<PAGE>
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
For the fiscal year ended DECEMBER 31, 1999
------------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from .................... to .........................
Commission file number 0-11668
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INRAD, INC.
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(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2003247
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
181 LEGRAND AVENUE, NORTHVALE, NJ, 07647
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(Address of principal executive offices) (Zip Code)
(201) 767-1910
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(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 April 1, 2000 was approximately
$2,500,000.
Common shares of stock outstanding as of April 1, 2000:
4,096,078 SHARES
<PAGE>
INRAD, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I
Item 1. Business......................................1
Item 2. Properties....................................5
Item 3. Legal Proceedings.............................5
Item 4. Submission of Matters to a Vote
of Security Holders...........................5
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters...............6
Item 6. Selected Financial Data.......................7
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of
Operations....................................7
Item 7A. Quantitative and qualitative discussion
about market risk............................12
Item 8. Financial Statements
and Supplementary Data.......................12
Item 9. Changes In and Disagreements
With Accountants On Accounting
and Financial Disclosure.....................12
PART III
Item 10. Directors and Executive Officers
of the Registrant............................13
Item 11. Executive Compensation.......................15
Item 12. Security Ownership of Certain
Beneficial Owners and Management.............16
Item 13. Certain Relationships
and Related Transactions.....................16
PART IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K...........18
Signatures..............................................................20
</TABLE>
Note: Page F-1 follows Page 20.
<PAGE>
PART I
ITEM 1. BUSINESS.
INRAD, Inc., (the "Company" or "INRAD"), incorporated in New Jersey in
1973, develops, manufactures and markets products for use in many Photonics
industry sectors via its three related product categories: Crystals and
Components, Custom Optics and Systems and Instruments. Its customers include
leading corporations, world wide, in the following industries: Laser Systems,
Semiconductor Inspection Equipment, Telecommunications and Defense. The
Company's customers also include research scientists at National Laboratories
and Universities.
INRAD designs, develops, manufactures and markets crystals and products
incorporating crystals that are used primarily for controlling, measuring and
modifying laser beams. These products, which represent INRAD's core business,
are designed either for incorporation by original equipment manufacturers in
their laser systems, as stand-alone system accessories for general use with
lasers, or for use by scientists and engineers in their research and development
with lasers. The technical applications for INRAD products range from systems
that operate in the ultraviolet portion of the electromagnetic spectrum, through
the visible and near infrared region and mid infrared wavelengths.
INRAD also manufactures custom precision optics and optical assemblies
to meet the requirements established by its customers. Major industries served
include semiconductor lithography and inspection, fiber-optic telecommunications
components and defense electro-optics. INRAD's Thin Film Coating Department
provides the reflective and anti-reflective optical coatings and optical filters
typically required for these products.
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 drivers for Pockels cells, 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 the government
in the area of crystal and laser technology.
The following table illustrates the Company's Product Sales and
Contract Research and Development Sales during the past three years:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1999 1998 1997
------------- -------------- --------------
CATEGORY SALES % SALES % SALES %
- - - - - - - - -------- ----- - ----- - ----- -
<S> <C> <C> <C> <C> <C> <C>
Crystals, Components,
& Custom Optics $4,251,400 68 $3,372,802 63 $3,934,178 73
Systems & Instruments 926,500 15 1,201,472 23 1,048,877 19
Contract Research &
Development 1,028,192 17 776,594 14 436,374 8
---------- ---------- ----------
TOTAL $6,206,092 100 $5,350,868 100 $5,419,429 100
========== === ========== === ========== ===
</TABLE>
The Company believes that its customers and their industries will
continue to experience increases in demand for their products and hence for the
products INRAD supplies. The Company's optical thin-film coating capacity and
capabilities, its optical
1
<PAGE>
finishing run-rate capacity and its crystal product line breadth and production
capacities are being addressed to meet this projected demand.
PRODUCTS MANUFACTURED BY THE COMPANY
SINGLE CRYSTALS
The Company can and has produced, by various techniques, some 38 types
of crystals that, because of their purity, internal structure, and high
perfection have unique optical, electronic or electro-optical properties. At
present, product sales are based on approximately 12 types of crystals. 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
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, medical
lasers, 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 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.
This product is sold on an OEM basis to the world's largest manufacturer of
ultrafast lasers.
The Company has developed and produced 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. In 1999, a strategic alliance was entered into with A.P.E. of
Berlin, Germany, to market their product line of five Auto correlators in the
U.S., effective January 1, 2000.
CUSTOM PRECISION OPTICS
The Company produces precision optical components used in laser
systems, in fiber-optic telecommunications network components and in
semiconductor inspection systems. These include lenses, windows, polarizers,
retardation plates, Brewster windows, attenuation systems, rotators, polarizing
beam splitter cubes and etalons.
2
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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.
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 twelve scientists and engineers, including six 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, 1999, 1998, and 1997 were $295,822 (5.7% of net product sales), $159,245
(3.5% of net product sales), and $114,021 (2.2% of net product sales).
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 which have promise for the development of new commercial products
for 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 twelve U.S. patents, and has filed additional applications. The Company
is seeking strategic partners to commercialize some of the technologies
developed from these programs.
During 1999, 1998 and 1997, the Company was awarded funded R&D programs
totaling approximately $875,000, $1,323,000 and $945,000, 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 $1,028,192,
$776,594 and $436,374 during the years ended December 31, 1999, 1998, and 1997,
respectively. The Company expects to continue seeking new government-sponsored
programs, as well as joint programs with certain of its customers, in technical
areas related to its core business.
MARKETS
In 1999, 1998 and 1997 the Company's domestic product sales were made
to customers in the following market areas:
<TABLE>
<CAPTION>
MARKET 1999 1998 1997
------ ---- ---- ----
<S> <C> <C> <C>
Industrial 84% 84% 80%
Universities 7% 8% 8%
National Laboratories 5% 3% 3%
Government 4% 5% 9%
---- ---- ----
Total Domestic 100% 100% 100%
==== ==== ====
</TABLE>
3
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Export sales primarily to customers in Canada, Europe, the Near East
and the Pacific Rim, amounted to 41.3% of total product sales in 1999, 21% in
1998 and 16% in 1997. One foreign customer accounted for 12% of net product
sales in 1999; no foreign customer accounted for over 10% of net product sales
in 1998 or 1997. No U.S. customer accounted for over 10% of net product sales in
1999. One U.S. customer accounted for 13% and 14% of net product sales in 1998
and 1997, respectively.
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 countries in major non-US markets, including Canada, Europe,
the Near East and the Pacific Rim.
The current sales staff consists of three degreed professionals plus
support personnel. The Company plans to increase its sales and marketing staff
in 2000, and to launch a new, comprehensive web-site.
BACKLOG
The Company's order backlog as of December 31, 1999 included
approximately $1,438,000 of product orders and $1,098,000 of contract R&D, most
of which is scheduled to be completed in 2000. On December 31, 1998, the backlog
included $1,426,000 of product orders and $1,110,000 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. However, within each
product category, there is competition. Although price is the principal factor
in certain product categories, the principal means of competition in most
product categories are not only price, but also include product design, product
performance, quality, delivery and customer service. Based on its performance to
date, the Company believes that it can compete successfully in terms of price,
product design, product performance, quality and customer service although no
assurances can be given in this regard.
EMPLOYEES
As of December 31, 1999, the Company had 57 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
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.
The company was awarded a U.S. patent for a Thermal Conductivity Meter
(t-Master) that the company has begun to market, principally to the
semiconductor industry. The t-Master, which is useful for the measurement of the
thermal conductivity of thin films, was recognized by a 1997 R&D 100 award as
one of the year's 100 most technologically
4
<PAGE>
significant products and processes.
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; a unique
chemical reactor; and zeolite membranes able to effect separations at high
temperatures. The Company is seeking strategic partners to commercialize,
license or sell these patented technologies.
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.
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 CE
certification; the Company is now engaged 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, 2001. The Company has an option to renew the lease for one
additional term of five years. The 1999 annual rent was approximately $196,000.
The Company also paid real estate taxes and insurance premiums which aggregated
approximately $43,000 during 1999. The Company also leases approximately 950
square feet of space at 148 Veterans Drive, Northvale, New Jersey pursuant to a
gross lease renewable on a month to month basis.
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.
5
<PAGE>
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 Bid prices for the Common
Stock in each fiscal quarter from the quarter ended March 31, 1998, through the
quarter ended December 31, 1999 as reported by the National Association of
Securities Dealers NASDAQ System:
<TABLE>
<CAPTION>
BID PRICE
-----------------------
HIGH LOW
---- ---
<S> <C> <C>
Quarter ended December 31, 1999.......................................................2 7/8 2 11/16
Quarter ended September 30, 1999...................................................... 9/32 9/32
Quarter ended June 30, 1999............................................................ 1/2 1/2
Quarter ended March 31, 1999.......................................................... 3/16 3/16
Quarter ended December 31, 1998....................................................... 5/16 5/16
Quarter ended September 30, 1998....................................................... 3/8 5/16
Quarter ended June 30, 1998............................................................ 1/2 3/8
Quarter ended March 31, 1998.......................................................... 7/16 13/32
</TABLE>
Such Over the Counter quotations reflect inter-dealer prices, without retail
markup, markdown or commissions and may not necessarily reflect actual
transactions.
(b) HOLDERS.
As of April 14, 2000, there were 200 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, 1999, 1998 or 1997. 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.
(d) Recent Sales of Unregistered Securities.
In 1999 The Company completed a private sale of securities to a
shareowner and debt holder. Under the terms of the offering, the Company issued
an aggregate of 500 shares of 10% convertible preferred stock at a price of
$1,000 for proceeds of $500,000. this transaction is exempt from registration as
an exempt private placement pursuant to section 4(2) of the Securities Act.
6
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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.
<TABLE>
<CAPTION>
As of December 31, or
For the Year Ended December 31,
---------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
$ $ $ $ $
Revenues 6,206,092 5,350,868 5,419,429 5,731,005 5,432,038
Net Profit (Loss) 21,789 (631,768) (572,121) (373,774) (968,878)
Net Profit (Loss)
per Common Share .01 (0.30) (0.27) (0.18) (0.46)
Dividends
Paid None None None None None
Total
Assets 4,113,227 3,538,157 4,093,459 4,715,205 5,296,044
Long-Term
Obligations 350,000 350,000 2,257,153 2,351,561 2,359,131
Shareholders'
Equity 2,995,161 2,473,372 862,572 1,434,693 1,808,467
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The following information contains forward-looking statements,
including, statements with respect to the revenues to be realized from existing
backlog orders and ability to generate sufficient cash flow in the future. The
Company wishes to insure that any forward-looking statements are accompanied by
meaningful cautionary statements in order to comply with the terms of the safe
harbor provided by the Private Securities Reform Act of 1995. Actual results may
vary materially from these forward-looking statements due to the following
factors: inability to maintain customer relationships and/or add new customers;
unforeseen overhead expenses that may adversely affect financial results or
other unforeseen circumstances such as the Company being unable to keep up
technologically with state of the art processes and capabilities and the
inability to produce at increased volumes due to personnel shortages resulting
from current tight labor markets that would hinder the Company's ability to
operate with a positive cash flow. Readers are further cautioned that the
Company's financial results can vary from quarter to quarter, and the financial
results for any period may not necessarily be indicative of future results. The
foregoing is not intended to be an exhaustive list of all factors which could
cause actual results to differ materially from those expressed in
forward-looking statements made by the Company.
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.
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.
7
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<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
% % %
Revenues:
Net product sales 83.4 85.5 91.9
Contract research and development 16.6 14.5 8.1
----- ----- -----
100.0 100.0 100.0
Costs and expenses:
Cost of goods sold* 68.9 74.3 77.6
Contract research and
development* 96.7 106.7 100.3
Selling, general and
administrative expenses 25.0 25.5 24.5
Internal research and
development** 5.7 3.5 2.2
Interest expense .5 4.6 4.7
Interest and other income, including 4.2 0.2 0.2
income tax benefit
104.2 100.2 100.2
----- ----- -----
Net Profit (Loss) .4 (11.8) (10.6)
===== ===== =====
</TABLE>
* calculated as a percentage of their respective revenues
** calculated as a percentage of net product sales
NET PRODUCT SALES
Net product sales were $5,177,900, $4,574,274 and $4,983,055, in 1999,
1998 and 1997, respectively. Product sales in 1999 were 13.2% higher than the
prior year.
New bookings of product orders in 1999 were approximately 26% higher
than in 1998.
The Company's backlog of product orders as of December 31, 1999 was
approximately $1,438,000, compared to approximately $1,426,000 at December 31,
1998.
Increased sales in 1999 reflect strong demand in several key industry
sectors and a strategic initiative to attain greater sales to the
telecommunications and semiconductor inspection equipment industry segments.
Sales of Crystals, Components, and Custom Optics increased to 82.1% of
product sales in 1999 from 73.7% of product sales in 1998. Additionally, sales
of these product categories increased 26% over sales of these same categories in
1998.
Sales of Systems and Instruments decreased to 17.9% of product sales in
1999 compared with 26.3% in 1998, reflecting softer demand for the Company's
autocorrellators, which measure laser pulse characteristics. Overall, sales of
Systems and Instruments in 1999 decreased by 22.9% vs. 1998. The Company formed
a strategic alliance with Angewandte Physik & Electronik Gmbh, of Berlin
(A.P.E.), that will be effective January 1, 2000, wherein INRAD will market a
line of state-of-the-art autocorrelators manufactured by A.P.E. in Germany.
Combined sales to telecommunications and semiconductor inspection
customers were 24.6% of product sales in 1999 vs. 12.0% of product sales in
1998.
Sales to laser systems manufacturers in 1999 were 32.2% of product
sales vs. 28.5% in 1998, reflecting strong demand from the medical laser
segment.
Sales to defense industry customers decreased in 1999 to 14.2% of total
product sales vs. 15.6% in 1998.
International sales, as a percentage of total product sales, were
41.3%, 21% and 16% for 1999, 1998, and 1997, respectively.
8
<PAGE>
COST OF GOODS SOLD
As a percentage of net product sales, cost of goods sold was 68.9%,
74.3% and 77.6% for the years ended December 31, 1999, 1998 and 1997,
respectively. In 1999, the cost of goods sold percentage decreased from 1998 due
to higher sales volume relative to fixed costs and to increased allocations of
overhead to contract research and research and development expenses. The
decrease in the cost of goods sold percentage from 1997 to 1998 is attributable
to increased allocations of overhead to contract research and development
expenses and due to lower depreciation expense in 1998.
Prices for raw materials and purchased components have been relatively
stable in 1999, 1998 and 1997, while labor costs rose in all years.
CONTRACT RESEARCH AND DEVELOPMENT
Contract research and development revenues were $1,028,192, $776,594
and $436,374 for the years ended December 31, 1999, 1998 and 1997, respectively.
Related contract R&D expenditures, including allocated indirect costs, were
$993,513, $828,850 and $437,623. Revenues increased in 1999 over 1998 and 1997
due to a larger opening backlog and increased bookings in those years. The
programs are typically fixed price contracts and provide 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 continue focusing its future funded research
efforts on programs closely aligned with its core business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses in 1999 increased
$188,963, or 13.8% compared to 1998, and in 1998 increased $32,436 or 2.5%
compared to 1997. In 1999, selling, general and administration expenses
increased due to increases in salaries and personnel and additional recruiting
expenses and advertising and marketing efforts. In 1998, selling, general and
administrative expenses increased due to increases in salaries and additional
recruiting expenses. Subject to availability of resources, the Company expects
to increase certain selling costs in 2000, including additional sales staff.
INTERNAL RESEARCH AND DEVELOPMENT EXPENSES
Company-funded research expenditures during the years ended December
31, 1999, 1998, and 1997 were $295,822 (5.7% of net product sales), $159,245
(3.5% of net product sales), and $114,021 (2.2% of net product sales). During
1999, the Company continued to focus its internal research and development
efforts on a few new products with short development cycles. As a result, R&D
expenditures increased in 1999. This level is expected to continue in 2000.
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 basis of assets and liabilities using enacted tax
rates in effect in the years in which the differences are expected to reverse.
At December 31, 1999, the Company had a net deferred tax asset of $2,706,000,
the primary component of which was its significant net operating loss carry
forward. The Company has established a valuation allowance to fully offset this
deferred tax asset in the event that operating losses continue and make it
uncertain that the tax asset will be realized.
During 1999, the state of New Jersey introduced a program that allowed
High Technology firms, located within the State, to sell prior year tax losses
on an open market basis. The Company sold approximately $3,350,000 of such
losses and realized a net tax benefit of $251,710.
9
<PAGE>
YEAR 2000 COMPLIANCE
The Company utilizes and is dependent upon data processing systems and
software to conduct its business. The data processing systems and software
include those developed and maintained by the Company's third-party data
processing vendors, and software that is run on in-house computer networks. With
respect to internal systems, the results of that evaluation to date have not
revealed any year 2000 issues that, in the Company's opinion, cannot be remedied
in a timely manner; and therefore are not expected to create a material risk of
disruption of operations. With respect to outside vendors, those vendors, which
have responded, have indicated that their hardware of software is or will be
year 2000 compliant in time frames that meet regulatory requirements.
Evaluations of these issues is continuing and there can be no assurance that
additional issues, not presently known to the Company, will not be discovered
which could present a material risk of disruption to the Company's operations.
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 February 6, 1997, the Company signed an agreement with Chase
Manhattan Bank (successor to Chemical Bank) amending the terms of its credit
facility. The agreement required monthly principal payments of $10,000 for
January 1997, and $ 7,500 from February 1997 until December 1997, monthly
principal payments of $10,000 from January 1998 until December 1998, and monthly
principal payments of $ 12,500 from January 1999 until August 1999. A final
payment of $7,500 was made on September 1, 1999.
In December 1998, the Company entered into a number of transactions to
improve its balance sheet and in effect increase its shareowner equity. These
transactions converted $1,800,799 of notes payable and $441,769 of accrued
interest into 1,979,107 shares of its common stock. The notes converted into
equity are as follows:
In April 1995, the Company received $225,000 from a shareowner and
Subordinated Convertible Note holder of the Company through the
issuance of a $125,000 8% Subordinated Convertible Note 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. In connection with this
transaction, the Company issued 50,000 warrants to purchase Common
Stock at $0.6875 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. Both of these notes along
with their accrued interest were converted into a total of 299,194
shares of common stock at the note conversion price of $1.00 per share
on December 31, 1998.
In 1993, the Company raised $1,000,000 in cash from a private
investment group through the issuance of a $746,215 10% Subordinated
Convertible Note due December 15, 2000 (the "note") 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. On
December 31, 1998 this note along with its accrued interest was
converted into 960,000 shares of the Company's common stock.
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
10
<PAGE>
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. This
note along with its accrued interest was converted into 684,921 shares
of the Company's common stock on December 31, 1998. Interest expense
related to the shareowner loan was approximately $57,000 in both 1998
and 1997, respectively.
As a result of the forgoing, interest expense for 1999 was
significantly less then it was in 1998.
During September 1993, the Company borrowed $100,000 in the form of a
promissory note from a shareowner of the Company. On December 16, 1993, this
promissory note was extinguished and a $74,621 10% subordinated convertible note
and 20,303 shares of the Company's common stock at $1.25 per share were issued.
The note, and $25,379 of accrued interest, is convertible at any time up to the
maturity date into shares of the Company's common stock at $1.25 per share (to
be adjusted for dividends, stock splits, etc.). The note and accrued interest
were converted to 80,000 common shares in February 2000. They are subordinated
to other secured indebtedness of the Company. This note also contains certain
covenants and restrictions, including financial ratios tied to accounts
receivable and debt service (as defined). Interest is payable semiannually on
this note, and the first six interest payments are payable in the form of
additional notes. At December 31, 1999 and 1998 the Company was not in violation
of the covenants of this note.
The Company's Secured Promissory Note bears interest at 7%, is secured
by certain of the Company's precious metals, and is convertible at any time into
200,000 shares of common stock. The Note also contains 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 was July 8, 1997. However, the noteholder has agreed not to
demand payment prior to January 1, 2001, therefore the note has been classified
as noncurrent in the accompanying balance sheet.
In March 1999, a shareowner and debtholder of the Company had agreed to
purchase 500 shares of 10% convertible preferred stock at the price of $1,000
per share. Two hundred shares were purchased for $200,000 in March 1999 and the
remaining three hundred shares were purchased in June 1999 for $300,000.
Dividends are payable in common stock at the rate of $1.00 per share.
Capital expenditures, including internal labor and overhead charges,
for the years ended December 31, 1999, 1998 and 1997 were approximately
$327,000, $95,000 and $86,000, respectively. As the Company generates
satisfactory amounts of cash flow from its operations, it is expected that
future capital expenditures will increase over 1999 levels.
OVERVIEW OF FINANCIAL CONDITION
As shown in the accompanying financial statements, the Company reported
net income of approximately $22,000 for the year ended December 31, 1999, and
incurred losses in 1998 and 1997. During the past three years, the Company's
working capital requirements were met in part on the basis of issuance of common
and preferred stock to shareowners including the principal shareowner, cash
generated from operations, and the sale of New Jersey State Tax Loss Credits.
Although the Company sustained a loss on the operating level, it is not
anticipated that such losses will impact the ability of the business to continue
operations. EBITDA for the period exclusive of the gain generated from the sale
of the New Jersey Tax Loss Credit, was approximately $111,000 and net cash
generated from operations was also approximately $111,000. Cash generated from
the sale of preferred stock and the sale of New Jersey State Tax Loss Credits
was used primarily for the acquisition of capital assets and to internally fund
working capital requirements resulting from increased business activity.
Where possible, the Company will continue to increase sales, and reduce
expenses and
11
<PAGE>
cash requirements to improve future operating results and cash flows. Management
expects that cash flow from operations will provide adequate liquidity for the
Company's operations in 2000. The Company plans to hire additional
manufacturing, technical and sales personnel, and to purchase fixed assets, in
order to improve operations. 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCUSSION ABOUT MARKET RISK.
Not applicable
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company's consolidated financial statements are set forth on pages
F-1 through F-16. Page F-1 follows page 20.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
On November 17, 1999, the Company filed Form 8-K reporting a change in
its independent accountant. There were no disagreements with the accountants on
accounting and financial disclosure.
PART III
12
<PAGE>
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 years.
<TABLE>
<CAPTION>
Director Positions; Business
Name and Age Since Experience
- - - - - - - - ------------ -------- -------------------
<S> <C> <C>
Warren Ruderman, 1973 Chairman of the Board of Directors,
80 President and Chief Executive Officer
(1973-1999)
Chief Executive Officer and
Chief Technology Officer (1999 to present)
John Rich, 2000 Director
62 Vice President/General Manager (1999-Present)
Power Electronics
President (1990-1999)
Raytheon Optical Systems
Vice President (1983-1989)
Perkin Elmer
Colonel, Commander, Air Force Avionics
Laboratory and Air Force Weapons Laboratory
Daniel Lehrfeld, 1999 President and Chief Operating Officer
(1999-present)
56
Thomas Lenagh, 1998 Management Consultant (1990 - Present);
73
Frank Wiedeman, 1998 Executive Director (1980 - Present)
85 American Capital Management Inc.
</TABLE>
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
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. Thomas Lenagh and Frank Wiedeman have been
selected by Clarex as their representatives.
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
13
<PAGE>
and the positions and offices with the Company held by each such person:
<TABLE>
<CAPTION>
Officer Positions and Offices
Name and Age Since With the Company
- - - - - - - - ------------ ------- ---------------------
<S> <C> <C>
Warren Ruderman, 80 1973 Chairman of the Board of Directors,
Chief Executive Officer and
Chief Technology Officer
Daniel Lehrfeld, 56 1999 President and Chief Operating Officer
Maria Murray, 42 1995 Sr. Vice President - Business Development
William S. Miraglia, 50 1999 Chief Financial Officer and Secretary
Relinda Walker, 52 1999 Vice President - Manufacturing
Devaunshi Sampat, 47 1999 Vice President - Marketing and Sales
Ilya Zwieback, 51 1998 Vice President - Crystal Growth
</TABLE>
Warren Ruderman has served as Chief Executive Officer 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.
Daniel Lehrfeld joined the Company in 1999 as President and Chief
Operating Officer. Prior to joining the Company, Mr. Lehrfeld held the position
of Vice President and General Manager of the Electro-Optics Center, a division
successively of the Raytheon, GM/Hughes Electronics and Magnavox Electronic
Systems Corporation. He has also held executive positions with Philips
Laboratories and Grumman Aerospace Corporation. Mr. Lehrfeld holds B.S. and M.S.
degrees from Columbia University School of Engineering and Applied Science and
an M.B.A. degree from the Columbia Graduate School of Business.
Maria Murray joined the Company in January 1989, became Vice President
of R&D Programs in 1993, and was appointed Sr. Vice President, Business
Development in 1999. Prior to joining INRAD, she held positions in electronic
design engineering in the laser and communication industries. She holds a B.S.
degree in Electrical Engineering from the University of Central Florida.
William S. Miraglia joined the Company as Secretary and Chief Financial
Officer in June 1999. Previously, he held the position of Vice President of
Finance for a division of UNC, Inc., a NYSE aviation company. Prior to his last
position, Mr. Miraglia has held management positions in the aerospace industry
and in public accounting. He holds a B.B.A. from Pace University, and an M.B.A
from Long Island University and is a Certified Public Accountant.
Relinda C. Walker joined the Company as Vice President, Manufacturing
in May 1999. Previously, Ms. Walker held the position of Vice President at
Instruments, SA where she directed a business unit. Ms. Walker holds a B.S. and
M.S. in Mathematics from Emory University.
Devaunshi Sampat joined the Company in 1998. In 1999 she was appointed
Vice
14
<PAGE>
President of Marketing and Sales. Prior to joining the Company, Ms. Sampat held
sales management positions within the Photonics industry with Princeton
Instruments and Oriel Instruments. Ms. Sampat holds a B.S. in Medical Technology
from the University of Bridgeport.
Ilya Zwieback joined the Company in 1992 as Senior Research Scientist
and left the Company in 1996 to join Lockheed Sanders as Senior Physicist. In
1997 Dr. Zwieback rejoined the Company as Manager of Crystal Growth and in 1998
was appointed Vice President, Crystal Growth. Dr. Zwieback holds a Doctorate of
Physics in semiconductors from Moscow Institute of Steel and Alloys.
Each of the executive officers has been elected by the Board of
Directors to serve as an officer of the Company until the next election of
officers, as provided by the Company's by-laws.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth, for the years ended December 31, 1999,
1998 and 1997, the cash compensation paid by the Company and its subsidiaries,
to or with respect to the Company's Officers, whose total annual salary and
bonus exceeded $100,000, for services rendered in all capacities as an executive
officer during such period:
<TABLE>
<CAPTION>
Name and Position Stock
Salary Bonus Options
------ ----- -------
<S> <C> <C> <C> <C>
Warren Ruderman, 1999 $130,000 none none
Chairman and Chief 1998 $130,000 none none
Executive Officer 1997 $130,000 none none
Daniel Lehrfeld, 1999 $40,000* none 100,000
President and Chief 1998 N/A N/A N/A
Operating Officer 1997 N/A N/A N/A
Maria Murray, 1999 $110,000 9,500 30,000
Vice President, 1998 less than $100,000 none none
Business Development 1997 less than $100,000 none 10,000
Devaunshi Sampat, 1999 $111,000 22,600 20,000
Vice President, 1998 less than $100,000 none 7500
Sales and Marketing 1997 less than $100,000 none none
</TABLE>
* Compensation as of October 1999 Employment Date. Employment Contract
attached as Exhibit 10.24
(A) During the periods covered, no 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.
COMPENSATION OF DIRECTORS
Each non-employee director is paid $500 for each board meeting they attend, and
$250 for each conference call meeting in which they participate.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
15
<PAGE>
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, 2000. The Company
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.
<TABLE>
<CAPTION>
Percent of
Name and Address Number of shares Common Stock
- - - - - - - - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Warren Ruderman 1,791,946 43.7
c/o INRAD, Inc.
181 Legrand Avenue
Northvale, NJ 07647
Clarex, Ltd. 2,187,214 (1) 46.9
c/o Bank of Nova Scotia
Trust Company Bahamas Ltd.
PO Box N1355
Nassau, Bahamas
Hoechst Celanese Corp. 300,000 7.3
Routes 202-206 North
Box 2500
Somerville, NJ 08876
William F. Nicklin 210,527 (2) 5.0
33 Grand Avenue
Newburgh, NY 12550
Frank Wiedeman 51,500 (3) 1.2
c/o INRAD, Inc.
Directors and Executive 1,896,271 (4) 46.3
Officers as a group
(7 persons)
</TABLE>
(1) Including 570,000 shares subject to options, warrants or convertible
notes exercisable or convertible within 60 days.
(2) Including 80,000 shares subject to convertible notes convertible
within 60 days.
(3) Including 50,000 shares subject to options exercisable within 60 days.
(4) Including 89,250 shares subject to options or warrants exercisable
within 60 days.
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 bore interest at 7%
and was unsecured. Interest expense related to the shareowner loan was
approximately $57,000, both in 1998 and 1997, respectively. On December 31, 1998
this note along with its accrued interest was converted into 684,921 shares of
the Company's Common Stock.
During the years ended December 31, 1999, 1998 and 1997 approximately
6%, 4%, and 4%, respectively of the Company's net product sales were through a
foreign agent, in which the principal shareholder has an investment. Terms of
sales to this foreign agent were substantially the same as to unrelated foreign
agents.
16
<PAGE>
On December 31, 1998, a shareowner and debtholder converted $1,234,730
of notes and $322,917 of accrued interest into 1,294,186 shares of the Company's
Common Stock.
During 1999 a shareowner and debt holder purchased 500 shares of 10%
convertible Preferred stock for $500,000.
17
<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:
<TABLE>
<CAPTION>
Exhibit No.
Present in Registration
Exhibit Statement or
No. Description of Exhibit or Amendments
- - - - - - - - --- ---------------------- ---------------
<S> <C> <C>
3.1 Restated Certificate of 3.1 of Amendment
Incorporation, as amended. No. 1.
3.2 By-laws, as amended. 3.2 of Amendment
No. 1.
10.1 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 Company's proxy statement filed with the
Securities and Exchange Commission related to the annual meeting held on June 20, 1996:
10.8 INRAD, Inc. Key Employee Compensation Plan.
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, 1993:
10.11 Stock and Note Purchase Agreement with exhibits.
10.12 Amended and Restated Chase Manhattan Bank Agreement.
The following exhibits are incorporated by reference to the Report to the Securities and Exchange
Commission on Form 10-K for the fiscal year ended December 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.
</TABLE>
18
<PAGE>
<TABLE>
<S> <C> <C>
The following exhibits are incorporated by reference to the Report to the Securities and Exchange
Commission on Form 10-K for the fiscal year ended December 31, 1996:
10.16 Amendment and waiver between INRAD and Chase Manhattan Bank dated February 6, 1997.
10.17 Addendum to lease dated October 4, 1991, between S&R Costa as lessor and the
Company as leasee.
10.18 Amendment and waiver to the stock and purchase agreement dated as of
December 15, 1993.
22.1 Subsidiaries of the Company
27.1 Financial Data Schedule
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, 1999:
10.26 Employment contract with Devaunshi Sampat.
The following exhibit is incorporated by reference to the Report to the Securities and Exchange
Commission on Form 10-Q for the quarter ended June 30, 1999:
10.26 Employment contract with Relinda Walker.
The following exhibits form an attachment to this report:
3.3 Certificate of Amendment of Certificate of Incorporation
3.4 Exhibit A - Series A 10% Convertible Preferred Stock
10.24 Employment contract with Daniel Lehrfeld.
11.1 A statement regarding computation of per-share earnings is omitted
because the computation can be clearly determined from the material contained
herein.
23.2 Consent from Grant Thornton LLP.
23.3 Consent from Holtz Rubenstein, LLP.
27.1 Financial data schedule.
</TABLE>
19
<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
Chief Executive Officer
Dated: April 14, 2000
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.
<TABLE>
<CAPTION>
Signature Title Date
- - - - - - - - --------- ----- ----
<S> <C> <C>
/s/ Warren Ruderman Chairman of the Board April 14, 2000
- - - - - - - - ---------------------------- of Directors and
Warren Ruderman Chief Executive Officer
/s/ Daniel Lehrfeld President, Chief April 14, 2000
- - - - - - - - ---------------------------- Operating Officer
Daniel Lehrfeld and Director
/s/ Thomas Lenagh Director April 14, 2000
- - - - - - - - ----------------------------
Thomas Lenagh
/s/ Frank Wiedeman Director April 14, 2000
- - - - - - - - ----------------------------
Frank Wiedeman
/s/ William S. Miraglia Chief Financial Officer April 14, 2000
- - - - - - - - ---------------------------- and Secretary
William S. Miraglia (Principal Financial and
Accounting Officer)
</TABLE>
20
<PAGE>
INRAD, INC. AND SUBSIDIARY
REPORT ON AUDITS OF CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1999
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Holtz Rubenstein & Co., LLP, Independent Certified Public Accountants F-2
Report of Grant Thornton LLP, Independent Certified Public Accountants F-3
Consolidated balance sheets as of December 31, 1999 and 1998 F-4
Consolidated statements of operations for the three years
ended December 31, 1999 F-5
Consolidated statement of shareowners' equity for the three years
ended December 31, 1999 F-6
Consolidated statements of cash flows for the three years
ended December 31, 1999 F-7
Notes to consolidated financial statements F-8 - F-16
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareowners
Inrad, Inc. and Subsidiary
Northvale, New Jersey
We have audited the accompanying consolidated balance sheet of Inrad, Inc. and
Subsidiary as of December 31, 1999, and the related consolidated statements of
operations, shareowners' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Inrad,
Inc. and Subsidiary as of December 31, 1999, and the results of their operations
and their cash flows for the year then ended, in conformity with generally
accepted accounting principles.
HOLTZ RUBENSTEIN & CO., LLP
Melville, New York
February 25, 2000
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Inrad, Inc. and Subsidiaries
Northvale, New Jersey
We have audited the accompanying consolidated balance sheet of INRAD, Inc. and
Subsidiary as of December 31, 1998, and the related consolidated statements of
operations, shareowners' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of INRAD,
Inc. and Subsidiary as of December 31, 1998, and the consolidated results of
their operations and their consolidated cash flows for each of the two years
ended December 31, 1998, in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
New York, New York
March 5, 1999
F-3
<PAGE>
INRAD, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
ASSETS 1999 1998
------ --------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 377,169 $ 208,028
Accounts receivable, net of allowance for uncollectible
accounts of $44,000 and $7,000, respectively 741,558 639,604
Unbilled contract costs 460,713 125,096
Inventories 1,336,285 1,433,081
Other current assets 91,970 64,626
-------------- -------------
Total current assets 3,007,695 2,470,435
PROPERTY AND EQUIPMENT, net
Property and equipment at cost 5,543,244 5,216,544
Less: Accumulated depreciation and amortization (4,898,951) (4,585,761)
-------------- -------------
Total property and equipment 644,293 630,783
PRECIOUS METALS 306,396 282,396
OTHER ASSETS 154,843 154,543
------------- -------------
$ 4,113,227 $ 3,538,157
============= =============
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES:
Note payable, bank $ - $ 107,500
Accounts payable and accrued expenses 603,458 527,991
Current obligations under capital leases - 8,007
Advances from customers 152,608 30,887
Other current liabilities 12,000 40,400
------------- -------------
Total current liabilities 768,066 714,785
------------- -------------
SECURED CONVERTIBLE PROMISORY NOTE 250,000 250,000
------------- -------------
SUBORDINATED CONVERTIBLE NOTE 100,000 100,000
------------- -------------
COMMITMENTS
SHAREOWNERS' EQUITY
10% Convertible preferred stock, no par value; authorized 1,000,000 shares;
500 and 0 issued and outstanding, respectively 500,000 -
Common stock, $.01 par value; authorized 6,000,000
shares; 4,100,678 issued and outstanding 41,007 41,007
Capital in excess of par value 8,237,718 8,237,718
Deficit (5,768,614) (5,790,403)
------------- ----------
3,010,111 2,488,322
Treasury stock, at cost; 4,600 shares (14,950) (14,950)
------------- -------------
2,995,161 2,473,372
------------- -------------
$ 4,113,227 $ 3,538,157
============= =============
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
INRAD, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended
December 31,
----------------------------------------------
1999 1998 1997
----------- ---------- ---------
<S> <C> <C> <C>
REVENUES
Net product sales $ 5,177,900 $ 4,574,274 $ 4,983,055
Contract research and development 1,028,192 776,594 436,374
------------- ------------- -------------
6,206,092 5,350,868 5,419,429
------------- ------------- -------------
COST AND EXPENSES:
Cost of goods sold 3,568,075 3,396,603 3,864,506
Contract research and development expenses 993,513 828,850 437,623
Selling, general and administrative expenses 1,551,320 1,362,357 1,328,921
Internal research and development expenses 295,822 159,245 114,021
------------- ------------- -------------
6,408,730 5,747,055 5,745,071
------------- ------------- -------------
OPERATING LOSS (202,638) (396,187) (325,642)
------------- -------------- -------------
OTHER INCOME (EXPENSE):
Interest expense (33,330) (244,533) (256,482)
Interest and other income, net 6,047 8,952 10,003
------------- ------------- -------------
(27,283) (235,581) (246,479)
------------- ------------- -------------
LOSS BEFORE INCOME TAX BENEFIT (229,921) (631,768) (572,121)
INCOME TAX BENEFIT 251,710 - -
------------- ------------- -------------
NET INCOME (LOSS) $ 21,789 $ (631,768) $ (572,121)
============= ============= =============
NET INCOME (LOSS) PER COMMON SHARE
Basic $.01 $(.30) $(.27)
==== ===== =====
Diluted $.01 $(.30) $(.27)
==== ===== =====
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING:
Basic 4,096,078 2,119,609 2,109,271
============= ============= =============
Diluted 4,096,078 2,119,609 2,109,271
============= ============= =============
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
INRAD, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Preferred Stock Capital in
-------------------- ------------------ excess of Treasury
Shares Amount Shares Amount Par Value Deficit Stock
------ ------- ------ ------ ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 2,121,571 $21,216 - $ - $6,051,791 $(4,586,514) $51,800
Net loss for the year - - - - - (572,121) -
--------- ------- ------- -------- ---------- ----------- -------
Balance, December 31, 1997 2,121,571 21,216 - - 6,051,791 (5,158,635) 51,800
Issuance of treasury stock to employees - - - - (36,850) - (36,850)
Common stock issued on conversion of debt 1,979,107 19,791 - - 2,222,777 - -
Net loss for the year - - - - - (631,768) -
--------- ------- ------- -------- ---------- ----------- -------
Balance, December 31, 1998 4,100,678 41,007 - - 8,237,718 (5,790,403) 14,950
Issuance of Preferred Stock - - 500 500,000 - - -
Net income for the year - - - - - 21,789 -
--------- ------- ------- -------- ---------- ----------- -------
Balance, December 31, 1999 4,100,678 $41,007 500 $500,000 $8,237,718 $(5,768,614) $14,950
========= ======= ======= ======== ========== =========== =======
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
INRAD, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended
December 31,
------------------------------------------------
1999 1998 1997
----------- ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 21,789 $ (631,768) $ (572,121)
----------- ----------- -----------
Adjustments to reconcile income (loss) to net
cash provided by operating activities:
Depreciation and amortization 313,190 481,402 530,610
Noncash interest - 206,244 21,600
Gain on sale of equipment - (3,500) (3,800)
Allowance for uncollectible accounts 36,600 - -
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (138,554) 15,223 80,333
Inventories 96,796 113,460 188,603
Unbilled contract costs (335,617) (22,733) (43,012)
Other current assets (27,344) (481) (3,853)
Precious metals (24,000) (3,703) 555
Other assets (300) (3,817) (30,717)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 75,467 53,131 101,965
Advances from customers 121,721 (32,442) (9,915)
Other current liabilities (28,400) (17,529) 9,064
----------- ----------- -----------
Total adjustments 89,559 785,255 841,493
----------- ----------- -----------
Net cash provided by operating activities 111,348 153,487 269,372
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (326,700) (95,163) (86,208)
Proceeds from sale of equipment - 3,500 3,800
Proceeds from redemption of certificate of deposit - 70,000 -
----------- ----------- -----------
Net cash used in investing activities (326,700) (21,663) (82,408)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock 500,000 - -
Repayment of note payable - bank (107,500) (120,000) (92,500)
Principal payments of capital lease obligations (8,007) (12,938) (79,899)
----------- ----------- -----------
Net cash provided by (used in) financing activities 384,493 (132,938) (172,399)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 169,141 (1,114) 14,565
CASH AND CASH EQUIVALENTS, beginning of year 208,028 209,142 194,577
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 377,169 $ 208,028 $ 209,142
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements
F-7
<PAGE>
INRAD, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1999
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. NATURE OF OPERATIONS
Inrad, Inc. and Subsidiary (the "Company") is a manufacturer of
crystals, crystal devices, electro-optic and optical components, and
sophisticated laser subsystems and instruments. The Company'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.
b. PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary. Upon consolidation, all
intercompany accounts and transactions are eliminated.
c. DEPRECIATION AND AMORTIZATION
Depreciation is computed using the straight-line method over the
estimated useful lives of the related assets. Amortization of leasehold
improvements is computed using the straight-line method over the estimated
useful lives of the related assets or the remaining term of the lease, whichever
is shorter. Maintenance and repairs of property and equipment are charged to
operations and major improvements are capitalized. Upon retirement, sale or
other disposition of property and equipment, the cost and accumulated
depreciation are eliminated from the accounts and gain or loss is included in
operations.
d. INVENTORIES
Inventories, including certain precious metals consumed in the
manufacturing process, are stated at the lower of cost (first-in, first-out
method) or market.
e. INCOME TAXES
Deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities,
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
f. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standard No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," an impairment loss is recognized whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable.
F-8
<PAGE>
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:(Cont'd)
g. STOCK-BASED COMPENSATION
The Company applies APB Opinion No. 25 and related interpretations in
accounting for stock-based compensation to employees. Stock compensation to
non-employees is accounted for at fair value in accordance with Statement of
Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation."
h. 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.
i. INTERNAL RESEARCH AND DEVELOPMENT COSTS
Internal research and development costs are charged to expense as
incurred.
j. PRECIOUS METALS
Precious metals not consumed in the manufacturing process are valued
at cost, cost being determined on the first-in, first-out basis.
k. 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 period. Actual amounts could differ from those estimates.
l. ADVERTISING COSTS
Advertising costs are charged to operations when the advertising
first takes place. Included in selling, general and administrative expenses are
advertising costs of $44,000, $46,000, and $64,000, for the years ended December
31, 1999, 1998 and 1997, respectively.
m. STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, the Company considers
all highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
Cash interest paid during the years ended December 31, 1999, 1998 and
1997 was $6,755, $51,673, and $40,525, respectively.
In December 1998, the Company converted $1,800,779 of notes payable
and $441,789 of accrued interest into 1,979,107 shares of its common stock.
F-9
<PAGE>
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:(Cont'd)
n. CONCENTRATION OF RISK
The Company invests its excess cash in deposits and money market
accounts with major financial institutions and in commercial paper of companies
with strong credit ratings. Generally, the investments mature within ninety days
and therefore are subject to little risk. The Company has not experienced losses
related to these investments.
The concentration of credit risk in the Company's accounts receivable is
mitigated by the Company's credit evaluation process, reasonably short
collection terms and the geographical dispersion of revenue.
o. NET INCOME (LOSS) PER COMMON SHARE
The basic net income (loss) per share is computed using weighted
average number of common shares outstanding for the applicable period. The
diluted income (loss) per share is computed using the weighted average number of
common shares plus common equivalent shares outstanding, except if the effect on
the per share amounts of including equivalents would be anti- dilutive.
2. INVENTORIES:
Inventories are comprised of the following:
<TABLE>
<CAPTION>
December 31
---------------------------------
1999 1998
------------- --------------
<S> <C> <C>
Raw materials $ 171,650 $ 157,360
Work in process, including
manufactured parts and components 1,032,204 1,171,023
Finished goods 132,431 104,698
-------------- -------------
$ 1,336,285 $ 1,433,081
============= ==============
</TABLE>
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 1999, 1998 and 1997, the fourth quarter operating
results included an adjustment for the annual inventory count that decreased
(increased) operating losses by approximately $0, $34,000 and ($33,000),
respectively.
3. PROPERTY AND EQUIPMENT:
Property and equipment are comprised of the following:
<TABLE>
<CAPTION>
December 31
-----------------------------------
1999 1998
-------------- ---------------
<S> <C> <C>
Furniture and fixtures $ 293,161 $ 188,446
Machinery and equipment 4,802,188 4,611,683
Leasehold improvements 447,895 416,415
-------------- --------------
5,543,244 5,216,544
Less accumulated depreciation
and amortization 4,898,951 4,585,761
-------------- --------------
$ 644,293 $ 630,783
============== ==============
</TABLE>
F-10
<PAGE>
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses are comprised of the following:
<TABLE>
<CAPTION>
December 31
--------------------------------
1999 1998
----------- ------------
<S> <C> <C>
Trade accounts payable and accrued purchases $ 372,388 $ 288,682
Payroll taxes payable 1,250 42,888
Accrued vacation 139,624 121,693
Accrued professional fees 31,000 41,601
Accrued expenses - other 59,196 33,127
----------- -----------
$ 603,458 $ 527,991
=========== ===========
</TABLE>
5. NOTE PAYABLE, BANK
On February 6, 1997, the Company signed an agreement with Chase Manhattan
Bank (successor to Chemical Bank) amending the terms of its credit facility. The
new agreement requires monthly principal payments of $10,000 from January 1998
until December 1998, and monthly principal payments of $12,500 from January 1999
until August 1999. A final payment of $7,5000 is due on September 1, 1999.
Borrowings bear interest at prime (7.75% at December 31, 1998) plus 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 a financial
ratio tied to accounts receivable. Borrowings are collateralized by accounts
receivable and the personal guarantee of the Company's principal shareholder.
The note was paid in full in 1999.
6. SUBORDINATED CONVERTIBLE NOTE:
The Company borrowed $100,000 in the form of a promissory note from a
shareowner of the Company. This promissory note was extinguished and a $74,621
10% subordinated convertible note and 20,303 shares of the Company's common
stock at $1.25 per share were issued. The note plus accrued interest in the
amount of $25,379 is convertible at any time up to the maturity date into shares
of the Company's common stock at $1.25 per share (to be adjusted for dividends,
stock splits, etc.). Excess interest accrued on the note is payable in full
December 15, 2000.
On February 22, 2000, the Company converted the $100,000 subordinated
convertible note into 80,000 shares of the Company's common stock.
7. SECURED CONVERTIBLE PROMISSORY NOTE:
The Company's secured convertible promissory note bears interest at 7%,
is collateralized by certain of the Company's precious metals, and is
convertible at any time into 200,000 shares of common stock. The note also
contains 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 note was July 8, 1997. However, the
noteholder has agreed not to demand payment prior to January 1, 2001; therefore
the note has been classified as noncurrent in the accompanying consolidated
balance sheet.
F-11
<PAGE>
8. INCOME TAXES:
A reconciliation of the income tax (benefit) computed at the statutory
Federal income tax rate to the reported amount follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------------------------------------------------
1999 1998 1997
------------- ---------- ------------
<S> <C> <C> <C>
Federal statutory rate 34% 34% 34%
------------- ---------- ------------
Tax benefit at Federal
statutory rates $ (78,173) $ (214,801) $ (194,480)
Loss in excess of available benefit 63,401 189,828 181,355
State benefit (251,710) - -
Other, net 14,772 24,973 13,125
------------- ------------ ------------
$ (251,710) $ - $ -
============= ============ ============
</TABLE>
At December 31, 1999, the Company had net operating loss carryforwards
for tax purposes of approximately $6,172,000. The tax loss carryforward expires
at various dates through 2019.
Internal Revenue Code Section 382 places a limitation on the utilization
of Federal net operating loss and other credit carryforwards when an ownership
change, as defined by the tax law, occurs. Generally, this occurs when a greater
than 50 percentage point change in ownership occurs. Accordingly, the actual
utilization of the net operating loss and carryfowards for tax purposes may be
limited annually to a percentage (approximately 6%) of the fair market value of
the Company at the time of any such ownership change.
The State of New Jersey has enacted a program that allows new or
expanding emerging technology and biotechnology businesses to sell their Unused
Net Operating Loss (NOL) carryover to any corporate taxpayer in the state, for
at least 75% of the value of the tax benefits. In November 1999, the Company
sold $3,349,441 of their NOL for $251,710. The remaining state NOL of
approximately $1,095,000 may be sold pending resolution of certain regulatory
approval. Since realization of the tax benefits is not assured, a 100% valuation
allowance was recorded against the related tax asset.
Deferred tax assets (liabilities) comprise the following:
<TABLE>
<CAPTION>
December 31
----------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Inventory reserves $ 17,000 $ 20,000
Vacation liabilities 47,000 44,000
Other 45,000 3,000
Depreciation 128,000 119,000
Loss carryforwards 2,469,000 2,565,000
-------------- --------------
Gross deferred tax assets 2,706,000 2,751,000
Valuation allowance (2,706,000) (2,751,000)
-------------- --------------
$ - $ -
============== ==============
</TABLE>
F-12
<PAGE>
9. COMMITMENTS:
a. LEASE COMMITMENT
The Company leases its office and manufacturing facility under an
operating lease which expires in 2001. The lease provides for additional rental
payments based upon a pro rate share of real estate taxes and certain other
expenses and has a renewal option for one five-year period. Rental expense was
$198,000, $196,000 and $196,000 in 1999, 1998 and 1997, respectively, and real
estate taxes were $43,000, $42,000, $41,000 in 1999, 1998 and 1997,
respectively.
Future minimum annual rentals are payable as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
2000 $ 196,000
2001 163,000
</TABLE>
b. RETIREMENT PLANS
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 match employee contributions. The Company did not contribute any
amounts to the 401(k) plan during 1999, 1998 or 1997.
c. EMPLOYMENT AGREEMENTS
The Company is party to employment agreements with officers which
provide for minimum annual salaries. Certain agreements provide for incentive
bonuses based on sales goals.
The aggregate minimum commitment under these agreements are as
follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
2000 $ 275,000
2001 160,000
2002 160,000
2003 160,000
2004 160,000
Thereafter 480,000
</TABLE>
10. PRODUCT SALES, FOREIGN SALES AND SALES TO MAJOR CUSTOMERS:
The Company's sales for each major category of its product line are as
follows:
<TABLE>
<CAPTION>
Years Ended
December 31,
--------------------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Crystals and crystal components $ 4,251,400 $ 3,372,802 $ 3,934,178
Systems and instruments 926,500 1,201,472 1,048,877
------------- ------------- -------------
Total $ 5,177,900 $ 4,574,274 $ 4,983,055
============= ============= =============
</TABLE>
F-13
<PAGE>
10. PRODUCT SALES, FOREIGN SALES AND SALES TO MAJOR CUSTOMERS:
Export sales, primarily to customers in Europe, Asia and Canada, amounted
to 41%, 21%, and 16% of net product sales in 1999, 1998 and 1997, respectively.
One foreign customer accounted for 12% of net product sales in 1999. No
foreign customer accounted for more than 10% of net product sales in 1998 and
1997. No U.S. customers accounted for more than 10% of net product sales in
1999. One U.S. customer accounted for more than 13% and 14% of net product sales
in 1998, and 1997, respectively. During the years ended December 31, 1999, 1998,
and 1997, approximately 6%, 4% and 4%, respectively of the Company's net product
sales were through a foreign agent, in which the principal shareowner has an
investment.
11. SHAREOWNERS' EQUITY:
a. CAPITALIZATION
The Company is authorized to issue 6,000,000 shares of $0.01 par
value common stock and 1,000,000 shares of no par value preferred stock. The
Company has reserved 1,768,092 shares of common stock for issuance upon
conversion of the subordinated convertible note (Note 5), secured promissory
note (Note 6), preferred shares, stock option plan and upon exercise of
outstanding warrants.
b. PRIVATE PLACEMENT OF SECURITIES
In 1999, the Company completed a private sale of securities to a
shareowner and debtholder. Under the terms of the offering, the Company issued
an aggregate of 500 shares of 10% convertible preferred stock at a price of
$1,000 per share for proceeds of $500,000. Preferred shares are convertible into
common stock of the Company at a rate of $1.00 per share. Dividends on
outstanding shares are payable in common stock at the rate of $1.00 per share.
c. STOCK OPTIONS
(i) The Company has a Key Employee Compensation Program (the
"Program") having a maximum number of shares of 500,000 which may be awarded
under the program. 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 four years thereafter. The maximum term of the grant is
ten years. All options were granted at market value or above at the date of
grant. To date, none of the options have been exercised.
A summary of the status of the Company's program as of December 31,
1999, 1998 and 1997, and changes during the years then ended is presented below:
F-14
<PAGE>
11. SHAREOWNERS' EQUITY: (Cont'd)
<TABLE>
<CAPTION>
Years Ended
December 31,
--------------------------------------------------------------------------------
1999 1998 1997
------------------------- ------------------------- --------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Fixed Stock Options Share Price Shares Price Shares Price
------------------- ------------ ----------- ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
beginning of year 189,000 $ 1.05 202,500 $ 1.04 111,000 $ 1.09
Granted 207,500 1.00 9,500 1.00 123,000 1.00
Expired - - (1,250) 1.00 (9,500) 1.09
Forfeited (38,000) 1.00 (21,750) 1.00 (22,000) 1.04
---------- ---------- ----------
Outstanding,
end of year 358,500 1.02 189,000 1.05 202,500 1.04
========== ========== ==========
Options exercisable,
end of year 102,875 1.08 87,000 1.10 - -
========== ========== ==========
Weighted-average
fair values of options
granted during year .28 .41 .32
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Price Outstanding Life Price Outstanding Price
-------------- ----------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$1.00 - $1.25 358,500 8.25 yrs. $1.02 102,875 1.08
</TABLE>
(ii) The Company has elected the disclosure-only provisions of
Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation" ("FASB 123") in accounting for its employee stock options.
Accordingly, no compensation expense has been recognized. Had the Company
recorded compensation expense for the stock options based on the fair value at
the grant date for awards, consistent with the provisions of FASB 123, the
Company's net income (loss) and net income (loss) per share would not have been
impacted.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model. The following range of
weighted-average assumptions were used for grants during the years ended
December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
Years Ended
December 31,
-------------------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Dividend yield 0.00% 0.00% 0.00%
Volatility 154.00% 250.00% 250.00%
Risk-free interest rate 5.50% 5.71% 6.24%
Expected life 10 years 10 years 10 years
</TABLE>
F-15
<PAGE>
11. SHAREOWNERS' EQUITY: (Cont'd)
The Black-Scholes option valuation model was developed for use
in estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions including the expected stock
price volatility. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.
d. WARRANTS
At December 31, 1999, the Company had outstanding 300,000 warrants
exercisable at $0.6875, 12,700 exercisable at $1.00, and 175,392 exercisable at
$1.50.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The methods and assumptions used to estimate the fair value of the
following classes of financial instruments were:
CURRENT ASSETS AND CURRENT LIABILITIES: The carrying amount of cash,
current receivables and payables and certain other short-term financial
instruments approximate their fair value.
LONG-TERM DEBT: The fair value of the Company's long-term debt, including
the current portion, was estimated using a discounted cash flow analysis,
based on the Company's assumed incremental borrowing rates for similar
types of borrowing arrangements. The carrying amount of variable and
fixed rate debt at December 31, 1999 approximates fair value.
The fair value of the Company's debt at December 31, 1998 could not be
determined without incurring excessive costs.
F-16
<PAGE>
Exhibit 3.3
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
INRAD, INC.
Pursuant to N.J.S. 14A:7-2(4)
Dated: April 30, 1999
The undersigned corporation, having adopted an amendment to
its certificate of incorporation establishing a new series of preferred stock,
hereby certifies as follows:
1. The name of the corporation is INRAD, INC.
2. The following is a copy of the resolution of the board
required by N.J.S. 14A:7-2(3):
RESOLVED, that the corporation's certificate of incorporation
be, and it hereby is, amended by added a new Article IX, such
Article IX to read as shown in Exhibit A annexed hereto,
establishing a new series of preferred stock within the
corporation's Preferred Stock, such series to be designated
Series A 10% Convertible Preferred Stock, to consist of 500
shares of stock, and to have the relative rights, preferences,
and limitations set out in Exhibit A.
3. The resolution was duly adopted by the board of directors
on April ___, 1999.
<PAGE>
4. The corporation's certificate of incorporation is further
amended so that the designation and number of shares of the series acted
upon in the annexed resolution, and the relative rights, preferences and
limitations of that series, are as stated in the resolution.
IN WITNESS WHEREOF, the undersigned corporation has caused
this certificate to be executed on its behalf by its duly authorized officer as
of the date first above written.
INRAD, INC.
By: /s/ Warren Ruderman
-----------------------
Warren Ruderman, President
-2-
<PAGE>
Exhibit 3.4
EXHIBIT A
ARTICLE [IX]
SERIES A 10% CONVERTIBLE PREFERRED STOCK,
NO PAR VALUE
SECTION 1. DESIGNATION AND AMOUNT; RANK
There is hereby established a series of preferred stock which
is designated "Series A 10% Convertible Preferred Stock" (referred to herein as
"Series A Preferred Stock"). The number of shares which will constitute such
series shall be Five Hundred (500). The Series A Preferred Stock shall rank
senior to the corporation's Common Stock with respect to the payment of
dividends and to the distribution of assets upon liquidation, dissolution or
winding up.
SECTION 2. DIVIDENDS.
(A) For purposes of this Section 2, each April 1 on
which any shares of Series A Preferred Stock shall be
outstanding shall be deemed to be a "Dividend Payment Date"."
On each Dividend Payment Date, the holder of any share of
Series A Preferred Stock shall be entitled to receive, when
and as declared by the Board of Directors of the corporation
out of funds legally available therefor, cumulative dividends
at the rate of 10% per year on each share of Series A
Preferred Stock and no more. Dividends payable on the Series A
Preferred Stock for the initial dividend period and for any
period less than a full annual period shall be computed on a
basis of a 360-day year of twelve 30 day months.
(B) All dividends shall be payable in shares of the
Company's Common Stock, valued at $1.00 per share, subject to
Section _4__ below.
(C) On each Dividend Payment Date all dividends which
shall have accrued on each share of Series A Preferred Stock
outstanding on such Dividend Payment Date shall accumulate and
be deemed to become "due". Any dividend which shall not be
paid on the Dividend Payment Date on which it shall become due
shall be deemed to be "past due" until such dividend shall be
paid or until the share of Series A Preferred Stock with
respect of which such dividend became due shall no longer be
outstanding, whichever is the earlier to occur. No interest or
sum of money in lieu of interest shall be payable in respect
of any dividend payment or payments which are past due.
Dividends paid on shares of Series A Preferred Stock in an
amount less than the total amount of such dividends at the
time accumulated and payable on such shares shall be allocated
pro rata on a share-by-share basis among all such shares at
the time outstanding.
<PAGE>
(D) So long as any shares of the Series A Preferred
Stock are outstanding, no dividend (other than a dividend or
distribution in Common Stock or in any other stock ranking
junior to the Series A Preferred Stock as to dividends and
upon liquidation, dissolution or winding up) shall be declared
or paid or set aside for payment or other distribution
declared or made upon the Common Stock or upon any other stock
ranking junior to, or on a parity with, the Series A Preferred
Stock as to dividends or upon liquidation, dissolution or
winding up, nor shall any Common Stock or any other stock of
the corporation ranking junior to, or on a parity with, the
Series A Preferred Stock as to dividends or upon liquidation,
dissolution or winding up, be redeemed, purchased or otherwise
acquired for any consideration (or any moneys be paid to or
made available for a sinking fund for the redemption of any
shares of any such stock) by the corporation (except for
conversion of such junior or parity stock into, or exchange of
such junior or parity stock for, stock of the corporation
ranking junior to the Series A Preferred Stock as to dividends
and upon liquidation, dissolution, or winding up) unless, in
each case, the full cumulative dividends on all outstanding
shares of the Series A Preferred Stock shall have been paid or
declared and set aside for payment for all past dividend
payment periods.
SECTION 3. GENERAL, CLASS AND SERIES VOTING RIGHTS.
Except as provided in this Section 3 and in Section 4 hereof
or as otherwise from time to time required by applicable law, the Series A
Preferred Stock shall have no voting rights.
So long as any shares of Series A Preferred Stock remain
outstanding, the consent of the holders of at least a majority of the shares of
Series A Preferred Stock outstanding at the time (voting separately as a class
together with all other series of Preferred Stock ranking on a parity with the
Series A Preferred Stock either as to dividends or the distribution of assets
upon liquidation, dissolution or winding up and upon which like voting rights
have been conferred and are exercisable) given in person or by proxy, either in
writing or at any special or annual meeting called for the purpose, shall be
necessary to permit, effect or validate any one or more of the following:
(i) The creation, authorization or issuance of, or
reclassification of any authorized stock of the corporation into, or
creation, authorization or issuance of any obligation or security
convertible into or evidencing a right to purchase any shares of, or
increase in the authorized or issued amount of, any class or series of
stock (including any class or series of Preferred Stock) ranking prior
(as that term is hereinafter defined in this Section 3) to the Series A
Preferred Stock with respect to the payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up; or
(ii) The amendment, alteration or repeal, whether by merger,
consolidation or otherwise, of any of the provisions of the Certificate
of Incorporation (or any certificate amendatory thereof or supplemental
thereto providing for the capital stock of the corporation including,
without limitation, this Certificate) which would directly,
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materially and adversely affect the preferences, rights, powers or
privileges of holders of shares of the Series A Preferred Stock or of
such other series of Preferred Stock of the corporation; provided,
however, that in the event that any such amendment, alteration or
repeal would materially and adversely affect the rights of only holders
of shares of Series A Preferred Stock, then such amendment, alteration
or repeal may be effected only with the affirmative vote or consent of
the holders of a majority of the shares of Series A Preferred Stock
then outstanding. Any increase in the amount of authorized Preferred
Stock or the creation and issuance of other series of Preferred Stock
ranking on a parity with or junior to the Series A Preferred Stock with
respect to dividends and upon liquidation, dissolution or winding up
shall not be deemed to affect adversely the rights of the holders of
shares of Series A Preferred Stock.
The foregoing voting provisions shall not apply if, at or
prior to the time when the act with respect to which such vote would otherwise
be required shall be effected, all outstanding shares of Series A Preferred
Stock shall have been redeemed or sufficient funds shall have been deposited in
trust to effect such redemption.
Any class or classes of stock of the corporation shall be
deemed to rank:
(i) prior to the Series A Preferred Stock as to dividends or
as to distribution of assets upon liquidation, dissolution or winding
up if the holders of such class shall be entitled to the receipt of
dividends or of amounts distributable upon liquidation, dissolution or
winding up, as the case may be, in preference or priority to the
holders of Series A Preferred Stock; and
(ii) on a parity with the Series A Preferred Stock as to
dividends or as to distribution of assets upon liquidation, dissolution
or winding up, whether or not the dividend rates, dividend payment
dates, or redemption or liquidation prices per share thereof be
different from those of the Series A Preferred Stock, if the holders of
such class of stock and the Series A Preferred Stock shall be entitled
to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in
proportion to their respective dividend rates or liquidation prices,
without preference or priority one over the other.
SECTION 4. OPTIONAL REDEMPTION.
(A) At any time and from time to time, the shares of Series A
Preferred Stock are redeemable, in whole or in part, at the option of
the corporation at the redemption price of $1,000 per share of Series A
Preferred Stock, plus accrued and unpaid dividends thereon to the date
fixed for redemption:
(B) In the event the corporation shall elect to redeem the
shares of Series A Preferred Stock, the corporation shall give notice
to the holders of record of shares of the Series A Preferred Stock
being so redeemed, not less than 30 days prior to such redemption, by
first class mail, postage prepaid, at their addresses as shown on the
stock
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<PAGE>
registry books of the corporation, that said shares are being redeemed,
provided that without limiting the obligation of the corporation
hereunder to give the notice provided in this Section 4(B), the failure
of the corporation to give such notice shall not invalidate any
corporate action by the corporation. Each such notice shall state: (i)
the redemption date; (ii) the number of shares of Series A Preferred
Stock to be redeemed and, if fewer than all the shares held by such
holder are to be redeemed, the number of such shares to be redeemed
from such holder; (iii) the redemption price; (iv) the place or places
where certificates for such shares are to be surrendered for payment of
the redemption price; (v) that dividends on the shares to be redeemed
will cease to accrue on such redemption date; and (vi) that such holder
has the right to convert such shares into a number of shares of Common
Stock prior to the close of business on the tenth (10th) day preceding
such redemption date.
(C) In the event that fewer than all the outstanding shares of
Series A Preferred Stock are to be redeemed, the number of shares to be
redeemed shall be determined by the Board of Directors of the
corporation and the shares to be redeemed shall be determined pro rata
or by lot as may be determined by the Board of Directors of the
corporation or by any other method as may be determined by the Board of
Directors of' the corporation in its sole discretion to be equitable
provided that such method satisfies any applicable requirements of any
securities exchange on which the Series A Preferred Stock is listed.
(D) Notice having been mailed as aforesaid, from and after the
applicable redemption date (unless default shall be made by the
corporation in providing money for the payment of the redemption
price), dividends on the shares of Series A Preferred Stock to be
redeemed on such redemption date shall cease to accrue, and said shares
shall no longer be deemed to be outstanding, and all rights of the
holders thereof as stockholders of the corporation (except the right to
receive from the corporation the redemption price) shall cease;
provided that, notwithstanding the foregoing, if notice of redemption
has been given pursuant to this Section 4 and any holder of shares of
Series A Preferred Stock shall, prior to the close of business on the
tenth (10th) day preceding the redemption date, surrender for
conversion any or all of the shares to be redeemed held by such holder
in accordance with Section 5, then the conversion of such shares to be
redeemed shall become effective as provided in Section 5. Upon
surrender of the certificates for any shares so redeemed (properly
endorsed or assigned for transfer, if the Board of Directors of the
corporation shall so require and the notice shall so state), such
shares shall be redeemed by the corporation at the redemption price
aforesaid. In case fewer than all the shares represented by any such
certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares without cost to the holder thereof.
(E) Any shares of Series A Preferred Stock which shall at any
time have been redeemed shall, after such redemption, have the status
of authorized but unissued shares of Preferred Stock, without
designation as to series, until such shares are once more designated as
part of a particular series by the Board of Directors of the
corporation.
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<PAGE>
SECTION 5. CONVERSION.
(A) The holder of any share of Series A Preferred Stock shall
have the right, at such holder's option (but if such share is called
for redemption, then in respect of such share only to and including but
not after the close of business on the tenth (10th) day preceding the
date fixed for such redemption, provided that no default by the
corporation in the payment of the applicable redemption price
(including any accrued and unpaid dividends) shall have occurred and be
continuing on the date fixed for such redemption) to convert such share
into that number of fully paid and non-assessable shares of Common
Stock (calculated as to each conversion to the nearest whole share)
obtained by dividing $1000.00 by the Conversion Price then in effect.
The Conversion Price shall initially be $1.00 per share and shall be
subject to adjustment as set forth below.
(B) In order to exercise the conversion privilege, the holder
of shares of Series A Preferred Stock shall surrender the certificates
representing such shares, accompanied by transfer instruments
satisfactory to the corporation and sufficient to transfer the Series A
Preferred Stock being converted to the corporation free of any adverse
interest, at any of the offices or agencies maintained for such purpose
by the corporation ("Conversion Agent") and shall give written notice
to the corporation at such Conversion Agent that the holder elects to
convert such shares. Such notice shall also state the names, together
with addresses, in which the certificates for shares of Common Stock
which shall be issuable on such conversion shall be issued. As promptly
as practicable after the surrender of such shares of Series A Preferred
Stock as aforesaid, the corporation shall issue and shall deliver at
such Conversion Agent to such holder, or on his written order, a
certificate for the number of full shares of Common Stock issuable upon
the conversion of such shares in accordance with the provisions hereof.
Balance certificates will be issued for the remaining shares of Series
A Preferred Stock in any case in which fewer than all of the shares of
Series A Preferred Stock represented by a certificate are converted.
Each conversion shall be deemed to have been effected immediately prior
to the close of business on the date on which shares of Series A
Preferred Stock shall have been so surrendered and such notice received
by the corporation as aforesaid, and the persons in whose names any
certificates for shares of Common Stock shall be issuable upon such
conversion shall be deemed to have become the holders of record of the
Common Stock represented thereby at such time, unless the stock
transfer books of the corporation shall. be closed on the date on which
shares of Series A Preferred Stock are so surrendered for conversion,
in which event such conversion shall be deemed to have been effected
immediately prior to the close of business on the next succeeding day
on which such stock transfer books are open, and such persons shall be
deemed to have become such holders of record of the Common Stock at the
close of business on such later day. In either circumstance, such
conversion shall be at the Conversion Price in effect on the date upon
which such share shall have been surrendered and such notice received
by the corporation.
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<PAGE>
(C) In the case of any share of Series A Preferred Stock which
is converted after any record date with respect to the payment of a
dividend on the Series A Preferred Stock and on or prior to the
Dividend Payment Date related to such record date, the dividend due on
such Dividend Payment Date shall be payable on such Dividend Payment
Date to the holder of record of such share as of such preceding record
date notwithstanding such conversion. Except as provided in this
paragraph, no payment or adjustment shall be made upon any conversion
on account of any dividends accrued on shares of Series A Preferred
Stock surrendered for conversion or on account of any dividends on the
Common Stock issued upon conversion.
(D) No fractional shares or scrip representing fractions of
shares of Common Stock shall be issued upon conversion of any shares of
Series A Preferred Stock. Instead of any fractional interest in a share
of Common Stock which would otherwise be deliverable upon the
conversion of a share of Series A Preferred Stock, the corporation
shall pay to the holder of such share of Series A Preferred Stock an
amount in cash (computed to the nearest cent, with one-half cent being
rounded upward) equal to such fraction multiplied by the reported
closing price (as defined below) of the Common Stock at the close of
business on the day on which such share or shares of Series A Preferred
Stock are surrendered for conversion in the manner set forth above, or
if such date is not a trading date, on the next succeeding trading
date. If more than one certificate representing shares of Series A
Preferred Stock shall be surrendered for conversion at one time by the
same holder, the number of full shares issuable upon conversion thereof
shall be computed on the basis of the aggregate number of shares of
Series A Preferred Stock represented by such certificates, or the
specified portions thereof to be converted, so surrendered.
For the purpose of any computation under the foregoing
paragraph, the closing price per share of Common Stock on any date
shall be deemed to be the average of the daily closing prices for the
five consecutive trading days selected by the Board of Directors
commencing no more than 20 trading days before and ending no later than
the day before the day in question. The closing price for each day
shall be the reported last sale price, regular way, or, in case no such
reported sale takes place on such day, the average of the reported
closing bid and asked prices, regular way, in either case as reported
on the New York Stock Exchange Composite Tape or, if the Common Stock
is not listed or admitted to trading on the New York Stock Exchange at
such time, on the principal national securities exchange on which the
Common Stock is listed or admitted to trading, or, if not listed or
admitted to trading on any national securities exchange, on the
National Market System of the National Association of Securities
Dealers, Inc. Automated Quotations System ("NASDAQ") or, if the Common
Stock is not quoted on the NASDAQ National Market System, the average
of the closing bid and asked prices on such day in the over-the-counter
market as reported by NASDAQ or, if bid and asked prices for the Common
Stock on each such day shall not have been reported through NASDAQ, the
average of the bid and asked prices for such date as furnished by any
New York Stock Exchange member firm regularly making a market in the
Common Stock selected from time to time by the Board of Directors of
the corporation for such purpose
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<PAGE>
or, if no such quotations are available, the fair market value of the
Common Stock as determined by a New York Stock Exchange member firm
regularly making a market in the Common Stock selected from time to
time by the Board of Directors of the corporation for such purpose.
(E) The Conversion Price shall be adjusted from time to time
as follows:
(i) In case the corporation shall pay or make a
dividend or other distribution on any class of capital stock of the
corporation in Common Stock, the Conversion Price in effect at the
opening of business on the day following the date fixed for the
determination of stockholders entitled to receive such dividend or
other distribution shall be reduced by multiplying such Conversion
Price by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding at the close of business on the date
fixed for such determination and the denominator shall be the sum of
such number of shares and the total number of shares constituting such
dividend or other distribution, such reduction to, become effective
immediately after the opening of business on the day following the date
fixed for such determination. For the purposes of this subparagraph
(i), the number of shares of Common Stock at any time outstanding shall
not include shares held in the treasury of the corporation. The
corporation will not pay any dividend or make any distribution on
shares of Common Stock held in the treasury of the corporation.
(ii) In case outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the
Conversion Price in effect at the opening of business on the day
following the day upon which such subdivision becomes effective shall
be proportionately reduced, and, conversely, in case outstanding shares
of Common Stock shall each be combined into a smaller number of shares
of Common Stock, the Conversion Price in effect at the opening of
business on the day following the day upon which such combination
becomes effective shall be proportionately increased, such reduction or
increase, as the case may be, to become effective immediately after the
opening of business on the day following the day upon which such
subdivision or combination becomes effective.
(iii) No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at
least 1% of such price; PROVIDED, HOWEVER, that any adjustments which
by reason of this subparagraph (iii) are not required to be made shall
be carried forward and taken into account in any subsequent adjustment,
and PROVIDED FURTHER, that adjustment shall be required and made in
accordance with the provisions hereof not later than such time as may
be required in order to preserve the tax-free nature of a distribution
to the holders of shares of Series A Preferred Stock or Common Stock.
All calculations shall be made to the nearest cent or to the nearest
1/100th of a share, as the case may be. The corporation may make such
reductions in. the Conversion Price, in addition to those required by
subparagraphs (i) and (ii) above, as it considers to be advisable in
order to avoid or diminish any income tax to any holders of shares of
Common Stock resulting from any dividend or distribution of stock or
issuance
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<PAGE>
of rights or warrants to purchase or subscribe for stock or from any
event treated as such for income tax purposes or for any other reasons.
(iv) Whenever the Conversion Price is adjusted as herein
provided, (x) the corporation shall promptly file with any Conversion
Agent a certificate of a firm of independent public accountants setting
forth the Conversion Price after such adjustment and setting forth a
brief statement of the facts requiring such adjustment, and the manner
of computing the same, which certificate shall be conclusive evidence
of the correctness of such adjustment, and (y) a notice stating that
the Conversion Price has been adjusted and setting forth the adjusted
Conversion Price shall forthwith be given by the corporation to any
Conversion Agent and mailed by the corporation to each holder of shares
of Series A Preferred Stock at their last address as the same appears
on the books of the corporation.
(F) In case of any consolidation of the corporation with, or merger of
the corporation into, any other entity (other than a merger or consolidation in
which the corporation is the continuing corporation) or any sale or conveyance
to another corporation of the property of the corporation as an entirety or
substantially as an entirety, or in the case of a statutory exchange of
securities with another corporation, or any reclassification of shares, the
Conversion Price shall not be adjusted but each holder of a share of Series A
Preferred Stock then outstanding shall have the right thereafter to convert such
share only into the kind and amount of securities, cash and other property which
such holder would have owned or have been entitled to receive immediately after
such consolidation, merger, sale, conveyance, exchange or reclassification had
such share of Series A Preferred Stock been converted immediately prior to such
consolidation, merger, sale, conveyance, exchange or reclassification. Provision
shall be made in any such consolidation, merger, sale, conveyance, exchange or
reclassification for adjustments in the Conversion Price which shall be as
nearly equivalent as may be practicable to the adjustments provided for in
Section (E). The above provisions shall similarly apply to successive
consolidations, mergers, sales, conveyances, exchange or reclassification.
For purposes of this Section 5, "Common Stock" includes any
stock of any class of the corporation which has no preference in respect of
dividends or of amounts payable in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the corporation and which is not
subject to redemption by the corporation. However, subject to the provisions of
paragraph (F) above, shares issuable on conversion of shares of Series A
Preferred Stock shall include only shares of the class designated as Common
Stock of the corporation on the date of the initial issuance of Series A
Preferred Stock by the corporation, or shares of any class or classes resulting
from any reclassification or reclassifications thereof and which have no
preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
corporation and which are not subject to redemption by the corporation.
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<PAGE>
In case:
(i) the corporation shall declare a dividend (or any other
distribution) on its Common Stock that would cause an adjustment to the
Conversion Price of the Series A Preferred Stock pursuant to the terms
of subparagraph (i) of Paragraph (E) above; or
(ii) the corporation shall authorize the granting to the
holders of its Common Stock of rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any other
rights; or
(iii) of any reclassification of the Common Stock of the
corporation (other than a subdivision or combination of its outstanding
shares of Common Stock), or of any consolidation, merger or share
exchange to which the corporation is a party and for which approval of
any stockholders of the corporation is required, or of the sale or
conveyance, of the property of the corporation as an entirety or
substantially as an entirety; or
(iv) of the voluntary or involuntary dissolution, liquidation
or winding up of the corporation;
then the corporation shall cause to be filed with any Conversion Agent, and
shall cause to be mailed to all holders of shares of Series A Preferred Stock at
each such holder's last address as the same appears on the books of the
corporation, at least 20 days (or 10 days in any case specified in clause (i) or
(ii) above) prior to the applicable record or effective date hereinafter
specified, a notice stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, rights or warrants, or, if a record
is not to be taken, the date as of which the holders of Common Stock of record
to be entitled to such dividend, distribution, rights or warrants are to be
determined, or (y) the date on which such reclassification, consolidation,
merger, share exchange, sale, conveyance, dissolution, liquidation or winding up
is expected to become effective, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, share exchange, sale, conveyance,
dissolution, liquidation or winding up. Neither the failure to give such notice
nor any defect therein shall affect the legality or validity of the proceedings
described in clauses (i) through (iv) above.
The corporation will pay any and all documentary stamp or
similar issue or transfer taxes payable in respect of the issue or delivery of
shares of Common Stock on conversions of shares of Series A Preferred Stock
pursuant hereto; provided, however, that the corporation shall not be required
to pay any tax which may be payable in respect of any transfer involved in the
issue or delivery of shares of Common Stock in a name other than that of the
holder of the shares of Series A Preferred Stock to be converted and no such
issue or delivery shall be made unless and until the person requesting such
issue or delivery has paid to the corporation the amount of any such tax or has
established, to the satisfaction of the corporation, that such tax has been
paid.
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The corporation covenants that all shares of Common Stock
which may be delivered upon conversions of shares of Series A Preferred Stock
will upon delivery be duly and validly issued and fully paid and non-assessable,
free of all liens and charges and not subject to any pre-emptive rights. The
corporation further covenants that, if necessary, it shall reduce the par value
of the Common Stock so that all shares of Common Stock delivered upon conversion
of shares of Series A Preferred Stock are fully paid and non-assessable.
The corporation covenants that it will at all times reserve
and keep available, free from pre-emptive rights, out of its authorized but
unissued shares of Common Stock or its issued shares of Common; Stock held in
its treasury, or both, for the purpose of effecting conversions of shares of
Series A Preferred Stock, the full number of shares of Common Stock deliverable
upon the conversion of all outstanding shares of Series A Preferred Stock not
theretofore converted. For purposes of this reservation of Common Stock, the
number of shares of Common Stock which shall be deliverable upon the conversion
of all outstanding shares of Series A Preferred Stock shall be computed as if at
the time of computation all outstanding shares of Series A Preferred Stock were
held by a single holder. The issuance of shares of Common Stock upon conversion
of shares of Series A Preferred Stock is authorized in all respects.
Section 6. LIQUIDATION.
In the event of any voluntary or involuntary dissolution,
liquidation or winding up of the corporation (for the purposes of this Section
6, a "Liquidation"), before any distribution of assets shall be made to the
holders of the Common Stock or the holders of any other stock that ranks junior
to the Series A Preferred Stock in respect of distributions upon the Liquidation
of the corporation, the holder of each share of Series A Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the corporation
available for distribution to its stockholders, an amount equal to $1,000.00 per
share plus all dividends (whether or not declared or due) accrued and unpaid on
such share on the date fixed for the distribution of assets of the corporation
to the holders of Series A Preferred Stock.
If upon any Liquidation of the corporation, the assets
available for distribution to the holders of Series A Preferred Stock and any
other stock of the corporation ranking on a parity with the Series A Preferred
Stock upon Liquidation issued by the corporation which shall then be outstanding
(hereinafter in this paragraph called the "Total Amount Available") shall be
insufficient to pay the holders of all outstanding shares of Series A Preferred
Stock and all other such parity stock the full amounts (including all dividends
accrued and unpaid) to which they shall be entitled by reason of such
Liquidation of the corporation, then there shall be paid to the holders of the
Series A Preferred Stock in connection with such Liquidation of the corporation,
an amount equal to the product derived by multiplying the "Total Amount
Available times a fraction, the numerator of which shall be the full amount to
which the holders of the Series A Preferred Stock shall be entitled under the
terms of the preceding paragraph by reason of such Liquidation of the
corporation and the denominator of which shall be the total amount which would
have been distributed by reason of such Liquidation of the corporation with
respect to the Series A Preferred Stock and all other stock ranking on a parity
with the Series A Preferred Stock upon Liquidation then outstanding had the
corporation possessed sufficient assets to pay the
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maximum amount which the holders of all such stock would be entitled to receive
in connection with such Liquidation of the corporation.
The voluntary sale, conveyance, lease, exchange or transfer of
the property of the corporation as an entirety or substantially as an entirety,
or the merger or consolidation of the corporation into or with any other
corporation, or the merger of any other corporation into the corporation, or any
purchase or redemption of some or all of the shares of any class or series of
stock of the corporation, shall not be deemed to be a Liquidation of the
corporation for the purposes of the Section 6 (unless in connection therewith
the Liquidation of the corporation is specifically approved).
The holder of any shares of Series A Preferred Stock shall not
be entitled to receive any payment owed for such shares under this Section 6
until such holder shall cause to be delivered to the corporation (i) the
certificate or certificates representing such shares of Series A Preferred Stock
and (ii) transfer instrument or instruments satisfactory to the corporation and
sufficient to transfer such shares of Series A Preferred Stock to the
corporation free of any adverse interest. As in the case of the redemption
price, no interest shall accrue on any payment upon Liquidation after the due
date thereof.
After payment of the full amount of the liquidating
distribution to which they are entitled, the holders of shares of the Series A
Preferred Stock will not be entitled to any further participation in any
distribution of assets by the corporation.
Section 7. PAYMENTS.
The corporation may provide funds for any payment of the
redemption price for any shares of Series A Preferred Stock or any amount
distributable with respect to any Series A Preferred Stock under Section 6
hereof by depositing such funds with a bank or trust company selected by the
corporation having a net worth of at least $50,000,000 and organized under the
laws of the United States or any state thereof, in trust for the benefit of the
holder of such shares of Series A Preferred Stock under arrangements providing
irrevocably for payment upon satisfaction of any conditions to such payment by
the holder of such shares of Series A Preferred Stock which shall reasonably be
required by the corporation. The corporation shall be entitled to make any
deposit of funds contemplated by this section 7 under arrangements designated to
permit such funds to generate interest or other income for the corporation, and
the corporation shall be entitled to receive all interest and other income
earned by any funds while they shall be deposited as contemplated by this
section 7, provided that the corporation shall maintain on deposit funds
sufficient to satisfy all payments which the deposit arrangement shall have been
established to satisfy if the conditions precedent to the disbursement of any
funds deposited by the corporation pursuant to this Section 7 shall not have
been satisfied within two years after the establishment of the trust for such
funds, then (i) such funds shall be returned to the corporation upon its
request; (ii) after such return, such funds shall be free of any trust which
shall have been impressed upon them; (iii) the person entitled to the payment
for which been originally intended shall have the right to look only to the
corporation for such payment, subject to applicable
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<PAGE>
escheat laws; and (iv) the trustee which shall have held such funds shall be
relieved of any responsibility for such of such funds to the corporation.
Any payment which may be owed for the payment of the
redemption price for any shares of Series A Preferred Stock pursuant to Section
4 or the payment of any amount distributable with respect to the shares of
Series A Preferred Stock under Section 6 shall be deemed to have been "paid or
properly provided for" upon the earlier to occur of: (i) the date upon which
funds sufficient to make such payment shall be deposited in a manner
contemplated by the preceding paragraph or (ii) the date upon which a check
payable to the person entitled to receive such payment shall be delivered to
such person or mailed to such person at the address of such person then
appearing on the books of the corporation.
Section 8. STATUS OF REACQUIRED SHARES.
Shares of Series A Preferred Stock issued and reacquired by
the corporation (including, without limitation, shares of Series A Preferred
Stock which have been redeemed pursuant to the terms of Section 4 hereof and
shares of Series A Preferred Stock which have been converted into shares of
Common Stock) shall have the status of authorized and unissued shares of
Preferred Stock, undesignated as to series, subject to later issuance.
Section 9. PREEMPTIVE RIGHTS.
Holders of shares of Series A Preferred Stock are not entitled
to any preemptive or subscription rights in respect of any securities of the
corporation.
Section 10. LEGAL HOLIDAYS.
In any case where any Dividend Payment Date, redemption date
or the last date on which a holder of Series A Preferred Stock has the right to
convert such holder's shares of Series A Preferred Stock shall not be a Business
Day (as defined below), then (notwithstanding any other provision of this
Certificate of Designation of the Series A Preferred Stock) payment of a
dividend due or a redemption price or conversion of the shares of Series A
Preferred Stock need not be made on such date, but may be made on the next
succeeding Business Day with the same force and effect as if made on the
Dividend Payment Date or redemption date or the last day for conversion,
PROVIDED that, for purposes of computing such payment, no interest shall accrue
for the period from and after such Dividend Payment Date or redemption date, as
the case may be. As used in this Section 10, "Business Day" means each Monday,
Tuesday, Wednesday, Thursday and Friday which is not a day on which banking
institutions in the City of New York or the State of New Jersey are authorized
or obligated by law or executive order to close.
-12-
<PAGE>
IN WITNESS WHEREOF, INRAD, INC. has caused this certificate to
be signed by its President, this 30th day of April, 1999.
INRAD, INC.
By: /s/ WARREN RUDERMAN
--------------------------------
Warren Ruderman , President
-13-
<PAGE>
Exhibit 10.24
EMPLOYMENT CONTRACT
This Contract, entered into this 20TH day of October, 1999 by and between
Inrad, Inc., with its principal offices at 181 Legrand Avenue, Northvale, NJ
07647 (hereinafter called the "Company"), and Daniel Lehrfeld, residing at 34
Greenwood Drive, New City, New York 10956 (hereinafter called the "Executive").
WITNESSETH
In consideration of the mutual covenants herein contained and other good and
valuable considerations, the parties hereto agree as follows:
SECTION 1 - DUTIES AND TERM OF EMPLOYMENT
1.1 The Company hereby employs the Executive as its President and Chief
Operating Officer subject to the order, supervision, and direction of the Board
of Directors of the Company and the current Chief Executive Officer. It is the
present intention of the Company to elect Executive as Chief Executive Officer
of the Company on or about March 1, 2000. The Company will promptly appoint
Executive to the Board of Directors, and will nominate him for election to the
Board at the next meeting of stockholders.
1.2 The Executive hereby accepts this offer of employment and agrees to remain
in the employ of the Company in the aforesaid capacity upon the terms,
conditions, and provisions herein stated.
1.3 The term of this Contract shall commence on September 24, 1999 (the
"Effective Date") and shall end on the date of the Executive's 65th birthday, or
later at the discretion of the Company's Board of Directors; provided, however,
that this Contract may be terminated by the Executive or the Company as provided
in Section 5 of this Contract.
1.4 During the term of his employment, the Executive agrees to devote
substantially all of his normal business time and attention (reasonable
vacations and period of leave excepted), skill, and efforts to the business
conducted by the Company and to continue to act as President and Chief Operating
Officer as aforesaid, and faithfully to perform such executive, administrative,
and supervisory duties and to exercise such powers as specified in the
Regulations of the Company from time to time and as the Board of Directors may
prescribe. Executive shall be permitted to serve as a Director or Trustee of
other organizations, provided such service does not prevent Executive from
performing his duties under this Contract.
1.5 The Executive's duties shall be performed principally at the Company's
headquarters located in Northvale, NJ, although Executive understands and agrees
that travel, including overseas travel, is an integral part of his
responsibilities. If the requirements of the Company, as determined by the Board
of Directors, make it desirable to relocate the principal offices of the Company
to another location more than fifty miles from Northvale, NJ, during the term of
this
-2-
<PAGE>
Contract, the Executive will be consulted in advance of any such relocation and
will not be required to render services hereunder without his approval. Whether
or not such approval is given, the Executive shall be entitled to the
Compensation provided for in Section 2.
SECTION 2 - COMPENSATION
2.1 The annual Base Salary of the Employee shall be $160,000. Such salary shall
be payable in equal weekly, bi-weekly, or semi-monthly installments, as
determined under the policies of the Company. The Board of Directors of the
Company reserves the right to increase the Base Salary of the Executive, and
benefits, specified in this instrument, at any time or times during the term of
this Contract, but merely as an amendment to this Section 2, and all the other
terms, provisions, and conditions of this Contract shall continue in force and
effect as herein provided.
2.2 The Executive will work with the Executive Committee of the Board of
Directors of the Company to define and establish an Incentive Cash Bonus Plan,
subject to the approval of the Board of Directors, covering all executives and
employees, to come into effect for Calendar Year 2000 and thereafter. Executive
shall be a participant in said Plan, as well as in subsequent plans (if any)
which may hereafter be adopted. Pursuant to said plan, it shall be possible for
Executive to earn a bonus provided that the prescribed targets and objectives
set out in the Cash Bonus Plan are achieved.
2.3 In consideration of the covenants of the Executive under this Contract and
his services to the Company, and as an inducement for the Executive to enter
into this Contract, the Company hereby grants to the Executive:
a) An option to purchase 100,000 shares of the Company's common stock at
$0.625 per share which the parties agree is the fair market value of that
stock on the date hereof. This option is hereby granted pursuant to the
Incentive Stock Option provisions of the Company's Key Employee
Compensation Program adopted by the Company's shareholders on June 20,
1996, and attached hereto as Schedule 1 (the "Plan"), and is subject to all
the terms and conditions of the Plan; provided, however, that the Company
shall use its best efforts to cause the stockholders to make whatever
changes to the Plan are necessary to conform the Plan to this Agreement if
they can do so in a manner consistent with the provisions of the Internal
Revenue Code relating to Incentive Stock Options.
b) When the Executive shall become the Chief Executive Officer of the Company,
he shall be entitled to receive options to purchase an additional 310,000
shares of the common stock of the Company pursuant to the provisions of the
Plan. These options shall be granted according to the following schedule,
and shall be exercisable, when vested in accordance with the Plan, at the
market price of the Company's stock on the date such options are granted:
110,000 shares on the first anniversary of the Contract
100,000 shares on the second anniversary of the Contract
100,000 shares on the third anniversary of the Contract
-2-
<PAGE>
After the third anniversary of this Agreement, or at any time that it so
determines, the Board may grant, but shall not be obligated to grant,
additional Incentive Stock Options to Employee.
2.4 The Executive will be reimbursed for his reasonable expenses, including but
not limited to travel and communication expenses, incurred while on, or in
connection with, Company business.
SECTION 3 - BENEFITS
3.1 Executive shall be entitled to receive all benefits generally made
available to executives of the Company, as set forth on Schedule 2 attached
hereto.
SECTION 4 - NONCOMPETITION AND SECRECY
4.1 So long as this Contract is in effect, and for a period of nine months
thereafter, the Executive shall not become or serve as an officer or employee of
or consultant to an individual, partnership, or corporation, or owner or part
owner of any business (however this shall not prohibit ownership of not more
than 5% of the voting stock of any publicly held corporation), or member of any
partnership, limited partnership, LLC or other entity which conducts a business
which, in the reasonable judgment of the Board of Directors of the Company,
competes with the Company in any geographic area where the Company is doing
business when this Contract terminates or expires, unless the Executive shall
have obtained the written consent of the Board of Directors of the Company.
4.2 Except for actions taken in the course of his employment hereunder, at no
time shall Executive knowingly divulge, furnish, or make accessible to any
outside person or firm any information of a proprietary nature or secret
information or trade secrets of the Company not previously disclosed (unless
written consent of the Company is first obtained).
SECTION 5 - TERMINATION
5.1 Termination By Company.
a) Company shall have the right to terminate this Contract under the following
circumstances:
i) Upon death of the Executive.
ii) Upon notice from Company to Executive in the event of an illness or
other disability which has incapacitated him from performing his
duties, in the good faith opinion of the Board of Directors, for three
consecutive months or six non-consecutive months in any eighteen month
period,
-3-
<PAGE>
iii) For good cause upon notice from Company. Termination by Company of
Executive's employment "for good cause" as used in this Contract shall
be limited to the commitment of a significant act of dishonesty such as
misappropriation of funds, the conviction of a felony, gross negligence
or repeated malfeasance by the Executive in the performance of his
duties under this Contract (despite receiving specific written cure
notices from the Company and being given 30 days to substantially
remedy such failure), or the voluntary resignation by Executive as an
employee of the Company without the prior written consent of the
Company and without "Good Reason" as defined in Section 5.2b.
iv) Upon 45 days written notice, without "good cause".
b) If this Contract is terminated pursuant to paragraphs 5.1a) i) or ii)
hereof, Executive or his estate shall be entitled to receive 100% of his
Base Salary for 12 months following the date of on which his employment
ceases together with the bonus provided for in Section 2.2 hereof with
respect to that 12 month period. Company may purchase insurance to cover
all or any part of its obligations set forth in the preceding sentence, and
Executive agrees to take a physical examination to facilitate the obtaining
of such insurance.
c) If this Contract is terminated pursuant to paragraph 5.1a iii) above,
Executive shall be entitled to receive his Base Salary so long as he is
working but not otherwise and all Bonus payments accrued through the
effective date of his termination, but all accrued but unused vacation and
sick pay and all granted but non-vested stock options shall be forfeit. In
that event, the severance and separation provisions of Section 6 shall not
be applicable.
d) If this Contract is terminated by Company pursuant to paragraph 5.1a) iv)
hereof (i.e., without "good cause"), the severance and separation benefit
provisions of Section 6 of this Contract shall apply.
e) Whenever compensation is payable to Executive hereunder during a time when
he is partially or totally disabled and such disability (except for the
provisions hereof) would entitle him to disability income or to salary
continuation payments from Company according to the terms of any plan now
or hereafter provided by Company or according to any Company policy in
effect at the time of such disability, the compensation payable to him
hereunder shall be inclusive of any such disability income or salary
continuation and shall not be in addition thereto. If disability is payable
to executive under an insurance policy paid for by the Company, the amounts
paid to him by said insurance company shall be considered part of the
payments to be made by Company to him pursuant to this section, and shall
not be in addition thereto.
5.2 Termination By Executive
a) Executive shall have the right to terminate his employment without good
reason upon delivery of 45 days written notice to the Company. When
Executive terminates his employment pursuant to this sub-section, he shall
be entitled to receive his Base Salary so long as he is working but not
otherwise and all Bonus payments accrued through the effective date of his
termination, but all granted but non-vested stock options shall be forfeit.
-4-
<PAGE>
b) Executive shall have the right to terminate his employment for good reason
under this Contract upon 45 days' notice to Company given within 60 days
after the occurrence of an event described in sub-sections i) or ii) and
within 180 days after the occurrence of an event described in sub-sections
iii below. For the purpose of this Contract "for good reason" shall be
understood to mean the occurrence of any of the following events:
i) Executive is not elected as Chief Executive Officer on or about
March 1, 2000, or is not retained as Chief Executive Officer and a
member of the Board of Directors after March 1, 2000.
ii) Company acts to materially reduce Executive's duties and
responsibilities or compensation hereunder.
iii) In the event that the Company is (or substantially all of its
assets are) sold to, or combined with, another entity, or is dissolved,
Executives duties and responsibilities shall be deemed to be materially
reduced for purposes hereof if his authority with respect to the
business of the Company after the sale is substantially less than it
was before the sale, or the Executive does not report directly to the
Chief Executive Officer of the acquiring corporation, or his title does
not remain President of the Company, or the geographic location of the
performance of the Executive's duties in the resulting new entity
changes by more than 50 miles from Northvale, NJ..
iv) Company acts to change the geographic location of the performance
of the Executive's duties by more than 50 miles without his prior
written consent.
c) If this Contract is terminated by Executive pursuant to paragraph 5.2 b)
hereof (i.e., "for good reason"), the severance and separation benefit
provisions of Section 6 of this Contract shall apply. If this Contract is
terminated by Executive pursuant to paragraph 5.2 a) hereof (i.e., "without
good reason"), the severance and separation benefit provisions of Section 6
of this Contract shall not be applicable.
SECTION 6 SEVERANCE AND SEPARATION BENEFITS
6.1 If this Contract is terminated by the Company without good cause pursuant
to paragraph 5.1 a)iv), hereof, or if Company shall terminate Executive's
employment under this Contract in any other way that is a breach of this
Contract by Company, or if the Executive shall terminate this Contract for good
reason pursuant to paragraph 5.2b hereof, the following shall apply:
a) The Company will pay to the Executive an amount equal 12 months of Base
Salary and cash bonus payments paid to Executive during the preceding 12
months. The payments will be made in 12 equal monthly installments, without
interest, commencing one month after the effective date of such
termination.
-5-
<PAGE>
b) All stock options granted to Executive pursuant to Section 2.3 of this
Contract shall vest immediately upon termination and shall be exercisable
at any time during a period of one year following termination.
c) The Executive will receive continuance of all medical insurance, dental
insurance, and short and long-term disability insurance benefits covering
the Executive for a period terminating on the earlier of i) 12 months after
the date of termination of employment or longer to the extent that COBRA is
applicable, or ii) the commencement of equivalent benefits from a new
employer. Executive will continue to pay to Company an amount equal to the
Executive's regular contribution for such participation. If the existing
policies do not permit such continued participation, or if the Company so
selects, the Company shall arrange to have issued for the benefit of the
Executive equivalent benefits, provided further that the Executive shall
not be required to pay any premiums or other charges or amounts on an after
tax basis than that which Executive would have paid in order to participate
in Employer's plans.
d) The Executive will receive 12 months executive outplacement assistance
with Lee, Hecht, Harrison, Woodcliff Lake, NJ, at a cost to the Company
not to exceed $9,000.
SECTION 7 - DISPUTES
7.0 Any dispute, controversy, or claim arising under this Contract shall be
settled by arbitration in accordance with the Rules of the American Arbitration
Association then in effect. The controversy or claim shall be submitted to three
arbitrators, one of whom shall be chosen by the Company, one of whom shall be
chosen by the Executive, and the third of whom shall be chosen by the two so
selected. The party desiring arbitration shall give written notice to the other
party of its desire to arbitrate the particular matter in question, naming the
arbitrator selected by it.
If the other party shall fail within a period of 15 days to after such
notice to have given a reply in writing naming the arbitrator selected by it,
then the party not in default may apply to the American Arbitration Association
for the appointment of the second arbitrator. If the two arbitrators chosen as
above should fail within 15 days to after their selection to agree on the third
arbitrator, then either party may apply to the American Arbitrator Association
for the appointment of an arbitrator to fill the place so remaining vacant. The
decision of any two of the arbitrators shall be final and binding upon the
parties hereto and shall be delivered in writing signed in triplicate by the
concurring arbitrators to each of the parties hereto. Judgment upon the award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof.
SECTION 8 - BINDING CONTRACT
8.0 This Contract shall be binding upon and inure to the benefit of the
Executive, his heirs, distributees and assigns and upon the Company, its
successors and assigns and the acquirer of substantially all the Company's
assets. Executive may not, without the express written
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<PAGE>
permission of the Company, assign or pledge any rights or obligations hereunder
to any person, firm, or corporation.
SECTION 9 - AMENDMENT; WAIVER
9.0 This instrument contains the entire Contract of the parties with respect to
the employment of Executive by Company. No amendment or modification of this
Contract shall be valid unless evidenced by a written instrument executed by the
parties hereto. No waiver by either party of any breach by the other party of
any provision or condition of this Contract shall be deemed a waiver of any
similar or dissimilar provision or condition at the same or any prior or
subsequent time.
SECTION 10 - GOVERNING LAW
10.0 This Contract shall be governed by and construed in accordance with the
laws of the State of New Jersey.
SECTION 11 - NOTICES
11.0 All notices which a party is required or may desire to give to the other
party under or in conjunction with this Contract shall be given in writing by
addressing the same to the other party as follows:
If to Executive to:
Daniel Lehrfeld
34 Greenwood Drive
New City, NY 10956
If to Company, to:
Inrad, Inc.
181 Legrand Avenue
Northvale, NJ 07647
Attn: Chairman of the Board
Or at such other place as may be designated in writing by like notice. Any
notice shall be deemed to have been given within 48 hours after being addressed
as required herein and deposited, first-class postage prepaid, in the United
States mail.
-7-
<PAGE>
IN WITNESS THEREOF, the parties have executed this Contract as of the day and
year first written above.
___________________________
Daniel Lehrfeld
Inrad, Inc.
By:____________________________
Warren Ruderman, President
-8-
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated March 5, 1999, accompanying the consolidated
financial statements and included in the Annual Report of INRAD, Inc. on Form
10-K for the year ended December 31, 1998. We hereby consent to the
incorporation by reference of said report in the Registration Statement of
INRAD, Inc. on Form S-8 (SEC File No. 333-17883, effective December 13, 1996).
/s/ GRANT THORNTON LLP
GRANT THORNTON LLP
New York, New York
April 10, 2000
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference into the Registration
Statements on Form S-8 (see File No. 333-17883, effective December 31, 1996) of
our report dated February 25, 2000 with respect to the consolidated financial
statements of Inrad, Inc. and Subsidiary included in the Annual Report on Form
10-K for the year ended December 31, 1999.
/s/ HOLTZ RUBENSTEIN & CO., LLP
HOLTZ RUBENSTEIN & CO., LLP
Melville, New York
April 11, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 377,169
<SECURITIES> 0
<RECEIVABLES> 785,558
<ALLOWANCES> 44,000
<INVENTORY> 0
<CURRENT-ASSETS> 3,007,695
<PP&E> 5,543,244
<DEPRECIATION> 4,898,951
<TOTAL-ASSETS> 4,113,227
<CURRENT-LIABILITIES> 768,006
<BONDS> 350,000
0
500,000
<COMMON> 41,007
<OTHER-SE> 2,454,154
<TOTAL-LIABILITY-AND-EQUITY> 4,113,227
<SALES> 6,206,092
<TOTAL-REVENUES> 6,206,092
<CGS> 4,561,588
<TOTAL-COSTS> 6,408,730
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,330
<INCOME-PRETAX> (229,921)
<INCOME-TAX> (251,710)
<INCOME-CONTINUING> 21,789
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,789
<EPS-BASIC> .01
<EPS-DILUTED> .01
</TABLE>
