<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X]QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
------------------
[ ]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-14068
-------
Memry Corporation
-----------------
(Exact name of small business issuer as
specified in its charter)
Delaware 06-1084424
-------- ----------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
57 Commerce Drive, Brookfield, Connecticut 06804
------------------------------------------------
(Address of principal executive offices)
(203) 740-7311
--------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date. As of September 30, 1995, 8,101,532
shares of the registrant's common stock, par value $.01 per share, were issued
and outstanding.
Transitional Small Business Disclosure Format (Check one)
Yes No X
--- ---
-1-
<PAGE>
INDEX
PART I - FINANCIAL INFORMATION
Page
ITEM 1. Financial Statements
Consolidated Balance Sheet as of 3
September 30, 1995 and June 30, 1995
Consolidated Statement of Operations for 4
the three months ended September 30,
1995 and 1994
Consolidated Statement of Cash Flows for 5
the three months ended September 30,
1995 and 1994
Notes to the Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis or Plan
of Operation 16
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 18
ITEM 2. Changes in Securities 18
ITEM 3. Defaults Upon Senior Securities 18
ITEM 4. Submission of Matters to a Vote of Security Holders 18
ITEM 5. Other Information 18
ITEM 6. Exhibits and Reports on Form 8-K 19
Signatures 21
-2-
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
MEMRY CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30, June 30,
1995 1995
------------- --------
<S> <C> <C>
ASSETS (Note 8)
Current assets
Cash and cash equivalents $553,000 $1,145,000
Accounts receivable, less allowance
of $58,000 and $53,000 988,000 691,000
Inventories, net (Note 4) 870,000 849,000
Prepaid expenses and other 28,000 24,000
---------- ----------
Total current assets 2,439,000 2,709,000
Property, plant and equipment, net 1,212,000 1,233,000
---------- ----------
Other assets:
Patents, at cost, net of accumulated
amortization of $58,000 and $57,000 4,000 5,000
Deposits and sundry 33,000 32,000
---------- ----------
37,000 37,000
---------- ----------
Total assets $3,688,000 $3,979,000
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable and accrued expenses $1,359,000 $2,189,000
Notes payable (Note 7) 1,023,000 1,163,000
Mortgage loan payable (Note 7) 551,000 910,000
Revolving loan (Note 7) 615,000 570,000
Term note payable (Note 7) 99,000 167,000
Current portion of capital lease
obligations 4,000 4,000
---------- ----------
Total current liabilities 3,651,000 5,003,000
---------- ----------
Capital lease obligations, less current
portion 7,000 7,000
---------- ----------
Commitments and Contingencies (Note 6)
Stockholders' equity (Note 5)
Preferred stock, $100 par value,authorized 100,000 shares of
Series G, issued and outstanding shares 42,000 19,000
Common stock, $.01 par value; authorized shares - 10,000,000;
issued and outstanding shares - 8,101,532 81,000 80,000
Additional paid-in capital 31,286,000 29,874,000
Accumulated deficit (31,379,000) (31,004,000)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 30,000 (1,031,000)
---------- ----------
TOTAL LIABILTIES AND STOCKHOLDERS' DEFICIT $3,688,000 $3,979,000
========== ==========
</TABLE>
-3-
See Notes to Consolidated Financial Statements.
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Quarters Ended September 30:
1995 1994
---- ----
<S> <C> <C>
Product Sales $1,181,000 $1,341,000
---------- ----------
Cost of Sales
Manufacturing 898,000 975,000
Research and develpment 137,000 83,000
---------- ----------
GROSS PROFIT 146,000 283,000
========== ==========
Operating Expenses
General, selling and administrative 442,000 529,000
Depreciation & amortization 24,000 70,000
---------- ----------
466,000 599,000
---------- ----------
Operating Loss (320,000) (316,000)
Interest Expense (Note 7) 55,000 66,000
---------- ----------
NET LOSS ($375,000) ($382,000)
========== ==========
Weighted average number of common shares
outstanding 8,091,000 4,999,000
---------- ----------
Net Loss per common share (0.05) (0.08)
---------- ----------
</TABLE>
-4-
See accompanying notes.
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For Three Months Ended
September 30,
1995 1994
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (375,000) $ (382,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 24,000 94,000
Change in operating assets and liabilities:
Increase in accounts receivables (297,000) (330,000)
Increase in inventories (21,000) (73,000)
Increase in prepaid expenses and other (4,000) (44,000)
Decrease in accounts payable and accrued (830,000) 126,000
---------- ----------
Cash used in operating activities (1,128,000) (609,000)
INVESTING ACTIVITIES
Purchases of property and equipment and patents (3,000) (57,000)
---------- ----------
FINANCING ACTIVITIES
Proceeds from sale of Stock 1,561,000 272,000
Common Stock issue costs (125,000) (24,000)
Net proceeds from revolving line 45,000 182,000
Payments from notes payable (140,000) 222,000
Principal payments on short term debt (427,000) (34,000)
---------- ----------
Cash provided by financing activities 914,000 618,000
---------- ----------
Increase (decrease) in cash and cash equivalents (592,000) (48,000)
Cash and cash equivalents at beginning of year 1,145,000 201,000
---------- ----------
Cash and cash equivalents at end of year $ 553,000 $ 153,000
========== ==========
</TABLE>
-5-
See accompanying notes.
<PAGE>
MEMRY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. GOING CONCERN
The Company's consolidated financial statements have been presented on a going
concern basis which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company has incurred net
losses of $375,000 and $382,000, and negative cash flow from operations of
$1,128,000 and $609,000, for the quarters ended September 30, 1995 and 1994,
respectively. As a result, the Company has stockholders' equity of $30,000 and
its current liabilities exceeded its current assets by $1,212,000 as of
September 30, 1995. These conditions raise substantial doubt about the Company's
ability to continue as a going concern.
The Company anticipates that it will continue to incur losses from operations
until the fourth quarter, at which time the Company expects to be cash flow
positive. The Company plans to maintain stringent control on expenses while
increasing its revenues and improving gross profit margins. The Company believes
the capital raised of $2,492,000, through private placement agreements most of
which was placed during the last quarter of fiscal 1995 and $1,561,000 during
the quarter ending September 30, 1995 is sufficient to satisfy the Company's
working capital needs for fiscal 1996. In addition, the Company renegotiated the
subsidiary, Wright Machine Corporation's ( "Wright") debt with its bank through
July 1, 1996 (see Note 7). However, it is the Company's intent to seek
refinancing with more favorable terms during fiscal 1996, although there can be
no assurances that the Company will be successful. On October 12, 1995, the
Company amended its Convertible Subordinated Debenture Purchase Agreement with
Connecticut Innovations, Incorporated (see Note 10).
NOTE 2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principals for interim
financial information and with the instructions to Form 10-QSB. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three month period ended September 30, 1995 are not necessarily
indicative of the results that may be expected for the year ending June 30,
1996. All Common Stock related presentations and references have been adjusted
to reflect the one-for-ten reverse split which occurred on August 8, 1994. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-KSB for the
year ended June 30, 1995.
-6-
<PAGE>
NOTE 3. NET LOSS PER COMMON SHARE
The net loss per common share is based on the net loss from operations. The
weighted average number of shares of Common Stock outstanding was 8,091,000 for
the three months ending September 30, 1995. The weighted average number of
shares was 4,999,000 for the three month period ending September 30, 1994.
Common Stock equivalents have been excluded from the computation of the net loss
per common share based on their anti-dilutive effect.
NOTE 4. INVENTORY
The components of inventories consist of the following:
September 30, June 30,
1995 1995
------------- ---------
Raw Material $ 186,000 $ 109,000
Work-in-process 290,000 217,000
Finished goods 394,000 523,000
--------- ---------
$ 870,000 $ 849,000
========= =========
NOTE 5. STOCKHOLDER'S EQUITY
On July 19, 1994, the shareholders approved a decrease in the authorized shares
of Common Stock from 50,000,000 to 10,000,000 and approved a one-for-ten reverse
split of Common Stock effective August 8, 1994 which reduced the number of
shares outstanding from approximately 45,356,446 to approximately 4,535,645. The
stated par value was not changed from $.01. Due to the reverse stock split, a
total of $420,000 was reclassified from the Company's Common Stock account to
the Company's additional paid-in capital account. All share amounts and per
share prices have been restated to retroactively reflect the reverse stock
split.
Series A Preferred Stockholders were entitled to receive dividends in preference
to any declaration or payment of any dividend on Common Stock or other equity
securities of the Company. Dividend provisions of the Series B Preferred Stock
were equivalent to those of Series A Preferred Stock except dividends declared
were to be paid first to the holders of the Series A Preferred Stock. On
September 30, 1993, the holder of Series A and Series B Preferred Stock (Harbour
Holdings) agreed to waive all dividends accruing on its Preferred Stock after
June 30, 1993. During the year ended June 30, 1995, all outstanding shares of
Series A and B Preferred Stock were converted into Common Stock of the Company.
Additionally, the amount of the Series A and B Preferred Stock dividends
deferred but accrued of $598,000 was converted into Common Stock of the
Company;. Mr. Binch, the President and CEO of the Company, is also the
President, Chief Executive Officer and sole stockholder of Harbour Investment
Corporation, the sole general partner of Harbour Holdings. He is also a limited
partner in Harbour Holdings Limited Partnership. No shares of Series A and B
Preferred Stock are currently outstanding.
-7-
<PAGE>
On March 29, 1994, the Company entered into a Securities Exchange Agreement
with Harbour Holdings Limited Partnership ("Harbour"), whereby Harbour received
480 shares of Series F. Preferred Stock in exchange for 480,000 shares of the
Company's Common Stock. The holders of the Series F Preferred Stock would be
paid dividends only if the Company should declare dividends on the Common Stock.
The amount of the dividends would be based on the number os shares exchanged.
This transaction was necessary in order to allow the Company to cancel the
Common Stock so exchanged in order to be able to provide a sufficient number of
authorized but unissued shares of Common Stock to complete certain private
placements of the Common Stock. Upon consummation of the one-for-ten reverse
stock split on August 8, 1994, the Series F Preferred Stock was converted into
480,000 shares of Common Stock. Since after such conversion shares of Series F
Preferred Stock was outstanding. On November 9, 1994, the Company filed with the
Delaware Secretary of State a certificate eliminating reference to the Series F
Preferred Stock from the Company's Certificate of Incorporation.
On June 26, 1995 and July 17, 1995, FirstInvest Holding Ltd., Inc.
("FirstInvest") purchased 193 shares and 230 shares, respectively, of Series G
Preferred Stock of the Company at a per share price of $6,500, for an aggregate
purchase price of $2,749,500. FirstInvest is not currently permitted to convert
any shares of Series G Preferred Stock into shares of Common Stock. However,
pursuant to the terms of Securities Purchase Agreements executed between the
Company and FirstInvest, the Company is obligated to (i) convene a meeting of
the Company's stockholders as soon as possible, but in any event prior to the
end of 1995, for the purpose of amending the Company's Certificate of
Incorporation to increase the number of authorized shares of Common Stock from
10,000,000 to 25,000,000, and (ii) at such meeting, cause such proposed
amendment (the "Capitalization Amendment") to be adopted. From and after the
date of the filing of the Capitalization Amendment with the Delaware Secretary
of State, FirstInvest will be permitted to convert each of its shares of Series
G Preferred Stock into 10,000 shares of Common Stock (which conversion ratio is
subject to adjustment). As of October 12, 1995, FirstInvest beneficially owned
more than five percent of the Series G Preferred Stock.
At a Board of Directors meeting held on September 24, 1993, 80,000 shares of
Common Stock were granted to an officer as inducement for signing an employment
contract. These shares were issued in the second quarter of fiscal 1994 at a
price of $2.00 per share and an expense of $160,000 was recognized by the
Company.
During the year ended June 30, 1995, 40,000 shares of the Company's Common Stock
were issued to its Directors as renumeration for services provided and an
expense of $26,000 was recognized by the Company.
On January 31, 1991, the Company obtained a $1.5 million loan from National
Trust Company, trustee for Chrysler Canada ltd. Pension Fund ("National"), due
on October 31, 1991. National subsequently modified the terms of the loan which
resulted in the conversion of $700,000 of the loan into 87,500 shares of Common
Stock in fiscal years 1991 and 1992, repayment of the remaining principal
balance of $800,000 on November 2, 1993 (although $152,000 of interest
-8-
<PAGE>
remains accrued and unpaid), and issuance of warrants to purchase, at such time,
115,000 shares of the Company's Common Stock at a per share price equal to the
lesser of (x) $1.40 or (y) 75% of the fair market value (determined by
appraisal) of such a share at the time of exercise, subject to adjustment upon
the occurrence of certain events, exercisable through December 1995.
The warrants issued to National enjoy "most favored nation" status, meaning that
if a more favorable price and/or terms are offered by the Company to third
parties, such more favorable terms will atomically attach to the warrants held
by National. The warrants have dilution protection throughout their term,
meaning that the shares of Common Stock into which the warrants held by National
are exercisable throughout the term of the warrants will represent approximately
the same percentage of ownership as they did as of October 29, 1992. As of
October 12, 1995, these warrants could be exercised to purchase 3,610,828 shares
of the Company's Common Stock at a purchase price of $0.65 per share.
NOTE 6. CONTINGENCIES
Wright maintains a defined contributions plan (401K) which covers substantially
all of its employees. There was no expense recognized for this plan in first
quarter of fiscal 1995 as no employees were participating. The expense incurred
during 1994 was $9,360. Contributions are based on specific percentages of
employees voluntary contributions. Employees vest immediately.
As of September 30, 1995, the Company had an employment agreement with one
executive officer and one other employee. The executive officer's agreement
provides that severance payments, of the two year's salary, to be made to such
officer upon a change of control of the Company. The employee's agreement
provides that such employee may be entitled to receive a bonus based upon his
performance, such bonus to be declared at the sole discretion of the President
of the Company. See Note 14.
Data Switch Corporation v. Memry Corporation, et al.
- ---------------------------------------------------
Verdon Corporation owns property located at 83 Keeler Avenue, Norwalk,
Connecticut (the "Property") which it leased to New Dimensions in Education,
Inc. ("New Dimensions"). New Dimensions sub-leased the Property to Data Switch
Corporation ("Data Switch"), which in turn sub-leased the Property to the
Company. On December 18, 1990, Data Switch commenced an action in the
Connecticut Superior Court against Verdon, New Dimensions and the Company
seeking a declaratory judgment that the lease was not renewed on June 12, 1990,
for an additional five-year term. The Company supports this request; however,
Verdon and New Dimensions have taken the position that the lease was renewed by
the Company. On October 28, 1992, David O'Toole, successor to Verdon
Corporation, filed a cross-complaint against the Company alleging that the
Company intentionally and/or negligently damaged the Property during the period
of its tenancy. Similar allegations were also made against New Dimensions and
Data Switch. O'Toole's allegations fail to include any specific itemization of
the nature or scope of the injuries alleged. No formal discovery has taken place
to date. Trial has been scheduled to commence in February 1996. The Company
intends to defend this action vigorously.
-9-
<PAGE>
Catizone v. Memry Corporation
- -----------------------------
The Company is a defendant in an action entitled Catizone v. Memry Corporation,
-----------------------------
et al., No 91 Civ. 8023 (United States District Court, Southern District of New
- -----
York). In November 1991, Mr. Pat Catizone commenced an action against the
Company, American Stock Transfer & Trust Co. ("AST&T"), and Mr. Neil E. Rogen,
relating to Mr. Catizone's claim of ownership to 10,000 shares of the Company's
Common Stock. In June, 1991, Mr. Catizone delivered to AST&T a certificate
representing 10,000 shares of the Company's Common Stock in the name of Mr.
Rogen and bearing a restrictive transfer legend and requested that the Company
issue a certificate without a restrictive legend in the name of Mr. Catizone.
Mr. Catizone claimed to have acquired the certificate from Mr. Perry
Constantinou as collateral for a loan made some years earlier, who had in turn
acquired the certificate from Mr. Rogen in 1984 or 1985. The Company refused Mr.
Catizone's request on the grounds that Mr. Rogen's transfer to Mr. Constantinou
was in violation of the federal securities laws. Mr. Catizone commenced his
action in the Supreme Court of the State of New York, but the action was removed
by the defendants to the United States District Court for the Southern District
of New York. Mr. Catizone is seeking an order directing the Company to issue an
unrestricted certificate representing 10,000 shares of the Company's Common
Stock in his name, together with damages equal to the difference between the
market value of the stock from the time that he first made demand on AST&T
through the date of trial, as well as attorneys' fees and costs. The Company
filed a Motion for Summary Judgment in September 1993. On July 25, 1995, the
Court issued an opinion by which it granted the Company's favor. Mr. Catizone
has appealed from the entry of judgment, and judgment was shortly thereafter
entered in the Company's favor. Mr. Catizone has appealed from the entry of
judgment in the Company's favor, which appeal is entitled Catizone v. Memry
-----------------
Corp., et al., No. 95-7874, pending before the United States Court of Appeals
- ----
for the Second Circuit. The Company intends to contest the appeal
vigorously.
Neil E. Rogen v. Memry Corporation
- ----------------------------------
In September 1992, Neil E. Rogen, formerly an officer and director of the
Company, brought an action against the Company for the alleged breach of an
employment agreement between Mr. Rogen and the Company and for indemnification
for legal expenses incurred by Mr. Rogen in connection with an investigation of
and subsequent lawsuit against Mr. Rogen by the Securities and Exchange
Commission and certain related and unrelated lawsuits. Mr. Rogen commenced his
action in the United States District Court for the Southern District of New
York. Mr. Rogen is seeking at least $215,000 plus interest, costs and attorney's
fees as damages for the alleged breach of his employment agreement, and in
excess of $312,000 plus attorney's fees as indemnification for expenses incurred
in connection with the investigation and the lawsuits. On December 22, 1992, the
Company filed an answer and a counterclaim against Mr. Rogen, alleging breaches
of fiduciary duty and unauthorized acts by Mr. Rogen and seeking monetary
damages for the same. In April 1994, the Company moved for summary judgment with
respect to all counts of Mr. Rogen's complaint. On May 23, 1995, the Court
issued an Opinion by which it granted the Company's Motion for Summary Judgement
on grounds of improper venue. Judgement was subsequently entered in the
Company's favor. Counsel for Mr. Rogen has indicated that he intends to refile
the action in a different venue. The Company intends to contest the case
vigorously.
-10-
<PAGE>
SFC Valve Corporation v. Wright Machine Corporation, et al.
- ----------------------------------------------------------
The Company had been named in a suit SFC Valve Corporation vs. Wright Machine
Corporation. This suit was settled by the Company during fiscal year ended June
30, 1995 for $70,000.
NOTE 7. REVOLVING LOAN, NOTES PAYABLE AND SHORT-TERM DEBT
In connection with the acquisition of Wright, Wright entered into a revolving
loan, term loan and security agreement (collectively, the "Loan Agreement")
which is guaranteed by the Company. The Loan Agreement includes a revolving
loan, a mortgage and a term loan. The revolving loan as amended by a Forbearance
Agreement dated April 11, 1995 provides a revolver limit equal to the lesser of
the sum of 80% of eligible accounts receivable plus 40% of net inventories not
to exceed $350,000 (and on and after May 15, 1995 not to exceed $300,000) less a
reserve of $60,000 (to be increased to $100,000 on or prior to May 15, 1995) or
$1,150,000.
The term loan is collateralized by machinery and equipment having a net book
value of $47,000 and the mortgage loan is collateralized by land and building
with net book values of $166,000 and $771,000, respectively, all at September
30, 1995.
The Loan Agreement requires payment received on accounts receivable by Wright to
be applied against the outstanding balances on the revolving and term loans. In
addition, the Loan Agreement prohibits Wright from paying dividends to the
Company, making advances to officers of Wright, and prohibits the Company from
applying intercompany charges against Wright.
As of July 1, 1992 Wright was in violation of certain covenants of the Loan
Agreement and the Company was in violation of its minimum cash balance
requirement. On October 8, 1992, Wright received permanent waivers of these loan
covenant violations. In connection therewith, the terms of the Agreement were
amended for the year ending June, 30, 1993 to include revised covenants,
collateralization of the Company's $250,000 minimum cash balance commitment, and
a commitment by the Company to contribute $600,000 of working capital to Wright.
As of June 30, 1993 Wright failed to comply with the financial covenants
contained in the revised loan agreement dated October 8, 1992, including, but
not limited to, the Company's failure to invest additional equity in Wright and
to collateralize its guaranty of the obligations of Wright. As of November 1993,
Wright had not cured these existing defaults or repaid any of the loans and
requested the bank to forbear from accelerating the loan payments and enforcing
the existing defaults through December 31, 1993.
The bank agreed to a Forbearance Agreement, which agreement was executed as of
November 15, 1993; however, Wright was required to paydown an additional
$350,000 of its debt to the bank and the Company was required to place as
collateral $150,000 in the form a Certificate of Deposit. Wright and its bank
also agreed that the interest rate on the term loan, the mortgage loan and the
revolving loan be increased from the lender's base rate plus 1%, to the lender's
base rate plus 4% (13.00% at June 30, 1995). On March 11th, June 29th, October
7th and October
-11-
<PAGE>
12th, 1994, and April 11, 1995 the Forbearance Agreement was further amended.
Pursuant to the terms of the April 11, 1995 agreement the bank agreed to forbear
from accelerating the loan payments and enforcing the existing defaults through
July 1, 1995 upon certain conditions.
As of July 20, 1995, Shawmut Bank, N.A. (the "Bank") and Wright executed a Third
Amendatory Agreement to Revolving Loan, Term Loan and Security Agreement by
which the Bank has agreed to extend the termination date of its revolving loan
to Wright Machine to July 1, 1996, if not sooner demanded, subject to Wright's
continue compliance with certain covenants include in Revolving Loan, Term Loan
and Security Agreement dated February 7, 1990 as amended to date ( as so
amended, the "Loan Agreement" ). The bank also agreed that the final installment
on the mortgage note and term note evidence indebtedness owed by Wright to the
Bank would be set at July 1, 1996. Among other things, the Loan Agreement
requires Wright to pay transaction fees of $1,500 per month for the period from
July 1, 1995 through September 30, 1995, $3,000 per month for the period from
October 1, 1995 through December 31, 1995, and $4,500 per month for the period
from January 1, 1996 through May 31, 1996, and $6,000 per month for the period
from April 1, 1996 through June 30, 1996. However, if Wright meets or exceeds
certain projected net income levels for six months ended December 31, 1995 and
continues to meet or exceed projected monthly net income levels thereafter, then
the monthly fee will remain at $3,000. If at any time after December 31, 1995,
however, Wright fails to meet or exceed net income projections the fee will
increase to $4,500 per month for the next three months and to $6,000 per month
thereafter in which there are outstanding obligations of Wright owed to the
Bank. Interest on the revolving loan, mortgage loan and term loan has been reset
to the Bank's base rate plus 4%. The Company also reaffirmed its guaranty of all
Wright's obligations to the Bank and reaffirmed its subordination of certain
obligations owed by Wright. There can be no assurance that the Company and
Wright will not be in breach of the Loan Agreement in the future, or that the
Bank will agree to a further extension or a forbearance in such event.
Notes payable consists of a 12% note payable to an officer of the Company, a 4%
note payable to a significant shareholder of the Company's stock, and a 12% and
6% note payable to companies in which an officer of the Company exerts
significant influence. It also consists of a $763,000 debt to Connecticut
Innovations, Incorporated. The debt was to be convertible into common stock had
the Company filed, with the Securities and Exchange Commission, a registration
statement on or before February 28, 1995. That event did not occur. Therefore,
the Company was in default of this agreement as of September 30, 1995. The
Company has since, on October 12, 1995, executed a First Amendment to the
Convertible Subordinated Debenture Purchase Agreement (see Note 14). This debt
has been classified as current because it became due on demand following the
default of the agreement.
Interest expense to related parties approximated $6,000 and $8,000 for the
periods ended September 30, 1995 and 1994, respectively.
-12-
<PAGE>
NOTE 8. SEGMENT INFORMATION
The Company is principally engaged in two business segments: Memry Segment
("Memry") and Wright Machine Segment ("Wright"). All businesses are located
domestically. Wright includes the manufacturing and marketing of metals parts
and components machined on screw machines and smaller metal working machines.
Memry is engaged in developing, manufacturing and marketing products and
components utilizing the properties exhibited by shape memory alloys. Memry's
revenues include product development contracts for outside customers. Memry
expenses include internally funded research as well as all costs associated with
outside clients. There were significant intersegment sales or transfers.
Operating loss is total revenue less operating expenses, excluding interest.
Identifiable assets of each segment are the assets used by that segment in its
operations, excluding general corporate assets. General corporate assets are
principally cash, deposits and other receivables.
Sept. 30, Sept. 30,
Revenues 1995 1995
- -------- --------- ---------
Wright $ 876 939
Memry 305 402
------- -------
Total operating revenues $ 1,181 $ 1,341
======= =======
Operating loss
- --------------
Wright $ 11 $ (47)
Memry (331) (269)
------- -------
Total operating loss $ (320) $ (316)
======= =======
Interest (55) (66)
- --------- ------- -------
Net loss $ (375) $ (382)
======= =======
Assets
- ------
Wright $ 2,357 $ 2,797
Memry 1,331 871
------- -------
Total assets $ 3,688 $ 3,668
======= =======
Deprectiation and amortization
- ------------------------------
Wright $ 13 $ 58
Memry 11 12
------- -------
Total assets $ 24 $ 70
======= =======
Capital Expenditures
- --------------------
Wright $ - $ -
Memry 3 57
------- -------
Total assets $ 3 $ 57
======= =======
-13-
<PAGE>
Depreciation and amortization includes depreciation and amortization of capital
assets, including patents.
NOTE 9. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
On July 19, 1994, the shareholders approved the adoption of the Memry
Corporation Stock Option Plan. Six hundred thousand (600,000) shares of Common
Stock are authorized to be issued pursuant to this Plan, and as of September 30,
1995, options to purchase 431,500 shares of Common Stock have been granted at a
per share exercise price of $2.34 or $4.40, which represents the fair market
value of the underlying shares at the date of grant.
NOTE 10. SUBSEQUENT EVENTS
On October 12, 1995, the Company amended a Convertible Subordinated Debenture
Purchase Agreement (as so amended, the "Purchase Agreement"), dated as of
December 22, 1994, with Connecticut Innovations, Incorporated ("CII"). Pursuant
to the Purchase Agreement, CII acquired from the Company the following (the "CII
Securities"): (i) a Convertible Subordinated Debenture, dated December 22, 1994,
in the principal amount of $763,208, as amended by a First Addendum to
Convertible Subordinated Debenture dated as of October 12, 1995 (as so amended,
the "Debenture") currently convertible into Common Stock, subject to the
limitation set forth below, at a conversion price of $0.80 per share, (ii) a
warrant, dated December 22, 1994, as amended by a First Addendum to Stock
Subscription Warrant (as so amended, the "Class I Warrants"), initially
exercisable to purchase 508,805 shares of Common Stock at a price of $2.15 per
share and currently exercisable, subject to the limitation set forth below, to
purchase 1,176,269 shares of Common Stock at a price of $0.93 per share, (iii) a
warrant, dated December 22, 1994, as amended by a First Addendum to Stock
Subscription Warrant (as so amended the "Class II Warrants"), initially
exercisable to purchase 305,283 shares of Common Stock at a price of $2.75 per
share and currently exercisable, subject to the limitation set forth below, to
purchase 705,485 shares of Common Stock at a price of $1.19 per share, and (iv)
a warrant, dated December 22, 1994, as amended by a First Addendum to Stock
Subscription Warrant (as so amended, the "Class III Warrants"), initially
exercisable to purchase 100,000 shares of Common Stock at an exercise price of
$1.00 and currently exercisable, subject to the limitations set forth below, to
purchase 100,000 shares at an exercise price of $0.65, such warrant being an
amendment and restatement of a warrant previously held by CII to purchase 10,000
shares of Common Stock at an exercise price of $10.00 per share.
Pursuant to the Purchase Agreement, CII purchased the Debenture, the Class I
Warrants and the Class II Warrants for an aggregate purchase price of $763,208,
comprised of (i) $370,153 cash, (ii) delivery to the Company by CII of a 10%
Convertible Demand Note of the Company in the principal amount of $334,847 (the
"Note") marked paid in full, and (ii) delivery to the law firm of Finn Dixon &
Herling as escrow agent (the "Escrow Agent") of a check in the amount of $45,000
pursuant to an Escrow Agreement dated as o;f December 22, 1994, as amended
October 12, 1994, among the Company, CII and the Escrow Agent. Pursuant to the
terms of the Purchase Agreement, the Company is required to file a registration
statement (the "Registration Statement")
-14-
<PAGE>
to cover, inter alia, the resale of CII of the Shares of Common Stock underlying
----------
the CII Securities (the "Registrable Securities") and is required to cause the
Registration Statement to become effective no later than March 15, 1996,
maintain the effectiveness of the Registration Statement for a period of three
years from its effective date, subject to the provisions of the Purchase
Agreement, and use its best efforts to allow CII to continually sell Registrable
Securities pursuant to such Registration Statement free from any stoop orders or
suspensions by the Company or advice of counsel to the contrary. The exercise or
conversion, ass applicable, of the CII Securities is subject to the limitations
that prior to the earlier to occur of December 20, 1995 or the date on which the
Company has authorized and reserved for issuance a sufficient number of shares
to allow for the full exercise and conversion of the Registrable Securities, (i)
none of the Class I Warrants, the Class II Warrants nor the Class III Warrants
may be exercised and (ii) the Debenture may not be converted at a per share
price other than $1.50.
CII has been granted a "put" right if (i) at any time before the earlier of
October 12, 2005 and the date of which CII ceases to hold at least 35% of the
Registrable Securities the Company ceases to (a) maintain its corporate
headquarters and a majority of its shape memory business operations in the State
of Connecticut, (b) base its president and chief executive officer, all of its
administrative and financial staff, all of its marketing and customer service
staff (excluding individuals specific to Wright only), and all of its research
and development staff in the State of Connecticut, (c) conduct a majority of its
operations in the aggregate (including manufacturing and production), directly
or through subcontractors and through licensed operations, in the State of
Connecticut (excluding Wight's business related to the production of screw
machine products and taper pins), and (d) maintain its principal bank accounts
with banks located in the State of Connecticut, excluding all banks associated
with W right; or (ii) the Company fails (a) to cause the effectiveness of the
Registration Statement by March 15, 1996, (b) to keep the Registration Statement
effective for an aggregate of 120 days during any rolling twelve month period,
or (c) to have authorized and unissued shares of Common Stock reserved for the
full exercise and conversion of the CII Securities by December 20, 1995. Upon
CII's exercise of its put, the Company shall be obligated to; purchase from CII
all CII Securities and Registrable Securities held at the time by CII for price
equal to the greater of (i) the amount of CII's investment plus an amount
calculated to yield to CII a compounded rate of return of 25% per annum plus, in
the case of Common Stock issued upon the exercise of the Class I price paid to
acquire Common Stock, or (ii) the difference between the product of the current
market price per share of the Common Stock included within or acquirable upon
the exercise prices that would have to be paid upon the full exercise of the
remaining Class I Warrants, Class II Warrants and Class III Warrants included
within the CII Securities and the Registrable Securities.
On November 7, 1995, William H. Morton, Jr. joined the Company as Senior Vice
President and Chief Operating Officer. Mr. Morton's employment agreement
provides for a two-year term of employment, which term automatically renews for
successive one-year periods unless either Mr. Morton or the Company gives the
other notice of his or its intention not to renew such contract. This agreement
entitles Mr. Morton to an annual salary of $150,000. In addition, as
consideration for past services rendered by either Mr. Morton individually or
through The Risor Corporation, this agreement entitles Mr. Morton to 50,000
shares of Common Stock of the
-15-
<PAGE>
Company as well as payment of $50,000 to The Risor Corporation. This agreement
also grants to Mr. Morton options exercisable to purchase 125,000 shares of
Common Stock for an exercise price of $0.90, exercisable in five equal annual
installments, terminating on November 7, 2005. In the event of a change in
control of the Company, these options will become immediately exercisable.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results.
(a) LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated financial statements have been presented on a going
concern basis which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company has incurred net
losses of ($375,000) and ($382,000), and negative cash flow from operations of
($1,128,000) and ($609,000), for the quarters ended September 30, 1995 and 1994,
respectively. As a result, the Company has stockholders' equity of $30,000 and
its current liabilities exceeded its current assets by $1,212,000 as of
September 30, 1995. These conditions raise substantial doubt about the Company's
ability to continue as a going concern.
The Company anticipates that it will continue to incur losses from operations
until the fourth quarter, at which time the Company expects to be cash flow
positive for the following reasons. The Company plans to maintain stringent
control on expenses while increasing its revenues and improving gross profit
margins. The Company believes the $2,492,000 of capital it raised through
private placements, most of which occurred during the last quarter of fiscal
1995, and the $1,561,000 of capital it raised during the quarter ending
September 30, 1995 is sufficient to satisfy the Company's working capital needs
for fiscal 1996. In addition, the Company renegotiated the debt of its
subsidiary, Wright Machine Corporation ("Wright"), with its bank through July 1,
1996 (see Note 7). However, it is the Company's intent to seek refinancing with
more favorable terms during fiscal 1996, although there can be no assurances
that the Company will be successful. On October 12, 1995, the Company amended
its Convertible Subordinated Debenture Purchase Agreement with Connecticut
Innovations, Incorporated (see Note 10).
(b) RESULTS OF OPERATIONS
REVENUES
- --------
Sales: Overall revenues decreased to $1,181,000 in the first quarter ended
- -----
September 30, 1995 from $1,341,000 during the same period in fiscal 1995, a
decrease of $160,000, or 12%. Revenues relating to the Memry Segment were
responsible for 61% of the decrease.
-16-
<PAGE>
Memry Sales. Revenues relating to the Memry Segment decreased to $305,000 during
the period ending September 30, 1995 from $402,000 during the same fiscal 1995
period, a decrease of $97,000, or 24%. Sales of the MEMRYSAFE(R) and
ULTRAVALVE(TM) product lines were $83,000 and $238,000 during the first fiscal
quarters of fiscal 1996 and 1995, respectively. The primary reason for this
decrease is that an Australian customer, Rye Australia Pty. Limited ("Rye"),
accounted for approximately $187,000 of the MEMRYSAFE (R) product sales in the
first quarter of fiscal 1994. Although Keller Australia Pty. Ltd. replaced Rye
as the Company's Australian distributor in November of 1994, there were no
shipments to this customer during the frist quarter of fiscal 1995. Sales of
shape memory alloy, wire and wire shapes, shape memory polymers and FIRECHECK(R)
were approximately $58,000, as compared to $39,000 in the first quarter of
fiscal 1995, an increase of $19,000, or 49%. Research and development revenues
increased $40,000, or 32%, during the first quarter of fiscal 1996 to $165,000
from $125,000. The backlog of government sponsored contracts as of September 30,
1995 was $784,000 of which $533,000 is a three-year NASA contract awarded in
March of 1995.
Wright Sales. Wright Machine Segment sales decreased to $876,000 during the
first quarter of fiscal 1996 from $939,000 during the same period in fiscal
1995, a decrease of $63,000, or 7%. This reduction is the result of liquidity
constraints which occurred during the last quarter of fiscal 1995.
COST AND EXPENSES
- -----------------
Manufacturing Costs. Manufacturing costs decreased to $898,000 in the quarter
- -------------------
ended September 30, 1995 from $975,000 in the same period last fiscal year, a
decrease of $77,000, or 8%. The overall gross profit margin was 12% in the first
quarter fiscal 1996, as compared to 20% in the first quarter of fiscal 1995.
Memry Manufacturing Costs. Memry Segment' manufacturing costs were $161,000 at
September 30, 1995 as compared to $180,000 at September 30, 1994, a decrease of
$19,000, or 11%, with margins of (15%) and 35%, respectively. The decrease in
margin is attributable to the decrease in sales and the increase in re-
engineering costs of the MEMRYSAFE (R) products.
Wright Manufacturing Costs. Wright Machine Segment's manufacturing costs for the
first quarter of fiscal 1996 were $737,000 as compared with $795,000 during the
same period in fiscal 1995, a decrease of $58,000, or 7%. The reduction is
attributible to the reduced sales. Wright's profit margin improved marginally to
16% from 15% in the quarters ending September 30, 1995 and 1994, respectively.
Research and Development Costs. Research and development costs were $137,000 in
the first quarter of fiscal 1996 compared to $83,000 during the same period in
fiscal 1995. This increase of $54,000, or 65%, was due to the increase in the
research and development contract revenue and additional development work.
General, Selling and Administrative Expenses ("GS&A"). Overall GS&A decreased
- -----------------------------------------------------
$87,000, or 16%, to $442,000 during the period ended September 30, 1995 from
$529,000 during the same period in fiscal 1994. The reduction is due to
negotiated discounts on accounts payable.
Depreciation and Amortization Expense. Depreciation expense was $24,000 in the
- -------------------------------------
first three months of fiscal 1996, as compared with $70,000 during the same
period in fiscal 1995. The $46,000, or 66%, decrease is primarily a result of
assets becoming fully depreciated.
-17-
<PAGE>
Interest Expense. Interest expense decreased in fiscal 1996 to $55,000 from
- ----------------
$66,000 in the periods ending September 30, 1995 and 1994, respectively. This
$11,000, or 17%, decrease is primarily due to the reduction in notes and loans
payable.
Net Loss.
- --------
Overall. Net loss for the first quarter in fiscal 1996 was ($375,000) as
- -------
compared to ($382,000) for the same period in fiscal 1995, a marginal
improvement of $7,000.
Memry Segment. Memry Segment' net loss for the quarter ended September 30, 1995
was ($346,000) as compared with fiscal 1995's first quarter net loss of
($282,000). The increased loss of $64,000, or 23%, is the result of lower
revenues.
Wright Segment. Wright Machine Segment's net loss for the quarter ended
September 30, 1995 was ($29,000) as compared to ($100,000) for the quarter ended
September 30, 1994. Wright's $71,000, or 71%, improvement is primarily the
result of higher margins and lower GS&A.
In November 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 112 "Accounting for Postemployment Benefits,"
which was required to be implemented by the Company in fiscal 1995. Because the
Company generally does not provide such benefits, the adoption of this statement
was not material to the Company's fiscal 1995 financial results.
PART II- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Incorporated by reference to Note 6 to the financial statements.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Incorporated by reference to Note 7 to the financial statements.
-18-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
(a) EXHIBITS
<S> <C> <C>
10.1 Third Amendatory Agreement, dated July 20, 1995, to Revolving Loan, (1)
Term Loan, and Security Agreement, dated February 6, 1990, between
Wright Machine Corporation and Shawmut Bank Connecticut, N.A.
(formerly known as Connecticut National Bank)
10.2 Notes and Mortgage Modification Agreement, dated as of July 20, 1995 (1)
between Wright Machine Corporation and Shawmut Bank Connecticut, N.A.
10.3 Reaffirmation and Amendment of Subordination Agreement, dated July 20, (1)
1995 from the Company to Shawmut Bank Connecticut, N.A.
10.4 Reaffirmation of Guaranty, dated July 20, 1995 from the Company to (1)
Shawmut Bank Connecticut, N.A.
10.5 Form of Securities Purchase Agreement relating to sales of shares of (1)
Series G Preferred Stock of the Company
10.6 First Amendment to Convertible Subordinated Debenture Purchase (1)
Agreeement, dated October 12, 1995, between the Company and CII
10.7 First Addendum to Convertible Subordinated Debenture Purchase (1)
Agreeement, dated October 12, 1995, made by the Company and agreed to
by CII
10.8 First Addendum to Stock Subscription Warrant (re:Warrant No. 94-4), (1)
dated October 12, 1995, made by the Company and agreed to by CII
10.9 First Addendum to Stock Subscription Warrant (re:Warrant No. 94-5), (1)
dated October 12, 1995, made by the Company and agreed to by CII
10.10 First Addendum to Stock Subscription Warrant (re:Warrant No. 94-6), (1)
dated October 12, 1995, made by the Company and agreed to by CII
10.11 Amendment to Escrow Agreement, dated October 12, 1995, among the (1)
Company, CII and Finn, Dixon & Herling as escrow agent
</TABLE>
-19-
<PAGE>
<TABLE>
<S> <C> <C>
10.12 Employment Agreement, dated November 7, 1995, between the Company and
William H. Morton, Jr.
11 Statement regarding computation of per share earnings on both a (1)
primary and fully diluted basis.
- --------------------
(1) Incorporated by reference from the Company's Annual Report on Form 10-
KSB for the fiscal year ended June 30, 1995.
</TABLE>
- ---------
(b) REPORTS ON FORM 8-K
A Form 8-K was filed on September 27, 1995 with respect to disclosure regarding
Item 4, Changes in the Company's Certifying Accountants.
-20-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Memry Corporation
-----------------
Date: November 13, 1995 /s/James G. Binch
-----------------
James G. Binch
President, CEO and Director
(Principal Executive Officer)
Date: November 13, 1995 /s/Wendy A. Gavaghan
--------------------
Wendy A. Gavaghan
Corporate Controller
(Principal Financial Officer)
-21-
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description of Exhibit Page
- ------- ---------------------- ----
<S> <C> <C>
10.1 Third Amendatory Agreement, dated July 20, 1995, to Revolving Loan, (1)
Term Loan, and Security Agreement, dated February 6, 1990, between
Wright Machine Corporation and Shawmut Bank Connecticut, N.A.
(formerly known as Connecticut National Bank)
10.2 Notes and Mortgage Modification Agreement, dated as of July 20, 1995 (1)
between Wright Machine Corporation and Shawmut Bank Connecticut, N.A.
10.3 Reaffirmation and Amendment of Subordination Agreement, dated July 20, (1)
1995 from the Company to Shawmut Bank Connecticut, N.A.
10.4 Reaffirmation of Guaranty, dated July 20, 1995 from the Company to (1)
Shawmut Bank Connecticut, N.A.
10.5 Form of Securities Purchase Agreement relating to sales of shares of (1)
Series G Preferred Stock of the Company
10.6 First Amendment to Convertible Subordinated Debenture Purchase (1)
Agreeement, dated October 12, 1995, between the Company and CII
10.7 First Addendum to Convertible Subordinated Debenture Purchase (1)
Agreeement, dated October 12, 1995, made by the Company and agreed to
by CII
10.8 First Addendum to Stock Subscription Warrant (re:Warrant No. 94-4), (1)
dated October 12, 1995, made by the Company and agreed to by CII
10.9 First Addendum to Stock Subscription Warrant (re:Warrant No. 94-5), (1)
dated October 12, 1995, made by the Company and agreed to by CII
10.10 First Addendum to Stock Subscription Warrant (re:Warrant No. 94-6), (1)
dated October 12, 1995, made by the Company and agreed to by CII
10.11 Amendment to Escrow Agreement, dated October 12, 1995, among the (1)
Company, CII and Finn, Dixon & Herling as escrow agent
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.12 Employment Agreement, dated November 7, 1995, between the Company and
William H. Morton, Jr.
11 Statement regarding computation of per share earnings on both a (1)
primary and fully diluted basis.
</TABLE>
- --------------------
(1) Incorporated by reference from the Company's Annual Report on Form 10-
KSB for the fiscal year ended June 30, 1995.
<PAGE>
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of the 7th day of November, 1995,
between WILLIAM H. MORTON, JR. (the "Executive") and MEMRY CORPORATION, a
Delaware corporation (the "Company").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company and the Executive desire to enter into an employment
agreement on the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements set forth herein, the parties agree as follows:
1. Employment and Duties. The Company hereby agrees to employ the
---------------------
Executive, and the Executive hereby accepts employment, upon the terms and
conditions set forth herein. During the term of his employment, the Executive
shall diligently and faithfully serve the Company in the capacity of Senior Vice
President and Chief Operating Officer, or in such other executive capacity or
capacities as the Board of Directors may, from time to time, direct. As Senior
Vice President and Chief Operating Officer, the Executive shall have
responsibility for all operating activities of the Company and shall report to
the President and Chief Executive Officer of the Company. The Executive shall
devote his best efforts and entire business time, services and attention to the
advancement of the Company's business and interests. The Executive
<PAGE>
shall diligently and faithfully carry out the policies, programs and directions
of the Board of Directors of the Company.
2. Term. The term of this Agreement shall commence on the date hereof,
----
and shall terminate on the day before the second anniversary of such date.
Thereafter, this Agreement shall be automatically renewed for successive one-
year periods, unless either party notifies the other in writing of the intention
not to renew at least six (6) months prior to the date on which the term of this
Agreement would otherwise terminate.
3. Compensation. In consideration of the services rendered by the
------------
Executive, the Company agrees to compensate the Executive as follows:
(a) In consideration of the services rendered by the Executive and/or The
Risor Corporation prior to the date hereof, and as an inducement to enter into
this Agreement, the Company shall promptly (i) issue to the Executive 50,000
shares of its Common Stock, valued at $1.00 per share, and (ii) pay to the Risor
Corporation $50,000. The Executive shall be entitled to the registration rights
with respect to such shares identical to the rights granted to domestic
investors who purchased Common Stock during 1995, but the Executive agrees not
to sell any such shares before January 1, 1997 without first obtaining the
consent of the Company's Board of Directors.
(b) The Company shall pay to the Executive an annual base salary of
$150,000, payable in equal installments every two weeks. The Executive's base
salary may be increased from time to
- 2 -
<PAGE>
time by the Board in accordance with normal business practices of the Company.
The Executive shall also be entitled to receive additional compensation in the
form of any annual bonus that may be determined by and in the sole discretion of
the Board of Directors of the Company and shall be eligible to participate in
any incentive bonus program that may be established by the Company; provided,
however, that the amount of any such bonus or incentive compensation paid to the
Executive shall not be less than 80% of any similar bonus or incentive
compensation paid to the Company's Chief Executive Officer with respect to any
periods during which the Executive is employed by the Company.
(c) The Company shall grant to the Executive 125,000 Incentive Stock
Options (the "Options") pursuant to the Memry Corporation Stock Option Plan (the
"Plan"). The exercise price for the Options shall be the Fair Market Value (as
defined in the Plan) as of the date of grant. The Options shall become
exercisable with respect to one fifth of the shares covered thereby on the first
anniversary of the date of grant and an additional one fifth shall become
exercisable on each of the second, third, fourth and fifth anniversaries of the
date of grant. The Options shall terminate ten years from the date of grant.
All options shall be cancelled if the Executive is terminated "for cause" (as
hereinafter defined) hereunder. If the Executive resigns from all his positions
with the Company, all Options not exercisable as of the date of such resignation
shall be cancelled. In the event of a Change of
- 3 -
<PAGE>
Control of the Company (as defined below), all such Options shall become
immediately exercisable.
For the purposes of this Agreement, a "Change of Control" shall mean: (i)
a merger, consolidation or other corporate reorganization of the Company in
which the Company does not survive, or (ii) the beneficial ownership by one
person or entity or a related group of persons or entities (other than Harbour
Holdings Limited Partnership and its affiliates) of as much as 25% of the
outstanding voting stock of the Company, unless the transaction resulting in
such ownership by such person or related group had been approved by the Board of
Directors of the Company.
(d) The Executive shall be entitled to fringe benefits comparable to the
benefits afforded to other executive employees of the Company, including but not
limited to reasonable sick leave and coverage under any health, accident,
hospitalization, disability, retirement, life insurance, 401-K and annuity
plans, programs or policies maintained by the Company. In addition, and without
limiting the foregoing, the Company shall provide the Executive with the
following:
(i) twenty working days of vacation per calendar year, no more
than one half of which shall accrue from one year to the
next; and
(ii) a car allowance of $300.00 per month.
(e) The Executive shall be entitled to reimbursement, in accordance with
Company policy, of all reasonable, ordinary and necessary out-of-pocket expenses
which he incurs on behalf of the
- 4 -
<PAGE>
Company in the course of performing his duties hereunder, subject to furnishing
appropriate documentation of such expenses in form and substance satisfactory to
the Company.
4. Employee's Covenants.
--------------------
(a) Except as otherwise provided herein, during the term of
employment, as set forth in Section 2 hereof, and for a period of two years
thereafter, the Executive shall not, directly or indirectly in any manner or
under any circumstances or conditions whatsoever, on his own behalf or on behalf
of others, without the express written consent of the Company: (i) be or become
interested, as an individual, partner, principal, agent, clerk, employee,
stockbroker, officer, director, trustee, or in any other capacity whatsoever,
except as a nominal owner of stock of a public corporation, in any business
which is in any way in competition with the business of the Company or any
direct or indirect subsidiaries of any of the above (including the Company, the
"Affiliated Companies") within the United States; (ii) solicit any business from
any person or firm which is or was a customer of the Affiliated Companies at the
time of termination of the Executive's employment or within the preceding
twelve-month period; (iii) solicit any person employed by the Affiliated
Companies or to render services to any business which competes with the business
of any of the Affiliated Companies.
(b) The Executive acknowledges that some of the information that he
will acquire in the course of his employment with the Company concerning the
Affiliated Companies' policies,
- 5 -
<PAGE>
business methods, products, systems, customer lists, marketing programs, ideas,
plans concerning business or product development, and other such matters is
valuable proprietary information and may constitute trade secrets of the
Affiliated Companies. Therefore, the Executive agrees that he shall take all
reasonable and necessary steps during the term of his employment and thereafter
to safeguard such information and he shall not disclose the same to any person
or firm, except as necessary in the course of performing his duties on behalf of
the Company hereunder. Further, upon termination of his employment hereunder,
the Executive agrees that he will deliver to the Company any and all records,
files, lists or other documents containing information within the scope of the
foregoing description, including, without limitation, the Executive's records of
contacts with customers and supplies and potential customers and suppliers.
(c) Injunctive Relief for Breach; Enforceability. The Executive
--------------------------------------------
agrees that the Company may not be adequately compensated by money damages for a
breach by the Executive of any of the covenants contained in this Section 4 and
that the Company shall be entitled to injunctive relief and specific performance
in connection therewith, in addition to all other remedies. Each of the
covenants contained in this Section 4 shall be construed as separate covenants,
and if any court shall finally determine that any of the restraints provided for
in any such covenants are too broad as to this area, activity or time covered,
said area, activity or time covered shall be deemed reduced to whatever extent
- 6 -
<PAGE>
the court deems reasonable and such covenants shall be enforced as to such
reduced area, activity or time.
(d) Reasonableness of Scope and Duration. The parties hereto agree
------------------------------------
that the covenants and agreements contained in this Section 4 are, taken as a
whole, reasonable in their scope and duration, and no party shall raise any
issue of the reasonableness of the scope of duration of any such covenants in
any proceeding to enforce any such covenants.
5. Termination of Employment.
-------------------------
(a) The Executive's employment hereunder may not be terminated prior
to the expiration of the employment period specified in Section 2 hereof except
in accordance with the provisions of this Section 5.
(b) The Executive's employment may be terminated by the Company for
cause. For purposes of this Agreement, "for cause" shall mean dishonesty
materially relating to the Executive's employment, habitual drunkenness, any
substance abuse, commission of a felony, any violation of any federal
procurement statute or regulation, any violation of any state or federal law
relating to the workplace environment (including without limitation laws
relating to sexual harassment or age, sex or other prohibited discrimination) or
any violation of any Company policy adopted in respect of any of the foregoing,
gross incompetence, gross insubordination or any material violation of this
Agreement (which shall include, but not be limited to, a violation of the
confidentiality and non-competition provisions hereof). "For
- 7 -
<PAGE>
cause" termination must be accompanied by a written notice to that effect.
(c) If the Executive dies, this Agreement shall terminate effective at
the time of his death; provided, however, that such termination shall not result
-------- -------
in the loss of any benefit or rights which the Executive may have accrued
through the date of his death. If the Executive's employment is terminated
prior to the expiration of the employment period due to his death, the Company
shall make a severance payment to the Executive or his legal representatives
equal to the Executive's regular salary payments through the end of the month in
which such death occurs.
(d) If the Executive becomes disabled, this Agreement may be
terminated, at the Company's option, at the end of the calendar month during
which his disability is determined; provided, however, that such termination
-------- -------
shall not result in the loss of any benefit or rights which the Executive may
have accrued through the date of his disability. If the Executive's employment
is terminated prior to the expiration of the employment period due to his
disability, the Company shall make a severance payment to the Executive or his
legal representative equal to the Executive's regular salary payments for a
period of six (6) months or until payments begin under any disability insurance
policy maintained by the Company for the benefit of the Executive, whichever
period is shorter. For the purposes of this section, the definition of
"disability" shall be the same as that contained in any disability insurance
policy maintained by the Company in effect at the time of
- 8 -
<PAGE>
the purported disability, or last in effect, if no policy is then in effect.
6. Effect of Termination. Upon termination of the Executive's employment
---------------------
for any reason whatsoever, all rights and obligations of the parties under this
Agreement shall cease, except that the Executive shall continue to be bound by
the covenants set forth in Section 4 hereof, and the Company shall be bound to
pay to the Executive accrued compensation, including salary and other benefits,
to the date of termination and any severance payments which may be owed under
the provisions of Section 5 hereof.
7. Successors. In the event that the Company is merged or consolidated
----------
with, or sells all or substantially all of its assets to, any successor which
will continue the Company's business, the Company will use its best efforts to
cause such successor to assume the Company's obligations under this Agreement.
8. Remedies. The Executive hereby acknowledges that his services are
--------
unique and extraordinary, and are not readily replaceable, and hereby expressly
agrees that the Company in enforcing the covenants contained in Section 4 of
this Agreement, in addition to any other remedies provided for herein or
otherwise available at law, shall be entitled in any court of equity having
jurisdiction to an injunction restraining him in the event of such a breach,
actual or threatened, of the agreement and covenants contained in Section 4 of
this Agreement.
- 9 -
<PAGE>
9. Miscellaneous.
-------------
(a) This Agreement may not be assigned by either party hereto.
(b) In the event that any provision of this Agreement is found by a
court of competent jurisdiction to be invalid or unenforceable, such provision
shall be, and shall be deemed to be, modified so as to become valid or
enforceable, and the remaining provisions of this Agreement shall not be
affected.
(c) This Agreement shall be governed by and construed in accordance
with the law of the State of Connecticut.
(d) No modification of this Agreement shall be effective unless in a
writing executed by both parties.
(e) This Agreement constitutes the entire agreement of the parties
with respect to the subject matter hereof, and supersedes all prior agreements,
representations and promises by either party or between the parties.
- 10 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this instrument as of
the date first above written.
MEMRY CORPORATION
By: /s/ James G. Binch
----------------------------------
Name: James G. Binch
Title: President
/s/ William H. Morton, Jr.
----------------------------------
William H. Morton, Jr.
- 11 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MEMRY
CORPORATION'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE
QUARTER ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 553,000
<SECURITIES> 0
<RECEIVABLES> 1,046,000
<ALLOWANCES> 58,000
<INVENTORY> 870,000
<CURRENT-ASSETS> 2,439,000
<PP&E> 3,222,000
<DEPRECIATION> 2,010,000
<TOTAL-ASSETS> 3,688,000
<CURRENT-LIABILITIES> 3,651,000
<BONDS> 0
<COMMON> 81,000
0
42,000
<OTHER-SE> 30,000
<TOTAL-LIABILITY-AND-EQUITY> 3,688,000
<SALES> 1,181,000
<TOTAL-REVENUES> 1,181,000
<CGS> 1,035,000
<TOTAL-COSTS> 1,035,000
<OTHER-EXPENSES> 466,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,000
<INCOME-PRETAX> (375,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (375,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (375,000)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (0)<F1>
<FN>
<F1>Calculation would be anti-dilutive due to loss.
</FN>
</TABLE>
