UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1996, 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 0-24712
METROLOGIC INSTRUMENTS, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-1866172
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
90 Coles Road, Blackwood, New Jersey 08012
(Address of principal executive offices) (Zip Code)
(609) 228-8100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par
Value $.01 Per Share
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 the 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 non-affiliates
of the Registrant as of March 21, 1997 was $18,172,522, calculated by excluding
all shares held by executive officers, directors and 5% stockholders of the
Registrant without conceding that all such persons are "affiliates" of the
Registrant for purposes of the federal securities laws.
As of March 21, 1997 there were 5,307,518 shares of Common Stock outstanding.
Documents Incorporated by Reference
Portions of the following documents are incorporated herein by reference:
Part III - The Registrant's definitive Proxy Statement for its 1997
Annual Meeting of Stockholders, to be filed not later than 120
days after the close of the fiscal year.
<PAGE>
PART I
Item 1. Business
Introduction
Metrologic Instruments, Inc. (the "Company") designs, manufactures and markets
bar code scanning equipment incorporating laser and holographic technology.
These scanners rapidly, accurately and efficiently read and decode all widely
used bar codes and provide an efficient means for data capture and automated
data entry into computerized systems. The Company's principal laser scanner
products are hand-held scanners, fixed projection scanners, in-counter scanners
and industrial scanners. The Company's marketing efforts are also currently
focused on additional products, including wireless scanner interfaces,
holographic scanners, hand-mounted scanners, which provide hands-free scanning
capability, and laser engines, which perform scanning functions in products
manufactured by others. The Company is vertically integrated, designing and
manufacturing its own optics, optical coatings, magnetic and inductive
electronic components and fabricated parts.
The Company was incorporated in New Jersey in May 1969 as a successor to a sole
proprietorship, which commenced operations in 1968. The Company's executive and
administrative offices are located at 90 Coles Road, Blackwood, New Jersey
08012. The Company's telephone number is 609-228-8100. One of the Company's
wholly-owned subsidiaries, Metrologic Instruments GmbH, is a sales,
distribution, service, repair and stocking facility located near Munich,
Germany.
On March 1, 1996, the Company elected to convert its shares of convertible
preferred stock of Holoscan, Inc. ("Holoscan"), a designer of optical scanners
using high-efficiency holography, into common stock and elected to exercise its
option to acquire all of the outstanding equity securities of Holoscan from the
holders thereof . As a result, Holoscan is now a wholly-owned subsidiary of the
Company. See "Research and Product Development" and Part II, Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
The Company's Products
The Company's scanners use solid state visible-laser-diodes and incorporate
custom integrated circuits and surface mount components for virtually all of
their electronics. In addition, the Company's scanners use proprietary software,
such as ScanSet(R) software and the ScanSelect(TM) bar code booklet program,
which allow the end-user to reconfigure and program the scanners' performance
characteristics. These programs also permit the scanner to read commonly used
bar codes and to perform a variety of other functions. In addition, the
Company's interpretive and decode software provide the capability of high speed
and aggressive decoding. The Company's scanners interface into most computers,
cash registers and portable data terminals.
Bar code laser scanners are the Company's predominant products and accounted for
92.0%, 93.5% and 87.8% of the Company's sales in 1996, 1995 and 1994,
respectively. The following bar code laser scanners historically have accounted
for a substantial portion of the Company's product revenues.
Hand-Held Scanners. Since late 1990, the Company has offered for sale its MS900
Series of hand-held triggerless scanners. These scanners generally are used in
retailing, libraries, industrial warehousing, production lines and commercial
applications because of their low cost, size and versatility. Using infrared
motion sensor detectors, the MS900 Series turns on automatically and can be
manually presented to a bar code or fixed mounted and used as a stationary
scanner. These scanners can automatically read and discriminate among all
commonly used bar code symbols. Originally positioned to compete directly with
other low cost bar code reading devices such as the charge coupled device
("CCD") and the light pen, the MS900 Series also competes in a class of more
expensive high performance scanners due to its performance and reliability.
Fixed Projection Scanners. Since 1990, the Company has offered for sale its
MS700 Series of high performance fixed projection scanners. By projecting a
pattern of multiple laser lines at very high speeds, the MS700 Series is capable
of reading bar codes presented in multiple directions or "omnidirectionally."
These scanners are generally mounted on the top of a counter and are used in
high volume retail stores and outlets, magazine distribution and processing
centers, libraries and other applications where greater scanning throughput is
required.
<PAGE>
In-counter Mini-Slot(R) Scanners. Since 1985 the Company has offered for sale
its in-counter Slot scanners. The Company's MS800 Series of in-counter
Mini-Slot(R) scanners has been offered for sale since 1991 and was developed
for supermarket, discount and specialty stores which require high-throughput
scanning but have limited space in which to work.
Omnidirectional Hand-Held Scanners. The Company introduced the MS6720 in 1996,
the first in a series of multi-purpose scanners. By incorporating
omnidirectional scanning technology into hand-supportable housing, these
scanners offer ergonomic hand-held scanning and fixed presentation throughput.
The MS6720 is positioned on a unit sales price basis between the Company's
cost-effective MS900 Series and high-performance fixed presentation MS700
scanners.
Industrial Scanners. Since 1991, the Company has offered for sale its TECH
series of scanners. These scanners generally are used in conveyor belt or other
industrial applications requiring automated scanning capability. The TECH series
is designed to withstand the rigors associated with equipment used in industrial
environments and may be mounted in any orientation, giving the end-user
installation flexibility. Other industrial products include ScanQuest(R)
engines, ScanGlove(R) scanners and ScanKey(TM) scanners. In May 1996, the
Company introduced its new HoloTrak(TM) line of holographic scanners. These
scanners utilize proprietary Metrologic technology to offer increased scanning
performance at a more affordable price than similar fixed omnidirectional
scanners on the market. The HoloTrak(TM) line is designed to increase user
efficiency and productivity in high volume package-handling situations. The
HoloTrak(TM) scanners would typically be mounted above work areas and loading
doors to allow "walk-under scanning," or hands-free unattended
high-speed conveyor belt scanning in industrial and package sortation
applications.
Research and Product Development
The Company conducts its own engineering programs for the purposes of developing
new products, improving its existing products' reliability, ergonomics and
performance and reducing manufacturing and support costs. The Company is engaged
in continuous development programs in the areas of optics, holography,
electronics, radio-frequency interfacing, automated manufacturing methods and
mechanics. Effective in December 1994, the Company and Holoscan entered into a
development agreement (the "Development Agreement") pursuant to which the
parties agreed to jointly develop holographic scanners. Pursuant to the terms of
the Development Agreement, the Company made payments to Holoscan through
December 1995 in order to assist Holoscan in researching and developing a laser
scanner incorporating holographic technology (the "Technology").
In March 1995, the Company, Holoscan and the holders of all of Holoscan's
outstanding common stock and options and warrants to purchase common stock
(collectively, the "Holders") entered into a stock purchase agreement (the
"Stock Purchase Agreement") and an option agreement (the "Option Agreement").
Pursuant to the terms of the Stock Purchase Agreement, the Company purchased, in
monthly installments through November 1995, shares of Holoscan's convertible
preferred stock, convertible at the option of the holder into shares of
Holoscan's common stock on a one-for-one basis. The Company elected to convert
these shares of convertible preferred stock into shares of common stock on March
1, 1996, resulting in the Company's ownership of 51% of the outstanding Holoscan
common stock. Pursuant to the Option Agreement, the Holders granted the Company
an option to acquire from each Holder the equity securities of Holoscan owned by
such Holder. In addition, the Company agreed to pay to each Holder, through
1998, a royalty based on the Company's sales of certain holographic laser
scanners. On March 1, 1996, the Company exercised its option under the Option
Agreement and acquired the remaining 49% of the outstanding Holoscan common
stock and other outstanding equity securities of Holoscan from the Holders. As a
result, Holoscan is a wholly-owned subsidiary of the Company. For a discussion
of the amounts paid to Holoscan and the Holders in connection with the
Development Agreement, the Stock Purchase Agreement and the Option Agreement,
see Part II, Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."
During 1996, 1995 and 1994, the Company spent (in thousands) approximately
$3,110, $3,024, and $1,765, respectively, on research and development
activities.
<PAGE>
Sales and Marketing
The Company sells its products through distributors, value-added resellers
("VARs") and original equipment manufacturers ("OEMs") and directly to end-users
located throughout the world. Metrologic Instruments GmbH provides sales,
distribution and service support to the Company's European customers and sells
through distributors, VARs and OEMs and directly to end-users located in Europe.
In January 1995, the Company opened a sales office in Caracas, Venezuela through
an independent representative.
The Company has contractual relationships with numerous distributors and dealers
and a limited number of OEMs, VARs and end-users. OEMs purchase the Company's
products, incorporate them into their systems and sell them under their own
names. VARs purchase the Company's products and other peripheral components
needed for specific applications and sell them directly to end-users. By
utilizing multiple distribution channels, the Company has been able to expand
its market presence, broaden its distribution network and sell to industries
other than those serviced by the Company's direct sales force.
As of December 31, 1996, the Company had (in thousands) approximately $5,149 in
backlog orders, including $1,802 in backlog orders attributable to Metrologic
Instruments GmbH. All of such backlog orders are anticipated to be filled prior
to December 31, 1997. As of December 31, 1995, the Company had approximately
$4,825 in backlog orders, including $416 in backlog orders attributable to
Metrologic Instruments GmbH, all of which were filled during the 1996 fiscal
year.
The Company normally extends 30-day payment terms to its domestic customers and
generally longer payment terms consistent with the customs of the countries of
its foreign customers. Actual payment terms vary but generally do not exceed 90
days.
The following table sets forth certain information as to the Company's sales by
geographical location: (amounts in thousands)
Year Ended December 31,
1994 1995 1996
North America........... $13,481 $18,387 $17,445
Europe.................. 18,646 18,470 23,466
Rest of World........... 3,833 4,706 6,060
------- ------- -------
Total................... $35,960 $41,563 $46,971
For a discussion of additional financial information by geographical area, see
Note 14 of the Notes to Consolidated Financial Statements.
Foreign sales of the Company's products are subject to the normal risks of
foreign operations, such as protective tariffs, export/import controls and
transportation delays and interruptions. The Company's international sales are
invoiced in U.S. dollars and various European currencies and are thus subject to
currency exchange fluctuations. Since the Company's products are manufactured in
the United States, the Company's sales and results of operations are routinely
affected by fluctuations in the value of the U.S. dollar.
Competition
The bar code scanning industry is highly competitive. The Company encounters
competition primarily from manufacturers in the United States, Japan, Taiwan,
Italy, and the Netherlands. The Company's scanners compete primarily with those
produced by Accu-Sort Systems, Inc., Intermec Corp., Microscan Systems, Inc.,
NCR Corporation, Norand Corporation, PSC, Inc., Symbol Technologies, Inc., Welch
Allyn Inc. and others in the United States as well as Scantech located in the
Netherlands, Datalogic, Inc. located in Italy, and Nippondenso ID Systems,
Opticon, Inc. and several other manufacturers located in Asia. While many of the
Company's competitors are much larger and have greater financial, technical,
marketing and other resources than the Company, the Company believes that it
competes on the basis of price, quality, service and product performance.
Patent, Copyright and Trademark Matters
The Company files domestic and foreign patent applications to protect its
technological position and new product development. The Company currently has 23
U.S. patents, which expire between 2003 and 2014, and two foreign patents, which
expire in 2005 and 2007, respectively. The Company has filed additional patent
applications in the U.S. Patent and Trademark Office and in foreign patent
offices with respect to product improvements developed by the Company. The
Company owns U.S. trademark registrations covering Metrologic(R), ScanSet(R),
ScanGlove(R), ScanPal(R), Mini-Slot(R), Liberty (R), and ScanQuest(R). The
Company also has several registered trademarks in foreign countries. The Company
has filed additional trademark applications including HoloTrak(TM), Handset(TM),
and Varside(TM) in both the United States and abroad, for other marks it is
using. The Company intends to continue to file applications for U.S. and foreign
patents. Although management believes that its patents provide some competitive
advantage and market protection, the Company relies primarily upon its
proprietary know-how, innovative skills, technical competence and marketing
abilities for its success.
<PAGE>
The Company regards its software as proprietary and attempts to safeguard it
with protection under copyright and trade secret law and nondisclosure
agreements. Despite this protection, it may be possible for competitors or users
to copy aspects of the Company's products or to obtain information which the
Company regards as trade secrets. Computer software generally has not been
patented and existing copyright laws afford only limited practical protection.
The laws of foreign countries generally do not protect the Company's proprietary
rights in its products to the same extent as the laws of the United States. In
addition, the Company may experience more difficulty in enforcing its
proprietary rights in certain foreign jurisdictions.
In December 1996, the Company and Symbol Technologies, Inc. ("Symbol") executed
an extensive cross-license of patents ("the Symbol Agreement") for which the
Company and Symbol pay royalties to each other under certain circumstances
effective January 1, 1996. In connection with the Symbol Agreement, the Company
paid Symbol an advance license fee of $1 million in December 1996 and agreed to
pay another $1 million in quarterly installments of $125,000, over two years.
The Company financed the $1 million payment with a five-year term note with its
primary bank. The Symbol Agreement also contains purchase provisions under which
Symbol agrees to purchase and the Company agrees to sell certain products and
limited modifications thereof for a stated period of time.
In connection with the settlement of a December 1993 patent lawsuit with Symbol,
the Company agreed to make payments to Symbol through December 31, 2004. As a
result of the patent lawsuit, the Company redesigned its hand-held scanners to
convert them from a triggered version to a triggerless version. In connection
with the Symbol Agreement dated December 1996, Symbol amended the December 1993
settlement to reduce the maximum aggregate amount payable thereunder by the
Company from $7.5 million to approximately $5.1 million. For additional
information concerning the settlement, see Note 11 of the Notes to Consolidated
Financial Statements. For information concerning the Company's involvement in
other patent litigation, see Item 3 - "Legal Proceedings."
Manufacturing and Suppliers
The Company manufactures all of its products at its Blackwood, New Jersey
headquarters, enabling the Company to quickly adapt and enhance its products and
services to meet specific customer requirements. This capability also reduces
the length of the new product development cycle and speeds the integration of
new products into manufacturing. Product quality assurance is achieved by an
experienced workforce. The Company utilizes material requirements planning and
schedules its production to manage inventory levels and meet customer delivery
demands.
The Company has invested and will continue to invest in capital production
equipment and tooling that will automate production, increase capacity and
reduce direct labor costs. The Company utilizes four computerized printed
circuit board surface mount component pick-and-place machines. The Company uses
a computer-based, high-speed coil winder and an automated soldering station for
the production of transformers, inductors and other magnetic components. The
Company uses four computer-controlled machine tools for automated production of
mechanical and optical components. The Company uses three computerized
vacuum-deposition chambers to coat its filters, mirrors and lenses, and
high-speed robotic glass forming machines. Computer-operated equipment is used
for testing printed circuit assemblies as well as the final products to assure
repeatable, reliable performance and accurate data collection for monitoring and
analysis. The Company has in operation a holographic scanning disc engineering
and production facility with the capability to design and manufacture high
volumes of holographic scanners.
The Company believes that by forming long-term relationships with suppliers that
share its commitment to quality, on-time delivery, and cost effectiveness, it
has been able to increase its product value to its customers. The Company does
not believe that the loss of any one supplier would have a material adverse
effect on its business, although set-up costs and delays would result if the
Company were required to change any single supplier without adequate prior
notice.
<PAGE>
Government Regulations
The Company and its products are subject to regulation by various agencies both
in the United States and in the countries in which its products are sold. The
Food & Drug Administration's Center for Devices and Radiologic Health regulates
laser safety in the United States, and in Canada, laser safety is regulated by
the Health Protection Branch. In addition, the Occupational Safety and Health
Administration and various state and municipal government agencies have
promulgated regulations concerning working condition safety standards in
connection with the use of lasers in the workplace. Radio emissions are the
subject of governmental regulation in all countries in which the Company
currently sells its products. The Company also submits its products for product
safety certification in the United States and Canada by the nationally
recognized testing laboratories, the Underwriters Laboratories, Inc. and the
Canadian Standards Association, respectively.
The European countries in which the Company's products are sold also have
standards concerning electrical and laser safety and electromagnetic
compatibility and emissions. The Company's products comply with the European
standards regarding electromagnetic compatibility, allowing these products to
bear the CE mark.
The Company believes that it is currently in compliance with all of the
regulations to which it and its products are subject. There can be no assurance,
however, that governmental agencies will not require the Company to modify its
products or working conditions and, if so required, that the Company would be
able to make such modifications. Failure by the Company to comply with any
regulation or standard could have a material adverse effect on the Company.
Employees
As of December 31, 1996, the Company had 378 full-time employees of whom 46 were
executive and administrative personnel, 33 were sales, marketing and customer
service personnel, 73 were technical personnel, 194 were manufacturing personnel
and 32 were factory support personnel. Of these employees, 32 were located in
Europe. In addition, as of December 31, 1996, the Company had 10 part-time
employees, 4 of whom were located in Europe. None of the Company's employees are
covered by a collective bargaining agreement. Management believes that its
relationships with its employees are good.
Item 2. Properties
Since 1990, the Company's executive offices and manufacturing facilities have
been located in Blackwood, New Jersey and leased by the Company from C. Harry
Knowles, Chairman of the Board, President and Chief Executive Officer of the
Company, and Janet H. Knowles, Vice President, Administration, Secretary and
Treasurer of the Company. Under a lease agreement entered into on April 1, 1994,
the Company has leased the building for a term of five years and has an option
to renew the lease for an additional five year term. The initial annual rent
under the lease for the first year was $356,440 and increases annually at a rate
of 4.5%. An expansion of the facilities consisting of an additional 51,000
square feet was completed in October 1995, which has increased the building to
an aggregate of 113,000 square feet. The expanded space is being leased from Mr.
and Mrs. Knowles pursuant to the terms of the April 1, 1994 lease. The total
lease rate as of April 1, 1997 will be approximately $61,400 per month,
excluding taxes and insurance. The Company believes that its facilities will
adequately meet its needs for the foreseeable future. The Company's former
offices and factory in Bellmawr, New Jersey are no longer utilized for
operations and are currently for sale. In addition, the Company leases an office
in Germany. The sales office in Venezuela is
leased from a third party by an independent representative of the Company.
As of March 1, 1996, Holoscan is a wholly-owned subsidiary of the Company.
Holoscan leases an office and research facility in Morgan Hill, California.
<PAGE>
Item 3. Legal Proceedings
On July 7, 1992, PSC, Inc. ("PSC"), a competitor of the Company, filed a lawsuit
in the United States District Court for the Western District of New York (the
"Court") against the Company alleging that the Company's prior version of its
MS900 series of hand-held scanners infringed a PSC patent. The complaint seeks
an injunction and damages in an unstated amount. The Company filed a
counterclaim for a declaratory judgment asserting that the PSC patent is invalid
and that the Company's prior version of its MS900 series of hand-held scanners
did not infringe such patent. On October 13, 1995, the Court interpreted the
claims of the PSC patent in a patent infringement lawsuit filed by PSC against
another competitor. Based upon that interpretation, it is the Company's belief
that the MS900 series scanners do not infringe the subject patent. Accordingly,
on October 20, 1995, the Company filed a motion for summary judgment of
non-infringement. In response, the Court stayed this action, including the
motion for summary judgment of non-infringement, pending the outcome of the
appeal filed by PSC in the other patent infringement lawsuit. On January 17,
1997, the United States Court of Appeals for the Federal Circuit ("the CAFC")
handed down its decision in the appeal upholding the Court's decision against
PSC and its interpretation of the claims. Following this decision by the CAFC,
the Company has negotiated a settlement with PSC of the patent infringement
claims. Under the terms of this settlement, no monies will be paid by either
party and PSC's infringement claims against the Company will be dismissed with
prejudice. The Company's claim for invalidity will be dismissed without
prejudice.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Executive Officers of the Registrant
The executive officers of the Company as of March 31, 1997 are as follows:
Name Age Position
C. Harry Knowles* 68 President and Chief Executive Officer
Janet H. Knowles* 55 Vice President, Administration, Secretary and
Treasurer
Dr. Leroy D. Dickson 62 Vice President, Optical Engineering, Metrologic
Instruments, Inc. and President and Chief
Operating Officer, Holoscan, Inc.
Dale M. Fischer 56 Vice President, International Sales
Thomas E. Mills IV 37 Vice President, Finance and Chief Financial Officer
Benny A. Noens 49 Vice President, European Sales, and Managing
Director, Metrologic Instruments GmbH
John L. Patton 51 Director, Human Resources
William G. Smeader 58 Vice President, Manufacturing
Kevin P. Woznicki 43 Vice President, North American Sales
- ----------
* Mr. and Mrs. Knowles are husband and wife.
The Company's executive officers are elected annually by the Board of Directors
following the annual meeting of stockholders and serve at the discretion of the
Board of Directors.
C. Harry Knowles is the founder of the Company and has been Chairman of the
Board of Directors since its inception in 1969. Mr. Knowles served as President
of the Company from its inception through 1982 and has served as President and
Chief Executive Officer since 1985. In addition, Mr. Knowles served as chief
technical officer with responsibility for all of the Company's research and
development activities from 1982 to 1985. Since 1988, Mr. Knowles has also
served as a Managing Director of Metrologic Instruments GmbH. Prior to
founding the Company, Mr. Knowles was the general manager of Westinghouse
Electric Corporation's integrated circuits division in Elkridge, Maryland.
Janet H. Knowles was a director of the Company from 1972 to 1984 and has served
as a director since 1986. Mrs. Knowles served as Vice President, Administration
from 1976 to 1983 and has served in that capacity since 1984, as Treasurer
since 1994 and as Secretary since 1984. Mrs. Knowles is responsible for the
Company's administrative matters.
<PAGE>
Dr. Leroy D. Dickson has served as the Company's Vice President, Optical
Engineering since January 14, 1997. He is also the President and Chief
Operating Officer of Holoscan, Inc., a wholly-owned subsidiary of the
Company. Dr. Dickson is a co-founder of Holoscan, a company that was
established in 1993 to develop holographic bar code scanners. Dr. Dickson
served as Chairman, Chief Executive Officer and President of Holoscan, Inc.
until March 1996, the date of the acquisition.Prior to 1993, Dr. Dickson
spent 24 years with IBM developing optical technology and laser scanning
systems, including IBM's holographic supermarket scanners.
Dale M. Fischer served as the Company's Director of International Marketing and
Sales from 1990 to 1993 and has served as Vice President, International Sales
since 1994. From 1989 to 1990, Mr. Fischer was Chairman of Great Valley
Corporation, a worldwide marketing and product development company. From 1967
until 1988, Mr. Fischer held several positions with TRW Electronics Component
Group ("TRW"), most recently as International Marketing, Sales and Licensing
Director. Mr. Fischer was responsible for marketing and sales of TRW products in
more than 50 countries and was responsible for the implementation of a joint
venture in Japan and the establishment of seven technology and manufacturing
licenses throughout the world. Mr. Fischer has also served as President of Dalex
International Corporation, a company devoted to export/import and worldwide
market development.
Thomas E. Mills IV is a certified public accountant and has been the Company's
Chief Financial Officer since May 1994 and Vice President, Finance since June
1995. Mr. Mills was employed by Ferranti International, Inc. from 1986 to April
1994 in various positions, most recently as Senior Vice President, U.S.
Operations. Prior to his employment with Ferranti International, Inc., Mr.
Mills was employed by KPMG Peat Marwick in various positions from 1981 to 1986,
most recently as Audit Manager.
Benny A. Noens served as the Company's European Sales Manager from 1991 to 1993
and has served as Vice President, European Sales since 1994. In addition, Mr.
Noens has been Managing Director of Metrologic Instruments GmbH since 1994. From
1980 until 1991, Mr. Noens held several positions with Data General Corporation,
including serving in Latin America as Marketing and Distribution Manager. Prior
to his employment at Data General, Mr. Noens managed C.T. Janer Co., an
import/export company located in Rio de Janiero, Brazil.
John L. Patton served as the Company's Human Resources Manager from 1993 to 1996
and has served as Director, Human Resources since December 1996. From 1988 to
February 1993, he was employed as a human resources consultant with the Gordon
Walls Company and from 1984 to 1988, he was employed as human resources manager
at TRW, IRC Division . From 1979 to 1984 he held the position of Personnel
Manager at Oral B Laboratories.
William G. Smeader served as the Company's Director of Manufacturing from 1988
to 1993 and has served as its Vice President, Manufacturing since 1994. From
1964 to 1987, he was employed by Leeds and Northrup, a manufacturer of
industrial instrumentation controls and a unit of General Signal Corporation,
where he held several positions including Engineering Manager of New Product
Development, Manager of New Product Introductions, Purchasing Manager, Director
of Advanced Business Development and Director of Materials and MIS Systems.
Kevin P. Woznicki served as the Company's Director of Marketing from August 1995
to July 1996, Vice President of Marketing from August 1996 to November 1996, and
Vice President, North American Sales since December 1996. From 1994 to July
1995, he was employed by Franklin Electronic Publishing as North American Sales
Manager. From 1988 to 1994 he was employed by SL Waber, Inc., a manufacturer of
portable power protection devices, where he held several positions including
Vice President, General Manager of the business products division and Vice
President, Sales and Marketing.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The common stock of the Company, par value $.01 per share ("Common Stock") is
traded on The Nasdaq Stock Market under the symbol "MTLG." The following table
sets forth, for the indicated periods, the high and low closing prices of the
Company's Common Stock as reported by Nasdaq:
High Low
September 29, 1994 (effective date of
the Company's initial public offering)
to September 30, 1994 $11 3/4 $10
October to December 1994 $15 3/4 $10 3/4
January to March 1995 $20 3/4 $15
April to June 1995 $18 3/8 $ 8 1/2
July to September 1995 $10 1/2 $ 7 3/8
October to December 1995 $10 3/4 $ 9 1/4
January to March 1996 $13 1/4 $ 9 3/8
April to June 1996 $13 $11
July to September 1996 $13 1/2 $11 1/4
October to December 1996 $16 1/2 $13 1/4
On March 21, 1997 there were 171 stockholders of record of Common Stock.
The Company declared dividends of $400,000 in March 1994 and $540,000 in June
1994 on account of S Corporation taxable earnings, which were taxed at the
stockholder level. On September 29, 1994, the Company declared dividends to
stockholders of record on such date in the aggregate amount of $1,561,000 on
account of previously undistributed S Corporation taxable earnings through
December 31, 1993, which were taxed at the stockholder level. Of such dividends,
$780,500 was paid by seven-year notes of the Company and $780,500 was paid in
cash contemporaneously with the consummation of the Company's initial public
offering on October 6, 1994. In addition, on September 29, 1994, the Company
declared a dividend payable to stockholders of record on such date in the amount
of $735,000 on account of S Corporation taxable earnings, which were taxed at
the stockholder level. The Company has not declared dividends on its Common
Stock since September 1994.
The Company currently anticipates that it will retain all of its earnings to
finance the operation and expansion of its business, and therefore does not
intend to pay dividends on its Common Stock in the foreseeable future. Any
determination to pay dividends is at the discretion of the Company's Board of
Directors and will depend upon the Company's financial condition, results of
operations, capital requirements, limitations contained in loan agreements and
such other factors as the Board of Directors deems relevant.
<PAGE>
Item 6. Selected Consolidated Financial Data
Year ended December 31,
-------------------------------------------------
1992 1993 1994 1995 1996
---------- -------- --------- --------- ---------
Statement of Operations Data: (In thousands, except share and per share data)
Sales 17,031 23,682 35,960 41,563 46,971
Cost of sales 11,215 14,666 20,633 24,092 28,799
---------- -------- --------- -------- ---------
Gross profit 5,816 9,016 15,327 17,471 18,172
Selling, general and
administrative expenses 3,349 4,709 7,830 10,589 10,505
Research and development
expenses 1,253 1,516 1,765 3,024 3,110
---------- -------- --------- --------- ---------
Operating income 1,214 2,791 5,732 3,858 4,557
Settlement of patent litigation
and related legal costs (116) (5,002) - - -
Other income (expense), net (144) (489) (242) 353 221
---------- -------- --------- --------- ---------
Income (loss) before provision
(benefit)for income taxes(1) 954 (2,700) 5,490 4,211 4,778
Provision (benefit)for
income taxes 108 (273) (333) 1,669 1,803
--------- --------- --------- --------- ---------
Net income (loss) 846 (2,427) 5,823 2,542 2,975
========= ========= ========= ========= =========
Pro forma adjustment
(unaudited)(2) Provision
(benefit) for income
taxes as a C Corporation 262 (791) 2,617 n/a n/a
--------- --------- --------- --------- ---------
Pro forma net income (loss)(2) 584 (1,636) 3,206 n/a n/a
========= ========= ========= ========= =========
Weighted average number of
shares used in computing
net income per share and
pro forma net income per
share 3,499,998 3,499,998 3,912,100 5,278,683 5,301,066
========= ========= ========= ========= =========
Income (loss) per share:
Net income (loss) per
share 0.24 (0.69) 1.49 0.48 0.56
========= ========= ========= ========= =========
Pro forma net income
(loss) (2) 0.17 (0.47) 0.82 n/a n/a
========= ========= ========= ========= =========
December 31,
-------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
Balance Sheet Data: (In thousands, except share and per share data)
Cash and cash equivalents $ 150 $ 346 $11,925 $12,065 $10,358
Working capital $2,147 $ 1,669 $14,942 $14,733 $15,200
Total assets $6,672 $ 9,268 $26,342 $31,401 $35,992
Long-term debt $3,596 $ 3,077 $ 803 $ 817 $ 1,764
Other long-term obligations $ 187 $ 4,159 $ 3,718 $ 3,126 $ 2,033
Total liabilities $6,164 $12,069 $11,329 $13,475 $14,945
Common stock $ 35 $ 35 $ 52 $ 52 $ 53
Total stockholders'
equity (deficit) $ 508 $(2,801) $15,013 $17,926 $21,047
Cash dividends declared per
common share $ - $ 0.18 $ 0 .83 $ - $ -
(1) Benefit for income taxes for the year ended December 31, 1994 includes a
benefit of $1.7 million related to the change in the Company's federal
income tax status upon termination of its election to be treated as an S
Corporation.
(2) In connection with the consummation of the Company's initial public
offering in October 1994, the Company's status as an S Corporation
terminated, and the Company is now subject to corporate income taxes.
Accordingly, pro forma net income (loss) and pro forma net income (loss)
per share reflect a pro forma adjustment for corporate income taxes which
would have been recorded had the Company not been an S Corporation in the
periods presented.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The Company derives its revenues from sales of its scanners through
distributors, VARs and OEMs and directly to end-users in the United States and
in over 80 foreign countries. Since 1991, the Company has experienced a growth
in revenues with a significant percentage of its revenues derived from
international sales.
Results of Operations
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995 (amounts
in thousands)
Sales increased 13.0% to $46,971 in 1996 from $41,563 in 1995, principally as a
result of the continued increase in market acceptance of the Company's
point-of-sale ("POS") laser scanners. The increase in sales was offset by lower
average unit selling prices in 1996, which included unfavorable foreign exchange
fluctuations from the Company's German subsidiary. International sales accounted
for $29,526 (62.9% of total sales) in 1996 and $23,176 (55.8% of total sales) in
1995. The Company's sales to two customers accounted for approximately 5.3% and
5.2% of total sales, respectively, in 1996. Sales to one other customer
accounted for approximately 12.0% of total sales in 1995, however, this same
customer accounted for 4.2% of sales in 1996. During these periods, no other
customer accounted for more than 5% of sales.
Cost of sales increased 19.5% to $28,799 in 1996 from $24,092 in 1995, and cost
of sales as a percentage of sales increased to 61.3% from 58.0%. The increase in
cost of sales as a percentage of sales was due primarily to the reduction in
average unit selling prices as described above, increased royalties associated
with a cross-licensing agreement entered into in 1996 (See Item 1,
"Business-Patent, Copyright and Trademark Matters"), and initial production and
set-up costs on the new POS and industrial holographic laser scanners introduced
in 1996. The increase in cost of sales was partially mitigated by cost
reductions in certain component parts, higher production yields on established
products, and increased manufacturing efficiencies through higher production
volume on established products.
Selling, general and administrative ("SG&A") expenses decreased 0.8% to $10,505
in 1996 from $10,589 in 1995, and decreased as a percentage of sales to 22.4%
from 25.5%. SG&A expenses in 1996 included increased salary costs of employees
hired during the year primarily due to the growth of the business, however, SG&A
expenses in 1995 contained legal costs associated with the PSC litigation (See
Item 3, "Legal Proceedings"), which were not incurred in 1996.
Research and development ("R&D") expenses increased 2.8% to $3,110 in 1996 from
$3,024 in 1995, and decreased as a percentage of sales to 6.6% from 7.3%. The
increase in R&D expenses was due to the hiring of additional research and
development personnel including employees of Holoscan, which was acquired in
March 1996 (See Item 1, "Business Research and Product Development"). R&D
expenses in 1995, however, included expenditures associated with an agreement to
develop holographic scanners jointly with Holoscan which occurred prior to the
acquisition.
Operating income increased 18.1% to $4,557 in 1996 from $3,858 in 1995, and
operating income as a percentage of sales increased to 9.7% from 9.3%. These
increases reflect higher sales levels and decreased SG&A expenses and R&D
expenses as a percentage of revenue, offset slightly by higher costs of sales as
described above.
<PAGE>
Other income decreased 37.4% to $221 in 1996 from $353 in 1995. Other income
decreased principally as a result of decreased interest income, partially offset
by decreased interest expense and foreign currency losses. Foreign currency
losses were primarily due to the strengthening of the US dollar against the
German deutsche mark.
Net income increased 17.0% to $2,975 in 1996 from $2,542 in 1995. Net income
reflects a 37.7% effective income tax rate in 1996 compared with 39.6% in 1995.
The reduced effective income tax rate resulted from the first full year of
incorporation of the Company's foreign sales corporation which permits the
Company to reduce its United States federal income tax liability on profits from
sales to foreign customers.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994 (amounts
in thousands)
Sales increased 15.6% to $41,563 in 1995 from $35,960 in 1994, principally as a
result of the continued increase in market acceptance of the Company's hand-held
and industrial scanners. The sales increase in 1995 was mitigated by an increase
in competition in the POS/retail laser bar code industry which caused the
Company to reduce significantly the average unit selling price on certain
products, which in turn negatively affected cost of sales as a percentage of
sales. International sales accounted for $23,176 (55.8% of total sales) in 1995
and $22,479 (62.5% of total sales) in 1994. One customer accounted for
approximately 12.0% of the Company's revenues in 1995. Another customer
accounted for approximately 5.1% of the Company's revenues in 1994. During the
same periods no other customers accounted for more than 5.0% of the Company's
revenues.
Cost of sales increased 16.8% to $24,092 in 1995 from $20,633 in 1994, and cost
of sales as a percentage of sales increased to 58.0% from 57.4%. The increase in
cost of sales as a percentage of sales was due primarily to the reduction in
average unit selling prices on certain products described above, which was
partially mitigated by cost reductions in component parts, higher production
yields, increased manufacturing efficiencies through higher production volume
and an increased percentage of industrial scanner sales as a percentage of total
sales. The cost of sales of the Company's industrial scanners has been lower as
a percentage of sales than that of the Company's other scanners.
SG&A expenses increased 35.2% to $10,589 in 1995 from $7,830 in 1994, and
increased as a percentage of sales to 25.5% from 21.8%. The increases were due
largely to (i) higher expenditures associated with European sales and
distribution operations, (ii) expenditures associated with the opening in
January 1995 of a South American sales office in Caracas, Venezuela, (iii)
increased general and administrative costs resulting from the Company's growth
and reporting requirements applicable to a public company and (iv) increased
legal costs associated with the Company's patent litigation with a competitor.
See Part I, Item 3. "Legal Proceedings."
R&D expenses increased 71.3% to $3,024 in 1995 from $1,765 in 1994. The increase
was caused by the hiring of additional research and development personnel and
higher research and development expenditures associated with an agreement to
develop holographic scanners jointly with Holoscan. See Part I, Item 1.
"Business - Research and Product Development" and "-Liquidity and Capital
Resources."
<PAGE>
Operating income decreased 32.7% to $3,858 in 1995 from $5,732 in 1994, and
operating income as a percentage of sales decreased to 9.3% from 15.9%. These
decreases were principally due to the increased SG&A expenses, increased R&D
expenses and the reduction of average unit selling prices of certain of the
Company's products as noted above.
Other income (expense) increased to $353 in 1995 from $(242) in 1994. Other
income (expense) consisted principally of interest income in the amount of $481
in 1995 and $123 in 1994, and interest expense in the amount of $155 in 1995 and
$353 in 1994.
Net income decreased 20.7% to $2,542 in 1995 from pro forma net income of $3,206
in 1994. Pro forma net income reflects a 39.6% effective income tax rate in 1995
compared with 41.6% in 1994. The reduced effective income tax rate resulted
primarily from the April 1, 1995 incorporation of Metrologic Instruments
(Barbados), Inc. of South America, a foreign sales corporation, in accordance
with the United States Internal Revenue Code, which permits the Company to
reduce its U.S. federal income tax liability resulting from sales to foreign
corporations.
Inflation and Seasonality
Inflation and seasonality have not had a material impact on the Company's
results of operations. There can be no assurance, however, that the Company's
sales in future years will not be impacted by fluctuations in seasonal demand
from European customers in its third quarter or from reduced production days in
its fourth quarter.
Liquidity and Capital Resources (amounts in thousands)
As of December 31, 1996 and 1995, the Company's working capital was
approximately $15,200 and $14,733, respectively.
During the year ended December 31, 1996, the Company's operating activities
provided net cash of $620 compared to funds provided of $2,944 for the year
ended December 31, 1995. The decrease in 1996 reflected increases in inventory
and accounts receivable which were partially financed by increases in accounts
payable and accrued expenses.
The Company's total deferred income tax asset (current and long-term) of
approximately $2,503 is based upon cumulative temporary differences as of
December 31, 1996, which provide approximately $6,266 of future income tax
deductions against future taxable income. The temporary differences arise
primarily from recording the patent lawsuit settlement as an expense for
accounting purposes prior to receiving the related tax benefit.
In December 1996, the Company entered into the First Amendment to the Amended
and Restated Loan and Security Agreement with PNC Bank, National Association,
successor by merger to Midlantic Bank, N.A. ("PNC Bank") dated November 1995
(the "First Amendment"). The First Amendment provided for the execution of a
Term Note in the amount of $1,300, which was used, in part, to pay obligations
under the Symbol Agreement. The Term Note bears interest at PNC Bank's variable
Euro-Rate (5.5% at December 31, 1996) plus 1.75%. See Item 1, "Business -
Patent, Copyright and Trademark Matters."
Also in December 1996, the Company entered into the Second Amendment to the
Amended and Restated Loan and Security Agreement with PNC Bank dated November
1995 (the "Second Amendment"). The Second Amendment provided for an increase in
the Company's available line of credit from $5,000 to $7,500. The line of credit
bears interest at a rate selected by the Company from interest rate options
offered by PNC Bank. Interest rate options consist of (i) PNC Bank's prime rate
(8.25% at December 31, 1996) minus 0.25%, or (ii) PNC Bank's Euro-Rate (5.5% at
December 31, 1996) plus 1.75%. As of December 31, 1996, no amounts were
outstanding under this line of credit.
The aforementioned Amended and Restated Loan and Security Agreement expires
annually on June 30. Amendments also include updated financial covenants for
which the Company is in compliance.
The Company also has a 500 deutsche mark unsecured revolving line of credit with
a German bank in the name of its German subsidiary, Metrologic Instruments GmbH.
As of December 31, 1996, no amounts were outstanding under this revolving credit
facility. As of December 31, 1995, $175 was outstanding under this revolving
credit facility.
<PAGE>
The Company's current plans for additional capital expenditures in 1997
potentially include (i) the Company's office and manufacturing facility
currently being leased from the Company's principal stock holder, chairman,
president, and CEO and his spouse, the Company's Vice President Administration
and Treasurer; (ii) manufacturing automation equipment; (iii) office equipment;
and (iv) a new integrated management information system. Aggregate amounts of
potential capital expenditures amount to approximately $6,000. The objective
of the potential purchase of the Company's office and manufacturing facility is
to save the Company approximately $200 of rent expenses, net of depreciation
and interest expenses. The Company expects to finance such expenditures from a
combination of term notes, operating and capital leases, and a mortgage. During
1996, the Company leased, under capital leases, manufacturing automation
equipment and office equipment with lease payments aggregating approximately
$233.
The Company's liquidity could be adversely affected by changes in foreign
currency exchange rates. Since December 31, 1996, the Company and its subsidiary
Metrologic Instruments GmbH have been exposed to unfavorable foreign currency
exchange fluctuations as a result of a decline in the value of the deutsche mark
against the U.S. dollar. The Company is exploring its alternatives with respect
to mitigating the financial implications of the volatility in the exchange rate
between the deutsche mark and the U.S. dollar including foreign currency forward
exchange contracts and potentially increasing product sales prices in Europe.
The Company exercised its option to purchase all of the outstanding shares of
common stock of Holoscan on March 1, 1996 for $521, net of cash acquired. The
Company purchased a 51% equity interest in Holoscan in 1995 in the form of
non-voting, convertible preferred stock for $360. Concurrent with the exercise
of the above option, the Company converted its non-voting, convertible preferred
stock of Holoscan to an equal number of shares of Holoscan common stock and now
owns 100% of the outstanding capital stock of Holoscan.
Pursuant to an option agreement entered into in March 1995 among the Company,
Holoscan and the Holders, the Company agreed to pay to each Holder, through
1998, a payment based on the Company's sales of certain holographic laser
scanners. As of December 31, 1996, an aggregate of $15 had been paid to the
Holders. All such amounts incurred are considered additions to holographic
technology and are being amortized over the remainder of the ten-year period.
See Part I, Item 1, "Business - Research and Product Development."
The Company believes that its current cash and cash equivalents balances, along
with cash generated from operations and the available revolving credit
facilities with banks, will be adequate to fund the Company's operations through
at least December 31, 1997.
Impact of Recently Issued Accounting Pronouncements
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation," is effective for fiscal years beginning after December 15,
1995. Statement No. 123 provides companies with a choice to follow the
provisions of Statement No. 123 in determination of stock-based compensation
expenses or to continue with the provisions of APB 25, "Accounting for Stock
Issued to Employees." The Company continues to follow APB 25 and provides pro
forma disclosures as required by Statement No. 123 in the Notes to Consolidated
Financial Statements.
Item 8 Financial Statements and Supplementary Data
Index Pages
Report of Ernst & Young LLP, independent auditors 16
Consolidated Balance Sheets at December 31, 1996 and 1995 17
Consolidated Statements of Operations for each of the three years
in the period ended December 31, 1996 18
Consolidated Statements of Stockholders' Equity for
each of the three years in the period ended December 31, 1996 19
Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 1996 20
Notes to Consolidated Financial Statements 21-31
Supplementary Data (Unaudited) 32-33
Financial statement schedules:
Schedule II - Valuation and Qualifying Accounts is filed
herewith. All other schedules are omitted because they are
not applicable, not required, or because the required
information is included in the consolidated financial
statements or notes thereto. 38
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Metrologic Instruments, Inc.
We have audited the accompanying consolidated balance sheets of Metrologic
Instruments, Inc. as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1996. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and the schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
the schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Metrologic Instruments, Inc. at December 31, 1996 and 1995, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young, LLP
Philadelphia, Pennsylvania
February 26, 1997
<PAGE>
Metrologic Instruments, Inc.
Consolidated Balance Sheets
(amounts in thousands except share data)
December 31,
----------------------------
Assets 1996 1995
------------ ------------
Current assets:
Cash and cash equivalents $ 10,358 $12,065
Accounts receivable, net of allowance of
$493 and $224 in 1996 and 1995,
respectively 8,035 6,924
Inventory 5,588 3,456
Deferred income taxes 1,848 1,314
Other current assets 519 506
------------ ------------
Total current assets 26,348 24,265
Property, plant and equipment, net 4,692 3,880
Patents and trademarks, net of amortization
of $427 and $356 in 1996 and 1995,
respectively 1,015 878
Holographic technology, net of amortization
of $67 and $0 in 1996 and 1995, respectively 777 468
Deferred income taxes 655 1,451
Advance license fee 2,000 -
Security deposits and other assets 505 459
------------ ------------
Total assets $35,992 $ 31,401
============ ============
Liabilities and stockholders' equity
Current liabilities:
Line of credit $ - $ 175
Current portion of notes payable 596 390
Accounts payable 2,607 2,301
Accrued expenses 7,040 6,067
Accrued legal settlement 905 599
------------ ------------
Total current liabilities 11,148 9,532
Notes payable, net of current portion 1,764 817
Deferred income taxes 23 42
Accrued legal settlement 1,510 3,000
Other liabilities 500 84
Stockholders' equity:
Preferred stock, $0.01 par value: 500,000
shares authorized; none issued - -
Common stock, $0.01 par value: 10,000,000 shares
authorized; 5,274,351 and 5,249,150 shares
issued and outstanding in 1996 and 1995,
respectively 53 52
Additional paid-in capital 15,055 14,807
Retained earnings 5,596 2,621
Deferred compensation (8) (37)
Foreign currency translation adjustment 351 483
------------ ------------
Total stockholders' equity 21,047 17,926
------------ ------------
Total liabilities and stockholders' equity $35,992 $31,401
============ ============
See accompanying notes
<PAGE>
Metrologic Instruments, Inc.
Consolidated Statements of Operations
(amounts in thousands except share and per share data)
Year ended December 31,
---------------------------------------------
1996 1995 1994
-------------- -------------- --------------
Sales $ 46,971 $ 41,563 $ 35,960
Cost of sales 28,799 24,092 20,633
-------------- -------------- --------------
Gross profit 18,172 17,471 15,327
Selling, general and administrative
expenses 10,505 10,589 7,830
Research and development expenses 3,110 3,024 1,765
-------------- -------------- --------------
Operating income 4,557 3,858 5,732
Other income (expense)
Interest income 431 481 123
Interest expense (108) (155) (353)
Foreign currency transaction
(loss) gain (101) 26 (23)
Other, net (1) 1 11
-------------- -------------- --------------
Total other income (expense) 221 353 (242)
-------------- -------------- --------------
Income before provision (benefit)
for income taxes 4,778 4,211 5,490
Provision (benefit) for income
taxes 1,803 1,669 (333)
-------------- -------------- --------------
Net income $ 2,975 $ 2,542 $ 5,823
============== ============== ==============
Pro forma adjustment (unaudited)
Provision for income taxes
as a C Corporation n/a n/a $ 2,617
-------------- -------------- --------------
Pro forma net income (unaudited) n/a n/a $ 3,206
============== ============== ==============
Weighted average number of shares
used in computing net income
per share and pro forma net
income per share 5,301,066 5,278,683 3,912,100
============== ============== ==============
Income per share:
Net income per share $ 0.56 $ 0.48 $ 1.49
============== ============== ==============
Pro forma net income
(unaudited) n/a n/a $ 0.82
============== ============== ==============
See accompanying notes
<PAGE>
Metrologic Instruments, Inc.
Consolidated Statements of Stockholders' Equity
(amounts in thousands except per share data)
Retained Foreign
Additional Earnings Currency
Common Paid-in Deferred (Accumulated Translation
Stock Capital Compensation Deficit) Adjustment Total
Balances,
December 31, 1993 $35 $ - $ - $(2,508) $( 328)$(2,801)
Issuance of stock,
net of issuance
costs 17 14,475 - - - 14,492
Foreign currency
translation - - - - 710 710
Deferred compensation
resulting from grant
of stock awards - 110 (110) - - -
Compensation expense
related to stock
awards - - 25 - - 25
Net income - - - 5,823 - 5,823
Dividends
($0.83 per share) - - - (3,236) - (3,236)
------ ------ ------ ------ ------ ------
Balances,
December 31, 1994 52 14,585 (85) 79 382 15,013
Exercise of stock
options - 139 - - - 139
Stock issued through
employee stock
purchase plan - 83 - - - 83
Foreign currency
translation - - - - 101 101
Compensation expense
related to stock
awards - - 48 - - 48
Net income - - - 2,542 - 2,542
------ ------ ------ ------ ------ ------
Balances,
December 31, 1995 52 14,807 (37) 2,621 483 17,926
Exercise of stock
options 1 188 - - - 189
Stock issued through
employee stock
purchase plan - 60 - - - 60
Foreign currency
translation - - - - (132) (132)
Compensation expense
related to stock
awards - - 29 - - 29
Net income - - - 2,975 - 2,975
------ ------ ------ ------ ------ ------
Balances,
December 31, 1996 $53 $15,055 $ (8) $ 5,596 $ 351 $21,047
======= ======= ====== ======= ======= =======
See accompanying notes
<PAGE>
Metrologic Instruments, Inc.
Consolidated Statements of Cash Flows
(amounts in thousands)
Year ended December 31,
---------------------------
Operating activities 1996 1995 1994
------ ------ ------
Net income $ 2,975 $ 2,542 $ 5,823
Adjustments to reconcile net income to net
cash provided by operating
activities:
Depreciation 885 624 480
Amortization 138 187 47
Foreign currency transaction loss(gain) 101 (26) 23
Accretion of payments due to former stockholder - - 92
Compensation expense related to stock awards and
employee stock purchase plan 38 56 25
Deferred income taxes 243 (541) (1,763)
Changes in operating assets and liabilities:
Accounts receivable (1,403) (1,544) (1,885)
Inventory (2,194) 140 (623)
Other current assets 88 88 (203)
Other assets (46) (390) (113)
Accounts payable 306 251 (332)
Accrued expenses 673 1,932 2,933
Accrued legal settlement (1,184) (375) (350)
------ ------ ------
Net cash provided by operating activities 620 2,944 4,154
Investing activities
Purchase of property, plant and equipment (1,427) (1,823) (796)
Patents and trademarks (208) (363) (198)
Advance license fee (1,000) - -
Purchase of Holoscan, Inc., and holographic
technology, net of cash acquired (560) (360) -
------ ------ ------
Net cash used in investing activities (3,195) (2,546) (994)
Financing activities
Net proceeds from issuance of common stock - - 14,492
Proceeds from exercise of stock options and
employee stock purchase plan 240 214 -
Borrowings from stockholder - - 405
Repayments to stockholder - - (2,205)
Principal payments on notes payable (248) (111) (1,697)
Proceeds from issuance of notes payable 1,318 - -
Net (payments) proceeds from line of credit (168) 168 -
Payments of amounts due to former officer (200) (200) -
Capital lease payments (151) (127) -
Dividends paid - - (2,920)
------ ------ ------
Net cash provided by (used in)
financing activities 791 (56) 8,075
Effect of exchange rates on cash 77 (202) 344
------ ------ ------
Net (decrease) increase in cash and
cash equivalents (1,707) 140 11,579
Cash and cash equivalents at beginning of year 12,065 11,925 346
------ ------ ------
Cash and cash equivalents at end of year $10,358 $12,065 $11,925
====== ====== ======
Supplemental Disclosure
Cash paid for interest $ 125 $ 110 $ 927
====== ====== ======
Cash paid for income taxes $ 2,706 $ 1,687 $ 190
====== ====== ======
Liability incurred for advance license fee $ 1,000 $ - $ -
====== ====== ======
Note payable issued for dividends $ - $ - $ 780
====== ====== ======
Capital lease obligations incurred $ 233 $ 531 $ -
====== ====== ======
See accompanying notes
<PAGE>
Metrologic Instruments, Inc.
Notes to Consolidated Financial Statements
December 31, 1996
(Dollars in Thousands)
1. Business
Metrologic Instruments, Inc. designs, manufactures and markets bar code
scanning equipment incorporating laser and holographic technology. The Company's
principal products are hand-held scanners, fixed projection scanners, in-counter
scanners and industrial scanners. These scanners rapidly, accurately, and
efficiently read and decode all widely used bar codes and provide an efficient
means for data capture and automated data entry into computerized systems.
Information on the Company's operations by geographical area is included in Note
14.
2. Accounting Policies
Basis of Consolidation
The accompanying consolidated financial statements include the accounts
of Metrologic Instruments, Inc., its domestic subsidiaries including Holoscan,
Inc., for which the Company exercised its option to purchase all of the common
stock on March 1, 1996, and its foreign subsidiary, Metrologic Instruments GmbH.
Metrologic Instruments GmbH was owned 79% by the Company and 21% by the
principal stockholder of the Company prior to the closing of the Company's
initial public offering of its common stock in October 1994 (Note 15). In
connection with the closing of the offering, the principal stockholder of the
Company transferred his ownership interest in Metrologic Instruments GmbH to the
Company. For purposes of consolidation, Metrologic Instruments GmbH has been
accounted for as if it were 100% owned by Metrologic Instruments, Inc. for all
periods presented. All significant intercompany balances and transactions have
been eliminated in consolidation.
Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
Product sales revenue is recognized upon the transfer of title to
goods.
Cash and Cash Equivalents
The Company considers all highly-liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The cost of
the Company's cash equivalents approximates their fair market value at December
31, 1996.
Inventory
Inventory is stated at the lower of cost, determined on a first-in,
first-out basis, or market.
Property, Plant and Equipment
Property, plant, and equipment are stated at cost. Depreciation is
determined on the straight-line method for building and improvements over
estimated useful lives of 15 to 31 years and on an accelerated method for
machinery, equipment and fixtures over estimated useful lives of five to seven
years.
Patents and Trademarks
Patents and trademarks reflect application and testing costs for
products with respect to which the Company has applied for or received patent
and trademark protection. Costs expended for successful patent and trademark
applications are being amortized on a straight-line basis over their useful
lives, which generally are 17 years.
<PAGE>
Advance License Fee
The Company capitalized an advance license fee of $2,000 in December
1996 (Note 11). The advance license fee will be amortized on a straight-line
basis over the estimated useful life of the patents covered by the underlying
cross-licensing agreement.
Foreign Currency Translation
The financial statements of the Company's foreign subsidiary have been
translated into U.S. dollars in accordance with FASB Statement No. 52, "Foreign
Currency Translation." All balance sheet accounts have been translated using the
exchange rates in effect at the balance sheet date. Income statement amounts
have been translated using the average exchange rate for the year. The gains and
losses resulting from the changes in exchange rates from year to year have been
reported separately as a component of stockholders' equity.
Income Taxes
The Company accounts for income taxes using the liability method. The
liability method provides that deferred tax assets and liabilities are recorded
based on the difference between the tax bases of assets and liabilities and
their carrying amounts for financial reporting purposes, referred to as
"temporary differences." Temporary differences result from the use of different
accounting methods for financial statement and income tax reporting purposes.
Net Income Per Share
Net income per share is computed on the basis of weighted average
number of common shares and common equivalent shares outstanding during the
years ended December 31, 1996, 1995, and 1994.
Pro forma net income (unaudited) in 1994 reflects a pro forma
adjustment for income taxes which would have been recorded had the Company not
been an S Corporation. Pro forma net income per share is calculated based on pro
forma net income and the weighted average number of shares outstanding during
the year ended December 31, 1994.
Concentrations of Credit Risk
The Company's sales to two customers accounted for approximately 5.3%
and 5.2%, respectively, of total sales in 1996. Amounts due from those customers
amounted to approximately $1,003 at December 31, 1996. Amounts due from one
customer are secured by the assets of the customer's business and personal
assets. Sales to one other customer accounted for approximately 12.0% of total
sales in 1995. Amounts due from this customer amounted to approximately $1,000
at December 31, 1995. During these periods, no other customer accounted for more
than 5.0% of sales.
The Company has operations in the United States and Germany. Sales to
North America, Europe and other countries accounted for 37.1%, 50.0%, and 12.9%
of total sales, respectively, in 1996. The Company performs ongoing credit
evaluations of its customers' financial condition, and except where risk
warrants, requires no collateral. The Company may require, however, letters of
credit or prepayment terms for those customers in lesser developed countries.
Short-term cash investments are placed with high credit quality
financial institutions or in short-term high quality debt securities. The
Company limits the amount of credit exposure in any one institution or single
investment.
<PAGE>
Accounting for Stock Options
The Company adopted Statement of Financial Accounting Standards
No. 123, "Accounting for Stock Based Compensation," in 1996. Statement No. 123
provides companies with a choice to follow the provisions of Statement No.
123 in determination of stock-based compensation expenses or to continue with
the provisions of APB 25, "Accounting for Stock Issued to Employees." The
Company continues to follow APB 25 and provides pro forma disclosures as
required by Statement No. 123 in the notes to the consolidated financial
statements.
Reclassification
Certain prior year balances have been reclassified to conform with
current year presentation.
3. Inventory
Inventory consists of the following:
December 31,
1996 1995
Raw materials $2,644 $1,698
Work-in-process 1,636 1,311
Finished goods 1,308 447
------- --------
$5,588 $3,456
====== ======
4. Property, Plant and Equipment
Property, plant and equipment consists of the following:
December 31,
1996 1995
Buildings and improvements $2,285 $1,677
Machinery and equipment 6,001 4,924
------ ------
8,286 6,601
Less accumulated depreciation 3,960 3,142
------ ------
4,326 3,459
Idle land and building, net of
depreciation 366 421
------ ------
$4,692 $3,880
====== ======
Machinery and equipment included $759 and $531 under capital leases as of
December 31, 1996 and 1995, respectively. Accumulated amortization on these
assets was $218 and $81 as of December 31, 1996 and 1995, respectively.
Idle land and building consist of the Company's land and building in Bellmawr,
New Jersey, which are no longer utilized for operations. The building is being
depreciated over its estimated remaining life.
5. Accrued Expenses
Accrued expenses consist of the following:
December 31,
1996 1995
Accrued royalties $ 914 $ -
Accrued compensation 965 487
Income taxes 164 1,259
Product warranty 1,192 1,056
Profit sharing 302 200
Due to former officer 84 200
Other 3,419 2,865
------- -------
$7,040 $ 6,067
<PAGE>
6. Notes Payable
Notes payable consist of the following:
December 31,
1996 1995
Term note payable, to a bank, interest at
Euro-Rate, as defined, plus 1.75% due
in monthly installments of $22 plus interest
through January 2002. $1,300 $ -
Note payable, due on or before January 31,
1996, interest at prime, as defined, plus
2% (Note 11) - 134
Notes payable-stockholders, interest at prime,
as defined, plus 1/2%, due in
annual installments of $111 plus interest
through September 2001 558 669
Other 16 -
Capital lease obligations (Note 9) 486 404
------- -------
2,360 1,207
Less current portion 596 390
------- -------
$1,764 $ 817
======= =======
In December 1996, the Company entered into the First Amendment to the Amended
and Restated Loan and Security Agreement with its primary bank dated November
1995 (the "First Amendment"). The First Amendment provided for the execution of
a Term Note in the amount of $1,300, which was used to partially pay the
Company's obligations under its cross-licensing arrangement (Note 11). The
Term Note bears interest at the bank's variable Euro-Rate (5.5% at December 31,
1996) plus 1.75%.
Also in December 1996, the Company entered into the Second Amendment to the
Amended and Restated Loan and Security Agreement with its primary bank dated
November 1995 (the "Second Amendment"). The Second Amendment increased the
Company's available line of credit from $5,000 to $7,500. The line of credit
bears interest at a rate selected by the Company from interest rate options
offered by the bank. Interest rate options consist of (i) the bank's prime rate
(8.25% at December 31, 1996) minus 0.25%, or (ii) the bank's Euro-Rate (5.5% at
December 31, 1996) plus 1.75%. As of December 31, 1996 and 1995, no amounts were
outstanding under the line of credit.
The aforementioned Amended and Restated Loan and Security Agreement expires
annually on June 30. The First and Second Amendments also include updated
financial covenants for which the Company is in compliance.
The Company also has a 500 deutsche mark unsecured revolving line of credit with
a German bank in the name of its German subsidiary, Metrologic Instruments GmbH.
As of December 31, 1996, no amounts were outstanding under this revolving credit
facility. As of December 31, 1995, $175 was outstanding under this revolving
credit facility.
The minimum annual maturities of notes payable at December 31, 1996 are
approximately as follows:
1997 $ 596
1998 480
1999 421
2000 420
2001 421
Thereafter 22
---------
$ 2,360
<PAGE>
7. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes and are disclosed in the
consolidated balance sheets. Significant components of the Company's deferred
tax assets and liabilities are as follows:
December 31,
1996 1995
Deferred tax assets:
Reserves on current assets $ 309 $ 243
Inventory capitalization 112 82
Warranty reserve 181 243
Accrued legal settlement 885 1,451
Other accrued expenses 1,016 746
------- ------
$2,503 $2,765
======= ======
Deferred tax liability:
Deferred gain on involuntary
conversion $ 23 $ 42
======= ======
Significant components of the provision (benefit) for income taxes attributable
to continuing operations are as follows:
Year ended December 31,
1996 1995 1994
-------- -------- --------
Current:
Federal $ 1,432 $ 1,710 $ 777
Foreign (208) (60) 90
State 336 560 565
-------- -------- --------
Total current 1,560 2,210 1,432
Deferred:
Federal 232 (427) (27)
State 11 (114) (38)
Change in federal
tax status - - (1,700)
-------- --------- ---------
Total deferred 243 (541) (1,765)
-------- --------- ---------
Provision (benefit) for
income taxes $ 1,803 $ 1,669 $ (333)
======== ========== =========
The effective income tax rate of 37.7%, 39.6%, and (6.1)% for the years ended
December 31, 1996, 1995 and 1994, respectively, differs from the federal
statutory rate of 34% because of the difference in treatment of certain expense
items for financial and income tax reporting purposes and the change in the tax
status of the Company from an S Corporation to a C Corporation effective in
October 1994. A reconciliation between the statutory provision and the provision
for financial reporting purposes is as follows:
December 31,
----------------------------------
1996 1995 1994
-------- -------- --------
Statutory federal tax provision $ 1,625 $ 1,432 $ 1,867
State income taxes, net of federal
income tax benefit 258 306 463
Foreign income taxes (54) 263 27
S Corporation income not subject to
federal income tax - - (1,103)
Recognition of tax benefit for cumulative
temporary differences upon termination
of S Corporation status - - (1,700)
Other (26) (332) 113
-------- -------- --------
Provision (benefit) for income taxes $ 1,803 $ 1,669 $ (333)
======== ======== ========
<PAGE>
8. Related Party Transactions
The Company's principal stockholder and president and his spouse own and lease
to the Company certain real estate utilized in the operation of the Company's
business. Lease payments made to related parties were approximately $699, $434,
and $375 for the years ended December 31, 1996, 1995 and 1994, respectively. The
lease for the real estate expires in March 1999 and includes an option to renew
the lease for an additional five-year term. The lessors expanded the facility
during 1995 and the annual lease payments were increased per the terms set forth
regarding additional space in the lease dated April 1, 1994. Future minimum
lease payments required under the lease are approximately $721 in 1997, $796 in
1998, and $201 in 1999 excluding taxes and insurance.
The notes payable - stockholders referred to in Note 6 include a loan payable to
the principal stockholder. In 1996, the second installment of the seven-year
notes was paid to the principal stockholder in the amount of $161, which
included $56 of interest.
The Company incurred expenses of $62, $40, and $81 for tax services rendered by
an accounting firm during the years ended December 31, 1996, 1995 and 1994,
respectively. A partner in this accounting firm is a stockholder and director of
the Company.
9. Leases
The Company has entered into operating lease agreements with unrelated companies
to lease manufacturing equipment and office space for its foreign subsidiary.
Future minimum lease payments required under the lease agreements as of December
31, 1996 are $198 in 1997, $186 in 1998, $96 in 1999, and $12 in 2000. Rental
expense for 1996, 1995 and 1994 was approximately $200, $157, and $141 ,
respectively.
10. Due to Former Officer
In 1986, the Company and its principal stockholder and his spouse entered into
an agreement with a former officer and stockholder of the Company. The agreement
provides for the release and satisfaction of the claims of the parties against
each other, the surrender to the Company of shares of common stock owned by the
former officer, the repayment to the former officer of funds loaned by him to
the Company and certain related matters.
The Company has agreed to pay the former officer $484 in quarterly amounts of
$50 due on the 15th day of the first month of each quarter. Future payments
required under the agreement are $84 in 1997.
11. Cross-Licensing Agreement and Settlement of Patent Litigation
In December 1996, the Company and Symbol Technologies, Inc. ("Symbol") executed
an extensive cross-license of patents (the "Symbol Agreement") for which the
Company and Symbol pay royalties to each other under certain circumstances
effective January 1, 1996. In connection with the Symbol Agreement, the Company
paid Symbol an advance license fee of $1 million in December 1996 and agreed to
pay another $1 million in quarterly installments of $125 over two years. The
Company financed the $1 million payment with a five-year term note with its
primary bank (Note 6). Royalty expense under the Symbol Agreement amounted
to $1,513 in 1996. The Symbol Agreement also contains purchase provisions under
which Symbol agrees to purchase and the Company agrees to sell certain products
and limited modifications thereof for a stated period of time.
In December 1993, the Company entered into an agreement settling patent
litigation brought by Symbol and provided the Company future rights to use
certain technology. The agreement required the Company to pay annual amounts for
a 12-year period aggregating a minimum of $4,450 and a maximum of $7,500. The
Company accrued the $4,450 minimum obligation in 1993 to account for the
settlement of the patent litigation. In connection with the Symbol Agreement
dated December 1996, Symbol amended the December 1993 settlement to reduce the
maximum aggregate amount payable thereunder by the Company from $7,500 to
approximately $5,111. The result of the amended December 1993 settlement
amounted to a net reduction in expense for the year ended December 31, 1996
of $287, which was recorded upon the signing of the Symbol Agreement in the
fourth quarter of 1996. Remaining aggregate amounts due under the December
1993 settlement are accrued as of December 31, 1996. Prior to 1996, royalties
in excess of the annual minimum obligations were being expensed in the
periods benefited to account for the current use of such technology. Such
expense amounted to $465 in 1995 and $349 in 1994. Amounts in excess of the
minimum during 1993 were payable under extended terms in accordance with a
note payable (Note 6).
<PAGE>
12. Commitments and Contingencies
The Company files domestic and foreign patent applications to protect its
technological position and new product development. From time to time, the
Company receives legal challenges to the validity of its patents or allegations
that its products infringe the patents of others.
The Company is a party to a legal action alleging that the Company's prior
version of one of its scanners infringes a patent held by another company. The
Company has negotiated a settlement of this matter in which no monies will be
paid by either party.
13. Retirement Plans
The Company maintains a noncontributory defined contribution cash or deferred
profit sharing plan covering substantially all employees. Contributions are
determined by the President and Chief Executive Officer and are equal to a
percentage of each participant's compensation. The Company's contributions were
$302, $200, and $394 in 1996, 1995 and 1994, respectively.
Additionally, the Company maintains an employee funded Deferred Compensation
Retirement Plan 401(k) Plan, contributions to which are partially matched by the
Company. Contribution expenses were $48, $41, and $31 in 1996, 1995 and 1994,
respectively.
14. Geographical Information
The Company has operations in the United States and Germany. The following is a
summary of operations by geographic region (in thousands).
United States Operations
------------------------
North Other German Total
America Europe Export Total Subsidiary Consolidated
Sales 1994 $13,481 $ 1,289 $ 3,833 $18,603 $17,357 $35,960
1995 18,387 1,986 4,706 25,079 16,484 41,563
1996 17,445 2,535 6,060 26,040 20,931 46,971
Income (loss)
before
provision
for income
taxes 1994 $ 5,304 $ 186 $ 5,490
1995 5,162 (951) 4,211
1996 5,236 (458) 4,778
Identifiable
assets 1994 $21,346 $ 4,996 $26,342
1995 27,059 4,342 31,401
1996 29,046 6,946 35,992
15. Initial Public Offering
On October 6, 1994, the Company sold 1,500,000 shares of its common stock, at a
price of $9.50 per share, pursuant to the consummation of the Company's initial
public offering of its common stock. Additionally, on October 20, 1994, the
Company sold 225,000 shares of its common stock, at a price of $9.50 per share,
pursuant to the exercise in full by the underwriters in the initial public
offering of an over-allotment option granted to them by the Company. Total
proceeds to the Company from the initial public offering, net of offering costs,
were $14,492. The Company repaid a note payable to a bank of approximately
$1,443 and a note payable to a stockholder of approximately $2,171 with a
portion of the proceeds of the initial public offering.
<PAGE>
16. Incentive Plan
The Company's Board of Directors has granted incentive and non-qualified stock
options pursuant to the Company's Incentive Plan to certain eligible employees
and a board member. The Company's Board of Directors also made awards of 10,000
shares of restricted stock to executive officers on October 11, 1994 pursuant to
the Incentive Plan. The shares issued will either be authorized and previously
unissued common stock or issued common stock reacquired by the Company. The
total number of shares authorized for issuance under the Incentive Plan is
600,000. Shares canceled for any reason without having been exercised shall
again be available for issuance under the Incentive Plan. An aggregate of 37,609
shares were available for grant under the Incentive Plan at December 31, 1996.
Such options are exercisable 20% on the date of grant and 20% per year,
thereafter. Each option shall expire four years after becoming exercisable.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," ("Statement 123") requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying common stock on
the date of grant, no compensation expense is recognized. Pro forma information
regarding net income and earnings per share is required by Statement 123, which
also requires that the information be determined as if the Company has accounted
for its employee stock options granted subsequent to December 31, 1994 under the
fair value method of that Statement. The fair value for the options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions for 1996: risk-free interest rates of
6.2%; a dividend yield of 0.0%; volatility factors of the expected market price
of the Company's common stock of 50%; and a weighted-average expected life of
the option of 5 years. There were no options issued in 1995.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands except for earnings per share
information):
1996
Net income as reported under APB 25 $ 2,975
Pro forma compensation expense (623)
Pro forma net income per Statement 123 $ 2,352
========
Pro forma net income per share per Statement 123 $ 0.44
========
Because Statement 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until the
year 2000 due to the four year vesting period of options granted in 1996, the
first year since implementation of FAS 123 was a required disclosure. During
1996, a total of 1,760 shares of restricted stock vested. The remaining 3,040
shares of restricted stock vest at various dates through September 29, 1998.
The incentive and non-qualified stock options vest at various dates through
November 28, 1998.
<PAGE>
A summary of the Company's stock option activity, and related information for
the years ended December 31, 1994, 1995, and 1996 follows:
Weighted-Average
Options Exercise Price
------------ ------------------
Outstanding - December 31, 1994 349 $11.88
Exercised (12) 11.85
Canceled (31) 11.34
------------ ------------------
Outstanding - December 31, 1995 306 11.93
Granted 251 11.38
Exercised (18) 11.69
Canceled (17) 12.07
------------ ------------------
Outstanding-December 31, 1996 522 $11.67
Exercisable at December 31, 1996 200 $11.79
Weighted-average fair value
of options granted during 1996 $6.27
Exercise prices for options outstanding as of December 31, 1996 ranged from
$11.00 to $13.25. The weighted-average remaining contractual life of those
options is 5 years.
17 Employee Stock Purchase Plan
In January 1995, the Company's Board of Directors implemented an Employee Stock
Purchase Plan whereby eligible employees have the opportunity to acquire the
Company's common stock quarterly through payroll deductions, at 90% of the lower
of (a) the fair market value of the stock on the first day of the applicable
quarterly offering period or (b) the fair market value of the stock on the last
day of the applicable quarterly offering period.
18. Acquisition
The Company exercised its option to purchase all of the outstanding shares of
common stock of Holoscan on March 1, 1996 for $521, net of cash acquired. The
Company purchased a 51% equity interest in Holoscan in 1995 in the form of
non-voting, convertible preferred stock for $360. Concurrent with the exercise
of the above option, the Company converted its non-voting, convertible preferred
stock of Holoscan to an equal number of shares of Holoscan common stock and now
owns 100% of the outstanding capital stock of Holoscan. The acquisition of
Holoscan, Inc. was accounted for using the purchase method. A substantial
portion of the consideration paid by the Company for the acquisition of
Holoscan was allocated to holographic technology and is being amortized over
ten years. The Company has consolidated the assets and liabilities at
December 31, 1996 and results of operations and cash flows of Holoscan for the
period March 1, 1996 to December 31, 1996. The Company has not included pro
forma financial information with respect to the Holoscan acquisition since
the effects were not material.
Pursuant to an option agreement entered into in March 1995 among the Company,
Holoscan and the holders of all of Holoscan's outstanding common stock and
options and warrants to purchase common stock (collectively, the "Holders"), the
Company agreed to pay each Holder, through 1998, a payment based on the
Company's sales of certain holographic laser scanners. As of December 31, 1996,
an aggregate of $15 had been paid to the Holders. All such amounts incurred are
considered additions to holographic technology and are being amortized over the
remainder of the ten-year period.
<PAGE>
Supplementary Data
The following tables present unaudited quarterly operating results for the
Company for each quarter of 1996 and 1995. This information has been derived
from unaudited financial statements and includes all adjustments, consisting
only of normal recurring accruals, which the Company considers necessary for a
fair presentation of the results of operations for these periods. Such quarterly
operating results are not necessarily indicative of the Company's future results
of operations.
Quarterly Consolidated Operating Results (Unaudited)
(in thousands except per share data)
Three Months Ended
March 31, June 30, September 30, December 31,
1996 1996 1996 1996
Sales $ 10,342 $ 11,757 $ 11,525 $ 13,347
Cost of sales 6,271 7,154 7,032 8,342
-------- -------- -------- --------
Gross profit 4,071 4,603 4,493 5,005
Selling, general &
administrative expenses 2,559 2,730 2,502 2,714
Research and development
expenses 797 774 808 731
-------- -------- ------- --------
Operating income 715 1,099 1,183 1,560
Other income (expense)
Interest income 130 98 94 109
Interest expense (29) (27) (29) (23)
Foreign currency
transaction gain (loss) (14) (65) (55) 33
Other, net - - - (1)
-------- -------- -------- --------
Total other income 87 6 10 118
-------- -------- -------- --------
Income before provision
for income taxes 802 1,105 1,193 1,678
Provision for income taxes 312 420 453 618
-------- -------- -------- --------
Net income $ 490 $ 685 $ 740 $ 1,060
======== ======== ======== ========
Weighted average number of
shares used in computing
net income per share 5,261,473 5,267,840 5,285,097 5,389,854
Net income per share $ 0.09 $ 0.13 $ 0.14 $ 0.20
Three Months Ended
March 31, June 30, September 30, December 31,
1995 1995 1995 1995
Sales $ 10,497 $ 10,156 $ 9,716 $ 11,194
Cost of sales 5,526 6,059 5,908 6,599
-------- -------- -------- --------
Gross profit 4,971 4,097 3,808 4,595
Selling, general &
administrative expenses 2,582 2,528 2,646 2,833
Research and development
expenses 663 784 725 852
-------- -------- ------- --------
Operating income 1,726 785 437 910
Other income (expense)
Interest income 137 86 114 144
Interest expense (7) (53) (61) (34)
Other income 5 21 - 1
-------- -------- -------- --------
Total other income 135 54 53 111
-------- -------- -------- --------
Income before provision
for income taxes 1,861 839 490 1,021
Provision for income taxes 754 327 191 397
-------- -------- -------- --------
Net income $ 1,107 $ 512 $ 299 $ 624
======== ======== ======== ========
Weighted average number of
shares used in computing
net income per share 5,350,000 5,262,168 5,250,531 5,252,034
Net income per share $ 0.21 $ 0.10 $ 0.06 $ 0.12
<PAGE>
Item 9. Changes in and Disagreement with Accountants on Accounting
and Financial Disclosure.
No change of accountants and/or disagreements on any matter of accounting
principles or financial statement disclosures has occurred within the last two
years.
PART III
The information called for by Item 10, Directors and Executive Officers of the
Registrant (except for the information regarding executive officers called for
by Item 401 of Regulation S-K, which is included in Part I, Item 4-A hereof in
accordance with General Instruction G(3)), Item 11, Executive Compensation, Item
12, Security Ownership of Certain Beneficial Owners and Management, and Item 13,
Certain Relationships and Related Transactions, are incorporated herein by
reference to the Registrant's definitive proxy statement for its Annual Meeting
of Stockholders, presently scheduled to be held on June 26, 1997, which shall be
filed with the Securities and Exchange Commission within 120 days from the end
of the Registrant's fiscal year ended December 31, 1996.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements
The Financial Statements listed below are filed as part of this
Annual Report on Form 10-K:
Report of Ernst & Young LLP, independent auditors
Consolidated Balance Sheets at December 31, 1996 and 1995
Consolidated Statements of Operations for each of the three
years in the period ended December 31, 1996
Consolidated Statements of Stockholders' Equity for each of the
three years in the period ended December 31, 1996
Consolidated Statements of Cash Flows for each of the three years in
the period ended December 31, 1996
Notes to Consolidated Financial Statements
Supplementary Data (Unaudited)
2. Financial statement schedules
Schedule II - Valuation and Qualifying Accounts is filed herewith.
All other schedules are omitted because they are not applicable, not
required, or because the required information is included in the
consolidated financial statements or notes thereto.
3. Exhibits required to be filed by Item 601 of Regulation S-K.
2.1 Stock Purchase Agreement dated as of March 1, 1995 among
Metrologic Instruments, Inc., Holoscan, Inc., and the parties
listed on Schedule A thereto (incorporated by reference to
Exhibit 2.1 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1995).
2.2 Development Agreement entered into as of March 1, 1995 and
effective as of December 24, 1994 between Metrologic
Instruments, Inc. and Holoscan, Inc. (incorporated by reference
to Exhibit 2.2 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1995).
2.3 Option Agreement dated as of March 1, 1995 among Metrologic
Instruments, Inc. and the parties listed on schedule A thereto
(incorporated by reference to Exhibit 2.3 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1995).
2.4 Background Technology License Agreement between Metrologic
Instruments, Inc. and Holoscan, Inc. (incorporated by reference
to Exhibit 2.4 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1995).
3.1 Amended and Restated Certificate of Incorporation of Metrologic
Instruments, Inc. (incorporated by reference to Exhibit 3.1 to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994).
<PAGE>
3.2 Amended and Restated Bylaws of Metrologic Instruments, Inc.
(incorporated by reference to exhibit 3.02 to the Registrant's
Annual Report on Form 10-K for the year ended December 31,
1994).
4.1 Specimen Stock Certificate (incorporated by reference to
Exhibit 4.1 to the Registrant's Registration Statement on Form
S-1 (Reg. No. 33-78358)).
10.1 1994 Incentive Plan (incorporated by reference to Exhibit 99 to
the Registrant's Registration Statement on Form S-8 (Reg.
No. 33-89376)).
10.2 Employee Stock Purchase Plan (incorporated by reference to
Exhibit 99 to the Registrant's Post-Effective Amendment No. 1
to the Registration Statement on Form S-8 (Reg. No. 33-86670)
and Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1995).
10.3 Lease Agreement dated April 1, 1994 among C. Harry Knowles,
Janet H. Knowles and Metrologic Instruments, Inc.
(incorporated by reference to Exhibit 10.4 to the Registrant's
Registration Statement on Form S-1 (Reg. No. 33-78358)).
10.4 Agreement of Settlement between Symbol Technologies, Inc. and
Metrologic Instruments, Inc. (incorporated by reference to
Exhibit 10.5 to the Registrant's Registration Statement on Form
S-1 (Reg. No. 33-78358)).
10.5 Agreement and Release dated February 7, 1986 among Michael L.
Sanyour, C. Harry Knowles, Janet H. Knowles and Metrologic
Instruments, Inc. (incorporated by reference to Exhibit 10.6 to
the Registrant's Registration Statement on Form S-1 (Reg. No.
33-78358)).
10.6 Agreement dated January 6, 1995 between Michael L. Sanyour, C.
Harry Knowles, Janet H. Knowles and Metrologic Instruments,
Inc. (incorporated by reference to exhibit 10.6(a) to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994).
10.7 Promissory Note from Metrologic Instruments, Inc. to C. Harry
Knowles (incorporated by reference to Exhibit 10.8 to the
Registrant's Registration Statement on Form S-1 (Reg. No.
33-78358)).
10.8 Indemnification Agreement between Metrologic Instruments, Inc.
and C. Harry Knowles and Janet H. Knowles (incorporated by
reference to Exhibit 10.9 to the Registrant's Registration
Statement on Form S-1 (Reg. No. 33-78358)).
10.9 Offer Letter from Midlantic Bank, N.A. dated July 18, 1995 with
respect to increasing and amending the Revolving Loan Facility
(incorporated by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1995).
10.10 Amended and Restated Loan Agreement between Metrologic
Instruments, Inc. and Midlantic Bank, N.A. dated as of November
13, 1995 (incorporated by reference to Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995).
10.11 Loan Agreement between ECR Sales Management, Inc. and
Metrologic Instruments, Inc., dated as of January 1, 1996
(incorporated by reference to Exhibit 10.11 to the Registrant's
Annual Report on Form 10-K for the year ended December 31,
1995).
10.12 Security Agreement between ECR Sales Management, Inc. and
Metrologic Instruments, Inc., dated as of January 1, 1996
(incorporated by reference to Exhibit 10.12 to the Registrant's
Annual Report on Form 10-K for the year ended December 31,
1995).
10.13 Term Note of ECR Sales Management, Inc. dated January 1, 1996,
payable to Metrologic Instruments, Inc. (incorporated by
reference to Exhibit 10.13 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1995).
<PAGE>
10.14 Consignment Agreement between Metrologic Instruments, Inc. and
ECR Sales Management, Inc. dated as of January 1, 1996
(incorporated by reference to Exhibit 10.14 to the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1995).
10.15 Agreement between Symbol Technologies, Inc. and Metrologic
Instruments, Inc. dated December 18, 1996 (incorporated by
reference to Exhibit 10 to the Registrant's Current Report on
Form 8-K filed on February 14, 1997).
10.16 Amendment to Loan and Security Agreement between Metrologic
Instruments, Inc. and PNC Bank, National Association (formerly
Midlantic Bank, National Association) dated December 31, 1996.
10.17 Second Amendment to Amended and Restated Loan and Security
Agreement between Metrologic Instruments, Inc. and PNC Bank,
National Association (formerly Midlantic Bank, National
Association) dated January 31, 1997.
10.18 Amended and Restated Revolving Loan Note between Metrologic
Instruments, Inc. and PNC Bank, National Association (formerly
Midlantic Bank, National Association) dated January 31, 1997.
10.19 Term Note between Metrologic Instruments, Inc. and PNC Bank,
National Association (formerly Midlantic Bank, National
Association) dated December 31, 1996.
11 Statement regarding computation of per share earnings.
21 Subsidiaries of the Registrant
22 Consent of Ernst & Young LLP
27 Financial Data Schedule
(b) Reports on Form 8-K
Current Report on Form 8-K filed by the Registrant on February 14, 1997.
Schedule II - Valuation and Qualifying Accounts
Years ended December 31, 1996, 1995 and 1994
(All dollar amounts in thousands)
1996 1995 1994
---- ---- ----
Allowance for possible losses on Accounts and notes receivable:
Balance at beginning of year $224 $136 $160
Additions charged to expense 290 178 109
Write-offs (21) (90) (133)
------- ------ ------
Balance at end of year $493 $224 $136
==== ==== ====
<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 report to be signed by
the undersigned thereunto duly authorized.
METROLOGIC INSTRUMENTS, INC.
By:/s/ C. Harry Knowles
C. Harry Knowles
President and Chief Executive Officer
(Principal Executive Officer)
Dated: March 31, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
the report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ C. Harry Knowles Chairman of the Board, President March 31, 1997
C. Harry Knowles and Chief Executive Officer
(Principal Executive Officer)
/s/ Janet H. Knowles Vice President, Administration, March 31, 1997
Janet H. Knowles Secretary, Treasurer and a
Director
/s/ Thomas E. Mills IV Vice President, Finance March 31, 1997
Thomas E. Mills IV Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
/s/ Stanton L. Meltzer Director March 31, 1997
Stanton L. Meltzer
/s/ Lester Hill Director March 31, 1997
Lester Hill
<PAGE>
INDEX TO EXHIBITS
Sequential
Exhibit Page
Number Description Number
2.1 Stock Purchase Agreement dated as of March 1, 1995 among
Metrologic Instruments, Inc., Holoscan, Inc., and the parties
listed on Schedule A thereto (incorporated by reference to
Exhibit 2.1 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1995).
2.2 Development Agreement entered into as of March 1, 1995 and
effective as of December 24, 1994 between Metrologic
Instruments, Inc. and Holoscan, Inc. (incorporated by reference
to Exhibit 2.2 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1995).
2.3 Option Agreement dated as of March 1, 1995 among Metrologic
Instruments, Inc. and the parties listed on schedule A thereto
(incorporated by reference to Exhibit 2.3 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995).
2.4 Background Technology License Agreement between Metrologic
Instruments, Inc. and Holoscan, Inc. (incorporated by reference
to Exhibit 2.4 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1995).
3.1 Amended and Restated Certificate of Incorporation of Metrologic
Instruments, Inc. (incorporated by reference to Exhibit 3.1 to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994).
3.2 Amended and Restated Bylaws of Metrologic Instruments, Inc.
(incorporated by reference to exhibit 3.02 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994).
4.1 Specimen Stock Certificate (incorporated by reference to Exhibit
4.1 to the Registrant's Registration Statement on Form S-1
(Reg. No. 33-78358)).
10.1 1994 Incentive Plan (incorporated by reference to Exhibit 99
to the Registrant's Registration Statement on Form S-8
(Reg. No. 33-89376)).
10.2 Employee Stock Purchase Plan (incorporated by reference to
Exhibit 99 to the Registrant's Post-Effective Amendment No. 1
to the Registration Statement on Form S-8 (Reg. No. 33-86670)
and Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1995).
10.3 Lease Agreement dated April 1, 1994 among C. Harry Knowles,
Janet H. Knowles and Metrologic Instruments, Inc. (incorporated
by reference to Exhibit 10.4 to the Registrant's Registration
Statement on Form S-1 (Reg. No. 33-78358)).
10.4 Agreement of Settlement between Symbol Technologies, Inc. and
Metrologic Instruments, Inc. (incorporated by reference to
Exhibit 10.5 to the Registrant's Registration Statement on
Form S-1 (Reg. No. 33-78358)).
10.5 Agreement and Release dated February 7, 1986 among Michael L.
Sanyour, C. Harry Knowles, Janet H. Knowles and Metrologic
Instruments, Inc. (incorporated by reference to Exhibit 10.6
to the Registrant's Registration Statement on Form S-1
(Reg. No. 33-78358)).
10.6 Agreement dated January 6, 1995 between Michael L. Sanyour, C.
Harry Knowles, Janet H. Knowles and Metrologic Instruments, Inc.
(incorporated by reference to exhibit 10.6(a) to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994).
<PAGE>
10.7 Promissory Note from Metrologic Instruments, Inc. to C. Harry
Knowles (incorporated by reference to Exhibit 10.8 to the
Registrant's Registration Statement on Form S-1
(Reg. No. 33-78358)).
10.8 Indemnification Agreement between Metrologic Instruments, Inc.
and C. Harry Knowles and Janet H. Knowles (incorporated by
reference to Exhibit 10.9 to the Registrant's Registration
Statement on Form S-1 (Reg. No. 33-78358)).
10.9 Offer Letter from Midlantic Bank, N.A. dated July 18, 1995
with respect to increasing and amending the Revolving Loan
Facility (incorporated by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995).
10.10 Amended and Restated Loan Agreement between Metrologic
Instruments, Inc. and Midlantic Bank, N.A. dated as of
November 13, 1995 (incorporated by reference to Exhibit 10
to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995).
10.11 Loan Agreement between ECR Sales Management, Inc. and
Metrologic Instruments, Inc., dated as of January 1, 1996
(incorporated by reference to Exhibit 10.11 to the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995).
10.12 Security Agreement between ECR Sales Management, Inc.
and Metrologic Instruments, Inc., dated as of
January 1, 1996 (incorporated by reference to Exhibit 10.12
to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995).
10.13 Term Note of ECR Sales Management, Inc. dated January 1, 1996,
payable to Metrologic Instruments, Inc. (incorporated by
reference to Exhibit 10.13 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995).
10.14 Consignment Agreement between Metrologic Instruments, Inc.
and ECR Sales Management, Inc. dated as of January 1, 1996
(incorporated by reference to Exhibit 10.14 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1995).
10.15 Agreement between Symbol Technologies, Inc. and Metrologic
Instruments, Inc. dated December 18, 1996 (incorporated by
reference to Exhibit 10 to the Registrant's Current Report
on Form 8-K filed on February 14, 1997).
10.16 Amendment to Loan and Security Agreement between Metrologic
Instruments, Inc. and PNC Bank, National Association
(formerly Midlantic Bank, National Association) dated
December 31, 1996.
10.17 Second Amendment to Amended and Restated Loan and Security
Agreement between Metrologic Instruments, Inc. and PNC Bank,
National Association (formerly Midlantic Bank, National
Association) dated January 31, 1997.
10.18 Amended and Restated Revolving Loan Note between Metrologic
Instruments, Inc. and PNC Bank, National Association
(formerly Midlantic Bank, National Association) dated
January 31, 1997.
10.19 Term Note between Metrologic Instruments, Inc. and PNC Bank,
National Association (formerly Midlantic Bank, National
Association) dated December 31, 1996.
11 Statement regarding computation of per share earnings.
21 Subsidiaries of the Registrant
23 Consent of Ernst & Young LLP
27 Financial Data Schedule
<PAGE>
EXHIBIT 10.16
AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS AMENDMENT dated as of December 31, 1996 (the "Amendment"), is
entered into between METROLOGIC INSTRUMENTS, INC., a New Jersey corporation
("Borrower"), and PNC BANK, NATIONAL ASSOCIATION, a national banking association
("Bank").
B A C K G R O U N D
The parties entered into a certain Amended and Restated Loan and
Security Agreement dated as of November 10, 1995, as amended to date ("Loan
Agreement"), and desire by this Amendment to amend the Loan Agreement in the
manner hereinafter set forth. The terms of this Amendment are effective as of
the date hereof. All capitalized terms used herein which are not defined herein
shall have the meaning ascribed thereto in the Loan Agreement.
NOW, THEREFORE, the parties, INTENDING TO BE LEGALLY BOUND, agree as
follows:
A. Covenant Amendment. Effective on date hereof,
Section 6.01(M)(iv) of the Loan Agreement is amended to read in its entirety
as follows:
"(iv) Consolidated Leverage Ratio (Debt to Tangible Net
Worth) of not more than 1.75 to 1 as of the end of
each fiscal year."
B. Term Loan.
1. Contemporaneously herewith, Bank shall
make a term loan ("Term Loan") to the Borrower in the principal amount of
$1,300,000, the proceeds of which shall be used (a) to prepay in part Borrower's
obligations under that certain Agreement of Settlement dated December 3, 1993
and referred to in Exhibit 5.01(E) of the Loan Agreement, and (b) to pay in part
Borrower's obligations under that certain Agreement between Symbol Technologies,
Inc. and Borrower dated December 18, 1996.
2. The principal amount of the Term Loan
shall be repayable and shall accrue interest all as set forth in the Term Note
referred to in subpart 3 below.
3. Contemporaneously herewith, Borrower will
execute and deliver to Bank a Term Note in the principal amount of $1,300,000
evidencing its obligation to repay the Term Loan in full with interest.
4. All references to "Obligations" in the
Loan Agreement shall include all liabilities and obligations of the Borrower in
connection with the Term Loan, and all such "Obligations" shall be secured by
the Collateral.
5. Borrower's failure to pay Bank within ten
(10) days when due any installment of principal or interest under the Term Loan
shall constitute an Event of Default for all purposes of the Loan Agreement.
C. Reaffirmation
Except to the extent specifically modified hereby, the terms
and conditions of the Loan Agreement shall remain unchanged and in full force
and effect, and Borrower hereby ratifies and reaffirms all of its Obligations to
Bank, and agrees that the same are owing without setoff, counterclaim or other
defense of any nature whatsoever.
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed this 31st day of December, 1996.
METROLOGIC INSTRUMENTS, INC.
By: /s/ C. H. Knowles
Attest: /s/ Thomas E. Mills
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Paul J. Jacobs
<PAGE>
EXHIBIT 10.17
SECOND AMENDMENT TO AMENDED AND
RESTATED LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT dated as of January 31, 1997 (the "Amendment") is entered into between
METROLOGIC INSTRUMENTS, INC., a New Jersey corporation ("Borrower"), and PNC
BANK, NATIONAL ASSOCIATION, a national banking association and successor by
merger to Midlantic Bank, N.A. ("Bank").
B A C K G R O U N D
The parties entered into a certain Amended and Restated Loan and
Security Agreement dated as of November 10, 1995, as amended by an Amendment to
Loan and Security Agreement dated as of December 31, 1996 ("Loan Agreement"),
and desire by this Amendment to amend the Loan Agreement in the manner
hereinafter set forth. The terms of this Amendment are effective as of the date
hereof. All capitalized terms used herein which are not defined herein shall
have the meaning ascribed thereto in the Loan Agreement.
NOW, THEREFORE, the parties, INTENDING TO BE LEGALLY BOUND, agree as
follows:
1. Revolving Loan Limit. Section 1.20 of the Loan Agreement is
amended to read in its entirety as follows:
"Revolving Loan Limit" shall mean $7,500,000.
2. Revolving Loan Termination Date. Section 1.22 of the Loan
Agreement is amended to read in its entirety as follows:
"Revolving Loan Termination Date" shall mean June 30,
1997 or such other later date to which Bank and Borrower may
(without any obligation to do so) hereafter agree in writing
in connection with any renewal or extension of the Revolving
Loan.
3. Interest Rates and Calculation of Interest Rates.
Section 2.04 of the Loan Agreement is amended to read in its entirety as
follows:
(A) Interest Rate Options for Revolving Loan. Principal outstanding
under the Revolving Loan shall bear interest at a rate per annum selected by
Borrower from the interest rate options set forth below (each, an "Option"), it
being understood that Borrower may select different Options to apply
simultaneously to different portions of principal of the Revolving Loan and may
select up to four (4) different interest periods to apply simultaneously to
different portions of principal of the Revolving Loan bearing interest under the
Euro-Rate Option as set forth below. There is no required interest period for
principal bearing interest under the Base Rate Option.
(1) Base Rate Option. A rate of interest per annum (computed
on the basis of a year of 360 days and the actual number of days
elapsed) equal to rate of interest announced from time to time by Bank
at its principal office as its prime rate, which rate may not be the
lowest interest rate then being charged commercial borrowers by Bank
(the "Prime Rate") minus twenty-five (25) basis points. If and when the
Prime Rate changes, the rate of interest on principal of the Revolving
Loan bearing interest under the Base Rate Option will change
automatically without notice to Borrower, effective on the date of any
such change.
(2) Euro-Rate Option. For the Euro-Rate Interest Period
selected and the amount of principal of the Revolving Loan selected, a
rate of interest per annum (computed on the basis of a year of 360 days
and the actual number of days elapsed) equal to the sum of (a) the
Euro-Rate plus (b) one hundred seventy-five (175) basis points. For the
purpose hereof, the following terms shall have the following meanings:
<PAGE>
(a) "Euro-Rate" shall mean, with respect to the principal of
any amount of the Revolving Loan bearing interest under the Euro-Rate
Option for any Euro-Rate Interest Period (hereinafter defined), the
interest rate per annum determined by Bank at or about 11:00 a.m.
(eastern standard time) two (2) Banking Days prior to the commencement
of a Euro-Rate Interest Period by dividing (the resulting quotient
rounded upward to the nearest 1/16th of 1% per annum) (i) the rate of
interest determined by Bank in accordance with its usual procedures
(which determination shall be conclusive absent error) to be the
eurodollar rate two (2) Banking Days prior to the first day of such
Euro-Rate Interest Period for an amount comparable to such principal
amount and having a borrowing date and a maturity comparable to such
Euro-Rate Interest Period by (ii) a number equal to 1.00 minus the
Euro-Rate Reserve Percentage.
(b) "Euro-Rate Interest Period" shall mean a period consisting
of one, two or three months selected by Borrower commencing on the date
on which a Euro-Rate Option is elected to commence; provided, that if a
Euro-Rate Interest Period would end on a day which is not a Banking
Day, it shall end on the next succeeding Banking Day, unless such day
falls in the succeeding calendar month in which case the Euro-Rate
Interest Period shall end on the next preceding Banking Day. In no
event shall any Euro-Rate Interest Period end on a day after the
Revolving Loan Termination Date.
(c) "Euro-Rate Reserve Percentage" shall mean the maximum
effective percentage in effect on such day which is applicable to Bank
as prescribed by the Board of Governors of the Federal Reserve System
(or any successor) for determining the reserve requirements (including,
without limitation, supplemental, marginal and emergency reserve
requirements) with respect to Eurocurrency funding (currently referred
to as "Eurocurrency liabilities").
(d) "Banking Day" shall mean any day other than a
Saturday or Sunday on which Bank is open for business.
If Bank determines (which determination shall be final and conclusive)
that, by reason of circumstances affecting the interbank eurodollar market
generally, deposits in dollars (in the applicable amounts) are not being offered
to banks in the interbank eurodollar market for the selected term, or adequate
means do not exist for ascertaining the Euro-Rate, then Bank shall give notice
thereof to Borrower. Thereafter, until Bank notifies Borrower that the
circumstances giving rise to such suspension no longer exist, (a) the
availability of the Euro-Rate Option shall be suspended, and (b) the interest
rate for all principal then bearing interest under the Euro-Rate Option shall be
converted to the Base Rate Option at the expiration of the then current
Euro-Rate Interest Period(s).
In addition, if, after the date of this Agreement, Bank shall determine
(which determination shall be final and conclusive) that any enactment,
promulgation or adoption after the date of this Agreement of or any change in
any applicable law, rule or regulation, or any change in the interpretation or
administration thereof by a governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by Bank with any guideline, request or directive (whether or not having the
force of law) of any such authority, central bank or comparable agency shall
make it unlawful or impossible for Bank to make or maintain or fund loans under
the Euro-Rate Option, Bank shall notify Borrower. Upon receipt of such notice,
until Bank notifies Borrower that the circumstances giving rise to such
determination no longer apply, (a) the availability of the Euro-Rate Option
shall be suspended, and (b) the interest rate on all principal then bearing
interest under the Euro-Rate Option shall be converted to the Base Rate Option
either (i) on the last day of the then current Euro-Rate Interest Period(s) if
Bank may lawfully continue to maintain principal under the Euro-Rate Option to
such day, or (ii) immediately if Bank may not lawfully continue to maintain
principal under the Euro-Rate Option.
<PAGE>
Subject to the other terms and conditions of this Agreement, at the end
of each interest period Borrower may renew the Option applicable to such
principal or convert such principal to a different Option. If no notice of
conversion or renewal is received by Bank, Borrower shall be deemed to have
converted such principal to the Base Rate Option. Borrower shall notify Bank of
each election of an interest rate Option, each conversion from one interest rate
Option to another, the amount of principal then outstanding to be allocated to
each interest rate Option and the relevant interest periods. Any such election
shall be promptly confirmed in writing by such method as Bank may require.
Borrower shall indemnify Bank against all liabilities, losses or expenses
(including loss of margin, any loss or expense incurred in liquidating or
employing deposits from third parties and any loss or expense incurred in
connection with funds acquired by Bank to fund or maintain principal of the
Revolving Loan bearing interest under the Euro-Rate Option) which Bank sustains
or incurs as a consequence of any attempt by Borrower to revoke (expressly, by
later inconsistent notices or otherwise) in whole or in part any notice given to
Bank to request or renew any such principal or as a consequence of any
prepayment of principal prior to the end of the applicable Euro-Rate Interest
Period. If Bank sustains or incurs any such loss, it shall notify Borrower of
the amount determined by Bank to be necessary to indemnify Bank for such loss or
expense (which determination may include such assumptions, allocations of costs
and expenses and averaging or attribution methods as Bank deems appropriate).
Such amount shall be due and payable by Borrower ten (10) days after such notice
is given.
(B) Interest Rate for Term Loan. Principal
outstanding under the Term Loan shall accrue interest as set forth in the
Term Note.
(C) Payment of Interest. Borrower shall pay accrued interest
on the unpaid principal balance of the Revolving Loan and the Term Loan in
arrears: (1) for the Revolving Loan, (a) monthly on the first day of each month
with respect to interest accruing at the Base Rate Option and (b) on the last
day of a Euro-Rate Interest Period with respect to interest accruing at the
Euro-Rate Option; (2) for the Term Loan, monthly on the first day of each month;
and (3) for the Revolving Loan and the Term Loan, at maturity and thereafter, on
demand until paid in full.
(D) Rate in Event of Default. Should there occur an Event of
Default under the Loan Agreement then, during the continuance thereof, interest
on the Revolving Loan and the Term Loan shall automatically without notice or
demand increase by two (2) percentage points above the otherwise applicable rate
("Default Rate").
(E) Maximum Interest Rate. If, at any time, any of the rates
of interest shall be finally determined by any court of competent jurisdiction,
governmental agency or tribunal to exceed the maximum rate of interest permitted
by any applicable Laws, then, for such time as such rates would be deemed
excessive, application thereof shall be suspended and there shall be charged in
lieu thereof the maximum rate of interest permissible under such Laws.
4. Prepayment. Section 2.07 of the Loan Agreement is amended to
read in its entirety as follows:
(a) Borrower may at its option but subject to the terms of
subpart (b) below, prepay the principal of the Revolving Loan or the
Term Loan from time to time and in whole or in part, with any such
prepayment of the Term Loan to be applied in the inverse order of
maturity. For this purpose, and for purposes of subpart (b) below,
Borrower will at the time of prepayment designate the portion(s) of
principal earning interest at a particular rate(s) to which such
prepayment is to be applied.
(b) If Borrower elects to prepay principal of the Revolving
Loan or the Term Loan pursuant to subpart (a) above, Borrower shall pay
to Bank together with such prepayment, as applicable, (i) all amounts
against which Borrower has indemnified Bank under Section 2.04(A)
hereof or as set forth in Section (B) of Exhibit "A" to the Term Note
and (ii) the Cost of Prepayment, as defined and calculated and to the
extent applicable as set forth in the Term Note.
(c) All payments, other than prepayments, made by Borrower on
account of the principal of the Revolving Loan accruing interest at the
Base Rate Option or the Euro-Rate Option shall, unless otherwise
specified by Borrower, be applied first to principal earning interest
under the Base Rate Option and thereafter to principal earning interest
at the Euro-Rate Option.
<PAGE>
(d) Notwithstanding anything in subparts (a)-(c) herein to the
contrary, upon acceleration by Bank of the Loans after the occurrence
of an Event of Default, Bank may apply any and all payments and
Collateral proceeds to any portion of the Obligations in any order as
it shall in its discretion determine.
5. Fees. There is hereby added to the Loan Agreement a new
Section 2.08 to read as follows:
Borrower shall pay to Bank a fee of one quarter of one percent
(1/4 of 1%) per annum (calculated on the basis of a 360 day year) of
the Revolving Loan Limit, payable in quarterly installments in arrears.
6. Financial Covenants. Section 6.01(M) of the Loan Agreement
is amended to read in its entirety as follows:
Borrower will be in compliance with the following financial
covenants (each of which is to be calculated in accordance with GAAP
and verified quarterly):
(i) Consolidated Tangible Net Worth (including Subordinated
Debt) of not less than $15,000,000 as of the end of each fiscal
quarter, commencing with fiscal quarter ending 12/31/96;
(ii) Consolidated Working Capital of not less than $10,000,000
as of the end of each fiscal quarter, commencing with fiscal quarter
ending 12/31/96;
(iii) Consolidated Leverage Ratio (Debt to Tangible Net Worth)
of not more than 1.25 to 1 as of the end of each fiscal quarter,
commencing with fiscal quarter ending 12/31/96.
7. Negative Covenants. Section 6.02 of the Loan Agreement is
amended by adding the following new subsection to 6.02(J) thereto:
(J) Borrower will not suffer a net loss, determined
in accordance with GAAP, in any fiscal year or in any two
consecutive fiscal quarters.
8. Reaffirmation
Except to the extent specifically modified hereby, the terms
and conditions of the Loan Agreement shall remain unchanged and in full force
and effect, and Borrower hereby ratifies and reaffirms all of its Obligations to
Bank, and agrees that the same are owing without setoff, counterclaim or other
defense of any nature whatsoever.
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed this 31 day of Jan., 1997.
METROLOGIC INSTRUMENTS, INC.
By: /s/ C. H. Knowles
Attest: /s/ T. E. Mills
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Paul J. Jacobs
<PAGE>
EXHIBIT 10.18
AMENDED AND RESTATED REVOLVING LOAN NOTE
$7,500,000 January 31, 1997
FOR VALUE RECEIVED and intending to be legally bound, the undersigned,
METROLOGIC INSTRUMENTS, INC., a New Jersey corporation ("Borrower"), promises to
pay, in lawful money of the United States of America, to the order of PNC Bank,
National Association, successor by merger to Midlantic Bank, N.A. ("Lender"),
the sum of Seven Million Five Hundred Thousand Dollars ($7,500,000) or such
lesser sum which represents the principal balance outstanding under the
Revolving Loan established by Lender pursuant to the provisions of that certain
Amended and Restated Loan Agreement of even date herewith between Borrower and
Lender (as amended, modified or supplemented from time to time, the "Credit
Agreement"), in the manner and on the dates as set forth in the Credit
Agreement, the terms of which are incorporated herein by reference. The actual
amount due and owing from time to time hereunder shall be evidenced by Lender's
records of receipts and disbursements with respect to such Revolving Loan, which
shall be conclusive evidence of such amount, absent manifest error.
Borrower further agrees to pay interest on the unpaid
principal amount outstanding hereunder from time to time at the rates and at the
times and in the manner set forth in the Credit Agreement.
If an Event of Default occurs under the Credit Agreement, Lender may,
in accordance with and subject to the terms of the Credit Agreement, exercise
all rights and remedies set forth in the Credit Agreement or any related
document, instrument or agreement.
Borrower hereby waives protest, demand, notice of nonpayment and all
other notices in connection with the delivery, acceptance, performance or
enforcement of this Note. Any failure or delay of Lender to exercise any right
hereunder shall not be construed as a waiver of the right to exercise the same
or any other right at any other time or times. The waiver by Lender of a breach
or default of any provision of this Note shall not operate or be construed as a
waiver of any subsequent breach or default thereof.
This Note supersedes, but does not extinguish the indebtedness extended
by, that certain Revolving Loan Note dated November 10, 1995, and is executed in
connection with an increase in the Revolving Loan.
Notwithstanding the entry of any judgment under this Note, the unpaid
principal balance under this Note as well as any such judgment shall continue to
bear interest at the Default Rate set forth in the Credit Agreement.
This Note shall be construed and governed by the substantive laws of
the State of New Jersey. The provisions of this Note are severable and the
invalidity or unenforceability of any provision shall not alter or impair the
remaining provisions of this Note.
IN WITNESS WHEREOF, and intending to be legally bound hereby, Borrower
has executed these presents the day and year first above written.
METROLOGIC INSTRUMENTS, INC.
Attest: /s/ T. E. Mills By: /s/ C. H. Knowles
Title: VP Finance Title: President
<PAGE>
EXHIBIT 10.19
Term Note $1,300,000
December 31, 1996
FOR VALUE RECEIVED, METROLOGIC INSTRUMENTS, INC. (the "Borrower"), with an
address at Coles Road at Route 42, Blackwood, New Jersey 08012, promises to pay
to the order of PNC BANK, NATIONAL ASSOCIATION (the "Bank"), in lawful money of
the United States of America in immediately available funds at its offices
located at 1950 E. Route 70, Cherry Hill, NJ, or at such other location as the
Bank may designate from time to time, the principal sum of ONE MILLION THREE
HUNDRED THOUSAND DOLLARS ($1,300,000), together with interest accruing on the
outstanding principal balance from the date hereof, as provided below: 1. Rate
of Interest. Amounts outstanding under this Note will bear interest as follows:
for the period on and after the date hereof through and including March 31,
1997, at a rate of interest as set forth in Exhibit "A" hereto; thereafter, at a
fixed rate (the "Fixed Rate") as offered by Bank in its sole discretion.
Notwithstanding the foregoing, but subject in all events to the indemnification
set forth in Section (B) of Exhibit "A", Borrower may by written notice to Bank
elect to have the Fixed Rate apply prior to April 1, 1997.
Interest will be calculated on the basis of a year of 360 days for the actual
number of days in each interest period. 2. Payment Terms. Interest will be
payable monthly on the first day of each month commencing on February 1, 1997.
Principal will be payable in fifty-nine (59) consecutive monthly installments
each in the amount of $21,667.67, commencing on February 1, 1997, and continuing
on the first day of each month thereafter, with the entire unpaid principal
balance hereof due on January 1, 2002 (the "Maturity Date").
If any payment under this Note shall become due on a Saturday, Sunday or public
holiday under the laws of the State where the Bank's office indicated above is
located, such payment shall be made on the next succeeding business day and such
extension of time shall be included in computing interest in connection with
such payment. The Borrower hereby authorizes the Bank to charge the Borrower's
deposit account at the Bank for any payment when due hereunder. Payments
received will be applied to charges, fees and expenses (including attorneys'
fees), accrued interest and principal in any order the Bank may choose, in its
sole discretion.
3. Late Payments; Default Rate. If the Borrower fails to make any payment of
principal, interest or other amount coming due pursuant to the provisions of
this Note within ten (10) calendar days of the date due and payable, the
Borrower also shall pay to the Bank a late charge equal to five percent (5%) of
the amount of such payment. Such ten (10) day period shall not be construed in
any way to extend the due date of any such payment. The late charge is imposed
for the purpose of defraying the Bank's expenses incident to the handling of
delinquent payments and is in addition to, and not in lieu of, the exercise by
the Bank of any rights and remedies hereunder, under the other Loan Documents or
under applicable laws, and any fees and expenses of any agents or attorneys
which the Bank may employ. Upon maturity, whether by acceleration, demand or
otherwise, and at the option of the Bank upon the occurrence of any Event of
Default (as hereinafter defined) and during the continuance thereof, this Note
shall bear interest at a rate per annum (based on a year of 360 days and actual
days elapsed) which shall be two (2) percentage points in excess of the interest
rate in effect from time to time under this Note but not more than the maximum
rate allowed by law (the "Default Rate"). The Default Rate shall continue to
apply whether or not judgment shall be entered on this Note.
4. Prepayment. If this Note bears interest at the Floating Rate, the
indebtedness may be prepaid in whole or in part at any time without penalty. If
this Note bears interest at a Fixed Rate, notwithstanding anything contained
herein to the contrary, upon any prepayment by or on behalf of the Borrower
(whether voluntary, on default or otherwise), the Bank may require, if it so
elects, the Borrower to pay the Bank as compensation for the cost of being
prepared to advance fixed rate funds hereunder an amount equal to the Cost of
Prepayment. "Cost of Prepayment" means an amount equal to the present value, if
positive, of the product of (a) the difference between (i) the yield, on the
beginning date of the applicable interest period, of a U.S. Treasury obligation
with a maturity similar to the applicable interest period minus (ii) the yield
on the prepayment date, of a U.S. Treasury obligation with a maturity similar to
the remaining maturity of the applicable interest period, and (b) the principal
amount to be prepaid, and (c) the number of years, including fractional years,
from the prepayment date to the end of the applicable interest period. The yield
on any U.S. Treasury obligation shall be determined by reference to Federal
Reserve Statistical Release H.15(519) "Selected Interest Rates". For purposes of
making present value calculations, the yield to maturity of a similar maturity
U.S. Treasury obligation on the prepayment date shall be deemed the discount
rate. The Cost of Prepayment shall also apply to any payments made after
acceleration of the maturity of this Note while a Fixed Rate is in effect.
5. Other Loan Documents. This Note is issued in connection with a certain
Amended and Restated Loan and Security Agreement dated November 10, 1995, as
amended to date, the terms of which are incorporated herein by reference (the
"Loan Documents"), and is secured by the property described in the Loan
Documents (if any) and by such other collateral as previously may have been or
may in the future be granted to the Bank to secure this Note.
<PAGE>
6. Events of Default. The occurrence of any "Event of Default" under the Loan
Documents shall constitute an Event of Default under this Note. Upon the
occurrence of an Event of Default, the Bank may exercise from time to time any
of the rights and remedies available to the Bank under the Loan Documents or
under applicable law.
7. Right of Setoff. In addition to all liens upon and rights of setoff against
the money, securities or other property of the Borrower given to the Bank by
law, the Bank shall have, with respect to the Borrower's obligations to the Bank
under this Note and to the extent permitted by law, a contractual possessory
security interest in and a contractual right of setoff against, and the Borrower
hereby assigns, conveys, delivers, pledges and transfer to the Bank all of the
Borrower's right, title and interest in and to all deposits, moneys, securities
and other property of the Borrower now or hereafter in the possession of or on
deposit with, or in transit to, the Bank whether held in a general or special
account or deposit, whether held jointly with someone else, or whether held for
safekeeping or otherwise, excluding, however, all IRA, Keogh, and trust
accounts. Every such security interest and right of setoff may be exercised
without demand upon or notice to the Borrower. Every such right of setoff shall
be deemed to have been exercised immediately upon the occurrence of an Event of
Default hereunder without any action of the Bank, although the Bank may enter
such setoff on its books and records at a later time.
8. Miscellaneous. No delay or omission of the Bank to exercise any right or
power arising hereunder shall impair any such right or power or be considered to
be a waiver of any such right or power, nor shall the Bank's action or inaction
impair any such right or power. The Borrower agrees to pay on demand, to the
extent permitted by law, all costs and expenses incurred by the Bank in the
enforcement of its rights in this Note and in any security therefor, including
without limitation reasonable fees and expenses of the Bank's counsel. If any
provision of this Note is found to be invalid by a court, all the other
provisions of this Note will remain in full force and effect. The Borrower and
all other makers and indorsers of this Note hereby forever waive presentment,
protest, notice of dishonor and notice of non-payment. The Borrower also waives
all defenses based on suretyship or impairment of collateral. If this Note is
executed by more than one Borrower, the obligations of such persons or entities
hereunder will be joint and several. This Note shall bind the Borrower and its
heirs, executors, administrators, successors and assigns, and the benefits
hereof shall inure to the benefit of the Bank and its successors and assigns.
This Note has been delivered to and accepted by the Bank and will be deemed to
be made in the State where the Bank's office indicated above is located. THIS
NOTE WILL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE BANK AND THE
BORROWER DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE WHERE THE BANK'S
OFFICE INDICATED ABOVE IS LOCATED,
EXCLUDING ITS CONFLICT OF LAWS RULES. The Borrower hereby irrevocably consents
to the exclusive jurisdiction of any state or federal court for the county or
judicial district where the Bank's office indicated above is located, and
consents that all service of process be sent by nationally recognized overnight
courier service directed to the Borrower at the Borrower's address set forth
herein and service so made will be deemed to be completed on the business day
after deposit with such courier; provided that nothing contained in this Note
will prevent the Bank from bringing any action, enforcing any award or judgment
or exercising any rights against the Borrower individually, against any security
or against any property of the Borrower within any other county, state or other
foreign or domestic jurisdiction. The Borrower acknowledges and agrees that the
venue provided above is the most convenient forum for both the Bank and the
Borrower. The Borrower waives any objection to venue and any objection based on
a more convenient forum in any action instituted under this Note.
9. WAIVER OF JURY TRIAL. THE BORROWER IRREVOCABLY WAIVES ANY AND ALL RIGHTS THE
BORROWER MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF ANY
NATURE RELATING TO THIS NOTE, ANY DOCUMENTS EXECUTED IN CONNECTION WITH THIS
NOTE OR ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH DOCUMENTS. THE BORROWER
ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY.
The Borrower acknowledges that it has read and understood all the provisions of
this Note, including the waiver of jury trial, and has been advised by counsel
as necessary or appropriate.
WITNESS the due execution hereof as a document under seal, as of the date first
written above, with the intent to be legally bound hereby.
METROLOGIC INSTRUMENTS, INC.
Attest: /s/ T.E. Mills By:/s/ C. H. Knowles
Print Name: Thomas Mills Print Name: C. Harry Knowles
Title:Vice President, Finance Tiitle: President
<PAGE>
EXHIBIT "A"
(A) Interest Rate. Principal shall bear interest at a rate per annum
(the "Euro-Rate Based Rate") (computed on the basis of a year of 360 days and
the actual number of days elapsed) equal to the sum of (a) the Euro-Rate plus
(b) one hundred seventy-five (175) basis points, for each Euro-Rate Interest
Period. For the purpose hereof, the following terms shall have the following
meanings:
"Euro-Rate" shall mean the interest rate per annum determined by
Bank by dividing (the resulting quotient rounded upward to the
nearest 1/16th of 1% per annum) (i) the rate of interest
determined by Bank in accordance with its usual procedures
(which determination shall be conclusive absent manifest error)
to be the eurodollar rate two (2) Business Days prior to the
first day of each Euro-Rate Interest Period for an amount
comparable to the principal amount of the Note and having a
borrowing date and a maturity comparable to such Euro-Rate
Interest Period by (ii) a number equal to 1.00 minus the
Euro-Rate Reserve Percentage.
"Euro-Rate Interest Period" shall mean one month; provided, that if a
Euro-Rate Interest Period would end on a day which is not a
business day of Bank (a "Business Day"), it shall end on the
next succeeding Business Day, unless such day falls in the
succeeding calendar month in which case the Euro-Rate Interest
Period shall end on the next preceding Business Day. In no event
shall any Euro-Rate Interest Period end after March 31, 1997.
"Euro-Rate Reserve Percentage" shall mean the maximum effective percentage
in effect on such day as prescribed by the Board of Governors of
the Federal Reserve System (or any successor) for determining
the reserve requirements (including, without limitation,
supplemental, marginal and emergency reserve requirements) with
respect to eurocurrency funding (currently referred to as
"Eurocurrency liabilities").
If Bank determines (which determination shall be final and
conclusive) that, by reason of circumstances affecting the
interbank eurodollar market generally, deposits in dollars (in
the applicable amounts) are not being offered to banks in the
interbank eurodollar market for the selected term, or adequate
means do not exist for ascertaining the Euro-Rate, then Bank
shall give notice thereof to Borrower. Thereafter, until Bank
notifies Borrower that the circumstances giving rise to such
suspension no longer exist, (a) the availability of the
Euro-Rate Based Rate shall be suspended, and (b) the interest
rate for all principal then bearing interest at the Euro-Rate
Based Rate shall be converted to a Fixed Rate at the expiration
of the then current Euro-Rate Interest Period.
In addition, if, after the date hereof, Bank shall determine (which
determination shall be final and conclusive) that any
enactment, promulgation or adoption of or any change in any
applicable law, rule or regulation, or any change in
the interpretation or administration thereof by a
governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof,
or compliance by Bank with any guideline, request or
directive (whether or not having the force of law) of any such
authority, central bank or comparable agency shall
make it unlawful or impossible for Bank to make or maintain or
fund loans at the Euro-Rate Based Rate, Bank shall
notify Borrower. Upon receipt of such notice, until Bank
notifies Borrower that the circumstances giving rise to
such determination no longer apply, (a) the availability of
the Euro-Rate Based Rate shall be suspended, and (b)
the interest rate on all principal then bearing interest at
the Euro-Rate Based Rate shall be converted to a Fixed
Rate either (i) on the last day of the then current Euro-Rate
Interest Period if Bank may lawfully continue to
maintain principal at the Euro-Rate Based Rate to such day, or
(ii) immediately if Bank may not lawfully continue
to maintain principal at the Euro-Rate Based Rate.
<PAGE>
(B) Interest Rate Election. At the end of each Euro-Rate Interest
Period, Borrower shall be deemed to have selected another one month interest
period, such that the entire principal balance of the Note shall bear interest
at the Euro-Rate Based Rate for three (3) consecutive one-month Euro-Rate
Interest Periods for the period January 1, 1997 through and including March 31,
1997. Borrower shall indemnify Bank against all liabilities, losses or expenses
(including loss of margin, any loss or expense incurred in liquidating or
employing deposits from third parties and any loss or expense incurred in
connection with funds acquired by Bank to fund or maintain loans bearing
interest at the Euro-Rate Based Rate) which Bank sustains or incurs as a
consequence of any attempt by Borrower to prepay prior to the expiration of the
applicable Euro-Rate Interest Period any principal accruing interest at the
Euro-Rate Based Rate, including by reason of any scheduled payment of principal
or by reason of Borrower's election to convert to a Fixed Rate prior to the end
of an Euro-Rate Interest Period. If Bank sustains or incurs any such loss, it
shall notify Borrower of the amount determined by Bank to be necessary to
indemnify Bank for such loss or expense (which determination may include such
assumptions, allocations of costs and expenses and averaging or attribution
methods as Bank deems appropriate). Such amount shall be due and payable by the
Borrower ten (10) days after such notice is given.
(C) One Tranche. Each Euro-Rate Interest Period will be applicable to the
entire principal balance, and not more than one tranche of principal accruing
interest at the Euro-Rate Based Rate shall be outstanding at any one time.
<PAGE>
EXHIBIT 11
Statement Re: Computation of Per Share Earnings
Year Ended December 31,
1996 1995 1994
Primary
Average shares outstanding 5,254 5,238 3,899
Net effect of dilutive stock
options - based on the treasury
stock method using average
market price 42 33 11
Net effect of dilutive
restrictive stock grants 5 8 2
------ ------ ------
Total 5,301 5,279 3,912
====== ====== ======
Net income (loss) $2,975 $2,542 $5,823
====== ====== ======
Per share amount $ 0.56 $ 0.48 $ 1.49
====== ====== ======
The computation of per share earnings on a fully diluted basis does not
materially differ from the amounts calculated on a primary basis.
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Holoscan, Inc. (effective March 1, 1996)
MTLG Investments Inc. (effective February 21, 1996)
Metrologic Instruments (Barbados) Inc.
Metrologic Instruments GmbH
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (Registration No. 33-89376) pertaining to Metrologic Instruments, Inc.
1994 Incentive Plan and the Registration Statement on Form S-8 (Registration No.
33-86670) pertaining to Metrologic Instruments, Inc. Employee Stock Purchase
Plan of our report dated February 26, 1997 with respect to the consolidated
financial statements and schedule of Metrologic Instruments, Inc. included
in the Annual Report on Form 10-K for the year ended December 31, 1996.
/s/ Ernst & Young, LLP
Philadelphia, Pennsylvania
March 31, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
UNAUDITED FINANCIAL STATEMENTS FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<PERIOD-START> JAN-01-1996
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 10,358,000
<SECURITIES> 0
<RECEIVABLES> 8,528,000
<ALLOWANCES> 493,000
<INVENTORY> 5,588,000
<CURRENT-ASSETS> 26,348,000
<PP&E> 4,692,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 35,992,000
<CURRENT-LIABILITIES> 11,148,000
<BONDS> 0
0
0
<COMMON> 53,000
<OTHER-SE> 20,994,000
<TOTAL-LIABILITY-AND-EQUITY> 35,992,000
<SALES> 46,971,000
<TOTAL-REVENUES> 46,971,000
<CGS> 28,799,000
<TOTAL-COSTS> 42,414,000
<OTHER-EXPENSES> (221,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 108,000
<INCOME-PRETAX> 4,778,000
<INCOME-TAX> 1,803,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,975,000
<EPS-PRIMARY> .56
<EPS-DILUTED> .56
</TABLE>
