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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------ ------------
Commission file number 1-4184
------
MATEC Corporation
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 06-0737363
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification number)
75 South St., Hopkinton, Massachusetts 01748
- -------------------------------------- ----------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (508) 435-9039
--------------
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class: Name of each exchange on which registered:
-------------------- ------------------------------------------
Common Stock $.05 par value American Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days:
Yes X No
------ -------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Sec.229.405 of this chapter) 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. [ ]
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Aggregate market value of voting stock held by non-affiliates: $5,707,440
(computed by reference to the last sales price of such common stock on
March 24, 1999 as reported in the American Stock Exchange consolidated
trading index).
Number of shares of common stock outstanding at March 24, 1999: 2,710,648
Documents incorporated by reference:
Annual Report to Stockholders for the year ended December 31, 1998:
Parts I, II and IV
Proxy Statement for the 1999 annual meeting of stockholders: Part III
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PART I
Item 1. Business
- -----------------
General
- -------
MATEC Corporation ("MATEC" or "Registrant") was incorporated under
the laws of Delaware. On July 2, 1998, after shareholder approval, the
Registrant changed its state of incorporation to Maryland by means of a
merger of the Registrant into a wholly owned Maryland subsidiary. As
used herein the term "Company" refers to MATEC and its subsidiaries.
In February 1998, the Company sold its real estate complex located
in Delaware. None of the Company's operations were located at this
facility. For further information, see Note 15 of the Notes to
Financial Statements in the 1998 Annual Report, which Note is
incorporated by reference.
In April 1998, the Company sold all the assets of its Bergen Cable
Technologies, Inc. ("BCT") subsidiary. The Company had adopted a plan
in the third quarter of 1997 to dispose of BCT and, accordingly, the
operating results of BCT for 1997 and 1996 had previously been reported
as discontinued operations. In August 1998, the Company sold certain
assets of its Matec Instruments, Inc. ("MII") and Matec Applied
Sciences, Inc. ("MASI") subsidiaries. The operating results of MII and
MASI have been reported as discontinued operations, and previously
reported financial statements have been restated to reflect this
disposition. For further information, see Note 3 of the Notes to
Consolidated Financial Statements in the 1998 Annual Report to
Stockholders, which Note is incorporated by reference.
As a result of the disposals of BCT, MII, and MASI, the Company's
current remaining business is conducted through its Valpey-Fisher
Corporation ("Valpey") subsidiary, which was previously reported in the
Electronics business segment. In addition, the Company has a real
estate complex located in Northborough, Massachusetts which is operated
by its wholly owned subsidiary, MEKontrol, Inc.
Financial Information about Industry Segments
- ---------------------------------------------
The Company operates in one business segment. Information about
export sales is set forth in Note 14 of the Notes to Consolidated
Financial Statements in the 1998 Annual Report to Stockholders, which
Note is incorporated by reference.
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Narrative Description of Business
- ---------------------------------
Valpey is involved in the design, production, import, and sale of
quartz crystals and oscillators that provide precision timing and
frequency control in various products. In addition, Valpey offers a wide
range of piezoelectric and high-precision optical components and designs
and manufactures ultrasonic transducers.
The quartz crystals and oscillators are used as integral components in
electronic circuitry to assure precise timing and frequency reference.
Except for more costly atomic standards, quartz crystals and oscillators
continue to be one of the most stable references for accurately
controlling electronic frequencies and time.
Valpey provides a wide-frequency range of crystals and oscillators
including standard and custom-designed product. Capabilities include:
- high-reliability, precision crystals and oscillators used
in sophisticated industrial, military and aerospace
applications.
- ultra-high frequency crystals used in crystal filters and
oscillators for OEM telecommunications and microwave
applications.
- high-volume, low-cost crystals and oscillators for consumer
and commercial applications.
Markets for Valpey's products include computers and computer
peripheral equipment, networking, PCS (personal communications services),
satcom, telecommunications, telemetry, and wireless. A significant
portion of the high-volume, low-cost product sales is derived from
products imported from the Far East.
Valpey has continued to invest in equipment and people to meet
customer needs and to increase its manufacturing capabilities. Valpey
received its ISO-9001 registration for the design and manufacture of
crystals and crystal oscillators in 1997.
The piezoelectric crystals and components are used for ultrasonic
transducers in non-destructive testing ("NDT") and medical applications,
accelerometers, and sensors that measure flow, proximity, acceleration,
distance and force. The high-precision optical components include
windows, mirrors, lenses and prisms made from sapphire, quartz, and a wide
range of other materials. These components are utilized in a variety of
sensors, imaging, and other types of photonic-based instrumentation.
Valpey designs and manufactures ultrasonic transducers for NDT scientific,
industrial, and medical markets.
The quartz crystals and oscillators are sold by Valpey's direct sales
personnel, independent manufacturers' representatives and distributors.
Valpey's other products and services are sold primarily by its direct
sales personnel.
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Raw Materials
-------------
Quartz crystal bases, which is available from a number of domestic and
foreign suppliers, is the principal raw material.
Valpey imports sub-assemblies and completed products from various Far
East (including China, Japan, South Korea, Philippines, and Taiwan)
suppliers for use in its domestically manufactured product and for resale
to its customers. During 1998, Valpey experienced some quality and/or
delivery problems with some of its suppliers of sub-assemblies. Valpey
has added new suppliers and is working with all its suppliers to in order
to improve the overall efficiencies of these suppliers.
In order to eliminate the effects of currency fluctuations, Valpey
purchases the product in U.S. dollars. However, Valpey is subject to the
inherent risks involved in international trade such as political
instability and restrictive trade policies.
Customers
---------
No customer accounted for more than 10% of Valpey's net sales in 1998
and 1996. During 1997, one customer accounted for 12% of net sales.
Approximately 26% of Valpey's sales in 1998 were made to its five largest
customers, compared to 32% in 1997 and 30% in 1996.
Backlog
-------
Valpey's backlog of firm orders was $2,294,000 at December 31, 1998
and $3,935,000 at December 31, 1997. Valpey expects to ship all of the
December 31, 1998 backlog during 1999.
Competition
-----------
There are many domestic and foreign suppliers of quartz crystals and
oscillators. A number of the competitors are larger and have greater
resources than the Company. In addition, foreign competitors,
particularly from the Far East, continue to dominate the U.S. markets.
However, Valpey believes it can maintain a competitive position in its
business based on its quality, strong design and application engineering,
responsive customer service and a willingness to provide specialty small
quantity orders.
Environmental Regulations
-------------------------
To the knowledge of the Company compliance with Federal, state and
local provisions which have been enacted or adopted regulating the
discharge of materials into the environment or otherwise relating to the
protection of the environment, has not had, nor will have a material
effect upon capital expenditures, earnings from continuing operations or
competitive position.
As a result of the sale of its Bergen Cable subsidiary, the Company is
performing environmental clean up at that site. See Note 9 of the Notes
to Consolidated Financial Statements in the 1998 Annual Report to
Stockholders, which Note is incorporated by reference.
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Employees
---------
At December 31, 1998, the Company employed 76 full-time and 4
part-time employees. No employees of the Company are represented by a
collective bargaining unit. The Company considers its relations with its
employees to be satisfactory.
Foreign and Domestic Operations and Export Sales
- ------------------------------------------------
The Company's has no foreign operations. Financial information about
export sales is set forth in Note 14 of the Notes to Consolidated
Financial Statements in the 1998 Annual Report to Stockholders, which Note
is incorporated by reference.
Forward-Looking Statements
- --------------------------
Items 1 and 7 of this Form 10-K contain forward-looking statements
that involve risks and uncertainties that could cause actual results to
differ materially from those in the forward-looking statements. Words
such as "expects", "believes", "estimates", "plans" or similar expressions
are intended to identify such forward-looking statements. The
forward-looking statements are based on the Company's current views and
assumptions and involve risks and uncertainties that include, but not
limited to: the ability to develop, market and manufacture new innovative
products competitively, the ability of the Company's suppliers to produce
and deliver materials competitively, and the ability to limit the amount
of the negative effect on operating results caused by pricing pressures.
Item 2. Properties
- ------- ----------
Valpey owns its 32,000 square foot facility located in Hopkinton,
Massachusetts. This facility contains office and manufacturing space and
serves as the Company's corporate headquarters.
The Company believes its facility is suitable for its current use and
is in good repair. The Company believes that its facility is adequate to
satisfy its production capacity needs for the immediate future.
In addition, the Company's real estate operation owns a 35,000 square
foot facility located in Northborough, Massachusetts. This facility is
currently fully occupied and the Company considers this property to be in
good repair.
Item 3. Legal Proceedings
- ------- -----------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
No matters were submitted to a vote of the Registrant's security
holders during the last quarter of the fiscal year covered by this report.
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Executive Officers of the Registrant
- ------------------------------------
The names, ages and offices of the executive officers of the
Registrant are as follows:
Name Age Office
---- --- ------
Ted Valpey, Jr. 66 President and Chief Executive Officer
Michael J. Kroll 50 Vice President and Treasurer
The term of office for each officer of the Registrant is until the
first meeting of the Board of Directors following the Annual Meeting of
Stockholders and until a successor is chosen and qualified.
Mr. Valpey has been President and Chief Executive Officer of the
Registrant since April 28, 1997. He has been Chairman of the Corporation
since 1982.
Mr. Kroll has been Vice President and Treasurer of the Registrant
since 1982.
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PART II
Item 5. Market for the Registrant's Common Equity and Related
- ------- ----------------------------------------------------
Stockholder Matters
-------------------
The information set forth on the inside front cover of the 1998
Annual Report to Stockholders under the caption "Common Stock
Information" is incorporated by reference.
Item 6. Selected Financial Data
- ------- -----------------------
The information set forth on page 3 of the 1998 Annual Report to
Stockholders under the caption "Five Year Financial Summary" is
incorporated by reference.
Item 7. Management's Discussion and Analysis of Financial
- ------- -------------------------------------------------
Condition and Results of Operations
-----------------------------------
The information set forth on pages 3 through 5 of the 1998 Annual
Report to Stockholders under the caption "Management's Discussion and
Analysis" is incorporated by reference.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
- -------- ----------------------------------------------------------
The information set forth on page 5 of the 1998 Annual Report to
Stockholders under the section "Quantitative and Qualitative
Disclosures about Market Risk" included under the caption "Management's
Discussion and Analysis" is incorporated by reference.
Item 8. Financial Statements and Supplementary Data
- ------- -------------------------------------------
The information contained in the Consolidated Financial Statements,
Notes to Consolidated Financial Statements and the Independent
Auditors' Report appearing on pages 6 through the inside back cover of
the 1998 Annual Report to Stockholders is incorporated by reference.
Item 9. Changes In and Disagreements with Accountants on Accounting
- ------- -----------------------------------------------------------
and Financial Disclosure
------------------------
Not applicable.
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PART III
The information called for by Part III is hereby incorporated by
reference from the information set forth and under the headings "Common
Stock Ownership of Certain Beneficial Owners and Management", "Election
of Directors", and "Executive Compensation" in Registrant's definitive
proxy statement for the 1999 Annual Meeting of Stockholders, which
meeting involves the election of directors, such definitive proxy
statement to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A within 120 days after the end of the fiscal
year covered by this Annual Report on Form 10-K. In addition,
information on Registrant's executive officers has been included in
Part I above under the caption "Executive Officers of the Registrant".
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PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
- -------- -------------------------------------------------------
Form 8-K
--------
(a) 1. The following Consolidated Financial Statements are
incorporated by reference from the indicated pages of the
1998 Annual Report to Stockholders:
Page Number(s) in
Annual Report
Consolidated Balance Sheets,
December 31, 1998 and 1997 .................... 6
Consolidated Statements of Operations
for the Years Ended December 31, 1998,
1997 and 1996 ................................. 7
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1998,
1997 and 1996 ................................. 8
Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 1998,
1997 and 1996 ................................. 9
Consolidated Statements of Comprehensive Income
(Loss) for the Years Ended December 31, 1998,
1997 and 1996 ................................. 9
Notes to Consolidated Financial Statements ..... 10-16
Independent Auditors' Report ................... Inside back
cover
(a) 2. The following schedule to the Consolidated Financial
Statements and the Independent Auditors' Report on Schedule
are filed as part of this report.
Page Number
-----------
Independent Auditors' Report ...................... 13
Schedule II - Valuation Reserves .................. 14
All other schedules are omitted because they are not applicable,
not required or because the required information is included in
the Consolidated Financial Statements or notes thereto.
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(a) 3. The exhibits filed in this report or incorporated by
reference, listed on the Exhibit Index on page 15, are as
follows:
Exhibit No. Description
----------- ---------------------------------------------
2. Agreement of Merger and Recapitalization
3. (a) Articles of Incorporation
3. (c) By-Laws
4. (a) Secured Note and Warrant Purchase Agreement
4. (b) Common Stock Purchase Warrant
10. (a) * 1992 Stock Option Plan
10. (b) * Separation Agreement and General Release
10. (c) * Option Cancellation Agreement
11. Calculation of Earnings Per Share
13. 1998 Annual Report to Stockholders
21. Subsidiaries of the Registrant
23. Independent Auditors' Consent
27. Financial Data Schedule
* Management contract or compensatory plan or arrangement
required to be filed as an Exhibit pursuant to Item 14(c) of this
report.
(b) Reports on Form 8-K
The Registrant did not file any reports on Form 8-K during the
last quarter of its year ended December 31, 1998.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
MATEC Corporation
Date: March 26, 1999 By:/s/ Ted Valpey, Jr.
-------------------
Ted Valpey, Jr.
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
/s/ Ted Valpey, Jr. President, Chief Executive March 26, 1999
- ------------------------ Officer, Chairman of the Board
Ted Valpey, Jr. and Director
/s/ Michael J. Kroll Vice President and Treasurer
- ------------------------ (Principal Financial Officer March 26, 1999
Michael J. Kroll and Principal Accounting
Officer)
/s/ Eli Fleisher Director March 26, 1999
- ------------------------
Eli Fleisher
/s/ Lawrence Holsborg Director March 26, 1999
- ------------------------
Lawrence Holsborg
/s/ John J. McArdle III Director March 26, 1999
- ------------------------
John J. McArdle III
/s/ Robert W. Muir, Jr. Director March 26, 1999
- ------------------------
Robert W. Muir, Jr.
/s/ Joseph W. Tiberio Director March 26, 1999
- ------------------------
Joseph W. Tiberio
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
MATEC Corporation
Hopkinton, Massachusetts
We have audited the consolidated financial statements of MATEC Corporation
and subsidiaries as of December 31, 1998 and 1997, and for each of the
three years in the period ended December 31, 1998, and have issued our
report thereon dated February 26, 1999; such consolidated financial
statements and report are included in the MATEC 1998 Annual Report to
Stockholders and are incorporated herein by reference. Our audits also
included the financial statement schedule of MATEC Corporation and
subsidiaries, listed in Item 14 (a) 2. This financial statement schedule
is the responsibility of the Company's management. Our responsibility is
to express an opinion based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
Deloitte & Touche LLP
Boston, Massachusetts
February 26, 1999
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MATEC Corporation and Subsidiaries
----------------------------------
Schedule II - Valuation and Qualifying Accounts
-----------------------------------------------
Additions
Balance at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Deductions of Period
----------- ---------- ---------- ---------- ----------
Allowance for
Doubtful Accounts:
Year Ended
December 31, 1998 $ 45,000 $ 18,002 $ (11,998)(A) $ 75,000
========= ========= ========= =========
December 31, 1997 $ 35,000 $ (6,915) $ (16,915)(A) $ 45,000
========= ========= ========= =========
December 31, 1996 $ 29,000 $ 8,906 $ (14,610)(A) $ 35,000
========= ========= ========= =========
Inventory Reserve:
Year Ended:
December 31, 1998 $ 857,000 $ 419,730 $ 64,730(B) $1,212,000
========== ========= ========= ==========
December 31, 1997 $ 780,000 $ 123,667 $ 46,667(B) $ 857,000
========== ========= ========= ==========
December 31, 1996 $ 413,000 $ 463,513 $ 97,013(B) $ 780,000
========== ========= ========= ==========
(A) Write-off of uncollectible accounts, net of recoveries.
(B) Write-off of inventory.
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EXHIBIT INDEX
-------------
Exhibit No. (inapplicable items are omitted)
- -----------
2. Agreement of Merger and Recapitalization between MATEC
Corporation a Delaware corporation and MATEC Corporation a
Maryland corporation (incorporated by reference to Exhibit
A to the Proxy Statement of Registrant for its Special in
Lieu of Annual Meeting of Stockholders held on June 18,
1998).
3. (a) Articles of Incorporation (incorporated by reference to
Exhibit B to the Proxy Statement of Registrant for its
Special In Lieu of Annual Meeting of Stockholders held on
June 18, 1998).
3. (c) By-Laws (incorporated by reference to Exhibit 3.(b) to
Registrant's Form 10-Q for the quarterly period ended
July 5, 1998).
4. (a) Secured Note and Warrant Purchase Agreement dated as of
April 12, 1995 between the Registrant and Massachusetts
Capital Resource Company. Filed herewith.
4. (b) Common Stock Purchase Warrant dated April 12, 1995 between
the Registrant and Massachusetts Capital Resource Company
(incorporated by reference to Exhibit 4.(a) on Registrant's
Form 10-Q for the quarterly period ended July 2, 1995).
10. (a) 1992 Stock Option Plan (incorporated by reference to
Exhibit 10.(a) on Registrant's Form 10-K for the year ended
December 31, 1997).
10. (b) Separation Agreement and General Release dated August 26,
1997 between the Registrant and Robert B. Gill
(incorporated by reference to Exhibit 10.(b) on
Registrant's Form 10-K for the year ended December 31,
1997).
10. (c) Option Cancellation Agreement dated October 20, 1997
between the Registrant and Robert B. Gill (incorporated by
reference to Exhibit 10.(c) on Registrant's Form 10-K for
the year ended December 31, 1997).
11. Calculation of Earnings Per Share. Filed herewith.
13. 1998 Annual Report to Stockholders. Filed herewith.
21. Subsidiaries of the Registrant. Filed herewith.
23. Independent Auditors' Consent. Filed herewith.
27. Financial Data Schedule. Filed for electronic purposes
only.
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MATEC CORPORATION
BERGEN CABLE TECHNOLOGIES, INC.
MATEC APPLIED SCIENCES, INC.
MATEC INSTRUMENTS, INC.
VALPEY-FISHER CORPORATION
Secured Note and Warrant Purchase Agreement
Dated as of April 12, 1995
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MATEC CORPORATION
BERGEN CABLE TECHNOLOGIES, INC.
MATEC APPLIED SCIENCES, INC.
MATEC INSTRUMENTS, INC.
VALPEY-FISHER CORPORATION
Secured Note and Warrant Purchase Agreement
-------------------------------------------
Dated as of April 12, 1995
INDEX
ARTICLE 1 ............................................................ 1
PURCHASE, SALE AND TERMS OF NOTES AND WARRANTS ....................... 1
1.01. The Notes ................................................... 1
1.02. The Warrants ................................................ 2
1.03. Purchase and Sale of Notes and Warrants ..................... 2
(a) The Closing ............................................ 2
(b) Allocation of Purchase Price ............................2
(c) Use of Proceeds .........................................2
1.04. Payments and Endorsements.................................... 3
1.05. Redemptions ................................................. 3
(a) Required Redemption .................................... 3
(b) Optional Redemptions With Premium ...................... 3
(c) Notice of Redemptions; Pro rata Redemptions............. 3
1.06. Payment on Non-Business ..................................... 3
1.07. Registration, etc ........................................... 3
1.08. Transfer and Exchange of Notes .............................. 4
1.09. Replacement of Notes ........................................ 4
1.10. Representations by the Purchaser ............................ 5
1.11. Disclosure of Information by the Purchaser .................. 5
ARTICLE II............................................................ 5
CONDITIONS TO PURCHASER'S OBLIGATION ................................. 5
2.01. Representations and Warranties .............................. 6
2.02. Documentation at Closing .................................... 6
ARTICLE III........................................................... 7
REPRESENTATIONS AND WARRANTIES........................................ 7
3.01. Organization and Standing ................................... 7
3.02. Corporate Action ............................................ 7
3.03. Governmental Approvals ...................................... 8
3.04. Litigation .................................................. 8
3.05. Compliance with Other Instruments ........................... 8
3.06. Federal Reserve Regulations ................................. 8
3.07. Title to Assets, Patents .................................... 9
3.08. Financial Information ....................................... 9
3.09. Taxes....................................................... 10
3.10. ERISA....................................................... 10
3.11. Transactions with Affiliates ............................... 10
3.12. Assumptions or Guaranties of Indebtedness of Other Persons . 10
3.13. Investments in Other Persons ............................... 10
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Page
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3.14. Equal Employment Opportunity ............................... 10
3.15. Status of Notes and Warrants as Qualified Investments ...... 11
3.16. Securities Act ............................................. 11
3.17. Disclosure ................................................. 12
3.18. No Brokers or Finders ...................................... 12
3.19. Other Agreements of Officers ............................... 12
3.20. Capitalization; Status of Capital Stock .................... 12
3.21. Labor Relations ............................................ 13
3.22. Insurance .................................................. 13
3.23. Books and Records .......................................... 13
3.24. Foreign Corrupt Practices Act .............................. 13
ARTICLE IV........................................................... 14
COVENANTS OF THE COMPANIES .......................................... 14
4.01. Affirmative Covenants Other Than Reporting Requirements .... 14
(a) Punctual Payment ...................................... 14
(b) Payment of Taxes and Trade Debt ....................... 14
(c) Maintenance of Insurance .............................. 14
(d) Preservation of Corporate Existence ................... 14
(e) Compliance with Laws .................................. 15
(f) Visitation Rights ..................................... 15
(g) Keeping of Records and Books of Account ............... 15
(h) Maintenance of Properties, etc ........................ 15
(i) Compliance with ERISA ................................. 15
(j) Maintenance of Debt to Equity Ratio ................... 16
(k) Maintenance of Interest Coverage ...................... 16
(l) Foreign Corrupt Practices Act ......................... 16
(m) Equal Employment Opportunity .......................... 16
(n) Status of Notes and Warrants as Qualified Investments . 16
(o) Attendance at Board Meetings .......................... 16
(p) Compensation .......................................... 17
(q) Compliance with Security Agreements ................... 17
4.02. Negative Covenants ......................................... 17
(a) Liens ................................................. 17
(b) Indebtedness .......................................... 18
(c) Lease Obligations ..................................... 18
(d) Assumptions or Guaranties of Indebtedness of
Other Persons ......................................... 19
(e) Mergers, Sale of Assets, etc .......................... 19
(f) Investments in Other Persons .......................... 19
(g) Distributions ......................................... 20
(h) Dealings with Affiliates .............................. 21
(i) Maintenance of Ownership of Subsidiaries .............. 21
(j) Change in Nature of Business .......................... 21
4.03. Reporting Requirements .................................... 21
4.04. Termination of Certain Covenants .......................... 23
ARTICLE V............................................................ 23
REGISTRATION RIGHTS ................................................. 23
5.01. "Piggy Back" Registration ................................. 23
5.02. Registration on Form S-3 .................................. 23
5.03. Effectiveness ............................................. 24
5.04. Indemnification of Holder of Registrable Shares ........... 24
(ii)
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Page
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5.05. Indemnification of Matec .................................. 25
5.06. Exchange Act Registration ................................. 26
5.07. Damages ................................................... 26
5.08. Further Obligations ....................................... 26
5.09. Holdback Agreement ........................................ 27
5.10. Participation in Registrations ............................ 28
5.11. Expenses .................................................. 28
ARTICLE VI........................................................... 28
EVENTS OF DEFAULT ................................................... 28
6.01. Events of Default ......................................... 28
6.02. Annulment of Defaults ..................................... 30
ARTICLE VII.......................................................... 30
DEFINITIONS AND ACCOUNTING TERMS .................................... 30
7.01. Certain Defined Terms ..................................... 30
7.02. Accounting Terms .......................................... 33
ARTICLE VIII......................................................... 34
MISCELLANEOUS........................................................ 34
8.01. No Waiver; Cumulative Remedies ............................ 34
8.02. Amendments, Waivers and Consents .......................... 34
8.03. Addresses for Notices, etc ................................ 34
8.04. Costs, Expenses and Taxes ................................. 35
8.05. Binding Effect; Assignment ................................ 35
8.06. Survival of Representations and Warranties ................ 36
8.07. Prior Agreements .......................................... 36
8.08. Severability .............................................. 36
8.09. Governing Law ............................................. 36
8.10. Headings .................................................. 36
8.11. Sealed Instrument ......................................... 36
8.12. Counterparts .............................................. 36
8.13. Further Assurances ........................................ 36
EXHIBITS
- --------
1.01 Form of Secured Notes
1.02 Form of Common Stock Purchase Warrants
2.02(a) Form of Security Agreement
2.02(c) Matters to be Covered by Opinion Letter
3.01 Schedule of Subsidiaries
3.04 Schedule of Litigation
3.05 Schedule of Indebtedness
3.07 Schedule of Mortgages, Pledges, etc.
3.07(a) Schedule of Patent Obligations
3.09 Schedule of Taxes
3.12 Schedule of Assumptions or Guaranties
3.14 Schedule of Employment Practices
3.15 Certificate re "Qualified Investments"
(iii)
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MATEC CORPORATION BERGEN CABLE TECHNOLOGIES, INC.
MATEC APPLIED SCIENCES, INC. Gregg Street
MATEC INSTRUMENTS, INC. Lodi, New Jersey 07644
VALPEY-FISHER CORPORATION
75 South Street
Hopkinton, Massachusetts 01748
As of April 12, 1995
Massachusetts Capital Resource Company
420 Boylston Street
Boston, Massachusetts 02116
Re: Secured Notes due 2000 and Common Stock
Purchase Warrants
Gentlemen:
MATEC Corporation, a Delaware corporation ("Matec"), and each of
its Subsidiaries, Bergen Cable Technologies, Inc., a New Jersey
corporation, Matec Applied Sciences, Inc., a Delaware corporation, Matec
Instruments, Inc., a Delaware corporation and Valpey-Fisher Corporation,
a Massachusetts corporation (Matec and such Subsidiaries being herein
collectively referred to as the Companies and individually as a Company)
hereby, jointly and severally, agree with Massachusetts Capital Resource
Company (the "Purchaser") as follows:
ARTICLE I
PURCHASE, SALE AND TERMS OF NOTES AND WARRANTS
1.01. THE NOTES. The Companies have authorized the issuance and
sale to the Purchaser of the Companies Secured Notes, due June 30, 2000,
in the original principal amount of $2,000,000. The Secured Notes shall
bear interest, as provided for therein, at the rate of ten percent (10%)
per annum; PROVIDED, HOWEVER, that if the Companies, or any of them,
shall at any time, or from time to time, incur any Indebtedness for
money borrowed, which Indebtedness or any portion thereof is secured by
any assets of any of the Companies in which the holder of any Note shall
have a security interest and which security is senior to, or on a pari
passu basis with, that of such holder, then in such event, from and
after the date such Indebtedness is incurred, the interest rate on such
Note shall automatically be increased to eleven percent (11%) per annum
if such Indebtedness is $2,000,000 or less and twelve percent (12%) per
annum if such Indebtedness is more than $2,000,000; and FURTHER,
PROVIDED, that the interest rate on the Notes shall be fourteen percent
(14%) per annum (as far as the same may be legally enforceable) on all
overdue principal (including any overdue required redemption), premium
and interest. The Secured Notes shall be substantially in the form set
forth in EXHIBIT 1.01 hereto and are herein referred to individually as
a "Note" and collectively as the "Notes", which terms shall also include
any notes delivered in exchange or replacement therefor.
<PAGE>
1.02. THE WARRANTS. Matec has also authorized the issuance and
sale to the Purchaser of Matec's Common Stock Purchase Warrants for the
purchase (subject to adjustment as provided therein) of 85,000 shares of
Matec's Common Stock. The Common Stock Purchase Warrants shall be
substantially in the form set forth in EXHIBIT 1.02 hereto and are
herein referred to individually as a "Warrant" and collectively as the
"Warrants", which terms shall also include any warrants delivered in
exchange or replacement therefor.
1.03. PURCHASE AND SALE OF NOTES AND WARRANTS.
(a) THE CLOSING. The Companies agree to issue and sell to
the Purchaser, and, subject to and in reliance upon the representations,
warranties, terms and conditions of this Agreement, the Purchaser agrees
to purchase, the Notes and the Warrants for an aggregate purchase price
of $2,000,000. Such purchase and sale shall take place at a closing
(the "Closing") to be held at the office of Messrs. Testa, Hurwitz &
Thibeault, Exchange Place, 53 State Street, Boston, Massachusetts, on
April 12, 1995 at 2:00 P.M., or on such other date and at such time as
may be mutually agreed upon. At the Closing the Companies will
initially issue one Note, payable to the order of the Purchaser, in the
principal amount of $2,000,000 and Matec will issue one Warrant,
registered in the name of the Purchaser, to purchase (subject to
adjustment as provided therein) 85,000 shares of Matec's Common Stock,
against delivery to Matec, on behalf of itself and the other Companies,
of a check or a receipt of a wire transfer, in the amount of $2,000,000,
in payment of the full purchase price for the Notes and Warrants.
(b) ALLOCATION OF PURCHASE PRICE. The Companies and the
Purchaser, having adverse interests and as a result of arm's length
bargaining, agree that (i) neither the Purchaser nor any of its partners
has rendered or has agreed to render any services to the Companies in
connection with this Agreement or the issuance of the Notes and
Warrants; (ii) the Warrants are not being issued as compensation; and
(iii) for the purpose, and within the meaning, of Section 1273(c)(2) of
the Internal Revenue Code of 1986, as amended, the issue price of the
Notes is $1,977,000. The Companies and the Purchaser acknowledge that
this allocation is based on the relative fair market values of the Notes
and Warrants. The Companies and the Purchaser recognize that this
Agreement determines the original issue discount to be taken into
account by the Companies and the Purchaser for federal income tax
purposes on the Notes and they agree to adhere to this Agreement for
such purposes.
(c) USE OF PROCEEDS. The Companies agree to use the full
proceeds from the sale of the Notes and Warrants solely for working
capital, the purchase of machinery and equipment and for general
corporate purposes and agrees that full proceeds from the sale of the
Notes and Warrants will be utilized for purposes which increase or
maintain equal opportunity employment in the Commonwealth of
Massachusetts.
<PAGE>
1.04. PAYMENTS AND ENDORSEMENTS. Payments of principal, interest
and premium, if any, on the Notes, shall be made directly by check duly
mailed or delivered to the Purchaser at its address referred to in
Section 8.03 hereof, without any presentment or notation of payment,
except that prior to any transfer of any Note, the holder of record
shall endorse on such Note a record of the date to which interest has
been paid and all payments made on account of principal of such Note.
1.05. REDEMPTIONS.
(a) REQUIRED REDEMPTION. On June 30, 2000 or accelerated
maturity of the Notes, the Companies, jointly and severally, will pay
the principal amount of the Notes then outstanding together with all
accrued and unpaid interest then due thereon. No optional redemption of
less than all of the Notes shall affect the obligation of the Companies
to make the redemption required by this subsection.
(b) OPTIONAL REDEMPTIONS WITH PREMIUM. The Companies may at
any time on or after July 1, 1995, (no optional redemption being
permitted prior to said date) redeem the Notes in whole or in part (in
integral multiples of $10,000) together with interest due on the amount
so redeemed through the date of redemption, and a premium equal to the
percentage of the principal amount of the Notes redeemed under this
subsection applicable to the twelve month period in which such
redemption is made, as follows:
12-month period
ending Premium
--------------- -------
June 30, 1996 10.0%
June 30, 1997 7.5%
June 30, 1998 5.0%
June 30, 1999 2.5%
June 30, 2000 0.0%
(c) NOTICE OF REDEMPTIONS; PRO RATA REDEMPTIONS. Notice of
any optional redemptions pursuant to subsection 1.05(b) shall be given
to all registered holders of the Notes at least ten (10) business days
prior to the date of such redemption. Each redemption of Notes pursuant
to subsections 1.05(a) or (b) shall be made so that the Notes then held
by each holder shall be redeemed in a principal amount which shall bear
the same ratio to the total principal amount of Notes being redeemed as
the principal amount of Notes then held by such holder bears to the
aggregate principal amount of the Notes then outstanding.
1.06. PAYMENT ON NON-BUSINESS DAYS. Whenever any payment to be
made shall be due on a Saturday, Sunday or a public holiday under the
laws of the Commonwealth of Massachusetts, such payment may be made on
the next succeeding business day, and such extension of time shall in
such case be included in the computation of payment of interest due.
1.07. REGISTRATION, ETC. Matec, on behalf of itself and the other
Companies, shall maintain at its principal office a register of the
<PAGE>
Notes and shall record therein the names and addresses of the registered
holders of the Notes, the address to which notices are to be sent and
the address to which payments are to be made as designated by the
registered holder if other than the address of the holder, and the
particulars of all transfers, exchanges and replacements of Notes. No
transfer of a Note shall be valid unless made on such register for the
registered holder or his executors or administrators or his or their
duly appointed attorney, upon surrender therefor for exchange as
hereinafter provided, accompanied by an instrument in writing, in form
and execution reasonably satisfactory to Matec. Each Note issued
hereunder, whether originally or upon transfer, exchange or replacement
of a Note or Notes, shall be registered on the date of execution thereof
by the Companies and shall be dated the date to which interest has been
paid on such Notes or Note. The registered holder of a Note shall be
that Person in whose name the Note has been so registered by Matec. A
registered holder shall be deemed the owner of a Note for all purposes
of this Agreement and, subject to the provisions hereof, shall be
entitled to the principal, premium, if any, and interest evidenced by
such Note free from all equities or rights of setoff or counterclaim
between the Companies, or any of them, and the transferor of such
registered holder or any previous registered holder of such Note.
1.08. TRANSFER AND EXCHANGE OF NOTES. The registered holder of
any Note or Notes may, prior to maturity or prepayment thereof,
surrender such Note or Notes at the principal office of Matec for
transfer or exchange. Within a reasonable time after notice to Matec
from a registered holder of its intention to make such exchange and
without expense (other than transfer taxes, if any) to such registered
holder (and provided, in the case of a transfer, that the proposed
transferee shall have provided to Matec a written representation
substantially to the effect set forth in Section 1.10), the Companies
shall issue in exchange therefor another Note or Note, in such
denominations as requested by the registered holder, for the same
aggregate principal amount as the unpaid principal amount of the Note or
Notes so surrendered, and having the same maturity and rate of interest,
containing the same provisions and subject to the same terms and
conditions as the Note or Notes so surrendered. Each new Note shall be
made payable to such Person or Persons, or registered assigns, as the
registered holder of such surrendered Note or Notes may designate, and
such transfer or exchange shall be made in such a manner that no gain or
loss of principal or interest shall result therefrom.
1.09. REPLACEMENT OF NOTES. Upon receipt of evidence satisfactory
to Matec of the loss, theft, destruction or mutilation of any Note and,
if requested in the case of any such loss, theft or destruction, upon
delivery of an indemnity bond or other agreement or security reasonably
satisfactory to Matec, or, in the case of any such mutilation, upon
surrender and cancellation of such Note, the Companies will issue a new
Note, of like tenor and amount and dated the date to which interest has
been paid, in lieu of such lost, stolen, destroyed or mutilated Note;
PROVIDED, HOWEVER, if any Note of which Massachusetts Capital Resource
Company, its nominee, or any of its partners is the registered holder is
lost, stolen or destroyed, the affidavit of the President, Treasurer or
any Assistant Treasurer of the registered holder setting forth the
circumstances with respect to such loss, theft or destruction shall be
accepted as satisfactory evidence thereof, and no indemnification bond
<PAGE>
or other security shall be required as a condition to the execution and
delivery by the Companies of a new Note in replacement of such lost,
stolen or destroyed Note other than the registered holder's written
agreement to indemnify the Companies.
1.10. REPRESENTATIONS BY THE PURCHASER. The Purchaser represents
that it is its present intention to acquire the Notes and Warrants for
its own account and that the Notes and Warrants are being and will be
acquired for the purpose of investment and not with a view to
distribution or resale thereof; subject, nevertheless, to the condition
that the disposition of the property of the Purchaser shall at all times
be within its control. The acquisition by the Purchaser of the Notes
and Warrants shall constitute a confirmation of this representation.
1.11. DISCLOSURE OF INFORMATION BY THE PURCHASER. Each of the
Companies understands that the Purchaser is a special purpose limited
partnership organized under Chapter 109 of the General Laws of the
Commonwealth of Massachusetts and Chapter 816 of the Acts and Resolves
of 1977 of the Commonwealth of Massachusetts (the "Capital Resource
Company Act"), and as such, in accordance with such provisions, the
Purchaser, in order to obtain certain benefits for itself and its
partners, is required to file certain reports and otherwise disclose
information relating to the business, financial affairs, and future
prospects of the Companies and their affiliates (as defined in the
aforesaid legislation) with the Clerk of the Senate and the Clerk of the
House of Representatives of the General Court of the Commonwealth of
Massachusetts, the Secretary of Manpower Affairs, the Commissioner of
Insurance and the Department of Revenue of the Commonwealth of
Massachusetts, and that such reports and other information may
constitute "public records" within the purview of Section 7 of Chapter 4
of the General Laws of the Commonwealth of Massachusetts. In addition,
information relating to the business, financial affairs and future
prospects of each of the Companies and its affiliates must be disclosed
to others in order to obtain independent confirmation that financing on
substantially similar terms to financing provided pursuant to this
Agreement was not elsewhere available to the Companies. The Companies
hereby authorize the Purchaser to disclose all such information relating
to the business, financial affairs and future prospects of the Companies
and their affiliates as has been or may in the future be presented to
the Purchaser to all such persons as the Purchaser in good faith deems
necessary or appropriate in order to fulfill its obligations under the
Capital Resource Company Act.
ARTICLE II
CONDITIONS TO PURCHASER'S OBLIGATION
The obligation of the Purchaser to purchase and pay for the Notes
and Warrants at the Closing is subject to the following conditions:
<PAGE>
2.01. REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of the Companies set forth in Article III
hereof shall be true on the date of the Closing.
2.02. DOCUMENTATION AT CLOSING. The Purchaser shall have received
prior to or at the Closing all of the following, each in form and
substance satisfactory to the Purchaser and its special counsel:
(a) A Security Agreement, in the form attached as EXHIBIT
2.02(a), (collectively, the Security Agreements), and all related
financing statements and other similar instruments and documents, shall
have been executed and delivered to the Purchaser by a duly authorized
officer of each Company.
(b) A certified copy of all charter documents of each
Company; a certified copy of the resolutions of the Board of Directors
and, to the extent required, the stockholders of each Company evidencing
approval of this Agreement, the Notes, the Warrants, the Security
Agreements, and other matters contemplated hereby; a certified copy of
the By-laws of each Company; and certified copies of all documents
evidencing other necessary corporate or other action and governmental
approvals, if any, with respect to this Agreement, the Notes, the
Warrants and the Security Agreements.
(c) A favorable opinion of Messrs. Jacobs, Persinger &
Parker, counsel for the Companies, as to matters set forth in EXHIBIT
2.02(c), and as to such other matters as the Purchaser, or its special
counsel, may reasonably request.
(d) A certificate of the Secretary or an Assistant Secretary
of each Company which shall certify the names of the officers of such
Company, authorized to sign this Agreement, the Notes, the Warrants, the
Security Agreements and the other documents or certificates to be
delivered pursuant to this Agreement or the Security Agreements by such
Company, or any of its officers, together with the true signatures of
such officers. The Purchaser may conclusively rely on such certificates
until it shall receive a further certificate of the Secretary or an
Assistant Secretary of such Company canceling or amending the prior
certificate and submitting the signatures of the officers named in such
further certificate.
(e) A certificate from a duly authorized officer of each
Company stating that the representations and warranties of all of the
Companies contained in Article III hereof and otherwise made by the
Companies in writing in connection with the transactions contemplated
hereby are true and correct and that no condition or event has occurred
or is continuing or will result from execution and delivery of this
Agreement, the Notes, the Warrants or the Security Agreements which
constitute an Event of Default or would constitute an Event of Default
but for the requirement that notice be given or time elapse or both.
<PAGE>
(f) A certificate, in the form attached as EXHIBIT 3.15
hereto, shall have been executed and delivered by a duly authorized
officer of each Company.
(g) Payment for the costs, expenses, taxes and filing fees
identified in Section 8.04 as to which the Purchaser gives Matec notice
prior to the Closing.
(h) Matec's Form 10-K for the fiscal year ended December 31,
1994, as filed with the Commission pursuant to the Exchange Act.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Each Company represents and warrants as to itself and Matec
represents and warrants as to itself and as to each of the other
Companies as follows:
3.01. ORGANIZATION AND STANDING. Each Company is a duly organized
and validly existing corporation in good standing under the laws of the
jurisdiction in which it was organized and has all requisite corporate
power and authority for the ownership and operation of its properties
and for the carrying on of its business as now conducted and as now
proposed to be conducted. Each Company is duly licensed or qualified
and in good standing as a foreign corporation authorized to do business
in all jurisdictions wherein the character of the property owned or
leased, or the nature of the activities conducted, by it makes such
licensing or qualification necessary, and where a failure to so qualify
would have a material adverse effect on the business or assets of such
Company. All of the outstanding capital stock of each of the Companies
has been duly authorized and validly issued, is fully paid and
nonassessable, and is, except for Matec, owned beneficially and of
record by Matec, free and clear of any lien, right, encumbrance or
restriction of any nature, including, without limitation, any lien,
right, encumbrance or restriction on transfer, other than those imposed
by relevant state and federal securities laws. None of the Companies
have any Subsidiaries except that: (i) each of the Companies, other than
Matec, are Subsidiaries of Matec and (ii) except as is set forth on
EXHIBIT 3.01.
3.02. CORPORATE ACTION. Each Company has all necessary corporate
power and has taken all corporate action required to make all the
provisions of this Agreement, the Notes, the Warrants, the Security
Agreements and any other agreements and instruments executed in
connection herewith and therewith the valid and enforceable obligations
they purport to be. Sufficient shares of authorized but unissued Common
Stock of Matec have been reserved by appropriate corporate action in
connection with the prospective exercise of the Warrants. Neither the
issuance of the Notes or Warrants, nor the issuance of shares of Common
Stock upon the exercise of the Warrants, is subject to preemptive or
other similar statutory or contractual rights and will not conflict with
any provisions of any agreement or instrument to which any Company is a
party or by which it is bound.
<PAGE>
3.03. GOVERNMENTAL APPROVALS. No authorization, consent,
approval, license, exemption of or filing or registration with any court
or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary for, or in
connection with, the offer, issuance, sale, execution or delivery by any
Company of, or for the performance by it of its obligations under, this
Agreement, the Notes, the Warrants or the Security Agreements, except as
may result from the circumstances of any proposed transfer of the Notes
or Warrants or exercise of the Warrants in order to insure compliance
with applicable federal and state securities laws.
3.04. LITIGATION. Except as is set forth in EXHIBIT 3.04, there
is no litigation or governmental proceeding or investigation pending or,
to the best of the knowledge of any Company, threatened against any
Company affecting any of its properties or assets, or, to the best of
the knowledge of any Company, against any officer, key employee or
principal stockholder of any Company where such litigation, proceeding
or investigation, either individually or in the aggregate, would have a
material adverse effect on any Company or which might call into question
the validity of this Agreement, the Notes, the Warrants, the Security
Agreements or any action taken or to be taken pursuant hereto or
thereto, nor, to the best of the knowledge of any Company, has there
occurred any event or does there exist any condition on the basis of
which any litigation, proceeding or investigation might properly be
instituted. None of the Companies, nor, to the best of the knowledge of
any Company, any officer or key employee or principal stockholder of any
Company is in default with respect to any order, writ, injunction,
decree, ruling or decision of any court, commission, board or other
government agency affecting any Company.
3.05. COMPLIANCE WITH OTHER INSTRUMENTS. Each Company is in
compliance in all respects with the terms and provisions of this
Agreement and of its charter and by-laws and in all material respects
with the terms and provisions of the mortgages, indentures, leases,
agreements and other instruments and of all judgments, decrees,
governmental orders, statutes, rules and regulations by which it is
bound or to which its properties or assets are subject. It is the
reasonable opinion of each Company that there is no term or provision in
any of the foregoing documents and instruments which materially
adversely affects the business, assets or financial condition of any
Company. Neither the execution and delivery of this Agreement, the
Notes, the Warrants or the Security Agreements, nor the consummation of
any transactions contemplated hereby or thereby has constituted or
resulted in or will constitute or result in a default or violation of
any term or provision in any of the foregoing documents or instruments.
A schedule of Indebtedness for money borrowed of the Companies
(including lease obligations required to be capitalized in accordance
with applicable Statements of Financial Accounting Standards) is
attached as EXHIBIT 3.05.
3.06. FEDERAL RESERVE REGULATIONS. No Company is engaged in the
business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulation G of the Board of
Governors of the Federal Reserve System), and no part of the
<PAGE>
proceeds of the Notes or Warrants will be used to purchase or carry any
margin security or to extend credit to others for the purpose of
purchasing or carrying any margin security or in any other manner which
would involve a violation of any of the regulations of the Board of
Governors of the Federal Reserve System.
3.07. TITLE TO ASSETS, PATENTS. Except as is set forth in EXHIBIT
3.07, each Company has good and clear record and marketable title in fee
to such of its fixed assets as are real property, and good and
merchantable title to all of its other assets, now carried on its books
including those reflected in the most recent consolidated balance sheet
of the Companies which forms a part of EXHIBIT 3.08 attached hereto, or
acquired since the date of such balance sheet (except personal property
disposed of since said date in the ordinary course of business and
except for defects in title to real property which do not materially
detract from its value or impair its use) free of any mortgages,
pledges, charges, liens, security interests or other encumbrances. Each
Company enjoys peaceful and undisturbed possession under all leases
under which it is operating, and all said leases are valid and
subsisting and in full force and effect. Except as is set forth in
EXHIBIT 3.04, each Company owns or has a valid right to use the patents,
patent rights, licenses, permits, trade secrets, trademarks, trademark
rights, trade names or trade name rights or franchises, copyrights,
inventions and intellectual property rights being used to conduct its
business as now operated and as now proposed to be operated; and the
conduct of its business as now operated and as now proposed to be
operated does not and will not conflict with valid patents, patent
rights, licenses, permits, trade secrets, trademarks, trademark rights,
trade names or trade name rights or franchises, copyrights, inventions
and intellectual property rights of others. Except as is set forth in
EXHIBIT 3.07(a), no Company has any obligation to compensate any Person
for the use of any such patents or such rights nor has any Company
granted to any Person any license or other rights to use in any manner
any of such patents or such rights of any Company.
3.08. FINANCIAL INFORMATION. The consolidated financial
statements of Matec which are included in Matec's Form 10-K present
fairly the consolidated financial position of Matec as at the dates
thereof and the results of operations for the periods covered thereby
and have been prepared in accordance with generally accepted accounting
principles consistently applied. Such financial statements are for the
two years ended December 31, 1993 and December 31, 1994, certified by
Deloitte & Touche. As of the date of such financial statements, no
Company has any liability contingent or otherwise not disclosed in the
aforesaid financial statements or in the notes thereto that could,
together with all such other liabilities, materially affect the
financial condition of any Company, nor does any Company have any
reasonable grounds to know of any such liability. Since the date of
said certified financial statements, (i) there has been no adverse
change in the business, assets or condition, financial or otherwise,
operations or prospects, of any Company; (ii) neither the business,
condition, operations nor prospects of any Company nor any of their
properties or assets has been adversely affected as a result of any
legislative or regulatory change, any revocation or change in any
franchise, license or right to do business, or any other event or
<PAGE>
occurrence, whether or not insured against; and (iii), except for
intercompany transactions between the Companies, no Company has entered
into any material transaction or made any distribution on its capital
stock.
3.09. TAXES. Since January 1, 1990, each Company has accurately
prepared and timely filed (except where the failure to file on a timely
basis did not have a material adverse effect on such Company) all
federal, state and other tax returns required by law to be filed by it,
and all taxes shown to be due and all additional assessments have been
paid or provision made therefor. No Company knows of no additional
assessments or adjustments pending or threatened against any Company for
any period, nor of any basis for any such assessment or adjustment,
except as set forth on EXHIBIT 3.09.
3.10. ERISA. No employee benefit plan established or maintained,
or to which contributions have been made, by any Company, which is
subject to part 3 of Subtitle B of Title I of The Employee Retirement
Income Security Act of 1974, as amended ("ERISA") had an accumulated
funding deficiency (as such term is defined in Section 302 of ERISA) as
of the last day of the most recent fiscal year of such plan ended prior
to the date hereof, and no material liability to the Pension Benefit
Guaranty Corporation has been incurred with respect to any such plan by
any Company.
3.11. TRANSACTIONS WITH AFFILIATES. Except as is set forth in the
Proxy Statement, there are no loans, leases, royalty agreements or other
continuing transactions between Matec and any Person owning five percent
(5%) or more of any class of capital stock of Matec or other entity
controlled by such stockholder or a member of such stockholder's family.
3.12. ASSUMPTIONS OR GUARANTIES OF INDEBTEDNESS OF OTHER PERSONS.
Except as is set forth in EXHIBIT 3.12 and as permitted pursuant to
subsection 4.02(d), no Company has assumed, guaranteed, endorsed or
otherwise become directly or contingently liable on (including, without
limitation, liability by way of agreement, contingent or otherwise, to
purchase, to provide funds for payment, to supply funds to or otherwise
invest in the debtor or otherwise to assure the creditor against loss)
any Indebtedness of any other Person.
3.13. INVESTMENTS IN OTHER PERSONS. Except as described in the
Form 10-K and except for intercompany transactions permitted by this
Agreement, no Company has made any loan or advance to any Person which
is outstanding on the date of this Agreement, nor is any Company
obligated or committed to make any such loan or advance, nor does any
Company own any capital stock or assets comprising the business of,
obligations of, or any interest in, any Person.
3.14. EQUAL EMPLOYMENT OPPORTUNITY. Each Company has reviewed its
employment practices and policies and, to the best of its knowledge, it
is in full compliance with (a) all applicable laws of the United States,
of the Commonwealth of Massachusetts and of each other applicable
jurisdiction, relating to equal employment opportunity (including,
<PAGE>
without limitation, Title VII of the Civil Rights Act of 1964, as
amended (42 U.S.C. Section 2000e-17), the Age Discrimination in
Employment Act of 1967, as amended (29 U.S.C. Sub Section 621-634), the
Equal Pay Act of 1963 (29 U.S.C. Section 206(d)), and any rules,
regulations and administrative orders and Executive Orders relating
thereto; Mass. Gen. Laws. c. 151B, Mass. Gen. Laws c. 149 Section 24A et
seq. and Section 105A et seq., and any rules or regulations relating
thereto; and (b) the applicable terms, relating to equal employment
opportunity, of any contract, agreement or grant such Company has with,
from, or relating (by way of subcontract or otherwise) to any other
contract, agreement or grant of, any federal or state governmental unit
("Government Contract"), including, without limitation, any terms
required pursuant to Federal Executive Order No. 11246 and Massachusetts
Executive Order No. 74 (both as amended). To the best of each Company's
knowledge, it has kept all records required to be kept, and has filed
all reports, affirmative action plans and forms (including, without
limitation and where applicable, Form EEO-1) required to be filed
pursuant to any such applicable law or the terms of any such Government
Contract. No Company has been subject to any adverse final
determination or order, with respect to any charge of employment
discrimination made against it, by the United States Equal Employment
Opportunity Commission, the Massachusetts Commission Against
Discrimination or any other governmental unit (including, without
limitation, any such governmental unit with which it has a Government
Contract), and no Company is presently, to the best of such Company's
knowledge, subject to any formal proceedings before, or investigations
by, such commissions or governmental units, except as is set forth in
EXHIBIT 3.14.
3.15. STATUS OF NOTES AND WARRANTS AS QUALIFIED INVESTMENTS. Each
Company has duly authorized the execution and delivery to the Purchaser
of the certificate attached as EXHIBIT 3.15 hereto, setting forth such
statements, information and related data as are necessary to permit the
Purchaser to determine and demonstrate that the Notes and Warrants
issued pursuant to this Agreement will constitute "qualified
investments" within the meaning of that term as set forth in the Capital
Resource Company Act and that the full proceeds of the Notes and
Warrants will be used for purposes which will materially increase or
maintain equal opportunity employment in the Commonwealth of
Massachusetts. All such statements, information and related data
presented in such certificate as are not based on estimates and
projections of future events are true and correct as of the date of such
certificate and all such statements, information and related data based
upon estimates or projections of future events have been carefully
considered and prepared on behalf of each Company.
3.16. SECURITIES ACT. None of the Companies nor anyone acting on
their behalf has offered any of the Notes, Warrants or similar
securities, or solicited any offers to purchase or made any attempt by
preliminary conversation or negotiations to dispose of the Notes,
Warrants or similar securities, to any Person other than the Purchaser
or the institutions described in EXHIBIT 3.15. None of the Companies
nor anyone acting on their behalf has offered or will offer to sell the
Notes, Warrants or similar securities to, or solicit offers with respect
thereto from, or enter into any preliminary conversations or
<PAGE>
negotiations relating thereto with, any Person, so as to bring the
issuance and sale of the Notes and Warrants under the registration
provisions of the Securities Act.
3.17. DISCLOSURE. Neither this Agreement, the Form 10-K, the
Proxy Statement, the Certificate set forth as EXHIBIT 3.15 hereof, nor
any other agreement, document, certificate or written statement
furnished to the Purchaser or its special counsel by or on behalf of any
Company in connection with the transactions contemplated hereby contains
any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein or
therein not misleading. There is no fact within the special knowledge
of any Company or any executive officers of any Company which has not
been disclosed herein or in writing by them to the Purchaser and which
materially adversely affects, or in the future in their opinion may,
insofar as they can now foresee, materially adversely affect the
business, properties, assets or condition, financial or otherwise, of
any Company. Without limiting the foregoing, no Company has any
knowledge or belief that there exists, or there is pending or planned,
any patent, invention, device or application or any statute, rule, law,
regulation, standard or code which would materially adversely affect the
condition, financial or otherwise, or the operations of any Company.
3.18. NO BROKERS OR FINDERS. No Person has or will have, as a
result of the transactions contemplated by this Agreement, any right,
interest or valid claim against or upon any Company for any commission,
fee or other compensation as a finder or broker because of any act or
omission by any Company or any agent of any Company.
3.19. OTHER AGREEMENTS OF OFFICERS. To the best of the knowledge
of each Company, no officer or key employee of such Company is a party
to or bound by any agreement, contract or commitment, or subject to any
restrictions, particularly but without limitation in connection with any
previous employment of any such person, which materially and adversely
affects, or in the future may (as far as such Company can reasonably
foresee) materially and adversely affect, the business or operations of
such Company or the right of any such person to participate in the
affairs of such Company. To the best of the knowledge of each Company,
no officer or key employee has any present intention of terminating his
employment with such Company and such Company has no present intention
of terminating any such employment agreement.
3.20. CAPITALIZATION; STATUS OF CAPITAL STOCK. Matec has a total
authorized capitalization consisting of: (i) 10,000,000 shares of Common
Stock, of which 2,764,550 (excluding 1,029,145 Treasury Shares) shares
are issued and outstanding, and (ii) 1,000,000 shares of Preferred
Stock, $1.00 par value per share, no shares of which are issued or
outstanding. All the outstanding shares of capital stock of Matec have
been duly authorized, are validly issued and are fully paid and
nonassessable. The shares of Common Stock issuable upon exercise of the
Warrants, when so issued, will be duly authorized, validly issued and
fully paid and nonassessable. Except as is set forth in the Form 10-K
(including the stock options described in note 9 of the notes to the
consolidated financial statements of Matec included in the Form 10-K)
<PAGE>
and except for the Warrants, there are no options, warrants or rights to
purchase shares of capital stock or other securities of Matec
authorized, issued or outstanding, nor is Matec obligated in any other
manner to issue shares of its capital stock or other securities. There
are no restrictions on the transfer of shares of capital stock of Matec
other than those imposed by relevant state and federal securities laws.
No holder of any security of Matec is entitled to preemptive or similar
statutory or contractual rights, either arising pursuant to any
agreement or instrument to which Matec is a party, or which are
otherwise binding upon Matec. Neither the issuance of the Notes or the
Warrants nor the shares of Common Stock issued upon exercise of the
Warrants will result in an adjustment under the antidilution or exercise
rights of any holders of any outstanding shares of capital stock,
options, warrants or other rights to acquire any securities of Matec.
The offer and sale of all shares of capital stock and other securities
of Matec issued before the Closing complied with or were exempt from all
federal and state securities laws.
3.21. LABOR RELATIONS. To the best of the knowledge of each
Company, since January 1, 1990 no labor union or any representative
thereof has made any attempt to organize or represent employees of such
Company. There are no unfair labor practice charges, pending trials
with respect to unfair labor practice charges, pending material
grievance proceedings or adverse decisions of a Trial Examiner of the
National Labor Relations Board against any Company. Furthermore, to the
best of the knowledge of each Company, relations with employees of such
Company are good and there is no reason to believe that any labor
difficulties will arise in the foreseeable future.
3.22. INSURANCE. Each Company carries insurance covering its
properties and business adequate and customary for the type and scope of
the properties and business, but in any event in amounts sufficient to
prevent it from becoming a co-insurer.
3.23. BOOKS AND RECORDS. The books of account, ledgers, order
books, records and documents of each Company accurately and completely
reflect all material information relating to the business of each
Company, the nature, acquisition, maintenance, location and collection
of the assets of each Company, and the nature of all transactions giving
rise to the obligations or accounts receivable of each Company.
3.24. FOREIGN CORRUPT PRACTICES ACT. Each Company has reviewed
its practices and policies and to the best of its knowledge and belief
it is not engaged, nor has any officer, director, employee or agent of
such Company engaged, in any act or practice which would constitute a
violation of the Foreign Corrupt Practices Act of 1977, or any rules or
regulations promulgated thereunder.
<PAGE>
ARTICLE IV
COVENANTS OF THE COMPANIES
4.01. AFFIRMATIVE COVENANTS OTHER THAN REPORTING REQUIREMENTS. Without
limiting any other covenants and provisions hereof, as long as any of
the Notes or Warrants are outstanding, each Company covenants and agrees
that it will perform and observe the following covenants and provisions
as are applicable to it, and Matec covenants and agrees that it will
perform and observe the following covenants and provisions and will
cause each other Company and each Subsidiary to perform and observe such
of the following covenants and provisions as are applicable to such
other Company and such Subsidiary:
(a) PUNCTUAL PAYMENT. Pay the principal of, premium, if any,
and interest on each of the Notes at the times and place and in the
manner provided in the Notes and herein.
(b) PAYMENT OF TAXES AND TRADE DEBT. Pay and discharge all
taxes, assessments and governmental charges or levies imposed upon it or
upon its income or profits or business, or upon any properties belonging
to it, prior to the date on which penalties attach thereto, and all
lawful claims which, if unpaid, might become a lien or charge upon any
properties of any Company or any Subsidiary, provided that no Company
nor any Subsidiary shall be required to pay any such tax, assessment,
charge, levy or claim which is being contested in good faith and by
appropriate proceedings if such Company or such Subsidiary concerned
shall have set aside on its books adequate reserves with respect
thereto. Pay, when due, or in conformity with customary trade terms,
all lease obligations, all trade debt, and all other Indebtedness
incident to the operations of any Company or any Subsidiaries, except
such as are being contested in good faith and by appropriate proceedings
if such Company or such Subsidiary concerned shall have set aside on its
books adequate reserves with respect thereto.
(c) MAINTENANCE OF INSURANCE. Maintain insurance with
responsible and reputable insurance companies or associations in such
amounts and covering such risks as is usually carried by companies
engaged in similar businesses and owning similar properties in the same
general areas in which such Company or such Subsidiary operates, but in
any event in amounts sufficient to prevent such Company or such
Subsidiary from becoming a co-insurer.
(d) PRESERVATION OF CORPORATE EXISTENCE. Preserve and
maintain its corporate existence, rights, franchises and privileges in
the jurisdiction of its incorporation, and qualify and remain qualified
as a foreign corporation in each jurisdiction in which such
qualification is necessary or desirable in view of its business and
operations or the ownership of its properties; PROVIDED, HOWEVER, that
nothing herein contained shall prevent any merger, consolidation or
transfer of assets permitted by subsection 4.02(e). Preserve and
maintain all licenses and other rights to use patents, processes,
licenses, trademarks, trade names, inventions, intellectual property
rights or copyrights owned or possessed by it and necessary to the
conduct of its business; PROVIDED, HOWEVER, that nothing herein
<PAGE>
contained shall prevent the Board of Directors of any Company or
Subsidiary from disposing of or abandoning any such license, right to
use, patent, trademark or other proprietary right as the Board of
Directors of such Company or Subsidiary shall, in good faith, deem to be
in the best interest of such Company or Subsidiary.
(e) COMPLIANCE WITH LAWS. Comply with all applicable laws,
rules, regulations and orders of any governmental authority,
noncompliance with which could materially adversely affect its business
or condition, financial or other.
(f) VISITATION RIGHTS. At any reasonable time and from time
to time, permit the Purchaser or any agents or representatives thereof,
to examine and make copies of and extracts from the records and books of
account of, and visit and inspect the properties of, any Company and any
Subsidiary, and to discuss the affairs, finances and accounts of any
Company and any Subsidiary with any of their officers or directors and
independent accountants.
(g) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. Keep adequate
records and books of account, in which complete entries will be made in
accordance with generally accepted accounting principles consistently
applied (except to the extent that any change in accounting principles
has been concurred in by the certified public accountants of Matec),
reflecting all financial transactions of each Company and each
Subsidiary, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts
and other purposes in connection with its business shall be made.
(h) MAINTENANCE OF PROPERTIES, ETC. Maintain and preserve
all of its properties, necessary or useful in the proper conduct of its
business, in good repair, working order and condition, ordinary wear and
tear excepted; PROVIDED, HOWEVER, that nothing herein contained shall
require Matec, any Company or any Subsidiary to maintain and preserve or
keep in good repair, working order or condition, any property which is
obsolete or surplus or unfit for use or which may not be used
advantageously in the conduct of the business of Matec, such Company or
such Subsidiary.
(i) COMPLIANCE WITH ERISA. Comply with all minimum funding
requirements applicable to any pension or other employee benefit or
employee contribution plans which are subject to ERISA or to the
Internal Revenue Code of 1986, as amended (the "Code"), and comply in
all other material respects with the provisions of ERISA and the Code,
and the rules and regulations thereunder, which are applicable to any
such plan; provided, however, that nothing herein shall in any be deemed
to prohibit or limit Matec's rights as contained in the applicable plans
to amend the provisions of such plans or to terminate such plans or
trusts, subject to the terms of the plans or trusts, ERISA and the
Code. No Company or Subsidiary will permit any event or condition to
exist which could permit any such plan to be terminated under
circumstances which would cause the lien provided for in Section 4068 of
ERISA to attach to the assets of any Company or any Subsidiary.
<PAGE>
(j) MAINTENANCE OF DEBT TO EQUITY RATIO. Matec shall
maintain a ratio of Consolidated Indebtedness to Consolidated Net Worth
of not more than 1 to 1, such ratio to be measured at the end of each
fiscal quarter of Matec.
(k) MAINTENANCE OF INTEREST COVERAGE. Matec shall maintain a
ratio of Consolidated Net Earnings Available for Interest Charges to
Interest Charges of not less than 1 to 1 through December 31, 1995, and
not less than 2 to 1 thereafter, such ratio to be measured at the end of
each fiscal quarter of Matec, commencing on and with the fiscal quarter
ending June 30, 1995, as an average of the four (4) most recent fiscal
quarters of Matec.
(l) FOREIGN CORRUPT PRACTICES ACT. Comply and cause each of
its officers, directors, employees and agents to comply, at all times
with the prohibitions on certain acts and practices set forth in the
Foreign Corrupt Practices Act of 1977, and any rules or regulations
promulgated thereunder.
(m) EQUAL EMPLOYMENT OPPORTUNITY. Comply with all applicable
laws of the United States, the Commonwealth of Massachusetts, and of
each other applicable jurisdiction relating to equal employment
opportunity, any rules, regulations, administrative orders and Executive
Orders relating thereto and the applicable terms, relating to equal
employment opportunity, of any Government Contract; and keep, and cause
each Subsidiary to file, all reports, affirmative action plans and forms
required to be filed, pursuant to any such applicable law or the terms
of any such Government Contract; PROVIDED, HOWEVER, no Company or
Subsidiary shall be considered to have failed to comply with the
foregoing during any period that any matter relating to such Company's
or such Subsidiary's employment practices is being contested by such
Company or such Subsidiary in appropriate proceedings, or thereafter, if
such Company or such Subsidiary complies with any final determination
issued in such proceedings.
(n) STATUS OF NOTES AND WARRANTS AS QUALIFIED INVESTMENTS
In the event that any of the statements, information and related data
provided by or on behalf of any Company or any Subsidiary and relied
upon by the Purchaser in determining that the Notes and Warrants
constitute "qualified investments" within the meaning of that term in
the Capital Resource Company Act shall be put in issue in any formal or
informal proceedings initiated or conducted by or on behalf of the
Commonwealth of Massachusetts, each Company shall, upon reasonable
notice and at its expense, provide, and, cause each Subsidiary to
provide, such additional information, witnesses and related data as may
be reasonably necessary or appropriate to support the representations
and warranties set forth in Article III.
(o) ATTENDANCE AT BOARD MEETINGS. Each Company shall permit
the Purchaser or its designee to have one observer attend each meeting
of its Board of Directors and each meeting of any committee thereof.
Each Company shall send to the Purchaser and such designee the notice of
the time and place of such meeting in the same manner and at the same
time as it shall send such notice to its directors or committee members,
as the case may be. Each Company shall also provide to the Purchaser
<PAGE>
copies of all notices, reports, minutes and consents at the time and in
the manner as they are provided to the Board of Directors or
committee.
(p) COMPENSATION. Each Company shall pay to its management
or management of any Subsidiary compensation at a rate of compensation
which is not in excess of that commonly paid to management in companies
of similar size, of similar maturity and in similar businesses and all
management compensation and all policies relating thereto shall be
approved in advance by a majority of the members of that Company's Board
of Directors or by a majority of the members of Matec's Compensation
Committee.
(q) COMPLIANCE WITH SECURITY AGREEMENTS. Comply at all times
with all of the terms and conditions of the Security Agreements.
4.02. NEGATIVE COVENANTS. Without limiting any other covenants
and provisions hereof, as long as any of the Notes or Warrants are
outstanding, each Company covenants and agrees that it will comply with
and observe the following covenants and provisions as are applicable to
it, and Matec covenants and agrees that it will comply with and observe
the following covenants and provisions and will cause each other Company
and each Subsidiary to comply with and observe such of the following
covenants and provisions as are applicable to such other Company or such
Subsidiary, and will not:
(a) LIENS. Create, incur, assume or suffer to exist, or
permit any other Company or any Subsidiary to create, incur, assume or
suffer to exist, any mortgage, deed of trust, pledge, lien, security
interest or other charge or encumbrance (including the lien or retained
security title of a conditional vendor) of any nature, upon or with
respect to any of its properties, now owned or hereinafter acquired, or
assign or otherwise convey any right to receive income, except that the
foregoing restrictions shall not apply to mortgages, deeds of trust,
pledges, liens, security interests or other charges or encumbrances:
(i) for taxes, assessments or governmental charges or
levies on property of any Company or any Subsidiary if the same shall
not at the time be delinquent or thereafter can be paid without penalty,
or are being contested in good faith and by appropriate proceedings;
(ii) imposed by law, such as carriers', warehousemen's
and mechanics' liens and other similar liens arising in the ordinary
course of business;
(iii) arising out of pledges or deposits under
workmen's compensation laws, unemployment insurance, old age pensions,
or other social security or retirement benefits, or similar
legislation;
(iv) securing the performance of bids, tenders,
contracts (other than for the repayment of borrowed money), statutory
obligations and surety bonds;
<PAGE>
(v) in the nature of zoning restrictions, easements
and rights or restrictions of record on the use of real property which
do not materially detract from its value or impair its use;
(vi) arising by operation of law in favor of the owner
or sublessor of leased premises and confined to the property rented;
(vii) arising from any litigation or proceeding which
is being contested in good faith by appropriate proceedings, PROVIDED,
HOWEVER, that no execution or levy has been made;
(viii) described in EXHIBIT 3.07 which secure the
Indebtedness set forth in EXHIBIT 3.05 or Indebtedness permitted under
subsection 4.02(b)(ii), provided that no such lien is extended to cover
other or different property of any Company or any Subsidiary; and
(ix) arising out of a purchase money mortgage or security interest
on personal property to secure the purchase price of such property (or
to secure Indebtedness incurred solely for the purpose of financing the
acquisition of any such property) incurred by any Company or any
Subsidiary, provided that such purchase money mortgage or security
interest does not extend to any other or different property of such
Company or such Subsidiary.
(b) INDEBTEDNESS. Create, incur, assume or suffer to exist,
or permit any other Company or any Subsidiary to create, incur, assume
or suffer to exist, any liability with respect to Indebtedness except
for:
(i) the Notes;
(ii) Indebtedness for money borrowed, provided that
such Indebtedness for money borrowed: (A) does not exceed $5,000,000 in
principal amount at any one time outstanding and (B) does not result in
the Companies failure to comply with all of the provisions of Article IV
hereof;
(iii) Current Liabilities, other than for borrowed
money, which are incurred in the ordinary course of business; and
(iv) Indebtedness with respect to lease obligations,
provided that such lease obligations do not violate subsection 4.02(c).
(c) LEASE OBLIGATIONS. Create, incur, assume or suffer to
exist, or permit any other Company or any Subsidiary to create, incur,
assume or suffer to exist, any obligations as lessee for the rental or
hire of real or personal property in connection with any sale and
leaseback transaction; or become obligated to pay any rent for real
property or personal property under any lease with an original term,
<PAGE>
including any lessor options to renew or extend, of more than three
years if the aggregate of consolidated fixed annual rent which would be
payable in any fiscal year by the Companies and their Subsidiaries under
all such leases would exceed $250,000.
(d) ASSUMPTIONS OR GUARANTIES OF INDEBTEDNESS OF OTHER
PERSONS. Assume, guarantee, endorse or otherwise become directly or
contingently liable on, or permit any other Company or any Subsidiary to
assume, guarantee, endorse or otherwise become directly or contingently
liable on (including, without limitation, liability by way of agreement,
contingent or otherwise, to purchase, to provide funds for payment, to
supply funds to or otherwise invest in the debtor or otherwise to assure
the creditor against loss) any Indebtedness of any other Person, except
for: (i) guaranties by endorsement of negotiable instruments for deposit
or collection in the ordinary course of business, (ii) guaranties by a
Subsidiary of Indebtedness of Matec or any other Company, (iii)
guaranties by Matec of any Indebtedness of any Company, and (iv)
guaranties of any Industrial Revenue Bonds, the proceeds of which are
used solely for the benefit of Matec or any Company.
(e) MERGERS, SALE OF ASSETS, ETC. Merge or consolidate with,
or sell, assign, lease or otherwise dispose of or voluntarily part with
the control of (whether in one transaction or in a series of
transactions) a material portion of its assets (whether now owned or
hereinafter acquired) or sell, assign or otherwise dispose of (whether
in one transaction or in a series of transactions) any of its accounts
receivable (whether now in existence or hereinafter created) at a
discount or with recourse, to, any Person, or permit any other Company
or any Subsidiary to do any of the foregoing, except for sales or other
dispositions of assets in the ordinary course of business and except
that (1) any Company, other than Matec, or any Subsidiary may merge into
or consolidate with or transfer assets to any Company, (2) Matec may
merge any Person into it or otherwise acquire such Person as long as
Matec is the surviving entity, such merger or acquisition does not
result in the violation of any of the provisions of this Agreement and
no such violation exists at the time of such merger or acquisition, and,
provided that such merger or acquisition does not result in the issuance
(in one or more transactions) of shares of the voting stock of Matec
representing in the aggregate more than twenty percent (20%) of the
total outstanding voting stock of Matec, on a fully diluted basis,
immediately following the issuance thereof and (3) the Companies may
sell fixed assets up to five percent (5%) (based upon their then net
book value) of their consolidated net fixed assets in any period of
twelve (12) consecutive months.
(f) INVESTMENTS IN OTHER PERSONS. Make or permit any other
Company or any Subsidiary to make, any loan or advance to any person, or
purchase, otherwise acquire, or permit any other Company or any
Subsidiary to purchase or otherwise acquire, the capital stock, assets
comprising the business of, obligations of, or any interest in, any
Person, except:
(i) investments by a Company or a Subsidiary in
evidences of indebtedness issued or fully guaranteed by the United
<PAGE>
States of America and having a maturity of not more than one year from
the date of acquisition;
(ii) investments by a Company or a Subsidiary in
certificates of deposit, notes, acceptances and repurchase agreements
having a maturity of not more than one year from the date of acquisition
issued by: (A) a bank organized in the United States having capital,
surplus and undivided profits of at least $100,000,000 and whose parent
holding company has long-term debt rated Aa1 or higher, and whose
commercial paper (if rated) is rated Prime 1, by Moody's Investors
Service, Inc. or (B) Framingham Savings Bank or Unibank For Savings;
(iii) investments by a Company or a Subsidiary in the
highest-rated commercial paper having a maturity of not more than one
year from the date of acquisition;
(iv) loans or advances from a Subsidiary to any
Company;
(v) investments, loans or advances in or from one
Company to any other Company;
(vi) investments in Framingham Savings Bank as
reflected in the Form 10-K; and
(vii) other loans, advances and investments; provided
that the aggregate amount of all such other loans advances and
investments made on or after January 1, 1995 does not exceed, at any one
time outstanding, two percent (2%) of the Consolidated Net Worth of the
Companies as of the end of their then most recent fiscal quarter.
(g) DISTRIBUTIONS. Declare or pay any dividends, purchase,
redeem, retire, or otherwise acquire for value any of its capital stock
(or rights, options or warrants to purchase such shares) now or
hereafter outstanding, return any capital to its stockholders as such,
or make any distribution of assets to its stockholders as such, or
permit any other Company or any Subsidiary to do any of the foregoing
(such transactions being hereinafter referred to as "Distributions"),
except that the Subsidiaries may declare and make payment of cash and
stock dividends, return capital and make distributions of assets to any
Company; PROVIDED, HOWEVER, that nothing herein contained shall prevent
Matec from:
(i) effecting a stock split or declaring or paying
any dividend consisting of shares of any class of capital stock to the
holders of shares of such class of capital stock, or
(ii) redeeming any stock of a deceased stockholder out
of insurance held by Matec on that stockholder's life, or
(iii) making cash distributions to its stockholders,
provided such cash distributions in the any fiscal year do not exceed
thirty percent (30%) of the Companies Consolidated Net Income for their
<PAGE>
immediately prior fiscal year, or
(iv) repurchases by Matec from its stockholders of not
more than an aggregate of $50,000 of its Common Stock in any fiscal
year, provided that the repurchase price per share for each share of
Common Stock so repurchased is not greater than the market price per
share of Common Stock on the date of such repurchase,
if in the case of any such transaction there does not exist at the time
of such Distribution an Event of Default or an event which, but for the
requirement that notice be given or time elapse or both, would
constitute an Event of Default and provided that such Distribution can
be made in compliance with the other terms of this Agreement.
(h) DEALINGS WITH AFFILIATES. Enter or permit any other
Company or any Subsidiary to enter into any transaction with any holder
of 5% or more of any class of capital stock of Matec, or any member of
their families or any corporation or other entity in which any one or
more of such stockholders or members of their immediate families
directly or indirectly holds five percent (5%) or more of any class of
capital stock except in the ordinary course of business and on terms not
less favorable to such Company or such Subsidiary than it would obtain
in a transaction between unrelated parties.
(i) MAINTENANCE OF OWNERSHIP OF SUBSIDIARIES. Sell or
otherwise dispose of any shares of capital stock of any Subsidiary,
except to a Company or another Subsidiary, or permit any Company (other
than Matec) or any Subsidiary to issue, sell or otherwise dispose of any
shares of its capital stock, except to a Company, PROVIDED, HOWEVER,
that nothing herein contained shall prevent: (i) any merger,
consolidation or transfer of assets permitted by subsection 4.02(e) or
(ii) the exercise of certain options, outstanding on the date hereof, to
acquire shares of Matec Applied Sciences, Inc.
(j) CHANGE IN NATURE OF BUSINESS. Make, or permit any other
Company or any Subsidiary to make, any material change in the nature of
its business as carried on at the date hereof.
4.03. REPORTING REQUIREMENTS. Matec will furnish to each
registered holder of any Note or any Warrant:
(a) as soon as possible and in any event within five (5)
business days after the occurrence of each Event of Default or each
event which, with the giving of notice or lapse of time or both, would
constitute an Event of Default, the statement of the chief financial
officer of Matec setting forth details of such Event of Default or event
and the action proposed to be taken with respect thereto;
(b) as soon as available and in any event within forty-five
(45) days after the end of each of the first three quarters of each
fiscal year of Matec, consolidated and consolidating balance sheets of
<PAGE>
the Companies and their Subsidiaries as of the end of such quarter and
consolidated and consolidating statements of income and retained
earnings and of changes in financial position of the Companies and their
Subsidiaries for the period commencing at the end of the previous fiscal
year and ending with the end of such quarter, setting forth in each case
in comparative form the corresponding figures for the corresponding
period of the preceding fiscal year, all in reasonable detail and duly
certified (subject to year-end audit adjustments) by the chief financial
officer of Matec as having been prepared in accordance with generally
accepted accounting principles consistently applied (except to the
extent that there has been a change in such accounting principles and to
the extent that Matec's independent public accountant have concurred in
such change);
(c) as soon as available and in any event within ninety (90)
days after the end of each fiscal year of Matec, a copy of the annual
audit report for such year for the Companies and their Subsidiaries,
including therein consolidated and consolidating balance sheets of the
Companies and their Subsidiaries as of the end of such fiscal year and
consolidated and consolidating (which consolidating statements need not
be audited) statements of income and retained earnings and of changes in
financial position of the Companies and their Subsidiaries for such
fiscal year, setting forth in each case, as to the consolidated
statements, in comparative form the corresponding figures for the
preceding fiscal year, all duly certified by independent public
accountants of recognized standing acceptable to the Purchaser;
(d) at the time of delivery of each quarterly and annual
statement, a certificate, executed by the chief financial officer of
Matec in the case of quarterly statements and Matec's independent public
accountants in the case of annual statements, stating that such officer
or accountants, as the case may be, has caused this Agreement, the
Notes, the Warrants and the Security Agreements to be reviewed and has
no knowledge of any default by any Company or any Subsidiary in the
performance or observance of any of the provisions of this Agreement,
the Notes, the Warrants or the Security Agreements or, if such officer
or accountant has such knowledge, specifying such default and the nature
thereof. Each such certificate shall set forth computations in
reasonable detail demonstrating compliance with the provisions of
subsections 4.01(j) and (k) and subsections 4.02(b) and (c);
(e) promptly upon receipt thereof, any written report
submitted to any Company or any Subsidiary by independent public
accountants in connection with an annual or interim audit of the books
of such Company and such Subsidiary made by such accountants;
(f) prior to the start of each fiscal year, consolidated
capital and operating expense budgets, cash flow projections and income
and loss projections for the Companies and their Subsidiaries in respect
of such fiscal year, all itemized in reasonable detail and prepared on a
quarterly basis and approved prior to the start of each such fiscal year
by the Board of Directors of Matec, and, promptly after preparation, any
revisions to any of the foregoing;
<PAGE>
(g) promptly after the commencement thereof, notice of all
actions, suits and proceedings before any court or governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, affecting any Company or any Subsidiary of the type
described in Section 3.04; and
(h) promptly after sending, making available, or filing the
same, such reports and financial statements as any Company or any
Subsidiary shall send or make available to the stockholders of any
Company or the Commission and such other information respecting the
business, properties or the condition or operations, financial or
otherwise, of any Company or any Subsidiaries as the Purchaser may from
time to time reasonably request.
4.04. TERMINATION OF CERTAIN COVENANTS. Except for the convenants
set forth in subsections 4.01(f), (m), (n) and (o), all other covenants
set forth in Sections 4.01 and 4.02 shall terminate and be of no further
force or effect when the Notes have been redeemed in their entirety.
ARTICLE V
REGISTRATION RIGHTS
5.01. "PIGGY BACK" REGISTRATION. If at any time Matec shall
determine to register under the Securities Act (including pursuant to a
demand of any stockholder of Matec exercising registration rights) any
of its Common Stock of the type which has been or may be issued upon the
exercise of the Warrants, other than on Forms S-4 or S-8 or its then
equivalent, it shall send to each holder of Registrable Shares,
including each holder who has the right to acquire Registrable Shares,
written notice of such determination and, if within thirty (30) days
after receipt of such notice, such holder shall so request in writing,
Matec shall use its best efforts to include in such registration
statement all or any part of the Registrable Shares such holder requests
to be registered, except that if, in connection with any offering
involving an underwriting of Common Stock to be sold by Matec, the
managing underwriter shall impose a limitation on the number of shares
of such Common Stock which may be included in any such registration
statement because, in its judgment, such limitation is necessary to
effect an orderly public distribution, and such limitation is imposed
pro rata among the holders of such Common Stock having an incidental
("piggy back") right to include such Common Stock in the registration
statement according to the amount of such Common Stock which each holder
had requested to be included pursuant to such right, then Matec shall be
obligated to include in such registration statement only such limited
portion of the Registrable Shares with respect to which such holder has
requested inclusion hereunder.
5.02. REGISTRATION ON FORM S-3. In addition to the rights
provided the holder of Registrable Shares in Section 5.01 above, if the
registration of Registrable Shares under the Securities Act can be
effected on Form S-3 (or any similar form promulgated by the
Commission), Matec will promptly so notify each holder of Registrable
Shares, including each holder who has a right to acquire Registrable
<PAGE>
Shares, and then will at any time, and from time to time, thereafter, as
expeditiously as possible, use its best efforts to effect qualification
and registration under the Securities Act on said Form S-3 of all or
such portion of the Registrable Shares as the holder or holders shall
specify; provided that the reasonably anticipated aggregate price to the
public of the Registrable Shares to be so registered is at least
$250,000.
5.03. EFFECTIVENESS. Matec will use its best efforts to maintain
the effectiveness for up to nine (9) months of any registration
statement pursuant to which any of the Registrable Shares are being
offered, and from time to time will amend or supplement such
registration statement and the prospectus contained therein as and to
the extent necessary to comply with the Securities Act and any
applicable state securities statute or regulation. Matec will also
provide each holder of Registrable Shares with as many copies of the
prospectus contained in any such registration statement as it may
reasonably request.
5.04. INDEMNIFICATION OF HOLDER OF REGISTRABLE SHARES. In the
event that Matec registers any of the Registrable Shares under the
Securities Act, Matec will indemnify and hold harmless each holder and
each underwriter of the Registrable Shares so registered (including any
broker or dealer through whom such shares may be sold) and each person,
if any, who controls such holder or any such underwriter within the
meaning of Section 15 of the Securities Act from and against any and all
losses, claims, damages, expenses or liabilities, joint or several, to
which they or any of them become subject under the Securities Act or
under any other statute or at common law or otherwise, and, except as
hereinafter provided, will reimburse each such holder, each such
underwriter and each such controlling person, if any, for any legal or
other expenses reasonably incurred by them or any of them in connection
with investigating or defending any actions whether or not resulting in
any liability, insofar as such losses, claims, damages, expenses,
liabilities or actions arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in
the registration statement, in any preliminary or amended preliminary
prospectus or in the prospectus (or the registration statement or
prospectus as from time to time amended or supplemented by Matec) or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary in
order to make the statements therein not misleading or any violation by
Matec of any rule or regulation promulgated under the Securities Act
applicable to Matec and relating to action or inaction required of Matec
in connection with such registration, unless such untrue statement or
omission was made in such registration statement, preliminary or
amended, preliminary prospectus or prospectus in reliance upon and in
conformity with information furnished in writing to Matec in connection
therewith by such holder of Registrable Shares, any such underwriter or
any such controlling person expressly for use therein. Promptly after
receipt by any holder of Registrable Shares, any underwriter or any
<PAGE>
controlling person, of notice of the commencement of any action in
respect of which indemnity may be sought against Matec, such holder of
Registrable Shares, or such underwriter or such controlling person, as
the case may be, will notify Matec in writing of the commencement
thereof, and, subject to the provisions hereinafter stated, Matec shall
assume the defense of such action (including the employment of counsel,
who shall be counsel reasonably satisfactory to such holder of
Registrable Shares, such underwriter or such controlling person, as the
case may be), and the payment of expenses insofar as such action shall
relate to any alleged liability in respect of which indemnity may be
sought against Matec. Such holder of Registrable Shares, any such
underwriter or any such controlling person shall have the right to
employ separate counsel in any such action and to participate in the
defense thereof but the fees and expenses of such counsel shall not be
at the expense of Matec unless the employment of such counsel has been
specifically authorized by Matec. Matec shall not be liable to
indemnify any person for any settlement of any such action effected
without Matec's consent. Matec shall not, except with the approval of
each party being indemnified under this Section 5.04, consent to entry
of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to
the parties being so indemnified of a release from all liability in
respect to such claim or litigation.
5.05. INDEMNIFICATION OF MATEC. In the event that Matec registers
any of the Registrable Shares under the Securities Act, each holder of
the Registrable Shares so registered will indemnify and hold harmless
Matec, each of its directors, each of its officers who have signed the
registration statement, each underwriter of the Registrable Shares so
registered (including any broker or dealer through whom such of the
shares may be sold) and each person, if any, who controls Matec or any
such underwriter within the meaning of Section 15 of the Securities Act
from and against any and all losses, claims, damages, expenses or
liabilities, joint or several, to which they or any of them may become
subject under the Securities Act or under any other statute or at common
law or otherwise, and, except as hereinafter provided, will reimburse
Matec and each such director, officer, underwriter or controlling person
for any legal or other expenses reasonably incurred by them or any of
them in connection with investigating or defending any actions whether
or not resulting in any liability, insofar as such losses, claims,
damages, expenses, liabilities or actions arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact
contained in the registration statement, in any preliminary or amended
preliminary prospectus or in the prospectus (or the registration
statement or prospectus as from time to time amended or supplemented) or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, but only insofar as
any such statement or omission was made in reliance upon and in
conformity with information furnished in writing to Matec in connection
therewith by such holder of Registrable Shares expressly for use
therein; PROVIDED, HOWEVER, that such holder's obligations hereunder
shall be limited to an amount equal to the proceeds to such holder of
the Registrable Shares sold in such registration. Promptly after
receipt of notice of the commencement of any action in respect of which
indemnity may be sought against such holder of Registrable Shares, Matec
will notify such holder of Registrable Shares in writing of the
<PAGE>
commencement thereof, and such holder of Registrable Shares shall,
subject to the provisions hereinafter stated, assume the defense of such
action (including the employment of counsel, who shall be counsel
reasonably satisfactory to Matec) and the payment of expenses insofar as
such action shall relate to the alleged liability in respect of which
indemnity may be sought against such holder of Registrable Shares.
Matec and each such director, officer, underwriter or controlling person
shall have the right to employ separate counsel in any such action and
to participate in the defense thereof but the fees and expenses of such
counsel shall not be at the expense of such holder of Registrable Shares
unless employment of such counsel has been specifically authorized by
such holder of Registrable Shares. Such holder of Registrable Shares
shall not be liable to indemnify any person for any settlement of any
such action effected without such holder's consent.
5.06. EXCHANGE ACT REGISTRATION. If Matec has listed, or shall at
any time list, any of its Common Stock of the type which may be issued
upon the exercise of the Warrants on any national securities exchange,
Matec will, at its expense, simultaneously list on such exchange and
maintain such listing of, all of the Common Stock from time to time
issuable upon exercise of the Warrants. If Matec becomes subject to the
reporting requirements of either Section 13 or Section 15(d) of the
Exchange Act, Matec will use its best efforts to timely file with the
Commission such information as the Commission may require under either
of said Sections; and in such event, Matec shall use its best efforts to
take all action as may be required as a condition to the availability of
Rule 144 under the Securities Act (or any successor exemptive rule
hereinafter in effect) with respect to such Common Stock. Matec shall
furnish to any holder of Registrable Shares forthwith upon request (i) a
written statement by Matec as to its compliance with the reporting
requirements of Rule 144, (ii) a copy of the most recent annual or
quarterly report of Matec as filed with the Commission, and (iii) such
other reports and documents as a holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing a
holder to sell any such Registrable Shares without registration.
5.07. DAMAGES. Matec recognizes and agrees that the holder of
Registrable Shares will not have an adequate remedy if Matec fails to
comply with this Article V and that damages will not be readily
ascertainable, and Matec expressly agrees that, in the event of such
failure, it shall not oppose an application by the holder of Registrable
Shares or any other person entitled to the benefits of this Article V
requiring specific performance of any and all provisions hereof or
enjoining Matec from continuing to commit any such breach of this
Article V.
5.08. FURTHER OBLIGATIONS. Whenever under the preceding Sections
of this Article V, Matec is required hereunder to register Registrable
Shares, it agrees that it shall also do the following:
(a) Furnish to each selling holder such copies of each
preliminary and final prospectus and such other documents as said holder
may reasonably request to facilitate the public offering of its
Registrable Shares;
<PAGE>
(b) Use its best efforts to register or qualify the
Registrable Shares covered by said registration statement under the
applicable securities or "blue sky" laws of such jurisdictions as any
selling holder may reasonably request; PROVIDED, HOWEVER, that Matec
shall not be obligated to qualify to do business in any jurisdiction
where it is not then so qualified or to take any action which would
subject it to the service or process in suits other than those arising
out of the offer or sale of the securities covered by the registration
statement in any jurisdiction where it is not then so subject;
(c) Furnish to each selling holder a signed counterpart of
(i) an opinion of counsel for Matec, dated the
effective date of the registration statements, and
(ii) "comfort" letters signed by Matec's independent
public accountants who have examined and reported on Matec's financial
statements included in the registration statement, to the extent
permitted by the standards of the American Institute of Certified Public
Accountants,
covering substantially the same matters with respect to the registration
statement (and the prospectus included therein) and (in the case of the
accountants' "comfort" letters) with respect to events subsequent to the
date of the financial statements, as are customarily covered in opinions
of issuer's counsel and in accountants' "comfort" letters delivered to
the underwriters in underwritten public offerings of securities, to the
extent that Matec is required to deliver or cause the delivery of such
opinion or "comfort" letters to the underwriters in an underwritten
public offering of securities;
(d) Permit each selling holder or his counsel or other
representatives to inspect and copy such corporate documents and records
as may reasonably be requested by them;
(e) Furnish to each selling holder a copy of all documents
filed and all correspondence from or to the Commission in connection
with any such offering; and
(f) Use its best efforts to insure the obtaining of all
necessary approvals from the National Association of Securities Dealers,
Inc.
5.09. HOLDBACK AGREEMENT. In the case of any underwritten
registration which includes Common Stock to be sold by Matec, each
holder of Registrable Shares agrees, if requested by the managing
underwriter or underwriters, not to effect any public sale or
distribution, including any sale pursuant to Rule 144 under the
Securities Act, of any Registrable Shares during the one hundred twenty
(120) day period commencing on the date such request is made; PROVIDED,
HOWEVER, that all persons entitled to registration rights with respect
to shares of Common Stock who are not parties to this Agreement, all
other persons selling shares of Common Stock in such offering and all
<PAGE>
<PAGE>
executive officers and directors of the Company shall also have agreed
not to sell publicly their Common Stock under the circumstances and
pursuant to the terms set forth in this Section 5.09.
5.10. PARTICIPATION IN REGISTRATIONS. No holder of Registrable
Shares may participate in any registration provided for hereunder unless
such holder: (a) has complied in all material respects with all of the
terms of this Agreement and (b) in the case of any underwritten
registration which includes Common Stock to be sold by Matec: (i) agrees
to sell such holders Registrable shares on the basis provided in any
underwriting arrangements entered into by Matec provided the terms
thereof are no less favorable to such holder than those accorded to
Matec, and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements
and this Agreement.
5.11. EXPENSES. In the case of a registration under Sections 5.01
or 5.02, Matec shall bear all costs and expenses of each such
registration, including, but not limited to, printing, legal and
accounting expenses, Commission filing fees and "blue sky" fees and
expenses; PROVIDED, HOWEVER, that Matec shall have no obligation to pay
or otherwise bear (i) any portion of the fees or disbursements of more
than one counsel for the selling holders of Registrable Shares in
connection with the registration of their Registrable Shares, or (ii)
any portion of the underwriters' commissions or discounts attributable
to the Registrable Shares being offered and sold by the holders of
Registrable Shares.
ARTICLE VI
EVENTS OF DEFAULT
6.01. EVENTS OF DEFAULT. If any of the following events ("Events
of Default") shall and be continuing:
(a) The Companies shall fail to pay any installment of
principal of any of the Notes when due; or
(b) The Companies shall fail to pay any interest or premium on
any of the Notes when due and such failure shall continue for five (5)
business days; or
(c) The Companies shall default in the performance of any
covenant contained in subsections 4.01(j) or (k) or shall default in the
performance of any covenant contained in Section 4.02; or
(d) Any representation or warranty made by any Company in this
Agreement or the Security Agreements or by any Company (or any officers
of any Company) in any certificate, instrument or written statement
contemplated by or made or delivered pursuant to or in connection with
this Agreement or the Security Agreements, shall prove to have been
incorrect when made in any material respect; or
<PAGE>
(e) Any Company shall fail to perform or observe any other
term, covenant or agreement contained in this Agreement, the Notes, the
Warrants or the Security Agreements on its part to be performed or
observed and any such failure remains unremedied for ten (10) business
days after written notice thereof shall have been given to any Company
by any registered holder of the Notes; or
(f) Any Company or any Subsidiary shall fail to pay any
Indebtedness for borrowed money (other than as evidenced by the Notes)
owing by such Company or such Subsidiary (as the case may be), or any
interest or premium thereon, when due (or, if permitted by the terms of
the relevant document, within any applicable grace period), whether such
Indebtedness shall become due by scheduled maturity, by required
prepayment, by acceleration, by demand or otherwise, or shall fail to
perform any term, covenant or agreement on its part to be performed
under any agreement or instrument (other than this Agreement or the
Notes) evidencing or securing or relating to any Indebtedness owing by
any Company or any Subsidiary, as the case may be, when required to be
performed (or, if permitted by the terms of the relevant document,
within any applicable grace period), if the effect of such failure to
pay or perform is to accelerate, or to permit the holder or holders of
such Indebtedness, or the trustee or trustees under any such agreement
or instrument to accelerate, the maturity of such Indebtedness, unless
such failure to pay or perform shall be waived by the holder or holders
of such Indebtedness or such trustee or trustees; or
(g) Any Company or any Subsidiary shall be involved in
financial difficulties as evidenced (i) by its admitting in writing its
inability to pay its debts generally as they become due; (ii) by its
commencement of a voluntary case under Title 11 of the United States
Code as from time to time in effect, or by its authorizing, by
appropriate proceedings of its Board of Directors or other governing
body, the commencement of such a voluntary case; (iii) by its filing an
answer or other pleading admitting or failing to deny the material
allegations of a petition filed against it commencing an involuntary
case under said Title 11, or seeking, consenting to or acquiescing in
the relief therein provided, or by its failing to controvert timely the
material allegations of any such petition; (iv) by the entry of an order
for relief in any involuntary case commenced under said Title 11; (v) by
its seeking relief as a debtor under any applicable law, other than said
Title 11, of any jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or alteration of the
rights of creditors, or by its consenting to or acquiescing in such
relief; (vi) by the entry of an order by a court of competent
jurisdiction (a) finding it to be bankrupt or insolvent, (b) ordering or
approving its liquidation, reorganization or any modification or
alteration of the rights of its creditors, or (c) assuming custody of,
or appointing a receiver or other custodian for, all or a substantial
part of its property; or (vii) by its making an assignment for the
benefit of, or entering into a composition with, its creditors, or
appointing or consenting to the appointment of a receiver or other
custodian for all or a substantial part of its property; or
<PAGE>
(h) Any judgment, writ, warrant of attachment or execution or
similar process shall be issued or levied against a substantial part of
the property of any Company or any Subsidiary and such judgment, writ,
or similar process shall not be released, vacated or fully bonded within
(60) days after its issue or levy;
then, and in any such event, the Purchaser or any other holder of the
Notes may, by notice to any Company, declare the entire unpaid principal
amount of the Notes, all interest accrued and unpaid thereon and all
other amounts payable under this Agreement to be forthwith due and
payable, whereupon the Notes, all such accrued interest and all such
amounts shall become and be forthwith due and payable (unless there
shall have occurred an Event of Default under subsection 6.01(g) in
which case all such amounts shall automatically become due and payable),
without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by each Company.
6.02. ANNULMENT OF DEFAULTS. Section 6.01 is subject to the
condition that, if at any time after the principal of any of the Notes
shall have become due and payable, and before any judgment or decree for
the payment of the moneys so due, or any portion thereof, shall have
been entered, all arrears of interest upon all the Notes and all other
sums payable under the Notes and under this Agreement (except the
principal of the Notes which by such declaration shall have become
payable) shall have been duly paid, and every other default and Event of
Default shall have been made good or cured, then and in every such case
the holders of seventy-five percent (75%) or more in principal amount of
all Notes then outstanding may, by written instrument filed with any
Company, rescind and annul such declaration and its consequences; but no
such rescission or annulment shall extend to or affect any subsequent
default or Event of Default or impair any right consequent thereon.
ARTICLE VII
DEFINITIONS AND ACCOUNTING TERMS
7.01. CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be
equally applicable to both the singular and plural forms of the terms
defined):
"Agreement" means this Secured Note and Warrant Purchase Agreement
as from time to time amended and in effect between the parties.
"Capital Resource Company Act" shall have the meaning assigned to
that term in Section 1.11.
"Code" shall have the meaning assigned to that term in Section
4.01(i).
"Commission" means the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
<PAGE>
"Companies" means and shall include Matec Corporation, Bergen Cable
Technologies, Inc., Matec Applied Sciences, Inc., Matec Instruments,
Inc. and Valpey-Fisher Corporation and their respective successors and
assigns.
"Common Stock" includes Matec's Common Stock, $.05 par value per
share, as authorized on the date of this Agreement, and any other
securities into which or for which any of such Common Stock may be
converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise.
"Consolidated" and "consolidating" when used with reference to any
term defined herein mean that term as applied to the accounts of the
Companies and their Subsidiaries consolidated in accordance with
generally accepted accounting principles.
"Consolidated Net Earnings Available for Interest Charges" means,
for any period, Consolidated Net Income for such period plus (a)
interest paid or accrued by the Companies and their Subsidiaries with
respect to all Indebtedness for such period and (b) income and excess
profit taxes for such period and all other taxes for such period which
are imposed on or measured by income after deduction of interest
charges.
"Consolidated Net Income" means, for any period, the net income (or
net deficit) of the Companies and their Subsidiaries for such period,
after all expenses, taxes and other proper charges, determined in
accordance with generally accepted accounting principles eliminating (i)
all intercompany items, (ii) all earnings attributable to equity
interests in Persons that are not Subsidiaries unless actually received
by the Companies or their Subsidiaries, (iii) all income arising from
the forgiveness, adjustment or negotiated settlement of any
Indebtedness, and (iv) any increase or decrease of income arising from
any change in the method of accounting for any item from that employed
in the preparation of the financial statements attached hereto as
EXHIBIT 3.08.
"Consolidated Net Worth" means, at any dates, the sum of (a) the
par value of all of the stock of the Companies issued and outstanding,
(b) the amount of any additional paid-in-capital and (c)
(i) the positive retained earnings, if any, of the
Companies and their Subsidiaries, or
(ii) less, the amount of any deficit in the retained
earnings of the Companies and their Subsidiaries
as the same appears on a consolidated balance sheet of the Companies and
their Subsidiaries prepared in accordance with generally accepted
accounting principles consistently applied as of such date, after
eliminating all intercompany items and all amounts properly attributable
to (1) any write-up in the book value of any asset resulting from a
revaluation thereof after the date of this Agreement; (2) the amount of
any intangible assets including patents, trademarks, unamortized debt
discount and expense, goodwill, covenants and agreements and the excess
of the purchase price paid for assets or stock acquired over the value
<PAGE>
assigned thereto on the books of such Company or of such Subsidiary
which shall have acquired the same; (3) earnings attributable to any
other Person unless actually received by the Companies or their
Subsidiaries; and (4) changes in the method of accounting.
"Current Liabilities" means all liabilities of any corporation
which would, in accordance with generally accepted accounting principles
consistently applied, be classified as current liabilities of a
corporation conducting a business the same as or similar to that of such
corporation, including, without limitation, all rental payments due
under leases required to be capitalized in accordance with applicable
Statements of Financial Accounting Standards and fixed prepayments of,
and sinking fund payments with respect to, Indebtedness (including
Indebtedness evidenced by the Notes), which payments are required to be
made within one year from the date of determination.
"Distribution" shall have the meaning assigned to that term in
Section 4.02(g).
"ERISA" shall have the meaning assigned to that term in Section
3.10.
"Events of Default" shall have the meaning assigned to that term in
Section 6.01.
"Exchange Act" means the Securities Exchange Act of 1934 or any
similar federal statute, and the rules and regulations of the Commission
(or of any other Federal Agency then administering the Exchange Act)
thereunder, all as the same shall be in effect at the time.
"Form 10-K" means Matec's Form 10-K for the fiscal year ended
December 31, 1994 as filed with the Commission pursuant to the Exchange
Act.
"Government Contract" shall have the meaning assigned to that term
in Section 3.14.
"Indebtedness" means all obligations, contingent and otherwise,
which should, in accordance with generally accepted accounting
principles consistently applied, be classified upon the obligor's
balance sheet as liabilities, but in any event including, without
limitation, liabilities secured by any mortgage on property owned or
acquired subject to such mortgage, whether or not the liability secured
thereby shall have been assumed, and also including, without limitation,
(i) all guaranties, endorsements and other contingent obligations, in
respect of Indebtedness of others, whether or not the same are or should
be so reflected in said balance sheet, except guaranties by endorsement
of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business and (ii) the present
value of any lease payments due under leases required to be capitalized
in accordance with applicable Statements of Financial Accounting
Standards, determined in accordance with applicable Statements of
Financial Accounting Standards.
<PAGE>
"Interest Charges" means the interest expense of the Companies and
their Subsidiaries on Indebtedness (including the current portion
thereof).
"Matec" means Matec Corporation, Delaware corporation, and its
successors and assigns.
"Notes" shall have the meaning assigned to that term in Section
1.01.
"Person" means an individual, corporation, partnership, joint
venture, trust, or unincorporated organization, or a government or any
agency or political subdivision thereof.
"Proxy Statement" means the Proxy Statement, filed by Matec with
the Commission for use in connection with Matec's April 26, 1995 meeting
of stockholders.
"Purchaser" means and shall include not only the Massachusetts
Capital Resource Company but also any other holder or holders of any of
the Notes or Warrants.
"Registrable Shares" means and shall include the shares of Common
Stock issued and issuable upon exercise of the Warrants, excluding,
however, any such shares of Common Stock which have been: (a) registered
under the Securities Act pursuant to an effective registration statement
filed thereunder and disposed of in accordance with the registration
statement covering them or (b) publicly sold pursuant to Rule 144 under
the Securities Act.
"Securities Act" means the Securities Act of 1933 or any similar
Federal statute, and the rules and regulations of the Commission (or of
any other Federal agency then administering the Securities Act)
thereunder, all as the same shall be in effect at the time.
"Security Agreements" shall have the meaning assigned to that term
in Section 2.02(a).
"Subsidiary" or "Subsidiaries" means any corporation or trust of
which any Company and/or any Subsidiaries (as herein defined) directly
or indirectly owns at the time all of the outstanding shares of every
class of such corporation or trust other than directors' qualifying
shares.
"Warrants" shall have the meaning assigned to that term in Section
1.02.
7.02. ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles consistent with those applied in preparation of
the financial statements attached hereto as EXHIBIT 3.08, and all
financial data submitted pursuant to this Agreement and all financial
tests to be calculated in accordance with this Agreement shall be
prepared and calculated in accordance with such principles.
<PAGE>
ARTICLE VIII
MISCELLANEOUS
8.01. NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the
part of the Purchaser, or any other holder of the Notes or Warrants in
exercising any right, power or remedy hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any such
right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy hereunder. The
remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
8.02. AMENDMENTS, WAIVERS AND CONSENTS. Any provision in this
Agreement, the Notes or the Warrants to the contrary notwithstanding,
changes in or additions to this Agreement may be made, and compliance
with any covenant or provision herein or therein set forth may be
omitted or waived, if the Companies (i) shall, in the case of the Notes,
obtain consent thereto in writing from the holder or holders of at least
seventy-five percent (75%) in principal amount of all Notes then
outstanding, and (ii) shall, in the case of the Warrants, obtain the
consent thereto in writing from the holder or holders of at least
seventy-five percent (75%) of the Common Stock issued and issuable upon
exercise of the Warrants; PROVIDED, HOWEVER, that if any such consent
shall effect solely the provisions of the Notes or solely the provisions
of the Warrants, then, in such event, the foregoing consent need only be
obtained from the holders of the Notes or Warrants, as the case may be,
and further provided that no such consent shall be effective to reduce
or to postpone the date fixed for the payment of the principal
(including any required redemption) or interest payable on any Note,
without the consent of the holder thereof, or to reduce the percentage
of the Notes and Warrants the consent of the holders of which is
required under this Section. Any waiver or consent may be given subject
to satisfaction of conditions stated therein and any waiver or consent
shall be effective only in the specific instance and for the specific
purpose for which given. Written notice of any waiver or consent
effected under this subsection shall promptly be delivered by the
Companies to any holders who did not execute the same.
8.03. ADDRESSES FOR NOTICES, ETC. All notices, requests, demands
and other communications provided for hereunder shall be in writing
(including telegraphic communication) and mailed or sent by facsimile or
delivered to the applicable party at the addresses indicated below:
If to the Companies:
Matec Corporation
Matec Applied Sciences, Inc.
Matec Instruments, Inc.
Valpey-Fisher Corporation
75 South Street
Hopkinton, Massachusetts 01748
Attention: President
<PAGE>
Bergen Cable Technologies, Inc.
Gregg Street
Lodi, New Jersey 07644
Attention: President
If to the Purchaser:
Payments should be mailed to:
Massachusetts Capital Resource Company
P. O. Box 3707
Boston, Massachusetts 02241
and all other deliveries and other communications made at or sent
to:
Massachusetts Capital Resource Company
420 Boylston Street
Boston, Massachusetts 02116
Attention: Richard W. Anderson, Senior Vice President
If to any other holder of the Notes or Warrants: at such holder's
address for notice as set forth in the register maintained by Matec, or,
as to each of the foregoing, at such other address as shall be
designated by such Person in a written notice to the other party
complying as to delivery with the terms of this Section. All such
notices, requests, demands and other communications shall, when mailed
or sent by facsimile, respectively, be effective when deposited in the
mails or sent by such facsimile, respectively, addressed as aforesaid.
8.04. COSTS, EXPENSES and TAXES. The Companies, jointly and
severally, agree to pay on demand all costs and expenses of the
Purchaser in connection with the preparation, execution and delivery of
this Agreement, the Notes, the Warrants, the Security Agreements and
other instruments and documents to be delivered hereunder, including the
reasonable fees and out-of-pocket expenses of Messrs. Testa, Hurwitz &
Thibeault, special counsel for the Purchaser, with respect thereto, as
well as the reasonable fees and out-of-pocket expenses of legal counsel,
independent public accountants and other outside experts reasonably
retained by the Purchaser in connection with the amendment or
enforcement of this Agreement, the Notes, the Warrants, the Security
Agreements and other instruments and documents to be delivered hereunder
or thereunder. In addition, the Companies, jointly and severally, shall
pay any and all stamp and other taxes payable or determined to be
payable in connection with the execution and delivery of this Agreement,
the Notes, the Warrants, the Security Agreements and the other
instruments and documents to be delivered hereunder or thereunder and
agrees to save the Purchaser harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or
omission to pay such taxes and filing fees.
8.05. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of each Company and the Purchaser and
their respective successors and assigns, except that no Company shall
<PAGE>
have the right to assign its rights hereunder or any interest herein
without the prior written consent of the Purchaser.
8.06. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made in this Agreement, the Notes, the
Warrants, the Security Agreements or any other instrument or document
delivered in connection herewith or therewith, shall survive the
execution and delivery hereof or thereof and the making of the loans.
8.07. PRIOR AGREEMENTS. This Agreement constitutes the entire
agreement between the parties and supersedes any prior understandings or
agreements concerning the subject matter hereof.
8.08. SEVERABILITY. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability
of any other provision.
8.09. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of
Massachusetts.
8.10. HEADINGS. Article, Section and subsection headings in this
Agreement are included herein for convenience of reference only and
shall not constitute a part of this Agreement for any other purpose.
8.11. SEALED INSTRUMENTS. This Agreement is executed as an
instrument under seal.
8.12. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and
the same instrument, and each of the parties hereto may execute this
Agreement by signing any such counterpart.
8.13. FURTHER ASSURANCES. From and after the date of this
Agreement, upon the request of the Purchaser, each Company and each
Subsidiary shall execute and deliver such instruments, documents and
other writings as may be necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement, the
Notes, the Warrants and the Security Agreements.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
MATEC CORPORATION
By /s/ Robert B. Gill
Robert B. Gill, President
<PAGE>
BERGEN CABLE TECHNOLOGIES, INC.
By /s/ Robert B. Gill
Robert B. Gill, Chief Executive
Officer
MATEC APPLIED SCIENCES, INC.
By /s/ Robert B. Gill
Robert B. Gill, Chief Executive
Officer
MATEC INSTRUMENTS, INC.
By /s/ Robert B. Gill
Robert B. Gill, President
VALPEY-FISHER CORPORATION
By /s/ Robert B. Gill
Robert B. Gill, President
MASSACHUSETTS CAPITAL RESOURCE COMPANY
By /s/ Richard W. Anderson
Richard W. Anderson, Senior Vice
President
<PAGE>
<PAGE>
The exhibits to the Secured Note and Warrant Purchase Agreement are not
included herewith. Registrant hereby undertakes and agrees to furnish a
copy of each such exhibit to the Securities and Exchange Commission upon
request.
<PAGE>
MATEC Corporation and Subsidiaries Exhibit 11
Calculation of Earnings Per Share
(amounts in thousands, except per share data)
Years Ended December 31,
1998 1997(A) 1996(A)
------ ------ ------
Net earnings (loss) from continuing operations ... $ 205 $ 66 $ (460)
Net earnings from discontinued operations ........ 680 422 384
------ ------ ------
Net earnings (loss) .............................. $ 885 $ 488 $ (76)
====== ====== ======
Calculation of basic earnings per share:
- ----------------------------------------
Weighted average common shares outstanding ...... 2,729 2,737 2,767
===== ===== =====
Basic earnings (loss) per common share:
Continuing operations ......................... $ .07 $ .02 $ (.17)
Discontinued operations ....................... .25 .16 .14
------ ------ ------
$ .32 $ .18 $ (.03)
====== ====== ======
Calculation of diluted earnings per share:
- ------------------------------------------
Weighted average common shares outstanding ...... 2,729 2,737 2,767
Increase from assumed exercise of stock options
and investment of proceeds in treasury stock,
based upon the average market prices (B) (C) (D) 2 22 -
----- ----- -----
Average common stock and common equivalent
shares used to calculate diluted earnings
(loss) per share ............................... 2,731 2,759 2,767
===== ===== =====
Diluted earnings (loss) per common share:
Continuing operations ......................... $ .07 $ .02 $ (.17)
Discontinued operations ....................... .25 .16 .14
------ ------ ------
$ .32 $ .18 $ (.03)
====== ====== ======
(A) Restated for discontinued operations.
(B) The effect of the outstanding warrants to purchase 85,000 shares
of common stock was not considered in 1998 since the effect would be
antidilutive.
(C) The dilutive effect of the outstanding warrants was not included in the
1997 computation since the exercise price was greater than the average
market price of the common shares.
(D) The dilutive effect of stock options and warrants was not considered
in 1996 since the Company reported a loss from continuing operations.
<PAGE>
<PAGE>
<PAGE>
COMMON STOCK INFORMATION
MATEC common stock is listed and traded on the American Stock Exchange
under the symbol MXC. The range of high and low prices during each
quarter for the past two years is shown below:
For the years ended December 31, 1998 1997
- ---------------------------------------------------------------------
High Low High Low
- ---------------------------------------------------------------------
4th quarter 4 3 3/8 4 1/4 3 15/16
3rd quarter 4 3 5/8 5 1/8 4
2nd quarter 6 3 1/4 5 3/8 3 7/8
1st quarter 4 1/2 3 3/4 4 1/8 3 3/8
The Company paid a special nonrecurring cash distribution of a $1.75
per share in May 1998. This distribution represented a substantial
portion of the net cash proceeds from the sale of its Bergen Cable
Technologies subsidiary. See Note 3 of the Notes to Consolidated
Financial Statements. No dividend was paid in 1997. Under the Term
Debt Agreement, the Company is restricted to the amount of cash
dividends paid in any one year. See Note 10 of the Notes to
Consolidated Financial Statements.
The approximate number of stockholders of record on February 26, 1999
was 1,125. This number does not include stockholders for whom shares
are held in a "nominee" or "street" name.
(Remaining information on inside front cover not incorporated by
reference.)
Inside front cover
<PAGE>
<PAGE>
<TABLE>
Five Year Financial Summary
<CAPTION>
Years Ended December 31, 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Continuing operations:
Net sales $12,062 $12,915 $12,388 $12,949 $ 8,342
Gross profit 2,672 3,189 2,566 3,634 1,742
Earnings (loss) before income taxes 192 93 (784) 573 (1,156)
Income (taxes) benefit 13 (27) 324 (252) 312
Earnings (loss) 205 66 (460) 321 (844)
Discontinued operations - net 680 422 384 (18) 730
- ---------------------------------------------------------------------------------------------------
Net earnings (loss) $ 885 $ 488 $ (76) $ 303 $ (114)
===================================================================================================
Basic and diluted earnings (loss) per share:
Continuing operations $ .07 $ .02 $ (.17) $ .12 $ (.30)
Discontinued operations .25 .16 .14 (.01) .26
- --------------------------------------------------------------------------------------------------
Earnings (loss) $ .32 $ .18 $ (.03) $ .11 $ (.04)
===================================================================================================
Weighted average shares outstanding 2,729 2,737 2,767 2,765 2,765
===================================================================================================
Cash dividends per share $ 1.75 $ - $ - $ - $ -
===================================================================================================
Total assets, end of year:
Continuing operations $16,502 $14,782 $12,412 $13,935 $11,096
Discontinued operations - 7,144 7,709 7,793 6,897
- ---------------------------------------------------------------------------------------------------
$16,502 $21,926 $20,121 $21,728 $17,993
===================================================================================================
Long-term debt, end of year $ 1,993 $ 1,989 $ 1,984 $ 2,180 $ 428
===================================================================================================
</TABLE>
<PAGE>
<PAGE>
Management's Discussion and Analysis
Financial Condition
Cash and cash equivalents increased $3,631,000 from December 31,
1997. The Company's continuing operations and investing activities
generated cash of $242,000 and $1,229,000, respectively, during the
year while financing activities used cash of $4,890,000.
Discontinued operations generated $7,050,000 in cash.
Accounts receivable, net decreased $272,000 from the 1997 level
mainly as a result of the lower fourth quarter sales in 1998 compared
to the comparable period in 1997. Inventory increased $166,000 over
1997 primarily to support the current sales backlog and delivery
requirements. Accounts payable and accrued liabilities had a net
decrease of $220,000 from the balance at the end of 1997. The
decrease in accounts payable of $523,000 is mainly attributable to
the timing of inventory purchases. The increase in accrued
liabilities of $303,000 is mainly due to an increase in amounts due
relating to the discontinued operations, offset in part by lower
employee compensation and insurance liabilities. Income taxes
payable increased $478,000 over 1997 mainly as a result of the
Company's overall increase in earnings.
During 1998, the Company received net cash proceeds of $1,862,000
from the sale of its real estate complex in Delaware and $200,000
from the sale of its common stock investment in Colloidal Dynamics
Pty. Ltd. Capital expenditures amounted to $855,000 in 1998 as the
Company added new and upgraded existing production capabilities and
processes. The Company's capital budget for 1999 is approximately
$600,000 and is geared toward continued improvement in its
manufacturing operations.
On May 15, 1998, the Company paid a special nonrecurring cash
distribution of a $1.75 per share to stockholders of record on May 4,
1998. This special nonrecurring distribution totaled $4,827,000 and
represents a substantial portion of the net proceeds from the sale of
the Company's Bergen Cable subsidiary. During 1998, the Company
purchased $164,000 of treasury shares. The mandatory cash-out of
stockholders of record owning less than 100 shares accounted for
$144,000 of these treasury shares.
At December 31, 1998, the Company has unused lines of credit of
$1,850,000.
The Company believes that, based on its current working capital, the
expected cash flows from operations and its current debt
arrangements, its resources are sufficient to meet the financial
needs and to fund the capital expenditures for the projected levels
of business in 1999.
<PAGE>
<PAGE>
Results of Operations -- 1998 versus 1997
Net sales from continuing operations decreased $853,000 (7%) from
1997 as a result of a 34% decrease in sales of imported product that
was partially offset by a 24% increase in sales of domestically
produced product. The sales decrease in the import product line was
due to a lower beginning backlog and lower bookings during the year.
The sales increase in the domestically produced product line mainly
resulted from a higher beginning backlog level. Bookings in 1998
were approximately 23% lower than 1997 and resulted mainly from a
slow down in the electronic component industry caused in part by the
financial difficulties in the Far East.
The gross profit percentage decreased from 25% in 1997 to 22% in
1998. The margin decrease was mainly attributable to an increased
overhead percentage offset in part by lower raw material costs.
Direct labor costs remained fairly comparable during both years. The
unfavorable effect of allocating the fixed overhead over the lower
sales volume and increased personnel costs and depreciation expense
were the main factors causing the higher overhead percentage in
1998. The decrease in material costs was mainly due to a change in
sales mix.
Selling and advertising expenses increased $423,000 (26%) over 1997
mainly as a result of increased personnel costs and advertising
expenses.
General and administrative expenses decreased $209,000 (17%) from
1997 mainly due to lower corporate payroll expense in 1998. The
payroll decrease occurred primarily as a result of the Company's
president resigning in the third quarter of 1997 and not being
replaced.
Interest expense decreased from $241,000 in 1997 to $197,000 in 1998
as a result of lower levels of short-term debt and a lower interest
rate on the term debt. Interest income amounted to $237,000 in 1998
compared to $16,000 in 1997. The increase in interest income results
from the higher cash levels generated by the sales of real estate and
discontinued operations and the interest income received on the note
receivables related to the sales of the discontinued operation. The
$523,000 gain on sales of assets results from the sales of the
Company's real estate complex in Delaware and the common stock
investment in Colloidal Dynamics Pty. Ltd.
The Company recorded a $13,000 tax benefit in 1998 compared to tax
expense of $27,000 in 1997. The main reasons causing the tax benefit
in 1998 was the recognition of a state operating loss carryforward
and the non-taxable effect of the dividend exclusion. The 1997 tax
expense also includes the non-taxable effect of the dividend
exclusion.
As a result of the lower sales level and gross margin in 1998 and the
increase in operating expenses over 1997, the Company reported an
operating loss of $441,000 in 1998 compared to an operating profit of
$291,000 in 1997. Nonoperating income amounted to $633,000 in 1998
compared to expense of $197,000 in 1997. As a result, the Company
reported pre-tax earnings from continuing operations of $192,000
<PAGE>
<PAGE>
in 1998 compared to $93,000 in 1997. Earnings from continuing
operations amounted to $205,000 in 1998 versus $66,000 in 1997.
Earnings from discontinued operations amounted to $680,000 in 1998
compared to $422,000 in 1997. In total, the Company reported net
earnings of $885,000 in 1998 compared to $488,000 in 1997.
Results of Operations -- 1997 versus 1996
Net sales from continuing operations increased $527,000 (4%) over
1996 as a result of increased demand and improved market conditions
of both the OEM and contract manufacturers in the telecommunications
market.
The gross profit percentage increased to 25% in 1997 from 21% in 1996
mainly as a result of a lower provision for slow moving inventory in
1997 and the closing of the Carlisle manufacturing facility in 1996.
Both selling and advertising expenses and general and administrative
expenses remained fairly level with 1996.
The $180,000 of restructuring expenses in 1996 relates to the
expenses for the closing of the Carlisle manufacturing operation and
relocating it in Hopkinton.
Interest expense decreased from $343,000 in 1996 to $241,000 in 1997
as a result of lower levels of short and long-term debt.
The effective income tax rate in 1997 was 29% compared to an income
tax benefit rate of 41% in 1996. The main factor affecting the
comparability of rates was the overall effect of the dividend
exclusion in 1997 versus 1996.
As a result of the higher sales level and gross margin in 1997 and
the decrease in operating and restructuring expenses from 1996, the
Company reported an operating profit of $291,000 in 1997 compared to
a $503,000 operating loss in 1996. Nonoperating expenses decreased
$83,000 from 1996 mainly as a result of lower interest expense. As
a result, the Company reported a pre-tax profit from continuing
operations of $93,000 in 1997 compared to a pre-tax loss of $784,000
in 1996. Earnings from continuing operations amounted to $66,000 in
1997 versus a loss of $460,000 in 1996. Discontinued operations
reported net earnings of $422,000 in 1997 versus net earnings of
$384,000 in 1996. Overall, the Company reported net earnings of
$488,000 in 1996 compared to a net loss of $76,000 in 1996.
Quantitative and Qualitative Disclosures about Market Risk
The Company's cash balances in excess of operating requirements are
currently invested in money market accounts. These money market
accounts are subject to interest rate risk and interest income will
fluctuate in relation to general money market rates. Based on the
cash and cash equivalent balance at December 31, 1998, and assuming
the balance was totally invested in money market instruments for the
full year, a hypothetical 1% decline in interest rates would result
in an approximate $45,000 decrease in interest income.
<PAGE>
<PAGE>
The Company's investment in marketable equity securities, which are
classified as available-for-sale, represents 517,527 shares of
MetroWest Bank common stock and are subject to equity price risk.
These securities are recorded on the balance sheet at fair market
value with unrealized gains (losses) reported as a separate component
of stockholders' equity under the caption "accumulated other
comprehensive income". Accordingly, while a hypothetical 10% decline
in the market value of these securities would reduce total assets by
approximately $314,000, this decrease would not have an effect on the
statement of operations unless the securities were actually sold.
At December 31, 1998, the Company has a $2 million face amount term
note at a 10% fixed interest rate. A hypothetical 10% adverse change
(i.e. decrease) in interest rates, would result in a $30,000 increase
in the fair value of the term note at December 31, 1998.
The Company purchases certain inventory from and sells product to
foreign countries. As these activities are currently transacted in
U.S. dollars, they are not subject to foreign currency exchange
risk. However, significant fluctuation in the currencies where the
Company purchases inventory or sell product could make the U.S.
dollar equivalent of such transactions more or less favorable to the
Company and the other involved parties.
Impact of the Year 2000 Issue
During the second quarter of 1998, the Company began reviewing its
current computer system and software as it relates to the Year 2000
issue. The Company is in the process of having its current software
modified to be Year 2000 compliant and expects these changes to be
completed by the 3rd quarter 1999.
The Company has and is continuing to request assurances from its
major suppliers relating to the Year 2000 compliance issue. Based on
the responses to date, most major suppliers are or expect to be Year
2000 compliant.
The Company is in the process of reviewing its manufacturing
equipment and facility to assess and minimize Year 2000 issues.
While the review is not yet complete, at this time the Company does
not see any major obstacle which would effect manufacturing equipment
or the facility in the Year 2000.
The total estimated cost for resolving the Company's Year 2000 issues
is not expected to exceed $75,000.
The Company does not have a formalized contingency plan if the
software changes are not completed and working before 2000. The
Company will continue to monitor progress on the changes and during
the 3rd quarter determine if a contingency plan is required.
At this point, the Company believes it will not experience
significant operational problems. However, the Company could
experience operational problems or disruptions if third-party
providers of electricity, telephone, water, or transportation
services are unable to provide their services due to Year 2000
issues.
<PAGE>
<PAGE>
Forward-Looking Statements
This Annual Report, including Management's Discussion and Analysis,
the Letter to Stockholders and Operations, contain forward-looking
statements that involve risks and uncertainties that could cause
actual results to differ materially from those in the forward-looking
statements. Words such as "expects", "believes", "estimates",
"plans" or similar expressions are intended to identify such
forward-looking statements. The forward-looking statements are based
on the Company's current views and assumptions and involve risks and
uncertainties that include, but not limited to: the ability to
develop, market and manufacture new innovative products
competitively, the ability of the Company's suppliers to produce and
deliver materials competitively, and the ability to limit the amount
of the negative effect on operating results caused by pricing
pressures.
<PAGE>
<PAGE>
Consolidated Balance Sheets
December 31, 1998 1997
- --------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 4,515,778 $ 885,097
Receivables, net 1,771,906 1,921,034
Inventories 2,793,041 2,626,752
Deferred income taxes and other current assets 1,311,386 843,723
- --------------------------------------------------------------------------
Total current assets 10,392,111 6,276,606
- --------------------------------------------------------------------------
Property, plant and equipment, at cost:
Land and improvements 313,674 1,002,232
Buildings and improvements 2,617,916 5,413,643
Machinery and equipment 4,984,213 4,166,958
- --------------------------------------------------------------------------
7,915,803 10,582,833
Less accumulated depreciation 5,263,944 6,805,880
- --------------------------------------------------------------------------
2,651,859 3,776,953
Other assets:
Marketable equity securities 3,137,507 4,657,743
Net assets of discontinued operations - 7,143,972
Miscellaneous 320,122 70,456
- --------------------------------------------------------------------------
$16,501,599 $21,925,730
==========================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 410,664 $ 933,438
Accrued liabilities 1,164,518 861,415
Income taxes 894,319 415,960
- --------------------------------------------------------------------------
Total current liabilities 2,469,501 2,210,813
- --------------------------------------------------------------------------
Deferred income taxes 1,547,364 2,317,474
Long-term debt 1,993,280 1,988,840
Stockholders' equity:
Preferred stock, $1.00 par value-
Authorized 1,000,000 shares; issued, none - -
Common stock, $.05 par value-Authorized
10,000,000 shares; issued 2,716,948 and
3,804,195 shares 135,847 190,210
Capital surplus 4,640,826 6,442,439
Retained earnings 3,931,658 11,443,318
Accumulated other comprehensive income 1,783,123 2,695,359
Treasury stock at cost, 1,070,544 shares - (5,362,723)
- --------------------------------------------------------------------------
Total stockholders' equity 10,491,454 15,408,603
- --------------------------------------------------------------------------
$16,501,599 $21,925,730
=========================================================================
See notes to consolidated financial statements.
<PAGE>
<PAGE>
<TABLE>
Consolidated Statements of Operations
<CAPTION>
For the Years Ended December 31, 1998 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $12,061,652 $12,914,921 $12,387,777
Cost of sales 9,389,870 9,725,756 9,822,055
- -----------------------------------------------------------------------------------------
Gross profit 2,671,782 3,189,165 2,565,722
- -----------------------------------------------------------------------------------------
Selling and advertising expenses 2,082,465 1,659,183 1,617,741
General and administrative expenses 1,030,131 1,239,429 1,270,904
Restructuring expenses - - 180,000
- ----------------------------------------------------------------------------------------
3,112,596 2,898,612 3,068,645
- ----------------------------------------------------------------------------------------
Operating profit (loss) (440,814) 290,553 (502,923)
Other income (expense):
Interest expense (196,818) (241,037) (342,701)
Interest income 236,695 16,170 25,603
Gain on sales of assets 523,351 - -
Other, net 69,733 27,467 36,210
- -----------------------------------------------------------------------------------------
632,961 (197,400) (280,888)
- -----------------------------------------------------------------------------------------
Earnings (loss) from continuing operations
before income taxes 192,147 93,153 (783,811)
Income tax (expense) benefit 12,600 (27,200) 324,000
- -----------------------------------------------------------------------------------------
Earnings (loss) from continuing operations 204,747 65,953 (459,811)
- ----------------------------------------------------------------------------------------
Earnings from discontinued operations 680,390 422,402 384,183
- -----------------------------------------------------------------------------------------
Net earnings (loss) $ 885,137 $ 488,355 $ (75,628)
=========================================================================================
Basic and diluted earnings (loss) per share:
Continuing operations $ .07 $ .02 $ (.17)
Discontinued operations .25 .16 .14
- -----------------------------------------------------------------------------------------
$ .32 $ .18 $ (.03)
=========================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
<CAPTION>
For the Years Ended December 31, 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net earnings (loss) from continuing operations $ 204,747 $ 65,953 $ (459,811)
Adjustments to reconcile net earnings (loss) from
continuing operations to net cash provided (used)
by operating activities:
Depreciation and amortization 504,634 557,991 566,891
Changes in deferred income taxes (349,900) (30,200) (245,300)
Gain on sales of assets (523,351) - -
Loss on write-off of assets under restructuring plans - 55,000
Other 4,440 4,440 4,440
Changes in assets and liabilities:
Receivables, net 270,586 (219,514) 777,977
Inventories (166,289) (269,196) 1,292,953
Other current assets 38,127 (46,339) (7,289)
Accounts payable and accrued liabilities (219,671) 153,036 (661,501)
Income taxes, net 478,359 297,437 (355,782)
- --------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 241,682 513,608 967,578
- ---------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Proceeds from sales of assets 2,061,780 - -
Capital expenditures (855,028) (337,174) (379,902)
Collection of note receivables 29,850 - -
Other, net (7,915) (1,696) 5,000
- ---------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities 1,228,687 (338,870) (374,902)
- ---------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Dividend paid (4,826,943) - -
Purchases of common stock (164,157) (79,597) (64,490)
Stock options exercised 101,050 - 45,479
Net repayments under lines of credit - (650,000) (1,000,000
Payments on long-term debt - (200,000) (228,333)
---------------------------------------------------------------------------------------------------------
Net cash (used) by financing activities (4,890,050) (929,597) (1,247,344)
- ---------------------------------------------------------------------------------------------------------
Cash Provided by Discontinued Operations 7,050,362 1,029,666 569,522
- -------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 3,630,681 274,807 (85,146)
Cash and Cash Equivalents at beginning of year 885,097 610,290 695,436
- ---------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at end of year $ 4,515,778 $ 885,097 $ 610,290
=========================================================================================================
Supplemental Disclosures of Cash Flow Information
Cash paid during the year by continuing operations for:
Interest $ 208,492 $ 261,119 $ 360,591
Income taxes $ 146,256 $ 12,540 $ -
</TABLE>
<PAGE>
<PAGE>
Consolidated Statements of Cash Flows - continued
Noncash Investing and Financing Activities:
During 1998, the Company retired all of its treasury stock. The total
cost of the treasury shares of $5,527,000 reduced common stock, capital
surplus and retained earnings by $56,000, $1,901,000 and $3,570,000,
respectively.
In connection with the sales of discontinued operations in 1998, the
Company recorded a $456,000 receivable and a $1,250,000 note receivable
less a deferred gain on sale of $1,250,000.
See notes to consolidated financial statements.
<PAGE>
<PAGE>
<TABLE>
Consolidated Statements of Stockholders' Equity
<CAPTION>
Accumulated
Other
Common Stock Capital Retained Comprehensive Treasury
Shares Amount Surplus Earnings Income Stock
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 3,793,695 $189,685 $6,397,485 $11,030,591 $1,181,415 $(5,218,636)
Net (loss) - - - (75,628) - -
Purchases of common stock - - - - - (64,490)
Unrealized gain on marketable
equity securities - - - - 388,909 -
Exercise of stock options 10,500 525 44,954 - - -
- ---------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 3,804,195 190,210 6,442,439 10,954,963 1,570,324 (5,283,126)
Net earnings - - - 488,355 - -
Purchases of common stock - - - - - (79,597)
Unrealized gain on marketable
equity securities - - - - 1,125,035 -
- ----------------------------------------------------------------------------------------------------------------
Balance December 31, 1997 3,804,195 190,210 6,442,439 11,443,318 2,695,359 (5,362,723)
Net earnings - - - 885,137 - -
Cash dividend paid ($1.75
per share) - - - (4,826,943) - -
Purchases of common stock (164,157)
Exercise of stock options 24,700 1,234 99,816 - - -
Retirement of treasury stock (1,111,947) (55,597) (1,901,429) (3,569,854) - 5,526,880
Unrealized loss on marketable
equity securities - - - - (912,236) -
- ----------------------------------------------------------------------------------------------------------------
Balance December 31, 1998 2,716,948 $135,847 $4,640,826 $3,931,658 $1,783,123 $ -
================================================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<PAGE>
<TABLE>
Consolidated Statements of Comprehensive Income (Loss)
<CAPTION>
For the years ending December 31, 1998 1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings (loss) $ 885,137 $ 488,355 $ (75,628)
Other comprehensive income, before tax:
Unrealized gain (loss) on
marketable equity securities (1,520,236) 1,876,035 646,909
Income tax (expense) benefit 608,000 (751,000) (258,000)
- ------------------------------------------------------------------------------------
Other comprehensive income (loss), net of tax (912,236) 1,125,035 388,909
- ------------------------------------------------------------------------------------
Comprehensive income (loss) $ (27,099) $ 1,613,390 $ 313,281
====================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<PAGE>
Notes to Consolidated Financial Statements
(1) Description of Business -- As described below, the Company disposed of
its Steel Cable and Instruments business segments during 1998. As a
result, the Company's current remaining business is conducted through its
Valpey-Fisher subsidiary, which was previously reported in the Electronics
business segment. Valpey-Fisher is involved in the design, production,
import, and sale of quartz crystals and oscillators and also designs and
manufactures ultrasonic transducers and offers a wide variety of
piezoelectric and high precision optical components.
(2) Summary of Significant Accounting Policies:
Principles of consolidation -- The accompanying consolidated financial
statements include the accounts of MATEC Corporation and its wholly owned
subsidiaries. Significant intercompany balances and transactions have
been eliminated in consolidation.
Use of estimates -- The preparation of the Company's financial
statements in conformity with generally accepted accounting principles
necessarily requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the balance sheet dates. Estimates
include reserves for accounts receivable and inventory, useful lives of
property, plant and equipment, accrued liabilities, and deferred income
taxes.
Fair value of financial instruments -- Statement of Financial
Accounting Standards ("SFAS") No. 107 "Disclosures About Fair Value of
Financial Instruments" requires disclosure of the fair value of certain
financial instruments. The carrying amounts of cash, cash equivalents,
accounts payable and accrued expenses approximate fair value because of
their short-term nature. Marketable equity securities are recorded in the
financial statements at aggregate fair value. The carrying amounts of the
Company's debt instruments approximate fair value (Notes 10 and 11).
Cash equivalents -- For purposes of the statements of cash flows, the
Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. Cash equivalents
are stated at cost plus accrued interest, which approximates market value.
Cash and cash equivalents in accounts at MetroWest Bank amounted to
$4,242,000 and $438,000 at December 31, 1998 and 1997, respectively.
Inventories -- Inventories are stated at the lower of cost or market
and are determined by the first-in, first-out method (FIFO).
Property, plant and equipment -- The Company uses the straight-line
method of providing for depreciation and amortization of property, plant
and equipment for financial reporting purposes and accelerated methods for
tax purposes. The estimated lives used to compute depreciation and
amortization are as follows: land improvements - 10 years, buildings and
improvements - 15 to 40 years and machinery and equipment - 3 to 10 years.
Marketable equity securities -- Marketable equity securities consist
of common stocks and are valued under SFAS No. 115 "Accounting for Certain
Investments in Debt and Equity Securities". Under SFAS 115, the Company
has classified these securities as "available for sale" and are valued at
fair value, with unrealized gains, net of taxes excluded from earnings and
reported as a component of stockholders' equity.
<PAGE>
<PAGE>
Notes continued
The Company's investment in marketable equity securities consists of
517,527 shares of MetroWest Bank common stock. At December 31, 1998 and
1997, the fair market value (based on quoted market prices) of these
shares was $3,137,507 and $4,657,743, respectively, and the cost basis was
$710,384. Gross unrealized gains amounted to $2,427,123 and $3,947,359 at
December 31, 1998 and 1997, respectively, and there were no unrealized
losses at either date. During 1998, the Company recorded a $912,236
decrease in the "Accumulated Other Comprehensive Income" component of
stockholders' equity and a $1,125,035 increase in the same account during
1997. The Chairman and Chief Executive Officer of the Company is the
Chairman of MetroWest Bank and a Director of the Company is Chief
Executive Officer of MetroWest Bank.
Revenue recognition -- Revenue is recognized when product is shipped.
Income taxes -- The Company accounts for income taxes under SFAS No.
109 "Accounting for Income Taxes". This Statement requires the Company to
compute deferred income taxes based on the differences between the
financial statement and tax basis of assets and liabilities using enacted
rates in effect in the years in which the differences are expected to
reverse.
Earnings (loss) per share -- The Company calculates earnings (loss)
per share under SFAS No. 128 "Earnings per Share". Under this Statement,
basic earnings (loss) per share is computed by dividing net earnings
(loss) by the weighted average number of common shares outstanding.
Diluted earnings (loss) per share is computed by dividing net earnings
(loss) by the combined weighted average number of common shares
outstanding and the weighted average number of common shares that would
have been outstanding if potentially dilutive common shares relating to
stock options and warrants had been issued using the treasury stock
method.
The weighted average number of shares outstanding was 2,728,829 shares
in 1998, 2,737,198 shares in 1997 and 2,767,191 shares in 1996. In 1998,
the dilutive effect of the outstanding stock options was not material and
the effect of the outstanding warrants to purchase 85,000 shares was
antidilutive. In 1997, the dilutive effect of outstanding stock options
was not material. The dilutive effect of the outstanding warrants was not
included in the computation of diluted earnings per share in 1997 since
the exercise price was greater than the average market price of the common
shares. In 1996, the dilutive effect of stock options and warrants was
not considered since the Company reported a loss from continuing
operations.
Stock compensation plans -- The Company applies APB Opinion No. 25
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its stock option plans.
Comprehensive income -- The Company adopted SFAS No. 130, "Reporting
Comprehensive Income" during the first quarter of 1998, as required. SFAS
No. 130 establishes standards for reporting and displaying comprehensive
income and its components in a set of financial statements. The adoption
of SFAS No. 130 had no impact on the Company's net earnings or
stockholders' equity.
<PAGE>
<PAGE>
Notes continued
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and
circumstances from nonowner sources. Presently, the only component of
other comprehensive income for the Company is unrealized holding gains
(losses) on available for sale marketable equity securities.
(3) Discontinued Operations: On April 15, 1998, the Company sold all the
assets of its Bergen Cable Technologies, Inc. ("BCT") subsidiary. The
purchase price received consisted of $7.5 million in cash, a 12%
subordinated promissory note in the principal amount of $1.25 million
("BCT Note"), a 10% stock and membership interest in the acquiring
entities and assumption of certain liabilities including trade payables.
Principal payments on the BCT note are due as follows: $50,000 on April 1,
1999, quarterly payments of $12,500 commencing on July 1, 1999 through
January 1, 2005 and $912,500 on April 1, 2005. Interest payments on the
BCT note are due as follows: interest from April 15, 1998 to March 31,
1999, $100,000 payable on December 31, 1998 with the balance due on April
1, 1999; thereafter, payable quarterly commencing July 1, 1999.
Since the acquiring entity has significant third-party debt compared
to its equity and the Company's BCT note is subordinated to the third
party debt, the Company has deferred any gain on the BCT note, $75,000 due
in 1999 and $1,175,000 due thereafter, and has not assigned any value to
the stock portions of the sale until cash payments are received by the
Company. As a result, the Company recorded a $330,000 pre-tax gain on the
sale in 1998, excluding the deferred gain discussed above.
On August 3, 1998, the Company sold certain assets of its Matec
Instruments, Inc. ("MII") and Matec Applied Sciences, Inc. ("MASI")
subsidiaries to a newly formed corporation. Ken Bishop, who was President
of MII and MASI until August 3, 1998, owns 53% of the newly formed
corporation. MII and MASI had comprised the Company's Instruments Segment
of business.
The purchase price received consisted of approximately $605,000 in
cash, a subordinated promissory note ("Note") in the principal amount of
$250,000, a $250,000 noninterest bearing receivable ("Receivable"), and
the assumption of certain liabilities including trade payables. The note
bears interest at prime rate + 1% (8.75% at December 31, 1998) and is
payable in 48 monthly installments of $5,208 plus interest. The
receivable has been discounted to $206,000 based on an imputed interest
rate of 9.5%. Payments on the receivable are due in quarterly
installments beginning on September 30, 1998 based on 1.5% of net sales.
In addition, the buyer has entered into a 5 year lease agreement with the
Company to lease space that it currently occupies and the buyer also has a
5 year option to purchase the real estate that includes the leased space.
The pre-tax gain on the sale was $400,000.
In the fourth quarter of 1996, the Company adopted a plan to dispose
of the AcoustoSizer product line and related assets ("ASZ") of MASI and
recorded a pre-tax charge of $475,000 to cover the estimated costs to
dispose of this product line. In 1997, the Company received $150,000 in
cash and a $200,000 note from the sale of the ASZ. The gain recognition
from the note was deferred pending collection. In 1997, the Company
recorded a gain on the sale of discontinued operations of $134,000
<PAGE>
<PAGE>
Notes continued
representing the cash received less legal expenses. In 1998, the Company
received payment of the $200,000 note and has included this amount in the
gain on sale of discontinued operations.
As a result of the above, the operating results of BCT, MII, and MASI
have been reported as discontinued operations, and previously reported
financial statements have been restated to reflect this classification for
MII and MASI. As the Company had adopted a plan in the third quarter of
1997 to dispose of BCT, the operating results of BCT for 1997 and 1996 had
previously been reported as discontinued operations.
Net sales of BCT, MII, and MASI amounted to $6,994,000, $18,792,000,
and $18,509,000 for the years ended December 31, 1998, 1997, and 1996,
respectively.
The earnings relating to the above discontinued operations are
presented in the Consolidated Statements of Operations under the caption
"Earnings from discontinued operations" and include:
1998 1997 1996
---------- ---------- ----------
(in thousands)
Earnings from operations (less
applicable taxes of $ 66,
$ 250 and $ 442) $ 105 $ 344 $ 671
Gain (loss) on disposal (less
applicable taxes of $ 356,
$ 56, and $(189)) 575 78 (287)
------ ------ ------
Earnings from discontinued operations $ 680 $ 422 $ 384
====== ====== ======
As a result of the BCT sale, on May 15, 1998 the Company paid a
special nonrecurring cash distribution of a $1.75 per share to
stockholders of record on May 4, 1998. This special nonrecurring
distribution totaled $4,827,000 and represented a substantial portion of
the net cash proceeds from the sale of BCT.
(4) Restructuring Expenses: In the fourth quarter of 1996, the Company
recorded restructuring expenses of $180,000 pursuant to the closing of its
high frequency fundamental quartz crystal operation in Carlisle,
Pennsylvania and relocating it to Hopkinton, Massachusetts.
<PAGE>
<PAGE>
Notes continued
(5) Receivables, net: Receivables, net of allowances, consist of the
following:
1998 1997
- --------------------------------------------------------------------------
Accounts receivable, less allowance for doubtful
accounts of $75,000 and $45,000 $1,648,672 $1,921,034
Amounts due from the sales of discontinued
operations, less deferred gain of $1,250,000 427,926 -
Less: amounts due after one year, less deferred
gain of $1,175,000 304,692 -
- --------------------------------------------------------------------------
Current amounts due, less deferred gain of $75,000 123,324
- --------------------------------------------------------------------------
$1,771,906 $1,921,034
==========================================================================
(6) Inventories: Inventories consist of the following:
1998 1997
- --------------------------------------------------------------------------
Raw materials $1,529,283 $ 799,961
Work in process 847,640 1,106,751
Finished goods 416,118 720,040
- --------------------------------------------------------------------------
$2,793,041 $2,626,752
==========================================================================
<PAGE>
<PAGE>
Notes continued
7) Income Taxes: The components of the provision (benefit) for income
taxes are as follows:
1998 1997 1996
- --------------------------------------------------------------------------
Current provision (benefit):
Federal $ 319,900 $ 37,800 $ (62,200)
State 17,400 19,600 (16,500)
- --------------------------------------------------------------------------
337,300 57,400 (78,700)
- --------------------------------------------------------------------------
Deferred provision (benefit):
Federal (270,900) (22,000) (187,800)
State (79,000) (8,200) (57,500)
- --------------------------------------------------------------------------
(349,900) (30,200) (245,300)
- --------------------------------------------------------------------------
Total $ (12,600) $ 27,200 $(324,000)
==========================================================================
The tax effects of significant items comprising the Company's net
deferred tax liability as of December 31, 1998 and 1997 are as follows:
1998 1997
- --------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation $ 372,400 $ 486,100
DISC commissions 535,200 535,200
Unrealized gain on marketable equity securities 639,800 1,252,000
- --------------------------------------------------------------------------
Total deferred tax liabilities 1,547,400 2,273,300
- --------------------------------------------------------------------------
Deferred tax assets:
Inventory reserves 487,600 516,300
Bergen note receivable and investment 539,200 -
State net operating loss carryforwards - 274,000
Allowance for doubtful accounts 30,200 56,200
Accrued expenses 205,000 136,300
- --------------------------------------------------------------------------
Total deferred tax assets 1,262,000 982,800
Valuation allowance - (274,000)
- --------------------------------------------------------------------------
Deferred tax assets, net 1,262,000 708,800
- --------------------------------------------------------------------------
Net deferred tax liabilities $ 285,400 $1,564,500
==========================================================================
Other current assets include deferred income taxes of approximately
$1,262,000 in 1998 and $753,000 in 1997.
Valuation allowances had been provided at December 31, 1997 for "state
net operating loss carryforwards". The allowance had been recorded since
it was more likely than not that the Company may not be able to generate
operating income to realize the benefit of these losses, by the expiration
dates beginning in 1998. As a result of the sale of assets and the
discontinued operations in 1998, the Company was able to use approximately
$142,000 of the state carryforwards in 1998. The remaining balance of the
carryforwards will not be available to the Company.
<PAGE>
<PAGE>
Notes continued
The total income tax provision (benefit) differs from that computed by
applying the Federal income tax rate to income before income taxes. The
reasons for the difference are as follows:
1998 1997 1996
- --------------------------------------------------------------------------
Income taxes at statutory rates $ 65,330 $ 31,672 $(266,495)
State income tax, net of Federal
tax benefit (11,000) 7,400 (49,100)
Benefit of state operating loss
carryforward (45,000) - -
Nondeductible expenses 4,800 10,500 11,400
Dividend exclusion (26,100) (21,000) (18,000)
Other, net (630) (1,372) (1,805)
- --------------------------------------------------------------------------
$ (12,600) $ 27,200 $(324,000)
==========================================================================
(8) Profit Sharing and Savings Plan: The Company has a trusteed profit
sharing 401(k) plan that covers all qualified employees. Under the profit
sharing section of the plan, the Company may make contributions to the
plan at the discretion of the Board of Directors. Under the 401(k)
section of the plan, the Company matched 50% of employee contributions up
to 6% of compensation. Total Company contributions charged to operations
were $51,000 in 1998, $63,000 in 1997 and $70,000 in 1996.
(9) Accrued Liabilities: Accrued liabilities consists of the following
items:
1998 1997
- --------------------------------------------------------------------------
Environmental costs $ 346,000 $ -
Employee compensation 134,496 232,892
Insurance 63,044 118,902
Other 620,978 509,621
- --------------------------------------------------------------------------
$1,164,518 $ 861,415
=========================================================================
As a result of the sale of its Bergen Cable subsidiary, the Company is
performing environmental clean up at that site. Total costs of
remediation are estimated to be approximately $650,000 of which $346,000
is accrued for future payments. These costs represent the Company's best
estimate, but the ultimate costs will not be known until the remediation
is complete.
(10) Notes Payable: The Company has secured demand lines of credit with
two banks amounting in total to $1,850,000. The $1,000,000 line of credit
is secured by all assets of the Company, except for real estate and
marketable equity securities. Advances under this line are based on
percentage formulas of specific receivable and inventory balances of a
certain subsidiary. The $850,000 line of credit is secured by marketable
equity securities. The Company had no borrowings outstanding under either
line of credit at December 31, 1998 and 1997. There are no compensating
balance requirements or significant commitment fees under either
arrangement.
<PAGE>
<PAGE>
Notes continued
(11) Long-Term Debt: Long-term debt consists of a 10% Term Debt Note
with a $2 million face amount due on June 30, 2000. Interest is payable
quarterly.
The Term Debt Note is secured by all the Company's assets, except for
real estate, marketable equity securities, and certain specific equipment
with a total book value of $116,000. The Term Debt Agreement includes
covenants covering debt to equity and interest expense ratios and
restrictions as to the total amount of debt, dividends, and capital stock
repurchases. Dividend payments in any fiscal year are limited to 30% of
the Company's net earnings of the prior fiscal year. During 1998, the
lender waived certain covenants relating to the payment of the $4,827,000
cash distribution and the receipt of notes and other receivables relating
to the sales of the discontinued operations.
Under the Agreement, the lender will subordinate its security interest
for up to $4 million in debt, with corresponding increases in the interest
rate from the 10% stated rate to 12% based on the subordination amount.
The lender has subordinated its security interest to the $1 million bank
line of credit. As part of the Agreement, the Company issued the lender
transferable common stock warrants to purchase 85,000 shares of the
Company's common stock at $4.75 per share. The warrants were valued at
$23,000 on the date of issuance. The warrants expire on June 30, 2000.
(12) Stockholders' Equity: The Company has 2,716,948 and 2,733,651
shares of its $.05 par value Common Stock outstanding at December 31, 1998
and 1997, respectively. At December 31, 1997, the Company had acquired
1,070,544 shares of treasury stock at a cost of $5,362,723.
On July 2, 1998, the Company reincorporated in Maryland. In
connection with the reincorporation, stockholders who owned less than 100
shares of Common Stock on July 2, 1998 ceased to be stockholders and
received cash of $4.03 per share ("the Cash Out"). The reincorporation
and Cash Out were approved by stockholders at the Company's Special in
Lieu of Annual Meeting held on June 18, 1998. As a result of the Cash
Out, the Company acquired 35,705 shares of Common Stock at a cost of
$143,891.
In connection with the reincorporation, the 1,111,947 shares of
treasury stock held by the Company on July 2, 1998, which included the
35,705 shares of common stock acquired as a result of the Cash Out, were
retired and were reclassified as reductions to common stock issued. The
total cost of the treasury shares of $5,526,880 reduced common stock,
capital surplus, and retained earnings by $55,597, $1,901,429, and
$3,569,854, respectively.
Under prior authorizations from the Board of Directors, the Company is
authorized to purchase up to an additional 40,900 shares of stock through
the open market or negotiated transactions. The Term Debt Agreement
limits the amount of treasury stock repurchases in one year to $200,000.
<PAGE>
<PAGE>
Notes continued
The MATEC Corporation 1992 Stock Option Plan allows for the granting
of options to officers, key employees, and other individuals to purchase a
maximum of 300,000 shares of the Company's common stock. The option price
and terms are determined by the Company's Stock Option-Compensation
Committee. The options granted may qualify as incentive stock options
("ISO's"). Through December 31, 1998, all options granted were ISO's. At
December 31, 1998, this Plan has 222,636 options available for future
grant and 269,300 common shares reserved for issuance.
The 1982 Incentive Stock Option Plan allowed for the granting of
options to employees, including officers, to purchase a maximum of 150,000
shares of the Company's common stock at a price not less than the fair
market value of the stock at or about the time of grant. All options
under the 1982 Plan expired in 1996.
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its plans. Accordingly, no compensation expense has been
recognized for these plans.
Pro forma net earnings and earnings per share information, as required
by SFAS No. 123, "Accounting for Stock-Based Compensation", has been
determined as if the Company had accounted for its employee stock options
under the fair value method described by SFAS No. 123. The fair value of
these options was estimated at the grant date using a Black-Scholes option
pricing model with the following weighted-average assumptions for both
1998 and 1997: dividend yield of 0% and an expected option life of 7
years. The expected stock price volatility of the Company's common stock
was 40% in 1998 and 1997 and the weighted average risk-free interest rates
were 4.6% in 1998 and 6.3% in 1997. The estimated weighted-average fair
value per option at the date of grant for options granted in 1998 and 1997
was $1.81 and $2.25, respectively. There were no options granted in
1996. For purposes of the pro forma disclosures, the estimated fair value
of the options is amortized to expense over the five-year vesting period
of the options. The pro forma effects of recognizing compensation expense
under SFAS No. 123 would have decreased earnings or increased the loss
from continuing operations by $12,000, $10,000 and $5,000 in 1998, 1997,
and 1996, respectively. There would have been no changes to the earnings
per share amounts during these periods. The pro forma effects to net
earnings reflects options granted since 1995. Therefore, the full impact
of calculating compensation expense under SFAS No. 123 is not reflected
above, since the compensation cost is reflected over the options' vesting
period of five years and options granted prior to 1995 are not considered.
As a result of the special nonrecurring cash distribution of $1.75 per
share paid to stockholders of record on May 4, 1998, options existing at
that time were adjusted as to the number of shares and the exercise
price. The weighted-average exercise price of 28,600 options outstanding
was adjusted from $4.23 per share to $2.90 per share and 13,064 additional
shares were granted in 1998 at a weighted average exercise price of $2.90
per share relating to this adjustment.
<PAGE>
<PAGE>
Notes continued
A summary of the status of the Company's two fixed stock option plans
as of December 31, 1998, 1997, and 1996, and changes during the years
ended on those dates is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------------
Number Weighted-avg. Number Weighted-avg. Number Weighted-avg.
of shares exercise price of shares exercise price of shares exercise price
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, January 1, 68,500 $4.18 210,500 $3.66 253,250 $3.83
Granted 18,064 3.10 30,000 4.22 - -
Exercised (24,700) 4.09 - - (10,500) 4.33
Expired - - - - (21,000) 5.08
Forfeited (15,200) 4.23 (172,000) 3.54 (11,250) 4.38
- ------------------------------------------------------------------------------------------------------
Outstanding, December 31, 46,664 $2.98 68,500 $4.18 210,500 $3.66
=======================================================================================================
Exercisable, December 31, 10,624 $2.91 22,300 $4.09 139,800 $3.57
=======================================================================================================
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ---------------------------------------------------------------- ----------------------------
Weighted Average
-----------------------------
Range of Number Remaining Number Weighted-
Exercise Outstanding Contractual Exercise Exercisable Avg. Exercise
Prices at 12/31/98 Life Price at 12/31/98 Price
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$2.74-2.92 34,356 8.4 years $2.79 9,162 $2.82
$3.43-3.63 12,308 9.1 3.51 1,462 3.43
- ------------------------------------------------------------------------------------------------
46,664 $2.98 10,624 $2.91
================================================================================================
</TABLE>
<PAGE>
<PAGE>
Notes continued
(13) Other Income (Expense), net: Other, net consists of the following
items:
1998 1997 1996
- --------------------------------------------------------------------------
Dividends $108,680 $ 87,980 $ 77,296
Real estate operations (38,947) (60,513) (41,427)
Other items, net - - 341
- --------------------------------------------------------------------------
$ 69,733 $ 27,467 $ 36,210
==========================================================================
Interest expense of $7,000 and $20,300 is included in real estate
operations in 1997 and 1996, respectively.
(14) Industry Segment: The Company operates in one segment: the design,
production, import, and sale of quartz crystals and oscillators and also
designs and manufactures ultrasonic transducers and offers a wide variety
of piezoelectric and high precision optical components.
No customer accounted for more than 10% of net sales in 1998 and
1996. During 1997, one customer accounted for 12% of net sales. Export
sales amounted to $3,118,000, $3,124,000 and $1,667,000 in 1998, 1997,
and 1996, respectively.
(15) Gain on sales of assets: During the first quarter of 1998, the
Company received net proceeds of $1,862,000 from the sale of its real
estate complex located in Delaware. None of the Company's operations
were located at this facility. The Company recorded a pre-tax gain of
$386,000 on the sale. During the fourth quarter of 1998, the Company
sold its common stock investment in Colloidal Dynamics Pty. Ltd. for
$200,000 and recorded a $137,000 pre-tax gain on the sale.
<PAGE>
<PAGE>
Notes continued
(16) Quarterly Financial Data (unaudited): Selected unaudited quarterly
financial data for 1998 and 1997 is set forth below:
First Second Third Fourth
- -----------------------------------------------------------------------
1998 (in thousands, except per share data)
Net sales from continuing operations $3,499 $3,397 $2,580 $2,586
Gross profit 815 814 509 534
Earnings (loss) before income taxes 399 55 (270) 8
Net earnings (loss) from:
Continuing operations 239 33 (157) 90
Discontinued operations 102 207 251 120
- -----------------------------------------------------------------------
Net earnings (loss) $ 341 $ 240 $ 94 $ 210
=======================================================================
Basic and diluted earnings (loss)
per share:
Continuing operations $ .08 $ .02 $ (.06) $ .03
Discontinued operations .04 .07 .09 .05
- -----------------------------------------------------------------------
$ .12 $ .09 $ .03 $ .08
=======================================================================
1997
Net sales from continuing operations $2,943 $3,230 $3,424 $3,318
Gross profit 639 779 875 896
Earnings (loss) before income taxes (116) 5 14 190
Net earnings (loss) from:
Continuing operations (70) 3 9 124
Discontinued operations 52 38 177 155
- ------------------------------------------------------------------------
Net earnings (loss) $ (18) $ 41 $ 186 $ 279
========================================================================
Basic and diluted earnings (loss)
per share:
Continuing operations $ (.02) $ - $ - $ .04
Discontinued operations .01 .02 .07 .06
- ------------------------------------------------------------------------
$ (.01) $ .02 $ .07 $ .10
========================================================================
Earnings per share calculations for each of the quarters are based on
the weighted average numbers of shares outstanding for each period and
the sum of the quarters may not necessarily be equal to the full year
earnings per share amount.
In the 1998 first quarter, net earnings from continuing operations
includes a gain on sale of assets of $232,000 ($.08 per share). (See Note
15).
In the 1998 second quarter, net earnings from discontinued operations
includes a $198,000 ($.07 per share) gain on the sale of discontinued
operations. (See Note 3).
<PAGE>
<PAGE>
Notes continued
In the 1998 third quarter, net earnings from discontinued operations
includes a $256,000 ($.09 per share) gain on the sale of discontinued
operations. (See Note 3).
In the 1998 fourth quarter, net earnings from continuing operations
includes a $86,000 ($.03 per share) gain on sale of assets and $63,000
($.02 per share) of interest income from a note receivable. (See Notes 15
and 3). In addition, net earning from discontinued operations includes a
$127,000 ($.05 per share) gain on the sale of discontinued operations.
(See Note 3).
In the 1997 second quarter, net earnings from discontinued operations
includes a $55,000 ($.02 per share) gain on the sale of discontinued
operations. (See Note 3).
<PAGE>
<PAGE>
Independent Auditors' Report
To the Stockholders and Board of Directors of MATEC Corporation:
We have audited the accompanying consolidated balance sheets of MATEC
Corporation and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, comprehensive income
(loss), 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 consolidated financial statements present fairly,
in all material respects, the financial position of MATEC Corporation and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Boston, Massachusetts
February 26, 1999
(Remaining information on inside back cover is not incorporated by
reference.)
inside back cover
<PAGE>
<PAGE>
Subsidiaries of the Registrant Exhibit 21
------------------------------ ----------
The following is a list of the Registrant's subsidiaries (all
of which are 100% owned):
State or Other Jurisdiction
Of Incorporation
---------------------------
MATEC EFO Corp. Massachusetts
Matec Fiberoptics, Inc. Massachusetts
Matec International, Inc. Massachusetts
Matec Microelectronics, Inc. Massachusetts
MEKontrol, Inc. Massachusetts
MTCI, Inc. Delaware
Old BCT, Inc. New Jersey
Old MAS, Inc. Delaware
RSC Realty Corporation Delaware
Valpey-Fisher Corporation Massachusetts
<PAGE>
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
MATEC Corporation:
We consent to the incorporation by reference in Registration
Statement No. 33-77554 of MATEC Corporation on Form S-8, as
amended, of our reports dated February 26, 1999, appearing in and
incorporated by reference in this Annual Report on Form 10-K of
MATEC Corporation for the year ended December 31, 1998.
Deloitte & Touche LLP
Boston, Massachusetts
March 26, 1999
<PAGE>
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