1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K405
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended June 30, 1995
Commission file number 0-12944
Zygo Corporation
(Exact name of registrant as specified in its charter)
Delaware 06-0864500
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
Laurel Brook Road, Middlefield, Connecticut 06455
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 347-8506
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
-------------------
Common Stock, $.10 Par Value
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-K405 or any amendment to
this Form 10-K405. [X]
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant.* The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing.
Aggregate market value at August 31, 1995, was $41,238,450
*Solely for purposes of this calculation affiliates of the registrant have been
deemed to include only Canon, Inc., Wesleyan University, the directors and
executive officers of the registrant, and members of their immediate families
living in their homes.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
3,933,136 Shares of Common Stock, $.10 Par Value, at August 31, 1995
The following documents are incorporated by reference in this Form 10-K405.
Part of the
Document Form 10-K405
-------- ------------
1995 Annual Report - (Specified Portions) Parts I and II
Proxy Statement to be used in connection with the
Registrant's 1995 Annual Meeting of Stockholders -
(Specified Portions) Part III
<PAGE>
2
PART I
Item 1. Business
THE COMPANY
Zygo Corporation (the "Company" or "Zygo"), which was founded in 1970,
designs develops, manufactures, and markets high-performance noncontact
electro-optical measuring instruments and accessories, and manufactures optical
components to precise tolerances both for sale and for use as key elements in
its own products. The Company operates in a single business segment,
electro-optics, and offers products which fall into two general categories: (1)
instruments and accessories and (2) precision optical components. The Company's
business strategy is to select market segments which it believes have
significant growth potential and in which Zygo can reasonably expect to become a
leading manufacturer; to achieve and maintain a leadership position by using
distinctive technologies to provide products offering high performance and
quality; and to maintain its position through customer-specific
applications-oriented engineering and marketing. The Company dedicates
substantial resources to research and product development to enable it to
compete effectively in its market areas.
The Company markets and sells its products worldwide through a direct
sales force and through independent distributors and sales representatives. The
Company's products are sold to a broad range of end users, including major
corporations and government facilities. Zygo competes on the basis of product
performance, applications engineering, customer support, reputation, and price.
Almost all of the Company's instruments and accessories have the common
characteristic that they employ a laser or white light source to make noncontact
measurements. Using light to achieve measurements requires specific techniques.
A primary technique used in many of the Company's instruments is the
interference of light. There are a number of different generic instruments based
on interference of light and therefore called interferometers. These
interferometers are used to measure the surface shape, surface roughness or
distance and position of an object or to provide information about the object's
effect upon light transmitted through it.
One type or class of interferometric measurement instruments is used by
companies and laboratories to measure, align, and inspect optics and optical
assemblies. In industries which make or use ultra-precision parts, such as the
electronics industry, such measurement products are used to inspect read/write
heads, to assemble CD laser pickups, and to examine recording media. To be able
to measure parts of various shapes and sizes, it is necessary to offer
instruments of various apertures ranging from an instrument with a beam size of
almost a meter to an instrument which is effectively a microscope. Zygo has a
significant share of the market for such measurement products. Zygo has a number
of competitors, with WYKO Corporation (Tucson, Arizona) being the most
significant one.
Another type of interferometer is a distance measuring interferometer
system (DMI) which precisely measures linear and angular displacements. There
are important and expanding applications for such instrumentation. One is for
accurately measuring and controlling -- while they are in motion -- the X, Y,
and theta stages in microlithography equipment that is used in making
semiconductors and flat-panel video displays. Another is for precisely
positioning the write heads of servo track writers used to manufacture hard
disks for computers. Zygo's DMI products compete primarily with those of
Hewlett-Packard, which, it is estimated, is presently the market leader for such
products.
<PAGE>
3
Optical components are custom optics manufactured to customers' designs
and specifications. Zygo's fabrication capabilities include ultra-precision
plano, spherical, and precision machining of complex structural shapes. Optical
components are sold principally on a competitive bid basis and competition is
intense. However, the Company competes primarily in the market for extremely
high-precision optical components where reliability, quality, and technical
performance are the key criteria in the customer's purchase decision, and where
price may be a secondary factor. This industry consists of many optical
fabricators with which the Company competes, including Eastman Kodak Co., Bond
Optics, Inc., General Optics, Inc., and Continental Optics.
The following table shows the past three years of relative
contributions of instruments and accessories and precision optical components to
consolidated sales.
Percentage of Consolidated Sales
Year ended June 30, 1995 1994 1993
-----------------------------------------------------------------------------
Instruments and Accessories 84% 78% 73%
Precision Optical Components 16 22 27
-----------------------------------------------------------------------------
Total 100% 100% 100%
=============================================================================
PRINCIPAL CUSTOMERS AND OPERATIONS BY GEOGRAPHIC AREA
Information regarding the principal customers of the Company and
operations by geographic area for the years ended June 30, 1995, 1994, and 1993,
is included in note 10 of Notes to Consolidated Financial Statements on page 20
of the Company's 1995 Annual Report, which note is incorporated herein by
reference.
Export sales constituted approximately 46%, 46%, and 38% of total net
sales for fiscal years 1995, 1994, and 1993, respectively. The majority of
export sales have been in Japan, Western Europe, and the Pacific Rim. Canon
Sales Co., Inc., a subsidiary of Canon Inc. (a major stockholder of the
Company), is Zygo's exclusive distributor for sales in Japan. Sales to Canon
Inc. and to Canon Sales Co., Inc. accounted for approximately 30%, 32%, and 20%
of total Company net sales in fiscal years 1995, 1994, and 1993, respectively.
In fiscal 1995 a leading manufacturer of computer disk drives and related
hardware and software accounted for approximately 17% of the Company's net
sales. In fiscal 1993 sales to the University of Rochester of precision optical
components accounted for approximately 12% of the Company's net sales.
BACKLOG
The Company's backlog at June 30, 1995, and 1994, was approximately
$12.9 million and $3.8 million, respectively. The significant increase from the
prior year end resulted primarily from strong demand for the Company's
instrument products, particularly its distance measuring interferometers used in
motion control applications primarily in the semiconductor industry, and the
Company's microscope products used in many applications in the disk drive
industry, in particular the Company's Automated Air Bearing analysis system
which provides fully automated quantified measurement and analysis of read-write
heads. Substantially all of the backlog as of June 30, 1995, is expected to be
shipped in fiscal year 1996. Historically, cancellation or reduction of orders
has not had a significant impact on the Company's results of operations.
<PAGE>
4
RESEARCH AND DEVELOPMENT COSTS
Information regarding the Company's research and development costs is
set forth in the Consolidated Statements of Earnings on page 14 of the Company's
1995 Annual Report, which statements are herein incorporated by reference. The
Company operates in an industry that is subject to rapid technological change
and engineering innovation. Because the Company believes that its ability to
compete effectively in its markets depends in part on maintaining its expertise
in applying new technologies and developing new products, the Company dedicates
substantial resources to research and development. During the second half of
fiscal 1995 the Company formed an R&D facility in Simi Valley, California, for
the purpose of developing test and measurement instruments for the disk drive
industry. The first such product development effort at the new facility is
focused on flying height testing. The Company plans to continue spending
approximately the same percentage of net sales for research and product
development as it did in the last half of fiscal 1995. Development costs
associated with applications engineering or customer paid development are
included in cost of goods sold, the majority of which relate to research and
development contracts with Canon Inc. (See Management's Discussion and Analysis
of Results of Operations and Financial Condition on page 10 of the Company's
1995 Annual Report, which information is incorporated herein by reference.)
PATENTS, LICENSES, TRADEMARKS,
AND PROPRIETARY INFORMATION
The Company seeks to obtain patents to protect novel features of its
products. The Company holds 48 United States patents and 9 foreign patents, and
has 7 United States patent applications and 9 foreign patent applications
pending. While these patents may enhance the Company's competitive position in
certain areas, management believes that the Company also depends upon trade
secrets, the innovative skills of its technical personnel, the quality of its
products, and its production and marketing skills to maintain its competitive
position. The Company believes that no part of its business is materially
dependent upon its patents. Zygo, the Zygo logo, and Maxim o3D are registered,
and the Company also holds several nonregistered trademarks including Maxim oGP,
NewView 100, Growth Potential Interferometer, GPI, and ZMI-1000.
RAW MATERIALS AND SOURCES OF SUPPLY
The Company's manufacturing operations are vertically integrated, with
limited reliance on outside vendors for critical parts or services. Most of the
components purchased for use in the Company's products are available from more
than one supplier. To date, the Company has not experienced a significant
production delay from a parts shortage or loss of a single-source component.
EMPLOYEES
At fiscal year end, the Company employed 210 men and women.
Item 2. Properties (land and facility owned)
Company's manufacturing and administrative facility -
Laurel Brook Road, Middlefield, Connecticut.
Land Area: Approximately 13 acres.
One building - steel frame, cement and concrete construction.
100,000 square feet. Condition excellent. Air conditioned;
wet sprinklered. Adequate parking.
The Company also owns 30 acres of undeveloped land adjacent to its
principal facility.
<PAGE>
5
Item 3. Legal Proceedings
On June 29, 1988, the Company filed suit in the U.S. District Court in
Arizona against WYKO Corporation for patent infringement based on the belief
that the WYKO 6000 interferometer infringed certain patents owned by Zygo. On
March 1, 1993, the United States District Court (District of Arizona) rendered a
Memorandum Opinion and Findings of Fact and Conclusions of Law in the matter of
the patent suit. The conclusions of the court were that Zygo's patent is valid,
the WYKO Model 6000 interferometer infringes the Zygo patent, that WYKO
Corporation is liable to Zygo Corporation for any damages suffered as a result
of WYKO's infringement of Zygo's patents by making, selling, and using the WYKO
Model 6000 interferometer, and that the amount of the monetary judgment and
other relief shall be determined following a trial on the issue of damages. The
damage phase trial was held from November 29, 1993, through December 6, 1993.
The Court rendered its judgment on June 2, 1994, awarding the Company $2,668,710
plus recovery of certain costs to be awarded by the Court which were incurred by
the Company in connection with the conduct of the trial and entered a permanent
injunction prohibiting further sales of the WYKO Model 6000 interferometers
found to infringe. An appeal of the District Court's decision was filed by WYKO
on August 9, 1994, with the Court of Appeals for the Federal Circuit located in
Washington, D.C. The oral argument of the appeal was heard by the Court of
Appeals on March 9, 1995. No ruling has been rendered by the Court of Appeals.
The Company has not recorded any gain from the District Court's ruling and will
not until a final determination of the award is made.
Item 4. Submission of Matters to a Vote of Security Holders
None
EXECUTIVE OFFICERS OF THE REGISTRANT
Gary K. Willis - age 50
President and Chief Executive Officer of the Company since August 1993; from
February 1992 until August 1993, President and Chief Operating Officer;
from October 1990 until January 1992, Independent Consultant; from January
1988 until September 1990, President, Chief Executive Officer and Chairman
of The Foxboro Company
Served as executive officer of the Company since February 1992
Mark J. Bonney - age 41
Vice President, Finance and Administration and Chief Financial Officer of the
Company since March 1993 and Treasurer of the Company since November 1993;
from October 1990 until February 1993, Vice President European Operations
and Managing Director, Dynapert Limited, a Black & Decker Company; from
December 1987 until October 1990, Vice President, Finance and
Administration, Dynapert Group, a Black & Decker company
Served as executive officer of the Company since March 1993
Carl A. Zanoni - age 54
Vice President, Research, Development and Engineering of the Company since April
1992; from February 1989 until March 1992, Vice President, Research and
Development, and Chief Scientist of the Company and, from June 1970 until
February 1989, Vice President, Engineering of the Company
Served as executive officer of the Company since its inception in 1970
Of the above executive officers, Mr. Willis and Mr. Zanoni are
directors of the Company. Under the By-laws, executive officers serve for a term
of one year and until their successors are chosen and qualified unless earlier
removed.
<PAGE>
6
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Information required by this item is included on page 23 (Stock Data)
and the inside back cover (Shareholder Information) of, and in note 1 on page 17
and note 6 on page 18 in the Notes to Consolidated Financial Statements included
in, the Company's 1995 Annual Report and is herein incorporated by reference.
The Company's common shares are traded over-the-counter and are quoted on the
NASDAQ/National Market. The number of stockholders of record at June 30, 1995,
was 509.
Item 6. Selected Financial Data
Information required by this item is included on page 9 (Five-Year
Summary) of the Company's 1995 Annual Report and is herein incorporated by
reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Information required by this item is included on pages 10 through 12
(Management's Discussion and Analysis of Results of Operations and Financial
Condition) of the Company's 1995 Annual Report and is herein incorporated by
reference.
Item 8. Financial Statements and Supplementary Data
Information required by this item is included on pages 13 through 22
(Consolidated Balance Sheets; Consolidated Statements of Earnings; Consolidated
Statements of Stockholders' Equity; Consolidated Statements of Cash Flows; Notes
to Consolidated Financial Statements; Report of Management; Report of
Independent Auditors; and Selected Consolidated Quarterly Financial Data) of the
Company's 1995 Annual Report and is herein incorporated by reference.
The consolidated financial schedules of Zygo Corporation and
Consolidated Subsidiary are filed as part of Item 14 of this Annual Report on
Form 10-K405.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Except for the information concerning executive officers which is set
forth in Part I of this report, information required by this item is included
under the captions "Election of Board of Directors" and "Other Agreements and
Other Matters" in the Proxy Statement to be filed pursuant to Regulation 14A for
use in connection with the Registrant's 1995 Annual Meeting of Stockholders
("the Proxy Statement") and is herein incorporated by reference.
Item 11. Executive Compensation
Information required by this item is included in the Proxy Statement
under the caption "Executive Compensation" and is herein incorporated by
reference.
<PAGE>
7
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information required by this item is included in the Proxy Statement
under the captions "Election of Board of Directors" and "Principal Stockholders"
and is herein incorporated by reference.
Item 13. Certain Relationships and Related Transactions
Information required by this item is included in the Proxy Statement
under the caption "Certain Relationships and Related Transactions" and is herein
incorporated by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. and 2. Financial Statements and Financial Statement Schedules:
An index to the financial statements and financial statement
schedules filed is located on page F-1.
3. EXHIBITS
3.(i) Restated Certificate of Incorporation of the Company and
amendments thereto (Exhibit 3.(i) to the Company's Annual
Report on Form 10-K for its year ended June 30, 1993)*
3.(ii) By-laws of the Company (Exhibit (3)(b) to Registration No.
2-87253 on Form S-1 hereinafter "Registration No. 2-87253")*
4.1 Shareholders Agreement dated October 17, 1983, between Canon
Inc., Wesleyan University, Paul F. Forman, Carl A. Zanoni, and
Sol F. Laufer (Exhibit (4)(a) to Registration No. 2-87253)*
4.2 Lease Agreement dated October 1, 1977, between the Connecticut
Development Authority and the Company (Exhibit (4)(b) to
Registration No. 2-87253)*
4.3 First Amendatory Lease Agreement to Lease Agreement dated
October 1, 1977, dated May 1, 1981, between the Connecticut
Development Authority and the Company (Exhibit (4)(c) to
Registration No. 2-87253)*
4.4 Amendment dated October 11, 1983, between The Connecticut Bank
and Trust Company and the Connecticut Development Authority
relating to certain of the Company's financial covenants
(Exhibit (4)(e) to Registration No. 2-87253)*
10.1 Confidentiality and Non-Competition Agreement dated October 25,
1983, between the Company and Carl A. Zanoni (Exhibit (10)(b)
to Registration No. 2-87253)*
10.2 Indenture of Mortgage and Trust dated October 1, 1977, between
the Connecticut Development Authority and The Connecticut Bank
and Trust Company (Exhibit (10)(h) to Registration No.
2-87253)*
*Incorporated herein by reference.
<PAGE>
8
10.3 First Supplemental Indenture to Indenture of Mortgage and
Trust, dated as of October 1, 1977, relating to Industrial
Development Bonds (Zygo Project--1977 Series) dated May 1,
1981, between the Connecticut Development Authority and The
Connecticut Bank and Trust Company (Exhibit (10)(1) to
Registration No. 2-87253)*
10.4 Guaranty Agreement dated October 1, 1977, between the Company
and The Connecticut Bank and Trust Company (Exhibit (10)(i) to
Registration No. 2-87253)*
10.5 Bond Purchase Agreement dated October 1, 1977, among the
Connecticut Development Authority, the Company and The
Connecticut Bank and Trust Company (Exhibit (10)(j) to
Registration No. 2-87253)*
10.6 Representation and Indemnity Agreement dated May 1, 1981,
between the Connecticut Development Authority, the Company and
The Connecticut Bank and Trust Company (Exhibit (10)(k) to
Registration No. 2-87253)*
10.7 Agreement dated May 27, 1975, between the Company and Canon
U.S.A., Inc., regarding information sharing and marketing
(Exhibit (10)(x) to Registration No. 2-87253)*
10.8 Agreement dated November 20, 1980, between the Company and
Canon Inc. regarding exchange of information (Exhibit (10)(y)
to Registration No. 2-87253)*
10.9 Right of First Refusal agreement between Forman, Zanoni and
Laufer and the Company (Exhibit 10.40 to the Company's Annual
Report on Form 10-K for its year ended June 30, 1987)*
10.10 Zygo Corporation Profit Sharing Plan, as amended effective June
30, 1985 (Exhibit 10.35 to the Company's Annual Report on Form
10-K for its year ended June 30, 1985)*
10.11 First Amendment to the Zygo Corporation Profit Sharing Plan
(Exhibit 10.28 to the Company's Annual Report on Form 10-K for
its year ended June 30, 1989)*
10.12 Second Amendment to the Zygo Corporation Profit Sharing Plan
(Exhibit 10.29 to the Company's Annual Report on Form 10-K for
its year ended June 30, 1989)*
10.13 Third Amendment to the Zygo Corporation Profit Sharing Plan
(Exhibit 10.30 to the Company's Annual Report on Form 10-K for
its year ended June 30, 1989)*
10.14 Fourth Amendment to the Zygo Corporation Profit Sharing Plan
(Exhibit 10.31 to the Company's Annual Report on Form 10-K for
its year ended June 30, 1989)*
10.15 Amended and Restated Zygo Corporation Profit Sharing Plan
10.16 Canon/Zygo Confidentiality Agreement dated March 7, 1990,
between the Company and Canon Inc. regarding confidential
technical information received from each other (Exhibit 10.42
to the Company's Annual Report on Form 10-K for its year ended
June 30, 1991)*
*Incorporated herein by reference.
<PAGE>
9
10.17 Employment Agreement dated February 13, 1992, relating to the
employment of Gary K. Willis by the Company (Exhibit 10.38 to
the Company's Annual Report on Form 10-K for its year ended
June 30, 1992)*
10.18 Amendment, dated August 26, 1993, to the Employment Agreement
dated February 13, 1992, between Gary K. Willis and the Company
(Exhibit 10.22 to the Company's Annual Report on Form 10-K for
its year ended June 30, 1993)*
10.19 Second Amendment, dated March 10, 1995, to the Employment
Agreement dated February 13, 1992, between Gary K. Willis and
the Company
10.20 Stock Purchase Agreement dated March 4, 1992, relating to the
purchase of Company Common Stock by Gary K. Willis from
Wesleyan University (Exhibit 10.39 to the Company's Annual
Report on Form 10-K for its year ended June 30, 1992)*
10.21 Services Agreement dated August 26, 1993, between the Company
and Paul F. Forman (Exhibit 10.26 to the Company's Annual
Report on Form 10-K for its year ended June 30, 1993)*
10.22 Non-Competition Agreement dated August 26, 1993, between the
Company and Paul F. Forman (Exhibit 10.27 to the Company's
Annual Report on Form 10-K for its year ended June 30, 1993)*
10.23 Services Agreement dated August 26, 1993, between the Company
and Sol F. Laufer (Exhibit 10.28 to the Company's Annual Report
on Form 10-K for its year ended June 30, 1993)*
10.24 Non-Competition Agreement dated August 26, 1993, between the
Company and Sol F. Laufer (Exhibit 10.29 to the Company's
Annual Report on Form 10-K for its year ended June 30, 1993)*
10.25 Zygo Corporation Amended and Restated Non-Qualified Stock
Option Plan ratified and approved by the Company's Stockholders
on November 19, 1992 (Exhibit 10.30 to the Company's Annual
Report on Form 10-K for its year ended June 30, 1993)*
10.26 Employment Agreement dated March 1, 1993, between Mark J.
Bonney and the Company (Exhibit 10.31 to the Company's Annual
Report on Form 10-K for its year ended June 30, 1993)*
10.27 Termination Agreement dated November 30, 1993, covering the
termination of the Shareholders' Agreement between Canon Inc.,
Wesleyan University, Paul F. Forman, Carl A. Zanoni, and Sol F.
Laufer dated October 17, 1983 (Exhibit 10.33 to the Company's
Annual Report on Form 10-K for its year ended June 30, 1994)*
10.28 Registration Rights Agreement dated November 30, 1993, between
Canon Inc., Wesleyan University, Paul F. Forman, Carl A.
Zanoni, Sol F. Laufer, and the Company (Exhibit 10.34 to the
Company's Annual Report on Form 10-K for its year ended June
30, 1994)*
10.29 Renewal of Line of Credit dated December 1, 1994, between the
Company and Shawmut Bank Connecticut, N.A.
*Incorporated herein by reference.
<PAGE>
10
10.30 Zygo Corporation Non-Employee Director Stock Option Plan
ratified and approved by the Company's stockholders on November
17, 1994
11. For computation of per share earnings see note 1 of the Notes
to Consolidated Financial Statements in the 1995 Annual Report
included herewith, which note is incorporated herein by
reference.
13. Specified portions of 1995 Annual Report to Stockholders (such
portions are furnished solely for the information of the
Commission and are not filed herewith, except for those
portions expressly incorporated herein by reference.)
21. Subsidiaries of Registrant
23. Accountants' Consent
24. Power of Attorney
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.
*Incorporated herein by reference.
<PAGE>
11
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ZYGO CORPORATION
- ----------------------------------------
Registrant
By Mark J. Bonney Date September 26, 1995
- ----------------------------------------
Mark J. Bonney
Vice President, Finance
and Administration
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C> <C>
Gary K. Willis President, Chief Executive Officer Date September 26, 1995
- ------------------------------ and Director
Gary K. Willis
Mark J. Bonney Vice President, Finance and Date September 26, 1995
- ------------------------------ Administration, Treasurer, and Chief
Mark J. Bonney Financial and Accounting Officer
Carl A. Zanoni Vice President, Research, Develop- Date September 26, 1995
- ------------------------------ ment and Engineering and Director
Carl A. Zanoni
Paul F. Forman* Chairman of the Board
(Paul F. Forman)
Michael R. Corboy* Director
(Michael R. Corboy)
Seymour E. Liebman* Director
(Seymour E. Liebman)
Robert G. McKelvey* Director
(Robert G. McKelvey)
Paul W. Murrill* Director
(Paul W. Murrill)
Robert B. Taylor* Director
(Robert B. Taylor)
*By Mark J. Bonney Date September 26, 1995
- ----------------------------------------
Mark J. Bonney
Attorney-in-Fact
</TABLE>
<PAGE>
ZYGO CORPORATION AND CONSOLIDATED SUBSIDIARY
Index to Financial Statements and Schedule
Page
* Independent Auditors' Report
* Consolidated balance sheets at June 30, 1995, and 1994
* Consolidated statements of earnings for the years ended June 30, 1995, 1994,
and 1993
* Consolidated statements of stockholders' equity for the years ended June 30,
1995, 1994, and 1993
* Consolidated statements of cash flows for the years ended June 30, 1995,
1994, and 1993
* Notes to consolidated financial statements
* Selected consolidated quarterly financial data for the years ended June 30,
1995, and 1994
Consolidated Schedules
F-2 Independent Auditors' Report on Schedule
F-3 VIII - Valuation and qualifying accounts
All other schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedules or the information required is included in the consolidated
financial statements or notes thereto.
*Incorporated herein by reference to Zygo Corporation 1995 Annual Report to
Stockholders.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Directors
Zygo Corporation:
Under date of August 11, 1995, we reported on the consolidated balance sheets of
Zygo Corporation and consolidated subsidiary as of June 30, 1995, and 1994, and
the related consolidated statements of earnings, stockholders' equity and cash
flows for each of the years in the three-year period ended June 30, 1995, as
contained in the 1995 annual report to stockholders. These consolidated
financial statements and our report thereon are incorporated by reference in the
annual report on Form 10-K405 for the fiscal year ended June 30, 1995. In
connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule listed in the accompanying index. This financial statement schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement schedule based on our audits.
In our opinion, this financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Hartford, Connecticut
August 11, 1995
F-2
<PAGE>
ZYGO CORPORATION AND CONSOLIDATED SUBSIDIARY
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
Years ended June 30, 1995, 1994, and 1993
Balance Balance
at Beginning at End
Description of Period Provision Write-Offs of Period
- ----------- --------- --------- ---------- ---------
Year Ended June 30, 1995:
Allowance for Doubtful
Accounts $ 70,981 $ 74,584 $ 7,910 $137,655
Inventory Reserve $267,183 $248,576 $ 96,612 $419,147
Year Ended June 30, 1994:
Allowance for Doubtful
Accounts $ 88,919 $ 32,045 $ 49,983 $ 70,981
Inventory Reserve $190,100 $105,683 $ 28,600 $267,183
Year Ended June 30, 1993:
Allowance for Doubtful
Accounts $154,975 $ 18,900 $ 84,956 $ 88,919
Inventory Reserve $111,550 $ 78,550 $ -- $190,100
F-3
<PAGE>
EXHIBIT INDEX
EXHIBIT
TABLE
NUMBER
- -------
10.15 Amended and Restated Zygo Corporation Profit Sharing Plan
10.19 Second Amendment, dated March 10, 1995, to the Employment Agreement
dated February 13, 1992, between Gary K. Willis and the Company
10.29 Renewal of Line of Credit dated December 1, 1994, between the Company
and Shawmut Bank Connecticut, N.A.
10.30 Zygo Corporation Non-Employee Director Stock Option Plan ratified and
approved by the Company's stockholders on November 17, 1994
11. For computation of per share earnings, see note 1 of the Notes to
Consolidated Financial Statements in the 1995 Annual Report included
herewith, which note is incorporated herein by reference
13. Specified portions of 1995 Annual Report to Stockholders (such
portions are furnished solely for the information of the Commission
and are not filed herewith, except for those portions expressly
incorporated herein by reference.)
21. Subsidiaries of Registrant
23. Accountants' Consent
24. Power of Attorney
EXHIBIT 10.15
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ZYGO CORPORATION
PROFIT SHARING PLAN
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(RESTATED AS OF JULY 1, 1989)
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS
1.1. "Account" or "Accounts".................................. 1
1.2. "Administrative Committee"............................... 2
1.3. "Affiliate".............................................. 2
1.4. "Beneficiary"............................................ 2
1.5. "Board".................................................. 2
1.6. "Break in Service"....................................... 2
1.7. "Code"................................................... 2
1.8. "Company"................................................ 2
1.9. "Compensation"........................................... 2
1.10. "Elective Contributions"................................. 3
1.11. "Employee"............................................... 3
1.12. "Employer"............................................... 3
1.13. "Employer Matching Contributions"........................ 3
1.14. "Employer Profit Sharing Contributions".................. 3
1.15. "ERISA".................................................. 3
1.16. "Highly Compensated Employee"............................ 3
1.17. "Hour of Service"........................................ 3
1.18. "Investment Fund"........................................ 5
1.19. "Non-Highly Compensated Employee"........................ 5
1.20. "Normal Retirement Date"................................. 5
1.21. "Participant"............................................ 5
1.22. "Plan"................................................... 5
1.23. "Plan Year".............................................. 5
1.24. "Tax Credit ESOP Account"................................ 5
1.25. "Trust".................................................. 5
1.26. "Trustee"................................................ 6
1.27. "Trust Fund"............................................. 6
1.28. "Valuation Date"......................................... 6
1.29. "Year of Vesting Service"................................ 6
ARTICLE 2 PARTICIPATION
2.1. General Participation Requirement........................ 6
2.2. Re-employment Rules...................................... 7
ARTICLE 3 CONTRIBUTIONS
3.1. Participants' Elective Contributions..................... 7
3.2. Qualified Nonelective Employer Contributions............. 8
3.3. Employer Matching Contributions.......................... 8
3.4. Employer Profit Sharing Contributions.................... 9
3.5. Employer Profit Sharing Contribution of the
Value of Unused Sick Pay............................... 9
3.6. Allocation of Forfeitures................................ 10
3.7. Voluntary After-Tax Contributions........................ 10
3.8. Rollover Contributions................................... 10
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3.9. Transfers from Other Plans............................... 11
3.10. Distribution of Excess Deferrals......................... 11
3.11. Return of Contributions.................................. 12
ARTICLE 4 LIMITATIONS ON CONTRIBUTIONS
4.1. Statutory Nondiscrimination Requirements................. 12
4.2. Modification of Contribution Elections................... 14
4.3. Excess Elective Contributions............................ 14
4.4. Excess Employer Matching Contributions................... 14
4.5. Other Limitations on Contributions and Benefits.......... 15
ARTICLE 5 ACCOUNTS AND INVESTMENT FUNDS
5.1. Maintenance of Accounts.................................. 16
5.2. Adjustment of Accounts................................... 16
5.3. Establishment of Investment Funds........................ 17
5.4. Investment Directions.................................... 17
5.5. Tax Credit ESOP Accounts................................. 18
ARTICLE 6 ELIGIBILITY FOR AND DISTRIBUTION OF BENEFITS
6.1. Normal Retirement or Total Disability.................... 18
6.2. Other Termination of Employment.......................... 19
6.3. Forfeitures.............................................. 20
6.4. Method of Payment........................................ 21
6.5. Transfer Accounts........................................ 21
6.6. Required Commencement of Benefits........................ 22
6.7. Cashout of Small Benefits................................ 22
6.8. Death.................................................... 22
6.9. Distributions Made on or After January 1, 1993........... 23
ARTICLE 7 IN-SERVICE WITHDRAWALS AND LOANS
7.1. In-Service Withdrawals Generally......................... 25
7.2. Withdrawal Requests...................................... 26
7.3. In-Service Withdrawals -- Special Rules.................. 26
7.4. Loans.................................................... 28
7.5. Failure to Repay Loans................................... 29
ARTICLE 8 REQUIREMENTS FOR TAX CREDIT
ESOP ACCOUNT BALANCES
8.1. General.................................................. 29
8.2. Distribution............................................. 30
8.3. Put Option............................................... 30
8.4. Voting Rights of Participants............................ 31
ARTICLE 9 TOP HEAVY PROVISIONS
9.1. Effect of Top Heavy Status............................... 31
9.2. Definitions and Special Rules............................ 32
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ARTICLE 10 ADMINISTRATION OF PLAN
10.1. Organization of Administrative Committee and Procedural
Matters................................................ 33
10.2. Powers of Administrative Committee....................... 33
10.3. Operation of Administrative Committee.................... 34
10.4. Resignation or Removal................................... 35
10.5. Records and Reports...................................... 35
10.6. Expenses................................................. 35
10.7. Indemnification.......................................... 35
10.8. Claim for Benefits....................................... 36
10.9. Review of Denied Claims.................................. 36
ARTICLE 11 TRUST FUND
11.1. General.................................................. 37
11.2. No Diversion............................................. 37
11.3. Benefits Provided Solely by Trust Fund................... 37
11.4. Employer Securities...................................... 37
11.5. Appointment of Investment Manager........................ 38
ARTICLE 12 AMENDMENTS AND TERMINATION
12.1. Company May Amend Plan................................... 38
12.2. Withdrawal of Participating Employer..................... 39
12.3. Termination.............................................. 40
12.4. Distributions Upon Termination........................... 40
12.5. Statutory Merger/Consolidation Rule...................... 40
ARTICLE 13 MISCELLANEOUS
13.1. No Rights Conferred...................................... 41
13.2. Benefits Limited to Trust Fund........................... 41
13.3. Spendthrift Provision.................................... 41
13.4. Payment to Minors or Incompetents........................ 42
13.5. Headings................................................. 42
13.6. Severability............................................. 42
13.7. Construction............................................. 42
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ZYGO CORPORATION
PROFIT SHARING PLAN
INTRODUCTION
The Zygo Corporation Profit Sharing Plan was adopted by the Company as of
July 1, 1973. A tax credit employee stock ownership plan feature was added to
the Zygo Corporation Profit Sharing Plan as of July 1, 1984. Contributions of
Company common stock were last made to the employee stock ownership portion of
the Plan for the Plan Year ended June 30, 1986. The Zygo Corporation Profit
Sharing Plan is hereby amended and restated in its entirety, effective as of
July 1, 1989 (or such other date or dates otherwise specified herein) in order
to satisfy the applicable provisions of the Tax Reform Act of 1986, the
Technical and Miscellaneous Revenue Act of 1988, the Revenue Reconciliation Act
of 1989, the Revenue Reconciliation Act of 1990, the Unemployment Compensation
Amendments of 1992, and the Omnibus Budget Reconciliation Act of 1993.
ARTICLE 1
DEFINITIONS
Wherever used herein, the masculine includes the feminine, the singular
includes the plural, and the following terms have the following meanings unless
a different meaning is clearly required by the context.
1.1. "Account" or "Accounts" means any one or more of the bookkeeping
accounts established and maintained hereunder, representing a Participant's
interest in the Trust Fund.
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1.2. "Administrative Committee" means the administrative committee
appointed hereunder to administer the Plan.
1.3. "Affiliate" means any entity (whether or not incorporated) which, by
reason of its relationship with the Company, is required to be aggregated with
the Company under Section 414(b), 414(c), 414(m) or 414(o) of the Code.
1.4. "Beneficiary" means any person entitled to receive benefits under the
Plan by reason of the death of a Participant, former Participant or Beneficiary.
1.5. "Board" means the Board of Directors of the Company.
1.6. "Break in Service" means a Plan Year during which an individual does
not complete more than 500 Hours of Service. Solely for the purpose of
determining whether a Break in Service occurs, an individual who is absent from
work because of the individual's pregnancy, the birth of the individual's child,
the adoption of a child by the individual, or the care of the individual's
newborn or newly adopted child, will be credited with the Hours of Service which
would otherwise have been credited in the Plan Year in which the absence from
work begins if such crediting is necessary to prevent a Break in Service in that
Plan Year or, if not, in the following Plan Year.
1.7. "Code" means the Internal Revenue Code of 1986, as it now exists and
as it is hereafter amended.
1.8. "Company" means Zygo Corporation.
1.9. "Compensation" means all cash compensation paid by an Employer to an
Employee during a Plan Year which is required to be reported as wages on the
Participant's Form W-2 and such additional amounts which are not includable in
the Participant's gross income during said Plan Year by reason of the
application of Section 402(a)(8) of the Code, exclusive of commissions, bonuses,
overtime pay or other irregular compensation. Compensation in excess of $200,000
($150,000 for Plan Years beginning after June 30, 1994), or such greater amount
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as may be provided by Section 401(a)(17) of the Code, will be disregarded for
all purposes under the Plan.
1.10. "Elective Contributions" means 401(k) contributions for a Participant
pursuant to the Participant's salary reduction election.
1.11. "Employee" means an individual who regularly performs services for an
Employer in an employer-employee relationship, other than an individual who is a
nonresident alien and who receives no income from sources within the United
States. Individuals who are leased employees within the meaning of Section
414(n)(2) of the Code or who are temporary employees will be deemed not to be
Employees for purposes of the Plan. For purposes of the Plan, an individual is
deemed to regularly perform services for an Employer if such individual is
expected to perform 1,000 hours of service each year.
1.12. "Employer" means the Company and any Affiliate which adopts the Plan
with the consent of the Board.
1.13. "Employer Matching Contributions" means matching contributions made
by an Employer with respect to Participants' Elective Contributions in
accordance with Section 3.3 of the Plan.
1.14. "Employer Profit Sharing Contributions" means contributions (other
than qualified nonelective contributions and Employer Matching Contributions)
made by an Employer in accordance with Section 3.4 of the Plan.
1.15. "ERISA" means the Employee Retirement Income Security Act of 1974, as
it now exists and as it is hereafter amended.
1.16. "Highly Compensated Employee" means an Employee described in Section
414(q) of the Code who is eligible to participate in the Plan.
1.17. "Hour of Service" means:
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(a) each hour for which an individual is directly or indirectly paid
or entitled to payment by the Company or an Affiliate for the performance
of services;
(b) each hour for which an individual is paid or entitled to payment
directly or indirectly by the Company or an Affiliate on account of his or
her absence due to vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty or leave of absence,
provided, however, that an individual shall be credited with no more than
501 Hours of Service in respect of any continuous period of absence; and
(c) any additional hours for which back pay is awarded or agreed to by
an Employer, irrespective of mitigation of damages, which additional hours
will be credited to the period or periods to which the award or agreement
pertains rather than the period in which the award, agreement or payment is
made (limited to 501 hours for a period during which the individual did not
or would not have performed duties).
The provisions of Section 2530.200(b) of the regulations issued by the
Department of Labor are incorporated herein by reference for purposes of
computing and crediting Hours of Service for reasons other than the performance
of duties. No Hours of Service will be taken into account in respect of a period
described in Section 2500.200b-2(b)(3) of the Department of Labor regulations.
Notwithstanding the foregoing, an individual will be credited with Hours of
Service during a period of active duty with the armed forces of the United
States (based upon the number of hours which would have been worked during that
period) if he or she returns to active employment with the Company or an
Affiliate and actually performs an Hour of Service within the period provided by
law for the protection of his or her re-employment rights. If an individual
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incurs five consecutive Breaks in Service before having any vested interest in
his or her Account attributable to Employer contributions which are subject to a
vesting condition, then his or her Hours of Service prior to the Break in
Service will be disregarded for all purposes hereof relating to vesting and
eligibility to participate in such Employer contributions after the Break in
Service.
1.18. "Investment Fund" means any one or more of the separate investment
funds designated by the Administrative Committee for investment of the assets of
the Trust Fund (including, without limitation, each separate fund maintained by
a registered investment company, if any, selected by the Administrative
Committee).
1.19. "Non-Highly Compensated Employee" means an Employee who is eligible
to participate in the Plan and who is neither a Highly Compensated Employee nor
a family member of a Highly Compensated Employee (within the meaning of Section
414(q)(6)(B) of the Code).
1.20. "Normal Retirement Date" means the date on which an Employee attains
age 65.
1.21. "Participant" means an Employee participating in the Plan in
accordance with the provisions hereof.
1.22. "Plan" means the profit sharing plan as set forth herein and any
amendments thereto.
1.23. "Plan Year" means each twelve-month period beginning July 1 and
ending June 30.
1.24. "Tax Credit ESOP Account" means the account maintained for a
Participant to reflect the Company stock, if any, held for the Participant
pursuant to the tax credit employee stock ownership provisions of the Plan.
1.25. "Trust" means the trust established and maintained as part of the
Plan.
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1.26. "Trustee" means the person or persons (including a corporation)
appointed and acting as trustee of the Trust.
1.27. "Trust Fund" means the assets of the Plan consisting of the amounts
held in the Investment Funds.
1.28. "Valuation Date" means the last day of each Plan Year and such other
date or dates as the Administrative Committee (acting in its absolute discretion
and in a nondiscriminatory manner) may determine for valuing any one or more of
the Investment Funds or the Trust Fund or a Participant's Account.
1.29. "Year of Vesting Service" means a Plan Year in which an individual is
credited with at least 1,000 Hours of Service for the Company or an Affiliate,
whether or not as an Employee, excluding Hours of Service before the individual
reaches age 18. If an individual incurs five consecutive Breaks in Service
before being fully vested in his or her Account, then Years of Vesting Service
(if any) after the Break in Service will be disregarded in determining the
individual's vested interest in his or her Account attributable to contributions
made before the Break in Service.
ARTICLE 2
PARTICIPATION
2.1. General Participation Requirement. An Employee will automatically be a
Participant on July 1, 1989 (the restatement date) if he or she was a
Participant in the Plan on June 30, 1989. Any other Employee will become a
Participant on the first day of the calendar quarter (starting with July 1,
1989) coincident with or next following the date which is six months after the
date on which the Employee first completes an Hour of Service; provided,
however, that, except as otherwise provided herein, an individual who is not an
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Employee on that quarterly entry date will initially become a Participant on the
next succeeding date on which he or she is an Employee.
2.2. Re-employment Rules. A former Employee who was a Participant and who
again becomes an Employee will again become a Participant on the first day of
the calendar quarter coincident with or next following the date on which he or
she again completes an Hour of Service as an Employee; provided, however, that,
with respect to Employer contributions, a nonvested former Participant whose
prior Hours of Service are permanently disregarded (under the definition of
"Hour of Service") will be treated as a new employee when he or she resumes
employment and again completes an Hour of Service.
ARTICLE 3
CONTRIBUTIONS
3.1. Participants' Elective Contributions.
(a) Salary Reduction Election. Each Employee who is a Participant may elect
the percentage of his or her Compensation to be withheld by the Employer on a
before-tax basis and contributed to the Trust as an Elective Contribution. The
designated percentage must be at least 1% and may not be more than 15%. The
total amount of a Participant's Elective Contributions for a calendar year may
not be more than $7,000 (adjusted as provided by Section 402(g)(1) of the Code).
(b) Contribution to Trust. The Employer will pay Elective Contributions to
the Trustee within 90 days or as soon as is otherwise practicable after they are
withheld from Participants' pay. Each Participant's Elective Contributions will
be credited to his or her Account in accordance with the provisions hereof.
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(c) Procedural Rules. Salary reduction elections must be made on such
forms, and may be modified, revoked or suspended subject to such advance notice
as may be reasonably required by the Administrative Committee at such times and
in accordance with such procedures as may be prescribed or permitted by the
Administrative Committee acting in a uniform and nondiscriminatory manner,
provided, however, that no more than one such modification, revocation or
suspension will be processed in any calendar month. A Participant's election
will terminate when the Participant ceases to be an Employee, and a new
withholding election must be filed if he or she wishes to resume Elective
Contributions after again becoming an Employee.
3.2. Qualified Nonelective Employer Contributions. For any Plan Year, an
Employer, acting in its sole discretion, may contribute to the Trust for
allocation to the Account(s) of one or more Non-Highly Compensated Employees an
amount necessary to enable the Plan to satisfy Section 401(k)(3) of the Code for
such Plan Year. Any such contributions will be treated as Elective Contributions
for all purposes hereof except for the purpose of determining eligibility for
and the amount of any Employer Matching Contributions.
3.3. Employer Matching Contributions. For each Plan Year, the Employer,
acting in its sole discretion, may declare and contribute to the Trust an
Employer Matching Contribution with respect to the Elective Contributions made
by a Participant during the Plan Year; provided, however, that, except to the
extent necessary to comply with Section 401(m) of the Code, Employer Matching
Contributions, if any, may only be made with respect to Elective Contributions
of those Participants who are Employees on the last day of the Plan Year of
reference. Employer Matching Contributions, if any, will be paid to the Trustee
in cash and/or in shares of common stock of the Company and will be credited to
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Participants' Accounts in accordance with the provisions hereof as soon as
practicable after they are made.
3.4. Employer Profit Sharing Contributions. In addition to any other
contributions under the Plan, the Employer may declare and contribute to the
Trust for each Plan Year a discretionary non-matching contribution in such
amount (if at all) as the Employer, acting in its sole discretion, may
determine. The Employer Profit Sharing Contribution for a Plan Year (if any)
will be allocated as of the last day of the Plan Year among the Accounts of
those Participants who are Employees on the last day of the Plan Year and who
have completed at least 1,000 Hours of Service during the Plan Year in the
proportion that each such Participant's Compensation for the Plan Year bears to
the total Compensation of all such Participants for the Plan Year. Employer
Profit Sharing Contributions, if any, will be paid to the Trustee in cash and/or
in shares of common stock of the Company and will be credited to Participants'
Accounts in accordance with the provisions hereof as soon as practicable after
they are made.
3.5. Employer Profit Sharing Contribution of the Value of Unused Sick Pay.
For each Plan Year beginning after June 30, 1994, the Employer, acting in its
sole discretion, but in a uniform and nondiscriminatory manner, may contribute
to the Trust on behalf of each Participant who is an Employee on the last day of
the Plan Year an amount up to the value of the unused sick pay with respect to
such Participant for the Plan Year, limited, however, to not more than three
days. Any such contributions will be paid to the Trustee in cash and/or in
shares of common stock of the Company and will be credited to the Participants'
Accounts as of the last day of the Plan Year in accordance with the provisions
hereof as soon as practicable after they are made.
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3.6. Allocation of Forfeitures. If a Participant forfeits any part of his
or her interest in the Plan, the amount of the forfeiture (to the extent not
used to restore a prior forfeiture for a re-employed Participant in accordance
with the provisions hereof) will be allocated to eligible Participants' Accounts
as if such amount were an Employer Profit Sharing Contribution for the Plan Year
in which such forfeiture arises.
3.7. Voluntary After-Tax Contributions. No Participant after-tax
contributions may be made or accepted under the Plan.
3.8. Rollover Contributions. Subject to such rules as may be established by
the Administrative Committee, an Employee may make a rollover contribution to
the Trust of (a) part or all of a distribution received from another employee
benefit trust described in Section 401(a) of the Code and exempt from tax under
Section 501(a) of the Code, (b) part or all of a distribution received from a
qualified employee annuity plan described in Section 403(a)(1) of the Code which
meets the requirements of Section 404(a)(2) of the Code, or (c) the entire
amount received (including money and any other property) from an individual
retirement account. Any rollover contribution must meet the income deferral
requirements of the Code (including the requirement that the rollover
contribution be made no later than 60 days after the day on which the
Participant received the payment or distribution from the other plan or account
in the case of a rollover which is not a direct rollover from a transferor
plan). The Administrative Committee and/or the Trustee may require an Employee
to furnish any relevant information or documentation and to make any reasonable
representations concerning the distribution from the prior plan or account
before deciding whether to accept a rollover contribution. The amount of a
rollover contribution shall be credited to the Participant's Account and shall
equal the sum of the cash plus the fair market value of the property transferred
(subject to the right of the Administrative Committee or the Trustee to refuse
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to accept property), determined as of the date the property is received by the
Trustee.
3.9. Transfers from Other Plans. Subject to the provisions of applicable
law, the Administrative Committee may permit assets of other qualified plans to
be transferred to the Trust in a plan-to-plan transfer other than a direct
rollover. The plan administrator and/or plan trustee of a transferor plan will
furnish a breakdown of the assets being transferred so that those assets can be
properly allocated to corresponding Accounts established hereunder. The
Administrative Committee shall take such action as may be necessary or
appropriate in order to separately account for the assets of a transferror plan.
The accrued benefits of a transferor plan's participants and the optional forms
of benefit available to those participants with respect to the transferred
assets will be preserved hereunder to the extent required by the provisions of
applicable law. If assets are transferred to the Trust from the trustee of a
trust maintained under another plan and if a determination is subsequently made
that the transferor plan is not qualified under Section 401(a) of the Code or
that the asset transfer is otherwise not permissible, then the assets so
transferred, together with earnings (or reduced by losses), will be returned and
will be deemed to have been held by the Trustee in separate trust and not as
part of the Trust Fund.
3.10. Distribution of Excess Deferrals. If, on or before March 1 of any
year, a Participant notifies the Administrative Committee that all or part of
the Elective Contributions made for his or her benefit during the preceding
taxable year represents an excess deferral within the meaning of Section 402(g)
of the Code, then the Administrative Committee will cause the amount of such
excess deferral to be distributed to the Participant by the April 15 following
such notification.
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3.11. Return of Contributions. If a contribution by an Employer to the
Trust is (a) made by reason of a good faith mistake of fact, or (b) believed by
the Employer in good faith to be deductible under Section 404 of the Code, but
the deduction is disallowed, then the Trustee shall return to the contributing
Employer the amount of the mistaken or nondeductible contribution. In no event
may the return of an Employer contribution cause the value of a Participant's
interest in the Trust to be reduced to an amount which is less than the amount
it would have been had the mistaken or nondeductible contribution not been made.
The return of a contribution hereunder must be made within one year after the
mistaken contribution is made or the deduction is disallowed, as the case may
be.
ARTICLE 4
LIMITATIONS ON CONTRIBUTIONS
4.1. Statutory Nondiscrimination Requirements.
(a) Elective Contributions. Elective Contributions for a Plan Year must
satisfy either of the following tests:
(1) the average of the individual ratios (expressed as percentages) of
Elective Contributions to Compensation (the "deferral percentages") for the
Plan Year for all Highly Compensated Employees is not more than 125% of the
average of the deferral percentages for all Non-Highly Compensated
Employees; or
(2) the average of the deferral percentages for all Highly Compensated
Employees is not more than twice the average of the deferral percentages
for all Non-Highly Compensated Employees, and the average of the deferral
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percentages for all Highly Compensated Employees does not exceed the
average of the deferral percentages for all Non-Highly Compensated
Employees by more than 2%.
Subject to the provisions of applicable law, the Administrative Committee may
treat Employer Matching Contributions for a Plan Year as Elective Contributions
if and to the extent such treatment would enable the Plan to satisfy the
provisions of this Section for the Plan Year and solely for that purpose.
(b) Employer Matching Contributions. Employer Matching Contributions for a
Plan Year must satisfy either of the following tests:
(1) the average of the individual ratios (expressed as percentages) of
the Employer Matching Contributions to Total Compensation (the
"contribution percentages") for the Plan Year for all Highly Compensated
Employees is not more than 125% of the average of the contribution
percentages for all Non-Highly Compensated Employees; or
(2) the average of the contribution percentages for all Highly
Compensated Employees is not more than twice the average of the
contribution percentages for all Non-Highly Compensated Employees, and the
average of the contribution percentages for all Highly Compensated
Employees does not exceed the average of the contribution percentages for
all Non-Highly Compensated Employees by more than 2% (provided, however,
that this clause 2 will not apply to the extent required by law in order to
prevent prohibited multiple use of the 200%/2% deferral percentage and
contribution percentage nondiscrimination tests).
Subject to the provisions of applicable law, the Administrative Committee may
treat pre-tax Elective Contributions for a Plan Year as Employer Matching
Contributions if and to the extent such treatment would enable the Plan to
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satisfy the provisions of this Section and solely for that purpose.
4.2. Modification of Contribution Elections. The Administrative Committee
may modify a Participant's salary reduction election in order to enable the Plan
to satisfy the limitations of applicable law with respect to Elective
Contributions and Employer Matching Contributions, including the limitations
prescribed by Sections 401(k)(3), 401(m), 402(g)(1) and 415 of the Code. The
modification of a Participant's election may not result in increased Elective
Contributions for the Participant without his or her consent.
4.3. Excess Elective Contributions. If the average of the deferral
percentages for Highly Compensated Employees for a Plan Year exceeds the amount
permitted for that Plan Year, then the excess will be eliminated in the manner
provided in this Section. First, in accordance with the provisions of applicable
law, the deferral percentages of some or all of the Highly Compensated Employees
will be reduced (in descending order starting with the highest deferral
percentages) until the average of the deferral percentages for the Highly
Compensated Employees satisfies one of the nondiscrimination tests. Second, the
amount of each Highly Compensated Employee's excess Elective Contributions will
be determined based upon the reduction of his or her deferral percentage in
accordance with the preceding sentence. Third, the amount of each Highly
Compensated Employee's Elective Contributions, as so determined, together with
income or loss thereon, will be distributed to him or her as soon as
practicable, but in no event later than the last day of the Plan Year following
the Plan Year for which the excess amount was contributed.
4.4. Excess Employer Matching Contributions. If the average of the
contribution percentages for Highly Compensated Employees for a Plan Year
exceeds the amount permitted for that Plan Year, then the excess will be
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eliminated in the manner provided in this Section. First, in accordance with the
provisions of applicable law, the contribution percentages of some or all of the
Highly Compensated Employees will be reduced (in descending order starting with
the highest contribution percentages) until the average of the contribution
percentages for the Highly Compensated Employees satisfies the applicable
nondiscrimination test. Second, the amount of each Highly Compensated Employee's
excess Employer Matching Contributions will be determined based upon the
reduction of his or her contribution percentage in accordance with the preceding
sentence. Third, the amount of the Employer Matching Contributions made for each
Highly Compensated Employee as so determined, together with income or loss
thereon, will be distributed to him or her. The amounts determined under this
Section will be paid as soon as practicable, but in no event later than the last
day of the Plan Year following the Plan Year for which the excess amount was
contributed.
4.5. Other Limitations on Contributions and Benefits. The annual addition
to a Participant's Accounts for any limitation year, when added to the annual
additions to his or her accounts under all other defined contribution plans (if
any) maintained by the Company or an Affiliate for such year, may not exceed the
lesser of (a) $30,000 (or, if greater, one-fourth of the limitation in effect
for the Plan Year under Section 415(b)(1)(A) of the Code), and(b) 25 percent of
the Participant's compensation for the year (all as determined in accordance
with Section 415 of the Code). If an Employer or an Affiliate maintains a
defined benefit pension plan, a Participant's benefits under that plan will be
reduced in lieu of a reduction of annual additions under this Plan if and to the
extent necessary to comply with the requirements of Section 415(e) of the Code.
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For the purposes of applying Section 415 of the Code, the limitation year will
be the calendar year.
ARTICLE 5
ACCOUNTS AND INVESTMENT FUNDS
5.1. Maintenance of Accounts. The Administrative Committee will establish
and maintain separate Accounts for each Participant to reflect the Participant's
interest in the Trust attributable to Elective Contributions (including
qualified nonelective contributions), Employer Matching Contributions, Employer
Profit Sharing Contributions, common stock of the Company contributed pursuant
to the tax credit employee stock ownership plan provisions of the Plan, and
other Company stock contributions, if any, as well as such other Accounts or
sub-Accounts as the Administrative Committee deems necessary or desirable in
order to carry out the intent and purposes of the Plan or to comply with
applicable law. Each Participant's Accounts will be credited, charged and
adjusted in accordance with the provisions hereof.
5.2. Adjustment of Accounts. As of each Valuation Date with respect to an
Investment Fund or the Trust Fund, as the case may be, each Participant's
Accounts will be adjusted to reflect changes in the value of the Participant's
interest in the Investment Fund or the Trust Fund since the last Valuation Date.
Unless the Administrative Committee, acting in a uniform and equitable manner,
determines otherwise, such adjustment shall be made as follows:
(a) first, the value of each Account will be adjusted as of the
preceding Valuation Date to reflect distributions, transfers made thereto
and withdrawals made therefrom since that Valuation Date;
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(b) second, each Account will be adjusted to reflect its proportionate
share (based upon the adjusted Account values as of the preceding Valuation
Date) of the net increase or decrease in the fair market value of the
Investment Fund or Trust Fund since the last Valuation Date; and
(c) third, as of each Valuation Date, each Participant's Accounts will
be credited with the contributions (and transfers) made for or on behalf of
the Participant as of the last day of, or for the period ending on, such
Valuation Date.
The fair market value of the Trust Fund or any Investment Fund will be
determined with regard to expenses incurred by or equitably charged to such
Fund.
5.3. Establishment of Investment Funds. The Trust Fund will be segregated
into such separate Investment Funds as shall be established at the direction of
the Administrative Committee, including, without limitation, one or more fixed
income funds (designed to preserve or minimize loss of capital and to generate
income) and one or more general investment funds (designed to generate income
and/or capital appreciation primarily through investment in equity securities).
Amounts contributed or accepted pursuant to the Plan will be invested and
re-invested in the separate Investment Funds in accordance with the
Participants' and Beneficiaries' elections.
5.4. Investment Directions. Each Participant and Beneficiary will direct
the investment and reinvestment of the amounts in and/or subsequently
contributed or transferred to his or her Accounts among the available Investment
Funds in such manner and subject to such conditions as may be prescribed by the
Administrative Committee (or its designee). In the absence of a
properly-transmitted investment direction, the amounts in and/or subsequently
contributed to a Participant's (or Beneficiary's) Accounts will be invested in a
fixed income Investment Fund designated for this purpose by the Administrative
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Committee. Notwithstanding anything to the contrary contained herein, unless
otherwise determined by the Board, common stock of the Company contributed to
the Plan as an employer contribution (other than stock attributable to the tax
credit employee stock ownership provisions of the Plan) will remain invested in
Company common stock and will not be subject to the investment direction and
transfer provisions of this Article. The segregated Company common stock
accounts described in the preceding sentence will be maintained and administered
separate and apart from the Tax Credit ESOP Accounts.
5.5. Tax Credit ESOP Accounts. Notwithstanding anything to the contrary
contained herein, Tax Credit ESOP Accounts established for Participants in
respect of Company stock transferred to the Trust pursuant to the tax credit
employer stock ownership plan provisions of the Plan will remain segregated for
the benefit of the Participants for whom such accounts are maintained and will
not be invested as part of the balance of the Trust Fund so long as such Account
remains invested in common stock of the Company. Unless otherwise determined by
the Board, a segregated Tax Credit ESOP Account will continue to be invested in
Company stock and will not be subject to the investment direction and transfer
provisions of this Article.
ARTICLE 6
ELIGIBILITY FOR AND DISTRIBUTION OF BENEFITS
6.1. Normal Retirement or Total Disability. A Participant who retires at or
after age 65 or whose employment terminates by reason of total disability will
be entitled to receive 100% of his or her Accounts determined as of the
Valuation Date coincident with or next preceding the date of distribution (and
adjusted for contributions and withdrawals since that Valuation Date). For this
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purpose, total disability means the inability of a participant to perform the
duties of any occupation for which he or she is reasonably suited by reason of a
physical or mental illness or disease which is expected to result in death or to
last indefinitely. Subject to the provisions hereof and of applicable law,
distribution of the Participant's Accounts will be made as soon as practicable
after his or her retirement or termination of employment. A retired or disabled
Participant's Accounts will continue to be invested as part of the Trust Fund
and will continue to be adjusted in accordance with the provisions hereof until
the distribution thereof is completed.
6.2. Other Termination of Employment. A Participant whose employment is
terminated for any reason (other than death or total disability) prior to age 65
will be entitled to receive the sum of (a) 100% of his or her Accounts
attributable to Elective Contributions, Employer Matching Contributions,
rollovers and transfers from another qualified plan, plus (b) 100% of his or her
Tax Credit ESOP Account, if any, in accordance with the provisions hereof and of
applicable law, plus (c) the vested portion of his or her Account attributable
to Employer Profit Sharing Contributions determined under the following vesting
schedule as of the Valuation Date coincident with or immediately preceding the
distribution date (adjusted for contributions and withdrawals since that
Valuation Date):
Years of Vesting Service Percentage Vested
------------------------ -----------------
Less than 1 .............................. 0%
1 .............................. 20%
2 .............................. 40%
3 .............................. 60%
4 .............................. 80%
5 or more ...................... 100%
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Subject to the provisions hereof and of applicable law, the distribution of a
terminated Participant's vested Accounts will be made at such time as the
Participant elects. A terminated Participant's vested Accounts will continue to
be invested as part of the Trust Fund and will continue to be adjusted in
accordance with the provisions hereof until the distribution of the Accounts is
completed. The Administrative Committee, acting in a uniform and
nondiscriminatory manner, may establish a rule to the effect that, if a
terminated Participant does not elect an immediate payout, then, on or as soon
as practicable after the last day of the calendar quarter following the quarter
in which the Participant's termination of employment occurs, the total amount of
the Participant's Accounts will be automatically invested in one or more
designated fixed income funds available under the Plan (in which case the
investment transfer elections otherwise available to active Participants will
not be available to the terminated Participant).
6.3. Forfeitures. If, before being fully vested, a Participant's employment
ends or the Participant incurs five consecutive Breaks in Service, then the
nonvested portion of the Participant's Account will be forfeited when the vested
portion of the Participant's Account is distributed or, if earlier, when the
Participant incurs five consecutive Breaks in Service. If (a) a forfeiture
arises with respect to a former Participant who receives a distribution of the
vested portion of his or her Account because of a termination of employment, (b)
the former Participant is later re-employed by an Employer before incurring five
consecutive Breaks in Service, and (c) the former Participant repays the amount
of the prior distribution to the Plan within the time required by Section
411(a)(7)(C) of the Code, then the Employer will restore the amount of the
forfeiture to the Participant's Account. For purposes of the preceding sentence,
if the former Participant's vested percentage determined under the Plan's
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vesting schedule is zero, then the Participant will be deemed to have received a
distribution of his or her vested portion of his or her Account at the time of
his or her termination of employment; and the former participant will be deemed
to have repaid the deemed distribution to the Plan at the expiration of the
repayment period permitted in Section 411(a)(7)(C) of the Code. The source of a
restoration made under this Section will be other forfeitures and, to the extent
necessary, additional Employer contributions. Restoration of a prior forfeiture
will be credited to the Participant's Account as soon as practicable after it is
paid or otherwise made available to the Plan.
6.4. Method of Payment. Except as otherwise provided herein or required by
applicable law, distribution of a Participant's Accounts will be made in the
form of a single sum payment. To the extent required by applicable law, in the
case of a Participant's Account attributable to a transfer from another
qualified plan, the Administrative Committee will make available such optional
payment methods and shall comply with such election and other administrative
procedures as may be necessary in order to comply with the provisions of
applicable law, including, without limitation, Sections 401(a)(11), 401(a)(17)
and 411(d)(6) of the Code and regulations thereunder.
6.5. Transfer Accounts. To the extent required by applicable law, in the
case of a Participant's Account attributable to a transfer from another
qualified plan, the Administrative Committee will make available such optional
methods of distribution and shall comply with such election and other
administrative procedures as may be necessary in order to comply with the
provisions of applicable law, including, without limitation, Sections
401(a)(11), 401(a)(17) and 411(d)(6) of the Code and regulations thereunder.
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6.6. Required Commencement of Benefits. Unless a terminated Participant
elects an earlier distribution, payment of his or her vested Accounts will be
made no later than the April 1 following the close of the calendar year in which
the Participant attains age 70 1/2. Payment of an active Participant's Accounts
must begin no later than the April 1 following the close of the calendar year in
which the Participant attains age 70 1/2 and, prior to the Participant's
termination of employment, will be made at such times and in such amounts as are
necessary to satisfy the minimum distribution requirements of Section 401(a)(9)
of the Code and regulations thereunder.
6.7. Cashout of Small Benefits. Notwithstanding anything to the contrary
contained herein, if the value of a Participant's (or deceased Participant's)
Accounts is less than $3,500, then the total amount of those Accounts will be
distributed to the Participant (or Beneficiary) in a single sum payment as soon
as practicable after the Participant's termination of employment or death.
6.8. Death.
(a) Distribution of Accounts. If a Participant dies before the complete
distribution of his or her Accounts, then the deceased Participant's Beneficiary
will be entitled to receive a single sum payment of the balance in those
Accounts determined as of the Valuation Date coincident with or next preceding
the date of distribution (and adjusted for contributions and withdrawals since
that Valuation Date). Subject to the provisions hereof and of applicable law,
the distribution of a deceased Participant's Accounts will be made as soon as
practicable after the deceased Participant's death (but in no event later than
one year thereafter). A deceased Participant's Accounts will continue to be
invested as part of the Trust Fund and will continue to be adjusted in
accordance with the provisions hereof until the distribution of those Accounts
is completed.
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(b) Designation of Beneficiary. Except as provided in subsection (c) of
this Section, an individual may designate a Beneficiary by written notice filed
with the Administrative Committee and may change his or her Beneficiary at any
time by designating a new Beneficiary in the same manner, and no notice need be
given to any prior designated Beneficiary. If no designated Beneficiary shall
survive a deceased Participant or Beneficiary, then payment of the deceased
Participant's Accounts will be made to the deceased Participant's estate.
(c) Spouse Must Be Beneficiary of Deceased Married Participant. The
surviving spouse of a deceased married Participant will be the Participant's
Beneficiary unless the surviving spouse consents to the designation of another
Beneficiary. The spouse's consent must be in writing and must acknowledge the
effect of the Participant's designation, and the spouse's signature must be
witnessed by a notary public or an appropriate Plan official. Spousal consent to
a different Beneficiary designation will not be required if (1) the
Participant's spouse cannot be located, (2) the spouse's consent cannot be
obtained because of any other circumstances permitted by applicable law, or (3)
the Participant's spouse has not been married to the Participant throughout the
one-year period ending on the earlier of the date of the Participant's death or
the date on which distribution of the Participant's Accounts begins.
6.9. Distributions Made on or After January 1, 1993. This Section applies
to distributions made on or after January 1, 1993. Notwithstanding any provision
of the Plan to the contrary that would otherwise limit a distributee's election
under this Section, a distributee may elect, at the time and in the manner
prescribed by the Administrative Committee in accordance with applicable law, to
have any portion of an eligible rollover distribution paid directly to an
eligible retirement plan specified by the distributee in a direct rollover. For
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the purposes of this Section, the following terms shall have the following
meanings:
(a) Eligible Rollover Distribution. An eligible rollover distribution
is any distribution of all or any portion of the balance to the credit of
the distributee, except that an eligible rollover distribution does not
include any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or
life expectancy) of the distributee or the joint lives (or joint life
expectancies) of the distributee and the distributee's designated
beneficiary, or for a specified period of ten years or more; any
distribution to the extent such distribution is required under Section
401(a)(9) of the Code; and the portion of any distribution that is not
includable in gross income (determined without regard to the exclusion for
net unrealized appreciation with respect to employer securities).
(b) Eligible Retirement Plan. An eligible retirement plan is an
individual retirement account described in Section 408(a) of the Code, an
individual retirement annuity described in Section 408(b) of the Code, an
annuity plan described in Section 403(a) of the Code, or a qualified trust
described in Section 401(a) of the Code, that accepts the distributee's
eligible rollover distribution. However, in the case of an eligible
rollover distribution to the surviving spouse, an eligible retirement plan
is an individual retirement account or individual retirement annuity.
(c) Distributee. A distributee includes an Employee or former
Employee. In addition, the Employee's or former Employee's surviving spouse
and the Employee's or former Employee's spouse or former spouse who is the
alternate payee under a qualified domestic relations order, as defined in
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Section 414(p) of the Code, are distributees with regard to the interest of
the spouse or former spouse.
(d) Direct Rollover. A direct rollover is a payment by the Plan to the
eligible retirement plan specified by the distributee.
If a distribution is one to which Sections 401(a)(11) and 417 of the Code do not
apply, the distribution may commence less than 30 days after the required direct
rollover notice is given, provided that (a) the Participant is notified that he
or she has at least 30 days to consider the decision of whether to elect a
distribution and, if applicable, a particular distribution option, and (b) the
Participant, after receiving the notice, affirmatively elects a distribution
and, if applicable, a particular distribution option.
ARTICLE 7
IN-SERVICE WITHDRAWALS AND LOANS
7.1. In-Service Withdrawals Generally. Subject to the provisions hereof and
of applicable law, a Participant may make in-service withdrawals from his or her
Accounts in the following order: rollover contributions (plus earnings) Employer
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Profit Sharing Contributions (plus earnings) to the extent vested, Employer
Matching Contributions (plus earnings) and Elective Contributions (plus pre-1988
earnings if any, thereon). The maximum withdrawal from an Account may not exceed
the balance in the Account as of the Valuation Date coincident with or
immediately preceding the withdrawal (reduced by withdrawals, if any, made from
the Account since that Valuation Date). If the amount in a Participant's Account
is invested in more than one Investment Fund, then withdrawals from the Account
will be allocated among the applicable Investment Funds in accordance with an
order of priority established by the Administrative Committee on a uniform and
nondiscriminatory basis.
7.2. Withdrawal Requests. Requests for in-service withdrawals must be filed
with the Administrative Committee on forms prescribed or approved for that
purpose. No more than one in-service withdrawal request may be processed in any
calendar month and no more than two such requests may be processed within any
12-month period. Withdrawal amounts will be paid to a Participant as soon as
practicable after a properly-completed withdrawal request is received by the
Administrative Committee.
7.3. In-Service Withdrawals -- Special Rules.
(a) General. Except as otherwise provided in this Section, a Participant
may make an in-service withdrawal only if the withdrawal (1) is made on account
of an immediate and heavy financial need (as described in subsection (b) below)
and (2) is necessary to satisfy such financial need (as determined under
subsection (c) below). The preceding sentence shall not apply to an in-service
withdrawal of rollover contributions or an in-service withdrawal made by a
Participant after age 59 1/2, provided, however, that only one of each such
non-hardship withdrawals will be permitted during the period of the
Participant's Plan participation.
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(b) Immediate and Heavy Financial Need. For purposes of subsection (a) of
this Section, a proposed withdrawal will be deemed to be on account of an
immediate and heavy financial need if the proceeds will be used to pay (1)
medical expenses of the Participant or of the Participant's spouse or
dependents; (2) costs (exclusive of mortgage payments) directly related to the
purchase of the Participant's principal residence; (3) tuition and related
education fees for the next twelve months of post-secondary education for the
Participant or for the spouse, children or other dependents of the Participant;
(4) amounts required to prevent the eviction of the Participant from, or the
foreclosure of a mortgage on, the Participant's principal residence; or (5) such
additional expenses as may be specified by the Internal Revenue Service as a
deemed immediate and heavy financial need for this purpose.
(c) Amounts Necessary to Meet the Financial Need. A withdrawal will be
deemed to be necessary to satisfy an immediate and heavy financial need of a
Participant if (1) the amount of the withdrawal is not more than the amount of
the immediate and heavy financial need; and (2) in the case of a withdrawal of
Elective Contributions, the Participant has obtained all loans, distributions
and withdrawals otherwise available under the Plan and any other plan maintained
by the Company or an Affiliate.
(d) Suspension of Future Elective Contributions. If a Participant withdraws
Elective Contributions on account of an immediate and heavy financial need,
then, notwithstanding any other provision to the contrary contained in the Plan
or in any other plan maintained by the Employer or an Affiliate, (1) the
Participant's Elective Contributions (pre-tax and after-tax) under the Plan and
under any such other plan will be suspended until the first day of the calendar
quarter next following the date which is twelve months after the date of the
withdrawal, and (2) the Participant's elective pre-tax deferral limitation under
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Section 402(g)(1) of the Code for the taxable year following the year of the
withdrawal will be reduced by the amount, if any, of the Participant's Elective
Contributions under the Plan (and elective pre-tax deferrals under any other
plan maintained by the Employer or an Affiliate) during the year in which the
withdrawal is made.
7.4. Loans.
(a) General. Upon the application of a Participant, the Administrative
Committee, in accordance with a uniform and nondiscriminatory policy, may direct
the Trustee to make a loan to the Participant from the Participant's vested
Accounts. The amount of any such loan shall not be less than $1,000 and shall
not exceed the lesser of (1) $50,000 reduced by the excess of the highest
outstanding loan balance of the Participant during the one-year period ending on
the day before the loan is made over the Participant's outstanding loan balance
immediately prior to the loan or (2) an amount equal to 50% of the value of the
Participant's vested Accounts as of the date of such loan. For this purpose, the
value of a Participant's Account shall be determined as of the Valuation Date
preceding the date of the loan, adjusted to reflect any contributions,
distributions or withdrawals since that Valuation Date.
(b) Terms. Any loan to a Participant hereunder shall be evidenced by the
Participant's recourse promissory note in form and substance satisfactory to the
Administrative Committee, shall bear a reasonable rate of interest, shall be
adequately secured, and shall be payable in the manner provided by the
Administrative Committee within 5 years after the date thereof, but no later
than the termination of the Participant's employment for any reason. Each loan
shall be repayable in equal installments not less frequent than quarterly. The
Administrative Committee shall require a Participant who receives a loan to
irrevocably authorize the Employer to withhold from Compensation and to pay
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directly to the Trustee the amounts required to be paid under the promissory
note evidencing the Participant's loan obligation. If, at the time benefits are
to be distributed to a Participant or his Beneficiary, there remains any unpaid
balance of a loan made hereunder, then such unpaid balance (together with
accrued interest) shall become immediately due and payable in full and, unless
paid, such unpaid balance shall be deducted from the Participant's Accounts
before any distribution therefrom is made.
(c) No Discrimination. Loans hereunder shall be made available to
Participants on a reasonably equivalent basis.
(d) Administrative Procedures. The Administrative Committee shall establish
such rules and procedures with respect to Plan loans as it deems necessary or
advisable in order to comply with the provisions hereof and of applicable law.
7.5. Failure to Repay Loans. If a loan is made to a Participant with a
vested interest in his Accounts and the Participant does not make a payment
required under the promissory note within the specified time, the Administrative
Committee may cause the amount due to be deducted from any interest in, or
payment or distribution from, the Trust Fund to which such Participant or the
Participant's Beneficiaries may be entitled.
ARTICLE 8
REQUIREMENTS FOR TAX CREDIT
ESOP ACCOUNT BALANCES
8.1. General. This Article sets forth certain rules which will govern the
maintenance and disposition of Participants' Tax Credit ESOP Accounts. It is
intended that those Accounts will continue to be invested in Company stock
unless and until the ESOP portion of the Plan is terminated by the Board, at
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which time, at the election of the Participants, the Tax Credit ESOP Accounts
may be converted into cash and reinvested as part of the remainder of the Trust
Fund or distributed to the Participants for whom such Accounts are maintained
(if permitted and subject to the requirements of applicable law). It is also
intended that, so long as the Tax Credit ESOP Accounts continue to exist, the
provisions of this Article will be applied and construed in a manner which is
consistent with the provisions of Sections 4975(e) and 409 of the Code
applicable to those Accounts. A Participant's interest in his or her Tax Credit
ESOP Account shall be nonforfeitable at all times.
8.2. Distribution. A Participant's Tax Credit ESOP Account will be
distributed to the Participant (or the Participant's Beneficiary, as the case
may be) at the same time as, and as part of, the distribution of the balance of
the Participant's Accounts in accordance with Article 6 hereof. The distribution
of a Tax Credit ESOP Account will be made in kind (in the form of Company stock
or stock), unless the Administrative Committee, acting in its sole discretion
and in a uniform and nondiscriminatory manner, establishes a procedure pursuant
to which Participants can elect to receive their Tax Credit ESOP Accounts in the
form of cash.
8.3. Put Option. In the case of a distribution of Company stock which is
not readily tradeable on an established securities market within the meaning of
Section 409(h)(1)(B) of the Code, the Company shall provide the Participant with
a put option that complies with the requirements of Section 409(h) of the Code.
If the put option is exercised, the Company shall repurchase the Company stock
distributed to the Participant as follows:
(a) if the distribution constitutes a total distribution, payment of
the fair market value of the Participant's Company stock shall be made (not
less frequently than annually) in substantially equal payments over a
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period not exceeding five years, the first installment shall be paid not
later than 30 days after the Participant exercises the put option, and the
Company will pay a reasonable rate of interest and provide adequate
security on amounts not paid within said 30-day period; or
(b) if the distribution does not constitute a total distribution, the
Company shall pay the Participant an amount equal to the fair market value
of the Company stock repurchased no later than 30 days after the
Participant exercises the put option.
The period during which a Participant may exercise the put option shall be the
sixty day period following the date of distribution and if the option is not
exercised within such period, an additional sixty day period commencing on the
first anniversary of the date of the distribution.
8.4. Voting Rights of Participants. Each Participant (or Beneficiary) shall
be entitled to direct the Plan as to the manner in which shares of Company stock
allocated to such Participant's (or Beneficiary's) Tax Credit ESOP Account shall
be voted.
ARTICLE 9
TOP HEAVY PROVISIONS
9.1. Effect of Top Heavy Status. Notwithstanding anything contained herein
to the contrary, if the Plan is a top heavy plan for any Plan Year, and if any
Participant who is a non-key Employee does not accrue the minimum benefit or
contribution described in Section 416(c)(1) or (c)(2) of the Code for that Plan
Year under this Plan and any other defined benefit and defined contribution plan
which is required or permitted to be aggregated with the Plan for purpose of
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applying Section 416 of the Code, then the Company shall make such additional
contributions, if any, on behalf of such Participant (regardless of whether such
Participant completes 1,000 hours of service for such Year and regardless of his
or her level of compensation) as shall be necessary in order to satisfy the
minimum contribution requirements of Section 416(c)(2) of the Code (determined
with regard to Section 416(f) of the Code) with respect to such Participant for
such Plan Year. The minimum contribution will not be required (or the minimum
contribution will be reduced, as the case may be) for a Participant if and to
the extent that the minimum top heavy contribution or benefit requirement is
satisfied by another qualified plan of the Employer or an Affiliate.
9.2. Definitions and Special Rules.
(a) Top Heavy Status. The Plan is a top heavy plan if, as of the
determination date, the aggregate Account values of all key Employees under the
Plan (required to be taken into account for this purpose) plus the aggregate
account values and the aggregate present values of accrued benefits for all key
Employees under all other plans which are aggregated with this Plan (required to
be taken into account for this purpose) exceed sixty percent of all such
aggregate values for all Employees or former Employees (other than former key
Employees) under the Plan and such other plans. The determination of the top
heavy status of the Plan will be made in accordance with the provisions of
Section 416 of the Code and the regulations promulgated thereunder which are
specifically incorporated herein by reference.
(b) Aggregation of Plans. Each plan of the Employer or an Affiliate in
which a key Employee participates and each other plan which enables such plan to
meet the requirements of Section 401(a)(4) or Section 410(b) of the Code will be
aggregated with this Plan, and all additional plans which the Company designates
will be aggregated with this Plan if and to the extent that the resulting group
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of plans satisfies the coverage and nondiscrimination tests of Sections
401(a)(4) and 410 of the Code.
(c) Determination Date. For purposes of determining whether the Plan is a
top heavy plan for a Plan Year, the determination date is the last day of the
preceding Plan Year.
(d) Key Employee. The term "key Employee" means a key employee described in
Section 416(i)(1) of the Code, and the term "non-key Employee" means any
Employee who is not a key Employee.
ARTICLE 10
ADMINISTRATION OF PLAN
10.1. Organization of Administrative Committee and Procedural Matters. The
Plan will be administered by an Administrative Committee composed of at least
three individuals appointed by the Board. Each member of the Administrative
Committee will serve at the pleasure of the Board and without compensation.
Action by the Administrative Committee may be taken by a vote of a majority of
its members then serving or in a writing without a meeting signed by all of its
members. Unless the Board appoints officers, the Administrative Committee may
designate one of its members as the Chairman and shall elect a Secretary who may
but need not be a member of the Administrative Committee. No member of the
Administrative Committee shall participate in the determination of any of his or
her rights or benefits under the Plan.
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10.2. Powers of Administrative Committee. The Administrative Committee will
administer the Plan and will have complete control in the administration
thereof. In exercising any of its discretionary powers with respect to the
administration of the Plan, the Administrative Committee will act in a uniform
and non-discriminatory manner. The Administrative Committee will have all powers
which are reasonably necessary to carry out its responsibilities under the Plan
including, without limitation, the power to construe the Plan and to determine
all questions which may arise thereunder. The decision of the Administrative
Committee as to any disputed question arising hereunder, including questions of
construction, interpretation and administration, shall be final and conclusive
on all persons. All disbursements by the Trustee, except for reasonable expenses
of administering the Trust assets, shall be made upon and in accordance with the
instructions of the Administrative Committee. Except as otherwise specifically
provided herein, the Administrative Committee shall have no power, authority or
responsibility with respect to the management, investment or control of Trust
assets.
10.3. Operation of Administrative Committee. The Administrative Committee
may adopt such rules and regulations as it deems necessary or appropriate for
the conduct of its affairs. The Administrative Committee may appoint from among
its members such subcommittees with such powers as it shall determine and may
employ such accountants, actuaries, counsel, administrators and other agents
(clerical and otherwise) and services as it deems necessary or desirable in
connection with the performance of its functions hereunder and in order to carry
out the provisions of the Plan. Decisions and directions of the Administrative
Committee may be communicated to the Trustee, a Participant, a Beneficiary, the
Company or any other person who is to receive such decision or direction by a
document signed by any one or more members of the Administrative Committee (or
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<PAGE>
persons other than members) so authorized, and such decision or direction of the
Administrative Committee may be relied upon by its recipient as being the
decision or direction of the Administrative Committee.
10.4. Resignation or Removal. Any member of the Administrative Committee
may resign by giving written notice to the Board not less than 30 days before
the effective date of his or her resignation. Any member of the Administrative
Committee may be removed, with or without cause, at any time by the Board. The
Board shall fill vacancies as soon as is reasonably practicable after a vacancy
occurs and, until a new appointment is made, the remaining members shall have
the full authority to act.
10.5. Records and Reports. The Administrative Committee shall keep records
of its proceedings and acts and shall keep or cause to be kept all such books of
account, records and other data as may be necessary in connection with the
performance of its functions hereunder.
10.6. Expenses. All expenses incurred in connection with the administration
of the Plan and the Trust Fund, including, without limitation, fees of
accountants, actuaries, counsel, investment managers and other agents, and other
costs of administering the Plan and the Trust Fund, shall be paid by the Trustee
out of the Trust Fund, unless paid by the Company.
10.7. Indemnification. The Company shall indemnify each member of the
Administrative Committee, each member of the Board, and any of its (or an
Affiliate's) employees to whom a fiduciary responsibility with respect to the
Plan is allocated or delegated from and against all liabilities, costs and
expenses, including counsel fees, amounts paid in settlement and amounts of
judgments, fines or penalties, incurred or imposed upon such person in
connection with any claim, action, suit or proceeding, whether civil, criminal,
administrative or investigative, arising by reason of or in connection with acts
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<PAGE>
or omissions in his or her capacity as a fiduciary hereunder, unless it is
established by the order of a court of competent jurisdiction that such act or
omission is the result of gross negligence or fraud.
10.8. Claim for Benefits. A disputed claim for benefits under the Plan may
be made to the Administrative Committee or its designee in writing. If the claim
contains insufficient information, then the claimant will be given notice of
additional material or information necessary to perfect the claim, and the claim
will be deemed filed when such additional information is received. Within 60
days after a claim is received, the claimant will be notified whether the claim
is granted or denied in whole or in part. If the claim is denied in whole or in
part, the written notification will set forth, in a manner calculated to be
understood by the claimant, (a) the specific reason or reasons for the denial;
(b) specific reference to pertinent provisions of the Plan on which the denial
is based; and (c) an explanation of the Plan's claim review procedure. Failure
to give notification pursuant to this Section within 60 days after receipt of
the claim will be deemed a denial of the claim for the purpose of proceeding to
the review stage.
10.9. Review of Denied Claims. If a claim is denied in whole or in part,
then within 60 days after written notification of the denial (or after the claim
is deemed denied), the claimant may file with the Administrative Committee a
written request for a review of the claim. A claimant who timely files a request
for review of his or her claim may review pertinent documents and may submit a
written statement in support of the claim. If the claimant so requests in a
timely-filed application for review, the Administrative Committee will schedule
a conference with the claimant (and/or an authorized representative). Such
conference will be held at the offices of the Company within 60 days after the
Administrative Committee receives the claimant's written request for review. The
Administrative Committee will communicate its decision in writing to the
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<PAGE>
claimant within 60 days after the written request for review is filed or within
30 days after the conference, whichever is later, setting forth in a manner
calculated to be understood by the claimant the specific reasons for its
decision and the pertinent provisions of the Plan on which the decision is
based.
ARTICLE 11
TRUST FUND
11.1. General. The Trust corpus will consist of all payments to the Trustee
as provided herein, together with the net income or loss (including capital
items) produced by the investments of the Trust or the sale of any such
investments, which will be added to or deducted from the Trust. The Trust assets
will be held, administered and invested in the manner provided in the agreement
pursuant to which the Trust is governed.
11.2. No Diversion. All assets of the Trust will be owned by the Trustee.
Except as otherwise provided herein, no part of the Trust assets may be used for
or diverted to purposes other than for the exclusive benefit of Participants and
their Beneficiaries.
11.3. Benefits Provided Solely by Trust Fund. All benefits payable under
the Plan will be paid or provided solely from the Trust assets, and neither the
Company nor any participating Employer nor any Affiliate assumes or shall have
liability or responsibility therefor.
11.4. Employer Securities. Notwithstanding anything herein to the contrary,
no part of the Trust assets may be invested in securities of the Company or an
Affiliate unless such securities constitute qualifying employer securities
within the meaning of Section 407(d)(5) of ERISA and no part of the Trust assets
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may be invested in real property which is leased to the Company or an Affiliate
unless such real property constitutes qualifying employer real property within
the meaning of Section 407(d)(4) of ERISA. The Trustee or investment manager, as
the case may be, may invest up to 100% of the Plan's assets in qualifying
employer securities and/or qualifying employer real property, provided that any
such investment is deemed advisable and proper in carrying out the purposes of
the Plan and the Trust, and provided further that such investment would not
constitute a prohibited transaction or be otherwise impermissible under
applicable law.
11.5. Appointment of Investment Manager. The Administrative Committee may
appoint one or more investment managers to manage any assets of the Plan,
including all or part of the assets of any Investment Fund. As used herein, the
term "investment manager" means any person or entity who: (a) has power to
manage, acquire or dispose of any assets of the Plan; (b) is (1) registered as
an investment adviser under the Investment Advisers Act of 1940 (2) a bank, as
defined in that Act, or (3) an insurance company qualified under the laws of
more than one state to perform services described in (a) above; and (c) has
acknowledged in a writing delivered to the Administrative Committee and the
Trustee that he is a fiduciary with respect to the Plan. The investment
manager(s) will have such powers and responsibilities as may be conferred under
the Trust Agreement and the investment management agreement.
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<PAGE>
ARTICLE 12
AMENDMENTS AND TERMINATION
12.1. Company May Amend Plan. The Company reserves the right, by action of
the Board at any time or from time to time, to modify or amend this Plan in
whole or in part. No amendment will:
(a) vest in an Employer an interest in the Trust Fund;
(b) cause or permit the Trust Fund to be diverted to any purpose other
than the exclusive benefit of Participants and Beneficiaries;
(c) decrease the Account of any Participant or eliminate an optional
form of payment;
(d) increase substantially the duties or liabilities of the Trustee or
the members of the Administrative Committee without its or their written
consent; or
(e) change the vesting schedule to one which would result in the
nonforfeitable percentage of a Participant's Account (determined as of the
later of the date of adoption of the amendment or the effective date of the
amendment) being less than the nonforfeitable percentage computed under the
Plan without regard to the amendment. If the Plan's vesting schedule is
amended, each Participant with at least three years of Service may elect to
have his or her nonforfeitable percentage computed without regard to the
amendment. The election must be made by the latest of the following dates:
(1) 60 days after the amendment is adopted, (2) 60 days after the amendment
becomes effective, or (3) 60 days after the Participant is issued written
notice of the amendment.
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<PAGE>
12.2. Withdrawal of Participating Employer. An Employer may withdraw from
the Plan and the Trust Fund by giving written notice to the Administrative
Committee of its intent to withdraw. The Administrative Committee will then
determine the portion of the Trust Fund attributable to the Participants
employed by the withdrawing Employer and will notify the Trustee to segregate
those assets and transfer them to the successor trustee or trustees when it
receives a designation of the successor from the withdrawing Employer. A
withdrawal will not terminate the Plan with respect to the withdrawing Employer
if the Employer appoints a successor trustee or trustees and establishes another
plan and trust intended to qualify under Section 401(a) of the Code.
12.3. Termination. The Board may terminate the Plan with respect to any or
all Employers. Any Employer (by action of its board of directors) may terminate
the Plan with respect to itself. If there is a partial or total termination of
the Plan or there is a complete discontinuance of an Employer's Contributions,
all affected Participants will immediately become 100% vested in their Accounts.
12.4. Distributions Upon Termination. Subject to the provisions of
applicable law (or the provisions of a Plan amendment adopted in connection with
a Plan termination), distribution of a Participant's Accounts as a result of the
termination of the Plan is permitted only if: (a) the balance of the Accounts is
not more than $3,500, or (b) the balance exceeds $3,500 and either (1) the
Participant consents to the distribution or (2) neither the Employer nor any
Affiliate maintains another defined contribution plan. However if the Employer
or an Affiliate maintains another defined contribution plan, then, even though
the Participant's Accounts cannot be distributed without his or her consent, the
Accounts may be transferred to the other defined contribution plan to be held
for the Participant's benefit. Except to the extent required by applicable law,
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<PAGE>
all distributions in respect of the termination of the Plan will be in the form
of single sum payments.
12.5. Statutory Merger/Consolidation Rule. In the case of any merger or
consolidation of the Plan with, or any transfer of assets or liabilities of the
Plan to, any other plan, the benefit which each Participant would be entitled to
receive immediately after the merger, consolidation or transfer (if the Plan
then terminates) shall be equal to or greater than the benefit he or she would
have been entitled to receive immediately before the merger, consolidation or
transfer (as if the Plan had then terminated).
ARTICLE 13
MISCELLANEOUS
13.1. No Rights Conferred. Nothing herein will be deemed to give any
individual any right to be retained in the employ of the Company or an Affiliate
or any other rights in the future other than as herein specifically set forth.
Except as otherwise specifically required herein or by law, no Participant,
Beneficiary or other person will be entitled to inspect the books, records,
reports, financial statements or tax returns of the Company.
13.2. Benefits Limited to Trust Fund. No person will have any right or
interest in the Trust other than as provided herein. Any final payment or
distribution to a Participant or Beneficiary will be in full satisfaction of all
claims against the Trust, the Trustee, the Administrative Committee, the
Company, an Affiliate, the Board and any fiduciary of the Plan or Trust. The
Trustee or the Administrative Committee may require a Participant or Beneficiary
to execute a receipt and a general release of any and all such claims upon a
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<PAGE>
final payment or distribution, or a receipt and/or release to the extent of any
partial payment or distribution.
13.3. Spendthrift Provision. Except to the extent required by law, no
benefit under the Plan shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any
attempt to anticipate, alienate, sell, transfer, assign, encumber or charge the
same shall be void. No such benefit shall be in any way liable for or subject to
the debts, contracts, liabilities, engagements or torts of any person entitled
to those benefits. The Administrative Committee will establish such procedures
as may be necessary or appropriate in order to comply with the provisions of
ERISA and the Code in connection with domestic relations orders issued with
respect to a Participant's Accounts. If an order so provides, payment of the
interest of an alternate payee (as defined in Section 414(p) of the Code) may be
made in a single sum as soon as practicable after the Administrative Committee
determines that the order constitutes a qualified domestic relations order.
13.4. Payment to Minors or Incompetents. If any person to whom a benefit is
payable hereunder is an infant or if the Administrative Committee determines
that any person to whom such benefit is payable is incompetent by reason of a
physical or mental disability, the Administrative Committee may cause the
payments becoming due to such person to be made to another for his or her
benefit without responsibility of the Administrative Committee or the Trustee to
see to the application of such payments.
13.5. Headings. The headings in this Plan have been inserted for
convenience of reference only and are to be ignored in any construction of the
provisions hereof.
13.6. Severability. If any provision of the Plan or the application of such
provision to any person or circumstance is held invalid, the remainder of the
Plan (and the application of such provision to any person or circumstance other
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than the person or circumstance to which it is held invalid) will not be
affected thereby.
13.7. Construction. The provisions of the Plan will be construed, regulated
and administered according to the provisions of ERISA, the Code and to the
extent not inconsistent therewith or preempted thereby, in accordance with the
laws of the State of Connecticut.
ZYGO CORPORATION
-43-
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
SECOND AMENDMENT AGREEMENT, made as of March 10, 1995, between ZYGO
CORPORATION, a Delaware corporation with an office at Laurel Brook Road,
Middlefield, Connecticut 06455 (the "Company"), and GARY K. WILLIS, residing at
3 Matson Ridge, Old Lyme, Connecticut 06371 (the "Executive").
W I T N E S S E T H :
WHEREAS, the Company and the Executive are parties to an Employment
Agreement, dated as of February 13, 1992, as amended by an Amendment Agreement,
dated as of August 26, 1993 (as so amended, the "Agreement"); and
WHEREAS, the Company and the Executive desire to amend the Agreement as
herein provided.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Except as specifically amended herein, the Agreement, and each and every
term thereof, shall remain in full force and effect. All references in the
Agreement to the "Agreement" shall be deemed to refer to the Agreement, as
amended hereby.
2. Section 2 of the Agreement is hereby amended by deleting the last
sentence of such Section in its entirety and substituting therefor the
following:
"Thereafter, this Agreement shall automatically be renewed for
successive one year terms unless either party shall give the other thirty
(30) days prior written notice of its or his intent not to renew this
Agreement. The initial three-year term together with all such additional
one-year period(s) of employment, if any, are collectively referred to
herein as the "term" of this Agreement."
3. Section 3 of the Agreement is hereby amended by deleting the amount of
"$175,000" in the first sentence of such Section and substituting therefor the
amount of "190,000."
<PAGE>
4. Section 5 of the Agreement is hereby amended by deleting such Section in
its entirety and substituting therefor the following:
"5. AUTOMOBILE.
The Company shall, during the term of Executive's employment hereunder,
provide Executive with a monthly allowance for an automobile in the amount of
$900 in lieu of any expense reimbursement for Company use of an automobile."
5. Section 9(b)(ii) is hereby amended by deleting such subsection in its
entirety and substituting therefor the following:
"(ii) if Executive resigns for any reason within ninety (90) days
after the Change in Control the Company shall (a) continue existing health
insurance, dental coverage, key man life insurance, AD&D and long-term
disability coverage in effect for Executive at the time of his resignation
for a period of the lesser of three years or until covered by another plan,
and (b) continue the Executive's salary for a one year period, provided,
however, that during the applicable period in which benefits are being paid
by the Company, Executive agrees to maintain a consulting relationship with
the Company which shall not interfere with other obligations of the
Executive."
6. Executive represents and warrants that he is free to enter into this
Second Amendment Agreement and to perform the duties required hereunder, and
that there are no employment contracts or understandings, restrictive covenants
or other restrictions, whether written or oral, preventing the performance of
his duties under the Agreement, as amended hereby.
7. No amendment or alteration of the terms of this Second Amendment
Agreement shall be valid unless made in writing and signed by both of the
parties hereto.
8. This Second Amendment Agreement shall be governed by the laws of the
State of Connecticut applicable to agreements made and to be performed therein.
9. This Second Amendment Agreement may be executed in any number of
counterparts with the same effect as if the signatures hereto were upon the same
instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment
Agreement as of the date and year first above written.
ZYGO CORPORATION
By:
---------------------------------
Mark J. Bonney
Vice-President -
Finance and Administration
---------------------------------
GARY K. WILLIS
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[LOGO] Shawmut Bank
Commercial Promissory Grid Note Shawmut Bank Connecticut, N.A.
$3,000,000.00 Date: December 1, 1994
FOR VALUE RECEIVED, the undersigned, Zygo Corporation (the "Borrower"),
hereby promises to pay to the order of SHAWMUT BANK CONNECTICUT, N.A. (the
"Bank") at the office of the Bank at 777 Main Street, Hartford, Connecticut
06115, or at such other address as the holder hereof may designate, the
principal sum of Three Million and 00/100 DOLLARS ($3,000,000.00), or the
aggregate unpaid principal amount of all advances made by the Bank to the
Borrower hereunder, whichever is less, in lawful money of the United States.
During the period from the date hereof until November 30, 1995 (as such date may
be extended, in writing from time to time, in the Bank's sole and absolute
discretion, the "Termination Date"), unless an Event of Default (as defined
below) occurs, the Borrower (SELECT ONE AND COMPLETE):
[ ] may borrow, repay and reborrow.
[x] may borrow, repay and reborrow; provided, however, that for any period
of twelve (12) consecutive months there shall be no borrowings or reborrowings
and no outstanding principal under this Note for at least thirty (30)
consecutive days.
[ ] may borrow and repay; provided, however, that once any amount is
repaid, such amount may NOT thereafter be reborrowed.
The Borrower also promises to pay interest on each advance at the rate per
annum of zero (-0-) percentage points above the interest rate generally
announced by the Bank from time to time as its Base Rate (the "Base Rate"), and
to pay all taxes levied or assessed upon said advances against any holder of
this Note and to pay all costs, including attorneys' fees, costs relating to the
appraisal and/or valuation of assets and all costs incurred in the collection,
defense, preservation, administration, enforcement or protection of this Note or
in any guaranty or endorsement of this Note, or in any litigation arising out of
the transactions of which this Note or any guaranty or endorsement of this Note
is a part. All payments shall be applied first to the payment of interest on the
unpaid principal of all advances due under this Note and the balance on account
of the principal due under this Note.
This Note has been executed and delivered subject to the following terms
and conditions:
(1) Advances. All advances shall be due and payable on the Termination
Date. The Bank is authorized (but not required) to charge principal and interest
and all other amounts due under this Note to any account of the Borrower with
the Bank when and as it becomes due. If any advance is made, the Bank may, at
its option, record on the books and records of the Bank or endorse on Schedule 1
hereto, an appropriate notation evidencing any advance, each repayment on
account of the principal thereof, and the amount of interest paid; and the
Borrower authorizes the Bank to maintain such records or make such notations and
agrees that the amount shown on the books and records or on said Schedule 1, as
applicable, as outstanding from time to time shall constitute the amount owing
to the Bank pursuant to this Note, absent manifest error. In the event the
amount shown on Schedule 1 conflicts with the amount noted as due pursuant to
the books and records of the Bank, the books and records of the Bank shall
control the disposition of the conflict.
(2) Interest. Interest shall be payable monthly beginning January 1, 1995,
and continuing thereafter on the same day of each succeeding month and on the
Termination Date. Changes in the rate of interest resulting from changes in the
Base Rate shall take place immediately without notice or demand of any kind.
Interest on this Note shall be computed on the basis of a year of three hundred
sixty (360) days and actual days elapsed. Upon default or after maturity or
after judgment has been rendered on this Note, the unpaid principal balance of
all advances shall, at the option of the Bank, bear interest at a rate which is
four (4) percentage points per annum greater than that which would otherwise be
applicable. If, at any time, the rate of interest, together with all amounts
which constitute interest and which are reserved, charged or taken by Bank as
compensation for fees, services or expenses incidental to the making,
negotiating or collection of any advance evidenced hereby, shall be deemed by
any competent court of law, governmental agency or tribunal to exceed the
maximum rate of interest permitted to be charged by the Bank to the Borrower,
then, during such time as such rate of interest would be deemed excessive, that
portion of each sum paid attributable to that portion of such interest rate that
exceeds the maximum rate of interest so permitted shall be deemed a voluntary
prepayment of principal.
(3) Additional Payments. If the Bank shall deem applicable to this Note
(including, in each case, any borrowed and any unused portion thereof), any
requirement of any law of the United States of America, any regulation, order,
interpretation, ruling, official directive or guideline (whether or not having
the force of law) of the Board of Governors of the Federal Reserve System, the
Comptroller of the Currency, the Federal Deposit Insurance Corporation or any
other board or governmental or administrative agency of the United States of
America which shall impose, increase, modify or make applicable to this Note or
cause this Note to be included in any reserve, special deposit, calculation used
in the computation of regulatory capital standards, assessment or other
requirement which imposes on the Bank any cost that is attributable to the
maintenance thereof, then, and in each such event, the Borrower shall promptly
1
<PAGE>
pay the Bank, upon its demand, such amount as will compensate the Bank for any
such cost, which determination may be based upon the Bank's reasonable
allocation of the aggregate of such costs resulting from such events. In the
event any such cost is a continuing cost, a fee payable to the Bank may be
imposed upon the Borrower periodically for so long as any such cost is deemed
applicable by the Bank, in an amount determined by the Bank to be necessary to
compensate the Bank for any such cost, which determination may be based upon the
Bank's reasonable allocation of the aggregate of such costs resulting from such
events. The determination by the Bank of the existence and amount of any such
costs shall, in the absence of manifest error, be conclusive.
(4) Late Charge. The Bank may collect a late charge not to exceed five (5)
percent of any installment of interest or principal, or of any other amount due
to the Bank which is not paid or reimbursed by the Borrower within fifteen (15)
days of the due date thereof to defray the extra cost and expense involved in
handling such delinquent payment and the increased risk of non-collection. The
minimum late charge shall be $15.00.
(5) Review Fee. The Borrower agrees to pay to the Bank a review fee to
defray the Bank's expense involved in continuing to review the condition of the
Borrower and determining whether the Bank will make requested advances to the
Borrower. The review fee shall be payable on a quarterly basis, commencing on
January l, 1995 and on the Termination Date and be in an amount equal to
$1,875.00.
(6) Prepayment. The Borrower has the right to pay before due the unpaid
balance of this Note or any part thereof without penalty or premium. If, at any
time, the aggregate principal amount of all advances outstanding under this Note
shall exceed the maximum amount permitted by this Note, the Borrower shall
immediately prepay so much of the outstanding principal balance, together with
accrued interest on the portion of principal so prepaid, as shall be necessary
in order that the unpaid principal balance, after giving effect to such
prepayments, shall not be in excess of the maximum amount permitted by this
Note. All such prepayments will be applied first to the payment of accrued
interest to the date of the prepayment and the remainder to the principal
balances of this Note.
(7) Financial Statements; Notice of Default. The Borrower shall deliver to
the Bank (a) within forty-five (45) days after close of each of the first three
quarters of each fiscal year of the Borrower, if the Borrower is a corporation
or partnership, or within forty-five (45) days after close of each of the first
three calendar quarters, if the Borrower is a natural person, a balance sheet of
the Borrower as of the close of each quarter and statements of income and
retained earnings for that portion of the year-to-date then ended, prepared in
conformity with generally accepted accounting principles, applied on a basis
consistent with that of the preceding period or containing disclosure of the
effect on financial position or results of operations of any change in the
application of generally accepted accounting principles during the period, and,
if a corporation or partnership, certified by the president or the chief
financial officer of the Borrower or, if a natural person, signed by the
Borrower, as accurate, true and complete; (b) within ninety (90) days after the
close of each fiscal year of the Borrower, if the Borrower is a corporation or
partnership, or within ninety (90) days after the end of each calendar year, if
the Borrower is a natural person, financial statements including, a balance
sheet as of the close of such year and statements of income and retained
earnings and cash flows for the year then ended, prepared in conformity with
generally accepted accounting principles, applied on a basis consistent with
that of the preceding year or containing disclosure of the effect on financial
position or results of operations of any change in the application of accounting
principles during the year and accompanied by a report thereon, containing an
opinion, unqualified as to scope, of a firm of independent certified public
accountants selected by the Borrower and acceptable to the Bank; (c)
simultaneously with the delivery of the financial statements required in
paragraph 7(a) and 7(b) above, a Certificate of Compliance certifying that, as
at the end of the applicable period, the Borrower is in full compliance with all
affirmative, negative and financial covenants set forth in this Note and in any
document, instrument or agreement governing, evidencing or securing this Note
and certified by the president or chief financial officer of the Borrower, if a
corporation or partnership, or signed by the Borrower, if a natural person, as
accurate, true and complete; (d) promptly upon the Bank's written request, such
other information about the financial condition, business and operations of the
Borrower or any endorser or guarantor of this Note (herein a "Guarantor") as the
Bank may from time to time, reasonably request; (e) within ninety (90) days
after the close of each fiscal year of the Borrower, if the Borrower is a
corporation or partnership, or within ninety (90) days after the end of each
calendar year, if the Borrower is a natural person, the most recent year end
balance sheet and statement of income and retained earnings of each Guarantor in
form and detail satisfactory to the Bank, signed by such Guarantor and certified
as true, accurate and complete or, if the Guarantor is a natural person,
personal financial statements in form and detail satisfactory to the Bank and
such Guarantor's federal income tax return and all schedules thereto, signed and
dated and filed with the Internal Revenue Service; and (f) promptly on becoming
aware of any Event of Default (as herein defined), or any event but for the
giving of notice or the passage of time would constitute an Event of Default,
notice thereof, in writing.
(8) Covenants. Unless the Bank otherwise consents in writing.
2
<PAGE>
(9) Financial Covenants. Unless the Bank otherwise consents in writing:
(a) Definitions. As used in this paragraph 9, the following terms shall
have the following meanings:
Capital Assets means assets that in accordance with GAAP are required or
permitted to be depreciated or amortized on Borrower's balance sheet.
Capital Expenditures ("Cap X") means, for any period, the aggregate amount
of all expenditures for the acquisition, construction, improvement, replacement
or purchase of Capital Assets and Intangible Assets, including, but not limited
to, expenditures under Capital Leases.
Capital Leases means capital leases, conditional sales contracts and other
title retention agreements relating to the purchase or acquisition of Capital
Assets.
Current Maturity of Long-Term Debt ("CMLTD") means the current maturity of
long term Indebtedness paid during the applicable period, including, but not
limited to, amounts required to be paid during such period under Capital Leases.
Current Ratio means the ratio of Total Current Assets to Total Current
Liabilities.
Debt Service and Capital Expenditures Coverage Ratio means, during the
applicable period, that quotient equal to (A) the aggregate of (i) Earnings
Before Interest, Taxes, Depreciation and Amortization plus or minus (ii) change
in Working Capital, with increases in Working Capital to be subtracted from
Earnings Before Interest, Taxes, Depreciation and Amortization and decreases in
Working Capital to be added to Earnings Before Interest, Taxes, Depreciation and
Amortization, minus (iii) Capital Expenditures and minus (iv) Dividends, divided
by (B) the sum of (i) Interest and (ii) Current Maturity of Long-Term Debt; that
is,
EBITDA +/- change in Working Capital - Cap X - Dividends
--------------------------------------------------------
Interest + CMLTD
Debt Service and Unfinanced Capital Expenditures Coverage Ratio means,
during the applicable period, that quotient equal to (A) the aggregate of (i)
Earnings Before Interest, Taxes, Depreciation and Amortization plus or minus
(ii) change in Working Capital, with increases in Working Capital to be
subtracted from Earnings Before Interest, Taxes, Depreciation and Amortization
and decreases in Working Capital to be added to Earnings Before Interest, Taxes,
Depreciation and Amortization, minus (iii) Unfinanced Capital Expenditures and
minus (iv) Dividends, divided by (B) the sum of (i) Interest and (ii) Current
Maturity of Long-Term Debt; that is,
EBITDA +/- change in Working Capital - Unfinanced Cap X - Dividends
-------------------------------------------------------------------
Interest + CMLTD
Earnings Before Interest and Taxes means, for the applicable period, income
from continuing operations before the payment of interest and taxes determined
in accordance with GAAP.
Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA")
means, for the applicable period, income from continuing operations before the
payment of interest and taxes plus depreciation and amortization determined in
accordance with GAAP.
GAAP means generally accepted accounting principles in the United States of
America, as from time to time in effect; provided, however, that for purposes of
compliance with this paragraph 9 and the related definitions, GAAP means such
principles as in effect on the date of the preparation and delivery of the
financial statements described in paragraph 7 of this Note and consistently
followed, without giving effect to any subsequent changes other than changes
consented to in writing by the Bank.
Indebtedness means all obligations that in accordance with GAAP should be
classified as liabilities upon Borrower's balance sheet as liabilities or to
which reference should be made by footnotes thereto.
Intangible Assets means assets that in accordance with GAAP are properly
classifiable as intangible assets, including, but not limited to, goodwill,
franchises, licenses, patents, trademarks, tradenames and copyrights.
Interest means, for the applicable period, all interest paid or payable,
including, but not limited to, interest paid or payable on Indebtedness and on
Capital Leases, determined in accordance with GAAP.
Interest Coverage Ratio means the ratio of Earnings Before Interest and
Taxes to Interest.
Quick Ratio means the quotient equal to (A) the aggregate of (i) cash and
currency on hand and on deposit, demand deposits and checks held, plus (ii)
short term, highly liquid investments that are readily convertible to known
amounts of cash, plus (iii) marketable securities plus (iv) accounts receivable
less allowances for doubtful accounts receivable, divided by (B) Total Current
Liabilities.
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Tangible Net Worth means Total Assets minus the sum of (i) Intangible
Assets and (ii) Total Liabilities.
Total Assets means total assets determined in accordance with GAAP.
Total Current Assets means total current assets determined in accordance
with GAAP.
Total Current Liabilities means total current Indebtedness determined in
accordance with GAAP.
Total Liabilities means total Indebtedness determined in accordance with
GAAP.
Unfinanced Capital Expenditures ("Unfinanced Cap X") means Capital
Expenditures minus new long term Indebtedness issued during the applicable
period plus the aggregate amount of all long term Indebtedness prepaid during
such period.
Working Capital means Total Current Assets less Total Current Liabilities.
(b) Accounting Terms. Unless otherwise defined or specified in this
paragraph 9, all accounting terms shall be construed and all accounting
determinations shall be made in accordance with GAAP.
(c) Calculation of Financial Covenants. The calculation of the financial
covenants set forth below shall be measured against the Borrower's financial
statements required to be delivered to the Bank pursuant to paragraph 7 of this
Note as follows (SELECT ONE OR BOTH):
[x] On a Consolidated basis. [ ] On an Unconsolidated basis.
(d) Working Capital. The Borrower shall not permit Borrower's Working
Capital, for the applicable periods, to fall below the dollar amount set for
such period: N/A
For the ___ month period ending ________ , $_______________;
For the ___ month period ending ________ , $_______________;
For the ___ month period ending ________ , $_______________; and
For the ___ month period ending ________ , and thereafter $_______________;
(e) Current Ratio. The Borrower shall not permit Borrower's Current Ratio,
for the applicable periods, to be less than the ratio set for such period:
For the ___ month period ending ________ , __________ to 1.0;
For the ___ month period ending ________ , __________ to 1.0;
For the ___ month period ending ________ , __________ to 1.0; and
For the 3 month period ending 12/31/94 , and thereafter 1.00 to 1.0;
(f) Quick Ratio. The Borrower shall not permit Borrower's Quick Ratio, for
the applicable periods, to be less than the ratio set for such period: N/A
For the ___ month period ending ________ , __________ to 1.0;
For the ___ month period ending ________ , __________ to 1.0;
For the ___ month period ending ________ , __________ to 1.0; and
For the ___ month period ending ________ , and thereafter __________ to 1.0;
(g) Net Worth. The Borrower shall not permit Borrower's Net Worth, for the
applicable periods, to fall below the dollar amount set for such period:
For the ___ month period ending ________ , $_______________;
For the ___ month period ending ________ , $_______________;
For the ___ month period ending ________ , $_______________; and
For the 3 month period ending 12/31/94 , and thereafter $18,500,000 ;
(h) Capital Expenditures. The Borrower shall not permit Borrower's Capital
Expenditures, for the applicable periods, to exceed the dollar amount set for
such period: N/A
For the ___ month period ending ________ , $_______________;
For the ___ month period ending ________ , $_______________;
For the ___ month period ending ________ , $_______________; and
For the ___ month period ending ________ , and thereafter $_______________;
(i) Total Liabilities to Net Worth Ratio. The Borrower shall not permit the
ratio of Borrower's Total Liabilities to Net Worth, for the applicable periods,
to exceed the ratio set for such period:
For the ___ month period ending ________ , __________ to 1.0;
For the ___ month period ending ________ , __________ to 1.0;
For the ___ month period ending ________ , __________ to 1.0; and
For the 3 month period ending 12/31/94 , and thereafter 0.75 to 1.0;
4
<PAGE>
(j) Debt Service and Capital Expenditures Coverage Ratio. The Borrower
shall not permit Borrower's Debt Service and Capital Expenditures Coverage
Ratio, during the applicable periods, to be less than the ratio set for such
period: N/A
During the ___ month period ending ________ , _______ to 1.0;
During the ___ month period ending ________ , _______ to 1.0;
During the ___ month period ending ________ , _______ to 1.0; and
During the ___ month period ending ________ , and thereafter _______ to 1.0;
(k) Debt Service and Unfinanced Capital Expenditures Coverage Ratio. The
Borrower shall not permit Borrower's Debt Service and Unfinanced Capital
Expenditures Coverage Ratio, during the applicable periods, to be less than the
ratio set for such period: N/A
During the ___ month period ending ________ , _______ to 1.0;
During the ___ month period ending ________ , _______ to 1.0;
During the ___ month period ending ________ , _______ to 1.0; and
During the ___ month period ending ________ , and thereafter _______ to 1.0;
(l) Interest Coverage Ratio. The Borrower shall not permit Borrower's
Interest Coverage Ratio, during the applicable periods, to be less than the
ratio set for such period: N/A
During the ___ month period ending ________ , _______ to 1.0;
During the ___ month period ending ________ , _______ to 1.0;
During the ___ month period ending ________ , _______ to 1.0; and
During the ___ month period ending ________ , and thereafter _______ to 1.0;
(m) Other. In the event that the borrower incurs or permits to exist any
lien, mortgage, security interest, pledge, charge or other encumbrance of
$1,000,000 or greater, against any of its property or assets, whether owned or
hereafter acquired, or merges or consolidates with or into any other person,
firm or corporation or purchases or otherwise acquires all or a material portion
of the stock or assets of any other person, firm or corporation, the borrower
will provide the Bank with written notification within 30 days of such event.
(10) Events of Default; Remedies. Each of the following shall constitute an
"Event of Default" hereunder:
(a) Failure to make due payment of principal or interest on the Note or in
the payment of any other liability owing by the Borrower to the Bank, now
existing or hereinafter incurred, whether direct or contingent; or
(b) Failure by the Borrower to observe or perform any covenant contained in
this Note, or any of its obligations under any document, instrument or agreement
governing, evidencing or securing this Note; or
(c) Any representation or warranty made by the Borrower or any Guarantor to
the Bank or any statement, certificate or other data furnished by any of them in
connection herewith proves at any time to be incorrect in any material respect;
or
(d) Any levy, seizure, attachment, execution or similar process shall be
issued or levied on any of the Borrower's or any Guarantor's property; or
(e) The Borrower or any Guarantor shall (i) apply for or consent to the
appointment of a receiver, conservator, trustee or liquidator of all or a
substantial part of any of its assets; (ii) be unable, or admit in writing its
inability, to pay its debts as they mature; (iii) file or permit the filing of
any petition, case, arrangement, reorganization, or the like under any
insolvency or bankruptcy law, or the adjudication of it as a bankrupt, or the
making of an assignment for the benefit of creditors or the consenting to any
form of arrangement for the satisfaction, settlement or delay of debt or the
appointment of a receiver for all or any part of its properties; or (iv) take
any action for the purpose of effecting any of the foregoing; or
(f) An order, judgment or decree shall be entered, or a case shall be
commenced, against the Borrower or any Guarantor, without the application,
approval or consent of the Borrower or such Guarantor by or in any court of
competent jurisdiction, approving a petition or permitting the commencement of a
case seeking reorganization or liquidation of the Borrower or any Guarantor or
appointing a receiver, trustee, conservator or liquidator of the Borrower or any
Guarantor, or of all or a substantial part of its assets and Borrower or any
Guarantor, by any act, indicates its approval thereof, consent thereto, or
acquiescence therein, or such order, judgment, decree or case shall continue
unstayed and in effect for any period of thirty (30) consecutive days; or
(g) A Borrower or Guarantor who is a natural person shall die; or
(h) Failure by the Borrower or by any Guarantor to pay or perform any other
indebtedness or obligation whether contingent or otherwise, or if any such other
indebtedness or obligation shall be accelerated, or if there exists any event of
default under any instrument, document or agreement governing, evidencing or
securing such other indebtedness or obligation; or
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<PAGE>
(i) The Bank believes that any material adverse change in the assets,
liabilities, financial condition or business of the Borrower or any Guarantor
has occurred since the date of any financial statements delivered to the Bank
before or after the date of this Note; or
(j) If, at any time, the Bank believes in good faith that the prospect of
payment of any obligation or the performance of any agreement of the Borrower or
any Guarantor is impaired, or there is such a change in the assets, liabilities,
financial condition or business of the Borrower or any Guarantor as the Bank
believes in good faith impairs the Bank's security (if any) or increases its
risk of non-collection;
then, upon the occurrence of any Event of Default, the availability of
advances hereunder shall, at the option of the Bank, be deemed to be
automatically terminated and the Bank, at its option, may declare all advances
outstanding hereunder, together with accrued interest thereon and all applicable
late charges and surcharges and all other liabilities and obligations of the
Borrower to the Bank to be forthwith due and payable, whereupon the same shall
become forthwith due and payable; all of the foregoing without presentment or
demand for payment, notice of non-payment, protest or any other notice or demand
of any kind, all of which are expressly waived by the Borrower and by each
Guarantor.
(11) Lien and Set Off. The Borrower and each Guarantor hereby give the Bank
a lien and right of set off for all of Borrower's and each Guarantor's
liabilities and obligations upon and against all the deposits, credits,
collateral and property of the Borrower and each Guarantor, now or hereafter in
the possession, custody, safekeeping or control of the Bank or any entity under
the control of Shawmut National Corporation or in transit to any of them. At any
time, without demand or notice, Bank may set off the same or any part thereof
and apply the same to any liability or obligation of the Borrower or any
Guarantor even though unmatured.
(12) Prejudgment Remedy Waiver. BORROWER AND EACH GUARANTOR (1) ACKNOWLEDGE
THAT THE ADVANCES EVIDENCED BY THIS NOTE ARE PART OF A COMMERCIAL TRANSACTION
AND (2) TO THE EXTENT PERMITTED BY ANY STATE OR FEDERAL LAW, WAIVE THE RIGHT ANY
OF THEM MAY HAVE TO PRIOR NOTICE OF AND A HEARING ON THE RIGHT OF ANY HOLDER OF
THIS NOTE TO ANY REMEDY OR COMBINATION OF REMEDIES THAT ENABLES SAID HOLDER, BY
WAY OF ATTACHMENT, FOREIGN ATTACHMENT, GARNISHMENT OR REPLEVIN, TO DEPRIVE
BORROWER OR ANY GUARANTOR OF ANY OF THEIR PROPERTY, AT ANY TIME, PRIOR TO FINAL
JUDGMENT IN ANY LITIGATION INSTITUTED IN CONNECTION WITH THIS NOTE.
(13) Jury Trial Waiver. THE BANK, THE BORROWER AND EACH GUARANTOR
IRREVOCABLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY PROCEEDING HEREAFTER
INSTITUTED BY OR AGAINST THE BANK, THE BORROWER OR ANY GUARANTOR IN RESPECT OF
THIS NOTE OR ARISING OUT OF ANY DOCUMENT, INSTRUMENT OR AGREEMENT EVIDENCING,
GOVERNING OR SECURING THIS NOTE.
(14) Joint and Several Obligations; Miscellaneous. This Note shall be the
joint and several obligation of Borrower and each Guarantor and each provision
of this Note shall apply to each and all jointly and severally and to the
property and liabilities of each and all, who hereby waive diligence, demand,
presentment for payment, notice of nonpayment, protest and notice of dishonor,
and who hereby agree to any extension or delay in the time for payment or
enforcement, to renewal of this Note and to any substitution or release of any
collateral, all without notice and without any effect on their liabilities. Any
delay on the part of the holder hereof in exercising any right hereunder or
under any mortgage or security agreement which may secure this Note shall not
operate as a waiver of any such right, and any waiver granted for one occasion
shall not operate as a waiver in the event of a subsequent default. The rights
and remedies of the holder hereof shall be cumulative and not in the
alternative, and shall include all rights and remedies granted herein, in any
document, instrument or agreement governing, evidencing or securing this Note
and under all applicable laws. This Note is the final, complete and exclusive
statement of the terms governing this Note. If any provision of this Note shall
to any extent be held invalid or unenforceable, then only such provision shall
be deemed ineffective and the remainder of this Note shall not be affected. The
provisions of this Note shall bind the heirs, executors, administrators, assigns
and successors of each and every Borrower and each Guarantor and shall inure to
the benefit of Bank, its successors and assigns. This Note shall be governed by
and construed in accordance with the laws of the State of Connecticut.
(15) Acknowledgement of Borrower. Borrower acknowledges receipt of a copy
of this Note, and attests that each advance is to be used for general commercial
purposes and that no part of such proceeds will be used, in whole or in part,
for the purpose of purchasing or carrying any "margin stock" as such term is
defined in Regulation U of the Board of Governors of the Federal Reserve System.
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<PAGE>
IN WITNESS WHEREOF, the Borrower has executed, or caused this Note to be
duly executed, as a sealed instrument Witness:
(Signature)
- -------------------------------------- --------------------------------------
Print name of individual Borrower
(Signature)
- -------------------------------------- --------------------------------------
Print name of individual Borrower
ZYGO Corporation
--------------------------------------
Print name of corporate or
partnership Borrower
/s/ Joseph C. Guarino /s/ Mark J Bonney
- -------------------------------------- --------------------------------------
Joseph C. Guarino By: Mark J Bonney
Its: Vice President
Guaranty and Endorsement
IN CONSIDERATION OF the advances or other extensions of credit or
accommodations evidenced by the within note, the undersigned (if more than one,
jointly and severally) hereby unconditionally guarantee(s) to SHAWMUT BANK
CONNECTICUT, N.A. and every subsequent holder of said note, irrespective of the
genuineness, validity, regularity or enforceability thereof or of any security
therefor, or of the existence or extent of any such security, or of any other
circumstance, the prompt payment of said note and of all sums stated therein to
be payable, when due, at maturity, by acceleration or otherwise. Each signature
hereto is intended also as an endorsement of the within note, and the
undersigned hereby agree to be bound by all of the terms and conditions of said
note that pertain to guarantors and endorsers.
The undersigned further agree to pay all costs and expenses, including
attorneys' fees, arising out of or with respect to the validity, enforceability,
defense or preservation of this Guaranty and Endorsement.
The undersigned further guarantee that all payments made by the Borrower to
the Bank with respect to any liabilities hereby guarantied will, when made, be
final and agree that if any such payment is recovered from or repaid by the Bank
in whole or in part in any bankruptcy, insolvency or similar proceeding
instituted by or against the Borrower, this Guaranty and Endorsement shall
continue to be fully applicable to such liabilities to the same extent as though
the payment so recovered or repaid had never been originally made on such
liabilities. The undersigned hereby waive any claim, right or remedy which the
undersigned may now have or hereafter acquire against the Borrower or any of its
assets or property that arises hereunder or from the performance by the
undersigned hereunder, including without limitation, any claim, right or remedy
of subrogation, reimbursement, exoneration, contribution, indemnification or
participation in any claim, right or remedy that the Bank may have against the
Borrower or any collateral for the liabilities of the Borrower which the Bank
now has or hereafter acquires, whether or not such claim, right, or remedy
arises in equity, under contract, by statute, under common law or otherwise.
Upon any default of the Borrower, the liability of the undersigned shall be
effective immediately and payable on demand without any suit or action against
the Borrower. No delay or omission on the part of Bank in exercising any right
hereunder shall operate as a waiver of such right or any other right; a waiver
on one occasion shall not be a bar to or waiver of any right on any other
occasion.
The liability of the undersigned with respect to any liability shall not be
terminated by, and the undersigned assents to any extension or postponement of
the time of payment or any other indulgence, any modification, waiver or
amendment of the terms of any agreement relating to liabilities, any
substitution, exchange or release of collateral, the addition or release of any
party primarily or secondarily liable including any of the undersigned, whether
or not notice thereof is given to the undersigned. The Bank shall have no duty
to collect or protect any collateral or any income thereon, nor to preserve any
rights against other parties, and the Bank may proceed under this Guaranty and
Endorsement immediately upon Borrower's default without resorting to or regard
to any collateral or any other guaranty or source of payment.
(Signature)
- -------------------------------------- --------------------------------------
Print name of corporate Print name of individual guarantor
or partnership guarantor
(Signature)
- -------------------------------------- --------------------------------------
By: Print name of individual guarantor
Its:
7
ZYGO CORPORATION
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. Purpose. The purpose of the Zygo Corporation Non-Employee Director Stock
Option Plan (the "Plan") is to enable Zygo Corporation (the "Company") to
provide stock options to members of its Board of Directors (the "Board") who are
not also employees of, or consultants to, the Company ("Non-Employee
Directors"). It is intended that the Plan will constitute a "formula plan"
within the meaning and for the purposes of Rule 16b-3 issued by the Securities
and Exchange Commission under Section 16 of the Securities Exchange Act of 1934.
The provisions of the Plan and of any option agreement made pursuant to the Plan
will be interpreted and applied accordingly.
2. Stock Subject to the Plan. Except as otherwise permitted by paragraph 6
hereof, the Company may issue and sell a total of [200,000] shares of its common
stock, $.10 par value (the "Common Stock"), pursuant to the Plan. Such shares
may be either authorized and unissued or held by the Company in its treasury.
New options may be granted under the Plan with respect to shares of Common Stock
which are covered by the unexercised portion of an option which terminates or
expires.
3. Administration. The Plan will be administered by the Board. Subject to
the provisions of the Plan and applicable law, the Board, acting in its sole and
absolute discretion, shall have full power and authority to interpret the
provisions of the Plan and option agreements made under the Plan, to supervise
the administration of the Plan, and to take such other action as may be
necessary or desirable in order to carry out the provisions of the Plan. The
decision of the Board as to any disputed question, including questions of
construction, interpretation and administration, shall be final and conclusive
on all persons.
<PAGE>
4. Automatic Option Grants. Options to purchase shares of Common Stock will
automatically be granted under the Plan to Non-Employee Directors as follows:
(a) an option to purchase 25,000 shares of Common Stock will be
granted on the date this Plan is adopted by the Board, subject, however, to
the approval of the Plan by the Company's stockholders at their next annual
meeting, to each individual who is then serving as a Non-Employee Director;
(b) an option to purchase 25,000 shares of Common Stock will
automatically be granted to each new Non-Employee Director on the date of
his or her initial election or appointment subsequent to the date the Plan
is adopted by the Board; and
(c) an option to purchase 25,000 shares of Common Stock will
automatically be granted to each Non-Employee Director on the fifth
anniversary of the date on which an option was previously granted to such
Non-Employee Director, provided that he or she shall have continuously
served as a director of the Company through such fifth anniversary;
provided, however, that no option shall be granted under this Plan to an
individual who previously received an option granted under the Company's
Non-Qualified Stock Option Plan in his capacity as a Non-Employee Director
unless such individual shall have agreed to the termination of that portion
of the prior option which would otherwise first become exercisable after
December 31, 1994.
5. Terms and Conditions of Options. Each option granted under the Plan
shall be evidenced by a written agreement containing the following terms and
conditions:
a. Option Price. The purchase price per share shall be equal to the
fair market value of a share of Common Stock on the date the option is
granted. For this purpose, the fair market value of a share of Common Stock
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on any date will be equal to the closing sale price per share as published
by a national securities exchange on which shares of the Common Stock are
traded on such date or, if there is no sale of Common Stock on such date,
the average of the bid and asked prices on such exchange at the closing of
trading on such date.
b. Option Period. Subject to the provisions hereof, the period during
which an option may be exercised shall be ten years from the date the
option is granted.
c. Exercise of Options.
(1) An option will become exercisable at the rate of 20% for each year
of the optionee's continuous service as a director from the date the option
is granted; provided, however, that, if an optionee completes more than six
months (but less than one year) of service as a director in the year in
which his or her service as a director terminates, then he or she will be
credited with a year of continuous service for such last year in
determining the portion of the option which is exercisable at the time of
such termination of service. All or part of the exercisable portion of an
option may be exercised at any time during the option period, except that,
without the consent of the Board, no partial exercise of an option shall be
made for less than [1,000] shares. An option may be exercised by
transmitting to the Company (1) a written notice specifying the number of
shares to be purchased, and (2) payment in full of the purchase price,
together with the amount, if any, deemed necessary to enable the Company to
satisfy its income tax withholding obligations with respect to such
exercise (unless other arrangements acceptable to the Board are made with
respect to the satisfaction of such withholding obligations).
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<PAGE>
(2) The Company's obligation to sell and deliver shares upon exercise
of an option is subject to such compliance with federal and state laws,
rules and regulations applying to the authorization, issuance or sale of
securities as the Company deems necessary or advisable. If at the time of
any exercise of this option a Registration Statement under the Securities
Act of 1933, as amended (the "Act") shall not be effective with respect to
the shares to be acquired on such exercise, then, as a condition to such
exercise and the delivery of the shares, the optionee shall deliver to the
Company a written statement, satisfactory in form and substance to counsel
for the Company, confirming (a) the financial information pertaining to the
Company as to which the optionee had access and (b) that any shares
acquired by the optionee upon exercise of this option will be acquired by
the optionee for his or her own account for investment and not with a view
to the distribution or resale of any such shares. Any certificate for
shares issued upon the exercise of this option may at the Company's option,
bear a legend stating that the shares represented by such certificate were
purchased only for investment and may be transferred only if counsel for
the Company is satisfied that no violation of the Act is involved. The
Company shall be entitled to further postpone the time of delivery of
certificates for shares of its Common Stock for such additional time as the
Company shall deem necessary or desirable to enable it (i) to file a
Registration Statement under the Act with the Securities and Exchange
Commission with respect, among others, to the shares of Common Stock which
may be purchased under this option, or (ii) to comply with the listing
requirements of any securities exchange upon which the Common Stock of the
Company may be listed.
d. Payment of Option Price. The purchase price of shares of Common
Stock acquired pursuant to the exercise of an option granted under the Plan
shall be payable in cash or check and/or previously-owned shares of Common
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<PAGE>
Stock. If the shares of Common Stock are tendered as payment of the option
exercise price, the value of such shares shall be the fair market value as
of the date of exercise. If such tender would result in the issuance of
fractional shares of Common Stock, the Company shall instead return the
difference in cash or by check to the optionee.
e. Rights as a Shareholder. No shares of Common Stock shall be issued
in respect of the exercise of an option granted under the Plan until full
payment therefor has been made. The holder of an option shall have no
rights as a shareholder with respect to any shares covered by an option
until the date a stock certificate for such shares is issued to him or her.
Except as otherwise provided herein, no adjustments shall be made for
dividends or distributions of other rights for which the record date is
prior to the date such stock certificate is issued.
f. Nontransferability of Options. No option shall be assignable or
transferrable except upon the optionee's death to a beneficiary designated
by the optionee in accordance with procedures established by the Board or,
if no designated beneficiary shall survive the optionee, pursuant to the
optionee's will or by the laws of descent and distribution. During an
optionee's lifetime, options may be exercised only by the optionee or the
optionee's guardian or legal representative.
g. Termination of Service. If an optionee ceases to serve as a
director of the Company for any reason, then each outstanding option
granted to him or her under the Plan shall terminate on the date three
months after the date of such termination of service.
h. Other Provisions. The Board may impose such other conditions with
respect to the exercise of options, including, without limitation, any
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<PAGE>
conditions relating to the application of federal or state securities laws,
as it may deem necessary or advisable.
6. Capital Changes, Reorganization, Sale. If (a) the Company shall at any
time be involved in a complete or partial liquidation or reorganization,
including a merger, consolidation, or sale or distribution of assets, (b) the
Company shall declare a stock dividend or subdivide or combine its Common Stock,
or (c) any other event shall occur which in the judgment of the Board
necessitates action by way of adjusting the terms of the option, then the Board
shall forthwith take any such action as in its judgment shall be necessary to
preserve to the optionee rights substantially proportionate to the rights
existing prior to such event or, in the case of a liquidation or reorganization,
terminate the option upon notice given at least thirty (30) days prior to the
effective date of the transaction, or provide for its assumption by any
surviving, consolidated, or successor corporation; provided, that in the event
that the option is terminated, the option shall be exercisable until the
effective date of such liquidation or reorganization in whole or in part as to
all shares then subject thereto, without regard to any installment exercise
provisions (i.e., all vested and otherwise nonvested options will be and become
exercisable until such effective date). Notwithstanding the foregoing, the right
to exercise options without regard to any installment exercise provisions shall
not apply to any option holder who initiated the transaction resulting in the
application of this paragraph 6 unless such person initiated the transaction
pursuant to instructions or authority from the Company. For the purpose of the
foregoing, actions taken by members of an option holder's family shall be deemed
to have been taken by him or her.
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<PAGE>
7. Amendment and Termination of the Plan. The Board may amend or terminate
the Plan. Except as otherwise provided in the Plan with respect to equity
changes, any amendment which would increase the aggregate number of shares of
Common Stock as to which options may be granted under the Plan, materially
increase the benefits under the Plan, or modify the class of persons eligible to
receive options under the Plan shall be subject to the approval of the
stockholders of the Company. No amendment or termination may adversely affect
any outstanding option without the written consent of the optionee.
Notwithstanding anything to the contrary contained herein or in any option
agreement made hereunder, the provisions of paragraphs 4 and 5(a) of the Plan
and any other provision of the Plan or of an option agreement relating to the
timing of option grants, the amount of shares covered thereby and the exercise
price thereunder may not be amended more than once every six months, and no
amendment may be made to the Plan or an option agreement if, as a result of such
amendment, the Plan would no longer qualify as a "formula plan" under Rule 16b-3
issued by the Securities and Exchange Commission under Section 16 of the
Securities Exchange Act of 1934.
8. No Rights Conferred. Nothing contained herein will be deemed to give any
individual any right to be retained or elected or re-elected as a member of the
Board.
9. Governing Law. The Plan and each option agreement shall be governed in
all respects by the laws of the State of Delaware without giving effect to the
provisions relating to conflicts of law.
10. Term of the Plan. The Plan shall be effective as of the date on which
it is adopted by the Board, subject to the approval of the stockholders of the
-7-
<PAGE>
Company within one year from the date of adoption by the Board. The Plan will
terminate on the date ten years after the date of adoption, unless sooner
terminated by the Board. The rights of optionees under options outstanding at
the time of the termination of the Plan shall not be affected solely by reason
of the termination of the Plan and shall continue in accordance with the terms
of the option (as then in effect or thereafter amended) and the Plan.
-8-
ZYGO
-------------------
[PICTURE]
1995 ANNUAL REPORT
PROVIDING WORLDWIDE
MEASUREMENT AND
MANUFACTURE OF
PRECISION SURFACES
<PAGE>
- --------------------------------------------------------------------------------
CORPORATE PROFILE
- --------------------------------------------------------------------------------
Zygo Corporation is a world leader in surface measurement technology and in
the manufacture of precision surfaces. Our precision measuring instruments
provide vital information that enhances productivity and lowers manufacturing
costs of high technology products by maintaining and improving process control
as precision parts and systems are produced. Zygo's measuring instruments serve
a wide variety of industries including data storage, semiconductor, and
precision optics.
Zygo's optical components are used in many applications, including: laser
fusion research, semiconductor manufacturing equipment, and aerospace optical
systems, as well as being an integral part of precision optical instruments.
Founded in 1970, Zygo is a publicly owned company with shares traded on the
NASDAQ exchange. The Company is headquartered in a 100,000-square-foot facility
in Middlefield, Connecticut, with regional sales, service, and technology
centers in California and Singapore, and distributors/agents worldwide providing
local customer support.
- --------------------------------------------------------------------------------
25 YEARS OF EXCELLENCE
- --------------------------------------------------------------------------------
From its founding in 1970, Zygo has strived for excellence in everything
the company does by providing products and services that exceed customer
expectations in performance, quality and value.
Zygo constructed the world's leading plano optics fabrication facility in
1971 and introduced its first interferometer in 1972. With this measuring
instrument and several generations that followed, Zygo revolutionized the optics
industry by enabling routine inspection of optical components and systems with
unprecedented ease, accuracy, and flexibility.
As Zygo grew it continued to develop technologically innovative products--a
distance measurement interferometer to precisely measure displacement and
motion, and phase shifting and scanning white light interferometric microscopes
to measure the shape and micro roughness of small precision surfaces. These
innovative instruments are a major part of Zygo's instrumentation business
today.
Zygo's worldwide reputation for quality and excellence is a result and
tribute to the creativity, work, and commitment of Zygo's employees both past
and present. As we mark the company's 25th anniversary, we reflect on the
milestones reached during the first 25 years (see pages 4 and 5) and set our
sights on an even more prosperous future.
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
----------------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales........................................ $32,233 $24,141 $22,702 $26,744 $30,425
Net earnings..................................... $ 2,749 $ 918 $ 481 $ 632 $ 1,261
Earnings per common and common
equivalent share(1)............................ $ .65 $ .23 $ .12 $ .16 $ .33
Weighted average common shares and
common dilutive equivalents outstanding(1)..... 4,242 3,987 3,902 3,900 3,779
Working capital.................................. $17,072 $14,889 $14,648 $13,388 $12,313
Stockholders' equity............................. $22,333 $19,274 $18,416 $17,720 $16,765
</TABLE>
(1) Restated to reflect a 3-for-2 stock split effected in the form of a 50%
stock dividend declared on July 20, 1995, and paid on August 21, 1995, to
shareholders of record on August 1, 1995. At year end, Zygo employed 210
men and women.
Net Sales
(in thousands)
[THE FOLLOWING TABLE IS REPRESENTED AS A GRAPH IN THE PRINTED REPORT.]
1991 ......................... $30,425
1992 ......................... $26,744
1993 ......................... $22,702
1994 ......................... $24,141
1995 ......................... $32,233
Earnings Before Income Tax
(in thousands)
[THE FOLLOWING TABLE IS REPRESENTED AS A GRAPH IN THE PRINTED REPORT.]
1991 ......................... $1,992
1992 ......................... $ 953
1993 ......................... $ 698
1994 ......................... $1,328
1995 ......................... $3,956
Number of Employees
(Year End)
[THE FOLLOWING TABLE IS REPRESENTED AS A GRAPH IN THE PRINTED REPORT.]
1991 ......................... 275
1992 ......................... 206
1993 ......................... 193
1994 ......................... 179
1995 ......................... 210
Sales per Employee
[THE FOLLOWING TABLE IS REPRESENTED AS A GRAPH IN THE PRINTED REPORT.]
1991 ......................... $113,950
1992 ......................... $107,000
1993 ......................... $112,950
1994 ......................... $131,900
1995 ......................... $173,300
1
<PAGE>
- --------------------------------------------------------------------------------
TO OUR SHAREOWNERS
- --------------------------------------------------------------------------------
Your company concluded Fiscal 1995 by posting record performance in this our
25th anniversary year. As we announce these record results and our third
consecutive year of improved performance, we also acknowledge the significant
milestones reached during our first 25 years as displayed on pages 4 and 5 of
this annual report. Net sales of $32.2 million for 1995 were up 34% as compared
to 1994 net sales of $24.1 million. As was the case in fiscal 1994, operating
profits, pretax profits and net earnings per share not only increased over the
previous year levels but attained historical highs for your company. Net
earnings of $.65 per share were almost three times the fiscal 1994 level of $.23
per share. These earnings performance records were achieved primarily as a
result of increased revenues and record high productivity within our operations.
Sales per employee reached $173,000 and topped last year's previous record high
of $133,000 per employee--a gain of 30%. The strong demand for our instrument
products continued throughout fiscal 1995 and not only fueled a significant
revenue increase, but also established a year-end record backlog of nearly $13
million compared to a $3.8 million backlog at the end of fiscal 1994.
Over the past three years, all of your employees have dedicated their
efforts to implement the strategy put in place at the close of fiscal 1992, to
significantly improve the revenue growth and financial performance of your
company. This strategy has been implemented in three phases: securing and
strengthening the company's foundation, significantly improving the company's
productivity and efficiency, and generating and accelerating the company's
revenue growth.
SECURING AND STRENGTHENING THE COMPANY'S FOUNDATION
Before implementing a plan to grow the business, it was imperative that we
solidify the base upon which we would launch and sustain our future revenue
increases. This effort, initiated at the close of fiscal 1992 and during fiscal
1993, required us to reduce our employment level to match the realities of the
then-depressed market conditions, identify and prioritize the emerging needs of
our key markets, and establish the new product development programs that would
optimally satisfy those needs. These initiatives required the renewed dedication
and the best efforts of each employee in our organization. As a result we are
now identified as a preferred supplier by many industry leading companies in
those markets and have enjoyed an almost 50% increase in our revenues since
fiscal 1992.
SIGNIFICANTLY IMPROVING PRODUCTIVITY AND EFFICIENCY
The second imperative to our strategy was to improve the productivity and
efficiency of our operations so that optimum profits would be produced as our
revenues increased. At the core of this effort has been our total quality
process improvement initiatives managed and implemented by our employees. All of
us at Zygo understand that revenue growth and improved financial performance
result from optimizing customer satisfaction and improving the quality of the
way we do business. Making these improvements requires a continuous improvement
process. Since the beginning of fiscal 1993, employees in every department of
the company have been identifying areas of waste and poor quality and
establishing improvement projects. They have focused their effort in 5 quality
improvement areas: improved customer satisfaction, reduced waste, improved
delivery dependability, reduced cycle time, and increased asset utilization. The
results of these efforts are most impressive with gross profit as a percentage
of net sales improving steadily the past 3 years from 38% in fiscal 1992 to 44%
in fiscal 1995 and our productivity, measured by sales per employee, also
increasing steadily throughout that period from approximately $107,000 per
employee to our record level of $173,000 per employee. These efforts and the
improved productivity and efficiency resulting from them have allowed the
company's increased revenues to return the record earnings per share we now
enjoy.
2
<PAGE>
GENERATE AND ACCELERATE THE COMPANY'S GROWTH POTENTIAL
Focusing our marketing and selling efforts on the leading companies within the
major industries we serve has allowed us to understand both the strategic trends
within those industries and the specific needs of those customers. A major
driving force within those industries has been the need to reduce production
defects and significantly increase production yields. The previous cyclical
nature of the semiconductor industry, the data storage industry and other
capital goods sector industries we serve, have forced those industries to no
longer depend on revenue growth to fuel financial performance improvement, but
rather to focus on production yield improvement. We have therefore worked
closely with the leaders of these industries to transfer our measurement
technology from off-line inspection applications to on-the-production-line
process control applications. By designing instrumentation that more accurately
detects defects and provides greater measurement flexibility with significantly
increased throughput capabilities, we are now providing production improvement
systems to our customers. This ability to identify product defects, collect
quantified data on those defects and provide analysis of those defects to
upstream manufacturing processes now make our instrumentation valuable process
and yield improvement tools.
Our business has evolved to include providing integrated production
solutions to our customers where previously we provided almost exclusively
off-line inspection instruments for the quality control laboratory. One of these
new production-oriented instruments is featured on page 6 of this report. The
50% increase we have enjoyed in the growth of our instrument and accessories
business these last three years is a cumulative result of all of these efforts.
We were most gratified during the past fiscal year with the investment
community's response to our growth and improved financial performance and to see
the significant gains in the value of your company's securities. Responding to
increased demand for the company's securities, your Board of Directors approved
a 3-for-2 stock split for shareowners of record on August 1, 1995, payable as a
stock dividend on August 21, 1995.
OUTLOOK
We are very optimistic about the future potential of your company as we enter
fiscal 1996. Our improved market position, our record high backlog, and the
sustained demand for our products and systems bode well for continuing our
present strong performance into fiscal 1996. For the longer term, the healthy
macroeconomic projections in the capital goods sector, specifically in the
computer, data storage and semiconductor industries, suggest that the economic
stimulus for the demand for our products should continue. In light of this, we
continue to invest heavily on new product developments specifically geared to
serve the production improvement needs of our customers.
You, of course, can count on all of our best efforts to continue to move
your company forward as we take advantage of these improved market conditions.
As always, we thank you for your continued interest in and support of your
company.
[PHOTO]
Sincerely,
/s/ Gary K. Willis
Gary K. Willis
President and Chief Executive Officer
August 24, 1995
3
<PAGE>
- --------------------------------------------------------------------------------
A HISTORY OF EXCELLENCE
- --------------------------------------------------------------------------------
[PHOTO]
6/23/70
Zygo is incorporated in Delaware with starting capitalization of $325,000. A
Memorandum of Understanding is signed by company founders Paul F. Forman, Carl
A. Zanoni, and Sol F. Laufer; Canon Inc.; and Wesleyan University.
[PHOTO]
3/71
The company wins its first order for an optical component: a 100mm diameter,
l/50 Fabry-Perot etalon is sold to Florida-Atlantic University for $1,250.
[PHOTO]
6/73
Numbering 16 employees, the company moves into a newly constructed
10,000-square-foot facility in Middlefield, Connecticut.
[PHOTO]
3/78
Zygo begins deliveries of the Zygo Mark II Interferometer System. The instrument
incorporates many important innovations, such as 6X zoom, video display, and
interference patterns without spurious fringes.
6/30/80
Marking ten years of compounded growth of ~50 percent per year, Zygo closes FY
'80 with revenues of $7,730,600, net income of $810,100.
[PHOTO]
11/81
Zygo holds an open house to show off its new 100,000-square-foot facility to
employees' families, friends, customers, suppliers, and Connecticut's Governor
Ella Grasso.
[PHOTO]
1985
The Mark IV phase measuring interferometer, with faster, higher density
capabilities, more powerful data reduction, user programmability, and other
advanced features, is introduced.
[PHOTO]
10/87
Zygo introduces the Maximo3D, a Laser Interferometric Microscope providing high
resolution surface metrology information in three dimensions.
[PHOTO]
1992
With the assistance of Qualtec, Zygo begins the implementation of the Total
Quality Process, with strong emphasis on team improvement projects.
1/95
Zygo announces the creation of a Flying Height Test Division, which will develop
and market products for the data storage industry.
- --------------------------------------------------------------------------------
1970 1975 1980 1985 1990 1995
- --------------------------------------------------------------------------------
[PHOTO]
2/71
Design and fabrication are completed for Zygo's first Ring Polishing machine.
The machine and related process technology ultimately establish Zygo as a world
leader in the fabrication of plano-surfaced optical components.
[PHOTO]
10/72
The Model GH Interferometer System is exhibited for the first time at the
Optical Society of America's Annual Meeting in San Francisco. It is an immediate
hit and a prime attraction of the exhibit. It embodies such key innovations as
simple and foolproof alignment and interchangeable accessories, and it operates
using a low-cost HeNe laser, all of which provide important competitive
advantages.
1974
Under contract to Canon Inc. Zygo develops an aspheric lens generator capable of
producing finished camera lens elements with up to 100 waves of aspheric
departure in 15 minutes or less. This enables Canon to make significantly
improved lenses cost-effectively for the professional photography and movie
industry markets. Canon receives an Oscar for the resulting 35mm f/1.55AL lens.
[PHOTO]
10/78
The Zygo Automatic Pattern Processor (ZAPP) is launched. It is capable of
automatically digitizing fringe center coordinates over an array of points and
makes it possible to calculate fractional peak-to-valley and rms distortions,
generate 3-D plots, and provide more sophisticated analyses, such as PSF, MTF,
and Aberration Coefficients when connected to an auxiliary computer.
[PHOTO]
2/80
Zygo receives a $2,000,000 contract from Lawrence Livermore National Laboratory
to fabricate various plano elements for the NOVA project.
[PHOTO]
12/83
Zygo completes its IPO at $14 per share and is listed on the NASDAQ Exchange,
raising $8.7 million.
[PHOTO]
1984
The Production Test Interferometer (PTI) enters the market as the first
space-saving, noncontact, shop testing system that does not require vibration
isolation.
[PHOTO]
5/87
The Axiom 2/20, a distance measuring interferometer, is introduced--it, and its
successor, the ZMI 1000, eventually challenge Hewlett-Packard's long supremacy
in this product area.
1991
Zygo receives a multimillion-dollar contract to fabricate various optical
components, including laser amplifiers, crystals, lenses, and polarizers, for
the Omega Upgrade from University of Rochester's Laboratory for Laser
Energetics.
[PHOTO]
5/93
The NewView 100 is introduced, expanding 3D capabilities beyond specular
surfaces and greatly extending the vertical measurement range.
[PHOTO]
11/93
Zygo launches the GPI family of surface measuring interferometers, providing
customers with added measurement capabilities at lower cost.
6/30/95
Zygo celebrates its first twenty-five years with record sales, earnings, and
productivity.
4 & 5
<PAGE>
- --------------------------------------------------------------------------------
PRODUCT HIGHLIGHTS
- --------------------------------------------------------------------------------
[PHOTO]
o Zygo's instrument product line consists of 7 major products within 3
product families.
o All instruments shipped in fiscal 1995 were introduced in the last 24
months.
o A major new product for 1995 was the AAB System shown at the right.
THE AAB SYSTEM
In the continuing effort to enhance financial performance, many industries are
focusing more effort on increasing production yields. Recognizing an opportunity
to assist in this effort, Zygo is shifting its corporate direction to include
high-precision automated inspection systems for the production line.
An excellent example is the in-process inspection of precision components
used in computer hard disk drives. Manufacturers are continually challenged to
increase storage capacity while reducing the physical size and cost of their
products. As a result, design and production tolerances are shrinking to
unprecedented levels, and production volumes are at an all-time high, and
growing daily.
To help keep pace with this demand, disk storage manufacturers turned to
Zygo to provide automated, high-speed noncontact, quantitative inspection of the
tiny read/write heads that transfer electronic data to and from a spinning disk.
Zygo responded with the Automated Air Bearing (AAB) Surface Characterization
System.
Based on Zygo's MaximoGP microscope, the AAB System can measure 20,000
heads per day to extremely tight specifications. Computer-controlled part
positioning, automatic alignment, and special measurement software are optimized
for high-speed analysis of read/write heads. Also included is real-time
statistical process control software to help monitor the production process.
With Zygo's AAB System, manufacturers are now able to inspect 100% of their
heads at full production volumes, while valuable data is provided for refining
the control of the process.
6
<PAGE>
PRECISION OPTICS
Zygo's considerable experience with complex machining of special optical
components makes us a competitive choice for projects that demand absolute
precision and performance. When a component's weight is important, as is usually
the case with aerospace components, optical components must be designed to have
minimum mass while maintaining opto-mechanical stability. To manufacture these
complex designs, computer numerical control (CNC) machining techniques may be
used to remove over 90% of the component's original mass in a process known as
"lightweighting." This process may be compared to a sculptor creating a delicate
statue, with a hollow interior, from a single block of stone.
Microscopic subsurface stresses, a result of any glass shaping process, are
minimized by using a carefully chosen sequence of progressively finer diamond
tools. After machining, chemical etching techniques may be used to further
increase the component's strength and reliability.
Our expertise in this type of work provides our customers with an extensive
knowledge base for "design for manufacturability" (DFM) considerations. Zygo's
engineers often provide valuable design alternatives which improve performance
and reduce the cost of manufacturing.
[PHOTO]
o The components pictured here illustrate Zygo's unique optical fabrication
capabilities.
7
<PAGE>
- --------------------------------------------------------------------------------
DIRECTORS, OFFICERS & ADVISORS
- --------------------------------------------------------------------------------
[PHOTO]
Clockwise from lower left:
Gary Willis, Carl Zanoni, Mark Bonney, Dean Geoffrey (Partner, KPMG Peat Marwick
LLP), Paul Jacobs (Partner, Fulbright and Jaworski L.L.P.)
[PHOTO]
Clockwise from lower left:
Michael Corboy, Robert Taylor, Paul Murrill, Seymour Liebman, Robert McKelvey,
Paul Forman
8
<PAGE>
Zygo Corporation and Consolidated Subsidiary
- --------------------------------------------------------------------------------
FIVE-YEAR SUMMARY
- --------------------------------------------------------------------------------
(Thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
--------------------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Earnings Statement Data:
Net sales ....................................................... $32,233 $24,141 $22,702 $26,744 $30,425
Earnings before income taxes .................................... 3,956 1,328 698 953 1,992
Net earnings .................................................... 2,749 918 481 632 1,261
Earnings per common and common
equivalent share(1) ........................................... $.65 $.23 $.12 $.16 $.33
------- ------- ------- ------- -------
Weighted average common shares and
common dilutive equivalents outstanding(1) .................... 4,242 3,987 3,902 3,900 3,779
------- ------- ------- ------- -------
Balance Sheet Data:
Working capital ................................................. $17,072 $14,889 $14,648 $13,388 $12,313
Total assets .................................................... 29,666 24,499 24,555 23,645 23,106
Long-term debt (excluding current portion) ...................... -- 481 613 878 1,140
Stockholders' equity ............................................ 22,333 19,274 18,416 17,720 16,765
======= ======= ======= ======= =======
</TABLE>
(1) Restated to reflect a 3-for-2 stock split effected in the form of a 50%
stock dividend declared on July 20, 1995, and paid on August 21, 1995, to
shareholders of record on August 1, 1995.
Earnings Per Share
[THE FOLLOWING TABLE IS REPRESENTED AS A GRAPH IN THE PRINTED REPORT.]
1991 ......................... $.33
1992 ......................... $.16
1993 ......................... $.12
1994 ......................... $.23
1995 ......................... $.65
Working Capital
(in thousands)
[THE FOLLOWING TABLE IS REPRESENTED AS A GRAPH IN THE PRINTED REPORT.]
1991 ......................... $12,313
1992 ......................... $13,388
1993 ......................... $14,648
1994 ......................... $14,889
1995 ......................... $17,072
Stockholders' Equity
(in thousands)
[THE FOLLOWING TABLE IS REPRESENTED AS A GRAPH IN THE PRINTED REPORT.]
1991 ......................... $16,765
1992 ......................... $17,720
1993 ......................... $18,416
1994 ......................... $19,274
1995 ......................... $23,333
9
<PAGE>
Zygo Corporation and Consolidated Subsidiary
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
- --------------------------------------------------------------------------------
Results of Operations
Fiscal 1995 Compared to Fiscal 1994
Net sales of $32,233,000 for fiscal 1995 increased from fiscal 1994 sales by
$8,092,000 or 33.5%. The principal reason for the significant increase was
additional sales of the Company's electro-optical instrument products primarily
resulting from an improved economic climate in certain industry segments, most
notably semiconductor and data storage (disk drive) manufacturing, and from the
introduction of a new fully-automated electro-optical instrument product which
is used by data storage industry customers to improve the yield of their
manufacturing processes. These increases were partially offset by a decline of
$340,000 in R&D contract revenues resulting from the completion in fiscal 1994
of a research and development contract and lower sales of the Company's
precision custom optical components, which declined by $313,000 or 5.8% from the
year earlier.
The Company's sales outside the United States amounted to $14,981,000 in
fiscal 1995, an increase of $3,934,000 from fiscal 1994. Sales in Japan during
fiscal 1995 amounted to $9,630,000, an increase of $2,044,000 over fiscal 1994.
This increase resulted primarily from an increase in product sales in Japan in
fiscal 1995 of over 33% when compared to product sales in fiscal 1994, partially
offset by the absence in fiscal 1995 of R&D contract revenues. The significant
increase in product sales was primarily due to the improving Japanese economy
and the strengthening of the semiconductor equipment market served by Canon Inc.
and Canon Sales Co., Inc., the Company's exclusive distributor in Japan. Sales
to other geographic markets outside the U.S. amounted to $5,351,000 in fiscal
1995, a $1,890,000 increase from fiscal 1994. The 55% increase was principally
the result of strong sales of the Company's electro-optical instruments to the
data storage and semiconductor manufacturing industry in the Pacific Rim and
increased sales in Europe as a result of an improved general economic climate
there.
Substantially all of the Company's sales and costs are negotiated and paid
in U.S. dollars. Significant changes in the values of foreign currencies
relative to the value of the U.S. dollar can impact the sales of the Company's
products in its export markets, as would changes in the general economic
conditions in those markets. The impact of such changes in foreign currency
values on the Company's sales cannot be measured.
Gross profit in fiscal 1995 amounted to $14,231,000, an increase of
$3,615,000 (34.1%) over gross profit in fiscal 1994, principally due to the
increase in sales and a slight improvement in gross profit margins on actual
shipments. As a percentage of sales, gross profit in fiscal 1995 was 44.2%, as
compared to 44.0% in fiscal 1994.
Selling, general and administrative expenses in fiscal 1995 decreased by
$138,000 from fiscal 1994. As a percentage of sales, selling, general and
administrative expenses were 20.3% and 27.7% in fiscal 1995 and fiscal 1994,
respectively. Selling expenses, including salaries, advertising, and sales
promotion expenses related to the Company's electro-optical instrument products
as well as commissions on higher sales, increased $307,000 from fiscal 1994.
Administrative expenses decreased by $445,000 principally as a result of reduced
legal expenses incurred in connection with the Company's litigation against WYKO
Corporation for patent infringement, currently pending appeal, the status of
which is discussed below in the Liquidity and Capital Resources section.
Additional administrative cost reductions reflect the completion of the
implementation of a new Business Management Information System and continued
strict cost controls.
Research and development costs in fiscal 1995 totaled $3,967,000 and
increased by $1,181,000 or 42.4% from fiscal 1994. The increase was principally
the result of spending associated with the creation and operation of an R&D
facility in Simi Valley, California, which is focused on designing and
developing production-oriented test and measurement products for the data
storage industry. The first product being developed there is a flying height
tester. Additionally, the amount of expense incurred in fiscal 1995 at the
Company's Middlefield, Connecticut, facility increased from fiscal 1994 to
support several R&D projects underway there. As a percentage of sales, research
and development costs were 12.3% and 11.5% in fiscal 1995 and fiscal 1994,
respectively.
In fiscal 1995, the Company had operating profit of $3,727,000 (11.6% of
net sales) as compared to $1,155,000 (4.8% of net sales) in fiscal 1994. The
222.7% improvement resulted principally from higher gross profit from increased
sales volume, partially offset by the increase in R&D expense.
Interest income in fiscal 1995 amounted to $372,000 and was $34,000 higher
than fiscal 1994, principally due to generally higher interest rates on the
Company's marketable securities and short-term cash investments. Interest
expense decreased in fiscal 1995 by $11,000 from $51,000 in fiscal 1994
primarily as the result of lower average principal balances on the Company's
long-term debt, which was fully repaid in the quarter ended March 31, 1995.
Backlog at June 30, 1995, was $12,993,000 compared to $3,782,000 at June
30, 1994. The $9,211,000 increase in backlog was primarily a result of strong
demand for all of the Company's electro-optical instrument products,
particularly its distance measuring interferometers used in precision motion
control applications such as microlithography in semiconductor and flat-panel
display manufacturing and its microscope products used in a variety of
industrial applications, most notably in the production of read-write heads in
the data storage industry. The backlog of the Company's electro-optical
instruments and accessories at June 30, 1995, increased $7,355,000 or nearly
400% from that at June 30, 1994. The backlog of the Company's precision custom
optical components increased by $1,834,000 (94%) from the year earlier as a
result of improved demand for sophisticated optical components.
The Company reported net earnings and earnings per common and common
equivalent share of $2,749,000 and $.65, respectively, in fiscal 1995 as
compared to $918,000 and $.23 per share in fiscal 1994. All per share amounts
are adjusted to reflect the Company's 3-for-2 stock split effected in the form
10
<PAGE>
of a 50% stock dividend which was paid on August 21, 1995, to shareholders of
record on August 1, 1995.
The Company continues to emphasize strict cost control while at the same
time investing in product development and marketing in order to maximize its
share of its markets and create new market opportunities.
Fiscal 1994 Compared to Fiscal 1993
Net sales of $24,141,000 for fiscal 1994 increased from fiscal 1993 sales by
$1,439,000 or 6%. The principal reason for the increase was additional sales of
the Company's electro-optical instrument products primarily resulting from an
improved economic climate in certain industry segments and the introduction of
several new electro-optical instrument products which totally replaced the
Company's electro-optical instrument product line. These increases were
partially offset by a decline of $1,020,000 in R&D contract revenues and lower
sales of the Company's precision custom optical components due to the
culmination of a significant contract from the University of Rochester for its
laser fusion programs.
The Company's sales outside the United States amounted to $11,047,000 in
fiscal 1994, an increase of $2,350,000 from fiscal 1993. Sales in Japan during
fiscal 1994 amounted to $7,586,000, an increase of $2,939,000 over fiscal 1993,
which occurred despite the decline in fiscal 1994 of R&D contract revenues.
Product sales in Japan increased in fiscal 1994 by over 100% when compared to
product sales in fiscal 1993. The significant increase was due to the improving
Japanese economy and the strengthening of the semiconductor equipment market
served by Canon Inc. and Canon Sales Company Inc., the Company's exclusive
distributor in Japan.
Gross profit in fiscal 1994 amounted to $10,616,000 and was $1,567,000
higher than in fiscal 1993 principally due to the increase in sales and
improvement in gross profit margins on actual shipments. As a percentage of
sales, gross profit in fiscal 1994 was 44.0%, as compared to 39.9% in fiscal
1993. The gross profit percentage of sales improvement was due in part to
benefits from continued improvement of the Company's cost structure and the
impact of the introduction of new lower-cost instrument products partially
offset by the lack of higher margins associated with the R&D contract revenues
earned in fiscal 1993 and by the impact of continued aggressive pricing actions
in response to sluggish market conditions in certain markets.
Selling, general and administrative expenses in fiscal 1994 increased by
$677,000 from fiscal 1993. As a percentage of sales, selling, general and
administrative expenses were 27.7% and 26.4% in fiscal 1994 and fiscal 1993,
respectively. Selling expenses, including advertising and sales promotion
expenses related to the Company's new electro-optical instrument products as
well as commissions on higher sales, increased $52,000 from fiscal 1993.
Administrative expenses increased by $625,000 as a result of legal expenses
incurred in connection with the Company's litigation against WYKO Corporation
for patent infringement. Additional administrative costs incurred in fiscal 1994
were associated with the implementation of a new Business Management Information
System.
Research and development costs in fiscal 1994 totaled $2,786,000 and
decreased by $291,000 from fiscal 1993, principally as a result of lower
spending on project materials as the majority of new products were introduced in
fiscal 1993 or early in fiscal 1994. As a percentage of sales, research and
development costs were 11.5% and 13.6% in fiscal 1994 and fiscal 1993,
respectively. During the quarter ended September 30, 1992, the Company received
a $1,700,000 fixed price research and development contract from Canon Inc.
Revenues under the contract were recorded under the cost-to-cost percentage of
completion method of accounting. The contract was completed in the first quarter
of fiscal 1994 with the final $340,000 of net sales under the contract being
recorded in the quarter ended September 30, 1993.
In fiscal 1994, the Company had operating profit of $1,155,000 as compared
to a $26,000 operating loss in fiscal 1993. The significant improvement resulted
principally from higher gross profit.
Interest income in fiscal 1994 amounted to $338,000 and was $41,000 less
than in fiscal 1993, principally due to lower interest rates on the Company's
marketable securities. Interest expense decreased in fiscal 1994 by $18,000 from
$69,000 in fiscal 1993 primarily as the result of lower principal balances and
lower interest rates on the Company's long-term debt in fiscal 1994. The
principal reason for the change in miscellaneous income/expense--net in fiscal
1994 versus fiscal 1993 was the absence of income, which the Company recognized
in June 1993, resulting from a $400,000 contingent payout by LaserMike in
conjunction with its purchase of the IMAGE product line in June 1992.
Backlog at June 30, 1994, was $3,782,000 compared to $5,871,000 at June 30,
1993. Backlog declined primarily as a result of the culmination of a significant
contract from the University of Rochester for its laser fusion program which
significantly impacted the backlog of the Company's precision custom optical
components, as well as the completion of the R&D contract with Canon described
above.
The Company reported net earnings and earnings per common and common
equivalent share of $918,000 and $.23, respectively, in fiscal 1994 as compared
to $481,000 and $.12 per share in fiscal 1993. Per share figures have been
adjusted to reflect the impact of the 3-for-2 stock split effective August 21,
1995.
Liquidity and Capital Resources
At June 30, 1995, working capital was $17,072,000, an increase of $2,183,000
from the amount at June 30, 1994, and the Company had cash and cash equivalents
of $2,428,000 and marketable securities available-for-sale amounting to
$7,746,000 for a total of $10,174,000, a decrease of $230,000 from the amount of
cash and cash equivalents and marketable securities at June 30, 1994.
Receivables increased by $2,187,000, and inventory increased by $2,390,000 from
the amounts at June 30, 1994. The receivables increase was due primarily to the
11
<PAGE>
Zygo Corporation and Consolidated Subsidiary
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
- --------------------------------------------------------------------------------
significant growth in net sales in the fourth quarter of fiscal 1995 which were
$4,400,000 higher than the same quarter in fiscal 1994, partially offset by
aggressive collections within the last quarter of the fiscal year. Inventory
increased primarily due to the growth in sales of the Company's electro-optical
instruments. Accounts payable increased by $1,360,000 in fiscal 1995 to
$2,515,000, principally as a result of the increase in inventories and other
costs associated with the growth of the business. The Company's expenditures for
property, plant, and equipment totaled $1,631,000 in fiscal 1995 which was
$281,000 less than the prior fiscal year. The principal reason for the decrease
was lower expenditures for hardware, software, and consulting associated with
the implementation of the Company's new fully integrated Business Management
Information System, which was fully installed in the quarter ended December 31,
1994. Although the actual level will be influenced by many factors, the Company
anticipates that expenditures for plant and equipment in fiscal 1996 will be
approximately the same as in fiscal 1995. On June 23, 1995, the Company's Board
of Directors approved the purchase of approximately 22 acres of land adjacent to
the Company's facility in Middlefield, Connecticut, for a purchase price of
$440,000. The land, which is jointly owned by Paul F. Forman, Sol F. Laufer, and
Carl A. Zanoni, founders of the Company, will facilitate expansion of the
Company's buildings and/or parking facilities in the future. The purchase is
expected to occur during the quarter ending March 31, 1996. As of June 30, 1995,
there were no borrowings outstanding under the Company's $3,000,000 bank line of
credit. Unused amounts under the line of credit are available for short-term
working capital needs. During the quarter ended March 31, 1995, the Company
prepaid all of its outstanding long-term debt obligation to the Connecticut
Development Authority. Stockholders' equity at June 30, 1995, increased by
$3,059,000 from the year earlier to $22,333,000, reflecting net income of
$2,749,000, increases in the Company's common stock and paid-in capital accounts
resulting from the exercise of employee stock options and the reduction of the
unrealized loss, net of the related tax effect, on the Company's portfolio of
marketable securities of $65,000.
The Company's U.S. federal income tax return for fiscal 1991 was reviewed
by the Internal Revenue Service (IRS) during fiscal 1993 and fiscal 1994. During
the quarter ended March 31, 1994, the Company reached a settlement with the IRS
regarding the audit of its fiscal 1991 tax return. In the settlement, which
affected both the fiscal 1991 and fiscal 1992 federal tax returns, a tax payment
of $432,700 was made to the IRS and interest of $91,600 which had accrued on the
balance was also paid. As a result of amending the fiscal 1991 and fiscal 1992
federal tax returns, the Company also filed amended returns with the State of
Connecticut and with various other states in which the Company pays income
taxes. Taxes and interest paid to the states amounted to $111,700 and $31,500,
respectively. The tax payments resulted from the IRS' disagreement with the
Company as to the timing of certain tax deductions which the Company took on its
fiscal 1991 return relative to inventories. Interest payments were charged
against a miscellaneous expense accrual established at June 30, 1993, for this
purpose. Income tax payments amounted to $793,100 in fiscal 1995 (including cash
payments net of cash refunds of $565,600 and $227,500 of prior year overpayments
applied to fiscal 1995), $1,185,000 in fiscal 1994 (including $544,400 of
additional taxes owed for fiscal 1991), and $309,000 in fiscal 1993.
As a result of amending the fiscal 1992 tax returns, the Company had
federal and state tax refunds due amounting to $102,800. At June 30, 1995,
$88,900 of cash refunds had been received. In addition, $13,900 of refunds due
were applied to reduce the Company's taxes owed for fiscal years 1993, 1994, and
1995.
In March 1994, the Company filed its fiscal 1993 federal and state tax
returns, taking into account the roll forward effect of the timing differences
created by the above-mentioned settlement, and as a result, had overpayments
amounting to $187,600, which were applied to taxes owed for fiscal 1995. In
March 1995, the Company filed its fiscal 1994 federal and state tax returns,
which because of the method of calculating and paying estimated tax payments
throughout fiscal 1995 resulted in additional overpayments of $39,900 which were
also applied to taxes owed for fiscal 1995.
12
<PAGE>
Zygo Corporation and Consolidated Subsidiary
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
(Thousands, except share and per share amounts)
<TABLE>
<CAPTION>
June 30, June 30,
1995 1994
-------- --------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents .............................................. $ 2,428 $ 2,530
Marketable securities (note 2) ......................................... 7,746 7,874
Receivables:
Trade (note 11) ...................................................... 6,092 4,028
Other ................................................................ 204 81
------- -------
Total receivables .................................................. 6,296 4,109
------- -------
Inventories:
Raw materials and manufactured parts ................................. 2,863 1,563
Work in process ...................................................... 2,281 1,236
Finished goods ....................................................... 499 454
------- -------
Total inventories .................................................. 5,643 3,253
------- -------
Prepaid expenses and taxes ............................................. 581 268
Deferred income taxes (note 9) ......................................... 1,043 825
------- -------
Total current assets ............................................... 23,737 18,859
------- -------
Property, plant and equipment, at cost:
Land ................................................................... 206 206
Building ............................................................... 4,300 3,985
Machinery, equipment and office furniture .............................. 11,984 10,881
Construction in progress ............................................... 154 491
------- -------
Gross property, plant and equipment ................................ 16,644 15,563
Less accumulated depreciation .......................................... 11,381 10,483
------- -------
Net property, plant and equipment .................................. 5,263 5,080
------- -------
Other assets, net ........................................................ 666 560
------- -------
Total assets ............................................................. $29,666 $24,499
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable ....................................................... $ 2,515 $ 1,155
Customer progress payments ............................................. 174 166
Accrued salaries and wages ............................................. 1,957 1,582
Other accrued expenses ................................................. 1,366 892
Income taxes payable ................................................... 653 --
Current portion of long-term debt (note 4) ............................. -- 175
------- -------
Total current liabilities .......................................... 6,665 3,970
------- -------
Long-term debt, excluding current portion (note 4) ....................... -- 481
Deferred income taxes (note 9) ........................................... 668 655
Deferred liabilities ..................................................... -- 119
Stockholders' equity (notes 6, 7, and 8):
Common stock, $.10 par value per share: 10,000,000 shares
authorized; 4,030,786 shares issued (3,992,558 in 1994) .............. 403 266
Additional paid-in capital ............................................. 10,726 10,484
Retained earnings ...................................................... 11,508 8,893
Net unrealized loss on marketable securities (note 2) .................. (3) (68)
------- -------
22,634 19,575
Less treasury stock, at cost; 103,800 common shares .................... 301 301
------- -------
Total stockholders' equity ......................................... 22,333 19,274
------- -------
Total liabilities and stockholders' equity ............................... $29,666 $24,499
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE>
Zygo Corporation and Consolidated Subsidiary
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS
- --------------------------------------------------------------------------------
(Thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
---------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Net sales (note 11) ................................................... $32,233 $24,141 $22,702
Cost of goods sold .................................................... 18,002 13,525 13,653
------- ------- -------
Gross profit ...................................................... 14,231 10,616 9,049
Selling, general and administrative expenses .......................... 6,537 6,675 5,998
Research and development .............................................. 3,967 2,786 3,077
------- ------- -------
Operating profit (loss) ........................................... 3,727 1,155 (26)
------- ------- -------
Other income (expense):
Interest income ..................................................... 372 338 379
Interest expense .................................................... (40) (51) (69)
Miscellaneous income (expense), net (note 12) ....................... (103) (114) 414
------- ------- -------
Total other income ................................................ 229 173 724
------- ------- -------
Earnings before income taxes ...................................... 3,956 1,328 698
Income tax expense (note 9) ........................................... 1,207 410 217
------- ------- -------
Net earnings .......................................................... $ 2,749 $ 918 $ 481
======= ======= =======
Earnings per common and common equivalent share (note 7) .............. $.65 $.23 $.12
======= ======= =======
Weighted average common shares and common dilutive
equivalents outstanding (note 7) .................................... 4,242 3,987 3,902
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE>
Zygo Corporation and Consolidated Subsidiary
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
(Thousands of dollars)
<TABLE>
<CAPTION>
Unrealized
Additional Gain (Loss) on Total
Common Paid-In Retained Marketable Treasury Stockholders'
Stock Capital Earnings Securities Stock Equity
------ ---------- -------- -------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1992 ...................... $261 $10,266 $ 7,494 $ -- $(301) $17,720
Net earnings ................................ -- -- 481 -- -- 481
Exercise of employee stock options .......... 5 210 -- -- -- 215
---- ------- ------- ---- ----- -------
Balance at June 30, 1993 ...................... 266 10,476 7,975 -- (301) 18,416
Net earnings ................................ -- -- 918 -- -- 918
Net unrealized loss on marketable
securities, net of related tax effect ..... -- -- -- (68) -- (68)
Exercise of employee stock options .......... -- 8 -- -- -- 8
---- ------- ------- ---- ----- -------
Balance at June 30, 1994 ...................... 266 10,484 8,893 (68) (301) 19,274
Net earnings ................................ -- -- 2,749 -- -- 2,749
Net unrealized gain on marketable
securities, net of related tax effect ..... -- -- -- 65 -- 65
Exercise of employee stock options .......... 3 242 -- -- -- 245
Stock split (note 7) ........................ 134 -- (134) -- -- --
---- ------- ------- ---- ----- -------
Balance at June 30, 1995 ...................... $403 $10,726 $11,508 $ (3) $(301) $22,333
==== ======= ======= ==== ===== =======
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
Zygo Corporation and Consolidated Subsidiary
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
(Thousands of dollars)
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
-------------------------------
1995 1994 1993
------- ----- -----
<S> <C> <C> <C>
Cash provided by (used for) operating activities:
Net earnings .......................................................................... $ 2,749 $ 918 $ 481
Adjustments to reconcile net earnings to cash provided by operating activities:
Depreciation and amortization ....................................................... 1,248 1,348 1,270
Deferred income taxes ............................................................... (248) (427) (45)
Loss on disposal of assets .......................................................... 251 205 4
Gain on sale of marketable securities ............................................... -- (49) --
Intangible and other assets ......................................................... -- (29) (37)
Other ............................................................................... -- -- 92
Changes in operating accounts:
Receivables ....................................................................... (2,220) 500 316
Inventories ....................................................................... (2,387) (204) 1,969
Prepaid expenses and taxes ........................................................ (313) (99) (58)
Accounts payable and accrued expenses ............................................. 2,751 (633) 98
------- ----- -----
Net cash provided by operating activities ........................................... 1,831 1,530 4,090
------- ----- -----
Cash provided by (used for) investing activities:
Additions to property, plant, and equipment ........................................... (1,631) (1,912) (910)
Investment in marketable securities ................................................... (1,229) (4,725) (7,340)
Investment in other assets ............................................................ (39) -- --
Acquisition of business ............................................................... (100) -- --
Proceeds from the sale of marketable securities ....................................... -- 3,777 --
Proceeds from maturity of marketable securities ....................................... 1,465 350 --
Proceeds from sale of assets .......................................................... 12 -- --
------- ----- -----
Net cash used for investing activities .............................................. (1,522) (2,510) (8,250)
------- ----- -----
Cash provided by (used for) financing activities:
Repayments of long-term debt .......................................................... (656) (179) (305)
Exercise of employee stock options .................................................... 245 8 215
------- ----- -----
Net cash used for financing activities .............................................. (411) (171) (90)
------- ----- -----
Net decrease in cash and cash equivalents ............................................... (102) (1,151) (4,250)
Cash and cash equivalents, beginning of year ............................................ 2,530 3,681 7,931
------- ----- -----
Cash and cash equivalents, end of year .................................................. $ 2,428 $ 2,530 $ 3,681
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
Zygo Corporation and Consolidated Subsidiary
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
June 30, 1995, 1994, and 1993
(1) Summary of Significant Accounting Policies
Principles of Consolidation--The consolidated financial statements include the
accounts of the Company and its wholly owned Foreign Sales Corporation ("FSC")
subsidiary. All material transactions and accounts with the subsidiaries have
been eliminated from the consolidated financial statements.
The Company also owns 100% of Zygo Credit Corporation which was formed in
fiscal 1983. Activity of Zygo Credit Corporation has been insignificant to date.
Cash and Cash Equivalents--The Company considers cash and cash investments with
maturities at the date of purchase of less than three months to be cash and cash
equivalents.
Marketable Securities--The Company considers investments in securities with
maturities at the date of purchase in excess of three months as marketable
securities. Marketable securities primarily consist of tax-exempt municipal debt
securities. The Company adopted the provisions of Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities ("Statement 115") at June 30, 1994. The change in accounting
for Marketable Securities had no effect on retained earnings. All securities
held by the Company at June 30, 1995, 1994, and 1993, were classified as
available-for-sale and recorded at fair value. Unrealized holding gains and
losses, net of the related tax effect, on available-for-sale securities are
excluded from earnings and are reported as a separate component of stockholders'
equity until realized.
Inventories--Inventories are stated at the lower of cost (determined on a
first-in, first-out basis) or market.
Revenue Recognition--Sales, other than sales under long-term research and
development contracts, are recognized when units are shipped. Sales related to
long-term fixed-price research and development contracts are recognized under
the cost-to-cost percentage of completion method of accounting.
Depreciation--Depreciation rates are based on the estimated useful lives of the
various classes of assets and are computed using the straight-line method.
Research and Development Costs--Research and development costs are expensed as
incurred.
Income Taxes--Effective July 1, 1992, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes. ("Statement 109").
The cumulative effect of that change in the method of accounting for income
taxes in fiscal 1993 was not material.
Earnings Per Share--Earnings per common and common equivalent share amounts
represent primary earnings per share and are based upon the weighted average
number of common shares outstanding, plus, when their effect is dilutive, the
weighted average number of shares issuable upon exercise of outstanding stock
options, less the weighted average number of common shares which could have been
repurchased with the proceeds available from the assumed exercise of the
outstanding options. Fully diluted earnings per share are not significantly
different from primary earnings per share.
Gain Contingency--The Company was awarded $2,668,710 plus recovery of certain
costs in a judgment rendered by the United States District Court (District of
Arizona) on June 2, 1994. The Court's decision was appealed to the Court of
Appeals for the Federal Circuit located in Washington, D.C. by the defendant and
oral arguments of the appeal were heard by the Court on March 9, 1995. The
Company has not and will not record any gain from the district court judgment
until a final determination of the award is made.
Stock Split--Subsequent to fiscal 1995, the Board of Directors of the Company
declared a 3-for-2 split of the Company's common shares, effected in the form of
a 50% stock dividend paid on August 21, 1995, to shareholders of record as of
the close of business on August 1, 1995. All presentations involving numbers of
shares and amounts per share in 1995 and prior years have been restated to
reflect the stock split.
(2) Marketable Securities
Marketable securities at June 30, 1995, consist primarily of tax-exempt bonds
issued by various state and municipal agencies which are reported at fair value.
The unrealized loss on marketable securities of $4,889 (gross) is shown net of
its related tax effect of $1,956 as a separate component of stockholders'
equity.
Dividend and interest income are recognized when earned. Realized gains and
losses are included in earnings and are derived using the specific
identification method for determining the cost of securities sold.
The cost, gross unrealized holding gains, gross unrealized holding losses,
and fair value for available-for-sale securities at June 30, 1995, and June 30,
1994, were as follows:
Gross Gross
Unrealized Unrealized
Holding Holding Fair
(Thousands of dollars) Cost Gains Losses Value
---------------------------------------------
At June 30, 1995
State and local
municipal bonds ......... $7,751 $ -- $ 5 $7,746
------ ---- ---- ------
At June 30, 1994
State and local
municipal bonds ......... $7,987 $ -- $113 $7,874
====== ==== ==== ======
17
<PAGE>
Zygo Corporation and Consolidated Subsidiary
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
June 30, 1995, 1994, and 1993
The Company recorded gross realized gains on the maturity of investment
securities of $135 in 1995. There were no gross realized losses recorded in 1995
or 1994.
Maturities of investment securities classified as available-for-sale were
as follows at June 30, 1995.
Fair
(Thousands of dollars) Cost Value
------ ------
Due within one year ................... $1,659 $1,657
Due after one year through
five years .......................... 6,092 6,089
------ ------
$7,751 $7,746
====== ======
(3) Bank Line of Credit
The Company has a $3,000,000 unsecured bank line of credit with interest at the
bank's prime rate. The line of credit is available through November 30, 1995. At
June 30, 1995, and June 30, 1994, no amounts were outstanding under the bank
line of credit.
(4) Long-Term Debt
In the quarter ended March 31, 1995, the Company retired its 1977 and 1981
Series Industrial Development Bonds totaling $375,000 and $150,000,
respectively, prior to scheduled maturity. This transaction resulted in no
extraordinary gain or loss. The funds for these retirements were obtained from
internally generated cash flows.
Interest payments were $39,900, $50,800, and $69,900 in fiscal 1995, 1994,
and 1993, respectively.
(5) Profit-Sharing Plan
The Company maintains a deferred profit-sharing plan under which substantially
all full-time employees of the Company are eligible to participate.
Profit-sharing expense for the years ended June 30, 1995, 1994, and 1993
amounted to $440,000, $147,500, and $77,500, respectively. Profit-sharing
contributions are determined annually at the discretion of the Board of
Directors.
Effective June 30, 1985, the existing profit-sharing plan was revised and
amended to incorporate a 401(k) tax deferred payroll deduction program and an
Employee Stock Ownership Program. Under the 401(k), employees may contribute a
tax deferred amount of up to 15% of their compensation, as defined. The Company
may contribute an amount to the 401(k) which amount is determined annually at
the discretion of the Board of Directors. The 401(k) contribution expense for
the years ended June 30, 1995, 1994, and 1993 amounted to $255,000, $146,400,
and $152,200, respectively.
Under the Employee Stock Ownership Program, the Company may, at the
discretion of the Board of Directors, contribute its own stock or cash to
purchase its own stock. Such stock's fair market value shall not exceed the
maximum amount of employee stock ownership credit as determined under Section
416 of the Internal Revenue Code. There were no purchases and no contributions
made under this program for the years ended June 30, 1995, 1994, and 1993.
(6) Stockholders' Agreements
In November 1993, Canon Inc., Wesleyan University, Paul F. Forman, Carl A.
Zanoni, and Sol F. Laufer, and the Company terminated an agreement which had
been effective since December 1983 when the Company's registration statement for
the initial public offering of its Common Stock was declared effective. Under
that agreement, they had agreed among other things, to vote their shares for the
election to the Company's Board of Directors of two directors designated by each
of Canon Inc., Wesleyan University, and Paul F. Forman, Carl A. Zanoni, and Sol
F. Laufer, as a group. During the period that the agreement was in effect, the
voting requirements thereof effectively determined the outcome of the election
of all members of the Company's Board of Directors.
At the time of the termination of the Stockholders' Agreement, a
Registration Rights Agreement was entered into by Canon Inc., Wesleyan
University, Paul F. Forman, Carl A. Zanoni, Sol F. Laufer, and the Company. In
general, the Registration Rights Agreement grants to each of these stockholders
the right, until November 30, 1998, to have his or its shares of Common Stock
included in any registered public offering of the Company's securities.
(7) Stockholders' Equity
On July 20, 1995, the Board of Directors declared a 3-for-2 split effected in
the form of a 50% stock dividend payable on August 21, 1995, to shareholders of
record on August 1, 1995. This transaction resulted in the issuance of
approximately 1,309,000 additional shares of Common Stock. Stockholders' Equity
has been adjusted to recognize the effect of the stock split by reclassifying
from retained earnings to paid-in capital the par value of the additional shares
arising from the split. In addition, all references in the financial statements
to numbers of shares, per share amounts, stock option data, and market prices of
the Company's Common Stock have been restated to give retroactive recognition to
the stock split. On July 20, 1995, the Board of Directors approved an increase
in the authorized shares of the Company's Common Stock from 10,000,000 to
15,000,000 subject to shareholder approval.
(8) Stock Options and Stock Ownership Plans
On September 3, 1987, the Board of Directors adopted a non-qualified stock
option plan (the "Non-Qualified Plan") providing for non-qualified options to
purchase Common Stock of the Company and reserved 300,000 shares of Common Stock
for issuance upon the exercise of options under the Non-Qualified Plan. During
fiscal year 1990, the amount of shares reserved under the Non-Qualified Plan was
increased to 600,000. On August 26, 1992, the Board of Directors amended and
restated the Non-Qualified Plan and increased the amount of shares reserved to
975,000. On November 19, 1992, the Amended and Restated Non-Qualified Stock
18
<PAGE>
Option Plan (the "Amended and Restated Non-Qualified Plan") was approved by the
Company's stockholders. At June 30, 1995, options to purchase 688,838 shares of
Common Stock, at prices of $2.50 to $13.83 per share, were outstanding under the
Amended and Restated Non-Qualified Plan of which options to purchase 264,525
shares were exercisable at prices of $2.50 to $5.17 per share. Options exercised
during fiscal 1995, 1994, and 1993 were 38,250 shares at $2.50 to $4.00 per
share; 2,588 shares at $2.83 to $3.83 per share; and 71,121 shares at $2.20 to
$3.50 per share, respectively. At June 30, 1995, there were 45,170 Common Shares
reserved for future issuance of stock options under the Amended and Restated
Non-Qualified Plan. On August 24, 1995 the Board of Directors approved an
increase in the number of shares authorized under this plan from 975,000 to
1,425,000, subject to shareholder approval.
On August 25, 1994, the Board of Directors adopted a Non-Employee Director
Stock Option Plan providing for non-qualified options to purchase Common Stock
of the Company and reserved 300,000 shares of Common Stock for issuance upon the
exercise of options under the Non-Employee Director Stock Option Plan. At June
30, 1995, options to purchase 187,500 shares of Common Stock, at a price of
$4.00 per share, were outstanding under the Non-Employee Director Stock Option
Plan, none of which were then exercisable.
(9) Income Taxes
The components of income tax expense (benefit) for each year are as follows:
Fiscal Year Ended June 30,
------------------------------
(Thousands of dollars) 1995 1994 1993
------ ----- ----
Currently payable:
Federal ........................ $1,036 $ 612 $169
State .......................... 421 225 93
------ ----- ----
1,457 837 262
------ ----- ----
Deferred:
Federal ........................ (188) (290) (29)
State .......................... (62) (137) (16)
------ ----- ----
(250) (427) (45)
------ ----- ----
Total income tax expense ......... $1,207 $ 410 $217
====== ===== ====
During fiscal 1994, the Internal Revenue Service completed an examination
of the Company's fiscal 1991 U.S. federal income tax return. Adjustments to the
fiscal 1991 income tax return generated deferred tax benefits which the Company
has received or expects to receive in subsequent years.
Income taxes paid amounted to $793,100 (including cash payments net of cash
refunds of $565,600 and $227,500 of prior year overpayments applied to fiscal
1995), $1,185,000 (including additional taxes owed for fiscal 1991), and
$309,000 in fiscal 1995, 1994, and 1993, respectively.
The total income tax expense differs from the amount computed by applying
the applicable U.S. federal income tax rate of 34% to earnings before income
taxes for the following reasons:
Fiscal Year Ended June 30,
------------------------------
(Thousands of dollars) 1995 1994 1993
------ ---- ----
Computed "expected" tax expense ........ $1,345 $451 $237
Increases (reductions) in taxes
resulting from:
State taxes, net of federal income
tax benefit ........................ 237 57 51
Tax exempt interest income ........... (108) (96) (49)
FSC benefit .......................... (194) (85) --
Adjustment of prior years'
tax liabilities .................... -- 75 --
Other, net ........................... (73) 8 (22)
------ ---- ----
$1,207 $410 $217
====== ==== ====
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of June 30,
1995 and 1994, are presented below:
June 30, June 30,
Thousands of dollars) 1995 1994
------ -----
Deferred tax assets:
Accounts receivable, principally due to
the allowance for doubtful accounts ...... $ 57 $ 29
Warranty costs ............................. 103 62
Vacation costs ............................. 108 118
Medical insurance costs .................... 123 100
Inventory allowance ........................ 581 442
Restricted stock and deferred
compensation expense ..................... 49 56
Unrealized loss on marketable securities ... 2 45
Other ...................................... 37 27
------ -----
Deferred tax assets ........................ 1,060 879
Less valuation allowance ................... -- --
------ -----
Net deferred tax assets .................... 1,060 879
Deferred tax liabilities:
Earnings from consolidated FSC subsidiary .. -- (16)
Insurance costs ............................ (17) (39)
Plant and equipment, principally due to
differences in depreciation expense ...... (644) (620)
Other ...................................... (24) (34)
------ -----
Deferred tax liabilities ................... (685) (709)
------ -----
Net deferred tax asset ..................... $ 375 $ 170
====== =====
19
<PAGE>
Zygo Corporation and Consolidated Subsidiary
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
June 30, 1995, 1994, and 1993
The net current deferred tax assets and net noncurrent deferred tax
liabilities as recorded on the balance sheet as of June 30, 1995 and 1994, are
as follows:
June 30, June 30,
(Thousands of dollars) 1995 1994
------ -----
Net current deferred tax asset ............. $1,043 $ 825
Net noncurrent deferred tax liability ...... (668) (655)
------ -----
Net deferred tax asset ..................... $ 375 $ 170
====== =====
A valuation allowance has not been recorded because the Company believes
that the deferred tax assets will, more likely than not, be realized. This
determination is based largely upon the Company's historical earnings trend as
well as its ability to carryback reversing items within three years to offset
taxes paid. In addition, the Company has the ability to offset deferred tax
assets against deferred tax liabilities associated with such items as
depreciation and amortization.
(10) Products, Principal Customers, and Operations by Geographic Area
The Company designs, develops, manufactures, and markets high-performance
noncontact electro-optical measuring instruments and accessories, and
manufactures precision optical components. The firm is based in Middlefield,
Connecticut.
Sales to Canon Inc. and to Canon Sales Co., Inc., accounted for more than
10% of total company sales for the years ended June 30, 1995, 1994, and 1993.
See note 11. In the year ended June 30, 1995, sales to a major manufacturer of
computer disk drives and related hardware and software, accounted for 17% of
total company sales. Sales to the University of Rochester of precision optical
components accounted for 12% of the company's consolidated sales for the year
ended June 30, 1993. No other individual customer accounted for more than 10% of
total company sales for any year presented in the accompanying consolidated
financial statements.
Export sales by geographic area were as follows:
Fiscal Year Ended June 30,
----------------------------------
(Thousands of dollars) 1995 1994 1993
------- ------- ------
Far East:
Japan ....................... $ 9,630 $ 7,586 $4,647
Pacific Rim ................. 3,279 2,129 2,389
------- ------- ------
Total Far East ................ 12,909 9,715 7,036
Europe and other .............. 2,072 1,332 1,661
------- ------- ------
Total ......................... $14,981 $11,047 $8,697
======= ======= ======
(11) Related Party Transactions
Sales to Canon Inc., a major stockholder, and to Canon Sales Co., Inc., the
exclusive distributor for the Company's products in Japan and a subsidiary of
Canon Inc., amounted to approximately $9,553,000, $7,740,000, and $4,647,000,
for the years ended June 30, 1995, 1994, and 1993, respectively. Sales included
revenue amounts relating to a fixed price research and development contract in
the years ended June 30, 1994, and 1993 which was accounted for under the
cost-to-cost percentage of completion method. Such amounts were $340,000 and
$1,360,000 for the years ended June 30, 1994 and 1993, respectively.
Selling prices of products sold to Canon Inc. and Canon Sales Co., Inc.,
are generally based on the normal terms given to distributors. At June 30, 1995,
1994, and 1993, there was approximately, in the aggregate, $1,104,700, $746,540,
and $870,460, respectively, of trade accounts receivable from Canon Inc. and
Canon Sales Co., Inc.
On June 23, 1995, the Company's Board of Directors approved the purchase of
approximately 22 acres of land adjacent to the Company's facility in
Middlefield, Connecticut, for a purchase price of $440,000. The land, which is
jointly owned by Paul F. Forman, Sol F. Laufer, and Carl A. Zanoni, founders of
the Company, will facilitate expansion of the Company's buildings and/or parking
facilities in the future. The purchase is expected to occur during the quarter
ending March 31, 1996.
(12) Miscellaneous Income
In the year ended June 30, 1993, the Company recorded $400,000 (pretax) of
income relating to its sale in June 1992 of the IMAGE Product Line, which was a
family of laser-based optical gauges. This amount, which was collected during
fiscal 1994, related to a contingent payment made by LaserMike, the purchaser of
the IMAGE line, for exceeding certain financial targets in the twelve-month
period following the sale.
20
<PAGE>
Zygo Corporation and Consolidated Subsidiary
- --------------------------------------------------------------------------------
REPORT OF MANAGEMENT
- --------------------------------------------------------------------------------
Management is responsible for preparing the Company's financial statements and
related information that appears in this annual report. Management believes that
the financial statements fairly reflect the form and substance of transactions
and reasonably present the Company's financial condition and results of
operations in conformity with generally accepted accounting principles.
Management has included in the Company's financial statements amounts that are
based on estimates and judgments, which it believes are reasonable under the
circumstances.
The Company maintains a system of internal accounting policies, procedures,
and controls intended to provide reasonable assurance, at appropriate cost, that
transactions are executed in accordance with Company authorization and are
properly recorded and reported in the financial statements, and that assets are
adequately safeguarded.
KPMG Peat Marwick LLP audits the Company's financial statements in
accordance with generally accepted auditing standards and provides an objective,
independent review of the fairness of reported financial condition and results
of operations.
The Board of Directors of the Company has an Audit Committee composed of
nonmanagement directors. The Committee meets with financial management and the
independent auditors to review internal accounting controls and accounting,
auditing, and financial reporting matters.
/s/ Mark J. Bonney
Mark J. Bonney
Vice President, Finance & Administration,
Treasurer, and Chief Financial Officer
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The Board of Directors and Stockholders of
Zygo Corporation:
We have audited the accompanying consolidated balance sheets of Zygo Corporation
and consolidated subsidiary as of June 30, 1995 and 1994, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the years in the three-year period ended June 30, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Zygo
Corporation and consolidated subsidiary as of June 30, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended June 30, 1995, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Hartford, Connecticut
August 11, 1995
21
<PAGE>
Zygo Corporation and Consolidated Subsidiary
- --------------------------------------------------------------------------------
PERCENTAGE OF CONSOLIDATED SALES
- --------------------------------------------------------------------------------
Fiscal Year Ended June 30,
--------------------------
1995 1994 1993
---- ---- ----
Instruments and Accessories ............. 84% 78% 73%
Precision Optical Components ............ 16 22 27
---- ---- ----
Total ................................. 100% 100% 100%
==== ==== ====
- --------------------------------------------------------------------------------
SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA
- --------------------------------------------------------------------------------
(Thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Fiscal Year Ended June 30, 1995
-------------------------------------------------------
September 30 December 31 March 31 June 30
------------ ----------- -------- -------
<S> <C> <C> <C> <C>
Net sales ........................................................ $5,858 $7,097 $8,718 $10,560
Earnings before income taxes ..................................... $ 248 $ 844 $1,525 $ 1,339
Income tax expense ............................................... 92 311 605 199
------ ------ ------ -------
Net earnings ..................................................... $ 156 $ 533 $ 920 $ 1,140
====== ====== ====== =======
Earnings per common and common equivalent share(1)(2) ............ $.04 $.13 $.21 $.25
====== ====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
For the Fiscal Year Ended June 30, 1994
-------------------------------------------------------
September 30 December 31 March 31 June 30
------------ ----------- -------- -------
<S> <C> <C> <C> <C>
Net sales ........................................................ $5,867 $6,120 $5,993 $ 6,160
Earnings before income taxes ..................................... $ 174 $ 318 $ 471 $ 365
Income tax expense ............................................... 64 118 174 54
------ ------ ------ -------
Net earnings ..................................................... $ 110 $ 200 $ 297 $ 311
====== ====== ====== =======
Earnings per common and common equivalent share(1)(2) ............ $.03 $.05 $.07 $.08
====== ====== ====== =======
</TABLE>
(1) Restated to reflect a 3-for-2 stock split effected in the form of a 50%
stock dividend declared on July 20, 1995, and paid on August 21, 1995, to
shareholders of record on August 1, 1995.
(2) Quarterly per share earnings do not necessarily equal the total per share
earnings reported for the year as a result of the dilutive effect of common
stock equivalents on the calculation of per share earnings.
22
<PAGE>
Zygo Corporation and Consolidated Subsidiary
- --------------------------------------------------------------------------------
STOCK DATA
- --------------------------------------------------------------------------------
NASDAQ Symbol: ZIGO
The number of stockholders of record at June 30, 1995, was 509.
The Company's common shares are traded over-the-counter and are quoted on
the NASDAQ/National Market. Market price data for 1995 and 1994, adjusted for
the effect of the 3-for-2 stock split which was effective on August 21, 1995,
was as follows:
Fiscal Year Ended June 30, 1995
-------------------------------
High Low
----------------------
First quarter .......................... $ 4 7/8 $ 3 3/4
Second quarter ......................... $ 5 3/8 $ 4 1/8
Third quarter .......................... $11 7/8 $ 4 5/8
Fourth quarter ......................... $24 1/8 $10 1/4
Fiscal Year Ended June 30, 1994
-------------------------------
High Low
----------------------
First quarter .......................... $ 5 $ 3 7/8
Second quarter ......................... $ 5 1/8 $ 4 1/8
Third quarter .......................... $ 5 5/8 $ 4 7/8
Fourth quarter ......................... $ 5 1/8 $ 4
Source: National Association of Securities Dealers, Inc.
23
<PAGE>
Zygo Corporation and Consolidated Subsidiary
- --------------------------------------------------------------------------------
CORPORATE INFORMATION
- --------------------------------------------------------------------------------
DIRECTORS
Michael R. Corboy
Chairman and President
Corboy Investment Company
Paul F. Forman
Chairman of the Board
Zygo Corporation
Seymour E. Liebman
Senior Vice President
Canon U.S.A., Inc.
Robert G. McKelvey
Chairman and President
George McKelvey Co., Inc.
Paul W. Murrill
Professional Engineer
Robert B. Taylor
Vice President and Treasurer
Wesleyan University
Gary K. Willis
Zygo Corporation
Carl A. Zanoni
Zygo Corporation
OFFICERS
Gary K. Willis
President and Chief Executive Officer
Mark J. Bonney
Vice President, Finance and
Administration, Treasurer, and
Chief Financial Officer
Carl A. Zanoni
Vice President, Research, Development and Engineering
Paul Jacobs
Secretary
24
<PAGE>
STOCKHOLDER INFORMATION
Form 10-K405 Available
Stockholders may obtain from the Company, without charge, a copy of the Annual
Report on Form 10-K405 filed with the Securities and Exchange Commission for
fiscal 1995.
Written requests should be directed to:
Sheree F. Denny
Manager, Financial Planning
and Reporting
Zygo Corporation
Laurel Brook Road
Middlefield, Connecticut 06455
Annual Meeting
November 16, 1995, at 10 a.m.
Executive Offices
Middlefield, Connecticut
Executive Offices
Laurel Brook Road
Middlefield, Connecticut 06455
Auditors
KPMG Peat Marwick LLP
CityPlace II
Hartford, Connecticut 06103
Legal Counsel
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, New York 10103
Transfer Agent and Registrar
Continental Stock Transfer and
Trust Company
2 Broadway
New York, New York 10004
Dividends
The Company has not declared or paid cash dividends since becoming a public
company.
Zygo, and the Zygo logo, are registered trademarks of Zygo Corporation.
MaximoGP, NewView 100, Growth Potential Interferometer, GPI, and ZM1-1000 are
trademarks used by Zygo Corporation.
Designed by Curran & Connors, Inc.
<PAGE>
ZYGO
- -----------------------------------
Zygo Corporation
Laurel Brook Road
Middlefield, Connecticut 06455-0448
Telephone: (203) 347-8506
Fax: (203) 347-8372
EXHIBIT 21
SUBSIDIARIES OF ZYGO CORPORATION (DELAWARE)
Zygo Credit Corporation (Delaware)
100% owned by Registrant
Zygo International Corporation (Delaware)
100% owned by Registrant
Zygo International Sales Corporation (U.S. Virgin Islands)
100% owned by Registrant
EXHIBIT 23
ACCOUNTANTS' CONSENT
The Board of Directors
Zygo Corporation:
We consent to incorporation by reference in Registration Statements No.
33-62087, No. 33-57060, No. 33-20880, and No. 33-34619 on Forms S-8 of Zygo
Corporation of our reports dated August 11, 1995, relating to the consolidated
balance sheets of Zygo Corporation and consolidated subsidiary as of June 30,
1995, and 1994, and the related consolidated statements of earnings,
stockholders' equity, and cash flows and related schedule for each of the years
in the three-year period ended June 30, 1995, which reports appear in or are
incorporated by reference into the June 30, 1995 Annual Report on Form 10-K405
of Zygo Corporation.
KPMG PEAT MARWICK LLP
Hartford, Connecticut
September 26, 1995
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, which are intended to constitute a
General Power of Attorney pursuant to Article V, Title 15 of the New York
General Obligations Law, that I, Robert G. McKelvey, George McKelvey Co., Inc.,
511 Sea Girt Avenue, Sea Girt, New Jersey 08759, do hereby appoint Mark J.
Bonney, Vice President, Finance and Administration, Zygo Corporation, Laurel
Brook Road, Middlefield, Connecticut 06455, my attorney-in-fact to act in my
name, place, and stead in any way which I myself could do, if I were personally
present, with respect to the following matter to the extent that I am permitted
by law to act through an agent: the signing of an Annual Report on Form 10-K for
the fiscal year ended June 30, 1995, and any amendments thereto, to be filed by
Zygo Corporation under Section 13 of the Securities Exchange Act of 1934, as
amended, with the Securities and Exchange Commission and grant full and
unqualified authority to my attorney-in-fact to delegate the foregoing power to
any person or persons whom my attorney-in-fact shall select.
This power of attorney shall not be affected by the subsequent
disability or incompetence of the principal.
To induce any third party to act hereunder, I hereby agree that any
third party receiving a duly executed copy or facsimile of the instrument may
act hereunder, and that revocation or termination hereof shall be ineffective as
to such third party unless and until actual notice or knowledge of such
revocation or termination shall have been received by such third party, and I,
for myself and for my heirs, executors, legal representatives, and assigns,
hereby agree to indemnify and hold harmless any such third party from and
against any and all claims that may arise against such third party by reason of
such third party having relied on the provisions of this instrument.
IN WITNESS WHEREOF, I have hereunto signed my name this 24th day of July
1995.
/s/ Robert G. McKelvey
------------------
Robert G. McKelvey
STATE OF NEW JERSEY, COUNTY OF MONMOUTH ss.:
On the 24th day of July 1995, before me personally came Robert G.
McKelvey to me known, and known to me to be the individual described in, and who
executed the foregoing instrument, and he acknowledged to me that he executed
the same.
/s/ Margaret Campbell
-----------------
Notary Public
MARGARET CAMPBELL
NOTARY PUBLIC OF NEW JERSEY
MY COMMISSION EXPIRES MARCH 19, 1996
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, which are intended to constitute a
General Power of Attorney pursuant to Article V, Title 15 of the New York
General Obligations Law, that I, Seymour E. Liebman, Canon U.S.A., One Canon
Plaza, Lake Success, New York 11042, do hereby appoint Mark J. Bonney, Vice
President, Finance and Administration, Zygo Corporation, Laurel Brook Road,
Middlefield, Connecticut 06455, my attorney-in-fact to act in my name, place,
and stead in any way which I myself could do, if I were personally present, with
respect to the following matter to the extent that I am permitted by law to act
through an agent: the signing of an Annual Report on Form 10-K for the fiscal
year ended June 30, 1995, and any amendments thereto, to be filed by Zygo
Corporation under Section 13 of the Securities Exchange Act of 1934, as amended,
with the Securities and Exchange Commission and grant full and unqualified
authority to my attorney-in-fact to delegate the foregoing power to any person
or persons whom my attorney-in-fact shall select.
This power of attorney shall not be affected by the subsequent
disability or incompetence of the principal.
To induce any third party to act hereunder, I hereby agree that any
third party receiving a duly executed copy or facsimile of the instrument may
act hereunder, and that revocation or termination hereof shall be ineffective as
to such third party unless and until actual notice or knowledge of such
revocation or termination shall have been received by such third party, and I,
for myself and for my heirs, executors, legal representatives, and assigns,
hereby agree to indemnify and hold harmless any such third party from and
against any and all claims that may arise against such third party by reason of
such third party having relied on the provisions of this instrument.
IN WITNESS WHEREOF, I have hereunto signed my name this 14th day of July
1995.
/s/ Seymour E. Liebman
------------------
Seymour E. Liebman
STATE OF NEW YORK, COUNTY OF NASSAU ss.:
On the 14th day of July 1995, before me personally came Seymour
E. Liebman to me known, and known to me to be the individual described in, and
who executed the foregoing instrument, and he acknowledged to me that he
executed the same.
/s/ Ruth Weinstein
--------------
Notary Public
RUTH WEINSTEIN
Notary Public, State of New York
No. 01WE 4734936
Qualified in Nassau County
Commission Expires Jan 31, 1996
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, which are intended to constitute a
General Power of Attorney pursuant to Article V, Title 15 of the New York
General Obligations Law, that I, Robert B. Taylor, North College, Wesleyan
University, Middletown, Connecticut 06459, do hereby appoint Mark J. Bonney,
Vice President, Finance and Administration, Zygo Corporation, Laurel Brook Road,
Middlefield, Connecticut 06455, my attorney-in-fact to act in my name, place,
and stead in any way which I myself could do, if I were personally present, with
respect to the following matter to the extent that I am permitted by law to act
through an agent: the signing of an Annual Report on Form 10-K for the fiscal
year ended June 30, 1995, and any amendments thereto, to be filed by Zygo
Corporation under Section 13 of the Securities Exchange Act of 1934, as amended,
with the Securities and Exchange Commission and grant full and unqualified
authority to my attorney-in-fact to delegate the foregoing power to any person
or persons whom my attorney-in-fact shall select.
This power of attorney shall not be affected by the subsequent
disability or incompetence of the principal.
To induce any third party to act hereunder, I hereby agree that any
third party receiving a duly executed copy or facsimile of the instrument may
act hereunder, and that revocation or termination hereof shall be ineffective as
to such third party unless and until actual notice or knowledge of such
revocation or termination shall have been received by such third party, and I,
for myself and for my heirs, executors, legal representatives, and assigns,
hereby agree to indemnify and hold harmless any such third party from and
against any and all claims that may arise against such third party by reason of
such third party having relied on the provisions of this instrument.
IN WITNESS WHEREOF, I have hereunto signed my name this 30th day of
June 1995.
/s/ Robert B. Taylor
----------------
Robert B. Taylor
STATE OF CONNECTICUT, COUNTY OF MIDDLESEX ss.:
On the 30th day of June 1995, before me personally came Robert B.
Taylor to me known, and known to me to be the individual described in, and who
executed the foregoing instrument, and he acknowledged to me that he executed
the same.
/s/ Rene R. Rinaldi
---------------
Notary Public
RENE R. RINALDI
NOTARY PUBLIC
My Commission Exp. 11/30/98
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, which are intended to constitute a
General Power of Attorney pursuant to Article V, Title 15 of the New York
General Obligations Law, that I, Paul W. Murrill, 206 Sunset Boulevard, Baton
Rouge, Louisiana 70808, do hereby appoint Mark J. Bonney, Vice President,
Finance and Administration, Zygo Corporation, Laurel Brook Road, Middlefield,
Connecticut 06455, my attorney-in-fact to act in my name, place, and stead in
any way which I myself could do, if I were personally present, with respect to
the following matter to the extent that I am permitted by law to act through an
agent: the signing of an Annual Report on Form 10-K for the fiscal year ended
June 30, 1995, and any amendments thereto, to be filed by Zygo Corporation under
Section 13 of the Securities Exchange Act of 1934, as amended, with the
Securities and Exchange Commission and grant full and unqualified authority to
my attorney-in-fact to delegate the foregoing power to any person or persons
whom my attorney-in-fact shall select.
This power of attorney shall not be affected by the subsequent
disability or incompetence of the principal.
To induce any third party to act hereunder, I hereby agree that any
third party receiving a duly executed copy or facsimile of the instrument may
act hereunder, and that revocation or termination hereof shall be ineffective as
to such third party unless and until actual notice or knowledge of such
revocation or termination shall have been received by such third party, and I,
for myself and for my heirs, executors, legal representatives, and assigns,
hereby agree to indemnify and hold harmless any such third party from and
against any and all claims that may arise against such third party by reason of
such third party having relied on the provisions of this instrument.
IN WITNESS WHEREOF, I have hereunto signed my name this 26th day of June
1995.
/s/ Paul W. Murrill
---------------
Paul W. Murrill
STATE OF LOUISIANA, COUNTY OF E. Baton Rouge ss.:
On the 26th day of June 1995, before me personally came Paul W. Murrill
to me known, and known to me to be the individual described in, and who executed
the foregoing instrument, and he acknowledged to me that he executed the same.
Molly McGraw
------------
Notary Public
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, which are intended to constitute a
General Power of Attorney pursuant to Article V, Title 15 of the New York
General Obligations Law, that I, Michael R. Corboy, 8111 Preston Road, Suite
712, Dallas, Texas 75225, do hereby appoint Mark J. Bonney, Vice President,
Finance and Administration, Zygo Corporation, Laurel Brook Road, Middlefield,
Connecticut 06455, my attorney-in-fact to act in my name, place, and stead in
any way which I myself could do, if I were personally present, with respect to
the following matter to the extent that I am permitted by law to act through an
agent: the signing of an Annual Report on Form 10-K for the fiscal year ended
June 30, 1995, and any amendments thereto, to be filed by Zygo Corporation under
Section 13 of the Securities Exchange Act of 1934, as amended, with the
Securities and Exchange Commission and grant full and unqualified authority to
my attorney-in-fact to delegate the foregoing power to any person or persons
whom my attorney-in-fact shall select.
This power of attorney shall not be affected by the subsequent
disability or incompetence of the principal.
To induce any third party to act hereunder, I hereby agree that any
third party receiving a duly executed copy or facsimile of the instrument may
act hereunder, and that revocation or termination hereof shall be ineffective as
to such third party unless and until actual notice or knowledge of such
revocation or termination shall have been received by such third party, and I,
for myself and for my heirs, executors, legal representatives, and assigns,
hereby agree to indemnify and hold harmless any such third party from and
against any and all claims that may arise against such third party by reason of
such third party having relied on the provisions of this instrument.
IN WITNESS WHEREOF, I have hereunto signed my name this 10th day of
July 1995.
/s/ Michael R. Corboy
-----------------
Michael R. Corboy
STATE OF TEXAS, COUNTY OF Dallas ss.:
On the 10th day of July 1995, before me personally came Michael R.
Corboy to me known, and known to me to be the individual described in, and who
executed the foregoing instrument, and he acknowledged to me that he executed
the same.
/s/ Edith Jones
-----------
Notary Public
EDITH JONES
[SEAL] MY COMMISSION EXPIRES
November 30, 1996
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, which are intended to constitute a
General Power of Attorney pursuant to Article V, Title 15 of the New York
General Obligations Law, that I, Paul F. Forman, 15 Flying Point Road, Stony
Creek, Connecticut 06405, do hereby appoint Mark J. Bonney, Vice President,
Finance and Administration, Zygo Corporation, Laurel Brook Road, Middlefield,
Connecticut 06455, my attorney-in-fact to act in my name, place, and stead in
any way which I myself could do, if I were personally present, with respect to
the following matter to the extent that I am permitted by law to act through an
agent: the signing of an Annual Report on Form 10-K for the fiscal year ended
June 30, 1995, and any amendments thereto, to be filed by Zygo Corporation under
Section 13 of the Securities Exchange Act of 1934, as amended, with the
Securities and Exchange Commission and grant full and unqualified authority to
my attorney-in-fact to delegate the foregoing power to any person or persons
whom my attorney-in-fact shall select.
This power of attorney shall not be affected by the subsequent
disability or incompetence of the principal.
To induce any third party to act hereunder, I hereby agree that any
third party receiving a duly executed copy or facsimile of the instrument may
act hereunder, and that revocation or termination hereof shall be ineffective as
to such third party unless and until actual notice or knowledge of such
revocation or termination shall have been received by such third party, and I,
for myself and for my heirs, executors, legal representatives, and assigns,
hereby agree to indemnify and hold harmless any such third party from and
against any and all claims that may arise against such third party by reason of
such third party having relied on the provisions of this instrument.
IN WITNESS WHEREOF, I have hereunto signed my name this 15th day of
July 1995.
/s/ Paul F. Forman
--------------
Paul F. Forman
STATE OF CONNECTICUT, COUNTY OF NEW HAVEN ss.:
On the 21st day of September 1995, before me personally came Paul F.
Forman to me known, and known to me to be the individual described in, and who
executed the foregoing instrument, and he acknowledged to me that he executed
the same.
Alice H. Sirardi
----------------
Notary Public