FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-14617
RHEOMETRIC SCIENTIFIC, INC.
(Exact name of registrant as specified in its charter)
New Jersey 61-0708419
________________________________ _____________________
_____
(State or other jurisdiction of (I.R.S. Employer Identi-
incorporation or organization) fication Number)
One Possumtown Road, Piscataway, NJ 08854
_________________________________________
_____________
(Address of principal executive offices) (Zip Code)
(908) 560-8550
____________________________________________________________
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
_____ _____
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding at August 1, 1996
__________________________ ______________________________
Common Stock, no par value 13,161,739
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RHEOMETRIC SCIENTIFIC, INC.
FORM 10-Q
INDEX
Page
PART I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1996 and December 31, 1995
3
Condensed Consolidated Statements of Operations
Three and Six Months Ended June 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 1996 and 1995
5
Notes to Condensed Consolidated Financial
Statements
6-8
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition
Results of Operations
9-11
Liquidity and Capital Resources
11-13
PART II - Other Information
Item 4. Submission of Matters to a Vote of Security
Holders
14
Item 6. Exhibits and Reports on Form 8-K 14
Signature 15
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RHEOMETRIC SCIENTIFIC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
(Unaudited)
June
December
30, 1996 31, 1995
________ ________
<S> <C> <C>
ASSETS
Current Assets
Cash $ 512 $ 1,364
Net receivables 13,174 14,492
Net inventories
Finished goods 2,340 2,071
Work in process 1,820 1,366
Assembled Components, materials,
and parts 6,351 5,142
______ ______
10,511 8,579
Prepaid expenses and other assets 940 1,564
______ ______
Total current assets 25,137 25,999
______ ______
Property, Plant, and Equipment 15,695 21,348
Less accumulated depreciation and
amortization 8,484 11,505
______ ______
Net property, plant, and equipment 7,211 9,843
Goodwill, net 1,873 2,074
Other Assets 3,154 2,177
______ ______
Total Assets $37,375 $40,093
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term bank borrowings $ 6,365 $ 6,424
Short-term debt - affiliate -- 375
Current maturities of long-term debt 54 497
Accounts payable 4,747 3,780
Payable to affiliate 550 818
Accrued liabilities 4,609 4,975
______ ______
Total current liabilities 16,325 16,869
______ ______
Lease obligation 4,936 --
Long-term debt -- 5,233
Long-term debt - affiliate 6,258 5,740
Other long-term liabilities 1,141 1,363
______ ______
Total liabilities 28,660 29,205
______ ______
Commitments and Contingencies
Shareholders' Equity
Common stock, stated value of $.001,
authorized 20,000 shares; issued and
outstanding 13,162 shares 13 13
Additional paid-in capital 25,492 24,759
Accumulated deficit (16,672) (13,871)
Cumulative translation adjustment (118) (13)
______ ______
Total shareholders' equity 8,715 10,888
______ ______
Total Liabilities & Shareholders'
Equity $37,375 $40,093
======= =======
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
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<TABLE>
RHEOMETRIC SCIENTIFIC, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C>
<C>
Sales $10,826$11,875 $18,822 $20,476
Cost of sales 5,424 6,037 9,941 10,617
Gross profit 5,402 5,838 8,881 9,859
General and administrative
expenses 748 915 1,336 1,743
Marketing and selling expenses2,487 2,442 5,151 4,932
Research and development expenses707 720 1,463 1,474
Goodwill and intangible amortization 165 163 330 325
Loss on sale/leaseback -- -- 2,368 --
Total Operating Expenses 4,107 4,240 10,648 8,474
Operating income (loss) 1,295 1,598 (1,767) 1,385
Interest (expense) - Banks (376) (261) (580) (534)
Interest (expense) - Affiliate(189)(141) (376) (287)
Interest income 6 15 6 16
Foreign currency (loss) gain 15 30 (77) 265
_____ _____ _____ _____
Income (loss) before income taxes7511,241 (2,794) 845
Income tax expense (4) (50) (7) (57)
_____ _____ _____ _____
Net income (loss) $ 747$ 1,191 $(2,801)$ 788
===== ===== ===== =====
Net income (loss) per share$ 0.06$ 0.09 $ (0.21) $ 0.06
===== ===== ===== =====
Average number of shares
outstanding 13,162 13,162 13,162 13,162
===== ===== ===== =====
See Notes to Consolidated Financial Statements.
</TABLE>
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<TABLE>
RHEOMETRIC SCIENTIFIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited) Six Months
Ended
<CAPTION> June 30,
1996 1995
_____ _____
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $(2,801) $ 788
Adjustments to reconcile net income (loss)
to net cash (used in) provided by
operating activities:
Depreciation and amortization of plant and
equipment 399 480
Amortization of goodwill and intangibles 330 325
Provision for slow moving inventory (47) 146
Loss on sale/leaseback financing 2,301 --
Loss on sale/retirement of property, plant,
and equipment -- 89
Unrealized currency loss (gain) 57 (183)
Changes in assets and liabilities:
Receivables 934 (2,288)
Inventories (1,993) (988)
Prepaid expenses and other current assets 605 (351)
Accounts payable and accrued liabilities 942 434
Other assets (260) (273)
Other non-current liabilities (94) (30)
_____ _____
Net cash provided by (used in) operating
activities 373 (1,851)
_____ _____
Cash Flows from Investing Activities:
Purchases of property, plant, and equipment (97) (215)
_____ _____
Net cash used in investing activities (97) (215)
_____ _____
Cash Flows from Financing Activities:
Net borrowings (repayments) under line
of credit agreements 101 (41)
Repayment of long-term debt/lease obligation(5,741) (166)
Proceeds from short-term debt - affiliate -- 2,400
Repayment short-term debt to affiliate (375) --
Net proceeds from sale/leaseback arrangement 5,734 --
Mortgage participation (865) --
_____ _____
Net cash (used in) provided by financing
activities (1,146) 2,193
Effect of exchange rate changes on cash 18 (111)
_____ _____
Net (decrease) increase in cash (852) 16
Cash at beginning of period 1,364 747
_____ _____
Cash at end of period $ 512 $ 763
===== =====
Cash payments for interest $ 959 $ 689
===== =====
Cash payments for income taxes $ 8 $ 29
===== =====
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
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RHEOMETRIC SCIENTIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting Policies
The information included in the foregoing interim financial
statements is unaudited. In the opinion of management, all
adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of financial position and
results of operations for the interim periods presented have
been reflected herein. The results of operations for the
interim periods are not necessarily indicative of the results
to be expected for the entire year.
2. Liquidity
Management believes that the cash generated from operations,
funds available under the lines of credit, Axess's debt
financing and funds received under its current loan agreement,
should be sufficient to meet the Company's working capital
needs for the remainder of the fiscal year. On February 23,
1996 the Company entered into a three-year Loan and Security
Agreement (the "Loan Agreement"). This agreement provides a
working capital revolving credit facility with a maximum
credit amount of $11,500,000. The amount of available credit
is determined by the level of certain eligible receivables and
inventories. Adequacy of cash flows generated beyond 1996
will depend on the Company's ability to achieve expected sales
volumes to support profitable operations.
3. Financing
On February 23, 1996, the Company entered into a
sale/leaseback arrangement which is recorded as a
financing whereby the Company sold the Company's
corporate headquarters and main manufacturing facility,
and the 19 acres of real property on which the facility
is located (the facility and the real estate being
referred to herein as the "Facility") for $6,300,000.
Simultaneously with the sale to the Landlord, the Company
entered into a long-term lease of the Facility from the
Landlord. The initial term of the lease is 15 years,
subject to automatic five-year extensions through 2026.
Under the terms of the lease, the Company has certain
rights of first refusal to purchase the Facility and the
right to acquire up to 11 acres of undeveloped real
estate constituting a portion of the facility (the
"Excess Land") under certain circumstances.
Simultaneously with the consummation of the
sale/leaseback arrangement, the Company entered into a
Loan and Security Agreement providing for a working
capital revolving credit facility in the amount of
$11,500,000. The amount of
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available credit is determined by the level of certain
eligible receivables and inventory. The Company's
obligations under the Loan Agreement are collateralized
by substantially all of the Company's assets.
The Landlord financed the acquisition of the Facility in
part through a $3,300,000 mortgage loan. The Company
purchased a participating interest in the Landlord's
mortgage loan (the "Mortgage Loan") in the amount of
$865,000. The Company's interest in the Mortgage Loan
will be repaid with yearly interest of 9.625% upon the
maturity of the Mortgage Loan in five years or upon
refinancing.
Further, in connection with the sale/leaseback
arrangement, the Company issued the following three
warrants to acquire shares of its Common Stock, all
having an exercise price of $2.00 per share: (1) a
warrant to the Landlord to purchase 132,617 shares of
Common Stock of the Company, exercisable during the term
of the lease; (2) a conditional warrant to the Landlord
to purchase 331,543 shares of Common Stock of the Company
which shall only be exercisable if the indebtedness owed
by Landlord under the Mortgage Loan is repaid prior to
February 23, 1997; or if the Landlord is unable to
refinance the indebtedness owed under the Mortgage Loan
prior to February 23, 1997, solely as a result of
environmental contamination relating to the 11 acres of
undeveloped real estate constituting a portion of the
facility (the "Excess Land"); and (3) a conditional
warrant to the Landlord's Lender (the "Lender") to
purchase 331,543 shares of Common Stock which shall only
be exercisable if the indebtedness owed under the
Mortgage Loan by Landlord to Lender is not refinanced
prior to February 23, 1997.
A portion of the proceeds from the sale of the Facility
and the Loan Agreement were used to provide the funds
necessary to repay the Company's mortgage indebtedness of
approximately $5,700,000 and existing line of credit of
approximately $3,000,000.
As a result of the sale/leaseback arrangement of the
Facility, the Company recognized a loss of $2,368,000 in
the first quarter because the proceeds of the financing
were less than the carrying value of the Facility. The
issuance of $733,373 of warrants and the recording of the
lease obligation of $5,001,000 are considered non-cash
transactions for cash flow statement purposes.
The Loan Agreement is for a term of three years. Under
this agreement the most restrictive financial covenants
are (a) maintain, on a consolidated basis, working capital
of not less than $6,000,000 through December 31, 1996,
$6,500,000 through December 31, 1997 and $7,000,000 after
January 1, 1998; (b) the maintenance of minimum adjusted
tangible net worth, as defined of at least $8,750,000
through May 31, 1996,
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$9,000,000 through December 31, 1996, $9,500,000 through
December 31, 1997 and $10,000,000 after January 1, 1998;
(c) achieve domestic cash flow, as defined, of not less
than ($250,000) for the six months ending June 30, 1996,
($1,000,000) for the nine months ending September 30,
1996, and $0 for the 12 months ending December 31, 1996
and for the 12 months ending on the last day of each
subsequent month; (d) achieve consolidated cash flow, as
defined, of not less than $250,000 for the six months
ended June 30, 1996, $500,000 for the nine months ended
September 30, 1996 and $750,000 for the 12 months ending
December 31, 1996 and for the 12 months ending on the last
day of each subsequent month.
The Loan Agreement also provides certain letters of
credit facilities for operations of the Company's foreign
subsidiaries.
The Company's lines and letters of credit are subject to
acceleration in the event that there is a material and
adverse change in the condition or affairs, financial or
otherwise, of the Company which in the reasonable opinion
of the lender impairs the lender's collateral or
increases its risk so as to jeopardize the repayment of
the obligations.
4. Earnings (Loss) Per Share
Earnings (loss) per share is computed based on the weighted
average number of common shares outstanding during each
period. The loss per share calculation does not include
shares reserved for stock options and convertible securities
since the effects are immaterial or antidilutive.
5. Long-term Debt and Short-term Borrowings
Long-term debt consists of the following:
June 30, December
31,
1996 1995
_______
_______
Lease obligation from sale/leaseback
arrangement, 15 year term with interest
imputed at 21% $ 4,990,000 --
Mortgage loans payable through
November 1997, with interest at
prime plus 1/2% 9.0% at
December 31, 1995 and fixed
interest at 9.6%. Mortgage loan
was settled February 23, 1996
as part of financing arrangement
See Item 2 "Financing" -- $ 5,730,000
_ ________ ____ _____
4,990,000 5,730,000
Less current maturities 54,000 497,000
___________ ___________
$ 4,936,000 $ 5,233,000
=========== ===========
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6. Long-term Debt and Short-term borrowings - Affiliate
The Company and Axess executed various subordinated term
loans during the years ended December 31, 1993, 1994,
and 1995 aggregating $5,740,000. On February 23, 1996,
Axess and the Company consolidated all of the
outstanding notes and deferred interest amounting to
$517,972 into a new subordinated note for an aggregate
amount of $6,257,972. The new note bears interest at
12% payable monthly and is due February 28, 1999.
On March 7 and 25, 1994, Axess and the Company's UK
subsidiary, executed subordinated term notes of $150,000
and $225,000, respectively, due January 1, 1996, bearing
interest at a rate equal to the British Prime Rate plus
1.5% (7.75% and 8.25% at December 31, 1995 and 1994,
respectively). On March 6, 1996, these subordinated
term notes were paid in full, including interest of
$27,417, for an aggregate amount of $402,417.
7. 1996 Stock Option Plan
At the 1996 Annual Meeting of Shareholders, the
Shareholders approved the 1996 Stock Option Plan (the
"Plan") as adopted by the Board of Directors. Pursuant
to the Plan, 250,000 shares of Common Stock have been
reserved for issuance. Options will have a maximum term
of 10 years and will be granted and exercisable at such
time or times as the Compensation Committee shall
determine and set forth in the Plan.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Sales for the three and six months ended June 30, 1996
decreased $1,049,000 and $1,654,000 (or 8.8% and 8.1%),
respectively, as compared to the corresponding periods in
1995. The decline in revenues for the six-month period
resulted from a decrease in Europe and the Far East of
$1,248,000 and $867,000, offset by an increase of $461,000
in the Americas, respectively. The decline in revenues for
the three-month period represents a decrease in Europe and
the Far East of $1,153,000 and $1,083,000, offset by an
increase in the Americas of $1,187,000, respectively. For
the six-month period total international sales of
$11,939,000 represented 63% of total sales compared to
1995's international sales of $14,054,000 which amounted to
69% of total sales. For the second quarter international
sales equaled $6,839,000 or 63% of total sales compared to
last years second quarter sales of $9,074,000 or 76%. For
both the three- and six-month periods, unfavorable foreign
currency trends severely depressed international sales as
compared to the corresponding periods in the previous year,
particularly in the Far East.
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The gross profit percentages for the three and six months
ended June 30, 1996 were 49.9% and 47.2%, respectively.
This compares to 49.2% and 48.1% for the same periods in the
prior year. The mixed results in gross profit percentage
can be attributed to unfavorable foreign currency trends
offset by on-going cost containment programs.
Operating expenses for the three and six months ended June
30, 1996 were down $133,000 and up $2,174,000 compared to
the corresponding periods in the prior year. Included in
the six-month increase is a loss of $2,368,000 on the sale
and subsequent leaseback of the Piscataway facility. For
both the three- and six-month periods operating expenses
were favorably affected by foreign currency trends.
Net interest expense for the three and six months ended June
30, 1996 increased by $172,000 and $145,000, respectively,
compared to the corresponding periods in the prior year.
The changes can be attributed to the average debt balances
outstanding during the respective periods as well as higher
interest costs related lease obligation from the
sale/leaseback arrangement.
The foreign currency adjustments for the three and six
months ended June 30, 1996 were a gain of $15,000 and a loss
of $77,000, respectively. The adjustments were primarily
due to unrealized translation losses resulting from the
German Mark, Japanese Yen, and British Pound against the
U.S. Dollar, which were offset by unrealized gains in the
French Franc, as well as in Swiss Francs resulting from the
Mettler agreement. Foreign currency gains for the three and
six months ended June 30, 1995 were $30,000 and $265,000,
respectively. The gains were primarily due to unrealized
translation gains resulting from the French Franc, German
Mark, Japanese Yen, and British Pound against the U.S.
Dollar, which were offset by an unrealized loss in Swiss
Francs resulting from the Mettler agreement.
Inherent in the Company's business is the potential for
inventory obsolescence for older products as the Company
develops new products. Obsolescence has historically
related to parts inventory. The Company continuously
monitors its exposure relating to excess and obsolete
inventory and establishes appropriate valuation reserves.
The Company's development efforts generally enhance existing
products or relate to new markets for existing technology
and, therefore, existing products are generally not rendered
obsolete.
The Financial Accounting Standards Board issued Statement of
Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" ("FAS 121") in March 1995. FAS 121 requires
companies to review their long-lived assets and certain
identifiable intangibles (collectively, "Long-Lived Assets")
for impairment whenever events or changes in circumstances
indicate that the carrying value of a Long-Lived asset may
not be recoverable. Impairment
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is measured using the lower of a Long-Lived Asset's book
value or fair value, as defined. The adoption of FAS 121
does not have a material impact on the Company's financial
position or results of operations.
Liquidity and Capital Resources
Management believes that cash generated from operations,
funds available under lines of credit, funds received from
Axess's investments, and funds received under its current
loan agreement should be sufficient to meet the Company's
working capital needs for the remainder of the fiscal year.
Adequacy of cash flows beyond 1996 will depend upon the
Company's ability to achieve expected sales volumes to
support profitable operations.
Cash Flows from Operations. Net cash provided by operating
activities during the six months ended June 30, 1996 was
$373,000, an increase of $2,224,000 over the same period
last year. Net loss for the six months ended June 30, 1996
was $2,801,000 compared to income of $788,000 during the
same period last year. The first half loss includes a non-
cash charge of $2,301,000 resulting from the sale of the
Piscataway facility along with non-cash depreciation and
amortization charges of $729,000. During the six months
ended June 30, 1996, accounts receivable decreased by
$934,000 which can be attributed to second quarter 1996
sales which were lower as compared to the fourth quarter
1995 sales. In addition, inventories and accounts payable
increased by $1,993,000 and $942,000, respectively as
inventory levels were replenished to meet the second half's
forecasted demand. Management continuously monitors
inventory levels on a world-wide basis in order to insure
that excess inventory is kept to a minimum.
Cash Flows From Investing. Net cash used in investing
activities during the six months ended June 30, 1996 was
$97,000 as compared to $215,000 during the same period in
1995 due to a decrease in the purchase of equipment.
Cash Flows From Financing. Net cash used in financing
activities during the six-month period ended June 30, 1996
was $1,146,000. During the first six months, the Company
purchased a participating interest in the mortgage of the
Piscataway facility amounting to $865,000 and also repaid
$375,000 of short-term debt due to Axess.
The Company and Axess executed various subordinated term
loans during the years ended December 31, 1993, 1994, and
1995 aggregating $5,740,000. On February 23, 1996, Axess
and the Company consolidated all of the outstanding notes
and deferred interest amounting to $517,972 into a new
subordinated note for an aggregate amount of $6,257,972.
The new note bears interest at 12% payable monthly and is
due February 28, 1999.
On March 7 and 25, 1994, Axess and the Company's UK
subsidiary, executed subordinated term notes of $150,000
and $225,000,
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respectively, due January 1, 1996, bearing interest at a
rate equal to the British Prime Rate plus 1.5% (7.75% and
8.25% at December 31, 1995 and 1994, respectively). On
March 6, 1996, these subordinated term notes were paid in
full, including interest of $27,417, for an aggregate
amount of $402,417.
The Company has working capital lines of credit with
certain domestic and foreign banks aggregating $9,295,000
of which approximately $2,930,000 was available at June 30,
1996.
Financing
On February 23, 1996, the Company entered into a
sale/leaseback arrangement which is recorded as a financing
whereby the Company sold the Company's corporate
headquarters and main manufacturing facility, and the 19
acres of real property on which the facility is located (the
facility and the real estate being referred to herein as the
"Facility") for $6,300,000. Simultaneously with the sale to
the Landlord, the Company entered into a long-term lease of
the Facility from the Landlord. The initial term of the
lease is 15 years, subject to automatic five-year extensions
through 2026. Under the terms of the lease, the Company has
certain rights of first refusal to purchase the Facility and
the right to acquire up to 11 acres of undeveloped real
estate constituting a portion of the facility (the "Excess
Land") under certain circumstances.
Simultaneously with the consummation of the sale/leaseback
arrangement, the Company entered into a Loan and Security
Agreement providing for a working capital revolving credit
facility in the amount of $11,500,000. The amount of
available credit is determined by the level of certain
eligible receivables and inventory. The Company's
obligations under the Loan Agreement are collateralized by
substantially all of the Company's assets.
The Landlord financed the acquisition of the Facility in
part through a $3,300,000 mortgage loan. The Company
purchased a participating interest in the Landlord's
mortgage loan (the "Mortgage Loan") in the amount of
$865,000. The Company's interest in the Mortgage Loan will
be repaid with yearly interest of 9.625% upon the maturity
of the Mortgage Loan in five years or upon refinancing.
Further, in connection with the sale/leaseback arrangement,
the Company issued the following three warrants to acquire
shares of its Common Stock, all having an exercise price of
$2.00 per share: (1) a warrant to the Landlord to purchase
132,617 shares of Common Stock of the Company, exercisable
during the term of the lease; (2) a conditional warrant to
the Landlord to purchase 331,543 shares of Common Stock of
the Company which shall only be exercisable if the
indebtedness owed by Landlord under the Mortgage Loan is
repaid prior to February 23, 1997; or if the Landlord is
unable to refinance the indebtedness owed under the Mortgage
Loan prior to February 23, 1997, solely as a result of
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environmental contamination relating to the 11 acres of
undeveloped real estate constituting a portion of the
facility (the "Excess Land"); and (3) a conditional warrant
to the Landlord's Lender (the "Lender") to purchase 331,543
shares of Common Stock which shall only be exercisable if
the indebtedness owed under the Mortgage Loan by Landlord to
Lender is not refinanced prior to February 23, 1997.
A portion of the proceeds from the sale of the Facility and
the Loan Agreement were used to provide the funds necessary
to repay the Company's mortgage indebtedness of
approximately $5,700,000 and existing line of credit of
approximately $3,000,000.
As a result of the sale/leaseback arrangement of the
Facility, the Company recognized a loss of $2,368,000 in the
first quarter because the proceeds of the financing were
less than the carrying value of the Facility. The issuance
of $733,373 of warrants and the recording of the lease
obligation of $5,001,000 are considered non-cash
transactions for cash flow statement purposes.
The Loan Agreement is for a term of three years. Under this
agreement the most restrictive financial covenants are (a)
maintain, on a consolidated basis, working capital of not
less than $6,000,000 through December 31, 1996, $6,500,000
through December 31, 1997 and $7,000,000 after January 1,
1998; (b) the maintenance of minimum adjusted tangible net
worth, as defined of at least $8,750,000 through May 31,
1996, $9,000,000 through December 31, 1996, $9,500,000
through December 31, 1997 and $10,000,000 after January 1,
1998; (c) achieve domestic cash flow, as defined, of not
less than ($250,000) for the six months ending June 30,
1996, ($1,000,000) for the nine months ending September 30,
1996, and $0 for the 12 months ending December 31, 1996 and
for the 12 months ending on the last day of each subsequent
month; (d) achieve consolidated cash flow, as defined, of
not less than $250,000 for the six months ended June 30,
1996, $500,000 for the nine months ended September 30, 1996
and $750,000 for the 12 months ending December 31, 1996 and
for the 12 months ending on the last day of each subsequent
month.
The Loan Agreement also provides certain letters of credit
facilities for operations of the Company's foreign
subsidiaries.
The Company's lines and letters of credit are subject to
acceleration in the event that there is a material and
adverse change in the condition or affairs, financial or
otherwise, of the Company which in the reasonable opinion of
the lender impairs the lender's collateral or increases its
risk so as to jeopardize the repayment of the obligations.
13 of 15
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders held on June 20, 1996,
the following items were called and received the following
vote:
The shareholders nominated and elected the directors to hold
office until the next annual meeting of shareholders and
until their respective successors have been elected and
qualified with the following results: The vote for director
nominee Robert E. Davis, For 12,193,252; Withheld 5,287; not
voted 963,200. The vote for director nominee Leonard Bogner,
For 12,193,252; Withheld 5,287; not voted 963,200. Giacco The
vote for director nominee Alexander F. Giacco, For
12,193,032; Withheld 5,507; not voted 963,200. The vote for
director nominee Richard J. Giacco, For 12,193,252; Withheld
5,287; not voted 963,200. The vote for director nominee R.
Michael Hendricks, For 12,193,252; Withheld 5,287; not voted
963,200. The vote for director nominee Robert K. Prud'homme,
For 12,193,252; Withheld 5,287; not voted 963,200.
The shareholders also approved the 1996 Stock Option Plan
with the following results: For 12,176,197; Abstain 10,160;
Against 12,182; not voted 963,200.
The shareholders also ratified the appointment of Coopers &
Lybrand L.L.P. as the independent auditors of the Company
for the fiscal year ending December 31, 1996 with the
following results: For 12,198,539; Abstain 3,849; Against
1,087; not voted 963,200.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1 Certificate of Incorporation of the
Registrant, as Amended, incorporated
by reference to the to the exhibits to
the Company's Current Report on Form
8-K dated February 23, 1996.
3.2 By-Laws of the Registrant, as Amended,
incorporated by reference to the
exhibits
of the Company's Annual Report on Form
10-K for the year ended December 31,
1993.
4.3 1996 Stock Option Plan
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
14 of 15
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
RHEOMETRIC SCIENTIFIC, INC.
(Registrant)
August 13, 1996 By
John C. Fuhrmeister
Vice President and
Chief Financial Officer
15 of 15
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EXHIBIT 4.3
RHEOMETRIC SCIENTIFIC, INC.
1996 STOCK OPTION PLAN
<PAGE>
TABLE OF CONTENTS
Page
1. PURPOSE 1
2. ADMINISTRATION 1
2.1. COMMITTEE 1
2.2. NO LIABILITY 1
3. STOCK 2
4. ELIGIBILITY 2
5. EFFECTIVE DATE AND TERM 2
5.1. EFFECTIVE DATE 2
5.2. TERM 3
6. GRANT OF OPTIONS 3
7. LIMITATION ON INCENTIVE STOCK OPTIONS 3
8. OPTION AGREEMENTS 3
9. OPTION PRICE 4
10. TERM AND EXERCISE OF OPTIONS 4
10.1. TERM 4
10.2. EXERCISE BY OPTIONEE 5
10.3. OPTION PERIOD AND LIMITATIONS ON EXERCISE 5
10.4. METHOD OF EXERCISE 5
11. TRANSFERABILITY OF OPTIONS 6
12. TRANSFERABILITY OF STOCK 6
13. TERMINATION OF EMPLOYMENT 6
14. RIGHTS IN THE EVENT OF DEATH OR DISABILITY 7
14.1. DEATH 7
14.2. DISABILITY 7
15. USE OF PROCEEDS 8
<PAGE>
TABLE OF CONTENTS (CONT'D)
PAGE
16. SECURITIES LAWS 8
17. EXCHANGE ACT: RULE 16B-3 9
17.1. GENERAL 9
17.2. STOCK OPTION AND COMPENSATION COMMITTEE 9
17.3. RESTRICTION ON TRANSFER OF STOCK 9
17.4. REQUIREMENT OF STOCKHOLDERS' APPROVAL 9
18. AMENDMENT AND TERMINATION 10
19. EFFECT OF CHANGES IN CAPITALIZATION 10
19.1 CHANGES IN STOCK 10
19.2. REORGANIZATION WITH CORPORATION SURVIVING 11
19.3. OTHER REORGANIZATIONS; SALE OF ASSETS OR STOCK 11
19.4. ADJUSTMENTS 12
19.5. NO LIMITATIONS ON CORPORATION 12
20. WITHHOLDING 12
21. DISCLAIMER OF RIGHTS 12
22. NONEXCLUSIVITY 13
23. GOVERNING LAW. 13
<PAGE>
RHEOMETRIC SCIENTIFIC, INC.
1996 STOCK OPTION PLAN
RHEOMETRIC SCIENTIFIC, INC., a New Jersey corporation (the
"Corporation"), sets forth herein the terms of the 1996 Stock Option Plan
(the "Plan") as follows:
1. PURPOSE
The Plan is intended to advance the interests of the Corporation
by providing eligible individuals (as designated pursuant to Section 4
hereof) an opportunity to acquire or increase a proprietary interest in the
Corporation, which thereby will create a stronger incentive to expend
maximum effort for the growth and success of the Corporation and its
subsidiaries and will encourage such eligible individuals to remain in the
employ of the Corporation or that of one or more of its subsidiaries. Each
stock option granted under the Plan (an "Option") is intended to be an
"incentive stock option" ("Incentive Stock Option") within the meaning of
Section 422 of the Internal Revenue Code of 1986, or the corresponding
provision of any subsequently enacted tax statute, as amended from time to
time (the "Code"), except (a) to the extent that any such Option would
exceed the limitations set forth in Section 7 hereof and (b) for Options
specifically designated at the time of grant as not being Incentive Stock
Options.
2. ADMINISTRATION
2.1. Committee
The Plan shall be administered by the Stock Option and
Compensation Committee (the "Committee") of the Board of Directors of the
Corporation (the "Board"), which shall have the full power and authority to
take all actions and to make all determinations required or provided for
under the Plan or any Option granted or Option Agreement (as defined in
Section 8 hereof) entered into hereunder and all such other actions and
determinations not inconsistent with the specific terms and provisions of
the Plan deemed by the Committee to be necessary or appropriate to the
administration of the Plan or any Option granted or Option Agreement
entered into hereunder. The interpretation and construction by the
Committee of any provision of the Plan or of any Option granted or Option
Agreement entered into hereunder shall be final and conclusive.
2.2. No Liability
No member of the Board or of the Committee shall be liable for
any action or determination made, or any failure to take or make an action
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or determination, in good faith with respect to the Plan or any Option
granted or Option Agreement entered into hereunder.
3. STOCK
The stock that may be issued pursuant to Options granted under
the Plan shall be shares of common stock, no par value, of the Corporation
(the "Stock"), which shares may be treasury shares or authorized but
unissued shares. The number of shares of Stock that may be issued pursuant
to Options granted under the Plan shall not exceed in the aggregate 250,000
shares of Stock, which number of shares is subject to adjustment as
provided in Section 19 hereof. If any Option expires, terminates or is
terminated for any reason prior to exercise in full, the shares of Stock
that were subject to the unexercised portion of such Option shall be
available for future Options granted under the Plan.
4. ELIGIBILITY
Options may be granted under the Plan to any officer or key
employee of the Corporation or any "subsidiary corporation" thereof within
the meaning of Section 424(f) of the Code (a "Subsidiary") (including any
such officer or key employee who is also a director of the Corporation or
any Subsidiary) as the Committee shall determine and designate from time to
time prior to expiration or termination of the Plan. An individual may
hold more than one Option, subject to such restrictions as are provided
herein.
5. EFFECTIVE DATE AND TERM
5.1. Effective Date
The Plan shall become effective as of the date of adoption by the
Board, subject to stockholders' approval of the Plan within one year of
such effective date by a majority of the votes cast at a duly held meeting
of the stockholders of the Corporation at which a quorum representing a
majority of all outstanding stock is present, either in person or by proxy,
and voting on the matter, or by written consent in accordance with
applicable state law and the Certificate of Incorporation and By-Laws of
the Corporation and in a manner that satisfies the requirements of Rule 16b-
3(b) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"); provided, however, that upon approval of the Plan by the
stockholders of the Corporation, all Options granted under the Plan on or
after the effective date shall be fully effective as if the stockholders of
the Corporation had approved the Plan on the effective date. If the
stockholders fail to approve the Plan within one year of such effective
date, any Options granted hereunder shall be null, void and of no effect.
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<PAGE>
5.2. Term
The Plan shall terminate on the date 10 years after the effective
date.
6. GRANT OF OPTIONS
Subject to the terms and conditions of the Plan, the Committee
may, at any time and from time to time prior to the date of termination of
the Plan, grant to such eligible individuals as the Committee may determine
("Optionees") Options to purchase such number of shares of the Stock on
such terms and conditions as the Committee may determine, including any
terms or conditions which may be necessary to qualify such Options as
Incentive Stock Options. Without limiting the foregoing, the Committee may
at any time, with the consent of the Optionee, amend the terms of
outstanding Options or issue new Options in exchange for the surrender and
cancellation of outstanding Options. The date on which the Committee
approves the grant of an Option (or such later date as is specified by the
Committee) shall be considered the date on which such Option is granted.
The maximum number of shares of Stock subject to Options that can be
awarded under the Plan to any person is 250,000 shares.
7. LIMITATION ON INCENTIVE STOCK OPTIONS
An Option (other than an Option described in Section 1 hereof)
shall constitute an Incentive Stock Option only to the extent that the
aggregate fair market value (determined at the time the Option is granted)
of the Stock with respect to which Incentive Stock Options are exercisable
for the first time by any Optionee during any calendar year (under the Plan
and all other plans of the Optionee's employer corporation and its parent
and subsidiary corporations within the meaning of Section 422(d) of the
Code) does not exceed $100,000. This limitation shall be applied by taking
Options into account in the order in which such Options were granted.
8. OPTION AGREEMENTS
All Options granted pursuant to the Plan shall be evidenced by
written agreements ("Option Agreements") to be executed by the Corporation
and the Optionee, in such form or forms as the Committee shall from time to
time determine. Option Agreements covering Options granted from time to
time or at the same time need not contain similar provisions; provided,
however, that all such Option Agreements shall comply with all terms of the
Plan.
3
<PAGE>
9. OPTION PRICE
The purchase price of each share of the Stock subject to an
Option (the "Option Price") shall be fixed by the Committee and stated in
each Option Agreement. In the case of an Option that is intended to
constitute an Incentive Stock Option, the Option Price shall be not less
than the greater of par value or 100 percent of the fair market value of a
share of the Stock covered by the Option on the date the Option is granted
(as determined in good faith by the Committee); provided, however, that in
the event the Optionee would otherwise be ineligible to receive an
Incentive Stock Option by reason of the provisions of Sections 422(b)(6)
and 424(d) of the Code (relating to stock ownership of more than 10
percent), the Option Price of an Option which is intended to be an
Incentive Stock Option shall be not less than the greater of par value or
110 percent of the fair market value of a share of the Stock covered by the
Option at the time such Option is granted. In the case of an Option not
intended to constitute an Incentive Stock Option, the Option Price shall be
not less than the greater of par value or 50 percent of the fair market
value of a share of the Stock covered by the Option on the date the Option
is granted (as determined in good faith by the Committee).
In the event that the Stock is listed on an established national
or regional stock exchange, is admitted to quotation on the National
Association of Securities Dealers Automated Quotation System, or is
publicly traded in an established securities market, in determining the
fair market value of the Stock, the Committee shall use the highest closing
price of the Stock on such exchange or system or in such market on the date
the Option is granted (or, if there is no such closing price, then the
Committee shall use the mean between the highest bid and lowest asked
prices or between the high and low prices on such date), or, if no sale of
the Stock has been made on such day, on the next preceding day on which any
such sale shall have been made.
10. TERM AND EXERCISE OF OPTIONS
10.1. Term
Each Option granted under the Plan shall terminate and all rights
to purchase shares thereunder shall cease upon the expiration of 10 years
from the date such Option is granted, or on such date prior thereto as may
be fixed by the Committee and stated in the Option Agreement relating to
such Option; provided, however, that in the event the Optionee would
otherwise be ineligible to receive an Incentive Stock Option by reason of
the provisions of Sections 422(b)(6) and 424(d) of the Code (relating to
stock ownership of more than 10 percent), an Option granted to such
Optionee which is intended to be an Incentive Stock Option shall in no
event be exercisable after the expiration of five years from the date it is
granted.
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<PAGE>
10.2. Exercise by Optionee
Only the Optionee receiving an Option (or, in the event of the
Optionee's legal incapacity or incompetency, the Optionee's guardian or
legal representative, and in the case of the Optionee's death, the
Optionee's estate) may exercise the Option.
10.3. Option Period and Limitations on Exercise
Each Option granted under the Plan shall be exercisable in whole
or in part at any time and from time to time over a period commencing on or
after the date of grant of the Option and ending upon the expiration or
termination of the Option, as the Committee shall determine and set forth
in the Option Agreement relating to such Option. Without limitation of the
foregoing, the Committee, subject to the terms and conditions of the Plan,
may in its sole discretion provide that an Option may not be exercised in
whole or in part for any period or periods of time during which such Option
is outstanding as the Committee shall determine and set forth in the Option
Agreement relating to such Option. Any such limitation on the exercise of
an Option contained in any Option Agreement may be rescinded, modified or
waived by the Committee, in its sole discretion, at any time and from time
to time after the date of grant of such Option. Without limitation of the
foregoing, each Option granted under the Plan shall be exercisable in whole
or in part immediately upon or at any time after the Optionee attains the
age of 65. Notwithstanding any other provisions of the Plan, no Option
shall be exercisable in whole or in part prior to the date the Plan is
approved by the stockholders of the Corporation as provided in Section 5.1
hereof.
10.4. Method of Exercise
An Option that is exercisable hereunder may be exercised by
delivery to the Corporation on any business day, at its principal office
addressed to the attention of the Committee, of written notice of exercise,
which notice shall specify the number of shares for which the Option is
being exercised, and shall be accompanied by payment in full of the Option
Price of the shares for which the Option is being exercised. Payment of
the Option Price for the shares of Stock purchased pursuant to the exercise
of an Option shall be made, as determined by the Committee and set forth in
the Option Agreement pertaining to an Option, (a) in cash or by certified
check payable to the order of the Corporation; (b) through the tender to
the Corporation of shares of Stock, which shares shall be valued, for
purposes of determining the extent to which the Option Price has been paid
thereby, at their fair market value (determined in the manner described in
Section 9 hereof ) ("Fair Market Value") on the date of exercise; or (c) by
a combination of the methods described in Sections 10.4(a) and 10.4(b)
hereof; provided, however, that the Committee may in its discretion impose
and set forth in the Option Agreement pertaining to an Option such
limitations or prohibitions on the use of shares of Stock to exercise
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<PAGE>
Options as it deems appropriate. Payment in full of the Option Price need
not accompany the written notice of exercise provided the notice directs
that the Stock certificate or certificates for the shares for which the
Option is exercised be delivered to a licensed broker acceptable to the
Corporation as the agent for the individual exercising the Option and, at
the time such Stock certificate or certificates are delivered, the broker
tenders to the Corporation cash (or cash equivalents acceptable to the
Corporation) equal to the Option Price plus the amount (if any) of federal
and/or other taxes which the Corporation may, in its judgment, be required
to withhold with respect to the exercise of the Option. An attempt to
exercise any Option granted hereunder other than as set forth above shall
be invalid and of no force and effect. Promptly after the exercise of an
Option and the payment in full of the Option Price of the shares of Stock
covered thereby, the individual exercising the Option shall be entitled to
the issuance of a Stock certificate or certificates evidencing such
individual's ownership of such shares. A separate Stock certificate or
certificates shall be issued for any shares purchased pursuant to the
exercise of an Option which is an Incentive Stock Option, which certificate
or certificates shall not include any shares which were purchased pursuant
to the exercise of an Option which is not an Incentive Stock Option. An
individual holding or exercising an Option shall have none of the rights of
a stockholder until the shares of Stock covered thereby are fully paid and
issued to such individual and, except as provided in Section 19 hereof, no
adjustment shall be made for dividends or other rights for which the record
date is prior to the date of such issuance.
11. TRANSFERABILITY OF OPTIONS
No Option shall be assignable or transferable by the Optionee to
whom it is granted, other than by will or the laws of descent and
distribution.
12. TRANSFERABILITY OF STOCK
Without the written consent of the Corporation, no Stock acquired
pursuant to an Incentive Stock Option may be sold, pledged, assigned,
transferred or otherwise disposed of by the Optionee within two years from
the date of grant of such Incentive Stock Option nor within one year after
the transfer of such Stock to the Optionee; provided, however that a
transfer to a trustee, receiver, or other fiduciary in any insolvency
proceeding, as described in Section 422A(c)(3) of the Code shall not be
deemed to be such a disposition.
13. TERMINATION OF EMPLOYMENT
The Committee may provide, by inclusion of appropriate language
in any Option Agreement, that an Optionee may (subject to the general
limitations on exercise set forth in Section 10.3 hereof), in the event of
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termination of employment of the Optionee with the Corporation or a
Subsidiary, exercise an Option, in whole or in part, at any time subsequent
to such termination of employment and prior to termination of the Option
pursuant to Section 10.2 hereof, either subject to or without regard to any
installment limitation on exercise imposed pursuant to Section 10.3 hereof,
as the Committee, in its sole and absolute discretion, shall determine and
set forth in the Option Agreement. Whether a leave of absence or leave on
military or government service shall constitute a termination of employment
for purposes of the Plan shall be determined by the Committee, which
determination shall be final and conclusive. For purposes of the Plan, a
termination of employment with the Corporation or a Subsidiary shall not be
deemed to occur if the Optionee is immediately thereafter employed with the
Corporation or any other Subsidiary.
14. RIGHTS IN THE EVENT OF DEATH OR DISABILITY
14.1. Death
If an Optionee dies while employed by the Corporation or a
Subsidiary or within the period following the termination of employment
during which the Option is exercisable under Section 13 or 14.2 hereof, the
executors, administrators, legatees or distributees of such Optionee's
estate shall have the right (subject to the general limitations on exercise
set forth in Section 10.3 hereof), at any time within one year after the
date of such Optionee's death and prior to termination of the Option
pursuant to Section 10.1 hereof, to exercise any Option held by such
Optionee at the date of such Optionee's death, to the extent such Option
was exercisable immediately prior to such Optionee's death; provided,
however, that the Committee may provide by inclusion of appropriate
language in any Option Agreement that, in the event of the death of an
Optionee, the executors, administrators, legatees or distributees of such
Optionee's estate may exercise an Option (subject to the general
limitations on exercise set forth in Section 10.3 hereof), in whole or in
part, at any time subsequent to such Optionee's death and prior to
termination of the Option pursuant to Section 10.1 hereof, either subject
to or without regard to any installment limitation on exercise imposed
pursuant to Section 10.3 hereof, as the Committee, in its sole and absolute
discretion, shall determine and set forth in the Option Agreement.
14.2. Disability
If an Optionee terminates employment with the Corporation or a
Subsidiary by reason of the "permanent and total disability" (within the
meaning of Section 22(e) (3) of the Code) of such Optionee, then such
Optionee shall have the right (subject to the general limitations on
exercise set forth in Section 10.3 hereof), at any time within one year
after such termination of employment and prior to termination of the Option
7
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pursuant to Section 10.1 hereof, to exercise, in whole or in part, any
Option held by such Optionee at the date of such termination of employment,
to the extent such Option was exercisable immediately prior to such
termination of employment; provided, however, that the Committee may
provide, by inclusion of appropriate language in any Option Agreement, that
an Optionee may (subject to the general limitations on exercise set forth
in Section 10.3 hereof), in the event of the termination of employment of
the Optionee with the Corporation or a Subsidiary by reason of the
"permanent and total disability" (within the meaning of Section 22(e)(3) of
the Code) of such Optionee, exercise an Option, in whole or in part, at any
time subsequent to such termination of employment and prior to termination
of the Option pursuant to Section 10.1 hereof, either subject to or without
regard to any installment limitation on exercise imposed pursuant to
Section 10.3 hereof, as the Committee, in its sole and absolute discretion,
shall determine and set forth in the Option Agreement. Whether a
termination of employment is to be considered by reason of "permanent and
total disability" for purposes of the Plan shall be determined by the
Committee, which determination shall be final and conclusive.
15. USE OF PROCEEDS
The proceeds received by the Corporation from the sale of Stock
pursuant to Options granted under the Plan shall constitute general funds
of the Corporation.
16. SECURITIES LAWS
The Corporation shall not be required to sell or issue any shares
of Stock under any Option if the sale or issuance of such shares would
constitute a violation by the individual exercising the Option or by the
Corporation of any provisions of any law or regulation of any governmental
authority, including, without limitation, any federal or state securities
laws or regulations. If at any time the Corporation shall determine, in
its discretion, that the listing, registration or qualification of any
shares subject to the Option upon any securities exchange or under any
state or federal law, or the consent of any government regulatory body, is
necessary or desirable as a condition of, or in connection with, the
issuance or purchase of shares, the Option may not be exercised in whole or
in part unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Corporation, and any delay caused thereby shall in no way
affect the date of termination of the Option. Specifically in connection
with the Securities Act of 1933, as amended (the "Securities Act"), upon
exercise of any Option, unless a registration statement under the
Securities Act is in effect with respect to the shares of Stock covered by
such Option, the Corporation shall not be required to sell or issue such
shares unless the Corporation has received evidence satisfactory to the
Corporation that the Optionee may acquire such shares pursuant to an
8
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exemption from registration under the Securities Act. Any determination in
this connection by the Corporation shall be final and conclusive. The
Corporation may, but shall in no event be obligated to, register any
securities covered hereby pursuant to the Securities Act. The Corporation
shall not be obligated to take any affirmative action in order to cause the
exercise of an Option or the issuance of shares pursuant thereto to comply
with any law or regulation of any governmental authority. As to any
jurisdiction that expressly imposes the requirement that an Option shall
not be exercisable unless and until the shares of Stock covered by such
Option are registered or are subject to an available exemption from
registration, the exercise of such Option (under circumstances in which the
laws of such jurisdiction apply) shall be deemed conditioned upon the
effectiveness of such registration or the availability of such an
exemption.
17. EXCHANGE ACT: RULE 16B-3
17.1. General
The Plan is intended to comply with Rule 16b-3 ("Rule 16b-3")
(and any successor thereto) under the Exchange Act. Any provision
inconsistent with Rule 16b-3 shall, to the extent permitted by law and
determined to be advisable by the Committee (constituted in accordance with
Section 17.2 hereof), be inoperative and void.
17.2. Stock Option and Compensation Committee
The Committee appointed in accordance with Section 2.1 hereof
shall consist of not fewer than two members of the Board each of whom shall
qualify (at the time of appointment to the Committee and during all periods
of service on the Committee) in all respects as a "disinterested person" as
defined in Rule 16b-3.
17.3. Restriction on Transfer of Stock
No director, officer or other "insider" of the Corporation
subject to Section 16 of the Exchange Act shall be permitted to sell Stock
(which such "insider" had received upon exercise of an Option) during the
six months immediately following the grant of such Option.
17.4. Requirement of Stockholders' Approval
No amendment by the Board shall, without approval by a majority
of the votes cast at a duly held meeting of the stockholders of the
Corporation at which a quorum representing a majority of all outstanding
stock is present, either in person or by proxy, and voting on the
amendment, or by written consent in accordance with applicable state law
and the Certificate of Incorporation and By-Laws of the Corporation,
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materially increase the benefits accruing to Section 16 "insiders" under
the Plan or take any other action that would require the approval of such
stockholders pursuant to Rule 16b-3.
18. AMENDMENT AND TERMINATION
The Board may, at any time and from time to time, amend, suspend
or terminate the Plan as to any shares of Stock as to which Options have
not been granted; provided, however, that no amendment by the Board shall,
without approval by a majority of the votes cast at a duly held meeting of
the stockholders of the Corporation at which a quorum representing a
majority of all outstanding stock is present, either in person or by proxy,
and voting on the amendment, or by written consent in accordance with
applicable state law and the Certificate of Incorporation and By-Laws of
the Corporation, materially change the requirements as to eligibility to
receive Options or increase the maximum number of shares of Stock in the
aggregate that may be sold pursuant to Options granted under the Plan
(except as permitted under Section 19 hereof). The Corporation also may
retain the right in an Option Agreement to cause a forfeiture of the shares
or gain realized by an Optionee on account of the Optionee taking actions
in "competition with the Corporation," as defined in the applicable Option
Agreement. Furthermore, the Corporation may, in the Option Agreement,
retain the right to annul the grant of an Option if the holder of such
grant was an employee of the Corporation or a Subsidiary and is terminated
"for cause," as defined in the applicable Option Agreement. Except as
permitted under Section 19 hereof, no amendment, suspension or termination
of the Plan shall, without the consent of the Optionee, alter or impair
rights or obligations under any Option theretofore granted under the Plan.
19. EFFECT OF CHANGES IN CAPITALIZATION
19.1 Changes in Stock
If the number of outstanding shares of Stock is increased or
decreased or changed into or exchanged for a different number or kind of
shares or other securities of the Corporation by reason of any
recapitalization, reclassification, stock split-up, combination of shares,
exchange of shares, stock dividend or other distribution payable in capital
stock, or other increase or decrease in such shares effected without
receipt of consideration by the Corporation, occurring after the effective
date of the Plan, a proportionate and appropriate adjustment shall be made
by the Corporation in the number and kind of shares for which Options are
outstanding, so that the proportionate interest of the Optionee immediately
following such event shall, to the extent practicable, be the same as
immediately prior to such event. Any such adjustment in outstanding
Options shall not change the aggregate Option Price payable with respect to
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shares subject to the unexercised portion of the Option outstanding but
shall include a corresponding proportionate adjustment in the Option Price
per share.
19.2. Reorganization With Corporation Surviving
Subject to Section 19.3 hereof, if the Corporation shall be the
surviving entity in any reorganization, merger or consolidation of the
Corporation with one or more other entities, any Option theretofore granted
pursuant to the Plan shall pertain to and apply to the securities to which
a holder of the number of shares of Stock subject to such Option would have
been entitled immediately following such reorganization, merger or
consolidation, with a corresponding proportionate adjustment of the Option
Price per share so that the aggregate Option Price thereafter shall be the
same as the aggregate Option Price of the shares remaining subject to the
Option immediately prior to such reorganization, merger or consolidation.
19.3. Other Reorganizations; Sale of Assets or Stock
Upon the dissolution or liquidation of the Corporation, or upon a
merger, consolidation or reorganization of the Corporation with one or more
other entities in which the Corporation is not the surviving entity, or
upon a sale of substantially all of the assets of the Corporation to
another entity, or upon any transaction (including, without limitation, a
merger or reorganization in which the Corporation is the surviving entity)
approved by the Board that results in any person or entity (other than
persons who are holders of stock of the Corporation at the time the Plan is
approved by the Stockholders and other than an Affiliate) owning 80 percent
or more of the combined voting power of all classes of stock of the
Corporation, the Plan and all Options outstanding hereunder shall
terminate, except to the extent provision is made in connection with such
transaction for the continuation of the Plan and/or the assumption of the
Options theretofore granted, or for the substitution for such Options of
new options covering the stock of a successor entity, or a parent or
subsidiary thereof, with appropriate adjustments as to the number and kinds
of shares and exercise prices, in which event the Plan and Options
theretofore granted shall continue in the manner and under the terms so
provided. In the event of any such termination of the Plan, each Optionee
shall have the right (subject to the general limitations on exercise set
forth in Section 10.3 hereof and except as otherwise specifically provided
in the Option Agreement relating to such Option), immediately prior to the
occurrence of such termination and during such period occurring prior to
such termination as the Committee in its sole discretion shall designate,
to exercise such Option in whole or in part, whether or not such Option was
otherwise exercisable at the time such termination occurs, but subject to
any additional limitations that the Committee may, in its sole discretion,
include in any Option Agreement. The Committee shall send written notice
11
<PAGE>
of an event that will result in such a termination to all Optionees not
later than the time at which the Corporation gives notice thereof to its
stockholders.
19.4. Adjustments
Adjustments under this Section 19 relating to stock or securities
of the Corporation shall be made by the Committee, whose determination in
that respect shall be final and conclusive. No fractional shares of Stock
or units of other securities shall be issued pursuant to any such
adjustment, and any fractions resulting from any such adjustment shall be
eliminated in each case by rounding downward to the nearest whole share or
unit.
19.5. No Limitations on Corporation
The grant of an Option pursuant to the Plan shall not affect or
limit in any way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge, consolidate, dissolve or liquidate, or to sell or
transfer all or any part of its business or assets.
20. WITHHOLDING
The Corporation or a Subsidiary may be obligated to withhold federal
and local income taxes and Social Security taxes to the extent that an
Optionee realizes ordinary income in connection with the exercise of an
Option. The Corporation or a Subsidiary may withhold amounts needed to
cover such taxes from payments otherwise due and owing to an Optionee, and
upon demand the Optionee will promptly pay to the Corporation or a
Subsidiary having such obligation any additional amounts as may be
necessary to satisfy such withholding tax obligation. Such payment shall
be made in cash or cash equivalents.
21. DISCLAIMER OF RIGHTS
No provision in the Plan or in any Option granted or Option
Agreement entered into pursuant to the Plan shall be construed to confer
upon any individual the right to remain in the employ of the Corporation or
any Subsidiary, or to interfere in any way with the right and authority of
the Corporation or any Subsidiary either to increase or decrease the
compensation of any individual at any time, or to terminate any employment
or other relationship between any individual and the Corporation or any
Subsidiary. The obligation of the Corporation to pay any benefits pursuant
to the Plan shall be interpreted as a contractual obligation to pay only
those amounts described herein, in the manner and under the conditions
prescribed herein. The Plan shall in no way be interpreted to require the
Corporation to transfer any amounts to a third party trustee or otherwise
12
<PAGE>
hold any amounts in trust or escrow for payment to any participant or
beneficiary under the terms of the Plan.
22. NONEXCLUSIVITY
Neither the adoption of the Plan nor the submission of the Plan
to the stockholders of the Corporation for approval shall be construed as
creating any limitations upon the right and authority of the Board to adopt
such other incentive compensation arrangements (which arrangements may be
applicable either generally to a class or classes of individuals or
specifically to a particular individual or individuals) as the Board in its
discretion determines desirable, including, without limitation, the
granting of stock options otherwise than under the Plan.
23. GOVERNING LAW.
This Plan and all Options to be granted hereunder shall be
governed by the laws of the State of New Jersey (but not including the
choice of law rules thereof).
The Plan was duly adopted and approved by the Board on February
5, 1996 and was duly approved by the stockholders of the Corporation on
June 20, 1996.
/s/ Richard J. Giacco
Richard J. Giacco
Secretary
13
<PAGE>
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