UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
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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.
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(Exact name of registrant as specified in its charter)
New Jersey 61-0708419
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(State or other jurisdiction of (I.R.S. EmployerIdentification No.)
incorporation or organization)
One Possumtown Road, Piscataway, N.J. 08854
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (908) 560-8550
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(Former name, former address, and former fiscal year if changed since
last report.)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, No Par Value
-----------------------------------
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K.
[ X ]
The aggregate market value of the voting stock held by nonaffiliates of
the registrant as of March 7, 1997: $6,083,014. (For purposes of this
filing only, all executive officers and directors have been classified as
affiliates.)
The number of shares of the registrant's Common Stock outstanding as of
March 7, 1997 was 13,161,739.
DOCUMENTS OR PARTS THEREOF INCORPORATED BY REFERENCE: None
The Exhibit Index appears on page: 35
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Part I
(Items either not applicable or not material have been excluded)
Item I. Business
Background
General
Rheometric Scientific, Inc., and subsidiaries (referred to as
"Rheometric" or the "Company"), was incorporated in New Jersey in 1981.
The Company's corporate executive offices and principal manufacturing
operation is located in Piscataway, New Jersey. Sales offices are
located in England, France, Germany, and Japan.
History
The Company was co-founded under the name Rheometrics, Inc. in 1970 by
Dr. Joseph M. Starita and Dr. Chris Macosko. In 1985, following
completion of a $7 million stock offering, Rheometrics became a public
company. Through a series of transactions beginning in 1991, briefly
described below, Axess Corporation ("Axess") owns 76.6% of the common
stock of the Company. The Company changed its name to Rheometric
Scientific, Inc. in November 1994.
In 1991 and 1992, the Company and Axess executed a $1,500,000 principal
amount Subordinated Convertible Debenture convertible into 551,471 newly-
issued shares of Common Stock and a $1,300,000 principal amount
Subordinated Convertible Debenture convertible into 1,221,919 newly-
issued shares of Common Stock, respectively.
In 1993, the Company granted Axess an Option Agreement whereby the
Company granted Axess an irrevocable option to purchase 1,630,897 newly-
issued shares of Common Stock for $1,000,000. Axess exercised the Option
Agreement and converted the aforementioned Subordinated Convertible
Debentures into 1,773,390 newly-issued shares of Common Stock in 1993.
In 1994, the Company acquired the Polymer Laboratories Thermal Sciences
Business (the "PL Thermal Sciences Business") through a series of
transactions involving Axess. See Note 2 of Notes to Consolidated
Financial Statements.
In 1995, the Company acquired from Mettler-Toledo AG ("Mettler") the
exclusive, worldwide rights for two rheological test instruments, the
RM180 and RM260, that serve the coatings, paints, biological fluids,
cosmetics, and lubricants industries. See Note 12 of Notes to
Consolidated Financial Statements.
In October 1996, the Company initiated plans to consolidate all
manufacturing of rheology and thermal analysis instruments and
engineering functions at its Piscataway, NJ facility. This
consolidation, which management believes should result in cost savings,
was completed at the end of the first quarter of 1997.
DESCRIPTION OF BUSINESS
Financial Information About Industry Segments
The Company operates in one industry segment.
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Narrative
The Company designs, manufactures, markets, and services computer-
controlled materials test systems used to make physical property
measurements, such as viscosity, elasticity, and thermal analysis
behavior, on various materials including, plastics, composites,
petrochemicals, rubber, chemicals, paints, coatings, pharmaceuticals,
cosmetics, and foods. The Company's product offering, most of which is
proprietary or patented, consists of rheological and thermal analytical
laboratory instruments used for research and product development; on-line
rheological sensors for controlling and assuring product quality in
various manufacturing processes; and integrated systems for direct on-
line control of manufacturing processes. These integrated systems combine
special sampling technologies and multiple sensor technologies to provide
various real-time measures of product quality. The Company sells its
products worldwide, primarily to Fortune 500 and other leading
international corporations, as well as independent research laboratories
and educational and governmental institutions.
Customers. The Company's customers fall generally into three major
categories based on the nature of their products and the processes by
which their products are developed: (1) materials manufacturers, (2)
product manufacturers, and (3) independent and nonprofit research
laboratories and governmental and educational institutions. The Company
does not have any customer that accounts for more than 10 percent of the
Company's sales.
Technologies. Each instrument system consists of components, some of
which include actuators, which manipulate or impart force upon a sample,
while others thermally activate samples using controlled furnaces;
sensors, which measure the results of such activities upon the sample;
and microprocessors, which analyze such results. The design and
manufacture of these components requires expertise in several disparate
technologies, including electronics, software, mechanics, machining, and
environmental control. Most of the Company's instrument systems contain
a microcomputer system developed and manufactured by the Company, which
incorporates proprietary expertise in microprocessor applications, data
acquisition and analysis, control feedback, and systems development
software, including assembly language programming. The Company's
laboratory instruments can control motion with high precision, some to
within two-millionths of an inch.
The testing of materials ranging from low viscosity water-like fluids to
tough steel-like composites requires the precise measurement of forces
over a wide dynamic range. The Company has combined its engineering
resources to develop sophisticated sensors capable of measuring forces as
small as 10 milligrams to as large as 5,000 pounds.
Raw Material & Components. The Company's products consist of mechanical
and electronic assemblies. A number of raw materials, primarily
stainless steel and aluminum, are used to fabricate the Company's
mechanical assemblies, and electronic components are used to build its
electronic assemblies. The Company depends upon, and will continue to
depend upon, a number of outside suppliers for the components it uses.
The Company believes that the raw materials and component parts it uses
are available from alternate suppliers and does not believe it is
dependent upon any one supplier.
Patents & Trademarks. The Company currently has patents for the design
and manufacture of certain of its instruments and systems. Due to the
rapidly changing technology relative to the Company's product lines, the
Company does not believe that technological patent protection is
significant as a competitive factor. The Company's name and its logo are
protected under Federal trademark laws and the Company believes that
there is significant value associated with the Company's name.
Seasonal Operations & Backlog. Historically, the Company's sales, (loss)
earnings before income taxes, and net (loss) earnings have been cyclical.
Typically the quarters ending June and December outperform the quarters
ending March and September. This cyclicality is primarily attributable to
the capital goods budgeting cycle. Many customers place their orders in
the first calendar quarter (after capital budgets have been approved)
with delivery in the second calendar quarter due to three- or four- month
average delivery times. Moreover, as the fourth calendar
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quarter approaches, many customers review their annual budgets and
determine that they are able to place an order for delivery by the end of
December.
Competition. The Company believes that its principal competitors are
several domestic and foreign manufacturers, some with greater financial
and marketing resources than the Company. The Company competes with
these companies and others by offering products of high performance,
quality and reliability, backed by service capabilities. The Company
believes that technological requirements and high initial capital
expenditures represent significant barriers to entry to this market.
However, there can be no assurance that a larger company with greater
financial resources than the Company will not enter this market at a
later date, and that such entry would not have a material adverse impact
on the operations of the Company.
The Company believes that it is well-positioned in the field of
engineering and technology to remain competitive in the face of
technological changes that may occur in the marketplace. There can be no
assurance, however, that technology superior to the Company's will not be
developed which would have a material adverse effect on the Company's
operations.
Product Research & Development. The Company's research and development
activities primarily focus on the development of new products and new
applications and enhancements for existing products. In its development
and testing of new products and applications, the Company consults with
professionals at universities and in the industry worldwide. The Company
believes that its research and development activities are necessary to
maintain competitiveness and to better serve its customers.
Employees. At December 31, 1996, the Company had approximately 230 full-
time employees worldwide, none of whom is party to a collective
bargaining agreement.
Financial Information About Foreign and Domestic Operations and Export
Sales
See Note 10 of Notes to Consolidated Financial Statements.
Item 2. Properties
The Company leases a 100,000 square foot building on 19 acres of land in
Piscataway, New Jersey. This facility presently accommodates the
Company's manufacturing, marketing, research and development, and general
administrative activities. The Company expects this facility to
accommodate its needs for the foreseeable future.
The Company also leases space for use as sales and service centers in
various locations overseas. The Company leases an aggregate of
approximately 25,000 square feet of space in Epsom, England; Bensheim,
Germany; Marne La Vallee, France; and Tokyo, Japan.
Item 3. Legal Proceedings
There are no known material pending legal proceedings involving the
Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the quarter
ended December 31, 1996.
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PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder
Matters
Common Stock Market Prices and Dividends
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "RHEM." The table below presents the high and low sales
prices for each quarter for the years ended December 31, 1996 and 1995.
Since its initial public offering in December 1985, the Company has not
paid any cash dividends. The Company's current borrowing arrangements
prohibit the payment of cash dividends. At March 3, 1997, there were
approximately 181 holders of record of the Company's Common Stock. In
addition, there are approximately 900 beneficial holders of Common Stock
held in street name.
<TABLE>
<CAPTION>
12 Months Ended December 31,
1996 1995
QUARTER ENDED High Low High Low
<S> <C> <C> <C> <C>
March 31 $2.13 $1.50 $1.50 $1.25
June 30 3.25 1.63 1.75 1.38
September 30 2.24 1.63 3.88 1.38
December 31 3.13 1.56 2.63 1.38
</TABLE>
Item 6. Selected Financial Data
(In thousands of dollars, except per share data)
<TABLE>
<CAPTION>
12 Months Ended December 31,
1996 1995 1994 1993 1992
(Unaudited)
<S> <C> <C> <C> <C> <C>
Sales $41,115 $41,244 $34,571 $26,881 $26,013
Restructuring expense -- -- (98) 1,400 --
Net (loss) Income (6,347) 391 (1,463) (4,550) (2,480)
(Loss) earnings per share (0.48) 0.03 (0.12) (0.73) (0.61)
Total assets 36,045 40,093 35,110 27,235 28,927
Long-term debt 11,361 10,973 9,403 7,622 9,761
</TABLE>
The PL Thermal Sciences Business acquisition has been included as of March
3, 1994.
Commencing January 1, 1993, the Company changed its fiscal year from June
30 to December 31.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
12 Months Ended December 31, 1996 vs. 12 Months Ended December 31, 1995
In the year ended December 31, 1996, the Company achieved sales of
$41,115,000 compared to $41,244,000 for the year ended December 31, 1995.
The Japanese and European sales decreased by 23% and 3% respectively,
while domestic sales increased 20%. International and export sales
decreased to 61% of consolidated sales from 66% in 1995. Gross profit
for the year ended December 31,1996 was 45.9% of sales, compared to 46.3%
for the same period in 1995. This small decrease was due in part to the
additional costs incurred relating to the consolidation of all
manufacturing at the Piscataway facility.
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Operating expenses of $22,692,000 increased by $6,051,000 for the period
ended December 31, 1996, compared to the corresponding period in 1995.
Of this amount, $2,368,000 is a one-time charge related to the
sale/leaseback transaction and $2,438,000 is related to the write-down of
long-lived assets whose value has been deemed impaired. Excluding these
one-time charges the increase over the period is $1,245,000. This
increase is largely due to salary increases that went into effect in
April 1996, severance costs related to the consolidation of engineering
at the Piscataway facility, and the favorable effect on 1995 expenses of
both recorded gains related to a forward exchange contract, and the
capitalization of software development costs.
Interest expense increased $930,000 for the period ended December 31, 1996
compared to the corresponding period in 1995. Approximately $340,000 of
this increase is attributable to the amortization of the lease obligation
recorded under the sale/leaseback arrangement. The remainder of the
increase is a result of carrying higher loan balances throughout the
period with slightly higher interest rates. The increase in interest
expense is partially offset by an increase in interest income due to
interest earned on our mortgage participation.
Net loss for the year ended December 31, 1996 was $6,347,000 compared to
net income of $391,000 in 1995. The 1996 results include a one-time
charge of $2,368,000 related to the sale/leaseback transaction as well as
a one-time charge of $2,438,000 related to the write-down of long-lived
assets. Excluding these one-time charges, net income in 1996 was
adversely affected by an increase in operating expenses of $1,245,000, an
increase in net interest expense of $744,000, and a decrease in gross
profit of $232,000. These were offset by a decrease in the currency loss
of $302,000.
Backlog as of December 31, 1996 and 1995 was $1,745,000 and $2,073,500,
respectively. The Company expects that all of the items in its backlog
will be delivered in the current calendar year.
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
continually monitors its exposure relating to excess and obsolete
inventory and establishes appropriate valuation account. 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. As a
result of this review, an impairment was recognized relating to the
goodwill generated by the acquisition of PL Thermal Sciences Business in
1994 and the intangible asset recorded in connection with the 1995
purchase of the Mettler property rights for the RM180 and the RM260.
In 1994, the Company acquired the PL Thermal Sciences Business (See Note
2 - Acquisition) which included an engineering, manufacturing, sales, and
service operation in the United Kingdom. Goodwill of $2,592,000 was
recorded and was being amortized over seven years. In late 1995,
management reviewed the design of the core thermal products and in early
1996 implemented a plan to redesign the core products and incorporate its
new Windowsr95 RSI Orchestrator software. It was determined that these
redesigns were necessary to remain competitive. Additionally, in mid
1996, management decided it would be cost effective to consolidate the
UK's engineering and manufacturing operations in the United States. As a
result of the significant physical change in the product line acquired,
management reviewed the recoverability of the carrying amount of the
goodwill balance. An evaluation was made of the future cash inflows and
outflows related to the thermal products acquired in connection with the
aforementioned acquisition. Based on this evaluation, an impairment of
$1.7 million was recognized. This loss of $1,742,000 is included in 1996
operating expenses under Impairment of long-lived assets.
Page 6 of 37
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In 1995, the Company acquired from Mettler-Toledo AG ("Mettler") the
exclusive-worldwide rights for two rheological test instruments, the
RM180 and the RM260. The Company recorded an intangible asset of
$1,525,000 related to these property rights and was amortizing this asset
on a straight-line basis over six years. At the end of 1996, based on
the performance of the products over the past year, an evaluation was
made of the future cash inflows and outflows of these products. Based on
this evaluation, an impairment of $696,000 was realized. The remaining
balance of $400,000 will be amortized on a straight-line basis over the
remaining four years of the agreement. The loss of $696,000 is included
in 1996 operating expenses under Impairment of long-lived assets.
The Company has consulted with its main software provider regarding
potential year 2000 problems. The software provider has indicated that
the majority of this potential problem has been addressed and the
remaining problem area will be addressed via upgrades which will be
available prior to the year 2000.
12 Months Ended December 31, 1995 vs. 12 Months Ended December 31, 1994
In the year ended December 31, 1995, the Company achieved sales of
$41,244,000 compared to $34,571,000 for the year ended December 31, 1994.
Japanese and European sales increased by 50% and 25% respectively, while
domestic sales decreased by 1%. In addition to strong demand for the
Company's products, both Japanese and European sales were impacted
favorably by the devaluation of the dollar. European and domestic sales
also benefited from a full 12 months of the PL Thermal Science Business
as opposed to 10 months in the prior year. International and export
sales, as a percentage of total sales, increased to 66% of consolidated
sales from 59% in 1994.
Gross profit for the year ended December 31, 1995 was 46.3% of sales, up
from 45.1% for the same period in 1994. Strong Japanese sales and
favorable currency trends contributed to this increase in margin.
Operating expenses of $16,641,000 increased by $767,000 for the period
ended December 31, 1995, compared to the corresponding period in 1994.
This increase can be attributed to adverse currency trends and a full 12
months of the PL Thermal Sciences Business offset by the capitalization
of $306,000 software development costs.
Interest expense remained virtually unchanged in 1995 when compared to
1994, decreasing $7,000. Higher loan balances throughout the period were
offset by lower interest rates.
Net income for the year ended December 31, 1995 was $391,000 as compared
to a net loss of $1,463,000 incurred in 1994. In 1995, the Company
utilized net operating loss carryforwards of approximately $145,000. Net
income in 1995 was adversely affected by foreign exchange rates in 1995.
Foreign currency transaction and translation losses amounted to $307,000
compared to gains of $584,000 in 1994. Currency transaction losses are
attributable principally to the exchange of foreign currency for U.S.
dollars in connection with payments made by foreign subsidiaries for
purchases from the domestic parent company. Currency translation losses
are attributable principally to the conversion of the foreign
subsidiaries intercompany liability accounts into U.S. dollars.
Backlog as of December 31, 1995 and 1994 was $2,073,500 and $3,750,300,
respectively. The Company expects that all of the items in its backlog
will be delivered in the current calendar year.
Liquidity and Capital Resources
Management believes that the cash generated from operations, Axess's debt
financing and funds available under its current loan agreement, should be
sufficient to meet the Company's working capital needs for the next year.
On February 23, 1996 the Company entered into a three-year Loan and
Security Agreement (the "Loan Agreement"). The Loan Agreement provides a
working capital revolving credit facility with a maximum available credit
of $11,500,000. The amount of
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available credit is determined by the level of certain eligible
receivables and inventories. Adequacy of cash flows generated beyond
1996 will depend upon the Company's ability to achieve expected sales
volumes to support profitable operations.
Cash Flows from Operations
Net cash used in operating activities in the fiscal years ended
December 31, 1996, 1995, and 1994 was $1,007,000, $590,000, and
$581,000, respectively. The negative cash flow from operations in 1996
was comprised primarily of an increase in accounts receivables and
inventories of $1,704,000 and $1,177,000, respectively, as well as a
$6,347,000 net loss. The increase in accounts receivable was mainly
due to the higher sales volumes achieved in the months of September
through December 1996 compared to the same period in the prior year.
Inventories have been increased so that the Company is better
positioned to meet customer demands for instruments in the first
quarter of 1997. The above are offset by the following: a one-time
charge of $2,368,000 related to the sale/leaseback transaction, a one-
time charge of $2,438,000 related to the write-down of long-lived
assets, non-cash depreciation and amortization charges of $1,636,000, a
decrease in prepaid expenses and other assets of $808,000, an increase
in payable to affiliate of $493,000, and an increase in other non-
current liabilities of $280,000.
Cash Flows from Investing
Net cash used in investing activities in the fiscal years ended
December 31, 1996, 1995, and 1994 was $469,000, $373,000, and $212,000,
respectively. During 1996, the Company made capital expenditures of
$469,000.
Cash Flows from Financing
Net cash provided by financing activities in the fiscal years ended
December 31, 1996, 1995, and 1994, was $586,000, $1,927,000, and
$1,173,000, respectively. The funds provided by financing activities are
due to an increase in our short term borrowing of $1,680,000, and an
increase in long term notes of $246,000, offset by repayment of short-
term debt to affiliate of $375,000 and $965,000 related to the
sale/leaseback transaction. The $965,000 is comprised of the following:
$936,000 related to the mortgage participation, $5,763,000 repayment of
long-term debt and lease obligation, offset by $5,734,000 net proceeds
from the sale/leaseback arrangement. See "Financing" section for a
description of the sale/leaseback transaction and the Loan Agreement.
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.
The Company had working capital lines of credit with certain domestic
and foreign banks. Total borrowings at December 31, 1996 was
$7,896,000 with remaining availability of approximately $2,492,000.
Financing
On February 23, 1996, the Company entered into a sale/leaseback
arrangement which is recorded as a financing lease 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
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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 the Loan 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 $861,000.
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. On February 20, 1997, the Landlord
refinanced the Mortgage Loan and the Company's interest in the Mortgage
Loan was repaid. On that same day, the conditional warrant to the
Landlord to purchase 331,543 shares of Common Stock of the Company became
exercisable and the conditional warrant to Lender terminated. The
proceeds from the Company's interest in the Mortgage Loan were applied to
its revolving credit line.
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 of the Facility, the Company recognized a loss on
its income statement in the first quarter of 1996 of $2,368,000 because
the proceeds of the sale are less than the costs of the Facility as
carried on the Company's balance sheets.
Both the Loan Agreement and the Lease Agreement of the Facility contain
financial covenants. The most restrictive financial covenants are to (a)
maintain, on a consolidated basis, working capital not less than
$6,000,000 through December 31, 1996, $6,500,000 through December 31,
1997and $7,000,000 after January 1, 1998; (b) maintain minimum adjusted
tangible net worth, as defined, of at least $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 $0 for the 12 months ended December 31, 1996 and for the 12 months
ended on the last day of each subsequent month; and (d) achieve
consolidated cash flow, as defined, of not less than $750,000 for the 12
months ended December 31, 1996 and for the 12 months ended on the last
day of each subsequent month; and (e) a prohibition on dividends.
At September 30, 1996, the Company's bank and lessor waived a covenant
violation. Absent these waivers, the Company would have been in
violation of the consolidated cash flow covenant.
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On April 30, 1997 and May 2, 1997, the Company's lessor and bank,
respectively, waived a covenant violation as of the December 31, 1996.
Absent these waivers, the Company would have been in violation of the
consolidated cash flow covenant.
On May 2, and May 6, 1997, the Company's bank amended the Loan Agreement
and the lessor amended the Lease Agreement, respectively, with regard to
the covenants relating to domestic and consolidated cash flows in their
entirety as follows: (i) Achieve Cash Flow of not less than the amount
shown (for the U.S. operations) for the period corresponding thereto:
($750,000) for the three months ended March 31, 1997; ($300,000) for the
six months ended June 30, 1997; $0 for the nine months ended September
30, 1997; $0 for the twelve months ended December 31, 1997; and $0 for
the last day of each fiscal quarter thereafter for the prior four fiscal
quarters; and (ii) Achieve Consolidated Cash Flow of not less than the
amount shown for the period corresponding thereto: ($900,000) for the
three months ended March 31, 1997; ($500,000) for the six months ended
June 30, 1997; $250,000 for the nine months ended September 30, 1997;
$750,000 for the twelve months ended December 31, 1997; and $750,000 for
the last day of each fiscal quarter thereafter for the prior four fiscal
quarters.
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.
See Statement of Cash Flows for further details of the Company's cash
flows.
See Notes 4 and 5 of the Notes to Consolidated Financial Statements for
additional information.
Page 10 of 37
<PAGE>
Item 8. Financial Statements and Supplementary Data
Independent Auditor's Report
The Shareholders and Board of Directors
Rheometric Scientific, Inc.:
We have audited the consolidated balance sheets of Rheometric Scientific,
Inc. and Subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996.
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. These 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 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Rheometric Scientific, Inc. and Subsidiaries as of December 31, 1996 and
1995, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996
in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
May 8, 1997
Page 11 of 37
<PAGE>
<TABLE>
<CAPTION>
Rheometric Scientific, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands)
December 31,
-------------------
Assets 1996 1995
------ ------
<S> <C> <C>
Current Assets
Cash $ 486 $ 1,364
Receivables - less allowance for
doubtful accounts of $224 in
December 1996 and $398 in
December 1995 15,823 14,492
Inventories, net
Finished goods 2,372 2,071
Work in process 2,006 1,366
Assembled components, materials,
and parts 5,040 5,142
------- --------
9,418 8,579
Prepaid expenses and other assets 764 1,564
------- ---------
Total current assets 26,491 25,999
-------- ---------
Property, Plant, and Equipment 15,947 21,348
Less, accumulated depreciation and
amortization 8,844 11,505
------- -------
Net property, plant, and equipment 7,103 9,843
Goodwill, net 100 2,074
Other assets 2,351 2,177
------- --------
Total assets $36,045 $40,093
====== ======
Liabilities and Shareholders' Equity
Current Liabilities
Short-term bank borrowings $ 7,896 $ 6,424
Short-term debt - Affiliate -- 375
Current maturities of long-term debt 110 497
Accounts payable 3,750 3,780
Payable to affiliate 794 818
Accrued liabilities 5,239 4,975
------- --------
Total current liabilities 17,789 16,869
-------- --------
Long-term note payable 246 --
Long-term debt lease obligation 4,857 5,233
Long-term debt - Affiliate 6,258 5,740
Other long-term liabilities 1,519 1,363
-------- --------
Total liabilities 30,669 29,205
-------- --------
Commitments and Contingencies
Shareholders' Equity
Common Stock, stated value of
$.001, authorized 20,000 shares;
issued and outstanding 13,162
shares at December 31, 1996 and 1995 13 13
Additional paid-in capital 25,492 24,759
Accumulated deficit (20,218) (13,871)
Cumulative translation adjustment 89 (13)
------- ---------
Total shareholders' equity 5,376 10,888
------ --------
Total Liabilities &
Shareholders' Equity $36,045 $40,093
====== ======
See Notes to Consolidated Financial Statements
</TABLE>
Page 12 of 37
<PAGE>
<TABLE>
<CAPTION>
Rheometric Scientific, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share amounts)
12 Months Ended December 31,
1996 1995 1994
------- ------- --------
<S>
<C> <C> <C>
Sales $41,115 $41,244 $34,571
Cost of sales 22,240 22,137 18,974
--------- --------- ---------
Gross profit 18,875 19,107 15,597
--------- --------- ---------
Marketing and selling expenses 10,537 10,240 9,560
Research and development
expenses 3,055 2,705 2,480
General and administrative
expenses 3,532 3,115 3,623
Impairment of long-lived assets 2,438 -- --
Restructuring expense -- -- (98)
Goodwill amortization 405 327 309
Intangible amortization 357 254 --
Loss on sale/leaseback 2,368 -- --
--------- --------- ---------
22,692 16,641 15,874
--------- --------- ---------
Operating (loss) income (3,817) 2,466 (277)
Interest expense (1,847) (1,037) (1,164)
Interest expense - Affiliate (786) (666) (551)
Interest income 196 10 15
Foreign currency (loss) gain (5) (307) 584
-------- ------- -------
(Loss) earnings before income
taxes (6,259) 466 (1,393)
Income tax expense 88 75 70
-------- ------- -------
Net (loss) earnings $(6,347) $ 391 $(1,463)
====== ====== ======
Net (loss) earnings per share $ (0.48) $ 0.03 $ (0.12)
====== ====== ======
Average number of shares outstanding13,162 13,162 12,284
===== ===== =====
See Notes to Consolidated Financial Statements
</TABLE>
Page 13 of 37
<PAGE>
<TABLE>
<CAPTION>
Rheometric Scientific, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands) 12 Months Ended December 31
1996 1995 1994
----------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net (loss) income $ (6,347) $ 391 $ (1,463)
Adjustments to reconcile net (loss)
income to net cash used in operating
activities:
Depreciation and amortization of
plant and equipment 874 1,029 992
Amortization of goodwill 405 327 309
Provision of slow moving inventory 398 267 517
Amortization of intangibles 357 254 --
Loss on sale/leaseback financing 2,368 -- --
Loss on sale/retirement of property,
plant, and equipment 9 93 5
Unrealized currency (gain) loss (140) 456 (513)
Impairment of long-lived assets 2,438 -- --
Changes in assets and liabilities:
Receivables (1,771) (4,515) 217
Inventories (1,177) 956 118
Prepaid expenses and other assets 808 (866) 469
Accounts payable and accrued liabilities224 439 (455)
Payable to affiliate 493 668 150
Other assets (226) (13) (104)
Restructuring reserve -- -- (823)
Other non-current liabilities 280 (76) --
------- ------ ------
Net cash used in operating activities (1,007) (590) (581)
Cash Flows from Investing Activities:
Purchases of property, plant,
and equipment (469) (373) (230)
Proceeds from sale of equipment -- -- 18
------- ----- ------
Net cash used in investing activities (469) (373) (212)
Cash Flows from Financing Activities
Repayment under old line of
credit agreement (3,020) -- --
Borrowings (repayments) under
new line of credit agreements 4,700 80 (184)
Repayment of long-term debt/lease
obligation (5,763) (553) (678)
Proceeds from long-term note payable 246 -- --
Repayment of short-term debt affiliate (375) -- --
Proceeds from long-term debt affiliate -- 2,400 2,035
Net Proceeds from sale/leaseback
arrangement 5,734 -- --
Mortgage participation (936) -- --
------- ----- ------
Net cash provided by financing
activities 586 1,927 1,173
Effect of Exchange Rate Changes on Cash 12 (347) (34)
------ ------ -------
Net (decrease) increase in cash (878) 617 346
Cash at beginning of period 1,364 747 401
------ ----- ------
Cash at end of period $ 486 $ 1,364 $ 747
====== ====== ======
See Notes to Consolidated Financial Statements
</TABLE>
Page 14 of 37
<PAGE>
<TABLE>
<CAPTION>
Rheometric Scientific, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
Additional Cumulative Total
(In thousands) Common Stock Paid-in (Accumulated Translation Shareholders'
Shares Amount Capital Deficit) Adjustment Equity
--------- -------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 7,912 $ 8 $17,618 $(12,799) $ (69) $ 4,758
Issuance of Common Stock 5,250 5 7,141 -- -- 7,146
Net loss -- -- -- (1,463) -- (1,463)
Translation adjustment -- -- -- -- 112 112
Balance at December 31, 1994 13,162 13 24,759 (14,262) 43 10,553
Net Income -- -- -- 391 -- 391
Translation adjustment -- -- -- -- (56) (56)
Balance at December 31, 1995 13,162 13 24,759 (13,871) (13) 10,888
Net Income -- -- -- (6,347) -- (6,347)
Warrants -- -- 733 -- -- 733
Translation adjustment -- -- -- -- 102 102
Balance at December 31, 1996 13,162 $13 $25,492 $(20,218) $ 89 $ 5,376
====== === ====== ======= ====== ======
See Notes to Consolidated Financial Statements
</TABLE>
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Principles of Consolidation and Operations
The consolidated financial statements include the accounts of Rheometric
Scientific, Inc., and its wholly-owned subsidiaries (referred to as
"Rheometric" or the "Company"). All significant intercompany balances and
transactions have been eliminated in consolidation. Axess Corporation
("Axess" or the "Affiliate") owns 76.6% of the outstanding shares of the
Company's Common Stock as of December 31, 1996.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities at the date of the
financial statements, and revenues and expenses during the reporting
period. Actual results could differ from those estimates.
The Company designs, manufactures, markets, and services computer-
controlled material testing systems for use in material and product
research and development, on-line process monitoring, and quality
control.
Revenue Recognition
Product sales are recorded upon shipment. Service revenues are recorded
as services are performed. Maintenance agreement revenues are recorded
on a straight-line basis over the terms of the respective agreements.
Service revenues for the years ended December 31, 1996, 1995, and 1994,
were $3,820,000, $3,706,000, and $3,623,400, respectively. Deferred
revenue relating to maintenance agreements amounted to $896,098 and
$1,073,000 at December 31, 1996 and 1995, respectively, and is included
in Accrued liabilities in the accompanying Consolidated Balance Sheets.
Inventories
Inventories, consisting of purchased materials, direct labor, and
manufacturing overhead, are stated at the lower of cost (determined on
the first-in, first-out method) or market. As of December 31, 1996 and
1995 the Company had a reserve of approximately $1,339,000 and $969,000,
respectively, for excess and obsolete inventory.
Page 15 of 37
<PAGE>
Property, Plant and Equipment
Property, plant and equipment is carried at cost. Depreciation and
amortization of plant and equipment are computed based on the estimated
service lives of the assets or lease terms, if shorter, using the
straight-line method. Betterments and major renewals are capitalized,
while repairs, maintenance and minor renewals are expensed. When assets
are disposed of, the assets and related allowances for depreciation are
eliminated from the accounts and any resulting gain or loss is reflected
in operations.
The estimated useful lives for each class of fixed assets are as follows:
Buildings 30 years Office equipment 5-8 years
Assets under direct Transportation equipment 3-5 years
financing lease 15 years Leasehold improvements 5 years
Machinery and equipment 5-8 years Assets under capital lease 5 years
Income Taxes
Deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities.
The effect on deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment date. Valuation
allowances are established when necessary to reduce deferred tax assets
to the amount expected to be realized. Income tax expense is the tax
payable for the period plus the change during the period in deferred tax
assets and liabilities.
No provision has been made for U.S. income taxes which would be payable
if undistributed earnings of approximately $434,000 as of December 31,
1996 of foreign subsidiaries were distributed to the Company in the form
of dividends, since it is management's intention to permanently reinvest
such earnings in the related foreign operations.
Goodwill and Intangibles
Goodwill is amortized using the straight-line method over seven years.
All other intangibles are amortized using the straight-line method over
the respective useful life. (See Accounting for the Impairment of Long-
Lived Assets.)
Total accumulated amortization of capitalized software for the year ended
December 31, 1996 was $357,000. The unamortized balance of capitalized
software development costs totaled $313,000, which is amortized using a
three-year useful life. Amortization expense relating to capitalized
software development costs for the year ended December 31, 1996 totaled
$43,000.
Translation of Foreign Currencies
Assets and liabilities of foreign subsidiaries are translated at current
exchange rates and the effects of these translation adjustments are
reported as a separate component of shareholders' equity. Realized gains
and losses from foreign currency transactions are included in the
consolidated statements of operations, as are unrealized gains and losses
arising from the translation of the foreign subsidiaries' intercompany
liability accounts into U.S. dollars.
Research and Development Costs
Research and development costs are charged to expense as incurred.
(Loss) Earnings per Share
(Loss) earnings per share is computed based on the weighted-average
number of common shares outstanding during each year. The (loss)
earnings per share calculation does not include shares reserved for
outstanding stock options or shares issuable under the warrants, since
the effects are anti-dilutive or immaterial.
Page 16 of 37
<PAGE>
Cash Flow Information
Foreign currency cash flows have been converted to U.S. dollars at an
appropriately weighted-average exchange rate or the exchange rates in
effect at the time of the cash flows, where determinable.
Net cash used in operating activities for the years ended December 31,
1996, 1995, and 1994, respectively, reflects cash payments for interest
of $2,114,700, $1,165,700, and $1,823,700, and income taxes of $102,700,
$44,300, and $38,000, respectively. The bad debt expense for the years
ended December 31, 1996, 1995, and 1994 was $37,600, $182,700, and
$116,900, respectively.
Also see Note 2 for additional non-cash disclosures.
Fair Value of Financial Instruments
The estimated fair value of the Company's debt instruments as of December
31, 1996 approximates the carrying amount. The fair value of the debt
instruments is estimated based on the discounted future cash flows using
currently available interest rates. The Company's letter of credit
instrument is not recognized in the Company's consolidated balance sheet
and a reasonable estimate of fair value could not be made.
Concentration of Credit Risk
The Company's product line, consisting of rheological and thermal
analytical laboratory instruments, is sold worldwide, principally to
large corporations, and research, educational, and governmental
institutes. The Company does not require collateral from its customers.
The accounts receivable are spread among a number of customers and are
geographically dispersed such that in management's opinion credit risk is
minimized.
Accounting for the Impairment of Long-Lived Assets
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. As a
result of this review, an impairment was recognized relating to the
goodwill generated by the acquisition of PL Thermal Sciences Business in
1994 and the intangible asset recorded in connection with the 1995
purchase of the Mettler property rights for the RM180 and the RM260.
In 1994, the Company acquired the PL Thermal Sciences Business (See Note
2 - Acquisition) which included an engineering, manufacturing, sales, and
service operation in the United Kingdom. Goodwill of $2,592,000 was
recorded and was being amortized over seven years. In late 1995,
management reviewed the design of the core thermal products and in early
1996 implemented a plan to redesign the core products and incorporate its
new Windowsr95 RSI Orchestrator software. It was determined that these
redesigns were necessary to remain competitive. Additionally, in mid
1996, management decided it would be cost effective to consolidate the
UK's engineering and manufacturing operations in the United States. As a
result of the significant physical change in the product line acquired,
management reviewed the recoverability of the carrying amount of the
goodwill balance. An evaluation was made of the future cash inflows and
outflows related to the thermal products acquired in connection with the
aforementioned acquisition. Based on this evaluation, an impairment of
$1.7 million was recognized. This loss of $1,742,000 is included in 1996
operating expenses under Impairment of long-lived assets.
In 1995, the Company acquired from Mettler-Toledo AG ("Mettler") the
exclusive-worldwide rights for two rheological test instruments, the
RM180 and the RM260. The Company recorded an intangible asset of
$1,525,000 related to these property rights and was amortizing this asset
on a straight-line basis over six years. At the end of 1996, based on
the performance of the products over the past year, an evaluation was
made of the future cash inflows and outflows of
PAGE 17 of 37
<PAGE>
these products. Based on this evaluation, an impairment of $696,000 was
realized. The remaining balance of $400,000 will be amortized on a
straight-line basis over the remaining four years of the agreement. The
loss of $696,000 is included in 1996 operating expenses under Impairment
of long-lived assets.
2. Acquisition
Axess acquired the Polymer Laboratories Thermal Sciences Business (the
"PL Thermal Sciences Business") on March 3, 1994 pursuant to the
Agreement For Purchase of A Business and Shares (the "PL Purchase
Agreement") for an aggregate payment equal to $6,919,000. Additionally,
Axess incurred approximately $227,000 of transaction expenses in
connection with the negotiation and completion of the PL Purchase
Agreement. Axess formed two wholly-owned subsidiary companies, Axess
Thermal Sciences Limited, a U.K. company ("ATS UK") and Axess Thermal
Sciences, Inc., a Delaware corporation ("ATS US"), through which the PL
Thermal Sciences Business was purchased. Axess's purchase of the PL
Thermal Sciences Business was executed in contemplation of contributing
such business to the Company upon the approval of the contribution by the
Company's shareholders.
On April 20, 1994, the Company acquired from ATS US the accounts
receivable, inventories, and certain other assets and liabilities of the
United States operations of the Thermal Sciences Division of Polymer
Laboratories Ltd. purchased by Axess in March 1994. In exchange for the
assets acquired, Axess and the Company executed a $1,339,000 convertible
subordinated revolving credit promissory note (the "Convertible Note")
due November 1995, bearing interest at 12% per annum.
On November 10, 1994, at the Annual Meeting of Shareholders, the
shareholders approved the issuance by Rheometric of 4,226,348 shares of
Rheometric's Common Stock to Axess in exchange for the contribution by
Axess of all the outstanding capital stock of two wholly-owned
subsidiaries of Axess, ATS US and ATS UK. Shareholders also approved the
issuance of 1,023,652 shares of Rheometric's Common Stock to Axess in
connection with the exercise by Axess of the Convertible Note in the
principal amount of $1,339,000. These transactions represent the
transfer by Axess to Rheometric of all of the PL Thermal Sciences
Business previously acquired by Axess.
The acquisition of the PL Thermal Sciences Business by Axess was
accounted for as a purchase for accounting and financial reporting
purposes and the subsequent acquisition of the PL Thermal Sciences
Business by Rheometric was accounted for as a transfer and exchange
between companies under common control in a manner similar to a pooling
of interests. The Company's consolidated financial statements reflect
the assets and the liabilities so transferred at historical cost
(representing Axess's cost of the PL Thermal Sciences Business). The
transfer from Axess to Rheometric indicated above principally consisted
of accounts receivable of $2,576,000, inventory of $3,159,000, certain
other assets of $495,000, certain accounts payable and other liabilities
of $1,676,000 and goodwill of $2,592,000. The Company's consolidated
financial statements reflect the acquisition from March 3, 1994, since at
that date both the Company and the PL Thermal Sciences Business were
under the common control of Axess.
Page 18 of 37
<PAGE>
3. Property, Plant and Equipment
Property, plant and equipment as of December 31 consisted of the
following:
1996 1995
------- -------
Assets under direct financing lease $ 6,300,000 $ 0
Land 0 945,000
Buildings 133,000 11,167,000
Machinery and equipment 2,362,000 2,433,000
Office equipment 5,633,000 5,232,000
Transportation equipment 205,000 281,000
Leasehold improvements 461,000 437,000
Assets under capital lease 853,000 853,000
----------- ----------
$15,947,000 $21,348,000
========== ==========
On February 23, 1996, the Company entered into a sale/leaseback
arrangement 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. The transaction was
treated as a financing. A lease obligation was recorded and the asset
written down to the amount of the proceeds. As a result of the sale, the
Company recognized a loss on its income statement of $2,368,000, the
differences between the proceeds of the sale and the cost of the facility
as carried on the Company's balance sheet. The assets will be amortized
over the life of the lease on a straight-line basis. Accumulated
amortization on these assets under direct financing was $352,000 as of
December 31,1996.
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
$861,000. The Company's interest in the Mortgage Loan was repaid with
yearly interest of 9.625% upon refinancing on February 20, 1997.
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 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.
Assets under capital lease consisted primarily of computer equipment
which was purchased at the end of the lease term. As of December 31,
1995, the equipment was fully depreciated with an accumulated
depreciation balance of $853,000. The Company's property, plant and
equipment are pledged as collateral under the existing lines of credit.
Page 19 of 37
<PAGE>
4. Long-term Debt and Short-term Borrowings
Long-term debt as of December 31 consisted of the following:
1996 1995
------- ------
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% $ -- $ 5,730,000
Obligation under sale/leaseback
payable through February 2011,
with interest imputed at a weighted-
average rate of 22.8% 4,967,000 --
Note payable through November
1999 with interest at 9.54% 246,000 --
--------- --------
5,213,000 5,730,000
Less current maturities 110,000 497,000
--------- ----------
$ 5,103,000 $ 5,233,000
========= ========
The annual maturities of the long-term note payable are as follows: 1997
- - $0, 1998 - $88,000, and 1999 - $158,000. For details of the lease
obligation, see Note 9 - Commitments and Contingencies.
Short-term Borrowings
On February 23, 1996, simultaneously with the consummation of the
sale/leaseback arrangement, the Company entered into the Loan Agreement,
which provides for a working capital revolving credit facility in the
amount of $11,500,000 with an initial three-year term, expiring on
February 23, 1999. 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 Company has working capital lines of credit with certain domestic and
foreign banks. The foreign working capital lines of credit are supported
by letters of credit issued under the Loan Agreement. Total borrowings
was $7,896,000 with remaining availability of approximately $2,492,000 at
December 31, 1996. Borrowings at December 31, 1996 was $4,192,000 with
domestic banks and $3,704,000 with foreign banks.
The domestic line of credit bears interest at prime plus 1.5% (9.75% at
December 31, 1996 and 9.5% at December 31, 1995). Interest rates on the
foreign lines of credit range between 1.9% and 3.0% in Japan and between
6.0% and 6.8% in Europe as of December 31, 1996 and between 1.9% and 3.0%
in Japan and between 7.0% and 11.3% in Europe at December 31, 1995. The
weighted-average interest rate on short-term debt outstanding was 6.8%
and 6.5% as of December 31, 1996 and 1995, respectively.
Both the Loan Agreement and the Lease Agreement of the Facility contain
financial covenants. The most restrictive financial covenants are to (a)
maintain, on a consolidated basis, working capital 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) maintain 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 ($750,000) for the three months ended
March 31, 1996, ($250,000) for the six months ended June 30, 1996,
($1,000,000) for the nine months ended September 30, 1996, and $0 for the
12 months ended December 31, 1996 and
Page 20 of 37
<PAGE>
for the 12 months ended on the last day of each subsequent month; (d)
achieve consolidated cash flow, as defined, of not less than ($850,000)
for the three months ended March 31, 1996, $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 ended December 31, 1996 and for the
12 months ended on the last day of each subsequent month; (e) the
prohibition of cash dividends or cash distributions to shareholders. .
At September 30, 1996, the Company's bank and lessor waived a covenant
violation. Absent these waivers, the Company would have been in
violation of the consolidated cash flow covenant.
On April 30, 1997 and May 2, 1997, the Company's lessor and bank,
respectively, waived a covenant violation as of the December 31, 1996.
Absent these waivers, the Company would have been in violation of the
consolidated cash flow covenant.
On May 2, and May 6, 1997, the Company's bank amended the Loan Agreement
and the lessor amended the Lease Agreement, respectively, with regard to
the covenants relating to domestic and consolidated cash flows in their
entirety as follows: (i) Achieve Cash Flow of not less than the amount
shown (for the U.S. operations) for the period corresponding thereto:
($750,000) for the three months ended March 31, 1997; ($300,000) for the
six months ended June 30, 1997; $0 for the nine months ended September
30, 1997; $0 for the twelve months ended December 31, 1997; and $0 for
the last day of each fiscal quarter thereafter for the prior four fiscal
quarters; and (ii) Achieve Consolidated Cash Flow of not less than the
amount shown for the period corresponding thereto: ($900,000) for the
three months ended March 31, 1997; ($500,000) for the six months ended
June 30, 1997; $250,000 for the nine months ended September 30, 1997;
$750,000 for the twelve months ended December 31, 1997; and $750,000 for
the last day of each fiscal quarter thereafter for the prior four fiscal
quarters
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.
5. Long-term Debt and Short-term Debt - Affiliate
Long-term debt - affiliate as of December 31 consisted of the following:
1996 1995
------ ------
Two subordinated term notes with
interest equal to the British Prime
plus 1.5% (7.75% at December 31, 1995)
due April 30, 1996 $ -- $ 375,000
Subordinated term note due
February 28, 1999 with interest at 12%
per annum 6,258,000 5,740,000
6,258,000 6,115,000
Less current maturities -- 375,000
------------ -----------
$ 6,258,000 $ 5,740,000
========= =========
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
Page 21 of 37
<PAGE>
rate equal to the British Prime Rate plus 1.5%. 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 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.
Payment of interest is contingent upon cash flow availability.
6. Income Taxes
The components of deferred tax assets and (liabilities) as of December 31
consisted of the following:
1996 1995
--------- ---------
Inventory reserves, inventory capitalization, and
intercompany profit in inventory $1,012,000 $ 858,000
Other 1,140,000 985,000
Net operating loss carryforwards 6,191,000 4,730,000
Research and development and other tax
credit carryforwards 1,025,000 1,015,000
----------- -----------
Gross deferred tax assets 9,368,000 7,588,000
----------- -----------
Gross deferred tax liabilities ( 73,000) (475,000)
----------- -----------
Net deferred tax asset before valuation
allowance 9,295,000 7,113,000
Valuation allowance on deferred tax assets (9,295,000) (7,113,000)
----------- -----------
Net deferred tax asset $ -- $ --
========= =========
A valuation allowance is established when it is more likely than not that
a portion or all of the deferred tax assets will not be realized.
At December 31, 1996, the Company had domestic net operating loss
carryforwards for income tax purposes of approximately $11,242,000 which
expire in 2005 through 2011 and foreign loss carryforwards of
approximately $5,526,000, a portion of which may be carried forward
indefinitely. The Company also has other tax credit carryforwards
aggregating approximately $1,001,000 at December 31, 1996, which expire
in 1998 through 2010.
The change in ownership resulting from the August 21, 1992 sale of Common
Stock and a subordinated convertible debenture (see Note 7) will result
in a limitation on future annual utilization of domestic tax credits and
net operating losses, pursuant to Internal Revenue Code Sections 382 and
383.
(Loss) income before income taxes as of December 31 consisted of the
following:
1996 1995 1994
Domestic $ (4,157,000) $ 34,000 $(1,022,000)
Foreign (2,102,000) 432,000 (371,000)
$(6,259,000) $466,000 $(1,393,000)
Page 22 of 37
<PAGE>
The components of income tax expense for the years ended December 31
consisted of the following:
1996 1995 1994
------- ------- -------
Federal:
Current $ -- $ -- $ --
Deferred -- -- --
-- -- --
Foreign:
Current 83,000 72,000 63,000
Deferred -- -- --
83,000 72,000 63,000
State:
Current 5,000 3,000 7,000
Deferred -- -- --
5,000 3,000 7,000
$ 88,000 $ 75,000 $ 70,000
========= ========= =========
The Company's effective tax rate varies from the statutory federal tax
rate as of December 31 as a result of the following:
1996 1995 1994
------- ------ ------
Computed statutory income
tax (benefit) provision $(2,128,000) $158,000 $(474,000)
State income taxes, net Federal
tax benefit 3,000 2,000 5,000
Foreign taxes 11,000 9,000 36,000
Utilization of net operating losses -- (146,000) --
Effect of loss carryforwards not
recognized 2,195,000 42,000 340,000
Goodwill and other nondeductible
acquisition costs -- 2,000 146,000
Other 7,000 8,000 (17,000)
$ 88,000 $ 75,000 $ 70,000
7. Capital Stock and Stock Option and Incentive Plans
In 1991 and 1992, the Company and Axess executed a $1,500,000 principal
amount Subordinated Convertible Debenture convertible into 551,471 newly-
issued shares of Common Stock and a $1,300,000 principal amount
Subordinated Convertible Debenture convertible into 1,221,919 newly-
issued shares of Common Stock, respectively.
In 1993, the Company and Axess signed an Option Agreement whereby the
Company granted Axess an irrevocable option to purchase 1,630,897 newly-
issued shares of Common Stock of the Company for $1,000,000. On June 30,
1993, Axess exercised the Option and the Company sold 1,630,897 shares of
newly-issued Common Stock for $1,000,000. In addition, Axess also
converted $2,800,000 of Debentures into 1,773,390 newly-issued shares of
Common Stock
On November 10, 1994, at the Annual Meeting of Shareholders, the
shareholders approved the amendment to Rheometric's Certificate of
Incorporation to increase the number of authorized shares from 10,000,000
shares to 20,000,000 shares. Additionally, the shareholders approved the
issuance by Rheometric of 4,226,348 shares of Rheometric's Common Stock
to Axess in exchange for the contribution by Axess of all the outstanding
capital stock of two wholly-owned subsidiaries of Axess. Shareholders
also approved the issuance of 1,023,652 shares of Rheometric's Common
Stock to Axess in connection with the exercise by Axess of a convertible
subordinated promissory note in the principal amount of $1,339,000.
These transactions represent the transfer by Axess to Rheometric of all
of the thermal sciences business recently acquired by Axess.
Page 23 of 37
<PAGE>
The 1986 Incentive and Non-Qualified Stock Option Plan (the "1986 Plan")
provided for the issuance of a maximum of 110,000 shares of Common Stock
as either "Incentive Stock Options" or "Non-Qualified Stock Options." No
options under the Plan have been exercised. On October 25, 1995, all
outstanding Options under the 1986 Plan expired. Under the 1986 Plan, no
Options may be granted after September 12, 1996. On February 5, 1996,
the Board of Directors terminated the 1986 Plan.
At the 1996 Annual Meeting of Shareholders, the Shareholders approved the
1996 Stock Option Plan (the "1996 Plan") as adopted by the Board of
Directors on February 5, 1996. Pursuant to the 1996 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. On June 20,
1996, the Board of Directors granted a total of 146,400 options to
certain executives and key employees. As of December 31, 1996, there
were 104,100 shares reserved for issuance under the 1996 Plan. The
weighted average stock option price and weighted average term for options
granted in 1996 was $1.75 and 10 years, respectively.
The Company applies Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and accordingly, no
compensation expense has been recognized for its stock-based compensation
plans. Had compensation cost for the Company's stock option plans been
determined based upon the fair value at the grant date for awards under
these plans consistent with the methodology prescribed under Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, the Company's net income and earnings per share would have
been reduced by approximately $14,446, or $.001 per share. The fair
value of the options granted during 1996 is estimated as $115,568 on the
date of grant using the Black-Scholes option-pricing model with the
following: risk-free interest rate of 6.67%, expected volatility of
50.48%, and an expected life of four years.
The 1996 Plan provides for the granting of options to certain key
employees. Options outstanding under the Company's 1996 Plan (i) are
granted at prices which equate to the market value of the stock on the
date of grant, (ii) vest ratably over a four year service vesting period
beginning one year from grant date, and (iii) expire ten years subsequent
to award.
Stock Options
Stock Options
Shares Price Range
1986 Stock Option Plan
Balance at December 31, 1993 49,025 $1.75 - $5.23
Canceled - 1986 Plan (10,250) $1.75 - $5.23
Expired - 1986 Plan (20,075) $5.23
----------
Balance at December 31, 1994 18,700 $5.00
Canceled - 1986 Plan 0 $5.00
Expired - 1986 Plan 18,700 $5.00
---------
Balance at December 31, 1995 0
----------
1996 Stock Option Plan
Balance at June 20, 1996 146,400 $1.75
Canceled - 1996 Plan 500 $1.75
Expired - 1996 Plan 0 $1.75
-----------
Balance at December 31, 1996 145,900 $1.75
===========
Additionally, during 1994 the Company granted an option to purchase
300,000 shares of Common Stock to an employee, at an option price of
$1.03 per share (fair value at date of
Page 24 of 37
<PAGE>
grant). On June 14, 1994, 200,000 shares were canceled upon termination
of employment. The former employee continues to have an option to
purchase 100,000 shares which expires in 2001.
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. On February 20, 1997, the Landlord
refinanced the Mortgage Loan and the Company's interest in the Mortgage
Loan was repaid. On that same day, the conditional warrant to the
Landlord to purchase 331,543 shares of Common Stock of the Company became
exercisable and the conditional warrant to Lender terminated. The
proceeds from the Company's interest in the Mortgage Loan were applied to
its revolving credit line.
8. Employee Benefit Plans
The Company has a 401(k) Savings and Investment Retirement Plan (the
"401(k) Plan") under which the Company matches a portion of the
employees' salary deduction contributions. Substantially all domestic
employees are eligible to participate in the 401(k) Plan. Contributions
by the Company were $140,000, $129,000, and $124,000 for the years ended
December 31, 1996, 1995, and 1994, respectively. The Company's foreign
subsidiaries also sponsor employee retirement plans. The expense
recorded by the Company for such plans was insignificant for the years
ended December 31, 1996, 1995, and 1994. The Company does not sponsor
any post-retirement health, life insurance, or related benefit plans, nor
any significant post-employment benefit plans.
9. Commitments and Contingencies
The Company and its subsidiaries are parties to various operating leases
relating to office facilities, transportation vehicles, and certain other
equipment, principally data processing. Real estate taxes, insurance,
and maintenance expenses are normally obligations of the Company. All
leasing arrangements contain normal leasing terms without unusual
purchase options or
escalation clauses. It is expected that, in the normal course of
business, the leases will be
renewed or replaced by similar leases. Rent expense was $760,000,
$857,000, and $1,105,000 for the years ended December 31, 1996, 1995,
and 1994, respectively.
On February 23, 1996, the Company entered into a sale/leaseback
arrangement which is recorded as a financing on its facility in
Piscataway, New Jersey. As a result of this transaction, the Company is
committed to a 15-year lease with an initial annual payment of $1,180,000
payable quarterly. The facility lease is treated as debt for financed
reporting purposes. See Note 4 - Long-term Debt.
Page 25 of 37
<PAGE>
The minimum commitments under noncancellable leases consisted of the
following at December 31, 1996:
Direct
Operating Financing
Year Leases Lease
- ------------------------ -------- ---------
1997 $631,000 $867,000
1998 343,000 805,000
1999 316,000 805,000
2000 253,000 805,000
2001 223,000 805,000
Thereafter 2,783,000 7,385,000
--------------- --------------
Total minimum lease payments $4,549,000 11,472,000
Less amounts representing interest 6,505,000
---------------
Total lease obligation 4,967,000
---------------
Current maturities 110,000
---------------
Long term lease obligation under refinancing $ 4,857,000
===========
On February 20, 1997, the Company's annual lease payment was reduced to
$805,000 payable monthly for the remaining life of the lease. The lease
is subject to an annual CPI adjustment which is capped at 3% per year.
This decrease was the result of the Landlord refinancing the mortgage on
the property.
At December 31, 1996 and 1995, the Company was contingently liable with
respect to certain trade receivables of foreign subsidiaries amounting to
approximately $1,001,000 and $1,155,000, respectively, which have been
sold, with recourse, to banks. During the fiscal years ended December
31, 1996, 1995, and 1994, approximately $3,205,000, $5,276,000, and
$5,039,000, respectively, of trade receivables were sold, with recourse,
to banks.
In September 1996, the Company amended and restated certain employment
agreements and entered into employment agreements with certain key
management executives. The contracts expire on June 30, 1997 and will
continue thereafter on a year-to-year basis. The minimum obligation
under these contracts aggregates approximately $492,352 per year.
Additionally, the Company has entered into consulting agreements. The
minimum obligation under the terms of the consultancy agreements is
$45,000. The Company entered into a 15-year royalty agreement in August
1991 for the Elongational Rheometer Products. This royalty agreement is
based on sales of the product.
In the ordinary conduct of its business, the Company may be party to
litigation. At December 31, 1996, in the opinion of management, there
are no matters pending or threatened which would have a material adverse
effect on the consolidated financial position or results of operations of
the Company.
Page 26 of 37
<PAGE>
10. Foreign Operations and Geographic Information
Information concerning sales, operating (loss) income, and identifiable
assets by geographic area and foreign operations for the years ended
December 31 are presented below (in $'000s):
1996 1995 1994
------- ------- -------
Sales:
Domestic $ 17,694 $ 14,782 $ 14,878
Europe 14,577 15,029 12,055
Japan 8,844 11,433 7,638
---------- ---------- ----------
Consolidated $ 41,115 $ 41,244 $ 34,571
======== ======== =========
Operating (loss) income:
Domestic $ (3,913) $ 1,604 $ 80
Europe (256) 281 (585)
Japan 352 581 228
---------- ---------- ----------
Consolidated $ (3,817) $ 2,466 $ (277)
========= ======= ========
Identifiable assets:
Domestic $ 25,025 $ 29,035 $ 24,739
Europe 7,539 6,066 6,774
Japan 3,481 4,992 3,597
----------- ---------- -------------
Consolidated $ 36,045 $ 40,093 $ 35,110
======== ======== ========
Sales from domestic operations to foreign subsidiaries amounted to
$9,078,000, $9,428,000, and $7,574,000 for the years ended December 31,
1996, 1995, and 1994, respectively. Such sales between geographic areas
are priced on a basis that yields an appropriate rate of return based on
assets employed, risk, and other factors. Included in domestic sales are
export sales of $1,731,000, $555,000, and $628,000 for the years ended
December 31, 1996, 1995, and 1994, respectively.
11. Property Rights Acquisition
On January 1, 1995, the Company acquired from Mettler-Toledo AG
("Mettler") the exclusive, worldwide rights for two rheological test
instruments, the RM180 and RM260, that serve the coatings, paints,
biological fluids, cosmetics, and lubricants industries.
The Company has established a distribution network while Mettler
continues to manufacture the two instruments and maintain necessary
levels of spare parts. After completion of the transition phase, which
is anticipated to be approximately two to three years, the Company will
assume responsibility for the manufacturing, sales, and service of the
two products.
The Company recorded an intangible asset of $1,525,000, included in other
assets, related to the property rights acquired. The intangible asset
was amortized using the straight-line method over six years. In the
fourth quarter of 1996, an impairment loss of $696,000 was recognized.
(See Note 1 - Accounting for the Impairment of Long-Lived Assets.)
The original cost of the property rights was 2,500,000 Swiss Francs or
$1,905,500 U.S. dollars.
During the transition phase, the Company will pay Mettler for
manufacturing the products plus a 10% royalty payment on sales. After
the Company assumes manufacturing, Mettler will receive
Page 27 of 37
<PAGE>
quarterly royalty payments based upon a percentage of sales or a minimum
payment formula. Beginning in 1995, interest accrues on the unpaid
balance at 6% per annum. The original cost of $1,905,500 was adjusted
for anticipated interest costs to arrive at total estimated payments of
$2,225,539. This amount was discounted using a 12.9% effective rate of
interest. The Company recorded a liability of $1,525,000, included in
other long-term liabilities. The discount is being amortized over a six-
year period using the interest method. The liability balance at December
31, 1996 is $1,818,000.
12. Related Parties
Mr. Robert E. Davis became president and CEO of the Company on September
20, 1993. He was compensated by Axess Corporation through December 31,
1993. Effective January 1, 1994, the Company and Axess verbally agreed
that the Company will pay to Axess a management fee, equal to $150,000
per year for Mr. Davis's services paid by Axess. The amount included in
payable to affiliate at December 31, 1996 and 1995 for said services is
$450,000 and $300,000, respectively.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Executive Officers. Officers of the Company are appointed to serve,
subject to the discretion of the Company's Board of Directors, until the
meeting of the Board of Directors following the next annual meeting of
shareholders and until their successors have been elected and qualified.
The following is a list of names and ages of all the executive officers
of the Registrant, as of December 31, 1996, indicating all positions and
offices held with the registrant by each such person and each such
person's principal occupations or employment during the past five years.
Age as of
Name March 3, 1997 Offices and Positions Held
- --------- ------------------- ----------------------
Robert E. Davis 65 President and Chief Executive Officer since
September 20, 1993 and a Director since
October 1992. Managing Director of Axess
Corporation since its inception in 1991;
prior thereto served as president and chief
operating officer (1983-1991) of Sequa
Corporation, a diversified, multinational,
specialty chemical, transportation,
aerospace and various financial services and
manufacturing company formerly known as Sun
Chemical Corporation.
Alan R. Eschbach 50 Executive Vice President, Chief Operating
Officer since November 10, 1994; prior
thereto, Vice President, Domestic &
International Sales & Marketing since October
1988. Mr. Eschbach has been an officer of the
Company since February 1982.
John C. Fuhrmeister 46 Vice President, Finance &
Administration and Chief
Financial Officer since November
10, 1994 and Assistant Secretary since
November 17, 1993; prior thereto Vice
President of Finance and Controller from
May 3, 1994 to November 10, 1994; and
Controller from October 1989 to May 3,
1994.
Page 28 of 37
<PAGE>
Age as of
Name March 3, 1997 Offices and Positions Held
- -------- ------------------- -----------------------------------
Ronald F. Garritano 58 Vice President, Technology since June
1992, Vice President of Engineering
since July 1977.
Matthew Bilt 54 Vice President, Human Resources since
November 10, 1994; prior thereto, Vice
President, Human Resources and
Administration from May 3, 1994 to
November 10, 1994 and Director of Human
Resources from June 2, 1986 to May 3,
1994.
Board of Directors. Directors of the Company are elected to hold office
for one year, until the next annual meeting of shareholders or until
their respective successors have been elected and qualified. The
following is a list of Directors with biographical information.
Principal Occupation or Employment
During the Past Five Years and Office
Director
Name Age (if any) Held in the Company Since
- -------- ----- ---------------------------- ------------
Robert E. Davis 65 Chairman of the Board, since June 22, 1995, 1992
President and Chief Executive
Officer since September 20,
1993. Managing Director, Axess
Corporation since its inception
in 1991; prior thereto served as
president and chief operating
officer (1983-1991) of Sequa
Corporation, a diversified,
multinational, manufacturing
company formerly known as Sun
Chemical Corporation; and a
Director of USF&G Corp. a surety
company, and a Director of H&R
Block Corp., a personal services
company.
Leonard Bogner 56 President, Bogner Business Consultants, 1995
Inc. since formation in November
1994; prior thereto, Senior
Chemicals Research Department
Analyst, Prudential Securities
Brokerage Firm, from May 1986 to
October 1994.
Alexander F. Giacco 77 Managing Director, Axess Corporation 1993
since its inception in 1991; prior thereto
Chairman of the Board of Directors
of HIMONT Incorporated, a plastics
manufacturing company, since its
formation (1983-1991), and served
as CEO (1987-1990); and a Director
of Marvin & Palmer Associates,
Inc., a portfolio management firm.
Mr. Giacco is the father of Richard
J. Giacco.
Richard J. Giacco 44 Vice President and General Counsel, 1992
Axess Corporation since its
inception in 1991; prior thereto served as associate
general counsel for Safeguard Scientifics, Inc., a
computer software and electronics company since 1985.
Mr. Giacco is the son of Alexander F. Giacco.
Page 29 of 37
<PAGE>
Principal Occupation or Employment
During the Past Five Years and Office Director
Name Age (if any) Held in the Company Since
- -------- ----- ---------------------------------- ----------
R. Michael Hendricks 59 President, Axess Corporation since 1992
its inception in 1991; prior thereto
served as president and chief operating
officer of HIMONT Incorporated, a plastics
manufacturing company, since 1983.
Robert K. Prud'homme 49 Professor of Chemical Engineering at 1981
Princeton University since 1978;
Consultant to FMC, Inc., Dow
Chemical Company and DuPont, Inc.
Item 11. Executive Compensation
The following table sets forth a summary of all compensation paid or accrued
by the Company for services rendered during the 12-month periods ended
December 31, 1994, 1995, and 1996, to the Company's chief executive officer
and the four most highly compensated executives of the Company whose
aggregate salary and bonus exceeded $100,000 for the 12-month period ended
December 31, 1996 (the "Named Executive Officers"):
Executive Compensation
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
Awards
All
other Securities
Name and Salary Compensation Underlying
Principal Position Year ($) Bonus ($) (1) Options
- ------------------ ------ ----- ------ ------------ --------------- --------------
<S> <C> <C> <C> <C> <C>
Robert E. Davis (2) 1996 150,000 0 0 0
Chief Executive Officer 1995 150,000 0 0 0
and President 1994 150,000 0 0 0
Alan R. Eschbach 1996 161,313 0 3,289 28,000
Executive Vice 1995 153,948 4,996 3,150
President,Chief 1994 140,627 0 2,728
Operating Officer
Ronald F. Garritano 1996 144,687 0 2,889 18,000
Vice President, Technology 1995 140,658 3,293 2,809
1994 137,314 0 2,731
John C. Fuhrmeister 1996 124,363 0 2,430 18,000
Vice President, Finance & 1995 121,047 2,770 1,986
Administration 1994 98,434 0 2,086 18,000
Matthew Bilt 1996 115,582 0 1,425 9,400
Vice President, Human 1995 114,423 2,585 1,386
Resources 1994 102,537 0 1,830
- --------------------------------------
(1) Company contributions under the Savings and Investment Retirement
Plan.
(2) Mr. Davis became president and CEO of the Company on September 20,
1993. He was compensated by Axess Corporation through December 31, 1993.
Effective January 1, 1994, Rheometric and Axess verbally agreed that
Rheometric will pay to Axess a management fee, equal to $150,000 per
year, for said services. See Item 13. Certain Relationships and Related
Transactions.
Page 30 of 37
<PAGE>
Stock Option Grants
The following table contains information concerning the grant of stock
options under the 1996 Plan to the Named Executive Officers as of the end
of the last fiscal year.
</TABLE>
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year - Individual Grants
Number of
Securities Percent of
Underlying Total Options Grant
Options Granted to Exercise Date
Granted Employees in Price Expiration Present
Name (#) (1) Fiscal Year ($/Sh) (2) Date Value (3)
- --------- ------------- ----------------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Alan R. Eschbach 28,000 19.2% $1.75 06-20-06 $22,708
John C. Fuhrmeister 18,000 12.3% $1.75 06-20-06 $14,598
Ronald F. Garritano 18,000 12.3% $1.75 06-20-06 $14,498
Matthew Bilt 9,400 6.4% $1.75 06-20-06 $ 7,623
- ------------------------------
(1) Options become exercisable in four equal annual installments
beginning June 20, 1997.
(2) Based on the highest closing price of Common Stock reported on the
Nasdaq Stock Market on the day of grant, or if no sale of Stock had been
made on such day, on the next preceding day on which any such sale shall
have been made.
(3) The dollar amounts under this column are the result of calculations
based on the Black-Scholes option pricing model with the following: risk-
free interest rate of 6.67%, expected volatility of 50.48%, and an
expected life of four years.
Options Exercises and Holdings
The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of options during the last
fiscal year and unexercised options held as of the end of the last fiscal
year.
Aggregated Option Exercises in Last Fiscal year and FY-End Option Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at 12-31-96 (#) 12-31-96 ($) (2)
Exercisable Unexercisable Exercisable
Unexercisable
Alan R. Eschbach 0 28,000 0 $5,250
John C. Fuhrmeister 0 18,000 0 $3,375
Ronald F. Garritano 0 18,000 0 $3,375
Matthew Bilt 0 9,400 0 $1,763
______________
(1) Market value on the date of exercise of shares covered by options
exercised, less option exercise price.
(2) Market value of in-the-money shares on December 31, 1996 ($1.9375),
less option exercise price.
Stock Options
The Company currently has a Non-Qualified Stock Option Plan (the "1996
Plan"). The 1996 Plan was adopted by the Board of Directors in February
1996 and approved by the shareholders in June 1996. During the 12-month
period ended December 31, 1996, 145,900 stock options were granted.
Page 31 of 37
<PAGE>
Option Exercises and Year-End Value
To date, no options under the Option Plan have been exercised.
Compensation of Directors. Non-employee directors of the Company are
paid an annual retainer fee of $3,000, plus $1,000 per Board meeting
attended and reimbursement of their travel expenses. No fees are paid
for committee meetings or special telephone meetings. Certain non-
employee directors also provided professional services to the Company
from time to time during the year. See "Item 13. Certain Relationships
and Related Transactions."
Employment Agreements. The Company amended and restated written
employment agreements with Messrs. Eschbach, and Garritano in September
1996. In addition, the Company entered into written employment
agreements with Messrs. Bilt and Fuhrmeister. Under these agreements,
base annual salary is $149,100 for Mr. Eschbach, $131,082 for Mr.
Garritano, $110,250 for Mr. Fuhrmeister and $101,920 for Mr. Bilt, all
subject to discretionary increase by the Board of Directors. The
employment agreements have an initial term of one year and can be
continued from year to year thereafter.
Mr. M. Starita, father of Dr. Joseph M. Starita, past Chairman of the
Board, was party to a contract entered into in 1982, which entitled him
to be paid $15,000 per year for a period of 10 years following his
retirement. During fiscal year ended June 30, 1985, Mr. M. Starita
received an advance payment of $45,115 with respect to such post-
retirement payments. The amount so advanced will be deducted from the
post-retirement payments to be made to him. Mr. M. Starita's post-
retirement payments commenced during 1994.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information with respect to persons known
by the Company, as of March 3, 1997, to be the beneficial owners of more
than 5% of outstanding Common Stock.
Unless otherwise indicated, each such person has sole voting and
dispositive power over the shares indicated.
Name and Address No. of Shares Percent
---------------------------
Axess Corporation 10,076,257 76.6%
100 Interchange Blvd.
Newark, Delaware 19711-3549
Mary Diehl 723,236 5.5%
13 Beverly Dr.
Belle Mead, New Jersey
Dr. Joseph M. Starita 751,635 5.7%
20553 State Route 245
Marysville, OH 43040-0648
Security Ownership of Management
Rheometric Scientific, Inc. Common Stock Ownership
The following table sets forth information as of March 3, 1997 with
respect to shares of Common Stock beneficially owned by each director and
named executive officer (see "Item 11. Executive Compensation") of the
Company and by all directors and Named Executive Officers as a group.
Page 32 of 37
<PAGE>
No. of Shares
Name and Title Beneficially Owned (1) Percent
---------------------- ------------------------------ ---------
Robert E. Davis, Chief Executive Officer, Director 5,000 *
Leonard Bogner, Director -- --
Alexander F. Giacco, Director 35,000 (2) *
Richard J. Giacco, Director 3,000 (3) *
R. Michael Hendricks, Director 3,000 *
Robert K. Prud'homme, Director -- --
Matthew Bilt, Vice President Human Resources 2,000 *
Alan R. Eschbach, Executive Vice President 2,240 *
John C. Fuhrmeister, Vice President, Finance &
Administration -- --
Ronald F. Garritano, Vice President, Technology 3,735 *
All directors and executive officers as
a group (10 persons) 53,975 *
- -----------------------------------
* Denotes less than 1% of the outstanding shares of Common Stock.
(1) In accordance with Rule 13d-3 under the Securities Exchange Act
of 1934 ("1934 Act"), a person is deemed to be the beneficial owner,
for purposes of this table, of any shares of Common Stock (1) over
which he or she has or shares voting or investment power, or (2) of
which he or she has the right to acquire beneficial ownership at any
time within 60 days from March 3, 1997. "Voting power" is the power
to vote or direct the voting of shares and "investment power" is the
power to dispose or direct the disposition of shares. All persons
shown in the table above have sole voting and investment power, except
as otherwise indicated.
(2) Includes beneficial ownership of 10,000 shares held as custodian
for grandchildren.
(3) Includes beneficial ownership of 1,000 shares held in an
investment partnership for the benefit of his children and managed by
Mr. Giacco.
Axess Corporation Common Stock Ownership
The following table sets forth information as of March 3, 1997 with
respect to shares of Axess Corporation Common Stock beneficially owned by
directors and Named Executive Officers of Rheometric Scientific, Inc.:
No. of Shares
Name and Title Beneficially Owned (1) Percent
Robert E. Davis, Chief Executive Officer, Director 469,565 21.6%
Alexander F. Giacco, Director 469,565 (2) 21.6%
Richard J. Giacco, Director 46,957 2.6%
R. Michael Hendricks, Director 187,826 (3) 8.6%
(1) Axess Corporation is a privately held Delaware corporation
established in 1991. See note 1 above under "Rheometric Scientific,
Inc. Common Stock Ownership."
(2) 446,087 shares (20.3%) are owned by revocable trust. 23,478 shares
(1.3%) held by a company in which Mr. Giacco has sole voting power.
(3) Owned by revocable trust.
Page 33 of 37
<PAGE>
Item 13. Certain Relationships and Related Transactions
In 1994 the Company acquired the Polymer Laboratories Thermal Sciences
Business (the "PL Thermal Sciences Business") through a series of
transactions involving Axess. These transactions were fully described in
the Company's Proxy Statement dated October 26, 1994. As part of the
Acquisition, the Company and Axess entered into a series of term notes to
be used for working capital, and in April 1994, the Company acquired the
accounts receivables and inventory of United States Division of the
Thermal Sciences Division of Polymer Laboratories Ltd. See "Item 7
Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources" and Note 5 of Notes to
Consolidated Financial Statements.
In November 1994, the Company closed the transactions whereby it issued
stock to Axess in exchange for the contribution by Axess of all the
outstanding capital stock of its two wholly-owned subsidiaries and the
exercise by Axess of a convertible subordinated promissory note.
See also Note 2 of Notes to Consolidated Financial Statements.
These transactions represent the transfer by Axess to Rheometric of all
of the thermal sciences business recently acquired by Axess from Polymer
Labs. As a result, Axess owns 76.6% of the outstanding shares of the
Company's Common Stock.
Mr. Robert E. Davis became president and CEO of the Company on September
20, 1993. He was compensated by Axess Corporation through December 31,
1993. Effective January 1, 1994, the Company and Axess verbally agreed
that the Company will pay to Axess a management fee, equal to $150,000
per year. Included in accrued liabilities at December 31, 1996 is
$450,000 for said services.
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% at December 31, 1995).
In 1995, Axess provided $2,400,000 in additional working capital to the
Company in the form of subordinated debt. The subordinated debt was to
mature on April 30, 1996 and bore interest at 12% payable monthly. In
addition, Axess agreed that it would extend the maturities on all debt
obligations ($3,715,000 at December 31, 1994) of the Company to Axess
until April 30, 1996. At the same time, Axess also agreed to defer
interest payments on all debt obligations through September 30, 1995.
On September 30, 1995, Axess agreed that it would continue the deferral
of interest on all debt obligations, including the notes with the UK
subsidiary, totaling $6,115,000 through December 31, 1995.
On February 23, 1996, Axess and the Company consolidated all of the
outstanding notes described above, totaling $5,740,000, along with
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 6, 1996, the Company paid to Axess $375,000, in payment of the
Company's two UK Subsidiary notes, plus interest in the amount of
$27,417, for an aggregate amount of $402,417.
Page 34 of 37
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as a part of this Report.
(1) Financial statements - All financial statements
are set forth under Item 8, pages 12 through 14
Independent auditor's report on consolidated financial
statements
and on schedules is on page 11
(2) Financial statement schedules: none
The required information is inapplicable or the information is
presented in the financial statements or related notes
(3) Exhibits (numbered in accordance with Item 601 of Regulation
S-K).
3.1 Certificate of Incorporation of the Registrant, as Amended,
incorporated by reference to Exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q for the period ended March 31,
1995 (File No. 0-14617).
3.2 By-Laws of the Registrant, as Amended, incorporated by
reference to Exhibit 3.2 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993 (File No. 0-
14617).
4.1 Specimen Certificate representing Common Stock of the
Registrant, incorporated by reference to the exhibits to the
Company's Registration Statement on Form S-1, File No. 33-807
filed on October 10, 1985.
4.2 Common Stock Purchase Agreement between Axess
Corporation and the Company, incorporated by reference to the
exhibits to the Company's Proxy Statement relating to the
l994 Annual Meeting of Shareholders.
4.3 Warrant to Purchase 132,617 shares Common Stock of
Rheometric Scientific, Inc. issued to RSI (NJ) QRS 12-13,
Inc., incorporated by reference to Exhibit 1 to the Company's
Current Report on Form 8-K dated February 23, 1996 (File No.
0-14617).
4.4 Warrant to Purchase 331,543 shares of Common Stock of Rheometric
Scientific, Inc. issued to RSI (NJ) QRS 12-13, Inc., incorporated
by reference to Exhibit 2 to the Company's Current Report on Form
8-K dated February 23, 1996 (File No. 0-14617).
4.5 Warrant to Purchase 331,543 shares of Common Stock of Rheometric
Scientific, Inc. issued to NatWest Bank, N.A., incorporated by
reference to Exhibit 3 to the Company's Current Report on Form
8-K dated February 23, 1996 (File No. 0-14617).
*4.6 Rheometric Scientific, Inc. 1996 Stock Option Plan,
incorporated by reference to Exhibit 4.3 to the Company's
Quarterly Report on Form 10-Q for the period ended June 30,
1996 (File No. 0-14617).
*10.1 Amended and Restated Employment Agreement between Alan
R. Eschbach and the Company, incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the period ended September 30, 1996 (File No. 0-14617).
*10.2 Employment Agreement between John C. Fuhrmeister and the
Company, incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1996 (File No. 0-14617).
*10.3 Amended and Restated Employment Agreement between
Ronald F. Garritano and the Company, incorporated by
reference to Exhibit 10.3 to the Company's Quarterly Report
on Form 10-Q for the period ended September 30, 1996 (File
No. 0-14617).
Page 35 of 37
<PAGE>
*10.4 Employment Agreement between Matthew Bilt and the
Company, incorporated by reference to Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1996 (File No. 0-14617).
10.5 Loan and Security Agreement with Fleet Capital
Corporation dated February 23, 1996, incorporated by
reference to Exhibit 1 to the Company's Current Report on
Form 8-K dated February 23, 1996 (File No. 0-14617).
10.6 Lease Agreement by and between RSI (NJ) QRS 12-13, Inc., and
Rheometric Scientific, Inc. dated as of February 23, 1996,
incorporated by reference to Exhibit 5 to the Company's Current
Report on Form 8-K dated February 23, 1996 (File No. 0-14617).
10.7 Revolving Credit Facility Note - Fleet Capital Corporation,
incorporated by reference to Exhibit 6 to the Company's Current
Report on Form 8-K dated February 23, 1996 (File No. 0-14617).
10.8 Subordination Agreement between Axess Corporation and Fleet
Capital Corporation, incorporated by reference to Exhibit 10.26 to
the Company's Annual Report on Form 10-K dated December 31, 1995
(File No. 0- 14617).
10.9 Subordination Agreement between Axess Corporation and RSI (NJ)
QRS 12-13, Inc., incorporated by reference to Exhibit 10.27 to the
Company's Annual Report on Form 10-K dated December 31, 1995
(File No. 0-14617).
10.10 Amended and Restated Subordinated Unsecured Working Capital
Note - Axess Corporation, incorporated by reference to Exhibit
10.28 to the Company's Annual Report on Form 10-K dated
December 31, 1995 (File No. 0-14617).
10.11 Purchase Agreement NatWest Bank NA and Rheometric Scientific,
Inc., incorporated by reference to Exhibit 10.29 to the Company's
Annual Report on Form 10-K dated December 31, 1995
(File No. 0-14617).
10.12 First Amendment to Lease Agreement dated June 10, 1996 between
RSI (NJ) QRS 12-13, Inc. and Rheometric Scientific, Inc.
10.13 Second Amendment to Lease Agreement dated February 20, 1997
between RSI (NJ) QRS 12-13, Inc. and Rheometric Scientific, Inc.
10.14 Amendment Letter dated May 2, 1997 by Fleet Capital
Corporation, amending Sections 9.1(J) and 9.3(D) of the Loan and
Security Agreement dated February 23, 1996.
10.15 Amendment Letter dated May 6, 1997 by RSI (NJ) QRS-12-13,
Inc., amending paragraphs 7 and 8 of Exhibit D to the Lease
Agreement dated as of February 23, 1996.
22 Subsidiaries of the Registrant, incorporated by
reference to Exhibit 22 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994 (File No. 0-
14617).
* Management contract or compensatory plan or arrangements
(b) No report on Form 8-K was filed during the quarter ended
December 31, 1996.
(c) Exhibits to this Form 10-K are attached or incorporated by
reference as stated above.
Page 36 of 37
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS
ANNUAL REPORT ON FORM 10-K TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED.
RHEOMETRIC SCIENTIFIC, INC.
By: /s/ R E Davis
Date: May 15, 1997 Robert E. Davis,
Chairman, President and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF
THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
Signature Title Date
/s/ R E Davis Chairman, President, and May 15, 1997
Robert E. Davis Chief Executive Officer
(principal executive officer)
/s/ J C Fuhrmeister Vice President, Finance May 15, 1997
John C. Fuhrmeister and Administration; Chief
Financial Officer; and Assistant
Secretary (principal financial and
(principal accounting officer)
/s/ Leonard Bogner Director May 15, 1997
Leonard Bogner
/s/ Richard Giacco Director May 15, 1997
Richard J. Giacco
/s/ R. M. Hendricks Director May 15, 1997
R. Michael Hendricks
/s/ R K Prud'homme Director May 15,
1997
Robert K. Prud'homme
/s/ A. F. Giacco Director May 15, 1997
Alexander F. Giacco
Page 37 of 37
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the year
ended December 31, 1996 Form 10-K and is qualified in its entirety by reference
to such 10-K.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 486
<SECURITIES> 0
<RECEIVABLES> 15,823
<ALLOWANCES> 0
<INVENTORY> 9,418
<CURRENT-ASSETS> 26,491
<PP&E> 15,947
<DEPRECIATION> 8,844
<TOTAL-ASSETS> 36,045
<CURRENT-LIABILITIES> 17,789
<BONDS> 4,857
0
0
<COMMON> 13
<OTHER-SE> 5,363
<TOTAL-LIABILITY-AND-EQUITY> 36,045
<SALES> 41,115
<TOTAL-REVENUES> 41,115
<CGS> 22,240
<TOTAL-COSTS> 22,240
<OTHER-EXPENSES> 22,692
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,633
<INCOME-PRETAX> (6,259)
<INCOME-TAX> 88
<INCOME-CONTINUING> (6,347)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,347)
<EPS-PRIMARY> (0.48)
<EPS-DILUTED> (0.48)
</TABLE>
Exhibit 10.12
FIRST AMENDMENT TO LEASE AGREEMENT
THIS FIRST AMENDMENT TO LEASE AGREEMENT (this
"Amendment"), made as of the 10th day of June, 1996, by and
between RSI (NJ) QRS 12-13, INC., a New Jersey corporation
("Landlord"), and RHEOMETRIC SCIENTIFIC, INC., a New Jersey
corporation ("Tenant").
W I T N E S S E T H:
WHEREAS, Landlord and Tenant entered into a certain
Lease Agreement, dated as of February 23, 1996 (the "Lease"); and
WHEREAS, Landlord and Tenant have agreed to amend the
Lease as hereinafter set forth.
NOW, THEREFORE, for good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged,
Landlord and Tenant covenant and agree as follows:
1. Paragraph 3 of Exhibit E to the Lease (Financial
Covenants) is hereby deleted in its entirety and the following
Paragraph is inserted in lieu thereof:
3. Adjusted Funded Debt to Total Capitalization
Ratio. During the Term, Tenant shall maintain on a
consolidated basis an Adjusted Funded Debt to Total
Capitalization Ratio of not greater than .60 to 1.00.
2. The Lease is hereby amended by deleting in its
entirety the definition of EBITDA appearing in Paragraph 9 of
Exhibit E to the Lease (Financial Covenants) and inserting the
following definition in lieu thereof:
"EBITDA" means, for any period, the following each
calculated for such period: (a) Consolidated Net
Income (without deduction of income and franchise
taxes); plus (b) Consolidated Interest Expense paid or
accrued; plus (c) amortization and depreciation
deducted in determining Consolidated Net Income; plus
(d) without duplication, other non-cash charges
(excluding accruals in the normal course of business)
deducted in determining Consolidated Net Income; plus
(e) aggregate rent payments made pursuant to this Lease
and operating leases for such period, excluding rent
payments for automobile, machinery and equipment
leases, all as determined on a consolidated basis in
accordance with GAAP; minus (f) without duplication,
other non-cash credits increasing Consolidated Net
Income.
3. This Amendment shall be governed by and construed
in accordance with the laws of the State of New Jersey.
4. Except as specifically amended by this Amendment,
the terms and conditions of the Lease shall remain in full force
and effect and shall be binding upon Landlord and Tenant and
their respective successors and assigns.
5. This Amendment may be executed in any number of
counterparts and by the different parties hereto on separate
counterparts each of which, when so executed, shall be deemed an
original, but all such counterparts shall constitute but one and
the same instrument.
WITNESS the due execution hereof the day and year first above
written.
RSI (NJ) QRS 12-13, INC.
By: /s/ W. Sean Sovak
Title: Second Vice President
RHEOMETRIC SCIENTIFIC, INC.
By: /s/ J C Fuhrmeister
Title: V.P.
Exhibit 10.13
SECOND AMENDMENT TO LEASE AGREEMENT
THIS SECOND AMENDMENT TO LEASE AGREEMENT (this
"Amendment"), made as of the 20th day of February, 1997, by and
between RSI (NJ) QRS 12-13, INC., a New Jersey corporation
("Landlord"), and RHEOMETRIC SCIENTIFIC, INC., a New Jersey
corporation ("Tenant").
W I T N E S S E T H:
WHEREAS, Landlord and Tenant entered into a certain
Lease Agreement, dated as of February 23, 1996 (the "Lease");
WHEREAS, the Lease was amended pursuant to a certain
First Amendment to Lease Agreement, dated as of June 10, 1996
(the Lease, as amended by the First Amendment to Lease Agreement,
being hereinafter referred to as the ("Amended Lease"); and
WHEREAS, Landlord and Tenant have agreed to amend the
Amended Lease as hereinafter set forth.
NOW, THEREFORE, for good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged,
Landlord and Tenant covenant and agree as follows:
1. Paragraph 2 of the Amended Lease is hereby amended
by adding the following definition thereto:
"Second Refinancing Loan" shall mean the Loan that
refinances the First Refinancing Loan.
2. Paragraph 6 of the Amended Lease is hereby deleted
in its entirety and the following paragraph is inserted in lieu
thereof:
Basic Rent. From the date hereof to, but not
including, the date on which the First Refinancing Loan
is funded Tenant shall pay to Landlord, as initial
annual rent for the Leased Premises, the amounts
determined in accordance with Paragraph 1(a) of Exhibit
"D" hereto ("Initial Basic Rent"), such payment to
commence on the first day of March, 1996 and to
continue on the first day of each calendar month
thereafter until the date on which the First
Refinancing Loan is funded (each such day being an
"Initial Basic Rent Payment Date") . Commencing on the
first day of the first month following the date on
which the First Refinancing Loan is funded and
continuing on the first day of each month thereafter
until the date on which the Second Refinancing Loan is
funded (each such date being a "Subsequent Basic Rent
Payment Date"), Tenant shall pay to Landlord as annual
rent for the Leased Premises, the amounts determined in
accordance with Paragraphs 1(b)1 2, 3 and 4 of Exhibit
"D" ("Subsequent Basic Rent"). Commencing on the first
day of the first month following the date on which the
Second Refinancing Loan is funded and continuing on the
first day of each month thereafter for the balance of
the Term (each such date also being a "Subsequent Basic
Rent Payment Date"), Tenant shall pay to Landlord as
annual rent for the Leased Premises, the amounts
determined in accordance with Paragraphs 1(c), 2, 3 and
4 of Exhibit "D" (also "Subsequent Basic Rent"). Each
rental payment shall be made, at Landlord's sole
discretion, (a) to Landlord at its address set forth
above and/or to such one or more other Persons, at such
addresses and in such proportions as Landlord may
direct by fifteen (15) days' prior written notice to
Tenant (in which event Tenant shall give Landlord
notice of each such payment concurrent with the making
thereof), and (b) by wire transfer in Federal Funds or
check in immediately collectible funds. Pro rata
Initial Basic Rent for the period from the date hereof
through the last day of the month hereof shall be paid
on the date hereof. On the first Subsequent Basic Rent
Payment Date following the date on which the First
Refinancing Loan is funded the payment of Subsequent
Basic Rent shall be increased or decreased, as the case
may be, by the difference between the Initial Basic
Rent and the Subsequent Basic Rent for the period from
the date on which the First Refinancing Loan is funded
to but not including the first Subsequent Basic Rent
Payment Date and, if the first Subsequent Basic Rent
Payment Date would not have been an Initial Basic Rent
Payment Date, Tenant shall receive a credit against the
payment of Subsequent Basic Rent in an amount equal to
the pro rata Initial Basic Rent for the period from the
first Subsequent Basic Rent Payment Date to but not
including what would have been the next Initial Basic
Rent Payment Date. On the first Subsequent Basic Rent
Payment Date following the date on which the Second
Refinancing Loan is funded the payment of Subsequent
Basic Rent shall be increased or decreased, as the case
may be, by the difference between the Subsequent Basic
Rent and the Subsequent Basic Rent for the period from
the date on which the Second Refinancing Loan is funded
to but not including such Subsequent Basic Rent Payment
Date and, if such Subsequent Basic Rent Payment Date
would not have been a Subsequent Basic Rent Payment
Date, Tenant shall receive a credit against the payment
of Subsequent Basic Rent in an amount equal to the pro
rata Subsequent Basic Rent for the period from such
Subsequent Basic Rent Payment Date to but not including
what would have been the next Subsequent Basic Rent
Payment Date.
3. Exhibit D to the Amended Lease is hereby deleted
in its entirety and Exhibit D attached hereto is inserted in lieu
thereof.
4. Paragraph 31(a) of the Amended Lease is hereby
deleted in its entirety and the following paragraph is inserted
in lieu thereof:
Tenant agrees to pay, within three (3) business days of
written demand therefor, any reasonable cost, charge or
expense, in connection with the refinancing of the
Initial Loan or the First Refinancing Loan, including,
without limitation commitment fees and brokerage
commissions payable by Landlord.
5. This Amendment shall be governed by and construed
in accordance with the laws of the State of New Jersey.
6. Except as specifically amended by this Amendment,
the terms and conditions of the Amended Lease shall remain in
full force and effect and shall be binding upon Landlord and
Tenant and their respective successors and assigns.
7 This Amendment may be executed in any number of
counterparts and by the different parties hereto on separate
counterparts each of which, when so executed, shall be deemed an
original, but all such counterparts shall constitute but one and
the same instrument.
WITNESS the due execution hereof the day and year first above
written.
RSI (NJ) QRS 12-13, INC.
Bv: /s/ W. Sean Sovak
Title: Second V P
RHEOMETRIC SCIENTIFIC, INC.
By: /s/ J C Fuhrmeister
Title: V. P. / CFO
EXHIBIT D
BASIC RENT PAYMENTS
1. Basic Rent. Subject to the adjustments provided
for in Paragraphs 2, 3 and 4 below, Basic Rent payable in respect
of the Term shall be payable monthly in advance on each Basic
Rent Payment Date (provided that on March 1, 1997, Tenant shall
make a quarterly payment of Basic Rent, but Tenant shall
nevertheless make the monthly payments of Basic Rent on April 1,
1997, and May 1, 1997, which shall be credited against the last
two monthly installments of Basic Rent or refunded to Tenant upon
the termination of the Lease, unless an Event of Default has
occurred and is continuing):
(a) Commencing on the Commencement Date and
continuing on each Initial Rent Payment Date until, but not
including, the date on which the First Refinancing Loan is
funded, Initial Basic Rent shall be $1,180,000 per annum payable
in equal installments of $98,333.33.
(b) Commencing on and including the date on which
the First Refinancing Loan is funded until, but not including,
the date on which the Second Refinancing Loan is funded, annual
subsequent basic rent ("Subsequent Basic Rent") shall be
$805,360.52 per annum payable in equal installments of
$67,113.38. Subsequent Basic Rent shall be payable on each
Subsequent Basic Rent Payment Date and shall be subject to the
adjustments provided for in Paragraphs 2, 3 and 4 below.
(c) Commencing on and including the date on which
the Second Refinancing Loan is funded and for the balance of the
Term, annual subsequent basic rent (also "Subsequent Basic Rent")
shall be the sum of (i) the amount of the annual scheduled debt
service payments payable on the Second Refinancing Loan, (ii)
14.7% multiplied by the difference between $6,000,000 and the
initial principal amount of the Second Refinancing Loan, (iii)
$35,000 and (iv) if the Second Refinancing. Loan is funded after
the Basic Rent Adjustment Date (as hereinafter defined) occurring
in 1998, an amount equal to the prior adjustments to Subsequent
Basic Rent pursuant to Paragraphs 2, 3 and 4 below. Subsequent
Basic Rent shall be payable on each Subsequent Basic Rent Payment
Date and shall be subject to the adjustments provided for in
Paragraphs 2, 3 and 4 below.
2. CPI Adjustments to Basic Rent The Subsequent
Basic Rent shall be subject to adjustment, in the manner
hereinafter set forth, for increases in the CPI. If the CPI
shall be discontinued with no successor or comparable successor
index, Landlord and Tenant shall attempt to agree upon a
substitute index or formula, but if they are unable to so agree,
then the matter shall be determined by arbitration in accordance
with the rules of the American Arbitration Association then
prevailing in New York City. Any decision or award resulting
from such arbitration shall be final and binding upon Landlord
and Tenant and judgment thereon may be entered in any court of
competent jurisdiction. In no event will the Subsequent Basic
Rent as adjusted by the CPI adjustment be less than the
Subsequent Basic Rent in effect for the one year period
immediately preceding such adjustment.
3. Effective Dates of CPI Adjustments. Subsequent
Basic Rent shall not be adjusted to reflect changes in the CPI
until the first anniversary of the Basic Rent Payment Date on
which the first full installment of Subsequent Basic Rent shall
be due and payable under clause (b) of Paragraph 1 above (the
"First Full Subsequent Payment Date"). As of the first
anniversary of the First Full Subsequent Payment Date and
thereafter on each anniversary of the First Full Subsequent
Payment Date, Subsequent Basic Rent shall be adjusted to reflect
increases in the CPI during the most recent one year period
immediately preceding each of the foregoing dates, except that if
the First Full Subsequent Payment Date occurs more than one year
after the Commencement Date, the first adjustment to Subsequent
Basic Rent shall reflect increases in the CPI during the period
from the Commencement Date to the first anniversary of the First
Full Subsequent Payment Date (each such date being hereinafter
referred to as the "Basic Rent Adjustment Date").
4. Method of Adjustment for CPI Adjustment.
(a) As of each Basic Rent Adjustment Date when the
average CPI determined in clause (i) below exceeds the Beginning
CPI (as defined in this Paragraph 4(a)), the Subsequent Basic
Rent in effect immediately prior to the applicable Basic Rent
Adjustment Date shall be multiplied by a fraction, the numerator
of which shall be the difference between (i) the average CPI for
the three (3) most recent calendar months (the "Prior Months")
ending prior to such Basic Rent Adjustment Date for which the CPI
has been published on or before the forty-fifth (45th) day
preceding such Basic Rent Adjustment Date and (ii) the Beginning
CPI, and the denominator of which shall be the Beginning CPI.
The product of such multiplication shall be added to the
Subsequent Basic Rent in effect immediately prior to such Basic
Rent Adjustment Date. In no event, however, will the new
Subsequent Basic Rent exceed 103% of the Subsequent Basic Rent in
effect prior to the annual CPI adjustment (or 3% per annum if any
adjustment to Subsequent Basic Rent is for a period of more than
one (1) year). As used herein, "Beginning CPI" shall mean the
average CPI for the three (3) calendar months corresponding to
the Prior Months, but occurring one year earlier. If the average
CPI determined in clause (i) is the same or less than the
Beginning CPI, the Subsequent Basic Rent will remain the same for
the ensuing one year period.
(b) Effective as of a given Basic Rent Adjustment
Date, Subsequent Basic Rent payable under this Lease until the
next succeeding Basic Rent Adjustment Date shall be the
Subsequent Basic Rent in effect after the adjustment provided for
as of such Basic Rent Adjustment Date.
(c) Notice of the new annual Subsequent Basic Rent
shall be delivered to Tenant on or before the tenth (10th) day
preceding each Basic Rent Adjustment Date.
Exhibit 10.14
Robert M. Dailey
Vice President
Loan Officer
Fleet Capital
We Build Relationships Fleet Capital Corporation
200 Glastonbury Boulevard
Glastonbury, CT 06033
Tel 860-657-7721
Fax 860-657-7759
May 2, 1997
Mr. John Fuhrmeister
Rheometric Scientific
One Possumtown Road
Piscataway, NJ 08854
Dear John:
Reference is made to the Loan and Security Agreement dated
February 23, 1996 (the "Loan Agreement") by and between Fleet
Capital Corporation ("Lender") and Rheometric Scientific, Inc.
("Borrower"). Capitalized terms used but not defined herein
shall have the meanings given to them in the Loan Agreement.
It has been determined that Borrower failed to satisfy the
requirements of Secitons 9.1(J) and 9.3(D) of the Loan Agreement
for the period ended 12/31/96. Borrower has requested that
Lender waive the requirements of Sections 9.1(J) and 9.3(D) of
the Loan Agreement for such period. Lender has agreed to grant
Borrower's request.
In consideration of the foregoing, Borrower and Lender agree as
follows:
Lender hereby waives the requirements of Sections 9.1(J) and
9.3(D) of the Loan Agreement for the period ending December
31, 1996. Lender's waiver set forth in the preceding
sentence shall be effective for no other term or condition
of the Loan Agreement or for any other period.
In addition, the Loan Agreement is amended as follows:
Section 9.3(C)Cash Flow is hereby amended in its entirety as
follows:
Achieve Cash Flow of not less than the amount shown below
for the period corresponding thereto:
Period Amount
The three months ending March 31, 1997 ($750,000)
The six months ending June 30, 1997 ($300,000)
The nine months ending September 30, 1997 $ 0
The twelve months ending December 31, 1997 $ 0
The last day of each fiscal quarter there- $ 0
after for the prior four fiscal quarters.
Section 9.3(D) Consolidated Cash Flow is hereby amended in
its entirety as follows:
Achieve Consolidated Cash Flow of not less than the amount
shown below for the period corresponding thereto:
Period Amount
The three months ending March 31, 1997 ($900,000)
The six months ending June 30, 1997 ($500,000)
The nine months ending September 30, 1997 $250,000
The twelve months ending December 31, 1997 $750,000
The last day of each fiscal quarter there- $750,000
after for the prior four fiscal quarters.
Except as expressly set forth herein, all terms and conditions
set forth in the Loan Agreement shall remain in full force and
effect without modification, amendment, waiver or limitation of
any kind. The agreement contained herein shall be of no force or
effect until such time as Lender shall have received a fully
executed counterpart hereof.
It is requested that Borrower acknowledge its acceptance of the
foregoing by executing this letter in the space provided below
and returning it to the attention of the undersigned.
Very truly yours,
/s/ Robert Dailey
Robert M. Dailey
Vice President
Accepted and Agreed:
RHEOMETRIC SCIENTIFIC, INC.
By: /s/ J C Fuhrmeister
Title: V P / CFO 5/6/97
EXHIBIT 10.15
CPA:12 Corporate Property Associates 12 Incorporated
Carey Property Advisors
May 6, 1997
Via Telecopier and
Certified Mail, Return Receipt Requested
Mr. John C. Fuhrmeister
Vice President, Finance & Administration
Rheometric Scientific, Inc.
One Possumtown Road
Piscataway, New Jersey 08854
Re: Lease Agreement, dated as of February 23, 1996,
between RSI (NJ) QRS 12-13, Inc. and Rheometric
Scientific, Inc., as amended by First Amendment to
Lease Agreement, dated as of February 20, 1997 (as
amended, the "Lease")
Dear John:
Reference is made to the above-referenced Lease.
Capitalized terms used but not defined herein shall have the
respective meanings ascribed thereto in the Lease.
In consideration of the foregoing and other good and
valuable consideration, Landlord has agreed to amend the Lease as
follows:
1. Paragraph 7 of Exhibit D to the Lease will be amended as
follows:
7. Cash Flow. Tenant shall achieve Cash flow of not less
than the amount shown below for the period corresponding thereto:
Period Amount
The three months ending March 31, 1997 ($750,000)
The six months ending June 30, 1997 ($300,000)
The nine months ending September 30, 1997 $ 0
The twelve months ending December 31, 1997 $ 0
The last day of each fiscal quarter there- $ 0
after for the prior four fiscal quarters.
2. Paragraph 8 of the Exhibit D to the Amended Lease will
be amended as follows:
8. Consolidated Cash Flow. Tenant shall achieve
Consolidated Cash Flow of not less than the amount shown below
for the period corresponding thereto:
Period Amount
The three months ending March 31, 1997 ($900,000)
The six months ending June 30, 1997 ($500,000)
The nine months ending September 30, 1997 $250,000
The twelve months ending December 31, 1997 $750,000
The last day of each fiscal quarter there- $750,000
after for the prior four fiscal quarters.
Except as expressly set forth herein, all terms and
conditions set forth in the Lease shall remain in full force and
effect without modification, amendment, waiver or limitation of
any kind. The agreement contained herein shall be of no force or
effect until such time as Landlord shall have received a fully
executed counterpart hereof and evidence that Fleet Capital
Corporation ("Fleet") has agreed to the same amendments to the
Loan and Security Agreement, dated February 23, 1996, between
Fleet and Rheometric.
It is requested the Rheometric acknowledge its acceptance of
the foregoing by executing this letter in the space provided
below and returning it to the attention of the undersigned.
Very truly yours,
RSI (NJ) QRS 12-13, Inc.
By: /s/ W Sean Sovak
W. Sean Sovak
Vice President
Accepted and Agreed:
RHEOMETRIC SCIENTIFIC, INC.
By: /s/ J C Fuhrmeister
Title: V P / CFO 5/6/97
cc: Mr. Ted R. Heuston, Reed Smith Shaw & McClay
WSS/bmo
