<PAGE> 1
FORM 10Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 27, 1997
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---- ----
Commission File Number 1-6549
------
American Science and Engineering, Inc.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Massachusetts 04-2240991
- ------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
829 Middlesex Turnpike
Billerica, Massachusetts 01821
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(508) 262-8700
----------------------------------------------------
(Registrant's telephone number, including area code)
-------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date
Outstanding at
Class of Common Stock June 27, 1997
--------------------- -------------
$.66 2/3 par value 4,645,210
Page 1 of 21 Pages
The Exhibit Index is Located at Page 9
-1-
<PAGE> 2
AMERICAN SCIENCE AND ENGINEERING, INC.
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For The Three Months Ended
-------------------------------
Dollars and shares in thousands, except per share amounts June 27, 1997 June 28, 1996
------------- -------------
<S> <C> <C>
NET SALES AND CONTRACT REVENUE $7,532 $6,699
------ ------
COSTS AND EXPENSES:
Cost of sales and contracts 4,782 4,608
Selling, general and administrative expenses 1,670 1,449
Research and development 464 244
------ ------
Total costs and expenses 6,916 6,301
------ ------
OPERATING INCOME 616 398
------ ------
OTHER INCOME (EXPENSE):
Interest, net 27 47
Other, net (3) (19)
------ ------
Total other income 24 28
------ ------
INCOME BEFORE PROVISION FOR
INCOME TAXES 640 426
PROVISION FOR INCOME TAXES 30 20
------ ------
NET INCOME $ 610 $ 406
====== ======
INCOME PER SHARE-PRIMARY/FULLY
DILUTED $ .13 $ .09
====== ======
DIVIDENDS PAID PER SHARE None None
====== ======
WEIGHTED AVERAGE SHARES - PRIMARY 4,805 4,712
====== ======
- FULLY DILUTED 4,805 4,712
====== ======
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
-2-
<PAGE> 3
AMERICAN SCIENCE AND ENGINEERING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Dollars in thousands
June 27, 1997 Mar. 28, 1997
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS CURRENT ASSETS:
Cash and cash equivalents $ 2,319 $ 3,202
Accounts receivable, net 6,717 5,019
Unbilled costs and fees, net 1,905 981
Inventories 5,018 4,736
Prepaid expenses and other current assets 149 157
------- -------
TOTAL CURRENT ASSETS 16,108 14,095
------- -------
NONCURRENT ASSETS:
Deposits 65 115
Property and equipment, net
of accumulated depreciation of
$9,012 at June 27, 1997 and
$8,860 at March 28, 1997 1,492 1,304
------- -------
$17,665 $15,514
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
-3-
<PAGE> 4
AMERICAN SCIENCE AND ENGINEERING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(CONTINUED)
<TABLE>
<CAPTION>
Dollars in thousands
June 27, 1997 Mar. 28, 1997
------------- -------------
(Unaudited)
<S> <C> <C>
LIABILITIES & CURRENT LIABILITIES:
STOCKHOLDERS' Current maturities of obligations
INVESTMENT under capital leases $ 18 $ 18
Accounts payable 2,685 2,253
Accrued salaries and benefits 682 573
Accrued warranty costs 328 292
Deferred revenue 818 526
Customer deposits 137 --
Other current liabilities 686 577
------- -------
TOTAL CURRENT LIABILITIES 5,354 4,239
------- -------
NONCURRENT LIABILITIES:
Obligations under capital leases, net
of current maturities 37 42
Deferred revenue 715 660
Deferred compensation 167 174
Deferred rent 254 249
------- -------
TOTAL NONCURRENT LIABILITIES 1,173 1,125
------- -------
STOCKHOLDERS' INVESTMENT:
Preferred stock, no par value
Authorized - 100,000 shares
Issued - None
Common stock, $.66-2/3 par value
Authorized -20,000,000 shares
Issued 4,645,210 shares at June 27, 1997
and 4,585,209 shares at Mar. 28, 1997 3,098 3,058
Capital in excess of par value 15,611 15,273
Accumulated deficit (6,755) (7,365)
------- -------
11,954 10,966
Note receivable-Officer (640) (640)
Less: treasury stock -
62,841 shares at June 27, 1997
and Mar. 28, 1997 at cost (176) (176)
------- -------
TOTAL STOCKHOLDERS' INVESTMENT 11,138 10,150
------- -------
$17,665 $15,514
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
-4-
<PAGE> 5
AMERICAN SCIENCE AND ENGINEERING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Dollars in thousands
For the Three Months Ended
---------------------------------
June 27, 1997 June 28, 1996
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 610 $ 406
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Depreciation and amortization 152 81
Provisions for contract, inventory and warranty reserves 208 213
Changes in assets and liabilities:
Accounts receivable (1,698) (1,078)
Unbilled costs and fees (974) 500
Inventories (332) 101
Prepaid expenses, other current assets, and deposits 58 (156)
Accounts payable 432 232
Customer deposits 137 (165)
Accrued expenses and other current liabilities 438 367
Noncurrent liabilities 53 2
------- -------
Total adjustments (1,526) 97
------- -------
Net cash provided by (used for) operating activities (916) 503
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (340) (148)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 378 127
Principal payments of capital lease obligations (5) (4)
------- -------
Cash (used for) provided by financing activities 373 123
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS (883) 478
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,202 3,377
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,319 $ 3,855
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 2 $ 3
Income taxes paid $ -- $ 30
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
-5-
<PAGE> 6
AMERICAN SCIENCE AND ENGINEERING, INC.
PREPARATION OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements included herein have been
prepared by American Science and Engineering, Inc. (the Company) pursuant to the
rules and regulations of the Securities and Exchange Commission, and the annual
condensed consolidated financial statements are subject to year end audit by
independent public accountants. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. The Company believes, however, that the disclosures are
adequate to make the information presented not misleading. It is suggested that
these condensed consolidated financial statements be read in conjunction with
the consolidated financial statements and the notes thereto included in the
Company's latest annual report on Form 10-K.
The condensed consolidated financial statements, in the opinion of management,
include all adjustments necessary to present fairly the Company's financial
position and the results of operations. These results are not necessarily to be
considered indicative of the results for the entire year.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Nature of Operations and Significant Accounting Policies
--------------------------------------------------------
American Science and Engineering, Inc., is engaged in the development and
manufacture of sophisticated X-ray inspection systems for critical
detection and security screening solutions for sale primarily to U.S. and
foreign government agencies.
The significant accounting policies followed by the Company and its
subsidiary in preparing its consolidated financial statements are set forth
in Note 1 to the consolidated financial statements included in Form 10-K
for the year ended March 28, 1997. The Company has made no change in these
policies during this quarter.
2. Inventories
-----------
Inventories consisted of:
<TABLE>
<CAPTION>
June 27, 1997 Mar. 28, 1997
------------- -------------
<S> <C> <C>
Raw materials and completed
sub-assemblies $2,653,000 $3,106,000
Work in process 2,265,000 1,334,000
Finished goods 100,000 296,000
---------- ==========
Total $5,018,000 $4,736,000
========== ==========
</TABLE>
3. Income per Common and Common Equivalent Share
---------------------------------------------
Income per common share for the three month period ended June 27, 1997 was
computed by dividing net income by the weighted average number of common
stock and common stock equivalents outstanding during the year. If
dilutive, stock options and stock warrants were considered in the
computation of earnings per common and common equivalent shares. Under the
provisions of SFAS No. 128 there would be no material change from primary
and fully diluted earnings per common share to basic and diluted earnings
per share for the quarters ended June 27, 1997 and June 28, 1996.
-6-
<PAGE> 7
4. Income Taxes
------------
At March 28, 1997, the Company had approximately $6,986,000 of federal net
operating loss carry forwards which can be used, subject to certain
limitations, to offset any future federal taxable income. The carry
forwards expire through the year 2010. The Company also has unused
investment tax and other credits of approximately $213,000 expiring through
2001. The provision for income taxes in the accompanying consolidated
statement of operations is substantially a current provision and differs
from the provision calculated by applying the statutory federal income tax
rate of 34% to income before provision for income taxes due to the
following:
<TABLE>
<CAPTION>
Three Months End
June 27, 1997
----------------
<S> <C>
Provision for income taxes at statutory rate $ 217,600
Benefit from net operating loss carry forward (217,600)
Other tax liabilities 30,000
---------
$ 30,000
=========
</TABLE>
5. Presentation
------------
Certain amounts in the quarter ended June 28, 1996 have been reclassified
to conform to the quarter ended June 27, 1997 financial statements
presentation.
-7-
<PAGE> 8
AMERICAN SCIENCE AND ENGINEERING, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
- --------
In the first quarter of fiscal 1998, the Company produced its ninth consecutive
quarter of increasing profitability. Net sales and contract revenues were
$7,532,000 during the quarter, a 12% increase from the comparable year ago
period and a 5% decrease as compared to the fourth quarter of fiscal 1997. The
company earned net profits of $610,000 in the current quarter, a 50% increase
over the first quarter of fiscal 1997 and an 8% increase over the previous
quarter.
Results of Operations
- ---------------------
Net sales and contract revenues in the first quarter increased by $833,000 (12%)
in comparison to the corresponding period a year ago and decreased by $436,000
(5%) compared to the fourth quarter of fiscal 1997. Compared to the previous
quarter, security systems and related field service revenues were down by
$409,000 (6%) and research and engineering revenues declined by $27,000 (3%).
The decline in security systems and related field service revenues was due to
customer-requested delays in orders for, and installations of, the Company's
X-ray inspection systems.
For the first quarter, costs of sales and contracts increased to $4,782,000 from
$4,608,000 in the corresponding period a year ago due primarily to increased
sales volume. Costs of sales and contracts represented 63% of revenues versus
69% for the corresponding period last year and 65% for the fourth quarter of
fiscal year 1997. The costs of sales percentage of revenues in the current
quarter decreased from the previous quarter primarily due to the sales mix of
higher margin products.
Selling, general and administrative expenses of $1,670,000 for the first quarter
were higher by 15% compared to the corresponding year-ago period and lower by 3%
compared to the fourth quarter of fiscal 1997. As a percent of sales, selling,
general and administrative expenses were 22% of revenues in the current quarter
compared to 22% of revenues for the corresponding year ago period and 22% for
the previous quarter.
Company-funded research and development expenses of $464,000 for the first
quarter were higher by $220,000 (90%) compared to the first quarter of fiscal
1997 and lower by $7,000 (2%) compared to the fourth quarter of fiscal year
1997. The increase compared to the year ago period is an intentional result of
the Company's growing commitment to research and development.
The Company produced a net profit of $610,000 during the first quarter of fiscal
1998. This represents an improvement of 50% over net profit in the year-ago
quarter and an increase of 8% over the net profit reported in the previous
quarter. The improved profitability results primarily from higher revenue
compared to the year ago quarter and a more profitable product mix compared to
both the year ago and prior quarters.
Liquidity and Capital Resources
- -------------------------------
Net cash used by operating activities during the first three months of fiscal
1998 was $916,000, compared to $503,000 cash provided by operating activities
during the corresponding year-ago period. This decrease in cash is primarily due
to an increase in accounts and unbilled receivables of $1,698,000 and $974,000,
respectively, partially offset by increases in accounts payable of $432,000 and
accrued expenses and other current liabilities of $438,000. Cash and cash
equivalents decreased by $883,000 to $2,319,000 as of June 27, 1997, compared to
$3,202,000 on March 28, 1997. Working capital increased by $898,000 (9%) since
March 28, 1997, growing from $9,856,000 to $10,754,000 at the end of the first
quarter.
No external borrowings were outstanding at the end of either the current or
previous quarter. Management believes the Company has access to sufficient
capital resources to support operations over the next several quarters.
-8-
<PAGE> 9
AMERICAN SCIENCE AND ENGINEERING, INC.
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit Index
-------------
Exhibit Page
------- ----
(10) Statement re: Computation of 6
Income per Common
and Common Equivalent Share
(11) Employment Agreement between the
Company and Ralph Sheridan dated
September 26, 1996 10
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMERICAN SCIENCE AND ENGINEERING, INC.
(Registrant)
Date: 4 August 1997 /s/ Lee C. Steele
------------------------------------------
Lee C. Steele
Vice President and Chief Financial Officer
Safe Harbor Statement
- ---------------------
The foregoing 10-Q contains statements concerning the Company's financial
performance and business operations which may be considered "forward-looking"
under applicable securities laws.
The Company wishes to caution readers of this Form 10-Q that actual results
might differ materially from those projected in any forward-looking statements.
Factors which might cause actual results to differ materially from those
projected in the forward-looking statements contained herein include the
following: Significant reductions or delays in procurements of the Company's
systems by the United States Government; disruption in the supply of any
sole-source component incorporated into the Company's products (of which there
are several); litigation seeking to restrict the use of intellectual property
used by the Company; potential product liability claims against the Company;
global political trends and events which affect public perception of the threat
presented by drugs, explosives and other contraband; the ability of governments
and private organizations to fund purchases of the Company's products to
address such threats; and the potential insufficiency of Company resources,
including human resources, capital, plant and equipment and management systems,
to accommodate any future growth. These and certain other factors which might
cause actual results to differ materially from those projected are more fully
set forth under the caption "Risk Factors" in the Company's Registration
Statement on Form S-3 (SEC File No. 333-9151).
-9-
<PAGE> 1
EMPLOYMENT AGREEMENT
--------------------
This Agreement is made as of September 26, 1996 by and between American Science
and Engineering, Inc. (the "Company"), a Massachusetts corporation having its
principal place of business in Billerica, Massachusetts, and Ralph S. Sheridan
(the "Executive").
The Company desires to retain the services of the Executive, and the Executive
is willing to render such services in accordance with the terms hereinafter set
forth.
The Board of Directors of the Company (the "Board") has by appropriate
resolutions authorized the employment of the Executive as provided for in this
Agreement.
Accordingly, the Company and the Executive agree:
ARTICLE I
1.1 TERM.
----
The term of this Agreement shall begin as of September 25, 1996 (the
"Effective Date") and shall extend until September 25, 1999, unless earlier
terminated pursuant to Article V (the "Term"). The Executive's employment under
this Agreement may be extended or renewed solely by means of a written
agreement signed by the Executive and a representative of the Company expressly
authorized by the Board.
ARTICLE II
2.1 PRESIDENT AND CHIEF EXECUTIVE OFFICER.
-------------------------------------
The Executive shall be the President and the Chief Executive Officer of the
Company, shall report solely and directly to the Board on all matters relating
to the Executive's performance of his duties, and shall perform such duties and
responsibilities on behalf of the Company and its subsidiaries as may be
designated from time to time by the Board.
The Executive shall devote his full business time and his best efforts, business
judgment, skill and knowledge exclusively to the advancement of the business and
interests of the Company and its subsidiaries and to the discharge of his duties
and responsibilities hereunder. The Executive will use his best judgment not to
accept any outside responsibilities that will jeopardize his ability to fulfill
his responsibilities as President and Chief Executive Officer of the Company.
One or more members of the Compensation Committee of the Board shall meet with
the Executive at least annually during the Term, shall review with him the
Company's performance to date, shall discuss his management accomplishments as
well as any areas requiring improvement, and shall review his base compensation
as provided in Section 3.1.
2.2 DIRECTOR.
--------
Subject to the vote of the stockholders at subsequent annual meetings, the
Executive shall continue to serve as a Director of the Company during the term
of this Agreement.
-10-
<PAGE> 2
ARTICLE III
3.1 BASE SALARY.
-----------
For services rendered by the Executive under this Agreement during the Term,
the Company shall pay or cause to be paid to the Executive, in accordance
with the Company's normal payroll practices for senior executives of the
Company, base salary ("Base Salary") for the initial year of employment at the
annual rate of $240,000. The Base Salary will be formally reviewed on an annual
basis by the Compensation Committee and increased in the ensuing years if the
Committee determines that an increase is warranted.
3.2 BONUSES.
-------
In addition to Base Salary, the Executive shall be paid an annual bonus not to
exceed $230,000 annually, which bonus will be established by the Compensation
Committee (the "Bonus"). Promptly following the execution of this Employment
Agreement, the Company and the Executive will meet to establish the
performance goals upon which the award of the Bonus for the first year of
employment pursuant to this Employment Agreement (the "First Bonus Period")
will be determined. Seventy-five percent of the Bonus will be based upon an
agreed-upon pre-tax income goal plus the amount expended by the Company in such
year for research and development ("Target Income"). Target Income will be
adjusted each year by the mutual consent of the Compensation Committee and the
Executive. Twenty-five percent of the Bonus will be based on personal
performance goals which will be established annually by the Compensation
Committee and the Executive promptly after the execution of this Employment
Agreement and revised on an annual basis in each subsequent year of this
Employment Agreement. During each subsequent year of employment pursuant to the
terms of this Employment Agreement ("Subsequent Bonus Periods"), the Chairman
of the Board and the Executive shall meet periodically to discuss the
Executive's progress concerning these goals. Promptly after the end of each
such Subsequent Bonus Period, the Compensation Committee shall meet to discuss
the Executive's performance with regard to such goals and shall, in its
discretion, determine the amount, if any, of the Bonus to be paid to the
Executive for such Subsequent Bonus Period. For the purpose of this
determination, the goals shall be laddered so that attainment of some, but not
all, goals will give rise to the payment of a partial Bonus.
3.3 STOCK OPTIONS.
-------------
GRANT OF UNCONDITIONAL OPTION. The Company grants to the Executive a
non-statutory stock option (the "Unconditional Option"), in the form of the
stock option agreement attached hereto as Exhibit B, to purchase in the
aggregate 225,000 shares of the Company's Common Stock. The purchase price per
share of the 225,000 shares covered by the Unconditional Option shall be the
fair market value of the stock as of the date of the execution of the stock
option agreement granting the Unconditional Option. The option to acquire the
first seventy five thousand shares will vest on the first anniversary date of
the commencement of this Employment Agreement. The option to acquire an
additional 75,000 shares will vest on the second anniversary and a final option
to acquire 75,000 shares will vest on the third anniversary of this Employment
Agreement. The stock options shall be subject to termination only if employment
is terminated by the Company for Cause or if the Executive voluntarily requests
termination prior to September 25, 1999 for reasons other than for Good Reason.
All stock options will immediately vest if the Executive terminates employment
for Good Reason as defined in Article V 5.1(b) herein or if the Company or all
or substantially all of its assets or stock are acquired by a third party or by
merger, consolidation or otherwise.
-11-
<PAGE> 3
3.4 SECURITIES ACT OF 1933.
----------------------
The Company agrees to register the shares subject to the stock options
referred to in this Article III pursuant to the Securities Act of 1933, as
promptly as practicable.
ARTICLE IV
4.1 BENEFITS DURING THE TERM.
------------------------
During the Term, the Executive will be covered by and receive benefits not
specifically dealt with in this Agreement (such as the payment provisions set
forth in Article V in the event of termination of employment, which are
intended to be exclusive) under the benefit plans and programs maintained by
the Company from time to time for its senior executives. The Executives shall
also be entitled to such other perquisites of office as are generally provided
from time to time by the Company to its senior executive officers. The
Executive shall be reimbursed for all reasonable out-of-pocket expenses
reasonably incurred by him in the performance of his duties hereunder, upon
submission of appropriate documentation in accordance with the Company's
written policies.
4.2 AUTOMOBILE.
----------
The Company shall provide the Executive, at his request, with an automobile for
his use during the Term. The Company will pay for all expenses associated with
the Executive's business use of the automobile. At the end of the Term, the
Executive shall return the automobile to the Company in substantially the same
condition as on the date he first receive it, reasonable wear and tear
excepted.
ARTICLE V
5.1 TERMINATION BY THE COMPANY WITHOUT CAUSE OR BY THE EXECUTIVE FOR GOOD
---------------------------------------------------------------------
REASON.
------
(a) The Company may, upon written notice to the Executive, immediately terminate
the Executive's employment hereunder without Cause. For purposes of this Article
V, "Cause" shall mean:
(i) the Executive's willful and continuing failure to perform his duties
in the course of his employment under this Agreement, which failure is
not cured by the Executive within 30 days after notice specifically
describing such failure is provided in writing by the Company to the
Executive; or
(ii) the conviction of the Executive for, or his plea of nolo contendere
to, a felony or any other crime which involves fraud, dishonesty or
moral turpitude.
(b) The Executive may, upon 15 days' written notice to the Company, terminate
his employment hereunder for Good Reason. For purposes of this Article V, "Good
Reason" shall mean:
-12-
<PAGE> 4
(i) the assignment of the Executive of any duties, inconsistent in any
respect with the Executive's position as the President and Chief
Executive Officer of the Company 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 within 30 days after receipt of written
notice thereof given by the Executive, PROVIDED, HOWEVER, that any
change or diminution of the business of the Company or of any
subsidiary or subsidiaries of the Company, including without
limitation the sale or transfer of such subsidiaries, or any or all of
their assets, shall not constitute "Good Reason";
(ii) any failure of the Company to comply with any of the provisions of the
Employment Agreement, other than an insubstantial failure not
occurring in bad faith and which is remedied by the Company within 30
days after receipt of written notice thereof given by the Executive;
(iii) failure of the Company and the Executive, bargaining in good faith,
to agree upon performance goals pursuant to Section 3.2(b) and an
annual Base Salary for the second and third year of this contract;
(iv) any failure of the Company to obtain a satisfactory agreement from any
successor to all or substantially all of the business or assets of the
Company to assume and agree to perform this Agreement; or
(v) any purported termination by the Company of the Executive's employment
otherwise than as expressly permitted by the Employment Agreement.
(c) In case of any termination of the Executive's employment hereunder without
Cause or for Good Reason (as defined above), the Company shall pay to the
Executive (or in the event of his death, his designated beneficiary or his
estate, as the case may be): (1) a sum equal to the Executive's then annual Base
Salary in cash payable at the times such sum would have been paid to the
Executive if he had remained in the employ of the Company and was entitled to
receive such sum in the form of Base Salary during the 12-month period following
his termination of employment, and (2) the amount the Executive earned in Bonus
payments and, if such termination occurs prior to September 25, 1997, the value
of any stock received in the year previous to such termination, payable at such
time such Bonus would have been paid had the Executive remained in the employ of
the Company. In addition, any unvested stock options outstanding on the date of
the Executive's termination of employment shall become vested and exercisable in
accordance with their terms. The failure of the Company to extend the term of
this Employment Agreement or any extension of this Employment Agreement for an
additional term of not less than one year on terms no less favorable to the
Company than those contained herein and if requested by the Executive shall be
deemed a termination for Good Reason requiring the Company to make the severance
and benefits to the Executive as described in this Section 5.1(c).
5.2 TERMINATION BY THE COMPANY FOR CAUSE OR BY THE EXECUTIVE OTHER THAN FOR GOOD
----------------------------------------------------------------------------
REASON.
------
During the Term, the Company, by action of the board, may terminate the
Executive's employment hereunder for Cause by written notice to the Executive
stating in detail the reasons for such termination.
-13-
<PAGE> 5
During the Term, the Executive may, by written notice to the Board, terminate
his employment hereunder other than for Good Reason. In the event of any such
termination for Cause or other than for Good Reason (and other than by reason of
his death or disability), the Executive shall not be entitled to any unpaid
bonus that may have been earned through such date, nor shall he be entitled to
exercise the Unconditional Option which have not been vested.
5.3 TERMINATION FOR DISABILITY.
--------------------------
(a) The Company may terminate the Executive's employment hereunder, upon notice
to him, in the event that he becomes disabled through any illness, injury,
accident or condition of either a physical or psychological nature and, as a
result, is unable to perform substantially all of his duties and
responsibilities hereunder for any consecutive 60 day period.
(b) If any question shall arise as to whether during any period the Executive is
disabled through any illness, injury, accident or condition of either a physical
or psychological nature so as to be unable to perform substantially all of his
duties hereunder, the Executive may, and at the request of the Company shall,
submit to a medical examination by a physician mutually acceptable to the
Company and the Executive or his guardian to determine whether the Executive is
so disabled, and such determination shall for the purposes of this Agreement be
conclusive of the issue. In the event that a physician cannot be selected by
mutual agreement, a physician shall be appointed by the Massachusetts Medical
Society.
(c) If the Executive's employment hereunder is terminated as the result of his
disability, the Executive will receive his Base Salary through the date of
termination, together with any unpaid Bonus that may have been earned through
such date, but shall otherwise look solely to the Company's disability insurance
policy or policies for compensation (except that any waiting period for
eligibility purposes shall be waived by the Company).
5.4 TERMINATION IN THE EVENT OF DEATH.
---------------------------------
In the event of the Executive's death during the Term, his employment hereunder
shall be deemed to have terminated for all purposes of this Agreement on his
date of death and neither his designated beneficiary nor his estate shall be
entitled to any of the compensation or benefits provided for herein, other than
the Executive's Base Salary, and any unpaid Bonus earned by the Executive,
through his date of death (it being understood that his designated beneficiary
or estate, as the case may be, shall be entitled to receive the life insurance
benefits available under the Company's executive life insurance policies), and
to exercise the Unconditional Option to the extent exercisable on his date of
death, within one year of his date of death, but not later than the expiration
date of such Option.
ARTICLE VI
6.1 DESIGNATION OF A BENEFICIARY OR BENEFICIARIES.
---------------------------------------------
The Executive may designate in a writing filed with the Company one or more
persons (including his estate) as the beneficiary or beneficiaries of the
benefits provided for under the Agreement after the Executive's death. The
Executive may change his designation of beneficiary or beneficiaries from time
to time, and the last designation in writing filed with the Company prior to
his death will control. If the Executive has failed to file a designation of
beneficiary at the time of the Executive's death, or if all designated
beneficiaries have predeceased him, the amounts payable under this Agreement
shall be paid to the Executive's estate.
-14-
<PAGE> 6
ARTICLE VII
7.1 NOTICES.
-------
All notices required by this Agreement shall be in writing and delivered by
hand, by overnight courier against receipt, by registered or certified mail,
postage prepaid, or by telephonic facsimile transmission duly acknowledged,
and, in the case of the Executive, addressed to the Executive at 79 Byron Road,
Weston, MA 02193, or, in the case of the Company, to its principal office,
addressed to the attention of the Clerk. Either party may from time to time
designate a new address by notice given in accordance with this Paragraph 7.1.
7.2 ASSIGNMENT.
----------
The Company may not assign all or any part of its obligation under this
Agreement. The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all
of the business or assets of the Company expressly to assume and agree to
perform this Agreement to the same extent that the Company would be required to
perform it if no succession had taken place. As used in this Agreement, unless
the context requires otherwise, the "Company" shall mean the Company as defined
above or any successor to its business or assets as aforesaid which assumes and
agrees to perform this Agreement, by operation of law, or otherwise. This
Agreement shall inure to the benefit of and be enforceable by and binding upon
(I) any such successor and (ii) the Executive's personal or legal
representatives, executors, administrators and designated beneficiaries.
7.3 ENTIRE AGREEMENT.
----------------
This Agreement contains the entire agreement between the parties and supersedes
all prior oral and written agreements, understandings and commitments between
the parties relating to this Agreement. No amendment to this Agreement shall
be made except by a written instrument signed by both parties.
7.4 PROPRIETARY INFORMATION AND NON COMPETITION.
-------------------------------------------
The Executive acknowledges and stipulates that, in the performance of his
duties hereunder, the Executive is entrusted by the Company and its
subsidiaries with confidential and secret information of a proprietary nature,
including, but not limited to scientific data, financial and statistical
information regarding affairs of the Company and its subsidiaries, supplier and
subcontractor lists, price and cost information, business plans and programs,
expansion plans, data, methods, techniques, marketing data, designs and
know-how, developed or obtained by the Company or its subsidiaries
(collectively, "Proprietary Information"). The Executive may not at any time
use, or cause or permit others to use, the Proprietary Information except in
the performance of his duties for the Company and shall not directly or
indirectly disclose at any time either during the Term or for a period of two
years thereafter any such Proprietary Information to any third party other than
in the course of the performance of his duties for the Company. "Proprietary
Information" shall not include any (I) information which is part of the public
domain (other than by act of the Executive), or (ii) any information required
to be disclosed by law.
-15-
<PAGE> 7
Executive agrees that, subsequent to the termination of this Employment
Agreement, unless terminated by the Company without Cause or by the Executive
for Good Reason, Executive shall not:
(i) request, cause or encourage any person or entity to cancel, terminate
or refuse to enter into any business relationship with the Company;
(ii) during the one-year period following such termination solicit or
encourage, directly or indirectly, any employee of the Company to
leave the employment of the Company; or
(iii) during the one-year period following such termination either engage
in any business or undertake employment or consulting services in the
area of x-ray detection devices which would directly compete with
devices then manufactured and/or marketed by the Company.
The provisions of this Section 7.4 shall continue in effect after the Term.
7.5 PARTIAL INVALIDITY.
------------------
If for any reason any provision of this Agreement shall be held invalid in
whole or in part, such invalidity shall not affect such provision to the extent
not so held invalid, nor any other provisions of this Agreement not held so
invalid, and such provisions and all other such provisions shall to the full
extent be consistent with law continue in full force and effect.
7.6 WITHHOLDING.
-----------
All payments made by the Company under this Agreement shall be reduced by any
tax or other amounts required to be withheld by the Company under applicable
law.
7.7 GOVERNING LAW.
-------------
This Agreement shall be construed and enforced under and be governed in all
respects by the law of the Commonwealth of Massachusetts, without regard to
the conflict of law principles thereof.
IN WITNESS WHEREOF, the Company has caused this instrument to be executed on its
behalf by a duly authorized officer and the Executive has executed this
instrument, all as of the date set forth above.
AMERICAN SCIENCE AND ENGINEERING, INC.
By: /s/ Herman Feshbach
--------------------------------------
Herman Feshbach, Chairman of the Board
/s/ Ralph S. Sheridan
--------------------------------------
Ralph S. Sheridan
-16-
<PAGE> 8
EXHIBIT B
---------
AMERICAN SCIENCE AND ENGINEERING, INC.
NON-STATUTORY STOCK OPTION AGREEMENT
Covering 225,000 Shares
of Common Stock
AGREEMENT made as of this 24th day of October, 1996, by and between AMERICAN
SCIENCE AND ENGINEERING, INC., a corporation duly organized under the laws of
The Commonwealth of Massachusetts (the "Company"), and Ralph S. Sheridan, the
President and Chief Executive Officer of the Company (the "Optionee").
WITNESSETH THAT:
WHEREAS, the Company and the Optionee have entered into an Employment Agreement
dated as of September 25, 1996 (the "Employment Agreement"), providing among
other things for the employment of the Optionee as President and Chief Executive
Officer of the Company and the grant of non-statutory stock options to the
Optionee; and
WHEREAS, the Board of Directors of the Company has appointed the Compensation
Committee to administer this Agreement (the Board of Directors, such committee
or any successor to such committee being hereinafter referred to as the
"Board");
NOW, THEREFORE, for and in consideration of the mutual covenants hereinafter set
forth and for other good and valuable consideration, it is agreed as follows:
1. GRANT OF OPTION.
---------------
The Company hereby grants to the Optionee a non-statutory stock option (the
"Option") to purchase 225,000 shares of its common stock at $____ per share,
being 100% of the fair market value of such stock on the date hereof. The
Optionee's right to purchase said stock shall be exercised in the manner and
subject to the terms and conditions hereinafter provided. The Company shall, at
all times while the Option is in force, reserve such number of shares of common
stock as will be sufficient to satisfy the requirements of this Agreement.
2. TIME OF EXERCISE OF THE OPTION.
-------------------------------
(a) Subject always to the provisions of Sections 2(b) and 3 and the terms and
conditions of the Employment Agreement: (i) the Option may not be exercised
prior to September 25, 1997; and (ii) on and after September 25, 1997, the
Option may be exercised as to seventy-five thousand shares covered thereby. On
and after September 25, 1998, the Option may be exercised as to an additional
seventy five thousand shares covered thereby. On and after September 25, 1999,
the Option may be exercised as to the remaining seventy five thousand shares
covered thereby.
B-1
<PAGE> 9
(b) Notwithstanding Section 2(a), the Option may be exercised as to all of the
shares covered thereby upon the occurrence of a Change in Control of the
Company. For the purposes of this subsection 2(b), a "Change in Control" of the
Company shall be deemed to have occurred if:
(i) any person (as defined in Section 13(d) or 14(d)(2) of the 1934 Act)
shall have become the beneficial owner of 50 percent or more of the
combined voting power of the Company's voting securities;
(ii) the Continuing Directors and the Optionee shall have ceased for any
reason to constitute a majority of the Board of Directors of the
Company. For this purpose, a "Continuing Director" shall include
member of the Board of Directors of the Company as of September 26,
1996 and any person nominated for election to the Board of Directors
of the Company by a vote of a majority of the then Continuing
Directors;
(iii) the stockholders approve the complete liquidation or dissolution of
the Company, or
(iv) the stockholders approve by the requisite vote any of the following
transactions: (x) a merger or consolidation of the Company (except for
a merger in respect of which no vote of the stockholders of the
Company is required); (y) a sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a series of
transactions), whether as part of a dissolution or otherwise, of
assets of the Company or of any direct or indirect majority-owned
subsidiary or the Company (other than to any direct or indirect
wholly-owned subsidiary or to the Company) having an aggregate market
value equal to 50% or more of either that aggregate market value of
all of the assets of the Company determined on a consolidated basis or
the aggregate market value of all the outstanding stock of the
Company; or (z) a proposed tender or exchange offer for 50% or more of
the outstanding voting stock of the Company.
(c) Notwithstanding Section 2(a) and subject to Section 4 hereof, the Option may
be exercised as to all of the shares covered thereby in the event that the
Optionee's employment shall have been terminated without Cause or for Good
Reason as provided by Section 5.1 of the Employment Agreement.
(d) Notwithstanding any of the foregoing, the Option shall not be exercisable
after the expiration of 10 years from the date hereof.
3. METHOD OF EXERCISE.
-------------------
(a) Stock purchased under the Option shall at the time of exercise be paid in
full. The Option may be exercised from time to time by written notice to the
Company stating the number of shares with respect to which the Option is being
exercised, and the time of the delivery thereof, which time shall be at least
five business days after the giving of such notice unless an earlier date shall
have been mutually agree upon. At the time specified in such notice, the Company
shall, without transfer or issue tax to the Optionee (or other person entitled
to exercise the Option), deliver to the Optionee (or other person entitled to
exercise the
B-2
<PAGE> 10
Option) at the main office of the Company, or such other place as shall be
mutually acceptable, a certificate or certificates for such shares (as the
number of such shares may be reduced subject to subsection (c) below) out of
theretofore authorized but unissued shares or reacquired shares of its common
stock, as the Company may elect, against payment of the Option price in full for
the number of shares to be delivered by certified or bank cashier's check or the
equivalent thereof acceptable to the Company (including, but not limited to,
shares of capital stock of the Company); provided, however, that the time of
such delivery may be postponed by the Company for such period as may be required
for it with reasonable diligence to comply with any applicable listing
requirements of any national securities exchange. If the Optionee (or other
person entitled to exercise the Option) fails to accept delivery of and pay for
all or any part of the number of shares specified in such notice upon tender of
delivery thereof, his right to exercise the Option with respect to such
undelivered shares may be terminated by the Board.
(b) Promptly upon receipt of the written notice provided for in subsection (a)
above, the Board shall, with the assistance of appropriate employees of the
Company, determine if any portion of such intended exercise (the "Disallowance
Portion") may reasonably be expected to result in receipt of compensation by the
Optionee as to which the Company will not be allowed to claim a deduction in
respect of the Company's taxable year during which such exercise occurs, when
the amount of remuneration attributable to such exercise is taken together with
the Optionee's base salary and the reasonably likely cash and stock bonuses
payable to him in respect of such taxable year, pursuant to Section 162(m) of
the Internal Revenue Code of 1986, as amended, and the regulations thereunder.
(c) The Board shall promptly notify the Optionee of its determination as to the
Disallowance Portion, and, subject to subsection (d) below, the exercise
contemplated by the written notice in subsection (a) shall be deemed to be
reduced by the number of shares in the Disallowance Portion.
(d) Notwithstanding the foregoing, in the event of a Change in Control (as
defined in Section 2(b), the Disallowance Portion shall be deemed to be zero (0)
shares.
4. TERMINATION OF EMPLOYMENT.
-------------------------
The Optionee may, at any time within three months after the date of termination
of his employment with the Company or any of its subsidiaries for any reason
except death, but not later than the date of expiration of the Option,
exercise the Option to the extent he was entitled to do so on the date of
termination; provided that the Optionee shall not be deemed to be so
entitled on the date of termination of his employment if he shall have been
terminated for Cause or other than for Good Reason as provided by Section 5.2
of the Employment Agreement. If the Option or any portion of the Option is not
so exercised, or if the Optionee shall be deemed not to be entitled to exercise
it or any portion thereof, the Option or portion thereof shall terminate.
However, the Option shall not be affected by any change in the duties or
position of the Optionee (including transfer to or from a subsidiary) so long
as the Optionee continues in the employ of the Company or one of its
subsidiaries.
B-3
<PAGE> 11
Nothing in this Agreement shall confer on the Optionee any right to continue in
the employ of the Company or its subsidiaries; affect the right of the Company
or its subsidiaries to terminate the Optionee's employment at any time; or be
deemed a waiver or modification of any provision contained in the Employment
Agreement of any other agreement between the Optionee and the Company of any
such subsidiary.
5. EXERCISE BY REPRESENTATIVE, ETC.
-------------------------------
If the Optionee dies while in the employ of the Company or its subsidiaries or
within three months after termination of employment (except termination for
Cause or other than for Good Reason, as provided by Section 5.2 of the
Employment Agreement), the person or persons to whom the Option is transferred
by will or the laws of decent and distribution may, at any time within one year
after the date of death but not later than the date of expiration of the
Option, exercise the Option to the extent the Optionee was entitled to do so on
the date of his death. If the Option or any portion of the Option of the
deceased Optionee is not so exercised, it shall terminate.
6. NON-TRANSFERABILITY OF OPTION.
-----------------------------
The Option may not be transferred except by will or by the laws of the descent
and distribution nor may it be otherwise assigned, transferred, pledged,
hypothecated or disposed of in any way (by operation of law or otherwise) and
it shall not be subject to execution, attachment or similar process. During the
lifetime of the Optionee, the Option may be exercised only by the Optionee or
the Optionee's duly appointed guardian or personal representative.
7. CHANGES IN COMMON STOCK.
-----------------------
In the event of any reorganization, recapitalization, stock split, stock
dividend, merger, consolidation, combination of shares or other change
affecting the Company's common stock, the Board shall make adjustments in the
number and kind of securities to be subject to the Option, such adjustments to
be consistent with adjustments made with respect to options held by other
employees and directors of the Company. Any such adjustment made by the Board
shall be conclusive. This Agreement shall not affect the right of the Company
or any of its subsidiaries to reclassify, recapitalize or otherwise change its
capital or debt structure or to merge, consolidate, convey any or all of its
assets, dissolve, or liquidate, wind up or otherwise reorganize.
8. RESTRICTION ON ISSUANCE OF SHARES.
---------------------------------
The Company shall not be obligated to sell or issue any shares pursuant to
the Option unless the shares with respect to which the Option is being
exercised are at that time effectively registered or exempt from registration
under the Securities Act of 1933, as amended
9. RIGHTS AS A STOCKHOLDER.
-----------------------
The Optionee shall have no rights as a stockholder with respect to any shares
covered by the Option until the date of issuance of a stock certificate to the
Optionee for such shares. No adjustment shall be made for dividends or other
rights for which the record date is prior to the date such stock certificate is
issued.
B-4
<PAGE> 12
10. WITHHOLDING.
-----------
The Company or any subsidiary that employs the Optionee shall have the right to
deduct any sums that federal, state or local tax law requires to be withheld
with respect to the exercise of the Option. In the alternative, the Optionee or
other person exercising the Option may elect to pay such sums to the employer
corporation either by check or with capital stock of the Company by delivering
written notice of that election to the Clerk of the Company no less than 30
days nor more than 60 days prior to exercise. there is no obligation hereunder
that the Optionee be advised of the amount which the employer corporation or
the Company will be required to withhold.
11. INTERPRETATION OF PLAN AND OPTION.
---------------------------------
As used herein the term "subsidiary of the Company" shall mean a subsidiary
corporation as defined in Section 425 of the Internal Revenue Code of 1986. In
all other respects, questions of interpretation and application of this
Agreement shall be determined by a majority of the Board, and the determinations
of such majority shall be final and binding upon all persons.
EXECUTED as a sealed instrument at Cambridge, Massachusetts, as of the date
appearing in the first paragraph of this Agreement.
AMERICAN SCIENCE AND
ENGINEERING, INC.
By: /s/ Jeffrey Bernfeld
-----------------------------------
Jeffrey Bernfeld
Vice President & General Counsel
/s/ Ralph S. Sheridan
-----------------------------------
Ralph S. Sheridan
B-5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FORM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF AMERICAN SCIENCE AND
ENGINEERING, INC. FOR THE THREE MONTHS ENDED JUNE 27, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL DOCUMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US $
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-27-1998
<PERIOD-START> MAR-29-1997
<PERIOD-END> JUN-27-1997
<EXCHANGE-RATE> 1
<CASH> 2,319
<SECURITIES> 0
<RECEIVABLES> 6,717
<ALLOWANCES> 0
<INVENTORY> 5,018
<CURRENT-ASSETS> 16,108
<PP&E> 1,492
<DEPRECIATION> 9,012
<TOTAL-ASSETS> 17,665
<CURRENT-LIABILITIES> 5,354
<BONDS> 0
0
0
<COMMON> 3,098
<OTHER-SE> 8,040
<TOTAL-LIABILITY-AND-EQUITY> 17,665
<SALES> 7,532
<TOTAL-REVENUES> 7,532
<CGS> 4,782
<TOTAL-COSTS> 6,916
<OTHER-EXPENSES> 24
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 640
<INCOME-TAX> 30
<INCOME-CONTINUING> 610
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 610
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
</TABLE>
