SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
Preliminary Proxy Statement [ ]
Confidential, for Use
of the Commission Only (as permitted by Rule 14a-6(e) (2) [ ]
Definitive Proxy statement [X]
Definitive Additional Materials [ ]
Soliciting Material Pursuant to Rule 14a-11 (c) or Rule 14a-12
Menlo Acquisition Corporation
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(Name of Registrant as Specified In Its Charter)
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(Name of Person (s) filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14 (a)-6(i) (4) and
0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securites to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total Fee Paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a) (2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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4) Date Filed:
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<PAGE>
May 5, 2000
Dear Fellow Stockholder:
On behalf of the Board of Directors and management of Menlo Acquisition
Corporation, I cordially invite you to attend the Company's Annual Meeting of
Stockholders. The meeting will be held at 2:00 P.M. New York time on June 7,
2000 at the Company's principal and executive offices, 100 Misty Lane, 3rd
Floor, Parsippany, New Jersey 07054.
An important aspect of the meeting process is the stockholder vote on corporate
business items. I urge you to exercise your rights as a stockholder to vote and
participate in this process. Stockholders are being asked to consider and vote
upon the election of three directors, approval of the Menlo Acquisition
Corporation 1999 Stock Option Plan and the ratification of the appointment of J.
H. Cohn, LLP as independent auditors of the Company for the fiscal year ending
December 31, 2000. The Board of Directors has carefully considered these matters
and unanimously recommends that you vote "For" the election of each of the
nominees nominated by the Board, "For" the approval of the 1999 Stock Option
Plan and "For" the ratification of the appointment of J. H. Cohn, LLP.
In addition to the annual stockholder vote on corporate business items, the
meeting will include management's report to you on the 1999 financial and
operating performance of Menlo Acquisition Corporation.
I encourage you to attend the meeting in person. However, whether or not you
attend the meeting, please read the enclosed Proxy Statement and then complete,
SIGN and DATE the enclosed proxy card and return it in the postage prepaid
envelope provided as promptly as possible. This will save the Company additional
expense in soliciting proxies and will ensure that your shares are represented.
Please note that you may vote in person at the meeting even if you have
previously returned the proxy.
Thank you for your attention to this important matter.
Sincerely,
/ss/Richard S. Greenberg, Ph.D
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Richard S.Greenberg, Ph.D
Chairman of the Board
<PAGE>
MENLO ACQUISITION CORPORATION
100 Misty Lane
Parsippany, New Jersey 07054
(973) 560-1400
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be Held on June 7, 2000
Notice is hereby given that the Annual Meeting of Stockholders (the "Meeting")
of Menlo Acquisition Corporation (the "Company") will be held at its principal
and executive offices, 100 Misty Lane, 3rd Floor, Parsippany, New Jersey 07054
at 2:00 P.M., New York time, on June 7, 2000.
A Proxy Card and a Proxy Statement for the Meeting are enclosed.
The Meeting is for the purpose of considering and acting upon:
1. The election of three directors of the Company
2. The approval of the Menlo Acquisition Corporation 1999 Stock Option Plan
3. The ratification of the appointment of J. H. Cohn, LLP as the independent
auditors of the Company for the fiscal year ending December 31, 2000;
and such other matters as may properly come before the Meeting, or any
adjournments or postponements thereof. The Board of Directors is not aware of
any other business to come before the Meeting.
Any action may be taken on the foregoing proposals at the Meeting on the date
specified above, or on any date or dates to which the Meeting may be adjourned
or postponed. Stockholders of record at the close of business on May 1, 2000 are
the stockholders entitled to notice of and to vote at the Meeting and any
adjournments or postponements thereof. A complete list of stockholders entitled
to vote at the Meeting will be available for inspection by stockholders at the
place of the Meeting during the ten days prior to the Meeting, as well as at the
Meeting.
You are requested to complete and sign the enclosed form of proxy, which is
solicited on behalf of the Board of Directors, and to mail it promptly in the
enclosed envelope. The proxy will not be used if you attend and vote at the
Meeting in person.
BY ORDER OF THE BOARD OF DIRECTORS
Parsippany, New Jersey
May 5, 2000
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES TO ENSURE A QUORUM AT THE MEETING. A SELF-ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED
WITHIN THE UNITED STATES.
<PAGE>
PROXY STATEMENT
MENLO ACQUISITION CORPORATION
100 Misty Lane
Parsippany, New Jersey 07054
(973) 560-1400
ANNUAL MEETING OF STOCKHOLDERS
June 7, 2000
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors and executive officers named in this Proxy Statement of Menlo
Acquisition Corporation (the "Company"), the parent company of Environmental
Waste Management Associates, Inc.("EWMA INC."), Environmental Waste Management
Associates, LLC ("EWMA LLC"), Integrated Analytical Laboratories, Inc. ("IAL
INC.") and Integrated Analytical Laboratories, LLC ("IAL LLC"), its wholly owned
subsidiaries, (also referred to collectively as the "Subsidiaries"), of proxies
to be used at the Annual Meeting of Stockholders of the Company (the "Meeting")
which will be held at its principal and executive offices, 100 Misty Lane, 3rd
Floor, Parsippany, New Jersey 07054 on June 7, 2000 at 2:00 P.M. New York time,
and all adjournments and postponements of the Meeting. The accompanying Notice
of Annual Meeting, form of proxy, this Proxy Statement and 1999 Annual Report
are first being mailed to stockholders on or about May 5, 2000.
At the Meeting, stockholders of the Company are being asked to consider and vote
upon the election of three directors; approval of the Menlo Acquisition
Corporation 1999 Stock Option Plan; and the ratification of the appointment of
J. H. Cohn LLP, as independent auditors for the Company.
Vote Required and Proxy Information
Any proxy given pursuant to this solicitation and received prior to or at the
Meeting, and not revoked, will be voted as specified in such proxy. If the
enclosed proxy card is executed and returned without instructions as to how it
is to be voted, it will be voted FOR the election of the nominees nominated by
the Board of Directors listed in the section under the caption "Proposal I -
Election of Directors"; FOR the approval of the Menlo Acquisition Corporation
1999 Stock Option Plan "Proposal II - Approval of the Menlo Acquisition
Corporation 1999 Stock Option Plan"; and FOR the ratification of the appointment
of J. H. Cohn, LLP "Proposal III Ratification of Appointment of Independent
Auditors". The Company does not know of any matters, other than as described in
the Notice of Annual Meeting, that are to come before the Meeting. If any other
matters are properly presented at the Meeting for action, the Board of
Directors, as proxy for the stockholder returning the enclosed proxy card, will
have the discretion to vote on such matters in accordance with its best
judgment.
<PAGE>
Proposals I, II and III require the affirmative vote of a majority of the votes
cast on the matter. In the election of directors (Proposal I), the enclosed
proxy card enables stockholders to vote "FOR" one or more nominees for election
nominated by the Board of Directors or withhold their votes from one or more of
such nominees. Votes that are withheld and shares held by a broker, as nominee,
that are not voted (so-called "broker non-votes") in the election of directors
will not be included in determining the number of votes cast and will have no
effect on the election of directors. For Proposals II and III, the enclosed
proxy card enables stockholders to vote "FOR, "AGAINST" or "ABSTAIN" with
respect to the proposal. Proxies marked to abstain will be counted as votes cast
and will have the same effect as votes against the proposal and broker non-votes
will not be counted as votes cast and will have no effect on the proposal. The
holders of a majority of the outstanding shares of the Company's common stock,
present in person or represented by proxy, will constitute a quorum for purposes
of the Meeting. Proxies marked to abstain and broker non-votes will be counted
for purposes of determining a quorum.
A proxy given pursuant to this solicitation may be revoked at any time before it
is voted. Proxies may be revoked by: (i) filing with the Secretary of the
Company at or before the Meeting a written notice of revocation bearing a later
date than the proxy, (ii) duly executing a subsequent proxy relating to the same
shares and delivering it to the Secretary of the Company at or before the
Meeting, or (iii) attending the Meeting and voting in person (although
attendance at the Meeting will not in and of itself constitute revocation of a
proxy). Any written notice revoking a proxy should be delivered to George
Greenberg, Secretary, Menlo Acquisition Corporation, 100 Misty Lane, Parsippany,
New Jersey 07054.
Voting Securities and Certain Holders Thereof
Stockholders of record as of the close of business on May 1, 2000 will be
entitled to one vote for each share of common stock then held. As of that date,
the Company had 5,263,348 shares of common stock issued and outstanding. The
following table sets forth, as of May 1, 2000, information regarding beneficial
ownership of shares of the Company's commons stock by: (i) those persons or
entities known by management to beneficially own more than five percent of the
common stock; (ii) all directors and nominees; and (iii) all directors and
executive officers of the Company as a group. Beneficial ownership is determined
in accordance with Rule 13d-3 of the Securities Exchange Act of 1934.
<PAGE>
PRINCIPAL SHAREHOLDERS OF THE COMPANY
Shares Percent
Beneficial Beneficially of
Owner Owned Class
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Rosebud Holding, LLC (1) 4,191,000 79.63
100 Misty Lane
Parsippany, New Jersey 07054
Lawrence B. Seidman (2) 499,000 9.48
100 Misty Lane
Parsippany, New Jersey 07054
Director,President and General Counsel
of the Company and EWMA INC.
and EWMA LLC
In-Situ Oxidative Technologies, Inc. (3) 300,000 5.70
51 Everett Drive
Suite A-10
West Windsor, New Jersey 08550
George Greenberg, Director and 5,000 *
Secretary of the Company
Richard S. Greenberg, Ph.D, 4,346,000 82.57
Chairman and Chief Executive Officer of
the Company, Chairman and
Chief Executive Officer of EWMA
INC. and EWMA LLC (1) (3)
All Directors and officers as a group
(Six individuals) 4,874,497 92.61
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(1) Rosebud Holding, LLC is owned 99% by the Greenberg Family Trust of which
Elaine Greenberg is the sole trustee and 1% by George Greenberg. Richard
S. Greenberg, Ph.D, the son of Elaine and George Greenberg, is the primary
benficiary of the Greenberg Family Trust.
(2) Lawrence B. Seidman owns 83,166 shares directly. His two adult daughters,
each own 83,167 shares. In addition, Mr. Seidman, pursuant to a written
agreement with Richard S. Greenberg, Ph.D, dated June 11, 1998, received,
on or about March 10, 1999, 249,500 shares of the Company's stock subject
to forfeiture if Mr. Seidman terminates his employment with the Company on
or before March 10, 2004. On each subsequent annual anniversary date, 20%
of these 249,500 shares are released from the terms and conditions of the
written agreement in which they are subject to forfeiture.
(3) In-Situ Oxidative Technologies, Inc. is 50% owned by Richard S.
Greenberg, Ph.D. As such, 50% of the 300,000 shares are included in Dr.
Greenberg's total of shares beneficially owned. Also see the Related
Transaction section of this proxy statement for further discussions
concerning In-Situ Oxidative Technologies, Inc.
<PAGE>
Board of Directors' Meetings and Committees
Meetings of the Company's Board of Directors are generally held on a quarterly
basis. The Board of Directors of the Company held three meetings during fiscal
1999. No incumbent director attended fewer than 75% of the total number of
meetings held by the Board of Directors during the past fiscal year. The Company
does not have any standing committees.
Pursuant to the Company's bylaws, nominations for election as directors by
stockholders must be made in writing and delivered to the Secretary of the
Company at least 60 days prior to the annual meeting date. In addition to
meeting the applicable deadline, nominations must be accompanied by certain
information specified in the Company's bylaws. The Board of Directors as a whole
serves as a nominating committee.
Director Compensation
Directors of the Company do not receive any compensation for serving in that
capacity.
<PAGE>
Executive Compensation
The Company does not anticipate paying any compensation to its officers until it
becomes actively involved in the operation or acquisition of businesses other
than the Subsidiaries. The officers are currently compensated by the
Subsidiaries.
The following table sets forth information concerning compensation paid by the
Subsidiaries of the Company to the Named Officers. Information for years prior
to 1999 relates to compensation paid by Subsidiaries before their acquisition by
the Company.
Other
Name & Annual All Other
Principal Salary Bonus Comp. Options Compensation
Position Year $ $ $(1)(2) #(3) $
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Richard S. Greenberg, Ph.D
(a) 1999 260,000 0
1998 282,001 5,000
1997 449,975 200,000
Lawrence B. Seidman (b)
1999 145,788 0 2,500 (4)
1998 0 0 143,778 (4)
1997 0 0 101,528 (4)
Frank Russomanno (c)
1999 100,077(5) 0 5,000
1998 0 0
1997 0 0
George Greenberg (d)
1999 50,040 0 11,546
1998 50,040 40,000 11,766
1997 50,040 40,000 10,133
Michael H. Leftin, Ph.D
(e) 1999 121,817 0
1998 106,360 0
1997 106,360 25,000
Kevin D. Orabone (f)
1999 101,846 0 5,000
1998 92,579 7,500
1997 84,135 6,000
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(a) Chairman and CEO of the Company, Chairman and CEO of EWMA INC. and EWMA LLC
(b) President and General Counsel of the Company and EWMA INC. and EWMA LLC
(c) Chief Financial Officer of the Company and Subsidiaries
(d) Secretary of the Company
(e) President and CEO of IAL INC. and IAL LLC
(f) Executive Vice President of EWMA, INC. and EWMA LLC
(1) Pursuant to SEC rules, the table above excludes perquisites and other
personal benefits which do not exceed the lesser of $50,000 or 10% of
salary and bonus.
(2) The primary component of Mr. Greenberg's "Other Annual Comp." is
automobile use in the amount of $9,362, $9,582 and $7,949
for 1999, 1998 and 1997, respectively.
(3) For additional information regarding this award, see the table
below captioned "Option Grants in Last Fiscal Year."
(4) Mr.Seidman became an employee of EWMA INC. as of January 11, 1999. Prior
to that date he was retained as a consultant. The amounts shown in this
column are fees paid for those consulting services.
(5) Mr. Russomanno became an employee of EWMA INC. as of January 4, 1999.
<PAGE>
The following table provides information regarding stock options granted during
fiscal 1999. All stock options granted in 1999 are subject to the approval of
the 1999 Stock Option Plan (Proposal II) by a majority of the Company's
Stockholders.
OPTION GRANTS IN LAST FISCAL YEAR
% of Total
Options Exercise
Options Granted to Or Base
Granted Employees Price Expiration
Name # In Fiscal Yr. ($/Sh) Date 5% 10%
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Richard S. Greenberg, Ph.D 0 -- -- -- -- --
Lawrence B. Seidman 0 -- -- -- -- --
Frank Russomanno 5,000 8.69 1.75 10/31/09 -- --
George Greenberg 0 -- -- -- -- --
Michael H. Leftin, Ph.D 0 -- -- -- -- --
Kevin D. Orabone 5,000 8.69 1.75 10/31/09 -- --
All executive officers
as a group 10,000 17.38 1.75 10/31/09 -- --
The vesting schedule of the option is 20% annually beginning November 1,
1999.
Prior to March 10, 1999, no options were issued or outstanding.
CERTAIN TRANSACTIONS
RELATED TRANSACTIONS
In-Situ Oxidative Technologies
In-Situ Oxidative Technologies ("ISOTEC") is owned 50% by Richard S. Greenberg,
Ph.d, Menlo's Chief Executive Officer, and 50% by an unrelated third party.
ISOTEC is in the business of remediating contaminated properties using a
proprietary in-situ treatment program. The services performed by ISOTEC are
similar in nature to those provided by the operating segments of Menlo. During
1999 and 1998, the subsidiaries have generated revenue directly from ISOTEC in
the amounts of approximately $183,000 and $36,000, respectively. Additionally,
the similar nature of ISOTEC's services has enabled EWMA to obtain contracts and
generate revenues with unrelated customers in the past and may potentially
enable it to continue to do so in the future.
On December 6, 1999, Menlo entered into an agreement with ISOTEC and an
unrelated third party to advance ISOTEC operating capital. As of the date of
this agreement, the Company was owed approximately $195,000 for services it had
provided on behalf of ISOTEC, of which approximately $162,000 was outstanding as
of December 31, 1998. In consideration for Menlo entering into the
aforementioned agreement, ISOTEC paid in full the outstanding balance of
approximately $195,000. In addition, Menlo was granted the opportunity to
purchase up to 50% of ISOTEC.
<PAGE>
The agreement calls for Menlo to advance operating funds up to $250,000 to
ISOTEC in equal amounts to that being advanced by the unrelated third party. In
return, Menlo will receive an option to purchase 20% of Dr. Greenberg's
ownership interest in ISOTEC (10% of the Company) for each $50,000 or portion
thereof loaned to ISOTEC. The options are exercisable through June 30, 2001 at a
price of $1,000 per option. As of April 21, 2000, Menlo had loaned $80,000 to
ISOTEC and therefore has two options to purchase a total of 40% of Dr.
Greenberg's interest (20% of the Company) for $2,000. Due to ISOTEC's financial
condition, Menlo's $80,000 advance/option investment in ISOTEC is being carried
at $0. Management does not intend to make any advances in excess of the $250,000
total commitment to ISOTEC until ISOTEC shows an improvement in their financial
condition and ability to pay.
Parsippany Headquarters Building
EWMA'S principal executive offices are located in Parsippany, NJ. The Parsippany
facility consists of approximately 18,000 square feet of office space leased
from Greenberg Property LLC, a company controlled by Richard S. Greenberg, Ph.D.
The lease, which is at $14 per square foot, expires in June 2007 and is subject
to two five-year renewal options. In management's opinion, the rent being paid
at the Parsippany facility is below market rental rates. Management believes
that EWMA's Parsippany facility is adequate for EWMA's current needs and will
support anticipated future growth for at least the next five years.
Employment Agreements
On June 1, 1998, the Company entered into a five year employment agreement with
Messrs. Seidman and Greenberg. The agreement provides for an annual base salary
in an amount not less than $150,000 and $260,000, respectively. The agreements
became effective on March 10, 1999. The term of the agreement is automatically
extended for successive one (1) year periods, unless the Company provides at
least sixty (60) days notice in advance of year-end that the term is not to be
extended. The agreement provides for termination upon Messrs. Seidman's and
Greenberg's death, for cause or in the case of certain other events specified in
the agreement.
If Messrs. Seidman's and Greenberg's employment is "involuntarily terminated" by
the Company other than in connection with or within 60 months after a change in
control of the Company they will be entitled to receive (i) payment of their
base salary during the remaining term of the agreement in the same manner and at
the same times received while employed and (ii) for the remaining term of the
agreement, substantially the same health insurance benefits received as of the
date of termination. The term "involuntary termination" means termination by the
Company other than for cause or due to the retirement, death or disability of
either Seidman or Greenberg, and includes a material reduction of their current
duties, benefits and responsibilities.
<PAGE>
If Messrs. Seidman's and Greenberg's employment is involuntarily terminated in
connection with or within 60 months after a change in control of the Company
they will be entitled to receive (i) a lump sum cash payment equal to 299% of
their "base amount" of compensation and (ii) for the remaining term of the
agreement substantially the same health insurance benefits as they received as
of the date of termination. The lump sum payment is subject to reduction to
ensure that all amounts payable by the Company to either person in connection
with a change in control are deductible by the Company for federal income tax
purposes.
Based on their salary at December 31, 1999, if Messrs. Seidman and Greenberg had
been terminated as of that date in connection with a change in control and under
circumstances entitling them to severance pay as described above, they would
have been entitled to receive a lump sum cash payment of approximately $468,700
and $777,400, respectively.
<PAGE>
PROPOSALS TO BE VOTED ON
PROPOSAL I - ELECTION OF DIRECTORS
The Company's Board of Directors is presently comprised of three members, all
of whom are directors of the Subsidiaries. Directors of the Company are elected
to serve for a one-year term or until their respective successors have been
elected and qualified.
The following table sets forth certain information regarding the Company's Board
of Directors and the Board's nominees for election. All nominees have served as
directors since March 10, 1999. It is intended that the proxies solicited on
behalf of the Board of Directors (other than proxies in which the vote is
withheld as to the nominee) will be voted at the Meeting for the election of the
nominees identified in the following table. If any nominee is unable to serve,
the shares represented by all such proxies will be voted for the election of
such substitute as the Board of Directors may recommend. At this time, the Board
of Directors knows of no reason why any of the nominees listed in the table
below might be unable to serve, if elected. Except as described in this Proxy
Statement, there are no arrangements or understandings between any director or
nominee listed in the table below and any other person pursuant to which such
director or nominee was selected.
Shares of
Common Stock
Beneficially
Owned at Percent
Position(s) 3/31/2000 of
Name Held (1) Class
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Richard S. Greenberg, Ph.D. Chairman 4,346,000 82.57
(Age 42) of the Board
Lawrence B. Seidman President and 499,000 9.48
(Age 52) General Counsel
George Greenberg Secretary 5,000 *
(Age 71 )
All Directors 4,850,000 92.15
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*Less than one percent.
(1) See footnotes (1), (2) and (3) in Beneficial Ownership Section.
The business experience of each director and director nominated for re-election
by the Board is set forth below.
Richard S. Greenberg, Ph.D, is Chairman and Chief Executive Officer of Menlo
Acquisition Corporation. Dr. Greenberg founded EWMA INC and IAL INC in 1987 and
in April 1997 organized EWMA LLC and IAL LLC; he has served as a director and/or
executive officer of those entities since their respective organization. Dr..
Greenberg has had considerable experience in the environmental and chemical
industries, including as a research chemist with E.I. DuPont De Nemours and
Company, from 1983 to 1986. Dr. Greenberg holds a Ph.D. in Chemistry from the
University of California, San Diego, as well as a B.S. degree in chemistry from
Duke University. He is a member of a number of professional associations
including the Water Environment Federation, the American Chemical Society
(Environmental Division), the American Chemical Society (Organic Division), the
Commerce and Industry Association of New Jersey, the National Ground Water
Association and the National Association of Corrosion Engineering. He has
written and spoken extensively on environmental matters and holds a number of
patents. Dr. Greenberg is the son of Elaine and George Greenberg.
Lawrence B. Seidman is the President, General Counsel and Director of Menlo
Acquisition Corporation, since 1999. Mr. Seidman has acted as a consultant to
EWMA INC and EWMA LLC and IAL INC and IAL LLC on financial and legal matters
since 1991. Since 1994, he has been the Manager and President of the Corporate
General Partner for several Limited Liability Companies and Limited Partnerships
that buy and sell publicly traded bank and thrift stocks. He is on the Board of
Directors of South Jersey Financial Corp., CNY Financial Corp. and Ambanc
Holding Company, Inc. Mr. Seidman holds a J.D. degree from American University
and a B.S. degree in Marketing Management from St. Peter's College. He also has
taken post-graduate courses in taxation at Georgetown University
George Greenberg has been an officer of EWMA INC since its formation in 1987,
serving from 1987 to 1996 as manager of the transportation and disposal
department and, from 1997 to the present, heading up its day-to-day internal
Quality Control/Quality Assurance operations. In addition, he is responsible for
procurement of equipment, materials and supplies. Mr. Greenberg is the father of
Dr. Greenberg.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE ELECTION OF
RICHARD S. GREENBERG, PH.D, LAWRENCE B. SEIDMAN AND GEORGE GREENBERG AS
DIRECTORS OF MENLO ACQUISITION CORPORATION.
<PAGE>
PROPOSAL II - APPROVAL OF THE
MENLO ACQUISITION CORPORATION
1999 STOCK OPTION PLAN
The Board of Directors of the Company is presenting for stockholder approval the
Menlo Acquisition Corporation 1999 Stock Option Plan (the "Stock Option Plan").
The purpose of the Stock Option Plan is to attract and retain qualified
personnel in key positions, provide officers, employees and non-employee
directors ("Outside Directors") of the Company and any of its affiliates, with a
proprietary interest in the Company as an incentive to contribute to the success
of the Company, promote the attention of management to other stockholder's
concerns, and reward employees for outstanding performance. The following is a
summary of the material terms of the Stock Option Plan which is qualified in its
entirety by the complete provisions of the Stock Option Plan attached hereto as
Appendix A.
Summary of the Plan
Type of Stock Option Grants
The Stock Option Plan provides for the grant of incentive stock options
("ISOs"), within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended ("Code"), and non-statutory stock options ("NSOs").
Administration
The Stock Option Plan will be administered by a Committee appointed by the
Company's Board of Directors. Subject to the terms of the Stock Option Plan and
resolutions of the Committee, the Committee interprets the Stock Option Plan and
is authorized to make all determinations and decisions thereunder. The Committee
also determines the participants to whom stock options will be granted, the type
and amount of stock options that will be granted and the terms and conditions
applicable to such grants.
Participants
All employees and outside directors of the Company and its subsidiaries, are
eligible to participate in the Stock Option Plan.
Number of Shares of Common Stock Available
The Company has reserved 525,000 shares of Common Stock for issuance under the
Plan in connection with the exercise of options. Shares of Common Stock reserved
under the Stock Option Plan shall be authorized but unissued shares. Any shares
subject to an option which expires or otherwise terminates unexercised will
again be available for issuance under the Stock Option Plan.
Under generally accepted accounting principles, compensation expense will
generally not be recognized with respect to the award of stock options to
employees and directors of the Company and its subsidiaries.
The exercise price of an option may be paid in cash, by the surrender of all or
part of the option being exercised, by the immediate sale through a broker of
the number of shares being acquired sufficient to pay the purchase price, or by
a combination of these methods, as and to the extent permitted by the Plan and
strictly subject to the individual option agreement.
Each option may be exercised during the holder's lifetime, only by the holder or
the holder's guardian or legal representative, and after death only by the
holder's beneficiary or, absent a beneficiary, by the estate or by a person who
acquired the right to exercise the option by will or the laws of descent and
distribution. Options may become exercisable in full at the time of grant or at
such other times and in such installments as the Committee determines or as may
be specified in the Stock Option Plan. Options may be exercised during periods
before and after the participant terminates employment, as the case may be, to
the extent authorized by the Committee or specified in the Stock Option Plan.
However, no option may be exercised after the tenth anniversary of the date the
option was granted.
Effect of a Change in Control
In the event of a change in control (as defined in the Stock Option Plan) of the
Company, the Board, may in its discretion provide that the option shall become
fully vested and the Participant shall be entitled to exercise such option, in
whole or in part.
Term of the Plan
The Stock Option Plan will have an effective date of November 1, 1999, but only
if the Stock Option Plan is approved by the stockholders of the Company on June
7, 2000. The Stock Option Plan will expire on the tenth anniversary of the
effective date, unless terminated sooner by the Board.
Amendment of the Plan
The Stock Option Plan allows the Board to amend the Plan as it shall deem
advisable subject to the restrictions noted in the Plan.
Certain Federal Income Tax Consequences
The following brief description of the tax consequences of stock option grants
under the Stock Option Plan is based on federal income tax laws currently in
effect and does not purport to be a complete description of such federal income
tax consequences.
<PAGE>
There are no federal income tax consequences either to the optionee or to the
Company upon the grant of an ISO or and NSO. On the exercise of an ISO during
employment or within three months thereafter, the optionee will not recognize
any income and the Company will not be entitled to any deduction, although the
excess of the fair market value of the shares on the date of exercise over the
option price is includable in the optionee's alternative minimum taxable income,
which may give rise to alternative minimum tax liability for the optionee.
Generally, if the optionee disposes of shares acquired upon exercise of an ISO
within two years of the date of grant or one year of the date of exercise, the
optionee will recognize ordinary income, and the Company will be entitled to a
deduction, equal to the excess of the fair market value of the shares on the
date of exercise over the option price (limited generally to the gain on the
sale). The balance of any gain or loss will be treated as a capital gain or loss
to the optionee. If the shares are disposed of after the two year and one year
periods mentioned above, the Company will not be entitled to any deduction, and
the entire gain or loss for the optionee will be treated as a capital gain or
loss.
On exercise of an NSO, the excess of the date-of-exercise fair market value of
the shares acquired over the option price will generally be taxable to the
optionee as ordinary income and deductible by the Company, provided the Company
properly withholds taxes in respect of the exercise. The disposition of shares
acquired upon the exercise of a NSO will generally result in a capital gain or
loss for the optionee, but will have no tax consequences for the Company.
New Plan Benefits
The Company has made option grants to employees representing 57,500 shares, at
the then current price of $1.75 per share, subject to stockholders approval of
the Stock Option Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE APPROVAL
OF THE MENLO ACQUISITION CORPORATION 1999 STOCK OPTION PLAN.
<PAGE>
PROPOSAL III - RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors of the Company has appointed J. H. Cohn LLP, independent
accountants, to be the Company's auditors for the fiscal year ending December
31, 2000. Representatives of J. H. Cohn, LLP are expected to attend the Meeting
to respond to appropriate questions and to make a statement if they so desire.
J.H. Cohn LLP has served as the Company's independent auditors since 1994.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE RATIFICATION
OF THE APPOINTMENT OF J. H. COHN LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR
THE FISCAL YEAR ENDING DECEMBER 31, 2000.
<PAGE>
Stockholder Return Performance Presentation
The following graph compares the cumulative total stockholder return on the
Company's common stock to the Nasdaq U.S. Stock Index (which includes all Nasdaq
traded stocks of U.S. companies) and an environmental industry index for the
period from March 10, 1999, the date the Company completed the acquisition of
the Subsidiaries pursuant to the Second Amended Plan of Reorganization filed
with the Bankruptcy Court on August 12, 1998 and approved on August 26, 1998,
through December 31, 1999. The graph assumes that $100 was invested on March 10,
1999 and that all dividends were reinvested. On December 31, 1999, the closing
sale price for the Company's common stock on the Nasdaq National Market was $.25
per share.
[GRAPH]
STOCKHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING
Stockholder proposals intended to be presented at the Company's next annual
meeting must be received by its Secretary at the executive office of the
Company, located at 100 Misty Lane, Parsippany, New Jersey 07054, no later than
January 5, 2001 to be eligible for inclusion in the Company's proxy statement
and form of proxy relating to the next annual meeting.
To be considered for presentation at the next annual meeting, but not for
inclusion in the Company's proxy statement and form of proxy for that meeting,
proposals must be received by the Company no later than March 22, 2001. If,
however, the date of the next annual meeting is advanced or delayed more than 30
days, proposals must instead be received by the Company by the later of the 20th
day before the date of the next annual meeting or the tenth day following the
day on which public disclosure (by press release, in a publicly available filing
with the SEC, through a notice mailed to stockholders, or otherwise) of the date
of the next annual meeting is first made. If a stockholder proposal that is
received by the Company after the applicable deadline for presentation at the
next annual meeting is raised at the next annual meeting, the holders of the
proxies for that meeting will have the discretion to vote on the proposal in
accordance with their best judgment and discretion, without any discussion of
the proposal in the Company's proxy statement for the next annual meeting.
<PAGE>
OTHER MATTERS
The Board of Directors is not aware of any business to come before the Meeting
other than the election of directors, approval of the Stock Option Plan, and the
ratification of the appointment of auditors. However, if any other matter should
properly come before the Meeting, it is intended that holders of the proxies
will act in accordance with their best judgment.
The cost of solicitation of proxies by the Company will be borne by the Company.
The Company will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy materials
to the beneficial owners of common stock. The Company has not retained a
professional proxy solicitation firm to assist in the solicitation of proxies.
In addition to solicitation by mail, directors, officers and regular employees
of the Company may solicit proxies personally or by telephone or other means
without additional compensation.
BY ORDER OF THE BOARD OF DIRECTORS
Richard S. Greenberg, Ph.D.
Chairman of the Board
Parsippany, New Jersey
May 5, 2000
<PAGE>
REVOCABLE PROXY
MENLO ACQUISITION CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
June 7, 2000
The undersigned hereby appoints George Greenberg or Richard S. Greenberg,
Ph.D.of Menlo Acquisition Corporation (the "Company"), with full power of
substitution, to act as attorneys and proxies for the undersigned to vote all
shares of Common Stock of the Company which the undersigned is entitled to vote
at the Annual Meeting of Stockholders (the "Meeting") to be held on June 7,
2000, at the Company's corporate headquarters, 100 Misty Lane, Parsippany, New
Jersey 07054, at 2:00 P.M., New York time, and at any and all adjournments or
postponements thereof, as follows:
I. The election of the following directors for one year term to expire in 2001:
Richard Greenberg Lawrence B. Seidman George Greenberg
For / / Withhold / / For all Except / /
INSTRUCTION: TO VOTE FOR ALL NOMINEES, MARK THE BOX "FOR." TO WITHHOLD AUTHORITY
TO VOTE FOR ALL NOMINEES, MARK THE BOX "WITHHOLD." TO WITHHOLD AUTHORITY TO VOTE
FOR ONE OR MORE NOMINEES, BUT NOT ALL NOMINEES, MARK THE BOX "FOR ALL EXCEPT"
AND WRITE THE NAME(S) OF THE NOMINEE(S) FOR WHOM YOU WISH TO WITHHOLD YOUR VOTE
IN THE SPACE PROVIDED BELOW.
II. The approval of the Menlo Acquisition Corporation 1999 Stock Option Plan:
For / / Against / / Abstain / /
III The ratification of the appointment of J.H. Cohn LLP, as the
independent auditors of the Company for the fiscal year ending December 31,2000.
For / / Against / / Abstain / /
In their discretion, the Board of Directors, as proxy for the stockholder, is
authorized to vote on such other matters as may properly come before the Meeting
or any adjournments or postponements thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES LISTED
HEREIN, "FOR" APPROVAL OF THE MENLO ACQUISITION CORPORATION 1999 STOCK OPTION
PLAN AND "FOR" RATIFICATION OF THE APPOINTMENT OF J. H. COHN LLP.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR EACH OF THE NOMINEES NAMED HEREIN, FOR APPROVAL OF THE
MENLO ACQUISITION CORPORATION 1999 STOCK OPTION PLAN, AND FOR RATIFICATION OF
THE APPOINTMENT OF J. H. COHN LLP. IF ANY OTHER BUSINESS IS PRESENTED AT THE
MEETING, THIS PROXY WILL BE VOTED AS DIRECTED BY THE BOARD OF DIRECTORS IN ITS
BEST JUDGMENT.
Please be sure to sign and date
this Proxy in the box below. ________________
Date
____________________________________ _____________________________________
Stockholder sign above Co-holder (if any) sign above
<PAGE>
DETACH ABOVE CARD, SIGN, DATE AND MAIL IN POSTAGE PAID ENVELOPE PROVIDED.
MENLO ACQUISITION CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
This Proxy may be revoked at any time before it is voted by: (i) filing with
the Secretary of the Company at or before the Meeting a written notice of
revocation bearing a later date than this Proxy; (ii) duly executing a
subsequent proxy relating to the same shares and delivering it to the Secretary
of the Company at or before the Meeting; or (iii) attending the Meeting and
voting in person (although attendance at the Meeting will not in and of itself
constitute revocation of this Proxy). If this Proxy is properly revoked as
described above, then the power of the Board of Directors as attorneys and
proxies for the undersigned shall be deemed terminated and of no further force
and effect.
The above signed acknowledges receipt from the Company, prior to the execution
of this Proxy, of a Notice of the Annual Meeting, a Proxy Statement dated May 5,
2000, and the Company's Annual Report to Stockholders for the fiscal year ended
December 31, 1999.
Please sign exactly as your name appears on this proxy card. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder should sign.
PLEASE ACT PROMPTLY
SIGN, DATE AND MAIL THIS PROXY CARD TODAY
<PAGE>
Appendix A -1999 Stock Option Plan
MENLO ACQUISITION CORPORATION
1999 STOCK OPTION PLAN
1. Purpose. The purpose of this Menlo Acquisition Corporation 1999
Stock Option Plan (the "Plan") is to further the long term stability and
financial success of Menlo Acquisition Corporation (the "Company") by attracting
and retaining key employees and obtaining the services of directors and
consultants through the use of stock incentives. It is believed that ownership
of Company Stock will stimulate the efforts of those employees, directors and
consultants upon whose judgment and interest the Company is and will be largely
dependent for the successful conduct of its business. It is also believed that
Incentive Awards granted to such employees under this Plan will strengthen their
desire to remain with the Company and will further the identification of those
employees' and directors' interests with those of the Company's shareholders.
The Plan is intended to conform to the provisions of Securities and Exchange
Commission Rule 16b-3.
2. Definitions. As used in the Plan, the following terms have the
meanings indicated:
(a) "Act" means the Securities Exchange Act of 1934, as
amended.
(b) "Applicable Withholding Taxes" means the aggregate
amount of federal, state and local income and payroll taxes that the
Company is required to withhold in connection with any
exercise of a Nonstatutory Stock Option by an employee.
(c) "Board" means the board of directors of the Company.
(d) "Change of Control" means:
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(i) The acquisition by a Group of Beneficial
Ownership of 20% or more of the Stock or the Voting Power of
the Company, but excluding for this purpose: (A) any
acquisition by the Company (or a subsidiary), or an employee
benefit plan of the Company; or (B) any acquisition of Common
Stock of the Company by management employees of the Company.
"Group" means any individual, entity or group within the
meaning of Section 13(d)(3) or 14(d)(2) of the Act,
"Beneficial Ownership" has the meaning in Rule 13d-3
promulgated under the Act, "Stock" means the then outstanding
shares of common stock, and "Voting Power" means the combined
voting power of the outstanding voting securities entitled to
vote generally in the election of directors.
(ii) Individuals who constitute the Board as of the
date of this Plan (the "Incumbent Board") cease to constitute
at least a majority of the Board, provided that any director
whose nomination was approved by a majority of the Incumbent
Board shall be considered a member of the Incumbent Board
unless such individual's initial assumption of office is in
connection with an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Act).
(iii) Approval by the shareholders of the Company of
a reorganization, merger or consolidation, in each case, in
which the owners of more than 50% of the Stock or Voting Power
of the Company do not, following such reorganization, merger
or consolidation, beneficially own, directly or indirectly,
more than 50% of the Stock or Voting Power of the corporation
resulting from such reorganization, merger or consolidation.
(iv) A complete liquidation or dissolution of the
Company or of its sale or other disposition of all or
substantially all of the assets of the Company.
(e) "Code" means the Internal Revenue Code of 1986, as
amended.
(f) "Committee" means the committee appointed by the Board as
described under Section 12.
(g) "Company" means Menlo Acquisition Corporation, a Delaware
corporation.
(h) "Company Stock" means Common Stock, $.0001 par value, of
the Company. If the par value of the Company Stock is changed, or in
the event of a change in the capital structure of the Company (as
provided in Section 11), the shares resulting from such a change shall
be deemed to be Company Stock within the meaning of the Plan.
(i) "Date of Grant" means the date on which an Incentive Award
is granted by the Committee.
(j) "Disability" or "Disabled" means, as to an Incentive Stock
Option, a Disability within the meaning of Code section 22(e)(3). As to
all other Incentive Awards, the Committee shall determine whether a
Disability exists and such determination shall be conclusive.
(k) "Fair Market Value" means as of the Date of Grant (or, if
there were no trades on the Date of Grant, the last preceding day on
which Company Stock is traded) (i) if the Company Stock is traded on an
exchange the average of the highest and lowest registered sales prices
of the Company Stock at which it is traded on such day on the exchange
on which it generally has the greatest trading volume, (ii) if the
Company Stock is traded on the over-the-counter market, the average
between the lowest bid and highest asked prices as reported by The Wall
Street Journal, or (iii) if shares of Common Stock are not traded on
any exchange or over-the-counter market, the fair market value shall be
determined by the Committee using any reasonable method in good faith.
(l) "Incentive Award" means, collectively, the award of an
Nonstatutory Stock Option or Incentive Stock Option under the Plan.
(m) "Incentive Stock Option" means an Option intended to meet
the requirements of, and qualify for favorable federal income tax
treatment under, Code section 422.
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(n) "Non-Employee Director" means a member of the Board who is
not an employee of the Company, a Parent or a Subsidiary.
(o) "Nonstatutory Stock Option" means an Option that does not
meet the requirements of Code section 422, or, even if meeting the
requirements of Code section 422, is not intended to be an Incentive
Stock Option and is so designated.
(p) "Option" means a right to purchase Company Stock granted
under the Plan, at a price determined in accordance with the Plan.
(q) "Parent" means, with respect to any corporation, a parent
of that corporation within the meaning of Code section 424(e).
(r) "Participant" means any employee, consultant, or
Non-Employee Director who receives an Incentive Award under the Plan.
(s) "Rule 16b-3" means Rule 16b-3 of the Securities and
Exchange Commission promulgated under the Act. A reference in the Plan
to Rule 16b-3 shall include a reference to any corresponding rule (or
number redesignation) of any amendments to Rule 16b-3 enacted after the
effective date of the Plan's adoption.
(t) "Subsidiary" means, with respect to any corporation, a
subsidiary of that corporation within the meaning of Code section
424(f).
(u) "10% Shareholder" means a person who owns, directly or
indirectly, stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any Parent or
Subsidiary of the Company. Indirect ownership of stock shall be
determined in accordance with Code section 424(d).
3. General. Incentive Awards under the Plan may be either Incentive
Stock Options or Nonstatutory Stock Options.
4. Stock. Subject to Section 11 of the Plan, there shall be reserved
for issuance under the Plan an aggregate of 525,000 shares of Company Stock,
which shall be authorized, but unissued shares. Shares allocable to Options or
portions thereof granted under the Plan that expire or otherwise terminate
unexercised may again be subjected to an Incentive Award under the Plan. The
Committee is expressly authorized to make an Incentive Award to a Participant
conditioned upon the surrender for cancellation of an option granted under an
existing Incentive Award. For purposes of determining the number of shares that
are available for Incentive Awards under the Plan, such number shall include the
number of shares surrendered by an optionee or retained by the Company in
payment of Applicable Withholding Taxes. No more than 200,000 shares may be
allocated to the Incentive Awards that are granted to any individual Participant
during any single calendar year.
5. Eligibility.
(a) All present and future employees of the Company and
individuals who are consultants to the Company (or any Parent or Subsidiary of
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the Company, whether now existing or hereafter created or acquired) shall be
eligible to receive Incentive Awards under the Plan. The Committee shall have
the power and complete discretion, as provided in Section 12, to select eligible
employees to receive Incentive Awards and to determine for each employee the
terms and conditions, the nature of the award and the number of shares to be
allocated to each employee as part of each Incentive Award. Non-Employee
Directors are eligible to receive Incentive Awards in accordance with Section
13.
(b) The grant of an Incentive Award shall not obligate the
Company or any Parent or Subsidiary of the Company to pay a Participant any
particular amount of remuneration, to continue the employment of the Participant
after the grant or to make further grants to the Participant at any time
thereafter.
6. Stock Options.
(a) Whenever the Committee deems it appropriate to grant
Options, notice shall be given to the Participant stating the number of shares
for which Options are granted, the Option price per share, whether the Options
are Incentive Stock Options or Nonstatutory Stock Options, and the conditions to
which the grant and exercise of the Options are subject. This notice, when duly
accepted in writing by the Participant, shall become a stock option agreement
between the Company and the Participant.
(b) The exercise price of shares of Company Stock covered by
an Incentive Stock Option shall be not less than 100% of the Fair Market Value
of such shares on the Date of Grant; provided that if an Incentive Stock Option
is granted to a Participant who, at the time of the grant, is a 10% Shareholder,
then the exercise price of the shares covered by the Incentive Stock Option
shall be not less than 110% of the Fair Market Value of such shares on the Date
of Grant.
(c) The exercise price of shares covered by a Nonstatutory
Stock Option shall be not less than 100% of the Fair Market Value of such shares
on the Date of Grant.
(d) Options may be exercised in whole or in part at such times
as may be specified by the Committee in the Participant's stock option
agreement; provided that, the exercise provisions for Incentive Stock Options
shall in all events not be more liberal than the following provisions:
(i) No Incentive Stock Option may be exercised after ten years
(or, in the case of an Incentive Stock Option granted to a 10%
Shareholder, five years) from the Date of Grant.
(ii) An Incentive Stock Option by its terms, shall be
exercisable in any calendar year only to the extent that the
aggregate Fair Market Value (determined at the Date of Grant)
of the Company Stock with respect to which Incentive Stock
Options are exercisable for the first time during the calendar
year does not exceed $100,000 (the "Limitation Amount").
Incentive Stock Options granted under the Plan and all other
plans of the Company and any Parent or Subsidiary of the
Company shall be aggregated for purposes of determining
whether the Limitation Amount has been exceeded. The Board may
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<PAGE>
impose such conditions as it deems appropriate on an Incentive
Stock Option to ensure that the foregoing requirement is met.
(iii) If Incentive Stock Options that first become exercisable
in a calendar year exceed the Limitation Amount, the excess
Options will be treated as Nonstatutory Stock Options to the
extent permitted by law. If an Option designated as an
Incentive Stock Options otherwise fails to qualify as an
incentive stock option under the Code, the Option shall be
treated as a Nonstatutory Stock Option.
(e) The Committee may, in its discretion, grant Options that
by their terms become fully exercisable upon a Change of Control,
notwithstanding other conditions on exercisability in the stock option
agreement.
7. Method of Exercise of Options.
(a) Options may be exercised by the Participant giving written
notice of the exercise to the Company, stating the number of shares the
Participant has elected to purchase under the Option. In the case of the
purchase of shares under an Option, such notice shall be effective only if
accompanied by the exercise price in full in cash; provided, however, that if
the terms of an Option so permit, the Participant may (i) deliver, or cause to
be withheld from the Option shares, shares of Company Stock (valued at their
Fair Market Value on the date of exercise) in satisfaction of all or any part of
the exercise price, (ii) deliver a properly executed exercise notice together
with irrevocable instructions to a broker to deliver promptly to the Company,
from the sale or loan proceeds with respect to the sale of Company Stock or a
loan secured by Company Stock, the amount necessary to pay the exercise price
and, if required by the Committee, Applicable Withholding Taxes, or (iii)
deliver an interest bearing promissory note, payable to the Company, in payment
of all or part of the exercise price together with such collateral as may be
required by the Committee at the time of exercise. The interest rate under any
such promissory note shall be established by the Committee and shall be at least
equal to the minimum interest rate required at the time to avoid imputed
interest under the Code.
(b) The Company may place on any certificate representing
Company Stock issued upon the exercise of an Option any legend deemed desirable
by the Company's counsel to comply with federal or state securities laws, and
the Company may require a customary written indication of the Participant's
investment intent. Until the Participant has made any required payment,
including any Applicable Withholding Taxes, and has had issued a certificate for
the shares of Company Stock acquired, he or she shall possess no shareholder
rights with respect to the shares.
(c) Each Participant shall agree as a condition of the
exercise of an Option to pay to the Company, or make arrangements satisfactory
to the Company regarding the payment to the Company of, Applicable Withholding
Taxes. Until such amount has been paid or arrangements satisfactory to the
Company have been made, no stock certificate shall be issued upon the exercise
of an Option.
(d) As an alternative to making a cash payment to the Company
to satisfy Applicable Withholding Taxes, if the Option agreement so provides,
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the Participant may, subject to the provisions set forth below, elect to (i)
deliver shares of already owned Company Stock or (ii) have the Company retain
that number of shares of Company Stock that would satisfy all or a specified
portion of the Applicable Withholding Taxes. The Committee shall have sole
discretion to approve or disapprove any such election.
(e) Notwithstanding anything herein to the contrary, Options
shall always be granted and exercised in such a manner as to conform to the
provisions of Rule 16b-3.
8. Nontransferability of Options. Nonstatutory Stock Options shall not
be transferable except to the extent specifically provided in the Incentive
Award. Incentive Stock Options, by their terms, shall not be transferable except
by will or by the laws of descent and distribution and shall be exercisable,
during the Participant's lifetime, only by the Participant.
9. Effective Date of the Plan. The effective date of the Plan is July
21, 1999. The Plan shall be submitted to the shareholders of the Company for
approval. Until (i) the Plan has been approved by the Company's shareholders,
and (ii) the requirements of any applicable Federal or State securities laws
have been met, no Incentive Stock Option shall be exercisable.
10. Termination, Modification, Change. If not sooner terminated by the
Board, this Plan shall terminate at the close of business on the tenth
anniversary of the effective date. No Incentive Awards shall be made under the
Plan after its termination. The Board may terminate the Plan or may amend the
Plan in such respects as it shall deem advisable; provided that, if and to the
extent required by the Code, no change shall be made that increases the total
number of shares of Company Stock reserved for issuance pursuant to Incentive
Awards granted under the Plan (except pursuant to Section 11), materially
modifies the requirements as to eligibility for participation in the Plan, or
materially increases the benefits accruing to Participants under the Plan,
unless such change is authorized by the shareholders of the Company.
Notwithstanding the foregoing, the Board may unilaterally amend the Plan and
Incentive Awards as it deems appropriate to cause Incentive Stock Options to
meet the requirements of the Code and regulations thereunder. Except as provided
in the preceding sentence, a termination or amendment of the Plan shall not,
without the consent of the Participant, adversely affect a Participant's rights
under an Incentive Award previously granted to him or her.
11. Change in Capital Structure.
(a) In the event of a stock dividend, stock split or
combination of shares, recapitalization or merger in which the Company is the
surviving corporation or other change in the Company's capital stock (including,
but not limited to, the creation or issuance to shareholders generally of
rights, options or warrants for the purchase of common stock or preferred stock
of the Company), the number and kind of shares of stock or securities of the
Company to be subject to the Plan and to Options then outstanding or to be
granted thereunder, the maximum number of shares or securities which may be
delivered under the Plan, the exercise price and other relevant provisions shall
be appropriately adjusted by the Committee, whose determination shall be binding
on all persons. If the adjustment would produce fractional shares with respect
to any unexercised Option, the Committee may adjust appropriately the number of
shares covered by the Option so as to eliminate the fractional shares.
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(b) If the Company is a party to an initial public offering, a
consolidation or a merger in which the Company is not the surviving corporation,
a transaction that results in the acquisition of substantially all of the
Company's outstanding stock by a single person or entity, or a sale or transfer
of substantially all of the Company's assets, the Committee may take such
actions with respect to outstanding Incentive Awards as the Committee deems
appropriate.
(c) Notwithstanding anything in the Plan to the contrary, the
Committee may take the foregoing actions without the consent of any Participant,
and the Committee's determination shall be conclusive and binding on all persons
for all purposes.
12. Administration of the Plan. The Plan shall be administered by the
Committee, which shall consist of not less than two members of the Board, who
shall be appointed by the Board. Subject to paragraph (d) below, the Committee
shall be the Compensation Committee unless the Board shall appoint another
Committee to administer the Plan. The Committee shall have general authority to
impose any limitation or condition upon an Incentive Award the Committee deems
appropriate to achieve the objectives of the Incentive Award and the Plan and,
without limitation and in addition to powers set forth elsewhere in the Plan,
shall have the following specific authority:
(a) The Committee shall have the power and complete discretion
to determine (i) which eligible employees shall receive Incentive
Awards and the nature of each Incentive Award, (ii) the number of
shares of Company Stock to be covered by each Incentive Award, (iii)
whether Options shall be Incentive Stock Options or Nonstatutory Stock
Options, (iv) the Fair Market Value of Company Stock, (v) the time or
times when an Incentive Award shall be granted, (vi) whether an
Incentive Award shall become vested over a period of time and when it
shall be fully vested, (vii) when Options may be exercised, (viii)
whether a Disability exists, (ix) the manner in which payment will be
made upon the exercise of Options, (x) conditions relating to the
length of time before disposition of Company Stock received upon the
exercise of Options is permitted, (xi) whether to approve a
Participant's election (A) to deliver shares of already owned Company
Stock to satisfy Applicable Withholding Taxes or (B) to have the
Company withhold from the shares to be issued upon the exercise of a
Nonstatutory Stock Option the number of shares necessary to satisfy
Applicable Withholding Taxes, (xii) notice provisions relating to the
sale of Company Stock acquired under the Plan, and (xiii) any
additional requirements relating to Incentive Awards that the Committee
deems appropriate. Notwithstanding the foregoing, no "tandem stock
options" (where two stock options are issued together and the exercise
of one option affects the right to exercise the other option) may be
issued in connection with Incentive Stock Options. The Committee shall
have the power to amend the terms of previously granted Incentive
Awards so long as the terms as amended are consistent with the terms of
the Plan and provided that the consent of the Participant is obtained
with respect to any amendment that would be detrimental to him or her,
except that such consent will not be required if such amendment is for
the purpose of complying with Rule 16b-3 or any requirement of the Code
applicable to the Incentive Award.
(b) The Committee may adopt rules and regulations for carrying
out the Plan. The interpretation and construction of any provision of
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the Plan by the Committee shall be final and conclusive. The Committee
may consult with counsel, who may be counsel to the Company, and shall
not incur any liability for any action taken in good faith in reliance
upon the advice of counsel.
(c) A majority of the members of the Committee shall
constitute a quorum, and all actions of the Committee shall be taken by
a majority of the members present. Any action may be taken by a written
instrument signed by all of the members, and any action so taken shall
be fully effective as if it had been taken at a meeting.
(d) The Board from time to time may appoint members previously
appointed and may fill vacancies, however caused, in the Committee.
13. Grants to Non-Employee Directors. All provisions of the Plan shall
apply to the grant of Incentive Awards to Non-Employee Directors, except as
provided in this section. All Incentive Awards to Non-Employee Directors will be
Nonstatutory Stock Options. The exercise price of a Nonstatutory Stock Option
for a Non-Employee Director may not be less than 100% of the Fair Market Value
of the Company Stock on the Date of Grant. With respect to Incentive Awards to
Non-Employee Directors, the Board will have all of the authority of the
Committee under the Plan. The Board may delegate its authority to the
Compensation Committee or another committee of the Board that is composed solely
of Non-Employee Directors. The provisions for payment of Applicable Withholding
Taxes will not apply to Incentive Awards to Non-Employee Directors.
14. Notice. All notices and other communications required or permitted
to be given under this Plan shall be in writing and shall be deemed to have been
duly given if delivered personally or mailed first class, postage prepaid, as
follows (a) if to the Company - at its principal business address to the
attention of the Treasurer; (b) if to any Participant - at the last address of
the Participant known to the sender at the time the notice or other
communication is sent.
15. Interpretation. The terms of this Plan are subject to all present
and future regulations and rulings of the Secretary of the Treasury or his or
her delegate relating to the qualification of Incentive Stock Options under the
Code. If any provision of the Plan conflicts with any such regulation or ruling,
then that provision of the Plan shall be void and of no effect.
The terms of this Plan shall be governed by the laws of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed
this ____ day of __________________, ________.
MENLO ACQUISITION CORPORATION.
By: ________________________
President
8
<PAGE>
Form of Nonstatutory Stock Option Agreement
1999 STOCK OPTION PLAN
NONSTATUTORY STOCK OPTION AGREEMENT
Between
MENLO ACQUISITION CORPORATION
and
------------------------------
NSO
<PAGE>
MENLO ACQUISITION CORPORATION
1999 Stock Incentive Plan
Nonstatutory Stock Option Agreement
THIS AGREEMENT, dated the _____ of ________________, between MENLO
ACQUISITION CORPORATION., a Delaware corporation (the "Company"), and
____________________ ("Participant"), is made pursuant and subject to the
provisions of the Company's 1999 Stock Option Plan (the "Plan"), and all terms
used herein that are defined in the Plan shall have the same meaning given them
in the Plan:
W I T N E S S E T H :
1. Grant of Option. Pursuant to the provisions of the Plan, the Company has
granted to Participant on the _____ day of __________, _______ (the "Date of
Grant"), subject to the terms and conditions of the Plan and subject further to
the terms and conditions herein set forth, the right and option to purchase from
the Company (the "Option") all or any part of an aggregate of _______ shares of
Company Common Stock at the purchase price of $ _______ per share (the "Option
Price"), such Option to be exercisable as hereinafter provided. The Option
evidenced hereby is intended to be a nonstatutory stock option that does not
receive special tax treatment under Section 422 of the Internal Revenue Code
(the "Code").
2
<PAGE>
2. Terms and Conditions. The Option evidenced hereby is subject to the
following terms and conditions:
(a) Expiration Date. This Option shall expire ten years from
the Date of Grant.
(b) Nontransferability. This Option shall be
nontransferable except by will or by the laws of descent and
distribution and, during the lifetime of the
Participant, may be exercised only by the Participant,
except as provided in Section 3 below.
(c) Exercise of Service Option.
(i) Vesting:
____ This Option is 100% vested, and, subject to
the terms and conditions set forth herein, fully exercisable at all times.
____ This Option shall vest, and shall be
exercisable, in accordance with the following schedule:
Anniversary of Percentage of shares of Common
Date of Grant Stock allocable to Option which may
be purchased
First _____________
Second _____________
Third _____________
Fourth _____________
Fifth _____________
Sixth _____________
Seventh _____________
Eighth _____________
Ninth _____________
3
<PAGE>
(ii) Notwithstanding any provisions contained in the
Plan or in this Agreement, in the event of a Change of
Control, the Board may in its discretion provide that this
Option shall become fully vested and the Participant shall be
entitled to exercise such Option, in whole or in part.
(d) Method of Exercising and Payment for Shares. This Option may
only be exercised by written notice delivered to the Treasurer at the
Company's principal office. The exercise date will be (i) in the case
of notice by mail, the date of postmark or (ii) if delivered in
person, the date of delivery. Such notice shall be accompanied by
payment of the Option Price in full by cash (which shall include
payment by check, bank draft or money order payable to the order of
the Company).
3. Termination of Option Upon Termination of Employment. The right of
Participant and his successors in interest to exercise this Option or to vest in
any unvested portion of this Option shall terminate when his directorship or
other employment with the Company or any Subsidiary is terminated for any reason
except as provided in subsections 3(a) and 3(b) below.
(a) Exercise following Death. In the event Participant dies
while he is a director or is otherwise employed by the Company or any
Subsidiary or within three months following termination of his
4
<PAGE>
directorship or other employment due to retirement or disability and
before the exercise in full or expiration of this Option, Participant's
estate (or the person or persons to whom the rights under this Option
shall have passed by will or the laws of descent and distribution) may
exercise this Option at any time within one year next following
Participant's death (but in any event before the expiration date of the
Option period) for the entire number of shares remaining subject to
this Option.
(b) Exercise following Termination, Disability or Retirement.
In the event of termination of Participant's directorship or other
employment by the Company or any Subsidiary for any reason other than
death, including retirement or termination approved by the Company
because of disability, before exercise in full or expiration of this
Option, Participant may exercise the vested and exercisable portion of
this Option at any time within three months next following such
termination of directorship or other employment (but in any event
before the expiration date of the Option period) for the number of
shares remaining subject to the vested and exercisable portion of this
Option.
5
<PAGE>
For the purposes of this Section 3, it shall not be considered a
termination of employment if Participant is placed by the Company or any
Subsidiary on military or sick leave or such other type of leave of absence that
the Committee considers as continuing the employment relationship intact. For
the purposes of this Section 3, only a termination of directorship or other
employment on or after the Participant has reached age 65 shall be considered a
retirement, unless the Committee designates that an earlier termination shall be
considered a retirement. At the time of any exercise of any Option exercised
pursuant to this Section 3, the Option Price shall be paid in full as provided
in Section 2.
Notwithstanding subsections 3(a) and 3(b) above, in no event may this
Option be exercised after the Expiration Date.
4. Governing Law. This Agreement shall be governed by the laws of the State
of Delaware.
5. Conflicts. In the event of any conflict between the provisions of the
Plan as in effect on the date of grant and the provisions of this Agreement, the
provisions of the Plan shall govern. All references herein to the Plan shall
mean the Plan as in effect on the date hereof. Terms defined in the Plan are
used herein as so defined.
6. Participant Bound by Plan. In consideration of the grant of this Option,
Participant agrees he will comply with such conditions as the Board of Directors
and the Committee may impose on the exercise of the Option.
6
<PAGE>
7. Binding Effect. Subject to the limitations stated above and in the Plan,
this Agreement shall be binding upon and inure to the benefit of the legatees,
distributees and personal representatives of Participant and the successors of
the Company.
8. Change in Capital Stock Structure. In the event of changes in the
capital stock structure of the Company, appropriate adjustments in the number of
shares for which the Option shall be exercisable, or the exercise price, or
both, shall be made, and appropriate adjustments in the required values of
Common Stock under Section 3 shall be made, as provided in Section 11 of the
Plan.
9. Tax Obligations Upon Exercise. The difference between the "Fair Market
Value" of Company Common Stock purchased when the Option is exercised and the
Option Price is compensation taxable to the Participant as ordinary income and
subject to applicable federal and state taxes which the Company may be obligated
to withhold. The Participant agrees to make arrangements suitable to the Company
for the payment of all applicable withholding taxes, if any. By a timely
election (to the extent permitted by Rule 16b-3 under the Securities Exchange
Act of 1934), the Participant may elect to have the Company withhold upon
exercise a number of shares of Company Stock having a "Fair Market Value" equal
to the minimum applicable withholding taxes. Any such election shall be subject
to approval by the Committee.
7
<PAGE>
10. Successors and Assigns. This Agreement shall be binding on the Company
and shall be enforceable against its successors and assigns.
11. Notice Provisions. Any notice or election required or permitted under
this Option shall be delivered in writing to the Treasurer at the Company's
principal offices in Parsippany, New Jersey.
12. Transfer of Shares of Company Stock. Upon the exercise of the Option,
the Participant shall not transfer, encumber or dispose of the Common Stock so
purchased unless: (a) an effective registration statement covering such shares
is filed pursuant to the Securities Act of 1933, as amended, and applicable
state law, or (b) an opinion letter of the Participant's counsel is obtained,
satisfactory to the Company and its counsel, that such transfer is not in
violation of any applicable federal or state laws or regulations.
13. Amendment of this Option Agreement. The Board may modify or amend this
Option if it so determines, in its sole discretion, that amendment is necessary
or advisable. No amendment of this Option, however, may, without the consent of
the Participant, make any changes which would adversely affect the rights of the
Participant.
8
<PAGE>
14. No Guaranteed Right to Employment. If Participant is employed by the
Company, nothing contained herein shall confer upon the Participant any right to
be continued in the employment of the Company or interfere in any way with the
right of the Company to terminate his employment at any time for any cause.
With this Option, you will receive a number of documents relating to the
Company and a receipt for those documents. You should sign the receipt for this
material and return it to the Company.
IN WITNESS WHEREOF, MENLO ACQUISITION CORPORATION has caused this Agreement
to be signed by the President and the Participant has affixed his signature
hereto.
MENLO ACQUISITION CORPORATION
By______________________________
President
______________________________
Participant
9
<PAGE>
Form of Incentive Stock Option Agreement
1999 STOCK OPTION PLAN
INCENTIVE STOCK OPTION AGREEMENT
Between
MENLO ACQUISITION CORPORATION
and
------------------------------
ISO
<PAGE>
MENLO ACQUISITION CORPORATION
1999 Stock Option Plan
Incentive Stock Option Agreement
THIS AGREEMENT, dated the _____ of _________________, between MENLO
ACQUISITION CORPORATION., a Delaware corporation (the "Company"), and
____________________ ("Participant"), is made pursuant and subject to the
provisions of the Company's 1999 Stock Option Plan (the "Plan"), and all terms
used herein that are defined in the Plan shall have the same meaning given them
in the Plan:
W I T N E S S E T H :
1. Grant of Option. Pursuant to the provisions of the Plan, the Company has
granted to Participant on the _____ day of __________, _____ (the "Date of
Grant"), subject to the terms and conditions of the Plan and subject further to
the terms and conditions herein set forth, the right and option to purchase from
the Company (the "Option") all or any part of an aggregate of _______ shares of
Company Common Stock at the purchase price of $_______ per share (the "Option
Price"), being not less than 100% of the Fair Market Value per share of the
Common Stock on the Date of Grant, such Option to be exercisable as hereinafter
provided. The Option evidenced hereby is intended to be an incentive stock
option that receives special tax treatment under Section 422 of the Internal
Revenue Code (the "Code").
2. Terms and Conditions. The Option evidenced hereby is subject to the
following terms and conditions:
(a) Expiration Date. This Option shall expire ten years
from the Date of Grant.
2
<PAGE>
(b) Nontransferability. This Option shall be
nontransferable except by will or by the laws of descent and
distribution and, during the lifetime of the Participant, may be
exercised only by the Participant, except as provided in Section 3
below.
(c) Exercise of Service Option.
(i) Vesting:
____ This Option is 100% vested, and, subject to
the terms and conditions set forth herein, fully
exercisable at all times.
____ This Option shall vest, and shall be
exercisable, in accordance with the following schedule:
Anniversary of Percentage of shares of Common
Date of Grant Stock allocable to Option which may
be purchased
First _____________
Second _____________
Third _____________
Fourth _____________
Fifth _____________
Sixth _____________
Seventh _____________
Eighth _____________
Ninth _____________
(ii) Notwithstanding any provisions contained in the
Plan or in this Agreement, in the event of a Change of
Control, the Board may in its discretion provide that this
Option shall become fully vested and the Participant shall be
entitled to exercise such Option, in whole or in part.
(d) Limitation on Exercise.
(i) Notwithstanding the provisions of subsection
2(c), the aggregate Fair Market Value (determined by reference to the exercise
price at the time the Option is granted) of the stock with respect to which
incentive stock options are exercisable for the first time
3
<PAGE>
by the Participant during a calendar year may not exceed $100,000 (the
"Limitation Amount"). Incentive stock options granted under this Option
agreement and the Plan and under all other plans of the Company and any Parent
and Subsidiary corporations shall be aggregated for purposes of the Limitation
Amount.
(ii) The portion of an Option that fails to qualify
for incentive stock option treatment in a calendar
year because of the Limitation Amount shall be treated as a nonqualified stock
option that does not receive special tax treatment under Code section 422. The
provisions of Section 10 shall apply to the extent an Option is treated as a
nonqualified stock option.
(e) Method of Exercising and Payment for Shares. This Option
may only be exercised by written notice delivered to the Treasurer at the
Company's principal office. The exercise date will be (i) in the case of notice
by mail, the date of postmark or (ii) if delivered in person, the date of
delivery. Such notice shall be accompanied by payment of the Option Price in
full by cash (which shall include payment by check, bank draft or money order
payable to the order of the Company).
3. Termination of Option Upon Termination of Employment. The right of
Participant and his successors in interest to exercise this Option or to vest in
any unvested portion of this Option shall terminate when his employment with the
Company or any Subsidiary is terminated for any reason except as provided in
subsections 3(a) and 3(b) below.
(a) Exercise following Death. In the event Participant dies
while he is employed by the Company or any Subsidiary or within three
months following termination of his employment due to retirement or
disability and before the exercise in full or expiration of this
Option, Participant's estate (or the person or persons to whom the
4
<PAGE>
rights under this Option shall have passed by will or the laws of
descent and distribution) may exercise this Option at any time within
one year next following Participant's death (but in any event before
the expiration date of the Option period) for the entire number of
shares remaining subject to this Option.
(b) Exercise following Termination, Disability or Retirement.
In the event of termination of Participant's employment by the Company
or any Subsidiary for any reason other than death, including retirement
or termination approved by the Company because of disability, before
exercise in full or expiration of this Option, Participant may exercise
the vested and exercisable portion of this Option at any time within
three months next following such termination of employment (but in any
event before the expiration date of the Option period) for the number
of shares remaining subject to the vested and exercisable portion of
this Option.
For the purposes of this Section 3, it shall not be considered a
termination of employment if Participant is placed by the Company or any
Subsidiary on military or sick leave or such other type of leave of absence that
the Committee considers as continuing the employment relationship intact. For
the purposes of this Section 3, only a termination of employment on or after the
Participant has reached age 65 shall be considered a retirement, unless the
Committee designates that an earlier termination shall be considered a
retirement. At the time of any exercise of any Option exercised pursuant to this
Section 3, the Option Price shall be paid in full as provided in Section 2.
Notwithstanding subsections 3(a) and 3(b) above, in no event may this
Option be exercised after the Expiration Date.
5
<PAGE>
4. Governing Law. This Agreement shall be governed by the laws of the State
of Delaware.
5. Conflicts. In the event of any conflict between the provisions of the
Plan as in effect on the date of grant and the provisions of this Agreement, the
provisions of the Plan shall govern. All references herein to the Plan shall
mean the Plan as in effect on the date hereof. Terms defined in the Plan are
used herein as so defined.
6. Participant Bound by Plan. In consideration of the grant of this Option,
Participant agrees he will comply with such conditions as the Board of Directors
and the Committee may impose on the exercise of the Option.
7. Binding Effect. Subject to the limitations stated above and in the Plan,
this Agreement shall be binding upon and inure to the benefit of the legatees,
distributees and personal representatives of Participant and the successors of
the Company.
8. Change in Capital Stock Structure. In the event of changes in the
capital stock structure of the Company, appropriate adjustments in the number of
shares for which the Option shall be exercisable, or the exercise price, or
both, shall be made, and appropriate adjustments in the required values of
Common Stock under Section 3 shall be made, as provided in Section 11 of the
Plan.
9. Notice of Early Disposition of Option Stock. Participant agrees to give
the Company prompt written notice of a sale or disposition of the Company Common
Stock acquired upon exercising the Option (i) within two years from the date on
which the Option was granted or (ii) within one year from the date on which the
Company Common Stock was transferred to Participant. If Participant fails to
give the Company prompt written notice, Participant will be liable to the
Company for any loss of deduction, any penalty imposed, and any other financial
loss incurred by the Company as a result of the Participant's failure to give
prompt notice.
10. Tax Obligations Upon Exercise of Nonqualified Portion of Option. To the
extent an Option is treated as a nonqualified stock option pursuant to
subsection 2(d)(ii), the difference between the "Fair Market Value" of Company
Common Stock purchased when the Option is exercised and the Option Price is
compensation taxable to the Participant as ordinary income and subject to
applicable federal and state taxes which the Company is obligated to withhold.
The Participant agrees to make arrangements suitable to the Company for the
payment of all applicable withholding taxes. By a timely election (to the extent
permitted by Rule 16b-3 under the Securities Exchange Act of 1934), the
Participant may elect to have the Company withhold upon exercise a number of
Company Shares having a "Fair Market Value" equal to the minimum applicable
withholding taxes. Any such election shall be subject to approval by the
Committee.
11. Successors and Assigns. This Agreement shall be binding on the Company
and shall be enforceable against its successors and assigns.
12. Notice Provisions. Any notice or election required or permitted under
this Option shall be delivered in writing to the Treasurer at the Company's
principal offices in Parsippany, New Jersey.
13. Transfer of Shares of Company Stock. Upon the exercise of the Option,
the Participant shall not transfer, encumber or dispose of the Common Stock so
purchased unless: (a) an effective registration statement covering such shares
is filed pursuant to the Securities Act of 1933, as amended, and applicable
state law, or (b) an opinion letter of the Participant's counsel is obtained,
satisfactory to the Company and its counsel, that such transfer is not in
violation of any applicable federal or state laws or regulations.
14. Amendment of this Option Agreement. The Board may modify or amend this
Option if it so determines, in its sole discretion, that amendment is necessary
or advisable. No amendment of this Option, however, may, without the consent of
the Participant, make any changes which would adversely affect the rights of the
Participant, except the Board may unilaterally amend the Plan and Incentive
Awards as it deems appropriate to cause Incentive Stock Options to meet the
requirements of the Code and regulations thereunder.
15. No Guaranteed Right to Employment. If Participant is employed by the
Company, nothing contained herein shall confer upon the Participant any right to
be continued in the employment of the Company or interfere in any way with the
right of the Company to terminate his employment at any time for any cause.
With this Option, you will receive a number of documents relating to the
Company and a receipt for those documents. You should sign the receipt for this
material and return it to the Company.
IN WITNESS WHEREOF, MENLO ACQUISITION CORPORATION has caused this Agreement
to be signed by the President and the Participant has affixed his signature
hereto.
MENLO ACQUISITION CORPORATION
By______________________________
President
-------------------------------
Participant
6
<PAGE>
MENLO ACQUISITION CORPORATION
1999 ANNUAL REPORT
<PAGE>
1999 ANNUAL REPORT
PRELIMINARY NOTE: Menlo Acquisition Corporation (the "Company") is a "small
business issuer" as defined under Rule 12b-2 of the Securities Exchange Act of
1934. As such, the issuer provides information in this Annual Report in
accordance with Regulation S-b rather than Regulation S-K.
This Annual Report is combined with the Company's annual report on Form 10-KSB,
which is attached hereto and incorporated herein by reference. The proxy
statement incorporated by reference in the Form 10-KSB is furnished herewith.
The financial statements and notes thereto on pages F-1 to F-21 of the Form
10-KSB are incorporated herein by reference.
There were no changes in or disagreements with accountants.
Management's Discussion and Analysis of Financial Condition and Results of
Operations is set forth in Item 6 of the Form 10-KSB and is incorporated herein
by reference.
A description of the business done by the Company and its subsidiaries during
1999, including an indication of the nature and scope of the business of the
Company and its subsidiaries, is set forth in Item 1 of the Form 10-KSB and is
incorporated herein by reference.
Information about the Company's directors is set forth in Proposal I of the
proxy statement. The executive officers of the Company are directors Richard S.
Greenberg, PhD., Lawrence B. Seidman and George Greenberg.
In addition, Frank Russomanno has served as the Chief Financial Officer of the
Company since its inception on March 10, 1999. Kevin D. Orabone is the Executive
Vice-President of Environmental Waste Management Associates, LLC and Inc. and
has been with that Company since 1989. Michael H. Leftin, Ph.D. is the Chief
Executive Officer of Integrated Analytical Laboratories, LLC and Inc. and has
been with that Company since its inception in 1987.
Information about the market price of and dividends on the Company's shares is
set forth in Item 5 of the Form 10-KSB and is incorporated herein by reference.
THE COMPANY UNDERTAKES TO PROVIDE WITHOUT CHARGE TO EACH SHAREHOLDER WHO SUBMITS
A WRITTEN REQUEST TO THE SECRETARY, MENLO ACQUISITION CORPORATION, 100 MISTY
LANE, PARSIPPANY, NJ 07054, A COPY OF ANY EXHIBIT TO THE FORM 10-KSB.
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1999
Commission file number 0-22136
MENLO ACQUISITION CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 77-0332937
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
100 Misty Lane Parsippany, NJ 07054
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (973) 560-1400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Title of each class:
Common stock $0.0001 par value
Indicate by check mark whether the registrant (1) has filed all reports required
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 No X
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to the Form 10-KSB. [ X}
At March 28, 2000 the registrant had issued and outstanding an aggregate of
5,263,348 shares of its common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for the Annual Meeting of Shareholders
to be held on June 7, 2000, are incorporated by reference in Part III. The
Company's proxy statement will be filed within 120 days after December 31, 1999.
The issuers revenues from its most recent fiscal year were $13,594,524.
Aggregate market value of the voting stock held by non-affiliates of the
registrant on March 28, 2000 was $597,128.
<PAGE>
Menlo Acquisition Corporation
Annual Report on Form 10-KSB
For the Fiscal Year Ended December 31, 1999
Table of Contents
PART I
Item 1. Description of Business
Item 2. Description of Property
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 7. Financial Statements
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Item 10. Executive Compensation
Item 11. Security Ownership of Certain Beneficial Owners and Management
Item 12. Certain Relationships and Related Transactions
Item 13. Exhibits and Reports on Form 8-K
<PAGE>
ITEM 1. DESCRIPTION OF BUSINESS
Cautionary Statement Regarding Forward-Looking Statements
The statements in this business section that are forward-looking are based on
current expectations and actual results may differ materially. The
forward-looking statements include those regarding future adoption of
regulations and statutes having an impact on the Company's business, the impact
of current regulations and statutes, the possible impact of current and future
claims against the Company based upon negligence and other theories of
liability, and the ability to successfully complete one or more acquisitions as
part of the Company's growth strategy. Forward-looking statements involve
numerous risks and uncertainties that could cause actual results to differ
materially, including, but not limited to, the possibilities that the demand for
the Company's services may decline as a result of possible changes in general
and industry specific economic conditions and the effects of competitive
services and pricing; one or more current or future claims made against the
Company may result in substantial liabilities; and such other risks and
uncertainties as are described in reports and other documents filed by the
Company from time to time with the Securities and Exchange Commission.
Menlo Acquisition Corporation
Menlo Acquisition Corporation ("Menlo") is a publicly traded Delaware
Corporation formerly doing business as Focus Surgery Inc. ("Focus"). Menlo is
now a holding company engaged in acquiring other operating businesses. Prior to
the consummation of the Second Amended Plan of Reorganization in March 1999
further described below, Focus specialized in the research and development of
techniques and equipment for non-invasive surgeries. On February 9, 1996, Focus
filed a petition for relief under Chapter 11 of the Bankruptcy Code. In August
1996, while in bankruptcy, Focus sold substantially all of its assets to an
unrelated company. As part of the sale, Focus transferred all rights to the
"Focus Surgery, Inc." name to the buyer and amended its Articles of
Incorporation to change its name to Menlo Acquisition Corporation.
Environmental Waste Management Associates, LLC, a New Jersey limited liability
company ("EWMA LLC"), and Environmental Waste Management Associates, Inc. a New
Jersey corporation ("EWMA Inc." and, together with EWMA LLC, "EWMA"), are
environmental consulting firms providing a broad range of environmental services
related to the investigation and remediation of hazardous waste sites. EWMA has
offices in Parsippany and West Windsor, New Jersey.
Integrated Analytical Laboratories, LLC, a New Jersey limited liability company
("IAL LLC"), and Integrated Analytical Laboratories, Inc. a New Jersey
corporation ("IAL Inc." and, together with IAL LLC, "IAL"), are firms providing
analytical laboratory services to the environmental and pharmaceutical
industries. IAL is located in Randolph, New Jersey.
EWMA, Inc. and IAL, Inc. were organized under the laws of the State of New
Jersey in 1987 and each sold primarily all of their respective assets, except
accounts receivable, to the aforementioned limited liability companies in April
1997. EWMA, Inc. and IAL, Inc. currently have no operations but exist primarily
for the purpose of collecting outstanding receivables. Additionally, the
personnel of EWMA and IAL remained as employees of EWMA, Inc. and IAL, Inc.
EWMA, LLC; EWMA, Inc.; IAL, LLC; and IAL, Inc.; are further defined,
collectively,as "the Acquired Entities"
Reverse Acquisition:
On March 10, 1999, Menlo and the Acquired Entities consummated certain
transactions pursuant to the Second Amended Plan of Reorganization filed with
the Bankruptcy Court on August 12, 1998 and approved on August 26, 1998. Menlo
converted all of its outstanding shares of existing common stock to 263,348
shares of new common stock with a par value of $.0001 per share. Additionally,
Menlo issued 5,000,000 shares of new common stock in exchange for 99% of the
equity interest in the Acquired Entities (the "acquisition"). Subsequently, the
remaining 1% of the acquired entities was purchased from an affilliated party
for a nominal amount ($1).
As a result of the acquisition and the subsequent 1% purchase, the Acquired
Entities became wholly owned subsidiaries of Menlo. Former owners and members of
the Acquired Entities became the owners of approximately 95% of the 5,263,348
shares of common stock of Menlo outstanding upon the consummation of the
acquisition. Stockholders of Menlo prior to the acquisition comprised the
ownership of the remaining 5% of outstanding shares at the date of the
acquisition. Therefore, the transaction was treated for accounting purposes as a
"purchase business combination" and a "reverse acquisition" effective as of
March 10, 1999 in which Menlo was the legal acquirer and the Acquired Entities
were the accounting acquirer.
Accordingly, the assets and liabilities of the accounting acquirer (the Acquired
Entities) continued to be accounted for at their historical carrying values as
of March 10, 1999. As further explained in the Financial Statements, the fair
value of the 263,348 shares deemed to have been issued to the stockholders of
Menlo prior to the acquisition was included in the total cost of the acquisition
of Menlo. The total cost was then allocated to the fair values of the net assets
acquired and the excess of the cost over the fair value of the net assets
acquired was allocated to goodwill. The accompanying consolidated statement of
operations for the years ended December 31, 1999 and 1998 reflect the results of
operations of the Acquired Entities. Prior to the acquisition , Menlo was in
bankruptcy and had limited operating activity, therefore no activity for Menlo
from the effective date of the acquisition is reflected in the accompanying
statements.
Business and Management of Menlo
As a public holding company, Menlo's sole assets are its investments in the
Acquired Entities. While Menlo is a public reporting company, the Acquired
Entities will not be reporting companies, and there is no present intent to
register any of the Acquired Entities as a reporting company. The management of
Menlo will overlap significantly with that of the Acquired Entities.
As a holding company Menlo will not have ongoing sources of revenues or income
apart from the Acquired Entities. Therefore, Menlo will be entirely dependent on
the financial ability of the Acquired Entities to pay dividends to it and on the
declaration and payment of such dividends by the Acquired Entities for funds to
meet its financial obligations. The Board of Directors of Menlo, which will
control the timing and amount of any dividends, initially will be composed of
individuals closely associated with the Acquired Entities, and the former owners
of the Acquired Entities will own sufficient Common Stock of Menlo to control
the election of directors in the future.
Environmental Waste Management Associates (EWMA) - Consulting Segment
General
EWMA provides a broad range of environmental services related to the
investigation and remediation of hazardous waste sites. EWMA's services include
(i) investigation of the nature and extent of contamination at affected sites;
(ii) design of remedial treatment systems; (iii) construction and management of
such treatment systems; (iv) regulatory assistance; and (v) real estate transfer
assistance.
At the time it commenced operations in 1987, EWMA primarily performed Phase I
environmental site assessments and underground storage tank removal. Shortly
thereafter, in response to its customers' needs, it substantially expanded its
environmental services and developed a comprehensive hazardous waste service
line, including a broad range of services related to environmental investigation
and remediation of soil and groundwater. More recently, EWMA also has expanded
its services into the areas of industrial hygiene and health and safety
compliance.
EWMA generally provides services for its customers pursuant to written
agreements. These agreements are primarily on a "fixed price" basis, with
additions and changes effected through change orders, and, to a lesser extent,
on a "time-and-materials" basis.
Services
EWMA provides consulting, engineering, construction and analytical services
utilizing a diverse staff of qualified scientists, engineers, geologists,
hydrogeologists, industrial hygienists and chemists. Project management teams
are organized to effect efficient communication, technical expertise and
subcontractor support, in light of the nature and scope of each project.
EWMA also provides services to determine if an environmental hazard exists at a
subject site and to assess the nature of any such risk, particularly in light of
the nature and extent of the hazard with respect to human health and the
environment. Customers generally seek these services in connection with real
estate transfers and site audits. These services include, but are not limited
to, historical data gathering and review, site investigation and evaluation,
sample collection through intrusive and non-intrusive methods, risk
determination and remedial design and implementation.
EWMA pioneered the use of "Plume Dating," which is a method of determining the
"age" of certain contamination. It is also a technique to help determine the
past, present and future risk factors of environmental hazards. EWMA provides
Plume Dating services in conjunction with "expert witness" testimony for
customers and attorneys. This "chemical finger printing" may help determine the
fair allocation of liability among responsible parties.
EWMA provides remedial design services based on the results of site history,
investigation and risk analysis. Depending on these factors and applicable
regulatory requirements, a remedial design can take several forms, ranging from
natural attenuation to large scale treatment systems to alternative remedial
technologies. EWMA assists customers in determining the most cost effective
method of remediation and has the capability to provide a broad range of
services relating to the design, building, maintenance and operation of
appropriate remediation systems. In connection with its remedial design
services, EWMA also undertakes the processes necessary for regulatory permit
approval.
EWMA has extensive experience in the design, construction and maintenance of
treatment systems. Such remedial systems are designed to treat contaminants
found in the soils and groundwater. Such contaminates generally are hydrocarbons
and solvents from leaking underground tanks and local spills. EWMA's remedial
treatment systems are designed to reduce contamination in the soils and
groundwater to levels acceptable for human health. Technologies utilized include
both in-situ and ex-situ treatment, chosen from among carbon absorption, air
stripping, soil venting, air sparging, in-situ oxidative injection and
biological degradation. EWMA continues to adopt and employ new technologies in
an ongoing attempt to provide the most cost effective remediation possible.
EWMA audits facilities with respect to indoor air quality and health and safety
issues. In addition, EWMA designs and implements plans to address indoor air
quality and health and safety concerns at its customers' facilities. Both
monitoring of these plans and on site services are necessary to document
compliance with applicable federal, state and local requirements, from federal
Occupational Safety and Health Administration ("OSHA") and Toxic Substances
Control Act ("TSCA") regulations to noise and nuisance limitations imposed by
local statute or ordinance.
EWMA also provides on-site, operational services to remove, replace and retrofit
underground storage tanks. EWMA provides a broad range of services in connection
with compliance with applicable federal and state regulations. EWMA also
provides a range of other operational services, including excavation and
backfilling of soils, subsurface exploration and support for treatment system
installation.
Customers and Marketing
EWMA's customers are primarily private-sector organizations. During the fiscal
year ended December 31, 1999, approximately 95% of EWMA's gross revenues were
derived from private-sector customers with the remainder associated with
public-sector customers. No single customer accounted for more than 5% of EWMA's
revenues in 1999.
EWMA identifies new customers through marketing efforts, utilizing a
professional sales and marketing staff. EWMA participates in and presents at
trade shows and technical conferences and produces literature to support its
marketing program.
Competition
EWMA operates primarily in New Jersey, New York and Pennsylvania and competes
against companies that are both much larger and smaller than EWMA. EWMA
generally competes on the basis of price and service, including technical
expertise. EWMA believes that it is competitive because of its industry
contacts, customer relationships, sales and marketing efforts, competitive
pricing and technical expertise.
Personnel
EWMA provides its services through a staff of approximately 65 employees,
consisting of approximately 45 professional staff (including engineers,
geologists, hydrogeologists and biologists) and 20 support personnel. None of
EWMA's employees are represented by a labor union, and EWMA is not a party to
any collective bargaining agreement. EWMA believes its employee relations are
good.
Integrated Analytical Laboratories (IAL) - Lab Segment
General
IAL provides analytical laboratory services to the environmental and
pharmaceutical industries. IAL's services also include collection and
transportation of samples from the customer's site to the laboratory and
delivery of the results package to the customer.
Environmental consulting and remediation companies generally do not have the
in-house capability to perform analytical services, as such, IAL historically
has serviced such companies. Also, because companies in the pharmaceutical
industry similarly frequently out-source analytical services, IAL more recently
has positioned itself to capture this pharmaceutical business as well. Many
large pharmaceutical companies have facilities in and around New Jersey.
Therefore, IAL is both technically and geographically well positioned to serve
this market.
IAL provides services on both a "job-by-job" and "bid" basis. Where projects are
undertaken on a job-by-job basis, IAL provides its customers with a published
rate sheet, which is updated periodically based upon prevailing market
conditions, and which sets out the cost for each analytical parameter and the
time frame for each analysis to be completed.
IAL owns or leases with an option to purchase substantially all of the equipment
necessary to conduct the contracted analyses. This capital equipment is highly
sophisticated and maintenance intensive. Each type of analysis requires a
specialized type of equipment that is maintained and operated by experienced
chemists according to applicable regulations and protocol.
IAL is required by federal and state regulations to maintain strict Quality
Assurance/Quality Control ("QA/QC") procedures. IAL's QA/QC program was
developed in accordance with the Good Laboratory Practices and Current Good
Manufacturing Practices of the U.S. Food and Drug Administration (the "FDA").
This program calls for routine and independent assessments of IAL's performance,
data and procedures to assure compliance with approved Standard Operation
Procedures, which cover applicable aspects of the FDA's laboratory regulations.
To conduct its business, IAL also must maintain certifications for each type of
analysis performed and from most states from which IAL receives a sample,
although a number of states allow for certification reciprocity. IAL currently
runs approved soil, wastewater and drinking water analyses for New Jersey, New
York, Connecticut and Rhode Island. In addition, pursuant to available
certification reciprocity, IAL currently is permitted to receive and perform
analyses on samples from Pennsylvania, Colorado and Maryland. IAL also holds FDA
and U.S. Department of Agriculture ("USDA") certifications to perform certain
analyses. Once granted, continuation of these certifications generally is
subject to annual performance evaluations, as well as periodic unannounced
in-house audits of IAL's laboratory facilities.
Customers and Marketing
Substantially all of IAL's customers are private-sector organizations. Except
for EWMA, which accounted for 16.7%, no single customer accounted for more than
5% of IAL's gross revenues during fiscal 1999.
IAL identifies and attracts new customers through marketing efforts utilizing
its in-house professional sales and marketing staff. While IAL's facilities are
located in New Jersey, it accepts and processes samples from any state in which
it currently is certified or in which certification reciprocity permits it to
perform the desired analysis. IAL participates in trade shows and technical
conferences and produces literature to support its marketing program.
Competition
There has been a consolidation of the laboratory industry during the last three
to four years. As a consequence, pricing of analytical services, which
previously had been on a downward trend, has stabilized. However, competition
continues to be primarily on the basis of price and service, including technical
expertise. IAL believes that its competitive pricing, contacts, customer
relationships, sales and marketing efforts and technical expertise allow it to
remain stable and competitive. IAL competes against companies, certain of which
are substantially larger, but many of which are of approximately the same size
as, or smaller than, IAL.
Personnel
IAL provides its services through a staff of approximately 60 employees,
consisting of approximately 40 professional staff (including engineers,
chemists, biologists and other scientists) and 20 support personnel. None of
IAL's employees are represented by a labor union, and IAL is not a party to any
collective bargaining agreement. IAL believes its employee relations are good.
In-Situ Oxidative Technologies
In-Situ Oxidative Technologies ("ISOTEC") is owned 50% by Dr. Richard S.
Greenberg, Menlo's Chief Executive Officer, and 50% by an unrelated third party.
ISOTEC is in the business of remediating contaminated properties using a
proprietary in-situ treatment program. The services performed by ISOTEC are
similar in nature to those provided by the operating segments of Menlo. During
1999 and 1998, EWMA and IAL have generated revenue directly from ISOTEC in the
amounts of approximately $183,000 and $36,000, respectively (see the related
party footnote in the accompanying notes to consolidated financial statements).
Additionally, the similar nature of ISOTEC's services has enabled EWMA to obtain
contracts and generate revenues with unrelated customers in the past and may
potentially enable it to continue to do so in the future.
On December 6, 1999, Menlo entered into an agreement with ISOTEC and an
unrelated third party to advance it operating capital. As of the date of this
agreement, the Company was owed approximately $195,000 for services it had
provided on behalf of ISOTEC, of which approximately $162,000 was outstanding as
of December 31, 1998. In consideration for Menlo entering into the
aforementioned agreement, ISOTEC agreed to repay in full the outstanding balance
of approximately $195,000. In addition, Menlo was granted the opportunity to
purchase up to 50% of ISOTEC.
The agreement calls for Menlo to advance operating funds up to $250,000 to
ISOTEC in equal amounts to that being advanced by the unrelated third party. In
return, Menlo will receive an option to purchase 20% of Dr. Greenberg's
ownership interest in ISOTEC (10% of the Company) for each $50,000 or portion
thereof loaned to ISOTEC. The options are exercisable through June 30, 2001 at a
price of $1,000 per option. As of March 28, 2000, Menlo had loaned $80,000 to
ISOTEC and therefore has two options to purchase a total of 40% of Dr.
Greenberg's interest (20% of the Company) for $2,000. Due to ISOTEC's financial
condition, Menlo's $80,000 advance/option investment in ISOTEC is being carried
at $0. Management does not intend to make any advances in excess of the $250,000
total commitment to ISOTEC until ISOTEC shows an improvement in their financial
condition and ability to pay.
Potential Liability and Insurance
The Company, in the normal course of business, encounters potential liability,
including claims for errors and omissions, resulting from the performance of its
services. The Company is party to lawsuits and is aware of potential exposure
related to certain claims. In the opinion of management, adequate provision has
been made for all known liabilities that are currently expected to result from
these matters, and in the aggregate, such claims are not expected to have a
material impact on the financial position and liquidity of the Company.
Currently, the Company is provided a $5 million per occurrence, $10 million
aggregate professional services insurance policy through an unrelated, rated
carrier. The Company also maintains a general liability insurance policy with an
unrelated, rated carrier.
ITEM 2. DESCRIPTION OF PROPERTY
EWMA operates out of two facilities located in Parsippany and West Windsor, New
Jersey. The Parsippany facility consists of approximately 18,000 square feet of
office space leased from Greenberg Property LLC, a company controlled by Richard
S. Greenberg. The lease, which is at $14 per square foot, expires in June 2007
and is subject to two five-year renewal options. The West Windsor facility
consists of approximately 5,200 square feet of office and warehouse space leased
from an unaffiliated lessor. The lease, which is at $5 per square foot, expires
in December 2000. Additionally, EWMA leases a warehouse facility in Boonton, New
Jersey utilized for equipment and supply storage. The facility consists of
approximately 6400 square feet at a cost of $6 per square foot. The lease
expires in December 2004 and is leased from an unaffiliated Lessor. Management
believes that EWMA's facilities are adequate for EWMA's current needs and will
support anticipated future growth for at least the next five years. EWMA also
expects, based on current market conditions, that suitable additional space will
be available on commercially acceptable terms as required in the future.
IAL operates out of facilities located in Randolph, New Jersey, consisting of
five units of office and warehouse space leased from an unaffiliated lessor. The
lease, which calls for monthly payments of $6,875, expires in December 2000.
Management has entered into a contract to purchase the facility in which IAL
operates from the current unaffiliated lessor at a cost of $1,850,000. The
contract is subject to certain contingencies, including a mortgage contingency,
which are not yet satisfied. Purchase of the facility will support anticipated
future growth for at least the next five years. IAL also expects, based on
current market conditions, that suitable additional space will be available on
commercially acceptable terms as required in the future.
The principal offices of Menlo Acquisition Corporation are located at the EWMA
facility.
Menlo believes that the space afforded by its properties is adequate for the
current needs of its businesses.
ITEM 3.LEGAL PROCEEDINGS
The Company is currently subject to certain claims and lawsuits arising in the
ordinary course of its business. In the opinion of management, adequate
provision has been made in the Company's Consolidated Financial Statements for
all known liabilities that are currently expected to result from these claims
and lawsuits, and in the aggregate such claims are not expected to have a
material effect on the financial position of the Company. The estimates used in
establishing these provisions could differ from actual results. Should these
provisions change significantly, the effect on operations for any quarterly or
annual reporting period could be material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to the vote of security holders during
the fourth quarter of the fiscal year-ended December 31, 1999.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The shares of Common Stock of the Company trade on the OTC "Bulletin Board"
under the symbol "MENL". The range of high and low reported closing sales prices
for the Common Stock as reported by Nasdaq during the fiscal year ended December
31, 1999 were as follows:
High Low
---- ---
Fiscal Year 1999
- -------------------
Quarter Ended:
March 31, 1999............. $1.50 $1.00
June 30, 1999.............. $3.00 $1.25
September 30, 1999......... $3.00 $2.50
December 31, 1999.......... $2.625 $0.25
Fiscal Year 1998
- --------------------
Quarter Ended:
March 31, 1998............. * *
June 30, 1998.............. * *
September 30, 1998......... * *
December 31, 1998.......... * *
The prices set forth above reflect inter dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
*During 1998, there was a limited trading market for the shares of Focus, which
had not yet emerged from bankruptcy.
Holders
On March 28, 2000, as reported by the Company's transfer agent, shares of Common
Stock were held by 367 holders of record.
Dividends
The Company did not pay any dividends during 1999. The payment by the Company of
dividends, if any, is within the discretion of the Board of Directors and will
depend on the Company's earnings, if any, its capital requirements and financial
condition, as well as other relevant factors. The Board of Directors does not
intend to declare any dividends in the foreseeable future, but instead intends
to retain earnings, if any, for use in the Company's business operations.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Cautionary Statement Regarding forward-Looking Statements
This report contains forward-looking statements made pursuant to the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995. The
statements are identified by words such as "will," "expect," "anticipate,"
"plans," or "intends" and by other descriptions of future circumstances or
conditions. Such statements are based on current expectations and actual results
may differ materially. The forward-looking statements include, but are not
limited to, the possible impact of current and future claims against the Company
based upon negligence and other theories of liability, the level of future
purchases of fixed assets and the possibility of the Company's making
acquisitions during the next 12 to 18 months. Forward-looking statements involve
numerous risks and uncertainties that could cause actual results to differ
materially, including, but not limited to, the possibilities that the demand for
the Company's services may decline as a result of possible changes in general
and industry specific economic conditions and the effects of competitive
services and pricing; one or more current or future claims made against the
Company may result in substantial liabilities; and such other risks and
uncertainties as are described in reports and other documents filed by the
Company from time to time with the Securities and Exchange Commission.
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this report.
Results of Operations
(In thousands of dollars, except share data)
The following tables set forth, for the years indicated: (i) the percentage that
certain items in the consolidated statements of income and comprehensive income
of the Company bear to gross revenues, and (ii) the percentage increase
(decrease) in dollar amounts of such items from year to year.
Comparison for Fiscal Years 1999 and 1998
Percentage
Increase
(Decrease)
Fiscal
Year
Percentage Ended
of Gross Revenue 12/31/99
Fiscal Year Ended vs.
12/31/99 12/31/98 12/31/98
Gross revenue 100.0% 100.0% 5.8%
Direct project costs and other
costs of operations 38.6 45.6 (10.5)%
------ ------ -------
Net revenue 61.4 54.4 19.5%
------ ------ ------
Expenses:
Labor and related expenses 13.6 14.6 (0.8)%
Selling, general and
administrative 38.0 37.8 6.3%
------- ------- --------
Totals 51.6 52.4 4.3%
------ ------ ------
Income from operations 9.8 2.0 404.2%
Other income (loss) 0.7 (2.6) 128.4%
------ -------- ------
Income (loss) before income
taxes 10.5 (0.6) 2,108.5%
===== ===== =========
Gross revenues for the fiscal year ended December 31, 1999 were $13,594 versus
$12,848 for the fiscal year 1998, an increase of 5.8%. Lab revenues increased
$832 (net of inter-segment billing) and Consulting revenues decreased slightly
by $85. Consulting revenue is composed of both hours billed by the professional
staff and pass-through billing of subcontractor costs associated with client
projects. The amount of pass-through billing decreased in 1999 versus 1998 but
was almost entirely offset by increased utilization of the professional staff
versus the prior year. Profitability from hours billed is greater than that from
pass-through billing and resulted in increased income from operations as further
discussed below. The significant increase in the revenue of the Lab segment was
a result of effective direct sales efforts from a larger sales force than in the
prior year, greater utilization of equipment used in performing Lab services and
the broadening of the customer base into the pharmaceutical industry.
Income from operations was $1,331 in 1999 as opposed to $264 for 1998. This
represents an increase of 404.2%. Operating margins rose to 9.8% for the current
period from 2.0% for fiscal 1998. The increase in operating income and margin
was due to higher profitability in both the Consulting and Lab segments. There
was a significant reduction in the dollar amount of direct project costs
incurred in the Consulting segment in 1999. Consulting revenue, however,
remained relatively constant. A significantly larger portion of revenue was
generated from professional services, which is a more profitable component.
Therefore, a larger percentage of revenue was recognized as income.
Profitability of the Lab segment resulted from the increased volume as noted
above. In the Lab segment, marginal costs decrease as the volume increases. It
costs approximately the same to perform one analysis as it does to perform
several of the same type. Therefore, as analysis volume and equipment
utilization increase, costs remain relatively constant and more income is
generated.
Labor and related expenses remained relatively constant as compared to the prior
year.
Selling, general and administrative expenses increased 6.3% compared to the
prior year primarily due to the increase in the Lab segment direct sales force
and their associated direct selling expenses.
Other income (loss), which is composed of interest expense, administrative
income and sundry, was 128.4% greater than in 1998. The 1998 other income (loss)
amount of ($334) included a charge of $306 related to the write-off of an
accounts receivable from an insolvent affiliate. No such charges were made in
1999. Interest expense decreased 62.6% in 1999 as compared to 1998. This
decrease was due to limited use of a revolving line of credit throughout 1999.
There have been no amounts outstanding on the line since early March 1999
whereas there was significant usage of the facility during 1998 (Borrowings
averaged approximately $500 throughout 1998). Additionally, interest charges on
an equipment loan held by the Lab segment have decreased due to normal
amortization of the loan throughout 1999.
Income before taxes for the period was $1426 compared with a loss of ($71) in
1998, an increase of 2,108.5%. The substantial increase in income before taxes
in 1999 resulted from the issues discussed above. Additionally, the results from
1998 included non-recurring items such as the affiliate write-off. Tax
provisions were recorded at an effective rate of 40% for both 1999 and 1998.
Basic net income (loss) per share was $.16 in 1999 versus a loss of ($.01) in
1998. The Company had 5,263,348 shares outstanding at December 31, 1999 and the
December 31, 1998 per share amount was calculated assuming the same number of
shares were also effectively outstanding at that date. For the year ended
December 31, 1999, diluted earnings per share have not been presented because
there were no additional shares derived from the assumed exercise of stock
options and the application of the treasury stock method. For the year ended
December 31, 1998, the Company had no potentially dilutive common shares.
Liquidity and Capital Resources
Net cash provided by operations for fiscal year 1999 was $2,852 as compared to
$510 for the prior fiscal year. The largest factor of the increase in cash
provided by operations was the implementation of a new project accounting
software system in the Consulting segment. This enabled more timely billing of
the Company's services and resulting in improved monitoring of accounts
receivable and quicker conversion to cash. Additional factors increasing the
cash provided by operations were: substantial increase in net income,
implementation of more stringent cash management policies, collection of
accounts receivable from affiliated companies and improved vendor relations
resulting in longer payment terms.
The Company made net capital expenditures on equipment and furnishings of $483
in 1999 compared to similar net capital expenditures of $484 the prior year. The
Company anticipates that its capital expenditures, excluding acquisitions, for
the upcoming year will be slightly higher than those incurred in 1999 in order
to maintain the technology within its Lab segment. The Company utilized cash of
$506 in 1999 to re-pay, in full, amounts outstanding on its credit line and to
reduce a loan secured by equipment used by the Lab segment. In 1998, $694 of
cash was used for similar purposes. Additionally, for investment purposes, the
Company purchased $181 of marketable securities and approximately $500 of United
States Government securities during 1999. No such purchases were made during
1998. Excess operating cash will continue to be invested in order to maximize
returns while maintaining acceptable risk tolerances.
The Company, in the normal course of business, encounters potential liability,
including claims for errors and omissions, resulting from the performance of its
services. The Company is party to lawsuits and is aware of potential exposure
related to certain claims. In the opinion of management, adequate provision has
been made for all known liabilities that are currently expected to result from
these matters, and in the aggregate, such claims are not expected to have a
material impact on the financial position and liquidity of the Company.
Currently, the Company is provided a $5 million per occurrence, $10 million
aggregate professional services insurance policy through an unrelated, rated
carrier. The Company also maintains a general liability insurance policy with an
unrelated, rated carrier.
At December 31, 1999, the Company had cash and cash equivalents on hand of
$1,182. The Company has a $750 revolving credit line agreement that expires on
April 30, 2000. The banking relationship with the current lender will be
terminated at the expiration date of the credit line. Management is in the
process of negotiating a similar line of credit as part of an overall banking
relationship with a new lender. Management foresees no difficulties in
finalizing this new relationship by the expiration date of the current one. At
December 31, 1999, borrowings under the line were $0 leaving $750 available to
the Company compared to $400 outstanding at December 31, 1998. Borrowings were
available to the Company at an interest rate of 9.50% at December 31, 1999 and
8.50% at December 31, 1998. The Company is in compliance with all covenants
pertaining to the credit line agreement.
The Company believes that its available cash, as well as cash generated from
operations and its available credit line, will be sufficient to meet the
Company's cash requirements for the balance of the fiscal year. The Company
intends to actively search for acquisitions to expand its geographical
representation and enhance its technical capabilities. Additionally, the Board
of Directors has determined that acquisitions in aligned businesses may provide
more potential users of the Lab segment and monetary savings due to
consolidation of administrative functions. The Company expects to utilize a
portion of its liquidity over the next 12 to 18 months for capital expenditures,
including acquisitions and investments in aligned businesses.
Other than as discussed in Item 1. - Description of Business, there are no
present agreements, understandings or other arrangements with respect to any
acquisition or investment. However, future agreements concerning acquisitions
may require the Company to obtain additional financing.
Year 2000 Compliance
The potential risks of the Year 2000 issue were taken seriously by the Company
and it devoted resources to address the issue. The Company established a Year
2000 oversight committee, which was assigned to address the following key
components related to the Year 2000 issue:
- Information applications, including the Company's project management
and accounting systems
- Computer hardware, software, operating systems and network
infrastructure including telecommunications systems
- Facility and administrative systems
- Major suppliers and customers' systems
The Company also conducted an inventory and assessment of its hardware and
software for Year 2000 compliance. All non-compliant components identified
(hardware or software) were made compliant or replaced with compliant versions.
Facility and administrative systems that support the Company (such as telephone,
security systems, etc.) were also assessed for Year 2000 compliance and required
upgrades to such hardware and software were completed.
The costs associated with Year 2000 compliance were not material and fell within
normally anticipated operating and capital spending. These costs were not
material to the financial position of the Company.
The Company believes that the completion of its Year 2000 Project significantly
reduced the probability of major interruptions to its normal business
operations. To date, the Company has not experienced any Year 2000 related
difficulties
Seasonal Trends
The Company does not believe that its business is subject to seasonal trends.
Inflation
The Company does not believe that inflation had a significant impact on the
Company's results of operations for the periods presented. On an ongoing basis,
the Company attempts to minimize any effects of inflation on its operating
results by controlling operating costs, and, whenever possible, seeking to
insure that billing rates reflect increases in costs due to inflation.
ITEM 7. FINANCIAL STATEMENTS
The financial statements of the Company are set forth in a separate
section of this Annual Report on Form 10-KSB. See "Item 13. Exhibits and Reports
on Form 8-K" and the Index to Financial Statements on page F-1 of this Annual
Report on Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
See the section captioned "Election of Directors" included in the Company's
Proxy Statement in connection with its Annual Meeting scheduled to be held on
June 7, 2000, which section is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
See the section captioned "Executive Compensation" included in the Company's
Proxy Statement in connection with its Annual Meeting scheduled to be held on
June 7, 2000, which section is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
See the section captioned "Principal Shareholders of the Company" included
in the Company's Proxy Statement in connection with its Annual Meeting scheduled
to be held on June 7, 2000 which section is incorporated herein by reference.
(b) Security Ownership of Directors and Officers
See the section captioned "Principal Shareholders of the Company" included
in the Company's Proxy Statement in connection with its Annual Meeting scheduled
to be held on June 7, 2000, which section is incorporated herein by reference.
(c) Changes in Control
The Company knows of no contractual arrangements which may, at a subsequent
date, result in a change of control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the section captioned "Certain Transactions" included in the Company's Proxy
Statement in connection with its Annual Meeting scheduled to be held
June 7, 2000, which section is incorporated herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(1) The financial statements of the Company and the report thereon
listed on the Index to Financial Statements on page F-1 hereof are
being filed as part of this Annual Report on Form 10-KSB.
(2) The following exhibits are being filed as part of this
Annual Report on Form 10-KSB:
2.1* Agreement with In-situ Oxidative Technologies, Inc., Richard
S.Greenberg, Michael Mandelbaum, Rosebud, LLC and the
Company.
2.2 Second Amended Plan of Reorganization filed as of August 12,
1998 with the United States Bankruptcy Court,(incorporated
by reference to Item 3 of the Company's Current Report on
Form 8-K filed October 29, 1998.)
3.1* Certificate of Incorporation of Focal Surgery, Inc.
(former name of the Company)dated October 21, 1992.
3.2* Amended and Restated Certificate of Incorporation of Focal
Surgery, Inc. (former name of the Company) dated
April 27, 1993.
3.3* Certificate of Amendment of Amended and Restated Certificate
of Incorporation of Focal Surgery, Inc.(former name of the
Company) dated September 24, 1993.
3.4* Certificate of Amendment of Certificate of Incorporation of
Focal Surgery, Inc. (former name of the Company) dated
June 17, 1994.
3.5* Certificate of Amendment of Certificate of Incorporation of
Focus Surgery, Inc. (former name of the Company) dated
February 4,1997.
3.6* Second Amended and Restated Certificate of Incorporation of
Menlo Acquisition Corporation dated March 10,1999.
3.7* By-Laws of the Company.
4.1* Form of Certificate for Common Stock.
4.2* 1999 Stock Option Plan of the Registrant.
4.3* Form of Nonstatutory Stock Option Agreement under the 1999
Stock Option Plan.
4.4* Form of Incentive Stock Option Agreement under the 1999
Stock Option Plan.
10.1* Lease dated as of June 23, 1997 between Greenberg
Property, LLC and the Company.
10.2* Contract for property purchase dated as of February 2, 2000
between Integrated Analytical Laboratories, LLC and
East Morris Realty Associates, LLC, and Letter of Extension
Dated March 15, 2000.
10.3* Letter Agreement dated August 26, 1997 between PNC Bank,
National Association and Integrated Analytical
Laboratories, LLC.
10.4* Letter Agreement dated August 26, 1997 between PNC Bank,
National Association and Environmental Waste Management
Associates, LLC.
10.5* Letter Agreement dated February 22, 2000 between PNC Bank,
National Association and Environmental Waste Management
Associates, LLC.
10.6 Employment Agreement dated as of June 1998 between the
Company and Lawrence B. Seidman (incorporated by reference
to Exhibit 10.1 of the Company's Current Report on Form 8-K
filed May 10, 1999).
10.7 Employment Agreement dated as of June 1998 between the
Company and Richard S. Greenberg (incorporated by reference
to Exhibit 10.2 of the Company's Current Report on Form 8-K
filed May 10, 1999).
16 Letter on change in certifying accountant (incorporated by
reference to Item 4 of the Company's Current Report on
Form 8-K filed May 10, 1999).
21* Subsidiaries of the Registrant
27* Financial Data Schedule.
*Exhibits marked with an asterisk are attached as Exhibits to this Annual
Report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of the
period covered by this report.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Menlo Acquisition Corporation
(Registrant)
By: /s/ Richard S. Greenberg
---------------------
Richard S. Greenberg
Chairman of the Board
Date: March 28, 2000
In accordance with 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.
Name Title Date
---- ----- ----
Chairman of the Board, March 28, 2000
Chief Executive Officer
and Director (principal
/s/ Richard S. Greenberg executive officer)
------------------------
Richard S. Greenberg
President, General Counsel March 28, 2000
/s/ Lawrence B. Seidman and Director
- -------------------------
Lawrence B. Seidman
Chief Financial Officer March 28, 2000
/s/Frank Russomanno (principal financial and
- ------------------------- accounting officer)
Frank Russomanno
/s/ George Greenberg Secretary and Director March 28, 2000
- -------------------------
George Greenberg
<PAGE>
Fin. Statements of the Company and Report thereon
Exhibit (1)
MENLO ACQUISITION CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PAGE
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
CONSOLIDATED:
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998 F-3
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998 F-4
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 1999 AND 1998 F-5
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998 F-6
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998 F-7
NOTES TO FINANCIAL STATEMENTS F-8/21
* * *
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders
Menlo Acquisition Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of MENLO
ACQUISITION CORPORATION AND SUBSIDIARIES as of December 31, 1999 and 1998, and
the related consolidated statements of operations, comprehensive income (loss),
changes in stockholders' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Menlo
Acquisition Corporation and Subsidiaries as of December 31, 1999 and 1998, and
their consolidated results of operations and cash flows for the years then ended
in conformity with generally accepted accounting principles.
/s/ J.H. Cohn, LLP
Roseland, New Jersey
February 11, 2000
F-2
<PAGE>
MENLO ACQUISITION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS 1999 1998
------ ---- ----
Current assets:
Cash and cash equivalents $1,182,079 $ 24,722
Investments in marketable securities 722,400
Accounts receivable:
Trade, net of allowance for doubtful
accounts of $614,315 and $565,855 3,879,474 4,832,722
Unbilled receivables 65,269 107,276
Affiliates 109,545 284,963
Prepaid expenses and other current assets 99,855 82,193
Due from affiliate 27,001
Deferred tax assets 34,276
----------- -----------
Total current assets 6,092,898 5,358,877
Equipment and furnishings, net of accumulated
depreciation of $964,903 and $550,220 1,087,663 1,019,842
Other assets 66,989 37,886
----------- -----------
Totals $7,247,550 $6,416,605
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - bank $ 400,000
Current portion of long-term debt $ 106,248 106,248
Accounts payable 942,071 610,201
Customer deposits 444,685 522,725
Accrued expenses and other liabilities 443,401 236,077
Due stockholder 54,825
Deferred tax liabilities 7,300
----------- -----------
Total current liabilities 1,936,405 1,937,376
Long-term debt, noncurrent portion 168,231 274,480
----------- -----------
Total liabilities 2,104,636 2,211,856
----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.0001 par value;
2,000,000 shares authorized; none issued - -
Common stock, $.0001 par value; 40,000,000
shares authorized; 5,263,348 and
5,000,000 shares issued and outstanding 526 500
Additional paid-in capital 4,312,662 4,262,688
Retained earnings (deficit) 803,291 (58,439)
Accumulated other comprehensive income
- investment valuation allowance 26,435
----------- -----------
Total stockholders' equity 5,142,914 4,204,749
----------- -----------
Totals $7,247,550 $6,416,605
========== ===========
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
MENLO ACQUISITION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
---- ----
Gross revenue $13,594,524 $12,848,430
Direct project costs and other costs of
operations 5,242,744 5,856,090
------------ ------------
Net revenue 8,351,780 6,992,340
------------- ------------
Expenses:
Labor and related expenses 1,854,753 1,869,015
Selling, general and administrative 5,166,039 4,859,712
------------ ------------
Totals 7,020,792 6,728,727
------------ ------------
Income from operations 1,330,988 263,613
------------ ------------
Other income (expense):
Write-off of amounts due from affiliates (306,375)
Interest (33,695) (90,355)
Administrative fee income 42,000 48,000
Sundry, principally investment income 86,281 14,432
------------ ------------
Totals 94,586 (334,298)
------------ ------------
Income (loss) before income taxes 1,425,574 (70,685)
Provision (credit) for income taxes 563,844 (12,246)
------------ ------------
Net income (loss) $ 861,730 $ (58,439)
============= ==============
Unaudited:
Historical income (loss) before income
taxes $ 1,425,574 $ (70,685)
Pro forma for 1998 comparative purposes:
Provision (credit) for income taxes 563,844 (28,000)
------------ --------------
Net income (loss) $ 861,730 $ (42,685)
============ ==============
Basic earnings (loss) per share $.16 $(.01)
==== =====
Basic weighted average common shares
outstanding 5,263,348 5,263,348
========= =========
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
MENLO ACQUISITION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
---- ----
Net income (loss) $861,730 $(58,439)
Other comprehensive income - unrealized holding gain,
net of income taxes of $17,624 26,435
--------- --------
Comprehensive income (loss) $888,165 $(58,439)
======== ========
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
MENLO ACQUISITION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
Unrealized
Holding
Common Stock Additional Gain on
------------ Paid-in Retained Marketable
Shares Amount Capital Earnings Securities Total
------ ----- ------- -------- ---------- -----
Balance
January 1, 1998 5,000,000 $500 $4,262,688 $4,263,188
Net loss $ (58,439) (58,439)
--------- ---- ---------- --------- ----------
Balance,
December 31, 1998 5,000,000 500 4,262,688 (58,439) 4,204,749
Effect of reverse
acquisition 263,348 26 49,974 50,000
Unrealized holding
gain, net of income
taxes of $17,624 $26,435 26,435
Net income 861,730 861,730
--------- ---- ---------- --------- ------- ----------
Balance, December
31, 1999 5,263,348 $526 $4,312,662 $803,291 $26,435 $5,142,914
========= ==== ========== ======== ======= ===========
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
MENLO ACQUISITION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
---- ----
Operating activities:
Net income (loss) $861,730 $ (58,439)
Adjustments to reconcile net income
(loss) to net cash
provided by operating activities:
Depreciation and amortization 414,683 377,020
Bad debts 130,000 529,945
Write-off of amounts due from affiliates 306,375
Deferred income taxes (59,200) (10,700)
Changes in operating assets and liabilities:
Accounts receivable - trade 823,248 (1,250,930)
Unbilled receivables 42,007 303,978
Accounts receivable - affiliates 175,418 31,273
Prepaid expenses and other current assets (17,662) (22,637)
Other assets 20,897 (23,182)
Accounts payable 331,870 25,516
Customer deposits (78,040) 180,469
Accrued expenses and other liabilities 207,324 121,708
-------- ------------
Net cash provided by operating activities 2,852,275 510,396
----------- ------------
Investing activities:
Purchase of equipment and furnishings (482,504) (483,507)
Repayments from (advances to) affiliate 27,001 (211,376)
Purchase of marketable securities (678,341)
Repayments from stockholder 784,351
----------- ------------
Net cash provided by (used in)
investing activities (1,133,844) 89,468
----------- ------------
Financing activities:
Repayment of note payable - bank and
long-term debt (506,249) (694,272)
Proceeds of note payable - bank 115,000
Repayment of advances from stockholder (54,825)
----------- ------------
Net cash used in financing activities (561,074) (579,272)
----------- ------------
Net increase in cash and cash equivalents 1,157,357 20,592
Cash and cash equivalents, beginning of year 24,722 4,130
----------- -------------
Cash and cash equivalents, end of year $1,182,079 $ 24,722
========== ===========
Supplemental disclosure of cash flow data:
Interest paid $ 33,695 $ 90,355
========== ===========
Income taxes paid $ 571,763 $ 60,800
========== ===========
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
MENLO ACQUISITION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Business activities and reverse acquisition:
Business activities:
Menlo Acquisition Corporation ("Menlo") is a publicly traded
Delaware corporation formerly doing business as Focus Surgery,
Inc. ("Focus"). Menlo is now a holding company engaged in
acquiring other operating businesses. Prior to the
consummation of the Second Amended Plan of Reorganization in
March 1999 which is further described below, Focus specialized
in the research and development of techniques and equipment
used in noninvasive surgeries. On February 9, 1996, Focus
filed a petition for relief under Chapter 11 of the Bankruptcy
Code. In August 1996, while in bankruptcy, Focus sold
substantially all of its assets to an unrelated company. As
part of the sale, Focus transferred all rights to the "Focus
Surgery, Inc." name to the buyer and amended its Articles of
Incorporation to change its name to Menlo Acquisition
Corporation.
Environmental Waste Management Associates, LLC, a New Jersey
limited liability company ("EWMA, LLC"), and Environmental
Waste Management Associates, Inc., a New Jersey corporation
("EWMA, Inc.") and, together with EWMA, LLC (collectively
"EWMA"), are environmental consulting firms providing a broad
range of environmental services related to the investigation
and remediation of hazardous waste sites. EWMA has offices in
Parsippany and West Windsor, New Jersey.
Integrated Analytical Laboratories, LLC, a New Jersey limited
liability company ("IAL, LLC"), and Integrated Analytical
Laboratories, Inc., a New Jersey corporation ("IAL, Inc.")
and, together with IAL, LLC (collectively "IAL"), are firms
providing analytical laboratory services to the environmental
and pharmaceutical industries. IAL is located in Randolph, New
Jersey.
EWMA, Inc. and IAL, Inc. were organized under the laws of
the State of New Jersey in 1987 and each sold primarily all
of their respective assets, except accounts receivable, to
the aforementioned limited liability companies in April
1997. EWMA, Inc. and IAL, Inc. currently have no operations
but exist primarily for the purpose of collecting
outstanding receivables.
EWMA, LLC, EWMA, Inc., IAL, LLC, and IAL, Inc. are further
defined, collectively, as the "Acquired Entities" and were
related by common ownership.
Reverse acquisition:
On March 10, 1999, Menlo and the Acquired Entities consummated
certain transactions pursuant to the Second Amended Plan of
Reorganization filed with the Bankruptcy Court on August 12,
1998 and approved on August 26, 1998. Menlo converted all of
its outstanding shares of existing common stock to 263,348
shares of new common stock with a par value of $.0001 per
share. Additionally, Menlo issued 5,000,000 shares of new
common stock in exchange for 99% of the equity interest in the
Acquired Entities (the "Acquisition"). Subsequently, the
remaining 1% of the Acquired Entities was purchased from an
affiliated party for the nominal amount of $1.
F-8
<PAGE>
MENLO ACQUISITION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Business activities and reverse acquisition (concluded):
Reverse acquisition (concluded):
As a result of the Acquisition and the subsequent 1% purchase,
the Acquired Entities became wholly-owned subsidiaries of
Menlo and the former owners and members of the Acquired
Entities became the owners of approximately 95% of the
5,263,348 shares of common stock of Menlo outstanding upon the
consummation of the Acquisition. Stockholders of Menlo prior
to the Acquisition comprised the ownership of the remaining 5%
of outstanding shares at the date of the Acquisition. The
transaction was treated for accounting purposes as a "purchase
business combination" and a "reverse acquisition" effective as
of March 10, 1999 in which Menlo was the legal acquirer and
the Acquired Entities were the accounting acquirer.
Accordingly, the assets and liabilities of the accounting
acquirer (the Acquired Entities) continue to be accounted for
at their historical carrying values as of March 10, 1999.
As further explained in Note 3, the fair value of the 263,348
shares of Menlo common stock ($50,000) issued became the
total cost of the acquisition of Menlo.
The accompanying consolidated statement of operations for the
years ended December 31, 1999 and 1998 reflect the results of
operations of the Acquired Entities. Prior to the Acquisition,
Menlo was in bankruptcy and had limited operating activities;
therefore, no activity from the effective date of the
Acquisition for Menlo is reflected in the accompanying
consolidated financial statements.
Note 2 - Summary of significant accounting policies:
Basis of presentation:
The accompanying consolidated financial statements include the
accounts of Menlo and the Acquired Entities. All significant
intercompany accounts and transactions have been eliminated in
consolidation. As used herein, the "Company" refers to Menlo
and the Acquired Entities, collectively.
Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
Revenue recognition:
Revenue is recognized as services are provided.
Cash equivalents:
Cash equivalents include all highly liquid investments with a
maturity of three months or less when acquired.
F-9
<PAGE>
MENLO ACQUISITION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (continued):
Allowance for doubtful accounts:
The Company establishes an allowance for uncollectible
accounts receivable based on historical collection experience
and management's evaluation of collectibility of outstanding
accounts receivable.
Concentrations of credit risk:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash and
cash equivalents and accounts receivable. The Company places
its cash and cash equivalents with high credit quality
financial institutions. At times, the Company's cash and cash
equivalents exceed the current insured amount under the
Federal Deposit Insurance Corporation of $100,000. At December
31, 1999, the Company had cash and cash equivalent balances
that exceed Federally insured limits by approximately
$993,000. Concentrations of credit risk with respect to
accounts receivable are limited as the Company closely
monitors the extension of credit to its customers while
maintaining allowances for potential credit losses. Management
does not believe that significant credit risk exists at
December 31, 1999.
Investments in marketable securities:
Investments in marketable debt and equity securities
classified as "available for sale" are recorded at fair value.
Unrealized gains and losses are reported annually as other
comprehensive income in the consolidated statement of
comprehensive income and accumulated within stockholders'
equity.
Equipment and furnishings:
Equipment and furnishings are stated at cost, net of
accumulated depreciation. Depreciation is provided using
prescribed methods over the estimated useful lives of the
assets.
Routine maintenance and repair costs are charged to expense as
incurred and renewals and improvements that extend the useful
life of the assets are capitalized. Upon sale or retirement,
the cost and related accumulated depreciation are eliminated
from the respective accounts and any resulting gain or loss is
reported as income or expense.
Goodwill:
Goodwill, which is included in other assets, is comprised of
costs in excess of net assets of acquired businesses that are
being amortized on a straight-line basis over estimated useful
lives of 10 years.
Advertising:
The Company expenses the cost of advertising and promotions as
incurred. Advertising costs charged to operations amounted to
$136,548 and $188,932 in 1999 and 1998, respectively.
F-10
<PAGE>
MENLO ACQUISITION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (continued):
Impairment of long-lived assets:
The Company applies the provisions of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed
of", ("SFAS 121") to its long-lived assets. Under SFAS 121,
impairment losses on long-lived assets, such as goodwill and
equipment and furnishings, are recognized when events or
changes in circumstances indicate that the undiscounted cash
flows estimated to be generated by such assets are less than
their carrying value and, accordingly, all or a portion of
such carrying value may not be recoverable. Impairment losses
are then measured by comparing the fair value of assets to
their carrying amounts.
Income taxes:
Prior to the Acquisition on March 10, 1999, EWMA, Inc. and
IAL, Inc., with the consent of their stockholder, had elected
to be treated as "S" Corporations under the applicable
sections of the Internal Revenue Code. Under these sections,
corporate income or loss, prior to that date was allocated to
the stockholder for inclusion in his personal income tax
returns. Accordingly, there was no provision for Federal
income tax in the accompanying 1998 consolidated financial
statements.
EWMA, Inc. and IAL, Inc. had also elected to be treated as "S"
Corporations for New Jersey state income tax purposes.
However, the State of New Jersey does impose a tax on "S"
Corporation income at a reduced rate and, accordingly, a
provision for such tax has been provided in the accompanying
1998 consolidated financial statements for income attributable
to EWMA, Inc. and IAL, Inc.
In addition, prior to the Acquisition on March 10, 1999, EWMA,
LLC and IAL, LLC were New Jersey limited liability companies
and, as such, were treated as partnerships for Federal and
state income tax purposes. A partnership is not a tax paying
entity for Federal or state income tax purposes. Income or
loss of a limited liability company is reported in the
individual member's income tax returns and, accordingly, no
provision for income tax has been recorded in the accompanying
1998 consolidated financial statements for income attributable
to EWMA, LLC and IAL, LLC.
The Company accounts for income taxes pursuant to the asset
and liability method which requires deferred income tax assets
and liabilities be computed annually for differences between
the financial statement and tax bases of assets and
liabilities that result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to
the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable or
refundable for the year plus or minus the change during the
year in deferred tax assets and liabilities.
F-11
<PAGE>
MENLO ACQUISITION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (continued):
Stock based compensation:
In accordance with the provisions of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to
Employees", the Company will recognize compensation costs as a
result of the issuance of stock options to employees based on
the excess, if any, of the fair value of the underlying stock
at the date of grant or award (or at an appropriate subsequent
measurement date) over the exercise price. The Company will
also make pro forma disclosures, as required by Statement of
Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), of net income or loss
using the Black-Scholes option pricing method if such amounts
differ materially from the historical amounts.
Transactions in which goods or services are the consideration
received for the issuance of equity instruments are accounted
for based on the fair value of the consideration received or
the fair value of the equity instrument issued, whichever is
more reliably measurable.
Earnings (loss) per share:
The Company presents "basic" and, if applicable, "diluted"
earnings (loss) per common share pursuant to the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings
Per Share" ("SFAS 128").
Basic earnings (loss) per common share is calculated by
dividing net income or loss by the weighted average number of
common shares outstanding during the period. The calculation
of diluted earnings (loss) per common share is similar to that
of basic earnings (loss) per common share, except that the
denominator is increased to include the number of additional
common shares that would have been outstanding if all
potentially dilutive common shares, principally those issuable
upon the exercise of stock options, were issued during the
period. For the year ended December 31, 1999, diluted earnings
per share have not been presented because there were no
additional shares derived from the assumed exercise of stock
options and the application of the treasury stock method. Such
potentially diluted securities, however, could dilute basic
earnings per share in the future. For the year ended December
31, 1998, the Company had no potentially dilutive common
shares.
Since EWMA, Inc. and IAL, Inc. had elected to be taxed as "S"
Corporations and EWMA, LLC and IAL, LLC were taxed as limited
liability corporations prior to the date of the Acquisition,
unaudited pro forma earnings (loss) per common share assuming
the Acquired Entities had been subject to Federal and state
income taxes have been presented for the year ended December
31, 1998.
F-12
<PAGE>
MENLO ACQUISITION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (concluded):
Comprehensive income:
Effective January 1, 1999, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," ("SFAS 130") which established new
rules for the reporting and display of comprehensive income
and its components. The Company owns marketable debt and
equity securities which are classified as available-for-sale.
SFAS 130 requires unrealized gains and losses on the Company's
available-for-sale securities to be included in other
comprehensive income. The adoption had no impact on prior year
financial statements.
Note 3 - Purchase business combination:
The Acquisition, as described in Note 1, has been accounted for
as a purchase business combination and a reverse acquisition in
which the Acquired Entities were the accounting acquirer and
Menlo was the legal acquirer. As noted previously, Menlo was in
bankruptcy and had limited assets and liabilities at the date of
the Acquisition. The cost of the Acquisition totaled $50,000,
inclusive of professional fees, and pursuant to the purchase
method of accounting, the initial cost of acquiring Menlo, which
exceeded the fair value of the net assets acquired by $50,000,
was allocated to goodwill and is included in other assets in the
accompanying consolidated financial statements.
Note 4 - Investments in marketable securities:
At December 31, 1999, the Company's investments in marketable
securities, all of which were classified as available-for-sale,
consisted of government agency debt securities and equity
securities as follows:
Cost or
Amortized
Cost Fair Value
---- ----------
Debt securities (maturity within 1 year) $497,400 $497,400
Equity securities 180,941 225,000
--------- ---------
Totals $678,341 $722,400
======== =========
F-13
<PAGE>
MENLO ACQUISITION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Equipment and furnishings:
Equipment and furnishings consist of the following:
Range of
Estimated
Useful Lives 1999 1998
------------ ---- ----
Equipment 5-7 years $1,603,202 $1,197,269
Furniture and fixtures 7 years 164,232 139,413
Vehicles 5 years 130,669 95,669
Leasehold improvements 7 years 154,463 137,711
---------- ----------
2,052,566 1,570,062
Less accumulated depreciation 964,903 550,220
---------- ----------
Totals $1,087,663 $1,019,842
========== ==========
Depreciation expense amounted to $414,683 and $377,020 in 1999
and 1998, respectively.
Note 6 - Notes payable - bank:
The Company has a committed line of credit agreement with PNC
Bank in the amount of $750,000 which expires on April 30, 2000.
Outstanding borrowings bear interest at the prime rate plus .75%
(an effective rate of 9.5% and 8.5% at December 31, 1999 and
1998, respectively). At December 31, 1999, the Company had no
outstanding borrowings on the line of credit.
Outstanding borrowings are collateralized by substantially all of
the Company's assets and are guaranteed by the principal
stockholder. The line of credit contains certain covenants, the
most restrictive of which includes the maintenance of a maximum
capital funds ratio, as defined.
Note 7 - Long-term debt:
The term loan is payable in monthly installments of $8,854 plus
interest at 200 basis points over the bank's four year cost of
funds rate (an effective rate of 7.90% at December 31, 1999 and
1998) until July 2002, at which time the unpaid balance is due.
The loan is collateralized by substantially all of the Company's
assets and guaranteed by the principal stockholder.
Principal amounts due under the term loan in each of the years
subsequent to December 31, 1999 total $106,248 in 2000 and
2001 and $61,983 in 2002.
F-14
<PAGE>
MENLO ACQUISITION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - Retirement plan:
The Company maintains a retirement plan qualifying under Section
401(k) of the Internal Revenue Code which allows eligible
employees to defer a portion of their income through
contributions to the plan. The Company makes contributions to the
plan for the benefit of the employees subject to certain
limitations. The Company's contributions amounted to $78,220 and
$73,929 in 1999 and 1998, respectively.
Note 9 - Income taxes:
As explained in Note 2, prior to the Acquisition on March 10,
1999, the Company did not pay any Federal income taxes; however,
it was liable for state income taxes at a reduced rate.
Subsequent to the date of the Acquisition, the Company became
subject to Federal and state income taxes at full statutory
rates.
Accordingly, the historical provisions and credits for income
taxes shown in the accompanying consolidated statements of
operations for the years ended December 31, 1999 and 1998 were
comprised of the following:
1999 1998
----------- -----------
Federal:
Current $475,742
Deferred (40,200)
--------
Totals 435,542
--------
State:
Current 140,002 $ (1,546)
Deferred (11,700) (10,700)
--------- ---------
Totals 128,302 (12,246)
--------- ---------
Totals $563,844 $(12,246)
======== =========
Unaudited pro forma provisions and credits for income taxes
assuming the Acquisition had occurred on January 1, 1998 and the
Company was subject to Federal and state income taxes at full
statutory rates for the year ended December 31, 1998 is shown
comparatively with 1999 as follows:
Unaudited
Actual Pro Forma
------ ---------
1999 1998
---- ----
Federal:
Current $475,742
Deferred (40,200) $(21,870)
---------- --------
Totals 435,542 (21,870)
--------- ---------
State:
Current 140,002
Deferred (11,700) (6,130)
---------- ----------
Totals 128,302 (6,130)
--------- ----------
Totals $563,844 $(28,000)
======== ========
F-15
<PAGE>
MENLO ACQUISITION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - Income taxes (concluded):
The provisions for income taxes in 1999 and the unaudited pro forma credit
for income taxes in 1998 differ from the amounts computed using the Federal
statutory rate of 34% as a result of the following:
1999 1998
---- ----
Expected provision (credit) at Federal statutory rate 34% (34)%
Effect of state income taxes, net of Federal income
tax effect 6 (6)
--- ---
Effective tax rate 40% (40)%
== ===
At December 31, 1999 and 1998, the net current tax assets were attributable
to the following:
1999 1998
------- --------
Deferred tax assets - allowance for
doubtful accounts $51,900
-------
Deferred tax liabilities:
Unrealized holding gains in marketable
securities (17,624)
Other $(7,300)
-------- -------
Totals (17,624) (7,300)
------- -------
Net current deferred tax assets (liabilities) $34,276 $(7,300)
======= =======
Note 10- Related party transactions:
At December 31, 1998, the amounts due from affiliate, which are
companies that are wholly-owned or substantially owned by the
Company's principal stockholder, consist of noninterest bearing
cash advances that are due on demand. During 1998, the Company
determined that amounts due from an affiliate totaling $306,375
were uncollectible and written off.
At December 31, 1998, the amount due stockholder consisted of
noninterest bearing, unsecured advances due on demand.
During 1999 and 1998, the Company had the following transactions
with affiliated companies which are wholly-owned or substantially
owned by the Company's principal stockholder:
1999 1998
---- ----
Laboratory fees (income) $ 82,717 $101,051
Consulting fees (income) 126,407
Administrative fees (income) 42,000 48,000
Subcontractor fees (expense) 55,683
F-16
<PAGE>
MENLO ACQUISITION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Related party transactions (concluded):
At December 31, 1999 and 1998, accounts payable included $4,296
and $53,439, respectively, which was owed to affiliated companies
which are wholly-owned or substantially owned by the Company's
principal stockholder.
At December 31, 1999, accounts receivable included $23,742, which
was owed from affiliated companies, which are wholly-owned or
substantially owned by the Company's principal stockholder. There
were no such accounts receivable at December 31, 1998.
In-Situ Oxidative Technologies ("ISOTEC") is owned 50% by Dr.
Richard S. Greenberg, Menlo's Chief Executive Officer, and 50% by
an unrelated third party. ISOTEC is in the business of
remediating contaminated properties using a proprietary in-situ
treatment program. The services performed by ISOTEC are similar
in nature to those provided by the operating segments of Menlo.
During 1999 and 1998, EWMA and IAL have generated revenue
directly from ISOTEC in the amounts of approximately $183,000 and
$36,000, respectively. Additionally, the similar nature of
ISOTEC's services has enabled EWMA to obtain contracts and
generate revenues with unrelated customers in the past and may
potentially enable it to continue to do so in the future.
On December 6, 1999, Menlo entered into an agreement with ISOTEC
and an unrelated third party to advance it operating capital. As
of the date of this agreement, the Company was owed approximately
$195,000 for services it had provided on behalf of ISOTEC, of
which approximately $162,000 was outstanding as of December 31,
1998. In consideration for Menlo entering into the aforementioned
agreement, ISOTEC agreed to repay in full the outstanding balance
of approximately $195,000. In addition, Menlo was granted the
opportunity to purchase up to 50% of ISOTEC.
The agreement calls for Menlo to advance operating funds up to
$250,000 to ISOTEC in equal amounts to that being advanced by the
unrelated third party. In return, Menlo will receive an option to
purchase 20% of Dr. Greenberg's ownership interest in ISOTEC (10%
of the Company) for each $50,000 or portion thereof loaned to
ISOTEC. The options are exercisable through June 30, 2001 at a
price of $1,000 per option. As of February 11, 2000, Menlo had
loaned $80,000 to ISOTEC and therefore has two options to
purchase a total of 40% of Dr. Greenberg's interest (20% of the
Company) for $2,000. Due to ISOTEC's financial condition, Menlo's
$80,000 advance/option investment in ISOTEC is being carried at
$0. Management does not intend to make any advances in excess of
the $250,000 total commitment to ISOTEC until ISOTEC shows an
improvement in their financial condition and ability to pay.
Note 11- Commitments and contingencies:
Lease commitments:
The Company is obligated under noncancelable leases for office
space, storage space and laboratory facilities at several
locations in New Jersey, one of which is a building owned by the
principal stockholder. The leases expire at various dates through
August 2007 and require the Company to pay minimum annual rentals
plus its pro rata share of common area maintenance, real estate
taxes, insurance, utilities and other occupancy costs, as
defined. Rent expense, including allocated pro rata charges,
amounted to $489,404 and $448,417 in 1999 and 1998, respectively,
inclusive of $290,539 and $318,762, respectively, paid to the
principal stockholder. Future minimum lease payments subsequent
to December 31, 1999 for each of the next five years and in the
aggregate are as follows:
F-17
<PAGE>
MENLO ACQUISITION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11- Commitments and contingencies (concluded):
Lease commitments (concluded):
Year Ending Nonrelated Principal
December 31, Parties Stockholder Total
----------- ------- ----------- -----
2000 $146,900 $305,578 $452,478
2001 38,400 305,578 343,978
2002 38,400 305,578 343,978
2003 38,400 305,578 343,978
2004 38,400 305,578 343,978
Thereafter 789,411 789,411
-------- -------- --------
Totals $300,500 $2,317,301 $2,617,801
======== ========== ==========
Litigation:
In the ordinary course of business, the Company is both a
plaintiff and defendant in various legal proceedings. In the
opinion of management, resolution of these claims is not
expected to have a material adverse effect on the consolidated
financial position or results of operations of the Company.
Note 12- Fair value of financial instruments:
Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments,"
defines the fair value of a financial instrument as the amount
at which the instrument could be exchanged in a current
transaction between willing parties. In assessing the fair
value of cash and cash equivalents, accounts receivable and
accounts payable, management determined that they were carried
at values that approximated their fair values because of their
liquidity and/or their short-term maturities and long-term
debt was carried at values that approximated their fair values
because they had interest rates equivalent to those currently
prevailing for financial instruments with similar
characteristics.
Note 13- Business segments:
The Company is reporting segment revenue and income from
operations in the same format reviewed by the Company's
management (the "management approach"). The Company has two
reportable segments: providing consulting, remedial and disposal
services (consulting), and laboratory testing of soil and water
for environmental hazards (lab).
F-18
<PAGE>
MENLO ACQUISITION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13- Business segments (continued):
Revenue, income from operations and other related segment
information follows:
1999 1998
---- ----
Gross revenue:
Consulting $ 9,287,714 $ 9,372,764
Lab 5,168,785 4,260,293
Inter-segment (861,975) (784,627)
-------------- --------------
Totals $ 13,594,524 $ 12,848,430
=========== ===========
Direct project costs and
other costs of operations:
Consulting $ 3,693,389 $ 4,637,110
Lab 2,411,330 2,003,607
Inter-segment (861,975) (784,627)
-------------- --------------
Totals $ 5,242,744 $ 5,856,090
============ ============
Operating expenses:
Consulting $ 5,308,060 $ 5,211,275
Lab 2,272,709 1,992,137
Inter-segment (559,977) (474,685)
------------ --------------
Totals $ 7,020,792 $ 6,728,727
============ ============
Income (loss) from operations:
Consulting $ 286,265 $ (475,621)
Lab 484,746 264,549
Inter-segment 559,977 474,685
-------------- --------------
Totals $ 1,330,988 $ 263,613
============ =============
Other income (expense):
Consulting $ 636,265 $ 172,193
Lab 18,298 (31,806)
Inter-segment (559,977) (474,685)
-------------- --------------
Totals $ 94,586 $ (334,298)
============== =============
Income (loss) before taxes:
Consulting $ 922,530 $ (303,428)
Lab 503,044 232,743
-------------- --------------
Totals $ 1,425,574 $ (70,685)
============ ==============
Provision (credit) for income taxes:
Consulting $ 364,297 $ (9,810)
Lab 199,547 (2,436)
------------- --------------
Totals $ 563,844 $ (12,246)
============= ==============
Net income (loss):
Consulting $ 558,233 $ (293,618)
Lab 303,497 235,179
-------------- -------------
Totals $ 861,730 $ (58,439)
============= ==============
F-19
<PAGE>
MENLO ACQUISITION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13- Business segments (concluded):
1999 1998
---- ----
Assets:
Cash and marketable securities, at market:
Consulting $ 1,033,900 12,483
Labs 870,579 12,239
-------------- -------------
Totals 1,904,479 24,722
------------- -------------
Accounts receivable - net:
Consulting 3,037,305 4,213,123
Labs 1,036,390 1,587,540
Inter-segment (19,407) (575,702)
-------------- -------------
Totals 4,054,288 5,224,961
------------- -------------
Equipment and furnishings - net:
Consulting 397,189 425,491
Labs 690,474 594,351
-------------- -------------
Totals 1,087,663 1,019,842
------------- -------------
Other assets:
Holding 84,276
Consulting 133,024 126,428
Labs 18,096 20,652
Inter-segment (34,276)
-------------- -------------
Totals 201,120 147,080
-------------- -------------
Total assets $ 7,247,550 $ 6,416,605
============ ============
Note 14- Stock option plan:
On July 21, 1999, the Board of Directors approved the Company's
Stock Option Plan (the "Plan"), subject to ratification by the
Company's stockholders, whereby up to 525,000 shares of the
Company's common stock may be granted to key personnel in the
form of incentive stock options and nonstatutory stock options,
as defined under the Internal Revenue Code. Key personnel
eligible for these awards include all present and future
employees of the Company and individuals who are consultants to
the Company as well as nonemployee directors of the Company.
Under the Plan, the exercise price of options generally will be
the fair market value of the shares on the date of grant. The
exercise price of incentive stock options granted to a 10%
stockholder, however, will be 110% of the fair market value of
the shares on the date of grant. The maximum term of any stock
option granted may not exceed ten years (or in the case of a 10%
stockholder, five years) from the date of grant.
During November 1999, the Company issued 57,500 stock options to
key personnel, subject to ratification by the Company's
stockholders. The options, all of which are outstanding at
December 31, 1999, are exercisable through November 2009.
F-20
<PAGE>
MENLO ACQUISITION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14- Stock option plan (concluded):
The compensation cost, pro forma income and net income per common
share for 1999 determined using a fair value based method of
accounting for the stock options granted in 1999, as required by
SFAS 123, would not differ materially from the corresponding
historical amounts.
Note 15- Preferred stock:
No shares of preferred stock have been issued as of December 31,
1999. Under the Company's Articles of Incorporation, the Board
of Directors, within certain limitations and restrictions, can
fix or alter the dividend rights, dividend rate, conversion
rights, voting rights and terms of redemption including price
and liquidation preferences. As of February 11, 2000, the Board
of Directors has not yet fixed any terms to the preferred stock.
* * *
F-21
