<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED MARCH 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 Identification No.)
incorporation or organization)
829 MIDDLESEX TURNPIKE, BILLERICA, MASSACHUSETTS 01821
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (978) 262-8700
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
<S> <C>
Common Stock ($.66 2/3 par value) American Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES /X/ NO / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10- K or any amendment to
this Form 10-K. /X/
The aggregate market value of voting stock held by non-affiliates of the
registrant on June 30, 1998 was $67,776,063
4,780,202 shares of Registrant's Common Stock were outstanding on June 30, 1998.
The Exhibit Index is located on page 47
PAGE 1 OF 75 PAGES
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PART I
ITEM 1. BUSINESS
American Science and Engineering, Inc., a Massachusetts corporation formed in
1958 (together with its subsidiary, the "Company"), develops, produces, markets,
sells and provides research and engineering services with respect to X-ray
inspection systems.
- - X-RAY PRODUCTS
The Company provides a full line of X-ray detection and imaging products used
primarily for the detection of illegal drugs, terrorist explosives, and smuggled
goods. This equipment is purchased by sophisticated government and commercial
clients who place a premium on the detection of organic material in complex
backgrounds and the ability to see the contents of containers with precision.
The Company utilizes proprietary transmission and backscatter X-ray detection to
provide differentiation of bombs, drugs and contraband in camouflaged
environments. The range of application includes border control and manifest
verification, protection of high risk government offices, mail and parcel
screening, correctional facility security, military security, executive
security, aviation security, and special event security (e.g. Olympics, UN 50th
Anniversary and World Cup Soccer). The Company's market is driven by domestic
and global trends toward increasing use of terrorism for political purposes; the
continued global proliferation of drug smuggling; and the continuing increase in
global trade which creates greater incentives and opportunities to evade duties
by misdeclaring manifests.
The surge in cross border drug smuggling has created a requirement for cargo and
vehicle inspection. With the assistance of the U.S. Department of Defense and
U.S. Customs, the Company has developed the CargoSearch(TM) line of X-ray
inspection equipment. Based on the success of the fixed-site CargoSearch(TM)
prototype at Otay Mesa, CA, an additional four fixed-site systems are now on
line for U.S. Customs to inspect trucks for hidden drugs on the Mexican border
and three additional installations are expected to be completed along the border
over the next 9 months. The CargoSearch(TM) product family includes fixed site
inspection for trucks and containers; mobile equipment to inspect trucks,
containers and cars; and a fixed pallet inspection system. This equipment has
further application for the detection of weapons and explosives for border
security and protection of high risk facilities. In addition, there is an
emerging application for manifest verification for export and import cargoes at
ports and other border crossings. The Company has announced the sale of several
CargoSearch(TM) systems to be delivered over the next three years for a variety
of applications overseas, including a South African port for manifest
verification and drug smuggling; a border crossing in Abu Dhabi primarily for
weapons detection; and several systems in Egypt for manifest verification and
other anti-smuggling applications at ports.
The Company offers high performance X-ray inspection systems at prices that have
generally been higher than those of competing, less capable systems. However, in
recent years, the Company has brought to the marketplace several new products
that are priced significantly lower than competing systems. Across the entire
range of its X-ray inspection systems, the Company has focused on selling
products with unique features that create strong product differentiation and
competitive advantage.
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The Company's product line currently includes 12 models. These models can be
broadly categorized into 4 groups including: the Model 101 series, the Model 66
series, the CargoSearch(TM) family and the BodySearch(TM) Personnel Inspection
System. All of these systems utilize the Company's Z(R) Backscatter technology
(aspects of which are covered by issued and pending U.S. patents), which detects
organic materials, such as illegal drugs, plastic explosives and plastic
weapons, even when they are undetected by other competing systems.
The Micro-Dose(R) Model 101 Series consists of 6 models. The mobile Model
101VAN(TM) is a sophisticated, vehicle mounted inspection system designed and
built to the rigorous specifications of the U.S. Customs Service. The Model
101ZZ(R) Trailer is a field deployable system for extended on site security
details. The Models 101Z(R), 101ZZ(R), 101GT(TM), and 101XL(TM) are moveable
(but not mobile), conveyor based systems allowing rapid inspection of high
volumes of luggage and other packages.
The Model 66(R) handles small packages using the patented Z(R) Backscatter
technology. This technology was validated by a study conducted by several U.S.
government agencies involving the Model 66(R) and competitive systems in which
the Model 66(R) was determined to have superior detection capability for
terrorist devices hidden in complex backgrounds. This test resulted in increased
order demand from both government and commercial clients, including a number of
Fortune 100 companies.
The CargoSearch(TM) family of products includes the CargoSearch(TM) system, the
relocatable IsoSearch(TM) system, MobileSearch(TM) system, and the
PalletSearch(TM) system. The CargoSearch(TM) system is a non-intrusive
inspection technology for the X-ray scanning of trucks, cars, cargo containers,
pallets, and air cargo using the Company's unique and patented Z(R) Backscatter
technology. The fixed CargoSearch(TM) system sells for a turnkey price
substantially lower than competing systems. The first CargoSearch(TM) system has
been operating at the U.S. Customs facility in Otay Mesa, California, the
busiest truck border crossing in the United States and was recently joined by
four other systems in Texas and California. U.S. Customs has ordered three
additional CargoSearch(TM) systems to be installed along the border with Mexico.
The first MobileSearch(TM) system was delivered under a $1.8 million contract
with the Defense Advanced Research Project Agency (DARPA). This mobile version
of a CargoSearch(TM) system is a self-contained unit inside a conventional truck
which is deployable within minutes and provides the transport mechanism via a
hydraulic drive. The Company is marketing the MobileSearch(TM) system to
agencies of the U.S. government and to foreign security and customs agencies.
The Company has delivered a second system to the U.S. government and has
received orders for a number of additional units from the U.S. government and
two foreign governments. All of the units after the first include both Z(R)
Backscatter and transmission X-ray capabilities.
PalletSearch(TM) was designed for the inspection of pallets for the detection of
contraband, weapons and explosives for high security facilities where high
confidence inspection is a requirement. The first PalletSearch(TM) system was
delivered during fiscal 1997 to an ultra-secure agency of the U.S. government,
and additional units have been ordered by a foreign government for customs
inspection applications.
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The BodySearch(TM) Personnel Inspection System offers a fast, safe, and
non-intrusive way to screen individuals for the detection of concealed weapons,
drugs, and illegal contraband. This system is used for drug detection and head
of state security as well as for correctional facility security. The Company
sold one unit during fiscal 1998 to a state prison.
The Company has patents in the United States, Germany, Japan, and The United
Kingdom, as well as five (5) patents pending under the Patent Cooperation
Treaty, none of which have reached the national phase requiring the
identification of specific countries in which patents will be sought. The
Company has sold product in, or has sales activity in most major regions of the
world including Africa, Asia, Europe, the Middle East and South America. Each
U.S. patent issued prior to June 1995 has a duration of the longer of seventeen
years from the date of issue or twenty years from the date of application; U.S.
and virtually all foreign patents issued after May 1995 will have a duration of
twenty years from the date of application. The Company relies on certain
proprietary technology and know-how, as well as certain of these patents, to
establish and maintain its competitive position. The Company believes that its
patents, proprietary technology and know-how provide substantial protection for
the Company's competitive position and the Company has publicly stated its
intent to aggressively protect its intellectual property assets, by litigation
or other means, as appropriate.
The Company's X-ray products are marketed to private and governmental
organizations through a sales force that contacts potential customers. This
sales force includes Company personnel based in the United States as well as
representatives under contracts to sell in foreign countries who are generally
on a commission basis.
Most Micro-Dose(R) Systems are built for existing orders, and the Company
maintains an inventory of common parts and sub-assemblies for the systems in
order to meet expected customer delivery requirements.
The Company is heavily dependent upon sales to agencies of the U.S. Government,
and reductions or delays in procurements of the Company's systems by these
agencies may have a material adverse effect on the Company. Sales to U.S.
Government agencies, in general, are generated by responding to a "Request for
Quote" and are subject to standard and routine U.S. Government pre and post
contract award audit as well as review of the Company's compliance with the
Federal Acquisition Regulations. During fiscal 1998, the majority of sales of
X-ray products were under (i) direct contracts with the U.S. Government, and
(ii) subcontracts with prime contractors working under direct contracts with the
U.S. Government. Some of the Company's contracts with the government are on a
cost reimbursement basis, including provisions preventing final billing until
completion of the contract, and virtually all are cancelable at the government's
discretion. The Company has not experienced any material losses as the result of
such contractual provisions.
The U.S. Customs Service is a major customer (with sales of more than 36 percent
of the Company's consolidated revenues in fiscal 1998). The loss of this
customer would be likely to have a material adverse effect on the Company taken
as a whole. The Company believes that it has a satisfactory relationship with
the U.S. Customs Service. The Company has stated its intent to reduce its
reliance on sales to the U.S. government, and during and after the end of fiscal
1998, the Company announced several sales to agencies of foreign governments
totaling over $45 million for delivery over three years.
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The Company has many competitors in the X-ray product market, including several
large and well established manufacturers of security X-ray equipment with
financial and other resources greater than those of the Company. Certain X-ray
security system customers select such systems based largely on price. Other
customers, notably the U.S. Government and users in countries with high levels
of concern over security, tend to select systems based largely on performance
and detection capability. The Company's systems offer premium performance and
have in the past, with the exception of CargoSearch(TM), generally been priced
higher than many competing systems. The Company believes that its patented and
proprietary technology give it a strong competitive position in the sale of
security systems to customers concerned with performance and detection. The
Company also believes that its strategy of concentrating on products with unique
features and/or competitive pricing will give it a strong position to increase
its sales of X-ray systems.
The Company has not experienced during the last year, and does not currently
anticipate, any hardware delivery delays due to raw material shortages. Most
procured material is from U.S. sources. However, the Company is dependent on
certain overseas sole source providers of important components. No rare or
exotic materials are utilized.
The Company complies with applicable Health and Human Services regulations
outlined under the "Regulations for the Administration and Enforcement of the
Radiation Control for Health and Safety Act of 1968" (21CFR 1020.40), published
by the U.S. Department of Health and Human Services. All X-ray products of the
Company comply with all applicable U.S. Government regulatory standards.
- - RESEARCH AND DEVELOPMENT
The Company conducted approximately $2,785,000 of government sponsored research
primarily focused on technologies for the detection of illicit drugs,
explosives, and other security issues in fiscal 1998. This compares to
$2,278,000 and $2,750,000 of government sponsored research and development in
fiscal 1997 and 1996, respectively. In addition, the Company spent approximately
$2,856,000 of its own funds for research relating to the development of new
products or services during fiscal 1998, compared to $1,602,000 and $533,000 in
fiscal 1997 and 1996, respectively.
A significant amount of the Company's research and development work is obtained
via contracts or subcontracts that typically provide for reimbursement of
allowable costs plus a fixed fee. The Company's contracts in these areas are
obtained by submitting research and development proposals to various
organizations, sometimes in response to requests for such proposals. The
Company's contract research ranges from advances in X-ray systems and image
analysis to integrated system development for niche security inspection
problems.
- - PERSONNEL
As of March 31, 1998 the Company had 198 employees compared to 167 employees at
the end of the prior year. All Company employees sign nondisclosure agreements
as a condition of employment.
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- - SALES BACKLOG
The Company's firm sales backlog was $ 17,299,000 at March 31, 1998 and
$15,584,000 at March 28, 1997.
A majority of the Company's contracts with the U.S. Government contain clauses
permitting the government to terminate the contract for convenience upon certain
terms and conditions, including payment to the Company of an appropriate fee or
profit on work performed. The total of such contracts in the backlog was
$11,053,000 at the end of fiscal year 1998 and $11,220,000 at the end of fiscal
year 1997. It is estimated that approximately 89% of the 1998 backlog will be
filled within the fiscal year ending March 31, 1999.
Subsequent to March 31, 1998, the Company received an order from the Customs
Authority of the Arab Republic of Egypt for ten CargoSearch systems with a
contract value of $35,000,000. The systems are to be delivered over the next 36
months. This order is not included in the Company's firm backlog reported at
March 31, 1998.
- - FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
All export sales are made in U.S. dollars, and many non-U.S. Government export
sales are either secured by irrevocable letters of credit or paid in advance.
Export sales are believed by the Company to have been at least as profitable as
similar domestic sales. All of the Company's assets and operations are
maintained in the United States. The Company has not encountered, and does not
anticipate encountering, risks attendant to export sales that are greater than
risks attendant to domestic sales. The following chart provides information
about the breakdown between domestic and export sales for the indicated fiscal
years.
Net Sales and Contract Revenues (Dollars in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
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<S> <C> <C> <C>
Domestic $ 26,799 $ 23,703 $ 14,526
Export 5,900 4,776 3,289
Percent of Export Revenue by Major
Region:
Middle East and Africa 59.7% 22.2% 20.9%
Pacific Rim 28.3 60.9 39.2
Europe 8.9 4.4 34.4
All Other 3.1 12.5 5.5
</TABLE>
ITEM 2. PROPERTIES
In March of 1995, the Company took advantage of substantial cost savings
opportunities presented by a soft market for R&D space in the Greater Boston
area and moved its operations to Billerica, Massachusetts, approximately 20
miles outside of Boston. The move has provided the Company with more efficient
manufacturing and laboratory space and, in the first year,
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saved the Company approximately $1,100,000 in occupancy costs as compared to the
previous lease while providing room for future growth.
The Company's executive offices and its research, manufacturing and warehouse
facilities are now located in 118,300 square feet of space in a 160,000 square
foot single-story, concrete and brick building owned by an unaffiliated real
estate limited partnership. The remaining space in the building is currently
leased by the owner to an unaffiliated manufacturing company. The Company
occupies the space under a long-term lease with a ten year initial term that
commenced March 1, 1995, and one (1) ten year optional extension term. In
January 1998, the Company leased 12,700 square feet of additional manufacturing
and office space. This lease has a term of five years. The facilities are
currently fully utilized on a one-shift basis. The Company can add additional
capacity by adding second and third shifts if necessary.
ITEM 3. LEGAL PROCEEDINGS
In May 1996, Vivid Technologies, Inc., filed a civil action in the United States
District Court for the District of Massachusetts against the Company, seeking
inter alia a declaratory judgment that Vivid had not infringed upon certain of
the Company's patents relating to backscatter. On May 12, 1997, Vivid filed a
proposed Amended Complaint narrowing its claim and seeking inter alia a
declaratory judgment that Vivid had not infringed on two claims on AS&E United
States Patent number 5,253,283, entitled "Inspection Method and Apparatus with
Single Color Pixel Imaging." On January 28, 1998, the Court granted Vivid's
request for a declaratory judgement. The Company has appealed the judgment and
the case is proceeding in the United States Court of Appeals for the Federal
Circuit. Due to certain rulings made by the District Court, the Company was
unable to obtain certain discovery the Company believes is essential to
determine whether Vivid is infringing on the '283 patent. Through the appeal
process, the Company is pursuing its request for discovery, and, if successful,
expects to pursue an infringement action against Vivid to the extent consistent
with the evidence discovered.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders during the
fourth quarter of the fiscal year covered by this report.
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on the American Stock Exchange (ticker
symbol ASE). The market price range for the Common Stock for the last two fiscal
years follows:
<TABLE>
<CAPTION>
Fiscal Year Quarter Ended High Low
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<S> <C> <C> <C>
1998 March 31, 1998 14 3/4 11 1/4
December 31, 1997 14 1/2 10
September 30, 1997 13 3/8 9 1/4
June 27, 1997 12 1/4 9 5/8
1997 March 28, 1997 14 7/8 12 1/8
December 27, 1996 16 3/4 9 7/8
September 27, 1996 18 3/4 9 3/8
June 28, 1996 12 1/4 8 3/4
</TABLE>
As of June 30, 1998, there were approximately 1,478 holders of record of the
Company's Common Stock.
No cash dividends have been declared in the two most recent fiscal years and the
Board of Directors does not contemplate paying any dividends in the immediate
future.
The Company's credit facility restricts the payment of dividends (except in
shares of the Company's stock) without consent of the bank.
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal year 1998 1997 1996 1995 1994
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales and contract
revenues $32,699 $28,479 $17,815 $ 12,997 $ 11,182
Net income (loss) 4,661 1,925 802 (967) (3,335)
Income (loss) per
share-diluted .95 .40 .18 (.23) (.83)
Total assets 25,993 15,514 14,295 10,734 10,541
Obligations under
capital leases 42 60 75 233 251
Stockholders'
investment 16,084 10,150 7,501 5,592 6,294
Book value per share 3.39 2.21 1.67 1.31 1.52
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- - 1998 COMPARED TO 1997
- - OVERVIEW
Net sales and contract revenues for fiscal 1998 improved by 15% to $32,699,000
versus fiscal 1997 net sales of $28,479,000. The Company's income before taxes
of $2,698,000, an increase of 35% compared to a $2,003,000 income before taxes
in the previous year. During fiscal 1998, the Company recorded a net tax benefit
associated with net operating loss carryforwards and other tax items of
$1,963,000. Net income for fiscal 1998 was $4,661,000 ($.95 per share, on a
diluted basis) as compared to $1,925,000 ($.40 per share, on a diluted basis) in
fiscal 1997. Backlog at March 31, 1998 was $17,299,000, an 11% increase over the
backlog reported at previous fiscal year end.
CHANGES IN FINANCIAL CONDITION - Cash and cash equivalents at year end decreased
by $912,000 to $2,290,000, compared to $3,202,000 in 1997. Accounts receivable
and unbilled costs and fees increased by $2,070,000 and $2,409,000 respectively
from the prior year due to the increased shipments made during 1998 and
performance on several contracts. Inventories increased by $4,151,000 during
1998 to support the growth in X-ray equipment shipments and backlog. Customer
deposits increased $1,151,000 due to the advanced payment from a certain
long-term contract. Deferred income taxes increased $2,556,000 as a result of
the Company recording a tax benefit associated with its net-operating loss
carryforwards and other tax assets.
RESULTS OF OPERATIONS - Net sales and contract revenues increased by $4,220,000
or 15% during fiscal year 1998. In 1998, security systems and field service
revenues of $29,914,000 increased by $3,713,000 or 14%. Contract research and
engineering revenues of $2,785,000 increased by $507,000 or 22%.
Cost of sales and contracts in 1998 of $19,816,000 was $1,393,000 higher than
the previous year primarily due to increased equipment sales and performance on
several contracts. Cost of sales and contracts represented 61% of revenues
during 1998, compared to 65% in 1997. This decline in the cost of sales ratio
was due to a more profitable product mix and a larger revenue base over which to
spread fixed costs in 1998.
Selling, general and administrative expenses of $7,425,000 were $931,000 higher
than the previous year and represented 23% of revenues, unchanged from 1997. The
increased spending level was primarily due to expanded international sales and
marketing activities and costs associated with recruiting for the Company's
expanded staff requirements.
Company funded research and development spending increased to $2,856,000 in
1998, a 78% increase compared to the $1,602,000 in spending in 1997. Research
and development spending in fiscal 1998 and fiscal 1997 was 9% and 6% of
revenues, respectively.
In the fourth quarter of fiscal 1998, the Company recorded a tax benefit
associated with net operating loss carryforwards and other tax assets as
explained in Footnote 5 to the Financial Statements. The aggregate tax benefit
recognized was $2,072,000 which resulted in a net tax benefit for the year of
$1,963,000. In fiscal 1997, the Company recorded a provision for income taxes of
3.9%, of which the significant components included alternative minimum tax
payable to the federal government and amounts for state income taxes.
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The Company recorded net profits of $4,661,000 for fiscal year 1998, an
improvement of $2,736,000, or 142%, over net income of $1,925,000 in the
previous year. Using fiscal 1997 tax provision rates, fiscal 1998 net profits
would have been $2,589,000, representing an increase of 34% over fiscal 1997.
The Company was profitable in all quarters.
LIQUIDITY AND CAPITAL RESOURCES - Net cash used for operating activities was
$696,000, compared to $158,000 net cash provided by operating activities in
1997. During 1998, the Company received $884,000 from the exercise of stock
options. Cash and cash equivalents at March 31, 1998 stood at $2,290,000, a
decrease of $912,000 over the prior year end. Working capital at the end of 1998
increased 49% to $14,691,000. The Company's current ratio decreased to 2.6 as
compared to 3.3 at the end of 1997.
Fiscal 1998 capital expenditures totaled $1,082,000. This was an increase of
48%, or $352,000, from the prior year capital expenditures of $730,000. Capital
expenditures were comprised primarily of investments in information technology,
leasehold improvements, and furniture and fixtures. Capital expenditures are
funded by cash generated by operations or from the lines of credit available to
the Company.
At the end of fiscal 1998, the Company had $8.0 million in approved bank lines
of credit to be used either for short term cash borrowings to support working
capital growth or standby letters of credit to support the bonding requirements
of foreign contracts. At the end of fiscal 1998, no cash borrowings were
outstanding and $1.2 million in standby letters of credit were in effect against
this credit facility. During April 1998, the Company renegotiated the line of
credit, from $8.0 million to $12.0 million in anticipation of the increased
standby letter of credit capacity required to support the growth in
international orders. The Company's credit facility restricts the payment of
dividends, except in shares of the Company's stock, without consent of the bank.
Given the Company's receipt of various international contract awards over the
previous 90 days totaling $45 million, management believes that additional
credit facilities will be necessary for expanded standby letter of credit
capacity to support foreign equipment sales. Management is currently in the
process of negotiating with two commercial banks and the U.S. Export Import Bank
to increase its bank lines of credit and anticipates having a new credit
facility in place during the second quarter of fiscal year 1999.
MANAGEMENT ACTIONS - During fiscal 1998 AS&E achieved several milestones
associated with receipt of new orders, further progress toward the
commercialization of the Company's CargoSearch(TM) family of products, and
continued expansion of the Company's domestic and international customer base.
Examples include the following:
- - During the third quarter of fiscal year 1998, the Company delivered its
second MobileSearch(TM) system under a $2.7 million contract. Work began
under a $3.8 million contract received from the U.S. Department of
Defense-Counterdrug Technology Development Program for two additional
enhanced MobileSearch(TM) systems.
- - Throughout the fiscal year the Company improved its position significantly
in the international market. In March 1998 the Company received an order
from Portnet, the Port Authority in South Africa, for a new unique version
of AS&E's CargoSearch(TM) system. The system, called IsoSearch(TM),
combines features of both fixed-site and mobile systems
currently sold by the Company and will allow Portnet to relocate the
system within or between ports.
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- - Subsequent to year end the Company received a MobileSearch(TM) order from
a Middle Eastern customer for counter terrorism; as well as an $8.8
million dollar order from the Abu Dhabi United Arab Emirates Customs
Department for a fixed-site CargoSearch(TM) for truck inspection on the
border with Saudi Arabia. The Company also received a $35 million order
from the Customs Authority of the Arab Republic of Egypt for ten of the
Company's CargoSearch(TM) family of products, including multiple units of
each of the fixed-site CargoSearch(TM), MobileSearch(TM) and
PalletSearch(TM) systems.
The Company has developed a plan to ensure its systems are compliant with the
requirements to process transactions in the year 2000. The Company is currently
in the process of testing the compliance of the internal information systems.
The Company has also commenced the process of assessing its external systems and
software, by sending vendor notifications and questionnaires, to determine
whether or not they are year 2000 compliant. Spending for compliance maintenance
and modifications has been expensed as incurred. Management does not expect
remediation costs of year 2000 to be material. Any new hardware and software has
been capitalized, and will be depreciated or amortized over the useful life of
the asset acquired. Management does not believe these changes will have any
material effect on ongoing results of operations.
- - 1997 COMPARED TO 1996
- - OVERVIEW
Net sales and contract revenues for fiscal 1997 improved by 60% to $28,479,000
versus fiscal 1996 net sales of $17,815,000. The Company earned operating
profits of $1,925,000 (.40 per share, on a diluted basis), an increase of 140%
compared to a $802,000 profit (.18 per share, on a diluted basis) in the
previous year. Backlog at March 28, 1997 was $15,584,000, a 28% increase over
the backlog reported at previous fiscal year end.
CHANGES IN FINANCIAL CONDITION - Cash and cash equivalents at year end decreased
by $175,000 to $3,202,000, compared to $3,377,000 in 1996. However, in contrast
with the previous year end, almost no customer deposits were held at the end of
fiscal year 1997 that would serve to offset the reported cash and cash
equivalent position. Accounts receivable increased by $1,323,000 from the prior
year due to the increased shipments made during 1997. Inventories increased by
$422,000 during 1997 to support the growth in X-ray equipment shipments and
backlog. Customer deposits decreased $2,670,000 due to the attainment of
milestones against certain long-term contracts. Current and noncurrent deferred
revenue, in total, increased by $811,000 from the previous year as a result of
advanced payments for extended warranty and service contracts.
RESULTS OF OPERATIONS - Net sales and contract revenues increased by $10,664,000
or 60% during fiscal year 1997. In 1997, security systems and field service
revenues of $26,201,000 increased by $11,136,000 or 74%. Contract research and
engineering revenues of $2,278,000 decreased by $472,000 or 17%.
Cost of sales and contracts in 1997 of $18,423,000 was higher than the previous
year primarily due to increased equipment sales. Cost of sales and contracts
represented 65% of revenues during 1997, compared to 66% in 1996. This decline
in the cost of sales ratio was due to a larger revenue base over which to spread
fixed costs in 1997.
Selling, general and administrative expenses of $6,494,000 were $1,906,000
higher than the previous year and represented 23% of revenues, compared to 26%
in 1996. The increased spending level was primarily due to expanded sales and
marketing activities, costs associated with the Company's policy of aggressively
defending its intellectual property rights, and the costs associated with
recruiting for the
11
<PAGE> 12
Company's expanded management and staff requirements. The improvement in the
ratio of SG&A expenses to revenues is a result of the increased sales volume.
Company funded research and development spending increased to $1,602,000 in
1997, a 200% increase compared to the $533,000 in spending in 1996. In
accordance with accounting conventions, development costs in excess of contract
amounts are included in the cost of sales for certain customer funded research
contracts.
The Company's net profit of $1,925,000 for fiscal year 1997 represents an
improvement of $1,123,000, or 140%, over net income of $802,000 in the previous
year. The Company was profitable in all quarters, and profits increased in each
quarter during fiscal year 1997.
LIQUIDITY AND CAPITAL RESOURCES - Corporate liquidity and capital resources
improved during fiscal year 1997. Net cash provided by operating activities was
$158,000, compared to $1,966,000 net cash provided by operating activities in
1996. Additionally, during 1997, the Company received $412,000 from the exercise
of stock options. Cash and cash equivalents at March 28, 1997 stood at
$3,202,000, a decrease of $175,000 over the prior year end. Customer deposits
decreased by $2,670,000 compared to 1996, resulting in an improvement in
liquidity despite the Company's slightly lower cash and investments. Working
capital at the end of 1997 increased 45% to $9,856,000. The Company's current
ratio also increased to 3.3 as compared to 2.0 at the end of 1996.
At the end of fiscal 1997, the Company had $2.5 million in approved bank lines
of credit against which there were no borrowings.
Given the Company's current cash position and access to unused borrowing
capacity, management believes that sufficient capital resources are in place to
support the Company's operations over the next several quarters.
MANAGEMENT ACTIONS - During fiscal 1997 AS&E achieved several milestones
associated with receipt of new orders, further progress toward the
commercialization of the Company's CargoSearch(TM) family of products, and
continued expansion of the Company's domestic and international customer base.
Examples include the following:
- - In March 1997 the Company received orders totaling $8.5 million from U.S.
Customs for the installation of four fixed-site CargoSearch(TM) systems
for truck inspection along the Southwest border, bringing the total of
such orders to eight. Two systems have been successfully installed and are
currently operational.
- - The first PalletSearch(TM) system for inspection of high security freight
and cargo was successfully installed in September 1996 at an ultra-secure
U.S. agency in Washington, D.C.
- - The Company's first MobileSearch(TM) system, delivered in January 1996,
has demonstrated its value as an enforcement tool and is now patrolling a
500 mile stretch of the Mexican border. In July 1996 the Company received
a $2.7 million order from the department of Defense Advanced Research
Projects Agency (DARPA) for a second MobileSearch(TM) system with enhanced
operating and detection capabilities. Delivery is anticipated for the
second quarter of fiscal 1998.
- - The Company's core security market has expanded as more government
agencies, both U.S. and international, have ordered AS&E's Backscatter
detection systems for protection against sophisticated terrorist threats.
Orders totaling $6.2 million were received during fiscal 1997 for
12
<PAGE> 13
X-ray systems to protect the U.S. offices of two prestigious Federal
agencies. International revenues increased 45% to $4.8 million in fiscal
1997 from $3.3 million in fiscal 1996.
- - Throughout the fiscal year the Company improved its position in both the
domestic and international marketplace, adding fourteen new government
sector and corporate customers to its base.
The Company's improved sales volume, profitability and liquidity has permitted
increased investments in professional staff, internal technology and
Company-funded research and development in order to support future business
expansion.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary financial information listed in the
Index to Consolidated Financial Statements and Schedule on page 28 are filed as
part of this Annual Report on Form 10-K and are incorporated into this Item by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
13
<PAGE> 14
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
- - DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY AS OF JUNE 30, 1998.
<TABLE>
<CAPTION>
Positions and Offices of Date Assumed
Name Age Company Held Each Position
- ---- --- ------------ -------------
DIRECTORS
<S> <C> <C> <C>
Herman Feshbach 81 Director September 1975
Chairman July 1993
Al Gladen 60 Director September 1995
Hamilton W. Helmer 51 Director February 1993
Donald J. McCarren 58 Director February 1993
William E. Odom 65 Director September 1996
Carl W. Vogt 62 Director June, 1997
Ralph S. Sheridan 48 Director January 1994
President & CEO September 1993
</TABLE>
EXECUTIVE OFFICERS (Who are not also Directors)
<TABLE>
<S> <C> <C> <C>
Jeffrey A. Bernfeld 41 Vice President, General February 1996
Counsel & Clerk
Joseph Callerame 48 Vice President, Technology June 1998
Chief Technology Officer
Peter W. Harris 44 Vice President, Sales March 1994
Alan H. Rutan 57 Vice President, Engineering July 1996
Lee C. Steele 49 Vice President, Finance September 1994
Treasurer & CFO
</TABLE>
All Directors and Executive Officers hold office until the next annual meeting
of Stockholders and until their successors are duly elected and qualified. No
family relationship exists between any of the listed Directors and Executive
Officers.
Dr. Herman Feshbach is an Institute Professor Emeritus at the Massachusetts
Institute of Technology, a position he has held for more than five years, and
has previously served as Chairman of the Physics Department at MIT and Director
of the MIT Center for Theoretical Physics. He is a past President of the
American Physical Society and the American Academy of Arts and Sciences and is
Fellow of both those Organizations and of the American
14
<PAGE> 15
Association for the Advancement of Sciences. He is on the Board of Governors for
Tel Aviv University and the Weizmann Institute of Science, is on the Board of
Editors for Daedalus and Editor of the Annals of Physics, and has served as
Chairman or Member on numerous committees for the Department of Energy, the
National Science Foundation, the National Academy of Sciences, and the American
Physical Society. He was awarded the National Medal of Science by President
Reagan in 1986. Dr. Feshbach received his Ph.D. from MIT.
Mr. Al Gladen is President of Dabster, Inc., a technology consulting firm
specializing in engineering and technology management assistance, with offices
in Kent, Washington. Mr. Gladen's consulting activities have included strategic
technology planning, new product development, project management and acquisition
review. Mr. Gladen has acted as a technology and engineering consultant to the
Company since 1993, and it is expected that he will continue to provide such
assistance on a part-time basis. Mr. Gladen holds four U.S. patents and is a
director of four other privately held corporations.
Dr. Hamilton W. Helmer has, for the last 15 years, been Managing Partner of
Helmer & Associates, a strategic consulting firm located in Los Altos,
California. Prior to that, Dr. Helmer worked for Bain & Co. Dr. Helmer holds a
Ph.D. in Economics from Yale University.
Dr. Donald J. McCarren is President of the National Center for Genome Resources,
a non-profit corporation located in Santa Fe, New Mexico, which supports genome
projects and related research by providing resources such as expertise in
bioinformatics. Prior to assuming that position in 1997, Dr. McCarren was
President and Chief Executive Officer of Tacora Corporation, a medical
technology company located in Seattle, Washington. From July 1992 to June 1994,
he was President and Chief Operating Officer of ImmunoGen, Inc., a bio-tech
research and development company located in Cambridge, Massachusetts. Prior to
that, he was President (1990 to 1992) of the Adria Laboratories Division of
Erbamont N.V. in Columbus, Ohio, and Corporate Vice President of Worldwide
Marketing and Business Development (1989 to 1990) and Vice President of Far East
and Australian Operations (1986 to 1989) of Erbamont, N.V. Dr. McCarren holds a
Ph.D. in Developmental Economics.
General William E. Odom is the Director of National Security Studies for the
Hudson Institute in Washington, D.C. and an adjunct Professor in the Department
of Political Science at Yale University. Prior to joining the Hudson Institute
in 1988, General Odom spent 34 years as an officer in the United States Army,
retiring with the rank of Lieutenant General. While on active duty, General Odom
served as Director of the National Security Agency for three years, Assistant
Chief of Staff for Intelligence for the Department of the Army for four years
and Military Assistant to the President's National Security Advisor for four
years. General Odom received his B.S. degree from West Point and Masters and
Ph.D. degrees from Columbia University. General Odom is on the Board of
Directors of Nichols Research Corporation of Huntsville, Alabama, V-ONE
Corporation of Rockville, Maryland, Middlebury College, from which he received
an honorary doctorate, and the Institute for the Study of Diplomacy at
Georgetown University. General Odom is the author of five books and numerous
articles.
Mr. Ralph S. Sheridan was elected President and Chief Executive Officer of the
Company in September 1993, and in January of 1994, he was elected a Director.
Prior to joining the Company, Mr. Sheridan ran his own consulting and investment
firm, Value Management Corporation, in Waltham, Massachusetts. Prior to that,
Mr. Sheridan was President and CEO (1988-1989) and Vice President of Marketing
and Operations (1987-1988) of HEC Energy
15
<PAGE> 16
Corp., in Boston, Massachusetts. Before joining HEC, Mr. Sheridan held the
position of Vice President of Operations for the Engineered Systems and Controls
Group (1984-1986) and Vice President of Corporate Business Development
(1981-1984) at Combustion Engineering, Inc. in Stamford, Connecticut. Mr.
Sheridan holds a B.S. in Chemistry and an M.B.A., both from Ohio State
University.
Mr. Carl W. Vogt was elected to the Board in June, 1997. He is a partner in the
Washington, D.C. office of the national law firm of Fulbright & Jaworski. Mr.
Vogt has been with that firm since 1966, with various periods away from the firm
to perform government service. In 1992, he was appointed by President Bush as
the Chairman of the National Transportation Safety Board, where he served until
1994. Mr. Vogt earned his bachelor's degree from Williams College and his law
degree from the University of Texas Law School.
Mr. Jeffrey A. Bernfeld joined AS&E as Vice President, General Counsel and Clerk
in February 1996. Prior to that time, he was Vice President and General Counsel
of Spire Corporation in Bedford, Massachusetts for three and one-half years; a
founder and Managing Director of Global Solutions, Inc. in Wellesley,
Massachusetts for one year; Vice President and General Counsel of The Mediplex
Group in Wellesley, Massachusetts for two years; and a partner at Goldstein &
Manello, a law firm in Boston, Massachusetts, where he began his career as an
Associate in 1981. Mr. Bernfeld received his B.A. from Brandeis University and
his J.D. from New York University School of Law. Mr. Bernfeld is a director of
Summit Technology, Inc. of Waltham, Massachusetts.
Dr. Joseph Callerame joined American Science & Engineering in June 1998 as Vice
President, Technology, and Chief Technology Officer. Prior to joining AS&E, Dr.
Callerame spent over twenty years at Raytheon Company, most recently as Manager,
Engineering and Technology Development and Consulting Scientist, at Raytheon
Electronic Systems. Prior to that appointment, Dr. Callerame was Deputy General
Manager of Raytheon's Corporate Research Division. Dr. Callerame received his
B.A. in Physics from Columbia College, and his M.A. and Ph.D., also in Physics,
from Harvard University. After receiving his Ph.D. and prior to his employment
at Raytheon, Dr. Callerame served as a Post-Doctoral Fellow in Nuclear Physics
at M.I.T.
Mr. Peter W. Harris joined the Company in February 1994 as Vice President, Sales
and Marketing. Prior to joining the Company, Mr. Harris was Manager of External
Affairs for Stone & Webster, an architectural engineering firm in Boston,
Massachusetts, where he held a number of positions beginning in 1988. During his
time at Stone & Webster, Mr. Harris concentrated on Federal government and
international sales. Mr. Harris, a graduate of the U.S. Naval Academy, holds the
rank of Captain in the U.S. Naval Reserve and commanded several units during his
twelve years of active duty and seven years in the Naval Reserve. In addition,
Mr. Harris holds a Master's degree in National Security Studies from Georgetown
University.
Mr. Alan H. Rutan joined the Company in July 1996 as Vice President of
Engineering. Prior to that time, Mr. Rutan spent 11 years at Raytheon Company,
most recently as Manager of the Air Defense Systems Department, where his work
focused on radar systems engineering and signal processing. Prior to his
Raytheon experience, Mr. Rutan spent seven years at GTE Laboratories as a Senior
Member of the Technical Staff. From 1974 to 1978, Mr. Rutan ran his own
consulting firm, Signal Processing Associates, Inc., which specialized in image
processing
16
<PAGE> 17
applications for various government security organizations. Mr. Rutan
received his B.A. in Physics from Harvard University.
Mr. Lee C. Steele joined the Company in September 1994 as Vice President of
Finance and Chief Financial Officer. From 1991 until he joined the Company, Mr.
Steele was a principal of Asset Management Corporation, a Waltham, Massachusetts
consulting firm specializing in the analysis and resolution of complex financial
and operational challenges for small and medium size businesses. Until 1991, Mr.
Steele was a Partner at Deloitte & Touche, specializing in profit planning,
corporate finance and troubled company situations. He holds an M.B.A. from
Harvard Business School and an engineering degree from Case Western Reserve
University.
ITEM 11. EXECUTIVE COMPENSATION
- - THE FOLLOWING CHART PROVIDES INFORMATION CONCERNING COMPENSATION PAID BY THE
COMPANY DURING THE YEAR ENDED MARCH 31, 1998 TO THE CHIEF EXECUTIVE OFFICER
AND EACH OF THE FOUR MOST HIGHLY COMPENSATED EXECUTIVE OFFICERS OF THE
COMPANY WHOSE AGGREGATE COMPENSATION EXCEEDED $100,000.
SUMMARY COMPENSATION
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compen-
------------------------------- sation All
Name and Principal Fiscal Option OtherCompen-
Position Year Salary ($) Bonus ($) Awards (#) sation ($) (1)
- ---------------------------- ------ ----------- --------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Ralph S. Sheridan 1998 240,000 230,000 0 7,729
President and CEO 1997 222,213 270,385(3) 225,000 4,479
1996 200,000 202,168(3) 0 2,486
Jeffrey A. Bernfeld 1998 130,000 30,000 20,000 408
Vice President, General 1997 120,408 19,000 16,000 408
Counsel 1996(2) 7,846 N.A. 24,000 408
Peter W. Harris 1998 120,192 45,000 0 403
Vice President, 1997 111,941 45,000 30,000 403
Sales / Marketing 1996 110,000 40,000 0 403
Alan H. Rutan 1998 115,112 12,000 16,000 1,748
Vice President 1997(2) 87,132 -- 24,000 1,748
Engineering
Lee C. Steele 1998 125,077 29,750 30,000 752
Vice President and 1997 120,560 27,000 0 752
CFO 1996 110,752 27,000 0 1,344
</TABLE>
17
<PAGE> 18
(1) All Other Compensation includes imputed income from taxable life insurance
premiums paid by the Company, and, for Mr. Sheridan, a leased automobile.
(2) The indicated years were years of partial employment with the Company for
the named executive.
(3) Mr. Sheridan's bonus is paid in respect of "contract years" ending
September 30th in each year and is paid in cash, except in fiscal years
1996 and 1997 when the bonus also included Company stock and payments made
to him to alleviate the tax impact of the stock bonus.
Mr. Sheridan has an employment contract with the Company that provides for his
employment as President and Chief Executive Officer, and as a Director, through
September 1999, at an annual salary of $240,000, subject to annual review, plus
performance bonuses tied to specific accomplishments. This contract replaces Mr.
Sheridan's original contract with the Company, which expired in September 1996.
Under the contract, Mr. Sheridan is eligible to receive an annual bonus of up to
$230,000 in each contract year, based on his accomplishment of goals established
by the Compensation Committee. Under the previous contract, but not under the
current contract, Mr. Sheridan also received a bonus of up to 10,000 shares of
common stock and an amount calculated to compensate him for the taxes due on the
stock portion of this bonus. In addition, in October 1996 the Company granted
Mr. Sheridan options to purchase 225,000 shares of the Company's Common Stock at
an exercise price of $14.00 per share, the fair market value of the Company's
Common Stock on the date of grant. The options become exercisable at the rate of
75,000 options per year on the first three anniversaries of the grant.
Mr. Sheridan recognized no income upon the issuance of the options. When the
options are exercised, Mr. Sheridan will recognize ordinary income in an amount
equal to the difference between the fair market value of the Common Stock
received upon the exercise of the option and the amount paid for the Common
Stock. At that time, the Company will be allowed a deduction equal to the amount
recognized as ordinary income by Mr. Sheridan. The options provide that to the
extent that exercise of an option would give rise to compensation expense that
the Company reasonably expects will not be deductible for tax purposes in any
given taxable year pursuant to Section 162(m) of the Internal Revenue Code of
1986, as amended, the number of shares as to which the options may be exercised
during that taxable year shall be limited.
Under his initial employment contract, Mr. Sheridan purchased 160,000 treasury
shares of the Company's Common Stock payable by promissory note. The note is due
on the earlier of September 15, 2003 or the termination of Mr. Sheridan's
employment. The Company has agreed to reimburse Mr. Sheridan for the interest
payable under the note in most circumstances.
Mr. Sheridan is entitled to receive the same benefits as other senior executives
of the company, as well as to the use of a car.
In the event that Mr. Sheridan's employment with the Company is terminated
without Cause, or by him for Good Reason (as defined in the employment
contract), he will receive twelve months' pay and any previously earned bonuses.
In the event that Mr. Sheridan's employment with the Company is terminated for
Cause, or by him other than for Good Reason (as defined in the employment
contract), or by his death or disability, he will not be entitled to receive any
salary beyond the date of termination, and he will only be entitled to receive
previously earned bonuses if the termination is caused by death or disability.
Mr. Bernfeld has an agreement with the Company which provides for a minimum base
salary of $120,000, adjustable at the discretion of the President, and a bonus
of up to $20,000 subject to the
18
<PAGE> 19
achievement of individual and corporate goals; and 24,000 stock options granted
at market price, which vest according to a schedule. The agreement is for a
three year term ending in February, 1999, and grants Mr. Bernfeld severance
payments equal to one year's salary if he is terminated in connection with a
change of the control of the Company as defined in the agreement. The agreement
also provides that if Mr. Bernfeld is terminated for any reason other than
"Cause" as defined in the agreement, he will be entitled to receive an amount
equal to at least six months salary.
Dr. Callerame and Messrs. Rutan and Steele have agreements with the Company
granting each of them severance payments equal to one year's salary if he is
terminated in connection with a change of control of the Company as defined in
the agreement. The agreement also provides that if each of them is terminated
for any reason other than "Cause" as defined in the agreement, he will be
entitled to receive an amount equal to at least six months salary.
- - THE FOLLOWING TABLES PROVIDE INFORMATION CONCERNING THE GRANT OF OPTIONS IN
FISCAL YEAR 1998 TO EXECUTIVE OFFICERS NAMED IN THE SUMMARY COMPENSATION
TABLE AND OPTIONS EXERCISED BY THOSE OFFICERS.
OPTION GRANTS IN THE LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants Potential Realizable Value
-------------------------------------------------------------- at Assumed Annual Rates
of Stock Price
Appreciation for Option
Term ($)
----------------------------------
% of Total
Options
Granted to
Options All Exercise Expiration
Granted Employees Price ($) Date 5%/year 10%/year
------- ---------- --------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Ralph S. Sheridan 0 N/A N/A N/A N/A N/A
Jeffrey A. Bernfeld 20,000 6.98 11.125 11/20/07 221,374 484,295
Peter W. Harris 0 N/A N/A N/A N/A N/A
Alan H. Rutan 16,000 5.58 11.125 11/20/07 177,099 387,436
Lee C. Steele 30,000 10.47 11.125 11/20/07 332,061 726,442
</TABLE>
19
<PAGE> 20
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Value of Unexercised In-
Unexercised Options The-Money Options at
Shares at Fiscal Year End - Fiscal Year End -
Acquired March 31, 1998 (#) March 31, 1998 ($)
on Value ----------------------- -----------------------------
Exercise Realized Exerc- Unexerc- Exerc- Unexerc-
(#) ($) isable isable isable isable
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ralph S. Sheridan 0 0 195,000 150,000 2,176,875 0
Jeffrey A. Bernfeld 0 0 30,000 30,000 107,250 85,750
Peter W. Harris 0 0 40,000 20,000 318,250 75,000
Alan H. Rutan 0 0 12,000 28,000 43,500 83,500
Lee C. Steele 0 0 50,000 30,000 409,375 75,000
</TABLE>
- - COMPENSATION OF DIRECTORS
Directors who are also employees of the Company do not receive additional
compensation as Directors. Non-Employee Directors (other than the Chairman)
receive annual compensation of 2,000 shares of Company Common Stock issuable on
January 10th in each year, and options to purchase 7,000 shares of Common Stock
at the closing price on the date of the Annual Meeting in each year. The
Chairman receives 2,500 shares of Common Stock on January 10th in each year and
continues to receive deferred compensation under a now discontinued plan
described below. No meeting fees or other fees are payable to any Director. See
Item 13 - Certain Relationships and Related Transactions for additional
information concerning certain Directors.
Dr. Feshbach, the Company's Chairman, is covered by a nonfunded deferred
compensation plan (adopted in 1976 and amended in 1977, 1980, 1986, 1990 and
1992) that provides for periodic payments beginning at age 65, based on length
of service. During the year, Dr. Feshbach received $4,752 under the Plan. The
Company accrues the current cost of the plan, which amounted to $10,000 in
fiscal 1998.
- - COMPENSATION COMMITTEE INTERLOCKS, INSIDER PARTICIPATION AND SECTION 16
REPORTING
During the fiscal year ended March 31, 1998, the Company's Compensation
Committee consisted of Dr. Herman Feshbach, Dr. Hamilton W. Helmer and Dr.
Donald J. McCarren. No reportable relationship existed with respect to any
member of the Compensation Committee.
Section 16(a) of the Securities Exchange Act of 1934 requires certain persons,
including the Company's Directors and Executive Officers, to file initial
reports of beneficial ownership of the Company's securities and reports of
changes in beneficial ownership with the Securities and Exchange Commission. For
fiscal year 1998, the Company believes that all required reports were filed on
time.
- - BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (consisting of the three
outside Directors whose names appear below this Report) has sole responsibility
for compensation issues relating to the Chief
20
<PAGE> 21
Executive Officer. Compensation practices and policies for the other executive
officers are set by the Chief Executive Officer with the advice of the
Compensation Committee.
The Compensation Committee has formulated an approach to all executive
compensation that emphasizes the establishment of goals and objectives for each
executive and for the Company as a whole and ties a substantial portion of
executive compensation to the performance of the executive and the Company with
respect to these goals and objectives. Base compensation for executive officers
(and many other Company employees) is established on the basis of an analysis of
salaries received by comparable employees of high-tech and manufacturing
companies in the Greater Boston area, company financial results and prospects,
and individual contributions relative to the job description and past
performance of each officer.
In line with this approach, the Company entered into a new employment agreement
with its President and Chief Executive Officer, Mr. Ralph S. Sheridan, in 1996
(effective as of September 1996). This Agreement was based, in part, on an
independent consultant's analysis of compensation arrangements for chief
executives of comparable companies, and was also based on a careful review of
the most important goals and objectives for the Company. The Agreement provides
for annual cash compensation of $240,000, plus annual incentive bonuses of up to
$230,000 tied to specific, agreed upon performance criteria. In addition, in
order to provide for long-term incentives, the Company has issued to Mr.
Sheridan nonstatutory stock options to purchase 225,000 shares of Common Stock
which vest ratably over three years.
For the contract year ended in September 1997, the Committee awarded Mr.
Sheridan a cash bonus of $230,000, representing 100% of the potential award
under his contract. This award represents the Committee's determination that Mr.
Sheridan had done an excellent job over the preceding twelve months and had met
all of the goals and objectives jointly established by the Committee and Mr.
Sheridan.
Also in keeping with its performance-based compensation philosophy, in the
spring of 1994, the Company implemented an incentive compensation program for
all executives who report directly to the Office of the President. Under this
new policy, these executives receive a specified portion of their total
compensation (ranging from 10% to 50%) based upon two factors: their completion
of agreed upon goals and objectives, and the performance of the entire Company.
Report Submitted By: Dr. Herman Feshbach, Dr. Hamilton W. Helmer and Dr. Donald
J. McCarren.
21
<PAGE> 22
- - STOCK PERFORMANCE CHART
The following chart graphs the performance of the cumulative total return to
shareholders (stock price appreciation plus dividends) during the previous five
years in comparison to the returns of the Standard & Poor's 500 Composite Stock
Price Index and the Standard & Poor's 500 High-Tech Composite Stock Price Index.
[TOTAL SHAREHOLDER RETURNS]
INDEXED RETURNS
Years Ending
<TABLE>
<CAPTION>
BASE
PERIOD
COMPANY/INDEX MAR 93 MAR 94 MAR 95 MAR 96 MAR 97 MAR 98
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AMERICAN SCIENCE ENGINEERING 100 46.97 75.76 119.70 146.97 165.15
S&P 500 INDEX 100 101.48 117.25 154.77 185.40 274.39
TECHNOLOGY-500 100 117.62 148.84 200.95 271.66 410.57
</TABLE>
Note: Assumes $100 invested at the close of trading on the last trading day
preceding the first day of the fifth preceding fiscal year (and
reinvestment of dividends) in the Company's Common Stock, Standard &
Poor's 500 Composite Stock Price Index and the Standard & Poor's 500
High-Tech Composite Stock Price Index.
22
<PAGE> 23
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- - THE FOLLOWING CHART SHOWS THE COMPANY COMMON STOCK BENEFICIALLY OWNED BY
OFFICERS AND DIRECTORS OF THE COMPANY ON JUNE 30, 1998. BASED ON
INFORMATION AVAILABLE TO IT, THE COMPANY BELIEVES THAT NO OTHER PERSON OR
ENTITY OWNED 5 PERCENT OR MORE OF THE COMPANY'S COMMON STOCK ON THAT DATE.
<TABLE>
<CAPTION>
Name of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership(1) of Class
- ---------------- ----------------------- --------
<S> <C> <C>
Jeffrey A. Bernfeld 32,591 (2)
Joseph Callerame 15,000 (2)
Herman Feshbach 16,540 (2)
Al Gladen 53,055 1.12
Peter W. Harris 43,177 (2)
Hamilton W. Helmer 46,781 (2)
Donald J. McCarren 54,581 1.14
William E. Odom 12,000 (2)
Alan H. Rutan 35,140 (2)
Ralph S. Sheridan 401,743 8.13
Lee C. Steele 59,096
Carl W. Vogt 14,166
Directors and Officers
as a Group (12 persons) 783,870 15.1
</TABLE>
(1) Includes shares that may be acquired under stock options and warrants
exercisable within sixty days after the date of this table, as follows:
Mr. Bernfeld - 30,000; Dr. Callerame - 12,500; Dr. Feshbach - 2,500; Mr.
Gladen - 14,000; Mr. Harris - 40,000; Dr. Helmer - 39,000; Dr. McCarren -
40,000; Mr. Odom - 7,000; Mr. Rutan -18,000; Mr. Sheridan - 195,000; Mr.
Steele - 50,000; Mr. Vogt - 0; and all Directors and Officers as a group -
448,000. All ownership reported herein includes sole voting and investment
power.
(2) Amount owned constitutes less than one percent.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In April, 1995 a group that included three of the Company's Officers and one
Company Director made a loan to the Company in the total amount of $650,000. The
proceeds of the loan were used for general working capital purposes. The loan
was paid off in full on a timely basis.
The Board of Directors determined that the loan was necessary and the terms
appropriate. The Company had been seeking short-term financing from several
banks, but conclusion of a conventional line of credit arrangement was delayed
pending resolution of the lawsuit brought by the Company's founder, in which the
Company has now received a favorable jury verdict. In addition, portions of the
Company's working capital had been tied up in slow-paying foreign accounts
receivable and as collateral for letters of credit supporting certain
international sales. These factors justified a form of short-term "bridge loan"
while the Company worked on a more permanent financing alternative.
The loan terminated on August 15, 1995, and bore interest at the prime rate plus
two percent. The Company granted a security interest in all of its assets to the
lending group during the pendency of the
23
<PAGE> 24
loan. As additional consideration, the Company issued a total of 6,500 shares of
its Common Stock and warrants to purchase 65,000 shares of its Common Stock
proportionally to the lenders. The warrant exercise price is the lowest trading
price of the stock on the American Stock Exchange during the term of the loan.
The Company has registered these shares.
Ralph S. Sheridan, the Company's President and CEO, provided $200,000 of the
loan funds. Al Gladen, who subsequently became a Director of, and remains a
Consultant to, the Company, provided $300,000. Lee C. Steele, the Company's Vice
President of Finance and CFO, provided $75,000. Donald J. McCarren, a Director
of the Company, provided $50,000. Peter W. Harris, the Company's Vice President
of Sales and Marketing, provided $25,000.
Mr. Gladen provides engineering and management services to the Company on a
regular basis. In fiscal year 1998, the compensation paid to Dabster, Inc., a
corporation of which Mr. Gladen is the President, for such services was
$256,750.
All other information required for by this Item appears in Items 10 and 11 of
this Annual Report on Form 10-K, and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The financial statements and schedules listed in the Index to Consolidated
Financial Statements and Schedule on page 28 are filed as part of this
report, and such Index is incorporated in this Item by reference.
The exhibits listed in the Exhibit Index on page 47-48 are filed as part
of this report, and such Index is incorporated in this Item by reference.
(b) Reports on Form 8-K. There were no reports on Form 8-K filed during the
fourth quarter of the fiscal year covered by this report.
24
<PAGE> 25
AMERICAN SCIENCE AND ENGINEERING, INC., AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
(Submitted in answer to Item 8 and Item 14 of Form 10-K, Securities and Exchange
Commission)
<TABLE>
<CAPTION>
CONSOLIDATED FINANCIAL STATEMENTS PAGE
<S> <C>
Report of Independent Public Accountants 26
Consolidated Balance Sheets - March 31, 1998 and March 28, 1997 27-28
Consolidated Statements of Operations 29
For the Years Ended March 31, 1998 March 28, 1997, and March 29, 1996
Consolidated Statements of Stockholders' Investment 30
For the Years Ended March 31, 1998 March 28, 1997,
and March 29, 1996
Consolidated Statements of Cash Flows 31
For the Years Ended March 31, 1998 March 28, 1997,
and March 29, 1996
Notes to Consolidated Financial Statements - March 31, 1998 32-43
CONSOLIDATED SUPPLEMENTARY FINANCIAL INFORMATION
Unaudited quarterly consolidated financial data for
the years ended March 31, 1998, and March 28, 1997 44
(Separate Financial Statements of the Company have been omitted since the net
assets of its wholly owned subsidiary are not so restricted with respect to
payment of loans, advances and cash dividends to the Company as to require such
disclosure.)
FINANCIAL STATEMENT SCHEDULE
Schedule II - Valuation and Qualifying Accounts and Reserves 45
</TABLE>
Other schedules have been omitted 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.
25
<PAGE> 26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Science and Engineering, Inc.:
We have audited the accompanying consolidated balance sheets of American Science
and Engineering, Inc. (a Massachusetts corporation) and subsidiary as of March
31, 1998 and March 28, 1997 and the related consolidated statements of
operations, stockholders' investment and cash flows for each of the three years
in the period ended March 31, 1998. These consolidated financial statements and
the schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
American Science and Engineering, Inc. and subsidiary as of March 31, 1998 and
March 28, 1997, and the results of their operations and their cash flows for
each of the three years in the period ended March 31, 1998 in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
index to consolidated financial statements and schedule is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic consolidated financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 14, 1998
26
<PAGE> 27
AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND MARCH 28, 1997
Dollars in thousands
<TABLE>
<CAPTION>
ASSETS 1998 1997
------- -------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents (Note 2) $ 2,290 $ 3,202
Accounts receivable, net of allowances of
$116 in 1998 and $148 in 1997 (Note 1) 6,955 4,885
Unbilled costs and fees, net of allowances of
$549 in 1998 and $462 in 1997 (Note 1) 3,190 981
Inventories (Note 1) 8,737 4,736
Deferred income taxes (Notes 1 and 5) 2,351 --
Prepaid expenses and other current assets 389 291
------- -------
TOTAL CURRENT ASSETS 23,912 14,095
------- -------
Non-current deferred income taxes (Note 1 and 5) 205 --
Deposits 24 115
Property, equipment and leasehold
improvements, net of accumulated depreciation
of $9,394 in 1998 and $8,860 in 1997
(Notes 1 and 3) 1,852 1,304
------- -------
$25,993 $15,514
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
27
<PAGE> 28
AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
MARCH 31, 1998 AND MARCH 28, 1997
Dollars in thousands
<TABLE>
<CAPTION>
Liabilities & Stockholders' Investment 1998 1997
-------- --------
<S> <C> <C>
Current liabilities:
Current maturities of obligations
under capital leases (Note 3) $ 20 $ 18
Accounts payable 4,360 2,253
Accrued salaries and benefits 831 573
Accrued warranty costs (Note 1) 497 292
Accrued income taxes (Notes 1 and 5) 615 90
Deferred revenue (Note 1) 1,240 526
Customer deposit (Note 1) 1,151 --
Other current liabilities 507 487
-------- --------
TOTAL CURRENT LIABILITIES 9,221 4,239
-------- --------
NON-CURRENT LIABILITIES:
Obligations under capital leases, net
of current maturities (Note 3) 22 42
Deferred revenue (Note 1) 232 660
Deferred compensation (Note 11) 154 174
Deferred rent (Note 1) 280 249
-------- --------
TOTAL NON-CURRENT LIABILITIES 688 1,125
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 3, 4, and 11)
STOCKHOLDERS' INVESTMENT: (Notes 6 and 7)
Preferred stock, no par value
Authorized - 100,000 shares
Issued - None
Common stock, $.66-2/3 par value
Authorized - 20,000,000 shares Issued
4,743,569 shares in 1998
and 4,585,209 shares in 1997 3,162 3,058
Capital in excess of par value 16,278 15,273
Accumulated deficit (2,704) (7,365)
-------- --------
16,736 10,966
Note receivable-Officer (Note 8) (640) (640)
Less: treasury stock - 6,678 and
62,841 shares in 1998 and
in 1997, at cost, respectively (12) (176)
-------- --------
TOTAL STOCKHOLDERS' INVESTMENT 16,084 10,150
-------- --------
$ 25,993 $ 15,514
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
28
<PAGE> 29
AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1998, MARCH 28, 1997, AND MARCH 29, 1996
Dollars in thousands, except per share amounts
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
NET SALES AND CONTRACT REVENUES
(Notes 1 and 10) $ 32,699 $ 28,479 $ 17,815
Cost of sales and contracts (Note 1) 19,816 18,423 11,823
----------- ----------- ------------
GROSS PROFIT 12,883 10,056 5,992
EXPENSES:
Selling, general and administrative 7,425 6,494 4,588
Research and development (Note 1) 2,856 1,602 533
----------- ----------- ------------
TOTAL EXPENSES 10,281 8,096 5,121
----------- ----------- ------------
OPERATING INCOME 2,602 1,960 871
----------- ----------- ------------
OTHER INCOME/(EXPENSE):
Interest, net 118 111 52
Other, net (22) (68) (91)
----------- ----------- ------------
TOTAL OTHER INCOME (EXPENSE) 96 43 (39)
----------- ----------- ------------
INCOME BEFORE PROVISION FOR (BENEFIT FROM)
INCOME TAXES 2,698 2,003 832
PROVISION FOR (BENEFIT FROM) INCOME TAXES
(NOTE 5) (1,963) 78 30
----------- ----------- ------------
NET INCOME $ 4,661 $ 1,925 $ 802
=========== =========== ============
INCOME PER SHARE - BASIC $ 1.00 $ .43 $ .18
=========== =========== ============
- DILUTED $ .95 $ .40 $ .18
=========== =========== ============
WEIGHTED AVERAGE SHARES - BASIC 4,646 4,491 4,387
=========== =========== ============
- DILUTED 4,917 4,826 4,541
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
29
<PAGE> 30
AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
FOR THE YEARS ENDED MARCH 31, 1998, MARCH 28, 1997, AND MARCH 29, 1996
Amounts in thousands, except share amounts
<TABLE>
<CAPTION>
CAPITAL IN ACCU- NOTE
COMMON STOCK EXCESS OF MULATED RECEIVABLE TREASURY STOCK
SHARES AMOUNT PAR VALUE DEFICIT OFFICER SHARES AMOUNT TOTAL
--------- ------ ------- -------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
MARCH 31, 1995 4,257,120 $2,838 $13,612 $(10,092) $(640) 67,377 $(126) $ 5,592
Net income -- -- -- 802 -- -- -- 802
Exercise of stock
options (Note 6) 18,868 13 40 -- -- -- -- 53
Issuance of stock
(Note 7) 224,639 150 904 -- -- -- -- 1,054
--------- ------ ------- -------- ----- ------- ----- -------
BALANCE,
MARCH 29, 1996 4,500,627 3,001 14,556 (9,290) (640) 67,377 (126) 7,501
Net income -- -- -- 1,925 -- -- -- 1,925
Exercise of stock
options (Note 6) 68,723 46 396 -- -- 5,464 (69) 373
Issuance of stock 15,859 11 321 -- -- (10,000) 19 351
--------- ------ ------- -------- ----- ------- ----- -------
BALANCE,
MARCH 28, 1997 4,585,209 3,058 15,273 (7,365) (640) 62,841 (176) 10,150
Net income -- -- -- 4,661 -- -- -- 4,661
Exercise of stock
options (Note 6) 152,735 101 783 -- -- -- -- 884
Issuance of stock 5,625 3 222 -- -- (56,163) 164 389
--------- ------ ------- -------- ----- ------- ----- -------
BALANCE,
MARCH 31, 1998 4,743,569 $3,162 $16,278 $ (2,704) $(640) 6,678 $ (12) $16,084
========= ====== ======= ======== ===== ======= ===== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
30
<PAGE> 31
AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1998, MARCH 28, 1997, AND MARCH 29, 1996
Dollars in thousands
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,661 $ 1,925 $ 802
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 534 352 205
Provisions for contract, inventory, accounts
receivable and warranty reserves 896 795 510
Deferred income tax benefit (2,556) -- --
Change in assets and liabilities:
Accounts receivable (2,070) (1,322) (1,244)
Unbilled costs and fees (2,409) (7) 725
Inventories (4,151) (422) (442)
Prepaid expenses, other assets,
and deposits (7) 273 (257)
Accounts payable 2,107 232 (148)
Accrued income taxes 525 90 --
Customer deposits 1,151 (2,670) 2,622
Deferred revenue 714 151 181
Accrued expenses and other
current liabilities 326 111 (1,209)
Noncurrent liabilities (417) 650 221
------- ------- -------
Total adjustments (5,357) (1,767) 1,164
------- ------- -------
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES (696) 158 1,966
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (1,082) (730) (250)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 884 412 53
Principal payments of capital lease obligations (18) (15) (158)
Proceeds from borrowings (Note 11) -- -- 650
Repayment of officer note (Note 11) -- -- (650)
Proceeds from issuance of stock -- -- 897
------- ------- -------
Cash provided by financing activities 866 397 792
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (912) (175) 2,508
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,202 3,377 869
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,290 $ 3,202 $ 3,377
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 6 $ 10 $ 79
Income taxes paid 40 30 --
NON-CASH TRANSACTIONS:
Issuance of stock in lieu of fees $ 225 $ 332 $ 157
Issuance of treasury stock in lieu of fees 164 -- --
Stock option exercises -- 30 --
Common stock received to treasury for stock option
exercises -- (69) --
Stock bonus issued to Officer from treasury -- 19 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
31
<PAGE> 32
AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
1. NATURE OF OPERATIONS AND SUMMARY OF 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.
USE OF 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.
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary. All significant
intercompany balances and transactions have been eliminated in consolidation.
Effective the quarter ended September 30, 1997, the Company has elected to
change financial reporting from a fiscal month end to a calendar month end. The
year end reporting period ended on March 31, 1998. This change in year end has
no material effect on the results of operations for the year ended March 31,
1998. The Company's fiscal years ended on March 31, 1998, March 28, 1997, and
March 29, 1996.
INVENTORIES Inventories are stated at the lower of cost, computed on a first-in,
first-out basis, or market and generally include material, labor and factory
overhead.
The components of inventories at March 31, 1998 and March 28, 1997 were as
follows (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Raw materials and completed
subassemblies $4,958 $3,106
Work-in-process 3,654 1,334
Finished goods 125 296
------ ------
$8,737 $4,736
====== ======
</TABLE>
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS The Company provides for
depreciation and amortization of its fixed assets, principally equipment, using
straight-line and accelerated methods over estimated useful lives of 3-10 years.
Expenditures for normal maintenance and repairs are charged to expense as
incurred. Significant additions, renewals or betterments that extend the useful
lives of the assets are capitalized. The cost and accumulated depreciation
applicable to equipment and leasehold improvements sold or otherwise disposed of
are removed from the accounts, and any resulting gain or loss is included in the
consolidated statements of operations.
WARRANTY COSTS The Company provides currently for estimated future warranty and
installation costs on units sold covering the estimated replacement and
installation costs related to parts and labor.
METHODS OF RECORDING PROFITS ON CONTRACTS Revenues and profits are generally
recorded on cost reimbursement and long-term fixed-price contracts as costs are
incurred using the percentage-of-completion method. Percentages-of-completion
are determined by relating the actual cost of work performed to date for each
contract to its estimated final cost.
32
<PAGE> 33
AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
Revenues and profits are recorded on other fixed price contracts as shipments
are made. Profit on fixed price contracts is determined by applying the
estimated average profit rate to the contract value of the items shipped. If a
loss is anticipated on a contract, provision is made at that time for the full
amount of the estimated loss without reference to the percentage of completion
or to performance milestones.
The types of milestones contained in contracts vary based on negotiations with
each customer, but may include acceptance of equipment prior to shipment,
shipment of equipment, arrival of equipment in the country, installation of
equipment and final customer acceptance. Individual customer deposits are
reduced by the amount of revenue recognized on the contract until a zero balance
is reached. Additional revenues earned in excess of a customer's deposit are
included in accounts receivable or unbilled costs and fees until paid or billed,
respectively.
Under the terms of most of its cost-reimbursement contracts, the Company is not
permitted to bill customers a specified portion of the contract value until
completion. Such retainages (approximately $856,000 in 1998 and $339,000 in
1997) result from both commercial contract retentions and government contract
withholdings generally for 15% of fees, as well as differences between the
actual and provisional indirect cost billing rates. Retainages are included in
the accompanying consolidated balance sheets as components of unbilled costs and
fees.
Included in accounts receivable and unbilled costs and fees at March 31, 1998
and March 28, 1997 are $8,098,000 and $3,694,000, respectively, attributable to
both prime and subcontracts with the U.S. Government.
WARRANTY COSTS AND DEFERRED REVENUE In general, the Company provides a one year
parts and labor warranty with the purchase of equipment. The anticipated cost
for this one year warranty is accrued for at time of sale and is captioned as a
balance sheet liability, Accrued Warranty. The Company also offers to its
customers extended warranty and service contracts beyond the initial year of
warranty. The coverage period of these contracts will typically range from one
to five years, with payment in advance recorded as Deferred Revenue.
Substantially all of the deferred revenue included in the accompanying 1998
balance sheet will be recognized within 2 years.
CUSTOMER DEPOSITS For most international orders, the Company attempts to
include, as part of its terms and conditions, an advance deposit with order
acceptance. For long-term international contracts, the Company will generally
include milestone payments tied to a specific event and/or passage of time.
These deposit amounts are recorded as a liability under "Customer Deposit" until
reduced by revenue recognized against the specific contract. As of March 31,
1998 and March 28, 1997, total customer deposits amounted to $1,151,000 and $0,
respectively.
DEFERRED RENT The Company entered into a lease for its office and manufacturing
facilities. This lease has escalation clauses. Generally accepted accounting
principles require normalization of the rental expense over the life of the
lease, resulting in deferred rent being reflected in the accompanying 1998
consolidated balance sheet.
RESEARCH AND DEVELOPMENT Research and development costs are expensed as
incurred.
FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments consist
primarily of cash and cash equivalents, accounts receivable and accounts
payable. The carrying amounts of the Company's cash and cash equivalents,
accounts receivable and accounts payable approximate fair value due to their
short-term nature.
33
<PAGE> 34
AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
INCOME PER COMMON AND COMMON EQUIVALENT SHARES In March 1997, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share," which establishes standards for
computing and presenting earnings per share for entities with publicly held
common stock or potential common stock. The Company adopted SFAS 128 in fiscal
1998 and as required, restated per share amounts for all prior periods presented
to conform to the new requirements. Basic earnings per common share is computed
by dividing net income by the weighted average number of shares of common stock
outstanding during the year. No dilution for any potentially dilutive securities
is included. Diluted earnings per share includes the dilutive impact of options
and warrants using the average share price of the Company's common stock for the
period.
INCOME TAXES The Company accounts for incomes taxes in accordance with SFAS No.
109, "Accounting for Income Taxes." Accordingly, the Company recognizes deferred
income taxes based on the expected future tax consequences of differences
between the financial statement basis and the tax basis of assets and
liabilities, calculated using enacted tax rates in effect for the year in which
the differences are expected to be reflected in the tax return. The Company
records a valuation allowance against any net deferred tax assets if it is more
likely than not that they will not be realized.
NEW ACCOUNTING PRONOUNCEMENTS In February 1997, the FASB issued SFAS No. 129,
"Disclosure of Information about Capital Structure", which establishes standards
for disclosing information about an entity's capital structure. In June 1997,
the FASB issued SFAS No. 130, "Reporting Comprehensive Income", which
establishes standards for reporting and disclosure of comprehensive income and
its components (revenues, expenses, gains and losses) in a full set of general
purpose financial statements. Also, in June 1997, the FASB issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information", which
establishes standards for reporting and disclosure of information about
operating segments as well as disclosures about products and services,
geographic areas and major customers. These statements are effective for fiscal
years beginning after December 15, 1997 and require certain additional
disclosures.
In April 1998, the AICPA Accounting Standards Executive Committee issued
Statement of Position No. 98-5 (SOP 98-5), "Reporting on the Costs of Start-Up
Activities", which is effective for fiscal years beginning after December 15,
1998. Early adoption is encouraged. SOP 98-5 requires that costs of start-up
activities and organization costs be expensed as incurred. The impact of
adopting SOP 98-5 will be accounted for as the cumulative effect of a change in
accounting principle as described in Accounting Principles Board Opinion No. 20,
"Accounting Changes". The Company does not anticipate any impact from adopting
SOP 98-5 as the Company currently expenses start-up and organization costs as
incurred.
PRESENTATION Certain amounts in 1997 and 1996 have been reclassified to conform
to the 1998 financial statement presentation.
2. CASH AND CASH EQUIVALENTS
The Company considers all investments with original maturities of 90 days or
less to be cash equivalents. Cash and cash equivalents are carried at cost,
which approximates fair market value at year end 1998 and 1997. The Company has
repurchase agreements with a regional bank. The repurchase agreements are
collateralized by investments principally consisting of U.S. Government Agency
securities in the amount of at least 100% of such obligation.
34
<PAGE> 35
AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
3. OPERATING AND CAPITAL LEASE AGREEMENTS
In January 1995, the Company entered into a lease agreement for its new office
and manufacturing facilities in Billerica, Massachusetts. This lease has a term
of 10 years which started March 1, 1995, with an option to extend for 10
additional years. During fiscal year 1998 the Company leased additional space in
the current building and amended the lease. Escalation clauses provide for rent
increases after the first and fifth year of the rental term. In January 1998,
the Company leased additional manufacturing and office space at a nearby
location. This lease has a term of five years. The Company incurred $541,000,
$501,000, and $513,000 of rent expense in 1998, 1997, and 1996 respectively. The
security deposits on these leases amount to $106,000.
Future minimum rental payments under the Company's operating leases, excluding
real estate taxes, insurance and operating costs paid by the Company required
over the initial terms of the leases are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ending March 31,
---------------------
<S> <C>
1999 $ 590
2000 597
2001 681
2002 681
2003 662
Thereafter 1,159
------
$4,370
======
</TABLE>
During fiscal 1995 the Company entered into a lease agreement for the purchase
of certain office equipment. This lease is classified as a capital lease under
generally accepted accounting principles and is payable in monthly installments
over a period of 60 months with interest of 11.5%. Future minimum lease payments
are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ending March 31,
---------------------
<S> <C>
1999 $ 24
Thereafter 23
--------
Total minimum lease payments 47
Less: Amounts representing interest (5)
--------
Present value of net minimum
lease payments $ 42
========
</TABLE>
35
<PAGE> 36
AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
4. LINE OF CREDIT
In August 1997, the Company renewed its domestic line with a regional bank,
increasing it from $2.5 million to $8.0 million. The renewed line of credit,
which is secured by accounts receivable from ongoing customers as well as
inventory, has two components. The first component is up to $4.0 million of base
borrowing capacity for either short term working capital borrowing or issuance
of standby letters of credit; the second component is an additional $4.0 million
in excess standby letters of credit capacity to support foreign equipment sales.
Monthly interest payments on this line of credit are at the prime interest rate.
There is a quarter percent (.25%) commitment fee on the unused portion of the
line. As of March 31, 1998 and March 28, 1997, there were no borrowings against
the line of credit, however, there were $1.2 million of outstanding letters of
credit in effect against this credit facility at March 31, 1998. During April
1998, the Company renegotiated the line of credit, dated August 1997, from $8
million to $12 million. The $12 million line of credit expires on August 31,
1998, at which time a formal credit renewal agreement is expected to be in
place. The Company's credit facility restricts the payment of dividends, except
in shares of the Company's stock, without consent of the bank.
5. INCOME TAXES
The provision (benefit) for income taxes for the years ended March 31, 1998,
March 28, 1997, and March 29, 1996 consisted of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------- ----- -----
<S> <C> <C> <C>
Current:
Federal $ 51 $ 40 $ 17
State 353 38 13
------- ----- -----
404 78 30
Deferred:
Federal 1,244 590 245
State (49) 112 49
------- ----- -----
1,195 702 294
------- ----- -----
Change in valuation allowance (3,562) (702) (294)
------- ----- -----
Total $(1,963) $ 78 $ 30
======= ===== =====
</TABLE>
The difference between the total expected provision (benefit) for income taxes
computed by applying the statutory federal income tax rate to income before
provision (benefit) for income taxes and the recorded provision (benefit) for
income taxes for the three years in the period ended March 31, 1998 follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------- ----- -----
<S> <C> <C> <C>
Provision for income taxes at statutory rate $ 917 $ 681 $ 283
State tax provision net of federal benefit 233 99 41
Permanent non-deductible expenses 17 17 17
Expiration of tax credits 190 -- --
Change in valuation allowance (3,562) (702) (294)
Alternative minimum tax -- 40 17
Other 242 (57) (34)
------- ----- -----
$(1,963) $ 78 $ 30
======= ===== =====
</TABLE>
36
<PAGE> 37
AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
The significant components of the net deferred tax asset at March 31, 1998 and
March 28, 1997 follow (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------------------------- ----------------------------
Current Non-current Current Non-current
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
ASSETS:
Net operating loss carryforwards $ 1,117 $ -- $ -- $ 2,375
Accounts receivable
and unbilled costs and fees 259 -- 238 --
Inventory 175 -- 239 --
Deferred revenue 259 -- -- --
Accrued vacation 136 -- -- --
Accrued warranty costs 194 -- 114 --
Tax credits and other 211 205 333 263
----------- ----------- ----------- -----------
2,351 205 924 2,638
LESS:
Valuation allowance -- -- (924) (2,638)
----------- ----------- ----------- -----------
Net deferred income tax assets $ 2,351 $ 205 $ -- $ --
=========== =========== =========== ===========
</TABLE>
The change in the valuation allowance for the years ended March 31, 1998 and
March 28, 1997 follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Valuation allowance, beginning of year $ 3,562 $ 3,878
Decrease due to change in estimate of future
taxable earnings (3,562) (316)
-------- ----------
Valuation allowance, end of year $ -- $ 3,562
======== ==========
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of the net deferred tax asset will not be realized. All available
evidence, both positive and negative, is considered by management in forming a
conclusion regarding the need for a valuation allowance. Prior to 1998, the
Company maintained a full valuation allowance for net operating loss
carryforwards and other deferred tax amounts as a result of numerous negative
factors including the Company's history of recurring losses, the Company's
reliance on U.S. government agencies for sales, uncertainties related to the
cost of new business initiatives and ongoing litigation. In the fourth quarter
of 1998, management concluded that positive factors - consistent profitability,
revenue growth, improved competitive position and stable business operations -
outweighed negative factors. Based on these positive factors and the Company's
expected taxable income, the valuation allowance was reduced to zero with a
corresponding benefit recorded in the provision for income taxes for 1998.
At March 31, 1998, the Company had approximately $3,286,000 of federal net
operating loss carryforwards. The carryforwards expire through the year 2010.
The Company also has unused investment tax and other credits of approximately
$107,000 expiring through 2001.
37
<PAGE> 38
AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
6. COMMON STOCK
STOCK OPTION PLANS The Company has various stock option plans for directors,
officers, and employees. During the year ended March 31, 1998, the Company
instituted two new common stock option plans, the 1998 and 1997 Non-Qualified
Stock Option Plans. These plans allow for grants of options in amounts
determined by a committee of the Board of Directors. The Company has the
following stock option plans outstanding as of March 31, 1998: 1966, 1968, 1970,
1981, 1984, 1985, and 1987 Stock Option Plans; 1993, 1994-1995 and 1996 Stock
Option Plan for Non-employee Directors; two CEO Employment Agreement Plans; 1995
Combination Plan; 1997 and 1998 Non-Qualified Option Plan; and 1994-95 Stock
Option Plan for New Employees. As of March 31, 1998, 1,318,154 shares have been
reserved and are available for future grant. Vesting periods on these plans
range from immediate vesting to four years. Options under these plans are
granted at fair market value and generally become exercisable within one to two
years of the grant date and terminate ten years from the date of grant. In
addition, the Company has a common stock installment purchase plan under which
the Board of Directors may grant to key personnel the right to purchase shares
of the Company's common stock at fair market value and to pay the purchase price
in twelve equal monthly installments. As of March 31, 1998, no shares have been
reserved or granted under this plan.
During the year ended March 28, 1997, the Company instituted two new common
stock purchase plans. The Executive Equity Incentive Plan allows an executive
officer of the Company to buy original issue Company common stock in any dollar
amount up to the gross amount of the annual bonus granted to the Officer and to
receive half the number of shares purchased in restricted stock. The Reload
Option Plan allows any eligible employee designated by the Board of Directors to
receive new stock options (at an exercise price equal to the fair market value
of the common stock on the date of sale of the stock) for every share of Company
common stock sold or used to exercise stock options.
PRO FORMA STOCK-BASED COMPENSATION EXPENSE In October 1995, the FASB issued SFAS
No. 123, "Accounting for Stock-Based Compensation," which sets forth a
fair-value based method of recognizing stock-based compensation expense. As
permitted by SFAS No. 123, the Company has elected to continue to apply
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," to account for its stock-based compensation plans. Had compensation
cost for awards in 1998, 1997 and 1996 under the Company's stock-based
compensation plans been determined based on the fair value at the grant dates
consistent with the method set forth under SFAS No. 123, the effect on the
Company's net income and earnings per share would have been as follows:
<TABLE>
<CAPTION>
In thousands except per share amounts 1998 1997 1996
--------- ---------- -----------
<S> <C> <C> <C>
Net income:
As reported $ 4,661 $ 1,925 $ 802
Pro forma 3,200 591 486
Income per share - Basic:
As reported $ 1.00 $ .43 $ .18
Pro forma .69 .13 .11
Income per share - Diluted:
As reported $ .95 $ .40 $ .18
Pro forma .65 .12 .11
</TABLE>
38
<PAGE> 39
AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
Because the method prescribed by SFAS No. 123 has not been applied to options
granted prior to April 1, 1995, the resulting pro forma compensation expense may
not be representative of the amount to be expensed in future years. Pro forma
compensation expense for options granted is reflected over the vesting period;
therefore, future pro forma compensation expense may be greater as additional
options are granted.
The fair value of each option granted was estimated on the grant date using the
Black-Scholes option pricing model with the following weighted average
assumptions: risk-free interest rates of 5.42% to 6.57%, 5.97% to 6.64%, 5.38%
to 6.24% for 1998, 1997, and 1996, respectively, and expected life of 5 years,
expected volatility of 38%, 30%, and 30% for 1998, 1997, and 1996, respectively,
and an expected dividend yield of 0% for all three years.
STOCK OPTION ACTIVITY A summary of the Company's stock option activity is as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ ------------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year 1,001,141 $ 10.16 557,404 $ 5.72 506,194 $ 5.07
Options granted 286,608 11.47 537,610 12.56 204,000 6.79
Options exercised (152,735) 5.79 (68,723) 5.32 (18,868) 4.67
Options expired (18,984) 10.99 (25,150) 8.06 (133,922) 5.93
-------- -------- ---------
Options outstanding,
end of year 1,116,030 9.59 1,001,141 10.16 557,404 5.72
========= ========= =======
Options exercisable 652,830 7.90 529,241 6.21 412,404 5.16
======= ======= =======
Options available
for grant 1,318,154 681,538 577,404
========= ======= =======
Weighted average fair
value per share of
options granted
during the year 4.33 4.24 2.57
</TABLE>
39
<PAGE> 40
AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
The following summarizes certain data for options outstanding at March 31, 1998:
<TABLE>
<CAPTION>
Weighted
Weighted Average
Average Remaining
Number of Range of Exercise Contractual
Shares Exercise Prices Price Life
------ --------------- ----- ----
<S> <C> <C> <C> <C>
Options outstanding,
end of year: 156,182 $2.88 - $ 5.38 $ 4.04 5.70
236,609 5.38 - 7.88 6.02 6.40
404,831 7.88 - 12.88 10.45 8.90
318,408 12.88 - 16.25 13.86 8.70
---------
1,116,030 9.59 7.80
---------
Options Exercisable: 156,182 $2.88 - $ 5.38 $ 4.04
235,609 5.38 - 7.88 6.02
136,631 7.88 - 12.88 9.99
124,408 12.88 - 16.25 13.98
---------
652,830 $ 7.90
=========
</TABLE>
7. PRIVATE EQUITY PLACEMENT
During fiscal 1996 the Company, in a private placement, sold 203,044 shares of
common stock to a foreign investor for total consideration of $937,500. The
Company received net proceeds of $856,250. The Company utilized the services of
a financial services firm. As compensation, the financial services firm received
a fee of $81,250 as well as stock purchase warrants allowing the firm to
purchase up to 29,167 shares of the Company's stock at $6.25 per share. No
expense was recognized related to the issued warrants as the exercise price of
the warrants approximated fair value at the date of grant.
8. EMPLOYMENT AGREEMENT AND NOTE RECEIVABLE FROM OFFICER
On January 12, 1994, the Company entered into an Employment Agreement with the
Company's President and Chief Executive Officer. On September 29, 1994, the
stockholders approved the issuance of non-qualified stock options for 80,000
shares (at $4.00 per share) to be exercised to varying extents at various times
through its expiration on December 16, 2003. The excess of the quoted market
price of the stock at the date of the award ($5.50) over the price stipulated by
the Agreement ($4.00) has been recognized by the Company as compensation
expense. This total amount has been amortized on a straight line basis over the
length of a vesting period of three years, through September 1997.
In addition, the Company's Chief Executive Officer purchased 160,000 shares of
common stock at a price of $4.00 per share (the fair market value) financed
under a note agreement for $640,000 from the Company. This note accrues interest
at a rate of 6.26% and will be payable on or before September 15, 2003 or 90
days after termination, as defined. As of March 31, 1998 no interest has been
received or paid against this note.
40
<PAGE> 41
AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
9. RELATED PARTY TRANSACTIONS
The Company receives engineering and management consulting services from a
member of the Company's Board of Directors on a regular basis. In fiscal year
1998, 1997 and 1996 the Company paid approximately $256,750, $218,550, and
$160,800, for services rendered, respectively.
10. BUSINESS SEGMENT INFORMATION
Certain financial information by business segment for the fiscal years 1998,
1997, and 1996 is presented below (dollars in thousands):
<TABLE>
<CAPTION>
Depreciation Net Sales Income/
Total Capital and and Contract (Loss)
Business Segment Assets Expenditures Amortization Revenues Before Tax
- ---------------- ------ ------------ ------------ -------- ----------
<S> <C> <C> <C> <C> <C>
1998
X-ray Products $ 19,894 $ 445 $ 165 $ 32,699 $ 7,201
Corporate 6,099 637 369 -- (4,599)
Interest income -- -- -- -- 124
Interest expense -- -- -- -- (6)
Other expense, net -- -- -- -- (22)
----------- --------- ------- --------------- ------------
$ 25,993 $ 1,082 $ 534 $ 32,699 $ 2,698
=========== ========= ======= =============== ============
1997
X-ray Products $ 11,915 $ 298 $ 108 $ 28,479 $ 6,411
Corporate 3,599 432 244 -- (4,451)
Interest income -- -- -- -- 121
Interest expense -- -- -- -- (10)
Other expense, net -- -- -- -- (68)
----------- --------- ------- --------------- ------------
$ 15,514 $ 730 $ 352 $ 28,479 $ 2,003
=========== ========= ======= =============== ============
1996
X-ray Products $ 10,081 $ 163 $ 50 $ 17,815 $ 4,385
Corporate 4,214 87 155 -- (3,514)
Interest income -- -- -- -- 131
Interest expense -- -- -- -- (79)
Other expense, net -- -- -- -- (91)
----------- --------- ------- --------------- ------------
$ 14,295 $ 250 $ 205 $ 17,815 $ 832
=========== ========= ======= =============== ============
</TABLE>
Corporate assets consist primarily of cash and cash equivalents, prepaid
expenses and fixed assets.
41
<PAGE> 42
AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
Approximately less than 1% of total revenues in 1998, 1997 and 1996,
respectively, were not related to X-ray products. Approximately 77% in 1998, 78%
in 1997, and 69% in 1996 of consolidated revenues were derived from prime and
subcontracts with, or sales to, various United States federal and state
governmental agencies.
Sales to major customers (representing in excess of 10% of consolidated sales)
consisted of X-ray Products segment sales of $11,670,000 to one customer in
1998, $11,531,000 and $3,463,000 to two customers, respectively, in 1997, and
$2,854,000 to one customer in 1996.
All of the Company's export sales originate from the U.S. No assets or
operations are maintained in any foreign country. The following table shows the
breakdown of Net Sales and Contract Revenues to foreign and domestic customers
and the major region(s) of export activity (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Domestic $ 26,799 $ 23,703 $ 14,526
Export 5,900 4,776 3,289
Percent of Export Revenue by Major Region:
Middle East and Africa 59.7% 22.2% 20.9%
Pacific Rim 28.3 60.9 39.2
Europe 8.9 4.4 24.4
All Other 3.1 12.5 5.5
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
DEFERRED COMPENSATION The Company has an unfunded deferred compensation plan,
originally adopted in 1976 and amended at various times, for certain current and
former directors. This plan provides for periodic payments beginning at age 65,
the amount of which depends on their length of service. The Company paid $21,000
in 1998, $10,000 in 1997, and $21,000 in 1996 under this deferred compensation
plan.
LITIGATION In June 1997, the Company settled a suit and countersuit against the
Company's former Chief Executive Officer (the former CEO). As a result of the
settlement, the Company's ownership rights in certain technology were affirmed,
the Company gained rights to certain continuing developments made by the former
CEO's current company (Annistech), and the Company agreed to license that
technology back to Annistech.
In May, 1996, Vivid Technologies, Inc., filed a civil action against the
Company, seeking inter alia a declaratory judgment that Vivid had not infringed
upon certain of the Company patents relating to its backscatter technology. The
Company responded to Vivid's claim denying their allegations and
counter-claiming that Vivid infringed upon one or more of the Company's patents.
On May 12, 1997, Vivid filed a proposed Amended Complaint narrowing its claim
and seeking inter alia a declaratory judgment that Vivid had not infringed on
AS&E United States Patent number 5,253,283, entitled "Inspection Method and
Apparatus with Single Color Pixel Imaging." The Company denies Vivid's
assertions, and contends that Vivid's claims are without merit and that Vivid is
not entitled to the relief sought. The Company served Vivid with discovery
requests to which Vivid failed to respond. In September 1997, Vivid filed a
motion seeking a stay of discovery and a motion for a summary judgement. The
Company responded by seeking a denial or stay of Vivid's motion for summary
judgement until discovery could be completed. The Court denied the
42
<PAGE> 43
AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
Company's motion and declared that Vivid is not infringing on the patent. The
Company is currently appealing the Court's award of summary judgement and its
denial of discovery. The Company does not expect the outcome of this litigation
to have a material impact to its financial position or results of operations.
12. SUBSEQUENT EVENT
On April 15, 1998, the Company announced that its Board of Directors adopted a
Shareholders' Rights Plan (the Plan) and declared a dividend of one preferred
stock purchase right for each outstanding share of common stock. The dividend is
payable to all holders of record of shares of common stock as of the close of
business on April 17, 1998. The rights become exercisable ten days after a
person or group acquires 15% or more of the Company's common stock, and in
certain other situations described in the Plan.
43
<PAGE> 44
AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
UNAUDITED QUARTERLY CONSOLIDATED FINANCIAL DATA
FOR THE YEARS ENDED MARCH 31, 1998 AND MARCH 28, 1997
Dollars in thousands, except per share amounts
<TABLE>
<CAPTION>
1998 BY QUARTER 1997 BY QUARTER
--------------- ---------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
--- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales and
contract revenues $ 7,532 $ 8,705 $ 7,900 $ 8,562 $ 6,699 $ 6,685 $ 7,127 $ 7,968
Gross profit 2,750 3,521 3,208 3,404 2,091 2,356 2,832 2,777
Operating
income 616 677 756 553 398 463 515 584
Net income $ 610 $ 685 $ 751 $ 2,615(A) $ 406 $ 451 $ 503 $ 565
Net income per share
- Basic (Note 1) $ .13 $ .15 $ .16 $ .55 $ .09 $ .10 $ .11 $ .12
- Diluted (Note 1) .13 .14 .15 .52 .09 .09 .10 .12
</TABLE>
(A) Includes an adjustment of approximately $2.1 million recorded in the fourth
quarter of 1998 (Note 5) to recognize the tax benefit associated with
federal net operating loss carryforwards, and certain other deferred tax
assets.
44
<PAGE> 45
SCHEDULE II
AMERICAN SCIENCE AND ENGINEERING, INC. AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED MARCH 31, 1998, MARCH 28, 1997, AND MARCH 29, 1996
DESCRIPTION - ACCOUNTS RECEIVABLE
Dollars in thousands
<TABLE>
<CAPTION>
Balance at Charged to Deductions Balance
Beginning Costs and from at End
of Year Expenses Reserves of Year
------- -------- -------- -------
<S> <C> <C> <C> <C>
1998 $ 148 $ 0 $ 32 $ 116
1997 $ 179 $ 178 $ 209 $ 148
1996 $ 96 $ 200 $ 117 $ 179
</TABLE>
DESCRIPTION - ALLOWANCES FOR UNBILLED COST AND FEES
Dollars in thousands
<TABLE>
<CAPTION>
Balance at Charged to Deductions Balance
Beginning Costs and from at End
of Year Expenses Reserves of Year
------- -------- -------- -------
<S> <C> <C> <C> <C>
1998 $ 462 $ 200 $ 113 $ 549
1997 $ 97 $ 384 $ 19 $ 462
1996 $ 72 $ 25 $ -- $ 97
</TABLE>
45
<PAGE> 46
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.
AMERICAN SCIENCE AND ENGINEERING, INC.
DATED: July 1998
By /s/ Ralph S. Sheridan
--------------------------------
Ralph S. Sheridan, President
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:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
President
/s/ Ralph S. Sheridan and Director (Principal
- ------------------------------------- Executive Officer)
Ralph S. Sheridan 13 July 1998
Chief Financial Officer,
Treasurer and
/s/ Lee C. Steele Vice President, Finance 13 July 1998
- ------------------------------------- (Principal Financial Officer)
Lee C. Steele
13 July 1998
/s/ Joseph Moffa Controller
- ------------------------------------- (Principal Accounting Officer)
Joseph Moffa
/s/ Herman Feshbach Chairman of the Board
- ------------------------------------- of Directors
Herman Feshbach 13 July 1998
/s/ Al Gladen Director 13 July 1998
- -------------------------------------
Al Gladen
Director 13 July 1998
- -------------------------------------
Hamilton W. Helmer
/s/ Donald J. McCarren Director 13 July 1998
- -------------------------------------
Donald J. McCarren
/s/ William E. Odom Director 13 July 1998
- -------------------------------------
William E. Odom
/s/ Carl W. Vogt Director 13 July 1998
- -------------------------------------
Carl W. Vogt
</TABLE>
46
<PAGE> 47
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description of Exhibit (and Statement Page Number
Number of Incorporation by Reference, If Applicable) (If Filed)
- ------ --------------------------------------------- ----------
<S> <C> <C>
(3)(a) Restated Articles of Organization of the Company
(filed as an Exhibit to Company's Annual Report on
Form 10-K for the year ended September 30,
1967, and incorporated herein by reference)
(3)(b) Articles of Amendment to Restated Articles of Organization of Company
(filed as Exhibit 2(a)(ii)(B) to the Company's Registration Statement on Form
S-7, No. 2-56452, filed May 25, 1976, and incorporated herein by
reference)
(3)(c) Articles of Amendment to Restated Articles of Organization of Company
(filed as Exhibit 12 to the Company's Annual Report on Form 10-K for the
year ended March 31, 1976, and incorporated herein by reference)
(3)(d) By-laws of Company, as amended (filed as Exhibit 2(a)(iii) to Company's
Registration Statement on Form S-7, No. 2-56452, filed May 25, 1976, and
incorporated herein by reference)
(4) Shareholders Rights Plan (filed as Exhibit to the Company's filing on Form dated
, 1992 and incorporated herein by references)
(10)(a)(ii) Deferred Compensation Plan for Herman Feshbach (filed as Exhibit 20 to the
Company's Annual Report on Form 10-K for the year ended March 31, 1976,
and incorporated herein by reference)
(10)(a)(iv) Amendment to Deferred Compensation Plans for Ismael Escobar and Herman
Feshbach (filed as Exhibit 7 to the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1980, and incorporated herein by
reference)
(10)(a)(v) Deferred Compensation Plan for Marie Spaulding (filed as
Exhibit (10)(a)(v) to the Company's Annual Report on Form 10-K
for the year ended March 31, 1988, and incorporated herein by
reference)
(10)(b)(I) 1981 Incentive Stock Option Plan (filed as Exhibit (10)(b)(I)
to the Company's Annual Report on Form 10-K for the year ended
March 31, 1988, and incorporated herein by reference)
(10)(b)(iii) 1984 Incentive Stock Option Plan (filed as Exhibit (10)-3 to the Company's
Annual Report on Form 10-K for the year ended March 31, 1985, and
incorporated herein by reference)
(10)(b)(iv) Amendment 1 to 1981 Incentive Stock Option Plan (filed as Exhibit
(10)(b)(iv) to the Company's Annual Report on Form 10-K for the year ended
March 31, 1988, and incorporated herein by reference)
(10)(b)(v) Amendment 1 to 1984 Incentive Stock Option Plan (filed as
Exhibit (10)(b)(v) to the Company's Annual Report on Form 10-K
for the year ended March 31, 1988, and incorporated herein by
reference)
(10)(b)(vi) 1987 General Stock Option Plan (filed as an exhibit to the Company's current
report on Form 8-K for the month of October 1987, and incorporated herein
by reference)
(10)(b)(vii) Employment Agreement between the Company and Ralph S. Sheridan (dated
as of September 26, 1996 filed herewith) 49-55
</TABLE>
47
<PAGE> 48
<TABLE>
<CAPTION>
Exhibit Description of Exhibit (and Statement Page Number
Number of Incorporation by Reference, If Applicable) (If Filed)
- ------ --------------------------------------------- ----------
<S> <C> <C>
(10)(b)(viii) Loan and Security Agreement between the Company and Alfred
Gladen as Agent (with forms of Promissory Note and Stock
Purchase Warrants) (filed) as Exhibit 10(b)(vi) to the
Company's Annual Report on Form 10-K for the year ended March
31, 1995, and incorporated herein by reference)
(10)(b)(ix) 1996 Stock Plan For Non-Employee Directors (filed as Exhibit 99 to the
Company's Registration Statement on Form S-8, File No. 333-09257,
filed on July 31, 1996, and incorporated herein by reference)
(10)(b)(x) Executive Equity Incentive Plan (filed as Exhibit 99 to the Company's
Registration Statement on Form S-8, File No. 333-27929, filed on May 28,
1997 and incorporated herein by reference)
(10)(b)(xi) Reload Option Plan (filed as Exhibit (10)(b)(xi) to the
Company's Annual Report on Form 10-K for the year ended March
28, 1997 and incorporated herein by reference)
(10)(b)(xii) 1997 Non-Qualified Stock Option Plan (filed as Exhibit 99 to the Company's
Registration Statement on Form S-8, File No. 333-27927, filed on
May 28, 1997 and incorporated herein by reference)
(10)(b)(xiii) 1998 Non-Qualified Stock Option Plan, filed herewith 56-61
(10)(b)(xiv) Employment Agreement between the Company and Jeffrey A. Bernfeld
dated January 31, 1996, filed herewith 62-65
(10)(b)(xv) Employment Agreement between the Company and Dr. Joseph Callerame
dated May 6, 1998, filed herewith 66-68
(10)(b)(xvi) Employment Agreement between the Company and Alan H. Rutan
dated June 4, 1996, filed herewith 69-71
(10)(b)(xvii) Employment Agreement between the Company and Lee C. Steele
dated September 29, 1997, filed herewith 72-74
(10)(c)(i) Lease of Billerica property (filed as Exhibit 10(c) to the
Company's Annual Report on Form 10-K for the year ended March
31, 1995 and incorporated herein by reference)
(10)(c)(ii) Amendment to Lease of Billerica property (filed as to the
Company's Annual Report on Form 10-K for the year ended March
28, 1997 and incorporated herein by reference)
(22) Identification of Company's subsidiary, AS&E Radiography, Inc.,
incorporated in Massachusetts (filed as Exhibit (22) to Company's
Annual Report on Form 10-K for the year ended March 31, 1988,
and incorporated herein by reference)
(23) Consent of Independent Public Accountants 75
</TABLE>
48
<PAGE> 1
EXHIBIT (10)(b)(vii)
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.
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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)
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<PAGE> 3
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.
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 received 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:
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<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
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<PAGE> 5
employment hereunder for Cause by written notice to the Executive stating in
detail the reasons for such termination. 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
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<PAGE> 6
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.
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.
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<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/ Jeffrey Bernfeld
----------------------------------
Jeffrey Bernfeld, Vice President
/s/ Ralph S. Sheridan
----------------------------------
Ralph S. Sheridan
55
<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 $14.00 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.
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<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
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<PAGE> 10
date shall have been mutually agreed 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 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
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<PAGE> 11
a subsidiary) so long as the Optionee continues in the employ of the Company or
one of its subsidiaries.
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 or 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 descent 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.
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<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
<PAGE> 1
EXHIBIT (10)(b)(xiii)
AMERICAN SCIENCE AND ENGINEERING, INC.
1998 NON-QUALIFIED STOCK OPTION PLAN
SECTION I. PURPOSE OF THE PLAN.
The purposes of this American Science and Engineering, Inc. 1998
Non-Qualified Stock Option Plan (the "1998 Plan") are (i) to provide
long-term incentives and rewards to those key employees (the "Employee
Participants") of American Science and Engineering, Inc. (the "Corporation")
and its subsidiaries (if any), and any other persons (the "Non-employee
Participants") who are in a position to contribute to the long-term success
and growth of the Corporation and its subsidiaries, (ii) to assist the
Corporation in retaining and attracting executives and key employees with
requisite experience and ability, and (iii) to associate more closely the
interests of such executives and key employees with those of the
Corporation's stockholders.
SECTION II. DEFINITIONS.
"Common Stock" is the $.66 2/3 par value common stock of the
Corporation.
"Committee" is defined in Section III, paragraph (a).
"Corporation" is defined in Section I.
"Employee Participants" is defined in Section I.
"Fair Market Value" of any property is the value of the property as
reasonably determined by the Committee.
"1998 Plan" is defined in Section I.
"Non-employee Participants" is defined in Section I.
"Non-qualified Option" is a Stock Option which does not qualify as an
Incentive Stock Option or for which the Committee provides, in the
terms of such option and at the time such option is granted, that the
option shall not be treated as an Incentive Stock Option.
"Parent Corporation" has the meaning provided in Section 424(e) of the
Code.
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"Participants" are all persons who are either Employee Participants or
Non-employee Participants.
"Permanent and Total Disability" has the meaning provided in Section
22(e)(3) of the Code.
"Rule 16b-3" means Securities and Exchange Commission Rule 16b-3.
"Section 16" means Section 16 of the Securities Exchange Act of 1934,
as amended, or any similar or successor statute, and any rules,
regulations, or policies adopted or applied thereunder.
"Stock Options" are rights granted pursuant to this 1998 Plan to
purchase shares of Common Stock at a fixed price.
"Subsidiary Corporation" has the meaning provided in Section 424(f) of
the Code.
SECTION III. ADMINISTRATION.
(a) The Committee. This 1998 Plan shall be administered by the Board of
Directors or by a compensation committee consisting solely of two or more
"non-employee directors", as defined in Rule 16b-3, who shall be designated by
the Board of Directors of the Corporation (the administering body is hereafter
referred to as the "Committee"). The Committee shall serve at the pleasure of
the Board of Directors, which may from time to time, and in its sole discretion,
discharge any member, appoint additional new members in substitution for those
previously appointed and/or fill vacancies however caused. A majority of the
Committee shall constitute a quorum and the acts of a majority of the members
present at any meeting at which a quorum is present shall be deemed the action
of the Committee. No person shall be eligible to be a member of the Committee if
that person's membership would prevent the plan from complying with Section 16,
if applicable to the Corporation.
(b) Authority and Discretion of the Committee. Subject to the express
provisions of this 1998 Plan and provided that all actions taken shall be
consistent with the purposes of this 1998 Plan, and subject to ratification by
the Board of Directors only if required by applicable law, the Committee shall
have full and complete authority and the sole discretion to: (i) determine those
persons who shall constitute key employees eligible to be Employee Participants;
(ii) select the Participants to whom Stock Options shall be granted under this
1998 Plan; (iii) determine the size and the form of the Stock Options, if any,
to be granted to any Participant; (iv) determine the time or times such Stock
Options shall be granted including the grant of Stock Options in connection with
other awards made, or compensation paid, to the Participant; (v) estab-
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lish the terms and conditions upon which such Stock Options may be exercised
and/or transferred, including the exercise of Stock Options in connection with
other awards made, or compensation paid, to the Participant; (vi) make or alter
any restrictions and conditions upon such Stock Options and the Stock received
on exercise thereof, including, but not limited to, providing for limitations on
the Participant's right to keep any Stock received on termination of
employment; (vii) determine whether the Participant or the Corporation has
achieved any goals or otherwise satisfied any conditions or requirements that
may be imposed on or related to the exercise of Stock Options; and (viii) adopt
such rules and regulations, establish, define and/or interpret these and any
other terms and conditions, and make all determinations (which may be on a
case-by-case basis) deemed necessary or desirable for the administration of this
1998 Plan.
(c) Applicable Law. This 1998 Plan and all Stock Options shall be governed
by the law of the state in which the Corporation is incorporated.
SECTION IV. TERMS OF STOCK OPTIONS.
(a) Agreements. Stock Options shall be evidenced by a written agreement
between the Corporation and the Participant awarded the Stock Option. This
agreement shall be in such form, and contain such terms and conditions (not
inconsistent with this 1998 Plan) as the Committee may determine. The agreement
shall include the following or a similar statement: "This stock option is not
intended to be an Incentive Stock Option, as that term is described in Section
422 of the Internal Revenue Code of 1986, as amended."
(b) Term. Stock Options shall be for such periods as may be determined by
the Committee.
(c) Purchase Price. The purchase price of shares purchased pursuant to any
Stock Option shall be determined by the Committee, and shall be paid by the
Participant or other person permitted to exercise the Stock Option in full upon
exercise, (i) in cash, (ii) by delivery of shares of Common Stock (valued at
their Fair Market Value on the date of such exercise), (iii) any other property
(valued at its Fair Market Value on the date of such exercise), or (iv) any
combination of cash, stock and other property, with any payment made pursuant to
subparagraphs (ii), (iii) or (iv) only as permitted by the Committee, in its
sole discretion. In no event will the purchase price of Common Stock be less
than the par value of the Common Stock.
(d) Restrictions. At the discretion of the Committee, the Common Stock
issued pursuant to the Stock Options granted hereunder may be subject to
restrictions on vesting or transferability. For the purposes of this limitation,
options shall be taken into account in the order granted.
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(e) Withholding of Taxes. Pursuant to applicable federal, state, local or
foreign laws, the Corporation may be required to collect income or other taxes
upon the grant of a Stock Option to, or exercise of a Stock Option by, a holder.
The Corporation may require, as a condition to the exercise of a Stock Option,
or demand, at such other time as it may consider appropriate, that the
Participant pay the Corporation the amount of any taxes which the Corporation
may determine is required to be withheld or collected, and the Participant shall
comply with the requirement or demand of the Corporation. In its discretion, the
Corporation may withhold shares to be received upon exercise of a Stock Option
if it deems this an appropriate method for withholding or collecting taxes.
(f) Securities Law Compliance. Upon exercise (or partial exercise) of a
Stock Option, the Participant or other holder of the Stock Option shall make
such representations and furnish such information as may, in the opinion of
counsel for the Corporation, be appropriate to permit the Corporation to issue
or transfer Stock in compliance with the provisions of applicable federal or
state securities laws. The Corporation, in its discretion, may postpone the
issuance and delivery of Stock upon any exercise of this Option until completion
of such registration or other qualification of such shares under any federal or
state laws, or stock exchange listing, as the Corporation may consider
appropriate. Furthermore, the Corporation is not obligated to register or
qualify the shares of Common Stock to be issued upon exercise of a Stock Option
under federal or state securities laws (or to register or qualify them at any
time thereafter), and it may refuse to issue such shares if, in its sole
discretion, registration or exemption from registration is not practical or
available. The Corporation may require that prior to the issuance or transfer of
Stock upon exercise of a Stock Option, the Participant enter into a written
agreement to comply with any restrictions on subsequent disposition that the
Corporation deems necessary or advisable under any applicable federal and state
securities laws. Certificates of Stock issued hereunder shall bear a legend
reflecting such restrictions.
(g) Right to Stock Option. No employee of the Corporation or any other
person shall have any claim or right to be a participant in this 1998 Plan or to
be granted a Stock Option hereunder. Neither this 1998 Plan nor any action taken
hereunder shall be construed as giving any person any right to be retained in
the employ of the Corporation. Nothing contained hereunder shall be construed
as giving any person any equity or interest of any kind in any assets of the
Corporation or creating a trust of any kind or a fiduciary relationship of any
kind between the Corporation and any such person. As to any claim for any unpaid
amounts under this 1998 Plan, any person having a claim for payments shall be an
unsecured creditor.
(h) Indemnity. Neither the Board of Directors nor the Committee, nor any
members of either, nor any employees of the Corporation or any parent,
subsidiary, or other affiliate, shall be liable for any act, omission,
interpretation, construction or determination made in good faith in connection
with their responsibilities with respect to this 1998 Plan, and the Corporation
hereby
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agrees to indemnify the members of the Board of Directors, the members of
the Committee, and the employees of the Corporation and its parent or
subsidiaries in respect of any claim, loss, damage, or expense (including
reasonable counsel fees) arising from any such act, omission, interpretation,
construction or determination to the full extent permitted by law.
(i) Participation by Foreigners. Without amending this 1998 Plan, the
Committee may modify grants made to participants who are foreign nationals or
employed outside the United States so as to recognize differences in local law,
tax policy, or custom.
SECTION V. AMENDMENT AND TERMINATION: ADJUSTMENTS UPON CHANGES IN STOCK.
The Board of Directors of the Corporation may at any time, and from time to
time, amend, suspend or terminate this 1998 Plan or any portion thereof,
provided that no amendment shall be made without approval of the Corporation's
stockholders if such approval is necessary to comply with any applicable rules
or regulations of the Securities and Exchange Commission, including Rule 16b-3
(or any successor rule thereunder), or the rules and regulations of any exchange
or stock market on which the Corporation's securities are listed or quoted.
Except as provided herein, no amendment, suspension or termination of this 1998
Plan may affect the rights of a Participant to whom a Stock Option has been
granted without such Participant's consent. If there shall be any change in the
Common Stock or to any Stock Option granted under this 1998 Plan through merger,
consolidation, reorganization, recapitalization, stock dividend, stock split or
other change in the corporate structure of the Corporation, appropriate
adjustments may be made by the Committee (or if the Corporation is not the
surviving corporation in any such transaction, the Board of Directors of the
surviving corporation, or its designee) in the aggregate number and kind of
shares subject to this 1998 Plan, and the number and kind of shares and the
price per share subject to outstanding options. In connection with the
foregoing, the Committee may issue new Stock Options in exchange for outstanding
Stock Options.
SECTION VI. SHARES OF STOCK SUBJECT TO THE PLAN.
The number of shares of Common Stock that may be the subject of awards
under this 1998 Plan shall not exceed an aggregate of 300,000 shares. Shares to
be delivered under this 1998 Plan may be either authorized but unissued shares
of Common Stock or treasury shares. Any shares subject to an option hereunder
which for any reason terminates, is cancelled or otherwise expires unexercised,
and any shares reacquired by the Corporation due to restrictions imposed on the
shares, shares returned because payment is made hereunder in stock of equivalent
value rather than in cash, and/or shares reacquired from a recipient for any
other reason shall, at such time, no longer count towards the aggregate number
of shares which have been the subject of Stock Options issued hereunder, and
such number of shares shall be subject to further awards under this 1998 Plan,
provided, first, that the total number of shares then eligible for award under
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this 1998 Plan may not exceed the total specified in the first sentence of this
Section VI, and second, that the number of shares subject to further awards
shall not be increased in any way that would cause this 1998 Plan or any Stock
Option to not comply with Section 16, if applicable to the Corporation.
SECTION VII. EFFECTIVE DATE AND TERM OF THIS PLAN.
The effective date of this 1998 Plan is 1998 (the "Effective
Date") and awards under this 1998 Plan may be made for a period of ten years
commencing on the Effective Date. The period during which a Stock Option may be
exercised may extend beyond that time as provided herein.
DATE OF APPROVAL BY STOCKHOLDERS: N/A
DATE OF APPROVAL BY BOARD OF DIRECTORS: , 1998
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Exhibit (10)(b)(xiv)
EMPLOYMENT AGREEMENT
This Agreement is made as of January 31, 1996 by and between American Science
and Engineering, Inc. (the "Company"), a Massachusetts corporation having its
principal place of business in Billerica, Massachusetts, and Jeffrey A. Bernfeld
(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.
Accordingly, the Company and the Executive agree as follows:
1. The Company agrees to hire the Executive as, and the Executive agrees to
accept and perform the duties of, Vice President, General Counsel and Clerk of
the Company. Management will recommend to the Board of Directors of the Company
that Executive be elected to the positions at the next meeting of the Board.
2. The Executive will initially receive a Base Salary at the annual rate of
$120,000, payable not less frequently than monthly. The Executive's Base Salary
may be increased at the discretion of the President.
3. The Executive will participate in the Company's Compensation Plan for
Senior Management and will initially be eligible for an annual cash bonus of up
to $20,000, assuming that the Executive achieves his individual goals and the
Company achieves its target for pre-tax earnings. The President of the Company,
in consultation with the Executive, will establish individual goals for the
Executive promptly after the initiation of his employment at the Company. Goals
will relate to accomplishments during the first six months, and new goals will
be established every six months thereafter. This bonus will be distributed on an
annual basis. If the Company exceeds its pre-established target(s) by a defined
amount, the Executive's bonus may be up to 33% higher.
4. The Company hereby agrees to grant the Executive stock options entitling
him to purchase up to 24,000 shares of the company's stock. These will be
non-qualified stock options, vesting at the rate of 6,000 shares on the
Executive's first day as an employee of the Company and then 6,000 shares at the
end of each of the first three years of employment. The price of the options
will be the market close price on the American Stock Exchange on the Executive's
first day of employment.
5. The Executive will be eligible to participate in the Company's full
corporate officer benefit package, including reduced-contribution full medical
and dental coverage and company-paid life insurance at four times his base
salary.
6. The Executive will be eligible for company-paid vacation according to
established policy at the rate of not less than three weeks per year.
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<PAGE> 2
7. (a) The term of the Executive's employment shall be from March 1, 1996,
through February 28, 1999. The Company may terminate the Executive prior to
February 28, 1999 only for Cause (as defined below).
(b) For the purposes of this Agreement, "Cause" shall mean: (i) the
determination by the President of the Company, in agreement with the Board of
Directors, that the Executive has failed to perform his duties in the course of
his employment under this Agreement as expressly instructed by the
President/CEO; or (ii) the final 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.
8. (a) Notwithstanding the provisions hereof permitting termination of the
Executive in certain circumstances, the Company shall pay to the Executive the
"Severance Payment" in the event that the Executive is terminated by the Company
within thirty (30) days prior to or twelve (12) months after the occurrence of a
"Change of Control," as defined below. The Severance Payment shall be made at
the time of such termination.
(b) The "Severance Payment" shall be a one-time payment equal to the higher
of: (i) the annual rate of the Executive's base salary in effect one month prior
to the occurrence of the Change of Control, or (ii) the annual rate of the
Executive's base salary in effect at the time of such termination. The Severance
Payment shall also include the continuation of all benefits received by the
Executive prior to termination for a period equal to the lesser of one year or
the start of employment by the Executive, in which he receives substantially
similar benefits.
(c) A "Change of Control" shall be deemed to have occurred if:
(i) any person (as defined in Section 13(d) or 14(d)(2) of the Securities
Exchange Act of 1934) 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 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 the date of this Agreement and any person
nominated for election to the Board of Directors of the Company by a vote
of the 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: (A) 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); (B) 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
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<PAGE> 3
assets of the Company determined on a consolidated basis or the aggregate
market value of all the outstanding stock of the Company immediately prior
to the transaction; or (C) a tender or exchange offer for 50% or more of
the outstanding voting stock of the Company.
9. If the Executive is terminated for any reason other than Cause or in
connection with a Change of Control ("Termination for Convenience") the
Executive shall receive an amount equal to the greater of the amount that would
be due under the Company's then-current severance policy, if any, or six months
of his then-current Base Pay, payable on the last date of his employment. In
case of Termination for Convenience, the Executive shall be entitled to a
continuation of all benefits for the lesser of six (6) months from the date of
termination, or until the date in which the Executive begins employment in which
he receives substantially similar benefits. If the Executive is Terminated for
Convenience within twelve (12) months of a change in the Company's
President/CEO, the Executive shall be entitled to receive the severance Payment
described in Paragraph 8(b).
10. The Company may not assign all or any part of its obligations 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.
11. This Agreement contains the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior oral and written
agreements, understandings and commitments between the parties relating to this
Agreement. Notwithstanding the foregoing, the Executive shall at all times
remain subject to all policies and procedures of the Company that relate to
employees of the Company, except to the extent that this Agreement contains
terms or provisions that are contrary to such policies and procedures. No
amendment to this Agreement shall be made except by a written instrument signed
by both parties.
12. 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.
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<PAGE> 4
By:
--------------------------------------
Ralph S. Sheridan, President
--------------------------------------
Jeffrey A. Bernfeld
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<PAGE> 1
Exhibit (10)(b)(xv)
EMPLOYMENT AGREEMENT
This Agreement is made as of ---, 1998 by and between American Science and
Engineering, Inc. (the "Company"), a Massachusetts corporation having its
principal place of business in Billerica, Massachusetts, and Joseph Callerame,
of Lexington, MA (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.
Accordingly, the Company and the Executive agree as follows:
1. The Company agrees to hire the Executive as, and the Executive agrees to
accept and perform the duties of, Vice President, Technology and Chief Technical
Officer of the Company. Management will recommend to the Board of Directors of
the Company that Executive be elected to the positions at the next meeting of
the Board.
2. (a) The Company shall pay to the Executive the "Severance Payment" in the
event that the Executive is terminated by the Company within sixty (60) days
prior to or twelve (12) months after the occurrence of a "Change of Control," as
defined below. The Severance Payment shall be made at the time of such
termination.
(b) The "Severance Payment" shall be a one-time payment equal to the higher
of: (I) the annual rate of the Executive's base salary in effect one month prior
to the occurrence of the Change of Control, or (ii) the annual rate of the
Executive's base salary in effect at the time of such termination. The Severance
Payment shall also include the continuation of all benefits received by the
Executive prior to termination for a period equal to the lesser of one year or
the start of new employment by the Executive in which he receives substantially
similar benefits.
(c) A "Change of Control" shall be deemed to have occurred if:
(I) any person (as defined in Section 13(d) or 14(d)(2) of the Securities
Exchange Act of 1934) 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 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 members of the Board of
Directors of the Company as of the date of this Agreement and any person
nominated for election to the Board of Directors of the Company by a vote
of the majority of the then Continuing Directors;
(iii) the stockholders approve the complete liquidation or dissolution of
the Company, or
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<PAGE> 2
(iv) the stockholders approve by the requisite vote any of the following
transactions: (A) 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); (B) 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 the 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 immediately prior to the transaction; or (C) a tender or exchange
offer for 50% or more of the outstanding voting stock of the Company.
3. (a) If the Executive is terminated for any reason other than (I) Cause (as
defined below); or (ii) pursuant to Paragraph 2 ("Termination for Convenience")
the Executive shall receive an amount equal to the greater of the amount that
would be due under the Company's then-current severance policy, if any, or six
months of his then-current Base Pay, payable, at the Company's option, on the
last date of his employment or in weekly installments. In case of Termination
for Convenience, the Executive shall be entitled to a continuation of all
benefits being received by him at the time of termination for the lesser of six
(6) months from the date of termination, or until the date in which the
Executive begins new employment in which he receives substantially similar
benefits. If the Executive is Terminated for Convenience within twelve (12)
months of a change in the Company's President/CEO, the Executive shall be
entitled to receive the Severance Payment described in Paragraph 2(b) in place
of the benefits described in this Paragraph 3.
(b) For the purposes of this Agreement, "Cause" shall mean: (I) the
determination by the President of the Company, in agreement with the Board of
Directors, that the Executive has willfully failed to perform his duties in the
course of his employment under this Agreement consistent with those of a Vice
President of Technology and Chief Technical Officer as expressly instructed by
the President/CEO; or (ii) the final 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.
4. The Company may not assign all or any part of its obligations under this
Agreement, except to a successor as provided for in this paragraph. 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.
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<PAGE> 3
5. This Agreement contains the entire agreement between the parties with respect
to the subject matter hereof and supersedes all prior oral and written
agreements, understandings and commitments between the parties relating to this
Agreement. Notwithstanding the foregoing, the Executive shall at all times
remain subject to all policies and procedures of the Company that relate to
employees of the Company, except to the extent that this Agreement contains
terms or provisions that are contrary to or provides greater benefits than such
policies and procedures, in which case this Agreement shall control. No
amendment to this Agreement shall be made except by a written instrument signed
by both parties.
6. 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:
---------------------------------------
Ralph S. Sheridan, President
---------------------------------------
Joseph Callerame
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<PAGE> 1
Exhibit (10)(b)(xvi)
EMPLOYMENT AGREEMENT
This Agreement is made as of June 4, 1996 by and between American Science and
Engineering, Inc. (the "Company"), a Massachusetts corporation having its
principal place of business in Billerica, Massachusetts, and Alan H. Rutan, of
Westwood, MA (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.
Accordingly, the Company and the Executive agree as follows:
1. The Company agrees to hire the Executive as, and the Executive agrees to
accept and perform the duties of, Vice President, Engineering of the Company.
Management will recommend to the Board of Directors of the Company that
Executive be elected to the positions at the next meeting of the Board.
2. (a) The Company shall pay to the Executive the "Severance Payment" in the
event that the Executive is terminated by the Company within sixty (60) days
prior to or twelve (12) months after the occurrence of a "Change of Control," as
defined below. The Severance Payment shall be made at the time of such
termination.
(b) The "Severance Payment" shall be a one-time payment equal to the higher
of: (i) the annual rate of the Executive's base salary in effect one month prior
to the occurrence of the Change of Control, or (ii) the annual rate of the
Executive's base salary in effect at the time of such termination. The Severance
Payment shall also include the continuation of all benefits received by the
Executive prior to termination for a period equal to the lesser of one year or
the start of new employment by the Executive in which he receives substantially
similar benefits.
(c) A "Change of Control" shall be deemed to have occurred if:
(i) any person (as defined in Section 13(d) or 14(d)(2) of the Securities
Exchange Act of 1934) 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 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 the date of this Agreement and any person
nominated for election to the Board of Directors of the Company by a vote
of the majority of the then Continuing Directors;
(iii) the stockholders approve the complete liquidation or dissolution of
the Company, or
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<PAGE> 2
(iv) the stockholders approve by the requisite vote any of the following
transactions: (A) 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); (B) 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 the 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 immediately prior to the transaction; or (C) a tender or exchange
offer for 50% or more of the outstanding voting stock of the Company.
3. (a) If the Executive is terminated for any reason other than (i) Cause (as
defined below); or (ii) pursuant to Paragraph 2 ("Termination for Convenience")
the Executive shall receive an amount equal to the greater of the amount that
would be due under the Company's then-current severance policy, if any, or six
months of his then-current Base Pay, payable on the last date of his employment.
In case of Termination for Convenience, the Executive shall be entitled to a
continuation of all benefits being received by him at the time of termination
for the lesser of six (6) months from the date of termination, or until the date
in which the Executive begins new employment in which he receives substantially
similar benefits. If the Executive is Terminated for Convenience within twelve
(12) months of a change in the Company's President/CEO, the Executive shall be
entitled to receive the Severance Payment described in Paragraph 2(b) in place
of the benefits described in this Paragraph 3.
(b) For the purposes of this Agreement, "Cause" shall mean: (i) the
determination by the President of the Company, in agreement with the Board of
Directors, that the Executive has willfully failed to perform his duties in the
course of his employment under this Agreement consistent with those of a Vice
President of Engineering as expressly instructed by the President/CEO; or (ii)
the final 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.
4. The Company may not assign all or any part of its obligations 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.
5. This Agreement contains the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior oral and written
agreements, understandings and commitments between the parties relating to this
Agreement. Notwithstanding the foregoing, the Executive shall at all times
remain subject to all policies and procedures of the Company that
70
<PAGE> 3
relate to employees of the Company, except to the extent that this Agreement
contains terms or provisions that are contrary to or provides greater benefits
than such policies and procedures, in which case this Agreement shall control.
No amendment to this Agreement shall be made except by a written instrument
signed by both parties.
6. 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:
--------------------------------------
Ralph S. Sheridan, President
--------------------------------------
Alan H. Rutan
71
<PAGE> 1
Exhibit (10)(b)(xvii)
EMPLOYMENT AGREEMENT
This Agreement is made as of July 10, 1998 by and between American Science and
Engineering, Inc. (the "Company"), a Massachusetts corporation having its
principal place of business in Billerica, Massachusetts, and Lee C. Steele, of
Boston, Massachusetts (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.
Accordingly, the Company and the Executive agree as follows:
1. The Company agrees to continue the employment of the Executive as, and the
Executive agrees to continue to perform the duties of, Vice President, Finance
and Chief Financial Officer of the Company.
2. (a) The Company shall pay to the Executive the "Severance Payment" in the
event that the Executive is terminated by the Company within sixty (60) days
prior to or twelve (12) months after the occurrence of a "Change of Control," as
defined below. The Severance Payment shall be made at the time of such
termination.
(b) The "Severance Payment" shall be a one-time payment equal to the higher
of: (i) the annual rate of the Executive's base salary in effect one month prior
to the occurrence of the Change of Control, or (ii) the annual rate of the
Executive's base salary in effect at the time of such termination. The Severance
Payment shall also include the continuation of all benefits received by the
Executive prior to termination for a period equal to the lesser of one year or
the start of new employment by the Executive in which he receives substantially
similar benefits.
(c) A "Change of Control" shall be deemed to have occurred if:
(i) any person (as defined in Section 13(d) or 14(d)(2) of the Securities
Exchange Act of 1934) 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 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 the date of this Agreement and any person
nominated for election to the Board of Directors of the Company by a vote
of the 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: (A) 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); (B) 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
72
<PAGE> 2
any direct or indirect wholly-owned subsidiary or to the Company) having an
aggregate market value equal to 50% or more of either the 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 immediately prior to the transaction; or (C) a tender or exchange
offer for 50% or more of the outstanding voting stock of the Company.
3. (a) If the Executive is terminated for any reason other than (i) Cause (as
defined below); or (ii) pursuant to Paragraph 2 ("Termination for Convenience")
the Executive shall receive an amount equal to the greater of the amount that
would be due under the Company's then-current severance policy, if any, or six
months of his then-current Base Pay, payable at the Company's option, on the
last date of his employment or in weekly installments. In case of Termination
for Convenience, the Executive shall be entitled to a continuation of all
benefits being received by him at the time of termination for the lesser of six
(6) months from the date of termination, or until the date in which the
Executive begins new employment in which he receives substantially similar
benefits. If the Executive is Terminated for Convenience within twelve (12)
months of a change in the Company's President/CEO, the Executive shall be
entitled to receive the Severance Payment described in Paragraph 2(b) in place
of the benefits described in this Paragraph 3.
(b) For the purposes of this Agreement, "Cause" shall mean: (i) the
determination by the President of the Company, in agreement with the Board of
Directors, that the Executive has willfully failed to perform his duties in the
course of his employment under this Agreement consistent with those of a Vice
President of Finance and Chief Financial Officer as expressly instructed by the
President/CEO; or (ii) the final 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.
4. The Company may not assign all or any part of its obligations under this
Agreement except to a successor as provided for in this paragraph. 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.
5. This Agreement contains the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior oral and written
agreements, understandings and commitments between the parties relating to this
Agreement. Notwithstanding the foregoing, the Executive shall at all times
remain subject to all policies and procedures of the Company that relate to
employees of the Company, except to the extent that this Agreement contains
terms or provisions that are contrary to or provides greater benefits than such
policies and procedures, in
73
<PAGE> 3
which case this Agreement shall control. No amendment to this Agreement shall be
made except by a written instrument signed by both parties.
6. 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:
-------------------------------------
Ralph S. Sheridan, President
------------------------------------
Lee C. Steele
74
<PAGE> 1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS Exhibit 23
As independent public accountants, we hereby consent to the incorporation by
reference in Registration Statement Nos. 33-61903, 333-05795, 333-05797,
333-09257, 333-13259, 333-27927, and 333-27929 of our report dated May 14, 1998
included in this Form 10-K for the year ended March 31, 1998.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
July 13, 1998
75
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF AMERICAN SCIENCE AND ENGINEERING,
INC. FOR THE YEAR ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US$
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 2,290
<SECURITIES> 0
<RECEIVABLES> 6,955
<ALLOWANCES> 0
<INVENTORY> 8,737
<CURRENT-ASSETS> 23,912
<PP&E> 1,852
<DEPRECIATION> 9,394
<TOTAL-ASSETS> 25,993
<CURRENT-LIABILITIES> 9,221
<BONDS> 0
0
0
<COMMON> 3,162
<OTHER-SE> 12,922
<TOTAL-LIABILITY-AND-EQUITY> 25,993
<SALES> 32,699
<TOTAL-REVENUES> 32,699
<CGS> 19,816
<TOTAL-COSTS> 30,097
<OTHER-EXPENSES> 96
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,698
<INCOME-TAX> (1,963)
<INCOME-CONTINUING> 4,661
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,661
<EPS-PRIMARY> 1.00
<EPS-DILUTED> 0.95
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