<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[ X ] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the quarterly period ended December 31, 1997
-----------------
[ ] Transition report under Section 13 or 15(d) of the Exchange Act For the
transition period from to
------------ --------------
Commission file number 0-28932
-------
BENTHOS, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Massachusetts 04-2381876
(State or Other Jurisdiction of (I. R. S. Employer
Corporation or Organization) Identification No.)
49 Edgerton Drive, North Falmouth, Massachusetts 02556
(Addresses of Principal Executive Offices) (Zip Code)
(508) 563-1000
Issuer's Telephone Number Including Area Code
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of Common
equity as of the latest practicable date:
Common Stock par value $.0667 1,317,490
(Class) (Outstanding stock at February 5, 1998)
Traditional Small Business Disclosure Format (check one):
Yes X No
--- ----
<PAGE>
2
BENTHOS, INC. AND SUBSIDIARY
FORM 10-QSB
FOR THE THIRTEEN WEEKS ENDED
DECEMBER 31, 1997
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
Face Sheet 1
Index 2
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (unaudited) 3
December 31, 1997 and
September 30, 1997
Condensed Consolidated Statements of Earnings (unaudited) 4
Thirteen Weeks Ended
December 31, 1997 and
December 31, 1996
Condensed Consolidated Statements of Cash Flow (unaudited) 5
Thirteen Weeks Ended
December 31, 1997 and
December 31, 1996
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis 7-8
of Financial Condition and Results
of Operations
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
Signature 9
</TABLE>
<PAGE>
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Benthos, Inc. and Subsidiary
Condensed Consolidated Balance Sheets
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Assets December 31, 1997 September 30, 1997
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $3,064 $2,663
Accounts Receivable, Net 1,459 2,170
Inventories 2,421 2,063
Prepaid Expenses 346 469
Deferred Tax Asset 516 516
-------------- --------------
Total Current Assets 7,806 7,881
Property, Plant and Equipment, Net 1,894 1,961
Other Assets 234 234
-------------- --------------
$9,934 $10,076
============== ==============
<CAPTION>
Liabilities and Stockholders' Investment
<S> <C> <C>
Current Liabilities:
Current Maturities of Long-term Debt $ 69 $ 34
Accounts Payable 394 314
Accrued Expenses 1,140 1,373
Customer Deposits 206 141
-------------- --------------
Total Current Liabilities 1,809 1,862
Long-term Debt, Net of Current Maturities 442 791
Stockholders' Investment:
Common Stock, $.0667 par value-
Authorized - 2,500 shares
Issued - 1,586 shares at December 31, 1997
and September 30, 1997 106 106
Capital in Excess of Par Value 1,270 1,270
Retained Earnings 7,084 6,894
Treasury Stock, at Cost (777) (847)
-------------- --------------
Total Stockholders' Investment 7,683 7,423
-------------- --------------
$ 9,934 $10,076
============== ==============
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
<PAGE>
4
Benthos, Inc. and Subsidiary
Condensed Consolidated Statements of Earnings
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
December 31, 1997 December 31, 1996
<S> <C> <C>
Net Sales $ 3,404 $ 4,844
Cost of Sales 1,283 2,156
-------------- --------------
Gross Profit 2,121 2,688
Selling, General & Administrative Expenses 1,524 1,505
Research and Development Expenses 312 242
-------------- --------------
Income from Operations 285 941
Interest Income 39 6
Interest Expense (16) (19)
-------------- --------------
Income before Provision for Income Taxes 308 928
Provision for Income Taxes 118 374
-------------- --------------
Net Income $ 190 $ 554
============== ==============
Basic Earnings Per Share $0.15 $0.46
============== ==============
Diluted Earnings Per Share $0.14 $0.40
============== ==============
Common Shares Outstanding 1,293 1,210
Common Shares Assuming Dilution 1,394 1,383
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
<PAGE>
5
Benthos, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flow
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
December 31, 1997 December 31, 1996
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 190 $ 554
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 191 195
Changes in Assets and Liabilities:
Accounts Receivable 711 (1,039)
Inventories (358) 208
Prepaid Expenses 123 22
Accounts Payable & Accrued Expenses (153) (92)
Customer Deposits 65 (144)
-------------- -------------
Net Cash Provided by (used in) Operating Activities 769 (296)
Cash Flows from Financing Activities:
Purchases of Property, Plant & Equipment (40) (196)
Increase in Other Assets (14) (86)
-------------- -------------
Net Cash Used in Investing Activities (54) (282)
Cash Flows from Financing Activities:
Payments on long-term debt, net (314) (8)
-------------- -------------
Net Cash Used in Financing Activities (314) (8)
-------------- -------------
Net Increase (Decrease) in Cash and Cash Equivalents 401 (586)
Cash and Cash Equivalents, Beginning of Period 2,663 751
-------------- -------------
Cash and Cash Equivalents, End of Period $3,064 $ 165
============== =============
Supplemental Disclosure of Cash Flow Information:
Interest Paid $16 $19
============== =============
Income Taxes Paid $20 $759
============== =============
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
<PAGE>
6
Benthos, Inc.
Notes to Financial Statements
1. Fiscal Periods
The Company's fiscal year is comprised of 52 weeks and ends on September 30 each
year. Interim quarters are comprised of 13 weeks unless otherwise noted and end
on the Sunday closest to December 31, March 31, and June 30. All references in
the unaudited condensed consolidated financial statements to fiscal periods
ended on December 31, March 31, or June 30 mean the interim quarters referred to
above.
2. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared by Benthos, Inc. pursuant to the rules and regulations of the
Securities and Exchange Commission regarding interim financial reporting.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements
and should be read in conjunction with the consolidated financial statements and
notes thereto for the fiscal year ended September 30, 1997, included in the
Company's previously filed Form 10-KSB. The accompanying condensed consolidated
financial statements reflect all adjustments (consisting solely of normal,
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation of results for the interim periods presented. The results of
operations for the interim period are not necessarily indicative of the results
to be expected for the full fiscal year.
3. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market and
consist of the following:
<TABLE>
<CAPTION>
December 31,1997 September 30, 1997
(in thousands)
<S> <C> <C>
Raw Materials $ 91 $ 90
Work-in-Process 2,285 1,928
Finished Goods 45 45
------------- -----------
$2,421 $2,063
============= ===========
</TABLE>
4. Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share" which revises the calculation and presentation
provisions of Accounting Principles Board Opinion 15 ("APB 15") and related
interpretations. Statement No. 128 has been adopted in the accompanying
financial statements with retroactive application. Basic earnings per share
excludes dilution and is computed by dividing net earnings by the weighted
average number of common shares outstanding for the period. Diluted earnings per
share reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
Diluted earning per share is computed based upon the weighted average number of
common shares and dilutive common equivalent shares outstanding. Common stock
options, which are common stock equivalents, have a dilutive effect on earnings
per share in all periods and are therefore included in the computation of
diluted earnings per share. Diluted earnings per share in the accompanying
statements of operations is identical to the primary earnings per share
previously presented in accordance with APB 15. The Company has stock options
for 32 shares of common stock at an average exercise price of $17.54, which have
not been included in basic or diluted earnings per share as they are
antidilutive.
<PAGE>
7
Item 2.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
(Dollars in thousands, except per share data)
Results of Operations -- First quarter of fiscal year 1998 compared with first
quarter of fiscal year 1997.
The following table presents, for the periods indicated, the percentage
relationship of Condensed Consolidated Statements of Earnings items to total
sales:
<TABLE>
<CAPTION>
Thirteen Weeks Ended
December 31, 1997 December 31, 1996
(unaudited)
<S> <C> <C>
Net Sales 100.0% 100.0%
Cost of Sales 37.7% 44.5%
------------ ------------
Gross Profit 62.3% 55.5%
Selling, General & Administrative Expenses 44.8% 31.1%
Research and Development Expenses 9.1% 5.0%
------------ ------------
Income from Operations 8.4% 19.4%
Interest Income/(Expense), Net .7% (.3%)
------------ ------------
Income Before Provision for Income Taxes 9.1% 19.1%
Provision for Income Taxes 3.5% 7.7%
------------ ------------
Net Income 5.6% 11.4%
============ ============
</TABLE>
Sales. Net sales decreased by 29.7% in the first quarter of fiscal year 1998 to
$3,404 as compared to $4,844 in the first quarter of fiscal year 1997. Sales of
the Container Inspection Systems Division decreased by 7.4% to $1,888 in the
first quarter of fiscal year 1998 as compared to $2,038 in the first quarter of
fiscal year 1997. The decrease resulted largely from the timing of project
orders. Sales of the Undersea Systems Division decreased by 46% to $1,516 in the
first quarter of fiscal year 1998 as compared to $2,806 in the first quarter of
fiscal year 1997. The decrease resulted mainly from lower sales of hydrophones
in the first quarter of fiscal year 1998 as compared to the first quarter of
fiscal year 1997 related to the transitioning to a new hydrophone product.
Gross Profit. Gross Profit decreased by 21.1% to $2,121 for the first quarter of
fiscal year 1998 as compared to $2,688 for the first quarter of fiscal year
1997. As a percentage of sales, gross profit was 62.3% in the first quarter of
fiscal year 1998 as compared to 55.5% in the first quarter of fiscal year 1997.
The increase in gross profit percentage is attributed primarily to the higher
sales mix of Container Inspection Systems Division products, which carry a
higher gross profit, in the first quarter of fiscal year 1998.
<PAGE>
8
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by 1.3% to $1,524 for the first quarter of
fiscal year 1998 as compared to $1,505 in the first quarter of fiscal year 1997.
As a percentage of sales, selling, general and administrative expenses increased
to 44.8% in the first quarter of fiscal year 1998 as compared to 31.1% for the
first quarter of fiscal year 1997. This increase in percentage of sales is
primarily a result of a reduced level of sales in the first quarter of fiscal
year 1998.
Research and Development Expenses. Research and development expenses increased
28.9% to $312 for the first quarter of fiscal year 1998 as compared to $242 in
the first quarter of fiscal year 1997. As a percentage of sales, research and
development expenses increased to 9.1% of sales in the first quarter of fiscal
year 1998 from 5.0% in the first quarter of fiscal year 1997. The increase in
the overall level of expenditures is due to investments in new product
development and is consistent with the Company's current operational plans.
Interest Income. Interest income increased to $39 in the first quarter of fiscal
year 1998 as compared to $6 in the first quarter of fiscal year 1997. The
increase in interest income was a result of higher invested cash balances.
Provision for Income Taxes. The provision for income taxes decreased to $118 in
the first quarter of fiscal year 1998 as compared to $374 in the first quarter
of fiscal year 1997. The effective tax rate used in the first quarter of fiscal
year 1998 was 38.3% as compared to the rate of 40.3% used in the first quarter
of fiscal year 1997. The rate used in the first quarter of fiscal year 1998 is
the same rate as was applied to the full year of fiscal 1997 and is lower than
the statutory rate due to the benefit from the Company's Foreign Sales
Corporation.
Liquidity and Capital Resources. The Company's cash and cash equivalents
increased $401 from September 30, 1997 to December 31, 1997. This increase
resulted primarily from cash generated from operations of $769. Accounts
receivable decreased $711 resulting from improved collections and lower sales
volume and inventories increased by $358 to support future sales. Cash flow from
financing activities was a use of $314 resulting from payments on the Company's
long term debt. The Company believes it is well positioned to finance future
working capital requirements and capital expenditures during the next twelve
months through cash on hand, current earnings and available credit facilities.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995.
The statements in this Quarterly Report on Form 10-QSB and in oral statements
which may be made by representatives of the Company relating to plans,
strategies, economic performance and trends and other statements that are not
descriptions of historical facts may be forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Forward-looking information is inherently subject to risks and
uncertainties, and actual results could differ materially from those currently
anticipated due to a number of factors which include: the timing of large
project orders, competitive factors, shifts in customer demand, government
spending, economic cycles, availability of financing as well as the factors
described in this report. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results or
outcomes may vary materially from those described herein as anticipated,
believed, estimated, expected or intended.
<PAGE>
9
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits set forth in the
Exhibit Index on the following
page are filed herewith as a
part of this report.
(b) Reports on Form 8-K
None
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.
BENTHOS, INC
By /s/ Francis E. Dunne, Jr.
Francis E. Dunne, Jr
Chief Financial Officer
and Treasurer
(Principal Financial and Accounting Officer)
DATE: February 5, 1998
<PAGE>
EXHIBIT INDEX
Exhibit
3.1 Restated Articles of Organization (1)
3.2 Articles of Amendment dated April 28, 1997 (2)
3.3 By-Laws (1)
3.4 By-Law Amendments adopted January 23, 1998
4.1 Common Stock Certificate (1)
10.1 Employment Contract with Samuel O. Raymond (1)
10.2 Amendment to Employment Contract with Samuel O. Raymond (2)
10.3 Employment Contract with John L. Coughlin (1)
10.4 Employee Stock Ownership Plan (1)
10.5 First Amendment to Employee Stock Ownership Plan (2)
10.6 401(k) Retirement Plan (1)
10.7 First Amendment to 401(k) Retirement Plan (2)
10.8 Second Amendment to 401(k) Retirement Plan (2)
10.9 Third Amendment to 401(k) Retirement Plan (3)
10.10 Supplemental Executive Retirement Plan (1)
10.11 1990 Stock Option Plan (1)
10.12 Stock Option Plan for Non-Employee Directors(1)
10.13 1998 Non-Employee Directors' Stock Option Plan
10.14 License Agreement between the Company and The Penn State
Research Foundation dated December 13, 1993 (1)
10.15 Technical Consultancy Agreement between the Company and
William D. McElroy dated July 12, 1994 (1)
10.16 Technical Consultancy Agreement between the Company and
William D. McElroy dated October 1, 1996 (3)
10.17 General Release and Settlement Agreement between the Company
and Lawrence W. Gray dated February 8, 1996 (1)
<PAGE>
Exhibit
10.18 Line of Credit Loan Agreement between the Company and Cape
Cod Bank and Trust Company dated September 24, 1990, as
amended (1)
10.19 Commercial Mortgage Loan Extension and Modification
Agreement between the Company and Cape Cod Bank and Trust
Company, dated July 6, 1994 (1)
10.20 License Agreement between the Company and Optikos
Corporation dated July 29, 1997 (3)
11 Computation of Earnings Per Share
21 Subsidiaries of the Registrant (1)
27 Financial Data Schedule
(1) Previously filed as an exhibit to Registrant's Registration
Statement on Form 10-SB filed with the Commission on December 17, 1996
(File No. O-28932) and incorporated herein by this reference.
(2) Previously filed as an exhibit to Registrant's Quarterly Report
on Form 10-QSB for the quarterly period ended March 30, 1997 (File No.
O-28932) and incorporated herein by this reference.
(3) Previously filed as an exhibit to Registrant's Quarterly Report
on Form 10-QSB for the quarterly period ended June 29, 1997 (File No.
O-28932) and incorporated hereby by this reference.
<PAGE>
Exhibit 3.4
BENTHOS, INC.
By-Law Amendments adopted January 23, 1998
------------------------------------------
RESOLVED: that Article 3, Section 3.2, of the By-Laws of the Corporation be
and hereby is amended to read in its entirety as follows:
"Section 3.2 Special Meetings.
------------------------------
So long as the Corporation has a class of voting stock
registered under the Securities Exchange Act of 1934, as amended,
special meetings of the stockholders may be called by the
President or by a majority of the Directors and shall be called
by the Clerk, or in case of the death, absence, incapacity or
refusal of the Clerk, by any other officer, upon written
application of one or more stockholders who hold at least 40
percent in interest of the capital stock entitled to vote at the
meeting. Such call shall state the time, place and purposes of
the meeting."
RESOLVED: that Article 4, Section 4.1, of the By-Laws of the Corporation be
and hereby is amended to read in its entirety as follows:
"Section 4.1 Number and Election.
---------------------------------
The Board of Directors shall consist of not less than the
minimum number of individuals permitted by law and shall be
divided into three classes, such classes to be as nearly equal in
number as possible. One of such classes of Directors shall be
elected annually by the stockholders. Subject to the foregoing
requirements and applicable law, the Board of Directors may, from
time to time, fix the number of Directors and their respective
classifications, provided that any such action does not operate
to remove a Director elected by the stockholders or the Directors
other than in the manner specified in the Articles of
Organization or these By-Laws. No decrease in the number of
Directors constituting the Board of Directors shall shorten the
term of any incumbent Director. Except as otherwise provided in
accordance with the Articles of Organization or these By-Laws,
the members of each class shall be elected for a term of three
years and shall serve until their successors are elected and
qualified. Any successor to a Director whose seat becomes vacant
shall serve for the remainder of the term of his predecessor and
until
<PAGE>
his successor is elected and qualified. The number of Directors
may be increased by the Directors by the affirmative vote of a
majority of the Directors then in office."
RESOLVED: that Article 6, Section 6.2, of the By-Laws of the Corporation be
and hereby is amended by deleting the first paragraph thereof in
its entirety and by amending the third paragraph thereof to read
in its entirety as follows:
"A Director may be removed from office only for cause by
vote of either (a) the holders of a majority of the shares
outstanding and entitled to vote in the election of Directors or
(b) a majority of the Directors then in office. "Cause" shall
mean only (i) conviction of a felony, (ii) declaration of unsound
mind by order of court, (iii) gross dereliction of duty, (iv)
commission of an action involving moral turpitude or (v)
commission of an action that constitutes intentional misconduct
or a knowing violation of law if such action in either event
results both in an improper substantial personal benefit and a
material injury to the Corporation."
RESOLVED: that the first paragraph of Article 6, Section 6.3, of the By-
Laws of the Corporation be amended to read in its entirety as
follows:
"Any vacancy at any time existing in the Board of Directors,
whether resulting from an increase in the size of the Board of
Directors, from the death, resignation, disqualification or
removal of a Director or otherwise, shall be filled solely by the
affirmative vote of a majority of the remaining Directors then in
office."
<PAGE>
EXHIBIT 10.13
BENTHOS, INC.
1998 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
The purposes of the Benthos, Inc. 1998 Non-Employee Directors' Stock Option
Plan (the "Plan") are to promote the long-term success of Benthos, Inc.
("Benthos") by creating a long-term mutuality of interests between the non-
employee Directors and stockholders of Benthos, to provide an additional
inducement for such directors to remain with Benthos and to provide a means
through which Benthos may attract able persons to serve as directors of Benthos.
SECTION 1
Administration
The Plan shall be administered by a Committee (the "Committee") appointed
by the Board of Directors of Benthos (the "Board") and consisting of not less
than two members of the Board. The Committee shall keep records of action taken
at its meetings. A majority of the Committee shall constitute a quorum at any
meeting, and the acts of a majority of the members present at any meeting at
which a quorum is present, or acts approved in writing by all the members of the
Committee, shall be the acts of the Committee. At all times this membership of
the Committee shall always satisfy the requirements of Rule 16b-3 under the
Securities Exchange Act of 1934 (the "1934 Act") or any successor rule.
The Committee shall interpret the Plan and prescribe such rules,
regulations and procedures in connection with the operations of the Plan as it
shall deem to be necessary and advisable for the administration of the Plan
consistent with the purposes of the Plan. All questions of interpretation and
application of the Plan, or as to stock options granted under the Plan, shall be
subject to the determination of the Committee, which shall be final and binding.
Notwithstanding the above, the selection of the directors to whom stock
options are to be granted, the timing of such grants, the number of shares
subject to any stock option, the exercise price of any stock option, the periods
during which any stock option may be exercised and the term of any stock option
shall be determined by the Board as hereinafter provided, and the Committee
shall have no discretion as to such matters.
SECTION 2
Shares Available Under the Plan
The aggregate number of shares which may be issued and as to which grants
of stock options may be made under the Plan is 150,000 shares of the common
stock, par value $.0667 per share, of Benthos (the "Common Stock"), subject to
adjustment and substitution as set forth in Section 5. If any stock option
granted under the Plan is canceled by mutual consent or terminates or expires
for any reason without having been exercised in full, the number of shares
subject
<PAGE>
thereto shall again be available for purposes of the Plan. The shares which may
be issued under the Plan may be either authorized but unissued shares or
treasury shares or partly each.
SECTION 3
Grant of Stock Options
Options to purchase shares of Common Stock shall be granted under the Plan
as follows: (i) immediately following the initial election of any new director
of Benthos who is not otherwise an employee of Benthos, or any subsidiary of
Benthos (a "non-employee Director"), an option shall be granted to such new non-
employee Director for the purchase of Fifteen Thousand (15,000) shares of Common
Stock, and (ii) from time to time thereafter such additional options to purchase
shares of Common Stock as the Board in its sole discretion shall determine,
shall be granted to non-employee Directors. All options granted pursuant to this
Plan shall be "nonstatutory stock options" (i.e., stock options which do not
qualify under Sections 422 or 423 of the Internal Revenue Code of 1986, as
amended (the "Code").
SECTION 4
Terms and Conditions of Stock Options
Stock options granted under the Plan shall be subject to the following terms and
conditions:
(A) The purchase price at which each stock option may be exercised (the
"option price") shall be one hundred percent (100%) of the fair market value per
share of the Common Stock covered by the stock option on the date of grant,
determined as provided in Section 4(G).
(B) The option price for each stock option shall be paid in full upon
exercise and shall be payable in cash in United States dollars (including check,
bank draft or money order); provided, however, that in lieu of such cash the
person exercising the stock option may pay the option price in whole or in part
by delivering to Benthos shares of Common Stock having a fair market value on
the date of exercise of the stock option, determined as provided in Section
4(G), equal to the option price for the shares being purchased; except that (i)
any portion of the option price representing a fraction of a share shall in any
event be paid in cash and (ii) no shares of Common Stock which have been held
for less than six months may be delivered in payment of the option price of a
stock option. Delivery of shares may also be accomplished through the effective
transfer to Benthos of shares of Common Stock held by a broker or other agent.
Benthos will also cooperate with any person exercising a stock option who
participates in a cashless exercise program of a broker or other agent under
which all or part of the shares received upon exercise of the stock option are
sold through the broker or other agent or under which the broker or other agent
makes a loan to such person. Notwithstanding the foregoing, the exercise of the
stock option shall not be deemed to occur and no shares of Common Stock will be
issued by Benthos upon exercise of the stock option until Benthos has received
payment of the option price in full.
2
<PAGE>
The date of exercise of a stock option shall be determined under procedures
established by the Committee, and as of the date of exercise the person
exercising the stock option shall be considered for all purposes to be the owner
of the shares with respect to which the stock option has been exercised. Payment
of the option price with shares of Benthos shall not increase the number of
shares of the Common Stock which may be issued under the Plan as provided in
Section 2.
(C) No stock option granted hereunder shall be exercisable during the first
year of its term, except in the event of death as provided in Section 4(E) or in
the event of a Section 6 Event as provided in Section 6. Thereafter, the
options shall be exercisable as follows: after one year from the date of grant,
the option may be exercised for one-third of the option shares, after two years
from the date of grant, the option may be exercised for two-thirds of the option
shares, and after three years from the date of grant, the option may be
exercised for all of the option shares. Subject to the preceding sentence and
subject to Section 4(E) which provides for earlier termination of a stock option
under certain circumstances, each stock option shall be exercisable for ten
years from the date of grant. A stock option to the extent exercisable may be
exercised in whole or in part.
(D) No stock option shall be transferable by the grantee otherwise than by
will, or if the grantee dies intestate, by the laws of descent and distribution
of the state of domicile of the grantee at the time of death. All stock options
shall be exercisable during the lifetime of the grantee only by the grantee or
the grantee's guardian or legal representative.
(E) If a grantee ceases to be a director of Benthos for any reason, any
outstanding stock options held by the grantee shall be exercisable according to
the following provisions:
(i) If a grantee ceases to be a director of Benthos for any reason
other than resignation, removal for cause or death, any
outstanding stock option held by such grantee shall be
exercisable by the grantee (but only if exercisable by the
grantee immediately prior to ceasing to be a director) at any
time prior to the expiration date of such stock option or within
one year after the date the grantee ceases to be a director,
whichever is the shorter period;
(ii) If during his term of office as a director a grantee resigns
from the Board or is removed from office for cause, any
outstanding stock option held by the grantee which is not
exercisable by the grantee immediately prior to resignation or
removal shall terminate as of the date of resignation or
removal, and any outstanding stock option held by the grantee
which is exercisable by the grantee immediately prior to
resignation or removal shall be exercisable by the grantee at
any time prior to the expiration date of such stock option or
within three months after the date of resignation or removal of
the grantee, whichever is the shorter period.
3
<PAGE>
(iii) Following the death of a grantee during service as a director of
Benthos, any outstanding stock option held by the grantee at the
time of death shall be exercisable, to the extent such
outstanding stock option would have been exercisable on the next
subsequent anniversary date of such option after the death of
the grantee, by the person entitled to do so under the will of
the grantee, or, if the grantee shall fail to make testamentary
disposition of the stock option or shall die intestate, by the
legal representative of the grantee at any time prior to the
expiration date of such stock option or within one year after
the date of death of the grantee, whichever is the shorter
period;
(iv) Following the death of a grantee after ceasing to be a director
and during a period when a stock option is exercisable under
clause (i) above, the stock option shall be exercisable by such
person entitled to do so under the will of the grantee or by
such legal representative at any time prior to the expiration
date of the stock option or within one year after the date of
death, whichever is the shorter period; and
(v) Following the death of a grantee after ceasing to be a director
and during a period when a stock option is exercisable under
clause (ii) above, the stock option shall be exercisable by such
person entitled to do so under the will of the grantee or by
such legal representative at any time during the shorter of the
following two periods: (i) until the expiration date of the
stock option or (ii) until three months after the grantee ceased
being a director or one year after the date of death of the
grantee (whichever is longer).
A stock option held by a grantee who has ceased to be a director of Benthos
shall terminate upon the expiration of the applicable exercise period, if any,
specified in this Section 4(E).
(F) All stock options shall be confirmed by an agreement, or an amendment
thereto, which shall be executed on behalf of Benthos by an authorized officer
of Benthos and by the grantee.
(G) Fair market value of the Common Stock shall be the closing price, as
applicable, for the date as of which fair market value is to be determined as
quoted in The Wall Street Journal (or in such other reliable publication as the
Committee, in its discretion, may determine to reply upon): (i) the closing
price per share of Common Stock for such date on (or on any composite index
including) the principal United States securities exchange registered under the
1934 Act on which the Common Stock is listed, or (ii) if the Common Stock is not
listed on any such exchange, the closing price per share of the Common Stock for
such date on the Nasdaq National Market or SmallCap Market or any successor
system then in use ("Nasdaq"). If there are no such sale price quotations for
the date as of which fair market value is to be determined but there are such
sale price quotations within a reasonable period before such date, then fair
market value shall be the
4
<PAGE>
closing price per share of Common Stock on the closest date prior to the date on
which the fair market value is to be determined. If the fair market value of the
Common Stock cannot be determined on the basis previously set forth in this
Section 4(G) for the date as of which fair market value is to be determined, the
Committee shall in good faith determine the fair market value of the Common
Stock on such date. Fair market value shall be determined without regard to any
restriction other than a restriction which, by its terms, will never lapse.
(H) The obligation of Benthos to issue shares of the Common Stock under the
Plan shall be subject to (i) the effectiveness of a registration statement under
the Securities Act of 1933, as amended, with respect to such shares, if deemed
necessary or appropriate by counsel for Benthos, (ii) the condition that the
shares shall have been listed (or authorized for listing upon official notice of
issuance) upon each stock exchange, if any, on which the Common Stock may then
be listed and (iii) all other applicable laws, regulations, rules and orders
which may then be in effect.
Subject to the foregoing provisions of this Section 4 and other provisions
of the Plan, any stock option granted under the Plan shall be subject to such
restrictions and other terms and conditions, if any, as shall be determined, in
its discretion, by the Board and set forth in the agreement referred to in
Section 4(F), or an amendment thereto; except that in no event shall the
Committee or the Board have any power or authority which would case the Plan to
fail to be a plan described in Rule 16b-3(d)(1), or any successor rule.
SECTION 5
Adjustment and Substitution of Shares
If a dividend or other distribution shall be declared upon the Common Stock
payable in shares of the Common Stock, the number of shares of the Common Stock
set forth in Section 3, the number of shares of the Common Stock then subject to
any outstanding stock options and the number of shares of the Common Stock which
may be issued under the Plan but are not then subject to outstanding stock
options on the date fixed for determining the stockholders entitled to receive
such stock dividend or distribution shall be adjusted by adding thereto the
number of shares of the Common Stock which would have been distributable thereon
if such shares had been outstanding on such date.
If the outstanding shares of the Common Stock shall be changed into or
exchangeable for a different number or kind of shares of stock or other
securities of Benthos or another corporation, whether through reorganization,
reclassification, recapitalization, stock split-up, combination of shares,
merger or consolidation, then there shall be substituted for each share of the
Common Stock set forth in Section 3, for each share of the Common Stock subject
to any then outstanding stock option and for each share of the Common Stock
which may be issued under the Plan but which is not then subject to any
outstanding stock option, the number and kind of shares of stock or other
securities into which each outstanding share of the Common Stock shall be so
changed or for which each such share shall be exchangeable.
5
<PAGE>
In case of any adjustment or substitution as provided for in the first two
paragraphs of this Section 5, the aggregate option price for all shares subject
to each then outstanding stock option prior to such adjustment or substitution
shall be the aggregate option price for all shares of stock or other securities
(including any fraction) to which such shares shall have been adjusted or which
shall have been substituted for such shares. Any new option price per share
shall be carried to at least three decimal places with the last decimal place
rounded upwards to the nearest whole number.
If the outstanding shares of the Common Stock shall be changed in value by
reason of any spin-off, split-off or split-up, or dividend in partial
liquidation, dividend in property other than cash or extraordinary distribution
to holders of the Common Stock, the Committee shall make any adjustments to any
then outstanding stock option which it determines are equitably required to
prevent dilution or enlargement of the rights of grantees which would otherwise
result from any such transaction.
No adjustment or substitution provided for in this Section 5 shall require
Benthos to issue or sell a fraction of a share or other security. Accordingly,
all fractional shares or other securities which result from any such adjustment
or substitution shall be eliminated and not carried forward to any subsequent
adjustment or substitution.
Except as provided in this Section 5, grantee shall have no rights by
reason of any issue by Benthos of stock of any class or securities convertible
into stock of any class, any subdivision or consolidation of shares of stock of
any class, the payment of any stock dividend or any other increase or decrease
in the number of shares of stock of any class.
SECTION 6
Additional Rights in Certain Events
(A) Definitions.
For purposes of this Section 6, the following terms shall have the
following meanings:
(1) The term "Person" shall be used as that term is used in Sections 13(d)
and 14(d) of the 1934 Act as in effect on the effective date of the Plan.
(2) "Beneficial Ownership" shall be determined as provided in Rule 13d-3
under the 1934 Act as in effect on the effective date of the Plan.
(3) A specified percentage of "Voting Power" of a company shall mean such
number of the Voting Shares as shall enable the holders thereof to cast such
percentage of all the votes which could be cast in an annual election of
directors (without consideration of the rights of any class of stock other than
the common stock of the company to elect directors by a separate class
6
<PAGE>
vote); and "Voting Shares" shall mean all securities of a company entitling the
holders thereof to vote in an annual election of directors (without
consideration of the rights of any class of stock other than the common stock of
the company to elect directors by a separate class vote).
(4) "Tender Offer" shall mean a tender offer or exchange offer to acquire
securities of Benthos (other than such an offer made by Benthos or any
Subsidiary), whether or not such offer is approved or opposed by the Board.
(5) "Continuing Directors" shall mean a director of Benthos who either (a)
was a director of Benthos on the effective date of the Plan or (b) is an
individual whose election, or nomination for election, as a director of Benthos
was approved by a vote of at least two-thirds of the directors then still in
office who were Continuing Directors (other than an individual whose initial
assumption of office is in connection with an actual or threatened election
contest relating to the election of directors of Benthos which would be subject
to Rule 14a-11 under the 1934 Act, or any successor Rule).
(6) "Section 6 Event" shall mean the date upon which any of the following
events occurs:
(a) Benthos acquires actual knowledge that any Person other than
Benthos, a Subsidiary or any employee benefit plan(s) sponsored by
Benthos or a Subsidiary has acquired the Beneficial Ownership,
directly or indirectly, of securities of Benthos entitling such
Person to 30% or more of the Voting Power of Benthos;
(b) A Tender Offer is made to acquire securities of Benthos entitling
the holders thereof to 30% or more of the Voting Power of Benthos;
or
(c) A solicitation subject to Rule 14a-11 under the 1934 Act (or any
successor Rule) relating to the election or removal of 50% or more
of the members of the Board or any class of the Board shall be
made by any person other than Benthos or less than 51% of the
members of the Board shall be Continuing Directors; or
(d) The stockholders of Benthos shall approve a merger, consolidation,
share exchange, division or sale or other disposition of assets of
Benthos as a result of which the stockholders of Benthos
immediately prior to such transaction shall not hold, directly or
indirectly, immediately following such transaction a majority of
the Voting Power of (i) in the case of a merger or consolidation,
the surviving or resulting corporation, (ii) in the case of a
share exchange, the acquiring corporation or (iii) in the case of
a division or sale or other disposition of assets, each surviving,
resulting or acquiring corporation which, immediately following
the transaction, holds more than
7
<PAGE>
10% of the consolidated assets of Benthos immediately prior to the
transaction;
provided however, that (i) if securities beneficially owned by a grantee are
included in determining the Beneficial Ownership of a Person referred to in
paragraph 6(a), (ii) a grantee is required to be named pursuant to Item 2 of the
Schedule 14D-1 (or any similar successor filing requirement) required to be
filed by the bidder making a Tender Offer referred to in paragraph 6(b) or (iii)
if a grantee is a "participant" as defined in Instruction 3 to Item 4 of
Schedule 14A under the 1934 Act (or any successor rule) in a solicitation (other
than a solicitation by Benthos) referred to in paragraph 6(c), then no Section 6
Event with respect to such grantee shall be deemed to have occurred by reason of
such event.
(B) Acceleration of the Exercise Date of Stock Options.
Notwithstanding any other provision contained in the Plan, in case any
"Section 6 Event" occurs all outstanding stock options (other than those held by
a person referred to in the proviso to Section 6(A)(6)) shall become immediately
and fully exercisable whether or not otherwise exercisable by their terms.
SECTION 7
Effect of the Plan on the Rights of Corporation and Stockholders
Nothing in the Plan, in any stock option granted under the Plan, or in any
stock option agreement shall confer any right to any person to continue as a
director of Benthos or interfere in any way with the rights of the stockholders
of Benthos or the Board to elect and remove directors.
SECTION 8
Amendment and Termination
The right to amend the Plan at any time and from time to time and the right
to terminate the Plan at any time are hereby specifically reserved to the Board,
provided always that no such termination shall terminate any outstanding stock
options granted under the Plan, and provided further that no amendment of the
Plan shall (i) be made without stockholder approval if stockholder approval of
the amendment is at the time required for stock options under the Plan by Nasdaq
or the rules of any stock exchange on which the Common Stock may then be listed,
(ii) amend more than once every six months the provisions of the Plan relating
to the selection of the Directors to whom stock options are to be granted, the
timing of such grants, the number of shares subject to any stock option, the
exercise price of any stock options, the periods during which any stock option
may be exercised and the term of any stock option other than to comply with
changes in the Code or the rules and regulations thereunder or (iii) otherwise
amend the Plan in any manner that would cause stock options under the Plan not
to qualify for the exemption provided
8
<PAGE>
by Rule 16b-3 under the 1934 Act, or any successor rule. No amendment or
termination of the Plan shall, without the written consent of the holder of a
stock option therefore awarded under the Plan, adversely affect the rights of
such holder with respect thereto.
Notwithstanding anything contained in the preceding paragraph or any other
provision of the Plan or any stock option agreement, the Board shall have the
power to amend the Plan in any manner deemed necessary or advisable for stock
options granted under the Plan to qualify for the exemption provided by Rule
16b-3 (or any successor rule relating to exemption from Section 16(b) of the
1934 Act), and any such amendment shall, to the extent deemed necessary or
advisable by the Board, be applicable to any outstanding stock options
theretofore granted under the Plan notwithstanding any contrary provisions
contained in any stock option agreement. In the event of any such amendment to
the Plan, the holder of any stock option outstanding under the Plan shall, upon
request of the Committee and as a condition to the exercisability of such
option, execute a conforming amendment in the form prescribed by the Committee
to the stock option agreement referred to in Section 4(F) within such reasonable
time as the Committee shall specify in such request.
SECTION 9
Effective Date and Duration of Plan
The Plan shall become effective upon approval by the affirmative vote of
the holders of a majority of the Common Stock present in person or by proxy and
entitled to vote at a duly called and convened meeting of such holders. If such
approval is obtained at the Special Meeting of Stockholders on April 3, 1998,
the Plan shall be effective on the date of such meeting. This Plan shall expire
on December 31, 2007. Termination of the Plan shall not, without the consent of
the grantee, affect such grantee's rights under any option previously granted to
such grantee.
9
<PAGE>
Exhibit 11
BENTHOS, INC. AND SUBSIDIARY
COMPUTATION OF EARNINGS PER SHARE
FOR THE THIRTEEN WEEKS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Net Income Shares Per Share Amount
For the thirteen weeks ended December 31, 1997
<S> <C> <C> <C>
Net Income $190 - -
Basic Earnings per share:
Income available to common
stockholders 190 1,293 $.15
=======
Diluted earnings per share:
Options issued to Directors,
Officers, and employees - 101 -
------- -------
Income available to common
stockholders plus assumed
conversions $190 1,394 $.14
======= ======= =======
For the thirteen weeks ended December 31, 1996
Net Income $554 - -
Basic Earnings per share:
Income available to common
stockholders 554 1,210 $.46
=======
Diluted earnings per share:
Options issued to Directors,
Officers, and employees - 173 -
------- -------
Income available to common
stockholders plus assumed
conversions $554 1,383 $.40
======= ======= =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF BENTHOS, INC. AND SUBSIDIARY
CONTAINED ELSEWHERE IN THIS QUARTERLY REPORT AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,064
<SECURITIES> 0
<RECEIVABLES> 1,459
<ALLOWANCES> 162
<INVENTORY> 2,421
<CURRENT-ASSETS> 7,806
<PP&E> 6,103
<DEPRECIATION> 4,209
<TOTAL-ASSETS> 9,934
<CURRENT-LIABILITIES> 1,809
<BONDS> 442
0
0
<COMMON> 106
<OTHER-SE> 7,577
<TOTAL-LIABILITY-AND-EQUITY> 9,934
<SALES> 3,404
<TOTAL-REVENUES> 3,404
<CGS> 1,283
<TOTAL-COSTS> 1,524
<OTHER-EXPENSES> 312
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16
<INCOME-PRETAX> 308
<INCOME-TAX> 118
<INCOME-CONTINUING> 190
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 190
<EPS-PRIMARY> .15
<EPS-DILUTED> .14
</TABLE>
