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U.S. SECURITIES AND EXCHANGE COMMISSION
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Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: June 30, 1999
Commission file number 0-14068
MEMRY CORPORATION
(Name of small business issuer in its charter)
Delaware 06-1084424
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
57 Commerce Drive, Brookfield, CT 06804
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (203) 740-7311
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None None
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Securities registered under Section 12(g) of the Exchange
Common Stock, par value $.01 per share
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 ____
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Check if no disclosure of delinquent filers in response to Item 405 of
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Regulation S-B is contained in this form, and no disclosure will be contained,
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to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
Consolidated revenues of the issuer for the fiscal year ended June 30, 1999 were
$18,886,000.
The aggregate market value of voting stock held by non-affiliates of the
registrant was approximately $29.4 million on September 21, 1999 based upon the
closing trade price on that date. The number of shares of Common Stock
outstanding as of September 21, 1999 was 20,860,289.
Documents Incorporated by Reference:
The registrant's Proxy Statement for its Annual Meeting of Stockholders to be
held in November, 1999, is incorporated by reference into Part III of this
Annual Report on Form 10-KSB.
Transitional Small Business Disclosure Format (Check one): Yes No X
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ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
Memry Corporation (referred to herein as "Memry" or the "Company"), a Delaware
corporation incorporated in 1981, is an advanced materials company engaged in
the business of developing, manufacturing and marketing semi-finished materials,
formed components, and value-added sub-assembled products utilizing the
properties exhibited by shape memory alloys, primarily those composed of Nickel
Titanium ("nitinol"). The Company also provides contract engineering services
to assist customers in the development of products based on the properties of
shape memory alloys. The Company sells its products and services primarily to
the medical device, telecommunications, aerospace and automotive industries.
The Company conducts its operations from its three operating facilities located
in Brookfield, Connecticut, Menlo Park, California and Herk-de-Stad, Belgium.
The Company acquired its Menlo Park, California operations and certain assets
therein from Raychem Corporation ("Raychem") in June 1996 and its Herk-de-Stad,
Belgium operations and the assets thereof when it purchased all of the stock of
Advanced Materials and Technologies, N.V. in October, 1998. The Company's
principal executive offices are located at 57 Commerce Drive, Brookfield,
Connecticut 06804, and its telephone number at such address is (203) 740-7311.
TECHNOLOGY
Shape memory alloys ("SMAs") are advanced materials which possess the ability to
change their shape in response to thermal and mechanical changes, and the
ability to return to their original shape following deformations from which
conventional materials cannot recover. This ability results from the
transformation of the crystalline structure of the SMA in reaction to thermal
and mechanical changes. As a result of the crystalline structure changes, SMAs
are also able to produce forces many times greater than those produced by
conventional materials.
The major defining properties of the SMAs with which the Company works are
"superelasticity" and "thermal shape memory." The mechanical properties that
can be engineered into nitinol-based devices permit innovative product designs
that presently would be difficult or impossible to replicate with other
materials. Unlike ordinary metal, certain SMAs are capable of fully recovering
their shape after being deformed as much as six to eight percent, and of
performing this recovery on a repeated basis. This is more than ten times the
recovery ability of ordinary metals. This "superelasticity" feature has
applications for surgical instruments and devices, orthodontic apparatus,
cellular telephone antennae, and other devices. Thermal recovery applications
typically involve instances where a device is controlled or actuated in response
to a pre-determined thermal change. Examples of such uses include heat
activated coupling or sealing devices, valve actuation systems, and thermally-
actuated mechanical systems. The majority of today's commercial applications
involve the use of the materials' "superelastic" properties.
MARKETS
Medical Device Industry. Although the Company has expertise in a variety of
shape memory alloys, the Company utilizes primarily the superelastic
characteristic of nitinol for medical device applications. The value of
nitinol's superelastic characteristics in the medical device sector is its
ability to provide ease of access and delivery of sophisticated medical devices.
In addition, nitinol is kink resistant, exerts a constancy of force, is
biocompatible (non-toxic) and is non-ferromagnetic, thereby allowing the use of
magnetic resonance imaging on patients with nitinol-based implants. Because of
these unique characteristics, nitinol is becoming integral to the design of a
variety of new medical products, notably for peripheral vascular and non-
vascular stents, guidewires and catheters.
Guidewires and/or catheters, in this context, refer to tubes or wires inserted
into a vessel for diagnostic or therapeutic
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purposes. The guidewires and/or catheters can be used in the delivery of medical
devices, drugs or stents. Because of the superelastic characteristic, together
with other attributes of nitinol described above, nitinol is replacing stainless
steel as the material of choice in many of these instruments.
Stents are small tubes that hold open arteries, veins and other passageways in
the body that have become obstructed as a result of disease, trauma or aging.
Stents are placed in the body using catheter-based delivery systems in minimally
invasive procedures. Once deployed, stents exert a radial force against the
walls of the vessel to enable these passageways to remain open and functional. A
number of different stent designs, materials and delivery systems, with varying
characteristics, are currently available. The three most prevalent stent
designs are lattice tubes made via laser cutting, coiled stents and wire mesh
stents. Stents, especially those used in the treatment of coronary artery
disease, have emerged as one of the fastest growing segments of the medical
device market. Stents are used increasingly as adjuncts or alternatives to a
variety of medical procedures because it is believed they are beneficial to
overall patient outcome and may, over time, reduce total treatment costs. From
its infancy in 1990, the stent market has grown to estimated worldwide sales of
approximately $2.1 billion in 1998.
Approximately 85% of the coronary stents currently manufactured are stainless
steel and require deployment through the expansion of a balloon on a catheter-
based delivery system with a second balloon frequently used to further expand
the stent. However, the vast majority of stents currently in clinical
development for peripheral applications, such as abdominal aortic aneuryism
stent grafts and carotid, vascular and neurological stents, employ nitinol. The
physical properties of nitinol allow placement of stents manufactured with this
metal to be self-expanding and avoid balloon occlusion of the vessel during
placement.
Memry currently produces both the wire and tubing that is used to fabricate
guidewires, catheters and stents, and increasingly provides completed stent
structures to medical device companies, as well as other surgical and diagnostic
instrument assemblies. In fiscal 1999, sales to medical and orthodontic device
companies accounted for approximately 70% of revenue.
Non-Medical Markets. The non-medical industry sectors served by the Company
include primarily the telecommunications, aerospace/defense and automotive
industries. While the success of nitinol products in the medical device
industry is typically derived from the superelastic characteristics of nitinol,
applications in these industrial sectors employ both the superelastic and the
shape memory characteristics of nitinol. Although the development cycles in
these industries, particularly aerospace/defense and automotive, are longer than
those of the medical device sector, once the product is adopted it typically
provides for larger volume demand, is more easily leveraged into other
customers, and does not suffer from strict regulatory requirements.
Examples of such products the Company currently provides to these markets
include sealing devices, actuators, fasteners and cellular phone antennae. Memry
currently sells heat actuated sealing devices used in diesel engine fuel
injection systems to maintain air pressure. The sale of these products accounted
for approximately 4% of Memry's fiscal 1999 revenue. Fasteners are products that
also employ the characteristics of shape memory to hold or couple two pieces of
wire and/or metal together. Sales of such fastening devices to the non-medical
sector accounted for approximately 5% of the Company's fiscal 1999 revenue. A
superelastic nitinol wire is sold as the element wire in retractable antennae
for portable cellular telephones. It has superior durability and quickly
recovers its straight shape when bending stresses are removed. The
superelasticity effect helps to avoid kinking and deformation. Memry's revenue
generated from the sale of cellular antennae wire represented approximately 11%
of fiscal 1999 revenue. Non-medical sector sales accounted for approximately 30%
of fiscal 1999 revenues in the aggregate.
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OPERATIONS
The Company conducts its business through three operating divisions. "Memry
West," consisting of most of the business acquired from Raychem (the "Raychem
Acquisition") in June, 1996, "Memry East," which prior to the Raychem
Acquisition constituted the Company's entire SMA business, and "Memry Europe",
comprised of the Belgian corporation formerly known as Advanced Materials and
Technologies, N.V., which was acquired by Memry in October, 1998.
Memry West. On June 28, 1996, the Company acquired Raychem's nickel-titanium
product line. This business utilized inventory, leasehold improvements,
machinery and equipment and patent and other intellectual property rights to
manufacture and sell SMAs primarily composed of nitinol. Prior to the Raychem
Acquisition, Raychem was both a supplier of nickel-titanium SMAs to the Company
and a competitor in certain markets (particularly in the medical market for
formed, non-implant components). The acquired business differed from the SMA
business of the Company, however, in that where the Company had historically
specialized in the manufacture of finished products and formed components,
Raychem specialized more in the manufacture of semi-finished materials used by
original equipment manufacturers ("OEMs"). Not surprisingly, therefore, the
point at which Memry and Raychem most competed was at the level of formed
component sales to OEMs, particularly in the medical products industry. The
leased facility, inventory, machinery and equipment, leasehold improvements and
know-how purchased from Raychem now constitute Memry West, except that Raychem's
operations relating to the finishing of materials into sub-assembled products
for sales to United States Surgical Corporation were relocated to Memry East in
December, 1996.
Memry West, located in Menlo Park, California, produces semi-finished SMAs in
three basic forms: wire, strip and tube. Memry West also provides added value to
its tubular product through laser processing, shape setting and polishing
procedures resulting in the delivery of finished stent components, as well as
certain other value-added activities.
Memry East. Memry East, located in the same facility as the Company's corporate
headquarters in Brookfield, Connecticut, is engaged in the production of formed
components and of value-added sub-assemblies, predominantly based on wire and
strip-based SMAs. In 1999, Memry East became involved in the fabrication and
supply of microcoil and guidewire components utilized in medical procedures
through the Company's acquisition of the assets of Wire Solutions, Inc. of
Wrentham, MA in March, 1999. These assets have been integrated with the
Company's Memry East facility.
Memry Europe. On October 31, 1998, the Company acquired all of the outstanding
shares of Advanced Materials and Technologies, N.V., ("AMT"), located in Herk-
de-Stad, Belgium. Founded in 1989, AMT, now renamed Memry Europe, n.v.,
specializes in the development and supply of both Nickel Titanium and other
shape memory alloy semi-finished products, principally wire products used in the
same general markets served by the Company's U.S. operations. In addition, AMT
conducts a substantial amount of European Union-funded and Belgian-funded
development programs to advance knowledge of and applications for shape memory
alloys. Memry Europe will become the Company's worldwide manufacturing center
for thermal shape recovery actuators, consolidating the Company"s efforts in
this product application area.
PRODUCTS AND SERVICES
Engineering Services. Memry is engaged in sponsored development projects in
which the Company designs, manufactures and sells prototype components and
products to customers. Memry is currently working on a number of programs to
develop SMA components for OEM customer's products. The Company will accept
customer-sponsored development contracts when management believes that the
customer is likely to order a successfully developed component or product in
sufficient quantity to justify the allocation of the engineering resources
necessary. Generally under such programs, the identity of the customer is
confidential; the data, inventions, patents and intellectual property rights
which specifically relate to the SMA component are either owned by the customer,
or, in several instances, shared between the Company and the
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customer; and data, inventions, patents, and intellectual property rights
pertaining to the SMA technology that do not specifically relate to the
customer's product are owned by the Company.
Semi-Finished Materials. Raw nitinol material from specialty alloy suppliers is
processed into various shapes and sizes and referred to as "semi-finished"
materials. These materials, characterized generally as wire, strip or tubing,
are sold to customers in standard configurations, processed further to meet
specific customer specifications, or serve as the starting material for the
formed components produced by the Company.
Wire. Memry's nitinol wire products are sold as standard products,
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available in a variety of sizes, and produced in non-standard sizes, to
meet specific customer requirements, and are used as the precursor to a
formed component. Memry produces wire with a diameter ranging from .004 to
.250 inches. In addition, the Company may apply a variety of finishing
techniques, depending on customer specifications, including such steps as
polishing or coating. Applications for the Company's wire products include
cellular phone antennae, guidewires, endodontic files and needles.
Strip. The Company's nitinol strip is sold in standard dimensions, as
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well as custom sizes as specified by the customer. Memry produces strip
with a thickness ranging from .001 to .01 inches and a width ranging from
five to twenty times the thickness. The majority of the strip product,
however, serves as the starting material for formed components made by
Memry. Example applications include the strip sold to OEMs for wrapping
around catheters for reinforcement of drainage catheters and biopsy
forceps.
Tube. Nitinol tubing, or micro-tubing as it is sometimes called, is
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likewise sold in standard or customized sizes. Memry produces tubes with
an outside diameter ranging from .012 to .205 inches and an outside
diameter to internal diameter ratio from 1.15 to 1.70. Tubes are
typically used in applications requiring flexible shafts, pushability and
torqueability. Examples of such applications include stents, catheters,
delivery guides, needles, MRI instruments and surgical instruments.
Formed Components. Formed components are typically non-standard products.
Formed components are made by taking the semi-finished materials and further
processing by bending, kinking, stamping, crimping, laser cutting, chemical
etching, etc., into specific forms as specified by customers. Examples of
applications for formed components include the bending or arching of wire for
use as orthodontic braces, helical and strip actuators, micro coils, patented
locking rings for electronic connectors, enabling components of medical
instruments (particularly stent structures), and sealing components.
Sub-Assemblies. Memry manufactures and sells value-added sub-assemblies to
OEMs. This comprises taking the semi-finished materials and/or formed
components produced by Memry and combining or assembling them with other
products that have been outsourced by Memry to form a larger component or "sub-
assembly" of the OEMs' finished product. Memry combines its SMA expertise with
additional manufacturing and process knowledge and third-party supply chain
management to cost-effectively produce a sub-assembled product for OEMs. The
single largest portion of Memry East's business is selling assemblies and
components to United States Surgical, a division of Tyco Medical ("USS") and
other medical industry OEMs. The primary item sold by Memry to USS is an SMA
sub-assembly used by USS for endoscopic instruments. The use of superelastic
SMAs allows the instruments to be constrained outside the body, inserted into
the body in its constrained form through small passages, to then take a
different shape while inside the body, and then to return to its constrained
shape for removal.
Finished Products. Memry also manufactures, sells and markets proprietary
finished products from Memry East. These products include the MEMRYSAFE(R) line
of temperature-activated water flow reduction products and the FIRECHECK(R) line
of industrial fire safety valves. The Company does not believe that sales of
finished products will be material to the Company's operations in the
foreseeable future.
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STRATEGY
The Company's strategy has three components: to further Memry's leadership
position in the provision and processing of SMAs; to expand vertically in the
medical device industry by providing additional engineering and sub-assembly
services; and to leverage the Company's strong customer base by offering
additional complementary advanced material technology expertise and products.
Shape Memory Alloys. Memry's core business remains focused on its expertise in
shape memory alloys, specifically nitinol, with the objective of sustaining
growth in both the medical and non-medical markets. Because of the innovative
nature of the medical device industry, however, the Company has found the return
on invested development resources to be most attractive in the medical device
sector. The Company therefore focuses the majority of its engineering and
manufacturing expertise on the development of products for the medical device
markets, where the properties provided by SMAs provide significant performance
advantages or, in many cases, represent the enabling component of the medical
device.
In cases where non-medical customers support the engineering and process
development expense and there is strategic interest on the part of Memry,
however, the Company will also undertake the development of non-medical
applications. In addition, the Company has in the past applied, and anticipates
in the future to apply, advancements made in the development of medical devices
to applications in the lower margin, higher volume non-medical sectors where
customers are not supporting development activities.
In order to continue to advance the Company's leadership position in SMAs the
Company is implementing the following initiatives:
Continued Advancements in Processing Expertise and Quality Assurance.
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Nitinol is a non-linear material, which makes it a very difficult material
to process. Memry believes that one of its significant competitive
advantages is its superior processing capabilities. One of these
processes is the production of tubes used primarily in the production of
stents. The Company believes that this process, proprietary to the
Company, provides Memry with a significant advantage over competitors with
regard to product quality and cost. Memry has underway a number of
process enhancement initiatives designed to enhance both the current
manufacturing processes and Memry's competitive position. Because many of
the materials produced by Memry are used in medical devices, the product
quality requirements placed on Memry by its customers are high. Both
Memry West's and Memry East's manufacturing facilities are ISO 9001
certified and Memry continues to pursue opportunities to further improve
its quality assurance.
Increase in Manufacturing Capacity. To meet growing demand, particularly
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in the medical device market for the production of nitinol stents, the
Company has committed to optimizing the manufacturing efficiency of its
current facilities and to invest between $2.0 million and $3.0 million in
capital equipment and facility improvements in fiscal 2000.
Restructuring of Manufacturing Operations. To accommodate the growing
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capacity requirements of the Company's core medical OEM customer business,
the Company has undertaken to reallocate certain manufacturing activities,
relocating all helical acutator production and fine strip production to
Memry Europe, outsourcing to an Asian company production of the Company's
Memrysafe(R) product line, and centralizing all advanced medical device
development programs.
Vertical Integration. The medical device industry has been undergoing
significant change over the last few years. As part of that change, many of the
larger participants have recognized that their competitive differentiation comes
from two key
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elements: device design and product marketing. These are the core competencies
in which successful medical device companies excel and on which many medical
device companies are focusing their resources. As a result, industry
participants are looking to outsource to other companies with specialized
expertise some of the other essential parts of the business, especially
engineering incorporating advanced material technologies and manufacturing
processes. These factors have resulted in an increasing outsourcing trend in the
medical device industry, impacting the full breadth of the manufacturing cycle
from starting material engineering to final product assembly. The market drivers
for the outsourcing trend include:
Increased Competitive Pressures. Increased penetration by managed care
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companies and a continued focus on the cost of publicly sponsored
healthcare programs, such as Medicare and Medicaid, have resulted in
increasing pressure for lower priced procedures. This pricing pressure is
forcing medical device companies to reduce their manufacturing costs in
order to maintain margins.
Need to Shorten Device Development Cycles. To shorten the time required
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to market a new product, medical device companies are seeking to outsource
certain supply responsibilities to third parties that are able to quickly
develop cost effective solutions to engineering and manufacturing issues.
Efficient Use of Resources. Many medical device companies are
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reevaluating their business models with a focus on device design and sales
and marketing. As a result, medical device companies are increasingly
outsourcing many of the activities that traditionally were performed in-
house, including various aspects of the engineering, prototyping and pre-
production processes, as well as the manufacturing, of finished products
and/or sub-assemblies thereof.
Memry recognizes these changes in the medical device industry and believes that
it can address this market opportunity. By combining a strong advanced
materials technological capability to assist medical device companies with
engineering skills that address issues involving the characteristics of SMAs, as
well as developing cost effective, high quality manufacturing processes and
supply chain relationships, Memry believes that it can alleviate these issues
for its OEM customers.
In order to expand on this "fully-integrated" service concept, the Company has
implemented the following:
Increase in Engineering Service Capabilities. Memry possesses significant
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expertise in the characterization and performance of various SMAs. This
expertise is often critical in the design of medical devices. Although
Memry has in the past actively participated in the design of OEM customer
products, the Company has only recently begun a program to clearly
characterize and communicate to customers both the Company's capabilities
and the terms and conditions under which the Company will contract to
assist existing and potential customers through these services.
Processing of Additional Formed Components. As part of the Company's
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vertical integration strategy, the Company believes there exist additional
opportunities in the market to process semi-finished materials into formed
components in preparation for either further sub-assembly or direct sale
to OEM customers. This value-added business represents significant
increased margin opportunity and is often difficult for end-users to
perform given the intricacy of processing nitinol. Memry believes that in
the past, lack of both capital resources and sufficient personnel
possessing the requisite skills has hindered Memry's ability to capture
this business. Memry has during fiscal 1999 and will continue to
identify, develop and market those formed component capabilities it
believes most promising in order to expand this sector of its business.
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Additional Advanced Materials. Advanced materials that are stronger, lighter,
more effective, and smarter are fast becoming a reality in many markets. In
1997, the well respected Battelle Institute recognized advanced material
technologies as the second most important of its top ten strategic technologies
for the coming decade. Although Memry is currently focused on the opportunities
presented by SMAs, the Company believes both that there exist additional
advanced material technologies that would complement those currently advanced by
the Company and that these technologies would further leverage Memry's existing
customer base. Memry at present out-sources some advanced material technology
expertise in support of its current sub-assembly business. Although Memry has
no plans to do so at present, the Company believes that at some future date it
would benefit by acquiring additional advanced material technologies.
MARKETING AND SALES
Sales to Raychem. In connection with the Raychem Acquisition, Memry and Raychem
entered into a Private Label/Distribution Agreement pursuant to which Raychem
was made Memry's exclusive distributor for the acquired product line in certain
specified fields of use for an initial term of five years (the "Private
Label/Distribution Agreement"). Sales by the Company to certain customers,
including United States Surgical Corporation, were excluded from the scope of
this Agreement, as were any future sales for all medical implant and certain
consumer recreational applications. Raychem's customers for the products sold
are cellular telephone antennae manufacturers, who utilize the superelasticity
of SMAs for a more durable antennae, orthodontic manufacturers, who use SMA wire
for braces, medical products and instrument companies, whose uses of Memry's
products include catheter and guidewires, automotive manufacturers, who use SMA
plugs for high-pressure fuel injector sealant devices, and industrial product
manufacturers, who use SMAs for a wide variety of other uses (including
electronic connectors). In addition, Raychem purchases some of Memry West's
components materials for its own use. The sales to Raychem under the agreement
are discounted from the ultimate resale price to OEMs in order to allow Raychem
to recover its sales and marketing expenses and to realize a profit upon resale
of such products to its customers (primarily OEMs). Almost all of the products
sold to Raychem are manufactured at Memry West.
Personnel. The Company currently has 8 sales and marketing personnel, of which
4 operate primarily from Memry East, 2 operate primarily from Memry West, 1
operates in Europe and 1 is the manager for the overall activity. In March
1999, the Company created its first-ever worldwide centralized sales and
marketing department, in order to broaden the Company's customer base and
enable better utilization of the Company's sales resources, clear focus on
strategic medical markets and customers, and improved focus on strategic
applications of Nitinol in industrial and commercial markets.
Material Customers. The Company's two largest customers, Raychem and United
States Surgical, both of which have been acquired by Tyco International in the
last year, represented approximately 42% and 33%, respectively, of the Company's
sales during fiscal 1999. Sales to United States Surgical were adversely
affected by certain restructuring actions undertaken by USS upon its acquisition
by Tyco International on September 30, 1998. For the few months immediately
preceding this acquisition, USS and its divisions represented more than 50% of
consolidated Company revenue during the few months immediately preceding such
acquisition. The Company and Raychem are party to the Private Label/Distribution
Agreement, which requires Raychem to purchase certain products and materials
solely from the Company until June 30, 2001. Furthermore, while there can be no
assurances that Raychem will continue to purchase products at its current rate,
Raychem distributes the components its purchases from Memry to over two hundred
customers worldwide, lessening the risk that the loss of any one customer will
have a material adverse effect on Raychem's purchases from Memry. The Company's
arrangements with Raychem were in active re-evaluation during the second half of
fiscal 1999, well in advance of Raychem's sale to Tyco International on August
13, 1999. It is expected the Company and Raychem will substantially revise their
commercial relationships upon conclusion of the currently ongoing negotiations.
SOURCES OF SUPPLY
The principal raw material used by the Company is SMAs. The Company
obtains its SMAs from two principal sources: Teledyne Wah Chang, of
Albany, Oregon and Special Metals Corporation, of New Hartford, New York. The
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Company expects to be able to continue to acquire shape memory alloys in
sufficient quantities for its needs from these suppliers. In addition, if the
Company was for whatever reason not able to secure an adequate supply of SMA
from these suppliers, the Company believes that other sources exist that would
be able to supply the Company with sufficient quantities of SMAs, although
the Company could suffer some transitional difficulties if it had to switch to
such alternative sources.
While the Company also relies on outside suppliers for its non-SMA components of
sub-assembled products, the Company does not anticipate any difficulty in
continuing to obtain non-SMA raw materials and components necessary for the
continuation of the Company's business.
COMPETITION
The Company faces competition from other SMA processors, who compete with the
Company in the sale of semi-finished materials (i.e. mostly with Memry West and
Memry Europe) and formed components (i.e., with Memry East, Memry West and Memry
Europe). There are several major U.S., Japanese and European companies engaged
in the supply or use of SMAs, some of which have substantially greater resources
than the Company. Within the U.S., the two major SMA alloy suppliers to both
the Company and the industry as a whole are Teledyne Wah Chang and Special
Metals Corporation. Each of these companies has substantially greater resources
than the Company and could determine that it wishes to compete with the Company
in the Company's markets. Special Metals has in fact become a competitor of
Memry West for semi-finished wire and strip materials. Japanese competitors
include Furakawa Electric Co. and Daido, both of which produce SMAs and sell to
users in Japan and internationally. The principal European competitors are
Memometal, a private French company, Minitubes SA, a private French Nitinol tube
supplier, and G. Rau/EuroFlex, a German company. Within North America, the
Company believes that it is the largest single processor of SMAs, accounting for
approximately 35% of all SMA usage. The Company believes that Johnson and
Johnson, through its subsidiary Nitinol Devices and Components Company, is the
next largest, followed by Flexmedics Corporation, and Shape Memory Alloy
Applications, Inc.
The Company intends to compete, and advance its position, based upon its direct
worldwide medical implant application sales activities, and its sales and
distribution alliance with Raychem Corporation (subject to expected
modifications thereof), its proprietary alloy positions, and its knowledge of
the processing parameters of the alloys and unique design and assembly
capabilities, particularly in the medical device field. While price and
production capability are obviously important, the Company believes that it
competes mostly on technological capabilities.
PATENTS AND TRADEMARKS
As part of the Raychem Acquisition, the Company controls five U.S. patents, as
well as a variety of foreign patents and domestic and foreign patent
applications, relating primarily to the production and utilization of nickel-
titanium alloys having superelasticity and shape memory effect. While these
acquired patents in no way dominate the entire field of shape memory metals,
they do provide the Company with some competitive advantages in the covered
uses. In addition, notwithstanding the Company's acquisition of these patents
and patent applications as part of the Raychem Acquisition, under certain
circumstances the Company is required to license the acquired intellectual
property back to Raychem for specified uses. For example, (i) upon the
termination of the private/label distribution agreement between the Company and
Raychem, Raychem will have a non-exclusive perpetual license to utilize these
patents to sell products within specified fields of uses for a specified
royalty, and (ii) Raychem has a non-exclusive, transferable perpetual license to
utilize these patents in connection with certain intellectual property relating
to the medical products market that was not acquired by the Company as part of
the Raychem Acquisition. The Company believes that this latter license has been
transferred to Medtronic, Inc., a medical products manufacturer (and a customer
of the Company), when Medtronic purchased this "excluded" (from the Raychem
Acquisition) intellectual property from Raychem during fiscal 1997. The Company
also has various other patents and trademarks which, while useful, are not
individually material to the Company's operations.
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The Company's patent rights do not dominate the field of SMA utilization,
although the patents acquired from Raychem do dominate the use of nickel-
titanium alloys having a two-way shape memory effect, although not in the
medical instrument and in-body applications fields. The Company does not,
however, have specific patent protection for its most important present products
or product components. The Company's patent rights obviously do not dominate
any specific fields in which the Company sells products. The Company does
believe, however, that various patents provide it with advantages in the
manufacture and sale of different products, and that its know-how relating to
various SMAs provides the Company with a competitive advantage.
While a U.S. patent is presumed valid, the presumption of validity is not
conclusive, and the scope of a patent's claim coverage, even if valid, may be
less than needed to secure a significant market advantage. Gaining effective
market advantage through patents can require the expense, uncertainty and delay
of litigation. Although the Company's technical staff is generally familiar
with the SMA patent environment and has reviewed patent searches when considered
relevant, the Company has not requested any legal opinion to determine whether
any of its current or contemplated products would infringe any existing patents.
RESEARCH AND DEVELOPMENT
During fiscal 1999, the Company spent approximately $237,000 on "pure" research
and development (i.e., research and development done by the Company at its own
cost for purposes of developing future products). In comparison, the Company
spent approximately $226,000 during fiscal 1998 on "pure" research and
development. The Company anticipates modest increases in the amount of "pure"
research and development that it undertakes as the Company's growth continues.
In addition, the Company spent approximately $473,000 on "funded" research
contributing to the development of SMA components pursuant to customer and
government-sponsored development arrangements. These "funded" research and
development costs are borne directly by the U.S. federal government, the
European Union, the Flemish regional government (Belgium) and customers of the
Company, as applicable, and, for purposes of the Company's financial statements,
are part of "costs of revenues," rather than research and development. By
comparison, the Company spent approximately $187,000 on "funded" research and
development in fiscal 1998, which amount was accounted for as "costs of
revenues". The amount of "funded" research and development that the Company will
undertake in the future will depend upon its customer's needs, but the Company
anticipates it increasing over time as the use of SMAs for various purposes
increases.
EMPLOYEES
As of June 30, 1999, the Company had 131 full-time employees and no part-time
employees. Of the full-time employees, 20 were executive or management
personnel and 32 were science and research personnel.
None of the employees is represented by collective bargaining units. The Company
believes that its relationship with its employees is generally good.
In addition, as of June 30, 1999, the Company had approximately 21 "temporary"
employees (i.e., employees of temporary manpower companies) working for the
Company.
DISCONTINUED OPERATIONS
Until June of 1997, the Company reported as a separate segment in its financial
reports the results of Wright Machine Corporation ("Wright"), a wholly-owned
subsidiary of the Company with a 120-year history as a New England manufacturer
of screw machine and taper pin products. After a prolonged period of declining
sales and ongoing operating
9
<PAGE>
losses, the Company's Board of Directors voted to cease operation at Wright, and
proceed with Wright's orderly liquidation, in April, 1997. Wright ceased
manufacturing operations, and sold its machinery and equipment, in June of 1997.
Wright sold its real property in fiscal 1999. The Company recorded a loss of
$211,000 in fiscal 1997 on Wright's sales and liquidation, and a further loss of
$151,000 in fiscal 1998. Wright's assets have been completely liquidated.
10
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
The Company has a lease, which was renewed as of September 30, 1995, for a term
to expire on February 1, 2001, for office and manufacturing space located at 57
Commerce Drive, Brookfield, Connecticut 06804. The premises have a floor area
of approximately 24,350 square feet, of which approximately 6,500 square feet is
used by the Company for general administrative, executive, and sales purposes,
and approximately 17,850 square feet is used for engineering, manufacturing,
research and development operations and an environmentally controlled area
("clean room"). The lease provides for an average monthly base rental of
approximately $12,350.
On March 26, 1998, the Company, as sublessee, and Raychem, as sublessor, amended
the sublease relating to office and manufacturing space located at 4065 Campbell
Avenue, Menlo Park, California 94025 to extend the term of such sublease to
September 30, 2001. These premises, formerly used by Raychem, are the site of
the Company's west coast operations. These premises have a floor area of
approximately 28,032 square feet, which is used by the Company for
manufacturing, warehousing, general administrative and research and development
operations. The lease originally provided for a monthly base rental of
$20,743.68, which amount was raised in October of 1998 to approximately $43,500
(which amount is presently in effect), due to an adjustment for increases in the
fair market value of the premises.
On October 31, as part of its acquisition of AMT, the Company acquired a
facility located at Daelemveld 1113, B-3540 Herk-de-Stad, Belgium. Memry Europe
owns approximately 27,600 square feet of land and a manufacturing and office
facility. The single building, in good condition, consists of approximately
3,200 square feet of office space and 12,000 square feet used for manufacturing,
warehousing, and research and development. There is an existing mortgage on the
building and its assets of 10,800,000 BEF (approximately $256,000) with the
right for the mortgage holder to take an additional mortgage on the assets.
Management believes that the existing facilities of the Company are suitable and
adequate for the Company's present needs and that additional facilities will be
readily available if needed. Management also believes that the properties are
adequately covered by insurance.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings, none of which are believed
to involve a claim for damages exceeding 10% of the current assets of the
Company. Although it is not feasible to predict the outcome of any such
proceedings, or any claims made against the Company, the Company does not
anticipate that the ultimate liability, if any, will materially affect the
Company's financial position, results of operation or liquidity/cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
11
<PAGE>
PART II
ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the OTC Bulletin Board (through which
various market dealers make the market of the Company's Common Stock and trades
are reported through what is commonly known as the "pink sheets") under the
symbol MRMY. On June 30, 1999, there were 1,267 holders of record of the
Company's Common Stock.
The following table sets forth, for the periods indicated, the quarterly high
and low representative bid quotations for the Company's Common Stock as reported
by the National Quotations Bureau. Quotations reflect inter-dealer prices,
without retail mark-ups, mark-downs, or commissions, and may not necessarily
represent actual transactions.
Fiscal year ended
June 30 1999 1998
- ----------------- ---- ----
High Low High Low
---- --- ---- ---
1st Quarter $5.25 $3.44 $2.56 $1.63
2nd Quarter 4.25 2.44 4.44 2.94
3rd Quarter 3.25 1.56 4.19 3.25
4th Quarter 2.31 1.19 4.94 3.63
The Company has never paid a cash dividend on its Common Stock and the Company
does not contemplate paying any cash dividends on its Common Stock in the near
future.
Pursuant to the Company's June 30, 1998 loan agreement with its principal
lender, the Company is prohibited from declaring or paying any dividends, or
making a distribution to its stockholders, until the termination of such
agreement and the repayment of all amounts due to such lender.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
Revenues. Revenues from continuing operations decreased 1% for the fiscal year
ended June 30, 1999, to $18,886,000 from $19,077,000 for the fiscal years ended
June 30, 1999 and 1998, respectively. The net decrease of $191,000 reflects an
increase in revenue of approximately $1,100,000 due to sales attributable to the
acquisitions during fiscal 1999 of AMT (now Memry Europe) and the assets of Wire
Solutions, Inc. (now the Company's microcoil operations), offset by a decrease
in revenue primarily attributable to reduced sales to United States Surgical
following its acquisition by Tyco International. The Company expects revenues
to increase in future years.
Costs and Expenses. Manufacturing costs increased from $9,266,000 in fiscal 1998
to $11,135,000 in fiscal 1999, an increase of $1,869,000, or 20%. Of this
increase, approximately $630,000 was attributable to the additional sales
contributed by the AMT acquisition. The Company's gross margin from sales
decreased to 39% in fiscal year 1999 from 50% in fiscal year 1998. This decrease
was primarily attributable to the reduction in sales of high margin medical
tubes sold to the United States Surgical and increased costs attributed to
additional engineering expenses and expenses associated with maintaining and
improving the efficiency and effectiveness of Memry West's operations. In
addition, the Company incurred additional costs in developing new product lines
that had not been fully commercialized by the end of fiscal 1999. As a result,
the Company's gross profit from sales
12
<PAGE>
decreased by $2,346,000, or 24%, from $9,624,000 in fiscal 1998 to $7,278,000 in
fiscal 1999.
General, selling and administrative ("GSA") expenses increased to $7,780,000 in
fiscal 1999 from $5,835,000 in fiscal 1998, an increase of $1,945,000 or 33%.
Approximately $600,000 of the increase in GSA is attributable to the acquisition
of AMT (before any allocations of U.S. corporate overhead) and approximately
$850,000 of the increase is a result of severance benefits relating to three
executive officers and other employees of Memry West. Depreciation and
amortization expenses increased to $595,000 in fiscal 1999 from $406,000 in
fiscal 1998, an increase of $189,000 or 47%. The increase in depreciation and
amortization cost was due primarily to an increase in depreciation expense and
goodwill amortization associated with the purchases of AMT and Wire Solutions.
Other expense decreased from $147,000 in fiscal 1998 to $27,000 in fiscal 1999,
a decrease of $120,000. The decrease is mostly due to interest earned of $78,000
on cash deposits held by Memry Europe.
Net Income/Loss. As a result of the Company's 1% decrease in revenues, along
with the 20% increase in manufacturing costs and 33% increase in GSA expenses,
and a decrease in net interest expense, the Company had a net loss of $1,349,000
during fiscal 1999, as compared to a net income of $2,925,000, during fiscal
1998. The Company expects income from continuing operations to increase in
future periods as sales increase.
LIQUIDITY AND CAPITAL RESOURCES.
The Company's primary capital requirements through early fiscal 1997 were to
fund losses from operations. During the second half of fiscal 1997 and all of
fiscal 1998, the Company's operations produced more cash than they utilized. In
fiscal 1999, the primary capital requirements were to fund acquisitions and
additions to property, plant, and equipment and to cover the Company's loss from
operations. The Company has historically satisfied its capital requirements
from sales of equity securities and borrowings. During fiscal 1999, net cash
provided by operating activities was approximately $1.3 million (with the
Company's net loss from operations more than offset by changes in working
capital components), net cash provided by financing activities was approximately
$2.1 million and net cash used by investing activities was approximately $2.9
million. As a result of the foregoing, the Company held cash and cash
equivalents at June 30, 1999 of $1,191,000, up from $1,189,000 at the close of
fiscal 1998. However, the Company had positive working capital (current assets
less current liabilities) of only approximately $400,000 at the close of fiscal
1999, as opposed to positive working capital of approximately $5,295,000 at
the end of fiscal 1998. Under the terms of the transaction whereby the Company
purchased AMT, Memry will be obligated to pay up to an additional $1,046,000 in
cash on October 30, 1999, if the value of Memry shares on such date is below
$5.55 per share. Based on the current trading range of the Company's Common
Stock, the Company anticipates that it will have to make the full amount of this
payment. Going forward, the Company anticipates that it will satisfy its
capital requirements through a combination of internally generated funds,
borrowings, and sales of equity securities.
On June 30, 1998, the Company and Webster Bank entered into a Commercial
Revolving Loan, Term Loan, Line of Credit and Security Agreement and related
financing documents and agreements (the "Webster Facility"). Upon entering into
the Webster Facility, the Company paid off all amounts outstanding under its
prior credit facility with First Union National Bank. The Webster Facility
includes a revolving loan, an equipment loan line of credit and a $500,000 term
loan. The term loan is to be repaid in equal monthly installments of principal
over its five-year term. The revolving loan provides for borrowings up to the
lesser of (a) $3,000,000 or (b) an amount equal to the aggregate of (1) 80% of
eligible accounts receivable and (2) the lesser of $1,000,000 or 35% of eligible
inventory. The revolving loan requires the payment of a commitment fee equal to
.25% per annum of the daily-unused portion of the revolving loan. The equipment
loan line of credit provides for equipment financing up to the lesser of
$750,000 or 75% of the purchase price for eligible equipment each year through
June 30, 2001. On June 30, 1999, the Company converted $668,000 from the
equipment line of credit into a term loan. The Company has the remaining option
of converting amounts borrowed under the equipment line of credit to term loans
on July 1, 2000 and 2001. At June 30, 1999, an aggregate of approximately
$2,876,000 was outstanding under the Webster Facility. The Webster Facility is
secured by substantially all of the Company's assets.
13
<PAGE>
Interest on the revolving loan and equipment line of credit is variable based on
either LIBOR or the Prime Rate as published in the Wall Street Journal, as
elected by the Company. Interest on the term loan and converted equipment loans
is either fixed, at a rate based on the U.S. Treasury yield, or variable based
on the Prime Rate, as elected by the Company. The Company has the ability to
convert between the different rates from time to time subject to certain
conditions.
In addition, the credit facility contains various restrictive covenants,
including, among others, limitations on encumbrances and additional debt,
prohibition on the payment of dividends or redemption of stock except in
connection with certain existing put rights, restrictions on
management/ownership changes and required compliance with specified financial
ratios. As of June 30, 1999, the Company was in breach of certain of these
covenants related to financial condition and ratios, but the Company has since
received a waiver or covenant modifications for such financial covenants from
Webster Bank through June 30, 2000.
Memry Europe has a primary banking relationship with KBC Bank and Insurance
Group of Belgium. As of June 30, 1999, an aggregate of approximately $340,000
was outstanding with KBC in short-term and long-term debt.
The Company has in the past grown through acquisitions (including both the AMT
and the Wire Solutions acquisitions and the Company's earlier acquisition of
Raychem) and, as part of its continuing growth strategy, the Company expects to
continue to evaluate and pursue opportunities to acquire other companies, assets
and product lines that either complement or expand the Company's existing
businesses. The Company intends to use a combination of available cash from
operations, authorized but unissued common stock, and borrowings to finance any
such acquisitions. The Company does not currently, however, contemplate any
material acquisitions in fiscal 2000.
The Company intends to spend between $2.0 and $3.0 million on capital
expenditures during the fiscal year ending June 30, 2000, in order to handle its
expected increased sales volume of SMA and superelastatic materials. The
Company expects that it will be able to pay for these expenditures through a
combination of cash flow generated through operations, increased borrowings, and
sale of stock.
In connection with a December 1994 subordinated debt financing, the Company
granted Connecticut Innovations, Incorporated ("CII"), currently the holder of
both common stock and warrants of the Company, a "put" right if: (i) at any time
before the earlier of June 28, 2006 and the date on which CII ceases to hold at
least 35% of the common stock underlying the convertible securities originally
issued to it, the Company ceases to (a) maintain its corporate headquarters and
all of its product business operations in the State of Connecticut (including
the assembly of all products to be sold to U.S. Surgical Corporation), excluding
the Company's components and sub-assembly business acquired from Raychem, (b)
base its president and chief executive officer, a majority of its senior
executives, and all of its administrative, financial, research and development,
marketing and customer service staff relating to its product business (subject
to the same inclusions and exclusions as clause (a)) in the State of
Connecticut, (c) conduct all of its operations relating to its product business
directly or through subcontractors and through licensed operations in the State
of Connecticut (subject to the same inclusions and exclusions as clause (a)),
and (d) maintain its principal bank accounts with banks located in the State of
Connecticut (provided, however, that assets, revenues, employees, operations and
bank accounts attributable to any entity acquired by the Company shall not be
considered when determining if the Company has satisfied such requirements so
long as such entity (1) was acquired in an arm's length transaction, (2) was not
an affiliate of the Company and was not controlled by an affiliate of the
Company prior to such acquisition, and (3) had been in existence and operating
as a business for at least one year at the time of the acquisition); or (ii) the
Company fails to keep the Registration Statement on Form S-2 that went effective
on January 31, 1997 (the "Registration Statement"), covering the offer and sale
by certain of the Company's shareholders (including CII) of up to 3,550,630
shares (including up to 3,041,963 shares beneficially owned at such time by CII)
of the Company's common stock, in effect for an aggregate of 120 days during any
rolling twelve month period during the three years which the Company is required
to maintain the effectiveness of the Registration Statement. Upon CII's
exercise of its put, the Company shall be obligated to purchase from CII all the
Company's Common
14
<PAGE>
Stock then owned by CII and underlying warrants then owned by CII at a price
equal to the greater of the then current market price of the Company's common
stock or $2.00 per share, less, in either event, the aggregate amount of unpaid
exercise prices of all warrants put to the Company. Using $2.00 per share, which
was above the market price for the Company's common stock on September 21, 1999,
as the put price per share, the aggregate put price that would have to be paid
by the Company if the put were exercised would be approximately $4,330,000. To
the extent that the current market value of the Company's common stock exceeds
$2.00 per share at any time, the put price would be greater. If CII were to have
the right to put its securities and were to choose to exercise that right, it
would have a serious adverse effect on the Company's liquidity and the Company
would most likely have to seek equity financing to be able to meet its
obligations to CII. However, the Company believes that it has the ability to
insure that its operations do not move from Connecticut in a manner that would
trigger CII's put, and the Company intends to cause the Registration Statement
to be maintained in a manner that would prevent CII's put from being operative.
The Company's operating losses, which the Company anticipates will continue into
the second quarter of fiscal 2000, are expected to exceed the Company's existing
working capital surplus. The Company anticipates overcoming this deficit
through a combination of deferrals of some of the amount owed to the former
owners of AMT, additional borrowings from Webster Bank and the sale of equity
securities. There can be no assurances, however, that the Company will be able
to accomplish this by the time that the Company's operating losses surpass the
Company's working capital surplus. Assuming that the Company satisfies its cash
needs through the second quarter of fiscal 2000, the Company believes that the
combination of its working capital surplus as of June 30, 1999, its borrowing
facility, its ability to raise equity capital in the past and what it believes
will be material net profits from operations during the latter portion of fiscal
2000 will be sufficient to meet the Company's capital requirements during the
remainder of fiscal 2000.
YEAR 2000 ISSUE
The "Year 2000 Issue" results from computer programs being written using two
digits, instead of four, to define a given year. Programs running time-
sensitive software may recognize a date using "00" as the year 1900 rather than
the year 2000, which could result in disruptions to various activities and
operations, miscalculations and even system failures.
The Company has recently upgraded its internal computer systems such that the
Company believes all of such internal systems are Year 2000 compliant. The
Company has completed (i) formal testing of such new systems, (ii) an
investigation regarding the Year 2000 readiness of its other equipment, and
(iii) inquiry of its suppliers and customers as to whether the Year 2000 Issue
will create substantial risks or disruption.
The Company has completed its investigation and implemented plans to correct any
discrepancies prior to the end of calendar year 1999. As part of the Company's
Year 2000 investigation, the Company has sought confirmations, with respect to
the Year 2000 compliance of the computers, software, and systems of its
suppliers, customers and other third parties. The Company believes, based upon
the foregoing analysis, that the Year 2000 issue will have no material adverse
impact on the Company's financial condition, results of operation, or future
cash flows. If, nonetheless, the Company's suppliers, customers and other third
parties with whom the Company maintains business relations will be unable to
resolve any of their Year 2000 problems in a timely manner, risk to the
Company's financial condition could result. In addition, in the event that the
economy as a whole is materially and adversely effected by widespread
disruptions, or by failures of key infrastructure providers (such as banks and
utilities), it is likely that the Company's financial condition and results of
operations would be materially adversely effected.
EURO CONVERSION
The Company conducts business in multiple currencies, including the currencies
of various European countries in the European Union which began participating in
the single European currency by adopting the Euro as their common currency
15
<PAGE>
as of January 1, 1999. During the period January 1, 1999 to January 1, 2002, the
existing currencies of the member countries will remain legal tender and
customers and vendors of the Company may continue to use these currencies when
conducting business. Currency rates during this period, however, will no longer
be computed from one legacy currency to another but instead will first be
converted into the Euro. The Company continues to evaluate the Euro conversion
and the impact on its business, both strategically and operationally. At this
time, the conversion to the Euro has not had, nor is expected to have, a
material adverse effect on the financial condition or results of operations of
the Company.
FORWARD-LOOKING INFORMATION
The statements in this Annual Report on Form 10-KSB that are not historical fact
constitute "forward-looking statements." Said forward-looking statements
involve risks and uncertainties which may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements, express or implied by such forward-looking
statements. These forward-looking statements are identified by their use of
forms of such terms and phrases as "expects," "intends," "goals," "estimates,"
"projects," "plans," "anticipates," "should," "future," "believes," and
"scheduled".
The variables which may cause differences include, but are not limited to, the
following: general economic and business conditions; competition; success of
operating initiatives; operating costs; advertising and promotional efforts; the
existence or absence of adverse publicity; changes in business strategy or
development plans; the ability to retain management; availability, terms and
deployment of capital; business abilities and judgment of personnel;
availability of qualified personnel; labor and employee benefit costs;
availability and costs of raw materials and supplies; and changes in, or failure
to comply with, government regulations. Although the Company believes that the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and therefore, there can
be no assurance that the forward-looking statements included in this filing will
prove to be accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and expectations of the Company will be achieved.
16
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements of the Company and the report of
independent certified public accountants thereon are set forth on pages F-1
through F-25 hereof.
INDEX TO FINANCIAL STATEMENTS
INDEPENDENT AUDITOR'S REPORT F-1
FINANCIAL STATEMENTS
Consolidated balance sheets F-2
Consolidated statements of operations F-3
Consolidated statements of stockholders' equity F-4
Consolidated statements of cash flows F-5
Notes to consolidated financial statements F-7
17
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
Memry Corporation and Subsidiaries
Brookfield, Connecticut
We have audited the accompanying consolidated balance sheets of Memry
Corporation and subsidiaries as of June 30, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Memry Corporation
and subsidiaries as of June 30, 1999 and 1998, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
New Haven, Connecticut
August 20, 1999
F-1
<PAGE>
MEMRY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
--------------------------------------
<S> <C> <C>
ASSETS (Note 5)
Current Assets
Cash and cash equivalents $ 1,191,000 $ 1,189,000
Accounts receivable, less allowance for doubtful accounts
of $118,000 in 1999 (Note 7) 2,238,000 3,534,000
Note receivable - 325,000
Inventories (Note 3) 3,182,000 2,336,000
Prepaid expenses and other current assets 21,000 62,000
Assets of discontinued segment, net (Note 12) - 210,000
Income tax receivable 89,000 -
--------------------------------------
Total current assets 6,721,000 7,656,000
--------------------------------------
Property, Plant and Equipment, net (Notes 4 and 9) 5,316,000 2,717,000
--------------------------------------
Other Assets
Patents and patent rights, less accumulated amortization of
$462,000 in 1999 and $328,000 in 1998 1,605,000 1,734,000
Goodwill, less accumulated amortization of $386,000 in 1999
and $138,000 in 1998 4,465,000 906,000
Deferred financing costs 29,000 43,000
Deposits 46,000 29,000
--------------------------------------
6,145,000 2,712,000
--------------------------------------
$ 18,182,000 $ 13,085,000
======================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses (Note 14) $ 2,662,000 $ 2,230,000
Notes payable (Note 5) 2,571,000 100,000
Current maturities of capital lease obligations (Note 9) 39,000 31,000
Acquisition liability (Note 2) 1,046,000 -
--------------------------------------
Total current liabilities 6,318,000 2,361,000
Capital Lease Obligations, less current maturities (Note 9) 36,000 19,000
Notes Payable, less current maturities (Note 5) 862,000 580,000
--------------------------------------
7,216,000 2,960,000
--------------------------------------
Commitments and Contingencies (Notes 2, 9 and 11)
Stockholders' Equity (Note 6)
Common stock 208,000 199,000
Additional paid-in capital 43,832,000 41,121,000
Accumulated deficit (32,544,000) (31,195,000)
Accumulated other comprehensive loss:
Foreign currency translation adjustment (530,000) -
--------------------------------------
10,966,000 10,125,000
--------------------------------------
$ 18,182,000 $ 13,085,000
======================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
MEMRY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended June 30, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
--------------------------------------
<S> <C> <C>
Revenues
Product sales (Note 7) $ 18,164,000 $ 18,847,000
Research and Development 722,000 230,000
--------------------------------------
18,886,000 19,077,000
--------------------------------------
Cost of Revenues
Manufacturing (Note 8) 11,135,000 9,266,000
Research and development 473,000 187,000
--------------------------------------
11,608,000 9,453,000
--------------------------------------
Gross Profit 7,278,000 9,624,000
--------------------------------------
Operating Expenses
General, selling and administrative (Notes 9, 11 and 14) 7,780,000 5,835,000
Depreciation and amortization 595,000 406,000
--------------------------------------
8,375,000 6,241,000
--------------------------------------
Operating Income (loss) (1,097,000) 3,383,000
--------------------------------------
Other Income (Expense)
Interest expense (Note 5) (170,000) (163,000)
Interest income 78,000 -
Other income 58,000 -
Gain on disposition of assets 7,000 16,000
--------------------------------------
(27,000) (147,000)
--------------------------------------
Income (loss) from continuing operations before
income taxes (1,124,000) 3,236,000
Provision for income taxes (Note 10) 225,000 160,000
--------------------------------------
Income (loss) from continuing operations (1,349,000) 3,076,000
Loss on disposal of discontinued segment (Note 12) - (151,000)
--------------------------------------
Net Income (Loss) $ (1,349,000) $ 2,925,000
======================================
Basic earnings per share:
Income (loss) from continuing operations $ (0.07) $ 0.17
Loss from discontinued operations - (0.01)
--------------------------------------
$ (0.07) $ 0.16
======================================
Diluted earnings per share:
Income (loss) from continuing operations $ (0.07) $ 0.15
Loss from discontinued operations - (0.01)
--------------------------------------
$ (0.07) $ 0.14
======================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
MEMRY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended June 30, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Accumulated
------------------------ Additional Other Comp-
Shares Par Paid-in Accumulated rehensive
Issued Value Capital Deficit Loss Total
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1997 17,005,474 $ 170,000 $ 39,631,000 $(34,120,000) $ - $ 5,681,000
Issuance of common stock 1,280,781 13,000 1,472,000 - - 1,485,000
Issuance of warrants - - 34,000 - - 34,000
Warrants exercised through
net settlement and issuance
of common stock 1,662,914 16,000 (16,000) - - -
Net income - - - 2,925,000 - 2,925,000
---------------------------------------------------------------------------------
Balance, June 30, 1998 19,949,169 199,000 41,121,000 (31,195,000) - 10,125,000
Issuance of common stock 877,164 9,000 2,711,000 - - 2,720,000
Comprehensive loss:
Net loss - - - (1,349,000) - (1,349,000)
Other comprehensive loss,
net of tax - foreign
currency translation
adjustments - - - - (530,000) (530,000)
------------
Total comprehensive
loss - - - - - (1,879,000)
---------------------------------------------------------------------------------
Balance, June 30, 1999 20,826,333 $ 208,000 $ 43,832,000 $(32,544,000) $ (530,000) $ 10,966,000
=================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
MEMRY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $ (1,349,000) $ 2,925,000
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Provision for loss on note receivable 325,000 -
Depreciation and amortization 1,217,000 873,000
Gain on disposal of assets (7,000) (16,000)
Writedown of assets of discontinued segment - 200,000
Compensation paid by issuance of common stock 103,000 234,000
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable 1,588,000 (879,000)
Increase in note receivable - (325,000)
Increase in inventories (683,000) (334,000)
Decrease in prepaid expenses and other current assets 30,000 89,000
Decrease (increase) in other assets 56,000 (43,000)
Increase in income tax receivable (89,000) -
Increase (decrease) in accounts payable and accrued expenses 133,000 (1,034,000)
---------------------------------
Net cash provided by operating activities 1,324,000 1,690,000
---------------------------------
Cash Flows from Investing Activities
Purchase of AMT and Wire Solutions (1,533,000) -
Purchases of equipment (1,632,000) (521,000)
Proceeds from sales of equipment 310,000 24,000
---------------------------------
Net cash used in investing activities (2,855,000) (497,000)
---------------------------------
Cash Flows from Financing Activities
Proceeds from sale of common stock, net 133,000 1,516,000
Proceeds from notes payable - 500,000
Net increase (decrease) in revolving loans payable 2,288,000 (1,173,000)
Principal payments on notes payable (304,000) (842,000)
Principal payments on capital lease obligations (35,000) (30,000)
---------------------------------
Net cash provided by (used in) financing activities 2,082,000 (29,000)
---------------------------------
Effect of foreign currency exchange rate changes on cash and cash equivalents (549,000) -
---------------------------------
Increase in cash and cash equivalents 2,000 1,164,000
Cash and cash equivalents, beginning of year 1,189,000 25,000
---------------------------------
Cash and cash equivalents, end of year $ 1,191,000 $ 1,189,000
=================================
Supplemental Disclosures of Cash Flow Information
Cash payments for interest $ 155,000 $ 239,000
=================================
Cash payments for income taxes $ 145,000 $ 46,000
=================================
</TABLE>
F-5
<PAGE>
MEMRY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
Years Ended June 30, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
-----------------------------------
<S> <C> <C>
Supplemental Schedule of Noncash Investing and Financing Activities
Acquisition of AMT:
Cash purchase price $ 1,298,000 $ -
===================================
Fair value of assets acquired
Accounts receivable $ 575,000 $ -
Notes receivable 525,000 -
Inventory 187,000 -
Goodwill 3,743,000 -
Property and equipment 2,012,000 -
Other 22,000 -
-----------------------------------
7,064,000 -
Less
Common stock issued (2,363,000) -
Acquisition liability (1,046,000) -
Liabilities assumed (2,357,000) -
-----------------------------------
$ 1,298,000 $ -
===================================
Acquisition of Wire Solutions, Inc.:
Cash purchase price $ 235,000 $ -
===================================
Fair value of assets acquired
Accounts receivable $ 26,000 $ -
Goodwill 353,000 -
Property, plant and equipment 1,000 -
-----------------------------------
380,000 -
Less
Common stock issued (121,000) -
Liabilities assumed (24,000) -
-----------------------------------
$ 235,000 $ -
===================================
Issuance of common stock in settlement of debt $ - $ 60,000
===================================
Issuance of 1,662,914 shares of common stock in net settlement of
2,370,000 common stock warrants $ - $ 16,000
===================================
Capital lease obligation incurred for equipment $ 21,000 $ 8,000
===================================
Conversion of revolving loans payable to equipment term loan $ 668,000 $ -
===================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
MEMRY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
- --------------------------------------------------------------------------------
Note 1. Summary of Significant Accounting Policies
Nature of business
- ------------------
Memry Corporation, a Delaware corporation incorporated in 1981, is engaged in
the businesses of developing, manufacturing and marketing products and
components utilizing the properties exhibited by shape memory alloys, and, prior
to June 5, 1997, manufacturing and marketing metal parts and components machined
on screw machines and smaller metal working machines. As described in Note 12,
the Company ceased the operations of the metal parts and components operations
on June 5, 1997. The Company's sales are primarily to customers in the medical
device industry located throughout the United States and Europe. The Company
extends credit to its customers all on an unsecured basis on terms that it
establishes for individual customers.
Accounting estimates
- --------------------
The preparation of financial statements 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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Principles of consolidation
- ---------------------------
The financial statements include the accounts of Memry Corporation ("Memry") and
its wholly owned subsidiaries, Wright Machine Corporation ("Wright") and Memry
Holdings, S.A., (collectively, the "Company"). Memry Holdings, S.A. is a holding
company whose principal asset consists of an investment in its wholly owned
subsidiary, Memry Europe, N.V. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Cash and cash equivalents
- -------------------------
For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid investments with a maturity of three months or less, when
purchased, to be cash equivalents. The carrying amount of these financial
instruments approximates fair value because of the short maturity of these
instruments.
Inventories
- -----------
Inventories consist principally of various metal alloy rod and shape memory
alloys. Inventories are stated at the lower of cost, determined on the first-in,
first-out method, or market.
F-7
<PAGE>
MEMRY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1999 and 1998
- --------------------------------------------------------------------------------
Impairment of assets
- --------------------
The Company reviews its long-lived assets and certain identifiable intangible
assets for impairment whenever events or circumstances indicate that the
carrying amount of the assets may not be recoverable.
Foreign Currency Exchange and Translation
- -----------------------------------------
The financial statements of foreign subsidiaries have been translated into U.S.
dollars in accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation". All balance sheet accounts have been translated
using the exchange rates in effect at the balance sheet date. Income statement
amounts have been translated using the average exchange rate for the year. The
loss resulting from the changes in exchange rates has been reported in
accumulated other comprehensive loss.
Effective January 1, 1999, the European Economic and Monetary Union (the "EMU")
created a single Eurocurrency (the "Euro") for its member countries, including
Belgium, which is a member of the EMU and where the Company's European
operations are conducted. On January 1, 1999, Belgium irreversibly established
fixed conversion rates between their existing sovereign currency, the Belgian
Franc, and the Euro, and adopted the Euro as its common legal currency on that
date. On January 1, 1999, the exchange rate between the Belgian Franc and Euro
was 40.34 to 1. Because the Company did not own its Belgium subsidiary during
the fiscal year ended June 30, 1998, restatement of prior year balances because
of the adoption of the Euro was not required.
Revenue recognition
- -------------------
Revenues from product sales are recognized when the related products are
shipped. Certain revenues are earned in connection with research and development
grants and contracts which are principally with various Governmental agencies.
Such revenues are recognized when services are rendered. Some of the Company's
research and development projects are customer-sponsored and typically provide
the Company with the production rights or pay a royalty to the Company if a
commercially viable product results.
Depreciation and amortization
- -----------------------------
Depreciation of equipment is computed using the straight-line method over the
estimated useful lives of the respective assets, ranging from three to ten
years. Leasehold improvements are amortized over the life of the lease, or the
improvements' estimated useful life, if shorter.
F-8
<PAGE>
MEMRY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1999 and 1998
- --------------------------------------------------------------------------------
Costs of obtaining patents and patent rights are amortized using the straight-
line method over the patents' expected period of benefit which ranges from
thirteen to sixteen years.
Goodwill represents the cost of acquired assets in excess of values ascribed to
net tangible assets and is being amortized using the straight-line method over
15 years.
Costs incurred in obtaining financing are capitalized and are being amortized
over the term of the related debt.
401(k) plan
- -----------
The Company maintains a 401(k) profit sharing and savings plan for the benefit
of substantially all its employees. The plan provides for contributions by the
Company in such amounts as the Board of Directors may annually determine.
Income taxes
- ------------
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws on the date of enactment.
Earnings per share
- ------------------
Basic earnings (loss) per share amounts are computed by dividing income (loss)
from continuing and discontinued operations by the weighted-average number of
common shares outstanding. Diluted per share amounts assume exercise of all
potential common stock instruments unless the effect is to reduce the loss or
increase the income per common share from continuing operations.
For the periods presented, there were no items which changed the income (loss)
from continuing and discontinued operations as presented in the consolidated
statements of operations and the amounts used to compute basic and diluted
earnings (loss) per share. The following is information about the computation of
weighted-average shares utilized in the computation of basic and diluted
earnings (loss) per share. For the year ended June 30, 1999, common stock
equivalents have been excluded from the computation of the net loss per share
because inclusion of such equivalents is antidilutive.
F-9
<PAGE>
MEMRY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
----------------------------------
<S> <C> <C>
Weighted average number of basic shares
outstanding 20,297,134 18,102,916
Effect of dilutive securities:
Warrants - 2,391,611
Options - 474,036
----------------------------------
Weighted average number of fully diluted
shares outstanding 20,297,134 20,968,563
==================================
</TABLE>
Comprehensive Income
- --------------------
The Company adopted SFAS No. 130, "Reporting Comprehensive Income," as of July
1, 1998. Accounting principles generally require that recognized revenue,
expenses, gains and losses be included in net income. Although certain changes
in assets and liabilities, such as foreign currency translation adjustments, are
reported as a separate component of the stockholders' equity section of the
balance sheet, such items, along with net income, are components of
comprehensive income. The adoption of SFAS No. 130 had no effect on the
Company's net loss or stockholders' equity.
Note 2. Business Combinations
The Company purchased Advanced Materials and Technologies, n.v. ("AMT") and the
assets of Wire Solutions, Inc. on October 30, 1998 and March 19, 1999,
respectively. Details of the transactions which were accounted for as purchases,
are as follows:
A summary of the purchase payments in connection with the acquisitions is as
follows:
<TABLE>
<CAPTION>
Wire
Solutions,
AMT Inc.
--------------------------------
<S> <C> <C>
Cash paid to sellers at closing $ 1,040,000 $ 209,000
Issuance of 675,000 shares of common
stock to sellers 2,363,000 -
Issuance of 62,500 shares of common
stock to sellers - 121,000
Acquisition liability 1,046,000 -
Acquisition costs 258,000 26,000
==================================
$ 4,707,000 $ 356,000
==================================
</TABLE>
F-10
<PAGE>
MEMRY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1999 and 1998
- --------------------------------------------------------------------------------
A summary of the net assets acquired in connection with the acquisitions is as
follows:
<TABLE>
<CAPTION>
Wire
Solutions,
AMT Inc.
---------------------------------
<S> <C> <C>
Assets acquired
Accounts receivable $ 575,000 $ 26,000
Notes receivable 525,000 -
Inventory 187,000 -
Goodwill 3,743,000 353,000
Property, plant and equipment 2,012,000 1,000
Other 22,000 -
Liabilities assumed (2,357,000) (24,000)
----------------------------------
$ 4,707,000 $ 356,000
==================================
</TABLE>
Unaudited pro forma consolidated results of operations for the years ended June
30, 1999 and 1998, as though AMT and Wire Solutions, Inc. had been acquired at
July 1, 1997, are as follows:
<TABLE>
<CAPTION>
1999 1998
-----------------------------------------
<S> <C> <C>
Product sales $ 18,391,000 $ 19,937,000
Net (loss) income $ (1,626,000) $ 2,291,000
Basic earnings per share $ (0.08) $ 0.12
Diluted earnings per share $ (0.08) $ 0.11
</TABLE>
In connection with the acquisition of AMT, the Company has recorded a liability
of $1,046,000. Pursuant to the terms of the purchase agreement, if the fair
market value of the Company's common stock is below $5.55 per share on October
30, 1999, then the Company is obligated to pay an amount calculated by
multiplying 675,000 times the difference between $5.55 and such fair value;
provided however, that in no event shall the Company be obligated to pay more
than $1,046,000.
F-11
<PAGE>
MEMRY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1999 and 1998
- --------------------------------------------------------------------------------
Note 3. Inventories
Inventories at June 30, 1999 and 1998, are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------------------
<S> <C> <C>
Raw materials and supplies $ 690,000 $ 455,000
Work-in-process 1,789,000 1,783,000
Finished goods 1,304,000 836,000
Allowance for slow-moving and obsolete inventory (601,000) (738,000)
----------------------------------
$ 3,182,000 $ 2,336,000
==================================
</TABLE>
Note 4. Property, Plant and Equipment
Property, plant and equipment at June 30, 1999 and 1998, is summarized as
follows:
<TABLE>
<CAPTION>
1999 1998
----------------------------------
<S> <C> <C>
Land $ 691,000 $ -
Furniture and fixtures 1,371,000 645,000
Tooling and equipment 5,698,000 3,745,000
Leasehold improvements 247,000 203,000
---------------------------------
8,007,000 4,593,000
Less accumulated depreciation and amortization 2,691,000 1,876,000
---------------------------------
$ 5,316,000 $ 2,717,000
==================================
</TABLE>
Note 5. Notes Payable
Notes payable consist of the following at June 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------------------------------
<S> <C> <C>
Revolving loan payable pursuant to June 30, 1998 credit
facility interest payable monthly at the prime rate plus
.75% (8.75% at June 30, 1999), due June 30, 2001. $ 1,800,000 $ 180,000
Term note payable to a bank pursuant to June 30, 1998
credit facility, due in monthly installments of $8,333
plus interest at 8.75% per annum, due June 30, 2003 408,000 500,000
</TABLE>
F-12
<PAGE>
MEMRY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
-------------------
<S> <C> <C>
Equipment loan payable pursuant to June 30, 1998 credit facility, due in
monthly installments of $18,555 plus interest at prime plus .75% (8.75%
at June 30, 1999), due June 30, 2002.
668,000 -
Term note payable to a bank, due in annual installments
including interest at 9.75%, due February 21, 2001. 88,000 -
Term note payable to Swissmetal, due on November 30,
1999 plus accrued interest at 5% per annum. 128,000 -
Mortgage note payable to a bank, due July 14, 1999 plus accrued
interest at 9.09% per annum. 256,000 -
Term note payable to a bank, due in annual installments
plus interest at 6.92%, due on August 5, 1999. 13,000 -
Term note payable to a bank due in monthly installments
plus interest at 5.70%, due October 10, 2001 72,000 -
-----------------------------------
3,433,000 680,000
Less current maturities 2,571,000 100,000
-----------------------------------
$ 862,000 $ 580,000
===================================
</TABLE>
Future maturities of Notes Payable at June 30, 1999 are as follows:
<TABLE>
<CAPTION>
<S> <C>
2000 $ 2,571,000
2001 413,000
2002 341,000
2003 100,000
2004 8,000
------------------
$ 3,433,000
=================
</TABLE>
The credit facility entered into on June 30, 1998 includes a revolving loan, a
line of credit and a $500,000 term loan. The revolving loan provides for
borrowings up to the lesser of $3,000,000 or the sum of (a) 80% of eligible
accounts receivable and (b) the lesser of $1 million or 35% of eligible
inventory; and for the payment of a commitment fee equal to .25% per annum of
the daily unused portion of the revolving loan. The line of credit provides for
equipment financing up to the lesser of $750,000 or 75% of the purchase price
for eligible equipment each year through June 30, 2001. The Company, on July 1
of each year through 2001, has the option of converting amounts borrowed under
the line of credit to
F-13
<PAGE>
MEMRY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1999 and 1998
- --------------------------------------------------------------------------------
term loans. On June 30, 1999, the Company converted $668,000 from the equipment
line of credit into a term loan. This credit facility is secured by
substantially all the assets of the Company.
Interest on the revolving loan and line of credit loan is variable based on
either LIBOR or the Prime Rate as published in the Wall Street Journal, as
elected by the Company. Interest on the term loan and converted equipment loans
is either fixed, at a rate based on the U.S. Treasury yield, or variable based
on the Prime Rate, as elected by the Company. The Company has the ability to
convert between the different rates from time to time subject to certain
conditions.
In addition, the credit facility contains various restrictive covenants
including, among others, limitations on additional debt, payment of dividends,
management and ownership changes and compliance with specified financial ratios.
The Company was not in compliance with certain financial covenants as of June
30, 1999. However, the Company has received a waiver or covenant modification
from the bank for such financial covenants through June 30, 2000.
The carrying amounts of these financial instruments approximates fair value.
Note 6. Capital Stock
Common stock
- ------------
On June 30, 1999 and 1998, the Company had 30,000,000 authorized shares of
common stock, par value $0.01 per share, of which there were 20,826,333 and
19,949,169 shares issued and outstanding at June 30, 1999 and 1998,
respectively.
During the year ended June 30, 1998, $150,000 was raised through the sale of
100,000 shares of common stock under a private placement of securities.
Also during the years ended June 30, 1999 and 1998, 38,000 and 33,000 shares of
common stock at an aggregate price of $99,000 and $70,000, respectively, were
issued to Company directors as compensation. In addition, during the years ended
June 30, 1999 and 1998, 102,000 and 2,780,000 shares of common stock were issued
at an aggregate price of $133,000 and $1,135,000, respectively, through the
exercise of options and warrants. Of the 2,780,000 shares issued upon exercise
of options and warrants during 1998, approximately 1,663,000 shares were issued
on a net exercisable basis, for which no proceeds were received. During the year
ended June 30, 1998, 31,000 shares at an aggregate price of $130,000 were issued
as compensation to an outside consultant and employees.
F-14
<PAGE>
MEMRY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1999 and 1998
- --------------------------------------------------------------------------------
Common stock reserved for issuance at June 30, 1999, is as follows:
Number of
Shares
--------------
For exercise of outstanding warrants 1,450,602
For exercise of stock options 2,753,234
--------------
4,203,836
==============
Various agreements with a certain investor provide that upon the occurrence of
specified events, primarily should the Company cease to maintain its principal
offices within the State of Connecticut or fail to maintain a registration
statement covering the resale of its securities, the investor would have the
right to put all securities of the Company held by the investor at that time for
a price equal to the greater of the then current market price per share of such
securities or $2 per share, less, if warrants are being held by such investor at
such time, the aggregate amount of the unpaid exercise prices of all such
warrants. Using $2.00 per share, which is greater than the market price per
share at June 30, 1999, as the put price per share, the aggregate put price that
would have to be paid by the Company if the put were exercised would be
approximately $4,330,000. This put option expires on the date the investor
ceases to hold at least 35% of the common stock underlying the convertible
securities originally issued to it. If the investor were to have the right to
put its securities and were to choose to exercise that right, such an event
would have a serious adverse effect on the Company's liquidity and the Company
would most likely have to seek equity financing to be able to meet its
obligations to the investor. However, the Company has the ability to insure that
its operations do not move from Connecticut and intends to cause its current
registration statement to be maintained in a manner that would prevent the put
from being operative.
Incentive Plans
- ---------------
In 1994, the Company adopted the Memry Corporation Stock Option Plan (the "1994
Plan"). Pursuant to this plan, incentive stock options were granted at prices
equal to or greater than the fair market value of the Company's common stock at
the date of grant, and were exercisable at the date of grant unless otherwise
stated. In addition, non-qualified options were granted at prices determined by
the Company's compensation committee, which may have been less than the fair
market value of the Company's common stock at date of grant, in which case an
expense equal to the difference between the option price and fair market value
was recognized. The exercise period for both the incentive and non-qualified
stock options generally could not exceed ten years. The Plan also allowed the
granting of Stock Appreciation Rights, however, only a minimal amount of such
rights were granted.
F-15
<PAGE>
MEMRY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1999 and 1998
- --------------------------------------------------------------------------------
During the year ended June 30, 1998, the Company adopted the Memry Corporation
Long-term Incentive Plan (the "1997 Plan"). Under the 1997 Plan, incentive and
non-qualified options may be granted to employees and non-employee directors
under terms similar to the 1994 Plan. Also, under the 1997 Plan, Stock
Appreciation Rights ("SARs"), Limited Stock Appreciation Rights ("Limited
SARs"), restricted stock, and performance shares may be granted to employees.
With respect to SARs, upon exercise, the Company must pay to the employee the
difference between the current market value of the Company's common stock and
the exercise price of the SARs. The SARs terms are determined at the time of
each individual grant, however if SARs are granted which are related to an
incentive stock option, then the SARs will contain similar terms to the related
option. Limited SARs may be granted in relation to any option or SARs granted.
Upon exercise, the Company must pay to the employee the difference between the
current market value of the Company's common stock and the exercise price of the
related options or SARs. Upon the exercise of SARs or Limited SARs, any related
option or SARs outstanding will no longer be exercisable.
Restricted shares of common stock may also be granted to employees for no
consideration. The terms of the restriction are determined at the time of each
individual grant. Generally, if employment is terminated during the restricted
period, the participant must forfeit any stock still subject to restriction.
Performance shares are granted to employees based on individual performance
goals, and may be paid in shares or cash determined based on the shares earned
and the market value of the Company's common stock at the end of certain defined
periods.
Also, under the 1997 Plan, each quarter, all non-employee directors are granted
shares of the Company's common stock with a value equal to $7,500, determined
based on the market value of the Company's stock at the end of each quarter.
This amount was amended during the year ended June 30, 1999 from $2,500 to
$7,500 each quarter per non-employee director.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), established new standards for stock-based
compensation plans under which employees receive shares of stock or other equity
instruments, such as stock options or warrants, of the employer. This Statement
established a fair value based method of expense recognition for stock-based
compensation plans and encouraged, but did not require, entities to adopt that
method in place of existing generally accepted accounting principles. As
permitted by SFAS No. 123, for options granted where the exercise price at date
of grant is equal to or exceeds the fair market value of the Company's stock,
the Company has elected to continue under existing generally accepted accounting
principles and to account for the options granted under APB Opinion No. 25, and
accordingly, no compensation cost has been recognized in the consolidated
statements of operations for grants under the option plan. Had compensation cost
for the stock option plans been recognized based on the grant date fair values
of awards, the method described
F-16
<PAGE>
MEMRY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1999 and 1998
- --------------------------------------------------------------------------------
in SFAS No. 123, the reported net income (loss) would have been
increased/decreased to the pro forma amounts shown below:
<TABLE>
<CAPTION>
1999 1998
----------------------------------
<S> <C> <C>
Net income (loss):
As reported $ (1,349,000) $ 2,925,000
==================================
Pro forma $ (1,845,000) $ 2,678,000
==================================
Basic earnings per share:
As reported $ (0.07) $ 0.16
==================================
Pro forma $ (0.09) $ 0.15
==================================
Diluted earnings per share:
As reported $ (0.07) $ 0.14
==================================
Pro forma $ (0.09) $ 0.13
==================================
</TABLE>
The fair value of each grant, used to determine the proforma information above,
is estimated at the grant date using the fair value option-pricing model with
the following weighted average assumptions for grants awarded during the years
ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
Dividend rate -
Risk free interest rate 5.82% 5.82%
Weighted average expected lives, in years 4 4
Price volatility 111.6% 31.8%
</TABLE>
F-17
<PAGE>
MEMRY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1999 and 1998
- --------------------------------------------------------------------------------
A summary of the status of the Company's stock option plans at June 30, 1999 and
1998, and changes during the years then ended, is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Shares Options Exercise
Reserved Outstanding Price
--------------------------------------------
<S> <C> <C> <C>
Balance, June 30, 1997 1,100,000 897,000 $ 1.54
Canceled (35,500) $ 1.67
Granted 720,000 $ 3.88
Exercised (44,000) $ 1.59
--------------------------------------------
Balance, June 30, 1998 3,083,000 1,537,500 $ 2.63
Canceled (83,290) $ 2.69
Granted 210,000 $ 2.05
Exercised (82,166) $ 1.60
--------------------------------------------
Balance, June 30, 1999 2,753,234 1,582,044 $ 2.60
============================================
</TABLE>
At June 30, 1999 and 1998, 764,037 and 394,000 (weighted average exercise price
of $2.12 and $1.51) of the outstanding options were exercisable, respectively.
The weighted-average grant date fair value per option of options granted during
the years ended June 30, 1999 and 1998 was $1.31 and $1.29, respectively. For
the years ended June 30, 1999 and 1998, all options granted carried an exercise
price equal to the fair market value of the Company's stock at the date of
grant.
A further summary of options outstanding at June 30, 1999, is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------- -------------------------------------
Weighted-
Average Weighted- Weighted-
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (In Years) Price Exercisable Price
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$.90 to $4.25 1,582,044 8.08 $ 2.60 764,037 $ 2.12
</TABLE>
Warrants
- --------
The Company has also issued stock warrants to employees and others. The
compensation cost charged to operations for warrants granted to employees was
$5,000 and $34,000 during the years ended June 30, 1999 and 1998, respectively.
F-18
<PAGE>
MEMRY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1999 and 1998
- --------------------------------------------------------------------------------
The following table summarizes warrants outstanding at June 30, 1999 and 1998,
and the changes in warrants during the years then ended:
<TABLE>
<CAPTION>
Weighted-
Average
Shares Warrants Exercise
Reserved Outstanding Price
-------------------------------------------------
<S> <C> <C> <C>
Balance, June 30, 1997 5,321,732 5,321,732 $ 1.37
Canceled (414,525) $ 5.00
Granted - $ -
Exercised (3,436,605) $ 1.02
-------------------------------------------------
Balance, June 30, 1998 1,470,602 1,470,602 $ 1.13
Canceled - $ -
Granted - $ -
Exercised (20,000) $ 0.01
-------------------------------------------------
Balance, June 30, 1999 1,450,602 1,450,602 $ 1.15
=================================================
</TABLE>
Of the 3,436,605 warrants exercised during the year ended June 30, 1998,
approximately 2,370,000 were converted, on a net exercise basis, to
approximately 1,663,000 shares of common stock.
A further summary of warrants outstanding at June 30, 1999 is as follows:
<TABLE>
<CAPTION>
Warrants Outstanding Warrants Exercisable
----------------------------------------------------- --------------------------------
Weighted-
Average Weighted- Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (In Years) Price Exercisable Price
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$.01 to $2.00 1,450,602 2.51 $ 1.15 1,450,602 $ 1.15
</TABLE>
F-19
<PAGE>
MEMRY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1999 and 1998
- --------------------------------------------------------------------------------
Note 7. Major Customers
Product sales revenue for the years ended June 30, 1999 and 1998, include sales
to two major customers, each of which accounted for greater than 10% of the
total sales of the Company. A summary of sales to these customers during the
years ended June 30, 1999 and 1998, and accounts receivable from these customers
at June 30, 1999 and 1998, is as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------------------- -------------------------------------
Accounts Accounts
Customer Sales Receivable Sales Receivable
------------------ --------------------------------------- -------------------------------------
<S> <C> <C> <C> <C>
Company A $ 7,909,000 $ 817,000 $ 8,309,000 $ 1,845,600
Company B 6,290,000 753,000 7,331,700 829,900
--------------------------------------- -------------------------------------
$ 14,199,000 $ 1,570,000 $ 15,640,700 $ 2,675,500
======================================= =====================================
</TABLE>
Sales to Company A are made under a private label/distribution agreement wherein
Company A became the exclusive distributor of certain products for an initial
term of five years, which expires in 2001.
Note 8. Major Suppliers
The Company currently purchases a significant portion of raw materials from two
suppliers. However, management believes that several other suppliers could
provide similar materials on comparable terms without significantly impacting
shipping or sales.
Note 9. Leases
The Company leases its Connecticut and California warehouse and office
facilities under operating leases. The lease on the Connecticut facility expires
in February 2001 and the lease on the California facility expires in September
2001. The Company also leases certain equipment under noncancelable leases which
have been recorded as capital leases and included in the accompanying
consolidated balance sheets under the caption "Equipment and Improvements".
F-20
<PAGE>
MEMRY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1999 and 1998
- --------------------------------------------------------------------------------
Future minimum lease payments under capital leases and significant noncancelable
operating leases, with remaining terms of one year or more, are as follows at
June 30, 1999:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-----------------------------------
<S> <C> <C>
2000 $ 43,000 $ 826,000
2001 18,000 789,000
2002 14,000 147,000
2003 8,000 4,000
-----------------------------------
83,000 $ 1,766,000
==================
Less amount representing interest 8,000
---------------
Present value of future minimum lease payments 75,000
Less current maturities 39,000
===============
$ 36,000
===============
</TABLE>
Rent expense under operating leases for the years ended June 30, 1999 and 1998
approximated $770,000 and $416,000, respectively.
Note 10. Income Taxes
Deferred income taxes reflect the net effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. For financial reporting purposes,
a valuation allowance of $11.6 million and $11.1 million has been recognized at
June 30, 1999 and 1998, respectively, to reflect the estimated amount of
operating loss carryforwards and temporary differences which may not be
realized, due to the absence of sustained profitability of the Company. The
approximate effect of carryforwards and temporary differences that give rise to
deferred tax assets and liabilities at June 30, 1999 and 1998, is as follows:
F-21
<PAGE>
MEMRY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
-----------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 47,000 $ -
Inventory reserves 242,000 298,000
Capitalization of inventory costs 542,000 -
Reserve for losses on assets of discontinued
operations - 233,000
Severance accrual 316,000 -
Vacation accruals 112,000 49,000
Research and development credit carryforwards 126,000 160,000
Other - 36,000
Net operating loss carryforwards 10,279,000 10,306,000
-----------------------------------------
Total deferred tax assets 11,664,000 11,082,000
Valuation allowance (11,664,000) (11,082,000)
=========================================
Net deferred tax assets $ - $ -
=========================================
</TABLE>
The 1999 and 1998 provision for income taxes is comprised solely of currently
payable state taxes.
Income (loss) from continuing operations before income taxes consists of:
<TABLE>
<CAPTION>
1999 1998
--------------------------------------
<S> <C> <C>
Domestic $ (444,000) $ 3,236,000
Foreign (680,000) -
--------------------------------------
$ (1,124,000) $ 3,236,000
======================================
</TABLE>
A reconciliation of the anticipated income tax expense (computed by applying the
Federal statutory income tax rate of 34% to the income (loss) from continuing
operations before taxes) to the provision for income taxes as reported in the
consolidated statements of operations is as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------------------------------------
<S> <C> <C>
Provision (benefit) for income taxes at
statutory Federal rate $ (382,000) (34)% $ 1,100,000 34%
Increase (decrease) resulting from:
State corporation income tax, net of
federal tax benefit 25,000 2% 143,000 5%
(Decrease) increase in valuation
allowance for deferred taxes 582,000 52% (1,083,000) (34)%
------------------------------------------------------------
Provision for income taxes $ 225,000 20% $ 160,000 5%
============================================================
</TABLE>
F-22
<PAGE>
MEMRY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1999 and 1998
- --------------------------------------------------------------------------------
At June 30, 1999, the Company has Federal and state net operating loss
carryforwards for income tax purposes, which expire as follows:
<TABLE>
<CAPTION>
Federal State
-------------------------------- -----------------------------
Year Amount Year Amount
-------------------------------- -----------------------------
<S> <C> <C> <C>
2002 $ 787,000 2000 $ 2,254,000
2003 1,841,000 2001 2,119,000
2004 1,859,000 2002 1,732,000
2005 2,841,000 2004 370,000
------------------
2006 4,669,000 $ 6,475,000
==================
2007 3,237,000
2008 1,956,000
2009 3,120,000
2010 2,497,000
2011 2,619,000
2019 893,000
-------------------
$ 26,319,000
===================
</TABLE>
Also, the Company has foreign net operating loss carryforwards of $3,011,000,
which will not expire.
In addition, the Company has tax credit carryforwards available to offset future
taxable income aggregating approximately $126,000 which expire in various
amounts from 2000 through 2008.
Note 11. Commitments and Contingencies
401(K) Plan
- -----------
During the years ended June 30, 1999 and 1998, Company contributions to its
401(k) profit sharing and savings plan approximated $74,000 and $56,000,
respectively.
F-23
<PAGE>
MEMRY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1999 and 1998
- --------------------------------------------------------------------------------
Litigation
- ----------
There are various lawsuits and claims, arising in the ordinary course of
business, pending against the Company. In the opinion of management, the
ultimate resolution of these matters will not have a material adverse effect on
the results of operations or the financial position of the Company.
Note 12. Discontinued Operations
In April 1997, the Company decided to discontinue the operations of Wright, and
on June 5, 1997, the Company ceased the operations of Wright. At June 30, 1998,
the Company had sold substantially all of the machinery, equipment and inventory
of Wright. As of June 30, 1999, the Company had sold the remaining assets of
Wright and did not recognize any significant gains or losses from those
transactions.
At June 30, 1998, the assets and liabilities of Wright consisted of the
following:
<TABLE>
<CAPTION>
1998
-----------------
<S> <C>
Assets
Property and equipment $ 879,000
Less adjustment for write-down to estimated
realizable value (579,000)
-----------------
300,000
Liabilities
Estimated losses from disposal of segment 90,000
-----------------
Net assets of Wright $ 210,000
=================
</TABLE>
In conjunction with the sale of Wright inventory, the Company received a note
receivable of $325,000 and a warrant to purchase up to 15% of the buyer's fully-
diluted equity for $315,000. The warrant is currently exercisable and expires on
June 30, 2003. During the year ended June 30, 1999, the Company provided a
reserve for the note receivable balance.
F-24
<PAGE>
MEMRY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1999 and 1998
- --------------------------------------------------------------------------------
Note 13. Operating Segments
The Company is engaged principally in one line of business, the development,
manufacturing and marketing of products utilizing the properties exhibited by
shape memory alloys, which represents more than 95% of consolidated revenues.
The following table presents information about the Company by geographic area.
There were no material amounts of sales or transfers among geographic areas and
no material amounts of United States export sales. For the year ended June 30,
1998, there were no European operations, and therefore, the table does not
include any information by geographic areas for fiscal 1998.
<TABLE>
<CAPTION>
1999 United States Europe Consolidated
---- ------------------------------------------------------
<S> <C> <C> <C>
Total revenues $ 17,912,000 $ 974,000 $ 18,886,000
Operating loss (366,000) (731,000) (1,097,000)
Identifiable assets 12,375,000 6,449,000 18,824,000
</TABLE>
See Note 7 for sales to major customers.
Note 14. Severance
During the fourth quarter of the year ended June 30, 1999, the Company
terminated six employees and thereafter entered into various severance
agreements with such employees. These employees held management positions while
employed at the Company. For the year ended June 30, 1999, $784,000 was charged
to operations and is included in accrued expenses in the accompanying
consolidated financial statements relating to these benefits.
F-25
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The information required by this Item is incorporated herein by reference to the
sections entitled "Proposal No. 1-Election of Directors," "-Executive Officers
of the Company" and "-Section 16(a) Beneficial Ownership Reporting Compliance"
of the Company's Definitive Proxy Statement to be filed with the Commission
within 120 days after June 30, 1999.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to the
sections entitled "Proposal No. 1 -- Election of Directors -Compensation of
Directors" and "-Executive Compensation" of the Company's Definitive Proxy
Statement to be filed with the Commission within 120 days after June 30, 1999.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference to the
section entitled "Security Ownership of Certain Beneficial Owners and
Management" of the Company's Definitive Proxy Statement to be filed with the
Commission within 120 days after June 30, 1999.
ITEM 12. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference to the
section entitled "Proposal No. 1 -- Election of Directors-Certain Relationships
and Transactions" of the Company's Definitive Proxy Statement to be filed with
the Commission within 120 days after June 30, 1999.
18
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT INDEX
<TABLE>
<CAPTION>
=====================================================================================================
Exhibit
Number Description of Exhibit
- ------- -------------------------------------------
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
3.1 Certificate of Incorporation of the Company, as amended (9)
- -----------------------------------------------------------------------------------------------------
3.2 By-Laws of the Company, as amended (7)
- -----------------------------------------------------------------------------------------------------
3.3 Amendment Number 1 to By-Laws of the Company, as amended (11)
- -----------------------------------------------------------------------------------------------------
10.1 Lease Agreement, dated January 24, 1991 between the Company and Brookfield (1)
Commerce relating to 57 Commerce Drive, Brookfield, CT
- ------------------------------------------------------------------------------------------------------
10.2 Employment Agreement, dated September 24, 1993, between the Company and James (2)
G. Binch
- ------------------------------------------------------------------------------------------------------
10.3 Employee Non-Disclosure agreement, dated as of October 18, 1994, between the (3)
Company and James G. Binch
- ------------------------------------------------------------------------------------------------------
10.4 Convertible Subordinated Debenture Purchase Agreement, dated as of December (7)
22, 1994, between the Company and CII
- -------------------------------------------------------------------------------------------------------
10.5 First Amendment to Convertible Subordinated Debenture Purchase Agreement, (4)
dated October 11, 1995, between the Company and CII
- -------------------------------------------------------------------------------------------------------
10.6 First Addendum to Convertible Subordinated Debenture, dated October 11, 1995, (4)
made by the Company and agreed to by CII
- -------------------------------------------------------------------------------------------------------
10.7 First Addendum to Stock Subscription Warrant (re: Warrant No. 94-4), dated (4)
October 11, 1995, made by the Company and agreed to by CII
- -------------------------------------------------------------------------------------------------------
10.8 First Addendum to Stock Subscription Warrant (re: Warrant No. 94-5), dated (4)
October 11, 1995, made by the Company and agreed to by CII
- ------------------------------------------------------------------------------------------------------
10.9 Employment Agreement, dated as of November 7, 1995, between the Company and (5)
William H. Morton, Jr.
- -------------------------------------------------------------------------------------------------------
10.10 Second Amendment to Convertible Subordinated Debenture Purchase Agreement, (7)
dated as of June 28, 1996, between the Company and CII
- -------------------------------------------------------------------------------------------------------
10.11 Amended and Restated Class I Warrant Certificate (Warrant Certificate No. (7)
94-4A) issued by the Company to CII
- -------------------------------------------------------------------------------------------------------
10.12 Amended and Restated Class II Warrant Certificate (Warrant Certificate No. (7)
94-5A) issued by
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
=======================================================================================================
Exhibit
Number Description of Exhibit
- ------- -----------------------------------
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
the Company to CII
- -------------------------------------------------------------------------------------------------------
10.13 Sublease, dated as of June 28, 1996, between the Company and Raychem (6)
Corporation
- -------------------------------------------------------------------------------------------------------
10.14 Amendment to Lease Agreement between the Company and Brookfield Commerce (7)
relating to 57 Commerce Drive, Brookfield, CT.
- -------------------------------------------------------------------------------------------------------
10.15 Warrant Cert. No. 96-5, dated as of July 15, 1996, issued to Dawn M. Morton (7)
- -------------------------------------------------------------------------------------------------------
10.16 Letter Agreement, dated June 26, 1996, between the Company and James Proft (7)
- -------------------------------------------------------------------------------------------------------
10.17 Employee Agreement on Inventions and Patents, between the Company and James (7)
G. Binch
- ------------------------------------------------------------------------------------------------------
10.18 Memry Corporation Stock Option Plan, as amended (8)
- ------------------------------------------------------------------------------------------------------
10.19 Form of Nontransferable Incentive Stock Option Agreement under the 1994 Plan (8)
- ------------------------------------------------------------------------------------------------------
10.20 Form of Nontransferable Non-Qualified Stock Option Agreement under the 1994 (8)
Plan
- ------------------------------------------------------------------------------------------------------
10.21 Amended and Restated Time-Lock Supply Agreement, dated as of February 19, (9)
1997, and effective as of December 20, 1996, between the Company and Raychem
Corporation
- ------------------------------------------------------------------------------------------------------
10.22 Amended and Restated Private Label/Distribution Agreement, dated as of (9)
February 19, 1997, and effective as of December 20, 1996, between the Company
and Raychem Corporation*
- ------------------------------------------------------------------------------------------------------
10.23 Memry Corporation's 1997 Long Term Incentive Plan, as amended (10)
- ------------------------------------------------------------------------------------------------------
10.24 Form of Nontransferable Incentive Stock Option Agreement under the 1997 Plan (10)
- ------------------------------------------------------------------------------------------------------
10.25 Employment Agreement, dated as of the 29th day of October, 1997, between (10)
Thomas D. Carey and the Company
- ------------------------------------------------------------------------------------------------------
10.26 Letter Agreement, dated December 23, 1997, between James G. Binch and the (10)
Company relating to the exchange of a promissory note for the Company's
Common Stock
- ------------------------------------------------------------------------------------------------------
10.27 Commercial Revolving Loan, Term Loan, Line of Credit and Security Agreement, (11)
dated June 30, 1998, between the Company and Webster Bank
- ------------------------------------------------------------------------------------------------------
10.28 Revolving Loan Note, dated June 30, 1998, by the Company in favor of Webster (11)
Bank in principal amount of $3,000,000
- ------------------------------------------------------------------------------------------------------
10.29 Term Loan Note, dated June 30, 1998, by the Company in favor of Webster Bank (11)
in principal amount of $500,000
- -----------------------------------------------------------------------------------------------------
10.30 Equipment Loan Note, dated June 30, 1998, by the Company in favor of Webster (11)
Bank in principal amount of $750,000
- -----------------------------------------------------------------------------------------------------
10.31 Amendment of Sublease, dated March 26, 1998, between Raychem Corporation and (11)
Memry Corporation
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================
Exhibit
Number Description of Exhibit
- ------- -----------------------------------------
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
10.32 Stock Purchase Agreement, dated October 30, 1998, by and among Memry (12)
Holdings, S.A. and the Shareholders of Advanced Metals and Technologies, N.V.
- ----------------------------------------------------------------------------------------------------
10.33 Separation Agreement, dated as of August 17, 1999, between Memry Corporation and (13)
William H. Morton
- ----------------------------------------------------------------------------------------------------
10.34 Letter Agreement, dated February 2, 1999, from Memry Corporation to James L. (13)
Proft
- ----------------------------------------------------------------------------------------------------
10.35 Letter Agreement, dated July 12, 1999, from Memry Corporation to Tom Carey (13)
- ----------------------------------------------------------------------------------------------------
10.36 Letter Agreement, dated March 18, 1999, from Memry Corporation to Robert J. (13)
Thatcher
- ----------------------------------------------------------------------------------------------------
10.37 Letter Agreement, dated July 19, 1999, between Memry Corporation and Robert P. (13)
Belcher
- ----------------------------------------------------------------------------------------------------
10.38 Letter Agreement, dated July 20, 1999, between Memry Corporation and Joe (13)
Pasqualucci
- ----------------------------------------------------------------------------------------------------
21.2 Information regarding Subsidiaries (13)
- ----------------------------------------------------------------------------------------------------
27 Financial Data Schedule (13)
====================================================================================================
</TABLE>
____________________
(1) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1991.
(2) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the fiscal year ended June 30, 1993.
(3) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the fiscal year ended June 30, 1994.
(4) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the fiscal year ended June 30, 1995.
(5) Incorporated by reference to the Company's Annual Report on Form 10-QSB
for the fiscal quarter ended September 30, 1995.
(6) Incorporated by reference to the Company's Current Report on Form 8-K
filed July 15, 1996.
(7) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the fiscal year ended June 30, 1996, as amended.
(8) Incorporated by reference to the Company's Quarterly Report on Form 10-
QSB for the fiscal quarter ended December 31, 1996.
(9) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the fiscal year ended June 30, 1997, as amended.
21
<PAGE>
(10) Incorporated by reference to the Company's Quarterly Report on Form 10-
QSB for the fiscal quarter ended December 31, 1997.
(11) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the fiscal year ended June 30, 1998.
(12) Incorporated by reference to the Company's Current Report on Form 8-K
filed November 12, 1998.
(13) Filed herewith.
* Subject to a confidential treatment request.
___________________________
(b) Reports on Form 8-K
None.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MEMRY CORPORATION
Date: September 27, 1999 By: /s/ James G. Binch
-------------------------------
James G. Binch
CEO and Chairman of the Board
(Principal Executive Officer)
By: /s/ Robert P. Belcher
----------------------------
Robert P. Belcher
(Principal Accounting Officer)
ursuant 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 in
the capacities and on the dates indicated.
Signature Tile Date
- --------- ----- ----
/s/ James G. Binch Director September 27, 1999
- ---------------------------
James G. Binch
/s/ Patrick Cleary Director September 27, 1999
- ---------------------------
Patrick Cleary
/s/ Kempton J. Coady, III Director September 27, 1999
- ---------------------------
Kempton J. Coady, III
/s/ Jack Halperin Director September 27, 1999
- ---------------------------
Jack Halperin
/s/ W. Andrew Krusen, Jr. Director September 27, 1999
- ---------------------------
W. Andrew Krusen, Jr.
/s/ John A. Morgan Director September 27, 1999
- ---------------------------
John A. Morgan
/s/ Robert J. Thatcher Director September 27, 1999
- ---------------------------
Robert J. Thatcher
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
=====================================================================================================
Exhibit
Number Description of Exhibit
- ------- -------------------------------------------
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
3.1 Certificate of Incorporation of the Company, as amended (9)
- -----------------------------------------------------------------------------------------------------
3.2 By-Laws of the Company, as amended (7)
- -----------------------------------------------------------------------------------------------------
3.3 Amendment Number 1 to By-Laws of the Company, as amended (11)
- -----------------------------------------------------------------------------------------------------
10.1 Lease Agreement, dated January 24, 1991 between the Company and Brookfield (1)
Commerce relating to 57 Commerce Drive, Brookfield, CT
- ------------------------------------------------------------------------------------------------------
10.2 Employment Agreement, dated September 24, 1993, between the Company and James (2)
G. Binch
- ------------------------------------------------------------------------------------------------------
10.3 Employee Non-Disclosure agreement, dated as of October 18, 1994, between the (3)
Company and James G. Binch
- ------------------------------------------------------------------------------------------------------
10.4 Convertible Subordinated Debenture Purchase Agreement, dated as of December (7)
22, 1994, between the Company and CII
- -------------------------------------------------------------------------------------------------------
10.5 First Amendment to Convertible Subordinated Debenture Purchase Agreement, (4)
dated October 11, 1995, between the Company and CII
- -------------------------------------------------------------------------------------------------------
10.6 First Addendum to Convertible Subordinated Debenture, dated October 11, 1995, (4)
made by the Company and agreed to by CII
- -------------------------------------------------------------------------------------------------------
10.7 First Addendum to Stock Subscription Warrant (re: Warrant No. 94-4), dated (4)
October 11, 1995, made by the Company and agreed to by CII
- -------------------------------------------------------------------------------------------------------
10.8 First Addendum to Stock Subscription Warrant (re: Warrant No. 94-5), dated (4)
October 11, 1995, made by the Company and agreed to by CII
- ------------------------------------------------------------------------------------------------------
10.9 Employment Agreement, dated as of November 7, 1995, between the Company and (5)
William H. Morton, Jr.
- -------------------------------------------------------------------------------------------------------
10.10 Second Amendment to Convertible Subordinated Debenture Purchase Agreement, (7)
dated as of June 28, 1996, between the Company and CII
- -------------------------------------------------------------------------------------------------------
10.11 Amended and Restated Class I Warrant Certificate (Warrant Certificate No. (7)
94-4A) issued by the Company to CII
- -------------------------------------------------------------------------------------------------------
10.12 Amended and Restated Class II Warrant Certificate (Warrant Certificate No. (7)
94-5A) issued by the Company to CII
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
=======================================================================================================
Exhibit
Number Description of Exhibit
- ------- -----------------------------------
- -------------------------------------------------------------------------------------------------------
<S> <C>
10.13 Sublease, dated as of June 28, 1996, between the Company and Raychem (6)
Corporation
- -------------------------------------------------------------------------------------------------------
10.14 Amendment to Lease Agreement between the Company and Brookfield Commerce (7)
relating to 57 Commerce Drive, Brookfield, CT.
- -------------------------------------------------------------------------------------------------------
10.15 Warrant Cert. No. 96-5, dated as of July 15, 1996, issued to Dawn M. Morton (7)
- -------------------------------------------------------------------------------------------------------
10.16 Letter Agreement, dated June 26, 1996, between the Company and James Proft (7)
- -------------------------------------------------------------------------------------------------------
10.17 Employee Agreement on Inventions and Patents, between the Company and James (7)
G. Binch
- ------------------------------------------------------------------------------------------------------
10.18 Memry Corporation Stock Option Plan, as amended (8)
- ------------------------------------------------------------------------------------------------------
10.19 Form of Nontransferable Incentive Stock Option Agreement under the 1994 Plan (8)
- ------------------------------------------------------------------------------------------------------
10.20 Form of Nontransferable Non-Qualified Stock Option Agreement under the 1994 (8)
Plan
- ------------------------------------------------------------------------------------------------------
10.21 Amended and Restated Time-Lock Supply Agreement, dated as of February 19, (9)
1997, and effective as of December 20, 1996, between the Company and Raychem
Corporation
- ------------------------------------------------------------------------------------------------------
10.22 Amended and Restated Private Label/Distribution Agreement, dated as of (9)
February 19, 1997, and effective as of December 20, 1996, between the Company
and Raychem Corporation*
- ------------------------------------------------------------------------------------------------------
10.23 Memry Corporation's 1997 Long Term Incentive Plan, as amended (10)
- ------------------------------------------------------------------------------------------------------
10.24 Form of Nontransferable Incentive Stock Option Agreement under the 1997 Plan (10)
- ------------------------------------------------------------------------------------------------------
10.25 Employment Agreement, dated as of the 29th day of October, 1997, between (10)
Thomas D. Carey and the Company
- ------------------------------------------------------------------------------------------------------
10.26 Letter Agreement, dated December 23, 1997, between James G. Binch and the (10)
Company relating to the exchange of a promissory note for the Company's
Common Stock
- ------------------------------------------------------------------------------------------------------
10.27 Commercial Revolving Loan, Term Loan, Line of Credit and Security Agreement, (11)
dated June 30, 1998, between the Company and Webster Bank
- ------------------------------------------------------------------------------------------------------
10.28 Revolving Loan Note, dated June 30, 1998, by the Company in favor of Webster (11)
Bank in principal amount of $3,000,000
- ------------------------------------------------------------------------------------------------------
10.29 Term Loan Note, dated June 30, 1998, by the Company in favor of Webster Bank (11)
in principal amount of $500,000
- -----------------------------------------------------------------------------------------------------
10.30 Equipment Loan Note, dated June 30, 1998, by the Company in favor of Webster (11)
Bank in principal amount of $750,000
- -----------------------------------------------------------------------------------------------------
10.31 Amendment of Sublease, dated March 26, 1998, between Raychem Corporation and (11)
Memry Corporation
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
====================================================================================================
Exhibit
Number Description of Exhibit
- ------- -----------------------------------------
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
10.32 Stock Purchase Agreement, dated October 30, 1998, by and among Memry (12)
Holdings, S.A. and the Shareholders of Advanced Metals and Technologies, N.V.
- ----------------------------------------------------------------------------------------------------
10.33 Separation Agreement, dated as of August 17, 1999, between Memry Corporation and (13)
William H. Morton
- ----------------------------------------------------------------------------------------------------
10.34 Letter Agreement, dated February 2, 1999, from Memry Corporation to James L. (13)
Proft
- ----------------------------------------------------------------------------------------------------
10.35 Letter Agreement, dated July 12, 1999, from Memry Corporation to Tom Carey (13)
- ----------------------------------------------------------------------------------------------------
10.36 Letter Agreement, dated March 18, 1999, from Memry Corporation to Robert J. (13)
Thatcher
- ----------------------------------------------------------------------------------------------------
10.37 Letter Agreement, dated July 19, 1999, between Memry Corporation and Robert P. (13)
Belcher
- ----------------------------------------------------------------------------------------------------
10.38 Letter Agreement, dated July 20, 1999, between Memry Corporation and Joe (13)
Pasqualucci
- ----------------------------------------------------------------------------------------------------
21.2 Information regarding Subsidiaries (13)
- ----------------------------------------------------------------------------------------------------
27 Financial Data Schedule (13)
====================================================================================================
</TABLE>
____________________
(1) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1991.
(2) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the fiscal year ended June 30, 1993.
(3) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the fiscal year ended June 30, 1994.
(4) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the fiscal year ended June 30, 1995.
(5) Incorporated by reference to the Company's Annual Report on Form 10-QSB
for the fiscal quarter ended September 30, 1995.
(6) Incorporated by reference to the Company's Current Report on Form 8-K
filed July 15, 1996.
(7) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the fiscal year ended June 30, 1996, as amended.
(8) Incorporated by reference to the Company's Quarterly Report on Form 10-
QSB for the fiscal quarter ended December 31, 1996.
(9) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the fiscal year ended June 30, 1997, as amended.
(10) Incorporated by reference to the Company's Quarterly Report on Form 10-
QSB for the fiscal quarter ended December 31, 1997.
(11) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the fiscal year ended June 30, 1998.
(12) Incorporated by reference to the Company's Current Report on Form 8-K
filed November 12, 1998.
(13) Filed herewith.
* Subject to a confidential treatment request.
<PAGE>
Exhibit 10.33
Separation Agreement, dated as of August 17, 1999, between Memry Corporation and
William H. Morton.
<PAGE>
SEPARATION AGREEMENT
This separation agreement (this "Agreement") dated as of this 17th day of
August, 1999, by and between Memry Corporation, a Delaware corporation (the
"Company"), and William H. Morton, Jr. ("Morton"), residing at 6 Hunting Ridge
Lane, Wilton, Connecticut 06897.
W I T N E S S E T H :
WHEREAS, the Company employed Morton as its Senior Vice President and Chief
Operating Officer on or about November 7, 1995 pursuant to the terms set forth
in an Employment Agreement between the Company and Morton dated as of such date
(the "Employment Agreement"); and
WHEREAS, the parties did not intend to renew the Employment Agreement for
an additional term beyond the next anniversary date of the Employment Agreement;
and
WHEREAS, without any admission of liability to each other, the Company and
Morton have determined to (i) resolve all disputed matters between them, (ii)
terminate the Employment Agreement, except for the covenants made by Morton
under Section 4 thereof, which covenants, except as otherwise specifically in
Section 1(a) of this Agreement, shall survive termination of the Employment
Agreement, (iii) modify the terms of certain equity interests of Morton or his
affiliates in the Company and otherwise provide for certain transitional
matters, and (iv) with the exception of the continuing obligations under Section
4 of the Employment Agreement, release all claims, of whatever nature, known or
unknown, that each may have against the other as of the effective date of the
releases executed under the terms of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and in consideration of
the mutual covenants, agreements and releases contained herein, and for other
good and valuable consideration, the receipt and sufficiency of which the
parties hereto hereby acknowledge, the Company and Morton hereby agree as
follows:
1. Termination of Employment Agreement.
-----------------------------------
(a) Effective as of July 16, 1999 (the "Effective Date"), the Employment
Agreement is terminated, except that the covenants of Morton set forth in
Section 4 thereof, and the Company's rights and remedies thereunder, shall
survive, provided that (i) notwithstanding Section 4(a)(ii) of the Employment
Agreement, Morton shall be entitled to solicit business from former or existing
customers of the "Affiliated Companies" (as defined in the Employment Agreement)
provided that the business for which such customers are being solicited is not
in any way in competition with the businesses of the Affiliated Companies, and
(ii) Section 4(a)(iii) of the Employment Agreement shall not apply to Ms. Katie
Terhune. The two year period referred to in Section 4(a) of the Employment
Agreement shall commence on the Effective Date.
<PAGE>
Effective as of the Effective Date, Morton also hereby resigns from all
positions held by him with the Company or any of its subsidiaries (together with
the Company, the "Company Related Entities"), including, without limitation, his
positions as Senior Vice President and Chief Operating Officer of the Company,
provided that Morton shall remain an employee of the Company during the
Transition Period (as defined below) solely for purposes of facilitating the
performance by the Company of its obligations to Morton under Sections 2 and 3
of this Agreement. Notwithstanding anything herein to the contrary, Morton shall
not be considered an employee of the Company for any purpose immediately
following the last day of the Transition Period. The Company hereby accepts
Morton's resignation from the aforesaid positions. Subject to compliance with
the provisions of Section 4 of the Employment Agreement, and further subject to
the proviso set forth in the second sentence of Section 2(h) of this Agreement,
Morton may otherwise become employed during the Transition Period without
diminishing the Company's obligations under this Agreement.
(b) During the Transition Period, Morton will not be required to perform
any services on behalf of, or devote any time to, the Company Related Entities,
provided that nothing herein is intended to preclude the performance by Morton
of special projects (or "piece work") on behalf of one or more of the Company
Related Entities on such terms as may be mutually negotiated between the Company
and Morton from time to time. From and after the Effective Date, neither Morton
nor any of the Company Related Entities will use any title in describing
Morton's relationship to the Company Related Entities, Morton will not have any
authority to act for, or on behalf of, any of the Company Related Entities, and
Morton will not hold himself out as having any such authority.
2. Payments/Benefits.
-----------------
(a) Upon the execution and delivery of this Agreement, the Company shall
issue to Morton a check in the gross amount of $61,340.58 (but subject to
applicable withholding requirements), which shall constitute payment in full of
(i) $28,800, representing the full unpaid portion of Morton's incentive bonus
award made with respect to the Company's fiscal year ended June 30, 1998, (ii)
$19,546.53, representing all accrued, but unpaid vacation through the Effective
Date, and (iii) $12,994.05, representing all accrued, but unpaid sick time
through the Effective Date.
(b) During the period commencing as of the Effective Date and ending on
December 31, 2001 (the "Transition Period"), the Company will continue to pay
Morton an annual base salary at the rate of $206,000 per annum (the "Base
Amount"), reduced by the cash value of any Legal Benefits (as defined in Section
2(g) below), if any, as reasonably determined by the Company. Such salary shall
be payable in the same intervals as payments of base salary are made to other
employees of the Company. The Base Amount shall not be subject to adjustment
during the Transition Period.
-3-
<PAGE>
(c) During the Transition Period, Morton will be eligible to participate in
the following employee benefit and perquisite programs in which he was eligible
to participate as of immediately prior to the Effective Date, and that continue
to be maintained by the Company for the benefit of its executive employees:
(i) Medical insurance
(ii) Dental insurance
(iii) Life and disability (short-term and long-term) insurance
(iv) 401K (company contributions are discretionary)
(d) During the Transition Period, Morton will continue to receive a car
allowance in like manner to that in effect immediately prior to the Effective
Date.
(e) The Company shall pay to Morton an amount equal to eighty percent (80%)
of the amount of any incentive bonus award that may be granted by the Board of
Directors to the Chief Executive Officer of the Company with respect to the
Company's fiscal year ended June 30, 1999. Any such amount shall be paid to
Morton concurrently with the payment of the bonus award to the CEO. Morton
acknowledges, agrees and confirms, however, that he has been given no assurances
as to whether an incentive bonus award will be granted to the CEO for fiscal
1999, and nothing in this Agreement or otherwise shall impose any obligation on
the Company to cause any such award to be granted or to give special
consideration thereto.
(f) The Company shall reimburse Morton for up to, but not exceeding,
$15,000 of such expenses that Morton may incur for the removal and storage of
office furniture or other items that Morton had provided to the Company on a
temporary basis, outplacement services and such other expenses which Morton may
incur in connection with his transition from employment with the Company. Such
reimbursement shall be subject to furnishing appropriate documentation in form
and substance reasonably satisfactory to the Company. Morton shall bear any and
all such expenses to the extent they exceed $15,000.
(g) Notwithstanding anything to the contrary herein, except to the extent
required by law or as otherwise expressly provided in Sections 2 and 3 of this
Agreement, Morton shall not be entitled (i) to participate in, or to receive any
future awards under, any bonus, profit-sharing, stock option or other incentive
program now or hereafter maintained by the Company or (ii) to any vacation, sick
time, personal time or any holiday or other benefits pertaining to permitted
absences from the Company with respect to any period after the Effective Date,
or to any payments in lieu thereof. To the extent that any of the foregoing are
required to be provided pursuant to applicable law, they are herein referred to
as "Legal Benefits".
(h) All amounts payable under this Agreement shall be subject to applicable
withholding requirements under federal and state law. Otherwise, all amounts
payable hereunder to Morton shall be payable without any right of set-off
(including, without limitation, on the basis of any alleged breach by Morton of
the covenants concerning non-disparagement set forth
-4-
<PAGE>
in Section 5(a) of this Agreement) or claim to mitigation of damages, provided
that nothing herein shall obligate the Company to act in a manner which is
contrary to law or the terms and provisions of its employee benefit plans. In
the event, however, that (i) the Company is precluded by applicable law or the
provisions of its employee benefit plans from providing a benefit which is
contemplated to be provided by the Company to Morton hereunder (a "Precluded
Benefit"), and (ii) Morton has not, by means of alternative employment,
theretofore become entitled to receipt of a substantially comparable benefit
from another third party, then, in lieu of the provision of such Precluded
Benefit, the Company shall pay Morton an amount equal to the additional out-of-
pocket costs that the Company would have incurred in providing such Precluded
Benefit to Morton for the remainder of the Transition Period, had it not been
precluded from doing so, such amount to be paid in installments at intervals no
less frequent than when such costs would have been paid by the Company in
accordance with the provisions of the applicable plan. In the event of Morton's
death or disability prior to the expiration of the Transition Period, all
amounts payable hereunder to Morton shall, to the extent permitted by law,
continue to be paid for the remainder of the Transition Period to his spouse,
Dawn M. Morton ("DMM"), or, if DMM is then or thereafter becomes deceased, to
Morton's estate.
3. Adjustment of Equity Interests.
------------------------------
(a) The parties acknowledge and confirm that all unexercised options to
purchase shares of the Company's common stock, par value $.01 per share ("Common
Stock"), which have been granted by the Company to Morton and which remain
unexercised as of the Effective Date are accurately listed on Exhibit A attached
hereto. Upon the execution and delivery of this Agreement, it is hereby agreed
that:
(i) All incentive stock options issued to Morton at an exercise price
of $4.00 per share, heretofore entitling Morton to purchase a total of 90,000
shares of Common Stock, are hereby canceled. All remaining stock options held
by Morton shall become fully vested and immediately exercisable as of the
Effective Date, notwithstanding any terms of the agreements evidencing such
options to the contrary.
(ii) The Company and Morton shall enter into a Stock Option Agreement
in substantially the form of Exhibit B attached hereto (the "Option Agreement"),
pursuant to which Morton shall be granted non-qualified options under the Memry
Corporation Stock Option Plan (the "Plan"), effective as of the Effective Date,
to purchase 90,000 shares of Common Stock at an exercise price of $1.68 per
share, exercisable for a period of five years. The Company represents and
warrants that Morton is qualified to receive such options under the Plan, and as
provided for in the Option Agreement, and Morton shall be deemed to have relied
upon such representation should it, nonetheless, later be determined that Morton
was not so qualified.
(b) Upon execution and delivery of this Agreement, Warrant Certificate No.
96-5 (the "Warrant"; defined terms used in this Section 3(b) and not otherwise
defined have the meanings given to such terms in the Warrant), previously issued
by the Company to DMM, and entitling
-5-
<PAGE>
DMM to purchase 18,000 shares of Common Stock at an Exercise Price (subject to
adjustment as provided therein) of $1.50 per share, is hereby amended as
follows:
(i) The Final Exercise Date (as defined in the Warrant) is hereby
extended from July 16, 1999 to July 16, 2000.
(ii) Notwithstanding any provision of the Warrant to the contrary, if
the fair market value of one share of Common Stock on the date of exercise is
greater than the Exercise Price on such date, then in lieu of exercising the
Warrant for cash, the holder may elect to receive shares of Common Stock equal
to the value (as determined below) of the Warrant (or the portion thereof being
canceled) by surrender of the Warrant (or the portion thereof being canceled) to
the Company together with notice of exercise indicating such election, in which
event the Company shall issue to the holder a number of shares of Common Stock
computed using the following formula:
X = Y(A-B)
------
A
Where X = the number of shares of Common Stock to be issued to the
holder;
Y = the number of shares of Common Stock purchasable under the
Warrant or, if only a portion of the Warrant is being
exercised, the portion of the Warrant being canceled (at the
date of such calculation);
A = the fair market value of one share of Common Stock (at the
date of such calculation); and
B = Exercise Price (as adjusted to the date of such
calculation).
For purposes of the above calculation, the fair market value of one share of
Common Stock on any day shall be determined as follows: (i) if the Common Stock
is listed on a national securities exchange or quoted through the NASDAQ
National Market System, the fair market value shall be the average of the high
and low reported Consolidated Trading sales prices, or if no such sale is made
on such day, the average of the closing bid and asked prices reported on the
Consolidated Trading listing for such day; (ii) if the Common Stock is quoted on
the NASDAQ inter-dealer quotation system, the fair market value shall be the
average of the representative bid and asked prices at the close of business for
such day; (iii) if the Common Stock is not listed on a national stock exchange
or quoted on NASDAQ, the fair market value shall be the average of the high bid
and low asked prices reported by the National Quotation Bureau, Inc. for such
day; and (iv) if none of the foregoing apply, the fair market value of the
Common Stock shall be determined by the Board of Directors in good faith. If
pricing information is not available for the date of exercise, fair market
-6-
<PAGE>
value shall be determined on the basis of such information for the immediately
preceding day on which it is available.
4. Letter of Recommendation.
------------------------
Upon Morton's request from time to time, the Company shall deliver a letter
of recommendation in substantially the form of Exhibit C attached hereto.
5. Non-Disparagement
-----------------
(a) The Company: Morton agrees that he will not make any statements or
-----------
claims, initiate any proceedings or take any actions either directly or
indirectly, or through third parties, which demean, detract, criticize or
otherwise cast any of the Company Related Entities in an unfavorable light
in the eyes of their customers, suppliers, employees, consultants or any
other persons, or which could adversely affect the morale of any employee
of a Company Related Entity, or which interfere with a Company Related
Entity's contractual relationships with its customers, suppliers, employees
or consultants, or which otherwise disparage or defame the goodwill or
reputation of a Company Related Entity or any of its officers, directors or
employees.
(b) Morton: Each of the Company Related Entities agrees that neither
------
it nor any of its authorized representatives will make any statements or
claims, initiate any proceedings or take any actions either directly or
indirectly, or through third parties, which demean, detract, criticize or
otherwise cast Morton in an unfavorable light in the eyes of any other
persons, or which otherwise disparage or defame the reputation of Morton.
6. Public Announcements.
--------------------
Each of the Company and Morton shall consult and cooperate with the other
prior to issuing any press release or otherwise making any public statements to
the press or any third party regarding this Agreement or the transactions
contemplated hereby, provided that nothing herein shall prohibit the Company
from (i) making such disclosures as are required by law, including, without
limitation, pursuant to applicable reporting requirements under federal and
state securities laws or (ii) from releasing a press release in substantially
the form of Exhibit D attached hereto .
7. Releases.
--------
This Agreement is subject to the execution and effectiveness of the
releases attached as Exhibits E (the "Memry Release") and F (the "Morton
Release") attached hereto. Provided the Company has complied with its
obligations under this Agreement, Morton (or his heirs, legal representatives or
assigns) further agree to execute a release in substantially the same form as
the Morton Release upon termination of the Transition Period.
-7-
<PAGE>
8. Successors and Assigns
----------------------
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, assigns, heirs and
representatives.
9. Counterparts
------------
This Agreement may be executed in any number of counterparts, each of which
shall constitute an original but both of which, when taken together, shall
constitute one and the same instrument.
10. Severability
------------
In the event any one or more of the provisions contained in this Agreement
shall be held invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein and
therein shall not in any way be affected or impaired thereby.
11. Miscellaneous
-------------
(a) This Agreement, and any releases or other documents executed and
delivered in connection with any of the foregoing, may only be modified,
terminated or waived by a writing signed by the party against whom
enforcement of such modification, termination or waiver is sought. Any
such waiver shall be limited to the specific matter or item waived.
(b) Any delay or omission in the enforcement of any right or remedy
arising under this Agreement and any releases or other documents executed
and delivered in connection with any of the foregoing, shall not be deemed
a waiver of such right or remedy.
(c) This Agreement shall be governed by and construed in accordance
with the laws of the State of Connecticut without regard to principles of
conflict of laws thereunder. Any claim or dispute between the parties
arising out of or in connection with this Agreement or any alleged breach
hereof shall be finally settled by arbitration under the Employment
Arbitration Rules of the American Arbitration Association (provided that
notwithstanding any such Rules to the contrary, the reasonable attorneys
fees of the prevailing party shall be paid by the other party), and
judgment upon the award rendered by the Arbitrator may be rendered in any
court having jurisdiction over it. There shall be one arbitrator of any
such arbitration. The arbitration shall be held in Fairfield County,
Connecticut. The parties shall endeavor to agree on the selection of an
arbitrator, but if no agreement has been reached within ten (10) days of
one party's request for an arbitration, the arbitrator shall be selected by
the American Arbitration Association. The foregoing provisions of this
Section 11(c) shall not preclude an action in court by either party for
injunctive relief, nor shall it be
-8-
<PAGE>
construed to limit or restrict in any manner the Company's rights and
remedies under Section 4 of the Employment Agreement.
(d) This Agreement, together with any other document executed in
connection with this Agreement, constitutes the entire agreement of the
parties hereto with respect to the subject matter hereof and thereof and
supersedes all oral statements, conversations and correspondence and is
intended by the parties hereto to be the final expression of their
agreement on all terms and conditions set forth herein and therein.
(e) The statements contained in the Recital section of this Agreement
are stipulated by the parties to be true and correct.
(f) All exhibits hereto shall be a part of this Agreement.
(g) This Agreement shall not be enforced against and shall not be
binding upon any party to this Agreement unless and until this Agreement
has been signed by all parties to this Agreement.
(h) If at any time after the date hereof any further action is
necessary or desirable to carry out the purposes of this Agreement, each
party hereto will take such further action (including the execution and
delivery of such further instruments and documents) as the other party may
reasonably request, all at the sole cost and expense of the requesting
party.
(i) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(remainder of page intentionally left blank)
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first written above.
WITNESS: MEMRY CORPORATION
/s/ Mark Toma By:/s/ James G.Binch
- ------------------------ -------------------------
James G. Binch
Chairman
/s/ Karen Terhune
- -----------------------
/s/ Mark Toma /s/ William H. Morton, Jr.
- ----------------------- --------------------------
William H. Morton, Jr.
/s/ Karen Terhune
- ----------------------
-10-
<PAGE>
ACKNOWLEDGMENTS
STATE OF CONNECTICUT)
: ss:
COUNTY OF FAIRFIELD )
On this the 17th day of August, 1999, before me, the undersigned officer,
personally appeared James G. Binch, who acknowledged himself to be the Chairman
of Memry Corporation, a Delaware corporation (the "Corporation"), and that he as
such Chairman, being authorized to do so, executed the foregoing instrument for
the purposes therein contained, by signing the name of the Company by himself as
its Chairman.
In witness whereof, I have hereunto set my hand.
Karen L. Terhune
----------------------------------------
Notary Public
My Commission Expires: June 30, 2001
-11-
<PAGE>
STATE OF CONNECTICUT)
: ss:
COUNTY OF FAIRFIELD )
On this 17th day of August, 1999, before me, the undersigned officer,
personally appeared William H. Morton, Jr., known to me (or satisfactorily
proven) to be the person whose name is subscribed to the within instrument and
acknowledged that he has executed the same for the purposes therein contained
and acknowledged the same to be his free act and deed.
In witness whereof, I have hereunto set my hand.
Karen L. Terhune
-------------------------------------
Notary Public
My Commission Expires: June 30, 2001
-12-
<PAGE>
EXHIBIT A
Plan # Price Date of Grant
- ---- ------- ----- -------------
Old* 125,000 $0.90 9/7/95
Old 5,000 $1.78 12/5/96
New** 40,000 $4.00 2/2/98
New 50,000 $4.00 6/1/98
______________
*Memry Corporation Stock Option Plan
**Memry Corporation 1997 Long-Term Incentive Plan
-13-
<PAGE>
EXHIBIT B
NONTRANSFERABLE NON-QUALIFIED
STOCK OPTION AGREEMENT dated as of
July 16, 1999, between Memry
Corporation, a Delaware corporation
(the "Company"), and William H.
Morton, Jr. (the "Optionee", which
term as used herein shall be deemed
to include any successor to the
Optionee by will or by the laws of
descent and distribution, unless
the context shall otherwise
require).
Pursuant to the Company's 1997 Long-Term Incentive Plan, as amended (as so
amended, the "Plan"), the Company, acting through the Compensation Committee of
its Board of Directors (the "Committee"), approved the issuance to the Optionee,
effective as of the date set forth above, of a non-qualified stock option to
purchase up to an aggregate of 90,000 shares of Common Stock, $.01 par value, of
the Company (the "Common Stock"), at the price (the "Option Price") of $1.68 per
share, upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual premises and undertakings
hereinafter set forth, the parties hereto agree as follows:
1. Option; Option Price. On behalf of the Company, the Committee hereby
--------------------
grants to the Optionee the option (the "Option") to purchase, subject to the
terms and conditions of this Agreement and the Plan (which are incorporated by
reference herein and which in all cases shall control in the event of any
conflict with the terms, definitions and provisions of this Agreement), 90,000
shares of Common Stock of the Company at an exercise price per share equal to
the Option Price, which Option is not intended to qualify for federal income tax
purposes as an "incentive stock option" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). A copy of the Plan as
in effect on the date hereof has been supplied to the Optionee, and the Optionee
hereby acknowledges receipt thereof.
2. Term. The term (the "Option Term") of the Option shall commence on the
----
date of this Agreement and shall expire on the fifth anniversary of the date of
this Agreement, unless such Option shall theretofore have been terminated in
accordance with the terms hereof or of the Plan.
3. Time of Exercise. The Option may be exercised, in whole or in part, at
----------------
any time during the term hereof.
4. Termination of Option. The unexercised portion of the Option (which
---------------------
portion was otherwise exercisable on the date of termination) (the "Unexercised
Portion") shall automatically
-14-
<PAGE>
terminate and shall become null and void and be of no further force or effect
upon the first to occur of the following:
(i) the expiration of the Option Term; and
(ii) except to the extent permitted by Section 10(f) of the Plan,
the date on which the Option or any part thereof or right or privilege
relating thereto is transferred (otherwise than by will or the laws of
descent and distribution), assigned, pledged, hypothecated, attached or
otherwise disposed of by the Optionee.
5. Procedure for Exercise. The Option may be exercised, from time to
----------------------
time, in whole or in part (but for the purchase of whole shares only), by
delivery of a written notice (the "Notice") from the Optionee to the Secretary
of the Company, which Notice shall:
(i) state that the Optionee elects to exercise the Option;
(ii) state the number of shares of Common Stock with respect to
which the Option is being exercised (the "Optioned Shares");
(iii) state the method of payment for the Optioned Shares pursuant to
Section 5(b) hereof;
(iv) state the date upon which the Optionee desires to consummate
the purchase of the Optioned Shares (which date must be prior to the
termination of such Option and no later than 30 days from the delivery of
such Notice);
(v) include any representations of the Optionee required under
Section 8(b) hereof; and
(vi) if the Option shall be exercised pursuant to Section 10 hereof
by any person other than the Optionee, include evidence to the satisfaction
of the Committee of the right of such person to exercise the Option.
(b) Payment of the Option Price for the Optioned Shares shall be made (i)
in cash or by personal or certified check, (ii) by delivery of stock
certificates (in negotiable form) representing shares of Common Stock that have
been owned of record by the Optionee for at least six months prior to the date
of exercise and that have a Fair Market Value on the date of exercise equal to
the product of (A) the number of Optioned Shares which are being purchased
pursuant to the exercise of such Option, multiplied by (B) the applicable Option
Price, (iii) a combination of either of the methods set forth in clauses (i) and
(ii) above, (iv) (A) by arrangements which are acceptable to the Committee and
as permitted by applicable law whereby the Optionee relinquishes a portion of
the Option, or (B) in compliance with any other cashless exercise program
authorized by the Committee for use in connection with the Plan at the time of
such exercise, or (v) in such other consideration
-15-
<PAGE>
as shall be acceptable to the Committee. For the purpose of the preceding clause
(iv)(A), the fair market value of the portion of the Option that is relinquished
shall be the Fair Market Value at the time of exercise of the number of Optioned
Shares subject to the portion of the Option that is relinquished less the
aggregate Option price specified in the Option with respect to such Optioned
Shares.
(c) The Company shall issue a stock certificate in the name of the Optionee
(or such other person exercising the Option in accordance with the provisions of
Section 10 hereof) for the Optioned Shares as soon as practicable after receipt
of the Notice and payment of the aggregate Option Price for such shares.
6. No Rights as a Stockholder. The Optionee shall not have any privileges
--------------------------
of a stockholder of the Company with respect to any Optioned Shares until the
date of issuance of a stock certificate pursuant to Section 5(c) hereof.
7. Adjustments. If the outstanding shares of Common Stock of the Company
-----------
are increased, decreased, or exchanged for a different number or kind of shares
or other securities, or if additional shares or new or different shares or other
securities are distributed with respect to such shares of Common Stock or other
securities, through merger, consolidation, sale of all of substantially all of
the property of the Company, reorganization, recapitalization, reclassification,
stock dividend, stock split, reverse stock split or other distribution with
respect to such shares of Common Stock or other securities, then an appropriate
and proportionate adjustment shall be made in (i) the number and kind of shares
or other securities subject to the Option and (ii) the price for each share or
other unit of any other securities subject to the Option without change in the
aggregate purchase price or value as to which such Option remains exercisable or
subject to restrictions. Any adjustment under this Section 7 shall be made by
the Company's Board of Directors, whose determination as to what adjustments
shall be made and the extent thereof will be final, binding and conclusive. No
fractional interests will be issued under the Plan resulting from any such
adjustment.
8. Additional Provisions Related to Exercise. (a) The Option shall be
-----------------------------------------
exercisable only on such date or dates and during such period and for such
number of shares of Common Stock as are set forth in this Agreement.
(b) To exercise the Option, the Optionee shall follow the procedures
set forth in Section 5 hereof. Unless at the time of exercise of the Option
there shall be, in the opinion of counsel for the Company, a valid and effective
registration statement under the Securities Act of 1933 (the "'33 Act") and
appropriate qualification and registration under applicable state securities
laws relating to the Optioned Shares being acquired pursuant to the Option, the
Optionee shall be required, upon exercise of the Option, to give to the Company
a written representation, in a form reasonably satisfactory to the Company, that
he or she is acquiring the Optioned Shares for his or her own account for
investment and not with a view to, or for sale in connection with, the resale or
distribution of any such shares. The Optionee shall be further required to
agree that he or she will not sell or transfer any Optioned Shares acquired
pursuant to exercise of the Option until he or she
-16-
<PAGE>
requests and receives an opinion of the Company's counsel to the effect that
such proposed sale or transfer will not result in a violation of the '33 Act, or
a registration statement covering the sale or transfer of the shares has been
declared effective by the Securities and Exchange Commission, or he or she
obtains a no-action letter from the Securities and Exchange Commission with
respect to the proposed transfer.
(c) Stock certificates representing shares of Common Stock acquired
upon the exercise of the Option that have not been registered under the
Securities Act shall bear the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH
ACT OR AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE
COMPANY THAT SUCH SALE, OFFER FOR SALE, PLEDGE, HYPOTHECATION OR OTHER
DISPOSITION DOES NOT VIOLATE THE PROVISIONS OF SUCH ACT OR UNLESS SOLD
PURSUANT TO RULE 144 OF SUCH ACT.
9. No Evidence of Employment or Service. Nothing contained in the Plan
------------------------------------
or this Agreement shall confer upon the Optionee any right to continue in the
employ of a Participating Company or interfere in any way with the right of a
Participating Company (subject to the terms of any separate agreement to the
contrary) to terminate the Optionee's employment or to increase or decrease the
Optionee's compensation at any time.
10. Restriction on Transfer. The Option may not be transferred, pledged,
-----------------------
assigned, hypothecated or otherwise disposed of in any way by the Optionee,
except by will or by the laws of descent and distribution or as may otherwise be
required by law, and may be exercised during the lifetime of the Optionee only
by the Optionee. If the Optionee dies, the Option shall thereafter be
exercisable, during the period specified in Section 4(a)(ii) hereof, by his or
her executors or administrators to the full extent to which the Option was
exercisable by the Optionee at the time of his or her death. The Option shall
not be subject to execution, attachment or similar process. Any attempted
assignment, transfer, pledge, hypothecation or other disposition of the Option
contrary to the provisions hereof, and the levy of any execution, attachment or
similar process upon the Option, shall be null and void and without effect.
11. Disqualifying Dispositions; Taxes. Whenever shares of Common Stock
---------------------------------
are to be delivered to the Optionee upon exercise of the Option, the Company
shall be entitled to require as a condition of delivery that the Optionee remit
or, in appropriate cases, agree to remit when due, an amount sufficient to
satisfy all current or estimated future federal, state and local withholding tax
and employment tax requirements relating thereto; provided, however, if such
-------- -------
funds are not so
-17-
<PAGE>
remitted to the Company and at such time the Optionee is an Employee of a
Participating Company, the Company may withhold such portion of the Optionee's
salary as is equal to the amount of such tax requirements.
12. Notices. All notices or other communications which are required or
-------
permitted hereunder shall be in writing and sufficient if (i) personally
delivered, (ii) sent by nationally-recognized overnight courier or (iii) sent by
registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
If to the Optionee, to the address set forth on the signature
page hereto; and
If to the Company, to:
Memry Corporation
57 Commerce Drive
Brookfield, Connecticut 06804
Attention: Secretary;
or to such other address as the party to whom notice is to be given may have
furnished to each other party in writing in accordance herewith. Any such
communication shall be deemed to have been given (i) when delivered, if
personally delivered or if sent by nationally-recognized overnight courier, and
(ii) on the third Business Day (as hereinafter defined) following the date on
which the piece of mail containing such communication is posted, if sent by
mail. As used herein, "Business Day" means a day that is not a Saturday, Sunday
or a day on which banking institutions in the city to which the notice or
communication is to be sent are not required to be open.
13. No Waiver. No waiver of any breach or condition of this Agreement
---------
shall be deemed to be a waiver of any other or subsequent breach or condition,
whether of like or different nature.
14. Optionee Undertaking. The Optionee hereby agrees to take whatever
--------------------
additional actions and execute whatever additional documents the Company may in
its reasonable judgment deem necessary or advisable in order to carry out or
effect one or more of the obligations or restrictions imposed on the Optionee
pursuant to the express provisions of this Agreement.
15. Modification of Rights. The rights of the Optionee are subject to
----------------------
modification and termination in certain events as provided in this Agreement and
the Plan.
16. Governing Law. This Agreement shall be governed by, and construed in
-------------
accordance with, the laws of the State of Delaware applicable to contracts made
and to be wholly performed therein.
17. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each
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<PAGE>
of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
18. Entire Agreement. This Agreement and the Plan constitute the entire
----------------
agreement between the parties with respect to the subject matter hereof, and
supersede all previously written or oral negotiations, commitments,
representations and agreements with respect thereto.
IN WITNESS WHEREOF, the parties hereto have executed this Nontransferable
Incentive Stock Option Agreement as of the date first written above.
MEMRY CORPORATION
By:______________________________
Name:
Title:
Optionee:
______________________________
Name: William H. Morton, Jr.
-------------------------
Address: ______________________
______________________
______________________
-19-
<PAGE>
EXHIBIT C
To Whom It May Concern:
The purpose of this letter is to provide insight into and a recommendation
of Mr. William H. (Bill) Morton, Jr., formerly Senior Vice President and Chief
Operating Officer of Memry Corporation from November 1995 until July 1999.
At a time when Memry Corporation was an underfunded, struggling technology-
based company with operations in Brookfield, Connecticut and Worcester,
Massachusetts, Bill joined the CEO with a view to helping create a disciplined,
well-structured operating entity. For nearly a year prior to his official
joining of the Company, Bill provided valuable hands on assistance expediting
projects and providing management counsel to the Company's operating management.
Upon officially joining and during the next three and one half years, the
Company divested its Massachusetts operations, and quadrupled its core business
through a major West Coast acquisition, a small European acquisition and a
product line acquisition for the Connecticut operations. From a headcount
perspective, the core business grew from fewer than 18 people to more than 130,
and in revenues from approximately one million to more than nineteen million.
Bill Morton's contributions to these changes were many and varied, from
leading the divestiture of the Massachusetts business and related 100 year old
real estate, to assisting in the retention of key employees during the West
Coast acquisition effort, to negotiating, completing and integrating the product
line acquisition in Connecticut during early 1999. In addition, Bill provided
much needed organizational discipline throughout the Company as it struggled to
accommodate such rapid growth.
Bill's strengths are best described as his ability to leave no stone
unturned in the search for greater efficiency, lowered cost, accountability and
an orderly structure. These skills are most valuable in a company undergoing
rapid transformation, turnaround, or lacking in organizational discipline.
As his Chief Executive Officer, Bill became my right hand for all manner of
daily activities largely because I knew that few if any items would fall through
the cracks. Bill is a tireless worker, dedicated to the business tasks at hand,
and possessed of very high integrity.
Sincerely,
James G. Binch
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<PAGE>
EXHIBIT D
Memry Corporation Announces Management Changes
July 27, 1999 - Brookfield, CT - Memry Corporation (MRMY on the OTC Bulletin
Board(TM)) today announced that at its July Board of Directors meeting, Mr.
Robert J. Thatcher was elected a member of the Board of Directors President and
Chief Operating Officer of the Company. In addition, Mr. Robert P. Belcher joins
the Company as Vice President, Chief Financial Officer and Corporate Secretary,
replacing Mr. Tom Carey who resigned for personal reasons effective July 16,
1999.
Mr. Thatcher joined Memry as Corporate Vice President of worldwide sales and
marketing in March of this year. Immediately prior to joining Memry Mr. Thatcher
had served as General Manager of Medtronic InStent from October 1997 until its
sale to IntraTheraputics in December 1998. From 1996 until his appointment as
General Manager, Bob served as Director of Sales and Marketing, prior to which
he had served as Director of Business Development and Marketing for Medtronic's
Neurological Division. From 1989 to 1994 Bob held increasingly responsible sales
and marketing positions with Schneider (USA), Inc. in their Cardiology and
Peripheral Divisions. Mr. Thatcher holds a BS degree from the University of
Florida and an MBA degree from Rollins College.
Prior to joining Memry, Mr. Belcher served as Chief Financial Officer for
Andersen group, Inc. and Eatwell Enterprises, as well as Managing Director,
Associated Asset Management Inc. from 1996 to present. From 1994 to 1996 Bob
served as a Principal of Booz, Allen & Hamilton in their New York office. From
1988 to 1994 he was Executive Vice President of Trinity Capital Corporation, a
privately held merchant banking business based in Stamford, Ct. From 1981 until
1988 Mr. Belcher served in a variety of senior staff positions with Combustion
Engineering, including corporate vice president Operations Consulting and
corporate vice president Strategic Planning. His experience with Combustion
Engineering, as well as with Kendall Company's Hospital Products Division,
involved numerous manufacturing, cost studies, budget development and control,
as well as information systems development, which are all directly relevant to
the present and future needs of Memry Corporation. Mr. Belcher received his BA
and MA in Economics from Vanderbilt University and his MBA with high distinction
from the Harvard Business School. In addition, he served in the U.S. Navy as a
Duty Supply Officer from 1971 to 1974.
The above changes are part of a far-reaching organizational realignment of the
company. According to James Binch, Memry's Chairman and CEO, "As Memry's core
business continues its shift into support of the medical device and equipment
industry on the one hand, and the need for manufacturing excellence continues
unabated, we have added essential strength to our management team. Bill Morton,
whose assistance to the company has been invaluable, will be on special
assignment during our transition. With these changes as well as a refocusing of
our manufacturing operations, we are simultaneously reducing overhead and
dramatically
-21-
<PAGE>
strengthening our leadership as we prepare for renewed growth in our rapidly
developing markets."
Memry Corporation, with operating facilities in Connecticut, California and
Belgium, is an advanced material company engaged in the design, development and
manufacture of various medical and industrial materials and components utilizing
primarily shape memory alloys. Through the production of nickel titanium strip,
wire and tubing and technical expertise in the forming and assembly of these
materials. Memry produces such products as laparoscopic surgical assemblies,
medical stent materials and components, cellular telephone antennae components
and various high performance values.
-22-
<PAGE>
EXHIBIT E
RELEASE
For and in consideration of the execution of the Separation Agreement
by and between Memry Corporation (the "Company") and William H. Morton, Jr.
dated as _________ __, 1999 (the "Agreement"), the execution and delivery of the
Morton Release (as defined in the Agreement), the payments, mutual agreements
and obligations contained therein, and for other good and adequate
consideration, the receipt and sufficiency of which is hereby acknowledged:
1. The Company and its successors and assigns (collectively, the
"Releasor"), hereby releases and forever discharges William H. Morton, Jr.
("Morton"), and his successors and assigns (collectively, the "Releasee"), from
any and all claims, counterclaims, demands, debts, actions, causes of action,
suits, losses, damages or liabilities of any nature whatsoever, whether known or
unknown, which Releasor ever had, now has or hereafter can, shall or may have
against the Releasee, for, upon, or by reason of any matter, cause or thing
whatsoever from the beginning of the world to the day of the date of this
Release; provided, however, that nothing herein releases any claims Releasor has
or may have against Releasee regarding the performance or nonperformance of
obligations arising under the Agreement and/or, to the extent not modified by
the Agreement, Section 4 of the Employment Agreement (as defined in the
Agreement). The Company represents that, to its knowledge, which for purposes
hereof means solely the knowledge of its Chairman without inquiry or
investigation, Morton is not, as of the date hereof, in violation of his
obligations under Section 4 of the Employment Agreement.
2. Releasor does not release any claims against Releasee that may arise
after the
-23-
<PAGE>
effective date of this Release.
3. This Release may not be amended or modified except by a writing signed
by the Company and Morton. This Release shall be governed by and construed in
accordance with the laws of the State of Connecticut without regard to
principles of conflicts of laws thereunder.
Dated: This ___ day of _______________, 1999.
Memry Corporation
By:__________________________________
Name: James G. Binch
Its: Chairman
-24-
<PAGE>
ACKNOWLEDGEMENT
STATE OF CONNECTICUT)
: ss:
COUNTY OF FAIRFIELD )
On this ____ day of ______________, 1999, before me, the undersigned
officer, personally appeared James G. Binch, who acknowledged himself to be
Chairman of Memry Corporation, a Delaware corporation, and that he, as such
officer, being authorized so to do, executed the foregoing instrument for the
purposes therein contained, by signing the name of Memry by himself as Chairman.
____________________.
In witness whereof, I have hereunto set my hand.
____________________________________
Notary Public/Commission of Superior Court
-25-
<PAGE>
EXHIBIT F
RELEASE
For and in consideration of the execution of the Separation Agreement
between Memry Corporation (the "Company") and William H. Morton, Jr. ("Morton"),
dated as of _________ __, 1999 (the "Agreement"), the execution and delivery of
the Memry Release (as defined in the Agreement), the payments, mutual agreements
and obligations contained therein, and for other good and adequate
consideration, the receipt and sufficiency of which is hereby acknowledged:
1. Morton, on his own behalf and on behalf of his heirs, successors and
assigns (collectively referred to as "Releasor"), hereby releases and forever
discharges the Company, its predecessors, successors, assigns, corporate
affiliates, agents, representatives, officers, employees, consultants and
advisors (collectively referred to as "Releasee"), from any and all claims,
counterclaims, demands, debts, actions, causes of action, suits or liabilities
of any nature whatsoever, whether known or unknown, which Releasor ever had, now
has or hereafter can, shall or may have against Releasee, for, upon or by reason
of any matter, cause or thing whatsoever from the beginning of the world to the
day of the date of this Release, including, but not limited to, the following:
(i) any claims arising under any federal, state or local employment laws
including, without limitation, Title VII of the Civil Rights Act of 1964, the
Age Discrimination in Employment Act, the Older Workers Benefit Protection Act,
the Americans With Disabilities Act, the Civil Rights Act of 1991, the Fair
Labor Standards Act, the Equal Pay Act, the Employee Retirement Income Security
Act, the Family and Medical Leave Act of 1993, the Consolidated Omnibus Budget
Reconciliation Act of 1986, the Connecticut Workers'
-26-
<PAGE>
Compensation Act and the Connecticut Fair Employment Practices Act; and (ii) any
claims for breach of contract, express or implied, including any claim for
breach of any implied covenant of good faith and fair dealing, relating to
Morton's employment by the Company or the termination of Morton's employment
with the Company, as provided for in the Agreement; provided, however, that
nothing herein releases any claims Releasor has or may have against Releasee
regarding the performance or non-performance of obligations arising under the
Agreement.
2. Morton does not release any claims against the Company that may arise
after this Release has become effective.
3. Morton has been advised to consult independent legal counsel before
signing this Release, and he hereby represents that he has executed this Release
after having the opportunity to consult independent counsel and after
considering the terms of this Release for at least twenty-one (21) days. Morton
further represents and warrants that he has read this Release carefully, that he
has discussed it or has had reasonable opportunity to discuss it with his
counsel, and that he fully understands its terms, and that he is signing it
voluntarily and of his own free will.
4. Morton acknowledges that the consideration for this Release is
consideration to which he would not otherwise be entitled and is in lieu of any
rights or claims that he may have with respect to any severance benefits or
other remuneration from the Company.
5. This Release shall not become effective until the eighth day following
the date on which Morton has executed it, provided that Morton has not revoked
it. Morton may at any time prior to that effective date revoke this Release by
delivering written notice of revocation to Memry Corporation, c/o James G.
Binch, Chairman, Memry Corporation, 57 Commerce Drive, Brookfield, CT 06804.
-27-
<PAGE>
6. This Release may not be amended or modified except by a writing signed
by Morton and the Company. This Release shall be governed by and construed in
accordance with the laws of the State of Connecticut without regard to
principles of conflicts of laws thereunder.
Dated: This ____ day of _________________, 1999.
WITNESSES:
____________________ ___________________________________
William H. Morton, Jr.
____________________
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<PAGE>
ACKNOWLEDGMENT
--------------
STATE OF CONNECTICUT)
) ss:
COUNTY OF FAIRFIELD )
On this ___ day of _______________, 1999, before me, the undersigned
officer, personally appeared William H. Morton, Jr., known to me (or
satisfactorily proven) to be the person whose name is subscribed to the within
instrument and acknowledged that he has executed the same for the purposes
therein contained and acknowledged the same to be his free act and deed.
In witness whereof, I have hereunto set my hand.
________________________________
Notary Public/Commissioner
Of the Superior Court
My Commission Expires:
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<PAGE>
Exhibit 10.34
Letter Agreement, dated February 2, 1999, from Memry Corporation to James L.
Proft.
-1-
<PAGE>
February 2, 1999
Mr. James L. Proft
2 Williams Lane
Foster City, CA 94404
Dear Jim:
It is with regret we are having to advise you of your separation from
employment with the Memry Corporation. Below, please find information relating
to your severance package:
Accumulated Vacation/Sick Time (days):
-------------------------------------
Vacation Sick
-------- ----
Balance through Jan. 31, 1998 +27.67 +10.00
SUMMARY:
27.67 Vacation Days
10.00 Sick Days
-----
37.67 Days = $23,180.61
Severance:
---------
26 Weeks Severance
This amount will be paid over
the next twenty-six weeks in
accordance with our normal
policy = $80,000.05
----------
Remuneration to You $103,180.66
Out Placement Fee:
-----------------
Engagement of professional out
placement services offered and
paid for by Memry = $ 7,000.00
----------
Complete severance package $110,180.66
-2-
<PAGE>
We will continue medical and dental insurance for you and your family for
the term of your twenty-six (26) week disengagement period or until you become
covered under an alternative plan, as provided elsewhere.
As a reminder, you have various stock options you may elect to exercise
within ninety (90) days from the date hereof. Below please find necessary
information:
Option Number
Option Date Price of Options Exercisable
----------- ------ ---------- -----------
July 1, 1996 $1.59 20,000 13,333
Dec. 5, 1996 $1.78 25,000 16,666
June 1, 1998 $4.00 28,000 -0-
Also, as you know, you currently have a 401(K) account through Memry
Corporation's 401(K) Plan. You may elect to remove these funds and place them
in another "entity" which would accept these monies (an IRA type account at a
financial and/or insurance institution or another 401(K) plan which accepts
rollovers).
In addition to encouraging you to take full advantage of services provided
by Gustavo Rabin, Ph.D. of Skyline Consulting International, we are willing to
continue payment for assistance you may find helpful from Jerry Fletcher's High
Performance workshops. With regard to Jerry Fletcher, we will consider funding
up to another $1,000.00 if you feel his continuance would be helpful.
Jim, we have a sincere desire to have this change remain amicable. To this
end, we believe we have structured your disengagement package in a constructive
manner, maximizing opportunities for helping you in the months ahead. On a
personal level, both Jim and I will make ourselves available to assist you in
any appropriate way and we truly look forward to having such opportunity.
Additional "housekeeping" necessitates our asking you to return your
company credit cards, all keys to company property/offices and files and any
company computer or other equipment in your possession. Perhaps you should
contact me tomorrow so we can arrange for you to collect any personal belongings
remaining at the office.
Jim joins with me in wishing you the best of luck in your future endeavors.
Very truly yours,
/s/ William H. Morton
William H. Morton
Senior Vice President & C.O.O.
-3-
<PAGE>
Exhibit 10.35
Letter Agreement dated July 12, 1999, from Memry Corporation to Tom Carey
1
<PAGE>
July 12, 1999
Mr. Tom Carey
Vice President Business Development & CFO
Memry Corporation
57 Commerce Drive
Brookfield, CT 06804
Dear Tom:
As you and I discussed on Friday, we believe it is in the mutual best
interests of both Memry and yourself that we amicably separate. Although much
has been accomplished during the past twenty months of your tenure with us,
there is yet much to be done and some measure of frustration that it has yet to
be completed.
In light of the above, you and I have agreed that this Friday, July 16th,
will be your last official working day. However, the Company will keep you on
its payroll at your current level (including benefits) through October 31, 1999.
Quite obviously, all of your Incentive Stock Options will not be exercised
within the ninety-day period following October 31st. Accordingly, the Company
will issue to you 20,000 Non-Qualified Options at an exercise price of $2.00 per
share, exercisable for a period of three years from date of issuance. If
necessary, the Company will cover your Cobra payments through January, 2000 from
November, 1999.
As I further stated, I will fully support your job seeking endeavors over
the coming weeks in anticipation that it will in fact not take long for you to
find an exciting and rewarding opportunity. In closing, let me say that I have
thoroughly enjoyed working with you, and wish you and Kelly well in the years
ahead.
Sincerely,
/s/ James G. Binch
James G. Binch
Chairman and Chief Executive Officer
2
<PAGE>
Exhibit 10.36
Letter Agreement, dated March 18, 1999, from Memry Corporation to Robert J.
Thatcher.
1
<PAGE>
Mr. Robert J. Thatcher
14315 Wedgeway Court
Eden Prairie, MN 55346
Dear Bob:
It is our pleasure to confirm to you in writing the modification of your
employment agreement reflecting the change in roles from corporate Vice
President - Marketing & Sales to President and Chief Operating Officer, and
Board member, effective July 7, 1999. As discussed, we are also proceeding with
the premise that the official employment agreement will provide for a one year,
renewable term, with eighteen months severance for other than cause, such
severance to be equal to 18 months of base salary and pro-rata target bonus, and
two years of base salary plus target bonus in the event of a "change in control"
of the Company leading to a "constructive dismissal".
I believe the points below summarize the most critical elements:
- Base annual salary of $195,000, paid biweekly (26 times per year)
- Target cash bonus of 45% of base salary
- An annual target cash bonus of $91,500 and an annual long term
incentive aware having a target value of $325,000 annually.
- Issuance to you of 275,000 Incentive Stock Options, of which 50,000
are immediately vested, with the remainder vesting equally over four
years on the anniversary of your commencement of employment. Such
options shall be priced at the higher of the closing market price of
the Company's securities on the date of your commencement of
employment or $2.00 per share. All options are subject to immediate
vesting in the event of a "change in control" of the Company. [Note:
this reflects an additional 75,000 ISO's than before. You had some
concerns on several points in the standard Option Agreement under our
1997 Plan which we need to address. Since the original issuance has
not "officially" been completed due to these concerns we have restated
the terms and increased the amount.]
- Entitled to four (4) weeks paid vacation annually - no change.
- Entitled to a $500 per month paid car allowance - increased by $150
per month.
- Participation in all Company Benefit programs (as appropriate),
including 401(K) Program, health and dental insurance, short and long
term disability, and such other programs as the Company may currently
or in the future offer to its employees - no change.
- At such time as you and your family relocate, Memry will reimburse you
for all customary relocation expenses, including house hunting visits.
Your expenses associated with business travel to Headquarters and
accommodation while here will be borne by the Company.
- You have asked that the Company consider an interest-free loan to be
applied to your downpayment when you relocate to Connecticut
(anticipated next spring). In as much as
2
<PAGE>
this will need to be approved not only by the Compensation Committee
but also by the Company's secured lender at the time, I will endeavor
to obtain an "in principal" undertaking by the Committee, subject to
the constraints of our lender.
- The Company shall also reimburse you for normal office expenses
incurred at your "home office" in Eden Prairie - no change.
I am very excited about the opportunities facing us, particularly with such
a superb new group of managers. I have no doubt we will deliver what is
expected of us by our shareholders, Directors and employees!
Welcome aboard again -- in your new capacity!
On Behalf of Memry Corporation
/s/ James G. Binch
--------------------------------
James G. Binch
Chairman & CEO
Accepted this __ day of ______, 1999.
/s/ Robert J. Thatcher
- --------------------------------
Robert J. Thatcher
3
<PAGE>
Exhibit 10.37
Letter Agreement, dated July 19, 1999, between Memry Corporation and Robert P.
Belcher.
-1-
<PAGE>
July 19, 1999
Mr. Robert P. Belcher
100 Cedar Hill Road
Easton, CT 06612
Dear Bob:
It is Memry's pleasure to extend to you in writing this formal offer of
employment as corporate Vice President, Chief Financial Officer, Treasurer and
Secretary and a key member of Memry's executive leadership for the future. We
further understand the "Proposed Goals and Objectives" outlined in the
attachment hereto fairly reflect our mutual expectations.
In order to keep this brief, I have below summarized the most critical
parameters of our offer:
- Base annual salary of $160,000, paid biweekly (26 times per year)
- Target cash bonus of 35% of base salary
- Issuance to you of 125,000 Incentive Stock Options, of which 25,000
shall be immediately vested, with the remainder vesting equally over
four years on the anniversary of your commencement of employment.
Such options shall be priced at the higher of the closing market price
of the Company's securities on the date of your commencement of
employment or $2.00 per share. [Note: this is necessary to protect the
qualified tax status of these options and the Company's 1997 Long Term
Incentive Plan.] All options are subject to immediate vesting in the
event of a "change in control" of the Company
- Entitled to four (4) weeks paid vacation annually
- Entitled to a $300 per month paid car allowance
- Participation in all Company Benefit programs (as appropriate),
including 401(K) Program, health and dental insurance, short and long
term disability, and such other programs as the Company may currently
or in the future offer to its employees.
- All of the above will be documented in a formal letter agreement
between yourself and the Company, including a one year, automatically
renewing term (unless notified to the contrary by either party on 90
days written notice), six months of severance for any "not-for-cause"
discharge, and the signing of our standard confidentiality and
invention and disclosure agreements.
Bob, all of the Memry "family" is delighted to have on board -- Directors
and key members of management. I personally feel you will have an exceptional
opportunity to make major contributions to the
-2-
<PAGE>
future success of Memry and enjoy the rewards created in doing so -- both
economically and personally. In order to make this "effective", could you please
countersign below where indicated and initial the "Proposed Goals and
Objectives" sheets.
Welcome aboard!
On Behalf of Memry Corporation
/s/ James G. Binch
----------------------------------------
James G. Binch
Chairman & CEO
Accepted this __ day of July, 1999
/s/ Robert P. Belcher
- -------------------------------------
Robert P. Belcher
-3-
<PAGE>
Exhibit 10.38
Letter Agreement, dated July 20, 1999, between Memry Corporation and Joe
Pasqualucci.
1
<PAGE>
July 20, 1999
Mr. Joe Pasqualucci
VP/General Manager
Memry Corporation
4065 Campbell Avenue
Menlo Park, CA 94025
Dear Joe:
I am very pleased to confirm your promotion to Vice President of Operations
for Memry Corporation effective July 19, 1999.
In this new capacity you will be responsible for the operations of each of
Memry's three facilities and the associated Manufacturing, R&D and Quality
functions. You will be based in Connecticut and relocate back from Menlo Park
as soon as is possible based on the ability of your wife and daughters being
able to travel safely.
The following items are associated with your new position and reflect the
additional responsibility of your new job are associated with your new position
and reflect the additional responsibility of your new job:
- An annual Base Salary of $165,000 effective July 19, 1999.
- A target bonus opportunity of 40% of your base salary based on
attainment of corporate objectives and your personal objectives that
will be defined within the next 30 days.
- An additional 100,000 shares of Incentive Stock Options at an option
price of $2.00. This incremental block of options will vest over four
years as spelled out in the Memry 1997 Stock Option program. This
program provides for 100% vesting of all options in the event of a
change of control of Memry Corporation. These are in addition to the
25,000 options that you currently hold at an option price of $3.00.
- A car allowance of $300 per month effective July 19, 1999.
- A one-year employment agreement will be drawn up that includes a change
of control agreement that will ensure you receive one year of severance
pay if the acquiring entity changes, in a negative way, your
responsibility or compensation. If the company is not acquired and you
are separated from the company for any reason, other than cause, you
will receive six months of severance pay.
- The current agreement on your relocation expenses and house sales
differential will remain as stated in your original offer letter dated
January 25, 1999.
- In addition, the company will pay for reasonable relocation expenses
associated with the sale
2
<PAGE>
of your current home in Connecticut to facilitate a move closer to our
corporate offices. The intended sale of your current home is sometime in
Q3 or Q4 of FY 2000.
Joe, the valuable contributions you have already made to the organization
and your commitment to growing the business have led you to this role of greater
responsibility. I look forward to working with you over the next several years.
Good luck and congratulations on your new responsibility.
Sincerely,
/s/ Robert J. Thatcher
Robert J. Thatcher
President/COO
Memry Corporation
cc: Jim Binch
3
<PAGE>
Exhibit 21.2
1. Memry Holdings S.A., incorporated under the laws of Belgium.
2. Memry Europe, N.V., incorporated under the laws of Belgium.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MEMRY
CORPORATION'S CONSOLIDATED FINANCIAL STATEMENTS TO ITS ANNUAL REPORT ON FORM
10KSB FOR THE YEAR ENDED JUNE 30, 1998. IT IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1999
<PERIOD-START> JUL-01-1997 JUL-01-1998
<PERIOD-END> JUN-30-1998 JUN-30-1999
<CASH> 1189 1191
<SECURITIES> 0 0
<RECEIVABLES> 3859 2356
<ALLOWANCES> 0 118
<INVENTORY> 2336 3182
<CURRENT-ASSETS> 7656 6721
<PP&E> 4593 8007
<DEPRECIATION> 1876 2691
<TOTAL-ASSETS> 13,085 18,182
<CURRENT-LIABILITIES> 2361 6318
<BONDS> 0 0
0 0
0 0
<COMMON> 199 208
<OTHER-SE> 9926 10758
<TOTAL-LIABILITY-AND-EQUITY> 13085 18182
<SALES> 18847 18164
<TOTAL-REVENUES> 19077 19022
<CGS> 9266 11135
<TOTAL-COSTS> 9453 11608
<OTHER-EXPENSES> 6241 8375
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 163 170
<INCOME-PRETAX> 3236 (1124)
<INCOME-TAX> 160 225
<INCOME-CONTINUING> 3076 (1349)
<DISCONTINUED> (151) 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2925 (1349)
<EPS-BASIC> 0.16 (0.07)
<EPS-DILUTED> 0.14 (0.07)
</TABLE>
