FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-11668
INRAD, Inc.
(Exact name of registrant as specified in its charter)
New Jersey 22-2003247
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
181 Legrand Avenue, Northvale, NJ, 07647
(Address of principal executive offices) (Zip Code)
(201) 767-1910
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act: None
Title of each class Name of each exchange on
which registered
-------------------------- ----------------------------
-------------------------- ----------------------------
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 Per Share
(Title of class)
- --------------------------------------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No __.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X]
Aggregate market value of the registrant's Common Stock, par value $0.01
per share, held by non-affiliates as of March 8, 1996 was approximately $96,000.
Common shares of stock outstanding as of March 8, 1996:
2,106,571 shares
<PAGE>
INRAD, INC.
INDEX
Page
Part I
Item 1. Business........................................................1
Item 2. Properties......................................................7
Item 3. Legal Proceedings...............................................7
Item 4. Submission of Matters to a Vote
of Security Holders.............................................7
Part II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters.................................8
Item 6. Selected Financial Data.........................................9
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of
Operations......................................................9
Item 8. Financial Statements
and Supplementary Data.........................................15
Item 9. Changes In and Disagreements
With Accountants On Accounting
and Financial Disclosure.......................................15
Part III
Item 10. Directors and Executive Officers
of the Registrant..............................................16
Item 11. Executive Compensation.........................................18
Item 12. Security Ownership of Certain
Beneficial Owners and Management...............................18
Item 13. Certain Relationships
and Related Transactions.......................................20
Part IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K.............................21
Signatures...................................................................23
Note: Page F-1 follows Page 23.
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PART I
Item 1. Business.
INRAD, Inc., (the "Company" or "INRAD"), incorporated in New Jersey in
1973, designs, develops, manufactures and markets crystals and products
incorporating crystals which are used primarily for controlling and augmenting
laser radiation. These products, which represent INRAD's core business, are
designed either for incorporation by original equipment manufacturers in their
lasers and laser systems, for use by scientists and engineers in their research
and development with lasers, or as stand-alone subsystems or instruments for
general use with lasers. These products are sold under the INRAD trademark,
which has been registered in the United States Patent Office.
In order to effectively utilize lasers, it is often necessary to control,
modify, or augment the laser beam. The Company's products perform these
functions with lasers which are currently being used in communications,
medicine, surveying, military range finding and target illumination, materials
processing, color separation, printing and a wide variety of research
applications, including applications in laser fusion, isotope separation and
spectroscopy.
INRAD also manufactures precision optics and optical assemblies for its
customers. Most of these optics are supplied with reflective and antireflective
optical coatings produced in INRAD's Thin Film Department.
INRAD's company-funded research and development program is supplemented by
federally funded R&D grants and contracts in technical areas related to INRAD's
core business.
Products
The Company's products include: crystals; crystal components such as
Q-switches, polarizers, waveplates and rotators; integrated systems such as
harmonic generators, electronic devices for laser components and laser
pulsewidth measuring instruments; and opto-mechanical assemblies and optical
components. The Company sells crystals as blanks or as precision polished
elements. Wherever possible, the Company emphasizes the manufacture and sale of
its components, integrated systems, and instruments that incorporate its own
crystals. The Company also performs research and development for industry and
government in the area of crystal and laser technology.
The following table illustrates the Company's sales for each major
category of its product line during the past three years:
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<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1995 1994 1993
-----------------------------------------------------------------------
Category Sales % Sales % Sales %
- -------- ----- - ----- - ----- -
$ $ $
<S> <C> <C> <C> <C> <C> <C>
Crystals 986,194 18 1,265,642 21 990,958 16
Crystal Components 2,277,565 42 2,312,372 39 2,212,894 35
Systems &
Instruments 1,083,670 20 1,415,702 24 1,876,846 30
Contract Research &
Development 1,084,609 20 1,002,203 16 1,164,076 19
---------- --- ---------- --- ---------- ---
TOTAL $5,432,038 100 $5,995,919 100 $6,244,774 100
========== === ========== === ========== ===
</TABLE>
Although the growth of crystals, including new crystals grown at high
temperatures, will continue to be an integral part of the Company's business,
the Company believes that laser manufacturers and users will increase their
demand for components, systems and computer-based instruments more rapidly than
they will increase their demand for unpackaged crystals. The Company's
manufacturing and marketing efforts are being directed to this anticipated
change in demand.
Products Manufactured by the Company
Single Crystals
The Company produces, by various techniques, some 38 types of crystals
which, because of their purity, internal structure, and high perfection have
unique optical, electronic or electro-optical properties. Crystals are a form of
solid matter having a regular internal structure, with atoms and molecules
arranged in a precise way to form a solid internal pattern that repeats itself
over and over again in all directions.
Crystal Components
Electro-optic and nonlinear crystal devices can alter the intensity,
polarization or wavelength of a laser beam. The Company has developed and
manufactures a line of Q-switches, harmonic generators, and associated
electronics. These devices are sold individually to scientists throughout the
world as well as on an OEM basis to laser manufacturers.
Harmonic Generation Systems and Instruments
Harmonic generation systems enable the users of lasers to convert the
fundamental frequency of the laser to another frequency required for a specific
end use. A harmonic, which is a multiple of the fundamental frequency, is
obtained by passing a laser beam through a suitable nonlinear crystal. Harmonic
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generators are also used to mix the output frequency of one laser with that of
another laser to produce a different frequency. Harmonic generators are
presently useful in spectroscopy, lithography, semiconductor processing, optical
data storage and scientific research.
Following the development of microprocessor-based tunable lasers, which
automatically produce a range of frequencies, the Company developed a product
called the Autotracker. When used in conjunction with these lasers, the
Autotracker automatically generates tunable ultraviolet light for use in
spectroscopic applications.
An Infrared Autotracker was then designed to cover the wavelength region
from 1.5 to 4.5 microns. Further product developments are planned to extend the
wavelength region of tunability to 11 microns using a group of new crystals now
being developed and grown at INRAD. In 1991, the Company introduced an
Autotracker specifically designed to work with Titanium Sapphire lasers. These
lasers are an advance in solid state tunable sources and are now being marketed
by many major laser manufacturers.
In 1994, the Company introduced a new harmonic generator for use with
ultrafast lasers having pulsewidths in the femtosecond and picosecond ranges.
The product is sold on an OEM basis to the world's largest manufacturer of
ultrafast lasers.
The Company has developed and produces a line of Autocorrelators which can
measure extremely short laser pulses. Accurate measurement of pulsewidth is
important in studies of chemical and biological reactions, as well as in the
development of high speed electronics, ultrafast lasers and laser diodes for
communications. The Model 5-14LD Autocorrelator is capable of measuring laser
pulsewidths from 100 femtoseconds to 75 picoseconds from any type of laser
system, and has the highest sensitivity of any commercial autocorrelator. The
Model 5-14BX Autocorrelator can measure in real time the pulsewidth of high
repetition rate lasers. By using a combination of precision mechanical and
optical engineering in conjunction with a computer interface, this
autocorrelator is ideal for setting up and monitoring fast and ultrafast lasers.
Precision Optics
The Company also produces a line of precision optical components used in
laser and other optical systems. These include lenses, windows, polarizers,
retardation plates, Brewster windows, attenuation systems, rotators and gimbal
mounts.
Optical Coatings
In order to meet performance requirements, most optical components require
thin film coatings on their surfaces. Depending on the design, optical coatings
can refract, reflect, or transmit specific wavelengths. INRAD uses computerized
coating equipment and has built its coating facility within a temperature and
humidity controlled clean room.
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The Company's coating facility produces a wide variety of sophisticated
coatings on many different substrates for use in its own products, as well as
for customers who purchase coated optics manufactured by the Company to their
specifications.
Research and Development
The Company's research and development activities currently focus on
developing new proprietary products as well as new end uses for its existing
products. The Company is primarily engaged in research on crystal growth,
harmonic generation, and electro-optics. This combination allows the Company to
introduce new products based on crystals developed within the Company. A staff
of 13 scientists and engineers, including 4 at the Ph.D. level, enables the
Company to develop new crystals, devices and instruments and also to participate
in sponsored research.
Company-funded research expenditures during the years ended December 31,
1995, 1994, and 1993 were $305,626 (7.0% of net product sales), $365,856 (7.3%),
and $315,006 (6.2%), respectively.
In 1990 the Company established a Federal Research and Development Program
Group in order to augment its own funded R&D efforts. This group actively seeks
government support in technical areas in which the Company has expertise, and
has promise for the development of new commercial products in which the
government has requirements. Scientific, manufacturing and support personnel
from within the Company are assigned to the Federal R&D Group to carry out
government funded programs.
The Federal R&D Programs Group has been particularly successful in winning
awards under the Federal Small Business Innovative Research (SBIR) Program.
These programs have led to several inventions and the Company has been awarded
five U.S. patents, has filed several patent applications and is preparing
additional applications. The Company is seeking strategic partners to
commercialize the technologies developed from these programs.
During 1995, 1994 and 1993, the Company was awarded funded R&D programs
totalling approximately $316,000, $573,000 and $1,871,000, respectively. The
programs range in duration from six to twenty-four months. All programs are
monitored for technical accomplishments and are subject to final audit by the
sponsoring government agency or its designated audit agency.
Revenues from contract research and development were $1,084,609, $1,002,203
and $1,164,076 during the years ended December 31, 1995, 1994, and 1993,
respectively. The Company expects to continue to actively seek new
government-sponsored programs as well as joint programs with certain of its
customers in technical areas related to its core business.
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Markets
In 1995, 1994 and 1993 the Company's domestic product sales were made to
end users in the following market areas:
Market 1995 1994 1993
------ ---- ---- ----
Industrial 67% 45% 42%
Universities 7% 10% 19%
National Laboratories 9% 7% 12%
Government 17% 38% 27%
--- --- ---
Total Domestic 100% 100% 100%
=== === ===
In recognition of the sharp reductions in the U.S. defense budgets, the
Company has refocused its marketing strategy to place a greater emphasis on
industrial, medical and scientific applications. This change in emphasis has
resulted in a larger percentage of sales to industrial users in 1995.
The Company does not have similar information about the end use of products
sold abroad. Foreign sales accounted for 19% of total product sales in 1995, 24%
in 1994, and 26% in 1993. Worldwide, the Company has approximately 250
customers, one of which accounted for 12% and 16% of net product sales in 1994
and 1993, respectively. No foreign customer accounted for more than 10% of net
product sales in 1995. Additionally, three U.S. customers each accounted for
more than 10% of net product sales in 1995, and two customers each accounted for
more than 10% of net product sales in 1994. No domestic customer accounted for
more than 10% of net product sales in 1993.
Long-Term Contracts
Certain of the Company's orders from customers provide for periodic
deliveries at fixed prices over a period which may be greater than one year. In
such cases the Company attempts to obtain firm price commitments from its raw
material suppliers for the materials necessary to fulfill the order.
Marketing
The Company markets its products domestically through its own sales staff,
supervised by the Vice President - Marketing and Sales. Independent sales agents
are used in major overseas markets, including Canada, Europe and the Far East.
The current sales staff consists of four employees. The Company plans,
subject to availability of resources, to implement a significant sales and
marketing program in 1996, including additional sales staff, increased
advertising and trade show participation, development of additional marketing
materials, and greatly increased contact with existing and potential customers.
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Backlog
The Company's order backlog as of December 31, 1995 included approximately
$1,470,000 of product orders and $413,000 of contract R&D, most of which is
scheduled to be completed in 1996. On December 31, 1994, the backlog included
$1,116,000 of product orders and $1,223,000 of contract R&D.
Competition
The Company believes that there are relatively few companies which offer
the wide range of products sold by the Company. Within each product category,
however, there is competition. Although price is a principal factor in certain
product categories, the principal means of competition in most product
categories are product design, performance and quality. Based on its performance
to date, the Company believes that it can compete successfully in terms of
price, product design, product performance and quality, although no assurances
can be given in this regard.
Employees
As of December 31, 1995, the Company had 52 full-time employees. The
Company provides health, dental, disability and life insurance, a 401(k) plan,
sick leave and paid holidays and vacations to its employees and has paid
year-end bonuses to employees in certain years. None of its employees are
covered by a collective bargaining agreement. The Company believes that its
relations with its employees are good.
Patents and Licenses
The Company holds United States patents for: a chemical process involving
the use of zeolites for regioselective photochlorination; a composite membrane
for the photochemical degradation of organic contaminants in ground water; a
chemical process for selective functionalization of fullerenes; and a unique
chemical reactor. The Company is seeking strategic partners to commercialize the
technologies patented by INRAD.
Although the Company has relied in the past on its manufacturing and
technological expertise, rather than on any patents, to maintain its position in
the industry, it is now additionally seeking patent protection for inventions
resulting from its research programs. The Company takes precautionary and
protective measures to safeguard its design, technical and manufacturing data
and relies on nondisclosure agreements with its employees to protect its
proprietary information.
Regulation
Foreign sales of certain of the Company's products may require export
licenses from the United States Department of Commerce. Such licenses are
generally available to all but a limited number of countries.
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Although the manufacture, sale and use of lasers are subject to extensive
federal and state regulations which indirectly affect the Company, there are no
federal regulations nor any unusual state regulations which directly affect the
manufacture or sale of the Company's products other than those which generally
affect companies engaged in manufacturing operations in New Jersey.
Sales in the European Community for electronic instruments require EC
certification; the Company is now engaging in obtaining such certification.
Item 2. Properties.
The Company occupies approximately 31,000 square feet of space located at
181 Legrand Avenue, Northvale, New Jersey pursuant to a net lease expiring on
October 31, 1996. The Company has an option to renew the lease for two
additional terms of five years each. The 1995 annual rent was approximately
$298,000. The Company also paid real estate taxes and insurance premiums which
aggregated approximately $59,000 during 1995.
Item 3. Legal Proceedings.
There is no material litigation pending against the Company as of the date
hereof.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
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PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
(a) Market Information.
The Company's common stock, par value $.01 per share, is traded in the OTC
Bulletin Board under the symbol INRD.
The following table sets forth the range of selling prices for the Common
Stock in each fiscal quarter from the quarter ended March 31, 1994, through the
quarter ended December 31, 1995 as reported by the National Association of
Securities Dealers NASDAQ System:
Sales Price
-----------
High Low
---- ---
Quarter ended March 31, 1995 ........................ 1/2 1/2
Quarter ended June 30, 1995 ......................... 3/4 3/8
Quarter ended September 30, 1995 .................... 3/4 3/8
Quarter ended December 31, 1995 ..................... 3/4 3/8
Quarter ended March 31, 1994 ........................ 1 5/8 1 1/4
Quarter ended June 30, 1994 ......................... 1 1/2 1
Quarter ended September 30, 1994 .................... 1 13/16
Quarter ended December 31, 1994 ..................... 1 1/4 1/2
(b) Holders.
As of March 8, 1996, there were 188 record owners of the Common Stock.
(c) Dividends.
The Company did not pay any cash dividends on its Common Stock during the
years ended December 31, 1995, 1994 or 1993. Payment of dividends will be at the
discretion of the Company's Board of Directors and will depend, among other
factors, upon the earnings, capital requirements, operations and financial
condition of the Company. The Company does not anticipate paying cash dividends
in the immediate future.
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Item 6. Selected Financial Data
The following data is qualified in its entirety by the financial statements
presented elsewhere in this Annual Report on Form 10-K.
As of December 31, or
For the Year Ended December 31,
------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
$ $ $ $ $
Revenues 5,432,038 5,995,919 6,244,774 5,684,259 6,178,651
Net Income
(Loss) (968,878) (873,394) (1,807,106) (1,534,151) (569,442)
Net Income
(Loss) Per
Share (0.46) (0.41) (1.27) (1.10) (0.41)
Dividends
Paid None None None None None
Total
Assets 5,296,044 6,083,264 7,535,448 7,909,697 8,154,329
Long-Term
Obligations 2,359,131 934,420 1,689,965 662,265 593,921
Shareholders'
Equity 1,808,467 2,677,345 3,550,739 4,299,888 5,834,039
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with
the Company's consolidated financial statements and the notes thereto presented
elsewhere herein. The discussion of results should not be construed to imply any
conclusion that such results will necessarily continue in the future.
Overview of Financial Condition
As shown in the accompanying financial statements, the Company reported a
net loss of approximately $969,000 for the year ended December 31, 1995, and
also incurred losses in 1994 and 1993. During the past three years, the
Company's working capital requirements were met in part on the basis of
borrowings from, and issuance of common stock and warrants to, shareowners
including the principal shareowner.
These circumstances raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
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described in Note 2 in the accompanying financial statements (see also Liquidity
and Capital Resources under this Item 7).
Results of Operations
The following table sets forth, for the past three years, the percentage
relationship to total revenues from product sales and contract research and
development of certain items included in the Company's consolidated statement of
operations.
Year ended December 31,
-----------------------
1995 1994 1993
---- ---- ----
% % %
Revenues:
Net product sales 80.0 83.3 81.4
Contract research and development 20.0 16.7 18.6
----- ----- -----
100.0 100.0 100.0
Interest and other income 0.3 0.2 0.1
----- ----- -----
100.3 100.2 100.1
================================================================================
Costs and expenses:
Cost of goods sold* 83.7 82.6 88.6
Write off of discontinued inventory* -- -- 11.8
Plant consolidation costs 1.7 -- --
Contract research and
development* 97.7 97.0 99.2
Selling, general and
administrative expenses 19.0 18.2 18.6
Internal research and
development** 7.0 7.3 6.2
Interest expense 5.3 5.6 5.1
================================================================================
Net income (loss) (17.8) (14.6) (28.9)
* calculated as a percentage of their respective revenues
** calculated as a percentage of net product sales
Net Product Sales
Net product sales were $4,347,429, $4,993,716 and $5,080,698 in 1995, 1994
and 1993, respectively. Product sales in 1995 were lower than the prior year due
to a significantly lower opening backlog and insufficient short term orders in
1995. Product sales in 1994 were comparable with 1993 levels.
International sales, as a percentage of total product sales, were 19%, 24%
and 26% for 1995, 1994, and 1993, respectively. The dollar value and percentage
of international sales decreased in 1995 compared to 1994, and decreased in 1994
compared to 1993. Bookings of new orders, particularly for laser systems and
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instruments, were lower in 1995 than in 1994, and resulted in lower shipments in
1995 compared to the prior year. In the first quarter of 1993, the Company made
a shipment totalling $375,000 to one customer. This nonrecurring shipment
accounts for the dollar and percentage decrease in 1994 compared to 1993.
The Company's backlog of product orders as of December 31, 1995 was
approximately $1,470,000, compared to approximately $1,116,000 at December 31,
1994.
Cost of Goods Sold
As a percentage of net product sales, cost of goods sold was 83.7%, 82.6%
and 88.6% for the years ended December 31, 1995, 1994 and 1993, respectively.
The Company continued its efforts to reduce expenses in 1995. The most
significant cost reductions have continued to be in the form of labor and
related items such as payroll taxes and benefits. The increase in the cost of
goods sold percentage from 1994 to 1995 is attributable to lower than expected
sales compared to relatively fixed overhead costs such as wages, depreciation
and rent. The decrease from 1993 to 1994 is attributable to cost reductions
achieved as a result of closing the Company's Inrad Optical Systems subsidiary
and management's program to reduce expenses.
Prices for raw materials and purchased components have been relatively
stable in 1995 and 1994, while labor costs rose in both years.
Write Off of Discontinued Inventory
During the fourth quarter of 1993 the Company recorded an inventory write
off of approximately $600,000 in connection with the discontinuance of certain
products and product lines within certain market segments. The Company is
focusing its future efforts in industrial, medical and scientific markets which
it believes offer greater growth potential and improved profit margin. The
Company recorded a writedown in 1993 for products not consistent with this
direction.
Contract Research and Development
Contract research and development revenues were $1,084,609, $1,002,203 and
$1,164,076 for the years ended December 31, 1995, 1994 and 1993, respectively.
Related contract R&D expenditures, including allocated indirect costs, were
$1,059,668, $971,932 and $1,155,204. Revenues increased from 1994 to 1995 as a
result of a greater emphasis by the Company's scientific and technical personnel
on funded programs. Revenues decreased from 1993 to 1994 primarily because of
lower bookings in 1994 and increased effort by the Company's scientific and
technical personnel on internal R&D and manufacturing projects rather than
sponsored programs. The programs are typically fixed price contracts and provide
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for recovery of direct costs and an allocation of indirect manufacturing costs
and, depending on their terms, recovery of general and administrative costs.
The Company intends to focus its future funded research efforts on programs
closely aligned with its core business. This is likely to result in lower
bookings of funded research programs and lower contract revenues and expenses in
1996.
Selling, General and Administrative Expenses
Selling, general and administrative expenses in 1995 decreased $55,042 or
5.1% compared to 1994, and in 1994 decreased $75,673 or 6.5% compared to 1993.
In 1995, selling commissions on international sales decreased and the Company
allocated a higher portion of G&A costs to contracts; these decreases were
partially offset by higher sales salaries and advertising and marketing costs.
Subject to availability of resources, the Company expects to increase certain
selling costs in 1996, including additional sales staff and increased
advertising and trade show participation. The decrease in SG&A expenses from
1993 to 1994 occurred primarily because of decreases in selling and
administrative salaries, advertising and trade shows, offset by higher selling
commissions on international sales and certain other administrative expenses.
Internal Research and Development Expenses
Research and development expenses for 1995 were $305,626 (7.0% of product
sales) compared with 1994 expenditures of $365,856 (7.3% of product sales). R&D
expenses for 1993 were $315,006 (6.2% of product sales).
During 1995, the Company decreased its emphasis on development of new
products and increased its short-term efforts on sales and marketing of existing
products. As a result, R&D expenditures decreased in 1995. This trend is
expected to continue in 1996. In 1994, the Company's R&D expenses increased over
1993 because the Company's scientific and technical personnel spent a greater
portion of their time on product development projects in line with the Company's
goal at that time of bringing more new products to market.
Income taxes
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been recognized in the Company's
financial statements or tax returns. Deferred tax liabilities and assets are
determined based on the difference between the financial statement carrying
amounts and the tax bases of assets and liabilities using enacted tax rates in
effect in the years in which the differences are expected to reverse. At
December 31, 1995, the Company had a net deferred tax asset of $2,181,000, the
primary component of which was its significant net operating loss carryforward.
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The Company has established a valuation allowance to fully offset this deferred
tax asset because its history of operating losses makes it uncertain that the
tax asset will be realized.
Inflation
The Company's policy is to periodically review its pricing of standard
products to keep pace with current costs. As to special and long-term contracts,
management endeavors to take potential inflation into account in pricing
decisions. The impact of inflation on the Company's business has not been
material to date.
Liquidity and Capital Resources
On August 31, 1995, the Company signed an agreement with Chemical Bank
amending the terms of its credit facility. The new agreement requires monthly
principal payments of $5,000 from September 1995 until December 1996, and
monthly principal payments of $10,000 thereafter until March 1998. A final
payment of $170,000 is due on April 1, 1998. Borrowings bear interest at prime
(8.5% at December 31, 1995) + 2 1/4%. The agreement also amended the financial
covenants contained in the original agreement. The Company continues to be
required to maintain compliance with affirmative and negative covenants,
including limitations on capital expenditures, dividends and new indebtedness,
and compliance with financial ratios tied to accounts receivable and debt
service (as defined). Chemical Bank also agreed to waive any defaults which
existed under the previous facility. Borrowings are secured by accounts
receivable, plant and equipment not previously liened, and the personal
guarantee of the Company's principal shareowner.
In connection with the new Chemical Bank agreement, a shareowner and
Subordinated Convertible Note holder agreed to maintain a certificate of deposit
with Chemical Bank in the amount of $245,000 as collateral for the loan. Once
the principal balance of the loan is reduced below $245,000, with each principal
payment made by the Company, a like amount may be withdrawn from the collateral
deposit.
In April 1995, the Company received $225,000 from a shareowner and
Subordinated Convertible Note holder of the Company through the issuance of
$125,000 of 8% Subordinated Convertible Notes due December 15, 2000 (convertible
at $1.00 per share) and 250,000 warrants at $0.40 per share. The warrants
entitle the holder to purchase 250,000 shares of Common Stock at $0.6875 per
share. The first six semiannual interest payments due under the Note are payable
in the form of additional notes and do not require a cash outlay. On September
27, 1995, the Company raised an additional $100,000 from the same shareowner in
the form of a 10% Unsecured Demand Convertible Promissory Note. The Note is
convertible into Common Stock of the Company at the conversion price of $1.00;
interest is also payable in Common Stock at the same conversion price. The
proceeds from issuance of the Subordinated Notes, Warrants and Demand Note were
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used to reduce short-term liabilities, including trade debt. Although by its
terms the Note is due on demand, it cannot be repaid until the Chemical Bank
debt has been repaid in full. The Demand Note has been classified as noncurrent
in the Company's December 31, 1995 balance sheet because the Note holder has
agreed not to demand payment prior to December 31, 1996.
In 1993, the Company raised $1,000,000 in new capital from a private
investment group through the issuance of $746,215 of seven-year 10% subordinated
convertible notes and 203,028 shares of common stock. The first six semi-annual
interest payments due under the note are payable in the form of additional notes
and do not require a cash outlay.
During September 1993, the Company borrowed $100,000 in the form of two
promissory notes from a shareowner of the Company. On December 16, 1993, the
shareowner exchanged the existing promissory notes for a new seven-year 10%
subordinated convertible note in the amount of $74,621 and 20,303 shares of
common stock.
The entire amount of all Subordinated Convertible Notes (issued both in
1993 and 1995) may be redeemed by the Company after December 15, 1998; they are
subordinated to any outstanding indebtedness to Chemical Bank and other secured
indebtedness of the Company. At December 31, 1995 the Company was in violation
of certain terms of these notes; subsequent to year end, the Company obtained
waivers from the holders of the notes and modified the financial covenants in
the debt agreements.
In 1993, the principal shareowner and President of the Company exchanged an
unsecured demand note in the amount of $1,030,000 for a new promissory note
maturing on December 31, 1996, in the amount of $566,049 (including $154,049 of
accrued interest) and 494,400 shares of common stock. By mutual informal
agreement, beginning with the quarter ended June 30, 1995, the Company has
deferred interest payments to its principal shareowner. The payments are
expected to be resumed in 1996 and are expected to include both the scheduled
quarterly payment and any deferred payments. Although by its terms the
indebtedness to the shareowner is due on December 31, 1996, it cannot be repaid
until the Chemical Bank debt has been repaid in full. The shareowner loan has
been classified as noncurrent in the Company's December 31, 1995 balance sheet
because the shareowner has agreed not to demand payment prior to December 31,
1996.
The Company's Secured Promissory Notes bear interest at 7%, are secured by
certain of the Company's precious metals, and are convertible at any time into
200,000 shares of common stock. The Notes also contain acceleration clauses
which would allow the holder, a shareowner of the Company, to accelerate the
maturity date and demand payment if certain events occur. The maturity date of
the Secured Notes is July 8, 1997.
As a result of the new Chemical Bank agreement, the Company's monthly
principal requirement was reduced by $10,000. Renegotiation of the equipment
leases in 1995 resulted in a reduction of the total monthly lease payments by
14
<PAGE>
approximately $8,000. Certain leases by their original terms mature in 1996,
whch will also reduce the Company's cash requirements in 1996. The Company has
also identified certain non-operating assets which it intends to sell to
generate additional cash flows. Where possible, the Company will continue to
reduce expenses and cash requirements to improve future operating results and
cash flows. Management expects that cash flow from operations, in addition to
cash generated from asset sales in 1996, will provide adequate liquidity for the
Company's operations in 1996. If, however, the Company's cash flow from
operations is not maintained at satisfactory levels, the Company may seek
additional financing to supplement the cash flow.
Because of the circumstances described above relating to the Company's
ability to improve operating results and cash flows, there is substantial doubt
about the Company's ability to continue as a going concern.
Capital expenditures, including internal labor and overhead charges, for
the years ended December 31, 1995, 1994 and 1993 were $166,000, $193,000 and
$379,000, respectively. During 1993, the Company completed lease financing for
the purchase of new equipment totalling approximately $110,000. Until the
Company is generating satisfactory amounts of cash flow from its operations, it
is expected that future capital expenditures will be kept to a minimum.
Management believes that in the short term, this limitation will not have a
material effect on operations.
Item 8. Financial Statements and Supplementary Data.
The Company's consolidated financial statements are set forth on pages F-1
through F-17. Page F-1 follows page 23.
Item 9. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure.
Not applicable.
15
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors
The following table sets forth the names and ages of each of the members of
the Company's Board of Directors, the other positions and offices presently held
by each such person with the Company, the period during which each such person
has served on the Company's Board of Directors, and the principal occupations
and employment of each such person during the past five years.
Director Positions; Business
Name and Age Since Experience
------------ ----- ----------
Warren Ruderman, 1973 Chairman of the Board of Directors,
76 President and Chief Executive Officer
(1973 - Present).
Stanley A. Kitzinger, 1984 Financial Consultant (1986 - Present);
79 Senior Vice President (1980-1986) of
International Investors, Inc. (mutual
funds investment); Senior Vice
President (1980-1986) of Van Eck
Management Corp. (investment
management); Director (1989-1991) of
Mutual Series Fund, Inc. (mutual funds
investment).
William B. Maxson, 1989 Consultant (1990 - Present); Vice
65 President (1984-1990), Air Force
Programs Cypress International
(marketing and business development
firm); Officer, United States Air
Force (1952 - 1984), retiring with
rank of Major General in 1984.
Donald H. Gately, 1995 Management Consultant (1990 - Present);
76 Chief Operating Officer, Datamax
Corporation (1994 - 1996)
The directors serve one-year terms. Pursuant to agreements between the
Company and Hoechst Celanese Corporation ("Hoechst"), Hoechst may designate a
representative for nomination to the Company's Board of Directors; the Company
has agreed to use its best efforts to have a designated representative elected
16
<PAGE>
to the Board of Directors. At the present time Hoechst has not designated a
representative to the Board.
Pursuant to an agreement between INRAD and Clarex, Ltd. ("Clarex"), the
Company has agreed to use its best efforts to have two individuals selected by
Clarex elected to the Board of Directors as long as any of the subordinated
convertible notes are outstanding. A representative has not been designated by
Clarex at the present time.
Executive Officers of the Registrant
The following table sets forth the name and age of each executive officer
of the Company, the period during which each such person has served as an
executive officer and the positions and offices with the Company held by each
such person:
Officer Positions and Offices
Name and Age Since With the Company
- ------------ ----- ----------------
Warren Ruderman, 76 1973 ...... Chairman of Board of Directors
President and
Chief Executive Officer
Maria Murray, 38 1995 ...... Vice President - Marketing
and Sales
Glenn Nosti, 40 1994 ...... Vice President - Manufacturing
Ronald Tassello, 38 1989 ...... Vice President - Finance
and Secretary
Warren Ruderman has served as President and Chairman of the Board of
Directors of the Company since he founded it in 1973. Prior to 1973, he founded
and served as the President of Isomet Corporation, a manufacturer of
acousto-optic devices for the laser industry, and was a Teaching Fellow,
Lecturer in Chemistry, research scientist and consultant at Columbia University.
Dr. Ruderman was a founder and served as a director of the Melex Corporation (a
life sciences company acquired by Revlon, Inc. in 1975). Dr. Ruderman holds a
doctorate in Chemical Physics from Columbia University, and is a Fellow of the
New York Academy of Sciences.
Maria Murray joined the Company in January 1989 as Manager, Federal R&D
Programs, and was appointed Vice President, Marketing and Sales in 1995. Prior
to joining INRAD, she held positions in electrical design engineering in the
laser and communication industries. She holds a B.S.E.E. degree in Electrical
Engineering from the University of Central Florida.
Glenn Nosti joined the Company as a Senior Sales Engineer in July 1990. He
was subsequently appointed Vice President, Manufacturing in 1994. Prior to
joining INRAD, he held positions as Marketing Manager or National Sales Manager
at companies within the laser optics industry. He received a B.S. in Business
17
<PAGE>
Administration from East Carolina University and an M.B.A. in Marketing from
Fairleigh Dickinson University.
Ronald Tassello joined the Company as Secretary and Controller in October,
1989 and was appointed Vice President, Finance in 1990. Prior to joining INRAD,
he was employed as Senior Manager in the Hackensack office of Price Waterhouse
LLP, an accounting and consulting firm. He held various positions with Price
Waterhouse LLP from 1983 to 1989. He received a B.B.A. from Pace University and
is a certified public accountant.
None of the officers of the Company has an employment contract with the
Company; each serves at the pleasure of the Board of Directors.
Item 11. Executive Compensation
Summary of Cash and Certain Other Compensation
The following table sets forth, for the years ended December 31, 1995, 1994
and 1993, the cash compensation paid by the Company and its subsidiaries, to or
with respect to the Company's Chief Executive Officer, the only executive
officer whose total annual salary and bonus exceeded $100,000, for services
rendered in all capacities as an executive officer during such period:
<TABLE>
<CAPTION>
Long-Term
Annual Compensation(A) Compensation
Name and Current ---------------------- ------------ All Other
Principal Position Year Salary Bonus Options Granted Compensation ($)
- ------------------ ---- ------ ----- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Warren Ruderman, 1995 $130,000 none none none
President and Chief
Executive Officer
1994 $130,000 none none none
1993 $130,500 none none none
</TABLE>
(A) During the periods covered, no Executive Officer received perquisites
(i.e., personal benefits) in excess of the lesser of $50,000 or 10% of such
individual's reported salary and bonus.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The following table presents certain information with respect to the
security ownership of the directors of the Company and the security ownership of
the only individuals or entities known by the Company to be the beneficial owner
of more than 5% of the Company's Common Stock as of March 1, 1996. The Company
18
<PAGE>
has been advised that all individuals listed have the sole power to vote and
dispose of the number of shares set opposite their names in the table.
Percent of
Name and Address Number of shares Common Stock
- --------------------------------------------------------------------------------
Warren Ruderman(1) 1,081,400 51.3
c/o INRAD, Inc.
181 Legrand Avenue
Northvale, NJ 07647
Clarex, Ltd. 1,845,513(2) 50.9
c/o Bank of Nova Scotia
Trust Company Bahamas Ltd.
P.O. Box N1355
Nassau, Bahamas
Hoechst Celanese Corp. 300,000 14.2
Routes 202-206 North
Box 2500
Somerville, NJ 08876
William F. Nicklin 203,089(3) 9.3
33 Grand Avenue
Newburgh, NY 12550
Stanley A. Kitzinger 4,800(4) 0.2
c/o INRAD, Inc.
William Maxson 3,162(4) 0.1
c/o INRAD, Inc.
Donald H. Gately 16,417(5) 0.8
c/o INRAD, Inc.
Directors and Executive 1,115,404(6) 52.2
Officers as a group
(7 persons)
(1) By virtue of his shareholdings, Warren Ruderman may be deemed to be a
"parent" of the Company as that term is defined in the Rules and
Regulations of the Securities Act of 1933, as amended.
(2) Including 1,522,485 shares subject to options, warrants or convertible
notes exercisable or convertible within 60 days.
(3) Including 72,562 shares subject to convertible notes convertible
within 60 days.
(4) Including 1,500 shares subject to options exercisable within 60 days.
(5) Including 16,417 shares subject to warrants within 60 days.
(6) Including 29,042 shares subject to options or warrants within 60 days.
19
<PAGE>
Item 13. Certain Relationships and Related Transactions
In 1993, the principal shareowner and President of the Company exchanged an
unsecured demand note for a new promissory note maturing on December 31, 1996 in
the amount of $566,049 (including $154,049 of accrued interest) and 494,400
shares of common stock. The new note bears interest at 7% and is unsecured.
Interest expense related to the shareowner loan was approximately $72,000,
$74,000 and $106,000 in 1995, 1994 and 1993, respectively.
Repayment of the shareowner loan has been subordinated to the prior
repayment of the Company's indebtedness to Chemical Bank and to other secured
indebtedness of the Company. The principal shareowner has guaranteed borrowings
under the Company's existing credit facility with Chemical Bank. By mutual
informal agreement, beginning with the quarter ended June 30, 1995, the Company
has deferred interest payments to its principal shareowner. The payments are
expected to be resumed in 1996 and are expected to include both the scheduled
quarterly payment and any deferred payments. Although by its terms the
indebtedness to the shareowner is due on December 31, 1996, it cannot be repaid
until the Chemical Bank debt has been repaid in full. The shareowner loan has
been classified as noncurrent in the Company's December 31, 1995 balance sheet
because the shareowner has agreed not to demand payment prior to December 31,
1996.
20
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K
(a) Financial statements filed as part of this report:
See Index to Consolidated Financial Statements at F-1.
(b) Exhibits filed as part of this report:
The following exhibits are incorporated by reference to exhibits in
the Company's Registration Statement or amendments thereto on Form
S-18 (Registration No. 2-83689), initially filed with the Securities
and Exchange Commission on May 11, 1983:
Exhibit No.
Present in Registration
Exhibit Statement or
No. Description of Exhibit or Amendments
- ------- ---------------------- ----------------
3.1 Restated Certificate of Incorpor- 3.1 of Amendment
ation, as amended. No. 1.
3.2 By-laws, as amended. 3.2 of Amendment
No. 1.
10.4 License agreement, dated September 10.11 of Amendment
1981, between the Company and No. 1.
Lambda Physik.
10.5 Key-Man Insurance Policy on the 10.12 of Amendment
life of Warren Ruderman. No. 2.
The following exhibit is incorporated by reference to the Report to the
Securities and Exchange Commission on Form 10-K for the fiscal year ended
December 31, 1985:
10.6 Common Stock Purchase and Option Agreements, dated
10/14/85 and 11/17/85, between the Company and Celanese
Corporation (now Hoechst Celanese Corporation).
The following exhibit is incorporated by reference to the Report to the
Securities and Exchange Commission on Form 10-K for the fiscal year ended
December 31, 1990:
10.8 INRAD, Inc. Key Employee Compensation Plan.
21
<PAGE>
The following exhibit is incorporated by reference to the Report to the
Securities and Exchange Commission on Form 10-K for the fiscal year ended
December 31, 1991:
10.9 Lease dated October 4, 1991 between S&R Costa
as lessor and the Company as lessee.
The following exhibit is incorporated by reference to the Report to the
Securities and Exchange Commission on Form 10-K for the fiscal year ended
December 31, 1992:
10.10 Agreement with Chemical Bank Regarding Line of Credit.
The following exhibit is incorporated by reference to the Report to the
Securities and Exchange Commission on Form 10-K for the fiscal year ended
December 31, 1993:
10.11 Stock and Note Purchase Agreement with exhibits.
The following exhibit is incorporated by reference to the Report to the
Securities and Exchange Commission on Form 10-Q for the quarter ended March 31,
1994:
10.12 Amended and Restated Chemical Bank Agreement.
The following exhibits form an attachment to this Report:
10.13 Amendment and Waiver Agreement between INRAD and Chemical
Bank dated August 31, 1995.
10.14 Subordinated Convertible Note dated April 9, 1995 between
Clarex Limited and INRAD, Inc.
10.15 Unsecured Demand Convertible Promissory Note dated
September 27, 1995 between Clarex Limited and INRAD, Inc.
11.1 A statement regarding computation of per-share earnings
is omitted because the computation can be clearly determined
from the material contained herein.
22.1 Subsidiaries of the Company
22
<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.
INRAD INC.
By: /s/ Warren Ruderman
------------------------------
Warren Ruderman, President
and Chief Executive Officer
Dated: March 26, 1996
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 Title Date
- --------- ----- ----
/s/ Warren Ruderman President, Chief March 26, 1996
- ------------------------ Executive Officer
Warren Ruderman and Director (Principal
Executive Officer)
/s/ Stanley A. Kitzinger Director March 26, 1996
- ------------------------
Stanley A. Kitzinger
/s/ Donald H. Gately Director March 26, 1996
- ------------------------
Donald H. Gately
/s/ William B. Maxson Director March 26, 1996
- ------------------------
William B. Maxson
/s/ Ronald Tassello Vice President, March 26, 1996
- ------------------------ Finance and Secretary
Ronald Tassello (Principal Financial and
Accounting Officer)
23
<PAGE>
INRAD, INC.
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
Consolidated Financial Statements Page
Report of Independent Accountants F-2
Consolidated Balance Sheet at December 31, 1995 and 1994 F-3
Consolidated Statement of Operations for each of the three years
in the period ended December 31, 1995 F-4
Consolidated Statement of Cash Flows for each of the three years
in the period ended December 31, 1995 F-5
Consolidated Statement of Shareowners' Equity for each
of the three years in the period ended December 31, 1995 F-6
Notes to Consolidated Financial Statements F-7 to F-16
Financial Statement Schedules
Schedule II - Valuation and qualifying accounts and Reserves F-17
NOTE: All other schedules are either not applicable or the information is
included in the consolidated financial statements or notes thereto.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareowners and Board
of Directors of INRAD, Inc.
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of INRAD,
Inc. and its subsidiaries at December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As described in Note 2 to the financial
statements, the Company has suffered recurring losses from operations and, for
each of the three years in the period ended December 31, 1995, cash outflows
have been funded in part on the basis of borrowings from, and issuance of common
stock and warrants to, shareowners including the principal shareowner. These
circumstances raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans in regard to these matters are described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
Price Waterhouse LLP
Morristown, New Jersey
March 15, 1996
F-2
<PAGE>
INRAD, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
------------
Assets 1995 1994
------ ------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 37,981 $ 119,718
Certificate of Deposit 70,000 70,000
Accounts receivable, net 804,834 609,155
Inventories 1,671,673 1,897,772
Unbilled contract costs 151,649 156,717
Assets held for sale 279,111 --
Other current assets 61,699 50,167
----------- -----------
Total current assets 3,076,947 2,903,529
Plant and equipment, net 1,788,080 2,742,531
Precious metals 280,001 311,797
Other assets 151,016 125,407
----------- -----------
Total assets $ 5,296,044 $ 6,083,264
=========== ===========
Liabilities and Shareowners' Equity
Current liabilities:
Note payable - Bank 60,000 $ 520,000
Current obligations under capital leases 190,754 311,199
Subordinated Convertible Notes -- 846,116
Accounts payable and accrued liabilities 708,403 625,452
Advances from customers 116,205 116,560
Other current liabilities 53,084 52,172
----------- -----------
Total current liabilities 1,128,446 2,471,499
Note payable - Bank 320,000 --
Obligations under capital leases 75,088 183,632
Secured Promissory Notes 250,000 250,000
Subordinated Convertible Notes 1,080,623 --
Unsecured Demand Convertible Note 100,000 --
Note payable - Shareowner 533,420 500,788
----------- -----------
Total liabilities 3,487,577 3,405,919
----------- -----------
Commitments (Note 10)
Shareowners' equity:
Common stock: $.01 par value;
2,121,571 shares issued 21,216 21,216
Capital in excess of par value 6,067,991 5,967,991
Accumulated deficit (4,212,740) (3,243,862)
----------- -----------
1,876,467 2,745,345
Less - Common stock in treasury,
at cost (15,000 shares) (68,000) (68,000)
----------- -----------
Total shareowners' equity 1,808,467 2,677,345
----------- -----------
Total liabilities and shareowners' equity $ 5,296,044 $ 6,083,264
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
INRAD, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1995 1994* 1993*
---- ---- ----
<S> <C> <C> <C>
Revenues:
Net product sales $ 4,347,429 $ 4,993,716 $ 5,080,698
Contract research and development 1,084,609 1,002,203 1,164,076
----------- ----------- -----------
5,432,038 5,995,919 6,244,774
----------- ----------- -----------
Costs and expenses:
Cost of goods sold 3,638,582 4,123,490 4,502,928
Write off of discontinued inventory -- -- 600,000
Plant consolidation costs 94,228 -- --
Contract research and development
expenses 1,059,668 971,932 1,155,204
Selling, general and administrative
expenses 1,033,547 1,088,589 1,164,262
Internal research and development
expenses 305,626 365,856 315,006
----------- ----------- -----------
6,131,651 6,549,867 7,737,400
----------- ----------- -----------
Operating profit (loss) (699,613) (553,948) (1,492,626)
Other income (expense):
Interest expense (285,646) (332,954) (319,974)
Interest and other income, net 16,381 13,508 5,494
----------- ----------- -----------
Net income (loss) $ (968,878) $ (873,394) $(1,807,106)
=========== =========== ===========
Net income (loss) per share $(0.46) $(0.41) $(1.27)
------ ------ ------
</TABLE>
* Prior year amounts have been reclassified to conform to current year
presentation (Note 1).
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
INRAD, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (968,878) $ (873,394) $(1,807,106)
----------- ----------- -----------
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
Depreciation and amortization 718,145 728,058 733,198
Noncash interest 142,139 126,581 --
Plant consolidation costs 64,751 -- --
Changes in assets and liabilities:
Accounts receivable (195,679) 294,194
Inventories 226,099 195,517 818,300
Unbilled contract costs 5,068 61,265 (43,060)
Other current assets (11,532) (8,205) (25,340)
Precious metals 31,796 4,442 4,354
Other assets (16,415) (6,176) (5,673)
Accounts payable and accrued liabilities 82,951 (249,319) (63,477)
Advances from customers (355) (5,759) (183,449)
Other current liabilities 912 25,986 (550)
----------- ----------- -----------
Total adjustments 1,047,880 1,166,584 1,047,730
----------- ----------- -----------
Net cash provided by (used in)
operating activities 79,002 293,190 (759,376)
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (166,450) (174,110) (262,970)
Purchase of Certificate of Deposit -- (70,000) --
Proceeds from sale of equipment 49,700 -- --
----------- ----------- -----------
Net cash used in investing activities (116,750) (244,110) (262,970)
----------- ----------- -----------
Cash flows from financing activities:
Repayments of note payable - Bank (140,000) (230,000) --
Borrowings of note payable - Other -- -- 350,000
Net borrowings of note payable - Shareowner -- -- 484,049
Proceeds from issuance of subordinated
convertible notes 125,000 -- 746,215
Net proceeds from issuance of common stock -- -- 248,016
Proceeds from issuance of unsecured
demand convertible note 100,000 -- --
Proceeds from sale of common stock warrants 100,000 -- --
Principal payments of capital lease obligations (228,989) (260,065) (257,947)
----------- ----------- -----------
Net cash (used in) provided by
financing activities (43,989) (490,065) 1,570,333
----------- ----------- -----------
Net (decrease) increase in cash
and cash equivalents (81,737) (440,985) 547,987
Cash and cash equivalents at beginning of year 119,718 560,703 12,716
----------- ----------- -----------
Cash and cash equivalents at end of year $ 37,981 $ 119,718 $ 560,703
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
INRAD, INC.
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Capital in Accumulated Treasury
Shares Amount excess of deficit stock
------ ------ par value ------- -----
---------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 1,403,840 $ 14,039 $ 4,917,211 $ (563,362) $ 68,000
Common stock issued 717,731 7,177 1,050,780 -- --
Net loss for the year -- -- -- (1,807,106) --
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1993 2,121,571 21,216 5,967,991 (2,370,468) 68,000
Net loss for the year -- -- -- (873,394) --
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1994 2,121,571 21,216 5,967,991 (3,243,862) 68,000
Net loss for the year -- -- -- (968,878) --
Common stock warrants issued -- -- 100,000 -- --
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1995 2,121,571 $ 21,216 $ 6,067,991 $(4,212,740) $ 68,000
========= =========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
INRAD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF ACCOUNTING POLICIES:
Nature of Operations:
INRAD is a manufacturer of crystals, crystal devices, electro-optic and optical
components, and sophisticated laser subsystems and instruments. INRAD's
principal customers include commercial instrumentation companies and OEM laser
manufacturers, research laboratories, government agencies, and defense
contractors. The Company's products are sold domestically using its own sales
staff, and in major overseas markets, principally Europe and the Far East, using
independent sales agents.
Basis of Presentation:
The consolidated financial statements include the accounts of INRAD, Inc. and
its wholly-owned subsidiaries. Intercompany transactions and balances have been
eliminated.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
Inventory Valuation:
Inventories, including certain precious metals consumed in the manufacturing
process, are valued at the lower of cost (determined predominantly on the
first-in, first-out basis) or market.
Precious Metals:
Precious metals not consumed in the manufacturing process are valued at cost,
cost being determined on the first-in, first-out basis.
Plant and Equipment:
Plant and equipment are stated at cost. Depreciation is computed under the
straight-line method utilizing an estimated useful life of seven years.
Leasehold improvements are amortized over the remaining term of the lease.
The Company constructs a portion of its equipment. Internal labor and overhead
charges capitalized in the construction of equipment amounted to approximately
$100,000, $97,000 and $147,000 in 1995, 1994 and 1993, respectively.
Contract Research and Development:
Revenues from sponsored research and development are recorded using the
percentage-of-completion method. Under this method, revenues are recognized
based on direct labor and other direct costs incurred compared with total
estimated direct costs. Contract R&D costs include allocations of plant overhead
and general and administrative costs.
F-7
<PAGE>
Internal Research and Development Costs:
Internal research and development costs are charged to expense as incurred.
Prior to January 1, 1995, internal research and development costs included
direct charges and allocations of plant overhead costs. Effective January 1,
1995, the Company modified its reporting to charge allocations of plant overhead
costs directly to cost of goods sold. This reclassification has no effect on
operating profit (loss) or net income (loss). Prior year amounts have been
reclassified to conform to the current year presentation.
Income taxes:
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been recognized in the Company's
financial statements or tax returns. Deferred tax liabilities and assets are
determined based on the difference between the financial statement carrying
amounts and the tax bases of assets and liabilities using enacted tax rates in
effect in the years in which the differences are expected to reverse.
Cash Flow Information:
The Company considers all highly liquid investments with original maturity dates
of three months or less to be cash equivalents. The Company's Certificate of
Deposit is not included in cash equivalents because the CD serves as collateral
for a letter of credit. It is anticipated that the underlying contract will be
completed in 1996 and the letter of credit canceled.
Capital lease obligations of approximately $110,000 at December 31, 1993 were
incurred when the Company entered into leases for new equipment.
Cash interest paid during the years ended December 31, 1995, 1994 and 1993 was
$113,447, $200,195 and $206,859, respectively.
Net Loss Per Share:
Net loss per share is computed using the weighted average number of common
shares outstanding during the year. The weighted average number of shares used
in computing net loss per share was 2,106,571, 2,106,571 and 1,420,302 for the
years ended December 31, 1995, 1994 and 1993, respectively.
The effect of common stock equivalents has been excluded from the computation
because their effect is antidilutive.
NOTE 2 - LIQUIDITY AND FUNDING OF OPERATIONS:
As shown on the accompanying financial statements, the Company reported a net
loss of approximately $969,000 for the year ended December 31, 1995, and also
incurred losses in 1994 and 1993. During the past three years, the Company's
working capital requirements were met by cash provided by operating activities,
and by borrowings from, and issuance of common stock and warrants to,
shareowners including the principal shareowner.
The Company continued to take steps in 1995 to reduce expenses, to reduce cash
requirements through reduction in lease and bank payment schedules, and to raise
cash through the sale of certain nonoperating assets. Where possible, the
Company will continue to reduce expenses and cash requirements to improve future
operating results.
F-8
<PAGE>
Management expects that cash flow from operations, in addition to cash generated
from asset sales in 1996, will provide adequate liquidity for the Company's
operations in 1996. If, however, the Company's cash flow from operations is not
maintained at satisfactory levels, the Company may seek financing to supplement
its cash flow.
Due to the circumstances described above relating to Company's ability to
improve operating results and cash flows, there is substantial doubt about the
Company's ability to continue as a going concern.
NOTE 3 - DISCONTINUANCE OF CERTAIN PRODUCTS:
During the fourth quarter of 1993, the Company recorded an inventory write off
of $600,000 in connection with the discontinuance of certain products and
product lines within certain market segments. The Company is focusing its future
efforts in industrial, medical and scientific markets which it believes offer
greater growth potential and improved profit margin. The Company recorded a
writedown in 1993 for products not consistent with this direction.
NOTE 4 - ACCOUNTS RECEIVABLE:
Accounts receivable are comprised of the following:
December 31,
------------
1995 1994
---- ----
Accounts receivable $809,834 $614,155
Reserve for bad debts (5,000) (5,000)
-------- --------
$804,834 $609,155
======== ========
NOTE 5 - INVENTORIES:
Inventories are comprised of the following:
December 31,
------------
1995 1994
---- ----
Raw materials $ 176,619 $ 181,422
Work in process, including
manufactured parts and components 1,343,021 1,461,543
Finished goods 152,033 254,807
--------- ---------
$1,671,673 $1,897,772
========== ==========
Cost of sales for interim periods was computed using an estimated overall gross
profit percentage which is adjusted at each December 31 based upon an annual
inventory count. In 1995, 1994 and 1993, the fourth quarter operating results
included an adjustment to decrease operating profits by approximately $77,000,
$190,000 and $1,160,000 (including a writedown of $600,000 for certain
products), respectively.
F-9
<PAGE>
NOTE 6 - PLANT AND EQUIPMENT:
Plant and equipment is comprised of the following:
December 31,
------------
1995 1994
---- ----
Furniture and fixtures $ 319,539 $ 313,234
Machinery and equipment 6,633,292 7,389,265
Leasehold improvements 809,749 902,789
Construction in progress 84,617 77,836
----------- -----------
7,847,197 8,683,124
Less: Accumulated depreciation
and amortization (6,059,117) (5,940,593)
----------- -----------
$ 1,788,080 $ 2,742,531
=========== ===========
Depreciation expense (including amortization of capital leases) for the years
ended December 31, 1995, 1994 and 1993 was $715,892, $724,289 and $727,119,
respectively.
In the fourth quarter of 1995, management implemented a program to sell certain
nonoperating equipment to raise additional cash. At December 31, 1995, this
equipment is carried at its net book value of $279,111, which management
estimates is realizable value. The equipment has been classified as a current
asset because management expects the equipment to be sold within the next year.
NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities comprise the following:
December 31,
------------
1995 1994
---- ----
Trade accounts payable and
accrued purchases $381,923 $338,837
Payroll taxes payable 32,356 42,321
Accrued vacation 89,946 90,524
Accrued professional fees 142,020 109,146
Accrued liabilities - other 62,158 44,624
-------- --------
$708,403 $625,452
======== ========
F-10
<PAGE>
NOTE 8 - DEBT:
The Company's debt obligations as of December 31, 1995 and 1994 are as follows:
December 31,
------------
1995 1994
---- ----
Note Payable - Bank $ 380,000 $ 520,000
Subordinated Convertible Notes 1,080,623 846,116
Unsecured Demand Convertible Note 100,000 --
Note Payable - Shareowner 533,420 500,788
Secured Promissory Notes 250,000 250,000
---------- ----------
$2,344,043 $2,116,904
========== ==========
On August 31, 1995, the Company signed an agreement with Chemical Bank amending
the terms of its credit facility. The new agreement requires monthly principal
payments of $5,000 from September 1995 until December 1996, and monthly
principal payments of $10,000 thereafter until March 1998. A final payment of
$170,000 is due on April 1, 1998. Borrowings bear interest at prime (8.5% at
December 31, 1995) + 2 1/4%. The agreement also amended the financial covenants
contained in the original agreement . The Company continues to be required to
maintain compliance with affirmative and negative covenants, including
limitations on capital expenditures, dividends and new indebtedness, and
compliance with financial ratios tied to accounts receivable and debt service
(as defined). Chemical Bank also agreed to waive any defaults which existed
under the previous facility.
Borrowings are secured by accounts receivable, plant and equipment not
previously liened, and the personal guarantee of the Company's principal
shareowner.
In connection with the new agreement, a shareowner and Subordinated Convertible
Note holder agreed to maintain a certificate of deposit with Chemical Bank in
the amount of $245,000 as collateral for the loan. Once the principal balance of
the loan is reduced below $245,000, with each principal payment made by the
Company, a like amount may be withdrawn from the collateral deposit.
In April 1995, the Company received $225,000 from a shareowner and Subordinated
Convertible Note holder of the Company through the issuance of $125,000 of 8%
Subordinated Convertible Notes due December 15, 2000 (convertible at $1.00 per
share) and 250,000 warrants at $0.40 per share. The warrants entitle the holder
to purchase 250,000 shares of Common Stock at $0.6875 per share. Twenty-five
percent of the Notes may be redeemed at any time if the Company consummates a
public offering of its Common Stock. In connection with this transaction, the
Company issued 50,000 warrants to purchase Common Stock at $1.00 per share. On
September 27, 1995, the Company raised an additional $100,000 from the same
shareowner in the form of a 10% Unsecured Demand Convertible Promissory Note.
The Note is convertible into Common Stock of the Company at the conversion price
of $1.00; interest is also payable in Common Stock at the same conversion price.
Although by its terms the Note is due on demand, it cannot be repaid until the
Chemical Bank debt has been repaid in full. The Demand Note has been classified
as noncurrent in the accompanying balance sheet because the Note holder has
agreed not to demand payment prior to December 31, 1996.
In 1993, the Company raised $1,000,000 in cash from a private investment group
through the issuance of $746,215 of 10% Subordinated Convertible Notes due
December 15, 2000 (the "notes") and 203,028 shares of the Company's common stock
at $1.25 per share. As part of this transaction, the Company issued warrants
(expiring on December 15, 2000) which entitle the holders to purchase 171,675
shares of the Company's common stock at $1.50 per share. The warrants have been
recorded at $68,670 resulting in a discount on the notes of $68,670. During
F-11
<PAGE>
September 1993, the Company borrowed $100,000 in the form of promissory notes
from a shareowner of the Company. On December 16, 1993, these promissory notes
were extinguished and $74,621 of the notes and 20,303 shares of the Company's
common stock at $1.25 per share were issued. The notes are convertible at any
time up to their maturity date into shares of the Company's common stock at
$1.25 per share (to be adjusted for dividends, stock splits, etc.). Twenty-five
percent of the notes may be redeemed by the Company after December 15, 1996, but
before December 15, 1998, if the Company has a public offering of its shares of
common stock.
The entire amount of all Subordinated Convertible Notes (issued both in 1993 and
1995) may be redeemed by the Company after December 15, 1998; they are
subordinated to any outstanding indebtedness to Chemical Bank and other secured
indebtedness of the Company. These notes also contain certain covenants and
restrictions, including financial ratios tied to accounts receivable and debt
service (as defined). Interest is payable semiannually on these notes, and the
first six interest payments are payable in the form of additional notes. At
December 31, 1995 the Company was in violation of certain covenants of these
notes; subsequent to year end, the Company obtained waivers from the holders of
the notes and modified the financial covenants in the debt agreements.
In 1993, an unsecured demand note of $1,030,000 bearing interest at 10% per
annum held by the President and principal shareowner was extinguished, and a
promissory note maturing on December 31, 1996 in the amount of $566,049
(including $154,049 of accrued interest), and 494,400 shares of the Company's
common stock at $1.25 per share were issued. The promissory note bears interest
at 7%. However, a discount of $97,893 has been recorded on the promissory note
to reflect the difference between the actual rate of interest on the note and an
estimated market rate. Repayment of the promissory note has been subordinated to
any outstanding indebtedness to Chemical Bank and other secured indebtedness of
the Company. By mutual informal agreement, beginning with the quarter ended June
30, 1995, the Company has deferred interest payments to its principal
shareowner. The payments are expected to be resumed in 1996 and are expected to
include both the scheduled quarterly payment and any deferred payments. The
interest obligations have been accrued by the Company and are included in
accounts payable and accrued liabilities. Interest expense related to the
shareowner loan was approximately $72,000, $74,000 and $106,000 in 1995, 1994
and 1993, respectively. Although by its terms the indebtedness to the shareowner
is due on December 31, 1996, it cannot be repaid until the Chemical Bank debt
has been repaid in full. The shareowner loan has been classified as noncurrent
in the accompanying balance sheet because the shareowner has agreed not to
demand payment prior to December 31, 1996.
The Company's Secured Promissory Notes bear interest at 7%, are secured by
certain of the Company's precious metals, and are convertible at any time into
200,000 shares of common stock. The Notes also contain acceleration clauses
which would allow the holder, a shareowner of the Company, to accelerate the
maturity date and demand payment if certain events occur. The maturity date of
the Secured Notes is July 8, 1997.
Annual maturities of bank and other debt obligations, including noncash interest
on subordinated notes, are as follows:
1996 $ 60,000
1997 1,036,049
1998 200,000
1999 --
2000 1,254,346
---------
$2,550,395
==========
F-12
<PAGE>
NOTE 9 - INCOME TAXES:
A reconciliation of the income tax (benefit) computed at the statutory federal
income tax rate to the reported amount follows:
Year ended December 31,
-----------------------
1995 1994 1993
---- ---- ----
Federal statutory rate 34% 34% 34%
Tax (benefit) at federal statutory rates $(329,419) $(296,954) $(614,416)
Loss in excess of available benefit 311,995 283,155 596,056
Other, net 17,424 13,799 18,360
--------- --------- ---------
$ -- $ -- $ --
========= ========= =========
At December 31, 1995 the Company had net operating loss carryforwards for
financial statement and tax purposes of approximately $5,319,000 and 5,697,000,
respectively. The tax loss carryforward expires at various dates through 2010.
Deferred tax assets (liabilities) comprise the following:
December 31, December 31,
1995 1994
---- ----
Deferred tax assets
Inventory capitalization adjustment 60,000 73,000
Inventory reserves 10,000 4,000
Vacation liabilities 62,000 62,000
Other 12,000 --
Loss carryforwards 2,279,000 2,046,000
----------- -----------
Gross deferred tax assets 2,423,000 2,185,000
----------- -----------
Deferred tax liabilities
Depreciation $ (242,000) $ (375,000)
----------- -----------
Gross deferred tax liabilities $ (242,000) $ (375,000)
----------- -----------
2,181,000 1,810,000
Valuation allowance (2,181,000) (1,810,000)
----------- -----------
Net deferred tax assets $ 0 $ 0
=========== ===========
NOTE 10 - LEASE COMMITMENTS:
The Company leases its office and manufacturing facility under an operating
lease which expires in 1996. The lease provides for additional rental payments
based upon a pro rata share of real estate taxes and certain other expenses and
has renewal options for two five-year periods. The lease also provides for
inflationary increases based on changes in the consumer price index. Rental
expense was $298,000, $309,000 and $342,000 in 1995, 1994 and 1993,
respectively.
F-13
<PAGE>
The Company subleased a portion of its premises in December 1995. The Company
recorded a charge of approximately $95,000 in the fourth quarter of 1995 for the
write-off of leasehold improvements and incremental costs incurred to move and
consolidate the remaining leased space.
The Company has entered into noncancellable lease agreements for certain
equipment which are recorded as capital leases. These leases are secured by the
related equipment and are for five year terms. During 1995, the Company has been
able to formally modify its leases with certain lessors and has informally
agreed with several others to modify the payment terms and, in most cases,
extend the repayment period and thereby reduce the monthly payment requirements.
The modifications did not result in a significant gain or loss. The following is
a summary of assets under capital lease at:
December 31,
------------
1995 1994
---- ----
Equipment under capital lease $1,367,554 $1,367,554
Less: Accumulated amortization (916,644) (717,200)
--------- ---------
$ 450,910 $ 650,354
========== ==========
Future minimum lease payments at December 31, 1995 are payable as follows:
Capital Operating
Leases Leases
-------- --------
1996 $198,111 $204,590
1997 87,174 --
1998 4,824 --
-------- --------
Total minimum lease payments 290,109 $204,590
========
Less: Amount representing
interest (24,267)
---------
Present value of minimum capital lease
payments (including $190,754 classified
as current obligations under
capital leases) $ 265,842
=========
The operating lease payments are net of sublease payments to INRAD of
approximately $48,000.
NOTE 11 - EXPORT SALES AND SALES TO MAJOR CUSTOMERS:
Export sales, primarily to customers in Europe, Asia and Canada, amounted to
19%, 24% and 26% of net product sales in 1995, 1994, and 1993, respectively.
Sales to one foreign customer were 12% and 16% of net product sales in 1994 and
1993, respectively. No foreign customer accounted for more than 10% of net
product sales in 1995. Additionally, three U.S. customers each accounted for
more than 10% of net product sales in 1995, and two U.S. customers each
F-14
<PAGE>
accounted for more than 10% of net product sales in 1994. No U.S. customer
accounted for more than 10% of net product sales in 1993.
NOTE 12 - CAPITAL STOCK:
The Company's authorized capital stock consists of 1,000,000 shares of preferred
stock, without nominal or par value, and 6,000,000 shares of common stock, par
value $.01 per share. The Company had 2,106,571 common shares outstanding at
December 31, 1995 and 1994. There were no preferred shares issued or outstanding
in either year. The Company has reserved 1,756,089 shares of common stock for
issurance upon conversion of the Subordinated Convertible Notes, Secured
Promissory Notes and Unsecured Demand Convertible Note (Note 8) and upon
exercise of outstanding warrants and options (Notes 8 and 13).
NOTE 13 - EMPLOYEE BENEFIT PLANS:
During 1990 the Company adopted the Key Employee Compensation Program (the
"Program"). In 1995, the Board of Directors, subject to shareowner approval at
the next annual shareowner's meeting, increased the maximum number of shares
which may be awarded under the program from 70,000 to 500,000. The number of
shares issuable is subject to adjustment for stock dividends, stock splits, etc.
The Company has reserved 500,000 shares of common stock for issuance under the
plan.
The Program provides for the granting of incentive stock options, compensatory
stock options, stock appreciation rights and shares of common stock to certain
full time employees of the Company under terms and at prices to be determined at
the discretion of a committee appointed by the Board of Directors. Certain
outside directors are eligible to receive compensatory stock options and stock
appreciation rights. Subject to modification by the committee, options are
generally exercisable in 25% installments beginning one year after the date of
grant and continuing for each of the four years thereafter. All options were
granted at the market value at the date of grant. To date, none of the options
have been exercised. The following table summarizes the activity for the three
years ended December 31, 1995:
Option
Shares Price
- ----------------------------------------------------------------------------
Balance at December 31, 1992 50,500 $1.25
- -----------------------------------------------------------------------------
Granted -- --
Canceled (7,500) $1.25
- -----------------------------------------------------------------------------
Balance at December 31, 1993 43,000 $1.25
- -----------------------------------------------------------------------------
Granted 34,000 $1.25
Canceled (16,000) $1.25
- -----------------------------------------------------------------------------
Balance at December 31, 1994 61,000 $1.25
- -----------------------------------------------------------------------------
Granted 77,000 $1.00
Canceled (11,000) $1.25
- -----------------------------------------------------------------------------
Balance at December 31, 1995 127,000 $1.00--$1.25
=============================================================================
The Company maintains a 401(k) savings plan for all eligible (as defined in the
plan) employees. The 401(k) plan allows employees to contribute from 1% to 15%
of their compensation on a salary reduction, pre-tax basis. The 401(k) plan also
provides that the Company, at the discretion of the Board of Directors, may
F-15
<PAGE>
match employee contributions. The Company did not contribute any amounts to the
401(k) plan during 1995, 1994 or 1993.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which establishes financial accounting and reporting standards
for stock-based employee compensation plans. The statement defines a fair market
value based method of accounting for employee stock options and similar equity
instruments and encourages the use of that method of accounting for all employee
stock compensation plans. However, SFAS No. 123 also permits the measurement of
compensation costs using the intrinsic value based method of accounting
prescribed by Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees." If the Company elects to account for its employee
stock compensation plans under the guidance prescribed by APB Opinion No. 25,
the Company will be required to make pro forma disclosures of net income and
earnings per share as if the fair value based method of accounting defined in
SFAS No. 123 had been applied. The accounting requirements of this new standard
are effective for transactions entered into in fiscal years that begin after
December 15, 1995. The Company has not made a decision as to which method it
will utilize.
NOTE 14 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amount at December 31, 1995 of the Company's short-term financial
instruments approximates fair value because of the short maturity of those
instruments. The fair value of the Company's debt could not be determined
without incurring excessive costs.
F-16
<PAGE>
INRAD, INC.
Schedule II - Valuation and qualifying accounts and Reserves
<TABLE>
<CAPTION>
Balance at ----------- Additions ------------
beginning of Charged to costs Charged to Balance at
period and expenses other accounts Deductions end of period
-------------------------------------------------------------------------------
Valuation Allowance on
Net Deferred Tax Assets:
<S> <C> <C> <C> <C> <C>
Year ended
December 31, 1995 1,810,000 -- 371,000 (1) -- 2,181,000
Year ended
December 31, 1994 1,477,000 -- 333,000 (1) -- 1,810,000
Year ended
December 31, 1993 661,000 -- 816,000 (1) -- 1,477,000
</TABLE>
(1) Change in net deferred tax assets.
F-17
EXHIBIT 10.13
FIRST AMENDMENT AND WAIVER (the "Amendment"), dated as of August 31, 1995
of a certain Amended and Restated Agreement dated as of May 1, 1994 between
Inrad, Inc. (the "Company") and Chemical Bank (the "Bank") (the "Letter
Agreement").
WITNESSETH:
WHEREAS, the Company and the Bank are parties to the Letter Agreement; and
WHEREAS, the Company has requested the Bank to modify the Letter Agreement
and to waive certain violations of the Letter Agreement, and the Bank is
agreeable to such requests;
NOW THEREFORE, in consideration of the premises and mutual agreements
herein contained, the parties hereby agree as follows:
1. Definitions. Except as otherwise stated, capitalized terms defined in
the Letter Agreement and used herein without definition shall have the
respective meanings assigned to them in the Letter Agreement.
2. Waivers. The Bank hereby waives the violations of the Letter Agreement
described below (which have taken place on or before the date hereof) and any
Defaults or Events of Default resulting therefrom, solely to the extent set
forth below:
(a) Subsection 5(k) of the Letter Agreement requires the Company to
not allow the ratio of the Company's account payables to Banks Indebtedness
due under the Note to be below 1.1::1 or above 1.5::1. The Company was in
default of this provision for the period April 30, 1995, May 31, 1995, June
30, 1995 and July 31, 1995.
(b) Subsection 5(l) of the Letter Agreement requires the Company to
not allow the ratio of the Company's principal Indebtedness under the
Letter Agreement to accounts receivable as of December 31, 1994, January,
1995 and February, 1995 to be greater than 85%. During that period such
ratio was 85.4%, 97% and 91% at the respective month ends.
(c) Subsection 7(j) of the Letter Agreement requires the Company to
have an operating profit of at least $50,000 for fiscal year ending
12/31/94. During fiscal year ending 12/31/94, the Company had a $554,000
operating loss.
3. Amendment of the Letter Agreement.
(a) Subsection 2(b) of the Letter Agreement is hereby amended by
deleting the entire subsection and substituting the following:
"2(b) The Company shall execute and deliver to the Bank a Note,
substantially in the form annexed hereto as Exhibit "A", with
appropriate insertions therein, which shall evidence the term loan
borrowing pursuant to Subsection 2(a) hereof. The Note (a) shall be
<PAGE>
dated the date hereof, (b) shall be payable in monthly consecutive
installments of principal as follows:
15,000 5/1/94
15,000 6/1/94
15,000 7/1/94
15,000 8/1/94
15,000 9/1/94
15,000 10/1/94
15,000 11/1/94
15,000 12/1/94
15,000 1/1/95
15,000 2/1/95
15,000 3/1/95
15,000 4/1/95
15,000 5/1/95
15,000 6/1/95
15,000 7/1/95
15,000 8/1/95
5,000 9/1/95
5,000 10/1/95
5,000 11/1/95
5,000 12/1/95
5,000 1/1/96
5,000 2/1/96
5,000 3/1/96
5,000 4/1/96
5,000 5/1/96
5,000 6/1/96
5,000 7/1/96
5,000 8/1/96
5,000 9/1/96
5,000 10/1/96
5,000 11/1/96
5,000 12/1/96
10,000 1/1/97
10,000 2/1/97
10,000 3/1/97
10,000 4/1/97
10,000 5/1/97
10,000 6/1/97
10,000 7/1/97
-2-
<PAGE>
10,000 8/1/97
10,000 9/1/97
10,000 10/1/97
10,000 11/1/97
10,000 12/1/97
10,000 1/1/98
10,000 2/1/98
10,000 3/1/98
170,000 4/1/98 (Final Balloon Payment)"
(b) Subsection 2 of the Letter Agreement is hereby amended by
inserting new paragraph (2(e)) and 2(f) at the end thereof to read as
follows:
"2(e) Collateral Terms. The Investor Group shall provide
$245,000 cash collateral pursuant to the terms in Schedule I
hereto, to secure the last $245,000 of principal due under
the Note, provided, however that once the principal balance
of the Note is reduced to below $245,000, with each
principal payment made by the Company thereafter, a like
amount of said cash collateral shall be returned to the
Investor Group. The cash collateral provided hereunder shall
be applied by Bank to the Note only if there is an Event of
Default under Section 7(a) or 7(g) of the Agreement,
otherwise the cash collateral shall remain with Bank until
the occurrence of such Events of Default under 7(a) or 7(g)
or until such time as the Note is paid in full.
(f) Other Collateral Provision. The second lien on platinum
inventory of Bank will be released on the effective date of
this Amendment. Additionally, the security agreement of the
Bank on equipment shall be released either in part or in
whole, as appropriate, at such time or times as Company
secures financing on currently unfinanced equipment,
provided, the proceeds of such financings are shared equally
between Company and Bank, with Bank's share to be applied to
principal payments due hereunder in the inverse order of
maturity."
(c) Subsection 5(k) of the Letter Agreement is deleted in its
entirety.
(d) Subsection 5(l) of the Letter Agreement is amended by deleting the
words "to eligible accounts receivable" from the first line thereof and
substituting therefore "to the sum of eligible accounts receivable and cash
collateral delivered pursuant to subsection 2(e) hereof, if any."
-3-
<PAGE>
(e) Subsection 5(m) of the Letter Agreement is amended by deleting the
"." at the end thereof and by adding thereto, "; or liens on equipment
given to the Investor Group, which liens are subordinate to that of the
Bank and the documentation for which is in form and substance satisfactory
to Bank."
(f) Section 7(j) of the Letter Agreement is amended by deleting it in
its entirety and substituting therefore:
"The Company fails to have earnings before cash interest,
taxes, depreciation and amortization less capital
expenditures divided by cash debt service (Chemical Bank
Debt and Equipment Lease Debt) equal to or greater than 1.25
at 12/31/96 and 1.5 at first quarter 1997 and each fiscal
quarter thereafter each calculated on the four prior fiscal
quarters which have elapsed."
4. Representations and Warrants. To induce the Bank to enter into this
Amendment, the Company hereby represents and warrants that:
(a) The Company has the power, authority and legal right to make and
deliver this Amendment and to perform its obligations under the Letter
Agreement, as amended by this Amendment, without any notice, consent,
approval or authorization not already obtained, and the Company has taken
all necessary action to authorize the same.
(b) The making and delivery of this Amendment and the performance of
the Letter Agreement as amended by this Amendment do not violate any
provision of law or any regulation or of the Company's charter or by-laws
or result in the breach of or constitute a default under or require any
consent under any indenture or other agreement or instrument to which the
Company is a party or by which the Company or any of its property may be
bound or affected. The Agreement as amended by this Amendment constitutes a
legal, valid and binding obligation of the Company, enforceable against it
in accordance with its terms, except as the enforceability thereof may be
limited by any applicable bankruptcy, reorganization, insolvency,
moratorium or other laws affecting creditors' rights generally.
(c) The representations and warranties contained in Section 4 of the
Letter Agreement are true and correct on and as of the date of this
Amendment and after giving effect thereto.
(d) No default or Event of Default has occurred and is continuing
under the Letter Agreement as of the date of this Amendment and after
giving effect thereto.
5. Effective Date. This Amendment shall become effective when all of the
following shall have occurred:
-4-
<PAGE>
(a) The Bank shall have received counterparts of this Amendment, duly
executed by each of the parties hereto.
(b) The Bank shall have received a copy of the resolution of the Board
of Directors of the Company authorizing the execution, delivery and
performance of this Amendment, certified by an appropriate officer of the
Company.
(c) The Bank shall have received a $2,500 non-refundable fee in
accordance with its terms as so amended.
(d) The Investor Group shall have delivered the cash collateral and
pledge to Bank of the same.
(e) Each current Guarantor shall have confirmed its guarantee to the
Bank.
6. Counterparts. This Amendment may be signed in any number of
counterparts, each of which shall be an original and all of which taken together
shall constitute a single instrument with the same effect as if the signatures
thereto and hereto were upon the same instrument.
7. Full Force and Effect. Except as expressly modified by this Amendment,
all of the terms and provisions of the Letter Agreement shall continue in full
force and effect, and all parties hereto shall be entitled to the benefits
thereof.
8. Governing Law. This Amendment shall be governed by and construed in
accordance with the internal laws (and not the law of conflicts) of the State of
New York.
IN WITNESS WHEREOF, the parties have hereto caused this Amendment to be
duly executed and delivered by their proper and duly authorized officers as of
the date set forth above.
INRAD, Inc.
By: /s/ Warren Ruderman
-------------------------
Title: President
CHEMICAL BANK
By: /s/ Frank Apollo
-------------------------
Title: Vice President
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<PAGE>
CONFIRMATION OF INDIVIDUAL GUARANTOR
The undersigned, (an "Individual Guarantor") entered into a Guarantee
Agreement (the "Guarantee"), dated January 9, 1991, absolutely and
unconditionally guaranteeing to Chemical Bank, its successors, endorsees and
assigns (the "Bank"), the payment of any and all obligations (as defined in the
Guarantee) and liabilities related thereto, of INRAD, INC. (the "Company"),
whether then existing or thereafter contracted or incurred by Company, and any
and all renewals or extensions thereof, or any part thereof, together with
interest thereon and all expenses of collection thereof and of the Guarantee,
including reasonable attorney's fees. Reference is made to the Guarantee for a
complete statement of its terms and conditions.
To induce the Bank to accept the First Amendment and Waiver to the Letter
Agreement (the "Letter Agreement") being executed and delivered concurrently
herewith, the Guarantor hereby (i) ratifies and confirms its Guarantee to Bank,
and (ii) confirms that such Guarantee continues in full force and effect with
respect to such Individual Guarantor.
/s/ Warren Ruderman
---------------------------
WARREN RUDERMAN
<PAGE>
CONFIRMATION OF CORPORATE GUARANTOR
The undersigned, (a "Corporate Guarantor") entered into a Guarantee
Agreement (the "Guarantee"), dated January 9, 1991, absolutely and
unconditionally guaranteeing to Chemical Bank, its successors, endorsees and
assigns (the "Bank"), the payment of any and all obligations (as defined in the
Guarantee) and liabilities related thereto, of INRAD, INC. (the "Company"),
whether then existing or thereafter contracted or incurred by Company, and any
and all renewals or extensions thereof, or any part thereof, together with
interest thereon and all expenses of collection thereof and of the Guarantee,
including reasonable attorney's fees. Reference is made to the Guarantee for a
complete statement of its terms and conditions.
To induce the Bank to accept the First Amendment and Waiver to the Letter
Agreement (the "Letter Agreement") being executed and delivered concurrently
herewith, the Guarantor hereby (i) ratifies and confirms its Guarantee to Bank,
and (ii) confirms that such Guarantee continues in full force and effect with
respect to such Corporate Guarantor.
INRAD INTERNATIONAL, INC.
By: /s/ Warren Ruderman
---------------------------
Title: President
EXHIBIT 10.14
THE SECURITIES REPRESENTED BY THIS NOTE (INCLUDING THE
SHARES OF COMMON STOCK INTO WHICH IT MAY BE CONVERTED) HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SUCH SECURITIES MAY NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR ASSIGNED, EXCEPT
PURSUANT TO EITHER (I) A REGISTRATION STATEMENT WITH RESPECT
TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER SUCH ACT, (II)
RULE 144 OR RULE 144A UNDER SUCH ACT OR (III) ANY OTHER
EXEMPTION FROM REGISTRATION UNDER SUCH ACT RELATING TO THE
DISPOSITION OF SECURITIES, PROVIDED IN EACH CASE AN OPINION
OF COUNSEL IS FURNISHED, IF REQUESTED BY THE COMPANY,
REASONABLY SATISFACTORY IN FORM AND SUBSTANCE TO THE
COMPANY, THAT RULE 144, RULE 144A OR SUCH OTHER EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT IS AVAILABLE.
$125,000.00
8% Subordinated Convertible Note due December 15, 2000
INRAD, INC. (including any successor) promises to pay to CLAREX
LTD. or registered assigns, the principal sum of ONE HUNDRED
TWENTY-FIVE THOUSAND Dollars and 00/100 on December 15, 2000.
Interest Payment Dates: June 15 and December 15
Record Dates: June 1 and December 1
Interest Accrual Date: April 9, 1995
Dated: As of April 9, 1995
INRAD, Inc.
By: /s/ Warren Ruderman
----------------------------
Warren Ruderman, President
Attest:
/s/ Ronald Tassello
- ------------------------
Secretary
<PAGE>
INRAD, INC.
8% Subordinated
Convertible Notes
Due December 15, 2000
1.0 Interest.
INRAD, INC., a New Jersey corporation (the "Company" which term shall
include any successor corporation), promises to pay interest on the principal
amount of this Note at an interest rate per annum of 8% from the Interest
Accrual Date specified on the face of this Note until maturity.
The Company will pay interest semi-annually on June 15 and December 15 of
each year (each an "Interest Payment Date"), commencing on the first such date
following the Interest Accrual Date specified on the face of this Note, and upon
redemption of this Note. Interest on the Note will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from the
Interest Accrual Date specified on the face of this Note. The Company shall pay
interest on overdue principal at the rate of 8% per annum; it shall pay
interest, to the extent permitted by law, on overdue installments of interest at
the rate of 8% per annum. Interest will be computed on the basis of a 360-day
year of twelve 30-day months.
2.0 Method of Payment.
2.1 The Company will pay interest on this Note to the person who is the
registered Holder of this Note at the close of business on the Record Date next
preceding the Interest Payment Date, as indicated on the Company's books and
records. The Holder must surrender this Note to the Company to collect payments
of principal. Payments of interest may be mailed to the Holder's registered
address. Except as provided in paragraph 2.2, the Company will pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. The Company, however, may pay
principal and interest by its check payable in such money. If a payment is a
legal holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a legal holiday, and no interest on the amount
payable on such payment date shall accrue for the intervening period.
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2.2 On each succeeding Interest Payment Date through and including the
December 15, 1997 Interest Payment Date, the Company shall deliver to the Holder
of this Note, in payment of the interest due on this Note on such Interest
Payment Date, a new Note (an "Accrued Interest Note"), in the form of this Note,
dated such Interest Payment Date (and bearing interest from the Interest Payment
Date) and having a principal amount corresponding to the interest due on this
Note on such Interest Payment Date; provided, however, that the Company shall
not issue new Accrued Interest Notes pursuant to this paragraph in payment of
(a) any interest on this Note due at any time after December 31, 1997 or (b) any
interest payable upon any redemption of this Note. On each Interest Payment Date
following the December 31, 1997 Interest Payment Date, the Company shall pay to
the Holder of this Note an amount in cash equal to 100% of the interest payment
due on such Interest Payment Date.
3.0 Agreement.
On December 15, 1993, the Company issued 10% Subordinated Convertible Notes
Due December 15, 2000 (the "Notes") referred to in the Stock and Note Purchase
Agreement, dated as of December 15, 1993 (the "Agreement") among the Company,
Clarex, Ltd. and William Nicklin. All payments on this Note shall be made
proportionately with payments on the other Notes and all other rights of the
holder of this Note shall be pari passu with the rights of the other holders of
Notes. Holders of this Note are entitled to the benefits of the covenants of
INRAD set forth in Section 7 of the Agreement (including the financial covenants
set forth in Section 7.12 thereof) as if set forth herein at length. This Note
and the Notes shall collectively be referred to hereinafter as the "Subordinated
Convertible Notes."
4.0 Optional Redemption.
4.1 At any time on or after December 15, 1998, the Company may redeem the
Notes in whole or in part at any time or from time to time at 100% of the
principal amount thereof plus accrued interest, if any, to the redemption date.
If the redemption date is subsequent to a Record Date with respect to any
Interest Payment Date and on or prior to such Interest Payment Date, then such
accrued interest, if any, will be paid to the person in whose name this Note is
registered at the close of business on such Record Date and no other interest
will be payable thereon.
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4.2 Notwithstanding the above, the Company may redeem up to 25% of the
original principal amount of the Notes in whole or in part after December 15,
1996 and prior to December 15, 1998, in the event that the Company consummates a
public offering of debt or equity securities prior to such date. The Company
will promptly notify the Holder of the filing with the Securities and Exchange
Commission of a registration statement pertaining to such an offering.
5.0 Mandatory Redemption.
The Company is not required to redeem this Note at any time prior to
maturity.
6.0 Notes to be Redeemed If Less Than All Notes to be Redeemed;
Notice of Redemption.
If less than all of the Notes are to be redeemed, the Subordinated
Convertible Notes shall be redeemed pro rata. Notice of redemption will be
mailed at least 15 days but not more than 45 days before the redemption date to
each Holder of the Subordinated Convertible Notes to be redeemed at such
Holder's registered address. On and after the Redemption Date, interest ceases
to accrue on the Subordinated Convertible Notes or portions of them called for
redemption.
7.0 Transfer.
The Company will not be required to register any attempted transfer of this
Note if such transfer would not comply with (or be exempt from) the registration
provisions of the Securities Act of 1933, as amended, and any applicable state
securities laws.
8.0 Persons Deemed Owners.
The registered Holder of this Note may be treated as its owner for all
purposes.
9.0 Defaults and Remedies.
An Event of Default is: (A) default in payment of interest on the
Subordinated Convertible Notes for 15 days or default in payment of principal of
the Subordinated Convertible Notes at maturity or upon redemption; (B) the
failure by the Company and its Subsidiaries, if applicable, to perform the
covenants set forth in the Agreement, if such nonperformance continues for a
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<PAGE>
period of 30 days after receipt by the Company of a notice of default from the
Holder of a Note; (C) the material breach of a representation or warranty in the
Agreement unless such breach is cured within 30 days after receipt by the
Company of a notice of breach from the Holder of a Note; (D) default in the
payment of any other debt for borrowed money by the Company unless such default
is cured or waived within 30 days after receipt by the Company of a notice of
such default (but excluding the existing default to Chemical Bank and on the
Notes which are not defaults hereunder); (E) the commencement by the Company,
pursuant to or within the meaning of any bankruptcy laws, of a voluntary case or
proceeding; (F) the consent by the Company to the entry of an order for relief
against it in an involuntary bankruptcy case or proceeding; (G) the consent by
the Company to the appointment of a custodian for all or substantially all of
its property and (H) the making by the Company of a general assignment for the
benefit of its creditors. Upon the occurrence of an Event of Default, all
outstanding principal and accrued interest on this Note shall become due and
payable, at the election of the Holder of this Note, upon receipt of written
notice by the Company.
10.0 No Recourse Against Others.
A director, officer, employee or stockholder, as such, of the Company shall
not have any liability for any obligations of the Company under this Note or for
any claim based on, in respect of or by reason of such obligations or their
creation except a claim based upon fraud. The Holder of this Note by accepting
this Note waives and releases all such recourse. The waiver and release are part
of the consideration for the issue of the Notes.
11.0 Conversion of this Note.
11.1 Conversion Right.
(1) For the purposes of this Section 11.0, "current conversion price" means
as at any particular time the basic conversion price unless an adjusted
conversion price is in effect pursuant to the provisions of Section 11.5 hereof
in which case it means such adjusted conversion price, and "basic conversion
price" means $1.00.
(2) Subject to and upon compliance with the provisions of this Section
11.0, the Holder of this Note shall have the right, at his option, at any time
during the period commencing on the date hereof and ending immediately prior to
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<PAGE>
the close of business on December 15, 2000, on at least 30 days advance written
notice to the Company, to convert all or any part of this note into fully paid
and non-assessable shares of Common Stock ("Common Shares") by applying the
principal amount of the Note plus all accrued and unpaid interest thereon, as
provided for herein, to the purchase of such Shares at the then current
conversion price; except that in case this Note or part thereof is called for
redemption such right (for the Note or for the part thereof called for
redemption) shall terminate with respect thereto at the close of business on the
business day three business days prior to the date fixed for such redemption.
(3) The Common Shares issuable upon the conversion of this Note, if
converted at or prior to the time fixed for determining the holders of record of
Common Shares for the payment of dividends on Common Shares, shall qualify for
such dividends. No adjustment shall be made for dividends on any Common Shares
that shall be issuable upon the conversion of this Note.
11.2 Conversion in Multiples.
The Note shall be wholly convertible into Common Shares in units of one
thousand dollars ($1,000) and whole multiples thereof.
11.3 Conversion Procedure.
(1) In order to convert this Note, the Note shall be delivered at any time
during usual business hours to the Company at its principal office for that
purpose, accompanied by a written notice duly executed by the registered Holder
of the Note or his attorney duly authorized in writing, which notice shall state
that the Holder elects to convert the Note in accordance with the provisions
hereof. The certificate or certificates for Common Shares issuable on such
conversion shall be issued only to the registered Holder of this Note unless (A)
the Holder duly requests in writing that the shares be issued to a third party,
(B) the Holder and such third party provide proof to the satisfaction of the
Company (including if requested opinion letters of their counsel) that such
issuance to the third party is in compliance with all federal and state
securities laws and (C) such third party executes such investment representation
letter as is acceptable to the Company.
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<PAGE>
(2) Subject to Section 11.2 hereof, the Holder may by such written notice
elect to convert only part of the principal amount of this Note, in which event
the Company shall issue and deliver to such Holder, at the expense of the
Company, a new Note registered in the name of such Holder, in a principal amount
equal to that part of the principal amount of the Note which the Holder did not
elect to convert.
(3) Every such notice of election to convert shall constitute a contract
between the Holder of this Note and the Company, whereby the Holder of the Note
shall be deemed to subscribe for the number of Common Shares which he will be
entitled to receive upon such conversion and in payment and satisfaction of such
subscription, to surrender this Note and to release the Company from all
liability thereon, and whereby the Company shall be deemed to agree that the
surrender of the Note and the extinguishment of liability thereon shall
constitute full payment of such subscription for the Common Shares to be issued
upon such conversion. If more than one (1) Note shall be surrendered for
conversion at one time by the same Holder, the number of full Common Shares
which shall be issuable upon the conversion thereof shall be computed on the
basis of the aggregate principal amount of Notes so surrendered.
(4) As promptly as practicable after the receipt of such notice of election
to convert, the delivery of this Note and compliance with all reasonable
requirements of the Company as aforesaid, the Company shall cause the transfer
agent for the Common Shares to issue and deliver, to the holder of the Note so
surrendered (i) a certificate or certificates for the number of Common Shares in
which this Note has been converted in accordance with the provisions of Section
11.0 and (ii) any cash which the Company is required to pay or issue in
accordance with the provisions of Section 11.7 hereof. Such conversion shall be
deemed to have been made immediately prior to the close of business, at the
office of the Company on the date on which all conditions precedent to the
conversion of the Note have been fulfilled and the Holder shall be deemed to
have become on the said date the holder of record of the Common Shares
represented thereby; provided, however, that if the transfer books of the
Company for Common Shares shall be closed on the said date, the Company shall
not be required to issue Common Shares upon such conversion until the date on
which such transfer books shall be re-opened, but such conversion shall
nevertheless be effected when such transfer books shall be re-opened at the
conversion price in effect on, and otherwise as of, the date of conversion.
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(5) The Company covenants that the transfer books of the Company for Common
Shares shall not be closed during any period which includes a record date for a
dividend or other distribution on the Common Shares.
11.4 Cancellation of Note.
This Note, when converted as aforesaid, shall ipso facto be void and be
cancelled. The Note converted as aforesaid shall be cancelled by the Company
forthwith upon delivery of such Note to it and subject to Section 11.3(2) no
Note shall be issued in substitution therefor.
11.5 Adjustment of Price and Terms.
(1) The conversion price shall be subject to adjustment from time to time
as hereinafter provided.
(a) Stock Dividends; Stock Splits; Etc. In case the Company shall (i)
declare a dividend or make a distribution on the outstanding shares of its
Common Stock in shares of its Common Stock, (ii) subdivide the outstanding
shares of its Common Stock into a greater number of shares, or (iii)
combine the smaller number of shares, then in each case conversion price in
effect immediately after the record date for such dividend or distribution
or the effective date of such subdivision or combination shall be adjusted
so that it shall equal the price determined by multiplying the conversion
price in effect immediately prior thereto by a fraction, of which the
numerator shall be the number of shares of Common Stock outstanding
immediately after such dividend, distribution, subdivision or combination.
Any shares of Common Stock of the Company issuable in payment of a dividend
shall be deemed to have been issued immediately prior to the record date
for such dividend.
(b) Below Market Sales. Except as hereinafter provided, in case the Company
shall at any time after the date hereof issue or sell any shares of Common
Stock (other than (i) upon the exercise of options or other rights granted
to employees, consultants or directors of the Company or to underwriters
pursuant to any present or future employee benefit or stock option plan of
the company or any underwriting agreement, or (ii) any shares issued to
employees, consultants or directors of underwriters pursuant to any stock
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grant agreement or similar compensatory agreement to which the Company is
or may become a party (collectively "Excluded Transactions")), including
shares held in the Company's treasury, for a consideration per share less
than the then current fair market value of a share of the Company's Common
Stock (the "Fair Market Value"), or without consideration, then forthwith
upon such issuance or sale the conversion price shall (until another such
issuance or sale) be reduced to a price (calculated to the nearest full
cent) determined by multiplying the conversion price by a fraction, the
numerator of which is an amount equal to the sum of (A) the total number of
shares of Common Stock outstanding immediately prior to such issuance or
sale, plus the aggregate of the amount of all consideration, if any,
received or to be received by the Company upon such issuance or sale, and
the denominator of which is (B) the total number of shares of Common Stock
to be outstanding immediately after such issuance or sale multiplied by the
Fair Market Value; provided, however, that in no event shall the conversion
price be adjusted pursuant to this computation contained in this paragraph
(b) to an amount in excess of the initial conversion price hereunder.
For the purposes of any computation to be made in accordance with this
paragraph, the following provisions shall be applicable:
(i) In case of the issuance or sale of shares of Common Stock for a
consideration part or all of which shall be cash, the amount of the
cash consideration therefor shall be deemed to be the amount of cash
received by the Company for such shares (or, if shares of Common Stock
are offered by the Company for subscription, the subscription price,
or, if such securities shall be sold to underwriters or dealers for
public offering without a subscription offering, the initial public
offering price) before deducting therefrom any compensation paid or
discount allowed in the sale, underwriting or purchase thereof by
underwriters or dealers or others performing similar services, or any
expenses incurred in connection therewith.
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(ii) In case of issuance or sale (otherwise than as a dividend or
other distribution on any stock of the Company, or on the exercise of
options, rights or warrants or on the conversion of exchange of
convertible or exchangeable securities) of shares of Common Stock for
a consideration part or all of which shall be other than cash, the
amount of the consideration therefor other than cash shall be deemed
to be the value of such consideration as determined in good faith by
the Board of Directors of the Company.
(iii) This paragraph (b) shall not apply to stock dividends,
distributions, mergers, reclassifications, or other transactions
covered by other paragraphs in this Section 11.0.
(iv) Fair Market Value shall mean the lowest bid price for a share of
the Common Stock during the ten business days prior to the date that
the Board of Directors of the Company approves the sale or issuance
subject to this paragraph (b).
(v) The number of shares of Common Stock at any one time outstanding
shall include the aggregate number of shares issued or issuable
(subject to readjustment upon the actual issuance thereof) upon the
exercise of options, rights, warrants and upon the conversion or
exchange of convertible or exchangeable securities.
(vi) No adjustment shall be made in the conversion price by reason of
an issuance of shares pursuant to (x) options, rights, warrants or
convertible or exchangeable securities unless an adjustment would be
required under paragraph (c) immediately below or (y) warrants or
convertible notes being granted pursuant to the Agreement dated this
date.
(c) Options, Rights, Warrants and Convertible and Exchangeable Securities.
Except with respect to Excluded Transactions, in case the Company shall at
any time after the date hereof issue options, rights or warrants to
subscribe for shares of Common Stock, or issue any securities convertible
into or exchangeable for shares of Common Stock, for a consideration per
share less than the then current Fair Market Value of a share of the
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Company's Common Stock at the date of issuance of such option, etc., or
without consideration, the conversion price in effect immediately prior to
the issuance of such options, rights or warrants, or such convertible or
exchangeable securities, as the case may be, shall be reduced to a price
determined by making a computation in accordance with the provisions of
paragraph (b) hereof, provided that:
(x) The aggregate maximum number of shares of Common Stock, as the
case may be, issuable under such options, rights or warrants shall be
deemed to be issued and outstanding at the time such options, rights
or warrants were issued, and for a consideration equal to the minimum
purchase price per share provided for in such options, rights or
warrants at the time of issuance, plus the consideration, if any,
received by the Company for such options, rights or warrants;
provided, however, that upon the expiration or other termination of
such options, rights or warrants, if any thereof shall not have been
exercised, the number of shares of Common Stock deemed to have been
issued and outstanding pursuant to this paragraph (x) (and for the
purposes of subsection (v) of paragraph (b) hereof) shall be reduced
by such number of shares as to which options, warrants and/or rights
shall have expired or terminated unexercised, and such number of
shares shall no longer be deemed to be issued and outstanding, and the
conversion price then in effect shall forthwith be readjusted and
thereafter be the price which it would have been had adjustment been
made on the basis of the issuance only of shares actually issued or
issuable upon the exercise of those options, rights or warrants as to
which the exercise rights shall not have expired or terminated
unexercised.
(y) The aggregate maximum number of shares of Common Stock issuable
upon conversion or exchange of any convertible or exchangeable
securities shall be deemed to be issued and outstanding at the time of
issuance of such securities, and for a consideration equal to the
consideration received by the Company for such securities, plus the
minimum consideration, if any, receivable by the Company upon the
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conversion or exchange such convertible or exchangeable securities
(whether by reason of redemption or otherwise), the number of shares
deemed to be issued and outstanding pursuant to this paragraph (y)
(and for the purpose of subsection (v) of paragraph (b) hereof) shall
be reduced by such exchange rights shall have expired or terminated
unexercised, and such number of shares shall no longer be deemed to be
issued and outstanding and the conversion price then in effect shall
forthwith be readjusted and thereafter be the price which it would
have been had adjustment been made on the basis of the issuance only
of the shares actually issued or issuable upon the conversion or
exchange of those convertible or exchangeable securities as to which
the conversion or exchange rights shall not have expired or terminated
unexercised.
(z) If any change shall occur in the price per share provided for in
any of the options, rights or warrants referred to in subsection (x)
of this paragraph (c), or in the price per share at which the
securities referred to in subsection (y) of this paragraph (c) are
convertible or exchangeable, such options, rights or warrants or
conversion or exchange rights, as the case may be, shall be deemed to
have expired or terminated on the date when such price change became
effective in respect of shares not theretofore issued pursuant to the
exercise or conversion or exchange thereof, and the Company shall be
deemed to have issued upon such date new options, rights or warrants
or convertible or exchangeable securities at the new price in respect
of the number of shares issuable upon the exercise of rights or
warrants or the conversion or exchange of such convertible or
exchangeable securities.
(d) All calculations described above shall be made to the nearest whole
cent.
(2) No adjustment in the conversion price in accordance with the provisions
described above need be made if such adjustment would amount to a change of less
than 1% in such conversion price; provided that the amount by which any
adjustment is not made by reason of the provisions of this paragraph shall be
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carried forward and taken into account at the time of any subsequent adjustment
in the conversion price.
(3) In the case of any capital reorganization, other than in the cases
referred to above, or the consolidation or merger of the Company with or into
another corporation (other than a merger or consolidation in which the Company
is the continuing corporation and which does not result in any reclassification
of the outstanding shares of Common Stock or the conversion of such outstanding
shares of Common Stock into shares of other stock or other securities or
property), or the sale of the property of the Company as an entirety or
substantially as an entirety, or the conversion, however effected, of the
Company into another form of entity (collectively such actions being hereinafter
referred to as "Reorganizations"), there shall be thereafter be deliverable upon
conversion of this Note the number of shares of stock or other securities or
property to which a holder of the number of shares of Common Stock that would
otherwise have been deliverable upon the conversion of this Note would have been
entitled upon such Reorganization if such Note had been converted in full
immediately prior to such Reorganization. In case of any Reorganization,
appropriate adjustment, as determined in good faith by the Board of Directors of
the Company, shall be made in the application of the provisions herein set forth
with respect to the rights and interests of the Holder of this Note so that the
provisions set forth herein shall thereafter be applicable, as nearly as
possible, in relation to any conversion of the Notes. The Company shall not
effect any such Reorganization, unless upon or prior to the consummation thereof
the successor entity, or if the Company shall be the surviving entity in any
such Reorganization and is not the issuer of the shares of stock or other
securities or property to be delivered to holders of the Common Stock
outstanding at the effective time thereof, then such issuer shall assume by
written instrument the obligation to deliver to the holder such shares of stock,
securities, cash or other property as the Holder shall be entitled to purchase
in accordance with the foregoing provisions. In the event of a sale or
conveyance or other transfer of all or substantially all of the assets of the
Company as a part of a plan for liquidation of the Company, all rights to
convert any Note shall terminated on the date such sale or conveyance or other
transfer is to be consummated.
(4) If at any time after the date hereof the Company fixes a record date
for the issue of the distribution to all or substantially all the holders of
shares of its Common Stock of any property or other assets, and if such issuance
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or distribution does not constitute a dividend paid in the ordinary course, a
stock dividend, a distribution of equity or debt securities of the Company or a
Reorganization (as defined below) (any of such nonexcluded events being called a
"Special Distribution"), the conversion price shall be adjusted effective
immediately after such record date to a price determined by multiplying the
conversion price in effect on such record date by a fraction:
(a) The numerator of which shall be:
(i) the product of the number of shares of Common Stock outstanding
on such record date and the current Fair Market Value of such
shares of Common Stock on such record date; less
(ii) the fair market value, as determined by the Company's Board of
Directors (whose determination shall be conclusive), of such
securities or property or other assets so issued or distributed
in the Special Distribution; and
(b) the denominator of which shall be the product of number of shares of
the Company's Common Stock outstanding on such record date and the
current Fair Market Value of such shares on such record date.
To the extent that any Special Distribution is not so made, the conversion price
shall be readjusted effective immediately to the conversion price which would
then be in effect based on such securities or property or other assets as
actually distributed.
(5) The Company's regular independent auditors, or, at the Company's
option, another firm of independent certified public accountants selected by the
Company and reasonable acceptable to the Holder hereof, which selection may be
changed from time to time, shall at the request of the Company verify the
computations made in accordance with this Section 11.5. The certificate, report
or other written statement of any such firm shall be conclusive evidence of the
correctness of any computation made hereunder.
-14-
<PAGE>
11.6 Postponement of Subscriptions.
In any case in which this Section 11.0 requires that an adjustment is to be
effective immediately after a record date for an event referred to herein, the
Company may defer, until the occurrence of such an event:
(a) issuing to the holder of any Note converted after such record date and
before the occurrence of such event, the additional Common Shares
issuable upon such conversion by reason of the adjustment required by
such event; and
(b) delivering to such holder any distributions declared with respect to
such additional Common Shares after such exercise date and before such
event;
provided, however, that the Company delivers to such holder an appropriate
instrument evidencing such holder's right, upon the occurrence of the event
requiring the adjustment, to an adjustment in the conversion price or the number
of Common Shares issuable on the conversion of any Note and to such
distributions declared with respect to any additional Common Shares issuable on
the conversion of any Note.
11.7 Treatment of Fractions.
The Company shall not be required to issue fractional Common Shares upon a
conversion of this Note pursuant to this Section 11.0. If any fractional
interest in a Common Share would, except for the provisions of this Section 11.7
be deliverable upon the conversion of this Note, the Company shall adjust such
fractional interest by payment to the Holder of this Note, of an amount in cash
equal (computed, as in the case of a fraction of a cent, to the next lower cent)
to the value of such fractional interest computed on the basis of the current
conversion price for Common Shares.
11.8 Notice of Adjustment.
Whenever the conversion price and/or the conversion terms shall be adjusted
pursuant to the provisions of Section 11.5 hereof, the Company shall forthwith
file with the transfer agent for Common Shares of the Company a certificate of
the Company showing the adjusted conversion price and/or adjusted conversion
terms, as the case may be, determined as provided in Section 11.5 hereof and
-15-
<PAGE>
setting forth in reasonable detail the facts requiring the adjustment of the
conversion price or conversion terms, as the case may be, and the manner of
determining such adjustment, and shall cause notice to be given to the holders
of the Notes stating that such an adjustment has been effected and the adjusted
conversion price or conversions terms, as the case may be.
11.9 Reservation of Common Shares.
The Company covenants that it will at all times prior to the maturity of
the Notes, while any of the Notes are outstanding, reserve and keep available
out of its authorized shares of Common Stock, a sufficient number of shares for
the purpose of issue upon the exercise of the right of conversion of the Notes
as herein provided. The Company covenants that all shares which may be so issued
when so issued shall be duly issued, fully paid and non-assessable.
12.0 Subordination.
12.1 Subordination to Senior Indebtedness.
Anything in this Note or in the Agreement to the contrary notwithstanding,
payment of the principal and interest on this Note is hereby expressly
subordinated and subject in right of payment to the extent and in the manner
hereinafter set forth to the prior payment in full of all Senior Indebtedness.
For purposes of this Note, "Senior Indebtedness" shall mean the Company's
indebtedness pursuant to (a) any credit agreement with Chemical Bank now
existing or as modified or restructured from time to time hereafter or any
credit agreement with any other bank or financial institution hereafter entered
into by the Company, (b) any capital leases now outstanding or hereafter
incurred in which the Company is the lessee or (c) any secured indebtedness of
the Company now outstanding or hereafter incurred. It is understood that payment
of the principal and interest on this Note is pari passu with payment of a note
dated December 15, 1993 in the principal sum of $566,049 in favor of Warren
Ruderman.
12.2 Payment of Proceeds in Certain Events.
(1) Subject to Section 12.6 hereof, in the event of any distribution of the
assets of the Company upon any dissolution or winding up or partial or total
liquidation of the Company, whether in bankruptcy, insolvency or receivership
-16-
<PAGE>
proceedings, or upon an assignment for the benefit of creditors or any other
marshalling of the assets and liabilities of the Company, or any reorganization
or insolvency of the Company:
(a) all Senior Indebtedness shall first be paid in full or provision made
for such payment before any payment is made on account of the principal of
and interest on the Notes; and
(b) any payment or distribution or assets of the Company, whether in cash,
property or securities, to which the holders of the Notes would be entitled
except for the provisions of this Section 12.0, shall be paid or delivered
by the trustee in bankruptcy, receiver, assignee for the benefit of
creditors or other liquidating agent making such payment or distribution,
directly to the holders of Senior Indebtedness to the extent necessary to
pay all Senior Indebtedness in full after giving effect to any concurrent
payments or distribution or provision therefor to or for the benefit of the
holders of Senior Indebtedness, and the holders of the Notes by acceptance
thereof assign to the holders of Senior Indebtedness for the purposes and
to the extent set forth in this Section 12.2(b) all their right, title and
interest in and to any such payment or distribution of the assets of the
Company as aforesaid to which the holders of the Notes are or would be
entitled except for the provisions of this Section 12.2(b); and the holders
of the Notes shall take such steps as may be necessary or appropriate to
entitle the holders of Senior Indebtedness to receive ratably such payment
of distribution from the liquidating trustee or agent or any other person
making such payment of distribution;
and if, notwithstanding the foregoing, any payment or distribution of assets of
the Company, whether in cash, property or securities, shall be received by the
Holder of this Note on behalf of such Holder before all Senior Indebtedness is
paid in full, or provision is made for its payment, such payment or distribution
shall be held in trust for the benefit of the holders of Senior Indebtedness and
shall be paid over or delivered to the holders of Senior Indebtedness for
application to the payment of all Senior Indebtedness remaining unpaid.
-17-
<PAGE>
(2) The consolidation or merger of the Company with another corporation or
the sale, transfer or leasing of its property as a whole or substantially as a
whole to another corporation shall not be deemed a winding up for the purpose of
this Section 12.0 if such other corporation shall, as part of such
consolidation, merger, sale, transfer or lease, remain liable to pay the Senior
Indebtedness and this Note.
12.3 Subrogation to Senior Indebtedness.
Subject to the payment in full of all Senior Indebtedness in accordance
with the terms thereof, the holders of all Notes shall be subrogated pro rata to
the rights of the holders of Senior Indebtedness to receive payments or
distributions of assets of the Company applicable to such Senior Indebtedness,
to the extent of the application thereto of moneys or other assets which would
have been received by the holders of the Notes for the benefit of such holders
but for the provisions of this Section 12.0, until the principal of and interest
on the Notes shall be paid in full; it being understood that the provisions of
this Section 12.0 are and are intended solely for the purpose of defining the
relative rights of the holders of the Notes on the one hand and the holders of
the Senior Indebtedness on the other hand, and nothing in this Section 12.0 or
elsewhere in this Note is intended or shall impair the obligation of the
Company, which is unconditional and absolute, to pay to the Holder of this Note
the principal of an interest on this Note as and when the same shall become due
and payable in accordance with its terms, or to affect the relative rights of
the holders of the Notes and creditors of the Company other than the holders of
Senior Indebtedness, nor shall anything herein prevent the Holder of this Note
from exercising all remedies otherwise permitted by this Note or, except as is
expressly limited hereby, by applicable law upon default under this Note,
subject in any event, to the rights, if any, under this Section 12.0 of the
holders of Senior Indebtedness in respect of any payment or distribution of
cash, property or securities of the Company received upon the exercise of any
such remedy.
12.4 Senior Indebtedness Default.
Upon the happening and during the continuance of an event of default under
the Senior Indebtedness (a "Senior Indebtedness Default"), no payment shall be
made by the Company with respect to the principal of and the interest on this
Note. In the event that, notwithstanding the foregoing, the Company shall make
any payment of the principal of or interest on this Note after the happening and
-18-
<PAGE>
during the continuance of a Senior Indebtedness Default, then such payments
received by the Holder hereof shall be held in trust for the benefit of the
holders of Senior Indebtedness, and shall be paid over to the holders of Senior
Indebtedness for application to the payment of all Senior Indebtedness remaining
unpaid. Unless and until written notice has been given to the Holder of this
Note by or on behalf of any holder of any Senior Indebtedness, notifying the
Holder of the happening of an event of default with respect to such Senior
Indebtedness or of the existence of any other facts which would result in the
making of any payment with respect to this Note in contravention of the
provisions of this Section 12.0, the holder shall be entitled to assume that no
such event of default has occurred, or that no such facts exist, and, with
respect to any moneys which may at any time be received by the Holder in trust
pursuant to the provisions of this Indenture, prior to the receipt by it of such
written notice, nothing in this Indenture will prevent the Holder from utilizing
such moneys, notwithstanding the occurrence or continuance of an event of
default with respect to, or the existence of such facts with respect to, Senior
Indebtedness.
12.5 Notice to Holder of Senior Indebtedness Default.
The Company shall give prompt written notice to the Holders of this Note of
any dissolution, winding up or liquidation of the Company within the meaning of
this Section 12.0 or of any other Senior Indebtedness Default or of any other
event the occurrence of which would cause any payment with respect to this Note
to be in contravention of the provisions of this Section 12.0. The Holder of the
Note will be entitled to assume that no such event has occurred unless the
Company has given such notice and, in the case of notice given of any Senior
Indebtedness Default, that such default is continuing until the Company gives
written notice to the Holder that such default has ceased to exist. Upon any
payment or distribution of assets of the Company referred to in this Section
12.0, the Holder of this Note shall be entitled to rely upon a certificate of
the trustee in bankruptcy, receiver, assignee for benefit of creditors or other
liquidating agents making such payment or distribution, delivered to the holders
of Notes, for the purpose of ascertaining the persons entitled to participate in
such distribution, the holders of the Senior Indebtedness and other indebtedness
holders of the Company, the amount thereof or payable thereon, the amount or
-19-
<PAGE>
amounts paid or distributed thereon and all other facts pertinent thereto or to
this Section 12.0.
12.6 Certain Exceptions.
Nothing contained in this Section 12.0 or elsewhere in any of the Notes
shall prevent:
(a) the Company from making payment of the principal of or the interest on
the Notes at any time except upon and during the continuance of a
Senior Indebtedness Default or during the pendency of any dissolution
or winding up or partial or total liquidation of the Company (whether
in bankruptcy, insolvency or receivership proceedings), or upon an
assignment for the benefit of creditors or any other marshalling of
the assets and liabilities of the Company or during any reorganization
or insolvency of the Company; or
(b) the Company from completing any purchase or redemption of Notes
initiated prior to the time of any Senior Indebtedness Default.
Notwithstanding the foregoing, the Holder hereof by acceptance of this Note
agrees that it will not accept any prepayment of this Note nor any payment of
principal or interest on this Note more than 30 days prior to its due date
without the express written consent of all holders of Senior Indebtedness.
12.7 Failure to Act Not Waiver.
No right of any present or future holder of any Senior Indebtedness of the
Company to enforce subordination as herein provided shall at any time in any way
be prejudiced or impaired by any act or failure to act on the part of the
Company or by any act or failure to act, in good faith, by any such holder, or
by any non-compliance by the Company with the terms, provisions and covenants of
this Note, regardless of any knowledge thereof any such holder may have or with
which he may otherwise be charged.
12.8 Renewal or Extension of Senior Indebtedness.
The holders of any of the Senior Indebtedness may at any time in their
discretion renew or extend the time of payment of the Senior Indebtedness so
held or exercise any other of their rights under the Senior Indebtedness,
-20-
<PAGE>
including, without limitation, the waiver of default thereunder, all without
notice to or assent from the holders of the Notes.
12.9 Additional Documentation.
By acceptance of this Note, the Holder agrees from time to time to execute
any and all documents requested by Chemical Bank or reasonably requested by any
other holder of Senior Indebtedness to confirm, amend, supplement or substitute
for the subordination provisions set forth herein, including, but not limited
to, Chemical Bank's form of subordination agreement, with such terms as are
required by Chemical Bank.
12.10 Miscellaneous.
Any capitalized terms used herein and not otherwise defined shall have the
meanings ascribed to them in the Agreement or in any of the documents described
in the Agreement.
-21-
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (We)
assign and transfer this Security to
- --------------------------------------------------------------------------------
(insert assignee's social security or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint -------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------ agent to transfer this Note on the books of the Company. The agent
may substitute another to act for him.
Date:---------------------- Your Signature:------------------------------------
(Sign exactly as your name appears on the other side of this Security)
Signature Guarantee:
- --------------------
EXIBIT 10.15
UNSECURED DEMAND CONVERTIBLE PROMISSORY NOTE
Principal Amount: $100,000.00 September 27, 1995
Interest Rate: 10% Northvale, New Jersey
FOR VALUE RECEIVED, INRAD, INC., a New Jersey corporation (the "Obligor" or
the "Company") promises to pay, in lawful monies of the United States of
America, to the order of Clarex Limited (the "Holder"), ON DEMAND the principal
sum of One Hundred Thousand Dollars ($100,000.00), together with interest, at
any such place as the Holder may designate.
1. Interest. Interest will accrue on the unpaid principal balance from
today's date at the rate of ten percent (10%) per annum and will be due and
payable quarter-annually on the 27th day of December, March, June and September,
or on such earlier date as the Holder shall demand payment of the principal
amount. Interest on the Note will be paid in the form of additional Common Stock
in whole shares at the conversion price of $1.00.
2. Conversion Right. The Holder of this Note shall have the right, at his
option, at any time during the period commencing on the date hereof, on at least
30 days advance written notice to the Company, to convert all or part of this
Note into shares of Common Stock by applying the principal amount of the Note
plus all accrued and unpaid interest thereon, to the purchase of Common Stock at
the conversion price of $1.00.
The conversion price shall be subject to adjustment according to the same terms
as provided for in Section 11.5 of the Subordinated Convertible Note dated April
9, 1995, between INRAD, Inc. and Clarex Limited.
3. Subordination to Senior Indebtedness. Anything in this Note or in the
Agreement to the contrary notwithstanding, payment of the principal and interest
on this Note is hereby expressly subordinated and subject in right of payment to
the extent and in the manner hereinafter set forth to the prior payment in full
of all Senior Indebtedness. For purposes of this Note, "Senior Indebtedness"
shall mean the Company's indebtedness pursuant to (a) any credit agreement with
Chemical Bank now existing or as modified or restructured from time to time
hereafter or any credit agreement with any other bank or financial institution
hereafter entered into by the Company, (b) any capital leases now outstanding or
hereafter incurred in which the Company is the lessee or (c) any secured
indebtedness of the Company now outstanding or hereafter incurred. It is
understood that payment of the principal and interest on this Note is pari passu
with payment of a note dated December 15, 1993 in the principal sum of $566,049
in favor of Warren Ruderman.
<PAGE>
4. Collection Costs and Expenses. The Obligor agrees to pay all costs and
expenses, including reasonable attorneys' fees, incurred by the Holder in
effecting collection of all amounts due under this Note. All such costs and
expenses shall be added to the principal amount due under this Note.
5. No Waiver by Lender. Any delay or failure by the Holder in taking any
action or exercising any remedy shall not prevent the Holder from doing so
later, and shall not act as a waiver of any of the Holder's rights under this
Note.
6. Borrower's Waivers. The Obligor waives presentment for payment, demand,
notice of non-payment, protest, notice of protest, notice of dishonor and any
other notices or demands in connection with the delivery, acceptance, payment,
performance or enforcement of this Note. In any action or proceeding brought by
the Holder to collect any amount due under this Note or otherwise arising out of
or in connection with this Note, the Obligor waives trial by jury.
7. Governing Law. This Note is made and delivered in accordance with New
Jersey law.
INRAD, INC.
By: /s/ Warren Ruderman
---------------------------
Warren Ruderman, President
2
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY:
State or Territory
Company of Incorporation
------- ------------------
INRAD Optical Systems, Inc. New Jersey
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED BALANCE SHEETS, AND THE CONSOLIDATED CONDENSED STATEMENTS
OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
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<ALLOWANCES> 5,000
<INVENTORY> 1,671,673
<CURRENT-ASSETS> 3,076,947
<PP&E> 7,847,197
<DEPRECIATION> 6,059,117
<TOTAL-ASSETS> 5,296,044
<CURRENT-LIABILITIES> 1,128,446
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0
0
<COMMON> 21,216
<OTHER-SE> 1,787,251
<TOTAL-LIABILITY-AND-EQUITY> 5,296,044
<SALES> 5,432,038
<TOTAL-REVENUES> 5,432,038
<CGS> 4,698,250
<TOTAL-COSTS> 4,698,250
<OTHER-EXPENSES> 1,339,173
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<INTEREST-EXPENSE> 269,265
<INCOME-PRETAX> (968,878)
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