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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
FORM 10-K
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(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1997, 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)
(609) 228-8100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
Par Value $.01 Per Share
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of March 23, 1998 was $22,431,184 calculated by excluding
all shares held by executive officers, directors and 5% stockholders of the
Registrant without conceding that all such persons are "affiliates" of the
Registrant for purposes of the federal securities laws.
As of March 23, 1998 there were 5,375,990 shares of Common Stock outstanding.
Documents Incorporated by Reference
Portions of the following documents are incorporated herein by reference:
Part III - The Registrant's definitive Proxy Statement for its 1998
Annual Meeting of Stockholders, to be filed not later than 120 days after the
close of the fiscal year.
PART I
Item 1. Business
Introduction
Metrologic Instruments, Inc. ("Metrologic" or the "Company") designs,
manufactures and markets bar code scanning equipment incorporating laser and
holographic technology. These scanners rapidly, accurately and efficiently read
and decode all widely used bar codes and provide an efficient means for data
capture and automated data entry into computerized systems. The Company's
principal laser scanner products are hand-held scanners, fixed projection
scanners, in-counter scanners and industrial scanners. The Company's marketing
efforts are also currently focused on additional products, including wireless
scanner interfaces, holographic scanners, hand-mounted scanners, which provide
hands-free scanning capability, and laser engines, which perform scanning
functions in products manufactured by others. The Company is vertically
integrated, designing and manufacturing its own optics, optical coatings,
magnetic and inductive electronic components and fabricated parts.
The Company was incorporated in New Jersey in May 1969 as a successor to a sole
proprietorship, which commenced operations in 1968. The Company's executive and
administrative offices are located at 90 Coles Road, Blackwood, New Jersey
08012. The Company's telephone number is 609-228-8100.
The Company's principal subsidiaries include: Metrologic Instruments GmbH;
Metrologic Asia (PTE) Ltd.; Metrologic do Brasil Ltda; and Holoscan, Inc.
("Holoscan"), and an affiliate, Metrologic, South America, an exclusive sales
office.
The Company's Products
The Company's scanners use solid state visible-laser-diodes and incorporate
custom integrated circuits and surface mount components for virtually all of
their electronics. In addition, the Company's scanners use proprietary
software, such as ScanSet(R) software and the ScanSelect(TM) bar code booklet
program, which allow the end-user to reconfigure and program the scanners'
performance characteristics. These programs also permit the scanner to read
commonly used bar codes and to perform a variety of other functions. In
addition, the Company's interpretive and decode software provide the capability
of high speed and aggressive decoding. The Company's scanners interface into
most computers, cash registers and portable data terminals.
Bar code laser scanners are the Company's predominant products and accounted
for 92.8%, 92.0% and 93.5% of the Company's sales in 1997, 1996 and 1995,
respectively. The following laser bar code scanners have historically accounted
for a substantial portion of the Company's product revenues.
Hand-Held Scanners. Since late 1990, the Company has offered for sale its MS900
Series of automatically triggered hand-held scanners. These scanners generally
are used in retailing, libraries, industrial warehousing, production lines and
commercial applications because of their low cost, size and versatility. Using
infrared sensor detectors, the MS900 Series turns on automatically and can be
manually presented to a bar code or fixed mounted and used as a stationary
scanner. These scanners can automatically read and discriminate among all
commonly used bar code symbols. Priced to compete directly with other low cost
bar code reading devices such as the charge coupled device ("CCD") and the
light pen, the MS900 Series also competes in a class of more expensive high
performance scanners due to its performance and reliability.
Fixed Projection Scanners. Since 1990, the Company has offered for sale its
MS700 Series of high performance fixed projection scanners. By projecting a
pattern of multiple laser lines at very high speeds, the MS700 Series is
capable of reading bar codes presented in multiple directions or
"omnidirectionally." These scanners are generally mounted on the top of a
counter and are used in high volume retail stores and outlets, magazine
distribution and processing centers, libraries and other applications where
greater scanning throughput is required.
In-counter Mini-Slot(R) Scanners. Since 1985 the Company has offered for sale
its in-counter Slot scanners. The Company's MS800 Series of in-counter
Mini-Slot(R) scanners has been offered for sale since 1991 and was developed
for supermarket, discount and specialty stores which require high-throughput
scanning but have limited space in which to work.
Omnidirectional Hand-Held Scanners. In 1996, the Company introduced a
multi-purpose omnidirectional scanner. The MS6720 incorporates omnidirectional
scanning technology into a hand-supportable housing, offering ergonomic
hand-held scanning and fixed presentation throughput. The MS6720 is positioned
on a unit sales price basis between the Company's cost-effective MS900 Series
and high-performance fixed presentation MS700 scanners.
Industrial Scanners. Since 1991, the Company has offered its TECH series of
scanners. These scanners generally are used in conveyor belt or other
industrial applications requiring automated scanning capability. The TECH
series is designed to withstand the rigors associated with equipment used in
industrial environments and may be mounted in any orientation, giving the
end-user installation flexibility. Other industrial products include
ScanQuest(R) engines, ScanGlove(R) scanners and ScanKey(TM) scanners.
Holographic Scanners. In May 1996, the Company has offered its HoloTrak(R)
line of holographic scanners. These scanners utilize proprietary Metrologic
technology to offer increased scanning performance at a more affordable price
than similar fixed industrial use omnidirectional scanners on the market. The
HoloTrak(R) line is designed to increase user efficiency and productivity in
high volume package-handling situations. The HoloTrak(R) scanners may be
mounted above work areas and loading doors to allow "walk-under scanning," or
utilized for hands-free unattended high-speed conveyor belt scanning in
industrial and package sortation applications.
Research and Product Development
The Company conducts its own engineering programs for the purposes of
developing new products, improving its existing products' reliability,
ergonomics and performance and reducing manufacturing and support costs. The
Company is engaged in continuous development programs in the areas of optics,
holography, electronics, radio-frequency interfacing, automated manufacturing
methods and mechanics.
During 1997, the Company's research and development efforts were focused on new
product introductions for 1997 and 1998, which include hand held scanners,
fixed projection scanners, and holographic scanners. Introduced in March 1998,
the Company's holographic scanning solutions include a complex high speed
holographic scanner tunnel system, which combines cost-effective holographic
scanner technology with other technologies to provide a complete conveyor belt
scanning solution for a broad range of applications.
During 1997, 1996 and 1995, the Company spent approximately $3.4 million, $3.1
million and $3.0 million respectively, on research and development activities.
Sales and Marketing
The Company sells its products through distributors, value-added resellers
("VARs") and original equipment manufacturers ("OEMs") and directly to
end-users located throughout the world. The Company also utilizes its
subsidiaries and affiliates to sell, distribute and service its products
throughout major markets of the world. Metrologic Instruments GmbH, a
wholly-owned subsidiary located near Munich, Germany, provides sales,
distribution and service to European customers. In 1997, the Company
established Metrologic Asia (PTE) Ltd., a wholly-owned subsidiary located in
Singapore which provides sales, distribution and service, to develop and
support the Company's growing Asian customer base. Metrologic Instruments,
South America, an exclusive sales office located in Caracas, Venezuela provides
sales and service to the South American marketplace. In January, 1998, the
Company completed a joint venture agreement providing for a 51% equity interest
in Metrologic do Brasil Ltda located in Sao Paulo, Brazil. Metrologic do Brasil
Ltda will provide sales, distribution and service for its Brazilian customer
base.
During 1997, and continued through the first quarter of 1998, the Company has
significantly increased its North American sales force primarily to gain
marketshare in point-of-sale ("POS") scanner sales.
The Company has contractual relationships with numerous distributors and
dealers and a limited number of OEMs, VARs and end-users. OEMs purchase the
Company's products, incorporate them into their systems and sell them under
their own names. VARs purchase the Company's products and other peripheral
components needed for specific applications and sell them directly to
end-users. By utilizing multiple distribution channels, the Company has been
able to expand its market presence, broaden its distribution network and sell
to industries other than those serviced by the Company's direct sales force.
The Company has also entered into brand label agreements for sales of its
HoloTrak industrial holographic scanners with companies in the industrial
controls and industrial scanner industries, including Rockwell Automation which
sells HoloTrak scanners under the AllenBradley name, Symbol Technologies, Inc.,
which will sell HoloTrak scanners under the Symbol brand name, and an exclusive
sales agreement for HoloTrak sales in Japan with Matsushita Inter-Techno Co. (a
company of the Panasonic Corporation). Additionally, the Company has developed
a separate VAR network for the sales, service and distribution of the
HoloTrak(R) scanners.
As of December 31, 1997, the Company had approximately $1.7 million in backlog
orders, including $0.6 million in backlog orders attributable to Metrologic
Instruments GmbH. All such backlog orders are anticipated to be filled prior to
December 31, 1998. As of December 31, 1996, the Company had approximately $5.1
million in backlog orders, including $1.8 million in backlog orders
attributable to Metrologic Instruments GmbH, all of which were filled during
the 1997 fiscal year.
The Company performs ongoing credit evaluations of its customer's financial
condition, and except where risk warrants, requires no collateral. The Company
may require, however, letters of credit or prepayment terms for those customers
in lesser developed countries.
The following table sets forth certain information as to the Company's sales
by geographical location: (amounts in thousands)
Year Ended December 31,
1995 1996 1997
North America $18,387 $17,445 $19,684
Europe 18,470 23,466 26,475
Rest of World 4,706 6,060 7,336
------- ------- -------
Total $41,563 $46,971 $53,495
======= ======= =======
For a discussion of additional financial information by geographical area, see
Note 12 of the Notes to Consolidated Financial Statements.
Foreign sales of the Company's products are subject to the normal risks of
foreign operations, such as protective tariffs, export/import controls and
transportation delays and interruptions. The Company's international sales are
invoiced in U.S. dollars, German marks, Singapore dollars and various other
European currencies and are thus subject to currency exchange fluctuations.
Since the Company's products are manufactured in the United States, the
Company's sales and results of operations are routinely affected by
fluctuations in the value of the U.S.
dollar.
Competition
The bar code scanning industry is highly competitive. The Company encounters
competition primarily from manufacturers in the United States, Japan, Taiwan,
Italy, and the Netherlands. The Company's scanners compete primarily with those
produced by Accu-Sort Systems, Inc., Intermec Corp., Microscan Systems, Inc.,
NCR Corporation, Norand Corporation, PSC, Inc., Symbol Technologies, Inc.,
Welch Allyn, Inc. and others in the United States as well as Scantech located
in the Netherlands, Datalogic, Inc. located in Italy, Sick located in Germany,
and Nippondenso ID Systems, Opticon, Inc. and many other manufacturers located
in Asia. While many of the Company's competitors are much larger and have
greater financial, technical, marketing and other resources than the Company,
the Company believes that it competes on the basis of price, quality, service
and product performance.
Patent, Copyright and Trademark Matters
The Company files domestic and foreign patent applications to protect its
technological position and new product development. The Company currently has
33 issued U.S. patents, which expire between 1999 and 2014, and three foreign
patents, which expire between 2005 and 2012. In addition, the Company currently
has 13 U.S. allowed patent applications and four foreign allowed patent
applications which are expected to issue as patents, shortly. The Company has
filed additional patent applications with the U.S. Patent and Trademark Office
and foreign patent offices with respect to products and improvements developed
by the Company. The Company owns U.S. trademark registrations covering
Metrologic(R), HandSet(R), ScanSet(R), ScanGlove(R), ScanPal(R), Mini-Slot(R),
Liberty(R), ScanQuest(R), Tech 7(R), Tech 8(R), Tech 10(R), and VarSide(R). The
Company also has several registered trademarks in foreign countries. The
Company has filed additional trademark and service mark applications including
ScanKey(TM), HoloTrak(R), HoloSet(TM), HoloPrism(TM), Contour(TM), and
Concert(TM) and for other marks it is using in both the United States and
abroad. The Company intends to continue to file applications for U.S. and
foreign patents and trademarks. Although management believes that its patents
provide some competitive advantage and market protection, the Company relies
primarily upon its proprietary know-how, innovative skills, technical
competence and marketing abilities for its success.
The Company regards its software as proprietary and attempts to safeguard it
with protection under copyright and trade secret law and nondisclosure
agreements. Despite this protection, it may be possible for competitors or
users to copy aspects of the Company's products or to obtain information which
the Company regards as trade secrets. Computer software generally has not been
patented and existing copyright laws afford only limited practical protection.
The laws of foreign countries generally do not protect the Company's
proprietary rights in its products to the same extent as the laws of the United
States. In addition, the Company may experience more difficulty in enforcing
its proprietary rights in certain foreign jurisdictions.
In December 1996, the Company and Symbol Technologies, Inc. ("Symbol") executed
an extensive cross-license of patents ("the Symbol Agreement") for which the
Company and Symbol pay royalties to each other under certain circumstances
effective January 1, 1996. In connection with the Symbol Agreement, the Company
paid Symbol an advance license fee of $1 million in December 1996 and agreed to
pay another $1 million in quarterly installments of $125,000, over two years
ending in December 1998. In December 1997, the Company and Symbol amended the
Symbol Agreement to provide for the purchase of the Company's HoloTrak
industrial holographic scanners for resale by Symbol under Symbol's brand
label. This replaces a prior commitment under the Symbol Agreement to purchase
the Company's products.
In connection with the settlement of a December 1993 patent lawsuit with
Symbol, the Company agreed to make payments to Symbol through December 31,
2004. As a result of the patent lawsuit, the Company redesigned its hand-held
scanners to convert them from a triggered version to a triggerless version. In
connection with the Symbol Agreement dated December 1996, Symbol amended the
December 1993 settlement to reduce the maximum aggregate amount payable
thereunder by the Company from $7.5 million to approximately $5.1 million. For
additional information concerning the settlement, see Note 10 of the Notes to
Consolidated Financial Statements.
Manufacturing and Suppliers
The Company manufactures all of its products at its Blackwood, New Jersey
headquarters, enabling the Company to quickly adapt and enhance its products
and services to meet specific customer requirements. This capability also
reduces the length of the new product development cycle and speeds the
integration of new products into manufacturing. Product quality assurance is
achieved by an experienced workforce. The Company utilizes material
requirements planning and schedules its production to manage inventory levels
and meet customer delivery demands.
The Company has invested and will continue to invest in capital production
equipment and tooling that will automate production, increase capacity and
reduce direct labor costs. The Company utilizes five computerized printed
circuit board surface mount component pick-and-place machines. The Company uses
a computer-based, high-speed coil winder and an automated soldering station for
the production of transformers, inductors and other magnetic components. The
Company uses seven computer-controlled machine tools for automated production
of machined components. The Company uses three computerized vacuum-deposition
chambers to coat its filters, mirrors and lenses, and high-speed robotic glass
cutting machines. Computer-operated equipment is used for testing printed
circuit assemblies as well as the final products to assure repeatable, reliable
performance and accurate data collection for monitoring and analysis. The
Company has in operation a holographic scanning disc engineering and production
facility with the capability to design and manufacture high volumes of
holographic scanners.
The Company believes that by forming long-term relationships with suppliers
that share its commitment to quality, on-time delivery, and cost effectiveness,
it has been able to increase its product value to its customers. The Company
does not believe that the loss of any one supplier would have a material
adverse effect on its business, although set-up costs and delays would result
if the Company were required to change any single supplier without adequate
prior notice.
Government Regulations
The Company and its products are subject to regulation by various agencies both
in the United States and in the countries in which its products are sold. The
Food & Drug Administration's Center for Devices and Radiologic Health regulates
laser safety in the United States, and in Canada, laser safety is regulated by
the Health Protection Branch. In addition, the Occupational Safety and Health
Administration and various state and municipal government agencies have
promulgated regulations concerning working condition safety standards in
connection with the use of lasers in the workplace. Radio emissions are the
subject of governmental regulation in all countries in which the Company
currently sells its products. The Company also submits its products for product
safety certification in the United States and Canada by the nationally
recognized testing laboratories, the Underwriters Laboratories, Inc. and/or the
Canadian Standards Association.
The European countries in which the Company's products are sold also have
standards concerning electrical and laser safety and electromagnetic
compatibility and emissions. The Company's products comply with the European
standards regarding electromagnetic compatibility, allowing these products to
bear the CE mark.
The Company believes that it is currently in compliance with all of the
regulations to which it and its products are subject. There can be no
assurance, however, that governmental agencies will not require the Company to
modify its products or working conditions and, if so required, that the Company
would be able to make such modifications. Failure by the Company to comply with
any regulation or standard could have a material adverse effect on the Company.
Employees
As of December 31, 1997, the Company had approximately 400 full-time employees.
None of the Company's employees is represented by a labor union. Management
believes that its relationships with its employees are good.
Item 2. Properties
Since 1990, the Company's executive offices and manufacturing facilities have
been located in Blackwood, New Jersey and leased by the Company from C. Harry
Knowles, Chairman of the Board, President and Chief Executive Officer of the
Company, and Janet H. Knowles, Vice President, Administration, Secretary and
Treasurer of the Company. Under a lease agreement entered into on April 1,
1994, the Company has leased the building for a term of five years and has an
option to renew the lease for an additional five-year term. The initial annual
rent under the lease for the first year was $356,440 and increases annually at
a rate of 4.5%. An expansion of the facilities consisting of an additional
51,000 square feet was completed in October 1995, which has increased the
Company's facility to an aggregate of 113,000 square feet. The expanded space
is being leased from Mr. and Mrs. Knowles pursuant to the terms of the April 1,
1994 lease. The total lease rate as of April 1, 1998 will be approximately
$64,000 per month, excluding taxes and insurance.
The Company owns a former office and factory in Bellmawr, New Jersey which is
no longer utilized for operations and is currently under lease with an option
for the lessee to purchase the building. The Company's wholly-owned
subsidiaries, Metrologic Instruments GmbH, Metrologic Asia (PTE) Ltd., and
Holoscan each lease office space from third parties. The sales office in
Venezuela is leased from a third party by an independent representative of the
Company. Metrologic do Brasil Ltda, a joint venture, leases office space from a
third party in Sao Paulo, Brazil.
Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Executive Officers of the Registrant
The executive officers of the Company as of March 31, 1998 are as follows:
Name Age Position
C. Harry Knowles* 69 Chairman of the Board, President and
Chief Executive Officer
Janet H. Knowles* 56 Vice President, Administration,
Secretary and Treasurer
Dr. LeRoy D. Dickson 63 Vice President, Optical Engineering,
Metrologic Instruments, Inc. and
President and Chief Operating Officer,
Holoscan, Inc.
Dale M. Fischer 57 Vice President, International Sales
Joseph Milacci 54 Vice President, Industrial Automation
Thomas E. Mills, IV 38 Vice President, Finance and Chief Financial
Officer
Benny A. Noens 50 Vice President, European Sales, and
Managing Director, Metrologic
Instruments GmbH
John L. Patton 52 Director, Human Resources
William G. Smeader 59 Vice President, Manufacturing
Kevin P. Woznicki 44 Vice President, North American Sales
- -----------------------------------
* Mr. and Mrs. Knowles are husband and wife.
The Company's executive officers are elected annually by the Board of Directors
following the annual meeting of stockholders and serve at the discretion of the
Board of Directors.
C. Harry Knowles is the founder of the Company and has been Chairman of the
Board of Directors since its inception in 1969. Mr. Knowles served as President
of the Company from its inception through 1982 and has served as President and
Chief Executive Officer since 1985. In addition, Mr. Knowles served as chief
technical officer with responsibility for all of the Company's research and
development activities from 1982 to 1985. Since 1988, Mr. Knowles has also
served as a Managing Director of Metrologic Instruments GmbH. Prior to founding
the Company, Mr. Knowles was the general manager of Westinghouse Electric
Corporation's integrated circuits division in Elkridge, Maryland.
Janet H. Knowles was a director of the Company from 1972 to 1984 and has served
as a director since 1986. Mrs. Knowles served as Vice President, Administration
from 1976 to 1983 and has served in that capacity and as Secretary since 1984,
and as Treasurer since 1994. Mrs. Knowles is responsible for the Company's
administrative matters.
Dr. LeRoy D. Dickson has served as the Company's Vice President, Optical
Engineering since January 1997. He is also the President and Chief Operating
Officer and co-founder of Holoscan, Inc., a company that was established in
1993 to develop holographic bar code scanners. Dr. Dickson served as Chairman,
Chief Executive Officer and President of Holoscan until March 1996, the date of
the Company's acquisition of Holoscan. Prior to 1993, Dr. Dickson spent 24
years with IBM developing optical technology and laser scanning systems,
including IBM's holographic supermarket scanners.
Dale M. Fischer served as the Company's Director of International Marketing and
Sales from 1990 to 1993 and has served as Vice President, International Sales
since 1994. From 1989 to 1990, Mr. Fischer was Chairman of Great Valley
Corporation, a worldwide marketing and product development company. From 1967
until 1988, Mr. Fischer held several positions with TRW Electronics Component
Group ("TRW"), most recently as International Marketing, Sales and Licensing
Director. Mr. Fischer was responsible for marketing and sales of TRW products
in more than 50 countries and was responsible for the implementation of a joint
venture in Japan and the establishment of seven technology and manufacturing
licenses throughout the world. Mr. Fischer has also served as President of
Dalex International Corporation, a company devoted to export/import and
worldwide market development.
Joseph Milacci has served as the Company's Vice President, Industrial
Automation since October 1997. From 1993 to 1997, Mr. Milacci was employed as
General Manager and Member of the Board of Directors for OPCO, Inc., a
manufacturer of optical components. From 1987 to 1997, on a part time basis
from 1993 to 1997, Mr. Milacci owned and operated JEM Group, Inc., a process
and service company. From 1985 to 1987, Mr. Milacci served as Vice President of
Operations for Z-Tel, Inc., a telecommunications company. From 1977 to 1985,
Mr. Milacci served as the Vice President and General Manager of Fischer
Scientific Corporation. Mr. Milacci was previously employed by Metrologic from
1973-1977 as Operations Manager.
Thomas E. Mills IV is a certified public accountant and has been the Company's
Chief Financial Officer since May 1994 and Vice President, Finance since June
1995. Mr. Mills was employed by Ferranti International, Inc. from 1986 to April
1994 in various positions, most recently as Senior Vice President, U.S.
Operations. Prior to his employment with Ferranti International, Inc., Mr.
Mills was employed by KPMG Peat Marwick in various positions from 1981 to 1986,
most recently as Audit Manager.
Benny A. Noens served as the Company's European Sales Manager from 1991 to 1993
and has served as Vice President, European Sales since 1994. In addition, Mr.
Noens has been Managing Director of Metrologic Instruments GmbH since 1994.
From 1980 until 1991, Mr. Noens held several positions with Data General
Corporation, including serving in Latin America as Marketing and Distribution
Manager. Prior to his employment at Data General, Mr. Noens managed C.T. Janer
Co., an import/export company located in Rio de Janiero, Brazil.
John L. Patton served as the Company's Human Resources Manager from February
1993 to 1996 and has served as Director, Human Resources since December 1996.
From 1988 to February 1993, he was employed as a human resources consultant
with the Gordon Walls Company and from 1984 to 1988, he was employed as human
resources manager at TRW, IRC Division. From 1979 to 1984 he held the position
of Personnel Manager at Oral B Laboratories.
William G. Smeader served as the Company's Director of Manufacturing from 1988
to 1993 and has served as its Vice President, Manufacturing since 1994. From
1964 to 1987, he was employed by Leeds and Northrup, a manufacturer of
industrial instrumentation controls and a unit of General Signal Corporation,
where he held several positions including Engineering Manager of New Product
Development, Manager of New Product Introductions, Purchasing Manager, Director
of Advanced Business Development and Director of Materials and MIS Systems.
Kevin P. Woznicki served as the Company's Director of Marketing from August
1995 to July 1996, Vice President of Marketing from August 1996 to November
1996, and Vice President, North American Sales since December 1996. From 1994
to July 1995, he was employed by Franklin Electronic Publishing as North
American Sales Manager. From 1988 to 1994 he was employed by SL Waber, Inc., a
manufacturer of portable power protection devices, where he held several
positions including Vice President, General Manager of the business products
division and Vice President, Sales and Marketing.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The common stock of the Company, par value $.01 per share ("Common Stock") is
traded on The Nasdaq Stock Market under the symbol "MTLG." The following table
sets forth, for the indicated periods, the high and low closing prices of the
Company's Common Stock as reported by Nasdaq:
High Low
January to March 1996 $13 1/4 $ 9 3/8
April to June 1996 $13 $11
July to September 1996 $13 1/2 $11 1/4
October to December 1996 $16 1/2 $13 1/4
January to March 1997 $17 1/2 $13 1/4
April to June 1997 $19 3/4 $13 3/4
July to September 1997 $19 5/8 $14
October to December 1997 $15 3/4 $12 1/4
On March 23, 1998 there were 159 stockholders of record of Common Stock.
The Company currently anticipates that it will retain all of its earnings to
finance the operation and expansion of its business, and therefore does not
intend to pay dividends on its Common Stock in the foreseeable future. Any
determination to pay dividends is at the discretion of the Company's Board of
Directors and will depend upon the Company's financial condition, results of
operations, capital requirements, limitations contained in loan agreements and
such other factors as the Board of Directors deems relevant.
Item 6. Selected Consolidated Financial Data
(in thousdands, except share and per share data)
Year ended December 31,
1993 1994 1995 1996 1997
-------------------------------------------------
Statement of Operations Data:
Sales $ 23,682 $ 35,960 $ 41,563 $ 46,971 $ 53,495
Cost of sales 14,666 20,633 24,092 28,799 33,240
-------------------------------------------------
Gross profit 9,016 15,327 17,471 18,172 20,255
Selling, general and
administrative expenses 4,709 7,830 10,589 10,505 12,087
Research and development
expenses 1,516 1,765 3,024 3,110 3,359
-------------------------------------------------
Operating income 2,791 5,732 3,858 4,557 4,809
Settlement of patent litigation
and related legal costs (5,002) - - - -
Other income (expense), net (489) (242) 353 221 (156)
-------------------------------------------------
Income (loss) before (provision)
benefit for income taxes (2,700) 5,490 4,211 4,778 4,653
(Provision) benefit for income
taxes(1) 273 333 (1,669) (1,803) (1,673)
-------------------------------------------------
Net income (loss) $ (2,427) $ 5,823 $ 2,542 $ 2,975 $ 2,980
=================================================
Pro forma adjustment
(unaudited) (2) (Provision)
benefit for income taxes
as a C Corporation 791 (2,617) n/a n/a n/a
-------------------------------------------------
Pro forma net income
(loss) (2) $ (1,636) $ 3,206 n/a n/a n/a
=================================================
Basic earnings per share(3)
Weighted average shares
outstanding used in
computing basic EPS 3,499,998 3,898,899 5,238,112 5,255,275 5,330,596
=================================================
Basic earnings per share $ (0.69) $ 1.49 $ 0.49 $ 0.57 $ 0.56
=================================================
Pro forma basic earnings
(loss) per share (2) $ (0.47) $ 0.82 n/a n/a n/a
=================================================
Diluted earnings per share(3)
Weighted average shares
outstanding used in
computing diluted EPS 3,499,998 3,912,100 5,278,683 5,301,066 5,447,277
=================================================
Diluted earnings per share $ (0.69) $ 1.49 $ 0.48 $ 0.56 $ 0.55
=================================================
Pro forma diluted earnings
(loss) per share (2) $ (0.47) $ 0.82 n/a n/a n/a
=================================================
December 31,
1993 1994 1995 1996 1997
------------------------------------------------------
Balance Sheet Data:
Cash and cash
equivalents $ 346 $ 11,925 $ 12,065 $ 10,358 $ 13,096
Working capital $ 1,669 $ 14,942 $ 14,733 $ 15,200 $ 18,599
Total assets $ 9,268 $ 26,342 $ 31,401 $ 35,992 $ 38,458
Long-term debt $ 3,077 $ 803 $ 817 $ 1,764 $ 1,496
Other long-term
obligations $ 4,159 $ 3,718 $ 3,126 $ 2,033 $ 1,329
Total liabilities $12,069 $11,329 $13,475 $14,945 $13,557
Common stock $ 35 $ 52 $ 52 $ 53 $ 54
Total stockholders'
equity (deficit) $(2,801) $15,013 $17,926 $21,047 $24,901
Cash dividends declared
per common share $ 0.18 $ 0.83 $ - $ - $ -
(1) Benefit for income taxes for the year ended December 31, 1994 includes a
benefit of $1.7 million related to the change in the Company's federal
income tax status upon termination of its election to be treated as an S
Corporation.
(2) In connection with the consummation of the Company's initial public
offering in October 1994, the Company's status as an S Corporation
terminated, and the Company is now subject to corporate income taxes.
Accordingly, pro forma net income (loss) and pro forma net income (loss)
per share reflect a pro forma adjustment for corporate income taxes which
would have been recorded had the Company not been an S Corporation in the
periods presented.
(3) The earnings per share amounts prior to 1997 have been restated as required
to comply with Statement of Financial Accounting Standards No. 128,
Earnings Per Share. For further discussion of earnings per share, see
the notes to the consolidated financial statements beginning on page 20.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The Company derives its revenues from sales of its scanners through
distributors, VARs and OEMs and directly to end-users in the United States and
in over 80 foreign countries. Since 1991, the Company has experienced a growth
in revenues with a significant percentage of its revenues derived from
international sales.
Results of Operations
Since the beginning of 1997 the Company has been exposed to overall unfavorable
foreign currency fluctuations due to the reduction in the value of the German
mark against the U.S. dollar. The exchange rate at January 1, 1997 was
approximately 1.54 German marks to one U.S. dollar compared to approximately
1.80 German marks to one U.S. dollar at December 31, 1997, a reduction in value
of approximately 16.9% since the beginning of the year, the effect of which was
partially offset by an increase in product sales prices in Europe as of April
1, 1997. During the third quarter of 1997, the exchange rate was as high as
1.875 German marks to one U.S. dollar. In accordance with generally accepted
accounting principles, the Company translates its Statement of Operations
utilizing average exchange rates for reported periods.
The Company's German subsidiary accounted for approximately 47.9% of the
Company's consolidated sales for the year ended December 31, 1997.
Substantially all of the German subsidiary's products are manufactured at the
Company's U.S. facility. Therefore, the subsidiary's product manufacturing
costs, which represent approximately 75.7% of the subsidiary's total costs for
the year ended December 31, 1997, are incurred by the Company in U.S. dollars.
As a result, the subsidiary's sales are significantly affected by fluctuations
in the exchange rate between the German mark and the U.S. dollar; however,
there is a minimal offsetting effect in the product costs of the subsidiary.
Accordingly, the Company's consolidated operating profit is significantly
affected by changes in the exchange rate between the German mark and U.S.
dollar. (See "Liquidity and Capital Resources" for a discussion of the
Company's derivative financial instruments utilized to mitigate such exposure.)
Notwithstanding the effect of the fluctuations in the exchange rate between the
German mark to the U.S. dollar, the Company's sales derived from its German
subsidiary denominated in German marks increased 38% for the year ended
December 31, 1997 over 1996.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996 (amounts
in thousands except per share information)
Sales increased 13.9% to $53,495 in 1997 from $46,971 in 1996, principally as a
result of the continued increase in market acceptance of the Company's
hand-held scanners, scan engines sold to OEM's, HoloTrak holographic industrial
scanners, and increased sales and marketing efforts. The increase in sales was
offset by lower average unit selling prices compared to the corresponding
period a year ago, primarily on certain of the Company's point-of-sale ("POS")
products, which average unit selling prices included significant unfavorable
foreign exchange fluctuations from the Company's German subsidiary. The
reduction in the value of the German mark against the U.S. dollar since the
beginning of 1997 negatively affected the recorded U.S. dollar value of sales
by approximately 12.5% or approximately $3,200 in the year ended December 31,
1997.
International sales accounted for $33,811 (63.2% of total sales) in 1997 and
$29,526 (62.9% of total sales) in 1996. Sales to one customer accounted for
approximately 5.9% of total sales in 1997. Amounts due from this customer
amounted to approximately $568 at December 31, 1997. The Company's sales to two
customers accounted for approximately 5.3% and 5.2%, respectively, of total
sales in 1996. During these periods, no other customer accounted
for more than 5.0% of sales.
Cost of sales increased 15.4% to $33,240 in 1997 from $28,799 in 1996, and cost
of sales as a percentage of sales increased to 62.1% from 61.3%. These
increases were due primarily to a reduction in the average selling prices on
certain of the Company's products, which average unit selling prices included
the unfavorable foreign currency fluctuations noted above. An additional factor
negatively affecting cost of sales includes initial production and setup costs
associated with HoloTrak industrial scanners for which sales levels had not yet
achieved sufficient levels to fully absorb these costs. The increases in cost
of sales were partly offset by reduced product costs resulting from engineering
enhancements to certain products and manufacturing efficiencies resulting from
greater unit volumes. If sales are adjusted to negate the effect of unfavorable
foreign currency fluctuations since the beginning of 1997, cost of sales as a
percentage of sales would have been 58.8% in 1997 compared with 61.3% in 1996.
Selling, general and administrative ("SG&A") expenses increased 15.1% to
$12,087 in 1997 from $10,505 in 1996 and increased as a percentage of sales to
22.6% from 22.4%. The increases were primarily due to increased salaries
resulting from the hiring of additional sales and marketing personnel
throughout North America, Europe and the rest of the world, and increased
salaries resulting from the hiring of additional administration personnel during
the year primarily due to the growth of the business. SG&A expenses were
positively affected by reductions in the value of the German mark against the
U.S. dollar. The positive impact of the reduced value of the German mark since
the beginning of 1997 on consolidated SG&A expenses was approximately 3.4% or
$413 in the year ended December 31, 1997.
Research and development ("R&D") expenses increased 8.0% to $3,359 in 1997 from
$3,110 in 1996, and decreased as a percentage of sales to 6.3% from 6.6%. The
increase in R&D expenses was primarily due to the hiring of additional research
and development personnel.
Operating income increased 5.5% to $4,809 in 1997 from $4,557 in 1996, and
operating income as a percentage of sales decreased to 9.0% from 9.7%.
Other expenses/income reflect a net expense of $156 in the year ended December
31, 1997 compared to net other income of $221 in the year ended December 31,
1996. Other expenses reflect higher foreign currency transaction losses and
interest expense compared to the corresponding period a year ago.
Net income increased 0.2% to $2,980 in 1997 from $2,975 in 1996. Net income
reflects a 36.0% effective income tax rate for the year ended December 31,
1997, compared with 37.7% in 1996. The reduced effective income tax rate
resulted from the utilization of the Company's foreign sales corporation which
permits the Company to reduce its United States federal income tax liability on
profits from sales to foreign customers. Also, the Company has not incurred
income tax liability from any of its foreign subsidiaries in 1997. The
reduction in the value of the German mark against the U.S. dollar since the
beginning of 1997 negatively affected net income by approximately $0.37 per
share.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995 (amounts
in thousands)
Sales increased 13.0% to $46,971 in 1996 from $41,563 in 1995, principally as a
result of the continued increase in market acceptance of the Company's POS
laser scanners. The increase in sales was offset by lower average unit selling
prices in 1996, which included unfavorable foreign exchange fluctuations from
the Company's German subsidiary. International sales accounted for $29,526
(62.9% of total sales) in 1996 and $23,176 (55.8% of total sales) in 1995. The
Company's sales to two customers accounted for approximately 5.3% and 5.2% of
total sales, respectively, in 1996. Sales to one other customer accounted for
approximately 12.0% of total sales in 1995, however, this same customer
accounted for 4.2% of sales in 1996. During these periods, no other customer
accounted for more than 5% of sales.
Cost of sales increased 19.5% to $28,799 in 1996 from $24,092 in 1995, and cost
of sales as a percentage of sales increased to 61.3% from 58.0%. The increase
in cost of sales as a percentage of sales was due primarily to the reduction in
average unit selling prices as described above, increased royalties associated
with a cross-licensing agreement entered into in 1996 (See Item 1,
"Business-Patent, Copyright and Trademark Matters"), and initial production and
set-up costs on the new POS and industrial holographic laser scanners
introduced in 1996. The increase in cost of sales was partially mitigated by
cost reductions in certain component parts, higher production yields on
established products, and increased manufacturing efficiencies through higher
production volume on established products.
SG&A expenses decreased 0.8% to $10,505 in 1996 from $10,589 in 1995, and
decreased as a percentage of sales to 22.4% from 25.5%. SG&A expenses in 1996
included increased salary costs of employees hired during the year primarily
due to the growth of the business, however, SG&A expenses in 1995 contained
legal costs associated with certain patent litigation, which were not incurred
in 1996.
R&D expenses increased 2.8% to $3,110 in 1996 from $3,024 in 1995, and
decreased as a percentage of sales to 6.6% from 7.3%. The increase in R&D
expenses was due to the hiring of additional research and development personnel
including employees of Holoscan, which was acquired in March 1996. R&D
expenses in 1995, however, included expenditures associated with an agreement
to develop holographic scanners jointly with Holoscan which occurred prior to
the acquisition.
Operating income increased 18.1% to $4,557 in 1996 from $3,858 in 1995, and
operating income as a percentage of sales increased to 9.7% from 9.3%. These
increases reflect higher sales levels and decreased SG&A expenses and R&D
expenses as a percentage of revenue, offset slightly by higher costs of sales
as described above.
Other income decreased 37.4% to $221 in 1996 from $353 in 1995. Other income
decreased principally as a result of decreased interest income, partially
offset by decreased interest expense and foreign currency losses. Foreign
currency losses were primarily due to the strengthening of the US dollar
against the German mark.
Net income increased 17.0% to $2,975 in 1996 from $2,542 in 1995. Net income
reflects a 37.7% effective income tax rate in 1996 compared with 39.6% in 1995.
The reduced effective income tax rate resulted from the first full year of
incorporation of the Company's foreign sales corporation which permits the
Company to reduce its United States federal income tax liability on profits
from sales to foreign customers.
Inflation and Seasonality
Inflation and seasonality have not had a material impact on the Company's
results of operations. There can be no assurance, however, that the Company's
sales in future years will not be impacted by fluctuations in seasonal demand
from European customers in its third quarter or from reduced production days in
its fourth quarter.
Liquidity and Capital Resources (amounts in thousands)
The Company's working capital increased approximately 22.4% to $18,599 as of
December 31, 1997 from $15,200 as of December 31, 1996.
The Company's operating activities provided net cash of $3,333 compared with
net cash provided of $620 for the prior year. Net cash provided from operating
activities for 1997 resulted primarily from net income plus non-cash charges of
approximately $2,030 and a reduction in inventory and other assets, offset by
an increase in accounts receivable and a decrease in both accrued expenses and
the 1993 accrued legal settlement.
The Company's total deferred income tax asset (current and long-term) of
$2,112, is based upon cumulative temporary differences as of December 31, 1997,
which provide approximately $5,289 of future income tax deductions against
future taxable income. The Company's total deferred tax liability (current and
long-term) of $571, is based upon cumulative temporary differences as of
December 31, 1997, which result in approximately $1,430 of future taxable
income. The deferred tax asset arises primarily from recording the December
1993 settlement of a patent lawsuit and certain accruals and reserves on
current assets as expenses for accounting purposes prior to receiving the
related tax benefit. The deferred tax liability arises primarily from recording
the advance license fee pursuant to the Symbol Agreement as an expense for tax
purposes and an amortizable asset for book purposes.
The Company is a party to an Amended and Restated Loan and Security Agreement
with its primary bank, as amended, (the "Bank Agreement"), which provides for a
an unsecured line of credit in the amount of $7,500. The line of credit requires
the Company to comply with certain financial covenants and other restrictions.
As of December 31, 1997, the Company was in compliance with these financial
covenants and no amounts were outstanding under this line of credit. The Bank
Agreement expires on June 30, 1998. The Company expects to execute another
amendment which extends the Bank Agreement through June 30, 1999.
The Company also has a 500 German mark unsecured revolving credit facility with
a German bank in the name of its German subsidiary, Metrologic Instruments
GmbH. As of December 31, 1997, no amounts were outstanding under this revolving
credit facility.
The Company's current plans for capital expenditures for the next twelve months
potentially include the purchase of (i) the Company's office and manufacturing
facility currently being leased from the Company's principal stockholder,
Chairman, President, and CEO, and his spouse, the Company's Vice President,
Administration, Secretary and Treasurer, or other additional manufacturing
facilities; (ii) manufacturing automation equipment; (iii) office equipment;
and (iv) a new integrated management information system. Potential capital
expenditures amount to approximately $6,700. The purchase of the Company's
office and manufacturing facility could potentially save the Company
approximately $200 annually in rent expenses, net of depreciation and interest
expenses. The Company expects to finance such potential expenditures with a
combination of term notes, operating and capital leases, and a mortgage.
The Company's liquidity has been, and may continue to be, adversely affected by
changes in foreign currency exchange rates. Since December 31, 1996, the
Company and its German subsidiary have been exposed to unfavorable foreign
currency exchange fluctuations as a result of a decline in the value of the
German mark against the U.S. dollar. In an effort to mitigate the financial
implications of the volatility in the exchange rate between the German mark and
the U.S. dollar, the Company increased product sales prices in Europe as of
April 1, 1997, and has selectively entered into derivative financial
instruments to offset its exposure to foreign currency risks. Derivative
financial instruments currently include (i) foreign currency forward exchange
contracts with its primary bank for periods not exceeding six months, which
partially hedge sales to its German subsidiary, and (ii) a German mark based
term loan which acts as a partial hedge against outstanding intercompany
receivables and the net assets of its German subsidiary which are denominated
in German marks. Additionally, the German subsidiary invoices and receives
payment in certain other major European currencies, which results in an
additional mitigating measure that reduces the Company's exposure to the
fluctuation between the German mark and the U.S.
dollar.
The Company believes that its current cash and cash equivalent balances, along
with cash generated from operations and availability under its revolving credit
facilities, will be adequate to fund the Company's operations through at least
the next twelve months.
Impact of Year 2000
The Company's Management Information Systems (MIS) were written using two
digits, rather than four to define the applicable year. As a result, the
Company's computer system and programs have time-sensitive software that
recognize a date using "00" as the year 1900 rather than the year 2000. This
could cause a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
The Company is planning to replace its current MIS system with a new, Year 2000
compliant, fully integrated MIS system for itself, its subsidiaries, and other
affiliated companies. The total cost of the new MIS system will be
approximately $1,000, a substantial portion of which will be capitalized. The
new MIS system is estimated to be fully implemented by June 1999, which is
prior to any anticipated impact on its operating systems.
The costs of the new MIS system and the date on which the Company believes it
will complete its implementation are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. There can be
no guarantee that these estimates will be achieved and actual results could
differ materially from those anticipated.
Forward-Looking Information
The discussion in this Form 10-K includes forward-looking statements based on
current management expectations. Factors which could cause the results to
differ from these expectations include the following: general economic
conditions; competitive factors and pricing pressures; technological changes in
the scanner industry; fluctuations in the exchange rate between the German mark
and the U.S. dollar; the Company's ability to enter into and settle forward
exchange contracts; availability of patent protection for the Company's
holographic scanners and other products; and market acceptance of the Company's
new products.
Impact of Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information". SFAS 130 establishes standards for
reporting comprehensive income. The Company adopted SFAS 130, which had no
impact on net income or shareholders equity, at December 31, 1997. SFAS 130
requires foreign currency translation adjustments, which prior to adoption were
reported separately in shareholders' equity, to be included in other
comprehensive income. Prior year financial statements have been reclassified to
conform with the requirements of SFAS 130.
SFAS 131 establishes standards for annual and interim disclosures of operating
segments, products and services, geographic areas and major customers. SFAS 131
is effective in 1998. The Company is in the process of evaluating the
disclosure requirements of SFAS 131, the adoption of which will have no impact
on the Company's results of operations or financial condition.
Item 8. Financial Statements and Supplementary Data
Index Pages
Report of Ernst & Young LLP, independent auditors 15
Consolidated Balance Sheets at December 31, 1997 and 1996 16
Consolidated Statements of Operations for each of the three years
in the period ended December 31, 1997 17
Consolidated Statements of Stockholders' Equity for
each of the three years in the period ended December 31, 1997 18
Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 1997 19
Notes to Consolidated Financial Statements 20-31
Supplementary Data (Unaudited) 32-33
Financial statement schedules:
Schedule II - Valuation and Qualifying Accounts is filed herewith. All
other schedules are omitted because they are not applicable, not
required, or because the required information is included in the
consolidated financial statements or notes thereto.
Report of Independent Auditors
The Board of Directors and Shareholders
Metrologic Instruments, Inc.
We have audited the accompanying consolidated balance sheets of Metrologic
Instruments, Inc. as of December 31, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1997. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and the schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and the schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Metrologic
Instruments, Inc. at December 31, 1997 and 1996, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Philadelphia, Pennsylvania /s/Ernst & Young
February 26, 1998
Metrologic Instruments, Inc.
Consolidated Balance Sheets
(amounts in thousands except share data)
December 31,
Assets 1997 1996
-------- --------
Current assets:
Cash and cash equivalents $ 13,096 $ 10,358
Accounts receivable, net of allowance of $408 and
$493 in 1997 and 1996, respectively 9,249 8,035
Inventory 4,684 5,588
Deferred income taxes 1,698 1,848
Other current assets 604 519
-------- --------
Total current assets 29,331 26,348
Property, plant and equipment, net 4,625 4,692
Patents and trademarks, net of amortization
of $511 and $427 in 1997 and 1996, respectively 1,254 1,015
Holographic technology, net of amortization of $154
and $67 in 1997 and 1996, respectively 734 777
Deferred income taxes 414 655
Advance license fee, net of amortization of $118
in 1997 1,882 2,000
Security deposits and other assets 218 505
-------- --------
Total assets $ 38,458 $ 35,992
======== ========
Liabilities and shareholders' equity
Current liabilities:
Current portion of notes payable $ 543 $ 596
Accounts payable 2,859 2,607
Accrued expenses 6,505 7,040
Accrued legal settlement 825 905
-------- --------
Total current liabilities 10,732 11,148
Notes payable, net of current portion 1,496 1,764
Deferred income taxes 524 23
Accrued legal settlement 805 1,510
Other liabilities - 500
Shareholders' equity:
Preferred stock, $0.01 par value: 500,000 shares
authorized; none issued - -
Common stock, $0.01 par value: 10,000,000 shares
authorized; 5,369,090 and 5,274,351 shares
issued and outstanding in 1997 and 1996,
respectively 54 53
Additional paid-in capital 16,389 15,055
Retained earnings 8,576 5,596
Deferred compensation (2) (8)
Accumulated other comprehensive income (116) 351
-------- --------
Total shareholders' equity 24,901 21,047
-------- --------
Total liabilities and shareholders' equity $ 38,458 $ 35,992
======== ========
See accompanying notes.
Metrologic Instruments, Inc.
Consolidated Statements of Operations
(amounts in thousands except share and per share data)
Year ended December 31,
-------------------------------------
1997 1996 1995
--------- --------- ---------
Sales $ 53,495 $ 46,971 $ 41,563
Cost of sales 33,240 28,799 24,092
--------- --------- ---------
Gross profit 20,255 18,172 17,471
Selling, general and administrative
expenses 12,087 10,505 10,589
Research and development expenses 3,359 3,110 3,024
--------- --------- ---------
Operating income 4,809 4,557 3,858
Other (expenses) income
Interest income 460 431 481
Interest expense (175) (108) (155)
Foreign currency transaction loss (445) (101) 26
Other, net 4 (1) 1
--------- --------- ---------
Total other (expenses) income (156) 221 353
--------- --------- ---------
Income before provision for income taxes 4,653 4,778 4,211
Provision for income taxes 1,673 1,803 1,669
--------- --------- ---------
Net income $ 2,980 $ 2,975 $ 2,542
========= ========= =========
Basic earnings per share
Weighted average shares
outstanding 5,330,596 5,255,275 5,238,112
========= ========= =========
Basic earnings per share $ 0.56 $ 0.57 $ 0.49
========= ========= =========
Diluted earnings per share
Weighted average shares outstanding 5,330,596 5,255,275 5,238,112
Net effect of dilutive securities 116,681 45,791 40,571
--------- --------- ---------
Total shares outstanding used in
computing diluted earnings per
share 5,447,277 5,301,066 5,278,683
========= ========= =========
Diluted earnings per share $ 0.55 $ 0.56 $ 0.48
========= ========= =========
See accompanying notes.
Metrologic Instruments, Inc.
Consolidated Statements of Shareholders' Equity
(amounts in thousands)
Accumulated
Additional Other
Common Paid-in Deferred Retained Comprehensive
Stock Capital Compensation Earnings Income Total
Balances,
December 31, 1994 $ 52 $14,585 $ (85) $ 79 $ 382 $ 15,013
Comprehensive
income:
Net income - - - 2,542 - 2,542
Other
comprehensive
income -
foreign currency
translation
adjustment - - - - 101 101
Total comprehensive
income 2,643
Exercise of stock
options - 139 - - - 139
Stock issued through
employee stock
purchase plan - 83 - - - 83
Compensation expense
related to stock
awards - - 48 - - 48
----------------------------------------------------------
Balances,
December 31, 1995 52 14,807 (37) 2,621 483 17,926
Comprehensive
income:
Net income - - - 2,975 - 2,975
Other
comprehensive
income -
foreign currency
translation
adjustment - - - - (132) (132)
Total comprehensive
income 2,843
Exercise of stock
options 1 188 - - - 189
Stock issued through
employee stock
purchase plan - 60 - - - 60
Compensation expense
related to stock
awards - - 29 - - 29
----------------------------------------------------------
Balances,
December 31, 1996 53 15,055 (8) 5,596 351 21,047
Comprehensive
income:
Net income - - - 2,980 - 2,980
Other
comprehensive
income -
foreign currency
translation
adjustment - - - - (467) (467)
Total comprehensive
income 2,513
Exercise of stock
options 1 1,055 - - - 1,056
Stock issued through
employee stock
purchase plan - 94 - - - 94
Compensation expense
related to stock
awards - - 6 - - 6
Tax benefit of stock
options - 185 - - - 185
----------------------------------------------------------
Balances,
December 31, 1997 $ 54 $ 16,389 $ (2) $ 8,576 $(116)$24,901
See accompanying notes
Metrologic Instruments, Inc.
Consolidated Statements of Cash Flows
(amounts in thousands)
Year ended December 31,
--------------------------------
Operating activities 1997 1996 1995
-------- -------- --------
Net income $ 2,980 $ 2,975 $ 2,542
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 843 885 624
Amortization 289 138 187
Compensation expense related to stock
awards and employee stock
purchase plan 6 38 56
Deferred income taxes 892 243 (541)
Changes in operating assets and
liabilities:
Accounts receivable (1,995) (1,302) (1,570)
Inventory 779 (2,194) 140
Other current assets (121) 88 88
Other assets 459 (46) (390)
Accounts payable 252 306 251
Accrued expenses (266) 673 1,932
Accrued legal settlement (785) (1,184) (375)
-------- -------- --------
Net cash provided by operating activities 3,333 620 2,944
Investing activities
Purchase of property, plant and equipment (544) (1,427) (1,823)
Patents and trademarks (323) (208) (363)
Advance license fee (500) (1,000) -
Purchase of Holoscan, Inc. and holographic
technology, net of cash acquired (44) (560) (360)
-------- -------- --------
Net cash used in investing activities (1,411) (3,195) (2,546)
Financing activities
Proceeds from exercise of stock options and
employee stock purchase plan 1,150 240 214
Principal payments on notes payable (332) (248) (111)
Proceeds from issuance of notes payable - 1,318 -
Net (payments) proceeds from line of credit - (168) 168
Payments of amounts due to former officer (84) (200) (200)
Capital lease payments (250) (151) (127)
-------- -------- --------
Net cash provided by (used in) financing
activities 484 791 (56)
Effect of exchange rates on cash 332 77 (202)
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents 2,738 (1,707) 140
Cash and cash equivalents at beginning
of year 10,358 12,065 11,925
-------- -------- --------
Cash and cash equivalents at end of year $ 13,096 $ 10,358 $ 12,065
======== ======== ========
Supplemental Disclosure
Cash paid for interest $ 169 $ 125 $ 110
======== ======== ========
Cash paid for income taxes $ 96 $ 2,706 $ 1,687
======== ======== ========
Liability incurred for advance
license fee $ - $ 1,000 $ -
======== ======== ========
Capital lease obligations incurred $ 261 $ 233 $ 531
======== ======== ========
Tax benefit from stock options $ 185 $ - $ -
======== ======== ========
See accompanying notes
Metrologic Instruments, Inc.
Notes to Consolidated Financial Statements
December 31, 1997
(Dollars in Thousands)
1. Business
Metrologic Instruments, Inc. designs, manufactures and markets bar
code scanning equipment incorporating laser and holographic technology. The
Company's principal products are hand-held scanners, fixed projection scanners,
in-counter scanners and industrial scanners. These scanners rapidly,
accurately, and efficiently read and decode all widely used bar codes and
provide an efficient means for data capture and automated data entry into
computerized systems.
2. Accounting Policies
Basis of Consolidation
The accompanying consolidated financial statements include the
accounts of Metrologic Instruments, Inc., and its domestic and foreign
subsidiaries. Significant intercompany transactions and balances have been
eliminated in consolidation.
Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
Product sales revenue is recognized upon the transfer of title to
goods.
Cash and Cash Equivalents
The Company considers all highly-liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Fair Values of Financial Instruments
The carrying amounts of cash equivalents, accounts receivable and
accounts payable approximate fair value because of their short-term nature. The
carrying amount of long-term debt approximates its fair value because the
interest rate is reflective of rates that the Company would be able to obtain
on debt with similar terms and conditions.
Inventory
Inventory is stated at the lower of cost, determined on a first-in,
first-out basis, or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is
determined on the straight-line method for building and improvements over
estimated useful lives of 15 to 31 years and on an accelerated method for
machinery and equipment over estimated useful lives of five to seven years.
Patents and Trademarks
Patents and trademarks reflect application and testing costs for
products with respect to which the Company has applied for or received patent
and trademark protection. Costs expended for successful patent and trademark
applications are being amortized on a straight-line basis over their useful
lives, which generally are 17 years.
Advance License Fee
The Company capitalized an advance license fee of $2,000 in December
1996 (Note 10). The advance license fee is being amortized on a straight-line
basis over the seventeen year life of the cross-licensing agreement.
Foreign Currency Translation
The financial statements of the Company's foreign subsidiary have been
translated into U.S. dollars in accordance with FASB Statement No. 52, "Foreign
Currency Translation." All balance sheet accounts have been translated using
the exchange rates in effect at the balance sheet date. Income statement
amounts have been translated using the average exchange rate for the year. The
gains and losses resulting from the changes in exchange rates from year to year
have been reported separately in comprehensive income as a component of
stockholders' equity.
Earnings Per Share
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 128, Earnings per Share. SFAS 128 replaced
the calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of stock options. All earnings per
share amounts for all periods have been presented, and where appropriate,
restated to conform to the SFAS 128 requirements.
Concentrations of Credit Risk
Sales to one customer accounted for approximately 5.9% of total sales
in 1997. Amounts due from this customer amounted to approximately $568 at
December 31, 1997. The Company's sales to two customers accounted for
approximately 5.3% and 5.2%, respectively, of total sales in 1996. During these
periods, no other customer accounted for more than 5.0% of sales.
The Company has operations and affiliates in the United States,
Germany, Asia and South America. Sales to Europe, North America, and other
countries accounted for 49.5%, 36.8%, and 13.7% of total sales, respectively,
in 1997. The Company performs ongoing credit evaluations of its customers'
financial condition, and except where risk warrants, requires no collateral.
The Company may require, however, letters of credit or prepayment terms for
those customers in lesser developed countries.
Short-term cash investments are placed with high credit quality
financial institutions or in short-term high quality debt securities. The
Company limits the amount of credit exposure in any one institution or single
investment.
Accounting for Stock Options
The Company follows Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for stock options. Under APB 25, if the exercise
price of the Company's stock options equals the market price of the underlying
common stock on the date of grant, no compensation expense is recognized. Note
13 to these consolidated financial statements includes the required disclosures
and pro forma information provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123").
Impact of Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information". SFAS 130 establishes standards for
reporting comprehensive income. The Company adopted SFAS 130, which had no
impact on net income or shareholders' equity, at December 31, 1997. SFAS 130
requires foreign currency translation adjustments, which prior to adoption were
reported separately in shareholders' equity, to be included in other
comprehensive income. Prior year financial statements have been reclassified to
conform with the requirements of SFAS 130.
SFAS 131 establishes standards for annual and interim disclosures of
operating segments, products and services, geographic areas and major
customers. SFAS 131 is effective in 1998. The Company is in the process of
evaluating the disclosure requirements of SFAS 131, the adoption of which will
have no impact on the Company's results of operations or financial condition.
Reclassification
Certain prior year balances have been reclassified to conform with
current year presentation.
3. Inventory
Inventory consists of the following:
December 31,
1997 1996
Raw materials $2,542 $2,644
Work-in-process 1,590 1,636
Finished goods 552 1,308
------ ------
$4,684 $5,588
====== ======
4. Property, Plant and Equipment
Property, plant and equipment consists of the following:
December 31,
1997 1996
Buildings and improvements $2,345 $2,285
Machinery and equipment 6,716 6,001
------ ------
9,061 8,286
Less accumulated depreciation 4,776 3,960
------ ------
4,285 4,326
Idle land and building, net of
depreciation 340 366
------ ------
$4,625 $4,692
====== ======
Machinery and equipment included $1,020 and $759 under capital leases as of
December 31, 1997 and 1996, respectively. Accumulated depreciation on these
assets was $388 and $218 as of December 31, 1997 and 1996, respectively.
Idle land and building consist of the Company's former office and factory in
Bellmawr, New Jersey, which is no longer utilized for operations and is
currently under lease with an option for the lessee to purchase the building.
The building is being depreciated over its estimated remaining life.
5. Accrued Expenses
Accrued expenses consist of the following:
December 31,
1997 1996
Accrued royalties $1,075 $ 914
Accrued compensation 913 965
Income taxes - 164
Product warranty 850 1,192
Profit sharing 300 302
Due to former officer - 84
Other 3,367 3,419
------ ------
$6,505 $7,040
====== ======
6. Notes Payable
Notes payable consist of the following:
December 31,
1997 1996
Term note (a) $1,086 $1,300
Note payable-shareholders (b) 446 558
Capital lease obligations (c) 497 486
Other 10 16
------ ------
2,039 2,360
Less: current maturities 543 596
------ ------
$1,496 $1,764
====== ======
The Company's primary debt facility consists of an Amended and Restated Loan &
Security Agreement dated November 1995 with its primary bank, subsequently
amended (collectively, the "Bank Agreement").
(a) In December 1996, under the Bank Agreement, the Company executed a
term note for $1,300. In 1997, this term note was converted from a
U.S. dollar denominated loan to a German mark based loan (Note 7). The
term note, due January 2002, is payable in monthly installments of
approximately $22 and bears interest at a variable German Euro-Rate
(3.75% at December 31, 1997), as defined, plus 1.75%.
(b) Note payable - shareholders, due September 2001, is payable in annual
installments of $112 and bears interest at the prime rate (8.5% as of
December 31, 1997), as defined, plus 0.5%.
(c) The Company has entered into capitalized lease agreements for
equipment which are payable through 2002 at interest rates ranging
from 6% to 9.3%.
The minimum annual maturities of notes payable and capital lease obligations at
December 31, 1997 are approximately as follows:
1998 $ 543
1999 473
2000 477
2001 489
2002 57
-------
$ 2,039
7. Financial Instruments
The Company has selectively entered into derivative financial instruments to
offset its exposure to foreign currency risks. These financial instruments
currently include (i) foreign currency forward exchange contracts with its
primary bank for periods not exceeding six months, which partially hedge sales
to the Company's German subsidiary, and (ii) the conversion of an existing term
loan from a U.S. dollar denominated loan to a German mark based loan in order
to create an external German mark denominated liability to act as a partial
hedge against outstanding intercompany receivables and the net assets of its
German subsidiary, which are denominated in German marks (Note 6). The
Company's forward exchange contracts do not subject the Company to risk from
exchange rate movements because gains and losses on such contracts offset
losses and gains, respectively, on the assets, liabilities, and intercompany
transactions being hedged. Forward exchange contracts are adjusted to market
value and the resulting gains and losses are reflected in income. At December
31, 1997, the Company had $1,446 of foreign currency forward exchange contracts
outstanding with a fair market value that approximated cost. The forward
exchange contracts generally require the Company to exchange German marks for
U.S. dollars at maturity, at rates agreed to at the inception of the contracts.
8. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes and are disclosed in the
consolidated balance sheets. Significant components of the Company's deferred
tax assets and liabilities are as follows:
December 31,
1997 1996
------- -------
Deferred tax assets:
Reserves on current assets $ 379 $ 309
Inventory capitalization 121 112
Warranty reserve 141 181
Accrued legal settlement 564 885
Other accrued expenses 907 1,016
------ ------
$2,112 $2,503
====== ======
Deferred tax liability:
Advance license fee $ 552 $ -
Deferred gain on involuntary
conversion 19 23
------- --------
$ 571 $ 23
======= ========
Significant components of the provision for income taxes are as follows:
Year ended December 31,
1997 1996 1995
---- ---- ----
Current:
Federal $ 683 $1,432 $1,710
Foreign - (208) (60)
State 51 336 560
------ ------ ------
Total current 734 1,560 2,210
Deferred:
Federal 727 232 (427)
State 212 11 (114)
------ ------ ------
Total deferred 939 243 (541)
------ ------ ------
Provision for income taxes $1,673 $1,803 $1,669
====== ====== ======
The effective income tax rate of 36.0%, 37.7% and 39.6% for the years ended
December 31, 1997, 1996, and 1995, respectively, differs from the federal
statutory rate of 34% because of the difference in treatment of certain expense
items for financial and income tax reporting purposes. A reconciliation between
the statutory provision and the provision for financial reporting purposes is
as follows:
December 31,
1997 1996 1995
---- ---- ----
Statutory federal tax provision $1,582 $1,625 $1,432
State income taxes, net of federal
income tax benefit 174 258 306
Foreign income taxes - (54) 263
Other (83) (26) (332)
------ ------ ------
Provision for income taxes $1,673 $1,803 $1,669
====== ====== ======
9. Related Party Transactions
The Company's principal shareholder, Chairman, President, and CEO and his
spouse, the Company's Vice President, Administration, Secretary, and Treasurer,
own and lease to the Company certain real estate utilized in the operation of
the Company's business. Lease payments made to related parties were
approximately $729, $699, and $434 for the years ended December 31, 1997, 1996
and 1995, respectively. The lease for the real estate expires in March 1999 and
includes an option to renew the lease for an additional five-year term. The
lessors expanded the facility during 1995 and the annual lease payments were
increased per the terms set forth regarding additional space in the lease dated
April 1, 1994. Future minimum lease payments required under the lease are
approximately $762 in 1998, and $192 in 1999, excluding taxes and insurance.
The notes payable - shareholders referred to in Note 6 include a loan payable
to the principal shareholder, Chairman, President and CEO. In 1997, the third
installment of the seven-year notes was paid to the principal shareholder in
the amount of $151, which included $46 of interest.
The Company incurred expenses of $75, $62, and $40 for tax services rendered by
an accounting firm during the years ended December 31, 1997, 1996 and 1995,
respectively. A partner in this accounting firm is a shareholder and director
of the Company.
10. Commitments & Contingencies
Operating Leases
The Company has entered into operating lease agreements with unrelated
companies to lease office space for its foreign subsidiary and vehicles.
Future minimum lease payments required under the lease agreements as of
December 31, 1997 are $199 in 1998, $95 in 1999, and $12 in 2000. Rental
expense for 1997, 1996 and 1995 was approximately $196, $200, and $157,
respectively.
Cross-Licensing Agreement and Settlement of Patent Litigation
In December 1996, the Company and Symbol Technologies, Inc. ("Symbol") executed
an extensive cross-license of patents (the "Symbol Agreement") for which the
Company and Symbol pay royalties to each other under certain circumstances
effective January 1, 1996. In connection with the Symbol Agreement, the Company
paid Symbol an advance license fee of $1 million in December 1996 and agreed to
pay another $1 million in quarterly installments of $125 over two years ending
December 1998. In December 1997, the Company and Symbol amended the Symbol
Agreement to provide for the purchase of the Company's HoloTrak industrial
holographic scanners for resale by Symbol under Symbol's brand label. This
arrangement replaces a prior commitment under the Symbol Agreement to purchase
the Company's products. Royalty expense under the Symbol Agreement amounted to
$2,108 and $1,513 in 1997 and 1996, respectively.
In December 1993, the Company entered into an agreement settling patent
litigation brought by Symbol and provided the Company future rights to use
certain technology. The agreement required the Company to pay annual amounts
for a 12-year period aggregating a minimum of $4,450 and a maximum of $7,500.
The Company accrued the $4,450 minimum obligation in 1993 to account for the
settlement of the patent litigation. In connection with the Symbol Agreement
dated December 1996, Symbol amended the December 1993 settlement to reduce the
maximum aggregate amount payable thereunder by the Company from $7,500 to
approximately $5,111. The result of the amended December 1993 settlement
amounted to a net reduction in expense for the year ended December 31, 1996 of
$287, which was recorded upon the signing of the Symbol Agreement in the fourth
quarter of 1996. Remaining aggregate amounts due under the December 1993
settlement were accrued as of December 31, 1996. Prior to 1996,
royalties in excess of the annual minimum obligations were being expensed in
the periods benefited to account for the current use of such technology. Such
expense amounted to $465 in 1995.
Legal Matters
The Company files domestic and foreign patent applications to protect its
technological position and new product development. From time to time, the
Company receives legal challenges to the validity of its patents or allegations
that its products infringe the patents of others.
Management is of the opinion that there are no material legal claims against
the Company which would have a material adverse effect on the Company's
consolidated financial position or results of operations.
Credit Facility
The Bank Agreement (Note 6) expires annually on June 30, and includes financial
covenants with which the Company is in compliance. The Bank Agreement includes
an available unsecured line of credit of $7,500, which bears interest at a rate
selected by the Company from interest rate options offered under the Bank
Agreement. Interest rate options consist of (i) the bank's prime rate (8.5% at
December 31, 1997) minus 0.25%, or (ii) the bank's Euro-Rate (5.7% at December
31, 1997) plus 1.75%. As of December 31, 1997, no amounts were outstanding
under the line of credit.
The Company also has a 500 German mark unsecured revolving line of credit with
a German bank in the name of its German subsidiary, Metrologic Instruments
GmbH. As of December 31, 1997, no amounts were outstanding under this revolving
credit facility.
11. Retirement Plans
The Company maintains a noncontributory defined contribution cash or deferred
profit sharing plan covering substantially all employees. Contributions are
determined by the President and Chief Executive Officer and are equal to a
percentage of each participant's compensation. The Company's contributions were
$300, $302, and $200 in 1997, 1996 and 1995, respectively.
Additionally, the Company maintains an employee funded Deferred Compensation
Retirement 401(k) Plan, contributions to which are partially matched by the
Company. Contribution expenses were $55, $48, and $41 in 1997, 1996 and 1995,
respectively.
12. Geographical Information
The Company has operations in the United States and Germany. The following is a
summary of operations by geographic region (in thousands).
United States Operations
North Other German Total
America Europe Export Total Subsidiary Consolidated
Sales 1995 $18,387 $1,986 $4,706 $25,079 $16,484 $41,563
1996 17,445 2,535 6,060 26,040 20,931 46,971
1997 19,684 855 7,336 27,875 25,620 53,495
Income (loss)
before provision
for income taxes
1995 $ 5,162 $ (951) $ 4,211
1996 5,236 (458) 4,778
1997 4,686 (33) 4,653
Identifiable
assets 1995 $27,059 $ 4,342 $31,401
1996 29,046 6,946 35,992
1997 31,091 7,367 38,458
13. Incentive Plan
The Company's Board of Directors has granted incentive and non-qualified stock
options and restricted stock pursuant to the Company's Incentive Plan to
certain eligible employees and a board member. The shares issued will either be
authorized and previously unissued common stock or issued common stock
reacquired by the Company. The total number of shares authorized for issuance
under the Incentive Plan is 1,600,000. Shares canceled for any reason without
having been exercised shall again be available for issuance under the Incentive
Plan. An aggregate of 1,034,000 shares were available for grant under the
Incentive Plan at December 31, 1997. Such options are exercisable 20% on the
date of grant and 20% per year, thereafter. Each option shall expire four to
ten years after becoming exercisable.
The Company has elected to follow APB 25, and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS 123, requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying common stock
on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is required
by SFAS 123, which also requires that the information be determined as if the
Company had accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method of SFAS 123. The fair value of
the options was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions for 1997 and 1996:
risk-free interest rates of 6.2%; a dividend yield of 0.0%; volatility factors
of the expected market price of the Company's common stock of 50%; and a
weighted-average expected life of the option of 5 years. There were no options
issued in 1995.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands except for earnings per share
information):
1997 1996
---- ----
Net income:
As reported $2,980 $2,975
Pro forma 2,391 2,352
Net income per share:
Basic:
As reported $ 0.56 $ 0.57
Pro forma 0.45 0.45
Diluted:
As reported $ 0.55 $ 0.56
Pro forma 0.44 0.44
Because SFAS 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until the
year 2000 due to the four year vesting period of options granted in 1996, the
first year since implementation of SFAS 123 was a required disclosure.
During 1997, a total of 1,760 shares of restricted stock vested. The remaining
1,280 shares of restricted stock vest at various dates through September 29,
1998. The incentive and non-qualified stock options vest at various dates
through May 2001.
A summary of the Company's stock option activity, and related information for
the years ended December 31, 1995, 1996, and 1997 follows:
Options Weighted-Average
(in Exercise Price
thousands)
------------ ------------------
Outstanding - December 31, 1995 306 $11.93
Granted 251 11.38
Exercised (18) 11.69
Canceled (17) 12.07
------------ ------------------
Outstanding-December 31, 1996 522 11.67
Granted 25 16.13
Exercised (87) 11.88
Canceled (12) $12.08
------------ ------------------
Outstanding-December 31, 1997 448 $11.84
============ ==================
Exercisable at December 31, 1997 228 11.75
============ ==================
Weighted-average fair value
of options granted during 1997 $10.95
Exercise prices for options outstanding as of December 31, 1997 ranged from
$11.00 to $16.13. The weighted-average remaining contractual life of those
options is 4 years.
14. Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan whereby eligible employees have
the opportunity to acquire the Company's common stock quarterly through payroll
deductions, at 90% of the lower of (a) the fair market value of the stock on
the first day of the applicable quarterly offering period or (b) the fair
market value of the stock on the last day of the applicable quarterly offering
period.
15. Holoscan
The Company completed the purchase of all of the outstanding shares of common
stock of Holoscan on March 1, 1996 for $521, net of cash acquired. The
acquisition of Holoscan, Inc. was accounted for using the purchase method. A
substantial portion of the consideration paid by the Company for the
acquisition of Holoscan was allocated to holographic technology and is being
amortized over ten years. The Company has consolidated the assets and
liabilities at December 31, 1997 and 1996 and results of operations and cash
flows of Holoscan since March 1, 1996. The Company has not included pro forma
financial information with respect to the Holoscan acquisition since the
effects were not material.
Pursuant to an option agreement entered into in March 1995 among the Company,
Holoscan and the previous holders of all of Holoscan's outstanding common stock
and options and warrants to purchase common stock (collectively, the
"Holders"), the Company agreed to pay each Holder, through 1998, a payment
based on the Company's sales of certain holographic laser scanners. During the
years ended December 31, 1997 and 1996, $44 and $15, respectively ,had been
paid to the Holders. All such amounts incurred are considered additions to
holographic technology and are being amortized over the remainder of the
ten-year period.
16. Joint Venture
In January 1998, the Company completed the formation of a joint venture with a
Brazilian based company formerly doing business as a distributor of bar code
scanning equipment. The joint venture will be operating under the name of
Metrologic do Brasil Ltda and will provide sales, distribution, and service to
the Company's Brazilian customers. The Company paid $300 and has agreed to pay
$210 in two installments by December 1998 provided certain conditions are
maintained, for 51% ownership of the joint venture.
Supplementary Data
Quarterly Consolidated Operating Results (Unaudited)
The following tables present unaudited quarterly operating results for the
Company for each quarter of 1997 and 1996. This information has been derived
from unaudited financial statements and includes all adjustments, consisting
only of normal recurring accruals, which the Company considers necessary for a
fair presentation of the results of operations for these periods. Such
quarterly operating results are not necessarily indicative of the Company's
future results of operations. The 1996 and 1997 earnings per share amounts have
been restated to comply with SFAS 128.
Quarterly Consolidated Operating Results (Unaudited)
(In Thousdands except per share data)
Three months ended
March 31, June 30, September 30, December 31,
1997 1997 1997 1997
---------- ---------- ---------- ----------
Sales $ 12,762 $ 13,157 $ 13,047 $ 14,529
Cost of sales 7,967 8,438 8,134 8,701
-------- -------- -------- ---------
Gross profit 4,795 4,719 4,913 5,828
Selling, general and
administrative expenses 2,928 2,753 2,980 3,426
Research and development
expenses 808 814 828 909
-------- --------- --------- ----------
Operating income 1,059 1,152 1,105 1,493
Other (expenses) income
Interest income 92 111 115 142
Interest expense (42) (59) (42) (32)
Foreign currency transaction
loss (165) (76) (167) (37)
Other, net (3) 2 (5) 10
--------- --------- --------- ----------
Total other (expenses)
income (118) (22) (99) 83
--------- --------- --------- ----------
Income before provision for
income taxes 941 1,130 1,006 1,576
Provision for income taxes 357 430 382 504
--------- --------- --------- ---------
Net income $ 584 $ 700 $ 624 $ 1,072
========= ========= ========= =========
Basic earnings per share
Weighted average shares
outstanding 5,291,772 5,317,690 5,351,623 5,361,298
========== ========== ========== ==========
Basic earnings per
share $ 0.11 $ 0.13 $ 0.12 $ 0.20
========== ========== ========== ==========
Diluted earnings per share
Weighted average shares
outstanding 5,291,772 5,317,690 5,351,623 5,361,298
Net effect of dilutive
securities 135,173 156,335 101,076 74,141
---------- ---------- ---------- ----------
Total shares outstanding
used in computing
diluted earnings
per share 5,426,945 5,474,025 5,452,699 5,435,439
========== ========== ========== ==========
Diluted earnings per
share $ 0.11 $ 0.13 $ 0.11 $ 0.20
========== ========== ========== ==========
Supplementary Data (Con't)
Quarterly Consolidated Operating Results (Unaudited)
(In Thousdands except per share data)
Three months ended
----------------------------------------------
March 31, June 30, September 30, December 31,
1996 1996 1996 1996
---------- ---------- ---------- ----------
Sales $ 10,342 $ 11,757 $ 11,525 $ 13,347
Cost of sales 6,271 7,154 7,032 8,342
-------- -------- -------- ---------
Gross profit 4,071 4,603 4,493 5,005
Selling, general and
administrative expenses 2,559 2,730 2,502 2,714
Research and development
expenses 797 774 808 731
-------- --------- --------- ----------
Operating income 715 1,099 1,183 1,560
Other income (expense)
Interest income 130 98 94 109
Interest expense (29) (27) (29) (23)
Foreign currency transaction
gain (loss) (14) (65) (55) 33
Other, net - - - (1)
--------- --------- --------- ----------
Total other income 87 6 10 118
--------- --------- --------- ----------
Income before provision for
income taxes 802 1,105 1,193 1,678
Provision for income taxes 312 420 453 618
--------- --------- --------- ---------
Net income $ 490 $ 685 $ 740 $ 1,060
========= ========= ========= =========
Basic earnings per share
Weighted average shares
outstanding 5,249,186 5,250,816 5,252,933 5,268,163
========== ========== ========== ==========
Basic earnings per
share $ 0.09 $ 0.13 $ 0.14 $ 0.20
========== ========== ========== ==========
Diluted earnings per share
Weighted average shares
outstanding 5,249,186 5,250,816 5,252,933 5,268,163
Net effect of dilutive
securities 12,287 17,024 32,164 121,691
---------- ---------- ---------- ----------
Total shares outstanding
used in computing
diluted earnings
per share 5,261,473 5,267,840 5,285,097 5,389,854
========== ========== ========== ==========
Diluted earnings per
share $ 0.09 $ 0.13 $ 0.14 $ 0.20
========== ========== ========== ==========
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
No change of accountants and/or disagreement on any matter of accounting
principles or financial statement disclosures has occurred within the last two
years.
PART III
The information called for by Item 10, Directors and Executive Officers of the
Registrant (except for the information regarding executive officers called for
by Item 401 of Regulation S-K, which is included in Part I hereof in accordance
with General Instruction G(3)), Item 11, Executive Compensation, Item 12,
Security Ownership of Certain Beneficial Owners and Management, and Item 13,
Certain Relationships and Related Transactions, are incorporated herein by
reference to the Registrant's definitive proxy statement for its Annual Meeting
of Stockholders, presently scheduled to be held on June 25, 1998, which shall
be filed with the Securities and Exchange Commission within 120 days from the
end of the Registrant's fiscal year ended December 31, 1997.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements
The Financial Statements listed below are
filed as part of this Annual Report on Form 10-K:
Report of Ernst & Young LLP, independent auditors
Consolidated Balance Sheets at December 31, 1997
and 1996
Consolidated Statements of Operations for each of
the three years in the period ended
December 31, 1997
Consolidated Statements of Stockholders' Equity
for each of the three years in the period ended
December 31, 1997
Consolidated Statements of Cash Flows for each of
the three years in the period ended
December 31, 1997
Notes to Consolidated Financial Statements
Supplementary Data (Unaudited)
2. Financial statement schedules
Schedule II - Valuation and Qualifying
Accounts is filed herewith. All other
schedules are omitted because they are not
applicable, not required, or because the
required information is included in the
consolidated financial statements or notes thereto.
3. Exhibits required to be filed by Item 601 of
Regulation S-K.
2.1 Stock Purchase Agreement dated as of March 1, 1995
among Metrologic Instruments, Inc., Holoscan, Inc.,
and the parties listed on Schedule A thereto
(incorporated by reference to Exhibit 2.1 to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995).
2.2 Development Agreement entered into as of March 1,
1995 and effective as of December 24, 1994 between
Metrologic Instruments, Inc. and Holoscan, Inc.
(incorporated by reference to Exhibit 2.2 to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995).
2.3 Option Agreement dated as of March 1, 1995 among
Metrologic Instruments, Inc. and the parties
listed on schedule A thereto (incorporated by
reference to Exhibit 2.3 to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995).
2.4 Background Technology License Agreement between
Metrologic Instruments, Inc. and Holoscan, Inc.
(incorporated by reference to Exhibit 2.4 to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995).
3.1 Amended and Restated Certificate of Incorporation
of Metrologic Instruments, Inc. (incorporated by
reference to Exhibit 3.1 to the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1994).
3.2 Amended and Restated Bylaws of Metrologic
Instruments, Inc. (incorporated by reference to
Exhibit 3.02 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994).
4.1 Specimen Stock Certificate (incorporated by
reference to Exhibit 4.1 to the Registrant's
Registration Statement on Form S-1 (Reg. No.
33-78358)).
10.1 Metrologic Instruments, Inc. 1994 Incentive Plan
(incorporated by reference to Exhibit 99 to the
Registrant's Registration Statement on Form S-8
(Reg. No. 33-89376)).
10.2 Metrologic Instruments, Inc. Employee Stock
Purchase Plan (incorporated by reference to Exhibit
99 to the Registrant's Post-Effective Amendment
No. 1 to the Registration Statement on Form S-8
(Reg. No. 33-86670) and Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995).
10.3 Lease Agreement dated April 1, 1994 among C. Harry
Knowles, Janet H. Knowles and Metrologic
Instruments, Inc. (incorporated by reference to
Exhibit 10.4 to the Registrant's Registration
Statement on Form S-1 (Reg. No. 33-78358)).
10.4 Agreement of Settlement between Symbol
Technologies, Inc. and Metrologic Instruments, Inc.
(incorporated by reference to Exhibit 10.5 to the
Registrant's Registration Statement on Form S-1
(Reg. No. 33-78358)).
10.5 Agreement and Release dated February 7, 1986 among
Michael L. Sanyour, C. Harry Knowles, Janet H.
Knowles and Metrologic Instruments, Inc.
(incorporated by reference to Exhibit 10.6 to the
Registrant's Registration Statement on Form S-1
(Reg. No. 33-78358)).
10.6 Agreement dated January 6, 1995 between Michael L.
Sanyour, C. Harry Knowles, Janet H. Knowles and
Metrologic Instruments, Inc. (incorporated by
reference to Exhibit 10.6(a) to the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1994).
10.7 Promissory Note from Metrologic Instruments, Inc.
to C. Harry Knowles (incorporated by reference to
Exhibit 10.8 to the Registrant's Registration
Statement on Form S-1 (Reg. No. 33-78358)).
10.8 Indemnification Agreement between Metrologic
Instruments, Inc. and C. Harry Knowles and Janet H.
Knowles (incorporated by reference to Exhibit
10.9 to the Registrant's Registration Statement on
Form S-1 (Reg. No. 33-78358)).
10.9 Offer Letter from Midlantic Bank, N.A. dated July
18, 1995 with respect to increasing and amending
the Revolving Loan Facility (incorporated by
reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995).
10.10 Amended and Restated Loan and Security Agreement
between Metrologic Instruments, Inc. and Midlantic
Bank, N.A. dated as of November 13, 1995
(incorporated by reference to Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995).
10.11 Loan Agreement between ECR Sales Management, Inc.
and Metrologic Instruments, Inc., dated as of
January 1, 1996 (incorporated by reference to
Exhibit 10.11 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.12 Security Agreement between ECR Sales Management,
Inc. and Metrologic Instruments, Inc., dated as of
January 1, 1996 (incorporated by reference to
Exhibit 10.12 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.13 Term Note of ECR Sales Management, Inc. dated
January 1, 1996, payable to Metrologic Instruments,
Inc. (incorporated by reference to Exhibit 10.13 to
the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995).
10.14 Consignment Agreement between Metrologic
Instruments, Inc. and ECR Sales Management, Inc.
dated as of January 1, 1996 (incorporated by
reference to Exhibit 10.14 to the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1995).
10.15 Agreement between Symbol Technologies, Inc. and
Metrologic Instruments, Inc. dated December 18,
1996 (incorporated by reference to Exhibit 10 to
the Registrant's Current Report on Form 8-K filed
on February 14, 1997).
10.16 Amendment to Amended and Restated Loan and Security
Agreement between Metrologic Instruments, Inc. and
PNC Bank, National Association (formerly Midlantic
Bank, N.A.) dated December 31, 1996 (incorporated
by reference to Exhibit 10.16 to the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1996).
10.17 Second Amendment to Amended and Restated Loan and
Security Agreement between Metrologic Instruments,
Inc. and PNC Bank, National Association (formerly
Midlantic Bank, N.A.) dated January 31, 1997
(incorporated by reference to Exhibit 10.17 to the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996).
10.18 Amended and Restated Revolving Loan Note between
Metrologic Instruments, Inc. and PNC Bank,
National Association (formerly Midlantic Bank,N.A.)
dated January 31, 1997 (incorporated by reference
to Exhibit 10.18 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1996).
10.19 Term Note between Metrologic Instruments, Inc. and
PNC Bank, National Association (formerly
Midlantic Bank, N.A.) dated December 31, 1996
(incorporated by reference to Exhibit 10.19 to the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996).
10.20 First Amendment to Metrologic Instruments, Inc.
1994 Incentive Plan dated July 1, 1997
(incorporated by reference to Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997).
10.21 Agreement for Settlement, Dismissal of Claims and
Mutual Releases dated April 9, 1997 between
Metrologic Instruments, Inc. and PSC Inc.
(incorporated by reference to Exhibit 10.1 to the
Registrant's current report on Form 8-K filed
April 16, 1997).
10.22 Stipulation of Dismissal filed April 10, 1997 in
the United States District Court for the Western
District of New York (incorporated by reference to
Exhibit 10.2 to the Registrant's current report on
Form 8-K filed April 16, 1997).
10.23 Term Note between Metrologic Instruments, Inc. and
PNC Bank, National Association dated August 4, 1997
(incorporated by reference to Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997).
10.24 Joint Venture Agreement between MTLG Investments,
Inc. and CCH Automation Systems, Inc. dated
December 1997.
10.25 Quotaholders' Agreement between MTLG Investments,
Inc and CCH Automation Systems, Inc. dated
December 1997.
10.26 Guarantee of Mr. Chaim Bulka and Mrs. Gilda Meire
Rosenberg Bulka in favor of MTLG Investments, Inc.
dated December 12, 1997.
21 Subsidiaries of the Registrant
22 Consent of Ernst & Young LLP
27 Financial Data Schedule
(b) Reports on Form 8-K
None
Schedule II - Valuation and Qualifying Accounts
Years ended December 31, 1997, 1996 and 1995
(All dollar amounts in thousands)
1997 1996 1995
---- ---- ----
Allowance for possible losses on
accounts and notes receivable:
Balance at beginning of year $ 493 $224 $136
Additions charged to expense 116 290 178
Write-offs (201) (21) (90)
-------- ------ ------
Balance at end of year $ 408 $493 $224
======== ====== ======
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
by the undersigned thereunto duly authorized.
METROLOGIC INSTRUMENTS, INC.
By:/s/ C. Harry Knowles
C. Harry Knowles
President and Chief Executive Officer
(Principal Executive Officer)
Dated: March 31, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
the report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ C. Harry Knowles Chairman of the Board, President March 31, 1998
- ------------------------- and Chief Executive Officer
C. Harry Knowles (Principal Executive Officer)
/s/ Janet H. Knowles Vice President, Administration, March 31, 1998
- ------------------------- Secretary, Treasurer and a
Janet H. Knowles Director
/s/ Thomas E. Mills IV Vice President, Finance March 31, 1998
- ------------------------- Chief Financial Officer
Thomas E. Mills IV (Principal Financial Officer and
Principal Accounting Officer)
/s/ Stanton L. Meltzer Director March 31, 1998
- --------------------------
Stanton L. Meltzer
/s/ William Rulon-Miller Director March 31, 1998
- --------------------------
William Rulon-Miller
INDEX TO EXHIBITS
Sequential
Exhibit Page
Number Description Number
- ------ ----------- ------
2.1 Stock Purchase Agreement dated as of March 1, 1995 among
Metrologic Instruments, Inc., Holoscan, Inc., and the parties
listed on Schedule A thereto (incorporated by reference to
Exhibit 2.1 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1995).
2.2 Development Agreement entered into as of March 1, 1995 and
effective as of December 24, 1994 between Metrologic Instruments,
Inc. and Holoscan, Inc. (incorporated by reference to Exhibit
2.2 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995).
2.3 Option Agreement dated as of March 1, 1995 among Metrologic
Instruments, Inc. and the parties listed on schedule A thereto
(incorporated by reference to Exhibit 2.3 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1995).
2.4 Background Technology License Agreement between Metrologic
Instruments, Inc. and Holoscan, Inc. (incorporated by reference
to Exhibit 2.4 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1995).
3.1 Amended and Restated Certificate of Incorporation of Metrologic
Instruments, Inc. (incorporated by reference to Exhibit 3.1 to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1994).
3.2 Amended and Restated Bylaws of Metrologic Instruments, Inc.
(incorporated by reference to Exhibit 3.02 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994).
4.1 Specimen Stock Certificate (incorporated by reference to Exhibit
4.1 to the Registrant's Registration Statement on Form S-1
(Reg. No. 33-78358)).
10.1 Metrologic Instruments, Inc. 1994 Incentive Plan (incorporated by
reference to Exhibit 99 to the Registrant's Registration
Statement on Form S-8 (Reg. No. 33-89376)).
10.2 Metrologic Instruments, Inc. Employee Stock Purchase Plan
(incorporated by reference to Exhibit 99 to the Registrant's
Post-Effective Amendment No. 1 to the Registration Statement on
Form S-8 (Reg. No. 33-86670) and Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1995).
10.3 Lease Agreement dated April 1, 1994 among C. Harry Knowles,
Janet H. Knowles and Metrologic Instruments, Inc. (incorporated
by reference to Exhibit 10.4 to the Registrant's Registration
Statement on Form S-1 (Reg. No. 33-78358)).
10.4 Agreement of Settlement between Symbol Technologies, Inc. and
Metrologic Instruments, Inc. (incorporated by reference to
Exhibit 10.5 to the Registrant's Registration Statement on
Form S-1 (Reg. No. 33-78358)).
10.5 Agreement and Release dated February 7, 1986 among Michael L.
Sanyour, C. Harry Knowles, Janet H. Knowles and Metrologic
Instruments, Inc. (incorporated by reference to Exhibit 10.6
to the Registrant's Registration Statement on Form S-1
(Reg. No. 33-78358)).
10.6 Agreement dated January 6, 1995 between Michael L. Sanyour,
C. Harry Knowles, Janet H. Knowles and Metrologic Instruments,
Inc. (incorporated by reference to Exhibit 10.6(a) to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994).
10.7 Promissory Note from Metrologic Instruments, Inc. to C. Harry
Knowles (incorporated by reference to Exhibit 10.8 to the
Registrant's Registration Statement on Form S-1 (Reg.
No. 33-78358)).
10.8 Indemnification Agreement between Metrologic Instruments, Inc.
and C. Harry Knowles and Janet H. Knowles (incorporated by
reference to Exhibit 10.9 to the Registrant's Registration
Statement on Form S-1 (Reg. No. 33-78358)).
10.9 Offer Letter from Midlantic Bank, N.A. dated July 18, 1995 with
respect to increasing and amending the Revolving Loan Facility
(incorporated by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995).
10.10 Amended and Restated Loan and Security Agreement between
Metrologic Instruments, Inc. and Midlantic Bank, N.A. dated
as of November 13, 1995 (incorporated by reference to Exhibit
10 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995).
10.11 Loan Agreement between ECR Sales Management, Inc. and
Metrologic Instruments, Inc., dated as of January 1, 1996
(incorporated by reference to Exhibit 10.11 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.12 Security Agreement between ECR Sales Management, Inc. and
Metrologic Instruments, Inc., dated as of January 1, 1996
(incorporated by reference to Exhibit 10.12 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.13 Term Note of ECR Sales Management, Inc. dated January 1,
1996, payable to Metrologic Instruments, Inc. (incorporated
by reference to Exhibit 10.13 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995).
10.14 Consignment Agreement between Metrologic Instruments, Inc. and ECR
Sales Management, Inc. dated as of January 1, 1996 (incorporated by
reference to Exhibit 10.14 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995).
10.15 Agreement between Symbol Technologies, Inc. and Metrologic
Instruments, Inc. dated December 18, 1996 (incorporated by reference
to Exhibit 10 to the Registrant's Current Report on Form 8-K filed on
February 14, 1997).
10.16 Amendment to Amended and Restated Loan and Security Agreement
between Metrologic Instruments, Inc. and PNC Bank, National
Association (formerly Midlantic Bank, N.A.) dated December 31, 1996
(incorporated by reference to Exhibit 10.16 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996).
10.17 Second Amendment to Amended and Restated Loan and Security
Agreement between Metrologic Instruments, Inc. and PNC Bank,
National Association (formerly Midlantic Bank, N.A.) dated January
31, 1997 (incorporated by reference to Exhibit 10.17 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996).
10.18 Amended and Restated Revolving Loan Note between Metrologic
Instruments, Inc. and PNC Bank, National Association
(formerly Midlantic Bank, N.A.) dated January 31, 1997
(incorporated by reference to Exhibit 10.18 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996).
10.19 Term Note between Metrologic Instruments, Inc. and PNC Bank,
National Association (formerly Midlantic Bank, N.A.) dated December
31, 1996 (incorporated by reference to Exhibit 10.19 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996).
10.20 First Amendment to Metrologic Instruments, Inc. 1994
Incentive Plan dated July 1, 1997 (incorporated by reference
to Exhibit 10 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997).
10.21 Agreement for Settlement, Dismissal of Claims and Mutual
Releases dated April 9, 1997 between Metrologic Instruments,
Inc. and PSC Inc. (incorporated by reference to Exhibit 10.1
to the Registrant's current report on Form 8-K filed April
16, 1997).
10.22 Stipulation of Dismissal filed April 10, 1997 in the United
States District Court for the Western District of New York
(incorporated by reference to Exhibit 10.2 to the
Registrant's current report on Form 8-K filed April 16,
1997).
10.23 Term Note between Metrologic Instruments, Inc. and PNC Bank,
National Association dated August 4, 1997 (incorporated by
reference to Exhibit 10 to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1997).
10.24 Joint Venture Agreement between MTLG Investments, Inc. and
CCH Automation Systems dated December 1997. 39
10.25 Quotaholders' Agreement between MTLG Investments, Inc.
and CCH Automation Systems, Inc. dated December 1997. 47
10.26 Guarantee of Mr. Chaim Bulka and Mrs. Gilda Meire Rosenberg
Bulka in favor of MTLG Investments, Inc. dated
December 12, 1997. 54
21 Subsidiaries of the Registrant 58
23 Consent of Ernst & Young LLP 59
27 Financial Data Schedule 60
Exhibit 10.24
JOINT VENTURE AGREEMENT
This JOINT VENTURE AGREEMENT (the "Agreement") is executed as of
December 1997, by and among the following parties:
1. MTLG INVESTMENTS, INC., a Delaware corporation, with head office
at 103 Springer Building, 3411 Silverside Road, in the City of
Wilmington, State of Delaware, U.S.A., and/or its affiliates
("Metrologic USA"), in this act represented by its President,
C. Harry Knowles; and
2. CCH AUTOMATION SYSTEMS, INC., a Bahamian corporation, whose
registered office is at P.O. Box N8160, Peek Building,
George Street, Nassau, Commonwealth of the Bahamas ("CCH"), in
this act represented by its Director, Graham M. Cooper,
(collectively, the "Organizers")
with consent and joinder by:
3. CHAIM BULKA, a Brazilian citizen, married, economist, resident and
domiciled at Rua Dr. Rubens Maragliano, 28, Morumbi, in the City of
Sao Paulo, State of Sao Paulo, bearer of Brazilian Identity Card RG
No. 3.718.440, and registered with the General Taxpayers' Registry
(CPF/MF) under No. 507.207.248-72, and
4. ISAC BERMAN, a Brazilian citizen, married, corporate manager,
resident and Domiciled at Rua Princesa Isabel, 64/64 - Campo Belo,
in the City of Sao Paulo, State of Sao Paulo, bearer of Brazilian
Identity Card RG No.3.734.961-0-IFP, and registered with the General
Taxpayers' Registry (CPF/MF)under No.595.202.307-00.
(Metrologic USA, CCH, Chaim Bulka and Isac Berman shall be known herein
individually as "Party" or collectively as the "Parties.")
The Organizers desire to organize a Brazilian limited liability company for the
initial primary purpose of engaging in the trading, importation, exportation
and commercial representation of laser and holographic bar code scanners (the
"Company"). The Organizers also desire to establish a written framework for
operating jointly until they become quotaholders.
In consideration of the foregoing and the covenants contained herein, the
Parties mutually agree as follows:
Initial Payment
1.1 In consideration for CCH's agreement to enter into the joint
venture described below and for Chaim Bulka and Isac Berman's consent and
joinder, Metrologic USA shall pay to CCH the sum of US$ 510,000 (Five Hundred
Ten Thousand U.S. Dollars) ("CCH Payment"), less the Holdback (as defined
below), and US$ 45,191.00 (Forty-Five Thousand, One Hundred and Ninety-One U.S.
Dollars) on or before December 22, 1997 (the "Closing Date").
1.2 As collateral security for CCH's indemnification provided below,
- -Metrologic USA shall withhold US$ 210,000 (Two Hundred Ten Thousand U.S.
Dollars) (the "Holdback"), to be held in an interest-bearing account with
Commercial Bank of New York, in New York U.S.A.. From time to time, upon not
less than five business days' notice to CCH, given at any time before the first
year anniversary of the Closing Date, Metrologic USA shall be entitled to apply
all or the remaining part of the Holdback, plus accrued interest, to pay any
liability of CCH arising under the indemnities provided for herein. On the
condition that the Company has been duly formed and can operate, Metrologic USA
shall release US$ 210,000 or the remaining portion of the Holdback, as the case
may be, plus accrued interest, to CCH, in such account as CCH shall designate,
in two installments as follows:
50 % on the six-month anniversary of the Closing Date; and
50 % on the first year anniversary of the Closing Date;
provided, however, that the respective installments shall not be paid if Chaim
Bulka resigns as an employee of the Company. Nothing in this Agreement shall be
construed as limiting the liability of CCH under this Agreement to the amount
of the Holdback, nor shall the Holdback be construed as liquidated damages for
any breach of this Agreement.
1.3 Payment of the CCH Payment less the Holdback shall be made by
Metrologic USA to CCH on the Closing Date by wire transfer of immediately
available funds to CCH's Account No. 3193, with Royal Bank of Scotland, in the
City of Nassau, Commonwealth of the Bahamas, provided that the Company has been
duly organized and approved by the Commercial Registry of Sao Paulo and all
other conditions herein have been fully satisfied.
Wiring instructions will be as follows:
CHASE MANHATTAN BANK, New York
ABA 021000021
for account of Royal Bank of Scotland -544-7-03599
for credit to CCH AUTOMANTION SYSTEMS INC. Account 3193
2. Financial and Legal Review
The fact that a circumstance has come or could have come to Metrologic
USA's knowledge in the course of its, financial and legal review shall
not exonerate CCH or Chaim Bulka from any liability to indemnify and
hold Metrologic USA and/or the Company harmless from any Loss, as
defined in Clause 10 below, or from any breach of representations and
warranties stated in this Agreement.
3. Formation
3.1 As soon as practicable after the execution of this Agreement,
the Organizers shall cause the Company, a limited liability quota company, to
be formed under the laws of Brazil by the execution and filing of Articles of
Incorporation with the Commercial Registry of the State of Sao Paulo. Chaim
Bulka hereby agrees to take any action that may be necessary to cause the
formation of the Company, including the payment of any taxes, if any.
3.2 There shall be no separate management of this joint venture,
aside from its existence as the Company. None of the Parties is authorized to
hold itself out as an agent of the joint venture, separate from the Company;
nor is any Party authorized to accept any revenues on behalf of the joint
venture, separate from the Company. Matters of common interest relating to this
joint venture not included in this Agreement shall require the approval of all
Parties prior to formation of the Company.
3.3 Chaim Bulka and Isac Berman shall not be authorized to act on
behalf of the Company until the Company is duly organized and they have assumed
their respective offices. However, Metrologic USA and CCH, as proposed
quotaholders of the Company, agree to consider on a limited case-by-case basis
any actions which Chaim Bulka and Isac Berman choose to take prior to
incorporation of the Company that may be of benefit to the Company and, if they
both so choose, to consent in writing to the proposed action with the
understanding that, upon incorporation of the Company, both Metrologic and CCH
will ratify the action and, if consistent with the nature of the action, to
assume the action as a corporate obligation.
4. Articles of Incorporation
The Articles of Incorporation of the Company shall be substantially
in the form attached hereto as Schedule 4, which include, among others, the
following provisions:
4.1 The primary purpose of the Company shall be the trading,
importation, exportation and commercial representation of laser and holographic
bar code scanners. In addition, the Company shall be authorized to perform
other transactions related to its primary purpose, including providing service,
repairs and assistance in connection with its products.
4.2 The name of the Company shall be "Metrologic do Brasil Ltda."
or another name mutually acceptable to Metrologic USA and CCH (in either case,
the "Company"). The name of the Company shall be changed to no longer contain
the name "Metrologic" if Metrologic USA ceases to be a quotaholder for any
reason whatsoever.
4.3 The principal place of business of the Company shall be in
the City of Sao Paulo, State of Sao Paulo, Brazil.
4.4 The corporate capital shall be allocated between the
quotaholders as follows:
Metrologic USA 51%
CCH 49%
4.5 The delegate manager of the Company, who shall be denominated
Diretor-Presidente, and whose authority shall be specifically documented in the
Articles of Association, shall be Chaim Bulka.
4.6 Dividends based on audited profits less taxes and legally
required reserves ("Net Profits"), if any, shall be declared as follows:
(a) Dividends as a result of operations for the first six
months of the calendar year shall be no more than 50% of
the Net Profits for that period; and
(b) Dividends as a result of operations for the second six
months of the calendar year shall be no less than 50% of
the Net Profits for the entire calendar year, less
first-half dividends paid.
The annual results of the Company shall be audited by the external auditors of
Metrologic USA.
4.7 Future capital contributions shall be as agreed by the vote of
the holders of Quotas representing 80% of the capital of the Company.
4.8 Payment of interest on equity shall be permitted.
4.9 Metrologic U.S.A may, at any time, set up another company in
Brazil to engage in manufacturing and/or assembly of laser and holographic bar
code scanners. In this case, CCH will be given the right to join as a minority
equity holder pursuant to Section 5.3 of the Quotaholders Agreement of even
date.
5. Capital Contributions
For its subscription to 51% of the quotas of the Company's stock,
Metrologic USA shall contribute the Brazilian reais equivalent to US$ 47,509.00
(Forty Seven Thousand, Five Hundred and Nine US dollars), and for its
subscription to 49% of the quotas of the Company's stock, CCH shall contribute
the Brazilian reais equivalent to US$ 45,645.00 (Forty Five Thousand, Six
Hundred and Forty-Five US dollars).
6. Corporate Loan
Upon incorporation of the Company, Metrologic USA shall loan to the
Company the sum of between US$ 70,000 and US$ 150,000, as cash needs
require, interest-free, repayable upon demand within six months of the
date of the loan. Any loan repayment to Metrologic USA by the Company
shall at the same time entitle CCH to dividends from the Company in an
equal amount. Any further financing required by the Company shall be
as mutually agreed upon by Metrologic USA and CCH and loaned to the
Company, 50% by Metrologic USA and 50% by CCH.
7. Quotaholders' Agreement
On the Closing Date, Metrologic USA and CCH shall execute a
Quotaholders' Agreement in substantially the form of Schedule 7 attached
hereto, to be effective upon incorporation of the Company.
8. Employment
8.1 On the Closing Date, Chaim Bulka and Isac Berman shall each sign
Employment Agreements with the Company, as set forth at Schedule 8.1, to be
effective upon incorporation of the Company.
8.2 Schedule 8.2 contains a list of potential employees and their
current salaries. On or before the Closing Date and as a condition to payment
of the CCH Payment, CCH shall provide to Metrologic USA letters signed by each
of the employees listed on Schedule 8.2 indicating their intent to become
employees of the Company at the respective salaries stated. All employees of
the Company shall also be required by the Company to sign confidentiality and
proprietary information agreements upon formation of the Company.
9. Representations and Warranties of CCH, Bulka and Berman
CCH, Chaim Bulka and Isac Berman hereby jointly and severally make
the following representations and warranties to Metrologic USA:
9.1 CCH is duly organized and validly existing and in good standing
under the laws of the Bahamas, and has the corporate power to own and transfer
assets to the Company and to subscribe to and purchase quotas of the Company.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate or other action of CCH, and this Agreement constitutes the legal,
valid and binding obligation of CCH, enforceable against CCH, Chaim Bulka and
Isac Berman in accordance with its terms. There is no lawsuit, proceeding or
investigation pending or, to the knowledge of CCH's management or of Chaim
Bulka or Isac Berman, threatened against CCH, Chaim Bulka or Isac Berman which
might prevent the consummation of any of the transactions contemplated by this
Agreement.
9.2 Schedule 9.2 sets forth a complete list of every company or
other business entity in which CCH or Chaim Bulka or Isac Berman, directly or
indirectly, owns shares or quotas or has the power to vote or direct the voting
of sufficient shares or quotas to influence its affairs (an "Affiliated
Company"), and for each such Affiliated Company:
(a) its name and jurisdiction of incorporation;
(b) the number of authorized shares or quotas for each class;
and
(c) the names of the holders thereof, and the number of
shares orquotas held by each.
There are no shareholders' or quotaholders' agreements or equivalent documents
to which CCH, Chaim Bulka or Isac Berman, jointly or severally, may be bound.
All Affiliated Companies shall remain duly organized and incorporated for at
least six months following the incorporation of the Company. The corporate
purpose clause of each Affiliated Company shall have been legally amended on or
before the Closing Date, as necessary, to ensure that the Affiliated Company
may not compete with the products and services legally offered by the Company,
as described in Clauses 4.1 and 4.9 above. Chaim Bulka hereby represents and
warrants that he has no interest in DATA SCAN COMERCIO E REPRESENTACOES LTDA
("Data Scan") and Isac Berman will have terminated his ownership interest in,
business relationship with and management of, Data Scan on or before the
Closing Date.
9.3 Bulka and Berman shall endeavor their best efforts to have Data
Scan execute a standard Distributor Agreement with the Company to buy and
resell only Metrologic laser scanners.
9.4 Each of the representations and warranties made herein will be
true and correct on and as of the Closing Date.
10. Indemnification and Guaranty
10.1 CCH and Chaim Bulka hereby jointly and severally indemnify and
hold Metrologic USA and the Company harmless from and against any and all cost,
expense, damage and liability, including attorneys' fees (collectively, a
"Loss" or "Losses"), from any claim, demand, investigation, inquiry, lawsuit or
judgment, the responsibility for which has been assumed herein by CCH and/or
Chaim Bulka, including without limitation, the following:
(a) acts, facts or omissions occurring prior to the Closing
Date by any company deemed to be a predecessor of the
Company, for which successor liability may be ascribed to
the Company, whether by reason of unpaid taxes, claims
arising out of employment or commercial representation,
claims for products returned, customer warranty claims,
product warranty claims, environmental claims or any other
reason; and
(b) any breach of their representations or warranties hereunder.
10.2 CCH and Chaim Bulka shall not be exempt from liability if
Metrologic USA or its advisors know or should have known from their review of
the transaction that any of the representations contained in this Agreement are
not accurate or complete.
10.3 If any claim for Loss is made against Metrologic USA or the
Company by a third party, or if Metrologic USA or the Company shall receive
written threat of claim for Loss by a third party, which gives rise or
threatens to give rise to an obligation to indemnify Metrologic USA or the
Company pursuant to Clause 10.1 hereof (hereinafter referred to as an "Event
Subject to Indemnification"), Metrologic USA shall send written notice to CCH
("Notification") promptly thereafter, disclosing the details thereof as they
are known, and CCH shall respond within fifteen (15) calendar days from the
receipt of the Notification (or sooner, if circumstances require). CCH's
response shall indicate whether CCH intends to assume the defense of the
litigation or proceeding, which it shall have the right to do. In such case,
Metrologic USA and CCH shall each have the right to retain their own counsel at
their own expense.
10.3.1 If CCH's response indicates that it does not intend
to assume the defense, it shall
nevertheless be liable for all expenses of Metrologic USA and/or the Company in
connection therewith. Whichever party assumes the defense shall be entitled to
the cooperation of the other party in preparing the defense. Metrologic USA
agrees to provide CCH with access to all of the Company's files and records
concerning said defense.
10.3.2 Should Metrologic USA send a Notification in
accordance with the foregoing Clause
10.3 and CCH fails to respond within the above-mentioned fifteen (15) calendar
days or in the shorter period above mentioned as of the receipt of the
Notification by the one receiving the last Notification, such failure to
respond shall be deemed as an acceptance to pay the amount involved in the
Event Subject to Indemnification.
10.4 If an Event Subject to Indemnification shall arise,
then CCH shall send a written response to Metrologic USA in which it
states its intention (i) to pay the amount involved in the Event Subject to
Indemnification; (ii) to refuse to accept the event as an Event Subject to
Indemnification; or (iii) to discuss the matter. If (i), CCH will pay the
amount involved within the earlier of fifteen (15) days of the date of its
written intention to pay or thirty (30) days from the date of Notification. If
(ii), Metrologic USA or the Company may, at its option, commence any required
action to pursue or defend its rights and remedies, if (iii), the Parties shall
discuss the issues involved during a period of thirty (30) days from receipt of
the Notification, and if they reach an agreement, any payment required thereby
shall be made by CCH to Metrologic USA and/or the Company, as the case may be,
within forty-five (45) calendar days from receipt of the Notification. If they
do not reach an agreement, Metrologic USA and/or the Company may commence, at
its option, any required action to pursue its rights and remedies.
10.5 The representations and warranties of the Parties
contained in this Agreement or in any schedule or other document delivered
pursuant hereto, including CCH's and Chaim Bulka's agreement to indemnify
Metrologic USA and the Company, shall survive the Closing Date.
10.6 Chaim Bulka shall, simultaneous with the execution of
this Agreement, execute and deliver to Metrologic USA and the Company, his
Personal Guarantee in the form set forth at Schedule 10.6.
10.7 Should an Event Subject to Indemnification arise, then
Metrologic USA and CCH shall immediately vote to have all distributions that
the Company would otherwise make to CCH or its successor, up to the maximum
amount of the Loss, deposited into an interest bearing bank account at a bank
of Metrologic USA's choice. CCH shall determine the specific application of the
deposit. The amounts deposited in such account shall be used to compensate any
Loss incurred by Metrologic USA or the Company, to the extent of such Loss,
observing the terms of Clause 10.4 above. To the extent that the amount of the
Loss is greater than the amount deposited into the account, CCH shall continue
to be liable therefor and Chaim Bulka shall continue to guarantee payment of
such amount in lieu of Metrologic USA or the Company for the difference between
the amount of the Loss and the amount in the account. Similarly, to the extent
that the amount of the Loss is less than the amount deposited into the account,
CCH shall receive any amounts remaining in the account once the Loss has been
compensated. The Company and Chaim Bulka hereby agree to promptly take any
action necessary to make the deposit and arrange for the subsequent
compensation of any Loss.
11. Representations and Warranties of Metrologic USA
Metrologic USA hereby makes the following representations and
warranties to CCH:
11.1 Metrologic USA has the corporate power to enter into this
Agreement. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
corporate or other action of Metrologic USA, and this Agreement constitutes the
legal, valid and binding obligation of Metrologic USA, enforceable against
Metrologic USA in accordance with its terms. There is no lawsuit, proceeding or
investigation pending or, to the knowledge of Metrologic USA's management,
threatened against Metrologic USA which might prevent the consummation of any
of the transactions contemplated by this Agreement.
11.2 MTLG Investments, Inc. is a wholly-owned subsidiary of Metrologic
Instruments, Inc., a New Jersey corporation, with head office at 90 Coles Road,
in the City of Blackwood, State of New Jersey, U.S.A.
11.3 Each of the representations and warranties made herein will be
true and correct on and as of the Closing Date.
12. Closing and Conditions Precedent
On condition that:
(a) the Articles of Association of the Company have been duly
executed by CCH and Chaim Bulka together with any
document necessary for filing with the Commercial
Registry and have been delivered to Metrologic USA or its
designee,
(b) the relationship of CCH, Chaim Bulka and/or Isac Berman
with a certain affiliated company has been terminated
(per Clause 9.2 above),
(c) the corporate purpose clause of the Affiliated Companies
(except for DATA SCAN) has been satisfactorily amended
(per Clause 9.2 above), and
(d) CCH shall have provided to Metrologic USA the employee
letters and other employment-related agreements (per
clause 8.2 above), the parties shall proceed to close the
transaction on the Closing Date, at which time and place
the following events shall take place:
(1) Metrologic USA shall authorize the wire transfer of the
CCH Payment (less the Holdback) (per Clause 1.1 above),
and Metrologic USA shall deposit the Holdback into an
interest bearing account, in Metrologic USA's name,
pursuant to the terms of Clause 1.2 above.
(2) Metrologic USA and CCH shall execute a Quotaholders'
Agreement (per Clause 7 above), and
(3) and Chaim Bulka and Isac Berman shall have executed
Employment Agreements with the Company (per Clause 8.1
above) pursuant to Schedule 12(4).
13. Termination
13.1 Without prejudice to either Party's right to claim damages
hereunder, this Agreement may be terminated by the non-defaulting Party if
either Metrologic USA or CCH violates its obligations and fails to remedy the
breach after notice given by the other Party in accordance with Clause 18
below. In case of default, whether or not the default is caused prior to
termination of this Agreement, the defaulting Party shall reimburse the
remaining Parties for losses, costs and attorney's fees arising out of the
default.
13.2 This Agreement may be terminated by common agreement of
Metrologic USA and CCH.
13.3 If the termination takes place after the Company formation,
Metrologic USA and CCH shall divide the assets and obligations of the Company
and dissolve the joint venture in accordance with the Articles of Incorporation
and pertinent Brazilian law.
14. Non-competition
Upon execution of this Agreement and for so long as the Company
exists and Metrologic USA is a quotaholder, except as may be otherwise provided
by the terms of a Resale Distributor Agreement between Metrologic USA and the
Company, the Company shall be the exclusive resale distributor of bar code
scanners manufactured by Metrologic USA or its affiliates in Brazil. In
consideration for the payment in Clause 1.1 above, for so long as CCH is a
quotaholder of the Company and for a period of two years thereafter, CCH shall
not engage, directly or indirectly, in services within Brazil which may compete
with those provided by Metrologic USA or in the sale of products to clients
within Brazil, or in the sale of products from Brazil to clients wherever
situated, which may likewise compete. The Company shall be entitled to
compensation for all trade in laser and holographic bar code scanners in which
Metrologic USA and CCH engage in Brazil, in accordance with the terms of the
Resale Distributor Agreement. CCH agrees to refrain from associating with third
parties in any activities that may be construed as being in competition with
the Company's business in Brazil, as described in Clauses 4.1 and 4.9 above,
unless CCH shall have secured the prior written approval of Metrologic USA in
advance.
15. Confidentiality
Metrologic USA, Chaim Bulka, Isac Berman and CCH shall keep confidential all
commercial secrets, technical and other information relating to the Company's
business and the business of each of Metrologic USA and CCH, and shall not use
such confidential information unless authorized in writing by the Party who
supplied the information. This obligation shall survive the termination hereof,
but shall no longer apply when the information becomes public knowledge.
Metrologic USA and CCH shall instruct their employees and the Company's
employees to keep confidential all information relating to this transaction.
16. Governing Law
16.1 This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Delaware, U.S.A.
16.2 Metrologic USA and CCH appoint CT Corporation as their agent
for service of process.
17. Assignment
Neither Metrologic USA nor CCH shall assign or transfer any of its
rights and obligations hereunder without the prior written consent of the
other, which consent shall not be unreasonably withheld. Metrologic USA and CCH
reserve the right, however, to assign and transfer their respective rights and
obligations under this Agreement to a Brazilian subsidiary directly controlled
by it and which shall abide in writing by all terms hereof.
18. Notices
Any notice required to be given under this Agreement must be given
in writing and will be effective on receipt when delivered by registered
airmail or by facsimile confirmed by the sending of the original by registered
airmail to the Party at the address and fax numbers stated above or in this
clause or to such other address as such Party may designate by written notice
in accordance with the provisions of this clause.
to Metrologic USA:
Attention: C. HARRY KNOWLES
President
METROLOGIC INSTRUMENTS, INC.
90 Coles Road, Blackword, N.J
08012, U.S.A
Fax No. (609) 228-0653
to CCH:
Attention: ISAC BERMAN
Attorney-in-fact
CCH AUTOMATION SYSTEMS INC.
Rua Princesa Isabel 64, apto. 64
04601-000 Campo Belo
Sao Paulo - SP - Brasil
Fax No. (011) 531-2963
19. Additional Assurances
The Parties each agree promptly to execute such other documents or
agreements as may be necessary or desirable for the implementation of this
Agreement and the consummation of the transactions contemplated hereby.
20. Force Majeure
No Party to this Agreement shall be liable for any failure to meet
any of the obligations specified or required under this Agreement where such
failure to perform is due to any contingency beyond the reasonable control of
such Party or its employees, officers or directors. Such contingencies include,
but are not limited to, acts or omissions of any person or entity not employed
or reasonably controlled by such Party and its employees, officers and
directors, acts of God, fires, wars, accidents, labor disputes or shortages,
and governmental laws, ordinances, rules and regulations, whether valid or
invalid.
21. Questionable Payments
21.1 All Parties to this Agreement acknowledge that the U.S. Foreign
Corrupt Practices Act of 1977 (the "FCPA") prohibits, among other things, U.S.
companies and their foreign affiliates from offering, giving or paying any
money or other thing of value to a foreign official, political party, party
official or candidate, for the purpose of influencing any official act of the
recipient or inducing the recipient to use his or her influence with a foreign
government to obtain or retain business (a "Questionable Payment").
21.2 No Party to this Agreement shall make any Questionable
Payment in connection with this Agreement or the matters
contemplated herein, or take any other action which would
violate the FCPA or cause another Party or its affiliates
to be in violation of the FCPA.
22. Counterparts
This Joint Venture Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
THE PARTIES HERETO, intending to be legally bound, have signed this
Joint Venture Agreement, before witnesses, on the date first above written.
MTLG INVESTMENTS, INC.
By /s/ C. Harry Knowles
C. Harry Knowles, President
CCH AUTOMATION SYSTEMS, INC.
By /s/ Grapham M. Cooper
GRAHAM M. COOPER, Director
/s/ Chaim Bulka
CHAIM BULKA
/s/ Isac Berman
ISAC BERMAN
Witnesses:
- --------------------------------
- --------------------------------
Exhibit 10.25
QUOTAHOLDERS' AGREEMENT
This QUOTAHOLDERS' AGREEMENT is effective as of December 12, 1997, by and
among:
MTLG INVESTMENTS, INC., a Delaware corporation, with head office
at 103 Springer Building, 3411 Silverside Road, in the City of
Wilmington, State of Delaware, U.S.A. ("Majority Quotaholder"); and
CCH AUTOMATION SYSTEMS INC., a Bahamian corporation, whose
registered office is at P. O. Box N8160, Peek Building, George
Street, Nassau, Commonwealth of the Bahamas ("Minority Quotaholder").
RECITALS
A. Quotaholders hold 100% of the quotas of the capital stock of
METROLOGIC DO BRASIL LTDA., a Brazilian limited liability company
with its main office at Rua Sansao Alves dos Santos, 20, conjunto
51, Brooklin, City of Sao Paulo, State of Sao Paulo (the "Company").
B. Majority Quotaholder has agreed to subscribe to the majority
interest in the Company, and Minority Quotaholder has agreed to
subscribe to the remaining minority interest in the Company in
accordance with the terms of a Joint Venture Agreement dated of
December 11, 1997, on condition that both quotaholders enter into an
agreement to establish their rights, obligations and
responsibilities (in addition to those provided for by law and in
the Company's Articles of Association), the exercise of voting
rights, and the general principles of the conduct of the business of
the Company.
Accordingly, in consideration of the benefits of the Joint Venture Agreement
and of the mutual promises recited herein, Quotaholders agree to enter into
this Quotaholders' Agreement (hereinafter "Agreement") and to be governed by
the following clauses and conditions:
I.
SCOPE OF THE BUSINESS
1. Quotaholders intend to form their association in the Company to
engage in the trading, importation, exportation and commercial representation
of laser and holographic bar code scanners. In addition, the Company shall be
authorized to perform other transactions related to its primary purpose,
including providing service, repairs and assistance in connection with its
products. The Company may also participate in other companies as shareholder or
quotaholder.
II.
QUOTAS SUBJECT TO THIS AGREEMENT
2.1 Current Quotas. All quotas of the Company (the "Quotas") are
subject to the provisions of this Agreement. All quotas representing the
Company's capital have a par value of R$ 1.00 each, and the quotaholdings are
as follows:
- ------------------------- ---------------------- ----------------------
QUOTAHOLDER NUMBER OF QUOTAS PARTICIPATION
- ------------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------
Majority Quotaholder 52,260 51.00 %
- ------------------------- ---------------------- -----------------------
- ------------------------- ---------------------- -----------------------
Minority Quotaholder 50,210 49.00 %
- ------------------------- ---------------------- -----------------------
- ------------------------- ---------------------- -----------------------
TOTALS 102,470 100.00 %
- ------------------------- ---------------------- ------------------------
2.2 Future Quotas. All Quotas to be issued in the future, whether as
a result of dividends, bonus, split and/or subscription by the Quotaholders
during the term of this Agreement, shall be subject to the terms and conditions
hereof.
2.3 Controlling Agreement. All rights of Quotaholders concerning the
Quotas shall only be exercised in accordance with the Company's Articles of
Association and the provisions hereof. The provisions herein shall control over
any conflicting provision of the Articles of Association, and any actions not
in accordance with this Agreement shall be null and void.
III.
RIGHTS RELATIVE TO THE TRANSFER OF QUOTAS
3.1 Transfer Among Affiliates. Majority Quotaholder may freely
transfer all or any of its Quotas, at any time and from time to time, to any
other company which it controls or which is controlled by it or by its ultimate
shareholder, where "control" means the ownership, either directly or
indirectly, of more than 50% of the Quotas.
3.2 Freeze on Transferability. Except as provided in Clause 3.1
above, neither Quotaholder shall be allowed to sell or transfer its Quotas for
a period of five years from the date hereof unless otherwise mutually agreed.
3.3 Preemptive Rights. The Quotaholders shall have the reciprocal
right of first refusal in the transfer of their Quotas as well as in the
subscription of Quotas in any increase of the corporate capital of the Company,
in proportion to their participation in the capital. Except as specifically
provided otherwise herein, the Quotaholders may not sell or in any manner
transfer all or any of their Quotas or the right to subscribe to additional
Quotas in capital increases of the Company for a period of five years from the
date hereof, and thereafter no Quotaholder may make any such sale or transfer
without having first offered same to the other Quotaholder, and in no event
shall a Quotaholder sell or in any manner transfer Quotas to a competitor of
the Company.
3.3.1 Said offer shall be made by means of written notice
containing a copy of the written offer of the potential buyer,
including the number of Quotas offered, the price, the conditions of
the proposed sale or transfer, and the identity of the ultimate
quotaholder/shareholder of the potential buyer. The offered
Quotaholder shall have three months from the date of receipt of the
offer to accept the offer (the "Acceptance Period"). Payment shall
be made at the later of: (i) three months of the date of acceptance
of the offer, or (ii) one month from the date on which the Brazilian
competent authorities grant regulatory approval, if applicable.
3.3.2 In the event of lapse of the Acceptance Period
without notice by the offered Majority Quotaholder of its acceptance
to purchase the Quotas offered by the offeror Quotaholder, then the
offeror Quotaholder may sell or transfer the Quotas to third
parties, provided that: (a) such sale or transfer be made at the
same price and under the same conditions described in the notice
sent to the offered Quotaholder and involve the same number of
Quotas offered therein; and (b) the sale or transfer is made within
the term of two months from the date of termination of the
Acceptance Period. In no event shall Minority Quotaholder sell or in
any manner transfer Quotas to a competitor of the Company. If said
Quotas are not sold or transferred within the term and in accordance
with the provisions established herein, then the Quotas shall again
be subject to the procedure above described.
3.4 Encumbrances Not Permitted. Minority Quotaholder may not
institute a pledge, bond or any property right or in any manner encumber or
offer as guarantee all or any part of its Quotas without the prior written
consent of Majority Quotaholder.
3.5 Failure to Comply. The transfer or disposal of Quotas or of
rights of first refusal in the subscription of Quotas or the encumbrance of
Quotas without compliance with the provisions hereof shall be void and
ineffective, and the Company shall refuse to accept or register any transfer or
registration which is not in compliance with the provisions hereof.
IV.
QUOTAHOLDERS' VOTING RIGHTS
4.1 One Quota/One Vote. Each Quota shall entitle the holder thereof
to one vote at the Quotaholders' Meetings of the Company. Except as otherwise
provided in this Agreement, Quotaholders' decisions shall be adopted by the
affirmative vote of 50% plus one of the total Quotas then authorized.
4.2 Best Interests of the Company. Quotaholders shall at all times
exercise their voting rights with the best interests of the Company in mind,
observing the rights of Quotaholders prescribed by law, by the Articles of
Association and by this Agreement.
V.
ADMINISTRATION OF THE COMPANY
5.1 Minority Rights. Without the prior approval of the Quotaholders
representing at least 80% of the Quotas, as evidenced by a letter, telex or
facsimile, the Company may not perform any of the following acts:
(a) increase the corporate capital; or
(b) amend the corporate purpose; or
(c) change the dividend policies; or
(d) change the withdrawal rights and preemptive rights; or
(e) exclude a quotaholder absent a breach or violation of
such quotaholder; or
(f) change the limitations on the powers of the Company's
general manager.
5.2 In the event Chaim Bulka is dismissed as delegate manager of the
Company without cause, then the new delegate manager shall secure the prior
approval of Quotaholders representing at least 70% of the quotas in order for
such delegate manager to take any actions in Clause 5, Paragraph 1 of the
Articles of Association, attached hereto as Schedule 5.2.
5.3 Expansion of Corporate Purpose. In the event that Majority
Quotaholder desires to expand the corporate purpose to include the
manufacturing and/or assembly of laser and holographic bar code scanners, and
Minority Quotaholder, for whatever reason, is unwilling to grant its approval,
Majority Quotaholder shall have the right, at its sole discretion, to establish
a separate company for said purpose and according to its own terms, in which
case Majority Quotaholder shall offer to Minority Quotaholder whatever
participation Minority Quotaholder may desire in the new company, not to exceed
50%, at the per value per quota established by Majority Quotaholder.
5.4 Arm's Length Transactions. All transactions, activities and
operations carried out between the Company and any of its Quotaholders shall be
on terms that are at least as favorable to the Company as could be obtained in
an arm's length transaction, and Majority Quotaholder shall not abuse its
majority status by performing any act the primary intent or result of which is
contrary to the best interests of the Company.
5.5 "Metrologic" Designation. For so long as the Company exists, it
may use the designation "Metrologic" in its corporate name, and may link its
corporate name to the trademark "Metrologic", and may use the trademark
"Metrologic" in the products and services which it shall provide. Metrologic
USA shall license the Company, or cause the appropriate company to license, the
use of the name and trademark, free of charge. The "Metrologic" trademark shall
be licensed pursuant to a Trademark License Agreement.
5.5.1 The Parties acknowledge that a third party has
registered the trademark "Metrologic" with the Brazilian
intellectual property authorities, INPI. Quotaholders shall cause
the Company to take all necessary provisions to annul this
apparently improper registration and/or to obtain a declaration of
forfeiture from INPI, the expenses for which shall be borne by
Quotaholder Metrologic USA.
5.6 Importation of Metrologic USA Products. The Company shall import
from Quotaholder Metrologic USA laser scanners and other products which it
manufactures, the FOB price for which shall be the lowest practicable price
under the circumstances, taking into consideration the unit volume involved in
the shipment.
VI.
FINANCE POLICY
6.1 Distribution of Dividends. Dividends based on audited profits
less taxes and legally required reserves ("Net Profit"), if any, shall be
declared as follows:
(a) Dividends as a result of operations for the first six
months of the calendar year shall be no more than 50% of
the Net Profits for that period; and
(b) Dividends as a result of operations for the second six
months of the calendar year shall be no less than 50% of
the Net Profits for the entire calendar year, less
first-half dividends paid.
The annual results of the Company shall be audited by the external auditors of
Majority Quotaholder.
6.2 Future Capital. Future capital contributions shall be as agreed
by the vote of the holders of Quotas representing 80% of the capital of the
Company. Should the Company's capital be increased and one or more of the
Minority Quotaholders elect not to participate in the increase in the Company's
capital, such non-participating Minority Quotaholder(s) shall have the right,
but not the obligation, to require the Majority Quotaholder to purchase the
total amount of quotas held by said Minority Quotaholder(s) according to the
valuation provisions of Clause 8.2.
6.3 Interest on Equity. Payment of interest on equity shall be
permitted.
VII.
NON-COMPETITION, NON-SOLICITATION AND CONFIDENTIALITY
7.1 Non-Competition; Non-Solicitation. Except as permitted below,
and in consideration for payments received and other good and valuable
consideration, from the date hereof until two years from the date on which CCH
ceases to be a Quotaholder, of this Company, neither CCH, nor Balka or Berman
may engage, directly or indirectly, in services which may compete within the
States of Sao Paulo, Rio de Janeiro, Parana and Pernanbuco, with those provided
by the Company or in the distribution or sale of products which may likewise
compete, nor shall said person solicit, directly or indirectly, the services of
employees of the Company or the customers of the Company for interests which
may conflict with the best interests of the Company. For purposes of construing
the foregoing covenants, services and products of the Company shall be those
which are encompassed within the corporate purpose of the Company, as set forth
at Clause 1 of this Agreement. The holding of 5% or less of the capital stock
of any publicly traded company by Employee shall not be deemed a violation of
the foregoing covenant not to compete. In addition, in the event of (a) a
change in control of Metrologic USA; or (b) the involuntary withdrawal of CCH
from the Company, the foregoing covenant not to compete shall not apply.
7.2 Confidentiality. Quotaholders shall hold confidential the terms
and conditions of this Agreement except to the extent that disclosure of such
information is necessary or desirable for consummation of this Agreement,
demanded by any governmental authority, or with the consent of all
Quotaholders.
VIII.
DURATION AND TERMINATION
8.1 Duration. This Agreement shall remain in full force and effect
for as long as the parties hereof or their permitted assigns or successors are
Quotaholders with at least 20% of the total issued and outstanding quotas.
Notwithstanding the above, a Quotaholder may consider this Agreement terminated
at any time in the following events:
(a) The other Quotaholder materially breaches any of the
provisions of this Agreement or of the Articles of
Association of the Company or of any agreements or
understandings among the same Quotaholders and such breach
has a material adverse effect upon the relationship of the
Quotaholders (affectio societatis) and, after notice of
breach, the defaulting Quotaholder fails to correct the
breach within a period of 60 days; or
(b) any Quotaholder becomes bankrupt, makes an arrangement
with creditors (concordata) or becomes insolvent.
In such event, the non-defaulting Quotaholder may serve notice of termination
upon the defaulting Quotaholder and upon the Company, and the defaulting
Quotaholder shall be required to sell its Quotas to the remaining Quotaholder.
The Quotas shall be valued and sold at the lesser of their net asset (book)
value or Market Value, as defined below.
8.2 Withdrawal. If any Quotaholder desires to withdraw from the
Company, it shall notify in writing such intention to the other Quotaholder,
together with its offer to sell the Quotas to the remaining Quotaholder,
subject to the provisions of Section 3 above including the specified price and
form of payment, such offer to sell to be exercised according to the procedure
set forth below. The Majority Quotaholder shall also have the right to call the
Quotas of CCH based on the valuation formula in 8.2.1 below, in the event Chaim
Bulka passes away or is incapacitated to perform this duties as delegate
manager.
8.2.1 Within 30 days from the withdrawing
Quotaholder's delivery of written notice of its intent to withdraw, the
Company shall contract an independent third party to make an appraisal of the
Quotas held by the withdrawing Quotaholder. The appraisal shall be performed by
either Ernst & Young, Price Waterhouse, Arthur Andersen or KPMG, and shall be
completed within 60 days from the date when the appraiser is contracted. The
firm's valuation shall be pursuant to appraisal made according to the
discounted net cash flow method applied over a period of five years, and with a
rate of discount of 12% per year ("Market Value"). If the Company has an
accumulated deficit (meaning the accumulated operating losses of the Company
from its incorporation to the date of withdrawal, reduced by 50% of the net
operating losses of the first 12 months of incorporation of the Company) at the
time of withdrawal, then such payment to the withdrawing Quotaholder shall be
reduced by the relevant share of such accumulated deficit. All costs incurred
for the valuation shall be borne by the withdrawing Quotaholder. Upon
conclusion of the appraisal, the other parties hereto shall have 30 days to
review the appraisal and to exercise their option to purchase the Quotas. Upon
acceptance of the offer, the Closing of the transfer of Quotas shall take
within 60 days ("The Closing Date").
8.2.2 In the event of an involuntary withdrawal,
the payment shall be made 100% upon Closing. In the event of voluntary
withdrawal, fifty percent of any payments made pursuant to the foregoing
provision shall be held in escrow to be applied against any remaining liability
incurred by the Company. Any funds not applied to the payment of remaining
liability shall be released as follows:
50% - on the first anniversary of the Closing
Date 25% - on the second anniversary of the
Closing Date 25% - on the third anniversary of
the Closing Date
8.2.3 Notwithstanding the foregoing release schedule,
there shall be no such payments made unless and until, after written notice of
withdrawal, the Company has had the benefit of at least six months from the
date of notice under Clause 8.2 to hire and train new management in the event
of the withdrawal of the employment services of Chaim Bulka or Isac Berman in
connection with the withdrawal of the Quotaholder.
IX.
GENERAL PROVISIONS
9.1 Further Assurances. The Parties hereto each agree to execute
such other documents or agreements as may be necessary or desirable for the
implementation of this Agreement and the consummation of the transactions
contemplated hereby.
9.2 Notices. Any notice required to be given under this Agreement
must be given in writing and will be effective on receipt when delivered by
registered airmail or by facsimile confirmed by the sending of the original by
registered airmail to the party at the address and fax numbers stated above or
in this clause or to such other address as such party may designate by written
notice in accordance with the provisions of this Section.
Attention: C. HARRY KNOWLES
President
METROLOGIC INSTRUMENTS, INC.
90 Coles Road, Blackword, N.J
08012, U.S.A
Fax No. (609) 228-0653
to the Minority Quotaholder:
Attention: ISAC BERMAN
Attorney-in-fact
CCH AUTOMATION SYSTEMS INC.
Rua Princesa Isabel 64, apto. 64
04601-000 Campo Belo
Sao Paulo - SP - Brasil
Fax No. (011) 531-2963
to the Company: METROLOGIC DO BRASIL LTDA.
Rua Sansao Alves dos Santos, 20, conjunto 51, Brooklin,
City of Sao Paulo, State of Sao Paulo
Attention: Director President
9.3 Successors. This Agreement shall be binding upon and shall inure
to the benefit of the Quotaholders and their respective permitted successors
and assigns. Neither this Agreement nor any rights or obligations hereunder
shall be assigned or otherwise transferred by any Quotaholder unless the
successor or assignee has agreed to be bound by this Agreement, with the same
rights and obligations of the former Quotaholder. Any assignment or transfer
without the observance of the above shall be null and void.
9.4 Applicable Law and Jurisdiction. This Agreement shall be
governed by and construed and enforced in accordance with the laws of Brazil.
The parties elect the jurisdiction of the courts of the City of Sao Paulo,
State of Sao Paulo, Brazil, to resolve any disputes arising hereunder.
9.5 Severability. If at any time subsequent to the date hereof, any
provisions of this Agreement shall be held by any court of competent
jurisdiction to be illegal, void or unenforceable, such provision shall be of
no force and effect, but the illegality or unenforceability of such provision
shall have no effect upon and shall not impair the enforceability of any other
provision of this Agreement.
9.6 Filing. This Agreement shall be filed with the Company, and its
provisions hereof shall be observed by the Company in accordance with and for
the purposes prescribed by Article 118 of the Law of Corporations.
X.
Indemnification
10.1 Minority Quotaholder hereby agrees to indemnify and hold
majority quotaholder USA and the Company harmless from and against any and all
cost, expense, damage and liability, including attorneys' fees (collectively, a
"Loss" or "Losses"), from any claim, demand, investigation, inquiry, lawsuit or
judgment, the responsibility for which has been assumed herein by Minority
Quotaholder, including without limitation, the following:
(a) acts, facts or omissions occurring prior to the Closing
Date by any company deemed to be a predecessor of the
Company, for which successor liability may be ascribed to
the Company, whether by reason of unpaid taxes, claims
arising out of employment or commercial representation,
claims for products returned, customer warranty claims,
product warranty claims, environmental claims or any other
reason; and
(b) any breach of their representations or warranties hereunder.
10.2 Minority Quotaholder shall not be exempt from liability if
Majority Quotaholder or its advisors know or should have known from
their review of the transaction that any of the representations
contained in this Agreement are not accurate or complete.
10.3 If any claim for Loss is made against Majority Quotaholder or
the Company by a third party, or if Majority Quotaholder or the Company shall
receive written threat of claim for Loss by a third party, which gives rise or
threatens to give rise to an obligation to indemnify Majority Quotaholder or
the Company pursuant to Clause 10.1 hereof (hereinafter referred to as an
"Event Subject to Indemnification"), Majority Quotaholder shall send written
notice to Minority Quotaholder ("Notification") promptly thereafter, disclosing
the details thereof as they are known, and Minority Quotaholder shall respond
within fifteen (15) calendar days from the receipt of the Notification (or
sooner, if circumstances require). Minority Quotaholder's response shall
indicate whether Minority Quotaholder intends to assume the defense of the
litigation or proceeding, which it shall have the right to do. In such case,
the Quotaholders shall each have the right to retain their own counsel at their
own expense.
10.3.1 If Minority Quotaholder's response indicates that it does not
intend to assume the defense, it shall nevertheless be liable for all expenses
of Majority Quotaholder and/or the Company in connection therewith. Whichever
party assumes the defense shall be entitled to the cooperation of the other
party in preparing the defense. Majority Quotaholder agrees to provide Minority
Quotaholder with access to all of the Company's files and records concerning
said defense.
10.3.2 Should Majority Quotaholder send a Notification in accordance
with the foregoing Clause 10.3 and Minority Quotaholder fails to respond within
the above-mentioned fifteen (15) calendar days or in the shorter period above
mentioned as of the receipt of the Notification by the one receiving the last
Notification, such failure to respond shall be deemed as an acceptance to pay
the amount involved in the Event Subject to Indemnification.
10.4 If an Event Subject to Indemnification shall arise, then Minority
Quotaholder shall send a written response to Majority Quotaholder in which it
states its intention (i) to pay the amount involved in the Event Subject to
Indemnification; (ii) to refuse to accept the event as an Event Subject to
Indemnification; or (iii) to discuss the matter. If (i), Minority Quotaholder
will pay the amount involved within the earlier of fifteen (15) days of the
date of its written intention to pay or thirty (30) days from the date of
Notification. If (ii), Majority Quotaholder or the Company may, at its option,
commence any required action to pursue or defend its rights and remedies, if
(iii), the Parties shall discuss the issues involved during a period of thirty
(30) days from receipt of the Notification, and if they reach an agreement, any
payment required thereby shall be made by Minority Quotaholder to Majority
Quotaholder and/or the Company, as the case may be, within forty-five (45)
calendar days from receipt of the Notification. If they do not reach an
agreement, Majority Quotaholder and/or the Company may commence, at its option,
any required action to pursue its rights and remedies.
10.5 Should an Event Subject to Indemnification arise, then the
Quotaholders shall immediately vote to have all distributions that the Company
would otherwise make to CCH or its successor, up to the maximum amount of the
loss, deposited into an interest bearing bank account at a bank of Majority
Quotaholder's choice. Minority Quotaholder shall determine the specific
application of the deposit. The amounts deposited in such account shall be used
to compensate any Loss incurred by Majority Quotaholder or the Company, to the
extent of such Loss, observing the terms of Clause 10.4 above. To the extent
that the amount of the Loss is greater than the amount deposited into the
account, Minority Quotaholder shall continue to be liable therefor and any
guarantor shall continue to guarantee payment of such amount in lieu of the
Majority Quotaholder or the Company for the difference between the amount of
the Loss and the amount in the account. Similarly, to the extent that the
amount of the Loss is less than the amount deposited into the account, Minority
Quotaholder shall receive any amounts remaining in the account once the Loss
has been compensated.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Quotaholders' Agreement before witnesses as of the day and year first above
written.
MTLG INVESTMENTS, INC.
By /s/ C. Harry Knowles
C. Harry Knowles, President
CCH AUTOMATION SYSTEMS, INC.
By /s/ Isac Berman
ISAC BERMAN, Attorney-in-fact
Receipt Acknowledged:
METROLOGIC DO BRASIL LTDA.
By /s/ Chaim Bulka
Chaim Bulka, Diretor-Presidente
Witnesses:
- ----------------------------------
Exhibit 10.26
GUARANTEE
This GUARANTEE, dated as of December 12, 1997, is made by
Mr. CHAIM BULKA, a Brazilian citizen, married, economist, resident
and domiciled at Rua Dr. Rubens Maragliano, 28, in the City of Sao
Paulo, State of Sao Paulo, Brazil, bearer of Brazilian Identity Card
RG No. 3.718.440 and registered with the General Taxpayers Authority
CPF/MF under No. 507.207.248-72 and Mrs. Gilda Meire Rosenberg
Bulka, a Brazilian citizen, married, veterinarian, resident and
domiciled at Rua Dr. Rubens Maragliano, 28, in the City of Sao
Paulo, State of Sao Paulo, Brazil, bearer of Brazilian Identity Card
RG 3.803.655 and registered with the General Taxpayers Authority
CPF/MF under No. 074.363.098-03 (hereinafter referred to
collectively as "Guarantors"),
in favor of
MTLG INVESTMENTS INC., a corporation with head offices at 103
Springer Building, 3411 Silverside Road, in the City of Wilmington,
State of Delaware, USA, represented in this act by its President,
Mr. Harry C. Knowles, ("MTLG");
as security for indemnities made by Guarantors in the Joint Venture Agreement
dated as of the date hereof ("the Agreement") in connection with Metrologic do
Brasil Ltda., a Brazilian limited liability quota company that is yet to be
formed (hereafter referred to as the "Company").
IN CONSIDERATION OF the foregoing and in order to induce MTLG to enter into the
Agreement, Guarantors agree as follows:
1. DEFINITIONS
"Agreement," "the Company," and "Guarantors" shall have the meanings
set forth in the preamble.
"Obligations" shall mean all representations, warranties,
indemnities and agreements made by Guarantors under the Agreement, as well as
any contingencies related thereto, for as long as the respective statute of
limitations has not elapsed.
2. GUARANTEE
2.1 Guarantors agree to jointly and severally indemnify and hold
MTLG and the Company harmless from and against any and all costs, expense,
damages and liabilities, including attorneys'fees from any claim, demand,
investigation, inquiry, lawsuit or judgment, the responsibility for which has
been assumed herein by the Guarantors, including, without limitation, acts,
facts or omissions that were made prior to the signature date hereof by any
company which is deemed to be a predecessor of the Company, for which successor
liability may be ascribed to the Company, whether by reason of unpaid taxes,
claims arising out of employment or commercial representation, claims for
products returned, customer warranty claims, product warranty claims,
environmental claims or any other reason; and any breach by Guarantors of their
representations or warranties under the Agreement.
2.2 In the event of a legal claim against MTLG and/or the Company
arising under the conditions described in Clause 2.1, Guarantors shall have the
right, upon prior notice to MTLG or the Company under the terms of Clause 7
below, to assume the defense of that claim. If Guarantors do not wish to assume
such defense, then Guarantors shall nevertheless remain liable for all expenses
incurred by MTLG and/or the Company in connection with that claim. The party
who assumes the defense of such claim shall be entitled to the cooperation of
the other party in preparing and handling such defense, and MTLG further agrees
to provide Guarantors with access to all of the Company's files and records
concerning such defense.
2.3 Guarantors each waive the benefit of order under any
circumstances, including, without limitation, the benefit pursuant to Article
1492, I, of the Brazilian Civil Code.
2.4 Guarantors each agree to pay all expenses (including, without
limitation, all interest, penalties, legal and other costs and expenses
together with any tax thereon) which may be paid or incurred by MTLG in
enforcing any of its rights under this Guarantee.
2.5 This Guarantee is unconditional and shall continue in force
until MTLG and Guarantors have satisfied all Obligations. Guarantors expressly
waive the right of dismissal conferred in Articles 1500 and 1502 through 1504
of the Brazilian Civil Code.
3. CLAIMS OF LOSS
If any claim for loss is made against MTLG or the Company by a third
party, or if MTLG or the Company receives a written threat of a claim for loss
by a third party which gives rise or threatens to give rise to an obligation to
indemnify MTLG or the Company, then MTLG shall send written notice to the
Guarantors, at the addresses for notice set forth below, promptly thereafter.
Such notice shall disclose the details of the loss or claim of loss, as they
are then known, and Guarantors shall respond within fifteen (15) calendar days
from their receipt of such notice (unless a shorter response period is
expressly requested in the notice. Guarantors' responses shall indicate whether
Guarantors intend to assume the defense of the relevant litigation or
proceeding.
4. INDEMNIFICATION
If any event arises that will subject Guarantors to the obligation to
indemnify MTLG or the Company, then MTLG will send written notice thereof to
the Guarantors. Guarantors will thereupon send a written response to MTLG or
the Company, within 15 days, stating their intention to (i) pay the amount of
indemnification; (ii) refuse to accept the event as an event giving rise to
indemnification; or (iii) discuss the matter. If Guarantors elect to pay the
amount of indemnification, then they shall do so within the earlier of fifteen
(15) days from the date of its written acceptance of payment or thirty (30)
days from the date it receives the notice. If Guarantors refuse to accept the
event as an event giving rise to indemnification, then MTLG or the Company may,
at its option, initiate any action that may be necessary to pursue or defend
its rights and remedies. If Guarantors elect to discuss the matter, then the
parties shall discuss the issues involved during a period of thirty (30) days
following receipt of the notice. If such discussions lead to an agreement, any
payment to be made under the agreement shall be made to MTLG and/or the
Company, as the case may be, within forty-five (45) calendar days from receipt
of the notice. If the discussions do not lead to an agreement, or if there is
no response to the written notice, then MTLG and/or the Company may, at its
option, initiate any action action that may be necessary to pursue or defend
its rights and remedies.
5. CONTINUANCE OF GUARANTEE
Guarantors' obligations under this Guarantee shall not be affected
or impaired for any reason, including without limitation any of the following
reasons:
(a) if MTLG or its advisors know or should have known from
their review of the transaction contemplated by the
Agreement that any of the representations contained in
the Agreement are inaccurate or incomplete.;
(b) the time for performance under the terms of the Agreement
is extended;
(c) any rights or obligations under the Agreement are
assigned pursuant to the terms thereof;
(d) any of the obligations hereof or under the Agreement are
modified or amended (whether such modifications are
material or otherwise);
(e) any failure, omission, delay or lack on the part of MTLG
or its successors or assigns to enforce, assert or
exercise any right, power or remedy conferred in the
Agreement;
(g) the insolvency or bankruptcy of Guarantors or any of
their respective permitted assignees.
6. GUARANTORS' BUSINESS
Guarantors undertake to continue to diligently conduct their
business and to not sell or otherwise dispose of any portion thereof as long as
this Guarantee shall remain in force, so that Guarantors may have the financial
conditions necessary to satisfy any obligation that it may be required to meet
hereunder.
7. NO WAIVER
Except by written instrument pursuant to Paragraph 6 hereof, no
waiver of any provision of this Agreement, or delay by either party in the
enforcement of any right hereunder, shall be construed as a continuing waiver,
and shall not create an expectation of non-enforcement of that or any other
provision or right.
8. WAIVERS AND AMENDMENTS
None of the terms of this Guarantee may be modified except by a
written instrument executed by Guarantors and MTLG, provided that any provision
of this Guarantee may be waived by MTLG in a letter or agreement or by telex or
facsimile transmission.
9. NOTICES
All notices under this Guarantee must be given in writing and will
be effective on receipt when delivered by registered airmail or by facsimile,
with delivery of the original by registered airmail, to the addresses stated
below or to such other address as Guarantors may jointly designate by written
notice in accordance with the provisions of this paragraph.
if to MTLG:
Metrologic Instruments Inc.
90 Coles Road
Blackwood, New Jersey, 08012, USA
FAX No. (609) 228.0653
Attention: C. Harry Knowles, President
if to Guarantors
Rua Dr. Rubens Maragliano, 28
05658-030 Sao Paulo - SP
FAX No.: (011) 531.2963
10. INTEGRATION
This Guarantee, together with the Agreement, contains the entire
understanding of the parties with respect to the subject matter hereof. There
are no agreements, representations, warranties, covenants or undertakings with
respect to the subject matter of this Guarantee other than those expressly set
forth in this Guarantee and the Agreement. This Guarantee and the Agreement
supersede all prior agreements and understandings between the parties with
respect to the subject matter hereof.
11. GOVERNING LAW
The Guarantee and the rights and obligations of Guarantors under
this Guarantee shall be governed by and construed and interpreted in accordance
with the laws of Brazil.
12. SUBMISSION TO JURISDICTION
Each Guarantor hereby irrevocably and unconditionally:
(a) submits itself and its property in any legal action or
proceeding relating to this Guarantee, or for recognition
and enforcement of any judgment in respect thereof, to
the exclusive general jurisdiction of the courts of the
City of Sao Paulo, State of Sao Paulo, Brazil;
(b) consents that any such action or proceeding may be
brought in such courts and waives any objection to the
venue of any such action or proceeding in any such court
or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the
same;
13. NO ASSIGNMENT
This Guarantee may not be assigned by either Guarantor except with
the prior written consent of MTLG. This Guarantee is binding upon and inures to
the benefit of the heirs and permitted assigns of Guarantors.
14. REGISTRATION
Pursuant to Article 129 of Law No.6015/73, this instrument shall be
registered with the Registry of Titles and Documents in the City of Sao Paulo,
State of Sao Paulo, Brazil.
IN WITNESS WHEREOF, the Guarantors have signed and delivered this
Guarantee as of the date first above written.
Sao Paulo, ____________
CHAIM BULKA
/s/ Chaim Bulka
GILDA MEIRE ROSENBERG BULKA
/s/ Gilda Meire Rosenberg Bulka
MTLG INVESTMENTS INC.
C. HARRY KNOWLES
/s/ C. Harry Knowles
Witnesses:
1. _________________________
2. _________________________
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Metrologic do Brasil Ltda., a Brazil corporation
Metrologic Asia (PTE) Ltd., a Singapore corporation
Holoscan, Inc., a California corporation
MTLG Investments Inc., a Delaware corporation
Metrologic Instruments (Barbados) Inc., a Barbados corporation
Metrologic Instruments GmbH, a German corporation
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (Registration No. 33-89376) pertaining to Metrologic Instruments, Inc.
1994 Incentive Plan and the Registration Statement on Form S-8 (Registration
No. 33-86670) pertaining to Metrologic Instruments, Inc. Employee Stock
Purchase Plan of our report dated February 26, 1998 with respect to the
consolidated financial statements and schedule of Metrologic Instruments, Inc.
included in the Annual Report on Form 10-K for the year ended December 31,
1997.
Philadelphia, Pennsylvania
March 31, 1998