SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
Commission File Number 0-7704
REFAC TECHNOLOGY DEVELOPMENT CORPORATION
Delaware 13-1681234
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
122 East 42nd Street, New York, New York 10168
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 687-4741
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 $.10 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of March 20, 1998 was $33,846,239.
The number of shares outstanding of the registrant's Common Stock, par
value $.10 per share, as of March 20, 1998 was 3,793,761.
DOCUMENTS INCORPORATED BY REFERENCE
PART I Item 1 } Annual Report to Stockholders of REFAC
PART II Item 5 } Technology Development corporation for the
Item 6 } year ended December 31, 1997 except for the
Item 7 } inside front and back cover and Pages 2 through
Item 8 } 11 thereof.
PART III Item 10}Definitive Proxy Statement of REFAC
Item 11}Technology Development Corporation in
Item 12}connection with the Annual Meeting of
Item 13}Stockholders to be held in May, 1998.
PART I
Item 1. Business
General
REFAC Technology Development Corporation (the "Company"), a Delaware
corporation organized in 1952, through certain of its subsidiaries, is
engaged
in the businesses of Technology Licensing, Product Design and Development and
Trademark Licensing.
Technology Licensing Operations
The Company's technology licensing includes "New Technology" and "Patent
Enforcement Licensing" projects. In both classes, the Company acquires from
its clients ("Clients") the exclusive right to license others ("Licensees")
to manufacture, use and/or sell, throughout the world or in specific markets,
specific Client products and processes under their respective patents and/or
in accordance with related technical know-how. In recent years, a typical
Client has been an individual or a small company for whom licensing offers
important opportunities for accelerated product development, broadened
commercialization and income. The Company also offers larger corporations a
facility for exploiting idle patents, unused or abandoned products and
technological developments. As a general policy, the Company shares equally
with Clients the gross amount of revenues received from its licenses.
Occasionally, in addition to or in lieu of money payments, the Company may
receive equity considerations.
New Technology Licensing. Includes technologies that have not yet been
successfully commercialized. They promise certain benefits such as new
features, improved performance, cost savings and/or favorable environmental,
health or safety features. In order for the Company to attract Licensees for
this type of technology, it has to present evidence that persuasively "proves
the concept" of the invention, which often involves monetary investments.
The Company endeavors to be selective in the products for which it
undertakes licensing responsibilities. In the United States and abroad, it
attempts to locate industrial technologies having distinctively advantageous
features that are protected by patents and confidential know-how. Sometimes,
the Company has the added right to license the Client's trademarks. However,
most of the Company's licensing opportunities are prompted by references and
by the Company's professional reputation. All such opportunities are
evaluated on the basis of their proprietary features, innovative merit,
technological significance, competitive conditions and earning potential.
Licensing and technology transfer strategies are studied with due
consideration of the Client's objectives. The actual licensing process
usually starts with the identification and qualification of suitable Licensee
prospects. Information packages and license proposals are prepared subject
to the Client's approval. When suitable prospective Licensees are
identified,
negotiations proceed with the goal of creating income-producing agreements.
Agreements may provide for single lump sum payments or, as is generally
preferred, ongoing royalty payments based on sales of licensed products over
an extended period of years.
There is usually a substantial interval between the time license rights
are acquired and the actual realization of license revenue. The interval is
seldom less than two years, often longer. Not infrequently, licensing
efforts
prove unsuccessful. A licensing program may result in a succession of many
non-exclusive agreements or a limited number of exclusive agreements covering
defined areas of technology, fields of product application and marketing
territories. After agreements are made, the Company, in its role as
licensor,
continuously administers and services them, often with the Client's
cooperation. The terms and conditions of these licenses and related
agreements may vary depending upon whether they principally cover patent
rights, trademarks, developments and improvements, exclusivity, trade secrets
and/or copyrights. From time to time, licenses may be granted to parties, or
result in the creation of new companies, in which the Company and Client may
acquire or have the option to acquire equity or joint venture interests.
Patent Enforcement Licensing. In determining its interest in the
products or patents of a prospective Client, the Company may find indications
of infringement by one or more third parties. Indeed, a prospective Client
may alert the Company that its patents are probably being infringed by
various
manufacturers or users. In such event, before accepting a licensing
responsibility, the Company intensively investigates relevant issues of
patent
validity and indicated infringement details. If the Company concludes that
there is substantial merit in the Client's patent position, that there is a
strong basis for concluding that infringement exists, and that there is
substantial economic value involved, serious efforts are then made to license
the patents to the putatively infringing parties. Often these efforts are
successful. If not, the Company may consider it appropriate, with the Client
as co-plaintiff, to initiate infringement litigation. Such litigation is
costly and lengthy with an uncertain outcome.
Except for its contracts with Patlex Corporation and Emhart Fastening
Technologies, Inc. which accounted for 57% and 10%, respectively, of 1997
service revenues, the Company does not believe that the loss or termination
of any individual contract would have a materially adverse effect on its
business.
With respect to any patents or group of related patents that are now the
subject of one or more income-producing licenses, the Company does not
believe
that there is any currently foreseeable circumstance under which the Company
would lose its rights to grant licenses.
Information concerning entities that comprise more than 10% of service
revenues for the three years ended December 31, 1997 is set forth in Note 8
of the Notes to the Company's Consolidated Financial Statements on Page 23 of
its Annual Report to Stockholders for the year ended December 31, 1997. Said
Page 23 is incorporated herein by reference.
Competition. Although no statistical data is available, the Company
believes that it is one of the leading independent companies in the
international licensing and technology transfer field. The Company believes
its experience in identifying and licensing new technologies enhances its
competitive position in the international licensing and technology transfer
segment.
Product Design & Development
On November 26, 1997, the Company acquired Human Factors Industrial
Design ("Human Factors"), an industrial design and engineering firm based in
New York City. Founded in 1974, Human Factors is a product development
company that offers a broad range of research, design and engineering
services
to create innovative products for its clients. Human Factors merges the
disciplines of applied human factors, industrial design, architecture and
engineering. Originally specializing in the design of medical products and
shipboard electronics, Human Factors is now known for its expertise in
designing and/or engineering (i) Consumer Products, (ii) Medical-Surgical
Devices, (iii) Medical and Other Industrial Equipment and (iv) Control Rooms
and Consoles.
While it normally operates as a fee-for-service consultant, in the
appropriate circumstances, it will forego current fee income for a
participation in the future success of a project on a royalty basis. As a
result of the acquisition by the Company, Human Factors has a heightened
interest in investing in proprietary projects.
Facilities. Human Factors occupies approximately 12,500 square feet of
office, studio, machine shop and lab space in an office building located in
New York City. It runs a complete range of operating software platforms,
including AutoCad, Alias, Cosmos, SolidWorks, MasterCam, MicroStation and
ProEngineer. It has a machine shop with a Computer Numeric Control milling
machine, mock-up studio/workshop and an inspection/lab area, all on the same
floor adjacent to its engineering and design studios.
Employees. Human Factors has 32 full-time employees, including 17
industrial designers, 7 engineers and 8 technical and support staff. Over
half of the staff have been employed by Human Factors for more than 10 years.
Competition. The industrial design industry is fragmented, with a lack
of dominant market leaders. Since the barriers to entry, including capital
requirements, are relatively low, there are a large number of small regional
firms. In fact, most of Human Factors's services are currently being
rendered
to clients located in the Northeast. Human Factors faces keen competition
from other industrial design firms and its ability to attract clients is
dependent upon its reputation and ability to deliver distinctive products
that
meet its clients' requirements in a timely fashion.
Trademark Licensing
On January 21, 1998, the Company broadened its licensing business
through the formation of Selective Licensing & Promotion, Ltd. ("SL&P").
SL&P
is a full service trademark licensing agency and consultant for brand and
character licensing properties. The Company owns 81% of SL&P and Ms. Arlene
Scanlan, the President and Chief Executive Officer of SL&P, owns the
remaining
19%. Ms. Scanlan brought to SL&P a licensing consultancy agreement with Ben
& Jerry's Ice Cream, as well as the licensing rights to a cartoon character
known as "Psycho Chihuahua" and the "Class of 2000" trademark. The Company
has committed to make up to $1 million in financing available to SL&P over
the
next three years.
Facilities. In March, 1998, SL&P leased approximately 1,450 square feet
of office space in Southport, Connecticut.
Employees. SL&P has 3 full-time employees and 1 part-time employee.
Competition. Success in the trademark licensing agency business is
principally dependent upon the strength of the properties that the agency
represents. With respect to character or juvenile licensing, most of the
movie and television production companies have their own licensing divisions
to license their properties. Thus, SL&P typically competes with other
independent agencies for properties that have not yet become well-known but
which it believes have the potential to be popular. It also competes with
other agencies in brand licensing for the rights to well-known corporate
trademarks. It believes that Human Factors' product design and development
capability will give it a distinct advantage in this area.
Ceased Operations - Hot-Melt Adhesives
In December, 1995, the Company acquired control of Advanced Resin
Technology, Inc. ("Advanced Resin") which was operating as a nonexclusive
Licensee of the Company under the Adhesive and Polymer Related Patents (see
"Business - Patents and Trademarks", Page 6). Until the Company decided to
cease Advanced Resin's manufacturing operations at the end of 1997, it
marketed a line of thermoplastic polyurethane hot-melt adhesives sold under
the trademarks Bondstar (special-purpose hot-melt adhesives suitable for
applications such as solvent-free textile lamination) and Memoriflex
(general-purpose industrial elastomers).
On February 6, 1998, the Company non-exclusively licensed this
technology to Key Polymer Corporation, a regional adhesive manufacturer
located in Lawrence, Massachusetts that had manufactured all of Advanced
Resin's products pursuant to a contract manufacturing agreement. Under the
license agreement, Key Polymer will manufacture and market the adhesives,
under REFAC's trademarks. With this license agreement in place, the Company
will now seek additional licensees for the technology. Advanced Resin will
devote its efforts in 1998 to research and development to refine and broaden
the technology while providing technical assistance to Key Polymer and future
licensees. As a result of this transaction, the Company reported an
after-tax
loss on such ceased operations in the fourth quarter of 1997 of approximately
$341,000, or $0.09 per share. In addition, Advanced Resin had an operating
loss in 1997 of $307,000 or $0.08 per share, after taxes.
Government Regulations
Federal, state and local environmental control laws have had no material
effect on capital expenditures, earnings or the competitive position of the
Company.
Patents and Trademarks
As of December 31, 1997, the Company held the following interests in
patents and trademarks:
Adhesive and Polymer Related Patents - The Company's subsidiary, REFAC
International, Ltd. ("RIL") owns the following United States patents covering
the manufacture and composition of urethane polymer and epoxy materials:
U.S. Title Expiration
Patent Date
No.
4,608,418 Hot Melt Composition and Process for Forming the
Same 02/22/2005
4,870,142 Novel Urethane Polymer Alloys With Reactive Epoxy
Functional Groups 06/26/2008
5,516,857 Thermoplastic Urethane Elastomeric Alloys 05/14/2013
5,580,946 Thermoplastic Polyurethane-Epoxy Mixtures That
Develop Cross-Linking Upon Melt Processing 12/03/2013
In addition, the Company has three applications pending. The first
relates to a hot-melt polyurethane adhesive composition that is suitable for
high-volume operations like labeling and exposure to pasteurization, hot-
filling, and/or cold storage. The second relates to a process oil modified
hot-melt composition, and the third concerns thermoplastic urethane
elastomeric alloys.
Various foreign patents and applications corresponding to the above
United States Patents and applications are issued or pending.
The Company also owns the registered United States trademark "LAMBDA"
for use with thermoplastic polymer adhesives for general manufacturing and
has pending United States trademark applications for the mark "REFAC", for
use
with adhesives and elastomers, and the mark "Bondstar", for use with
adhesives
used in manufacturing, laminating and/or assembly of products.
H. pylori and Dermatitis Patent - The Company's subsidiary, REFAC
Biochemics Corporation ("RBC"), holds the exclusive right to grant licenses
under United States Patent No. 5,409,903, entitled "Method and Compositions
for the Treatment of H. pylori and Dermatitis", which expires April 25, 2012.
RBC has committed to invest up to $120,000 for the prosecution and
maintenance
of the corresponding foreign patents and a clinical trial relating to this
pharmaceutical composition.
Conveyor Patents - RIL owns eight U.S. patents covering conveyors and
conveyor buckets that expire at various times from February 15, 2000 to April
21, 2009 and the registered U.S. trademarks Econ-O-Lift , Maxecon and Swing
Link . Various foreign patents and trademarks have issued.
Robotic Patents - The Company owns eight U.S. patents covering multi-
functional robotic end effectors and the Foreman registered U.S. trademark.
These patents expire at various times from May 27, 2003 to November 1, 2011.
Exclusive Rights to License under Other Patents - As mentioned in Item
1, in the Company's technology licensing business, it acquires from its
Clients the exclusive right to license others to manufacture, use and/or
sell,
throughout the world or in specific markets, specific Client products and
processes under their respective patents and/or in accordance with related
technical know-how.
__________
The Company does not believe that the loss or termination of any of the
above patents or trademarks would have a materially adverse effect on its
business.
Employees
As of December 31, 1997, the Company had 50 employees including 32
employees at Human Factors and four employees at Advanced Resin. The Company
considers its relations with its employees to be excellent.
Financial Information About Foreign and Domestic Operations and Product Sales
The Company's business is principally conducted in the United States.
Information concerning the aggregate of the Company's foreign source revenues
from domestic operations for the three years ended December 31, 1997 is set
forth in Note 8 of the Notes to the Company's Consolidated Financial
Statements on Page 23 of its Annual Report to Stockholders for the year ended
December 31, 1997. Said Page 23 is incorporated herein by reference. The
Company is subject to the usual risks of doing business abroad, particularly
currency fluctuations and foreign exchange controls.
Item 2. Properties
The Company leases the entire 40th floor, consisting of approximately
7,800 square feet, in an office building located at 122 East 42nd Street, New
York, New York under a lease which expires in the year 2004. The Company
occupies approximately 5,100 square feet of space for its headquarters
facility and subleases the remaining premises under subleases that are
terminable upon six (6) months notice.
Human Factors, a wholly-owned subsidiary, leases the entire 15th floor,
consisting of approximately 10,000 square feet, in an office building located
at 575 Eighth Avenue, New York, New York under a lease which expires in the
year 2003. It also leases in the same building an additional 1,500 square
feet under a lease which expires on October 31, 1998 and 900 square feet on
a month-to-month basis.
During 1997, Advanced Resin, a majority owned subsidiary of the Company
(approximately 87% owned as of December 31, 1997 and approximately 93% owned
as of March 21, 1998) leased offices and laboratory facilities consisting of
approximately 2,010 square feet in Lawrence, Massachusetts under a lease with
an expiration date in the year 2001. This lease was terminated by Agreement
as of January 31, 1998 when Advanced Resin ceased its manufacturing
operations
and replaced by a one-year lease for 860 square feet for laboratory
facilities. For further information, See "Item 1., Description of Business,
Ceased Operations", Page 5.
The Company's wholly-owned subsidiary, REFAC Financial Corporation,
leases office facilities in Las Vegas, Nevada, which it considers to be
suitable and adequate for the present needs.
Item 3. Legal Proceedings
The Company is the plaintiff in the following patent lawsuit and a
claimant in an arbitration incidental to its business. In the opinion of
management, an adverse outcome in such lawsuit and/or arbitration will not
have a materially adverse effect on the Company's financial position or
results of operations.
Storer Patent Litigation. On September 1, 1995, Dr. James A. Storer
granted to the Company the exclusive right to establish through license or
other suitable arrangements with third parties the manufacture, lease, sale
and/or use of products under United States Patent No. 4,876,541 entitled
"System for Dynamically Compressing and Decompressing Electronic Data" (the
"Storer Patent"). On March 21, 1996, the Company filed a patent infringement
suit against Hayes Microcomputer Products, Inc. ("Hayes") and Zoom
Telephonics, Inc. ("Zoom") in the United States District Court for the
Eastern
District of Massachusetts. The Company and Dr. Storer allege that
defendants'
data modems which employ the V.42 bis standard infringe the Storer Patent.
The Company reached a settlement with Hayes in December, 1997. The
litigation
is continuing against Zoom with the jury trial scheduled for June, 1998. The
Company expects this to be a significant and protracted litigation and, while
the Company believes that it has meritorious patent infringement claims
against Zoom, patent litigation is expensive with the outcome uncertain.
KST Patent Arbitration. On May 12, 1997, the Company and Microsoft
Corporation ("Microsoft") entered into a non-exclusive license under U.S.
Patent No. 5,167,011 to Dr. W. Curtiss Priest (the "Priest Patent"), for
which
the Company holds the exclusive licensing rights. The Priest Patent describes
a system for coordinating information storage and retrieval. The Company and
Microsoft have agreed to keep the terms of the license agreement
confidential,
with the amount of the license fee to be determined by arbitration. While
the
Company believes that it has meritorious position, the outcome of an
arbitration is uncertain.
Suit by Former Officer. At December 31, 1997, the only claim pending
against the Company was a litigation commenced in United States District
Court
for the Eastern District of New Jersey, on December 12, 1995, by the
executrix
of the estate of a former officer of the Company for compensation allegedly
due under an employment arrangement. The Company believes that the claim is
without any merit.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
fourth quarter of the year ended December 31, 1997.
PART II
Item 5. Market for the Company's Common Stock and Related Security Holder
Matters
The information required by this item is included on the inside cover
of the Company's Annual Report to Stockholders for the year ended December
31,
1997, which is hereby incorporated by reference.
Item 6. Selected Financial Data
The information required by this item is included on the inside cover
of the Company's Annual Report to Stockholders for the year ended December
31,
1997, which is hereby incorporated by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required by this item is included on Pages 10 and 11 of
the Company's Annual Report to Stockholders for the year ended December 31,
1997, which pages are hereby incorporated by reference.
Item 8. Financial Statements
The information required by this item is included on Pages 12 through
19 of the Company's Annual Report to Stockholders for the year ended December
31, 1997, which pages are hereby incorporated by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Company
The information required by this item is included on Pages 3 through 7
in the Company's definitive Proxy Statement in connection with the Annual
Meeting of Stockholders to be held in May, 1998 and is hereby incorporated
herein by reference. Information concerning the Executive Officers of the
Company is presented below.
EXECUTIVE OFFICERS OF THE COMPANY
Served in Such
Position or Office
Name Age Continually Since Position (1)
Robert L. Tuchman 55 1991 Chairman, President, Chief
Executive Officer and
General
Counsel (2)
Raymond A. Cardonne, Jr.31 1997 Vice President (3)
Robert Rescigno 32 1994 Secretary and Treasurer (4)
Eugene M. Lang 79 1952 Chairman Emeritus (5)
__________
NOTES:
(1) Each executive officer's term of office is until the next
organizational meeting of the Board of Directors of the Company
(traditionally held immediately after the Annual Meeting of
Stockholders of the Company) and until the election and
qualification
of his successor. However, the Company's Board of Directors has the
discretion to replace officers at any time.
(2) Mr. Tuchman succeeded Eugene M. Lang as the Chief Executive
Officer of the Company on January 6, 1997 and as Chairman of the
Board
of Directors on June 30, 1997. He also serves as General Counsel.
From August, 1991 until January 6, 1997, Mr. Tuchman served as the
Company's President and Chief Operating Officer. From May, 1994 to
March, 1997 he was Treasurer.
(3) Mr. Cardonne joined the Company in December, 1997 as Vice
President responsible for the licensing and commercialization of
technologies. Prior to joining REFAC, from December, 1994 through
November, 1997, Mr. Cardonne was a Vice President at Technology
Management & Funding, L.P. From August, 1993 to December 1994, he
worked for NEPA Venture Funds, an early stage venture capital firm,
and the Lehigh Small Business Development Center. He previously
worked at Ford Electronics from January, 1990 to July, 1993.
(4) Mr. Rescigno joined the Company in April, 1994 as Secretary
and Controller and became Treasurer in May, 1997. He previously
served as an audit senior with Grant Thornton LLP, the Company's
independent public accountants. He was a senior accountant for
Theiss
and Theiss, certified public accountants, from January, 1989 to
December, 1993, where he was responsible for the firm's quality
review.
(5) Mr. Lang, the Company's founder, served as the Chief
Executive Officer of the Company from its inception in 1952 until
January 6, 1997 when he relinquished such position pursuant to the
terms of a Retirement Agreement. He continued as Chairman of the
Board of Directors until June 30, 1997 and now serves as Chairman
Emeritus, a member of the Board of Directors and a consultant to the
Company.
Item 11. Executive Compensation
The information required by this item is included on Pages 11 and 12 in
the Company's definitive Proxy Statement in connection with the Annual
Meeting
of Stockholders to be held in May, 1998 and is hereby incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is included on Pages 2 through 4 in
the Company's definitive Proxy Statement in connection with the Annual
Meeting
of Stockholders to be held in May, 1998 and is hereby incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
The information required by this item is included on Page 17 in the
Company's definitive Proxy Statement in connection with the Annual Meeting of
Stockholders to be held in May, 1998 and is hereby incorporated herein by
reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements
See index to financial statements on the inside cover of the Company's
Annual Report to Stockholders for the year ended December 31, 1997, which is
hereby incorporated by reference.
(a)(2) Schedules
See index to financial statements on the inside cover of the Company's
Annual Report to Stockholders for the year ended December 31, 1997, which is
hereby incorporated by reference.
(a)(3) Exhibits
See the Exhibit Index attached hereto for a list of the exhibits filed or
incorporated by reference as a part of this report.
(b) Reports on Form 8-K.
Filed on January 15, 1997 relating to Stock Repurchase Agreement and
Retirement Agreement with Eugene M. Lang.
Filed on December 10, 1997 relating to the purchase of Human Factors
Industrial Design, Inc.<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
REFAC Technology Development Corporation
Date: March 18, 1998 /s/Robert L. Tuchman
Robert L. Tuchman, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Company
and in the capacities and on the dates indicated.
March 18, 1998 /s/Robert L. Tuchman
Robert L. Tuchman, President,
Chief Executive Officer, General
Counsel and Director
March 18, 1998 /s/Eugene M. Lang
Eugene M. Lang, Director
March 18, 1998 /s/Robert Rescigno
Robert Rescigno, Secretary and
Treasurer
March 18, 1998 Neil R. Austrian
Neil R. Austrian, Director
March 18, 1998 Robin L. Farkas
Robin L. Farkas, Director
Signatures
(Continued)
March 18, 1998 Mark N. Kaplan
Mark N. Kaplan, Director
March 18, 1998 Herbert W. Leonard
Herbert W. Leonard, Director
March 18, 1998 Douglas M. Spranger
Douglas M. Spranger, Director
March 18, 1998 Ira T. Wender
Ira T. Wender, Director<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
3. Articles of Incorporation and By-laws of
the Company as currently in effect. The
Articles of Incorporation required by
this item is included in the Company's
Annual Report on Form 10-K for the year
ended December 31, 1987 and in the
Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1988, SEC
file number 0-7704, and are hereby
incorporated by reference. The By-laws
of the Company are included herewith.
10. Employment Agreement Amended and Restated
dated December 13, 1996 between the
Company and Robert L. Tuchman. The
Exhibit required by this item is included
in the Company's Annual Report on Form
10-K for the year ended December 31,
1996, SEC file number 0-7704, and is
hereby incorporated by reference.
13. Annual Report to Security Holders of the
Company for the year ended December 31,
1997.
21. Subsidiaries of the Registrant.
EXHIBIT 3
BY-LAWS OF
REFAC TECHNOLOGY DEVELOPMENT CORPORATION
(a Delaware Corporation)
______________________
ARTICLE I
MEETING OF STOCKHOLDERS
Section 1. Annual Meeting. The Annual Meeting of Stock-
holders for the election of directors shall be held on such date
and at such time as shall be designated from time to time by the
Board of Directors.
Section 2. Special Meetings. Special meetings of the
stockholders, unless otherwise prescribed by statute, may be
called at any time by the Board or the President.
Section 3. Notice of Meetings. Notice of the place, date
and time of the holding of each annual and special meeting of the
stockholders and, in the case of a special meeting, the purpose
or purposes thereof, shall be given personally or by mail in a
postage prepaid envelope to each stockholder of record entitled
to vote at such meeting, not less than ten nor more than fifty
days before the date of such meeting. If mailed, it shall be
deposited in the mails within the above mentioned period and
directed to such stockholder at his address as it appears on the
records of the Corporation, unless he shall have filed with the
Secretary of the Corporation a written request that notices to him
be mailed to some other address, in which case it shall be
directed to him at such other address. Notice of any meeting of
stockholders shall not be required to be given to any stockholder
who shall attend such meeting in person or by proxy and shall not,
at the beginning of such meeting, object to the transaction of any
business because the meeting is not lawfully called or convened,
or who shall, either before or after the meeting, submit a signed
waiver of notice, in person or by proxy. Unless the Board, after
the adjournment of any meetings, shall fix after the adjournment
a new record date for an adjourned meeting, notice of such
adjourned meeting need not be given if the time and place to which
the meeting shall be adjourned were announced at the meeting at
which the adjournment is taken. At the adjourned meeting the
Corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record
date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to
vote at the adjourned meeting.
Section 4. Place of Meetings. Meetings of the
stockholders may be held at such place, within or without the
State of Delaware, as the Board or the officer calling the same
shall specify in the notice of such meeting, or as shall be
specified in a duly executed waiver of notice thereof.
Section 5. Quorum. At all meetings of the stockholders the
holders of a majority of the votes of the shares of stock of the
Corporation issued and outstanding and entitled to vote shall be
present in person or by proxy to constitute a quorum for the
transaction of any business, except when stockholders are required
to vote by class, in which event a majority of the issued and
outstanding shares of the appropriate class shall be present in
person or by proxy, or except as otherwise provided by statute or
in the Certificate of Incorporation. In the absence of a quorum,
the holders of a majority of the votes of the shares of stock
present in person or by proxy and entitled to vote, or, if no
stockholder entitled to vote is present, any officer of the
Corporation may adjourn the meeting from time to time. At any
such adjourned meeting at which a quorum may be present any
business may be transacted which might have been transacted at the
meeting as originally called.
Section 6. Organization. At each meeting of the
stockholders the President, or in his absence or inability to act,
a Vice President, or in the absence of any Vice President, any
person chosen by a majority of those stockholders entitled to vote
who are present, shall act as chairman of the meeting. The
Secretary, or, in his absence or inability to act, an Assistant
Secretary or any person appointed by the chairman of the meeting,
shall act as secretary of the meeting and keep the minutes
thereof.
Section 7. Order of Business. The order of business at
all meetings of the stockholders shall be as determined by the
chairman of the meeting.
Section 8. Voting. Except as otherwise provided by
statute, the Certificate of Incorporation, or any certificate duly
filed in the State of Delaware pursuant to Section 151 of the
Delaware General Corporation law, each holder of record shares of
stock of the Corporation having voting power shall be entitled to
one vote for every share of such stock standing in his name on the
record of stockholders of the Corporation on the date fixed by the
Board as the record date for the determination of the stockholders
who shall be entitled to notice of and to vote at such meeting;
or if such record date shall not have been so fixed, then at the
close of business on the day next preceding the day on which
notice thereof shall be given, or if notice is waived, at the
close of business on the day next preceding the day on which the
meeting is held. Each stockholder entitled to vote at any meeting
of stockholders may authorize another person or persons (not
reasonable in number, as shall be determined by the Chairman of
such meetings) to act for him by a proxy signed by such
stockholder or his attorney-in-fact. Any such proxy shall be
delivered to the secretary of such meeting at or prior to the time
designated in the order of business for so delivering such
proxies. No proxy shall be valid after the expiration of three
years from the date thereof, unless otherwise provided in the
proxy. Every proxy shall be revocable at the pleasure of the
stockholder executing it, except in those cases where an
irrevocable proxy is given and is permitted by law. Except as
otherwise provided by statute, these By-Laws, or the Certificate
of Incorporation, any corporate action to be taken by vote of the
stockholders shall be authorized by a majority of the total votes,
or when stockholders are required to vote by class by a majority
of the votes of the appropriate class, cast at a meeting of
stockholders by the holders of shares present in person or
represented by proxy and entitled to vote on such action. Unless
required by statute, or determined by the chairman of the meeting
to be advisable, the vote on any question need not be by written
ballot. On a vote by written ballot, each ballot shall be signed
by the stockholder voting, or by his proxy, if there be such
proxy, and shall state the number of shares voted.
Section 9. List of Stockholders. The officer who has
charge of the stock ledger of the Corporation shall prepare and
make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting,
arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior
to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where
the meeting is to be held. The list shall also be produced and
kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 10. Inspectors. The Board may, in advance of any
meeting of stockholders, appoint one or more inspectors to act at
such meeting or any adjournment thereof. If the inspectors shall
not be so appointed or if any of them shall fail to appear or act,
the chairman of the meeting may, and on the request of any
stockholder entitled to vote thereat shall, appoint inspectors.
Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of
inspector at such meeting with strict impartiality and according
to the best of his ability. The inspectors shall determine the
number of shares outstanding and the voting power of each, the
number of shares represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive
votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and
tabulate all votes, ballots or consents, determine the result, and
do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the chairman of the
meeting or any stockholder entitled to vote thereat, the
inspectors shall make a report in writing of any challenge,
request or matter determined by them and shall execute a
certificate of any fact found by them. No director or candidate
for the office of director shall act as inspector of an election
of directors. Inspectors may, but need not be, stockholders.
Section 11. Consent of Stockholders in Lieu of Meeting. In
order that the corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the
Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record
date is adopted by the Board of Directors, and which date shall
not be more than ten (10) days after the date upon which the
resolution fixing the record date is adopted by the Board of
Directors. Any stockholder of record seeking to have the
stockholders authorize or take corporate action by written consent
shall, by written notice to the secretary, request the Board of
Directors to fix a record date. The Board of Directors shall
promptly, but in all events within ten (10) days after the date
on which such a request is received, adopt a resolution fixing the
record date. If no record date has been fixed by the Board of
Directors within ten (10) days of the date on which such a request
is received, the record date for determining stockholders entitled
to consent to corporate action in writing without a meeting, when
no prior action by the Board of Directors is required by
applicable law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is
delivered to the corporation by delivery to its registered office
in the State of Delaware, its principal place of business, or an
officer or agent of the corporation having custody of the book in
which proceedings of stockholders meetings are recorded, to the
attention of the Secretary of the corporation. Delivery shall be
by hand or by certified or registered mail, return receipt
requested. If no record date has been fixed by the Board of
Directors and prior action by the Board of Directors is required
by applicable law, the record date for determining stockholders
entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the date on which the
Board of Directors adopts the resolution taking such prior action.
Section 12. Nature of Business at Meetings of Stockholders. No
business may be transacted at an annual meeting of stockholders, other
than business that is either (a) specified in the notice of meeting (or
any supplement thereto) given by or at the direction of the Board of
Directors (or any duly authorized committee thereof), (b) otherwise
properly brought before the annual meeting by or at the direction of the
Board of Directors (or any duly authorized committee thereof) or (c)
otherwise properly brought before the annual meeting by any stockholder
of the Corporation (i) who is a stockholder of record on the date of the
giving of the notice provided for in this Section and on the record date
for the determination of stockholders entitled to vote at such annual
meeting and (ii) who complies with the notice procedures set forth in
this Section.
In addition to any other applicable requirements, for business
to
be properly brought before an annual meeting by a stockholder, such
stockholder must have given timely notice thereof in proper written form
to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices
of the Corporation not less than sixty (60) days nor more than ninety
(90) days prior to the anniversary date of the immediately preceding
annual meeting of stockholders; provided, however, that in the event
that the annual meeting is called for a date that is not within thirty
(30) days before or after such anniversary date, notice by the
stockholder in order to be timely must be so received not later than the
close of business on the tenth (10th) day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure of the date of the annual meeting was made, whichever first
occurs.
To be in proper written form, a stockholder's notice to the
Secretary must set forth as to each matter such stockholder proposes to
bring before the annual meeting (i) a brief description of the business
desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (ii) the name and record
address of such stockholder, (iii) the class or series and number of
shares of capital stock of the Corporation which are owned beneficially
or of record by such stockholder, (iv) a description of all arrangements
or understandings between such stockholder and any other person or
persons (including their names) in connection with the proposal of such
business by such stockholder and any material interest of such
stockholder in such business and (v) a representation that such
stockholder intends to appear in person or by proxy at the annual
meeting to bring such business before the meeting.
No business shall be conducted at the annual meeting of
stockholders except business brought before the annual meeting in
accordance with the procedures set forth in this Section; provided,
however, that, once business has been properly brought before the annual
meeting in accordance with such procedures, nothing in this Section
shall be deemed to preclude discussion by any stockholder of any such
business. If the Chairman of an annual meeting determines that business
was not properly brought before the annual meeting in accordance with
the foregoing procedures, the Chairman shall declare to the meeting that
the business was not properly brought before the meeting and such
business shall not be transacted.
ARTICLE II
BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of
the Corporation shall be managed by the Board. The Board may
exercise all such authority and powers of the Corporation and do
all such lawful acts and things as are not by statute or the
Certificate of Incorporation directed or required to be exercised
or done by the stockholders.
Section 2. Number, Qualifications, Election and Term of
Office. The number of directors of the Corporation shall be 7,
but, by vote of a majority of the entire Board, the number thereof
may be increased to a total of 11 directors, subject to the
provisions of Section 11 of Article II. All of the directors
shall be of full age. Directors need not be stockholders. Except
as otherwise provided by statute or these ByLaws, the directors
shall be elected at the annual meeting of stockholders for the
election of directors, or a special meeting of the Stockholders
called for the purpose of election of directors, and the persons
receiving a plurality of the votes cast at such election shall be
elected provided that a quorum is present. Each director shall
hold office until the next annual meeting of the stockholders and
until his successor shall have been duly elected and qualified,
or until his death, or until he shall have resigned, or have been
removed, as hereinafter provided in these ByLaws, or as otherwise
provided by statute or the Certificate of Incorporation.
Section 3. Place of Meetings. Meetings of the Board may
be held at such place, within or without the State of Delaware,
as the Board may from time to time determine or as shall be
specified in the notice or waiver of notice of such meeting.
Section 4. First Meeting. The Board shall meet for the
purpose of organization, the election of officers and the
transaction of other business, as soon as practicable after each
annual meeting of the stockholders, on the same day and at the
same place where such annual meeting shall be held. Notice of
such meeting need not be given. Such meeting may be held at any
other time or place (within or without the State of Delaware)
which shall be specified in a notice thereof given as hereinafter
provided in Section 7 of this Article II.
Section 5. Regular Meetings. Regular meetings of the Board
shall be held at such time and place as the Board may from time
to time determine. If any day fixed for a regular meeting shall
be a legal holiday at the place where the meeting is to be held,
then the meeting which would otherwise be held on that day shall
be held at the same hour on the next succeeding business day.
Notice of regular meetings of the Board need not be given except
as otherwise required by statute or these By-Laws.
Section 6. Special Meetings. Special meetings of the Board
may be called by two or more directors of the Corporation or by
the President.
Section 7. Notice of Meetings. Notice of each special
meeting of the Board (and of each regular meeting for which notice
shall be required) shall be given by the Secretary as hereinafter
provided in this Section 7, in which notice shall be stated the
time and place (within or without the State of Delaware) of the
meeting. Notice of each such meeting shall be delivered to each
director either personally or by telephone, telegraph, cable or
wireless, at least twenty-four hours before the time at which such
meeting is to be held or by first-class mail, postage prepaid,
addressed to him at his residence, or usual place of business,
deposited in the mails at least three days before the day on which
such meeting is to be held. Notice of any such meeting need not
be given to any director who shall, either before or after the
meeting, submit a signed waiver of notice or who shall attend such
meeting without protesting, prior to or at its commencement, the
lack of notice to him. Except as otherwise specifically required
by these By-Laws, a notice or waiver of notice of any regular or
special meeting need not state the purposes of such meeting.
Section 8. Quorum and Manner of Acting. A majority of the
entire Board shall be present in person at any meeting of the
Board in order to constitute a quorum for the transaction of
business at such meeting, and, except as otherwise expressly
required by statute or the Certificate of Incorporation, the act
of a majority of the directors present at any meeting at which a
quorumis present shall be the act of the Board. In the absence
of a quorum at any meeting of the Board, a majority of the
directors present thereat, or if no director be present, the
Secretary may adjourn such meeting to another time and place, or
such meeting, unless it be the first meeting of the Board, need
not be held. Notice of such adjourned meeting need not be given
if the time and place to which the meeting is to be adjourned were
announced at the meeting at which the adjournment is taken. At
any adjourned meeting at which a quorum is present, any business
may be transacted which might have been transacted at the meeting
as originally called. Except as provided in Article III of these
By-Laws, the directors shall act only as a Board and the
individual directors shall have no power as such.
Section 9. Organization. At each meeting of the Board, the
President (or, in his absence or inability, a director chosen by
a majority of the directors present) shall act as chairman of the
meeting and preside thereat. The Secretary (or, in his absence
or inability to act, any person appointed by the chairman) shall
act as secretary of the meeting and keep the minutes thereof.
Section 10. Resignations. Any director of the Corporation
may resign at any time by giving written notice of his resignation
to the Board, the President or the Secretary. Any such
resignation shall take effect at the time specified therein or,
if the time when it shall become effective shall not be specified
therein, immediately upon its receipt; and, unless otherwise
specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 11. Vacancies. Vacancies may be filled by a
majority of the directors then in office, though less than a
quorum, or by a sole remaining director, and the directors so
chosen shall hold office until the next annual election and until
their successors are duly elected and shall qualify, unless sooner
displaced. If there are no directors in office, then an election
of directors may be held in the manner provided by statute. If,
at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less
than a majority of the whole board (as constituted immediately
prior to any such increase), the Court of Chancery may, upon
application of any holder or holders of at least ten percent of
the votes of the shares at the time outstanding having the right
to vote for such directors, summarily order an election to be held
to fill any such vacancies or newly created directorships, or to
replace the directors chosen by the directors then in office.
Except as otherwise provided in these By-Laws, when one or more
directors shall resign from the Board, effective at a future date,
a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or
vacancies, the vote thereon to take effect when such resignation
or resignations shall become effective, and each director so
chosen shall hold office as provided in this section in the
filling of other vacancies.
Section 12. Removal of Directors. Except as otherwise
provided in the Certificate of Incorporation or in these By-Laws,
any director may be removed, either with or without cause, at any
time, by the affirmative vote of [__]% of the votes of the issued
and outstanding stock entitled to vote for the election of
directors of the Corporation given at a special meeting of the
stockholders called and held for the purpose; and the vacancy in
the Board caused by any such removal may be filled by a majority
of the directors then in office, though less than a quorum, or by
a sole remaining director. The provisions in this Section 12 may
not be repealed or amended in any respect or in any manner except
by the affirmative vote of the holders of not less than [__]% of
the outstanding shares of common stock of the corporation.
Section 13. Compensation. The Board shall have authority
to fix the compensation, including fees and reimbursement of
expenses, of directors for services to the Corporation in any
capacity, provided no such payment shall preclude any director
from serving the Corporation in any other capacity and receiving
compensation therefor.
Section 14. Action Without Meeting. Any action required or
permitted to be taken at any meeting of the Board or of any
committee thereof may be taken without a meeting if all members
of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes
of proceedings of the Board or committee.
Section 15. Action by Conference Telephone. Members of the
Board or any committee may participate in a meeting of the Board
or such committee by means of conference telephone or similar
communications equipment by means of which all persons
participating in such meeting may hear each other, and such
participation shall constitute presence in person at such meeting.
Section 16. Nomination of Directors. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors of the Corporation, except as may be otherwise provided in the
Certificate of Incorporation with respect to the right of holders of
preferred
stock of the Corporation to nominate and elect a specified number of
directors
in certain circumstances. Nominations of persons for election to the Board
of Directors may be made at any annual meeting of stockholders, or at any
special meeting of stockholders called for the purpose of electing directors,
(a) by or at the direction of the Board of Directors (or any duly authorized
committee thereof) or (b) by any stockholder of the Corporation (i) who is a
stockholder of record on the date of the giving of the notice provided for in
this Section and on the record date for the determination of stockholders
entitled to vote at such meeting and (ii) who complies with the notice
procedures set forth in this Section.
In addition to any other applicable requirements, for a nomination to
be made by a stockholder, such stockholder must have given timely notice
thereof in proper written form to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered
to or mailed and received at the principal executive offices of the
Corporation (a) in the case of an annual meeting, not less than sixty (60)
days nor more than ninety (90) days prior to the anniversary date of the
immediately preceding annual meeting of stockholders; provided, however, that
in the event that the annual meeting is called for a date that is not within
thirty (30) days before or after such anniversary date, notice by the
stockholder in order to be timely must be so received not later than the
close
of business on the tenth (10th) day following the day on which such notice of
the date of the annual meeting was mailed or such public disclosure of the
date of the annual meeting was made, whichever first occurs; and (b) in the
case of a special meeting of stockholders called for the purpose of electing
directors, not later than the close of business on the tenth (10th) day
following the day on which notice of the date of the special meeting was
mailed or public disclosure of the date of the special meeting was made,
whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary
must set forth (a) as to each person whom the stockholder proposes to
nominate
for election as a director (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or employment of the
person, (iii) the class or series and number of shares of capital stock of
the
Corporation which are owned beneficially or of record by the person and (iv)
any other information relating to the person that would be required to be
disclosed in a proxy statement or other filings required to be made in
connection with solicitations of proxies for election of directors pursuant
to Section 14 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations promulgated thereunder; and
(b)
as to the stockholder giving the notice (i) the name and record address of
such stockholder, (ii) the class or series and number of shares of capital
stock of the Corporation which are owned beneficially or of record by such
stockholder, (iii) a description of all arrangements or understandings
between
such stockholder and each proposed nominee and any other person or persons
(including their names) pursuant to which the nomination(s) are to be made by
such stockholder, (iv) a representation that such stockholder intends to
appear in person or by proxy at the meeting to nominate the persons named in
its notice and (v) any other information relating to such stockholder that
would be required to be disclosed in a proxy statement or other filings
required to be made in connection with solicitations of proxies for election
of directors pursuant to Section 14 of the Exchange Act and the rules and
regulations promulgated thereunder. Such notice must be accompanied by a
written consent of each proposed nominee to being named as a nominee and to
serve as a director if elected.
No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in
this Section. If the Chairman of the meeting determines that a nomination
was
not made in accordance with the foregoing procedures, the Chairman shall
declare to the meeting that the nomination was defective and such defective
nomination shall be disregarded.
ARTICLE III
EXECUTIVE AND OTHER COMMITTEES
Section 1. Executive and Other Committees. The Board may,
by resolution passed by a majority of the whole Board, designate
one or more committees, each committee to consist of one or more
of the directors of the Corporation. The Board may designate one
or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of any member of
such committee or committees, the member or members thereof
present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint
another member of the Board to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to
the extent provided in the resolution creating the same, shall
have and may exercise the powers of the Board in the management
of the business and affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers which may
require it; provided, however, that no committee shall have power
or authority to amend the Certificate of Incorporation, adopt an
agreement of merger or consolidation, recommend to the
stockholders the dissolution of the Corporation or a revocation
of a dissolution, or amend these By-Laws. Any committee shall
have the power and authority to declare a dividend or authorize
the issuance of stock of the Corporation. Each committee shall
keep written minutes of its proceedings and shall report such
minutes to the Board when required. All such proceedings shall
be subject to revision or alteration by the Board; provided,
however, that third parties shall not be prejudiced by such
revision or alteration.
Section 2. General. A majority of any committee may
determine its action and fix the time and place of its meetings,
unless the Board shall otherwise provide. Notice of such meetings
shall be given to each member of the committee in the manner
provided for in Article II, Section 7. The Board shall have any
power at any time to fill vacancies in, to change the membership
of, or to dissolve any such committee. Nothing herein shall be
deemed to prevent the Board from appointing one or more committees
consisting in whole or in part of persons who are not directors
of the Corporation; provided, however, that no such committee
shall have or exercise any authority of the Board.
ARTICLE IV
OFFICERS
Section 1. Number and Qualifications. The officers of the
Corporation shall include the President, one or more Vice
Presidents (one or more of whom may be designated Executive Vice
President or Senior Vice President), the Treasurer, Controller and
the Secretary. Any two or more offices may be held by the same
person. Such officers shall be elected from time to time by the
Board, each to hold office until the meeting of the Board
following the next annual meeting of the stockholders, or until
his successor shall have been duly elected and shall have
qualified, or until his death, or until he shall have resigned,
or have been removed, as hereinafter provided in these By-Laws.
The Board may from time to time elect, or the President may
appoint, such other officers (including one or more Assistant Vice
Presidents, Assistant Secretaries and Assistant Treasurers), and
such agents, as may be necessary or desirable for the business of
the Corporation. Such other officers and agents shall have such
duties and shall hold their offices for such terms as may be
prescribed by the Board or by the appointing authority.
Section 2. Resignations. Any officer of the Corporation
may resign at any time by giving written notice of his resignation
to the Board, the President or the Secretary. Any such
resignation shall take effect at the time specified therein or,
if the time when it shall become effective shall not be specified
therein, immediately upon its receipt; and, unless otherwise
specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 3. Removal. Any officer or agent of the Corporation
may be removed, either with or without cause, at any time, by the
vote of the majority of the entire Board at any meeting of the
Board or, except in the case of an officer or agent elected or
appointed by the Board, by the President. Such removal shall be
without prejudice of the contractual rights, if any, of the person
so removed.
Section 4. Vacancies. A vacancy in any office, whether
arising from death, resignation, removal or any other cause, may
be filled for the unexpired portion of the term of the office
which shall be vacant, in the manner prescribed in these By-Laws
for the regular election or appointment to such office.
Section 5. The President. The President shall be the chief
executive officer of the Corporation and shall have the general
and active management of the business of the Corporation and
general and active supervision and direction over the other
officers, agents and employees and shall see that their duties are
properly performed. He shall, if present, preside at each meeting
of the stockholders and of the Board and shall be an ex officio
member of all committees of the Board. He shall perform all
duties incident to the office of President and chief executive
officer and such other duties as may from time to time be assigned
to him by the Board.
Section 6. Vice Presidents. Each Executive Vice President,
each Senior Vice President and each Vice President shall have such
powers and perform all such duties as from time to time may be
assigned to him by the President or the Board of Directors.
Section 7. The Treasurer. The Treasurer shall be the chief
financial officer of the Corporation and shall exercise general
supervision over the receipt, custody and disbursement of
corporate funds. He shall have such further powers and duties as
may be conferred upon him from time to time by the President or
the Board of Directors.
Section 8. The Controller. The Controller shall be the
chief accounting officer of the Corporation and shall maintain
adequate records of all assets, liabilities and transactions of
the Corporation; he shall establish and maintain internal
accounting control and, in cooperation with the independent public
accountants selected by the Board, shall supervise internal
auditing. He shall have such further powers and duties as may be
conferred upon him from time to time by the President or the Board
of Directors.
Section 9. The Secretary. The Secretary shall (a) record
and keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board, the committees
of the Board and the stockholders;
(b) see that all notices are duly given in
accordance with the provisions of these By-Laws and as required
by law;
(c) be custodian of the records and the seal of the
Corporation and affix and attest the seal to all stock
certificates of the Corporation (unless the seal of the
Corporation on such certificates shall be a facsimile, as
hereinafter provided and affix and attest the seal to all other
documents to be executed on behalf of the Corporation under its
seal;
(d) see that the books, reports, statements,
certificates and other documents and records required by law to
be kept and filed are properly kept and filed; and
(e) in general, perform all the duties incident to
the office of Secretary and such other duties as from time to time
may be assigned to him by the Board or the President.
Section 10. Officers' Bonds or Other Security. If required
by the Board, any officer of the Corporation shall give a bond or
other security for the faithful performance of his duties, in such
amount and with such surety or sureties as the Board may require.
Section 11. Compensation. The compensation of the officers
of the Corporation for their services as such officers shall be
fixed from time to time by the Board; provided, however, that the
Board may delegate to the President the power to fix the
compensation of officers and agents appointed by the President,
as the case may be. An officer of the Corporation shall not be
prevented from receiving compensation by reason of the fact that
he is also a director of the Corporation, but any such officer who
shall also be a director shall not have any vote in the
determination of the amount of compensation paid to him.
ARTICLE V
INDEMNIFICATION
The Corporation shall, to the fullest extent permitted by
the General Corporation Law of the State of Delaware, indemnify,
members of the Board and may, if authorized by the Board,
indemnify its officers and any and all persons whom it shall have
power to indemnify against any and all expenses, liabilities or
other matters.
ARTICLE VI
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
Section 1. Execution of Contracts. Except as otherwise
required by statute, the Certificate of Incorporation or these By-
Laws, any contracts or other instruments may be executed and
delivered in the name and on behalf of the Corporation by such
officer or officers (including any assistant officer) of the
Corporation as the Board may from time to time direct. Such
authority may be general or confined to specific instances as the
Board may determine. Unless authorized by the Board or expressly
permitted by these By-Laws, an officer or agent or employee shall
not have any power or authority to bind the Corporation by and
contract or engagement or to pledge its credit or to render it
pecuniarily liable for any purpose or to any amount.
Section 2. Loans. Unless the Board shall otherwise
determine, either (a) the President, singly, or (b) any two Vice
Presidents, jointly, or (c) a Vice President, together with the
Treasurer, may effect loans and advances at any time for the
Corporation from any bank, trust company or other institution, or
from any firm, corporation or individual, and for such loans and
advances may make, execute and deliver promissory notes, bonds or
other certificates or evidences of indebtedness of the Corpora-
tion, but no officer or officers shall mortgage, pledge,
hypothecate or transfer any securities or other property of the
Corporation, except when authorized by the Board.
Section 3. Checks, Drafts, etc. All checks, drafts, bills
of exchange or other orders for the payment of money out of the
funds of the Corporation, and all notes or other evidences of
indebtedness of the Corporation, shall be signed in the name and
on behalf of the Corporation by such persons and in such manner
as shall from time to time be authorized by the Board.
Section 4. Deposits. All funds of the Corporation not
otherwise employed shall be deposited from time to time to the
credit of the Corporation in such banks, trust companies or other
depositaries as the Board may from time to time designate or as
may be designated by any officer or Officers of the Corporation
to whom such power of designation may from time to time be
delegated by the Board. For the purpose of deposit and for the
purpose of collection for the account of the Corporation, checks,
drafts and other orders for the payment of money which are payable
to the order of the Corporation may be endorsed, assigned and
delivered by any officer or agent of the Corporation, or in such
other manner as the Board may determine by resolution.
Section 5. General and Special Bank Accounts. The Board
may from time to time authorize the opening and keeping of general
and special bank accounts with such banks, trust companies or
other depositaries as the Board may designate or as may be
designated by any officer or officers of the Corporation to whom
such power of designation may from time to time be delegated by
the Board. The Board may make such special rules and regulations
with respect to such bank accounts, not inconsistent with the
provisions of these By-Laws, as it may deem expedient:
Section 6. Proxies in Respect of Securities of Other
Corporations. Unless otherwise provided by resolution adopted by
the Board of Directors, the President, or a Vice President may,
from time to time, in the name and on behalf of the Corporation
(a) cast the votes which the Corporation may be entitled to cast
as the holder of stock or other securities in any other
corporation any of whose stock or other securities may be held by
the Corporation, at meetings of the holders of the stock or other
securities of such other corporation, or consent in writing, in
the name of the Corporation as such holder, to any action by such
other corporation, and execute or cause to be executed in the name
and on behalf of the Corporation and under its corporate seal, or
otherwise, all such written proxies or other instruments as he may
deem necessary or proper in the premises, and (b) appoint an
attorney or attorneys or agent or agents, of the Corporation, to
take any of such actions and instruct the person or persons so
appointed as to the manner of casting such votes or giving such
consent.
ARTICLE VII
SHARES, ETC.
Section 1. Stock Certificates. Each holder of stock of the
Corporation shall be entitled to have a certificate, in such form
as shall be approved by The Board, certifying the number of shares
of stock of the Corporation owned by him. The certificates
representing shares of stock shall be signed in the name of the
Corporation by the President or a Vice President and by the
Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer and may be sealed with the seal of the
Corporation (which seal may be a facsimile, engraved or printed).
Any signature on such certificates may be facsimile, engraved or
printed. In case any officer, transfer agent or registrar who
shall have signed or whose facsimile signature shall have been
placed upon such certificates no longer holds such office, the
shares represented thereby may nevertheless be issued by the
Corporation with the same effect as if such officer were still in
office at the date of their issue.
Section 2. Books of Account and Record of Stockholders. The
books and records of the Corporation may be kept at such places,
within or without the State of Delaware, as the Board may from
time to time determine. The stock record books and the blank
stock certificate books shall be kept by the Secretary or by any
other officer or agent designated by the Board.
Section 3. Transfers of Shares. Transfers of shares of
stock of the Corporation shall be made on the stock records of the
Corporation only upon authorization by the registered holder
thereof, or by his attorney "hereunto authorized by power of
attorney duly executed and filed with the Secretary or with a
transfer agent or transfer clerk, and on surrender of the
certificate or certificates for such shares properly endorsed or
accompanied by a duly executed stock transfer power and the
payment of all taxes thereon otherwise provided by law, the
Corporation shall be entitled to recognize the exclusive right of
a person in whose name any share or shares stand on the record of
stockholders as the owner of such share or shares for all purposes
, including, without limitation, the rights to receive dividends
or other distributions, and to vote as such owner, and the
Corporation may hold any such stockholder of record liable for
calls and assessments and the Corporation shall not be bound to
recognize any equitable or legal claim to or interest in any such
share or shares on the part of any other person whether or not it
shall have express or other notice thereof. Whenever any transfers
of shares shall be made for collateral security and not
absolutely, and both the transferor and transferee request the
Corporation to do so, such fact shall be stated in the entry of
the transfer.
Section 4. Regulations. The Board may make such
additional rules and regulations, not inconsistent with these By-
Laws, as it may deem expedient concerning the issue, transfer and
registration of certificates for shares of stock of the
Corporation. It may appoint, or authorize any officer or officers
to appoint, one or more transfer agents or one or more transfer
clerks and one or more registrars and may require all certificates
for shares of stock to bear the signature or signatures of any of
them.
Section 5. Lost, Destroyed or Mutilated Certificates. The
holder of any certificate representing shares of stock of the
Corporation shall immediately notify the Corporation of any loss,
destruction or mutilation of such certificate, and the Corporation
may issue a new certificate of stock in the place of any
certificate theretofore issued by it which the owner thereof shall
allege to have been lost, stolen or destroyed, or which shall have
been mutilated, and the Board may, in its discretion, require such
owner or his legal representatives to give to the Corporation a
bond in such sum, limited or unlimited, and in such form and with
such surety or sureties as the Board in its absolute discretion
shall determine, to indemnify the Corporation against any claim
that may be made against it on account of the alleged loss, theft
or destruction of any such certificate, or the issuance of a new
certificate. Anything herein to the contrary notwithstanding, the
Board, in its absolute discretion, may refuse to issue any such
new certificate, except pursuant to legal proceedings under the
laws of the State of Delaware.
Section 6. Stockholder's Right of Inspection. Any
stockholder of record of the Corporation, in person or by attorney
or other agent, shall upon written demand under oath stating the
purpose thereof, have the right during the usual hours for
business to inspect for any proper purpose the Corporation's stock
ledger, a list of its stockholders, and its other books and
records, and to make copies or extracts therefrom. A proper
purpose shall mean a purpose reasonably related to such person's
interest as a stockholder. In every instance where an attorney
or other agent shall be the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power
of attorney or such other writing which authorizes the attorney
or other agent to so act on behalf of the stockholder. The demand
under oath shall be directed to the Corporation at its registered
office in the State of Delaware or at its principal place of
business.
Section 7. Fixing of Record Date. In order that the
Corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment
thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend
or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or
exchange of stock or for the purpose of any other lawful action,
the Board may fix, in advance, a record date, which shall not be
more than sixty nor less than ten days before the date of such
meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board may
fix a new record date for the adjourned meeting.
ARTICLE VIII
OFFICES
Section 1. Registered Office and Registered Agent. The
registered office of the Corporation in the State of Delaware
shall be at No. 100 West Tenth Street, in the City of Wilmington,
in the County of New Castle. The name of the resident agent at
such address shall be The Corporation Trust Company.
Section 2. Other Offices. The Corporation may also have an
office or offices other than said registered office at such place
or places, either within or without the State of Delaware, as the
Board shall from time to time determine or the business of the
Corporation may require.
ARTICLE IX
FISCAL YEAR
The fiscal year of the Corporation shall be determined by
the Board.
ARTICLE X
SEAL
The Board shall provide a corporate seal, which shall be in
the form of the name of the Corporation, the year of its
incorporation, and the words Corporate Seal, Delaware.
ARTICLE XI
AMENDMENTS
These By-Laws may be amended or repealed, or new By-Laws may
be adopted, at any annual or special meeting of the stockholders,
by a majority of the total votes of the stockholders or when
stockholders are required to vote by class by a majority of the
appropriate class, present in person or by proxy and entitled to
vote on such action; provided, however, that the notice of such
meeting shall have been given as provided in these By-Laws, which
notice shall mention that amendment or repeal of these By-Laws,
or the adoption of new By-Laws, is one of the purposes of such
meeting. These By-Laws may also be amended or repealed, or new
By-Laws may be adopted, by the Board at any meeting thereof
provided that By-Laws adopted by the Board may be amended or
repealed by the stockholders as hereinabove provided.
EXHIBIT 10
<PAGE>
EXHIBIT 13
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Jurisdiction
Name (l, 2) of Incorporation
Advanced Resin Technology, Inc. (3) New Hampshire
Human Factors Industrial Design, Inc. (4) New York
REFAC International, Ltd. Nevada
REFAC Biochemics Corporation (5) Delaware
REFAC Financial Corporation Delaware
REFAC International, S.A. (6) Switzerland
REFAC International (U.K.) Ltd. (6) England
REFAC Services Corporation New York
Selective Licensing & Promotion, Ltd. (7) Delaware
(1) The Consolidated Financial Statements, included herein, include
the accounts of the Registrant and all of the above
subsidiaries.
(2) Subsidiaries of subsidiaries are indented.
(3) The Company owned approximately 87% of the outstanding capital stock
of Advanced Resin Technology, Inc. as at December 31, 1997 and
approximately 93% as of March 21,1998.
(4) Acquired on November 26, 1997.
(5) Formed on December 2, 1997.
(6) This corporation is in the process of being liquidated.
(7) Formed on January 21, 1998.
REFAC TECHNOLOGY DEVELOPMENT CORPORATION AND SUBSIDIARIES
FINANCIAL STATEMENTS OF
ANNUAL REPORT ON FORM 10-K TO
THE SECURITIES AND EXCHANGE COMMISSION
YEAR ENDED DECEMBER 31, 1997
<PAGE>
INDEX TO FINANCIAL STATEMENTS
1. Financial Statements
The Consolidated Financial Statements to be included in Part II, Item 8
are
incorporated by reference to the Annual Report to Stockholders of REFAC
Technology Development Corporation for the year ended December 31, 1997,
copies of which accompany this report.
All schedules required by Item 14(a) (2) have been omitted because they
are
inapplicable, not required, or the information is included elsewhere in the
financial statements or accompanying notes.
REFAC Technology Development Corporation is a leader in technology transfer
and licensing, product design and development and trademark licensing and
consulting. Our expertise is our ability to transform the earning potential
of intellectual property rights into revenue-bearing values for our clients,
business partners and shareholders.
Contents:
1 Financial Highlights
3 Letter to Stockholders from the Chairman & CEO
4 New Ways of Creating Value
6 Human Factors ... New Ways of Solving Problems
9 Selective Licensing ... New Ways of Extending Value
10 Technology Management ... Solid Core for Building Value
12 Management Discussion and Analysis
15 Consolidated Balance Sheets
16 Consolidated Statements of Operations
17 Consolidated Statements of Cash Flows
18 Consolidated Statements of Cash Flows
19 Notes to the Financial Statements
<PAGE>
Selected Financial Information
Fiscal Years Ended December 31, 1997 1996 1995
Total revenue $11,484,441 $9,199,033 $4,528,042
Operating income 7,427,189 5,396,627 2,105,348
Net income 5,191,469 4,699,564 2,344,460
Earnings per common share - diluted 1.36 .88 .44
Total assets 37,141,493 43,294,578 37,352,431
Shareholders' equity 22,622,508 32,044,299 29,084,581
Financial highlights graphs detailing total revenue, net income and earnings
per common share.
<PAGE>
In left hand margin photo of Robert L. Tuchman, Chairman & CEO
Dear Stockholder:
Last year, I set as our primary objective a program of significant, long-term
growth while remaining profitable and enhancing the value of your shares. By
any measure, 1997 was an exciting year of growth and transition for our
Company. We posted record earnings while expanding our core business
capabilities through the acquisition of Human Factors Industrial Design, Inc.
(Human Factors) last November and by the formation of our Selective Licensing
& Promotion, Ltd. (Selective Licensing) subsidiary early this year. REFAC
today is a multi-dimensional company with core competencies in technology
transfer and licensing, product design and engineering, and trademark
licensing and promotion.
Individually, each of these business entities has the potential to generate
significant revenue for the Company in years to come. In tandem, they
uniquely offer exciting and dynamic synergies for creating new sources of
growth, profit and shareholder value. We are committed to making these new
synergies work as we continue to grow the Company.
Financial Results
Consolidated net income for the year ended December 31, 1997, was $5,191,000,
or $1.36 per share, compared with $4,700,000, or $0.88 per share in 1996.
Consolidated gross revenues were $11,484,000, up 25% percent from $9,194,000.
We achieved record earnings despite a 1997 operating loss of $307,000 after
taxes, or $0.08 per share, on our hot melt adhesive manufacturing operations
and an additional loss of $341,000 after taxes, or $0.09 per share, when we
decided to cease such operations at the end of the year. The increase in
1997
revenues and net income was attributable to an increase in gains on the sale
of licensing related securities. However, at year end, the value of REFAC's
licensing related securities was $22,800,000 compared to $22,900,000 at the
end of 1996.
Significant Accomplishments
The acquisition of Human Factors last year was a major step in our program to
expand REFAC's core business. As one of the nation's premier industrial
design and engineering firms, Human Factors adds impressively to REFAC's
roster of clients, professional abilities and creative talent. Their product
design and engineering expertise will add immediate value to our technology
licensing business, while our entrepreneurial expertise will expand their
revenue-making potential.
The establishment of Selective Licensing in January was another important
step
in becoming a full-service company for all facets of intellectual property
development and management. Its President, Arlene Scanlan, brings us 20
years
of successful experience in specialized brand and character licensing and
promotion.
In our core technology licensing and transfer business, we continued to make
progress in all of our major ventures. Towards the end of the year, we
formed
REFAC Biochemics Corporation and assigned to it our Exclusive License
Agreement covering United States Patent No. 5,409,903 for eliminating the
H. pylori bacteria without the use of antibiotics. We have reached agreement
in principle with a hospital to sponsor a clinical study for this
pharmaceutical composition, which we have named "Pyloricide ". We expect
that
the Investigative New Drug Application will be submitted to the Food and Drug
Administration during the second quarter so that the clinical trials may
proceed during the second half of the year. If the early stages of the
clinical trial confirm the efficacy of the Pyloricide medication, its
significant revenue potential should enable us to attract a major
pharmaceutical company to complete the clinical trials and bring this drug to
market.
In May, Microsoft became our fourth licensee under United States Patent No.
5,167,011 awarded to Dr. W. Curtiss Priest for his system of managing
electronic communications. An arbitration judgement on the financial aspects
of this agreement is due in the last quarter of 1998.
In December, we settled our patent infringement suit with Hayes Microcomputer
Products regarding the data compression technology covered under United
States
Patent No. 4,876,541 (the "Storer Patent"). Patent litigation continues
against the remaining defendant, Zoom Telephonics, Inc., with a jury trial
expected to begin at mid-year.
In February, 1998, we successfully completed a non-exclusive license for our
patented thermoplastic polyurethane hot-melt adhesive technology to Key
Polymer Corporation. With this agreement in place, our Advanced Resin
Technology subsidiary ceased its manufacturing activities in order to
concentrate its efforts on research and development.
The Year Ahead
During 1998, our principal objectives are to continue to grow and broaden our
business and to maintain our level of profitability. The addition of Human
Factors and Selective Licensing has opened many new opportunities for
fulfilling this task. We are a much larger, more talented company than we
were a year ago.
Our primary challenge in the coming year is to assimilate these new companies
into REFAC and to jointly pursue the new opportunities they represent. In
particular, Human Factors, with REFAC's assistance, will allocate a
significant portion of its time and resources to selectively develop products
and product lines on a royalty basis. In doing so, we will forego some
current fee income in exchange for the long-term "equity" potential that we
can derive from such products.
We are investing in state-of-the-art computer equipment and networking for
Human Factors and in an internal communication system for all of the REFAC
companies. We also remain committed to improving the quality and depth of
our
technology licensing staff. Toward that end, Raymond A. Cardonne, Jr.,
joined
REFAC in December as Vice President with responsibility for the licensing and
commercialization of technology properties. Ray brings engineering and
business development expertise to REFAC and will make significant
contributions not only to our technology licensing programs but also to our
new ventures.
REFAC is strongly positioned to build its position as an industry leader and
the company of choice for clients seeking to commercialize or extract value
from their intellectual properties and to bring new or improved products to
market. We will continue to leverage our experience and resources in the
years ahead through internal growth and further strategic alliances and
acquisitions.
Sincerely Yours,
Robert L. Tuchman
Chairman and CEO
NEW WAYS OF CREATING VALUE
Photo of Robert L. Tuchman Chairman & CEO, REFAC, Arlene J. Scanlan
President,
Selective Licensing & Promotion, Ltd. and Douglas M. Spranger President of
Human Factors Industrial Design, Inc.
REFAC's three core business units combine to form a powerful mix of expertise
for transforming latent potential into commercial value in the global
marketplace. Clients of any one of our businesses will now have access to
the
complete range of capabilities that REFAC offers. As a result, the range of
lucrative entrepreneurial opportunities available to us has been
significantly
expanded.
REFAC's core technology licensing and transfer clients and partners can now
utilize the product design and engineering expertise of Human Factors to
nurture and enhance their properties. They can also consult with or retain
Selective Licensing regarding programs to extend and promote their valuable
brands and trademarks or to audit existing licensing agreements.
Human Factors is now able to offer its traditional clients a full complement
of trademark and technology licensing services, as well as reduced-risk
partnering options for bringing new products to market. Human Factors can
also approach new clients with specific, turnkey proposals for extending
trademark brand value as consultants or equity participants.
Selective Licensing is uniquely positioned to approach trademark licensing
clients with the full power of product design behind them. As part of REFAC,
Selective Licensing can not only recommend creative licensing strategies, but
can also offer the development of innovative products specially designed to
capture and reflect the integrity and essence of its clients' trademarks.
<PAGE>
New Synergies
Synergy charts: Graphic depiction of the three logos with core competencies
merging to form new capabilities/opportunities beyond the abilities of any
one
entity. Overlapping ovals for each business connected to the synergies, etc.
SYNERGY OPPORTUNITIES
Technology & trademark licensing
strategies.
Product design & engineering
partnering.
Technology/Product development
service.
Technology/Product development
partnering.
Technology/Product manufacturing
contracts.
Brand extension strategy service.
Brand extension design, licensing &
promotion partnering.
Patent, license & trademark
protection. <PAGE>
REFAC logo
Technology licensing & transfer
services.
Commercialization
strategies and
implementation.
Technology
assessment and
consulting
Technology patent/licensing
protection.
Litigation support
HUMAN FACTORS Logo
Product invention and patent
development.
Industrial design
Applied human factors research
Mechanical engineering
Prototypes and production liaison
Product development consulting
SELECTIVE LICENSING & PROMOTION, LTD. Logo
Trademark licensing services.
Trademark consulting
Trademark
promotions.
Royalty
verification &
contract
administration.
<PAGE>
HUMAN FACTORS ... NEW WAYS TO SOLVE PROBLEMS
Quote in left hand margin - "Human Factors' innovative work on our ReflexTM
stapler played a major role in helping our company grow from $9 million in
sales to over $30 million." - Rick Newhauser, CEO, Richard-Allen Medical
Eleven pictures of products that Human Factors has designed in the past
including the Langer CRS (counter rotation system), Coleman NorthStar
Lantern,
Surgical skin stapler, Jeep Boombox radio, various medical instruments, new
wiring design for Eagle Electric Corporation, OXO Salad spinner, Sony
speakers, Colgate tooth brush.
Human Factors Industrial Design offers a full range of research, design and
engineering expertise to create innovative products that attract customers,
are easy to use and outperform the competition. We successfully integrate
the disciplines of applied human factors, design and engineering to produce
inventive solutions to complex problems.
Observation & Analysis: Two basic ingredients of our methodology are
formal observation of user behavior and applied consumer research. These
insights guide the design team to create products that visually and
functionally excite the user.
Human Factors/Ergonomics: Our goal is to optimize the relationship between
people and products. Each product presents a unique set of challenges.
Design and Engineering: The design process is not complete until production
units are ready to ship. Human Factors routinely assists clients through
every phase of the development process, from conceptual sketches through to
final engineering and documentation.
Implementation: Armed with powerful CAD/CAE tools, and a fully equipped
model and machine shop, Human Factors can fast-track the development cycle.
Results: Our clients measure the results of our work in terms of new
business, higher profits and increased market share.
In right hand margin Client Quotes: - [With photo of salad spinner]
"Human Factors not only solved the range of complex technical problems in
record time but gave us an elegant design solution."
Alex Lee, Vice President/Managing Director, OXO International
Page 8
Picture of Human Factors Industrial Design Management Group - Top Row from
Left to Right: Paul J. Mulhauser Vice President, Bert D. Heinzelman,
Executive
Vice President, Werner R. Kamuf, Controller
Bottom Row from Left to Right - Douglas M. Spranger, President, Robert L.
Tuchman, President & CEO, REFAC
Picture of Honeywell Process Manager. Below picture the following quote"I
commend your staff's efforts to 'do whatever it takes' to get the job done on
time."
Pete Walton, Principal Development Engineer, Honeywell, Inc.
DOUG SPRANGER QUOTE:
"Our merger with REFAC allows us to offer clients new approaches for creating
products with irresistible appeal, function and integrity."
HUMAN FACTORS -- NEW WAYS TO PROVIDE VALUE
Historically, the product design business has been conducted primarily on a
fee for service basis. As part of the REFAC group, Human Factors will
continue to provide innovative product design and engineering services to its
growing roster of blue-chip clients on its traditional fee basis, but will
also selectively invest its "intellectual capital" in qualified projects on
a royalty basis.
Based on past successes, our strategy is to establish a valuable royalty
stream of recurring income by allocating a portion of our staff time to
proprietary projects. This approach requires sacrificing current fee income
on product design services in anticipation of creating a much greater royalty
stream of income over the life of the developed product.
As part of REFAC, Human Factors is able to provide its clients with a
complete
range of solutions for achieving their objectives and creating value. With
REFAC's assistance, Human Factors can now offer smaller clients expertise in
licensing their products and technologies worldwide, as well as
commercialization strategies and assistance in their implementation. Larger
clients may be interested in creative opportunities for extending their brand
and trademark exposure in strategic markets through new product ventures
and/or trademark licensing agreements.
Photo of St. Jude Medical Intra-Aortic Medical Pump
SELECTIVE LICENSING ... NEW WAYS TO EXTEND VALUE
Established early in 1998 as an 81% owned subsidiary, Selective Licensing &
Promotion, Ltd., is the first trademark agency that can offer clients
in-house
design capability as well as royalty administration and verification
services.
Headed by 20-year industry expert Arlene J. Scanlan, who owns the remaining
19%, Selective Licensing was launched with two revenue-generating properties
under license -- the "Psycho Chihuahua" and "Class of 2000" trademarks -- and
a consultant arrangement with Ben & Jerry's Ice Cream.
Unlike other trademark licensing agencies, Selective Licensing can draw on
the
in-house expertise of HFID to creatively design quality products that align
with the trademark owner's specific licensing interests and then find
licensees that are capable of bringing those products to market. This
differs
from the traditional structure in which the licensing agent seeks a
manufacturer that has interest in using the mark on its products and then
relies upon the manufacturer to design the licensed product.
REFAC will provide funding to build Selective Licensing into a world-class
agency and to support the organization with synergies from Human Factors and
REFAC's core technology licensing business. Scanlan and her professional
staff will target major corporate brands with creative approaches to
trademark
licensing while offering royalty verification services as part of Selective
Licensing's service package.
PHOTO & QUOTE/ARLENE SCANLAN:
"The only limit to what Selective Licensing can achieve as part of the REFAC
family is the extent of our own imaginations."
Trademark graphics of Class of 2000, Psycho Chihuahua and Ben & Jerry's Ice
Cream.
<PAGE>
SOLID CORE FOR CREATING VALUE
Our core business of international licensing and technology transfer is the
foundation that we will continue to build upon in the years ahead. Since
1952, we have been turning the potential value of regionally marketed,
partially developed or unutilized technologies into revenue-bearing license
agreements and/or viable enterprises. In patent infringement situations, we
have been successful in gaining industry respect for the patents of our
clients, as well as fair compensation for the use of their inventions.
One of the abiding strengths of our business is the diversity and long-term
potential of our licensing programs. For example, the Heli-Coil and Dodge
industrial fasteners, which we first licensed in 1952, continue to provide us
with recurring royalty income. So does our Gough-Econ materials handling
technology, first licensed in 1964.
We think that our thermoplastic polyurethane hot melt adhesive technology can
achieve the same longevity. Having completed one non-exclusive agreement
with Key Polymer Corporation, we will seek additional licensing agreements
with other adhesive manufacturers and focus more efforts on research and
development to refine and broaden this valuable technology. Our strategy is
to provide more than just a license under the patents. Future agreements
will
include the use of our trade secrets - - - such as specific product
formulations - - - trademarks and ongoing research and technical support
services.
Licensing programs for Dr. Priest's patent relating to the storage, retrieval
and communication of electronic data began generating revenue for REFAC in
1995, and we will continue to seek new agreements to augment the ones
negotiated with Microsoft, Corporation, Novell, Inc., General Magic, Inc.,
and QualComm, Inc.
Picture of Gough-Econ material handling equipment, Dodge inserts, and Heli-
Coil inserts
Picture of laser, representing the Gould laser patent, and Computer
renderings
of H.pylori bacteria-the leading cause of ulcers. Reprinted with the
permission of Dr. Barry J. Marshall.
If REFAC Biochemic Corporation's planned clinical trial for the patented
Pyloricide pharmaceutical composition validates the Polak-Kappas patent
(U.S.
Patent No. 5,409,903), this technology will become an important contributor
to mankind's battle against the H. pylori bacteria, the leading cause of
ulcers. Also thought to be the trigger for most stomach cancers, H. pylori
is one of the world's most common infectious agents. Nearly 40 percent of
the
U.S. population is infected and half of them develop at least one ulcer
during
their lifetime. Our technology represents a relatively simple, inexpensive
and potentially efficacious means of eliminating H. pylori without the use of
antibiotics and without side-effects. If the trials confirm the efficacy of
the compound in humans, this technology will become a significant contributor
to REFAC's income for many years to come.
Prospective clients sometimes come to us with the belief that their patents
are being infringed by one or more companies. Although patent enforcement is
very costly and uncertain at best, we undertake licensing responsibilities in
this category only if we conclude that there is substantial merit in the
client's patent position, that there is a strong basis for concluding that
infringement exists and that substantial economic value is involved. When
successful, these technologies can contribute significantly to our revenues
for many years.
Our only pending patent litigation relates to the Storer Patent which
concerns
the international standard for data compression in data modems known as V.42
bis. This case is scheduled to go to jury trial in June, 1998 and it is
probable that the outcome will be appealed with a final result not expected
until 1999 at the earliest.
Picture of Hot-melt adhesives.
Quote in the right hand column - One of the abiding strengths of our business
is the diversity and long-term potential of our licensing programs.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Total operating revenues were $11,484,000 in 1997 as compared to
$9,199,000 in 1996 and $4,528,000 in 1995. The increase, in each year, is
due, predominately, to the sale of licensing related securities. Royalties
accounted for 29%, 38% and 88% of operating revenues in 1997, 1996 and 1995,
respectively. Income (realized gains on sales and dividend income) from
license related securities accounted for 66%, 59% and 9% of operating revenues
in 1997, 1996 and 1995, respectively. The Company intends from time to time
to sell some of such securities. See Note 1B to the Consolidated Financial
Statements for additional details concerning such securities.
Royalties consist of recurring royalty payments and income from non-
recurring non-exclusive licenses (which are one-time payments) lasting the
life of the underlying patent. Royalties decreased $207,000 or 6% in 1997, and
$451,000 or 11% in 1996, as compared to each of the previous years. The
revenues from non-recurring agreements vary from period to period depending
upon the nature of the licensing programs pursued for various technologies in
a particular year and the timing of successful completion of licensing
agreements. During 1997, 1996 and 1995, non-recurring licensing revenues
amounted to $307,000, $310,000 and $593,000, respectively. The Company
anticipates that non-recurring revenues will continue to be a material
component of royalties in the future. Recurring revenues from established
relationships decreased by $210,000 in 1997 versus 1996 or 7%.
Service expenses consist principally of amounts paid to licensors at
contractually stipulated percentages of the Company's specific patent and
product revenues. Other costs included in service expenses relate to the
investigation, marketing, administration, enforcement, maintenance and
prosecution of patent and license rights and related licenses which are
generally borne by the Company or shared with clients in an agreed-upon
manner. Service expenses for 1997 represented 23% of service revenues,
compared with 26% and 21% in 1996 and 1995, respectively. The improvement in
this ratio is attributable to the decrease in legal and patent related costs
versus the prior year.
Selling, general and administrative expenses increased in 1997 by
$281,000 or 11% and in 1996 by $1,186,000 or 80% as compared to each of the
previous years. The increase in 1997 was attributable to an increase in
salaries and related payroll taxes and employee benefits and recruitment,
depreciation and amortization expense relating to increased equipment usage
and the amortization associated with the Company's purchase of Human Factors
Industrial Design, Inc., the write-down of assets at the Company's majority
owned subsidiary (Advanced Resin Technology, Inc.) due to the ceased
manufacturing operations, an increase in professional fees, and general office
overhead, partially offset by a decrease in charitable contributions and
deferred compensation and benefits payable to the former Chairman. The
increase in 1996 was attributable to the contributions and deferred
compensation mentioned above and the acquisition of a controlling interest in
Advanced Resin.
Other Income and Expenses
In 1997, the Company had realized gains on its marketable securities of
$67,000 as compared to losses on marketable securities of $13,000 in 1996,
consisting of realized gains of $13,000 and unrealized losses of $26,000 and
net gains in 1995 of $244,000.
The dividend and interest income produced by the Company's marketable
securities has decreased in 1997 by $799,000 and by $1,000 in 1996 as compared
to each of the previous years. The decrease in 1997 was attributable to the
stock repurchased by the Company on January 6, 1997.
The Company's income tax provision of $2,607,000 in 1997 reflected an
effective tax rate of 34%, compared with rates of 28% and 32% in the two
previous years. The effective tax rate of 34% is equals the Federal statutory
income tax rate.
The Company's income from technology transfer operations has not in the
past been materially affected by inflation. Likewise, while currency
fluctuations can influence service revenues, the diversity of foreign income
sources tends to offset individual changes in currency valuations.
Liquidity and Capital Resources
Cash, cash equivalents, and marketable securities decreased $12,340,000
from $17,710,000 at December 31, 1996, to $5,371,000 at December 31, 1997.
The decrease is accounted for by the stock repurchase that it completed on
January 6, 1997. On that date the Company purchased 1,775,000 shares of
common stock from Eugene M. Lang, its former Chairman, and the Eugene M. Lang
Foundation at $8.25 per share or an aggregate of $14,643,750, and paid a $.50
per share dividend to shareholders of record as of December 23, 1996. On
January 5, 1998, the Company completed the purchase of Human Factors
Industrial Design, Inc. by issuing 107,374 shares of Treasury Stock and by
paying off the note due of $4,074,000 (see Note 4C to the accompanying
consolidated financial statements for the pro forma balance sheet after these
payments).
In January of 1997 (declared in December 1996) December 1995 and
December 1994, the Company paid a cash dividend of approximately $2,700,000,
or $0.50 per share. In November of 1997, the Company announced that it will
no longer pay annual dividends and will use its earnings to fund continuing
growth.
In November 1997, the Company acquired 100% of Human Factors Industrial
Design, Inc. ("HFID"). The Company is committed to investing up to $1,000,000
in HFID. In December 1997, the Company formed a new 92% owned subsidiary,
REFAC Biochemics Corporation to exploit the Company's H. pylori technology.
The Company has committed to invest in a clinic trial to prove the efficacy of
the compound. In January 1998, the company formed a new 81% owned subsidiary,
Selective Licensing & Promotion, Ltd. The Company has committed to invest up
to $1,000,000 over the next three years in this new venture. Additionally the
Company has commitments under the premises leases (see Note 5 to the
accompanying Consolidated Financial Statements), and Mr. Lang's agreement
(which has been provided for), thereafter the Company has no other significant
commitments. The Company believes its liquidity position is more than
adequate to meet all current and projected financial needs.
Effective January 1, 1994, the Company adopted the provision of Statements
of Financial Accounting Standards No. 115 that required all securities to be
recorded at market value. The unrealized (loss)/gain from current marketable
securities is included in the Statement of Operations for 1996 and 1995. The
unrealized gain from securities acquired in association with license related
securities is included as a separate component of Stockholders' Equity on the
Consolidated Balance Sheet. See Note 1B to the Consolidated Financial
Statements for additional details.
Impact of New Accounting Standards
Financial Accounting Standard No. 123 ("SFAS") "Accounting for Stock Based
Compensation", issued in 1995, introduces a method of accounting for employee
stock-based compensation plans based upon the fair value of the awards on the
date they are granted. Under the fair value based method, public companies
estimate the fair value of stock options using a pricing model, such as the
Black-Scholes model, which requires inputs such as the expected volatility of
the stock price and an estimate of the dividend yield over the option's expected
life. The SFAS, however, does not require the use of this method. Entities
that continue to measure expense related to stock option plans under the
existing method Accounting Principles Board ("APB") No. 25 are required to
disclose pro forma net income and earnings per share, as if the fair value
method had been used. Certain additional disclosures are also required. The
Company will continue to record employee stock-based compensation based upon APB
No.25, but disclosed the pro forma net income, earnings per share and other
information as of the effective date of SFAS No. 123 for the years ended
December 31, 1997 and 1996.
<TABLE>
CONSOLIDATED BALANCE SHEETS
REFAC TECHNOLOGY DEVELOPMENT CORPORATION SUBSIDIARIES
DECEMBER 31,
<CAPTION>
1997 1996
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents (Note 1F) $2,867,563 $15,412,077
Marketable securities (Notes 1B, 1c and 2) 2,503,000 2,298,298
Royalties receivable 662,976 759,897
Accounts receivable, net of allowance for
doubtful accounts of $40,000 in 1997 and
$10,000 in 1996 814,599 103,463
Prepaid expenses 55,069 70,369
Total current assets 6,903,207 18,644,104
Property and equipment, net of accumulated
depreciation of $251,000 in 1997 and
$172,000 in 1996 445,866 159,403
License-related securities (Notes 1B, 1C
and 2) 22,777,247 22,891,653
Investments being held to maturity
(Notes 1B and 2) 1,229,028 -
Other assets (Note 3) 712,731 1,462,091
Goodwill, net of accumulated amortization of
$28,000 in 1997 and $10,000 in 1996
(Notes 1I, 9 and 10) 5,073,414 137,327
$37,141,493 $43,294,578
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable - former Human Factors
shareholders (Note 10) $5,309,564 -
Accounts payable 126,446 125,578
Accrued expenses 548,165 435,959
Amounts payable under service agreements 234,993 268,235
Deferred revenue 103,235 -
Dividend payable - 2,700,943
Income taxes payable 258,508 131,988
Total current liabilities 6,580,911 3,662,703
Deferred income taxes (Notes 1B, 1D, 2 and 4) 7,493,016 7,125,217
Other liabilities - deferred compensation
(Note 6D) 445,058 445,058
Minority interest (Note 9) - 17,301
Commitments and Contingencies (Note 6)
Stockholders' Equity (Note 5)
6% noncumulative preferred stock, $100 par
value; redeemable at $105; authorized - 5,000
shares; none issued
Serial preferred stock, $5 par value; authorized-
100,000 shares, none issued
Common stock, $.10 par value; authorized-
20,000,000 shares; issued and outstanding
5,413,387 in 1997 and 5,401,887 in 1996 541,340 540,189
Additional paid-in-capital 9,440,573 9,251,182
Retained earnings 13,890,734 8,699,265
Unrealized gain on license-related securities,
net of taxes (Note 2) 13,752,459 13,735,650
Cumulative translation adjustment 198,362 193,013
Treasury stock, at cost (1,763,000 shares
at December 31, 1997) (14,774,300) -
Receivable from issuance of common stock
and warrants (426,660) (375,000)
Total stockholders' equity 22,622,508 32,044,299
$37,141,493 $43,294,578
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 15
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
REFAC TECHNOLOGY DEVELOPMENT CORPORATION AND SUBSIDIARIES
YEAR ENDED DECEMBER 31,
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Revenues
Royalties (Notes 1G, and 8) $3,320,403 $3,527,540 $3,978,121
Service fees 185,546 - -
Realized gains on license-related
securities (Note 2) 6,935,851 4,805,485 255,781
Dividend income from license-related
securities 628,320 596,980 143,640
Sales 414,321 269,028 150,500
Total revenues 11,484,441 9,199,033 4,528,042
Costs and Expenses
Service expenses 1,424,333 1,247,250 1,037,483
Selling, general and administrative
expenses (Notes 6A, 6D and 7) 2,305,956 2,346,201 1,273,058
Cost of goods sold 326,963 208,955 112,153
Total operating expenses 4,057,252 3,802,406 2,422,694
Operating income 7,427,189 5,396,627 2,105,348
Other Income and Expenses
Realized gains on marketable securities
transactions (Note 2) 67,145 13,056 86,493
Net change in unrealized gains (losses)
on marketable securities - (26,379) 157,525
Dividends and interest income 275,712 1,074,752 1,075,961
Gains (losses) from foreign currency
transactions 10,879 14,402 (567)
Income before provision for taxes on
income and minority interest 7,780,925 6,472,458 3,424,760
Provision for taxes on income (Note 4) 2,606,757 1,800,441 1,080,300
Income before minority interest 5,174,168 4,672,017 2,344,460
Minority interest (Note 9) 17,301 27,547 -
Net Income $5,191,469 $4,699,564 $2,344,460
Basic earnings per share (Note 1E) $1.42 $0.89 $0.44
Diluted earnings per share (Note 1E) $1.36 $0.88 $0.44
Dividend per common share - $0.50 $0.50
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 16
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGED IN STOCKHOLDERS' EQUITY
REFAC TECHNOLOGY DEVELOPMENT CORPORATION AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Unrealized Receivable
Gains on from
Additional License- Cumulative Issuance
Common Stock Paid-in Retained Securities Translation Treasury Stock Stock and
Shares Amount Capital Earnings Net of Taxes Adjustment Shares Amount Warrants
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1994 5,337,987 $533,799 $9,131,939 $7,006,127 $11,300,883 $261,873 0 $0 $0
Net income 2,344,460
Dividend - $.50 (2,649,943)
Shares issued on
exercise of stock
options 5,000 500 11,375
Issuance of compensatory
stock options 10,908
Acquisition and
retirement of common
stock (43,100) (4,310) (283,498)
Change in unrealized
gains on license-
related securities 1,412,506
Translation adjustments 7,962
Balance, December
31, 1995 5,299,878 529,989 8,870,727 6,700,644 12,713,389 269,835 0 0 0
Net income 4,699,564
Dividend - $.50 (2,700,943)
Shares issued on
exercise of stock
options 102,000 10,200 369,550 (375,000)
Issuance of compensatory
stock options 10,908
Change in unrealized
gains on license-
related securities 1,022,261
Translation adjustments (76,822)
Balance, December
31, 1996 5,401,887 540,189 9,251,182 8,699,265 13,735,650 193,013 0 0 (375,000)
Net income 5,191,469
Purchase of Treasury
stock 1,775,000 (14,874,862)
Shares issued on exercise
of stock options and
warrants 11,500 1,151 128,264 (51,666)
Issuance of compensatory
stock options 10,908
Issuance of stock for
Human Factors acquisition 50,219 12,000 100,562
Change in unrealized gains
on license-related
securities 16,809
Translation adjustments 5,349
Balance, Decmber
31, 1997 5,413,813 $541,340 $9,440,573 $13,890,734 $13,752,459 $198,362 1,763,000 $(14,774,300) $(426,666)
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 17
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
REFAC TECHNOLOGY DEVELOPMENT CORPORATION AND SUBSIDIARIES
YEAR ENDED DECEMBER 31,
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income $5,191,469 $4,699,564 $2,344,460
Adjustments to reconcile net income to net
cash (used in) provided by operating
activities
Depreciation and amortization 141,237 114,414 87,540
Net gain on sale of securities (7,002,996) (4,818,541) (342,274)
Deferred compensation - 445,058 -
Deferred income taxes 241,364 (51,821) 94,650
Write-down of long-term assets 450,105 - -
Other (30,206) (49,589) (395,952)
(Increase) decrease in assets, net of
assets acquired:
Accounts receivable and other prepaid
assets 311,886 371,247 (391,272)
Proceeds from sale of marketable
securities 2,391,822 8,554,284 1,109,048
Purchase of marketable securities (2,503,000) (5,654,888) (3,652,081)
Other assets 450,395 (543,918) (67,645)
Increase (decreae) in liabilities,
net of liabilities acquired:
Accounts payable, accrued expenses
and ddeferred revenue (65,446) (69,294) 17,519
Amounts payable under service agreements (33,242) (87,875) (250,011)
Income taxes payable (122,651) (332,901) 694,894
Net cash (used in) provided by operating
activities (579,263) 2,575,740 (751,124)
Cash Flows from Investing Activities
Proceeds form sales of license-related
securities 6,959,260 5,014,528 173,386
Proceeds from maturity of investments
being held to maturity - 8,298,616 17,811,403
Purchase of investments being held to
maturity (856,138) (1,220,381)(19,124,195)
Acquisition of Human Factors, net of
cash acquired (428,143) - -
Acquisition of Advanced Resin
Technology, Inc. - - (147,131)
Additions to patents and trademarks - (44,898) (43,898)
Additions to property and equipment (88,254) (60,747) (20,552)
Net cash provided by (used in) investing
activities 5,586,725 11,987,118 (1,350,987)
Cash Flows from Financing Activities
Repayment of loan (59,674) - -
Dividends paid (2,700,943) - (2,649,943)
Proceeds from exercise of stock options
and purchase of warrants 77,755 4,750 11,875
Acquisition and retirement of common stock - - (287,808)
Acquisition of treasury stock (14,874,862) - -
Net cash (used in) provided by financing
activities (17,557,724) 4,750 (2,925,876)
Effect of exchange rate changes on cash 5,748 (49,275) (7,962)
Net (decrease) increase in cash and cash
equivalents (12,544,514) 14,518,333 (5,035,949)
Cash and cash equivalents at beginning
of period 15,412,077 893,744 5,641,885
Cash and cash equivalents at end of period 2,867,563 15,412,077 605,936
Income taxes paid 2,408,000 2,189,000 1,030,000
<FN>
For supplemental disclosure of non-cash investing and financing activities, see
Notes 1F, 7, 9 and 10 to the consolidated financial statements.
For supplemental disclosure of acquisitions, see Notes 9 and 10 to the
consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial
statements.
Page 18
</TABLE>
REFAC Technology Development Corporation and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 and 1996
NOTE 1 - BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REFAC Technology Development Corporation (the "Company"), a Delaware
corporation organized in 1952, is engaged directly and through certain of its
subsidiaries in the business of licensing intellectual property rights and
product design and development.
A. Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and all of its majority-owned subsidiaries. All intercompany balances
and transactions have been eliminated.
B. Marketable Securities, License-Related Securities and
Investments Held to
Maturity
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
115, the Company categorized and accounts for its investment holdings as
follows:
Trading securities are securities bought and held for the
purpose of selling them in the near term. Unrealized gains and
losses are included in current period earnings.
Held to maturity securities are recorded at amortized cost.
This categorization is used only if the Company has the positive
intent and ability to hold these securities to maturity.
Available for sale securities are securities which do not
qualify as either held to maturity or trading securities.
Unrealized gains and losses are reported as a separate component
of stockholders' equity, net of applicable deferred income taxes
on such unrealized gains and losses at current income tax rates.
The Company's investment in license-related securities falls
into this category.
C. Derivatives
The Company purchased put and wrote call options to hedge against a market
flucuations in its holdings of KeyCorp common stock. The Company records these
derivative financial instruments at fair value and reports them as "available
for sale securities".
D. Income Taxes
The Company records income taxes under the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". Deferred income
taxes arise from temporary differences resulting from income and expense items
reported in different periods, and differences in the basis of assets and
liabilities for financial reporting and income tax purposes.
It is the policy of the Company to accrue appropriate U.S. income taxes on
income of foreign subsidiaries which is intended to be remitted to the parent
company in the near future. In 1997, the Company initiated the liquidation
of its wholly-owned Swiss subsidiary and repatriated $736,000, net of taxes of
$170,700. At December 31, 1997, the remaining unremitted income of foreign
subsidiaries was not significant, and the liquidation will be substantially
completed in 1998.
E. Earnings Per Share
The following table reconciles the numerators and denominators of the basic and
diluted earnings per share computations pursuant to SFAS No. 128, "Earnings Per
Share".
For the years ended December 31,
1997 1996 1995
Basic shares 3,661,983 5,305,997 5,310,975
Dilution: Stock Options and Warrants 166,564 29,037 36,458
Diluted Shares 3,828,547 5,335,034 5,347,433
Income available to common
shareholders $5,191,469 $4,699,564 $2,344,460
Basic earnings per share $1.42 $0.89 $0.44
Diluted earnings per share $1.36 $0.88 $0.44
F. Consolidated Statement of Cash Flows
For purposes of the statement of cash flows, the Company considers all highly
liquid investments and debt instruments purchased with an original maturity of
three months or less to be cash equivalents. At December 31, 1997 and 1996
cash and cash equivalents consisted of money market funds and cash on deposit
of $2,868,000 and $623,000, respectively including $55,000 and $359,000 held
in foreign currencies. At December 31, 1996, cash and cash equivalents
included $14,789,000 in U.S. Treasury Bills which matured in January 1997.
G. Revenue Recognition
Royalty and service revenue is recognized as the revenue is earned. Non-
recurring lump sum payments that represent settlements of patent infringement
claims are recognized when the settlements occur and collectibility is
reasonably assured.
H. Using Estimates in Financial Statements
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements
as well as revenues and expenses during the reporting period. Actual results
could differ from those estimates.
I. Intangibles
Patents are amortized on a straight-line basis over their statutory life or
expected useful life, whichever is shorter. Goodwill is amortized on a
straight-line basis over 15 years.
The carrying value of the long-lived assets are reviewed if the facts and
circumstances suggest that such assets may be permanently impaired, in
accordance with SFAS No. 121, "Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed of". Such review is based upon the undiscounted expected
future operating cash flows derived from such businesses and, in the event such
result is less than the carrying value of the long-lived assets, including
goodwill, the carrying value of such assets would be reduced to an amount that
reflects the expected future benefit. During 1997, the Company wrote down
$128,000 of goodwill originally recorded in connection with its acquisition of
Advanced Resin Technology, Inc. (see Note 9).
J. Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation.
Depreciation is provided for on a straight-line basis with estimated usefule
lives ranging from 3 to 7 years.
K. Reclassifications
Certain reclassifications have been made to the 1996 and 1995 financial
statements to conform them to the current presentation.
L. Accounting Pronouncements Affecting Future Reporting
In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued. SFAS
No. 130 establishes standards for reporting and display of comprehensive income
and its components in a full set of general purpose financial statements. SFAS
No. 130 requires that a company (a) classify items of other comprehensive
income by their nature in a financial statement and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid in capital in the equity section of the balance sheet. SFAS
No. 130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The Company's unrealized gains or losses,
net of taxes, on its licensing related securities, (including related
derivative instruments) will be reported as an element of comprehensive income.
In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," was issued. SFAS No. 131 establishes standards for the
way that public companies report selected information about operating segments
in annual financial statements and requires that those companies report
selected information about segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. SFAS No. 131 is
effective for financial statements for periods beginning after December 15,
1997. The Company has not determined the effect, if any, SFAS No. 131 will
have on the disclosures in its consolidated financial statement.
NOTE 2 - MARKETABLE SECURITIES, LICENSE-RELATED SECURITIES AND INVESTMENTS HELD
TO MATURITY
Trading marketable securities at December 31, 1997 and 1996 are summarized as
follows:
Marketable Securities
Market Carrying
December 31, 1997 Value Cost Value
U.S. Treasury Notes $2,503,000 $2,503,000 $2,503,000
December 31, 1996
U.S. Treasury Bills and Notes $1,538,872 $1,538,872 $1,538,872
Preferred stocks 588,256 581,440 588,256
Corporate bonds 171,170 168,612 171,170
$2,298,298 $2,288,924 $2,298,298
Securities held to maturity at December 31, 1997 consisted of U.S. Treasury
Notes maturing in 1999 with an amortized cost of $1,229,028. Such amortized
cost approximated the market value. There were no securities categorized as
held to maturity at December 31, 1996.
License-related securities are as follows:
Fair Carrying Unrealized
December 31, 1997 Value Cost Value Gain/(Loss)
KeyCorp (NYSE-KEY) $24,784,375 $1,940,188 $24,784,375 $22,844,187
KeyCorp Put Options
(Note 1C) 582,873 1,548,000 582,873 (965,127)
KeyCorp Call Options
(Note 1C) (2,590,001) (1,548,000) (2,590,001) (1,042,001)
$22,777,247 $1,940,188 $22,777,247 $20,837,059
December 31, 1996
DBT Online, Inc.
(NASDAQ-DBTO) $261,800 $6,790 $261,800 $255,010
KeyCorp (NYSE-KEY) 18,877,000 2,073,229 18,887,000 16,813,771
Three-Five Systems, Inc.
(NYSE-TFS) 3,742,853 - 3,742,853 3,742,853
$22,891,653 $2,080,019 $22,891,653 $20,811,634
In 1998, there was a 2-for-1 stock split of KeyCorp's common stock. All
references to the number of KeyCorp shares in the Notes to the Consolidated
financial Statements have been adjusted to reflect such stock split.
At December 31, 1997 the Company held 700,000 shares of KeyCorp common stock
and put and call options covering 600,000 of such shares (options for 50,000
shares expiring at each quarter end over the next three years). At December
31, 1996 the Company held 8,800 shares of DBT Online, Inc., 748,000 shares of
KeyCorp and 290,707 shares of Three-Five Systems, Inc.
The realized gains and losses, accounted for on a first-in first-out basis, for
the
years ended December 31, 1997, 1996 and 1995 are summarized as follows:
Marketable Securities
1997 1996 1995
Realized gains $85,994 $136,801 $106,367
Realized losses (18,849) (123,745) (19,874)
$67,145 $13,056 $86,493
License-related Securities
Realized gains in: 1997 1996 1995
Three-Five Systems, Inc. $5,205,195 $500,353 $176,199
KeyCorp 1,437,929 985,623 -
DBT Online, Inc. 292,727 3,319,509 -
AutoFinance Group, Inc. - - 79,582
$6,935,851 $4,805,485 $255,781
Derivatives
The Company owns 700,000 shares of KeyCorp common stock (NYSE-KEY) which, as
of December 31, 1997 had a market value of $24,784,375. In order to minimize
the Company's exposure to a decline in the value of KeyCorp, on September 12,
1997, the Company entered into thirteen (13) individual derivative contracts
with Union Bank of Switzerland ("UBS") providing for both put options and call
options, which are exercisable only on the indicated expiration date. The "put
options" give the Company the right to sell the KeyCorp stock covered by the
option to UBS at the agreed upon option price even if the market price is lower
on the settlement date. The written call options give UBS the right to
require the Company to sell the KeyCorp common stock covered by the option at
the agreed upon option price even if the market price is higher on the
settlement date. If the price is between the put and call option prices on the
settlement date both options lapse. At the first contract expiration date of
December 31, 1997, UBS exercised its option and the Company realized a gain of
$1,437,929 on the sale of 48,000 shares. The schedule below details the
expiration dates and the pricing for each of the remaining contracts.
Put Option Call Option
Strike Strike
Expiration Number of Price Aggregate Price Aggregate
Date Shares Per Share (1) Per Share (1)
03/31/98 50,000 $27.42615 $1,371,308 $33.1855 $1,659,275
06/30/98 50,000 $27.42615 $1,371,308 $33.8865 $1,694,325
09/30/98 50,000 $27.42615 $1,371,308 $34.4350 $1,721,750
12/31/98 50,000 $27.42615 $1,371,308 $35.0140 $1,750,700
03/31/99 50,000 $27.42615 $1,371,308 $35.3490 $1,767,450
06/30/99 50,000 $27.42615 $1,371,308 $35.9585 $1,797,925
09/30/99 50,000 $27.42615 $1,371,308 $36.5680 $1,828,400
12/31/99 50,000 $27.42615 $1,371,308 $37.1775 $1,858,875
03/31/00 50,000 $27.42615 $1,371,308 $37.4825 $1,874,125
06/30/00 50,000 $27.42615 $1,371,308 $38.0920 $1,904,600
09/30/00 50,000 $27.42615 $1,371,308 $38.7015 $1,935,075
12/31/00 50,000 $27.42615 $1,371,308 $39.3720 $1,968,600
(1) Number of shares multiplied by the option strike price.
NOTE 3 - OTHER ASSETS
Other assets consist of:
1997 1996
Notes receivable, net $416,519 $930,692
Patents and trademarks, net of accumulated
amortization of $129,000 in 1997 and
$94,000 in 1996 263,278 274,938
Deferred charges, net of accumulated
amortization of $174,000 in 1997 and $155,000
in 1996 11,052 253,409
Other 21,882 3,052
$712,731 $1,462,091
NOTE 4 - INCOME TAXES
The provisions for taxes on income for the years ended December 31, 1997,
1996 and 1995 are as follows:
1997 1996 1995
Federal
Current $2,337,754 $1,934,460 $902,909
Deferred 202,812 (181,846) 124,791
State and local 33,533 15,466 2,028
Foreign taxes 32,658 32,361 50,572
$2,606,757 $1,800,441 $1,080,300
The provision for taxes on income for the years ended December 31, 1997,
1996 and 1995 differed from the amount computed by applying the statutory
Federal income tax rate of 34% as follows:
1997 1996 1995
Statutory rate 34% 34% 34%
Dividend received exclusion (2%) (4%) (2%)
Other 2% (2%) -
Provision for taxes on income 34% 28% 32%
The tax effects of temporary differences which gave rise to deferred tax assets
and
liabilities as of December 31, 1997 and 1996 are as follows:
Assets 1997 1996
Deferred rent and compensation/retirement $235,957 $233,680
Write-down of long term investments and other, net 137,002 93,660
KeyCorp put and call options basis differences 682,423 -
$1,055,382 $327,340
Liabilities
KeyCorp/AFG common stock basis difference 8,424,398 $6,419,133
License-related securities common stock basis difference - 1,033,424
Cash to accrual basis adjustment for Human Factors 24,000 -
$8,548,398 $7,452,557
Net Liability $7,493,016 $7,125,217
NOTE 5 - STOCKHOLDERS' EQUITY
A. Stock Repurchase Program
On March 23, 1995, the Board of Directors authorized management to repurchase
and retire up to 250,000 shares of the Company's common stock from time to time
in the open market or in negotiated transactions at prevailing market prices.
The Company repurchased and retired 43,100 shares at an average price of $6.68
per share during 1995. On December 7, 1995 the Company terminated this
repurchase plan.
B. Stock Option Plans
In October 1995 the SFAS No. 123, "Accounting for Stock-Based Compensation".
This new standard defines a fair value based method of accounting for an
employee stock option or similar equity instrument. This statement gives
entities a choice of recognizing related compensation expense by adopting the
new fair value method or continuing to measure compensation using the intrinsic
value approach under Accounting Principles Board (APB) Opinion No. 25, the
former standard. If the former standard for measurement is elected, SFAS No.
123 requires supplemental disclosure to show the effects of using the new
measurement criteria. This statement is effective for the year ended December
31, 1996. The Company intends to continue using the measurement prescribed by
APB opinion No. 25, and accordingly, this pronouncement will not affect the
Company's financial position or results of operations.
In May 1990, shareholders approved the 1990 Stock Option and Incentive Plan
(the "1990 Plan") which authorizes the issuance of up to 300,000 shares of
common stock. The Board of Directors of the Company has adopted, subject to
shareholder approval, an amendment to increase the number of shares reserved
for issuance under the 1990 Plan by 100,000. The 1990 Plan authorizes the
issuance of various incentives to employees (including officers and directors
who are employees), including stock options, stock appreciation rights, and
restricted performance stock awards. The 1990 Plan allows for the stock option
committee to determine type, shares and terms of the grants, which may be made
at any time through March 14, 2000.
In addition to the 1990 Plan outlined above, the Company has also granted stock
options to the directors. In 1990, stock options to purchase 42,500 shares of
common stock were granted and in 1996 stock options to purchase 50,000 shares
were granted at an exercise price of $5.9125. By March, 1998 all of the
options granted in 1990 have been exercised by the directors. On April 7,
1997, the Company sold a warrant to Palisades Capital Securities, L.L.C. for
a price of $103,320 to purchase 200,000 shares of common stock at $8.25 per
share. On November 25, 1997, the Company issued non-qualified stock options
to eleven employees of Human Factors to purchase an aggregate of 165,000
shares of common stock.
The table below summarizes 1990 plan option activity:
Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
1997 price 1996 price 1995 price
Outstanding at beginning
of year 332,500 6.79 261,625 4.84 263,500 4.77
Options granted 220,000 13.34 185,000 7.82 3,125 6.23
Options exercised (11,500) 2.27 (102,000) 3.67 (5,000) 2.38
Options canceled - (12,125) 6.65 -
Outstanding at end of
year 541,000 9.55 332,500 6.79 261,625 4.84
Exercisable at end of
year 341,000 6.97 97,500 4.13 204,625 3.97
The following table summarizes option data of December 31, 1997:
Weighted
Number average Weighted Number Weighted
Range outstanding remaining average exercisable average
of exercise as of contractual exercise as of exercise
prices Dec. 31, 1997 life price Dec. 31, 1997 price
$2.19-$8.99 236,000 2.1 $5.93 236,000 $5.93
$9.13-$14.13 305,000 9.4 $12.35 105,000 $9.30
541,000 341,000
The exercise prices of all options granted (qualified and non-qualified) during
1997 are at fair value of common stock at date of grant. The fair value of
each option grant is estimated on the date of the grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
grants in 1997, 1996 and 1995, respectively: dividend yields of 0, 7.8 and
7.0 percent; expected volatility of 60, 20 and 20 percent; risk-free interest
rate of 5.9, 6.6 and 5.8 percent; and expected lives of 10, 7 and 8 years. The
weighted-average fair value of options granted was $9.97, $2.56 and $2.37 for
the years ended December 31, 1997, 1996 and 1995 respectively.
The pro forma amounts are indicated below:
Year Ended December 31, 1997 1996 1995
Net income
As reported $5,191,469 $4,699,564 $2,344,460
Pro forma $5,098,270 $4,450,316 $2,343,466
Diluted Earnings per share
As reported $1.36 $0.89 $0.44
Pro forma $1.33 $0.84 $0.44
C. Stock Repurchase Agreement
On January 6, 1997, pursuant to a December 13, 1996 stock repurchase
agreement, the Company purchased 1,775,000 shares of its common stock from
Eugene M. Lang and the Eugene M. Lang Foundation for $8.25 per share or an
aggregate purchase price of $14,643,750. The purchase was at a premium to
the then market price, which is not considered additional compensation by
the Company, and was funded with cash and proceeds of sales of marketable
securities. These shares are being held by the Company as Treasury Stock.
NOTE 6 - COMMITMENTS AND CONTINGENT LIABILITIES
A. Commitments
The Company has leases for (i) office space in New York City for its
corporate headquarters and technology licensing operations through 2004,
(ii) a laboratory in Lawrence, Massachusetts for its Advanced Resin
subsidiary through 1998, and (iii) executive offices and facilities in New
York City for its Human Factors Industrial Design, Inc. ("Human Factors")
subsidiary through 2003. In addition, Human Factors rents space in the same
building under a lease that expires in October, 1998 and additional space on
a month-to-month basis. The Company also has a lease for office space for
its REFAC Financial Corporation subsidiary in Las Vegas, Nevada which is
terminable on a 30 day notice. The aggregate minimum future rental payments
under the leases total $2,305,000; minimum payments required for each of the
next five years are as follows: $349,000 in 1998; $355,000 in 1999; $359,000
in 2000; $363,000 in 2001; and $380,000 in 2002. The Company currently
subleases a portion of its New York City office space under subleases that
are terminable on six months notice. The expected future rental payments
under the subleases total $405,000; expected payments for each of the next
five years are as follows: $57,000 in 1998; $57,000 in 1999; $59,000 in
2000; $63,000 in 2001; and $67,000 in 2002. In accordance with SFAS No. 13,
rent expense is charged to operations at an average of the lease payments
over the life of the lease. The amounts cited exclude potential escalation
for maintenance and tax increases. Rent expense, net, was approximately
$189,000, $172,000 and $153,000 for the years ended December 31, 1997, 1996
and 1995, respectively.
B. Employment Agreement
In December, 1996, the Company's employment agreement with its President
and Chief Executive Officer was amended and restated through December 31,
2001. The agreement provides for minimum annual compensation and bonus as
determined by the Board of Directors and the added title and
responsibilities of Chief Executive Officer. The officer was also granted
options to purchase 100,000 shares of common stock pursuant to the Company's
Stock Option Plan. In 1996, the officer exercised previously granted
options to purchase 100,000 shares of common stock. In connection with such
exercise, the Company provided the officer with a loan of $375,000, bearing
interest at the Long-Term Applicable Federal Rate and maturing December 13,
2006. The Company determined that there was no compensation charge related
to the grant of the options or extending of the loan.
C. Contingent Liabilities
In the ordinary course of its patent licensing and enforcement
activities, the Company becomes engaged in the prosecution of infringement
actions against various companies. Such actions are initiated only after
the Company satisfies itself that (a) the claims of the patent have
substantial merit and (b) there are specific grounds for asserting
infringement. Such litigation often induces various defenses including,
among others, challenging the validity of the patents and seeking
reimbursement from the Company for the legal costs of defense. Such
reactions are conventional aspects of the conduct of the Company's patent
licensing and enforcement activities. The Company from time to time has
been the target of several such actions. At December 31, 1997, there were
no pending claims against the Company related to its patent licensing
business.
D. Deferred Compensation/Post-Retirement Benefits
On December 13, 1996, the Company entered into a retirement agreement
with its Chairman and Chief Executive Officer, Eugene M. Lang, under which
he relinquished his title and responsibilities as Chief Executive Officer on
January 6, 1997 and as Chairman on June 30, 1997. For a period of three
years commencing July 1, 1997, Mr. Lang has agreed to act as a consultant to
the Company and to remain on the Company's Board of Directors. The
retirement agreement also provides for an annuity of $100,000 per annum
during his life, medical and health benefits for him and his spouse during
their lives, and office facilities, equipment and personnel support for two
years following his consulting services. In 1996, the Company expensed
$445,058 for such retirement benefits, which represents the present value of
the expected payments, following the consultancy period, based upon his
estimated life expectancy.
NOTE 7 - RELATED PARTY TRANSACTIONS
In connection with Mr. Lang's retirement and in recognition of his years
of valued service to the Corporation, the Board of Directors authorized
contributions aggregating $500,000 to several charitable organizations
selected by Mr. Lang. Included among these were contributions totaling
$50,000 to a charitable organization with which Mr. Lang is affiliated.
During 1995, the Company made charitable contributions of $62,000 to
institutions and charitable organizations with which an officer and certain
directors of the Company were affiliated. The 1996 and 1995 charitable
contributions were in the form of shares of Three-Five Systems, Inc. common
stock owned by the Company.
NOTE 8 - SEGMENTS AND CONCENTRATIONS
During the period covered by these financial statements, the Company
operated principally in one industry segment which is international
licensing and technology transfer. With the purchase of Human Factors on
November 25, 1997, the Company is now also engaged in industrial design and
engineering. Only one month of Human Factors revenue is included in the
Company's 1997 income, and which the Company does view as significant to its
1997 results. In 1998, revenue from Human Factors is expected to be a
material component of the Company's revenues.
Foreign source revenues of domestic operations amounted to:
1997 1996 1995
Europe $681,977 $855,800 $1,242,106
Asia 233,691 250,014 475,366
$915,668 $1,105,814 $1,717,472
Revenues from entities utilizing the Company's licensed technology that
comprise more than 10% of service revenues are summarized below:
Percentage of Service Revenues
1997 1996 1995
Largest entity 57% 55% 48%
Second largest entity 10% 12% 14%
NOTE 9 - ADVANCED RESIN TECHNOLOGY, INC.
On December 29, 1995, the Company acquired a 92% interest in the common stock
of Advanced Resin Technology, Inc. ("Advanced Resin"), which manufactured hot-
melt polyurethane adhesives and elastomers under a license from the Company.
The acquisition was accounted for as a purchase, and resulted in the recording
of $158,000 of goodwill. On February 6, 1998, Advanced Resin ceased such
manufacturing activities so that it could concentrate its efforts on the
research and development of this technology. As a result, in the fourth
quarter of 1997, the Company incurred an after-tax loss on such ceased
operations of approximately $341,000, which included a write-off of the
unamortized goodwill and other assets and the accrual of certain expenses.
NOTE 10 - HUMAN FACTORS INDUSTRIAL DESIGN, INC. ACQUISITION
On November 25, 1997, the Company completed the purchase of the outstanding
stock of Human Factors Industrial Design, Inc. ("Human Factors") for
$6,000,000, of which $4,500,000 was payable in cash and $1,500,000 in Company
stock (valued at $12.565 per share). The Company paid 10% of the purchase
price at closing, which included 12,000 shares of the Company's common stock
and the balance in January, 1998 which included 107,374 shares of the Company's
common stock. The excess of the aggregate purchase price over the net tangible
assets acquired was allocated to goodwill and is being amortized over fifteen
years. The operating results of Human Factors have been included in the
Company's consolidated financial statements since the date of acquisition. The
Company may also be required to make a contingent purchase price payment to the
former Human Factors shareholders if certain earnings targets, as defined in
the purchase agreement, are met. The Company also has entered into employment
agreements with each of the Human Factors shareholders providing for annual
base salaries, performance based incentive bonuses and the grant of stock
options.
NOTE 11-SUBSEQUENT EVENTS
On January 21, 1998, the Company formed Selective Licensing & Promotion, Ltd.
("Selective Licensing"), a trademark licensing and consultancy agency for brand
and character licensing, with Ms. Arlene J. Scanlan. The Company and Ms.
Scanlan own 81% and 19%, respectively of the outstanding capital stock of
Selective Licensing. The Company has entered into a five year employment
agreement with Ms. Scanlan to serve as the President and Chief Executive
Officer of Selective Licensing that provides for an annual base salary,
performance based incentive bonuses and the grant of stock options. In
addition, the Company has committed to make up to $1 million in financing
available to Selective Licensing over the next three years.
NOTE 12 - Selected Quarterly Financial Data (Unaudited)
1997
First Quarter Second Quarter Third Quarter Fourth Quarter
Total revenues $1,799,018 $2,599,660 $3,844,529 $3,241,234
Operating income $1,034,899 $1,646,810 $3,032,549 $1,712,931
Net income $839,711 $1,317,081 $2,177,837 $ 856,840
Net income per
common share $ .22 $ .35 $ .57 $ .23
1996
First Quarter Second Quarter Third Quarter Fourth Quarter
Total revenues $2,629,918 $2,224,763 $1,560,623 $2,783,729
Operating income $1,951,102 $1,407,535 $ 980,350 $1,057,640
Net income $1,423,238 $1,138,432 $ 890,350 $1,247,544
Net income per
common share $ .27 $ .21 $ .17 $ .23
Market Price of Common Stock
1997 1996
High - Low High - Low
First Quarter 7 1/4 - 5 5/8 6 1/2 - 5 5/8
Second Quarter 13 15/16 - 6 5/16 8 3/4 - 5 1/2
Third Quarter 11 7/8 - 9 5/8 7 5/8 - 6 5/8
Fourth Quarter 16 1/8 - 10 7 1/8 - 5 3/4
The Company's common stock is listed on the American
Stock Exchange under the symbol REF.
There were 830 stockholders of record as of March 20, 1998.
Report of Independent Certified Public Accountants
To the Stockholders and Board of Directors
REFAC Technology Development Corporation
We have audited the accompanying consolidated balance sheets of REFAC
Technology Development Corporation and Subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of REFAC Technology
Development Corporation and Subsidiaries at December 31, 1997 and 1996 and the
results of their consolidated operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
Grant Thornton LLP
New York, New York
February 6, 1998
Inside back cover
Directors
Neil R. Austrian
President
National Football League
Robin L. Farkas
Private Investor
Mark N. Kaplan
Partner
Skadden, Arps, Slate, Meagher & Flom LLP
Eugene M. Lang
Chairman Emeritus and Consultant
REFAC Technology Development Corporation
Herbert W. Leonard
President
Hamilton Associates
Douglas M. Spranger
President and Chief Executive Officer
Human Factors Industrial Design, Inc.
Robert L. Tuchman
President, Chief Executive
and General Counsel
REFAC Technology Development Corporation
Ira T. Wender
Of Counsel
Patterson, Belnap, Webb & Tyler LLP
Officers
Robert L. Tuchman
President, Chief Executive Officer
and General Counsel
Raymond A. Cardonne, Jr.
Vice President
Robert Rescigno
Secretary, Treasurer and Controller
Counsel
Skadden, Arps, Slate, Meagher & Flom LLP
New York, New York
Independent Auditors
Grant Thornton LLP
New York, New York
Transfer Agent
ChaseMellon Shareholder Services
Ridgefield Park, New Jersey
Statements about the Company's future expectations and all other statements in
this Annual Report other than historical facts are "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, Section 21E of
the Securities Exchange Act of 1934, and as that term is defined in the Private
Securities Litigation Reform Act of 1995. The Company intends that such forward
looking statements are subject to the safe harbors created thereby. Since these
statements involve risks and uncertainties and are subject to change at any
time, the Company's actual results could differ materially from expected or
inferred results.
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