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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
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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. Employer Identification 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 (732) 560-8550
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Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section12(g) of the Act:
Common Stock, No Par Value
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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 27, 2000: $22,337,000 (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 6,
2000 was 16,567,739.
DOCUMENTS OR PARTS THEREOF INCORPORATED BY REFERENCE: None
The Exhibit Index appears on page: 36
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Page 1 of 39
<PAGE>
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 manufacturing operation are located in Piscataway, New
Jersey. Sales offices are located in England, France, Germany, Italy 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 between 1991 and 1994, Axess Corporation ("Axess") acquired 76.6%
of the common stock of the Company. The Company changed its name to Rheometric
Scientific, Inc. in November 1994.
In 1994, the Company acquired the Polymer Laboratories Thermal Sciences Business
(the "PL Thermal Sciences Business") through a series of transactions involving
Axess. 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 1 of Notes to Consolidated Financial Statements.
During 1998 the Company assigned its lease of the United Kingdom facility to a
third party. The remaining employees in the United Kingdom are home based.
On August 12, 1998, the Company was notified by its then current lender that the
Company's Loan and Security Agreement (the "Prior Loan Agreement") would not be
extended beyond the expiration date of February 23, 1999. The Company then
commenced discussions with other prospective lenders to replace the credit
facility provided by the Prior Loan Agreement, without success.
Recent Developments
On March 6, 2000, pursuant to a Securities Purchase Agreement dated as of
February 17, 2000, by and between the Company, Axess and Andlinger Capital XXVI
LLC ("Andlinger Capital XXVI"), as amended (the "Purchase Agreement") and
certain related agreements, to provide Andlinger Capital XXVI with control of
the Company, Andlinger Capital XXVI purchased (i) 10,606,000 shares of newly
issued common stock of the Company (the "Investor Shares") and (ii) warrants to
purchase (x) an additional 2,000,000 shares of common stock of the Company at an
exercise price of $1.00 per share, exercisable at any time prior to March 6,
2007 (the "Investor A Warrants") and (y) an additional 4,000,000 shares of
common stock of the Company at an exercise price of $3.00 per share, exercisable
at any time prior to March 6, 2003 (the "Investor B Warrants," and collectively
with the Investor A Warrants, the "Investor Warrants"), for the aggregate
consideration of $1,825,000 (the "Purchase Price"). Upon consummation of this
transaction Andlinger Capital XXVI acquired the power to vote an aggregate of
16,606,000 shares of the Company's common stock (of which 6,000,000 shares are
attributable to the Investor Warrants) representing approximately 74% of the
issued and outstanding common stock of the Company (including as outstanding for
the purposes of determining such percentage the 6,000,000 shares issuable upon
exercise of the Investor Warrants). Prior to the purchase by Andlinger Capital
XXVI of the Investor Shares and the Investor Warrants, Axess agreed to
contribute 2,800,000 shares of common stock to the Company. See "Financing,
Liquidity and Capital Resources" under Item 7. "Management's Discussion and
Analysis of Financial Conditions and Results of Operations" for a discussion of
the Purchase Agreement and related transactions.
Page 2 of 39
<PAGE>
References and descriptions to the Registration Rights Agreement, the
Stockholders' Agreement and the Voting Agreement as set forth above, are
qualified in their entirety by reference to the full text of the Registration
Rights Agreement, the Stockholders' Agreement and the Voting Agreement, copies
of which are filed herewith as Exhibits 10.19, 10.20 and 10.21, respectively,
and are incorporated herein by reference.
Credit Facility
On February 19, 1999, the Prior Loan Agreement was amended and extended to May
21, 1999 and the facility was permanently reduced to $10,000,000. The inventory
sublimit would continue to decrease by $25,000 each week. The Prior Loan
Agreement was then extended for one-month periods through October 31, 1999.
On November 12, 1999 the Company's lender amended the Prior Loan Agreement
extending its term to November 30, 2000.
On March 6, 2000, in connection with the transactions under the Purchase
Agreement and with the support and assistance of Andlinger Capital XXVI, the
Company made a final payment under the Prior Loan Agreement and terminated such
agreement and obtained a credit facility with PNC Bank, National Association
("PNC Bank"). The new Revolving Credit, Term Loan and Security Agreement (the
"Loan Agreement") provides for a total facility of $14,500,000 of which
$13,000,000 is a working capital revolving credit facility with an initial
three-year term expiring on March 6, 2003. The amount of available credit is
determined by the level of certain eligible receivables and inventories. The
line of credit bears interest at the prime rate. Additionally the Loan Agreement
contains various covenants including a financial covenant that generally
requires the Company to maintain a fixed charge coverage ratio (as defined in
the Loan Agreement) of .7 to 1 for the three-month period ending June 30, 2000
and 1.1 to 1 thereafter.
The Loan Agreement also includes a term loan with PNC Bank in the amount of
$1,500,000 to be repaid in 35 equal monthly principal installments of $25,000
with any remaining balance due at maturity on March 6, 2003. This loan bears
interest at prime plus 1.5 percent which is due monthly. This Loan Agreement is
subject to customary event of default and acceleration provisions and is
collateralized by substantially all of the Company's assets.
Mettler
Effective May 10, 1999, the Company and Mettler Toledo GmbH (MT) revised their
original agreement dated December 21, 1994 whereas RSI agreed to commence
production of the RM180 and RM265 products within 30 days. A payment arrangement
was agreed to whereby the Company would make quarterly payments commencing on
May 15, 1999 and continuing through February 15, 2002. Interest is accrued on
the unpaid balance at 6% per annum. The Company anticipated total payments to be
approximately $1,400,000 over a three-year period. In addition, RSI also agreed
to buy the remaining finished stock, production stock, and accessories for an
initial sum of $200,000 and 15 monthly payments of $25,000 commencing June 30,
1999 and ending August 30, 2000. See Note 10 of Notes to Consolidated Financial
Statements.
On March 8, 2000 in conjunction with the Andlinger transaction, the Mettler debt
was settled for the amount of $1,212,296. This payment satisfied the entire debt
to Mettler including the amount related to the inventory. The inventory was
subsequently transferred from Mettler to the Company.
DESCRIPTION OF BUSINESS
Financial Information about Industry Segments
Effective December 31, 1998 the Company adopted SFAS 131 "Disclosures about
Segments of an Enterprise and Related Information." See Note 9. The Company's
three reportable segments are: Domestic, Europe and the Far East. The accounting
policies of the reportable segments are the same as those described in the
Summary of Significant Accounting Policies. The Company evaluates the
performance of its operating segments based on revenue performance and operating
results. Summarized financial information concerning the company's reportable
segments is shown in Note 9.
Page 3 of 39
<PAGE>
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, viscosity 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. All systems combine special sampling
technologies and multiple sensor technologies to provide various measurements
for research, development and product quality. The Company has developed a
proprietary software product used to operate most of its instruments and develop
sophisticated reporting for its customers. 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, as well as its own proprietary software
and reporting package "Orchestrator." 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 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.
Page 4 of 39
<PAGE>
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, 1999, the Company had approximately 143 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 9 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 12,500
square feet of space in Munchen and Aschaffenburg, 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
During 1999, there was no annual meeting held. The next shareholder's meeting is
scheduled for May or June of 2000.
Page 5 of 39
<PAGE>
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 OTC Bulletin Board Market under the
symbol "RHEM." From February 1 to April 14, 1998, the Company's Common Stock was
traded on the Nasdaq SmallCap Market under the symbol "RHEM." On April 14, 1998,
due to the expiration of an exception from the minimum bid price of the NASDAQ
SmallCap Market, the Company's common stock was moved to the OTC-Bulletin Board
Market. The table below presents the high and low sales prices for each quarter
for the years ended December 31, 1999 and 1998.
Since its initial public offering in December 1985, the Company has not paid any
cash dividends. At March 19, 2000, there were approximately 168 holders of
record of the Company's Common Stock. In addition, there were approximately 485
beneficial holders of Common Stock held in street name.
12 Months Ended December 31,
-------------------------------------
1999 1998
QUARTER ENDED High Low High Low
March 31 $.53 $.19 $1.13 $0.75
June 30 .34 .17 0.98 0.25
September 30 .44 .19 0.72 0.30
December 31 .66 .25 0.56 0.13
Item 6. Selected Financial Data
(In thousands of dollars, except per share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
12 Months Ended December 31,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
Sales $28,363 $30,608 $37,539 $41,115 $41,244
Restructuring expense (198) 940 -- --
Net (loss) earnings (5,138) (1,144) (2,329) (6,347) 391
Basic and diluted (loss)
earnings per (0.39) (0.09) (0.18) (0.48) 0.03
Share
Total assets 23,983 28,534 35,434 36,045 0,093
Long-term debt 12,731 10,901 11,055 11,361 10,973
</TABLE>
Page 6 of 39
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
12 Months Ended December 31, 1999 vs. 12 Months Ended December 31, 1998
In the year ended December 31, 1999, the Company achieved sales of $28,363,000
compared to $30,608,000 for the year ended December 31, 1998. Japanese sales
remained flat, while domestic and European sales decreased 7.1% and 14.8%,
respectively. Sales for 1999 were favorably affected by foreign exchange of
$448,000 compared to 1998. Export sales remained at 47% of consolidated sales,
compared to 1998. Gross profit for the year ended December 31, 1999 was 38.5% of
sales, compared to 43.8% for the same period in 1998. Gross profit in 1999
includes a charge for obsolete and slow moving product lines of $1,840,000,
compared to $738,000 in 1998. The increase in 1999 relates primarily to
management's decision to scrap certain thermal business inventories based on the
continued decline in their utilization.
Operating expenses of $13,582,000 increased by $1,269,000 for the period ended
December 31, 1999, compared to the corresponding period in 1998. Included in the
1998 amount is a reversal of $198,000 relating to the European restructuring
from 1997. Excluding this one-time item, the increase for the period was
$1,071,000. $285,000 of the increase relates to bank fees for extensions of its
line of credit and charges for looking for new financing. Sales and marketing
expenses increased by $374,000 as the company redirects resources to these
departments. Exchange difference in 1999 versus 1998 on foreign expenses
accounted for approximately $137,000 of the increase.
Interest expense decreased $179,000 for the period ended December 31, 1999
compared to the corresponding period in 1998. This decrease is due to carrying
lower loan balances throughout the period.
Backlog as of December 31, 1999 and 1998 was $2,000,000 and $2,335,000,
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 a reserve for
such 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.
12 Months Ended December 31, 1998 vs. 12 Months Ended December 31, 1997
In the year ended December 31, 1998, the Company achieved sales of $30,608,000
compared to $37,539,000 for the year ended December 31, 1997. Japanese sales
decreased by 26.8% while domestic and European sales decreased 3.1% and 34.2%,
respectively. Sales for 1998 were adversely affected by foreign exchange of
$450,000 compared to 1997. International and export sales decreased to 47% of
consolidated sales from 56% in 1997. Gross profit for the year ended December
31, 1998 was 43.8% of sales, compared to 44.8% for the same period in 1997.
Gross profit in 1997 includes a one-time charge for obsolescence expense of
$600,000. See Note 1. Without this charge, gross profit for 1997 would have been
46.4% of sales.
Operating expenses of $12,313,000 decreased by $3,863,000 for the period ended
December 31, 1998, compared to the corresponding period in 1997. Included in the
1997 amount is $940,000 relating to the European restructuring, while $198,000
of this was reversed in 1998. Excluding these one-time items, the decrease over
the period was $2,725,000. This decrease is largely due to the Company's
aggressive expense reduction efforts in the U.S. and the U.K. Exchange
difference in 1998 versus 1997 on foreign expenses accounted for approximately
$140,000 of the decrease.
Interest expense decreased $62,000 for the period ended December 31, 1998
compared to the corresponding period in 1997. This decrease is due to carrying
lower loan balances throughout the period.
Page 7 of 39
<PAGE>
Net loss for year ended December 31, 1998 was $1,144,000 compared to net loss of
$2,329,000 in 1997. The 1997 results include a one-time charge of $940,000
related to restructuring and a one-time charge for obsolescence expense of
$600,000. In 1998 $198,000 of the restructuring reserve was reversed. In
addition, net income in 1998 was favorably affected by a decrease in operating
expenses of $2,725,000, a decrease in net interest expense of $62,000, and a
currency gain of $161,000 in 1998 compared to a currency loss of $437,000 in
1997.
Backlog as of December 31, 1998 and 1997 was $2,335,000 and $3,532,000,
respectively.
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 a reserve for
such 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.
Financing, Liquidity, and Capital Resources
On March 6, 2000 (the "Closing Date"), pursuant to a Securities Purchase
Agreement, dated as of February 17, 2000, by and between the Company, Axess, and
Andlinger Capital XXVI LLC ("Andlinger Capital XXVI"), as amended (the "Purchase
Agreement") and certain related agreements, Andlinger Capital XXVI purchased (i)
10,606,000 shares of newly issued common stock of the Company (the "Investor
Shares") and (ii) warrants to purchase (x) an additional 2,000,000 shares of
common stock of the Company at an exercise price of $1.00 per share, exercisable
at any time prior to March 6, 2007 (the "Investor A Warrants") and (y) an
additional 4,000,000 shares of common stock of the Company at an exercise price
of $3.00 per share, exercisable at any time prior to March 6, 2003 (the
"Investor B Warrants," and collectively with the Investor A Warrants, the
"Investor Warrants"), for the aggregate consideration of $1,825,000 (the
"Purchase Price"). Upon consummation of this transaction Andlinger Capital XXVI
acquired beneficial ownership (as determined under the rules of the Securities
and Exchange Commission) of an aggregate of 16,606,000 shares of the Company's
common stock (of which 6,000,000 shares are attributable to the Investor
Warrants) representing approximately 74% of the issued and outstanding common
stock of the Company (including as outstanding for the purposes of determining
such percentage the 6,000,000 shares issuable upon exercise of the Investor
Warrants). Prior to the purchase by Andlinger Capital XXVI of the Investor
Shares and the Investor Warrants, Axess agreed to contribute 2,800,000 shares of
common stock to the Company.
The Purchase Agreement contemplates that the Company will submit to its
stockholders for approval (the "Stockholder Approval") proposals to (i)
reincorporate the Company from New Jersey to Delaware (the "Reincorporation");
(ii) increase the authorized number of shares of capital stock to 49,000,000
shares of common stock and 1,000,000 shares of preferred stock; and (iii)
authorize the issuance of the preferred stock as contemplated in the Purchase
Agreement. In order to effect the intent of the parties to the Purchase
Agreement that the Company issue the Investor Shares on the closing date, at the
closing of the Purchase Agreement Axess contributed 4,400,000 shares of common
stock to the Company, in exchange for the Company's agreement to reissue to
Axess 4,400,000 shares of common stock (the "Axess Reissue Shares") subject to
the Stockholder Approval, and Reincorporation and amendment of the Company's
certificate of incorporation to authorize the issuance of such shares.
Prior to the closing under the Purchase Agreement, the Company had been indebted
to Axess in the principal amount of $8,205,907, plus interest thereon from
January 1, 1999 (all indebtedness of the Company due Axess is referred to herein
as the "Axess Debt"). Upon the closing, Axess cancelled the Axess Debt in
exchange for (x) the payment by the Company to Axess of $3,500,000 in cash; (y)
the issuance to Axess of a promissory note in the principal amount of $1,000,000
payable upon the sale of one of the Company's product lines and (z) the issuance
to Axess, of a warrant (the "Preferred Stock Warrant" and collectively with the
Investor Warrants, the "Warrants") to purchase 1,000 shares of the Company's
non-voting convertible redeemable preferred stock to be issued, subject to
Stockholder Approval, pursuant to an amendment to the certificate of
incorporation of the Company.
Page 8 of 39
<PAGE>
On March 6, 2000, in connection with the transactions under the Purchase
Agreement and with the support and assistance of Andlinger Capital XXVI, the
Company made a final payment under the Prior Loan Agreement and terminated such
agreement and obtained a credit facility with PNC Bank. The new Loan Agreement
provides for a total facility of $14,500,000 of which $13,000,000 is a working
capital revolving credit facility with an initial three-year term expiring on
March 6, 2003. The amount of available credit is determined by the level of
certain eligible receivables and inventories. The line of credit bears interest
at the prime rate. Additionally the Loan Agreement contains various covenants
including a financial covenant that generally requires the Company to maintain a
fixed charge coverage ratio (as defined in the Loan Agreement) of .7 to 1 for
the three-month period ending June 30, 2000 and 1.1 to 1 thereafter.
The Loan Agreement also includes a term loan with PNC Bank in the amount of
$1,500,000 to be repaid in 35 equal monthly principal installments of $25,000
with any remaining balance due at maturity on March 6, 2003. This loan bears
interest at prime plus 1.5 percent which is due monthly. The Loan Agreement is
subject to customary event of default and acceleration provisions and is
collateralized by substantially all of the Company's assets.
Management believes that the cash generated from operations and funds available
under its new Loan Agreement should be sufficient to meet the Company's working
capital needs in 2000.
Cash Flows from Operations
Net cash provided by operating activities in the fiscal year ended December 31,
1999 was $828,000. This compares to net cash provided by operating activities in
the fiscal year ended December 31, 1998 of $4,109,000 and net cash used in
operating activities in fiscal year ended 1997 of $2,924,000. The positive cash
flow from operations in 1999 was comprised primarily of a decrease in
inventories of $1,898,000. There was also an increase in accounts
payable/accruals and payable to affilliate of $542,000 and $1,020,000
respectively. This positive cash flow is offset by an increase in receivables of
$488,000, and a net loss of $5,138,000. Also contributing to this positive cash
flow is non-cash depreciation and amortization charges of $890,000 and an
increase in the inventory reserve of $1,840,000. A large portion of the reserve
increase is to address obsolescence resulting from continued decline of the
Company's thermal business.
Cash Flows from Investing
The Company made capital expenditures of $115,000, $144,000, and $158,000
respectively, in the fiscal years ended December 31, 1999, 1998 and 1997. The
Company currently has no major capital commitments.
Cash Flows from Financing
Net cash used in financing activities in the fiscal year ended December 31,1999
was $1,034,000. This was due mainly to a decrease in short-term borrowings of
$893,000 and repayment of the term loan and lease obligation of $244,000. This
compares to net cash used in financing activities in the fiscal year ended
December 31, 1998 of $3,743,000 and net cash provided by financing activities in
1997 of $2,904,000. Additionally in 1999, there was an increase of borrowing
against receivables of $103,000.
Total borrowings with foreign and domestic banks at December 31, 1999 were
$4,789,000 with remaining availability of approximately $736,000.
See Statement of Cash Flows for further details of the Company's cash flows.
See Notes 3 and 4 of the Notes to Consolidated Financial Statements for
additional information.
Year 2000 Issues
Certain computer systems and programs were designed to identify the year with
two digits. Concern existed prior to 2000 that such systems might read dates in
the year 2000 and thereafter as if those dates represent the year 1900 or
thereafter. As a result, errors would occur because computers would not
distinguish between 1900 and 2000. All mainframe and personal computers, and
related system, application code and process control systems using embedded chip
technology could have been adversely affected by the use of two digit
definitions for the
Page 9 of 39
<PAGE>
identification of the year component of date information. If such adverse
effects were not successfully remediated before December 31, 1999, there could
have been an interruption in, or failure of, certain normal business activities
or operations with attendant lost revenues and adverse customer relation
impacts.
The Company began a project in 1997 to remediate the Year 2000 computer problems
affecting all aspects of its operations. As a result of the project, the Company
did not experience any interruptions in or failure of normal business activities
or operations on January 1, 2000 or thereafter as a result of Year 2000 issues.
Page 10 of 39
<PAGE>
Item 8. Financial Statements and Supplementary Data
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders of
Rheometric Scientific, Inc. and Subsidiaries
We have audited the accompanying balance sheet of Rheometric
Scientific, Inc. and Subsidiaries as of December 31, 1999, and the related
consolidated statements of operations, shareholders' equity (deficiency) and
comprehensive loss, and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Rheometric
Scientific, Inc. and Subsidiaries as of December 31, 1999, and the results of
their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
MAHONEY COHEN & COMPANY, CPA, P.C.
New York, New York
March 24, 2000
Page 11 of 39
<PAGE>
PricewaterhouseCoopers L.L.P.
Report of Independent Accountants
To the Board of Directors and
Shareholders of Rheometric Scientific, Inc.:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, shareholders' equity and
comprehensive loss, and cash flows present fairly, in all material respects, the
financial position of Rheometric Scientific, Inc. and its subsidiaries at
December 31, 1998, and the results of their operations and their cash flows for
each of the two years in the period ended December 31, 1998, in conformity with
accounting principles generally accepted in the United States. 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 of these statements in accordance with
auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
Philadelphia, Pennsylvania
December 29, 1999
Page 12 of 39
<PAGE>
RHEOMETRIC SCIENTIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C> <C>
(In thousands) December 31,
1999 1998
---- ----
ASSETS
Current Assets
Cash $ 265 $ 488
Receivables - less allowance for doubtful accounts of $216 and
$407 at December 31, 1999 and 1998 10,340 9,817
Inventories, net
Finished goods 1,596 3,491
Work-in-process 773 1,491
Assembled components, materials and parts 4,172 5,648
----- --------
6,541 10,630
Prepaid expenses and other assets 705 990
--- --------
Total current assets 17,851 21,925
------ -------
Property, plant and equipment 15,638 15,370
Less accumulated depreciation and amortization 10,051 9,524
------ -----
Property, plant and equipment, net 5,587 5,846
----- -----
Other asset 545 763
--- ---------
Total Assets $23,983 $28,534
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities
Short-term bank borrowings $4,789 $ 5,718
Current maturities of long-term debt 190 242
Accounts payable 1,980 2,381
Borrowings against accounts receivable 1,064 874
Accrued liabilities 4,397 3,267
----- --------
Total current liabilities 12,420 12,482
------ -------
Long-term debt 4,525 4,643
Payable to affiliate 1,020 1,948
Long-term debt - affiliate 8,206 6,258
Long-term liability - Mettler 696 1,336
Other long-term liabilities 103 102
--- ---------
Total liabilities 26,970 26,769
------ -------
Commitments and Contingencies (Note 8)
Shareholders' Equity (Deficiency)
Common stock, stated value of $.001,
Authorized 20,000 shares; issued and outstanding
13,162 shares at December 31, 1999 and 1998 13 13
Additional paid-in capital 25,690 25,523
Accumulated deficit (28,829) (23,691)
Accumulated other comprehensive income
($219 and $48 in 1999 and 1998, respectively) 139 (80)
--- -----------
Total shareholders' equity (deficiency) (2,987) 1,765
------- -----------
Total Liabilities and Shareholders' Equity $23,983 $28,534
======= ===========
</TABLE>
See Notes to Consolidated Financial Statements.
Page 13 of 39
<PAGE>
RHEOMETRIC SCIENTIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
12 Months Ended December 31,
1999 1998 1997
---- ---- ----
Sales $28,363 $30,608 $37,539
Cost of sales 17,448 17,196 20,728
------ ------ ------
Gross profit 10,915 13,412 16,811
------ ------ ------
Marketing and selling expenses 8,896 8,522 9,122
Research and development expenses 2,127 2,201 3,145
General and administrative expenses 2,379 1,551 2,597
Restructuring expense -- (198) 940
Goodwill amortization -- -- 96
Intangible amortization 180 237 276
--- --- -----
13,582 12,313 16,176
------ ------ ------
Operating income (loss) (2,667) 1,099 635
Interest expense (1,085) (1,378) (1,523)
Interest expense - affiliate (1,020) (906) (835)
Interest income -- -- 12
Foreign currency income (loss) (123) 161 (437)
--------- ------- ---------
Loss before income taxes (4,895) (1,024) (2,148)
Income taxes 243 120 181
---------- ---------- ----------
Net loss $ (5,138) $ (1,144) $ (2,329)
========= ========= =========
Net loss per share
Basic $(0.39) $(0.09) $(0.18)
======= ======= =======
Diluted $(0.39) $(0.09) $(0.18)
======= ======= =======
Average number of shares outstanding
Basic 13,162 13,162 13,162
====== ====== ======
Diluted 13,162 13,162 13,162
====== ====== ======
</TABLE>
See Notes to Consolidated Financial Statements.
Page 14 of 39
<PAGE>
RHEOMETRIC SCIENTIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(in thousands) 12 Months Ended December 31,
1999 1998 1997
Cash Flows from Operating Activities:
Net loss $(5,138) $(1,144) $(2,329)
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
Depreciation and amortization of plant and equipment 710 750 786
Amortization of goodwill -- -- 96
Provision for slow moving inventory 1,840 738 819
Amortization of intangibles 180 237 276
Loss on sale/retirement of property, plant and equipment 4 91 --
Warrants issued for services 167 -- --
Unrealized currency (gain) loss (145) (137) 418
Changes in assets and liabilities:
Receivables (488) 5,711 (224)
Inventories 1,898 700 (3,606)
Prepaid expenses and other assets 253 (149) (78)
Accounts payable and accrued liabilities 542 (2,829) (330)
Payable to affiliate 1,020 884 271
Other assets 60 153 59
Restructuring reserve -- (940) 940
Other non-current liabilities 1 102 --
Other non-current liability - Mettler (76) (58) (22)
-------- ---------- ----------
Net cash provided by (used in) operating activities 828 4,109 (2,924)
Cash Flows from Investing Activities:
Purchases of property, plant and equipment (115) (144) (158)
--------- --------- ---------
Cash Flows from Financing Activities:
Net repayment under line of credit agreement (893) (3,349) --
(Repayments)/borrowings against accounts receivable 103 (196) 1,018
Net borrowings under line of credit agreements -- -- 1,214
Repayment of long-term debt/lease obligation (243) (229) (189)
Proceeds from warrants -- 31 --
Mortgage participation -- -- 861
------ --------- ---------
Net cash (used in) provided by financing activities (1,034) (3,743) 2,904
Effect of Exchange Rate Changes on Cash 98 (31) (11)
------- --------- ---------
Net increase (decrease) in cash (223) 191 (189)
Cash at beginning of year 488 297 486
------- --------- ---------
Cash at end of year $ 265 $ 488 $ 297
======= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
Page 15 of 39
<PAGE>
RHEOMETRIC SCIENTIFIC, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Accumulated
Additional Other Total
(In thousands) Common Stock Paid-in Accumulated Comprehensive Shareholders'
Shares Amount Capital Deficit Income/(Loss) Equity
------ ------ ------- ----------- -------------- -------------
Balance at December 31, 1996 13,162 $ 13 $ 25,492 $ (20,218) $ 89 $ 5,376
------ --- ------- -------- ---------- --------
Net loss -- -- -- (2,329) -- (2,329)
Currency translation adjustment -- -- -- -- (217) (217)
Comprehensive loss -- -- -- -- -- (2,546)
- ---------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 13,162 13 25,492 (22,547) (128) 2,830
------ --- ------- ------- --------- --------
Net loss -- -- -- (1,144) -- (1,144)
Currency translation adjustment -- -- -- -- 48 48
Comprehensive loss -- -- -- -- -- (1,096)
Warrants issued -- -- 31 -- -- 31
- --------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 13,162 13 25,523 (23,691) (80) 1,765
------ -- ------ ------ ---------- --------
Net loss -- -- -- (5,138) -- (5,138)
Currency translation adjustment -- -- -- -- 219 219
Comprehensive loss -- -- -- -- -- (4,919)
Warrants issued for services -- -- 167 -- -- 167
- --------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 13,162 $ 13 $25,690 $(28,829) $ 139 $ (2,987)
====== == ====== ======= ====== =========
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, 1999.
On March 6, 2000, pursuant to a Securities Purchase Agreement, dated as of
February 17, 2000, by and between the Company, Axess and Andlinger Capital XXVI
LLC ("Andlinger Capital XXVI") , as amended (the "Purchase Agreement") and
certain related agreements, Andlinger Capital XXVI purchased (i) 10,606,000
shares of newly issued common stock of the Company (the "Investor Shares") and
(ii) warrants to purchase (x) an additional 2,000,000 shares of common stock of
the Company at an exercise price of $1.00 per share, exercisable at any time
prior to March 6, 2007 (the "Investor A Warrants") and (y) an additional
4,000,000 shares of common stock of the Company at an exercise price of $3.00
per share, exercisable at any time prior to March 6, 2003 (the "Investor B
Warrants," and collectively with the Investor A Warrants, the "Investor
Warrants"), for the aggregate consideration of $1,825,000 (the "Purchase
Price"). Upon consummation of this transaction Andlinger Capital XXVI acquired
the power to vote an aggregate of 16,606,000 shares of the Company's common
stock (of which 6,000,000 shares are attributable to the Investor Warrants)
representing approximately 74% of the issued and outstanding common stock of the
Company (including as outstanding for the purposes of determining such
percentage the 6,000,000 shares issuable upon exercise of the Investor
Warrants). Prior to the purchase by Andlinger Capital XXVI of the Investor
Shares and the Investor Warrants, Axess agreed to contribute 2,800,000 shares of
common stock to the Company.
Page 16 of 39
<PAGE>
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, 1999, 1998 and 1997 were $3,473,000,
$3,965,000, and $3,397,000, respectively. Deferred revenue relating to
maintenance agreements amounted to $780,000 and $766,000 at December 31, 1999
and 1998 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, 1999 and 1998 the Company had a reserve of
approximately $3,155,000 and $1,315,000 respectively, for excess and obsolete
inventory.
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:
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 $357,000 as of December 31, 1999 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.)
Page 17 of 39
<PAGE>
Total accumulated amortization of capitalized software for the years ended
December 31, 1999 and 1998 was $688,000 and $654,000 respectively. The
unamortized balance of capitalized software development costs totaled $0 in 1999
and $34,000 in 1998, which is amortized using a three-year useful life.
Amortization expense relating to capitalized software development costs for the
years ended December 31, 1999, 1998 and 1997 totaled $34,000, $151,000 and
$146,000, respectively.
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. The
Company's foreign currency exposure policy is to not enter into foreign currency
derivative instruments.
Research and Development Costs
Research and development costs are charged to expense as incurred.
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 provided by operating activities for the years ended December 31, 1999
and 1998 reflects cash payments for interest of $2,071,000 and $1,281,000,
respectively, and income taxes of $15,700 and $169,000, respectively. Net cash
used in operating activities for the year ended December 31, 1997 reflects cash
payments for interest of $2,045,000 and income taxes of $49,200. The bad debt
expense for the years ended December 31, 1999, 1998 and 1997 was 376,900,
$262,400, and $108,200 respectively.
Fair Value of Financial Instruments
The estimated fair value of the Company's debt instruments as of December 31,
1999 and 1998 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.
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 institutions. The Company does not
require collateral from its customers. The accounts receivables 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.
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.
Page 18 of 39
<PAGE>
(Loss) Earnings Per Share
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"). SFAS 128 establishes standards for computing and presenting earnings per
share ("EPS") and supersedes APB Opinion No. 15, "Earnings Per Share" ("Opinion
15"). SFAS 128 replaces the presentation of primary EPS with a presentation of
basic EPS which excludes dilution and is computed by dividing income available
to common stockholders by the weighted-average number of common shares
outstanding during the period. Dilution reflects the potential dilution that
could occur if outstanding options and warrants were exercised.
Other Matters
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income,"
and No. 131, "Disclosures about Segments of an Enterprise and Related
Information," for fiscal years beginning after December 15, 1997. The provisions
of SFAS No. 130 establish standards for reporting and display of comprehensive
income and its components in the financial statements. This statement requires
all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in the financial statements and
displayed with the same prominence as other financial statements. The provisions
of SFAS No. 131 establish standards for the way that enterprises report
information about operating segments in annual financial statements and require
that selected information about operating segments in interim financial
statements be reported. It also establishes standards for related disclosure
about products and services, geographic areas and major customers. See
Consolidated Statements of Shareholders' Equity and Comprehensive Loss and Note
9.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," for fiscal years beginning after June 15,
2000. The provisions of SFAS No. 133 require all derivatives to be recognized in
the statement of financial position as either assets or liabilities and measured
at fair value. In addition, all hedging relationships must be designated,
reassessed and documented pursuant to the provisions of SFAS 133. At present
time, the Company is reviewing the potential impact of this standard.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101) Revenue Recognition in Financial
Statements. The SAB summarizes certain of the staff's views in applying
generally accepted accounting principles to revenue recognition.
The Company is currently assessing the impact, if any, that SAB will have on its
revenue recognition policy. The Company currently recognizes revenue upon
shipment. The SAB could require the Company to recognize revenue upon
installation. Any change resulting from the application of the accounting
described in the SAB will be reported as a change in accounting principle in
accordance with APB Opinion No. 20 "Accounting Changes", in 2000.
2. Property, Plant and Equipment
Property, plant and equipment as of December 31 consisted of the following:
1999 1998
---- ----
Assets under direct financing lease $ 6,465,000 $ 6,391,000
Machinery and equipment 2,798,000 2,382,000
Office equipment 5,294,000 5,509,000
Transportation equipment 80,000 100,000
Leasehold improvements 148,000 135,000
Assets under capital lease 853,000 853,000
----------- -----------
$15,638,000 $15,370,000
=========== ===========
Page 19 of 39
<PAGE>
On February 23, 1996, the Company entered into a sale/leaseback arrangement
whereby the Company sold its 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 was written down to the amount of the proceeds. The
asset is being amortized over the life of the lease on a straight-line basis.
Accumulated amortization on the asset under direct financing was $1,623,000 and
$1,190,000 as of December 31,1999 and 1998, respectively.
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.
3. Long-Term Debt and Short-Term Borrowings
Long-term debt as of December 31 consisted of the following:
1999 1998
---- ----
Obligation under sale/leaseback
payable through February 2011, with interest
imputed at a rate of 13.9% for 1999 and
1998 4,715,000 $4,806,000
Note payable through November
1999 with interest at 9.54% -- 79,000
--------- ------------
4,715,000 4,885,000
Less current maturities 190,000 242,000
------------- -------------
4,525,000 $4,643,000
============= =============
On March 7, 2000 in conjunction with the Andlinger transaction, the Company
obtained a term loan in the amount of $1,500,000 that will be repaid in 35 equal
monthly principal installments of $25,000 with any remaining balance due at
maturity on March 7, 2003.
This loan bears interest at prime plus 1.5 % which is due monthly.
Short-Term Borrowings
On February 23, 1996, simultaneously with the consummation of the sale/leaseback
arrangement, the Company entered into the Loan and Security Agreement (the
"Prior Loan Agreement"), which provided 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 was determined by the level
of certain eligible receivables and inventory. The Prior Loan Agreement also
provided certain letter of credit facilities for operations of the Company's
foreign subsidiaries. The Company's obligations under the Prior Loan Agreement
were collateralized by substantially all of the Company's assets.
On March 31, 1998, the Company's bank amended the Prior Loan Agreement with
regards to the Facility limit and inventory sublimit. Effective April 1, 1998
and on the opening of business on Wednesday of each consecutive week thereafter,
both the facility limit and inventory sublimit will decreased by $25,000. As of
December 31, 1998, the Facility limit was $10,500,000 and the inventory sublimit
is $5,000,000.
Page 20 of 39
<PAGE>
The Company's Prior Loan Agreement expired on February 23, 1999, and the lender
notified the Company in August 1998 that the Loan Agreement would not be
extended beyond the expiration date. Following that notification, the Company
commenced discussions with other prospective lenders to replace the credit
facility provided by the Prior Loan Agreement.
On February 19, 1999, the Prior Loan Agreement was amended so as to extend the
Prior Loan Agreement to May 21, 1999. In addition, the facility limit was
permanently reduced to $10,000,000 and the inventory sublimit would continue to
be permanently and automatically decreased by $25,000 each week. The Prior Loan
Agreement was further extended for one-month periods to October 31, 1999.
On November 12, 1999, the Company's lender amended the Prior Loan Agreement
extending its term to November 30, 2000. As of November 12, 1999, all foreign
lines of credit were consolidated into the domestic line of credit and the
foreign receivables are no longer used in the calculation of the borrowing base.
In addition, the Facility limit was permanently reduced to $6,500,000 and the
inventory sublimit was to be permanently and automatically decreased by $25,000
each week. The advance rate of 69% on eligible receivables will be reduced in
March 2000 to 61% and then further decreased 2% each month thereafter. Covenant
requirements were revised based on the Company's forecast for 2000.
The Company at December 31, 1999 had working capital lines of credit with
certain domestic and foreign banks. Total borrowings were $4,789,000 with
remaining availability of approximately $736,000 at December 31, 1999.
Borrowings at December 31, 1999 were $4,664,000 with domestic banks and $125,000
with foreign banks.
The domestic line of credit bore interest at prime plus 1.5% (10.00% at December
31, 1999 and 9.25% at December 31, 1998). The interest rate on the foreign line
of credit in Germany was 6.0% at December 31, 1999. As of December 31, 1998, the
interest rates on the foreign lines of credit ranged between 1.5% and 3.0% in
Japan and between 6.0% and 8.0% in Europe. The weighted-average interest rate on
short-term debt outstanding was 9.89% and 6.1% as of December 31, 1999 and 1998,
respectively.
The amended Prior Loan Agreement required the Company to maintain a minimum
tangible net worth and working capital, generate minimum consolidated and
domestic cash flows, and achieve a minimum adjusted funded debt to adjusted
tangible net worth ratio. In addition, the Loan Agreement prohibited the payment
of cash dividends or cash distributions to shareholders.
During 1999, the Company had been in violation of certain debt covenants
associated with its obligation under a sale/leaseback arrangement and its
short-term loan agreement. The Company has obtained permanent waivers covering
these violations.
On March 6, 2000 in connection with the transactions under the Purchase
Agreement and with the support and assistance of Andlinger Capital XXVI, the
Company made a final payment under the Prior Loan Agreement and terminated such
agreement and obtained a credit facility with PNC Bank, National Association
("PNC Bank"). The new Revolving Credit, Term Loan and Security Agreement (the
"Loan Agreement") provides for a total facility of $14,500,000 of which
$13,000,000 is a working capital revolving credit facility with an initial
three-year term expiring on March 6, 2003. The amount of available credit is
determined by the level of certain eligible receivables and inventories. The
line of credit bears interest at the prime rate. Additionally the Loan Agreement
contains various covenants including a financial covenant that generally
requires the Company to maintain a fixed charge coverage ratio (as defined in
the Loan Agreement) of .7 to 1 for the three-month period ending June 30, 2000
and 1.1 to 1 thereafter. The Loan Agreement also includes a term loan with PNC
Bank in the amount of $1,500,000 to be repaid in 35 equal monthly principal
installments of $25,000 with any remaining balance due at maturity on March 6,
2003. This loan bears interest at prime plus 1.5 percent which is due monthly.
The Loan Agreement is subject to customary event of default and acceleration
provisons and is collateralized by substantially all of the Company's assets.
The Company's foreign subsidiaries sell certain accounts receivable balances to
financial institutions. At December 31, 1999, trade receivables discounted with
recourse amounted to $1,064,000 and are shown as borrowings on the
Page 21 of 39
<PAGE>
consolidated balance sheets. During the years ended December 31, 1999 and 1998,
approximately $3,732,000 and $3,800,000, respectively, of trade receivables were
sold, with recourse, to banks.
4. Long-Term Debt - Affiliate
Long-term debt - affiliate as of December 31 consisted of the following:
1999 1998
---- ----
Subordinated term note due February 28,
2002 with interest at 12% per annum $ 8,206,000 $ 6,258,000
=========== ============
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 $518,000 into a new subordinated note for an
aggregate amount of $6,258,000. The new note bore interest at 12% payable
monthly and was due February 28, 1999. On July 13, 1999, the due date was
extended to February 28, 2002.
On September 30, 1999, Axess and the Company executed an Amended and Restated
Subordinated Unsecured Working Capital Note combining the indebtedness of the
$6,258,000 term note with other indebtedness of $1,948,000 for an aggregate
amount of $8,206,000. This term note is due February 28, 2002 and bears interest
at 12%. Interest payments are dependent upon cashflow availability. Accrued
interest at December 31, 1999 and 1998 was $1,020,000 and $1,275,000
respectively.
On March 6, 2000 in conjunction with the Andlinger transaction, Axess cancelled
the debt of $8,206,000 and the accrued interest thereon in exchange for (x) the
payment by the Company to Axess of $3,500,000 in cash; (y) the issuance to Axess
of a promissory note in the principal amount of $1,000,000 payable upon the sale
of one of the Company's product lines and (z) the issuance to Axess, of a
warrant (the "Preferred Stock Warrant" and collectively with the Investor
Warrants, the "Warrants") to purchase 1,000 shares of the Company's non-voting
convertible redeemable preferred stock (convertible into 1,000,000 shares of
common stock) to be issued, subject to stockholder approval, pursuant to an
amendment to the certificate of incorporation of the Company.
5. Income Taxes
The components of deferred tax assets and (liabilities) as of December 31
consisted of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
---- -----
Inventory reserves, inventory capitalization and
intercompany profit in inventory $ 1,236,000 $919,000
Other 1,171,000 1,065,000
Net operating loss carryforwards 7,046,000 6,024,000
Research and development and other tax
credit carryforwards 1,001,000 1,001,000
----------- ---------
Gross deferred tax assets 10,454,000 9,009,000
----------- ---------
Gross deferred tax liabilities (159,000) (212,000)
------------ ----------
Net deferred tax asset before valuation
allowance 10,295,000 8,797,000
Valuation allowance on deferred tax assets (10,295,000) (8,797,000)
------------ ----------
Net deferred tax asset $ -- $ --
============ ==========
</TABLE>
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, 1999, the Company had federal net operating loss carryforwards
for income tax purposes of approximately $12,224,000 that expire in 2005 through
2019, state net operating losses of $6,515,000 that expire 2000 through 2009,
and foreign loss carryforwards of approximately $5,143,000, a portion of which
may be carried
Page 22 of 39
<PAGE>
forward indefinitely. The Company also has other tax credit carryforwards
aggregating approximately $1,001,000 at December 31, 1999, which expire in 2001
through 2010.
The change in ownership resulting from the August 21, 1992 sale of Common Stock
and a subordinated convertible debenture 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.
On March 6, 2000 pursuant to a Securities Purchase Agreement between Rheometric
Scientific, Axess Corporation and Andlinger Capital XXVI, Andlinger Capital
acquired the power to vote an aggregate of 16,606,000 shares of the Company's
common stock representing approximately 74% of the issued and outstanding common
stock of the Company. This includes 6,000,000 shares issuable upon exercise of
the Investor Warrants. This will result in a further limitation on future annual
utilization of domestic tax credits and net operating losses, pursuant to
Internal Revenue Code Section 382 and 383.
(Loss) income before income taxes as of December 31 consisted of the following:
1999 1998 1997
---- ---- ----
Domestic $ (2,438,000) $2,402,000 $ 757,000
Foreign (2,457,000) (3,426,000) (2,905,000)
------------ ----------- -----------
$ (4,895,000) $(1,024,000) $(2,148,000)
============== =========== ===========
The components of income tax expense for the years ended December 31 consisted
of the following:
1999 1998 1997
---- ---- ----
Federal:
Current $ (35,000) $ (65,000) $ 30,000
Deferred -- -- --
---------- ----------- ----------
(35,000) (65,000) 30,000
---------- ----------- ----------
Foreign:
Current 276,000 181,000 143,000
Deferred -- -- --
----------- ----------- ----------
276,000 181,000 143,000
----------- ----------- ----------
State:
Current 2,000 4,000 8,000
Deferred -- -- --
----------- ----------- ----------
2,000 4,000 8,000
----------- ----------- ----------
$ 243,000 $ 120,000 $ 181,000
=========== =========== ==========
Page 23 of 39
<PAGE>
The Company's effective tax rate varies from the statutory federal tax rate as
of December 31 as a result of the following:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Computed statutory income
tax benefit $ (1,664,000) $ (290,000) $(974,000)
State income taxes, net of Federal
tax benefit 2,000 2,000 7,000
Foreign taxes in excess of statutory rate 274,000 164,000 75,000
Utilization of net operating losses -- (841,000) --
Effect of loss carryforwards not
recognized 1,713,000 1,071,000 1,067,000
Warrants issued for services (57,000) -- --
Other (25,000) 14,000 6,000
----------- ----------- ---------
$ 243,000 $ 120,000 $ 181,000
=========== =========== =========
</TABLE>
6. Capital Stock and Stock Option and Incentive Plans
The Company has one stock option plan under which stock options may be granted,
the 1996 Stock Option Plan (the "1996 Plan"). The 1996 Plan, as amended,
authorizes the issuance of up to 500,000 shares of the Company's common stock as
incentive stock options pursuant to Section 422 of the Internal Revenue Code.
Stock options are granted at prices which equate to the market value of the
stock on the date of option grant. Options generally become exercisable in
ratable installments over a four-year period, with unexercised options expiring
no later than 10 years from the date of grant. Stock option activity for the
years 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1999 1998
--------------------------- ---------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ --------- ------ --------
Outstanding at January 1, 352,400 $0.99 166,400 $1.64
Granted 75,000 0.28 220,000 0.62
Exercised -- -- -- --
Canceled 13,000 1.75 34,000 1.75
Outstanding at December 31, 414,400 0.84 352,400 0.99
Excercisable at December 31, 269,550 0.99 140,200 0.78
Available for grant at
December 31, 85,600 147,600
Weighted average fair value of
options granted during the period $0.38 $0.33
- --------------------------------------------------------------------------------------------------
</TABLE>
Page 24 of 39
<PAGE>
The following table summarizes the information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Number Average Weighted Number Weighted
Outstanding at Remaining Average Outstanding at Average
Range of December 31, Contractual Exercise December 31, Exercise
Exercise Prices Life (Years) Price Price
--------------- ------------- ----------- -------- -------------- ---------
$0.28 - $1.75 414,400 8.35 $0.84 269,550 $0.99
- ----------------------------------------------------------------------------------------------------
</TABLE>
The Company has adopted the "disclosure only" provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock Based Compensation
("SFAS 123") and, accordingly, no compensation cost has been recognized in the
statements of operations. Had the Company accounted for stock options under the
fair value method of SFAS 123, net loss would have increased by approximately
$29,000 and $90,000 for 1999 and 1998, respectively. The per share impact was
less than $0.01 in both years.
The fair value for the option grants was estimated at the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:
1999 1998
---- ----
Risk free interest rate 5.875% 6.00%
Expected Volatility 88.46% 50.48%
Expected life (years) 4 4
Dividend yield 0% 0%
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 the 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 the 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
the Lender terminated. On July 22, 1998 in consideration for waiving certain
covenant violations, the exercise price for the outstanding warrants was reduced
to $1.00 per share. Additionally, on December 29, 1999 in consideration of
waiving certain covenant violations, the exercise price for the outstanding
warrants was reduced to $0.37 per share.
7. 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 $124,000,
$141,000 and $150,000, for the years ended December 31, 1999, 1998 and 1997,
respectively. The Company's foreign subsidiaries also
Page 25 of 39
<PAGE>
sponsor employee retirement plans. The expense recorded by the Company for such
plans was insignificant for the years ended December 31, 1999, 1998 and 1997.
The Company does not sponsor any post-retirement health, life insurance or
related benefit plans, nor any significant post-employment benefit plans.
8. 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. Rent expense was $527,000, $679,000 and $707,000, for the
years ended December 31, 1999, 1998 and 1997, respectively.
On February 23, 1996, the Company entered into a sale/leaseback arrangement that
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 financial reporting purposes. See Note 3 - Long-term Debt.
On February 20, 1997, as a result of the Landlord refinancing the mortgage on
the property, the Company's annual lease payment was significantly reduced for
the remaining life of the lease. This resulted in the reduction of the imputed
interest rate to 13.9% from 22.8% in the original lease. The resulting annual
payment was $805,361, payable monthly. The lease is subject to an annual CPI
adjustment that is capped at 3% per year. This decrease was the result of the
Landlord refinancing the mortgage on the property. On March 1, 1999 the basic
rent payment was adjusted to $833,137. On March 1, 2000, the basic rent payment
was again adjusted to $854,986.
The minimum commitments under noncancellable leases consisted of the following
at December 31, 1999:
Direct
Operating Financing
Year Leases Lease
2000 $514,000 $851,000
2001 143,000 855,000
2002 64,000 855,000
2003 5,000 855,000
2004 5,000 855,000
Thereafter 0 5,273,000
---------------- -----------
Total minimum lease payments $ 731,000 9,544,000
=========
Less amounts representing interest 4,829,000
----------
Total lease obligation 4,715,000
Less Current maturities 190,000
Long-term lease obligation under refinancing $ 4,525,000
===========
On August 27, 1998, the Company consummated the assignment of lease of its Epsom
facility in the United Kingdom to a third party and moved its sales and service
personnel to offices located in Leatherhead. In the event of non-performance by
the third party, the Company is liable. Should they not perform, the Company's
additional cash outflow would be $210,000 per year in years 2000, 2001, 2002,
2003 and 2004 and $1,996,000 thereafter.
The Company amended and restated written employment agreements with key
management executives in September 1996, March 1998 and subsequent to the
Andlinger transaction in March 2000. The agreements now
Page 26 of 39
<PAGE>
provide for one-year's base pay for terminations up to February 2001 and ten
month's base pay for terminations from February 17, 2001 to February 17,2002.
Thereafter these agreements will expire. If termination occurs prior to February
2001 the minimum obligation under those contracts aggregates approximately
$553,000. If termination occurs between February 17, 2001 and February 17, 2002,
the minimum obligation approximates $461,000. Additionally, the Company has
entered into consulting agreements. The minimum obligation under the terms of
the consulting agreements is $10,000. 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. Accrued royalties were $87,000 and
$76,000 at the end of 1999 and 1998, respectively.
In the ordinary conduct of its business, the Company may be party to litigation.
At December 31, 1999, 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.
9. Operating Segments/Foreign Operations and Geographic Information
Effective December 31, 1998 the Company adopted SFAS 131 "Disclosures about
Segments of an Enterprise and Related Information. The Company's three
reportable segments are: Domestic, Europe, and the Far East. The accounting
policies of the reportable segments are the same as those described in the
Summary of Significant Accounting Policies. The Company evaluates the
performance of its operating segments based on revenue performance and operating
income. Summarized financial information concerning the Company's reportable
segments is shown below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(In thousands) Domestic Europe Japan Consolidated
- -----------------------------------------------------------------------------------------------
Trade Sales:
1999 $15,114 $6,465 $6,784 $28,363
1998 16,278 7,587 6,743 30,608
1997 16,804 11,527 9,208 37,539
Intercompany Revenues
1999 5,950 1,113 0 --
1998 7,760 1,260 0 --
1997 11,530 2,658 0 --
Operating Income (loss)
1999 (1,119) (1,737) 189 (2,667)
1998 4,360 (3,141) (120) 1,099
1997 2,083 (1,959) 511 635
Identifiable Assets
1999 15,347 3,949 4,687 23,983
1998 25,483 (801) 3,852 28,534
1997 28,447 2,967 4,020 35,434
Depreciation and Amortization
1999 765 101 24 890
1998 779 179 29 987
1997 858 157 47 1,062
</TABLE>
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 $728,000, $180,000 and $257,000, for the
years ended December 31, 1999, 1998 and 1997, respectively.
Page 27 of 39
<PAGE>
10. 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. In
addition to its existing sales and service responsibilities, the Company assumed
responsibility for the manufacturing of the two products in 1999.
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 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 $2,225,500. 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, 1999 is $1,212,000.
Effective May 10, 1999, the Company and Mettler revised their original agreement
dated December 21, 1994 whereas RSI agreed to commence production of the RM180
and RM265 products within 30 days. A payment arrangement was agreed to whereby
the Company would make quarterly payments commencing on May 15, 1999 and
continuing through February 15, 2002. Interest is accrued on the upaid balance
at 6% per annum. The Company anticipates total payments denomiated in Swiss
francs, including interest, to be approximately 2,239,000 over a three-year
period. In addition, RSI also agreed to buy the remaining finished stock,
production stock and accessories for an initial sum of $200,000 and 15 monthly
payments of $25,000 commencing June 30, 1999 and ending August 30, 2000.
On March 8, 2000 in conjunction with the Andlinger transaction, the Mettler debt
was settled for the amount of $1,212,000. This payment satisfied the entire debt
to Mettler including the amount related to the inventory. The inventory was
subsequently transferred from Mettler to Rheometrics.
11. Related Parties
Mr. Robert E. Davis was president and CEO of the Company from September 20, 1993
through August 31, 1997. Effective January 1, 1994, the Company and Axess
verbally agreed that the Company would pay to Axess a management fee, equal to
$150,000 per year for Mr. Davis' services paid by Axess. This corresponds to an
amount of $518,000 which is included in the long-term debt-affiliate at December
31, 1999 and in payable to affiliate at December 31, 1998. The Subordinated Term
Note was discharged in connection with the Andlinger transaction and the Company
has no further obligations related to this arrangement.
12. Restructuring of Operations
In the third quarter of 1997, a restructuring provision totaling $1,624,000 was
recorded for the restructuring of the international manufacturing and sales and
marketing operations. The restructuring charge consists of approximately
$1,300,000 for costs associated with the planned sub-lease of the UK
manufacturing facility, $100,000 for termination of other leases in Europe and
$224,000 of severance costs for the UK manufacturing employees. Approximately
$198,000 of the original reserve was reversed in 1998 since actual expenses came
in below original estimates. There were saving related to the European leases of
$143,000 and expenses not incurred related to headcount reductions of $24,000.
In addition, the fixed assets written off were lower than anticipated by
$31,000. The reversal is shown as income on the consolidated statements of
operation.
Page 28 of 39
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
Directors
The following table sets forth certain information as of May 1, 2000,
regarding the six nominees for director:
<TABLE>
<CAPTION>
<S> <C> <C>
Name Age Position
Robert M. Castello 59 Chairman of the Board and Chief Executive Officer
Mark F. Callaghan 48 Director
David R. Smith 70 Director
Merrick G. Andlinger 41 Director
Richard J. Giacco 47 Director
Robert K. Prud'homme 52 Director
</TABLE>
Robert M. Castello assumed the position referred to above on March 6,
2000. Mr. Castello has been a principal of Andlinger & Company, Inc. ("Andlinger
& Company") since 1995. Mr. Castello has been the Chairman of X.O. Tec
Corporation, a medical products company, since 1997. Mr. Castello was President
and CEO of CBI Holding Co., a pharmaceutical wholesaler. Previously, Mr.
Castello held Vice Presidential positions at McKesson Drug Co., Seatrain Lines,
and W.R. Grace.
Mark F. Callaghan has been a Director of the Company since March 6,
2000. Mr. Callaghan has been a principal of Andlinger & Company since 1999. Mr.
Callaghan was an independent consultant in mergers and acquisitions from 1995 to
1999. Mr. Callaghan was a Vice President of Panorama Press from 1994 to 1995.
Mr. Callaghan is a member of the Board of Directors of CyberAlert, Inc. and of
CraftShop.com, Inc.
David R. Smith has been a Director of the Company since March 6, 2000.
Mr. Smith has been the Chairman of M-Tec, a manufacturer of specialized
materials used in extreme temperature and harsh environments servicing the
automotive and aerospace industries, as well as paper, chemical, refining and
electrical power plant exhaust systems, since August 1995. Mr. Smith was a
principal of Andlinger & Company from June 1, 1984 until October 1, 1998. From
June 1, 1994 until October 1, 1998 Mr. Smith was the President of Andlinger &
Company. Mr. Smith formerly served on the Board of Directors of United
Stationers, Inc.
Merrick G. Andlinger has been a Director of the Company since March 6,
2000. Mr. Andlinger has been a principal of Andlinger & Company since 1999. Mr.
Andlinger was the President and CEO of Pure Energy Corporation, a motor fuel and
chemical development company from 1996 until 1999. From 1994 until 1996, Mr.
Andlinger was a Managing Director in the Global Energy and Power Group in the
Corporate Finance department of Smith Barney Inc. and the Group's co-head from
1995 until 1996. Mr. Andlinger is a member of the Board of Directors of
CyberAlert, Inc. and formerly was a member of the Board of Directors of Pure
Energy Corporation.
Richard J. Giacco has been a Director of the Company since 1992. Mr.
Giacco was a Vice President of the Company from February 19, 1998 until March 6,
2000. Mr. Giacco has been the President of Axess since March 1999 and its
General Counsel since its inception in 1991. Prior thereto, Mr. Giacco served as
Associate General Counsel for Safeguard Scientifics, Inc., a computer software
and electronics company from 1985 until 1991. Mr. Giacco is the son of Alexander
F. Giacco, the Chairman of the Board of the Company from August 31, 1997 until
March 6, 2000 and the President and Chief Executive Officer of the Company from
February 6, 1997 until March 6, 2000.
Page 29 of 39
<PAGE>
Robert K. Prud'homme has been a Director of the Company since 1981.
Dr. Prud'homme has been a professor of Chemical Engineering at Princeton
University since 1978. Dr. Prud'homme is a consultant to Dow Chemical Company,
Block Drug, Helene Curtis and Rhodia Incorporated.
Executive Officers
The following table sets forth certain information as of May 1, 2000
regarding the executive officers of the Company:
<TABLE>
<CAPTION>
<S> <C> <C>
Name Age Position
Robert M. Castello 59 Chairman of the Board and Chief Executive Officer
Joseph Musanti 42 Vice President of Finance & Materials, Chief Financial Officer, Treasurer and
Assistant Secretary
Ronald F. Garritano 61 Vice President of Technology and Engineering
Matthew Bilt 57 Vice President of Human Resources and Administration
Donald W. Becker 42 Vice President of Sales and Marketing, Americas
</TABLE>
For a description of the business experience of Robert M. Castello,
see "Directors."
Joseph Musanti has been the Vice President of Finance & Materials and
Chief Financial Officer of the Company since June 1, 1997 and the Treasurer and
Assistant Secretary since July 17, 1997. Prior thereto, Mr. Musanti was the
Director of Operations from November 1994 to June 1, 1997; UK Financial Manager
from April 1994 to November 1994; and Manager, Materials, Cost, and Inventory
from October 1992 to April 1994.
Ronald F. Garritano has been the Company's Vice President of
Technology since June 1992 and the Company's Vice President of Engineering since
July 1977.
Matthew Bilt has been the Company's Vice President of Human Resources
and Administration since July 17, 1997. Prior thereto, Mr. Bilt was the
Company's Vice President of Human Resources from November 10, 1994 until July
17, 1997; the Company's Vice President of Human Resources and Administration
from May 3, 1994 until November 10, 1994; and the Company's Director of Human
Resources from June 2, 1986 until May 3, 1994.
Donald W. Becker has been the Company's Vice President of Sales and
Marketing, Americas since April 1999. Prior thereto, Mr. Becker was the
Company's Sales and Marketing Manager in 1998; the Company's Marketing Manager
from 1997 until 1998; and the Company's Rheology Product Manager, Americas from
1989 until 1997.
Officers of the Company serve at the discretion of the Board of
Directors.
Page 30 of 39
<PAGE>
Item 11. Executive Compensation
Compensation of Executive Officers
The following table sets forth a summary of the compensation paid by
the Company in the years ended December 31, 1999, 1998 and 1997, to the Chief
Executive Officer of the Company, and to the Company's four most highly
compensated executive officers who received over $100,000 in compensation during
1999 from the Company (collectively, the "Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Long Term
Compensation
Annual Compensation Awards
Securities
Name and Other Annual Underlying All Other
Principal Position Year Salary Bonus Compensation Options Compensation(1)
- ------------------ ---- ------ ----- ------------ ------- ------------
Robert M. Castello (2)
Chairman of the Board and
Chief Executive Officer
Alexander F. Giacco(3) 1999 $ 0 $ 0 $ 0 $ 0 $ 0
President, Chief 1998 0 0 0 0 0
Executive Officer and
Director
Ronald F. Garritano 1999 165,385 0 0 0 2,813
Vice President of 1998 162,860 0 0 50,000 2,813
Technology and Engineering 1997 146,506 0 0 0 2,672
Matthew Bilt 1999 127,500 0 0 0 2,586
Vice President of Human 1998 128,049 0 0 15,000 2,414
Resources and 1997 116,693 0 0 0 1,660
Administration
Joseph Musanti 1999 134,807 0 0 40,000 2,250
Vice President of 1998 128,616 0 0 0 2,250
Finance, Chief Financial
Officer, Treasurer and
Assistant Secretary
Donald W. Becker 1999 123,351 0 0 15,000 394
Vice President of Sales
and Marketing, Americas
- ------------------------------
(1) Includes contributions under the Company's Savings and Investment
Retirement Plan.
(2) Mr. Castello became Chairman of the Board and Chief Executive Officer
of the Company on March 6, 2000.
Page 31 of 39
<PAGE>
(3) Mr. A. Giacco resigned from his positions as President, Chief Executive
Officer and Director as of March 6, 2000. Mr. A. Giacco had succeeded
Alan R. Eschbach as the President and Chief Executive Officer of the
Company on February 6, 1998. Mr. A. Giacco is the managing director of
Axess, the Company's former parent.
</TABLE>
Option Grants
The number of shares of Common Stock available for purchase under the
Company's 1996 Stock Option Plan, as amended (the "Stock Option Plan") is
500,000. Options for an aggregate of 414,400 shares have been granted under the
Stock Option Plan. During the Company's 1999 fiscal year, 75,000 options were
granted to employees under the Stock Option Plan. No options were granted to the
Named Executive Officers during the 1999 fiscal year.
Option Exercises and Year-End Options Values
The following table presents at December 31, 1999 the value of
unexercised in-the-money options held by the Named Executive Officers. During
the fiscal year ended December 31, 1999 no options were exercised.
<TABLE>
<CAPTION>
<S> <C> <C>
Number of Securities Underlying Value of Unexercised,
Unexercised Options In-The-Money Options
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
Ronald F. Garritano 26,000 42,000 $1,375 $4,125
Matthew Bilt 10,800 13,600 413 1,238
Joseph Musanti 14,875 31,625 1,100 3,300
Donald W. Becker 4,125 11,375 413 1,238
</TABLE>
Employment Agreements
The Company amended and restated written employment agreements with
Mr. Bilt in December 1998 and with Mr. Garritano in March 1998, and with Mr.
Musanti in October 1999. In addition, the Company entered into a written
employment agreement with Mr. Becker in May 1999. Under these agreements, base
annual salary is $150,000 for Mr. Garritano, $115,000 for Mr. Bilt, $120,000 for
Mr. Musanti, and $80,000 for Mr. Becker, all subject to discretionary increase
by the Board of Directors. Messrs. Bilt, Musanti and Becker's employment
agreements had or have an initial term of one year and can be continued from
year to year thereafter at the option of the Company. Mr. Garritano's agreement,
which was amended in March 1998, has an initial term of three years and can be
continued from year to year thereafter.
The employment agreements contain a provision that provides for the
executives to be compensated should their employment be terminated upon a change
of control. Messrs. Bilt, Musanti and Becker's agreements indicate that they
would be entitled to receive one year's base pay, plus any bonus participation
or other benefit that the executive may be entitled to for up to one year. Upon
a termination resulting from a change of control, Mr. Garritano's employment
agreement provides for the greater of the term of the agreement or one year's
base pay, plus any bonus participation or other benefit to which he may be
entitled in that period. If a change of control were to occur today and Mr.
Garritano's employment was terminated, Mr. Garritano would be entitled to
receive one year's base pay, plus any bonus participation or other benefit to
which he may be entitled in that period.
Subsequent to the Investment Transaction, each employment agreement
was amended to revise the "change of control" provision. The agreements now
provide for one year's base pay for terminations up to February 16, 2001 and ten
month's base pay for termination between February 17, 2001 and February 17,
2002. Thereafter the agreements will expire. If terminations occur prior to
February 17, 2001, the minimum obligation under such contracts in the aggregate
is approximately $553,000. If terminations occur between February 17, 2001 and
February 17, 2002, the minimum obligation under such contracts in the aggregate
is approximately $461,000.
Page 32 of 39
<PAGE>
Michael Starita, a former Vice President of Manufacturing of the
Company and the father of Dr. Joseph M. Starita, a 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 Management and Others
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of March 31, 2000 by (i) each person
who, to the knowledge of the Company, beneficially owns more than 5% of the
outstanding Common Stock of the Company, (ii) the directors and certain officers
of the Company and (iii) all directors and officers of the Company as a group.
The percentages of shares of Common Stock held or beneficially owned by any
Stockholder or group of Stockholders are based upon the total number of shares
of Common Stock outstanding as of March 31, 2000. Except as indicated, each
person listed below has sole voting and investment power with respect to the
shares set forth opposite such person's name.
<TABLE>
<CAPTION>
<S> <C> <C>
Shares Beneficially Owned
Name Number Percentage
Andlinger Capital XXVI LLC (1) 16,606,000 73.6%
Axess Corporation (2) 2,861,257 17.3
Gerhard R. Andlinger (3) 16,606,000 73.6
Stephen A. Magida (4) 16,606,000 73.6
Robert M. Castello (5)(6) 16,606,000 73.6
Mark F. Callaghan (5)(6) 16,606,000 73.6
David R. Smith (5) 1,000 *
Merrick G. Andlinger (5)(6) 16,606,000 73.6
Richard J. Giacco (5) (7) 78,000 *
Robert K. Prud'homme (5) 25,000 *
Joseph Musanti (5) 14,875 *
Ronald F. Garritano (5) 29,735 *
Matthew Bilt (5) 12,900 *
Donald W. Becker (5) 4,125 *
All executive officers and
directors as a group (10 persons) 16,770,635 74.1
(5)
</TABLE>
- ------------------------
* Less than 1%.
(1) The address for Andlinger Capital XXVI LLC is 105 Harbor Drive, Suite
125, Stamford, Connecticut 06902. Includes 6,000,000 shares of Common
Stock Andlinger Capital XXVI LLC has the right to acquire upon the
exercise of warrants.
Page 33 of 39
<PAGE>
(2) The address for Axess Corporation is 100 Interchange Boulevard, Newark,
Delaware 19711-3549. Pursuant to the Securities Purchase Agreement the
Company will reissue to Axess, subject to an affirmative vote of the
Stockholders of Proposal No. 3, 4,400,000 shares of Common Stock, and
will also issue to Axess, subject to the affirmative vote of the
Stockholders of Proposal No. 4, 1,000 Shares of Preferred Stock
convertible into 1,000,000 Shares of Common Stock. Following the
affirmative vote of the Stockholders of Proposals Nos. 3 and 4 and the
reissuance and issuance of all securities to be reissued and issued to
Axess pursuant to the Securities Purchase Agreement, the number of
shares and percentage of shares, respectively, of Common Stock
beneficially owned by Axess will be 8,261,257 and 37.6%. Andlinger
Capital, which currently owns 10,606,000 shares of Common Stock, and
Axess have agreed pursuant to the Voting Agreement to, among other
things, vote to in favor of Proposals Nos. 3 and 4. Therefore the
holders of shares of Common Stock representing 81.3% of currently
issued and outstanding shares of Common Stock have agreed to vote in
favor of Proposals Nos. 3 and 4.
(3) The address for Mr. G. Andlinger is c/o Andlinger & Company, Inc., 4445
North A1A, Suite #235, Vero Beach, Florida 32963. As reported in a
Schedule 13D filed with the Securities and Exchange Commission on March
17, 2000, by virtue of Mr. G. Andlinger's relationship with Mr. Magida
and as a controlling person of Andlinger & Company, Inc., Mr. G.
Andlinger may be deemed to have shared power to dispose of or direct
the disposition of and shared power to vote or direct the vote of an
aggregate of 16,606,000 shares of Common Stock (of which 6,000,000
shares are attributable to the Warrants) representing 73.6% of the
issued and outstanding shares of Common Stock (including as outstanding
for purposes of determining such percentage shares of Common Stock
issuable upon exercise of warrants held by Andlinger Capital ). Mr. G.
Andlinger disclaims beneficial ownership of the shares of Common Stock
held by Andlinger Capital
(4) The address for Mr. Magida is 105 Harbor Drive, Suite 125, Stamford,
Connecticut 06902. As reported in a Schedule 13D filed with the
Securities and Exchange Commission on March 17, 2000, Mr. Magida, as
manager and as a member of Andlinger Capital, has shared power to vote
or direct the vote of, and shared power to dispose of or direct the
disposition of, an aggregate of 16,606,000 shares of Common Stock (of
which 6,000,000 shares are attributable to the Warrants), representing
73.6% of the issued and outstanding shares of Common Stock (including
as outstanding for purposes of determining such percentage shares of
Common Stock issuable upon exercise of the warrants held by Andlinger
Capital .
(5) The address for each director and officer of the Company is c/o
Rheometric Scientific, Inc., One Possumtown Road,
Piscataway, New Jersey 08854.
(6) As reported in a Schedule 13D filed with the Securities and Exchange
Commission on March 17, 2000, Messrs. Castello, Callaghan and M.
Andlinger by virtue of their relationships with the other reporting
persons on such Schedule 13D and as members of Andlinger Capital may be
deemed to have shared power to vote or direct the vote of, and shared
power to dispose of or direct the disposition of, an aggregate of
16,606,000 shares of Common Stock (of which 6,000,000 shares are
attributable to the Warrants) representing 73.6% of the issued and
outstanding shares of Common Stock (including as outstanding for
purposes of determining such percentage shares of Common Stock issuable
upon exercise of warrants held by Andlinger Capital). Messrs. Castello,
Callaghan and M. Andlinger disclaim beneficial ownership of such
shares.
(7) Includes beneficial ownership of 1,000 shares held in an investment
partnership for the benefit of Mr. Giacco's children and managed by Mr.
Giacco and 75,000 shares Mr. Giacco has an unqualified option to
purchase within 60 days of March 31, 2000.
Item 13. Certain Relationships and Related Transactions
On September 30, 1999, Axess and the Company consolidated all
outstanding debt of the Company to Axess, in an Amended and Restated
Subordinated Unsecured Working Capital Note (the "Note") made by the Company in
favor of Axess in the amount of $8,205,907.09. The debt consolidated under the
Note (the "Axess Debt") included outstanding principal, unpaid interest through
December 31, 1998, amounts due to Axess under a management agreement with the
Company and amounts due to Axess for insurance premium advances.
Page 34 of 39
<PAGE>
On March 6, 2000, pursuant to the Securities Purchase Agreement and
certain related agreements Andlinger Capital purchased (i) 10,606,000 shares of
newly issued common stock of the Company (the "Investor Shares") and (ii)
warrants to purchase (x) an additional 2,000,000 shares of common stock of the
Company at an exercise price of $1.00 per share, exercisable at any time prior
to March 6, 2007 (the "Investor A Warrants") and (y) an additional 4,000,000
shares of common stock of the Company at an exercise price of $3.00 per share,
exercisable at any time prior to March 6, 2003 (the "Investor B Warrants," and
collectively with the Investor A Warrants, the "Investor Warrants"), for the
aggregate consideration of $1,825,000 (the "Purchase Price"). Upon consummation
of this transaction Andlinger Capital acquired beneficial ownership (as
determined under the rules of the Securities and Exchange Commission) to vote an
aggregate of 16,606,000 shares of the Company's common stock (of which 6,000,000
shares are attributable to the Investor Warrants) representing approximately
73.6% of the issued and outstanding common stock of the Company (including as
outstanding for the purposes of determining such percentage the 6,000,000 shares
issuable upon exercise of the Investor Warrants). The acquisition of these
securities by Andlinger Capital constitutes a change in control of the Company.
The Securities Purchase Agreement also provides that, subject to
certain exceptions, for so long as Andlinger Capital and its affiliates continue
to own in the aggregate not less than 50% of their Initial Threshold Amount (as
defined below), the Company and its Board of Directors will support the
nomination of and shall take certain actions such that the slate of nominees
recommended by the Board of Directors to stockholders for election as directors
at each annual meeting of stockholders includes at least the number of designees
of Andlinger Capital equal to the number of directors that would constitute a
majority of directors following such election, and that Andlinger Capital shall
be entitled to have at least one of its designees appointed to each Committee of
the Board of Directors. As defined in the Securities Purchase Agreement,
"Initial Threshold Amount" means the aggregate of the number of shares of common
stock purchased by Andlinger Capital under the Securities Purchase Agreement and
the number of shares of common stock issuable under the Investor A Warrants (as
if issued on the closing date under the Securities Purchase Agreement). The
initial designees of Andlinger Capital to serve on the Board of Directors of the
Company, each of whom has been added to the Board of Directors of the Company as
of March 6, 2000 (the closing date under the Securities Purchase Agreement), are
Mr. Castello, Mr. Callaghan, Mr. Smith and Mr. M. Andlinger.
Based on information received from Andlinger Capital, the members of
Andlinger Capital are Mr. Magida and Mr. M. Andlinger. It is anticipated that
Mr. Castello and Mr. Callaghan will each be admitted as members of Andlinger
Capital. Mr. Magida is an attorney and principal and secretary of Andlinger &
Company, Inc., a Delaware corporation ("ACO") and the manager and a member of
Andlinger Capital and the trustee of the Gerhard R. Andlinger Intangible Asset
Management Trust (the "Trust"), which may be deemed a controlling person of
Andlinger Capital. Gerhard R. Andlinger, a private investor and a principal,
sole stockholder and a controlling person of ACO, is the sole beneficiary under
the Trust. Messrs. Castello and Callaghan are principals of ACO, employees of
one or more affiliates of ACO and will become members of Andlinger Capital. Mr.
M. Andlinger is a principal of ACO, an employee of one or more affiliates of ACO
and a member of Andlinger Capital. ACO is in the business of identifying and
assisting in the implementation of potential acquisitions, investments and other
transactions on behalf of its principals. Andlinger Capital has been organized
by its members with the business purpose of investing in the Company. The source
of funds to pay the Purchase Price under the Securities Purchase Agreement was
from initial cash contributions made by each member of Andlinger Capital to
Andlinger Capital in an amount proportionate to his or its interest therein and
the amount and source of such contributions was, (1) in the case of the Trust,
$748,050 from property of the Trust, and (2) in the case of Messrs. Castello,
Magida, Callaghan and M. Andlinger, $255,500, $36,500, $164,250 and $109,500,
respectively, in each case from a loan made by Mr. G. Andlinger from his
personal funds at an interest rate of 10% per annum.
The Securities Purchase Agreement contemplates that the Company will
submit to its stockholders for approval (the "Stockholder Approval") proposals
to (i) reincorporate the Company from New Jersey to Delaware (the
"Reincorporation"); (ii) increase the authorized number of shares of capital
stock to 49,000,000 shares of common stock and 1,000,000 shares of preferred
stock; and (iii) authorize the issuance of the preferred stock as contemplated
in the Securities Purchase Agreement. In order to effect the intent of the
parties to the Securities Purchase Agreement that the Company issue the Investor
Shares on the closing date, at the closing of the Securities Purchase Agreement
Axess contributed 4,400,000 shares of common stock to the Company, in exchange
Page 35 of 39
<PAGE>
for the Company's agreement to reissue to Axess 4,400,000 shares of common stock
(the "Axess Reissue Shares") subject to the Stockholder Approval, and
Reincorporation and amendment of the Company's certificate of incorporation to
authorize the issuance of such shares.
Upon the closing under the Securities Purchase Agreement, Axess
cancelled the Axess Debt in exchange for (x) the payment by the Company to Axess
of $3,500,000 in cash; (y) the issuance to Axess of a promissory note in the
principal amount of $1,000,000 payable upon the sale of the Company's Process
Control Rheometer Product Line and (z) the issuance to Axess, of a warrant (the
"Preferred Stock Warrant" and collectively with the Investor Warrants, the
"Warrants") to purchase 1,000 shares of the Company's non-voting convertible
redeemable preferred stock to be issued, subject to Stockholder Approval,
pursuant to an amendment to the certificate of incorporation of the Company.
Prior to the purchase by Andlinger Capital of the Investor Shares and
the Investor Warrants, Axess agreed to contribute 2,800,000 shares of common
stock to the Company.
In connection with the Securities Purchase Agreement, the Company,
Andlinger Capital, and Axess have entered into a Registration Rights Agreement,
dated as of March 6, 2000 (the "Registration Rights Agreement"). The
Registration Rights Agreement provides for the registration with the Securities
and Exchange Commission of the Investor Shares, the Axess Reissue Shares, and
the shares of common stock issuable upon the exercise of the Warrants owned by
Andlinger Capital and Axess. Furthermore, in connection with the Securities
Purchase Agreement, the Company, Andlinger Capital, and Axess have entered into
a Stockholders' Agreement dated as of March 6, 2000 (the "Stockholders'
Agreement"). Pursuant to the Stockholders' Agreement, Andlinger Capital and
Axess have agreed, among other things, not to transfer their respective shares
of common stock without the prior written consent of the other stockholders
party thereto, except (1) pursuant to "piggyback" or "demand" registrations
under the Registration Rights Agreement, (2) pursuant to an exemption from
registration under Rule 144 under the Securities Act of 1933, as amended, in
transactions effected after the first anniversary of the closing date under the
Securities Purchase Agreement, (3) to certain transferees, (4) as collateral
security in a bona fide arm's-length loan or credit transaction, provided the
stockholder retains the authority to vote such securities in the absence of any
default thereunder, (5) pursuant to a tender offer, and (6) pursuant to a
transaction duly approved by the stockholders of the Company. The Company,
Andlinger Capital and Axess also entered into a Voting Agreement, dated as of
February 17, 2000, pursuant to which Andlinger Capital and Axess agreed to vote
in favor of the items to be submitted for Stockholder Approval pursuant to the
Securities Purchase Agreement as described above.
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 30
Independent auditor's report on consolidated financial statements
is on pages 12 and 13
(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).
2.1 Securities Purchase Agreement, dated as of February 17,
2000, by and between Rheometric Scientific, Inc., Andlinger
Capital XXVI LLC and Axess Corporation, incorporated by
reference to Exhibit 2.1 to the Company's Current Report on
Form 8-K dated March 21, 2000 (File No. 0-14617).
3.1 Certificate of Incorporation of the Registrant, as Amended,
incorporated by
Page 36 of 39
<PAGE>
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 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).
4.3 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).
*4.4 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).
*10.3 Amended and Restated Employment Agreement between Ronald F.
Garritano and the Company, incorporated by reference to
Exhibit 10.3 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997 (File No. 0-14617).
*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 Employment Agreement between Joseph Musanti and the Company,
incorporated by reference to Exhibit 10.5 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1997 (File No. 0-14617).
10.6 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).
10.7 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).
10.8 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).
Page 37 of 39
<PAGE>
10.9 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).
10.10 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).
10.11 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).
10.12 First Amendment to Lease Agreement dated June 10, 1996
between RSI (NJ) QRS 12-13, Inc. and Rheometric Scientific,
Inc. incorporated by reference to Exhibit 10.12 to the
Company's Annual Report on Form 10-K dated December 31, 1996
(File No. 0-14617).
10.13 Second Amendment to Lease Agreement dated February 20, 1997
between RSI (NJ) QRS 12-13, Inc. and Rheometric Scientific,
Inc. incorporated by reference to Exhibit 10.13 to the
Company's Annual Report on Form 10-K dated December 31, 1996
(File No. 0-14617).
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, incorporated
by reference to Exhibit 10.14 to the Company's Annual Report
on Form 10-K dated December 31, 1996 (File No. 0-14617).
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, incorporated by
reference to Exhibit 10.15 to the Company's Annual Report on
Form 10-K dated December 31, 1996 (File No. 0-14617).
10.16 Amendment to Loan and Security Agreement with Fleet Capital
Corporation dated March 31, 1998, incorporated by reference
to Exhibit 10.16 to the Company's Annual Report on Form 10-K
for the period ended December 31, 1997 (File No. 0-14617).
10.17 Second Amendment to Loan and Security Agreement with Fleet
Capital Corporation dated February 19, 1999, incorporated by
reference to Exhibit 10.15 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1998 (File No.
0-14617).
10.18 Third Amendment to Loan and Security Agreement with Fleet
Capital Corporation dated November 12, 1999, incorporated by
reference to Exhibit 10.16 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1998 (File No.
0-14617).
10.19 Registration Rights Agreement, dated as of March 6, 2000, by
and between Rheometric Scientific Inc., Andlinger Capital
XXVI and Axess Corporation, incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K
dated March 21, 2000 (File No. 0-14617).
10.20 Stockholders' Agreement, dated as of March 6, 2000, by and
between Rheometric Scientific Inc., Andlinger Capital XXVI
and Axess Corporation, incorporated by reference to Exhibit
10.2 to the Company's Current Report on Form 8-K dated March
21, 2000 (File No. 0-14617).
10.21 Voting Agreement, dated as of February 17, 2000, by and
between Rheometric Scientific Inc., Andlinger Capital XXVI
and Axess Corporation, incorporated by reference to Exhibit
10.3 to the Company's Current Report on Form 8-K dated March
21, 2000 (File No. 0-14617).
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, 1999.
(c) Exhibits to this Form 10-K are incorporated by reference as stated
above.
Page 38 of 39
<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 AMENDED ANNUAL REPORT
ON FORM 10-K/A TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED.
RHEOMETRIC SCIENTIFIC, INC.
By:/s/ Robert M. Castello
--------------------------------
Date: May 1, 2000 Robert M. Castello, Chairman
--------------------- 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/Robert M. Castello
- --------------------- Chairman and Chief May 1, 2000
Robert M. Castello Executive Officer
(principal executive officer)
/s/Joseph Musanti
- -------------------- Vice President, Finance May 1, 2000
Joseph Musanti and Materials; Chief
Financial Officer; and Assistant
Secretary (principal financial and
principal accounting officer)
/s/ Mark F. Callaghan
- -------------------- Director May 1, 2000
Mark F. Callaghan
/s/ David R. Smith
- -------------------- Director May 1, 2000
David R. Smith
/s/ Merrick G. Andlinger May 1, 2000
- ------------------------ Director
Merrick G. Andlinger
/s/ Richard J. Giacco
- --------------------- Director May 1, 2000
Richard J. Giacco
/s/ Robert K. Prud'homme
- ------------------------ Director May 1, 2000
Robert K. Prud'homme
Page 39 of 39
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 265
<SECURITIES> 0
<RECEIVABLES> 10,340
<ALLOWANCES> 0
<INVENTORY> 6,541
<CURRENT-ASSETS> 17,851
<PP&E> 15,638
<DEPRECIATION> 10,051
<TOTAL-ASSETS> 23,983
<CURRENT-LIABILITIES> 12,420
<BONDS> 4,525
0
0
<COMMON> 13
<OTHER-SE> (3,000)
<TOTAL-LIABILITY-AND-EQUITY> 23,983
<SALES> 28,363
<TOTAL-REVENUES> 28,363
<CGS> 17,448
<TOTAL-COSTS> 17,448
<OTHER-EXPENSES> 13,582
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,105
<INCOME-PRETAX> (4,895)
<INCOME-TAX> 243
<INCOME-CONTINUING> (5,138)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,138)
<EPS-BASIC> (0.39)
<EPS-DILUTED> (0.39)
</TABLE>
