for grant under the Plan. 3.3 Adjustments. If there is any change in the Common Stock of the Company by reason of any stock split, stock dividend, spin-off split-up, spin-out, recapitalization, merger, consolidation, reorganization, combination or exchange of shares, or any other similar transaction) the aggregate number and kind of Shares for which Options may be granted under the Plan, and subject to change of control provisions of the Agreement, the number and kind of Shares subject to each outstanding Option and the price per Share thereof, as applicable, shall be appropriately adjusted by the Committee. ARTICLE IV ELIGIBILITY 4.1 Determined By Committee. The Participants and the Options they receive under the Plan shall be determined by the Committee in its sole discretion. In making its determinations, the Committee shall consider past, present and expected future contributions of Participants and potential Participants to the Employer. ARTICLE V ADMINISTRATION 5.1 Committee. The Plan shall be administered by the Committee. The Committee shall consist of two or more members of the Board who are "non- employee directors" as defined in Rule 16b-3 and are "outside directors" as defined in Code Section 162(m). 5.2 Authority. Subject to the terms of the Plan, the Committee shall have sole discretionary authority to: (a) determine the individuals to whom Options are granted, the type(s) and amounts of Options granted, the date of grant, and the duration of Options granted; (b) determine the other terms, conditions and provisions of, and restrictions relating to, each Option granted; (c) interpret and construe the Plan and all Agreements; (d) prescribe, amend and rescind rules and regulations relating to the Plan; (e) determine the content and form of all Agreements; (f) resolve all questions relating to Options or the Plan; (g) maintain accounts, records and ledgers relating to Options; (h) maintain records concerning its decisions and proceedings; (i) employ agents, attorneys, accountants or other persons for such purposes as the Committee considers necessary or desirable; and (j) do and perform all other acts which it may deem necessary or appropriate to administer the Plan and carry out the purposes of the Plan. 5.3 Delegation The Committee may delegate some or all of its authority under the Plan to any Employee, Employees or committee of Employees; provided however, the Committee may not delegate its authority to grant Options to individuals (i) who are, subject on the date of grant to the reporting rules under Section 16(a) of the Exchange Act, (ii) who are Section 162(m) Participants or (iii) who are Employees of the Company who are delegated authority by the Committee hereunder. 5.4 Decisions of Committee and its Delegates. All decisions made by the Committee, or (unless the Committee has specified an appeal process to the contrary) any other person or persons to whom the Committee has delegated authority, pursuant to the provisions hereof shall be final and binding on all persons. ARTICLE VI AMENDMENT OF PLAN 6.1 Power of Committee. The Committee shall have the sole right and power to amend the Plan at any time and from time to time; provided, however, that the Committee may not amend the Plan to alter the provisions of sections 3.1 or 3.2. ARTICLE VII TERM AND TERMINATION OF PLAN 7.1 Term. The Plan shall commence as of the Effective Date. No Option shall be granted pursuant to the Plan on or after the tenth anniversary date of the Effective Date, but Options granted prior to such tenth anniversary may extend beyond that date to the date(s) specified in the Agreement(s) covering such Options. 7.2 Termination. Subject to Article VIII, the Plan may be terminated at any time by the Committee. ARTICLE VIII MODIFICATION OR TERMINATION OF OPTIONS 8.1 General. Subject to Section 8.2, the amendment or termination of the Plan shall not adversely affect a Participant's rights under any Option granted prior to such amendment or termination. 8.2 Committee's Right. Except as may be otherwise provided in an Agreement, any option granted may be converted, modified, forfeited or canceled, prospectively or retroactively, in whole or in part, by the Committee in its sole discretion; provided, however, that subject to Section 8.3, no such action shall adversely affect the rights of any Participant under any Option granted prior to such action without his or her consent. Except as may be otherwise provided in an Agreement, the Committee may, in its sole discretion, in whole or in part, waive any restrictions or conditions applicable to, or accelerate the vesting of, any Option. 8.3 Termination of Options under Certain Conditions. The Committee in its sole discretion may cancel any unexpired, unpaid, or deferred Options at any time if the Participant is not in compliance with all applicable provisions of the Plan or with any Agreement or if the Participant, whether or not he or she is currently employed by an Employer, acts in a manner contrary to the best interests of the Company or any Affiliate. 8.4 Awards to Foreign Nationals and Employees Outside the United States. To the extent the Committee deems it necessary, appropriate or desirable to comply with foreign law or practice and to further the purpose of the Plan, the Committee may, without amending this Plan, (i) establish special rules applicable to Options granted to Participants who are foreign nationals, are employed outside the United States, or both, including rules that differ from those set forth in the Plan, and (ii) grant Options to such Participants in accordance with those rules. ARTICLE IX CHANGE OF CONTROL 9.1 Right of Committee. The occurrence of a Change of Control shall not limit the Committee's authority to take any action, in its sole discretion, permitted by Section 9.2 The Committee, in its sole discretion, may specify in any Agreement the effect a Change of Control will have on such Agreement and the related Options. ARTICLE X AGREEMENTS AND CERTAIN OPTIONS 10.1 Grant Evidenced by Agreement. The grant of any Option under the Plan shall be evidenced by an Agreement which shall describe the specific Option granted and the terms and conditions of such Option. The granting of any Option shall be subject to, and conditioned upon, the recipient's execution of any Agreement required by the Committee. Except as may be otherwise provided in an Agreement, capitalized terms used in the Agreement shall have the respective meanings assigned to such terms in the Plan, and the Agreement shall be subject to all of the provisions of the Plan. 10.2 Provisions of Agreement. Each Agreement shall contain such provisions as the Committee shall determine in its sole discretion to be necessary, desirable and appropriate for the Option granted which may include, but not necessarily be limited to, the following: description of the Option; the Option's duration; the Option's transferability; the exercise price, the exercise period and the person or persons who may exercise the Option; the effect upon the Option of the Participant's death, disability, change of duties or termination of employment; the Option's conditions; subject to Section 11.1, when, if, and how the Option may be forfeited, converted into another Option, modified, exchanged for another Option, or replaced; and the restrictions on any Shares purchased or granted under the Plan. ARTICLE XI REPRICING 11.1 Cancellation and Re issuance of Options. The Committee will not permit the repricing of Options by any method, including by cancellation and reissuance. ARTICLE XII PAYMENT, DIVIDENDS, DEFERRAL AND WITHHOLDING 12.1 Payment. Upon the exercise of an Option, the amount due the Company is to be paid: (a) in cash; (b) by the surrender of all or part of the shares issuable upon exercise of the Option; (c) by the tender to the Company of Shares owned by the Participant and registered in his or her name having a Fair Market Value equal to the amount due to the Company; (d) in other property, rights and credits, deemed acceptable by the Committee including the Participant's promissory note; or (e) by any combination of the payment methods specified in (a) through (c) above. (f) Notwithstanding the foregoing, any method of payment other than in cash may be used only with the consent of the Committee or if and to the extent so provided in an Agreement. The proceeds of the sale of Shares purchased pursuant to an Option shall be added to the general funds of the Company and used for general corporate purposes. 12.2 Code Section 162(m). The Committee, in its sole discretion, may require that one or more Agreements contain provisions which provide that, in the event Section 162(m) of the Code, or any successor provision relating to excessive employee remuneration, would operate to disallow a deduction by the Company for all or part of any Option under the Plan, a Participant's receipt of the portion of such Option that would not be deductible by the Company shall be deferred until the next succeeding year or years in which the Participant's remuneration does not exceed the limit set forth in such provision of the Code. 12.3 Withholding. The Company may, at the time any distribution is made under the Plan, whether in cash or in Shares, or at the time any Option is exercised, withhold from such distribution or Shares issuable upon the exercise of an Option, any amount necessary to satisfy federal, state and local withholding requirements with respect to such distribution or exercise of such Option. Such withholding may be satisfied, at the Company's option, either by cash or the Company's withholding of Shares. An Agreement may contain such withholding provisions as the Committee may deem appropriate. ARTICLE XIII OPTIONS 13.1 Grant of Options. Options may be granted by the Committee under the Plan. 13.2 Option Price. The purchase price for Shares subject to any Option shall be no less than the Fair Market Value of the Shares at the time the Option is granted. 13.3 Determination by Committee. Except as otherwise provided in Section 13.2, the terms of any Option shall be determined by the Committee. ARTICLE MV MISCELLANEOUS PROVISIONS 14.1 Termination of Employment. If the employment of a Participant by the Employer terminates for any reason, all unexercised, deferred, and unpaid Options may be exercisable or paid only in accordance with rules established by the Committee and set forth in an Agreement. These rules may provide, as the Committee in its sole discretion may deem appropriate, for the expiration, forfeiture, continuation, or acceleration of the vesting of all or part of the Options. 14.2 Unfunded Status of the Plan. The Plan is intended to constitute an "unfunded" plan for incentive compensation. With respect to any payments or deliveries of Shares not yet made to a Participant by the Company, nothing contained herein shall give any rights that are greater than those of a general creditor of the Company. The Committee may authorize arrangements to meet the obligations created under the Plan to deliver Shares or payments hereunder consistent with the foregoing. 14.3 Designation of Beneficiary. The Committee, in its sole discretion may include a provision in the Agreement permitting the Participant to specify, on a Beneficiary Designation," a beneficiary or beneficiaries ("Designated Beneficiary") to exercise, in the event of the death of the Participant, an Option to the extent exercise is permissible under the Agreement. The Committee reserves the right to review and approve Beneficiary Designations. The Participant may, from time to time, revoke or change Participant's Beneficiary Designation and Participant's Beneficiary Designation shall be controlling over Participant's Will (or similar document passing property at Participant's death) and the laws of intestacy. Unless the Agreement provides to the contrary, in the event Participant dies without a valid Beneficiary Designation as provided herein, all rights under the Agreement shall lapse and terminate on the date of Participants death. For the purposes of this Section 15.3, a Beneficiary Designation must be on such form (and only on such form) as is prescribed by the Committee from time to time. 14.4 Non-transferability. Unless otherwise determined by the Committee and specified in an Agreement, an Option granted under the Plan may not be transferred or assigned (either during life or at death) by the Participant to whom it is granted. 14.5 Rule 16b-3. Notwithstanding any other provision of the Plan, the Plan and any Option granted to any Employee who is then subject to the reporting rules under Section 16 of the Exchange Act, shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by applicable law, the Plan and Options granted hereunder shall be deemed amended to the extent necessary to conform to such applicable exemptive rule. 14.6 Captions. The captions contained in the Plan and in any Agreement are included only for convenience, and they shall not be construed as a part of the Plan or such Agreement. 14.7 Number and Gender. The masculine, feminine and neuter, wherever used in the Plan or in any Agreement, shall refer to either the masculine, feminine or neuter; and, unless the context otherwise requires, the singular shall include the plural and the plural the singular. 14.8 Governing Law. The place of administration of the Plan and each Agreement shall be in the State of Washington. The Plan and each Agreement shall be governed by and construed in accordance with the laws of the State of Washington, without giving effect to principles relating to conflict of laws. 14.9 Compliance With Securities and Other Laws. The Plan, the grant and exercise of any Option, and the obligations of the Company to issue and/or deliver any Shares upon exercise of such Option, shall be subject to the following conditions: (i) compliance with all applicable federal, state and foreign securities and other laws, rules and regulations (including without limitation registration or qualification, or an exemption therefrom, under all applicable securities laws), (ii) obtaining all applicable consents and approvals of any governmental or private regulatory body and (iii) completion of all applicable listings on any securities exchange or trading system, in each case as the Committee deems necessary or desirable and on terms and conditions acceptable to it. The Company shall not be obligated to undertake any action to comply with any such laws (including without limitation any such registration or qualification), to obtain any such consent or approval or to complete any such listing, but the Committee, in its discretion, may elect to do so. 4.10 Agreements Representations and Restrictions. The Committee may (i) require a Participant to execute such written agreements and representations (including without limitation that the Shares to be issued and/or delivered upon exercise of any Option are being acquired for investment and not with a view to resale or distribution thereof), (ii) require a Participant to furnish such information, legal opinions or evidence, (iii) place such restrictive legends upon any certificates for the Shares, and (iv) take such other acts, in each case as the Committee deems necessary or desirable to comply with applicable laws. 14.11 No Rights as Stockholder Until Issuance of Shares. A Participant shall have no rights as a stockholder of the Company with respect to any Shares to be issued upon exercise of an Option until such Participant becomes a holder of record of such Shares. 14.12 Successors and Assigns. The Plan and any Agreement shall be binding upon, and inure to the benefit of, the Company's successors and assigns and shall be binding upon, and (to the extent permitted) inure to the benefit of, any Participant's heirs, successors and assigns. 14.13 No Employment Contract. Neither the adoption of the Plan nor any Option granted hereunder shall confer upon any Employee any right to continued employment nor shall the Plan or any Option interfere in any way with the right of the Employer to terminate the employment of any of its Employees at any time. 14.14 No Effect on Other Options. The receipt of Options under the Plan shall have no effect on any other benefits to which a Participant may be entitled from the Employer under another plan or otherwise, and shall not preclude a Participant from receiving any such other benefits. EX-10 3 Exhibit 10.1 ADDENDUM TO EMPLOYMENT CONTRACT R E C I T A L S WHEREAS, KEY TRONIC CORPORATION (the "Employer") and Efren Perez Ricardez (the "Employee") desire to modify Employee's July 10, 1997 Employment Contract (the "Agreement"); WHEREAS, said modification is based upon the mutual desires of the Employer and the Employee; NOW, THEREFORE, in consideration of the mutual covenants contained therein, the following modification to the July 10, 1997 Employment Contract is executed. Except as provided in this modification, the other terms and conditions set out in the July 10, 1997 Employment Contract remain in full force and effect. 1. Section 9 a) of the Agreement is hereby amended to read in full as follows: "9. TERMINATION a) Employer's Board of Directors, its President or CEO may, in their discretion, terminate Employee's employment at any time for any reason or for no reason. After such termination, Employer shall pay Employee for Employee's accumulated unused vacation and, subject to the provisions below, Employer shall continue to pay Employee's base salary only in effect prior to termination for a period of two years after termination if termination occurs prior to July 30, 2002 and for a period of one year after termination if termination occurs on or after July 30, 2002. Also, for the period during which any salary payments are being made, Employer will continue Employee's group medical and dental plan coverage for Employee and Employee's dependents as such plans are then generally offered to employees of Employer. Employee may elect to continue group medical coverage at the termination of severance benefits, for the balance of any COBRA periods, at Employee's sole expense. Employee shall not be entitled to receive any payments under any bonus, profit sharing or other incentive compensation plan of Employer unless Employee is employed by Employer on the date such payments are due to be paid." EMPLOYER: KEY TRONIC CORPORATION EMPLOYEE: EFREN PEREZ RICARDEZ BY: /s/ Jack W. Oehlke BY: /s/ Efren Perez Ricardez NAME: JACK W. OEHLKE NAME: EFREN PEREZ RICARDEZ TITLE: PRESIDENT & CEO DATE: 11/19/99 DATE: 11/19/99 EX-10 4 Exhibit 10.3 ADDENDUM TO EMPLOYMENT CONTRACT R E C I T A L S WHEREAS, KEY TRONIC CORPORATION (the "Employer") and Jack W. Oehlke (the "Employee") desire to modify Employee's December 27, 1993 Employment Contract (the "Agreement"); WHEREAS, said modification is based upon the mutual desires of the Employer and the Employee; NOW, THEREFORE, in consideration of the mutual covenants contained therein, the following modification to the December 27, 1993 Employment Contract is executed. Except as provided in this modification, the other terms and conditions set out in the December 27, 1993 Employment Contract remain in full force and effect. 1. Section 10a of the Agreement is hereby amended to read in full as follows: "10. TERMINATION a. Employer's Board of Directors and/or its President and its CEO may, in their discretion, terminate Employee's employment at any time for any reason or for no reason. After such termination, all rights, duties and obligations of both parties shall cease except that Employer shall pay Employee for Employee's accumulated unused vacation and subject to the provisions below, Employer shall continue to pay Employee's base salary only in effect prior to termination for a period of two years after termination if termination occurs prior to July 30, 2002 and for a period of one year after termination if termination occurs on or after July 30, 2002. Also, for the period during which any such payments are being made, Employer will continue Employee's group medical and dental plan coverage for Employee and Employee's dependents as such plans are then generally offered to employees of Employer. Employee may elect to continue group medical coverage at the termination of severance benefits, for the balance of any COBRA period, at Employee's sole expense." EMPLOYER: KEY TRONIC CORPORATION EMPLOYEE: JACK W. OEHLKE BY: /s/ Ronald F. Klawitter BY: /s/ Jack W. Oehlke NAME: RONALD F. KLAWITTER NAME: JACK W. OEHLKE TITLE: EXEC. VICE PRESIDENT & CFO DATE: 11/15/99 DATE: 11/15/99 EX-10 5 Exhibit 10.2 ADDENDUM TO EMPLOYMENT CONTRACT R E C I T A L S WHEREAS, KEY TRONIC CORPORATION (the "Employer") and Ronald F. Klawitter (the "Employee") desire to modify Employee's December 9, 1992 Employment Contract (the "Agreement"); WHEREAS, said modification is based upon the mutual desires of the Employer and the Employee; NOW, THEREFORE, in consideration of the mutual covenants contained therein, the following modification to the December 9, 1992 Employment Contract is executed. Except as provided in this modification, the other terms and conditions set out in the December 9, 1992 Employment Contract remain in full force and effect. 1. Section 10a of the Agreement is hereby amended to read in full as follows: "10. TERMINATION a. Employer's Board of Directors and/or its President and its CEO may, in their discretion, terminate Employee's employment at any time for any reason or for no reason. After such termination, all rights, duties and obligations of both parties shall cease except that Employer shall pay Employee for Employee's accumulated unused vacation and subject to the provisions below, Employer shall continue to pay Employee's base salary only in effect prior to termination for a period of two years after termination if termination occurs prior to July 30, 2002 and for a period of one year after termination if termination occurs on or after July 30, 2002. Also, for the period during which any such payments are being made, Employer will continue Employee's group medical and dental plan coverage for Employee and Employee's dependents as such plans are then generally offered to employees of Employer. Employee may elect to continue group medical coverage at the termination of severance benefits, for the balance of any COBRA period, at Employee's sole expense." EMPLOYER: KEY TRONIC CORPORATION EMPLOYEE: RONALD F. KLAWITTER BY: /s/ Jack W. Oehlke BY: /s/ Ronald F. Klawitter NAME: JACK W. OEHLKE NAME: RONALD F. KLAWITTER TITLE: PRESIDENT & CEO DATE: 11/15/99 DATE: 11/15/99 EX-10 6 Exhibit 10.4 ADDENDUM TO EMPLOYMENT CONTRACT R E C I T A L S WHEREAS, KEY TRONIC CORPORATION (the "Employer") and Craig D. Gates (the "Employee") desire to modify Employee's October 27, 1994 Employment Contract (the "Agreement"); WHEREAS, said modification is based upon the mutual desires of the Employer and the Employee; NOW, THEREFORE, in consideration of the mutual covenants contained therein, the following modification to the October 27, 1994 Employment Contract is executed. Except as provided in this modification, the other terms and conditions set out in the October 27, 1994 Employment Contract remain in full force and effect. 1. Section 9 a) of the Agreement is hereby amended to read in full as follows: "9. TERMINATION a) Employer's Board of Directors, its President or CEO may, in their discretion, terminate Employee's employment at any time for any reason or for no reason. After such termination, Employer shall pay Employee for Employee's accumulated unused vacation and, subject to the provisions below, Employer shall continue to pay Employee's base salary only in effect prior to termination for a period of two years after termination if termination occurs prior to July 30, 2002 and for a period of one year after termination if termination occurs on or after July 30, 2002. Also, for the period during which any salary payments are being made, Employer will continue Employee's group medical and dental plan coverage for Employee and Employee's dependents as such plans are then generally offered to employees of Employer. Employee may elect to continue group medical coverage at the termination of severance benefits, for the balance of any COBRA periods, at Employee's sole expense. Employee shall not be entitled to receive any payments under any bonus, profit sharing or other incentive compensation plan of Employer unless Employee is employed by Employer on the date such payments are due to be paid." EMPLOYER: KEY TRONIC CORPORATION EMPLOYEE: CRAIG D. GATES BY: /s/ Jack W. Oehlke BY: /s/ Craig D. Gates NAME: JACK W. OEHLKE NAME: CRAIG D. GATES TITLE: PRESIDENT & CEO DATE: 11/15/99 DATE: 11/15/99 EX-27 7
5 This schedule contains summary financial information extracted from the accompanying financial statements and is qualified in its entirety by reference to such financial statements. 3-MOS JUL-01-2000 JAN-01-2000 1349 0 30200 582 25971 68097 104040 80381 97925 26792 0 0 0 38286 12008 97925 41285 41285 37946 37946 4667 0 492 (1820) 13 (1833) 0 0 0 (1833) (0.19) (0.19)
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