UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004
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)
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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes __ No X
As of November 9, 2004, there were 21,619,484 shares of Common Stock, $.01 par
value per share, outstanding.
METROLOGIC INSTRUMENTS, INC.
INDEX
Page
No.
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 2004 (unaudited) and December 31, 2003 3
Condensed Consolidated Statements of Operations (unaudited)
-Three and Nine Months Ended September 30, 2004 and 2003 4
Condensed Consolidated Statements of Cash Flows (unaudited)
-Nine Months Ended September 30, 2004 and 2003 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 20
Item 4. Controls and Procedures 20
Part II - Other Information
Item 1. Legal Proceedings 21
Item 6. Exhibits 23
Signatures 24
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Metrologic Instruments, Inc.
Condensed Consolidated Balance Sheets
(amounts in thousands except share data)
September 30, December 31,
Assets 2004 2003
-------- --------
(Unaudited)
Current assets:
Cash and cash equivalents $ 44,858 $ 48,817
Accounts receivable, net of allowances
of $563 and $485, respectively 31,557 27,369
Inventory 24,299 16,972
Deferred income taxes 1,757 1,758
Other current assets 2,517 3,692
-------- --------
Total current assets 104,988 98,608
Property, plant and equipment, net 18,315 16,940
Goodwill 23,213 17,536
Other intangibles, net 19,910 6,612
Other assets 120 204
-------- --------
Total assets $166,546 $139,900
======== ========
Liabilities and shareholders' equity
Current liabilities:
Current portion of lines of credit $ 4,567 $ 4,886
Current portion of notes payable 2,176 321
Accounts payable 8,436 7,482
Accrued expenses 17,541 11,518
Deferred contract revenue 508 289
-------- --------
Total current liabilities 33,228 24,496
Notes payable, net of current portion 2,127 320
Deferred income taxes 3,516 3,515
Other liabilities 3,622 3,961
Shareholders' equity:
Preferred stock, $0.01 par value: 500,000 shares
authorized; none issued - -
Common stock, $0.01 par value: 30,000,000 shares
authorized; 21,564,308 and 20,807,884 shares
issued and outstanding at June 30, 2004 and
December 31, 2003, respectively 216 208
Additional paid-in capital 82,791 80,201
Retained earnings 42,453 28,482
Accumulated other comprehensive loss (1,407) (1,283)
--------- --------
Total shareholders' equity 124,053 107,608
--------- --------
Total liabilities and shareholders' equity $ 166,546 $139,900
========= ========
See accompanying notes.
Metrologic Instruments, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(amounts in thousands except share and per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
---- ---- ---- ----
Sales $ 44,156 $ 32,587 $ 124,846 $ 96,309
Cost of sales 24,088 18,803 66,886 56,352
--------- ---------- ---------- ----------
Gross profit 20,068 13,784 57,960 39,957
Selling, general and administrative
expenses 10,997 7,547 29,470 22,798
Research and development expenses 1,824 1,686 5,671 5,210
---------- ---------- ---------- ----------
Operating income 7,247 4,551 22,819 11,949
Other income (expenses)
Interest income 170 13 418 25
Interest expense (107) (348) (320) (1,092)
Foreign currency transaction
gain (loss) 330 184 (135) 339
Gain on extinguishment of debt - - - 2,200
Other expense, net (88) (114) (248) (824)
---------- ---------- ---------- ----------
Total other income (expenses) 305 (265) (285) 648
---------- ---------- ---------- ----------
Income before income tax
provision 7,552 4,286 22,534 12,587
Income tax provision 2,870 1,630 8,563 3,952
---------- ---------- ---------- ----------
Net income $ 4,682 $ 2,656 $ 13,971 $ 8,645
========== ========== ========== ==========
Basic income per share:
Weighted average shares
outstanding 21,554,724 16,995,066 21,403,037 16,664,168
========== ========== ========== ==========
Basic income per share $ 0.22 $ 0.16 $ 0.65 $ 0.52
========== ========== ========== ==========
Diluted income per share:
Weighted average shares
outstanding 21,554,724 16,995,066 21,403,037 16,664,168
Net effect of dilutive
securities 1,393,028 2,129,804 1,553,221 1,583,688
---------- ---------- --------- ----------
Total shares outstanding
used in computing diluted
income per share 22,947,752 19,124,870 22,956,258 18,247,856
========== ========== ========== ==========
Diluted income per share $ 0.20 $ 0.14 $ 0.61 $ 0.47
========== ========== ========== ==========
See accompanying notes.
Metrologic Instruments, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(amounts in thousands)
Nine Months Ended
September 30,
---------------------------
2004 2003
-------- --------
Operating activities
Net cash provided by
operating activities $ 13,937 $ 7,083
Investing activities
Restricted cash - 1,000
Payment for acquired business (9,100) -
Purchase of property, plant and equipment (3,742) (1,166)
Purchase of minority interest in subsidiary (6,139) (864)
Patents and trademarks (839) (677)
Proceeds from sale of property 43 -
------- -------
Net cash used in
investing activities (19,777) (1,707)
Financing activities
Proceeds from exercise of stock options and
employee stock purchase plan 2,598 2,658
Principal payments on notes payable (142) (13,789)
Proceeds from issuance of notes payable - 4,141
Net (payments on) proceeds from lines of credit (325) 2,014
Capital lease payments (102) (45)
Issuance of warrants - 247
Increase in financing costs - (110)
Net cash provided by (used in) ------- -------
financing activities 2,029 (4,884)
Effect of exchange rates on cash (148) (334)
------- -------
Net (decrease) increase in cash and
cash equivalents (3,959) 158
Cash and cash equivalents at beginning of period 48,817 1,202
------- -------
Cash and cash equivalents at end of period $ 44,858 $ 1,360
======== =======
Supplemental Disclosure:
Cash paid for interest $ 194 $ 1,365
======== =======
Cash paid for income taxes $ 2,705 $ 1,962
======== =======
See accompanying notes.
METROLOGIC INSTRUMENTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2004
(amounts in thousands except per share data)
(Unaudited)
1. Business
Metrologic Instruments, Inc. and its subsidiaries (collectively, the "Company")
design, manufacture and market bar code scanning and high-speed automated data
capture solutions using laser, holographic and vision-based technologies. The
Company offers expertise in one-dimensional and two-dimensional bar code
reading, optical character recognition, image lift, and parcel dimensioning and
singulation detection for customers in retail, commercial, manufacturing,
transportation and logistics, and postal and parcel delivery industries.
Additionally, through its wholly-owned subsidiary, Adaptive Optics Associates,
Inc. ("AOA"), the Company is engaged in developing, manufacturing, marketing and
distributing custom electro-optical and opto-mechanical systems which include
wavefront correction, industrial inspection, and scanning and dimensioning
systems for commercial and government customers. The Company's products are sold
in more than 110 countries worldwide through the Company's sales, service and
distribution offices located in North and South America, Europe and Asia.
2. Accounting Policies
Interim Financial Information
The accompanying unaudited Condensed Consolidated Financial Statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. In the opinion
of management, all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of the Condensed Consolidated
Financial Statements have been included. The results of the interim periods are
not necessarily indicative of the results to be obtained for a full fiscal year.
The Condensed Consolidated Financial Statements and these Notes should be read
in conjunction with Management's Discussion and Analysis of Financial Condition
and Results of Operations contained in this Quarterly Report on Form 10-Q and
the Company's Annual Report on Form 10-K for the year ended December 31, 2003,
including the Consolidated Financial Statements and the Notes to Consolidated
Financial Statements for the year ended December 31, 2003 contained therein.
Stock-Based Compensation
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. Had compensation expense
for the Company's stock option plan been determined based upon the fair value at
the grant date using the Black-Scholes pricing model prescribed under SFAS 123,
the Company's net earnings and net earnings per share would approximate the
pro-forma amounts as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
---- ---- ---- ----
Net income:
As reported $ 4,682 $ 2,656 $13,971 $ 8,645
Deduct: (total stock-based employee
compensation expense determined
under fair value based method, net of
related taxes) (166) (121) (469) (396)
------- ------- ------- -------
Pro forma $ 4,516 $ 2,535 $13,502 $ 8,249
======= ======= ======= =======
Net income per share:
Basic:
As reported $ 0.22 $ 0.16 $ 0.65 $ 0.52
Pro forma 0.21 0.15 0.63 0.50
Diluted:
As reported $ 0.20 $ 0.14 $ 0.61 $ 0.47
Pro forma 0.20 0.13 0.59 0.45
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.
Stock Splits
On June 6, 2003, the Board of Directors approved a three-for-two stock split of
our common stock. The stock split was payable in the form of a 50% stock
dividend and entitled each stockholder of record at the close of business on
June 23, 2003 to receive three shares of common stock for every two outstanding
shares of common stock held on that date. The stock dividend was payable on July
3, 2003.
On October 7, 2003, the Board of Directors approved a two-for-one stock split of
our common stock. The stock split was payable in the form of a 100% stock
dividend and entitled each stockholder of record at the close of business on
October 20, 2003 to receive two shares of common stock for every outstanding
share of common stock held on that date. The stock dividend was payable on
October 30, 2003.
The capital stock accounts, all share data and earnings per share data in the
consolidated financial statements give effect to the stock splits, applied
retroactively, to all periods presented.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current
period presentation.
3. Inventory
Inventory consists of the following:
September 30, 2004 December 31, 2003
-------------- ------------------
Raw materials $ 8,265 $ 6,444
Work-in-process 2,686 1,945
Finished goods 13,348 8,583
------ ------
Total $ 24,299 $ 16,972
------ ------
4. Comprehensive Income
The Company's total comprehensive income was as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
---- ---- ---- ----
Net income $ 4,682 $ 2,656 $13,971 $ 8,645
Other comprehensive (loss)
income:
Change in equity due to
foreign currency
translation adjustments 107 128 (124) 941
------- ------- -------- -------
Comprehensive income $ 4,789 $ 2,784 $ 13,847 $ 9,586
======= ======= ======== =======
5. Goodwill and Other Intangible Assets
Goodwill represents the excess of the cost of businesses acquired over the fair
value of the related net assets at the date of acquisition. The changes in the
net carrying amount of goodwill for the nine months ended September 30, 2004
consist of the following:
Industrial/
POS/OEM Optical Total
--------- ---------- ---------
Balance as of December 31, 2003 $ 6,858 $ 10,678 $ 17,536
Purchase of minority interest in
subsidiaries 5,693 - 5,693
Currency translation adjustments (16) - (16)
--------- --------- ---------
Balance as of September 30, 2004 $ 12,535 $ 10,678 $ 23,213
========= ========= =========
Identifiable Intangibles
The Company had identifiable intangible assets with a net book value of $19,900
million and $6,600 million as of September 30, 2004 and December 31, 2003,
respectively.
The following table reflects the components of identifiable intangible assets:
September 30, 2004 December 31, 2003
--------------------- ----------------------
Amortizable Gross Gross
Life Carrying Accumulated Carrying Accumulated
(years) Amount Amortization Amount Amortization
----------- --------------------- ----------------------
Patents and Trademarks 17 7,982 (2,284) 7,143 (1,959)
Holographic Technology 10 1,082 (916) 1,082 (830)
Advance license fee 17 2,000 (912) 2,000 (824)
Computer software 5 12,258 - - -
Covenants not to compete 3 700 - - -
------ ------ ------ ------
Total 24,022 (4,112) 10,225 (3,613)
====== ====== ====== ======
The Company has determined that the lives previously assigned to these
finite-lived assets are still appropriate and has recorded $499 and $492 of
amortization expense for the nine months ended September 30, 2004 and 2003,
respectively
6. Business Segment 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 for the three-month
and nine-month periods ended September 30, 2004 and 2003.
The Company manages its business on a business segment basis and divides the
business into two major segments: Industrial Scanning and Optical; and Point of
Sale ("POS")/Original Equipment Manufacturers ("OEM"). Sales for the three-
month and nine-month periods ended September 30, 2004 and 2003 were as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
---- ---- ---- ----
Business segment net sales:
POS/OEM $ 34,553 26,109 97,742 79,112
Industrial/Optical 9,603 6,478 27,104 17,197
---------------------------------------
Total 44,156 32,587 124,846 96,309
---------------------------------------
Business segment gross profit:
POS/OEM $ 17,343 11,819 49,962 34,260
Industrial/Optical 2,725 1,965 7,998 5,697
---------------------------------------
Total 20,068 13,784 57,960 39,957
---------------------------------------
Business segment operating income:
POS/OEM $ 6,220 3,978 19,736 11,020
Industrial/Optical 1,027 573 3,083 929
---------------------------------------
Total 7,247 4,551 22,819 11,949
---------------------------------------
Total other (expenses) income $ 305 (265) (285) 648
---------------------------------------
Income before income taxes $ 7,552 4,286 22,534 12,597
---------------------------------------
7. Acquisitions
Omniplanar, Inc.
On September 24, 2004, the Company acquired 100% of the common stock of
Omniplanar, Inc. ("Omniplanar"), an imaging software company, for $13,000,
including acquisition costs. The Company paid $9,050 at closing, and will pay
$650 in March 2005, $1,300 in September 2005 and $1,950 in March 2006.
Omniplanar supplies a complete package of bar code reading software for 2D
imaging for fixed position, conveyor belt and hand held readers which can be
optimized for specific hardware applications. The Company has completed a
preliminary purchase price allocation and assets acquired have been recorded at
their estimated fair values. The consolidated statements of operations for the
three and nine month periods ending September 30, 2004 reflect the results of
Omniplanar since the effective date of the acquisition. The pro forma results of
operations have not been provided because the effects were not material.
In connection with the acquisition, the Company allocated $12,958 to
identifiable intangible assets comprising $12,258 of computer software which are
being amortized over 5 years and $700 to a non-compete agreement which is being
amortized over 3 years.
The following table summarizes the allocation of the purchase price of assets
recorded at the date of acquisition. The Company is still finalizing our
valuations of certain intangible assets; thus, the allocation of the purchase
price is subject to refinement. The Company expects this to be completed during
the fourth quarter of 2004.
September 30, 2004
--------------
Accounts receivable $ 17
Property, plant and quipment 25
Intangible assets 12,958
--------
Total cash paid $ 13,000
========
The Company accounted for this acquisition under the purchase method of
accounting.
Metrologic do Brasil
On February 4, 2003, the Company paid cash of $71 and signed three promissory
notes with a total discounted value of $204 for the remaining 49% interest in
Metrologic do Brasil. During the nine months ended September 30, 2004, the
Company paid one promissory note in the amount of $75 with the two remaining
promissory notes payable on February 4, 2005 and February 4, 2006, respectively.
The Company accounted for this acquisition under the purchase method of
accounting. The total purchase price and costs in excess of assets acquired
(goodwill) was $275.
Metrologic Eria Iberica ("MEI")
On August 5, 2003, the Company entered into an agreement to purchase the
remaining 49% interest in MEI for a purchase price of 5,900 euros. Payments are
being made in twelve quarterly installments over three years which commenced
August 5, 2003 and matures April 3, 2006. As of September 30, 2004, the Company
had purchased an additional 22.1%, of which 4.0% was purchased during the third
quarter of 2004 for approximately 500 euros, or $600 at the exchange rate on
September 30, 2004.
Metrologic Eria France ("MEF")
On March 19, 2004, the Company entered into an agreement to purchase the
remaining 49% minority interest of MEF for a purchase price of 3,600 euros, or
$4,300 at the exchange rate on March 31, 2004. As of September 30, 2004, wthe
Company owned 100% of MEF.
8. Recently Issued Accounting Standards
In December 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46 (revised), "Consolidation of Variable Interests Entities"
("FIN 46R"), which addresses how a business enterprise should evaluate whether
it has a controlling financial interest in an entity through means other than
voting rights and, accordingly, should consolidate the variable interest entity
("VIE"). FIN 46R replaces FASB Interpretation No. 46 that was issued in January
2003. Companies are required to apply FIN 46R to VIEs generally as of March 31,
2004 and to special-purpose entities as of December 31, 2003. For any VIEs that
must be consolidated under FIN 46R that were created before January 1, 2004, the
assets, liabilities and non-controlling interest of the VIE initially would be
measured at their carrying amounts, and any difference between the net amount
added to the balance sheet and any previously recognized interest would be
recorded as a cumulative effect of an accounting change. If determining the
carrying amounts is not practicable, fair value at the date FIN 46R first
applies may be used to measure the assets, liabilities and non-controlling
interest of the VIE. The adoption of FIN 46 and related revisions had no
significant impact on our consolidated financial position, consolidated results
of operations or liquidity.
9. Legal Matters
Symbol Technologies, Inc. v. Metrologic
On May 3, 2002, the Company was served with a lawsuit that was filed on April
12, 2002 by Symbol Technologies, Inc., in the U.S. District Court for the
Eastern District of New York alleging that the Company was in breach of the
terms of the License Agreement between the Company and Symbol (the "Agreement").
The Complaint sought a declaratory judgment from the Court that the Company was
in breach of the Agreement. On March 31, 2003, the Court entered its decision on
the parties' respective motions for summary judgment, and finding in the
Company's favor, the Court dismissed certain counts of Symbol's complaint. On
April 9, 2003, Symbol voluntarily dismissed the remaining counts of the
complaint. Symbol filed its Notice of Appeal with the U.S. Court of Appeals for
the Second Circuit on May 7, 2003. On December 23, 2003, the Court of Appeals
dismissed Symbol's appeal in this matter. In the interim, Symbol decided to
proceed with the arbitration for which the Company had filed a Demand in June
2002, which had been stayed pending the decision by the lower court. On June 26,
2003, Symbol filed an Amended Answer and Counterclaims in the Arbitration
asserting that (a) the Company's allegedly infringing products are royalty
bearing products, as defined under the Agreement, and (b) in the alternative,
those products infringe upon one or more of Symbol's patents. In December 2003,
the Company withdrew its Demand for Arbitration, and the parties briefed the
threshold issue of arbitrability in this matter on Symbol's counterclaims in
view of the decision rendered by the District Court. In May 2004, the arbitrator
reached a decision that the parties should move forward with the arbitration of
the issue of whether or not certain of the Company's products are royalty
bearing products as defined under the Agreement. An arbitration hearing was held
and the parties are awaiting a decision by the arbitrator.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Forward Looking Statements; Certain Cautionary Language
Written and oral statements provided by us 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 we
believe that the assumptions underlying such forward looking information are
reasonable based on present conditions, forward looking statements made by us
involve risks and uncertainties and are not guarantees of future performance.
Actual results may differ materially from those in our written or oral forward
looking statements as a result of various factors, including, but not limited
to, the following: (i) 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; (ii) continued or increased competitive
pressure which could result in reduced selling prices of products or increased
sales and marketing promotion costs; (iii) reliance on third party resellers,
distributors and OEMs which subject us to business failure risks of such
parties, credit and collections exposure, and other business concentration
risks; (iv) the future health of the United States and international economies
and other economic factors that directly or indirectly affect the demand for our
products; (v) 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, Chinese renminbi and British pound affecting
our results of operations; (vi) the effects of and changes in trade, monetary
and fiscal policies, laws, regulations and other activities of government,
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; (vii) continued or
prolonged capacity constraints that may hinder our ability to deliver ordered
product to customers; (viii) a prolonged disruption of scheduled deliveries from
suppliers when alternative sources of supply are not available to satisfy our
requirements for raw material and components; (ix) the costs and potential
outcomes of legal proceedings or assertions by or against us relating to
intellectual property rights and licenses; (x) our ability to successfully
defend against challenges to our patents and our ability to develop products
which avoid infringement of third parties' patents; (xi) occurrences affecting
the slope or speed of decline of the life cycle of our products, or affecting
our ability to reduce product and other costs and to increase productivity;
(xii) and the potential impact of terrorism and international hostilities.
All forward-looking statements included herein are based upon information
presently available, and we assume no obligation to update any forward-looking
statements.
General
The following discussion of our results of operations and liquidity and capital
resources should be read in conjunction with our Condensed Consolidated
Financial Statements and the related Notes thereto appearing elsewhere in this
Quarterly Report on Form 10-Q and the Consolidated Financial Statements and the
Notes to Consolidated Financial Statements for the year ended December 31, 2003
contained in our Annual Report on Form 10-K for the year ended December 31,
2003. The Condensed Consolidated Financial Statements for the three and nine
months ended September 30, 2004 and 2003 are unaudited.
Executive Overview
We are experts in optical image capture and processing solutions. In recent
years, we have increased sales, cash flow from operations and net income
primarily through the introduction of new products and a focus on cost reduction
activities to maintain a competitive advantage.
Success factors critical to our business include sales growth through continued
penetration in existing and new markets, maintaining a highly responsive and
cost efficient infrastructure, achieving the financial flexibility to ensure
that we can respond to new market opportunities in order to return value to our
shareholders and selective pursuit of strategic acquisitions.
In order to continue our penetration into new and existing markets, our strategy
involves expanding our sales channels and expanding our product development
activities. We have recently concentrated our direct sales efforts to further
penetrate some of the largest retailers in the United States. During 2003 and
2004, we were awarded significant contracts from some major customers in our
POS/OEM and Industrial/Optical business segments. A significant portion of the
shipments related to these orders occurred in the first nine months of 2004
contributing to our year over year sales growth of 29.6%. Another key factor in
this double-digit sales growth has been our ability to continue our growth in
eastern Europe and throughout Asia, which we believe will continue to be an
opportunity for continued growth, as evidenced by our investment in the
expansion of our Suzhou manufacturing facility which was completed in the third
quarter of 2004. In addition, we continued to invest in developing new and
improved products to meet the changing needs of our existing customers. We are
continuing to focus on executing our core strategy of leveraging our engineering
expertise to produce new POS and industrial products that will allow us to
penetrate new markets that we have not previously served and gain market share
in our existing markets. During the first nine months of 2004, we began to
recognize the benefits of the new products introduced during fiscal 2003 as
sales of these products for the three and nine months ended September 30, 2004
were approximately $2.7 million and $6.0 million, respectively. Furthermore, we
currently have several promising new products in the pipeline. We continue to
believe sales for 2004 and beyond will be positively affected as these new
products either begin to ship or ship in larger quantities.
To maintain a highly responsive and cost efficient infrastructure, our focus is
to maximize the efficiency of our organization through process improvements and
cost containment. We continue to focus on our strategy for margin expansion
through specific engineering initiatives to reduce product and manufacturing
costs. During the three and nine months ended September 30, 2004, we continued
to realize the benefits of these process improvements. In addition, the
expansion of our manufacturing facility in Suzhou, China was completed during
the third quarter of 2004. This expansion will nearly double the size of the
existing China operations and more importantly, will provide cost efficiencies
through lower direct labor costs.
Closely linked to the success factors discussed above is our continued focus to
achieve financial flexibility. In October 2003, we completed a follow-on public
offering, which provided us with net proceeds of $55.5 million. We used a
portion of those net proceeds to pay down existing indebtedness and purchase our
Blackwood, New Jersey facility. We intend to use the remaining net proceeds to
fund working capital requirements in the future for continued growth of our
business. As of September 30, 2004, we had total debt of approximately $8.9
million compared to $12.7 million as of June 30, 2003. Furthermore, we had cash
and cash equivalents of approximately $44.9 million as of September 30, 2004. We
believe that our current cash and working capital positions and expected
operating cash flows will be sufficient to fund our working capital, planned
capital expenditures and debt repayment requirements for the foreseeable future.
In addition to our internal development and organic growth, we may selectively
pursue strategic acquisitions that we believe will broaden or complement our
current technology base and allow us to serve additional end users and the
evolving needs of our existing customers. In March 2004, we purchased the
remaining 49% interest in Metrologic Eria France for approximately 3.6 million
euros, or $4.3 million at the exchange rate on March 31, 2004. During September
2004, we acquired 100% of the common stock of Omniplanar Inc. ("Omniplanar"), an
imaging software company for $13.0 million. Omniplanar supplies a complete
package of bar code reading software for 2D imaging for fixed position, conveyor
belt and hand held readers which can be optimized for specific hardware
applications. The acquisition of Omniplanar represents a significant addition to
our technology portfolio. Metrologic has licensed from Omniplanar the
SwiftDecoder software since the year 2000 for use in our iQ(R) line of
industrial vision-based products. We also intend to make use of the software in
other products as well. By acquiring this 2D imaging technology we will be able
to reduce our licensing costs for our current and future imaging-based products.
We expect this acquisition to be accretive to sales and earnings on a
prospective basis.
Forward-looking statements contained in this overview are highly dependent upon
a variety of important factors which could cause actual results to differ
materially from those reflected in such forward looking statements. For a list
of the factors that could cause actual results to differ from expectations,
refer to the section above on Forward Looking Statements. Results of Operations
Our business is divided into two major segments: Point-of-Sale/Original
Equipment Manufacturers, or POS/OEM, and Industrial Scanning and Optical.
POS/OEM bar code scanners are typically either handheld scanners or fixed
projection scanners. Handheld bar code scanners are principally suited for
retail point-of-sale, document processing, library, healthcare and inventory
applications. Fixed projection scanners, which can be mounted on or in a
counter, are principally suited for supermarkets, convenience stores, mass
merchandisers, health clubs and specialty retailers.
Industrial Scanning and dimensioning products are comprised of fixed position
systems that are either laser or vision-based. These systems range from simple,
one-scanner solutions to complex, integrated systems incorporating
multi-scanner, image capture and dimensioning technologies. Adaptive optical
solutions are highly customized, sophisticated, laser-based systems that correct
for the natural distortion of light as it exits a complex laser and travels
through the atmosphere or other transmission medium.
The following table sets forth certain information regarding our revenues by our
two reportable business segments for the periods indicated.
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
---- ---- ---- ----
($ in Thousands)
POS/OEM $ 34,553 $ 26,109 97,742 79,112
Industrial & Optical:
Industrial 3,763 3,820 12,592 9,844
Optical 5,840 2,658 14,512 7,353
-------- -------- ------- --------
Total Industrial 9,603 6,478 27,104 17,197
-------- -------- ------- --------
Total Company $ 44,156 $ 32,587 $124,846 $ 96,309
======== ======== ======= ========
Most of our product sales in Western Europe, Brazil and Asia are billed in
foreign currencies and are subject to currency exchange rate fluctuations.
Currently, a significant percentage of our products are manufactured in our U.S.
facility, and therefore, sales and results of operations are affected by
fluctuations in the value of the U.S. dollar relative to such foreign
currencies. We expect, however, that the manufacture of our point-of-sale
("POS") products in our Suzhou, China facility will increase in 2004 and beyond,
which will result in reduced labor and manufacturing costs in our POS scanners.
For the three and nine months ended September 30, 2004, sales were favorably
affected by the continuing decline in the value of the U.S. dollar in relation
to certain foreign currencies, especially the euro, when compared to the
comparable period in 2003.
The following table sets forth certain information as to our sales by
geographical location:
Three Months Ended Nine Months Ended
September 30, September 30,
2004 % 2003 % 2004 % 2003 %
---- ---- ---- ----
($ in Thousands)
North America 19,193 43.4% 14,530 44.6% 53,459 42.8% 42,113 43.7%
Europe 16,160 36.6% 12,253 37.6% 49,474 39.6% 39,612 41.1%
Rest of World 8,803 20.0% 5,804 17.8% 21,913 17.6% 14,584 15.2%
------- ----- ------- ----- ------- ----- ------- -----
Total $44,156 100.0% $32,587 100.0% $124,846 100.0% $96,309 100.0%
======= ===== ======= ===== ======== ===== ======= =====
Three Months Ended September 30, 2004 Compared with Three Months Ended
September 30, 2003
Sales increased 35.5% to $44.2 million in the three months ended September 30,
2004 from $32.6 million in the three months ended September 30, 2003. Sales of
our POS and original equipment manufacturers ("OEM") products increased by
32.3%, sales of industrial products decreased by 1.5% and sales of optical
systems increased by 120%. Approximately $1.4 million of the increase in POS/OEM
sales resulted from the strengthening of the euro against the U.S. dollar.
POS/OEM sales increased approximately $9.2 million due to increased unit sales
of handheld and in-counter scanners, of which $2.7 million was attributed to the
introduction of new products during 2003. These factors were partially offset by
a decrease of approximately $2.2 million resulting from lower average selling
prices due to competitive pricing pressures experienced in the retail sector,
primarily in Europe.
The decrease in our industrial sales is attributable to the winding down of a
fixed priced contract during the third quarter of 2004. The increase in optical
systems sales reflects an increase in customer-funded research and development
programs and an increase in the scope of work for selected cost plus type
contracts during the three months ended September 30, 2004.
International sales accounted for $25.0 million, or 56.6% of total sales, for
the three months ended September 30, 2004 and $18.1 million, or 55.4% of total
sales, for the three months ended September 30, 2003. The predominant portion of
the growth in international sales was from increased sales in the Rest of World
territory, primarily Asia. The increase in this territory is attributable to
higher volume through increased market growth as countries continue to expand
and develop. No individual customer accounted for 10.0% or more of sales in the
three months ended September 30, 2004 or 2003.
Cost of sales increased to $24.1 million in the three months ended September 30,
2004 from $18.8 million in the three months ended September 30, 2003. As a
percentage of sales, cost of sales decreased from 57.7% in 2003 to 54.6% in
2004. The decrease in the percentage of cost of sales can be attributed to the
following key factors:
o The strengthening of the euro against the U.S. dollar, as discussed
above, net of the effect of decreases in average selling
prices.
o More favorable product mix resulting from increased sales of certain
more profitable handheld scanners in 2004.
o A decrease in direct material costs as a percentage of sales resulting
from productredesigns and our engineering efforts to reduce bill of
material costs.
o Lower variable overhead charges, including a decrease in rent expenses
due to the purchase of the Blackwood manufacturing facility in December
2003 and decrease in indirect labor attributed to efficiencies in
manufacturing engineering and product support efforts.
o Increased utilization of our Suzhou, China facility resulting in cost
efficiencies through lower direct labor costs.
o A decrease in royalty costs due to a reduction in the number of
products covered by the agreement between Symbol Technologies and the
Company.
The decreases noted above are partially offset by an increase in material and
labor costs associated with the procurement of a contract with a significant
customer in the industrial business. While this investment may have a negative
near-term margin impact, we believe this is an important element of our strategy
to continue our penetration into new and existing markets.
Selling, general and administrative ("SG&A") expenses increased 45.7% to $11.0
million in the three months ended September 30, 2004 from $7.5 million for the
three months ended September 30, 2003. As a percentage of sales, SG&A expenses
increased from 23.1% of sales in the three months ended September 30, 2003 to
24.9% of sales in the corresponding period in 2004. The increase in SG&A
expenses can be attributed to increased variable selling expenses associated
with the higher sales volume in 2004, the strengthening of the euro against the
U.S. dollar on euro denominated expenses, increased professional service fees
related to our Sarbanes-Oxley section 404 compliance, increased legal expenses
associated with ongoing litigation matters, and an increase in salaries and
wages due to increased headcount.
Research & development ("R&D") expenses increased 8.2% to $1.8 million in the
three months ended September 30, 2004 from $1.7 million for the three months
ended September 30, 2003. As a percentage of sales, R&D expenses decreased
slightly from 5.2% of sales in the three months ended September 30, 2003 to 4.1%
of sales in the corresponding period in 2004, which can be attributed to higher
sales volume in 2004. In absolute dollars the increase in R&D expenses, which
consists of higher salaries and higher R&D material costs, is attributed to
ongoing new product development efforts.
Net interest income/expense reflects net interest income of $0.1 million for the
three months ended September 30, 2004 compared with net interest expense of $0.3
million for the comparable period in 2003. The decrease can be attributed to the
following factors: (i) lower interest expense and related borrowings outstanding
in 2004 due to repayments and/or termination of outstanding debt issuances
during fiscal 2003 and (ii) higher interest income due to higher cash and cash
equivalent balance resulting from proceeds received from the follow-on public
offering that closed in October 2003.
Other income/expense reflects net other income of $0.2 million for the three
months ended September 30, 2004 compared with net other income of $0.1 million
for the comparable period in 2003. The change can be attributed to foreign
exchange gains of approximately $0.3 million in 2004 as compared with foreign
exchange gains of $0.2 million in 2003.
Net income was $4.7 million, or $0.20 per diluted share for the three months
ended September 30, 2004 compared with net income of $2.7 million or $0.14 per
diluted share in 2003. Net income reflects a 38% effective tax rate for both
periods. The decrease in the value of the U.S. dollar relative to other foreign
currencies favorably affected diluted earnings per share by approximately $0.04
per diluted share in 2004 as compared to the corresponding period in 2003.
Nine Months Ended September 30, 2004 Compared with Nine Months Ended
September 30, 2003
Sales increased 29.6% to $124.8 million for the nine months ended September 30,
2004 from $96.3 million in the nine months ended September 30, 2003. Sales of
our POS and OEM products increased by 23.5%, sales of industrial products
increased by 27.9% and sales of optical systems increased by 97.4%.
Approximately $5.2 million of the increase in POS/OEM sales resulted from the
strengthening of the euro against the U.S. dollar. POS/OEM sales increased
approximately $19.9 million due to increased unit sales of handheld and
in-counter scanners, of which $6.0 million was attributed to the introduction of
new products during 2003. These factors were partially offset by a decrease of
approximately $6.4 million resulting from lower average selling prices due to
competitive pricing pressures experienced in the retail sector, primarily in
Europe.
The increase in industrial products sales is attributable to several significant
new contracts in 2004 including a contract with a major airline customer for bar
code scanning equipment and installation services to build and install scanning
stations and tunnels for use in baggage handling systems. The increase in
optical systems sales reflects an increase in customer-funded research and
development programs and an increase in the scope of work for selected cost type
contracts during the nine months ended September 30, 2004.
International sales accounted for $71.4 million, or 57.2% of total sales, for
the nine months ended September 30, 2004 and $54.2 million, or 56.3% of total
sales, for the nine months ended September 30, 2003. The predominant portion of
the growth in international sales was from increased sales in Rest of World
territory, primarily Asia. The increase in this territory is attributable to
higher volume through increased market growth as these countries continue to
expand and develop.
Cost of sales increased to $66.9 million for the nine months ended September 30,
2004 from $56.4 million for the nine months ended September 30, 2003. As a
percentage of sales, cost of sales decreased from 58.5% in 2003 to 53.6% in
2004. The decrease in the percentage of cost of sales can be attributed to the
following key factors:
o The strengthening of the euro against the U.S. dollar, as discussed
above, net of the effect of decreases in average selling prices.
o A decrease in direct material costs as a percent of sales resulting
from product redesigns and our engineering efforts to reduce bill of
material costs.
o More favorable product mix resulting from increased sales of certain
more profitable handheld scanners and certain industrial products in
2004.
o Lower variable overhead charges, including a decrease in rent expenses
due to the purchase of the Blackwood manufacturing facility in December
2003 and decrease in indirect labor attributed to efficiencies in
manufacturing engineering and product support efforts.
o Increased utilization of our Suzhou, China facility resulting in cost
efficiencies through lower direct labor costs.
o A decrease in royalty costs due to a reduction in the number of
products covered by the agreement between Symbol Technologies and the
Company.
The decreases noted above are partially offset by an increase in material and
labor costs associated with the procurement of a contract with a significant
customer in the industrial business. While this investment may have a negative
near-term margin impact, we believe this is an important element of our strategy
to continue our penetration into new and existing markets.
SG&A expenses increased 29.3% to $29.5 million for the nine months ended
September 30, 2004 from $22.8 million for the nine months ended September 30,
2003. As a percentage of sales, SG&A expenses decreased slightly from 23.7% of
sales for the nine months ended September 30, 2003 to 23.6% of sales in the
corresponding period in 2004. The increase in SG&A expenses, in absolute
dollars, can be attributed to increased variable selling expenses associated
with the higher sales volume in 2004, the strengthening of the euro against the
U.S. dollar on euro denominated expenses, increased professional service fees
related to our Sarbanes-Oxley section 404 compliance, increased legal expenses
associated with ongoing litigation matters, increased tax expenses associated
with stock options and an increase in salaries and wages.
R&D expenses increased 8.8% to $5.7 million in the nine months ended September
30, 2004 from $5.2 million for the nine months ended September 30, 2003. As a
percentage of sales, R&D expenses decreased from 5.4% of sales in the nine
months ended September 30, 2003 to 4.5% of sales in the corresponding period in
2004, which can be attributed to higher sales volume in 2004. In absolute
dollars, the increase in R&D expenses, which consists of higher salaries and
higher R&D material costs, is attributed to ongoing new product development
efforts.
Net interest income/expense reflects net interest income of $0.1 million for the
nine months ended September 30, 2004 compared with net interest expense of $1.1
million for the comparable period in 2003. The change can be attributed to the
following factors: (i) lower interest expense and related borrowings outstanding
in 2004 due to repayments and/or termination of outstanding debt issuances
during fiscal 2003 and (ii) higher interest income due to higher cash and cash
equivalent balance resulting from proceeds received from the follow-on public
offering that closed in October 2003.
Other income/expense reflects net other expense of $0.4 million for the nine
months ended September 30, 2004 compared with net other income of $1.7 million
for the comparable period in 2003. The change can be attributed to (i) a $2.2
million gain in 2003 on the early repayment of subordinated debt related to the
acquisition of AOA in 2003, (ii) $0.5 million of charges in 2003 incurred in
connection with our efforts to refinance our bank debt and restructure our
overall debt position (iii) and foreign exchange losses of approximately $0.1
million in 2004 as compared with foreign exchange gains of $0.3 million in 2003.
Net income was $14.0 million, or $0.61 per diluted share for the nine months
ended September 30, 2004 compared with net income of $8.6 million or $0.47 per
diluted share in 2003. Net income reflects a 38% effective tax rate in 2004, as
compared with 31.4% in 2003. The lower effective tax rate in 2003 is
attributable to the $2.2 million gain on early extinguishment of debt which, for
tax purposes, was treated as a reduction of the purchase price of AOA, and as
such was not subject to federal or state income tax. The decrease in the value
of the U.S. dollar relative to other foreign currencies favorably affected
diluted earnings per share by approximately $0.11 per diluted share as compared
to the corresponding period in 2003.
Inflation and Seasonality
Inflation and seasonality have not had a material impact on our results of
operations. However, our sales are typically impacted by decreases in seasonal
demand from European customers in our third quarter.
Liquidity and Capital Resources
Operating activities
Net cash provided from operations was $13.9 million and $7.1 million for the
nine-month periods ended September 30, 2004 and 2003, respectively. Net cash
provided by operating activities for the nine months ended September 30, 2004
can be attributed primarily to net income of $14.0 million, depreciation and
amortization of approximately $2.8 million, increases in accounts payable and
accrued expenses of $7.4 million offset by increases in inventory and accounts
receivable of $11.7 million.
Our working capital decreased $2.3 million or 3.2% to $71.8 million as of
September 30, 2004 from $74.1 million as of December 31, 2003. The key
components of the decrease in working capital were a decrease in cash of $4.0
million and an increase in current portion of debt of approximately $1.9 million
as a result of the Omniplanar acquisition, an increase in accrued expenses and
accounts payable of $7.0 million, offset by an increase in accounts receivable
of $4.2 million attributed to higher sales volume, and an increase in inventory
of $7.3 million as a result of a buildup in the inventory levels resulting from
longer delivery cycles of finished goods as we increase our use of ocean
shipments to maximize logistic efficiencies as well as to improve product
availability so that we may capitalize on opportunities that require a timely
delivery response.
Investing activities
Cash used in investing activities was $19.8 million for the nine months ended
September 30, 2004 as compared to $1.7 million for the comparable period in
2003. The increase in cash used in investing activities is primarily due to (i)
the closing of the Omniplanar acquisition (ii) the quarterly installment made to
purchase the 49% minority interest of Metrologic Eria Iberica, (iii) the
purchase of the remaining 49% interest in Metrologic Eria France (See
"Acquisitions" below for additional information), and (iv) increase in cash used
for property, plant and equipment purchases of $2.6 million primarily for
manufacturing expansion related investments as well as manufacturing automation
and information technology related equipment.
Financing activities
Cash provided by financing activities was $2.0 million for the nine months ended
September 30, 2004 compared to cash used in financing activities of $4.9 million
for the comparable period in 2003. Cash provided by financing activities for the
nine months ended September 30, 2004 consists primarily of $2.6 million of
proceeds from the exercise of stock options and employee stock purchase plan
offset by $0.6 million of net repayments on outstanding lines of credit and
other related debt obligations.
We believe that our current cash and working capital positions and expected
operating cash flows will be sufficient to fund our working capital, planned
capital expenditures and debt repayment requirements for the foreseeable future.
Foreign Currency Exchange
Our 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, we have selectively,
from time to time, entered into derivative financial instruments to offset our
exposure to foreign currency risks. Derivative financial instruments may include
foreign currency forward exchange contracts with our primary bank for periods
not exceeding nine months, which partially hedge sales to our German subsidiary.
In addition, we have euro based loans, which act as a partial hedge against
outstanding intercompany receivables and the net assets of our European
subsidiary, which are denominated in euros. Additionally, our European
subsidiary invoices and receives payment in certain other major currencies,
including the British pound, which results in an additional mitigating measure
that reduces our 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. No derivative instruments were outstanding at
September 30, 2004.
Acquisitions
Our original 51% minority interests in Metrologic Eria Iberica and Metrologic
Eria France contained options for us to purchase the remaining 49% interests. In
August 2003, we entered into an agreement to purchase the 49% minority interest
of Metrologic Eria Iberica for approximately 5.9 million euros, or $6.8 million
at the exchange rate on September 30, 2003, over three years commencing in
August 2003. As of September 30, 2004, we had purchased an additional 22.1%, of
which 4.0% was purchased during the third quarter of 2004, for approximately 0.5
million euros, or $0.6 million at the exchange rate on September 30, 2004.
In March 2004, we entered into an agreement to purchase the 49% minority
interest of Metrologic Eria France for approximately 3.6 million euros, or $4.3
million at the exchange rate on March 31, 2004. As of September 30, 2004, we
owned 100% of Metrologic Eria France.
In September 2004, we acquired 100% of the common stock of Omniplanar, Inc.
("Omniplanar"), an imaging software company, for $13.0 million, including
acquisition costs. The Company paid $9.05 million at closing, and will pay $0.65
million in March 2005, $1.3 million in September 2005 and $1.95 million in March
2006.
New Legislation
On October 22, 2004, the President signed the American Jobs Creation Act of
2004. This new legislation contains tax relief for U.S. based manufacturing
activities, reforms in the taxation of multinational businesses (including a
temporary provision that allows, under certain conditions, an 85 percent
dividend received deduction for certain dividends from controlled foreign
corporations), and various items of business income tax relief. The Company is
currently evaluating this new legislation and has yet to determine the impact of
any actions, if any, it may take in response.
Impact of Recently Issued Accounting Standards
In December 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46 (revised), "Consolidation of Variable Interests Entities"
("FIN 46R"), which addresses how a business enterprise should evaluate whether
it has a controlling financial interest in an entity through means other than
voting rights and, accordingly, should consolidate the variable interest entity
("VIE"). FIN 46R replaces FASB Interpretation No. 46 that was issued in January
2003. Companies are required to apply FIN 46R to VIEs generally as of March 31,
2004 and to special-purpose entities as of December 31, 2003. For any VIEs that
must be consolidated under FIN 46R that were created before January 1, 2004, the
assets, liabilities and non-controlling interest of the VIE initially would be
measured at their carrying amounts, and any difference between the net amount
added to the balance sheet and any previously recognized interest would be
recorded as a cumulative effect of an accounting change. If determining the
carrying amounts is not practicable, fair value at the date FIN 46R first
applies may be used to measure the assets, liabilities and non-controlling
interest of the VIE. The adoption of FIN 46 and related revisions had no
significant impact on our consolidated financial position, consolidated results
of operations or liquidity.
Item 3- Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in our quantitative and qualitative
disclosure about market risk since the Company's Annual Report on Form 10-K for
the year ended December 31, 2003.
Item 4- Controls and Procedures
As required by Rule 13a-15(e) under the Exchange Act, as of the end of the
period covered by this report, we carried out an evaluation of the effectiveness
of the design and operation of our disclosure controls and procedures. This
evaluation was carried out under the supervision and with the participation of
our Management, including our principal executive officer and principal
financial officer. These officers concluded that these disclosure controls and
procedures are sufficient to provide that (a) material information relating to
the Company is made known to these officers by other employees of the Company,
particularly material information related to the period for which this periodic
report is being prepared; and (b) this information is recorded, processed,
summarized, evaluated and reported, as applicable, within the time periods
specified in the rules and forms promulgated by the Securities and Exchange
Commission.
There have been no changes in the Company's internal controls over financial
reporting during the period covered by this report that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is currently involved in matters of litigation arising in the normal
course of business as well as the matters described below. Management is of the
opinion that there are no legal claims against the Company which are expected to
have a material adverse effect on the Company's consolidated financial position,
results of operations or cash flows.
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 (Accu-Sort Systems,
Inc., Intermec Technologies Corporation, a wholly-owned subsidiary of UNOVA,
Inc., PSC Inc., Psion Teklogix Corporation, Symbol Technologies, Inc., and Zebra
Technologies Corporation) 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, and later transferred to the District Court
in Las Vegas, Nevada. In the litigation, the Auto ID companies sought, 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.
On September 25, 2002, the District Court issued a trial order allocating
thirty-four (34) days for the trial on this matter commencing November 18, 2002.
The trial on this matter was held from November 2002 through January 2003. On
January 23, 2004, the Judge issued a decision in favor of the Auto ID companies
finding that the patents in suit were not infringed, and were invalid and
unenforceable. On June 23, 2004, the Lemelson Partnership filed its notice to
appeal the judge's decision.
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 November 22, 2002, PSC filed for protection under Chapter 11 of the U.S.
Bankruptcy Code. The Court issued an automatic stay in this case while the
bankruptcy was pending. The stay was lifted on July 18, 2003, and the Court
issued a ruling on the Markman hearing on August 26, 2003 entering a decision
and order providing an interpretation of the claims in suit. On October 1, 2004,
the parties argued several motions for summary judgment to the Court and are
waiting for the Court's decision on those motions.
C. Symbol Technologies, Inc. v. Metrologic
On May 3, 2002, we were served with a lawsuit that was filed on April 12, 2002
by Symbol Technologies, Inc., in the U.S. District Court for the Eastern
District of New York alleging that we were in breach of the terms of the License
Agreement between us and Symbol (the "Agreement"). The Complaint sought a
declaratory judgment from the Court that we were in breach of the Agreement. On
March 31, 2003, the Court entered its decision on the parties' respective
motions for summary judgment, and finding in our favor, the Court dismissed
certain counts of Symbol's complaint. On April 9, 2003, Symbol voluntarily
dismissed the remaining counts of the complaint. Symbol filed its Notice of
Appeal with the U.S. Court of Appeals for the Second Circuit on May 7, 2003. On
December 23, 2003, the Court of Appeals dismissed Symbol's appeal in this
matter. In the interim, Symbol decided to proceed with the arbitration for which
the Company had filed a Demand in June 2002, which had been stayed pending the
decision by the lower court. On June 26, 2003, Symbol filed an Amended Answer
and Counterclaims in the Arbitration asserting that (a) Metrologic's allegedly
infringing products are royalty bearing products, as defined under the Symbol
Agreement, and (b) in the alternative, those products infringe upon one or more
of Symbol's patents. In December 2003, the Company withdrew its Demand for
Arbitration, and the parties briefed the threshold issue of arbitrability in
this matter on Symbol's counterclaims in view of the decision rendered by the
District Court. In May 2004, the arbitrator reached a decision that the parties
should move forward with the arbitration of the issue of whether or not certain
of the Company's products are royalty bearing products as defined under the
Agreement. An arbitration hearing was held and the parties are awaiting a
decision by the arbitrator.
D. Metrologic v. Symbol Technologies, Inc.
On June 18, 2003, the Company filed suit against Symbol Technologies, Inc. in
the U.S. District Court for the District of New Jersey alleging claims of patent
infringement of certain of our patents by at least two Symbol products. The
complaint also contains a claim for breach of the 1996 Cross License Agreement
between the parties (the "Cross License Agreement"). Symbol's answer to the
complaint, filed on July 30, 2003, included counterclaims requesting that a
declaratory judgment be entered that patents in suit are invalid, are not
infringed by Symbol and that Symbol is not in breach of the Cross License
Agreement. This matter is still in discovery.
E. PSC Scanning, Inc. v. Metrologic
On May 17, 2004, PSC Scanning, Inc. ("PSC") filed suit against the Company in
the U.S. District Court for the District of Oregon alleging claims of patent
infringement of certain of its patents by at least one Metrologic product. The
Company believes that PSC's claims are wholly without merit and intends to
vigorously defend against them. The Company has filed an answer and
counterclaims to the complaint, and the matter is now in the early stages of
discovery.
Item 6. Exhibits
Exhibits:
10.1 Stock Purchase Agreement bewtween Omniplanar, Inc.
and MTLG Investments Inc. dated September 24, 2004.
31.1 Certification by Chief Executive Officer pursuant to
Exchange Act Rule 13a-14(a) or Rule 15d-14(a) as
adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
31.2 Certification by Chief Financial Officer pursuant to
Exchange Act Rule 13a-14(a) or Rule 15d-14(a) as
adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
32.1 Certification by Chief Executive Officer pursuant to
Exchange Act Rule 13a-14(b) or Rule 15d-14(b) and
Section 1350 of Chapter 63 of Title 18 of the United
States Code, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2 Certification by Chief Financial Officer pursuant to
Exchange Act Rule 13a-14(b) or Rule 15d-14(b) and
Section 1350 of Chapter 63 of Title 18 of the United
States Code, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
METROLOGIC INSTRUMENTS, INC.
Date: November 12, 2004 By:/s/ Benny Noens
----------------- ----------------------------------------
Benny Noens
Chief Executive Officer
(Principal Executive Officer)
Date: November 12, 2004 By:/s/ Kevin J. Bratton
----------------- -----------------------------------------
Kevin J. Bratton
Chief Financial Officer
(Principal Financial and Accounting Officer)
Exhibit Index Page Number
10.1 Stock Purchase Agreement between Omniplanar, Inc. and
MTLG Investments Inc. dated September 24, 2004. 25
31.1 Certification by Chief Executive Officer pursuant to
Exchange Act Rule 13a-14(a) or Rule 15d-14(a) as
adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. 59
31.2 Certification by Chief Financial Officer pursuant to
Exchange Act Rule 13a-14(a) or Rule 15d-14(a) as
adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. 60
32.1 Certification by Chief Executive Officer pursuant to
Exchange Act Rule 13a-14(b) or Rule 15d-14(b) and
Section 1350 of Chapter 63 of Title 18 of the United
States Code, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. 61
32.2 Certification by Chief Financial Officer pursuant to
Exchange Act Rule 13a-14(b) or Rule 15d-14(b) and
Section 1350 of Chapter 63 of Title 18 of the United
States Code, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. 62
Exhibit 10.1
STOCK PURCHASE AGREEMENT
BY AND AMONG
MTLG INVESTMENTS, INC.
AND
THE STOCKHOLDERS SET FORTH IN SCHEDULE A HERETO
Dated as of September 24, 2004
Table of Contents
Page
1. Definitions........................................................1
1.2 Other Defined Terms.......................................3
1.3 Usage of Terms............................................4
1.4 References to Sections, Exhibit and Schedules.............4
2. Purchase and Sale of Shares........................................5
2.1 Purchase and Sale.........................................5
2.2 Further Assurances........................................5
3. Consideration......................................................5
4. Representations and Warranties by the Sellers......................6
4.1 Organization..............................................6
4.2 Capitalization............................................6
4.3 Authority.................................................7
4.4 Charter Documents.........................................7
4.5 Financial Statements......................................8
4.6 Absence of Undisclosed Assets and Liabilities.............8
4.7 Operations and Obligations................................8
4.8 Properties................................................9
4.9 Leases....................................................10
4.10 Assets....................................................10
4.11 Working Capital...........................................10
4.12 Contracts.................................................10
4.13 Absence of Default........................................12
4.14 Insurance.................................................12
4.15 Litigation................................................12
4.16 Compliance with Law.......................................12
4.17 Intellectual Property.....................................13
4.18 Tax Matters...............................................13
4.19 Employee Benefit Plans....................................15
4.20 Environmental Laws........................................15
4.21 Bank Accounts, Letters of Credit and Powers of Attorney...16
4.22 Subsidiaries..............................................16
4.23 Brokers' and Finders' Fees................................16
4.24 Disclosure................................................16
5. Representations and Warranties of Buyer............................16
5.1 Organization..............................................16
5.2 Authority.................................................16
5.3 Litigation................................................17
5.4 Financing.................................................17
5.5 Brokers' and Finders' Fees................................17
6. Covenants..........................................................17
6.1 Tax Matters...............................................17
6.2 Severance Rights..........................................19
6.3 Actions by the Parties....................................19
6.4 Other Agreements..........................................20
7. Conditions.........................................................22
7.1 Conditions Precedent to Each Party's Obligation to Close..22
7.2 Conditions Precedent to Obligations of Buyer..............23
7.3 Conditions Precedent to Obligations of Sellers............24
8. Survival of Representations and Warranties.........................25
8.1 Representations and Warranties............................25
9. Indemnification....................................................25
9.1 Limitation of Liability...................................25
9.2 General Indemnification...................................25
9.3 Claims....................................................26
9.4 Objections to Claims......................................26
9.5 Third-Party Claims........................................27
9.6 Sellers' Representative...................................27
9.7 Access....................................................28
10. Set -off...........................................................28
11. Expenses; Taxes....................................................28
12. Press Releases.....................................................28
13. Contents of Agreement; Parties in Interest; etc....................28
14. Assignment and Binding Effect......................................28
15. Notices............................................................29
16. Amendment..........................................................30
17. Governing Law......................................................30
18. No Benefit to Others...............................................30
19. Severability.......................................................30
20. Section Headings...................................................30
21. Schedules and Exhibit..............................................30
22. Counterparts.......................................................30
Exhibit A Wire Instruction
Exhibit B Opinion of Counsel to Sellers
Exhibit C Opinion of Counsel to Buyer
Exhibit D Transition Services Agreement
Exhibit E Consulting Agreement
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") dated as of September
24, 2004 is entered into by and among MTLG INVESTMENTS, INC., a Delaware
corporation with an office located at 90 Coles Road, Blackwood, New Jersey 08012
("Buyer") and each of the individuals set forth in Schedule A to this Agreement
(each, a "Seller" and collectively, "Sellers").
RECITALS
A. Sellers collectively own all the issued and outstanding shares of
common stock, no par value per share ("Company Common Stock") of Omniplanar,
Inc., a New Jersey corporation (the "Company"). Each Seller's shares of Company
Common Stock are referred to in this Agreement as such "Seller's Shares."
B. The Company is engaged in the business of designing, developing,
producing, testing and selling or licensing, enhancing, and supporting (i)
software capable of locating and then decoding bar codes, 2D codes and other
codes and (ii) other software products related to package sortation, including,
but not limited to package segmentation, identification, inspection and
dimensioning (the "Business").
C. Buyer desires to purchase from Sellers, and Sellers desire to sell to
Buyer, all of the shares of Company Common Stock upon the terms and conditions
contained in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto intending to be legally bound do hereby agree
as follows:
AGREEMENT
1. Definitions. As used in this Agreement the terms set forth below shall
have the following meanings:
(a) "Affiliate" of a Person means any other Person who (i)
directly or indirectly through one or more intermediaries controls, is
controlled by or is under common control with, such Person including an
individual's spouse and minor children or (ii) owns more than five percent (5%)
of the capital stock or equity interest in such Person.
(b) "Benefit Plan" shall mean each "employee benefit plan"
within the meaning of Section 3(3) of ERISA, and each other bonus, pension,
profit sharing, deferred compensation, incentive compensation, stock ownership,
stock purchase, stock option, phantom stock, equity compensation, retirement,
vacation, severance, disability, death benefit, hospitalization, medical,
employment, retention, change in control or other employee or retiree
compensation or benefit plan, fund, program, arrangement or understanding
(whether or not legally binding) that is sponsored, maintained or contributed to
or required to be contributed to by the Company, a Seller or a Commonly
Controlled Entity, or to which the Company, a Seller or a Commonly Controlled
Entity is a party, whether written or oral, providing material benefits or
compensation to any current or former employee, officer or director of the
Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(d) "Commonly Controlled Entity" means any trade or
business, whether or not incorporated, that together with the Company or a
Seller would be deemed a single employer within the meaning of Section 414(b),
(c), (m) or (o) of the Code.
(e) "Control" shall mean the possession of the power,
directly or indirectly, to direct or cause the direction of the management and
policies of a Person whether through the ownership of voting securities, by
contract or otherwise.
(f) "Dollars" and "$" shall mean, unless otherwise
specified, United States Dollars.
(g) "Environmental Laws" shall mean all applicable federal,
state, local or foreign laws, rules and regulations, orders, decrees, judgments,
permits, filings and licenses relating (i) to protection and clean-up of the
environment and activities or conditions related thereto, including those
relating to the generation, handling, disposal, transportation or release of
Hazardous Substances and (ii) the health or safety of employees in the workplace
environment, all as amended from time to time, and shall also include any common
law theory based on nuisance, trespass, negligence or other tortious conduct.
(h) "Final Determination" shall mean (i) a decision of the
United States Tax Court, or a decision, judgment, decree or other order by
another court of competent jurisdiction, which has become final and is either no
longer subject to appeal or for which a determination not to appeal has been
made; (ii) a closing agreement made under Section 7121 of the Code or any
comparable foreign, state, local or municipal Tax statute; (iii) any
disallowance of a claim for refund or credit in respect of an overpayment of Tax
unless a suit related thereto is filed on a timely basis; (iv) any final
disposition by reason of the expiration of the applicable statute of
limitations, or (v) the actual payment by the Company of Taxes.
(i) "GAAP" shall mean United States generally accepted
accounting principles, consistently applied.
(j) "Hazardous Substances" shall mean any and all hazardous
and toxic substances, wastes or materials, any pollutants, contaminants, or
dangerous materials (including, but not limited to, polychlorinated biphenyls,
PCBS, friable asbestos, volatile and semi-volatile organic compounds, oil,
petroleum products and fractions, and any materials which include hazardous
constituents or become hazardous, toxic, or dangerous when their composition or
state is changed), or any other similar substances or materials which are
included under or regulated by any Environmental Laws.
(k) "Knowledge of the Sellers" shall mean the actual
knowledge of the Sellers after due inquiry of all relevant employees of the
Company and reasonable investigation of the Material Contracts and internal
books and records of the Company.
(l) "Liens" any liens, encumbrances, pledges, restrictive
agreements, claims, security interests, mortgages, charges, escrows, options,
proxies, rights of first refusal, preemptive rights, indentures, security
agreements or imperfections, limitations, encumbrances or restrictions of any
kind, character or nature whatsoever, direct or indirect.
(m) "Material Adverse Effect" shall mean (unless otherwise
specified) any condition or event that may: (a) have a material adverse effect
on the assets, Business, financial condition, operations or prospects of the
Company, (b) materially impair the ability of Sellers to perform their
obligations under this Agreement, or (c) prevent or delay the consummation of
transactions contemplated under this Agreement, other than as a result of
business and economic conditions generally affecting the software industry and
general economic conditions.
(n) "Permitted Liens" shall mean (a) Liens for taxes,
assessments, or similar charges, incurred in the ordinary course of business
that are not yet due and payable or are being contested in good faith; (b)
pledges or deposits made in the ordinary course of business; (c) Liens of
mechanics, materialmen, warehousemen or other like Liens securing obligations
incurred in the ordinary course of business that are not yet due and payable or
are being contested in good faith; and (d) similar Liens and encumbrances which
are incurred in the ordinary course of business and which do not in the
aggregate materially detract from the value of such assets or properties or
materially impair the use thereof in the operation of such business.
(o) "Person" shall mean any individual, corporation,
partnership, limited partnership, limited liability company, trust, association
or entity or government agency or authority.
(p) "Subsidiary" of a Person shall mean any corporation,
partnership, joint venture or other entity in which such Person (a) owns,
directly or indirectly, fifty percent (50%) or more of the outstanding voting
securities or equity interests or (b) is a general partner.
(q) "Tax" (and, with correlative meaning, "Taxes" and
"Taxable") shall mean any federal, state, local or foreign net income, gross
income, gross receipts, windfall profit, severance, property, production, sales,
use, license, excise, franchise, employment, payroll, withholding, alternative
or add-on minimum, ad valorem, value-added, transfer, stamp, or environmental
tax, or any other tax, custom, duty, governmental fee or other like assessment
or charge of any kind whatsoever, together with any interest or penalty,
addition to tax or additional amount imposed by any governmental authority.
(r) "Tax Return" shall mean any return, report or similar
statement required to be filed with respect to any Tax (including any attached
schedules), including, without limitation, any information return, claim for
refund, amended return or declaration of estimated Tax.
1.2 Other Defined Terms. The following terms shall have the
meanings defined for such terms in the Sections set forth below:
Defined Term Location of Definition
2003 Balance Sheet Section 4.5(a)
AAA Section 9.4(b)
Agreement Preamble
Allocation Section 6.1(b)(ii)
Business Recitals
Buyer Preamble
Buyer Notice Section 9.3(a)
Cap Section 9.1(a)
Closing Section 2.1(a)
Closing Date Section 2.1(a)
Closing Date Consideration Section 3(a)
Consideration Section 3
Company Recitals
Company Common Stock Recitals
Damages Section 9.2(a)
Financial Statements Section 4.5
Indemnified Person Section 9.2(a)
Intellectual Property Rights Section 4.17(a)
IRS Section 4.18(a)
June 30 Balance Sheet Section 4.5(b)
Laws Section 4.16
Material Contracts Section 4.12(o)
Metrologic Section 6.4(j)
Owned Assets Section 4.10(a)
Personal Property Leases Section 4.9(b)
Post-Closing Returns Section 6.1(d)
Real Estate Leases Section 4.9(a)
Section 338(h)(10) Election Section 6.1(a)
Seller Preamble
Seller's Shares Recitals
Sellers Preamble
Sellers' Representative Section 9.6(a)
Shares Section 4.2(a)
Territory Section 6.4(c)(i)
Threshold Section 9.1(b)
Transition Services Agreement Section 6.4(a)
1.3 Usage of Terms. Except where the context otherwise requires, words
importing the singular number shall include the plural number and vice versa.
1.4 References to Sections, Exhibit and Schedules. All references in
this Agreement to Sections (and other subdivisions), Exhibit and Schedules refer
to the corresponding Sections (and other subdivisions), Exhibit and Schedules of
or attached to this Agreement, unless the context expressly, or by necessary
implication otherwise requires.
2. Purchase and Sale of Shares.
2.1 Purchase and Sale. Subject to the terms and conditions of this
Agreement, on the Closing Date, each Seller shall sell, transfer, assign, convey
and deliver to Buyer and Buyer shall purchase from each Seller such Seller's
Shares, in each case, free and clear of all Liens. The closing of the purchase
and sale of the Shares (the "Closing") shall take place simultaneously with the
execution of this Agreement or on such other date and time as the parties may
mutually agree (the "Closing Date"). At the Closing, Sellers (through Sellers'
Representative) shall deliver to Buyer stock certificates representing the
Shares along with fully executed stock powers or assignments separate from
certificates and Buyer shall pay the Closing Date Consideration to Sellers in
accordance with Schedule A.
2.2 Further Assurances. If, at any time after the Closing Date,
Buyer shall consider or be advised that any deeds, bills of sale, assignments or
assurances or any other acts or things are necessary, desirable or proper (a) to
vest, perfect or confirm, of record or otherwise, in Buyer its right to, and,
title or interest in, the Shares or (b) otherwise to carry out the purposes of
this Agreement, Buyer shall so advise Sellers' Representative in writing, and
Sellers thereupon shall promptly execute and deliver all such deeds, bills of
sale, assignments and assurances and do all such other acts and things
necessary, desirable or proper to vest, perfect or confirm Buyer's right, title
or interest in, to or under the Shares and otherwise to carry out the purposes
of this Agreement.
3. Consideration.
(a) On the Closing Date, the Buyer shall deliver to Sellers
by wire transfer (in accordance with the wire instructions set forth on Exhibit
A) of immediately available funds, the amount of Nine Million Fifty Thousand
Dollars ($9,050,000) (the "Closing Date Consideration").
(b) On the six (6) month anniversary of the Closing Date
(or, on the next business day if such six month anniversary is a Saturday,
Sunday or banking holiday in the State of New Jersey), the Buyer shall deliver
to Sellers by wire transfer of immediately available funds, the amount of Six
Hundred Fifty Thousand Dollars ($650,000), less the amounts (if any) withheld by
the Buyer for any indemnification claim made pursuant to Section 9.
(c) On the one (1) year anniversary of the Closing Date
(or, on the next business day if such one year anniversary is a Saturday, Sunday
or banking holiday in the State of New Jersey), the Buyer shall deliver to the
Sellers by wire transfer of immediately available funds, the amount of One
Million Three Hundred Dollars ($1,300,000), less the amounts (if any) withheld
by the Buyer for any indemnification claim made pursuant to Section 9.
(d) On the Eighteen (18) month anniversary of the Closing
Date (or, on the next business day if such 18-month anniversary is a Saturday,
Sunday or banking holiday in the State of New Jersey), the Buyer shall deliver
to the Sellers by wire transfer of immediately available funds, the amount of
One Million Nine Hundred Fifty Thousand Dollars ($1,950,000), less the amounts
(if any) withheld by the Buyer for any indemnification claim made pursuant to
Section 9.
The funds provided under Sections 3(a)-(d) shall be proportionally divided among
the individual Sellers in accordance with Schedule A. Buyer and the Sellers
agree that the Consideration shall be allocated for all Tax purposes in
accordance with Section 6.1(c). The aggregate amounts (Twelve Million Nine
Hundred Fifty Thousand Dollars ($12,950,000) less the amounts (if any) withheld
by the Buyer for any indemnification claim made pursuant to Section 9) to be
paid by Buyer pursuant to Sections 3(a)-(d) is hereinafter referred to as the
"Consideration".
4. Representations and Warranties by the Sellers. Except as set forth in
the disclosure schedule accompanying this Agreement, the schedule numbers of
which are numbered to correspond to the section numbers of this Agreement to
which they refer, the Sellers hereby represent and warrant to Buyer that the
statements contained in this Section 4 are, when read in conjunction with the
disclosure schedule, true and correct as of the Closing Date (with such
exceptions as may be specifically permitted under or specifically contemplated
by this Agreement and except for representations and warranties that relate to a
specific date, which shall speak only as of such date).
4.1 Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority and all
necessary governmental approval to carry on its business as it has been and is
now being conducted. The Company is duly qualified as a foreign corporation to
do business and is in good standing as a foreign corporation in each state in
which the ownership or leasing of its properties or the conduct of its Business
makes it necessary to qualify, except where the failure to so qualify would not
reasonably be expected to have a Material Adverse Effect. Schedule 4.1 hereto
sets forth the jurisdictions in which the Company is qualified as a foreign
corporation. This Agreement and all other agreements herein contemplated to be
executed by the Company have been (or will be prior to the Closing) effectively
authorized by all necessary action, corporate or otherwise, by the Company and
the Sellers.
4.2 Capitalization.
(a) The total authorized shares of capital stock of the
Company consists solely of 2,500 shares of Company Common Stock, of which 103.3
shares are issued and outstanding (the "Shares"). The Shares constitute, in the
aggregate, all the issued and outstanding capital stock of all classes of the
Company. All the Shares have been duly and validly authorized and issued and are
fully paid and nonassessable. None of the Shares have been issued in violation
of the preemptive rights of any shareholder of the Company. The Shares were
issued in compliance in all material respects with all applicable federal and
state securities laws and regulations. Each Seller owns all of such Seller's
Shares free and clear of all Liens. No Person (other than each Seller) has any
powers or right of any kind, to dispose of or direct the disposition of such
Seller's Shares or to vote or direct the voting of such Seller's Shares.
(b) Except as set forth in Schedule 4.2(b), there are no
existing agreements, subscriptions, options, warrants, calls, commitments,
trusts (voting or otherwise), or rights of any kind whatsoever granting to any
Person any interest in or the right to purchase or otherwise acquire from the
Company or granting to the Company any interest in or the right to purchase or
otherwise acquire from any Person, at any time, or upon the occurrence of any
stated event, any securities of the Company (whether of a debt, equity or hybrid
nature), whether or not presently issued or outstanding, nor are there any
outstanding securities of the Company or any other entity which are convertible
into or exchangeable for other securities of the Company, nor are there any
agreements, subscriptions, options, warrants, calls, commitments or rights of
any kind granting to any Person any interest in or the right to purchase or
otherwise acquire from the Company or any other Person any securities so
convertible or exchangeable, nor are there any proxies, agreements or
understandings with respect to the voting of the Shares.
4.3 Authority.
(a) Each Seller has full power and authority to execute,
deliver and perform this Agreement. The execution, delivery and performance of
this Agreement has been duly authorized and approved by all necessary corporate
action and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement and the transactions contemplated hereby.
This Agreement has been duly authorized, executed and delivered by each Seller
and is the legal, valid and binding obligation of each Seller, enforceable in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors rights generally and by the effect of general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law).
(b) The execution, delivery, performance by each Seller of
this Agreement and the consummation of the transactions contemplated hereunder
do not, and will not, (i) violate or conflict with any provision of the
Certificate of Incorporation or By-laws of the Company, (ii) violate any law,
rule, regulation, order, writ, injunction, judgment or decree of any court,
governmental authority or regulatory agency applicable to any Seller or the
Company, except, in each case, for violations which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect,
or (iii) result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, any note, bond, indenture,
Lien, mortgage, lease, permit, guaranty or other agreement, instrument or
obligation to which the Company or any Seller is a party or by which any of
their respective properties may be bound.
(c) The execution and delivery of this Agreement by each
Seller does not, and the performance by each Seller of this Agreement will not,
require any consent, approval, authorization or permission of, or filing with or
notification to any governmental or regulatory authority, domestic or foreign,
except any such consent, approval, authorization, permission, notice of filing
which if not obtained or made would not reasonably be expected to have a
Material Adverse Effect.
4.4 Charter Documents. The Company has previously furnished to
Buyer (a) a true, complete and correct copy of the Certificate of Incorporation
and the By-laws of the Company and each such Certificate of Incorporation and
By-laws is in full force and effect; and (b) each agreement, trust, proxy or
other arrangement among its current or former shareholders, if any. The Company
is not in violation of any provision of its Certificate of Incorporation or its
By-laws. The minute books and stock records of the Company contain accurate,
correct and complete records of all meetings, accurately reflect all other
material corporate action of the shareholders and directors and any committees
of the board of directors of the Company and accurately reflect the ownership of
the Company.
4.5 Financial Statements. The Company has previously furnished to
Buyer true and complete copies of the following financial statements of the
Company (the "Financial Statements"):
(a) unaudited balance sheet of the Company as of December
31, 2002 and December 31, 2003 (the "2003 Balance Sheet");
(b) unaudited balance sheet of the Company as of June 30,
2004 (the "June 30 Balance Sheet");
(c) unaudited statements of operations and shareholders'
equity of the Company for the fiscal years ended December 31, 2003 and December
31, 2002; and
(d) unaudited statements of operations and shareholders'
equity of the Company for the period ending June 30, 2004.
The Financial Statements were prepared on the basis of the books and
records of the Company and present fairly, in all material respects, the
financial position of the Company as of the dates thereof and the results of its
operations, and changes in shareholders' equity for the period then ended. There
has been no change in accounting methods or practices during the years covered
by the Financial Statements.
4.6 Absence of Undisclosed Assets and Liabilities. The Financial
Statements disclose all of the assets of the Company as of the dates of such
Financial Statements. Except as disclosed on Schedule 4.6 or as set forth in the
notes to the Financial Statements, the Company does not have any liability or
obligation of any nature (whether absolute, accrued or contingent or otherwise)
which is in excess of amounts shown or reserved therefore in the Financial
Statements other than liabilities or obligations incurred after the date of the
June 30 Balance Sheet reasonably incurred in the ordinary course of business and
consistent with past practice.
4.7 Operations and Obligations.
(a) Except as set forth in Schedule 4.7, since December
31, 2003,
(i) there has been no event or condition that has
had or could reasonably be expected to have a Material Adverse Effect; and
(ii) there has been no impairment, damage,
destruction, loss or claim, whether or not covered by insurance, or condemnation
or other taking which would reasonably be expected to have a Material Adverse
Effect.
(b) Except as set forth in Schedule 4.7, since December 31,
2003, the Company has conducted its business only in the ordinary course and in
conformity with past practice. Without limiting the generality of the foregoing,
since December 31, 2003, except as set forth in Schedule 4.7, the Company has
not:
(i) issued, delivered or agreed (conditionally or
unconditionally) to issue or deliver any bonds, notes or other debt securities,
or borrowed or agreed to borrow any funds, other than in the ordinary course of
business consistent with past practice;
(ii) paid any obligation or liability (absolute or
contingent) other than current liabilities reflected on the 2003 Balance Sheet
and current liabilities incurred since December 31, 2003 in the ordinary course
of business consistent with past practice;
(iii) declared or made, or agreed to declare or make,
any payment of dividends or distributions to its shareholders or purchased or
redeemed, or agreed to purchase or redeem, any capital stock of the Company;
(iv) except in the ordinary course of business
consistent with past practice, made or permitted any material amendment or
termination of any agreement to which the Company is a party and is or should be
set forth on Schedule 4.12;
(v) undertaken or committed to undertake capital
expenditures exceeding $25,000 for any single project or related series of
projects;
(vi) sold, leased (as lessor), transferred or
otherwise disposed of, mortgaged or pledged, or imposed or suffered to be
imposed any Lien on, any of the assets reflected on the 2003 Balance Sheet (or
which should be reflected on the 2003 Balance Sheet) or any assets acquired by
the Company after December 31, 2003, except for inventory and personal property
sold or otherwise disposed of for fair value in the ordinary course of its
business consistent with past practice and except for Permitted Liens;
(vii) canceled any debts owed to or claims held by
the Company (including the settlement of any claims or litigation) other than in
the ordinary course of its business consistent with past practice;
(viii) accelerated the payment by any third party of
any amount due the Company for services provided or future license payments
other than in the ordinary course of its business consistent with past practice;
or
(ix) delayed the payment of any accounts payable
other than in the ordinary course of its business consistent with past practice.
4.8 Properties.
(a) The Company has good and valid title to or has valid
leaseholds in all its properties and assets reflected on the June 30 Balance
Sheet or acquired after the date thereof except for (I) properties and assets
sold or otherwise disposed of in the ordinary course of business since the date
of such June 30 Balance Sheet (ii) leasehold interests, in which event the
Company has a valid leasehold interest and (iii) properties and assets which
individually or in the aggregate are not material.
(b) The Company does not own any real property.
4.9 Leases.
(a) Schedule 4.9 sets forth a correct and complete list of
all real property leased or subleased by the Company including identification of
the lease or sublease, street address and list of all contracts, agreements,
leases, subleases, options and commitments, oral or written, affecting such Real
Estate or any interest therein to which the Company is a party or by which any
of its interests in real property is bound (the "Real Estate Leases"). The
Company has been in peaceable possession of the premises covered by each Real
Estate Lease since the commencement of the original term of such Real Estate
Lease. The Sellers have delivered to Buyer a correct and complete copy of each
Real Estate Lease. At the Closing, the Company shall deliver to Buyer any
consents or approvals of any parties required in connection with the
transactions contemplated hereby with respect to the Real Estate Leases listed
on Schedule 4.9.
(b) Schedule 4.9 sets forth a correct and complete list of
all leases or bailments of personal property used in the Business (the "Personal
Property Leases"). The Company has been in peaceable possession of the property
covered by each Personal Property Lease since the commencement thereof. The
Company has delivered to Buyer a correct and complete copy of each Personal
Property Lease.
4.10 Assets.
(a) The Company has good and marketable title to all of the
owned assets used in and related to the Business, located on its premises, shown
on the Financial Statements or acquired after the date thereof (the "Owned
Assets"). Except as set forth in Schedule 4.10, none of the Owned Assets is
subject to any Lien, except for (i) Liens set forth on the Financial Statements,
and (ii) other imperfections of title, restrictions or encumbrances, if any,
which imperfections, restrictions or encumbrances do not, individually or in the
aggregate, significantly impair the continued use and operation of the Owned
Assets to which they relate.
(b) Except as set forth in Schedule 4.10, the Owned Assets
are in good operating condition and repair (ordinary wear and tear excepted),
and are suitable for the purposes for which they are presently being used.
Except as set forth in Schedule 4.10, the Owned Assets, together with assets
currently being leased by the Company, are sufficient for the Buyer to conduct
the business of the Company as currently conducted.
4.11 Working Capital. As of the Closing Date, the cash balance of
Company shall be $0.
4.12 Contracts. Schedule 4.12 lists all of the following contracts
and agreements (whether written or oral), except for (i) oral contracts or
commitments that are terminable at will and (ii) contracts and agreements that
are expired as of the Closing Date:
(a) each contract or commitment which creates an obligation
on the part of the Company in excess of $10,000;
(b) each debt instrument, including, without limitation,
any loan agreement, line of credit, promissory note, security agreement or other
evidence of indebtedness, where the Company is a lender, borrower or guarantor,
in a principal amount in excess of $10,000;
(c) each contract or commitment restricting the Company
from engaging in any line of business;
(d) each contract or commitment in excess of $10,000 to
which the Company is a party for any charitable contribution;
(e) each joint development, joint venture or partnership
agreement to which the Company is a party;
(f) each agreement in excess of $10,000 to which the
Company is a party with respect to any assignment, discounting or reduction of
any receivables of the Company;
(g) each distributorship, sales agency, sales
representative, reseller or marketing, value added reseller, original equipment
manufacturing, technology transfer, source code license agreement and any other
agreements containing the right to sublicense software and/or technology, in
each case, to which the Company is a party;
(h) each agreement, option or commitment or right with, or
held by, any third party to acquire any assets or properties, or any interest
therein, of the Company, having a value in excess of $25,000 except for
contracts for the sale of inventory, machinery or equipment in the ordinary
course of business;
(i) each employment, consulting or independent contractor
agreement entered into by the Company;
(j) each guarantee, contingent liability or indemnity
involving an obligation or potential obligation, to which the Company is a
party;
(k) each power of attorney of the Company;
(l) any material restrictions imposed on the Company
regarding competition or solicitation of customers or employees;
(m) any agreement or other commitment with an Affiliate of
the Sellers, to which the Company is a party;
(n) any agreement with respect to the treatment of
confidential information furnished by or to the Company, or
(o) any contract, agreement, arrangement and commitment of
any kind (other than contracts with any governmental authorities) to which the
Company is a party regarding commercial transactions involving the Company's
products and services and involving payments to or from the Company in excess of
$25,000 (collectively, the foregoing (a)-(o) being the "Material Contracts").
Each of the Material Contracts is in full force and effect and is a validly
binding obligation of the Company, and to the Knowledge of Sellers, the other
parties thereto.
4.13 Absence of Default. Except as set forth in Schedule 4.13, each
of the leases, contracts and other agreements listed or required to be listed in
Schedules 4.9, 4.12, and 4.17, that create obligations on any Person in excess
of $25,000 constitutes a valid and binding obligation of the parties thereto and
is in full force and effect and will continue in full force and effect after the
Closing Date, in each case, without breaching the terms thereof or resulting in
the forfeiture or impairment of any rights thereunder and without the consent,
approval or act of, or the making of any filing with, any other Person. The
Company has fulfilled and performed in all material respects its obligations
under each such lease, contract or other agreement to which it is a party to the
extent such obligations are required by the terms thereof to have been fulfilled
or performed through the date hereof and the Company is not, and, except as set
forth in Schedule 4.13, the Company is not alleged in writing to be, in breach
or default under any such lease, contract or other agreement. To the Knowledge
of the Sellers, no other party to any such lease, contract or other agreement
has breached or defaulted thereunder. No event has occurred and no condition or
state of facts exists which, with the passage of time or the giving of notice or
both, would constitute such a default or breach by the Company or, to the
Knowledge of the Sellers, by any such other party.
4.14 Insurance. Schedule 4.14 sets forth a list and brief
description (including nature of coverage, limits, deductibles, premiums and the
loss experience since the inception of the Company with respect to each type of
coverage) of all policies of insurance maintained, owned or held by the Company
during the period from inception up to and including the date hereof. The
Company has not received any notice or other communication within one (1) year
prior to the date hereof canceling or materially amending or materially
increasing the premium payable under any of such insurance policies and to the
Knowledge of the Sellers, no such cancellation, amendment or an increase of
premiums is threatened. The Company shall use all commercially reasonable
efforts to keep such insurance or comparable insurance in full force and effect
through the Closing Date. The Company has complied in all material respects with
each such insurance policy to which it is a party.
4.15 Litigation. Except as set forth in Schedule 4.15, (i) there are
no actions, suits, arbitrations, legal or administrative proceedings or
investigations pending or, to the Best Knowledge of the Sellers, threatened
against the Company; and (ii) neither the Company nor any assets, properties or
business of the Company, is subject to any judgment, order, writ, injunction or
decree of any court, governmental agency or arbitration tribunal. None of the
Sellers have any claim against the Company, for whatever reason, either as a
stockholder, director, officer, employee or otherwise. To the Knowledge of the
Sellers, there is no pending suit, claim, litigation or other proceeding against
any Person based in whole or in part on the fact that such Person is or was a
director or officer of the Company nor are the Sellers aware of any such
contemplated action. Except as set forth in Schedule 4.15, the Company is not
the plaintiff in any such proceeding and the Company is not contemplating
commencing legal action against any other Person.
4.16 Compliance with Law. Except as set forth in Schedule 4.16, the
Company has complied in all material respects with, and is not in material
violation of any law, statute, order, judgment, ordinance or governmental rule
or regulation (collectively, "Laws") to which it or the Business is subject.
4.17 Intellectual Property.
(a) The Company owns or is validly licensed or otherwise
has the right to use all patents, trademarks, trade secrets, trade names,
service marks, copyrights and other proprietary intellectual property rights and
computer programs (the "Intellectual Property Rights"), which are material to
the conduct of the Business. Schedule 4.17 contains a list and summary
description of the Company's Intellectual Property Rights.
(b) Other than as disclosed on Schedule 4.17, the Company
has not: (i) to the Knowledge of the Sellers, infringed upon, misappropriated or
otherwise come into conflict with any Intellectual Property Rights of any other
Person; or (ii) received any written charge, complaint, claim, demand or notice
alleging any infringement, misappropriation or violation (including any claim
that the Company must license or refrain from using any Intellectual Property
Rights or other proprietary information of any other Person or must indemnify a
third party as a result of any alleged infringement) of the Intellectual
Property Rights of any other Person, which has not been settled or otherwise
fully resolved. Other than as set forth on Schedule 4.17, the Company has not
received any request, whether written or oral, suggesting that the Company take
a license to any Intellectual Property Rights of any other Person.
(c) To the Knowledge of the Sellers, no other Person has
infringed upon, misappropriated or otherwise come into conflict with any Company
Intellectual Property Rights or other proprietary information of the Company.
(d) Except as disclosed on Schedule 4.17, the Company has
not entered into any agreement containing any provision that would materially
interfere with or diminish its Intellectual Property Rights as a result of the
acquisition by Buyer of the Shares as contemplated by this Agreement.
(e) Except as disclosed on Schedule 4.17, each employee,
agent, consultant or contractor who has contributed to or participated in the
creation or development of any copyrightable, patentable or trade secret
material on behalf of the Company or any predecessor in interest thereto has
conveyed all right, title and interest to such material to the Company by
either: (i) such party having executed a "work-for-hire" agreement (to the
extent such material may be validly covered by a "work-for-hire" agreement)
under which the Company is deemed to be the original owner/author of all
property rights therein; or (ii) by executing an assignment in favor of the
Company or such predecessor in interest, as applicable. A copy of each such
"work-for-hire" agreement or assignment has been furnished to Buyer.
4.18 Tax Matters.
(a) Except as set forth on Schedule 4.18(a), (i) the
Company has filed all Tax Returns required to be filed with respect to taxable
periods ending on or before the Closing Date and is not currently the
beneficiary of any extension of time within which to file any Tax Return; (ii)
all such Tax Returns are complete and accurate in all material respects and all
Taxes shown to be due on such Tax Returns have been paid; (iii) all Taxes
(whether or not shown on any Tax Return) for which the Company may be liable in
its own right or as a transferee of the assets of, or successor to, any
corporation, Person, association, partnership, joint venture or other entity,
have been paid or the Company has established adequate reserves therefor; (iv)
the Company has not waived or been requested to waive any statute of limitations
in respect of Taxes; (v) none of the Tax Returns referred to in clause (i) have
been examined by the Internal Revenue Service ("IRS") or the appropriate state,
local or foreign taxing authority or the period for assessment of the Taxes in
respect of which such Tax Returns were required to be filed has expired; (vi) to
the Knowledge of the Sellers, there is no action, suit, investigation, audit,
claim or assessment pending, proposed or threatened with respect to Taxes of the
Company (including, but not limited to, any action, suit, investigation, audit,
claim or assessment by an authority in a jurisdiction where the Company does not
file Tax Returns that it is or may be subject to taxation by such jurisdiction);
(vii) all deficiencies asserted or assessments made as a result of any
examination of the Tax Returns referred to in clause (i) have been paid in full;
(viii) there are no Liens for Taxes upon the assets of the Company except Liens
relating to current Taxes not yet due; and (ix) all Taxes which the Company are
required by law to withhold or to collect for payment in connection with amounts
paid or owing to any employee, independent contractor, creditor, stockholder or
other third party have been duly withheld and collected, and have been paid or
accrued, reserved against and entered on the books of the Company in accordance
with GAAP.
(b) Correct and complete copies of all federal, state,
local and foreign income Tax Returns and all written communications from
the Internal Revenue Service or other Tax authorities relating to any such Tax
Returns, examination reports and statements of deficiencies assessed against or
agreed to by the Company since December 31, 1997 have been made available to
Buyer or will be made available to Buyer prior to Closing.
(c) The Company is not a party to any Tax allocation or
sharing agreement. Except as set forth on Schedule 4.18(c), the Company (i) has
not been a member of an affiliated group filing a consolidated federal income
Tax Return, (ii) is not or has never been a partner in a partnership or an owner
of an interest in an entity treated as a partnership for federal income tax
purposes and (iii) has no liability for the Taxes of any Person under Treas.
Reg. ss. 1.1502-6 (or any similar provision of state, local or foreign law), as
a transferee, successor or indemnitor, by contract or otherwise.
(d) Except as set forth on Schedule 4.18(d), the unpaid
Taxes of the Company do not exceed the reserve for Tax liability (rather than
any reserve for deferred Taxes established to reflect timing differences between
book and Tax income) set forth on the face of the June 30 Balance Sheet (rather
than in any notes thereto) as adjusted for the passage of time through the
Closing Date in accordance with the past custom and practice of the Company in
filing its Tax Returns.
(e) The Company has been a validly electing S corporation
within the meaning of Sections 1361 and 1362 of the Code at all times during its
existence and will be an S corporation up to and including the Closing Date. The
Company has not in the 10-year period preceding the date hereof (i) acquired
assets from another corporation in a transaction in which the tax basis of the
Company for the acquired assets was determined in whole or in part by reference
to the tax basis of the acquired assets (or any other property) in the hands of
the transferor, (ii) acquired the stock of any corporation, or (iii) taken any
action that resulted or could result in the loss of the Company's status as a
validly electing S corporation prior to the Closing.
4.19 Employee Benefit Plans.
(a) Schedule 4.19 contains a list of all Benefit Plans. A
true, correct and complete copy of each Benefit Plan or a detailed description
thereof if such Benefit Plan is unwritten, has been delivered or made available
to Buyer.
(b) Neither the Company nor any Commonly Controlled Entity
has maintained, contributed to or been obligated to contribute to or had any
liability in connection with any Benefit Plan that is subject to Title IV of
ERISA or Section 412 of the Code. No Benefit Plan is maintained in connection
with any trust under Section 501(c)(9) or 501(c)(17) of the Code.
(c) Each Benefit Plan has been maintained, operated and
administered in material compliance with its terms and in material compliance
with all applicable provisions of ERISA, the Code, and all laws, regulations,
rulings and other authority issued thereunder. All contributions required to
have been made to any Benefit Plan by the Company, any Seller or any Commonly
Controlled Entity have been made within the time required by such Benefit Plan
and applicable law, taking into account all applicable extensions of time for
such contributions.
(d) There are no actions, suits, negotiations, demands,
proposals, investigations, proceedings or claims pending, or to the Knowledge of
the Sellers, threatened (other than in any case with respect to routine claims
for benefits) with respect to any Benefit Plan.
(e) No non-exempt prohibited transaction described in
Section 406 of ERISA or Section 4975 of the Code has occurred with respect to
any Benefit Plan. Neither the Company nor any Commonly Controlled Entity has
liability under Part 4 of Title I, Subtitle B of ERISA by an fiduciary of any
Benefit Plan or has unpaid civil liability under Section 502(l) of ERISA.
(f) Neither the Company nor any Commonly Controlled Entity
knows of any event that has occurred, either by reason of any action or failure
to act, which would cause any such Benefit Plan not to be so qualified under
Section 401(a) of the Code and cannot be corrected without material liability.
(g) The Company does not have any liability or obligation
under any Benefit Plan to provide life insurance or medical benefits after
termination of employment to any employee or dependent other than as required by
Part 6 of Title I of ERISA or Section 4980B of the Code.
(h) Except as set forth on Schedule 4.19, no employee of
the Company will be entitled to any additional compensation or benefits or any
acceleration of the time of payment or vesting of any compensation or benefits
under any Benefit Plan as a result of the transactions contemplated by this
Agreement.
4.20 Environmental Laws. The Company has not received any notice or
claim (and is not aware of any facts that would form a reasonable basis for any
claim), or entered into any negotiations or agreements with any other Person,
and, to the Knowledge of the Sellers, the Company is not the subject of any
investigation by any governmental or regulatory authority, domestic or foreign,
relating to any material or potentially material liability or remedial action
under any Environmental Laws.
4.21 Bank Accounts, Letters of Credit and Powers of Attorney.
Schedule 4.21 lists (a) all bank accounts, lock boxes and safe deposit boxes
relating to the business and operations of the Company (including the name of
the Bank or other institution where such account or box is located, the account
numbers of such accounts and the name of each authorized signatory thereto), (b)
all outstanding letters of credit issued by financial institutions for the
account of the Company (setting forth, in each case, the financial institution
issuing such letter of credit, the maximum amount available under such letter of
credit, the terms (including the expiration date) of such letter of credit and
the party or parties in whose favor such letter of credit was issued), and (c)
the name and address of each Person who has a power of attorney to act on behalf
of the Company. The Company has heretofore delivered to Buyer true, correct and
complete copies of each letter of credit and each power of attorney described on
Schedule 4.21.
4.22 Subsidiaries. The Company has no Subsidiaries.
4.23 Brokers' and Finders' Fees. Sellers represent and warrant to
Buyer that no broker, investment banker or financial advisor is entitled to a
brokerage fee, financing commission or other commission from Sellers in respect
of the execution of this Agreement or the consummation of the transactions
contemplated hereby.
4.24 Disclosure. To the Knowledge of the Sellers, neither this
Agreement nor any attachment, schedule, exhibit, certificate or other statement
delivered by the Sellers pursuant to this Agreement omits to state a material
fact necessary in order to make the statements and information contained herein,
in light of the circumstances in which they were made, not misleading.
5. Representations and Warranties of Buyer. Buyer represents and warrants
to Sellers as follows:
5.1 Organization. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to enter into
and perform this Agreement and the transactions contemplated hereby to be
performed by it.
5.2 Authority. Buyer has full corporate power and authority to
execute, deliver and perform this Agreement. The execution, delivery and
performance of this Agreement by it has been duly authorized and approved by all
necessary corporate action and no other corporate proceedings on the part of
Buyer are necessary to authorize this Agreement and the transactions
contemplated hereby. This Agreement has been duly authorized, executed and
delivered by Buyer and is the legal, valid and binding obligation of Buyer
enforceable in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors rights generally and by the
effect of general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law).
(a) The execution, delivery, performance by Buyer of this
Agreement and the consummation of the transactions contemplated hereby do not,
and will not, (i) violate or conflict with any provision of the Certificate of
Incorporation or By-laws of Buyer, (ii) violate any law, rule, regulation,
order, writ, injunction, judgment or decree of any court, governmental
authority, or regulatory agency, except for violations which, individually or in
the aggregate, will not have a Material Adverse Effect on Buyer taken as a
whole, or (iii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under, any note, bond,
indenture, lien, mortgage, lease, permit, guaranty or other agreement,
instrument or obligation, oral or written, to which Buyer is a party or by which
any of the properties of Buyer may be bound, except for violations, breaches or
defaults which, individually or in the aggregate, will not have a Material
Adverse Effect on Buyer and its Subsidiaries taken as a whole.
(b) The execution and delivery of this Agreement by Buyer
does not, and the performance by Buyer of this Agreement will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority, domestic or foreign, except any
such consent, approval, authorization, permission, notice or filing which if not
obtained or made would not have a Material Adverse Effect on Buyer.
5.3 Litigation.
(a) Buyer is not a party to any suit, action, arbitration
or legal, administrative, governmental or other proceeding or investigation
pending or, to its knowledge threatened, which reasonably could adversely affect
or restrict its ability to consummate the transactions contemplated by this
Agreement or to perform its obligations hereunder.
(b) There is no judgment, order, writ, injunction or decree
of any court, governmental agency or arbitration tribunal to which Buyer is
subject which might adversely affect or restrict its ability to consummate the
transactions contemplated by this Agreement or to perform its obligations
hereunder.
5.4 Financing. Buyer has (a) sufficient cash in hand or (b)
obtained financing necessary to pay the Consideration due Sellers in accordance
with Section 3.
5.5 Brokers' and Finders' Fees. Buyer represents and warrants to
Sellers that no broker, investment banker or financial advisor is entitled to
any brokerage fee, financing commission or other commission from Buyer in
respect of the execution of this Agreement or the consummation of the
transactions contemplated hereby.
6. Covenants.
6.1 Tax Matters.
(a) Election under Section 338(h)(10). At Buyer's request,
made in writing to the Sellers' Representative within one hundred (100) days of
the Closing Date, and within such time as is specified by the applicable
provisions of Section 338 of the Code and the regulations promulgated
thereunder, the Sellers will join with Buyer in making an election under Section
338(h)(10) of the Code (and any corresponding election requested by Buyer under
state, local, and foreign tax law) with respect to the purchase and sale of the
stock of the Company hereunder (a "Section 338(h)(10) Election").
(b) Section 338(h)(10) Payment. If a Section 338(h)(10)
Election is made with respect to the purchase and sale of the stock of the
Company contemplated by this Agreement:
(i) Buyer and the Sellers shall timely make any
required filings (including, but not limited to the filing of the Forms 8023 and
8883) in accordance with the Allocation and take any and all other actions
necessary to effect a Section 338(h)(10) Election under the Code and the
Treasury Regulations (and under any comparable provision of foreign, state or
local law); and
(ii) Buyer and the Sellers shall allocate the
"aggregate deemed selling price" (as defined in Treasury Regulations Section
1.338-4) and the "adjusted grossed-up basis" (as defined in Treasury Regulations
Section 1.338-5) as set forth on Exhibit F among the Company's assets in
accordance with Section 338 of the Code and the Treasury Regulations thereunder
(the "Allocation").
(iii) Buyer and Sellers shall share on a 75%/25%
basis respectively any federal or state Tax paid by any Seller in excess of such
Seller's aggregate Tax liability with respect to such Section 338(h)(10)
Election as calculated in accordance with the Allocation (including any such Tax
as a result of a payment pursuant to this Section 6.1(b)(iii)), but only to the
extent such additional Tax payment is attributable to the allocation of
additional amounts to tangible personal property or inventory of the Company, or
any other category that is taxed at ordinary income rates (except for any
imposed increase to the non-compete and/or transition services portions of the
Allocation) as a consequence of an audit adjustment of such Seller's Tax return
by a federal or state tax authority. In such case, Sellers shall timely furnish
Buyer with appropriate documentation, including any relevant work papers and
computations in support of any claim for reimbursement from Buyer under this
Section 6.1(b)(iii) and Buyer shall make such payment to each Seller no later
than the tenth (10th) day following the latest of (A) the date all such
documentation is received by Buyer, (B) the date of a determination under
Section 1313(a) of the Code with respect to the Tax liability of such Seller
attributable to the Section 338(h)(10) Election (or the date of the occurrence
of an event with the same legal consequence under applicable state law), and (C)
the date the statute of limitations expires for claims of refund of the Tax with
respect to which a claim for reimbursement has been made by such Seller (if no
such claim for refund of Tax has been filed).
(c) Consistency Statement. Buyer and the Sellers agree that
the Consideration shall be allocated for all Tax purposes as set forth on
Exhibit F; provided, however, that the amounts allocated to "sale of Company
Common Stock" shall be subject to Section 6.1(b)(ii) in the event of any Section
338(h)(10) Election requested by Buyer. Each of the parties covenants and agrees
to report gain or loss, or cost basis, as the case may be, in a manner
consistent with the preceding sentence in all tax returns filed by either of
them subsequent to the Closing Date; or, if a Section 338 Election is made, to
report such gain or loss, or cost basis, as the case may be, in a manner
consistent with the Allocation. Each of the parties further covenants and agrees
not to take voluntarily any position inconsistent with the preceding sentence in
any administrative or judicial proceeding relating to such returns (whether
federal, state, local or foreign), except if, in the opinion of counsel
reasonably acceptable to the other party, there has been a change in applicable
law since the Closing Date.
(d) Tax Returns. The Sellers shall prepare or cause to be
prepared as promptly as practicable all Tax Returns for the Company for all
periods ending on or prior to the Closing Date that are required to be filed
after the Closing Date ("Post-Closing Returns"). No later than ten (10) days
prior to the due date of any Post-Closing Return (but prior to its filing), the
Sellers shall furnish a draft form of such Post-Closing Return to Buyer for
review and comment. If Buyer determines that there are no material errors in the
form of a Post-Closing Return prepared by the Sellers (and timely furnished to
Buyer), Buyer shall cause such form to be timely filed as a Tax Return for the
Company. To the extent permitted by applicable law, the Sellers shall include
any income, gain, loss, deduction or other Tax items for such periods on their
Tax Returns in a manner consistent with the Schedule K-1s included in the
Post-Closing Returns. The Sellers agree to provide Buyer with all information
available to the Sellers and not otherwise available to Buyer to the extent
reasonably necessary for Buyer to fulfill its obligations under this Section
6.1.
(e) Cooperation. Sellers (on their own behalf and on behalf
of the Company) and Buyer will provide each other with such cooperation and
information as they may request of the other in filing any return determining a
liability for Taxes or a right to a refund of Taxes, or in conducting an audit
or other proceeding in respect of Taxes. Such cooperation shall include, but not
be limited to, making employees available on a mutually convenient basis to
provide explanation of any documents or information provided hereunder or
otherwise as required in the conduct of any audit or other proceeding. Sellers,
Buyer and the Company will retain all Returns, schedules and work papers and all
other material records or documents relating to matters of the Company relating
to Taxes for the Tax period first ending after the Closing Date and for all
prior Tax periods until the expiration of the statute of limitations of the Tax
periods to which such Returns and other documents relate (including any
extensions thereof), and at the expiration of such period each party shall have
the right to dispose of any such Returns or other documents or records after
providing thirty (30) days in written notice to the other party. Any
information, documents or records obtained under this Section 6.1 shall be kept
confidential, except as may be otherwise necessary in connection with the filing
of Returns or claims for refund or in conducting an audit or other proceeding.
6.2 Severance Rights. By executing this Agreement, each Seller
hereby irrevocably waives any and all rights such Seller may have under any
employment or other arrangement with the Company to receive severance or any
other similar benefits.
6.3 Actions by the Parties.
(a) Upon the terms and subject to the conditions set forth
in this Agreement, each of the parties hereto will use its reasonable best
efforts to take or cause to be taken all actions, and to do, or cause to be
done, all things necessary, proper or advisable under applicable law and
regulations to consummate and make effective in the most expeditious manner
practicable, the transactions contemplated by this Agreement including (i) the
obtaining of all necessary actions and non-actions, waivers and consents, if
any, from any governmental agency or authority and the making of all necessary
registrations and filings and the taking of all reasonable steps as may be
necessary to obtain an approval or waiver from, or to avoid an action or
proceeding by any governmental agency or authority; (ii) the obtaining of all
necessary consents, approvals or waivers from any other Person; (iii) the
defending of any claim, investigation, action, suit or other legal proceeding,
whether judicial or administrative, challenging this Agreement or the
consummation of the transactions contemplated hereby and (iv) the execution of
additional instruments necessary to consummate the transactions contemplated by
this Agreement. Each party will promptly consult with the other and provide
necessary information (including copies thereof) with respect to all filings
made by such party with any agency or authority in connection with this
Agreement and the transactions contemplated hereby.
(b) Sellers shall cause the Company to comply with its
obligations under this Agreement.
6.4 Other Agreements.
(a) Technology Transition Assistance. On the Closing Date,
Sellers shall execute
the Transition Services Agreement, in the form of which is attached hereto as
Exhibit D (the "Transition Services Agreement").
(b) Independent Contractor Consultant Agreement. Robert
Dunphy shall have executed the consulting agreement, the form of which is
attached hereto as Exhibit E.
(c) "Key Man" Insurance. Sellers agree to cooperate with
Buyer and make themselves available for medical examinations or otherwise so as
to permit Buyer to apply for policies of insurance on each of the Sellers which
policies shall terminate or be terminated when the Transition Services Agreement
terminates.
(d) Covenants Not To Compete Or Solicit. Except when acting
as an officer, employee or consultant to the Company or with the prior written
consent of the Company, for a period of three (3) years from the Closing Date,
each Seller agrees, that unless he obtains the prior written consent of Buyer
and the Company, he will not, for his own account or as an agent, employee,
officer, director, trustee, consultant or member, partner, shareholder or other
equity holder of any corporation, firm, company, partnership or other entity
(other than as an owner of 5% or less of any class of publicly traded
securities):
(i) design, develop, manufacture, offer or sell
anywhere in the world (the "Territory") any software product that makes use of
any image capture device or method and which then performs any of or more of the
following actions: locates or captures or reads or decodes or inspects any code
(including, but not limited to a bar code or a 2D code or any alphanumeric code)
that exists on a label or on the surface of any item;
(ii) design, develop, manufacture, offer or sell in
the Territory any product that makes use of any image capture device or method
and which then performs any of or more of the following actions: locates,
identifies, inspects or dimensions any tangible item;
(iii) design, develop, manufacture, offer or sell in
the Territory any device that performs any one or more of the following actions:
locates or captures or reads or decodes or inspects any code (including, but not
limited to a bar code or 2D code or any alphanumeric code) that exists on a
label or on the surface of any item;
(iv) divulge, communicate, use or disclose any
nonpublic information concerning the Company, Buyer or any of their Affiliates,
their personnel, business and affairs of which Seller is aware; provided,
however, that such information shall not include any information which: (i) is
or becomes publicly known through no wrongful act of the Sellers, (ii) becomes
known or available without restriction to the Sellers from a third party,
without breach of this Agreement by the Sellers, or (iii) is required to be
disclosed by the Sellers pursuant to applicable law, regulation or legal
process;
(v) interfere with the business relationships or
disparage the good name or reputation of the Company, Buyer, or any of their
Affiliates or take any action which brings the Company, Buyer or any of their
Affiliates or its business into public ridicule or disrepute;
(vi) solicit or accept any business competitive with
the Business from customers or suppliers of the Company, or request, induce or
advise customers or suppliers of the Company to withdraw, curtail or cancel
their business with the Company;
(vii) solicit for employment or employ any present or
future employee of the Company, Buyer or any of their Affiliates, or request,
induce or advise any employee to leave the employ of the Company, Buyer or any
of their Affiliates; provided, however, that nothing contained herein shall
prohibit a Seller who is not then employed by the Company from soliciting for
employment or employing (or otherwise entering into a business collaboration or
other arrangement with) another Seller who is not then employed by the Company
provided such employment does not violate the provisions of Section
6.4(d)(i)-(vi); or
(viii) use or disclose the names and/or addresses of
any customer, supplier or employee of the Company to any Person, with respect to
any commercial or business activities which compete directly in whole or in part
with the Business.
(e) The parties agree and acknowledge that the duration,
scope and geographic areas applicable to the covenant not to compete described
in Section 6.4(c) are fair, reasonable and necessary, that adequate compensation
has been received by the Sellers for such obligations, and that these
obligations do not prevent the Sellers from earning a livelihood. If, however,
for any reason any court determines that the restrictions in Section 6.4(c) are
not reasonable, that consideration is inadequate or that the Sellers have been
prevented from earning a livelihood and therefore the restrictions are
unenforceable, such restrictions shall be interpreted, modified or rewritten to
include as much of the duration, scope and geographic area identified in Section
6.4(c) as will render such restrictions valid and enforceable.
(f) The Sellers acknowledge that they have carefully read
and considered the terms of this Agreement. The Sellers hereby waive any
requirement of proof that such breach will cause serious or irreparable injury
to Buyer or the Company, or that there is an adequate remedy at law. The
existence of any claim or cause of action of the Sellers against Buyer and the
Company or any of their Affiliates, whether or not predicated on the terms of
this Agreement, shall not constitute a defense to the enforcement of the
Sellers' obligations under this Agreement. All costs and expenses, including
court costs and reasonable attorneys' fees incurred or paid by the prevailing
party in protecting or enforcing its rights and remedies hereunder shall be paid
by the non-prevailing party or parties.
(g) During the period of time Section 6.4(c) is in effect,
neither Buyer nor the Company will disparage the good name or reputation of any
Seller or take any action which brings any Seller into public ridicule or
disrepute; provided, however, that this subsection shall in no way limit or
restrict Buyer's or the Company's ability to enforce the terms of this Agreement
or the obligations of any Seller hereunder.
(h) Waiver of Recourse. The Sellers undertake (if any claim
is made against him in connection with the sale of the Shares to Buyer and the
transactions contemplated by this Agreement) not to make any claim against the
Company or any past or present director or employee of the Company on whom
Sellers may have relied before agreeing to any of the terms of this Agreement.
(i) Assignments. The Sellers will use their best efforts to
secure and obtain any assignments of Company Intellectual Property Rights that
Buyer, in its reasonable business judgment believes are necessary to fully vest
all such rights in the Company.
(j) Confidentiality. Except as may be required by law, or
as expressly consented to by Buyer, no party hereto or their respective
Affiliates, employees, agents and representatives (including the Company) shall
disclose to any third party this Agreement, the subject matter or terms hereof
or any confidential information or other proprietary knowledge concerning the
business or affairs of any other party which it may have acquired from such
party in the course of pursuing the transactions contemplated by this Agreement
or use or knowingly permit the use of such confidential information or other
proprietary knowledge for any purpose other than in connection with the
transactions contemplated hereby without the prior consent of the other parties
hereto; provided, that any information that is otherwise publicly available,
without breach of this provision, or has been obtained from a third party
without a breach of such third party's duties, shall not be deemed confidential
information.
(k) Parent Guaranty. To induce Sellers to execute and
deliver this Agreement, Metrologic Instruments, Inc., the parent company of
Buyer ("Metrologic"), hereby absolutely and unconditionally guarantees the full
and prompt payments by Buyer of the Consideration set forth in Section 3; it
being understood that each obligation to pay any such payment constitutes the
direct and primary obligation of Metrologic. Metrologic hereby waives
presentment, demand of payment, protest, dishonor, notice of protest or
dishonor, and notice of acceptance of the guaranty set forth in this Section and
all rights to require Sellers to proceed against Buyer. In the event of the
merger, acquisition, termination, liquidation or dissolution of Buyer after the
Closing Date, this unconditional guaranty by Metrologic shall continue in full
force and effect until the Consideration is fully paid.
7. Conditions.
7.1 Conditions Precedent to Each Party's Obligation to Close. The
respective obligations of each party hereto to effect the transactions
contemplated by this Agreement shall be subject to the fulfillment or
satisfaction, prior to or on the Closing Date of the following conditions:
(a) Approvals. All authorizations, consents, orders,
declarations or approvals of, or filings with, or terminations or expirations of
waiting periods imposed by, any governmental or regulatory authority, domestic
or foreign, which the failure to obtain, make or occur would have the effect of
making any of the transactions contemplated hereby illegal or would have a
Material Adverse Effect on Buyer or the Company, shall have been obtained, made
or occurred.
(b) No Injunction. No action or proceeding shall have been
commenced seeking any temporary restraining order, preliminary or permanent
injunction or other order from any court of competent jurisdiction or seeking
any other legal restraint or prohibition preventing the consummation of any of
the transactions contemplated hereunder other than any of the foregoing which
shall have been dismissed with prejudice.
7.2 Conditions Precedent to Obligations of Buyer. All obligations
of Buyer under this Agreement are subject to the fulfillment or satisfaction,
prior to or on the Closing Date, of each of the following conditions precedent:
(a) Performance of Obligations; Representations and
Warranties. The Sellers shall have performed and complied in all material
respects with all agreements and conditions contained in this Agreement that are
required to be performed or complied with by them prior to or at the Closing.
Sellers' representations and warranties contained in Section 3 of this Agreement
shall be true and correct.
(b) Resignations. The Company shall have delivered to Buyer
the written resignation of each director, officer and employee of the Company,
each of which is listed on Schedule 7.2(b).
(c) Company Projections. The Company shall have provided
Buyer with good faith projections for the expected financial results of the
Company through its 2006 fiscal year.
(d) No Material Adverse Change. Since June 30, 2004, there
shall have been no material adverse change in the assets, Business, financial
condition, operations or prospects of the Company and no event or events shall
have occurred that could reasonably be expected to have a Material Adverse
Effect on the Company and Buyer shall have received a certificate signed by each
Seller to such effect.
(e) Certificates. Sellers will furnish Buyer with such
certificates to evidence compliance with the conditions set forth in this
Section 7.2 as may be reasonably requested by Buyer.
(f) Corporate Documents. Buyer shall have received from
Sellers resolutions adopted by the board of directors and shareholders of the
Company approving this Agreement and the transactions contemplated hereby
certified by the President of the Company. Buyer shall have received from
Sellers a certificate of good standing of the Company and a copy of the
Certificate of Incorporation, each certified by the Secretary of the State of
New Jersey, dated within seven (7) business days prior to the Closing Date.
(g) Consents. The Company shall have received all necessary
consents, or waivers, in form and substance satisfactory to Buyer, from the
other parties (i) to each contract or agreement listed on Schedule 7.2(g) and
(ii) all other contracts, leases or agreements to which the Company is a party,
except, in the case of any consents required under clause (ii) of this Section
7.2(g), where the failure to receive such consent would not reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect on
the Company.
(h) Share Transfer. Each Seller shall have duly executed
and witnessed "stock power" or assignment separate from certificate pursuant to
which such Seller shall transfer his Shares in the Company to Buyer.
(i) Opinion. Buyer shall have received the opinion of
Morgan Lewis & Bockius, LLP, counsel to the Sellers, in the form attached hereto
as Exhibit B.
7.3 Conditions Precedent to Obligations of Sellers. All obligations
of Sellers under this Agreement are subject to the fulfillment or satisfaction,
prior to or on the Closing Date, of each of the following conditions precedent:
(a) Performance of Obligations; Representations and
Warranties. Buyer shall have performed and complied in all material respects
with all agreements and conditions contained in this Agreement that are required
to be performed or complied with by them prior to or at the Closing. Each of the
representations and warranties of Buyer contained in Section 5 of this Agreement
shall be true and correct.
(b) Consent. All consents, approvals and waivers necessary
to permit Sellers to transfer the Shares to Buyer as contemplated hereby shall
have been obtained, unless the failure to obtain any such consent, approval or
waiver would not have a Material Adverse Effect upon Sellers.
(c) Certificates. Buyer will furnish Sellers with such
certificates of its officers and others to evidence compliance with the
conditions set forth in this Section 7.3 as may be reasonable requested by
Sellers.
(d) Corporate Documents. Sellers shall have received from
Buyer (a) resolutions adopted by the board of directions of Buyer approving this
Agreement and the transactions contemplated hereby, and (b) a list of the
officers of Buyer executing this Agreement and any agreement contemplated,
certified by the Secretary or an Assistant Secretary of Buyer, evidencing the
authority of the officer executing this Agreement on behalf of Buyer.
(e) Purchase Price. Buyer shall have, concurrently with the
Closing, paid the Closing Date Consideration to Sellers.
(f) Opinion. The Sellers shall have received the opinion of
Ballard Spahr Andrews & Ingersoll, LLP, counsel to the Buyer, in the form
attached hereto as Exhibit C.
8. Survival of Representations and Warranties.
8.1 Representations and Warranties. The representations and
warranties of Sellers contained in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive for eighteen (18) months following the
Closing Date, except that the representations and warranties contained in
Sections 4.18, 4.19 and 4.20 shall survive until the expiration of the
applicable statute of limitations and the representations and warranties
contained in Sections 4.1, 4.2 and 4.3 shall survive the closing in perpetuity.
This Section 8.1 shall not limit any covenant or agreement by the parties which
contemplates performance after the Closing Date.
9. Indemnification.
9.1 Limitation of Liability.
(a) The aggregate liability of the Sellers for the sum of
all Damages under this Section 9 shall (i) for the period commencing on the
Closing Date and ending on the 18 month anniversary of the Closing Date be
limited to the unpaid portion(s) of the Consideration then outstanding (in
accordance with the payment schedules set forth in Sections 3(b)-(d)) as of the
date of the Buyer Notice (as hereinafter defined) and (ii) after such 18 month
anniversary of the Closing Date be limited to ten (10%) of the Consideration
(such limitation is being referred to as the "Cap"). The Cap, which may be
recovered severally from the Sellers (and for purposes of clarity, each
individual Seller's Cap shall be their percentage of the aggregate Cap
determined based on the proportion of the Consideration to be received by such
Seller as compared to the total Consideration to be received by all Sellers),
shall be the sole and exclusive remedy available to compensate Buyer for the
indemnification obligations of each Seller with respect to this Section 9 and
all other claims that arise relating to the subject matter of this Agreement and
the transactions contemplated hereby, except for any claim of fraud or a breach
of any covenant under Sections 6.4(a), (d) or (j) of this Agreement.
(b) Notwithstanding the foregoing, (i) with respect to any
claim by Buyer for indemnification under Sections 9.2(a) (i) (other than any
claim by Buyer for any inaccuracy in Section 4.1, 4.2 or 4.3, fraud on the part
of any Seller or the breach of any covenant under Sections 6.4(a), (d) or (j) of
this Agreement by any Seller), Buyer may not seek indemnification with respect
to any claim for Damages until the sum of all Damages for which Buyer is seeking
indemnification thereunder equals or exceeds $150,000 (the "Threshold"),
whereupon Buyer shall be entitled to seek indemnification with respect to all
such Damages (subject to the limitations set forth in this Section 9) exceeding
the Threshold and (ii) to the extent that an individual Seller breaches a
covenant in this Agreement (the "Breaching Seller"), Buyer shall look only to
such Breaching Seller for any claims and Damages to which Buyer is entitled
under this Agreement resulting from such breach and the other Sellers shall have
no liability whatsoever with respect to any claims or damages resulting
therefrom.
9.2 General Indemnification.
(a) Subject to the limitations set forth in this Section 9,
Sellers will severally indemnify and hold harmless Buyer, its Affiliates and
each Person, if any, who controls or may control Buyer within the meaning of the
Securities Act of 1933 (and the rules and regulations thereunder), and their
respective officers, directors, employees, agents and advisors (each such
indemnitee being referred to herein as an "Indemnified Person"), from and
against any and all losses, costs, damages, liabilities, obligations,
impositions, inspections, assessments, fines, deficiencies and expenses arising
from claims, demands, actions, causes of action, including, without limitation,
reasonable legal fees (collectively, "Damages"), arising out of (i) any
inaccuracy in any representation or warranty made by Sellers in this Agreement
or in any Schedule to this Agreement, and (ii) any breach or default by Sellers
of any of the covenants or agreements given or made by any of them in this
Agreement, any Schedule to this Agreement or in the Transition Services
Agreement. The Sellers hereby waive any right to contribution or any other
similar right they may have against the Company as a result of agreeing to
indemnify Buyer as set forth in this Section 9. All indemnification obligations
of Sellers shall be deemed made in favor of and shall include Damages incurred
by, Buyer, the Company and their respective Affiliates, successors and assigns
and the respective officers and directors of each of the foregoing.
(b) Buyer and Sellers each acknowledge that any payment
pursuant to this Section 9 shall be treated by the parties hereto as an
adjustment to the Consideration for all applicable Tax purposes.
9.3 Claims.
(a) Upon receipt by Sellers' Representative of a
certificate signed by any officer of Buyer (a "Buyer Notice") specifying in
reasonable detail the nature of the claim, including an estimate of the amount
of Damages that have been or may be suffered by the Buyer attributable to such
claim and the basis of the Buyer's request for indemnification under Section 9
of this Agreement, Buyer may (subject to Section 9.4) for the account of the
Seller recover the amount severally from the Sellers.
(b) In the event Buyer shall make any claim upon and
recover any funds from Sellers and thereafter shall recover any proceeds of any
insurance in respect of such claim, Buyer shall deliver to Sellers'
Representative the amount of such insurance proceeds less any costs of
collections.
9.4 Objections to Claims.
(a) If Sellers' Representative shall object to a Buyer
Notice within the ten (10) day period after receipt thereof, then Buyer and
Sellers' Representative shall use their good faith efforts to resolve such
dispute. If Buyer and Sellers' Representative resolve such dispute and the
resolution is in Buyer's favor, the Buyer may recover the Damages severally from
the Sellers.
(b) If Buyer and Sellers' Representative are unable to
resolve such dispute within thirty (30) days after Sellers' Representative
objects to such Buyer Notice, either Buyer or Sellers' Representative may demand
arbitration of such dispute. Any such arbitration shall be conducted before the
American Arbitration Association ("AAA"). The AAA shall select one arbitrator
reasonably acceptable to Buyer and Sellers' Representative who shall be an
attorney expert in the area of contract disputes. The decision by the arbitrator
shall be binding and conclusive and, notwithstanding any other provisions of
this Section 9, Buyer and the Sellers' Representative shall be entitled to act
in accordance with such decision.
(c) The arbitration shall be held in Princeton, New Jersey.
The costs of any such arbitration shall be borne one-half for the account of
Buyer and one-half by Sellers. Judgment upon any award rendered by the
arbitrator may be entered in any court of competent jurisdiction.
9.5 Third-Party Claims. In the event Buyer becomes aware of a
third-party claim which Buyer believes may result in a demand pursuant to this
Section 9, Buyer shall promptly notify Sellers' Representative of such claim;
provided, however, that no delay on the part of the Buyer in notifying the
Sellers' Representative shall relieve the Sellers from any obligation hereunder
unless (and then solely to the extent) the Sellers are actually prejudiced.
Sellers' Representative shall be entitled, at Sellers' expense, to retain
co-counsel (unless the co-counsel has a conflict to represent all the Sellers at
the same time) and to participate in any defense of such claim; provided, that
Buyer shall control such defense, and shall have the right with the consent of
Sellers' Representative (which consent shall not be unreasonably withheld, it
being understood that the withholding of such consent by Sellers' Representative
shall not be unreasonable if Sellers' payment obligations under such settlement
would exceed its indemnification obligations under this Section 9 to settle any
such claim) to settle such claim; provided further, that no such consent of
Sellers' Representative shall be required where the third-party claim which
Buyer proposes to settle involves the business reputation of Buyer or its
Affiliates, or the possible criminal liability of Buyer or its Affiliates or any
of their respective officers, directors or employees. In the event that Sellers'
Representative has consented to any such settlement, Sellers shall have no power
or authority to object under any provision of this Section 9 to the amount of
any claim by Buyer for indemnity with respect to such settlement.
9.6 Sellers' Representative.
(a) Eric Batterman is hereby appointed as representative
(the "Sellers' Representative") for and on behalf of Sellers to take all actions
necessary or appropriate in the judgment of Sellers' Representative for the
accomplishment of the terms of this Agreement. The holders of a majority in
interest of the Shares may replace Sellers' Representative upon not less than
ten (10) days' prior written notice to Buyer. No bond shall be required of
Sellers' Representative and Sellers' Representative shall receive no
compensation for his services. Notices of communications to or from Sellers'
Representative shall constitute notice to or from each of Sellers. If Eric
Batterman dies or is otherwise no longer able or willing to serve as Sellers'
Representative, Donald Chandler shall be automatically deemed to be the
replacement Sellers' Representative.
(b) Sellers' Representative shall not be liable for any act
done or omitted in such capacity while acting in good faith and in the exercise
of reasonable judgment, and any act done or omitted pursuant to the advise of
counsel shall be conclusive evidence of such good faith. Sellers shall severally
indemnify Sellers' Representative and hold him harmless against any loss,
liability or expense incurred without gross negligence or bad faith on the part
of Sellers' Representative and arising out of or in connection with the
acceptance or administration of his duties hereunder.
(c) Any decision, act, consent or instruction of Sellers'
Representative shall constitute a decision of all and shall be final, binding
and conclusive upon every Seller and Buyer may rely upon any decision, act,
consent or instruction of each and every Seller. Buyer is hereby relieved from
any liability to any Person for acts done by them in accordance with such
decision, act, consent or instruction of Sellers' Representative.
9.7 Access. In connection with any indemnification claim, Buyer
shall give Sellers' Representative reasonable access to the books, records, and
assets of the Company which relate to the act, omission or occurrence giving
rise to such Damages and the right, upon prior notice, and at mutually
acceptable times during normal business hours, to interview any appropriate
personnel of the Company with respect thereto and Buyer shall cooperate with
Sellers' Representative in defending any third party claim.
10. Set -off. Subject to Section 9.1(a), Buyer shall be entitled to recover
any indemnification payments due in accordance with Section 9 only by setting
off such amount against any amount due from Buyer to the Sellers pursuant to
Section 3. In the event that Buyer exercises its set-off right and is later
determined (through arbitration, settlement or otherwise) not to be entitled to
indemnification for the set-off amount, Buyer shall promptly pay such amount to
Sellers (which shall be proportionally divided among the individual Sellers
based on the number of Shares held by such Seller as of the Closing Date) plus
interest at the prime rate (as reported in the Wall Street Journal, Eastern
Edition) plus two hundred basis points from the date the set-off payment was due
to the paid pursuant to Section 3.
11. Expenses; Taxes. Each party hereto shall pay its own expenses incidental
to the preparation of this Agreement, the carrying out of the provisions of this
Agreement and the consummation of the transactions contemplated hereby. Any
sales, use, stamp or transfer taxes, and any other filing or recording fees, if
any, which may be payable with respect to the consummation of the transactions
contemplated hereby shall be payable by the party prescribed by applicable law
or regulation as primarily liable.
12. Press Releases. Except as required by law or Buyer's listing agreement
with the NASDAQ National Market, neither Buyer, the Company nor any of Sellers
shall issue any press release or otherwise make public any information with
respect to this Agreement nor the transactions contemplated hereby without the
prior written consent of the other parties to this Agreement.
13. Contents of Agreement; Parties in Interest; etc. This Agreement and the
agreements referred to or contemplated herein set forth the entire understanding
of the parties hereto with respect to the transactions contemplated hereby, and,
except as set forth in this Agreement, and such other agreements and the
Schedules hereto, there are no representations or warranties, express or
implied, made by any party to this Agreement with respect to the subject matter
of this Agreement. Any and all previous agreements and understandings between or
among the parties regarding the subject matter hereof, whether written or oral,
are superseded by this Agreement and the agreements referred to or contemplated
herein.
14. Assignment and Binding Effect. This Agreement may not be assigned by
either party hereto without the prior written consent of the other parties;
provided, that Buyer may assign its rights and obligations under this Agreement
to any directly or indirectly wholly-owned Subsidiary of Buyer, upon written
notice to the Company if the assignee shall assume the obligations of Buyer
hereunder and Buyer shall remain liable for its obligations hereunder. All the
terms and provisions of this Agreement shall be binding upon and inure to the
benefit of and be enforceable by the respective successors and assigns of the
parties hereto.
15. Notices. Any notice, request, demand, waiver, consent, approval, or
other communication which is required or permitted to be given to any party
hereunder shall be in writing and shall be deemed given only if hand delivered
at the address specified below or sent by facsimile transmission (promptly
followed by a hard-copy delivered in accordance with this Section 15) by
overnight delivery or by registered or certified mail (return receipt
requested), with postage and registration or certification fees thereon prepaid,
addressed to the party at its address set forth below:
If to Buyer:
MTLG Investments, Inc.
90 Coles Road
Blackwood, New Jersey 08012
Attention: Nancy A. Smith, Vice President and General Counsel
Facsimile: (856) 228-0653
with a copy to:
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, PA 19103
Attention: Justin P. Klein, Esq.
Facsimile: (215) 864-8999
If to the Sellers' Representative
Eric Batterman
c/o Omniplanar, Inc.
14 Washington Road, Building 1
Princeton Junction, New Jersey 08550
Facsimile: (609) 275-9474
with a copy to:
Morgan, Lewis & Bockius LLP
502 Carnegie Center
Princeton, New Jersey 08540
Attention: Steven M. Cohen, Esq.
Facsimile: (609) 919-6701
or to such other address or Person as any party may have specified in a notice
duly given to the other party as provided herein. Such notice, request, demand,
waiver, consent, approval or other communication will be deemed to have been
given as of the date so delivered, telegraphed or mailed.
16. Amendment. This Agreement may be amended, modified or supplemented at
any time prior to the Closing Date by mutual agreement of the Buyer and Sellers'
Representative. Any amendment, modification or revision of this Agreement and
any waiver of compliance or consent with respect hereto shall be effective only
if in a written instrument executed by the parties hereto.
17. Governing Law. This Agreement shall be governed by and interpreted and
enforced in accordance with the laws of the State of New Jersey as applied to
contracts made and fully performed in such state.
18. No Benefit to Others. The representations, warranties, covenants and
agreements contained in this Agreement are for the sole benefit of the parties
hereto, and their respective successors and assigns, and they shall not be
construed as conferring, and are not intended to confer, any rights on any other
Person.
19. Severability. If any term or other provision of this Agreement is
determined to be invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other terms and provisions of the Agreement shall
remain in full force and effect. Upon such determination, the parties hereto
shall negotiate in good faith to modify this Agreement so as to give effect to
the original intent of the parties to the fullest extent permitted by applicable
law.
20. Section Headings. All section headings are for convenience only and
shall in no way modify or restrict any of the terms or provisions hereof.
21. Schedules and Exhibit. All Schedules and Exhibit referred to herein are
intended to be and hereby are specifically made a part of this Agreement. The
Schedules and Exhibit referred to herein are intended to be and hereby are
specifically made a part of this Agreement.
22. Counterparts. This Agreement may be executed by facsimile and in two or
more counterparts, each of which shall be deemed an original, and Sellers and
Buyer may become a party hereto by executing a counterpart to this Agreement and
any counterpart so executed shall be deemed to be one and the same instrument.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have duly executed this Agreement as of the date first above written.
MTLG INVESTMENTS, INC.
By: /s/Benny A. Noens
Name: Benny A. Noens
Title: President
SELLERS:
/s/Eric Batterman
------------------
Name: Eric Batterman
/s/Donald Chandler
------------------
Name: Donald Chandler
/s/Robert Dunphy
------------------
Name: Robert Dunphy
IN WITNESS WHEREOF, the undersigned, intending to be legally bound
hereby, has duly executed this Agreement as of the date first above written for
purpose of Section 6.4(k) of this Agreement.
METROLOGIC INSTRUMENTS, INC.
By: /s/Benny Noens
Name: Benny A. Noens
Title: Chief Executive Officer
Exhibit 31.1
CERTIFICATIONS
I, Benny Noens, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Metrologic
Instruments, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the registrant and we have:
(a) designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material
information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in
which this report is being prepared;
(b) evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation;
and
(c) disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter that
has materially affected, or is reasonably likely to
materially affect, the registrant's internal control
over financial reporting; and
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons
performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in
the design or operation of internal control over
financial reporting which are reasonably likely to
adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal control over financial
reporting.
Date: November 12, 2004 /s/ Benny Noens
----------------------------------
By: Benny Noens
Chief Executive Officer and
President
Exhibit 31.2
CERTIFICATIONS
I, Kevin J. Bratton, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Metrologic
Instruments, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the registrant and we have:
(a) designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material
information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in
which this report is being prepared;
(b) evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation;
and
(c) disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter that
has materially affected, or is reasonably likely to
materially affect, the registrant's internal control
over financial reporting; and
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons
performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in
the design or operation of internal control over
financial reporting which are reasonably likely to
adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal control over financial
reporting.
Date: November 12, 2004 /s/ Kevin J. Bratton
----------------------------------
By: Kevin J. Bratton
Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Metrologic
Instruments, Inc. (the "Company") on Form 10-Q for the period ending September
30, 2004 as filed with the Securities and Exchange Commission on the date
hereof (the "Report"), I, Benny Noens, Chief Executive Officer and President of
the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to
ss. 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/s/ Benny Noens
- ------------------------------------
By: Benny Noens
Chief Executive Officer and President
November 12, 2004
A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement
required by Section 906, has been provided to Metrologic Instruments, Inc. and
will be retained by Metrologic Instruments, Inc. and furnished to the Securities
and Exchange Commission or its staff upon request.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Metrologic
Instruments, Inc. (the "Company") on Form 10-Q for the period ending September
30, 2004 as filed with the Securities and Exchange Commission on the date
hereof (the "Report"), I, Kevin J. Bratton, Chief Financial Officer of the
Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss.
906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/s/ Kevin J. Bratton
- ------------------------------------
By: Kevin J. Bratton
Chief Financial Officer
November 12, 2004
A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement
required by Section 906, has been provided to Metrologic Instruments, Inc. and
will be retained by Metrologic Instruments, Inc. and furnished to the Securities
and Exchange Commission or its staff upon request.