UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act
of 1934
For the fiscal year ended January 2, 1999
Commission file number 0-11201
Merrimac Industries, Inc.
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(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 Identification No.)
incorporation or organization)
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
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
Common Stock Purchase Rights American Stock Exchange
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Check whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15 (d) of the Exchange Act during the 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
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB.(X)
State registrant's revenues for its most recent fiscal year: $20,101,835.
The aggregate market value of voting stock held by non-affiliates based
upon the average price of such stock as quoted on the American Stock Exchange
for March 26, 1999 was $8,773,332 of Common Stock held by each executive officer
and director have been excluded in that such persons may be deemed to be
affiliates.
Registrant's Common Stock outstanding at March 26, 1999 was 1,735,464
shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for Fiscal Year
ended January 2, 1999 are incorporated into Parts I and II on Form 10-KSB.
Portions of the Registrant's Proxy Statement for the 1999 Annual Meeting of
Shareholders are incorporated into Part III on Form 10-KSB.
Exhibit index on page 12.
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PART I
Merrimac Industries, Inc., originally known as Merrimac Research and
Development, was incorporated in 1954 under the laws of the State of New York,
to design and produce unique microwave and radio frequency components previously
unavailable to the industry. Merrimac Industries, Inc. was reincorporated in New
Jersey in 1994 and is hereinafter referred to as "Merrimac" or the "Company.
ITEM 1. DESCRIPTION OF BUSINESS.
Cautionary Statement
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This Annual Report on Form 10-KSB contains statements relating to future
results of Merrimac (including certain projections and business trends) that are
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. Actual results may differ materially from those projected as
a result of certain risks and uncertainties. These risks and uncertainties
include, but are not limited to: general economic and industry conditions;
slower than anticipated penetration into the satellite communications, defense
and wireless markets; the risk that the benefits expected from the acquisition
of Filtran Microcircuits Inc. are not realized; competitive products and pricing
pressures; risks relating to governmental regulatory actions in communications
and defense programs; and inventory risks due to technological innovation, as
well as other risks and uncertainties, including but not limited to those
detailed from time to time in Merrimac's Securities and Exchange Commission
filings. These forward-looking statements are made only as of the date hereof,
and Merrimac undertakes no obligation to update or revise the forward-looking
statements, whether as a result of new information, future events or otherwise.
General
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Merrimac is a leader in passive RF and microwave components for industry,
government and science. Merrimac components are today found in applications as
diverse as satellites, military and commercial aircraft, cellular radio systems,
magnetic resonance medical diagnostic instruments, personal communications
systems (PCS) and wireless internet connectivity.
Merrimac has become a versatile technologically-oriented company
specializing in miniature radio frequency lumped-element components, integrated
networks, microstrip and stripline microwave components, subsystems and ferrite
attenuators. Of special significance has been the combination of two or more of
these technologies into single components to achieve superior performance and
reliability while minimizing package size and weight.
In 1998, Merrimac introduced Multi-Mix(TM) Microtechnology, a new
innovative process for microwave, multilayer integrated circuits and
micro-multifunction modules (MMFM(TM)) and subsystems. This process is based on
fluoropolymer composite substrates, which are bonded together into a multilayer
structure using a fusion bonding process. The fusion process provides a
homogeneous dielectric medium for superior electrical performance at microwave
frequencies.
The Company's patent pending 3-Dimensional Multi-Mix designs consist of
stacked circuit layers which will permit the manufacture of components and
subsystems a fraction of the size and weight of conventional microstrip and
stripline products.
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The Company manufactures and sells approximately 1,500 components and
subsystems used in signal processing systems (the extraction of useable
information from radio signals) in the frequency spectrum of D.C. to 65 GHz. The
Company's products are designed to process signals having wide bandwidths and
are of relatively small size and lightweight. When integrated into subsystems,
advantages of lower cost and smaller size are realized due to the reduced number
of connectors, cases and headers. The Company's components range in price from
$20 to $10,000 and its subsystems range from $500 to more than $100,000.
The Company has traditionally developed and offered for sale products built
to specific customer needs, as well as, standard catalog items. Approximately
30% of 1998 revenues were derived from initial orders for products custom
designed for specific customer applications, 49% from repeat orders for such
products and 21% from catalog sales.
Prior to 1997, the Company distributed a product catalog that was updated
and re-printed approximately every two years. Now the Company maintains a
current electronic catalog on its internet website. The Merrimac catalog
includes hundreds of standard components, and provides a well-balanced, in-depth
selection of passive signal processing components. These components often form
the platform-basis for customization of designs in which the size, package,
finish, electrical parameters, environmental performance, reliability and other
features are tailored for a specific customer application.
The Company's strategy is to be a reliable supplier of high quality,
technically innovative signal processing products. The Company coordinates its
marketing, research and development, and manufacturing operations to develop new
products and expand its markets. The Company's marketing and development
activities focus on identifying and producing prototypes for new military and
commercial programs and applications in aerospace, navigational systems,
telecommunications and cellular analog and digital (PCS) telecommunications
electronics. The Company's research and development efforts are targeted towards
providing customers with more complex, reliable, and compact products at lower
costs.
Today, the major aerospace companies purchase from Merrimac components and
subsystems that include many complex I&Q networks, quadraphase modulators and
antenna beamformers. Merrimac design engineers work to develop solutions to
customer requirements that are unique or require special performance. Merrimac
is committed to continuously enhancing its leading position in high-performance
electronic signal processing components for communications, defense and
aerospace applications.
Improved production efficiencies coupled with the capacity of the newly
operational low-cost manufacturing facility in Costa Rica and more extensive use
of automated test equipment such as Hewlett Packard network analyzers (models
8510, 8720 and 8735) have resulted in a considerable reduction of the set-up
time to take measurements, calibrate test equipment and print out hard copy of
data. In addition, computerized cost controls such as closed job history and
up-to-date work in process costs are also enhancing the Company's competitive
position. Laser marking continues to be incorporated into the process of metal
packages, providing totally permanent marking, greater flexibility and lower
costs. See also discussion of CAD/CAM in "Research and Development" below.
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For a discussion of financial information about the nature of business,
foreign and domestic operations and export sales, reference is made to Note 10
to Consolidated Financial Statements in the Company's Annual Report to
Shareholders for the Fiscal Year Ended January 2, 1999, which note is
incorporated herein by reference.
Products
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The Company's major product categories are: (1) power dividers/combiners
that equally divide input signals or combine coherent signals for nearly
lossless power combinations; (2) I&Q networks (a subassembly of circuits which
allows two information signals (incident and quadrature) to be carried on a
single radio signal for use in digital communication and navigational
positioning); (3) directional couplers that allow for signal sampling along
transmission lines; (4) phase shifters that accurately and repeatedly alter a
signal's phase transmission to achieve desired signal processing or
demodulation; (5) hybrid junctions that serve to split input signals into two
output signals with 0 degree phase difference or 180 degrees out of phase with
respect to each other; (6) balanced mixers that convert input frequencies to
another frequency; (7) variable attenuators that serve to control or reduce
power flow without distortion; (8) beamformers that permit an antenna to
electronically track or transmit a signal; (9) quadrature couplers that serve to
split input signals into two output signals 90 degrees out of phase with respect
to each other or combine equal amplitude quadrature signals; and (10)
solid-state switches that control signal routing. The Company's other product
categories include single side band modulators, image reject mixers, vector
modulators and a wide variety of specialized integrated assemblies. In the last
fiscal year, no one product accounted for more than ten percent of total net
sales.
Approximately 55% of the Company's sales in 1998 were derived from the
sales of products for use in high-reliability aerospace, satellite, and missile
applications. These products are designed to withstand severe environments
without failure or maintenance over prolonged periods of time (from 5 to 20
years). The Company provides facilities dedicated to the design, development,
manufacture, and testing of these products along with special program management
and documentation personnel. The Company offers products in most of its major
categories for high-reliability applications.
The Company's products are also used in a broad range of other defense and
commercial applications, including radar, navigation, missiles, satellites,
electronic warfare and counter-measures, cellular analog and digital (PCS)
telecommunications electronics and communications equipment. The Company's
products are also utilized in systems to receive and distribute television
signals from satellites and through other microwave networks including cellular
radio.
Marketing
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The Company markets its products in the United States and Canada directly
to customers through a marketing staff comprised of 11 employees and through 15
independent domestic sales organizations. The Company's marketing program
focuses on identifying new programs and applications for which the Company can
develop prototypes leading to volume production orders.
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The Company utilizes approximately 19 independent sales organizations to
market its products elsewhere in the world. Sales to foreign customers amounted
to: $5,114,000 (25.4% of sales) in fiscal 1998; $5,731,000 (30.7 % of sales) in
fiscal 1997; and $4,390,000 (31.0% of sales) in fiscal 1996.
The Company's customers are primarily major industrial corporations that
integrate the Company's products into a wide variety of defense and commercial
systems. The Company's customers include Raytheon, Boeing, Northrop Grumman,
Lockheed Martin, Harris Corp., Litton Industries, Hughes Aircraft, TRW,
Southwest Research and Motorola. Sales to any one foreign geographic area did
not exceed 10% of net sales for 1998, 1997 or 1996. Sales to Hughes Aircraft in
1998 were 10.9% of net sales and sales to Lockheed Martin in 1998, 1997 and 1996
amounted to 10.0%, 13.4% and 10.8% of net sales, respectively.
The Company has a uniform resource locator ("URL") internet address
(www.merrimacind.com) and has established a commercial presence on the World
Wide Web. The Company's product catalog is available on the Merrimac website.
Research and Development
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During fiscal 1998, 1997 and 1996, research and development expenditures
amounted to $1,053,000, $556,000 and $246,000, respectively. The Company plans
to commit development funds at the same level in 1999 as in 1998 and will focus
its efforts on new product development for specific customer applications
requiring integration of circuitry and further miniaturization, precision and
volume applications.
The Company's research and development activities include the development
of prototypes for new programs and applications and the implementation of new
technologies to enhance the Company's competitive position. Projects focusing on
surface mounted devices (SMD), multi-layer, and micro-electronic assemblies are
directed toward development of more circuitry in smaller, lower cost, and more
reliable packaging that is easier for customers to integrate into their
products. The Company continues to expand its use of computer aided design and
manufacturing (CAD/CAM) in order to reduce design and manufacturing costs as
well as development time.
Backlog
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The Company manufactures specialized components and subsystems pursuant to
firm orders from customers and standard components for inventory. At January 2,
1999, the Company had a firm backlog of orders of approximately $6,168,000. The
Company estimates that approximately 90% of the orders in its backlog as of
January 2, 1999 will be shipped within one year. The Company does not consider
its business to be seasonal.
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Acquisition of Filtran Microcircuits Inc.
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In February 1999, the Company acquired Filtran Microcircuits Inc. ("FMI")
of Ottawa, Ontario, Canada for approximately $4.7 million, including the
assumption of approximately $500,000 of indebtedness. FMI, which had annual
sales of approximately $3.2 million for its fiscal year ended November 30, 1998,
is a leading manufacturer of microwave micro circuitry and will continue to be
operated as a stand-alone subsidiary. FMI produces technically intricate
microstrip, bonded stripline and thick metal-backed Teflon (PTFE) circuits for
satellite, aerospace, telecommunications, automotive adaptive cruise control,
navigation and defense applications worldwide. As a result of the acquisition of
FMI, the Company will be able to incorporate FMI's competency in fine line
etching into Multi-Mix(TM) Microtechnology and anticipates that FMI will help
accelerate the Company's penetration into the satellite communications, defense
and wireless markets. Approximately 40% of FMI's business is derived from
wireless applications, which segment has grown at a rate in excess of 30% per
year for the past three years.
Competition
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The Company encounters competition in all aspects of its business. The
Company competes both domestically and internationally in the military and
commercial markets and specifically within the aerospace and telecommunications
areas. The Company's competitors consist of entities of all sizes. Occasionally,
smaller companies offer lower prices due to lower overhead expenses, and
generally, larger companies have greater financial and operating resources than
the Company and well-recognized brand names. The Company competes with all such
corporations on a basis of technological performance, quality, reliability and
dependability in meeting shipping schedules as well as on the basis of price.
The Company believes that the Merrimac performance with respect to the above
factors have served well in earning the respect and loyalty of many customers in
the industry. These factors have enabled the Company over the years to
successfully maintain a stable customer base and have directly contributed to
the Company's ability to attract new customers.
Manufacturing, Assembly and Source of Supply
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Manufacturing operations consist principally of design, assembly and
testing of components and subsystems built from purchased electronic materials
and components, fabricated parts, and printed circuits. Manual and
semi-automatic methods are utilized depending principally upon production
volumes. The Company has its own machine shop employing CAD/CAM techniques and
etching facilities to handle soft and hard substrate materials. In addition, the
Company maintains testing and inspection procedures intended to minimize
production errors and enhance product reliability. The Company began
manufacturing in Costa Rica in the second half of 1996. In January 1998, these
operations were moved to a larger facility.
During 1998, the Company continued to implement programs to improve the
efficiency of manufacturing operations and reduce costs. The Company continues
to establish more stringent procedures and documentation standards to provide
for the prompt transfer of the production of prototype products from engineering
to manufacturing. To enhance the structure and quality of these functions, ISO
9001 certification is being sought for the Company. The Company's manufacturing
subsidiary located in Costa Rica has recently obtained ISO 9002 certification.
Documentation improvements are being implemented which will also strengthen the
Company's position as a world class quality supplier upon completion of these
process improvements.
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Generally, the Company uses manufacturing cost savings to enhance its
competitive position.
Electronic components and raw materials used in the Company's products are
generally available from a sufficient number of qualified suppliers. Some
materials are standard items. Subcontractors manufacture certain materials to
the Company's specifications. The Company is not dependent upon any single
supplier for any of its components or materials.
Employee Relations
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As of January 2, 1999, the Company employed approximately 160 full time
persons, of which 30 are employed at the Company's Costa Rica facility. As a
result of the Company's acquisition of FMI in February 1999, the Company added
approximately 60 employees to its employee base. None of the Company's employees
are represented by a labor organization. The Company has never experienced a
work stoppage or interruption due to a labor dispute. Management believes that
its relations with its employees are satisfactory.
Patents
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The Company owns 17 patents with respect to certain inventions it
developed. Although it has from time to time filed patent applications in
connection with the inventions which it believes are patentable, the Company
does not believe that patents or other similar intangible rights afford
significant protection from competitors or are material to its business.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's administrative offices, research and principal production
facilities are located in West Caldwell, New Jersey, on a five-acre parcel owned
by the Company. A 12,000 square-foot plant was built in November 1966; a 13,500
square-foot addition was completed in December 1971; and a 26,500 square-foot
addition was completed in July 1980, aggregating 52,000 square-feet presently.
The Company owns all of its land, buildings, laboratories, production and
office equipment, as well as its furniture and fixtures in West Caldwell, New
Jersey. The Company believes that its plant and facilities are well suited for
the Company's business and are properly utilized, suitably located and in good
condition.
In December 1997, the Company entered into a new five-year lease for a
17,000 square-foot manufacturing facility in Costa Rica. The previous lease was
for a 3,000 square-foot facility.
In February 1999, the Company assumed a seven-year lease on a 20,000
square-foot manufacturing facility in Ottawa, Ontario, Canada in connection with
the Company's acquisition of FMI.
The Company does not make any investments in real estate other than in
connection with its operations.
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<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to lawsuits, both as a plaintiff and a defendant,
arising in the normal course of business. It is the opinion of Management that
the disposition of these various lawsuits will not individually or in the
aggregate have a material adverse effect on the consolidated financial position
or the results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock has been listed and traded on The American Stock
Exchange since July 11, 1988 under the symbol MRM. On March 26, 1999 the Company
had approximately 200 holders of record. The Company believes there are
approximately 1,300 additional holders in "street name" through broker nominees.
Reference is made to the table captioned "Quarterly Common Stock Data" of
the Company's Annual Report to Shareholders for the fiscal year ended January 2,
1999 filed as Exhibit 13 hereto (the "Annual Report"), which is incorporated
herein by reference, for information with respect to the high and low bid prices
of the Company's Common Stock during the Company's past two fiscal years.
Reference is made to Note 8 to the Consolidated Financial Statements in the
Annual Report to Shareholders, which note is incorporated herein by reference
for information with respect to payment of cash dividends in 1998, 1997 and
1996.
On May 4, 1998, the Company sold 20,000 (22,000 after giving effect to the
Company's 10% stock dividend) shares of Common Stock from its treasury to Mason
N. Carter, Chairman, President and Chief Executive Officer of the Company, at a
price of $12.75 per share (the approximate average closing price of the
Company's Common Stock during the first quarter of 1998). The Company extended
Mr. Carter a loan of $255,000 in connection with the purchase of these shares
and amended a prior loan to Mr. Carter of $105,000. A new promissory note for a
total of $360,000, due May 4, 2003, was executed by Mr. Carter in favor of the
Company. Payment of the loan is secured by a pledge of the 33,000 shares of
Common Stock purchased by Mr. Carter with the proceeds of the loans. The sale of
these shares of Common Stock was exempt from registration under the Securities
Act of 1933, as amended, as a transaction not involving a public offering under
Section 4(2) of Act.
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<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Reference is made to the information under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" of the
Annual Report, which information is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS.
Reference is made to pages 9 through 24 of the Company's Annual Report,
which pages are incorporated herein by reference with respect to the Company's
financial position as of January 2, 1999 and January 3, 1998 and the results of
operations and cash flows for the years ended January 2, 1999, January 3, 1998
and December 28, 1996 and the report of Arthur Andersen LLP and the report of
J. H. Cohn LLP included herein as follows:
Page in
FORM Annual Report
10-KSB to Shareholders
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Consolidated Balance Sheets at January 2, 1999
and January 3, 1998........................... 12
For the fiscal years ended January 2, 1999,
January 3, 1998 and December 28, 1996:
Consolidated Statements of Income.......... 11
Consolidated Statements of Shareholders'
Equity.................................... 13
Consolidated Statements of Cash Flows...... 14
Notes to Consolidated Financial Statements.......... 15-23
Reports of Independent Public Accountants........... 16-17
8. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
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PART III
Pursuant to General Instruction E3. to Form 10-KSB, portions of information
required by items 9-12 and indicated below are hereby incorporated by reference
to the Company's definitive Proxy Statement for the 1999 Annual Meeting of
Shareholders (the "Proxy Statement") which the Company will file with the
Securities and Exchange Commission not later than 120 days after the end of the
fiscal year covered by this report.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Information under the caption "ELECTION OF DIRECTORS" contained in the
Proxy Statement with respect to Board of Directors is incorporated herein by
reference.
The following is a list of the Company's executive officers, their ages and
their positions as of January 2, 1999. Generally each executive officer is
elected for a term of one year at the organizational meeting of the Board of
Directors following the Annual Meeting of Shareholders.
Name Age Position
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Mason N. Carter 52 Chairman, President and
Chief Executive Officer
Robert V. Condon 52 Vice President, Finance,
Treasurer, Secretary and
Chief Financial Officer
Richard E. Dec 55 Vice President, Marketing
Brian R. Dornan 50 Vice President,
Research and Development
Reynold K. Green 40 Vice President, Sales
James J. Logothetis 38 Vice President, Advanced
Technology
Family Relationships.
There are no family relationships among the officers listed.
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Business Experience of Executive Officers During Past Five Years.
Mr. Carter was elected to the additional position of Chairman of the Board
on July 24, 1997. He has served as President and Chief Executive Officer ("CEO")
since December 16, 1996. From 1994 to 1996 he was President of the Products and
Systems Group of Datatec Industries, Inc., Fairfield, New Jersey, a leading
provider of data network implementation services. He was President and CEO of
Kentile, Inc., Chicago, Illinois, a manufacturer of resilient flooring from 1992
to 1994.
Mr. Condon has been Vice President, Finance and Chief Financial Officer
("CFO") since joining the Company in March 1996 and was appointed Secretary and
Treasurer in January 1997. Prior to joining the Company, he was with Berkeley
Educational Services as Vice President, Finance, Treasurer and CFO from 1995 to
February 1996. During 1994 Mr. Condon was involved in consulting and
entrepreneurial activities. From 1989 to 1993, he was Senior Vice President,
Finance and CFO of SCS Communications, a private holding company.
Mr. Dec has been Vice President, Marketing since joining the Company in
March 1997. Prior to joining the Company, he was with Kinley & Manbeck, Inc. a
business process re-engineering and systems implementation consulting company as
Vice President of Business Development from April 1996 to March 1997. From 1995
to March 1996, he was National Account Manager, Product and Systems Group for
Datatec Industries, Inc. From 1993 to 1994, he was Vice President of Product
Development for Kentile, Inc., a manufacturer of resilient flooring.
Mr. Dornan has been Vice President, Research and Development of the Company
since February 1998 and was Group Vice President of Technology and Engineering
of the Company from October 1996 to February 1998. He had been Group Vice
President of Manufacturing from 1986 to October 1996.
Mr. Green, effective March 1997, was appointed Vice President, Sales and
from April 1996 to March 1997 he was Vice President of Manufacturing. He was a
member of the Board of Directors from April 1996 to May 1997, and did not seek
re-election to the Board. Prior to April 1996, Mr. Green held positions of
Director of Manufacturing, National Sales Manager and Director of Quality
Control and High-Reliability Services at Merrimac.
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Mr. Logothetis was appointed Vice President, Advanced Technology in May
1998 after rejoining the Company in January 1997 to serve as Director, Advanced
Technology. Prior to rejoining the Company, he served as a director for
Electromagnetic Technologies, Inc. in 1995 and became Vice President of
Microwave Engineering at such corporation in 1996. From 1984 to 1994, Mr.
Logothetis held various engineering positions at the Company, including Group
Manager of IF Engineering.
Information under the caption "SECTION 16 (a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE" contained in the Proxy Statement relating to compliance
with Section 16 of the Exchange Act is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION.
See the information under the caption "EXECUTIVE COMPENSATION" contained in
the Proxy Statement, which information is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
See the information in the table and the notes thereto under the caption
"SHARE OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN SHAREHOLDERS"
contained in the Proxy Statement, which information is incorporated herein by
reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See the information in the subheading "Certain relationships and related
transactions" under the caption "EXECUTIVE COMPENSATION" contained in the Proxy
Statement, which information is incorporated herein by reference.
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ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit No.
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3(a)(1) By-laws of the Company, as amended.
3(a)(2) Amendment to By-laws of the Company adopted March 5, 1999.
3(b) Certificate of Incorporation of the Company is hereby
incorporated by reference to Exhibit B of the Company's
Proxy Statement dated March 18, 1994.
4(a) Shareholder Rights Agreement dated as of March 9, 1999
between the Company and ChaseMellon Shareholder Services,
L.L.C., as rights agent, is hereby incorporated by
reference to Exhibit 1 to the Company's Current Report
on Form 8-K dated March 9, 1999.
10(a) Stock Purchase Agreement dated as of December 15, 1998
among the Company, Filtran Microcircuits Inc. ("FMI")
and the shareholders of FMI and others party thereto.
10(b) Profit Sharing Plan of the Company is hereby incorporated
by reference to Exhibit 10(n) to the Company's
Registration Statement on Form S0-1 (No. 2-79455).*
10(c) 1983 Key Employees Stock Option Plan of the Company
effective March 21, 1983 is hereby incorporated by
reference to Exhibit 10(m) to the Company's Annual Report
on Form 10-K dated March 31, 1983.*
10(d) 1993 Stock Option Plan of the Company effective
March 31, 1993 is hereby incorporated by reference to
Exhibit 4(c) to the Company's Registration Statement
on Form S-8 (No. 33-68862) dated September 14, 1993.*
10(e) 1997 Long-Term Incentive Plan of the Company is hereby
incorporated by reference to Exhibit (a) to the Company's
Proxy Statement dated May 12, 1997.*
10(f) Resolutions of the Stock Option Committee of the Board of
Directors of the Company, adopted June 3, 1998, amending
the 1983 Key Employees Stock Option Plan of the Company,
the 1993 Stock Option Plan of the Company and the 1997
Long-Term Incentive Plan of the Company and adjusting
outstanding awards thereunder to give effect to the
Company's 10% stock dividend paid June 5, 1998.*
10(g)(1) 1995 Stock Purchase Plan of the Company is hereby
incorporated by reference to Exhibit A of the Proxy
Statement of the Company dated March 17, 1995.*
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10(g)(2) Resolutions of the Stock Purchase Plan Committee of the
Board of Directors of the Company, adopted June 3, 1998,
amending the 1995 Stock Purchase Plan of the Company and
adjusting outstanding awards thereunder to give effect to
the Company's 10% stock dividend paid June 5, 1998.*
10(h)(1) 1996 Stock Option Plan for Non-Employee Directors of
the Company is hereby incorporated by reference to
Exhibit 10(d) to the Company's Annual Report on
Form 10-KSB dated March 24, 1997.*
10(h)(2) Resolutions of the Board of Directors of the Company,
adopted June 3, 1998, amending the 1996 Stock Option
Plan for Non-Employee Directors of the Company and
adjusting outstanding awards thereunder to give
effect to the Company's 10% stock dividend paid
June 5, 1998.*
10(i) Amended and Restated Employment Agreement dated as of
January 1, 1998 between the Company and Mason N. Carter
is hereby incorporated by reference to Exhibit 10(a) to
the Company's Quarterly Report on Form 10-QSB dated
August 14, 1998.*
10(j) Stock Purchase Agreement dated as of May 4, 1998
between the Company and Mason N. Carter is hereby
incorporated by reference to Exhibit 10(b) to the
Company's Quarterly Report on Form 10-QSB dated
August 14, 1998.*
10(k) Amended and Restated Pledge Agreement dated as of
May 4, 1998 between the Company and Mason N. Carter
is hereby incorporated by reference to Exhibit
10(c) to the Company's Quarterly Report on
Form 10-QSB dated August 14, 1998.*
10(l) Amended Promissory Note dated as of May 4, 1998
executed by Mason N. Carter in favor of the Company.*
10(m) Registration Rights Agreement dated as of May 4, 1998
between the Company and Mason N. Carter is hereby
incorporated by reference to Exhibit 10(e) to the
Company's Quarterly Report on Form 10-QSB dated
August 14, 1998.*
10(n)(1) Form of Severance Agreement entered into with certain
officers of the Company is hereby incorporated by
reference to Exhibit 10(i) to the Company's Annual
Report on Form 10-KSB dated March 30, 1998.*
10(n)(2) Schedule of officers with substantially identical
agreements to the form filed as Exhibit 10(n)(1) hereto
is hereby incorporated by reference to Exhibit 10(j)
to the Company's Annual Report on Form 10-KSB dated
March 30, 1998.*
-13-
<PAGE>
10(o) Consulting Agreement dated as of January 1, 1998
between the Company and Arthur A. Oliner is hereby
incorporated by reference to Exhibit 10 to the
Company's Quarterly Report on Form 10-QSB dated
May 14, 1998.*
10(p) Separation Agreement dated as of December 31, 1998
between the Company and Eugene W. Niemiec.*
10(q) Stockholder's Agreement dated as of October 30, 1998
between the Company and Charles F. Huber, II is
hereby incorporated by reference to Exhibit 10 to the
Company's Quarterly Report on Form 10-QSB dated
November 16, 1998.
10(r) Separation Agreement dated as of December 16, 1998
between the Company and Jacob Lin.*
13 Annual Report to Stockholders for Fiscal Year Ended
January 2, 1999.
21 Subsidiaries of the Company.
23(a) Consent of Arthur Andersen LLP.
23(b) Consent of J.H. Cohn LLP.
27 Financial Data Schedule for Fiscal Year Ended
January 2, 1999.
*Indicates that exhibit is a management contract or compensatory plan or
arrangement.
(b) Reports on Form 8-K
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. (Items 5 and 7)
A Current Report on Form 8-K was filed on December 16, 1998
announcing that the Company had entered into a stock purchase
agreement to acquire Filtran Microcircuits, Inc. (Items 5 and 7)
A Current Report on Form 8-K was filed on December 31, 1998
announcing that the Company had accepted the early retirement
of Eugene W. Niemiec, the Vice Chairman and Chief Technology
Officer of the Company. (Items 5 and 7)
A Current Report on Form 8-K was filed on March 1, 1999
announcing that the Company had completed its acquisition of
Filtran Microcircuits, Inc. (Items 5 and 7)
A Current Report on Form 8-K was filed on March 9, 1999
announcing that the Company's Board of Directors had adopted a
Shareholder Rights Plan. (Items 5 and 7)
A Current Report on Form 8-K was filed on March 18, 1999
reporting the Company's results of operations for the fourth
quarter and 1998 fiscal year. (Items 5 and 7)
-14-
<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: March 30, 1999 By: /s/ Mason N. Carter
---------------------------
Mason N. Carter
Chairman, President and
Chief Executive officer
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 and on the dates indicated.
Signature Date Title
------------------------- ------- --------
/s/ Mason N. Carter 3-30-99 Director
------------------------- ------- --------
(Mason N. Carter)
/s/ Albert H. Cohen 3-30-99 Director
------------------------- ------- --------
(Albert H. Cohen)
/s/ Edward H. Cohen 3-30-99 Director
------------------------- ------- --------
(Edward H. Cohen)
/s/ Joel H. Goldberg 3-30-99 Director
------------------------- ------- --------
(Joel H. Goldberg)
/s/ Eugene W. Niemiec 3-30-99 Director
------------------------- ------- --------
(Eugene W. Niemiec)
/s/ Arthur A Oliner 3-30-99 Director
------------------------- ------- --------
(Arthur A.Oliner)
/s/ Robert V. Condon 3-30-99 Vice President, Finance,
------------------------- ------- ------------------------
(Robert V. Condon) Treasurer, Secretary and
------------------------
Chief Financial Officer
------------------------
-15-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Merrimac Industries, Inc.
We have audited the accompanying consolidated balance sheets of Merrimac
Industries, Inc. and subsidiaries as of January 2, 1999 and January 3, 1998 and
the related consolidated statements of income, shareholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements 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 opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Merrimac
Industries, Inc. and subsidiaries as of January 2, 1999 and January 3, 1998 and
their results of operations and cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
-----------------------
ARTHUR ANDERSEN LLP
Roseland, New Jersey
February 27, 1999
-16-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Merrimac Industries, Inc.
We have audited the accompanying consolidated statements of income,
stockholders' equity and cash flows of Merrimac Industries, Inc. and
Subsidiaries for the year then ended December 28, 1996 These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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 results of operations and cash
flows of Merrimac Industries, Inc. and Subsidiaries for the year then ended
December 28, 1996, in conformity with generally accepted accounting principles.
/s/ J. H. COHN LLP
------------------
J. H. COHN LLP
Roseland, New Jersey
February 18, 1997
-17-
<PAGE>
EXHIBIT INDEX Sequentially
Exhibit Numbered Page
3(a)(1) By-laws of the Company, as amended.
3(a)(2) Amendment to By-laws of the Company adopted March 5, 1999.
3(b) Certificate of Incorporation of the Company is hereby
incorporated by reference to Exhibit B of the Company's
Proxy Statement dated March 18, 1994.
4(a) Shareholder Rights Agreement dated as of March 9, 1999
between the Company and ChaseMellon Shareholder Services,
L.L.C., as rights agent, is hereby incorporated by reference
to Exhibit 1 to the Company's Current Report on Form 8-K
dated March 9, 1999.
10(a) Stock Purchase Agreement dated as of December 15, 1998 among
the Company, Filtran Microcircuits Inc. ("FMI") and the
shareholders of FMI and others party thereto.
10(b) Profit Sharing Plan of the Company is hereby incorporated by
reference to Exhibit 10(n) to the Company's Registration
Statement on Form SO-1 (No. 2-79455).*
10(c) 1983 Key Employees Stock Option Plan of the Company
effective March 21, 1983 is hereby incorporated by reference
to Exhibit 10(m) to the Company's Annual Report on Form 10-K
dated March 31, 1983.*
10(d) 1993 Stock Option Plan of the Company effective
March 31, 1993 is hereby incorporated by reference to
Exhibit 4(c) to the Company's Registration Statement on
Form S-8 (No. 33-68862) dated September 14, 1993.*
10(e) 1997 Long-Term Incentive Plan of the Company is hereby
incorporated by reference to Exhibit (a) to the Company's
Proxy Statement dated May 12, 1997.*
10(f) Resolutions of the Stock Option Committee of the Board of
Directors of the Company, adopted June 3, 1998, amending the
1983 Key Employees Stock Option Plan of the Company, the
1993 Stock Option Plan of the Company and the 1997 Long-Term
Incentive Plan of the Company and adjusting outstanding
awards thereunder to give effect to the Company's 10% stock
dividend paid June 5, 1998.*
10(g)(1) 1995 Stock Purchase Plan of the Company is hereby
incorporated by reference to Exhibit A of the Proxy
Statement of the Company dated March 17, 1995.*
10(g)(2) Resolutions of the Stock Purchase Plan Committee of the
Board of Directors of the Company, adopted June 3, 1998,
amending the 1995 Stock Purchase Plan of the Company
and adjusting outstanding awards thereunder to give effect
to the Company's 10% stock dividend paid June 5, 1998.*
10(h)(1) 1996 Stock Option Plan for Non-Employee Directors of the
Company is hereby incorporated by reference to Exhibit 10(d)
to the Company's Annual Report on Form 10-KSB dated
March 24, 1997.*
10(h)(2) Resolutions of the Board of Directors of the Company,
adopted June 3, 1998, amending the 1996 Stock Option Plan
for Non-Employee Directors of the Company and adjusting
outstanding awards thereunder to give effect to the
Company's 10% stock dividend paid June 5, 1998.*
10(i) Amended and Restated Employment Agreement dated as of
January 1, 1998 between the Company and Mason N. Carter is
hereby incorporated by reference to Exhibit 10(a) to
the Company's Quarterly Report on Form 10-QSB dated
August 14, 1998.*
-18-
<PAGE>
EXHIBIT INDEX
Sequentially
Exhibit Numbered Page
10(j) Stock Purchase Agreement dated as of May 4, 1998 between the
Company and Mason N. Carter is hereby incorporated by
reference to Exhibit 10(b) to the Company's Quarterly Report
on Form 10-QSB dated August 14, 1998.*
10(k) Amended and Restated Pledge Agreement dated as of
May 4, 1998 between the Company and Mason N. Carter is
hereby incorporated by reference to Exhibit 10(c) to the
Company's Quarterly Report on Form 10-QSB dated
August 14, 1998.*
10(l) Amended Promissory Note dated as of May 4, 1998 executed by
Mason N. Carter in favor of the Company.*
10(m) Registration Rights Agreement dated as of May 4, 1998
between the Company and Mason N. Carter is hereby
incorporated by reference to Exhibit 10(e) to the Company's
Quarterly Report on Form 10-QSB dated August 14, 1998.*
10(n)(1) Form of Severance Agreement entered into with certain
officers of the Company is hereby incorporated by reference
to Exhibit 10(i) to the Company's Annual Report on Form
10-KSB dated March 30, 1998.*
10(n)(2) Schedule of officers with substantially identical agreements
to the form filed as Exhibit 10(n)(1) hereto is hereby
incorporated by reference to Exhibit 10(j) to the Company's
Annual Report on Form 10-KSB dated March 30, 1998.*
10(o) Consulting Agreement dated as of January 1, 1998 between the
Company and Arthur A. Oliner is hereby incorporated by
reference to Exhibit 10 to the Company's Quarterly Report on
Form 10-QSB dated May 14, 1998.*
10(p) Separation Agreement dated as of December 31, 1998 between
the Company and Eugene W. Niemiec.*
10(q) Stockholder's Agreement dated as of October 30, 1998 between
the Company and Charles F. Huber, II is hereby incorporated
by reference to Exhibit 10 to the Company's Quarterly Report
on Form 10-QSB dated November 16, 1998.
10(r) Separation Agreement dated as of December 16, 1998 between
the Company and Jacob Lin.*
13 Annual Report to Shareholders for Fiscal Year Ended
January 2, 1999.
21 Subsidiaries of the Company.
23(a) Consent of Arthur Andersen LLP.
23(b) Consent of J.H. Cohn LLP.
27 Financial Data Schedule for Fiscal Year Ended
January 2, 1999.
*Indicates that exhibit is a management contract or compensatory plan or
arrangement.
-19-
AMENDED AND RESTATED BY-LAWS
OF MERRIMAC INDUSTRIES, INC.
Section 1. LAW, CERTIFICATE OF INCORPORATION AND BY-LAWS
1.1. These by-laws are subject to the certificate of incorporation of the
corporation. In these by-laws, references to law, the certificate of
incorporation and by-laws mean the law, the provisions of the certificate of
incorporation and the by-laws as from time to time in effect.
Section 2. SHAREHOLDERS
2.1. Annual Meeting. The annual meeting of shareholders shall be held at
the principal office of the Corporation, or at such other place within or
without the State of New Jersey, and at such time, as shall be determined by the
board of directors, on the last Thursday in April of each year, or on such other
day as the board of directors may designate. Such annual meeting shall be held
for the purpose of electing directors, and for the transaction of such other
business as may be required by law or these by-laws or as may properly come
before the meeting.
2.2. Special Meetings. A special meeting of the shareholders may be called
at any time by the president or by a majority of the board of directors. It
shall also be the duty of the president, or in his absence, the duty of a vice
president, to call such special meetings whenever so requested in writing by
shareholders owning a majority of the shares of capital stock entitled to vote
at such meeting. At any such special meeting only such business may be
transacted which is related to the purpose or purposes set forth in the notice
thereof. Any such call shall state the place, date, hour, and purposes of the
meeting.
2.3. Place of Meeting. All meetings of the shareholders for the election of
directors or for any other purpose shall be held at such place within or without
the State of New Jersey as may be determined from time to time by the board of
directors. Any adjourned session of any meeting of the shareholders shall be
held at the place designated in the vote of adjournment.
2.4. Notice of Meetings. Except as otherwise provided by law, a written
notice of each meeting of shareholders stating the place, day and hour thereof
and, in the case of a special meeting, the purposes for which the meeting is
called, shall be given not less than ten nor more than sixty days before the
meeting, to each shareholder entitled to vote thereat, and to each shareholder
who, by law, by the certificate of incorporation or by these by-laws, is
entitled to notice, by leaving such notice with him or at his residence or usual
place of business, or by depositing it in the United States mail, postage
prepaid, and addressed to such shareholder at his address as it appears in the
records of the corporation (or at such other address as such shareholder
requests in writing to the secretary of the corporation). If mailed, such notice
shall be deemed as given when deposited in the United States mail in the manner
provided above. Such notice shall be given by the secretary, or by an officer or
person designated by the board of directors, or in the case of a special meeting
by the officer calling the meeting. As to any adjourned session of any meeting
of shareholders, notice of the adjourned meeting need not be given if the time
and place thereof are announced at the meeting at which the adjournment was
taken except that if after the adjournment a new record date is set for the
adjourned session, notice of any such adjourned session of the meeting shall be
given in the manner heretofore described. No notice of any meeting of
shareholders or any adjourned session thereof need be given to a shareholder if
a written waiver of notice, executed before or after the meeting or such
adjourned session by such shareholder, in person or by proxy, is filed with the
records of the meeting or if the shareholder attends such meeting, in person or
by proxy, without objecting at the beginning of the meeting to the transaction
of any business because the meeting is not lawfully called or convened. Neither
the business to be transacted at, nor the purpose of, any meeting of the
shareholders or any adjourned session thereof need be specified in any written
waiver of notice.
-1-
<PAGE>
2.5. Quorum of Shareholders. At any meeting of the shareholders a quorum as
to any matter shall consist of a majority of the votes entitled to be cast on
the matter, except where a larger quorum is required by law, by the certificate
of incorporation or by these by-laws. Any meeting may be adjourned from time to
time by a majority of the votes properly cast upon the question, whether or not
a quorum is present. If a quorum is present at an original meeting, a quorum
need not be present at an adjourned session of that meeting. Shares of its own
stock belonging to the corporation or to another corporation, if a majority of
the shares entitled to vote in the election of directors of such other
corporation is held, directly or indirectly, by the corporation, shall neither
be entitled to vote nor be counted for quorum purposes; provided, however, that
the foregoing shall not limit the right of any corporation to vote stock,
including but not limited to its own stock, held by it in a fiduciary capacity.
2.6. Action by Vote. When a quorum is present at any meeting, a plurality
of the votes properly cast for election to any office shall elect to such office
and a majority of the votes properly cast upon any question other than an
election to an office shall decide the question, except when a larger vote is
required by law, by the certificate of incorporation or by these by-laws. No
ballot shall be required for any election unless requested by a shareholder
present or represented at the meeting and entitled to vote in the election.
2.7. Proxy Representation. Every shareholder may authorize another person
or persons to act for him by proxy in all matters in which a shareholder is
entitled to participate, whether by waiving notice of any meeting, objecting to
or voting or participating at a meeting, or expressing consent or dissent
without a meeting. Every proxy must be signed by the shareholder or by his
attorney-in-fact. No proxy shall be voted or acted upon after eleven months from
its date unless such proxy provides for a longer period. A duly executed proxy
shall be irrevocable if it states that it is irrevocable and, if, and only as
long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the corporation generally. The authorization of a proxy may but need
not be limited to specified action, provided, however, that if a proxy limits
its authorization to a meeting or meetings of shareholders, unless otherwise
specifically provided such proxy shall entitle the holder thereof to vote at any
adjourned session but shall not be valid after the final adjournment thereof.
2.8. Inspectors. The directors or the person presiding at the meeting may,
but need not, appoint one or more inspectors of election and any substitute
inspectors to act at the meeting or any adjournment thereof. Each inspector,
before entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of his ability. The inspectors, if any,
shall determine the number of shares of stock outstanding and the voting power
of each, the shares of stock represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes, ballots or
consents, hear and determine all challenges and questions arising in connection
with the right to vote, count and tabulate all votes, ballots or consents,
determine the result, and do such acts as are proper to conduct the election or
vote with fairness to all shareholders. On request of the person presiding at
the meeting, the inspectors shall make a report in writing of any challenge,
question or matter determined by them and execute a certificate of any fact
found by them.
2.9. List of Shareholders. The secretary shall prepare and make, at least
ten days before every meeting of shareholders, a complete list of the
shareholders entitled to vote at such meeting, arranged in alphabetical order
and showing the address of each shareholder and the number of shares registered
in his name. The stock ledger shall be the only evidence as to who are
shareholders entitled to examine such list or to vote in person or by proxy at
such meeting.
-2-
<PAGE>
2.10. Notice of Shareholder Business and Nominations.
(a) Annual Meetings of Shareholders. (1) Nominations of persons for
election to the Board of Directors of the Corporation and the proposal of
business to be considered by the shareholders may be made at an annual meeting
of shareholders (i) pursuant to the Corporation's notice of meeting, (ii) by or
at the direction of the Board of Directors or (iii) by any shareholder of the
Corporation who was a shareholder of record at the time of giving of notice
provided for in this by-law, who is entitled to vote at the meeting and who
complies with the notice procedures set forth in this by-law.
(2) For nominations or other business to be properly brought before an
annual meeting by a shareholder pursuant to clause (iii) of paragraph (a)(1) of
this by-law, the shareholder must have given timely notice thereof in writing to
the Secretary of the Corporation and such other business must otherwise be a
proper matter for shareholder action. To be timely, a shareholder's notice shall
be delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the 60th day nor earlier
than the close of business on the 90th day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is more than 30 days before or more than 60 days
after such anniversary date, notice by the shareholder to be timely must be so
delivered not earlier than the close of business on the 90th day prior to such
annual meeting and not later than the close of business on the later of the 60th
day prior to such annual meeting or the 10th day following the day on which
public announcement of the date of such meeting is first made by the
Corporation. In no event shall the public announcement of an adjournment of an
annual meeting commence a new time period for the giving of a shareholder's
notice as described above. Such shareholder's notice shall set forth (i) as to
each person whom the shareholder proposes to nominate for election or reelection
as a director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors in an election
contest, or is otherwise required, in each case pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule
14a-11 thereunder (including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected); (ii) as
to any other business that the shareholder proposes to bring before the meeting,
a brief description of the business desired to be brought before the meeting,
the reasons for conducting such business at the meeting and any material
interest in such business of such shareholder and the beneficial owner, if any,
on whose behalf the proposal is made; and (iii) as to the shareholder giving the
notice and the beneficial owner, if any, on whose behalf the nomination or
proposal is made (x) the name and address of such shareholder, as they appear on
the Corporation's books, and of such beneficial owner and (y) the class and
number of shares of the Corporation which are owned beneficially and of record
by such shareholder and such beneficial owner.
(b) Special Meetings of Shareholders. Only such business shall be conducted
at a special meeting of shareholders as shall have been brought before the
meeting pursuant to the Corporation's notice of meeting. Nominations of persons
for election to the Board of Directors may be made at a special meeting of
shareholders at which directors are to be elected pursuant to the Corporation's
notice of meeting (i) by or at the direction of the Board of Directors or (ii)
provided that the Board of Directors has determined that directors shall be
elected at such meeting, by any shareholder of the Corporation who is a
shareholder of record at the time of giving of notice provided for in this
by-law, who shall be entitled to vote at the meeting and who complies with the
notice procedures set forth in this by-law. In the event the Corporation calls a
special meeting of shareholders for the purpose of electing one or more
directors to the Board of Directors, any such shareholder may nominate a person
or persons (as the case may be), for election to such position(s) as specified
in the Corporation's notice of meeting, if the shareholder's notice required by
paragraph (a)(2) of this by-law shall be delivered to the Secretary at the
principal executive offices of the Corporation not earlier than the close of
business on the 90th day prior to such special meeting and not later than the
close of business on the later of the 60th day prior to such special meeting or
the 10th day following the day on which public announcement is first made of the
date of the special meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting. In no event shall the public
announcement of an adjournment of a special meeting commence a new time period
for the giving of a shareholder's notice as described above.
-3-
<PAGE>
(c) General. (1) Only such persons who are nominated in accordance with the
procedures set forth in this by-law shall be eligible to serve as directors and
only such business shall be conducted at a meeting of shareholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this by-law. Except as otherwise provided by law, the Certificate of
Incorporation or these by-laws, the Chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed, as the case may be, in
accordance with the procedures set forth in this by-law and, if any proposed
nomination or business is not in compliance with this by-law, to declare that
such defective proposal or nomination shall be disregarded.
(2) For purposes of this by-law, "public announcement" shall include,
without limitation, disclosure in a press release reported by the Dow Jones News
Service, Associated Press or comparable national news service or in a document
publicly filed by the Corporation with the Securities and Exchange Commission
pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this by-law, a shareholder
shall also comply with all applicable requirements of the Exchange Act and the
rules and regulations thereunder with respect to the matters set forth in this
by-law. Nothing in this by-law shall be deemed to affect any rights of
shareholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
Section 3. BOARD OF DIRECTORS
3.1. Number. The number of directors which shall constitute the whole board
shall be determined by resolution adopted by a majority of the whole board of
directors, provided that such number shall not be less than three. Until
otherwise determined by such resolution, the Board of Directors shall consist of
five directors. The number of directors may be decreased to any number permitted
by the foregoing at any time by the directors by vote of a majority of the
directors then in office, provided that no decrease shall have the effect of
reducing the term of any director. Directors shall be at least eighteen years of
age but need not be shareholders.
3.2. Tenure. Except as otherwise provided by law, by the certificate of
incorporation or by these by-laws, each director shall hold office until the
next annual meeting and until his successor is elected and qualified, or until
he sooner dies, resigns, is removed or becomes disqualified.
3.3. Powers. The business and affairs of the corporation shall be managed
under the direction of the board of directors who shall have and may exercise
all the powers of the corporation and do all such lawful acts and things as are
not by law, the certificate of incorporation or these by-laws directed or
required to be exercised or done by the shareholders.
3.4. Vacancies. Vacancies and any newly created directorships resulting
from any increase in the number of directors may be filled by vote of the
shareholders at a meeting called for the purpose, or by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. When one or more directors shall resign from the board, effective at a
future date, a majority of the directors then in office, including those who
have resigned, shall have power to fill such vacancy or vacancies, the vote or
action by writing thereon to take effect when such resignation or resignations
shall become effective. The directors shall have and may exercise all their
powers notwithstanding the existence of one or more vacancies in their number,
subject to any requirements of law or of the certificate of incorporation or of
these by-laws as to the number of directors required for a quorum or for any
vote or other actions.
-4-
<PAGE>
3.5. Committees. The board of directors may, by vote of a majority of the
entire board, (a) designate, change the membership of or terminate the existence
of any committee or committees, each committee to consist of three or more of
the directors; (b) designate one or more directors as alternate members of any
such committee who may replace any absent or disqualified member at any meeting
of the committee; and (c) determine the extent to which each such committee
shall have and may exercise the powers of the board of directors in the
management of the business and affairs of the corporation, including the power
to authorize the seal of the corporation to be affixed to all papers which
require it and the power and authority to declare dividends or to authorize the
issuance of stock; excepting, however, such powers which by law, by the
certificate of incorporation or by these by-laws they are prohibited from so
delegating. In the absence or disqualification of any member of such committee
and his alternate, if any, the member or members thereof present at any meeting
and not disqualified from voting, whether or not constituting a quorum, may
unanimously appoint another member of the board of directors to act at the
meeting in the place of any such absent or disqualified member. Committees
established by the board of directors may meet either regularly at stated times
or specially on notice given twenty-four hours in advance by any member thereof
by mail, telegram, telephone or in person to all the other members thereof; but
no notice of any regular meeting need be given; and no notice of any special
meeting need be given to members who shall be present or to absent members who
shall waive notice in writing before or after such meeting. Such committees may
make rules for the holding and conduct of their meetings and may appoint such
sub-committees and assistants as they from time to time may deem necessary. The
number of regular and alternate members present, if equal to at least a majority
of the regular members of a committee, shall constitute a quorum and the action
of a majority of those present at a meeting at which a quorum is present and
acting shall be the act of a committee.
3.6. Regular Meetings. Regular meetings of the board of directors may be
held without call or notice at such places within or without the State of New
Jersey and at such times as the board may from time to time determine, provided
that notice of the first regular meeting following any such determination shall
be given to absent directors. A regular meeting of the directors may be held
without call or notice immediately after and at the same place as the annual
meeting of shareholders.
3.7. Special Meetings. Special meetings of the board of directors may be
held at any time and at any place within or without the State of New Jersey
designated in the notice of the meeting, when called by the chairman of the
board, the president, or by one-third or more in number of the directors,
reasonable notice thereof being given to each director by the secretary or by
the chairman of the board, the president or any one of the directors calling the
meeting.
3.8. Notice. It shall be reasonable and sufficient notice to a director to
send notice by mail at least forty-eight hours or by telegram at least
twenty-four hours before the meeting addressed to him at his usual or last known
business or residence address or to give notice to him in person or by telephone
at least twenty-four hours before the meeting. Notice of a meeting need not be
given to any director if a written waiver of notice, executed by him before or
after the meeting, is filed with the records of the meeting, or to any director
who attends the meeting without protesting prior thereto or at its commencement
the lack of notice to him. Neither notice of a meeting nor a waiver of a notice
need specify the purposes of the meeting.
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3.9. Quorum. Except as may be otherwise provided by law, by the certificate
of incorporation or by these by-laws, at any meeting of the directors a majority
of the directors then in office shall constitute a quorum; a quorum shall not in
any case be less than one-third of the total number of directors constituting
the whole board. Any meeting may be adjourned from time to time by a majority of
the votes cast upon the question, whether or not a quorum is present, and the
meeting may be held as adjourned without further notice.
3.10. Action by Vote. Except as may be otherwise provided by law, by the
certificate of incorporation or by these by-laws, when a quorum is present at
any meeting the vote of a majority of the directors present shall be the act of
the board of directors.
3.11. Action Without a Meeting. Any action required or permitted to be
taken at any meeting of the board of directors or a committee thereof may be
taken without a meeting if all the members of the board or of such committee, as
the case may be, consent thereto in writing, and such writing or writings are
filed with the records of the meetings of the board or of such committee. Such
consent shall be treated for all purposes as the act of the board or of such
committee, as the case may be.
3.12. Participation in Meetings by Conference Telephone. Members of the
board of directors, or any committee designated by such board, may participate
in a meeting of such board or committee by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other or by any other means permitted by law. Such
participation shall constitute presence in person at such meeting.
3.13. Compensation. In the discretion of the board of directors, each
director may be paid such fees for his services as director and be reimbursed
for his reasonable expenses incurred in the performance of his duties as
director as the board of directors from time to time may determine. Nothing
contained in this section shall be construed to preclude any director from
serving the corporation in any other capacity and receiving reasonable
compensation therefor.
3.14. Interested Directors and Officers.
(a) No contract or transaction between the corporation and one or more of
its directors or officers, or between the corporation and any other corporation,
partnership, association, or other organization in which one or more of the
corporation's directors or officers are directors or officers, or have a
financial interest, shall be void or voidable solely for this reason, or solely
because the director or officer is present at or participates in the meeting of
the board or committee thereof which authorizes the contract or transaction, or
solely because his or their votes are counted for such purpose, if any one of
the following is true:
(1) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the board of directors or
the committee, and the board or committee in good faith authorizes the contract
or transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or
(2) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the shareholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the shareholders; or
(3) The contract or transaction is fair as to the corporation as of the
time it is authorized, approved or ratified, by the board of directors, a
committee thereof, or the shareholders.
(b) Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the board of directors or of a committee
which authorizes the contract or transaction.
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Section 4. OFFICERS AND AGENTS
4.1. Enumeration; Qualification. The executive officers of the corporation
shall be a chairman, a president, one or more vice presidents, a treasurer, a
secretary and such other officers, if any, as the board of directors from time
to time may in its discretion elect or appoint. The corporation may also have
such agents, if any, as the board of directors from time to time may in its
discretion choose. Any officer may be but none need be a director or
shareholder. Any two or more offices may be held by the same person, except that
the same person shall not serve both as President and Secretary. Any officer may
be required by the board of directors to secure the faithful performance of his
duties to the corporation by giving bond in such amount and with sureties or
otherwise as the board of directors may determine.
4.2. Powers. Subject to law, to the certificate of incorporation and to the
other provisions of these by-laws, each officer shall have, in addition to the
duties and powers herein set forth, such duties and powers as are commonly
incident to his office and such additional duties and powers as the board of
directors may from time to time designate.
4.3. Election. The officers may be elected by the board of directors at
their first meeting following the annual meeting of the shareholders or at any
other time. At any time or from time to time the directors may delegate to any
officer their power to elect or appoint any other officer or any agents.
4.4. Tenure. Each officer shall hold office until the first meeting of the
board of directors following the next annual meeting of the shareholders and
until his respective successor is chosen and qualified unless a shorter period
shall have been specified by the terms of his election or appointment, or in
each case until he sooner dies, resigns, is removed or becomes disqualified.
Each agent shall retain his authority at the pleasure of the directors, or the
officer by whom he was appointed or by the officer who then holds agent
appointive power.
4.5. Chairman of the Board of Directors, President and Vice President. The
chairman of the board shall have such duties and powers as shall be designated
from time to time by the board of directors. Unless the board of directors
otherwise specifies, the chairman of the board, or if there is none the chief
executive officer, shall preside, or designate the person who shall preside, at
all meetings of the shareholders and of the board of directors. Unless the board
of directors otherwise specifies, the president shall be the chief executive
officer of the corporation and shall have direct charge of all business
operations of the corporation and, subject to the control of the directors,
shall have general charge and supervision of the business of the corporation.
The vice presidents, one or more of whom may be designated executive vice
president or senior vice president, shall have such duties and powers as shall
be set forth in these by-laws or as shall be designated from time to time by the
board of directors or by the president. In the absence or inability to act of
the president, the duties of the president and chairman of the board shall be
performed by the vice presidents in the order of priority established by the
board unless and until the board of directors shall otherwise direct.
4.6. Treasurer and Assistant Treasurers. The treasurer shall be the chief
financial officer of the corporation and shall be in charge of its books of
account, accounting records and accounting procedures. He shall be responsible
for the verification of all of the assets of the corporation and the preparation
of all tax returns and other financial reports to governmental agencies by the
corporation. He shall also have the care and custody of the funds and securities
of the corporation, sign checks, drafts, notes and orders for the payment of
money, pay out and dispose of the funds and securities of the corporation and in
general perform the duties customary to the office of treasurer. The treasurer
may have such additional duties and powers as may be designated from time to
time by the board of directors or the president. He shall be responsible to and
shall report to the board of directors but in the ordinary conduct of the
corporation's business shall be under the supervision of the president or such
other officer as the board of directors shall designate.
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Any assistant treasurers shall have such duties and powers as shall be
designated from time to time by the board of directors, the president or the
treasurer.
4.7. Secretary and Assistant Secretaries. The secretary shall (a) keep the
minutes of the meetings of the board of directors, the shareholders and any
committee designated by the board of directors; (b) see that all required
notices of meetings of the directors, shareholders and members of such
committees are duly given in accordance with the provisions of these by-laws or
as required by law; and (c) have custody of the seal of the corporation and
affix and attest the same to all instruments requiring the seal when authorized
by the board of directors or the president. He shall also have charge of the
corporate records and such books and papers as the board of directors may
specify and shall perform all other duties incident to the office of secretary
or which may be assigned to him from time to time by the board of directors or
the president. In the absence of the secretary from any meeting, an assistant
secretary, or if there be none or he is absent, a temporary secretary chosen at
the meeting, shall record the proceedings thereof. Unless a transfer agent has
been appointed the secretary shall keep or cause to be kept the stock and
transfer records of the corporation, which shall contain the names and record
addresses of all shareholders and the number of shares registered in the name of
each shareholder. He shall have such other duties and powers as may from time to
time be designated by the board of directors or the president. Any assistant
secretaries shall have such duties and powers as shall be designated from time
to time by the board of directors, the president or the secretary.
4.8. Salaries. The salaries of all officers shall be fixed or approved by
the board of directors and the fact that any officer is a director shall not
preclude him from receiving a salary as an officer.
Section 5. RESIGNATIONS AND REMOVALS
5.1. Any director or officer may resign at any time by delivering his
resignation in writing to the chairman of the board, the president, or the
secretary or to a meeting of the board of directors. Such resignation shall be
effective upon receipt unless specified to be effective at some other time, and
without in either case the necessity of its being accepted unless the
resignation shall so state. A director (including persons elected by directors
to fill vacancies in the board) may be removed from office with cause by the
vote of the holders of a majority of the shares issued and outstanding and
entitled to vote in the election of directors. The board of directors may at any
time remove any officer either with or without cause. The board of directors may
at any time terminate or modify the authority of any agent. No director or
officer resigning and (except where a right to receive compensation shall be
expressly provided in a duly authorized written agreement with the corporation)
no director or officer removed shall have any right to any compensation as such
director or officer for any period following his resignation or removal, or any
right to damages on account of such removal, whether his compensation be by the
month or by the year or otherwise; unless, in the case of a resignation, the
directors, or, in the case of removal, the body acting on the removal, shall in
their or its discretion provide for compensation.
Section 6. VACANCIES
6.1. If the office of the chairman, the president or the treasurer or the
secretary becomes vacant, the directors may elect a successor by vote of a
majority of the directors then in office. If the office of any other officer
becomes vacant, any person or body empowered to elect or appoint that officer
may choose a successor. Each such successor shall hold office for the unexpired
term, and in the case of the chairman, the president, the treasurer and the
secretary until his successor is chosen and qualified or in each case until he
sooner dies, resigns, is removed or becomes disqualified. Any vacancy of a
directorship shall be filled as specified in Section 3.4 of these by-laws.
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Section 7. CAPITAL STOCK
7.1. Stock Certificates. Each shareholder shall be entitled to a
certificate stating the number and the class and the designation of the series,
if any, of the shares held by him, in such form as shall, in conformity to law,
the certificate of incorporation and the by-laws, be prescribed from time to
time by the board of directors. Such certificate shall be signed by the chairman
or vice chairman of the board, if any, or the president or a vice president and
may be countersigned by the treasurer or an assistant treasurer or by the
secretary or an assistant secretary. Any of or all the signatures on the
certificate may be a facsimile. In case an officer, transfer agent, or registrar
who has signed or whose facsimile signature has been placed on such certificate
shall have ceased to be such officer, transfer agent, or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he were such officer, transfer agent, or registrar at the time of its
issue.
7.2. Loss of Certificates. In the case of the alleged theft, loss,
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms, including receipt of a bond
sufficient to indemnify the corporation against any claim on account thereof, as
the board of directors may prescribe.
Section 8. TRANSFER OF SHARES OF STOCK
8.1. Transfer on Books. Subject to the restrictions, if any, stated or
noted on the stock certificate, shares of stock may be transferred on the books
of the corporation by the surrender to the corporation or its transfer agent of
the certificate therefor properly endorsed or accompanied by a written
assignment and power of attorney properly executed, with necessary transfer
stamps affixed, and with such proof of the authenticity of signature as the
board of directors or the transfer agent of the corporation may reasonably
require. Except as maybe otherwise required by law, by the certificate of
incorporation or by these by-laws, the corporation shall be entitled to treat
the record holder of stock as shown on its books as the owner of such stock for
all purposes, including the payment of dividends and the right to receive notice
and to vote or to give any consent with respect thereto and to be held liable
for such calls and assessments, if any, as may lawfully be made thereon,
regardless of any transfer, pledge or other disposition of such stock until the
shares have been properly transferred on the books of the corporation.
It shall be the duty of each shareholder to notify the corporation of his
post office address.
8.2. Record Date and Closing Transfer Books. In order that the corporation
may determine the shareholders entitled to notice of or to vote at any meeting
of shareholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the board of directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days (or such longer period as may be required by law) before the date of such
meeting, nor more than sixty days prior to any other action.
If no record date is fixed:
(a) The record date for determining shareholders entitled to notice of or
to vote at a meeting of shareholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held.
(b) The record date for determining shareholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the board of directors is necessary, shall be the day on which the first
written consent is expressed.
(c) The record date for determining shareholders for any other purpose
shall be at the close of business on the day on which the board of directors
adopts the resolution relating thereto.
A determination of shareholders of record entitled to notice of or to vote
at a meeting of shareholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
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Section 9. CORPORATE SEAL
9.1. Subject to alteration by the directors, the seal of the corporation
shall consist of a flat-faced circular die with the word "New Jersey" and the
name of the corporation cut or engraved thereon, together with such other words,
dates or images as may be approved from time to time by the directors.
Section 10. EXECUTION OF PAPERS
10.1. Except as the board of directors may generally or in particular cases
authorize the execution thereof in some other manner, all deeds, leases,
transfers, contracts, bonds, notes, checks, drafts or other obligations made,
accepted or endorsed by the corporation shall be signed or endorsed in such
manner as shall be determined by the directors. The funds of the corporation
shall be deposited in such banks or trust companies, and checks drawn against
such funds shall be signed in such manner as may be determined from time to time
by the directors.
Section 11. FISCAL YEAR
11.1. The fiscal year of the corporation shall be the 52-week or 53-week
period beginning on or about the 1st day of January and ending on the Saturday
closest to the 31st day of December, or such other period as may be fixed by the
board of directors.
Section 12. INDEMNIFICATION
12.1. Indemnification of Directors and Officers. The corporation shall, to
the fullest extent permitted by applicable law, indemnify any person (and the
heirs, executors and administrators thereof) who was or is made, or threatened
to be made, a party to an action, suit or proceeding, whether civil, criminal,
administrative or investigative, whether involving any actual or alleged breach
of duty, neglect or error, any accountability, or any actual or alleged
misstatement, misleading statement or other act or omission and whether brought
or threatened in any court or administrative or legislative body or agency,
including an action by or in the right of the corporation to procure a judgment
in its favor and an action by or in the right of any other corporation of any
type or kind, domestic or foreign, or any partnership, joint venture, trust,
employee benefit plan or other enterprise, which any director or officer of the
corporation is serving or has served in any capacity at the request of the
corporation, by reason of the fact that he, his testator or intestate is or was
a director or officer of the corporation, or is serving or has served such other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise in any capacity, against judgments, fines, amounts paid in
settlement, and costs, charges and expenses, including attorneys' fees, incurred
therein or in any appeal thereof.
12.2. Indemnification of Others. The Corporation shall indemnify other
persons and reimburse the expenses thereof, to the extent required by applicable
law, and may indemnify any other person to whom the Corporation is permitted to
provide indemnification or the advancement of expenses, whether pursuant to
rights granted pursuant to, or provided by, the New Jersey Business Corporation
Act or otherwise.
12.3. Advances or Reimbursement of Expenses. The corporation shall, from
time to time, reimburse or advance to any person referred to in Section 12.1 the
funds necessary for payment of expenses, including attorneys' fees, incurred in
connection with any action, suit or proceeding referred to in Section 12.1, upon
receipt of a written undertaking by or on behalf of such person to repay such
amount(s) if a judgment or other final adjudication adverse to the director or
officer establishes that his acts or omissions (i) constitute a breach of his
duty of loyalty to the corporation or its shareholders, (ii) were not in good
faith, (iii) involved a knowing violation of law, (iv) resulted in his receiving
an improper personal benefit, or (v) were otherwise of such a character that New
Jersey law would require that such amount(s) be repaid.
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12.4. Service of Certain Entities Deemed Requested. Any director or officer
of the corporation serving (i) another corporation, of which a majority of the
shares entitled to vote in the election of its directors is held by the
corporation, or (ii) any employee benefit plan of the corporation or any
corporation referred in clause (i), in any capacity shall be deemed to be doing
so at the request of the Corporation.
12.5. Interpretation. Any person entitled to be indemnified or to the
reimbursement or advancement of expenses as a matter of right pursuant to this
Article may elect to have the right to indemnification (or advancement of
expense) interpreted on the basis of the applicable law in effect at the time of
the occurrence of the event or events giving rise to the action, suit or
proceeding, to the extent permitted by applicable law, or on the basis of the
applicable law in effect at the time indemnification is sought.
12.6. Indemnification Right. The right to be indemnified or to the
reimbursement or advancement of expenses pursuant to this Article (i) is a
contract right pursuant to which the person entitled thereto may bring suit as
if the provisions hereof were set forth in a separate written contract between
the corporation and the director or officer, (ii) is intended to be retroactive
and shall be available with respect to events occurring prior to the adoption
hereof, (iii) shall continue to exist after any elimination of or amendment to
this Article 12 hereof with respect to events occurring prior thereto, and (iv)
and shall not be deemed exclusive of any other rights to which any person
claiming indemnification hereunder may be entitled.
12.7. Indemnification Claims. If a request to be indemnified or for the
reimbursement or advancement of expenses pursuant hereto is not paid in full by
the corporation within thirty days after a written claim has been received by
the corporation, the claimant may at any time thereafter bring suit against the
corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled also to be paid the expenses of
prosecuting such claim. Neither the failure of the corporation (including its
Board of Directors, independent legal counsel, or its shareholders) to have made
a determination prior to the commencement of such action that indemnification of
or reimbursement or advancement of expenses to the claimant is proper in the
circumstances, nor an actual determination by the corporation (including its
Board of Directors, independent legal counsel, or its shareholders) that the
claimant is not entitled to indemnification or to the reimbursement or
advancement of expenses, shall be a defense to the action or create a
presumption that the claimant is not so entitled.
12.8. Insurance. The corporation may maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
whether or not the corporation would have the power to provide indemnification
to such person.
Section 13. AMENDMENTS
13.1. These by-laws may be adopted, amended or repealed by vote of a
majority of the stock outstanding at the time entitled to vote in the election
of directors. Provided that notice of the proposed alteration, amendment or
repeal of these by-laws has been stated in the notice of the meeting, such
by-laws may also be adopted, amended or repealed by the board of directors by
vote of a majority of the entire board of directors, but any by-laws adopted by
the board of directors may be amended or repealed by the shareholders entitled
to vote thereon as herein provided. Any by-law, whether adopted, amended or
repealed by the shareholders or directors, may be amended or reinstated by the
shareholders or the directors.
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Amendment to the By-laws of
Merrimac Industries, Inc.
March 5, 1999
2.10. Notice of Shareholder Business and Nominations.
(a) Annual Meetings of Shareholders. (1) Nominations of persons for
election to the Board of Directors of the Corporation and the proposal of
business to be considered by the shareholders may be made at an annual meeting
of shareholders (i) pursuant to the Corporation's notice of meeting, (ii) by or
at the direction of the Board of Directors or (iii) by any shareholder of the
Corporation who was a shareholder of record at the time of giving of notice
provided for in this by-law, who is entitled to vote at the meeting and who
complies with the notice procedures set forth in this by-law.
(2) For nominations or other business to be properly brought before an
annual meeting by a shareholder pursuant to clause (iii) of paragraph (a)(1) of
this by-law, the shareholder must have given timely notice thereof in writing to
the Secretary of the Corporation and such other business must otherwise be a
proper matter for shareholder action. To be timely, a shareholder's notice shall
be delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the 60th day nor earlier
than the close of business on the 90th day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is more than 30 days before or more than 60 days
after such anniversary date, notice by the shareholder to be timely must be so
delivered not earlier than the close of business on the 90th day prior to such
annual meeting and not later than the close of business on the later of the 60th
day prior to such annual meeting or the 10th day following the day on which
public announcement of the date of such meeting is first made by the
Corporation. In no event shall the public announcement of an adjournment of an
annual meeting commence a new time period for the giving of a shareholder's
notice as described above. Such shareholder's notice shall set forth (i) as to
each person whom the shareholder proposes to nominate for election or reelection
as a director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors in an election
contest, or is otherwise required, in each case pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule
14a-11 thereunder (including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected); (ii) as
to any other business that the shareholder proposes to bring before the meeting,
a brief description of the business desired to be brought before the meeting,
the reasons for conducting such business at the meeting and any material
interest in such business of such shareholder and the beneficial owner, if any,
on whose behalf the proposal is made; and (iii) as to the shareholder giving the
notice and the beneficial owner, if any, on whose behalf the nomination or
proposal is made (x) the name and address of such shareholder, as they appear on
the Corporation's books, and of such beneficial owner and (y) the class and
number of shares of the Corporation which are owned beneficially and of record
by such shareholder and such beneficial owner.
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<PAGE>
(b) Special Meetings of Shareholders. Only such business shall be conducted
at a special meeting of shareholders as shall have been brought before the
meeting pursuant to the Corporation's notice of meeting. Nominations of persons
for election to the Board of Directors may be made at a special meeting of
shareholders at which directors are to be elected pursuant to the Corporation's
notice of meeting (i) by or at the direction of the Board of Directors or (ii)
provided that the Board of Directors has determined that directors shall be
elected at such meeting, by any shareholder of the Corporation who is a
shareholder of record at the time of giving of notice provided for in this
by-law, who shall be entitled to vote at the meeting and who complies with the
notice procedures set forth in this by-law. In the event the Corporation calls a
special meeting of shareholders for the purpose of electing one or more
directors to the Board of Directors, any such shareholder may nominate a person
or persons (as the case may be), for election to such position(s) as specified
in the Corporation's notice of meeting, if the shareholder's notice required by
paragraph (a)(2) of this by-law shall be delivered to the Secretary at the
principal executive offices of the Corporation not earlier than the close of
business on the 90th day prior to such special meeting and not later than the
close of business on the later of the 60th day prior to such special meeting or
the 10th day following the day on which public announcement is first made of the
date of the special meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting. In no event shall the public
announcement of an adjournment of a special meeting commence a new time period
for the giving of a shareholder's notice as described above.
(c) General. (1) Only such persons who are nominated in accordance with the
procedures set forth in this by-law shall be eligible to serve as directors and
only such business shall be conducted at a meeting of shareholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this by-law. Except as otherwise provided by law, the Certificate of
Incorporation or these by-laws, the Chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed, as the case may be, in
accordance with the procedures set forth in this by-law and, if any proposed
nomination or business is not in compliance with this by-law, to declare that
such defective proposal or nomination shall be disregarded.
(2) For purposes of this by-law, "public announcement" shall include,
without limitation, disclosure in a press release reported by the Dow Jones News
Service, Associated Press or comparable national news service or in a document
publicly filed by the Corporation with the Securities and Exchange Commission
pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this by-law, a shareholder
shall also comply with all applicable requirements of the Exchange Act and the
rules and regulations thereunder with respect to the matters set forth in this
by-law. Nothing in this by-law shall be deemed to affect any rights of
shareholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
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STOCK PURCHASE AGREEMENT
BY AND AMONG
MERRIMAC INDUSTRIES INC. FILTRAN MICROCIRCUITS INC.
830212 ONTARIO INC. K.N. RAMACHANDRAN
B. JAYA RAMACHANDRAN 729024 ONTARIO LTD.
PETER SMILEY JOHN ANDREWS
S.L. ROSS RITA BHATIA
TIGNER FAMILY TRUST ROSS CHIARELLI
HOWARD SOUCIE ASHWINA BIJOOR
CRAIG SUTTON EAPEN KOSHY
RACHEL KOSHY IN TRUST RACHEL KOSHY
IAN BOLT DORREN WHITE
DEREK WHITE GILLIAN PERSHAW
PHILIP WHITE CORANNE WHITE
- --------------------------------------------------------------------------------
Dated as of December __, 1998
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<PAGE>
TABLE OF CONTENTS
ARTICLE I PURCHASE PRICE AND CLOSING..........................................2
1.01. Purchase Price of the Stock....................................2
1.02. The Closing....................................................2
1.03. Adjustment to Purchase Price...................................2
1.04. Incorporation of Nominee.......................................3
1.05. Definitions....................................................4
ARTICLE IIA REPRESENTATIONS AND WARRANTIES OF EACH SELLER.....................4
2A.01. Power and Capacity............................................4
2A.02. Title to Stock................................................4
2A.03. Incorporation; Organization; Books and Records................4
ARTICLE IIB REPRESENTATIONS AND WARRANTIES OF SELLERS.........................5
2B.01. Binding Obligation............................................5
2B.02. Non-Contravention.............................................5
2B.03. Regulatory Approvals..........................................6
2B.04. Capitalization of the Company.................................6
2B.05. Subsidiaries and Equity Interests.............................6
2B.06. Qualifications, etc...........................................7
2B.07. Financial Statements..........................................7
2B.08. Absence of Certain Changes or Events..........................8
2B.09. Assets Other than Real Property Interests....................11
2B.10. Real Property Owned and Leased...............................12
2B.11. Patents, Trademarks, etc.....................................13
2B.12. Insurance....................................................14
2B.13. Commitments..................................................14
2B.14. Legal Proceedings............................................17
2B.15. Taxes........................................................18
2B.16. Compliance with Laws.........................................21
2B.17. Environment..................................................22
2B.18. Employee Benefit Plans; Termination and Severance
Agreements..................................................24
2B.19. Employee and Labor Matters...................................25
2B.20. Capital Expenditures.........................................26
2B.21. Warranties...................................................26
2B.22. Powers of Attorney...........................................26
2B.23. Customer Accounts Receivable; Inventories....................26
2B.24. Customers and Suppliers......................................27
2B.25. No Material Misstatement or Omission.........................27
2B.26. Stand Alone..................................................27
2B.27. Year 2000 Compliant..........................................27
2B.28. Retiree Liability............................................28
ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER..........................28
3.01. Organization and Authority....................................28
3.02. Due Authorization; Binding Obligation.........................28
3.03. Non-Contravention.............................................28
3.04. Regulatory Approvals..........................................29
3.05. Investment Intent.............................................29
3.06. Nominee.......................................................29
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF 830212 SHAREHOLDERS.............29
4.01. Organization and Authority....................................29
4.02. Non-Contravention.............................................30
4.03. Regulatory Approvals..........................................30
4.04. Title to Stock................................................30
4.05. Capitalization................................................30
4.06. Subsidiaries and Equity Interests; Transactions with
Affiliates...................................................31
4.07. Organization; Books and Records...............................31
4.08. Compliance with Laws..........................................31
4.09. No Material Misstatement or Omission..........................31
4.10. No Undisclosed Liabilities....................................31
ARTICLE V REPRESENTATIONS AND WARRANTIES OF 729024 SHAREHOLDERS..............32
5.01. Organization and Authority....................................32
5.02. Non-Contravention.............................................32
5.03. Regulatory Approvals..........................................33
5.04. Title to Stock................................................33
5.05. Capitalization................................................33
5.06. Subsidiaries and Equity Interests; Transactions with
Affiliates...................................................33
5.07. Organization; Books and Records...............................34
5.08. Compliance with Laws..........................................34
5.09. No Material Misstatement or Omission..........................34
5.10. No Undisclosed Liabilities....................................34
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ARTICLE VI PRE-CLOSING COVENANTS.............................................34
6.01. Corporate Investigation by Buyer..............................34
6.02. Confidentiality...............................................35
6.03. Intentionally Deleted.........................................36
6.04. Maintenance of Insurance......................................36
6.05. Additional Disclosure.........................................36
6.06. Certain Licenses and Permits..................................36
6.07. Non-Interference..............................................36
6.08. Other Transactions............................................37
6.09. Effect of Termination and Abandonment.........................37
6.10. Amalgamation of 830212 and 729024 with Company................37
6.11. Schedules.....................................................37
6.12. Financial Statements..........................................38
6.13. Due Diligence.................................................38
6.14. Assistance....................................................38
6.15. Form 116......................................................38
6.16. Escrow........................................................38
6.17. Real Estate...................................................39
6.18. Closing for Seller............................................39
6.19. Closing for Buyer.............................................40
ARTICLE VIIA CONDUCT OF BUSINESS.............................................41
7A.01. Conduct of Business..........................................41
ARTICLE VIIB PRE-CLOSING COVENANTS OF THE HOLDING COMPANIES..................44
7B.01. Accuracy of Representations and Warranties...................44
ARTICLE VIII CONDITIONS TO BUYER'S OBLIGATIONS...............................45
8.01. Accuracy of Representations and Warranties....................45
8.02. Performance of Covenants......................................45
8.03. Government Approvals..........................................45
8.04. Consents......................................................45
8.05. No Legal Proceedings..........................................45
8.06. Stock Certificates............................................46
8.07. No Material Changes...........................................46
8.08. Employment Contract...........................................46
8.09. Intercompany Accounts.........................................46
8.10. Amalgamation..................................................46
ARTICLE IX CONDITIONS TO SELLER'S OBLIGATIONS................................46
9.01. Accuracy of Representations and Warranties....................47
9.02. Performance of Covenants......................................47
9.03. Governmental Approvals........................................47
9.04. No Legal Proceedings..........................................47
9.05. Payment of Purchase Price.....................................47
ARTICLE X SURVIVAL...........................................................47
10.01. Survival.....................................................47
ARTICLE XI INDEMNIFICATION...................................................48
11.01. Environmental Indemnification by Sellers.....................48
11.02. Other Indemnification by Sellers.............................49
11.03. Indemnification by Buyer.....................................49
11.04. Third-Party Claims...........................................49
11.05. Offset.......................................................51
11.06. Indemnification Limitations and Mitigation...................51
ARTICLE XII TERMINATION......................................................52
12.01. Mutual Agreement.............................................52
12.02. Noncompliance or Nonperformance..............................53
12.03. Due Diligence Termination....................................53
ARTICLE XIII MISCELLANEOUS...................................................53
13.01. Integration; Amendment.......................................53
13.02. Seller's Agent...............................................53
13.03. Assignment...................................................54
13.04. Counterparts.................................................54
13.05. Headings.....................................................54
13.06. Waiver; Requirement of Writing...............................55
13.07. Finder's Fees; Brokers.......................................55
13.08. Expenses.....................................................55
13.09. Notices......................................................55
13.10. Applicable Law; Consent to Jurisdiction......................56
13.11. Public Announcements.........................................57
13.12. No Third-Party Beneficiaries.................................57
APPENDIX A....................................................................63
DEFINITIONS 63
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT dated as of December [ ], 1998 by and among
Merrimac Industries, Inc., a New Jersey corporation ("Buyer"), the Shareholders
of 830212 Ontario Inc. listed on the signature pages hereto ("830212
Shareholders"), K.N. Ramachandran, B. Jaya Ramachandran, the Shareholders of
729024 Ontario Ltd. listed on the signature pages hereto ("729024
Shareholders"), Peter Smiley, John Andrews, S.L. Ross, Rita Bhatia, Tigner
Family Trust, Ross Chiarelli, Howard Soucie, Ashwina Bijoor and Craig Sutton
(individually a "Seller" and collectively, "Sellers"), Filtran Microcircuits,
Inc., a corporation incorporated under the laws of Ontario (the "Company"),
830212 Ontario Inc. ("830212") and 729024 Ontario Ltd. ("729024") (collectively
"Holding Companies").
W I T N E S S E T H :
WHEREAS, Sellers, 830212 and 729024 own all of the issued and outstanding
shares consisting of in the aggregate 1,052 common shares (the "Stock") of the
Company;
WHEREAS, the 830212 Shareholders own all the shares of 830212;
WHEREAS, the 729024 Shareholders own all the shares of 729024;
WHEREAS, the Buyer has the option to create an acquisition vehicle as its
Nominee (the "Nominee") to acquire the Stock;
WHEREAS, the Sellers shall cause the Amalgamation of the Holding Companies
and the Company (the "Amalgamation") on or prior to the Closing Date (references
to the Company herein shall include references to the corporation resulting from
the Amalgamation); and
WHEREAS, Buyer desires to purchase from Sellers, and each of the Sellers
desires to sell to Buyer, the Stock upon the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements hereinafter contained, the parties hereto do hereby agree as follows:
ARTICLE I
PURCHASE PRICE AND CLOSING
1.01. Purchase Price of the Stock.
Subject to all of the terms and conditions of this Agreement, Sellers shall
sell the Stock to Buyer or its Nominee at the Closing (as defined in Section
1.02 below) and Buyer or its Nominee, in reliance on the covenants,
representations and warranties of Sellers contained herein, shall purchase or
cause to purchase the Stock from Sellers at the Closing for a purchase price
(the "Purchase Price") equal to CDN $6,000,000. The Purchase Price shall be paid
by Buyer or its Nominee to Seller at the Closing, in immediately available
funds, or by certified or official bank checks payable to the order of Sellers
in accordance with the amounts set forth on Schedule I. Buyer or its Nominee
may, in its sole discretion, offer to satisfy up to CDN $2,000,000 of the
Purchase Price through the issuance of common shares of the Buyer. Each Seller
shall have the right in his, her or its discretion to accept or reject any such
offer. In any such case, Buyer and any Sellers who agree to take Buyer's shares
in payment of some or all of their share of the Purchase Price shall negotiate
the number of Buyer's common shares to be issued and the value to be ascribed
thereto. In connection therewith, the parties shall make such representations
customary for a purchase of shares and acceptable to such Sellers acting
reasonably, and shall assume such undertakings as to allow Buyer's shares to be
issued without registration or qualification under the laws of the United
States, Canada and any political subdivision thereof. Each of the Sellers shall
deliver to Buyer at the Closing certificates for the Stock duly endorsed or with
duly executed stock powers attached. Notwithstanding that Buyer may appoint a
Nominee hereunder to acquire the Stock, the Buyer shall be liable for all of its
obligations and those of its Nominee, as principal and not as surety, which
arise under this Agreement.
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1.02. The Closing.
The closing of the sale and purchase of the Stock (the "Closing") shall
take place at the offices of LaBarge Weinstein, 333 Preston Street, 11th Floor,
Ottawa, Ontario, Canada K1S 5N4 at 10:00 a.m. local time on January 22, 1999
(such time and date of the Closing being herein called the "Closing Date").
1.03. Adjustment to Purchase Price.
The aggregate purchase price to be paid by the Buyer for the Stock of the
Company shall be subject to adjustment as follows: (i) if the total Net Book
Value (as defined below) of the Company reflected on the Closing Balance Sheet
("Closing Net Book Value") is an amount less than CDN $1,850,000 (the "Base I
Value"), within forty-five (45) days of the Closing Date, the Sellers, jointly
and severally, will pay to the Buyer, in immediately available funds and in
Canadian dollars, the amount equal to the excess of (a) the Base I Value over
(b) the total Closing Net Book Value and the Base Value or (ii) if the total
Closing Net Book Value is an amount greater than CDN $1,950,000 (the "Base II
Value"), within forty-five (45) days of the Closing Date, the Buyer will pay to
the Sellers, in immediately available funds and in Canadian dollars, an amount
equal to the excess of (a) the total Closing Net Book Value over (b) the Base II
Value. All payments (other than late payments as described below) due Buyer or
Sellers under this Section 1.03 shall bear interest at the rate equal to the
applicable federal rate as defined in Section 1274(d) of the United States
Internal Revenue Code of 1986, as amended, in effect as of the Closing Date and
such interest shall be due and payable concurrently with the payment to which it
relates. Late payments shall bear interest at the rate of 10-1/2% per annum from
the forty-fifth day following the Closing Date. In computing the Closing Net
Book Value for this Section 1.03, there shall be added back to Closing Net Book
Value the aggregate of (i) the amount, not to exceed CDN $50,000, of
professional fees invoiced to and paid by the Company prior to the Closing Date
(by LaBarge Weinstein, McCarthy Tetrault, Thomas Busing and any other person)
and (ii) the amount, if any, not to exceed CDN $50,000, of the operating loss
realized by the Company between December 1, 1998 and the Closing Date. Except as
provided in the preceding sentence, the Net Book Value ("Net Book Value") of the
Company will be determined, in accordance with Canadian GAAP, applied
consistently with the fiscal 1997 financial statements of the Company and will
be based on a balance sheet as of the Closing Date prepared by the Company and
distributed to the parties hereto within thirty (30) days after the Closing
Date. Such balance sheet shall be deemed final and conclusive in the absence of
any written objection delivered by a party hereto within ten (10) days deliver
thereof. Any disputes shall be submitted to Pricewaterhouse Coopers whose
determination shall be binding on the parties. It is expressly understood by the
parties that this Section 1.03 and the escrow agreement attached as Exhibit A to
this Agreement and not Article XI shall be the exclusive method and remedy for
any adjustment to Purchase Price.
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1.04. Incorporation of Nominee.
The Buyer, in its sole discretion, shall have the option, but no obligation
whatsoever, to incorporate the Nominee in any jurisdiction that it may chose.
Should the Buyer choose to appoint a Nominee, the obligations of the Buyer
hereunder shall become the joint and several obligations of the Buyer and
Nominee.
1.05. Definitions.
All capitalized terms used herein and not otherwise defined shall have the
meaning set forth in Appendix A hereto. It is expressly understood that once the
Amalgamation has taken place, all references to the Company shall be deemed to
mean the Company, 830212, 729024 and the surviving entity in the Amalgamation.
ARTICLE IIA
REPRESENTATIONS AND WARRANTIES OF EACH SELLER
Each Seller hereby individually and severally represents and warrants to
Buyer as follows:
2A.01. Power and Capacity.
Each Seller has the full legal power and capacity to execute, deliver and
perform such Seller's obligations under this Agreement including, without
limitation, the Amalgamation of the Holding Companies with the Company.
2A.02. Title to Stock.
Each Seller individually represents and warrants that it (a) is (or if such
Seller holds Stock through a Holding Company, after the Amalgamation will be)
the beneficial and record owner, free and clear of any liens, pledges,
encumbrances, charges, agreements or claims, of the Stock set forth opposite
such Seller's name on Schedule I and (b) will sell, transfer, assign and deliver
good and valid title to such shares of the Stock as provided in this Agreement.
At the Closing, Buyer will acquire good and valid title to such Stock, free and
clear of any liens, pledges, encumbrances (except as contained in the Company's
articles of amalgamation), charges, agreements or claims.
2A.03. Incorporation; Organization; Books and Records.
The Company is and after the Amalgamation will be a corporation duly
incorporated or amalgamated and organized, validly existing and in good standing
under the laws of Ontario, Canada, with full corporate power and authority to
carry on its business as presently conducted by it and to own, lease and operate
its properties in the places where it maintains offices and where its properties
are owned, leased or operated. Copies of the charter documents and By-laws (or
similar governing documents), corporate minute books containing copies of all
By-laws and resolutions passed by the shareholders and directors since the date
of its incorporation, share certificate books, registers of shareholders,
registers of transfers and registers of directors of the Company are true,
correct and complete as of the date hereof and Seller shall cause their delivery
to Buyer in accordance with Section 6.11.
ARTICLE IIB
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers hereby jointly and severally (except for Section 2B.02, in so far
as it relates to such Seller, which is made severally by each Seller as to
itself) without the benefit of division and discussion, represents and warrants
to Buyer as follows, it being understood that references to Schedules in this
Article IIB shall mean the Schedules to be delivered by Sellers to Buyer
pursuant to Section 6.11:
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2B.01. Binding Obligation.
Each Seller represents that this Agreement constitutes a valid and binding
obligation of such Seller enforceable against such Seller in accordance with its
terms, subject to the qualification, however, that enforcement of the rights and
remedies created hereby is subject to bankruptcy and other similar laws of
general application relating to or affecting the rights and remedies of
creditors and that the remedy of specific performance or of injunctive relief is
subject to the discretion of the court before which any proceeding therefor may
be brought.
2B.02. Non-Contravention.
The execution, delivery and performance of this Agreement by Sellers and
the consummation of the transactions contemplated hereby do not and will not,
with or without the giving of notice or the lapse of time, or both, violate,
conflict with, result in the breach of or accelerate the performance required by
any of the terms, conditions or provisions of the charter documents or By-laws
or other governing documents of the Company or any covenant, agreement or
understanding to which any Seller or the Company is a party or their properties
are subject or by which either of them is bound or affected or any order,
ruling, decree, judgment, arbitration award, law, rule, regulation or
stipulation to which any Seller or the Company is subject or their properties
are subject or by which any of them is bound or affected or constitute a default
thereunder or result in the creation of any lien, charge or encumbrance upon any
of the properties or assets of the Company or result in, or give any person the
right to seek, or to cause (a) the termination, cancellation, modification,
amendment, variation or renegotiation of any contract, agreement, indenture,
instrument or commitment to which the Company or any of their properties may be
a party or subject or by which it is bound or affected, (b) the acceleration or
forfeiture of any term of payment or (c) the loss in whole or in part of any
material benefit which would otherwise accrue to the Company.
2B.03. Regulatory Approvals.
Except as set forth in Schedule 2B.03 to be provided to Buyer in accordance
with Section 6.11, or in connection with the Amalgamation, neither Sellers nor
the Company is required to file, seek or obtain any governmental notice, filing,
authorization, approval, order or consent, or any bond in satisfaction of any
governmental regulation, in connection with the execution, delivery and
performance of this Agreement by Sellers or in order to prevent termination of
any material right, privilege, license or agreement of the Company.
2B.04. Capitalization of the Company.
The Company's authorized capital consists solely of an unlimited number of
common shares, with no par value, of which 1,052 common shares are, and after
the Amalgamation will be, issued and outstanding. Such issued and outstanding
shares are validly issued and are fully paid and nonassessable. Except (a) as
set forth in Schedule 2B.04 to be provided to Buyer in accordance with Section
6.11, and (b) for rights granted to Buyer under this Agreement, there are no
outstanding options, warrants or other rights to purchase, obtain or acquire, or
any outstanding securities or obligations convertible into or exchangeable for,
or any voting agreement or voting trust or pooling agreement or proxy with
respect to, any shares in the share capital of the Company or any other
securities of the Company and the Company is not obligated, now or in the
future, contingently or otherwise, to issue, purchase or redeem shares in the
share capital of the Company or any other securities of the Company to or from
any person.
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2B.05. Subsidiaries and Equity Interests.
The Company has never owned and does not own any shares or capital stock
of, or any interest in, any person, has no equity interest in any person and has
no obligation to form, subscribe for shares in, or participate in any
corporation, partnership or person.
2B.06. Qualifications, etc.
Schedule 2B.06 to be provided to Buyer in accordance with Section 6.11 sets
forth (a) each jurisdiction in which the Company is duly qualified to do
business and in good standing, and (b) each jurisdiction in which the Company is
duly licensed, authorized or registered to conduct such business or businesses
as are conducted by it and the type of business or businesses for which it is so
licensed, authorized or registered. Each such qualification, license,
authorization and registration (collectively, "Qualification") is in full force
and effect and neither the character of the properties owned or held under lease
or license by the Company nor the nature of the business conducted by the
Company requires any additional Qualification in any such jurisdiction or any
Qualification in any other jurisdiction, except any such jurisdiction wherein
the failure to be so qualified, licensed, authorized or registered would not
have a material adverse effect on the Company. Except as set forth in Schedule
2B.06, no approval, consent or notification in connection with any Qualification
is necessary in connection with the transactions contemplated by this Agreement
to prevent the termination or withdrawal of any such Qualification as a result
of such transactions.
2B.07. Financial Statements.
Sellers will provide to Buyer:
(a) in accordance with Section 6.11, unaudited financial statements for the
Company consisting of (i) balance sheets at November 30, 1997 and 1996, (ii)
statements of income and retained earnings for the years ended November 30, 1997
and 1996 and (iii) statements of changes in financial position for the years
ended November 30, 1997 and 1996, together with the review report of Thomas H.
Busing (the "Accountant") thereon and the notes thereto; and
(b) audited financial statements by the Accountant for the Company to be
delivered within forty-five (45) days of the Closing Date consisting of (i) a
balance sheet at November 30, 1998, (ii) statement of income for twelve months
ended November 30, 1998 and (iii) statements of changes in financial position
for the twelve months ended November 30, 1998.
(c) The financial statements described in Section 2B.07(a) above have not
been the subject of an audit and have been prepared in accordance with Canadian
generally accepted accounting principles ("Canadian GAAP") applied on a
consistent basis and present fairly the financial position of the Company at the
dates thereof and the results of operations and changes in the financial
position of the Company for the periods then ended. The financial books and
records of the Company used to prepare the financial statements in Section
2B.07(a) have been maintained in accordance with sound business practices and
fairly present and disclose in accordance with Canadian GAAP consistently
applied (i) the financial position of the Company and (ii) all transactions of
the Company.
(d) The financial statements described in Section 2B.07(b) above will be
prepared in accordance with Canadian GAAP applied on a consistent basis and will
present fairly the financial position of the Company at the dates thereof and
the results of operations and changes in the financial position of the Company
for the periods then ended. Except to the extent that it shall be reflected or
reserved against in the audited balance sheet of the Company at November 30,
1998, at November 30, 1998, the Company did not have any material liability or
obligation (whether absolute or contingent, or accrued or unaccrued) required to
be disclosed in financial statements, or in the notes thereto, prepared in
accordance with Canadian GAAP. The financial books and records of the Company to
be used to prepare the financial statements in Section 2B.07(b) have been and
until Closing will be maintained in accordance with sound business practices and
fairly present and disclose in accordance with Canadian GAAP consistently
applied (i) the financial position of the Company and (ii) all transactions of
the Company.
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2B.08. Absence of Certain Changes or Events.
Except as set forth in Schedule 2B.08 or any other schedule to be provided
to Buyer in accordance with Section 6.11, since November 30, 1997 there has not
been, with respect to the Company or its businesses or properties:
(a) any material adverse change in the business, assets, condition
(financial or otherwise), results of operations or prospects of the Company or
any event, condition or contingency relating to the Company that is likely to
result in such a material adverse change;
(b) any material obligations or liabilities incurred, except trade and
other obligations or liabilities in usual amounts incurred by the Company in the
ordinary course of business;
(c) any indebtedness (contingent or otherwise) for borrowed money incurred
by the Company except under its existing revolving line of credit;
(d) any destruction, damage by fire, accident or other casualty or act of
God of or to any of the material properties or assets of the Company, whether or
not covered by insurance;
(e) any action that, if taken after the date of this Agreement, would
constitute a breach of any of the covenants set forth in Articles VI, VIIA and
VIIB.
(f) any amendment to its charter document or By-laws or other governing
documents or capital structure;
(g) any issuance or sale of any shares of its capital stock or any other
securities or issuance of any securities convertible into or exchangeable for,
or options, warrants to purchase, script, rights to subscribe for, calls or
commitments of any character whatsoever relating to, or any entering into any
contract, understanding or arrangement with respect to the issuance of, any
shares of its capital stock or any of its other securities, or any entering into
any arrangement or contract with respect to the purchase or voting of shares of
its capital stock, or adjustment, split, reacquisition, redemption, combination
or reclassification any of its securities, or make any other changes in its
capital structure;
(h) any other debt (contingent or otherwise) or other obligation to pay
money except for normal operating purposes in the ordinary course of business;
(i) any split, combination or reclassification of any of its shares, or
redemption, retirement, repurchase or acquisition of its shares in its capital
stock or other corporate security or reservation, declaration, setting aside or
payment of any dividends (in cash or in kind) on, or any distributions in
respect of, the outstanding capital stock of the Company or appropriations of
profits or capital;
(j) any entering into, amendment or renewal or termination of any contract,
commitment, lease (whether of real or personal property) or other agreement,
except in the ordinary course of business;
(k) any loan, advance or assumption, endorsement, guarantee or any
obligation to guarantee the obligation or liabilities of any person, firm,
corporation or other entity;
(l) any mortgage, pledge or any lien, charge, or other encumbrance of any
of the assets, properties or business of the Company;
(m) any sale or other transfer or lease of any properties or assets or
cancellation of any debt or claim or waiver of any right or any gift, or
purchase or otherwise acquisition or lease of any properties or assets, in each
case except in the ordinary course or business;
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(n) any lapse of any right with respect to any Intellectual Property used
in the conduct of the business of the Company;
(o) any grant of any increase in wages or salary rates or in employment,
retirement, severance, termination or other benefits or any payment of any bonus
or any loan to any officer, director or employee or shareholder, other than
increases or bonuses in the ordinary course consistent with past practice or
required by any agreement in effect as of the date of this Agreement and which
is disclosed in any of the Schedules hereto, or entering into any employment
contract with any person, or adopting any bonus, profit sharing, compensation,
stock option, pension, retirement, deferred compensation, employment or other
employee benefit plan, agreement, trust, plan fund or other arrangement for the
benefit or welfare of any employee of the Company;
(p) any acceleration of the collection of accounts receivable, any delay in
the payment of accounts payable or any deferring with respect to the maintenance
and other expenses, any reduction of inventories, or otherwise increase of the
cash on hand, in a manner inconsistent with past practice or not in the ordinary
course of business;
(q) any repayment of any indebtedness for borrowed money, except as
required by existing debt instruments and under the Company's revolving line of
credit;
(r) any material tax election settling or compromising any liability for
taxes, any filing of tax returns other than on a basis consistent with the
Company's past practices or, other than in the ordinary course of business, any
engagement in any transaction or operation of the business in a manner that
would directly or indirectly result in any liability for Taxes of the Company;
(s) any change in its accounting methods or practices;
(t) any termination of operation of its properties and business as
heretofore carried on or any failure to maintain all of its properties, rights
and assets consistently with past practices or any failure to do any and all
things reasonably necessary and within its power to retain and pursue the
goodwill of its business;
(u) any discharge of any secured or unsecured obligation or liability
(whether accrued, absolute, contingent or otherwise,) other than obligations and
liabilities discharged in the ordinary course of business and in a manner
consistent with past practices;
(v) any capital expenditure;
(w) any removal of any director or auditor or termination of any officer,
except those directors who will resign in accordance with Section 6.18(c);
(x) any purchase or acquisition of any corporate security or proprietary,
participatory or profit interest in any person, firm, corporation or other
entity; or
(y) any modification or change of its business organization or its
relationship with its suppliers, customers and others having business relations
with it.
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2B.09. Assets Other than Real Property Interests.
(a) The Company will have good and valid title to and will be the sole
owner of all assets that will be reflected on the November 30, 1998 Balance
Sheet or thereafter acquired, except those to be sold or otherwise disposed of
for fair value on or after the date of the November 30, 1998 Balance Sheet in
the ordinary course of business consistent with past practice and not in
violation of this Agreement, in each case free and clear of all mortgages,
liens, security interests, pledges, encumbrances, charges, agreements, claims,
restrictions and defects of title of any kind except (i) as are set forth in
Schedule 2B.09 to be provided to Buyer in accordance with Section 6.11, (ii)
mechanics', carriers', workmen's, repairmen's or other like liens arising or
incurred in the ordinary course of business and liens for Taxes (as defined in
Section 2B.15) which are not due and payable or being contested in good faith by
appropriate proceedings, (iii) other imperfections of title or encumbrances, if
any, which mortgages, liens, security interests and encumbrances do not,
individually or in the aggregate, materially impair the continued use and
operation of the assets to which they relate in the business of the Company as
presently conducted.
(b) All the tangible personal property of the Company has been maintained
in all material respects in accordance with the past practice of the Company and
generally accepted industry practice. Each item of tangible personal property of
the Company is in all material respects in good operating condition and repair,
ordinary wear and tear excepted and adequate and sufficient for the continuing
conduct of the business of the Company as now conducted. All leased personal
property of the Company is in all material respects in the condition required of
such property by the terms of the lease applicable thereto during the term of
the lease and upon the expiration thereof.
(c) This Section 2B.09 does not relate to (i) real property or interests in
real property, such items being the subject of Sections 2B.10 or (ii)
Intellectual Property, or interests in Intellectual Property, such items being
the Subject of Section 2B.11.
2B.10. Real Property Owned and Leased.
(a) Schedule 2B.10 to be provided to Buyer in accordance with Section 6.11
contains a complete and accurate list and full description of all real property
(including without limitation plants, warehouses, interests in real property,
distribution centers, structures and other buildings) owned or leased by the
Company (the "Real Property"). The Company is not the owner or lessee of, or
subject to any agreement or option to own or lease, any immovable or real
property or any interest in any immovable or real property other than the Real
Property. The Company is the sole owner or lessee, as the case may be, of the
Real Property and has (a) good and marketable title to the real property owned
by it and (b) good and valid title to the leasehold estates in all real property
and interests in real property leased by it, in each case, free and clear of all
mortgages, liens, security interests, pledges, leases, subleases, encumbrances,
charges, assignments, easements, claims or other restrictions and defects of
title, except (i) as are set forth in Schedule 2B.10, (ii) liens for Taxes not
yet due and payable or being contested in good faith by appropriate proceedings
and (iii) which do not impair the current use or diminish the value of the
property affected to any material extent. All plants, warehouses, interests in
real property, distribution centers, structures and other buildings of the
Company were constructed in accordance with all applicable laws and are
currently used in the operation of the business of the Company and are
adequately maintained and are in good operating condition and repair for the
requirements of the business as presently conducted by the Company and the
Company has adequate rights of ingress and egress on them.
(b) No action, suit, claim, investigation, condemnation or expropriation
proceeding is pending or, to the knowledge of the Sellers, threatened against
any of the Real Property which would preclude or impair the use of any of the
Real Property for the purposes for which they are currently used. There are no
outstanding work orders from or required by any municipality, police department,
fire department, sanitation, health or safety authorities or from any other
Person and there are no matters under discussion with or by the Company relating
to work orders. There are no agreements or other documents which affect or
relate to title to the Real Property, other than as registered against title to
the Company. The Company has not granted to any other party any right to
purchase, right of first refusal, option or other contractual rights with
respect to any of Real Property, and has not entered into any agreement to
encumber or otherwise dispose of or impair the Company's right, title and
interest in and to the Real Property. All municipal and school, general and
special taxes affecting the Real Property have been paid and are up to date.
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(c) Each lease is in good standing, creates a good and valid leasehold
estate in the leased properties thereby demised and is in full force and effect
without amendment. With respect to each lease (i) the lease (or a notice in
respect of the lease) will at closing be properly registered in the appropriate
land registry office, (ii) all rents and additional rents have been paid, (iii)
no waiver, indulgence or postponement of the lessee's obligations has been
granted by the lessor, (iv) there exists no event of default or event,
occurrence, condition or act (including the purchase of the Stock) which, with
the giving of notice, the lapse of time or the happening of any other event or
condition, would become a default by the Company under the lease, (v) to the
knowledge of any of the Sellers, all of the covenants to be performed by any
party (other the Company) under the lease have been fully performed, and (vi)
all leasehold improvements have been completed.
2B.11. Patents, Trademarks, etc.
(a) Schedule 2B.11 to be provided to Buyer in accordance with Section 6.11
sets forth a complete and accurate listing of all Canadian, United States and
foreign patents, trademarks, trade names, service marks industrial design and
copyrights used in the conduct of the businesses of the Company, whether
registered or unregistered, and any applications or registrations therefor.
Except as set forth in Schedule 2B.11, the Company solely owns and has the
exclusive right to hold and use, free and clear of any payment or encumbrance,
all such patents, trademarks, trade names, service marks and copyrights (all
such patents, trademarks, trade names, service marks and copyrights being
hereinafter collectively referred to as the "Intellectual Property"). Each of
the aforesaid Intellectual Property is valid, subsisting and enforceable. Except
as set forth in Schedule 2B.11, there is no claim or demand of any person
pertaining to, or any proceedings which are pending or, to the knowledge of
Sellers, threatened, which challenge the exclusive rights of the Company in
respect of any Intellectual Property whether registered or unregistered. No
Intellectual Property is subject to any outstanding order, ruling, decree,
judgment or stipulation by or with any court, arbitrator or administrative
agency and to the knowledge of the Sellers, except as set forth in Schedule
2B.11, none of the Intellectual Property infringes the intellectual property
rights of others or is being infringed by others or is used by others (whether
or not such use constitutes infringement).
(b) None of the Business know-how (as defined below) in documentary form is
held by Seller or any of their affiliates (other than the Company) and Sellers
and their affiliates (other than the Company) do not own or have any right to
use, execute, reproduce, display, perform, modify, enhance, distribute, prepare
derivative works of or sublicense any of the Business know-how. The Company has
not granted any licenses or otherwise disclosed nor has agreed to disclose any
of the Business know-how except as set forth in Schedule 2B.11. As used in this
paragraph, "Business know-how" shall mean all (A) schematics and other design
documentation regardless of form, (B) specifications and performance criteria,
(C) operating instructions and maintenance manuals, (D) source and object code
copies of software and firmware and (E) prototypes, models or samples, in each
case, which (i) are set forth on Schedule II attached to this Agreement, (ii)
are owned by the Company and (iii) are used primarily by the Company or held for
use by the Company as of the Closing Date.
2B.12. Insurance.
Schedule 2B.12 to be provided to Buyer in accordance with Section 6.11 sets
forth a complete and accurate list of all casualty, directors and officers
liability, general liability (including product liability) and all other types
of insurance maintained by the Company, together with the carriers and liability
limits for each such policy. Each policy is duly in force, and no notice has
been received by the Company from any insurance carrier purporting to cancel or
reduce coverage under any such policy. The Company is current in all premiums or
other payments due thereunder. Schedule 2B.12 identifies which insurance
policies are "occurrence" or "claims made". All insurance coverage held for the
benefit of the Company is with responsible and reputable insurers and is in such
amounts, with such deductibles and against such risks and losses as are
reasonable for the business and assets of the Company. The activities and
operations of the Company have been conducted in a manner so as to conform in
all material respects to all applicable provisions of such insurance policies.
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2B.13. Commitments.
(a) Except as set forth in Schedule 2B.13 to be provided to Buyer in
accordance with Section 6.11 or as otherwise disclosed pursuant to Section
2B.18, the Company is not a party to or bound by any written or oral:
(i) covenant of the Company not to compete or other covenant of the Company
restricting the development, manufacture, marketing or distribution of the
products and services of the Company;
(ii) agreement, contract or other arrangement with (A) any Seller or any
affiliate of a Seller (other than the Company) or (B) any current or former
officer, director, employee or independent contractor of the Company, or any
affiliate thereof;
(iii) lease, sublease or similar agreement with any person under which the
Company is a lessor or sublessor of, or makes available for use to any person
(other than the Company), (A) any Real Property or (B) any portion of any
premises otherwise occupied by the Company (other than as disclosed pursuant to
Section 2B.10);
(iv) lease or similar agreement with any person (other than the Company)
under which (A) the Company is lessee of, or holds or uses, any machinery,
equipment, vehicle or other tangible personal property owned by any person or
(B) the Company is a lessor or sublessor of, or makes available for use by any
person, any tangible personal property owned or leased by the Company, in any
such case which has an aggregate future liability or receivable, as the case may
be, in excess of CDN $25,000 and, in the case of any such lease or similar
agreement entered into between the date hereof and Closing, is not terminable by
the Company by notice of not more than 60 days without cost or penalty;
(v) (A) continuing agreement or contract for the future purchase of
materials, supplies or equipment (other than purchase contracts and orders for
inventory in the ordinary course of business consistent with past practice,
provided, that any such contract or order, when taken together with all other
purchase contracts and orders for inventory relating to the ordered item, would
not require the Company to acquire a quantity of such item that could not
reasonably be expected to be used in the ordinary course of business of the
Company within six months after the date of execution or entry of purchase
contract or order for inventory) or (B) service, consulting, management or other
similar type of agreement or contract, in either such case which has an
aggregate future liability in excess of CDN $25,000 and, in the case of any such
agreement or contract entered into between the date hereof and Closing, is not
terminable by the Company by notice of not more than 60 days without cost or
penalty;
(vi) continuing agreement or contract for the distribution of any products
manufactured by the Company, including by franchise arrangement, except, in the
case of any such agreement or contract entered into between the date hereof and
the Closing, if such agreement or contract is terminable by the Company by
notice of not more than 60 days without cost or penalty;
(vii) continuing agreement or contract for the purchase of any products
manufactured by parties other than the Company, except, in the case of any
agreement or contract entered into between the date hereof and the Closing, if
such agreement or contract is terminable by the Company by notice of not more
than 60 days without cost or penalty;
(viii) continuing agreement or contract for products manufactured by the
Company on behalf of parties other than the Company, except, in the case of any
agreement or contract entered into between the date hereof and the Closing, if
such agreement or contract is terminable by the Company by notice of not more
than 60 days without cost or penalty;
(ix) agreement, contract or arrangement for the placement of advertising or
other promotional activities which has an aggregate future liability in excess
of CDN $25,000 and, in the case of any such agreement, contract or arrangement
entered into between the date hereof and Closing, is not terminable by the
Company by notice of not more than 60 days without cost or penalty;
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(x) except as set forth in Schedule 2B.11, any material license, option or
other agreement relating in whole or in part to the Intellectual Property set
forth in Schedule 2B.11 (including any license or other agreement under which
the Company is licensee or licensor of any such Intellectual Property) or to
trade secrets, confidential information or proprietary rights and processes of
the Company or any other person;
(xi) agreement, contract or other instrument under which the Company has
borrowed any money from, or issued any note, bond, debenture or other evidence
of indebtedness to, any person or any other note, bond, debenture or other
evidence of indebtedness issued to any person in any such case which,
individually, is in excess of CDN $25,000;
(xii) agreement, contract or other instrument (including so-called
take-or-pay or keepwell agreements) under which (A) any person (has directly or
indirectly guaranteed indebtedness, liabilities or obligations of the Company or
(B) the Company has directly or indirectly guaranteed indebtedness, liabilities
or obligations of any person (in each case other than endorsements for the
purpose of collection in the ordinary course of business), in any such case
which, individually, is in excess of CDN $25,000;
(xiii) agreement, contract or other instrument under which the Company has,
directly or indirectly, made any advance, loan, extension of credit or capital
contribution to, or other investment in, any person, in any such case which,
individually, is in excess of CDN $25,000;
(xiv) mortgage, pledge, security agreement, deed of trust or other
instrument granting a lien or other encumbrance upon any Real Property, which
lien or other encumbrance is not set forth in Schedule 2B.09 or 2B.10;
(xv) agreement, contract or instrument providing for indemnification of any
person with respect to liabilities relating to any current or former business of
the Company, or any predecessor person; or
(xvi) other agreement, contract, lease, license, commitment or instrument
to which the Company is a party or by or to which it or any of its assets or
business is bound or subject which has an aggregate future liability to any
person in excess of CDN $25,000 and, in the case of any such agreement,
contract, lease, license, commitment or instrument entered into between the date
hereof and Closing, is not terminable by the Company by notice of not more than
60 days without cost or penalty.
(b) Except as set forth in Schedule 2B.13 provided to Buyer in accordance
with Section 6.11, all agreements, contracts, leases, licenses, commitments or
instruments of the Company listed in the Schedules hereto (collectively, the
"Contracts") are valid, binding and in full force and effect and are enforceable
by the Company in accordance with their respective terms. Except as set forth in
Schedule 2B.13, the Company has performed all material obligations required to
be performed by it to date under the Contracts and they are not (with or without
the lapse of time or the giving of notice, or both) in breach or default in any
material respect thereunder and, to the knowledge of the Company or any Seller,
no other party to any of the Contracts is (with or without the lapse of time or
the giving of notice, or both) in breach or default in any material respect
thereunder. Sellers have provided to Buyer a true and correct copy of each of
the Contracts.
2B.14. Legal Proceedings.
Except as set forth in Schedule 2B.14 provided to Buyer in accordance with
Section 6.11, the Company is not engaged in or a party to, or, to the knowledge
of the Company or any Seller, threatened with, any suit, investigation, legal
action or other proceeding before any court, administrative agency, arbitration
panel or other similar authority which (a) involves (individually, or in the
aggregate for cases arising out of the same or substantially similar facts or
circumstances) the possibility of liability of the Company in excess of
CDN $50,000 (whether or not covered by insurance), (b) seeks injunctive relief
or (c) relates to the transactions contemplated by this Agreement and neither
the Company nor any Seller knows of any basis for any such suit, investigation,
legal action or proceeding. There are no outstanding orders, rulings, decrees,
judgments or stipulations by or with any court, administrative agency,
arbitration panel or other similar authority which are applicable to the
Company's properties, assets, operations or business or which challenge or
otherwise relate to the transactions contemplated by this Agreement. Except as
set forth in Schedule 2B.14, there is no material lawsuit or claim by the
Company pending, or which the Company intends to initiate, against any other
person.
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2B.15. Taxes.
(a) For the purposes of this Agreement, the term "Tax" or, collectively,
"Taxes" shall mean (i) any and all federal, provincial, municipal, local and
foreign taxes, assessments and other governmental charges, duties, impositions
and liabilities including Canada Pension Plan and Provincial Pension Plan
contributions and unemployment insurance contributions and employment insurance
contributions including taxes based upon or measured by gross receipts, income,
profits, sales, capital use and occupation, goods and services, value added, ad
valorem, transfer, franchise, withholding, payroll, recapture, employment,
excise and property taxes, together with all interest, penalties and additions
imposed with respect to such amounts and (ii) any liability for the payment of
any amounts of the type described in clause (i) of this Section 2B.15(a) as a
result of any express or implied obligation to indemnify any other person or as
a result of any obligations under any agreements or arrangements with any other
person with respect to such amounts and including any liability for taxes of a
predecessor entity.
(b) (i) The Company has correctly computed all Taxes prepared and duly and
timely filed all federal, provincial, local and foreign returns, estimates,
information statements and reports ("Tax Returns"), required to be filed by
them, have timely paid all Taxes which are due and payable and will make
adequate provision in the November 30, 1998 balance sheet, or in any other
financial record that is required to be produced by the Company pursuant to this
Agreement, for the payment of all Taxes not yet due and payable for any taxation
year ending on or prior to the Closing Date. The Company has also made adequate
and timely installments of Taxes required to be made.
(ii) With respect to any periods for which Tax Returns have not yet been
required to be filed or for which Taxes are not yet due and payable, the Company
has only incurred liabilities for Taxes in the ordinary course of their business
and in a manner and at a level consistent with prior periods. All such Taxes,
including Taxes for the period between December 1, 1997 and the date hereof,
have been, or will be, reflected as a current liability on the November 30, 1998
balance sheet or on any other financial record that is required to be produced
by the Company pursuant to this Agreement;
(iii) All Tax Returns of the Company have been assessed through and up to
and including each of the dates set forth in Schedule 2B.15, and there are no
outstanding waivers of any limitation periods or agreements providing for an
extension of time for the filing of any Tax Return or the payment of any Tax by
the Company or any outstanding objections to any assessment or reassessment of
Taxes. Any deficiencies proposed as a result of such assessments or
reassessments of the Tax Returns through and including the date set forth in
Schedule 2B.15 have been paid and settled;
(iv) There are no contingent Tax liabilities or any grounds that could
prompt an assessment or reassessment, including, but without limitation,
aggressive treatment of income, expenses, deductions, credits or other amounts
in the filing of earlier or current Tax Returns, nor has the Company received
any indication from any taxation authorities that an assessment or reassessment
of Tax is proposed or imminent;
(v) The Company has withheld from each payment made to any of their past
and present shareholders, directors, officers, employees and agents the amount
of all Taxes and other deductions required to be withheld and have paid such
amounts when due, in the form required under the appropriate legislation, or
made adequate provision for the payment of such amounts to the proper receiving
authorities;
(vi) The Company has collected from each receipt from any of its past and
present customers (or other persons paying amounts to the Company) the amount of
all Taxes (including goods and services tax and provincial sales taxes) required
to be collected and have remitted such Taxes when due, in the form required
under the appropriate legislation or made adequate provision for the payment of
such amount to the proper receiving authorities;
(vii) The Company is not subject to any assessments, levies, penalties or
interest with respect to Taxes which will result in any liability on their part
in respect of any period ending on or prior to the Closing Date, in excess of
the amount to be provided for in the financial statements, the November 30, 1998
balance sheet or in any other financial record that is required to be produced
by the Company pursuant to this Agreement;
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(viii) The Company has not been and is not currently required to file any
returns, reports, elections, designations or other filings with any taxation
authority located in any jurisdiction outside Canada or outside the province of
Ontario;
(ix) The Company has not filed nor has been party to any election pursuant
to Sections 83 or 85 of the Income Tax Act (Canada) (the "ITA") or the
corresponding provisions of any provincial statute;
(x) The Company has not at any time benefited from a forgiveness of debt or
entered into any transaction or arrangement (including conversion of debt into
shares of its share capital) which could have resulted in the application of
Section 80 and following of the ITA;
(xi) All research and development investment tax credits ("ITCs") and
expenditures were claimed by the Company in accordance with the ITA and the
relevant provincial legislation and the Company satisfied at all times the
relevant criteria and conditions entitling it to such ITCs and expenditures. All
refunds of ITCs received or receivable by the Company in any financial year were
claimed in accordance with the ITA and the relevant provincial legislation and
the Company satisfied at all times the relevant criteria and conditions
entitling it to claim a refund of such ITCs;
(xii) Since its date of incorporation, the Company has been a "Canadian
controlled private corporation" within the meaning of the ITA;
(xiii) The Company is not, nor has it been at any time, associated (within
the meaning of the ITA) with any other corporation other than 845470 Ontario
Inc.;
(xiv) There are (and immediately following the Closing Date there will be)
no liens, pledges, hypothecs, charges, claims, restrictions on transfer,
mortgages, security interests or other encumbrances of any sort (collectively,
"Liens") on the assets of the Company relating to or attributable to Taxes other
than Liens for Taxes not yet due and payable;
(xv) As of the Closing Date, there will not be any contract, agreement,
plan or arrangement, including, but not limited to, the provisions of this
Agreement, covering any employee or former employee of the Company that,
individually or collectively, could give rise to the payment of any amount that
would not be deductible by the Company as an expense under applicable Law other
than reimbursements of a reasonable amount of entertainment expenses and other
non deductible expenses that are commonly paid by similar businesses in
reasonable amounts;
(xvi) The Company's tax basis in its assets (and the undepreciated capital
cost of such assets) for purposes of determining its future amortization,
depreciation and other Federal income Tax deductions is accurately reflected on
the Company's Tax Returns and records;
(xvii) The Company has not acquired property or services from, nor has it
disposed of property or provided services to a person with whom it does not deal
at arm's length (within the meaning of the ITA) for an amount that is other than
the fair market value of such property or services, or has been deemed to have
done so for purposes of the ITA; and
(xviii) Each of the Sellers other than Gillian Pershaw individually
represents and warrants as to himself, herself or itself that such Seller is not
a non-resident of Canada within the meaning of the ITA.
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2B.16. Compliance with Laws.
Except as set forth in Schedules 2B.14 and 2B.16 to be provided to Buyer in
accordance with Section 6.11 (a) the Company has complied, and is now in
compliance, in all material respects with all laws, ordinances and regulations
(including, without limitation, those relating to employment, labor and
employment practices, and occupational safety and health) applicable to the
Company, (b) no claims or complaints from any governmental authorities or other
parties have been asserted or received by the Company which are still pending or
outstanding and, to the knowledge of the Company or Sellers, none is threatened,
that the Company is in material violation of any applicable building, zoning,
occupational safety and health, or similar law, ordinance or regulation in
relation to its plants, warehouses, distribution centers, structures or other
buildings or equipment, or the operation thereof, or of any applicable fair
employment, equal opportunity, human rights, employment, labor or similar law,
ordinance or regulation, and (c) the Company has not received notice from any
governmental authorities of any pending proceedings to take all or any part of
the properties of the Company (whether leased or owned) by condemnation or right
of eminent domain and, to the knowledge of Seller, no such proceedings are
threatened. Schedule 2B.16 sets forth all governmental permits, licenses and
authorizations necessary or desirable for the operation or occupancy of the
properties and the conduct of the business of the Company as presently
conducted. Except as set forth in Schedule 2B.16, all such licenses, permits and
authorizations have been validly issued, are in full force and effect and are
validly held by the Company. The Company has complied in all material respects
with all terms and conditions thereof and the same will not be subject to
suspension, modification, revocation or nonrenewal as a result of the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby. All such licenses, permits and authorizations which are
held in the name of any employee, officer, director, shareholder, agent or
otherwise on behalf of the Company shall be deemed included under this warranty.
2B.17. Environment.
For the purpose of this Section 2B.17, the following definitions apply:
"Environmental Claim" means any and all administrative or judicial actions,
suits, orders, claims, liens, notices, notices of violations, investigations,
proceedings, whether criminal or civil, pursuant to or relating to any
applicable Environmental Law by any Person (including governmental authority or
private person) based upon, alleging, asserting, or claiming any actual or
potential (i) violation of or liability under any Environmental Law, (ii)
violation of any Environmental Permit, or (iii) liability for investigation
costs, cleanup costs, removal costs, remedial costs, response costs, natural
resource damages, property damage, personal injury, fines, or penalties arising
out of, based on, resulting from, or related to the presence, release, or
threatened release into the environment, of any Hazardous Substances at the Real
Property.
"Environmental Laws" means any and all applicable federal, provincial,
municipal or local Laws pertaining to the environment, health and safety matters
or conditions, Hazardous Substances, pollution or protection of the environment,
including, without limitation, Laws relating to: (i) on site or off-site
contamination; (ii) chemical substances or products; (iii) release of
pollutants, contaminants, chemicals or other industrial, toxic or radioactive
substances or Hazardous Substances into the environment; (iv) the manufacture,
processing, distribution, use, treatment, storage, transport, packaging,
labeling, sale, recycling, disposal, destruction, incineration, burial,
advertising, display or handling of Hazardous Substances; and (v) any preventive
measures, remedial actions and notifications in connection with the foregoing.
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"Environmental Permit" means any federal, local, provincial, or foreign
permits, licenses, certificates of approvals, registrations, consents or
authorizations required by any governmental authority under or in connection
with any Environmental Law and includes any and all orders, consent orders or
binding agreements issued or entered into by a governmental authority under any
applicable Environmental Law.
"Hazardous Substance" means any substance, whether waste, liquid, gaseous
or solid matter, fuel, micro-organism, ray, odour, radiation, energy, vector,
plasma and organic or inorganic matter, which is or is deemed to be, alone or in
any combination, hazardous, hazardous waste, toxic, a pollutant, a deleterious
substance, a contaminant or a source of pollution or contamination under any
Environmental Law, whether or not such substance is defined as hazardous under
the Environmental Law.
Except as set forth in Schedule 2B.17 provided to Buyer in accordance with
Section 6.11;
(a) The Company has obtained and holds all necessary Environmental Permits
required to operate the business;
(b) The Company is in compliance with all terms, conditions and provisions
of all applicable (i) Environmental Permits and (ii) Environmental Laws;
(c) There are no past, pending, or threatened Environmental Claims against
the Company, and the Seller nor the Company are aware of any facts or
circumstances which could reasonably be expected to form the basis for any
Environmental Claim against the Company;
(d) No Releases of Hazardous Substances have occurred at, from, in, to, on,
or under any Real Property and no Hazardous Substances are present in, on, about
or migrating to or from any Real Property that could give rise to an
Environmental Claim against the Company;
(e) The Company, nor, to the best of its knowledge, any predecessor of the
Real Property, has transported or arranged for the treatment, storage, handling,
disposal, or transportation of any Hazardous Substances to any off-site location
which could result in an environmental claim against the Company;
(f) There are no (a) underground storage tanks, active or abandoned, (b)
polychlorinated biphenyl containing equipment, or (c) friable asbestos
containing material at any Real Property; and
(g) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted by, on behalf of, or which are in the
possession of any of the Company with respect to any Real Property or to any
adjoining property or properties that may have an impact on the Real Property
which have not been delivered to Buyer prior to execution of this Agreement.]
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2B.18. Employee Benefit Plans; Termination and Severance Agreements.
(a) Schedule 2B.18 provided to Buyer in accordance with Section 6.11
accurately lists each employment, termination and severance agreement, contract,
arrangement and understanding (whether written or oral) with employees of the
Company. Except as set forth in Schedule 2B.18, there are no shareholders,
directors, officers, employees or agents of the Company who are entitled to a
specified notice of termination or fixed term of employment or who cannot be
dismissed upon such notice as is required by law. Except as set forth in
Schedule 2B.18, the purchase by Buyer or its Nominee of the Stock will not
result in any obligation to pay any employee of the Company severance pay,
notice pay or termination benefits so long as such employee remains employed by
the Company or Buyer or its Nominee under substantially the same terms and
conditions as currently exist after the Closing.
(b) Sellers will cause the Company to deliver to Buyer in accordance with
Section 6.11 correct and complete copies of each of all written, and
descriptions of all oral, employment, termination, notice and severance
agreements, contracts, arrangements and understandings listed in Schedule 2B.18.
(c) Except as set forth in Schedule 2B.18 provided to Buyer in accordance
with Section 6.11, the Company is not a party to any pension, retirement, bonus,
profit sharing, compensation, incentive, stock purchase, stock option, stock
appreciation, severance, change-of-control, savings, thrift, insurance, medical,
hospitalization, disability, death or other similar program, or practice
providing directors, officers, shareholders or employee benefits (the "Benefit
Plans"). Sellers will provide to Buyer in accordance with Section 6.11 full,
true and up to date copies of all Benefit Plans, all summaries thereof, all
related funding agreements and the most recent actuarial valuations therefor.
(d) Each Benefit Plan has been duly registered when required (including
under the Income Tax Act (Canada)) and has been administered and invested in
accordance with its terms and all laws. There are no outstanding defaults or
violations by the Company of any payment obligation required to be performed by
it in connection with any Benefit Plan. There are no actions, claims,
investigations, arbitrations or other proceedings which, to the knowledge of the
Seller, are pending or threatened with respect to the Benefit Plans (other than
routine claims for benefits) against the Company, the funding agent or the fund
of such Benefit Plan. No proceeding has been initiated to terminate any Benefit
Plan.
(e) All Benefit Plans which are funded plans are funded in accordance with
their rules and all laws and are fully funded on both a going-concern and a
termination basis in accordance with the actuarial methods and assumptions
utilized in the most recent actuarial reports therefor.
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2B.19. Employee and Labor Matters.
(a) Schedule 2B.19 provided to Buyer in accordance with Section 6.11
contains a complete and accurate list of the employees of the Company including
those who are on maternity or parental leave or who are absent on the grounds of
disability or other long term leave of absence and who have or may have a
statutory or contractual right to return to work with the company, together with
their titles and their number of years of service. Except as set forth in
Schedule 2B.19, the Company is not a party to any collective bargaining
agreement or other contract with or commitment to any labor union or association
representing any employee of the Company, nor does any labor union or collective
bargaining agent represent any employees of the Company. No such agreement,
contract or other commitment has been requested by, or is under discussion by
management of the Company (or any management group or association of which the
Company is a member or otherwise a participant) with, any group of employees or
others, nor are there any other current activities known to the Company or
Sellers to organize any employees of the Company into a collective bargaining
unit. There are no pending, or to the knowledge of the Company or Sellers
threatened, union grievances against the Company as to which there is a
reasonable possibility of a material adverse determination. The Company is not
engaged in any unfair labor practice. There is no unfair labor practice
complaint pending or, to the knowledge of the Company or Sellers, threatened
against the Company. Except as disclosed in Schedule 2B.19, there is, and during
the past five years there has been, no labor strike, dispute, lock-out,
slow-down or work stoppage pending, or, to the knowledge of the Company or
Sellers, threatened against the Company. Except as set forth in Schedule 2B.19,
there are no pending, or, to the knowledge of the Company or Sellers,
threatened, charges against the Company or any current or former employee,
officer or director of the Company before the Human Rights Commission or any
federal, provincial or local agency responsible for the prevention of unlawful
employment practices.
(b) The Company has no employees working in the United States.
2B.20. Capital Expenditures.
Based on management's best good faith estimate as of the date hereof, the
aggregate contractual commitments of the Company for new capital expenditures do
not exceed CDN $25,000.
2B.21. Warranties.
Sellers will deliver in accordance with Section 6.11 to the Buyer copies of
all forms of written warranties currently in effect covering the respective
products and services of the Company. During the past three years, the aggregate
warranty expenses experienced during any one year by the Company did not exceed
CDN $25,000.
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2B.22. Powers of Attorney.
Schedule 2B.22 provided to Buyer in accordance with Section 6.11 contains
(i) the name of each person with whom the Company maintains an account of safety
deposit box and the names of all persons authorized to draw thereon as to have
access thereto and (ii) a complete and accurate list of all outstanding powers
of attorney or similar authorizations given by the Company.
2B.23. Customer Accounts Receivable; Inventories.
(a) All customer accounts receivable of the Company, whether reflected on
the November 30, 1997 balance sheet or subsequently created, have arisen from
bona fide transactions in the ordinary course of business and are good and
collectible at the aggregate recorded amounts thereof, net of any applicable
reserves for doubtful accounts which are reflected on the November 30, 1997
balance sheet or accrued after the date of the balance sheet in the ordinary
course of business. The Company has good and marketable title to its accounts
receivable, free and clear of all liens, except as set forth in Schedule 2B.23.
During the two year period prior to the date hereof, the Company has not sold,
pledged or otherwise disposed of any of its accounts receivable in connection
with any receivables-type financing or factoring-type financing or similar
transaction.
(b) The inventories of the Company, whether reflected on the November 30,
1997 balance sheet or subsequently acquired, are generally of a quality and
quantity usable and/or salable at customary gross margins in the ordinary course
of business. The inventories of the Company are reflected on the November 30,
1997 balance sheet and in its books and records in accordance with Canadian GAAP
(except as described in the notes to the balance sheet).
2B.24. Customers and Suppliers.
Schedule 2B.24 provided to Buyer in accordance with Section 6.11 accurately
lists (a) the 10 largest customers of the Company for the 12 months ended
October 31, 1998 and the percentage of the Company's total sales represented by
sales to each such customer during such period, and (b) the 10 largest suppliers
of the Company for the 12 months ended October 31, 1998 and the amount of
purchases therefrom during such period.
2B.25. No Material Misstatement or Omission.
Neither this Agreement (including any Schedule hereto) nor any certificate
furnished by Sellers in connection herewith contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
contained herein or therein not misleading.
2B.26. Stand Alone.
Except as set forth in Schedule 2B.26 provided to Buyer in accordance with
Section 6.11, no part of the business of the Company is conducted through any
person other than the Company. Each of the Sellers does not have, and none of
the Company's directors or officers has, any interest in any property, immovable
or real, movable or personal, tangible or intangible, used in or pertaining to
the business of the Company.
2B.27. Year 2000 Compliant. Except as disclosed in Schedule 2B.27, the
information technology systems including, without limitation, hardware, software
and data used, in whole or in part in, or required for, the carrying on of the
business of the Company in the manner heretofore carried on, are designed to be
used prior to, during and after the calendar year 2000 A.D.. Without limiting
the foregoing, the information technology systems are designed to correctly and
adequately (i) manage and manipulate data involving dates, including
single-century formulas and multi-century formulas, and are designed to not
cause an abnormally ending scenario within the application or generate incorrect
values or invalid results involving either single-century formulas or
multi-century formulas, (ii) provide that all date-related user interface
functionalities and data fields include the indication of century, and (iii)
provide that all date-related data interface functionalities include the
indication of century.
2B.28. Retiree Liability.
The Company has no liability for retiree health and life insurance
benefits.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Sellers as follows:
3.01. Organization and Authority.
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, with full
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby.
3.02. Due Authorization; Binding Obligation.
The execution, delivery and performance by Buyer of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Buyer. This Agreement has been
duly executed and delivered by Buyer. This Agreement constitutes the valid and
binding obligation of Buyer enforceable in accordance with its terms, subject to
the qualification, however, that enforcement of the rights and remedies created
hereby is subject to bankruptcy and other similar laws of general application
relating to or affecting the rights and remedies of creditors and that the
remedy of specific performance or of injunctive relief is subject to the
discretion of the court before which any proceeding therefor may be brought.
3.03. Non-Contravention.
The execution, delivery and performance of this Agreement by Buyer and the
consummation of the transactions contemplated hereby do not and will not, with
or without the giving of notice or the lapse of time, or both, violate, conflict
with, result in the breach of or accelerate the performance required by any of
the terms, conditions or provisions of the Certificate of Incorporation or
By-laws of Buyer or any covenant, agreement or understanding to which Buyer is a
party or any order, ruling, decree, judgment, arbitration award, law, rule,
regulation or stipulation to which Buyer is subject or constitute a default
thereunder or result in the creation of any lien, charge or encumbrance upon any
of Buyer's properties or assets.
3.04. Regulatory Approvals.
Other than those notices, filings, authorizations, approval orders or
consents required pursuant to the Investment Canada Act and the Competition Act
(Canada) and except as set forth in Schedule 3.04 provided to Sellers within two
weeks of the date hereof, Buyer is not required to file, seek or obtain any
governmental notice, filing, authorization, approval, order or consent, or any
bond in satisfaction of any governmental regulation, in connection with the
execution, delivery and performance of this Agreement by Buyer.
3.05. Investment Intent.
Buyer is acquiring the Stock for its own account for investment purposes
only and not with a view to, or for sale or resale in connection with, any
public distribution thereof or with any present intention of selling,
distributing or otherwise disposing of the Stock.
3.06. Nominee. Should the Buyer appoint a Nominee, the foregoing
representations and warranties of the Buyer shall apply, mutatis mutandis, to
the Nominee.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF 830212 SHAREHOLDERS
4.01. Organization and Authority.
The 830212 Shareholders hereby represent and warrant that:
(a) 830212 has never engaged in since its formation and does not currently
engage in and will not engage at any time from the date hereof to the
consummation of the Amalgamation in any type of business other than the holding
of its Stock.
(b) 830212 is a corporation duly organized, validly existing and in good
standing under the laws of Ontario, Canada incorporation or organization with
all requisite power and authority (corporate or otherwise) to execute, deliver
and perform its obligations under this Agreement.
(c) The execution and delivery by 830212 of this Agreement and the
consummation of the transactions contemplated hereby, including, without
limitation, the Amalgamation, have been duly authorized by all necessary action
(corporate or otherwise) on the part of 830212 and its shareholders and
constitute the legal, valid and binding obligation of 830212, enforceable
against it in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting the enforcement of creditors rights in general and by
general principles of equity.
4.02. Non-Contravention.
The execution, delivery and performance of this Agreement by 830212 and the
consummation of the transactions contemplated hereby and thereby do not and will
not, with or without the giving of notice or the lapse of time, or both,
violate, conflict with, result in the breach of or accelerate the performance
required by any of the terms, conditions or provisions of the charter documents
or By-laws, trust agreement or other governing documents of 830212, or any
covenant, agreement or understanding to which 830212 is a party or any order,
ruling, decree, judgment, arbitration award, law, rule, regulation or
stipulation to which 830212 or constitute a default thereunder or result in the
creation of any lien, charge or encumbrance upon any of Stock owned by 830212.
4.03. Regulatory Approvals.
Except for the Amalgamation, 830212 is not required to file, seek or obtain
any governmental notice, filing, authorization, approval, order or consent, or
any bond in satisfaction of any governmental regulation, in connection with the
execution, delivery and performance of this Agreement.
4.04. Title to Stock.
830212 is the beneficial and record owner, free and clear of any liens,
pledges, encumbrances, charges, agreements, claims, security interests,
equities, options, proxies, voting restrictions, rights of first refusal or
other limitation on disposition or encumbrance of any kind, of the shares of the
Stock set forth opposite its name on Schedule I.
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<PAGE>
4.05. Capitalization.
830212's authorized capital stock consists solely of an unlimited number of
shares of common stock, no par value, of which 3,000 common shares are issued
and outstanding and there are no other issued shares of 830212. Such issued and
outstanding shares are validly issued, fully paid and nonassessable. Except for
rights granted to Buyer under this Agreement, there are no outstanding options,
warrants or other rights to purchase, obtain or acquire, or any outstanding
securities or obligations convertible into or exchangeable for, or any voting
agreements with respect to, any shares of capital stock of 830212 or the stock
into which it will be converted in the Amalgamation or any other securities of
830212 and 830212 is not obligated, now or in the future, contingently or
otherwise, to issue, purchase or redeem capital stock of 830212 or any other
securities of 830212 to or from any person.
4.06. Subsidiaries and Equity Interests; Transactions with Affiliates.
830212 owns the shares of the Stock listed in Schedule I attached hereto.
Except for the Stock, 830212 does not own any assets of or other equity interest
in, or has any obligation to form or participate in, any corporation,
partnership or other person. 830212 has full title to the shares of the Stock
owned by it, free and clear of any liens, pledges, encumbrances, charges,
agreements or claims.
4.07. Organization; Books and Records.
Copies of the charter documents and By-laws (or similar governing
documents), corporate minute books, stock certificate books and stock transfer
books of 830212 will be delivered to Buyer in accordance with Section 6.11 and
will be true, correct and complete.
4.08. Compliance with Laws.
830212 has complied, and is now in compliance, in all material respects
with all federal, state, local and foreign laws, ordinances and regulations (b)
no claims or complaints from any governmental authorities or other parties have
been asserted or received by 830212 which are still pending or outstanding and,
to the knowledge of the 830212, none is threatened.
4.09. No Material Misstatement or Omission.
Neither this Agreement (including any Schedule hereto) nor any certificate
or other document furnished by 830212 in connection herewith contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained herein or therein not misleading. To the knowledge of
830212, there is no fact specifically relating to 830212 which 830212 has not
disclosed to Buyer in writing which has resulted in, or would reasonably be
expected to result in, a Material Adverse Change.
4.10. No Undisclosed Liabilities.
There are no liabilities of 830212 of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise, and there is no
existing condition, situation or set of circumstances which could reasonably be
expected to result in such liability, other than as disclosed in the Schedules
to this Agreement.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF 729024 SHAREHOLDERS
5.01. Organization and Authority.
The 729024 Shareholders hereby represent and warrant that:
(a) 729024 has never engaged in since its formation and does not currently
engage in and will not engage at any time from the date hereof to the
consummation of the Amalgamation in any type of business other than the holding
of its Stock.
(b) 729024 is a corporation duly organized, validly existing and in good
standing under the laws of Ontario, Canada incorporation or organization with
all requisite power and authority (corporate or otherwise) to execute, deliver
and perform its obligations under this Agreement.
(c) The execution and delivery by 729024 of this Agreement and the
consummation of the transactions contemplated hereby, including, without
limitation, the Amalgamation, have been duly authorized by all necessary action
(corporate or otherwise) on the part of 729024 and its shareholders and
constitute the legal, valid and binding obligation of 729024, enforceable
against it in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting the enforcement of creditors rights in general and by
general principles of equity.
5.02. Non-Contravention.
The execution, delivery and performance of this Agreement by 729024 and the
consummation of the transactions contemplated hereby and thereby do not and will
not, with or without the giving of notice or the lapse of time, or both,
violate, conflict with, result in the breach of or accelerate the performance
required by any of the terms, conditions or provisions of the charter documents
or By-laws, trust agreement or other governing documents of 729024, or any
covenant, agreement or understanding to which 729024 is a party or any order,
ruling, decree, judgment, arbitration award, law, rule, regulation or
stipulation to which 729024 or constitute a default thereunder or result in the
creation of any lien, charge or encumbrance upon any of Stock owned by 729024
5.03. Regulatory Approvals.
Except for the Amalgamation, 729024 is not required to file, seek or obtain
any governmental notice, filing, authorization, approval, order or consent, or
any bond in satisfaction of any governmental regulation, in connection with the
execution, delivery and performance of this Agreement.
5.04. Title to Stock.
729024 is the beneficial and record owner, free and clear of any liens,
pledges, encumbrances, charges, agreements, claims, security interests,
equities, options, proxies, voting restrictions, rights of first refusal or
other limitation on disposition or encumbrance of any kind, of the shares of the
Stock set forth opposite its name on Schedule I.
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<PAGE>
5.05. Capitalization.
729024's issued and outstanding capital stock consists solely of 75 shares
of A common stock and 1 share of C common stock, no par value. Such issued and
outstanding shares are validly issued, fully paid and nonassessable. Except for
rights granted to Buyer under this Agreement, there are no outstanding options,
warrants or other rights to purchase, obtain or acquire, or any outstanding
securities or obligations convertible into or exchangeable for, or any voting
agreements with respect to, any shares of capital stock of 729024 or the stock
into which it will be converted in the Amalgamation or any other securities of
729024 and 729024 is not obligated, now or in the future, contingently or
otherwise, to issue, purchase or redeem capital stock of 729024 or any other
securities of 729024 to or from any person.
5.06. Subsidiaries and Equity Interests; Transactions with Affiliates.
729024 owns, the shares of the Stock listed in Schedule I attached hereto.
Except for the Stock 729024 does not own any assets or other equity interest in,
or has any obligation to form or participate in, any corporation, partnership or
other person. 729024 has full title to the shares of the Stock owned by it, free
and clear of any liens, pledges, encumbrances, charges, agreements or claims.
5.07. Organization; Books and Records.
Copies of the charter documents and By-laws (or similar governing
documents), corporate minute books, stock certificate books and stock transfer
books of 729024 will be delivered to Buyer in accordance with Section 6.11 and
will be true, correct and complete.
5.08. Compliance with Laws.
729024 has complied, and is now in compliance, in all material respects
with all federal, state, local and foreign laws, ordinances and regulations (b)
no claims or complaints from any governmental authorities or other parties have
been asserted or received by 729024 which are still pending or outstanding and,
to the knowledge of the 729024, none is threatened.
5.09. No Material Misstatement or Omission. Neither this Agreement
(including any Schedule hereto) nor any certificate or other document furnished
by 729024 in connection herewith contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements
contained herein or therein not misleading. To the knowledge of 729024, there is
no fact specifically relating to 729024 which 729024 has not disclosed to Buyer
in writing which has resulted in, or would reasonably be expected to result in,
a Material Adverse Change.
5.10. No Undisclosed Liabilities.
There are no liabilities of 729024 of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise, and there is no
existing condition, situation or set of circumstances which could reasonably be
expected to result in such liability, other than as disclosed in the Schedules
to this Agreement.
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ARTICLE VI
PRE-CLOSING COVENANTS
6.01. Corporate Investigation by Buyer.
Sellers shall give and shall cause the Company to give to Buyer and its
attorneys, accountants and other representatives, full access during normal
business hours to make or cause to be made such investigation of the properties
and business of the Company and of its financial and legal condition as Buyer
deems necessary or advisable to familiarize itself with such properties,
business and other matters, provided that such investigation shall not interfere
unnecessarily with normal operations. Each of the Sellers agrees to furnish, and
to cause the Company to furnish, such financial and operating data and other
information with respect to the business and properties of the Company as Buyer
shall from time to time reasonably request.
6.02. Confidentiality.
(a) From the date hereof up to the Closing Date, Buyer shall, and shall
cause each of its affiliates and each of the directors, officers, employees,
agents, advisors and representatives ("Representatives") of Buyer and its
affiliates to, (i) maintain in confidence any and all information concerning the
Company provided to them by Sellers or the Company or otherwise learned by them
in the course of the negotiation of this Agreement and the transactions
contemplated hereby and by their investigation of the Company and (ii) disclose
such information only to persons, corporations or other entities which are under
the control of Buyer or an affiliate thereof, or to third parties serving as
Buyer's advisors. If the transactions contemplated by this Agreement shall not
be consummated (whether this Agreement is terminated pursuant to Article XII or
otherwise), such confidence shall be maintained and such information shall not
be used in competition with the Company. It is understood that Buyer shall have
no liability hereunder for disclosure or use of any such information which (i)
is in or, through no fault of Buyer, its affiliates, the Representatives of
Buyer or its affiliates, comes into the public domain, or (ii) was known to
Buyer prior to September 1, 1998, or (iii) was acquired by Buyer from other
sources, provided such sources are not, to Buyer's knowledge, bound by any
confidentiality agreement with Sellers or the Company or any affiliate thereof
or (iv) which Buyer is legally required to disclose.
(b) If the transactions contemplated by this Agreement shall be
consummated, Sellers shall, and shall cause each of its affiliates and each of
the Representatives of Sellers and their affiliates to (i) maintain in
confidence any and all information concerning the Company and (ii) refrain from
using any and all information for their own benefit or in competition with or
otherwise to the detriment of Buyer or its affiliates or the Company. It is
understood that Sellers shall have no liability hereunder for disclosure or use
of any such information which (i) is in or, through no fault of Seller, its
affiliates, the Representatives of Sellers or their affiliates, comes into the
public domain, or (ii) was acquired by Sellers from other sources after the
Closing, provided such sources are not, to Sellers' knowledge, bound by any
confidentiality agreement with Buyer, any affiliate of Buyer or the Company or
(iii) Sellers are legally required to disclose.
6.03. Intentionally Deleted.
Intentionally Deleted.
6.04. Maintenance of Insurance.
From the date hereof up to the Closing Date, Sellers shall maintain or
cause the Company to maintain in full force and effect all presently existing
insurance coverage with respect to the Company and the operation of its
business, and will take no action which will cause a retroactive cancellation,
or a lapse or reduction of the benefits, thereof.
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<PAGE>
6.05. Additional Disclosure.
(a) Sellers shall promptly notify Buyer in writing of, and furnish Buyer
any information it may reasonably request with respect to, the occurrence to
Sellers' knowledge of any event or condition or the existence to Sellers'
knowledge of any fact that would cause any of the conditions to Buyer's
obligation to consummate the purchase and sale of the Stock not to be fulfilled
or that will cause or constitute a breach of any of the Sellers' representations
and warranties as of the date of this Agreement.
(b) Any agreements, contracts, leases, licenses, commitments or instruments
of the Company entered into between the date hereof and Closing that would have
been required to be listed on Schedule 2B.13 if entered into prior to the date
hereof shall be delivered to Buyer by Sellers promptly after being entered into
and shall be deemed to be "Contracts".
6.06. Certain Licenses and Permits.
Each of the Sellers covenants that all licenses, permits and authorizations
which are held in the name of Sellers or any of its affiliates, or any of their
respective employees, officers, directors, shareholders, agents or otherwise on
behalf of the Company shall be duly and validly transferred to the Company
without consideration prior to the Closing and that the warranties,
representations, covenants and conditions contained in this Agreement shall
apply to the same as if held by the Company as of the date hereof.
6.07. Non-Interference.
Each of the Sellers shall not for a period of three years following the
Closing Date interfere with the Company's relationships with, solicit the
employment of any person or endeavor to employ or entice away from the Company,
any person who at any time on or after the date hereof was an employee of the
Company (other than those individuals resigning as contemplated by Section
6.18(c)). This provision shall not apply to any general and anonymous media
advertisements or action of employee recruitment firms not focused on the
Company's employees.
6.08. Other Transactions.
From the date of this Agreement up to the Closing, none of the Sellers, the
Company nor any other affiliate of Sellers shall, nor shall they permit any of
their respective officers, directors or other representatives to, directly or
indirectly, encourage, solicit, initiate or participate in discussions or
negotiations with, or provide any information or assistance to, any person or
group (other than Buyer and its representatives) concerning any merger, sale of
securities, sale of substantial assets or similar transaction involving the
Company. Without limiting the foregoing, it is understood that any violation of
the restrictions set forth in the preceding sentence by any officer, director or
other representative of Sellers, the Company or any other affiliate of Sellers,
whether or not such person is purporting to act on behalf of Sellers, the
Company, any other affiliate of Sellers or otherwise, shall be deemed to be a
breach of this Section 6.09 by Sellers. In the event that Sellers, the Company,
or any other affiliate of Sellers receives a proposal relating to any such
transaction, Sellers shall promptly notify Buyer of such proposal.
6.09. Effect of Termination and Abandonment.
If the Closing contemplated by Section 1.02 does all not occur for any
reason other than by those specifically provided for in Article XII (other than
a breach by the Sellers or the Company), then the Company agrees to pay to the
Buyer the amount of US $200,000 to cover the expenses of the Buyer. It is
expressly understood that nothing in this Section 6.09 is intended to limit in
any way the Buyer's right to the remedies provided for in Article XI.
6.10. Amalgamation of 830212 and 729024 with the Company.
830212, the 830212 Shareholders, 729024, the 729024 Shareholders, the
Company and the Sellers agree to vote their shares in order to cause the
Amalgamation of 830212 and 729024 with the Company prior to the Closing Date. It
is expressly understood that once the Amalgamation has taken place, all
references to the Company shall be deemed to mean the Company, 830212 and
729024.
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<PAGE>
6.11. Schedules.
Within fourteen (14) days of the signing of this Agreement, the Sellers
shall deliver to the Buyer all the schedules referred to in Articles IIA & IIB
of this Agreement. Upon delivery to Buyer and acceptance thereof by Buyer, such
schedules shall be the Schedules to Articles IIA & IIB of this Agreement for all
purposes, including, without limitation, Buyer's due diligence rights under
Section 6.13 and related termination rights under Section 12.03.
6.12. Financial Statements.
Sellers shall cause the Company to deliver the Tax Returns referred to in
Section 2B.15(b)(i) to the Buyer.
6.13. Due Diligence.
Buyer shall have forty-five (45) days from the date hereof to complete its
due diligence review of the Company and its operations, during which period the
Sellers shall cause the Company to comply with all reasonable requests by the
Buyer for all additional information concerning the Company and its operations.
If at the end of such forty-five (45) day period Buyer has not exercised its
termination rights under Section 12.03, Buyer shall be deemed to be satisfied
with its due diligence review; provided, however, such satisfaction shall not
limit in any way indemnification rights of Buyer under this Agreement.
6.14. Assistance.
Should the Buyer wish to incorporate a Nominee pursuant to Section 1.04,
Sellers will reasonably cooperate in the formation of the Nominee, including any
continuation of the Company, in the jurisdiction that the Buyer elects. The
Sellers shall not, however, be obligated to become shareholders of an unlimited
liability corporation.
6.15. Form 116.
Gillian Pershaw shall deliver to Purchaser a certificate issued by the
Minster of National Revenue under Subsection 116(2) of the Income Tax Act
(Canada) exempting Purchaser from withholding any amount under Section 116 of
the Income Tax Act (Canada) with respect to the acquisition by Purchaser of the
Stock of the Company owned by Gillian Pershaw.
6.16. Escrow.
At the Closing, Sellers shall place the amount of CDN $500,000 into escrow
for a period of six months upon the terms of the Escrow Agreement attached
hereto as Exhibit A to cover any amounts due the Buyer pursuant to either
Article XI or Section 1.03.
6.17. Real Estate.
The Buyer agrees to the lease executed by the Company, a copy of which is
attached hereto as Exhibit B, which lease shall be amended on Closing by (i)
extending the term to seven years from Closing (ii) adjusting the rent to $8 per
square foot on a fully net basis and allowing Buyer the option to extend the
lease for a period of up to three years on fair market rent not to be less than
the rent payable during the first seven years after Closing.
6.18. Closing for Seller.
If each pre-closing covenant set forth in Article VI and each closing
condition set forth in Article IX are (i) performed or complied with by Buyer or
(ii) waived by the Sellers, and if this Agreement is not terminated in
accordance with Article XII, then the Sellers shall, on the Closing Date:
(a) take, and shall cause the Company to take, all actions as may be
required by legal counsel for the Buyer, acting reasonably, to duly and validly
transfer the Stock to the Buyer or its Nominee, including, without limitation,
to cause the Company (i) to make the necessary inscriptions in the register of
the Company in order to record the transfer of the Stock in favor of the Buyer
or its Nominee, and (ii) to deliver to the Buyer or its Nominee, upon the
cancellation of the old share certificates representing the Stock, a new
certificate in its name representing the Stock;
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(b) deliver to the Buyer or its Nominee at the place of Closing (i)
certificates for the Stock, duly endorsed for transfer to the Buyer or its
Nominee, and (ii) a certificate executed by each of the Sellers to the effect
that each of the Sellers' representations and warranties in this Agreement
(except as qualified in the certificate) are true and correct in all respects as
of the Closing Date as if made on the Closing Date and that the Sellers have
complied with each of their covenants in this Agreement.
(c) if required by the Buyer, cause all or any of the directors, officers
and auditors of the Company (i) to resign from the Company, as the case may be,
effective on the Closing Date, and (ii) to deliver to the Company, as the case
may be, at the place of Closing resignations and releases substantially in the
form of Schedule 6.18(c) provided to Buyer in accordance with Section 6.11;
(d) deliver to the Buyer at the place of Closing certified copies of
resolutions of the directors of the Company (in form and substance satisfactory
to the Buyer's legal counsel, acting reasonably) (i) authorizing and approving
the sale, assignment and transfer of the Stock from the Sellers to the Buyer or
its Nominee and their registration in the name of the Buyer or its Nominee, (ii)
accepting the resignations effective on the Closing Date of the directors,
officers and auditors referred to in Section 6.18(c) and (iii) appointing such
new directors, officers and accountants of the Company as may be nominated by
the Buyer;
(e) deliver to the Buyer duly executed and delivered Employment Contracts
between the Company, on the one hand, and Ram Ramachandran and Craig Sutton, on
the other hand, substantially in the form of Exhibits C and D, respectively,
attached hereto, provided that they are satisfactory to Buyer;
(f) deliver to the Buyer a duly executed and delivered non-competition
agreement between the Company and Philip White (i) containing provisions similar
to the non-competition provisions set forth in Exhibits C and D, (ii) language
which shall explicitly provide that Philip White will not and will never use,
will not and will never license others to use and will not permit Filtran Ltd.
or any successor to use, the name (a) "Filtran Microcircuits" or any variation
thereof for any product and (b) "Filtran" in connection with any product
utilizing microcircuitry technology, except that such agreement will not
restrict Philip White from continuing his current role as CEO, Chairman and
shareholder of Filtran Ltd.
(g) deliver to the Buyer a certificate and articles of amalgamation
together with the relevant corporate resolutions and documents evidencing that
the Amalgamation among 830212, 729024 and the Company has taken place; and
(h) deliver to the Buyer the opinion of LaBarge Weinstein, counsel for
Seller, substantially in the form set forth as Exhibit E.
6.19. Closing for Buyer.
If each pre-closing covenant set forth in Article VI, and each closing
condition set forth in Article VIII are (i) performed or complied with by
Sellers, 729024 and 830212, as the case may be, or (ii) waived by the Buyer, and
if this Agreement is not terminated in accordance with Article XII, then the
Buyer shall, on the Closing Date:
(a) deliver to Sellers at the place of Closing a certificate executed by
the Buyer to the effect that each of the Buyer's representations and warranties
in this Agreement (except as qualified in the certificate) is true and correct
in all respects as of the Closing Date as if made on the Closing Date and that
the Buyer has complied with each of its covenants in this Agreement. The
representations and warranties of the Buyer made as of the Closing Date in the
Buyer's certificate shall be deemed made as of the Closing Date with the same
effect as the representations and warranties made by the Buyer herein; and
(b) deliver to the Sellers at the place of Closing certified checks made to
the order of, or stock certificates of Buyer's common stock registered in the
name of the Sellers in accordance with and in the proportions set out in
Schedule I; and
(c) deliver to Sellers the opinion of Stikeman, Elliot, counsel for Buyer,
substantially in the form set forth as Exhibit F.
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ARTICLE VIIA
CONDUCT OF BUSINESS
7A.01. Conduct of Business.
Each of the Sellers agrees to cause the Company, from the date hereof up to
the Closing Date, (a) to conduct its business in the ordinary course in
accordance with present policies and as heretofore conducted, (b) to preserve
its business organization intact, (c) consistent with efficient and economical
management, to retain the services of its present officers, employees and agents
to the end that it may retain in all material respects the goodwill of the
Company and preserve in all material respects its business relationships with
customers, suppliers and others, and (d) to maintain all existing material
business permits, licenses, qualifications and authorizations. Sellers shall
not, and shall not permit the Company to, take any action that would, or that
could reasonably be expected to, result in any of the conditions to the purchase
and sale of the Stock set forth in Article VI not being satisfied. From and
after the date hereof, and up to the Closing Date without limiting the
generality of the foregoing Sellers will prevent the Company, without the prior
written approval of Buyer, from:
(i) amending its charter documents or By-laws or other governing documents
except as necessary to effect the Amalgamation;
(ii) issuing or selling any shares of its capital stock or any other
securities or issuing any securities convertible into or exchangeable for, or
options, warrants to purchase, script, rights to subscribe for, calls or
commitments of any character whatsoever relating to, or entering into any
contract, understanding or arrangement with respect to the issuance of, any
shares of its capital stock or any of its other securities, or entering into any
arrangement or contract with respect to the purchase or voting of shares of its
capital stock, or adjusting, splitting, reacquiring, redeeming, combining or
reclassifying any of its securities, or making any other changes in its capital
structure;
(iii) incurring (contingent or otherwise) any indebtedness for borrowed
money except in the ordinary course of business;
(iv) incurring (contingently or otherwise) any other debt or other
obligation to pay money except for normal operating purposes in the ordinary
course of business;
(v) splitting, combining or reclassifying any of its shares, or redeeming,
returning, repurchasing or otherwise acquiring shares in its capital stock or
other corporate security or reserving, declaring, setting aside or paying any
dividends (in cash or in kind) on, or making any distributions in respect of,
the outstanding capital stock of the Company or appropriations of profits or
capitals;
(vi) entering into, amending or affirmatively renewing or terminating any
contract, commitment, lease (whether of real or personal property) or other
agreement, except in the ordinary course of business;
(vii) making any loan or advance or assuming, endorsing, guaranteeing or
entering into any obligation to guarantee the obligation or liabilities of any
person, firm, corporation or other entity, except in the ordinary course of
business;
(viii) mortgaging, pledging or subjecting to any lien, charge or other
encumbrance any of the assets, properties or business of the Company;
(ix) selling or otherwise transferring or leasing any properties or assets
or canceling any debt or claim or waiving any right or making any gift, or
purchasing or otherwise acquiring or leasing any properties or assets, in each
case except in the ordinary course of business;
(x) permitting to lapse any right with respect to any Intellectual Property
asset used in the conduct of the business of the Company;
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(xi) granting any increase in wages or salary rates or in employment,
retirement, notice, severance, termination or other benefits or paying any bonus
or making any loan to any officer, director or employee or shareholder, other
than increases or bonuses in the ordinary course consistent with past practice
or required by any agreement in effect as of the date of this Agreement and
which is disclosed in any of the Schedules hereto, or entering into any
employment contract with any person, or adopting any bonus, profit sharing,
change of control, compensation, stock option, pension, retirement, deferred
compensation, employment or other employee benefit plan, agreement, trust, plan,
fund or other arrangement for the benefit or welfare of any employee of the
Company;
(xii) accelerating the collection of accounts receivable, delaying the
payment of accounts payable or deferring maintenance and other expenses,
reducing inventories, or otherwise increasing cash on hand, in a manner
inconsistent with past practice or not in the ordinary course of business;
(xiii) repaying any indebtedness for borrowed money, except as required by
existing debt instruments;
(xiv) making any material tax election, settling or compromising any
liability for Taxes, preparing and filing tax Returns other than on a basis
consistent with the Company's past practices or, other than in the ordinary
course of business, engaging in any transaction or operating the business in a
manner that would directly or indirectly result in any liability for Taxes of
the Company;
(xv) making any change in its accounting methods or practices; or
(xvi) agreeing, in writing or otherwise, to do any of the foregoing.
(xvii) ceasing to operate its properties and carrying on its business as
heretofore carried on or failing to maintain all of its properties, rights and
assets consistently with past practices or failing to do any and all things
reasonably necessary and within its power to retain and pursue the goodwill of
its business;
(xviii) discharging any secured or unsecured obligation or liability
(whether accrued, absolute, contingent or otherwise,) other than obligations and
liabilities discharged in the ordinary course of business and in a manner
consistent with past practices;
(xix) making any capital expenditure except as disclosed in Section 2B.20;
(xx) removing any director or auditor or terminate any officer, except
those directors who will resign in accordance with Section 6.18(c);
(xxi) purchasing or otherwise acquiring any corporate security or
proprietary, participatory or profit interest in any person, firm, corporation
or other entity; and
(xxii) modifying or changing its business organization or its relationship
with its suppliers, customers and others having business relations with it.
In addition, and without limiting the generality of the foregoing, from the
date hereof up to the Closing Date, the Seller shall cause the Company to:
(i) (A) comply with all laws, (B) duly and punctually file all reports and
returns required to be filed by any laws and (C) pay or provide for the payment
of all taxes;
(ii) maintain its books in a manner that fairly and accurately reflects its
income, expenses and liabilities in accordance with generally accepted
accounting principles consistently applied and using accounting policies,
practices and calculations applied on a basis consistent with past periods and
throughout the periods involved;
(iii) maintain in full force and effect insurance policies on all of its
properties providing coverage and amounts of coverage comparable to the coverage
and amounts of coverage provided under its insurance policies in effect on the
date hereof;
(iv) perform duly and punctually all of its contractual obligations in
accordance with the terms thereof; and
(v) maintain and keep its properties in good condition and working order,
except for ordinary wear and tear.
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ARTICLE VIIB
PRE-CLOSING COVENANTS OF THE HOLDING COMPANIES
7B.01. Pre-Closing Covenants of the Holding Companies.
From the date hereof, neither of the Holding Companies shall: (i) incur any
liability or (ii) engage in any business except the ownership of shares of
Stock.
ARTICLE VIII
CONDITIONS TO BUYER'S OBLIGATIONS
The obligations of Buyer hereunder are subject to the satisfaction, or
waiver in writing by Buyer, on or prior to the Closing Date, of the following
conditions:
8.01. Accuracy of Representations and Warranties.
The representations and warranties of the Holding Companies set forth in
Articles IV & V hereof and representations warranties of Sellers set forth in
Articles IIA & IIB hereof shall be true and correct in all material respects on
the Closing Date with the same effect as though such representations and
warranties had been made on and as of such date, and each of the Sellers and the
Holding Companies shall have delivered to Buyer a certificate to that effect,
dated the Closing Date, and signed by the President or a Vice President of each
of the Sellers and of the Holding Companies.
8.02. Performance of Covenants.
Each and all of the covenants and agreements of Seller to be performed or
complied with prior to or on the Closing Date shall have been duly performed or
complied with by Sellers, and Sellers shall have delivered to Buyer a
certificate to that effect, dated the Closing Date and signed by the President
or a Vice President of Seller.
8.03. Government Approvals.
There shall have been obtained from all appropriate governmental agencies
and authorities all approvals, consents and assurances, in form and substance
reasonably satisfactory to the Buyer's legal counsel, necessary in order to
permit the transactions contemplated herein to be completed on the Closing Date
without affecting or resulting in the termination, cancellation, modification,
amendment, variation or renegotiation of this Agreement or any Contract,
including without limitation all such approvals, consents and assurances
required pursuant to the Investment Canada Act.
8.04. Consents.
All consents, waivers and approvals set forth in Schedule 8.04 hereto shall
have been received.
8.05. No Legal Proceedings.
No investigation, action or proceeding by or before any court or other
governmental authority shall have been commenced or threatened, and no inquiry
shall have been received, that in the reasonable judgment of the Board of
Directors of Buyer may lead to an action or proceeding to restrain or challenge
the transactions contemplated by this Agreement or may impose material liability
on Buyer or its affiliates or the Company if such transactions are consummated.
8.06. Stock Certificates.
Each of the Sellers shall have delivered to Buyer certificates representing
the Stock, duly endorsed in blank, or accompanied by appropriate stock powers in
proper form for transfer.
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8.07. No Material Changes.
On or after the date of this Agreement there shall not have been any
material adverse change in the financial condition, business, assets, results of
operations or prospects of the Company nor shall any change of law have occurred
which, in the reasonable opinion of Buyer, materially and adversely affects or
may materially and adversely affect the company.
8.08. Employment Contract.
On or prior to the Closing Date, each of Ram Ramachandran and Craig Sutton
shall have executed and delivered to the Company an Employment Contract
substantially in the form of Exhibits C and D attached hereto, said form being
satisfactory to Buyer.
8.09. Intercompany Accounts.
Effective immediately prior to the Closing, all amounts then payable by
Sellers or any affiliate of Sellers to the Company shall have been repaid in
full.
8.10. Amalgamation. The Amalgamation contemplated by Section 6.10 shall
have been consummated.
ARTICLE IX
CONDITIONS TO SELLER'S OBLIGATIONS
The obligations of Sellers hereunder are subject to the satisfaction, or
waiver in writing by Sellers, on or prior to the Closing Date of the following
conditions:
9.01. Accuracy of Representations and Warranties.
The representations and warranties of Buyer set forth in Article III hereof
shall be true and correct in all material respects on the Closing Date with the
same effect as though such representations and warranties had been made on and
as of such date, and Buyer shall have delivered to Seller a certificate to that
effect, dated the Closing Date, and signed by the President or a Vice President
of Buyer.
9.02. Performance of Covenants.
Each and all of the covenants and agreements of Buyer to be performed or
complied with prior to or on the Closing Date shall have been duly performed or
complied with by Buyer, and Buyer shall have delivered to Sellers a certificate
to that effect, dated the Closing Date, and signed by the President or a Vice
President of Buyer.
9.03. Governmental Approvals.
All provisions under the Investment Canada Act and any other required
governmental approvals shall have been compiled with, and the waiting periods
thereunder shall have expired or have been terminated.
9.04. No Legal Proceedings.
No investigation, action or proceeding by or before any court or other
governmental authority shall have been commenced or threatened, and no inquiry
shall have been received, that in the reasonable judgment of Sellers may lead to
an action or proceeding to restrain or challenge the transactions contemplated
by this Agreement or may impose material liabilities on Sellers if such
transactions are consummated.
9.05. Payment of Purchase Price.
Buyer shall have delivered to each Seller, and each Seller shall have
received, the Purchase Price payable to Sellers at the Closing pursuant to
Section 1.01 above.
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ARTICLE X
SURVIVAL
10.01. Survival.
The representations and warranties set forth in this Agreement, in the
Schedules hereto or in any certificate or other document delivered with respect
thereto will be deemed to be representations and warranties hereunder and shall
survive for a period of two years following the closing date except for: (i) any
representation and warranty in respect of which a claim based on fraud is made,
and except for those representations and warranties contained in Section 2A.02,
Articles IV and V, which in each such case shall remain in full force and effect
for an unlimited period of time following the Closing Date; (ii) any
representation or warranty relating to Tax matters, which shall survive until
sixty days after the last date on which the relevant tax authority is entitled
to assess or reassess the Company with respect to such Tax matters. All
covenants, representations, warranties and agreements made by Seller shall be
unaffected by any investigation made by Buyer or by any knowledge obtained as a
result thereof or otherwise.
ARTICLE XI
INDEMNIFICATION
11.01. Environmental Indemnification by Sellers.
Each of the Sellers will jointly and severally, indemnify, defend, save and
hold Buyer, or its Nominee, if any, which it designates to purchase the Stock,
and their affiliates (including, after the Closing, the Company) and any of its
and their respective directors, officers, employees or agents ("Buyer's
Affiliates") harmless from and against any and all damage, liability, loss,
penalty, expense, assessment, judgment or deficiency of any nature whatsoever
(including, without limitation, reasonable attorneys' fees and expenses,
consultants' and investigators' fees and expenses, and other costs and expenses
incident to any suit, action or proceeding or any governmental investigation of
any environmental condition incurred by Buyer or any of the Buyer's Affiliates)
(together, "Losses") incurred or sustained by Buyer or any of Buyer's Affiliates
or which may be claimed against Buyer or any of Buyer's Affiliates which shall
arise out of or result from (i) any breach of any representation and warranty
given or made by Seller in Section 2B.17 or in any certificate delivered with
respect thereto or (ii) by reason of, in connection with, arising out of or
resulting directly or indirectly from, the transportation, treatment, storage or
disposal of any Hazardous Substance not in accordance with applicable
Environmental Laws or with standards existing at Closing, including, without
limitation, the Guideline for Use at Contaminated Sites in Ontario (February,
1997), or any release to the environment of a Hazardous Substance not in
accordance with applicable Environmental Laws or with standards existing at
Closing, including, without limitation, the Guideline for Use at Contaminated
Sites in Ontario (February, 1997), attributable to any act, omission,
occurrence, state of facts, condition or circumstance taking place or in
existence prior to the Closing Date, but excluding any Losses arising from any
matter disclosed in Schedule 11.01.
11.02. Other Indemnification by Sellers.
Subject to Section 11.06, each of the Sellers will jointly and severally
(except for subsection (b) below which shall be severally as to each Seller)
indemnify, defend, save and hold Buyer and any of Buyer's Affiliates harmless
from and against any and all Losses incurred or sustained by Buyer or any of
Buyer's Affiliates (other than any relating to environmental matters, for which
indemnification provisions are set forth in Section 11.01) which shall arise out
of or result from (a) any breach of any representation and warranty given or
made by Sellers or the Holding Companies herein or in any certificate delivered
with respect thereto (except for any breach of any representation and warranty
given or made by a Seller in Article IIA or in any certificate delivered with
respect thereto), (b) any breach of any representation and warranty given or
made by a Seller in Article IIA or any certificate delivered with respect
thereto, (c) the noncompliance with or nonperformance of any agreement,
obligation or covenant of Sellers under this Agreement or (d) the noncompliance
with or nonperformance of any agreement, obligation or covenant of the 830212
Shareholders or the 729024 Shareholders under this Agreement. Any claim for
indemnification hereunder must be made by notice to Sellers' Agent within the
applicable time period specified in Section 10.01.
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11.03. Indemnification by Buyer.
Buyer will indemnify, defend, save and hold Sellers and any of their
respective affiliates and any of their or their affiliate's respective
directors, officers, employees or agents ("Seller's Affiliates") harmless from
and against any and all Losses incurred or sustained by Sellers or any of
Sellers' Affiliates which shall arise out of or result from (a) any breach of
any representation and warranty given or made by Buyer herein or in any
certificate delivered with respect thereto or (b) the noncompliance with or
nonperformance of any agreement, obligation or covenant of Buyer under this
Agreement. Any claim for indemnification hereunder for any breach of a
representation or warranty must be made by notice to Buyer within the applicable
time period specified in Section 10.01.
11.04. Third-Party Claims.
Reasonably promptly after service of notice of any claim or of process by
any third person in any matter in respect of which indemnity may be sought from
the other party pursuant to this Agreement, the party in receipt of the claim
(the "Indemnified Party") shall notify the other party (the "Indemnifying
Party") of the receipt thereof. Failure to give such notice reasonably promptly
shall not relieve the Indemnifying Party of its obligation hereunder; provided,
however, that if such failure to give notice reasonably promptly adversely
affects the ability of the Indemnifying Party to defend such claims or
materially increases the amount of indemnification which the Indemnifying Party
is obligated to pay hereunder, the amount of indemnification to which the
Indemnified Party will be entitled to receive shall be reduced to an amount
which the Indemnified Party would have been entitled to receive had such notice
been timely given. Unless the Indemnifying Party shall notify the Indemnified
Party that it elects to assume the defense of any such claim or process or
settlement thereof (such notice to be given as promptly as reasonably possible
in view of the necessity to arrange for such defense (and in no event later than
10 days following the aforesaid notice) and to be accompanied by an
acknowledgment of the Indemnifying Party's obligation to indemnify the
Indemnified Party in respect of such matter), the Indemnified Party shall assume
the defense of any such claim or process or settlement thereof. Such defense
shall be conducted expeditiously (but with due regard for obtaining the most
favorable outcome reasonably likely under the circumstances, taking into account
costs and expenditures) and the Indemnifying Party or Indemnified Party, as the
case may be, shall be advised promptly of all developments. If the Indemnifying
Party assumes the defense, the Indemnified Party will have the right to
participate fully in any such action or proceeding and to retain its own
counsel, but the fees and expenses of such counsel will be at its own expense
unless (i) the Indemnifying Party shall have agreed to the retention of such
counsel for both the indemnifying and indemnified parties or (ii) the named
parties to any such suit, action or proceeding (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party and representation
of both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. No settlement of a claim by either
party shall be made without the prior written consent of the other party, which
consent shall not be unreasonably withheld or delayed. Notwithstanding the
foregoing, the Indemnifying Party shall not be entitled to assume the defense of
any such action or proceeding (and shall be liable for the fees and expenses of
counsel incurred by the Indemnified Party in defending such matter) seeking an
order, injunction or other equitable relief or relief for other than money
damages against the Indemnified Party and the Indemnified Party shall have the
sole and exclusive right to settle such matter.
11.05. Offset.
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Each of the Sellers acknowledges and agrees that the Buyer shall be
entitled to offset any amount payable as an indemnity claim under Sections 11.01
and 11.02 against any payment due to such Seller pursuant to this Agreement, at
Buyer's sole option; provided that, prior to the due date of any such payment,
the Buyer shall have delivered to the Seller's Agent (as defined hereafter) a
notice of its intention to offset against such payment together with all details
of the amount of, and basis for, such offset. In the event an indemnity claim,
other than a frivolous indemnity claim, under Sections 11.01 and 11.02 is
disputed by the Sellers, then any payments due by Buyer to Sellers pursuant to
this Agreement, may be suspended to the extent of such indemnity claim until
such dispute is finally resolved without such suspension being deemed a default.
11.06. Indemnification Limitations and Mitigation.
Notwithstanding anything else contained in this Agreement:
(a) the indemnification provided for by the Sellers in this Article XI or
any other claim by the Buyer against the Sellers in connection with this
Agreement shall be subject to the limitation that any and all payments payable
to the Buyer and/or the Buyer's Affiliates pursuant to indemnification by the
Sellers under this Article XI or pursuant to any other claim made by the Buyer
in connection with this Agreement shall not, in the aggregate, exceed the
Purchase Price as adjusted by Section 1.03, provided, however, that with regard
to any indemnification by the Sellers pursuant to Section 11.02(a) or (d), there
shall be no limit on the amounts payable by the 830212 Shareholders and the
729024 Shareholders;
(b) except as provided in the proviso to paragraph (a) above, the
indemnification provided for by the Sellers in this Article XI or any other
claim by the Buyer against the Sellers in connection with this Agreement shall
be subject to the further limitation that any and all payments payable to the
Buyer and/or the Buyer's Affiliates pursuant to indemnification by any
particular Seller under this Article XI or pursuant to any other claim made by
the Buyer in connection with this Agreement shall not, in the aggregate, exceed
100% of the proceeds received by such Seller under this Agreement;
(c) without prejudice to Buyer's rights of recovery against the Sellers
except as provided in Sections 10.01, 11.02 or clauses 11.06(a), (b) or (e)
herein, where any claim hereunder relates to any matter which is in whole or in
part insured by any insurance policy in respect of the Company or Sellers, the
Buyer shall take all necessary steps to ensure that such claim is also made
against the relevant insurer and pursued with all reasonable expedition;
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(d) where the Company or the Buyer is entitled to recover from a third
party or claim reimbursement of any sum in respect of which it also has a claim
or potential claim under this Agreement, the Buyer shall take all reasonable
steps to enforce the recovery or reimbursement;
(e) the liability of Sellers under this Agreement shall be reduced by the
amount of any recoveries which have been actually received or obtained by the
Company or the Buyer from any insurer or third party responsible or partly
responsible for the act, matter or circumstances giving rise to such breach or
claim or from any insurance policy covering such breach or claim. If any
recovery is made after the Sellers have made full payment to the Buyer in full
satisfaction of any such liability or claim, the Buyer and/or the Buyer's
Affiliates shall refund or procure that there is refunded to such Sellers the
lesser of (i) the amount of such payment by such Sellers to the Buyer and (ii)
the amount of such recovery; and
(f) no monetary amount will be payable by the Sellers to the Buyer with
respect to the indemnification of any claims pursuant to Sections 11.01 and
11.02(a) until the aggregate amount of Losses incurred by the Buyer with respect
to such claims shall exceed on a cumulative basis an amount equal to fifty
thousand Canadian dollars (CDN $50,000) (the "Basket"), in which event the
Sellers shall be responsible only for the amounts in excess of the Basket.
ARTICLE XII
TERMINATION
12.01. Mutual Agreement.
This Agreement may be terminated at any time prior to the Closing by mutual
written agreement of Buyer and Seller.
12.02. Noncompliance or Nonperformance.
This Agreement may be terminated by written notice by Buyer to Sellers or
by Sellers to Buyer, without prejudice to the terminating party's rights to
claim damages or other relief, if (a)(i) any of the terms, covenants or
conditions of this Agreement to be complied with or performed at or before the
Closing by the Buyer, if Sellers propose to terminate, or any of the Sellers,
the Company, 830212, or 729024, if Buyer proposes to terminate, shall not have
been complied with or performed on the Closing Date, and (ii) such noncompliance
or nonperformance shall not have been waived by the party giving notice of
termination or (b) the Closing shall not have occurred on or prior to February
15, 1999.
12.03. Due Diligence Termination.
Buyer may, by written notice to Sellers' Agent within the time period
specified in Section 6.13, terminate the Agreement if it is dissatisfied, acting
reasonably, with its due diligence of the Company and its operations. In such
case each party shall bear its own costs and expenses; provided, however,
nothing contained within Section 12.03 shall relieve any party from
responsibility for any breach that occurred prior to such termination.
ARTICLE XIII
MISCELLANEOUS
13.01. Integration; Amendment.
Except with respect to the nondisclosure agreements signed in contemplation
of this Agreement, this Agreement (including the Schedules and Exhibits attached
hereto) constitutes the entire agreement and understanding of the parties
relating to the subject matter hereof and supersedes all prior agreements and
understandings, whether oral or written, relating to the subject matter hereof.
There are no conditions, waivers, representations or other agreements between
the parties in connection with the subject matter of this Agreement (whether
written or oral, express or implied, statutory or otherwise) except as
specifically set out in this Agreement. The terms of this Agreement cannot be
changed, modified, released or discharged orally.
-37-
<PAGE>
13.02. Sellers' Agent.
In order to administer efficiently the determination of certain matters
under this Agreement, including the defense and/or settlement of any claims for
which the Sellers may be required to indemnify the Buyer pursuant to
Sections 11.01 and 11.02 of this Agreement, the Sellers hereby irrevocably
appoint Philip White (the "Sellers' Agent") or any successor thereto appointed
by the Sellers with the prior written consent of the Buyer, which Agent shall
have full power and authority to make all decisions relating to each of the
Sellers' respective rights and remedies under this Agreement. All decisions and
actions by the Sellers' Agent shall be binding upon all the Sellers, and no
Seller shall have the right to object, dissent, protest or otherwise contest the
same.
Except as otherwise specifically provided in this Agreement, the Buyer
shall deal only with the Sellers' Agent in respect of all matters arising under
this Agreement, except with respect to notices which shall be provided by the
Buyer to each of the Sellers in accordance with the terms of this Agreement. In
no event shall the Buyer be concerned to see to the application or allocation of
any moneys paid to the Sellers' Agent by the Buyer, and the Buyer shall be
entitled to rely upon the notice provided to the Buyer by the Sellers' Agent or
action taken by the Sellers' Agent acting within the scope of his authority,
except that, as contemplated by, and subject to the provisions of, Section 1.03,
it is understood that the Company may pay certain professional fees relating to
this transaction so long as such fees are both invoiced and paid prior to the
Closing Date.
13.03. Assignment.
This Agreement shall be binding upon, and inure to the benefit of, the
parties hereto and their respective successors and permitted assigns. This
Agreement may not be assigned by Buyer without the prior written consent of
Seller or by Seller without the prior written consent of Buyer. Any assignment
without the prior written consent of the other party shall be void.
13.04. Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but all of which together shall constitute
one and the same instrument. Delivery of a facsimile copy of a signature page
shall be deemed to be an original signature page.
13.05. Headings.
The headings in this Agreement are included for convenience of reference
only and shall not in any way affect the meaning or interpretation of this
Agreement.
13.06. Waiver; Requirement of Writing.
This Agreement cannot be changed or any performance, term or condition
waived in whole or in part except by a writing signed by the party against whom
enforcement of the change or waiver is sought. Any term or condition of this
Agreement may be waived at any time by the party hereto entitled to the benefit
thereof. No delay or failure on the part of any party in exercising any rights
hereunder, and no partial or single exercise thereof, will constitute a waiver
of such rights or of any other rights hereunder.
13.07. Finder's Fees; Brokers.
Each of the Sellers represents and warrants to Buyer and Buyer represents
and warrants to Sellers that there are no claims (or any basis for any claims)
for brokerage commissions, finder's fees or like payments in connection with
this Agreement or the transactions contemplated hereby resulting from any action
taken by it or on its behalf.
13.08. Expenses.
Each of the parties hereto shall pay, without right of reimbursement from
the other party or from the Company, all the costs incurred by it incident to
the preparation, execution and delivery of this Agreement and the performance of
its obligations hereunder, whether or not the transactions contemplated by this
Agreement shall be consummated.
-38-
<PAGE>
13.09. Notices.
Any notice, request, consent, waiver or other communication required or
permitted hereunder shall be effective only if it is in writing and personally
delivered or sent by prepaid cable or telecopy or sent, postage prepaid, by
registered, certified or express mail or reputable overnight courier service and
shall be deemed given when so delivered by hand, cabled or telecopied, or if
mailed, ten days after mailing (two business days in the case of express mail or
overnight courier service), as follows: If to Sellers:
Philip White
229 Colonnade Road
Ottawa, Ontario
K2E 7K3
with a copy to:
LaBarge Weinstein
333 Preston Street
11th Floor
Ottawa, Ontario, Canada K1S 5N4
Attention: Lawrence Weinstein
If to Buyer:
[Buyer or Nominee]
c/o Merrimac Industries, Inc.
41 Fairfield Place
West Caldwell, New Jersey 07006
Attention: Mason N. Carter
Chairman, President and
Chief Executive Officer
with a copy to:
Thomas C. Meriam, Esq.
Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, New York 10112
or such other person or address as the addressee may have specified in a
notice duly given to the sender as provided herein.
13.10. Applicable Law; Consent to Jurisdiction.
This Agreement will be construed and interpreted in accordance with and
governed by the internal laws of the Province of Ontario without regard to
conflicts of laws principles. Each of the parties hereto hereby irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the courts
of the Province of Ontario and Canada for any actions, suits or proceedings
arising out of or relating to this Agreement and the transactions contemplated
hereby (and agrees not to commence any action, suit or proceeding relating
thereto except in such courts), and further agrees that, except as set forth
below, service of any process, summons, notice or document by registered mail to
its respective address set forth in Section 13.09 shall be effective service of
process for any action, suit or proceeding brought against it in any such court.
Each of the parties hereto hereby irrevocably and unconditionally waives any
objection to the laying of venue of any action, suit or proceeding arising out
of this Agreement or the transactions contemplated hereby in the courts of the
Province Ontario, and hereby further irrevocably and unconditionally waives and
agrees not to plead or claim in any such court that any such action, suit or
proceeding brought in any such court has been brought in an inconvenient forum.
13.11. Public Announcements.
None of the parties shall make any press release or public announcement
with respect to the transactions contemplated hereby without (a) in the case of
Buyer, obtaining the prior approval of Seller and (b) in the case of Seller,
obtaining the prior approval of Buyer, except as may be required by law or
regulations of securities exchanges. Approvals under this Section 13.11 shall
not be unreasonably withheld.
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<PAGE>
13.12. No Third-Party Beneficiaries.
Nothing in this Agreement will be construed as giving any person, firm,
corporation or other entity, other than the parties hereto, their successors and
permitted assigns, any right, remedy or claim under or in respect of this
Agreement or any provision hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or
caused this Agreement to be duly executed by their respective officers thereunto
duly authorized, as of the date first above written.
Merrimac Industries, Inc.
/s/ Mason N. Carter
---------------------------
Mason N. Carter
Chairman, President and
Chief Executive Officer
K.N. Ramachandran
By_________________________
Name:
Title:
B. Jaya Ramachandran
By_________________________
Name:
Title:
Peter Smiley
By_________________________
Name:
Title:
John Andrews
By_________________________
Name:
Title:
S.L. Ross
By_________________________
Name:
Title:
Rita Bhatia
By_________________________
Name:
Title:
-40-
<PAGE>
Tigner Family Trust
By_________________________
Name:
Title:
Ross Chiarelli
By_________________________
Name:
Title:
Howard Soucie
By_________________________
Name:
Title:
Ashwina Bijoor
By_________________________
Name:
Title:
Craig Sutton
By_________________________
Name:
Title:
Filtran Microcircuits, Inc.
By_________________________
Name:
Title:
830212 Ontario Inc.
By_________________________
Name:
Title:
830212 Ontario Inc.
729024 Ontario Ltd.
By_________________________
Name:
Title:
-41-
<PAGE>
Eapen Koshy
By_________________________
Name:
Title:
Rachel Koshy in trust
By_________________________
Name:
Title:
Rachel Koshy
By_________________________
Name:
Title:
Ian Bolt
By_________________________
Name:
Title:
Doren White
By_________________________
Name:
Title:
Derek White
By_________________________
Name:
Title:
Gillian Pershaw
By_________________________
Name:
Title:
Philip White
By_________________________
Name:
Title:
Coranne White
By_________________________
Name:
Title:
-42-
<PAGE>
APPENDIX A
DEFINITIONS
"Accountant" shall have the meaning set forth in Section 2B.07.
"Amalgamation" shall have the meaning set forth in the Recitals.
"Base I Value" shall have the meaning set forth in Section 1.03.
"Base II Value" shall have the meaning set forth in Section 1.03.
"Basket" shall have the meaning set forth in Section 11.06(f).
"Benefit Plans" shall have the meaning set forth in Section 2B.17(c).
"Business know-how" shall have the meaning set forth in Section 2B.11.
"Buyer" shall have the meaning set forth in the Preamble.
"Buyer's Affiliates" shall have the meaning set forth in Section 11.01.
"Canadian GAAP" shall have the meaning set forth in Section 2B.07(c).
"Closing" shall have the meaning set forth in Section 1.02.
"Closing Date" shall have the meaning set forth in Section 1.02.
"Closing Net Book Value" shall have the meaning set forth in Section 1.03.
"Company" shall have the meanings set forth in the Preamble and Section
6.10.
"Contracts" shall have the meanings set forth in Section 2B.13(b) and
6.05(b).
"Financial Statements" shall have the meaning set forth in Section 2B.08.
"GAAP" shall have the meaning set forth in 2B.07.
"Holding Companies" shall have the meaning set forth in the Preamble.
"Indemnified Party" shall have the meaning set forth in Section 11.04.
"Indemnifying Party" shall have the meaning set forth in Section 11.04.
"Intellectual Property" shall have the meaning set forth in Section 2B.11.
"ITA" shall have the meaning set forth in Section 2B.15(b)(ix).
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<PAGE>
"ITCs" shall have the meaning set forth in Section 2B.15(b)(x).
"Liens" shall have the meaning set forth in Section 2B.15(b)(xv).
"Losses" shall have the meaning set forth in Section 11.02.
"Net Book Value" shall have the meaning set forth in Section 1.03.
"Nominee" shall have the meaning set forth in the Recitals.
"Purchase Price" shall have the meaning set forth in Section 1.01.
"Qualification" shall have the meaning set forth in Section 2B.06.
"Real Property" shall have the meaning set forth in Section 2B.10.
"Representatives" shall have the meaning set forth in Section 6.02.
"Sellers" shall have the meaning set forth in the Preamble.
"Seller's Affiliates" shall have the meaning set forth in Section 11.03.
"Sellers' Agent" shall have the meaning set forth in Section 13.02.
"729024 Shareholders" shall have the meaning set forth in the Preamble.
"Stock" shall have the meaning set forth in the Recitals and shall include
all the shares of the Corporation resulting from the Amalgamation.
"Tax" shall have the meaning set forth in Section 2B.15(a).
"Tax Returns" shall have the meaning set forth in Section 2B.15(b).
"830212 Shareholders" shall mean Ian Bolt, Doreen White, Derek White,
Gillian Pershaw, Philip White and Coranne White.
"729024 Shareholders" shall mean Eapen Koshy, Rachek Koshy in trust and
Rachel Koshy.
-44-
MERRIMAC INDUSTRIES, INC.
STOCK OPTION COMMITTEE
- --------------------------------------------------------------------------------
Action Taken by Unanimous Written
Consent of Stock Option Committee
in Lieu of Meeting
- --------------------------------------------------------------------------------
The undersigned, constituting all the members of the Stock Option Committee
of Merrimac Industries, Inc., a New Jersey corporation (the "Company"), in
accordance with Section 14A:6-7.1(5) of the New Jersey Business Corporation Act,
do hereby consent in writing to the taking of the actions embodied in the
following resolutions, which are hereby adopted as the resolutions of the Stock
Option Committee of the Company, and do further hereby direct the Secretary of
the Company to file this Written Consent with the minutes of proceedings of the
Stock Option Committee.
RESOLVED, that upon the payment of the stock dividend (the "Stock
Dividend") of the number of shares of Common Stock, par value $.50 per share
(the "Common Stock"), of Merrimac Industries, Inc. (the "Company") equal to 10%
of the total number of shares of Common Stock outstanding on May 15, 1998 (the
"Record Date") as declared by the Board of Directors on May 4, 1998, (i) the
price per share for each share of Common Stock subject to outstanding options
under the Company's 1983 Key Employee Stock Option Plan, 1993 Stock Option Plan,
and 1997 Long-Term Incentive Plan (each a "Plan" and collectively, the "Plans")
shall be adjusted by dividing such price per share immediately prior to the
payment of the Stock Dividend by 1.1 and (ii) the number of shares of Common
Stock subject to each outstanding option under the Plans shall be adjusted by
multiplying the number of shares of Common Stock subject thereto immediately
prior to the payment of the Stock Dividend by 1.1; and further
RESOLVED, that upon payment of the Stock Dividend, the remaining aggregate
number of shares of Common Stock that may be issued under the Company's 1983 Key
Employee Stock Option Plan be and it is hereby adjusted to 5,458 and the total
number of shares of Common Stock that may be made subject to options under such
Plan be and it is hereby adjusted to 150,496 shares; and further
RESOLVED, that upon payment of the Stock Dividend, the remaining aggregate
number of shares of Common Stock that may be issued or made subject to options
under the Company's 1993 Stock Option Plan be and it is hereby adjusted to
268,290, the total number of shares of Common Stock that may be made subject to
options under such Plan be and it is hereby adjusted to 324,390 shares and the
number of shares of Common Stock that may be issued or made subject to options
thereunder to any Non-Employee Director (as defined in the Company's 1993 Stock
Option Plan) be and it is hereby adjusted to 1,650 per year; and further
RESOLVED, that upon payment of the Stock Dividend, the aggregate number of
shares of Common Stock that may be issued or otherwise made subject to awards
under the Company's 1997 Long-Term Incentive Plan (the "1997 Plan") be and it is
hereby adjusted to 275,000, of which (i) the aggregate number of shares of
Common Stock that may be designated as Employee Options (as defined in the 1997
Plan) under the 1997 Plan be and it is hereby adjusted to 110,000 and (ii) the
aggregate number of shares of Common Stock that may be designated as option
awards other than Employee Options under the 1997 Plan be and it is hereby
adjusted to 165,000; and further
-1-
<PAGE>
RESOLVED, that the value of any fractional shares of Common Stock that
would be issuable as a result of the Stock Dividend shall be paid in cash based
on the value of a share of Common Stock determined by the closing price of the
Common Stock on the American Stock Exchange on the Record Date; and further
RESOLVED, that the officers of the Company be, and each of them is hereby,
authorized, in the name and on behalf of the Company, to make, execute and
deliver, or cause to be made, executed and delivered, all such agreements,
documents, applications, instruments, notices and other papers, and to do or
cause to be done all such acts or things, in the name and on behalf of the
Company and under its corporate seal or otherwise, as they may deem necessary or
appropriate to effectuate or carry out the purposes and intent of the foregoing
resolutions.
IN WITNESS WHEREOF, the undersigned have executed this Unanimous Written
Consent as of June 3, 1998.
/s/ Albert H. Cohen
-----------------------
Albert H. Cohen
/s/ Arthur A. Oliner
-----------------------
Arthur A. Oliner
-2-
MERRIMAC INDUSTRIES, INC.
STOCK PURCHASE PLAN COMMITTEE
- --------------------------------------------------------------------------------
Action Taken by Unanimous Written
Consent of Stock Purchase Plan Committee
in Lieu of Meeting
- --------------------------------------------------------------------------------
The undersigned, constituting all the members of the Stock Purchase Plan
Committee of Merrimac Industries, Inc., a New Jersey corporation (the
"Company"), in accordance with Section 14A:6-7.1(5) of the New Jersey Business
Corporation Act, do hereby consent in writing to the taking of the actions
embodied in the following resolutions, which are hereby adopted as the
resolutions of the Stock Purchase Plan Committee of the Company, and do further
hereby direct the Secretary of the Company to file this Written Consent with the
minutes of proceedings of the Stock Purchase Plan Committee.
RESOLVED, that upon the payment of the stock dividend (the "Stock
Dividend") of the number of shares of Common Stock, par value $.50 per share
(the "Common Stock"), of Merrimac Industries, Inc. (the "Company") equal to 10%
of the total number of shares of Common Stock outstanding on May 15, 1998 as
declared by the Board of Directors on May 4, 1998, (i) the number of shares of
Common Stock available for sale pursuant to each agreement (an "Agreement")
under the Company's 1995 Stock Purchase Plan (the "1995 Plan") shall be adjusted
by multiplying the number of shares of Common Stock available for sale pursuant
to each such Agreement immediately prior to the payment of the Stock Dividend by
1.1 and (ii) the fair market value of a share of Common Stock as determined by
the Stock Purchase Plan Committee on the date the offer to enter into such
Agreement was made shall be adjusted by dividing such price per share under such
Agreement immediately prior to the payment of the Stock Dividend by 1.1; and
further
RESOLVED, that upon payment of the Stock Dividend, the remaining aggregate
number of shares of Common Stock that may be sold under the 1995 Plan be and it
is hereby adjusted to 199,081 and the total number of shares of Common Stock
that may be sold under the 1995 Plan (including shares sold prior to the date of
the Stock Dividend) shall not exceed 218,098 shares; and further
RESOLVED, that the officers of the Company be, and each of them is hereby,
authorized, in the name and on behalf of the Company, to make, execute and
deliver, or cause to be made, executed and delivered, all such agreements,
documents, applications, instruments, notices and other papers, and to do or
cause to be done all such acts or things, in the name and on behalf of the
Company and under its corporate seal or otherwise, as they may deem necessary or
appropriate to effectuate or carry out the purposes and intent of the foregoing
resolutions.
IN WITNESS WHEREOF, the undersigned have executed this Unanimous Written
Consent as of June 3, 1998.
/s/ Albert H. Cohen
----------------------
Albert H. Cohen
/s/ Arthur A. Oliner
----------------------
Arthur A. Oliner
MERRIMAC INDUSTRIES, INC.
BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
Action Taken by Unanimous Written
Consent of Board of Directors
in Lieu of Meeting
- --------------------------------------------------------------------------------
The undersigned, constituting all the members of the Board of Directors of
Merrimac Industries, Inc., a New Jersey corporation (the "Company"), in
accordance with Section 14A:6-7.1(5) of the New Jersey Business Corporation Act,
do hereby consent in writing to the taking of the actions embodied in the
following resolutions, which are hereby adopted as the resolutions of the Board
of Directors of the Company, and do further hereby direct the Secretary of the
Company to file this Written Consent with the minutes of proceedings of the
Board of Directors.
RESOLVED, that upon the payment of the stock dividend (the "Stock
Dividend") of the number of shares of Common Stock, par value $.50 per share
(the "Common Stock"), of Merrimac Industries, Inc. (the "Company") equal to 10%
of the total number of shares of Common Stock outstanding on May 15, 1998 (the
"Record Date") as declared by the Board of Directors on May 4, 1998, (i) the
price per share for each share of Common Stock subject to outstanding options
under the Company's Stock Option Plan for Non-Employee Directors (the
"Non-Employee Directors Plan") shall be adjusted by dividing such price per
share immediately prior to the payment of the Stock Dividend by 1.1 and (ii) the
number of shares of Common Stock subject to each outstanding option under the
Non-Employee Directors Plan shall be adjusted by multiplying the number of
shares of Common Stock subject thereto immediately prior to the payment of the
Stock Dividend by 1.1; and further
RESOLVED, that upon payment of the Stock Dividend, the aggregate number of
shares of Common Stock that may be issued or made subject to options under the
Non-Employee Directors Plan be and it is hereby adjusted to 55,000; and further
RESOLVED, that the value of any fractional shares of Common Stock that
would be issuable as a result of the Stock Dividend shall be paid in cash based
on the value of a share of Common Stock determined by the closing price of the
Common Stock on the American Stock Exchange on the Record Date; and further
-1-
<PAGE>
RESOLVED, that the officers of the Company be, and each of them is hereby,
authorized, in the name and on behalf of the Company, to make, execute and
deliver, or cause to be made, executed and delivered, all such agreements,
documents, applications, instruments, notices and other papers, and to do or
cause to be done all such acts or things, in the name and on behalf of the
Company and under its corporate seal or otherwise, as they may deem necessary or
appropriate to effectuate or carry out the purposes and intent of the foregoing
resolutions.
IN WITNESS WHEREOF, the undersigned have executed this Unanimous Written
Consent as of June 3, 1998.
/s/ Mason N. Carter
-----------------------
Mason N. Carter
/s/ Eugene W. Niemiec
-----------------------
Eugene W. Niemiec
/s/ Albert H. Cohen
-----------------------
Albert H. Cohen
/s/ Joel H. Goldberg
------------------------
Joel H. Goldberg
/s/ Frederick J. Gumm
------------------------
Frederick J. Gumm
/s/ Arthur A. Oliner
------------------------
Arthur A. Oliner
-2-
AMENDED AND RESTATED PROMISSORY NOTE
US $360,000 West Caldwell, New Jersey
May 4, 1998
FOR VALUE RECEIVED, MASON N. CARTER ("Payor"), hereby unconditionally
promises to pay, in accordance with the terms of this promissory note (as the
same may be amended from time to time, this "Promissory Note"), to the order of
MERRIMAC INDUSTRIES, INC., a New Jersey corporation, or its successors and
assigns ("Note Holder"), in lawful money of the United States of America in
immediately available funds, on May 4, 2003 and in such account, at such place,
or to such party as Note Holder may designate in writing, the principal amount
of Three Hundred Sixty Thousand Dollars (US $360,000). Payor also
unconditionally promises to pay interest quarterly in arrears from the date
hereof (as specified below) on the unpaid principal amount of this Promissory
Note outstanding from time to time at a rate calculated each 12-month period
beginning on the date hereof, which rate is based upon the weighted average of
the rates announced publicly from time to time during such period by Note
Holder's primary lending bank (currently, Summit Bancorp) as its prime rate.
Payment of this Promissory Note is secured by the Pledged Collateral (as
defined in the Amended and Restated Pledge Agreement dated as of the date hereof
by Payor for the benefit of Note Holder (the "Pledge Agreement")), including,
without limitation, the Pledged Shares (as defined in the Pledge Agreement) and
any property or interest provided in addition to or in substitution for any of
the foregoing.
Interest on the unpaid principal amount of this Promissory Note outstanding
from time to time shall accrue quarterly in arrears from the date hereof and
shall be paid on the 4th day of August, November, February and May of each of
1998, 1999, 2000, 2001, 2002 and 2003, except that interest accrued from
November 1998 to November 1999 shall be paid to the Note Holder on May 4, 2003.
Interest shall be paid from dividends declared in respect of the Pledged Shares.
To the extent that in a given quarter such dividends are insufficient to pay
interest on the date when due, then Payor shall be liable for the remainder of
the interest payment then due.
Payor may, at its option, prepay all or, from time to time, any part of the
unpaid principal balance of this Promissory Note, together with interest accrued
thereon, without payment of any premium or penalty.
Payor hereby waives presentment, demand, notice, protest and all other
demands and notices in connection with the delivery, acceptance, performance,
default or enforcement of this Promissory Note.
If Payor's employment with Note Holder is terminated pursuant to Section
6(c) of the Amended and Restated Employment Agreement, dated January 1, 1998,
between Payor and Note Holder, then Note Holder, at its option, by written
notice to Payor, may declare the entire principal amount of this Promissory Note
to be due and payable, together with accrued interest thereon, without other
notice, demand, presentment or protest, all of which are hereby waived by Payor.
Payor shall not assign this Promissory Note or its obligations hereunder
without the prior written consent of Note Holder. This Promissory Note shall be
binding upon Payor and its permitted assigns and shall inure to the benefit of
Note Holder and its successors and assigns.
This Promissory Note has been executed and delivered in the State of New
Jersey and shall be governed by, and construed and interpreted in accordance
with, the internal laws of the State of New Jersey without giving effect to any
conflicts of laws provisions of such State. Payor hereby expressly and
irrevocably agrees and consents that any suit, action, or proceeding arising out
of or relating to this Promissory Note may be instituted in any State.
/S/ Mason N. Carter
---------------------
Mason N. Carter
SEPARATION AGREEMENT
THIS SEPARATION AGREEMENT (the "Agreement") made and entered into as of the
23 day of December, 1998, by and between Merrimac Industries, Inc. ("Merrimac")
and Eugene W. Niemiec (the "Executive"):
W I T N E S S E T H:
WHEREAS, the Executive is Vice Chairman and a director of Merrimac;
WHEREAS, the Executive desires to resign as Vice Chairman and terminate his
employment with Merrimac;
WHEREAS, the Executive and Merrimac entered into that certain Employment
Agreement dated as of December 16, 1996;
WHEREAS, parties desire to terminate said Employment Agreement;
WHEREAS, the Executive will continue as a non-employee director of
Merrimac; and
WHEREAS, the parties hereto desire to set forth their respective rights and
obligations in respect of the Executive's resignation from Merrimac;
NOW, THEREFORE, in consideration of the covenants and conditions set forth
herein, the parties, intending to be legally bound, agree as follows:
1. The Executive hereby resigns from employment, the office of Vice
Chairman and all other offices held with Merrimac other than his seat on the
Board of Directors of Merrimac, effective as of the close of business on
December 31, 1998 (the "Effective Date").
2. Subject to Section 3 below, Merrimac agrees:
(a) to pay the Executive five days after the Effective Date, the sum of One
Hundred Fifty One Thousand Seven Hundred Dollars ($151,700);
(b) to pay the Executive, within thirty days after the Effective Date, the
sum of One Hundred Eighty Five Thousand Five Hundred Dollars ($185,500); and
(c) to pay the Executive, within seven days after the first anniversary of
the Effective Date, the sum of One Hundred Eighty Five Thousand Five Hundred
Dollars ($185,500).
3. The Executive agrees to repay the outstanding loan balance of his 401(k)
account by having Merrimac withhold said outstanding loan balance from the
payment provided for in Section 2(a) above and remit this amount to the
administrator of the 401(k) plan. The payment made under Section 2(a) shall be
subject to any required withholding for federal, state and local taxes
(including, without limitation, F.I.C.A. and Medicare taxes). The payments made
under Sections 2(b) and (c) shall be subject to any required withholding for
federal, state and local taxes (including, without limitation, Medicare taxes).
-1-
<PAGE>
(b) In the event that the death of the Executive should occur before all
the payments contemplated in Section 2 are completed, then Merrimac shall,
subject to the provisions of Section 3(a), pay all outstanding payments to the
estate of the Executive.
4. Except as expressly provided for in Section 5 below, all employee
benefits coverage provided by Merrimac to the Executive shall cease as of the
Effective Date.
5. After the Effective Date and subject to Section 6 below, Merrimac shall
provide to the Executive and his spouse medical coverage as follows:
(a) for the first 18 months following the Effective Date, Merrimac shall
pay for the premiums for COBRA coverage for the Executive and his spouse;
(b) at the expiration of 18 months from the Effective Date and until the
Executive turns 65 years of age, Merrimac shall provide the Executive and his
spouse with (i) a standard New Jersey Individual Insurance Policy with the most
liberal benefits, with terms substantially as set forth on Exhibit A attached
hereto, or (ii) should the policy outlined in clause (i) above no longer be
available, then a comparable policy in all material respects, provided, however,
that the cost shall not exceed what was or would have been the cost under the
policy outlined in clause (i).
(c) upon the Executive becoming 65 years of age and until the eleventh
anniversary of the Effective Date, Merrimac shall pay for a "Medigap" Insurance
policy to cover the Executive and his spouse, with terms substantially as set
forth on Exhibit B attached hereto.
6. The obligations of Merrimac under Section 5 shall expire upon the
earlier of:
(a) expiration of eleven years from the Effective Date;
(b) the death of the Executive; or
(c) the employment of the Executive by any Person for whom the Executive
works at least thirty hours per calendar week and is eligible for medical
coverage. For purposes of this Agreement, "Person" shall mean any company,
partnership, trust, person or any other employer. Should the Executive violate
the non-compete provision contained in Section 10, this Agreement shall be in
breach and Merrimac shall be entitled to stop all payments hereunder.
7. (a) Merrimac will provide the use of the leased car the Executive is
currently using for one year from the Effective Date. In connection therewith,
Merrimac will pay for the lease and insurance expenses of the car during such
period. All other expenses, including, but not limited to, gas, maintenance and,
if applicable, excess mileage charges, shall be the responsibility of the
Executive. The Executive has the responsibility to maintain the car in
accordance with the terms of the lease, a copy of which will be provided to the
Executive should he request one.
(b) On or prior to December 31, 1999, the Executive shall have the option
to purchase, at his sole expense, the car on the terms specified in the car
lease agreement, provided, however, that Merrimac is unconditionally released
from the lease agreement. Merrimac will execute any documents reasonably
requested by the Executive in order to effectuate his purchase of the car.
(c) Solely for purposes of this Section 7, should the death of the
Executive occur on or prior to December 31, 1999, then the estate of the
Executive shall be entitled to the benefits and provisions set forth in Sections
7(a) and (b) above.
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<PAGE>
8. In consideration of the obligations of Merrimac herein, the Executive
reaffirms his resignation of employment with Merrimac, and releases Merrimac,
and its affiliated, parent, subsidiary and related entities, and their present
and former directors, officers, employees, agents, successors and assigns
(together, the "Released Parties"), from any and all manner of actions and
causes of action, suits, debts, dues, accounts, bonds, covenants, contracts,
agreements, judgments, charges, claims, and demands whatsoever which the
Executive, his heirs, executors, administrators and assigns has, had or may
hereafter have against the Released Parties or any of them arising out of or by
reason of any cause, matter or thing whatsoever from the beginning of the world
to the date hereof, including without limitation any and all matters relating to
his employment by Merrimac and the cessation thereof, his employee retirement
benefits, and all matters arising under any federal, state or local statute,
rule or regulation or principle of contract law or common law, including but not
limited to Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C.
Section 2000e et seq., the Age Discrimination in Employment Act of 1967, as
amended, 29 U.S.C. Section 621 et seq., the Americans with Disabilities Act of
1990, 42 U.S.C. Section 12101 et seq., the Employee Retirement Income Security
Act of 1974, as amended, 29 U.S.C. Section 1001 et seq., and the New Jersey Law
Against Discrimination, as amended, N.J. Stat. Ann. Section 10:5. The foregoing
release shall not extend to any actions, causes of action, demands, etc. arising
from the breach or the claimed breach of this Agreement by Merrimac.
9. Merrimac, on behalf of itself and its successors and assigns, releases
and discharges the Executive and his heirs, executors, administrators,
successors and assigns from all actions, causes of action, suits, debts, dues,
sums of money, accounts, reckonings, bonds, bills, specialties, covenants,
contracts, controversies, agreements, promises, variances, trespasses, damages,
judgments, executions, claims, and demands whatsoever, in law or equity, which
against the Executive, Merrimac and its successors and assigns ever had, now
have or hereafter can, shall or may have, for, upon, or by reason of any matter,
cause or thing whatsoever from the beginning of the world to the date of this
Agreement. The foregoing release shall not extend to any actions, causes of
action, demands, etc. arising from the breach or the claimed breach of this
Agreement by the Executive.
10. For purposes of this Agreement, "Group" means Merrimac and the
subsidiaries, affiliates and parents thereof.
(a) The Executive covenants and agrees that until December 31, 1999, he
will not, directly or indirectly, anywhere in the United States, either alone or
in conjunction with any individual or firm, corporation, association or other
entity, whether as principal, agent, shareholder, creditor or in any other
capacity whatsoever:
(i) carry on, or be engaged in, concerned with or interested in, directly
or indirectly, any business which relates to the manufacture, promotion,
marketing or distribution, whether in design, development, marketing or sales,
of Multi-Mix(TM) Microtechnology, (except for an equity share investment in a
public company whose shares are listed on a stock exchange where such investment
does not in the aggregate exceed 2% of the issued equity shares of such
company);
(ii) attempt to solicit away from the Group any person dealing with, or
entities with whom the Group is engaged, including suppliers, employees,
customers, agents, distributors or resellers, relating to, Multi-Mix(TM)
Microtechnology; or
(iii) take any act as a result of which the relations between the Group and
any of its suppliers, customers, employees, agents, distributors or resellers of
Multi-Mix(TM) Microtechnology may be impaired.
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<PAGE>
(b) The Executive expressly acknowledges and understands that the remedy of
law for any breach by him of this Section 10 will be inadequate and that the
damages flowing from such breach are not readily susceptible to being measured
in monetary terms. Accordingly, it is acknowledged that upon the Executive's
violation of any provision of this Section 10, Merrimac shall be entitled to
immediate injunctive relief and may obtain a temporary order restraining any
threatened or further breach. Nothing in this Section 10 shall be deemed to
limit Merrimac's remedies at law or in equity for any breach by the Executive of
any of the provisions of this Section 10 that may be pursued or availed of by
Merrimac.
(c) If for any reason any term of this Section 10 be held to be excessively
broad as to duration, geographical scope, activity or subject, such restrictions
shall be construed so as to thereafter be limited or reduced to the extent
required to be enforceable in accordance with applicable law; it being
understood and agreed that by execution of this Agreement the parties hereto
regard such restrictions as reasonable and compatible with their respective
rights.
11. The Executive agrees not to disclose to any person not employed by
Merrimac, or not engaged to render services to Merrimac, any confidential
information obtained by him while in the employ of the Company, including,
without limitation, any of Merrimac's inventions, software, data lists, client
lists, trading policies, pricing policies, business plans, or customer or trade
secrets; provided, however, that this provision shall not preclude the Executive
from use or disclosure of information which is in the public domain or from
disclosure required by law or court order. The Executive also agrees that he
will not take with him, without the prior written consent of the Board of
Directors, any document of Merrimac, which is of a confidential nature relating
to Merrimac or its affiliates, or, without limitation, relating to its or their
customers or trade secrets.
12. (a) The Executive covenants and agrees not to publish or otherwise
communicate any disparaging remarks concerning Merrimac and its former and
present directors, officers, employees and agents.
(b) Merrimac covenants and agrees not to publish or otherwise communicate
any disparaging remarks concerning the Executive.
13. (a) The Executive shall remain a director of Merrimac until December
31, 1999 or such earlier date as he may elect to resign his seat. While serving
on the Board during this period, the Executive shall be compensated on the same
basis as all other non-employee directors.
(b) Solely for purposes of this Section 13(a) above, should the death of
the Executive occur prior to December 31, 1999, then the estate of the Executive
shall be entitled to any remaining payments due to the Executive for his
services as a non-employee director.
14. The parties agree that the terms and conditions of this Agreement are
confidential and that neither party shall disclose the existence of this
Agreement or any of its terms to any third parties, other than immediate family
members, attorneys for the parties, as required by law, or as may be necessary
to enforce this Agreement.
15. The Non-Qualified Stock Option Agreement dated December 31, 1996
between Merrimac and the Executive entered into pursuant to the Merrimac 1993
Stock Option Plan, with respect to non-qualified options ("Options") to purchase
an aggregate of 55,000 shares of Merrimac Common Stock ("Shares") is hereby
amended as follows:
(a) non-qualified Options for 16,500 Shares scheduled to vest on December
16, 1999 shall vest immediately on the Effective Date; and
(b) non-qualified Options for 55,000 Shares which would otherwise expire
three months after the Executive's termination of employment shall remain
exercisable until December 31, 2003.
16. The Employment Agreement dated as of December 16, 1996 between Merrimac
and the Executive is hereby terminated in all respects, except Section 4(b) with
regard to the non-qualified Options to purchase 55,000 Shares.
17. The computer equipment and monitor currently located in the office of
the Executive shall be given to him upon the Effective Date.
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<PAGE>
18. Except for this Separation Agreement, at the Effective Date, all prior
or contemporaneous agreements between the Executive and Merrimac are canceled
and deemed by both parties to be null and void.
19. The Executive warrants that he is entering into this Agreement
voluntarily, and that, except as set forth herein, no promises or inducements
for this Agreement have been made, and that he is entering into this Agreement
without reliance upon any statement or representation by any of the Released
Parties or any other person, concerning any fact material hereto.
20. Merrimac hereby advises the Executive to consult with an attorney prior
to executing this Agreement.
21. The Executive represents and warrants that Merrimac has provided him
the opportunity to review and consider this Agreement for twenty-one (21) days
from the date Merrimac provided the Executive with a copy of this Agreement, and
that he has chosen, of his own free will, without any duress and after
consultation with his attorney, to waive his right to the full twenty-one (21)
day period.
22. The Executive represents and warrants that he has obtained legal
counsel concerning this Agreement and fully understands the terms of this
Agreement and that he knowingly and voluntarily, of his own free will, without
any duress and after consultation with his attorney, being fully informed and
after due deliberation, accepts its terms and signs the same as his own free
act.
23. The Executive may revoke this Agreement within seven (7) days after he
executes this Agreement. This Agreement becomes effective on the eighth (8) day
following the date of execution by the Executive.
24. This Agreement will be governed by and construed in accordance with the
laws of the State of New Jersey, except that no doctrine of choice of law shall
be used to apply any law other than that of the State of New Jersey.
25. The parties understand and intend that each provision in this Agreement
shall be construed as separable and divisible from every other provision. The
illegality or unenforceability of any provision of this Agreement shall not
affect the validity and enforceability, in whole or in part, of any provision of
this Agreement.
26. This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof, and supersedes any and all prior
agreements or understandings between the parties. This Agreement may only be
changed by written agreement executed by the parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
/s/ Eugene W. Niemiec
----------------------------
Eugene W. Niemiec
MERRIMAC INDUSTRIES, INC.
/s/ Mason N. Carter
----------------------------
Chairman, President and
Chief Executive Officer
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SEPARATION AGREEMENT AND GENERAL RELEASE
THIS SEPARATION AGREEMENT AND GENERAL RELEASE (hereinafter "Agreement") is
made and entered into this 16th day of December, 1998, by and between Merrimac
Industries, Inc., and its affiliated, subsidiary and related entities, and their
present and former officers, directors, employees, trustees, agents, attorneys,
successors and assigns (hereinafter "Merrimac"), and Jacob Lin (hereinafter
"Lin").
WHEREAS, Lin's employment with Merrimac will be terminated on December 16,
1998; and
WHEREAS, Lin and Merrimac agree that it is in the best interests of both
parties to enter into this Agreement.
NOW, THEREFORE, Lin and Merrimac hereby agree as follows:
1. In consideration of the payments set forth herein, Lin does irrevocably
and unconditionally release and forever discharge Merrimac from and against any
and all claims, demands, causes of action, suits, judgments, liabilities,
damages, costs and expenses, of any kind or nature whatsoever, disputed or
undisputed, known or unknown, in law or in equity, which Lin ever had, now has,
or hereafter can, shall or may have against Merrimac from the beginning of the
world to the date of execution of this Agreement, including but not limited to:
(a) any and all claims arising out of Lin's employment with Merrimac or the
termination thereof; any and all claims under Title VII of the Civil Rights Act
of 1964, as amended, the Civil Rights Act of 1866, the Age Discrimination in
Employment Act of 1967, as amended, the New Jersey Law Against Discrimination,
as amended, the Employee Retirement Income Security Act of 1974, as amended, the
Americans With Disabilities Act of 1990, and the Conscientious Employee
Protection Act;
(b) any and all claims of wrongful discharge, intentional or negligent
infliction of emotional distress, misrepresentation, defamation, breach of
contract or implied contract, or any claims arising under Merrimac's policies,
employee handbooks, insurance programs or oral or written representations; or
(c) any and all claims under any other federal, state or local
constitution, statute, rule, regulation or principle of common law. Lin
understands that he is not releasing any claims against Merrimac that may arise
after the date of execution of this Agreement.
2. Merrimac agrees to provide certain payments and benefits to Lin (less
applicable federal and state taxes) as follows:
a) Severance payments in the sum of $13,750.00 per month for six (6) months
(the "Severance Period") or a total sum of $ 82,500.00. The Severance Period
shall commence after the expiration of the seven (7) day revocation period set
forth in Paragraph 18 hereof.
b) Payment in the sum of $ 6,346.15 for accrued but unused vacation time of
two (2) weeks.
c) Merrimac group medical and dental benefits during the six (6) month
Severance Period. Except for vacation pay, Lin acknowledges that he is receiving
the aforesaid payments and benefits under this Agreement that he would not
otherwise have been entitled but for the execution of this Agreement. Lin
further acknowledges that no other wages, compensation, bonus, incentive,
payments, monies or other benefits are due him.
3. Lin understands and agrees that no payment shall be made under this
Agreement until seven (7) days after Merrimac has received this document fully
executed by Lin.
4. Lin hereby resigns as an officer and director of Merrimac, as
applicable. Lin shall execute and submit formal resignations as may be requested
by Merrimac.
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<PAGE>
5. (a) In exchange for the consideration provided to Lin under this
Agreement, Lin shall also provide up to ten (10) hours per month of advisory and
consulting services to Merrimac during the Severance Period as may be requested
from time to time in the sole discretion of the Chief Executive Officer of
Merrimac or his designee. No additional compensation or fees will be paid to Lin
for such services, except for reasonable and actual out-of-pocket business
expenses upon presentation of appropriate receipts and which have been
authorized in advance by Merrimac. Lin shall fully cooperate with Merrimac in
providing such services from time to time during the Severance Period.
(b) Lin shall provide such services in the New Jersey area or at such other
location as may be mutually agreed upon by Lin and the Chief Executive Officer
of Merrimac or his designee.
(c) Nothing contained in this Agreement shall constitute an employment
agreement and Lin shall not be considered an employee nor entitled to
participate in any benefits, plans or programs maintained for employees of
Merrimac. Lin shall provide such consulting services as an independent
contractor and shall have no power to bind Merrimac or assume or create any
obligation or responsibility on behalf of Merrimac.
6. Lin understands and agrees that neither this Agreement nor the execution
thereof nor the payment of any monies hereunder shall constitute an admission of
any liability or violation of any law, contract provision, rule or regulation,
as to which Merrimac expressly denies any such liability or violation.
7. Lin represents and warrants that he has not and will not file any claim,
complaint, action, suit, charge or grievance against Merrimac with any federal,
state or local agency, board, commission, committee, legislative body, court, or
other forum or entity relating to any alleged claim released under this
Agreement. This Agreement shall constitute a complete defense to any such
proceeding. Lin further represents and warrants that he will not encourage,
participate, assist or cooperate with any person or entity to file any claim,
complaint, action, suit, charge or grievance against Merrimac. Lin further
represents and warrants that he shall fully cooperate with Merrimac in
connection with any investigation, claim, complaint, action, suit, charge or
grievance by or against Merrimac.
Nothing contained in this paragraph shall affect the right of the Equal
Employment Opportunity Commission to enforce applicable age discrimination laws
or conduct any investigation or proceeding. Lin waives and releases any right to
recover any remedial relief, damages or penalties in any lawsuit or proceeding
brought by Lin, any administrative agency, or any other person on Lin's behalf
or which includes Lin in any class.
8. Lin agrees to keep this Agreement and the terms hereof strictly
confidential and shall not disclose, directly or indirectly, such matters to any
person, firm, association, partnership, corporation or other entity except Lin's
legal representatives, accountants or tax authorities. Lin may disclose the
terms of this Agreement on a strictly confidential basis to any prospective
employer.
9. Lin agrees not to use, copy, or disclose, directly or indirectly, to any
person, firm, association, partnership, corporation or other entity any
confidential, proprietary or financial information, or trade secrets of Merrimac
including, without limitation, any of Merrimac's inventions, software, data,
methods of doing business, client or customer lists, vendor or supplier lists,
sales or field representative lists, pricing plans or policies, marketing plans
or policies, human resource organization, personnel, plans or policies, or
business plans or policies; provided, however, this provision shall not preclude
Lin from the use, copy or disclosure of information which is in the public
domain through no fault of Lin or from disclosure required by law or court
order. Lin represents and warrants that he has returned all documents, data,
information, software and other property of Merrimac.
10. Lin covenants and agrees that for a period of two (2) years after the
date of this Agreement, he shall not, directly or indirectly: (a) recruit,
solicit, entice, or initiate contact for the purpose of offering employment to
any current employee of Merrimac or any person who was an employee of Merrimac
within a period of one (1) year after that person leaves the employ thereof, and
will notify Merrimac before employing any such person; (b) solicit, interfere
with or endeavor to entice away from Merrimac any of its customers, suppliers,
or sales or field representatives; or (c) engage in any activity, business or
service, either on his own account or as an employee, officer, director,
partner, trustee, principal, consultant, joint venturer, investor or otherwise
that in whole or in part is competitive with or adverse to the best interests of
the business activities of Merrimac.
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<PAGE>
11. Lin covenants and agrees that for a period of two (2) years after the
date of this Agreement, he shall not, directly or indirectly, (a) seek a
position on the Board of Directors of Merrimac; (b) solicit proxies for the
election of a member of the Board of Directors of Merrimac; or (c) join with any
other person to form a "group" for purposes of participating in any registration
under Section 13(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules promulgated thereunder, with respect to shares of
capital stock of the Company; provided, however, that these obligations shall
terminate in the event of a "Change in Control" (as defined herein) of the
ownership of Merrimac, in which Change in Control Lin has no involvement during
the restricted period.
For purposes of this provision, a "Change in Control" shall be deemed to
have occurred if (x) any person (as the term is used in Sections 13(d) and 14(d)
of the Exchange Act), who is not now a current affiliate or a 5% or more holder,
is or becomes the beneficial owner (as that term is used in Section 13(d) of the
Exchange Act, and the rules and regulations promulgated thereunder, as in effect
on July 1, 1997) of stock of the Company entitled to cast more that 15% of the
votes at the time entitled to be cast generally for the election of directors;
(y) more than 50% of the members of the Board of Directors of Merrimac shall not
be Continuing Directors (which term, as used herein, means the directors of
Merrimac (I) who were members of the Board of Directors of Merrimac on August 1,
1997 or (II) who subsequently became directors of Merrimac and who were elected
or designated to be candidates for election as nominees of the Board of
Directors, or whose election as nomination for election by Merrimac's
stockholders was otherwise approved, by a vote of a majority of the Continuing
Directors then on the Board of Directors; or (z) Merrimac shall be merged or
consolidated with, or, in any transaction or series of transactions,
substantially all of the business or assets of Merrimac shall be sold or
otherwise acquired by, another corporation or entity and, as a result thereof,
the stockholders of the Company immediately prior thereto shall not have at
least 50% or more of the combined voting power of the surviving, resulting or
transferee corporation or entity immediately thereafter.
12. Lin and Merrimac agree not to publish or otherwise communicate any
disparaging statements about Merrimac or its former and present officers,
directors, employees and agents, or Lin.
13. In the event of an actual or threatened breach of any of Lin's
obligations under this Agreement, Merrimac shall be entitled to an injunction
restraining such breach or an appropriate decree of specific performance of such
obligation without the necessity of: (a) showing actual damages or that monetary
damages would not afford an adequate remedy at law; or (b) posting any bond or
security. In the event of litigation to enforce or defend its rights or remedies
under this Agreement, Merrimac shall be entitled to recover its damages,
attorneys fees, costs of suit and litigation expenses. Further, in the event of
a breach of any of Lin's obligations under this Agreement, Lin shall forfeit all
future payments and benefits and Merrimac shall be entitled to recover all past
payments and benefits made to Lin under this Agreement.
14. Lin waives any claim for reinstatement and will not apply for
re-employment for any position with Merrimac.
15. Lin represents and acknowledges that in executing this Agreement, he
does not rely and has not relied upon any representation or statement made by
any of Merrimac's officers, directors, employees, agents, trustees,
representatives or attorneys, except as specifically stated in this Agreement.
16. This Agreement is made and entered into within the State of New Jersey
and shall in all respects be interpreted, governed and enforced in accordance
with the laws of the State of New Jersey without giving effect to any conflict
of law rules.
17. Lin acknowledges that he has been given twenty-one (21) days from the
date of receipt of this Agreement to review and consider same. Lin is advised to
consult with an attorney of his choice prior to executing this Agreement and has
been given an opportunity to do so. Lin further acknowledges that this Agreement
is fair and equitable and enters into this Agreement knowingly and voluntarily
and of his own free will. Lin may waive his right to the full twenty-one (21)
day review period in order to execute and return this Agreement earlier and
receive payment sooner.
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<PAGE>
18. Lin further understands and agrees that this Agreement shall not be
effective or enforceable for a period of seven (7) days following his execution
of this Agreement, and that Lin may revoke this Agreement for any reason during
this seven (7) day period in which event this Agreement shall become null and
void in its entirety. It is further understood that no payments shall be made
under this Agreement until the expiration of the seven (7) day revocation
period.
19. In the event any restriction or provision set forth in this Agreement
shall be adjudged by a court to be void or unenforceable for any reason, but
would be valid if part of the wording thereof were deleted or the period thereof
reduced or the area dealt with thereby reduced in scope, then such restriction
shall apply with such revisions or reductions as may be necessary to make them
valid, effective and enforceable. If any provision of this Agreement or part
thereof shall ultimately be held to be void or unenforceable, then such
provision or part thereof shall be deemed deleted and the remaining provisions
of this Agreement shall remain in full force and effect.
20. This Agreement sets forth the entire understanding between the parties
hereto - 7 - and supersedes any and all prior agreements or understandings,
written or oral, between the parties pertaining to the subject matter hereof.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, executors, administrators, legal
representatives, successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the dates set forth below.
THE UNDERSIGNED HAS READ THIS SEPARATION AGREEMENT
AND GENERAL RELEASE, FULLY UNDERSTANDS IT, AND
VOLUNTARILY AND KNOWINGLY AGREES TO ITS TERMS.
Witness: /s/ Olivia McKay /s/ Jacob Lin
----------------- ---------------
(Olivia McKay) (Jacob Lin)
Date of Execution: December 23,1998
MERRIMAC INDUSTRIES, INC.:
Witness:___________________________ By: /s/ Rey Green
--------------------------
(Reynold K. Green)
Date of Execution: December 23, 1998
-4-
Exhibit 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
1998 compared to 1997
Results of operations reflect an increase in net sales of $1,443,000 or
7.7% and a decrease in operating income (before the 1998 restructuring charge of
$510,000) of $1,175,000 or 58.9%. Net income of $340,000 (after the effects of
the restructuring charge of $327,000 for 1998) decreased $1,063,000 or 75.8%
compared to net income of $1,402,000 in 1997. Diluted net income per share of
$.19 (after the effects of the restructuring charge of $.18 per share for 1998)
decreased $.60 per share or 76.0% compared to diluted net income per share of
$.79 in the prior year. The restructuring charge consisted of severance and
early retirement benefits to fourteen employees.
Net foreign sales amounted to $5,114,000 or 25.4% of net sales, a decrease
of $617,000 or 10.8% compared to the prior year net foreign sales of $5,731,000.
Net domestic sales amounted to $14,988,000 or 74.6% of net sales, an increase of
$2,060,000 or 15.9% compared to the prior year net domestic sales of
$12,928,000. The overall net sales increase was partially attributable to
increased shipments against a firm order backlog where customers' order release
dates coincided with the Company's production and shipment schedules, process
improvement initiatives, customer service focus and reduction of
total-cycle-time to market.
Orders decreased $3,674,000 or 18.2% to $16,512,000 in 1998 and the backlog
of firm unfilled orders decreased $3,590,000 or 36.8% to $6,168,000 at year-end
1998. Softness in core business orders resulted from the deferment of purchases
by major satellite and defense customers due to delays in certain programs. The
Company believes that many of the satellite constellation programs that have
been delayed may resume and translate into orders during 1999. 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. 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.
Cost of sales increased $1,600,000 or 16.1%. The primary reason for the
increase was the effect of the increase in sales. Cost of sales as a percentage
of net sales increased 4.1% to 57.5% for 1998. These increases are due to
compensation increases for the hourly, certain salaried engineering and
supervisory workforce effective in mid-1998, an increase in levels of overtime
worked, additional manufacturing personnel hired for the Costa Rica facility and
additional manufacturing overhead expenses. 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.
Selling, general and administrative expenses of $6,681,000 increased
$520,000 or 8.5% and as a percentage of net sales increased .2% to 33.2%.
Increases in selling costs were primarily attributable to additional sales
commissions due to the increase in sales revenue. The opening, support and
staffing of a European sales office 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 the 1997 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 $1,053,000 for 1998, an increase
of $497,000 or 89.5% compared to the prior year. Research and development
expenses in prior years have been reclassified to conform to the current
presentation.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
1997 Compared to 1996:
Results of operations reflect increases in net sales of $4,506,000 or 31.8%
and operating income (before the 1996 restructuring charge) of $1,202,000 or
151%. Net income of $1,402,000 compares to a net loss of $297,000 after the
restructuring charge reported in 1996 and diluted net income of $.87 per share
compares to diluted net loss of $.19 per share in the prior year.
Net foreign sales amounted to $5,731,000 or 30.7% of net sales, an increase
of $1,341,000 or 30.6% compared to prior year's net foreign sales of $4,390,000.
Net domestic sales amounted to $12,928,000 or 69.3% of net sales, an increase of
$3,165,000 or 32.4% compared to prior year's net domestic sales of $9,763,000.
The increases in net sales were attributable to increased shipments of orders
from a higher order backlog, process improvement initiatives, customer service
focus and reduction of total-cycle-time to market.
Orders increased $3,457,000 or 20.7% to $20,186,000 in 1997 and the backlog
of firm unfilled orders increased $1,527,000 or 18.6% to $9,758,000 at year-end.
As a result of the increases in net sales, cost of sales increased
$1,707,000 or 20.7%. Cost of sales as a percentage of net sales decreased 4.9%
to 53.3% for 1997. The decrease in cost of sales as a percentage of net sales
when compared to the prior year is the result of volume-related improved
efficiencies in the manufacturing cycle, a higher concentration of productive
labor utilized in completing customer orders and a reduction of non-productive
labor associated with training and instruction programs instituted during the
prior year.
Selling, general and administrative expenses increased $1,675,000 or 33.2%,
and as a percentage of net sales increased .4% to 36.0%. Increases in selling
costs were related to higher sales commissions due to increased sales revenues.
General and administrative expenses partially increased due to additional
compensation expenses related to the hiring of additional administrative
personnel and higher compensation expenses resulting from last year's mid-year
merit increases to certain employees. Certain transitional costs associated with
further restructuring and re-engineering also increased selling, general and
administrative expenses.
Research and development expenses for new products were $556,000 for 1997,
an increase of $309,000 or 126% from prior year. The Company settled litigation
relating to a 1992 acquisition claim and obtained a worldwide release for
current and any future claims of any nature arising from the utilization of
acquired technology. The cost of the settlement, including expenses, was
$122,000 and was charged to operations this year.
Liquidity and Capital Resources
The Company had liquid resources comprised of cash and cash equivalents
(including investments in available-for-sale securities) totaling approximately
$1,800,000 compared to approximately $2,400,000 in 1997. The Company's working
capital was approximately $7,400,000 and its current ratio was 3.5 at the end of
1998 compared to $8,700,000 and 4.7, respectively, in 1997.
The Company's operating activities generated cash flows of $2,241,000 in
1998 compared to $1,621,000 in 1997. Primary reasons for the increase in
operating cash flows in 1998 are a decrease in inventories of $1,407,000, which
was partially offset by an increase in accounts receivable of $664,000 as a
result of higher net sales. The Company made net investments in property, plant
and equipment of $3,100,000 in 1998 compared to $1,800,000 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.
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.
-2-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
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 was available at year-end for future borrowing
needs of the Company for working capital and general corporate purposes. The
Company subsequently borrowed $4,500,000 after year-end in connection with the
acquisition of Filtran Microcircuits Inc. on February 25, 1999.
Management believes that with the liquid resources and the remaining 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 1999.
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 1999. The Company has issued purchase order commitments to processing
equipment manufacturing vendors for approximately $300,000 of capital equipment
and building improvements. The Company anticipates that such equipment will be
purchased and become operational and building improvements will be completed
during 1999.
The Company was authorized by the Board on November 1, 1996 to repurchase
up to 110,000 shares (adjusted for the 10% stock dividend) of its common stock,
from time to time, depending on market conditions, and has repurchased
approximately 65,000 shares to date under such authorization. There were 8,000
shares of common stock repurchased during fiscal 1998 and there were no share
repurchases during 1997. In 1999, the Company repurchased 53,000 shares of
common stock at a cost of $329,000.
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. In February 1999, the Company completed the acquisition of
Filtran Microcircuits Inc. for approximately $4,700,000, see Note 15 of Notes to
Financial Statements.
Year 2000 Readiness Disclosure
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 complete Year 2000
compliance before the end of 1999. The Company's manufactured products do not
contain software of any kind and therefore are not subject to Year 2000
problems. All of the Company's existing mission-critical manufacturing software
and financial computer applications were made Year 2000 compliant as of December
31, 1998. Key suppliers have been contacted to obtain their Year 2000 compliance
status and the Company anticipates that these key suppliers will be Year 2000
compliant by December 31, 1999. Software revisions have been 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 the Company's internally developed order
processing and manufacturing support applications would not have been capable of
processing dates beyond December 31, 1999 properly. The Company has corrected
the programs, and all business order processing and manufacturing support
operations applications should properly process dates beyond December 31, 1999.
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.
-3-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Non-Information Technology Systems
Internal systems used in the Company's 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 $60,000 (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
$50,000. 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.
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 are Year 2000 compliant as of 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 customers with respect to Year 2000
readiness and will monitor the progress of its customers 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 Year 2000 compliance program
is on schedule and near completion.
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 believes that the provisions of SFAS 131
are not material to the disclosures made by the Company and additional
disclosures have not been made to the consolidated financial statements.
-4-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Forward-Looking Statements
This Annual Report contains statements relating to future results of the
Company (including certain projections and business trends) that are
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. Actual results may differ materially from those projected as
a result of certain risks and uncertainties. These risks and uncertainties
include, but are not limited to: general economic and industry conditions;
slower than anticipated penetration into the satellite communications, defense
and wireless markets; the risk that the benefits expected from the acquisition
of Filtran Microcircuits Inc. are not realized; competitive products and pricing
pressures; risks relating to governmental regulatory actions in communications
and defense programs; and inventory risks due to technological innovation, as
well as other risks and uncertainties, including but not limited to those
detailed from time to time in the Company's Securities and Exchange Commission
filings. These forward-looking statements are made only as of the date hereof,
and the Company undertakes no obligation to update or revise the forward-looking
statements, whether as a result of new information, future events or otherwise.
-5-
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Years Ended January 2, 1999, January 3, 1998 and December 28, 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------------
<S> <C> <C> <C>
Net sales ........................................... $20,101,835 $18,659,106 $14,152,970
----------------------------------------
Costs and expenses:
Cost of sales .................................... 11,547,529 9,947,774 8,240,639
Selling, general and administrative .............. 6,680,968 6,160,516 4,872,996
Research and development ......................... 1,052,812 555,671 246,178
Restructuring charge ............................. 510,311 1,381,709
----------------------------------------
19,791,620 16,663,961 14,741,522
----------------------------------------
Operating income (loss) ............................. 310,215 1,995,145 (588,552)
Interest and other income, net ...................... 110,085 162,264 97,300
----------------------------------------
Income (loss) before income taxes ................... 420,300 2,157,409 (491,252)
Provision (benefit) for income taxes ................ 80,000 755,000 (194,000)
----------------------------------------
Net income (loss) ................................... $ 340,300 1,402,409 $ (297,252)
========================================
Net income (loss) per common share-basic ............ $.19 $.83 $(.17)
Net income (loss) per common share-diluted .......... $.19 $.79 $(.17)
----------------------------------------
Weighted average number of shares outstanding-basic.. 1,766,120 1,693,363 1,704,140
Weighted average number of shares outstanding-diluted 1,805,212 1,780,173 1,733,067
----------------------------------------
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 10% stock dividend which became effective
June 5, 1998.
</TABLE>
See accompanying notes.
-6-
<PAGE>
CONSOLIDATED BALANCE SHEETS
January 2, 1999 and January 3, 1998
<TABLE>
<CAPTION>
1998 1997
---------------------------
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents .......................................................... $ 1,852,666 $ 2,414,725
Accounts receivable ................................................................ 3,755,131 3,091,287
Inventories ........................................................................ 3,101,256 4,508,569
Income tax refund receivable ....................................................... 413,018 -
Other current assets ............................................................... 357,906 148,203
Deferred tax assets ................................................................ 899,600 919,500
---------------------------
Total current assets ................................................ 10,379,577 11,082,284
---------------------------
Property, plant and equipment, at cost ................................................ 16,539,251 13,856,825
Less accumulated depreciation and amortization ..................................... 10,322,958 9,663,081
---------------------------
Net property, plant and equipment ..................................................... 6,216,293 4,193,744
Deferred tax assets ................................................................... 65,000
Other assets .......................................................................... 319,512 113,776
---------------------------
Total Assets ........................................................ $16,915,382 $15,454,804
===========================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable ................................................................... $1,479,284 $1,141,779
Accrued liabilities ................................................................ 1,499,917 1,193,669
Income taxes payable ............................................................... - 45,825
---------------------------
Total current liabilities ........................................... 2,979,201 2,381,273
Deferred compensation ................................................................. 459,322 375,700
Deferred tax liabilities .............................................................. 54,600 -
---------------------------
Total liabilities ................................................... 3,493,123 2,756,973
---------------------------
Commitments and contingencies
Shareholders' equity:
Common stock, par value $.50 per share;
5,000,000 shares authorized; 2,690,405 and 2,651,131 shares issued ....... ...... 1,345,203 1,325,566
Additional paid-in capital ......................................................... 11,220,873 9,709,244
Retained earnings .................................................................. 8,950,055 10,995,086
---------------------------
21,516,131 22,029,896
Less treasury stock, at cost - 902,549 and 1,074,839 shares ....................... (7,733,872) (9,227,065)
Less loan to officer-shareholder .................................................. (360,000) (105,000)
---------------------------
Total shareholders' equity .......................................... 13,422,259 12,697,831
---------------------------
Total Liabilities and Shareholders' Equity .......................... $16,915,382 $15,454,804
===========================
</TABLE>
See accompanying notes.
-7-
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended January 2, 1999, January 3, 1998 and December 28, 1996
Additional Unrealized
Common Stock paid-in holding Retained Treasury Stock Loan to
Shares Amount capital gain (loss) earnings Shares Amount Shareholder
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 30, 1995 2,549,452 $1,274,726 $8,723,124 $1,900 $10,965,750 920,739 $7,596,617 $
- -----------------------------------------------------------------------------------------------------------------------------------
Net (loss) (297,252)
Exercise of options 36,297 18,149 268,206
Tax benefit - stock options* 14,000
Effect of change in fair value of
available-for-sale securities 4,262
Cash dividends (616,778)
Purchase of common stock 154,100 1,630,448
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 28, 1996 2,585,749 1,292,875 9,005,330 6,162 10,051,720 1,074,839 9,227,065
- -----------------------------------------------------------------------------------------------------------------------------------
Net income 1,402,409
Issuance of stock options 12,000
Exercise of options 65,382 32,691 559,914
Tax benefit - stock options* 132,000
Effect of change in fair value of
available-for-sale securities (6,162)
Cash dividends (459,043)
Loan to shareholder 105,000
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, January 3, 1998 2,651,131 1,325,566 9,709,244 10,995,086 1,074,839 9,227,065 105,000
- -----------------------------------------------------------------------------------------------------------------------------------
Net income 340,300
Issuance of stock options** 53,100
Exercise of options 39,274 19,637 326,811
Tax benefit - stock options* 40,122
Cash dividends (1,009)
Stock dividends 1,008,288 (2,384,322) (160,290) (1,376,026)
Purchase of common stock 8,000 54,525
Sale of common stock 83,308 (20,000) (171,692)
Loan to shareholder 255,000
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, January 2, 1999 2,690,405 $1,345,203 $11,220,873 $8,950,055 902,549 $7,733,872 $360,000
===================================================================================================================================
</TABLE>
* Tax benefit resulting from exercise and disposition of stock options and
subsequent disposition of stock.
** Compensation expense, net of tax effects, from issuance of stock options at
a discount from fair market value.
See accompanying notes.
-8-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended January 2, 1999, January 3, 1998 and December 28, 1996
<TABLE>
<CAPTION>
1998 1997 1996
Cash flows from operating activities: -------------------------------------------
<S> <C> <C> <C>
Net income (loss) ....................................... $ 340,300 $1,402,409 $ (297,252)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization ....................... 1,103,142 953,705 890,859
Loss (gain) on sale of available-for-sale securities (65,006) 17,650
Write-off of intangible assets ...................... 244,500
Deferred compensation ............................... 287,622 238,600 279,100
Deferred income taxes ............................... 88,000 22,000 (473,000)
Stock-based compensation expense .................... 87,400 20,700
Changes in operating assets and liabilities:
Income tax refund receivable ...................... (413,018)
Accounts receivable ............................... (663,844) (1,241,245) 523,139
Inventories ....................................... 1,407,313 (342,751) (245,808)
Other current assets .............................. (209,703) 98,607 (145,595)
Deferred tax assets ............................... 25,313 (8,700)
Other assets ...................................... (205,736) (163,336) (2,178)
Accounts payable .................................. 337,505 391,016 364,460
Accrued liabilities ............................... 154,748 158,789 (32,397)
Income taxes payable .............................. (45,825) 186,325 (331,797)
Deferred compensation ............................. (52,500) (30,000)
-------------------------------------------
Net cash provided by operating activities ................... 2,240,717 1,621,113 791,681
-------------------------------------------
Cash flows from investing activities:
Purchase of capital assets .............................. (3,149,336) (1,805,294) (1,012,259)
Proceeds from sales of capital assets ................... 23,645 5,461 9,071
Proceeds from sales and maturities
of available-for-sale securities ...................... 1,340,454 2,272,070
Purchase of available-for-sale securities ............... (146,152) (1,129,297)
-------------------------------------------
Net cash provided by (used in) investing activities ......... (3,125,691) (605,531) 139,585
-------------------------------------------
Cash flows from financing activities:
Repurchase of common stock .............................. (54,525) (1,630,448)
Proceeds from the issuance of common stock .............. 378,449 592,605 286,355
Payments of dividends ................................... (1,009) (459,043) (616,778)
-------------------------------------------
Net cash provided by (used in) financing activities ......... 322,915 133,562 (1,960,871)
-------------------------------------------
Net increase (decrease) in cash and cash equivalents ........ (562,059) 1,149,144 (1,029,605)
Cash and cash equivalents at beginning of year .............. 2,414,725 1,265,581 2,295,186
-------------------------------------------
Cash and cash equivalents at end of year .................... $1,852,666 $2,414,725 $1,265,581
===========================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes ........................................... $ 390,000 $ 675,000 $ 712,500
===========================================
Supplemental disclosure of non-cash investing activity:
Unrealized holding gain on available-for-sale
securities, less deferred tax provision of $4,200
in 1996 .............................................. $ 4,262
Loan to officer-shareholder ............................ $ 255,000 $ 105,000
===========================================
</TABLE>
See accompanying notes.
-9-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended January 2, 1999, January 3, 1998 and December 28, 1996
1. Summary of significant accounting policies
Principles of consolidation: The financial statements include the accounts
of the Company, Industrias Merrimac Incorporada, S.A. a wholly-owned subsidiary
located in San Jose, Costa Rica, and Merrimac International, Inc. FSC, a
wholly-owned foreign sales corporation. All intercompany accounts have been
eliminated in consolidation.
Cash and cash equivalents: The Company considers all highly liquid
securities with an original maturity of less than three months to be cash
equivalents. The Company maintains cash deposits with banks that at times exceed
applicable insurance limits. The Company reduces its exposure to credit risk by
maintaining such deposits with high quality financial institutions. Because of
their liquidity and short-term maturities, the carrying value of these financial
instruments approximates their fair value.
Use of estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Contract revenues: Sales and related cost of sales under fixed-price
contracts are recorded as deliveries are made. Prior to shipment, manufacturing
costs incurred on such contracts are recorded as work in process inventory.
Anticipated future losses on contracts are charged to income when identified.
Investments: The Company has adopted the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". Available-for-sale securities are carried at quoted
market values. Unrealized gains and losses are included as a separate component
of shareholders' equity. Realized gains and losses, determined using the
specific identification method, are included in income in the period incurred.
Inventories: Inventories are valued at the lower of average cost or market.
Other Comprehensive Income: The Company has determined the components of
other comprehensive income impacting the Company (unrealized gains/losses on
available-for-sale securities, cumulative translation adjustments and minimum
pension liability) are not significant.
Reclassifications: Certain prior-year amounts have been reclassified to
conform with the 1998 presentations.
-10-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended January 2, 1999, January 3, 1998 and December 28, 1996
Depreciation: Depreciation is computed for financial purposes on the
straight-line method, while accelerated methods are used, where applicable, for
tax purposes. The following estimated useful lives are used for financial
statement purposes:
Land improvements ..................................... 10 years
Building .............................................. 25 years
Machinery and equipment ............................... 3 - 10 years
Office equipment, furniture and fixtures............... 5 - 10 years
Assets under construction are not depreciated until the assets are placed
into service. Fully depreciated assets included in property, plant and equipment
at January 2, 1999 and January 3, 1998 amounted to $7,277,000 and $6,818,000,
respectively.
Long-lived assets: The Company applies Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." Under Statement No. 121, impairment losses
on long-lived assets are recognized when events or changes in circumstances
indicate that the undiscounted cash flows estimated to be generated by such
assets are less than their carrying value. Impairment losses are then measured
by comparing the fair value of assets to their carrying amounts.
During 1996, the Company determined that its intangible assets, comprised
primarily of the excess of cost over the fair value of net assets of acquired
businesses, had become impaired and estimated that they would not generate any
significant cash flows in future periods. Accordingly, the carrying value of the
impaired assets of $244,500 was written off in conjunction with certain other
restructuring charges (see Note 12). Prior to such determination, the intangible
assets were being amortized on a straight-line basis over a period of five
years.
Advertising: The Company expenses the cost of advertising and promotions as
incurred. Advertising costs charged to operations were $213,000 in 1998,
$139,000 in 1997 and $150,000 in 1996.
Income taxes: The Company uses the asset and liability method to account
for income taxes. Under this method, deferred tax assets and liabilities are
determined based on temporary differences between financial reporting and tax
bases of assets and liabilities, and are measured using the enacted tax rates
and laws that will be in effect when the differences are expected to reverse.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.
-11-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended January 2, 1999, January 3, 1998 and December 28, 1996
Savings and Investment Plan: The Company's Savings and Investment Plan is a
401(k) plan (the "Plan") that provides eligible employees with the option to
defer and invest up to 16% of their compensation, with 50% of the first 6% of
such savings matched by the Company. The Company's contributions to the Plan
were $167,000 in 1998, $147,000 in 1997 and $142,000 in 1996. The Board of
Directors may also authorize a discretionary amount to be contributed to the
Plan and allocated to eligible employees annually. Amounts contributed to the
Plan were $200,000 in 1997 and $145,000 in 1996. No contribution amount was
authorized for 1998.
Stock-based compensation: Effective December 31, 1995, the Financial
Accounting Standards Board issued Statement No. 123, "Accounting for Stock-Based
Compensation," which permitted the Company to elect to account for stock-based
compensation arising under its stock option and stock subscription plans by
using a fair value based method or continuing to measure compensation expense
using the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees." The Company has
elected to continue using the intrinsic value method and make the pro forma
disclosures required by Statement No. 123 of net income and net income per share
as if the fair value based method of accounting had been applied (see Note 6).
Since the Company generally grants options and rights to subscribe to purchase
shares at or near the market price of the underlying share on the date of grant,
it will not be required to recognize compensation expense as a result of such
grants.
Research and development: Research and development expenditures of
$1,053,000 in 1998, $556,000 in 1997 and $246,000 in 1996 were expensed as
incurred.
Net income (loss) per 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 (loss) per common share. Under the new requirements both basic and
diluted net income (loss) per common share are presented. All prior period net
income (loss) per common share information have been restated.
Basic net income (loss) per common share is calculated by dividing net
income (loss), less dividends on preferred stock, if any, by the weighted
average common shares outstanding during the period.
The calculation of diluted net income (loss) per common share is similar to
that of basic net income (loss) 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
(see Note 6).
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 calender
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.
-12-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended January 2, 1999, January 3, 1998 and December 28, 1996
2. Inventories
Inventories consist of the following:
1998 1997
-------------------------------
Finished goods ....................... $ 607,738 $ 778,675
Work in process ...................... 1,597,215 2,571,426
Raw materials and
purchased parts .................... 896,303 1,158,468
-------------------------------
$3,101,256 $4,508,569
===============================
Total inventories are net of valuation allowances for obsolescence of
$1,501,000 in 1998 and $1,533,000 in 1997.
3. Property, plant and equipment
Property, plant and equipment consists of the following:
1998 1997
--------------------------------
Land and land improvements ............... $ 547,446 $ 547,446
Building ................................. 2,606,225 2,375,680
Machinery and equipment .................. 8,103,055 6,169,081
Office equipment,
furniture and fixtures ................ 5,282,525 4,764,618
------------------------------
$16,539,251 $13,856,825
================================
4. Accrued liabilities
Accrued liabilities consist of the following:
1998 1997
--------------------------------
Commissions .......................... $ 320,064 $ 152,871
Vacation ............................. 78,138 82,969
Savings Plan contribution ............ - 162,204
Employee compensation ................ 176,384 278,382
Warranty reserve ..................... 150,000 150,000
Deferred compensation ................ 263,500 112,000
Other ............................... 511,831 255,243
--------------------------------
$ 1,499,917 $ 1,193,669
================================
5. Line of credit
The Company has a $7,000,000 unsecured bank line of credit agreement with
interest payable at one-half percent below the lending bank's prime rate. There
were no borrowings outstanding under this line of credit agreement or any
previous line of credit agreements as of the end or during any of the last three
fiscal years. (See Note 15. Subsequent events - Acquisition of Filtran
Microcircuits Inc.)
6. Stock option and stock purchase plans
Under the Company's 1993 Stock Option Plan, 324,360 shares of common stock
were initially reserved for issuance. The 1993 Option Plan provides for issuance
of qualified and non-qualified options. The qualified options may not be issued
at less than 100% of the fair market value of the shares on the date of grant
and they may be exercised at any time between one and ten years from the date of
grant. The non-qualified options may be granted to employees at an exercise
price determined by the Stock Option Committee of the Board of Directors which
may not be less than par value. Such options may become exercisable immediately
after the grant and/or at any time before the tenth anniversary of the grant.
-13-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended January 2, 1999, January 3, 1998 and December 28, 1996
The non-qualified options may also be granted to non-employee directors,
provided the option price is at least equal to the closing price on the date the
option is granted. Such options are exercisable after the grant or at any time
before the fifth anniversary of the grant.
In 1997, the Company's Shareholders approved a long-term incentive plan
("LTIP") pursuant to which 275,000 shares of the Company's common stock were
initially reserved for grant to eligible employees. The LTIP provides for
issuance of Incentive Stock Options, Non-qualified Stock Options, Bonus Stock
and Discounted Stock Options. Under this plan, the Company may grant to
employees who hold positions no more senior than mid-level management,
discounted stock options for up to 110,000 shares of common stock, with the
option price per share of common stock to be at least greater than or equal to
50% of the fair market value of the common stock on the date of grant. In 1997
discounted stock options for the purchase of 6,900 shares were granted at
$14.00, a discount of $3.00 below the fair market value at the date of grant.
During 1998 discounted options were granted for the purchase of 10,425 shares at
$9.75, a discount of $1.50 below the fair market value at the date of grant and
7,200 shares at $11.75, a discount of $2.88 below fair market value at the date
of grant. As of January 2, 1999 options for the purchase of 100,390 remain
outstanding of which 11,000 are exercisable.
As of January 2, 1999, options for the purchase of a total of 254,045
shares remained outstanding and exercisable under the 1993 Option Plan, and
options for 12,415 shares were available for future grant. In addition, (i)
qualified options for the purchase of a total of 5,458 shares remained
outstanding and exercisable under the Company's 1983 Key Employee Stock Option
Plan (however, options can no longer be granted under this plan); and (ii)
non-qualified options for the purchase of a total of 33,000 shares remained
outstanding and exercisable as a result of grants by the Board of Directors in
1996 to non-employee directors at fair market value on the date of grant.
A summary of all stock option activity and information related to all
options outstanding follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
average Shares average Shares average Shares
exercise or price exercise or price exercise or price
price per share price per share price per share
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
beginning of year ............... $11.24 289,212 $ 9.76 181,612 $8.90 140,684
Stock dividend adjustment ....... 36,558
Granted ....................... 12.71 96,625 12.32 156,400 10.97 64,500
Exercised ....................... 9.83 (23,800) 9.17 (47,400) 7.82 (20,572)
Cancelled ....................... 10.46 (5,702) 8.67 (1,400) 9.10 (3,000)
- ------------------------------------------------------------------------------------------------------------------
Outstanding at end of year....... 10.66 392,893 11.24 289,212 9.76 181,612
- ---------------------------------------------------------------------------------------------------------------
Exercisable at end of year....... $10.40 303,503 $11.24 282,312 $9.76 181,612
- ------------------------------------------------------------------------------------------------------------------
Option price range at end of year $5.00-$13.64 $5.50-$15.00 $5.50-$11.00
- ------------------------------------------------------------------------------------------------------------------
Weighted average estimated fair
value of options granted during
the year........................ $4.62 $4.71 $1.98
- ------------------------------------------------------------------------------------------------------------------
The approximate weighted average of the remaining contractual life of the
outstanding options at January 2, 1999 was 8.7 years.
</TABLE>
-14-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended January 2, 1999, January 3, 1998 and December 28, 1996
6. Stock option and stock purchase plans (continued)
In 1995, the Company's Shareholders approved a stock purchase plan pursuant
to which 218,320 shares of the Company's common stock were initially reserved
for sale to eligible employees. Under this plan, the Company may grant employees
the right to subscribe to purchase shares of common stock from the Company at
85% of the market value on specified dates and pay for the shares through
payroll deductions over a period of up to 27 months.
A summary of stock purchase plan subscription activity is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
average Shares average Shares average Shares
exercise or price exercise or price exercise or price
price per share price per shares price per share
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Subscribed,
beginning of year ........ $9.93 16,056 $8.66 18,274 $7.30 16,932
Subscribed ................ 11.03 16,308 10.09 17,923 9.46 18,649
Stock dividend adjustment . 2,626
Purchased ................. 7.61 (15,474) 8.82 (17,982) 7.98 (15,725)
Cancelled ................. 9.84 (7,710) 9.70 (2,159) 8.70 (1,582)
- ----------------------------------------------------------------------------------------------------------------
Subscribed at end of year.. $11.38 11,806 $9.93 16,056 $8.66 18,274
- ----------------------------------------------------------------------------------------------------------------
Subscription price
range, end of year $9.18-$11.03 $9.46-$10.09 $6.69-$9.46
- ----------------------------------------------------------------------------------------------------------------
Weighted average estimated
fair value of rights granted
during the year ........ $4.29 $3.75 $3.10
- ----------------------------------------------------------------------------------------------------------------
-15-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended January 2, 1999, January 3, 1998 and December 28, 1996
6. Stock option and stock purchase plans (continued)
</TABLE>
The weighted average remaining contractual life of an outstanding stock
subscription at January 2, 1999 was approximately one year.
As explained in Note 1, the Company has adopted the disclosure-only
provisions of Statement No. 123. Accordingly, no earned or unearned compensation
cost was recognized in the accompanying consolidated financial statements for
stock options and stock purchase plan subscription rights granted in 1997 and
1996, except for the discounted stock options granted in 1998 and 1997.
The table below sets forth the pro forma net income (loss) and the pro
forma diluted net income (loss) per share information as calculated in
accordance with Statement No. 123.
<TABLE>
1998 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) - as reported ............... $340,300 $1,402,409 $(297,252)
Net income (loss) - pro forma ................. 63,400 1,212,409 (495,252)
- -------------------------------------------------------------------------------------------
Net income (loss) per share - as reported ...... $.19 $.79 $(.17)
Net income (loss) per share - pro forma ........ $.04 $.68 $(.29)
- -------------------------------------------------------------------------------------------
The Statement No. 123 method of accounting has been applied to options
granted in periods after December 31, 1994 and the resulting pro forma
compensation expense may not be indicative of pro forma expense in future years.
</TABLE>
The fair value of each of the options and purchase plan subscription rights
granted in 1998, 1997 and 1996 was estimated on the date of grant using the
Black-Scholes option valuation model. For 1998, the following weighted average
assumptions were utilized: no dividend yield; expected volatility of 35%; a risk
free interest rate of 5.5%; and expected lives of five years. For 1997, the
following weighted average assumptions were utilized: no dividend yield;
expected volatility of 30%; a risk free interest rate of 6%; and expected lives
of five years. For 1996 and 1995, the following weighted average assumptions
were utilized: dividend yield of 3.4%; expected volatility of 25%; a risk free
interest rate of 6%; and expected lives of two years. However, the Black-Scholes
option valuation model was developed for use in estimating the fair value of
traded options, which have no vesting restrictions and are fully transferable.
In addition, option valuation models require the input of highly subjective
assumptions including the expected stock price volatility. Because the Company's
employee stock options and subscription rights have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options and subscription
rights.
-16-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended January 2, 1999, January 3, 1998 and December 28, 1996
7. Income taxes
The provision (benefit) for income taxes consists of the following
components:
1998 1997 1996
Current tax provision (benefit): ---------------------------------------
Federal ......................... $ 1,000 $ 569,000 $ 214,000
State ........................... (9,000) 164,000 65,000
---------------------------------------
(8,000) 733,000 279,000
---------------------------------------
Deferred tax provision (benefit):
Federal ......................... 63,000 17,000 (369,000)
State ........................... 25,000 5,000 (104,000)
---------------------------------------
88,000 22,000 (473,000)
---------------------------------------
Provision (benefit) for income taxes. $80,000 $ 755,000 $(194,000)
=======================================
Temporary differences which gave rise to a significant portion of deferred
tax assets and liabilities at January 2, 1999 and January 3, 1998 are as
follows:
1998 1997
-----------------------
Current deferred tax assets:
Inventory valuation allowance ................... $600,500 $685,000
Capitalized inventory costs ..................... 45,200 87,100
Warranty cost ................................... 64,500 64,500
Deferred compensation ........................... 113,300 12,900
Other* .......................................... 76,100 70,000
-----------------------
899,600 919,500
-----------------------
Non-current deferred tax assets:
Deferred compensation ........................... 197,500 196,800
Non-current deferred tax liabilities:
Depreciation and amortization ................... (177,600) (45,000)
State income taxes .............................. (74,500) (86,800)
-----------------------
(54,600) 65,000
-----------------------
Net deferred tax assets .................... $845,000 $984,500
=======================
* Other includes $72,300 for restructuring charges in
1998
-17-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended January 2, 1999, January 3, 1998 and December 28, 1996
7. Income taxes (continued)
The statutory federal income tax rate is reconciled to the effective tax
rate computed by dividing the provision (benefit) for income taxes by income
(loss) before income taxes as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------
<S> <C> <C> <C>
Statutory rate ....................................... 34.0% 34.0% (34.0)%
Effect of:
State income tax, net of federal income tax effects 2.5 5.2 (5.2)
Tax exempt dividends and interest ................. (.5) (6.2)
Foreign sales corporation income .................. (12.9) (2.7) (3.3)
Foreign subsidiary (income) loss ................. (2.3) 7.6
Research and development credits .................. (4.9) (.8)
Other ............................................. 2.6 (.2) 1.5
---------------------------------
Effective tax rate ................................... 19.0% 35.0% (39.6%)
=================================
</TABLE>
8. Cash dividends
During the first three quarters of fiscal 1997, and in each of the four
quarters of fiscal 1996 the Company paid a $.091 per share dividend (previously
$.10 per share, adjusted for the 10% stock dividend in May 1998). The dividend
was eliminated by a decision of the Board of Directors on August 28, 1997.
9. Stock dividend
The Board announced on May 5, 1998, the declaration of a 10% stock dividend
payable on June 5, 1998 to shareholders of record on May 15 1998. Fractional
shares were cashed-out and payments were made to shareholders in lieu of
fractional shares on June 5, 1998. The basic diluted weighted average number of
shares of outstanding and net income per share information for all prior
reporting periods have been restated to reflect the effects of the stock
dividend.
10. Nature of business
Management considers the Company to be in one business segment: the design,
manufacture and sale of electronic devices offering extremely broad frequency
coverage and high performance characteristics. The Company primarily sells to
customers in the communications, defense and aerospace industries.
Foreign sales amounted to approximately $5,114,000 in 1998, $5,731,000 in
1997 and $4,390,000 in 1996. Sales to any one foreign country did not exceed 10%
of net sales for 1998, 1997 or 1996. Sales to Hughes Aircraft in 1998 were 10.9%
of net sales and sales to Lockheed Martin in 1998, 1997 and 1996 amounted to
10.0%, 13.4% and 10.8% of net sales, respectively.
-18-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended January 2, 1999, January 3, 1998 and December 28, 1996
Accounts receivable are financial instruments that expose the Company to a
concentration of credit risk. A substantial portion of the Company's accounts
receivable are from customers in the defense industry, and 51.6% of its
receivables at January 2, 1999 were from five customers. Exposure to credit risk
is limited by the large number of customers comprising the remainder of the
Company's customer base, their geographical dispersion and by ongoing customer
credit evaluations performed by the Company.
<TABLE>
11. Net income (loss) per common share
The following table summarizes the calculation of basic and diluted net
income (loss) per common share for 1998, 1997 and 1996:
<S>
1998 1997 1996
----------------------------------------
Numerator: <C> <C> <C>
Net income (loss) available to common shareholders ......................... 340,300 $1,402,409 $(297,252)
- ------------------------------------------------------------------------------------------------------------------------
Denominator:
Weighted average shares outstanding for basic net income (loss) per share .. 1,766,120 1,693,363 1,704,140
Effect of dilutive securities - stock options 39,092 86,810 28,927
- ------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding for diluted net income (loss) per share. 1,805,212 1,780,173 1,733,067
- ------------------------------------------------------------------------------------------------------------------------
Net income (loss) per share - basic ........................................ $.19 $.83 $(.17)
Net income (loss) per share - diluted ...................................... $.19 $.79 $(.17)
- ------------------------------------------------------------------------------------------------------------------------
At January 2, 1999, there were 111,415 stock options outstanding excluded
from the calculation of dilutive securities because the exercise prices of the
options were greater than the average market value of the common shares.
</TABLE>
12. Commitments and contingencies
Lease commitments:
The Company leases real estate and equipment under operating leases
expiring at various dates through December 2002. The leases include provisions
for rent escalation, renewals and purchase options, and the Company is generally
responsible for taxes, insurance, maintenance and repairs. Aggregate rental
expense charged to operations amounted to $120,000 in 1998 and $54,000 in 1997.
Rental expense in 1996 was not material. Future minimum lease payments under
noncancellable operating leases with an initial term exceeding one year are as
follows:
1999 122,000
2000 100,000
2001 106,000
2002 113,000
Purchase obligations:
The Company has issued purchase order commitments to processing equipment
manufacturing vendors for approximately $300,000 of capital equipment and
building improvements. The Company anticipates the equipment will be purchased
and become operational during 1999.
Employment, retirement and consulting agreements; deferred compensation:
The Company is party to an employment agreement with its Chairman,
President and Chief Executive Officer that provides him a minimum annual salary
of $240,000. The initial term of the agreement ends on December 31, 2002 and
automatically renews for successive twelve-month periods thereafter unless
terminated pursuant to the terms of the agreement.
-19-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended January 2, 1999, January 3, 1998 and December 28, 1996:
The Company is party to a retirement agreement with its former Vice
Chairman and Chief Technology Officer which became effective on December 31,
1998. Pursuant to the retirement agreement, such former officer, who received an
initial payment of $151,700 in 1998 and a payment of $185,500 in January 1999,
will receive a final payment of $185,500 in January 2000. In addition, the
agreement provides for the continuation of certain ongoing benefits, including
health benefits until December 2009.
The Company is party to a retirement agreement with a former Vice
President, which initial term ends February 2001 and automatically renews for
successive twelve-month periods thereafter unless otherwise terminated pursuant
to the terms of the agreement. The agreement provides for minimum payments of
$24,000 per year and includes health and other certain benefits.
The Company entered into a consulting agreement on January 1, 1998 with a
director of the Company who is also the beneficial owner of more than 10% of the
Company's Common Stock. The term of the consulting agreement, which initially
ended on January 1, 1999, automatically renews for successive twelve-month
periods until terminated pursuant to the terms of the agreement. The consulting
agreement provides this director with an annual fee of $36,000 for his services.
The Company is party to a shareholder's agreement dated as of October 30,
1998 with a former director and Chairman of the Company who is also a beneficial
owner of more than 5% of the Company's Common Stock. Pursuant to the
shareholder's agreement, this former director provides the Company with
consulting services for a fee of $5,000 per month. The term of the consulting
agreement expires October 2001, unless earlier terminated in accordance with the
terms of the shareholder's agreement.
The Company is party to a retirement agreement effective January 1997, with
its former Vice President, Secretary and Controller, that provides him with
annual payments of $30,000 for ten years.
In connection with certain retirement agreements described above, the
Company recognized deferred compensation expense of approximately $288,000 in
1998, $239,000 in 1997 and $279,000 in 1996. The Company accrues the present
value of the estimated future payments over the periods of the projected term of
each of the respective agreements. The minimum benefits payable in 1999 are
estimated to be $264,000 and the present value of the estimated future
consulting and retirement benefits payable beyond 1999 and accrued as of January
2, 1999 is approximately $459,000.
Litigation:
The Company is a party to lawsuits, both as a plaintiff and a defendant,
arising from the normal course of business. It is the opinion of management,
that the disposition of these various lawsuits will not have a material adverse
effect to the consolidated financial position or results of operations of the
Company.
13. Restructuring and related charges
Because of the current weakness in orders for its products, the Company
announced a reduction of its workforce and offered early retirement packages to
certain employees during the fourth quarter of 1998. The restructuring charge
for 1998 was $510,000, and charges net of tax benefits of $327,000 or $.18 per
share, as a result of the reduction in workforce and voluntary early
retirements affecting fourteen persons.
The restructuring of engineering responsibilities and its attendant refocus
of product lines during 1996 impacted the valuation of inventories. An
additional review by management of inventories, certain intangibles arising from
acquired product designs, a non-compete agreement and deferred compensation for
a retiring senior officer resulted in aggregate charges of $1,382,000, and
charges net of tax benefits of $829,000 or $ .52 per share, to operations in
1996.
-20-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended January 2, 1999, January 3, 1998 and December 28, 1996:
The Company initially recognized aggregate restructuring charges of
$1,822,000 in the third quarter of 1996 and charges, net of tax benefits, of
$1,093,000. The Company reduced its estimate of the total charges by $145,000
and reclassified charges of $295,000 to cost of sales and selling, general and
administrative expenses in the fourth quarter of 1996.
14. Transactions with management and loan to shareholder
On May 4, 1998, the Company sold 20,000 (22,000 after giving effect to the
Company's 10% stock dividend) shares of Common Stock from its treasury to Mason
N. Carter, Chairman, President and Chief Executive Officer of the Company, at a
price of $12.75 per share (the approximate average closing price of the
Company's Common Stock during the first quarter of 1998). The Company extended
Mr. Carter a loan of $255,000 in connection with the purchase of these shares
and amended a prior loan to Mr. Carter of $105,000. A new promissory note for a
total of $360,000, due May 4, 2003, was executed by Mr. Carter in favor of the
Company. Payment of the loan is secured by a pledge of the 33,000 shares of
Common Stock purchased by Mr. Carter with the proceeds of the loans. The Company
has recorded compensation expense of $52,000 which is being charged to
operations over the one-year period commencing on the date of the transaction,
as Mr. Carter is expected to perform services throughout this time period. The
sale of these shares of Common Stock was exempt from registration under the
Securities Act of 1933, as amended, as a transaction not involving a public
offering under Section 4(2) of Act.
15. Subsequent events
Acquisition of Filtran Microcircuits Inc.
On February 25, 1999 the Company completed the previously announced
acquisition of all of the outstanding stock of privately-held Filtran
Microcircuits Inc. ("FMI") of Ottawa, Ontario, Canada, a manufacturer of
microwave micro circuitry. FMI, which had 1998 sales of approximately $3.2
million, is a leading manufacturer of microwave micro circuitry. The purchase
price was approximately $4.7 million, including the assumption of approximately
$500,000 existing indebtedness, and was financed by utilizing an existing unused
credit facility. The acquisition will be accounted for as a purchase and,
accordingly, the purchase price will be allocated to the underlying assets and
liabilities based on their estimated fair values at the date of the acquisition,
with the excess, which approximates $3.0 million, recorded as goodwill.
Shareholder Rights Plan
On March 5, 1999, the Board of Directors of the Company approved a
shareholder rights plan and declared a dividend of one common share purchase
right (a "Right") for each outstanding share of Common Stock of the Company. The
dividend is payable on March 19, 1999 (the "Record Date") to the shareholders of
record as of the close of business on that date. Each Right will entitle the
holder to purchase from the Company, upon the occurrence of certain events, one
share of Common Stock for $25.00.
Generally, if any person or group acquires beneficial ownership of 10% or
more of the Company's outstanding Common Stock, each Right (other than Rights
held by such acquiring person or group) will be exercisable, at the $25.00
purchase price, for a number of shares of Common Stock having a market value of
$50.00. Upon an acquisition of the Company, each Right (other than Rights held
by the acquiror) will generally be exercisable, at the $25.00 purchase price,
for a number of shares of common stock of the acquiror having a market value of
$50.00. In certain circumstances, each Right may be exchanged by the Company for
one share of Common Stock. The Rights will expire on March 19, 2009, unless
earlier exchanged or redeemed at $0.01 per Right.
END OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-21-
<PAGE>
Summarized quarterly unaudited financial data reported for 1998 and 1997
follows:
<TABLE>
<CAPTION>
1998 April 4 July 4 October 3 January 2
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales ............................. $5,792,607 $5,573,659 $5,120,946 $3,614,623
Gross profit .......................... 2,574,755 2,541,932 2,268,970 1,168,649
Net income (loss) ..................... 427,546 408,842 247,803 (743,891)
- -------------------------------------------------------------------------------------------------------
Net income per (loss) share - basic ... $.25 $.23 $.14 $(.42)(A)
Net income per (loss) share - diluted . $.24 $.22 $.14 $(.42)(A)
- -------------------------------------------------------------------------------------------------------
1997 March 29 June 28 September 27 January 3
- -------------------------------------------------------------------------------------------------------
Net sales ............................. $4,275,155 $4,986,288 $4,983,793 $4,413,870
Gross profit .......................... 1,900,048 2,385,205 2,249,174 2,176,905
Net income ............................ 277,746 378,100 350,015 396,548
- -------------------------------------------------------------------------------------------------------
Net income per share - basic........... $.17 $.23 $.21 $.23
Net income per share - diluted......... $.16 $.22 $.19 $.22
- -------------------------------------------------------------------------------------------------------
(A) Reflects the effects of a restructuring charge of $510,000 (see Note 12)
which reduced net income by $327,000 or $.18 per share for the fourth
quarter and fiscal 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 10% stock dividend which became
effective June 5, 1998.
</TABLE>
QUARTERLY COMMON STOCK DATA
<TABLE>
<CAPTION>
1998 1997
----------------------------------------------------------------------
Quarter 1st 2nd 3rd 4th 1st 2nd 3rd 4th
Market price per share: ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High ....... 9 3/4 15 7/8 13 15/16 9 7/8 $10 7/8 11 7/8 18 18 1/16
Low ........ 9 3/16 13 7 7/8 6 3/8 9 3/4 9 3/16 11 10
----------------------------------------------------------------------
</TABLE>
The common stock of the Company is listed on the American Stock Exchange
and trades under the symbol MRM.
The market price per share information is provided with regard to the high
and low bid prices of the common stock of the Company during the periods
indicated.
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 10% stock dividend which became effective June 5,
1998.
-22-
SUBSIDIARIES OF MERRIMAC INDUSTRIES, INC. (the "Company")
Percentage owned
NAME Jurisdiction of Organization by the Company
---- ---------------------------- ----------------
1. Merrimac International, Virgin Islands,
Inc., FSC U.S.A. 100%
2. 508790 N.B. Inc. Province of 100%
New Brunswick, Canada
3. Filtran Microcircuits Inc. Province of 100%
New Brunswick, Canada
4. Industrias Merrimac
Incorporada, S.A. Costa Rica 100%
-1-
Exhibit 23(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report to Merrimac Industries, Inc. included in this Form 10-KSB, into
the Company's previously filed Registration Statements on Form S-8 (File Nos.
333-36795, 333-36199, 33-68862, 333-09633 and 2-86405.)
/s/ ARTHUR ANDERSEN LLP
------------------------
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 30, 1999
-1-
Exhibit 23(b)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in (i) the Registration
Statement on Form S-8 (No. 33-68862) pertaining to the 1993 Stock Option Plan,
(ii) the Registration Statement on Form S-8 (No. 333-09633) pertaining to the
1995 Stock Purchase Plan, (iii) the Registration Statement on Form S-8 (No.
2-86405) pertaining to the 1983 Key Employees Stock Option Plan, (iv) the
Registration Statement on Form S-8 (No. 333-36795) pertaining to the Long-Term
Incentive Plan and (v) the Registration Statement on Form S-8 (No. 333-36199)
pertaining to the Stock Option Plan for Non-Employee Directors, which were
previously filed by Merrimac Industries, Inc. (the "Company"), of our report on
the consolidated financial statements of the Company and its subsidiaries, dated
February 18, 1997, which report appears elsewhere in this Annual Report on Form
10-KSB for the fiscal year ended January 2, 1999.
/s/ J.H. Cohn LLP
-----------------
J.H. Cohn LLP
Roseland, New Jersey
March 29, 1999
-1-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-2-1999
<PERIOD-END> JAN-2-1999
<CASH> 1,852,666
<SECURITIES> 0
<RECEIVABLES> 3,755,131
<ALLOWANCES> 0
<INVENTORY> 3,101,256
<CURRENT-ASSETS> 10,379,577
<PP&E> 16,539,251
<DEPRECIATION> 10,322,958
<TOTAL-ASSETS> 16,915,382
<CURRENT-LIABILITIES> 2,979,201
<BONDS> 0
0
0
<COMMON> 1,345,203
<OTHER-SE> 12,077,056
<TOTAL-LIABILITY-AND-EQUITY> 16,915,382
<SALES> 20,101,835
<TOTAL-REVENUES> 20,101,835
<CGS> 11,547,529
<TOTAL-COSTS> 11,547,529
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 420,300
<INCOME-TAX> 80,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 340,300
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
