UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 September 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number: 0-28946
Vivid Technologies, Inc.
(Exact name of registrant as specified in its charter)
Delaware 04-3054475
(State of incorporation) (I.R.S. Employer Identification No.)
10E Commerce Way, Woburn, Massachusetts 01801
(Address of principal executive offices) (Zip Code)
(781) 938-7800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassName of Each Exchange on Which Registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Rights to Purchase Common Stock
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained to the best of Registrant's knowledge, in definitive proxy
or information statements incorporated by reference to Part III of
this Form 10-K or any amendment to this Form 10-K. [ X ]
The aggregate market value of the Registrant's Common Stock, $.01 par
value, held by non-affiliates of the registrant as of November 30,
1999 was $49 million based on the price of $5.875 on that date on the
Nasdaq National Market. As of November 30, 1999, 10,001,141 shares
of the Registrant's Common Stock, $.01 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Company's Proxy Statement involving the election
of directors, which may be filed within 120 days after the end of the
Company's fiscal year, are incorporated by reference in Part III
(Items 10, 11, 12 and 13) of this Report.
Part I
Item 1. Business
We have made forward-looking statements in this document, and in
documents that are incorporated by reference, that are subject to
risks and uncertainties. Forward-looking statements include
statements of Vivid's plans, objectives, expectations and intentions.
Also, when we use words such as "may," "will," "expects,"
"anticipates," "believes," "plans," "intends," "could," "estimates,"
"is being" or "goal" or other variations of these terms or comparable
terminology, we are making forward-looking statements. These
statements, which include statements relating to the anticipated
growth of the market for explosives detection equipment, Vivid's
ability to develop and market new products and the Company's ability
to enter new markets, and other matters are subject to risks and
uncertainties that could cause actual results to differ materially
from those anticipated. You should note that many factors could
affect the future financial results of Vivid, and could cause these
results to differ materially from those expressed in our forward-
looking statements. The cautionary statements in this report should
be read as being applicable to all forward-looking statements
wherever they appear in this report. The forward-looking statements
contained in this report speak only as of the date of this report.
Vivid expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any forward-looking statement or
reflect any change in Vivid's expectations or any change in events,
conditions or circumstances on which any such statement is based.
Factors that could cause or contribute to differences include those
discussed in the risk factors set forth in Item 7 below (the "Risk
Factors") as well as those discussed elsewhere in this report.
Vivid is a leading developer, manufacturer and marketer of
inspection systems that detect plastic and other explosives in
airline baggage, hand baggage and parcels. Vivid's family of
explosives detection systems identify suspect material by analyzing
the physical characteristics of each item in a bag or parcel using
patented software and proprietary X-ray technology. Vivid's systems
can also be used to identify a wide variety of other substances,
including drugs, currency and agricultural products.
Vivid has sold systems for use in airports and high-security
facilities throughout Europe, the Asia/Pacific region, the Middle
East and North America. Examples of the airports using Vivid's
systems are JFK International Airport in New York, London Heathrow
and London Gatwick, Paris Charles de Gaulle and Paris Orly, Hong Kong
International Airport at Chek Lap Kok, Malaysia's Kuala Lumpur
International Airport, Malpensa Airport in Milan, King Khalid
International Airport in Riyadh, Amsterdam Airport Schipol, the New
Athens International Airport, Manchester Airport in the United
Kingdom and Zurich Airport.
Vivid was incorporated as a Massachusetts corporation in May
1989 under the name QDR Security, Inc. QDR Security, Inc. changed its
name to Vivitech, Inc. in June 1989 and then to Vivid Technologies,
Inc. in September 1989. In October 1996, Vivid reincorporated in the
State of Delaware.
Recent Development; Proposed Merger with PerkinElmer, Inc.
On October 4, 1999, Vivid and EG&G, Inc., now known as
PerkinElmer, Inc. entered into a merger agreement for PerkinElmer to
acquire Vivid. Under the merger agreement, if the transaction is
completed, Vivid will become a wholly owned subsidiary of PerkinElmer
through the merger of a wholly owned acquisition subsidiary of
PerkinElmer into Vivid, with Vivid being the corporation surviving
the merger.
In connection with the merger and subject to limitations
described below, PerkinElmer has agreed to issue a fixed ratio of
0.1613 shares of PerkinElmer common stock in exchange for each share
of Vivid common stock, or one share of PerkinElmer common stock in
exchange for each 6.2 shares of Vivid common stock. As of October 4,
1999, Vivid had 10,050,316 shares outstanding. The merger is
intended to qualify as a tax free reorganization by which the
stockholders of Vivid will not recognize gain or loss on their
receipt of PerkinElmer shares.
If the market value, defined below, of PerkinElmer's common
stock is greater than $46.49 (which corresponds to $7.50 per Vivid
share), PerkinElmer has the right to notify Vivid that PerkinElmer
desires to terminate the merger agreement. Upon receipt of that
notice, Vivid may either accept the termination or agree to adjust
the exchange ratio to a value of $7.50 per Vivid share based upon the
then market value of PerkinElmer's common stock. Conversely, if the
market value of PerkinElmer's common stock is less than $30.99 (which
corresponds to $5.00 per Vivid share), Vivid has the right to notify
PerkinElmer that Vivid desires to terminate the merger agreement.
Upon receipt of that notice, PerkinElmer may either accept the
termination or agree to adjust the exchange ratio to a value of $5.00
per Vivid share based upon the then market value of PerkinElmer
common stock.
For purposes of the foregoing calculations, the market value of
the PerkinElmer common stock will be the weighted average selling
prices of the PerkinElmer common stock as reported by the New York
Stock Exchange for the five consecutive trading days ending on the
third trading day prior to the date of the Vivid shareholder meeting
called to consider and act upon the proposed merger, so long as the
merger is consummated within five business days of the meeting. If
the merger is consummated more than five business days after the
meeting, the market value of PerkinElmer's common stock will be equal
to the weighted average selling prices of the PerkinElmer common
stock for the five consecutive trading days ending on the date of the
merger.
In addition to the foregoing, the consummation of the merger is
subject to customary closing conditions, including approval by the
stockholders of Vivid. Vivid and PerkinElmer have prepared and filed
a proxy statement/prospectus that has been mailed to Vivid
stockholders for a special meeting of Vivid's stockholders schedule
to be held on January 13, 2000 to vote on the merger. A more
detailed description of the terms and conditions of the merger
agreement and the merger, and the risks associated with the merger,
are set forth in the proxy statement/prospectus. Vivid cannot assure
that the merger will be approved by its stockholders, or that even if
approved, the merger will be completed.
Simultaneously with the execution of the merger agreement, Vivid
has granted PerkinElmer the option to purchase up to 2,000,012 shares
(approximately 19.9%) of its common stock for a cash purchase price
of $6.25 per share. This Option Agreement is only exercisable in
certain circumstances where Vivid has received proposals for an
alternative transaction.
Stockholders of Vivid holding a total of 1,303,000 shares,
consisting of S. David Ellenbogen and Jay A. Stein (both officers and
directors of Vivid) and trusts created by them, have agreed to vote
their Vivid shares in favor of the merger, have granted PerkinElmer a
proxy to so vote their shares, and have granted PerkinElmer an option
to purchase their Vivid shares for $6.25 per share in certain
circumstances where the merger does not take place and Vivid enters
into an alternative transaction.
In connection with the proposed merger, Vivid has amended its
Rights Agreement, dated as of October 13, 1998, (a) to exclude
PerkinElmer's acquisition of Vivid stock in connection with the
merger agreement and the related options and proxies from the
definition of "Acquiring Person" and (b) to cause the Rights
Agreement to expire immediately prior to the consummation of the
merger.
Industry Background
Checked Baggage Explosives Detection. During the 1970s and
1980s, in response to hijackings and bombings, airports, governmental
agencies and private companies worldwide began to install X-ray
systems to screen carry-on and checked baggage. In the late 1980s,
many countries began to install systems that could detect plastic and
other explosives in airline baggage.
Europe, led by the United Kingdom, has been at the forefront of
deploying explosives detection equipment. The United Kingdom's
commercial airports have substantially achieved 100% screening of
international checked baggage in response to a mandate from the
United Kingdom Department of the Environment, Transport and the
Regions. The European Civil Aviation Conference, an organization of
37 member states, has resolved to implement 100% screening of
international checked baggage by the end of 2002, an extension from
its prior target date of 2000.
The United Kingdom and Europe have generally adopted a
multi-level checked baggage screening approach that integrates the
explosives detection equipment directly into the airport baggage
handling systems. Airports in Europe and elsewhere deploying
explosives detection equipment, including smaller airports, have
implemented freestanding systems in addition to or as an alternative
to integrated systems.
There are three levels of screening under the integrated approach:
Level 1 inspection equipment is integrated into the existing
airport checked baggage handling system to screen rapidly all baggage
on a conveyor line. These inspection systems are often required to
inspect baggage during peak periods at the rate of 900 to 1,500 bags
per hour, or 2.4 to 4.0 seconds per bag, in order to avoid delays in
the baggage handling process. No operator is used to review X-ray
images of the contents of a bag at this level. Bags determined to be
suspect by the Level 1 system are rejected and subjected to Level 2
inspection.
In Level 2 inspection, X-ray images of the contents of bags
rejected at Level 1 are reviewed by an operator. Level 2 inspection
systems are often required to process baggage at the rate of 180 to
360 bags per hour, or 10 to 20 seconds per bag, typically as the
suspect bag continues to travel along a conveyor line. If the
operator continues to believe that the bag is suspect, the bag is
forwarded for Level 3 inspection.
In Level 3 inspection, bags are subjected to close operator
scrutiny. Level 3 systems can be slower to accommodate the greater
precision required for the operator to fully inspect the bag in order
to avoid the undesirable and expensive final inspection process,
which requires the bag to be inspected by hand in the presence of the
passenger.
Under the Aviation Security Improvement Act of 1990, the FAA was
directed to develop a standard for explosives detection systems and
to certify equipment that meet this standard under realistic airport
operating conditions. As a result of the stringent requirements
adopted by the FAA, only two systems have been certified by the FAA.
These systems do not meet the through-put requirements for 100%
screening of checked baggage similar to that being adopted in Europe
and the Asia/Pacific region. As a result, there has been only limited
use of explosives detection systems for checked baggage in the United
States.
In the Asia/Pacific region, two major new airports in Malaysia and
Hong Kong purchased integrated systems and commenced operations in
1998 with 100% checked baggage screening in place. Other countries in
the region are also planning to implement these systems at existing
airports.
Several advanced explosives detection systems have been developed
for checked baggage screening, each with its own inherent advantages
and limitations. These systems include dual energy X-ray, trace
detection and CT systems. Dual energy X-ray systems measure the X-ray
absorption properties of a bag's contents at two different X-ray
energies to determine if any of the items have the physical
characteristics of explosive materials. Trace detection equipment,
known as "sniffers," detects particulate and chemical traces of
explosive materials, collected by manually wiping or vacuuming the
bag under inspection. CT systems use hundreds of partial X-ray
images, referred to as slices, to analyze the contents of a bag.
Handbag Explosives Detection. There are currently no requirements
for the use of explosives detection systems to screen airplane
carry-on items. However, as the global implementation of hand baggage
systems continues, Vivid believes regulators will shift their focus
to the detection of explosives in carry-on items. Selected airports
have recently begun to purchase explosives detection equipment for
carry-on items. Similarly, a number of governmental agencies and
private sector organizations in the United States and abroad are
interested in using advanced explosives detection equipment to
enhance facility security. Recent terrorist attacks, including the
August 1998 bombings of two United States embassies in Africa, have
spurred the requests for additional funding to upgrade security at
domestic and international facilities. These upgrades may include the
purchase of handbag explosives detection systems.
Products
Vivid develops, manufactures and markets a family of systems
that can detect explosives and other contraband in airline baggage
and other parcels. Vivid's product line includes Level 1 and Level 2
integrated explosives detection systems for checked baggage,
freestanding explosives detection systems for Level 3, terminal and
baggage hall inspection of checked baggage, and an explosives
detection system for carry-on baggage, hand baggage and parcels.
Vivid's systems use dual energy X-ray technology. These systems
generate X-ray beams at two different energy levels which pass
through the inspected bag and its contents. A portion of the beam is
absorbed or scattered. The beam that passes through the bag without
being absorbed or scattered is referred to as the transmitted beam.
The transmitted beam contains information regarding the X-ray
absorption properties of the objects within the bag at each of the
two levels of energy. This information can be used to analyze the
physical characteristics of the objects within the bag. The
transmitted beam also contains information that can be used to make
high quality images of the contents of a bag.
Product Features
The following is a description of some of the features of Vivid's
checked baggage explosives detection systems:
Proprietary Quality Power Supply. Each of Vivid's checked
baggage explosives detection systems uses a proprietary power supply
that generates alternating high and low X-ray energy pulses at film
safe levels of exposure. The power supply is driven by an X-ray
controller that maintains a stable, repeatable fan-shaped X-ray beam.
High Resolution Detector. Vivid's checked baggage explosives
detection systems incorporate a high resolution detector array that
collects data from the transmitted X-ray beam consisting of more than
one million pixels of information per bag.
Composition Analysis Technology. The detection systems use
Vivid's patented software to identify and separate the individual
objects within a bag, including objects between other items or within
a container. These programs also analyze the physical characteristics
of each of those objects to determine whether they match those of a
targeted item, such as explosives or other contraband. Additional
programs detect materials such as lead that could be used to shield
an explosive device from this analysis.
Scatter Detection Enhancement Technology. Vivid has developed
proprietary scatter detection enhancement technology to increase its
systems' ability to detect configurations that are not readily
detected by X-ray absorption analysis techniques. Vivid's scatter
detection enhancement technology, which includes a combination of
additional detectors and software, measures and analyzes the X-ray
that are scattered by a bag. If the scatter levels indicate the
possible presence of a suspect material, the affected area is further
analyzed to determine if a threat is present. Vivid has incorporated
scatter detection enhancement technology in most of its checked
baggage inspection products, either as an option or a standard
feature. Vivid also offers this technology as an upgrade for existing
systems.
Computer-Generated Decisions Regarding the Contents of Baggage.
Vivid's composition and scatter detection analysis techniques result
in a computer-generated decision regarding the contents of the
baggage screened. Any bag that is determined to contain a suspect
object will cause the system to reject the bag. In the case of an
operator- attended system, such as a Level 2 or Level 3 system, an
image of the rejected bag is presented to an operator for detailed
inspection. The bag image is presented in high-resolution gray scale,
with the suspect object highlighted in color. The system can be
programmed to sound an alarm, as well as require the operator to
acknowledge the alarm by pressing a button to either reject or clear
the bag.
Integration with Airport Baggage Handling Systems. Vivid has
integrated its products into a wide range of airport baggage handling
systems. These products make use of control software developed by
Vivid to facilitate communication between the explosives detection
system and the airport baggage handling system. If no suspect object
is detected by the system, a "clear" status is sent to the baggage
handling system, allowing the bag to continue directly to the
aircraft. If a suspect object is detected, a "reject" message is sent
to the baggage handling system, requiring the next level of
inspection.
Vivid's explosives detection systems are offered in a variety of
configurations depending on the application or installation
requirements. The following describes Vivid's primary product
offerings:
Product Models
Integrated Checked Baggage Inspection Systems. These systems are
designed to be integrated into an airport's checked baggage handling
equipment.
VIS-M. The VIS-M is a single system alternative to separate
Level 1 and Level 2 systems. This model allows several X-ray system
mainframes to be interconnected with multiple remote Level 2 operator
workstations. The X-ray system mainframes transmit images of rejected
bags to the Level 2 workstations for operator inspection. During
off-peak periods, workstations can be switched off, which reduces
staffing requirements and operating costs. The efficiency gained by
the additional workstations combined with enhanced baggage control
software allows an operator to review images of the contents of a bag
while the bag continues to the aircraft. This process eliminates the
need and associated costs of a secondary conveyor system to hold the
bags while Level 2 inspection is taking place.
MVT. The MVT is Vivid's most recently introduced system for
integrated screening of checked baggage. This system gathers
significantly more data than the VIS-M, by obtaining three different
views of each bag. This multi-view technique is designed to provide
better measurements of the physical characteristics of each item
inside a bag. The system also incorporates the multiple workstation
capability of the VIS-M. Vivid is working with the FAA to further
enhance the MVT to obtain FAA certification.
Freestanding Checked Baggage Inspection Systems. These systems are
intended to be installed in an airport terminal, such as in front of
airline check-in counters or in a baggage handling hall.
H-1. The H-1 is an operator-attended system that inspects bags
in the upright position, as they tend to be carried by a passenger.
VDS-II. The VDS-II is an operator-attended system that is
designed to serve as either a standalone or Level 3 inspection
system. When used for Level 2 inspection, the VDS-II can be
integrated into an airport's baggage handling system. The VDS-II
combines Vivid's scatter detection enhancement technology with a
high-resolution image to enhance detection capability. Vivid also
offers a version of the VDS-II system to handle oversized baggage.
Handbag Inspection System; APS. Vivid offers its APS system to
inspect carry-on baggage, hand baggage and parcels, for explosives or
contraband material. The APS system is similar in configuration to
conventional X-ray systems used to screen for concealed weapons.
While an operator is required to inspect the X-ray image of each bag
for weapons, the APS automatically alerts the operator to the
presence of suspect explosive materials. The APS system incorporates
an advanced proprietary operator interface that allows the operator
to view the contents of a bag using various imaging modes and
magnifications to determine whether the bag should be cleared or
rejected for further inspection. The United States General Services
Administration has approved Vivid's APS systems for building
protection.
Other Products and Applications
Vivid is exploring opportunities with various governmental
authorities and agencies in the United States and internationally to
use its equipment for the detection of illicit drugs, the illegal
export of currency and detection of agricultural products.
Marketing and Sales
Vivid sells and markets its products through its direct sales
force as well as independent sales representatives and distributors.
As of September 30, 1999, Vivid had a 12 person marketing and sales
staff. Two members of this staff are located in the United Kingdom
and one in Switzerland. Vivid also has a director of business
development for the United States based in New Jersey with a primary
focus on the non-aviation applications for Vivid's systems. The
remainder of the marketing and sales staff is headquartered at
Vivid's offices in Woburn, Massachusetts. The selling process for
Vivid's products often involves a team comprised of individuals from
sales and marketing, engineering, operations and senior management.
In the United States, Vivid works actively with the FAA, other
government agencies, airlines, airport operators and congressional
committees to promote its products for deployment in United States
airports. Vivid believes that its sales of checked baggage systems in
the United States will be limited until it is able to obtain FAA
certification for a system. Vivid also works with United States and
foreign governmental agencies to promote its products for
non-aviation applications. Vivid markets its products through
participation in trade shows, publication of articles and advertising
in trade journals, participation in industry forums and standard
setting organizations, and distribution of sales literature. Vivid
benefits from customer referrals and the use of certain customer
installations as demonstration sites for its systems.
In 1997, Vivid entered into an arrangement with Gilardoni S.p.A,
an Italian-based manufacturer of X-ray equipment, for the manufacture
and sale of the APS carry-on baggage explosives detection system.
Under this arrangement, Vivid has the exclusive right to manufacture
and sell this system in the United States, the United Kingdom, other
designated European countries and Mexico. Vivid has agreed not to
sell any competitive X-ray-based system within its territory unless
manufactured by Gilardoni or Vivid.
International sales account for a large percentage of Vivid's
revenues. International sales accounted for 78% of Vivid's revenues
in fiscal 1998 and 73% of Vivid's revenues in the first nine months
of fiscal 1999. See Note 6 to Vivid's consolidated financial
statements.
In fiscal 1999, Vivid's sales to a United States government
agency accounted for 16% of revenues, sales to Manchester Airport, UK
accounted for 16% of revenues, sales to Hochtief A.G. (the new Athens
International Airport) accounted for 11% of revenues and sales to the
BAA accounted for 13% of revenues. In fiscal 1998, Vivid's sales to
the BAA accounted for 42% of revenues, sales to Airport Authority
Hong Kong accounted for 12% of revenues and sales to the FAA,
including research and development funding, accounted for 16% of
revenues.
Customer Service Support
Vivid provides customer support to assist in the installation
and integration of Vivid's products into its customers' facilities.
Vivid offers a number of customer support services, including
applications, support, training, systems preventative and corrective
maintenance, and upgrades. Vivid generally provides one-year parts
warranty and offers primary and back-up service contracts to its
customers. As of September 30, 1999, Vivid's customer support staff
included six support engineers at its headquarters in Massachusetts,
one support engineer in New York, nine support engineers operating
out of Vivid's offices in the United Kingdom and one support engineer
in the Asia-Pacific region.
Regulation
The explosives detection systems manufactured and marketed by
Vivid for use in airports are subject to regulation by the FAA,
corresponding foreign governmental authorities and the United Nations
International Civil Aviation Organization, an organization that
establishes standard practices for the aviation industry on a
worldwide basis. Sales of Vivid's explosives detection systems for
use in airports have been and will continue to be dependent upon
governmental initiatives to require or support the screening of
baggage with advanced explosives detection systems.
Research and Development
Vivid's research and development efforts are focused on
developing new products for the explosives and contraband detection
system market and further enhancing the functionality, reliability
and performance of its existing product line. Vivid's research and
development personnel are involved in establishing protocols,
monitoring and interpreting and submitting test data to the FAA and
other domestic and foreign regulatory agencies to obtain the
requisite certifications, clearances and approvals for its products.
During fiscal 1999, Vivid focused its research and development
personnel on the enhancement of its products, particularly efforts to
enhance its recently introduced MVT system, with a goal of obtaining
FAA certification of that system.
At September 30, 1999, Vivid had 42 employees engaged in
research and development and engineering. Vivid's research and
development expenses were approximately $4.4 million in fiscal 1997,
$5.9 million in fiscal 1998 and $6.3 million in fiscal 1999. In
addition, during each of these periods, a portion of Vivid's research
and development expenses related to work performed under Vivid's FAA
research and development grants were included under costs of goods
sold.
Intellectual Property
Vivid relies upon a combination of patent, copyright, trademark
and trade secret laws, non-disclosure agreements and other
contractual provisions to establish and maintain and protect its
proprietary technology. Due to the rapid technological change that
characterizes the explosives detection system industry, Vivid
believes that to maintain a competitive advantage it must continue to
improve existing technology, rely upon trade secrets and unpatented
proprietary know-how and develop new products.
Vivid has obtained seven patents and has pending two patent
applications in the United States. In addition, Vivid has pending
patent applications in foreign countries that correspond to the
subject matter of several of its United States patents and patent
applications. Vivid's patents have expiration dates ranging from 2011
to 2015.
Vivid has an exclusive perpetual license to use patents and
technology developed by Hologic, Inc. for the development,
manufacture and sale of X-ray screening security systems for
explosives, drugs, currency and other contraband. Vivid also has a
nonexclusive license to use this technology for the development,
manufacture and sale of X-ray-based products for process control
applications in the food and beverage industries. Hologic and Vivid
have also each granted to the other a non-exclusive, royalty-free
license to use any unpatented technology developed by the other in
connection with research and development activities. In addition,
Hologic and Vivid each have the right to obtain from the other an
exclusive license, on commercially reasonable terms to be negotiated,
for any patented new developments. Vivid and Hologic have agreed that
upon completion of the proposed merger with PerkinElmer, these
arrangements will terminate, other than Vivid's exclusive license to
Hologic's existing patents and technology for the development,
manufacture and sale of X-ray screening security systems for
explosives, drugs, currency and other contraband.
In 1996, Vivid and PerkinElmer settled a patent infringement
dispute. As part of the settlement, Vivid and PerkinElmer granted
each other broad rights to use each other's then existing X-ray
technology for an unlimited period of time.
Competition
The markets for Vivid's products are highly competitive. Some of
Vivid's competitors have substantially greater manufacturing,
marketing and financial resources than Vivid. Competitors may develop
superior products or products of similar quality for sale at the same
or lower prices. In addition, Vivid's products may be rendered
obsolete by new industry standards or changing technology.
While several of Vivid's competitors currently market checked
baggage explosives detection products that use dual energy X-ray
technology, Vivid believes that it is able to compete favorably with
these products based upon the overall cost effectiveness of Vivid's
systems as measured by a combination of factors including effective
explosives detection, throughput, low cost of operation, installation
and integration, price, reliability, and their proven operation in a
variety of airports.
Vivid's systems also compete with systems employing other
technologies including CT scanner technology and trace detection
technology. A product based upon CT scanner technology currently
detects a wider range of explosives than does Vivid's systems. In
1994, the FAA first certified this CT-based system and a new model
was certified in April 1998. In November 1998, the FAA certified a
new CT-based system developed by another company. This certification
does not apply to the commercial production model of this system,
which Vivid believes is still under development. CT systems operate
at a significantly lower throughput rate and significantly higher
expense than Vivid's systems. None of Vivid's products have been
certified by the FAA. Products based upon trace detection technology
have lower throughput rates than those based on dual energy X-ray or
CT technology and generally have been installed as Level 3 or
stand-alone systems.
Vivid's APS system is intended to detect explosives in carry-on
bags and personal effects at airports and other high-security
installations. This system competes with conventional X-ray systems,
which are lower in price, as well as advanced explosives detection
systems adapted by Vivid's competitors for this use. Some of these
newer systems are less expensive than the APS. The APS system
competes on the basis of detection capabilities, ease of use, price,
expense of operation and reliability.
Manufacturing
Vivid's manufacturing operations consist primarily of assembly,
test and quality control. Vivid has adopted quality assurance
procedures that include standard design practices, component
selection procedures, vendor control procedures, and comprehensive
reliability testing and analysis. As a result of these efforts, Vivid
has received ISO 9001 certification.
Vivid purchases a major portion of the parts and peripheral
components for its products. Most parts and materials are readily
available from several supply sources.
In 1997, Vivid entered into an agreement with Gilardoni S.p.A.,
which requires Vivid to purchase two key components for its APS
system from Gilardoni. Vivid has experienced delays and other
difficulties in obtaining these components from Gilardoni.
Backlog
Backlog for Vivid's products totaled approximately $4.0 million
as of September 30, 1998 and September 30, 1999. Backlog consists of
purchase orders for which a customer has scheduled delivery within
the next twelve months. In certain circumstances, orders included in
backlog may be canceled or rescheduled by customers without
significant penalty. Backlog as of any particular date should not be
relied upon as indicative of Vivid's revenues for any future period.
Employees
As of September 30, 1999, Vivid had 108 full-time employees,
including 28 in manufacturing operations and quality assurance, 34 in
research, development and engineering, 31 in marketing, sales and
customer support, and 15 in finance and administration and
information systems. None of Vivid's employees is represented by a
union. Vivid considers its employee relations to be good.
Executive Officers of the Registrant
The current executive officers of Vivid and their ages are as
follows:
Name Age Position
S. David Ellenbogen 61 Chairman of the Board and Chief
Executive Officer
Dr. Jay A. Stein 57 Senior Vice President, Technical
Director and Director
Herbert Janisch 60 President and Chief Operating Officer
William J. Frain 33 Chief Financial Officer and Treasurer
Daniel J. Silva 47 Vice President of Operations
S. David Ellenbogen, a co-founder of Vivid, has served as its Chief
Executive Officer and a director since its organization in June 1989
and served as its President from June 1989 until February 1997. Mr.
Ellenbogen was also a co-founder of Hologic, a developer,
manufacturer and seller of X-ray and other bone densitometers, served
as its President from October 1985 until May 1994, and is currently
its Chairman of the Board and Chief Executive Officer. Prior to
founding Hologic, Mr. Ellenbogen served as President, Treasurer and a
director of Diagnostic Technology, Inc. ("DTI"), which he co-founded
in 1981. DTI, which developed an X-ray product for digital
angiography, was acquired in 1982 by Advanced Technology
Laboratories, Inc. ("ATL"), a wholly-owned subsidiary of Squibb
Corporation. Mr. Ellenbogen was involved in the management of the
digital angiography group of ATL from 1982 to 1985. Mr. Ellenbogen
is employed by Hologic and performs part-time management services for
the Company pursuant to a management agreement between the Company
and Hologic. See "Item 13. Certain Relationships and Related
Transactions."
Dr. Jay A. Stein, a co-founder of Vivid and Hologic, has served as
Senior Vice President, Technical Director and a director for both
companies since their organization. Dr. Stein co-founded DTI with
Mr. Ellenbogen in 1981, served as Vice President and Technical
Director of DTI and was Technical Director of the digital angiography
group of its successor, ATL, from 1982 to 1985. Dr. Stein received a
Ph.D. in Physics from The Massachusetts Institute of Technology. He
is the principal author of fifteen patents pertaining to X-ray
technology. Dr. Stein is employed by Hologic and performs part-time
management services for the Company pursuant to a management
agreement between the Company and Hologic. See "Item 13. Certain
Relationships and Related Transactions."
Herbert Janisch joined Vivid as President and Chief Operating
Officer in June 1999. Previously, Mr. Janisch was President and
Chief Executive Officer of Elin Energieanwendung, an electrical
engineering and manufacturing company in Vienna, Austria. Prior to
that, he held positions of increasing responsibility at Klockner
Moeller GmbH including acting as the company's Director of Marketing
and Sales and serving as President of various international
subsidiaries.
William J. Frain, a Certified Public Accountant, has served as
Chief Financial Officer and Treasurer since October 1996. Prior to
that, Mr. Frain served as Controller from August 1993 until October
1996. Prior to joining the Company, Mr. Frain served as an auditor
at Arthur Andersen LLP from September 1988 to August 1993.
Daniel J. Silva has served as Vice President of Operations since
April 1994. Prior to that, Mr. Silva served as Vivid's Director of
Operations from June 1992 to April 1994. Mr. Silva was hired as an
Operations Manager in June 1991. Prior to joining Vivid, Mr. Silva
held positions in manufacturing, project management and program
management at AS&E.
Significant Employees
Certain key employees of the Company who are not also executive
officers or directors are as follows:
Name Age Position
Kristoph D. Krug 46 Chief Technical Officer
Jeremy M. Attree 40 Director of Operations, Europe
Kristoph D. Krug joined Vivid in July 1989 as a Project Engineer,
was promoted to Director of Research and Development Engineering in
1992 and became Chief Technical Officer in January 1997. Mr. Krug is
the author of two of Vivid's patents for X-ray screening. Prior to
joining Vivid, Mr. Krug was Engineering Manager at Teradyne, Inc., a
manufacturer of automated test equipment.
Jeremy M. Attree has served as Director of Operations, Europe since
joining Vivid in October 1993. From September 1991 to October 1993,
Mr. Attree served as Marketing Manager for EA Technology Ltd, a
primary research and development center for the electricity industry
in the United Kingdom. Prior to joining EA Technology, Mr. Attree
served as Marketing Director and Development Manager for Schlumberger
Industries, Security Division, where he was engaged primarily in the
development of new products in the airport security field.
Item 2. Properties
Vivid leases its administrative headquarters and manufacturing
facility located in Woburn, Massachusetts. The facility consists of
approximately 43,000 square feet, including 21,000 square feet
dedicated to Vivid's manufacturing operations. In July 1998, Vivid
entered into a five-year lease agreement for approximately 18,500
square feet of additional space in a building next to its existing
location in Woburn, Massachusetts. Vivid subleases approximately
10,000 square feet of this new facility to a third party. This
sublease expires in December 1999, at which time the entire facility
will be available for use by Vivid. Vivid has two offices in the
United Kingdom, leasing approximately 1,000 square feet of space for
sales and service. Vivid believes that its facilities will be
adequate for its needs for the foreseeable future and that suitable
additional space will be available at commercially reasonable prices
as needed.
Item 3. Legal Proceedings
In May 1996, Vivid commenced an action in the United States
District Court for the District of Massachusetts against American
Science & Engineering seeking a declaration that Vivid does not
infringe American Science & Engineering patents related to back
scattered X-rays. American Science & Engineering filed a counterclaim
alleging that Vivid is infringing on one or more of eight American
Science & Engineering patents. In April 1997, the court dismissed
American Science & Engineering's counterclaim on summary judgment
without granting leave to file an amended counterclaim. In April
1998, American Science & Engineering filed a motion in the Federal
Court of Appeals for the First Circuit to appeal this decision. The
Court of Appeals heard oral arguments for this appeal in early 1999,
but no decision has been announced.
In January 1999, Vivid filed suit in the Superior Court for the
State of California, County of San Diego, against InVision
Technologies, Inc., Quantum Magnetics, Inc., ESI International, Inc.,
and two private investigators whom they had hired. The complaint
alleges that the activities of InVision, Quantum and their agents
were designed to determine whether Vivid was in development of
quadrupole resonance technology and what kind of competitive threat
Vivid posed to those companies. Specifically, the complaint alleges
that the acts of InVision and Quantum constituted a misappropriation
of trade secrets, indicated an attempt to induce breaches of
contracts of Vivid's employees, interfered with contractual relations
and constituted defamation. That lawsuit has been stayed by the state
court judge pending final outcome of a criminal investigation of a
former officer and director of Quantum who is also a former employee
of Vivid. The criminal investigation is ongoing.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Market Information - Vivid's Common Stock is quoted on the Nasdaq
National Market under the symbol "VVID." The following table sets
forth, for the periods indicated, the high and low sales prices per
share of Common Stock, as reported on the Nasdaq National Market.
Fiscal 1999 High Low
Quarter ended December 31, 1998 9.125 3.875
Quarter ended March 31, 1999 6.25 3.375
Quarter ended June 30, 1999 4.50 1.875
Quarter ended September 30, 1999 6.6875 2.4375
Fiscal 1998 High Low
Quarter ended December 31, 1997 16.50 10.375
Quarter ended March 31, 1998 16.375 12.00
Quarter ended June 30, 1998 15.75 10.50
Quarter ended September 30, 1998 12.00 6.875
Number of Holders - As of November 30, 1999, there were approximately
186 holders of record of Vivid's Common Stock, including multiple
beneficial holders at depositaries, banks and brokers listed as a
single holder in the street name of each respective depositary, bank
or broker.
Dividend Policy - Vivid has never declared or paid cash dividends on
its capital stock and does not plan to pay any cash dividends in the
foreseeable future. Vivid's current policy is to retain all of its
earnings to finance future growth. Vivid's bank line of credit,
which expires February 29, 2000, prohibits the payment of cash
dividends without prior bank approval.
Recent Sales of Unregistered Securities - None.
Use of Proceeds of Initial Public Offering - On December 10, 1996,
the Securities and Exchange Commission declared effective Vivid's
Registration Statement on Form S-1, Commission file number 333-14311,
relating to the initial public offering of Vivid's Common Stock, $.01
par value. The offering commenced on December 11, 1996 and all
shares covered by the Registration Statement were sold. The managing
underwriters for the offering were Lehman Brothers Inc., Cowen &
Company and Needham & Company. The following sets forth certain
information regarding the offering and Vivid's application of the net
proceeds therefrom through September 30, 1999:
INFORMATION RELATING TO THE OFFERING
Number of shares registered 2,300,000
Number of shares sold by Vivid 2,300,000
Aggregate price of the offering
amount registered and sold $27,600,000
Offering Expenses:
Underwriting discounts
and commissions $1,932,000
Finders' fees -
Expenses paid to or for
underwriters -
Other expenses $845,000
Total expenses $2,777,000 (1)
Net offering proceeds $24,823,000
-------------------------
(1) No such expenses were paid directly
or indirectly to directors, officers,
general partners of Vivid or their
associates; to persons owning ten percent
or more of any class of equity securities
of Vivid, or to affiliates of Vivid.
USE OF PROCEEDS
Category Amount
Construction of plant,
building and facilities $63,300
Purchase and installation of
machinery and equipment $1,160,000
Purchase of real estate -
Acquisition of technology/license $1,750,000
Repayment of indebtedness -
Redemption of redeemable
preferred stock (1) $5,780,650
Working capital $6,912,109
Temporary investments, net of: $8,073,323
Notes, drafts, bills of
exchange or bankers'
acceptances which mature
not later than one year
from the date of issuance
Long-term investments $1,083,618
Investment-grade commercial
paper, with an average
maturity period of 15 months
Total investments $9,156,941
Total $24,823,000
-----------------------
(1)Of this amount, approximately $900,000 was paid to Beta
Partners Limited Partnership. Frank Kenny, a director of
Vivid, is a general partner of this partnership. No other
proceeds of the offering were paid directly or indirectly to
directors, officers, general partners of Vivid or their
associates; to persons owning ten percent or more of any class
of equity securities of Vivid; or to affiliates of Vivid.
Item 6. Selected Financial Data
The following table contains certain selected consolidated financial
data of Vivid and is qualified in its entirety by the more detailed
Consolidated Financial Statements included herein. This data should
be read in conjunction with "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements appearing elsewhere herein.
Year ended September 30,
1995 1996 1997 1998 1999
(in thousands, except per share data)
Consolidated Statement of Operations Data:
Revenues $14,437 $15,578 $31,702 $38,718 $21,185
Cost of revenues 6,129 6,899 13,203 16,361 13,393
Gross margin 8,308 8,679 18,499 22,357 7,792
Operating expenses:
Research and development 3,653 3,462 4,390 5,859 6,336
Selling and marketing 1,077 1,395 3,556 4,335 3,729
General and
administrative 1,120 1,515 2,929 3,952 4,060
Restructuring and
asset write-down - - - - 1,208
Litigation expenses 309 1,150 427 220 -
Total operating
expenses 6,159 7,522 11,302 14,366 15,333
Income (loss) from
operations 2,149 1,157 7,197 7,991 (7,541)
Interest and other
income (expense), net (45) 8 862 1,477 978
Income (loss) before
provision for
income taxes 2,104 1,165 8,059 9,468 (6,563)
Provision (benefit) for
income taxes 90 - 2,193 2,838 (1,931)
Net income (loss) $ 2,014 $ 1,165 $ 5,866 $ 6,630 $(4,632)
Net income (loss) per share
Basic $ 1.21 $ 0.69 $ 0.78 $ 0.68 $(0.47)
Diluted $ 0.28 $ 0.15 $ 0.60 $ 0.65 $(0.47)
Weighted average number of shares outstanding
Basic 1,663 1,682 7,548 9,685 9,911
Diluted 7,127 7,869 9,838 10,251 9,911
(Dollars in thousands)
September 30,
1995 1996 1997 1998 1999
Consolidated Balance Sheet Data:
Working capital $ 3,968 $ (1,037) $ 29,297 $ 36,329 $ 31,769
Total assets 7,740 11,963 37,457 45,924 42,349
Redeemable preferred
stock, including
current portion 5,781 5,781 - - -
Stockholders' equity
(deficit) (1,045) 177 31,711 38,900 34,175
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis should be read in
conjunction with "Item 1. Business," "Item 6. Selected Financial
Data," the Company's Consolidated Financial Statements and Notes and
the information described under the caption "Risk Factors" below.
Recent Development
On October 4, 1999, Vivid executed a merger agreement with
PerkinElmer, Inc. (formerly EG&G, Inc.). Through the merger, Vivid
will become a wholly-owned subsidiary of PerkinElmer. Approval of
the merger agreement and the merger requires the vote of a majority
of the outstanding shares of Vivid's common stock. Vivid and
PerkinElmer have prepared and filed a proxy statement/prospectus that
has been mailed to Vivid stockholders for a special meeting of
Vivid's stockholders scheduled to be held on January 13, 2000 to vote
on the merger. A more detailed description of the terms and
conditions of the merger agreement and the merger, and the risks
associated with the merger, are set forth in the proxy
statement/prospectus. Vivid cannot assure that the merger will be
approved by its stockholders, or that even if approved, the merger
will be completed.
Overview
Vivid was founded in 1989 to develop, manufacture and market
explosives detection systems. Following its organization, Vivid
undertook extensive research and development, introducing its first
free standing explosives detection system in 1991, and its first
integrated explosives detection systems for Level 1 and Level 2
screening in 1993. Vivid commenced commercial shipments of its
integrated checked baggage explosives detection systems in January
1994. As of September 30, 1999, Vivid had sold 294 checked baggage
systems for use in airports throughout Europe, the Asia/Pacific
region, the Middle East, the United States and Canada. Vivid has also
developed a freestanding system, the APS system, to screen hand
baggage for explosives and weapons for use in airports and protection
of public, private, and government facilities. As of September 30,
1999, Vivid had sold 106 APS systems.
Vivid's sales are primarily to owners and operators of airports,
including foreign governments and regulatory authorities, and other
government agencies and departments that purchase non-aviation
equipment. Vivid's revenues are derived primarily from product sales.
Vivid recognizes revenue from product sales upon shipment to the
customer, provided that no significant Vivid obligations remain
outstanding and collection of the related receivable is deemed
probable by management. Vivid accrues for anticipated warranty and
installation costs upon shipment. Vivid's revenues also include
government research and development grants and revenues from service,
the sale of spare parts and training, which have comprised less than
10% of revenues in the periods presented. Vivid recognizes revenues
under its development grants as services are rendered. Vivid
recognized development revenue from FAA grants of $0.8 million in
fiscal 1997, $2.7 million in fiscal 1998 and $1.2 million in fiscal
1999.
Vivid's cost of revenues includes a royalty payable with respect
to product sales and other revenues derived from its license with
Hologic. Under the terms of this exclusive agreement, in January 1997
this royalty was reduced from 5% to 3% of revenues derived from the
license upon Vivid reaching $50 million in cumulative revenues
subject to the exclusive license. Upon Vivid reaching $200 million of
cumulative revenues subject to this exclusive license, the royalty
will be eliminated entirely. As of September 30, 1999, Vivid had
reached approximately $124 million in cumulative revenues. If the
contemplated merger with PerkinElmer is completed, Vivid has agreed
to pay Hologic $2.0 million plus all royalties accrued through
September 30, 1999 for a fully paid-up license to the Hologic
technology.
A relatively few customers have accounted for a substantial
portion of Vivid's revenues.
In fiscal 1999, Vivid's sales to a United States government
agency accounted for 16% of revenues, sales to Manchester Airport UK
accounted for 16% of revenues, sales to Hochtief AG (the New Athens
International Airport) accounted for 11% of revenues, and sales to
the BAA accounted for 13% of revenues.
In fiscal 1998, Vivid's sales to the BAA accounted for 42% of
revenues, sales to Airport Authority Hong Kong accounted for 12% of
revenues and sales to the FAA, including research and development
funding, accounted for 16% of revenues.
In fiscal 1997, Vivid's sales to the BAA accounted for 39% of
revenues, sales to Airport Authority Hong Kong accounted for 19% of
revenues and sales to Toyo Kanetsu K.K., the baggage handling
contractor for Malaysia's Kuala Lumpur International Airport,
accounted for 27% of revenues.
Vivid expects that revenues from these customers will decrease and
will become increasingly dependent upon sales of upgrades,
replacement equipment and services.
A majority of Vivid's revenues have been generated by sales to
customers outside the United States. Vivid's foreign sales have
occurred principally in the United Kingdom, other Western European
countries, the Asia/Pacific region and the Middle East. Foreign sales
accounted for 97% of Vivid's revenues in fiscal 1997, 78% in fiscal
1998, and 73% in fiscal 1999. Vivid expects international sales to
remain a significant component of its business.
Results of Operations
Fiscal Year Ended September 30, 1999 Compared to Fiscal Year Ended
September 30, 1998
Revenues. Vivid's revenues in fiscal 1999 decreased 45% to $21.2
million from $38.7 million in fiscal 1998. This decrease was
attributable to both a decrease in product sales and in development
revenue from the FAA. Vivid attributes the slowdown in product sales
primarily to the extension by the European Civil Aviation Conference
from 2000 to 2002 for all member states to implement 100% screening
of international checked luggage, and the lingering effects of the
economic troubles in Asia. In addition, Vivid believes that it will
be difficult to complete significant sales of its checked baggage
screening systems in the United States until such time as Vivid has
an FAA certified system. During fiscal 1999, Vivid shipped 37 checked
baggage systems and 76 APS systems, compared to 80 checked baggage
systems and 28 APS systems in fiscal 1998.
Gross Margin. Vivid's gross margin in fiscal 1999 decreased to
37% compared to 58% in fiscal 1998. The decrease was primarily
attributable to significant fixed manufacturing labor and overhead
costs applied to a lower volume of shipments of Vivid's checked
baggage products. Also impacting gross margin was product mix of
shipments for fiscal 1999 with the majority of sales coming from the
APS system which has a lower average margin than Vivid's checked
baggage system.
Research and Development Expenses. Vivid's research and
development expenses increased 8% to $6.3 million, or 30% of
revenues, in fiscal 1999 from $5.9 million, or 15% of revenues, for
fiscal 1998. The overall increase in research and development
expenses for fiscal 1999 was primarily attributable to the addition
of engineering personnel and consultants working on the development
of new products, including the next generation system, and product
feature changes to the APS system. The increase was also due to the
reduction in FAA grants that offset costs in fiscal 1998. At the end
of the second quarter of fiscal 1999, Vivid implemented a
restructuring plan, including a workforce reduction, which reduced
research and development expenses for fiscal 1999 by approximately
$0.7 million from fiscal 1998.
Selling and Marketing Expenses. Vivid's selling and marketing
expenses decreased 14% to $3.7 million, or 18% of revenues, in fiscal
1999 from $4.3 million, or 11% of revenues, in fiscal 1998. This
decrease was primarily attributable to the decrease in commissions,
public relations costs, trade show and travel related costs, and
advertising costs, which was slightly offset by an increase in
consulting and personnel related costs.
General and Administrative Expenses. Vivid's general and
administrative expenses decreased 3% to $4.1 million, or 19% of
revenues, in fiscal 1999 from $4.2 million, or 11 % of revenues, in
fiscal 1998. The decrease was primarily attributable to a decrease in
personnel and related costs and license fees and patent amortization
charges in connection with Vivid's restructuring in the second
quarter of fiscal 1999, which were slightly offset by an increase in
legal and administrative fees.
Restructuring and Asset Write Down. In the second quarter of
fiscal 1999, Vivid implemented a restructuring that included the shut
down of a development facility and the abandonment of certain
technology, resulting in a nonrecurring charge of approximately $1.2
million. The restructuring included a $1.1 million write-off of
unamortized license fees and fixed assets related to an abandoned
technology, $76,000 of lease termination and certain other
contractual termination costs and $52,000 of severance costs for
terminated research and development personnel. The total cash impact
of the restructuring amounted to approximately $128,000, of which
$12,000 remained unpaid as of September 30, 1999.
During the second quarter of fiscal 1999, Vivid also implemented
a cost cutting plan to reduce operating costs. The cost cutting plan
included a 10% workforce reduction, the cost of which has not been
included in the restructuring described above. The costs associated
with the workforce reduction were paid by March 31, 1999 and are
included in Vivid's statements of operations in cost of revenues,
research and development, selling and marketing, and general and
administrative expenses.
Interest and Other Income. Vivid's net interest and other income
decreased to $1.0 million in fiscal 1999 from $1.5 million in fiscal
1998. The decrease was primarily attributable to a decrease in
interest income attributable to lower average cash balances available
for investments and a reduction in other income including gains on
foreign exchange.
Provision for Income Taxes. During fiscal 1999, Vivid recognized
a tax benefit of approximately $1.9 million based upon the use of net
operating losses. Vivid's effective tax rate was 30% in fiscal 1998
which is lower than the statutory tax rates primarily due to the use
of tax credits and the tax benefits associated with Vivid's foreign
sales corporation.
Fiscal Year Ended September 30, 1998 Compared to Fiscal Year Ended
September 30, 1997
Revenues. Vivid's revenues increased by approximately 22% to
$38.7 million in fiscal 1998 from $31.7 million in fiscal 1997. This
increase was primarily attributable to an increase in product sales
of checked baggage systems and the newly introduced hand baggage
system. The increase in product sales was primarily attributable to
the total number of product shipments to Europe, the Middle East, and
the United States, including installations at JFK Terminal One,
partially offset by slightly lower average selling prices of Vivid's
products and a change in product mix. During fiscal 1998, Vivid
shipped and installed 80 checked baggage units and 28 hand baggage
units compared to 76 checked baggage units and two hand baggage units
in fiscal 1997. In fiscal 1998, Vivid recognized approximately $2.7
million of revenue under a FAA research grant, compared to $0.8
million in fiscal 1997.
Gross Margin. Vivid's gross margin was 58% of revenues in fiscal
1998 and fiscal 1997. In fiscal 1998, the increase in unit sales,
revenue associated with Vivid's FAA development grant, service
contracts and improved manufacturing efficiencies, which increased
margins, were offset by lower average selling prices and the addition
of sales of Vivid's hand baggage unit which had lower margins than
Vivid's checked baggage units.
Research and Development Expenses. Vivid's research and
development expenses increased by approximately 33% to $5.9 million,
or 15% of revenues, in fiscal 1998 from $4.4 million, or 14% of
revenues, in fiscal 1997. The increase was primarily attributable to
the addition of engineering personnel and outside consultants working
on the development of new products, mainly the development of a
second generation explosives detection system in an effort to reach
FAA certification, and enhancements to existing products, including
enhancements to the APS system for carry-on baggage and the VIS-M.
Development expenses incurred under Vivid's FAA grants were included
in costs of goods sold.
Selling and Marketing Expenses. Vivid's selling and marketing
expenses increased approximately 22% to $4.3 million, or 11% of
revenues, in fiscal 1998 from $3.6 million, or 11% of revenues, in
fiscal 1997. The increase was primarily attributable to additional
sales and support personnel as a result of the expansion of
operations in Europe and the United States and, to a lesser extent,
an increase in advertising, consulting and public relations, trade
shows and related travel costs.
General and Administrative Expenses. Vivid's general and
administrative expenses increased approximately 35% to $3.9 million,
or 10% of revenues, in fiscal 1998 from $2.9 million, or 9% of
revenues, in fiscal 1997. The increase was primarily attributable to
an increase in personnel and related costs, patent amortization, and
license fees, as well as additional overhead costs as the headcount
for Vivid increased approximately 14%.
Litigation Expenses. Vivid incurred $220,000 of litigation
expenses in fiscal 1998 and $427,000 in fiscal 1997, primarily in
connection with Vivid's patent litigation with American Science &
Engineering and, to a lesser extent, its patent litigation with
PerkinElmer.
Interest Income. Vivid recognized net interest income of
approximately $1.3 million in fiscal 1998 compared to net interest
income of $0.8 million in fiscal 1997. The increase in fiscal 1998
was primarily attributable to higher average cash balances resulting
from the receipt of proceeds from Vivid's initial public offering in
fiscal 1997, and the generation of cash from operations in fiscal
1998.
Provision for Income Taxes. Vivid's effective tax rate for
fiscal 1998 was 30% compared to 27% in fiscal 1997. Vivid's effective
tax rate in fiscal 1998 was lower than the statutory tax rates
primarily due to the use of tax credits and the tax benefits
associated with Vivid's foreign sales corporation and Massachusetts
securities corporation. The increase in the provision for income
taxes in fiscal 1998 was primarily attributable to increased product
sales in the United States, which offset the benefit from the foreign
sales corporation.
Liquidity and Capital Resources
Vivid has funded its operations and capital expenditures
primarily through internally generated cash flows, proceeds from the
sale of securities and the availability of a working capital line of
credit. At September 30, 1999, Vivid had working capital of $31.8
million including $19.7 million in cash and cash equivalents and
short-term investments. Vivid also had $1.1 million of long-term
investments. Subsequent to September 30, 1999, Vivid secured a $3.0
million bank line of credit which expires February 29, 2000. The line
of credit bears interest at the bank's prime rate, which was 8.25% as
of September 30, 1999.
During fiscal 1999, Vivid's net cash used in operating
activities was approximately $4.7 million, including, net loss
adjusted for non-cash expenses, including depreciation and
amortization and write down of assets totaling $1.7 million, a $2.0
million increase of inventories and $1.1 million increase in other
current assets. The increase in inventory relates to purchases
associated with the production of the next generation system and the
increased sales activity of the APS system, and overall lower product
sales of checked baggage units. The increase in other current assets
relates to Vivid's tax benefit.
During fiscal 1999, net cash provided by investing activities
was approximately $866,000, primarily attributable to the net
decrease in investment balances of $1.3 million offset by capital
expenditures of approximately $359,000.
During fiscal 1999, net cash used in financing activities was
approximately $93,000, primarily attributable to Vivid's purchase of
treasury stock, offset by exercises of stock options.
Vivid may be affected, for the foreseeable future, by economic
conditions and currency volatility in the regions of the world where
it does business. As a result, there are uncertainties that may
affect future operations, including the recoverability of
receivables. It is not possible to determine the future effect
adverse economic conditions may have on Vivid's liquidity and
earnings.
Vivid believes that its existing resources and the anticipated
cash generated from operations will be sufficient to fund its planned
operations for at least the next 12 months. The sufficiency of
Vivid's resources to fund working capital needs is subject to known
and unknown risks, uncertainties and other factors which may
materially harm Vivid's business, including without limitation the
risk factors referred to in this Form 10-K.
Year 2000 Readiness Disclosure
Vivid may be affected by year 2000 issues related to
non-compliant information technology systems, often referred to as IT
systems, or non-IT systems operated or sold by Vivid or by third
parties. Vivid has substantially completed assessment of its internal
IT systems and non-IT systems. Vivid has tested all products
internally and has adopted a Year 2000 Qualification Test Procedure
to ensure that all products operate properly through the year 2000
and beyond. In addition to internal testing, Vivid has received
compliance certificates from the FAA and BAA confirming that Vivid's
existing products are year 2000 compliant. Vivid has also submitted a
survey to vendors subject to year 2000 compliance. In addition to the
survey, Vivid has internally tested components supplied by outside
vendors. Vivid has also performed an internal review of in-house
computers, network, operating system and financial reporting package
confirming year 2000 compliance.
Vivid is not currently aware of any year 2000 problems relating
to systems operated or sold by Vivid that would have a material
adverse effect on Vivid's business, results of operations or
financial condition. Although Vivid believes that its systems are
year 2000 compliant, Vivid utilizes third-party equipment and
software that may not be year 2000 compliant. In addition, Vivid's
products and software are often sold to be integrated into or
interface with third party equipment or software. Failure of
third-party equipment or software to operate properly with regard to
the year 2000 and thereafter could require Vivid to incur
unanticipated expenses to remedy any problems, which could have a
material adverse effect on Vivid business, financial condition and
results of operations.
Vivid may also be vulnerable to any failures by its major
suppliers, service providers and customers to remedy their own
internal IT and non-IT system year 2000 issues which could, among
other things, have a material and adverse affect on Vivid's supplies
and orders. Vivid is unable to estimate the nature or extent of any
potential adverse impact resulting from the failure of third parties,
such as its suppliers, service providers and customers, to achieve
year 2000 compliance. Moreover, such third parties, even if year 2000
compliant, could experience difficulties resulting from year 2000
issues that may affect their suppliers, service providers and
customers. As a result, although Vivid does not currently anticipate
that it will experience any material shipment delays from their major
product suppliers or any material sales delays from its major
customers due to year 2000 issues, these third parties may experience
year 2000 problems. Any such problems could have a material adverse
effect on Vivid's business, financial condition and results of
operations.
Other than its activities described above, Vivid does not have
and does not plan to develop a contingency plan to address year 2000
issues. Should any unanticipated significant year 2000 issues arise,
Vivid's failure to implement such a contingency plan could have a
material adverse affect on its business, financial condition and
results of operations.
To the extent that Vivid does not identify any material
non-compliant IT systems or non-IT systems operated by Vivid or by
third parties, such as Vivid's suppliers, service providers and
customers, the most reasonably likely worst case year 2000 scenario
is a systemic failure beyond the control of Vivid, such as a
prolonged telecommunications or electrical failure, or a general
disruption in United States or global business activities that could
result in a significant economic downturn. Vivid believes that the
primary business risks, in the event of such failure or other
disruption, would include but not be limited to loss of customers or
orders, increased operating costs, inability to obtain inventory on a
timely basis, disruptions in product shipments, or other business
interruptions of a material nature, as well as claims of
mismanagement, misrepresentation, or breach of contract, any of which
could have a material adverse effect on Vivid's business, financial
condition and results of operations.
Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. This statement
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities on
the balance sheet and measures those instruments at fair value. SFAS
No. 133, as amended by SFAS No. 137, is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. Vivid does
not expect SFAS No. 133 to have a material impact on its consolidated
financial statements.
Risk Factors
We have made forward-looking statements in this document, and in
documents that are incorporated by reference, that are subject to
risks and uncertainties. Forward-looking statements include
statements of Vivid's plans, objectives, expectations and intentions.
Also, when we use words such as "may," "will," "expects,"
"anticipates," "believes," "plans," "intends," "could," "estimates,"
"is being" or "goal" or other variations of these terms or comparable
terminology, we are making forward-looking statements, we are making
forward-looking statements. You should note that many factors could
affect the future financial results of Vivid, and could cause these
results to differ materially from those expressed in our forward-
looking statements. Factors that could cause or contribute to such
differences include those discussed below, as well as those discussed
elsewhere in this report.
Risks Relating to the Merger. The proposed merger with PerkinElmer is
subject to numerous known and unknown risks and uncertainties
including those set forth below. You should read Vivid's and
PerkinElmer's proxy statement/prospectus that has been mailed to
Vivid stockholders for a special meeting of Vivid's stockholders
scheduled to be held on January 13, 2000 for a more detailed
description of these risks.
PerkinElmer's stock price is volatile and the value of
PerkinElmer common stock issued in the merger will depend on its
market price at the time of the merger. No adjustment will be made
to the exchange ratio as a result of changes in the market price of
PerkinElmer's common stock if the PerkinElmer market price remains
between $30.99 and $46.49 per share.
If PerkinElmer does not manage the integration of Vivid and
other acquired companies successfully, it may be unable to achieve
desired results.
PerkinElmer may face challenges in integrating PerkinElmer and
Vivid and, as a result, may not realize the expected benefits of the
anticipated merger.
If PerkinElmer does not successfully integrate Vivid or the
merger's benefits do not meet the expectations of financial or
industry analysts, the market price of PerkinElmer's common stock may
decline.
Failure to complete the merger could negatively impact the
market price of Vivid's common stock and Vivid's operating results.
If the merger is not completed, Vivid may be unable to attract
another strategic partner on equivalent or more attractive terms than
those being offered by PerkinElmer.
Vivid may lose an opportunity to enter into a merger or business
combination with another party on more favorable terms because of
provisions in the merger agreement which prohibit Vivid from entering
into such transactions or soliciting such proposals.
Vivid's officers and directors have conflicts of interest that
may influence them to support of approve the merger.
Uncertainties associated with the merger has caused Vivid to
lose Jim Aldo, vice president of marketing and sales, and may cause
Vivid to lose other key personnel.
Customers of PerkinElmer and Vivid may delay or cancel orders as
a result of concerns over the merger.
There are many risks and uncertainties associated with
PerkinElmer's business including those set forth in the proxy
statement/prospectus and PerkinElmer's other filings with the
Securities and Exchange Commission.
Risks Relating to Vivid
Vivid may continue to incur significant losses.
Vivid incurred net losses of $4.6 million for the fiscal year
ended September 30, 1999. These losses, most of which were incurred
during the first six months of this period, were substantially
attributable to a significant reduction in revenues. Vivid cannot
assure that it will be able to increase its revenues or reduce costs
to be profitable on a sustained basis.
Vivid's reliance on a small number of customers with discrete
projects for a large portion of its revenues has had and may continue
to have a material adverse effect on Vivid's revenues and results of
operations.
In fiscal 1999, Vivid's revenues and results of operations were
adversely affected by its inability to replace a significant portion
of revenues it received during previous periods from a limited number
of customers whose projects or contracts had been completed or nearly
completed. In fiscal 1999, Vivid's sales to a United States
government agency accounted for 16% of revenues, sales to Manchester
Airport UK accounted for 16% of revenues, Hochtief AG (the New Athens
International Airport) accounted for 11% of revenues and sales to BAA
accounted for 13% of revenues. In fiscal 1998, Vivid's sales to the
BAA accounted for 42% of revenues, sales to the Airport Authority of
Hong Kong accounted for 12% of revenues and sales to the United
States Federal Aviation Administration, or FAA, including research
and development funding, accounted for 16% of revenues. Vivid's
continued reliance on a limited number of customers with discrete
projects for a substantial portion of its revenues could continue to
have a material adverse effect on its business, financial condition
and results of operations.
Vivid's sales of checked baggage explosives detection systems will be
adversely affected unless and until Vivid obtains FAA certification
for a system.
Vivid does not have a checked baggage explosives detection
system that has been certified by the FAA. This has limited Vivid's
sales of its checked baggage explosives detection system in the
United States, and may adversely affect its sales in other countries.
Vivid has experienced delays in its attempts to obtain FAA
certification for its MVT system, Vivid's next generation checked
baggage system, and believes that it will need to make further
refinements to the system in order to meet the FAA's certification
requirements. Vivid cannot ensure that the MVT or any other products
that it may develop will ever meet the FAA or any other certification
standard.
The failure or delay of governments to mandate the screening of
baggage with advanced explosives detection systems could have a
material adverse effect on sales of Vivid's systems.
The failure or delay of governments to mandate the screening of
baggage with advanced explosives detection systems has had and may
continue to have a material adverse effect on the sales of Vivid's
systems. Sales of Vivid's explosives detection systems for use in
airports will continue to be dependent upon governmental initiatives
that require or support the screening of baggage with advanced
explosives detection systems. These mandates are influenced by many
factors outside the control of Vivid, including political and
budgetary concerns of governments, airlines and airports. In 1998,
the European Civil Aviation Conference, an organization with 37
member states, delayed the implementation of 100% screening of
international checked baggage to the year 2002, from its prior target
date of the year 2000. Vivid, which has derived a substantial portion
of its revenues from Europe, believes that this delay has had a
material adverse effect on its business, financial condition and
results of operations.
Continued fluctuations in operating results could cause the price of
Vivid common stock to fall.
Vivid's annual and quarterly operating results have fluctuated in
the past and are likely to fluctuate in the future. It is possible
that Vivid's revenues and operating results will be below the
expectations of securities analysts and investors in future quarters.
If Vivid fails to meet or surpass the expectations of securities
analysts or investors, the market price of Vivid common stock will
most likely fall. Factors that affect Vivid's operating results
include:
the overall demand for explosives detection systems;
the timing of regulatory approvals for Vivid's systems and the
approval of governmental initiatives to promote the use of explosives
detection systems;
the timing of new product announcements and releases by Vivid
and its competitors;
variations in the number and mix of products sold by Vivid;
timing of customer orders and adjustments of delivery schedules
to accommodate customers' programs;
the availability of components, materials and labor necessary to
produce Vivid's products;
the timing and level of expenditures in anticipation of future
sales; and
pricing and other competitive conditions.
The commercial success of Vivid's systems will depend in large part
on the expanded use of explosives detection systems.
The explosives detection industry is at a relatively early stage
of development. The commercial success of Vivid's systems will depend
in large part on the expanded use of explosives detection systems.
Vivid cannot assure that the explosives detection industry will
develop further or that Vivid will market its products effectively
and obtain broader market acceptance for its products. The market's
acceptance of explosives detection systems on a broad basis will be
dependent upon a number of factors. These factors include:
government appropriations and initiatives to support purchases
of explosives detection equipment;
the real and perceived threat of terrorist attacks;
the performance and price of Vivid's and its competitors'
products;
the expansion of applications for explosives detection
technology; and
customer reaction to existing explosives detection systems.
Vivid's lengthy sales cycle requires Vivid to incur significant
expenses with no assurance that Vivid will generate revenue.
Customer decisions to purchase Vivid's systems often require
significant expenditures by Vivid without any assurance of success.
These customer decisions often precede the generation of sales, if
any, by a year or more. Prior to a sale, Vivid may be required to
provide a potential customer with a demonstration unit for extensive
regulatory testing and evaluation free of charge. In addition,
customers may initially purchase one or a few units for extensive
testing and evaluation before making a decision regarding volume
purchases. Purchases may also be delayed to correspond to a
customer's budgetary cycle or as a result of regulatory approval
requirements. Delays in anticipated purchase orders have had and
could continue to have a material adverse effect on Vivid's business,
financial condition and results of operations.
Vivid conducts its business worldwide, which exposes it to a number
of difficulties inherent in international activities.
Vivid's international business, which accounted for approximately
78% of Vivid's revenues in fiscal 1998 and 73% in fiscal 1999, may be
materially and adversely affected by many factors including:
international regulatory requirements and policy changes;
favoritism towards local suppliers;
difficulties in inventory management, accounts receivable
collection and the management of distributors or representatives;
difficulties in staffing and managing foreign operations;
political and economic changes and disruptions;
governmental currency controls;
currency exchange rate fluctuations; and
tariff regulations.
Vivid anticipates that international sales will continue to
account for a significant percentage of its revenues.
Fluctuations in the foreign currency exchange rates in relation to
the U.S. dollar could have a material adverse effect on Vivid's
operating results.
Although Vivid's international sales have been denominated
primarily in U.S. dollars, changes in currency exchange rates that
would increase the relative value of the U.S. dollar may make it more
difficult for Vivid to compete with foreign manufacturers on price or
otherwise have a material adverse effect on its sales and operating
results. On occasion, Vivid's sales have been denominated in foreign
currencies. A significant increase in Vivid's foreign denominated
sales would increase Vivid's risk associated with foreign currency
fluctuations. Vivid may enter into hedging transactions to limit this
exposure. Vivid cannot assure that these hedging transactions would
be successful.
Vivid's future success depends on its ability to enhance existing
products and to develop new products.
Vivid has developed and marketed a limited number of products.
Vivid believes that its future success will depend in large part on
its ability to enhance its existing products and to develop new
products to meet regulatory and customer requirements. The
uncertainties inherent with product development and introduction
create a risk that Vivid will be unsuccessful in introducing products
or product enhancements on a timely basis, if at all. The enhancement
and development of Vivid's products will be subject to risks
associated with new product development of explosives detection
systems. These risks include:
unanticipated delays;
budget overruns;
technical problems;
regulatory approval from the FAA and foreign regulatory
authorities; and
other difficulties that could result in the abandonment or
substantial change in the commercialization of these enhancements or
new products.
Vivid's dispute with a supplier of components for its APS hand bag
inspection system could have a material adverse effect on its
business, financial condition and results of operations.
Vivid relies on Gilardoni S.p.A, an Italian-based manufacturer,
for two key components for its APS systems. Vivid has experienced
delays and other difficulties in obtaining these components from
Gilardoni. Vivid has advised Gilardoni that unless Gilardoni is able
to meet its contractual obligations, Vivid may exercise its
contractual right to obtain an alternative source of these
components. Vivid only has the right to seek an alternative source of
supply if Gilardoni is in breach of its contractual obligations.
Gilardoni has denied that it is in breach and has claimed that Vivid
is in breach of its contractual obligations. Vivid cannot assure that
Gilardoni will improve its performance, or that, if necessary, Vivid
will be successful in finding an alternative supplier for these
components on a timely basis or on favorable terms. Vivid's ongoing
dispute with Gilardoni could divert management's attention and
resources, adversely affect sales of APS systems, and otherwise have
a material adverse effect on Vivid's business, financial condition
and results of operations.
Intense competition, rapid technological change and evolving industry
standards and requirements could decrease demand for Vivid's products
or make Vivid's products obsolete.
Vivid cannot assure that it will be able to compete
successfully. Many of Vivid's competitors have substantially greater
manufacturing, marketing and financial resources than Vivid. Intense
competition, rapid technological change and evolving industry
standards and requirements could decrease demand for Vivid's products
or make Vivid's products obsolete. Two of Vivid's competitors have
developed products based upon alternative technology that have been
certified by the FAA. In addition, competitors may develop superior
products or products of similar quality for sale at the same or lower
prices. Improvements in current or new technologies could make
competitors' products technically equivalent or superior to Vivid's
products, in addition to providing cost or other advantages. Other
advances or changes in industry standards or requirements could make
it more difficult for Vivid to meet those standards or requirements
or could render Vivid's products obsolete.
Vivid may be unable to attract and retain management and other
personnel it needs to succeed.
The loss of any of Vivid's executive officers or key research
and development personnel, its inability to attract or retain
qualified personnel in the future or delays in hiring required
personnel could adversely affect Vivid's business. Competition for
such personnel, particularly software engineers and other technical
personnel, is intense. Vivid may be unable to attract and retain all
personnel necessary for the development of its business.
Vivid may have difficulty protecting its intellectual property.
Vivid's ability to compete is affected by its ability to protect
its intellectual property. Vivid relies primarily on trade secret
laws, confidentiality procedures, patents, copyrights, trademarks and
licensing arrangements to protect its intellectual property. The
steps Vivid has taken to protect its technology may be inadequate.
Existing trade secret, trademark and copyright laws offer only
limited protection. Vivid's patents could be invalidated or
circumvented. The laws of some foreign countries in which Vivid's
products are or may be developed, manufactured or sold may not
protect Vivid's products or intellectual property rights to the same
extent as do the laws of the United States. This may make the
possibility of piracy of Vivid's technology and products more likely.
Vivid cannot assure that the steps that it has taken to protect its
intellectual property will be adequate to prevent misappropriation of
its technology.
Vivid's operations could infringe the intellectual property rights of
others.
Particular aspects of Vivid's technology could be found to
infringe on the intellectual property rights or patents of others.
Other companies may hold or obtain patents on inventions or may
otherwise claim proprietary rights to technology necessary to Vivid's
business. Vivid cannot predict the extent to which it may be required
to seek licenses. Vivid cannot assure that the terms of any licenses
it may be required to seek will be reasonable.
Vivid's business may be materially adversely affected by infringement
claims by American Science & Engineering.
In May 1996, Vivid commenced an action in the United States
District Court for the District of Massachusetts against American
Science & Engineering seeking a declaration that Vivid does not
infringe American Science & Engineering's patents related to back
scattered X-rays. American Science & Engineering filed a counterclaim
alleging that Vivid is infringing on one or more of eight American
Science & Engineering patents. In April 1997, the court dismissed
American Science & Engineering's counterclaim on summary judgment
without granting leave to file an amended counterclaim. In April
1998, American Science & Engineering filed a motion in the Federal
Court of Appeals for the First Circuit to appeal this decision. The
Court of Appeals heard oral arguments for this appeal in early 1999,
but no decision has been announced. Although Vivid does not believe
that it is infringing any valid patent of American Science &
Engineering, American Science & Engineering could make a new
counterclaim that raises more specific infringement allegations.
Failure of Vivid to prevail in this litigation could have a material
adverse effect on Vivid's business, financial condition and results
of operations.
Vivid could incur substantial costs as a result of product liability
claims and adverse publicity if Vivid's systems fail to detect
explosives.
If Vivid's explosives detection systems fail to detect an
explosive, Vivid could be subject to product liability claims and
negative publicity, which could cause Vivid to incur substantial
costs and could have a material adverse effect on Vivid's business,
financial condition and results of operations. There are many factors
beyond Vivid's control that could result in the failure of its
products to detect explosives. These factors include:
the reliability of a system's operators;
the ongoing training of a system's operators; and
the maintenance of Vivid's products by its customers.
Vivid currently maintains aviation product liability insurance.
This insurance may be insufficient to protect Vivid from product
liability claims. Moreover, there is a risk that product liability
insurance may not continue to be available to Vivid at a reasonable
cost, if at all.
Provisions of Vivid's charter make a takeover of Vivid more
difficult, which could discourage attractive takeover offers and
limit the price others may be willing to pay for Vivid common stock.
Vivid's charter and provisions of Delaware corporate law contain
provisions that may make the acquisition of Vivid more difficult and
discourage changes in Vivid's management. In addition, Vivid has
adopted a stockholder rights plan that gives holders of its common
stock the right to purchase shares of Vivid common stock at a price
substantially discounted from the then applicable market price of
Vivid common stock in the event of many potential takeover
situations. The provisions contained in Vivid's charter, Delaware
corporate law and the rights plan could limit the price that certain
investors might be willing to pay in the future for shares of Vivid
common stock. These provisions do not apply to the proposed merger
between Vivid and PerkinElmer.
The volatility of Vivid's stock price could adversely affect your
investment in Vivid common stock.
The market price of Vivid common stock has been and may continue
to be highly volatile. Vivid believes that a variety of factors could
cause the price of its common stock to fluctuate, perhaps
substantially, including:
announcements of developments related to Vivid's business,
including announcements of certification by the FAA or other
regulatory authorities of Vivid's or its competitors' products;
quarterly fluctuations in Vivid's actual or anticipated
operating results and order levels;
general conditions in the worldwide economy;
announcements of technological innovations;
new products or product enhancements by Vivid or its
competitors;
developments in patents or other intellectual property rights
and litigation; and
developments in Vivid's relationships with its customers and
suppliers.
In addition, in recent years the stock market in general and the
markets for shares of small capitalization and "high-tech" companies
in particular have experienced extreme price fluctuations which have
often been unrelated to the operating performance of affected
companies. Any such fluctuations in the future could adversely affect
the market price of Vivid common stock and the market price of Vivid
common stock may decline.
Year 2000 readiness disclosure; year 2000 problems could disrupt
Vivid's business.
The year 2000 problem is the potential for system and processing
failure of date-related data as the result of computer-controlled
systems using two digits rather than four digits to define the
applicable year. This could result in system failure or
miscalculation causing disruptions of operations, including, among
other things, loss of customers or orders, increased operating costs,
inability to obtain inventory on a timely basis, disruptions in
product shipments, or other business interruptions of a material
nature, as well as claims of mismanagement, misrepresentation, or
breach of contract. Undetected year 2000 problems may cause Vivid to
experience negative consequences or significant costs. Vivid's
vendors, suppliers or customers could experience negative
consequences or significant costs that could have a material adverse
effect on Vivid's business, financial condition or results of
operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Foreign Exchange Hedging. The accounts of Vivid's foreign
subsidiary, Vivid Technologies UK Ltd., are translated in accordance
with SFAS No. 52, Foreign Currency Translation. In translating the
accounts of the foreign subsidiary into U.S. dollars, assets and
liabilities are translated at the rate of exchange in effect at
quarter-end, while stockholders' equity is translated at historical
rates. Revenue and expense accounts are translated using the weighted
average exchange rate in effect during the year. Foreign currency
transaction gains or losses for Vivid Technologies UK Ltd. are
included in Vivid's consolidated statements of operations since the
functional currency for this subsidiary is the U.S. dollar.
Vivid had sales denominated in foreign currencies of
approximately $8,044,000 during fiscal 1997, $6,804,000 during fiscal
1998 and $2,815,000 during fiscal 1999. Vivid recognized a loss of
$47,000 in fiscal 1997, a gain of $36,000 in fiscal 1998 and a loss
of $92,000 in fiscal 1999, related to such foreign currency
transactions which is included in other income (expense) in the
consolidated statement of operations.
Investment Portfolio. Vivid does not use derivative financial
instruments for investment purposes and only invests in financial
instruments that meet high credit quality standards, as specified in
Vivid's investment policy guidelines; the investment policy also
limits the amount of credit exposure to any one issue, issuer, and
type of instrument.
Item 8. Financial Statements and Supplementary Data
The consolidated Financial Statements and Supplementary Data of
the Company are listed under Part IV, Item 14, in this Report.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this Item 10 is hereby incorporated
by reference to the text appearing under Part I, Item 1 - Business
under the caption "Executive Officers of the Registrant" in this
Report, and by reference to the Company's definitive proxy statement
which may be filed by the Company within 120 days after the close of
its fiscal year.
Item 11. Executive Compensation
The information required by this Item 11 is hereby incorporated
by reference to the information under the heading "Executive
Compensation" in the Company's definitive proxy statement which may
be filed by the Company within 120 days after the close of its fiscal
year.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information required by this Item 12 is hereby incorporated
by reference to the information under the heading "Securities
Beneficially Owned by Directors, Officers and Principal Stockholders"
in the Company's definitive proxy statement which may be filed by the
Company within 120 days after the close of its fiscal year.
Item 13. Certain Relationships and Related Transactions
The information required by this Item 13 is hereby incorporated
by reference to the information under the heading "Certain
Transactions," if any, in the Company's definitive proxy statement
which may be filed by the Company within 120 days after the close of
its fiscal year.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements
Page
Report of Independent Public Accountants F-1
Consolidated Balance Sheets as of
September 30, 1998 and 1999 F-2
Consolidated Statements of Income for the years
ended September 30, 1997, 1998 and 1999 F-3
Consolidated Statements of Stockholders' Equity
for the years ended September 30, 1997, 1998 and 1999 F-4
Consolidated Statements of Cash Flows for the
years ended September 30, 1997, 1998 and 1999 F-5
Notes to Consolidated Financial Statements F-6
(2) Financial Statement Schedules
Supplemental schedules are not provided because of the absence
of conditions under which they are required or because the
required information is given in the financial statements or
notes thereto.
(3) Listing of Exhibits
Exhibit No. Reference
2.01 Merger Agreement between the Company A**
and the Company's Massachusetts
predecessor
2.02 Agreement and Plan of Merger among E**
EG&G, Inc. (now Perkin Elmer), Venice
Acquisition Corp. and Vivid
Technologies, Inc. dated October 4,
1999
3.01 Restated Certificate of Incorporation A**
3.02 By-laws of the Company A**
4.01 Specimen Certificate for shares of A**
the Company's Common Stock
4.02 Description of Capital Stock A**
(contained in the Restated
Certificate of Incorporation of the
Company, filed as Exhibit 3.01)
4.03 Description of Registration Rights A**
(contained in Exhibits 10.05, 10.11
and 10.13)
4.04 Rights Agreement between the C**
Registrant and American Stock
Transfer & Trust Company, as Rights
Agent, dated as of October 13, 1998
4.05 Amendment No. 1 to Rights Agreement, F**
dated as of October 4, 1999
10.01 Contract for the Manufacture, Supply, A**
Installation and Commissioning of
Hold Baggage Screening Equipment
between the Company and BAA plc.
10.02 Distribution and Development A**
Agreement between the Company and
Gilardoni S.p.A.
10.02a Memorandum of Understanding between B**
Gilardoni S.p.A. and the Company
10.02b Points of Agreement by and between G**
the Company and Gilarodni S.p.A.
(Filed as
Exhibit 10.05
therein)
10.02c Agreement for Vivid Distribution, G**
Manufacture, License and Purchase of
Gilardoni Products (System and FEP (Filed as
Platform), by and between the Company Exhibit 10.06
and Gilardoni S.p.A. therein)
10.02d Agreement for Gilardoni Distribution, G**
Manufacture, License and Purchase of
Vivid Products (Operator Console & (Filed as
Systems), by and between the Company Exhibit 10.07
and Gilardoni S.p.A. therein)
10.03 First Amended and Restated Line of A**
Credit Loan and Security Agreement
between the Company and BayBank, N.A.
and corresponding Note of the Company
in favor of BayBank, N.A.
10.04 Form of Warrant to purchase Common A**
Stock issued to certain investors.
10.05 Warrant to purchase Common Stock A**
issued to Dominion Fund II, L.P.
10.06 1989 Combination Stock Option Plan of A**
the Company*
10.07 1996 Non-Employee Director Stock A**
Option Plan of the Company*
10.08 1996 Equity Incentive Plan of the A**
Company*
10.08a 1999 Equity Incentive Plan of the H**
Company*
10.09 Facility lease between the Company A**
and Cummings Properties Management,
Inc.
10.09a Facility lease between the Company D**
and Cummings Properties Management,
Inc.
10.10 Form of Indemnification Agreement for A**
directors and officers of the
Company*
10.11 Series A and Series B Preferred Stock A**
Purchase Agreement
10.12 Series C and Series D Preferred Stock A**
Purchase Agreement
10.13 Conversion Agreement between the A**
Company and certain investors
10.14 Amended Shareholder Agreement among A**
the Company's Massachusetts
predecessor, S. David Ellenbogen, Jay
A. Stein and certain investors
10.15 Management Services Agreement between A**
the Company and Hologic, Inc.*
10.16 License and Technology Agreement A**
between Company and Hologic, Inc.,
together with First Amendment to such
License and Technology Agreement
10.17 Description of Bonus Plan* A**
10.18 Demand Line of Credit Loan and B**
Security Agreement between the
Company and BankBoston, N.A. and
corresponding Note of the Company in
favor of BankBoston, N.A.
10.19 Amended and Restated Demand Line of D**
Credit Note
10.20 Agreement by and between the Company G**
and Herbert Janisch*
(Filed as
Exhibit 10.01
therein)
10.21 Agreement by and between the Company G**
and Ambassador L. Paul Bremer, III*
(Filed as
Exhibit 10.02
therein)
10.22 Promissory Note and Stock Pledge G**
Agreement of Kristoph D. Krug in
favor of the Company (Filed as
Exhibit 10.03
therein)
10.23 Promissory Note and Stock Pledge G**
Agreement of Daniel J. Silva in favor
of the Company* (Filed as
Exhibit 10.04
therein)
10.24 Agreement by and between the Company Filed herewith
and James J. Aldo dated as of June 4,
1999*
10.25 Agreement by and between the Company Filed herewith
and Daniel J. Silva dated as of June
4, 1999*
10.26 Agreement by and between the Company Filed herewith
and William J. Frain dated as of June
4, 1999*
10.27 Amendment #1 to Management Services Filed herewith
Agreement with Hologic
10.28 Termination Agreement with Hologic Filed herewith
21.01 Subsidiaries of the Company A**
23.01 Consent of Arthur Andersen LLP Filed herewith
27.01 Financial Data Schedule Filed herewith
____________________
A Incorporated by reference to the Company's registration
statement on Form S-1 (Registration No. 333-14311). The number
set forth herein is the number of the Exhibit in said
registration statement.
B Incorporated by reference to the Company's Form 10-K for the
fiscal year ended September 30, 1997. The number set forth
herein is the number of the Exhibit in said Form 10-K.
C Incorporated by reference to the Company's Form 8-K dated
October 13, 1998 filed as exhibit number 4 therein.
D Incorporated by reference to the Company's Form 10-K for the
fiscal year ended September 30, 1998. The number set forth
herein is the number of the Exhibit in said Form 10-K.
E Incorporated by reference to the Company's Definitive Proxy
Statement dated December 6, 1999 filed as exhibit A therein.
F Incorporated by reference to the Company's Form 8-K filed on
October 8, 1999, filed as exhibit number 4.01 therein.
G Incorporated by reference to the Company's Form 8-K filed on
October 12, 1999.
H Incorporated by reference to the Company's Form 10-Q for the
quarter ended March 31, 1999, filed as exhibit number 10
therein.
* Management contract or compensatory plan or arrangement.
** In accordance with Rule 12b-32 under the Securities Exchange Act
of 1934, as amended, reference is made to the documents
previously filed with the Securities and Exchange Commission,
which documents are hereby incorporated by reference.
(b) REPORTS ON FORM 8-K
The Company did not file any current reports on Form 8-K during
the quarter ended September 30, 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
VIVID TECHNOLOGIES, INC.
Dated: December 22, 1999 By: /s/ S. David Ellenbogen
S. David Ellenbogen
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 Company and in the capacities and on the dates indicated.
Signature Title Date
/s/ S. David Ellenbogen Director and Chief December 22, 1999
S. David Ellenbogen Executive Officer
/s/ William J. Frain Chief Financial Officer, December 22, 1999
William J. Frain Treasurer and Principal
Accounting Officer
/s/ Jay A. Stein Director December 22, 1999
Jay A. Stein
/s/ L. Paul Bremer III Director December 22, 1999
L. Paul Bremer III
/s/ Frank Kenny Director December 22, 1999
Frank Kenny
/s/ Glenn P. Muir Director December 22, 1999
Glenn P. Muir
/s/ Gerald Segel Director December 22, 1999
Gerald Segel
Report of Independent Public Accountants
To Vivid Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of
Vivid Technologies, Inc. (a Delaware corporation) and subsidiaries
as of September 30, 1998 and 1999, and the related consolidated
statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended September 30, 1999.
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 referred to
above present fairly, in all material respects, the financial
position of Vivid Technologies, Inc. and subsidiaries as of
September 30, 1998 and 1999, and the results of their operations
and their cash flows for each of the three years in the period
ended September 30, 1999, in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
November 3, 1999
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30,
1998 1999
Assets
Current Assets:
Cash and cash equivalents $15,555,189 $11,624,386
Short-term investments 10,407,209 8,073,323
Accounts receivable 7,316,863 6,375,756
Inventories 7,874,036 9,824,895
Deferred tax asset 606,790 1,362,020
Other current assets 1,593,021 2,682,189
Total current assets 43,353,108 39,942,569
Property and Equipment, at cost:
Machinery and equipment 2,546,476 2,684,590
Leasehold improvements 228,374 243,396
Furniture and fixtures 129,479 117,554
2,904,329 3,045,540
Less-Accumulated depreciation and amortization 1,488,893 1,899,802
1,415,436 1,145,738
Long-term Investments - 1,083,618
Other Assets, net 1,155,945 177,471
$45,924,489 $42,349,396
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 846,457 $1,615,665
Accrued expenses 2,766,268 3,466,492
Deferred revenue 3,411,864 3,091,852
Total current liabilities 7,024,589 8,174,009
Commitments and Contingencies (Note 9)
Stockholders' Equity:
Preferred Stock, $.01 par value-
Authorized - 1,000,000 shares
Issued - none
Common stock, $.01 par value-
Authorized-30,000,000 shares
Issued-9,904,666 and 10,050,616 shares, at
September 30, 1998 and 1999, respectively 99,047 100,506
Capital in excess of par value 26,745,142 26,997,430
Treasury stock, at cost - 95,000 shares at
September 30, 1999 - (346,562)
Retained earnings 12,055,711 7,424,013
Total stockholders' equity 38,899,900 34,175,387
$45,924,489 $42,349,396
The accompanying notes are an integral part of these consolidated
financial statements.
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended September 30
1997 1998 1999
Revenues $31,702,188 $38,718,041 $21,185,001
Cost of Revenues (includes
approximately $988,000, $1,014,000 and
$384,000, respectively, of royalties
to Hologic; see Note 7) 13,202,925 16,360,872 13,392,507
Gross profit 18,499,263 22,357,169 7,792,494
Operating Expenses (includes
approximately $112,000, $138,000 and
$258,000, respectively, of management
service expenses to Hologic; see
Note 7):
Research and development 4,390,446 5,858,883 6,335,726
Selling and marketing 3,556,006 4,334,823 3,729,547
General and administrative 2,928,658 3,952,431 4,060,651
Litigation expenses 427,000 220,000 -
Restructuring and asset writedown - - 1,207,686
Total operating expenses 11,302,110 14,366,137 15,333,610
Income (Loss) from Operations 7,197,153 7,991,032 (7,541,116)
Interest Income 812,926 1,270,759 1,044,246
Other Income (Expense), net 48,834 206,880 (66,351)
Income (loss) before income taxes 8,058,913 9,468,671 (6,563,221)
Provision for (Benefit from)
Income Taxes 2,193,335 2,838,389 (1,931,523)
Net income (loss) $5,865,578 $ 6,630,282 (4,631,698)
Net Income (Loss) per Share:
Basic $ .78 $ .68 $ (.47)
Diluted $ .60 $ .65 $ (.47)
Weighted Average Number of Shares
Outstanding:
Basic 7,547,964 9,684,975 9,911,282
Diluted 9,838,300 10,251,429 9,911,282
The accompanying notes are an integral part of these consolidated
financial statements.
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
<TABLE>
Consolidated Statements of Stockholders' Equity
<CAPTION>
Series B Series D
Convertible Convertible
Preferred Stock Preferred Stock Common Stock Capital Treasury Stock
in
Number $.01 Number $.01 Number $.01 Excess Number Retained
of Par of Par of Par of Par of Earnings
Shares Value Shares Value Shares Value Value Shares Cost (Deficit) Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
September 30, 1996 250,000 2,500 254,585 2,546 1,740,520 17,405 594,279 - - (440,149) 176,581
Exercise of stock
options, including
tax benefit of
$659,194 - - - - 333,800 3,338 809,231 - - - 812,569
Exercise of stock
purchase warrants - - - - 76,514 765 32,195 - - 32,960
Conversion of
preferred stock
into common stock (250,000) (2,500) (254,585) (2,546) 5,045,850 50,459 (45,413) - - -
Sale of common
stock, net of
issuance costs
of approximately
$2,777,000 - - - - 2,300,000 23,000 24,800,493 - - - 24,823,493
Net income - - - - - - - - - 5,865,578 5,865,578
Balance,
September 30, 1997 - - - - 9,496,684 94,967 26,190,785 - - 5,425,429 31,711,181
Exercise of stock
options, including
tax benefit of
$247,617 - - - - 159,110 1,591 472,090 - - - 473,681
Exercise of stock
purchase warrants - - - - 248,872 2,489 82,267 - - - 84,756
Net income - - - - - - - - - 6,630,282 6,630,282
Balance,
September 30, 1998 - - - - 9,904,666 99,047 26,745,142 - - 12,055,711 38,899,900
Exercise of stock
options, including
tax benefit of
$67,300 - - - - 100,450 1,004 104,868 - - - 105,872
Purchase of
treasury stock - - - - - - - 95,000 (346,562) - (346,562)
Issuance of
restricted stock - - - - 45,500 455 147,420 - - - 147,875
Net loss - - - - - - - - - (4,631,698) (4,631,698)
Balance,
September 30, 1999 - $ - - $ - $10,050,616 $100,506 $26,997,430 95,000 $(346,562) $7,424,013 $34,175,387
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended September 30
1997 1998 1999
Cash Flows from Operating Activities:
Net income (loss) $5,865,578 $6,630,282 $(4,631,698)
Adjustments to reconcile net income
(loss) to net cash (used in)
provided by operating activities-
Depreciation and amortization 441,072 759,420 591,524
Write-down of assets related to
restructuring - - 1,080,050
Changes in assets and liabilities-
Accounts receivable (5,773,041) 2,176,656 941,107
Inventories (1,453,438) (1,678,940) (1,950,859)
Deferred tax asset (425,790) - (755,230)
Other current assets (297,827) (850,292) (1,128,057)
Accounts payable 72,957 (724,740) 769,208
Accrued expenses (1,014,483) 347,837 700,224
Deferred revenue 713,703 1,656,076 (320,012)
Net cash (used in) provided by
operating activities (1,871,269) 8,316,299 (4,703,743)
Cash Flows from Investing Activities:
Purchase of property and equipment (533,034) (836,893) (359,219)
Purchases of investments (11,650,261) (12,384,948) (9,479,733)
Maturities of investments 3,999,000 9,629,000 10,730,000
(Increase) decrease in other assets 109,620 (1,298,336) (25,293)
Net cash (used in) provided by
investing activities (8,074,675) (4,891,177) 865,755
Cash Flows from Financing Activities:
Net proceeds from sale of common stock 24,823,493 - -
Proceeds from exercise of stock
purchase warrants 32,960 84,756 -
Redemption of Series A and Series C
preferred stock (5,780,650) - -
Proceeds from exercise of stock
options (including tax benefit) 812,569 473,681 253,747
Purchase of treasury stock - - (346,562)
Payments on capital lease obligations (32,522) - -
Net cash provided by (used in)
financing activities 19,855,850 558,437 (92,815)
Net Increase (Decrease) in Cash and
Cash Equivalents 9,909,906 3,983,559 (3,930,803)
Cash and Cash Equivalents, beginning
of period 1,661,724 11,571,630 15,555,189
Cash and Cash Equivalents, end of
period $11,571,630 $15,555,189 $11,624,386
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for-
Interest $ 2,040 $ - $ -
Income taxes $1,772,500 $2,325,033 $6,200
Supplemental Disclosure of Noncash
Investing and Financing Activities:
Conversion of Series B and D
preferred stock into common stock $5,045,850 $ - $ -
The accompanying notes are an integral part of these consolidated
financial statements.
VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Operations and Significant Accounting Policies
Vivid Technologies, Inc. (the Company) is a leading developer,
manufacturer and marketer of automated inspection systems that
detect plastic and other explosives in airline baggage.
On October 4, 1999, the Company entered into an agreement
whereby the Company would be acquired by PerkinElmer, Inc.
(formerly known as EG&G, Inc.) a global technology company that
provides products and systems to the medical, pharmaceutical,
telecommunications, semiconductor, aerospace, photographic and
other markets. The transaction will take the form of a stock
merger in which stockholders of the Company will receive one
share of PerkinElmer common stock for each 6.2 shares of the
Company's common stock. Based on PerkinElmer's stock price on
the date of the transaction, this transaction would be valued
at approximately $62.5 million, or $6.25 per share. This
transaction is subject to shareholder approval.
The accompanying consolidated financial statements reflect the
application of the accounting policies as described below.
(a)Principles of Consolidation
The consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries, Vivid
Technologies UK Ltd., Vivid Foreign Sales Corporation and
Vivid Securities Corporation. All material intercompany
transactions and balances have been eliminated in
consolidation.
(b)Revenue Recognition
The Company recognizes product revenue upon shipment. The
Company's product sales are not conditioned upon
satisfactory installation by the Company. Installation is
typically performed by the customer or a systems integrator
of the airport's baggage handling system. However, the
Company has typically assisted the systems integrator and
accrues for estimated installation costs, in addition to
estimated warranty costs, at the time of shipment. The
Company recognizes revenue from the sale of extended
warranty agreements ratably over the extended warranty
period.
During fiscal years 1997, 1998 and 1999, the Company
recognized revenue of approximately $821,000, $2,699,000 and
$1,207,000, respectively, under two separate research and
development grants from an agency of the U.S. government to
pursue certain explosives detection research. The Company
recognizes revenue under these grants as services are
rendered, provided that the government has appropriated
sufficient funds for the work. The Company retains rights
to all technological discoveries and products resulting from
these efforts.
Deferred revenue represents amounts received from customers
for products and services in advance of revenue recognition.
(c)Cash and Cash Equivalents and Investments
The Company accounts for investments in accordance with
Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity
Securities. In accordance with SFAS No. 115, investments
that the Company has the positive intent and ability to hold
to maturity are reported at amortized cost, which
approximates fair market value, and are classified as held-
to-maturity. The Company has deemed all of its investments
to be held-to-maturity, which total approximately
$25,477,000 and $17,879,000 at September 30, 1998 and
September 30, 1999, respectively.
Cash equivalents are highly liquid investments with original
maturities of three months or less at the time of
acquisition. As of September 30, 1998 and September 30,
1999, there was approximately $15,070,000 and $8,722,000,
respectively, in cash equivalents consisting of funds held
in money market accounts, certificates of deposit, municipal
bonds and repurchase agreements with overnight maturities.
Short-term investments have maturities of greater than three
months but less than one year. Investments with maturities
of greater than one year have been classified as long-term
investments. As of September 30, 1999, the Company had long-
term investments of approximately $1,084,000. As of
September 30, 1998 the Company had no long-term investments.
(d)Concentration of Credit Risk and Significant Customers
SFAS No. 105, Disclosure of Information About Financial
Instruments with Off-Balance-Sheet Risk and Financial
Instruments with Concentrations of Credit Risk, requires
disclosure of any significant off-balance-sheet and credit
risk concentrations. Financial instruments that subject the
Company to credit risk consist primarily of cash and cash
equivalents, investments and trade accounts receivable. The
Company places its investments in several financial
institutions. The Company has not experienced any material
losses on these investments to date. The Company has not
experienced any material losses related to receivables from
individual customers or groups of customers from any
geographic region or in the baggage security and inspection
industry.
During fiscal 1997, the Company entered into forward foreign
exchange contracts to hedge certain receivables denominated
in a foreign currency. The purpose of this hedging activity
was to protect the Company from the risk that dollar cash
flows from such receivables would be adversely affected by
changes in exchange rates. The Company does not engage in
speculative hedging practices. Gains and losses on forward
foreign exchange commitments are deferred and recognized in
revenue in the same period as the hedged transactions. As of
September 30, 1998 and 1999, the Company had approximately
$412,000 and $409,000 of receivables denominated in foreign
currencies. In accordance with SFAS No. 105, these contracts
were marked to market. The Company did not have any forward
foreign exchange contracts at September 30, 1998 or
September 30, 1999.
The Company received greater than 10% of total revenues from
the following customers during the years ended September 30,
1997, 1998 and 1999:
Years Ended September 30,
Customer 1997 1998 1999
A 39% 42% 13%
B 19 12 *
C 27 * *
D * 16 *
H * * 16
I * * 11
J * * 16
* Revenues derived from these customers were
less than 10% of the Company's total.
The Company had accounts receivable balances greater than
10% of total accounts receivable from the following
customers as of September 30, 1998 and 1999:
September 30,
Customer 1998 1999
A 26% *%
B * 11
D * 15
E 19 *
F 11 *
G 19 *
H * 13
J * 30
*Accounts receivable balances from these customers were
less than 10% of the Company's total.
(e)Disclosure of Fair Value of Financial Instruments
The Company's financial instruments consist mainly of cash
and cash equivalents, investments, accounts receivable and
accounts payable. The carrying amounts of the Company's
cash and cash equivalents, investments, accounts receivable
and accounts payable approximate fair value due to the short-
term nature of these instruments.
(f)Translation of Foreign Currencies
The accounts of the foreign subsidiary are translated in
accordance with SFAS No. 52, Foreign Currency Translation.
In translating the accounts of the foreign subsidiary into
U.S. dollars, assets and liabilities are translated at the
rate of exchange in effect at year-end, while stockholders'
equity is translated at historical rates. Revenue and
expense accounts are translated using the weighted average
exchange rate in effect during the year. Foreign currency
transaction gains or losses for Vivid Technologies UK Ltd.
are included in the accompanying consolidated statements of
operations since the functional currency for this subsidiary
is the U.S. dollar.
The Company had sales of approximately $8,044,000,
$6,804,000 and $2,815,000 denominated in foreign currencies
during 1997, 1998 and 1999, respectively. The Company
recognized a loss of approximately $47,000, a gain of
approximately $36,000 and a loss of approximately $92,000,
related to such foreign currency transactions in 1997, 1998
and 1999, respectively, which are included in other income
(loss) in the accompanying consolidated statements of
operations.
(g)Inventories
Inventories are stated at the lower of cost (first-in, first-
out) or market and consist of the following:
September 30,
1998 1999
Raw materials $4,061,775 $3,634,859
Work-in-process 1,440,435 1,619,465
Finished goods 2,371,826 4,570,571
$7,874,036 $9,824,895
Finished goods and work-in-process inventories consist of
materials, labor and overhead.
(h)Depreciation and Amortization
The Company provides for depreciation and amortization by
charges to operations using the straight-line and declining-
balance methods, which allocate the cost of property and
equipment over their estimated useful lives, as follows:
Assets Estimated
Classification Useful Life
Machinery and equipment 5 years
Leasehold improvements Life of lease
Furniture and fixtures 7 years
(i)Other Assets
During 1998, the Company entered into an exclusive
technology license agreement. Under the agreement, the
Company paid $1,250,000 for the exclusive right to
manufacture, use or sell the licensed technology for a three-
year period, with a nonexclusive right for the remainder of
the life of the patents. The Company also has the option to
extend the exclusive rights beyond three years. Upon the
ultimate commercialization of the technology, the Company
will be required to pay royalties on sales of products
incorporating the licensed technology, as defined. The
license fee was included in other assets in the accompanying
consolidated balance sheets and was being amortized over a
period of five years. At September 30, 1998, the Company
had recorded accumulated amortization of approximately
$250,000 related to this asset. During the second quarter
of fiscal year 1999, the Company implemented a restructuring
plan and abandoned this technology. Accordingly, the net
book value of this license agreement was written off (see
Note 2).
Other assets also consists of long-term investments,
deposits and patent costs, which are being amortized over 10
years using the straight-line method. The Company
periodically assesses the realizability of long-lived
assets, including intangible assets such as patent costs and
license fees, in accordance with SFAS No. 121, Accounting
for Impairment of Long-Lived Assets and for Long-Lived
Assets To Be Disposed Of. The Company has not recorded any
impairment of its intangible assets to date, other than the
restructuring charge described above and in Note 2 to the
consolidated financial statements.
(j)Net Income (Loss) per Share
The Company applies SFAS No. 128, Earnings per Share. This
statement established standards for computing and presenting
earnings per share and applies to entities with publicly
traded common stock or potential common stock.
Basic earnings per share was determined by dividing net
income (loss) by the weighted average common shares
outstanding during the period. Diluted earnings per share
was determined by dividing net income (loss) by diluted
weighted average shares outstanding. Diluted weighted
average shares reflects the dilutive effect, if any, of
potential common stock. Potential common stock includes
common stock options and warrants to purchase common stock
to the extent their effect is dilutive. Basic net loss per
share is the same as diluted net loss per share for the year
ended September 30, 1999 as the effects of the potential
common stock are antidilutive.
The calculations of basic and diluted weighted average
shares outstanding are as follows:
Years Ended September 30,
1997 1998 1999
Basic weighted average
shares outstanding 7,547,964 9,684,975 9,911,282
Weighted average
potential common stock 2,290,336 566,454 -
Diluted weighted average
shares outstanding 8,838,300 10,251,429 9,911,282
Diluted weighted average shares outstanding do not include
approximately 114,000, 503,000, and 1,266,000 shares of
potential common stock for the years ended September 30,
1997, 1998 and 1999, respectively, as their effect would be
antidilutive.
(k)Management Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles 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 date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates. The Company is subject
to risks and uncertainties, in particular, dependence on key
customers and international sales, rapid technological
change, dependence on government regulations and significant
fluctuations and unpredictability of operating results.
(l)Research and Development and Software Development Costs
Research and development costs have been charged to
operations as incurred. SFAS No. 86, Accounting for the
Costs of Computer Software To Be Sold, Leased or Otherwise
Marketed, requires the capitalization of certain computer
software development costs incurred after technological
feasibility is established. The Company believes that once
technological feasibility of a software product has been
established, the additional development costs incurred to
bring the product to a commercially acceptable level are not
significant.
(m) Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, which
establishes accounting and reporting standards for
derivative instruments, including certain derivative
instruments embedded in other contracts (collectively
referred to as derivatives) and for hedging activities.
SFAS No. 133, as amended by SFAS No. 137, is effective for
all fiscal quarters of fiscal years beginning after June 15,
2000. As the Company does not currently engage in
derivatives or hedging transactions, there will be no
current impact to the Company's results of operations,
financial position or cash flows upon the adoption of SFAS
No. 133.
(n) Reclassifications
Certain reclassifications have been made to prior year
financial statements to conform with the current year
presentation.
(2) Restructuring and Asset Write-Down
In the second quarter of fiscal 1999, the Company implemented a
restructuring plan that included the shutdown of a development
facility and the abandonment of certain technology (see Note
1(i)), resulting in a nonrecurring charge of approximately $1.2
million. The restructuring included a $1.1 million write-off
of unamortized license fees and fixed assets related to an
abandoned technology, $76,000 of lease termination and certain
other contractual termination costs and $52,000 of severance
costs for terminated research and development personnel.
The total cash impact of the restructuring amounted to
approximately $128,000, of which $116,000 has been paid as of
September 30, 1999. As of September 30, 1999, approximately
$12,000 of accrued restructuring costs remained. The accrued
restructuring costs are expected to be paid by the end of first
quarter of fiscal 2000.
During the second quarter of fiscal 1999, the Company also
implemented a costs cutting plan to reduce operating costs.
The cost cutting plan included a 10% workforce reduction, the
cost of which has not been included in the restructuring,
described above. The costs associated with the workforce
reduction were paid by March 31, 1999 and are included in the
accompanying consolidated statements of operations in cost of
revenues, research and development, selling and marketing, and
general and administrative expenses.
(3) Income Taxes
The Company accounts for income taxes under SFAS No. 109,
Accounting for Income Taxes, the objective of which is to
recognize the amount of current and deferred income taxes at
the date of the financial statements as a result of all
differences in the tax basis and financial statement carrying
amount of assets and liabilities, as measured by enacted tax
laws.
The approximate income tax effect of each type of temporary
difference and carryforward is as follows:
September 30,
1998 1999
Research and development
credit carryforwards $32,000 $220,000
Nondeductible accruals 331,000 423,902
Nondeductible reserves 223,000 387,008
State net operating loss
carryforwards - 150,502
Intangible assets - 154,167
Other temporary differences 20,790 25,511
Net deferred tax asset $606,790 $1,362,020
Under SFAS No. 109, Accounting for Income Taxes, the Company
recognizes a deferred tax asset for the future benefit of its
temporary differences if it concludes that it is more likely
than not that the deferred tax asset will be realized.
A reconciliation of the federal statutory rate to the Company's
effective tax rate is as follows:
Years Ended September 30,
1997 1998 1999
Income tax provision (benefit)
at federal statutory rate 34.0% 34.0% (34.0)%
Increase (decrease) in tax
resulting from-
State tax provision, net of
federal benefit 3.2 1.9 2.0
Foreign sales corporation benefit (5.0) (3.5) -
Reduction in valuation allowance (1.2) - -
Research and development tax
credit utilized (3.8) (3.3) -
Other (0.2) 0.9 2.0
Effective tax rate 27.0% 30.0% (30.0)%
The provision for income taxes in the accompanying consolidated
statements of operations consists of the following:
Years Ended September 30,
1997 1998 1999
Federal-
Current $2,173,335 2,767,389 (1,241,293)
Deferred (224,000) - (447,304)
1,949,335 2,767,389 (1,688,597)
State-
Current 271,000 71,000 65,000
Deferred (27,000) - (307,926)
244,000 71,000 (242,926)
$2,193,335 $2,838,389 $(1,931,523)
(4) Line of Credit
The Company had an unsecured demand line of credit with a bank
for $5,000,000 that expired in June 30, 1999. There were no
amounts outstanding under this line at September 30, 1998 or
September 30, 1999. Subsequent to year end, the Company
secured a $3.0 million bank line of credit which expires in
February 2000. The line of credit bears interest at the bank's
prime rate (8.25% at September 30, 1999).
(5) Stockholders' Equity
(a) Preferred Stock
In December 1996, the Company's Board of Directors
authorized the issuance of up to 1,000,000 shares of
undesignated $.01 par value preferred stock, the rights and
privileges of which are to be determined by the Company's
Board of Directors. There are no preferred shares
outstanding as of September 30, 1998 and September 30, 1999.
(b)Initial Public Offering
During fiscal 1997, the Company completed its initial public
offering of 2,300,000 shares of the Company's common stock
at $12.00 per share. The Company received net proceeds of
approximately $24,823,000 after deducting the underwriters'
commission and issuance costs. The Company used
approximately $5,781,000 of the net proceeds to redeem all
of its outstanding shares of redeemable Series A and Series
C preferred stock. In connection with the initial public
offering, all of the Company's Series B and Series D
preferred stock was converted into an aggregate of 5,045,850
shares of common stock.
(c)Common Stock
The Company has authorized 30,000,000 shares of $.01 par
value common stock. The Company has reserved the following
number of common shares as of September 30, 1999:
Exercise of stock purchase warrants 53,680
Exercise of stock options 1,601,120
1,654,800
(d)Stock Repurchase Plan
On January 5, 1999, the Company announced that its board of
directors authorized the repurchase of up to 1,000,000
shares of the Company's outstanding common stock for an
aggregate purchase price not to exceed $8 million. The
repurchases will be made from time to time on the open
market or in private transactions determined by the
Company's management and funded out of the Company's working
capital. During the year ended September 30, 1999, the
Company repurchased a total of 95,000 shares at cost for a
total of $346,562, which are included as treasury stock in
the accompanying consolidated financial statements.
(e)Stock Plans
1989 Combination Stock Option Plan
The Company's 1989 Combination Stock Option Plan (the 1989
Plan) provides for the grant to key employees incentive
stock options to purchase shares of the Company's common
stock at a price not less than fair market value as
determined by the Board of Directors, or nonqualified
options at a price specified by the Board of Directors.
Under the 1989 Plan, the Company has reserved shares for
the granting of options to purchase up to 1,250,000 shares
of the Company's common stock.
The 1996 Equity Incentive Plan
In October 1996, the Company approved the 1996 Equity
Incentive Plan (the 1996 Equity Plan) for which the
Company reserved shares for the granting of options to
purchase up to 750,000 shares of the Company's common
stock.
The 1996 Nonemployee Director Stock Option Plan
In October 1996, the Company approved the 1996 Nonemployee
Director Stock Option Plan (the Director Plan) for which
the Company has reserved shares for the granting of
options to purchase up to 125,000 shares of the Company's
common stock.
The 1999 Equity Incentive Plan
In February 1999, the Company approved the 1999 Equity
Incentive Plan ( the 1999 Equity Plan), for which the
Company has reserved shares for the granting of options to
purchase up to 300,000 shares of common stock.
Repricing
In October 1998, the Board of Directors authorized a Stock
Option Exchange Program (the Program). Under the terms of
the Program all current employees excluding executive
officers subject to regulation 16(b) had the option to
request that the Company cancel their existing options and
replace them with a new option. Options for a total of
262,650 shares were surrendered under the Program by
employees and exchanged for new options at the new option
exercise price and vesting schedule. The new exercise
price was equal to the fair market value of the Company's
common stock on October 13, 1998, or $4.44. These
repriced options are reflected as grants and cancellations
in the stock activity below.
As of September 30, 1999, there were 394,120 options
available for future grants under all plans. A summary of
stock option activity under all plans is as follows:
Shares Price per Weighted
Share Average
Exercise
Price
Outstanding, September 30, 1996 856,900 $ .10-$3.00 $ .78
Granted 386,050 9.50-17.00 14.27
Exercised (333,800) .10-3.00 .46
Terminated (20,450) .50-3.00 1.15
Outstanding, September 30, 1997 888,700 .10-17.00 6.75
Granted 225,950 .01-14.88 12.77
Exercised (159,110) .01-11.00 .60
Terminated (148,890) .50-16.75 11.08
Outstanding, September 30, 1998 806,650 .10-17.00 8.85
Granted 908,700 2.25-6.50 4.18
Exercised (145,950) .10-4.44 1.34
Terminated (357,400) 1.00-16.75 11.67
Outstanding, September 30, 1999 1,212,000 $ .50-$17.00 $5.46
Exercisable, September 30, 1997 264,540 $ .10-$9.50 $ .65
Exercisable, September 30, 1999 276,580 $ .10-$17.00 $4.33
Exercisable, September 30, 1999 369,610 $ .50-$17.00 $5.18
During fiscal 1998 and 1999, the Company issued an option to
purchase 10,000 and 47,500 shares of common stock to employees at a
price below fair market. All other options were issued at the fair
market value at the grant date. The Company recorded the
difference between the grant price and fair market value as
compensation.
The range of exercise prices for options outstanding and options
exercisable at September 30, 1999 are as follows:
Weighted Options Outstanding Options Exercisable
Average
Remaining
Contractual
Life
(in years)
Range of Number Weighted Number Weighted
Exercise Average Average
Price Exercise Exercise
Price Price
$0.50-$1.00 4.79 167,650 $ 0.76 135,450 $ 0.71
$2.25-$4.00 8.57 196,250 3.07 89,900 3.56
$4.31-$4.44 8.79 644,600 4.42 64,260 4.44
$5.06-$11.50 8.82 16,000 10.14 12,500 11.50
$13.88-$13.88 8.02 75,000 13.88 15,000 13.88
$16.25-$17.00 7.35 112,500 16.33 52,500 16.43
Total 8.02 1,212,000 $ 5.46 369,610 $ 5.18
The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees. In October 1995, the FASB issued SFAS No.
123, Accounting for Stock-Based Compensation, which established a
fair-value-based method of accounting for stock-based compensation
plans. The Company has adopted the disclosure-only alternative
under SFAS No. 123 which requires disclosure of the pro forma
effects on net income and earnings per share as if SFAS No. 123 had
been adopted, as well as certain other information.
The Company has computed the pro forma disclosures required under
SFAS No. 123 for all stock options and warrants granted to
employees of the Company in fiscal 1997, 1998 and 1999 using the
Black-Scholes option pricing model prescribed by SFAS No. 123. The
assumptions used to calculate the SFAS No. 123 pro forma disclosure
and the weighted average information for 1997, 1998 and 1999 are as
follows:
Years Ended September 30,
1997 1998 1999
Risk-free interest rate 6.01% 5.52% 6.23%
Expected dividend yield - - -
Expected lives (in years) 4.9 4.7 4.2
Expected volatility 52% 67% 80%
Weighted-average
grant date fair
value of options
granted during
the year $7.16 $8.08 $2.61
The pro forma effect of applying SFAS No. 123 for all
options and warrants granted to employees of the Company in
1997, 1998 and 1999 would be as follows:
Years Ended September 30,
1997 1998 1999
Net income-
As reported $5,865,578 $6,630,282 $(4,631,698)
Pro forma 5,104,357 5,382,540 (6,631,223)
Net income per share-
Basic-
As reported $ 0.78 $ 0.68 $ (0.47)
Pro forma 0.68 0.56 (0.64)
Diluted-
As reported $ 0.60 $ 0.65 $ (0.47)
Pro forma 0.52 0.53 (0.64)
The resulting pro forma compensation expense may not be
representative of the amount to be expected in future years,
as the pro forma expense may vary based on the number of
options granted. The Black-Scholes option pricing model was
developed for use in estimating the fair value of traded
options that have no vesting restrictions and are fully
transferable. In addition, option pricing models require the
input of highly subjective assumptions, including expected
stock price volatility. Because the Company's employee
stock options have characteristics significantly different
from those of traded options and because changes in the
subjective input assumptions can materially affect the fair
value estimate, in management's opinion, the existing models
do not necessarily provide a reliable single measure of the
fair value of its employee stock options.
(f)Stock Purchase Warrants
As of September 30, 1999, the Company had an outstanding
warrant to purchase 53,680 shares of common stock for $1.50
per share. On October 27, 1999, the stock purchase warrant
was exercised, resulting in a net issuance of 37,675 shares
of common stock.
(g)Shareholder Purchase Rights Plan
In October 1998, the Company's Board of Directors adopted a
Shareholder Protection Rights Plan declaring a dividend of
one right for each share of the Company's common stock
outstanding at the close of business on October 27, 1998.
The rights entitle the Company's shareholders to purchase
one one-thousandth of a share of a series of junior
participating preferred stock of the Company at an exercise
price of $60.00, subject to adjustment. The rights will not
be exercisable until a subsequent distribution date which
will occur if a person or group acquires beneficial
ownership of 15% or more of the Company's common stock or
announces a tender or exchange offer that would result in a
group owning 15% or more of the Company's common stock.
Subject to certain limited exceptions, if a person or group
acquires beneficial ownership of 15% or more of the
Company's outstanding common stock, each holder of a right
(other than the 15% holder whose rights become void once
such holder reaches the 15% threshold) will thereafter have
a right to purchase, upon payment of the purchase price of
the right, that number of shares of the Corporation's common
stock, which at the time of such transaction will have a
market value equal to two times the purchase price of the
Right. In the event that, at any time after a person or
group acquires 15% or more of the Company' common stock, the
Company is acquired in a merger or other business
combination transaction of 50% or more of its consolidated
assets or earning power are sold, each holder of a right
will thereafter have the right to purchase, upon payment of
the purchase price of the right, that number of shares of
common stock of the acquiring company which at the time of
such transaction will have a market value of two times the
purchase price of the right. The Board of Directors of the
Company may exchange the rights (other than rights owned by
such person or group which have become void), in whole or in
part, at an exchange ratio of one share of common stock per
right (subject to adjustment). At any time prior to the
time any person or group acquires 15% or more of the
Company's common stock, the Board of Directors of the
Company may redeem the rights in whole, but not in part, at
a price of $0.001 per right. The rights will expire on
October 13, 2008 unless earlier redeemed or exchanged. In
connection with the PerkinElmer acquisition, the rights were
not exercised.
(6) Disclosures About Segments of an Enterprise and Related
Information
The Company has adopted SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information, in the
fiscal year ended September 30, 1999. SFAS No. 131 establishes
standards for reporting information regarding operating
segments in annual financial statements and requires selected
information for those segments to be presented in interim
financial reports issued to stockholders. SFAS No. 131 also
establishes standards for related disclosures about products
and services and geographic areas. Operating segments are
identified as components of an enterprise about which separate
discrete financial information is available for evaluation by
the chief operating decision maker, or decision making group,
in making decisions how to allocate resources and assess
performance. The Company's chief decision-maker, as defined
under SFAS No. 131, is a combination of the Chief Executive
Officer and the Chief Financial Officer. Based on the criteria
established by SFAS No. 131, the Company currently has one
reportable operating segment, the results of which are
disclosed in the accompanying consolidated financial
statements.
A summary of the Company's revenues by geographic region is as
follows:
September 30,
1997 1998 1999
United Kingdom 44% 43% 40%
United States - 22 27
Greece - - 11
Scotland - 5 4
Malaysia 27 2 3
Hong Kong 19 - -
France - 6 -
China - 12 -
Other 10 10 15
Total 100% 100% 100%
Substantially all of the Company's assets are located in the
United States.
(7) Related Party Transactions
(a)Management Services Agreement
The Company has an agreement with Hologic, Inc. (Hologic),
an affiliated company, whereby Hologic provides management,
administrative and support services. The Company paid
Hologic for all direct costs incurred, as well as a portion
of Hologic's overhead costs, as defined, representing a pro
rata portion of costs attributable to the Company. Expenses
charged to operations under these agreements were
approximately $112,000, $138,000and $258,000 in fiscal 1997,
1998, and 1999, respectively. Approximately $27,000 and
$78,000 had not been paid as of September 30, 1998 and
September 30, 1999, respectively, under the management
services agreement.
(b)License and Technology Agreement
The Company has an agreement with Hologic whereby the
Company has a perpetual, exclusive, worldwide license to
utilize certain of Hologic's technology and patents for the
purpose of developing the Company's X-ray screening security
systems for explosives, drugs, currency and other contraband
(the Exclusive License). In September 1996, this license
was amended to grant the Company a nonexclusive license to
utilize these patents and technology for certain new product
development for other applications (the Nonexclusive
License). Royalty payments to Hologic under the Exclusive
License are 5% of revenues, as defined, on the first $50
million in sales; thereafter, payments are 3% on revenues up
to $200 million, with no royalty payments on aggregate
revenues in excess of $200 million. During 1997, the
Company reduced its royalty payments to 3% under the
Exclusive License upon achievement of cumulative revenues in
excess of $50 million. Royalty payments under the
Nonexclusive License are 3% on sales up to $200 million,
with no royalty payments on aggregate revenues in excess of
$200 million. The agreement terminates by mutual agreement
of the two parties or upon certain other defined
circumstances. During fiscal 1997, 1998 and 1999, the
Company incurred royalty expenses under the Exclusive
License of approximately $988,000, $1,014,000 and $384,000,
respectively, of which approximately $504,000 and $237,000
had not been paid as of September 30, 1998 and September 30,
1999, respectively. To date, the Company has not incurred
any royalty expenses under the Nonexclusive License. In
connection with the acquisition of the Company by
PerkinElmer, PerkinElmer has agreed to pay Hologic $2.0
million, plus royalties accrued through September 30, 1999,
in exchange for termination of future royalties.
(8) Profit-Sharing 401(k) Plan
The Company has a qualified profit-sharing plan covering
substantially all of its employees. Contributions to the plan
are at the discretion of the Company's Board of Directors. The
Company has recorded approximately $74,000, $133,000 and
$33,000 as a provision for profit-sharing contribution for
fiscal 1997, 1998 and 1999, respectively.
(9) Commitments and Contingencies
(a)Operating Leases
The Company is renting the facilities under operating leases
which expire through June 2003. The Company's future
minimum lease payments under all operating leases as of
September 30, 1999 are as follows:
Year Amount
2000 $710,000
2001 449,000
2002 265,000
2003 207,000
$1,631,000
Rent expense charged to operations for fiscal 1997, 1998 and
1999 was approximately $438,000, $525,000 and $574,000,
respectively.
(b)Patent Infringement Claims
Litigation expense in the accompanying statements of income
represents costs incurred related to certain patent
infringement claims which have been settled or dismissed as
of September 30, 1998. From time to time, the Company is
party to various types of litigation. The Company believes
it has meritorious defenses to all claims, and in its
opinion, all litigation currently pending or threatened will
not have a material effect on the Company's financial
position or results of operations.
(c)Patent License Agreement
During fiscal 1996, the Company entered into a patent
license agreement for the exclusive license of certain
explosives detection technology. Under this agreement, the
Company is required to pay aggregate royalties of up to
$1,000,000 based on net sales, as defined. During fiscal
1997, 1998 and 1999, the Company incurred approximately
$97,000, $112,000 and $9,000 respectively, of royalty
expense related to this agreement.
(d)Joint Development and Royalty Agreement
During fiscal 1997, the Company entered into a joint
development and royalty agreement for the development of
certain explosives detection technology. Under the terms of
the agreement, the Company is required to pay a royalty of
$3,000 per unit sold of the developed product, as defined.
During 1998, the Company prepaid royalties in the amount of
approximately $500,000, which they are amortizing as the
royalties are incurred. At September 30, 1998 and 1999,
approximately $414,000 and $186,000, respectively, of
prepaid royalties are included in other current assets in
the accompanying consolidated balance sheets. For the year
ended September 30, 1998 and 1999, the Company incurred
$87,000 and $228,000, respectively, in royalty expenses. No
royalty expenses were incurred for the year ended
September 30, 1997.
(10) Accrued Expenses
Accrued expenses in the accompanying consolidated balance
sheets consist of the following:
September 30,
1998 1999
Payroll and payroll-related $907,959 $891,189
Accrued warranty 798,000 798,000
Accrued royalties 537,782 236,842
Accrued legal 50,323 111,651
Accrued and deferred income taxes 392,640 788,679
Accrued contracts - 141,463
Other accrued expenses 79,564 498,668
$2,766,268 $3,466,492
LIST OF EXHIBITS
Exhibit Reference
No.
2.01 Merger Agreement between the Company A**
and the Company's Massachusetts
predecessor
2.02 Agreement and Plan of Merger among E**
EG&G, Inc. (now Perkin Elmer), Venice
Acquisition Corp. and Vivid
Technologies, Inc. dated October 4,
1999
3.01 Restated Certificate of Incorporation A**
3.02 By-laws of the Company A**
4.01 Specimen Certificate for shares of A**
the Company's Common Stock
4.02 Description of Capital Stock A**
(contained in the Restated
Certificate of Incorporation of the
Company, filed as Exhibit 3.01)
4.03 Description of Registration Rights A**
(contained in Exhibits 10.05, 10.11
and 10.13)
4.04 Rights Agreement between the C**
Registrant and American Stock
Transfer & Trust Company, as Rights
Agent, dated as of October 13, 1998
4.05 Amendment No. 1 to Rights Agreement, F**
dated as of October 4, 1999
10.01 Contract for the Manufacture, Supply, A**
Installation and Commissioning of
Hold Baggage Screening Equipment
between the Company and BAA plc.
10.02 Distribution and Development A**
Agreement between the Company and
Gilardoni S.p.A.
10.02a Memorandum of Understanding between B**
Gilardoni S.p.A. and the Company
10.02b Points of Agreement by and between G**
the Company and Gilardoni S.p.A.
(Filed as
Exhibit 10.05
therein)
10.02c Agreement for Vivid Distribution, G**
Manufacture, License and Purchase of
Gilardoni Products (System and FEP (Filed as
Platform), by and between the Company Exhibit 10.06
and Gilardoni S.p.A therein)
10.02d Agreement for Gilardoni Distribution, G**
Manufacture, License and Purchase of
Vivid Products (Operator Console & (Filed as
Systems), by and between the Company Exhibit 10.07
and Gilardoni S.p.A therein)
10.03 First Amended and Restated Line of A**
Credit Loan and Security Agreement
between the Company and BayBank, N.A.
and corresponding Note of the Company
in favor of BayBank, N.A.
10.04 Form of Warrant to purchase Common A**
Stock issued to certain investors.
10.05 Warrant to purchase Common Stock A**
issued to Dominion Fund II, L.P.
10.06 1989 Combination Stock Option Plan of A**
the Company*
10.07 1996 Non-Employee Director Stock A**
Option Plan of the Company*
10.08 1996 Equity Incentive Plan of the A**
Company*
10.08a 1999 Equity Incentive Plan of the H**
Company*
10.09 Facility lease between the Company A**
and Cummings Properties Management,
Inc.
10.09a Facility lease between the Company D**
and Cummings Properties Management,
Inc.
10.10 Form of Indemnification Agreement for A**
directors and officers of the
Company*
10.11 Series A and Series B Preferred Stock A**
Purchase Agreement
10.12 Series C and Series D Preferred Stock A**
Purchase Agreement
10.13 Conversion Agreement between the A**
Company and certain investors
10.14 Amended Shareholder Agreement among A**
the Company's Massachusetts
predecessor, S. David Ellenbogen, Jay
A. Stein and certain investors
10.15 Management Services Agreement between A**
the Company and Hologic, Inc.*
10.16 License and Technology Agreement A**
between Company and Hologic, Inc.,
together with First Amendment to such
License and Technology Agreement
10.17 Description of Bonus Plan* A**
10.18 Demand Line of Credit Loan and B**
Security Agreement between the
Company and BankBoston, N.A. and
corresponding Note of the Company in
favor of BankBoston, N.A.
10.19 Amended and Restated Demand Line of D**
Credit Note
10.20 Agreement by and between the Company G**
and Herbert Janisch*
(Filed as
Exhibit 10.01
therein)
10.21 Agreement by and between the Company G**
and Ambassador L. Paul Bremer, III*
(Filed as
Exhibit 10.02
therein)
10.22 Promissory Note and Stock Pledge G**
Agreement of Kristoph D. Krug in
favor of the Company (Filed as
Exhibit 10.03
therein)
10.23 Promissory Note and Stock Pledge G**
Agreement of Daniel J. Silva in favor
of the Company* (Filed as
Exhibit 10.04
therein)
10.24 Agreement by and between the Company Filed herewith
and James J. Aldo dated as of June 4,
1999*
10.25 Agreement by and between the Company Filed herewith
and Daniel J. Silva dated as of June
4, 1999*
10.26 Agreement by and between the Company Filed herewith
and William J. Frain dated as of June
4, 1999*
10.27 Amendment #1 to Management Services Filed herewith
Agreement with Hologic
10.28 Termination Agreement with Hologic Filed herewith
21.01 Subsidiaries of the Company A**
23.01 Consent of Arthur Andersen LLP Filed herewith
27.01 Financial Data Schedule Filed herewith
____________________
A Incorporated by reference to the Company's registration
statement on Form S-1 (Registration No. 333-14311). The
number set forth herein is the number of the Exhibit in said
registration statement.
B Incorporated by reference to the Company's Form 10-K for the
fiscal year ended September 30, 1997. The number set forth
herein is the number of the Exhibit in said Form 10-K.
C Incorporated by reference to the Company's Form 8-K dated
October 13, 1998 filed as exhibit number 4 therein.
D Incorporated by reference to the Company's Form 10-K for the
fiscal year ended September 30, 1998. The number set forth
herein is the number of the Exhibit in said Form 10-K.
E Incorporated by reference to the Company's Definitive Proxy
Statement dated December 6, 1999 filed as exhibit A therein.
F Incorporated by reference to the Company's Form 8-K filed on
October 8, 1999, filed as exhibit number 4.01 therein.
G Incorporated by reference to the Company's Form 8-K filed on
October 12, 1999.
H Incorporated by reference to the Company's Form 10-Q for the
quarter ended March 31, 1999, filed as exhibit number 10
therein.
* Management contract or compensatory plan or arrangement.
** In accordance with Rule 12b-32 under the Securities Exchange Act
of 1934, as amended, reference is made to the documents previously
filed with the Securities and Exchange Commission, which documents
are hereby incorporated by reference.
EXHIBIT 10.24
AGREEMENT
AGREEMENT by and between VIVID TECHNOLOGIES, INC., a Delaware
corporation (the "Company"), and James J. Aldo (the "Executive"),
dated as of the 4th day of June, 1999.
The Board of Directors of the Company (the "Board"), has
determined that it is in the best interests of the Company and its
shareholders to assure that the Company will have the continued
dedication of the Executive, notwithstanding the possibility,
threat, or occurrence of a Change of Control (as defined below) of
the Company. The Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change
of Control and to encourage the Executive's full attention and
dedication to the Company currently and in the event of any
threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change
of Control which ensure that the compensation and benefits
expectations of the Executive will be satisfied and which are
competitive with those of other corporations. Therefore, in order
to accomplish these objectives, the Board has caused the Company to
enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall be
the first date during the "Change of Control Period" (as defined in
Section 1(b)) on which a Change of Control occurs. Anything in
this Agreement to the contrary notwithstanding, if the Executive's
employment with the Company is terminated or the Executive ceases
to be an officer of the Company prior to the date on which a Change
of Control occurs, and it is reasonably demonstrated that such
termination of employment (1) was at the request of a third party
who has taken steps reasonably calculated to effect the Change of
Control or (2) otherwise arose in connection with or anticipation
of the Change of Control, then for all purposes of this Agreement
the "Effective Date" shall mean the date immediately prior to the
date of such termination of employment, or cessation of officer
status.
(b) The "Change of Control Period" is the period commencing
on the date hereof and ending on the third anniversary of such
date; provided, however that commencing on the date one year after
the date hereof, and on each annual anniversary of such date (such
date and each annual anniversary thereof is hereinafter referred to
as the "Renewal Date"), the Change of Control Period shall be
automatically extended without any further action by the Company or
the Executive so as to terminate three years from such Renewal
Date; provided, however, that if the Company shall give notice in
writing to the Executive, at least 60 days prior to the Renewal
Date, stating that the Change of Control Period shall not be
extended, then the Change of Control Period shall expire three
years from the last effective Renewal Date.
2. Change of Control. For the purpose of this Agreement, a
"Change of Control" shall mean:
(a) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20% or more of the then outstanding shares of common
stock of the Company (the "Outstanding Company Common
Stock"); provided, however, that any acquisition by the
Company or its subsidiaries, or any employee benefit plan
(or related trust) of the Company or its subsidiaries of
20% or more of Outstanding Company Common Stock shall not
constitute a Change in Control; and provided, further,
that any acquisition by a corporation with respect to
which, following such acquisition, more than 50% of the
then outstanding shares of common stock of such
corporation, is then beneficially owned, directly or
indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners
of the Outstanding Company Common Stock immediately prior
to such acquisition in substantially the same proportion
as their ownership, immediately prior to such
acquisition, of the Outstanding Company Common Stock,
shall not constitute a Change in Control; or
(b) Any transaction which results in the Continuing
Directors (as defined in the Certificate of Incorporation
of the Company) constituting less than a majority of the
Board of Directors of the Company; or
(c) Approval by the stockholders of the Company of
(i) a reorganization, merger or consolidation, in each
case, with respect to which all or substantially all of
the individuals and entities who were the beneficial
owners of the Outstanding Company Common Stock
immediately prior to such reorganization, merger or
consolidation do not, following such reorganization,
merger or consolidation, beneficially own, directly or
indirectly, more than 50% of the then outstanding shares
of common stock of the corporation resulting from such a
reorganization, merger or consolidation, (ii) a complete
liquidation or dissolution of the Company or (iii) the
sale or other disposition of all or substantially all of
the assets of the Company, excluding a sale or other
disposition of assets to a subsidiary of the Company.
Anything in this Agreement to the contrary notwithstanding, if
an event that would, but for this paragraph, constitute a Change of
Control results from or arises out of a purchase or other
acquisition of the Company, directly or indirectly, by a
corporation or other entity in which the Executive has a greater
than ten percent (10%) direct or indirect equity interest, such
event shall not constitute a Change of Control.
3. Employment Period. Subject to the terms and conditions
hereof, the Company hereby agrees to continue the Executive in its
employ, and the Executive hereby agrees to remain in the employ of
the Company, for the period commencing on the Effective Date and
ending on the last day of the thirty-sixth month following the
month in which the Effective Date occurs (the "Employment Period").
4. Terms of Employment. (a) Position and Duties. (i)
During the Employment Period, (A) the Executive's position
(including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant of
those held, exercised and assigned at any time during the 90-day
period immediately preceding the Effective Date and (B) the
Executive's services shall be performed at the location where the
Executive was employed immediately preceding the Effective Date or
any office or location less than 35 miles from such location.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is
entitled, the Executive agrees to devote his full business time to
the business and affairs of the Company and, to the extent
necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable best efforts
to perform faithfully and efficiently such responsibilities. During
the Employment Period it shall not be a violation of this Agreement
for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C) manage
personal investments, so long as such activities do not
significantly interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the
extent that any such activities have been conducted by the
Executive prior to the Effective Date, the continued conduct of
such activities (or the conduct of activities similar in nature and
scope thereto) subsequent to the Effective Date, including, without
limitation, activities with respect to Vivid Technologies, Inc.,
shall not thereafter be deemed to interfere with the performance of
the Executive's responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the Employment
Period, the Executive shall receive an annual base salary ("Annual
Base Salary"), which shall be paid at a monthly rate, at least
equal to twelve times the highest monthly base salary paid or
payable to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately
preceding the month in which the Effective Date occurs. During the
Employment Period, the Annual Base Salary shall be reviewed at
least annually and shall be increased at any time and from time to
time as shall be substantially consistent with increases in base
salary awarded in the ordinary course of business to other peer
executives of the Company and its affiliated companies. Any
increase in Annual Base Salary shall not serve to limit or reduce
any other obligation to the Executive under this Agreement. Annual
Base Salary shall not be reduced after any such increase and the
term Annual Base Salary as utilized in this Agreement shall refer
to Annual Base Salary as so increased. As used in this Agreement,
the term "affiliated companies" includes any company controlled by,
controlling or under common control with the Company.
(iii) Annual Bonus. In addition to Annual Base
Salary, the Executive shall be awarded, for each fiscal year during
the Employment Period, an annual bonus (the "Annual Bonus") in cash
at least equal to the average annualized (for any fiscal year
consisting of less than twelve full months or with respect to which
the Executive has been employed by the Company for less than twelve
full months) bonus (the "Average Annual Bonus") paid or payable to
the Executive by the Company and its affiliated companies in
respect of the three fiscal years immediately preceding the fiscal
year in which the Effective Date occurs. Each such Annual Bonus
shall be paid no later than the end of the third month of the
fiscal year next following the fiscal year for which the Annual
Bonus is awarded, unless the Executive shall elect to defer the
receipt of such Annual Bonus pursuant to deferral plans of the
Company.
(iv) Special Bonus. In addition to Annual Base Salary
and Annual Bonus payable as hereinabove provided, if the Executive
remains employed with the Company and/or its affiliated companies
through the first anniversary of the Effective Date, the Company
shall pay to the Executive a special bonus (the "Special Bonus") in
recognition of the Executive's services during the crucial one-year
transition period following the Change of Control in cash equal to
the sum of (A) the Executive's Annual Base Salary and (B) the
greater of (x) the Annual Bonus paid or payable (and annualized for
any fiscal year consisting of less than twelve full months or for
which the Executive has been employed for less than twelve full
months) to the Executive for the most recently completed fiscal
year during the Employment Period, if any, and (y) the Average
Annual Bonus (such greater amount hereafter referred to as the
"Highest Annual Bonus"). The Special Bonus shall be paid no later
than 30 days following the first anniversary of the Effective Date.
(v) Incentive, Savings and Retirement Plans. In
addition to Annual Base Salary and Annual Bonus payable as
hereinabove provided, the Executive shall be entitled to
participate during the Employment Period in all incentive, savings
and retirement plans, practices, policies and programs applicable
to other peer executives of the Company and its affiliated
companies, but in no event shall such plans practices, policies and
programs provide the Executive with incentive, savings and
retirement benefits opportunities, in each case, less favorable, in
the aggregate, than the most favorable of those provided by the
Company and its affiliated companies for the Executive under such
plans, practices, policies and programs as in effect at any time
during the one-year immediately preceding the Effective Date, or,
if more favorable to the Executive, those provided generally at any
time after the Effective Date to other peer executives of the
Company and its affiliated companies.
(vi) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case
may be, shall be eligible for participation in and shall receive
all benefits under welfare benefit plans, practices, policies and
programs provided by the Company and its affiliated companies
(including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life,
accidental death and travel accident insurance plans and programs)
and applicable to other peer executives of the Company and its
affiliated companies, but in no event shall such plans, practices,
policies and programs provide benefits which are less favorable, in
the aggregate, than the most favorable of such plans, practices,
policies and programs in effect at any time during the one-year
period immediately preceding the Effective Date, or, if more
favorable to the Executive, those provided generally at any time
after the Effective Date to other peer executives of the Company
and its affiliated companies.
(vii) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive upon submission of
appropriate accountings in accordance with the most favorable
policies, practices and procedures of the Company and its
affiliated companies in effect at any time during the one-year
period immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect at any time thereafter
with respect to other peer executives of the Company and its
affiliated companies.
(viii) Fringe Benefits. During the Employment Period,
the Executive shall be entitled to fringe benefits in accordance
with the most favorable plans, practices, programs and policies of
the Company and its affiliated companies in effect at any time
during the one-year period immediately preceding the Effective Date
or, if more favorable to the Executive, as in effect at any time
thereafter with respect to other peer executives of the Company and
its affiliated companies.
(ix) Office and Support Staff. During the Employment
Period, the Executive shall be entitled to an office or offices of
a size and with furnishings and other appointments, and to
exclusive personal secretarial and other assistance, at least equal
to the most favorable of the foregoing provided to the Executive by
the Company and its affiliated companies at any time during the one-
year period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided at any time thereafter with
respect to other peer executives of the Company and its affiliated
companies.
(x) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the
most favorable plans, policies, programs and practices of the
Company and its affiliated companies as in effect at any time
during the one-year period immediately preceding the Effective Date
or, if more favorable to the Executive, as in effect at any time
thereafter with respect to other peer incentives of the Company and
its affiliated companies.
5. Termination of Employment. (a) Death or Disability.
The Executive's employment shall terminate automatically upon the
Executive's death during the Employment Period. If the Company
determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition
of "Disability" set forth below), it may give to the Executive
written notice in accordance with Section 12(b) of this Agreement
of its intention to terminate the Executive's employment. In such
event, the Executive's employment with the Company shall terminate
effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within
the 30 days after such receipt, the Executive shall not have
returned to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" means the absence of the
Executive from the Executive's duties with the Company on a full-
time basis for 180 consecutive business days as a result of
incapacity due to mental or physical illness which is determined to
be total and permanent by a physician selected by the Company or
its insurers and acceptable to the Executive or the Executive's
legal representative (such agreement as to acceptability not to be
withheld unreasonably).
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for "Cause". For purposes
of this Agreement, "Cause" means (i) an act or acts of personal
dishonesty taken by the Executive and intended to result in
substantial personal enrichment of the Executive at the expense of
the Company, (ii) repeated violations by the Executive of the
Executive's obligations under Section 4(a) of this Agreement (other
than as a result of incapacity due to physical or mental illness)
which are demonstrably willful and deliberate on the Executive's
part, which are committed in bad faith or without reasonable belief
that such violations are in the best interests of the Company and
which are not remedied in a reasonable period of time after receipt
of written notice from the Company or (iii) the conviction of the
Executive of a felony involving moral turpitude.
(c) Good Reason. The Executive's employment may be
terminated during the Employment Period by the Executive for Good
Reason. For purposes of this Agreement, "Good Reason" means:
(i) the assignment to the Executive of any
duties inconsistent in any respect with the Executive's
position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as
contemplated by Section 4(a) of this Agreement, or any
other action by the Company which results in a diminution
in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(ii) any failure by the Company to comply with any
of the provisions of Section 4(b) of this Agreement,
other than an isolated, insubstantial and inadvertent
failure not occurring in bad faith and which is remedied
by the Company promptly after receipt of notice thereof
given by the Executive;
(iii) the Company's requiring the Executive to
be based at any office or location other than that
described in Section 4(a)(i)(B) hereof;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly
permitted by this Agreement; or
(v) any failure by the Company to comply with and
satisfy Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith
determination of "Good Reason" made by the Executive shall be
conclusive.
Anything in this Agreement to the contrary notwithstanding, a
termination by the Executive for any reason during the 90 day
period immediately following the first anniversary of the Effective
Date shall be deemed to be a termination for Good Reason for all
purposes of this Agreement.
(d) Notice of Termination. Any termination by the Company
for Cause or by the Executive for Good Reason shall be communicated
by Notice of Termination to the other party hereto given in
accordance with Section 12(b) of this Agreement. For purposes of
this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the
provision so indicated and (iii) if the Date of Termination (as
defined below) is other than the date of receipt of such notice,
specifies the termination date (which date shall be not more than
fifteen days after the giving of such notice). The failure by the
Executive or the Company to set forth in the Notice of Termination
any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the
Company hereunder or preclude the Executive or the Company from
asserting such fact or circumstance in enforcing the Executive's or
the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means the
date of receipt of the Notice of Termination or any later date
specified therein, as the case may be; provided however, that (i)
if the Executive's employment is terminated by the Company other
than for Cause, death or Disability, the Date of Termination shall
be the date on which the Company notifies the Executive of such
termination and (ii) if the Executive's employment is terminated by
reason of death or Disability, the Date of Termination shall be the
date of death of the Executive or the Disability Effective Date, as
the case may be.
6. Obligations of the Company upon Termination.
(a) Death. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this
Agreement shall terminate without further obligations to the
Executive's legal representatives under this Agreement, other than
for (i) payment of the sum of the following amounts: (A) the
Executive's Annual Base Salary through the Date of Termination to
the extent not theretofore paid, (B) the product of (I) the Highest
Annual Bonus and (II) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of
Termination, and the denominator of which is 365, (C) the Special
Bonus, if due to the Executive pursuant to Section 4(b)(iii), to
the extent not theretofore paid, and (D) any compensation
previously deferred by the Executive (together with any accrued
interest or earnings thereon) and any accrued bonus amounts or
vacation pay, in each case, to the extent not yet paid by the
Company (the amounts described in subparagraphs (A), (B), (C) and
(D) are hereafter referred to as "Accrued Obligations" and shall be
paid to the Executive's estate or beneficiary, as applicable, in a
lump sum in cash within 30 days of the Date of Termination), (ii)
for the remainder of the Employment Period, or such longer period
as any plan, program, practice or policy may provide, the Company
shall continue benefits to the Executive and/or the Executive's
family at least equal to those which would have been provided in
accordance with the applicable plans, programs practices and
policies described in Section 4(b)(v) of this Agreement as if the
Executive's employment had not been terminated in accordance with
the most favorable plans, practices, programs or policies of the
Company and its affiliated companies as in effect and applicable
generally to other peer executives and their families during the
one year period immediately preceding the Effective Date or, if
more favorable to the Executive, as in effect at any time
thereafter with respect to other peer executives of the Company and
its affiliated companies and their families (such continuation of
such benefits for the applicable period herein set forth shall be
hereinafter referred to as "Welfare Benefit Continuation") (for
purposes of determining eligibility of the Executive for retiree
benefits pursuant to such plans, practices, programs and policies,
the Executive shall be considered to have remained employed until
the end of the Employment Period and to have retired on the last
day of such period), and (iii) payment to the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of
the Date of Termination of an amount equal to the sum of the
Executive's Annual Base Salary and the Highest Annual Bonus.
Subject to the provisions of Section 9 hereof, but, otherwise,
anything herein to the contrary notwithstanding, the Executive's
family shall be entitled to receive benefits at least equal to the
most favorable benefits provided by the Company and any of its
affiliated companies to surviving families of peer executives of
the Company and such affiliated companies under such plans,
programs, practices and policies relating to family death benefits,
if any, as in effect with respect to other peer executives and
their families at any time during the one year period immediately
preceding the Effective Date or, if more favorable to the Executive
and/or the Executive's family, as in effect on the date of the
Executive's death with respect to other peer executives of the
Company and its affiliated companies and their families.
(b) Disability. If the Executive's employment is terminated
by reason of the Executive's Disability during the Employment
Period, this Agreement shall terminate without further obligations
to the Executive, other than for (i) payment of the Accrued
Obligations (which shall be paid in a lump sum in cash within 30
days of the Date of Termination), (ii) the timely payment and
provision of the Welfare Benefit Continuation, and (iii) payment to
the Executive in a lump sum in cash within 30 days of the Date of
Termination of an amount equal to the sum of the Executive's Annual
Base Salary and the Highest Annual Bonus. In addition, the Company
shall transfer to the Executive the insurance policy written with
respect to the Executive under the Company's Group Term Life
Insurance Policy for Executive Officers and the right to the full
cash surrender value thereof. Subject to the provisions of Section
9 hereof, but, otherwise, anything herein to the contrary
notwithstanding, the Executive shall be entitled after the
Disability Effective Date to receive disability and other benefits
at least equal to the most favorable of those provided by the
Company and its affiliated companies to disabled executives and/or
their families in accordance with such plans, programs, practices
and policies relating to disability, if any, as in effect with
respect to other peer executives and their families at any time
during the one year period immediately preceding the Effective Date
or, if more favorable to the Executive and/or the Executive's
family, as in effect at any time thereafter with respect to other
peer executives of the Company and its affiliated companies and
their families.
(c) Cause, Other than for Good Reason. If the Executive's
employment shall be terminated by the Company for Cause or by the
Executive other than for Good Reason (and other than by reason of
his death or disability) during the Employment Period, this
Agreement shall terminate without further obligations to the
Executive other than the obligation to pay to the Executive Annual
Base Salary through the Date of Termination, plus the amount of any
compensation previously deferred by the Executive and any accrued
bonus amounts or vacation pay, in each case, to the extent
theretofore unpaid. In such case, such amounts shall be paid to
the Executive in a lump sum in cash within 30 days of the Date of
Termination. The Executive shall, in such event, also be entitled
to any benefits required by law that are not otherwise provided by
this Agreement.
(d) Good Reason; Other Than for Cause or Disability. If,
during the Employment Period, the Company shall terminate the
Executive's employment other than for Cause, death or Disability,
or if the Executive shall terminate employment under this Agreement
for Good Reason:
(i) the Company shall pay to the Executive in a
lump sum in cash within 30 days after the Date of
Termination the aggregate of the following amounts:
A. all Accrued Obligations; and
B. the amount (such amount shall be
hereinafter referred to as the "Severance Amount") equal
to one dollar ($1.00) less than the product of (I) three
(3) and (II) the Executive's "base amount" as defined in
Section 280G(b)(3) of the Internal Revenue Code of 1986,
as amended (the "Code").
(ii) the Company shall timely pay and provide the
Welfare Benefit Continuation, provided, however, that if
the Executive becomes reemployed with another employer
and is eligible to receive medical or other welfare
benefits under another employer provided plan, the
medical or other welfare benefits described herein shall
be secondary to those provided under such other plan
during such applicable period of eligibility; and
(iii) to the extent not theretofore paid or
provided, the Company shall timely pay or provide to the
Executive and/or the Executive's family any other amounts
or benefits required to be paid or provided or which the
Executive and/or the Executive's family is eligible to
receive pursuant to this Agreement and under any plan,
program, policy or practice or contract or agreement of
the Company and its affiliated companies as in effect and
applicable generally to other peer executives of the
Company and its affiliated companies and their families
(such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits"); and
(iv) all unvested options or stock appreciation
rights which Executive then holds to acquire securities
from the Company shall be immediately and automatically
exercisable as of the Effective Date, and the Executive
shall have the right to exercise any such options or
stock appreciation rights for a period of one year after
the Date of Termination. Notwithstanding the foregoing,
until two years from the date of this Agreement, such
options and/or stock appreciation rights shall not be
accelerated if such acceleration would result in the
failure of a transaction which has been approved by the
Continuing Directors (as defined in the Company's
charter) and entered into by the Company to qualify as a
pooling for accounting purposes; and
(v) the Company shall transfer to the Executive the
insurance policy written with respect to the Executive
under the Company's Group Term Life Insurance Policy for
Executive Officers and the right to the full cash
surrender value thereof.
7. Non-exclusivity of Rights. Except as provided in Section
6, nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any benefit, bonus, incentive
or other plans, programs, policies or practices, provided by the
Company or any of its affiliated companies and for which the
Executive may qualify, nor shall anything herein limit or otherwise
affect such rights as the Executive may have under any other
agreements with the Company or any of its affiliated companies.
Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or
program of the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program except as
explicitly modified by this Agreement.
8. Full Settlement. (a) The Company's obligation to make
the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any set-
off, counterclaim, recoupment, defense or other claim, right or
action which the Company may have against the Executive or others.
In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of
this Agreement and, except as provided in Section 6(d)(ii), such
amounts shall not be reduced whether or not the Executive obtains
other employment. The Company agrees to pay promptly as incurred,
to the full extent permitted by law, all legal fees and expenses
which the Executive may reasonably incur as a result of any contest
(regardless of the outcome thereof) by the Company, the Executive
or others of the validity or enforceability of, or liability under,
any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive
about the amount of any payment pursuant to this Agreement, unless
a court of competent jurisdiction determines that the Executive
made such effort in bad faith), plus in each case interest at the
applicable Federal rate provided for in Section 7872(f)(2)(A) of
the Internal Revenue Code of 1986, as amended (the "Code").
(b) If there shall be any dispute between the Company and the
Executive (i) in the event of any termination of the Executive's
employment by the Company, whether such termination was for Cause,
or (ii) in the event of any termination of employment by the
Executive, whether Good Reason existed, then, unless and until
there is a final, nonappealable judgment by a court of competent
jurisdiction declaring that such termination was for Cause or that
the determination by the Executive of the existence of Good Reason
was not made in good faith, the Company shall pay all amounts, and
provide all benefits, to the Executive and/or the Executive's
family or other beneficiaries, as the case may be, that the Company
would be required to pay or provide pursuant to Section 6(d) as
though such termination were by the Company without Cause, or by
the Executive with Good Reason; provided, however, that the Company
shall not be required to pay any disputed amount pursuant to this
paragraph except upon receipt of an undertaking by or on behalf of
the Executive to repay all such amounts to which the Executive is
ultimately adjudged by such court not to be entitled.
9. Certain Reduction in Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the
Executive, whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise (a "Payment"),
would be nondeductible by the Company for Federal income tax
purposes because of Section 280G of the Code or would subject the
Executive to the excise tax imposed by Section 4999 of the Code,
then the aggregate present value of amounts payable or
distributable to or for the benefit of the Executive pursuant to
this Agreement (such payments or distributions pursuant to this
Agreement are hereinafter referred to as "Agreement Payments")
shall be reduced (but not below zero) to the Reduced Amount. The
"Reduced Amount" shall be one dollar less than an amount expressed
in present value which maximizes the aggregate present value of
Agreement Payments but which does not result in any of the amount
paid to the Executive being not deductible by reason of Section
280G of the Code or subject to the excise tax imposed by Section
4999 of the Code. For purposes of this Section 9, present value
shall be determined in accordance with Section 280G(d)(4) of the
Code.
(b) All determinations required to be made under this Section
9 shall be made by Arthur Andersen LLP (or its successor) unless
such firm shall be the accounting firm of the individual, entity or
group effecting the Change of Control or any affiliate of the
Company at the Date of Termination, in which case such
determinations shall be made by an accounting firm of national
standing agreed to by the Company and the Executive, or, if the
Company does not so agree within 10 days of the Date of
Termination, such an accounting firm shall be selected by the
Executive (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Executive
within 15 business days of the date such firm is selected or such
earlier time as is requested by the Company and an opinion to the
Executive that he has substantial authority not to report any
Excise Tax on his Federal income tax return with respect to any
Agreement Payments. Any such determination by the Accounting Firm
shall be binding upon the Company and the Executive. Within five
business days of the determination by the Accounting Firm as to the
Reduced Amount, the Company shall pay to or distribute to or for
the benefit of the Executive such amounts as are then due to the
Executive under this Agreement.
(c) As a result of the uncertainty in the application of
Section 280G of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Agreement
Payments will have been made by the Company which should not have
been made ("Overpayment") or that additional Agreement Payments
which will not have been made by the Company could have been made
("Underpayment"), in each case, consistent with the calculations
required to be made hereunder. In the event that the Accounting
Firm, based upon the assertion of a deficiency by the Internal
Revenue Service against the Executive which the Accounting Firm
believes has a high probability of success determines that an
Overpayment has been made, any such Overpayment paid or distributed
by the Company to or for the benefit of the Executive shall be
treated for all purposes as a loan ab initio to the Executive which
the Executive shall repay to the Company together with interest at
the applicable Federal rate provided for in Section 7872(f)(2) of
the Code. In the event that the Accounting Firm, based upon
controlling precedent or other substantial authority, determines
that an Underpayment has occurred, any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive
together with interest at the applicable Federal rate provided for
in Section 7872(f)(2) of the Code.
10. Confidential Information. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or
confidential information, knowledge or data relating to the Company
or any of its affiliated companies, and their respective
businesses, which shall have been obtained by the Executive during
the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive
in violation of this Agreement). After termination of the
Executive's employment with the Company, the Executive shall not,
without the prior written consent of the Company or as may
otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other
than the Company and those designated by it. In no event shall an
asserted violation of the provisions of this Section 10 constitute
a basis for deferring or withholding any amounts otherwise payable
to the Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the
Executive and without the prior written consent of the Company
shall not be assignable by the Executive otherwise than by will or
the laws of descent and distribution. This Agreement shall inure
to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all
or substantially all of the business and/or assets of the Company
to assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined
and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law,
or otherwise. In addition, the Executive shall be entitled, upon
exercise of any outstanding stock options or stock appreciation
rights of the Company, to receive in lieu of shares of the
Company's stock, shares of such stock or other securities of such
successor as the holders of shares of the Company's stock received
pursuant to the terms of the merger, consolidation or sale.
12. Miscellaneous. (a) This Agreement shall be governed by
and construed in accordance with the laws of the Commonwealth of
Massachusetts, without reference to principles of conflict of laws.
The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and
legal representatives.
(b) All notices and other communications hereunder shall be
in writing and shall be given by hand delivery to the other party
or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive:
James J. Aldo
94 Huntington Road
Newton, MA 02158
If to the Company:
Vivid Technologies, Inc.
10E Commerce Way
Woburn, Massachusetts 01801
Attention: S. David Ellenbogen
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notices and
communications shall be effective when actually received by the
addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state or local taxes as shall be
required to be withheld pursuant to any applicable law or
regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision hereof shall not be deemed to
be a waiver of such provision or any other provision thereof.
(f) This Agreement contains the entire understanding of the
Company and the Executive with respect to the subject matter hereof
and by entering into this Agreement the Executive waives all rights
he may have under the Company's separation policy, provided that if
the Company's separation policy would provide greater benefits to
the Executive than this Agreement, than the Executive may elect to
receive benefits under the Company's separation policy in lieu of
the benefits provided hereunder.
(g) The Executive and the Company acknowledge that, except as
may otherwise be provided under any other written agreement between
the Executive and the Company, prior to the Effective Date, the
employment of the Executive by the Company is "at will" and may be
terminated by either the Executive or the Company at any time.
Moreover, if prior to the Effective Date, (i) the Executive's
employment with the Company terminates, or (ii) the Board
determines by majority vote that the Executive shall cease to be an
officer of the Company, then the Executive shall have no further
rights under this Agreement, unless, in the case of (ii), the Board
otherwise determines that this Agreement shall remain in effect.
Notwithstanding anything contained herein, if, during the
Employment Period, the Executive shall terminate employment with
the Company other than for Good Reason, the Executive shall have no
liability to the Company.
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and, pursuant to the authorization from its Board of Directors, the
Company has caused these presents to be executed in its name on its
behalf, all as of the day and year first above written.
VIVID TECHNOLOGIES, INC.
By: /s/ S. David Ellenbogen
Name: S. David Ellenbogen
Title: Chief Executive Officer
EXECUTIVE
/s/ James J. Aldo
James J. Aldo
EXHIBIT 10.25
AGREEMENT
AGREEMENT by and between VIVID TECHNOLOGIES, INC., a Delaware
corporation (the "Company"), and Daniel J. Silva (the "Executive"),
dated as of the 4th day of June, 1999.
The Board of Directors of the Company (the "Board"), has
determined that it is in the best interests of the Company and its
shareholders to assure that the Company will have the continued
dedication of the Executive, notwithstanding the possibility,
threat, or occurrence of a Change of Control (as defined below) of
the Company. The Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change
of Control and to encourage the Executive's full attention and
dedication to the Company currently and in the event of any
threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change
of Control which ensure that the compensation and benefits
expectations of the Executive will be satisfied and which are
competitive with those of other corporations. Therefore, in order
to accomplish these objectives, the Board has caused the Company to
enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall be
the first date during the "Change of Control Period" (as defined in
Section 1(b)) on which a Change of Control occurs. Anything in
this Agreement to the contrary notwithstanding, if the Executive's
employment with the Company is terminated or the Executive ceases
to be an officer of the Company prior to the date on which a Change
of Control occurs, and it is reasonably demonstrated that such
termination of employment (1) was at the request of a third party
who has taken steps reasonably calculated to effect the Change of
Control or (2) otherwise arose in connection with or anticipation
of the Change of Control, then for all purposes of this Agreement
the "Effective Date" shall mean the date immediately prior to the
date of such termination of employment, or cessation of officer
status.
(b) The "Change of Control Period" is the period commencing
on the date hereof and ending on the third anniversary of such
date; provided, however that commencing on the date one year after
the date hereof, and on each annual anniversary of such date (such
date and each annual anniversary thereof is hereinafter referred to
as the "Renewal Date"), the Change of Control Period shall be
automatically extended without any further action by the Company or
the Executive so as to terminate three years from such Renewal
Date; provided, however, that if the Company shall give notice in
writing to the Executive, at least 60 days prior to the Renewal
Date, stating that the Change of Control Period shall not be
extended, then the Change of Control Period shall expire three
years from the last effective Renewal Date.
2. Change of Control. For the purpose of this Agreement, a
"Change of Control" shall mean:
(a) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20% or more of the then outstanding shares of common
stock of the Company (the "Outstanding Company Common
Stock"); provided, however, that any acquisition by the
Company or its subsidiaries, or any employee benefit plan
(or related trust) of the Company or its subsidiaries of
20% or more of Outstanding Company Common Stock shall not
constitute a Change in Control; and provided, further,
that any acquisition by a corporation with respect to
which, following such acquisition, more than 50% of the
then outstanding shares of common stock of such
corporation, is then beneficially owned, directly or
indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners
of the Outstanding Company Common Stock immediately prior
to such acquisition in substantially the same proportion
as their ownership, immediately prior to such
acquisition, of the Outstanding Company Common Stock,
shall not constitute a Change in Control; or
(b) Any transaction which results in the Continuing
Directors (as defined in the Certificate of Incorporation
of the Company) constituting less than a majority of the
Board of Directors of the Company; or
(c) Approval by the stockholders of the Company of
(i) a reorganization, merger or consolidation, in each
case, with respect to which all or substantially all of
the individuals and entities who were the beneficial
owners of the Outstanding Company Common Stock
immediately prior to such reorganization, merger or
consolidation do not, following such reorganization,
merger or consolidation, beneficially own, directly or
indirectly, more than 50% of the then outstanding shares
of common stock of the corporation resulting from such a
reorganization, merger or consolidation, (ii) a complete
liquidation or dissolution of the Company or (iii) the
sale or other disposition of all or substantially all of
the assets of the Company, excluding a sale or other
disposition of assets to a subsidiary of the Company.
Anything in this Agreement to the contrary notwithstanding, if
an event that would, but for this paragraph, constitute a Change of
Control results from or arises out of a purchase or other
acquisition of the Company, directly or indirectly, by a
corporation or other entity in which the Executive has a greater
than ten percent (10%) direct or indirect equity interest, such
event shall not constitute a Change of Control.
3. Employment Period. Subject to the terms and conditions
hereof, the Company hereby agrees to continue the Executive in its
employ, and the Executive hereby agrees to remain in the employ of
the Company, for the period commencing on the Effective Date and
ending on the last day of the thirty-sixth month following the
month in which the Effective Date occurs (the "Employment Period").
4. Terms of Employment. (a) Position and Duties. (i)
During the Employment Period, (A) the Executive's position
(including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant of
those held, exercised and assigned at any time during the 90-day
period immediately preceding the Effective Date and (B) the
Executive's services shall be performed at the location where the
Executive was employed immediately preceding the Effective Date or
any office or location less than 35 miles from such location.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is
entitled, the Executive agrees to devote his full business time to
the business and affairs of the Company and, to the extent
necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable best efforts
to perform faithfully and efficiently such responsibilities. During
the Employment Period it shall not be a violation of this Agreement
for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C) manage
personal investments, so long as such activities do not
significantly interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the
extent that any such activities have been conducted by the
Executive prior to the Effective Date, the continued conduct of
such activities (or the conduct of activities similar in nature and
scope thereto) subsequent to the Effective Date, including, without
limitation, activities with respect to Vivid Technologies, Inc.,
shall not thereafter be deemed to interfere with the performance of
the Executive's responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the Employment
Period, the Executive shall receive an annual base salary ("Annual
Base Salary"), which shall be paid at a monthly rate, at least
equal to twelve times the highest monthly base salary paid or
payable to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately
preceding the month in which the Effective Date occurs. During the
Employment Period, the Annual Base Salary shall be reviewed at
least annually and shall be increased at any time and from time to
time as shall be substantially consistent with increases in base
salary awarded in the ordinary course of business to other peer
executives of the Company and its affiliated companies. Any
increase in Annual Base Salary shall not serve to limit or reduce
any other obligation to the Executive under this Agreement. Annual
Base Salary shall not be reduced after any such increase and the
term Annual Base Salary as utilized in this Agreement shall refer
to Annual Base Salary as so increased. As used in this Agreement,
the term "affiliated companies" includes any company controlled by,
controlling or under common control with the Company.
(iii) Annual Bonus. In addition to Annual Base
Salary, the Executive shall be awarded, for each fiscal year during
the Employment Period, an annual bonus (the "Annual Bonus") in cash
at least equal to the average annualized (for any fiscal year
consisting of less than twelve full months or with respect to which
the Executive has been employed by the Company for less than twelve
full months) bonus (the "Average Annual Bonus") paid or payable to
the Executive by the Company and its affiliated companies in
respect of the three fiscal years immediately preceding the fiscal
year in which the Effective Date occurs. Each such Annual Bonus
shall be paid no later than the end of the third month of the
fiscal year next following the fiscal year for which the Annual
Bonus is awarded, unless the Executive shall elect to defer the
receipt of such Annual Bonus pursuant to deferral plans of the
Company.
(iv) Special Bonus. In addition to Annual Base Salary
and Annual Bonus payable as hereinabove provided, if the Executive
remains employed with the Company and/or its affiliated companies
through the first anniversary of the Effective Date, the Company
shall pay to the Executive a special bonus (the "Special Bonus") in
recognition of the Executive's services during the crucial one-year
transition period following the Change of Control in cash equal to
the sum of (A) the Executive's Annual Base Salary and (B) the
greater of (x) the Annual Bonus paid or payable (and annualized for
any fiscal year consisting of less than twelve full months or for
which the Executive has been employed for less than twelve full
months) to the Executive for the most recently completed fiscal
year during the Employment Period, if any, and (y) the Average
Annual Bonus (such greater amount hereafter referred to as the
"Highest Annual Bonus"). The Special Bonus shall be paid no later
than 30 days following the first anniversary of the Effective Date.
(v) Incentive, Savings and Retirement Plans. In
addition to Annual Base Salary and Annual Bonus payable as
hereinabove provided, the Executive shall be entitled to
participate during the Employment Period in all incentive, savings
and retirement plans, practices, policies and programs applicable
to other peer executives of the Company and its affiliated
companies, but in no event shall such plans practices, policies and
programs provide the Executive with incentive, savings and
retirement benefits opportunities, in each case, less favorable, in
the aggregate, than the most favorable of those provided by the
Company and its affiliated companies for the Executive under such
plans, practices, policies and programs as in effect at any time
during the one-year immediately preceding the Effective Date, or,
if more favorable to the Executive, those provided generally at any
time after the Effective Date to other peer executives of the
Company and its affiliated companies.
(vi) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case
may be, shall be eligible for participation in and shall receive
all benefits under welfare benefit plans, practices, policies and
programs provided by the Company and its affiliated companies
(including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life,
accidental death and travel accident insurance plans and programs)
and applicable to other peer executives of the Company and its
affiliated companies, but in no event shall such plans, practices,
policies and programs provide benefits which are less favorable, in
the aggregate, than the most favorable of such plans, practices,
policies and programs in effect at any time during the one-year
period immediately preceding the Effective Date, or, if more
favorable to the Executive, those provided generally at any time
after the Effective Date to other peer executives of the Company
and its affiliated companies.
(vii) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive upon submission of
appropriate accountings in accordance with the most favorable
policies, practices and procedures of the Company and its
affiliated companies in effect at any time during the one-year
period immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect at any time thereafter
with respect to other peer executives of the Company and its
affiliated companies.
(viii) Fringe Benefits. During the Employment Period,
the Executive shall be entitled to fringe benefits in accordance
with the most favorable plans, practices, programs and policies of
the Company and its affiliated companies in effect at any time
during the one-year period immediately preceding the Effective Date
or, if more favorable to the Executive, as in effect at any time
thereafter with respect to other peer executives of the Company and
its affiliated companies.
(ix) Office and Support Staff. During the Employment
Period, the Executive shall be entitled to an office or offices of
a size and with furnishings and other appointments, and to
exclusive personal secretarial and other assistance, at least equal
to the most favorable of the foregoing provided to the Executive by
the Company and its affiliated companies at any time during the one-
year period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided at any time thereafter with
respect to other peer executives of the Company and its affiliated
companies.
(x) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the
most favorable plans, policies, programs and practices of the
Company and its affiliated companies as in effect at any time
during the one-year period immediately preceding the Effective Date
or, if more favorable to the Executive, as in effect at any time
thereafter with respect to other peer incentives of the Company and
its affiliated companies.
5. Termination of Employment. (a) Death or Disability.
The Executive's employment shall terminate automatically upon the
Executive's death during the Employment Period. If the Company
determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition
of "Disability" set forth below), it may give to the Executive
written notice in accordance with Section 12(b) of this Agreement
of its intention to terminate the Executive's employment. In such
event, the Executive's employment with the Company shall terminate
effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within
the 30 days after such receipt, the Executive shall not have
returned to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" means the absence of the
Executive from the Executive's duties with the Company on a full-
time basis for 180 consecutive business days as a result of
incapacity due to mental or physical illness which is determined to
be total and permanent by a physician selected by the Company or
its insurers and acceptable to the Executive or the Executive's
legal representative (such agreement as to acceptability not to be
withheld unreasonably).
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for "Cause". For purposes
of this Agreement, "Cause" means (i) an act or acts of personal
dishonesty taken by the Executive and intended to result in
substantial personal enrichment of the Executive at the expense of
the Company, (ii) repeated violations by the Executive of the
Executive's obligations under Section 4(a) of this Agreement (other
than as a result of incapacity due to physical or mental illness)
which are demonstrably willful and deliberate on the Executive's
part, which are committed in bad faith or without reasonable belief
that such violations are in the best interests of the Company and
which are not remedied in a reasonable period of time after receipt
of written notice from the Company or (iii) the conviction of the
Executive of a felony involving moral turpitude.
(c) Good Reason. The Executive's employment may be
terminated during the Employment Period by the Executive for Good
Reason. For purposes of this Agreement, "Good Reason" means:
(i) the assignment to the Executive of any
duties inconsistent in any respect with the Executive's
position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as
contemplated by Section 4(a) of this Agreement, or any
other action by the Company which results in a diminution
in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(ii) any failure by the Company to comply with any
of the provisions of Section 4(b) of this Agreement,
other than an isolated, insubstantial and inadvertent
failure not occurring in bad faith and which is remedied
by the Company promptly after receipt of notice thereof
given by the Executive;
(iii) the Company's requiring the Executive to
be based at any office or location other than that
described in Section 4(a)(i)(B) hereof;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly
permitted by this Agreement; or
(v) any failure by the Company to comply with and
satisfy Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith
determination of "Good Reason" made by the Executive shall be
conclusive.
Anything in this Agreement to the contrary notwithstanding, a
termination by the Executive for any reason during the 90 day
period immediately following the first anniversary of the Effective
Date shall be deemed to be a termination for Good Reason for all
purposes of this Agreement.
(d) Notice of Termination. Any termination by the Company
for Cause or by the Executive for Good Reason shall be communicated
by Notice of Termination to the other party hereto given in
accordance with Section 12(b) of this Agreement. For purposes of
this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the
provision so indicated and (iii) if the Date of Termination (as
defined below) is other than the date of receipt of such notice,
specifies the termination date (which date shall be not more than
fifteen days after the giving of such notice). The failure by the
Executive or the Company to set forth in the Notice of Termination
any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the
Company hereunder or preclude the Executive or the Company from
asserting such fact or circumstance in enforcing the Executive's or
the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means the
date of receipt of the Notice of Termination or any later date
specified therein, as the case may be; provided however, that (i)
if the Executive's employment is terminated by the Company other
than for Cause, death or Disability, the Date of Termination shall
be the date on which the Company notifies the Executive of such
termination and (ii) if the Executive's employment is terminated by
reason of death or Disability, the Date of Termination shall be the
date of death of the Executive or the Disability Effective Date, as
the case may be.
6. Obligations of the Company upon Termination.
(a) Death. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this
Agreement shall terminate without further obligations to the
Executive's legal representatives under this Agreement, other than
for (i) payment of the sum of the following amounts: (A) the
Executive's Annual Base Salary through the Date of Termination to
the extent not theretofore paid, (B) the product of (I) the Highest
Annual Bonus and (II) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of
Termination, and the denominator of which is 365, (C) the Special
Bonus, if due to the Executive pursuant to Section 4(b)(iii), to
the extent not theretofore paid, and (D) any compensation
previously deferred by the Executive (together with any accrued
interest or earnings thereon) and any accrued bonus amounts or
vacation pay, in each case, to the extent not yet paid by the
Company (the amounts described in subparagraphs (A), (B), (C) and
(D) are hereafter referred to as "Accrued Obligations" and shall be
paid to the Executive's estate or beneficiary, as applicable, in a
lump sum in cash within 30 days of the Date of Termination), (ii)
for the remainder of the Employment Period, or such longer period
as any plan, program, practice or policy may provide, the Company
shall continue benefits to the Executive and/or the Executive's
family at least equal to those which would have been provided in
accordance with the applicable plans, programs practices and
policies described in Section 4(b)(v) of this Agreement as if the
Executive's employment had not been terminated in accordance with
the most favorable plans, practices, programs or policies of the
Company and its affiliated companies as in effect and applicable
generally to other peer executives and their families during the
one year period immediately preceding the Effective Date or, if
more favorable to the Executive, as in effect at any time
thereafter with respect to other peer executives of the Company and
its affiliated companies and their families (such continuation of
such benefits for the applicable period herein set forth shall be
hereinafter referred to as "Welfare Benefit Continuation") (for
purposes of determining eligibility of the Executive for retiree
benefits pursuant to such plans, practices, programs and policies,
the Executive shall be considered to have remained employed until
the end of the Employment Period and to have retired on the last
day of such period), and (iii) payment to the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of
the Date of Termination of an amount equal to the sum of the
Executive's Annual Base Salary and the Highest Annual Bonus.
Subject to the provisions of Section 9 hereof, but, otherwise,
anything herein to the contrary notwithstanding, the Executive's
family shall be entitled to receive benefits at least equal to the
most favorable benefits provided by the Company and any of its
affiliated companies to surviving families of peer executives of
the Company and such affiliated companies under such plans,
programs, practices and policies relating to family death benefits,
if any, as in effect with respect to other peer executives and
their families at any time during the one year period immediately
preceding the Effective Date or, if more favorable to the Executive
and/or the Executive's family, as in effect on the date of the
Executive's death with respect to other peer executives of the
Company and its affiliated companies and their families.
(b) Disability. If the Executive's employment is terminated
by reason of the Executive's Disability during the Employment
Period, this Agreement shall terminate without further obligations
to the Executive, other than for (i) payment of the Accrued
Obligations (which shall be paid in a lump sum in cash within 30
days of the Date of Termination), (ii) the timely payment and
provision of the Welfare Benefit Continuation, and (iii) payment to
the Executive in a lump sum in cash within 30 days of the Date of
Termination of an amount equal to the sum of the Executive's Annual
Base Salary and the Highest Annual Bonus. In addition, the Company
shall transfer to the Executive the insurance policy written with
respect to the Executive under the Company's Group Term Life
Insurance Policy for Executive Officers and the right to the full
cash surrender value thereof. Subject to the provisions of Section
9 hereof, but, otherwise, anything herein to the contrary
notwithstanding, the Executive shall be entitled after the
Disability Effective Date to receive disability and other benefits
at least equal to the most favorable of those provided by the
Company and its affiliated companies to disabled executives and/or
their families in accordance with such plans, programs, practices
and policies relating to disability, if any, as in effect with
respect to other peer executives and their families at any time
during the one year period immediately preceding the Effective Date
or, if more favorable to the Executive and/or the Executive's
family, as in effect at any time thereafter with respect to other
peer executives of the Company and its affiliated companies and
their families.
(c) Cause, Other than for Good Reason. If the Executive's
employment shall be terminated by the Company for Cause or by the
Executive other than for Good Reason (and other than by reason of
his death or disability) during the Employment Period, this
Agreement shall terminate without further obligations to the
Executive other than the obligation to pay to the Executive Annual
Base Salary through the Date of Termination, plus the amount of any
compensation previously deferred by the Executive and any accrued
bonus amounts or vacation pay, in each case, to the extent
theretofore unpaid. In such case, such amounts shall be paid to
the Executive in a lump sum in cash within 30 days of the Date of
Termination. The Executive shall, in such event, also be entitled
to any benefits required by law that are not otherwise provided by
this Agreement.
(d) Good Reason; Other Than for Cause or Disability. If,
during the Employment Period, the Company shall terminate the
Executive's employment other than for Cause, death or Disability,
or if the Executive shall terminate employment under this Agreement
for Good Reason:
(i) the Company shall pay to the Executive in a
lump sum in cash within 30 days after the Date of
Termination the aggregate of the following amounts:
A. all Accrued Obligations; and
B. the amount (such amount shall be
hereinafter referred to as the "Severance Amount") equal
to one dollar ($1.00) less than the product of (I) three
(3) and (II) the Executive's "base amount" as defined in
Section 280G(b)(3) of the Internal Revenue Code of 1986,
as amended (the "Code").
(ii) the Company shall timely pay and provide the
Welfare Benefit Continuation, provided, however, that if
the Executive becomes reemployed with another employer
and is eligible to receive medical or other welfare
benefits under another employer provided plan, the
medical or other welfare benefits described herein shall
be secondary to those provided under such other plan
during such applicable period of eligibility; and
(iii) to the extent not theretofore paid or
provided, the Company shall timely pay or provide to the
Executive and/or the Executive's family any other amounts
or benefits required to be paid or provided or which the
Executive and/or the Executive's family is eligible to
receive pursuant to this Agreement and under any plan,
program, policy or practice or contract or agreement of
the Company and its affiliated companies as in effect and
applicable generally to other peer executives of the
Company and its affiliated companies and their families
(such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits"); and
(iv) all unvested options or stock appreciation
rights which Executive then holds to acquire securities
from the Company shall be immediately and automatically
exercisable as of the Effective Date, and the Executive
shall have the right to exercise any such options or
stock appreciation rights for a period of one year after
the Date of Termination. Notwithstanding the foregoing,
until two years from the date of this Agreement, such
options and/or stock appreciation rights shall not be
accelerated if such acceleration would result in the
failure of a transaction which has been approved by the
Continuing Directors (as defined in the Company's
charter) and entered into by the Company to qualify as a
pooling for accounting purposes; and
(v) the Company shall transfer to the Executive the
insurance policy written with respect to the Executive
under the Company's Group Term Life Insurance Policy for
Executive Officers and the right to the full cash
surrender value thereof.
7. Non-exclusivity of Rights. Except as provided in Section
6, nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any benefit, bonus, incentive
or other plans, programs, policies or practices, provided by the
Company or any of its affiliated companies and for which the
Executive may qualify, nor shall anything herein limit or otherwise
affect such rights as the Executive may have under any other
agreements with the Company or any of its affiliated companies.
Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or
program of the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program except as
explicitly modified by this Agreement.
8. Full Settlement. (a) The Company's obligation to make
the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any set-
off, counterclaim, recoupment, defense or other claim, right or
action which the Company may have against the Executive or others.
In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of
this Agreement and, except as provided in Section 6(d)(ii), such
amounts shall not be reduced whether or not the Executive obtains
other employment. The Company agrees to pay promptly as incurred,
to the full extent permitted by law, all legal fees and expenses
which the Executive may reasonably incur as a result of any contest
(regardless of the outcome thereof) by the Company, the Executive
or others of the validity or enforceability of, or liability under,
any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive
about the amount of any payment pursuant to this Agreement, unless
a court of competent jurisdiction determines that the Executive
made such effort in bad faith), plus in each case interest at the
applicable Federal rate provided for in Section 7872(f)(2)(A) of
the Internal Revenue Code of 1986, as amended (the "Code").
(b) If there shall be any dispute between the Company and the
Executive (i) in the event of any termination of the Executive's
employment by the Company, whether such termination was for Cause,
or (ii) in the event of any termination of employment by the
Executive, whether Good Reason existed, then, unless and until
there is a final, nonappealable judgment by a court of competent
jurisdiction declaring that such termination was for Cause or that
the determination by the Executive of the existence of Good Reason
was not made in good faith, the Company shall pay all amounts, and
provide all benefits, to the Executive and/or the Executive's
family or other beneficiaries, as the case may be, that the Company
would be required to pay or provide pursuant to Section 6(d) as
though such termination were by the Company without Cause, or by
the Executive with Good Reason; provided, however, that the Company
shall not be required to pay any disputed amount pursuant to this
paragraph except upon receipt of an undertaking by or on behalf of
the Executive to repay all such amounts to which the Executive is
ultimately adjudged by such court not to be entitled.
9. Certain Reduction in Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the
Executive, whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise (a "Payment"),
would be nondeductible by the Company for Federal income tax
purposes because of Section 280G of the Code or would subject the
Executive to the excise tax imposed by Section 4999 of the Code,
then the aggregate present value of amounts payable or
distributable to or for the benefit of the Executive pursuant to
this Agreement (such payments or distributions pursuant to this
Agreement are hereinafter referred to as "Agreement Payments")
shall be reduced (but not below zero) to the Reduced Amount. The
"Reduced Amount" shall be one dollar less than an amount expressed
in present value which maximizes the aggregate present value of
Agreement Payments but which does not result in any of the amount
paid to the Executive being not deductible by reason of Section
280G of the Code or subject to the excise tax imposed by Section
4999 of the Code. For purposes of this Section 9, present value
shall be determined in accordance with Section 280G(d)(4) of the
Code.
(b) All determinations required to be made under this Section
9 shall be made by Arthur Andersen LLP (or its successor) unless
such firm shall be the accounting firm of the individual, entity or
group effecting the Change of Control or any affiliate of the
Company at the Date of Termination, in which case such
determinations shall be made by an accounting firm of national
standing agreed to by the Company and the Executive, or, if the
Company does not so agree within 10 days of the Date of
Termination, such an accounting firm shall be selected by the
Executive (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Executive
within 15 business days of the date such firm is selected or such
earlier time as is requested by the Company and an opinion to the
Executive that he has substantial authority not to report any
Excise Tax on his Federal income tax return with respect to any
Agreement Payments. Any such determination by the Accounting Firm
shall be binding upon the Company and the Executive. Within five
business days of the determination by the Accounting Firm as to the
Reduced Amount, the Company shall pay to or distribute to or for
the benefit of the Executive such amounts as are then due to the
Executive under this Agreement.
(c) As a result of the uncertainty in the application of
Section 280G of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Agreement
Payments will have been made by the Company which should not have
been made ("Overpayment") or that additional Agreement Payments
which will not have been made by the Company could have been made
("Underpayment"), in each case, consistent with the calculations
required to be made hereunder. In the event that the Accounting
Firm, based upon the assertion of a deficiency by the Internal
Revenue Service against the Executive which the Accounting Firm
believes has a high probability of success determines that an
Overpayment has been made, any such Overpayment paid or distributed
by the Company to or for the benefit of the Executive shall be
treated for all purposes as a loan ab initio to the Executive which
the Executive shall repay to the Company together with interest at
the applicable Federal rate provided for in Section 7872(f)(2) of
the Code. In the event that the Accounting Firm, based upon
controlling precedent or other substantial authority, determines
that an Underpayment has occurred, any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive
together with interest at the applicable Federal rate provided for
in Section 7872(f)(2) of the Code.
10. Confidential Information. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or
confidential information, knowledge or data relating to the Company
or any of its affiliated companies, and their respective
businesses, which shall have been obtained by the Executive during
the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive
in violation of this Agreement). After termination of the
Executive's employment with the Company, the Executive shall not,
without the prior written consent of the Company or as may
otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other
than the Company and those designated by it. In no event shall an
asserted violation of the provisions of this Section 10 constitute
a basis for deferring or withholding any amounts otherwise payable
to the Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the
Executive and without the prior written consent of the Company
shall not be assignable by the Executive otherwise than by will or
the laws of descent and distribution. This Agreement shall inure
to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all
or substantially all of the business and/or assets of the Company
to assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined
and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law,
or otherwise. In addition, the Executive shall be entitled, upon
exercise of any outstanding stock options or stock appreciation
rights of the Company, to receive in lieu of shares of the
Company's stock, shares of such stock or other securities of such
successor as the holders of shares of the Company's stock received
pursuant to the terms of the merger, consolidation or sale.
12. Miscellaneous. (a) This Agreement shall be governed by
and construed in accordance with the laws of the Commonwealth of
Massachusetts, without reference to principles of conflict of laws.
The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and
legal representatives.
(b) All notices and other communications hereunder shall be
in writing and shall be given by hand delivery to the other party
or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive:
Daniel J. Silva
1252 Broadway
Somerville, MA 02144
If to the Company:
Vivid Technologies, Inc.
10E Commerce Way
Woburn, Massachusetts 01801
Attention: S. David Ellenbogen
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notices and
communications shall be effective when actually received by the
addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state or local taxes as shall be
required to be withheld pursuant to any applicable law or
regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision hereof shall not be deemed to
be a waiver of such provision or any other provision thereof.
(f) This Agreement contains the entire understanding of the
Company and the Executive with respect to the subject matter hereof
and by entering into this Agreement the Executive waives all rights
he may have under the Company's separation policy, provided that if
the Company's separation policy would provide greater benefits to
the Executive than this Agreement, than the Executive may elect to
receive benefits under the Company's separation policy in lieu of
the benefits provided hereunder.
(g) The Executive and the Company acknowledge that, except as
may otherwise be provided under any other written agreement between
the Executive and the Company, prior to the Effective Date, the
employment of the Executive by the Company is "at will" and may be
terminated by either the Executive or the Company at any time.
Moreover, if prior to the Effective Date, (i) the Executive's
employment with the Company terminates, or (ii) the Board
determines by majority vote that the Executive shall cease to be an
officer of the Company, then the Executive shall have no further
rights under this Agreement, unless, in the case of (ii), the Board
otherwise determines that this Agreement shall remain in effect.
Notwithstanding anything contained herein, if, during the
Employment Period, the Executive shall terminate employment with
the Company other than for Good Reason, the Executive shall have no
liability to the Company.
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and, pursuant to the authorization from its Board of Directors, the
Company has caused these presents to be executed in its name on its
behalf, all as of the day and year first above written.
VIVID TECHNOLOGIES, INC.
By: /s/ S. David Ellenbogen
Name:S. David Ellenbogen
Title: Chief Executive Officer
EXECUTIVE
/s/ Daniel J. Silva
Daniel J. Silva
EXHIBIT 10.26
AGREEMENT
AGREEMENT by and between VIVID TECHNOLOGIES, INC., a Delaware
corporation (the "Company"), and William J. Frain (the
"Executive"), dated as of the 4th day of June, 1999.
The Board of Directors of the Company (the "Board"), has
determined that it is in the best interests of the Company and its
shareholders to assure that the Company will have the continued
dedication of the Executive, notwithstanding the possibility,
threat, or occurrence of a Change of Control (as defined below) of
the Company. The Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change
of Control and to encourage the Executive's full attention and
dedication to the Company currently and in the event of any
threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change
of Control which ensure that the compensation and benefits
expectations of the Executive will be satisfied and which are
competitive with those of other corporations. Therefore, in order
to accomplish these objectives, the Board has caused the Company to
enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall be
the first date during the "Change of Control Period" (as defined in
Section 1(b)) on which a Change of Control occurs. Anything in
this Agreement to the contrary notwithstanding, if the Executive's
employment with the Company is terminated or the Executive ceases
to be an officer of the Company prior to the date on which a Change
of Control occurs, and it is reasonably demonstrated that such
termination of employment (1) was at the request of a third party
who has taken steps reasonably calculated to effect the Change of
Control or (2) otherwise arose in connection with or anticipation
of the Change of Control, then for all purposes of this Agreement
the "Effective Date" shall mean the date immediately prior to the
date of such termination of employment, or cessation of officer
status.
(b) The "Change of Control Period" is the period commencing
on the date hereof and ending on the third anniversary of such
date; provided, however that commencing on the date one year after
the date hereof, and on each annual anniversary of such date (such
date and each annual anniversary thereof is hereinafter referred to
as the "Renewal Date"), the Change of Control Period shall be
automatically extended without any further action by the Company or
the Executive so as to terminate three years from such Renewal
Date; provided, however, that if the Company shall give notice in
writing to the Executive, at least 60 days prior to the Renewal
Date, stating that the Change of Control Period shall not be
extended, then the Change of Control Period shall expire three
years from the last effective Renewal Date.
2. Change of Control. For the purpose of this Agreement, a
"Change of Control" shall mean:
(a) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20% or more of the then outstanding shares of common
stock of the Company (the "Outstanding Company Common
Stock"); provided, however, that any acquisition by the
Company or its subsidiaries, or any employee benefit plan
(or related trust) of the Company or its subsidiaries of
20% or more of Outstanding Company Common Stock shall not
constitute a Change in Control; and provided, further,
that any acquisition by a corporation with respect to
which, following such acquisition, more than 50% of the
then outstanding shares of common stock of such
corporation, is then beneficially owned, directly or
indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners
of the Outstanding Company Common Stock immediately prior
to such acquisition in substantially the same proportion
as their ownership, immediately prior to such
acquisition, of the Outstanding Company Common Stock,
shall not constitute a Change in Control; or
(b) Any transaction which results in the Continuing
Directors (as defined in the Certificate of Incorporation
of the Company) constituting less than a majority of the
Board of Directors of the Company; or
(c) Approval by the stockholders of the Company of
(i) a reorganization, merger or consolidation, in each
case, with respect to which all or substantially all of
the individuals and entities who were the beneficial
owners of the Outstanding Company Common Stock
immediately prior to such reorganization, merger or
consolidation do not, following such reorganization,
merger or consolidation, beneficially own, directly or
indirectly, more than 50% of the then outstanding shares
of common stock of the corporation resulting from such a
reorganization, merger or consolidation, (ii) a complete
liquidation or dissolution of the Company or (iii) the
sale or other disposition of all or substantially all of
the assets of the Company, excluding a sale or other
disposition of assets to a subsidiary of the Company.
Anything in this Agreement to the contrary notwithstanding, if
an event that would, but for this paragraph, constitute a Change of
Control results from or arises out of a purchase or other
acquisition of the Company, directly or indirectly, by a
corporation or other entity in which the Executive has a greater
than ten percent (10%) direct or indirect equity interest, such
event shall not constitute a Change of Control.
3. Employment Period. Subject to the terms and conditions
hereof, the Company hereby agrees to continue the Executive in its
employ, and the Executive hereby agrees to remain in the employ of
the Company, for the period commencing on the Effective Date and
ending on the last day of the thirty-sixth month following the
month in which the Effective Date occurs (the "Employment Period").
4. Terms of Employment. (a) Position and Duties. (i)
During the Employment Period, (A) the Executive's position
(including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant of
those held, exercised and assigned at any time during the 90-day
period immediately preceding the Effective Date and (B) the
Executive's services shall be performed at the location where the
Executive was employed immediately preceding the Effective Date or
any office or location less than 35 miles from such location.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is
entitled, the Executive agrees to devote his full business time to
the business and affairs of the Company and, to the extent
necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable best efforts
to perform faithfully and efficiently such responsibilities. During
the Employment Period it shall not be a violation of this Agreement
for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C) manage
personal investments, so long as such activities do not
significantly interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the
extent that any such activities have been conducted by the
Executive prior to the Effective Date, the continued conduct of
such activities (or the conduct of activities similar in nature and
scope thereto) subsequent to the Effective Date, including, without
limitation, activities with respect to Vivid Technologies, Inc.,
shall not thereafter be deemed to interfere with the performance of
the Executive's responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the Employment
Period, the Executive shall receive an annual base salary ("Annual
Base Salary"), which shall be paid at a monthly rate, at least
equal to twelve times the highest monthly base salary paid or
payable to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately
preceding the month in which the Effective Date occurs. During the
Employment Period, the Annual Base Salary shall be reviewed at
least annually and shall be increased at any time and from time to
time as shall be substantially consistent with increases in base
salary awarded in the ordinary course of business to other peer
executives of the Company and its affiliated companies. Any
increase in Annual Base Salary shall not serve to limit or reduce
any other obligation to the Executive under this Agreement. Annual
Base Salary shall not be reduced after any such increase and the
term Annual Base Salary as utilized in this Agreement shall refer
to Annual Base Salary as so increased. As used in this Agreement,
the term "affiliated companies" includes any company controlled by,
controlling or under common control with the Company.
(iii) Annual Bonus. In addition to Annual Base
Salary, the Executive shall be awarded, for each fiscal year during
the Employment Period, an annual bonus (the "Annual Bonus") in cash
at least equal to the average annualized (for any fiscal year
consisting of less than twelve full months or with respect to which
the Executive has been employed by the Company for less than twelve
full months) bonus (the "Average Annual Bonus") paid or payable to
the Executive by the Company and its affiliated companies in
respect of the three fiscal years immediately preceding the fiscal
year in which the Effective Date occurs. Each such Annual Bonus
shall be paid no later than the end of the third month of the
fiscal year next following the fiscal year for which the Annual
Bonus is awarded, unless the Executive shall elect to defer the
receipt of such Annual Bonus pursuant to deferral plans of the
Company.
(iv) Special Bonus. In addition to Annual Base Salary
and Annual Bonus payable as hereinabove provided, if the Executive
remains employed with the Company and/or its affiliated companies
through the first anniversary of the Effective Date, the Company
shall pay to the Executive a special bonus (the "Special Bonus") in
recognition of the Executive's services during the crucial one-year
transition period following the Change of Control in cash equal to
the sum of (A) the Executive's Annual Base Salary and (B) the
greater of (x) the Annual Bonus paid or payable (and annualized for
any fiscal year consisting of less than twelve full months or for
which the Executive has been employed for less than twelve full
months) to the Executive for the most recently completed fiscal
year during the Employment Period, if any, and (y) the Average
Annual Bonus (such greater amount hereafter referred to as the
"Highest Annual Bonus"). The Special Bonus shall be paid no later
than 30 days following the first anniversary of the Effective Date.
(v) Incentive, Savings and Retirement Plans. In
addition to Annual Base Salary and Annual Bonus payable as
hereinabove provided, the Executive shall be entitled to
participate during the Employment Period in all incentive, savings
and retirement plans, practices, policies and programs applicable
to other peer executives of the Company and its affiliated
companies, but in no event shall such plans practices, policies and
programs provide the Executive with incentive, savings and
retirement benefits opportunities, in each case, less favorable, in
the aggregate, than the most favorable of those provided by the
Company and its affiliated companies for the Executive under such
plans, practices, policies and programs as in effect at any time
during the one-year immediately preceding the Effective Date, or,
if more favorable to the Executive, those provided generally at any
time after the Effective Date to other peer executives of the
Company and its affiliated companies.
(vi) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case
may be, shall be eligible for participation in and shall receive
all benefits under welfare benefit plans, practices, policies and
programs provided by the Company and its affiliated companies
(including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life,
accidental death and travel accident insurance plans and programs)
and applicable to other peer executives of the Company and its
affiliated companies, but in no event shall such plans, practices,
policies and programs provide benefits which are less favorable, in
the aggregate, than the most favorable of such plans, practices,
policies and programs in effect at any time during the one-year
period immediately preceding the Effective Date, or, if more
favorable to the Executive, those provided generally at any time
after the Effective Date to other peer executives of the Company
and its affiliated companies.
(vii) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive upon submission of
appropriate accountings in accordance with the most favorable
policies, practices and procedures of the Company and its
affiliated companies in effect at any time during the one-year
period immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect at any time thereafter
with respect to other peer executives of the Company and its
affiliated companies.
(viii) Fringe Benefits. During the Employment Period,
the Executive shall be entitled to fringe benefits in accordance
with the most favorable plans, practices, programs and policies of
the Company and its affiliated companies in effect at any time
during the one-year period immediately preceding the Effective Date
or, if more favorable to the Executive, as in effect at any time
thereafter with respect to other peer executives of the Company and
its affiliated companies.
(ix) Office and Support Staff. During the Employment
Period, the Executive shall be entitled to an office or offices of
a size and with furnishings and other appointments, and to
exclusive personal secretarial and other assistance, at least equal
to the most favorable of the foregoing provided to the Executive by
the Company and its affiliated companies at any time during the one-
year period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided at any time thereafter with
respect to other peer executives of the Company and its affiliated
companies.
(x) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the
most favorable plans, policies, programs and practices of the
Company and its affiliated companies as in effect at any time
during the one-year period immediately preceding the Effective Date
or, if more favorable to the Executive, as in effect at any time
thereafter with respect to other peer incentives of the Company and
its affiliated companies.
5. Termination of Employment. (a) Death or Disability.
The Executive's employment shall terminate automatically upon the
Executive's death during the Employment Period. If the Company
determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition
of "Disability" set forth below), it may give to the Executive
written notice in accordance with Section 12(b) of this Agreement
of its intention to terminate the Executive's employment. In such
event, the Executive's employment with the Company shall terminate
effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within
the 30 days after such receipt, the Executive shall not have
returned to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" means the absence of the
Executive from the Executive's duties with the Company on a full-
time basis for 180 consecutive business days as a result of
incapacity due to mental or physical illness which is determined to
be total and permanent by a physician selected by the Company or
its insurers and acceptable to the Executive or the Executive's
legal representative (such agreement as to acceptability not to be
withheld unreasonably).
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for "Cause". For purposes
of this Agreement, "Cause" means (i) an act or acts of personal
dishonesty taken by the Executive and intended to result in
substantial personal enrichment of the Executive at the expense of
the Company, (ii) repeated violations by the Executive of the
Executive's obligations under Section 4(a) of this Agreement (other
than as a result of incapacity due to physical or mental illness)
which are demonstrably willful and deliberate on the Executive's
part, which are committed in bad faith or without reasonable belief
that such violations are in the best interests of the Company and
which are not remedied in a reasonable period of time after receipt
of written notice from the Company or (iii) the conviction of the
Executive of a felony involving moral turpitude.
(c) Good Reason. The Executive's employment may be
terminated during the Employment Period by the Executive for Good
Reason. For purposes of this Agreement, "Good Reason" means:
(i) the assignment to the Executive of any
duties inconsistent in any respect with the Executive's
position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as
contemplated by Section 4(a) of this Agreement, or any
other action by the Company which results in a diminution
in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(ii) any failure by the Company to comply with any
of the provisions of Section 4(b) of this Agreement,
other than an isolated, insubstantial and inadvertent
failure not occurring in bad faith and which is remedied
by the Company promptly after receipt of notice thereof
given by the Executive;
(iii) the Company's requiring the Executive to
be based at any office or location other than that
described in Section 4(a)(i)(B) hereof;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly
permitted by this Agreement; or
(v) any failure by the Company to comply with and
satisfy Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith
determination of "Good Reason" made by the Executive shall be
conclusive.
Anything in this Agreement to the contrary notwithstanding, a
termination by the Executive for any reason during the 90 day
period immediately following the first anniversary of the Effective
Date shall be deemed to be a termination for Good Reason for all
purposes of this Agreement.
(d) Notice of Termination. Any termination by the Company
for Cause or by the Executive for Good Reason shall be communicated
by Notice of Termination to the other party hereto given in
accordance with Section 12(b) of this Agreement. For purposes of
this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the
provision so indicated and (iii) if the Date of Termination (as
defined below) is other than the date of receipt of such notice,
specifies the termination date (which date shall be not more than
fifteen days after the giving of such notice). The failure by the
Executive or the Company to set forth in the Notice of Termination
any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the
Company hereunder or preclude the Executive or the Company from
asserting such fact or circumstance in enforcing the Executive's or
the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means the
date of receipt of the Notice of Termination or any later date
specified therein, as the case may be; provided however, that (i)
if the Executive's employment is terminated by the Company other
than for Cause, death or Disability, the Date of Termination shall
be the date on which the Company notifies the Executive of such
termination and (ii) if the Executive's employment is terminated by
reason of death or Disability, the Date of Termination shall be the
date of death of the Executive or the Disability Effective Date, as
the case may be.
6. Obligations of the Company upon Termination.
(a) Death. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this
Agreement shall terminate without further obligations to the
Executive's legal representatives under this Agreement, other than
for (i) payment of the sum of the following amounts: (A) the
Executive's Annual Base Salary through the Date of Termination to
the extent not theretofore paid, (B) the product of (I) the Highest
Annual Bonus and (II) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of
Termination, and the denominator of which is 365, (C) the Special
Bonus, if due to the Executive pursuant to Section 4(b)(iii), to
the extent not theretofore paid, and (D) any compensation
previously deferred by the Executive (together with any accrued
interest or earnings thereon) and any accrued bonus amounts or
vacation pay, in each case, to the extent not yet paid by the
Company (the amounts described in subparagraphs (A), (B), (C) and
(D) are hereafter referred to as "Accrued Obligations" and shall be
paid to the Executive's estate or beneficiary, as applicable, in a
lump sum in cash within 30 days of the Date of Termination), (ii)
for the remainder of the Employment Period, or such longer period
as any plan, program, practice or policy may provide, the Company
shall continue benefits to the Executive and/or the Executive's
family at least equal to those which would have been provided in
accordance with the applicable plans, programs practices and
policies described in Section 4(b)(v) of this Agreement as if the
Executive's employment had not been terminated in accordance with
the most favorable plans, practices, programs or policies of the
Company and its affiliated companies as in effect and applicable
generally to other peer executives and their families during the
one year period immediately preceding the Effective Date or, if
more favorable to the Executive, as in effect at any time
thereafter with respect to other peer executives of the Company and
its affiliated companies and their families (such continuation of
such benefits for the applicable period herein set forth shall be
hereinafter referred to as "Welfare Benefit Continuation") (for
purposes of determining eligibility of the Executive for retiree
benefits pursuant to such plans, practices, programs and policies,
the Executive shall be considered to have remained employed until
the end of the Employment Period and to have retired on the last
day of such period), and (iii) payment to the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of
the Date of Termination of an amount equal to the sum of the
Executive's Annual Base Salary and the Highest Annual Bonus.
Subject to the provisions of Section 9 hereof, but, otherwise,
anything herein to the contrary notwithstanding, the Executive's
family shall be entitled to receive benefits at least equal to the
most favorable benefits provided by the Company and any of its
affiliated companies to surviving families of peer executives of
the Company and such affiliated companies under such plans,
programs, practices and policies relating to family death benefits,
if any, as in effect with respect to other peer executives and
their families at any time during the one year period immediately
preceding the Effective Date or, if more favorable to the Executive
and/or the Executive's family, as in effect on the date of the
Executive's death with respect to other peer executives of the
Company and its affiliated companies and their families.
(b) Disability. If the Executive's employment is terminated
by reason of the Executive's Disability during the Employment
Period, this Agreement shall terminate without further obligations
to the Executive, other than for (i) payment of the Accrued
Obligations (which shall be paid in a lump sum in cash within 30
days of the Date of Termination), (ii) the timely payment and
provision of the Welfare Benefit Continuation, and (iii) payment to
the Executive in a lump sum in cash within 30 days of the Date of
Termination of an amount equal to the sum of the Executive's Annual
Base Salary and the Highest Annual Bonus. In addition, the Company
shall transfer to the Executive the insurance policy written with
respect to the Executive under the Company's Group Term Life
Insurance Policy for Executive Officers and the right to the full
cash surrender value thereof. Subject to the provisions of Section
9 hereof, but, otherwise, anything herein to the contrary
notwithstanding, the Executive shall be entitled after the
Disability Effective Date to receive disability and other benefits
at least equal to the most favorable of those provided by the
Company and its affiliated companies to disabled executives and/or
their families in accordance with such plans, programs, practices
and policies relating to disability, if any, as in effect with
respect to other peer executives and their families at any time
during the one year period immediately preceding the Effective Date
or, if more favorable to the Executive and/or the Executive's
family, as in effect at any time thereafter with respect to other
peer executives of the Company and its affiliated companies and
their families.
(c) Cause, Other than for Good Reason. If the Executive's
employment shall be terminated by the Company for Cause or by the
Executive other than for Good Reason (and other than by reason of
his death or disability) during the Employment Period, this
Agreement shall terminate without further obligations to the
Executive other than the obligation to pay to the Executive Annual
Base Salary through the Date of Termination, plus the amount of any
compensation previously deferred by the Executive and any accrued
bonus amounts or vacation pay, in each case, to the extent
theretofore unpaid. In such case, such amounts shall be paid to
the Executive in a lump sum in cash within 30 days of the Date of
Termination. The Executive shall, in such event, also be entitled
to any benefits required by law that are not otherwise provided by
this Agreement.
(d) Good Reason; Other Than for Cause or Disability. If,
during the Employment Period, the Company shall terminate the
Executive's employment other than for Cause, death or Disability,
or if the Executive shall terminate employment under this Agreement
for Good Reason:
(i) the Company shall pay to the Executive in a
lump sum in cash within 30 days after the Date of
Termination the aggregate of the following amounts:
A. all Accrued Obligations; and
B. the amount (such amount shall be
hereinafter referred to as the "Severance Amount") equal
to one dollar ($1.00) less than the product of (I) three
(3) and (II) the Executive's "base amount" as defined in
Section 280G(b)(3) of the Internal Revenue Code of 1986,
as amended (the "Code").
(ii) the Company shall timely pay and provide the
Welfare Benefit Continuation, provided, however, that if
the Executive becomes reemployed with another employer
and is eligible to receive medical or other welfare
benefits under another employer provided plan, the
medical or other welfare benefits described herein shall
be secondary to those provided under such other plan
during such applicable period of eligibility; and
(iii) to the extent not theretofore paid or
provided, the Company shall timely pay or provide to the
Executive and/or the Executive's family any other amounts
or benefits required to be paid or provided or which the
Executive and/or the Executive's family is eligible to
receive pursuant to this Agreement and under any plan,
program, policy or practice or contract or agreement of
the Company and its affiliated companies as in effect and
applicable generally to other peer executives of the
Company and its affiliated companies and their families
(such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits"); and
(iv) all unvested options or stock appreciation
rights which Executive then holds to acquire securities
from the Company shall be immediately and automatically
exercisable as of the Effective Date, and the Executive
shall have the right to exercise any such options or
stock appreciation rights for a period of one year after
the Date of Termination. Notwithstanding the foregoing,
until two years from the date of this Agreement, such
options and/or stock appreciation rights shall not be
accelerated if such acceleration would result in the
failure of a transaction which has been approved by the
Continuing Directors (as defined in the Company's
charter) and entered into by the Company to qualify as a
pooling for accounting purposes; and
(v) the Company shall transfer to the Executive the
insurance policy written with respect to the Executive
under the Company's Group Term Life Insurance Policy for
Executive Officers and the right to the full cash
surrender value thereof.
7. Non-exclusivity of Rights. Except as provided in Section
6, nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any benefit, bonus, incentive
or other plans, programs, policies or practices, provided by the
Company or any of its affiliated companies and for which the
Executive may qualify, nor shall anything herein limit or otherwise
affect such rights as the Executive may have under any other
agreements with the Company or any of its affiliated companies.
Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or
program of the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program except as
explicitly modified by this Agreement.
8. Full Settlement. (a) The Company's obligation to make
the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any set-
off, counterclaim, recoupment, defense or other claim, right or
action which the Company may have against the Executive or others.
In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of
this Agreement and, except as provided in Section 6(d)(ii), such
amounts shall not be reduced whether or not the Executive obtains
other employment. The Company agrees to pay promptly as incurred,
to the full extent permitted by law, all legal fees and expenses
which the Executive may reasonably incur as a result of any contest
(regardless of the outcome thereof) by the Company, the Executive
or others of the validity or enforceability of, or liability under,
any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive
about the amount of any payment pursuant to this Agreement, unless
a court of competent jurisdiction determines that the Executive
made such effort in bad faith), plus in each case interest at the
applicable Federal rate provided for in Section 7872(f)(2)(A) of
the Internal Revenue Code of 1986, as amended (the "Code").
(b) If there shall be any dispute between the Company and the
Executive (i) in the event of any termination of the Executive's
employment by the Company, whether such termination was for Cause,
or (ii) in the event of any termination of employment by the
Executive, whether Good Reason existed, then, unless and until
there is a final, nonappealable judgment by a court of competent
jurisdiction declaring that such termination was for Cause or that
the determination by the Executive of the existence of Good Reason
was not made in good faith, the Company shall pay all amounts, and
provide all benefits, to the Executive and/or the Executive's
family or other beneficiaries, as the case may be, that the Company
would be required to pay or provide pursuant to Section 6(d) as
though such termination were by the Company without Cause, or by
the Executive with Good Reason; provided, however, that the Company
shall not be required to pay any disputed amount pursuant to this
paragraph except upon receipt of an undertaking by or on behalf of
the Executive to repay all such amounts to which the Executive is
ultimately adjudged by such court not to be entitled.
9. Certain Reduction in Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the
Executive, whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise (a "Payment"),
would be nondeductible by the Company for Federal income tax
purposes because of Section 280G of the Code or would subject the
Executive to the excise tax imposed by Section 4999 of the Code,
then the aggregate present value of amounts payable or
distributable to or for the benefit of the Executive pursuant to
this Agreement (such payments or distributions pursuant to this
Agreement are hereinafter referred to as "Agreement Payments")
shall be reduced (but not below zero) to the Reduced Amount. The
"Reduced Amount" shall be one dollar less than an amount expressed
in present value which maximizes the aggregate present value of
Agreement Payments but which does not result in any of the amount
paid to the Executive being not deductible by reason of Section
280G of the Code or subject to the excise tax imposed by Section
4999 of the Code. For purposes of this Section 9, present value
shall be determined in accordance with Section 280G(d)(4) of the
Code.
(b) All determinations required to be made under this Section
9 shall be made by Arthur Andersen LLP (or its successor) unless
such firm shall be the accounting firm of the individual, entity or
group effecting the Change of Control or any affiliate of the
Company at the Date of Termination, in which case such
determinations shall be made by an accounting firm of national
standing agreed to by the Company and the Executive, or, if the
Company does not so agree within 10 days of the Date of
Termination, such an accounting firm shall be selected by the
Executive (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Executive
within 15 business days of the date such firm is selected or such
earlier time as is requested by the Company and an opinion to the
Executive that he has substantial authority not to report any
Excise Tax on his Federal income tax return with respect to any
Agreement Payments. Any such determination by the Accounting Firm
shall be binding upon the Company and the Executive. Within five
business days of the determination by the Accounting Firm as to the
Reduced Amount, the Company shall pay to or distribute to or for
the benefit of the Executive such amounts as are then due to the
Executive under this Agreement.
(c) As a result of the uncertainty in the application of
Section 280G of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Agreement
Payments will have been made by the Company which should not have
been made ("Overpayment") or that additional Agreement Payments
which will not have been made by the Company could have been made
("Underpayment"), in each case, consistent with the calculations
required to be made hereunder. In the event that the Accounting
Firm, based upon the assertion of a deficiency by the Internal
Revenue Service against the Executive which the Accounting Firm
believes has a high probability of success determines that an
Overpayment has been made, any such Overpayment paid or distributed
by the Company to or for the benefit of the Executive shall be
treated for all purposes as a loan ab initio to the Executive which
the Executive shall repay to the Company together with interest at
the applicable Federal rate provided for in Section 7872(f)(2) of
the Code. In the event that the Accounting Firm, based upon
controlling precedent or other substantial authority, determines
that an Underpayment has occurred, any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive
together with interest at the applicable Federal rate provided for
in Section 7872(f)(2) of the Code.
10. Confidential Information. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or
confidential information, knowledge or data relating to the Company
or any of its affiliated companies, and their respective
businesses, which shall have been obtained by the Executive during
the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive
in violation of this Agreement). After termination of the
Executive's employment with the Company, the Executive shall not,
without the prior written consent of the Company or as may
otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other
than the Company and those designated by it. In no event shall an
asserted violation of the provisions of this Section 10 constitute
a basis for deferring or withholding any amounts otherwise payable
to the Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the
Executive and without the prior written consent of the Company
shall not be assignable by the Executive otherwise than by will or
the laws of descent and distribution. This Agreement shall inure
to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all
or substantially all of the business and/or assets of the Company
to assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined
and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law,
or otherwise. In addition, the Executive shall be entitled, upon
exercise of any outstanding stock options or stock appreciation
rights of the Company, to receive in lieu of shares of the
Company's stock, shares of such stock or other securities of such
successor as the holders of shares of the Company's stock received
pursuant to the terms of the merger, consolidation or sale.
12. Miscellaneous. (a) This Agreement shall be governed by
and construed in accordance with the laws of the Commonwealth of
Massachusetts, without reference to principles of conflict of laws.
The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and
legal representatives.
(b) All notices and other communications hereunder shall be
in writing and shall be given by hand delivery to the other party
or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive:
William J. Frain
17 Old Town Road
Beverly, MA 01915
If to the Company:
Vivid Technologies, Inc.
10E Commerce Way
Woburn, Massachusetts 01801
Attention: S. David Ellenbogen
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notices and
communications shall be effective when actually received by the
addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state or local taxes as shall be
required to be withheld pursuant to any applicable law or
regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision hereof shall not be deemed to
be a waiver of such provision or any other provision thereof.
(f) This Agreement contains the entire understanding of the
Company and the Executive with respect to the subject matter hereof
and by entering into this Agreement the Executive waives all rights
he may have under the Company's separation policy, provided that if
the Company's separation policy would provide greater benefits to
the Executive than this Agreement, than the Executive may elect to
receive benefits under the Company's separation policy in lieu of
the benefits provided hereunder.
(g) The Executive and the Company acknowledge that, except as
may otherwise be provided under any other written agreement between
the Executive and the Company, prior to the Effective Date, the
employment of the Executive by the Company is "at will" and may be
terminated by either the Executive or the Company at any time.
Moreover, if prior to the Effective Date, (i) the Executive's
employment with the Company terminates, or (ii) the Board
determines by majority vote that the Executive shall cease to be an
officer of the Company, then the Executive shall have no further
rights under this Agreement, unless, in the case of (ii), the Board
otherwise determines that this Agreement shall remain in effect.
Notwithstanding anything contained herein, if, during the
Employment Period, the Executive shall terminate employment with
the Company other than for Good Reason, the Executive shall have no
liability to the Company.
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and, pursuant to the authorization from its Board of Directors, the
Company has caused these presents to be executed in its name on its
behalf, all as of the day and year first above written.
VIVID TECHNOLOGIES, INC.
By: /s/ S. David Ellenbogen
Name:S. David Ellenbogen
Title: Chief Executive Officer
EXECUTIVE
/s/ William J. Frain
William J. Frain
EXHIBIT 10.27
AMENDMENT NO. 1
TO
MANAGEMENT SERVICES AGREEMENT
Amendment made this 4th day of October, 1999, to be effective
as of the Effective Time (as defined below), by and between
Hologic, Inc. ("Hologic") and Vivid Technologies, Inc. (formerly
known as Vivitech, "Vivid") to the Management Services Agreement
dated as of June 22, 1989 by and between Hologic and Vivid (the
"Agreement"). Except as set forth below, the Agreement shall
remain in full force and effect. Capitalized terms used herein and
not otherwise defined shall have the meanings ascribed to them in
the Agreement.
Preliminary Statement
WHEREAS the Agreement was entered into at the time when Vivid
was a development stage company;
WHEREAS Hologic and Vivid agree that neither party required
the protection afforded by a six-month notice to termination
provision in the Agreement;
WHEREAS Vivid and EG&G, Inc. have entered into an Agreement
and Plan of Merger dated the date hereof (the "Merger Agreement"),
pursuant to which Vivid will merge with a subsidiary of EG&G, Inc.
and become a wholly owned subsidiary of EG&G, Inc. (the "Merger");
WHEREAS the parties contemplate that the Agreement will be
terminated immediately upon the Effective Time (as defined in the
Merger Agreement);
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is being acknowledged, the parties
agree as follows:
Section 2 of the Agreement shall be deleted in its entirety and the
following substituted in its place:
"2. Term. This Agreement shall continue until terminated by
either party. Such termination will take effect
immediately unless the parties mutually agree otherwise."
This Amendment is effective only upon the occurrence of the
Effective Time. If the Merger Agreement is terminated in
accordance with Article VII thereof, this Amendment shall be null
and void. This Amendment may be amended or modified only by a
written instrument executed by Vivid and Hologic.
The Agreement, as supplemented and modified by this Amendment,
together with the other writings referred to in the Agreement or
delivered pursuant thereto which form a part thereof, contain the
entire agreement among the parties with respect to the subject
matter thereof and amend, restate and supersede all prior and
contemporaneous arrangements or understandings with respect
thereto.
Upon effectiveness of this Amendment, on and after the date hereof,
each reference in the Agreement to "this Agreement," "hereunder,"
"hereof," "herein" or words of like import, and each reference in
the other documents entered into in connection with the Agreement,
shall mean and be a reference to the Agreement, as amended hereby.
Except as specifically amended above, the Agreement shall remain in
full force and effect and is hereby ratified and confirmed.
This Amendment shall be governed by and construed in accordance
with the internal laws (and not the law of conflicts) of the
Commonwealth of Massachusetts.
This Amendment may be executed in any number of counterparts and
each such counterpart shall be deemed to be an original instrument,
but all such counterparts together shall constitute but one
agreement.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement as of the date first above written.
HOLOGIC, INC. VIVID TECHNOLOGIES, INC.
By: /s/ Steve L. Nakashige By: /s/ William J. Frain
Title: President & COO Title: Chief Financial Officer
EXHIBIT 10.28
TERMINATION AGREEMENT
This Termination Agreement dated as of October 4, 1999 is
entered into by and between:
Hologic, Inc., a Massachusetts corporation, having a place of
business at 35 Crosby Drive, Bedford, Massachusetts 01730-1401
("Hologic") and
Vivid Technologies, Inc., a Delaware corporation, (f/k/a
Vivitech, Inc,), having a place of business at 10E Commerce Way,
Woburn, MA 01801 ("Vivid").
CONSIDERATION UNDERLYING THIS AGREEMENT
WHEREAS, the parties entered into a License and Technology
Agreement dated as of June 22, 1989, as amended by a First
Amendment to License and Technology Agreement dated as of September
25, 1996 (as so amended, the "License Agreement"); and
WHEREAS, Vivid and EG&G, Inc. have entered into an Agreement
and Plan of Merger dated October 4, 1999, ("Merger Agreement"),
pursuant to which Vivid will merge with a subsidiary of EG&G, Inc.
and become wholly owned subsidiary of EG&G, Inc. (the "Merger");
and
WHEREAS, the Parties which to provide for termination of the
License Agreement upon consummation of the Merger ("Effective
Date"); and
NOW THEREFORE, in consideration of the premises and of the
mutual covenants and agreements contained herein, and intending to
be legally bound, the parties agree as follows:
Capitalized terms used herein and not otherwise defined shall have
the same respective meanings as those terms set forth in the
License Agreement.
In accordance with paragraph 12(a) of the License Agreement,
Hologic and Vivid mutually agree to terminate the License
Agreement, subject to the terms and conditions of this Agreement.
The royalty provision of paragraph 5 of the License Agreement shall
be accelerated as of October 1, 1999 and Vivid shall pay to Hologic
on the Effective Date, by federal funds wire transfer in
immediately available funds, an amount equal to the sum of (i) Two
Million Dollars ($2,000,000).
As consideration for the payment to Hologic referred to in
paragraph 3, hereof, the perpetual, exclusive, worldwide license to
utilize the Base Technology and Know-how to design, develop,
improve, enhance, manufacture, market and sell the Original Product
shall survive this termination and be held by Vivid as a paid-up,
perpetual, exclusive, worldwide license as of October 1, 1999,
subject to payment of any royalties accrued for periods ending
prior to said date. All other license rights granted by Hologic to
Vivid under the License Agreement shall terminate on the Effective
Date.
The confidentiality provision of paragraph 10, the indemnification
provisions of paragraph 13, and the non-competition provision of
paragraph 17 of the License Agreement shall survive this
termination.
This Termination Agreement shall only take effect upon the
occurrence of the Effective Date, in the event the Merger is not
consummated for any reason on or before April 30, 2000, Vivid shall
be immediately responsible for royalties, as required under the
License Agreement, for the quarters ending December 31, 1999 and
March 31, 2000, and the payment referred to in paragraph 3 above
shall be reduced by those amounts (the resulting amount shall be
referred to as the "Net Amount"). The Net Amount shall bear
interest at a rate of 9% per annum from May 1, 2000 until the date
paid. In the event the Merger Agreement is terminated for any
reason or the Merger is not consummated by October 30, 2000, this
Termination Agreement shall be null and void and shall have no
further force or effect, Vivid shall provide Hologic with prompt
notice of any termination of the Merger Agreement. In the event
this Termination Agreement is terminated, Vivid shall be
responsible for any outstanding royalties under the License
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
HOLOGIC, INC. VIVID TECHNOLOGIES, INC.
By: /s/ Steve L. Nakashige By: /s/ William J. Frain
Title: President & COO Title: Chief Financial Officer
EXHIBIT 23.01
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into the
Company's previously filed Form S-8 Registration Statement No. 333-
79061.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Boston, Massachusetts
December 17, 1999
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