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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
FORM 10-K
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(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 2000, or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from
__________ to ________
Commission file number 0-24712
METROLOGIC INSTRUMENTS, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-1866172
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
90 Coles Road, Blackwood, New Jersey 08012
(Address of principal executive offices) (Zip Code)
(856) 228-8100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
Par Value $.01 Per Share
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of March 29, 2001 was $13,708,170 calculated by excluding
all shares held by executive officers, directors and 5% stockholders of the
Registrant without conceding that all such persons are "affiliates" of the
Registrant for purposes of the federal securities laws.
As of March 29, 2001 there were 5,454,237 shares of Common Stock outstanding.
Documents Incorporated by Reference
Portions of the following documents are incorporated herein by reference:
Part III - The Registrant's definitive Proxy Statement for its 2000
Annual Meeting of Stockholders, to be filed not later than 120 days after the
close of the fiscal year.
PART I
Item 1. Business
Introduction
Metrologic Instruments, Inc. ("Metrologic" or the "Company") designs,
manufactures and markets bar code scanning and high-speed automated data
capture solutions using laser, holographic and vision-based technologies.
Historically capable of reading one-dimensional (linear) bar codes,
Metrologic's vision-based technologies provide two-dimensional bar code reading
and optical character recognition-compatible image lift. Other significant
products include parcel dimensioning and singulation detection devices. The
Company's automatic identification products as described above serve customers
in retail, commercial, manufacturing, transportation and logistics, and postal
and parcel delivery industries.
With the addition of Adaptive Optics Associates, Inc. (AOA) in January 2001,
Metrologic offers laser beam delivery and control products for semiconductor
and fiber optic manufacturing equipment, wavefront sensor products and adaptive
optics systems for certain government applications. AOA also adds significant
capabilities and expertise in vision, image processing, systems integration,
adaptive optics and high-end refractive optical disciplines.
In addition to its extensive line of bar code scanning and vision system
equipment, the Company also provides a complete line of educational laser
products to schools and universities. The Company is vertically integrated,
designing and manufacturing its own optics, optical coatings, magnetic and
inductive electronic components and fabricated parts. The Company produces more
than 500,000 finished products per year.
Metrologic employs more than 900 people worldwide and sells its products in
more than 100 countries through Metrologic's sales, service and distribution
offices located in North and South America, Europe and Asia. The Company's
principal subsidiaries include: Adaptive Optics Associates (AOA); Metrologic
Instruments GmbH; Metrologic Asia (Pte) Ltd; Metrologic do Brasil Ltda (51%
joint venture); Metro (Suzhou) Technologies Co., Ltd.; Metrologic Eria Iberica,
SL (51% joint venture); Metrologic Italia S.r.l.; Metrologic Eria France SA
(51% joint venture); Metrologic Instruments UK Limited; and Metrologic Japan
Co., Ltd.
Metrologic was incorporated in New Jersey in May 1969 as a successor to a sole
proprietorship, which commenced operations in 1968. The Company's executive and
administrative offices are located at 90 Coles Road, Blackwood, New Jersey
08012. The Company's telephone number: 856-228-8100; web site:
www.metrologic.com.
The Company's Products
Metrologic bar code scanners use visible laser diodes, incorporating custom
integrated circuits and surface mount components for the majority of their
electronics. In addition, the Company's scanners use proprietary software,
including ScanSet(R) and MetroSet(R) configuration utilities and ScanSelect(R)
and MetroSelect(R) bar code booklet programs, which allow the end user to
reconfigure and program the scanners' performance characteristics. These
programs also permit the scanner to read commonly used bar codes and to perform
a variety of other functions. In addition, the Company's interpretive and
decode software provide the capability of high speed and aggressive decoding.
The Company's scanners interface into most computers, programmable logic
controllers, point-of-transaction devices (e.g., cash registers), mobile
computing terminals and internet-ready appliances.
Laser bar code scanners are the Company's predominant products and accounted
for 89.7%, 92.7% and 94.4% of the Company's sales in 2000, 1999 and 1998,
respectively. The following laser bar code scanners have historically accounted
for a substantial portion of the Company's product revenues.
Retail Scanners: Hand-held
Since January 2000, the Company has offered the Voyager(R) series of single-
line hand-held bar code scanners. These scanners are equipped with the
Company's patented automatic trigger technology, the MS9540 VoyagerCG expanded
on this technology with the introduction of CodeGate data transmission. The
combined technologies allow the Company to compete head-to-head in applications
previously dominated by manually triggered scanners. These applications include
retail point-of-sale, menu-scanning, document processing, library,
pharmaceutical, pcb work-in-process, coupon processing and inventory.
Since January 2000, the Company has offered the MS6220 Pulsar(R) single-line
hand-held bar code scanner. This scanner represents the Company's entry-level
product and is designed to compete with low-cost CCD (Charged Coupled Devices).
The product features the high-speed and accuracy of laser scanner with the
working range and cost of a typical CCD. The product is marketed for use in
large-retail and OEM applications.
Since September 1996, the Company has offered the MS6720 Omnidirectional
hand-held bar code scanner. This product is designed for use as both a
hand-held as well as a fixed scanner for applications such as specialty stores,
do-it-yourself stores, convenience stores and pharmacies.
Since February 1996, the Company has offered the MS6130 Wireless, hand-held
bar code scanner. This product is equipped with the patented automatic trigger
and can be used in a wide variety of applications including point-of-sale,
warehouse and inventory.
Since 1990, the Company has offered a wide variety of hand-held bar code
scanners incorporating a patented infrared sensor and control scheme for
automatically triggering a bar code scanner. This unique invention allows the
user to simply present bar codes to the product without the need to manually
activate the scanner.
Retail Scanners: Fixed Projection
In January 2001, the Company introduced the MS7220 ArgusScan(TM), fixed
omnidirectional bar code scanner with volume shipments beginning in the 1st
quarter of 2001. For use in point-of-sale applications such as grocery,
pharmacy and specialty applications such as libraries and document processing,
the MS7220 ArgusScan's features include multiple mounting option, a hand-held
scanner port and multiple interfaces.
In January 2001, the Company introduced the MS6520 Cubit(R) fixed,
mini-omnidirectional bar code scanner with volume shipments beginning in the
2nd quarter of 2001. This product is the Company's entry-level offering and is
equipped with a durable housing for use in harsh environments and many
point-of-sale applications including convenience, apparel and specialty stores.
Since October 1998, the Company has offered the MS7120 Orbit(R)
mini-omnidirectional bar code scanner. This product offers the high-speed and
performance of higher-end products, in a unique, ergonomic housing without
taking up valuable counterspace in convenience, apparel, liquor and specialty
stores. The MS7120 is designed as a fixed presentation scanner, but its
contoured housing allows it to be picked up for scanning bulky or heavy items.
Since September 1990, the Company has offered the MS700 Series of high
performance fixed projection scanners. By projecting an omnidirectional pattern
at high speeds, the MS700 is capable of reading bar codes in different
orientations and angles. The product is sold into applications requiring
high-speed, high-volume scanning such as grocery stores, magazine distribution
and processing centers and discount warehouses.
Since 1985, the Company has offered in-counter Slot scanners. Since 1991, the
Company has offered the MS860 Mini-Slot(R) scanner for use in supermarkets. The
MS860 can be mounted easily into countertops and integrated into scales for
high-volume in-counter scanning applications.
OEM Scanners
Since March 1999, the Company has offered the IS6520 Cubit(R) (formerly
OmniQuest(R)) line of omnidirectional bar code scanning engines. This product
is used in OEM applications such as time/attendance, kiosks, price-lookup and
reverse vending. The scanner was designed with a high-speed automatic scanning
system in a small, easy-to-mount housing.
Since August 1994, the Company has offered the IS4120 ScanQuest(R)
single-line scan engine. The IS4120 is enclosed in a small metal housing that
protects the optical and electronic components that are typically exposed in
competitive type offerings. The product is equipped with a patented automatic
trigger and is used in applications such as mass-storage devices, kiosks, blood
analyzation devices and as the scanning component of a bar code scanner.
Industrial Scanners
Since February 2001, the Company had prototypes available of its iQ high-speed
camera-based industrial imaging systems, which are the predominant systems
sought by companies in the parcel postal handling industries. The Company
estimates that the iQ 180 will be available for purchase in June 2001. The
first in the series, iQ 180 is an all-in-one information acquisition system
which offers linear and two-dimensional barcode reading, OCR-compatible image
lift, parcel dimensioning, and speed detection in a single, self-contained
unit. Applications include revenue recovery, transportation logistics and route
planning.
Since 1996, the Company has offered its HoloTrak(R) line of holographic
scanners, which utilize Metrologic's proprietary holographic technology,
offering increased scanning performance at a more affordable price than similar
fixed industrial-use omnidirectional scanners. HoloTrak's many different models
are used by manufacturers, distribution centers and parcel handling companies
to track work-in-process, assist with truckload planning and perform a variety
of related applications. The HoloTrak family contains the IS8000 Series for
walk-under and moderate speed conveyor applications and the C Series for
high-speed, high volume conveyor applications, in addition to fully automated
scanning tunnels that offer optional weighing, dimensioning and parcel tracking
capabilities.
Since 1991, the Company has offered its TECH Series of close-range industrial
scanners. Designed to withstand the rigors associated with equipment used in
industrial environments, and capable of being mounted in any orientation, TECH
Series scanners are generally used in conveyor belt or other industrial
applications requiring automated scanning capability. There are three models,
each offering a different depth-of-field.
Research and Product Development
The company conducts its own engineering programs for the purposes of
developing new products, developing derivations of existing products, improving
its existing products' reliability, ergonomics, and performance and reducing
material, manufacturing and support costs. The Company is engaged in continuous
development programs in the areas of optics, holography, electronic imaging,
image processing, electronics, software, mechanics and automated manufacturing
methods.
During 2000, the Company refined the roles and organizations of Advanced
Development and New Product Development and separated the management of the
respective personnel. Advanced Development is responsible for driving
technological breakthroughs and working on technologies, products and
processes not already marketed by the company. New Product Development is
responsible for the structured engineering and development required for timely
introduction of new products to the market.
The Company's year 2000 Advanced Development efforts were focused on the
development of vision-based technologies for the iQ series of products, laser
doppler imaging technology for dimensioning and advanced holographic techniques
for use in future Retail products.
New Product Development efforts for the year 2000 were focused in four primary
areas:
The successful introduction of the Company's Voyager Series
hand-held scanners,
Product introductions for early 2001; namely the MS7220 ArgusScan
fixed projection retail scanner, an improved MS6520 Cubit
omnidirectional retail scanner and Universal Serial Bus (USB)
interface,
Efforts associated with the development of yet-to-be
introduced products from Metro (Suzhou) Technologies Co., Ltd.
Ongoing refinement and customer-specific efforts for sales of the
Company's industrial scanning systems including tracking software
for the Company's Holotunnel systems.
During 2000, 1999 and 1998, the Company incurred expenses of approximately $5.0
million, $4.3 million and $4.2 million, respectively, on costs associated with
research and development.
Sales and Marketing
The Company sells its products through distributors, value-added resellers
("VARs"), original equipment manufacturers ("OEMs") and directly to end-users
located throughout the world. The Company also utilizes its subsidiaries and
affiliates to sell, distribute and service its products throughout major
markets of the world. Metrologic Instruments GmbH, a wholly owned subsidiary
located near Munich, Germany, provides sales, distribution and service to the
Company's European customers.
In March 1998, the Company completed a joint venture agreement providing for a
51% equity interest in Metrologic do Brasil Ltda., located in Sao Paulo,
Brazil. Metrologic do Brasil Ltda. provides sales, distribution and service for
the Company's Brazilian customer base. Metrologic Instruments, South America
was relocated to Sao Paulo, Brazil in 1999 and remains the exclusive sales
office for the Company's South American customers outside of Brazil.
In June 1998, the Company established Metrologic Asia (Pte) Ltd., a
wholly-owned subsidiary located in Singapore which provides sales, distribution
and service to develop and support the Company's growing Asian customer base.
In October 1998, the Company established an engineering and manufacturing
facility, Metro (Suzhou) Technologies Co., Ltd., located near Shanghai, China.
In November 1998, the Company established Metrologic Instruments Italia, S.r.l.
to serve the Italian market.
In January 2000, the Company completed a joint venture agreement providing for
a 51% equity interest in Metrologic Eria Iberica SL, located in Madrid, Spain,
to exclusively serve the Iberian market.
In February 2000, the Company established Metrologic Instruments UK, Ltd. to
better serve the northern European territories of the UK, Scandinavia and
Benelux.
In July 2000, the Company completed a joint venture agreement providing for a
51% equity interest in Metrologic Eria France SA, located in Roissy, France,
just outside of Paris to exclusively serve the French market.
On December 22, 2000, Metrologic initiated the acquisition of Adaptive Optics
Associates, Inc. (AOA); the acquisition was completed on January 8, 2001.
In January 2001, the Company established a sales, service and distribution
office, Metrologic Japan Co., Ltd., in Tokyo, Japan. The Japanese office,
working alongside Metrologic's Singapore office and Chinese facility, provides
customers throughout Asia with rapid response to questions, prompt delivery of
products, and on-site customer service.
The Company has continued to strengthen its focus to better support sales to
distributors and resellers, sales to OEM's, and sales of holographic industrial
scanners including pre-sales application testing and support.
The Company has contractual relationships with numerous distributors and
dealers and a limited number of OEMs, VARs and end-users. OEMs purchase the
Company's products, incorporate them into their systems and sell them under
their own names. VARs purchase the Company's products and other peripheral
components needed for specific applications and sell them directly to
end-users. By utilizing multiple distribution channels, the Company has been
able to expand its market presence, broaden its distribution network and sell
to industries other than those serviced by the Company's direct sales force.
Backlog
As of December 31, 2000, the Company had approximately $3.3 million in backlog
orders. All such backlog orders are anticipated to be filled prior to December
31, 2001. As of December 31, 1999, the Company had approximately $2.7 million
in backlog orders, of which substantially all were filled during the 2000
fiscal year.
The Company performs ongoing credit evaluations of its customers' financial
condition, and except where risk warrants, requires no collateral. The Company
may, however, require letters of credit or prepayment terms for those customers
in lesser-developed countries.
The following table sets forth certain information as to the Company's sales by
geographical location: (amounts in thousands)
Year Ended December 31,
--------------------------------
2000 1999 1998
North America $36,716 $33,698 $26,058
Europe 34,957 33,906 28,849
Rest of World 20,211 12,499 10,734
Total $91,884 $80,103 $65,641
Foreign sales of the Company's products are subject to the normal risks of
foreign operations, such as protective tariffs, export/import controls and
transportation delays and interruptions. The Company's international sales are
invoiced in U.S. dollars, Euros, Singapore dollars, Brazilian reals, Chinese
Renminbi, Japanese Yen and the British pound and are thus subject to currency
exchange fluctuations. Since the Company's products are manufactured in the
United States, the Company's sales and results of operations are routinely
affected by fluctuations in the value of the U.S. dollar. The Company
undertakes certain hedging activities to the extent of known cash flow in an
attempt to mitigate the effects of foreign exchange fluctuations.
Competition
The bar code scanning industry is highly competitive. The Company's scanners
compete primarily with those produced by US manufacturers Accu-Sort Systems,
Inc., Microscan Systems, Inc., NCR Corporation, PSC, Inc., Symbol Technologies,
Inc., Intermec (Unova), Hand Held Products, Inc. (a Welch Allyn affiliate) and
others; European manufacturers Scantech BV located in the Netherlands,
Datalogic, Inc. located in Italy, Sick AG and Vitronics located in Germany; and
Asian manufacturers Nippondenso ID Systems, Opticon, Inc., Densei and many
others. While many of the Company's competitors are larger and have greater
financial, technical, marketing and other resources than the Company, the
Company believes that it competes on the basis of price, quality, service and
product performance.
Patent, Copyright and Trademark Matters
The Company files domestic and foreign patent applications to protect its
technological position and new product development. The Company currently has
128 issued U.S. patents, which expire between 2003 and 2017, and 16 foreign
patents, which expire between 2005 and 2015. In addition, the Company has filed
additional patent applications with the U.S. Patent and Trademark Office and
foreign patent offices with respect to products and improvements developed by
the Company. The Company owns U.S. trademark registrations covering
Metrologic(R), Bits 'n' Pieces(R), Codegate(R), Concert(R), Cubit(R),
HandSet(R), HoloTrak(R), HoloSet(R), HoloTunnel(R), Mini-Slot(R), MetrOPOS(R),
MetroSelect(R), MetroSet(R), Liberty(R), Orbit(R), OmniQuest(R), Pulsar(R),
ScanGlove(R), ScanPal(R), ScanQuest(R), ScanSelect(R), ScanSet(R), Tech 7(R),
Tech 8(R), Tech 10(R), VarSide(R) and Voyager(R). The Company also has several
registered trademarks in foreign countries. The Company has filed additional
trademark and service mark applications including ArgusScan(TM), iQ(TM),
Ortho(TM), Penta(TM), QTrace(TM), Qtrak(TM), QTroller(TM), ScanKey(TM),
SensiTrak(TM), SimulTrak(TM), Stratos(TM), and VoyagerCG(TM) for other marks it
is using both in the United States and abroad. The Company intends to continue
to file applications for U.S. and foreign patents and trademarks. Although
management believes that its patents provide some competitive advantage and
market protection, the Company relies primarily upon its proprietary know-how,
innovative skills, technical competence and marketing abilities for its
success.
The Company regards its software as proprietary and attempts to safeguard it
with protection under copyright and trade secret law and nondisclosure
agreements. Despite this protection, it may be possible for competitors or
users to copy aspects of the Company's products or to obtain information which
the Company regards as trade secrets. Computer software generally has not been
patented and existing copyright laws afford only limited practical protection.
The laws of foreign countries generally do not protect the Company's
proprietary rights in its products to the same extent as the laws of the United
States. In addition, the Company may experience more difficulty in enforcing
its proprietary rights in certain foreign jurisdictions.
In December 1996, the Company and Symbol Technologies, Inc. ("Symbol") executed
an extensive cross-license of patents (the "Symbol Agreement") for which the
Company and Symbol pay royalties to each other under certain circumstances
effective January 1, 1996. In connection with the Symbol Agreement, the Company
paid Symbol an advance license fee of $1 million in December 1996 and another
$1 million in quarterly installments of $125,000 over the subsequent two years
ended November, 1998.
In connection with the settlement of a December 1993 patent lawsuit with
Symbol, the Company agreed to make payments to Symbol through December 2004. As
a result of the patent lawsuit, the Company redesigned its hand-held scanners
to convert them from a triggered version to a triggerless version. In
connection with the Symbol Agreement, Symbol and the Company amended the
December 1993 settlement to reduce the maximum aggregate amount payable
thereunder by the Company from $7.5 million to approximately $5.1 million. The
final payment in connection with the settlement was made in August 1999. For
additional information concerning the settlement, see Note 10 of the Notes to
Consolidated Financial Statements.
In December 1998, the Company and Symbol amended the Symbol Agreement to
provide for the purchase of the Company's HoloTrak industrial holographic
scanners for resale by Symbol under Symbol's brand label. This replaces a prior
commitment of Symbol under the Symbol Agreement to purchase the Company's
products.
In April 1999, the Company and Symbol executed a second amendment to the Symbol
Agreement to provide for additional patent licenses for some of its existing
products.
On November 1, 1999, the Company and Symbol signed a third amendment to the
Symbol Agreement. Under the terms of the amended agreement, the Company
obtained a royalty-bearing license for certain of its new products under
Symbol's laser scanning patents, and Symbol obtained a royalty-bearing license
for its products under certain of the Company's patents. Under the terms of the
amendment, both parties will make recurring periodic royalty payments to each
other, effective on the date of signing the third amendment.
Manufacturing and Suppliers
The Company manufactures its products at its Thorofare and Blackwood, New
Jersey facilities, enabling the Company to quickly adapt and enhance its
products and services to meet specific customer requirements. This capability
also reduces the length of the new product development cycle and speeds the
integration of new products into manufacturing. Product quality assurance is
achieved by an experienced workforce.
The Company has invested and will continue to invest in capital production
equipment and tooling that will automate production, increase capacity and
reduce direct labor costs.
The Company currently relies on a limited number of suppliers for several
components used in the manufacture of its products. The Company does not
believe that the loss of any one supplier would have a long term adverse effect
on its business, although set-up costs and delays would likely result if the
Company were required to change any single supplier without adequate prior
notice. In 1999, the Company acquired a 20% equity interest in Metro Asia
Resources, Inc., an international purchasing office located in Taiwan for the
purpose of expanding its suppliers, reducing material costs, and performing
on-site inspections of Asian suppliers. To date, the investment in Metro Asia
Resources, Inc. has not been significant.
Government Regulations
The Company and its products are subject to regulation by various agencies both
in the United States and in the countries in which its products are sold. The
Food & Drug Administration's Center for Devices and Radiological Health
regulates laser safety in the United States, and in Canada, laser safety is
regulated by Industry Canada. In addition, the Occupational Safety and Health
Administration and various state and municipal government agencies have
promulgated regulations concerning working condition safety standards in
connection with the use of lasers in the workplace. Radio emissions are the
subject of governmental regulation in all countries in which the Company
currently sells its products. The Company also submits its products for safety
certification throughout the world by recognized testing laboratories such as
the Underwriters Laboratories, Inc. and the Canadian Standards Association.
The European countries in which the Company's products are sold also have
standards concerning electrical and laser safety and electromagnetic
compatibility and emissions. The Company's products comply with the European
standards regarding electromagnetic compatibility, allowing these products to
bear the CE mark.
The Company believes that it is currently in compliance with all of the
regulations to which it and its products are subject. There can be no
assurance, however, that governmental agencies will not require the Company to
modify its products or working conditions and, if so required, that the Company
would be able to make such modifications. Failure by the Company to comply with
any regulation or standard could have a material adverse effect on the Company.
Employees
As of December 31, 2000, the Company had approximately 750 full-time employees.
None of the Company's employees are represented by a labor union. Management
believes that its relationships with its employees are good.
Item 2. Properties
Since 1990, the Company's executive offices and manufacturing facilities have
been located in Blackwood, New Jersey and leased by the Company from C. Harry
Knowles, Chairman of the Board and Chief Executive Officer of the Company, and
Janet H. Knowles, Vice President, Administration, Secretary and Treasurer of
the Company. Under a lease agreement entered into on April 1, 1994, the Company
leased the building for a term of five years and has renewed the lease for an
additional five-year term. The initial annual rent under the lease for the
first year was $356,440 and increases annually at a rate of 4.5%. An expansion
of the facilities consisting of an additional 51,000 square feet was completed
in October 1995, which increased the Company's facility to an aggregate of
113,000 square feet. The expanded space is being leased from Mr. and Mrs.
Knowles pursuant to the terms of the April 1, 1994 lease. The total lease rate
as of April 1, 2000 is approximately $70,000 per month, excluding taxes and
insurance.
The Company's subsidiaries each lease office space from third parties.
Item 3. Legal Proceedings
The Company is currently involved in matters of litigation arising from the
normal course of business including matters described below. Management is of
the opinion that such litigation will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
A. Symbol Technologies, Inc. et. al. v. Lemelson Medical, Educational &
Research Foundation, Limited Partnerships
The Company is currently involved in matters of litigation arising from the
normal course of business including those matters described below. Management
is of the opinion that such litigation will not have a material adverse effect
on the Company's consolidated financial position or results of operations.
On July 21, 1999 the Company and six other leading members of the Automatic
Identification and Data Capture Industry (the "Auto ID companies") jointly
initiated a litigation against the Lemelson Medical, Educational, & Research
Foundation, Limited Partnership (the "Lemelson Partnership"). The suit, which
is entitled Symbol Technologies, Inc. et. al. v. Lemelson Medical, Educational
& Research Foundation, Limited Partnerships, was commenced in the U.S. District
Court, District of Nevada in Reno, Nevada. In the litigation, the Auto ID
companies seek, among other remedies, a declaration that certain patents, which
have been asserted by the Lemelson Partnership against end users of bar code
equipment, are invalid, unenforceable and not infringed. The other six Auto ID
companies who are plaintiffs in the lawsuit are Accu-Sort Systems, Inc.,
Intermec Technologies Corporation, a wholly-owned subsidiary of UNOVA, Inc.,
PSC Inc., Symbol Technologies, Inc., Teklogix Corporation, a wholly-owned U.S.
subsidiary of Teklogix International, Inc., and Zebra Technologies Corporation.
Symbol Technologies, Inc. has agreed to bear approximately half of the legal
and related expenses associated with the litigation, with the remaining portion
being borne by the Company and the other Auto ID companies.
Although no claim had been asserted by the Lemelson Partnership directly
against the Company or, to our knowledge, any other Auto ID company, the
Lemelson Partnership has contacted many of the Auto ID companies' customers
demanding a one-time license fee for certain so-called "bar code" patents
transferred to the Lemelson Partnership by the late Jerome H. Lemelson. The
Company and the other Auto ID companies have received many requests from their
customers asking that they undertake the defense of these claims using their
knowledge of the technology at issue. Certain of these customers have requested
indemnification against the Lemelson Partnership's claims from the Company and
the other Auto ID companies, individually and/or collectively with other
equipment suppliers. The Company, and to the Company's knowledge, the other
Auto ID companies, believe that generally they have no obligation to indemnify
their customers against these claims and that the patents being asserted by the
Lemelson Partnership against Auto ID companies customers with respect to bar
code equipment are invalid, unenforceable and not infringed. However, the
Company and the other Auto ID companies believe that the Lemelson claims do
concern the Auto ID industry at large and that it is appropriate for them to
act jointly to protect their customers against what they believe to be baseless
claims being asserted by the Lemelson Partnership.
In response to the action commenced by the Company and the other plaintiffs,
the Lemelson Partnership filed a motion to dismiss the lawsuit, or
alternatively, to stay the proceedings pending the outcome of other litigation
or transfer the case in its entirety to the U.S. District Court for Arizona
where several infringement suits filed by the Lemelson Partnership are pending
against other companies. The Lemelson Partnership has stated that the primary
grounds for its motion to dismiss are the lack of a legally justifiable case or
controversy between the parties because (1) the method claims asserted by the
Lemelson Partnership apply only to the "use" of bar code equipment by the
end-users and not the bar code equipment itself; and (2) the Lemelson
Partnership has never asserted claims of infringement against the Auto ID
companies.
On March 15, 2000, Judge Pro of the U.S. District Court for the District of
Nevada issued a ruling denying the Lemelson Foundation's motion (a) to dismiss
the lawsuit for lack of a legally justifiable case or controversy and (b)
transfer the case to the U.S. District Court for the District of Arizona.
However the Court granted the Lemelson Partnership's motion to dismiss our
claim that the patents are invalid due to laches in prosecution of the patents.
The court also ordered the action consolidated with an action against the
Lemelson Partnership brought by Cognex Corp. pending in the same court.
On March 30, 2000, the Lemelson Partnership filed a motion (a) to appoint a
permanent magistrate judge to the case and remove Magistrate Judge Atkins and
(b) to transfer the case from the court in Reno, Nevada, where it is currently
assigned to a court in Las Vegas, Nevada. The Auto ID Companies filed papers
opposing both motions. On April 10, 2000, Judge Pro again ruled against the
Lemelson Partnership on both motions. The case is now in the early states of
discovery.
April 12, 2000, the Lemelson Partnership filed its Answer to the Complaint in
the Symbol et al. v. Lemelson Partnership case. In the Answer, the Lemelson
Partnership included a counterclaim against the Company and the other
plaintiffs seeking a dismissal of the case. Alternatively, the Lemelson
Partnership's counterclaim seeks a declaration that the Company and the other
plaintiffs have contributed to, or induced infringement of particular method
claims of the patents-in-suit by the plaintiffs' customers. The Company
believes there is no merit to the Lemelson Partnership's counterclaim.
On May 15, 2000, the Auto ID companies filed a motion seeking permission to
file an interlocutory appeal of the Court's decision to strike the fourth count
of the complaint (which alleged that the Lemelson Partnership's delays in
obtaining its patents rendered them unenforceable for laches). The motion was
granted by the Court on July 14, 2000. On September 1, 2000 the United States
Court of Appeals for the Federal Circuit agreed to hear the appeal.
On May 10,2000, the Lemelson Partnership filed a second motion with the Court
to stay the Auto ID action pending the resolution of United States Metals
Refining Co. ("US Metals") v. Lemelson Medical, Education & Research
Foundation, LP et al., an action in Nevada state court where in the plaintiff
is challenging the Lemelson Partnership's ownership of the patents at issue in
the Auto ID action. The Auto ID companies opposed the motion. Although the
Court has not yet ruled on this motion, the Nevada state court dismissed the
complaint of US Metals on July 5, 2000.
On July 24, 2000, the Auto ID companies filed a motion for partial summary
judgment arguing that almost all of the claims of the Lemelson Partnership's
patents are invalid for lack of written description.
B. Metrologic v. PSC
On October 13, 1999, the Company filed suit for patent infringement against PSC
Inc. (PSC) in United States District Court for the District of New Jersey. The
complaint asserts that at least seven of the Company's patents are infringed by
a variety of point-of-sale bar code scanner products manufactured and sold by
PSC. The patents cited in the complaint cover a broad range of bar code
scanning technologies important to scanning in a retail environment including
the configuration and structure of various optical components, scanner
functionalities and shared decoding architecture. The complaint seeks monetary
damages as well as a permanent injunction to prevent future sales of the
infringing products.
On December 22, 1999, PSC filed an answer to the complaint citing a variety of
affirmative defenses to the allegations of infringement asserted by the Company
in its complaint. PSC additionally asserted a counterclaim under the Lanham Act
claiming that the Company made false and misleading statements in its October
13, 1999 press release regarding the patent infringement suit against PSC. The
Company does not believe that this counterclaim has any merit and has made a
claim with its insurance carrier to pay for the defense of this claim.
The court ordered the case to mediation, and discovery was stayed pending the
outcome of the mediation. The mediation was terminated by the parties with no
result having been reached and the stay on discovery has been lifted by the
court. The case is now in the early stages of discovery.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Executive Officers of the Registrant
The executive officers of the Company as of March 30, 2001 are as follows:
Name Age Position
C. Harry Knowles* 72 Chairman of the Board and Chief Executive
Officer
Janet H. Knowles* 59 Director, Vice President, Administration,
Secretary and Treasurer
Thomas E. Mills IV 41 Director, President, Chief Operating
Officer, and Chief Financial Officer
Dale M. Fischer 60 Vice President, International Sales
Benny A. Noens 53 Vice President, European Sales, and
Managing Director, Metrologic Instruments
GmbH
John L. Patton 55 Director, Human Resources
Joseph Sawitsky 38 Vice President, Manufacturing
Mark C. Schmidt 30 Vice President, Marketing
Kevin P. Woznicki 47 Vice President Sales, The Americas
- -----------------------------------
* Mr. and Mrs. Knowles are husband and wife.
The Company's executive officers are elected annually by the Board of Directors
following the annual meeting of shareholders and serve at the discretion of the
Board of Directors.
C. Harry Knowles is the founder of the Company and has been Chairman of the
Board of Directors since the Company's inception in 1969. Mr. Knowles served as
President of the Company from its inception through 1982 and from 1985 until
1999. He has served as Chief Executive Officer since 1985. In addition, Mr.
Knowles served as chief technical officer with responsibility for all of the
Company's research and development activities from 1982 to 1985. Since 1988,
Mr. Knowles has also served as a Managing Director of Metrologic Instruments
GmbH. Prior to founding the Company, Mr. Knowles was the general manager of
Westinghouse Electric Corporation's integrated circuits division in Elkridge,
Maryland.
Janet H. Knowles was a director of the Company from 1972 to 1984 and has served
as a director since 1986. Mrs. Knowles served as Vice President, Administration
from 1976 to 1983 and has served in that capacity and as Secretary since 1984,
and as Treasurer since 1994. Mrs. Knowles is responsible for the Company's
administrative matters.
Thomas E. Mills IV, became President of the Company on February 9, 2000, a
director of the Company effective March 25, 1999, and has served as the
Company's Executive Vice President and Chief Operating Officer since April
1999, as the Company's Vice President, Finance since June 1995 and as Chief
Financial Officer since May 1994. Mr. Mills was employed by Ferranti
International, Inc. from 1986 to April 1994 in various positions, most recently
as Senior Vice President, U.S. Operations.
Dale M. Fischer served as the Company's Director of International Marketing and
Sales from 1990 to 1993 and has served as Vice President, International Sales
since 1994. From 1989 to 1990, Mr. Fischer was Chairman of Great Valley
Corporation, a worldwide marketing and product development company. From 1967
until 1988, Mr. Fischer held several positions with TRW Electronics Component
Group ("TRW"), most recently as International Marketing, Sales and Licensing
Director. Mr. Fischer was responsible for marketing and sales of TRW products
in more than 50 countries and was responsible for the implementation of a joint
venture in Japan and the establishment of seven technology and manufacturing
licenses throughout the world. Mr. Fischer has also served as President of
Dalex International Corporation, a company devoted to export/import and
worldwide market development.
Benny A. Noens served as the Company's European Sales Manager from 1991 to 1993
and has served as Vice President, European Sales since 1994. In addition, Mr.
Noens has been Managing Director of Metrologic Instruments GmbH since 1994.
From 1980 until 1991, Mr. Noens held several positions with Data General
Corporation, including serving in Latin America as Marketing and Distribution
Manager. Prior to his employment at Data General, Mr. Noens managed a division
of C.T. Janer Co., an import/export company located in Rio de Janiero, Brazil.
John L. Patton served as the Company's Human Resources Manager from 1993 to
1996 and has served as Director, Human Resources since December 1996. From 1988
to 1993, he was employed as a human resources consultant with the Gordon Wahls
Company and from 1984 to 1988, he was employed as human resources manager at
TRW, IRC Division. From 1979 to 1984 he held the position of Personnel Manager
at Oral B Laboratories.
Joseph Sawitsky has served as the Company's Vice President, Manufacturing since
November 1999. He joined Metrologic in 1998 as the Production Manager. From
1994 to 1998, he held several positions for Zenith Electronics Corp., a
high-volume, automated electronics manufacturer. From 1990 to 1994, he worked
for ICI Composites and manufactured specialty polymer materials for the
aerospace and industrial markets. After graduating from the U. S. Naval Academy
in 1984, he served six years in the Nuclear Submarine Force.
Mark C. Schmidt has served as the Company's Vice President, Marketing since
November 1999. He has been employed by Metrologic since 1992, most recently in
the position of Marketing Manager. During his tenure, Mr. Schmidt has
progressed from Optical Engineer to the position of POS Product Manager in
1995, and Marketing Manager in 1997.
Kevin P. Woznicki served as the Company's Director of Marketing from August
1995 to July 1996, Vice President of Marketing from August 1996 to November
1996, and has served as Vice President, North American Sales since December
1996. From 1994 to July 1995, he was employed by Franklin Electronic Publishing
as North American Sales Manager. From 1988 to 1994 he was employed by SL Waber,
Inc., a manufacturer of portable power protection devices, where he held
several positions including Vice President, General Manager of the business
products division and Vice President, Sales and Marketing.
PART II
Item 5. Market for the Registrant's Common Equity and Related Shareholder
Matters
The common stock of the Company, par value $.01 per share ("Common Stock") is
traded on The Nasdaq Stock Market's National Market System under the symbol
"MTLG." The following table sets forth, for the indicated periods, the high and
low closing prices of the Company's Common Stock as reported by Nasdaq:
High Low
January to March 1998 $17.38 $12.63
April to June 1998 $18.00 $14.75
July to September 1998 $15.88 $12.00
October to December 1998 $14.25 $11.00
January to March 1999 $15.75 $11.50
April to June 1999 $14.00 $ 9.75
July to September 1999 $12.25 $ 9.75
October to December 1999 $14.25 $10.13
January to March 2000 $19.00 $12.06
April to June 2000 $18.00 $13.63
July to September 2000 $17.50 $ 8.75
October to December 2000 $10.13 $ 5.06
On March 29, 2001 there were 144 shareholders of record of Common Stock.
The Company currently anticipates that it will retain all of its earnings to
finance the operation and expansion of its business, and therefore does not
intend to pay dividends on its Common Stock in the foreseeable future. Any
determination to pay dividends is at the discretion of the Company's Board of
Directors and will depend upon the Company's financial condition, results of
operations, capital requirements, limitations contained in loan agreements and
such other factors as the Board of Directors deems relevant.
Item 6. Selected Consolidated Financial Data
(in thousands except share and per share data)
Year ended December 31,
1996 1997 1998 1999 2000
-------------------------------------------------
Statement of Operations Data:
Sales $ 46,971 $ 53,495 $ 65,641 $ 80,103 $ 91,884
Cost of sales 28,799 33,240 39,698 46,710 55,394
-------------------------------------------------
Gross profit 18,172 20,255 25,943 33,393 36,490
Selling, general and
administrative expenses 10,505 12,087 15,537 21,331 26,314
Research and development
expenses 3,110 3,359 4,157 4,327 4,975
Severance costs - - - - 160
-------------------------------------------------
Operating income 4,557 4,809 6,249 7,735 5,041
Other income (expense), net 221 (156) 456 (202) (878)
-------------------------------------------------
Income before provision
for income taxes 4,778 4,653 6,705 7,533 4,163
Provision for income taxes 1,803 1,673 2,212 2,636 1,426
-------------------------------------------------
Net income $ 2,975 $ 2,980 $ 4,493 $ 4,897 $ 2,737
=================================================
Basic earnings per share
Weighted average shares
outstanding used in
computing basic EPS 5,255,275 5,330,596 5,391,797 5,412,564 5,438,553
=================================================
Basic earnings per share $ 0.57 $ 0.56 $ 0.83 $ 0.90 $ 0.50
=================================================
Diluted earnings per share
Weighted average shares
outstanding used in
computing diluted EPS 5,301,066 5,447,277 5,512,758 5,460,194 5,557,992
=================================================
Diluted earnings per share $ 0.56 $ 0.55 $ 0.82 $ 0.90 $ 0.49
=================================================
December 31,
1996 1997 1998 1999 2000
Balance Sheet Data: ------------------------------------------------------
Cash and cash
equivalents $ 10,358 $ 13,096 $ 10,684 $ 6,970 $ 2,332
Working capital $ 15,200 $ 18,599 $ 21,496 $ 23,659 $ 41,572
Total assets $ 35,992 $ 38,458 $ 46,296 $ 56,673 $ 81,823
Long-term debt $ 1,764 $ 1,496 $ 2,608 $ 3,414 $ 25,334
Other long-term
obligations $ 2,033 $ 1,329 $ 676 $ 588 $ 1,094
Total liabilities $ 14,945 $ 13,557 $ 16,295 $ 22,129 $ 46,060
Common stock $ 53 $ 54 $ 54 $ 54 $ 54
Total shareholders'
equity $ 21,047 $ 24,901 $ 30,001 $ 34,544 $ 35,763
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
The Company derives its revenues from sales of its scanners through
distributors, value-added resellers ("VARs") and original equipment
manufacturers ("OEMs") and directly to end-users in the United States and in
over 100 countries worldwide.
Results of Operations
Most of the Company's product sales in Western Europe, Brazil and Asia are
billed in foreign currencies and are subject to currency exchange rate
fluctuations. Substantially all of the Company's products are manufactured in
the Company's U.S. facility, and therefore, sales and results of operations are
affected by fluctuations in the value of the U.S. dollar relative to foreign
currencies. Accordingly, in 2000 and 1999, sales and gross profit were
adversely affected by the continuing rise in the value of the U.S. dollar in
relation to foreign currencies.
Year Ended December 31, 2000 Compared with Year Ended December 31, 1999
(amounts in thousands except per share information)
Sales increased 14.7% to $91,884 in 2000 from $80,103 in 1999, principally as a
result of the continued increase in sales of the Company's point-of-sale
("POS") products and increased sales and marketing efforts. The increase in
sales volume in 2000 was offset by lower average unit selling prices on the
Company's POS products compared to the corresponding period in 1999, and
reflected unfavorable foreign currency exchange fluctuations. The increase in
the value of the U.S. dollar relative to other foreign currencies compared to
1999 negatively affected the recorded U.S. dollar value of European operation
sales by approximately 15.6% and consolidated sales by 13.4%.
International sales accounted for $55,168 (60% of total sales) in 2000 and
$46,405 (57.9% of total sales) in 1999. Two customers accounted for 7.7% and
5.2%, respectively, of the Company's revenues in 2000. Two customers accounted
for 5.9% and 5.1%, respectively, of the Company's revenues in 1999.
Cost of sales increased 18.6% to $55,394 in 2000 from $46,710 in 1999, while
costs of sales as a percentage of sales increased to 60.3% from 58.3%. The
increase in cost of sales as a percentage of sales was due primarily to lower
average unit selling prices primarily resulting from unfavorable foreign
exchange fluctuations as well as increased costs resulting from a limited
supply of electronic components purchased from vendors. If sales in 2000 are
adjusted to negate the effect of the reduction in the value of the foreign
currencies against the U.S. dollar as compared to 1999, costs of sales as a
percentage of sales would have been a more favorable 57.02% in 2000.
Selling, general and administrative ("SG&A") expenses increased 23.4% to
$26,314 in 2000 from $21,331 in 1999 and increased as a percentage of sales to
28.6% from 26.6%. The increase in SG&A expenses was due to: (i) increased
marketing efforts, which include costs associated with the Company's Concert(R)
Program, a business partner program used to market and promote the Company's
products; and (ii) expenses in connection with new European joint ventures.
Research and development ("R&D") expenses increased 15% to $4,975 in 2000 from
$4,327 in 1999, and stayed the same as a percentage of sales at 5.4%. The
increase is due to increased research and development efforts of new POS and
industrial products and engineering enhancements to existing products.
Severance costs of $160 for the year ended December 31, 2000 were due to the
elimination of certain senior management positions resulting from planned
redundancies.
Operating income decreased 34.8% to $5,041 in 2000 from $7,735 in 1999, and
operating income as a percentage of sales decreased to a 5.5% from 9.7%.
Other income/expenses reflect net other expenses of $878 in 2000 compared to
$202 in 1999. Net other expenses in 2000 reflects higher interest expense,
lower interest income and foreign currency transaction gains as compared to
foreign currency transaction losses in 1999.
Net income decreased 44.1% to $2,737 in 2000 from $4,897 in 1999. Net income
reflects a 34% effective income tax rate for 2000 compared to 35% in 1999. The
increase in the value of the U.S. dollar relative to other foreign currencies
compared to 1999 negatively affected diluted earnings per share by
approximately $0.42 per share.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998 (amounts
in thousands except per share information)
Sales increased 22.0% to $80,103 in 1999 from $65,641 in 1998, principally as a
result of an increase in sales of the Company's industrial laser scanners,
including HoloTrak(R) industrial holographic laser scanners, the continued
increase in market acceptance of the Company's point-of-sale ("POS") products
and increased sales and marketing efforts. The increase in sales volume in 1999
was offset by lower average unit selling prices on the Company's POS products
compared to the corresponding period in 1998, and reflected unfavorable foreign
currency exchange fluctuations. Average unit selling prices reflected
significant unfavorable foreign exchange rate fluctuations. The reduction in
the value of the Euro against the U.S. dollar since January 1999 negatively
affected the recorded U.S. dollar value of the year-to-date European operation
sales by approximately 9.3% and consolidated sales by 3.7%.
International sales accounted for $46,405 (57.9% of total sales) in 1999 and
$39,583 (60.3% of total sales) in 1998. Two customers accounted for 5.9% and
5.1%, respectively, of the Company's revenues in 1999. Two customers accounted
for 5.9% and 5.4%, respectively, of the Company's revenues in 1998.
Cost of sales increased 17.7% to $46,710 in 1999 from $39,698 in 1998, while
costs of sales as a percentage of sales decreased to 58.3% from 60.5%. The
decrease in cost of sales as a percentage of sales was due primarily to
increased sales of the Company's industrial laser scanners which yield higher
gross profit margins than the Company's POS products, reduced product costs of
certain POS products and manufacturing efficiencies and operating leverage that
resulted from greater unit volumes, partially offset by lower average unit
selling prices on certain of the Company's POS products. If sales in 1999 are
adjusted to negate the effect of the reduction in the value of the Euro against
the U.S. dollar since January 1999, costs of sales as a percentage of sales
would have been a more favorable 56.3% in 1999.
SG&A expenses increased 37.3% to $21,331 in 1999 from $15,537 in 1998 and
increased as a percentage of sales to 26.6% from 23.7%. The increase in SG&A
expenses was due primarily to increased marketing efforts, which include costs
associated with the Company's Concert(R) Program, a business partner program
used to market and promote the Company's products.
R&D expenses increased 4.1% to $4,327 in 1999 from $4,157 in 1998, and
decreased as a percentage of sales from 6.3% to 5.4%. The increase in R&D
expenses was due primarily to higher expenditures for the development of new
POS and industrial products, including development of the Company's
HoloTunnel(R).
Operating income increased 23.8% to $7,735 in 1999 from $6,249 in 1998, and
operating income as a percentage of sales increased to a 9.7% from 9.5%.
Other income/expenses reflect net other expenses of $202 in 1999 compared to
net other income of $456 in 1998. Net other expenses in 1999 reflects higher
interest expense, lower interest income and foreign currency transaction losses
as compared to 1998.
Net income increased 9.0% to $4,897 in 1999 from $4,493 in 1998. Net income
reflects a 35% effective income tax rate for 1999 compared to 33% in 1998. The
increased effective income tax rate resulted from a reduction in the recorded
foreign tax benefit. The increase in the value of the U.S. dollar relative to
other foreign currencies since January 1999 negatively affected diluted
earnings per share by approximately $0.34 per share.
Inflation and Seasonality
Inflation and seasonality have not had a material impact on the Company's
results of operations. There can be no assurance, however, that the Company's
sales in future years will not be impacted by fluctuations in seasonal demand.
Liquidity and Capital Resources (amounts in thousands)
The Company's working capital increased approximately 75.7% to $41,572 as of
December 31, 2000 from $23,659 as of December 31, 1999.
The Company's operating activities used net cash of $16,320 in 2000 compared
with net cash used of $3,679 in 1999. Net cash used in operating activities in
2000 resulted primarily from increases in accounts receivable and inventory,
partially offset by an increase in net income, plus noncash changes.
The Company's total deferred income tax asset of $1,356 and deferred tax
liability of $565 are based upon cumulative temporary differences as of
December 31, 2000, which provide approximately $2,140 of future net tax
deductions against future taxable income. The deferred tax asset arises
primarily from recording reserves on current assets as expenses for accounting
purposes prior to receiving the related tax benefits. The deferred tax
liability arises primarily from recording the advance license fee pursuant to
the December 1996 licensing agreement with Symbol Technologies, Inc. as an
expense for tax purposes and an amortizable asset for book purposes.
In connection with the acquisition of Adaptive Optics Associates, Inc. ("AOA")
on January 8, 2001, the Company entered into a $45,000 credit facility ("Credit
Facility") with its primary bank, as agent ("primary bank") for other bank
parties. Under the terms of the Credit Facility, the Company secured a $20,000
term loan with maturities of $2,000 in 2001, $3,000 in 2002 and 2003,
respectively, and $4,000 in 2004, 2005 and 2006, respectively. Also under the
Credit Facility, the Company secured a $25,000 revolving credit line, which
expires in January 2006. Interest rates are based on Libor or Prime-Rate
Options based on the discretion of the Company, plus spreads ranging from 1.00%
to 3.75% as defined in the Credit Facility. Proceeds from the Credit Facility
were applied towards the financing of the acquisition of AOA, paying down the
existing term loans and line of credit, and providing working capital for the
Company and its subsidiaries.
Also in connection with the acquisition of AOA, the Company entered into
Subordinated Promissory Notes ("Subordinated Debt") aggregating $11,000 with
United Technologies Optical Systems, Inc. ("UTOS") with maturities of $1,250
in 2002 and $3,750 in 2003. Interest rates are fixed at 10%.
Under the Company's existing Amended and Restated Loan and Security Agreement,
as amended, the Company has existing term loans of $10,176 as of December 31,
2000 with interest rates based on Libor and Euro-interest rates (6.56% and
4.96%) plus spreads ranging from 1.50% to 1.75%.
The Company also maintains a revolving line of credit, which was increased from
$10,000 to $20,000 in September 2000. As of December 31, 2000, $17,863 was
outstanding under this line of credit. The interest rate under this revolving
line of credit as of December 31, 2000 bears interest at Libor (6.56% at
December 31, 2000), plus 1.5%. Both the term loans and the resolving line of
credit were restructured in connection with the execution of the Credit
Facility dated January 8, 2001.
The Company also has approximately 1,100 Euros unsecured revolving credit
facilities with European banks in the name of its European subsidiary,
Metrologic Instruments GmbH. As of December 31, 2000, no amounts were
outstanding under these revolving credit facilities.
Property, plant & equipment expenditures were $3,479 and $3,886 in 2000 and
1999, respectively. During 2000, the Company continued expenditures related to
manufacturing automation and capacity expansion. The Company's current plan for
future capital expenditures include: (i) investment in the Company's Suzhou,
China facility; (ii) continued investment in manufacturing capacity expansion
at the Blackwood, NJ headquarters; (iii) additional Company facilities; and
(iv) enhancements to existing information systems, and additional information
systems.
The Company's liquidity has been, and may continue to be, adversely affected by
changes in foreign currency exchange rates, particularly the value of the U.S.
dollar relative to the Euro, the Brazilian real, the Singapore dollar, and the
Chinese renminbi. In an effort to mitigate the financial implications of the
volatility in the exchange rate between the Euro and the U.S. dollar, the
Company has selectively entered into derivative financial instruments to offset
its exposure to foreign currency risks. Derivative financial instruments may
include (i) foreign currency forward exchange contracts with its primary bank
for periods not exceeding six months, which partially hedge sales to the
Company's German subsidiary and (ii) Euro based loans, which act as a partial
hedge against outstanding intercompany receivables and the net assets of its
European subsidiary, which are denominated in Euros. Additionally, The
Company's European subsidiary invoices and receives payment in certain other
major currencies, including the British pound, which results in an additional
mitigating measure that reduces the Company's exposure to the fluctuation
between the Euro and the U.S. dollar although it does not offer protection
against fluctuations of that currency against the U.S. Dollar.
The Company believes that its current cash and cash equivalent balances, along
with cash generated from operations and availability under its revolving credit
facilities, will be adequate to fund the Company's operations through at least
the next twelve months.
Forward Looking Statements; Certain Cautionary Language
Written and oral statements provided by the Company from time to time may
contain certain forward looking information, as that term is defined in the
Private Securities Litigation Reform Act of 1995 (the "Act") and in releases
made by the Securities and Exchange Commission ("SEC"). The cautionary
statements which follow are being made pursuant to the provisions of the Act
and with the intention of obtaining the benefits of the "safe harbor"
provisions of the Act. While the Company believes that the assumptions
underlying such forward looking information are reasonable based on present
conditions, forward looking statements made by the Company involve risks and
uncertainties and are not guarantees of future performance. Actual results may
differ materially from those in the Company's written or oral forward looking
statements as a result of various factors, including but not limited to, the
following:
Reliance on third party resellers, distributors and OEMs which subject the
Company to risks of business failure, credit and collections exposure, and
other business concentration risks; continued or increased competitive pressure
which could result in reduced selling prices of products or increased sales and
marketing promotion costs; a prolonged disruption of scheduled deliveries from
suppliers when alternative sources of supply are not available to satisfy the
Company's requirements for raw material and components; continued or prolonged
capacity constraints that may hinder the Company's ability to deliver ordered
product to customers; difficulties or delays in the development, production,
testing and marketing of products, including, but not limited to, a failure to
ship new products when anticipated, failure of customers to accept these
products when planned, any defects in products or a failure of manufacturing
efficiencies to develop as planned; the costs of legal proceedings or
assertions by or against the Company relating to intellectual property rights
and licenses, and adoption of new or changes in accounting policies and
practices; occurrences affecting the slope or speed of decline of the life
cycle of the Company's products, or affecting the Company's ability to reduce
product and other costs, and to increase productivity; the impact of unusual
items resulting from the Company's ongoing evaluation of its business
strategies, acquisitions, asset valuations and organizational structures; the
effects of and changes in trade, monetary and fiscal policies, laws and the
ability of the Company to integrate AOA with other Company subsidiaries, and
realize anticipated impact on results of operations; regulations and other
activities of governments, agencies and similar organizations, including but
not limited to trade restrictions or prohibitions, inflation, monetary
fluctuations, import and other charges or taxes, nationalizations and unstable
governments; the future health of the U.S. and international economies and
other economic factors that directly or indirectly affect the demand for the
Company's products; foreign currency exchange rate fluctuations between the
U.S. Dollar and other major currencies including, but not limited to, the Euro,
Singapore Dollar, Brazilian Real, and British Pound affecting the Company's
results of operations; the economic slowdown of foreign nations other than
those using may also adversely affect the Company's results of operations;
issues that have not been anticipated in the transition to the new European
currency that may cause prolonged disruption of the Company's business; and
increased competition due to industry consolidation or new entrants into the
Company's existing markets.
All forward-looking statements included herein are based upon information
presently available, and the Company assumes no obligation to update any
forward-looking statements.
Euro Conversion.
On January 1, 1999, several member countries of the European Union established
fixed conversion rates between their existing sovereign currencies and adopted
the Euro as their new common legal currency. As of that date, the Euro traded
on currency exchanges and the legacy currencies remain legal tender in the
participating countries for a transition period between January 1, 1999 and
January 1, 2002. The countries that adopted the Euro on January 1, 1999 are
Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, The
Netherlands, Portugal, and Spain. During the transition period, non-cash
payments can be made in the Euro, and parties can elect to pay for goods and
services and transact business using either the Euro or legacy currency.
Between January 1, 1999 and January 1, 2002 the participating countries will
introduce Euro notes and coins and withdraw all legacy currencies so that they
will no longer be available. The Euro conversion may affect cross-border
competition by creating cross-border transparency. The Company is assessing its
pricing/marketing strategy in order to insure that it remains competitive in a
broader European market. The Company is also assessing its information
technology systems to allow for transactions to take place in both legacy
currencies and the Euro and the eventual elimination of the legacy currencies,
and is reviewing whether certain existing contracts will need to be modified.
The Company's currency risk and risk management for operations in participating
countries may be reduced as the legacy currencies are converted to the Euro.
Item 7a - Quantitative and Qualitative Disclosures about Market Risk
(amounts in thousands)
Market Risk Sensitive Instruments. The market risk inherent in the Company's
market risk sensitive instruments and positions is the potential loss arising
from adverse changes in foreign currency exchange rates and interest rates.
Interest Rate Risk. The Company's bank loans expose earnings to changes in
short-term interest rates since interest rates on the underlying obligations
are either variable or fixed for such a short period of time as to effectively
become variable. The fair values of the Company's bank loans are not
significantly affected by changes in market interest rates. The change in fair
value of the Company's long-term debt resulting from a hypothetical 10%
decrease in interest rates is not material.
Foreign Exchange Risk. The Company enters into forward foreign exchange
contracts principally to hedge the currency fluctuations in transactions
denominated in foreign currencies, namely the Euro, thereby mitigating the
Company's risk that would otherwise result from changes in exchange rates.
Principal transactions hedged are intercompany sales and payments. Gains and
losses on forward foreign exchange contracts and the offsetting losses and
gains on hedged transactions are reflected in the Company's statement of
operations. A large percentage of the Company's foreign sales are transacted in
foreign local currencies. As a result, the Company's international operating
results are subject to foreign exchange rate fluctuations. A hypothetical five
percent strengthening or weakening of the U.S. dollar against the Euro could
have had an impact of $28 on the net earnings of the Company. Actual results
may differ.
The Company is subject to risk from fluctuations in the value of the Euro
relative to the U.S. dollar for its European subsidiary, which uses the Euro as
their functional currency and translated into U.S. dollars in consolidation.
Such changes result in cumulative translation adjustments which are included in
other comprehensive income (loss). At December 31, 2000, the Company had
translation exposure. The potential effect on other comprehensive income (loss)
resulting from a hypothetical 10% change in the quoted Euro rate amounts to
$504. Actual results may differ.
In addition, the Company holds debt denominated in Euros and recognizes foreign
currency translation adjustments in net income. The potential loss resulting
from a hypothetical 10% adverse change in the quoted Euro rate is approximately
$356. Actual results may differ.
Item 8. Financial Statements and Supplementary Data
Index Pages
Report of Ernst & Young LLP, Independent Auditors F-1
Consolidated Balance Sheets at December 31, 2000 and 1999 F-2
Consolidated Statements of Operations for each of the three years
in the period ended December 31, 2000 F-3
Consolidated Statements of Shareholders' Equity for
each of the three years in the period ended December 31, 2000 F-4
Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 2000 F-5
Notes to Consolidated Financial Statements F-6
Supplementary Data (Unaudited) F-18
Financial statement schedules:
Schedule II - Valuation and Qualifying Accounts is filed herewith. All other
schedules are omitted because they are not applicable, not required, or
because the required information is included in the consolidated financial
statements or notes thereto.
Report of Independent Auditors
The Board of Directors and Shareholders
Metrologic Instruments, Inc.
We have audited the accompanying consolidated balance sheets of Metrologic
Instruments, Inc. as of December 31, 2000 and 1999, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 2000. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Metrologic
Instruments, Inc. at December 31, 2000 and 1999, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/Ernst & Young, LLP
Philadelphia, Pennsylvania
February 21, 2001
F-1
Metrologic Instruments, Inc.
Consolidated Balance Sheets
(amounts in thousands except share data)
December 31,
Assets 2000 1999
-------- --------
Current assets:
Cash and cash equivalents $ 2,332 $ 6,970
Accounts receivable, net of allowance of $655 and
$350 in 2000 and 1999, respectively 26,593 21,474
Inventory 26,898 11,231
Deferred income taxes 1,356 872
Other current assets 4,025 1,239
-------- --------
Total current assets 61,204 41,786
Property, plant and equipment, net 10,459 8,873
Patents and trademarks, net of amortization
of $970 and $764 in 2000 and 1999, respectively 3,013 2,469
Holographic technology, net of amortization of $482
and $366 in 2000 and 1999, respectively 600 716
Advance license fee, net of amortization of $471
and $353 in 2000 and 1999, respectively 1,529 1,647
Goodwill, net of amortization 4,317 494
Other assets 701 688
-------- --------
Total assets $ 81,823 $ 56,673
======== ========
Liabilities and shareholders' equity
Current liabilities:
Current portion of lines of credit $ 174 $ 3,050
Current portion of notes payable 2,531 1,282
Accounts payable 5,188 3,741
Accrued expenses 11,739 10,054
-------- --------
Total current liabilities 19,632 18,127
Lines of credit, net of current portion 17,689 -
Notes payable, net of current portion 7,645 3,414
Deferred income taxes 565 588
Other liabilities 529 -
Shareholders' equity:
Preferred stock, $0.01 par value: 500,000 shares
authorized; none issued - -
Common stock, $0.01 par value: 10,000,000 shares
authorized; 5,451,092 and 5,416,792 shares
issued and outstanding in 2000 and 1999,
respectively 54 54
Additional paid-in capital 17,562 17,083
Retained earnings 20,703 17,966
Accumulated other comprehensive loss (2,556) (559)
-------- --------
Total shareholders' equity 35,763 34,544
-------- --------
Total liabilities and shareholders' equity $ 81,823 $ 56,673
======== ========
See accompanying notes.
F-2
Metrologic Instruments, Inc.
Consolidated Statements of Operations
(amounts in thousands except share and per share data)
Year ended December 31,
-------------------------------------
2000 1999 1998
--------- --------- ---------
Sales $ 91,884 $ 80,103 $ 65,641
Cost of sales 55,394 46,710 39,698
--------- --------- ---------
Gross profit 36,490 33,393 25,943
Selling, general and administrative
expenses 26,314 21,331 15,537
Research and development expenses 4,975 4,327 4,157
Severance costs 160 - -
--------- --------- ---------
Operating income 5,041 7,735 6,249
Other income (expenses)
Interest income 257 402 521
Interest expense (1,482) (262) (177)
Foreign currency transaction
gain (loss) 530 (342) 81
Other, net (183) - 31
--------- --------- ---------
Total other (expenses) income (878) (202) 456
--------- --------- ---------
Income before provision for income taxes 4,163 7,533 6,705
Provision for income taxes 1,426 2,636 2,212
--------- --------- ---------
Net income $ 2,737 $ 4,897 $ 4,493
========= ========= =========
Basic earnings per share
Weighted average shares
outstanding 5,438,553 5,412,564 5,391,797
========= ========= =========
Basic earnings per share $ 0.50 $ 0.90 $ 0.83
========= ========= =========
Diluted earnings per share
Weighted average shares outstanding 5,438,553 5,412,564 5,391,797
Net effect of dilutive securities 119,439 47,630 120,961
--------- --------- ---------
Total shares outstanding used in
computing diluted earnings per
share 5,557,992 5,460,194 5,512,758
========= ========= =========
Diluted earnings per share $ 0.49 $ 0.90 $ 0.82
========= ========= =========
See accompanying notes.
F-3
Metrologic Instruments, Inc.
Consolidated Statements of Shareholders' Equity
(amounts in thousands)
Accumulated
Other
Additional Comprehensive
Common Paid-in Deferred Retained Income
Stock Capital Compensation Earnings (Loss) Total
----------------------------------------------------------
Balances,
December 31, 1997 $ 54 $ 16,389 $(2) $ 8,576 $ (116) $ 24,901
Comprehensive
income:
Net income - - - 4,493 - 4,493
Other
comprehensive
income -
foreign currency
translation
adjustment - - - - 61 61
Total comprehensive
income - - - - - 4,554
Exercise of stock
options - 390 - - - 390
Stock issued through
employee stock
purchase plan - 110 - - - 110
Compensation expense
related to stock
awards - - 2 - - 2
Tax benefit of stock
options - 44 - - - 44
----------------------------------------------------------
Balances,
December 31, 1998 $ 54 $ 16,933 $ - $13,069 $ (55) $ 30,001
Comprehensive
income:
Net income - - - 4,897 - 4,897
Other
comprehensive
loss -
foreign currency
translation
adjustment - - - - (504) (504)
Total comprehensive
income - - - - - 4,393
Exercise of stock
options - 39 - - - 39
Stock issued through
employee stock
purchase plan - 111 - - - 111
----------------------------------------------------------
Balances,
December 31, 1999 $ 54 $ 17,083 $ - $17,966 $ (559) $ 34,544
Comprehensive
income:
Net income - - - 2,737 - 2,737
Other
comprehensive
loss -
foreign currency
translation
adjustment - (45) - - (1,997) (2,042)
Total comprehensive
income
Exercise of stock
options - 324 - - - 324
Stock issued through
employee stock
purchase plan - 200 - - - 200
----------------------------------------------------------
Balances,
December 31, 2000 $ 54 $ 17,562 $ 0 $20,703 $(2,556) $ 35,763
See accompanying notes
F-4
Metrologic Instruments, Inc.
Consolidated Statements of Cash Flows
(amounts in thousands)
Year ended December 31,
--------------------------------
Operating activities 2000 1999 1998
-------- -------- --------
Net income $ 2,737 $ 4,897 $ 4,493
Adjustments to reconcile net income to net
cash (used in) provided by operating
activities:
Depreciation 1,957 1,309 1,044
Amortization 594 431 334
Compensation expense related to stock
awards and employee stock
purchase plan - - 2
Deferred income taxes (507) 343 958
Loss/(gain) on disposal of property 112 - (122)
Changes in operating assets and liabilities:
Accounts receivable (4,187) (7,815) (4,876)
Inventory (11,628) (4,494) (2,167)
Other current assets (2,816) (120) (443)
Other assets 217 (157) 70
Accounts payable (3,457) (414) 1,296
Accrued expenses 615 3,029 887
Accrued legal settlement - (688) (942)
Other liabilities 43 - -
-------- -------- --------
Net cash (used in) provided by
operating activities (16,320) (3,679) 534
Investing activities
Purchase of property, plant and equipment (3,479) (3,886) (3,104)
Patents and trademarks (750) (884) (584)
Cash paid for purchase of business, net of
cash acquired (3,677) - (194)
Other Intangibles (284) - (559)
Proceeds from sale of property - - 65
-------- -------- --------
Net cash used in investing activities (8,190) (4,770) (4,376)
Financing activities
Proceeds from exercise of stock options and
employee stock purchase plan 479 150 411
Principal payments on notes payable (1,287) (860) (418)
Proceeds from issuance of notes payable 7,002 2,458 1,960
Net proceeds from line of credit 14,811 3,050 -
Capital lease payments (106) (115) (142)
-------- -------- --------
Net cash provided by financing
activities 20,899 4,683 1,811
Effect of exchange rates on cash (1,027) 52 (381)
-------- -------- --------
Net decrease in cash and cash
equivalents (4,638) (3,714) (2,412)
Cash and cash equivalents at beginning
of year 6,970 10,684 13,096
-------- -------- --------
Cash and cash equivalents at end of year $ 2,332 $ 6,970 $ 10,684
======== ======== ========
Supplemental Disclosure
Cash paid for interest $ 1,448 $ 273 $ 174
======== ======== ========
Cash paid for income taxes $ 1,243 $ 1,875 $ 1,260
======== ======== ========
Tax benefit from stock options $ 120 $ - $ 44
======== ======== ========
See accompanying notes
F-5
Metrologic Instruments, Inc.
Notes to Consolidated Financial Statements
December 31, 2000
(Dollars in Thousands)
1. Business
Metrologic Instruments, Inc. designs, manufactures and markets bar
code scanning equipment incorporating laser and holographic technology. The
Company's principal products are hand-held scanners, fixed projection scanners,
in-counter scanners and industrial scanners. These scanners rapidly,
accurately, and efficiently read and decode all widely used bar codes and
provide an efficient means for data capture and automated data entry into
computerized systems. The Company's customers are located throughout the world.
2. Accounting Policies
Basis of Consolidation
The accompanying consolidated financial statements include the
accounts of Metrologic Instruments, Inc., and its domestic and foreign
subsidiaries. All significant intercompany transactions and balances have been
eliminated in consolidation.
Use of Estimates
The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual results could differ
from those estimates.
Revenue Recognition
Product sales revenue and any offsetting sales incentives are
recognized upon the transfer of title to goods, which is generally upon
shipment of products. Amounts charged to customers for shipping and handling
are included in sales. Shipping and handling amounts incurred by the Company
are included in cost of sales.
Cash and Cash Equivalents
The Company considers all highly-liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Fair Values of Financial Instruments
The carrying amounts of cash equivalents, accounts receivable and
accounts payable approximate fair value because of their short-term nature. The
carrying amount of long-term debt approximates its fair value because the
interest rate is reflective of rates that the Company could currently obtain on
debt with similar terms and conditions.
Inventory
Inventory is stated at the lower of cost, determined on a first-in,
first-out basis, or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is
determined on the straight-line method for building and improvements over
estimated useful lives of 31 to 39 years and on an accelerated method for
machinery and equipment over estimated useful lives of five to seven years.
Patents and Trademarks
Patents and trademarks reflect application and testing costs for
products with respect to which the Company has applied for or received patent
and trademark protection. Costs expended for successful patent and trademark
applications are being amortized on a straight-line basis over their useful
lives, which generally are 17 years.
F-6
Holographic Technology
Holographic Technology resulted from the acquisition of Holoscan, Inc.
on March 1, 1996 and is being amortized over ten years. The Company was
required to pay the former shareholders of Holoscan, Inc. $194 in 1998, which
was based on sales of certain holographic laser scanners. Such amounts were
considered additions to holographic technology and are being amortized over
the remainder of the ten-year period.
Software Development Costs
Costs incurred in the research and development of new software
embedded in products and enhancements to existing software products are
expensed as incurred until technological feasibility has been established.
After technological feasibility is established, any additional development
costs are capitalized in accordance with Statement of Financial Accounting
Standards No. 86, Accounting for the Costs of Computer Software to be Sold,
Leased, or Otherwise Marketed ("SFAS 86"). Capitalization ceases when the
product is available for general release to customers.
Internal Use Software
Effective for fiscal years beginning after December 15, 1998, the
American Institute of Certified Public Accountants ("AICPA") issued Statement
of Position 98-1 ("SOP 98-1"), Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." SOP 98-1 requires all costs related
to the development or purchase of internal use software, other than those
incurred during the application development stage, to be expensed as incurred.
Costs incurred during the application development stage are required to be
capitalized and amortized over the estimated useful life of the software. The
Company adopted SOP 98-1 on January 1, 1999 and has capitalized $1,747 of
software obtained for internal use through December 31, 2000. Capitalized
software costs are amortized on a straight-line basis over seven years.
Amortization related to the captialized software was $308 for the year ended
December 31, 2000.
Goodwill
Goodwill represents the excess of the cost of businesses acquired over
the fair value of the related net assets at the date of acquisition. Goodwill
is amortized using the straight-line method over their expected useful lives
of 10 to 20 years.
Long-Lived Assets
The Company evaluates impairment of its intangible and other long-
lived assets, including goodwill, in accordance with 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"). In making
such determination, management compares the estimated future cash flows, on
an undiscounted basis, of the underlying operations or assets with their
carrying value to determine if any impairment exists. If an impairment exists,
any adjustment is determined by comparing the carrying amount to the fair
value of the impaired asset. The Company considers all impaired assets "to be
held and used" until such time as management commits to a plan to dispose of
the impaired asset. At that time, the impaired asset is classified as "to be
disposed of" and is carried at its fair value less its cost of disposal.
Advance License Fee
The Company capitalized an advance license fee of $2,000 in December
1996 (Note 10). The advance license fee is being amortized on a straight-line
basis over the seventeen-year life of the cross-licensing agreement.
Foreign Currency Translation
The financial statements of the Company's foreign subsidiaries have
been translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation." All
balance sheet accounts have been translated using the exchange rates in effect
at the balance sheet date. Income statement amounts have been translated using
the average exchange rate for the year. The gains and losses resulting from the
changes in exchange rates from year to year have been reported separately in
other comprehensive loss in the consolidated financial statements.
F-7
Earnings Per Share
Basic and diluted earnings per share are calculated in accordance with
SFAS 128, "Earnings Per Share." Basic earnings per share is calculated by
dividing net income by the weighted average shares outstanding for the year and
diluted earnings per share is calculated by dividing net income by the weighted
average shares outstanding for the year plus the dilutive effect of stock
options.
Concentrations of Credit Risk
The Company has operations, subsidiaries and affiliates in the United
States, Europe, Asia and South America. The Company performs ongoing credit
evaluations of its customers' financial condition, and except where risk
warrants, requires no collateral. The Company may require, however, letters of
credit or prepayment terms for those customers in lesser developed countries.
Short-term cash investments are placed with high credit quality
financial institutions or in short-term high quality debt securities. The
Company limits the amount of credit exposure in any one institution or single
investment.
Accounting for Stock Options
The Company follows Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for stock options. Under APB 25, if the exercise
price of the Company's stock options equals or exceeds the market price of the
underlying common stock on the date of grant, no compensation expense is
recognized. Note 13 to these consolidated financial statements includes the
required disclosures and pro forma information provided for under SFAS 123,
"Accounting for Stock-Based Compensation."
Impact of Recently Issued Accounting Standards
In June 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires entities to record all derivative instruments
on the balance sheet at fair value. Changes in the fair value of derivatives
are recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designed as part of a hedge transaction
and the type of hedge transaction. The ineffective portion of all hedges will
be recognized in earnings. The Pronouncement must be adopted by the Company as
of January 1, 2001. Management does not expect SFAS No. 133 to have a material
impact on the consolidated results of operations.
Reclassification
Certain prior year balances have been reclassified to conform with
current year presentation.
3. Inventory
Inventory consists of the following:
December 31,
2000 1999
------- -------
Raw materials $ 9,694 $ 4,273
Work-in-process 6,380 4,020
Finished goods 10,824 2,938
------- -------
$26,898 $11,231
======= =======
F-8
4. Property, Plant and Equipment
Property, plant and equipment consists of the following:
December 31,
2000 1999
------- -------
Buildings and improvements $ 3,079 $ 3,011
Machinery and equipment 14,126 11,376
Capitalized internal use software 1,747 1,535
Capitalized Software Development
Costs 496 -
------- -------
19,448 15,922
Less accumulated depreciation 8,989 7,049
------- -------
10,459 8,873
======= =======
Machinery and equipment included $487 under capital leases as of December 31,
2000 and 1999. Accumulated depreciation on these assets was $292 and $207 as of
December 31, 2000 and 1999, respectively. Unamortized capitalized software
development costs were $487 and $0 for the years ended December 31, 2000 and
1999, respectively. Amortization of these costs, included in cost of goods
sold, was $9 and $0 for the years ending December 31, 2000 and 1999,
respectively.
5. Accrued Expenses
Accrued expenses consist of the following:
December 31,
2000 1999
-------- --------
Accrued royalties $ 1,419 $ 1,253
Accrued compensation 3,321 3,035
Income taxes 2,060 1,454
Product warranty 1,216 924
Accrued marketing and
sales promotions 940 1,452
Other 2,783 1,936
-------- --------
$ 11,739 $ 10,054
======== ========
6. Debt
Notes payable consist of the following:
December 31,
2000 1999
------- --------
Term note (a) $ 247 $ 513
Fixed asset term notes payable (b) 1,898 2,554
Fixed asset line of credit (c) 2,400 1,089
Notes payable-shareholders (d) 112 223
Capital lease obligations (e) 205 311
Fixed asset line of credit (f) 682 -
Acquisition loan note (g) 4,615 -
Other 17 6
------- -------
10,176 4,696
Less: current maturities 2,531 1,282
------- -------
$ 7,645 $ 3,414
======= =======
F-9
The Company's primary debt facility consists of an Amended and Restated Loan &
Security Agreement dated November 1995 with its primary bank, as amended
(collectively, the "Bank Agreement").
(a) In December 1996, under the Bank Agreement, the Company executed a
term note for $1,300. In 1997, this term note was converted from a
U.S. dollar denominated loan to a Euro based loan (Note 7). The term
note, due January 2002, is payable in monthly installments of
approximately $22 and bears interest at the variable Euro-Rate (4.96%
at December 31, 2000), as defined in the Bank Agreement, plus 1.75%.
(b) During 1998, in connection with the Bank Agreement, the Company
entered into a U.S. dollar denominated line of credit and a Euro
denominated line of credit (Note 7) for the purpose of purchasing
fixed assets. Each line of credit has a maximum borrowing limit of
$1,500. Interest only is payable monthly at the variable
Euro-Rate, as defined, plus 1.5%. As of December 31, 1998, the Company
converted the Euro denominated line of credit to a term note
payable in 54 equal monthly installments. On December 31, 1999, the
U.S. dollar denominated line of credit was converted into a term
note payable in 54 equal monthly installments.
(c) In August 1999, in connection with the Bank Agreement, the Company
entered into a U.S. dollar denominated line of credit for the purpose
of purchasing fixed assets. This line of credit has a maximum
borrowing limit of $2,400. Interest only is payable monthly at the
Libor rate (6.56% at December 31, 2000), as defined, plus 1.5%. On
January 1, 2001, the line of credit will be converted into a term
note, payable in 60 monthly installments.
(d) Note payable - shareholders, due September 2001, is payable in annual
installments of $112 and bears interest at the prime rate (9.5% as of
December 31, 2000), as defined, plus 0.5%.
(e) The Company has entered into capitalized lease agreements for
equipment which are payable through 2002 at an interest rate of 9.2%.
(f) In July 2000, in connection with the Bank Agreement, the Company
entered into a U.S. dollar denominated line of credit for the purpose
of purchasing fixed assets. This line of credit has a maximum
borrowing limit of $2,500. Interest only is payable at the Libor rate
(6.56% at December 31, 2000), as defined, plus 1.5%. The line of
credit will be converted into a term note on July 31, 2000 payable in
equal consecutive monthly installments, not to exceed 5 years.
(g) In July 2000, in connection with the Bank Agreement, the Company
entered into a U.S. dollar denominated Acquisition Loan Note for the
purpose of the acquisition of other companies. This acquisition loan
note has a maximum borrowing limit of $5,000. Interest is payable
monthly at the Libor rate (6.56% at December 31, 2000), as defined,
plus 1.5%. Principal is payable in 60 monthly installments through
August 2005.
The minimum annual principal payments of notes payable and capital lease
obligations at December 31, 2000 are:
2001 $ 2,531
2002 2,413
2003 2,107
2004 1,810
2005 1,235
Thereafter 80
------
$10,176
Credit Facility
The Bank Agreement includes an available unsecured line of credit of $20,000,
which bears interest at the bank's Libor rate (6.56% at December 31, 2000) plus
1.5%. As a result of the restructuring of the bank agreement subsequent to
year-end, $17,689 was reclassed to long-term liability related to the line of
credit (See Note 16). As of December 31, 2000, $2,137 was available under the
line of credit.
The Company also has approximately 1,100 Euros unsecured revolving lines of
credit with European banks in the name of its European subsidiary, Metrologic
Instruments GmbH. As of December 31, 2000 and 1999, no amounts were outstanding
under these revolving credit facilities.
F-10
In connection with the acquisition of Adaptive Optics Associates, Inc. ("AOA")
on January 8, 2001 (Note 16), the Company entered into a $45,000 credit
facility ("Credit Facility") with its primary bank, as agent ("primary bank")
for other bank parties. Under the terms of the Credit Facility, the Company
secured a $20,000 term loan with maturities of $2,000 in 2001, $3,000 in 2002
and 2003, respectively, and $4,000 in 2004, 2005 and 2006, respectively. Also
under the Credit Facility, the Company secured a $25,000 revolving credit line,
which expires in January 2006. Interest rates are based on Libor or
Prime-Rate Options based on the discretion of the Company, plus spreads ranging
from 1.00% to 3.75% as defined in the Credit Facility. Substantially all of
the Company's assets have been pledged under a Security Agreement. Proceeds
from the Credit Facility were applied towards the financing of the acquisition
of AOA, paying down the existing term loans and line of credit, and providing
working capital for the Company and its subsidiaries.
Also in connection with the acquisition of AOA, the Company entered into
Subordinated Promissory Notes ("Subordinated Debt") aggregating $11,000 with
United Technologies Optical Systems, Inc. ("UTOS") with maturities of $1,250
in 2002 and $3,750 in 2003. Interest rates are fixed at 10%.
7. Financial Instruments
The Company selectively enters into derivative financial instruments to offset
its exposure to foreign currency risks. These financial instruments include (i)
foreign currency forward exchange contracts with its primary bank for periods
not exceeding six months, which partially hedge sales to the Company's European
subsidiary, and (ii) Euro based loans to act as a partial hedge against
outstanding intercompany receivables and the net assets of its European
subsidiary, which are denominated in Euros. Gains and losses on the Company's
forward exchange contracts offset losses and gains, respectively, on the
assets, liabilities, and intercompany transactions being hedged. Forward
exchange contracts are adjusted to market value and the resulting gains and
losses are reflected in income. At December 31, 2000 and 1999, the Company had
no foreign currency forward exchange contracts outstanding.
8. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes and are disclosed in the
consolidated balance sheets. Significant components of the Company's deferred
tax assets and liabilities are as follows:
December 31,
2000 1999
----- -----
Deferred tax assets:
Reserves on current assets $ 467 $ 215
Inventory capitalization 329 155
Warranty reserve 270 172
Other accrued expenses 290 330
------ ------
$1,356 $ 872
====== ======
Deferred tax liability:
Advance license fee $ 565 $ 568
Deferred gain on involuntary
conversion - 20
------ ------
$ 565 $ 588
====== ======
F-11
Significant components of the provision for income taxes are as follows:
Year ended December 31,
2000 1999 1998
---- ---- ----
Current:
Federal $1,608 $ 2,160 $1,209
Foreign 194 (17) (103)
State 131 150 148
------ ------ ------
Total current 1,933 2,293 1,254
Deferred:
Federal (445) 244 742
State (62) 99 216
------ ------ ------
Total deferred (507) 343 958
------ ------ ------
Provision for income taxes $1,426 $2,636 $2,212
====== ====== ======
The effective income tax rate of 34.25%, 35.0% and 33.0% for the years ended
December 31, 2000, 1999, and 1998, respectively, differs from the federal
statutory rate of 34% because of the difference in treatment of certain expense
items for financial and income tax reporting purposes. A reconciliation between
the statutory provision and the provision for financial reporting purposes is
as follows:
December 31,
2000 1999 1998
---- ---- ----
Statutory federal tax provision $1,415 $2,561 $2,280
State income taxes, net of
federal income tax benefit 45 165 240
Foreign income taxes (86) (349) (98)
Other 52 259 (210)
------ ------ ------
Provision for income taxes $1,426 $2,636 $2,212
====== ====== ======
9. Related Party Transactions
The Company's principal shareholder, Chairman, and CEO and his spouse, the
Company's Vice President, Administration, Secretary, Treasurer and a director,
own and lease to the Company certain real estate utilized in the operation of
the Company's business. Lease payments made to these related parties were
approximately $832, $796, and $762 for the years ended December 31, 2000, 1999
and 1998, respectively. The lease for the real estate was renewed in March 1999
and expires in March 2004. Future minimum lease payments required under the
lease are approximately $869 in 2001, $908 in 2002, $949 in 2003, and $240
thereafter, excluding taxes and insurance.
The notes payable - shareholders referred to in Note 6 include a loan payable
to the principal shareholder, Chairman and CEO. In 2000, the sixth installment
of the seven-year notes was paid to the principal shareholder in the amount of
$124, which included $20 of interest.
The Company incurred expenses of $49, $42, and $56 for tax services rendered by
a firm during the years ended December 31, 2000, 1999 and 1998, respectively.
A partner in this firm is a shareholder and director of the Company.
10. Commitments & Contingencies
Operating Leases
The Company has entered into operating lease agreements with unrelated
companies to lease manufacturing and office equipment and office space and
vehicles for its foreign subsidiaries.
Future minimum lease payments required under the lease agreements as of
December 31, 2000 are $717 in 2001, $527 in 2002, $250 in 2003, $74 in 2004,
and $60 in 2005. Rental expenses paid to third parties for 2000, 1999 and 1998
was approximately $727, $403 and $297, respectively.
F-12
Cross-Licensing Agreement and Settlement of Patent Litigation
In December 1996, the Company and Symbol Technologies, Inc. ("Symbol") executed
an extensive cross-license of patents (the "Symbol Agreement") for which the
Company and Symbol pay royalties to each other under certain circumstances
effective January 1, 1996. In connection with the Symbol Agreement, the Company
paid Symbol an advance license fee of $1 million in December 1996 and another
$1 million in quarterly installments of $125 over the subsequent two years
ended December 1998. The Company has amended the Symbol Agreement providing for
additional patent licenses whereby the Company and Symbol make recurring
periodic royalty payments. Royalty expense under the Symbol Agreement amounted
to $3,761, $3,343, and $2,826 in 2000, 1999, and 1998, respectively.
Legal Matters
The Company files domestic and foreign patent applications to protect its
technological position and new product development. From time to time, the
Company receives legal challenges to the validity of its patents or allegations
that its products infringe the patents of others.
A. Symbol Technologies, Inc. et. al v. Lemelson Medical, Educational &
Research Foundation, Limited Partnerships
On July 21, 1999 the Company and six other leading members of the Automatic
Identification and Data Capture Industry (the "Auto ID companies") jointly
initiated a litigation against the Lemelson Medical, Educational, & Research
Foundation, Limited Partnership (the "Lemelson Partnership"). The suit was
commenced in the U.S. District Court, District of Nevada in Reno, Nevada. In
the litigation, the Auto ID companies seek, among other remedies, a declaration
that certain patents, which have been asserted by the Lemelson Partnership
against end users of bar code equipment, are invalid, unenforceable and not
infringed. The other six Auto ID companies who are plaintiffs in the lawsuit
are Accu-Sort Systems, Inc., Intermec Technologies Corporation, a wholly-owned
subsidiary of UNOVA, Inc., PSC Inc., Symbol Technologies, Inc., Teklogix
Corporation, a wholly-owned U.S. subsidiary of Teklogix International, Inc.,
and Zebra Technologies Corporation. Symbol Technologies, Inc. has agreed to
bear approximately half of the legal and related expenses associated with the
litigation, with the remaining portion being borne by the Company and the other
Auto ID companies.
Although no claim had been asserted by the Lemelson Partnership directly
against the Company or, to our knowledge, any other Auto ID company, the
Lemelson Partnership has contacted many of the Auto ID companies' customers
demanding a one-time license fee for certain so-called "bar code" patents
transferred to the Lemelson Partnership by the late Jerome H. Lemelson. The
Company and the other Auto ID companies have received many requests from their
customers asking that they undertake the defense of these claims using their
knowledge of the technology at issue. Certain of these customers have requested
indemnification against the Lemelson Partnership's claims from the Company and
the other Auto ID companies, individually and/or collectively with other
equipment suppliers. The Company, and to the Company's knowledge, the other
Auto ID companies, believe that generally they have no obligation to indemnify
their customers against these claims and that the patents being asserted by the
Lemelson Partnership against Auto ID companies customers with respect to bar
code equipment are invalid, unenforceable and not infringed. However, the
Company and the other Auto ID companies believe that the Lemelson claims do
concern the Auto ID industry at large and that it is appropriate for them to
act jointly to protect their customers against what they believe to be baseless
claims being asserted by the Lemelson Partnership.
In response to the action commenced by the Company and the other plaintiffs,
the Lemelson Partnership filed a motion to dismiss the lawsuit, or
alternatively, to stay the proceedings pending the outcome of other litigation
or transfer the case in its entirety to the U.S. District Court for Arizona
where several infringement suits filed by the Lemelson Partnership are pending
against other companies. The Lemelson Partnership has stated that the primary
grounds for its motion to dismiss are the lack of a legally justifiable case or
controversy between the parties because (1) the method claims asserted by the
Lemelson Partnership apply only to the "use" of bar code equipment by the
end-users and not the bar code equipment itself; and (2) the Lemelson
Partnership has never asserted claims of infringement against the Auto ID
companies.
F-13
On March 15, 2000, Judge Pro of the U.S. District Court for the District of
Nevada issued a ruling denying the Lemelson Foundation's motion (a) to dismiss
the lawsuit for lack of a legally justifiable case or controversy and (b)
transfer the case to the U.S. District Court for the District of Arizona.
However the Court granted the Lemelson Partnership's motion to dismiss our
claim that the patents are invalid due to laches in prosecution of the patents.
The court also ordered the action consolidated with an action against the
Lemelson Partnership brought by Cognex Corp. pending in the same court.
On March 30, 2000, the Lemelson Partnership filed a motion (a) to appoint a
permanent magistrate judge to the case and remove Magistrate Judge Atkins and
(b) to transfer the case from the court in Reno, Nevada, where it is currently
assigned to a court in Las Vegas, Nevada. The Auto ID Companies filed papers
opposing both motions. On April 10, 2000, Judge Pro again ruled against the
Lemelson Partnership on both motions. The case is now in the early stages of
discovery.
On April 12, 2000, the Lemelson Partnership filed its Answer to the Complaint
in the Symbol et al. v. Lemelson Partnership case. In the Answer, the Lemelson
Partnership included a counterclaim against the Company and the other
plaintiffs seeking a dismissal of the case. Alternatively, the Lemelson
Partnership's counterclaim seeks a declaration that the Company and the other
plaintiffs have contributed to, or induced infringement of particular method
claims of the patents-in-suit by the plaintiffs' customers. The Company
believes there is no merit to the Lemelson Partnership's counterclaim.
On May 10, 2000, the Lemelson Partnership filed a second motion with the Court
to stay the Auto ID action pending the resolution of United States Metals
Refining Co. ("US Metals") v. Lemelson Medical, Education & Research
Foundation, LP et al., an action in Nevada state court where in the plaintiff
is challenging the Lemelson Partnership's ownership of the patents at issue in
the Auto ID action. The Auto ID companies opposed the motion. Although the
Court has not yet ruled on this motion, the Nevada state court dismissed the
complaint of US Metals on July 5, 2000.
On May 15, 2000, the Auto ID companies filed a motion seeking permission to
file an interlocutory appeal of the Court's decision to strike the fourth count
of the complaint (which alleged that the Lemelson Partnership's delays in
obtaining its patents rendered them unenforceable for laches). The motion was
granted by the Court on July 14, 2000. On September 1, 2000 the United States
Court of Appeals for the Federal Circuit agreed to hear the appeal.
On July 24, 2000, the Auto ID companies filed a motion for partial summary
judgment arguing that almost all of the claims of the Lemelson Partnership's
patents are invalid for lack of written description.
B. Metrologic v. PSC Inc.
On October 13, 1999, the Company filed suit for patent infringement against PSC
Inc. (PSC) in United States District Court for the District of New Jersey. The
complaint asserts that at least seven of the Company's patents are infringed by
a variety of point-of-sale bar code scanner products manufactured and sold by
PSC. The patents cited in the complaint cover a broad range of bar code
scanning technologies important to scanning in a retail environment including
the configuration and structure of various optical components, scanner
functionalities and shared decoding architecture. The complaint seeks monetary
damages as well as a permanent injunction to prevent future sales of the
infringing products.
On December 22, 1999, PSC filed an answer to the complaint citing a variety of
affirmative defenses to the allegations of infringement asserted by the Company
in its complaint. PSC additionally asserted a counterclaim under the Lanham Act
claiming that the Company made false and misleading statements in its October
13, 1999 press release regarding the patent infringement suit against PSC. The
Company does not believe that this counterclaim has any merit and has made a
claim with its insurance carrier to pay for the defense of this claim.
The court ordered the case to mediation, and discovery was stayed pending the
outcome of the mediation. The mediation was terminated by the parties with no
result having been reached and the stay on discovery has been lifted by the
court. The case is now in the early stages of discovery.
Management is of the opinion that there are no legal claims against the Company
which would have a material adverse effect on the Company's consolidated
financial position or results of operations.
F-14
11. Retirement Plans
The Company maintains a noncontributory defined contribution cash or deferred
profit sharing plan covering substantially all employees. Contributions are
determined by the Chief Executive Officer and are equal to a percentage of each
participant's compensation. The Company's contributions were $100 in 2000 and
$300 in 1999.
Additionally, the Company maintains an employee funded Deferred Compensation
Retirement 401(k) Plan, contributions to which are partially matched by the
Company. Contribution expenses were $92, $75, and $62 in 2000, 1999 and 1998,
respectively.
12. Financial Reporting for Business Segments and Geographical Information
The Company generates its revenue from the sale of laser bar code scanners
primarily to distributors, value-added resellers, original equipment
manufacturers and directly to end users, in locations throughout the world. No
individual customer accounted for 10% or more of revenues in 2000, 1999 or
1998.
The Company manages its business on a geographical basis and has principal
operations in the United States and Europe. Sales were attributed to geographic
areas in the following table based on the location of the Company's customers.
United States Operations European
North Other Operations Total
America Europe Export Total Europe Consolidated
Sales 1998 $26,058 $1,351 $10,734 $38,143 $27,498 $65,641
1999 $33,698 $2,578 $12,499 $48,775 $31,328 $80,103
2000 $36,716 $1,479 $18,732 $56,927 $34,957 $91,884
Interest income
1998 $ 521 - - $ 521 - $ 521
1999 $ 402 - - $ 402 - $ 402
2000 $ 238 - - $ 238 19 $ 257
Interest expense
1998 $ 177 - - $ 177 - $ 177
1999 $ 262 - - $ 262 - $ 262
2000 $ 1,482 - - $ 1,482 1 $ 1,483
Depreciation and
amortization
1998 $ 1,196 - - $ 1,196 $ 182 $ 1,378
1999 $ 1,572 - - $ 1,572 $ 168 $ 1,740
2000 $ 2,098 - - $ 2,098 $ 453 $ 2,551
Income (loss)
before provision
for income taxes
1998 $ 6,872 - - $ 6,872 $ (167) $ 6,705
1999 $ 7,519 - - $ 7,519 $ 14 $ 7,533
2000 $ 3,412 - - $ 3,412 $ 751 $ 4,163
Identifiable
assets 1998 $37,455 - - $37,455 $ 8,841 $46,296
1999 $45,982 - - $45,982 $10,691 $56,673
2000 $62,836 - - $62,836 $18,987 $81,823
F-15
13. Incentive Plan
The Company's Board of Directors has granted incentive and non-qualified stock
options and restricted stock pursuant to the Company's Incentive Plan to
certain eligible employees and board members. The shares issued will either be
authorized and previously unissued common stock or issued common stock
reacquired by the Company. The total number of shares authorized for issuance
under the Incentive Plan is 1,600,000. Shares canceled for any reason without
having been exercised shall again be available for issuance under the Incentive
Plan. An aggregate of 603 shares were available for grant under the
Incentive Plan at December 31, 2000. Options granted under the Incentive Plan
become exercisable over periods ranging from one to seven years. Each option
shall expire four to ten years after becoming exercisable.
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS 123 requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying common stock
on the date of grant, no compensation expense is recognized.
SFAS 123 requires pro forma information regarding net income and earnings per
share as if the Company had accounted for its employee stock options granted
subsequent to December 31, 1994 under the fair value method of SFAS 123. The
fair value of the options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 2000, 1999 and 1998, respectively, risk-free interest rates of
6.2%; dividend yields of 0.0%; volatility factors of the expected market price
of the Company's common stock of 60%. 50% and 40%, respectively, and a
weighted-average expected life of the option of 5 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands except for earnings per share
information):
2000 1999 1998
Net income:
As reported $2,737 $4,897 $4,493
Pro forma 1,327 3,652 2,811
Net income per share:
Basic:
As reported $ 0.50 $ 0.90 $ 0.83
Pro forma 0.24 0.67 0.52
Diluted:
As reported $ 0.49 $ 0.90 $ 0.82
Pro forma 0.24 0.67 0.51
F-16
A summary of the Company's stock option activity, and related information for
the years ended December 31, 1998, 1999, and 2000 follows:
Options Weighted-Average
(in thousands) Exercise Price
-------------- ----------------
Outstanding-December 31, 1997 448 11.84
Granted 350 12.95
Exercised (30) 11.79
Canceled (16) 11.99
-------------- ----------------
Outstanding-December 31, 1998 752 $12.36
Granted 287 10.31
Exercised (3) 11.66
Canceled (100) 11.81
-------------- ----------------
Outstanding-December 31, 1999 936 $11.79
Granted 65 $12.50
Exercised (27) 11.77
Canceled (155) 11.91
============== ================
Exercisable at December 31, 2000 819 $11.83
============== ================
Weighted-average fair value of
options granted during 2000 $9.48
==============
Exercise prices for options outstanding as of December 31, 2000 ranged from
$7.47 to $16.13. The weighted-average remaining contractual life of those
options is seven years.
14. Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan whereby eligible employees have
the opportunity to acquire the Company's common stock quarterly through payroll
deductions, at 90% of the lower of (a) the fair market value of the stock on
the first day of the applicable quarterly offering period or (b) the fair
market value of the stock on the last day of the applicable quarterly offering
period.
15. Acquisitions
On January 26, 2000, the Company paid cash of $1,550 and assumed liabilities
of $893 for a 51% interest in a joint venture for the formation of Metrologic
Eria Iberica ("MEI"). The detail of the results of operations of MEI has been
included in the Company's statement of operations since January 26, 2000.
The Company accounted for this acquisition under the purchase method of
accounting. The purchase price has been allocated to assets and liabilities
based on estimated fair values at the date of acquisition. The total purchase
price including transaction costs was $2,263 and costs in excess of assets
acquired (goodwill) were $1,329. The goodwill is being amortized over a
twenty-year period. Goodwill amortization of $61 is included in the statement
of operations for the year ended December 31, 2000.
On July 18, 2000, the Company paid cash of $2,873 and assumed liabilities of
$2,207 for a 51% interest in a joint venture for the formation of Metrologic
Eria France ("MEF"). The detail of the results of operations of MEF has been
included in the Company's statement of operations since July 18, 2000.
The Company accounted for this acquisition under the purchase method of
accounting. The purchase price has been allocated to assets and liabilities
based on estimated fair values at the date of acquisition. The total purchase
price including transaction costs was $4,894 and costs in excess of assets
acquired (goodwill) were $2,767. The goodwill is being amortized over a
twenty-year period. Goodwill amortization of $56 is included in the statement
of operations for the year ended December 31, 2000.
16. Subsequent Events
On January 8, 2001, the Company acquired all of the common stock of AOA from
UTOS for $8,000 in cash and $11,000 in subordinated debt held by UTOS.
Simultaneous with the acquisition, the Company refinanced its existing debt
and entered into a $45,000 Credit Facility (Note 6).
F-17
Supplementary Data
Quarterly Consolidated Operating Results (Unaudited)
The following tables present unaudited quarterly operating results for the
Company for each quarter of 2000 and 1999. This information has been derived
from unaudited financial statements and includes all adjustments, consisting
only of normal recurring accruals, which the Company considers necessary for a
fair presentation of the results of operations for these periods. Such
quarterly operating results are not necessarily indicative of the Company's
future results of operations.
Quarterly Consolidated Operating
Results (Unaudited)
(In thousands except share and per share data)
Three months ended
----------------------------------------------
March 31, June 30, September 30, December 31,
2000 2000 2000 2000
---------- ---------- ---------- ----------
Sales $ 22,332 $ 23,128 $ 22,453 $ 23,971
Cost of sales 13,215 13,903 13,671 14,605
-------- -------- -------- ---------
Gross profit 9,117 9,225 8,782 9,366
Selling, general and
administrative expenses 5,770 6,080 6,476 7,988
Research and development
expenses 1,332 1,338 1,246 1,059
Severance costs - - 160 -
-------- --------- --------- ----------
Operating income 2,015 1,807 900 319
Other (expenses) income
Interest income 71 74 56 56
Interest expense (139) (226) (481) (636)
Foreign currency transaction
gain (loss) 13 205 (145) 457
Other, net (67) (101) (96) 81
--------- --------- --------- ----------
Total other expense (122) (48) (666) (42)
--------- --------- --------- ----------
Income before provision for
income taxes 1,893 1,759 234 277
Provision for income taxes 681 561 84 100
--------- --------- --------- ---------
Net income $ 1,212 $ 1,198 $ 150 $ 177
========= ========= ========= =========
Basic earnings per share
Weighted average shares
outstanding 5,420,321 5,436,104 5,446,802 5,450,984
========== ========== ========== ==========
Basic earnings per
share $ 0.22 $ 0.22 $ 0.03 $ 0.03
========== ========== ========== ==========
Diluted earnings per share
Weighted average shares
outstanding 5,420,321 5,436,104 5,446,802 5,450,984
Net effect of dilutive
securities 161,389 250,425 65,698 245
---------- ---------- ---------- ----------
Total shares outstanding
used in computing
diluted earnings
per share 5,581,710 5,686,529 5,512,500 5,451,229
========== ========== ========== ==========
Diluted earnings per
share $ 0.22 $ 0.21 $ 0.03 $ 0.03
========== ========== ========== ==========
F-18
Supplementary Data (Con't)
Quarterly Consolidated Operating Results (Unaudited)
(In thousands except share and per share data)
Three months ended
March 31, June 30, September 30, December 31,
1999 1999 1999 1999
---------- ---------- ---------- ----------
Sales $ 18,253 $ 19,466 $ 20,153 $ 22,231
Cost of sales 10,963 11,638 11,538 12,571
-------- -------- -------- ---------
Gross profit 7,290 7,828 8,615 9,660
Selling, general and
administrative expenses 4,588 4,932 5,407 6,404
Research and development
expenses 960 1,023 1,066 1,278
-------- --------- --------- ----------
Operating income 1,742 1,873 2,142 1,978
Other (expenses) income
Interest income 131 83 99 89
Interest expense (57) (49) (64) (92)
Foreign currency transaction
(loss) gain (214) (128) (280) 280
--------- --------- --------- ----------
Total other (expenses)
income (140) (94) (245) 277
--------- --------- --------- ----------
Income before provision for
income taxes 1,602 1,779 1,897 2,255
Provision for income taxes 561 630 664 781
--------- --------- --------- ---------
Net income $ 1,041 $ 1,149 $ 1,233 $ 1,474
========= ========= ========= =========
Basic earnings per share
Weighted average shares
outstanding 5,408,560 5,411,577 5,413,894 5,416,225
========== ========== ========== ==========
Basic earnings per
share $ 0.19 $ 0.21 $ 0.23 $ 0.27
========== ========== ========== ==========
Diluted earnings per share
Weighted average shares
outstanding 5,408,560 5,411,577 5,413,894 5,416,225
Net effect of dilutive
securities 92,668 3,126 710 94,015
---------- ---------- ---------- ----------
Total shares outstanding
used in computing
diluted earnings
per share 5,501,228 5,414,703 5,414,604 5,510,240
========== ========== ========== ==========
Diluted earnings per
share $ 0.19 $ 0.21 $ 0.23 $ 0.27
========== ========== ========== ==========
F-19
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
No change of accountants and/or disagreement on any matter of accounting
principles or financial statement disclosures has occurred within the last two
years.
PART III
The information called for by Item 10, Directors and Executive Officers of the
Registrant (except for the information regarding executive officers called for
by Item 401 of Regulation S-K, which is included in Part I hereof in accordance
with General Instruction G(3)), Item 11, Executive Compensation, Item 12,
Security Ownership of Certain Beneficial Owners and Management, and Item 13,
Certain Relationships and Related Transactions, is incorporated herein by
reference to the Registrant's definitive proxy statement for its Annual Meeting
of Shareholders, presently scheduled to be held on June 21, 2001, which shall
be filed with the Securities and Exchange Commission within 120 days from the
end of the Registrant's fiscal year ended December 31, 2000.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements
The Financial Statements listed below are filed as
part of this Annual Report on Form 10-K:
Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheets at December 31, 2000
and 1999
Consolidated Statements of Operations for each of
the three years in the periods ended
December 31, 2000, 1999 and 1998
Consolidated Statements of Stockholders' Equity
for each of the three years in the periods ended
December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for each of
the three years in the period ended December 31,
2000, 1999 and 1998
Notes to Consolidated Financial Statements
Supplementary Data (Unaudited)
2. Financial statement schedules
Schedule II - Valuation and Qualifying Accounts is
filed herewith. All other schedules are omitted
because they are not applicable, not required, or
because the required information is included in
the consolidated financial statements or notes
thereto.
3. Exhibits required to be filed by Item 601 of
Regulation S-K.
2.1 Option Agreement dated as of March 1, 1995 among
Metrologic Instruments, Inc. and the parties
listed on schedule A thereto (incorporated by
reference to Exhibit 2.3 to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995).
3.1 Amended and Restated Certificate of Incorporation
of Metrologic Instruments, Inc. (incorporated by
reference to Exhibit 3.1 to the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1994).
3.2 Amended and Restated Bylaws of Metrologic
Instruments, Inc. (incorporated by reference to
Exhibit 3.02 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994).
4.1 Specimen Stock Certificate (incorporated by
reference to Exhibit 4.1 to the Registrant's
Registration Statement on Form S-1 (Reg. No.
33-78358)).
10.1 Metrologic Instruments, Inc. 1994 Incentive Plan
(incorporated by reference to Exhibit 99 to the
Registrant's Registration Statement on Form S-8
(Reg. No. 33-89376)).
10.2 Metrologic Instruments, Inc. Employee Stock
Purchase Plan (incorporated by reference to Exhibit
99 to the Registrant's Post-Effective Amendment
No. 1 to the Registration Statement on Form S-8
(Reg. No. 33-86670) and Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995).
10.3 Lease Agreement dated April 1, 1994 among C. Harry
Knowles, Janet H. Knowles and Metrologic
Instruments, Inc. (incorporated by reference to
Exhibit 10.4 to the Registrant's Registration
Statement on Form S-1 (Reg. No. 33-78358)).
10.4 Agreement of Settlement between Symbol
Technologies, Inc. and Metrologic Instruments, Inc.
(incorporated by reference to Exhibit 10.5 to the
Registrant's Registration Statement on Form S-1
(Reg. No. 33-78358)).
10.5 Agreement and Release dated February 7, 1986 among
Michael L. Sanyour, C. Harry Knowles, Janet H.
Knowles and Metrologic Instruments, Inc.
(incorporated by reference to Exhibit 10.6 to the
Registrant's Registration Statement on Form S-1
(Reg. No. 33-78358)).
10.6 Agreement dated January 6, 1995 between Michael L.
Sanyour, C. Harry Knowles, Janet H. Knowles and
Metrologic Instruments, Inc. (incorporated by
reference to Exhibit 10.6(a) to the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1994).
10.7 Promissory Note from Metrologic Instruments, Inc.
to C. Harry Knowles (incorporated by reference to
Exhibit 10.8 to the Registrant's Registration
Statement on Form S-1 (Reg. No. 33-78358)).
10.8 Indemnification Agreement between Metrologic
Instruments, Inc. and C. Harry Knowles and Janet H.
Knowles (incorporated by reference to Exhibit
10.9 to the Registrant's Registration Statement on
Form S-1 (Reg. No. 33-78358)).
10.9 Agreement between Symbol Technologies, Inc. and
Metrologic Instruments, Inc. dated December 18,
1996 (incorporated by reference to Exhibit 10 to
the Registrant's Current Report on Form 8-K filed
on February 14, 1997).
10.10 First Amendment to Metrologic Instruments, Inc.
1994 Incentive Plan dated July 1, 1997
(incorporated by reference to Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997).
10.11 Agreement for Settlement, Dismissal of Claims and
Mutual Releases dated April 9, 1997 between
Metrologic Instruments, Inc. and PSC Inc.
(incorporated by reference to Exhibit 10.1 to the
Registrant's Current Report on Form 8-K filed
April 16, 1997).
10.12 Stipulation of Dismissal filed April 10, 1997 in
the United States District Court for the Western
District of New York (incorporated by reference to
Exhibit 10.2 to the Registrant's Current Report on
Form 8-K filed April 16, 1997).
10.13 Joint Venture Agreement between MTLG Investments,
Inc. and CCH Automation Systems, Inc. dated
December 1997 (incorporated by reference to
Exhibit 10.24 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1997).
10.14 Quotaholders' Agreement between MTLG Investments,
Inc and CCH Automation Systems, Inc. dated
December 1997 (incorporated by reference to
Exhibit 10.25 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1997).
10.15 Guarantee of Mr. Chaim Bulka and Mrs. Gilda Meire
Rosenberg Bulka in favor of MTLG Investments, Inc.
dated December 12, 1997 (incorporated by reference
to Exhibit 10.26 to the Registrant's Annual Report
on Form 10-K for the year ended December 31,
1997).
10.16 Stock Purchase Agreement dated December 22, 2000
by and among United Technologies Optical Systems,
Inc., Hamilton Sundstrand Corporation, MTLG
Investments Inc. and Metrologic Instruments, Inc.
(incorporated by reference to Exhibit 2 to the
Registrant's Form 8-K filed January 23, 2001).
10.17 Credit Agreement dated January 8, 2001 by and
among Metrologic Instruments, Inc., Adaptive
Optics Associates, Inc., the Guarantors named
therein, PNC Bank, National Association, as agent
to the Banks and the Banks named therein
(incorporated by reference to Exhibit 99.1 to the
Registrant's Form 8-K filed January 23, 2001).
10.18 Subordinated Promissory Note in the amount of $5
million dated January 8, 2001, executed by MTLG
Investments Inc. in favor of United Technology
Optical Systems, Inc. (incorporated by reference
to Exhibit 99.2 to the Registrant's Form 8-K filed
January 23, 2001).
10.19 Subordinated Promissory Note in the amount of $6
million dated January 8, 2001, executed by MTLG
Investments Inc. in favor of United Technology
Optical Systems, Inc. (incorporated by reference
to Exhibit 99.3 to the Registrant's Form 8-K filed
January 23, 2001).
10.20 Subordination, Nondisturbance and Attornment
Agreement dated January 8, 2001, by and among
Metrologic Instruments, Inc., C. Harry Knowles,
Janet Knowles, Metrologic Instruments, Inc. and
PNC Bank, National Association, as Agent
(incorporated by reference to Exhibit 99.4 to the
Registrant's Form 8-K filed January 23, 2001).
10.21 Security Agreement dated January 8, 2001, by and
among Metrologic Instruments, Inc., C. Harry
Knowles and Janet Knowles (incorporated by
reference to Exhibit 99.5 to the Registrant's Form
8-K filed January 23, 2001).
10.22 Amended and Restated Intercreditor Agreement
between PNC Bank, National Association, United
Technologies Optical Systems, Inc., C. Harry
Knowles, Janet H. Knowles, Registrant, Adaptive
Optics Associates, Inc., and MTLG Investments Inc.
21 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
(b) Reports on Form 8-K
Since the beginning of the quarter ended December 31, 2000,
the Registrant filed no reports on Form 8-K. After December
31, 2000, the Registrant filed a report on Form 8-K dated
January 23, 2001 and a report on Form 8-K/A dated March 23,
2001.
Schedule II - Valuation and Qualifying Accounts
Years ended December 31, 2000, 1999 and 1998
(All dollar amounts in thousands)
2000 1999 1998
---- ---- ----
Allowance for possible losses on accounts and notes receivable:
Balance at beginning of year $350 $389 $408
Additions charged to expense 322 203 38
Write-offs (18) (242) (57)
------- ------ ------
Balance at end of year $654 $350 $389
======= ====== ======
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
by the undersigned thereunto duly authorized.
METROLOGIC INSTRUMENTS, INC.
By:/s/ C. Harry Knowles
C. Harry Knowles
Chief Executive Officer
(Principal Executive Officer)
Dated: March 30, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934,
the report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ C. Harry Knowles Chairman of the Board March 30, 2001
C. Harry Knowles and Chief Executive Officer
(Principal Executive Officer)
/s/ Janet H. Knowles Director, Vice President, March 30, 2001
Janet H. Knowles Administration, Secretary, and Treasurer
/s/ Thomas E. Mills IV Director, President, Chief Operating March 30, 2001
Thomas E. Mills IV Officer, Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
/s/ Richard C. Close Director March 30, 2001
Richard C. Close
/s/ John H. Mathias Director March 30, 2001
John H. Mathias
/s/ Stanton L. Meltzer Director March 30, 2001
Stanton L. Meltzer
/s/ Hsu Jau Nan Director March 30, 2001
Hsu Jau Nan
/s/ William Rulon-Miller Director March 30, 2001
William Rulon-Miller
INDEX TO EXHIBITS
Sequential
Exhibit Page
Number Description Number
- ------ ----------- ------
2.1 Option Agreement dated as of March 1, 1995 among Metrologic
Instruments, Inc. and the parties listed on schedule A thereto
(incorporated by reference to Exhibit 2.3 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1995).
3.1 Amended and Restated Certificate of Incorporation of Metrologic
Instruments, Inc. (incorporated by reference to Exhibit 3.1 to
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994).
3.2 Amended and Restated Bylaws of Metrologic Instruments, Inc.
(incorporated by reference to Exhibit 3.02 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994).
4.1 Specimen Stock Certificate (incorporated by reference to Exhibit
4.1 to the Registrant's Registration Statement on Form S-1
(Reg. No. 33-78358)).
10.1 Metrologic Instruments, Inc. 1994 Incentive Plan (incorporated by
reference to Exhibit 99 to the Registrant's Registration
Statement on Form S-8 (Reg. No. 33-89376)).
10.2 Metrologic Instruments, Inc. Employee Stock Purchase Plan
(incorporated by reference to Exhibit 99 to the Registrant's
Post-Effective Amendment No. 1 to the Registration Statement on
Form S-8 (Reg. No. 33-86670) and Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1995).
10.3 Lease Agreement dated April 1, 1994 among C. Harry Knowles,
Janet H. Knowles and Metrologic Instruments, Inc. (incorporated
by reference to Exhibit 10.4 to the Registrant's Registration
Statement on Form S-1 (Reg. No. 33-78358)).
10.4 Agreement of Settlement between Symbol Technologies, Inc. and
Metrologic Instruments, Inc. (incorporated by reference to
Exhibit 10.5 to the Registrant's Registration Statement on
Form S-1 (Reg. No. 33-78358)).
10.5 Agreement and Release dated February 7, 1986 among Michael L.
Sanyour, C. Harry Knowles, Janet H. Knowles and Metrologic
Instruments, Inc. (incorporated by reference to Exhibit 10.6
to the Registrant's Registration Statement on Form S-1
(Reg. No. 33-78358)).
10.6 Agreement dated January 6, 1995 between Michael L. Sanyour,
C. Harry Knowles, Janet H. Knowles and Metrologic Instruments, Inc.
(incorporated by reference to Exhibit 10.6(a) to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994).
10.7 Promissory Note from Metrologic Instruments, Inc. to C. Harry
Knowles (incorporated by reference to Exhibit 10.8 to the
Registrant's Registration Statement on Form S-1 (Reg.
No. 33-78358)).
10.8 Indemnification Agreement between Metrologic Instruments, Inc.
and C. Harry Knowles and Janet H. Knowles (incorporated by
reference to Exhibit 10.9 to the Registrant's Registration
Statement on Form S-1 (Reg. No. 33-78358)).
10.9 Agreement between Symbol Technologies, Inc. and Metrologic
Instruments, Inc. dated December 18, 1996 (incorporated by
reference to Exhibit 10 to the Registrant's Current Report on
Form 8-K filed on February 14, 1997).
10.10 First Amendment to Metrologic Instruments, Inc. 1994 Incentive Plan
dated July 1, 1997 (incorporated by reference to Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 1997).
10.11 Agreement for Settlement, Dismissal of Claims and Mutual
Releases dated April 9, 1997 between Metrologic Instruments,
Inc. and PSC Inc. (incorporated by reference to Exhibit 10.1
to the Registrant's Current Report on Form 8-K filed
April 16, 1997).
10.12 Stipulation of Dismissal filed April 10, 1997 in the United States
District Court for the Western District of New York (incorporated by
reference to Exhibit 10.2 to the Registrant's Current Report on Form
8-K filed April 16, 1997).
10.13 Joint Venture Agreement between MTLG Investments, Inc. and
CCH Automation Systems, Inc. dated December 1997 (incorporated
by reference to Exhibit 10.24 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1997).
10.14 Quotaholders' Agreement between MTLG Investments, Inc and CCH
Automation Systems, Inc. dated December 1997 (incorporated by reference
to Exhibit 10.25 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1997).
10.15 Guarantee of Mr. Chaim Bulka and Mrs. Gilda Meire Rosenberg
Bulka in favor of MTLG Investments, Inc. dated December 12,
1997 (incorporated by reference to Exhibit 10.26 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.16 Stock Purchase Agreement dated December 22, 2000 by and among
United Technologies Optical Systems, Inc., Hamilton Sundstrand
Corporation, MTLG Investments Inc. and Metrologic Instruments,
Inc. (incorporated by reference to Exhibit 2 to the
Registrant's Form 8-K filed January 23, 2001).
10.17 Credit Agreement dated January 8, 2001 by and among Metrologic
Instruments, Inc., Adaptive Optics Associates, Inc., the Guarantors
named therein, PNC Bank, National Association, as agent to the Banks
and the Banks named therein (incorporated by reference to Exhibit 99.1
to the Registrant's Form 8-K filed January 23, 2001).
10.18 Subordinated Promissory Note in the amount of $5 million dated
January 8, 2001, executed by MTLG Investments Inc. in favor of
United Technology Optical Systems, Inc. (incorporated by
reference to Exhibit 99.2 to the Registrant's Form 8-K filed
January 23, 2001).
10.19 Subordinated Promissory Note in the amount of $6 million
dated January 8, 2001, executed by MTLG Investments Inc. in
favor of United Technology Optical Systems, Inc. (incorporated
by reference to Exhibit 99.3 to the Registrant's Form 8-K filed
January 23, 2001).
10.20 Subordination, Nondisturbance and Attornment Agreement dated
January 8, 2001, by and among Metrologic Instruments, Inc.,
C. Harry Knowles, Janet Knowles, Metrologic Instruments, Inc.
and PNC Bank, National Association, as Agent (incorporated by
reference to Exhibit 99.4 to the Registrant's Form 8-K filed
January 23, 2001).
10.21 Security Agreement dated January 8, 2001, by and among
Metrologic Instruments, Inc., C. Harry Knowles and Janet Knowles
(incorporated by reference to Exhibit 99.5 to the Registrant's
Form 8-K filed January 23, 2001).
10.22 Amended and Restated Intercreditor Agreement between PNC Bank,
National Association, United Technologies Optical Systems, Inc.,
C. Harry Knowles, Janet H. Knowles, Registrant, Adaptive Optics
Associates, Inc., and MTLG Investments Inc. 46
21 Subsidiaries of the Registrant 60
23.1 Consent of Ernst & Young LLP 61
Since the beginning of the quarter ended December 31, 2000, the Registrant
filed no reports on Form 8-K. After December 31, 2000, the Registrant filed a
report on Form 8-K dated January 23, 2001 and a report on Form 8-K/A dated
March 23, 2001.
EXHIBIT 10.22
AMENDED AND RESTATED INTERCREDITOR AGREEMENT
This AMENDED AND RESTATED INTERCREDITOR AGREEMENT (this "Agreement") is
entered into as of February 2, 2001, among PNC Bank, National Association in
its capacity as Agent (the "Agent") for the holders of the Senior Indebtedness
(the "Senior Lenders"), United Technologies Optical Systems, Inc., a Delaware
corporation ("Subordinated Lender"), C. Harry Knowles and Janet Knowles
(together, "Junior Subordinated Lender") Metrologic Instruments, Inc., a New
Jersey corporation ("Metrologic"), Adaptive Optics Associates, Inc., a Delaware
corporation ("Adaptive") (Metrologic and Adaptive collectively the "Borrowers"
and individually each a "Borrower") and MTLG Investments, Inc., a Delaware
corporation ("MTLG Investments").
R E C I T A L S
A. The Agent, on behalf of the Senior Lenders, the Subordinated Lender,
the Borrowers and MTLG Investments are parties to that certain Intercreditor
Agreement dated as of January 8, 2001 (the "Original Intercreditor Agreement")
pursuant to which the Subordinated Indebtedness is subordinate in all respects
to the Senior Indebtedness.
B. The parties hereto wish to amend and restate the Original Intercreditor
Agreement upon the terms and conditions hereinafter set forth to, among other
things, add Junior Subordinated Lender to this Agreement and to set forth the
relative rights and obligations of all of the parties.
C. The Borrowers, the Guarantors party thereto, the Senior Lenders and the
Agent have entered into a Credit Agreement dated as of January 8, 2001 (as the
same hereafter may be amended, restated, supplemented or otherwise modified
from time to time, the "Credit Agreement"), on the terms and subject to the
conditions of which Senior Lenders have agreed to make revolving credit loans,
term loans and other financial accommodations to the Borrowers.
D. MTLG Investments is a guarantor of the Obligations of the Borrowers
under the Credit Agreement, which guaranty obligation is secured by, among
other things, a security interest in favor of the Agent for the benefit of the
Senior Lenders in all properties and assets of MTLG Investments.
E. MTLG Investments is indebted to Subordinated Lender pursuant to those
certain Subordinated Promissory Notes, each dated January 8, 2001, in the
principal amount of $5,000,000 and $6,000,000, respectively and payable to the
order of the Subordinated Lender (each such Subordinated Promissory Note being
referred to herein individually as a "Subordinated Note" and collectively as
the "Subordinated Notes"), each of which Subordinated Notes bears interest at
an annual rate equal to 10% (the "Applicable Rate").
F. Junior Subordinated Lender is a guarantor of the Obligations of the
Borrowers under the Credit Agreement pursuant to a Continuing Agreement of
Guaranty and Suretyship (the "Guaranty"), and the Borrowers' obligations to
reimburse the Junior Subordinated Lender for amounts paid under its Guaranty
(the "Junior Subordinated Indebtedness") are secured by a Security Agreement
(The "Junior Security Agreement").
F. One of the conditions precedent to Senior Lenders' obligations under
the Credit Agreement is that this Agreement shall have been executed and
delivered.
NOW THEREFORE, the parties hereto hereby agree as follows:
1. Recitals and Definitions.
1.1 Recitals. The Recitals set forth above are acknowledged by the parties
hereto to be true and correct and are incorporated herein by this reference.
1.2 Definitions. All capitalized terms used but not elsewhere defined
herein shall have the respective meanings ascribed to such terms in the Credit
Agreement. As used herein, the following terms shall have the following
meanings:
Collateral shall mean all the Borrowers' property and interests in
property that now or hereafter secures the Senior Indebtedness, the
Subordinated Indebtedness and the Junior Subordinated Indebtedness.
Guaranty shall have the meaning ascribed thereto in the recitals.
Junior Security Agreement shall have the meaning ascribed thereto in
the recitals.
Junior Subordinated Indebtedness shall have the meaning ascribed
thereto in the recitals.
Junior Subordinated Lender shall have the meaning ascribed thereto in
the recitals.
Person shall mean any individual, corporation, limited liability
company, company, voluntary association, partnership, trust,
unincorporated association, government (or any agency, instrumentality or
political subdivision thereof), or any other entity.
Proceeding shall mean any insolvency, bankruptcy, receivership,
custodianship, liquidation, reorganization, assignment for the benefit of
creditors or other proceeding for the liquidation, dissolution or other
winding up of any one of the Borrowers or MTLG Investments or any of their
respective properties (including, without limitation, any such proceeding
under Title 11 of the United States Code).
Senior Covenant Default shall mean any occurrence permitting the
Senior Lender to accelerate the payment of all or any portion of the
Senior Indebtedness, other than a Senior Payment Default.
Senior Covenant Default Notice shall mean a written notice from the
Lender to MTLG Investments and Subordinated Lender of the occurrence of a
Senior Covenant Default.
Senior Indebtedness shall mean the Obligations, together with all
accrued and unpaid interest and fees thereon, including all interest which
accrues during the pendency of any Proceeding, whether or not allowed in
such Proceeding, all liabilities of the Borrowers to Senior Lenders
pursuant to any Interest Rate Protection Agreement, Hedge Agreement and
all other Indebtedness now or at any time hereafter evidencing any
replacement, substitution, refunding, renewal or refinancing of or for all
or any part of the Obligations.
Senior Lenders shall mean collectively and Senior Lender shall mean
separately the holders of the Senior Indebtedness.
Senior Payment Default shall mean any default in the payment when due
of any Senior Indebtedness.
Senior Payment Default Notice shall mean a written notice from Agent
to the Borrowers and Subordinated Lender of the occurrence of a Senior
Payment Default.
Subordinated Collection Action shall mean (a) any acceleration of any
Subordinated Indebtedness, or Junior Subordinated Indebtedness, (b) to
file or initiate, or to join with other Persons in filing or initiating, a
Proceeding against MTLG Investments or any Borrower, (c) any judicial
proceeding or other action initiated or taken by Subordinated Lender or
Junior Subordinated Lender whether or not in concert with other Persons,
against MTLG Investments or any Borrower to collect any Subordinated
Indebtedness or Junior Subordinated Indebtedness or otherwise to enforce
any rights or remedies of Subordinated Lender or Junior Subordinated
Lender under the Subordinated Instruments or applicable law with respect
to the Subordinated Indebtedness; or (d) any other exercise by
Subordinated Lender or Junior Subordinated Lender of remedies, either at
law or in equity, pertaining to the collection of any Subordinated
Indebtedness or Junior Subordinated Indebtedness.
Subordinated Default shall mean, an "Event of Default" as such term
is defined in any Subordinated Note or the Junior Security Agreement.
Subordinated Default Notice shall mean a written notice from
Subordinated Lender to MTLG Investments and the Agent of the occurrence of
a Subordinated Default.
Subordinated Indebtedness shall mean all indebtedness, liabilities
and other obligations of any and every kind and nature now existing or
hereafter arising, contingent or otherwise, of MTLG Investments under, in
connection with, or evidenced by the Subordinated Instruments, including,
without limitation, obligations to pay (i) principal, (ii) interest or
premium (including interest accruing after the commencement of any
Proceeding, whether or not allowed in such Proceeding), (iii) fees, (iv)
costs, expenses and other amounts related to any indemnity against loss,
damage or liability, and (v) any other monetary obligation.
Subordinated Instruments shall mean, collectively, each of the Junior
Security Agreement, the Subordinated Notes, the Adaptive Optics
Associates, Inc. Purchase Agreement and all other agreements, documents
and instruments now or at any time hereafter entered into or delivered
pursuant thereto or in connection therewith or evidencing any replacement,
substitution, refunding, renewal or refinancing of or for all or any part
of the Subordinated Indebtedness evidenced thereby or incurred thereunder.
Subordinated Lender shall have the meaning ascribed thereto in the
preamble.
2. Subordination of the Subordinated Indebtedness to Senior Indebtedness and
the Junior Subordinated Indebtedness to the Subordinated Indebtedness;
Lien Priorities; Release of Shared Collateral; Certain Provisions with
Respect to Collateral.
2.1 Subordination. Upon the terms and subject to the conditions contained
in this Agreement, the payment of any and all of the Junior Subordinated
Indebtedness is expressly subordinated to the indefeasible payment in full in
cash of the Subordinated Indebtedness and the payment of Subordinated
Indebtedness hereby expressly is subordinated to the prior indefeasible payment
in full in cash of the Senior Indebtedness; and, notwithstanding the date,
manner, or order of grant, attachment, or perfection of the Liens in the
Collateral granted to the Senior Lenders, the Subordinated Lender or the Junior
Subordinated Lender and notwithstanding any provision of the applicable state's
Uniform Commercial Code, or any other applicable law or decision or any other
circumstance whatsoever, (A) each of the Junior Subordinated Lender and the
Subordinated Lender agree that: (i) the Senior Lenders have and shall have a
first and prior lien and security interest in the Collateral and all proceeds
thereof to secure the Senior Indebtedness; and (ii) any Lien on the Collateral
now or hereafter held by the Junior Subordinated Lender or the Subordinated
Lender to secure the Junior Subordinated Indebtedness or the Subordinated
Indebtedness, respectively, regardless of how acquired, whether by grant,
statute, or operation of law, is and shall be junior and subordinate to all
Liens in the Collateral held by any Senior Lenders to secure the Senior
Indebtedness. and (B) the Junior Subordinated Lender agrees that: (i) the
Subordinated Lender shall have a second and prior lien and security interest in
the Collateral and all proceeds thereof to secure the Subordinated
Indebtedness; and (ii) any Lien on the Collateral now or hereafter held by the
Junior Subordinated Lender to secure the Junior Subordinated Indebtedness,
regardless of how acquired, whether by grant, statute, or operation of law, is
and shall be junior and subordinate to all Liens in the Collateral held by the
Subordinated Lender to secure the Subordinated Indebtedness.
2.1(A) Release of Shared Collateral. The Subordinated Lender and the
Junior Subordinated Lender shall release their Liens in the Collateral (and
shall execute and deliver to the Borrowers or Senior Lenders such termination
statements, releases, and other documents as the Borrowers or Senior Lenders
may request to confirm such release) upon any of the following events:
(i) concurrently with the closing of a sale by any Borrower of
any of the Collateral to which sale the Senior Lenders have consented provided
that the proceeds from such sale are to be applied in accordance with the
provisions of the Loan Documents.
(ii) Upon any sale of Collateral by the Senior Lenders in
accordance with the provisions of any of the Loan Documents or applicable law
or the transfer of any Collateral to Senior Lenders in lieu of foreclosure.
2.2 Restrictions on Payments.
(a) Notwithstanding any provision of the Subordinated Instruments to
the contrary and in addition to any other limitations set forth
herein or therein, except as expressly permitted under this Section
2.2, Subordinated Lender and the Junior Subordinated Lender hereby
agree that they will not ask, demand, sue for, take, receive, accept
or retain, directly or indirectly, including by exercise of any right
of set-off or recoupment, any payment of principal, interest, fees or
any other amount due with respect to the Subordinated Indebtedness or
the Junior Subordinated Indebtedness, until all of the Senior
Indebtedness, and with respect to the Junior Subordinated Lender, all
of the Subordinated Indebtedness, is indefeasibly paid in full in
cash; provided, that, notwithstanding the foregoing, but subject in
all respects to the other terms and provisions hereof, Subordinated
Lender may accept from MTLG Investments, when due on a
non-accelerated basis, regularly scheduled payments of (i) current
accrued and unpaid interest on the Subordinated Indebtedness owing to
it at a rate not in excess of 10% per annum in accordance with the
terms of the Subordinated Instruments as in effect on the date hereof
and (ii) principal of the Subordinated Indebtedness in accordance
with the terms of the Subordinated Instruments as in effect on the
date hereof, but only to the extent that prior to the making of any
such payment contemplated by this Section, the Borrowers shall have
delivered a compliance certificate in form and substance satisfactory
to the Agent and the Banks in their sole discretion, which
demonstrates that, after giving effect to any such proposed payment,
no Potential Default or Event of Default shall exist under the Credit
Agreement; provided, further, that no such payment shall be taken,
received, accepted or retained by a Subordinated Lender:
(x) from and after the date that Subordinated Lender
receives from the Agent a copy of a Senior Payment
Default Notice and until the date the Senior Payment
Default that is the subject of such Senior Payment
Default Notice is cured by MTLG Investments or
waived by the Senior Lenders, or
(y) from and after the date Subordinated Lender
receives from the Agent a copy of a Senior Covenant
Default Notice and until the Senior Covenant Default
which is the subject of such Senior Covenant Default
Notice is cured by MTLG Investments or waived by the
Senior Lenders.
2.3 Proceedings. In the event of any Proceeding, (a) all Senior
Indebtedness first shall be indefeasibly paid in full in cash before any
payment of or with respect to the Subordinated Indebtedness or the Junior
Subordinated Indebtedness shall be made; (b) any payment or other value which,
but for the terms hereof, otherwise would be payable or deliverable in respect
of the Subordinated Indebtedness or the Junior Subordinated Indebtedness shall
be paid or delivered directly to Agent (to be held and/or applied by Agent in
accordance with the terms of the Credit Agreement) until all Senior
Indebtedness is indefeasibly paid in full, and Subordinated Lender and Junior
Subordinated Lender irrevocably authorize, empower and direct all receivers,
trustees, liquidators, custodians, conservators and others having authority in
the premises to effect all such payments and deliveries and further irrevocably
authorize and empower the Agent to demand, sue for, collect and receive every
such payment or distribution; (c) Subordinated Lender and Junior Subordinated
Lender agree to execute and deliver to Agent all such further instruments
requested by Agent confirming the authorization referred to in the foregoing
material clause (b); (d) Subordinated Lender and Junior Subordinated Lender
agree (i) not to waive, release or compromise any claim of a Subordinated
Lender in respect of the Subordinated Indebtedness or of Junior Subordinated
Lender in respect of Junior Subordinated Indebtedness without the prior written
consent of the Agent and (ii) to take all actions as the Agent reasonably may
request in order to enable the Agent to enforce all claims upon or in respect
of the Subordinated Indebtedness for the benefit of the Senior Lenders and (e)
each of Subordinated Lender and Junior Subordinated Lender agree to execute,
verify, deliver and file any proofs of claim in respect of the Subordinated
Indebtedness and Junior Subordinated Indebtedness, respectively, for the
benefit of the Senior Lenders within at least twenty (20) Business Days prior
to any claims bar date in a Proceeding of the Borrowers or MTLG Investments,
and if Subordinated Lender and Junior Subordinated Lender fail to so act within
such period, the Agent shall be, and hereby irrevocably is, authorized,
empowered and appointed the Lender and attorney-in-fact of Subordinated Lender
and Junior Subordinated Lender to take all such actions to execute, verify,
deliver and file such proofs of claim.
2.4 Incorrect Payments. If any payment not permitted under Section 2.2 is
received by Subordinated Lender or Junior Subordinated Lender on account of the
Subordinated Indebtedness and Junior Subordinated Indebtedness, respectively,
before all Senior Indebtedness or Subordinated Indebtedness, as applicable, is
indefeasibly paid in full in cash, such payment shall not be commingled with
any asset of Subordinated Lender or Junior Subordinated Lender, as applicable,
and shall be held in trust by such Subordinated Lender or Junior Subordinated
Lender for the benefit of the Senior Lenders or the Subordinated Lender, as
applicable, and shall be paid over to the Agent or the Subordinated Lender, as
applicable, for application (in accordance with the Credit Agreement) to the
payment of the Senior Indebtedness or the Subordinated Indebtedness, as
applicable, then remaining unpaid, until all of the Senior Indebtedness or
Subordinated Indebtedness, as applicable, is indefeasibly paid in full in cash.
2.5 Sale, Transfer. Neither Subordinated Lender nor Junior Subordinated
Lender shall sell, assign, dispose of or otherwise transfer all or any portion
of the Subordinated Indebtedness and Junior Subordinated Indebtedness,
respectively, unless, prior to the consummation of any such action, the
transferee thereof executes and delivers to the Agent an agreement
substantially identical to this Agreement, providing for the continued
subordination and forbearance of the Subordinated Indebtedness and Junior
Subordinated Indebtedness, respectively, to the Senior Indebtedness, and
providing for the continued subordination and forbearance of the Junior
Subordinated Indebtedness to the Subordinated Indebtedness as provided herein
and for the continued effectiveness of all of the rights of Senior Lenders
arising under this Agreement. Notwithstanding the failure to execute or deliver
any such agreement, the subordination effected hereby shall survive any sale,
assignment, disposition or other transfer of all or any portion of the
Subordinated Indebtedness and Junior Subordinated Indebtedness, respectively,
and the terms of this Agreement shall be binding upon the successors and
assigns of each Subordinated Lender and Junior Subordinated Lender, as provided
in Section 9 below.
2.6 Legends. Until the Senior Indebtedness is indefeasibly paid in full in
cash and the Commitments have terminated, each of the Subordinated Instruments
at all times shall contain in a conspicuous manner the following legend:
"The obligations evidenced hereby are subordinate in the manner and to
the extent set forth in that certain Amended and Restated Intercreditor
Agreement (the "Intercreditor Agreement") dated as of February 2, 2001,
among PNC Bank, National Association, as Lender, United Technologies
Optical Systems, Inc., as Subordinated Lender, C. Harry Knowles and Janet
Knowles, together as Junior Subordinated Lender, Metrologic Instruments,
Inc. and Adaptive Optics Associates, Inc., as Borrowers and MTLG
Investments, Inc., as Guarantor, to the indebtedness and other liabilities
owed by Metrologic Instruments, Inc., Adaptive Optics Associates, Inc.
and MTLG Investments, Inc. under and pursuant to the Credit Agreement,
dated as of January 8, 2001, and each related "Loan Document" (as defined
therein), and each holder hereof, by its acceptance hereof, acknowledges
and agrees to be bound by the provisions of the Intercreditor Agreement."
2.7 Restriction on Action by Subordinated Lender and Junior Subordinated
Lender.
(a) Until the Senior Indebtedness is indefeasibly paid in full in
cash and the Commitments have terminated, and notwithstanding
anything contained in the Subordinated Instruments, the Credit
Agreement or the Loan Documents to the contrary, neither Subordinated
Lender nor Junior Subordinated Lender shall enforce any provision
contained in the Subordinated Instruments the effect of which is to,
and neither the Subordinated Lender nor Junior Subordinated Lender
shall agree to or permit any amendment or modification of, or
supplement to, the Subordinated Instruments as in effect on the date
hereof, the effect of which is to (i) increase the rate of interest
on or fees payable in respect of the Subordinated Indebtedness, (ii)
require any principal payments of the Subordinated Indebtedness prior
to the time otherwise due in accordance with the terms thereof, (iii)
shorten the final maturity date of the Subordinated Indebtedness,
(iv) increase the principal amount of the Subordinated Indebtedness,
(v) otherwise than as currently contemplated by the Subordinated
Instruments, secure the Subordinated Indebtedness or Junior
Subordinated Indebtedness with the grant of any security interests,
mortgage liens or other collateral assignments on the property of the
Borrowers or any Guarantor, or (vi) make the covenants and events of
default contained in the Subordinated Instruments materially more
restrictive than those in effect on the date hereof.
(b) Neither Subordinated Lender nor Junior Subordinated Lender shall
take any Subordinated Collection Action, upon the occurrence and
during the continuance of a Subordinated Default or otherwise, until
the earliest to occur of any of the following:
(i) the Senior Indebtedness is indefeasibly
paid in full in cash and the Commitments have terminated; or
(ii) commencement of a Proceeding (so long as such
Proceeding was not initiated by or at the request of Subordinated
Lender, Junior Subordinated Lender or any other Persons acting in
concert with either of them), provided, that, notwithstanding anything
to the contrary contained in this Agreement or any of the Subordinated
Instruments, unless and until all Senior Indebtedness has been paid in
full in cash and the Commitments have terminated, all distributions or
other proceeds of any Subordinated Collection Action received by
Subordinated Lender or Junior Subordinated Lender shall be subject to
the terms of this Agreement and paid or delivered to the Agent, as
provided herein; and provided further, that if the Senior Indebtedness
is accelerated, Subordinated Lender may immediately thereafter
accelerate the Subordinated Indebtedness and take only such actions as
are expressly permitted herein and if the Subordinated Indebtedness is
accelerated, Junior Subordinated Lender may immediately thereafter
accelerate the Junior Subordinated Indebtedness and take only such
actions as are expressly permitted herein.
(c) Subordinated Lender and Junior Subordinated Lender hereby consent
to any foreclosure, collection, recovery, or similar action by Agent
or the Senior Lenders against any property of the Borrowers or any
Guarantor, regardless whether or not Senior Lenders have a Lien
thereon or any such purported Lien is contested or invalid.
(d) As between Senior Lenders, Junior Subordinated Lender and the
Subordinated Lender, and until the Senior Indebtedness is
indefeasibly paid in full in cash and the Commitments have
terminated, the Senior Lenders and the Agent shall have the sole and
exclusive right to control, administer, account for, and otherwise
deal with the Collateral and to determine the manner of every sale or
other disposition of the Collateral upon enforcement of any Lien
thereon or the enforcement of any other right or remedy with respect
thereto. Without the prior written consent of Agent, which Agent may
grant or withhold in its sole discretion, until the Senior
Indebtedness is indefeasibly paid in full in cash and the Commitments
have terminated, Subordinated Lender and Junior Subordinated Lender
shall not: (i) take any action to foreclose on or liquidate any Lien
in or enforce any other rights with respect to any property of the
Borrowers or any Guarantor prior to the taking of any enforcement
action against such property by Agent and thereafter only to the
extent of commencing such legal proceedings as are necessary to
prevent the waiver or lapse of its rights with respect to such
property, but subject at all times to the Agent's rights hereunder to
determine the disposition of such property in accordance with the
terms hereof, or (ii) collect, receive, demand possession or payment
of, or sue on any property of the Borrowers or any Guarantor, or the
proceeds thereof other than in a manner consistent with the terms
hereof. Subject to the terms of the Credit Agreement, Agent shall
have the exclusive rights, upon prior written notice to, but without
the prior written consent of, Subordinated Lender and Junior
Subordinated Lender to adjust and settle any insurance claim with
respect to any item or aspect of the Collateral, and to determine
whether to apply insurance proceeds to the repair, restoration, or
replacement of the affected Collateral or to the repayment of the
Senior Indebtedness. Agent may enforce the Liens on the Collateral
without having first enforced or exhausted any other right or remedy
against either the Borrowers, any Guarantor or any other Person.
Agent may foreclose or otherwise collect on the Collateral in any
order which it in its sole discretion deems appropriate. Agent shall
not be required to marshal any Collateral for the benefit of
Subordinated Lender and Junior Subordinated Lender and Subordinated
Lender and Junior Subordinated Lender waive any rights with respect
thereto. Subordinated Lender and Junior Subordinated Lender shall
have no right to contest or object to any action taken by the Agent
if such sale or disposition was conducted in a commercially
reasonable manner and in compliance with applicable provisions of the
Uniform Commercial Code as adopted in the State of New Jersey or any
other applicable jurisdiction. Subordinated Lender and Junior
Subordinated Lender shall have no right to contest or object to the
terms or conditions of any sale or disposition of any property of the
Borrowers or any Guaranty pursuant to or in connection with any
Proceeding, if such terms and conditions have been approved by Agent
and by the court with jurisdiction over such proceeding, or if the
proceeds of such sale or disposition are to be distributed, or held
subject to the Liens in favor of the Agent and the Senior Lenders, in
accordance with this Agreement.
(e) Until the Senior Indebtedness is indefeasibly paid in full in
cash and the Commitments have terminated, Subordinated Lender and
Junior Subordinated Lender shall not in any manner challenge or
consent to or cooperate with any challenge of any nature to this
Agreement, the Credit Agreement or any other Loan Documents, or the
rights of the Agent or the Senior Lenders in or to any property of
the Borrowers or any Guarantor.
(f) Until the Senior Indebtedness is indefeasibly paid in full in
cash and the Commitments have terminated, all amendments to the
terms, conditions, and provisions of the Subordinated Instruments
shall at all times be subject to the satisfaction of the Agent.
2.8 Subrogation.
(a) Subject to the indefeasible payment in full in cash of all Senior
Indebtedness and termination of the Commitments and to the extent
that amounts payable under the Subordinated Indebtedness have been
used to pay Senior Indebtedness, Subordinated Lender shall be
subrogated to the rights of Senior Lenders to receive payments or
distributions of assets of the Borrowers applicable to the Senior
Indebtedness until the principal of, and interest and premium, if
any, on, and all other amounts payable in respect of the Subordinated
Indebtedness shall be paid in full. For purposes of such subrogation,
no payment or distribution to Senior Lenders under the provisions
hereof to which Subordinated Lender would have been entitled but for
the provisions of this Agreement, and no payment pursuant to the
provisions of this Agreement to Senior Lenders by Subordinated
Lender, as among Borrowers and their respective creditors other than
Senior Lenders, shall be deemed to be a payment by Borrowers to or on
account of the Senior Indebtedness. Notwithstanding the foregoing
provisions of this Section 2.8, the holders of the Subordinated
Indebtedness shall have no claim against Senior Lenders for any
impairment of any subrogation rights herein granted to the holders of
the Subordinated Indebtedness.
(b) Subject to the indefeasible payment in full in cash of all
Subordinated Indebtedness and to the extent that amounts payable
under the Junior Subordinated Indebtedness have been used to pay
Subordinated Indebtedness, Junior Subordinated Lender shall be
subrogated to the rights of Subordinated Lender to receive payments
or distributions of assets of the Borrowers applicable to the
Subordinated Indebtedness until the principal of, and interest and
premium, if any, on, and all other amounts payable in respect of the
Junior Subordinated Indebtedness shall be paid in full. For purposes
of such subrogation, no payment or distribution to Subordinated
Lender under the provisions hereof to which Junior Subordinated
Lender would have been entitled but for the provisions of this
Agreement, and no payment pursuant to the provisions of this
Agreement to Subordinated Lender by Junior Subordinated Lender, as
among Borrowers and their respective creditors other than
Subordinated Lender, shall be deemed to be a payment by Borrowers to
or on account of the Subordinated Indebtedness. Notwithstanding the
foregoing provisions of this Section 2.8(b), the holders of the
Junior Subordinated Indebtedness shall have no claim against
Subordinated Lender for any impairment of any subrogation rights
herein granted to the holders of the Junior Subordinated
Indebtedness.
3. Continued Effectiveness of this Agreement. The terms of this Agreement, the
subordination effected hereby, and the rights and the obligations of Junior
Subordinated Lender, Subordinated Lender, the Agent and the Senior Lenders
arising hereunder, shall not be affected, modified or impaired in any manner or
to any extent by: (a) any amendment or modification of or supplement to the
Credit Agreement, the Loan Documents or any of the Subordinated Instrument, as
the case may be, and Subordinated Lender and Junior Subordinated Lender, hereby
irrevocably consent to and waive any claim they may have as a result of any
such amendment, modification or supplement; (b) the validity or enforceability
of any of such documents; or (c) any exercise or non-exercise of any right,
power or remedy under the Credit Agreement, the Loan Documents or any of the
Subordinated Instruments, as the case may be, or in respect of the Senior
Indebtedness, Subordinated Indebtedness or Junior Subordinated Indebtedness,
respectively. The Senior Indebtedness shall continue to be treated as Senior
Indebtedness and the provisions of this Agreement shall continue to govern the
relative rights and priorities of Senior Lenders, Subordinated Lender and
Junior Subordinated Lender even if all or part of the Liens securing the Senior
Indebtedness are subordinated, set aside, avoided or disallowed in connection
with any Proceeding (or if all or part of the Senior Indebtedness is
subordinated, set aside, avoided or disallowed in connection with any
Proceeding as a result of the fraudulent conveyance or fraudulent transfer
provisions under the Bankruptcy Code or under any state fraudulent conveyance
or fraudulent transfer statute or if any interest accruing on the Senior
Indebtedness following the commencement of such Proceeding is otherwise
disallowed) and this Agreement shall be reinstated if at any time any payment
of any of the Senior Indebtedness is rescinded or must otherwise be returned by
any holder of Senior Indebtedness or any representative of such holder.
4. Representations and Warranties of Subordinated Lender. Subordinated Lender
hereby represents and
warrants to the Senior Lenders as follows:
4.1 Existence and Power. It is duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization.
4.2 Authority. It has full power and authority to enter into, execute,
deliver and carry out the terms of this Agreement and to incur the obligations
provided for herein, all of which have been duly authorized by all proper and
necessary action and are not prohibited by the organizational instruments of
Subordinated Lender.
4.3 Binding Agreements. This Agreement, when executed and delivered, will
constitute the valid and legally binding obligation of Subordinated Lender,
enforceable in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and by
equitable principles.
4.4 No Conflicts. Subordinated Lender is the current owner and holder of
the Subordinated Indebtedness payable to Subordinated Lender free and clear of
any Liens. No provisions of any mortgage, indenture, contract, agreement,
statute, rule, regulation, judgment, decree or order binding on a Subordinated
Lender or affecting the property of Subordinated Lender conflicts with, or
requires any consent which has not already been obtained under, or would in any
way prevent the execution, delivery or performance of the terms of this
Agreement. No pending or, to the best of Subordinated Lender's knowledge,
threatened, litigation, arbitration or other proceedings if adversely
determined would in any way prevent the performance of the terms of this
Agreement.
5. Representations and Warranties of Junior Subordinated Lender. Junior
Subordinated Lender represents to Senior Lender and Subordinated Lender as
follows:
5.1 Authority. It has full power and authority to enter into, execute,
deliver and carry out the terms of this Agreement and to incur the obligations
provided for herein.
5.2 Binding Agreements. This Agreement, when executed and delivered, will
constitute the valid and legally binding obligation of Junior Subordinated
Lender, enforceable in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting the enforcement of creditors' rights generally and by
equitable principles.
5.3 No Conflicts. Junior Subordinated Lender is the current owner and
holder of the Junior Subordinated Indebtedness. No provisions of any mortgage,
indenture, contract, agreement, statute, rule, regulation, judgment, decree or
order binding on a Junior Subordinated Lender or affecting the property of
Junior Subordinated Lender conflicts with, or requires any consent which has
not already been obtained under, or would in any way prevent the execution,
delivery or performance of the terms of this Agreement. No pending or, to the
best of Junior Subordinated Lender's knowledge, threatened, litigation,
arbitration or other proceedings if adversely determined would in any way
prevent the performance of the terms of this Agreement.
6. Cumulative Rights, No Waivers. Each and every right, remedy and power
granted to the Agent and the Senior Lenders hereunder shall be cumulative and
in addition to any other right, remedy or power specifically granted herein, in
the Credit Agreement, the Loan Documents or in the Subordinated Instruments or
now or hereafter existing in equity, at law, by virtue of statute or otherwise,
and may be exercised by the Agent and the Senior Lenders, from time to time,
concurrently or independently and as often and in such order as the Agent and
the Senior Lenders may deem expedient. Any failure or delay on the part of the
Agent and the Senior Lenders in exercising any such right, remedy or power, or
abandonment or discontinuance of steps to enforce the same, shall not operate
as a waiver thereof or affect the Agent's or the Senior Lenders' right
thereafter to exercise the same, and any single or partial exercise of any such
right, remedy or power shall not preclude any other or further exercise thereof
or the exercise of any other right, remedy or power, and no such failure,
delay, abandonment or single or partial exercise of the Agent's or the Senior
Lenders' rights hereunder shall be deemed to establish a custom or course of
dealing or performance among the parties hereto.
7. Modification. Any modification, termination or waiver of any provision of
this Agreement, or any consent to any departure by the Senior Lenders,
Subordinated Lender or Junior Subordinated Lender therefrom, shall not be
effective in any event unless the same is in writing and signed by the Agent
and the Senior Lenders, Subordinated Lender and Junior Subordinated Lender, and
then such modification, termination, waiver or consent shall be effective only
in the specific instance and for the specific purpose given. Any notice to or
demand on Subordinated Lender or Junior Subordinated Lender of any event not
specifically required of Agent hereunder shall not entitle such Subordinated
Lender nor Junior Subordinated Lender to any other or further notice or demand
in the same, similar or other circumstances unless specifically required
hereunder.
8. Notices. All notices under this Agreement shall be in writing and shall be
(a) delivered in person, (b) sent by telecopy or (c) mailed, postage prepaid,
either by registered or certified mail, return receipt requested, or by
overnight express courier, addressed as follows:
To Subordinated Lender:
United Technologies Optical Systems, Inc.
c/o Hamilton Standard
1 Hamilton Road
Windsor Locks, CT 06096
Attention: Vice President and General Counsel
Telephone: (860) 654-6000
Telecopy: (860) 654-2614
If to the Borrowers:
Metrologic Instruments, Inc.
90 Coles Road
Blackwood, NJ 08012
Attention: Thomas E. Mills IV
Telephone: (856) 228-8100
Telecopy: (856) 228-0653
Adaptive Optics Associates, Inc.
90 Coles Road
Blackwood, NJ 08012
Attention: Thomas E. Mills IV
Telephone: (856) 228-8100
Telecopy: (856) 228-0653
If to the Guarantor:
MTLG Investments, Inc.
3411 Silverside Road
Wilmington, DE 19810
Attention: Thomas E. Mills IV
Telephone: (856) 228-8100
Telecopy: (856) 228-0653
Junior Subordinated Lender:
425 East Linden Street
Moorestown, New Jersey 08057
Telephone: (856) 234-5143
Telecopy: (856) 439-0838
To the Agent or any
Senior Lender: PNC BANK, NATIONAL ASSOCIATION
Corporate Banking Division
1950 East Route 70, 3rd Floor
Cherry Hill, NJ 08003
Attention: Ms. Denise Viola-Monahan
Telephone: (856) 489-2972
Telecopy: (856) 489-2785
or to any other address or telecopy number as such party shall designate in a
notice to the other party hereto. All notices sent pursuant to the terms of
this Section 8 shall be deemed received (a) if personally delivered, then on
the Business Day of delivery, (b) if sent by telecopy, on the day sent if a
Business Day or if such day is not a Business Day, then on the next Business
Day, (c) if sent by registered or certified mail, on the earlier of the third
Business Day following the day sent or when actually received or (d) if sent by
overnight, express courier, on the next Business Day immediately following the
day sent. Any notice by telecopy shall be followed by delivery of a copy of
such notice on the next Business Day by overnight, express courier or by
personal delivery.
9. Severability. In the event that any provision of this Agreement is deemed to
be invalid by reason of the operation of any law or by reason of the
interpretation placed thereon by any court or governmental authority, this
Agreement shall be construed as not containing such provision and the
invalidity of such provision shall not affect the validity of any other
provisions hereof, and any and all other provisions hereof which otherwise are
lawful and valid shall remain in full force and effect.
10. Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the successors and assigns of the Agent, the Senior Lenders,
Subordinated Lender and Junior Subordinated Lender.
11. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but all of which taken
together shall be one and the same instrument.
12. Defines Rights of Creditors. The provisions of this Agreement are solely
for the purpose of defining the relative rights of the Agent, the Senior
Lenders, Subordinated Lender and Junior Subordinated Lender and shall not be
deemed to create any rights or priorities in favor of any other Person,
including, without limitation, the Borrowers.
13. Conflict. In the event of any conflict between any term, covenant or
condition of this Agreement and any term, covenant or condition of any of the
Subordinated Instruments, the Credit Agreement and the Loan Documents, the
provisions of this Agreement shall control and govern. For purposes of this
Section 13, to the extent that any provisions of any of the Subordinated
Instruments provide rights, remedies and benefits to Senior Lender that exceed
the rights, remedies and benefits provided to Senior Lenders under this
Agreement, such provisions of the applicable Subordinated Instruments shall be
deemed to supplement (and not to conflict with) the provisions hereof.
14. Statements of Indebtedness. Upon demand by the Agent, Subordinated Lender
will furnish to the Agent a statement of the indebtedness owing from MTLG
Investments to Subordinated Lender. The Senior Lenders may rely without further
investigation upon such statements. Upon demand by Subordinated Lender, the
Agent will furnish to Subordinated Lender a statement of the indebtedness owing
from the Borrowers or the Guarantor to the Senior Lenders. Subordinated Lender
may rely without further investigation upon such statements.
15. Headings. The paragraph headings used in this Agreement are for
convenience only and shall not affect the interpretation of any of the
provisions hereof.
16. Termination. This Agreement shall terminate upon the earlier to occur of
(a) indefeasible payment in full in cash of the Senior Indebtedness and the
termination of the Commitments or (b) such earlier date as shall be expressly
agreed to in a writing executed by the Agent, the Senior Lenders, Subordinated
Lender and Junior Subordinated Lender.
17. Bailee for Perfection.
(a) The Agent shall hold that portion, if any, of the Collateral, as to which
perfection of the lien of the Subordinated Lender and Junior Subordinated
Lender in such Collateral requires possession by the Subordinated Lender and
Junior Subordinated Lender (the "Possessed Collateral") as bailee for the
Subordinated Lender and Junior Subordinated Lender solely for the purpose of
perfecting and keeping perfected the security interest granted to the
Subordinated Lender and Junior Subordinated Lender in the Possessed Collateral
pursuant to the Subordinated Instruments. In connection therewith, the Agent
shall take such actions as are reasonably requested by the Subordinated Lender
and Junior Subordinated Lender to perfect and maintain the priority of the
Liens of the Subordinated Lender and Junior Subordinated Lender in the
Possessed Collateral, provided such requests do not impair the prior Liens of
the Agent in the Possessed Collateral or violate the requirements of the Credit
Agreement or the Loan Documents.
(b) The duties and responsibilities of the Agent to the Subordinated Lender and
Junior Subordinated Lender with respect to the Collateral shall be limited
solely to those set forth in paragraph (a) above. In no event shall the Agent
be liable for its actions with respect to the Collateral except for gross
negligence or willful misconduct.
(c) Upon indefeasible payment in full in cash of the Senior Indebtedness, the
Agent shall deliver possession of the Possessed Collateral to the Subordinated
Lender or as otherwise ordered by a court and shall take all actions necessary
to transfer all right, title and interest in the Collateral to the Subordinated
Lender.
18. SUBMISSION TO JURISDICTION. THE AGENT AND THE SENIOR LENDERS MAY ENFORCE
ANY CLAIM ARISING OUT OF THIS AGREEMENT, THE CREDIT AGREEMENT OR THE RELATED
DOCUMENTS IN ANY STATE OR FEDERAL COURT HAVING SUBJECT MATTER JURISDICTION AND
LOCATED IN CHERRY HILL, NEW JERSEY. FOR THE PURPOSE OF ANY ACTION OR PROCEEDING
INSTITUTED WITH RESPECT TO ANY SUCH CLAIM, SUBORDINATED LENDER AND JUNIOR
SUBORDINATED LENDER HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF SUCH
COURTS. SUBORDINATED LENDER AND JUNIOR SUBORDINATED LENDER FURTHER IRREVOCABLY
CONSENT TO THE SERVICE OF PROCESS OUT OF SAID COURTS BY MAILING A COPY THEREOF,
BY REGISTERED MAIL, POSTAGE PREPAID, TO SUBORDINATED LENDER AND JUNIOR
SUBORDINATED LENDER AT THE ADDRESS SET FORTH IN PARAGRAPH 8 ABOVE,
NOTWITHSTANDING THAT SUCH ADDRESSES MAY BE LOCATED OUTSIDE THE STATE OF NEW
JERSEY, AND AGREES THAT SUCH SERVICE, TO THE FULLEST EXTENT PERMITTED BY LAW,
(A) SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THEM IN
ANY SUCH SUIT, ACTION OR PROCEEDING AND (B) SHALL BE TAKEN AND HELD TO BE VALID
PERSONAL SERVICE UPON AND PERSONAL DELIVERY TO THEM. NOTHING HEREIN CONTAINED
SHALL AFFECT THE RIGHT OF THE AGENT AND THE SENIOR LENDERS TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW OR PRECLUDE THE AGENT AND THE SENIOR LENDERS
FROM BRINGING AN ACTION OR PROCEEDING IN RESPECT HEREOF IN ANY OTHER COUNTRY,
STATE OR PLACE HAVING JURISDICTION OVER SUCH ACTION. SUBORDINATED LENDER AND
JUNIOR SUBORDINATED LENDER HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION WHICH THEY MAY HAVE OR HEREAFTER HAVE TO THE
LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH
COURT LOCATED IN CHERRY HILL, NEW JERSEY AND ANY CLAIM THAT ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
19. GOVERNING LAW. THIS AGREEMENT SHALL BE A CONTRACT MADE UNDER AND GOVERNED
BY THE INTERNAL LAWS OF THE STATE OF NEW JERSEY WITHOUT REGARD TO CONFLICT OF
LAWS PRINCIPLES.
20. JURY TRIAL. EACH PARTY HERETO HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL
BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS
AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED
OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM
ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREES THAT
ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A
JURY.
21. TIME OF ESSENCE. TIME IS OF THE ESSENCE FOR THE PERFORMANCE BY THE AGENT,
THE SENIOR LENDERS, THE JUNIOR SUBORDINATED LENDER AND SUBORDINATED LENDER OF
THE OBLIGATIONS SET FORTH IN THIS AGREEMENT.
22. No Partnership or Fiduciary Relationship. Nothing contained in this
Agreement, and no action taken by any party pursuant hereto, is intended to
constitute or shall be deemed to constitute a partnership, association, joint
venture, or other entity among the Senior Lenders, on the one hand, and the
Subordinated Lender or Junior Subordinated Lender, on the other hand, and the
parties hereby expressly waive and agree not to enforce any such relationship
(or obligations related thereto). The Agent shall not have by reason of this
Agreement or any other document a fiduciary relationship in respect of the
Subordinated Lender or Junior Subordinated Lender.
[SIGNATURE PAGES FOLLOW]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
PNC BANK, NATIONAL ASSOCIATION,
individually and as Agent
By: /s/Denise V. Monahan
Name: Denise Viola-Monahan
Title: Vice President
UNITED TECHNOLOGIES OPTICAL
SYSTEMS, INC.
By: /s/William E. Rosenthal
Name: William E. Rosenthal
Title: Assistant Secretary
/s/ C. Harry Knowles
C. Harry Knowles
/s/ Janet Knowles
Janet Knowles
(176938-2)
ACKNOWLEDGMENT AND AGREEMENT
The undersigned, Metrologic Instruments, Inc., a New Jersey corporation
and Adaptive Optics Associates, Inc., a Delaware corporation, hereby (i)
acknowledges receipt of a copy of the foregoing Amended and Restated
Intercreditor Agreement and (ii) acknowledges and consents to all of the terms
and provisions thereof.
METROLOGIC INSTRUMENTS, INC.
By: /s/Thomas E. Mills IV
Name: Thomas E. Mills IV
Title: President
ADAPTIVE OPTICS ASSOCIATES, INC.
By: /s/Thomas E. Mills IV
Name: Thomas E. Mills IV
Title: Chief Operating Officer
Dated: February 8, 2001
ACKNOWLEDGMENT AND AGREEMENT
The undersigned, MTLG Investments, Inc., a Delaware corporation, hereby
(i) acknowledges receipt of a copy of the foregoing Amended and Restated
Intercreditor Agreement and (ii) acknowledges and consents to all of the terms
and provisions thereof.
MTLG INVESTMENTS, INC.
By: /s/Thomas E. Mills IV
Name: Thomas E. Mills IV
Title: Vice President
Dated: February 8, 2001
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Metrologic do Brasil Ltda., a Brazil corporation
Metrologic Asia (PTE) Ltd., a Singapore corporation
MTLG Investments Inc., a Delaware corporation
Metrologic Instruments (Barbados) Inc., a Barbados corporation
Metrologic Instruments GmbH, a German corporation
Metro (Suzhou) Technologies Co., Ltd., a China corporation
Metrologic Eria Iberica SL, a Spain corporation
Metrologic Italia S.r.l., an Italy corporation
Metrologic Eria France S.A., a France corporation
Metrologic Instruments UK Limited, a United Kingdom corporation
MetroAsia Resources, Inc., a Taiwan corporation
Adaptive Optics Associates, Inc., a Delaware corporation
(effective January 8, 2001)
Metrologic Japan Co. Ltd., a Japan corporation
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-89376) pertaining to Metrologic Instruments, Inc. 1994
Incentive Plan and the Registration Statement (Form S-8 No. 33-86670)
pertaining to Metrologic Instruments, Inc. Employee Stock Purchase Plan of our
report dated February 21, 2001 with respect to the consolidated financial
statements and schedule of Metrologic Instruments, Inc. included in the Annual
Report (Form 10-K) for the year ended December 31, 2000.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
March 28, 2001