<PAGE>
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
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For the Fiscal Year Ended December 31, 1998
Commission File Number 0-7704
REFAC TECHNOLOGY DEVELOPMENT CORPORATION
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Delaware 13-1681234
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
122 East 42/nd/ Street, New York, New York 10168
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 687-4741
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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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
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The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 23, 1999 was $28,464,458.
The number of shares outstanding of the registrant's Common Stock, par
value $.10 per share, as of March 23, 1999 was 3,795,261.
<PAGE>
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, 1998 except for the
Item 7} inside front and back cover and Pages 2
Item 8} through 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, 1999.
PART I
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Item 1. Business
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General
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REFAC Technology Development Corporation (the "Company"), a Delaware
corporation organized in 1952, through certain of its subsidiaries, is engaged
in the licensing of intellectual property rights and product design and
development. The Company's expertise centers on its ability to maximize the
earning potential of intellectual property rights through creative licensing
strategies, enterprising brand extension ventures, and entrepreneurial product
design/engineering programs.
Product Design & Development and Product Licensing
- --------------------------------------------------
On November 26, 1997, pursuant to an Agreement and Plan of Merger, dated as
of November 25, 1997, the Company acquired Human Factors Industrial Design, Inc.
("Human Factors"), an industrial design and engineering firm based in New York
City. On December 31, 1998, the Company merged Human Factors into its wholly-
owned subsidiary, REFAC International, Ltd. ("RIL"), and it now operates as a
division of RIL. 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, engineering and
architecture. 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.
Prior to the Company's acquisition, Human Factors primarily operated as a
fee-for-service consultant. Now, 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 used herein, "product licensing" refers to products
and/or product concepts developed by Human Factors which are then licensed to
manufacturers. In situations where Human Factors does not own the intellectual
property rights and
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simply develops the products in exchange for a royalty basis, the income is
treated as part of its product design and development activities. The Company
has committed to make up to $1 million in financing available to Human Factors,
of which $575,000 has been provided as of December 31, 1998.
Facilities. During 1998, Human Factors occupied approximately 12,500
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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.
In November, the Company announced that it will relocate its corporate
headquarters, patent licensing and product development operations to 115 River
Road, Edgewater, New Jersey. The Company has signed a 10 1/2 year lease for
newly constructed premises encompassing 25,000 square feet. This site is
expected to be ready for the Company's occupancy during the second quarter of
1999 and will enable the Company to integrate its corporate and patent licensing
operations with the industrial design and engineering operations of Human
Factors.
The Company has entered into a sublease for 10,000 square feet of Human
Factors' existing premises (which is on a term lease) at the same rental and for
the balance of the term provided for in Human Factors' lease. This sublease
commences upon the move to Edgewater. The lease for the balance of the space
currently utilized by Human Factors is on a month-to-month basis and will be
terminated upon the move.
Employees. As of December 31, 1998, Human Factors had 30 full-time
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employees, including 15 industrial designers, 6 engineers and 9 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 highly fragmented, with a
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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. Human Factors faces strong 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. In addition, the industrial design business is dependent on the
ability to attract and retain personnel.
Trademark Licensing
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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 consultancy 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%. SL&P
acts as the licensing agent for the following properties: Psycho Chihuahua/(R)/,
Class of 2000/(R)/, Rambling Ted/(R)/, UZI/(R)/ and Rockwell/(R)/. The Company
has committed to make up to $1 million in financing available to SL&P through
December, 31, 2001, of which $400,000 has been funded through December 31, 1998.
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Facilities. SL&P leases approximately 1,450 square feet of office space in
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Southport, Connecticut.
Employees. SL&P has 3 full-time employees.
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Competition. Success in the trademark licensing agency business is
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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 has the potential to be popular. It also competes with other agencies
in brand licensing for the rights to well-known corporate trademarks. The
Company believes that Human Factors' product design and development capability
will give it a distinct advantage in this area.
Technology Licensing Operations
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The Company's technology licensing includes "New Technology Licensing"
and "Patent Enforcement Licensing" projects. In both classes, the Company
generally 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. New Technology licensing includes technologies
------------------------
that have not yet been successfully commercialized. These technologies
generally offer 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. Commencing 1999, the Company plans
to limit its New Technology licensing to projects in which it can have an equity
position.
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
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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. A prospective Client also may notify
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
Teknologies, Inc. which accounted for 9.7% and 5.7%, respectively, of total
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.
Competition. Success in the technology licensing business is principally
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dependent upon the ability of a technology to create a competitive advantage or
solve a recognized problem in the marketplace and the availability of the
financial and technical resources necessary to "prove the concept" and
demonstrate the benefits of the invention to prospective Licensees. The Company
believes that Human Factors' product design and development capability will give
it a distinct advantage in this area for consumer products, medical devices and
business equipment.
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Government Regulations
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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
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As of December 31, 1998, the Company held the following interests in
patents and trademarks:
Adhesive and Polymer Related Patents - The Company's wholly-owned
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subsidiary, REFAC International, Ltd. ("RIL"), owns the following United States
patents covering the manufacture and composition of urethane polymer and epoxy
materials:
<TABLE>
<CAPTION>
U.S.
Patent Expiration
No. Title Date
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<S> <C> <C>
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 12/03/2013
Upon Melt Processing
5,747,588 Thermoplastic Urethane Elastomeric Alloys 06/25/2013
</TABLE>
The Company also owns the registered United States trademark "LAMBDA" and
"Bondstar" for use with adhesives and elastomers and has a pending United States
trademark application for the mark "REFAC" for such use.
H. pylori Patent - The Company's subsidiary, REFAC Biochemics Corporation
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("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
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conveyor buckets that expire at various times from February 15, 2000 to April
21, 2009 and the registered U.S. trademarks Econ-O-Lift(R), Maxecon(R) and Swing
Link(R). Various foreign patents and trademarks have issued.
Exclusive Rights to License under Other Patents - As mentioned in Item 1,
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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
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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
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As of December 31, 1998, the Company had 42 employees including 30
employees at Human Factors and 3 employees at SL&P. The Company considers its
relations with its employees to be excellent.
Financial Information About Foreign and Domestic Operations and Product Sales
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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, 1998 is set
forth in Note 6 of the Notes to the Company's Consolidated Financial Statements
found on page 25 of its Annual Report to Stockholders for the year ended
December 31, 1998. Said page 25 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
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From January 1, through September 30, 1998, the Company leased the entire
40/th/ floor, consisting of approximately 7,800 square feet, in an office
building located at 122 East 42/nd/ Street, New York, New York under a lease
expiring in the year 2004. The Company occupied approximately 5,100 square feet
of space for its headquarters facility and subleased the remaining premises. In
October of 1998, pursuant to an agreement with the landlord, the Company
surrendered possession of the 5,100 square feet it was occupying and moved into
the remaining 2,700 square feet that had been previously subleased, which it
agreed to surrender between March 31, 1999 and May 31, 1999.
Human Factors leases the entire 15/th/ 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 2,500 square feet on a month-to-month basis.
Concurrent with its October, 1998 agreement to terminate the existing
leasehold, the Company entered into a lease covering 25,000 square feet of newly
constructed premises in Edgewater, New Jersey for its headquarters which will
house the operations of the Company and its subsidiary companies, other than
SL&P and REFAC Financial Corporation. The lease has an initial term of 10 1/2
years, which will commence upon the completion of construction in or about May,
1999. The Company has two successive five-year renewal options. Human Factors
has agreed to sublease its 10,000 leasehold (at 575 Eighth Avenue) to another
design firm for the balance of its term at the same rental it is obligated to
pay.
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SL&P, a wholly-owned subsidiary, leases approximately 1,450 square feet in
an office building located at 107 John Street, Southport, Connecticut under a
lease which expires in the year 2003.
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 its present needs.
Item 3. Legal Proceedings
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Suit by Former Officer. At December 31, 1998, the only claim pending
----------------------
against the Company was an action in United States District Court for the
Eastern District of New Jersey, which was commenced 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
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No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 1998.
PART II
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Item 5. Market for the Company's Common Stock and Related Security Holder
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Matters
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The Company had 754 stockholders of record as of March 23, 1999. The other
information required by this item is included on page 27 of the Company's Annual
Report to Stockholders for the year ended December 31, 1998, which page is
hereby incorporated by reference.
Item 6. Selected Financial Data
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The information required by this item is included on page 27 of the
Company's Annual Report to Stockholders for the year ended December 31, 1998,
which page is hereby incorporated by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
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of Operations
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The information required by this item is included on pages 13 and 14 of the
Company's Annual Report to Stockholders for the year ended December 31, 1998,
which pages are hereby incorporated by reference.
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Item 8. Financial Statements
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The information required by this item is included on pages 15 through 19 of
the Company's Annual Report to Stockholders for the year ended December 31,
1998, which pages are hereby incorporated by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
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Financial Disclosure
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None.
PART III
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Item 10. Directors and Executive Officers of the Company
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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, 1999 and is hereby incorporated herein by
reference. Information concerning the Executive Officers of the Company is
presented below.
EXECUTIVE OFFICERS OF THE COMPANY
---------------------------------
<TABLE>
<CAPTION>
Served in Such
Position or Office
Name Age Continually Since Position (1)
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<S> <C> <C> <C>
Robert L. Tuchman 56 1991 Chairman, President, Chief Executive
Officer and General Counsel (2)
Douglas M. Spranger 51 1998 Senior Vice President (3)
Raymond A. Cardonne, Jr. 32 1997 Vice President and Secretary (4)
Elliott S. Greller 56 1998 Vice President and Treasurer (5)
</TABLE>
__________
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.
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(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) Douglas M. Spranger has been the Chief Executive Officer of Human Factors
Industrial Design, Inc. since its formation in 1974. Human Factors
Industrial Design, Inc., acquired by the Corporation in November, 1997, was
merged into the Corporation's wholly-owned subsidiary, REFAC International,
Inc., on December 31, 1998. Mr. Spranger became the Senior Vice President
of REFAC International, Ltd. in December, 1998 and relinquished the position
of President of the Human Factors to Bert D. Heinzelman. Mr. Heinzelman
will also assume the position of Chief Executive Officer of Human Factors
when the Corporation relocates to its new facilities in late Spring, 1999.
(4) Mr. Cardonne joined the Company in December, 1997 as Vice President
responsible for the licensing and commercialization of technologies and was
elected to the additional position of Secretary in November, 1998. 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 & Refrigeration Corporation from
January, 1990 to July, 1993.
(5) Mr. Greller joined the Company in March 1, 1998 as President of the Royalty
Control Division of REFAC Services Corporation, a wholly-owned subsidiary of
the Company that was merged into REFAC International, Ltd. on December 31,
1998. He became the Company's Vice President and Treasurer in September,
1998. Prior to joining the Company, for more than the past fifteen years,
Mr. Greller was engaged in the practice of accountancy and was the Chief
Executive Officer and sole owner of the Royalty Control Group Company which
provided royalty audit services to licensors. The services previously
rendered by Royalty Control Group are now being rendered by Mr. Greller as
part of his duties with the Company.
Item 11. Executive Compensation
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The information required by this item is included on page 8 in the Company's
definitive Proxy Statement in connection with the Annual Meeting of Stockholders
to be held in May, 1999 and is hereby incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
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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, 1999 and is hereby incorporated herein by
reference.
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Item 13. Certain Relationships and Related Transactions
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The information required by this item is included on page 14 in the Company's
definitive Proxy Statement in connection with the Annual Meeting of Stockholders
to be held in May, 1999 and is hereby incorporated herein by reference.
PART IV
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
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(a)(1) Financial Statements
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See index to financial statements on the inside cover of the Company's Annual
Report to Stockholders for the year ended December 31, 1998, 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, 1998, 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.
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None
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Signatures
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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
Dated: March 25, 1999 /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 25, 1999 /s/ Robert L. Tuchman
------------------------------------------------
Robert L. Tuchman, President, Chief Executive
Officer, General Counsel and Director
(Principal Executive Officer)
March 25, 1999 /s/ Elliott S. Greller
------------------------------------------------
Elliott S. Greller, Vice President and Treasurer
(Principal Financial Officer & Controller)
March 25, 1999 /s/ Neil R. Austrian
------------------------------------------------
Neil R. Austrian, Director
March 25, 1999 /s/ Robin L. Farkas
------------------------------------------------
Robin L. Farkas, Director
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Signatures
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(Continued)
March 25, 1999 /s/ Mark N. Kaplan
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Mark N. Kaplan, Director
March 25, 1999 /s/ Herbert W. Leonard
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Herbert W. Leonard, Director
March 25, 1999 /s/ Douglas M. Spranger
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Douglas M. Spranger, Director
March 25, 1999 /s/ Ira T. Wender
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Ira T. Wender, Director
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EXHIBIT INDEX
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Exhibit No. Exhibit
- ----------- -------
3 Restated Certificate of Incorporation and Certificate of
Amendment thereto (the "Certificate of Incorporation") and By-
laws of the Company as currently in effect. The Certificate of
Incorporation required by this item is included 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 in the
Company's Annual Report on Form 10-K for the year ended December
31, 1997.
10(a) Employment Agreement Amended and Restated dated December 13,
1996 between the Company and Robert L. Tuchman (the "Tuchman
Employment Agreement"). 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.
10(b) Amendment, dated January 20, 1999, extending the term of the
Tuchman Employment Agreement is included herewith.
10(c) Employment Agreement, dated November 25, 1997 between the
Company and Douglas M. Spranger and an Amendment thereto, dated
January 14, 1999, is included herewith.
10(d) 1998 Stock Incentive Plan is included as an exhibit to the
Company's Proxy Statement for its Annual Meeting of Stockholders
held on May 11, 1998 and incorporated herein by reference.
10(e) 1990 Stock Option and Incentive Plan is included as an exhibit
to the Company's Proxy Statement for its Annual Meeting of
Stockholders held on May 16, 1990 and included herein by
reference.
13 Annual Report to Security Holders of the Company for the year
ended December 31, 1998 is included herewith.
21 Subsidiaries of the Registrant is included herewith.
<PAGE>
EXHIBIT 10
<PAGE>
Exhibit 10(b)
AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------
AMENDMENT to Amended and Restated Employment Agreement (the "Employment
Agreement") between REFAC TECHNOLOGY DEVELOPMENT CORPORATION ("REFAC") and
Robert L. Tuchman ("TUCHMAN").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, TUCHMAN is currently employed by REFAC pursuant to the Employment
Agreement; and
WHEREAS, the parties hereto desire to extend the term of the Employment
Agreement:
NOW, THEREFORE, in consideration of the premises and the respective
agreements of the parties herein contained, the parties hereto, intending to be
legally bound, agree as follows:
1. Article 2 of the Employment Agreement is hereby amended to provide
that the term of Tuchman's Employment Agreement will end on December 31, 2003.
Article 2, as amended hereby, reads in its entirety as follows:
2. Term. The employment of TUCHMAN by REFAC as provided in
----
Section 1 hereof will commence on the date hereof and end on December
31, 2003, unless further extended or sooner terminated as hereinafter
provided. On December 31, 2002, and on December 31/st/ of each year
thereafter, the term of TUCHMAN's employment will be automatically
renewed for one additional year unless, at least 90 days prior to any
such December 31/st/, REFAC shall have delivered to TUCHMAN or TUCHMAN
shall have delivered to REFAC written notice that the term of
TUCHMAN's employment hereunder will not be renewed.
2. All of the remaining terms and conditions of the Employment Agreement
shall be unaffected and shall remain in full force and effect.
Page 1 of 2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment to the
Employment Agreement.
/s/ Robert L. Tuchman
___________________________________
Robert L. Tuchman
Dated: January 20, 1999
REFAC Technology Development Corporation
By: /s/ Raymond A. Cardonne, Jr.
_____________________________
Raymond A. Cardonne, Jr.
Vice President
Dated: January 20, 1999
Page 2 of 2
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Exhibit 10(c)
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT, made this 25th day of November, 1997, by and between Human
Factors Industrial Design, Inc. ("HFID") and Douglas M. Spranger (the
"Executive").
WHEREAS, REFAC Technology Development Corporation ("REFAC") and the
Company have entered into that certain Agreement and Plan of Merger (the "Merger
Agreement"), dated as of November 25, 1997, by and among REFAC, HFID Acquisition
Corporation ("New HFID"), HFID and the principal stockholders of HFID (the "HFID
Principals") pursuant to which New HFID will be merged with and into the Company
(the "Merger"), and, as a result of which Merger, HFID shall operate as a
subsidiary of REFAC (HFID hereinafter referred to as the "Company");
WHEREAS, the Executive has been employed by the Company and currently
serves as its President;
WHEREAS, REFAC and the Company recognize the Executive's substantial
contribution to the growth and success of the Company and desire to provide for
the continued employment of the Executive with the Company on the terms and
subject to the conditions set forth herein;
WHEREAS, Executive wishes to be so employed by the Company; and
WHEREAS, the parties hereto desire to enter into this Agreement
setting forth the terms and conditions of the employment relationship of the
Executive with the Company;
NOW, THEREFORE, the parties hereto agree as follows:
1. Employment. The Company hereby agrees to employ the Executive,
----------
and the Executive hereby agrees to serve, subject to the provisions of this
Agreement, as an employee of the Company.
For the period during which the Executive provides services to the
Company under this Agreement (the "Employment Period"), the Executive shall
perform the duties associated with the position of President in a firm in a
similar industry and of comparable size to the Company. Such duties and
responsibilities shall include the duties and responsibilities previously
discharged by the Executive as an employee of HFID as well as any duties and
responsibilities as are from time to time assigned to the Executive by the Board
of Directors of the Company (the "Board"). The Executive agrees to devote all
of his business time, attention and energies to the performance of the duties
assigned to him hereunder, and to perform such duties faithfully, diligently and
to the best of his abilities and subject to such laws, rules, regulations and
policies from time to time applicable to the Company's employees. The Executive
agrees to refrain from engaging in any activity that does, will or could
reasonably be deemed to conflict with the best interests of the Company.
<PAGE>
In addition, during the Employment Period, the Executive shall serve
without additional compensation as a director of the Company, subject to his
continued election to such position. During the Employment Period, the
Executive shall also serve without additional compensation as a director of
REFAC, subject to his continued election to such position. The Executive hereby
agrees that, upon the termination of his employment hereunder for any reason
other than because of his death, he shall immediately tender his resignation
from the Board and from the board of directors of REFAC, which resignation shall
be effective as of the effective date of such termination.
2. Term of Agreement. Subject to Section 7 hereof, the term of this
-----------------
Agreement (the "Term") shall commence on the effective date of the Merger, and
shall expire on December 31, 2002 (the "Initial Term"); provided, however, that
-------- -------
commencing on January 1, 2003, and on each January 1 thereafter, the Term shall
automatically be extended for one (1) additional year unless, not later than
June 30 of the preceding year, the Company or the Executive shall have given
notice not to extend the Term.
3. Compensation.
-------------
(a) Salary: During the Employment Period, the Company shall pay to
-------
the Executive a base salary at an annual rate of $226,840, payable in accordance
with the Company's regular payroll practices. All applicable withholding taxes
shall be deducted from such base salary payments. The Executive's base salary
shall be reviewed annually beginning on January 1, 1999, and shall be increased
each year by an amount equal to no less than five percent (5%) of the previous
year's base salary.
(b) Incentive Bonus. Unless his employment is earlier terminated
----------------
other than pursuant to Section 7(f) hereof, during the Term the Executive will
be eligible to receive a cash bonus (an "Annual Bonus") in respect of each full
fiscal year of the Company. During the Initial Term, the amount of the Annual
Bonus shall be allocated, as determined by a majority of the HFID Principals,
from the "Earnings Pool" (as defined below), provided, that the HFID Principals,
--------
as a group, may not be allocated any amount exceeding eighty percent (80%) of
the Earnings Pool in any such fiscal year. Following the expiration of the
Initial Term, the Annual Bonus, if any, shall be determined by the Board in its
discretion. The Annual Bonus shall be paid in cash as soon as practicable,
but in no event later than ninety (90) days, following the end of the relevant
fiscal year.
The "Earnings Pool" shall only be calculated and shall only apply
during the Initial Term. With respect to any full fiscal year of the Company,
the "Earnings Pool" shall be an amount equal to fifty percent (50%) of the
excess, if any, of (i) the Company's EBITDA (as defined below) over (ii)
$891,000. The Earnings Pool available to current employees of the Company shall
be reduced by any amounts paid pursuant to clause (y) of Section 7(f) of this
Agreement. For purposes of this Agreement, with respect to any full fiscal year
of the Company, "EBIDTA" shall mean the Company's net income for such fiscal
year, before provision for the Earnings Pool, interest expense, income taxes,
depreciation and amortization, and less any investment income. For purposes of
this Agreement all determinations with respect to the calculation of EBITDA for
any fiscal year of the Company shall be made in accordance with generally
accepted accounting principles,
2
<PAGE>
consistently applied, by REFAC's regular independent public accountants. For
purposes of this Agreement, in computing EBIDTA for any fiscal year, any
overhead allocation by REFAC to HFID, any (A) management charges, (B) overhead
allocation by REFAC to HFID, (C) fees and expenses for patents filed with the
consent of REFAC, (D) key man life insurance payments and (E) severance payments
made pursuant to Section 7(f) shall not be taken into account, provided, that
--------
the Company shall be required to provide to REFAC consulting services in
connection with REFAC's evaluation of new technology submissions, and provided,
---------
further, that any work other than such consulting services performed for REFAC
- -------
shall be charged to REFAC on terms no less favorable than those the Company
makes available to any of its unaffiliated clients during such fiscal year. In
addition, for any fiscal year, severance payments and benefits that may be paid
and provided pursuant to Section 7(f) hereof shall not be a charge against
EBITDA.
(c) Stock Options. Simultaneously herewith, REFAC is granting
-------------
to the Executive an option to purchase shares of the common stock, par value
$.10 per share, of REFAC pursuant to the terms of a stock option agreement.
4. Benefits. During the Employment Period, the Executive shall be
--------
entitled to participate in such benefit plans and programs as are maintained by
the Company from time to time, as such plans may be amended from time to time.
The Company shall maintain disability insurance during the Employment Period for
the Executive providing benefits in amounts and on terms no less favorable to
the Executive than the disability insurance currently in effect for the
Executive, provided that the monthly premium payments in respect of such
disability insurance shall not exceed the amount REFAC pays as of the date
hereof for such disability insurance.
5. Vacation. During the Employment Period, the Executive shall be
--------
entitled to paid vacation pursuant to the terms of the Company's vacation
policy, which shall be consistent with the past practice of the Company. Such
vacation shall be taken at such times as will interfere as little as possible
with the performance of the Executive's duties hereunder.
6. Expenses. The Company will reimburse the Executive for
--------
reasonable and necessary business expenses of the Executive for travel, meals
and similar items incurred during the Employment Period in connection with the
performance of the Executive's duties, and which are consistent with such
guidelines as the senior executive officers and/or the Board of Directors of the
Company may from time to time establish. All payments for reimbursement of such
expenses shall be made to the Executive only upon the presentation to the
Company of appropriate vouchers or receipts.
7. Termination; Severance Pay.
---------------------------
(a) Notwithstanding any provision of this Agreement to the
contrary, the employment of the Executive hereunder shall terminate on the first
to occur of the following:
(i) the date of the Executive's death;
(ii) the date on which the Company shall give the Executive
notice
3
<PAGE>
of termination on account of Disability (as defined below);
(iii) the date on which the Company shall give the
Executive notice of termination for Cause (as defined below);
(iv) expiration of the Term; or
(v) the date specified by the Company on the notice of
termination which shall be delivered to the Executive for termination
of employment for any reason other than the reasons set forth in (i)
through (iv), above, which date shall be no later than ninety (90)
days following the date of receipt of such notice of termination.
(b) The Company shall have the right in its discretion to
terminate the Executive's employment for "Disability," which shall be deemed the
reason for such termination if, as a result of the Executive's incapacity due to
physical or mental illness, the Executive shall have been absent from the full-
time performance of the Executive's duties with the Company for a period of one
hundred twenty (120) consecutive days during the Term, or a period or periods
aggregating more than one hundred twenty (120) days in any six (6) consecutive
month period during the Term. The Executive agrees to submit to such medical
examinations as may be necessary to determine whether a Disability exists,
pursuant to reasonable requests which may be made by the Company from time to
time.
(c) For purposes of this Agreement:
(i) "Cause" shall mean the occurrence of any of the following, as
reasonably determined by the Company:
(A) the willful and continued failure, in the reasonable
judgment of the Board, by the Executive to perform substantially his duties
with the Company (other than any such failure resulting from his death or
Disability) after a written demand for substantial performance is delivered
to the Executive by the Board which specifically identifies the manner in
which it is believed that the Executive has not substantially performed his
duties;
(B) the willful engaging by the Executive in conduct which
in the reasonable opinion of the Board is materially and demonstrably
injurious to the Company or any of its parents, subsidiaries or affiliates;
or
(C) the conviction of the Executive (or the entering by the
Executive of a plea of guilty or nolo contenders) for any felony or any
lesser crime which involved the Company or its property, or any of the
Company's parents, subsidiaries or affiliates or any such entity's
property.
Notwithstanding the foregoing, the Executive will not be deemed to have been
terminated for Cause within the meaning of clause (A) or (B) without (x)
reasonable notice to the Executive setting forth
4
<PAGE>
the reasons for the Company's intention to terminate for Cause, (y) an
opportunity for the Executive, together with his counsel, to be heard before the
Board, and (z) delivery to the Executive of a notice of termination from the
Board finding that, in the good faith opinion of the Board, clause (A) or (B)
hereof may be invoked, and specifying the particulars thereof in detail.
(ii) "Good Reason" shall mean, without the Executive's express written
consent, (A) the assignment to the Executive of any duties materially
inconsistent with, or the diminution of, the Executive's position, titles,
offices, duties, responsibilities and status with the Company; (B) the
relocation of the Company's principal executive offices to a location more than
75 miles from the location of such offices on the date hereof or the Company's
requiring the Executive to be based any where other than the Company's
principal executive offices except for required travel on the Company's
business; or (C) the failure by the Company to pay to the Executive any portion
of the Executive's current compensation within ten (10) business days of the
date such compensation is due.
(d) In the event the Executive's employment is terminated for
any reason, the Executive or his estate, conservator or designated beneficiary,
as the case may be, shall be entitled to payment of any earned but unpaid base
salary and accrued but unused vacation days, through the date of termination
(such amount, the "Accrued Earnings"). In addition, during the sixty (60) day
period following the effective date of termination of his employment other than
by reason of his death, the Executive shall have the right in his discretion to
purchase from the Company the policies of life insurance secured by the Company
for a purchase price equal to their respective cash surrender values. The
Company shall have no obligation to secure life insurance in addition to
policies currently in effect with respect to the Executive. Following the
payment of the Accrued Earnings, except as provided in Sections 7(e) and 7(f)
below, the Company shall have no further obligation to the Executive under this
Agreement.
(e) In the event the Executive's employment is terminated by
reason of the Executive's death or Disability, the Executive (or his
beneficiary, if applicable) shall be entitled to receive the Accrued Earnings
and the Company shall continue to pay to the Executive (or his beneficiary, if
applicable) the Executive's base salary as provided under Section 3(a) hereof
(as such base salary may have been increased) for a period of ninety (90) days
following the effective date of such termination of employment.
(f) In the event the Executive's employment is terminated for
any reason other than (i) by the Executive without Good Reason, (ii) by reason
of the Executive's death, Disability or retirement or (iii) by the Company for
Cause, the Executive (or his beneficiary, if applicable) shall be entitled to
receive the Accrued Earnings and the Company shall continue to pay to the
Executive (or his beneficiary, if applicable) (x) a lump sum in cash equal to
the Executive's base salary as provided under Section 3(a) hereof (as in effect
on the effective date of such termination) that otherwise have been payable
during the remainder of the Term and (y) an Annual Bonus as provided under
Section 3(b) hereof for the remainder of the Term (payable at such time or times
as such Annual Bonus would have been paid to the Executive were he employed by
the Company for the remainder of the Term). The amount payable under clause (y)
above shall be equal to no less than fifty percent (50%) of the Annual Bonus
earned by the Executive in respect of the last
5
<PAGE>
fiscal year completed prior to the effective date of termination; provided,
---------
that, if the date of such termination occurs prior to the date on which the
- ----
determination of the Annual Bonus to be paid in respect of the first fiscal year
to be completed during the Term is made, the Executive shall be deemed to have
earned an Annual Bonus in respect of such first fiscal year equal to twelve and
one-half percent (12.5%) of the Earnings Pool in respect of such year. In
addition, in the event of such termination of employment, the Company shall
provide, except to the extent that the Executive shall receive similar benefits
from a subsequent employer, life, health, disability and similar benefits (other
than stock options which are not exercisable at the time such notice is given)
to which the Executive would have been entitled for the remainder of the Term.
(g) Notwithstanding any other provision of this Agreement, the
termination for any reason of the Executive's employment or his service on the
Board shall not affect REFAC's obligations with respect to the Contingent
Payment (as defined in the Merger Agreement).
8. Return of Company Property. The Executive agrees that following
--------------------------
the termination of his employment for any reason, he shall return all property
of REFAC, the Company, its subsidiaries, affiliates and any divisions thereof he
may have managed which is then in or thereafter comes into his possession,
including, but not limited to, documents, contracts, agreements, plans,
photographs, books, notes, electronically stored data and all copies of the
foregoing as well as any other materials or equipment supplied by the Company to
the Executive.
9. Survival of Executive Covenants. The provisions set forth in
-------------------------------
Section 8 hereof shall remain in full force and effect after the termination of
the Executive's employment, notwithstanding the expiration of the Term or
termination of the Employment Period.
10. Entire Agreement. This Agreement sets forth the entire agreement
----------------
between the parties with respect to its subject matter and merges and supersedes
all prior discussions, agreements and understandings of every kind and nature
between them and neither party shall be bound by any term or condition other
than as expressly set forth or provided for in this Agreement. This Agreement
may not be changed or modified without either the prior written consent of REFAC
or the unanimous written consent of the Board. Any such change or modification
must be set forth in a written agreement, signed by the parties hereto.
11. Arbitration. Any dispute or controversy arising under or in
-----------
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators sitting in New York, New York, in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction. The arbitrators, in their discretion, may direct that the
successful party in any such arbitration shall be entitled to be reimbursed by
the other party for reasonable attorneys' fees and expenses incurred in
connection with such dispute or controversy.
12. Waiver. The failure of either party to this Agreement to enforce
------
any of its terms, provisions or covenants shall not be construed as a waiver of
the same or of the right of such party to enforce the same. Waiver by either
party hereto of any breach or default by the other party of any term or
provision of this Agreement shall not operate as a waiver of any other breach or
6
<PAGE>
default.
13. Successors and Assignability. This Agreement is intended to bind
----------------------------
and inure to the benefit of and be enforceable by the Executive and his heirs,
executors or administrators, and to bind and inure to the benefit of and be
enforceable by the Company and its successors and assigns. This Agreement shall
not be assignable by the Executive. As used in this Agreement, "Company" shall
mean the Company as hereinbefore defined and any successor to its business.
14. Severability. In the event that any one or more of the
------------
provisions of this Agreement shall be held to be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remainder of the
Agreement shall not in any way be affected or impaired thereby. Moreover, if
any one or more of the provisions contained in this Agreement shall be held to
be excessively broad as to duration, activity or subject, such provisions shall
be construed by limiting and reducing them so as to be enforceable to the
maximum extent allowed by applicable law.
15. Notices. Any notice given hereunder shall be in writing and
--------
shall be deemed to have been given when sent by facsimile, delivered by
messenger or courier service (against appropriate receipt), or mailed by
registered or certified mail (return receipt requested), addressed as follows:
If to the Company: REFAC Technology Development Corporation
122 East 42/nd/ Street
New York, New York 10168
Attn: Robert L. Tuchman
If to the Executive: [ ]
[ ]
[ ]
[ ]
or at such other address as shall be indicated to either party in writing.
Notice of change of address shall be effective only upon receipt.
16. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of New York, without regard to its
conflict of law rules.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first written above.
HUMAN FACTORS INDUSTRIAL
DESIGN, INC.
By: Douglas M. Spranger
-------------------------
Title: President
Douglas M. Spranger
/s/ Douglas M. Spranger
-----------------------------
7
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------
AMENDMENT to Employment Agreement (the "Employment Agreement") between
HUMAN FACTORS INDUSTRIAL DESIGN, INC. ("HFID") and Douglas M. Spranger (the
"Executive"), dated November 25, 1997.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, since November 25, 1997, the Executive has been employed by HFID
pursuant to the Employment Agreement; and
WHEREAS, effective December 31, 1998, HFID , a wholly-owned subsidiary of
REFAC Technology Development Corporation ("RTDC") was merged into REFAC
International, Ltd. ("RIL"), another wholly-owned subsidiary of RTDC; and
WHEREAS, effective January 1, 1999, the business of HFID will be conducted
as a division of RIL; and
WHEREAS, the parties want to amend the Employment Agreement as set forth
herein; and
WHEREAS, RTDC has guaranteed HFID's performance of its obligations under
the Employment Agreement and confirms that such guaranty extends to the
Employment Agreement, as amended herein:
NOW, THEREFORE, in consideration of the premises and the respective
agreements of the parties herein contained, the parties hereto, intending to be
legally bound, agree as follows:
1. Definition of Terms.
-------------------
As used herein, the following terms shall have the following meanings:
1.1 "Amendment" shall mean this Amendment to the Employment Agreement
(as defined
-1-
<PAGE>
below).
1.2 "Employment Agreement" shall mean the Employment Agreement between
Human Factors Industrial Design, Inc. and Douglas M. Spranger, dated November
25, 1997.
1.3 "HFID" shall mean and include the product development business
conducted by Human Factors Industrial Design, Inc., which corporation was merged
into RIL (as defined below) and, as of January 1, 1999, is being operated as a
division of RIL.
1.4 "RIL" shall mean REFAC International, Ltd., a Nevada corporation, a
wholly owned subsidiary of RTDC (as defined below).
1.5 "RTDC" shall mean REFAC Technology Development Corporation, a Delaware
corporation.
2. Amended Terms to Employment Agreement.
-------------------------------------
2.1 Employment Term and Duties. The parties have agreed that the
--------------------------
interests of the Company would be best served by having the Executive serve as
the Senior Vice President of RIL and RTDC and, for him to relinquish the
position of President of HFID as of December 31, 1998 and the position of Chief
Executive Officer when RIL and HFID relocate to its new facilities in or about
June 1, 1999.
2.1.1 Article 1 of the Employment Agreement is hereby amended to read
in its entirety as follows:
"The Company hereby agrees to employ Executive, and Executive
hereby agrees to serve, subject to the provisions of this Agreement,
as an employee of the Company.
For the period commencing January 1, 1999 and continuing
throughout the balance of the term during which Executive provides
services to the Company under this Agreement (the "Employment
Period"), Executive shall perform the duties associated with the
position of Senior Vice President of both RIL and RTDC and as a member
of the Board of Directors of each such
-2-
<PAGE>
corporation. He shall also serve as the Chief Executive Officer of
HFID until HFID relocate its offices to 115 River Road in Edgewater,
New Jersey in or about June, 1999, at which time he shall relinquish
such position. After such relocation, the Executive shall continue to
serve as the Chairman of HFID's Board of Directors.
As Senior Vice President of RIL and RTDC, the Executive shall be
responsible for coordinating the architectural aspects of the
Edgewater relocation. In addition, he shall work on aspects of the
corporate identity program for the entire group of RTDC companies,
work with RTDC and RIL's Chief Executive Officer in assessing business
and acquisition opportunities, act as a spokesperson (where
appropriate) for all or part of the operation of RTDC and its
subsidiaries and perform such other duties as may be assigned to him
from time to time by the RTDC Board of Directors. Executive agrees to
devote all of his business time, attention and energies to the
performance of the duties assigned to him hereunder, and to perform
such duties faithfully, diligently and to the best of his abilities
and subject to such laws, rules, regulations and policies from time to
time applicable to the Company's employees. Executive agrees to
refrain from engaging in any activity that does, will or could
reasonably be deemed to conflict with the best interests of the
Company."
2.1.2 Article 2 of the Employment Agreement is hereby amended to
provide that the term of the Employment Agreement will end on December 31,
2000. Article 2, as amended hereby, reads in its entirety as follows:
"2. Term of Agreement. The term of this Agreement (the
-----------------
"Term") commenced on the effective date of the Merger and, as amended
hereby, shall expire on December 31, 2000 (the "Initial Term");
provided, however, that commencing on January 1, 2001, and on each
-------- -------
January 1 thereafter, the Term shall automatically be extended for one
(1) additional year unless, not later than June 30 of the preceding
year, the Company or Executive shall have given notice not to extend
the Term."
2.2 Vacation. Executive acknowledges and agrees that no unused
--------
vacation time is due him for the period prior to January 1, 1999.
2.3 Service Commitment. The parties agree that Paragraph 5 entitled
------------------
"Vacation" is no longer appropriate and is hereby deleted and replaced by a new
Paragraph 5 entitled "Service Commitment" which reads in its entirety as
follows:
During each of calendar years 1999 and 2000, Executive agrees to
devote up to eight (8) months of service in performance of his duties
hereunder. It
-3-
<PAGE>
is agreed that this annual service commitment is to be undertaken at a
time that best serves the interests of the Company, however it is
understood that Executive will be provided broad flexibility in
determining how and when the non-service time of four (4) months per
year will be taken. It is understood that the four (4) months of non-
service time includes Executive's entire entitlement to vacation time.
2.4 Compensation. Commencing January 1, 1999, the Executive's
------------
annual salary shall be $190,545 payable in accordance with the Company's regular
payroll practices. All applicable withholding taxes shall be deducted from such
base salary payments. Executives's base salary shall be reviewed on or about
January 1, 2000 and shall be increased in year 2000 by an amount equal to no
less than five percent (5%) of the previous year's base salary.
3. Remaining Terms and Conditions
------------------------------
3.1 All of the remaining terms and conditions of the Employment Agreement
shall be unaffected and shall remain in full force and effect.
4. RTDC Guaranty
-------------
4.1 RTDC hereby confirms to Executive that its guaranty of all of
HFID's obligations to Executive under the Employment Agreement are unaffected
by the merger of HFID into RIL and extends to the Employment Agreement, as
amended hereby.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment to the
Employment Agreement.
/s/ Douglas M. Spranger
________________________________________
Douglas M. Spranger
Dated: January 14, 1999
REFAC International, Ltd.
By: /s/ Robert L. Tuchman
________________________________
Title: President
________________________________
Dated: January 14, 1999
REFAC Technology Development Corporation
By: /s/ Robert L. Tuchman
________________________________
Title: President
________________________________
Dated: January 14, 1999
-5-
<PAGE>
EXHIBIT 13
<PAGE>
EXHIBIT 13
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, 1998
<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, 1998,
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.
-2-
<PAGE>
REFAC 1998 ANNUAL REPORT
<PAGE>
- --------------------------------------------------------------------------------
REFAC AT A GLANCE
- --------------------------------------------------------------------------------
The professionals at REFAC provide clients worldwide with intellectual property
marketing services. We also are a leading developer of consumer products,
medical devices, and business equipment. Through our licensing and product
development business units, we work side-by-side with our clients at various
strategic levels, from new product design, brand extensions and brand building
to the licensing of patents, trademarks and copyrights.
- --------------------------------------------------------------------------------
CONTENTS
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
2 5 13 15 20 28 Inside Back
Letter to Refac Today Management's Consolidated Notes to Independent Cover
Stockholders Discussion and Statements Consolidated Auditor's Report Directors and
Analysis Financial Officers
Statements
</TABLE>
<PAGE>
Dear Stockholder:
The shape of your company is changing.
<PAGE>
CHAIRMAN'S LETTER
- --------------------------------------------------------------------------------
To Our Stockholders: The transition in REFAC's core businesses, which began in
late 1997, was the company's primary focus through 1998. Our formation of
Selective Licensing & Promotion in January, coupled with the assimilation of
Human Factors (acquired November, 1997), solidified our strategy for creating
significant new revenue streams and building the value of the company.
Individually and collaboratively,these new business lines provide REFAC
with the resources for transforming conceptual ideas into viable commercial
ventures for clients ranging from entrepreneurial start-ups to multi-billion
dollar corporations. By year's end, REFAC was a full-service marketer of
intellectual property, as well as a leading developer of consumer products,
medical devices, and business equipment. And we were actively engaged in several
projects reflecting these capabilities.
1998'S HIGHLIGHTS
Among our major achievements in 1998 was the addition of Selective
Licensing, which brought a complete range of trademark and brand licensing
services to REFAC. Our "Class of 2000" trademark property, with 55 licensees and
a strong retail commitment from Wal-Mart, will be used to commemorate the
upcoming millennium celebration on products ranging from apparel to
collectibles. Furthermore, our "Psycho Chihuahua"(TM) property now has 12
licensees.
We also initiated efforts to acquire exclusive North American agency
rights to the "Rambling Ted"((R)) and "UZI"((R)) trademarks, which were realized
in the first quarter of 1999.
The settlement of a patent infringement suit in April, 1998 enabled us
to establish a viable licensing project during the year for the Storer data
compression technology.
The company formed REFAC Biochemics in January, 1998 and has begun
enrolling patients in a clinical trial to determine the efficacy of the
Pyloricide(TM) compound. Pyloricide was designed to eliminate H.pylori
bacteria, a leading cause of peptic ulcers.
REFAC's royalty-based product development pipeline was very active in
1998. In April we helped launch the award-winning Good Grips((R)) Salad Spinner
for the OXO International division of General Housewares Corporation. Good Grips
promptly became one of the best selling salad spinners on the market.
We established new alliances to design products and develop product
concepts on a royalty basis for several widely recognized trademarks. Our first
products, the Jeep((R)) Emergency Kit and the "Z" Case Boombox, were introduced
in late 1998.
We also qualified our designs with Volkswagen for a New Beetle((R))
Stereo and digital camera. Volkswagen plans to distribute the New Beetle stereo
within the Volkswagen on-line store. Furthermore, Volkswagen subsidiary
Votex, which distributes automotive and novelty accessories to European VW
dealerships, has expressed interest in marketing the product in
2
<PAGE>
<TABLE>
<S> <C> <C> <C>
[PHOTO] [PHOTO] [PHOTO] [PHOTO]
Arlene J. Scanlan Douglas M. Spranger Robert L. Tuchman Bert D. Heinzelman
President Senior Vice President President and Chief Executive Officer President
Selective Licensing & Promotion, Ltd. REFAC REFAC Human Factions-ID
</TABLE>
3
<PAGE>
Europe. We expect to have worldwide marketing rights in all other distribution
channels when the product launches in 2000.
In November, we signed a long-term lease for a newly constructed
corporate headquarters and operations center in Edgewater, New Jersey. The
facility encompasses 25,000 square feet on the "Edgewater Pier" and is important
to our growth strategy. It will enhance integration of our core businesses and
provide an inspiring environment for employees and clients. Occupancy is
scheduled for late spring, 1999.
FINANCIAL RESULTS
Our consolidated net income for the year ended December 31, 1998 was $4,735,000,
or $1.21 per share (on a fully diluted basis),compared to $5,191,000, or $1.36
per share, in 1997. This decrease was due largely to a decline in gains on
licensing-related securities.
Operating revenues for 1998 were $15,052,000, up from 1997's
$11,070,000. This increase was due principally to the inclusion of product
design and development fees for the full calendar year in 1998, compared to a
single month in 1997. In addition, royalties and other fees from licensing
operations increased by $971,000 to $4,291,000. Income from license-related
securities decreased by $551,000 to $7,013,000.
THE YEAR AHEAD
I said in 1997's report that REFAC's biggest challenge in 1998 would be
assimilating Human Factors and Selective Licensing, while benefiting from the
new opportunities their synergy offers. We have met the assimilation challenge
and are now beginning to realize the enormous potential they bring.
During 1999, we expect OXO to market five new additional housewares
products and a collection of non-housewares products designed by Human Factors.
Encouraged by these programs, we have agreed to work with OXO to develop a third
category of products that OXO plans to introduce in 2000.
To support these new opportunities, we are refining our corporate image
to communicate our broader identity. Subject to stockholder approval, we plan to
shorten our corporate signature, adopt a new logo, and weave together the
identities of our business units. This will be reflected in new sales and
promotional materials and on our website.
We will continue to partner in product development and establish new
alliances, while expanding our fee-based work. And we will aggressively pursue
agency rights for valuable and well-known brands in our licensing business.
It is an exciting time for REFAC. We began in 1998 with a new direction
and we enter 1999 a stronger company than at any point in our history. We are
enthusiastic about the future and about our ability to reward the confidence
placed in us by our stockholders, clients and employees.
Sincerely,
Robert L. Tuchman
Chairman & Chief Executive Officer
4
<PAGE>
The shapes of things to come
are changing, too.
5
<PAGE>
Capitalizing on well known brands is another avenue for REFAC's growth.
And what better brand than Volkswagen.
Inspired by the highly successful introduction of Volkswagen's New Beetle((R)),
REFAC has worked with Volkswagen Design to create an exciting portable New
Beetle AM/FM digital radio and multifunction CD player stereo. This product is
expected to be introduced in the global marketplace in 2000 with REFAC being
responsible for both the manufacture and marketing -- including supplying
Volkswagen with product for sale through the VW distribution network. Not only
does this venture represent a first for REFAC in its totality of responsibility,
but it also adds a new level of resource and credibility to our partnering
prospects.
[PICTURE APPEARS HERE]
6
<PAGE>
PICTURE APPEARS HERE
7
<PAGE>
[PICTURE APPEARS HERE]
Fee-based revenues, through Human Factors' creative services, are expected to
strengthen Refac's bottom line.
The nature of this work typically requires us to solve complex problems for
clients in business and technology and it often leads to invention. Whether this
is developing a stent delivery instrument for Bard/Impra or scientific
instrumentation for Perkin-Elmer, our technical capabilities are used to bring
innovative medical and consumer products to market. Our work often involves
exciting new technologies such as an absorbable micro-tack for knee surgery
under development for Genzyme Corporation, a developer of innovative medical
products and services. Problem solving often goes well below the surface.
Solutions emerge from diligent research, a detailed understanding of the
problem, and the ability to make the conceptual leap that leads to discovery --
all of which we have been doing successfully for years.
8
<PAGE>
Brand licensing will be a primary new revenue generator for REFAC, with the
potential to produce on-going income.
Especially when the licensees are such powerhouses as Wedgwood, Springs,
Anagram, Harper Collins and At-A-Glance. The retail cachet is what REFAC
acquired in our recent agreement with UK-based Michael Woodward Creations Ltd.
(MWC), which has licensed art and design concepts for over a half billion
dollars in retail gift merchandise since 1979. One of MWC's most successful
properties is Rambling Ted((R)), introduced in the United Kingdom in 1996.
Through Selective Licensing, REFAC will serve as the exclusive North American
licensing agency for Rambling Ted, a property that appeals to a sophisticated,
upscale audience, has strong brand recognition in Europe and is licensed to
market leaders. Its growing European popularity should provide REFAC with
leverage in building demand among US retailers and consumers.
PICTURE APPEARS HERE
9
<PAGE>
Partnering with leading companies with established channels of distribution is
one of REFAC's strategies for growth.
Case in point, OXO International. A leading consumer brand and division of
General Housewares Corporation (NYSE: GHW), OXO is proving that good design is
good business. Among OXO's successes is a bottle opener that doubles as a bottle
stopper. Designed and engineered by Human Factors, it follows another popular
OXO product, the Good Grips((R)) Salad Spinner, also designed by us, which won a
prestigious award for design from The Chicago Athenaeum: Museum of Architecture.
Within months of its introduction in April, 1998, it became one of the best
selling salad spinners on the market. Both products were developed on a royalty
basis instead of the traditional fee-based arrangement. OXO plans to introduce
five new housewares products during 1999, along with an entirely new line of
non-housewares consumer goods, all designed by Human Factors.
PICTURE APPEARS HERE
10
<PAGE>
PICTURE APPEARS HERE
11
<PAGE>
Refac's financial shape
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
REFAC TECHNOLOGY DEVELOPMENT CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Results of Operations
TOTAL OPERATING REVENUES were $15,052,000 in 1998 as compared to $11,070,000 in
1997 and $8,930,000 in 1996. The increase from 1997 to 1998 of $3,982,000, or
36%, is due to the inclusion of $3,563,000 in revenues derived by Human Factors
Industrial Design,Inc. ("Human Factors") which the Company acquired in
November, 1997 and an increase of $970,000 in income from licensing-related
activities, offset by a $551,000 decrease in income from licensing-related
securities. The increase in operating revenues from 1996 to 1997 is due to gains
on the sale of licensing-related securities. See Note 2 to the Consolidated
Financial Statements.
Operating revenues are summarized as follows:
Description 1998 1997 1996
-----------------------------
Royalties 29% 32% 40%
Realized gains on sales and dividends from
licensing-related securities 46% 66% 60%
Product development and design fees of
Human Factors 25% 2% n/a
-----------------------------
Total 100% 100% 100%
-----------------------------
ROYALTIES FROM LICENSING-RELATED ACTIVITIES consist of recurring royalty
payments for the use of licensed patents and trademarks as well as non-
recurring, lump sum license payments. Revenues from non-recurring agreements
vary from year to year depending upon the nature of the licensing programs
pursued for various technologies in a particular year and the timing of
successful completion of licensing programs. As the Company has been growing the
product development and design fees segment of its business, royalties, as a
percentage of total operating revenues, has been decreasing, as noted above.
During 1998, 1997 and 1996, non-recurring licensing revenues amounted to
$974,000, $307,000 and $310,000, 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 increased by $303,000
in 1998 as compared to 1997 and decreased by $99,000 as compared to 1996.
INCOME FROM LICENSING-RELATED SECURITIES consist of gains on sales and dividends
received on securities acquired by the Company in connection with its licensing
activities. As of December 31, 1998, "licensing-related securities" consisted of
480,000 shares of KeyCorp common stock. KeyCorp had a 2-for-1 stock split of
such common stock on March 9, 1998 and all references in this Report to the
number of KeyCorp shares have been adjusted to reflect such stock split. The
Company intends to sell such shares over a two year period and has contracted
for eight successive quarterly puts and calls, each of which covers 50,000
KeyCorp shares. See Note 2 to the Consolidated Financial Statements for
additional details concerning such securities.
PRODUCT DEVELOPMENT AND DESIGN FEES charged by Human Factors are not comparable
as the Company was acquired in November, 1997.
LICENSING-RELATED EXPENSES for the licensing business consist principally of
amounts paid to licensors at contractually stipulated percentages of the
Company's specific patent and product revenues and, in addition, includes
expenses related to the investigation, marketing, administration, enforcement,
maintenance and prosecution of patent and license rights and related licenses.
Licensing-related expenses for 1998 increased by $845,000 over 1997 and $621,000
over 1996. As a percentage of licensing revenues, these expenses were 46%, 34%
and 39% in 1998, 1997 and 1996, respectively. The increase in 1998 was
attributable to the acquisition in January 1998 of Selective Licensing, a
trademark licensing and consulting agency for brand and character licensing.
13
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES increased by $1,357,000 in 1998
over 1997. This increase is attributable to the inclusion in 1998 of Human
Factors ($727,000), Selective Licensing ($287,000) and REFAC Biochemics
Corporation ($37,000). The remaining increase of approximately $306,000 is
attributable to increased salaries and professional fees such as
legal, accounting and public relations expenses. The decrease in 1997 as
compared to 1996 of $355,000 was principally attributable to a decrease in
charitable contributions, deferred compensation and benefits payable to the
former chairman, offset by an increase in salaries and related payroll taxes and
expenses.
GOODWILL relates to the excess of the purchase price paid for Human Factors in
November 1997 over the fair market value of Human Factors's assets acquired and
is being amortized over a period of 25 years. Such goodwill amortization was
$204,000 for 1998 as compared to $28,000 for 1997.
INCOME TAX PROVISION. The Company's income tax provision of $2,453,000 in 1998
reflected an effective tax rate of 34%, compared with rates of 33% and 28% in
the two previous years. The increase from the prior year is principally due to
the non deductibility of the goodwill associated with the Human Factors
acquisition and increased state and local taxes.
INFLATION. The Company's income from licensing-related operations has not in the
past been materially affected by inflation. Likewise, while currency
fluctuations can influence licensing-related revenues, the diversity of foreign
income sources tends to offset individual income changes in currency valuations.
CEASED OPERATIONS. Total revenues from ceased operations were $37,000, $414,000
and $269,000 in 1998, 1997 and 1996, respectively and after-tax operating losses
were $42,000 and $648,000 and $260,000, respectively. See Note 8 to the
Consolidated Financial Statements for additional details.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents, marketable securities and U.S.Treasury Notes increased
by $466,000 to $7,066,000 at December 31, 1998 from $6,600,000 at December
31, 1997.
In November 1997, the Company acquired 100% of Human Factors for $6
million ($4.5 million cash and 119,374 shares valued at $1.5 million) and
committed to extend up to $1,000,000 in financing, of which $575,000 has been
provided as of December 31, 1998. (See Note 9 to the Consolidated Financial
Statements).
In January 1998,the Company formed Selective Licensing, an 81% owned
subsidiary and committed to extend up to $1,000,000 in financing, of which
$400,000 has been provided as of December 31, 1998.
Additionally, the Company has commitments under leases covering its
facilities (see Note 5A to the accompanying Consolidated Financial Statements),
and under a Retirement Agreement with its founder and former Chief Executive
Officer (which has been provided for in the financial statements). In October of
1998, the Company consolidated its existing premises in New York City and agreed
to surrender the remaining portion of its space between March 31, 1999 and May
31, 1999. Concurrent with this event, the Company entered into a lease covering
25,000 square feet of newly constructed premises in Edgewater, New Jersey which
will house the operations of the Company and its subsidiary companies, other
than Selective Licensing and REFAC Financial Corporation. The lease has an
initial term of 10 1/2 years, which will commence upon the completion of
construction in or about May, 1999. The Company has two successive five year
renewal options. The total expected annual payments due under the lease
(assuming a May 1st occupancy date) are $171,875 during 1999, $360,417 during
2000 and $456,250 thereafter with a maximum cost of living increase of 2.5% per
annum starting in the fourth lease year. The Company has committed to spend
approximately $815,000 in leasehold construction costs and estimates that it
will invest an additional $750,000 in furniture, fixtures, machinery and
equipment in connection with the relocation.
Except as reflected herein, the Company has no other significant
commitments. The Company believes its liquidity position is adequate to meet all
current and projected financial needs.
The Company has examined the Year 2000 computer issue. This issue
concerns computer hardware and software systems' ability to recognize and
process dates after December 31, 1999 properly and accurately. The Company
utilizes purchased software which is Year 2000 compliant and does not expect
Year 2000 issues to have a material impact on its business, operations or
financial condition. This is a Year 2000 readiness disclosure entitled to
protection as provided in the Year 2000 Information and Readiness Disclosure
Act.
14
<PAGE>
CONSOLIDATED BALANCE SHEETS
REFAC TECHNOLOGY DEVELOPMENT CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1998 1997
------------------------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 2,973,000 $ 2,868,000
Marketable securities - 2,503,000
Royalties receivable 776,000 663,000
Accounts receivable, net of allowance of
$111,000 in 1998 and $40,000 in 1997 945,000 815,000
Prepaid expenses 221,000 55,000
------------------------------
Total current assets 4,915,000 6,904,000
------------------------------
Property and equipment - net 771,000 446,000
Licensing-related securities 15,068,000 22,777,000
Securities held to maturity 4,093,000 1,229,000
Other assets 760,000 713,000
Goodwill, net of accumulated amortization
of $232,000 in 1998 and $28,000 in 1997 4,958,000 5,073,000
------------------------------
$30,565,000 $37,142,000
------------------------------
Liabilities and Stockholders' Equity
Current Liabilities:
Loan payable - former Human Factors shareholders $ - $ 5,310,000
Accounts payable 354,000 229,000
Accrued expenses 236,000 548,000
Amounts payable under service agreements 240,000 235,000
Income taxes payable 75,000 259,000
------------------------------
Total current liabilities 905,000 6,581,000
------------------------------
Deferred income taxes 5,050,000 7,493,000
Other liabilities - deferred compensation 445,000 445,000
------------------------------
Commitments and Contingencies
Stockholders' Equity
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 5,450,887 in 1998 and 5,413,387 in 1997 545,000 541,000
Additional paid-in capital 9,984,000 9,441,000
Retained earnings 18,626,000 13,891,000
Accumulated other comprehensive income 9,259,000 13,951,000
Treasury stock, at cost 1,655,626 shares in
1998 and 1,763,000 in 1997 (13,874,000) (14,774,000)
Receivable from issuance of common stock
and warrants (375,000) (427,000)
------------------------------
Total stockholders' equity 24,165,000 22,623,000
------------------------------
$30,565,000 $37,142,000
------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
15
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
REFAC TECHNOLOGY DEVELOPMENT CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1998 1997 1996
----------------------------------------------------------
<S> <C> <C> <C>
Revenues
Licensing-related activities $4,291,000 $ 3,320,000 $3,528,000
Product development 3,748,000 186,000 -
Realized gains on licensing-related securities 6,435,000 6,936,000 4,805,000
Dividend income from licensing-related securities 578,000 628,000 597,000
----------------------------------------------------------
Total revenues 15,052,000 11,070,000 8,930,000
----------------------------------------------------------
Cost and Expenses
Licensing-related activities 1,985,000 1,140,000 1,362,000
Product development 2,974,000 187,000 -
Selling, general and administrative expenses 2,798,000 1,441,000 1,796,000
Goodwill amortization 204,000 28,000 10,000
----------------------------------------------------------
Total operating expenses 7,961,000 2,796,000 3,168,000
----------------------------------------------------------
Operating income 7,091,000 8,274,000 5,762,000
----------------------------------------------------------
Other Income and Expenses
Loss from ceased operations (121,000) (846,000) (365,000)
Realized gains (losses) on marketable securities (2,000) 84,000 40,000
Unrealized loss on marketable securities - - (26,000)
Dividend and interest income 220,000 275,000 1,075,000
Gains from foreign currency transactions - 11,000 14,000
----------------------------------------------------------
Income before provision for taxes on income 7,188,000 7,798,000 6,500,000
Provision for taxes on income 2,453,000 2,607,000 1,800,000
----------------------------------------------------------
----------------------------------------------------------
Net Income $4,735,000 $ 5,191,000 $4,700,000
----------------------------------------------------------
Basic earnings per share $ 1.25 $ 1.42 $ 0.89
Diluted earnings per share $ 1.21 $ 1.36 $ 0.88
----------------------------------------------------------
Dividends per common share - - $ 0.50
----------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
16
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
REFAC TECHNOLOGY DEVELOPMENT CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31, 1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income $4,735,000 $ 5,191,000 $ 4,700,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization 329,000 141,000 114,000
Other (176,000) (30,000) (50,000)
Net gain on sale of securities (6,429,000) (7,003,000) (4,819,000)
Deferred compensation - - 445,000
Deferred income taxes 339,000 241,000 (52,000)
Writedown of long-term assets - 450,000 -
(Increase) decrease in assets:
Accounts receivable and other prepaid assets (409,000) 312,000 371,000
Proceeds from sale of marketable securities 2,503,000 2,392,000 8,554,000
Purchase of marketable securities - (2,503,000) (5,655,000)
Other assets - 450,000 (544,000)
Increase (decrease) in liabilities:
Accounts payable, accrued expenses and
deferred revenue (189,000) (65,000) (70,000)
Amounts payable under service agreements 6,000 (33,000) (88,000)
Income taxes payable (183,000) (123,000) (333,000)
-----------------------------------------------
Net cash provided by (used in) operating activities 526,000 (580,000) 2,573,000
-----------------------------------------------
Cash Flows from Investing Activities
Proceeds from sales of licensing-related securities 7,045,000 6,959,000 5,015,000
Proceeds from investments being held to maturity - - 8,299,000
Purchase of investments being held to maturity (2,864,000) (856,000) (1,220,000)
Acquisition of Human Factors Industrial
Design, Inc., net of cash acquired - (428,000) -
Additions to property and equipment (645,000) (88,000) (106,000)
-----------------------------------------------
Net cash provided by investing activities 3,536,000 5,587,000 11,988,000
-----------------------------------------------
Cash Flows from Financing Activities
Repayment of loans (4,103,000) (60,000) -
Dividends paid - (2,701,000) -
Proceeds from exercise of stock options and
purchase of warrants 147,000 78,000 5,000
Acquisition and retirement of common stock - (14,875,000) -
-----------------------------------------------
Net cash (used in) provided by financing activities (3,956,000) (17,558,000) 5,000
-----------------------------------------------
-----------------------------------------------
Effect of exchange rate changes on cash - 6,000 (50,000)
-----------------------------------------------
Net increase (decrease) in cash and cash equivalents 106,000 (12,545,000) 14,516,000
Cash and cash equivalents at beginning of period 2,867,000 15,412,000 896,000
-----------------------------------------------
Cash and cash equivalents at end of period $2,973,000 $ 2,867,000 $15,412,000
-----------------------------------------------
-----------------------------------------------
Income taxes paid $2,496,000 $ 2,408,000 $ 2,189,000
-----------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
Statements
17
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDER'S EQUITY
REFAC TECHNOLOGY DEVELOPMENT CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
Years ended December 31, 1998, 1997 and 1996 Shares Amount
------------------------------------
<S> <C> <C>
Balance, December 31, 1995 5,299,887 $530,000
Net Income
Dividend $.50 per share
Shares issued on exercise of stock options 102,000 10,000
Issuance of compensatory stock options
Change in unrealized gains on licensing-related securities
and foreign currency translation adjustments
------------------------------------
Balance, December 31, 1996 5,401,887 540,000
Net Income
Shares issued on exercise of stock options 11,500 1,000
Issuance of compensatory stock options
Change in unrealized gains on licensing-related securities
and foreign currency translation adjustments
Purchase of Treasury Stock
Issuance of stock for Human Factors acquisition
------------------------------------
Balance, December 31, 1997 5,413,387 541,000
Net Income
Shares issued on exercise of stock options 37,500 4,000
Issuance of compensatory stock options
Change in unrealized gains on licensing-related securities
Collection of warrants receivable
Issuance of stock for Human Factors acquisition
------------------------------------
Balance,December 31,1998 5,450,887 $545,000
------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
18
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Receivable Accumulated
From Issuance Of Additional Other
Treasury Stock Common Stock Paid-In Retained Comprehensive
Shares Amount And Warrants Capital Earnings Income
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ $ $8,871,000 $ 6,701,000 $12,983,000
4,700,000
(2,701,000)
(375,000) 370,000
11,000
945,000
- --------------------------------------------------------------------------------------------------------------
(375,000) 9,252,000 8,700,000 13,928,000
5,191,000
(52,000) 128,000
11,000
23,000
1,775,000 (14,875,000)
(12,000) 101,000 50,000
- --------------------------------------------------------------------------------------------------------------
1,763,000 (14,774,000) (427,000) 9,441,000 13,891,000 13,951,000
4,735,000
91,000
3,000
(4,692,000)
52,000
(107,374) 900,000 449,000
- --------------------------------------------------------------------------------------------------------------
1,655,626 $(13,874,000) $(375,000) $9,984,000 $18,626,000 $ 9,259,000
- --------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REFAC TECHNOLOGY DEVELOPMENT CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
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, Securities Acquired in Association with Licensing
Activities and Securities Held to Maturity
The Company categorizes and accounts for its investment holdings as follows:
. 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
licensing-related securities are included in this category.
C. Derivatives
The Company purchased put and wrote call options to hedge against market
fluctuations 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
Deferred income taxes arise from temporary differences in the basis of assets
and liabilities for financial reporting and income tax purposes.
As of December 31, 1998 the Company did not have any operating foreign
subsidiaries and all income earned by the former subsidiaries has been
repatriated net of taxes.
E. Earnings Per Share
The following reconciles basic and diluted shares used in earnings per share
computations
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------------------------
<S> <C> <C> <C>
Basic shares 3,787,220 3,661,983 5,305,997
Dilution: Stock options and warrants 141,742 166,564 29,037
------------------------------------------------
Diluted shares 3,928,962 3,828,547 5,335,034
------------------------------------------------
</TABLE>
F. Consolidated 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.
G. Revenue Recognition
Royalty and service revenues are 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.
20
<PAGE>
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 amount 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 25 years.
The carrying values of the long-lived assets (including goodwill) are
reviewed if the facts and circumstances suggest that such assets may be
permanently impaired. If the expected future operating cash flows derived from
such assets is less than their carrying value,such value would be reduced
accordingly. During 1997, the Company wrote down $128,000 of goodwill originally
recorded in connection with its acquisition of Advanced Resin Technology, Inc.
J. Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is provided for on a straight-line basis with the estimated useful
lives ranging from 3 to 7 years.
K. Reclassifications
Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform them to the current presentation.
L. Recent Pronouncements
In June 1998, the Financial accounting Standard Board issued Statement of
Financial Accounting Standards No. 133 ("FAS 133"), Accounting for Derivative
Instruments and Hedging Activities. FAS 133 is effective for transactions
entered into after January 1, 2000. FAS 133 requires that all derivative
instruments be recorded on the balance sheet at fair value. The Company has
determined that the adoption of FAS 133 will not have an impact on its results
of operations and financial position since it does not intend to enter into
future hedge transactions.
2
Marketable Securities, Licensing-Related Securities and Securities Held to
Maturity
TRADING MARKETABLE SECURITIES at December 31, 1997 consisted of U.S.Treasury
Notes with a market value,cost and carrying value of $2,503,000. The Company did
not own any trading marketable securities at December 31, 1998.
SECURITIES HELD TO MATURITY at December 31, 1998 and 1997 consisted of U.S.
Treasury Notes with an amortized cost of $4,093,000 and $1,229,000 respectively.
Licensing-related securities are as follows:
<TABLE>
<CAPTION>
Fair Carrying Unrealized
December 31,1998 Value Cost Value Gain/(Loss)
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
KeyCorp (NYSE-KEY) $15,360,000 $1,330,000 $15,360,000 $14,030,000
KeyCorp Put Options 758,000 1,112,000 758,000 (354,000)
KeyCorp Call Options (1,050,000) (1,112,000) (1,051,000) 62,000
------------------------------------------------------------------------
$15,068,000 $1,330,000 $15,067,000 $13,738,000
------------------------------------------------------------------------
<CAPTION>
December 31,1997
------------------------------------------------------------------------
KeyCorp (NYSE-KEY) $24,784,000 $1,940,000 $24,784,000 $22,844,000
KeyCorp Put Options 583,000 1,548,000 583,000 (965,000)
KeyCorp Call Options (2,590,000) (1,548,000) (2,590,000) (1,042,000)
------------------------------------------------------------------------
$22,777,000 $1,940,000 $22,777,000 $20,837,000
------------------------------------------------------------------------
</TABLE>
21
<PAGE>
In 1998, there was a 2-for-1 stock split of KeyCorp's common stock. All
references to the number of KeyCorp shares and put and call strike prices in the
Notes to the Consolidated Financial Statements have been adjusted to reflect
such stock split.
At December 31, 1998, the Company held 480,000 shares of KeyCorp. The
Company also held 400,000 put and call options (50,000 of each option expiring
quarterly over the next two years). At December 31, 1997 the Company held
700,000 shares of KeyCorp. The realized gains for licensing-related securities
accounted for on a first-in, first-out basis for the years ended December 31,
1998, 1997 and 1996 are summarized as follows:
1998 1997 1996
-----------------------------------------------
KeyCorp $6,435,000 $1,438,000 $ 986,000
DBT Online,Inc. 0 293,000 3,320,000
Three-Five Systems, Inc. 0 5,205,000 500,000
-----------------------------------------------
$6,435,000 $6,936,000 $4,806,000
-----------------------------------------------
In order to minimize the Company's exposure against 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. 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 "call
options" gives 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. Thirteen individual
contracts were entered into, the first contract covering 48,000 shares and the
remaining 12 contracts covering 50,000 shares of KeyCorp. The first contract
expired on December 31, 1997 and each of the remaining contracts expires at the
end of each calendar quarter until December 31, 2000. Each put option has a
strike price per share of $27.4262 and aggregates $1,372,000. Each call option
has strike prices per share which range from $35.349 to $39.372 and aggregates
from $1,767,000 to $1,969,000.
3
Income Taxes
The provision for taxes on income for the years ended December 31, 1998, 1997
and 1996 are as follows:
1998 1997 1996
----------------------------------------------
Federal
Current $2,482,000 $2,338,000 $1,934,000
Deferred (114,000) 203,000 (182,000)
State and local 57,000 34,000 15,000
Foreign withholding taxes 28,000 32,000 33,000
----------------------------------------------
$2,453,000 $2,607,000 $1,800,000
----------------------------------------------
The provision for taxes on income for the years ended December 31, 1998, 1997
and 1996 differed from the amount computed by applying the statutory Federal
income tax rate of 34% as follows:
1998 1997 1996
--------------------------------------------
Statutory rate 34% 34% 34%
Dividend received exclusion (2%) (2%) (4%)
Other 2% 1% (2%)
--------------------------------------------
Provision for taxes on income 34% 33% 28%
--------------------------------------------
22
<PAGE>
The tax effect of temporary differences which gave rise to deferred tax assets
and liabilities as of December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
Assets 1998 1997
---------------------------------
<S> <C> <C>
Deferred rent and compensation/retirement $ 185,000 $ 236,000
Write-down of long term investments and other/net 1,000 137,000
KeyCorp put and call options basis differences 100,000 682,000
---------------------------------
286,000 1,055,000
---------------------------------
Liabilities
KeyCorp common stock basis difference 5,221,000 8,424,000
Cash to accrual basis adjustment for Human Factors acquisition 115,000 124,000
---------------------------------
5,336,000 8,548,000
---------------------------------
Net Liability $5,050,000 $7,493,000
---------------------------------
</TABLE>
4
Stockholders Equity
A. Stock Option Plans
The Company measures compensation using the intrinsic value approach under
Accounting Principles Board (APB) Opinion No. 25.
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 and, in May, 1997, the 1990 Plan was amended to provide for a
100,000 increase in the authorized shares. In May, 1998, the shareholders
approved the 1998 Stock Option and Incentive Plan (the "1998 Plan") which
authorizes the issuance of up to 300,000 shares of common stock. Both Plans
authorize 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 Plan allows for the stock
option committee to determine type, shares and terms of the grants, and grants
may be made at any time through March 14, 2000 under the 1990 Plan and May 10,
2008 under the 1998 Plan.
In addition to the 1990 Plan and the 1998 Plan outlined above, on
January 21, 1998, the Company granted an employee, options to purchase 50,000
shares of common stock at an exercise price of $10.625. In 1996 stock options to
purchase 50,000 shares were granted to directors at an exercise price of
$5.8125. On April 7, 1997, the Company sold a warrant to Palisade Capital,
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 to purchase 165,000 shares of common stock at an
exercise price of $14 per share. On March 18, 1998, the exercise prices of
190,000 employee options were reduced to $9.50 per share.
The table below summarizes all option activity, excluding the warrant sale to
Palisade Capital L.L.C.:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
average average average
exercise exercise exercise
1998 price 1997 price 1996 price
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 541,000 $9.55 332,500 $ 6.79 261,625 $4.84
Options granted 284,000 9.14 220,000 13.34 185,000 7.82
Options exercised (37,500) 2.53 (11,500) 2.27 (102,000) 3.67
Options canceled (76,000) 8.00 - - (12,125) 6.65
Outstanding at end of year 711,500 8.67 541,000 9.55 332,500 6.79
---------------------------------------------------------------------------------
Exercisable at end of year 266,400 $8.05 341,000 $ 6.97 97,500 $4.13
---------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
The following table summarizes option data, excluding the warrant sale to
Palisade Capital L.L.C. as of December 31, 1998:
-----------
Price Range Minimum $ 5.81
Maximum $ 12.00
Outstanding at December 31, 1998 711,500
Weighted average contract life 8.4
Weighted average exercise price $ 8.67
Exercisable at December 31, 1998 266,400
Weighted average exercise price $ 8.05
-----------
The exercise prices of all the options granted (qualified and non-qualified) are
at fair value of common stock at date of grant. The fair value of each option
grant is estimated as of the date of grant using the Black-Scholes option-
pricing model with the following weighted-average assumptions used for grants in
1998, 1997 and 1996, respectively: dividend yields of 0, 0 and 7.8 percent;
expected volatility of 42, 60 and 20 percent; risk-free interest rates of 5.3,
5.9 and 6.6 percent; and expected lives of 5, 10 and 7 years. The weighted-
average fair value of options granted was $3.96, $9.97 and $2.56 for the years
ended December 31, 1998, 1997 and 1996, respectively.
The pro forma amounts, had options been recorded at fair value, are indicated
below:
YEAR ENDED DECEMBER 31,
---------------------------------------------
1998 1997 1996
---------------------------------------------
Pro forma net income $4,098,000 $5,098,000 $4,450,000
Pro forma earnings per share
Basic $ 1.08 $ 1.39 $ .84
Diluted $ 1.04 $ 1.33 $ .83
5
Commitments and Contingent Liabilities
A. Commitments
The Company has commitments under leases covering its facilities. In October of
1998, the Company consolidated its existing premises in New York City and agreed
to surrender the existing portion of its space by May 31, 1999. Concurrent with
this event, the Company entered into a lease which will house the operations of
the Company and its subsidiary companies, other than Selective Licensing and
REFAC Financial Corporation. The lease has an initial term of 10 1/2 years,
which will commence upon the completion of construction in or about May 1999.
The Company has two successive five year renewal options. The total expected
annual payments due under the lease (assuming a May 1st occupancy date) are
$171,875 during 1999, $360,000 during 2000 and $456,000 thereafter with a
maximum cost of living escalation of 2.5% per annum starting in the fourth lease
year. Rent expense, was approximately $382,000, $189,000 and $172,000 for the
years ended December 31, 1998, 1997 and 1996, respectively.
B. Employment Agreement
The Company's employment agreement with its President and Chief Executive
Officer extends through December 31, 2003. The agreement provides for minimum
annual compensation, and bonus as determined by the Board of Directors. The
officer was also granted options to purchase 100,000 shares of common stock
pursuant to the Company's 1990 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. On December 16, 1998, the Company granted the officer an
additional option to purchase 50,000 shares.
24
<PAGE>
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 of 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, 1998, 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
then Chairman and Chief Executive Officer. For a period of three years
commencing on July 1, 1997, the former Chairman has agreed to act as a
consultant. 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
$445,000 for such retirement benefits, which represents the present value of the
expected payments, following the consultancy period, based upon his estimated
life expectancy.
6
Segments and Concentrations
For 1996 and through November 25, 1997, the Company operated principally in one
industry segment which is licensing of intellectual property rights. With the
purchase of Human Factors Industrial Design, Inc. ("Human Factors") on November
26, 1997, the Company is now also engaged in product design and development. The
Company does not view the one month's revenue in 1997 as significant to its 1997
results. The reportable segments are distinct business units operating in
different industries and are separately managed. The following information about
the business segments are for the year ended December 31, 1998.
Licensing of Product
Intellectual Design
Property and
Description Rights Development Total
----------------------------------------------
Total revenues $11,304,000 $3,748,000 $15,052,000
Segment profit (loss) 4,929,000 (194,000) 4,735,000
Segment assets 23,706,000 6,859,000 30,565,000
Expenditure for segment assets 157,000 488,000 645,000
----------------------------------------------
Foreign source revenues of domestic operations amounted to:
1998 1997 1996
----------------------------------------------
Europe $ 844,000 $682,000 $ 856,000
Asia 172,000 234,000 250,000
----------------------------------------------
$1,016,000 $916,000 $1,106,000
----------------------------------------------
25
<PAGE>
7
Comprehensive Income
As of January 1, 1998, the Company adopted SFAS 130. Although the adoption of
SFAS 130 has no impact on the Company's net income or stockholder's equity, it
does require that the Company report and display comprehensive income and its
components. Comprehensive income consists of net income or loss for the current
period as well as income, expenses, gains, and losses arising during the period
that are included in separate components of equity. It includes the unrealized
gains and losses on the Company's licensing-related securities, net of taxes and
foreign currency translation adjustments.
The components of comprehensive income (loss),net of related tax, for the years
ended December 31, 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C>
Net Income $4,735,000 $5,191,000 $4,700,000
Other comprehensive (loss) income,net of tax
Unrealized (losses) gains on licensing-related securities (4,492,000) 17,000 752,000
Foreign currency translation adjustment (200,000) 5,000 193,000
-----------------------------------------------
Comprehensive income $ 43,000 $5,213,000 $5,645,000
-----------------------------------------------
</TABLE>
The components of accumulated other comprehensive income, at December 31, 1998,
1997, and 1996, consist of unrealized gains on licensing-related securities, net
of tax of $9,259,000, $13,951,000 and $13,928,000, respectively.
8
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"), a manufacturer of hot melt
polyurethane adhesives and elastomers under license from the Company. The
Company's ownership was subsequently reduced to 87% when the contract
manufacturer of Advanced Resin's products acquired a 5% interest. 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. 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. For the years ended December 31,
1998 and 1997, total after-tax operating loss and ceased operations loss
amounted to $42,000 and $648,000 respectively.
9
Human Factors Industrial Design, Inc. Acquisition
On November 26, 1997, the Company completed the purchase of the outstanding
stock of 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 of the stock 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 25 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. Any contingent
purchase price payment will be accounted for as additional purchase price
consideration. The Company has also 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.
26
<PAGE>
UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
REFAC TECHNOLOGY DEVELOPMENT CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
First Second Third Fourth
1998 Quarter Quarter Quarter Quarter
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues $3,519,000 $4,654,000 $3,274,000 $3,606,000
Operating income $1,875,000 $2,189,000 $1,303,000 $1,729,000
Net income $1,230,000 $1,389,000 $1,063,000 $1,053,000
Net income per common share $ .32 $ .35 $ .28 $ .27
---------------------------------------------------------------------
<CAPTION>
1997
---------------------------------------------------------------------
Total revenues $1,755,000 $2,448,000 $3,695,000 $3,172,000
Operating income $1,029,000 $1,610,000 $3,006,000 $2,628,000
Net income $ 840,000 $1,317,000 $2,178,000 $ 857,000
Net income per common share $ .22 $ .35 $ .57 $ .23
---------------------------------------------------------------------
<CAPTION>
1998 1997
---------------------------------------------------------------------
Market Price of Common Stock High Low High Low
---------------------------------------------------------------------
First Quarter 12 3/8 9 1/4 7 1/4 5 5/8
Second Quarter 13 7/16 8 7/8 13 15/16 6 5/16
Third Quarter 14 15/16 8 3/4 11 7/8 9 5/8
Fourth Quarter 9 3/4 6 11/16 16 1/8 10
---------------------------------------------------------------------
</TABLE>
The Company's common stock is listed in the American Stock Exchange under the
symbol REF.
27
<PAGE>
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, 1998 and 1997, 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, 1998. 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, 1998 and
1997 and the results of their consolidated operations and their consolidated
cash flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
Grant Thornton LLP
New York, New York
February 18, 1999
28
<PAGE>
(c)1999 REFAC NEW BEETLE PHOTOGRAPH COURTESY OF VOLKSWAGEN OF AMERICA /
RAMBLING TED IS THE PROPERTY OF MICHAEL WOODWARD CREATIONS LTD. (MWC) /
PHOTOGRAPHY: JOHN PAUL ENDRESS / X-RAY: UNTITLED / DESIGN: KLOTNIA & LOUIE
DIRECTORS AND OFFICERS
REFAC TECHNOLOGY DEVELOPMENT CORPORATION AND SUBSIDIARIES
REFAC Directors REFAC OFFICERS
Neil R. Austrian Robert L. Tuchman
President President, Chief Executive Officer
National Football League & General Counsel
Robin L. Farkas Douglas M. Spranger
Private Investor Senior Vice President
Mark N. Kaplan Elliott S. Greller
Of Counsel Chief Financial Officer,
Skadden, Arps, Slate, Meagher & Flom LLP Vice President and Treasurer
Herbert W. Leonard Raymond a. Cardonne, Jr.
President Vice President and Secretary
Hamilton Associates
Counsel
Douglas M. Spranger Skadden, Arps, Slate, Meagher
Senior Vice President, REFAC Technology & Flom LLP
Development Corporation New York, New York
Robert L. Tuchman Independent Auditors
President, Chief Executive Officer & Grant Thornton LLP
General Counsel, REFAC Technology New York, New York
Development Corporation
Transfer Agent
Ira T. Wender ChaseMellon Shareholder Services
Of Counsel Ridgefield Park, New Jersey
Patterson, Belknap, Webb & Tyler LLP
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.
<PAGE>
Refac Effective June 1, 1999
122 East 42nd Street 115 River Road
New York, NY 10168 Edgewater, NJ 07020
212-687-4741 201-943-4400
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Jurisdiction
Name (l, 2) of Incorporation
----------------------------------- ----------------
Advanced Resin Technology, Inc. (3) New Hampshire
REFAC International, Ltd. Nevada
REFAC Biochemics Corporation (4) Delaware
REFAC Financial Corporation Delaware
Selective Licensing & Promotion, Ltd. (5) 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% and 93% of the outstanding capital
stock of Advanced Resin Technology, Inc. as of December 31, 1997 and 1998,
respectively. This subsidiary is inactive and is in the process of being
liquidated.
(4) The Company owned approximately 92% of the outstanding capital stock of
REFAC Biochemics Corporation as of December 31, 1998.
(5) The Company owned approximately 81% of the outstanding capital stock of
Selective Licensing & Promotion, Ltd. as of December 31, 1998.
