<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the nine months ended October 3, 1998 Commission file No. 0-11201
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MERRIMAC INDUSTRIES, INC.
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(Exact name of small business issuer as specified in its charter)
New Jersey 22-1642321
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
41 Fairfield Place, West Caldwell, New Jersey 07006
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (973) 575-1300
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Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
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Common Stock American Stock Exchange
Securities registered pursuant to Section 12(g) of the Exchange Act: None
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Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Class Outstanding at October 30, 1998
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Common Stock ($.50 par value) 1,788,849
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
MERRIMAC INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
---------------------------
(Unaudited)
October 3
1998
-----------
ASSETS
Current assets:
Cash and cash equivalents........................... $2,185,199
Accounts receivable................................. 4,731,302
Inventories:
Finished goods.................................... 512,438
Work in process................................... 1,962,659
Parts and raw materials........................... 866,644
-----------
Total inventories.............................. 3,341,741
Other current assets................................ 371,657
Deferred tax assets................................. 885,200
-----------
Total current assets......................... 11,515,099
Property, plant and equipment........................ 15,657,553
Less accumulated depreciation..................... 10,180,964
-----------
Net property, plant and equipment............. 5,476,589
Deferred income taxes................................ 65,000
Other assets......................................... 91,031
-----------
Total Assets................................ $17,147,719
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................. $1,123,181
Accrued liabilities............................... 1,133,133
Income taxes payable.............................. 244,982
-----------
Total current liabilities.................... 2,501,296
Deferred compensation............................. 511,629
-----------
Total liabilities.......................... 3,012,925
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Stockholders' equity:
Common stock, par value $.50 per share:
Authorized: 5,000,000 shares
Issued: 2,683,398 shares................ 1,341,699
Additional paid-in capital..................... 11,147,696
Retained earnings.............................. 9,693,952
Translation adjustment......................... (9,207)
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22,174,140
Less treasury stock, at cost: 894,549 shares... (7,679,346)
Less loan to officer-stockholder............... (360,000)
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Total stockholders' equity................ 14,134,794
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Total Liabilities and Stockholders' Equity.......... $17,147,719
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See accompanying notes to consolidated financial statements.
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MERRIMAC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(Unaudited)
Thirteen Weeks Ended Nine Months Ended
----------------------- ----------------------
October 3 September 27 October 3 September 27
1998 1997 1998 1997
---------- ---------- ----------- -----------
Net sales .................... $5,120,946 $4,983,793 $16,487,212 $14,245,236
---------- ---------- ----------- -----------
Cost and expenses:
Cost of sales .............. 2,851,976 2,734,619 9,101,555 7,710,809
Selling, general and
administrative ........... 1,674,779 1,546,417 5,032,992 4,650,250
Research and development.... 282,264 162,015 745,665 344,233
---------- ---------- ----------- -----------
4,809,019 4,443,051 14,880,212 12,705,292
---------- ---------- ----------- -----------
Operating income ............. 311,927 540,742 1,607,000 1,539,944
Interest and other
income, net................. 36,876 23,273 66,191 70,917
---------- ---------- ----------- -----------
Income before income taxes ... 348,803 564,015 1,673,191 1,610,861
Provision for income taxes ... 101,000 214,000 589,000 605,000
---------- ---------- ----------- -----------
Net income ................... $ 247,803 $ 350,015 $ 1,084,191 $ 1,005,861
========== ========== =========== ===========
Net income per
common share-basic ......... $.14 $ .21 $.62 $ .60
Net income per
common share-diluted ....... $.14 $ .19 $.59 $ .57
Cash dividend per share of
common stock ............... $ - $.09 $ - $.27
==== ==== ==== =====
Weighted average number of
shares outstanding:
Basic ...................... 1,782,675 1,693,988 1,758,769 1,680,201
Diluted .................... 1,805,997 1,807,449 1,831,076 1,767,878
See accompanying notes to consolidated financial statements.
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MERRIMAC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
Nine Months Ended
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October 3 September 27
1998 1997
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Cash flows from operating activities:
Net income ....................................... $1,084,191 $1,005,861
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization................... 702,704 682,345
Deferred compensation .......................... 174,977 129,030
Stock-based compensation expense ............... 87,400 -
Changes in operating assets and liabilities:
Accounts receivable...........................(1,665,013) (1,576,446)
Inventories................................... 1,166,828 (124,189)
Other current assets.......................... (250,454) 41,025
Deferred tax assets........................... 34,300 -
Other assets.................................. 22,745 (92,655)
Accounts payable.............................. (18,598) 163,828
Accrued liabilities........................... (69,836) 487,681
Income taxes payable.......................... 199,155 263,827
Deferred compensation......................... (39,047) (22,500)
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Net cash provided by operating activities........... 1,429,352 957,807
---------- ----------
Cash flows from investing activities:
Purchase of capital assets....................... (2,012,535) (1,121,213)
Proceeds from sales of capital assets............ 12,775 2,257
Purchases of available-for-sale securities....... - (138,442)
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Net cash used in investing activities.............. (1,999,760) (1,257,398)
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Cash flows from financing activities:
Proceeds from the issuance of common stock....... 341,891 467,444
Payment of dividends............................. (1,009) (459,044)
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Net cash provided by financing activities 340,882 8,400
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Net decrease in cash and cash equivalents.......... (229,526) (291,191)
Cash and cash equivalents at beginning of year..... 2,414,725 1,265,581
----------- ----------
Cash and cash equivalents at end of period......... $2,185,199 $ 974,390
=========== ==========
Supplemental disclosures of cash flows information:
Cash paid during the period for:
Income taxes................................... $ 390,000 $ 395,000
========== ==========
See accompanying notes to consolidated financial statements.
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MERRIMAC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Basis of presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-QSB and therefore, do not include
all information and footnote disclosures otherwise required by Regulation S-B.
The financial statements do, however, reflect all adjustments which are, in the
opinion of the management, necessary for a fair presentation of the financial
position of the Company as of October 3, 1998 and its results of operations and
cash flows for the periods presented.
B. Net income per common share
Effective January 3, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 128, "Earnings per Share," which
establishes the new standard for computation and presentation of net income per
common share. Under the new requirements both basic and diluted net income per
common share are presented. All prior period net income per common share
information has been restated.
Basic net income per common share is calculated by dividing net income,
less dividends on preferred stock, if any, by the weighted average common shares
outstanding during the period.
The calculation of diluted net income per common share is similar to that
of basic net income per common share, except that the denominator is increased
to include the number of additional common shares that would have been
outstanding if all potentially dilutive common shares, principally those
issuable under stock options, were issued during the reporting period.
C. Accounting period
The Company's fiscal year is the 52-53 week period ending on the Saturday
closest to December 31. The Company has quarterly dates that correspond with the
Saturday closest to the last day of each calendar quarter and each quarter
consists of 13 weeks in a 52-week year. Every fifth year, the additional week to
make a 53-week year (fiscal year 1997 was the latest and fiscal year 2002 will
be the next) is added to the fourth quarter, making such quarter consist of 14
weeks.
D. Dividends
During fiscal 1997, the Company paid a $.091 per share dividend (previously
$.10 per share, adjusted for the 10% stock dividend in May 1998) in each of the
first three quarters. The dividend was eliminated by a decision of the Company's
Board of Directors (the "Board") on August 28, 1997.
The Board announced on May 5, 1998, the declaration of a 10% stock dividend
payable on June 5, 1998 to stockholders of record on May 15, 1998. Fractional
shares were cashed-out and payments were made to stockholders in lieu of
fractional shares on June 5, 1998. The basic and diluted weighted average number
of shares outstanding and net income per share information for all prior
reporting periods have been restated to reflect the effects of the stock
dividend.
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MERRIMAC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
E. Purchase of common stock by Officer and Director
The Company sold 20,000 shares of Common Stock from its treasury to the
Company's Chairman, President and Chief Executive Officer, Mason N. Carter, on
May 4, 1998 at a price of $12.75 per share, which approximated the average
closing price of the Company's Common Stock during the first quarter of 1998.
The Company extended a loan of $255,000 in connection with the purchase of these
shares and amended a prior loan to Mr. Carter of $105,000. Mr. Carter has
contractually agreed to restrictions on the resale of these shares.
The new promissory note for a total of $360,000 is due May 4, 2003 and
interest payments are due quarterly, calculated at a variable interest rate
based on the prime rate of the Company's lending bank. Payment of the loan is
secured by the pledge of the 33,000 shares of Common Stock that were purchased
by Mr. Carter with the proceeds of the loan.
As a result of the amendment to the terms of principal amortization of the
prior loan, the amount of $360,000 is reflected as a reduction of stockholders'
equity in the balance sheet. The Company will record compensation expense of
approximately $52,000 by charging to operations over a one-year period
commencing the date of the transaction, as Mr. Carter is expected to perform
services throughout this time period.
F. Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
130"), and Statement of Financial Accounting Standards No. 131, Disclosures
about Segments of an Enterprise and Related Information ("SFAS 131"), which
could require the Company to make additional disclosures in its financial
statements no later than for the year ending January 2, 1999. SFAS 130 defines
comprehensive income, which includes items in addition to those reported in the
statement of operations, and requires disclosures about the components of
comprehensive income. SFAS 131 requires disclosures for each segment of a
business and the determination of segments based on a company's internal
management structure. The Company's management believes that the provisions of
SFAS 130 are not material to the disclosures made by the Company and a statement
of comprehensive income has not been included in the consolidated financial
statements. The Company's management is still evaluating whether SFAS 131 will
require the Company to make any additional disclosures.
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<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INCOME STATEMENT SUMMARY
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(Unaudited)
The following table displays line items in the Consolidated Statements of
Income as a percentage of net sales.
Percentage of Net Sales
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Third Quarter Year-to-date
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Thirteen Weeks Ended Thirty-nine Weeks Ended
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October 3 September 27 October 3 September 27
1998 1997 1998 1997
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Net sales......................... 100.0% 100.0% 100.0% 100.0%
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Costs and expenses:
Cost of sales................... 55.7 54.9 55.2 54.1
Selling, general and
administrative................ 32.7 31.0 30.5 32.7
Research and development ....... 5.5 3.3 4.5 2.4
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93.9 89.2 90.2 89.2
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Operating income ................. 6.1 10.8 9.8 10.8
Other income, net ................ 0.7 0.5 0.4 0.5
----- ----- ----- -----
Income before income taxes ....... 6.8 11.3 10.2 11.3
Provision for income taxes ....... 2.0 4.3 3.6 4.2
----- ----- ----- -----
Net income ....................... 4.8% 7.0% 6.6% 7.1%
===== ===== ===== =====
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Quarter and nine months ended October 3, 1998 compared to the quarter and
nine months ended September 27, 1997
Results of operations for the quarter reflect an increase in net sales of
$137,000 or 2.7% and decreases in: operating income of $229,000 or 42.3%; net
income of $102,000 or 29.1%; and diluted net income per share of $.05 or 26.3%.
Nine months results of operations reflect increases in: net sales of $2,242,000
or 15.7%; operating income of $67,000 or 4.4%; net income of $78,000 or 7.8%;
and diluted net income per share of $.02 or 3.5%.
The net sales increase was partially attributable to delivering shipments
against a firm order backlog in accordance with customers' order release dates
that coincided with the Company's production and shipment schedules. In
addition, customer service focus and key account program initiatives caused a
reduction of manufacturing cycle-time.
Orders received for the third quarter of 1998 of $3,599,000 decreased
$1,712,000 or 32.2% compared to that of the third quarter of 1997, and the
backlog of firm unfilled orders at October 3, 1998 decreased $3,711,000 or 36.6%
to $6,423,000 for the same end of quarter comparisons. Orders received for the
first nine months of 1998 were $13,151,000, a decrease of $2,823,000 or 17.7%
over the comparable period last year. Compared to year-end 1997, backlog
decreased $3,335,000 or 34.2%.
Major satellite and defense customers continued to defer purchases as a
result of delays in certain programs. Management of the Company believes that
many of the satellite constellation programs that have been delayed may resume
and translate into orders during the remainder of 1998 and continue positively
into 1999. Customer requests for design work are on the increase and are
currently under development utilizing the Company's proprietary Multi-Mix(TM)
Microtechnology. This technology provides greater per unit content and enables
the Company's entry into new markets for increased order opportunities. While
this trend in order delays is not expected to be long-term, an extended
continuation in the delay of or reduction in new orders for Company products
could have a material financial impact on future sales and earnings.
As a result of the increases in the quarter and nine month net sales, cost
of sales increased $117,000 or 4.3% for the quarter and $1,391,000 or 18.0% for
nine months. The primary reason for the increase was the effect of the increase
in sales revenue on cost of sales. Cost of sales as a percentage of net sales
increased .8% to 55.7% for the quarter and 1.1% to 55.2% for nine months. These
increases are due to compensation increases to hourly, certain salaried
engineering and supervisory workforce, an increase in levels of overtime worked,
and additional manufacturing personnel that were hired for the Costa Rica
manufacturing facility to reduce direct labor hourly costs. Some of these costs
were incurred in order to further efforts on improving delivery performance by
reducing the number of late ship days in the backlog.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Selling, general and administrative expenses increased $128,000 or 8.3% for
the quarter and increased $383,000 or 8.2% for nine months. As a percentage of
net sales increased 1.7% to 32.7% for the quarter and decreased 2.1% to 30.5%
for nine months. Increases in selling costs were attributed to additional sales
commissions due to the increase in sales revenue. The opening, support and
staffing of a European sales office also added to higher selling costs. General
and administrative expenses partially increased due to compensation costs
related to the hiring of additional administrative and marketing personnel and
higher compensation expenses resulting from last year's mid-year merit increases
to certain employees. Further increases in these expenses were related to market
development research and associated new product launch costs.
Research and development expenses for new products, primarily the recently
introduced Multi-Mix(TM) Microtechnology, were $282,000 for the third quarter
and $746,000 for the nine months, increases of $120,000 or 74% and $401,000 or
117% compared to $162,000 and $344,000 reported for comparable 1997 periods.
Research and development expenses in the prior year have been reclassified to
conform to the current presentation.
Net income decreased $102,000 or 29.1% to $248,000 for the third quarter of
1998 compared to $350,000 reported in 1997. Diluted net income per share was
$.14 for the third quarter of 1998, compared to the per share amount of $.19
reported for the third quarter of the prior year on a similar number of weighted
average diluted common shares outstanding in both years. The diluted weighted
average number of common shares outstanding increased by 63,000 shares or 3.6%
for the first nine months compared to the first nine months of the prior year.
The increase resulted from common stock issued during the second half of 1997
and first half of 1998 from the exercise of stock options and the sale of common
stock from its treasury.
Because of the current weakness in orders, the Company is preparing to
layoff approximately 15% of its workforce and to offer early retirement packages
to certain employees during the fourth quarter of 1998. The Company plans to
report a restructuring charge in the fourth quarter of 1998 of approximately
$200,000 before taxes for the reduction in workforce and voluntary early
retirements. The saving in costs for future fiscal years from this restructuring
should approximate at least $800,000 annually, depending upon the number of
employees accepting early retirement. The Company further estimates that sales
will decline for the fourth quarter 1998, as a result of the decline in backlog
for the previous quarters, and it expects to report an operating loss before the
restructuring charge.
Liquidity and Capital Resources
The Company's financial condition remained strong throughout the first nine
months of 1998. The Company had liquid resources comprised of cash and cash
equivalents (including investments in available-for-sale securities in 1997)
totaling approximately $2,200,000 compared to approximately $2,300,000 in 1997.
The Company's working capital was approximately $9,000,000 and its current ratio
was 4.6 at the end of the first nine months 1998 compared to $8,600,000 and 4.3,
respectively, in 1997.
The Company's operating activities generated cash flows of $1,429,000 in
the first nine months of 1998 compared to $958,000 in 1997. Primary reasons for
the increase in operating cash flows in 1998 are higher net income and a
decrease in inventories of $1,167,000 which was partially offset by an increase
in accounts receivable of $1,665,000 as a result of higher first nine months
1998 net sales. The Company made net investments in property, plant and
equipment of $2,000,000 in the first nine months of 1998 compared to $1,119,000
in 1997. These capital expenditures are related to new production and test
equipment capabilities in connection with the introduction of new products and
enhancements to existing products.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources (continued)
The Company paid cash dividends of $459,000 in 1997 at the quarterly rate
of $.091 per share (previously $.10 per share, adjusted for the 10% stock
dividend). The Board of Directors (the "Board") decided to eliminate cash
dividends on August 28, 1997. The Board approved the declaration of a 10% stock
dividend to stockholders of record on May 15, 1998 which was distributed on June
5, 1998 along with payments made for fractional shares.
The Company has entered into a $7,000,000 revolving credit and term loan
agreement with Summit Bank, at one-half percent below the bank's floating prime
rate. Up to $2,500,000 of borrowings may be used for capital expenditures under
the term loan. The full line is available for future borrowing needs of the
Company for working capital and general corporate purposes.
Management believes that with the liquid resources and the unused line of
credit available, along with cash flows expected to be generated from
operations, the Company will have sufficient resources for currently
contemplated operations in 1998.
The Company's manufacturing subsidiary in Costa Rica began operations in
the second half of 1996. In January 1998, the subsidiary moved to a larger
17,000 square-foot facility and during 1998 has obtained ISO 9002
certification.
The Company's capital expenditures for new projects and production
equipment are anticipated to exceed its depreciation and amortization expenses
in 1998. The Company has issued purchase order commitments to processing
equipment manufacturing vendors for approximately $700,000 of capital equipment
and building improvements. The Company anticipates that such equipment will be
purchased and become operational and building improvements completed during the
remainder of 1998.
The Company was authorized by the Board on November 1, 1996 to purchase up
to 100,000 shares of its common stock, depending on market conditions, and has
purchased approximately 4,100 shares to date under such authorization. There
have been no repurchases of common stock during 1997 or 1998.
Periodically, the Company explores the possibility of acquiring similar
manufacturers of electronic devices or companies in related fields. Management
believes that any such acquisitions and business operation expansion could be
financed through its liquid and capital resources currently available as
previously discussed and/or through additional borrowing or issuance of equity
or debt securities. The additional debt from any acquisitions, if consummated,
would increase the Company's debt-to-equity ratio and such debt or equity
securities might, at least in the near term, have a dilutive effect on net
income per share.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Year 2000
The Company recognizes the need to assure that its operations will not be
adversely impacted by Year 2000 software failures. The impact on operations has
been evaluated and plans have been formulated to ensure Year 2000 compliance
before the end of 1998. Beginning in 1998, existing mission-critical software is
being revised to process dates for 1999 and beyond without any disruption to the
business. Software revisions are being performed by Company employees and the
total estimated cost for achieving Year 2000 compliance has not been, and is not
anticipated to be, material to the Company's financial position or results of
operations.
Information Technology Systems
Without remediation certain of our internally developed order processing
and manufacturing support applications will not be capable of processing dates
beyond December 31, 1999 properly. The Company is currently in the process of
correcting the programs, and all business order processing and manufacturing
support operations applications should properly process dates beyond December
31, 1999 after program remediation is completed. The Company does not have any
third-party software applications that are date dependent. The Company's desktop
computers and internal local area network have been checked for Year 2000
problems and none have been found. All programs purchased from third parties are
believed to be Year 2000 compliant based on certification received from the
vendors.
Non- Information Technology Systems
Internal systems used in our manufacturing processes are not date
dependent. Other support systems, such as security and HVAC, have been checked
and will not be adversely affected by dates beyond December 31, 1999. All of the
Company's suppliers have been contacted concerning their Year 2000 readiness and
the Company will be evaluating their responses regarding their Year 2000
compliance.
Costs to Company to Address Year 2000 Issues
To date, the Company has expended approximately $50,000 (exclusive of
internal personnel compensation costs) to perform the program remediation to
non- compliant programs and for training and other consulting services. The
Company estimates remaining costs to project completion to be approximately
$100,000. No other information technology projects have been deferred as a
result of the Year 2000 project as it was scheduled as part of the Company's
strategic business plan.
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<PAGE>
Risks of the Company to Year 2000 Issues
The Company believes that the risks of the Year 2000 problem are moderately
low because its products are not date dependent and its internal software
applications should be Year 2000 compliant by December 31, 1998. The Company
will be evaluating the Year 2000 readiness of its key suppliers throughout 1999
and will find alternate sources for those suppliers that are not Year 2000
compliant. The potential impact and related costs resulting from the Company's
failure to find alternate suppliers has not been determined. In addition, the
Company's customers are evaluating their own Year 2000 readiness and have
circulated questionnaires regarding the Company's level of compliance. The
Company will continue to update its customer's with respect to Year 2000
readiness and will also monitor the progress of its customers in order to assess
the attendant risks of inadequate Year 2000 compliance.
Contingency Plans
Currently, the Company does not have a contingency plan, since its products
are not date dependent. In addition, the Company's software remediation program
is on schedule, within its established budget and is approximately three months
from completion of its Year 2000 plans.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
130"), and Statement of Financial Accounting Standards No. 131, Disclosures
about Segments of an Enterprise and Related Information ("SFAS 131"), which
could require the Company to make additional disclosures in its financial
statements no later than for the year ending January 2, 1999. SFAS 130 defines
comprehensive income, which includes items in addition to those reported in the
statement of operations, and requires disclosures about the components of
comprehensive income. SFAS 131 requires disclosures for each segment of a
business and the determination of segments based on a company's internal
management structure. The Company's management believes that the provisions of
SFAS 130 are not material to the disclosures made by the Company and a statement
of comprehensive income has not been included in the consolidated financial
statements. The Company's management is still evaluating whether SFAS 131 will
require the Company to make any additional disclosures.
Forward-looking statements
Certain statements in this quarterly report are forward-looking statements
based on current management expectations and are subject to risks and
uncertainties. Factors that could cause future results to differ from these
expectations include general economic and industry conditions, competitive
products and pricing pressures, risks relating to governmental regulatory
actions in communications and defense programs, and inventory risks due to
technological innovation. Additional factors to which the Company's performance
is subject are described in the Company's reports filed from time to time with
the Securities and Exchange Commission.
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<PAGE>
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit No.
10 Stockholder's Agreement between the Company and
Charles F. Huber II dated as of October 30, 1998.
11 Statement re: Computation of earnings per share.
27 Financial Data Schedule for the Nine Months Ended October 3, 1998.
(b) Reports on Form 8-K.
A Current Report on Form 8-K was filed on August 6, 1998 reporting the
Company's results of operations for the second quarter and six months 1998.
A Current Report on Form 8-K was filed on November 13, 1998 reporting the
Company's results of operations for the third quarter and nine months 1998.
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<PAGE>
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.
MERRIMAC INDUSTRIES, INC.
-------------------------
(Registrant)
Date: November 16, 1998 By: /s/ Mason N. Carter
-------------------------------------
Mason N. Carter
Chairman, President and
Chief Executive Officer
Date: November 16, 1998 By: /s/ Robert V. Condon
-------------------------------------
Robert V. Condon
Vice President, Finance, Treasurer,
Secretary and Chief Financial Officer
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<PAGE>
Exhibit 10
STOCKHOLDER'S AGREEMENT
STOCKHOLDER'S AGREEMENT, dated as of October 30, 1998 (this "Agreement"),
by and between Merrimac Industries, Inc., a New Jersey corporation (the
"Company"), and Charles F. Huber, II ("Huber").
WHEREAS, Huber is the record and beneficial owner of the Huber Shares
(as defined herein);
WHEREAS, the parties agree to the transfer and voting provisions relating
to the Covered Securities (as defined herein) as set forth herein; and
WHEREAS, the Company desires to engage Huber to advise and assist in the
Company's business, and Huber has agreed to provide consulting services to the
Company as set forth herein.
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants and agreements herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company and Huber agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Certain Definitions. For purposes of this Agreement, the
following terms shall have the meanings indicated:
"Affiliate" means, with respect to any Person, any other Person which
directly or indirectly controls, or is under common control with, or is
controlled by, such first Person. The term "affiliated" (whether or not
capitalized) shall have a correlative meaning. For the purposes of this
definition, "control," as used with respect to any Person, shall mean the
possession, directly or indirectly through or with one or more intermediaries,
of the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise. The terms "controlled by" and "under common control with" shall have
correlative meanings.
"Agreement" means this Stockholder's Agreement and any schedules and
exhibits attached hereto, as the same may be amended, supplemented or modified
in accordance with the terms hereof.
"Associate" means, with respect to any Person, (a) any Entity of which such
Person is an officer or partner or is, directly or indirectly, the beneficial
owner of 10
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percent or more of any equity securities of any Class, (b) any trust or
other estate in which such Person has a substantial beneficial interest or as to
which such Person serves as trustee or in a similar fiduciary capacity, (c) any
relative or spouse of such Person, or any relative of such spouse, who has the
same home as such Person and (d) any Associates thereof.
"Business Day" means any day other than a Saturday, a Sunday or a day on
which banking institutions in New York, New York are not open for business.
"Cause" shall have the meaning set forth in Section 2.6 of this Agreement.
"Class" shall have the meaning set forth in the definition of Covered
Securities.
"Common Stock" shall have the meaning set forth in the definition of Huber
Shares.
"Company" shall have the meaning set forth in the preamble to this
Agreement.
"Consulting Agreement" means the Consulting Agreement, dated as of August
1, 1997, by and between the Company and Huber.
"Consulting Term" shall have the meaning set forth in Section 2.5 of this
Agreement.
"Contract" means any agreement, contract, obligation, commitment,
indenture, lease, license, instrument, note, bond, security, agreement in
principle, letter of intent, undertaking, promise, covenant, arrangement or
understanding, whether written or oral.
"Covered Securities" means (i) any and all shares (or other units) of
capital stock of the Company, however denominated, of any class, series, issue
or other type ("Class"), including shares of capital stock into which any such
Class may be changed, and (ii) any and all Rights with respect to any such
shares of capital stock of the Company of any Class. If, at any time, any
Covered Securities of any Class are changed into shares of capital stock of any
other Class or other securities of any Class, whether by reason of a
reclassification, reorganization, recapitalization, consolidation, merger,
exchange or any other event or transaction of any nature whatsoever, then such
shares of capital stock or other securities into which such Covered Securities
are changed shall also be "Covered Securities", and this sentence shall apply
successively on each and every occasion on which any event or transaction of any
kind referred to shall occur. If, in connection with any consolidation, merger,
binding share exchange or reorganization to which the Company is a party and in
which the Company is not the surviving or continuing corporation or any sales,
conveyance, transfer or lease to another Entity of the properties and assets of
the Company as an entirety or substantially as an entirety, capital stock or
other securities of any Class of the successor or acquiring Entity are issued or
issuable in respect of any Covered Securities on any Class, then such shares of
capital stock or other securities of such successor or acquiring Entity shall
also be "Covered Securities". The term "Covered Securities" also includes all
shares or other appropriate units of capital stock or other securities of any
Class issued as a dividend or distribution on any other shares or other units of
Covered Securities.
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"Disability" means, with respect to Huber, the inability to provide the
consulting services contemplated hereunder for a period in excess of 90 days.
"Entity" means any corporation, limited liability company, general or
limited partnership, joint venture, association, joint stock company, trust,
other unincorporated business or organization or other Person which is not
either a natural person or a Governmental Authority.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Huber" shall have the meaning set forth in the preamble to this Agreement.
"Huber Shares" means (i) the 156,000 shares of issued and outstanding
Common Stock, par value $.50 per share (the "Common Stock"), of the Company
owned by Huber on the date hereof, (ii) all shares of Common Stock and Covered
Securities of the Company hereafter acquired by Huber pursuant to the exercise
of Rights with respect to the shares of Common Stock of the Company currently
held by Huber or pursuant to the exercise of Rights with respect to Covered
Securities of the Company hereafter acquired or held by Huber with the written
consent of the Company, and (iii) all Rights with respect to shares of Common
Stock or Covered Securities of the Company currently owned or held by Huber or
hereafter acquired or held by Huber with the written consent of the Company.
"Initial Consulting Period" shall have the meaning set forth in Section 2.5
of this Agreement.
"Liens" means any liens, claims, charges, conditions, equitable interests,
commitments (fixed or contingent), encumbrances, options, pledges, security
interests, mortgages, retention of title agreements, defects of title, rights of
interest or restrictions of any kind or nature, including any restriction on
use, voting, transfer, receipt of income or exercise of any other attribute of
ownership.
"Offer" shall have the meaning set forth in Section 3.3 of this Agreement.
"Offer Note" shall have the meaning set forth in Section 3.3 of this
Agreement.
"Offer Price" shall have the meaning set forth in Section 3.3 of this
Agreement.
"Offered Securities" shall have the meaning set forth in Section 3.3 of
this Agreement.
"Offered Terms" shall have the meaning set forth in Section 3.3 of this
Agreement.
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"Person" means any individual, corporation, limited liability company or
entity, general or limited partnership, joint venture, association, joint stock
company, trust, unincorporated business or organization, Governmental Authority
or other entity or legal person, whether acting in an individual, fiduciary or
other capacity.
"Releasees" shall have the meaning set forth in Section 7.1 of this
Agreement.
"Reports" shall have the meaning set forth in Section 5.1(d) of this
Agreement.
"Rights" means options, warrants, convertible or exchangeable securities or
other rights, however denominated, to subscribe for, purchase or otherwise
acquire any equity interest or other security of any Class, with or without
payment of additional consideration in cash or property, either immediately or
upon the occurrence of a specified date or a specified event or the satisfaction
or happening of any other condition or contingency.
"SEC" shall have the meaning set forth in Section 5.1(d) of this Agreement.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Total Voting Power" means the aggregate number of votes which may be cast
by holders of issued and outstanding Covered Securities.
"Transfer" means, when used with reference to any Covered Securities or
other securities, to directly or indirectly, voluntarily or involuntarily, (i)
to offer for sale, sell, assign, make a gift of, exchange, tender, dispose of,
pledge, hypothecate, grant an option or other Right for or otherwise transfer
(whether by merger or otherwise) or permit any sale or transfer to satisfy a
margin call or other obligation relating to Covered Securities held as
collateral, encumber or subject to any claim, Lien or restriction any such
Covered Securities or other securities or any interest therein, (ii) grant any
proxy, voting or other rights with respect to any such Covered Securities or
other securities (other than in accordance with this Agreement) or deposit any
Covered Securities into a voting trust or (iii) enter into any agreement or
arrangement regarding the transfer, acquisition, holding, disposition or voting
of such Covered Securities. The terms "Transferred", "Transferee" and similar
variants shall have correlative meanings.
"Voting Covered Securities" means all Covered Securities entitled to vote
in the election of directors of the Company and which would be entitled to vote
in the election of directors of the Company if it were assumed that Rights with
respect to Covered Securities then held were duly exercised and converted in
full (whether or not then exercisable or convertible).
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Section 1.2 Terms Generally; Certain Rules of Construction. The definitions
in Section 1.1 shall apply equally to both the singular and plural forms of the
terms defined. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words "include",
"includes" and "including" shall be deemed to be followed by the phrase "without
limitation." The words "herein", "hereof" and "hereunder" and words of similar
import refer to this Agreement in its entirety and not to any part hereof unless
the context shall otherwise require. The word "or" is not exclusive and means
"and/or." All references herein to Sections, Exhibits and Schedules shall be
deemed references to and Sections of, and Exhibits and Schedules to, this
Agreement unless the context shall otherwise require. Unless otherwise expressly
provided herein or unless the context shall otherwise require, any references as
of any time to any agreement (including this Agreement) or other Contract,
instrument or document or to any statute or regulation or any specific section
or other provision thereof are to it as amended and supplemented through such
time (and, in the case of a statute or regulation or specific section or other
provision thereof, to any successor of such statute, regulation, section or
other provision). Any reference in this Agreement to a "day" or number of "days"
(without the explicit qualification of "Business") shall be interpreted as a
reference to a calendar day or number of calendar days. If any action or notice
is to be taken or given on or by a particular calendar day, and such calendar
day is not a Business Day, then such action or notice shall be deferred until,
or may be taken or given on, the next Business Day. Unless otherwise expressly
provided herein or unless the context shall otherwise require, any provision of
this Agreement using a defined term which is based on a specified
characteristic, qualification, feature or status shall, as of any time, refer
only to such Persons who have the specified characteristic, qualification,
feature or status as of that particular time.
ARTICLE II
CONSULTING SERVICES
Section 2.1 Appointment. The Company hereby retains Huber, and Huber agrees
to act, in an advisory and consulting capacity to the Company for a term
commencing on the date hereof and to continue in force thereafter for the
Consulting Term (as defined herein).
Section 2.2 Consulting Services. Huber agrees during the Consulting Term to
render services of an advisory and consultative nature in order that the Company
may have the benefit of his expertise and knowledge of the affairs of the
Company. Huber will perform services hereunder for approximately 10 hours per
month (non- cumulative) exclusively and only as directed by the Chief Executive
Officer of the Company. In the absence of specific instructions from the Chief
Executive Officer of the Company, Huber shall not be authorized to perform any
services on behalf of the Company or represent to any Person that he is a
consultant or an agent of the Company. It is contemplated that Huber will
provide the services hereunder in the Connecticut, New Jersey and New York area
(except for normal business travel) or at the Company's request at such other
location as may be mutually agreed upon by the Company and Huber. In addition to
performing the services described herein, Huber further agrees during the
Consulting Term to provide the Chief Executive Officer of the Company, upon his
request, with written reports summarizing all such services performed by Huber
on behalf of the Company and setting forth the number of hours per month devoted
to the performance thereof.
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Section 2.3 Consulting Fee. The Company shall pay Huber as a fee for the
services rendered pursuant to this Article II a sum equal to Five Thousand
($5,000) Dollars per month. Such sum is to be payable on the first day of each
month commencing November 1, 1998.
Section 2.4 Expenses. The Company shall reimburse Huber for pre- approved,
reasonable out-of-pocket business expenses upon presentation of appropriate
evidence thereof.
Section 2.5 Consulting Term. The consulting services provided to the
Company by Huber as set forth herein shall be for a term commencing on the date
hereof and shall continue for a period of not less than thirty six (36) months
(the "Initial Consulting Period") unless sooner terminated pursuant to Section
2.6. At the expiration of the Initial Consulting Period, the term of the
consulting services as set forth herein may be extended for additional one year
terms, subject to Section 2.6, upon the mutual agreement of the Company and
Huber. The Initial Consulting Period (or any shorter period hereunder) and each
period thereafter during which consulting services are provided by Huber to the
Company in accordance with the terms and conditions of this Agreement without
termination hereunder is referred to herein as the "Consulting Term".
Section 2.6 Termination of Consulting Term. The Consulting Term may be
terminated by Huber at any time upon ninety (90) days written notice to the
Company. The Consulting Term shall also terminate on Huber's death or
Disability. Notwithstanding any of the foregoing provisions of this Agreement,
the Company may, at any time during the Consulting Term without prior notice,
terminate the consulting arrangement under this Article II for "Cause" (as
hereinafter defined). In such event, the Company shall pay to Huber all
consulting fees accrued but unpaid through the date of termination of the
Consulting Term; and the Company shall not have any further obligations under
this Article II, except as may otherwise be required by law. For the purpose of
this Agreement, the Company shall be deemed to have "Cause" to terminate Huber's
employment hereunder for: (a) willful failure to perform normal and customary
duties required under Section 2.2 for an extended period for any reason other
than death or total Disability; (b) gross negligence or willful misconduct,
including fraud, embezzlement or intentional misrepresentation; (c) commission
of, or indictment or conviction for, a felony; (d) willfully engaging in
competitive activities against the Company or purposely aiding a competitor of
the Company; (e) misappropriation of a material opportunity of the Company; (f)
oral or written publication of information relating to the Company not in the
public domain; (g) any breach by Huber of the agreements set forth in Articles
III, IV and VI; or (h) violation of any other material term of this Agreement
and failure to cure within two (2) days after receipt of notice of such
violation.
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Section 2.7 Confidential Information and Indemnification.
(a) Confidential Information. Huber shall not disclose any confidential
information of the Company or its Affiliates which is now known to him or which
hereafter may become known to him as a result of his consulting services
hereunder or by reason of other positions previously held with the Company, and
shall not at any time directly or indirectly disclose any such information to
any Person, or use the same in any way other than in connection with the
business of the Company or its Affiliates, during and at all times after the
expiration of the Consulting Term; provided, however, that, subject to Section
6.1, nothing in this Section 2.7 shall prohibit Huber from communicating,
disclosing or using information that has become known generally by the public or
otherwise has come into the public domain (other than by disclosure by Huber).
Huber's contractual obligation under this paragraph, however, shall not extend
beyond one year after the end of the Consulting Term.
(b) Indemnification. To the extent permitted by law and so long as Huber is
not in breach of this Agreement, Huber shall be entitled to be indemnified under
the Articles of Incorporation and Bylaws, as applicable, of the Company or any
subsidiary thereof for which Huber is performing services as provided herein
and, to the extent permitted under currently applicable insurance policies and
solely in connection with the services to be rendered to the Company pursuant
hereto, to be covered by directors and officers liability insurance policies
covering directors and officers of the Company that are the same as or provide
coverage at least equivalent to those carried by the Company on the date hereof.
Section 2.8 Independent Contractor. Huber is an independent contractor and
has and shall have no power, nor will he represent that he has any power, to
bind the Company or to assume or create any obligation or responsibility on
behalf of the Company. Huber shall not be entitled to participate in any
retirement, disability, life insurance, saving or other plans maintained for
employees of the Company or to receive any benefits or compensation not
explicitly provided in this Agreement.
Section 2.9 Consulting Agreement. The Company and Huber hereby acknowledge
and agree that the Consulting Agreement has been canceled and has no further
force or effect.
ARTICLE III
STANDSTILL AND TRANSFER MATTERS
Section 3.1 Acquisitions. Without the prior written consent of the Company,
Huber will not purchase or otherwise acquire, or agree or offer to purchase or
otherwise acquire, record or beneficial ownership of any Covered Securities
other than Huber Shares (it being understood that for purposes of this Section
3.1, a dividend or a distribution of Covered Securities pursuant to a
reorganization, recapitalization, consolidation, merger or exchange shall not be
deemed a purchase or an acquisition).
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If Huber purchases or otherwise acquires Covered Securities in violation of
the immediately preceding sentence, such Covered Securities shall immediately be
Transferred as permitted by Section 3.2; provided, however, that such Transferee
is not a Person, or "group" that has any Person as a member, who is an Associate
of Huber. Notwithstanding the foregoing, the Company may also pursue any other
available remedy to which it may be entitled to as a result of such violation.
Section 3.2 Transfer Restrictions. Huber will not Transfer or permit any
Person to Transfer on his behalf any Covered Securities, except:
(a) subject to Section 3.3, to any Person or "group" (within the meaning of
Section 13(d)(3) of the Exchange Act) who, after giving effect to such Transfer,
would beneficially own Voting Covered Securities representing in the aggregate
less than 3% of Total Voting Power; or
(b) pursuant to a tender or exchange offer made by the Company or
recommended by the Board of Directors of the Company to the Company's
stockholders.
Section 3.3 Rights of First Refusal.
(a) Huber will not Transfer or permit any Person to Transfer on his behalf
any Covered Securities in accordance with Section 3.2(a) without first giving
the Company prior written notice thereof (an "Offer Notice"), which shall (i)
state the Offered Terms (as defined below), (ii) include a true and correct copy
of the Contract embodying the terms and conditions of such proposed Transfer (if
any) and (iii) offer the Company the opportunity (as hereinafter provided) to
purchase (or to designate a third party to purchase) such Covered Securities
(the "Offered Securities") at a cash price equal to the sum of the amount of any
cash plus the fair market value of any other consideration offered by the
prospective Transferee (the "Offer Price"). The Offer Notice shall constitute an
offer (the "Offer") by Huber to sell all, but not less than all, of the Offered
Securities at the Offer Price to the Company or its designee. For purposes of
this Section 3.3, "Offered Terms" means the terms and conditions upon which the
Offered Securities are proposed to be Transferred to the prospective Transferee,
including (i) the identity of the Transferee and (ii) the aggregate Offer Price
and the kind and amount of consideration proposed to be paid or delivered by the
prospective Transferee for the Offered Securities, the timing and manner of the
payment or other delivery thereof and any other material terms of such offer.
(b) The Offer may be accepted within 20 days of receipt by the Company of
the Offer Notice and, if accepted, the Offered Securities shall be purchased
within 60 days after such acceptance. If the Offer is not accepted or the
Offered Securities are not purchased as contemplated above, Huber may sell the
Offered Securities to such prospective Transferee at a price not less than the
Offer Price.
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If the sale to such prospective Transferee is not consummated as
contemplated above within 60 days after the expiration of the 20-day offer
period or earlier irrevocable rejection of such Offer or failure to purchase the
Offered Securities after acceptance of the Offer, no sale may be made by Huber
without again complying with this Section 3.3.
(c) If the consideration offered by the prospective Transferee includes
non-cash consideration, the Company and Huber shall in good faith seek to agree
upon the value of such non-cash consideration. Huber shall provide the Company
with a description of the method by which Huber and the prospective Transferee
evaluated such non-cash consideration and copies of any appraisals or similar
reports on which such evaluation was based. If Huber and the Company fail to
agree on such value within 10 days following receipt by the Company of the Offer
Notice, then the items in dispute shall be referred to a nationally recognized
investment banking firm or appraiser selected jointly by Huber and the Company.
Huber and the Company shall share all expenses of such investment banking firm
or appraiser, as the case may be. The value of any securities offered as
consideration shall be the fair market value of such securities determined on a
fully distributed basis, and the value of any property other than securities
shall be the fair market value of such property. If a determination under this
Section 3.3(c) is required, any date for acceptance of an Offer provided for in
Section 3.3(b) hereof shall be postponed until the second Business Day after the
date of such determination. All determinations made pursuant to this Section
3.3(c) shall be final and binding on Huber and the Company.
ARTICLE IV
VOTING REQUIREMENTS
Section 4.1. Agreement to Vote. During the term of this Agreement, Huber
hereby agrees to vote or act by written consent with respect to (i) Covered
Securities held of record or beneficially owned by Huber at the time of such
vote or action by written consent and (ii) all Covered Securities as to which
Huber at the time of such vote or action by written consent has voting control,
in each case, as directed by the Board of Directors of the Company (or the Chief
Executive Officer or Secretary of the Company) in its (or his or her) sole and
absolute discretion, including, without limitation, all matters requiring or
permitting the voting of any Covered Securities or the granting of a consent,
proxy or approval in respect of any Covered Securities, including ordinary or
extraordinary corporate actions and all matters submitted to a stockholder vote
at general or special stockholder meetings of the Company. Huber further agrees
not to enter into any other agreement or transaction that is intended, or could
reasonably be expected, to impede, interfere with, delay, postpone, discourage
or adversely affect Huber's obligations to vote the Covered Securities as
provided in this Agreement, and agrees not to enter into any other voting
agreement or voting trust or grant any proxy, consent or approval or otherwise
transfer, directly or indirectly, voting power with respect to any Covered
Securities, in each case except as provided herein.
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Section 4.2 Grant of Irrevocable Proxy. In the event that Huber fails to
comply with the provisions of Article IV of this Agreement, Huber hereby
irrevocably grants to and appoints the Chief Executive Officer of the Company
(or any other officer of the Company designated by the Company), Huber's proxy
and attorney-in-fact (with full power of substitution), for and in the name,
place and stead of Huber, to vote or act by written consent with respect to all
Covered Securities held of record or beneficially owned by Huber or as to which
Huber has voting control and to grant a consent, proxy or approval in respect of
any Covered Securities held of record or beneficially owned by Huber or as to
which Huber has voting control, in each case in such manner as the Company (or
any officer of the Company) shall determine in its (or his or her) sole and
absolute discretion, including all matters requiring or permitting the voting of
any Covered Securities or the granting of a consent, proxy or approval in
respect of any Covered Securities, including ordinary or extraordinary corporate
actions and matters submitted to a stockholder vote at general or special
stockholder meetings of the Company. Huber hereby affirms that the irrevocable
proxy set forth in this Section 4.2 will be valid for the term of this Agreement
and is given to secure the performance of the obligations of Huber under this
Agreement. Huber hereby further affirms that each proxy hereby granted shall,
for the term of this Agreement, be irrevocable and shall be deemed coupled with
an interest, in accordance with Section 14A:5-19 of the New Jersey Business
Corporation Act.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Section 5.1 Representations and Warranties.
(a) Huber hereby represents and warrants to the Company that, except as set
forth on Schedule 5.1(a) to this Agreement, he has good and valid title to, and
is the record and beneficial owner of, the Huber Shares free and clear of any
Liens, and he has voting control of such Huber Shares. The Huber Shares
constitute all Covered Securities of the Company owned of record or beneficially
by Huber and all such Covered Securities of the Company as to which Huber has
voting control.
(b) Each party to this Agreement hereby represents and warrants to each
other party that (i) such party has the right, power and authority to enter into
this Agreement and perform its or his obligations hereunder, (ii) this Agreement
has been duly authorized by all necessary action prerequisite to the execution
and delivery thereof by such party and is a legally valid and binding obligation
of such party enforceable in accordance with its terms and (iii) the execution,
delivery and performance of this Agreement by such party and the transactions
contemplated hereby do not, with or without the giving of notice or the passage
of time or both, (x) violate any law, ordinance,
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rule or regulation or any judgment, writ, injunction or order of any court,
arbitrator or governmental, administrative or self-regulatory body or agency,
applicable to such party, (y) require the consent or authorization of or waiver
by or filing with any governmental, administrative, self-regulatory body or
agency or any other Person or (z) conflict with, result in the breach of any
provision of, result in the modification or termination of, require the consent
or authorization of or waiver by or filing with any other Person (other than
such as has been obtained prior to the date hereof) to, or result in the
creation or imposition of any Lien or constitute a default under any material
Contract to which such party is a party.
(c) Huber hereby represents and warrants to the Company that, except for
this Agreement or as set forth on Schedule 5.1(c) to this Agreement, Huber has
the sole right to vote and dispose of the Huber Shares in his sole discretion
and none of the Huber Shares is subject to any voting trust or other agreement,
arrangement, or restriction with respect to the voting thereof and there are no
Rights or Contracts to which Huber is a party, or by which Huber is bound or
affected, that provides for the Transfer of any Covered Securities or any
interest therein or any Rights with respect thereto, relates to the voting,
Transfer or control of any thereof, or obligates Huber to grant, offer or enter
into any of the foregoing.
(d) Huber hereby represents and warrants to the Company that he has filed
all required reports, schedules, forms, statements and other documents
(collectively, "Reports") concerning the Huber Shares with the Securities and
Exchange Commission ("SEC") as required by the Securities Act and the Exchange
Act, and that none of such Reports contained any untrue statement of a material
fact or omitted to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(e) Huber hereby makes the representations and warranties set forth in the
Letter Agreement attached hereto as Exhibit A.
ARTICLE VI
CERTAIN COVENANTS
Section 6.1 Certain Actions. Huber, except as otherwise permitted by this
Agreement, will not:
(a) make, or take any action to solicit, initiate or encourage, any offer
or proposal for, or any indication of interest in, a merger or other business
combination involving the Company or any subsidiary of the Company or the
acquisition of any equity interest in, or a substantial portion of the assets
of, the Company or any subsidiary of the Company;
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(b) solicit", or become a "participant" in any "solicitation" of, any
"proxy" (as such terms are defined in Regulation 14A under the Exchange Act) or
written consent from any holder of Covered Securities in connection with any
vote on any matter, or agree or announce his or its intention to vote with any
Person undertaking a "solicitation" or communicate with or seek to advise or
influence any Person with respect to the voting of any Covered Securities;
(c) form, join or in any way participate in a "group" (within the meaning
of Section 13(d)(3)of the Exchange Act) with respect to any Covered Securities;
(d) call or seek to have called any meeting of the stockholders of the
Company or seek election of any representative to the Board of Directors of the
Company, including Huber, or the removal of any member of the Board of Directors
of the Company;
(e) otherwise act to seek to control, disrupt or influence the management,
policies or affairs, of the Company or its Affiliates;
(f) without the prior written consent of the Company, issue or make any
announcement or public statement concerning, or otherwise communicate with any
Person regarding, the Company or its Affiliates, any policies of the Company or
its Affiliates or any director, officer, employee or stockholder of the Company
or its Affiliates, unless such announcement, public statement or communication
is required to be made by Huber to perform the consulting services set forth in
Article II; or
(g) instigate or encourage any third party to do any of the foregoing.
Section 6.2 SEC Reports and Margin Call Notices.
(a) During the term of this Agreement, Huber will deliver to the Company
(i) on the date required to be filed with the SEC, true and complete copies of
all Reports required to be filed by Huber with the SEC concerning the Covered
Securities of the Company owned or held by Huber and (ii) true and complete
copies of all Reports that would have been required to be filed by Huber with
the SEC concerning the Covered Securities of the Company owned or held by Huber
if Huber owned or held a sufficient number of such Covered Securities to require
filing of Reports with the SEC, such copies of Reports to be delivered to the
Company on the dates such Reports would have been required to be filed with the
SEC.
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(b) During the term of this Agreement, Huber will promptly provide the
Company with copies of all reports, documents, certificates, notices and other
information which are delivered to Huber in connection with his ownership of
Huber Shares that are held in any margin account or are pledged or otherwise
used as collateral.
ARTICLE VII
RELEASE
Section 7.1 General Release. Huber hereby irrevocably and unconditionally
releases, acquits and forever discharges each of the Company and its Affiliates,
and each of their present and former officers, directors, employees,
representatives, agents and stockholders and each of their respective
predecessors, successors and assigns (collectively, the "Releasees"), of and
from any and all manner of action or actions, cause or causes of action,
demands, charges, complaints, rights, damages, debts, dues, sums of money,
accounts, reckonings, losses, costs, expenses, responsibilities, liabilities,
obligations, promises, covenants, contracts, controversies, agreements and
claims whatsoever, whether known or unknown, which Huber (or any of his heirs,
executors or administrators) ever had, now has, or which he (or they) may have
or shall have against the Company or any other Person referred to above arising
out of any matter, cause, acts, conduct, claims or event on or prior to the date
hereof, including Huber's resignation from the Company's Board of Directors and
the position of Chairman of the Company and any rights or claims arising out of
or relating to the Consulting Agreement (including rights or claims which did
exist or which might have been asserted by Huber under any federal or state
statute or any federal, state or local law, now or hereafter recognized) as well
as Huber's status as a stockholder of the Company. Huber represents that he has
no complaints, charges, lawsuits or other proceedings of any nature pending
against the Releasees in any forum. Further, Huber hereby irrevocably and
unconditionally waives and gives up any right he has, had or might have had to
commence any proceeding, or to seek to be entitled to any recovery in any
proceeding of any nature whatsoever, against the Releasees with respect to
matters released herein, and he covenants and agrees not to commence any such
proceeding or permit any other Person to do so on his behalf.
ARTICLE VIII
TERMINATION
Section 8.1 Termination. Except for Article II, which shall terminate in
accordance with the terms thereof, the provisions of this Article VIII and the
provisions of Article IX, this Agreement shall terminate upon the occurrence of
any of the following:
(a) Huber shall beneficially own Voting Covered Securities representing in
the aggregate less than 3% of Total Voting Power; provided, that if Huber shall
again acquire beneficial ownership of Voting Covered Securities representing in
the aggregate 3% or more of Total Voting Power within three years of such
termination, this Agreement shall be reinstated from the date of such
acquisition; or
(b) the dissolution, liquidation or winding up of the Company.
-13-
<PAGE>
ARTICLE IX
MISCELLANEOUS
Section 9.1 Binding Effect; Assignability. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns. No party to this
Agreement will assign or delegate this Agreement or any rights, interests or
obligations hereunder, except that the Company may assign this Agreement and its
rights, interest or obligations to any Affiliate of the Company.
Section 9.2 Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers of or consents to departures from the provisions
hereof may not be given unless approved in writing by the parties hereto.
Section 9.3 Governing Law. This Agreement and the validity, interpretation
and performance of the terms and provisions hereof shall be governed by, and
construed in accordance with, the laws of the State of New Jersey, without
regard to the provisions thereof relating to choice or conflict of laws.
Section 9.4 Interpretation. The headings of the articles and sections
contained in this Agreement are solely for the purpose of reference, are not
part of the agreement of the parties and shall not affect the meaning or
interpretation of this Agreement.
Section 9.5 Notices. All notices, requests, consents, demands, elections
and other communications required or permitted hereunder shall be in writing and
shall be given to the intended recipient at:
If to the Company:
Merrimac Industries, Inc.
41 Fairfield Place
West Caldwell, New Jersey 07006
Facsimile: (973) 575-0531
Attention: President and Chief Executive Officer
-14-
<PAGE>
with a copy to:
Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, NY 10112
Facsimile: (212) 541-5369
Attention: Thomas C. Meriam, Esq.
If to Huber:
Mr. Charles F. Huber, II
149 Parsonage Road
Greenwich, Connecticut 06830
with a copy to:
Reuben B. Robertson, Esq.
Suite 1210
1001 Connecticut Avenue, NW
Washington, D.C. 20036
Facsimile: (202) 296-3303
Any such notice, request, consent, demand, election or other communication
shall be deemed to have been duly given if personally delivered or sent by
registered or certified mail, return receipt requested, Express Mail, Federal
Express or similar overnight delivery service for next Business Day delivery or
by telegram, telex or facsimile transmission and will be deemed given, unless
earlier received: (1) if sent by certified or registered mail, return receipt
requested, five calendar days after being deposited in the United States mail,
postage prepaid; (2) if sent by Express Mail, Federal Express or similar
overnight delivery service for next Business Day delivery, the next Business Day
after being entrusted to such service, with delivery charges prepaid or charged
to the sender's account; (3) if sent by telegram or telex or facsimile
transmission, on the date sent; and (4) if delivered by hand, on the date of
delivery.
Section 9.6 No Implied Waivers. No action taken pursuant to this Agreement,
including any investigation by or on behalf of any party, shall be deemed to
constitute a waiver by the party taking such action of compliance with any
representations, warranties, covenants or agreements contained herein or made
pursuant hereto. The waiver by any party hereto of a breach of any provision of
this Agreement shall not operate or be construed as a waiver of any preceding or
succeeding breach and no failure by any party to exercise any right or privilege
hereunder shall be deemed a waiver of such party's rights or privileges
hereunder or shall be deemed a waiver of such party's rights to exercise the
same at any subsequent time or times hereunder.
-15-
<PAGE>
Section 9.7 Entire Agreement. This Agreement and the Letter Agreement
attached hereto as Exhibit A constitute the entire agreement of the parties with
respect to the specific subject matter hereof, and supersedes all prior
agreements and undertakings, both written and oral, among the parties with
respect to such specific subject matter.
Section 9.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to constitute one and the same agreement.
Section 9.9 Further Assurances. Each party shall cooperate and take such
actions as may be reasonably requested by the other party in order to carry out
the provisions and purposes of this Agreement and the transactions contemplated
hereby.
Section 9.10 Specific Performance; Injunctive Relief. In addition to any
other rights or remedies which may be available at law, in equity or by
Contract, the Company shall be entitled to obtain in any court of competent
jurisdiction specific performance of, or an injunction or other order
restraining any act or proposed act which would result in a violation of, any of
the terms or provisions of any of Huber's covenants, agreements or obligations
hereunder, it being agreed by the parties that the remedy at law, including
monetary damages, for breach of such provision will be inadequate compensation
for any loss and that any defense in any action for specific performance that a
remedy at law would be adequate is waived. The rights and remedies herein
expressly provided are cumulative and not exclusive of any other rights or
remedies which any party would otherwise have pursuant to this Agreement, at
law, in equity, by statute or otherwise.
Section 9.11 Severability. If any provision of this Agreement or the
application thereof to any Person or circumstance is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions hereof, or the application of such provision to Persons or
circumstances other than those as to which it has been held invalid or
unenforceable, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby; provided, that if any provision
hereof or the application thereof shall be so held to be invalid, void or
unenforceable by a court of competent jurisdiction, then the parties shall
negotiate in good faith in an effort to agree upon a suitable and equitable
substitute provision therefor and, if the parties shall fail to negotiate and
agree upon such a provision, such court of competent jurisdiction may substitute
for such invalid, void or unenforceable provision a suitable and equitable
provision in order to carry out, so far as may be valid and enforceable, the
intent and purpose of the invalid, void or unenforceable provision.
Section 9.12 Consent to Jurisdiction; Service of Process. To the fullest
extent permitted by applicable law, each party hereto hereby irrevocably and
unconditionally (i) submits, for himself and his property or itself and its
property, to the nonexclusive jurisdiction of the courts of the States of New
York and New Jersey and any court of the United States sitting in New York City
(and of any appellate court to which an appeal of any judgment, order, decree or
decision of any such court may be taken) in any suit, action
-16-
<PAGE>
or proceeding arising out of or relating to this Agreement or for
recognition or enforcement of any judgment rendered in any such suit, action or
proceeding, (ii) waives any objection which he or it may now or hereafter have
to the laying of venue of any such suit, action or proceeding in any such court,
including any claim that any such suit, action or proceeding has been brought in
an inconvenient forum, (iii) waives all rights to a trial by jury in any such
suit, action or proceeding, (iv) waives personal service of any summons,
complaint or other process by any means, manner or method other than in the
manner provided for the giving of notices to such party in Section 9.5, and
agrees that any process served upon such party in such manner provided for in
Section 9.5 shall have the same validity and legal force and effect as if served
upon such party personally within the State of New York or New Jersey, as the
case may be and (v) if any such party at any time is not a resident of the State
of New York or New Jersey, agrees to appoint and maintain the appointment of an
agent in the State of New York and New Jersey as such party's agent for service
and acceptance of legal process in connection with any such action, suit or
proceeding with the same validity and legal force and effect as if served upon
such party personally, within the State of New York or New Jersey, as the case
may be, and to notify promptly each other such party of the name and address of
such agent.
Section 9.13 Facsimile Signatures. This Agreement may be executed by
facsimile signatures.
IN WITNESS WHEREOF, the parties have executed this Stockholder's Agreement
as of the date first above written.
MERRIMAC INDUSTRIES, INC.
-------------------------
By: /s/ Mason N. Carter
-------------------
Name: Mason N. Carter
Title: Chairman, President and Chief
Executive Officer
/s/ Charles F. Huber II
-----------------------
Charles F. Huber II
-17-
<PAGE>
Schedule 5.1(a)
The Huber Shares are held in a margin account.
Schedule 5.1(c)
The Huber Shares are held in amargin account.
-18-
<PAGE>
Exhibit A
October 30, 1998
Mr. Charles F. Huber, II
149 Parsonage Road
Greenwich, Connecticut 06830
Dear Mr. Huber:
We refer to (i) the Stockholder's Agreement, dated as of the date hereof
(the "Agreement"), by and between Merrimac Industries, Inc., a New Jersey
corporation (the "Company"), and Charles F. Huber, II and (ii) the Company's
directors and officers liability insurance coverage provided by Royal Indemnity
Insurance Company (policy number RHP605982) and Connecticut Indemnity Insurance
Company (policy number DOE200093) (collectively, the "Indemnity Policies").
This letter will confirm our understanding as follows:
1. To the extent permitted under the Indemnity Policies and as provided in
the Agreement, Mr. Huber will be indemnified in accordance with the Indemnity
Policies from and against all claims and damages arising out of his performance
of the services rendered to the Company pursuant to the Agreement; and
2. Mr. Huber represents and warrants that he is not aware of any act, error
or omission that might give rise to a claim under the Indemnity Policies.
Please indicate your agreement by signing and returning the executed copy
of this letter.
Very truly yours,
Merrimac Industries, Inc.
By: /s/ Mason N. Carter
-------------------
Name:Mason N. Carter
Title: Chairman, President and Chief
Executive Officer
Agreed and Accepted:
/s/ Charles F. Huber II
-----------------------
Charles F. Huber II
-19-
<PAGE>
Exhibit 11
MERRIMAC INDUSTRIES, INC.
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
Number of Weeks Ended
----------------------------
Thirteen Thirty-nine
October 3 October 3
1998 1998
---- ----
Numerator:
Net income available to common stockholders.... $ 247,803 $1,084,191
========= ==========
Basic earnings per share
- ------------------------
Weighted average number of shares outstanding
for basic net income per share
Common stock.................................... 1,782,675 1,758,769
========= =========
Net income per common share - basic............. $.14 $.62
==== ====
Diluted earnings per share
- --------------------------
Weighted average number of shares outstanding
for diluted net income per share
Common stock .................................... 1,782,675 1,758,769
Effect of dilutive securities - stock options (1) 23,322 72,307
--------- ---------
Weighted average number of shares outstanding for
diluted net income per share..................... 1,805,997 1,831,076
========= =========
Net income per common share - diluted............ $.14 $.59
==== ====
(1) Represents additional shares resulting from
assumed conversion of stock options less shares
purchased with the proceeds therefrom.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-2-1999
<PERIOD-END> OCT-3-1998
<CASH> 2,185,199
<SECURITIES> 0
<RECEIVABLES> 4,731,302
<ALLOWANCES> 0
<INVENTORY> 3,341,741
<CURRENT-ASSETS> 11,515,099
<PP&E> 15,657,553
<DEPRECIATION> 10,180,694
<TOTAL-ASSETS> 17,147,719
<CURRENT-LIABILITIES> 2,501,296
<BONDS> 0
0
0
<COMMON> 1,341,699
<OTHER-SE> 12,793,095
<TOTAL-LIABILITY-AND-EQUITY> 17,147,719
<SALES> 16,487,212
<TOTAL-REVENUES> 16,487,212
<CGS> 9,101,555
<TOTAL-COSTS> 9,101,555
<OTHER-EXPENSES> 745,665
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,673,191
<INCOME-TAX> 589,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,084,191
<EPS-PRIMARY> .62
<EPS-DILUTED> .59
<FN>
(1) Adjusted to give retroactive effect to a 10% stock dividend payable in
June 1998. Prior Financial Data Schedules have not been restated for this stock
dividend.
</FN>
</TABLE>
