-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CO8JwltuIGIdgeuSoseQDyuMk5UtgGIHAnoGKsK/h5UQlRNB3Cp7SR2qTTDcJQFn W3EtQ1bf0r7sTXCyKhVmXQ== 0000071241-04-000008.txt : 20040430 0000071241-04-000008.hdr.sgml : 20040430 20040430102516 ACCESSION NUMBER: 0000071241-04-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20040404 FILED AS OF DATE: 20040430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW BRUNSWICK SCIENTIFIC CO INC CENTRAL INDEX KEY: 0000071241 STANDARD INDUSTRIAL CLASSIFICATION: LABORATORY APPARATUS & FURNITURE [3821] IRS NUMBER: 221630072 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-06994 FILM NUMBER: 04767761 BUSINESS ADDRESS: STREET 1: 44 TALMADGE RD STREET 2: PO BOX 4005 CITY: EDISON STATE: NJ ZIP: 08818-4005 BUSINESS PHONE: 9082871200 MAIL ADDRESS: STREET 1: 44 TALMADGE ROAD STREET 2: PO BOX 4005 CITY: EDISON STATE: NJ ZIP: 08818-4005 10-Q 1 doc1.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Quarter Ended April 3, 2004 Commission File No. 0-6994 ------ NEW BRUNSWICK SCIENTIFIC CO., INC. State of Incorporation - New Jersey E. I. #22-1630072 ----------- 44 Talmadge Road, Edison, N.J. 08818-4005 Registrant's Telephone Number: 732-287-1200 ------------ 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 twelve (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 ninety (90) days. Yes X No __ -- Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes No X - There are 8,692,230 Common shares outstanding as of April 30, 2004. 1 NEW BRUNSWICK SCIENTIFIC CO., INC. Index
PAGE NO. -------- PART I. FINANCIAL INFORMATION: Consolidated Balance Sheets - April 3, 2004 and December 31, 2003. . . . . . . . . . . 3 Consolidated Statements of Operations - Three Months Ended April 3, 2004 and March 29, 2003. . . . . . . . . . . . . . . . . . . . . 4 Consolidated Statements of Cash Flows - Three Months Ended April 3, 2004 and March 29, 2003 . . . . . . . . . . . . . . . . . . . . 5 Consolidated Statements of Comprehensive Income (Loss) - Three Months Ended April 3, 2004 and March 29, 2003. . . . . . . . . . . . . . . . . . . . . 6 Notes to Consolidated Financial Statements. . . . . . . . 7 Management's Discussion and Analysis of Results of Operations and Financial Condition. . . . . . . . . . 13 PART II. OTHER INFORMATION 21
2 NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts) (Unaudited) ASSETS ------
April 3, December 31, 2004 2003 ---------- -------------- Current Assets: Cash and cash equivalents. . . . . . . . . . . . . . . $ 9,479 $ 10,536 Accounts receivable, net . . . . . . . . . . . . . . . 10,589 10,012 Inventories: Raw materials and sub-assemblies . . . . . . . . . . 6,128 5,194 Work-in-process. . . . . . . . . . . . . . . . . . . 2,300 2,088 Finished goods . . . . . . . . . . . . . . . . . . . 4,645 5,022 ---------- -------------- Total inventories. . . . . . . . . . . . . . . . . 13,073 12,304 Deferred income taxes. . . . . . . . . . . . . . . . . 310 299 Prepaid expenses and other current assets. . . . . . . 1,489 1,049 ---------- -------------- Total current assets . . . . . . . . . . . . . . . . 34,940 34,200 ---------- -------------- Property, plant and equipment, net . . . . . . . . . . . 6,385 6,478 Goodwill . . . . . . . . . . . . . . . . . . . . . . . . 8,355 8,147 Other assets . . . . . . . . . . . . . . . . . . . . . . 2,499 2,496 ---------- -------------- $ 52,179 $ 51,321 ========== ============== LIABILITIES AND SHAREHOLDERS' EQUITY - -------------------------------------------------------- Current Liabilities: - -------------------------------------------------------- Current installments of long-term debt . . . . . . . . $ 1,691 $ 1,661 Accounts payable and accrued expenses. . . . . . . . . 7,781 7,260 ---------- -------------- Total current liabilities. . . . . . . . . . . . . . 9,472 8,921 ---------- -------------- Long-term debt, net of current installments. . . . . . . 7,453 7,675 Other liabilities. . . . . . . . . . . . . . . . . . . . 2,747 2,866 Commitments and contingencies Shareholders' equity: Common stock, $0.0625 par; authorized 25,000,000 shares; issued and outstanding, 2004 - 8,686,641 and 2003 - 8,636,865 . . . . . . . . 543 540 Capital in excess of par . . . . . . . . . . . . . . . 51,975 51,817 Accumulated deficit. . . . . . . . . . . . . . . . . . (18,571) (18,879) Accumulated other comprehensive loss . . . . . . . . . (1,417) (1,585) Notes receivable from exercise of stock options. . . . (23) ( 34) ---------- -------------- Total shareholders' equity . . . . . . . . . . . . . 32,507 31,859 ---------- -------------- $ 52,179 $ 51,321 ========== ============== See notes to consolidated financial statements
.. 3 NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited)
Three Months Ended April 3, March 29, 2004 2003 -------------------- ----------- Net sales. . . . . . . . . . . . . . . . . . . . . . . $ 14,622 $ 11,585 Operating costs and expenses: Cost of sales. . . . . . . . . . . . . . . . . . . . 8,691 7,392 Selling, general and administrative expenses . . . . 4,272 4,104 Research, development and engineering expenses . . . 903 857 -------------------- ----------- Total operating costs and expenses . . . . . . . . 13,866 12,353 -------------------- ----------- Income (loss) from operations. . . . . . . . . . . . . 756 (768) Other income (expense): Interest income. . . . . . . . . . . . . . . . . . . 18 18 Interest expense . . . . . . . . . . . . . . . . . . (165) (114) Other, net . . . . . . . . . . . . . . . . . . . . . (64) 144 -------------------- ----------- (211) 48 -------------------- ----------- Income (loss) before income tax expense (benefit). . . 545 (720) Income tax expense (benefit) . . . . . . . . . . . . . 237 (288) -------------------- ----------- Net income (loss). . . . . . . . . . . . . . . . . . . $ 308 $ (432) ==================== =========== Basic net income (loss) per share. . . . . . . . . . . $ .04 $ (0.05) ==================== =========== Diluted net income (loss) per share. . . . . . . . . . $ .04 $ (0.05) ==================== =========== Basic weighted average number of shares outstanding . 8,650 8,570 ==================== =========== Diluted weighted average number of shares outstanding. 8,794 8,570 ==================== ===========
See notes to consolidated financial statements. 4 NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Three Months Ended April 3, March 29, 2004 2003 ------------------------------------ Cash flows from operating activities: Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . $ 308 $ (432) Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Depreciation and amortization. . . . . . . . . . . . . . . . . . 343 305 Gain on sale of property . . . . . . . . . . . . . . . . . . . . - (202) Change in related balance sheet accounts: Accounts and notes receivable. . . . . . . . . . . . . . . . . . (526) 312 Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . (730) (1,048) Prepaid expenses and other current assets. . . . . . . . . . . . (446) (445) Other assets. . . . . . . . . . . . . . . . . . . . . . . . . (101) - Accounts payable and accrued expenses. . . . . . . . . . . . . . 249 (1,237) Advance payments from customers. . . . . . . . . . . . . . . . . 282 133 Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . (119) (21) -------- -------- Net cash used in operating activities. . . . . . . . . . . . . . . (740) (2,635) ------------------------------------ Cash flows from investing activities: Additions to property, plant and equipment . . . . . . . . . . . (261) (330) Proceeds from sale of property and equipment . . . . . . . . . . - 253 -------- -------- Net cash used in investing activities. . . . . . . . . . . . . . . (261) (77) -------- -------- Cash flows from financing activities: Repayments of long-term debt . . . . . . . . . . . . . . . . . . (222) (65) Proceeds from issue of shares under stock option plans . . . . . 161 - Payments on notes receivable related to exercised stock options. 11 11 -------- -------- Net cash used in financing activities. . . . . . . . . . . . . . . (50) (54) -------- -------- Net effect of exchange rate changes on cash. . . . . . . . . . . . (6) 23 -------- -------- Net decrease in cash and cash equivalents . . . . . . . . . . . . (1,057) (2,743) Cash and cash equivalents at beginning of period . . . . . . . . . 10,536 9,718 ---------- -------- Cash and cash equivalents at end of period . . . . . . . . . . . .$ 9,479 $ 6,975 ========= ======== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 197 $ 106 Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 131 785
See notes to consolidated financial statements. 5 NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In thousands) (Unaudited)
Three Months Ended April 3, March 29, 2004 2003 ------------------- ----------- Net income (loss). . . . . . . . . . . . . $ 308 $ (432) Other comprehensive income (loss): Foreign currency translation adjustment. 168 (117) ------------------- ----------- Comprehensive income (loss). . . . . . . . $ 476 $ (549) =================== ===========
See notes to consolidated financial statements. 6 NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1 - Interim results: In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly, the financial position of the Company as of April 3, 2004 and the results of its operations for the three months ended April 3, 2004 and March 29, 2003 and its cash flows for the three months ended April 3, 2004 and March 29, 2003. Interim results may not be indicative of the results that may be expected for the year. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2003. Note 2 - Net income (loss) per share: Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of shares outstanding. Diluted net income (loss) per share is calculated by dividing net income (loss) by the sum of the weighted average number of shares outstanding plus the dilutive effect of stock options which have been issued by the Company using the treasury stock method. Antidilutive options are excluded from the calculation of diluted net income (loss) per share. As the Company had a loss in 2003, the dilutive effect of stock options was not considered for that period. Information related to dilutive and antidilutive stock options is as follows (in thousands of shares):
Three Months Ended April 3, March 29, 2004 2003 ------- --------- Dilutive effect. . . 144 - Antidilutive options 2 359
Note 3 - Long-term debt and credit agreement: On March 15, 2002, the Company and Wachovia Bank, National Association (formerly First Union National Bank) ("the Bank") entered into an amendment to extend their agreement (the Bank Agreement) by three years to May 31, 2005. The amendment to the Bank Agreement did not change the maturity date of the then existing acquisition credit line component related to a 1999 acquisition, which remains at December 1, 2006. The maturity date of the acquisition credit line component related to the 2003 acquisition of RS Biotech and the equipment credit line component are November 2008. On September 26, 2003 the Bank Agreement was further amended to temporarily ease the financial ratio requirements under the 7 negative covenant provisions of the Bank Agreement and to reduce the acquisition line from $12.5 million to $10 million. Among the changes was to omit the requirement to meet the debt service ratio during the period ended September 27, 2003, a change in the minimum equity that must be maintained, as well as the maintenance of a minimum $3 million cash balance. In addition, the interest rate on new borrowings under the Bank Agreement will increase by 50 basis points. At such time as the Company meets the financial ratios that were in force prior to this amendment (expected to be October 2, 2004), all of the terms, financial ratios and requirements as well as interest rates will revert to what they were prior to the September 26, 2003 amendment. No other provisions of the Bank Agreement were materially amended. There are no compensating balance requirements and any borrowings under the Bank Agreement other than the fixed term acquisition debt, bear interest at the bank's prime rate less 75 basis points or LIBOR plus 175 basis points, at the discretion of the Company. At April 3, 2004, the bank's prime rate was 4.0% and LIBOR was 1.11%. All of the Company's domestic assets, which are not otherwise subject to lien, have been pledged as security for any borrowings under the Bank Agreement. The Bank Agreement contains various business and financial covenants including among other things, a debt service ratio, a net worth covenant and a ratio of total liabilities to tangible net worth. At April 3, 2004 the Company is in compliance with its covenants pursuant to the Bank Agreement, as amended, and currently anticipates to be in compliance with such covenants for the next 12 months. At April 3, 2004, the following amounts were outstanding and available under the Bank Agreement (in thousands):
Total Line Outstanding Available ------- ------------- ---------- Acquisitions. . . . $10,000 $ 5,954(a) $ 4,046 Equipment loans . . 2,000 756(b) 1,244 Working capital and letters of credit 5,000 33(c) 4,967 Foreign exchange transactions. . . 10,000 - 10,000 ------- ------------- ---------- $27,000 $ 6,743 $ 20,257 ======= ============= ========== _____________________ (a) $4,543,000 at fixed interest of 8% per annum and $1,411,000 at 175 basis points over LIBOR (b) Interest at 175 basis points over LIBOR (c) Letters of credit
In November 1999, the Company issued notes in the amount of 250,000 ($392,500 at the date of acquisition) in connection with the acquisition of DJM Cryo-Research Group. The notes bear interest at 6% which are payable annually and principal is payable in five equal annual installments which commenced in November 2003. At April 3, 2004, the balance of the notes was 200,000 ($366,000). 8 In November 2003, the Company issued notes in the amount of 975,000 ($1,645,000 at the date of acquisition) in connection with the acquistion of RS Biotech. The notes bear interest, payable semi-annually at the lower of 6% or the base rate of the Bank of Scotland and are payable 487,500 on the first and second anniversary, respectively, of the acquisition. At April 3, 2004, the balance due on the notes was 975,000 ($1,786,000). The Company is a party to first and second mortgages on the facility of the Company's Netherlands subsidiary, which bear interest of 5.50% and 5.45%, respectively, per annum. During the terms of the mortgages, the Company is obligated to make monthly payments of interest and quarterly payments of principal. At April 3, 2004, $124,000 and $158,000 was outstanding under the first and second mortgages, respectively, and at March 29, 2003, $141,000 and $165,000 was outstanding under the first and second mortgages, respectively. Each mortgage requires 80 equal quarterly payments of principal. Note 4 - Recently adopted accounting standards: In December 2003, the FASB issued FASB Interpretation No. 46 (revised December 2003), "Consolidation of Variable Interest Entities", which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46, "Consolidation of Variable Interest Entities", which was issued in January 2003. The Company is required to apply FIN 46R to variable interests in VIEs created after December 31, 2003. For variable interests in VIEs created before January 1, 2004, the Interpretation is being applied beginning on January 1, 2004. For any VIEs consolidated under FIN 46R that were created before January 1, 2004, the assets, liabilities and noncontrolling interests of the VIE initially would be measured at their carrying amounts with any difference between the net amount added to the balance sheet and any previously recognized interest being recognized as the cumulative effective of an accounting change. If determining the carrying amounts is not practicable, fair value at the date FIN 46R first applies may be used to measure the assets, liabilities and noncontrolling interest of the VIE. The adoption of FIN 46R had no effect on the Company's consolidated results of operations, financial position or cash flows. See Note 7 for a discussion of the Company's one investment in a variable interest entity, which is not consolidated. Note 5 - Contingencies: In June 2003, the U.S. Department of Commerce notified the Company that it believes the Company may have failed to comply with certain export control requirements in connection with certain equipment sales to Asia. The applicable statutory framework gives the Commerce Department authority to impose civil monetary penalties (up to a maximum of $176,000 based on the agency's preliminary assessment) and other sanctions. The Company responded to the agency's invitation to settle the matter informally and has provided an explanation of the transactions in question and information about the Company's compliance measures. The Company has made a settlement offer, which it has accrued, in an amount significantly lower than $176,000 reflecting the Company's belief that the matter should be settled at a substantially reduced level. 9 While the ultimate outcome of this matter cannot be determined at this time, management believes that it will not have a material effect on the Company's financial condition or liquidity but could have a material effect on the Company's results of operations in any one period. Note 6 - Stockholders' Equity: On February 20, 2003, the Company declared a 10% stock dividend, which was paid on May 15, 2003 to shareholders of record as of April 18, 2003. The weighted average number of shares outstanding used in the computation of basic and diluted income (loss) per share for the 2003 period has been restated to reflect this dividend. At April 3, 2004, the Company has stock-based employee compensation plans, which it accounts for in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations. As such, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. No stock-based employee compensation cost is reflected in net income (loss), as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The Company has adopted the disclosure standards of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation", which requires the Company to provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method of accounting for stock options as defined in SFAS No. 123 had been applied. The following table illustrates the effect on net income (loss) and per share amounts if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock based employee compensation:
Three Months Ended April 3, March 29, 2004 2003 ------------------- ----------- Net income (loss), as reported: . . . . . . . . . $ 308 $ (432) Deduct: Total stock-based employee compensation expense determined under fair. . . 71 96 value based method, net of related tax effects. ___ ___ Pro forma net income (loss) . . . . . . . . . . . $ 237 $ (528) =================== =========== Net income (loss) per share: Basic-as reported . . . . . . . . . . . . . . . $ 0.04 $ (0.05) =================== =========== Basic-pro forma . . . . . . . . . . . . . . . . $ 0.03 $ (0.06) =================== =========== Diluted-as reported . . . . . . . . . . . . . . $ 0.04 $ (0.05) =================== =========== Diluted-pro forma . . . . . . . . . . . . . . . $ 0.03 $ (0.06) =================== ===========
10 The fair value of each stock option granted during the period is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions (no options were granted in the first fiscal quarter of 2004):
Three Months Ended April 3, March 29, 2004 2003 ------- -------- Expected life (years). . . . . . . . . NA 6.0 Expected volatility. . . . . . . . . . NA 75.80 Expected dividend yield. . . . . . . . NA - Risk-free interest rate. . . . . . . . NA 3.10 Weighed average fair value of options. NA $ 4.90 granted during the period
Note 7 - Investment in Antyra Inc.: The Company has an equity investment in Antyra Inc. (formerly DGI BioTechnologies, Inc) ("Antyra") that was written down to zero in 2001. Antyra had anticipated closing a significant financing transaction with an investment group during the first half of 2003, however, the financing with this group did not take place. On May 12, 2003, Antyra closed on certain new short-term financing. Under the terms of the agreement, Antyra issued preferred shares in exchange for a $200,000 cash infusion from an investment group consisting of certain members of Antyra management and other investors and warrants to BankInvest (an existing equity investor) to purchase up to $100,000 of Antyra preferred stock exercisable through October 2003. At October 31, 2003, BankInvest chose not to exercise the warrant and it has expired. The agreement includes a provision that if such warrant is not exercised, the investment group has the right, but not the obligation, to invest an additional $100,000 in preferred stock under the same terms as the BankInvest warrant, $80,000 of which they exercised. Additionally, under the terms of the agreement, the Company agreed to accept additional shares of Antyra preferred stock on a monthly basis in lieu of the next 12 months of rent payments due the Company from Antyra (rent is due at $12,367 per month). For financial reporting purposes, the Company is attributing no value to the shares received under this arrangement. The Company has also guaranteed certain lease obligations of Antyra, which are accrued for and total $55,000 as of April 3, 2004. The Company believes that any amount recorded would not be probable of recovery based on our estimate that the new short-term financing, together with its expected limited revenues during 2004, should only enable Antyra to continue operating as a going concern into the second quarter of 2004 without additional funding. As a result of the short-term financing obtained by Antyra, the Company's fully diluted interest in Antyra was reduced and will increase to 23.4% upon the receipt of the Antyra stock in lieu of rent over the 12-month period. 11 Antyra has virtually exhausted its remaining operating capital and consequently, its continued viability and existence is dependent upon its raising additional capital by the end of May 2004. Note 8 - Pension plan: Components of net period benefit cost for the three months ended April 3, 2004 and March 29, 2003 are as follows (in thousands):
2004 2003 ------ ------ Service cost. . . . . . . . . . . . $ 95 $ 78 Interest cost . . . . . . . . . . . 120 120 Expected return on plan assets. . . (115) (96) Amortization of net obligation. . . 5 5 Amortization of prior service costs (1) (1) Amortization of the net (gain) loss 54 65 ----- ----- Net periodic pension cost . . . . . $158 $171 ===== ====
The Company previously disclosed in its financial statements for the year ended December 31, 2003, that it expects to contribute $1,040,000 to its pension plan in 2004. As of April 3, 2004, $347,000 of contributions have been made. The Company has a defined contribution plan for its U.S. employees, with a specified matching Company contribution. The expense to the Company for the three months ended April 3, 2004 and March 29, 2003 was $38,000 and $49,000, respectively. 12 NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, are made throughout this Management's Discussion and Analysis of Results of Operations and Financial Condition. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks," "estimates," and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the results of the Company to differ materially from those indicated by such forward-looking statements. The following is Management's discussion and analysis of significant factors that have affected the Company's operating results and financial condition during the three month periods ended April 3, 2004 and March 29, 2003, respectively, which should be read in conjunction with the Company's December 31, 2003 financial statements. Results of Operations --------------------- EXECUTIVE OVERVIEW - ------------------- The year 2003 was a very difficult one for the Company and for our industry as capital spending by pharmaceutical companies declined significantly due to tightened budgets and the acquisition of equipment by biotechnology companies decreased due to their inability to raise funds in the financial markets. At the same time, although government funding of the NIH and other agencies increased, a large portion of their budgets were directed toward security as a consequence of the September 11, 2001 terrorist attacks rather than to research. The Company began to experience a turnaround from this negative situation during the fourth quarter of 2003 during which it returned to profitability after three successive quarterly losses. This trend has continued into the first quarter of 2004 during which the Company experienced a significant increase in net sales and solid profitability compared with the first quarter of 2003 when it sustained a large net loss. The Company is a leading provider of a wide variety of research equipment and scientific instruments for the life sciences used to create, maintain and control the physical and biochemical conditions required for the growth, detection and storage of microorganisms. The Company's products are used for medical, biological, chemical and environmental research and for the commercial development of antibiotics, proteins, hormones, enzymes, monoclonal antibodies, agricultural products, fuels, vitamins, vaccines and other substances. 13 The Company sells its equipment to pharmaceutical companies, agricultural and chemical companies, other industrial customers engaged in biotechnology, and to medical schools, universities, research institutes, hospitals, private laboratories and laboratories of federal, state and municipal government departments and agencies in the United States. While only a small percentage of the Company's sales are made directly to United States government departments and agencies, its domestic business is significantly affected by government expenditures and grants for research to educational research institutions and to industry. The Company also sells its equipment both directly (primarily in Western Europe) and through scientific equipment dealers to foreign companies, institutions and governments. Foreign sales may be affected by U.S. export control regulations applicable to scientific equipment. Fisher Scientific, our largest customer, is the exclusive U.S. distributor of the Company's C-Line and I-Series biological shakers. Fisher Scientific is also the exclusive distributor for the Company's C-Line shakers in certain European countries and has a broader distribution arrangement with the Company in Canada and in France. NET SALES - ---------- The following table summarizes consolidated backlog, orders and net sales for the three months ended April 3, 2004 and March 29, 2003 (in thousands of dollars):
% 2004 2003 Change ------- ------- ------ Backlog-beginning $ 9,018 $ 6,668 35.2 % Add orders. . . . 15,488 10,370 49.4 Less net sales. . 14,622 11,585 26.2 ------- ------ ----- Backlog-ending. . $ 9,884 $ 5,453 81.3% ======= ======= =====
Net sales increased $3,037,000 or 26.2% in the 2004 period from $11,585,000 in 2003. Net sales increased 18.2% in the U.S. and 33.8% internationally. The increase in sales was due principally to higher unit volume aided by the recovery in the economy, the weakening dollar in international markets and the inclusion of $1.1 million in sales of RS Biotech, which was acquired in November 2003. In addition, $526,000 resulted from the dollar's weakness when the net sales of the Company's UK and European subsidiaries were translated into dollars. Excluding the foreign exchange effect, international sales increased 22.9%. The increase in net sales involved all of the Company's product lines. Orders were very strong during the first quarter of 2004 for the reasons discussed above relating to the increase in net sales and due to the continued demand for the Company's fermentation, cell culture, shaker and freezer products. GROSS MARGIN - ------------- The following table shows gross profit and gross margin for the three months ended April 3, 2004 and March 29, 2003 (in thousands of dollars): 14
2004 . . 2003 -------- ------ Net sales . . $14,622 $11,585 Cost of sales 8,691 7,392 ------- ------- Gross profit. $ 5,931 $ 4,193 ======= ======== Gross margin. 40.6% 36.2% ======= ========
Gross margin increased to 40.6% from 36.2% in 2003 due primarily to the effect of increased absorbtion of manufacturing overhead as a result of significantly increased manufacturing activity. SELLING, GENERAL AND ADMINISTRATIVE - -------------------------------------- As a result of the foreign exchange translation effect of the weak dollar on the expenses of the Company's European subsidiaries and the inclusion of the operating expenses of RS Biotech acquired in November 2003, 2004 selling, general and administrative expenses increased $374,000 for the three months ended April 3, 2003 compared with the three months ended March 29, 2003. If this amount is excluded, there was a $206,000 decrease in 2004 expenses stemming from the Company's cost reduction efforts offset partly by normal salary and other annual cost increases. RESEARCH, DEVELOPMENT AND ENGINEERING - ---------------------------------------- As a result of the foreign exchange translation effect of the weak dollar on the expenses of the Company's European manufacturing subsidiaries and the inclusion of the expenses of RS Biotech acquired in November 2003, 2004 R&D and Engineering expenses increased $115,000 for the three months ended April 3, 2003 compared with the three months ended March 29, 2003. If this amount is excluded, there was a $69,000 decrease in 2004 expenses stemming from the Company's cost reduction efforts offset partly by normal salary and other annual cost increases. INTEREST EXPENSE - ----------------- Interest expense increased in the 2004 quarter due to the higher level of debt, which was incurred during the latter part of 2003 to finance the acquisition of RS Biotech and the purchase of equipment. OTHER (EXPENSE) INCOME, NET - ------------------------------ The following table details other expense, net for the quarters ended April 3, 2004 and March 29, 2003, (in thousands):
2004 2003 ------------------------- Gain on assets sold, primarily property . $ - $201,000 Loss on foreign currency transactions(a). (49,000) (44,000) Other, net. . . . . . . . . . . . . . . . (15,000) (13,000) -------- -------- Total other (expense) income , net. (64,000) $144,000 ======== ======== 15 ________________________ (a) Realized foreign exchange losses which relate primarily to the settlement of purchases in the normal course of business between the Company's United States and European operating companies.
INCOME TAX EXPENSE - -------------------- The increase in the Company's effective income tax rate to 43.5% for the three months ended April 3, 2004 is attributable to the inability to carryback losses incurred by one of the Company's European subsidiaries resulting in no financial tax benefit for those losses in 2004. During the three months ended March 29, 2003 when the Company sustained losses, its effective tax benefit rate of 40% was higher than what might be expected due to an increase in the effective tax rate for state income taxes. FINANCIAL CONDITION ------------------- LIQUIDITY AND CAPITAL RESOURCES ------------------------------- CONTRACTUAL OBLIGATIONS The Company's contractual obligations and commitments principally include obligations associated with its outstanding indebtedness and future minimum operating lease obligations as set forth in the following table:
Payments Due by Period ------------------------ (In thousands) ------------------------ Contractual obligations: Less than. 1-3 3-5 More than ---------- ------ ----- --------- Total. 1 Year Years Years 5 Years ------ ------- ----- ----- -------- Long-term debt, obligations(a) . . . . . . . $ 9,144 $1,691 $ 6,741 $ 712 $ - Operating lease obligations(b) 4,163 787 1,639 953 784 Purchase obligations(c). . . . 5,039 4,764 275 - - Other long-term liabilities(d) 677 37 640 - - ------ ------ ---------- -------- ---- Total contractual cash Obligations. . . . . . . . . $ 19,023 $7,279 $ 9,295 $ 1,665 $784 ====== ====== ========== ======= ==== _____________________ (a) Consists primarily of debt incurred for acquisitions financed under the Company's Bank Agreement and of notes due to the sellers of businesses acquired by the Company. (b) Primarily reflects (on a gross basis before sublet income) lease obligations for five premises in the United Kingdom, two of which have been sublet. One of the subleased premises with a lease expiration date of 2014 and an annual rental of 99,750 ($183,000 at April 3, 2004) has been sublet for the entire term of the lease. The second sublet premises with a lease expiration date of September 28, 2009 and an annual rental of 45,000 ($82,000 16 at April 3, 2004) has been sublet for a number of years, however, the subtenant has advised the Company that it does not intend to renew its sublease when it expires on October 13, 2004. The Company is confident that a new subtenant will be located prior to the expiration of the current sublease. (c) Primarily includes commitments for raw materials and services related to the Company's production of equipment at its various manufacturing facilities. (d) Represents a contingent liability for an earnout related to the acquisition of RS Biotech provided a minimum number of units of CO2 Incubators are sold. The Company believes that the payment of such additional consideration is determinable beyond a reasonable doubt and as such has recorded the amount as a liability and as additional purchase price.
CASH - ---- Cash and cash equivalents decreased to $9,479,000 at April 3, 2004 from $10,536,000 at December 31, 2003. The $1,057,000 decrease resulted primarily from net cash used in operating activities of $740,000, net cash used in investing activities of $261,000 and net cash used in financing activities of $50,000. OPERATING ACTIVITIES - --------------------- The overall factors primarily driving negative cash flow during the three months ended April 3, 2004 were increases in (i) accounts receivable, (ii) inventories, (iii) prepaid expenses and other current assets, (iv) other assets and (v) a decrease in other liabilities partially offset by (i) net income, (ii) depreciation and amortization, (iii) an increase in accounts payable and accrued expenses and (iv) an increase in advance payments from customers. The negative cash flow factors during the 2004 period were primarily driven by the increased volume of business during the period. Assuming the business trends experienced in the fourth quarter of 2003 and the first quarter of 2004 continue to build, the Company currently anticipates that in 2004 it will generate positive cash flow from net income and depreciation expense, most likely partially offset by an increase in accounts receivable due to the improving business climate. INVESTING ACTIVITIES - --------------------- In 2004, net cash used in investing activities was as a result of normal additions to property, plant and equipment. FINANCING ACTIVITIES - --------------------- In 2004, cash flows from financing activities primarily consisted of repayments of long-term debt partially offset by proceeds from the issue of shares under stock option plans. 17 BANK AGREEMENT - --------------- The Company's agreement (the Bank Agreement) with Wachovia Bank, National Association (the Bank) was amended on September 26, 2003 to temporarily ease the financial ratio requirements under the negative covenant provisions of the Bank Agreement as a consequence of the losses sustained by the Company during the first nine months of 2003, which if not relaxed, would have resulted in the Company being in violation of the debt coverage ratio covenant of 1.3 to 1. Concurrently, the Company and the Bank agreed to reduce the acquisition component of the line from $12.5 million to $10 million. Among the changes was to omit the requirement to meet the debt service ratio during the period ended September 27, 2003 and to modify it slightly for the fourth quarter of 2003 and for the first three quarters of 2004, a change in the minimum equity that must be maintained as well as the maintenance of a minimum $3 million cash balance. In addition, the interest rate on new borrowings under the Bank Agreement will increase by 50 basis points. At such time as the Company meets the financial ratios that were in force prior to this amendment (expected to be October 2, 2004) all of the terms, financial ratios as well as interest rates will revert to what they were prior to the September 26, 2003 amendment. No other provisions of the Bank Agreement were materially amended. During the fourth quarter of 2003, the Company, under the Bank Agreement, borrowed $1,500,000 to fund the cash portion of the RS Biotech acquisition and $825,000 towards the purchase of capital equipment. If the Company continues to meet the financial ratios under the agreement, its continued ability to borrow under the Bank Agreement should not be impeded. The Company at present foresees no need to borrow additional funds under the Bank Agreement during 2004 as any cash requirements including $1,661,000 of debt repayments are expected to be funded from cash flow or from existing cash balances. At April 3, 2004 the Company is in compliance with its covenants pursuant to the Bank Agreement, as amended and expects to be in compliance with such covenants for the next 12 months. CRITICAL ACCOUNTING POLICIES - ------------------------------ No changes have been made in the Company's critical accounting policies during the three months ended April 3, 2004. RECENTLY ADOPTED ACCOUNTING STANDARDS - ---------------------------------------- In December 2003, the FASB issued FASB Interpretation No. 46 (revised December 2003), "Consolidation of Variable Interest Entities", which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46, "Consolidation of Variable Interest Entities", which was issued in January 2003. The Company is required to apply FIN 46R to variable interests in VIEs created after December 31, 2003. For variable interests in VIEs created before January 1, 2004, the Interpretation is being applied beginning on January 1, 2004. For any VIEs consolidated under FIN 46R that were created before January 1, 2004, the assets, liabilities and noncontrolling interests of the VIE initially would be measured at their carrying amounts with any difference between the net amount added to the balance sheet and any previously recognized interest being recognized as the cumulative effect of an accounting change. If determining the carrying amounts is not practicable, fair value at the date FIN 46R first 18 applies may be used to measure the assets, liabilities and noncontrolling interest of the VIE. The adoption of FIN 46R had no effect on the Company's consolidated results of operations, financial position or cash flows. PROPOSED ACCOUNTING STANDARD - ------------------------------ On April 22, 2003, the FASB determined that stock-based compensation should be recognized as a cost in the financial statements and that such cost be measured according to the fair value of stock options. On March 31, 2004, the FASB issued an exposure draft on share-based payments, which is a proposed amendment to SFAS No.123. The proposed statement is anticipated to be finalized in 2004 and effective January 1, 2005. The Company will continue to monitor communications on this subject from the FASB in order to determine the impact on the Company's consolidated financial statements. 19 NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES PART II - OTHER INFORMATION Item 1. Legal Proceedings - ---------------------------- In June 2003, the U.S. Department of Commerce notified the Company that it believes the Company may have failed to comply with certain export control requirements in connection with certain equipment sales to Asia. The applicable statutory framework gives the Commerce Department authority to impose civil monetary penalties (up to a maximum of $176,000 based on the agency's preliminary assessment) and other sanctions. The Company responded to the agency's invitation to settle the matter informally and has provided an explanation of the transactions in question and information about the Company's compliance measures. The Company has made a settlement offer, which it has accrued, in an amount significantly lower than $176,000 reflecting the Company's belief that the matter should be settled at a substantially reduced level. While the ultimate outcome of this matter cannot be determined at this time, management believes that it will not have a material effect on the Company's financial condition or liquidity but could have a material effect on the Company's results of operations in any one period. Item 2. Quantitative and Qualitative Disclosures about Market Risk - -------------------------------------------------------------------------- The information required by Item 2 has been disclosed in Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2003. There has been no material change in the disclosures regarding market risk. Item 3. Controls and Procedures - ----------------------------------- As required by Rule 13a-15 under the Exchange Act, an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures was conducted by the Company's Chief Executive Officer along with the Company's Chief Financial Officer. Based upon that evaluation, the Company's Chief Executive Officer and the Company's Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective as of the end of the period covered by this Report. There have been no significant changes in the Company's internal controls or in other factors, which could significantly affect internal controls during the period ended April 3, 2004. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company's Chief 20 Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding disclosure. Item 4. Exhibits and Reports on Form 8-K - ------------------------------------------------ The exhibits to this report are listed on the Exhibit Index included elsewhere herein. No reports on Form 8-K have been filed during the quarter ended April 3, 2004 with the exception of the report filed on March 9, 2004 referencing a press release announcing the appointment of Joel Jaffe as a director of the Company. 21 ------ SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NEW BRUNSWICK SCIENTIFIC CO INC. ------------------------------------ (Registrant) Date: April 30, 2004 /s/ David Freedman -------------------- David Freedman Chairman and Chief Executive Officer Date: April 30, 2004 /s/ Samuel Eichenbaum ----------------------- Samuel Eichenbaum Vice President, Finance, Chief Financial Officer and Treasurer (Principal Accounting Officer) 22 EXHIBIT 31 CERTIFICATION I, David Freedman, certify that: 1. I have reviewed this quarterly report on Form 10-Q of New Brunswick Scientific Co., Inc. (the "Registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: April 30, 2004 /s/ David Freedman -------------------- Chairman and Chief Executive Officer 23 EXHIBIT 31 CERTIFICATION I, Samuel Eichenbaum, certify that: 1. I have reviewed this quarterly report on Form 10-Q of New Brunswick Scientific Co., Inc. (the "Registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: April 30, 2004 /s/ Samuel Eichenbaum ----------------------- Vice President, Finance, Chief Financial Officer and Treasurer 24 EXHIBIT 32 CERTIFICATIONS -------------- I, David Freedman, hereby certify that the periodic report being filled herewith containing financial statements fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (16 U.S. C. 78m or 78o(d)) and that the information contained in said periodic report fairly presents, in all material respects, the financial condition and results of operations of New Brunswick Scientific Co., Inc. for the period covered by said periodic report. April 30, 2004 /s/ David Freedman -------------------- Name: David Freedman Chairman and Chief Executive Officer I, Samuel Eichenbaum, hereby certify that the periodic report being filled herewith containing financial statements fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (16 U.S. C. 78m or 78o(d)) and that the information contained in said periodic report fairly presents, in all material respects, the financial condition and results of operations of New Brunswick Scientific Co., Inc. for the period covered by said periodic report. April 30, 2004 /s/ Samuel Eichenbaum ----------------------- Name: Samuel Eichenbaum Vice President, Finance, Chief Financial Officer and Treasurer A signed original of this written statement required by Section 906 has been provided to New Brunswick Scientific Co., Inc. and will be retained by New Brunswick Scientific Co., Inc. and furnished to the Securities and Exchange Commission or its staff upon request. 25 - ------ NEW BRUNSWICK SCIENTIFIC CO., INC. AND SUBSIDIARIES EXHIBIT INDEX -------------
Exhibit No. Exhibit Page No. - ----------- ------------------------------------------------------- 31. . . . . Section 302 Certification - David Freedman 21 31. . . . . Section 302 Certification - Samuel Eichenbaum 22 32. . . . . Section 906 Certifications 23 3b Restated By-Laws of the Company, as amended and restated
26 EX-3.B 2 doc2.txt 19 NEW BRUNSWICK SCIENTIFIC CO., INC. BY-LAWS (AS AMENDED AND RESTATED ON MARCH 8, 2004) ARTICLE I OFFICES SECTION 1. Registered Office. The registered office of the corporation ----------------- shall be at 44 Talmadge Road, Edison, New Jersey. SECTION 2. Other Offices. The corporation may have such other offices ------------- either within or without the state as the Board of Directors may designate or as the business of the corporation may require from time to time. ARTICLE II SEAL SECTION 1. The corporate seal shall have inscribed thereon the name of the corporation, the year of its creation and the words "Corporate Seal, New Jersey". ARTICLE III SHAREHOLDERS' MEETING SECTION 1. Meeting Location. All meetings of the shareholders shall be ---------------- held at the corporation's registered office, or at such other place or places either within or without the State of New Jersey as may from time to time be selected by the Board of Directors. SECTION 2. Annual Meeting. The annual meeting of shareholders shall be -------------- held on the fourth Tuesday of May in each year if not a 1egal holiday, and if a legal holiday, then on the next full business day following at 10:00 o'clock A.M. when they shall elect, by a plurality vote, persons to serve on the Board of Directors, and transact such other business as may properly be brought before the meeting. 1 SECTION 3. Scheduling Annual Meeting Date. If the annual meeting for ------------------------------- election of directors in not held on the day designated therefor, the directors shall cause the meeting to be held as soon thereafter as convenient. SECTION 4. Special Meetings. Special meetings of the shareholders may ---------------- be called by the Chairman of the Board or the Board of Directors. SECTION 5. Notice of Shareholders' Meetings. Written notice of the ----------------------------------- time, place and purpose or purposes of every meeting of shareholders shall be given not less 10 days than nor more than sixty days before the date of the meeting, either personally or by mail, to each shareholder of record entitled to vote at the meeting, unless a greater period of notice is required by statute in a particular case. SECTION 6. Fixing Record Date. When a meeting is adjourned to another ------------------- time or place, it shall not be necessary to give notice of the adjourned meeting if the time and place to which the meeting is adjourned are announced at the meeting at which the adjournment is taken and at the adjourned meeting only such business is transacted as might have been transacted at the original meeting. However, if after the adjournment, the Board fixes a new record date for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record on the new record date. SECTION 7. Waiver of Notice. Notice of a meeting need not be given to ---------------- any shareholder who signs a waiver of such notice, in person or by proxy, whether before or after the meeting. The attendance of any shareholder at a meeting, in person or by proxy, without protesting prior to the conclusion of the meeting the lack of notice of such meeting, shall constitute a waiver of notice by him. 2 SECTION 8. Waiver of Waiting Period. Whenever shareholders are --------------------------- authorized to take any action after the lapse of a prescribed period of time, the action may be taken without such lapse if such requirement is waived in writing, in person or by proxy, whether before or after the meeting, taking of such action by every shareholder entitled to vote thereon and at the date of the taking of such action. SECTION 9. Fixing Record Date. For the purposes of determin-ing the -------------------- shareholders entitled to notice of, or to vote, at any meeting of shareholders or any adjournment thereof, or for the purpose of determining shareholders entitled to receive payment of any dividend or allotment of any right, or for the purpose of any other action, the Board may fix in advance, a date as the record date for any such determination of shareholders. Such date shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. If no record date is fixed, the record date for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders shall be the close of business on the day next preceding the day on which notice in given, or, if no notice is given, the day next preceding the day on which the meeting is held, and the record date for determining shareholders for any other purpose shall be at the close of business on the date on which the resolution of the board relating thereto is adopted. When a determination of shareholders of record entitled to notice of or to vote at any meeting of shareholders, has been made as provided in this Section, such determination shall apply to any adjournment thereof, unless the Board fixes a new record date under this section for the adjourned meeting. 3 SECTION 10. Voting List. The officer or agent having charge of the ------------ stock transfer books for shares of the corporation shall make and certify a complete list of shareholders entitled to vote at a shareholders' meeting or any adjournment thereof. Such list shall be arranged a1phabetically within each class and series, with the address of, and the number of shares held by each shareholder; be produced at the time and place of the meeting; be subject to the inspection of any shareholder during the whole time of the meeting; and be prima facie evidence as to who are the shareholders entitled to examine such list or to vote at any meeting. If the requirements of this Section have not been complied with, the meeting shall, on the demand of any shareholder in person or by proxy, be adjourned until the requirements are complied with. Failure to comply with the requirements of this section shall not affect the validity of any action taken at such meeting prior to the making of any such demand. SECTION 11. Quorum. Unless otherwise provided in the Certificate of ------ Incorporation or by statute, the holders of shares entitled to cast a majority of the votes at a meeting shall constitute a quorum at such meeting. The shareholders present in person or by proxy at a duly organized meeting may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. Less than a quorum may adjourn the meeting. Whenever the holders of any class or series of shares are entitled to vote separately on a specified item of business, the provisions of this section shall apply to determining the presence of a quorum of such class or series for the transaction of such specified item of business. SECTION 12. Voting. Each holder of shares with voting rights shall be ------ entitled to one vote for each such share registered in his name, except as otherwise provided in the Certificate of Incorporation. Whenever any action, other than the election of directors, is to be taken by vote of the 4 shareholders, it shall be authorized by a majority of the votes cast at a meeting of shareholders by the holders of shares entitled to vote thereof, unless a greater plurality is required by statute or by the Certificate of Incorporation. Every shareholder entitled to vote at a meeting of shareholders may authorize another person or persons to act for him by proxy. Every proxy shall be executed in writing by the shareholder or his agent. No proxy shall be valid after eleven months from the date of its execution, unless a longer time is expressly provided therein, but in no event shall a proxy be valid after three years from the date of execution. Unless it is coupled with an interest, a proxy shall be revocable at will. A proxy shall not be revoked by the death or incapacity of the shareholder, but such proxy shall continue in force until revoked by the personal representative or guardian of the shareholder. The presence at any meeting of any shareholder who has given a proxy shall not revoke such proxy unless the shareholder shall file written notice of such revocation with the secretary of the meeting prior to the voting of such proxy. SECTION 13. Election of Directors. At each election of directors every --------------------- shareholder entitled to vote at such election shall have the right to vote the number of shares owned by him for as many persons as there are directors to be elected and for whose election he has a right to vote. Directors shall be elected by a plurality of the votes cast at the election, except as otherwise provided by the Certificate of Incorporation. A sufficient number of candidates for election as directors of the corporation shall be "independent" directors (as defined in applicable regulations of the United States Securities and Exchange Commission ("SEC") and/or in applicable listing standards of NASDAQ or other self-regulatory organization on whose market the shares of the common stock of the corporation are listed, as the case may be) so as to permit the 5 composition of the Board to meet applicable regulations and/or listing standard percentage requirements for independent directors. Elections of directors need not be by ballot unless a shareholder demands election by ballot at the election and before the voting begins. SECTION 14. Inspectors of Election. The Board may, in advance of any ----------------------- shareholder meeting, appoint one or more inspectors to act at the meeting or any adjournment thereof. If inspectors are not so appointed or shall fail to qualify, the person presiding at the meeting may, and on the request of any shareholder entitled to vote thereat shall, make such appointment. Each inspector, before entering upon the discharge of his duties shall take and sign an oath faithfully to execute the duties of inspector at the meeting with strict impartiality and according to the best of his ability. No person shall be elected a director at a meeting at which he has served as an inspector. ARTICLE IV DIRECTORS SECTION 1. The business of this corporation shall be conducted by its Board of Directors, which shall consist of not less then three nor more than 10 directors, and the exact number of directors shall be determined from time to time by resolution adopted by affirmative vote of a majority of the entire Board of Directors. A sufficient number of the directors shall be independent directors (as defined in applicable regulations and/or listing standards, as applicable as described in Article III, Section 13 of these By-Laws) so that the composition of the Board meets applicable regulatory and/or listing standard percentage requirements for independent directors. The directors shall be divided into three classes designated Class I, Class II, and Class III. Each class shall consist as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. At each annual 6 meeting of shareholders, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term. It the number of directors is changed, any increase and decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. Any vacancy on the Board of Directors that results from an increase in the number of directors may be filled by a majority of the Board of Directors then in office, although less than a quorum, or by a sole remaining director. Any directors elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of his predecessor. SECTION 2. Regular Meetings. Regular meetings of the Board shall be ----------------- held without notice immediately after the Annual Meeting of Shareholders at the registered office of the corporation, or at such other time and place as shall be determined by the Board. SECTION 3. Quorum. A majority of the entire Board, or of any committee ------ thereof, as then constituted, shall constitute a quorum for the transaction of business, and the act of the majority present at a meeting at which a quorum is present shall be the act of the Board or of the committee. SECTION 4. Action Without Meeting. Any action required or permitted to ---------------------- be taken pursuant to authorization voted at a meeting of the Board or any committee thereof, may be taken without a meeting if, prior or subsequent to 7 such action, all members of the Board or of such committee, as the case may be, consent thereto in writing and such written consents are filed with the minutes of the proceedings of the Board or committee. SECTION 5. Special Meetings. Special meetings of the Board may be ----------------- called by the Chairman of the Board, or the majority of the Board on three days' notice to each director, personally, by mail, facsimile transmission, e-mail or other reasonable method. SECTION 6. Waiver of Notice. Notice of any meeting need not be given ----------------- to any director who signs a waiver of notice, whether before or after the meeting. The attendance of any director at a meeting without protesting prior to the conclusion of the meeting the lack of notice of such meeting shall constitute a waiver of notice by him. Neither the business to be transacted at, nor the purposes of, any meeting of the Board need be specified in the notice or waiver of notice of such meeting. Notice of an adjourned meeting need not be given if the period of adjournment does not exceed ten days in any one adjournment. SECTION 7. Executive Sessions of the Board of Directors. Executive ----------------------------------------------- sessions of the Board of Directors may be called at any time by at least two independent directors (as described in Article III, Section 13) on three day's notice to each other independent director, personally, by mail, facsimile transmission, e-mail or other reasonable method. The independent directors may also establish a schedule of pre-called executive sessions of the independent directors which may, but need not, be held before or after a regular meeting of the Board. The independent directors may adopt procedures for conducting executive sessions and may make arrangements they deem appropriate to provide some record of their sessions. Notice of any executive session need not be given to any independent director who signs a waiver of notice, whether before or after the session. Notice of an executive session need not specify the purpose of, or topics to be covered at, the executive session. Attendance by an 8 independent director at an executive session, without protesting the lack of notice of the session, shall constitute a waiver of notice by that independent director. SECTION 8. Powers of Directors. The Board of Directors shall manage --------------------- the business of the corporation. In addition to the powers and authorities expressly conferred upon them by these By-Laws, the Board may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by these By-Laws directed or required to be exercised or done by the shareholders. SECTION 9. Compensation of Directors. The Board, by the affirmative --------------------------- vote of a majority of directors in office and irrespective of any personal interest of any of them, shall have authority to establish reasonable compensation of directors for services to the corporation as directors, officers, or otherwise. SECTION 10. Committees of the Board of Directors. ----------------------------------------- A. The Board of Directors, by resolution adopted by a majority of the entire Board, shall appoint from among its members the following committees: 1. An Executive Committee, which shall be comprised of at least three members of the Board of Directors, one of whom shall be the Chairman of the Board. The Executive Committee shall be the decision-making body of the Board of Directors during the period between the meetings of the Board of Directors. Board approval of the actions of the Executive Committee shall not be required. 2. An Audit Committee, which shall be comprised of at least three members of the Board of Directors each of whom is an independent director and who otherwise meet applicable SEC regulatory requirements and/or listing 9 standard requirements of any self-regulatory organization on whose market the shares of common stock of the corporation are listed. Each member of the Audit Committee shall meet requirements for service on an audit committee set forth in applicable SEC regulations and/or self-regulatory organization listing standards. In addition, the Audit Committee shall have as a member one or more Audit Committee Financial Experts as required under applicable SEC regulations and/or self-regulatory listing standards. The Audit Committee shall be responsible for matters pertaining to the corporation's financial statements and internal disclosure and financial controls and otherwise discharge the obligations imposed on an audit committee by applicable SEC regulations and/or self-regulatory listing standards. 3. A Nominating Committee, which shall be comprised of at least three members of the Board of Directors each of whom is an independent director and who otherwise meet applicable SEC regulatory requirements and/or listing standard requirements of any self-regulatory organization on whose market the shares of common stock of the corporation are listed. The Committee shall evaluate prospective candidates for election to the Board of Directors and recommend nominees for consideration at the annual meeting. 4. A Corporate Governance and Compensation Committee, which shall be comprised of at least three members of the Board of Directors each of whom is an independent director and who otherwise meet applicable SEC regulatory 10 requirements and/or listing standard requirements of any self-regulatory organization on whose market the shares of common stock of the corporation are listed. The Committee shall have responsibility for reviewing all corporate governance matters, including both governance structures and personnel, and shall make recommendations to the Board of Directors responsive to governance matters, including those required by regulatory changes. The Committee shall also review the corporation's policies concerning employment, compensation and deferred compensation including pension benefits and stock option plans, and make recommendations as to the application and modifications to such policies. B. If deemed advisable, the Board of Directors, by resolution adopted by a majority of the entire Board, may appoint from among its members additional committees, with the members and the purpose of each such committee to be established by resolution of the Board. C. Each of the committees established under subparagraphs A and B shall have and may exercise all of the authority of the Board, to the extent granted to each such committee, except that no such committee shall: 1. make, alter or repeal any By-Law of the corporation; 2. elect or appoint any director, or remove any officer or director; 3. submit to shareholders any action that requires shareholders' approval; or 4. amend or repeal any resolution theretofore adopted by the Board. D. Action taken at a meeting of any committee established under subparagraphs A and B shall be reported to the Board at its next meeting following such committee meeting; except that, (i) when the meeting of the Board 11 is held within two days after the committee meeting, such report shall, if not made at the first meeting, be made to the Board at its second meeting following such committee meeting and (ii) actions taken by the Audit Committee need not be reported if such a report would, in the reasonable judgment of the Audit Committee, compromise the Audit Committee in discharging its obligations under applicable SEC regulations and/or self-regulatory organization listing standards. SECTION 11. Conduct of Meetings. Any meeting of the Board, an --------------------- executive session of independent directors, or a meeting of any committee may include participation by any director, independent director or committee member, as the case may be, not physically present who is able to participate in a meaningful way in all or any part of the meeting through the use of means of communication to the fullest extent authorized by New Jersey corporation law. ARTICLE V OFFICERS SECTION 1. Officers. The officers of the corporation shall consist of --------- a Chairman of the Board, a President, a Secretary, a Treasurer, and, if desired, a Vice Chairman of the Board, a Chief Executive Officer, one or more Vice Presidents, and such other officers as may be required. They shall be annually chosen by the Board of Directors and shall hold office for one year and until their successors are chosen and quality. The Board may also choose such employees and agents as it shall deem necessary, who shall hold their offices for such terms and shall have such authority and shall perform such duties as from time to time shall be prescribed by the Board. Any two or more offices may be held by the same person but no officer shall execute, acknowledge, or verify any instrument in more than one capacity if such instrument is required by law or by these By-Laws to be executed, acknowledged, or verified by two or more officers. 12 SECTION 2. Compensation. The compensation of all executive officers ------------- (as specified in SEC regulations) of the corporation shall be recommended by the Compensation Committee and approved by the Board of Directors. The compensation of all other officers and employees shall be approved by management of the corporation. SECTION 3. Removal. Any officer elected or appointed by the Board of ------- Directors may be removed by the Board with or without cause. An officer elected by the shareholders may be removed, with or without cause, only by vote of the shareholders but his authority to act as an officer may be suspended by the Board for cause. SECTION 4. Chairman of the Board. The Chairman of the Board shall ------------------------ preside at all meetings of the shareholders and of the directors. The Chairman of the Board shall lead the Board of Directors in managing the business of the corporation including devising strategies for profitable growth, The Chairman of the Board shall chair the executive committee and shall serve as an Ex Officio ---------- member of other committees established by the Board, except those committees which by applicable regulation of the SEC and/or applicable listing standards of a self-regulatory organization on whose market the shares of common stock of the corporation are listed, may only be composed of independent directors. SECTION 5. The President. The President shall manage the affairs of the ------------- corporation in accordance with the law, the corporate By-Laws and the policies and procedures established by the Board, to optimize growth, profitability and shareholders' equity of the corporation. The President shall report to the Board via the Chairman of the Board. SECTION 6. Secretary. The secretary shall keep full minutes of all --------- meetings of the shareholders and directors; he may be an Ex-Officio Secretary of the Board of Directors; he shall attend all meetings of the Board (but not executive sessions of independent directors), shall act as a clerk thereof, and 13 record all votes and the minutes or all proceedings in a book to be kept for that purpose; and shall perform like duties for the standing committees when required. He shall give or cause to be given, notices of all meetings of the shareholders of the corporation and of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or the Chairman of the Board, under whose supervision he shall be. SECTION 7. Treasurer. The Treasurer shall deposit all moneys and other --------- valuable effects in the name and to the credit of the corporation, in such depositories as may be designated by the Board or Directors. He shall disburse the funds of the corporation as may be ordered by the Board, taking proper vouchers for such disbursements, and shall render or cause the Vice President, Finance to render to the Chairman of the Board, President, and Directors, at the regular meetings of the Board, or whenever they may require it, an account of all his transactions as Treasurer. SECTION 8. Vice President, Finance. The Vice President, Finance is the ----------------------- Chief Financial Officer and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation. He shall render to the Chairman of the Board, President, and Direc-tors, at the regular or any special meetings of the Board, an account of the financial condition of the corporation, and shall submit a full financial report at the annual meeting of the shareholders. SECTION 9. Additional Officers. Additional officers may be appointed -------------------- by the Board, including Vice Chairman of the Board, Chief Operating Officer, one or more Vice Presidents, and such other officers as may be required. They shall have the responsibility and authority defined in their position descriptions adopted by the Board's resolution in creating such positions. 14 ARTICLE VI VACANCIES, RESIGNATION, REMOVAL SECTION 1. Director. Subject to further provision in the Certificate -------- of Incorporation, any directorship not filled at the annual meeting and any vacancy, however caused, occurring on the Board may be filled by the affirmative vote of a majority of the remaining directors even though less than a quorum of the Board, or by a sole remaining director. When filling a vacancy, the Board shall give due regard to applicable SEC regulatory and/or self-regulatory listing standard percentage requirements for independent directors (as described in Article III, Section 13) on the Board. A director so elected by the Board shall hold office until the next succeeding annual meeting of shareholders and until his successor shall have been elected and qualified. SECTION 2. Officers. Any vacancy occurring among the officers, however -------- caused, may be filled by the Board of Directors. SECTION 3. Resignations. Any director or other officer may resign by ------------ written notice to the corporation. The resignation shall be effective upon receipt thereof by the corporation or at such subsequent time as shall have been specified in the notice of resignation. SECTION 4. Removal. So long as the Certificate of Incorpora-tion so ------- provides, the Board of Directors shall have the power to remove directors for cause and to suspend directors pending a final determination that cause exists for removal. In exercising this power, the Board shall carefully consider the opinion(s) of all independent directors (as described in Article III, Section 13) who are not the subject(s) of the proposed removal. ARTICLE VII SHARE CERTIFICATES SECTION 1. Form. The share certificates of the corporation shall be ---- numbered and registered in the transfer records of the corporation as they are 15 issued. They shall bear the corporate seal, or a facsimile thereof, and be signed by the Chairman of the Board and the Secretary. SECTION 2. Transfers. All transfers of the shares of the corporation --------- shall be made upon the books of the corporation by the holder of the shares in person, or by his legal representative. Share certificates shall be surrendered, properly endorsed and canceled at the time of transfer. SECTION 3. Lost Certificates. In the event that a share certificate ------------------ shall be lost, destroyed or mutilated, a new certificate may be issued therefor upon such terms and indemnity to the corporation as the Board of Directors may prescribe. ARTICLE VIII BOOKS AND ACCOUNTS' SECTION 1. Books and Records. The corporation shall keep books and ------------------- records of account and minutes of the proceedings of the shareholders, Board of Directors and executive committee, if any. Such books, records and minutes may be kept outside this State. The corporation shall keep at its registered office, or at the office of a transfer agent in this State, a record or records containing the names and addresses of all shareholders, the number, class and series of shares held by each and the dates when they respectively became the owners of record thereof, except that in the case of shares listed on a national securities exchange, the records of the holders of such shares may be kept at the office of a transfer agent within or without this State. SECTION 2. Inspection. Any person who shall have been a shareholder of ---------- record of the corporation for at least six months immediately preceding his demand, or any person holding, or so authorized in writing by the holders of, at least five percent of the outstanding shares of any class, upon at least five days' written demand shall have the right for any proper purpose to examine in 16 person or by agent or attorney, during usual business hours, the minutes of the proceedings of the shareholders and record of shareholders, and to make extracts therefrom, at the places where the same are kept. ARTICLE IX MISCELLANEOUS PROVISIONS SECTION 1. Monetary Disbursements. All checks or demands for money and ---------------------- notes of the corporation shall be signed by such officer or officers as the Board of Directors may from time to time designate. SECTION 2. Fiscal Year. The fiscal year of the corporation shall begin ----------- on January 1 of each calendar year or on the date otherwise selected from time to time by the Board of Directors. SECTION 3. Dividends. The Board of Directors may declare and pay --------- dividends upon the outstanding shares of the corporation from time to time and to such extent as they deem advisable, in the manner and upon the terms and conditions provided by statute and the Certificate of Incorporation. SECTION 4. Reserve. Before payment of any dividend there may be set ------- aside such sum or sums as the directors, from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interests of the corporation, and the directors may abolish any such reserve in the manner in which it was created. SECTION 5. Giving Notice. Whenever written notice is required to be -------------- given to any person, it may be given to such person either personally or by sending a copy thereof through the mail. If notice is given by mail, the notice 17 shall be deemed to be given when deposited in the mail addressed to the person to whom it is directed at his last address as it appears on the records of the corporation, with postage prepaid thereon, or in the event no address is available, the notice shall be deemed to have been given when addressed to general delivery in the area where the person is suspected of residing or when the corporation has made any other reasonable attempt to give notice to such person. Such notice shall specify the place, day and hour of the meeting, and in the case of a shareholders' meeting, the general nature of the business to be transacted. In computing the period of time for the giving of any notice required or permitted by statute, or by the Certificate of Incorporation or these By-Laws or any resolution of directors of shareholders, the day on which the notice is given shall be excluded, and the day on which the matter noticed is to occur shall be included. Section 6. Gender Designation. The words "He" and "His" when used ------------------------------------------------------- with respect to any person shall include males and females. - -------------------------------------------------------------------- ARTICLE X INDEMNIFICATION SECTION 1. The corporation shall indemnify to the full extent permitted by law any person made, or threatened to be made, a party to an action, suit or proceeding (whether civil, criminal, administrative or investigative), by reason of the fact that he is or was a director, officer or employee of the corporation or serves or served any other enterprise at the request of the corporation. 18 ARTICLE XI LOANS TO OFFICERS, DIRECTORS OR EMPLOYEES SECTION 1. The corporation may lend money to, or guarantee any obligation of, or otherwise assist, any non-executive officer (as determined under applicable SEC regulations) or other employee of the corporation or of any subsidiary, whenever, in the judgment of the directors, such loan, guarantee or assistance, may reasonably be expected to benefit the corporation. The loan, guarantee or other assistance may be made with or without interest, and may be unsecured, or secured in such manner as the Board shall approve including, without limitation, a pledge of shares of the corporation, and may be made upon such other terms and conditions as the board may determine. ARTICLE XII AMENDMENTS SECTION 1. The Board of Directors shall have the power to make, alter and repeal these By-Laws, but By-Laws made by the Board may be altered or repealed, and new By-Laws may be made, by the shareholders. 19 -----END PRIVACY-ENHANCED MESSAGE-----