-----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, Bxbmt5kcl3cs8YoKDnNtJsB7JFyil1yZQUSQD7RB5DLvuR/o2AJEnkspDptiKIDY kF2ao/1nhQYUmJ5aP4+IPg== 0000085608-98-000002.txt : 19980331 0000085608-98-000002.hdr.sgml : 19980331 ACCESSION NUMBER: 0000085608-98-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: MATEC CORP/DE/ CENTRAL INDEX KEY: 0000085608 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES & ROLLING & FINISHING MILLS [3310] IRS NUMBER: 060737363 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-04184 FILM NUMBER: 98579372 BUSINESS ADDRESS: STREET 1: 75 SOUTH ST CITY: HOPKINTON STATE: MA ZIP: 01748 BUSINESS PHONE: 5084359039 MAIL ADDRESS: STREET 1: 75 SOUTH STREET CITY: HOPKINTON STATE: MA ZIP: 01748 FORMER COMPANY: FORMER CONFORMED NAME: RSC INDUSTRIES INC DATE OF NAME CHANGE: 19840515 FORMER COMPANY: FORMER CONFORMED NAME: REEVES INDUSTRIES INC DATE OF NAME CHANGE: 19710520 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K (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 1-4184 ------ MATEC Corporation ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 06-0737363 - ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification number) 75 South St., Hopkinton, Massachusetts 01748 - -------------------------------------- ---------- (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: (508) 435-9039 -------------- Securities registered pursuant to Section 12 (b) of the Act: Title of each class: Name of each exchange on which registered: -------------------- ------------------------------------------ Common Stock $.05 par value American Stock Exchange Securities registered pursuant to Section 12 (g) of the Act: None 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 (Sec.229.405 of this chapter) is not contained herein, and will not be contained, to the best of 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. [X] -1- Aggregate market value of voting stock held by non-affiliates: $5,715,468 (computed by reference to the last sales price of such common stock on March 23, 1998 as reported in the American Stock Exchange consolidated trading index). Number of shares of common stock outstanding at March 23, 1998: 2,733,631 Documents incorporated by reference: Annual Report to Stockholders for the year ended December 31, 1997: Parts I, II and IV Proxy Statement for the 1998 annual meeting of stockholders: Part III -2- PART I Item 1. Business - ----------------- General - ------- MATEC Corporation ("MATEC" or "Registrant") is incorporated under the laws of Delaware. As used herein the term "Company" refers to MATEC and its subsidiaries. Industry Segments - ----------------- The Company's business operates in two segments: Electronics and Instruments, and is conducted primarily through its three principal wholly owned operating subsidiaries. In May 1997, the Company sold its AcoustoSizer(TM) product line in the Instruments segment. For further information, see Note 3 of the Notes to Consolidated Financial Statements in the 1997 Annual Report to Stockholders, which Note is incorporated by reference. During 1997 the Company had two real estate complexes, located in Delaware and Massachusetts, which were operated by its wholly owned subsidiaries, RSC Realty Corporation and MEKontrol, Inc., respectively. In February 1998, the Company sold its real estate complex located in Delaware. For further information, see Note 16 of the Notes to Consolidated Financial Statements in the 1997 Annual Report to Stockholders, which Note is incorporated by reference. During the third quarter of 1997, the Company adopted a plan to sell its Bergen Cable Technologies, Inc. ("BCT") subsidiary. The Company signed a letter of intent in December 1997 to sell assets and certain liabilities for approximately $7.5 million in cash and a $1.25 million note receivable. The transaction is subject to the negotiation and execution of a definitive purchase agreement, the approval of the Company's Board of Directors, and the buyers obtaining certain financing. The Company expects to realize a gain on the disposition of BCT. The operating results of BCT have been reported as discontinued operations, and previously reported financial statements have been restated to reflect this disposition. For further information, see Note 2 of the Notes to Consolidated Financial Statements in the 1997 Annual Report to Stockholders, which Note is incorporated by reference. Financial information about industry segments is set forth in Note 13 of the Notes to Consolidated Financial Statements in the 1997 Annual Report to Stockholders, which Note is incorporated by reference. -3- Principal Products and Services - ------------------------------- Electronics ----------- Valpey-Fisher Corporation ("Valpey") is involved in the design, production, import, and sale of quartz crystals and oscillators. In addition, Valpey manufactures and provides a wide variety of piezoelectric products and related services. The quartz crystals and oscillators are used in commercial, industrial, military, and aerospace products which rely on electronic rather than mechanical control of their function. To assure precise timing and control, the electronic circuitry used in these products incorporates quartz crystals and oscillators as integral components. Except for more costly atomic standards, quartz crystals and oscillators continue to be one of the most stable references for accurately controlling electronic frequencies and time. Valpey's products and capabilities include: - high-volume, low-cost crystals and oscillators for consumer and commercial applications, - high-reliability, precision crystals and oscillators used in sophisticated industrial, military and aerospace applications. - ultra-high frequency crystals used in crystal filters and oscillators for OEM telecommunications and microwave applications. Applications for Valpey's products include computers, computer peripheral equipment such as modems and high resolution graphics terminals, microprocessor-based instrumentation, communications equipment, and defense and aerospace electronics. A significant portion of the high-volume, low-cost product sales is derived from imported products. Crystal and oscillator sales accounted for 69%, 61%, and 61% of the Company's sales for the years ended December 31, 1997, 1996 and 1995, respectively. Piezoelectric products manufactured by Valpey include ultrasonic transducer crystals and assemblies, surface acoustic wave (SAW) substrates, and precision quartz crystals. In addition, Valpey provides a variety of related services to the electronic and optical markets of the research, commercial, industrial, medical, and aerospace industries. Products are sold by its direct sales personnel, independent manufacturers' representatives and distributors. Cultured quartz, which is available from a number of domestic and foreign suppliers, is the principal raw material. Valpey imports products from various Far East (including China, Japan, South Korea, and Taiwan) suppliers for resale to its customers. Historically, Valpey has not experienced significant quality or delivery problems with these suppliers. In order to eliminate the effects of currency fluctuations, Valpey purchases the product in U.S. dollars. However, Valpey is subject to the inherent risks involved in international trade such as political instability and restrictive trade policies. -4- Instruments ----------- The Company's Instruments segment includes Matec Applied Sciences, Inc. ("MASI") and Matec Instruments, Inc.("MI"). These subsidiaries develop and manufacture computer-controlled ultrasonic test equipment to perform real-time measurements and analysis. The Instruments segment accounted for 24%, 33%, and 32% of the Company's sales for the years ended December 31, 1997, 1996 and 1995, respectively. The instruments are sold in the USA mainly through each subsidiary's sales personnel, while foreign sales are performed through independent manufacturers' representatives. Crystal Biotech (TN) products are sold worldwide exclusively through one distributor. Export sales accounted for 48%, 31%, and 49% of this segment's sales for the years ended December 31, 1997, 1996 and 1995, respectively. Export sales are primarily shipped to customers located in Europe, the Pacific Rim and Canada. Product is sold in U.S. dollars and may be shipped on open account (based on credit history and rating), through a letter of credit, or by payment of cash in advance. The principal raw materials used are electronic components. Generally, most of the components are available from a number of sources. However, a few electronic components are purchased from single suppliers. The Company believes, however, that if necessary, alternate sources of supply for these items could be developed and delays in obtaining alternate sources would not have a material adverse effect on its business. Matec Applied Sciences, Inc. ("MASI") ------------------------------------- MASI produces and sells instruments that evaluate the stability of colloidal dispersions (small particles in suspension) for fundamental and applied research in both laboratory and industrial applications. Currently, MASI sells two instruments: the ESA-8000 ("ESA") and the CHDF 2000 Particle Sizer ("CHDF"). The ESA system measures the surface electrical charge, particle mobility, pH, conductivity, and temperature of colloidal suspensions in both aqueous and non-aqueous dispersions. The computer-controlled instrument provides on-line, real time measurements and on-screen plotting. The major markets for this system include industries involved in the research and processing of pigments, minerals and ores, ceramics and petrochemicals. During the second quarter of 1996, MASI introduced and began shipping its CHDF, an upgraded and newer version of the original CHDF 1100 Particle Sizer that was introduced in 1989. The CHDF performs high-resolution measurements of particle size distributions in the size range of 0.015 - 1.1 microns. The instrument operates using Windows software and may be used with an external autosampler The primary markets for this instrument are the latex, ceramics, pharmaceutical and pigment industries. -5- In May 1997, the Company sold its third instrument product line, the AcoustoSizer(TM). For further information, see Note 3 to the Notes to Consolidated Financial Statements in the 1997 Annual Report to Stockholders, which Note is incorporated by reference. The AcoustoSizer(TM) was developed by MASI in a joint effort with Colloidal Dynamics Pty. Ltd. and the University of Sydney, both in Australia. Matec Instruments, Inc. ("MI") ------------------------------ MI designs, manufactures and sells: - high power ultrasonic instrumentation and systems for the non-destructive evaluation (NDE) and non-destructive testing (NDT) of materials. - Doppler blood flow, and heart, vascular and cell function instruments, under the Crystal Biotech trade name, used mainly in cardiovascular medical research. - ultrasonic transducers and probes that allow these systems to measure flow in blood vessels as small as 0.3 mm in diameter and heart functions in all venues. During the last four years, MI's main focus has been selling custom designed systems used to inspect for and detect flaws in materials. These systems may be integrated with a customer's manufacturing or quality control process. MI believes that its future growth will come from sales of these custom systems that combine ultrasonic technology with custom software, hardware and mechanical design. MI's also continues to sell a line of standard instrumentation to the NDE/NDT market. Instrumentation products for the NDE/NDT markets include various custom Immersion Tank Imaging Test Systems, a family of ultrasonic PC plug-in board instruments and several older, manually and computer controlled toneburst instruments. Markets for these instruments include government and academic research laboratories, as well as R&D and quality assurance departments in industry. The immersion testing systems are capable of providing high-definition, full-color C-Scan representations of flaws deep within materials and structures. The plug-in boards, when installed in certain computers, provide the user certain material testing features. These systems facilitate the detection of defects and anomalies in metals, ceramics, composites and other types of materials. Industrial applications for the system include the evaluation of bond quality, material integrity and delamination detection. Crystal Biotech's(TN) main products include the CBI-8000 and ultrasonic probes. The CBI-8000, an upgradable and modular instrument introduced in 1994, measures blood flow and myocardial dimensions in laboratory instrumented animals. Modules offered by MI enhance the capabilities of the CBI-8000 to provide the user simultaneous measurements of blood flow, organ dimensions, and tissue thickness and volumetric flow. Primary markets for these products include government and university laboratories, research hospitals and the pharmaceutical industry. -6- Patents and Licenses - -------------------- The Company owns various patents and has additional patent applications pending. While some of these patents are deemed to have value, the business of the Company, in the opinion of management, is not substantially dependent upon such patents, but is primarily based on know-how and market acceptance. In the Instruments segment, MASI is a licensee of certain patented technology relating to its CHDF-2000 product. Under the CHDF agreement, MASI is granted the sole and exclusive worldwide right to manufacture and sell products utilizing certain technology. Seasonal Nature of the Business - ------------------------------- In recent years, the Company has experienced some softness in third quarter sales offset by a rise in fourth quarter sales in the Instruments segment. The Company attributes this third quarter decline to vacations taken during the summer months in the research community (industry, government and university). Working Capital - --------------- There are no unusual working capital requirements relating to the Company's ongoing operations. Customers - --------- During the last three years, no customer accounted for 10% of the Company's consolidated sales. A majority of the sales in the Electronics segment are to the computer and telecommunications markets. Approximately 32% of the Electronics segment sales in 1997 were made to its five largest customers. Approximately 24% of the Instruments segment sales were made to its five largest customers. -7- Backlog Data - ------------ The Company's backlog of firm orders at December 31, 1997 and 1996 are as follows (in thousands): Segment 1997 1996 ------------- ---- ---- Electronics ..................... $3,935 $2,744 Instruments ..................... 643 187 ------ ------ $4,578 $2,931 ====== ====== The increase in the Electronics segment is mainly attributable to the increased demand and improved market conditions in the telecommunications market. The 1997 backlog in the Instruments segment includes orders for 3 custom designed systems for the NDE/NDT market compared to no orders in 1996. In the Instruments segment, management believes that backlog data is not as meaningful, since customer's orders for instruments are normally shipped upon receipt of order. The Company expects to ship all of the December 31, 1997 backlog within 1998. Government Contracts - -------------------- The Company's government contract-related business is in the form of firm fixed-price contracts. These contracts are subject to the standard government contract clause which permits the Government to terminate such contracts at its convenience. In the event of such termination there are provisions to enable the Company to recover its costs plus a fee. The Company does not at this time anticipate the termination of any of its major government contracts. Competition - ----------- In most of the markets in which the Company operates there are numerous competitors. A number of the competitors are larger and have greater resources than the Company. Larger competitors include M-tron Industries, Inc. in the Electronics segment. In addition, in the Electronics segment, foreign competitors, particularly from the Far East, continue to dominate the U.S. markets. However, based on the reasons below, the Company believes it can maintain a competitive position in its businesses. In the Electronics segment, the Company believes its quality, strong design and application engineering, responsive customer service and a willingness to provide specialty small quantity orders will continue to enable the Company to remain competitive in its markets. In the Instruments segment, the Company believes its strong design work, application engineering and quality will enable it to remain competitive in the markets in which it competes. -8- Research and Development - ------------------------ Expenditures for Company-sponsored research and development activities amounted to approximately $124,000, $705,000 and $525,000 in 1997, 1996 and 1995, respectively. Such amounts represent 0.7%, 3.9% and 2.8%, respectively, of sales for such periods. The decrease in 1997 expenses is attributable to reduced expenses in the Instruments segment due to the phasing out of the AcoustoSizer(TM) in the fourth quarter of 1996 and the completion of the new CHDF instrument model in 1996. The increase in expenses from 1996 to 1995 is mainly due to higher expenses in the Instruments segment relating to the new model of the CHDF instrument. Environmental Regulations - ------------------------- To the knowledge of the Company compliance with Federal, state and local provisions which have been enacted or adopted regulating the discharge of materials into the environment or otherwise relating to the protection of the environment, has not had, nor will have a material effect upon capital expenditures, earnings or competitive position. Employees - --------- No employees at the various locations of the Company are represented by a collective bargaining unit. At December 31, 1997, the Company's continuing operations have 102 full-time and 5 part-time employees. The Company considers its relations with its employees to be satisfactory. Foreign and Domestic Operations and Export Sales - ------------------------------------------------ The Company's continuing operations have no foreign operations. Financial information about export sales is set forth in Note 12 of the Notes to Consolidated Financial Statements in the 1997 Annual Report to Stockholders, which Note is incorporated by reference. -9- Item 2. Properties - ------- ---------- The Company has the following facilities, each of which contains office and manufacturing space and all of which are owned (except as noted). Approximate Location Square Feet Primary Use -------- ----------- ----------- Northboro, Massachusetts (1) 35,000 Real Estate Operation Instruments Hopkinton, Massachusetts 32,400 Electronics, Corporate Headquarters (1) Matec Instruments occupies approximately 11,000 square feet, approximately 10,000 square feet is leased and the remaining space is available for rent. In February 1998, the Company sold its facility located in Wilmington, Delaware. See Note 16 of the Notes to Consolidated Financial Statements in the 1997 Annual Report to Stockholders. The Company believes its facilities are suitable for their current uses and are in good repair. The Company believes that its facilities are adequate to satisfy its production capacity needs for the immediate future. Item 3. Legal Proceedings - ------- ----------------- The Company is involved in litigation in the ordinary course of business. The Company believes based on advice of legal counsel that the outcome of these actions should not have a material adverse effect on the financial condition of the Company. Item 4. Submission of Matters to a Vote of Security Holders - ------- --------------------------------------------------- No matters were submitted to a vote of the Registrant's security holders during the last quarter of the fiscal year covered by this report. -10- Executive Officers of the Registrant - ------------------------------------ The names, ages and offices of the executive officers of the Registrant are as follows: Name Age Office ---- --- ------ Ted Valpey, Jr. 65 President and Chief Executive Officer Michael J. Kroll 49 Vice President and Treasurer The term of office for each officer of the Registrant is until the first meeting of the Board of Directors following the Annual Meeting of Stockholders and until a successor is chosen and qualified. Mr. Valpey has been President and Chief Executive Officer of the Registrant since April 28, 1997. He has been Chairman of the Corporation since prior to 1993. Mr. Kroll has been Vice President and Treasurer of the Registrant since prior to 1993. PART II Item 5. Market for the Registrant's Common Stock and Related - ------- ---------------------------------------------------- Stockholder Matters ------------------- The information set forth on the inside front cover of the 1997 Annual Report to Stockholders under the caption "Common Stock Information" is incorporated by reference. Item 6. Selected Financial Data - ------- ----------------------- The information set forth on page 3 of the 1997 Annual Report to Stockholders under the caption "Five Year Financial Summary" is incorporated by reference. Item 7. Management's Discussion and Analysis of Financial - ------- ------------------------------------------------- Condition and Results of Operations ----------------------------------- The information set forth on pages 3 through 5 of the 1997 Annual Report to Stockholders under the caption "Management's Discussion and Analysis" is incorporated by reference. -11- Item 8. Financial Statements and Supplementary Data - ------- ------------------------------------------- The information contained in the Consolidated Financial Statements, Notes to Consolidated Financial Statements and the Independent Auditors' Report appearing on pages 6 through the inside back cover of the 1997 Annual Report to Stockholders is incorporated by reference. Item 9. Disagreements on Accounting and Financial Disclosure - ------- ---------------------------------------------------- None. PART III The information called for by Part III is hereby incorporated by reference from the information set forth and under the headings "Common Stock Ownership of Certain Beneficial Owners and Management", "Election of Directors", and "Executive Compensation" in Registrant's definitive proxy statement for the 1998 Annual Meeting of Stockholders, which meeting involves the election of directors, such definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. In addition, information on Registrant's executive officers has been included in Part I above under the caption "Executive Officers of the Registrant". -12- PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on - -------- ------------------------------------------------------- Form 8-K -------- (a) 1. The following Consolidated Financial Statements are incorporated by reference from the indicated pages of the 1997 Annual Report to Stockholders: Page Number(s) in Annual Report Consolidated Balance Sheets, December 31, 1997 and 1996 .................... 6 Consolidated Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995 ................................. 7 Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 ................................. 8 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1997, 1996 and 1995 ................................. 9 Notes to Consolidated Financial Statements ..... 9-16 Independent Auditors' Report ................... Inside back cover (a) 2. The following schedule to the Consolidated Financial Statements and the Independent Auditors' Report on Schedule are filed as part of this report. Page Number ----------- Independent Auditors' Report ...................... 16 Schedule II - Valuation Reserves .................. 17 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. -13- (a) 3. The exhibits filed in this report or incorporated by reference, listed on the Exhibit Index on page 18, are as follows: Exhibit No. Description ----------- --------------------------------------------- 3. (a) Certificate of Incorporation 3. (c) By-Laws 4. (a) Common Stock Purchase Warrant 10. (a) * 1992 Stock Option Plan 10. (b) * Separation Agreement and General Release 10. (c) * Option Cancellation Agreement 11. Calculation of Earnings Per Share 13. 1997 Annual Report to Stockholders 21. Subsidiaries of the Registrant 23. Independent Auditors' Consent 27. Financial Data Schedule * Management contract or compensatory plan or arrangement required to be filed as an Exhibit pursuant to Item 14(c) of this report. (b) Reports on Form 8-K The Registrant did not file any reports on Form 8-K during the last quarter of its year ended December 31, 1997. -14- SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MATEC Corporation Date: March 27, 1998 By:/s/ Ted Valpey, Jr. ------------------ Ted Valpey, Jr. President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ Ted Valpey, Jr. President, Chief Executive March 27, 1998 - ------------------------ Officer, Chairman of the Board Ted Valpey, Jr. and Director /s/ Michael J. Kroll Vice President and Treasurer - ------------------------ (Principal Financial Officer March 27, 1998 Michael J. Kroll and Principal Accounting Officer) /s/ Eli Fleisher Director March 27, 1998 - ------------------------ Eli Fleisher Director March , 1998 - ------------------------ Robert B. Gill /s/ Lawrence Holsborg Director March 27, 1998 - ------------------------ Lawrence Holsborg /s/ John J. McArdle III Director March 27, 1998 - ------------------------ John J. McArdle III /s/ Robert W. Muir, Jr. Director March 27, 1998 - ------------------------ Robert W. Muir, Jr. /s/ Joseph W. Tiberio Director March 27, 1998 - ------------------------ Joseph W. Tiberio -15- INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders MATEC Corporation Hopkinton, Massachusetts We have audited the consolidated financial statements of MATEC Corporation and subsidiaries as of December 31, 1997 and 1996, and for each of the three years in the period ended December 31, 1997, and have issued our report thereon dated February 23, 1998; such consolidated financial statements and report are included in the MATEC 1997 Annual Report to Stockholders and are incorporated herein by reference. Our audits also included the financial statement schedule of MATEC Corporation and subsidiaries, listed in Item 14. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Deloitte & Touche LLP Boston, Massachusetts February 23, 1998 -16- MATEC Corporation and Subsidiaries ---------------------------------- Schedule II - Valuation and Qualifying Accounts ----------------------------------------------- Additions Balance at Charged to Balance Beginning Costs and at End Description of Period Expenses Deductions of Period ----------- ---------- ---------- ---------- ---------- Allowance for Doubtful Accounts: Year Ended December 31, 1997 $ 85,000 $ (10,089) $ (15,089)(A) $ 90,000 ========= ========= ========= ========= December 31, 1996 $ 129,000 $ 14,705 $ 58,705 (A) $ 85,000 ========= ========= ========= ========= December 31, 1995 $ 134,000 $ (1,737) $ (3,263)(A) $ 129,000 ========= ========= ========= ========= Inventory Reserve: Year Ended: December 31, 1997 $ 980,000 $ 189,072 $ 49,072(B) $1,120,000 ========== ========= ========= ========== December 31, 1996 $ 586,000 $ 543,941 $ 149,941(B) $ 980,000 ========== ========= ========= ========== December 31, 1995 $ 632,000 $ 144,436 $ 190,436(B) $ 586,000 ========== ========= ========= ========== (A) Write-off of uncollectible accounts, net of recoveries. (B) Write-off of inventory. -17- EXHIBIT INDEX ------------- Exhibit No. (inapplicable items are omitted) - ----------- 3. (a) Certificate of Incorporation. Filed herewith. 3. (c) By-Laws (incorporated by reference to Exhibit 3. (c) to Registrant's Form 10-QSB for the quarterly period ended September 29, 1996). 4. Each instrument which defines the rights of holders of long-term debt of Registrant and its subsidiaries under which the amount authorized does not exceed 10% of total assets of Registrant and subsidiaries on a consolidated basis has not been filed as an exhibit to this Annual Report on Form 10-K. Registrant hereby undertakes and agrees to furnish a copy of each instrument to the Securities and Exchange Commission upon request. 4. (a) Common Stock Purchase Warrant dated April 12, 1995 between the Registrant and Massachusetts Capital Resource Company (incorporated by reference to Exhibit 4.(a) on Form 10-Q for the quarterly period ended July 2, 1995. 10. (a) 1992 Stock Option Plan. Filed herewith. 10. (b) Separation Agreement and General Release dated August 26, 1997 between the Registrant and Robert B. Gill. Filed herewith. 10. (c) Option Cancellation Agreement dated October 20, 1997 between the Registrant and Robert B. Gill. Filed herewith. 11. Calculation of Earnings Per Share. Filed herewith. 13. 1997 Annual Report to Stockholders. Filed herewith. 21. Subsidiaries of the Registrant. Filed herewith. 23. Independent Auditors' Consent. Filed herewith. 27. Financial Data Schedule. Filed for electronic purposes only. -18- EX-3 2 CERTIFICATE OF INCORPORATION EXHIBIT 3.(a) CERTIFICATE OF INCORPORATION OF MATEC (DELAWARE) CORPORATION FIRST: The name of the Corporation is MATEC (Delaware) Corporation. SECOND: The address of the registered office of the Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of the registered agent of the Corporation in the State of Delaware at such address is The Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may now or hereafter be organized under the General Corporation Law of the State of Delaware. FOURTH: (a) The total number of shares of all classes of stock which the Corporation shall have authority to issue shall be 11,000,000, of which 10,000,000 shares shall be Common Stock, par value $.05 per share, and 1,000,000 shares shall be Preferred Stock, par value $.10 per share. (b) The shares of Preferred Stock may be issued from time to time in one or more series, with such designations, powers, preferences and relative, participating, optional or other rights, if any, and such qualifications, limitations or restrictions thereon, as permitted by law and as the Board of Directors shall from time to time provide for and fix by resolution or resolutions duly adopted, including, without limitation, voting powers, if any (including multiple or fractional votes per share), dividend rights (including dividend preferences or limited or unlimited dividend participation), conversion rights, mandatory or optional redemption rights or restrictions and preferences or limited or unlimited participation in amounts to be paid on liquidation, and the Board of Directors is hereby authorized to fix and determine the powers, privileges, preferences and rights of any series of Preferred Stock, and to fix the number of shares constituting any such series and to increase or decrease the number of shares of any such series (but not below the number of shares thereof then outstanding). FIFTH: The Corporation shall have perpetual existence. SIXTH: Meetings of stockholders may be held within or without the State of Delaware as the By-Laws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as my be designated from time to time by the Board of Directors or in the By-Laws of the Corporation. Elections of directors need not be by written ballot unless the By-Laws of the Corporation shall provide. SEVENTH: (a) A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (1) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) under Section 174 of the Delaware General Corporation Law; or (4) for any transaction from which the director derived an improper personal benefit. (b) (1) Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a proceeding), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action or inaction in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided in this paragraph (b), the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this paragraph (b) shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the Delaware General Corporation Law requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer of the Corporation (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this paragraph (b) or otherwise. The Corporation may, by action of its Board of Directors, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers. (2) Any indemnification under this paragraph (b) (unless ordered by a Court) shall be made by the Corporation upon a determination that indemnification of the director or officer is proper in the circumstances because he or she has met the applicable standards of conduct set forth in the Delaware General Corporation Law which make it permissible for the Corporation to indemnify the director or officer. Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of Directors who were not parties to such proceeding, or (ii) if such a quorum is not obtainable or if such a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. (3) The right to indemnification and the advancement of expenses conferred in this paragraph (b) shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, by-law, agreement, vote of stockholders or disinterested directors or otherwise. (4) The Corporation may purchase and maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. EIGHTH: In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to adopt, repeal, alter, amend or rescind the By-Laws of the Corporation. NINTH: The Corporation reserves the right to repeal, alter, amend, or rescind any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred on stockholders herein are granted subject to this reservation. TENTH: The name and mailing address of the sole incorporator is: Joan Dacey-Seib Jacobs Persinger & Parker 70 Pine Street New York, New York 10270 IN WITNESS WHEREOF, the undersigned, being the sole incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, do make this Certificate, hereby declaring and certifying that this is my act and deed and that the facts herein stated are true under the penalties of perjury and accordingly have hereunto set my hand this 14th day of April, 1987. /s/ Joan Dacey-Seib ------------------------ Joan Dacey-Seib, Sole Incorporator EX-10 3 1992 STOCK OPTION PLAN EXHIBIT 10.(a) MATEC CORPORATION 1992 STOCK OPTION PLAN 1. PURPOSE The Plan is intended to expand and improve the profitability and prosperity of MATEC Corporation for the benefit of its stockholders by permitting the Corporation to grant to officers and other key employees of, and consultants and advisers to, the Corporation and its Subsidiaries, options to purchase shares of the Corporations Common Stock. These grants are intended to provide additional incentive to such persons by offering them a greater stake in the Corporations continued success. The Plan is also intended as a means of reinforcing the commonality of interest between the Corporations stockholders and such persons, and as an aid in attracting and retaining the services of individuals of outstanding abilities and specialized skills. 2. DEFINITIONS For Plan purposes, except where the context otherwise indicates, the following terms shall have the meanings which follow: (a) Agreement shall mean a written instrument executed and delivered on behalf of the Corporation which specifies the terms and conditions of a Stock Option granted to a Participant. (b) Beneficiary shall mean the person or persons who may be designated by a Participant from time to time in writing to the Committee, to receive, if the Participant dies, any Option exercise rights held by the Participant. (c) Board shall mean the Board of Directors of the Corporation. (d) Code shall mean the Internal Revenue Code of 1986, as it maybe amended from time to time, and the rules and regulations promulgated thereunder. (e) Committee shall mean a Committee of the Board composed of three or more persons which shall be designated by the Board to administer the Plan. Each member of the Committee, while serving as such, shall be a member of the Board and shall be a disinterested person within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934. (f) Common Stock shall mean the Common Stock of the Corporation having a par value of $0.05 per share. (g) Corporation shall mean MATEC Corporation, a Delaware corporation. (h) Employee shall mean any person who is employed by the Corporation or any Subsidiary corporation. (i) Exercise Price shall mean the per share price for which a Participant upon exercise of a Stock Option may purchase a share of Common Stock. (j) Fair Market Value shall mean the value of a share of Common Stock to be determined by, and in accordance with procedures established by, the Committee. Such fair market value shall be deemed conclusive upon the determination of the Committee made in good faith. The preceding notwithstanding, so long as the Common Stock is listed on a national stock exchange, the Fair Market Value shall mean with respect to any given day, the mean between the highest and lowest reported sales prices of the Common Stock on the principal national stock exchange on which the Common Stock is listed, or if such exchange was closed on such day or if it was open but the Common Stock was not traded on such day, then on the next preceding day that the Common Stock was traded on such exchange, as reported by a responsible reporting service. (k) Incentive Stock Option shall mean a Stock Option which is intended to meet and comply with the terms and conditions for an incentive stock option as set forth in Section 422 of the Code, or any other form of tax qualified stock option which may be incorporated and defined in the Code as it may from time to time be amended. (l) Non-Qualified Option shall mean a Stock Option which does not meet the requirements of Section 422 of the Code or the terms of which provide that it will not be treated as an Incentive Stock Option. (m) Participant shall mean any person who is granted a Stock Option under the Plan. (n) Plan shall mean the MATEC Corporation 1992 Stock Option Plan as set forth herein and as amended from time to time. (o) Stock Option or Option shall mean a right to purchase a stated number of shares of Common Stock subject to such terms and conditions as are set forth in the Plan and an Agreement. (p) Subsidiary corporation or Subsidiary shall mean any corporation which is a subsidiary corporation of the Corporation as defined in Section 424(f) of the Code. 3. ADMINISTRATION (a) The Committee shall administer the Plan and, accordingly, it shall have full power to grant Stock Options under the Plan, to construe and interpret the Plan, and to establish rules and regulations and perform all other acts it believes reasonable and proper, including the authority to delegate responsibilities to others to assist in administering the Plan. (b) The determination of those eligible to receive Stock Options, and the amount, type and terms and conditions of each Stock Option shall rest in the sole discretion of the Committee, subject to the provisions of the Plan. (c) The Committee may permit the voluntary surrender of all or a portion of any Option granted under the Plan to be conditioned upon the granting to the Participant of a new Option for the same or a different number of shares as the Option surrendered, or may require such voluntary surrender as a condition precedent to a grant of a new Option to such Participant. Such new Option shall be exercisable at the price, during the period and in accordance with any other terms or conditions specified by the Committee at the time the new Option is granted, all determined in accordance with the provisions of the Plan without regard to the price, period of exercise, or any other terms or conditions of the Option surrendered. 4. COMMON STOCK LIMITS The total number of shares of Common Stock which may be issued on exercise of Stock Options shall not exceed 300,000 shares, subject to adjustment in accordance with Paragraph 9 of the Plan. Shares issued under the Plan may be, in whole or in part, as determined by the Committee, authorized but unissued or treasury shares of Common Stock. If any Options granted under the Plan shall expire or terminate without having been exercised, the shares subject to such Options shall be added back to the number of shares of Common Stock which may be issued on exercise of Stock Options. 5. ELIGIBILITY FOR PARTICIPATION (a) Consistent with Plan objectives, the following persons shall be eligible to become Participants in the Plan: officers and other key Employees and consultants and advisers to the Corporation or any Subsidiary corporation, provided that members of the Board who are not Employees shall not be eligible. (b) the foregoing subparagraph (a) notwithstanding, Incentive Stock Options shall be granted only to officers and other key Employees, and no Incentive Stock Options shall be granted to an Employee who owns more than 10% of the Common Stock determined in accordance with the provisions of Section 422(b)(6) of the Code, unless the Option meets the requirements of Section 422(c)(5) of the Code. (c) Options shall be granted to consultants and advisers only for BONA FIDE services rendered other than in connection with the offer or sale of securities. 6. STOCK OPTIONS - TERMS AND CONDITIONS All Stock Options granted under the Plan shall be evidenced by Agreements which shall contain such provisions as shall be required by the Plan together with such other provisions as the Committee may prescribe, including the following provisions: (a) PRICE: The Committee shall establish the Exercise Price, provided, however, that in the case of an Incentive Stock Option the Exercise Price shall not be less than the Fair Market Value of a share of Common Stock on the date of the grant of the Option. (b) PERIOD: The Committee shall establish the term of any Option awarded under the Plan, provided, however, that no option shall be exercisable after the expiration of 10 years from the date of the grant of the Option. (c) TIME OF EXERCISE: The Committee shall establish the time or times at which any Option, or portion hereof, shall be exercisable. The Committee, subsequent to the grant of an Option, may accelerate the date or dates on which the Option may be exercisable. (d) EXERCISE: An Option, or portion thereof, shall be exercised by delivery of a written notice of exercise to the Corporation together with payment of the full purchase price of the shares as to which the Option is exercised (Purchase Price). Payment may be made: (i) in United States dollars by good check, bank draft of money order payable to the order of the Corporation, or (ii) at the discretion of the Committee by the transfer to the Corporation of shares of Common Stock owned by the Participant having an aggregate Fair Market Value on the date of exercise equal to the Purchase Price or the portion thereof being so paid, or (iii) at the discretion of the Committee and subject to any restrictions or conditions as it deems appropriate (including any restrictions as may be set forth in Rule 16b-3 of the Securities Exchange Act of 1934), by electing to have the Corporation withhold from the shares issuable upon exercise of the Option such number of shares of Common Stock as shall have an aggregate Fair Market Value on the date of exercise equal to the Purchase Price or the portion thereof being so paid, or (iv) at the discretion of the Committee by a combination of (i) and (ii) or (i) and (iii) above. The Committee shall determine the procedures for the use of Common Stock in payment of the Purchase Price and may impose such limitations and prohibitions on such use as it deems appropriate. (e) SPECIAL RULES FOR INCENTIVE STOCK OPTIONS: Notwithstanding any other provisions of the Plan, with respect to Incentive Stock Options granted under the Plan, the following provisions will apply: (i) To the extent that the aggregate Fair Market Value (determined at the time of grant) of the shares of Common Stock with respect to which Incentive Stock Options (whether granted hereunder or pursuant to any other plan of the Corporation or a Subsidiary) are first exercisable by a Participant during any calendar year exceeds $100,000 (or such other limit as may be in effect from time to time under the Code), such Options shall be treated as Non-Qualified Options. (ii) Any Participant who disposes of shares of Common Stock acquired on the exercise of an Incentive Stock Option by sale or exchange either (a) within two years after the date of the grant of the Option under which such shares were acquired or (b) within one year after the acquisition of such shares, shall notify the Corporation in writing of such disposition and of the amount realized upon such disposition promptly after the disposition. 7. TERMINATION OF EMPLOYMENT If a participant holding an Option shall cease to be employed (or in the case of a Participant who is not an Employee, shall cease to be engaged) by the Corporation or any Subsidiary corporation by reason of death or any other reason other than voluntary quitting, discharge for cause or permanent and total disability as defined in Section 22(e)(3) of the Code (hereinafter called a Disability), as determined by the Committee, such Participant (or, if applicable, such Participants Beneficiary) may, but only within the three months next succeeding such cessation of employment, exercise such Option to the extent that such Participant would have been entitled to do so on the date of such cessation of employment. If a Participant holding an Option voluntarily quits or is discharged for cause, such Option shall terminate on the date of cessation of employment. 8. DISABILITY If a Participant holding an Option shall cease to be employed (or in the case of a Participant who is not an Employee, shall cease to be engaged) by the Corporation or any Subsidiary corporation by reason of a Disability, the Option shall be exercisable by such Participant or such Participants duly appointed guardian or other legal representative, to the extent that such Participant would have been entitled to do so on the date of such cessation of employment, but only within one year following such cessation of employment due to said Disability. 9. ADJUSTMENTS In the event of a recapitalization, stock split, stock combination, stock dividend, exchange of shares, or a change in the corporate structure or shares of the Corporation, or similar event, the Board of Directors upon recommendation of the Committee shall make appropriate adjustments in the kind or number of shares which may be issued upon exercise of Options and in the kind or number of shares issuable upon exercise of Options theretofore granted and in the exercise price of such Options. 10. MERGER, CONSOLIDATION OR SALE OF ASSETS If the Corporation shall be a party to a merger or consolidation or shall sell substantially all its assets, each outstanding Option shall pertain and apply to the securities and/or property which a holder of the number of shares of Common Stock subject to the Option immediately prior to such merger, consolidation, or sale of assets would be entitled to receive in such merger, consolidation or sale of assets. 11. AMENDMENT AND TERMINATION OF PLAN (a) The Board, without further approval of the stockholders, may at any time, and from time to time, suspend or terminate the Plan in whole or in part or amend it from time to time in such respects as the Board may deem appropriate and in the best interests of the Corporation; provided, however, that no such amendment shall be made, without approval of the stockholders, which would: (i) modify the eligibility requirements for participation in the Plan; (ii) increase the total number of shares of Common Stock which may be issued pursuant to Stock Options, except as is provided for in accordance with Paragraph 9 of the Plan; or (iii) materially increase benefits accruing to Participants. (b) No amendment, suspension or termination of this Plan shall, without the Participants consent, alter or impair any of the rights or obligations under any Stock Option theretofore granted to the Participant under the Plan. (c) The Board may amend the Plan, subject to the limitations cited above, in such manner as it deems necessary to permit the granting of Stock Options meeting the requirements of future amendments to the Code. 12. GOVERNMENT AND OTHER REGULATIONS The granting of Stock Options under the Plan and the obligation of the Corporation to issue, or transfer and deliver shares for Stock Options exercised under the Plan shall be subject to all applicable laws, regulations, rules and orders which shall then be in effect. 13. MISCELLANEOUS PROVISIONS (a) RIGHTS TO CONTINUED EMPLOYMENT: No person shall have any claim or right to be granted a Stock Option under the Plan, and the grant of an Option under the Plan shall not be construed as giving any Participant the right to be retained in the employ of the Corporation or any Subsidiary corporation (or to be otherwise retained in the case of a Participant who is not an Employee) and the Corporation expressly reserves the right at any time to dismiss a Participant with or without cause, free from any liability or any claim under the Plan, except as provided herein or in an Agreement. (b) WHO SHALL EXERCISE: Except as provided by the Plan, an Incentive Stock Option shall be exercisable during the lifetime of the Participant to whom it is granted only by such Participant, and it may be exercised only if such Participant has been in the continuous employ of the Corporation or any Subsidiary corporation from the date of grant of the Option to the date of its exercise. (c) NON-TRANSFERABILITY: No right or interest of any Participant in the Plan shall be assignable or transferable except by will or the laws of descent and distribution, and no right or interest of any Participant shall be liable for, or subject to, any lien, obligation or liability of such Participant. (d) WITHHOLDING TAXES: The Corporation may require a payment to cover applicable withholding for income and employment taxes in connection with a Stock Option. (e) RIGHTS AS SHAREHOLDER: A Participant as such shall not have any of the rights or privileges of a holder of Common Stock until such time as shares of Common Stock are issued or are transferred to the Participant upon exercise of an Option. (f) PLAN EXPENSES: Any expenses of administering this Plan shall be borne by the Corporation. (g) LEGAL CONSIDERATIONS: The Corporation shall not be required to issue, transfer or deliver shares of Common Stock upon exercise of Options until all applicable legal, listing or registration requirements, as determined by legal counsel, have been satisfied, and any necessary or appropriate written representations have been given by the Participant. (h) OTHER PLANS: Nothing contained herein shall prevent the Corporation from establishing other incentive and benefit plans in which Participants in the Plan may also participate. (i) NO WARRANTY OF TAX EFFECT: Except as may be contained in any Agreement, no opinion shall be deemed to be expressed or warranties made as to the effect for federal, state or local tax purposes of any grants hereunder. (j) CONSTRUCTION OF PLAN: The validity, construction, interpretation, administration and effect of the Plan and of its rules and regulations, and rights relating to the Plan, shall be determined in accordance with the laws of the State of New York. 14. STOCKHOLDER APPROVAL - TERM OF PLAN Upon approval by the stockholders of the Corporation, the Plan shall become unconditionally effective as of December 4, 1992. No Option shall be granted after December 3, 2002, provided, however, that the Plan and all outstanding Options granted under the Plan prior to such date shall remain in effect until the applicable Options have expired. If the stockholders shall not approve the Plan, the Plan shall not be effective and any and all actions taken prior thereto shall be null and void or shall, if necessary, be deemed to have been fully rescinded. EX-10 4 SEPARATION AGREEMENT AND GENERAL RELEASE EXHIBIT 10.(b) SEPARATION AGREEMENT and GENERAL RELEASE SEPARATION AGREEMENT and GENERAL RELEASE between MATEC CORPORATION, a Delaware corporation (the Company) and ROBERT B. GILL (Employee). 1. As of the close of business on August 5, 1997 (the Termination Date) Employees employment by the Company has terminated for all purposes and Employee will no longer receive any salary, benefits or other compensation from the Company except as set forth herein. 2. In connection with the termination of Employees employment by the Company and in consideration of Employees release of the Company, the Company will pay to Employee $100,000 in six equal monthly installments commencing on the Effective Day and Time, as defined in paragraph 12 hereof, subject to withholding for tax purposes (the Special Payment Allowance). 3. In the event that the Company consummates the sale of substantially all of the assets of Bergen Cable Technologies, Inc., excluding land and buildings, and substantially all of the assets of Cable Bergen de Mexico S.A. de C.V. to TFX Equities Inc. prior to December 31, 1997, the Company will pay a bonus to Employee (the Bonus) in an amount determined as set forth in Exhibit 1 hereto. 4. Employee understands and agrees that the Special Payment Allowance is made in complete satisfaction of any and all claims for wages, overtime premiums, vacation pay, holiday pay, pay for personal days, pay for unused sick or absence days, compensatory time, and any other payment for time worked and leave of any kind to which Employee is or may be entitled except as set forth herein. 5. Employee understands and agrees that the Special Payment Allowance and Bonus, if applicable, represents a consideration to Employee over and above anything else of value which Employee already is entitled to receive from the Company. 6. In consideration of the Special Payment Allowance and other terms of this Agreement, Employee (for himself, his heirs and assigns) hereby releases and discharges the Company, and its successors, affiliates and assigns, and their present and former officers, directors, agents and employees, from all actions, suits, liabilities, charges, claims and causes of action, known or unknown, fixed or contingent, that he has, or may have, arising out of Employees employment or termination from employment with the Company prior to the execution of this Agreement, whether before courts, administrative agencies, or other Forums wherever situated, including, but not limited to, all claims under Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act of 1967, as amended by the Older Workers Benefit Protection Act, the Equal Pay Act of 1963, as amended, the New Jersey Law Against Discrimination, as amended, and the various other federal and state civil rights acts involving discrimination on the basis of age, race, sex, religion, disability, national origin and marital status, and all claims under express or implied contract theories. 7. This Agreement does not release or waive any claims by Employee: (a) for workers compensation to which Employee may be entitled in respect of any job-related injury which occurred prior to the time of termination of employment; (b) for accrued Social Security benefits to which Employee may become entitled under applicable law; (c) for reimbursement of properly authorized and documented job-related, out-of-pocket expenses actually advanced by Employee on behalf of the Company prior to the Termination Date; (d) for indemnification for job-related, third-party claims arising prior to the Termination Date; (e) with respect to Employees rights under the Consolidated Omnibus Budget Reconciliation Act to continuation of medical and hospitalization insurance coverage under the existing health care plan of Bergen Cable Technologies, Inc. (Bergen), at Employees own expense after the time of termination of employment; (f) with respect to any rights or claims that may arise after the date on which Employee signs this Agreement; (g) with respect to stock options granted by the Company to Employee which have become exercisable prior to the Termination Date, it being understood and agreed that the Option granted to Employee by the Company pursuant to a Stock Option Agreement dated as of December 4, 1992 shall be exercisable for three months after the Termination Date to the extent Employee was entitled to exercise the Option on the Termination Date, but shall not become exercisable and is hereby terminated with respect to the portion thereof which would have become exercisable on or after December 4, 1997; or (h) with respect to the matching contribution to be made by the Company for Employees benefit under the Company's Profit Sharing 401(k) Plan for the 1997 Plan Year in accordance with the terms of the said Plan, if the Company elects to make matching contributions for the 1997 Plan Year, it being understood and agreed that Employee will make no contributions under the said Plan with respect to the Special Payment Allowance or the Bonus, if applicable, and that the Company's matching contribution will be limited to its applicable percentage of your salary deferred contributions made prior to the Termination Date. 8. Notwithstanding the provisions of paragraph 4 hereof, the Company will compensate Employee for 103 hours of accrued vacation time, subject to withholding for tax purposes. 9. Employee is hereby granted the option for a period of 30 days from the Effective Day and Time to purchase from Leasing Associates the 1993 Chrysler Concorde automobile currently being used by Employee (the Automobile) for a purchase price of $1.00. If Employee does not exercise such option within such 30-day option period, or if Employee has not signed and returned a copy of this Agreement in accordance with the provisions of paragraph 10(b), or if Employee cancels this Agreement as provided in paragraph 14, the Automobile shall be promptly returned to the Company, together with the keys thereto. 10. (a) Employee will have a period of 21 days from the date Employee was first given a copy of this Agreement by the Company in which to carefully study and consider the terms of this Agreement. (b) If at the end of 21 days from the date Employee was first given a copy of this Agreement by the Company, Employee decides to accept the Special Payment Allowance and Bonus, if applicable, on the terms of this Agreement, Employee should date and sign the Employee Acceptance on the last page of this Agreement, and return the signed copy to the Company so that it is received by the Company no sooner than 21 days and no later than 30 days after the day Employee was first given a copy of this Agreement by the Company. (c) If Employee has spoken to an attorney about this Agreement, Employee should also have that attorney complete the Attorneys Statement which appears at the end of this Agreement. 11. If Employee has not signed and returned a copy of this Agreement in accordance with the provisions of paragraph 10(b), or if Employee cancels this Agreement as provided in paragraph 14, then the Company's offer to make the Special Payment Allowance and to pay the Bonus, if applicable, to Employee shall be automatically withdrawn and cancelled, and the option to purchase the Automobile shall be automatically cancelled, and it will be as if the Company had never made that offer or granted such option. 12. This Agreement will not become effective or enforceable until 12:01 A.M. on the eighth (8th) day after Employee has signed a copy of this Agreement. That day and time is called the Effective Day and Time. 13. Until the Effective Day and Time, Employee has the legal right under federal law to cancel this Agreement. The fact that Employee has signed and returned the Execution Copy of this Agreement will not prevent Employee from cancelling this Agreement prior to the Effective Day and Time. 14. If Employee decides to cancel this Agreement, Employee may do so by notifying the Company in writing at: MATEC Corporation 75 South Street Hopkinton, MA 01748 Attention: President 15. If Employee has signed and returned a copy of this Agreement and Employee does not give the Company a written cancellation notice before the Effective Day and Time, this Agreement will become binding on Employee. 16. Employee will promptly deliver to the Company all office equipment of the Company in his possession, all keys to premises and offices of the Company, all Company credit cards, and all lists, books, records, computer discs and tapes and data of every kind, and all copies thereof, relating to or in connection with the Company's customers and business. 17. Employee agrees to cooperate with the Company after the Termination Date and to make himself reasonably available and to answer questions and furnish information requested by officers, directors or agents of the Company or Bergen relating to the business or customers of the Company or Bergen. 18. This Agreement is the entire agreement between Employee and the Company with respect to all matters relating to the termination of Employees employment by the Company. The terms of this Agreement may only be altered by a writing signed by both the Employee and the Company. MATEC CORPORATION By: /s/ Ted Valpey, Jr. --------------------------------- Chairman & CEO Dated: 8/26/97 EMPLOYEES ACCEPTANCE I hereby acknowledge that I have had the opportunity to consider the terms of the above Separation Agreement and General Release for a period of 21 days. I have carefully read and studied said Agreement and I fully understand its terms and the terms of the release of claims contained therein and the consequences to me of my acceptance of said Agreement and giving of such release. I hereby accept and agree to the terms of said Agreement and release, voluntarily and of my own free will. /s/ Robert B. Gill -------------------------------- Robert B. Gill Dated: 9/2/97 ATTORNEYS STATEMENT I, , an Attorney-at-Law with offices at , declare that I am the attorney for Robert B. Gill, the Employee named in the above Separation Agreement and General Release, that I have explained to my client all the terms of the said Agreement and release, and that my client has represented to me that he fully understands all of such terms and their significance, and that my client has signed the above Separation Agreement and General Release on my advice. ------------------------- Signature of Attorney Dated: Exhibit 1 Bonus based on net proceeds of sale of Bergen Cable Technologies, Inc. and Cable Bergen de Mexico S.A. de C.V. to TFX Equities Inc., after legal expenses and fees of investment bankers. Net Sale Proceeds Bonus Amount (in millions) (in thousands) $ 7.5-8.0 $ 25 8.0-8.5 50 8.5-9.0 75 9.0-10.0 100 10.00-11.00 125 11.00-12.00 175 12.00 225 More than 12.00 225 + 5% of excess over $12,000,000 No bonus is payable if the net proceeds of sale are less than $7,500,000. EX-10 5 OPTION CANCELLATION AGREEMENT EXHIBIT 10.(c) OPTION CANCELLATION AGREEMENT OPTION CANCELLATION AGREEMENT made as of the 20 day of October, 1997, by and between MATEC Corporation, a Delaware corporation (the Company), and Robert B. Gill (the Optionholder). WITNESSETH: WHEREAS, the Company and Optionholder have entered into a Separation Agreement and General Release; and WHEREAS, the Optionholder is the owner of a currently exercisable Option granted under the Company's 1992 Stock Option Plan to purchase 120,000 shares of Common Stock of the Company pursuant to a Stock Option Agreement dated December 4, 1992 between the Company and Optionholder (such option being hereinafter collectively referred to as the Option); and WHEREAS, the Optionholder wishes to relinquish and deliver the Option to the Company pursuant to the terms of this Agreement, and the Company is willing to accept such relinquishment and delivery in accordance with the terms of this Agreement. NOW, THEREFORE, in consideration of the mutual covenants, representations and warranties made herein, and of the mutual benefits to be derived hereby, the parties hereto agree as follows: 1. TERMINATION, CANCELLATION AND RELINQUISHMENT. Effective as of the date hereof the Option shall be terminated and cancelled and become null and void automatically, and all rights of the Optionholder in respect thereof shall be terminated, cancelled and relinquished, except for the right of the Optionholder to receive the payment provided for in this Agreement. 2. PAYMENT TO THE OPTIONHOLDER. In consideration of such termination, cancellation and relinquishment, as of the date hereof, the Company is paying to the Optionholder, and the Optionholder acknowledges receipt of, $60,000. 3. WITHHOLDING. The payment made by the Company to the Optionholder under this Agreement is being made subject to any withholding as may be required by applicable law or regulation. 4. GENERAL PROVISIONS. 4.1 WARRANTY OF AUTHORITY AND OWNERSHIP. The Optionholder represents and warrants to the Company that the Optionholder has full authority to relinquish and deliver the Option for surrender and cancellation pursuant to the terms of this Agreement, and that the Optionholder has good and sole title to the Option free and clear of all liens, charges, encumbrances, or other obligations relating to the sale or transfer thereof, and that the Option is not subject to any adverse claim. 4.2 ADDITIONAL OPTIONHOLDER WARRANTIES. The Optionholder acknowledges that the Company has informed him that the Company continues in active negotiations with various parties concerning the possible sale of the Company's subsidiary Bergen Cable Technologies, Inc. (Bergen) and that in the near future the Company may enter into an agreement with one of such parties to sell Bergen. Furthermore, the Optionholder understands that in the event of the sale of Bergen the Company may make a partial distribution to its shareholders of the proceeds received for the sale of Bergen. Optionholder acknowledges that there is no assurance that such sale of Bergen or such partial liquidation will be effected. Optionholder further acknowledges his responsibilities under the securities laws concerning confidential information concerning the Company. 4.3 ENTIRE AGREEMENT. This Agreement contains, and is intended as, a complete statement of all of the terms of the arrangements between the parties with respect to the matters provided for, supersedes any previous agreements and understandings between the parties with respect to those matters, and cannot be changed or terminated orally. THE OPTIONHOLDER ACKNOWLEDGES THAT THE COMPANY HAS NOT MADE NOR AUTHORIZED ANY PERSON TO MAKE ON BEHALF OF THE COMPANY ANY RECOMMENDATION AS TO WHETHER THE OPTIONHOLDER SHOULD ENTER INTO THIS AGREEMENT OR TO TAKE OR REFRAIN FROM TAKING ANY OTHER ACTIONS WITH RESPECT TO THE OPTION. 4.4 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts applicable to agreements made and to be performed in Massachusetts without regard to the principles thereof regarding the choice of law. The Company and the Optionholder hereby irrevocably submit to the jurisdiction of the courts of the Commonwealth of Massachusetts and the Federal courts of the United States of America located in the Commonwealth of Massachusetts solely in respect of the interpretation and enforcement of the provisions of this Agreement. The Company and the Optionholder hereby consent to and grant any such court jurisdiction over the person of such parties and over the subject matter of any such dispute. IN WITNESS WHEREOF, the undersigned have entered into this Agreement as of the date first written above. THE COMPANY: MATEC CORPORATION By: /s/ Theodore S. Valpey, Jr. ----------------------------- Title: Chairman CEO THE OPTIONHOLDER: /s/ Robert B. Gill ---------------------------------- Robert B. Gill EX-11 6 EARNINGS PER SHARE MATEC Corporation and Subsidiaries Exhibit 11 Calculation of Earnings Per Share (amounts in thousands, except per share data) Years Ended December 31, 1997 1996(A) 1995(A) ------ ------ ------ Net earnings (loss) from continuing operations ... $ 307 $ (705) $ 475 Net earnings (loss) from discontinued operations . 181 629 (172) ------ ------ ------ Net earnings (loss) .............................. $ 488 $ (76) $ 303 ====== ====== ====== Calculation of basic earnings per share: - ---------------------------------------- Weighted average common shares outstanding ...... 2,737 2,767 2,765 ===== ===== ===== Basic earnings (loss) per common share: Continuing operations ......................... $ .11 $ (.26) $ .17 Discontinued operations ....................... .07 .23 (.06) ------ ------ ------ $ .18 $ (.03) $ .11 ====== ====== ====== Calculation of diluted earnings per share: - ------------------------------------------ Weighted average common shares outstanding ...... 2,737 2,767 2,765 Increase from assumed exercise of stock options and investment of proceeds in treasury stock, based upon the average market prices (B) (C) ... 22 - 30 ----- ----- ----- Average common stock and common equivalent shares used to calculate diluted earnings (loss) per share ............................... 2,759 2,767 2,795 ===== ===== ===== Diluted earnings (loss) per common share: Continuing operations ......................... $ .11 $ (.26) $ .17 Discontinued operations ....................... .07 .23 (.06) ------ ------ ------ $ .18 $ (.03) $ .11 ====== ====== ====== (A) Restated for discontinued operations. (B) The dilutive effect of stock options and warrants was not considered in 1996 since the Company reported a loss from continuing operations. (C) The dilutive effect of outstanding warrants to purchase 85,000 shares of common stock were not included in the 1997 and 1995 computations since the exercise price was greater than the average market price of the common shares. - - EX-13 7 1997 ANNUAL REPORT COMMON STOCK INFORMATION MATEC common stock is listed and traded on the American Stock Exchange under the symbol MXC. The range of high and low prices during each quarter for the past two years is shown below: For the years ended December 31, 1997 1996 - --------------------------------------------------------------------- High Low High Low - --------------------------------------------------------------------- 4th quarter 4 1/4 3 15/16 4 5/8 2 1/2 3rd quarter 5 1/8 4 6 4 5/8 2nd quarter 5 3/8 3 7/8 6 3/8 3 15/16 1st quarter 4 1/8 3 3/8 4 1/2 3 3/4 The Company paid no dividend in 1997 or 1996. Under the Term Debt Agreement, the Company is restricted to the amount of cash dividends paid in any one year. See Note 10 of the Notes to Consolidated Financial Statements. The approximate number of stockholders of record on March 13, 1998 was 2,900. This number does not include stockholders for whom shares are held in a "nominee" or "street" name. (Remaining information on inside front cover not incorporated by reference.) Inside front cover Five Year Financial Summary
Years Ended December 31, 1997 1996 1995 1994 1993 - --------------------------------------------------------------------------------------------------- (in thousands, except per share data) Continuing operations: Net sales $16,975 $18,312 $19,089 $14,112 $10,810 Gross profit 4,649 4,905 6,604 4,694 3,130 Earnings (loss) before income taxes and cumulative effect of accounting change 518 (1,149) 848 (755) (1,897) Income (taxes) benefit (211) 444 (373) 209 665 Earnings (loss) before cumulative effect of accounting change 307 (705) 475 (546) (1,232) Discontinued operations - net 181 629 (172) 432 1,221 Cumulative effect of accounting change - - - - 279 - --------------------------------------------------------------------------------------------------- Net earnings (loss) $ 488 $ (76) $ 303 $ (114) $ 268 =================================================================================================== Basic and diluted earnings (loss) per share: Continuing operations $ .11 $ (.26) $ .17 $ (.20) $ (.43) Discontinued operations .07 .23 (.06) .16 .42 Cumulative effect of accounting change - - - - .10 - --------------------------------------------------------------------------------------------------- Earnings (loss) $ .18 $ (.03) $ .11 $ (.04) $ .09 =================================================================================================== Average shares outstanding 2,737 2,767 2,765 2,765 2,884 =================================================================================================== Cash dividends per share $ - $ - $ - $ - $ - =================================================================================================== Total assets, end of year: Continuing operations $16,835 $15,222 $17,114 $13,847 $13,011 Discontinued operations 5,662 5,520 5,268 5,042 4,243 - --------------------------------------------------------------------------------------------------- $22,497 $20,742 $22,382 $18,889 $17,254 =================================================================================================== Long-term debt, end of year $ 1,989 $ 1,984 $ 2,180 $ 428 $ 652 ===================================================================================================
Management's Discussion and Analysis Financial Condition Cash and cash equivalents increased $275,000 from December 31, 1996. The Company's continuing operations generated $1,515,000 in cash during the year while investing and financing activities used cash of $398,000 and $930,000, respectively. In addition, discontinued operations provided $87,000 in cash. The primary sources of cash from continuing operations were net earnings of $307,000, the net noncash items, mainly depreciation, of $637,000 and $571,000 from the favorable change in operating assets and liabilities. A decrease in receivables and increases in income taxes payable and accounts payable, offset in part by an increase in inventory were the primary reasons for the decrease in net operating assets. The decrease in receivables from the December 31, 1996 level is mainly due to a reduction in the number of days sales outstanding and the collection of an income tax refund. The increase in accounts payable is mainly attributable to the timing of inventory purchases and the increase in inventory. The inventory increase is mainly due to the higher level in the electronics segment to support the increase sales and backlog levels. The increase in income taxes payable is due to the higher level of earnings and the corresponding increase in income taxes due. The Company's primary investing activity during the year was the purchase of $382,000 of capital equipment mainly in the electronics segment. These additions are mainly geared toward adding new and upgrading existing production capabilities and processes within this segment. Capital expenditures for 1998 are budgeted to approximate $900,000 with the majority of the additions planned for the electronics segment. These additions will mainly be focused on adding additional capacity, manufacturing cost reductions, and upgrading existing production capabilities. During the year, the Company reduced its lines of credit borrowings by $650,000 and its long-term debt by $200,000. At December 31, 1997, the Company's unused portion of these lines of credit was $1,850,000. The Company believes that, based on its current working capital, the expected cash flows from operations and its current debt arrangements, its resources are sufficient to meet the financial needs and to fund the capital expenditures for the projected levels of business in 1998. New Accounting Standards In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information". SFAS No. 130 establishes standards for reporting and displaying comprehensive income and is effective for the Company's 1998 financial statements. The Company is reviewing disclosure options and will present such information in the first quarter of 1998 to the extent required. SFAS No. 131 establishes standards for reporting annual and interim operating segment information and is effective for the Company's 1998 annual financial statements and interim reporting beginning in 1999. The Company is evaluating the effect that this new standard will have on disclosures in the Company's financial statements and will reflect the required information in the year ended December 31, 1998 financial statements as required. Results of Operations -- Overview -- 1997 versus 1996 Net sales from continuing operations decreased $1,338,000 (7%) from 1996 as lower sales in the instruments segment were partially offset by a sales increase in the electronics segment. The overall gross profit percentage remained at 27% during both years as higher margins in 1997 in the electronics segment were offset by lower margins in the instruments segment. Selling and administrative expenses decreased $478,000 (11%) from 1996 mainly due to lower selling expenses in the instruments segment. The reduction in research and development expenses resulted from decreased expenses in the instruments segment. The $134,000 restructuring credit represents a 1997 cash recovery, net of legal expenses, from the sale of one of the product lines in the instruments segment. The $655,000 in restructuring expenses in 1996 relates to the expenses for the phasing out of a product line in the instruments segment and the closing of a manufacturing opertion in the electronics segment. Interest expense decreased from $353,000 in 1996 to $260,000 in 1997 as a result of lower levels of short and long-term debt. Other income (expense), net decreased $20,000 from 1996 mainly as a result of a higher operating loss in the real estate operations due to a decrease in rental income. The effective income tax rate in 1997 was 41% compared to an income tax benefit rate of 39% in 1996. The main factor affecting the comparability of rates was the effective state income tax rate due to the limited state tax benefit of operating losses within a state. While the Company reported a 7% decrease in sales, operating profit increased $1,593,000 from 1996 mainly due to a net decrease in operating and restructuring expenses. Nonoperating expenses decreased $74,000 from 1996 mainly as a result of lower interest expense offset in part by a higher operating loss in the real estate operations. As a result, the Company reported a pre-tax profit from continuing operations of $518,000 in 1997 compared to a pre-tax loss of $1,149,000 in 1996. Earnings from continuing operations amounted to $307,000 in 1997 compared to a $705,000 loss in 1996. Earnings from discontinued operations amounted to $181,000 in 1997 compared to $629,000 in 1996. Overall, the Company reported net earnings of $488,000 versus a loss of $76,000 in 1996. Business Segment Results -- 1997 versus 1996 Net sales in the electronics segment increased $549,000 (4%) over 1996 as a result of increased demand and improved market conditions of both the OEM and contract manufacturers in the telecommunications market. The overall gross profit percentage increased 17% over 1996, mainly as a result of a lower provision for slow moving inventory and the closing of the Carlisle manufacturing facility in 1996. Total operating expenses decreased $180,000 from 1996 due to the restructuring expense incurred in 1996. Selling and administrative expenses remained level with 1996. As a result of the increased sales level and gross profit percentage along with the decrease in operating expenses, the electronics segment reported an operating profit of $1,258,000 in 1997 compared to an operating profit of $491,000 in 1996. The instruments segment reported a $1,886,000 (32%) decrease in sales from 1996 as product sales to all major markets declined. Lower sales to the colloidal, NDT/NDE, and medical research markets accounted for about 40%, 35% and 25%, respectively, of the sales decrease. A majority of the sales decrease to the colloidal market was due to the segment phasing out and selling its AcoustoSizer product line in early 1997. The decline in sales to the NDT/NDE markets was mainly attributable to decreased sales of custom test systems to one customer. Decreased foreign sales was the main reason for the decrease in sales to the medical research markets. The overall gross profit percentage decreased about 5% from 1996 mainly as a result of custom test systems representing a larger percentage of sales in 1997 compared to 1996. Total operating expenses decreased $1,701,000 from 1996. Selling and administrative expenses decreased $511,000 from 1996 as selling expense decreased $398,000 and administrative expense declined $113,000. The reductions in selling expenses were mainly due to lower personnel, travel and advertising expenses. Lower personnel costs was the main reason for the decrease in administrative expenses. Research and development expenses decreased $581,000 from 1996 as a result of lower personnel, operating supplies, and outside consulting expenses in 1997. During 1997, the segment recorded a $134,000 restructuring recovery from the sale of its AcoustoSizer (TM) product line. The restructuring expense of $475,000 in 1996 related to the costs of phasing out of this product line. As a result of the decreases in operating expenses, the segment reported an operating profit of $524,000 in 1997 compared to an operating loss of $360,000 in 1996. Results of Operations -- Overview -- 1996 versus 1995 Net sales from continuing operations decreased $776,000 (4%) from 1995 as both the electronics and instruments segments reported lower sales. The overall gross profit percentage decreased from 35% in 1995 to 27% in 1996 due to lower margins in both the electronics and instruments segments. Selling and administrative expenses decreased $484,000 (10%) from 1995 mainly as a result of lower selling expenses in the instruments segment. The $180,000 (34%) increase in research and development expenses was a result of higher expenses in the instruments segment. The $655,000 in restructuring expenses relates to the expenses for phasing out of a product line in the instruments segment and the closing of a manufacturing operation in the electronics segment. Interest expense increased from $330,000 in 1995 to $353,000 in 1996 as a result of higher levels of short-term debt. Other income (expense), net increased $77,000 over 1995 mainly as a result of a $52,000 increase in dividend income and a lower operating loss in the real estate operations. The real estate operations loss declined $13,000 from 1995 mainly as a result of increased rental income. The effective income tax benefit rate in 1996 was 39% compared to an income tax rate of 44% in 1995. Factors affecting the comparability of rates were the dividend exclusion, nondeductible expenses, and the effective state income tax rate due to the limited state tax benefit of operating losses within a state. Operating profit decreased $2,050,000 from 1995 due to a combination of a decrease in the total gross profit and restucturing expenses of $655,000, partially offset by a net decrease in operating expenses. Nonoperating expenses decreased $53,000 from 1995 due to the combination of increased dividend income and a lower operating loss in the real estate operations, partially offset by an increase in interest expense. As a result, the Company reported a pre-tax loss from continuing operations of $1,149,000 in 1996 compared to pre-tax earnings of $848,000 in 1995. The net loss from continuing operations amounted to $705,000 in 1996 versus earnings of $475,000 in 1996. Discontinued operations reported net earnings of $629,000 in 1996 compared to a loss of $172,000 in 1995. Overall, the Company reported a net loss of $76,000 in 1996 versus net earnings of $303,000 in 1995. Business Segment Results -- 1996 versus 1995 Net sales in the electronics segment decreased $563,000 (4%) from 1995 primarily due to the market conditions and inventory levels of both the OEM and contract manufacturers in the telecommunications market. The gross profit percentage decreased 25% from 1995 as a result of an increased provision for slow moving inventory, increased overhead personnel costs due to additional people, and increased raw material costs due to product mix changes. Total operating expenses increased 22% over 1995 mainly due to the restructuring charge and increased selling expenses. The $180,000 restructuring charge relates to the closing and moving of the Carlisle manufacturing operation to the Hopkinton facility. The selling expense increases were due to additional personnel and increased travel and advertising expenses. As a result of the lower sales, the decrease in gross margin and the higher operating expenses, the electronics segment reported an operating profit of $491,000 in 1996 compared to a profit of $1,870,000 in 1995. The instruments segment reported a $214,000 (3%) decrease in sales from 1995 as lower sales to both the colloidal and medical research markets were partially offset by a 10% increase in sales to the NDT/NDE markets. Lower sales of the AcoustoSizer(TM) partially offset by higher sales of both the ESA and CHDF instruments resulted in a net sales decrease to the colloidal market. While foreign sales decreased slightly from 1995, lower domestic sales were the main reason for the decrease in sales to the medical research market. The sales increase to the NDT/NDE markets was primarily due to higher sales of the Company's custom test systems. The overall gross profit percentage decreased 19% from 1995 as a result of the unfavorable effect of spreading the fixed overhead costs over the lower sales volume and lower margins realized on the sales of custom test systems. While total operating expenses remained fairly level with 1995, a selling expense decrease of $680,000 was offset by the $475,000 restructuring charge and a $180,000 increase in research and development. The decrease in selling expenses were mainly due to lower personnel, travel and advertising expenses. The restructuring costs relate to the phasing out of the AcoustoSizer(TM) product line. Increased personnel costs and expenses related to the completion of the new model of the CHDF instrument were the main reasons for the higher research and development expenses. As a result of the lower sales level and gross profit percentage, the instruments segment reported an operating loss of $360,000 versus an operating profit of $298,000 in 1995. Impact of the Year 2000 Issue The Company has reviewed its in-house data processing systems and computer applications to assess the impact of the Year 2000. The estimated cost to modify the current software is not material and the Company presently believes that the Year 2000 issue will not pose significant operational problems. However, Year 2000 issues could impact the Company, if the systems operated by our customers, vendors or subcontractors are not Year 2000 compliant. Consolidated Balance Sheets December 31, 1997 1996 - -------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 885,097 $ 610,290 Receivables, net 3,123,764 3,715,765 Inventories 3,193,388 2,888,980 Deferred income taxes and other current assets 976,371 954,973 - -------------------------------------------------------------------------- Total current assets 8,178,620 8,170,008 - -------------------------------------------------------------------------- Property, plant and equipment, at cost: Land and improvements 1,002,232 1,002,232 Buildings and improvements 5,413,643 5,336,200 Machinery and equipment 5,727,258 5,641,797 - -------------------------------------------------------------------------- 12,143,133 11,980,229 Less accumulated depreciation 8,233,727 7,788,029 - -------------------------------------------------------------------------- 3,909,406 4,192,200 Other assets: Marketable equity securities 4,657,743 2,781,708 Net assets of discontinued operations 5,661,677 5,520,104 Miscellaneous 90,102 77,890 - -------------------------------------------------------------------------- $22,497,548 $20,741,910 ========================================================================== Liabilities and Stockholders' Equity Current liabilities: Notes payable $ - $ 650,000 Current portion of long-term debt - 200,000 Accounts payable 1,194,394 1,080,194 Accrued liabilities 1,172,277 1,182,415 Income taxes 415,960 118,523 - -------------------------------------------------------------------------- Total current liabilities 2,782,631 3,231,132 - -------------------------------------------------------------------------- Deferred income taxes 2,317,474 1,651,568 Long-term debt 1,988,840 1,984,400 Stockholders' equity: Preferred stock, $1.00 par value- Authorized 1,000,000 shares; issued, none - - Common stock, $.05 par value-Authorized 10,000,000 shares; issued 3,804,195 shares 190,210 190,210 Capital surplus 6,442,439 6,442,439 Retained earnings 11,443,318 10,954,963 Net unrealized gain on marketable equity securities 2,695,359 1,570,324 Treasury stock at cost, 1,070,544 and 1,049,467 shares (5,362,723) (5,283,126) - -------------------------------------------------------------------------- Total stockholders' equity 15,408,603 13,874,810 - -------------------------------------------------------------------------- $22,497,548 $20,741,910 ========================================================================= See notes to consolidated financial statements. Consolidated Statements of Operations
For the Years Ended December 31, 1997 1996 1995 - ----------------------------------------------------------------------------------------- Net sales $16,974,620 $18,312,512 $19,088,885 Cost of sales 12,325,280 13,407,624 12,484,811 - ----------------------------------------------------------------------------------------- Gross profit 4,649,340 4,904,888 6,604,074 - ----------------------------------------------------------------------------------------- Selling and administrative expenses 3,929,393 4,407,710 4,891,936 Research and development expenses 124,037 704,932 524,804 Restructuring expenses (recovery) (133,900) 655,000 - - ---------------------------------------------------------------------------------------- 3,919,530 5,767,642 5,416,740 - ---------------------------------------------------------------------------------------- Operating profit (loss) 729,810 (862,754) 1,187,334 Other income (expense): Interest expense (259,747) (353,351) (329,832) Other, net 47,939 67,482 (9,416) - ----------------------------------------------------------------------------------------- (211,808) (285,869) (339,248) - ----------------------------------------------------------------------------------------- Earnings (loss) from continuing operations before income taxes 518,002 (1,148,623) 848,086 Income tax (expense) benefit (211,000) 444,000 (373,000) - ----------------------------------------------------------------------------------------- Earnings (loss) from continuing operations 307,002 (704,623) 475,086 - ----------------------------------------------------------------------------------------- Earnings (loss) from discontinued operations 181,353 628,995 (171,662) - ----------------------------------------------------------------------------------------- Net earnings (loss) $ 488,355 $ (75,628) $ 303,424 ========================================================================================= Basic and diluted earnings (loss) per share: Continuing operations $ .11 $ (.26) $ .17 Discontinued operations .07 .23 (.06) - ----------------------------------------------------------------------------------------- $ .18 $ (.03) $ .11 =========================================================================================
See notes to consolidated financial statements. Consolidated Statements of Cash Flows
For the Years Ended December 31, 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------- Cash Flows from Operating Activities: Net earnings (loss) from continuing operations $ 307,002 $ (704,623) $ 475,086 Adjustments to reconcile net earnings (loss) to net cash provided (used) by operating activities: Depreciation and amortization 668,928 698,691 743,727 Changes in deferred income taxes (36,000) (155,000) 202,000 Loss on write-off of assets under restructuring plans - 320,000 - Other 4,440 4,440 2,960 Changes in assets and liabilities: Receivables, net 592,001 365,518 (1,122,801) Inventories (304,408) 1,708,580 (1,944,838) Other current assets (118,176) 31,488 (31,803) Accounts payable and accrued liabilities 104,062 (693,860) (10,690) Income taxes, net 297,437 (355,782) 24,636 - --------------------------------------------------------------------------------------------------------- Net cash provided (used) by operating activities 1,515,286 1,219,452 (1,661,723) - --------------------------------------------------------------------------------------------------------- Cash Flows from Investing Activities: Capital expenditures, net (382,238) (441,679) (430,888) Collection of amount due from sale of discontinued operations - - 250,000 Other, net (16,108) (3,329) (3,372) - --------------------------------------------------------------------------------------------------------- Net cash (used) by investing activities (398,346) (445,008) (184,260) - --------------------------------------------------------------------------------------------------------- Cash Flows from Financing Activities: Proceeds from issuance of long-term debt and warrants - - 2,000,000 Net borrowings (repayments) under lines of credit (650,000) (1,000,000) 735,000 Payments on long-term debt (200,000) (228,333) (223,333) Purchases of common stock (79,597) (64,490) (788) Stock options exercised - 45,479 - - --------------------------------------------------------------------------------------------------------- Net cash provided (used) by financing activities (929,597) (1,247,344) 2,510,879 - --------------------------------------------------------------------------------------------------------- Cash Provided (Used) by Discontinued Operations 87,464 387,754 (468,022) - ------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents 274,807 (85,146) 196,874 Cash and Cash Equivalents at beginning of year 610,290 695,436 498,562 - --------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at end of year $ 885,097 $ 610,290 $ 695,436 ========================================================================================================= Supplemental Disclosures of Cash Flow Information Cash paid during the year by continuing operations for: Interest $ 279,829 $ 371,241 $ 358,462 Income taxes $ 51,500 $ 104,500 $ -
Consolidated Statements of Cash Flows - continued Noncash Investing and Financing Activities: Under Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities", the Company recorded the following increases: 1997 1996 1995 - -------------------------------------------------------------------------- Marketable Equity Securities $1,876,000 $ 647,000 $ 582,000 Deferred Income Taxes 751,000 258,000 233,000 Net Unrealized Gain on Marketable Equity Securities 1,125,000 389,000 349,000 See notes to consolidated financial statements. Consolidated Statements of Stockholders' Equity
Unrealized Gain on Marketable Common Stock Capital Retained Equity Treasury Shares Amount Surplus Earnings Securities Stock - ---------------------------------------------------------------------------------------------------------------- Balance, January 1, 1995 3,793,695 $189,685 $6,374,485 $10,727,167 $ 832,197 $(5,217,848) Net earnings - - - 303,424 - - Purchases of common stock - - - - - (788) Unrealized gain on marketable equity securities - - - - 349,218 - Issuance of detachable common stock purchase warrants - - 23,000 - - - - ---------------------------------------------------------------------------------------------------------------- Balance, December 31, 1995 3,793,695 189,685 6,397,485 11,030,591 1,181,415 (5,218,636) Net (loss) - - - (75,628) - - Purchases of common stock - - - - - (64,490) Unrealized gain on marketable equity securities - - - - 388,909 - Exercise of stock options 10,500 525 44,954 - - - - --------------------------------------------------------------------------------------------------------------- Balance, December 31, 1996 3,804,195 190,210 6,442,439 10,954,963 1,570,324 (5,283,126) Net earnings - - - 488,355 - - Purchases of common stock - - - - - (79,597) Unrealized gain on marketable equity securities - - - - 1,125,035 - - ---------------------------------------------------------------------------------------------------------------- Balance December 31, 1997 3,804,195 $190,210 $6,442,439 $11,443,318 $2,695,359 $(5,362,723) ================================================================================================================
See notes to consolidated financial statements. Notes to Consolidated Financial Statements (1) Summary of Significant Accounting Policies: Principles of consolidation -- The accompanying consolidated financial statements include the accounts of MATEC Corporation and its wholly owned subsidiaries. Significant intercompany balances and transactions have been eliminated in consolidation. Use of estimates -- The preparation of the Company's financial statements in conformity with generally accepted accounting principles necessarily requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet dates. Estimates include reserves for accounts receivable and inventory, useful lives of property, plant and equipment, accrued liabilities, and deferred income taxes. Fair value of financial instruments -- Statement of Financial Accounting Standards ("SFAS") No. 107 "Disclosures About Fair Value of Financial Instruments" requires disclosure of the fair value of certain financial instruments. The carrying amounts of cash, cash equivalents, accounts payable and accrued expenses approximate fair value because of their short-term nature. Marketable equity securities are recorded in the financial statements at aggregate fair value. The carrying amounts of the Company's debt instruments approximate fair value (Notes 9 and 10). Cash equivalents -- For purposes of the statements of cash flows, the Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents are stated at cost plus accrued interest, which approximates market value. Inventories -- Inventories are stated at the lower of cost or market and are determined by the first-in, first-out method (FIFO). Property, plant and equipment -- The Company uses the straight-line method of providing for depreciation and amortization of property, plant and equipment for financial reporting purposes and accelerated methods for tax purposes. The estimated lives used to compute depreciation and amortization are as follows: land improvements - 10 years, buildings and improvements - 15 to 40 years and machinery and equipment - 3 to 10 years. Marketable equity securities -- Marketable equity securities consist of common stocks and are valued under SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities". Under SFAS 115, the Company has classified these securities as "available for sale" and are valued at fair value, with unrealized gains, net of taxes excluded from earnings and reported as a separate component of stockholders' equity. Notes continued At December 31, 1997 and 1996, the fair market value (based on quoted market prices) of these securities was $4,657,743 and $2,781,708, respectively, and the amortized cost was $710,384. Gross unrealized gains amounted to $3,917,359 and $2,071,324 at December 31, 1997 and 1996, respectively, and there were no unrealized losses at either date. During 1997, the Company recorded a $1,125,035 increase in the "Unrealized Gain on Marketable Equity Securities" component of stockholders' equity and a $388,909 increase in the same account during 1996. Revenue recognition -- Revenue is generally recognized when product is shipped. Revenue under long-term contracts is recorded primarily on the percentage of completion method. Under this approach, sales and gross margin are recognized as the work is performed, based on the ratio that incurred costs bear to estimated total completion costs. Provisions for anticipated losses are made in the period in which they first become determinable. Income taxes -- The Company accounts for income taxes under SFAS No. 109 "Accounting for Income Taxes". This Statement requires the Company to compute deferred income taxes based on the differences between the financial statement and tax basis of assets and liabilities using enacted rates in effect in the years in which the differences are expected to reverse. Earnings (loss) per share -- In the fourth quarter of 1997, the Company adopted SFAS No. 128 "Earnings per Share", as required and restated the previously reported earnings per share in conformity with SFAS 128. This new standard specifies the computation, presentation and disclosure requirements for earnings per share. The weighted average number of shares outstanding was 2,737,198 shares in 1997, 2,767,191 shares in 1996 and 2,764,503 shares in 1995. In 1997 and 1995, the dilutive effect of outstanding stock options was not material. The dilutive effect of the outstanding warrants to purchase 85,000 shares were not included in the computation of diluted earnings per share in 1997 and 1995 since the exercise price was greater than the average market price of the common shares. In 1996, the dilutive effect of stock options and warrants was not considered since the Company reported a loss from continuing operations. Stock compensation plans -- The Company applies APB Opinion No. 25 "Accounting for Stock Issued to Employees" and related interpretations in accounting for its stock option plans. Notes continued (2) Discontinued Operations: In the third quarter of 1997, the Company adopted a plan to sell its Bergen Cable Technologies, Inc. ("BCT") subsidiary. The Company signed a letter of intent in December 1997 to sell assets and certain liabilities for approximately $7.5 million in cash and a $1.25 million note receivable. The transaction is subject to the negotiation and execution of a definitive purchase agreement, the approval of the Company's Board of Directors, and the buyers obtaining certain financing. The Company expects to realize a gain on the disposition of BCT. The operating results of BCT have been reported as discontinued operations, and previously reported financial statements have been restated to reflect this classification. The operating results of BCT are presented in the Consolidated Statements of Operations under the caption "Earnings (loss) from discontinued operations" and include: 1997 1996 1995 -------- -------- -------- (in thousands) Net sales $ 14,715 $ 12,545 $ 9,748 Earnings (loss) before income taxes 303 1,002 (326) Income (taxes) benefit (122) (373) 154 Net earnings (loss) 181 629 (172) Net assets of BCT include the following: 12/31/97 12/31/96 -------- -------- (in thousands) Current assets $ 5,008 $ 4,979 Property, plant and equipment, net 2,407 2,253 Current liabilities 1,753 1,712 ------- ------- Net assets of discontinued operations $ 5,662 $ 5,520 ======= ======= All of the assets of BCT, except real estate, are pledged as collateral for BCT's $1 million line of credit, the Company's $1 million line of credit and the Company's Term Debt Note ($2 million face amount) due in 2000. At December 31, 1997, BCT had $690,000 of borrowings outstanding under its line of credit. (3) Restructuring Expenses (Recovery): In May 1997, the Company sold its AcoustoSizer product line and certain related assets for $130,000 in cash and a $200,000 note to Colloidal Dynamics Pty. Ltd. ("CD"). In addition, the Company granted CD an option for $20,000 to purchase the CD common stock owned by the Company for $200,000. In 1997, the Company recorded a restructuring recovery of $133,900 representing the cash it received from CD less legal expenses. In the fourth quarter of 1996, the Company recorded restructuring expenses of $655,000 pursuant to the phasing out of its AcoustoSizer(TM) product line in the Instruments segment and the closing of its high frequency fundamental quartz crystal operation in Carlisle, Pennsylvania and relocating it to Hopkinton, Massachusetts. The $655,000 in expenses include the write-down of assets of $320,000, severance costs of $191,000, warranty reserves of $70,000 and other costs of $74,000 relating to the above product line restructurings. Notes continued (4) Receivables, net: Receivables, net of allowances, consist of the following: 1997 1996 - -------------------------------------------------------------------------- Accounts receivable, less allowance for doubtful accounts of $90,000 and $85,000 $3,123,764 $3,449,299 Costs and estimated earnings in excess of billings on uncompleted contracts - 142,466 Refundable income taxes - 124,000 - -------------------------------------------------------------------------- $3,123,764 $3,715,765 ========================================================================== (5) Inventories: Inventories consist of the following: 1997 1996 - -------------------------------------------------------------------------- Raw materials $1,073,990 $1,052,627 Work in process 1,097,291 571,304 Finished goods 1,022,107 1,265,049 - -------------------------------------------------------------------------- $3,193,388 $2,888,980 ========================================================================== (6) Income Taxes: The components of the provision (benefit) for income taxes are as follows: 1997 1996 1995 - -------------------------------------------------------------------------- Current provision (benefit): Federal $ 164,000 $(278,000) $ 84,000 State 83,000 (11,000) 87,000 - -------------------------------------------------------------------------- 247,000 (289,000) 171,000 - -------------------------------------------------------------------------- Deferred provision (benefit): Federal (24,000) (113,000) 185,000 State (12,000) (42,000) 17,000 - -------------------------------------------------------------------------- (36,000) (155,000) 202,000 - -------------------------------------------------------------------------- Total $ 211,000 $(444,000) $ 373,000 ========================================================================== Notes continued The tax effects of significant items comprising the Company's net deferred tax liability as of December 31, 1997 and 1996 are as follows: 1997 1996 - -------------------------------------------------------------------------- Deferred tax liabilities: Depreciation $ 486,100 $ 550,200 DISC commissions 535,200 535,200 Unrealized gain on marketable equity securities 1,252,000 501,000 - -------------------------------------------------------------------------- Total deferred tax liabilities 2,273,300 1,586,400 - -------------------------------------------------------------------------- Deferred tax assets: Inventory reserves 516,300 545,500 State net operating loss carryforwards 274,000 318,000 Restructuring expenses 25,400 80,000 Allowance for doubtful accounts 56,200 58,400 Accrued expenses 110,900 101,200 - -------------------------------------------------------------------------- Total deferred tax assets 982,800 1,103,100 Valuation allowance (274,000) (318,000) - -------------------------------------------------------------------------- Deferred tax assets, net 708,800 785,100 - -------------------------------------------------------------------------- Net deferred tax liabilities $1,564,500 $ 801,300 ========================================================================== Other current assets include deferred income taxes of approximately $753,000 in 1997 and $850,000 in 1996. Valuation allowances have been provided at December 31, 1997 and 1996 for "state net operating loss carryforwards". The allowances have been recorded since it is more likely than not that the Company may not be able to generate operating income to realize the benefit of these losses, by the expiration dates beginning in 1998. The valuation allowance decreased slightly during 1997 as a result of the use of state net operating loss carryforwards in 1997. The total income tax provision (benefit) differs from that computed by applying the Federal income tax rate to income before income taxes. The reasons for the difference are as follows: 1997 1996 1995 - -------------------------------------------------------------------------- Income taxes at statutory rates $ 176,121 $(390,532) $ 288,336 State income tax, net of Federal tax benefit 47,000 (35,000) 69,000 Non-deductible expenses 15,000 17,000 18,000 Dividend exclusion (21,000) (18,000) - Other, net (6,121) (17,468) (2,336) - -------------------------------------------------------------------------- $ 211,000 $(444,000) $ 373,000 ========================================================================== Notes continued (7) Profit Sharing and Savings Plan: The Company has a trusteed profit sharing 401(k) plan that covers all qualified employees. Under the profit sharing section of the plan, the Company may make contributions to the plan at the discretion of the Board of Directors. Under the 401(k) section of the plan, the Company matched 50% of employee contributions up to 6% of compensation. Total Company contributions charged to operations were $91,000 in 1997, $105,000 in 1996 and $94,000 in 1995. (8) Accrued Liabilities: Accrued liabilities consists of the following items: 1997 1996 - -------------------------------------------------------------------------- Employee compensation $ 276,614 $ 224,124 Restructuring expenses 62,959 211,577 Other 832,704 746,714 - -------------------------------------------------------------------------- $1,172,277 $1,182,415 ========================================================================= (9) Notes Payable: The Company has secured demand lines of credit with two banks amounting in total to $1,850,000. The $1,000,000 line of credit is secured by all assets of the Company including those of the discontinued operation, except for real estate and marketable equity securities. Advances under this line are based on percentage formulas of specific receivable and inventory balances of a certain subsidiary. The $850,000 line of credit is secured by marketable equity securities. The Company had no borrowings outstanding under either line of credit at December 31, 1997. There are no compensating balance requirements or significant commitment fees under either arrangement. The weighted average interest rate on outstanding notes payable was 9.2% at December 31, 1996. (10) Long-Term Debt: Long-term debt consists of the following: 1997 1996 - -------------------------------------------------------------------------- 11% Term Debt, $2 million face amount, due in 2000; interest payable quarterly $1,988,840 $1,984,400 Industrial Revenue Bonds: Principal payment of $200,000 in 1997; interest payable semi-annually at a rate of 7.0% - 200,000 - -------------------------------------------------------------------------- 1,988,840 2,184,400 Less current portion - 200,000 - -------------------------------------------------------------------------- $1,988,840 $1,984,400 ========================================================================== The Term Debt Note is secured by all the Company's assets including those of the discontinued operation, except for real estate, marketable equity securities, and certain specific equipment with a total book value of $162,000. The Term Debt Agreement includes covenants covering debt to equity and interest expense ratios and restrictions as to the total amount of debt, dividends, and capital stock repurchases. Dividend payments in any fiscal year are limited to 30% of the Company's net earnings of the prior fiscal year. Notes continued Under the Agreement, the lender will subordinate its security interest for up to $4 million in debt, with corresponding increases in the interest rate from the 10% stated rate to 12% based on the subordination amount. The lender subordinated its security interest to the $1 million bank line of credit plus the $1 million bank line of credit maintained by the discontinued operation. As part of the Agreement, the Company issued the lender transferable common stock warrants to purchase 85,000 shares of the Company's common stock at $4.75 per share. The warrants were valued at $23,000 on the date of issuance. The warrants expire on June 30, 2000. (11) Stockholders' Equity: The Company has 2,733,651 and 2,754,728 shares of its $.05 par value Common Stock outstanding at December 31, 1997 and 1996, respectively. At December 31, 1997, the Company has acquired 1,070,544 shares of treasury stock at a cost of $5,362,723. These acquired shares are being held as treasury shares and may be used for general corporate purposes. Under prior authorizations from the Board of Directors, the Company is authorized to purchase up to an additional 46,500 shares of stock through the open market or negotiated transactions. The Term Debt Agreement limits the amount of treasury stock repurchases in one year to $200,000. The MATEC Corporation 1992 Stock Option Plan allows for the granting of options to officers, key employees, and other individuals to purchase a maximum of 300,000 shares of the Company's common stock. The option price and terms are determined by the Company's Stock Option-Compensation Committee. The options granted may qualify as incentive stock options ("ISO's"). Through December 31, 1997, all options granted were ISO's. At December 31, 1997, this Plan has 225,000 options available for future grant and 294,000 common shares reserved for issuance. The 1982 Incentive Stock Option Plan allowed for the granting of options to employees, including officers, to purchase a maximum of 150,000 shares of the Company's common stock at a price not less than the fair market value of the stock at or about the time of grant. All options under the 1982 Plan expired in 1996. The Company applies APB Opinion No. 25 and related Interpretations in accounting for its plans. Accordingly, no compensation expense has been recognized for these plans. Pro forma net earnings and earnings per share information, as required by SFAS No. 123, "Accounting for Stock-Based Compensation", has been determined as if the Company had accounted for its employee stock options under the fair value method described by SFAS No. 123. The fair value of these options was estimated at the grant date using a Black-Scholes option pricing model with the following weighted-average assumptions for both 1997 and 1995: dividend yield of 0% and an expected option life of 7 years. The expected stock price volatility of the Company's common stock was 40% in 1997 and 32% in 1995 and the weighted average risk-free interest rates were 6.3% in 1997 and 5.9% in 1995. The estimated weighted-average fair value per option at the date of grant for options granted in 1997 and 1995 was $2.25 and $2.06, respectively. There were no options granted in 1996. For purposes of the pro forma disclosures, the estimated fair value of the options is amortized to expense over the five-year vesting period of the options. The pro forma effects of recognizing compensation expense under SFAS No. 123 would have Notes continued decreased Earnings (loss) from continuing operations by $10,000, $5,000 and $1,000 in 1997, 1996, and 1995, respectively. There would have been no changes to the earnings per share amounts during these periods. The pro forma effects to net earnings reflects options granted since 1995. Therefore, the full impact of calculating compensation expense under SFAS No. 123 is not reflected above, since the compensation cost is reflected over the options' vesting period of five years and options granted prior to 1995 are not considered. A summary of the status of the Company's two fixed stock option plans as of December 31, 1997, 1996, and 1995, and changes during the years ended on those dates is presented below:
1997 1996 1995 - ------------------------------------------------------------------------------------------------------- Number Weighted-avg. Number Weighted-avg. Number Weighted-avg. of shares exercise price of shares exercise price of shares exercise price - ------------------------------------------------------------------------------------------------------- Outstanding, January 1, 210,500 $3.66 253,250 $3.83 241,750 $3.81 Granted 30,000 4.22 - - 12,500 4.38 Exercised - - (10,500) 4.33 - - Expired - - (21,000) 5.08 - - Forfeited (172,000) 3.54 (11,250) 4.38 (1,000) 5.25 - ------------------------------------------------------------------------------------------------------ Outstanding, December 31, 68,500 $4.18 210,500 $3.66 253,250 $3.83 ======================================================================================================= Exercisable, December 31, 22,300 $4.09 139,800 $3.57 131,450 $3.87 =======================================================================================================
The following table summarizes information about fixed stock options outstanding at December 31, 1997:
Options Outstanding Options Exercisable - ---------------------------------------------------------------- ---------------------------- Weighted Average ----------------------------- Range of Number Remaining Number Weighted- Exercise Outstanding Contractual Exercise Exercisable Avg. Exercise Prices at 12/31/97 Life Price at 12/31/97 Price - ------------------------------------------------------------------------------------------------ $3.63-4.00 21,500 8.4 years $3.85 6,800 $3.63 $4.13-5.00 47,000 8.1 4.33 15,500 4.29 - ------------------------------------------------------------------------------------------------ 68,500 $4.18 22,300 $4.09 ================================================================================================
Notes continued (12) Other Income (Expense), net: Other, net consists of the following items: 1997 1996 1995 - -------------------------------------------------------------------------- Interest income $ 23,292 $ 25,603 $ 20,786 Real estate operations (60,513) (41,427) (54,698) Dividends 87,980 77,269 25,876 Other items, net (2,820) 6,037 (1,380) - -------------------------------------------------------------------------- $ 47,939 $ 67,482 $ (9,416) ========================================================================== Interest expense in 1997, 1996 and 1995 of $7,000, $20,300, and $32,725, respectively, is included in real estate operations. PAGE> Notes continued (13) Business Segments: The Company operates in two industry segments: Electronics and Instruments. In addition, the Company operates two real estate subsidiaries. Operating profit (loss) represents net sales less all identifiable operating expenses. General corporate expenses, income taxes, and other income or expense are excluded from segment operations. 1997 1996 1995 - ----------------------------------------------------------------------------- (in thousands) Net Sales: Electronics $ 12,897 $ 12,348 $ 12,911 Instruments 4,078 5,964 6,178 - ----------------------------------------------------------------------------- Total $ 16,975 $ 18,312 $ 19,089 ============================================================================= Operating Profit (Loss): Electronics $ 1,258 $ 491 $ 1,870 Instruments 524 (360) 298 - ----------------------------------------------------------------------------- Total 1,782 131 2,168 General Corporate Expenses (1,052) (994) (981) Real Estate Operations, Net (61) (42) (55) Other Income (Expense), Net (151) (244) (284) - ----------------------------------------------------------------------------- Earnings (loss) before income taxes $ 518 $ (1,149) $ 848 ============================================================================= Identifiable Assets: Electronics $ 6,729 $ 6,049 $ 8,109 Instruments 2,558 2,999 3,511 Corporate 5,683 4,102 3,258 Real Estate Operations 1,866 2,072 2,236 Discontinued Operations 5,662 5,520 5,268 - ----------------------------------------------------------------------------- $ 22,498 $ 20,742 $ 22,382 ============================================================================= Capital Expenditures: Electronics $ 345 $ 354 $ 209 Instruments 77 80 179 Corporate 7 - - Real Estate Operations - 16 43 - ----------------------------------------------------------------------------- $ 429 $ 450 $ 431 ============================================================================= Depreciation and Amortization: Electronics $ 333 $ 324 $ 330 Instruments 138 154 190 Corporate 1 2 3 Real Estate Operations 197 218 221 - ----------------------------------------------------------------------------- $ 669 $ 698 $ 744 ============================================================================= Corporate assets consist mainly of cash and cash equivalents and marketable equity securities. Export sales amounted to approximately $5,080,000, $3,538,000 and $4,200,000 in 1997, 1996 and 1995, respectively. Notes continued (14) Quarterly Financial Data (unaudited): Selected unaudited quarterly financial data for 1997 and 1996 is set forth below: First Second Third Fourth - ----------------------------------------------------------------------- 1997 (in thousands, except per share data) Net sales from continuing operations $3,756 $3,912 $4,548 $4,759 Gross profit 954 1,019 1,324 1,352 Earnings (loss) before income taxes (144) 52 203 407 Net earnings (loss) from: Continuing operations (86) 32 122 239 Discontinued operations 67 10 64 40 - ----------------------------------------------------------------------- Net earnings (loss) $ (19) $ 42 $ 186 $ 279 ======================================================================= Basic and diluted earnings (loss) per share: Continuing operations $ (.03) $ .01 $ .05 $ .09 Discontinued operations .02 .01 .02 .01 - ----------------------------------------------------------------------- $ (.01) $ .02 $ .07 $ .10 ======================================================================= 1996 Net sales from continuing operations $5,722 $4,890 $3,499 $4,202 Gross profit 1,747 1,438 788 932 Earnings (loss) before income taxes 98 (15) (125) (1,107) Net earnings (loss) from: Continuing operations 59 (7) (78) (679) Discontinued operations 159 183 126 161 - ------------------------------------------------------------------------ Net earnings (loss) $ 218 $ 176 $ 48 $ (518) ======================================================================== Basic and diluted earnings (loss) per share: Continuing operations $ .02 $ - $ (.03) $ (.25) Discontinued operations .06 .06 .05 .06 - ------------------------------------------------------------------------ $ .08 $ .06 $ .02 $ (.19) ======================================================================== Earnings per share calculations for each of the quarters are based on the weighted average numbers of shares outstanding for each period and the sum of the quarters may not necessarily be equal to the full year earnings per share amount. In the 1997 second quarter, the restructuring recovery increased earnings before income taxes by $90,000 and net earnings from continuing operations by $55,000 or $.02 per share. (See Note 3). In the 1996 fourth quarter, restructuring expenses reduced earnings before income taxes by $655,000 and net earnings from continuing operations by $409,000 or $.15 per share (See Note 3). Notes continued (15) Contingencies: The Company is involved in litigation in the ordinary course of business. The Company believes based on advice of legal counsel that the outcome of these actions should not have a material adverse effect on the financial condition or results of operations of the Company. (16) Subsequent event: In February 1998, the Company sold its real estate complex located in Wilmington, Delaware for $2,005,000 in cash. None of the Company's operations were located at this facility. The Company will report an after-tax gain on this sale of approximately $215,000 or $.08 per share in the first quarter of 1998. Independent Auditors' Report To the Stockholders and Board of Directors of MATEC Corporation: We have audited the accompanying consolidated balance sheets of MATEC Corporation and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of MATEC Corporation and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. Deloitte & Touche LLP Boston, Massachusetts February 23, 1998 (Remaining information on inside back cover is not incorporated by reference.) inside back cover EX-21 8 SUBSIDIARIES Subsidiaries of the Registrant Exhibit 21 ------------------------------ ---------- The following is a list of the Registrant's subsidiaries (all of which are 100% owned): State or Other Jurisdiction Of Incorporation --------------------------- Bergen Cable Technologies, Inc. New Jersey Cable Bergen de Mexico, S.A. de C.V. Mexico Matec Applied Sciences, Inc. Delaware MATEC EFO Corp. Massachusetts Matec Fiberoptics, Inc. Massachusetts Matec Instruments, Inc. Delaware Matec International, Inc. Massachusetts Matec Microelectronics, Inc. Massachusetts MEKontrol, Inc. Massachusetts RSC Realty Corporation Delaware Valpey-Fisher Corporation Massachusetts - - EX-23 9 CONSENT OF INDEPENDENT AUDITORS Exhibit 23 INDEPENDENT AUDITORS' CONSENT The Board of Directors MATEC Corporation: We consent to the incorporation by reference in Registration Statement No. 33-77554 of MATEC Corporation on Form S-8, as amended, of our reports dated February 23, 1998 appearing in this Annual Report on Form 10-K of MATEC Corporation for the year ended December 31, 1997. Deloitte & Touche LLP Boston, Massachusetts March 27, 1998 EX-27 10
5 1,000 YEAR DEC-31-1997 DEC-31-1997 885 0 3,214 90 3,193 8,179 12,143 8,234 22,498 2,783 1,989 0 0 190 15,219 22,498 16,975 16,975 12,325 12,325 0 (10) 260 518 211 307 181 0 0 488 .18 .18
EX-27 11 RESTATED 1996
5 1,000 YEAR DEC-31-1996 DEC-31-1996 610 0 3,801 85 2,889 8,170 11,980 7,788 20,742 3,231 1,984 0 0 190 13,685 20,742 18,313 18,313 13,408 13,408 0 15 353 (1,149) (444) (705) 629 0 0 (76) (.03) (.03)
EX-27 12 RESTATED 1995
5 1,000 YEAR DEC-31-1995 DEC-31-1995 695 0 4,086 129 4,822 10,359 11,892 7,368 22,382 5,185 2,180 0 0 190 13,391 22,382 19,089 19,089 12,485 12,485 0 (2) 330 848 373 475 (172) 0 0 303 .11 .11
EX-27 13 RESTATED 1Q 1996
5 1,000 3-MOS DEC-31-1996 MAR-31-1996 744 0 4,209 214 4,126 9,779 12,053 7,550 21,639 4,407 2,181 0 0 190 13,492 21,639 5,722 5,722 3,975 3,975 0 38 96 98 39 59 159 0 0 218 .08 .08
EX-27 14 RESTATED 2Q 1996
5 1,000 6-MOS DEC-31-1996 JUN-30-1996 971 0 3,649 230 3,698 8,963 12,165 7,725 20,939 3,441 2,182 0 0 190 13,729 20,939 10,612 10,612 7,427 7,427 0 45 192 83 31 52 342 0 0 394 .14 .14
EX-27 15 RESTATED 3Q 1996,1Q 1997, 2Q 1997
5 1,000 9-MOS 3-MOS 6-MOS DEC-31-1996 DEC-31-1997 DEC-31-1997 SEP-29-1996 MAR-30-1997 JUN-29-1997 916 752 835 0 0 0 3,397 3,614 3,059 204 92 105 3,827 2,854 3,069 8,868 8,124 7,855 12,239 11,841 12,021 7,890 7,756 7,925 20,885 20,484 20,548 3,408 3,184 2,878 1,983 1,985 1,987 0 0 0 0 0 0 190 190 190 13,857 13,514 13,744 20,885 20,484 20,548 14,110 3,756 7,668 14,110 3,756 7,668 10,137 2,802 5,695 10,137 2,802 5,695 0 0 0 (6) 14 27 271 63 125 (42) (144) (91) (16) (58) (37) (26) (86) (54) 467 67 77 0 0 0 0 0 0 441 (19) 23 .16 (.01) .01 .16 (.01) .01
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