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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee required]
For the fiscal year ended 06/30/96
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/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No fee required]
For transition period from _________ to _________
Commission file number 0-10734
FERROFLUIDICS CORPORATION
(Exact name of registrant as specified in its charter)
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MASSACHUSETTS 02-0275185
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
40 SIMON STREET
NASHUA, NEW HAMPSHIRE 03061
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (603) 883-9800
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Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, par value $.004 per share
(Title of class)
Preferred Stock Purchase Rights
(Title of class)
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.
(1) Yes x No
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(2) Yes x No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
As of August 31, 1996, 6,060,902 shares of $.004 par value Common Stock of the
registrant were outstanding. The aggregate market value of the voting stock held
by non-affiliates of the registrant based upon the closing price of $11.25 per
share for the registrant's Common Stock, as reported on the Nasdaq National
Market as of August 31, 1996 was $67,212,731.
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TABLE OF CONTENTS
ITEM PAGE
- ---- ----
PART I
1. Business........................................................... 1
2. Properties......................................................... 10
3. Legal Proceedings.................................................. 10
4. Submission of Matters to a Vote of Security Holders................ 11
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters ........................................... 11
6. Selected Consolidated Financial Data............................... 12
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 13
8. Financial Statements and Supplementary Data........................ 20
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................ 47
PART III
10. Directors and Executive Officers of the Registrant................. 48
11. Executive Compensation............................................. 48
12. Security Ownership of Certain Beneficial Owners
and Management................................................. 48
13. Certain Relationships and Related Transactions..................... 48
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.... 48
(a) Financial Statement Schedules
(b) Reports on Form 8-K
Signatures......................................................... 54
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PART I
ITEM 1. BUSINESS
Founded in 1968, Ferrofluidics Corporation (the "Company" or "Ferrofluidics")
is engaged principally in developing, manufacturing and marketing ferrofluids
and products based on or derived from its proprietary ferrofluid technology.
Ferrofluids, the Company's core technology, are stable magnetic liquids that can
be precisely positioned or controlled when a magnetic force is employed.
Ferrofluids are comprised of molecular-sized magnetic particles that are surface
treated so that they can be dispersed in a synthetic lubricating oil.
Ferrofluids are designed to have a choice of properties such as viscosity,
magnetic strength and vapor pressures to perform numerous specific functions
such as sealing, sensing, lubricating, damping and heat transfer.
The Company creates commercial applications for its ferrofluid technology
either by creating a ferrofluid to serve one or more functions in an existing
product (such as the Company's utilization of ferrofluids in audio loudspeakers)
or by combining proprietary ferrofluid technology with broad applications
engineering to develop ferrofluid-based (Ferrofluidic[Registered Trademark])
products, such as the Company's various sealing devices and fluid-film bearings.
The Company synthesizes all ferrofluids for sale, or for use in its own
proprietary products. With respect to its products incorporating ferrofluids,
the Company generally designs the product or application, then outsources the
fabrication of all critical machined parts and components. The product is then
assembled, tested and shipped from the Company's headquarters in Nashua, New
Hampshire.
The Company seeks to apply its Ferrofluidic[Registered Trademark]
technologies in situations where its use significantly enhances the final
product into which the technology is incorporated. As a result, pricing reflects
value added rather than the direct cost of producing the fluid or
Ferrofluidic[Registered Trademark] product supplied to the Company's customers.
The Company also seeks to supply markets in which it can achieve a position of
market leadership. The Company believes that it, along with its licensee,
currently supplies the vast majority of the ferrofluids and ferrofluid-based
products used in the world.
As a vertical integration of its ferrofluid sealing technology, the Company
designs, assembles and markets systems for growing crystals of silicon,
germanium, gallium arsenide and other metal alloys for the semiconductor,
photovoltaic, military and advanced materials markets.
CORPORATE STRUCTURE
The Company is headquartered in Nashua, New Hampshire where it conducts all
of the engineering and manufacturing of its products. The Company conducts its
operations overseas through the following wholly-owned subsidiaries:
(1) ADVANCED PRODUCTS & TECHNOLOGIES, GMBH ("AP&T"), headquartered in
Nurtingen, Germany, with sales offices in Oxford, England and Madrid,
Spain, which:
(a) markets and services Ferrofluidic[Registered Trademark] products
in Europe.
(b) designs, manufactures and markets products for the optical coating
and thin-film deposition industries such as electron beam guns and
related controllers; and
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(c) serves as an exclusive distributor in Europe for several U.S. and
European corporations that manufacture compatible products for
similar industries.
(2) FERROFLUIDICS JAPAN CORPORATION ("FJC"), located in Tokyo, Japan, which
distributes and services Ferrofluidics' components to the semiconductor
industry, ferrofluid to the audio loudspeaker industry and provides sales
and service for the Company's crystal growing systems customers located in
Japan.
In addition to its wholly-owned subsidiaries, the Company has licensed its
vacuum rotary feedthrough seals and ferrofluid technology, on a
non-exclusive basis, to Ferrotec Corporation ("Ferrotec", formerly Nippon
Ferrofluidics Corporation), a former subsidiary located in Japan. In
addition, under an exclusive license granted by Ferrofluidics in August
1993, Ferrotec manufactures and sells Ferrofluidic[Registered Trademark]
exclusion seals for
use on computer peripheral equipment.
OPERATING STRUCTURE
The Company is organized into three business segments:
(i) the COMPONENTS DIVISION, or FERROFLUIDIC[Registered Trademark]
PRODUCTS segment, which manufactures and markets:
(a) ferrofluids used in the Company's own engineered core products,
audio loudspeakers for the commercial, home and automotive
markets, and for use in nondestructive testing, inertia
dampers, stepper motors and sensor applications;
(b) Ferrofluidic[Registered Trademark] sealing devices and
subsystems, primarily for use in the semiconductor process,
industrial process, lamp and fiber optic manufacturing, and
medical equipment industries; and
Sales generated by the Components Division accounted for
approximately 25.8%, 41.3% and 42.7% of total product sales in
fiscal 1996, 1995 and 1994, respectively.
(ii) the SYSTEMS DIVISION, or CRYSTAL GROWING SYSTEMS segment, which
designs, assembles and markets fully-integrated systems for growing
crystals of silicon, germanium, gallium arsenide and other metal
alloys for the semiconductor, photovoltaic, military, and advanced
materials markets.
Sales generated by the Systems Division accounted for 62.7%, 34.5%
and 32.7% of total product sales in fiscal 1996, 1995 and 1994,
respectively.
(iii) DISTRIBUTED PRODUCTS DIVISION, or THIN FILM DEPOSITION segment,
which includes the sale in Europe and Asia by AP&T of compatible
products on an exclusive basis for several U.S. and European
companies.
Sales generated by the Distributed Products Division accounted for
11.5%, 24.2% and 24.6% of total product sales in fiscal 1996, 1995
and 1994, respectively.
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In fiscal 1996, $54,080,000, or 74.1%, of the Company's total sales were to
foreign customers, primarily through AP&T, FJC and to the Systems Divisions'
customers in the Pacific Rim. Sales to unaffiliated foreign customers in fiscal
1995 and 1994 totaled $21,412,000 (62.7%) and $16,229,000 (61.5%), respectively.
All manufacturing and assembly of products for the Components and Systems
Divisions is conducted at the Company's headquarters in Nashua, NH. Marketing of
those products for all markets, excluding Europe and Japan, is principally
conducted by its direct sales force at the Company's headquarters. In the case
of its standard seals to end-user markets, the Company utilizes the Kurt J.
Lesker Company ("KJLC"), a worldwide distributor of vacuum related products. In
addition, the Company has established distributor relationships for its
ferrofluid and Ferrofluidic[Registered Trademark] products in Korea, Taiwan,
India, China, and developing Pacific Rim countries.
PRODUCT LINES
The Company manufactures and sells products in three major product
categories:
(i) ferrofluids; (ii) magnetic fluid seals, sealing subsystems, and other
Ferrofluidic[Registered Trademark] components products and; (iii) crystal
growing systems and related equipment. In addition, the Company distributes
advanced technology component products and systems for use in the manufacture
of semiconductors and in the thin-film deposition and optical coating
industries through AP&T in Europe and Asia.
(i) FERROFLUIDS. The Company supplies ferrofluids for use in the
Company's own engineered products and for use in home and automotive
loudspeakers and for nondestructive testing, sensors and stepper
motors. The Company, in conjunction with its licensees, currently
supplies fluids for approximately 30 million speakers per year,
representing the vast majority of the ferrofluid applications in
speakers. Sales of ferrofluids accounted for approximately 3.6%,
7.0% and 7.7% of total product sales in fiscal 1996, 1995 and 1994,
respectively. The selling price for the majority of the Company's
third-party ferrofluid applications ranges from $1,000 to $10,000
per liter.
Inertia Dampers: The Company supplies Ferrofluidic[Registered
Trademark] inertia dampers that are used in semiconductor equipment,
disk drives, XY plotters, computer printers and other computer
peripheral equipment. The dampers eliminate resonance, reduce
settling time and improve positional accuracies.
(ii) MAGNETIC FLUID SEALS AND SUBSYSTEMS. The Company combines
proprietary ferrofluid technology with broad applications
engineering to develop a variety of products that provide
state-of-the-art seals and sealing subsystems that either seal the
environment out of a manufacturing process or seal a manufacturing
process out of the environment. In each of the applications in which
the Company provides Ferrofluidic[Registered Trademark] seals and
sealing subsystems it is the leading provider of such technology.
Sales of magnetic fluid sealing devices accounted for approximately
22.2%, 32.1% and 33.4% of total product sales in fiscal 1996, 1995
and 1994 respectively. The Company's major magnetic sealing
products are:
Rotary Seals for Critical Process Applications: Historically, one of
the Company's core commercial applications of ferrofluids is a
rotary seal assembly with long life,
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unmeasurable leakage and high-speed capability for rotary motion
penetrations into vacuum and other highly controlled, ultra-clean
process environments. The Company supplies the semiconductor and
other critical process industries with low vapor pressure seal
assemblies and subsystems which help exclude atmospheric
contamination from manufacturing processes. These applications
include electro-optical subsystems, thin-film vacuum coating,
excimer laser and x-ray based machines. The Company produces
standard and custom-engineered sealing components and subsystems
including multiport rotary valve assemblies. Customers include both
original equipment manufacturers ("OEM's") and end users. The
selling price for the majority of such seal assemblies sold by the
Company is in the range of $500 to $25,000, with some seal
subsystems approaching $100,000, depending on design complexity.
The Company, in fiscal 1992, introduced two new commercial
applications of its rotary seals: (a) a Lamp Process Sealing System
now being supplied to General Electric and certain other lighting
manufacturers for use as an integral part of the process to produce
energy efficient lamps for commercial and residential lighting and
(b) a Medical X-Ray Sealing System now being supplied to major
medical equipment manufacturers for use to rotate, seal and cool
target anodes inside the x-ray vacuum chamber of Computer Aided
Tomography ("CAT") scan equipment.
Industrial Process Seals: Following approximately three years of
development and close cooperation with two key strategic partners in
the petroleum refining and chemical processing industries,
Ferrofluidics, during fiscal 1993, introduced its industrial process
seals for the elimination of volatile organic compounds ("VOCs") and
volatile hazardous air pollutants ("VHAPs") from petroleum refining
and chemical processing plants. Using this magnetic fluid sealing
technology, these facilities can comply cost-effectively with the
strictest regulations, which mandate decreasing "fugitive emissions"
(as they are referred to under the Federal Clean Air Act of 1990 and
its Amendments of 1990) according to a phased program over the next
few years and are subject to acceleration by certain state and local
authorities.
Subsystems: During 1996, as an extension of its core capability to
design and manufacture rotary seals for a variety of vacuum
processing applications, the Company began marketing sealing
sub-systems to original equipment manufacturers, which incorporate
existing Ferrofluidic sealing technology with other mechanical and
electrical components to produce a fully integrated sub-system.
Sub-systems allow the Company's customers to outsource more of their
manufacturing without compromising quality. Some of the new
opportunities include robotics, cluster tooling, and other
semiconductor processing sub-assemblies.
(iii) CRYSTAL GROWING SYSTEMS. The Company entered the crystal growing
capital equipment business through an acquisition in 1981 as a
vertical integration to its supply of sealing subsystems. Since
entering the business, the Company has focused on building
technologically advanced crystal growing systems that incorporate
advanced design, unique technical features, comprehensive automation
and proprietary operational software. The Company's principal
product within this product line, silicon crystal growing systems,
facilitates the growth of silicon for the electronics industry. The
crystals, grown from molten poly-silicon, are then sliced into
wafers and used by the semiconductor industry in the manufacture of
integrated circuits and other memory
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components. Typically, the Company customizes each system for a
particular customer incorporating proprietary designs with its own
technology.
The Company designs all aspects of its crystal growing systems and
subcontracts the manufacture of system components. Assembly and
testing of each system is performed at the Company's headquarters.
Upon the completion of testing, a system is partially disassembled,
shipped to the customer and reassembled by the Company's technical
support staff.
During the past three years, the Company has experienced a rise in
orders for silicon systems for semiconductor manufacturing as well
as equipment for making other advanced materials for new
applications, including multiple-unit orders from major companies in
the U.S., Japan and Korea. Typically, shipments are spread over many
months, timed for the customer's start-up of new plants or
production ramp-ups. Sales of silicon crystal growing systems
accounted for approximately 62.7%, 34.5% and 32.7% of total product
sales in fiscal 1996, 1995, and 1994, respectively. Silicon crystal
growing systems typically sell at prices ranging between $350,000
and $1,000,000, depending on the size crystals to be grown and
special features included in the systems.
The Company continues to develop equipment and process technologies
in several other areas in cooperation with major industrial
companies and specific product specialists.
SIGNIFICANT CUSTOMERS
In fiscal 1996, sales to two foreign customers in the Systems Division, Posco
Huls Corporation ("PHC") and Taisil Electronic Materials Corporation ("Taisil"),
totaled $24,603,000 and $14,254,000, or 33.7% and 19.5% respectively, of
consolidated product sales. In fiscal 1995, sales to PHC totaled $6,209,000 and
accounted for 18.2% of consolidated product sales. In fiscal 1994, sales to PHC
in the amount of $5,667,000 accounted for 21.5% of consolidated product sales.
Management believes that the loss of these customers, or their affiliates, could
have a material adverse effect on its future results of operations.
COMPETITION
The Company believes that its competitive advantage will continue to be
dependent upon its trade secrets, know-how and ability to develop both
ferrofluids for specific applications and technologically-advanced products
which utilize ferrofluids. The Company believes that its competitive position
with respect to its proprietary products, while aided by its patents, is not at
present materially dependent upon them. The Company does, however, believe that
several of its pending patents, if issued, could further strengthen its
competitive position. The Company's ferrofluids are proprietary to the Company.
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(i) MAGNETIC FLUIDS. Numerous other companies around the world supply various
forms of magnetic fluids for commercial applications. Nevertheless, the
Company, in conjunction with Ferrotec, its former Japanese subsidiary and
licensee, supplies the vast majority of the world's commercial
applications of ferrofluids and believes that its ferrofluids are the
principal product used in applications utilizing magnetic fluids. The
Company believes its principal competitor in the audio ferrofluid market
is Ferrotec with respect to sales in the Pacific Rim.
(ii) SEALS AND SEALING SUBSYSTEMS. In semiconductor and other critical process
industry applications, the Company's magnetic fluid sealing devices and
sealing subsystems compete against traditional, non-ferrofluid based
sealing methods marketed by other vendors, some of which are less
expensive in terms of initial cost than the Company's products. In
comparison to the Company, some of these firms have greater financial,
marketing, technical or other resources available to them. In the Pacific
Rim, the Company's licensees compete with other suppliers of magnetic
fluid seals. In addition, one competitor in Japan ships seals into the
United States; however, it represents a minor competitor to the Company's
seals business in terms of relative market share.
In industrial process applications, Ferrofluidics' sealing system competes
with various nonmagnetic fluid sealing devices and sealing subsystems;
however, the Company believes all other solutions are either more
expensive or have higher maintenance costs and are not adequate at the
stricter compliance levels mandated by the EPA.
(iii) CRYSTAL GROWING SYSTEMS. The Company is aware that there are currently two
other companies worldwide that manufacture silicon crystal growing
systems. These companies historically have had established market shares
and are subsidiaries of larger corporations. In addition, several crystal
producers, principally in Japan, manufacture their own growing systems
through captive equipment affiliates. Of the total worldwide installed
base of crystal growing systems, the Company estimates that approximately
40% are Ferrofluidics crystal growers. However, of the non-captive market
for silicon crystal growing systems used in the production of 200
millimeter diameter wafers, the Company believes that it currently is the
supplier with the greatest market share.
There are a limited number of large customers for silicon crystal growing
systems. The market is cyclical and even during "up" cycles, one or two
suppliers generate most of the equipment sales. The Company during the
past three years has shipped nearly 75 systems to customers in the U.S.,
Japan and the Pacific Rim. However, there is no assurance that these sales
will continue. The need to develop new crystal growing systems technology,
including larger diameter wafers, could require investment in research and
development well into the future.
SEASONALITY
While the Company is not impacted by the seasonal demands of its customers,
the Systems Division, and as a result the Company, is affected by the delivery
demands of its customers. A typical customer of the Company's crystal growing
systems segment orders multiple units for delivery under time schedules
specifically defined by the customer. As a result, quarter to quarter operating
results and working capital requirements may fluctuate considerably.
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EMPLOYEES AND MARKETING
The Company currently has approximately 300 employees worldwide, of which 249
are employed in the United States, 45 in Europe and 6 in Japan.
In the United States, the Company markets all of its products through a
direct field sales force and an applications engineering staff headquartered in
Nashua, NH which is augmented by a third-party sales representative organization
in the U.S and Europe with respect to its Components business. Abroad, products
are sold in Europe through AP&T, the Company's wholly-owned subsidiary, in Japan
through its wholly-owned subsidiary, Ferrofluidics Japan Corporation, and
elsewhere in Europe and Asia through various sales representative and
distributor relationships.
MANUFACTURING
The Company produces all of its ferrofluids at its headquarters, and, to
protect the proprietary nature of its ferrofluid technology, conducts such
activities in a limited-access environment. The Company's manufacturing
presently consists primarily of assembly and test operations, although it has
in-house precision machining capabilities in the United States in support of
special marketing and customer requirements. The Company's manufacturing
operations rely substantially on outside vendors who fabricate components and
subassemblies to the Company's specifications. These components are assembled at
the Company's facilities and subjected to the Company's rigorous test and
inspection procedures.
During 1996, the Company increased its capacity for in-house precision
machining through the establishment of a state-of-the-art machining center and
the addition of a second shift of machine operators. This enhanced capability
has proven to be critical in the ability to meet ever shortening lead times for
delivery of component products to customers, in particular in Japan and Asia
where the competition has historically dominated market share.
Additionally, during 1996 and 1995, the Company substantially expanded its
capacity for assembly and test of its crystal growing systems in order to meet
the increasing order backlog for such systems.
OUTSIDE SUPPLIERS
With respect to its sealing devices, the Company relies on outside suppliers
to manufacture, to the Company's specifications, a substantial portion of its
metal components requirements. The Company performs assembly and quality control
procedures at its headquarters. If the Company's current suppliers were unable
to continue to manufacture components, the Company believes that other suppliers
would be available to do such work, although there is no guarantee that the
Company would be able to obtain all of its supply requirements on comparable
terms. The new in-house machining center, established in 1996, will begin to
supply a portion of the Company's need for precision machined component parts,
reducing its reliance on outside suppliers; however, it is not the intent of
management to conduct all of the component production in-house.
A substantial portion of the cost of the crystal growing systems, including
electrical components and machined parts, are purchased from third-party
suppliers. Wherever possible, the Company has
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made efforts to dual source critical component parts and subassemblies for the
systems and believes that there are a number of other suppliers for these parts.
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INDUSTRIAL PROPERTY RIGHTS
The Company has a number of U.S. and foreign patents and patent applications
for its seals, dampers, bearings and systems, with expiration dates from 1996 to
2006. In many cases, however, the Company relies more upon its trade secrets,
know-how and ability to develop technological advances than patents to protect
its technologies and products.
The Company has registered trademarks for a logo design utilizing an "F" and
for Ferrometic, Ferrofluidic, FerroSound, FerroSound-The solution is loud and
clear, and Spin Technology.
INTERNAL RESEARCH AND DEVELOPMENT
The Company's internal research and development effort is aimed at
synthesizing proprietary ferrofluids and using the unique properties of magnetic
fluid technology to develop new products and business opportunities. The Company
spent (and charged to expense) $1,723,000, $1,479,000 and $1,237,000 in fiscal
years 1996, 1995 and 1994, respectively, on the development of new products and
the improvement of existing products.
Substantially all research is Company-directed and is conducted primarily by
employees of the Company. The Company's research and development is carried out
by an interdisciplinary group of product development engineers, physicists,
chemists, technicians and marketing professionals who seek to apply ferrofluid
technology in diverse and expanding markets where that technology adds a
significant value.
The Company is experimenting with new ferrofluids and seals for new higher
speed and higher vacuum applications for new and existing markets. Additionally,
the Company has developed a number of new technical advances in crystal growing
systems, including laser melt level control and a continuous feed system for
polysilicon. In 1996 the Company embarked on the development of a 300mm crystal
puller in connection with an order received from a foreign customer.
BACKLOG
<TABLE>
As of June 30, 1996, the Company had a consolidated order backlog of
$59,020,000, as compared to $37,756,000 at June 30, 1995. A comparative summary
of the consolidated backlog by business segment is as follows:
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Systems $53,072,000 $32,406,000
Components 3,944,000 3,839,000
Distributed Products 2,004,000 1,511,000
----------- -----------
Total Backlog $59,020,000 $37,756,000
=========== ===========
</TABLE>
Of the total backlog at June 30, 1996, approximately 57% is expected to ship
during fiscal 1997.
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WARRANTY POLICY
With respect to the sale of ferrofluids and the sale of seals and other
products to the computer peripheral industry, the Company warrants only as to
workmanship and materials, and its express warranties for such products
terminate upon acceptance by the customer. With respect to sales of seals to the
semiconductor and other industries for controlled environment applications, the
Company offers a one-year warranty. Its warranty service expenses for such
products have not been significant. Because of the low warranty service rate,
the cost of warranty returns to date has been expensed as incurred, and no
reserves for warranty service have been established.
With respect to crystal growing systems, the Company generally offers a
one-year warranty as to workmanship and materials from date of acceptance by the
customer. Product refinement and increased field experience have continually
reduced warranty costs on a per unit basis and warranty expenses have
historically been within the reserves established by the Company.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Financial information with respect to the Company's industry segments is
hereby incorporated by reference to Note I to the Consolidated Financial
Statements in Item 8 of this report.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
Financial information about the Company's foreign and domestic operations and
export sales is hereby incorporated by reference to Note I of Notes to the
Consolidated Financial Statements in Item 8 of this report.
ITEM 2. PROPERTIES
The Company's offices, engineering and manufacturing operation is located in
Nashua, New Hampshire in a 71,000 square foot facility situated on approximately
4.5 acres of land owned by the Company. This land, the building, and
substantially all the Company's machinery and equipment at its Nashua facility
have been pledged as security against an industrial revenue bond. (See Notes A
and E to the Consolidated Financial Statements in Item 8.)
The Company and its subsidiaries lease office space, aggregating
approximately 15,000 square feet, under varying terms in Oxford, England;
Nurtingen, Germany; Madrid, Spain; and Tokyo, Japan.
ITEM 3. LEGAL PROCEEDINGS
Securities and Exchange Commission
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On February 19, 1993, the Company received an informal inquiry from the SEC
requesting that the Company provide the SEC with certain documents concerning
publicity relating to the Company for the period of January 1, 1992 to February
19, 1993. In August 1993, the SEC issued an order directing a private
investigation to determine whether certain unnamed persons have violated or
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caused the Company to violate the federal securities laws. Among the areas of
inquiry identified in the order is whether publicity about the Company,
including research reports, were published without fully disclosing
consideration given or received therefor. The order also indicates that the
inquiry will examine possible manipulation by certain unnamed persons of the
Company's securities, payment in connection therewith, and failure to disclose
such activities in public filings made by the Company (including the financial
statements contained or incorporated therein), as well as possible nondisclosure
of transactions with the Company in which such persons may have had a material
interest. Since inception of the investigation, the Company has cooperated fully
with the SEC's inquiry.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the stockholders of the Company during
the fourth quarter of the fiscal year ended June 30, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
<TABLE>
Ferrofluidics' Common Stock is traded on the Nasdaq National Market under the
stock symbol "FERO". The following table sets forth the high and low closing
transactions for the Common Stock of the Company for the fiscal periods
indicated, as reported by the Nasdaq National Market.
<CAPTION>
1996 High Low
---- ---- ---
<S> <C> <C>
7/1/95 - 9/30/95 14 3/8 9 1/2
10/9/95 - 12/31/95 13 5/8 9 3/4
1/1/96 - 3/31/96 11 5/8 8 5/8
4/1/96 - 6/30/96 18 7/8 9 3/4
1995
----
7/1/94 - 9/30/94 6 1/8 4 3/4
10/1/94 - 12/31/94 7 1/8 4 1/8
1/1/95- 3/31/95 8 1/8 5 1/4
4/1/95 - 6/30/95 10 1/4 5 1/4
</TABLE>
On August 31, 1996, the closing sale price for the Company's Common Stock, as
reported by the Nasdaq National Market, was $11.25. On that date, there were
approximately 3,357 holders of record of the common stock of the Company.
DIVIDEND POLICY
The Company has never paid a cash dividend on its Common Stock. Its policy is
to retain earnings and use funds for the operation and expansion of its
business. Future dividend policy will be determined by the Board of Directors
based upon the Company's earnings, financial condition and capital requirements.
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ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
The selected consolidated financial data for the five years ended June 30,
1996, should be read in conjunction with the Consolidated Financial Statements,
including the notes thereto, in Item 8 of this report and with Management's
Discussion and Analysis of Financial Condition and Results of Operations in Item
7 of this report.
<CAPTION>
Fiscal Years Ended June 30,
---------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
- ---------------------
Net product sales $72,967,000 $34,149,000 $ 26,379,000 $ 32,905,000 $20,926,000
Royalty revenues - 6,000 82,000 372,000 767,000
----------- ----------- ------------ ------------ -----------
Total net sales and revenues 72,967,000 34,155,000 26,461,000 33,277,000 21,693,000
Engineering & product development expenses 4,440,000 3,410,000 3,390,000 3,129,000 1,757,000
Nonrecurring operating expenses (income) - (1,156,000) 3,108,000 8,594,000 (470,000)
Operating income (loss) 4,937,000 943,000 (9,662,000) (11,716,000) 35,000
Interest expense, net (443,000) (406,000) (356,000) (254,000) (567,000)
Income tax benefit (expense) (487,000) 322,000 (1,169,000) (466,000) 30,000
Net income (loss) $ 3,820,000 $ 889,000 $(10,713,000) $(12,446,000) $ (167,000)
PER SHARE DATA:
- --------------
Net income (loss) $.61 $.16 $(2.00) $(2.49) $(.06)
Weighted average shares outstanding 6,313,045 5,563,160 5,366,350 5,005,120 3,008,916
BALANCE SHEET DATA:
- ------------------
Working capital $12,140,000 $ 7,811,000 $ (1,601,000) $ 6,775,000 $16,994,000
Total assets 43,639,000 39,529,000 32,508,000 36,884,000 35,209,000
Total liabilities 23,937,000 23,748,000 21,325,000 15,107,000 11,678,000
Long-term debt 5,000,000 5,036,000 28,000 - 7,500,000
Stockholders' equity 19,702,000 15,781,000 11,183,000 21,777,000 23,531,000
<FN>
Note: (a) No dividends had been declared or paid during the five years ended June 30, 1996.
</TABLE>
12
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion provides information to assist in the
understanding of Ferrofluidics' results of operations and financial condition.
It should be read in conjunction with the selected financial data in the
preceding section and the consolidated financial statements and notes thereto
that appear elsewhere herein.
RESULTS OF OPERATIONS
Fiscal 1996 Versus Fiscal 1995:
- ------------------------------
Record earnings were achieved in 1996 as the Company generated net income
of $3,820,000, or $.61 per share, on approximately 750,000 greater shares
outstanding as compared to $889,000, or $.16 per share, in 1995.
<TABLE>
In fiscal 1996, product revenues increased 114% to $72,967,000 from
$34,155,000 in fiscal 1995. The overall increase in the Company's level of
business can be directly attributed to the growth in the semiconductor industry
in general, which accounts for all of its Systems segment and a substantial
portion of its Components segment. The increases in revenues by segment is
summarized as follows:
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Systems $45,741,000 $11,782,000
Components 18,827,000 14,125,000
Distributed Products 8,399,000 8,248,000
----------- -----------
Total Revenues $72,967,000 $34,155,000
=========== ===========
</TABLE>
The increase in revenues from systems is attributed to increased demand for
silicon wafers and the resulting increase in production capacity for the wafers.
During 1996 and 1995, the Company received orders for over 100 of its model
CZ-150 crystal growing system, which grows 200 millimeter diameter silicon
ingots. Increases in the production of capital equipment by OEM's in the
semiconductor industry has driven the demand for our component seals and sealing
subsystems resulting in a 33% increase in consolidated revenues from the
Components segment. Distributed Products, which principally serves the thin-film
deposition industry, showed a modest 2% revenue increase in 1996.
Total sales from the Company's European operations, AP&T, which includes
the sale of the Company's components and fluid products in Europe, as well as
comprising the Distributed Products segment, increased 13.4% to $12,702,000 in
1996 as compared to $11,201,000 in fiscal 1995. Sales by the Company's Japanese
operation, FJC, totaled $568,000, up 93% from $294,000 in 1995. During 1996, FJC
experienced a significant increase in its sales order activity for both
components products and crystal growing systems. Total foreign sales increased
over 150% to $54,080,000 in 1996 from $21,412,000 in 1995 due primarily to the
shipment of crystal growing systems to large scale wafer fabrication facilities
in Korea and Taiwan.
Bookings in 1996 increased 66% to $94,231,000 from $56,911,000 in the prior
year. Of the new business booked, $66,427,000 represented orders of crystal
growing systems and related equipment, as compared to $35,700,000 in the prior
year. Order backlog at June 30, 1996 totaled $59,020,000 as compared to
$37,756,000 at June 30, 1995. The Company,
13
<PAGE> 16
in consultation with its primary customers, has rescheduled approximately one
half of the shipments of crystal pullers initially scheduled for fiscal 1997
into fiscal 1998. However, the Company also expects that these delays will be
partially offset during fiscal 1997 by anticipated increases in shipments to
four leading international silicon wafer manufacturers. The major impact of the
rescheduling is expected to occur in the first two quarters of fiscal 1997.
There are certain factors that could cause actual results to differ
materially from those anticipated by these statements made above. These
include, but are not limited to, further rescheduling of existing crystal
puller orders, additional crystal puller orders from existing or new customers,
including those mentioned above, lack of new crystal puller orders from
existing or new customers, increased revenues in the Company's other business,
and a material change in the market conditions within the semiconductor
industry.
The consolidated gross margin for the year ended June 30, 1996 of 28.8%
declined from the gross margin of 40.7% in the previous year due to the change
in product mix of revenues. In 1996, 62.7% of consolidated revenues pertained to
crystal growing systems, which generate lower gross margins, as compared to
34.5% in the prior year. Consolidated operating income, before general corporate
expenses and nonrecurring operating income, improved in 1996 to 11.2% of product
revenues as compared to 7.4% in 1995. Operating income in the Systems segment
improved from 5.5% of revenues in 1995 to 10.8% in 1996. In the Components
segment, operating income improved from 11.9% of revenues to 15.2%.
The Company expended $4,440,000 during fiscal 1996 on engineering and
product development, representing 6.1% of revenues compared to $3,410,000 or 10%
of revenues in the preceding year. Of the total engineering and product
development expenditures in fiscal 1996, $2,194,000 was in the Systems segment
as compared to $1,135,000 in the prior fiscal year. The remaining balance of
expenditures related to engineering and development of the Company's core
products, including seals and fluids.
Selling, general and administrative ("SG&A") expenses in 1996 increased
$955,000 or 8.9% over that of 1995, but declined as a percent of revenues
from 31.3% in 1995 to 16% in 1996. Contributing to the increase in SG&A expenses
are increased warranty provisions and increased sales commissions to third
parties. Also included in the increase in SG&A expenses is a $520,000 increase
in general corporate expenses, which includes a $177,000 increase in non-cash
stock related compensation.
Interest income in 1996 was down from that in 1995 due principally to the
cancellation of certain paid-up insurance policies on the life of a former
executive officer which is more fully discussed in Note C to the Consolidated
Financial Statements. Invested cash remained at low levels as a result of the
need to finance the operations of the business. Interest expense of $580,000 is
also down from the prior year due to the elimination of borrowings against the
canceled insurance policies. See Note E to the Consolidated Financial Statements
for a more complete discussion of the Company's debt obligations.
The Company records translation and exchange gains and losses resulting
from fluctuations of foreign currency as other income (expense). The net impact
of currency translation and exchange was $33,000 and $260,000 of income in 1996
and 1995, respectively. Included in the income from currency translation in 1995
was a gain of approximately $245,000 which the Company realized upon the sale of
its investment in Ferrotec (see Note B to the Consolidated Financial
Statements). The balance of other income (expense) in 1996 and 1995 was
principally amortization of bank financing costs.
The income tax expense in 1996 of $487,000 is comprised principally of a
provision for state and foreign income taxes on the Company's earnings and a
federal alternative minimum tax
14
<PAGE> 17
provision. The tax provision in 1995 includes approximately $300,000 in various
state and foreign taxes, offset by a benefit of approximately $615,000 resulting
from the recording of a tax asset in Europe at AP&T reflecting that business's
return to profitability from continuing operations. See Note D to the
Consolidated Financial Statements for a more complete discussion of income
taxes.
Fiscal 1995 Versus Fiscal 1994:
- ------------------------------
<TABLE>
In fiscal 1995, revenues increased 29% to $34,155,000 from $26,461,000 in
fiscal 1994. Revenues from the Company's Systems segment increased 37% from
$8,612,000 in 1994 to $11,782,000 in 1995. The Company's model CZ-150, which is
capable of growing silicon ingots from which 200 millimeter diameter wafers are
made, has received strong acceptance worldwide by silicon wafer manufacturers.
Worldwide revenues in the Company's Components business rose 25% from
$11,285,000 in 1994 to $14,119,000 in 1995. The comparison of revenues by major
product line within the Components segment is as follows:
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Seals $10,986,000 $ 8,822,000
Bearings 746,000 429,000
Ferrofluid 2,387,000 2,034,000
----------- -----------
Total Components $14,119,000 $11,285,000
=========== ===========
</TABLE>
Sales from the Company's European operations, AP&T, which includes the sale
of the Company's core products in Europe as well comprising the Thin Film
Deposition segment, increased 20% to $11,201,000 in 1995 as compared to
$9,354,000 in fiscal 1994.
The most important development in fiscal 1995, however, was the level of
new orders received. Bookings in 1995 amounted to $56,911,000 (including
$35,734,000 of orders for crystal growing systems) compared to $30,317,000 in
1994 (including $12,091,000 of systems orders). Backlog at June 30, 1995 totaled
$37,756,000 (including $32,406,000 of crystal growing systems) compared to
$14,613,000 at June 30, 1994 (including $8,162,000 of crystal growing systems).
Consolidated gross margin for the year ended June 30, 1995 amounted to
40.7% of product sales as compared to 33.9% of product sales in the previous
year. Higher production volumes in 1995 contributed to the improved gross
margins through better absorption of overhead costs. Additionally, improved
pricing and inventory and production management contributed to the improvement
in overall gross margins in 1995. In addition, gross margins benefited from
management's decision to discontinue the operations of VSE Vakuumtechnik GmbH
("VSE") an Austrian majority-owned company for which AP&T and the Company
distributed products and which had experienced prolonged operating losses. The
gross margin in 1994 reflected the impact of poor margins of VSE products and
certain higher than normal warranty costs relating to the crystal growing
systems and certain excess inventory charges pertaining to feedthrough seals.
As more fully discussed in Note B to the Consolidated Financial Statements,
in November 1994, the Company entered into a license agreement with a Swiss
vacuum-valve manufacturer pursuant to which the manufacturer has been granted
the exclusive right to incorporate certain Ferrofluidic(R) technology into its
products in exchange for the receipt of $1,300,000 in cash. The $1,300,000 has
been included in nonrecurring operating income in the consolidated statement of
operations for the year ended June 30, 1995.
15
<PAGE> 18
In connection with the aforementioned license agreement, in September 1994,
management decided to abandon the operations of VSE due to its prolonged
operating losses and its inability to compete effectively in the standard
vacuum-valve industry. The results of operations for VSE for fiscal 1995 has
been reclassified and included in nonrecurring operating income (expense) in the
accompanying consolidated statements of operations .
The Company expended $3,410,000 during fiscal 1995 on engineering and
product development, representing 10% of net sales and revenues compared to
$3,390,000 or 12.8% of net sales and revenues in the preceding year. Of the
total amount expended in 1995, $1,930,000 represents design and applications
engineering and $1,480,000 represents amount spent on the development of new
products. In fiscal 1994, the design and applications engineering totaled
$2,153,000 and the new product development totaled $1,237,000. Of the total
fiscal 1995 engineering and product development expenditures, $1,135,000 was in
the Systems segment as compared to $1,496,000 in the prior fiscal year. The
remaining balance of expenditures related to engineering and development of the
Company's core products, including seals and fluids.
Selling, general and administrative ("SG&A") expenses decreased 12% from
$12,133,000 in 1994 to $10,694,000 in fiscal 1995. The decline in SG&A expenses
were principally the result of cost cutting measures undertaken at the Company's
headquarters in Nashua, with approximately $150,000 of reductions in the Europe
and Japan operations combined.
Interest income in 1995 of $232,000 represents principally the income
earned on certain paid-up insurance policies on the lives of former officers.
Interest expense of $638,000 includes approximately $243,000 of interest on the
Company's variable rate industrial revenue bond and approximately $140,000 in
interest expense on amounts drawn on a revolving credit line. See Note E to the
Consolidated Financial Statements for a more complete discussion of the
Company's debt obligations. At June 30, 1995, there were no amounts outstanding
against this revolving credit line. Additionally, the Company recorded $201,000
of interest expense pertaining to loans against certain keyman insurance
policies, which are more fully discussed in Note C to the Consolidated Financial
Statements.
Nonrecurring Operating Income (Expenses)
- ----------------------------------------
Settlement of Ferrotec Litigation
- ---------------------------------
As more fully discussed in Note B to the Consolidated Financial Statements,
on June 30, 1993, the Company consummated a series of new license and other
agreements ending all litigation between the Company and Ferrotec Corporation
("Ferrotec"), its former Japanese subsidiary. Pursuant to these agreements, in
August 1993, the Company received one billion Japanese Yen (approximately
$9,500,000) in settlement of all claims against Ferrotec including all future
royalties owing to the Company under the new and a previous license agreement,
any past due royalties owing under the previous agreement, and reimbursement of
expenses incurred by the Company in connection with the litigation. The one
billion Yen was remitted to the Company net of $815,000 in Japanese withholding
tax on that portion of the settlement representing royalty payments. Also
pursuant to the agreements, the Company acquired 125,000 shares of Ferrotec's
common stock, approximately 16% of Ferrotec's outstanding stock, for one billion
Japanese Yen, and was given a seat on Ferrotec's board of directors.
Given that the transactions involved an exchange of identical amounts, it
was treated as a nonmonetary transaction and, therefore, the value assigned to
the settlement was equivalent to the
16
<PAGE> 19
fair market value of the Ferrotec shares acquired. The estimated fair value of
the Ferrotec shares of $4,286,000 was recorded in the first quarter of 1994. In
recognition of Ferrotec's losses during its fiscal year ended March 31, 1994,
the Company established a valuation reserve against this investment and a
corresponding charge to operations in the amount of $600,000, net of a
translation gain of $258,000, in the fourth quarter of 1994 in the consolidated
statement of operations. The resulting gain of $3,322,000, which is the
$4,286,000, less the valuation reserve and expenses related to the transaction,
has been recorded in the Statement of Operations for the year ended June 30,
1994.
Settlement of Class Action Lawsuit
- ----------------------------------
On June 23, 1994, the Company and certain other parties to the shareholder
litigation described in Note J to the Consolidated Financial Statements entered
into a Stipulation of Settlement which provided for the settlement of all claims
against the Company and certain other defendants. Following the preparation and
execution of definitive settlement documents satisfactory to the settling
parties, the Massachusetts Federal District Court approved the settlement as
fair and reasonable and dismissed the case on August 19, 1994. In the
settlement, the Company issued 600,000 freely tradable shares of the Company's
Common Stock. The Company recorded its portion of the settlement and related
expenses totaling $3,300,000 as a charge to nonrecurring operating charges in
the third quarter of fiscal 1994 ($2,925,000 representing the estimated value of
the 600,000 shares of the Company's common stock and $375,000 representing for
legal and other costs). In the fourth quarter of 1994, the Company recorded an
additional $225,000 charge to nonrecurring operating charges which adjusted the
value of the shares to the approximate market price of the Company's common
stock on August 19, 1994.
Management Restructuring
- ------------------------
As more fully discussed in Note J to the Consolidated Financial Statements,
in September 1993, the former chief executive officer retired from the Company
and entered into a Termination Agreement with the Company, superseding his
existing employment agreement. Pursuant to the Termination Agreement, the former
CEO is receiving payments aggregating $725,000 over four years for making
himself available to be used as a senior advisor to the Company during that
period (the "Consultancy Period"), whether or not the Company elects to use his
services. The Company has charged the entire $725,000 to nonrecurring operating
expenses in the first quarter of fiscal 1994. Additionally, the Company incurred
$175,000 of severance and other termination charges relating to the reduction of
its executive management and operating staff in the first quarter of fiscal
1994.
Molecular BioQuest, Inc.
- ------------------------
As more fully discussed in Note B to the Consolidated Financial Statements,
in 1994 the Company advanced $300,000 to Molecular BioQuest, Inc. ("BioQuest")
pursuant to certain commitments outstanding at the time. In April 1994, the
Company entered into an agreement with BioQuest pursuant to which the Company
paid an additional $175,000 in full satisfaction of all obligations to BioQuest
and, in exchange, received ownership of 5% of the outstanding common stock of
BioQuest. The entire $475,000 paid to BioQuest has been charged to operations in
the first quarter of 1994, in recognition of BioQuest's undeveloped technology
and its continued operating losses.
Other Charges
- -------------
In 1994 the Company advanced $209,000 to Ferrofluidics Taiwan Corporation
(FTC), an affiliated sales representative in Taiwan, for operating purposes. In
July 1994, the Company made an investment in FTC of $75,000, representing a
19.9% interest in that company. Of the combined
17
<PAGE> 20
investment in and advances made to FTC, $230,000 has been charged to
nonrecurring operating expenses on the Consolidated Statement of Operations in
1994.
18
<PAGE> 21
LIQUIDITY AND CAPITAL RESOURCES
In 1996, the operations of the business used $2,801,000 of cash, which was
principally the result of the increase in accounts receivable and the decline in
the balance of deposits from systems customers. Borrowings under the Company's
revolving credit line were sufficient to finance $2,400,000 in capital
expenditures, principally to fund expansion of the Company's Nashua, NH
facility, as more fully described below. Cash receipts from the sale of crystal
growing systems under large multi-unit contracts are typically received by the
Company as certain milestones are met, including receipt of order, submission of
accepted engineering drawings, shipment and final acceptance of the units. In
1996 and 1995, the Company received advance payments of $12,547,000 and
$7,855,000, respectively. In order to secure its sources of supply for critical
long lead inventory items, the Company has made advance payments to its vendors
aggregating, the balance of which was $1,916,000 at June 30, 1996. The Company
has purchase contracts for inventory with various suppliers which, in some
cases, extend beyond two years. At June 30, 1996, outstanding purchase
commitments pursuant to these contracts totaled approximately $31,000,000.
The ratio of current assets to current liabilities was 1.7 at the end of
1996, as compared to 1.4 at the end of 1995. Working capital at June 30, 1996
increased to $12,140,000 from $7,811,000 at June 30, 1995. Current assets
increased, principally due to higher accounts receivable balances, despite
improvement to receivable turnover of 7.2 times in 1996 as compared to 5.5 times
in 1995. Inventory balances have remained relatively unchanged, however,
increased business levels have enabled management to improve overall inventory
turnover from 1.7 times in 1995 to 3.7 times in 1996.
As noted above, a primary customer of the Company has delayed the delivery
of certain crystal growing systems originally scheduled for fiscal 1997 into
fiscal 1998. As a result, the Company is in the process of increasing its
revolving line of credit with its bank from $2,500,000 to $7,500,000 in
anticipation of the need to finance working capital during the delay in
deliveries. In addition, management plans to make further improvements to
production scheduling and timing of materials purchased in order to minimize the
impact of the rescheduling and its need for bank borrowings. In addition, the
Company, through its foreign subsidiaries, has various short-term facilities
with local banks aggregating approximately $2,000,000. No borrowings were made
under the foreign short-term facilities during 1996.
Capital expenditures totaled $2,422,000 in 1996, as compared to $1,880,000
in 1995. During 1996 and 1995, the increase in the demand for the Company's
crystal growing equipment necessitated an investment in plant and equipment in
order to enhance the Company's production capacity. In addition, the capital
expenditures in 1996 included an upgrade of its in-house machining capability,
including the installation of state-of-the-art equipment for the fabrication of
critical component parts. Also during 1996, the Company canceled certain key man
life insurance policies on the life of a former chief executive officer which
provided cash of $1,248,000.
In 1995, the Company sold its investment in Ferrotec to several Japanese
financial institutions for an aggregate price of (Y)362,500,000 (approximately
$4.0 million) in cash, which enabled the Company to finance its capital
additions during that year and still reduce its short-term bank borrowings
outstanding. Additionally, during 1995, the Company received $350,000 in full
satisfaction of a note receivable from the sale of a former subsidiary.
19
<PAGE> 22
The Company has long-term financing in the form of a $5,000,000 Variable
Rate Industrial Revenue Bond ("VRIRB") that is subject to a variable rate of
interest keyed to short-term non-taxable rates (at June 30, 1996, 4.2%), the
proceeds of which were primarily used to fund the construction of the Company's
Nashua, NH headquarters. The Company has a credit facility with its bank which
provides the Company with total credit of approximately $7,900,000, $5,400,000
of which is in the form of a standby letter of credit for the Company's VRIRB,
and $2,500,000 of which is a revolving credit facility for working capital
purposes. The standby letter of credit has a term of five years with a fee of 1%
per year and the revolving credit facility bears interest at prime rate plus 1%
with a fee of 1/8% on the unused portion. At June 30, 1996, the entire
$2,500,000 was outstanding against the revolving line of credit.
During 1996, the Company borrowed $1,000,000, in the form of a demand note
with its bank, for working capital purposes, which bears interest at prime rate
plus 1%. During 1996, the Company also borrowed $800,000, in the form of an
installment demand note with its bank, to finance capital expansion of its
in-house machine shop, which bears interest at 9.75%. At June 30, 1996, the
balance on this note was $748,000. In addition, the Company, through its
wholly-owned foreign subsidiaries, has various short-term facilities with local
banks totaling approximately $2,000,000 at June 30, 1996, pursuant to which no
borrowings were made during 1996. The weighted average interest rates during
1996 on these facilities ranged from 8.3% to 12.9%.
In 1996, the Company's financing activities consisted of $4,186,000 in
various short-term borrowings, including its revolving line of credit. During
1995, financing activities used $2,658,000 in cash, principally representing the
repayment of the outstanding balances on revolving lines of credit. With the
significant advance payments received from its crystal grower customers in 1995,
the Company was able to pay off its revolving credit lines.
Management believes that current financial resources (working capital and
short-term borrowing arrangements) and anticipated funds from operations will be
adequate to meet cash requirements in the year ahead.
EFFECTS OF INFLATION
Inflation rates over the past three years have remained relatively low and,
as a result, have not had a material impact on the financial results of the
Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
-----------------------------
Page(s)
Reports of Independent Auditors.......................................... 21-22
Consolidated Balance Sheets as of June 30, 1996 and 1995................. 23
Consolidated Statements of Operations for each of the three years
in the period ended June 30, 1996.................................. 24
Consolidated Statements of Stockholders' Equity for each
of the three years in the period ended June 30, 1996............... 25
Consolidated Statements of Cash Flows for each of the three years
in the period ended June 30, 1996.................................. 26
Notes to Consolidated Financial Statements............................... 27-47
20
<PAGE> 23
Report of Independent Auditors
------------------------------
To the Stockholders and Directors of Ferrofluidics Corporation
We have audited the accompanying consolidated balance sheet of Ferrofluidics
Corporation as of June 30, 1996, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year then ended. Our
audit also included the financial statement schedule, for the year ended June
30, 1996, listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Ferrofluidics Corporation at June 30, 1996, and the consolidated results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
Manchester, New Hampshire
September 3, 1996
21
<PAGE> 24
Report of Independent Accountants
---------------------------------
To the Stockholders and Directors of Ferrofluidics Corporation
We have audited the accompanying consolidated balance sheet of Ferrofluidics
Corporation as of June 30, 1995, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the two years in
the period ended June 30, 1995 and the financial statement schedule listed in
Item 14(a) of this Form 10-K. These financial statements and the financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and the
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our report.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Ferrofluidics Corporation at June 30, 1995, and the consolidated results of its
operations and its cash flows for each of the two years in the period ended June
30, 1995 in conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
Manchester, New Hampshire
August 31, 1995
22
<PAGE> 25
FERROFLUIDICS CORPORATION
<TABLE>
CONSOLIDATED BALANCE SHEETS
June 30, 1996 and June 30, 1995
<CAPTION>
ASSETS 1996 1995
- ------ ---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,701,000 $ 1,563,000
Accounts receivable - trade, less allowance
of $320,000 ($357,000 in 1995) 12,757,000 7,774,000
Inventories 13,829,000 14,130,000
Advances to suppliers 1,916,000 2,145,000
Prepaid and other current assets 672,000 514,000
------------ ------------
Total Current Assets 30,875,000 26,126,000
------------ ------------
Property, plant and equipment, at cost, net
of accumulated depreciation of $9,583,000 ($8,895,000 in 1995) 8,784,000 8,116,000
Cash value of life insurance, net 1,731,000 2,976,000
Other assets, net 2,249,000 2,311,000
------------ ------------
TOTAL ASSETS $ 43,639,000 $ 39,529,000
============ ============
LIABILITIES
- -----------
Current Liabilities:
Bank notes payable $ 4,262,000 -
Accounts payable 6,366,000 $ 5,318,000
Customer deposits 4,368,000 9,403,000
Accrued expenses and other current liabilities 3,739,000 3,594,000
------------ ------------
Total Current Liabilities 18,735,000 18,315,000
------------ ------------
Long term debt obligations 5,000,000 5,036,000
Other liabilities 202,000 397,000
Commitments and contingencies
STOCKHOLDERS' EQUITY
- --------------------
Preferred stock, $.001 par value, authorized
100,000 shares, issued and outstanding, none - -
Common stock, $.004 par value, authorized
12,500,000 shares, outstanding -- 6,060,902
(5,997,198 in 1995) 24,000 24,000
Additional paid-in capital 35,871,000 35,485,000
Accumulated deficit (15,643,000) (19,463,000)
Currency translation adjustments (550,000) (265,000)
------------ ------------
Total Stockholders' Equity 19,702,000 15,781,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 43,639,000 $ 39,529,000
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
23
<PAGE> 26
FERROFLUIDICS CORPORATION
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1996, 1995, AND 1994
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales and revenues $72,967,000 $34,155,000 $ 26,461,000
Cost of sales 51,941,000 20,264,000 17,492,000
----------- ----------- ------------
Gross profit 21,026,000 13,891,000 8,969,000
Operating expenses:
Engineering and product development expense 4,440,000 3,410,000 3,390,000
Selling, general and administrative expense 11,649,000 10,694,000 12,133,000
Nonrecurring operating (income) expenses - (1,156,000) 3,108,000
----------- ----------- ------------
Operating income (loss) 4,937,000 943,000 (9,662,000)
Interest income 137,000 232,000 224,000
Interest expense (580,000) (638,000) (580,000)
Other income (expense), net (187,000) 30,000 474,000
----------- ----------- ------------
Income (loss) before income taxes 4,307,000 567,000 (9,544,000)
Income taxes (benefit) 487,000 (322,000) 1,169,000
----------- ------------ ------------
Net Income (Loss) $ 3,820,000 $ 889,000 $(10,713,000)
=========== =========== ============
Net Income (Loss) per common share:
Net Income (Loss) $.61 $.16 $(2.00)
==== ==== ======
Weighted average common and
common equivalent shares outstanding 6,313,045 5,563,160 5,366,350
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
24
<PAGE> 27
FERROFLUIDICS CORPORATION
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
<CAPTION>
Common Stock Additional Currency
------------ Paid-In Accumulated Translation
Shares Par Value Capital Deficit Adjustments
--------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1993 5,363,821 $21,455 $32,041,000 $ (9,639,000) $ (646,000)
Issuance of common stock for:
Options and warrants exercised 812 3 4,000 - -
Employee stock purchase plan 2,316 9 16,000 - -
Restricted stock plan, charge to operations - - 48,000 - -
Net loss - - - - (10,713,000)
Current year translation adjustments - - - - 51,000
--------- ------- ----------- ------------ ------------
BALANCE, JUNE 30, 1994 5,366,949 21,467 32,109,000 (20,352,000) (595,000)
--------- ------- ----------- ------------ ------------
Issuance of common stock for:
Settlement of shareholder class action suit 600,000 2,400 3,148,000 - -
Restricted stock plan, charge to operations 38,385 154 290,000 - -
Redemption of stock for taxes (8,136) (33) (62,000) - -
Net income - - - 889,000 -
Current year translation adjustments - - - - 330,000
--------- ------- ----------- ------------ ------------
BALANCE, JUNE 30, 1995 5,997,198 23,988 35,485,000 (19,463,000) (265,000)
--------- ------- ----------- ------------ ------------
Issuance of common stock for restricted
stock plan, charge to operations 70,878 284 467,000 - -
Redemption of stock for taxes (7,174) (28) (81,000) - -
Net income - - - 3,820,000 -
Current year translation adjustments - - - - (285,000)
--------- ------- ----------- ------------ ------------
BALANCE, JUNE 30, 1996 6,060,902 $24,244 $35,871,000 $(15,643,000) $ (550,000)
========= ======= =========== ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
25
<PAGE> 28
FERROFLUIDICS CORPORATION
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1996, 1995, AND 1994
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,820,000 $ 889,000 $(10,713,000)
Adjustments to reconcile net income (loss) to cash flow
provided by (used in) operating activities:
Depreciation and amortization 1,145,000 1,030,000 1,150,000
Deferred taxes (credits) - (615,000) 176,000
Provision for doubtful accounts 28,000 (397,000) (107,000)
Increase in cash surrender value (3,000) (202,000) (579,000)
Gain on sale of fixed assets (9,000) (4,000) (90,000)
Stock related compensation 467,000 290,000 48,000
Nonrecurring operating charges - - 450,000
Translation (gains) losses 460,000 (241,000) (336,000)
Gain on settlement with licensee, net of allowances - - (3,411,000)
Other (36,000) 205,000 (42,000)
Changes in operating assets and liabilities, net of
acquisitions and dispositions of businesses:
Accounts receivable (5,691,000) (2,753,000) 1,358,000
Inventories 134,000 (3,710,000) (1,379,000)
Prepaid and other current assets (900,000) (2,047,000) 296,000
Accounts payable and accrued expenses 1,857,000 330,000 2,446,000
Customer deposits (4,073,000) 7,855,000 1,539,000
Settlement reserve - - 3,150,000
----------- ----------- ------------
Net cash provided by (used in) operating activities (2,801,000) 630,000 (6,044,000)
----------- ----------- ------------
Cash flows from investing activities:
Proceeds from cancellation of key man policies 1,248,000 - -
Proceeds from notes receivable - 350,000 125,000
Sale of investment in affiliate - 3,991,000 -
Restricted cash - - (449,000)
Acquisition of property, plant and equipment (2,422,000) (1,880,000) (785,000)
Proceeds from sales of assets 34,000 753,000 202,000
----------- ----------- ------------
Net cash provided by (used in) investing activities (1,140,000) 3,214,000 (907,000)
----------- ----------- ------------
Cash flows from financing activities:
Proceeds from issuance of common stock - - 20,000
Redemption of industrial revenue bond - - (2,500,000)
Payments under capital lease obligations (76,000) (72,000) -
Proceeds from borrowing of cash surrender value - 189,000 2,927,000
Short-term borrowings, net 4,262,000 (2,775,000) 823,000
----------- ----------- ------------
Net cash provided by (used in) financing activities 4,186,000 (2,658,000) 1,270,000
----------- ----------- ------------
Effect of currency rate changes on cash (107,000) 55,000 (46,000)
----------- ----------- ------------
Net increase (decrease) in cash and cash equivalents 138,000 1,241,000 (5,727,000)
----------- ----------- ------------
Cash and cash equivalents at beginning of year 1,563,000 322,000 6,049,000
----------- ----------- ------------
Cash and cash equivalents at end of year $ 1,701,000 $ 1,563,000 $ 322,000
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
26
<PAGE> 29
FERROFLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
- ------------
Ferrofluidics Corporation (the "Company") is a multinational company engaged
principally in developing, manufacturing and marketing ferrofluids (magnetic
fluids), rotary sealing devices based on or derived from its proprietary
ferrofluid technology, and systems for growing crystals of silicon, germanium,
gallium arsenide and other metal alloys for the semiconductor, photovoltaic,
military and advanced materials markets. Information on the Company's operations
by segment and geographic area are included in Note I.
Approximately 85% of the Company's sales were attributable to the
semiconductor industry, which can experience cyclical fluctuations. A prolonged
decline in the semiconductor industry could have a material adverse effect on
the Company's operating results.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the Company and
its majority-owned subsidiaries. All intercompany accounts and transactions have
been eliminated.
Use of Estimates
- ----------------
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents consist of cash on hand, money market funds and
commercial paper with original maturities of less than 90 days.
Fair Value of Financial Instruments
- -----------------------------------
The carrying amounts of the Company's financial instruments, including
accounts receivable, accounts payable and short-term and long-term debt,
approximate fair value.
Concentration of Credit Risk
- ----------------------------
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash investments and trade accounts
receivable. The Company places its cash and temporary cash investments with high
credit quality institutions. At times, such investments may be in excess of the
FDIC insurance limit.
The Company performs ongoing credit evaluations of its customers' financial
condition and, under certain conditions, requires collateral from its foreign
unaffiliated customers in the form of irrevocable letters of credit. With regard
to the Company's Components segment, concentrations of credit risk with respect
to trade accounts receivable are limited due to the large number of customers
and their dispersion across many different geographical regions. In the
Company's Crystal Growing Systems segment, two affiliated Pacific Rim customers
accounted for 53.8% and 31.2%, respectively, of that segment's fiscal 1996 net
sales and 7.2% and 13.9%, respectively, of gross consolidated accounts
receivable at June 30, 1996. One of these customers has provided the Company
with an irrevocable letter of credit as security for payment.
27
<PAGE> 30
Additionally, the Company has made advance payments to suppliers for
inventory aggregating $1,916,000 at June 30, 1996.
<TABLE>
Inventories
- -----------
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventories are comprised of the following elements at June 30, 1996 and 1995:
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Raw materials and purchased parts $ 6,845,000 $ 8,018,000
Work-in-process 3,188,000 2,634,000
Finished goods 3,796,000 3,478,000
----------- -----------
$13,829,000 $14,130,000
=========== ===========
</TABLE>
The Company has purchase contracts for inventory with various suppliers
which, in some cases, extend beyond two years. At June 30, 1996, outstanding
purchase commitments pursuant to these contracts totaled approximately
$31,000,000.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment are recorded at cost. Depreciation on
machinery and equipment and furniture and fixtures is computed on a
straight-line method over estimated useful lives of three to eight years;
leasehold improvements are amortized using the straight-line method over the
lesser of the life of the lease or the estimated useful life of the
improvements. Depreciation on buildings and building improvements is computed
using the straight-line method over estimated lives of ten to thirty years.
Depreciation charges for assets begin in the month subsequent to the asset being
placed in service.
Maintenance and repairs are charged to expense as incurred. Upon
retirement or sale, the cost of disposed assets and the related accumulated
depreciation are eliminated from the accounts. Gains or losses on disposition
are reflected in other income (loss) at the time of disposition.
<TABLE>
Property, plant and equipment consisted of the following at June 30,
1996 and 1995:
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land $ 321,000 $ 321,000
Buildings and improvements 6,633,000 6,573,000
Machinery and equipment 4,420,000 4,717,000
Furniture, fixtures and vehicles 5,263,000 4,307,000
Construction in process 1,730,000 1,093,000
----------- -----------
18,367,000 17,011,000
Less: Accumulated depreciation and amortization 9,583,000 8,895,000
----------- -----------
$ 8,784,000 $ 8,116,000
=========== ===========
</TABLE>
Intangible Assets
- -----------------
At June 30, 1996, the Company had goodwill (included in other assets)
resulting from the acquisition in fiscal 1989 of AP&T GmbH of $1,211,000 that is
being amortized over a 16 year life on a straight line basis. Accumulated
amortization as of June 30, 1996 amounted to $508,000.
All other intangible assets, including patents and trademarks, are
recorded at cost and amortized on a straight-line basis over their estimated
useful lives, generally ten years.
28
<PAGE> 31
Income Taxes
- ------------
Income taxes have been provided using the liability method in accordance
with FASB Statement No. 109, Accounting for Income Taxes.
Taxes are not provided on undistributed income of subsidiaries not
consolidated for U.S. tax purposes as it is intended that such earnings will
remain invested in those companies or, if distributed, the tax effect would not
be material. As of June 30, 1996, each of these subsidiaries had an accumulated
loss.
Revenue Recognition
- -------------------
The Company generally recognizes product revenue upon shipment of products to
the customer; royalty revenue is recognized as it is earned.
Product Development and Advertising Expenses
- --------------------------------------------
Product development expenditures are charged to expense when first
incurred. The Company incurred $1,723,000, $1,479,000 and $1,237,000 in product
development during 1996, 1995 and 1994, respectively.
Translation of Foreign Currencies
- ---------------------------------
The financial statements of foreign subsidiaries have been translated
into U.S. dollars in accordance with FASB Statement No. 52, Foreign Currency
Translation. All balance sheet accounts of foreign subsidiaries whose functional
currency is other than the U.S. dollar have been translated at year-end exchange
rates. Income statement amounts have been translated at average exchange rates
during the year. Translation gains and losses have been accumulated as a
separate component of stockholders' equity. Translation gains and losses of
foreign subsidiaries whose functional currency is the U.S. dollar have been
charged directly to operations as incurred.
Foreign Exchange Contracts
- --------------------------
The Company from time to time enters into foreign exchange contracts as
a hedge against certain debts denominated in a foreign currency. Market value
gains and losses are recognized, and the resulting credit or debit offsets
foreign exchange gains or losses on those debts. At June 30, 1996, there were no
foreign exchange contracts outstanding.
<TABLE>
Other Income (Expense)
- ----------------------
Other income (expense) consisted of the following for the years ended
June 30, 1996, 1995 and 1994:
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Translation gain (loss), net $(460,000) $ 241,000 $ 336,000
Exchange gain (loss), net 493,000 19,000 (144,000)
Gain on sale of fixed assets 9,000 4,000 90,000
Other (229,000) (234,000) 192,000
--------- --------- ---------
$(187,000) $ 30,000 $ 474,000
========= ========= =========
</TABLE>
29
<PAGE> 32
Stock Based Compensation
- ------------------------
The Company grants stock options for a fixed number of shares to
employees with an exercise price equal to the fair value of the shares at the
date of grant. The Company accounts for stock option grants in accordance with
APB Opinion No. 25, Accounting for Stock Issued to Employees, and, accordingly,
except for restricted stock awards (See Note H), recognizes no compensation
expense for the stock option grants.
Earnings (Loss) Per Share
- -------------------------
Net income per share for fiscal 1996 and 1995 is based on the weighted
average number of common shares outstanding as well as the effect of all
dilutive common stock equivalents. Net loss per share for 1994 is based on the
weighted average number of common shares outstanding as the inclusion of common
stock equivalents would have been antidilutive.
Statement of Cash Flows
- -----------------------
For the years ended June 30, 1996, 1995 and 1994, cash payments for
income taxes amounted to $290,000, $121,000 and $1,200,000, respectively. Cash
payments for interest in each of the three years amounted to $421,000, $427,000
and $624,000, respectively.
Significant non-cash investing, financing and operating activities
during the three years ended June 30, 1996 were as follows:
During 1996, the Company transferred its ownership in certain single
premium, paid-up life insurance policies on the life of a former CEO to the
former CEO. At the time of the transfer, the policies had a gross cash value of
approximately $2,300,000, against which the Company had outstanding borrowings
in the amount of approximately $1,300,000, and an offset for amounts due the
former CEO of approximately $1,000,000. As the policies had no net carrying
value to the Company, the transfer was treated as a noncash transaction (See
Notes C and J). Also during 1996, the Company transferred certain equipment with
a net book value of $488,000 into inventory.
In August 1993, the Company received one billion Japanese Yen
(approximately $9,500,000) in settlement of all claims against Ferrotec
Corporation ("Ferrotec", formerly Nippon Ferrofluidics Corporation) including
all future royalties owing to the Company under the new and a previous license
agreement, any past due royalties owing under the previous agreement, and
reimbursement of expenses incurred by the Company in connection with the
litigation. Also pursuant to the agreements, the Company acquired 125,000 shares
of Ferrotec's common stock, approximately 16% of Ferrotec's outstanding stock,
for one billion Japanese Yen, and was given a seat on Ferrotec's board of
directors. Given that the transactions involve an exchange of identical amounts,
it was treated as a noncash transaction (See Note B).
Impact of Recently Issued Accounting Standards
- ----------------------------------------------
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company will adopt Statement 121
in the first quarter of fiscal 1997 and, based on current circumstances, does
not believe the effect of the adoption will be material.
30
<PAGE> 33
Fourth Quarter Adjustments
- --------------------------
The Company made adjustments to its financial statements in the fourth quarter
ended June 30, 1996, including approximately $970,000 in valuation adjustments
to its inventories and approximately $400,000 pertaining to the reduction in
certain accruals for management bonuses.
B. INVESTMENT IN AFFILIATES
Ferrotec Corporation
- --------------------
On June 30, 1993, the Company consummated a series of new license and
other agreements ending all litigation between the Company and Ferrotec
Corporation ("Ferrotec", formerly Nippon Ferrofluidics Corporation), its former
Japanese subsidiary. Pursuant to these agreements, in August 1993, the Company
received one billion Japanese Yen (approximately $9,500,000) in settlement of
all claims against Ferrotec including all future royalties owing to the Company
under the new and a previous license agreement, any past due royalties owing
under the previous agreement, and reimbursement of expenses incurred by the
Company in connection with the litigation. The one billion Yen was remitted to
the Company net of $815,000 in Japanese withholding tax on that portion of the
settlement representing royalty payments. Also pursuant to the agreements, the
Company acquired 125,000 shares of Ferrotec's common stock, approximately 16% of
Ferrotec's outstanding stock, for one billion Japanese Yen, and was given a seat
on Ferrotec's board of directors.
Given that the transactions involved an exchange of identical amounts,
it was treated as a nonmonetary transaction and, therefore, the value assigned
to the settlement was equivalent to the fair market value of the Ferrotec shares
acquired. The estimated fair value of the Ferrotec shares of $4,286,000 was
recorded in the first quarter of 1994. In recognition of Ferrotec losses during
its fiscal year ended March 31, 1994, the Company established a valuation
reserve against this investment in the amount of $600,000, net of a translation
gain of $258,000, in the fourth quarter of 1994 in the consolidated statement of
operations.
Under the new license agreement, effective upon signing of the
agreements: (i) Ferrotec was granted a worldwide license with respect to
Ferrofluidic[Registered Trademark] exclusion seals for computer disc drive
memories; (ii) Ferrofluidics retains its worldwide exclusive rights to its
Ferrofluidic[Registered Trademark] environmental sealing system, and (iii)
both companies will have nonexclusive rights to market vacuum rotary
feedthrough seals and ferrofluids in Asia.
In the fall of 1994, management began discussions with Ferrotec to find
a buyer for the 125,000 shares after concluding a financial interest in Ferrotec
was not strategically in the best interest of the Company. In March 1995, the
Company completed the sale of its 125,000 shares of Ferrotec common stock to
several Japanese financial institutions for an aggregate price of
[Yen]362,500,000 (approximately $4,000,000) in cash. The sale generated a gain
of approximately $245,000, principally the result of currency translation, which
has been included in other income in the consolidated statement of operations
for the year ended June 30, 1995.
Molecular BioQuest, Inc.
- ------------------------
During 1993, the Company entered into a series of agreements with
Molecular BioQuest, Inc. ("BioQuest"), a privately-owned company principally
engaged in the development and manufacture of biotechnology products. Under the
agreements, the Company provided certain consulting services and BioQuest
purchased 100,000 shares of the Company's common stock in exchange for a note
31
<PAGE> 34
convertible into 10% of BioQuest's outstanding common stock. The transaction was
accounted for as an investment in BioQuest, which was valued at $1,650,000, the
fair value of the 100,000 shares of the Company's common stock on that date. In
addition, the Company committed to make available to BioQuest a line of credit
of $825,000, as well as an additional loan of up to $750,000 in exchange for a
note convertible into additional common stock of BioQuest. During fiscal 1993,
the investment in BioQuest was reduced by a charge against earnings of
$1,594,000 representing undeveloped technology and the Company's share of
BioQuest's operating losses since the date of investment.
In April 1994, the Company entered into an agreement with BioQuest
pursuant to which: (i) the Company paid $175,000 in full satisfaction of all
obligations to BioQuest ($300,000 had previously been advanced under the
commitment discussed above), (ii) the Company's options to acquire additional
shares of BioQuest were canceled and (iii) it received 5% of the outstanding
common stock of BioQuest. Under this agreement, the obligation of BioQuest under
the convertible debenture was canceled, it was entitled to retain the 100,000
shares of Ferrofluidics common stock and was required to restrict its use of the
name "The Ferrofluid Company" in the future. The entire $475,000 paid to
BioQuest was charged to operations in the first quarter of 1994, in recognition
of BioQuest's undeveloped technology and its continued operating losses.
VSE
- ---
In September 1994, management decided to discontinue the operations of
VSE, its majority owned subsidiary in Austria, due to prolonged operating losses
and its inability to compete effectively in the standard vacuum-valve industry.
In the process of liquidating the subsidiary, VSE went into technical
receivership and, in October, the minority owner acquired the business out of
receivership and assumed all of its liabilities. The loss from operations of VSE
in fiscal 1995 until the date of abandonment of $205,000, in addition to the
one-time gain on the abandonment of $61,000, have been presented on the
Consolidated Statement of Operations for the year ended June 30, 1995 as
nonrecurring operating charges.
VAT Vakuumventile, GmbH
- -----------------------
In November 1994, the Company entered into a fifteen-year agreement with
VAT Vakuumventile, GmbH ("VAT"), a Swiss vacuum-valve manufacturer, pursuant to
which VAT has been granted exclusive right to utilize certain rotary feedthrough
sealing technology of the Company in exchange for $1,300,000 in cash. During
October and November 1994, the Company received an aggregate of $1,300,000 in
cash payments pursuant to this arrangement and has recorded the payments as
nonrecurring operating income in the Consolidated Statement of Operations for
fiscal 1995.
Ferrofluidics Taiwan Corporation
- --------------------------------
In May 1993, the Company entered into an agreement with Junsun
Technologies, Inc., a Taiwanese distributor of semiconductor process equipment,
to form Ferrofluidics Taiwan Corporation ("FTC"), which would distribute
Ferrofluidics products in Taiwan, Korea, and Peoples Republic of China. The
Company acquired a 19.9% interest in FTC for $75,000 and agreed to fund the
start-up and FTC's first year operating costs. Pursuant to this agreement, the
Company advanced, and charged to nonrecurring operating expenses, $85,000 and
$230,000 in 1993 and 1994, respectively. The Company is not obligated to make
any further advances and has entered into negotiations with FTC to have its
investment of $75,000 returned in exchange for the 19.9% interest. In 1995, the
Company established new third party distribution relationships in Taiwan for its
products and has discontinued its association with FTC.
32
<PAGE> 35
33
<PAGE> 36
C. CASH VALUE OF LIFE INSURANCE
During fiscal 1988 and 1989, the Company invested an aggregate of
$5,000,000 in six single premium life insurance policies on the lives of Dr.
Ronald Moskowitz, a former CEO, and Mr. Frank Bloom, a former CFO. The policies
yielded a minimum guaranteed rate of return of 6.0%, less a nominal charge for
the cost of insurance. Under the terms of certain insurance loan agreements
relating to these policies, this former CEO and CFO were given the right to
borrow specified amounts annually from the insurance company, to a specified
date, and the former officers' estates were beneficiaries of the policies to the
extent of their respective borrowing rights. Such allowable borrowings
approximated the earnings accruing to the Company under the policies. At June
30, 1995, outstanding borrowings by this former CEO under the policies,
including accrued interest, approximated $2,354,000 and approximately $151,000
of additional amounts could be borrowed. The Company has not recognized earnings
under these policies to the extent they were subject to the executive borrowing
rights.
During fiscal 1991 and 1992, the Company entered into agreements with
the aforementioned former officers permitting the officers to deposit amounts
with the Company equivalent to the amounts borrowed or borrowable from the
insurance company by them. Deposited amounts were, under certain circumstances,
repayable by the Company to such former officers upon their death or the
surrender of the policies. At June 30, 1995, approximately $1,407,000 was
reflected as an offset to the cash surrender value of these policies in
recognition of these deposited amounts.
During 1996, the Company entered into a settlement agreement with Dr.
Moskowitz which, among other things, required the transfer of ownership in two
of these policies to the former CEO and the cancellation of the remaining two
policies on his life. The transferred policies had no carrying value on the
Company's books and, accordingly, the Company did not incur a charge on the
transfer. Upon cancellation of the other two policies, the Company received the
net cash value of approximately $1,248,000 (See Note J).
At June 30, 1996, the remaining two policies on the life of the former
CFO had an aggregate cash value of $1,783,000, against which the Company had
$1,751,000 in loans and accrued interest outstanding at an interest rate of 8%.
In addition, the Company has recorded the cash surrender value of other key man
life insurance policies under split-dollar agreements with the aforementioned
former CEO of $1,699,000 and $1,696,000 at June 30, 1996 and 1995, respectively.
This former CEO's estate is the principal beneficiary of the aggregate face
value of these policies of approximately $8,000,000, from which the Company will
receive, upon death or surrender, an amount approximating the cash surrender
value of the policies at that time.
34
<PAGE> 37
D. INCOME TAXES
<TABLE>
Income (loss) before income taxes for the years ended June 30, 1996,
1995 and 1994 was taxed in the following jurisdictions:
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Domestic $4,000,000 $1,012,000 $(8,000,000)
Foreign 307,000 (445,000) (1,544,000)
---------- ---------- -----------
Total $4,307,000 $ 567,000 $(9,544,000)
========== ========== ===========
</TABLE>
<TABLE>
Significant components of the provision for income taxes (benefit) is as
follows:
<CAPTION>
<S> <C> <C> <C>
Current:
Federal $133,000 - -
State 233,000 $ 20,000 $ 20,000
Foreign 121,000 273,000 973,000
-------- --------- ----------
Total current 487,000 293,000 993,000
-------- --------- ----------
Deferred:
Federal - - 176,000
State - - -
Foreign - (615,000) -
-------- --------- ----------
Total deferred - (615,000) 176,000
-------- --------- ----------
Total $487,000 $(322,000) $1,169,000
======== ========= ==========
</TABLE>
The income tax expense in 1996 of $487,000 is comprised principally of a
provision for state and foreign income taxes on the Company's earnings and a
federal alternative minimum tax provision. The deferred tax benefit in 1995 is
principally the result of net adjustments to the valuation allowance relating to
the foreign deferred tax asset in the amount of $615,000. The current provision
of $293,000 in 1995 is principally related to a reserve for income taxes at a
foreign subsidiary. The income tax provision in 1994 is primarily attributable
to foreign taxes paid in connection with the Company's settlement with Ferrotec
and changes in the deferred tax asset valuation allowance.
<TABLE>
The following is a reconciliation between the statutory provision for
federal income taxes and the effective income taxes for the years ended June 30,
1996, 1995 and 1994:
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income tax expense (benefit)
at federal statutory rate $ 1,464,000 $ 193,000 $(3,245,000)
Change in valuation allowance (1,180,000) (1,629,000) 3,469,000
Settlement of stockholders' class
action suit - 1,247,000 -
State income tax, net of federal tax benefit 153,000 20,000 20,000
Foreign income taxes at differing
statutory rates 17,000 (342,000) 973,000
Other 33,000 189,000 (48,000)
----------- ----------- -----------
Income tax expense (benefit) $ 487,000 $ (322,000) $ 1,169,000
=========== =========== ===========
</TABLE>
35
<PAGE> 38
<TABLE>
The components of the net deferred tax asset as of June 30, 1996 and 1995 was as follows:
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 9,789,000 $ 11,163,000
Capital loss carryforward 1,766,000 1,808,000
Compensation related 235,000 391,000
Investment writedowns 612,000 617,000
Reserves 160,000 297,000
Inventory 1,016,000 900,000
Research & development credits 82,000 174,000
Alternative minimum tax credits 172,000 -
Foreign tax credits 873,000 873,000
Other 340,000 157,000
------------ ------------
Total deferred tax assets 15,045,000 16,380,000
Valuation allowance for deferred tax assets (13,049,000) (14,229,000)
------------ ------------
Net deferred tax assets 1,996,000 2,151,000
Deferred tax liabilities:
Depreciable assets (1,191,000) (1,155,000)
Other (190,000) (381,000)
------------ ------------
Total deferred tax liabilities (1,381,000) (1,536,000)
Net deferred tax asset (included in other assets) $ 615,000 $ 615,000
============ ============
</TABLE>
FASB Statement No. 109, Accounting for Income Taxes, requires a
valuation reserve against deferred assets if it is more likely than not that
some or all of the deferred tax assets will not be realized. Due to the
uncertainty surrounding the Company's ability to realize the benefit of the
entire deferred tax asset, a valuation allowance in the amount of $13,049,000
has been established.
As of June 30, 1996, the Company had remaining net operating loss
carryforwards for Federal income tax purposes of approximately $26,000,000, and
for foreign income tax purposes of approximately $2,750,000, which can be used
to offset future taxable income. The net operating loss carryforwards for
Federal income tax purposes will expire at various dates through 2010. Included
in the loss carryforward, for income tax purposes, is approximately $16,800,000
of tax deductions resulting from the excess of the market price over the
exercise price on the date of exercise of the Company's stock purchase options
and warrants which were exercised during 1993 and prior years. The tax benefit
to be realized upon utilization of the $16,800,000 of loss carryforwards will
result in a decrease in current income taxes payable and an increase to
additional paid-in capital. Foreign tax credits of $873,000 expire at various
dates through 1999.
36
<PAGE> 39
E. SHORT TERM BORROWINGS AND OTHER DEBT OBLIGATIONS
<TABLE>
As of June 30, 1996 and 1995, the Company and its subsidiaries have the
following debt obligations outstanding:
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Revolving line of credit $2,500,000 -
1984 Industrial Revenue Bond 5,000,000 $5,000,000
Bank notes 1,762,000 36,000
---------- ----------
9,262,000 5,036,000
Less: current portion of debt obligations 4,262,000 -
---------- ----------
Long term debt obligations $5,000,000 $5,036,000
========== ==========
</TABLE>
In fiscal 1985 and 1986, the Company secured long-term financing in the
form of a $5,000,000 Variable Rate Industrial Revenue Bond ("VRIRB") and a
$2,500,000 Fixed Rate (7.25%) Industrial Revenue Bond ("FRIRB" and together with
the VRIRBs, the "IRBs"), respectively. The VRIRB is subject to a variable rate
of interest generally keyed to short-term nontaxable rates, and has a seven day
call feature. The interest rate at June 30, 1996 was 4.2%. The proceeds from
these bonds were used to fund the construction of the Company's Nashua, New
Hampshire facility and the purchase of machinery and equipment. The VRIRB is
payable in full on September 1, 2004 and is guaranteed by a bank standby letter
of credit (through August 15, 1998) for which substantially all of the Company's
assets are pledged as collateral.
In December 1993, upon expiration of the standby letter of credit for
the $2,500,000 FRIRB, the bonds were redeemed and the letter of credit was drawn
upon, repaying the bondholders in full. The Company borrowed against certain
keyman insurance contracts to satisfy the resulting obligations to its banks.
On June 30, 1994, the Company entered into a new credit facility with
its bank which provides the Company with total credit of approximately
$7,900,000, including approximately $5,400,000 in the form of a stand-by letter
of credit for the Company's $5,000,000 VRIRB, and a $2,500,000 revolving line of
credit for working capital purposes. The stand-by letter of credit has a term of
five years with a fee of 1% per year and the revolving line of credit carries an
interest rate of prime rate plus 1% with a fee of 1/8% on the unused portion.
The credit facility is collateralized by substantially all of the assets of the
Company. At June 30, 1996, the entire $2,500,000 was outstanding against the
revolving line of credit. The average balance outstanding during 1996 amounted
to $1,250,000. The interest rate on the revolving line at June 30, 1996 was
9.25%.
During 1996, the Company borrowed $1,000,000, in the form of a demand
note with its bank, for working capital purposes to supplement the revolving
line of credit which was fully borrowed. The note is payable on demand and bears
interest at prime plus 1% (9.25% at June 30, 1996) and is collateralized by
substantially all of the assets of the Company. In addition, during 1996, the
Company borrowed $800,000 in the form of a installment note with its bank in
order to finance the capital expansion of its in-house machine shop. The note,
which is payable upon demand, is being amortized in 59 monthly installments of
$16,899 with a final payment on January 25, 2001 of $21,151. This note bears
interest at 9.75% and is collateralized by the machinery and equipment acquired.
At June 30, 1996, the balance on this note was $748,000.
37
<PAGE> 40
In addition, the Company, through its wholly-owned foreign subsidiaries,
has various short-term facilities with local banks totaling approximately
$2,000,000 at June 30, 1996. No borrowings were made against these short-term
facilities during 1996. The weighted average interest rates during the year on
these facilities ranged from 8.3% to 12.9% and the interest rates at June 30,
1996 ranged from 7.0% to 11.5%.
F. COMMITMENTS AND CONTINGENCIES
The Company has entered into operating leases for office space and
equipment. Future minimum lease payments for the five years subsequent to fiscal
1996 amount to: $421,000 in 1997; $154,000 in 1998; $106,000 in 1999; $99,000 in
2000; and $92,000 in 2001. Rent expense under operating leases amounted to
$459,000 in 1996, $336,000 in 1995 and $349,000 in 1994. The Company also leases
approximately 11,000 square feet of its headquarters in Nashua to a third party.
Due to increasing space needs, the Company has terminated the lease, effective
October 1, 1996, in exchange for payment to the tenant of $100,000, which will
be charged to operations during fiscal 1997. The Company will receive minimum
lease payments of $28,000 in 1997.
During 1995, the Company acquired $210,000 in computer hardware and
software under a capital lease. The lease has a term of 36 months and expires in
July 1998. The Company made payments totaling $81,000 in 1996 and will make
future lease payments of $81,000 in 1997 and $7,000 in 1998.
As part of the sale in June 1990 of the Company's former UK subsidiary,
AF Technologies, the Company agreed to provide a guarantee of the lease of AF
Technologies' facility. On June 26, 1992, the Company entered into a new
agreement with the landlord of the property, whereby the Company would provide a
British Pound Sterling ([pound]) 300,000 guarantee, over the next ten years, for
a new tenant under the lease, allowing AF to vacate the premises and relocate to
a less expensive location. On July 2, 1992, the Company deposited [pound]300,000
into an escrow account, which currently earns interest at a rate of 2.2%,
pursuant to the terms of the guarantee and was recorded as restricted cash at
June 30, 1996. The Company will be relieved of this obligation before the ten
year expiration date upon the new tenant attaining certain minimum pretax
operating results over any three consecutive year period. The Company has
provided a reserve in the amount of $265,000 against this restricted cash in
recognition of the uncertainty surrounding the ultimate collectibility of the
cash.
At June 30, 1996, the Company had possible indemnification liabilities
to its former CFO in connection with the single premium, paid-up life insurance
policies described in Note C. The unrecorded portion of this contingent
liability ranges from a nominal amount to $150,000.
G. COMMON STOCK
At June 30, 1996, an aggregate of 943,575 shares of the Company's common
stock had been reserved for issuance in connection with the nonqualified and
incentive stock option plans, the restricted stock plan and stock purchase
warrants outstanding (See Note H).
Shareholder Rights Plan
- -----------------------
38
<PAGE> 41
On August 3, 1994, the Board of Directors of the Company adopted a
Shareholder Rights Agreement (the "Rights Agreement"). Pursuant to the terms of
the Rights Agreement, the Board of Directors declared a dividend distribution of
one Preferred Stock Purchase Right (a "Right") for each outstanding share of
common stock of the Company to stockholders of record as of the close of
business on August 19, 1994 (the "Record Date"). Each Right entitles the
registered holder to purchase from the Company, upon the occurrence of certain
events, a unit consisting of one one-thousandth of a share (a "Unit") of Series
A Junior Participating Cumulative Preferred Stock, par value $0.001 per share
(the "Preferred Stock"), at a cash exercise price of $25.00 per Unit (the
"Exercise Price"), subject to adjustment.
The rights currently are not exercisable and are attached to and trade
with the outstanding shares of common stock. Under the Rights Agreement, the
Rights become exercisable (i) if a person becomes an "acquiring person" by
acquiring 15% or more of the outstanding shares of common stock, (ii) if a
person who owns 10% or more of the common stock is determined to be an "adverse
person" by the Board of Directors, or (iii) if a person commences a tender offer
that would result in that person owning 15% or more of the common stock. In the
event that a person becomes an "acquiring person" or is declared an "adverse
person" by the Board, each holder of a Right (other than the acquiring person or
the adverse person) would be entitled to acquire such number of shares of the
Company's preferred stock which are equivalent to such number of shares of
common stock having a value of twice the then-current exercise price of the
Right. If the Company is acquired in a merger or other business combination
transaction after any such event, each holder of a Right would then be entitled
to purchase, at the then-current exercise price, shares of the acquiring
company's common stock having a value of twice the exercise price of the Right.
Until a Right is exercised, the holder will have no rights as a
stockholder of the Company (beyond those as an existing stockholder), including
the right to vote or to receive dividends. While the distribution of the Rights
will not be taxable to stockholders or to the Company, stockholders may,
depending upon the circumstances, recognize taxable income in the event that the
Rights become exercisable for Units, other securities of the Company, other
consideration or for common stock of an acquiring company.
H. EMPLOYEE BENEFIT PLANS
Employee Stock Purchase Plan
- ----------------------------
An aggregate of 35,000 shares of common stock is issuable pursuant to
the Company's 1983 Employee Stock Purchase Plan, dated July 21, 1983 (the "Stock
Purchase Plan"). Under the Stock Purchase Plan, non-officer eligible employees
may acquire common stock through authorized payroll deductions.
The Stock Purchase Plan provides for shares to be purchased four times a
year, on the last business day of each quarterly payment period at a purchase
price of 85% of the fair market value of the shares on the lower of the first or
the last day of the fiscal quarter. The maximum number of shares that an
eligible participant is allowed to purchase in any year is the lesser of 1,000
shares or the number of whole shares equal in value to 15% of the participant's
compensation divided by the option price. The Stock Purchase Plan will terminate
when all, or substantially all, of the unissued shares of common stock reserved
for the purpose of the plan have been purchased, or earlier if the plan is
terminated by the Board of Directors. As of June 30, 1996, 31,727 shares of the
Company's common stock had been purchased pursuant to this plan.
39
<PAGE> 42
Non-Qualified and Incentive Stock Option Plans
- ---------------------------------------------
The Company has a Non-Qualified Stock Option Plan for its employees
which was adopted in 1984 (the "1984 Plan"). During fiscal year 1995, the 1984
Plan's term expired and, accordingly, no further shares may be granted
thereunder. The exercise price of the options granted under the plan is not less
than the fair market value of the stock at the date of the grant. Under the 1984
Plan, 800,000 shares of the Company's common stock were made available for
grant.
In June 1995, the Board of Directors adopted the Ferrofluidics
Corporation 1995 Non-Qualified Stock Option Plan (the "1995 Plan") with the
intention of replacing options that had been granted under the 1984 Plan which
were expected to expire during 1996. Neither directors nor employees of the
Company who are subject to the provisions of Section 16 of the Securities and
Exchange Act of 1934 are eligible to participate in the 1995 Plan and awards
under the 1995 Plan consist only of nonqualified options to purchase shares of
the Company's common stock. Under the 1995 Plan, 100,000 shares of the Company's
common stock were made available for grant.
On June 13, 1995, the Board of Directors adopted, and the stockholders
approved, the Ferrofluidics Corporation 1995 Stock Option and Incentive Plan
(the "1995 Incentive Plan"). Awards under the 1995 Incentive Plan include stock
options (both incentive options and nonqualified options), stock appreciation
rights, restricted and unrestricted stock, performance shares and dividend
equivalent rights. The Board of Directors has authorized 750,000 shares of the
Company's common stock for issuance pursuant to the 1995 Incentive Plan.
<TABLE>
Generally, options granted by the Company are exercisable at rates of
25% to 100% per year commencing one or two years after the date of the grant,
and expire from five to ten years from the grant date. A summary of the changes
in outstanding stock options under the three plans discussed above for the three
years ended June 30, 1996 is set forth below:
<CAPTION>
Shares Price Range
------------------------------------------------------- ------------
"1995
"1984 Plan" "1995 Plan" Incentive Plan" Total
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OUTSTANDING, JUNE 30, 1993 379,855 - - 379,855 $5.00-$16.76
Granted - - - -
Canceled/expired (125,275) - - (125,275) 5.00- 16.00
Exercised (812) - - (812) 5.00- 9.13
-------------------------------------------------------
OUTSTANDING, JUNE 30, 1994 253,768 - - 253,768 $5.00-$16.76
Granted - - 255,550 255,550 9.13- 9.63
Canceled/expired (13,640) - - (13,640) 5.00- 16.76
Exercised - - - -
-------------------------------------------------------
OUTSTANDING, JUNE 30, 1995 240,128 - 255,550 495,678 $5.00-$15.25
Granted 4,125 71,921 21,000 97,046 9.75- 10.25
Canceled/expired (56,324) (1,000) (57,324) 5.00- 9.13
Exercised - - - -
-------------------------------------------------------
OUTSTANDING, JUNE 30, 1996 187,929 71,921 275,550 535,400 $5.00-$15.25
=======================================================
</TABLE>
40
<PAGE> 43
Restricted Stock Plan
- ---------------------
In 1994, the Board of Directors adopted, and the stockholders approved,
the Ferrofluidics Corporation 1994 Restricted Stock Plan (the "Restricted Stock
Plan"). Persons eligible to participate in the Restricted Stock Plan are those
full or part-time officers and other employees of the Company and its
subsidiaries who are responsible for or contribute to the management, growth or
profitability of the Company and its subsidiaries. Under the Restricted Stock
Plan, the maximum number of shares of common stock that may be reserved and
authorized for issuance by the Board of Directors cannot exceed 5% of the total
number of outstanding shares of common stock at the time of any award of
restricted stock. At June 30, 1996, the Board of Directors had reserved and
authorized 302,000 shares of common stock for issuance, which represents not
more than 5% of the outstanding shares of common stock as of that date. The
grants are valued at the fair market value of the common stock on the date of
grant and vest at a rate of 33-1/3% per year commencing one year from the date
of grant. The charge to operations in connection with these restricted stock
awards for the years ended June 30, 1996, 1995 and 1994 amounted to $467,000,
$290,000 and $48,000, respectively.
<TABLE>
A summary of the changes in outstanding shares of restricted stock for
the years ended June 30, 1996, 1995 and 1994 is set forth below:
<CAPTION>
Shares
------
<S> <C>
OUTSTANDING, JUNE 30, 1993 -
Granted 143,264
Forfeited (22,168)
Vested -
-------
OUTSTANDING, JUNE 30, 1994 121,096
Granted 102,580
Forfeited (5,940)
Vested (38,385)
-------
OUTSTANDING, JUNE 30, 1995 179,351
Granted 40,000
Forfeited (3,400)
Vested (70,878)
-------
OUTSTANDING, JUNE 30, 1996 145,073
=======
</TABLE>
Stock Purchase Warrants
- -----------------------
Stock purchase warrants have been granted by the Board of Directors to
officers, directors, key employees and to consultants of the Company, with the
exercise price of the warrant not less than the fair market value of the stock
on the date of grant. At June 30, 1996, 1995 and 1994, 259,829 shares, 281,267
shares and 296,142 shares, respectively, of common stock were reserved for
issuance upon the exercise of outstanding stock purchase warrants at prices, and
subject to expiration dates, as set forth below.
41
<PAGE> 44
<TABLE>
<CAPTION>
S h a r e s
---------------------------------------------------
JUNE 30, 1996 June 30, 1995 June 30, 1994 Price Expiration Date
------------- ------------- ------------- ----- ---------------
<S> <C> <C> <C> <C>
- - 1,250 $13.28 July 11, 1994
- - 8,500 18.00 November 13, 1994
- - 2,500 12.28 November 30, 1994
- - 2,625 13.13 May 22, 1995
- 10,000 10,000 8.50 September 3, 1995
- 9,188 9,188 5.00 October 10, 1995
- 4,250 4,250 10.00 March 13, 1996
- 12,500 12,500 9.13 April 30, 1996
3,000 3,000 3,000 14.50 September 29, 1996
37,329 37,329 37,329 5.00 October 10, 1996
17,500 17,500 17,500 14.00 February 4, 1997
17,500 17,500 17,500 14.50 February 24, 1997
40,000 40,000 40,000 15.60 February 24, 1997
47,500 47,500 47,500 15.63 June 18, 1997
62,500 62,500 62,500 11.75 August 31, 1997
20,000 20,000 20,000 11.00 October 27, 1997
14,500 - - 9.75 October 10, 2000
------- ------- -------
259,829 281,267 296,142
======= ======= =======
</TABLE>
<TABLE>
A summary of the changes in outstanding stock purchase warrants for the
three years ended June 30, 1996 is set forth below:
<CAPTION>
Shares Price Range
------ -----------
<S> <C> <C>
OUTSTANDING, JUNE 30, 1993 405,392 $ 5.00 - $18.00
Granted - -
Canceled/expired (109,250) 10.00 - 16.00
Exercised - -
--------
OUTSTANDING, JUNE 30, 1994 296,142 $ 5.00 - $18.00
Granted - -
Canceled/expired (14,875) 12.28 - 18.00
Exercised - -
--------
OUTSTANDING, JUNE 30, 1995 281,267 $ 5.00 - $15.63
Granted 14,500 9.75
Canceled/expired (35,938) 5.00 - 10.00
Exercised - -
--------
OUTSTANDING, JUNE 30, 1996 259,829 $ 5.00 - $15.63
========
</TABLE>
At June 30, 1996, 247,329 warrants are exercisable at prices ranging from
$5.00 - $15.63. During 1997, an additional 12,500 warrants will become
exercisable at $11.75.
Deferred Income (401-K) Plan
- ----------------------------
The Company has an elective employees savings plan for all eligible
employees. Ferrofluidics Corporation Tax Savings and Deposit and Investment Plan
(the "401-k Plan") is a qualified trust under Section 401(a) of the Internal
Revenue Code and is, therefore, exempt from federal income taxes under the
provisions of Section 501(a). The 401-k Plan allows an employee to contribute
between 1% and 20% of his or her salary and bonus to the 401-k Plan, up to a
maximum of $9,500 (for
42
<PAGE> 45
calendar 1996) per year (subject to annual adjustments
based on increases in the consumer price index over the 1988 base year). In
December 1993, the Board of Directors approved an annual Company match,
effective January 1, 1994, of 50% of an employee's contribution of up to 4% of
the employee's salary. In 1996 and 1995, the Company made matching contributions
to the Plan, and corresponding charges to operations, in the amounts of $208,000
and $92,000 respectively. No contributions were made in fiscal 1994. The 401-k
Plan consists of two equity funds, a fixed income fund, a balanced fund and a
money market fund, and participants may choose to split their investments among
funds.
I. INDUSTRY SEGMENT AND GEOGRAPHICAL AREA INFORMATION
The Company's operations are conducted in three industry segments: component
products utilizing ferrofluid technology, including ferrofluids for audio
loudspeakers and nondestructive testing and sensing, rotary sealing devices and
bearings (collectively, "components"); crystal growing systems and related
products; and thin film deposition products manufactured and/or distributed by
AP&T. Sales between segments and geographic enterprises are accounted for at
cost plus a reasonable profit.
Segment operating profit (loss) includes all costs and expenses directly
related to the segment. General corporate expenses principally represent the
costs associated with managing all industry segments and cannot be specifically
identified with a particular industry segment. General corporate assets consist
primarily of cash and cash equivalents, restricted cash, notes receivable,
deferred income tax assets, certain fixed assets, and other non-current assets,
including cash surrender value of life insurance, net of loans, in the amount of
$1,731,000 and $2,976,000 at June 30, 1996 and 1995, respectively.
For the year ended June 30, 1996, two affiliated foreign customers, Posco
Huls Corporation ("PHC") and Taisil Electronic Materials Corporation ("Taisil"),
accounted for $24,603,000 and $14,254,000, respectively, of product revenues in
the Crystal Growing Systems industry segment. For the years ended June 30, 1995
and 1994, PHC accounted for $6,209,000 and $5,667,000 of revenues, respectively,
in the Crystal Growing Systems industry segment.
The following table presents financial information for the Company's industry
segments for the years ended June 30, 1996, 1995 and 1994. All amounts are
expressed in thousands of dollars.
43
<PAGE> 46
<TABLE>
<CAPTION>
FERROFLUIDIC PRODUCTS
---------------------
CRYSTAL
GROWING THIN FILM
COMPONENTS SYSTEMS DEPOSITION CONSOLIDATED
---------- ------- ---------- ------------
<S> <C> <C> <C> <C>
Year ended June 30, 1996:
- -------------------------
Sales to unaffiliated customers $18,827 $45,741 $8,399 $72,967
=======
Segment operating profit 2,854 4,957 387 $ 8,198
General corporate expenses (3,261)
-------
Operating Income $ 4,937
=======
Net identifiable assets 15,843 19,018 2,777 $37,638
General corporate assets 6,001
-------
Total Assets $43,639
=======
Depreciation and amortization 794 172 179
Capital expenditures 1,790 414 218
Year ended June 30, 1995:
- -------------------------
Sales to unaffiliated customers $14,119 $11,782 $8,248 $34,149
Royalty revenues 6 - - 6
------- ------- ------ -------
Total net sales and revenues 14,125 11,782 8,248 $34,155
=======
Segment operating profit 1,682 646 200 $ 2,528
General corporate expenses (2,741)
Nonrecurring operating income, net 1,156
-------
Operating Income $ 943
=======
Net identifiable assets 12,594 16,191 3,585 $32,370
General corporate assets 7,159
-------
Total Assets $39,529
=======
Depreciation and amortization 715 168 132
Capital expenditures 1,885 73 138
Year ended June 30, 1994:
- -------------------------
Sales to unaffiliated customers $11,285 $ 8,612 $6,482 $26,379
Royalty revenues 82 - - 82
------- ------- ------ -------
Total net sales and revenues 11,367 8,612 6,482 $26,461
=======
Segment operating profit (loss) (1,449) (2,018) (434) $(3,901)
General corporate expenses (2,653)
Nonrecurring operating income (expense), net (3,108)
-------
Operating Loss $(9,662)
=======
Net identifiable assets 16,310 6,819 3,589 $26,718
General corporate assets 5,790
-------
Total Assets $32,508
=======
Depreciation and amortization 823 148 179
Capital expenditures 494 127 164
</TABLE>
44
<PAGE> 47
<TABLE>
The following is a summary of certain financial data by geographic areas:
<CAPTION>
UNITED STATES EUROPEAN JAPANESE
OPERATIONS OPERATIONS OPERATIONS ELIMINATIONS TOTAL
---------- ---------- ---------- ------------ -----
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1996
- ------------------------
Sales to unaffiliated domestic customers $18,887 - - - $18,887
Sales to unaffiliated foreign customers 40,835 $12,702 $ 543 - 54,080
Sales to subsidiaries 3,922 - 25 $(3,947) -
------- ------- ----- ------- -------
Total net sales and revenues 63,644 12,702 568 (3,947) $72,967
=======
Geographic operating profit (loss) 8,459 587 (829) (19) $ 8,198
General corporate expenses (3,261)
-------
Operating Income $ 4,937
=======
Net identifiable assets 33,393 4,208 1,450 (1,413) $37,638
General corporate assets 6,001
-------
Total Assets $43,639
Year ended June 30, 1995:
- -------------------------
Sales to unaffiliated domestic customers $12,737 - - - $12,737
Sales to unaffiliated foreign customers 9,919 $11,201 $ 292 - 21,412
Sales to subsidiaries l,691 - 2 $(1,693) -
Royalty and other revenues 6 - - - 6
------- ------- ----- ------- -------
Total net sales and revenues 24,353 11,201 294 (1,693) $34,155
=======
Geographic operating profit (loss) 2,882 510 (826) (38) $ 2,528
General corporate expenses (2,741)
Nonrecurring operating income, net 1,156
-------
Operating Income $ 943
=======
Net identifiable assets 28,107 4,917 247 (901) $32,370
General corporate assets 7,159
-------
Total Assets $39,529
=======
Year ended June 30, 1994:
- -------------------------
Sales to unaffiliated domestic customers $10,150 - - - $10,150
Sales to unaffiliated foreign customers 6,778 $ 9,354 $ 97 - 16,229
Sales to subsidiaries l,360 - 48 $(1,408) -
Royalty and other revenues 82 - - - 82
------- ------- ----- ------- -------
Total net sales and revenues 18,370 9,354 145 (1,408) $26,461
=======
Geographic operating profit (loss) (2,358) (620) (949) 26 $(3,901)
General corporate expenses (2,653)
Nonrecurring operating gains and charges, net (3,108)
-------
Operating Income $(9,662)
=======
Net identifiable assets 21,952 5,127 236 (597) $26,718
General corporate assets 5,790
-------
Total Assets $32,508
</TABLE>
45
<PAGE> 48
J. LITIGATION
Shareholder Class Action Lawsuits
- ---------------------------------
In August and September 1993, four actions were brought against the
Company and certain of its officers and former officers. Each of these actions
was sought on behalf of classes of persons who purchased the Company's
securities during the period from March 30, 1992 through September 3, 1993.
These actions alleged violations of federal securities law, fraud and deceit and
negligent misrepresentation based upon alleged misrepresentations in certain
statements made by the Company in various public documents. The actions were
consolidated in the federal district court in Massachusetts on March 9, 1994.
On June 21, 1994, a Consolidated Amended Complaint was filed in the
actions. The Consolidated Amended Complaint alleged, among other things, that
certain statements were false and misleading because they failed to disclose
that the Company allegedly made payments to obtain favorable coverage and
reports concerning its operations and prospects and because they allegedly
misstated the Company's earnings in various respects during its 1992 and 1993
fiscal years. The Complaint set forth claims for liability under the federal
securities laws on behalf of all purchasers of the common stock of the Company
during the period from June 30, 1991 through January 31, 1994, and, in addition,
set forth certain claims against the Company's Directors on a derivative basis.
On June 23, 1994 the parties entered into a Stipulation of Settlement
which provided for the settlement of all of the actions and a release of all
claims which were made or could have been made in the litigation in the class
period extending from June 30, 1991 through January 31, 1994, and including the
derivative claims as well. In exchange, the Company agreed to issue 600,000
shares of its common stock and other defendants agreed to pay $3,110,000 in
cash. The settlement of these actions on these terms was approved by the United
States District Court for the District of Massachusetts on August 19, 1994, and
the settlement became effective upon the expiration of the appeal period from
the Court's Order of Approval, on September 23, 1994.
The Company recorded its portion of the settlement and related expenses
totaling $3,525,000 as a charge to nonrecurring operating charges in fiscal 1994
($3,150,000 representing the value of the 600,000 shares of the Company's common
stock on August 19, 1994 and $375,000 representing legal and other costs).
Securities and Exchange Commission
- ----------------------------------
On February 19, 1993, the Company received an informal inquiry from the
SEC requesting that the Company provide the SEC with certain documents
concerning publicity relating to the Company for the period of January 1, 1992
to February 19, 1993. In August 1993, the SEC issued an order directing a
private investigation to determine whether certain unnamed persons have violated
or caused the Company to violate the federal securities laws. Among the areas of
inquiry identified in the order is whether publicity about the Company,
including research reports, was published without fully disclosing consideration
given or received therefore. The order also indicates that the inquiry will
examine possible manipulation by certain unnamed persons of the Company's
securities, payment in connection therewith, and failure to disclose such
activities in public filings made by the Company (including the financial
statements contained or incorporated therein), as well as possible nondisclosure
of transactions with the Company in which such persons may have had a material
interest. Since the inception of this investigation, the Company has cooperated
fully with the SEC's inquiry.
46
<PAGE> 49
Former Management
- -----------------
In March 1993, a special committee of three outside directors was
appointed by the Company's Board of Directors to conduct an internal
investigation, with the assistance of counsel retained by that committee. After
investigating the matters raised in the SEC's inquiry and related issues, the
special committee called a special meeting of the Board of Directors, to be held
on August 30, 1993, for the purpose of considering the removal of Dr. Ronald
Moskowitz as Chairman, Chief Executive Officer, and all other offices he held
with the Company on the grounds that he had taken various improper actions. At
the August 30 meeting, Dr. Moskowitz was granted a three week period, until
September 20, 1993, to respond to the special committee's charges. On September
15, 1993, five days before the Board of Directors was to reconvene to consider
the removal of Dr. Moskowitz, the Company announced that he had retired from the
Company and that the Company and Dr. Moskowitz had entered into a Termination
Agreement that superseded his previous employment agreement. Pursuant to the
agreement, the former CEO was to receive payments aggregating $725,000 over the
four years ended June 30, 1997 for making himself available to be used, at the
Company's sole discretion, as a senior advisor to the Company during that
period. During this period, the former CEO was to be available to render such
services as the Company may reasonably request, provided, however, that he was
to receive the agreed upon payments whether or not the Company elects to use his
services. The Company charged the entire $725,000 to nonrecurring operating
charges in fiscal 1994. During 1996, 1995 and 1994, the Company made cash
payments under this agreement totaling $37,000, $200,000 and $275,000,
respectively.
In September 1995, the Company and the former CEO entered into a
agreement (the "Settlement Agreement") to amend the Termination Agreement and
accelerate the termination of his relationship with the Company. Among other
things, the Settlement Agreement required (i) the extension of the former CEO's
covenant not to compete to June 30, 2000, (ii) a payment to the former CEO of
$196,000 in full satisfaction of the $213,000 in remaining payments owed him
under the Termination Agreement, (iii) a payment to the former CEO of $150,000
in full satisfaction of a $200,000 legal indemnification, and (iv) the transfer,
to the former CEO, of the Company's ownership in two single premium, paid-up
life insurance policies on his life (See Note C).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The information called for by this Item 9 was previously reported in a
Current Report on Form 8-K filed with the SEC on November 28, 1995, as amended
by a Current Report on Form 8-K/A filed with the SEC on December 8, 1995, and in
a Current Report on Form 8-K filed with the SEC on December 14, 1995.
47
<PAGE> 50
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The information required to be furnished by this Item is set
forth under the captions "Information Regarding Directors," "Executive Officers"
and "Executive Compensation" in the Proxy Statement and is incorporated herein
by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required to be furnished by this Item is set forth under
the captions "Information Regarding Directors" and "Executive Compensation" in
the Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required to be furnished by this Item is set forth under
the caption "Principal and Management Stockholders" in the Proxy Statement and
is incorporated herein by reference. Solely for the purpose of calculating the
aggregate market value of the voting stock held by non-affiliates of the
Registrant as set forth on the cover of this report it has been assumed that
directors and executive officers of the Registrant are affiliates.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required to be furnished by this Item is set forth under
the caption "Certain Relationships and Related Transactions" in the Proxy
Statement and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The consolidated financial statements of the Company have been included
in Item 8 herein.
(a) FINANCIAL STATEMENT SCHEDULES
for the years ended June 30, 1996, 1995 and 1994 PAGE
Schedule II - Valuation and Qualifying Accounts 55
48
<PAGE> 51
Financial statement schedules other than that listed above are omitted
because they are either not required or not applicable or the required
information is shown in the financial statements or notes thereto. The above
financial schedule does not include discontinued operations.
(b) REPORTS ON FORM 8-K
-------------------
No reports on Form 8-K have been filed by the Company during the last quarter of
the year ended June 30, 1996.
(c) EXHIBITS
--------
3.1 Restated Articles of Organization of the Registrant (incorporated by
reference to Exhibit 2.1 to the Registrant's Registration Statement on
Form S-18 (Registration No. 2-72394-B), filed May 19, 1981 (the "1981
Registration Statement")
3.2 Articles of Amendment, filed November 19, 1980, increasing the
authorized shares of Common Stock (incorporated by reference to Exhibit
2.2 to the 1981 Registration Statement)
3.3 Articles of Amendment, filed February 19, 1981, further increasing the
authorized shares of Common Stock (incorporated by reference to Exhibit
2.3 to the 1981 Registration Statement)
3.4 Articles of Amendment, filed November 21, 1985, further increasing the
authorized shares of Common Stock (incorporated by reference to Exhibit
4E to the Registrant's Registration Statement on Form S-2 (Registration
No. 33-1000), filed October 18, 1985)
3.5 Articles of Amendment, filed November 25, 1987, eliminating certain
liabilities of directors and reducing the vote required to effect
certain corporate actions (incorporated by reference to Exhibit 4E to
the Registrant's Form 10-K for the year ended 6/30/88)
3.6 Articles of Amendment, filed November 14, 1989, effecting reverse stock
split and amending terms of Preferred Stock (incorporated by reference
to Exhibit 3.6 to the Registrant's Registration Statement on Form S-3
(Registration No. 33-33736), filed March 5, 1990 (the "1990 Registration
Statement")
3.7 By-Laws of the Registrant (incorporated by reference to Exhibit 4G to
the Registrant's Form 10-K for the year ended 6/30/90)
3.8 Certificate of Vote of Directors Establishing the Series A Junior
Participating Cumulative Preferred Stock, par value $.001 per share,
dated August 3, 1994.(1)
4.1 Shareholder Rights Agreement, dated as of August 3, 1994, between the
Registrant and American Stock Transfer and Trust Company (incorporated
by reference to Exhibit 4.1 to Registrant's current report on Form 8-K
dated August 3, 1994)
10.1 Revolving Loan and Security Agreement, dated June 30, 1994, by and among
the Registrant and Bank of New Hampshire.(1)
10.2 Letter of Credit Reimbursement Agreement, dated June 30, 1994 made by
Ferrofluidics Corporation in favor of Bank of New Hampshire.(1)
49
<PAGE> 52
10.3 Guarantee Agreement, dated June 30, 1994, between the Registrant, the
Business Finance Authority of the State of New Hampshire and Bank of New
Hampshire.(1)
10.4 Interbank Letter of Credit Agreement, dated June 30, 1994, between Bank
of New Hampshire, a New Hampshire trust company and BayBank, a
Massachusetts trust company.(1)
10.5 Master Term Note, dated June 30, 1994, by and among the Registrant and
Bank of New Hampshire.(1)
10.6 Ferrofluidics Corporation Amended and Restated 1994 Restricted Stock
Plan.(3)
10.7 Stipulation of Settlement, dated June 23, 1994, IN RE FERROFLUIDICS
CORPORATION SECURITIES LITIGATION, Civil Action No. 93-11976PBS, United
States District Court, District of Massachusetts.(1)
10.8 Order and Final Approval of Settlement and Final Judgment, dated August
19, 1994, IN RE FERROFLUIDICS CORPORATION SECURITIES LITIGATION, Civil
Action No. 93-11976PBS, United States District Court, District of
Massachusetts.(1)
10.9 Release and Settlement Agreement, dated April 13, 1994, between the
Registrant and Molecular BioQuest, Incorporated.(1)
10.11 Amendment Agreement, dated December 23, 1987, to 1985 Letter of Credit
Reimbursement Agreement and 1984 Letter of Credit Reimbursement
Agreement between the Registrant and Fleet National Bank (incorporated
by reference to Exhibit 10I to the Registrant's Form 10-K for the year
ended 6/30/89)
10.14 Loan and Trust Agreement, dated September 1, 1984, among the Registrant,
The Industrial Development Authority of the State of New Hampshire and
State Street Bank and Trust Company, as Trustee (incorporated by
reference to Exhibit 10 to the Registrant's Form 10-Q for the quarter
ended September 30, 1984)
10.15 Assignment, Assumption and Amendment Agreement, dated June 18, 1991, by
and among the Registrant, Chase Manhattan Capital Markets Corporation
and Fleet Norstar Securities, Inc. (incorporated by reference to Exhibit
10OO to the Registrant's Form 10-K for the year ended 6/30/91)
10.16 Amendment Agreement, dated October 13, 1990, to 1984 Letter of Credit
Reimbursement Agreement and 1985 Letter of Credit Reimbursement
Agreement (incorporated by reference to Exhibit 10ZZ to the Registrant's
Form 10-K for the year ended 6/30/90)
50
<PAGE> 53
10.17 Escrow, Pledge and Security Agreement dated January 31, 1991, made by
the Registrant in favor of State Street Bank and Trust Company, as
Trustee, and Fleet National Bank (incorporated by reference to Exhibit
10.36 to the 1991 Registration Statement)
10.18 Amended and Restated Employment Agreement, dated May 17, 1996, between
the Registrant and Paul F. Avery, Jr.(3)
10.19 Amended and Restated Employment Agreement, dated May 17, 1996, between
the Registrant and Salvatore J. Vinciguerra.(3)
10.21 License Agreement, dated February 27, 1987, between the Registrant,
Ferrofluidics GmbH and Ferrofluidics, Ltd. (incorporated by reference to
the Exhibit to the Registrant's Form 8-K dated 5/13/87)
10.22 Deed relating to repayment of a promissory note dated August 25, 1994 by
and among the Registrant, Rumpack Limited and Arbuthnot Latham and Co.,
Ltd.(1)
10.23 Release and discharge of certain guarantees and debentures and a Stock
Pledge Agreement dated August 25, 1994 by and among the Registrant and
Rumpack Limited and Arbuthnot Latham and Co., Ltd.(1)
10.24 Ferrofluidics Corporation Amended and Restated 1995 Stock Option and
Incentive Plan.(3)
10.25 Ferrofluidics Corporation Amended and Restated 1995 Non-Qualified Stock
Option Plan.(3)
10.35 Form of Stock Purchase Agreement between the Registrant and certain
Selling Stockholders (incorporated by reference to Exhibit 10.53 to
Amendment No. 1, filed April 9, 1992, to the Registrant's Registration
Statement on Form S-3 (Registration No. 33-46888), filed April 1, 1992
(the "April 1992 Registration Statement")
10.36 Form of Stock Purchase Agreement between the Registrant and certain
Selling Stockholders (incorporated by reference to Exhibit 10.54 to
Amendment No. 2, filed April 30, 1992, to the April 1992 Registration
Statement)
10.37 Form of Stock Purchase Agreement between the Registrant and certain
Selling Stockholders (incorporated by reference to Exhibit 10.55 to
Amendment No. 2 to the April 1992 Registration Statement)
10.55 Termination Agreement, dated November 25, 1993, between Registrant and
Fuji Seiki, Inc. for the purpose of termination of The Patent, Technical
Information and Trademark License Agreement, dated March 30, 1993,
between the Registrant and Fuji Seiki, Inc.(2)
10.56 Preferred Vendor Agreement, dated November 30, 1993, between the
Registrant and Fuji Seiki, Inc.(2)
10.57 Patent, Technical Information and Trademark License Agreement, dated
November 30, 1993, between the Registrant and Fuji Seiki, Inc.(2)
51
<PAGE> 54
10.58 Agreement, dated March 8, 1993, among the Registrant, Fuji Seiki, Inc.,
VSE Austria GmbH, and AP&T GmbH for the purchase of 80% of VSE GmbH by
AP&T GmbH.(2)
10.59 Letter Agreement, dated September 15, 1993, between the Registrant and
Dr. Ronald Moskowitz concerning Dr. Moskowitz' retirement from
Ferrofluidics.(2)
10.60 Employment Agreement, dated October 1, 1993, between the Registrant and
Paul F. Avery, Jr.(2)
10.61 Amendment No. 1 To Employment Agreement between the Registrant and Paul
F. Avery, Jr., dated November 15, 1993.(2)
10.62 Indemnification Agreement, dated October 1, 1993, between the Registrant
and Alvan F. Chorney.(2)
10.63 Indemnification Agreement, dated October 1, 1993, between the Registrant
and Stephen P. Morin.(2)
10.64 Severance Agreement dated October 1, 1993, between the Registrant and
Alvan F. Chorney.(2)
10.66 Amended and Restated Insurance Loan Agreement, dated June 30, 1991,
between the Registrant and Ronald Moskowitz (incorporated by reference
to Exhibit 10R to the Registrant's Form 10-K for the year ended 6/30/91)
10.67 Amended and Restated Insurance Loan Agreement, dated May 31, 1989,
between the Registrant and Frank Bloom (incorporated by reference to
Exhibit 10.37 to the 1990 Registration Statement)
10.68 Form of Common Stock Purchase Warrant -- directors and key employees
(incorporated by reference to Exhibit 10T to the Registrant's Form 10-K
for the year ended 6/30/88)
10.69 Form of Common Stock Purchase Warrant -- employees (incorporated by
reference to Exhibit 10U to the Registrant's Form 10-K for the year
ended 6/30/88)
10.70 1984 Non-Qualified Stock Option Plan, as amended through December 15,
1992.(2)
10.71 1983 Employee Stock Purchase Plan, as amended through December 14, 1990
(incorporated by reference to Exhibit 4 to Post-Effective Amendment No.
1, filed January 23, 1991, to the Registrant's Registration Statement on
Form S-8 (Registration No. 2-95090))
10.72 Settlement Agreement and Release, dated June 30, 1993, between Nippon
Ferrofluidics Corporation, Akira Yamamura, Koichi Goto, Yoshitada
Akahori, Tadao Ishizawa, Atsumi Nakamura, Nobuo Yamamura, past and
present members of NFC's Board of Directors and the Registrant.(2)
10.73 Stock Subscription Agreement, dated June 30, 1993 between the Registrant
and Nippon Ferrofluidics Corporation pursuant to the acquisition of
Nippon Ferrofluidics Corporation Common Stock by Ferrofluidics.(2)
52
<PAGE> 55
10.74 Superseding 1993 Fluids License Agreement, dated June 30, 1993, between
the Registrant and Nippon Ferrofluidics Corporation.(2)
11 Computation of Per Share Earnings(3)
21 Subsidiaries of the Registrant(3)
23.1 Consent of Ernst & Young LLP(3)
23.2 Consent of Coopers & Lybrand L.L.P.(3)
(1) Incorporated by reference to the designated exhibit of the Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30, 1994.
(2) Incorporated by reference to the designated exhibit of the Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30, 1993.
(3) Filed herewith
53
<PAGE> 56
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, this 16th day of
September, 1996.
FERROFLUIDICS CORPORATION
By: /s/ Salvatore J. Vinciguerra
-------------------------------------
Salvatore J. Vinciguerra
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated and on the dates indicated.
Signatures Title Dated signed
- ---------- ----- ------------
/s/ Paul F. Avery, Jr. Chairman of the Board, 9/16/96
- ------------------------------ Treasurer (Principal Financial
Paul F. Avery, Jr. Officer)
/s/ Salvatore J. Vinciguerra Chief Executive Officer, 9/16/96
- ------------------------------ President
Salvatore J. Vinciguerra
/s/ Stephen P. Morin Controller 9/16/96
- ------------------------------ (Principal Accounting Officer)
Stephen P. Morin
/s/ Stephen B. Hazard Director 9/16/96
- ------------------------------
Stephen B. Hazard
/s/ Dean Kamen Director 9/16/96
- ------------------------------
Dean Kamen
/s/ Howard F. Nichols Director 9/16/96
- ------------------------------
Howard F. Nichols
/s/ Robert P. Rittereiser Director 9/16/96
- ------------------------------
Robert P. Rittereiser
/s/ Dennis R. Stone Director 9/16/96
- ------------------------------
Dennis R. Stone
54
<PAGE> 57
FERROFULIDICS CORPORATION
<TABLE>
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
June 30, 1996, June 30, 1995 and June 30, 1994
<CAPTION>
Column A Column B Column C Column D Column E
Balance at Charged Charged Balance at
Beginning to Costs to Other End of
Description of Period and Expenses Accounts Deductions Period
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1996:
(a)Amounts deducted from the assets
to which they apply:
Reserve for doubtful accounts - trade $ 357,000 $ 28,000 - $ 65,000 $ 320,000
Reserve for excess and obsolete inventory 948,000 240,000 - 226,000 962,000
Reserve for rent guarantee 275,000 - - 10,000 265,000
Reserve against cash surrender value 1,407,000 - - 1,407,000 -
(b)Other Reserves:
Warranty reserve 384,000 - - 93,000 291,000
Self-Insurance reserve 103,000 10,000 - - 113,000
Sales related reserve 447,000 - - - 447,000
Total $3,921,000 $ 250,000 - $1,773,000 $2,398,000
Year ended June 30, 1995:
(a)Amounts deducted from the assets
to which they apply:
Investment valuation reserve $ 600,000 - - $ 600,000 -
Reserve for doubtful accounts - trade 705,000 $ 34,000 - 382,000 $ 357,000
Reserve for uncollectible note receivable 432,000 - - 432,000 -
Reserve for excess and obsolete inventory 1,372,000 195,000 - 619,000 948,000
Reserve for rent guarantee 275,000 - - - 275,000
Reserve against cash surrender value 1,407,000 - - - 1,407,000
(b)Other Reserves:
Performance bond reserve 300,000 - - 300,000 -
Insurance Indemnification reserve 150,000 - - 150,000 -
Warranty reserve 359,000 55,000 - 30,000 384,000
Self-Insurance reserve 81,000 22,000 - - 103,000
Sales related reserve 397,000 50,000 - - 447,000
Reserve for employee benefit plan 66,000 - - 66,000 -
Total $6,144,000 $ 356,000 - $2,579,000 $3,921,000
Year ended June 30, 1994:
(a)Amounts deducted from the assets
to which they apply:
Investment valuation reserve - $ 600,000 - - $ 600,000
Reserve for doubtful accounts - trade $ 779,000 - - $ 74,000 705,000
Reserve for uncollectible note receivable 260,000 172,000 - - 432,000
Reserve for excess and obsolete inventory 1,090,000 282,000 - - 1,372,000
Reserve for rent guarantee 447,000 - - 172,000 275,000
Reserve against cash surrender value 1,407,000 - - - 1,407,000
(b)Other Reserves:
Performance bond reserve - 300,000 - - 300,000
Insurance Indemnification reserve 150,000 - - - 150,000
Warranty reserve 150,000 209,000 - - 359,000
Self-Insurance reserve 92,000 - - 11,000 81,000
Sales related reserve 397,000 - - - 397,000
Reserve for employee benefit plan - 66,000 - - 66,000
Total $4,772,000 $1,629,000 - $ 257,000 $6,144,000
</TABLE>
55
<PAGE> 1
Exhibit 10.6
FERROFLUIDICS CORPORATION
AMENDED AND RESTATED 1994 RESTRICTED STOCK PLAN
SECTION 1. General Purpose of the Plan; Definitions.
----------------------------------------
The name of the plan is the Ferrofluidics Corporation Amended and Restated
1994 Restricted Stock Plan (the "Plan"). The purpose of the Plan is to encourage
and enable the officers and employees of Ferrofluidics Corporation (the
"Company") and its Subsidiaries, upon whose judgment, initiative and efforts the
Company largely depends for the successful conduct of its business, to acquire a
proprietary interest in the Company. It is anticipated that providing such
persons with a direct stake in the Company's welfare will assure a closer
identification of their interests with those of the Company, thereby stimulating
their efforts on the Company's behalf and strengthening their desire to remain
with the Company.
The following terms shall be defined as set forth below:
"Act" means the Securities Exchange Act of 1934, as amended.
"Administrator" means the Board or the Committee.
"Award" means an award granted pursuant to Section 5.
"Board" means the Board of Directors of the Company.
"Cause" means and shall be limited to a vote of the Board resolving
that the participant should be dismissed as a result of (i) any material
breach by the participant of any agreement to which the participant and the
Company are parties, (ii) any act (other than retirement) or omission to
act by the participant which may have a material and adverse effect on the
business of the Company or any Subsidiary or on the participant's ability
to perform services for the Company or any Subsidiary, including, without
limitation, the commission of any crime (other than ordinary traffic
violations), or (iii) any material misconduct or neglect of duties by the
participant in connection with the business or affairs of the Company or
any Subsidiary.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"Committee" means a committee of two or more Non-Employee Directors
appointed by the Board to administer the Plan.
"Disability" means disability as set forth in Section 22(e)(3) of the
Code.
<PAGE> 2
"Effective Date" means the date on which the Plan is approved by the
Board or, if approved by the shareholders, the date of such shareholder
approval, as set forth in Section 12.
"Fair Market Value" on any given date means the last reported sale
price at which Stock is traded on such date or, if no Stock is traded on
such date, the most recent date on which Stock was traded, as reflected on
the principal stock exchange or, if applicable, any other national stock
exchange on which the Stock is traded or admitted to trading.
"Non-Employee Director" means a member of the Board who is a
"Non-Employee Director" within the meaning of Rule 16b-3(b)(3)(i)
promulgated under the Act, or any successor definition under said rule.
"Stock" means the Common Stock, $.004 par value per share, of the
Company, subject to adjustments pursuant to Section 3.
"Subsidiary" means any corporation or other entity (other than the
Company) in any unbroken chain of corporations or other entities, beginning
with the Company, if each of the corporations or entities (other than the
last corporation or entity in the unbroken chain) owns stock or other
interests possessing 50% or more of the total combined voting power of all
classes of stock or other interests in one of the other corporations or
entities in the chain.
SECTION 2. Administration of Plan; Authority to Select Participants and
------------------------------------------------------------
Determine Awards.
-----------------
(a) POWERS OF ADMINISTRATOR. The Administrator shall have the power and
authority to grant Awards consistent with the terms of the Plan, including the
power and authority:
(i) to select the officers and other employees of the Company and
its Subsidiaries to whom Awards may from time to time be
granted;
(ii) to determine the time or times of grant, and the extent, if
any, of Awards granted to any one or more participants;
(iii) to determine the number of shares to be covered by any Award;
(iv) to determine and modify the terms and conditions, including
restrictions, not inconsistent with the terms of the Plan, of
any Award, which terms and conditions may differ among
individual Awards and participants, and to approve the form of
written instruments evidencing the Awards;
2
<PAGE> 3
(v) to determine whether, to what extent, and under what
circumstances Stock and other amounts payable with respect to
an Award shall be deferred either automatically or at the
election of the participant and whether and to what extent the
Company shall pay or credit amounts equal to interest (at rates
determined by the Administrator) or dividends or deemed
dividends on such deferrals; and
(vi) to adopt, alter and repeal such rules, guidelines and practices
for administration of the Plan and for its own acts and
proceedings as it shall deem advisable; to interpret the terms
and provisions of the Plan and any Award (including related
written instruments); to make all determinations it deems
advisable for the administration of the Plan; to decide all
disputes arising in connection with the Plan; and to otherwise
supervise the administration of the Plan.
All decisions and interpretations of the Administrator shall be binding on
all persons, including the Company and Plan participants.
(b) DELEGATION OF AUTHORITY TO GRANT AWARDS. The Administrator, in its
discretion, may delegate to the Chief Executive Officer of the Company all or
part of the Administrator's authority and duties with respect to Awards,
including the granting thereof, to individuals who are not subject to the
reporting and other provisions of Section 16 of the Act. The Administrator may
revoke or amend the terms of a delegation at any time but such action shall not
invalidate any prior actions of the Administrator's delegate or delegates that
were consistent with the terms of the Plan.
SECTION 3. Shares Issuable under the Plan; Mergers; Substitution.
-----------------------------------------------------
(a) SHARES ISSUABLE. The maximum number of shares of Stock reserved and
available for issuance under the Plan shall be such aggregate number of shares
of Common Stock as does not exceed five percent (5%) of the total number of
outstanding shares of Common Stock (which limit shall be applied in the case of
each Award on the basis of the total number of outstanding shares of Common
Stock at the time of such Award), subject to adjustment as provided for in
Section 3(b) hereof. For purposes of this limitation, the shares of Stock
underlying any Awards which are forfeited, canceled, reacquired by the Company,
satisfied without the issuance of Stock or otherwise terminated (other than by
exercise) shall be added back to the shares of Stock available for issuance
under the Plan so long as the participants to whom such Awards had been
previously granted received no benefits of ownership of the underlying shares of
Stock to which the Award related. Subject to such overall limitation, shares may
be issued up to such maximum number pursuant to any Award. Shares issued under
the Plan may be authorized but unissued shares or shares reacquired by the
Company.
3
<PAGE> 4
(b) STOCK DIVIDENDS, MERGERS, ETC. In the event of a stock dividend, stock
split or similar change in capitalization affecting the Stock, the Administrator
shall make appropriate adjustments in (i) the number and kind of shares of stock
or securities on which Awards may thereafter be granted, (ii) the number and
kind of shares remaining subject to outstanding Awards, and (iii) the purchase
price, if any, in respect of such shares. In the event of any merger,
consolidation, dissolution or liquidation of the Company, the Administrator in
its sole discretion may, as to any outstanding Awards, make such substitution or
adjustment in the aggregate number of shares reserved for issuance under the
Plan and in the number and purchase price (if any) of shares subject to such
Awards as it may determine and as may be permitted by the terms of such
transaction, or accelerate, amend or terminate such Awards upon such terms and
conditions as it shall provide (which, in the case of the termination of the
vested portion of any Award, shall require payment or other consideration which
the Administrator deems equitable in the circumstances).
(c) SUBSTITUTE AWARDS. The Administrator may grant Awards under the Plan in
substitution for stock and stock based awards held by employees of another
corporation who concurrently become employees of the Company or a Subsidiary as
the result of a merger or consolidation of the employing corporation with the
Company or a Subsidiary or the acquisition by the Company or a Subsidiary of
property or stock of the employing corporation. The Administrator may direct
that the substitute awards be granted on such terms and conditions as the
Administrator considers appropriate in the circumstances.
SECTION 4. Eligibility.
-----------
Participants in the Plan will be such full or part-time officers and other
employees of the Company and its Subsidiaries who are responsible for or
contribute to the management, growth or profitability of the Company and its
Subsidiaries and who are selected from time to time by the Administrator, in its
sole discretion.
SECTION 5. Restricted Stock Awards.
-----------------------
(a) NATURE OF STOCK AWARD. The Administrator may grant Awards to any
employees of the Company or any Subsidiary. An Award entitles the recipient to
acquire, at no cost or for a purchase price determined by the Administrator,
shares of Stock subject to such restrictions and conditions, if any, as the
Administrator may determine at the time of grant. Conditions may be based on
continuing employment and/or achievement of pre-established performance goals
and objectives. In addition, an Award may be granted to an employee by the
Administrator in lieu of a cash bonus due to such employee pursuant to any other
plan of the Company. The Administrator may at any time waive such conditions or
restrictions or accelerate the date or dates on which such conditions or
restrictions will lapse.
(b) ACCEPTANCE OF AWARD. A participant who is granted an Award shall have
no rights with respect to such Award unless the participant shall have accepted
the Award within
4
<PAGE> 5
60 days (or such shorter date as the Administrator may specify) following the
award date by making payment to the Company, if required, by certified or bank
check or other instrument or form of payment acceptable to the Administrator in
an amount equal to the specified purchase price, if any, of the shares covered
by the Award and by executing and delivering to the Company a written instrument
that sets forth the terms and conditions of the Award in such form as the
Administrator shall determine.
(c) RIGHTS AS A SHAREHOLDER. Upon complying with Section 5(b) above, a
participant shall have all the rights of a shareholder with respect to the Stock
including voting and dividend rights, subject to any non-transferability
restrictions and Company repurchase or forfeiture rights described in this
Section 5 and subject to such other conditions contained in the written
instrument evidencing the Award. Unless the Administrator shall otherwise
determine, certificates evidencing shares of Stock subject to restrictions shall
remain in the possession of the Company until such shares are vested as provided
in Section 5(e) below.
(d) RESTRICTIONS. Shares of Stock which are issued under restrictions
established by the Administrator may not be sold, assigned, transferred, pledged
or otherwise encumbered or disposed of except as specifically provided herein or
in the written instrument evidencing the Award. In the event of termination of
employment by the Company and its Subsidiaries for any reason (including death,
Disability, and for Cause), the Company shall have the right, at the discretion
of the Administrator, to repurchase shares of the Stock with respect to which
conditions have not lapsed at their purchase price, or to require forfeiture of
such shares to the Company if acquired at no cost, from the participant or the
participant's legal representative. The Company must exercise such right of
repurchase or forfeiture not later than the 90th day following such termination
of employment (unless otherwise specified in the written instrument evidencing
the Award).
(e) VESTING OF STOCK. The Administrator at the time of grant may specify
the date or dates and/or the attainment of pre-established performance goals,
objectives and other conditions on which the non-transferability of the Stock
and the Company's right of repurchase or forfeiture shall lapse. Subsequent to
such date or dates and/or the attainment of such pre-established performance
goals, objectives and other conditions, the shares on which all restrictions
have lapsed shall no longer be restricted and shall be deemed "vested."
(f) WAIVER, DEFERRAL AND REINVESTMENT OF DIVIDENDS. The written instrument
evidencing the Award may require or permit the immediate payment, waiver,
deferral or investment of dividends paid on the Stock.
SECTION 6. Tax Withholding.
---------------
(a) PAYMENT BY PARTICIPANT. Each participant shall, no later than the date
as of which the value of an Award or of any Stock or other amounts received
thereunder first becomes includable in the gross income of the participant for
Federal income tax purposes,
5
<PAGE> 6
pay to the Company, or make arrangements satisfactory to the Administrator
regarding payment of any Federal, state, or local taxes of any kind required by
law to be withheld with respect to such income. The Company and its Subsidiaries
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the participant.
(b) PAYMENT IN SHARES. Subject to approval by the Administrator, a
participant may elect to have such tax withholding obligation satisfied, in
whole or in part, by (i) authorizing the Company to withhold from shares of
Stock to be issued pursuant to any Award a number of shares with an aggregate
Fair Market Value (as of the date the withholding is effected) that would
satisfy the withholding amount due, or (ii) transferring to the Company shares
of Stock owned by the participant with an aggregate Fair Market Value (as of the
date the withholding is effected) that would satisfy the withholding amount due.
SECTION 7. Transfer, Leave of Absence, Etc.
-------------------------------
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or from
the Company to a Subsidiary, or from one Subsidiary to another; or
(b) an approved leave of absence for military service or sickness, or for
any other purpose approved by the Company, if the employee's right to
re-employment is guaranteed either by a statute or by contract or under the
policy pursuant to which the leave of absence was granted or if the
Administrator otherwise so provides in writing.
SECTION 8. Amendments and Termination.
--------------------------
The Board may at any time amend or discontinue the Plan and the
Administrator may at any time amend or cancel any outstanding Award (or provide
substitute Awards at the same purchase price or with no purchase price, but such
price, if any, must satisfy the requirements which would apply to the substitute
or amended Award if it were then initially granted under this Plan) for the
purpose of satisfying changes in law or for any other lawful purpose, but no
such action shall adversely affect rights under any outstanding Award without
the holder's consent.
SECTION 9. Status of Plan.
--------------
With respect to any payments in Stock or other consideration not received
by a participant, a participant shall have no rights greater than those of a
general creditor of the Company unless the Administrator shall otherwise
expressly determine in connection with any Award or Awards. In its sole
discretion, the Administrator may authorize the creation of
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<PAGE> 7
trusts or other arrangements to meet the Company's obligations to deliver Stock
or make payments hereunder, provided that the existence of such trusts or other
arrangements is consistent with the provision of the foregoing sentence.
SECTION 10. Change of Control Provisions.
----------------------------
Upon the occurrence of a Change of Control as defined in this Section 10:
(a) Restrictions and conditions on all Awards shall automatically be deemed
waived, and the recipients of such Awards shall become entitled to receipt of
the Stock subject to such Awards.
(b) The Administrator may at any time prior to a Change of Control waive
any restrictions or conditions of any Award to the extent it shall in its sole
discretion determine.
(c) "Change of Control" shall mean the occurrence of any one of the
following events:
(i) any "person" (as such term is used in Sections 13(d) and 14(d)(2)
of the Act) becomes a "beneficial owner" (as such term is defined in Rule
13d-3 promulgated under the Act) (other than the Company, any trustee or
other fiduciary holding securities under an employee benefit plan of the
Company, or any corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company), directly or indirectly, of securities
of the Company representing 20% or more of the combined voting power of the
Company's then outstanding securities; or
(ii) persons who, as of the Effective Date, constituted the Board (the
"Incumbent Board") cease for any reason, including without limitation as a
result of a tender offer, proxy contest, merger or similar transaction, to
constitute at least a majority of the Board, provided that any person
becoming a director of the Company subsequent to the Effective Date whose
election was approved by at least a majority of the directors then
comprising the Incumbent Board shall, for purposes of this Plan, be
considered a member of the Incumbent Board; or
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation or other entity,
other than (a) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) more than 50% of the combined
voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation or (b) a
merger or consolidation effected to implement a recapitalization of the
Company (or similar
7
<PAGE> 8
transaction) in which no "person" (as hereinabove defined) acquires more
than 50% of the combined voting power of the Company's then outstanding
securities; or
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets.
SECTION 11. General Provisions.
------------------
(a) NO DISTRIBUTION; COMPLIANCE WITH LEGAL REQUIREMENTS. The Administrator
may require each person acquiring shares pursuant to an Award to represent to
and agree with the Company in writing that such person is acquiring the shares
without a view to distribution thereof.
No shares of Stock shall be issued pursuant to an Award until all
applicable securities law and other legal and stock exchange requirements have
been satisfied. The Administrator may require the placing of such stop-orders
and restrictive legends on certificates for Stock and Awards as it deems
appropriate.
(b) DELIVERY OF STOCK CERTIFICATES. Delivery of stock certificates to
participants under this Plan shall be deemed effected for all purposes when the
Company or a stock transfer agent of the Company shall have delivered such
certificates in the United States mail, addressed to the participant, at the
participant's last known address on file with the Company.
(c) OTHER COMPENSATION ARRANGEMENTS; NO EMPLOYMENT RIGHTS. Nothing
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, including trusts, subject to stockholder approval if
such approval is required; and such arrangements may be either generally
applicable or applicable only in specific cases. The adoption of the Plan and
the grant of Awards do not confer upon any employee any right to continued
employment with the Company or any Subsidiary.
SECTION 12. Effective Date of Plan.
----------------------
The Plan shall become effective upon approval by the Board and may be
subject to the approval by the holders of a majority of the shares of capital
stock of the Company present or represented and entitled to vote at a meeting of
stockholders; provided, however, that such stockholder approval shall not affect
the validity or effectiveness of the Plan.
8
<PAGE> 9
SECTION 13. Governing Law.
-------------
This Plan shall be governed by Massachusetts law except to the extent such
law is preempted by federal law.
9
<PAGE> 1
Exhibit 10.18
AMENDED AND RESTATED
--------------------
EMPLOYMENT AGREEMENT
--------------------
This Amended and Restated Employment Agreement (the "Agreement"), dated May
17, 1996 (the "Effective Date"), is entered into by and between Ferrofluidics
Corporation (the "Company"), a Massachusetts corporation with its principal
place of business at 40 Simon Street, Nashua, New Hampshire, and Paul F. Avery,
Jr. ("Avery"), of 178 Drinkwater Road, Kensington, New Hampshire, and amends and
restates the Employment Agreement dated April 1, 1995 between Avery and the
Company (the "1995 Employment Agreement").
WHEREAS, the Company and Avery desire to amend and restate the terms of the
1995 Employment Agreement in their entirety;
WHEREAS, the operations of the Company are a complex matter requiring
direction and leadership in a variety of areas;
WHEREAS, Avery possesses the experience and expertise to provide the
direction and leadership required by the Company; and
WHEREAS, subject to the terms and conditions hereinafter set forth, the
Company, therefore, wishes to establish the terms of employment of Avery as its
Chairman of the Board of Directors and Treasurer, and Avery agrees to so
establish such terms of this employment;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises, terms, provisions and conditions set forth in this Agreement, the
parties hereby agree:
1. EMPLOYMENT. Subject to the terms and conditions set forth in this
Agreement, the Company hereby offers and Avery hereby accepts employment on the
terms and conditions set forth in this Agreement.
2. EFFECTIVE DATE AND TERM. The commencement date (the "Commencement Date")
of this Agreement shall be April 1, 1995. Subject to the provisions of Section
5, the initial term (the "Initial Term") of Avery's employment hereunder shall
be from the Commencement Date to the second anniversary of the Commencement Date
(the "Initial Expiration Date"); PROVIDED, HOWEVER, that this Agreement shall
automatically be extended for successive one (1) year terms commencing on the
Initial Expiration Date and ending on each subsequent anniversary thereof (each
subsequent annual period being referred to as a "Subsequent Term"), unless
either Avery or the Employer provides sixty (60) days' written notice prior to
the Initial Expiration Date (or sixty (60) days' written notice prior to the
last day of any Subsequent Term) of his or its intention, as the case may be,
not to extend the term of this Agreement.
<PAGE> 2
3. CAPACITY AND PERFORMANCE.
a. Avery shall be employed by the Company as its Chairman of
the Board of Directors and Treasurer, and shall have all powers and duties
consistent with those positions, subject to the direction of the Company's Board
of Directors.
b. Avery shall devote his best efforts, business judgment,
skill and knowledge to the advancement of the business and interests of the
Company and its affiliates, and to the discharge of his duties and
responsibilities hereunder. In accordance with the foregoing, Avery shall not
engage in any other business activity, except as may be approved by the Board of
Directors; PROVIDED, HOWEVER, that nothing herein shall be construed as
preventing Avery from:
(1) devoting a portion of his efforts, from time to time, to
certain other business interests with which he is involved,
provided that such activity does not materially impair
Avery's ability to discharge his obligations and
responsibilities as Chief Executive Officer of the Company
hereunder;
(2) investing his assets in a manner not otherwise prohibited by
this Agreement, and in such form or manner as shall not
require any material services on his part in the operations
or affairs of the companies or other entities in which such
investments are made;
(3) serving on the board of directors of any company, provided
that he shall not be required to render any material
services with respect to the operations or affairs of any
such company; or
(4) engaging in religious, charitable or other community or
non-profit activities which do not impair his ability to
fulfill his duties and responsibilities under this
Agreement.
c. Except for required travel on the Company's business and
except for attendance at meetings of the Board of Directors of the Company
and/or its affiliates, Avery shall not be required to work on a regular basis at
any location outside of Hillsborough County in the State of New Hampshire.
4. COMPENSATION AND BENEFITS.
a. BASE SALARY. For the first twelve (12) month period of the Initial
Term, the Company shall pay Avery a base salary at an annual rate (the "Base
Salary") equal to $225,000 per year, payable in accordance with the payroll
practices of the Company for its
2
<PAGE> 3
executives. For the second twelve (12) month period of the Initial Term and for
the twelve (12) month period of any Subsequent Term, such Base Salary shall
equal $200,000.
b. MATTERS CONCERNING RESTRICTED STOCK AND STOCK OPTIONS.
<TABLE>
(1) On the Commencement Date, Avery was awarded 15,000 shares of
Common Stock of the Company as a restricted stock award under the Company's 1994
Restricted Stock Plan (the "1994 Plan") to be vested as follows:
<CAPTION>
Cumulative
Percentage of Shares Percentage
Vesting Date Becoming Vested Vested
------------ --------------- ------
<S> <C> <C>
January 1, 1996 33 1/3% 33 1/3%
January 1, 1997 33 1/3% 66 2/3%
January 1, 1998 33 1/3% 100%
</TABLE>
As provided in Section 10 of the 1994 Plan, all of the shares subject to the
restricted stock award described above shall vest upon the occurrence of a
"Change of Control" as such term is defined in the 1994 Plan.
(2) On April 5, 1994, Avery was awarded 25,000 shares of Common Stock
of the Company as a restricted stock award under the 1994 Plan and on June 29,
1995, Avery was awarded an option to purchase 65,000 shares of Common Stock of
the Company under the Company's 1995 Stock Option and Incentive Plan (the "1995
Plan").
<TABLE>
(3) On the Effective Date, Avery will be awarded an option to purchase
65,000 shares of Common Stock of the Company under the 1995 Plan to be vested as
follows:
<CAPTION>
Cumulative
Percentage of Shares Percentage
Vesting Date Becoming Vested Vested
------------ --------------- ------
<S> <C> <C>
May 17, 1998 25% 25%
May 17, 1999 25% 50%
May 17, 2000 25% 75%
May 17, 2001 25% 100%
</TABLE>
As provided in Section 15 of the 1995 Plan, all of the shares subject to the
option described above shall vest upon the occurrence of a "Change of Control"
as such term is defined in the 1995 Plan.
3
<PAGE> 4
(4) Notwithstanding any provision to the contrary contained in any other
agreement, the restricted stock and the options described in this Section 4b
shall be subject to the following termination provisions:
(i) TERMINATION DUE TO DEATH. If Avery's employment terminates by
reason of death, any such restricted stock held by Avery shall become fully
vested and any such option held by Avery shall become fully vested and
exercisable and may thereafter be exercised by Avery's legal representative or
legatee until the expiration date of such option.
(ii) TERMINATION FOR CAUSE. If Avery's employment terminates for
Cause (as defined in the 1994 Plan or the 1995 Plan, as applicable), any shares
of restricted stock that shall not have vested as of the date of such
termination shall either be repurchased by the Company or forfeited by Avery,
and any such option held by Avery shall immediately terminate and be of no
further force and effect.
(iii) OTHER TERMINATION. If Avery's employment terminates for any
reason other than death or for Cause but including without limitation by reason
of Disability, Retirement or without Cause (as such terms are defined in the
1994 Plan or the 1995 Plan, as applicable), any such restricted stock held by
Avery shall become fully vested and any such option held by Avery shall become
fully vested and exercisable and may thereafter be exercised by Avery until the
expiration date of such option.
c. LIFE INSURANCE. During the period from the Commencement Date
through the Initial Expiration Date and through the last day of any Subsequent
Term, the Company shall maintain a life insurance policy on the life of Avery in
the amount of two million dollars ($2,000,000) payable as directed by Avery;
provided, however, that the Company shall have no obligation to maintain such
policy at any time following the termination of Avery's employment pursuant to
Section 5d hereunder.
d. VACATIONS. Avery shall be entitled to the number of paid vacation
days to which he would be entitled in accordance with the Company's normal
vacation policy, to be taken at such times and intervals as shall be determined
by Avery, subject to the reasonable business needs of the Company.
e. RETIREMENT PLANS. Avery shall be entitled to participate in and
enjoy the benefit of the Company's retirement, supplementary retirement,
deferred compensation or similar plans, programs or arrangements as available to
the Company's management from time to time.
f. HEALTH, WELFARE AND FRINGE BENEFIT PLANS, ETC. Avery shall be
entitled to participate in and enjoy the benefit of all the health, medical,
dental, cafeteria, reimbursement, death (including life insurance), accident,
travel insurance, long-term disability, short-term disability, sick leave, other
leaves of absence, holidays and other similar
4
<PAGE> 5
welfare, fringe-benefit or employment-related plans, programs, arrangements,
policies or perquisites available to the Company's management from time to time.
Participation shall be subject to the terms of the applicable plan documents and
the discretion of the Board or any administrative or other committee provided
for in or contemplated by such plan. The Company may alter, modify, add to or
delete its employee benefit plans as they apply to the Company's management at
such times and in such manner as the Company determines to be appropriate,
without recourse by Avery.
g. BUSINESS EXPENSES. The Company shall pay or reimburse Avery for all
reasonable business expenses incurred or paid by him in the performance of his
duties and responsibilities hereunder, subject to any restrictions on such
expenses set by the Board and to such reasonable substantiation and
documentation as may be specified by the Company from time to time.
h. AUTO LEASE. The Company shall furnish Avery, during the Initial
Term and any Subsequent Term, with an automobile for his use, and the Company
shall pay or reimburse all costs incurred in connection therewith including,
without limitation, any leasing fees, insurance, operating or repairs costs, tax
obligations, etc. In the event that Avery's employment hereunder is terminated
pursuant to Section 5 hereof, he shall surrender the automobile to the Company
not later than thirty (30) days following the termination of such employment.
5. TERMINATION OF EMPLOYMENT AND SEVERANCE BENEFITS.
a. GENERAL SEVERANCE BENEFITS. If terminated for reasons other than as
set forth under Section 5b or 5d hereof, Avery shall be entitled to receive as a
severance payment an amount equal to the greater of (i) the aggregate Base
Salary which Avery would have received had he been employed by Employer through
the last day of the Initial Term or (ii) twelve (12) months' Base Salary at the
rate then in effect under this Agreement.
b. CHANGE OF CONTROL BENEFITS.
(1) If the Company undergoes a Change of Control (as defined
below) during the Initial Term or any Subsequent Term, and a Terminating Event
(as defined below) occurs within twenty-four (24) months after the date on which
such Change of Control occurs, Avery shall be entitled to receive an amount
equal to twenty-four (24) months' Base Salary at the rate then in effect under
this Agreement.
(2) "Change of Control" shall mean the occurrence of any one of
the following events:
(i) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Act"))
becomes a
5
<PAGE> 6
"beneficial owner" (as such term is defined in Rule 13d-3 promulgated under
the Act) (other than the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or any
corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of stock
of the Company), directly or indirectly, of securities of the Company
representing 15% or more of the combined voting power of the Company's then
outstanding securities; or
(ii) persons who, as of the Commencement Date, constituted
the Company's Board of Directors (the "Incumbent Board") cease for any
reason, including without limitation as a result of a tender offer, proxy
contest, merger or similar transaction, to constitute at least a majority
of the Board, provided that any person becoming a director of the Company
subsequent to the Commencement Date whose election was approved by at least
a majority of the directors then comprising the Incumbent Board shall, for
purposes of this Agreement, be considered a member of the Incumbent Board;
or
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation or other entity,
other than (a) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) more than 50% of the combined
voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation or (b) a
merger or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no "person" (as hereinabove
defined) acquires more than 50% of the combined voting power of the
Company's then outstanding securities; or
(iv) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets.
(3) A "Terminating Event" shall mean any voluntary or involuntary
termination of Avery's employment occurring subsequent to a Change in Control,
other than the termination of Avery's employment pursuant to Section 5d
hereunder.
c. DEATH OR DISABILITY. In the event Avery dies or becomes disabled
during the Initial Term or any Subsequent Term of this Agreement, his employment
hereunder shall automatically terminate. In such case, the Company shall pay to
Avery or his beneficiary, as the case may be, any earned but unpaid salary as of
the date of his death or disability. For the purpose of this Agreement,
"disability" shall refer to a situation in which Avery is totally
6
<PAGE> 7
disabled from performing his duties for the Company during a period of thirteen
(13) consecutive weeks.
If any question shall arise as to whether during any period Avery has
suffered disability, Avery may, and at the request of the Company will, submit
to the Company a certification in reasonable detail by a physician selected by
Avery or his guardian to whom the Company has no reasonable objection as to
whether Avery was so disabled and such certification shall for the purposes of
this Agreement be conclusive of the issue. If such question shall arise and
Avery shall fail to submit such certification, the Company's determination of
such issue shall be binding on Avery.
d. BY THE COMPANY FOR CAUSE. The Company may terminate Avery's
employment hereunder for cause at any time upon notice to Avery setting forth in
reasonable detail the nature of such case. The following, as determined by the
Board in its reasonable judgment, shall constitute "cause" for termination:
(1) Avery's falsification of the accounts of the Company,
embezzlement of funds of the Company or other material dishonesty with
respect to the Company or any of its affiliates; or
(2) Conviction of, or plea of nolo contendere to, a felony or
other crime involving moral turpitude (it being understood that violation
of a motor vehicle code does not constitute such a crime); or
(3) Conduct engaged in or action taken or omitted to be taken by
Avery which is in material breach of this Agreement; or
(4) Material failure to perform a substantial portion of Avery's
duties and responsibilities hereunder, which failure continues for more
than thirty (30) days after written notice given to Avery pursuant to a
vote of the Board of Directors, such vote to set forth in reasonable detail
the nature of such failure; or
(5) Gross or willful misconduct of Avery with respect to the
Company or any subsidiary or affiliate thereof.
Upon the giving of notice of termination of Avery's employment hereunder
for cause, the Company shall have no further obligation or liability to Avery,
other than the payment of salary earned and unpaid at the date of termination
and the contribution by the Company to the cost of Avery's participation
(subject to any required employee contribution by Avery under the terms of the
applicable plans) in the Company's group medical and dental insurance plans as
the same are in effect from time to time for so long as Avery is entitled to
continue such participation under applicable law and plan terms.
7
<PAGE> 8
e. BY THE COMPANY OTHER THAN FOR CAUSE. The Company may terminate
Avery's employment hereunder other than for cause at any time upon sixty (60)
days' written notice to Avery.
f. BY AVERY. Avery may terminate his employment hereunder at any time
upon sixty (60) days' written notice to the Company.
g. LIMITATION OF BENEFITS. It is the intention of Avery and of the
Company that no payments by the Company to or for the benefit of Avery under
this Agreement or any other agreement or plan pursuant to which he is entitled
to receive payments or benefits shall be non-deductible to the Company by reason
of the operation of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code") relating to parachute payments. Accordingly, and
notwithstanding any other provision of this Agreement or any such agreement or
plan, if by reason of the operation of said Section 280G, any such payments
exceed the amount which can be deducted by the Company, the payments which Avery
is entitled to receive under this Agreement shall be reduced by that amount
which exceeds the maximum amount deductible by the Company under Section 280G.
To the extent that payments exceeding such maximum deductible amount have been
made to or for the benefit of Avery, such excess payments shall be refunded to
the Company with interest thereon at the applicable federal rate determined
under Section 1274(d) of the Code, compounded annually, or at such other rate as
may be required in order that no such payments shall be non-deductible to the
Company by reason of the operation of said Section 280G.
6. WITHHOLDING. All payments made by the Company under this Agreement shall
be reduced by any tax or other amounts required to be withheld by the Company
under applicable law.
7. ASSIGNMENT. Neither the Company nor Avery may make any assignment of
this Agreement or any interest herein, by operation of law or otherwise, without
the prior written consent of the other; provided, however, that the Company may
assign its rights and obligations under this Agreement without the consent of
Avery in the event that the Company shall hereafter affect a reorganization,
consolidate with, or merge into, any other person or entity or transfer all of
its properties or assets to any other person or entity. This Agreement shall
insure to the benefit of and be binding upon the Company and Avery, their
respective successors, executors, administrators, heirs and permitted assigns.
8. SEVERABILITY. If any portion or provision of this Agreement shall to any
extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
8
<PAGE> 9
9. WAIVER. No waiver of any provision hereof shall be effective unless made
in writing and signed by the waiving party. The failure of either party to
require the performance of any term or obligation of this Agreement, or the
waiver by either party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
10. NOTICES. Any and all notices, requests, demands and other
communications provided for by this Agreement shall be in writing and shall be
deemed given when delivered by hand, telex or facsimile, or if mailed, five days
after mailing (two business days in the case of courier service), to the parties
as follows: to Avery at his last known address on the books of the Company and,
in the case of the Company, to its principal place of business, attention of
Clerk or to such other address as either party may specify by notice to the
other.
11. ENTIRE AGREEMENT. This Agreement and the Non-Disclosure/Non-Compete
Agreement executed by Avery constitute the entire agreement between the parties
and supersede all prior communications, agreements and understandings, written
or oral, with respect to the terms and conditions of Avery's employment.
12. AMENDMENT. This Agreement may be amended or modified only by a written
instrument signed by Avery and by an expressly authorized representative of the
Company.
13. HEADINGS. The headings and captions in this Agreement are for
convenience only and in no way define or describe the scope of or content of any
provision of this Agreement.
14. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be an original and all of which together shall
constitute one and the same instrument.
15. GOVERNING LAW. This is a New Hampshire contract and shall be construed
and enforced under and be governed in all respects by the laws of The State of
New Hampshire, without regard to the conflict of laws principles thereof.
[END OF TEXT]
9
<PAGE> 10
IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument
by the Company, by its duly authorized representative, and by Avery, as of the
date first above written.
FERROFLUIDICS CORPORATION
/s/ Paul F. Avery, Jr. By: /s/ Robert P. Rittereiser
- ---------------------------- ---------------------------------
Paul F. Avery, Jr. Robert P. Rittereiser
Chairman, Compensation Committee
of the Board of Directors
10
<PAGE> 1
Exhibit 10.19
AMENDED AND RESTATED
--------------------
EMPLOYMENT AGREEMENT
--------------------
This Amended and Restated Employment Agreement (the "Agreement"), dated May
17, 1996 (the "Effective Date"), is entered into by and between Ferrofluidics
Corporation (the "Company"), a Massachusetts corporation with its principal
place of business at 40 Simon Street, Nashua, New Hampshire, and Salvatore J.
Vinciguerra ("Vinciguerra"), of 5 Byfield Road, Newton, Massachusetts 02168, and
amends and restates the Employment Agreement dated April 1, 1995 (the
"Commencement Date") between Vinciguerra and the Company (the "1995 Employment
Agreement").
WHEREAS, the Company and Vinciguerra desire to amend and restate the terms
of the 1995 Employment Agreement in their entirety;
WHEREAS, the operations of the Company are a complex matter requiring
direction and leadership in a variety of areas;
WHEREAS, Vinciguerra possesses the experience and expertise to provide the
direction and leadership required by the Company; and
WHEREAS, subject to the terms and conditions hereinafter set forth, the
Company, therefore, wishes to establish the terms of employment of Vinciguerra
as its President and Chief Executive Officer, and Vinciguerra agrees to so
establish such terms of this employment;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises, terms, provisions and conditions set forth in this Agreement, the
parties hereby agree:
1) EMPLOYMENT. Subject to the terms and conditions set forth in this
Agreement, the Company hereby offers and Vinciguerra hereby accepts employment
on the terms and conditions set forth in this Agreement.
2) CAPACITY AND PERFORMANCE.
(a) Vinciguerra shall be employed by the Company as its President and
Chief Executive Officer, and shall have all powers and duties consistent with
those positions, subject to the direction of the Company's Board of Directors.
(b) Vinciguerra shall devote his best efforts, business judgment,
skill and knowledge to the advancement of the business and interests of the
Company and its affiliates,
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<PAGE> 2
and to the discharge of his duties and responsibilities hereunder. In accordance
with the foregoing, Vinciguerra shall not engage in any other business activity,
except as may be approved by the Board of Directors; PROVIDED, HOWEVER, that
nothing herein shall be construed as preventing Vinciguerra from:
(1) investing his assets in a manner not otherwise prohibited by
this Agreement, and in such form or manner as shall not
require any material services on his part in the operations
or affairs of the companies or other entities in which such
investments are made;
(2) serving on the board of directors of any company, provided
that he shall not be required to render any material
services with respect to the operations or affairs of any
such company; or
(3) engaging in religious, charitable or other community or
non-profit activities which do not impair his ability to
fulfill his duties and responsibilities under this
Agreement.
(c) Except for required travel on the Company's business Vinciguerra
shall not be required to work on a regular basis at any location outside of
Hillsborough County in the State of New Hampshire.
3) COMPENSATION AND BENEFITS.
(a) BASE SALARY. The Company shall pay Vinciguerra a base salary at an
annual rate equal to $250,000 per year, payable in accordance with the payroll
practices of the Company for its executives.
(b) MATTERS CONCERNING RESTRICTED STOCK AND STOCK OPTIONS.
<TABLE>
(1) On the Commencement Date, Vinciguerra was awarded 75,000
shares of Common Stock of the Company as a restricted stock award under the
Company's 1994 Restricted Stock Plan (the "1994 Plan") to be vested as follows:
<CAPTION>
Cumulative
Percentage of Shares Percentage
Vesting Date Becoming Vested Vested
------------ -------------------- -----------
<S> <C> <C>
January 1, 1996 33 1/3% 33 1/3%
January 1, 1997 33 1/3% 66 2/3%
January 1, 1998 33 1/3% 100 %
</TABLE>
2
<PAGE> 3
As provided in Section 10 of the 1994 Plan, the shares subject to the Restricted
Stock Award above shall vest upon the occurrence of a "Change of Control" as
such term is defined in the 1994 Plan.
(2) On June 29, 1995, Vinciguerra was awarded an option to
purchase 50,000 shares of Common Stock of the Company under the Company's 1995
Stock Option and Incentive Plan (the "1995 Plan").
<TABLE>
(3) On the Effective Date, Vinciguerra will be awarded an option
to purchase 50,000 shares of Common Stock of the Company under the 1995 Plan to
be vested as follows:
<CAPTION>
Cumulative
Percentage of Shares Percentage
Vesting Date Becoming Vested Vested
------------ -------------------- ----------
<S> <C> <C>
May 17, 1998 25% 25%
May 17, 1999 25% 50%
May 17, 2000 25% 75%
May 17, 2001 25% 100%
<FN>
As provided in Section 15 of the 1995 Plan, all of the shares subject to the
Option above shall vest upon the occurrence of a "Change of Control" as such
term is defined in the 1995 Plan.
</TABLE>
(4) Notwithstanding any provision to the contrary contained in
any other agreement, the restricted stock and the options described in this
Section 3(b) shall be subject to the following termination provisions:
(i) TERMINATION DUE TO DEATH. If Vinciguerra's employment
terminates by reason of death, any such restricted stock held by Vinciguerra
shall become fully vested and any such option held by Vinciguerra shall become
fully vested and exercisable and may thereafter be exercised by Vinciguerra's
legal representative or legatee until the expiration date of such option.
(ii) TERMINATION FOR CAUSE. If Vinciguerra's employment
terminates for Cause (as defined in the 1994 Plan or the 1995 Plan, as
applicable), any shares of restricted stock that shall not have vested as of the
date of such termination shall either be repurchased by the Company or forfeited
by Vinciguerra, and any such option held by Vinciguerra shall immediately
terminate and be of no further force and effect.
3
<PAGE> 4
(iii) OTHER TERMINATION BY COMPANY. If the Company
terminates Vinciguerra's employment for any reason other than death or for Cause
but including without limitation by reason of Disability, Retirement or without
Cause (as such terms are defined in the 1994 Plan or the 1995 Plan, as
applicable), or if Vinciguerra's employment is terminated as provided in Section
4 pursuant to a Terminating Event, any such restricted stock held by Vinciguerra
shall become fully vested and any such option held by Vinciguerra shall become
fully vested and exercisable and may thereafter be exercised by Vinciguerra
until the expiration date of such option.
(iv) OTHER TERMINATION. If Vinciguerra terminates his
employment for any reason other than death or as provided in the foregoing
clause (iii), any shares of restricted stock that shall not have vested as of
the date of such termination shall either be repurchased by the Company or
forfeited by Vinciguerra and any such option held by Vinciguerra may thereafter
be exercised by Vinciguerra, to the extent it was exercisable on the date of
such termination, for a period of three months or until the expiration date of
such option, whichever is longer.
(c) VACATIONS. Vinciguerra shall be entitled to the number of
paid vacation days to which he would be entitled in accordance with the
Company's normal vacation policy, to be taken at such times and intervals as
shall be determined by Vinciguerra, subject to the reasonable business needs of
the Company.
(d) RETIREMENT PLANS. Vinciguerra shall be entitled to
participate in and enjoy the benefit of the Company's retirement, supplementary
retirement, deferred compensation or similar plans, programs or arrangements as
available to the Company's management from time to time.
(e) HEALTH, WELFARE AND FRINGE BENEFIT PLANS, ETC. Vinciguerra
shall be entitled to participate in and enjoy the benefit of all the health,
medical, dental, cafeteria, reimbursement, death (including life insurance),
accident, travel insurance, long-term disability, short-term disability, sick
leave, other leaves of absence, holidays and other similar welfare,
fringe-benefit or employment-related plans, programs, arrangements, policies or
perquisites available to the Company's management from time to time.
Participation shall be subject to the terms of the applicable plan documents and
the discretion of the Board or any administrative or other committee provided
for in or contemplated by such plan. The Company may alter, modify, add to or
delete its employee benefit plans as they apply to the Company's management at
such times and in such manner as the company determines to be appropriate,
without recourse by Vinciguerra.
(f) BUSINESS EXPENSES. The Company shall pay or reimburse
Vinciguerra for all reasonable business expenses incurred or paid by him in the
performance of his duties and responsibilities hereunder, subject to any
restrictions on such expenses set by the Board
4
<PAGE> 5
and to such reasonable substantiation and documentation as may be specified by
the Company from time to time.
4) TERMINATION OF EMPLOYMENT AND SEVERANCE BENEFITS. If employed for 6
months or less following the Commencement Date, Vinciguerra shall be entitled to
receive as a severance payment if terminated for reasons other than "cause" an
amount equal to 6 months' salary, or 12 months' salary if employed for a period
of more than 6 months following the Commencement Date. If the Company undergoes
a Change of Control (as defined in the Plan) and a Terminating Event (as defined
below) occurs within a 24 month period of the date on which the Change of
Control occurs then Vinciguerra will be paid an amount equal to 18 months' base
salary at the rate then in effect under this Agreement. If Vinciguerra desires
to terminate his employment, then 8 weeks' notice must be given to the Company.
Vinciguerra's employment shall terminate under the following circumstances:
For purpose of this Agreement, a "Terminating Event"
shall mean (A) termination by the Company or its
successor entity of the employment of Vinciguerra for
any reason other than death, disability or cause
pursuant to Section 5(a) or (b) of this Agreement, or
(B) resignation of Vinciguerra upon the occurrence of
any of the following events: (1) there is a significant
change in the nature or scope of Vinciguerra's
responsibilities, authorities, powers, functions or
duties from the responsibilities, authorities, powers,
functions or duties exercised by Vinciguerra
immediately prior to the Change in Control or (2)
Vinciguerra is required to relocate outside
Hillsborough County, New Hampshire in order to maintain
his employment hereunder after the Change in Control or
(3) there is a decrease in the total annual
compensation payable by the surviving or successor
entity, as applicable, to Vinciguerra from the total
annual compensation paid to Vinciguerra by the Company
prior to the Change in Control.
(a) DEATH OR DISABILITY. In the event Vinciguerra dies or becomes
disabled during the term of this Agreement, his employment hereunder shall
automatically terminate. In such case, the Company shall pay to Vinciguerra or
his beneficiary, as the case may be, in addition to such amounts as may be
payable to Vinciguerra pursuant to Section 3(b) of this Agreement, any earned
but unpaid salary as of the date of his death or disability. For the purpose of
this Agreement, "disability" shall refer to a situation in which Vinciguerra is
totally disabled from performing his duties for the Company during a period of
13 consecutive weeks, in which case the Company's Chief Executive Officer may
terminate his employment, on account thereof.
5
<PAGE> 6
(b) BY THE COMPANY FOR CAUSE. The Company may terminate Vinciguerra's
employment hereunder for cause at any time upon notice to Vinciguerra setting
forth in reasonable detail the nature of such case. The following, as determined
by the Board in its reasonable judgment, shall constitute cause for termination:
(i) Vinciguerra's falsification of the accounts of the Company,
embezzlement of funds of the Company or other material dishonesty with
respect to the Company or any of its affiliates; or
(ii) Conviction of, or plea of nolo contendere to, a felony or
other crime involving moral turpitude (it being understood that violation
of a motor vehicle code does not constitute such a crime); or
(iii) Conduct engaged in or action taken or omitted to be taken
by Vinciguerra which is in material breach of this Agreement; or
(iv) Material failure to perform a substantial portion of
Vinciguerra's duties and responsibilities hereunder, which failure
continues for more than thirty days after written notice given to
Vinciguerra pursuant to a vote of the Board of Directors, such vote to set
forth in reasonable detail the nature of such failure; or
(v) Gross or willful misconduct of Vinciguerra with respect to
the Company or any subsidiary or affiliate thereof.
If any question shall arise as to whether during any period Vinciguerra has
suffered disability, Vinciguerra may, and at the request of the Company will,
submit to the Company a certification in reasonable detail by a physician
selected by Vinciguerra or his guardian to whom the Company has no reasonable
objection as to whether Vinciguerra was so disabled and such certification shall
for the purposes of this Agreement be conclusive of the issue. If such question
shall arise and Vinciguerra shall fail to submit such certification, the
Company's determination of such issue shall be binding on Vinciguerra.
Upon the giving of notice of termination of Vinciguerra's employment
hereunder for cause, the Company shall have no further obligation or liability
to Vinciguerra, other than the payment of salary earned and unpaid at the date
of termination and the contribution by the Company to the cost of Vinciguerra's
participation (subject to any required employee contribution by Vinciguerra
under the terms of the applicable plans) in the Company's group medical and
dental insurance plans as the same are in effect from time to time for so long
as Vinciguerra is entitled to continue such participation under applicable law
and plan terms.
(c) BY THE COMPANY OTHER THAN FOR CAUSE. The Company may terminate
Vinciguerra's employment hereunder other than for cause at any time upon notice
to Vinciguerra. In the event of such termination, the Company shall continue to
pay Vinciguerra
6
<PAGE> 7
the salary and other benefits specified by Section 3 and 4 of this Agreement, to
the end of its term.
(d) BY VINCIGUERRA. Vinciguerra may terminate his employment hereunder
at any time upon sixty (60) days' notice to the Company.
5) WITHHOLDING. All payments made by the Company under this Agreement shall
be reduced by any tax or other amounts required to be withheld by the Company
under applicable law.
6) ASSIGNMENT. Neither the Company nor Vinciguerra may make any assignment
of this Agreement or any interest herein, by operation of law or otherwise,
without the prior written consent of the other; provided, however, that the
Company may assign its rights and obligations under this Agreement without the
consent of Vinciguerra in the event that the Company shall hereafter affect a
reorganization, consolidate with, or merge into, any other person or entity or
transfer all of its properties or assets to any other person or entity. This
Agreement shall insure to the benefit of and be binding upon the Company and
Vinciguerra, their respective successors, executors, administrators, heirs and
permitted assigns.
7) SEVERABILITY. If any portion or provision of this Agreement shall to any
extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
8) WAIVER. No waiver of any provision hereof shall be effective unless made
in writing and signed by the waiving party. The failure of either party to
require the performance of any term or obligation of this Agreement, or the
waiver by either party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
9) NOTICES. Any and all notices, requests, demands and other communications
provided for by this Agreement shall be in writing and shall be deemed given
when delivered by hand, telex or facsimile, or if mailed, five days after
mailing (two business days in the case of courier service), to the parties as
follows: to Vinciguerra at his last known address on the books of the Company
and, in the case of the Company, to its principal place of business, attention
of Chairman of the Board or to such other address as either party may specify by
notice to the other.
10) ENTIRE AGREEMENT. This Agreement and the Non-Disclosure/Non-Compete
agreement to be signed by Vinciguerra and the Company constitute the entire
agreement
7
<PAGE> 8
between the parties and supersede all prior communications, agreements and
understandings, written or oral, with respect to the terms and conditions of
Vinciguerra's employment.
11) AMENDMENT. This Agreement may be amended or modified only by a written
instrument signed by Vinciguerra and by an expressly authorized representative
of the Company.
12) HEADINGS. The headings and captions in this Agreement are for
convenience only and in no way define or describe the scope of or content of any
provision of this Agreement.
13) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be an original and all of which together shall
constitute one and the same instrument.
14) GOVERNING LAW. This is a New Hampshire contract and shall be construed
and enforced under and be governed in all respects by the laws of The State of
New Hampshire, without regard to the conflict of laws principles thereof.
[END OF TEXT]
8
<PAGE> 9
IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument
by the Company, by its duly authorized representative, and by Vinciguerra, as of
the date first above written.
FERROFLUIDICS CORPORATION
/s/ Salvatore J. Vinciguerra By: /s/ Robert P. Rittereiser
- ----------------------------------- ----------------------------
Salvatore J. Vinciguerra Robert P. Rittereiser
Chairman, Compensation
Committee of the Board of
Directors
9
<PAGE> 1
Exhibit 10.24
FERROFLUIDICS CORPORATION
AMENDED AND RESTATED 1995 STOCK OPTION AND INCENTIVE PLAN
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS
----------------------------------------
The name of the plan is the Ferrofluidics Corporation Amended and Restated
1995 Stock Option and Incentive Plan (the "Plan"). The purpose of the Plan is to
encourage and enable the officers, employees, Directors and other key persons of
Ferrofluidics Corporation (the "Company") and its Subsidiaries upon whose
judgment, initiative and efforts the Company largely depends for the successful
conduct of its business to acquire a proprietary interest in the Company. It is
anticipated that providing such persons with a direct stake in the Company's
welfare will assure a closer identification of their interests with those of the
Company, thereby stimulating their efforts on the Company's behalf and
strengthening their desire to remain with the Company.
The following terms shall be defined as set forth below:
"Act" means the Securities Exchange Act of 1934, as amended.
"Administrator" means the Board or the Committee.
"Adoption Date" means the date on which the Plan is approved by the Board
of Directors as set forth in Section 17.
"Award" or "Awards," except where referring to a particular category of
grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock
Options, Stock Appreciation Rights, Restricted Stock Awards, Unrestricted Stock
Awards, Performance Share Awards and Dividend Equivalent Rights.
"Board" means the Board of Directors of the Company.
"Cause" as such term relates to the termination of any person means the
occurrence of one or more of the following: (i) such person is convicted of,
pleads guilty to, or confesses to any felony or any act of fraud,
misappropriation or embezzlement which has an immediate and materially adverse
effect on the Company or any Subsidiary, as determined by the Board in good
faith in its sole discretion, (ii) such person engages in a fraudulent act to
the material damage or prejudice of the Company or any Subsidiary or in conduct
or activities materially damaging to the property, business or reputation of the
Company or any Subsidiary, all as determined by the Board in good faith in its
sole discretion, (iii) any material act or omission by such person involving
malfeasance or negligence in the performance of such person's duties to the
Company or any Subsidiary to the material detriment of the Company or any
Subsidiary, as determined by the Board in good faith in its sole discretion,
which has not been
<PAGE> 2
corrected by such person within 30 days after written notice from the Company of
any such act or omission, (iv) failure by such person to comply in any material
respect with the terms of his employment agreement, if any, or any written
policies or directives of the Board as determined by the Board in good faith in
its sole discretion, which has not been corrected by such person within 30 days
after written notice from the Company of such failure, or (v) material breach by
such person of his noncompetition agreement with the Company, if any, as
determined by the Board in good faith in its sole discretion.
"Change of Control" is defined in Section 15.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"Committee" means a committee of two or more Non-Employee Directors
appointed by the Board to administer the Plan.
"Disability" means an individual's inability to perform his or her normal
required services for the Company and its Subsidiaries for a period of six
consecutive months by reason of the individual's mental or physical disability,
as determined by the Administrator in good faith in its sole discretion.
"Dividend Equivalent Right" means Awards granted pursuant to Section 10.
"Effective Date" means the date on which the Plan is approved by
stockholders as set forth in Section 17.
"Fair Market Value" on any given date means the last reported sale price at
which Stock is traded on such date or, if no Stock is traded on such date, the
most recent date on which Stock was traded, as reflected on the principal stock
exchange or, if applicable, any other national stock exchange on which the Stock
is traded or admitted to trading.
"Incentive Stock Option" means any Stock Option designated and qualified as
an "incentive stock option" as defined in Section 422 of the Code.
"Independent Director" means a member of the Board who is not also an
employee of the Company or any Subsidiary.
"Non-Employee Director" means any Independent Director who is both a
"Non-Employee Director" within the meaning of Rule 16b-3(b)(3)(i) promulgated
under the Act, or any successor definition under said rule, and an "outside
director" within the meaning of Section 162(m) of the Code and the regulations
promulgated thereunder.
2
<PAGE> 3
"Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
"Option" or "Stock Option" means any option to purchase shares of Stock
granted pursuant to Section 5.
"Performance Share Award" means Awards granted pursuant to Section 9.
"Restricted Stock Award" means Awards granted pursuant to Section 7.
"Retirement" means an individual's termination of employment (or other
business relationship) with the Company and its Subsidiaries after attainment of
age 65 or attainment of age 55 and completion of 10 years of service.
"Stock" means the Common Stock, par value $.004 per share, of the Company,
subject to adjustments pursuant to Section 3.
"Stock Appreciation Right" means any Award granted pursuant to Section 6.
"Subsidiary" means any corporation or other entity (other than the Company)
in any unbroken chain of corporations or other entities, beginning with the
Company, if each of the corporations or entities (other than the last
corporation or entity in the unbroken chain) owns stock or other interests
possessing 50% or more of the economic interest or the total combined voting
power of all classes of stock or other interests in one of the other
corporations or entities in the chain.
"Unrestricted Stock Award" means any Award granted pursuant to Section 8.
SECTION 2. ADMINISTRATION OF PLAN; AUTHORITY TO SELECT PARTICIPANTS AND
------------------------------------------------------------
DETERMINE AWARDS
----------------
(a) POWERS OF ADMINISTRATOR. The Administrator shall have the power and
authority to grant Awards consistent with the terms of the Plan, including the
power and authority:
(i) to select the officers, employees and key persons of the Company
and its Subsidiaries to whom Awards may from time to time be granted;
(ii) to determine the time or times of grant, and the extent, if any,
of Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation
Rights, Restricted Stock Awards, Unrestricted Stock Awards, Performance
Share Awards and Dividend Equivalent Rights, or any combination of the
foregoing, granted to any one or more participants;
3
<PAGE> 4
(iii) to determine the number of shares of Stock to be covered by any
Award;
(iv) to determine and modify from time to time the terms and
conditions, including restrictions, not inconsistent with the terms of the
Plan, of any Award, which terms and conditions may differ among individual
Awards and participants, and to approve the form of written instruments
evidencing the Awards;
(v) to accelerate at any time the exercisability or vesting of all or
any portion of any Award;
(vi) subject to the provisions of Section 5(a)(iii), to extend at any
time the period in which Stock Options may be exercised;
(vii) to determine at any time whether, to what extent, and under what
circumstances Stock and other amounts payable with respect to an Award
shall be deferred either automatically or at the election of the
participant and whether and to what extent the Company shall pay or credit
amounts constituting interest (at rates determined by the Administrator) or
dividends or deemed dividends on such deferrals; and
(viii) at any time to adopt, alter and repeal such rules, guidelines
and practices for administration of the Plan and for its own acts and
proceedings as it shall deem advisable; to interpret the terms and
provisions of the Plan and any Award (including related written
instruments); to make all determinations it deems advisable for the
administration of the Plan; to decide all disputes arising in connection
with the Plan; and to otherwise supervise the administration of the Plan.
All decisions and interpretations of the Administrator shall be binding on
all persons, including the Company and Plan participants.
(b) DELEGATION OF AUTHORITY TO GRANT AWARDS. The Administrator, in its
discretion, may delegate to the Chief Executive Officer of the Company all or
part of the Administrator's authority and duties with respect to Awards,
including the granting thereof, to individuals who are not subject to the
reporting and other provisions of Section 16 of the Act or "covered employees"
within the meaning of Section 162(m) of the Code. The Administrator may revoke
or amend the terms of a delegation at any time but such action shall not
invalidate any prior actions of the Administrator's delegate or delegates that
were consistent with the terms of the Plan.
SECTION 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION
----------------------------------------------------
(a) STOCK ISSUABLE. The maximum number of shares of Stock reserved and
available for issuance under the Plan shall be 750,000 shares. For purposes of
this limitation,
4
<PAGE> 5
the shares of Stock underlying any Awards which are forfeited, canceled,
reacquired by the Company, satisfied without the issuance of Stock or otherwise
terminated (other than by exercise) shall be added back to the shares of Stock
available for issuance under the Plan. Subject to such overall limitation,
shares of Stock may be issued up to such maximum number pursuant to any type or
types of Award; provided, however, that Stock Options or Stock Appreciation
Rights with respect to no more than 200,000 shares of Stock may be granted to
any one individual participant during any 12 month calendar year period. The
shares available for issuance under the Plan may be authorized but unissued
shares of Stock or shares of Stock reacquired by the Company. Upon the exercise
of a Stock Appreciation Right settled in shares of Stock, the right to purchase
an equal number of shares of Stock covered by a related Stock Option, if any,
shall be deemed to have been surrendered and will no longer be exercisable, and
said number of shares of Stock shall no longer be available under the Plan.
(b) RECAPITALIZATIONS. If, through or as a result of any merger,
consolidation, sale of all or substantially all of the assets of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, the outstanding shares of
Stock are increased or decreased or are exchanged for a different number or kind
of shares or other securities of the Company, or additional shares or new or
different shares or other securities of the Company or other non-cash assets are
distributed with respect to such shares of Stock or other securities, the
Administrator shall make an appropriate or proportionate adjustment in (i) the
maximum number of shares reserved for issuance under the Plan, (ii) the number
of Stock Options or Stock Appreciation Rights that can be granted to any one
individual participant, (iii) the number and kind of shares or other securities
subject to any then outstanding Awards and Stock Appreciation Rights under the
Plan, and (iv) the price for each share subject to any then outstanding Stock
Options and Stock Appreciation Rights under the Plan, without changing the
aggregate exercise price (i.e., the exercise price multiplied by the number of
Stock Options and Stock Appreciation Rights) as to which such Stock Options and
Stock Appreciation Rights remain exercisable. The adjustment by the
Administrator shall be final, binding and conclusive. No fractional shares of
Stock shall be issued under the Plan resulting from any such adjustment, but the
Administrator in its discretion may make a cash payment in lieu of fractional
shares.
(c) MERGERS. Upon consummation of a consolidation or merger or sale of all
or substantially all of the assets of the Company in which outstanding shares of
Common Stock are exchanged for securities, cash or other property of any other
corporation or business entity or in the event of a liquidation of the Company,
the Board, or the board of directors of any corporation assuming the obligations
of the Company, may, in its discretion, take any one or more of the following
actions, as to outstanding Stock Options and Stock Appreciation Rights: (i)
provide that such Stock Options shall be assumed or equivalent options shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof), (ii) upon written notice to the optionees, provide that all
unexercised Stock Options and Stock Appreciation Rights will terminate
immediately prior to the consummation of such transaction unless exercised by
the optionee within a specified period following the date of such notice, and/or
(iii) in the event of
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a business combination under the terms of which holders of the Stock of the
Company will receive upon consummation thereof a cash payment for each share
surrendered in the business combination, make or provide for a cash payment to
the optionees equal to the difference between (A) the value (as determined by
the Administrator) of the consideration payable per share of Stock pursuant to
the business combination (the "Merger Price") times the number of shares of
Stock subject to such outstanding Stock Options and Stock Appreciation Rights
(to the extent then exercisable at prices not in excess of the Merger Price) and
(B) the aggregate exercise price of all such outstanding Stock Options and Stock
Appreciation Rights in exchange for the termination of such Stock Options and
Stock Appreciation Rights.
(d) SUBSTITUTE AWARDS. The Administrator may grant Awards under the Plan in
substitution for stock and stock based awards held by employees of another
corporation who become employees of the Company or a Subsidiary as the result of
a merger or consolidation of the employing corporation with the Company or a
Subsidiary or the acquisition by the Company or a Subsidiary of property or
stock of the employing corporation. The Administrator may direct that the
substitute awards be granted on such terms and conditions as the Administrator
considers appropriate in the circumstances.
SECTION 4. ELIGIBILITY
-----------
Participants in the Plan will be such full or part-time officers, and other
employees and key persons of the Company and its Subsidiaries who are
responsible for or contribute to the management, growth or profitability of the
Company and its Subsidiaries as are selected from time to time by the
Administrator, in its sole discretion. Independent Directors are also eligible
to participate in the Plan but only to the extent provided in Section 5(c) and
Section 8 below.
SECTION 5. STOCK OPTIONS
-------------
Any Stock Option granted under the Plan shall be in such form as the
Administrator may from time to time approve.
Stock Options granted under the Plan may be either Incentive Stock Options
or Non-Qualified Stock Options. Incentive Stock Options may be granted only to
employees of the Company or any Subsidiary that is a "subsidiary corporation"
within the meaning of Section 424(f) of the Code. To the extent that any Option
does not qualify as an Incentive Stock Option, it shall be deemed a
Non-Qualified Stock Option.
No Incentive Stock Option shall be granted under the Plan after the date
which is 10 years from the date the Plan is approved by the Board of Directors.
(a) STOCK OPTIONS GRANTED TO EMPLOYEES AND KEY PERSONS. The Administrator
in its discretion may grant Stock Options to eligible employees and key persons
of the Company
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or any Subsidiary. Stock Options granted to employees pursuant to this Section
5(a) shall be subject to the following terms and conditions and shall contain
such additional terms and conditions, not inconsistent with the terms of the
Plan, as the Administrator shall deem desirable:
(i) EXERCISE PRICE. The exercise price per share for the Stock covered
by a Stock Option granted pursuant to this Section 5(a) shall be determined
by the Administrator at the time of grant but shall not be less than 100%
of the Fair Market Value on the date of grant in the case of Incentive
Stock Options, or 85% of the Fair Market Value on the date of grant, in the
case of Non-Qualified Stock Options. Notwithstanding the foregoing, with
respect to Non-Qualified Stock Options which are granted in lieu of cash
bonus, the exercise price per share shall not be less than 50% of the Fair
Market Value on the date of grant. If an employee owns or is deemed to own
(by reason of the attribution rules applicable under Section 424(d) of the
Code) more than 10% of the combined voting power of all classes of stock of
the Company or any parent or subsidiary corporation and an Incentive Stock
Option is granted to such employee, the option price of such Incentive
Stock Option shall be not less than 110% of the Fair Market Value on the
grant date.
(ii) GRANT OF DISCOUNT OPTIONS IN LIEU OF CASH BONUS. Upon the request
of an eligible employee and with the consent of the Administrator, such
employee may elect each calendar year to receive a Non-Qualified Stock
Option in lieu of any cash bonus to which he may become entitled during the
following calendar year pursuant to any other plan of the Company, but only
if such employee makes an irrevocable election to waive receipt of all or a
portion of such cash bonus. Such election shall be made on or before the
date set by the Administrator which date shall be no later than 15 days (or
such shorter period permitted by the Administrator) preceding January 1 of
the calendar year for which the cash bonus would otherwise be paid. A
Non-Qualified Stock Option shall be granted to each employee who made such
an irrevocable election on the date the waived cash bonus would otherwise
be paid. The exercise price per share shall be determined by the
Administrator but shall not be less than 50% of the Fair Market Value of
the Stock on the date the Stock Option is granted. The number of shares of
Stock subject to the Stock Option shall be determined by dividing the
amount of the waived cash bonus by the difference between the Fair Market
Value of the Stock on the date the Stock Option is granted and the exercise
price per Stock Option. The Stock Option shall be granted for whole number
of shares so determined; the value of any fractional share shall be paid in
cash.
(iii) OPTION TERM. The term of each Stock Option shall be fixed by the
Administrator, but no Incentive Stock Option shall be exercisable more than
ten years after the date the option is granted. If an employee owns or is
deemed to own (by reason of the attribution rules of Section 424(d) of the
Code) more than 10% of the combined voting power of all classes of stock of
the Company or any Subsidiary or
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parent corporation and an Incentive Stock Option is granted to such
employee, the term of such option shall be no more than five years from
the date of grant.
(iv) EXERCISABILITY; RIGHTS OF A STOCKHOLDER. Stock Options shall
become vested and exercisable at such time or times, whether or not in
installments, as shall be determined by the Administrator at or after the
grant date; provided, however, that Stock Options granted in lieu of cash
bonus shall be exercisable in full as of the grant date. The Administrator
may at any time accelerate the exercisability of all or any portion of any
Stock Option. An optionee shall have the rights of a stockholder only as to
shares acquired upon the exercise of a Stock Option and not as to
unexercised Stock Options.
(v) METHOD OF EXERCISE. Stock Options may be exercised in whole or in
part, by giving written notice of exercise to the Company, specifying the
number of shares to be purchased. Payment of the purchase price may be made
by one or more of the following methods:
(A) In cash, by certified or bank check or other instrument
acceptable to the Administrator;
(B) In the form of shares of Stock that are not then subject to
restrictions under any Company plan and that have been held by the
optionee for at least six months, if permitted by the Administrator in
its discretion. Such surrendered shares shall be valued at Fair Market
Value on the exercise date; or
(C) By the optionee delivering to the Company a properly executed
exercise notice together with irrevocable instructions to a broker to
promptly deliver to the Company cash or a check payable and acceptable
to the Company to pay the purchase price; provided that in the event
the optionee chooses to pay the purchase price as so provided, the
optionee and the broker shall comply with such procedures and enter
into such agreements of indemnity and other agreements as the
Administrator shall prescribe as a condition of such payment
procedure.
Payment instruments will be received subject to collection. The delivery of
certificates representing the shares of Stock to be purchased pursuant to
the exercise of a Stock Option will be contingent upon receipt from the
optionee (or a purchaser acting in his stead in accordance with the
provisions of the Stock Option) by the Company of the full purchase price
for such shares and the fulfillment of any other requirements contained in
the Stock Option or applicable provisions of laws.
(vi) TERMINATION BY REASON OF DEATH. Any Stock Option held by an
optionee whose employment by (or other business relationship with) the
Company and its
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Subsidiaries is terminated by reason of death shall become fully
exercisable and may thereafter be exercised by the legal representative or
legatee of the optionee, for a period of 12 months (or such longer period
as the Administrator shall specify at any time) from the date of death, or
until the expiration of the stated term of the Option, if earlier.
(vii) TERMINATION BY REASON OF DISABILITY.
(A) Any Stock Option held by an optionee whose employment by (or
other business relationship with) the Company and its Subsidiaries is
terminated by reason of Disability shall become fully exercisable and
may thereafter be exercised, for a period of 12 months (or such longer
period as the Administrator shall specify at any time) from the date
of such termination of employment (or business relationship), or until
the expiration of the stated term of the Option, if earlier.
(B) The Administrator shall have sole authority and discretion to
determine whether a participant's employment (or business
relationship) has been terminated by reason of Disability.
(C) Except as otherwise provided by the Administrator at any
time, the death of an optionee during the period provided in this
Section 5(a)(vii) for the exercise of a Stock Option shall extend such
period for 12 months from the date of death, subject to termination on
the expiration of the stated term of the Option, if earlier.
(viii) TERMINATION BY REASON OF RETIREMENT.
(A) Any Stock Option held by an optionee whose employment by (or
other business relationship with) the Company and its Subsidiaries is
terminated by reason of Retirement may thereafter be exercised, to the
extent it was exercisable at the time of such termination, for a
period of 12 months (or such other period as the Administrator shall
specify at any time) from the date of such termination of employment
(or business relationship), or until the expiration of the stated term
of the Option, if earlier.
(B) Except as otherwise provided by the Administrator at any
time, the death of an optionee during a period provided in this
Section 5(a)(viii) for the exercise of a Stock Option shall extend
such period for 12 months from the date of death, subject to
termination on the expiration of the stated term of the Option, if
earlier.
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(ix) TERMINATION FOR CAUSE. If any optionee's employment by (or other
business relationship with) the Company and its Subsidiaries is terminated
for Cause, any Stock Option held by such optionee, including any Stock
Option that is immediately exercisable at the time of such termination,
shall immediately terminate and be of no further force and effect;
provided, however, that the Administrator may, in its sole discretion,
provide that such Stock Option can be exercised for a period of up to 30
days from the date of termination of employment (or business relationship)
or until the expiration of the stated term of the Option, if earlier.
(x) OTHER TERMINATION. Unless otherwise determined by the
Administrator, if an optionee's employment by (or other business
relationship with) the Company and its Subsidiaries terminates for any
reason other than death, Disability, Retirement, or for Cause, any Stock
Option held by such optionee may thereafter be exercised, to the extent it
was exercisable on the date of termination of employment (or business
relationship), for three months (or such longer period as the Administrator
shall specify at any time) from the date of termination of employment (or
business relationship) or until the expiration of the stated term of the
Option, if earlier.
(xi) ANNUAL LIMIT ON INCENTIVE STOCK OPTIONS. To the extent required
for "incentive stock option" treatment under Section 422 of the Code, the
aggregate Fair Market Value (determined as of the time of grant) of the
shares of Stock with respect to which Incentive Stock Options granted under
this Plan and any other plan of the Company or its parent and subsidiary
corporations become exercisable for the first time by an optionee during
any calendar year shall not exceed $100,000. To the extent that any Stock
Option exceeds this limit, it shall constitute a Non-Qualified Stock
Option.
(b) RELOAD OPTIONS. At the discretion of the Administrator, Options granted
under Section 5(a) may include a "reload" feature pursuant to which an optionee
exercising an option by the delivery of a number of shares of Stock in
accordance with Section 5(a)(v)(B) hereof would automatically be granted an
additional Option (with an exercise price equal to the Fair Market Value of the
Stock on the date the additional Option is granted and with the same expiration
date as the original Option being exercised, and with such other terms as the
Administrator may provide) to purchase that number of shares of Stock equal to
the number delivered to exercise the original Option.
(c) STOCK OPTIONS GRANTED TO INDEPENDENT DIRECTORS.
(i) AUTOMATIC GRANT OF OPTIONS.
(A)(1) Each Independent Director who has served as a Director of
the Company since January 1, 1986 shall automatically be granted on
the Adoption Date a Non-Qualified Stock Option to acquire 8,350 shares
of Stock.
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(A)(2) Each Independent Director who has served as a Director of
the Company since January 1, 1990 shall automatically be granted on
the Adoption Date a Non-Qualified Stock Option to acquire 6,100 shares
of Stock.
(A)(3) Each Independent Director who is serving as a Director of
the Company on the fifth business day after each annual meeting of
shareholders, beginning with the 1995 annual meeting, shall
automatically be granted on such day a Non-Qualified Stock Option to
acquire 3,000 shares of Stock.
(B) The exercise price per share for the Stock covered by a Stock
Option granted under this Section 5(c) shall be equal to the Fair
Market Value of the Stock on the date the Stock Option is granted.
(ii) EXERCISE; TERMINATION.
(A) Except as provided in Section 15, an Option granted under
this Section 5(c) shall be exercisable in full as of the grant date.
An Option issued under this Section 5(c) shall not be exercisable
after the expiration of ten years from the date of grant.
(B) If an Independent Director ceases to be a Director for any
reason other than Cause or death, an Option granted under this Section
5(c) may thereafter be exercised, to the extent it was exercisable on
the date such optionee ceases to be a Director, for a period of six
months from such date or until the expiration of the stated term of
the Option, if earlier. If the optionee ceases to be a Director for
Cause, all rights in an Option granted under this Section 5(c) shall
terminate immediately on the date he ceases to be a Director.
(C) Notwithstanding paragraph (B) above, any Option granted to an
Independent Director and outstanding on the date of his death may be
exercised by the legal representative or legatee of the optionee for a
period of twelve months from the date of death or until the expiration
of the stated term of the Option, if earlier.
(D) Options granted under this Section 5(c) may be exercised only
by written notice to the Company specifying the number of shares to be
purchased. Payment of the full purchase price of the shares to be
purchased may be made by one or more of the methods specified in
Section 5(a)(v). An optionee shall have the rights of a stockholder
only as to shares acquired upon the exercise of a Stock Option and not
as to unexercised Stock Options.
(iii) LIMITED TO INDEPENDENT DIRECTORS. The provisions of this Section
5(c) shall apply only to Options granted or to be granted to Independent
Directors, and shall
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not be deemed to modify, limit or otherwise apply to any other provision of
this Plan or to any Option issued under this Plan to a participant who is
not an Independent Director of the Company. To the extent inconsistent with
the provisions of any other Section of this Plan, the provisions of this
Section 5(c) shall govern the rights and obligations of the Company and
Independent Directors respecting Options granted or to be granted to
Independent Directors.
(d) NON-TRANSFERABILITY OF OPTIONS. No Stock Option shall be transferable
by the optionee otherwise than by will or by the laws of descent and
distribution and all Stock Options shall be exercisable, during the optionee's
lifetime, only by the optionee. Notwithstanding the foregoing, the Administrator
may provide in an option agreement evidencing a Non-Qualified Stock Option that
the optionee may transfer, without consideration for the transfer, such
Non-Qualified Stock Option to members of his immediate family, to trusts for the
benefit of such family members, to partnerships in which such family members are
the only partners, or to charitable organizations, provided that the transferee
agrees in writing with the Company to be bound by all of the terms and
conditions of the Plan and the applicable option agreement.
(e) FORM OF SETTLEMENT. Shares of Stock issued upon exercise of a Stock
Option shall be free of all restrictions under the Plan, except as otherwise
provided in the Plan.
SECTION 6. STOCK APPRECIATION RIGHTS.
-------------------------
(a) NATURE OF STOCK APPRECIATION RIGHTS. A Stock Appreciation Right is an
Award entitling the recipient to receive an amount in cash or shares of Stock or
a combination thereof having a value equal to the excess of the Fair Market
Value of the Stock on the date of exercise over the exercise price per Stock
Appreciation Right set by the Administrator at the time of grant, which price
shall not be less than 85% of the Fair Market Value of the Stock on the date of
grant (or over the option exercise price per share, if the Stock Appreciation
Right was granted in tandem with a Stock Option) multiplied by the number of
shares of Stock with respect to which the Stock Appreciation Right shall have
been exercised, with the Administrator having the right to determine the form of
payment.
(b) GRANT AND EXERCISE OF STOCK APPRECIATION RIGHTS. Stock Appreciation
Rights may be granted to any eligible employee or key person of the Company or
any Subsidiary by the Administrator in tandem with, or independently of, any
Stock Option granted pursuant to Section 5 of the Plan. In the case of a Stock
Appreciation Right granted in tandem with a Non-Qualified Stock Option, such
Stock Appreciation Right may be granted either at or after the time of the grant
of such Option. In the case of a Stock Appreciation Right granted in tandem with
an Incentive Stock Option, such Stock Appreciation Right may be granted only at
the time of the grant of the Option.
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A Stock Appreciation Right or applicable portion thereof granted in tandem
with a Stock Option shall terminate and no longer be exercisable upon the
termination or exercise of the related Option.
(c) TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS. Stock Appreciation
Rights shall be subject to such terms and conditions as shall be determined from
time to time by the Administrator, subject to the following:
(i) Stock Appreciation Rights granted in tandem with Options shall be
exercisable at such time or times and to the extent that the related Stock
Options shall be exercisable.
(ii) Upon exercise of a Stock Appreciation Right, the applicable
portion of any related Option shall be surrendered.
(iii) Stock Appreciation Rights granted in tandem with an Option shall
be transferable only when and to the extent that the underlying Option
would be transferable. Stock Appreciation Rights not granted in tandem with
a Option shall not be transferable otherwise than by will or the laws of
descent or distribution. All Stock Appreciation Rights shall be exercisable
during the participant's lifetime only by the participant or the
participant's legal representative.
SECTION 7. RESTRICTED STOCK AWARDS
-----------------------
(a) NATURE OF RESTRICTED STOCK AWARDS. The Administrator may grant
Restricted Stock Awards to any employee or key person of the Company or any
Subsidiary. A Restricted Stock Award is an Award entitling the recipient to
acquire, at no cost or for a purchase price determined by the Administrator,
shares of Stock subject to such restrictions and conditions as the Administrator
may determine at the time of grant ("Restricted Stock"). Conditions may be based
on continuing employment (or other business relationship) and/or achievement of
pre-established performance goals and objectives.
(b) RIGHTS AS A STOCKHOLDER. Upon execution of a written instrument setting
forth the Restricted Stock Award and paying any applicable purchase price, a
participant shall have the rights of a stockholder with respect to the voting of
the Restricted Stock, subject to such conditions contained in the written
instrument evidencing the Restricted Stock Award. Unless the Administrator shall
otherwise determine, certificates evidencing the Restricted Stock shall remain
in the possession of the Company until such Restricted Stock is vested as
provided in Section 7(e) below.
(c) RESTRICTIONS. Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered or disposed of except as specifically provided
herein or in the written instrument evidencing the Restricted Stock Award. In
the case of Restricted Stock granted to
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an employee, if the participant's employment with the Company and its
Subsidiaries terminates for any reason other than death or Disability, the
Company shall have the right, at the discretion of the Administrator, to
repurchase Restricted Stock with respect to which conditions have not lapsed at
their purchase price, or to require forfeiture of such shares to the Company if
acquired at no cost, from the participant or the participant's legal
representative. The Company must exercise such right of repurchase or forfeiture
not later than the 90th day following such termination of employment (unless
otherwise specified in the written instrument evidencing the Restricted Stock
Award). Restricted Stock granted to a key person who is not an employee shall be
subject to such forfeiture and repurchase provisions as the Administrator shall
specify.
(d) VESTING OF RESTRICTED STOCK. The Administrator at the time of grant
shall specify the date or dates and/or the attainment of pre-established
performance goals, objectives and other conditions on which the
non-transferability of the Restricted Stock and the Company's right of
repurchase or forfeiture shall lapse. Subsequent to such date or dates and/or
the attainment of such pre-established performance goals, objectives and other
conditions, the shares on which all restrictions have lapsed shall no longer be
Restricted Stock and shall be deemed "vested." A participant whose employment is
terminated for reason of death or Disability shall become fully vested on his
termination date in any Restricted Stock he received as an employee to the
extent such vesting is otherwise contingent only on continued service with the
Company. Where vesting is contingent on attainment of pre-established
performance goals, the vesting of Restricted Stock in the case of death or
Disability shall remain dependent on the attainment of such goals and shall be
determined as of such date or dates specified by the Administrator.
(e) WAIVER, DEFERRAL AND REINVESTMENT OF DIVIDENDS. The written instrument
evidencing the Restricted Stock Award may require or permit the immediate
payment, waiver, deferral or investment of dividends paid on the Restricted
Stock.
SECTION 8. UNRESTRICTED STOCK AWARDS
-------------------------
(a) GRANT OR SALE OF UNRESTRICTED STOCK. The Administrator may, in its sole
discretion, grant (or sell at a purchase price determined by the Administrator)
an Unrestricted Stock Award to any employee or key person of the Company or any
Subsidiary, pursuant to which such employee or key person may receive shares of
Stock free of any restrictions ("Unrestricted Stock") under the Plan.
Unrestricted Stock Awards may be granted or sold as described in the preceding
sentence in respect of past services or other valid consideration, or in lieu of
any cash compensation due to such employee or key person.
(b) ELECTIONS TO RECEIVE UNRESTRICTED STOCK IN LIEU OF COMPENSATION. Upon
the request of an employee or a key person and with the consent of the
Administrator, each employee or key person may, pursuant to an irrevocable
written election delivered to the Company no later than the date or dates
specified by the Administrator, receive a portion of
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the cash compensation otherwise due to such employee or key person in the form
of shares of Unrestricted Stock (valued at Fair Market Value on the date or
dates the cash compensation would otherwise be paid).
(c) ELECTIONS TO RECEIVE UNRESTRICTED STOCK IN LIEU OF DIRECTOR FEES. Each
Independent Director may, pursuant to an irrevocable written election delivered
to the Company no later than the date or dates specified by the Administrator,
receive all or a portion of such Independent Director's director fees in shares
of Unrestricted Stock (valued at Fair Market Value on the date or dates that the
director fees would otherwise be paid in cash).
(d) DEFERRAL OF AWARDS. Each Independent Director who has made an election
to receive shares of Unrestricted Stock under Section 8(c) above will have the
right to defer receipt of up to 100% of such shares of Unrestricted Stock
payable to such Independent Director in accordance with such rules and
procedures as may from time to time be established by the Administrator for that
purpose, provided that such election shall not be effective before the beginning
of the next calendar year. The deferred Unrestricted Stock shall be entitled to
receive Dividend Equivalent Rights settled in shares of Stock.
(e) RESTRICTIONS ON TRANSFERS. The right to receive Unrestricted Stock on a
deferred basis may not be sold, assigned, transferred, pledged or otherwise
encumbered, other than by will or the laws of descent and distribution.
SECTION 9. PERFORMANCE SHARE AWARDS
------------------------
(a) NATURE OF PERFORMANCE SHARE AWARDS. A Performance Share Award is an
Award entitling the recipient to acquire shares of Stock upon the attainment of
specified performance goals. The Administrator may make Performance Share Awards
independent of or in connection with the granting of any other Award under the
Plan. Performance Share Awards may be granted under the Plan to any employees or
key persons of the Company or any Subsidiary, including those who qualify for
awards under other performance plans of the Company. The Administrator in its
sole discretion shall determine whether and to whom Performance Share Awards
shall be made, the performance goals applicable under each such Award, the
periods during which performance is to be measured, and all other limitations
and conditions applicable to the awarded Performance Shares; provided, however,
that the Administrator may rely on the performance goals and other standards
applicable to other performance unit plans of the Company in setting the
standards for Performance Share Awards under the Plan.
(b) RESTRICTIONS ON TRANSFER. Performance Share Awards and all rights with
respect to such Awards may not be sold, assigned, transferred, pledged or
otherwise encumbered.
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(c) RIGHTS AS A SHAREHOLDER. A participant receiving a Performance Share
Award shall have the rights of a shareholder only as to shares actually received
by the participant under the Plan and not with respect to shares subject to the
Award but not actually received by the participant. A participant shall be
entitled to receive a stock certificate evidencing the acquisition of shares of
Stock under a Performance Share Award only upon satisfaction of all conditions
specified in the written instrument evidencing the Performance Share Award (or
in a performance plan adopted by the Administrator).
(d) TERMINATION. Except as may otherwise be provided by the Administrator
at any time prior to termination of employment (or other business relationship),
a participant's rights in all Performance Share Awards shall automatically
terminate upon the participant's termination of employment by (or business
relationship with) the Company and its Subsidiaries for any reason.
(e) ACCELERATION, WAIVER, ETC. At any time prior to the participant's
termination of employment (or other business relationship) by the Company and
its Subsidiaries, the Administrator may in its sole discretion accelerate, waive
or, subject to Section 13, amend any or all of the goals, restrictions or
conditions imposed under any Performance Share Award.
SECTION 10. DIVIDEND EQUIVALENT RIGHTS
--------------------------
(a) DIVIDEND EQUIVALENT RIGHTS. A Dividend Equivalent Right is an Award
entitling the recipient to receive credits based on cash dividends that would be
paid on the shares of Stock specified in the Dividend Equivalent Right (or other
award to which it relates) if such shares were held by the recipient. A Dividend
Equivalent Right may be granted hereunder to an eligible employee or key person,
as a component of another Award or as a freestanding award. A Dividend
Equivalent Right may also be granted to an Independent Director pursuant to
Section 8(e). The terms and conditions of Dividend Equivalent Rights shall be
specified in the grant. Dividend equivalents credited to the holder of a
Dividend Equivalent Right may be paid currently or may be deemed to be
reinvested in additional shares of Stock, which may thereafter accrue additional
equivalents. Any such reinvestment shall be at Fair Market Value on the date of
reinvestment or such other price as may then apply under a dividend reinvestment
plan sponsored by the Company, if any. Dividend Equivalent Rights may be settled
in cash or shares of Stock or a combination thereof, in a single installment or
installments. A Dividend Equivalent Right granted as a component of another
Award may provide that such Dividend Equivalent Right shall be settled upon
exercise, settlement, or payment of, or lapse of restrictions on, such other
award, and that such Dividend Equivalent Right shall expire or be forfeited or
annulled under the same conditions as such other award. A Dividend Equivalent
Right granted as a component of another Award may also contain terms and
conditions different from such other award.
(b) INTEREST EQUIVALENTS. Any Award under this Plan that is settled in
whole or in part in cash on a deferred basis may provide in the grant for
interest equivalents to be credited
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with respect to such cash payment. Interest equivalents may be compounded and
shall be paid upon such terms and conditions as may be specified by the grant.
SECTION 11. TAX WITHHOLDING
---------------
(a) PAYMENT BY PARTICIPANT. Each participant shall, no later than the date
as of which the value of an Award or of any Stock or other amounts received
thereunder first becomes includable in the gross income of the participant for
Federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Administrator regarding payment of, any Federal, state, or
local taxes of any kind required by law to be withheld with respect to such
income. The Company and its Subsidiaries shall, to the extent permitted by law,
have the right to deduct any such taxes from any payment of any kind otherwise
due to the participant.
(b) PAYMENT IN STOCK. Subject to approval by the Administrator, a
participant may elect to have such tax withholding obligation satisfied, in
whole or in part, by (i) authorizing the Company to withhold from shares of
Stock to be issued pursuant to any Award a number of shares with an aggregate
Fair Market Value (as of the date the withholding is effected) that would
satisfy the withholding amount due, or (ii) transferring to the Company shares
of Stock owned by the participant with an aggregate Fair Market Value (as of the
date the withholding is effected) that would satisfy the withholding amount due.
SECTION 12. TRANSFER, LEAVE OF ABSENCE, ETC
-------------------------------
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or from
the Company to a Subsidiary, or from one Subsidiary to another; or
(b) an approved leave of absence for military service or sickness, or for
any other purpose approved by the Company, if the employee's right to
re-employment is guaranteed either by a statute or by contract or under the
policy pursuant to which the leave of absence was granted or if the
Administrator otherwise so provides in writing.
SECTION 13. AMENDMENTS AND TERMINATION
--------------------------
The Board may, at any time, amend or discontinue the Plan and the
Administrator may, at any time, amend or cancel any outstanding Award (or
provide substitute Awards at the same or reduced exercise or purchase price or
with no exercise or purchase price in a manner not inconsistent with the terms
of the Plan), but such price, if any, must satisfy the requirements which would
apply to the substitute or amended Award if it were then initially granted under
this Plan) for the purpose of satisfying changes in law or for any other lawful
17
<PAGE> 18
purpose, but no such action shall adversely affect rights under any outstanding
Award without the holder's consent. If and to the extent determined by the
Administrator to be required to ensure that Incentive Stock Options granted
under the Plan are qualified under Section 422 of the Code, Plan amendments
shall be subject to approval by the Company stockholders.
SECTION 14. STATUS OF PLAN
--------------
With respect to the portion of any Award which has not been exercised and
any payments in cash, Stock or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the Company unless the Administrator shall otherwise expressly
determine in connection with any Award or Awards. In its sole discretion, the
Administrator may authorize the creation of trusts or other arrangements to meet
the Company's obligations to deliver Stock or make payments with respect to
Awards hereunder, provided that the existence of such trusts or other
arrangements is consistent with the foregoing sentence.
SECTION 15. CHANGE OF CONTROL PROVISIONS
----------------------------
Upon the occurrence of a Change of Control as defined in this Section 15:
(a) Each outstanding Stock Option and Stock Appreciation Right shall
automatically become fully exercisable notwithstanding any provision to the
contrary herein.
(b) Each Restricted Stock Award and Performance Share Award shall be
subject to such terms, if any, with respect to a Change of Control as have been
provided by the Administrator in connection with such Award.
(c) "Change of Control" shall mean the occurrence of any one of the
following events:
(i) any "person," as such term is used in Sections 13(d) and 14(d) of
the Act (other than the Company, any of its Subsidiaries, or any trustee,
fiduciary or other person or entity holding securities under any employee
benefit plan or trust of the Company or any of its Subsidiaries), together
with all "affiliates" and "associates" (as such terms are defined in Rule
12b-2 under the Act) of such person, shall become the "beneficial owner"
(as such term is defined in Rule 13d-3 under the Act), directly or
indirectly, of securities of the Company representing 15% or more of either
(A) the combined voting power of the Company's then outstanding securities
having the right to vote in an election of the Board ("Voting Securities")
or (B) the then outstanding shares of Stock of the Company (in either such
case other than as a result of an acquisition of securities directly from
the Company); or
18
<PAGE> 19
(ii) persons who, as of the Effective Date, constitute the Board (the
"Incumbent Directors") cease for any reason, including, without limitation,
as a result of a tender offer, proxy contest, merger or similar
transaction, to constitute at least a majority of the Board, provided that
any person becoming a director of the Company subsequent to the Effective
Date whose election or nomination for election was approved by a vote of at
least a majority of the Incumbent Directors shall, for purposes of this
Plan, be considered an Incumbent Director; or
(iii) the stockholders of the Company shall approve (A) any
consolidation or merger of the Company or any Subsidiary where the
shareholders of the Company, immediately prior to the consolidation or
merger, would not, immediately after the consolidation or merger,
beneficially own (as such term is defined in Rule 13d-3 under the Act),
directly or indirectly, shares representing in the aggregate 80% or more of
the voting shares of the corporation issuing cash or securities in the
consolidation or merger (or of its ultimate parent corporation, if any),
(B) any sale, lease, exchange or other transfer (in one transaction or a
series of transactions contemplated or arranged by any party as a single
plan) of all or substantially all of the assets of the Company or (C) any
plan or proposal for the liquidation or dissolution of the Company.
Notwithstanding the foregoing, a "Change of Control" shall not be deemed to
have occurred for purposes of the foregoing clause (i) solely as the result of
an acquisition of securities by the Company which, by reducing the number of
shares of Stock or other Voting Securities outstanding, increases (x) the
proportionate number of shares of Stock beneficially owned by any person to 15%
or more of the shares of Stock then outstanding or (y) the proportionate voting
power represented by the Voting Securities beneficially owned by any person to
15% or more of the combined voting power of all then outstanding Voting
Securities; PROVIDED, HOWEVER, that if any person referred to in clause (x) or
(y) of this sentence shall thereafter become the beneficial owner of any
additional shares of Stock or other Voting Securities (other than pursuant to a
stock split, stock dividend, or similar transaction), then a "Change of Control"
shall be deemed to have occurred for purposes of the foregoing clause (i).
SECTION 16. GENERAL PROVISIONS
------------------
(a) NO DISTRIBUTION; COMPLIANCE WITH LEGAL REQUIREMENTS. The Administrator
may require each person acquiring Stock pursuant to an Award to represent to and
agree with the Company in writing that such person is acquiring the shares
without a view to distribution thereof.
No shares of Stock shall be issued pursuant to an Award until all
applicable securities law and other legal and stock exchange or similar
requirements have been satisfied. The Administrator may require the placing of
such stop-orders and restrictive legends on certificates for Stock and Awards as
it deems appropriate.
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<PAGE> 20
(b) DELIVERY OF STOCK CERTIFICATES. Delivery of stock certificates to
participants under this Plan shall be deemed effected for all purposes when the
Company or a stock transfer agent of the Company shall have mailed such
certificates in the United States mail, addressed to the participant, at the
participant's last known address on file with the Company.
(c) OTHER COMPENSATION ARRANGEMENTS; NO EMPLOYMENT RIGHTS. Nothing
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, including trusts, and such arrangements may be either
generally applicable or applicable only in specific cases. The adoption of this
Plan and the grant of Awards do not confer upon any employee any right to
continued employment with the Company or any Subsidiary.
SECTION 17. EFFECTIVE DATE OF PLAN
----------------------
This Plan shall become effective upon approval by the holders of a majority
of the shares of Stock of the Company present or represented and entitled to
vote at a meeting of stockholders. Subject to such approval by the stockholders
and to the requirement that no Stock may be issued hereunder prior to such
approval, Stock Options and other Awards may be granted hereunder on and after
adoption of this Plan by the Board.
SECTION 18. GOVERNING LAW
-------------
This Plan shall be governed by The Commonwealth of Massachusetts law except
to the extent such law is preempted by federal law.
DATE APPROVED BY BOARD OF DIRECTORS: June 13, 1995
DATE APPROVED BY SHAREHOLDERS: November 15, 1995
20
<PAGE> 1
Exhibit 10.25
FERROFLUIDICS CORPORATION
AMENDED AND RESTATED
1995 NON-QUALIFIED STOCK OPTION PLAN
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS
----------------------------------------
The name of the plan is the Ferrofluidics Corporation Amended and Restated
1995 Non-Qualified Stock Option Plan (the "Plan"). The purpose of the Plan is to
encourage and enable employees and other key persons of Ferrofluidics
Corporation (the "Company") and its Subsidiaries upon whose judgment, initiative
and efforts the Company largely depends for the successful conduct of its
business to acquire a proprietary interest in the Company. It is anticipated
that providing such persons with a direct stake in the Company's welfare will
assure a closer identification of their interests with those of the Company,
thereby stimulating their efforts on the Company's behalf and strengthening
their desire to remain with the Company.
The following terms shall be defined as set forth below:
"Act" means the Securities Exchange Act of 1934, as amended.
"Administrator" means the Board or the Committee.
"Board" means the Board of Directors of the Company.
"Cause" as such term relates to the termination of any person means the
occurrence of one or more of the following: (i) such person is convicted of,
pleads guilty to, or confesses to any felony or any act of fraud,
misappropriation or embezzlement which has an immediate and materially adverse
effect on the Company or any Subsidiary, as determined by the Board in good
faith in its sole discretion, (ii) such person engages in a fraudulent act to
the material damage or prejudice of the Company or any Subsidiary or in conduct
or activities materially damaging to the property, business or reputation of the
Company or any Subsidiary, all as determined by the Board in good faith in its
sole discretion, (iii) any material act or omission by such person involving
malfeasance or negligence in the performance of such person's duties to the
Company or any Subsidiary to the material detriment of the Company or any
Subsidiary, as determined by the Board in good faith in its sole discretion,
which has not been corrected by such person within 30 days after written notice
from the Company of any such act or omission, (iv) failure by such person to
comply in any material respect with the terms of his employment agreement, if
any, or any written policies or directives of the Board as determined by the
Board in good faith in its sole discretion, which has not been corrected by such
person within 30 days after written notice from the Company of such failure, or
(v) material breach by such person of his noncompetition agreement with the
Company, if any, as determined by the Board in good faith in its sole
discretion.
<PAGE> 2
"Change of Control" is defined in Section 10.
"Committee" means a committee of two or more Non-Employee Directors
appointed by the Board to administer the Plan.
"Disability" means an individual's inability to perform his normal required
services for the Company and its Subsidiaries for a period of six consecutive
months by reason of the individual's mental or physical disability, as
determined by the Administrator in good faith in its sole discretion.
"Effective Date" means the date on which the Plan is approved by the Board
as set forth herein.
"Fair Market Value" on any given date means the last reported sale price at
which Stock is traded on such date or, if no Stock is traded on such date, the
next preceding date on which Stock was traded, as reflected on the principal
stock exchange or, if applicable, any other national stock exchange on which the
Stock is traded or admitted to trading.
"Non-Employee Director" means a member of the Board who is a "Non-Employee
Director" within the meaning of Rule 16b-3(b)(3)(i) promulgated under the Act,
or any successor definition under said rule.
"Option" means any option to purchase shares of Stock granted pursuant to
Section 5.
"Retirement" means an individual's termination of employment (or other
business relationship) with the Company and its Subsidiaries after attainment of
age 65 or attainment of age 55 and completion of 10 years of service.
"Stock" means the Common Stock, par value $.004 per share, of the Company,
subject to adjustments pursuant to Section 3.
"Subsidiary" means any corporation or other entity (other than the Company)
in any unbroken chain of corporations or other entities, beginning with the
Company, if each of the corporations or entities (other than the last
corporation or entity in the unbroken chain) owns stock or other interests
possessing 50% or more of the economic interest or the total combined voting
power of all classes of stock or other interests in one of the other
corporations or entities in the chain.
SECTION 2. ADMINISTRATION OF PLAN; AUTHORITY TO SELECT PARTICIPANTS AND
------------------------------------------------------------
DETERMINE AWARDS
----------------
(a) POWERS OF ADMINISTRATOR. The Administrator shall have the power and
authority to grant Options consistent with the terms of the Plan, including the
power and authority:
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<PAGE> 3
(i) to select the employees and key persons of the Company and its
Subsidiaries to whom Options may from time to time be granted;
(ii) to determine the time or times of grant, and the extent, if any,
of Options granted to any one or more participants;
(iii) to determine the number of shares of Stock to be covered by any
Option;
(iv) to determine and modify from time to time the terms and
conditions, including restrictions, not inconsistent with the terms of the
Plan, of any Option, which terms and conditions may differ among individual
Options and participants, and to approve the form of written instruments
evidencing the Options;
(v) to accelerate at any time the exercisability or vesting of all or
any portion of any Option;
(vi) to extend at any time the period in which Options may be
exercised; and
(vii) at any time to adopt, alter and repeal such rules, guidelines
and practices for administration of the Plan and for its own acts and
proceedings as it shall deem advisable; to interpret the terms and
provisions of the Plan and any Option (including related written
instruments); to make all determinations it deems advisable for the
administration of the Plan; to decide all disputes arising in connection
with the Plan; and to otherwise supervise the administration of the Plan.
All decisions and interpretations of the Administrator shall be binding on
all persons, including the Company and Plan participants.
(b) DELEGATION OF AUTHORITY TO GRANT OPTIONS. The Administrator, in its
discretion, may delegate to the Chief Executive Officer of the Company all or
part of the Administrator's authority and duties with respect to Options,
including the grant thereof, to individuals who are not subject to the reporting
and other provisions of Section 16 of the Act. The Administrator may revoke or
amend the terms of a delegation at any time but such action shall not invalidate
any prior actions of the Administrator's delegate or delegates that were
consistent with the terms of the Plan.
SECTION 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION
----------------------------------------------------
(a) STOCK ISSUABLE. The maximum number of shares of Stock reserved and
available for issuance under the Plan shall be 100,000 shares. For purposes of
this limitation, the shares of Stock underlying any Options which are forfeited,
canceled, reacquired by the Company, satisfied without the issuance of Stock or
otherwise terminated (other than by exercise) shall be added back to the shares
of Stock available for issuance under the Plan. The
3
<PAGE> 4
shares available for issuance under the Plan may be authorized but unissued
shares of Stock or shares of Stock reacquired by the Company.
(b) RECAPITALIZATIONS. If, through or as a result of any merger,
consolidation, sale of all or substantially all of the assets of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, the outstanding shares of
Stock are increased or decreased or are exchanged for a different number or kind
of shares or other securities of the Company, or additional shares or new or
different shares or other securities of the Company or other non-cash assets are
distributed with respect to such shares of Stock or other securities, the
Administrator shall make an appropriate or proportionate adjustment in (i) the
maximum number of shares reserved for issuance under the Plan, (ii) the number
and kind of shares or other securities subject to any then outstanding Options
under the Plan, and (iii) the price for each share subject to any then
outstanding Options under the Plan, without changing the aggregate exercise
price (i.e., the exercise price multiplied by the number of Options) as to which
such Options remain exercisable. The adjustment by the Administrator shall be
final, binding and conclusive. No fractional shares of Stock shall be issued
under the Plan resulting from any such adjustment, but the Administrator in its
discretion may make a cash payment in lieu of fractional shares.
(c) MERGERS. Upon consummation of a consolidation or merger or sale of all
or substantially all of the assets of the Company in which outstanding shares of
Common Stock are exchanged for securities, cash or other property of any other
corporation or business entity or in the event of a liquidation of the Company,
the Board, or the board of directors of any corporation assuming the obligations
of the Company, may, in its discretion, take any one or more of the following
actions, as to outstanding Options: (i) provide that such Options shall be
assumed or equivalent options shall be substituted, by the acquiring or
succeeding corporation (or an affiliate thereof), (ii) upon written notice to
the optionees, provide that all unexercised Options will terminate immediately
prior to the consummation of such transaction unless exercised by the optionee
within a specified period following the date of such notice, and/or (iii) in the
event of a business combination under the terms of which holders of the Stock of
the Company will receive upon consummation thereof a cash payment for each share
surrendered in the business combination, make or provide for a cash payment to
the optionees equal to the difference between (A) the value (as determined by
the Administrator) of the consideration payable per share of Stock pursuant to
the business combination (the "Merger Price") times the number of shares of
Stock subject to such outstanding Options (to the extent then exercisable at
prices not in excess of the Merger Price) and (B) the aggregate exercise price
of all such outstanding Options in exchange for the termination of such Options.
(d) SUBSTITUTE OPTIONS. The Administrator may grant Options under the Plan
in substitution for stock and stock based awards held by employees of another
corporation who become employees of the Company or a Subsidiary as the result of
a merger or consolidation of the employing corporation with the Company or a
Subsidiary or the acquisition by the Company or a Subsidiary of property or
stock of the employing corporation. The
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<PAGE> 5
Administrator may direct that the substitute Options be granted on such terms
and conditions as the Administrator considers appropriate in the circumstances.
SECTION 4. ELIGIBILITY
-----------
Participants in the Plan will be such full or part-time employees and key
persons of the Company and its Subsidiaries who are responsible for or
contribute to the management, growth or profitability of the Company and its
Subsidiaries as are selected from time to time by the Administrator, in its sole
discretion.
SECTION 5. OPTIONS
-------
Any Option granted under the Plan shall be in such form as the
Administrator may from time to time approve.
Options granted under the Plan may not be options which are designated or
qualified as "incentive stock options" as defined under Section 422 of the
Internal Revenue Code of 1986, as amended.
(a) OPTIONS GRANTED TO EMPLOYEES AND KEY PERSONS. The Administrator in its
discretion may grant Options to eligible employees and key persons of the
Company or any Subsidiary. Options granted to employees and key persons pursuant
to this Section 5(a) shall be subject to the following terms and conditions and
shall contain such additional terms and conditions, not inconsistent with the
terms of the Plan, as the Administrator shall deem desirable:
(i) EXERCISE PRICE. The exercise price per share for the Stock covered
by an Option shall be determined by the Administrator.
(ii) OPTION TERM. The term of each Option shall be fixed by the
Administrator.
(iii) EXERCISABILITY; RIGHTS OF A STOCKHOLDER. Options shall become
vested and exercisable at such time or times, whether or not in
installments, as shall be determined by the Administrator at or after the
grant date. The Administrator may at any time accelerate the exercisability
of all or any portion of any Option. An optionee shall have the rights of a
stockholder only as to shares acquired upon the exercise of an Option and
not as to unexercised Options.
(iv) METHOD OF EXERCISE. Options may be exercised in whole or in part,
by giving written notice of exercise to the Company, specifying the number
of shares to be purchased. Payment of the purchase price may be made by one
or more of the following methods:
5
<PAGE> 6
(A) In cash, by certified or bank check or other instrument
acceptable to the Administrator;
(B) In the form of shares of Stock that are not then subject to
restrictions under any Company plan and that have been held by the
optionee for at least six months, if permitted by the Administrator in
its discretion. Such surrendered shares shall be valued at Fair Market
Value on the exercise date; or
(C) By the optionee delivering to the Company a properly executed
exercise notice together with irrevocable instructions to a broker to
promptly deliver to the Company cash or a check payable and acceptable
to the Company to pay the purchase price; provided that in the event
the optionee chooses to pay the purchase price as so provided, the
optionee and the broker shall comply with such procedures and enter
into such agreements of indemnity and other agreements as the
Administrator shall prescribe as a condition of such payment
procedure.
Payment instruments will be received subject to collection. The delivery of
certificates representing the shares of Stock to be purchased pursuant to
the exercise of an Option will be contingent upon receipt from the optionee
(or a purchaser acting in his stead in accordance with the provisions of
the Option) by the Company of the full purchase price for such shares and
the fulfillment of any other requirements contained in the Option or
applicable provisions of laws.
(v) TERMINATION BY REASON OF DEATH. Any Option held by an optionee
whose employment by (or other business relationship with) the Company and
its Subsidiaries is terminated by reason of death shall become fully
exercisable and may thereafter be exercised by the legal representative or
legatee of the optionee, for a period of 12 months (or such longer period
as the Administrator shall specify at any time) from the date of death, or
until the expiration of the stated term of the Option, if earlier.
(vi) Termination by Reason of Disability.
-----------------------------------
(A) Any Option held by an optionee whose employment by (or other
business relationship with) the Company and its Subsidiaries is
terminated by reason of Disability shall become fully exercisable and
may thereafter be exercised, for a period of 12 months (or such longer
period as the Administrator shall specify at any time) from the date
of such termination of employment (or business relationship), or until
the expiration of the stated term of the Option, if earlier.
6
<PAGE> 7
(B) The Administrator shall have sole authority and discretion to
determine whether a participant's employment (or business
relationship) has been terminated by reason of Disability.
(C) Except as otherwise provided by the Administrator at any
time, the death of an optionee during the period provided in this
Section 5(a)(vi) for the exercise of an Option shall extend such
period for 12 months from the date of death, subject to termination on
the expiration of the stated term of the Option, if earlier.
(vii) Termination by Reason of Retirement.
-----------------------------------
(A) Any Option held by an optionee whose employment by (or
business relationship with) the Company and its Subsidiaries is
terminated by reason of Retirement may thereafter be exercised, to the
extent it was exercisable at the time of such termination, for a
period of 12 months (or such other period as the Administrator shall
specify at any time) from the date of such termination of employment
(or business relationship), or until the expiration of the stated term
of the Option, if earlier.
(B) Except as otherwise provided by the Administrator at any
time, the death of an optionee during a period provided in this
Section 5(a)(vii) for the exercise of an Option shall extend such
period for 12 months from the date of death, subject to termination on
the expiration of the stated term of the Option, if earlier.
(viii) TERMINATION FOR CAUSE. If any optionee's employment by (or
business relationship with) the Company and its Subsidiaries is terminated
for Cause, any Option held by such optionee, including any Option that is
immediately exercisable at the time of such termination, shall immediately
terminate and be of no further force and effect; provided, however, that
the Administrator may, in its sole discretion, provide that such Option can
be exercised for a period of up to 30 days from the date of termination of
employment (or business relationship) or until the expiration of the stated
term of the Option, if earlier.
(ix) OTHER TERMINATION. Unless otherwise determined by the
Administrator, if an optionee's employment by (or business relationship
with) the Company and its Subsidiaries terminates for any reason other than
death, Disability, Retirement, or for Cause, any Option held by such
optionee may thereafter be exercised, to the extent it was exercisable on
the date of termination of employment (or business relationship), for three
months (or such longer period as the Administrator shall specify at any
time) from the date of termination of employment (or business relationship)
or until the expiration of the stated term of the Option, if earlier.
7
<PAGE> 8
(b) NON-TRANSFERABILITY OF OPTIONS. No Option shall be transferable by the
optionee otherwise than by will or by the laws of descent and distribution and
all Options shall be exercisable, during the optionee's lifetime, only by the
optionee. Notwithstanding the foregoing, the Administrator may provide in an
option agreement that the optionee may transfer, without consideration for the
transfer, such Option to members of his immediate family, to trusts for the
benefit of such family members, to partnerships in which such family members are
the only partners, or to charitable organizations, provided that the transferee
agrees in writing with the Company to be bound by all of the terms and
conditions of the Plan and the applicable option agreement.
(c) FORM OF SETTLEMENT. Shares of Stock issued upon exercise of an Option
shall be free of all restrictions under the Plan, except as otherwise provided
in the Plan.
SECTION 6. TAX WITHHOLDING
---------------
(a) PAYMENT BY PARTICIPANT. Each participant shall, no later than the date
as of which the value of any Stock first becomes includable in the gross income
of the participant for Federal income tax purposes, pay to the Company, or make
arrangements satisfactory to the Administrator regarding payment of, any
Federal, state, or local taxes of any kind required by law to be withheld with
respect to such income. The Company and its Subsidiaries shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment of
any kind otherwise due to the participant.
(b) PAYMENT IN STOCK. Subject to approval by the Administrator, a
participant may elect to have such tax withholding obligation satisfied, in
whole or in part, by (i) authorizing the Company to withhold from shares of
Stock to be issued pursuant to any Option a number of shares with an aggregate
Fair Market Value (as of the date the withholding is effected) that would
satisfy the withholding amount due, or (ii) transferring to the Company shares
of Stock owned by the participant with an aggregate Fair Market Value (as of the
date the withholding is effected) that would satisfy the withholding amount due.
SECTION 7. TRANSFER, LEAVE OF ABSENCE, ETC
-------------------------------
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or from
the Company to a Subsidiary, or from one Subsidiary to another; or
(b) an approved leave of absence for military service or sickness, or for
any other purpose approved by the Company, if the employee's right to
re-employment is guaranteed either by a statute or by contract or under the
policy pursuant to which the leave of absence was granted or if the
Administrator otherwise so provides in writing.
8
<PAGE> 9
SECTION 8. AMENDMENTS AND TERMINATION
--------------------------
The Board may, at any time, amend or discontinue the Plan and the
Administrator may, at any time, amend or cancel any outstanding Option (or
provide substitute Options at the same or reduced exercise or purchase price or
with no exercise or purchase price in a manner not inconsistent with the terms
of the Plan), but such price, if any, must satisfy the requirements which would
apply to the substitute or amended Option if it were then initially granted
under this Plan) for the purpose of satisfying changes in law or for any other
lawful purpose, but no such action shall adversely affect rights under any
outstanding Option without the holder's consent.
SECTION 9. STATUS OF PLAN
--------------
With respect to the portion of any Option which has not been exercised and
any payments in cash, Stock or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the Company unless the Administrator shall otherwise expressly
determine in connection with any Option or Options. In its sole discretion, the
Administrator may authorize the creation of trusts or other arrangements to meet
the Company's obligations to deliver Stock or make payments with respect to
Options hereunder, provided that the existence of such trusts or other
arrangements is consistent with the foregoing sentence.
SECTION 10. CHANGE OF CONTROL PROVISIONS
----------------------------
Upon the occurrence of a Change of Control as defined in this Section 10:
(a) Each outstanding Option shall automatically become fully exercisable
notwithstanding any provision to the contrary herein.
(b) "Change of Control" shall mean the occurrence of any one of the
following events:
(i) any "person," as such term is used in Sections 13(d) and 14(d) of
the Act (other than the Company, any of its Subsidiaries, or any trustee,
fiduciary or other person or entity holding securities under any employee
benefit plan or trust of the Company or any of its Subsidiaries), together
with all "affiliates" and "associates" (as such terms are defined in Rule
12b-2 promulgated under the Act) of such person, shall become the
"beneficial owner" (as such term is defined in Rule 13d-3 promulgated under
the Act), directly or indirectly, of securities of the Company representing
15% or more of either (A) the combined voting power of the Company's then
outstanding securities having the right to vote in an election of the Board
("Voting Securities") or (B) the then outstanding shares of Stock of the
Company (in either such case other than as a result of an acquisition of
securities directly from the Company); or
9
<PAGE> 10
(ii) persons who, as of the Effective Date, constitute the Board (the
"Incumbent Directors") cease for any reason, including, without limitation,
as a result of a tender offer, proxy contest, merger or similar
transaction, to constitute at least a majority of the Board, provided that
any person becoming a director of the Company subsequent to the Effective
Date whose election or nomination for election was approved by a vote of at
least a majority of the Incumbent Directors shall, for purposes of this
Plan, be considered an Incumbent Director; or
(iii) the stockholders of the Company shall approve (A) any
consolidation or merger of the Company or any Subsidiary where the
shareholders of the Company, immediately prior to the consolidation or
merger, would not, immediately after the consolidation or merger,
beneficially own (as such term is defined in Rule 13d-3 promulgated under
the Act), directly or indirectly, shares representing in the aggregate 80%
or more of the voting shares of the corporation issuing cash or securities
in the consolidation or merger (or of its ultimate parent corporation, if
any), (B) any sale, lease, exchange or other transfer (in one transaction
or a series of transactions contemplated or arranged by any party as a
single plan) of all or substantially all of the assets of the Company or
(C) any plan or proposal for the liquidation or dissolution of the Company.
Notwithstanding the foregoing, a "Change of Control" shall not be deemed to
have occurred for purposes of the foregoing clause (i) solely as the result of
an acquisition of securities by the Company which, by reducing the number of
shares of Stock or other Voting Securities outstanding, increases (x) the
proportionate number of shares of Stock beneficially owned by any person to 15%
or more of the shares of Stock then outstanding or (y) the proportionate voting
power represented by the Voting Securities beneficially owned by any person to
15% or more of the combined voting power of all then outstanding Voting
Securities; PROVIDED, HOWEVER, that if any person referred to in clause (x) or
(y) of this sentence shall thereafter become the beneficial owner of any
additional shares of Stock or other Voting Securities (other than pursuant to a
stock split, stock dividend, or similar transaction), then a "Change of Control"
shall be deemed to have occurred for purposes of the foregoing clause (i).
SECTION 11. GENERAL PROVISIONS
------------------
(a) NO DISTRIBUTION; COMPLIANCE WITH LEGAL REQUIREMENTS. The Administrator
may require each person acquiring Stock pursuant to an Option to represent to
and agree with the Company in writing that such person is acquiring the shares
without a view to distribution thereof.
No shares of Stock shall be issued pursuant to an Option until all
applicable securities law and other legal and stock exchange or similar
requirements have been satisfied. The Administrator may require the placing of
such stop-orders and restrictive legends on certificates for Stock and Options
as it deems appropriate.
10
<PAGE> 11
(b) DELIVERY OF STOCK CERTIFICATES. Delivery of stock certificates to
participants under this Plan shall be deemed effected for all purposes when the
Company or a stock transfer agent of the Company shall have mailed such
certificates in the United States mail, addressed to the participant, at the
participant's last known address on file with the Company.
(c) OTHER COMPENSATION ARRANGEMENTS; NO EMPLOYMENT RIGHTS. Nothing
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, including trusts, and such arrangements may be either
generally applicable or applicable only in specific cases. The adoption of this
Plan and the grant of Options do not confer upon any employee any right to
continued employment with the Company or any Subsidiary.
SECTION 12. EFFECTIVE DATE OF PLAN
----------------------
This Plan shall become effective upon approval by the Board.
SECTION 13. GOVERNING LAW
-------------
This Plan shall be governed by Massachusetts law except to the extent such
law is preempted by federal law.
DATE APPROVED BY BOARD OF DIRECTORS: June 13, 1995
11
<PAGE> 1
EXHIBIT 11
Ferrofluidics Corporation
<TABLE>
Statement Re: Computation of Per Share Earnings
For the Years ended June 30, 1996, 1995 and 1994
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Primary
Average shares outstanding 6,196,934 5,563,160 5,366,350
Net effect of dilutive stock options - based
on the treasury stock method using
average market price 116,111 NA NA
---------- ---------- ------------
Total 6,313,045 5,563,160 5,366,350
Net income $3,820,000 $ 889,000 $(10,713,000)
Per share amount $.61 $.16 $(2.00)
==== ==== ======
Fully Diluted
Average shares outstanding 6,196,934 5,563,160 5,366,350
Net effect of dilutive stock options - based
on the treasury stock method using
year-end market price, if higher than
average market price 156,817 NA NA
---------- ---------- ------------
Total 6,353,751 5,563,160 5,366,350
Net income $3,820,000 $ 889,000 $(10,713,000)
Per share amount $.60(A) $.16 $(2.00)
==== ==== ======
<FN>
(A) Earnings per share assuming full dilution is not presented in the Statement
of Operations for 1996 as it is less than 3% more dilutive than the primary
computation.
</TABLE>
56
<PAGE> 1
EXHIBIT 21
Subsidiaries of the Ferrofluidics Corporation
As of June 30, 1996
NAME PLACE OF ORGANIZATION
- ---- ---------------------
Advanced Products and Technologies, GmbH Nurtingen, Germany
Advanced Products and Technologies, Ltd. Oxford, England
Advanced Products and Technologies, S.A. Madrid, Spain
Ferrofluidics Japan Corporation Tokyo, Japan
Ferrohydrodynamics Corporation Massachusetts
57
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-38642) pertaining to the 1983 Employee Stock Purchase Plan and
in the Registration Statement (Form S-8 No. 33-38643) pertaining to the 1984
Non-Qualified Stock Option Plan of Ferrofluidics Corporation of our report dated
September 3, 1996, with respect to the consolidated financial statements and
schedule of Ferrofluidics Corporation for the year ended June 30, 1996, included
in the Annual Report (Form 10-K) for the year ended June 30, 1996.
/s/ Ernst & Young LLP
Manchester, New Hampshire
September 20, 1996
58
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
of Ferrofluidics Corporation on Form S-8 (File No. 33-38642 and File No.
33-38643) of our report dated August 31, 1995, on our audit of the consolidated
financial statements and financial statement schedule of Ferrofluidics
Corporation as of June 30, 1995 and for the years ended June 30, 1995 and June
30, 1994, which report is included in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts
September 25, 1996
59
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FERROFLUIDICS CORPORATION'S BALANCE SHEETS AS OF JUNE 30, 1996 AND THE RESULTS
OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
JUNE 30, 1996.
</LEGEND>
<CIK> 0000353286
<NAME> FERROFLUIDICS CORP
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 1,701,000
<SECURITIES> 0
<RECEIVABLES> 13,077,000
<ALLOWANCES> 320,000
<INVENTORY> 13,829,000
<CURRENT-ASSETS> 30,875,000
<PP&E> 18,367,000
<DEPRECIATION> 9,583,000
<TOTAL-ASSETS> 43,639,000
<CURRENT-LIABILITIES> 18,735,000
<BONDS> 5,000,000
<COMMON> 35,895,000
0
0
<OTHER-SE> (16,193,000)
<TOTAL-LIABILITY-AND-EQUITY> 43,639,000
<SALES> 72,967,000
<TOTAL-REVENUES> 72,967,000
<CGS> 51,941,000
<TOTAL-COSTS> 51,941,000
<OTHER-EXPENSES> 16,089,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 580,000
<INCOME-PRETAX> 4,307,000
<INCOME-TAX> 487,000
<INCOME-CONTINUING> 3,820,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,820,000
<EPS-PRIMARY> .61
<EPS-DILUTED> .61
</TABLE>
