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, 1996
Commission file number 0-12944
Zygo Corporation
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-0864500
- - --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
Laurel Brook Road, Middlefield, Connecticut 06455
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (860) 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 30, 1996, was $118,813,408
* 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.
4,913,145 Shares of Common Stock, $.10 Par Value, at August 30, 1996
The following documents are incorporated by reference in this Form 10-K405.
Part of the
Document Form 10-K405
-------- ------------
1996 Annual Report - (Specified Portions) Parts I and II
Proxy Statement to be used in connection
with the Registrant's 1996 Annual Meeting
of Stockholders (Specified Portions) Part III
<PAGE>
2
PART I
Item 1. Business
THE COMPANY
Zygo Corporation designs, develops, manufactures and markets high
performance noncontact electro-optical measuring instruments, systems and
accessories, and optical components to precise tolerances both for sale and for
use as key elements in its own products. Utilizing proprietary laser and optical
technology combined with advanced software and electronics, Zygo's precision
noncontact measuring instruments and systems enable manufacturers in a variety
of industries, including data storage, semiconductor, and precision optics, to
increase operating efficiencies and production yields by identifying and
collecting quantitative data on product defects, both during and after the
manufacturing process. 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.
Predominantly all of Zygo's instruments and systems employ either a laser
or white light source to make noncontact measurements. Through a process called
interferometry, a pattern of bright and dark lines (called fringes) results from
an optical path difference between a reference and a measurement beam. Zygo's
products then analyze these patterns through a series of steps and generate
quantitative three-dimensional surface profiles, which are used to determine
conformity to dimensional specification and, increasingly, to analyze and
enhance manufacturing processes. Interferometric measurement instruments and
systems are used by a variety of industries, including by the data storage
industry to inspect and analyze the surface of computer hard disks and
read/write heads, and by the semiconductor industry for high precision distance
measurement and motion control.
BACKGROUND
Historically, measurement and inspection instrumentation has consisted of
contact profiling devices and visual qualitative inspection systems. Advancing
technologies have required manufacturers in a variety of industries to produce
smaller products with more precise tolerances and decreased design geometries,
not capable of adequately being measured by the devices and systems then being
utilized. For example, contact profilers and visual qualitative inspection
systems are inadequate for quantitative analysis of critical dimensions such as
air bearing surface geometry and pole-tip recession necessary in high volume
production of read/write heads.
The demands on these manufacturers to produce more powerful and smaller
products with more precise tolerances have fueled demand for precision
noncontact measuring instruments. In fact, high performance, noncontact
metrology is an enabling technology for the semiconductor, data storage, and
other vital high technology industries. The trend towards miniaturization and
tighter tolerances creates new challenges for manufacturers as they are forced
to handle, measure, and test ever smaller components. As piece part dimensions
and tolerances become smaller, "nano technology scale" precision is
necessitated. Disk drive manufacturers, for example, continue to increase drive
capacity while reducing the size of drives. For this to happen, the recording
head must fly closer to the disk and the head itself must be made smaller and to
greater precision.
In addition, until recently, noncontact measuring instruments have been
limited almost exclusively to use by quality control laboratories for off-line
inspection on a test basis only. The historical cyclical nature of the
semiconductor industry, the data storage industry, and other capital goods
sector industries, together with increased competitive forces in these
industries, have forced these industries to no longer depend solely on sales
growth to fuel financial performance improvement, but rather to focus greater
attention on the need to reduce production defects and significantly increase
production yields. These pressures on manufacturers to improve productivity and
quality have required integration of process control technologies directly into
the manufacturing process, allowing manufacturers to test a greater percentage
of their components while in production.
<PAGE>
3
Instrumentation is increasingly being sought to more accurately measure the
conformity of parts to their specifications and detect defects directly on the
manufacturing line, and to address other specific needs of the manufacturers to
improve production yields. As the data storage industry, semiconductor industry,
and other high technology industries are forced to install more sophisticated
and difficult to manage and control production and assembly processes, a greater
degree of on-line, high precision, surface metrology and defect detection
systems is required.
THE ZYGO SOLUTION
Zygo introduced its first interferometer in 1972. All of Zygo's instruments
and systems utilize interferometry to accomplish precise measurement of a
variety of surface geometries or to control motion and minute movements during
the manufacturing process. In interferometry, a pattern of bright and dark lines
(fringes) results from an optical path difference between a reference and a
measurement beam. Incoming light is split inside an interferometer, one beam
going to an internal reference surface and the other to a sample. After
reflection, the beams recombine inside the interferometer, undergo constructive
and destructive interference, and produce the light and dark fringe pattern. The
number, shape, and position of the lines in the fringe patterns can be analyzed
to provide quantitative surface structure analysis. Zygo's interferometric
instruments and systems utilize highly sophisticated subsystems, including:
precision optical components such as beamsplitters, reference optics, and
transmission optics; stable and long-life laser or other light sources; piece
part positioning stages; high-powered workstations or PCs for processing and
analyzing fringe pattern data; and a variety of peripheral components such as
monitors and printers.
Interferometry has certain inherent benefits over other forms of surface
and distance measurement as it provides noncontact, quantitative, full field of
view, ultra-high resolution surface analysis in three dimensions, which results
in higher analysis throughput and lower cost of ownership for the user.
Additionally, interferometric metrology is often an enabling technology as
dimensions and tolerances of many parts in high technology applications have
dimensions below 250 nanometers.
Zygo's instruments and systems provide critical productivity enhancement
capability to the data storage, semiconductor, and other high technology
markets. Zygo has worked closely with leaders of the data storage,
semiconductor, and other capital goods sector industries to help these
manufacturers meet the ever-increasing production demands of their industries.
Utilizing proprietary laser and optical technology combined with advanced
software and electronics, Zygo's precision noncontact measuring instruments and
systems enable manufacturers in a variety of industries to increase operating
efficiencies and product yields by identifying and collecting quantitative data
on product defects, both during and after the manufacturing process.
A wide range of operational features and data analysis capabilities are
available on Zygo's measurement instruments. Instrumentation has been designed
with maximum flexibility to satisfy a customer's existing needs and to be
adaptable to satisfy expansion and growth. Certain measuring devices can be used
in either the horizontal or vertical configuration, and on the production line
or in the development lab.
To meet the rapidly changing and increasing requirements of manufacturers,
Zygo's business is transforming from that of an off-line quality control and
quality assurance test and measurement instrument supplier to an on-line
production improvement and yield management system provider. For example, Zygo's
Automated Air Bearing Surface Analysis System measures the air bearing surface
geometry of read/write heads in-line as the heads are being manufactured. The
system performs quantitative measurements on seven critical read/write head
parameters with a throughput of up to 20,000 heads per day and provides
real-time critical data to the manufacturing process control center to make
on-line production process changes, thereby reducing the number of defective
heads manufactured. Zygo recognized another opportunity for yield improvement in
the data storage industry in flying height testing. Early in calendar 1995, Zygo
formed a division in Simi Valley, California, to develop products for that
industry with its first undertaking being focused on the flying height tester.
Together with Zygo's engineers in Middlefield, Connecticut, the team developed a
production flying height tester and introduced the product in September 1995;
shipments of the Pegasus 2000 flying height tester commenced in May 1996. The
Pegasus 2000 addresses one of the
<PAGE>
4
data storage industry's most critical requirements, the ability to measure
flying height at near contact. Another example of Zygo's instruments and systems
which allows its customers to enhance productivity and improve production yield
is the ZMI-1000, used by semiconductor manufacturers within their
photolithography systems to precisely control the movement of the systems' x/y
stage to a precision of one nanometer. As product geometries and tolerances
reduce and yield improvement becomes increasingly important, new opportunities
are continuously being explored.
ZYGO STRATEGY
Zygo's objective is to expand its position as a leading worldwide supplier
of high performance, noncontact electro-optical measuring, production control,
and yield management improvement instruments, systems and accessories that
improve the performance, quality, reliability, yield and cost of automated
manufacturing processes, and of optical components to precise tolerances. Zygo
dedicates substantial resources to research and product development to enable it
to compete effectively in its market areas.
Key elements of Zygo's strategy include:
Maintain Enhanced Leadership Through Innovative Technical Solutions. By
integrating its proprietary electro-optical technologies, proprietary
applications software and unique system integration capabilities, Zygo
provides leading edge automated optical inspection solutions in the
shortest possible time. Zygo's core technologies of optical interferometry,
optical metrology, system engineering integration, application software,
and precision optical component fabrication and coating are directly
applied to meet the higher measurement precision, accuracy, resolution,
data acquisition and data analysis requirements in the most demanding
manufacturing processes of its customers. Throughout its history, Zygo has
met its customers' requirements through innovation and invention with 63
United States patents and 9 foreign patents, and has 13 United States
patent applications and 3 foreign patent applications pending.
Focus on New Market Segments. Zygo's products have applications for a wide
variety of industries. In the development of these products, Zygo focuses
on market segments which it believes have growth potential and in which
Zygo can reasonably expect to become a leading manufacturer. Zygo seeks to
adapt the noncontact inspection and process control technology it develops
for one application to other markets.
Broaden Customer Relationships. Zygo focuses on establishing the strongest
relationship with major industry leaders in its served markets. This is
accomplished by working closely with its customers and identifying
increasing numbers of applications for automated optical inspection and
yield improvement systems. Zygo also focuses on fully integrating its
offerings into its customers' manufacturing processes through automated
parts handling, enhanced product metrology and defect analysis, and by more
complete integration into the customers' workcells by fully integrated
process information networking, all geared to improve production. Zygo
intends, by forming closer customer alliances, to better understand the
evolving needs of its customers and, through the application of innovative
technology, to provide high performance, high quality, cost effective
solutions to the production improvement requirements in the shortest
possible cycle time. Through this solution-sales cycle, which further
promotes a closer and longer term partnership relationship between Zygo and
its customers, Zygo intends to attain a preferred position with major
industry leaders.
Supply Quality Solutions Rapidly. Zygo seeks to deliver high quality and
high reliability system solutions in a minimal cycle time. To this end,
Zygo has installed an enterprise-wide total quality process where
employee-led teams work to continuously improve the effectiveness and
efficiency of its processes while searching out and removing areas of poor
quality and waste. Zygo's operations strategy focuses on internally
providing those
<PAGE>
5
manufacturing services that add unique value in a rapidly changing customer
needs environment.
Provide Uninterrupted Worldwide Service and Support. To support leading
customers' continuous manufacturing processes, Zygo ensures optimal
operation and reliable performance of its production control equipment
through its worldwide customer support service group. Through a worldwide
network of service representatives, Zygo provides 24-hour on-demand
maintenance services. Its service engineers have a unique skill set,
including optical and electrical component repair, software, application
and system integration diagnostic and problem solution capabilities.
Broaden Product Offerings and Markets Through Internal Developments and
Acquisitions. Zygo intends to broaden its product offerings by continuing
to internally develop additional products and by aggressively pursuing the
acquisition of companies where synergies can be identified. In 1995, Zygo
formed a start-up operation in Simi Valley, California, as a way to broaden
its product offering and participation in the data storage industry. Zygo
has determined that these start-up operations can be an effective
alternative to an acquisition when the technology resident in Zygo is
complementary to the market knowledge and expertise resident in the
individuals hired to manage the start-up. Zygo also maintains an active
program of investigating and negotiating potential synergistic acquisitions
which extend Zygo's product lines or markets. Zygo believes that its
acquisition strategy is an important element of its total business
strategy. In 1995, Zygo completed the acquisition of a small manufacturer
of high precision laser tubes, which allowed Zygo to bring in-house a
technology that is critical to the performance of its motion control
products. Subsequent to the close of its fiscal 1996, Zygo completed the
acquisition of Technical Instrument Company, a manufacturer of confocal
microscopy systems and modules, and the acquisition of NexStar Automation,
Inc., a manufacturer of automation and parts handling equipment. (See
"-Technical Instrument Company Acquisition" and "-NexStar Automation, Inc.
Acquisition" later in this Form 10-K405.)
PRODUCTS
Zygo manufactures high performance, noncontract electro-optical measuring
instruments, systems and accessories, and optical components to precise
tolerances both for sale and for use as key elements in its own products. Zygo
operates in a single business segment, electro-optics, and offers products which
fall into two general categories: (1) instruments, systems and accessories, and
(2) precision optical components.
Instruments, Systems and Accessories
Zygo's product strategy is to develop its instruments and systems utilizing
modular designs where entire product families share several, if not all, of the
same components, modules and software. Since 1992, Zygo has redesigned all of
its instruments and continues to upgrade its software and enhance its products
by adding features such as automated stages and parts handling to many of its
instruments and systems.
All of Zygo's instrument products utilize powerful processors that
facilitate high speed data acquisition and data analysis. Zygo's interferometric
surface analysis microscopes and large aperture surface measurement
interferometers utilize Zygo's proprietary MetroPro(R) software, which has a
graphical user interface that makes the product very user friendly. The
MetroPro(R) software, combined with super high-resolution graphics and pull-down
menus, provides the user with engineering solutions without off-line processing.
The software allows the user to record, print, and store measurement data
locally as well as to distribute the data through networks for process
management and further analysis. Zygo's proprietary software provides Zygo with
comparative
<PAGE>
6
advantage because of its high speed, powerful analysis capability based on
proprietary algorithms, easily configurable screens, powerful image analysis
modules, and adaptability to new applications.
Interferometric Surface Analysis Microscopes
<TABLE>
<CAPTION>
Product Price Range Measurement Application
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maxim*GP $ 50K Roughness; Depths; Coplanarity; Product and Process Development;
NewView 100 to Micro-shape; Lengths; Widths; On-Line Process Control/Product
AAB System $150K Area; Volumes Inspection; QC inspection
- - -----------------------------------------------------------------------------------------------
</TABLE>
The surface characteristics of many products in industries such as
semiconductor, data storage, fiber optics, and medical implants, and with
increased applications in the paper, printing plates, coatings, and
pharmaceuticals industries, controls the performance of the product. As a
result, surface structure analysis is fundamental to many facets of research and
industry. The Zygo Maxim*GP, the fully automated AAB System, and NewView 100
microscopes combine advanced techniques of interferometry, microscopy, and
precision translation stages, to enable high precision surface analysis. Unlike
visual microscopes, Zygo's instruments provide measurement information as
quantitative three-dimensional images, two- and three-dimensional surface maps
with colors and shades representing relative heights of surface features, and
numeric results. The Maxim*GP is based on phase shifting interferometry to
provide very precise, fast measurements of specular ("Mirror-like") or near
specular surfaces. The NewView 100 uses scanning white light interferometry to
measure nonspecular surfaces.
Large Aperture Surface Measurement Interferometers
<TABLE>
<CAPTION>
Product Price Range Measurement Application
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GPI LC $ 15K Flatness; Sphericity; Product and Process Development;
GPI ST to Radius of Curvature; Optical Off-Line Process Control;
System Quality; Transparent
GPI XP $250K Material Homogeneity QC Inspection
- - -----------------------------------------------------------------------------------------------
</TABLE>
Zygo's interferometers for large surface measurement, the Growth Potential
Interferometer ("GPI") family of upgradable instruments, basically consist of
enlarged versions of the three-dimensional microscope, designed to perform
surface profile analysis on larger surface areas. Each member of the GPI
interferometer family is designed to address a specific level of measurement
needs. While all GPI models have essentially the same purpose - noncontact
measurement of flat or spherical surfaces and transmitted wavefront measurement
of optics - they differ widely in operational features and data analysis
capabilities. The GPI family of products is used extensively in the optics
industry to measure glass or plastic optical components like flats, lenses and
prisms, and more recently in a growing number of other situations to measure
precision components such as hard disks, bearing and sealing surfaces, polished
ceramics, and contact lens molds.
Flying Height Tester
Product Price Range Measurement Application
- - --------------------------------------------------------------------------------
Pegasus 2000 $200K Read/Write Head Gimbal Product Development;
to Assembly Flying Height Off-Line Process Control;
$250K QC Inspection
- - --------------------------------------------------------------------------------
<PAGE>
7
In September 1995, Zygo introduced the Pegasus 2000, a flying height
tester. The flying height tester measures the height at which a read/write head
flies over the surface of a magnetic disk within the disk drive. The industry
demands for increased storage capacity are compelling manufacturers to reduce
the flying height, as increased amounts of data can be stored on magnetic heads
the closer they fly to the disk. The Pegasus 2000 offers several unique
capabilities to the data storage industry. As flying heights are reduced,
manufacturers require measurement instruments which can measure at near-contact.
Zygo's flying height tester actually increases in accuracy the closer the
read/write head flies over the surface of the disk. Additionally, due to
significant increases in disk storage requirements, manufacturers require
easy-to-use, high throughput testers. The Pegasus 2000 has been designed as a
production oriented tester. For example, the system is capable of having a head
loaded while a second head is being tested. Also, the tester automatically
calibrates the sensor requirements of each head rather than requiring operator
inputs. Zygo commenced shipments of its Pegasus 2000 in May 1996.
Precision Distance and Angle Measurement Interferometers
<TABLE>
<CAPTION>
Product Price Range Measurement Application
- - --------------------------------------------------------------------------------------
<S> <C> <C> <C>
ZMI-1000 $ 15K Distance; Angle; Velocity; Semiconductor and Flat Panel
to Time/Position Display Manufacturing;
$100K Product and Process Development;
Precision Machine Tools
- - --------------------------------------------------------------------------------------
</TABLE>
Fast, precise control of machine motion is the primary challenge in many
production processes. Industries as diverse as semiconductor and flat panel
display production and optical component manufacturing require systems to
measure the position of a tool relative to a part under fabrication. Zygo's
ZMI-1000 Laser Interferometer system provides the measurements that control the
position of some of the world's most sophisticated machinery. Through the use of
a directed laser beam reflecting from the moving portion of the machine, the
ZMI-1000 can tell the machine's computer control systems about movements as
small as 1.24 nanometers (billionths of a meter). This level of accuracy can be
compared to the finest geometries of semiconductors, which are approximately 350
nanometers. Its design also accommodates fast motions and maintains its
precision at speeds in excess of a meter per second. Applications for these
interferometers include accurately measuring and controlling, while they are in
motion, the x, y, and theta stages in photolithography equipment that is used in
making semiconductors and flat-panel video displays. Although Zygo sells this
instrumentation to a large number of customers, the majority of these
interferometers are sold on an OEM basis to Canon. Zygo is Canon's sole-source
provider of motion control devices for use in Canon's photolithography systems.
These systems perform a critical function in the process of manufacturing
semiconductors.
Precision Optical Components
Component(s) Application
- - --------------------------------------------------------------------------------
Flats; Spheres; Laser and White Light Based
Waveplates; Mirrors; Optical Instruments;
Precision Mechanical Components; High Power Lasers;
Aerospace Windows; Photolithography;
Photolithographic Stages Military; Research
- - --------------------------------------------------------------------------------
Zygo believes it is a world leader in the design and manufacture of highly
accurate "cosmetically excellent" surfaces and angles on plano components
ranging in size from small prisms to large mirrors, scanners, aerospace windows
and laser amplifier disks. Zygo's precision machining
<PAGE>
8
capability is used to make complex glass and ceramic parts such as stage mirrors
and other lightweight structures. Operations at Zygo's state-of-the-art optical
components manufacturing facility include machining, shaping, generating,
grinding, polishing, and edging. Zygo utilizes technology that it has developed
and incorporated into rotary polishing machines designed and built by Zygo.
Zygo's thin film coating capability includes metallic and high-efficiency
dielectric coatings for transmissive or reflective applications, in the
ultraviolet, visible, and infrared regions of the spectrum. Zygo also applies
polarization, beamsplitter, and anti-reflection coatings.
To ensure quality control of its products, Zygo maintains complete control
over every facet of manufacturing, from grinding and polishing to mating and
assembly. At each stage of production, opticians test and verify the components
using sophisticated interferometric measuring instruments designed and
manufactured by Zygo. Zygo believes that this vertical integration gives Zygo a
distinct competitive advantage over most of its competitors in the production of
its precision optical components.
Percentage of Consolidated Sales
The following table shows the past three years of relative contributions of
instruments and accessories and precision optical components to consolidated
sales.
Year ended June 30, 1996 1995 1994
----------------------------------------------------------------
Instruments and Accessories 87% 84% 78%
Precision Optical Components 13 16 22
----------------------------------------------------------------
Total 100% 100% 100%
================================================================
Competition
Although Zygo believes that its products are unique, competitors offer
technologies, instrumentation, and systems that are capable of performing
certain of the functions performed by Zygo's products. Zygo faces competition
from a number of companies in all its markets, some of which have greater
manufacturing and marketing capabilities, and greater financial, technological,
and personnel resources. In addition, Zygo may compete with the internal
development efforts of its current and prospective customers. Zygo believes that
its instrumentation and products offer several advantages over competitive
products in terms of accuracy, speed, flexibility, cost, and ease of use.
Although Zygo has attempted to protect the proprietary nature of such products,
it is possible that any of Zygo's products could be duplicated by other
companies in the same general market. In addition, there can be no assurances
that Zygo would be able to compete with similar products produced by a
competitor.
PRINCIPAL CUSTOMERS AND OPERATIONS BY GEOGRAPHIC AREA
The growing need for dimensional control to the subnanometer level has
created a growing need for Zygo's instruments and systems among both OEMs and
end users. Traditionally, Zygo's largest market has been high precision optical
components and systems. As the market demands for greater tolerance control in
the manufacturing process has increased, particularly in the data storage and
semiconductor markets, Zygo has been able to meet these demands with
on-the-production-line process and quality control instruments and systems as
well as with its off-line quality control instruments. As a result, the data
storage and semiconductor industries are now Zygo's largest markets.
Historically, a relatively limited number of customers have accounted for a
substantial portion of Zygo's revenues. In fiscal years 1996, 1995, and 1994,
sales to Zygo's top two customers accounted for approximately 53.8%, 46.8%, and
41.2%, respectively, of Zygo's net sales. During these fiscal years, sales to
Canon, Zygo's largest customer, accounted for approximately 36.9%,
<PAGE>
9
29.6%, and 32.1 %, respectively, of Zygo's net sales. Canon, one of the original
investors in Zygo, is a valuable strategic partner of Zygo and the relationship
is important to both companies for many reasons. Sales to Canon include products
that Canon uses in its manufacturing facilities, such as Zygo's large aperture
surface measurement interferometers, which are used to quantitatively analyze
the surface of optics Canon produces for its photolithographic steppers, and
Zygo's motion measurement components and systems which are incorporated into
Canon's steppers for controlling the x/y stage in that product. Zygo is Canon's
sole source for motion control systems. Sales to Canon also include optical
components and instruments, systems and accessories sold by Canon as Zygo's sole
distributor in Japan. In fiscal 1996 and 1995, Seagate, a leading manufacturer
of computer disk drives and related hardware and software, accounted for an
additional approximately 16.8% and 17.2%, respectively, of Zygo's net sales;
sales to Seagate were insignificant in fiscal 1994. No other customer accounted
for greater than approximately 10% of Zygo's net sales in fiscal 1996, 1995, or
1994.
The following is a representative list of end users of Zygo's products:
<TABLE>
<CAPTION>
Industrial Surfaces &
Semiconductor Data Storage Optics Machine Control
- - ------------- ------------ ------ ---------------
<S> <C> <C> <C>
Canon Akashic Bausch & Lomb Anorad
DuPont Applied Magnetics Canon Cummins Engine
ESI Hitachi Corning Dover Instruments
ETEC Komag Hughes General Motors
IBM Maxtor Laboratory for Gerber Scientific
KLA Quantum Laser Energetics Martin Marietta
Motorola Read-Rite Lawrence Livermore National Institute of
NEC SAE Magnetics National Laboratories Standards & Technology
SVG Seagate Melles Griot Rank Taylor Hobson
Sematech Sony Nikon Saint-Gobain/Norton
Tencor TDK OCLI Sikorsky Aircraft
Texas Instruments Toshiba Perkin Elmer Stanadyne
Toshiba Schott Glass 3-M
Ultratech Stepper Vistakon TRW
Zeiss
</TABLE>
Zygo sells its products worldwide through a combination of direct sales
staff and independent distributors and sales representatives. Zygo maintains a
direct sales staff of three persons at its headquarters in Middlefield,
Connecticut, one person in Atlanta, Georgia, one person in Fort Collins,
Colorado, one person in Mesa, Arizona, and one person in Santa Clara,
California, for domestic sales. International sales are made through more than
10 representatives and distributors, covering sales and service in 20 countries
including Japan, Singapore, Malaysia, South Korea, Taiwan, Philippines, United
Kingdom, Germany, Italy, and France.
The following table sets forth the percentage of Zygo's total sales
(including sales delivered through distributors) by location during the past
three years:
Year Ended June 30,
------------------------------
1996 1995 1994
---- ---- ----
United States 49.9% 53.5% 54.3%
Japan 36.9 29.9 31.4
Pacific Rim 8.2 10.2 8.8
Other (primarily Europe) 5.0 6.4 5.5
<PAGE>
10
Substantially all of Zygo's export sales are negotiated, invoiced, and paid
in United States dollars. International sales and foreign operations are subject
to certain inherent risks.
The selling process for Zygo's products frequently involves participation
by sales, marketing, applications specialists, and engineering personnel. Zygo's
marketing activities also include participation in international standards
organizations, trade shows, publication of articles in trade journals,
participation in industry forums, and distribution of sales literature. In
addition, Zygo's strategic relationships with customers serve as highly visible
references.
Zygo believes that its strong commitment to service is essential, based on
the growing complexity of the equipment used in the manufacturing process by
Zygo's customers. At June 30, 1996, Zygo's customer support and service staff
consisted of 14 persons. In addition, Zygo's distributors and sales
representatives offer a worldwide network for customer support, providing
24-hour on-demand maintenance services. The service engineers are skilled in
optical and electrical component repair, software, application and system
integration, diagnostic and problem solving capabilities. Zygo also offers
training programs and maintenance contracts for its customers.
BACKLOG
The Company's backlog at June 30, 1996 and 1995, was approximately $19.1
million and $12.9 million, respectively. The significant increase from the prior
year end resulted primarily from stronger demand for all of the Company's
electro-optical instruments and accessories. The backlog of the Company's
electro-optical instruments and accessories at June 30, 1996, increased
$5,321,000 (58%) from that at June 30, 1995. The backlog of the Company's
precision custom optical components increased by $833,000 (22%) from the year
earlier as a result of improved demand for precision optical components.
Substantially all of the backlog as of June 30, 1996, is expected to be shipped
in fiscal year 1997. Historically, cancellation or reduction of orders has not
had a significant impact on the Company's results of operations.
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
1996 Annual Report, which statements are herein incorporated by reference. Zygo
operates in an industry that is subject to rapid technological change and
engineering innovation. Zygo distinguishes its instrument products on the basis
of its unique electro-optical sensor technology, its software capability, and
its skill in systems integration. Because Zygo believes that its ability to
compete effectively with its instruments and systems in its markets depends in
part on maintaining its expertise in applying new technologies and developing
new products, Zygo dedicates substantial resources to research and development.
At June 30, 1996, Zygo employed 42 individuals within its R&D operations,
including 16 individuals with advanced degrees of which six individuals have
earned doctoral degrees. During the second half of fiscal 1995, Zygo 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 focused on flying height testing and, in
conjunction with Zygo's engineers in the Middlefield, Connecticut, facility,
produced Zygo's Pegasus 2000 flying height tester. See "-Products." In addition,
as an integral part of Zygo's product development strategy, Zygo has formed
technical relationships with several customers. Zygo's strategy is to form close
technical working relationships with the leading suppliers in its markets and
thereby develop products and systems which have the greatest relevancy to the
marketplace in general. In connection with its R&D operations, Zygo also
maintains a close working relationship with various research groups and academic
institutions in the United States as well as abroad.
Zygo believes that continued enhancement, development, and
commercialization of new and existing products and systems is essential to
maintaining and improving its leadership position. Zygo intends to direct its
research and development activities in several different areas. For example,
Zygo continues to seek to develop products that have greater measurement range
and precision to address new markets. Additionally, Zygo intends to continue to
add products that are automated in-process
<PAGE>
11
instruments and systems. There can be no assurance that these efforts or any
other product development efforts of Zygo will be successful in producing
products that respond to technological changes or new products introduced by
others.
PATENTS, LICENSES, TRADEMARKS,
AND PROPRIETARY INFORMATION
Zygo relies on a combination of patent, copyright, trademark, and trade
secret laws and license agreements to establish and protect its proprietary
rights in its products. Zygo believes, however, that its success depends to a
greater extent upon innovation, technological expertise, and distribution
strength. Zygo requires each of its employees to enter into standard agreements
pursuant to which the employee agrees to keep confidential all proprietary
information of Zygo and to assign to Zygo all rights in any proprietary
information or technology made or contributed by the employee during his or her
employment or made thereafter as a result of any inventions conceived or work
done during such employment. Despite these precautions, it may be possible for a
third party to copy or otherwise obtain and use Zygo's products or technology
without authorization or to develop similar technology independently. In
addition, effective patent, copyright and trade secret protection may be
unavailable or limited in certain foreign countries.
Zygo has been awarded 63 United States patents and 9 foreign patents since
the Company was founded, and has 13 United States patent applications and 3
foreign patent applications pending. Zygo, the Zygo logo, and Maximo3D are
registered, and the Company also holds several nonregistered trademarks
including Maxim*GP, NewView 100, Growth Potential Interferometer, GPI, ZMI-1000,
Pegasus 2000, and AAB System.
MANUFACTURING, RAW MATERIALS, AND SOURCES OF SUPPLY
Zygo's principal manufacturing activities are conducted at its facility in
Middlefield, Connecticut. Zygo maintains a state-of-the-art optical components
manufacturing facility, specializing in the fabrication, polishing and coating
of plano (flat) optics for sales to third parties, as well as the manufacturing
of a wide variety of optics that are used in Zygo's instrument products. Zygo's
manufacturing activities for its instrument products consist primarily of
assembling and testing components and subassemblies some of which are supplied
from within Zygo and others are supplied by third party vendors and then
integrated into Zygo's finished products. Many of the components and
subassemblies are standard products, although certain items are made to Company
specifications. Zygo also maintains Computer Numerical Control (CNC) metal
fabrication equipment for in-house production of strategic metal formed
components.
Certain components and subassemblies incorporated into Zygo's systems are
obtained from a single source or a limited group of suppliers. Management
routinely monitors single or limited source supply parts, and Zygo endeavors to
ensure that adequate inventory is available to maintain manufacturing schedules
should the supply of any part be interrupted. Although Zygo seeks to reduce its
dependence on sole and limited source suppliers, it has not qualified a second
source for these products and the partial or complete loss of certain of these
sources could have an adverse effect on Zygo's results of operations and damage
customer relationships. To date, the Company has not experienced a significant
production delay from a parts shortage or loss of a single-source component.
Zygo also maintains a state-of-the-art fully integrated management
information system which includes all business modules (capacity planning,
materials requirements planning, order entry, financials, etc.) necessary to
manage Zygo's growing operations.
EMPLOYEES
At fiscal year end, Zygo employed 245 men and women, including 140 in
manufacturing, 42 in research and development, 22 in sales and marketing, and 14
in customer service. To date, Zygo has been successful in attracting and
retaining qualified technical personnel, although there can be no assurance that
this success will continue. None of Zygo's employees are covered by collective
<PAGE>
12
bargaining agreements or are members of a union. Zygo has never experienced a
work stoppage and believes that its relations with its employees are excellent.
SUBSEQUENT EVENTS
Subsequent to the close of its fiscal 1996, Zygo completed the acquisition
of Technical Instrument Company, a manufacturer of confocal microscopy systems
and modules, and the acquisition of NexStar Automation, Inc., a manufacturer of
automation and parts handling equipment. A brief description of these businesses
follows:
Technical Instrument Company Acquisition
Effective as of August 8, 1996, Zygo completed its acquisition of the
Proprietary Products Division of Technical Instrument Company ("TIC"). Prior to
the acquisition, TIC was engaged in two businesses: the proprietary products
division which designs, develops, manufactures, markets, and sells microscopy
systems and subsystems, or modules, and a distribution division which acts as a
sales representative for other firms' products. The distribution division was
spun off into a new company, Technical Instruments - San Francisco, prior to the
completion of the acquisition of the TIC stock by Zygo. An effective purchase
price of approximately $14.7 million was paid, of which approximately $11.7
million was paid in cash and the balance was paid by the issuance of
unregistered shares of Zygo Common Stock.
TIC, located in Sunnyvale, California, designs, develops, manufactures,
markets, and sells microscopy systems and subsystems, or modules to a variety of
industries, including manufacturers of photomasks used in semiconductor and flat
panel display manufacturing, manufacturers of components for the data storage
industry, biomedical research and other high technology manufacturing and
research applications. The majority of TIC's microscope systems and subsystems
employ white light confocal scanning optical microscopy ("CSOM") technology.
Over the past several years, TIC has added other imaging systems to its product
offering, including laser scanning confocal and atomic force microscopy. Today
TIC specializes in integrating imaging modes, viewing accessories, and
measurement tools within its microscopy systems and subsystems for customers in
a wide variety of high technology fields.
CSOM is a key base technology employed in TIC's products. The majority of
TIC's microscope systems and subsystems employ white light CSOM technology. In a
microscope utilizing white light CSOM imaging, a high-intensity white light
illuminates a section of a spinning disk containing pinholes arranged in
multiple spiral patterns. Acting as point illumination sources, the pinholes
direct light to points on the sample. The reflected light from the sample
returns through the same section of the disk. Only light from points on the
sample near the focal plane will pass through the pinholes for imaging. The
advantage of the white light CSOM technology over other forms of imaging systems
offering sub-micron definition include: high resolution in real time with no
delay for image processing, transverse resolution, and extremely shallow
depth-of-field provide precise imaging of sub-half micron structures and lower
cost of ownership. CSOM imaging is used for both inspection and metrology
measurement in TIC's systems. A laser confocal system employs a laser light
source which causes a sample to fluoresce with the resulting light of a shorter
wavelength which retraces its path to a pinhole. The fluorescent light is split
into two spectral ranges. After an x/y scan the two channels are digitized and
stored in the computer as separate images that can be displayed individually or
overlaid to create a single color image. This results in high resolution and the
ability to display many layers of translucent samples as a live overlay of
bright, perfectly registered optical sections. Atomic force microscopy measures
the atomic and molecular forces between a sample and an ultra-fine silicon tip
mounted on a spring-loaded cantilever. A laser light is focused on the
cantilever and measured by a position sensitive detector which converts
cantilever deflection into an electrical signal. By keeping the deflection of
the cantilever constant, a sensor scans the sample and measures its compensative
movement. With no electrical conductivity requirement, virtually any sample can
be examined in life size with superior image at fine resolution.
<PAGE>
13
TIC's product strategy has been to develop microscope systems and modules
which leverage the CSOM technology and thereby offer the customer a lower cost
higher capability solution. TIC's products fall into two broad categories:
confocal microscope systems for photomask and wafer metrology and inspection,
and confocal modules sold to OEMs for incorporation into their microscopy
systems.
TIC's AMS and KMS microscope systems represent the majority of its sales.
The KMS group of products are fully automated high-throughput confocal
microscopy systems which provide measurement in three axes and real-time
observation in color. Nondestructive confocal white light imaging permits
measurements which are impossible with other types of critical dimension
measurement instrumentation such as scanning electron microscopes. Positioning,
measurement, and data collection are easily custom-configured and interface to
most networks. the KMS products utilize powerful software which is menu and
script-file driven to allow for ease in program generation. The AMS product is a
manual version of the KMS which is typically used in development centers for low
volume metrology and inspection requirements. The majority of these products is
sold to manufacturers to optically transfer these images onto semiconductor
wafers. As the demands for finer line width geometry's increases, mask
manufacturers must utilize sophisticated metrology and inspection tools as a way
to improve their manufacturing yields. TIC has focused significant effort on
this market and currently has units installed at all of the market leaders
including: Intel, Photronics, IBM, DuPont PhotoMasks, Inc., Motorola, Fujitsu,
Lucent Technologies (AT&T), ETEC, Hewlett Packard, and Hyundai. TIC believes it
has a dominant position in the mask metrology market where its primary
competition is from the higher cost products manufactured by SiScan and Leica.
TIC's systems are also finding growing acceptance in the metrology measurement
and inspection of thin film read/write heads which are integral components in
disk drives. TIC has delivered systems to several customers in this market
including Read Rite, Applied Magnetics, and Quantum. The AMS and KMS systems
sell for between $260,000 and $500,000 per system depending on the degree of
custom software and accessories provided.
TIC's module products include the K-2 Industrial module, the NCM module and
the PCM module. The K-2 module provides confocal scanning capability to nearly
any modern upright white-light microscope. The product is fitted to the
microscope as a replacement for the vertical illuminator and attaches to the
microscope stand. The K-2 module provides two confocal modes and one brightfield
imaging mode. TIC also offers an optional confocal software package with the K-2
module which makes it possible to precisely layer several two-dimensional
confocal images to create an extremely accurate three-dimensional image. The K-2
module sells to OEMs for between $10,000 and $30,000 per module. The NCM module
is a confocal module, similar to the K-2 module, which is incorporated into the
Nikon IC-200C microscope. The PCM module was recently developed for an OEM
application in the biomedical field. The module utilizes TIC's laser scanning
confocal technology where fluorescence is used to analyze the subject. This
module, which sells for approximately $30,000, is incorporated into an OEM
product which is used in research work for analyzing cell structures and DNA.
TIC's principal OEM accounts include Nikon, Leica, Reichert, and Nidek.
TIC sells its products worldwide through a combination of direct sales,
sales agents, and independent distributors. TIC maintains a direct sales and
marketing staff of six persons in Sunnyvale, California. System sales, in the
United States, are handled by a combination of direct sales personnel and
independent sales representatives. OEM sales in the United States are handled by
the direct sales personnel. Sales in Japan, the Pacific Rim, and Europe are
handled through a number of independent agents or distributors. Approximately
40% of TIC's sales are from outside the United States with approximately 60% of
export sales being to Japan and 15% being to the Pacific Rim. TIC supports its
installed base of equipment by maintaining highly trained applications support
and service support personnel. At June 30, 1996 TIC employed seven such persons.
TIC also offers detailed training in the operation and maintenance of its
systems both at its Sunnyvale headquarters and at customer locations.
TIC operates in an industry that is subject to rapid technological change.
In addition to maintaining a staff of six highly competent research and
development engineers, TIC maintains relationships with the university community
and private individuals who are experts in the field of
<PAGE>
14
microscopy to ensure the latest technological enhancements are being integrated
into its systems and subsystems. Also, by maintaining a strategy of focusing on
the requirements of industry leaders within the markets they serve, TIC is
better able to maintain its leading edge technology, both in terms of the
scientific refinements and in terms of the practical customer application
requirements. TIC holds one patent in its own name. This patent covers the
scanning application of scanning confocal microscopy. TIC also licenses the
technology of white light confocal microscopy from Stanford University. This
patent was co-developed by Stanford University and an individual who is
currently the lead scientist at TIC.
As of June 30, 1996, TIC employed a total of 56 personnel, including 32 in
manufacturing, six in R&D, six in sales and marketing, and seven in customer
support. None of TIC's employees are covered by a collective bargaining
agreement or are members of any union. TIC has never experienced a work stoppage
and believes its relations with its employees are excellent.
TIC maintains its headquarters in a leased 20,000-square-foot building
located in a high technology area in Sunnyvale, California.
NexStar Automation, Inc. Acquisition
Effective as of September 12, 1996, Zygo completed its acquisition of
NexStar Automation, Inc. ("NexStar") which was effected through the distribution
of 250,000 shares of Zygo common stock for all of the outstanding shares of
NexStar. NexStar designs, develops, manufactures, and markets comprehensive
automated system solutions to enable manufacturers in a variety of industries,
including the data storage, semiconductor, and medical disposables industries,
to enhance operational efficiencies and product yields. NexStar's high speed
production solutions reduce downtimes, especially in manufacturing processes
adaptable to the manufacture of multiple products differing in size, features,
and functionality. For example, medical tubing is used in a variety of
applications, each requiring separate features, sizes, and functionality.
NexStar has developed a Medical Tube Coiling system, designed for the automated
production of medical tubing for use in these various applications.
NexStar's automated solutions integrate its own proprietary mechanical
components and applications software with nonproprietary mechanical, software,
and robotics subsystems produced by third parties. NexStar's automated solutions
also enhance production control to ensure consistent high quality. NexStar's
sophisticated automation products and equipment are utilized in many
applications, including media manufacturing, disk drive assembly, semiconductor
manufacturing, and packaging and assembly applications in medical disposables
production.
In the data storage market, NexStar's focus has been the development of
automated solutions used in cleanrooms for media handling, disk drive, and disk
cartridge assembly. It has created proprietary components including robotic
arms, parts handling, conveyor systems, and disk stack assemblies. Similar
solutions have been developed for the semiconductor market. In the medical
disposables market, NexStar has manufactured proprietary automated products to
assemble disposables, subassemblies, and medical tube coiling devices with
flexible designs that permit the handling in a sterile environment of various
sizes of corrugated or smooth bore tubing and small diameter catheters and
wires.
The overall growth in high technology fields such as the data storage and
semiconductor industries, combined with the need of manufacturers in those
industries to produce products that are both smaller and more powerful and have
more precise tolerances, has fueled capital expenditures for on-line automation
equipment such as NexStar manufactures.
NexStar manufacturers advanced automation systems to load and unload
process equipment, enhance the operation of quality inspection equipment, convey
component parts throughout the factory, and assemble complex products. It is
usual for such systems to be built to stringent environmental requirements such
as cleanroom standards, aseptic medical standards, and for resistance to
corrosive conditions. NexStar products and services fall into four general
categories: (1) process equipment automation, (2) quality inspection
enhancement, (3) material transport, and (4) custom system integration.
Process equipment automation. NexStar develops systems to automate the
movement of material into and out of process equipment where the automation
system is composed of
<PAGE>
15
nonproprietary commercially available components and software, and proprietary
NexStar manufactured components and applications software. Products are grouped
in families which share many of the same components and custom produced modules.
Product development in this category begins with an initial system designed to
address a specific customer's requirements, is proven through field experience,
is standardized, and is offered to prospective customers with similar needs.
All of NexStar's products utilize powerful processors that control the
different operations of the automation system, or workcell, and provide the
customer with manufacturing information on the production process. Workcell
controls include error correcting and recovery routines to maximize productive
time. The system controller, or computer, is designed to transfer workcell
manufacturing level information to the factory's central manufacturing
information and control system. All NexStar products are provided with high
quality, graphical user interfaces that provide operation, maintenance, support
engineering, and management interaction with the system. Workcells are intended
for use on a continuous basis, twenty-four hours per day, three hundred
sixty-five days per year. The time required for preventative maintenance and
error recovery is approximately 1.5% of the operating time.
Quality inspection enhancement. In two of NexStar's market areas, the data
storage and semiconductor industries, automation of quality inspection systems
has typically lagged behind the automation of process equipment. NexStar has
invested in the design of compact automation solutions for a variety of commonly
used inspection systems, and several of NexStar's largest customers are now
beginning to automate in the quality inspection field. Examples of quality units
likely to be automated in the coming years are inspection and measurement
systems for media surface thickness, flatness, and parameters.
NexStar believes that as a result of its work it has developed special
expertise in this area of automation, and that its ability to connect customers'
inspection systems to their manufacturing information control systems through
the automation interface, permits NexStar's customers to react more rapidly to
manufacturing problems. This improves both yields and production up-time, and
gives increased performance control over manufacturing operations.
Material handling. Automation operates more effectively when the movement
of component parts and assembled product is controlled. NexStar offers a variety
of robotics automation systems which integrate internally developed proprietary
hardware and applications software with commercially available conveying
equipment built to customer specifications. In addition, NexStar has designed
and manufactured a conveying system that facilitates the use of different media
size transportation containers, or cassettes, while maintaining the accurate,
predictable positioning of the container and parts at the automated workcell.
NexStar has also designed a cleanroom grade Automated Storage and Retrieval
System (ASRS), using a fabrication concept believed to be unique in the
industry. The ASRS system and conveyors work with customer product tracing
systems, such as bar code identification, to provide parts storage of in-process
product during critical steps in manufacturing, and movement control of each
product lot. Positive tracking of the product throughout the manufacturing cycle
enables NexStar's customers to eliminate inventory aging problems, reduce
work-in-process inventories, and increase responsiveness to customer needs.
For the data storage industry, NexStar has designed and produced disk drive
and cartridge assembly systems to assemble various disk drive components. These
systems are typically designed to process a disk hub assembly (DHA) at a rate of
one every seven seconds. NexStar uses its internally developed proprietary end
effector, parts handling and transfer and disk stack systems in these assembly
systems.
For the medical disposables market, NexStar has developed two technologies
for use in product assembly applications. The Medical Tube Coiler is believed to
be the industry's first automated tube coiling system to operate in-line with
extrusion. The flexible design allows the handling of any size corrugated or
smooth bore tubing, small diameter catheters and wires. The Nebulizer Assembly
System is a cost effective, integrated solution for the automated assembly of a
three-piece nebulizer device. Its rugged, high speed design utilizes optimum
systems integration technologies for easy change over with multiple products.
Custom Systems. NexStar undertakes projects to design and construct custom
systems to customer performance or process requirements. Before doing so,
NexStar conducts marketing and
<PAGE>
16
engineering research to determine the future sales potential of the custom
system being converted to a standard product and the usefulness of the
engineering experience to be derived from the project.
Historically, a limited number of customers has accounted for a substantial
portion of NexStar's revenues. In fiscal 1995, sales to NexStar's top two
customers, Iomega Corporation and Akashic Memories Corporation, accounted for
approximately 27.4% and 50.1%, respectively, of net sales. Continued high levels
of business and sales to these customers are expected to continue through fiscal
1997.
Customers for NexStar's products in the data storage industry include
Iomega Corporation, Akashic Memories Corporation, Syquest Technology
Corporation, Seagate Technology, Inc., StorMedia Inc., Toshiba America Inc., and
Western Digital Corporation. Semiconductor customer include MEMC Electronics
Inc. In the medical disposables field, customers include Whale Scientific Inc.,
Marquest Medical Products Inc., and Sherwood Medical Corporation.
The selling process for NexStar's automation products and services
frequently involves participation by sales, marketing, and applications
engineering personnel. NexStar's marketing activities include participation in
trade shows and industry forums, publication of articles in trade journals and
distribution of sales literature. In addition, NexStar's strategic relationships
with its customers create highly visible references.
NexStar has a strong commitment to service, driven by the growing
complexity of the manufacturing equipment utilized by its customers. NexStar's
customer support staff currently consists of two people. In addition, NexStar
will relocate service people to areas with a significant installed base thereby
improving maintenance response. The service engineers are skilled in electrical
and mechanical component repair, applications software, and system integration,
and have diagnostic and problem solving capabilities. NexStar offers training
programs and maintenance contracts to its customers.
Because the industries in which NexStar operates are subject to rapid
technological change and engineering innovation, its ability to produce
technologically advanced, high quality factory automation systems is highly
dependent on its maintaining substantial engineering resources. At June 30,
1996, NexStar employed 19 individuals within its engineering organization,
including four with advanced degrees. In addition, there are 20 full-time
contract positions primarily dedicated to engineering and manufacturing.
Substantially all of the research and development is done on a
project-by-project basis, using a team approach. NexStar's strategy is to form
close technical working relationships with the leading suppliers of components
in its markets and thereby develop solutions tailored to customer requirements
and having the greatest potential for standardization and market relevancy.
NexStar's principal manufacturing activities are carried on from Longmont,
Colorado, where it occupies a leased facility equipped with state-of-the-art
computer controlled metal fabrication equipment. NexStar assembles control
panels and electrical/pneumatic subsystems, and fabricates selected mechanical
components and subassemblies in-house. Some metal parts and subassemblies are
supplied internally while others are obtained from third-party vendors and
integrated into finished products. While the facilities are currently adequate
to meet NexStar's needs, it is expected that additional space will be required.
Whenever possible, more than one supplier is used for specific major components
and subassemblies. Limited source supplied parts are continuously monitored.
As of June 30, 1996, NexStar employed 56 people, including 11 in
manufacturing and customer service, 19 in engineering, 2 in sales, 4 in
administration, and 20 full-time contract positions primarily dedicated to
engineering and manufacturing. Although to date NexStar has been successful in
attracting and retaining qualified personnel, there can be no assurance that
this will continue. None of NexStar's employees are covered by collective
bargaining agreements or are union members. NexStar has never experienced a work
stoppage and believes that it has excellent relations with its employees.
Although NexStar has designed and manufactured automated solutions uniquely
adapted to market requirements, there are competitors offering product solutions
that perform similar functions. NexStar is subject to competition from two
distinct sources: (i) direct competition from independent companies; and (ii)
indirect competition from current and prospective clients with in-house
operations attempting to develop effective automation solutions.
<PAGE>
17
Competing companies are either well-established entities with broad product
lines or small, limited resource companies with highly focused product lines.
The well-established entities in the data storage and semiconductor markets
include Automated Tooling Systems Inc., PRI Automation, Wright Industries Inc.,
Phase Metrics, and Vanguard Automation. In the medical disposables market,
NexStar's competition includes Kuntz Automation, Sortimat, Design Technology
Corporation, and CEI Automation. Competitors in the medical disposables market
are geographically dispersed, indicating more regional competition.
The remainder of this 10-K405 does not include any information concerning
TIC or NexStar.
Item 2. Properties
The Company's principal manufacturing and administrative facility is
located on Laurel Brook Road in Middlefield, Connecticut. The facility consists
of one 100,000-square-foot building on approximately 13 acres. The Company also
owns 30 acres of undeveloped land adjacent to its principal facility.
Additionally, on January 4, 1996, the Company purchased approximately 22 acres
of land adjacent to the Company's facility in Middlefield, Connecticut, which
will facilitate expansion of the Company's buildings and/or parking facilities
in the future.
Item 3. Legal Proceedings
On June 29, 1988, Zygo 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 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
of the trial was held from November 29, 1993 through December 6, 1993. The Court
rendered its judgment on June 2, 1994, awarding Zygo approximately $2.7 million
plus recovery of certain costs to be awarded by the Court which were incurred by
Zygo 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. On April 1, 1996, the Court of Appeals rendered an
Opinion Announcing Judgment of the Court. The appellate court affirmed-in-part
and reversed-in-part the District Court's earlier findings and remanded the case
to the District Court for a redetermination of the damage award. In its Opinion,
the appellate court reversed the District Court's opinion that certain WYKO
units infringed the Zygo patent on the basis of the doctrine of equivalents,
upheld the validity of Zygo's patent, and affirmed the District Court's opinion
that the original WYKO model 6000 infringed Zygo's patent. Zygo has not recorded
any gain from the District Court's earlier 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
<PAGE>
18
EXECUTIVE OFFICERS OF THE REGISTRANT
Gary K. Willis - age 51
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
Served as executive officer of the Company since February 1992
William H. Bacon - age 47
Vice President, Director of Corporate Quality of the Company since January 1996;
from November 1993 until January 1996, Director of Total Quality of the
Company; from June 1987 until November 1993, Manager of Instrument
Manufacturing Engineering of the Company
Served as executive officer of the Company since January 1996
Mark J. Bonney - age 42
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
Served as executive officer of the Company since March 1993
Robert A. Smythe - age 45
Vice President, Director of Sales and Marketing of the Company since January
1996; from June 1993 until January 1996, Director of Sales and Marketing of
the Company; from April 1992 until June 1993, served as Manager, Industry
Marketing of the Company, and from July 1988 to April 1992, Director of
Engineering and Co-Product Line Manager for the Microscope and Large
Aperture System product lines of the Company
Served as executive officer of the Company since January 1996
Carl A. Zanoni - age 55
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
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>
19
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Information required by this item is included on page 24 and in note 1 on
page 17 and note 6 on page 19 in the Notes to Consolidated Financial Statements
included in, the Company's 1996 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, 1996, was 474.
Item 6. Selected Financial Data
Information required by this item is included on page 9 (Five-Year Summary)
of the Company's 1996 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 1996 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 23
(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 1996 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 1996 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>
20
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) Certificate of Amendment of Certificate of Incorporation, filed
June 3, 1996
3.(iii) 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 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 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)*
10.3 Agreement dated November 20, 1980, between the Company and Canon
Inc. regarding exchange of information (Exhibit (10)(y) to
Registration No. 2-87253)*
10.4 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)*
* Incorporated herein by reference.
<PAGE>
21
10.5 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)*
10.6 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)*
10.7 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)*
10.8 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)*
10.9 Amended and Restated Zygo Corporation Profit Sharing Plan
(Exhibit 10.15 to the Company's Annual Report on Form 10-K405 for
its year ended June 30, 1995)*
10.10 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)*
10.11 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)*
10.12 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)*
10.13 Second Amendment, dated March 10, 1995, to the Employment
Agreement dated February 13, 1992, between Gary K. Willis and the
Company (Exhibit 10.19 to the Company's Annual Report on Form
10-K405 for its year ended June 30, 1996)*
10.14 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)*
10.15 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)*
10.16 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)*
10.17 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)*
10.18 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)*
* Incorporated herein by reference.
<PAGE>
22
10.19 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)*
10.20 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)*
10.21 Amendment, dated March 12, 1996, to the Employment Agreement
dated March 1, 1993, between Mark J. Bonney and the Company
10.22 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)*
10.23 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)*
10.24 Renewal of Line of Credit dated December 4, 1995, between the
Company and Shawmut Bank Connecticut, N.A.
10.25 Zygo Corporation Non-Employee Director Stock Option Plan ratified
and approved by the Company's stockholders on November 17, 1994
(Exhibit 10.30 to the Company's Annual Report on Form 10-K405 for
its year ended June 30, 1996)*
10.26 Agreement and Plan of Merger, dated as of August 7, 1996, by and
among the Company, Technical Instrument Company, Zygo Acquisition
Corporation, Francis E. Lundy, the Lundy 1996 Charitable Trust,
The Sherman Family Living Trust, Frank J. Scheufele Trust, David
Lytle, and Inspectron Development Partners L.P., a California
Limited Partnership (Exhibit 2 to the Company's Current Report on
Form 8-K dated August 19, 1996)*
10.27 Employment Agreement, dated August 7, 1996, between Technical
Instrument Company and Francis E. Lundy.
10.28 Acquisition Agreement, dated August 12, 1996, among the Company,
NX Acquisition Corporation, and NexStar Automation, Incorporated
(Exhibit 2 to the Company's Current Report on Form 8-K dated
September 27, 1996)*
10.29 Employment Agreement, dated September 12, 1996, between NexStar
Corporation and Ahmad Akrami
11. For computation of per share earnings see note 1 of the Notes to
Consolidated Financial Statements in the 1996 Annual Report
included herewith, which note is incorporated herein by
reference.
13. Specified portions of 1996 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.)
* Incorporated herein by reference.
<PAGE>
23
21. Subsidiaries of Registrant
23. Accountants' Consent
24. Power of Attorney
27. Financial Data Schedule
(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>
24
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 30, 1996
- - ---------------------------------
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.
Signature Title
--------- -----
/s/ Gary K. Willis President, Chief Executive Date September 30, 1996
- - ------------------------- Officer and Director
Gary K. Willis
/s/ Mark J. Bonney Vice President, Finance and Date September 30, 1996
- - ------------------------- Administration, Treasurer,
Mark J. Bonney and Chief Financial Officer
/s/ Carl A. Zanoni Vice President, Research, Date September 30, 1996
- - ------------------------- Development and Engineering
Carl A. Zanoni and Director
/s/ Paul F. Forman* Chairman of the Board
- - -------------------------
(Paul F. Forman)
/s/ Michael R. Corboy* Director
- - -------------------------
(Michael R. Corboy)
/s/ Seymour E. Liebman* Director
- - -------------------------
(Seymour E. Liebman)
/s/ Robert G. McKelvey* Director
- - -------------------------
(Robert G. McKelvey)
/s/ Paul W. Murrill* Director
- - -------------------------
(Paul W. Murrill)
/s/ John R. Rockwell* Director
- - -------------------------
(John R. Rockwell)
/s/ Robert B. Taylor* Director
- - -------------------------
(Robert B. Taylor)
*By Mark J. Bonney Date September 30, 1996
- - -------------------------
Mark J. Bonney
Attorney-in-Fact
<PAGE>
ZYGO CORPORATION AND CONSOLIDATED SUBSIDIARY
Index to Financial Statements and Schedule
Page
* Independent Auditors' Report
* Consolidated balance sheets at June 30, 1996, and 1995
* Consolidated statements of earnings for the years ended June 30, 1996,
1995, and 1994
* Consolidated statements of stockholders' equity for the years ended June
30, 1996, 1995, and 1994
* Consolidated statements of cash flows for the years ended June 30, 1996,
1995, and 1994
* Notes to consolidated financial statements
* Selected consolidated quarterly financial data for the years ended June 30,
1996, and 1995
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 1996 Annual Report to
Stockholders.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Directors
Zygo Corporation:
Under date of August 12, 1996, we reported on the consolidated balance sheets of
Zygo Corporation and consolidated subsidiary as of June 30, 1996, and 1995, 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, 1996, as
contained in the 1996 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, 1996. 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 12, 1996
F-2
<PAGE>
ZYGO CORPORATION AND CONSOLIDATED SUBSIDIARY
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
Years ended June 30, 1996, 1995, and 1994
Balance Balance
at Beginning at End
Description of Period Provision Write-Offs of Period
- - ----------- --------- --------- ---------- ---------
Year Ended June 30, 1996:
Allowance for Doubtful
Accounts $137,655 $153,402 $ 24,057 $267,000
Inventory Reserve $419,147 $244,603 $ 85,350 $578,400
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 $267,183
F-3
<PAGE>
EXHIBIT INDEX
EXHIBIT
TABLE FORM 10-K405
NUMBER PAGE NUMBER
------ -----------
3.(ii) Certificate of Amendment of Certificate of
Incorporation, filed June 3, 1996
10.21 Amendment, dated March 12, 1996, to the Employment
Agreement dated March 1, 1993, between Mark J. Bonney
and the Company
10.24 Renewal of Line of Credit dated December 4, 1995,
between the Company and Fleet Bank
10.27 Employment Agreement, dated August 7, 1996, between
Technical Instrument Company and Francis E. Lundy.
10.29 Employment Agreement, dated September 12, 1996, between
NexStar Corporation and Ahmad Akrami
11. For computation of per share earnings, see note 1 of
the Notes to Consolidated Financial Statements in the
1996 Annual Report included herewith, which note is
incorporated herein by reference
13. Specified portions of 1996 Annual Report to
Stockholders (such portions are furnished solely for
the information of the Commission and are not filed
herewith, except for those portions expressly
incorporated herein by reference.)
21. Subsidiaries of Registrant
23. Accountants' Consent
24. Power of Attorney
27. Financial Data Schedule
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ZYGO CORPORATION
It is hereby certified that:
1. The name of the corporation (hereinafter called the "corporation")
is ZYGO CORPORATION.
2. The certificate of incorporation of the corporation is hereby
amended by striking out Article FOURTH thereof and by substituting in lieu of
said Article the following new Article FOURTH:
"FOURTH: The total number of shares of stock
which the corporation shall have authority to issue is
Fifteen Million (15,000,000). The par value of each of such
shares is Ten Cents ($.10). All such shares are of one class
and are shares of Common Stock."
3. The amendment of the certificate of incorporation herein certified
has been adopted in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned has caused this Certificate to be
signed, under penalties of perjury, and the facts stated herein are true and
correct.
Dated: May 31, 1996.
ZYGO CORPORATION
/s/ GARY K. WILLIS
----------------------------
Gary K. Willis,
President
Attest:
/s/ PAUL JACOBS
- - ------------------------
Paul Jacobs,
Secretary
AMENDMENT TO EMPLOYMENT AGREEMENT
AMENDMENT AGREEMENT, made as of March 12, 1996, between ZYGO CORPORATION, a
Delaware corporation with an office at Laurel Brook Road, Middlefield,
Connecticut 06455 (the "Company"), and MARK J. BONNEY, residing at 49 Orchard
Hill Lane, Middletown, Conn. 06457, (the "Executive").
WITNESSETH:
WHEREAS, the Company and the Executive are parties to an Employment
Agreement, dated as of March 1, 1993 (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 'tAgreement1t shall be deemed to refer to the Agreement, as
amended hereby.
2. Section 1 of the Agreement is hereby amended by deleting such Section in
its entirety and substituting therefor the following:
"1. EMPLOYMENT.
The Company hereby employs Executive and Executive hereby accepts such
employment, subject to the terms and conditions herein set forth. Executive
shall hold the office of Vice President, Finance & Administration,
Treasurer and Chief Financial Officer."
3. 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 ally, are collectively referred to
herein as the "term" of this Agreement."
<PAGE>
4. Section 3 of the Agreement is hereby amended by deleting the amount of
"$122,000" in the first sentence of such Section and substituting therefor the
amount of "150,000."
5. 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 an annual allowance for an automobile in
the amount of $10,800 in lieu of any expense reimbursement for Company use
of an automobile."
6. Section 9(g) of the Agreement is hereby amended by deleting such
Subsection in its entirety and substituting therefor the following:
"(g) Notwithstanding any provision to the contrary contained herein,
in the event that Executive's employment is terminated by the Company at
any time for any reason other than justifiable cause, disability or death,
the Company shall pay Executive's salary (payable in such amount and in
such manner as set forth in Section 3 herein) from and after the date of
such termination for a period ending six (6) months after the date of
termination which amount shall be in lieu of any and all other payments due
and owing to Executive under the terms of this Agreement; provided,
however, that if such termination without justifiable cause occurs after a
"Change in Control" (as defined in subsection (h) below), the Company
shall (I) continue existing health insurance, dental coverage, key man life
insurance, AD&O and long term disability coverage in effect for Executive
at the time of termination for a period of the lesser of one year or until
covered by another plan; and (II) continue Executive's salary for a period
ending one (1) year after the date of termination, provided, however, that
to the extent the Company's benefit programs do not provide for the
continuation of benefits after termination of employment, the Company will
pay to Executive the funds necessary to obtain reasonably equivalent
coverage."
7. Section 9 of the Agreement is hereby amended by adding a new Section
9(i) immediately following Section 9(h) of the Agreement, which Section 9(i)
shall read as follows:
"(i) if Executive resigns within ninety (90) days after the Change in
Control as a result of a (a) substantial reduction in authority, (b)
substantial reduction in compensation, or (c) a requirement that Executive
relocate, then the Company shall (I) 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 one year or -until covered by another plan, and
(II) pay
-2-
<PAGE>
Executive's salary (payable in such amount and in such manner as set forth
in Section 3 herein) from and after the date of such resignation for a
period ending one year after the date of resignation which amount shall be
in lieu of any and all other payments due and owing to Executive under the
terms of this Agreement, provided, however, that to the extent the
Company's benefit programs do not provide for the continuation of benefits
after resignation, the Company will pay to Executive the funds necessary to
obtain reasonably equivalent coverage."
8. Executive represents and warrants that he is free to enter into this
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.
9. No amendment or alteration of the terms of this Amendment Agreement
shall be valid unless made in writing and signed by both of the parties hereto.
10. This Amendment Agreement shall be governed by the laws of the State of
Connecticut applicable to agreements made and to be performed therein.
11. This Amendment Agreement may be executed in any number of counterparts
with the same effect as if the signatures hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
Agreement as of the date and year first above written.
ZYGO CORPORATION
By: /s/ Mark J. Bonney
------------------------------
Mark J. Bonney
Vice President, Finance &
Administration, Treasurer and
Chief Financial Officer
/s/ Gary K. Willis
------------------------------
GARY K. WILLIS
-3
[Logo] Shawmut Bank
- - --------------------------------------------------------------------------------
Commercial Promissory Grid Note Shawmut Bank Connecticut, N.A.
- - --------------------------------------------------------------------------------
$3,000,000.00 Date: November 30, 1995
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, which ever is less, in lawful money of the United States.
During the period from the date hereof until November 29, 1996 (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 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, 1996,
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 of 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
<PAGE>
promptly 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 1, 1996 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 or 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.
3
<PAGE>
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):
|_| 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 12/31/95 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 12/31/95 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 12/31/95 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 he 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 to 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
5
<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.
6
<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/ JOYCE GOLDBERG /s/ Mark J. Bonney
- - ---------------------------- ----------------------------------------
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 or partnership Print name of individual guarantor
(Signature)
______________________________________ _____________________________________
By: Print name of individual guarantor
Its:
7
<PAGE>
Schedule 1
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amount of Amount of Principal Amount of Notation
Date Advance Made Principal Prepaid Balance Remaining Interest Paid Made By
This Date This Date Unpaid This Date
- - -----------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
ALLONGE
THIS ALLONGE, made this 30th day of November, 1995, amends and modifies
that certain Commercial Promissory Grid Note dated November 30, 1995 in the
original principal amount of Three Million and 00/100 ($3,000,000) Dollars (the
"Note") payable to the order of Shawmut Bank Connecticut, N.A. (the "Holder").
Zygo Corporation (the "Maker") executed and delivered the Note in
connection with the extension of a revolving loan in said amount on such date
(the "Revolving Loan"). The Maker has requested Holder, and Holder has agreed,
to provide to Maker an alternative rate of interest for each Revolving Loan
advance effective from and after the date of Holder's acceptance of this
Allonge, subject to the terms and conditions set forth below. Maker therefore
wishes to amend the Note so as to set forth Maker's and Holder's agreement with
respect thereto.
NOW, THEREFORE, in consideration of the foregoing premises and other good
and valuable consideration, the receipt and sufficiency of which being hereby
acknowledged and affirmed, Maker does hereby agree that the Note is hereby
amended as follows:
1. By inserting after the word "advance" in the first line of the second
paragraph on page 1 which begins with the words "The Borrower" the phrase ", at
the election of the Borrower pursuant to the terms of this Note: (a)".
2 By inserting after the phrase "(the "Base Rate")," in the second and
third lines of said second paragraph the phrase "or (b) at the rate per annum of
one hundred fifty (150) basis points (as determined for each Interest Period)
above IBOR for available Interest Periods of 30, 60 or 90 days,".
3. By deleting Paragraph 1 in its entirety and substituting the following
in lieu thereof:
"(1) Advances.
(a) Definitions. As used above, in this Paragraph 1 and otherwise
in this Note, the following terms shall have the following meanings:
(i) "Base Rate Loan" or "Base Rate Loans" means any advance
or advances which bear interest determined with reference to the Base Rate.
(ii) "Business Day" means any day other than a day on which
commercial banks in Hartford, Connecticut are required or permitted by law
to close.
<PAGE>
-2-
(iii) "Eurocurrency Liabilities" shall have the meaning
assigned in Regulation D of the Board of Governors of the Federal Reserve
System, as in effect from time to time.
(iv) "IBOR" means, for any LIBOR Rate Loan for the then
current Interest Period relating thereto, the rate per annum determined
pursuant to the following formula, as adjusted from time to time in
accordance with subparagraph (a) (vii) of this Paragraph 1:
IBOR = IBOR Base Rate
----------------------
1 - Reserve Percentage
(iv) "IBOR Base Rate" means the rate quoted by the Bank to
the Borrower two (2) Business Days prior to the first day of an available
Interest Period for the offering to the Bank from prime commercial banks in
the Interbank LIBOR market of dollar deposits in immediately available
funds for a period equal to such Interest Period and in an amount equal to
the amount of such LIBOR Rate Loan.
(v) "Interest Period" means with respect to each advance
which the Borrower elects to be or continue to be a LIBOR Rate Loan, an
available period of thirty (30), sixty (60) or ninety (90) days, as the
Borrower may elect pursuant to subparagraphs (b), (c) and (d) of Paragraph
1 of this Note, commencing on the date upon which such advance is made,
continued as a LIBOR Rate Loan or converted from a Base Rate Loan to a
LIBOR Rate Loan, as the case may be, and ending on the last day of such
period provided, that:
(A) if any Interest Period would otherwise end on a day
which is not a Business Day, such Interest Period shall end on the
immediately preceding Business Day;
(B) any Interest Period that begins on the last
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Business Day of a calendar month;
and
(C) no Interest Period shall end after the Termination
Date.
(vi) "LIBOR Rate Loan" or "LIBOR Rate Loans" means any
advance or advances which bear interest at a rate determined with reference
to IBOR.
<PAGE>
-3-
(vii) "Reserve Percentage" means, for any Interest Period
for each LIBOR Rate Loan, the reserve percentage applicable two (2)
Business Days before the first day of such Interest Period under
regulations issued from time to time by the Board of Governors of the
Federal Reserve System (or any successor) for determining the maximum
reserve requirement (including, without limitation, any emergency,
supplemental or other marginal reserve requirement) for the Bank with
respect to liabilities or assets consisting of or including Eurocurrency
Liabilities (or with respect to any other category of liabilities that
includes deposits by reference to which the interest rate on LIBOR Rate
Loans is determined) having a term equal to such Interest Period.
(b) Procedure for Advances, Payment. During the period from and
including the date hereof to but excluding the Termination Date, so long as
Borrower is in compliance with all of the terms and conditions of this Note
and no Event of Default (as defined in Paragraph 10 of this Note) has
occurred, and no condition exists which would constitute an Event of
Default but for the giving of notice or passage of time, or both, Borrower
may borrow, repay and reborrow advances hereunder; provided, however, that
notwithstanding anything herein to the contrary, for each 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. Each advance shall be either a Base Rate Loan or a LIBOR Rate Loan as
Borrower may elect subject to the provisions of this Note. Whenever
Borrower desires an advance, Borrower shall notify the Bank (which notice
shall be irrevocable) in writing or by telex, telecopy or telephone of the
proposed borrowing. Such notice (each, an "Election Notice" and
collectively, the "Election Notices") shall specify the date of the
proposed borrowing (which shall be a Business Day), the type of borrowing
(either a Base Rate Loan or a LIBOR Rate Loan), the amount to be borrowed
(which amount for any LIBOR Rate Loan shall be not less than $100,000) and,
if a LIBOR Rate Loan is requested, the duration of the initial available
Interest Period. All Election Notices for advances which are Base Rate
Loans must be received by Bank no later than 11:00 a.m., Hartford,
Connecticut time on the day such borrowing is requested, and all Election
Notices for advances which are LIBOR Rate Loans must be received by Bank no
later than 10:00 a.m., Hartford, Connecticut time at least three (3)
Business Days' prior to the day such borrowing is requested. 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 each advance hereunder, the interest rate applicable to each
such advance, the due date for the
<PAGE>
-4-
repayment of each advance and repayments of all advances; 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
shall control the disposition of the conflict. UNLESS SOONER ACCELERATED AS
A RESULT OF THE OCCURRENCE OF AN EVENT OF DEFAULT, ALL ADVANCES AND ANY
OTHER SUMS DUE HEREUNDER SHALL BE DUE AND PAYABLE IN FULL 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.
(c) Election and Continuation of Interest Periods for LIBOR Rate
Loans. The Borrower shall elect the initial available Interest Period
applicable to each advance hereunder which it elects to be a LIBOR Rate
Loan by its applicable Election Notice given to the Bank pursuant to
subparagraph (b) of Paragraph 1 of this Note or, in the case of each Base
Rate Loan, by its notice of conversion given to the Bank pursuant to
subparagraph (d) of Paragraph 1 of this Note, as the case may be. Any LIBOR
Rate Loan may be continued as such upon the expiration of the then current
Interest Period with respect thereto by the Borrower giving irrevocable
written notice to the Bank of the duration of the next available Interest
Period to be applicable to such LIBOR Rate Loan not less than three (3)
Business Days prior to the last Business Day of the then current Interest
Period with respect to such LIBOR Rate Loan provided that no LIBOR Rate
Loan may be continued as such: (i) at a time when any Event of Default (or
event or condition which would constitute an Event of Default but for the
giving of notice or passage of time or both) has occurred and is
continuing, (ii) in the event a LIBOR Rate Loan is unavailable pursuant to
subparagraphs (e) and (f) of this Paragraph 1, and (iii) after the date
that is thirty (30) days prior to the Termination Date. If the Bank does
not receive timely notice of the next available Interest Period or if any
LIBOR Rate Loan may no longer continue as such, such LIBOR Rate Loan shall
be automatically converted, without notice, to a Base Rate Loan on the last
day of the then expiring Interest Period.
(d) Conversion of Base Rate Loans and LIBOR Rate Loans. The
Borrower may elect from time to time to convert a LIBOR Rate Loan to a Base
Rate Loan or a Base Rate Loan to a LIBOR Rate Loan by giving the Bank not
less than three (3)
<PAGE>
-5-
Business Days' prior irrevocable written notice of such election provided
that any such conversion of a LIBOR Rate Loan to a Base Rate Loan shall
only be made on the last Business Day of an Interest Period with respect
thereto. Any such notice of conversion to a LIBOR Rate Loan shall specify
the amount of the Base Rate Loan being converted and the length of the
initial available Interest Period. All or any part of outstanding advances
hereunder which are Base Rate Loans may be converted as provided herein
provided that no Base Rate Loan may be converted to a LIBOR Rate Loan: (i)
at a time when any Event of Default (or event or condition which would
constitute an Event of Default but for the giving of notice or passage of
time or both) has occurred and is continuing, (ii) at a time when a LIBOR
Rate Loan is unavailable pursuant to subparagraphs (e) and (f) of this
Paragraph 1, and (ii) after the date that is thirty (30) days prior to the
Termination Date.
(e) Illegality. Notwithstanding any other provisions hereof, if
any applicable law or governmental regulation, guideline, order or
directive, or any change therein, or in the interpretation or application
thereof by any governmental authority charged with the interpretation or
the administration thereof (whether or not having the force of law) shall
make it unlawful for the Bank to make or maintain LIBOR Rate Loans as
contemplated by this Note: (i) the obligation of the Bank to make LIBOR
Rate Loans, continue LIBOR Rate Loans as such and/or convert Base Rate
Loans to LIBOR Rate Loans shall forthwith be cancelled, and (ii) such
advances then outstanding as LIBOR Rate Loans, if any, shall be converted
automatically, without notice, to Base Rate Loans on the respective last
days of the then current Interest Periods with respect thereto or within
such earlier time as required by law. If any such conversion of the LIBOR
Rate Loans is made on a day that is not the last Business Day of the then
current Interest Period applicable thereto, Borrower shall pay the Bank
such amount or amounts required pursuant to subparagraph (g) of Paragraph 1
of this Note.
(f) Basis for Determining IBOR Inadequate or Unfair. In the event
that the Bank shall have determined (which determination shall be
conclusive and binding upon Borrower) that (i) by reason of circumstances
affecting the Interbank LIBOR market, adequate and reasonable means do not
exist for determining IBOR, or (ii) Dollar deposits in the relevant amount
and for the relevant maturity are no longer available to the Bank in the
Interbank LIBOR market, or (iii) the making or continuation of LIBOR Rate
Loans has been made impractical or unlawful by the occurrence of a
contingency that materially and adversely affects the
<PAGE>
-6-
Interbank LIBOR market, or (iv) the IBOR Base Rate will not adequately and
fairly reflect the cost to the Bank of making or maintaining LIBOR Rate
Loans, or (v) the IBOR Base Rate shall no longer represent the effective
cost to the Bank of U.S. Dollar deposits in the relevant market for
deposits in which it regularly participates, the Bank shall give the
Borrower notice of such determination as soon as practicable. If such
notice is given (A) any requested LIBOR Rate Loan shall be made as a Base
Rate Loan, unless the Borrower gives the Bank three (3) Business Days'
prior written notice that its request for such borrowing is cancelled, (B)
any Base Rate Loan that was to have been converted to a LIBOR Rate Loan
shall be continued as a Base Rate Loan, and (C) any outstanding LIBOR Rate
Loan shall be automatically converted, without notice, to a Base Rate Loan
effective on the last Business Day of the then current Interest Period
applicable thereto. Until such notice has been withdrawn, no further LIBOR
Rate Loans shall be made or continued as such, nor shall the Borrower have
the right to convert Base Rate Loans to LIBOR Rate Loans.
(g) Indemnity. The Borrower agrees to indemnify the Bank and to
hold the Bank harmless from any loss (including any of the additional
payments referred to in Paragraph 3 of this Note and any lost profits) or
expense that it may sustain or incur as a consequence of (i) a default by
the Borrower in the payment of the principal of or interest on any LIBOR
Rate Loan, (ii) the failure by the Borrower to complete a borrowing of,
conversion into or continuation of a LIBOR Rate Loan after notice thereof
has been given, or (iii) the making of a prepayment of a LIBOR Rate Loan on
a day which is not the last day of the then current Interest Period
applicable thereto, including, but not limited to, in each case, any such
loss or expense arising from the reemployment of funds obtained by it or
from fees, interest or other amounts payable to terminate the deposits from
which such funds were obtained. The Bank shall prepare a certificate as to
any additional amounts payable to it pursuant to this subparagraph (g),
which certificate shall be submitted by the Bank to the Borrower and shall,
absent manifest error, be deemed conclusive.
(h) Survival. The obligations of Borrower under this Paragraph 1
shall survive the payment of all advances made hereunder."
4. By adding to the end of the first sentence of Paragraph 2 the following:
<PAGE>
-7-
"; provided, however, that interest on each LIBOR Rate Loan shall be
charged and payable for each such Interest Period on the last Business Day
of each such Interest Period."
5. By adding to the end of the second sentence of Paragraph 2 the
following:
", and changes in the rate of interest resulting from changes in the
Reserve Percentage shall become effective, without notice or demand of any
kind, on the date on which such change in the Reserve Percentage becomes
effective."
6. By adding to the end of the first sentence of Paragraph 6 the following:
"; provided, however, that in the case of a LIBOR Rate Loan, such LIBOR
Rate Loan shall only be prepaid on the last Business Day of the then
current Interest Period with respect thereto. In the event that any
prepayment of a LIBOR Rate Loan is required or permitted on a date other
than the last Business Day of the then current Interest Period with respect
thereto, Borrower shall indemnify the Bank therefor in accordance with
subparagraph (g) of Paragraph 1 of this Note."
IN WITNESS WHEREOF, the Maker has hereunto set its hand as of the day and
year first above written.
WITNESSES:
______________________________ ZYGO CORPORATION
Joyce Goldberg By: Mark J. Bonney
______________________________ -----------------------
Its Vice President
Attest:
Paul Jacobs
- - ------------------------------
Its Secretary
<PAGE>
-8-
Acknowledgment of the Bank
By its signature below, the Bank hereby acknowledges receipt of and accepts
this Allonge on the date set forth beneath its signature.
SHAWMUT BANK CONNECTICUT, N.A.
By MATTHEW E. HUMMEL
-------------------------------
Matthew E. Hummel
Its Vice President
Accepted as of this 30th day of
November, 1995.
EXECUTION COPY
EMPLOYMENT AGREEMENT
AGREEMENT, made as of August 7, 1996, between TECHNICAL INSTRUMENT COMPANY,
a California corporation with an office at 650 North Mary Avenue, Sunnyvale,
California 94086 (the "Company"), and Francis E. Lundy, residing at Six-Friars
Lane, Mill Valley, California 94941 ("Employee").
W I T N E S S E T H:
WHEREAS, the Company desires that Employee be employed by the Company, and
Employee desires to be so employed by the Company upon the terms and conditions
herein set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual
promises, representations and covenants herein contained, the parties hereto
agree as follows:
1. EMPLOYMENT.
The Company hereby employs Employee and Employee hereby accepts such
employment, subject to the terms and conditions herein set forth. Employee shall
hold the position of President of Technical Instrument Company, a business unit
initially being operated in the form of a subsidiary of Zygo Corporation
("Zygo").
2. TERM.
The initial term of employment under this Agreement shall begin on August
7, 1996 (the "Employment Date") and shall continue for a period of three (3)
years from that date, subject to prior termination in accordance with the terms
hereof. Thereafter, this Agreement shall automatically be renewed for successive
one year terms unless either party shall give the other sixty (60) days' prior
written notice of its or his intent not to renew this Agreement. The initial
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. COMPENSATION.
As compensation for the employment services to be rendered by Employee
hereunder, the Company agrees to pay, or cause to be paid, to Employee, and
Employee agrees to accept, an annual salary of $150,000 or such higher amount as
the President of Zygo may determine from time to time, subject to such payroll
deductions as are
<PAGE>
required by law and deductions for applicable employee contributions to the
normal benefit programs of the Company. The annual salary provided for hereunder
shall be payable in equal installments commencing at the Employment Date, in
accordance with the Company's practice. In addition, Employee shall be entitled
to additional incentive compensation from time to time. Such compensation will
be based on the Company's overall performance and will be awarded at the
discretion of the President of Zygo with the approval of the Board of Directors
of the Company or Zygo.
On or before August 14, 1996, Employee shall receive a grant of options to
purchase 20,000 shares of Common Stock of Zygo with an exercise price equal to
the fair market value on the date of grant, vesting in four equal installments
and otherwise in accordance with the terms of Zygo's Amended and Restated
Non-Qualified Stock Option Plan.
4. EXPENSES.
The Company shall pay or reimburse Employee, upon presentment of suitable
vouchers, for all reasonable business and travel expenses which may be incurred
or paid by Employee in connection with his employment hereunder. Employee shall
comply with restrictions and shall keep records in compliance with the Company's
policy and procedure related to travel and entertainment expenses.
5. INSURANCE AND OTHER BENEFITS.
(a) Employee shall be entitled to such vacations and to participate in
and receive any other health and welfare (including insurance) benefits
customarily provided by the Company for its employees generally, all as
determined from time to time by the Board of Directors of the Company or Zygo or
appropriate committee thereof; provided that the health and welfare benefits in
the aggregate provided to Employee are at least substantially comparable to the
benefits provided by the Company to Employee set forth on Schedule 5(a) attached
hereto, all of which benefits Employee represents are benefits provided by the
Company to Employee prior to the date hereof. The Company currently intends to
initially afford Employee the same health and welfare benefits as are set forth
in Schedule 5(a). Unused annual vacations may be carried over to the extent
permitted by Company policy.
(b) Employee acknowledges and agrees that notwithstanding anything to
the contrary contained in any health or welfare benefit plan maintained by Zygo,
except as may be otherwise agreed to by Employee and Zygo, Employee shall not be
entitled to participate in any of Zygo's employee benefit plans by virtue of his
being employed by the Company or Zygo (if and when applicable).
6. DUTIES.
(a) Employee shall perform such duties and functions as the President,
Chief Executive Officer or Chief Operating Officer of Zygo and the Board of
Directors
-2-
<PAGE>
of the Company or Zygo shall from time to time determine and Employee shall
comply in the performance of his duties with the policies of, and be subject to,
the direction of such officers and such Boards of Directors. Neither the Company
nor Zygo shall relocate Employee's office outside of the San Francisco Bay Area
without Employee's consent and any such relocation not consented to by Employee
shall be deemed a termination of Employee's employment by the Company for
purposes of Section 7(h) hereof.
(b) Employee agrees to devote his entire working time, attention and
energies to the performance of the business of the Company and of any of its
subsidiaries or affiliates by which he may be employed; and Employee shall not,
directly or indirectly, alone or as a member of any partnership or other
organization, or as an officer, director or employee of any other corporation,
partnership or other organization, be actively engaged in or concerned with any
other duties or pursuits which interfere with the performance of his duties
hereunder, or which, even if non-interfering, may be inimical, or contrary, to
the best interests of the Company, except those duties or pursuits specifically
authorized by the Board of Directors of the Company or Zygo.
7. TERMINATION OF EMPLOYMENT; EFFECT OF TERMINATION.
(a) Employee's employment hereunder may be terminated at any time
upon written notice from the Company to Employee,
(i) upon the determination by the President, Chief Executive
Officer or Chief Operating Officer of Zygo or the Board of Directors of
the Company or Zygo that Employee's performance of his duties has not
been fully satisfactory for any reason which would not constitute
justifiable cause (as hereinafter defined) upon five (5) days' prior
written notice to Employee; or
(ii) immediately upon determination by the Board of Directors of
the Company or Zygo that justifiable cause exists for such termination.
(b) Employee's employment shall terminate upon:
(i) the death of the Employee; or
(ii) the "disability" of Employee (as hereinafter defined pursuant
to subsection (d) herein).
(c) Employee's employment hereunder may be terminated at any time upon
thirty (30) days' prior written notice from the Employee to the Company.
(d) For the purposes of this Agreement, the term "disability" shall
mean the inability of Employee, due to illness, accident or any other physical
or mental
-3-
<PAGE>
incapacity, to perform his duties in a normal manner for a period of three (3)
consecutive months or for a total of four (4) months (whether or not
consecutive) in any twelve (12) month period during the term of this Agreement.
(e) For the purposes hereof, the term "justifiable cause" shall mean
and be limited to: any repeated failure or refusal by Employee to perform or
willful neglect by Employee of, any of his duties pursuant to this Agreement;
Employee's conviction (which, through lapse of time or otherwise, is not subject
to appeal) of any crime or offense involving money or other property of the
Company, Zygo or any of their respective subsidiaries or affiliates or which
constitutes a felony in the jurisdiction involved; Employee's performance of any
act or his failure to act, for which if he were prosecuted and convicted, a
crime or offense involving money or property of the Company, Zygo or any of
their respective subsidiaries or affiliates, or which constitutes a felony in
the jurisdiction involved, would have occurred; any disclosure by Employee to
any person, firm or corporation other than the Company, Zygo or any of their
respective subsidiaries or affiliates and its and their directors, officers and
employees, of any confidential information or trade secret of the Company, Zygo
or any of their respective subsidiaries or affiliates or any other breach by
Employee of any of the provisions of Section 10 hereof; any attempt by Employee
to secure any personal profit in connection with the business of the Company,
Zygo or any of their respective subsidiaries or affiliates; or the engaging by
Employee in any business or activities other than the business of the Company,
Zygo and their respective subsidiaries or affiliates which interferes with the
performance of his duties. Upon termination of Employee's employment by the
Company for justifiable cause or upon termination of Employee's employment by
Employee pursuant to Section 7(c) hereof, this Agreement shall terminate
immediately and Employee shall not be entitled to any amounts or benefits
hereunder other than such portion of Employee's annual salary and reimbursement
of expenses pursuant to Section 4 hereof as has been accrued through the date of
his termination of employment.
(f) If Employee shall die during the term of his employment hereunder,
this Agreement shall terminate immediately. In such event, the estate of
Employee shall thereupon be entitled to receive such portion of Employee's
annual salary and reimbursement of expenses pursuant to Section 4 hereof as has
been accrued through the date of his death.
(g) Upon Employee's "disability," the Company shall have the right to
terminate Employee's employment. Notwithstanding any inability to perform his
duties, Employee shall be entitled to receive his compensation as provided
herein until the termination of his employment for disability. Any termination
pursuant to this subsection (g) shall be effective on the date thirty (30) days
after which Employee shall have received written notice of the Company's
election to terminate. Notwithstanding anything to the contrary contained
herein, during any period that Employee fails to perform his duties hereunder as
a result of his disability (but prior to receiving the notice of termination
specified in this Section 7(g), (i) Employee shall continue to receive his full
salary at the rate then in effect and all benefits provided in Section 5
-4-
<PAGE>
hereof, provided that payments made to Employee pursuant to this Section 7(g)
shall be reduced by the sum of the amounts, if any, payable to Employee at or
prior to the time of any such payment under any disability benefit plan or
program of, or provided by, the Company or Zygo, and (ii) the Company shall have
the right to hire any other individual or individuals to perform such duties and
functions as the Company shall desire, including those duties heretofore
performed by Employee.
(h) Notwithstanding any provision to the contrary contained herein, in
the event that Employee's employment is terminated by the Company at any time
for any reason other than justifiable cause, disability or death, the parties
hereto agree that damages to Employee shall be difficult to ascertain in any
such event, but in order to limit the liability of the Company and Zygo in any
such event, Employee shall be entitled to receive as liquidated damages and not
as a penalty, and the Company shall pay to Employee, Employee's salary (payable
in such amount and in such manner as set forth in Section 3 herein) from and
after the date of such termination for a period ending (i) at the end of the
three year initial term of this Agreement if such termination occurs during such
initial three year term, provided, however, that in the event termination occurs
within the last six (6) months of the initial three year term, Employee would be
entitled to his salary for a period ending six (6) months from the date of such
termination, or (ii) six (6) months from the date of termination if such
termination occurs during any renewal term subsequent to such initial three year
term, which amount shall be in lieu of any and all other payments due and owing
to Employee under the terms of this Agreement or otherwise.
8. REPRESENTATIONS AND AGREEMENTS OF EMPLOYEE.
(a) Employee represents and warrants that he is free to enter into this
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
hereunder. Employee further represents and warrants that he is in full
compliance with all existing agreements between himself and the Company or Zygo.
(b) Employee agrees to submit to a medical examination and to cooperate
and supply such other information and documents as may be required by any
insurance company in connection with the Employees' inclusion in any insurance
or fringe benefit plan or program as the Company shall determine from time to
time to obtain, or in connection with, in the Company's sole discretion, the
Company's or Zygo's obtaining life insurance for its benefit on the life of
Employee.
9. INVENTIONS AND DISCOVERIES.
(a) Employee shall promptly and fully disclose to Zygo, and with all
necessary detail for a complete understanding of the same, all developments,
know-how, discoveries, inventions, improvements, concepts, ideas, writings,
formulae, processes and methods (whether copyrightable, patentable or otherwise)
made, received, conceived,
-5-
<PAGE>
acquired or written during working hours, or otherwise, by Employee (whether or
not at the request or upon the suggestion of Zygo) during the period of his
employment with the Company, Zygo or any of their respective subsidiaries or
affiliates, solely or jointly with others, in all instances in or relating to
any activities of the Company, Zygo or any of their respective subsidiaries or
affiliates known to him as a consequence of his employment hereunder
(collectively the "Subject Matter").
(b) Employee hereby assigns and transfers, and agrees to assign and
transfer, to Zygo, all his rights, title and interest in and to the Subject
Matter, and Employee further agrees to deliver to Zygo any and all drawings,
notes, specifications and data relating to the Subject Matter, and to execute,
acknowledge and deliver all such further papers, including applications for
copyrights or patents, as may be necessary to obtain copyrights and patents for
any thereof in any and all countries and to vest title thereto to Zygo. Employee
shall assist Zygo in obtaining such copyrights or patents during the term of
this Agreement, and any time thereafter on reasonable notice, and Employee
agrees to testify in any prosecution or litigation involving any of the Subject
Matter (provided that if such testimony occurs after termination of this
Agreement, Employee shall be reasonably compensated for his time and reimbursed
for any out-of-pocket expenses).
10. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) Employee shall not, during the term of this Agreement or at any
time following termination or expiration of this Agreement, directly or
indirectly, disclose or permit to be known (other than as is required in the
regular course of his duties or required by law (in which case Employee shall
give Zygo prior written notice of such required disclosure) or with the prior
written consent of the President of Zygo), to any person, firm or corporation,
any confidential information acquired by Employee during the course of, or as an
incident to, his employment hereunder, relating to the Company, Zygo or any of
their respective subsidiaries or affiliates, the directors of the Company, Zygo
or any of their respective subsidiaries or affiliates, any client of the
Company, Zygo or any of their respective subsidiaries or affiliates, or any
corporation, partnership or other entity owned or controlled, directly or
indirectly, by any of the foregoing, or in which any of the foregoing has a
beneficial interest, including, but not limited to, the business affairs of each
of the foregoing. Such confidential information shall include, but shall not be
limited to, proprietary technology, trade secrets, patented processes, research
and development data, know-how, market studies and forecasts, competitive
analyses, pricing policies, employee lists, personnel policies, the substance of
agreements with customers, suppliers and others, marketing or dealership
arrangements, servicing and training programs and arrangements, customer lists
and any other documents embodying such confidential information. This
confidentiality obligation shall not apply to any confidential information which
thereafter becomes publicly available other than pursuant to a breach of this
Section 10(a), directly or indirectly, by Employee.
-6-
<PAGE>
(b) All information and documents relating to the Company, Zygo and
their respective subsidiaries or affiliates as hereinabove described (or other
business affairs) shall be the exclusive property of the Company or Zygo, as the
case may be, and Employee shall use commercially reasonable best efforts to
prevent any publication or disclosure thereof. Upon termination of Employee's
employment with the Company, all documents, records, reports, writings and other
similar documents containing confidential information, including copies thereof,
then in Employee's possession or control shall be returned and left with the
Company.
(c) Employee will execute the form of "Technical Instrument Company
Non-Disclosure and Non-Solicitation Agreement" in the form of Exhibit A hereto,
all the terms and provisions of which are incorporated herein as if fully set
forth herein.
11. RIGHT TO INJUNCTION.
Employee recognizes that the services to be rendered by him hereunder are
of a special, unique, unusual, extraordinary and intellectual character
involving skill of the highest order and giving them peculiar value the loss of
which cannot be adequately compensated for in damages. In the event of a breach
of this Agreement by Employee, the Company shall be entitled to injunctive
relief or any other legal or equitable remedies. Employee agrees that the
Company may recover by appropriate action the amount of the actual damage caused
the Company by any failure, refusal or neglect of Employee to perform his
agreements, representations and warranties herein contained. The remedies
provided in this Agreement shall be deemed cumulative and the exercise of one
shall not preclude the exercise of any other remedy at law or in equity for the
same event or any other event.
12. AMENDMENT OR ALTERATION.
No amendment or alteration of the terms of this Agreement shall be valid
unless made in writing and signed by both of the parties hereto.
13. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Delaware
applicable to agreements made and to be performed therein.
14. SEVERABILITY.
The holding of any provision of this Agreement to be invalid or
unenforceable by a court of competent jurisdiction shall not affect any other
provision of this Agreement, which shall remain in full force and effect.
-7-
<PAGE>
15. NOTICES.
Any notices required or permitted to be given hereunder shall be sufficient
if in writing, and if delivered by hand, or sent by certified mail, return
receipt requested, to the addresses set forth above or such other address as
either party may from time to time designate in writing to the other, and shall
be deemed given as of the date of the delivery or mailing.
16. WAIVER OR BREACH.
It is agreed that a waiver by either party of a breach of any provision of
this Agreement shall not operate, or be construed, as a waiver of any subsequent
breach by that same party.
17. ENTIRE AGREEMENT AND BINDING EFFECT.
This Agreement, together with the Agreement and Plan of Merger, dated as of
August 7, 1996, by and among the Company, Zygo Acquisition Corporation, Zygo and
the persons and entities listed on Schedule I thereto and all agreements and
exhibits referred to therein, contains the entire agreement of the parties with
respect to the subject matter hereof and shall be binding upon and inure to the
benefit of the parties hereto and their respective legal representatives, heirs,
distributors, successors and assigns. Notwithstanding the foregoing, all prior
agreements between Employee and the Company or Zygo relating to the
confidentiality of information, trade secrets and patents shall not be affected
by this Agreement.
18. SURVIVAL.
The termination of Employee's employment hereunder shall not affect the
enforceability of Sections 7, 8(a), 9, 10, 11 and 13.
19. NON-ASSIGNABILITY.
This Agreement is entered into in consideration of the personal qualities
of Employee and may not be, nor may any right or interest hereunder be, assigned
by him without the prior written consent of the Company. It is expressly
understood and agreed that this Agreement, and the rights accruing and
obligations owed to the Company hereunder, and the obligations to be performed
by the Company hereunder, may be assigned by the Company at any time without the
consent of Employee to Zygo or any of the Company's successors or assigns. In
the event that this Agreement is assigned by the Company to Zygo pursuant to
this Section 19, all references in this Agreement to "Company" shall refer to
Zygo except that the references thereto contained in Section 5(a) hereof and the
reference to the "Company's overall performance" in the last sentence of the
first paragraph of Section 3 hereof shall refer to Technical Instrument Company,
a business unit of Zygo.
-8-
<PAGE>
20. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original but all of which together shall constitute one
and the same instrument.
21. FURTHER ASSURANCES.
The parties agree to execute and deliver all such further documents,
agreements and instruments and take such other and further action as may be
necessary or appropriate to carry out the purposes and intent of this Agreement.
22. HEADINGS.
This Section headings appearing in this Agreement are for the purposes of
easy reference and shall not be considered a part of this Agreement or in any
way modify, demand or affect its provisions.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
TECHNICAL INSTRUMENT COMPANY
By: /s/ GARY K. WILLIS
----------------------------------
Name: Gary K. Willis
Title: Chairman of the Board
/s/ FRANCIS E. LUNDY
-----------------------------------
Francis E. Lundy
-9-
<PAGE>
EXHIBIT A
TECHNICAL INSTRUMENT COMPANY
NON-DISCLOSURE AND NON-SOLICITATION AGREEMENT
AGREEMENT, dated as of August 7, 1996, by and between TECHNICAL INSTRUMENT
COMPANY, a California corporation (the "Company"), and Francis E.
Lundy (the "Employee").
W I T N E S S E T H:
In consideration of the Company's employment of the Employee and in
consideration of the covenants contained herein, the parties hereby agree as
follows:
1. The Employee agrees that he will not directly or indirectly disclose or use
at any time any knowledge, information or material relating to any
business, customer, machine, design, apparatus or system of the Company,
Zygo or any of their respective subsidiaries or affiliates, or any of the
methods of conducting any part of their respective businesses or the like
which may become known to the Employee by reason of his employment or
otherwise except as may be reasonably necessary to the performance of his
assigned duties as an employee of the Company.
2. The Employee agrees to promptly and completely disclose in writing to such
person as the Company may designate all ideas, developments, inventions and
improvements heretofore or hereafter made, developed, perfected, devised,
conceived or acquired by the Employee either solely or jointly with others
during the Employee's employment by the Company and within ninety (90) days
after any termination thereof, whether or not during regular working hours,
relating in any way to the actual or anticipated business, research,
developments or products of the Company; and if so requested by the
Company, to assign, transfer and convey to the Company all right, title and
interest in and to all such ideas, developments, inventions and
improvements.
3. The Employee agrees, at the request and expense of the Company, to make,
execute and deliver any and all papers, documents and instruments,
including applications for patents in any and all countries and reissues
and extensions thereof, and to assist and cooperate (without expense to the
Employee) with the Company or its representative in any controversy or
legal proceedings relating to said ideas, developments, inventions and
improvements, and the patents which may be procured thereon.
4. The Company does not assume any responsibility for the prosecution or
defense of any application for patents in any countries arising from ideas,
developments,
-1-
<PAGE>
inventions and improvements disclosed to the Company pursuant to this
Agreement.
5. The Employee represents and warrants that he is free to enter into the
employment arrangements and, if applicable, the employment agreement, to be
entered into with the Company and to perform the duties required of the
Employee in connection with his employment by the Company; and that, except
as indicated on Exhibit 1 hereto, there are no employment agreements,
confidentiality agreements, restrictive covenants or other agreements or
restrictions binding on the Employee or to which the Employee is a party
which limit, prohibit or prevent the full performance by the Employee of
his employment duties and arrangements with the Company or which would
preclude the Employee from disclosing or otherwise limit the Employee's
right to disclose to the Company any ideas, inventions, discoveries or
other information.
6. The Employee represents and warrants that he has not brought and agrees
that he will not bring to the Company or use in the performance of his
employment responsibilities at the Company any materials, documents, trade
secrets or confidential information of a former employer or any other
person which are of a confidential nature or which are not generally
available to the public. The Employee agrees that he has not and will not
disclose to the Company or seek to induce the Company to use any such
confidential information, materials, documents or trade secrets.
7. The Employee agrees that during his employment by the Company and following
the termination of such employment, the Employee will not, directly or
indirectly, request or cause any suppliers or customers with whom the
Company, Zygo or any of their respective subsidiaries or affiliates has a
business relationship to cancel or terminate any such business relationship
with the Company, Zygo or any of their respective subsidiaries or
affiliates or solicit, interfere with or entice from the Company or Zygo
any employee or former employee of the Company or Zygo.
8. Neither this Agreement nor any benefits hereunder are assignable by the
Employee, but the terms and provisions hereof shall inure to the benefit of
the Company's successors and assigns.
9. This Agreement is not a contract of employment; it does not give the
Employee any rights to any employment with the Company, and it in no way
abridges, alters, amends or modifies any rights the Company may otherwise
have to terminate its employment of the Employee.
10. This Agreement, together with the Employment Agreement, dated August 7,
1996, by and between the Employee and the Company and the Agreement and
Plan of Merger, dated as of August 7, 1996, by and among the Company, Zygo
-2-
<PAGE>
Acquisition Corporation, Zygo Corporation and the persons and entities
listed on Schedule I thereto and all agreements and exhibits referred to
therein, contains the entire understanding and agreement of the parties
with respect to the matters herein contained, and no waiver or modification
hereof shall be binding unless in writing and subscribed by the parties
hereto.
11. If any paragraph, clause, or phrase of this Agreement shall, by any
federal, state or other law or by any decision of any court, be declared or
held illegal, void or unenforceable, the remaining portions of this
Agreement shall continue to be valid and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
TECHNICAL INSTRUMENT COMPANY
By:________________________________
Name: Gary K. Willis
Title: Chairman of the Board
________________________________
Francis E. Lundy
-3-
EMPLOYMENT AGREEMENT
AGREEMENT, made as of September 12, 1996, between NexStar Corporation, a
Colorado corporation (the "Company"), and Ahmad Akrami, residing at 7374 W. 98th
Place, Westminster, Colorado 80021 ("Employee").
W I T N E S S E T H :
WHEREAS, the Company desires that Employee be employed by the Company, and
Employee desires to be so employed by the Company upon the terms and conditions
herein set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual
promises, representations and covenants herein contained, the parties hereto
agree as follows:
1. EMPLOYMENT.
The Company hereby employs Employee and Employee hereby accepts such
employment, subject to the terms and conditions herein set forth. Employee shall
hold the position of President of NexStar Corporation, a business unit initially
being operated in the form of a subsidiary of Zygo Corporation ("Zygo"). Zygo
currently intends to continue operating the business unit from its location in
Colorado.
2. TERM.
The initial term of employment under this Agreement shall begin on
September 12, 1996 (the "Employment Date") and shall continue for a period of
three (3) years from that date, subject to prior termination in accordance with
the terms hereof. Thereafter, this Agreement shall automatically be renewed for
successive one year terms unless either party shall give the other sixty (60)
days' prior written notice of its or his intent not to renew this Agreement. The
initial 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. COMPENSATION.
As compensation for the employment services to be rendered by Employee
hereunder, the Company agrees to pay, or cause to be paid, to Employee, and
Employee agrees to accept, an annual salary of $125,000 or such higher amount as
the President of Zygo may determine from time to time, subject to such payroll
deductions as are required by law and deductions for applicable employee
contributions to the Company's normal benefit programs. The annual salary
provided for hereunder shall be payable in equal installments commencing at the
Employment Date, in accordance with
<PAGE>
Company practice. In addition, Employee shall be entitled to additional
contingent compensation from time to time. Such compensation will be based on
the Company's overall performance and will be awarded at the discretion of the
President of Zygo with the approval of the Board of Directors of the Company or
Zygo.
On September 12, 1996, Employee shall receive a grant of options to
purchase 20,000 shares of Common Stock of Zygo with an exercise price equal to
the fair market value on the date of grant, vesting in four equal installments
and otherwise in accordance with the terms of Zygo's Amended and Restated
Non-Qualified Stock Option Plan.
4. EXPENSES.
The Company shall pay or reimburse Employee, upon presentment of
suitable vouchers, for all reasonable business and travel expenses which may be
incurred or paid by Employee in connection with his employment hereunder.
Employee shall comply with restrictions and shall keep records in compliance
with the Company's policy and procedure related to travel and entertainment
expenses.
5. INSURANCE AND OTHER BENEFITS.
(a) Employee shall be entitled to such vacations and to participate in
and receive any other benefits customarily provided by the Company for its
employees generally (including any profit sharing, pension, health insurance,
dental coverage, life insurance, AD&D and short- and long-term disability in
accordance with the terms of such plans) and including stock option and/or stock
purchase plans, all as determined from time to time by the Board of Directors of
the Company or appropriate committee thereof. Unused annual vacations may be
carried over to the extent permitted by Company policy.
(b) Employee acknowledges and agrees that notwithstanding anything to
the contrary contained in any benefit plan maintained by Zygo, except as may be
otherwise agreed to by Employee and Zygo, Employee shall not be entitled to
participate in any of Zygo's employee benefit plans by virtue of his being
employed by the Company or by Zygo (if and when applicable).
6. DUTIES.
(a) Employee shall perform such duties and functions as the President,
Chief Executive Officer or Chief Operating Officer of Zygo and the Board of
Directors of the Company or Zygo shall from time to time determine and Employee
shall comply in the performance of his duties with the policies of, and be
subject to, the direction of such officers and such Boards of Directors.
-2-
<PAGE>
(b) Employee agrees to devote his entire working time, attention and
energies to the performance of the business of the Company and of any of its
subsidiaries or affiliates by which he may be employed; and Employee shall not,
directly or indirectly, alone or as a member of any partnership or other
organization, or as an officer, director or employee of any other corporation,
partnership or other organization, be actively engaged in or concerned with any
other duties or pursuits which interfere with the performance of his duties
hereunder, or which, even if non-interfering, may be inimical, or contrary, to
the best interests of the Company, except those duties or pursuits specifically
authorized by the Board of Directors of the Company or Zygo.
7. TERMINATION OF EMPLOYMENT; EFFECT OF TERMINATION.
(a) Employee's employment hereunder may be terminated at any time
upon written notice from the Company to Employee,
(i) upon the determination by the President, Chief Executive
Officer or Chief Operating Officer of Zygo or the Board of Directors of
the Company or Zygo that Employee's performance of his duties has not
been fully satisfactory for any reason which would not constitute
justifiable cause (as hereinafter defined) upon five (5) days' prior
written notice to Employee; or
(ii) immediately upon determination by the Board of Directors of
the Company or Zygo that justifiable cause exists for such termination.
(b) Employee's employment shall terminate upon:
(i) the death of the Employee; or
(ii) the "disability" of Employee (as hereinafter defined pursuant
to subsection (c) herein).
(c) For the purposes of this Agreement, the term "disability" shall
mean the inability of Employee, due to illness, accident or any other physical
or mental incapacity, to perform his duties in a normal manner for a period of
three (3) consecutive months or for a total of four (4) months (whether or not
consecutive) in any twelve (12) month period during the term of this Agreement.
(d) For the purposes hereof, the term "justifiable cause" shall mean
and be limited to: any repeated failure or refusal by Employee to perform, or
willful neglect by Employee of, any of his duties pursuant to this Agreement;
Employee's conviction (which, through lapse of time or otherwise, is not subject
to appeal) of any crime or offense involving money or other property of the
Company, Zygo or any of their respective subsidiaries or affiliates or which
constitutes a felony in the jurisdiction
-3-
<PAGE>
involved; Employee's performance of any act or his failure to act, for which if
he were prosecuted and convicted, a crime or offense involving money or property
of the Company, Zygo or any of their respective subsidiaries or affiliates, or
which constitutes a felony in the jurisdiction involved, would have occurred;
any disclosure by Employee to any person, firm or corporation other than the
Company, Zygo or any of their respective subsidiaries or affiliates and its and
their directors, officers and employees, of any confidential information or
trade secret of the Company, Zygo or any of their respective subsidiaries or
affiliates or any other breach by Employee of any of the provisions of Section
10, 11 or 12 hereof; any attempt by Employee to secure any personal profit in
connection with the business of the Company, Zygo or any of their respective
subsidiaries or affiliates; or the engaging by Employee in any business or
activities other than the business of the Company, Zygo and any of their
respective subsidiaries or affiliates which interferes with the performance of
his duties hereunder. Upon termination of Employee's employment for justifiable
cause, this Agreement shall terminate immediately and Employee shall not be
entitled to any amounts or benefits hereunder other than such portion of
Employee's annual salary and reimbursement of expenses pursuant to Section 4
hereof as has been accrued through the date of his termination of employment.
(e) If Employee shall die during the term of his employment hereunder,
this Agreement shall terminate immediately. In such event, the estate of
Employee shall thereupon be entitled to receive such portion of Employee's
annual salary and reimbursement of expenses pursuant to Section 4 hereof as has
been accrued through the date of his death.
(f) Upon Employee's "disability," the Company shall have the right to
terminate Employee's employment. Notwithstanding any inability to perform his
duties, Employee shall be entitled to receive his compensation as provided
herein until the termination of his employment for disability. Any termination
pursuant to this subsection (f) shall be effective on the date thirty (30) days
after which Employee shall have received written notice of the Company's
election to terminate. Notwithstanding anything to the contrary contained
herein, during any period that Employee fails to perform his duties hereunder as
a result of his disability (but prior to receiving the notice of termination
specified in this Section 7(f), (i) Employee shall continue to receive his full
salary at the rate then in effect and all benefits provided in Section 5 hereof,
provided that payments made to Employee pursuant to this Section 7(f) shall be
reduced by the sum of the amounts, if any, payable to Employee at or prior to
the time of any such payment under any disability benefit plan or program of, or
provided by, the Company or Zygo, and (ii) the Company shall have the right to
hire any other individual or individuals to perform such duties and functions as
the Company shall desire, including those duties heretofore performed by
Employee.
(g) Notwithstanding any provision to the contrary contained herein, in
the event that Employee's employment is terminated by the Company at any time
for any reason other than justifiable cause, disability or death, the parties
hereto agree that
-4-
<PAGE>
damages to Employee shall be difficult to ascertain in any such event, but in
order to limit the liability of the Company and Zygo in any such event, Employee
shall be entitled to receive as liquidated damages and not as a penalty, and the
Company shall pay to Employee, Employee's salary (payable in such amount and in
such manner as set forth in Section 3 herein) from and after the date of such
termination for a period ending (i) at the end of the three year initial term of
this Agreement if such termination occurs during such initial three year term,
provided, however, that in the event termination occurs within the last six (6)
months of the initial three year term, Employee would be entitled to his salary
for a period ending six (6) months from the date of such termination, or (ii)
six (6) months from the date of termination if such termination occurs during
any renewal term subsequent to such initial three year term, which amount shall
be in lieu of any and all other payments due and owing to Employee under the
terms of this Agreement or otherwise.
8. REPRESENTATIONS AND AGREEMENTS OF EMPLOYEE.
(a) Employee represents and warrants that he is free to enter into this
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
hereunder. Employee further represents and warrants that he is in full
compliance with all existing agreements between himself and the Company or Zygo.
(b) Employee agrees to submit to a medical examination and to cooperate
and supply such other information and documents as may be required by any
insurance company in connection with the Employees' inclusion in any insurance
or fringe benefit plan or program as the Company shall determine from time to
time to obtain, or in connection with, in the Company's or Zygo's sole
discretion, the Company's obtaining life insurance for its benefit on the life
of Employee.
9. NON-COMPETITION.
(a) Employee agrees that during his employment by the Company (which
shall be deemed to include the period in which Employee is receiving any
severance payments set forth in Section 7(g) hereto), and for a period of three
(3) years after the later to occur of the termination or expiration of
Employee's employment hereunder (the "Non-Competitive Period"), Employee shall
not, directly or indirectly, as owner, partner, joint venturer, stockholder,
employee, broker, agent, principal, trustee, corporate officer, director,
licensor, or in any capacity whatsoever engage in, become financially interested
in, be employed by, render any consultation or business advice with respect to,
or have any connection with, any business engaged in the research, development,
testing, design, manufacture, sale, lease, marketing, utilization or
exploitation of any products or services which are designed for the same purpose
as, are similar to, or are otherwise competitive with, products or services of
the Company, Zygo or any of their respective subsidiaries or affiliates which
are being sold or
-5-
<PAGE>
provided or proposed to be provided at the time of termination of Employee's
employment, in any geographic area where, at the time of the termination or
expiration of his employment hereunder, the business of the Company, Zygo or any
of their respective subsidiaries or affiliates was being conducted or was
proposed to be conducted in any manner whatsoever; provided, however, that
Employee may own any securities of any corporation which is engaged in such
business and is publicly owned and traded but in an amount not to exceed at any
one time one percent (1%) of any class of stock or securities of such
corporation. In addition, Employee shall not, directly or indirectly, during the
Non-Competitive Period, request or cause contracting parties, suppliers or
customers with whom the Company, Zygo or any of their respective subsidiaries or
affiliates has a business relationship to cancel or terminate any such business
relationship with the Company, Zygo or any of their respective subsidiaries or
affiliates or solicit, interfere with or entice from the Company, Zygo or any of
their respective subsidiaries or affiliates any employee (or former employee) of
the Company, Zygo or any of their respective subsidiaries or affiliates.
Notwithstanding the foregoing, in the event Employee's employment hereunder is
terminated by the Company for justifiable cause pursuant to Section 7(a) hereof,
the Non-Competitive Period shall continue through the expiration of the
scheduled term of this Agreement as provided in Section 2 hereof.
(b) If any portion of the restrictions set forth in this Section 9
should, for any reason whatsoever, be declared invalid by a court of competent
jurisdiction, the validity or enforceability of the remainder of such
restrictions shall not thereby be adversely affected.
(c) Employee acknowledges that the Company and/or Zygo conducts
business on a world-wide basis, that its sales and marketing prospects are for
continued expansion into world markets and that, therefore, the territorial and
time limitations set forth in this Section 9 are reasonable and properly
required for the adequate protection of the business of the Company, Zygo and
their respective subsidiaries. In the event any such territorial or time
limitation is deemed to be unreasonable by a court of competent jurisdiction,
Employee agrees to the reduction of the territorial or time limitation to the
area or period which such court deems reasonable.
(d) The existence of any claim or cause of action by Employee against
the Company, Zygo or any of their respective subsidiaries or affiliates shall
not constitute a defense to the enforcement by the Company, Zygo or any such
subsidiary or affiliate of the foregoing restrictive covenants, but such claim
or cause of action shall be litigated separately.
10. INVENTIONS AND DISCOVERIES.
(a) Employee shall promptly and fully disclose to Zygo, and with all
necessary detail for a complete understanding of the same, all developments,
know-how, discoveries, inventions, improvements, concepts, ideas, writings,
formulae, processes and
-6-
<PAGE>
methods (whether copyrightable, patentable or otherwise) made, received,
conceived, acquired or written during working hours, or otherwise, by Employee
(whether or not at the request or upon the suggestion of Zygo) during the period
of his employment with the Company, Zygo or any of their respective subsidiaries
or affiliates, solely or jointly with others, in all instances in or relating to
any activities of the Company, Zygo or any of their respective subsidiaries or
affiliates known to him as a consequence of his employment hereunder
(collectively the "Subject Matter").
(b) Employee hereby assigns and transfers, and agrees to assign and
transfer, to Zygo, all his rights, title and interest in and to the Subject
Matter, and Employee further agrees to deliver to Zygo any and all drawings,
notes, specifications and data relating to the Subject Matter, and to execute,
acknowledge and deliver all such further papers, including applications for
copyrights or patents, as may be necessary to obtain copyrights and patents for
any thereof in any and all countries and to vest title thereto to Zygo. Employee
shall assist Zygo in obtaining such copyrights or patents during the term of
this Agreement, and any time thereafter on reasonable notice, and Employee
agrees to testify in any prosecution or litigation involving any of the Subject
Matter.
11. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) Employee shall not, during the term of this Agreement or at any
time following termination or expiration of this Agreement, directly or
indirectly, disclose or permit to be known (other than as is required in the
regular course of his duties or required by law (in which case Employee shall
give Zygo prior written notice of such required disclosure) or with the prior
written consent of the President of Zygo), to any person, firm or corporation,
any confidential information acquired by Employee during the course of, or as an
incident to, his employment hereunder, relating to the Company, Zygo or any of
their respective subsidiaries or affiliates, the directors of the Company, Zygo
or any of their respective subsidiaries or affiliates, any client of the
Company, Zygo or any of their respective subsidiaries or affiliates, or any
corporation, partnership or other entity owned or controlled, directly or
indirectly, by any of the foregoing, or in which any of the foregoing has a
beneficial interest, including, but not limited to, the business affairs of each
of the foregoing. Such confidential information shall include, but shall not be
limited to, proprietary technology, trade secrets, patented processes, research
and development data, know-how, market studies and forecasts, competitive
analyses, pricing policies, employee lists, personnel policies, the substance of
agreements with customers, suppliers and others, marketing or dealership
arrangements, servicing and training programs and arrangements, customer lists
and any other documents embodying such confidential information. This
confidentiality obligation shall not apply to any confidential information which
thereafter becomes publicly available other than pursuant to a breach of this
Section 11(a), directly or indirectly, by Employee.
-7-
<PAGE>
(b) All information and documents relating to the Company, Zygo and
their respective subsidiaries or affiliates as hereinabove described (or other
business affairs) shall be the exclusive property of the Company or Zygo, as the
case may be, and Employee shall use commercially reasonable best efforts to
prevent any publication or disclosure thereof. Upon termination of Employee's
employment with the Company, all documents, records, reports, writings and other
similar documents containing confidential information, including copies thereof,
then in Employee's possession or control shall be returned and left with the
Company.
(c) Employee will execute the form of "NexStar Corporation
Non-Disclosure and Non-Solicitation Agreement" in the form of Exhibit A hereto,
all the terms and provisions of which are incorporated herein as if fully set
forth herein.
12. RIGHT TO INJUNCTION.
Employee recognizes that the services to be rendered by him hereunder
are of a special, unique, unusual, extraordinary and intellectual character
involving skill of the highest order and giving them peculiar value the loss of
which cannot be adequately compensated for in damages. In the event of a breach
of this Agreement by Employee, the Company shall be entitled to injunctive
relief or any other legal or equitable remedies. Employee agrees that the
Company may recover by appropriate action the amount of the actual damage caused
the Company by any failure, refusal or neglect of Employee to perform his
agreements, representations and warranties herein contained. The remedies
provided in this Agreement shall be deemed cumulative and the exercise of one
shall not preclude the exercise of any other remedy at law or in equity for the
same event or any other event.
13. AMENDMENT OR ALTERATION.
No amendment or alteration of the terms of this Agreement shall be
valid unless made in writing and signed by both of the parties hereto.
14. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of
Connecticut applicable to agreements made and to be performed therein.
15. CONSENT TO JURISDICTION.
Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the courts of the State of Connecticut, including the
jurisdiction of the United States District Courts therein, and agrees not to
assert by way of motion, as a defense or otherwise, in any such suit, action or
proceeding, any claim that he or it is not subject to the jurisdiction of the
above-named courts, that the suit, action or proceeding is brought in an
inconvenient forum, that the venue of the suit, action or proceeding is
-8-
<PAGE>
improper or that this Agreement may not be enforced in or by such courts.
Employee agrees that all actions and proceedings to be instituted hereunder by
Employee or his successors or assigns arising out of or related to this
Agreement or the transactions contemplated hereby shall be commenced only in the
courts having a situs in Connecticut.
16. SEVERABILITY.
The holding of any provision of this Agreement to be invalid or
unenforceable by a court of competent jurisdiction shall not affect any other
provision of this Agreement, which shall remain in full force and effect.
17. NOTICES.
Any notices required or permitted to be given hereunder shall be
sufficient if in writing, and if delivered by hand, or sent by certified mail,
return receipt requested, to the addresses set forth above or such other address
as either party may from time to time designate in writing to the other, and
shall be deemed given as of the date of the delivery or mailing.
18. WAIVER OR BREACH.
It is agreed that a waiver by either party of a breach of any provision
of this Agreement shall not operate, or be construed, as a waiver of any
subsequent breach by that same party.
19. ENTIRE AGREEMENT AND BINDING EFFECT.
This Agreement, together with the Acquisition Agreement, dated as of
August 12, 1996 by and among the Company, Zygo, NX Acquisition Corp. and NexStar
Automation, Incorporated, and all agreements and exhibits referred to therein,
contains the entire agreement of the parties with respect to the subject matter
hereof and shall be binding upon and inure to the benefit of the parties hereto
and their respective legal representatives, heirs, distributors, successors and
assigns. Notwithstanding the foregoing, all prior agreements between Employee
and the Company or Zygo relating to the confidentiality of information, trade
secrets and patents shall not be affected by this Agreement.
20. SURVIVAL.
The termination of Employee's employment hereunder shall not affect the
enforceability of Sections 7, 8(a), 9, 10, 11, 12, 14 and 15 hereof.
-9-
<PAGE>
21. NON-ASSIGNABILITY.
This Agreement is entered into in consideration of the personal
qualities of Employee and may not be, nor may any right or interest hereunder
be, assigned by him without the prior written consent of the Company. It is
expressly understood and agreed that this Agreement, and the rights accruing and
obligations owed to the Company hereunder, and the obligations to be performed
by the Company hereunder, may be assigned by the Company at any time without the
consent of Employee to Zygo or any of the Company's successors or assigns. In
the event that this Agreement is assigned by the Company to Zygo pursuant to
this Section 21, all references in this Agreement to "Company" shall refer to
Zygo except that the references thereto contained in Section 5(a) hereof shall
refer to NexStar Corporation, a business unit of Zygo.
22. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
23. FURTHER ASSURANCES.
The parties agree to execute and deliver all such further documents,
agreements and instruments and take such other and further action as may be
necessary or appropriate to carry out the purposes and intent of this Agreement.
24. HEADINGS.
This Section headings appearing in this Agreement are for the purposes
of easy reference and shall not be considered a part of this Agreement or in any
way modify, demand or affect its provisions.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
NEXSTAR CORPORATION
By: /s/ GARY K. WILLIS
------------------------
Name: Gary K. Willis
Title: Chairman
EMPLOYEE
/s/ AHMAD AKRAMI
------------------------
Ahmad Akrami
-11-
<PAGE>
EXHIBIT A
NEXSTAR CORPORATION
NON-DISCLOSURE AND NON-SOLICITATION AGREEMENT
AGREEMENT, dated as of ___________ __, 1996, by and between NEXSTAR
CORPORATION, a Delaware corporation (the "Company"), and Ahmad Akrami (the
"Employee")
W I T N E S S E T H:
In consideration of the Company's employment of the Employee and in
consideration of the covenants contained herein, the parties hereby agree as
follows:
1. The Employee agrees that he will not directly or indirectly disclose or use
at any time any knowledge, information or material relating to any
business, customer, machine, design, apparatus or systems of the Company,
Zygo Corporation, a Delaware corporation and the owner of all the
outstanding capital stock of the Company ("Zygo"), or any of their
respective subsidiaries or affiliates or any of the methods of conducting
any part of their respective businesses or the like which may become known
to the Employee by reason of his employment or otherwise except as may be
reasonably necessary to the performance of his assigned duties as an
employee of the Company.
2. The Employee agrees to promptly and completely disclose in writing to such
person as the Company may designate all ideas, developments, inventions and
improvements heretofore or hereafter made, developed, perfected, devised,
conceived or acquired by the Employee either solely or jointly with others
during the Employee's employment by the Company and within ninety (90) days
after any termination thereof, whether or not during regular working hours,
relating in any way to the actual or anticipated business, research,
developments or products of the Company; and if so requested by the
Company, to assign, transfer and convey to the Company all right, title and
interest in and to all such ideas, developments, inventions and
improvements.
3. The Employee agrees, at the request and expense of the Company, to make,
execute and deliver any and all papers, documents and instruments,
including applications for patents in any and all countries and reissues
and extensions thereof, and to assist and cooperate (without expense to the
Employee) with the Company or its representative in any controversy or
legal proceedings relating to said ideas, developments, inventions and
improvements, and the patents which may be procured thereon.
-1-
<PAGE>
4. The Company does not assume any responsibility for the prosecution or
defense of any application for patents in any countries arising from ideas,
developments, inventions and improvements disclosed to the Company pursuant
to this Agreement.
5. The Employee represents and warrants that he/she is free to enter into the
employment arrangements and, if applicable, the employment agreement, to be
entered into with the Company and to perform the duties required of the
Employee in connection with his/her employment by the Company; and that,
except as indicated on Exhibit 1 hereto, there are no employment
agreements, confidentiality agreements, restrictive covenants or other
agreements or restrictions binding on the Employee or to which the Employee
is a party which limit, prohibit or prevent the full performance by the
Employee of his/her employment duties and arrangements with the Company or
which would preclude the Employee from disclosing or otherwise limit the
Employee's right to disclose to the Company any ideas, inventions,
discoveries or other information.
6. The Employee represents and warrants that he/she has not brought and agrees
that he/she will not bring to the Company or use in the performance of
his/her employment responsibilities at the Company any materials,
documents, trade secrets or confidential information of a former employer
or any other person which are of a confidential nature or which are not
generally available to the public. The Employee agrees that he/she has not
and will not disclose to the Company or seek to induce the Company to use
any such confidential information, materials, documents or trade secrets.
7. The Employee agrees that during his/her employment by the Company and
following the termination of such employment, the Employee will not,
directly or indirectly, request or cause any suppliers or customers with
whom the Company, Zygo or any of its subsidiaries or affiliates has a
business relationship to cancel or terminate any such business relationship
with the Company, Zygo or any of their respective subsidiaries or
affiliates or solicit, interfere with or entice from the Company any
employee or former employee of the Company or Zygo.
8. Neither this Agreement nor any benefits hereunder are assignable by the
Employee, but the terms and provisions hereof shall inure to the benefit of
the Company's successors and assigns.
9. This Agreement is not a contract of employment; it does not give the
Employee any rights to any employment with the Company, and it in no way
abridges, alters, amends or modifies any rights the Company may otherwise
have to terminate its employment of the Employee.
10. This Agreement, together with the Employment Agreement, dated September
___, 1996, by and between the Employee and the Company and the Acquisition
Agreement, dated as of August 12, 1996, by and among Zygo, NX Acquisition
-2-
<PAGE>
Corp. and NexStar Automation, Incorporated, and all agreements and exhibits
referred to therein, contains the entire understanding and agreement of the
parties with respect to the matters herein contained, and no waiver or
modification hereof shall be binding unless in writing and subscribed by
the parties hereto.
11. If any paragraph, clause, or phrase of this Agreement shall, by any
federal, state or other law or by any decision of any court, be declared or
held illegal, void or unenforceable, the remaining portions of this
Agreement shall continue to be valid and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
NEXSTAR CORPORATION
BY:
----------------------------------
Name:
Title:
EMPLOYEE
----------------------------------
Name: Ahmad Akrami
-3-
ZYGO
[Photographs]
PRECISION.
ZYGO CORPORATION
1996 ANNUAL REPORT
Front Cover
<PAGE>
CONSOLIDATED FINANCIAL HIGHLIGHTS
(Thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
----------------------------------------------------
1996 1995 1994 1993 1992
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales $53,478 $32,233 $24,141 $22,702 $26,744
Net earnings $ 7,931 $ 2,749 $ 918 $ 481 $ 632
Earnings per common and common equivalent share $ 1.53 $ .65 $ .23 $ .12 $ .16
Weighted average common shares and common dilutive equivalents outstanding 5,189 4,242 3,987 3,902 3,900
</TABLE>
<TABLE>
<CAPTION>
June 30,
----------------------------------------------------
1996 1995 1994 1993 1992
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Working capital $46,756 $17,072 $14,889 $14,648 $13,388
Stockholders' equity $53,424 $22,333 $19,274 $18,416 $17,720
<FN>
At year end, Zygo employed 245 men and women.
</TABLE>
[4 Bar Charts - Inside Front Cover]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET SALES (in thousands) $ 28,744 $ 22,702 $ 24,141 $ 32,233 $ 53,478
EARNINGS BEFORE INCOME TAX (in thousands) $ 953 $ 698 $ 1,328 $ 3,956 $ 11,661
NUMBER OF EMPLOYEES (Year End) 206 193 179 210 245
SALES PER EMPLOYEE $107,000 $112,950 $131,900 $173,300 $240,000
</TABLE>
CORPORATE PROFILE
ZYGO CORPORATION DESIGNS, DEVELOPS, MANUFACTURES, AND MARKETS PRECISION
MEASUREMENT AND AUTOMATION EQUIPMENT AND COMPONENTS USED TO ENHANCE PRODUCTION
YIELDS IN HIGH TECHNOLOGY INDUSTRIES. ZYGO'S PRECISION SURFACE MEASURING
INSTRUMENTS PROVIDE VITAL PROCESS CONFORMANCE INFORMATION.
THIS PRECISION SURFACE METROLOGY, COMBINED WITH OUR PARTS HANDLING AND
AUTOMATION TECHNOLOGIES, PROVIDE UNIQUE SOLUTIONS FOR YIELD ENHANCEMENT, PROCESS
CONTROL, AND THROUGHPUT ENHANCEMENT. ZYGO PRODUCTS 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 OUR PRECISION MEASUREMENT 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 MANUFACTURING, REGIONAL SALES, SERVICE, AND
TECHNOLOGY CENTERS IN CONNECTICUT, CALIFORNIA, AND COLORADO, AND DISTRIBUTORS/
AGENTS WORLDWIDE PROVIDING LOCAL CUSTOMER SUPPORT.
[Photographs Caption - Front Cover]
On the Cover:
- - -------------
A manufacturing technician inspects an in-process wafer in a cleanroom
environment. Stage mirrors, used in photolithography systems, are machined to
exacting tolerances by Zygo's CNC machining process and our skilled machinists.
Multi-platter hard disk drive assembly with cover removed.
(Photo courtesy of Seagate Technology, Inc.)
Inside Front Cover
<PAGE>
TO OUR SHAREOWNERS
[Photograph of Gary K. Willis]
Your company completed fiscal 1996, the first year of its second quarter
century, by once again posting record performance. Net sales of $53.5 million
for 1996 were up 66% as compared to 1995 net sales of $32.2 million. Again, as
was the case in fiscal 1995, operating profits, pretax profits, and net earnings
per share not only increased significantly over the previous year levels but
attained historical highs for your company. Net earnings of $1.53 per share
increased 135% from net earnings of $.65 per share in fiscal 1995. These
earnings performance records were once again achieved as a result of
significantly increased revenues in all sectors of our business: instruments
and systems, precision optical components, and customer services, combined with
record high productivity within our operations. Our quantitative productivity
measure, sales per employee, reached an historic high for the Company at
$240,000 per employee, topping last year's previous record of $173,000 of sales
per employee -- a gain of greater than 38%. The strong demand across our product
and service lines not only fueled the significant sales increases we enjoyed,
but also resulted in establishing a year end record backlog of slightly over
$19 million compared to the previous year end record of nearly $13 million for
1995, an increase of almost 46%.
In addition to this outstanding operations performance for fiscal 1996, your
company also reached a number of significant milestones that strengthen our
ability to serve our emerging customer needs and provide opportunities to
increase value for our loyal shareowners. These included a 3-for-2 stock split
in the first quarter of our fiscal year, the consummation of a secondary
offering of 1.3 million shares of your company's stock in the second quarter of
our fiscal year, the addition to our cadre of corporate officers and to our
Board of Directors in the third and fourth quarters of our fiscal year, and the
announcement of two synergistic acquisitions in the fourth quarter as we closed
our fiscal year. Let us address each of these individually.
STOCK SPLIT: In order to respond to an increasing demand for your company's
securities generated by our growth and improving financial performance, your
Board of Directors authorized a 3-for-2 stock split effected in the form of a
50% stock dividend which was paid on August 21, 1995 to shareowners of record
on August 1, 1995. This action increased the practical float, those shares which
are not closely held, from 1.4 million shares to 2.1 million shares and assisted
in placing the Company's securities in a position where the float could now
attract a number of valueoriented institutional investors, an important
shareowner constituency to your company as we move ahead.
SECONDARY OFFERING: During December 1995, your company consummated a secondary
offering of 1.3 million shares of your company's stock for $29.00 per share.
This secondary offering, in which the Company sold 845,000 shares of stock,
provided your company with approximately $22.7 million in new capital, helping
to ensure that the necessary capital to fund our future growth is available to
the Company. The secondary offering also benefited your company by reducing the
amount of closely held shares from approximately 47% to approximately 30%,
further increasing our public float, and by providing the opportunity to
reintroduce a restructured Zygo with its new strategy to the investment
community. Your company's management had the pleasure of reporting on our recent
performance and describing our ongoing strategic plans to over 50 major
institutional investors and brokerage firms, focusing on our transition from a
provider of quality control laboratory instruments to a production yield
improvement system supplier to high technology industries. These discussions
allowed us the opportunity to describe the key elements of our company's ongoing
strategy, our efforts to enhance our market leadership through innovative
technical solutions, and the creation of the strongest possible relationships
with the industry leaders in our
Page 1
<PAGE>
major served markets. A number of these solutions and the measurement and
sensor technologies they are based on are described on pages 3 through 7 of this
annual report.
STRATEGIC ACQUISITIONS: During April and at the close of our fiscal year, we
had the pleasure of announcing the signing of Letters of Intent to acquire
NexStar Automation, Inc. of Boulder, Colorado, and Technical Instrument Company
of Sunnyvale, California. Both of these acquisitions not only represent
opportunities to increase our short-term sales and profit growth but, more
importantly, represent the strategic addition of metrology and automation
capability that significantly strengthens your company's ability to provide
production line yield improvement solutions to our high-technology customers.
Both of these acquisitions were completed subsequent to the close of fiscal
1996. NexStar Automation provides parts handling and robotic system solutions
to high-technology industries with a very strong position in the data storage
industry. As additional requirements for parts handling, elimination of operator
intervention and increased measurement throughput are required by our customers,
NexStar's strengths will be invaluable to our future enhanced solutions.
Technical Instrument Company, with a strong position in supplying metrology
systems to mask manufacturers and chip manufacturers in the semiconductor
industry, provides a strong complementary confocal microscopy measurement and
sensor technology to our own interferometric-based measurement strengths. In
addition, Technical Instrument Company's strong position on the West Coast of
the United States and in the Pacific Rim with the semiconductor industry greatly
enhances your company's presence in those areas. Most importantly, the culture
of both these companies mirrors our own -- a customer-comes-first attitude with
innovative technology solutions at the base of each company's offerings. We are
all very excited about the short- and long-term prospects for these new members
of the Zygo family. NexStar's and TIC's solutions are described on pages 5 and
7 of this report.
ADDITIONS TO THE BOARD OF DIRECTORS AND NEW CORPORATE OFFICERS:
Your Board of Directors elected two new corporate vice presidents in January of
this year. William H. Bacon, a 14-year employee with the Company, was elected
Vice President and Director of Corporate Quality, and Robert A. Smythe, a
10-year employee, was elected Vice President and Director of Marketing and
Sales. Both of these gentlemen have enjoyed outstanding careers with the Company
assuming a number of positions of increasing responsibility throughout their
careers. In May of this year, we had the pleasure of announcing the election of
John R. Rockwell to our Board of Directors. Mr. Rockwell is a seasoned
executive, entrepreneur, and advisor to a broad range of companies and
industries. He spent most of his career as a senior executive with Booz, Allen &
Hamilton, a worldwide consulting organization with particular focus on
innovative problem solving and strategic planning. As your company continues its
transition and establishes itself as a value generating growth corporation,
John's advice and counsel will be most valuable to our future Board
deliberations.
OUTLOOK: As we closed our fiscal year, we were quite pleased to receive
notification of two prestigious awards in recognition of the design, development
and introduction of our new Pegasus 2000 Flying Height Test System. This
product, introduced at the September 1995 Diskcon exhibition, received both the
Photonics Circle of Excellence Award and the R&D 100 award for technology
innovation. Pegasus 2000, another product in our family of on-line yield and
production improvement solutions, is expected to generate incremental revenues
and profits during fiscal 1997.
Although no one can predict the macro-economic forces that ultimately drive the
capital spending demands of the industries we serve, we do believe our enhanced
product position, our record high backlog, and the strategic complementary
strengths brought by Technical Instrument Company and NexStar Automation
position us well to take advantage of whatever demand exists for our products
and systems going forward. In addition, never being complacent, we will continue
to make the necessary strategic investments in new technology and product
developments and in our marketing and customer support infrastructure as we
endeavor to ensure that we have the appropriate solutions and customer support
organizations to optimize our performance long-term.
You, of course, can continue to count on our best efforts as we chart the future
course for your company. As always, we thank you for your continued support of
and interest in your company.
Sincerely,
GARY K. WILLIS
- - --------------
Gary K. Willis
President and Chief
Executive Officer
September 16, 1996
Page 2
<PAGE>
PRECISION
Increased requirements for computer data storage capacity, faster and more
powerful electronics, finer print quality, higher-efficiency diesel engines,
and laser fusion research all share a common element -- finer control of
critical dimensional tolerances at ever-increasing production rates.
As performance demands continue to increase, the dimensional tolerances of key
components in these products get proportionally more stringent. To achieve
critical dimensional tolerances in a production environment, key manufacturing
processes must be continually refined, and their performance monitored.
Since the Company's founding, Zygo's instrumentation and optical component
products have performed at the leading edge of precision. First marketed to the
precision optics industry, and later to data storage device and semiconductor
equipment manufacturers, Zygo measurement technology has proven to be the
definitive solution for fast and accurate measurement and process monitoring in
precision manufacturing facilities.
Further, to expand the reach of our measurement technologies into new and
growing markets, and deeper into existing markets, we are continually expanding
the measurement range of our products to measure surfaces that were previously
either too fine, or too rough, to measure. Similarly, in response to the trend
toward producing precision components in mass quantities, established Zygo
products are adapted, and new products created, for use in high volume
production measurement and analysis.
Two key industries that have embraced Zygo's measurement and process monitoring
expertise are manufacturers of data storage devices and semiconductor production
equipment.
Page 3
<PAGE>
DATA STORAGE INDUSTRY
An example of high-precision components manufactured in high volume are the
minute read/write heads used in hard disk drives found in all computer systems.
Read/write heads transfer data onto, and off of, the surface of a spinning hard
disk platter. To prevent friction and wear, the read/write head "flies" above
the disk's surface on a thin cushion of air. To maintain the proper flying
height, and ensure optimum performance and reliability, the surface of both the
read/write head, and the hard disk, must be made with extremely high precision.
When Zygo first started working with leading disk drive manufacturers, there
were no off-the-shelf instruments for measuring the components that drive makers
needed to measure, at the production rates they needed. It was through the
application of our core technologies -- accurate, noncontact measurement,
flexible and accurate data analysis software, and process automation -- that we
were able to satisfy the measurement requirements of this rapidly growing
industry, and satisfy them beyond expectation. With Zygo's precision measuring
instruments on their production lines, drive makers are now able to verify the
critical surface shape and surface structure of components they produce.
[Photographs - Page 4]
Read/write head size shown relative to finger tip. - Multi-platter hard disk
drive assembly with cover removed. (Photo courtesy of Seagate Technology,
Inc.) - AAB system measuring a tray of read/write heads. The system measures
and analyzes all 196 heads in the tray, determines if any are to be rejected,
and generates statistical process control data D all in about 15 minutes. -
Three-dimensional plot of measurement data of the air bearing surface of a
read/write head. (Data used by permission of Read-Rite Corporation, Milipitas,
California)
Data Storage Industry
Those companies directly involved in the manufacture of computer peripheral
equipment to store and retrieve data. Zygo primarily serves the hard disk
drive segment of this industry.
Read/Write Heads
The miniature electromagnetic devices used in computer hard disk drive
assemblies that record information on, and read information from, the magnetic
storage media on the spinning hard disk platters.
[Artwork]
Air Bearing Surface
The flying height of a magnetic read/write head is controlled by the shape of
the head's air bearing surface. By precisely controlling the characteristics of
the air bearing surface, manufacturers can produce disk drives with higher
storage capacities and greater reliability.
Flying Height
The read/write heads used in computer hard disk drives do not actually touch
the surface of the disk. Instead they "fly" above the surface on a cushion of
air. The gap between the head and the disk is known as the flying height.
[Artwork]
Page 4
<PAGE>
The data storage industry relies on several Zygo products on their production
lines: the Automated Air Bearing Surface Inspection System for measuring
critical parameters on over 20,000 read/write heads per day, the NewView 100
for measuring the recession of the tiny electromagnetic pole tips on the
read/write heads, the Vista system for automatically finding and measuring
contaminants and other defects on heads, the Pegasus 2000 Flying Height Tester
for measuring the flying height performance of read/write heads, and the GPI
interferometer system for measuring the flatness of in-process disk platters.
As a result, manufacturers have increased the precision of disk drive
components, and now pack a huge amount of data into a very small space, while
still reducing the selling price. Pursuing our focus on high-volume automated
inspection systems, Zygo recently acquired NexStar Automation, a company
renowned for expertise in reliable, precision, production automation equipment
and integration in several high-tech industries, including the data storage and
semiconductor industries. NexStar offers creative turnkey solutions for parts
automated production situations, integrating off-the-shelf components into
ingenious time- and money-saving production systems. Together, we will pursue
projects that will greatly increase the throughput of automated inspection
equipment.
[Photographs - Page 5]
Read/write head gimbal assembly being loaded into a Pegasus 2000 flying height
tester, which measures flying height down to contact. - Zygo's GPI system tests
disk platters to ensure they meet stringent flatness specifications. - Disk
platters at the plating stage of the manufacturing process handled by a NexStar
Automation system. - Volcano-like bumps on a disk platter's landing zone prevent
the head from sticking to the disk's surface when the disk isn't spinning. -
Zygo's Vista microscope system provides objective and quantitative measurements
of air bearing surface defects.
Surface Shape / Surface Structure
Overall surface contours are known as the shape, and the texture
characteristics that make up the surface are known as the structure. As an
analogy, the hills and valleys of a road are surface shape; the texture of the
paving material is surface structure.
[Artwork]
Interferometer
Interferometry is a measurement technique employed in several Zygo instruments
where a beam of light, reflected off of the item being measured, is combined
with a reference beam of light. By analyzing the optical interaction that
occurs between these two beams, Zygo instruments accurately measure distance,
angle, and three-dimensional topography.
[Artwork]
Page 5
<PAGE>
SEMICONDUCTOR INDUSTRY
With the exponential rise in the popularity of personal computers, and the
integration of microelectronics into everything from computers to household
items like vacuum cleaners and dishwashers, the demand for increasing the
precision, production volume, and reliability of semiconductor chips is growing
at unprecedented rates.
Semiconductor manufacturing is an extremely precise process. Integrated circuit
chips (IC's) are formed on thin silicon wafers about eight inches in diameter.
The wafer is then "diced" and the individual chips are placed into the
"packages" that are mounted to circuit boards.
The process of forming the chips on the semiconductor wafers is done with
step-and-repeat photolithography systems, or "steppers," that print the
microscopic circuits onto photoresistive material in many layers. The
positioning accuracy (measured in nanometers) of these steppers is extremely
critical. Many of the steppers employ Zygo's ZMI-1000 Displacement Measuring
Interferometer System. Position information, measured by the ZMI system with
low-power laser beams, is relayed back to the components which control the
position of the translation stages, thus allowing them to move the wafer to
exactly the right position. The ZMI provides the high degree of measurement
accuracy required for these operations, and has proven itself to be very
reliable on high-volume production lines, running 24 hours a day.
[Photographs - Page 6]
The ZMI-1000 system as used with precision stage positioning equipment inside
a photolithography system. - A photolithography system or "stepper" used in
semiconductor wafer manufacturing. (Photo courtesy Canon Inc.) - Finished
semiconductor chip on top of an in-process semiconductor wafer. The lines on the
wafer indicate the boundaries of the individual chips - Stage mirrors, used in
photolithography systems, are machined to exacting tolerances by Zygo's CNC
machining process and our skilled machinists. The mirrors are then polished and
a reflective coating is applied.
Semiconductor Industry
The manufacturers of semiconductor components such as DRAM and microprocessors.
[Artwork]
CNC Machining
Process by which a machining tool's movement and critical cutting parameters
are controlled by a computer. Typically used to machine metals. Zygo uniquely
machines glass and glass-like ceramics with specially modified CNC equipment.
Nanometer
One billionth of a meter. Human hair grows at the rate of about 6 nanometers
per second.
[Artwork]
0.000000001 meter
Page 6
<PAGE>
Another critical aspect of the position-measurement system is the precision
mirrors which redirect the ZMI's measurement beams to the intended targets. The
surface of these mirrors must be essentially perfect; any variation in the
reflected laser beam would cause serious positioning errors, resulting in
unusable IC's. Zygo's Custom Optics Group has many years of experience in
producing these types of precision surfaces using CNC machining and proprietary
finishing techniques, which have helped make us a leading supplier of these
mirrors.
To further our ability to serve this growing industry, Zygo recently acquired
Technical Instrument Company (TIC) whose confocal scanning optical microscope
(CSOM) products and systems are widely used in the semiconductor industry for
wafer mask inspection. As a pioneer in CSOM white light imaging, TIC opened the
door to cost- effective realtime submicron imaging. TIC's microscope technology
is an excellent complement to Zygo's interferometric microscope products and
capabilities, and broadens our abilities to provide enhanced measurement and
yield management solutions to our customers. In addition, TIC's strong
relationships with semiconductor manufacturers on the West Coast and Pacific
Rim will greatly strengthen our presence, and our ability to serve customers,
in those areas.
[Photographs - Page 7]
A manufacturing technician inspects an in-process wafer in a cleanroom
environment. - Composite image of a semiconductor wafer, TIC microscope, and a
three-dimensional measurement image. - Threedimensional computer-generated plot
of a measurement, made by a TIC confocal scanning optical microscope, of a
reticle from which semiconductor circuits are printed. - Two-dimensional
measurement image by a TIC microscope of circuitry on a semiconductor wafer.
[Artwork]
Photolithography Systems
The optical imaging and positioning system that "prints" circuitry patterns
onto silicon wafers.
Confocal Scanning Optical Microscopy
Measurement technique which uses a very shallow depth of field to produce
extremely accurate three-dimensional images of surfaces. Used in semiconductor
manufacturing for inspecting the reticles from which semiconductor circuits
are printed.
[Artwork]
Page 7
<PAGE>
INNOVATION AT ZYGO
To maintain our leadership position in the ever-increasingly competitive field
of precision metrology, creative innovation has become an everyday occurrence
for Zygo's engineers and scientists. Headquartered in a comfortable rural
community in central Connecticut, Zygo is home to some of the best and
brightest minds in the industry, brought together for a common goal: to provide
our customers with cost-effective measurement solutions for on-line production
control and yield management.
Our dedication to innovation and creative solutions has been recognized by
others time and time again. In 1996, Zygo's Pegasus 2000 Flying Height tester
won the R&D 100 award and the Photonics Circle of Excellence award. This is in
addition to the six R&D 100 awards and two Circle of Excellence awards won by
Zygo products in previous years. Zygo was also awarded six more patents in
fiscal year 1996, bringing the total to over 63 since the Company was founded,
with seven more filed.
Innovative thinking is a way of life at Zygo.
[Artwork]
R & D 100 Award
Selected by R & D magazine as "one of the 100 most significant new technical
products of the year."
[Artwork]
Photonics Circle of Excellence Award
Selected by Photonics Spectra magazine as one of "25 most innovative new
products."
PRECISION.
Page 8
<PAGE>
Zygo Corporation and Consolidated Subsidiary
FIVE-YEAR SUMMARY
(Thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
1996 1995 1994 1993 1992
_______ _______ _______ _______ _______
<S> <C> <C> <C> <C> <C>
EARNINGS STATEMENT DATA:
Net sales $ 53,478 $ 32,233 $ 24,141 $ 22,702 $ 26,744
Earnings before income taxes 11,661 3,956 1,328 698 953
Net earnings 7,931 2,749 918 481 632
Earnings per common and common
equivalent share $ 1.53 $ .65 $ .23 $ .12 $ .16
_______ _______ _______ _______ _______
Weighted average common shares and common
dilutive equivalents outstanding 5,189 4,242 3,987 3,902 3,900
_______ _______ _______ _______ _______
</TABLE>
<TABLE>
<CAPTION>
June 30,
1996 1995 1994 1993 1992
_______ _______ _______ _______ _______
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $ 46,756 $ 17,072 $ 14,889 $ 14,648 $ 13,388
Total assets 64,037 29,666 24,499 24,555 23,645
Long-term debt (excluding current portion) -- -- 481 613 878
Stockholders' equity 53,424 22,333 19,274 18,416 17,720
_______ _______ _______ _______ _______
</TABLE>
[3 Bar Charts - Page 9]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
EARNINGS PER SHARE $ 0.16 $ 0.12 $ 0.23 $ 0.65 $ 1.53
WORKING CAPITAL (in thousands) $ 13,388 $ 14,648 $ 14,889 $ 17,072 $ 46,756
STOCKHOLDERS' EQUITY (in thousands) $ 17,720 $ 18,416 $ 19,274 $ 22,333 $ 53,424
</TABLE>
Page 9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales of $53,478,000 for fiscal 1996 increased by $21,245,000 or 65.9% from
fiscal 1995 net sales of $32,233,000. The increase in net sales in fiscal 1996
was principally due to increased demand for the Company's instruments and
systems from manufacturers of data storage, semiconductor, and other high
technology products. Net sales of the Company's electro-optical instruments,
systems and accessories in fiscal 1996, which accounted for 87.2% of total
fiscal 1996 net sales, increased by 71.9% from fiscal 1995. Net sales of
precision optical components increased by 34.0% in fiscal 1996 from the prior
year.
The Company's sales outside the United States amounted to $26,807,000 in fiscal
1996, an increase of $11,826,000 or 78.9% from fiscal 1995. Sales in Japan
during fiscal 1996 amounted to $19,763,000, an increase of $10,133,000 over
fiscal 1995. The significant increase was due to the improving Japanese economy
and the improved demand for the Company's instruments and systems, including its
motion control systems which are sold to Canon for incorporation into their
step-andrepeat photolithography systems used in semiconductor manufacturing,
as well as the Company's other electro-optical systems which are sold to Canon
for resale in the domestic Japanese market or used by Canon in their facilities.
Sales to other geographic markets outside the U.S. amounted to $7,044,000 in
fiscal 1996, an increase of $1,693,000 from fiscal 1995. The 31.6% increase was
principally the result of a continuation of strong sales of the Company's
electro-optical instruments, systems and accessories to the data storage and
semiconductor manufacturing industry in the Pacific Rim and increased sales in
Europe.
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 1996 amounted to $24,844,000, an increase of $10,613,000
(74.6%) over gross profit of $14,231,000 in fiscal 1995. As a percentage of net
sales, gross profit in fiscal 1996 was 46.5%, as compared to 44.2% in fiscal
1995. Gross profit dollars and gross profit as a percent of net sales increased
principally due to the increased volume of sales from electro-optical
instruments, systems and accessories, precision optical components, and customer
support, combined with volume-related manufacturing efficiencies.
Selling, general and administrative expenses in fiscal 1996 of $8,305,000
increased by $1,768,000 from fiscal 1995. The increase was principally a result
of volume-related expenses, such as commissions, allowance for doubtful
accounts, and product marketing expenses (34.3% of increase) and necessary
infrastructure changes made to support the growth of the business such as
additions to sales and marketing personnel. As a percentage of net sales,
selling, general and administrative expenses declined in fiscal 1996 to 15.5%,
as compared to 20.3% in fiscal 1995, principally due to the 65.9% growth in net
sales.
Research and development costs in fiscal 1996 totaled $5,538,000 and increased
by $1,571,000 or 39.6% from fiscal 1995. The increase in R&D expenses primarily
resulted from spending on personnel and materials at both the Company's
principal R&D center in Middlefield, Connecticut, and its R&D facility in Simi
Valley, California, which was formed during the second half of fiscal 1995. As
a percentage of net sales, research and development costs were 10.4% and 12.3%
in fiscal 1996 and fiscal 1995, respectively.
In fiscal 1996, the Company had operating profit of $11,001,000 as compared to
$3,727,000 in fiscal 1995. Operating profit as a percentage of net sales in
fiscal 1996 improved to 20.6% from 11.6% in fiscal 1995. Interest income in
fiscal 1996 amounted to $939,000 and was $567,000 higher than in fiscal 1995.
This increase was primarily due to higher cash balances, principally as a
result of the sale by the Company of 845,000 shares of its common stock in a
secondary offering which generated approximately $22.7 million in net proceeds
to the Company.
Backlog at June 30, 1996, was $19,147,000 compared to $12,993,000 at June 30,
1995. The $6,154,000 or 47.4% increase in backlog was primarily a result of
stronger demand for all of the Company's electrooptical instruments and
accessories. The backlog of the Company's electro-optical instruments and
accessories at June 30, 1996, increased $5,321,000 (57.8%) from that at June 30,
1995. The backlog of the Company's precision custom optical components increased
by $833,000 (22.0%) from the year earlier as a result of improved demand for
precision optical components.
The Company reported net earnings and earnings per common and common equivalent
share of $7,931,000 and $1.53, respectively, in fiscal 1996 as compared to
$2,749,000 and $.65 per share in fiscal 1995. This was an increase in net
earnings and earnings per share of $5,182,000 (188.5%) and $.88 (135.4%),
respectively, over fiscal 1995.
Page 10
<PAGE>
Zygo Corporation and Consolidated Subsidiary
FISCAL 1995 COMPARED TO FISCAL 1994
Net sales of $32,233,000 in fiscal 1995 increased from fiscal 1994 net 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 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.
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. Additional administrative cost reductions reflected the
completion of the implementation of a Business Management Information System
and 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, focused on designing and developing production-oriented
test and measurement products for the data storage industry. 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
there. As a percentage of sales, research and development costs were 12.3% and
11.5% in fiscal 1995 and 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 a
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 electrooptical
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.
Page 11
<PAGE>
Zygo Corporation and Consolidated Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, working capital was $46,756,000, an increase of $29,684,000
from the amount at June 30, 1995, and the Company had cash and cash equivalents
of $17,945,000 and marketable securities amounting to $20,035,000 for a total of
$37,980,000. The $27,806,000 increase in cash and cash equivalents and
marketable securities from the amount at June 30, 1995 was due primarily to the
secondary offering of 1,300,000 shares of the Company's common stock, of which
845,000 shares were sold by the Company. This sale generated approximately
$22.7 million in net proceeds to the Company. Principally as a result of the
growth in the Company's net sales, trade receivables increased by $3,566,000,
and inventory increased by $1,391,000 from the amounts at June 30, 1995. The
receivables increase was due primarily to the significant growth in net sales
in the second half of fiscal 1996 which were $10,206,000 higher than the same
period in fiscal 1995, partially offset by aggressive collections within the
last half of the fiscal year. Inventory increased primarily due to necessary
inventory to support the growth in sales of the Company's electro-optical
instruments. Accounts payable and accrued expenses increased by $3,256,000 in
fiscal 1996 to $9,921,000, 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 $2,758,000 in
fiscal 1996 which was $1,127,000 more than the prior fiscal year. Capital
expenditures were principally for machinery and equipment for capacity additions
and productivity improvement in the optical manufacturing facility and personal
computers and other materials supporting the Company's research and development
activities. Additionally, on January 4, 1996, the Company purchased
approximately 22 acres of land adjacent to the Company's facility in
Middlefield, Connecticut, for a purchase price of $440,000. The land, which was
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. As of June 30, 1996, 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.
Stockholders' equity at June 30, 1996, increased by $31,091,000 from the year
earlier to $53,424,000 reflecting primarily net income of $7,931,000, and
increases in the Company's common stock and paid-in capital accounts resulting
from the Company's secondary stock offering.
Subsequent to the close of fiscal 1996 and effective August 8, 1996, the Company
acquired Technical Instrument Company ("TIC"), a privately held California based
entity that designs, manufactures, markets and sells microscope systems and
other precision optical instrument systems and components. The Company paid
approximately $11.7 million in cash and issued unregistered shares of its common
stock, $.10 par value, valued at $3.0 million in exchange for all the
outstanding capital stock of TIC. The transaction will be accounted for as a
purchase. TIC's revenues for the twelve months (pro forma unaudited) ended June
30, 1996 were approximately $11.1 million.
Additionally, effective September 12, 1996, the Company acquired NexStar
Automation, Incorporated ("NexStar"), a Canadian company that was publicly
traded on the Vancouver Stock Exchange. NexStar is engaged in the business of
designing, developing, and manufacturing automation and parts handling equipment
to improve production efficiency and manufacturing yields within the data
storage, semiconductor, and medical disposals markets. The Company acquired all
the outstanding stock and stock equivalents of NexStar in exchange for 250,000
shares of the Company's common stock. The transaction will be accounted for as a
pooling-of-interests. NexStar's revenues for the year ended December 31, 1995
were approximately $2.6 million.
Page 12
<PAGE>
Zygo Corporation and Consolidated Subsidiary
CONSOLIDATED BALANCE SHEETS
(Thousands, except share and per share amounts)
JUNE 30, June 30,
1996 1995
_______ _______
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 17,945 $ 2,428
Marketable securities (note 2) 20,035 7,746
Receivables:
Trade (note 11) 9,658 6,092
Other 284 204
_______ _______
Total receivables 9,942 6,296
_______ _______
Inventories:
Raw materials and manufactured parts 3,126 2,863
Work in process 3,430 2,281
Finished goods 478 499
_______ _______
Total inventories 7,034 5,643
_______ _______
Prepaid expenses and taxes 215 581
Deferred income taxes (note 9) 1,506 1,043
_______ _______
Total current assets 56,677 23,737
_______ _______
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land (note 11) 650 206
Building 4,352 4,300
Machinery, equipment and office furniture 11,907 11,984
Construction in progress 896 154
_______ _______
Gross property, plant and equipment 17,805 16,644
Less accumulated depreciation 11,436 11,381
_______ _______
Net property, plant and equipment 6,369 5,263
_______ _______
OTHER ASSETS, NET 991 666
_______ _______
TOTAL ASSETS $ 64,037 $ 29,666
_______ _______
_______ _______
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,581 $ 2,515
Customer progress payments 176 174
Accrued salaries and wages 2,621 1,957
Other accrued expenses 2,299 1,366
Income taxes payable 1,244 653
_______ _______
Total current liabilities 9,921 6,665
_______ _______
DEFERRED INCOME TAXES (note 9) 692 668
STOCKHOLDERS' EQUITY (notes 6, 7 and 8):
Common stock, $ .10 par value per share:
15,000,000 shares authorized; (10,000,000 in 1995)
4,918,986 shares issued (4,030,786 in 1995) 492 403
Additional paid-in capital 33,829 10,726
Retained earnings 19,439 11,508
Net unrealized loss on marketable securities (note 2) (35) (3)
_______ _______
53,725 22,634
Less treasury stock, at cost; 103,800 common shares 301 301
_______ _______
Total stockholders' equity 53,424 22,333
_______ _______
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 64,037 $ 29,666
_______ _______
_______ _______
See accompanying notes to consolidated financial statements.
Page 13
<PAGE>
Zygo Corporation and Consolidated Subsidiary
CONSOLIDATED STATEMENTS OF EARNINGS
(Thousands, except per share amounts)
Fiscal Year Ended June 30,
----------------------------
1996 1995 1994
________ _______ _______
NET SALES (notes 10 and 11) $ 53,478 $ 32,233 $ 24,141
Cost of goods sold 28,634 18,002 13,525
________ _______ _______
Gross profit 24,844 14,231 10,616
Selling, general and administrative expenses 8,305 6,537 6,675
Research and development 5,538 3,967 2,786
________ _______ _______
Operating profit 11,001 3,727 1,155
________ _______ _______
Other income (expense):
Interest income 939 372 338
Interest expense -- (40) (51)
Miscellaneous expense, net (279) (103) (114)
________ _______ _______
Total other income 660 229 173
________ _______ _______
Earnings before income taxes 11,661 3,956 1,328
Income tax expense (note 9) 3,730 1,207 410
________ _______ _______
NET EARNINGS $ 7,931 $ 2,749 $ 918
________ _______ _______
________ _______ _______
Earnings per common and common equivalent
share (note 7) $ 1.53 $ .65 $ .23
________ _______ _______
________ _______ _______
Weighted average common shares and common
dilutive equivalents outstanding (note 7) 5,189 4,242 3,987
________ _______ _______
________ _______ _______
See accompanying notes to consolidated financial statements.
Page 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, 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
and related tax effect -- 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
and related tax effect 3 242 -- -- -- 245
Stock split (note 7) 134 -- (134) -- -- --
-------- -------- -------- -------- --------- --------
Balance at June 30, 1995 403 10,726 11,508 (3) (301) 22,333
Net earnings -- -- 7,931 -- -- 7,931
Net unrealized loss on marketable
securities, net of related tax effect -- -- -- (32) -- (32)
Issuance of common stock (note 7) 85 22,607 -- -- -- 22,692
Exercise of employee stock options
and related tax effect 4 496 -- -- -- 500
-------- -------- -------- -------- --------- --------
BALANCE AT JUNE 30, 1996 $ 492 $ 33,829 $ 19,439 $ (35) $ (301) $ 53,424
-------- -------- -------- -------- --------- --------
-------- -------- -------- -------- --------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
Page 15
<PAGE>
Zygo Corporation and Consolidated Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
------------------------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net earnings $ 7,931 $ 2,749 $ 918
Adjustments to reconcile net earnings to cash provided by operating activities:
Depreciation and amortization 1,444 1,248 1,348
Deferred income taxes (67) (248) (427)
Loss on disposal of assets 266 251 205
Gain on sale of marketable securities (16) -- (49)
Intangible and other assets -- -- (29)
Changes in operating accounts:
Receivables (3,585) (2,220) 500
Inventories (1,391) (2,387) (204)
Prepaid expenses and taxes 366 (313) (99)
Accounts payable and accrued expenses 3,256 2,751 (633)
--------- -------- --------
Net cash provided by operating activities 8,204 1,831 1,530
--------- -------- --------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES:
Additions to property, plant and equipment (2,758) (1,631) (1,912)
Investment in marketable securities (16,986) (1,229) (4,725)
Investments in other assets (448) (39) --
Acquisition of business -- (100) --
Proceeds from the sale of marketable securities 999 -- 3,777
Proceeds from maturity of marketable securities 3,660 1,465 350
Proceeds from sale of assets 4 12 --
--------- -------- --------
Net cash used for investing activities (15,529) (1,522) (2,510)
--------- -------- --------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Repayments of long-term debt -- (656) (179)
Net proceeds from issuance of common stock 22,692 -- --
Exercise of employee stock options 150 245 8
--------- -------- --------
Net cash provided by (used for) financing activities 22,842 (411) (171)
--------- -------- --------
Net increase (decrease) in cash and cash equivalents 15,517 (102) (1,151)
Cash and cash equivalents, beginning of year 2,428 2,530 3,681
--------- -------- --------
Cash and cash equivalents, end of year $ 17,945 $ 2,428 $ 2,530
--------- -------- --------
--------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
Page 16
<PAGE>
Zygo Corporation and Consolidated Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995, AND 1994
NOTE 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. 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. All material
transactions and accounts with the subsidiaries have been eliminated from the
consolidated financial statements.
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, 1996, 1995, and 1994 were classified as available-for-sale
and recorded at fair value or held to maturity and recorded at cost. 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.
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. On April 1, 1996, the United
States Court of Appeals for the Federal Circuit rendered an Opinion Announcing
Judgment of the Court. The appellate court affirmed-in-part and reversed-in-part
the District Court's earlier findings and remanded the case to the District
Court for a redetermination of the damage award. The Company has not recorded
any gain from the District Court's earlier ruling and will not until a final
determination of the award is made.
STOCK SPLIT
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.
CAPITAL STOCK
The Company follows the practice of recording amounts received upon the exercise
of options by crediting common stock and additional capital. No charges are
reflected in the consolidated statements of operations as a result of the grant
or exercise of stock options which are granted at fair market value on the date
of grant. The Company realizes an income tax benefit from the exercise or early
disposition of certain stock options. This benefit results in a decrease in
current income taxes payable and an increase in additional capital.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts receivable, accounts payable, and accrued
expenses approximate fair value because of the short maturity of these items.
Page 17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed of
("Statement 121"), was issued in 1995. Statement 121 requires that long-lived
assets to be disposed of, certain identifiable intangibles, and goodwill to be
held and used by an entity be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Statement 121 is effective for the Company's fiscal year 1996. The
Company believes that the adoption of this accounting standard will not have a
material impact on its operating results or financial condition.
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("Statement 123"), was issued in 1995. Implementation is required
in the fiscal year commencing July 1, 1996. Statement 123 established financial
accounting and reporting standards for stock-based compensation plans. The
Company intends to adopt the disclosure requirements of Statement 123 and
continue to account for stock-based compensation under APB Opinion 25. The
implementation of this statement is expected to have no material effect on the
Company's consolidated financial statements.
NOTE 2: MARKETABLE SECURITIES
Marketable securities at June 30, 1996 consist primarily of taxexempt bonds
issued by various state and municipal agencies which are reported at fair value.
The unrealized loss on marketable securities of $58,724 (gross) is shown net of
its related tax effect of $24,151 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, 1996, 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, 1996
State and local
municipal bonds $11,098 $ -- $ 59 $11,039
------- ------- ------- -------
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
------- ------- ------- -------
The Company recorded gross realized gains on the maturity of investment
securities of $15,611 and $135 in 1996 and 1995, respectively. There were no
gross realized losses recorded in 1996, 1995, or 1994. Maturities of investment
securities classified as available-for-sale were as follows at June 30, 1996:
Fair
(Thousands of dollars) Cost Value
_______ _______
Due within one year $ 2,859 $ 2,859
Due after one year through five years 8,239 8,180
------- -------
$11,098 $11,039
======= =======
Maturities of investment securities classified as held-to-maturity were as
follows at June 30, 1996:
Fair
(Thousands of dollars) Cost Value
------- -------
Due within one year $ 8,996 $ 8,987
------- -------
Due after one year through five years -- --
_______ _______
$ 8,996 $ 8,987
======= =======
NOTE 3: BANK LINE OF CREDIT
The Company has a $3,000,000 unsecured bank line of credit with interest at
LIBOR plus 150 basis points (approximately 7.0% at June 30, 1996). The line of
credit is available through November 30, 1996. At June 30, 1996, and June 30,
1995, no amounts were outstanding under the bank line of credit.
NOTE 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 $0, $39,900, and $50,800 in fiscal 1996, 1995, and 1994,
respectively.
Page 18
<PAGE>
Zygo Corporation and Consolidated Subsidiary
NOTE 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, 1996, 1995, and 1994
amounted to $1,295,600, $440,000, and $147,500, 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, 1996, 1995, and 1994 amounted to $333,900, $255,000,
and $146,400, 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, 1996, 1995, and 1994.
NOTE 6: 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
November 1993, granting 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.
NOTE 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
had 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, which was
approved by the Company's stockholders at its annual meeting held on November
16, 1995. On December 13, 1995, the Company commenced a public offering of
1,300,000 shares of Common Stock, of which 845,000 shares were sold by the
Company, and 455,000 shares were sold by certain of the Company's stockholders.
The Company generated approximately $22.7 million in net proceeds, which is
expected to be used for working capital associated with expanded sales, research
and development and other general corporate purposes, and for potential
acquisitions (see note 12).
NOTE 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 nonqualified 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
Option Plan (the "Amended and Restated Non-Qualified Plan") was approved by the
Company's stockholders. 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, which was approved by the Company's stockholders at its annual
meeting held on November 16, 1995. At June 30, 1996, options to purchase 652,337
shares of Common Stock, at prices of $2.50 to $31.88 per share, were outstanding
under the Amended and Restated Non-Qualified Plan of which options to purchase
354,157 shares were exercisable. Options exercised during fiscal 1996, 1995, and
1994 were 43,200 shares at $2.50 to $8.50 per share; 38,250 shares at $2.50 to
$4.00 per share; and 2,588 shares at $2.83 to $3.83 per share, respectively. At
June 30, 1996, there were 488,470 Common Shares reserved for future issuance of
stock options under the Amended and Restated Non-Qualified Plan.
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 NonEmployee Director Stock Option Plan.
At June 30, 1996, options to purchase 225,000 shares of Common Stock, at a
price ranging from $4.00 to $54.75 per share, were outstanding under the
Non-Employee Director Stock Option Plan; 37,500 of which were exercisable.
Page 19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9: INCOME TAXES
The components of income tax expense (benefit) for each year are as follows:
Fiscal Year Ended June 30,
-------------------------------
(Thousands of dollars) 1996 1995 1994
------- ------- -------
Currently payable:
Federal $ 3,235 $ 1,036 $ 612
State 910 421 225
------- ------- -------
$ 4,145 $ 1,457 $ 837
------- ------- -------
------- ------- -------
Deferred:
Federal $ (319) $ (188) $ (290)
State (96) (62) (137)
------- ------- -------
$ (415) $ (250) $ (427)
------- ------- -------
------- ------- -------
Total income tax expense $ 3,730 $ 1,207 $ 410
------- ------- -------
------- ------- -------
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 $3,403,300 (including cash payments of $3,096,200
and $307,100 of prior year overpayments applied to fiscal 1996), $793,100 and
$1,185,000 (including additional taxes owed for fiscal 1991), in fiscal 1996,
1995, and 1994, 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) 1996 1995 1994
_______ ------- -------
Computed OexpectedO tax expense $ 3,965 $ 1,345 $ 451
Increases (reductions) in
taxes resulting from:
State taxes, net of federal
income tax benefit 537 237 57
Tax exempt interest income (245) (108) (96)
FSC benefit (543) (194) (85)
Adjustment of prior years' tax liabilities -- -- 75
Other, net 16 (73) 8
_______ ------- -------
$ 3,730 $ 1,207 $ 410
_______ ------- -------
_______ ------- -------
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, 1996 and
1995, are presented below:
June 30, June 30,
(Thousands of dollars) 1996 1995
_______ _______
Deferred tax assets:
Accounts receivable, principally due to the
allowance for doubtful accounts $ 110 $ 57
Warranty costs 246 103
Vacation costs 30 108
Medical insurance costs 123 123
Inventory valuation 969 581
Restricted stock and deferred compensation expense -- 49
Unrealized loss on marketable securities 24 2
Other 64 37
_______ _______
Deferred tax asset 1,566 1,060
Less valuation allowance -- --
_______ _______
Net deferred tax asset 1,566 1,060
Deferred tax liabilities:
Prepaid Expenses (60) (17)
Plant and equipment, principally due to
differences in depreciation expense (662) (644)
Other (30) (24)
_______ _______
Deferred tax liabilities (752) (685)
_______ _______
Net deferred tax asset $ 814 $ 375
_______ _______
_______ _______
The net current deferred tax assets and net noncurrent deferred tax liabilities
as recorded on the balance sheet as of June 30, 1996 and 1995, are as follows:
June 30, June 30,
(Thousands of dollars) 1996 1995
_______ _______
Net current deferred tax asset $ 1,506 $ 1,043
Net noncurrent deferred tax liability (692) (668)
_______ _______
Net deferred tax asset $ 814 $ 375
_______ _______
_______ _______
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 and recover taxes paid in the
carryback period. In addition, the Company has the ability to offset deferred
tax assets against deferred tax liabilities associated with such items as
depreciation and amortization.
Page 20
<PAGE>
Zygo Corporation and Consolidated Subsidiary
NOTE 10: PRODUCTS, PRINCIPAL CUSTOMERS,
AND OPERATIONS BY GEOGRAPHIC AREA
The Company designs, develops, manufactures, and markets precision measurement
and automation equipment and components used to enhance production yields in
high technology industries. 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, 1996, 1995 and 1994. (See
note 11.) In both the years ended June 30, 1996 and 1995, sales to a major
manufacturer of computer disk drives and related hardware and software
accounted for 17% of total company sales. 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) 1996 1995 1994
------- ------- -------
Far East:
Japan $19,763 $ 9,630 $ 7,586
Pacific Rim 4,377 3,279 2,129
------- ------- -------
Total Far East 24,140 12,909 9,715
Europe and other 2,667 2,072 1,332
------- ------- -------
Total $26,807 $14,981 $11,047
------- ------- -------
------- ------- -------
NOTE 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 $19,761,000, $9,553,000, and $7,740,000,
for the years ended June 30, 1996, 1995, and 1994, respectively. Sales included
revenue amounts of $340,000 relating to a fixed price research and development
contract in the year ended June 30, 1994, which was accounted for under the
cost-to-cost percentage of completion method.
Selling prices of products sold to Canon Inc. and Canon Sales Co., Inc. are
based, generally, on the normal terms given to distributors. At June 30, 1996,
1995, and 1994, there was approximately, in the aggregate, $3,198,100,
$1,104,700, and $746,540, respectively, of trade accounts receivable from Canon
Inc. and Canon Sales Co., Inc.
On January 4, 1996, the Company purchased approximately 22 acres of land
adjacent to the Company's facility in Middlefield, Connecticut, for a purchase
price of $440,000. The land, which was 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.
NOTE 12: SUBSEQUENT EVENTS
Effective August 8, 1996, the Company acquired Technical Instrument Company
("TIC"), a privately held California based entity that designs, manufactures,
markets and sells microscope systems and other precision optical instrument
systems and components. The Company paid approximately $11.7 million in cash
and issued unregistered shares of its common stock, $.10 par value, valued at
$3 million in exchange for all the outstanding capital stock of TIC. The
transaction will be accounted for as a purchase. TIC's revenues for the twelve
months (pro forma unaudited) ended June 30, 1996 were approximately $11.1
million.
Additionally, the Company is in the process of finalizing an agreement to
acquire NexStar Automation, Incorporated ("NexStar"), a Canadian company that
is publicly traded on the Vancouver Stock Exchange. NexStar is engaged in the
business of designing, developing, and manufacturing automation and parts
handling equipment to improve production efficiency and manufacturing yields
within the data storage, semiconductor, and medical disposals markets. The
Company will acquire all the outstanding stock and stock equivalents of NexStar
in exchange for 250,000 shares of the Company's common stock. The transaction
will be accounted for as a pooling-of-interests. NexStar's revenues for the year
ended December 31, 1995 were approximately $2.6 million.
Page 21
<PAGE>
Zygo Corporation and Consolidated Subsidiary
REPORT OF MANAGEMENT
Management is responsible for preparing the Company's financial statements and
related information that appear 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.
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, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 1996, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
- - ---------------------
Hartford, Connecticut
August 12, 1996
Page 22
<PAGE>
Zygo Corporation and Consolidated Subsidiary
PERCENTAGE OF CONSOLIDATED SALES
Fiscal Year Ended June 30,
---------------------------
1996 1995 1994
_____ _____ _____
Instruments, Systems and Accessories 87% 84% 78%
Precision Optical Components 13 16 22
_____ _____ _____
Total 100% 100% 100%
_____ _____ _____
_____ _____ _____
SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA
(Thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Fiscal Year Ended June 30, 1996
--------------------------------------------------------
September 30 December 31 March 31 June 30
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 11,341 $ 12,654 $ 14,349 $ 15,134
Earnings before income taxes $ 1,678 $ 2,504 $ 3,550 $ 3,929
Income tax expense 588 876 1,030 1,236
-------- -------- -------- --------
Net earnings $ 1,090 $ 1,628 $ 2,520 $ 2,693
-------- -------- -------- --------
-------- -------- -------- --------
Earnings per common and common equivalent share (1) $ .23 $ .33 $ .45 $ .48
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
<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) $ .04 $ .13 $ .21 $ .25
-------- -------- -------- --------
-------- -------- -------- --------
<FN>
(1) 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.
</TABLE>
Page 23
<PAGE>
Zygo Corporation and Consolidated Subsidiary
STOCK DATA
NASDAQ SYMBOL: ZIGO
The number of stockholders of record at June 30, 1996, was 474.
The Company's common shares are traded over-the-counter and are quoted on the
NASDAQ/National Market. Market price data for 1996 and 1995 were as follows:
Fiscal Year ended June 30, 1996 Fiscal Year ended June 30, 1995
------------------------------- -------------------------------
High Low High Low
-------- -------- -------- --------
First quarter $ 29 1/4 $ 20 2/3 $ 4 7/8 $ 3 3/4
Second quarter $ 35 1/2 $ 24 $ 5 3/8 $ 4 1/8
Third quarter $ 40 1/4 $ 20 1/2 $ 11 7/8 $ 4 5/8
Fourth quarter $ 62 1/8 $ 35 3/8 $ 24 1/8 $ 10 1/4
Source: National Association of Securities Dealers, Inc.
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 1996.
Written requests should be directed to:
Sheree F. Denny
Manager, Financial Planning
and Reporting
Zygo Corporation
Laurel Brook Road
Middlefield, Connecticut 06455
E-mail requests should be
directed to:
[email protected]
ANNUAL MEETING
November 14, 1996, at 10 a.m.
Hotel Inter-Continental
111 East 48th Street
(Lexington and Park)
New York, New York 10017
EXECUTIVE OFFICES
Laurel Brook Road
Middlefield, Connecticut 06455
AUDITORS
KPMG Peat Marwick LLP
City Place 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, the Zygo logo, and Maxim-3D
are registered trademarks of Zygo
Corporation. Maxim-GP,
NewView 100, Growth Potential Interferometer, GPI,
ZMI-1000, Pegasus 2000, and AAB System
are trademarks used by Zygo Corporation.
Page 24
<PAGE>
DIRECTORS AND OFFICERS
[Photograph - Upper Left]
Clockwise from upper left:
Robert McKelvey, Michael Corboy, Seymour Liebman, Paul Forman, Robert Taylor,
John Rockwell, Paul Murrill
Directors
MICHAEL R. CORBOY PAUL W. MURRILL
Chairman and Professional Engineer
President, Corboy
Investment Company JOHN R. ROCKWELL
Retired Senior Executive
PAUL F. FORMAN
Chairman of the Board ROBERT B. TAYLOR
Zygo Corporation Vice President and
Treasurer Wesleyan
SEYMOUR E. LIEBMAN University
Executive Vice President
and General Counsel
Canon U.S.A., Inc. GARY K. WILLIS
Zygo Corporation
ROBERT G. MCKELVEY
Chairman and President CARL A. ZANONI
George McKelvey Co., Inc. Zygo Corporation
[Photograph - Lower Left]
Clockwise from upper left:
Carl Zanoni, Mark Bonney, Gary Willis, Robert Smythe, William Bacon, Paul
Jacobs (Partner, Fulbright and Jaworski L.L.P.)
Officers
GARY K. WILLIS ROBERT A. SMYTHE
President and Vice President, Director
Chief Executive Officer of Sales and Marketing
WILLIAM H. BACON CARL A. ZANONI
Vice President, Director Vice President, Research,
of Corporate Quality Development and
Engineering
MARK J. BONNEY
Vice President, Finance PAUL JACOBS
and Administration, Secretary
Treasurer, and
Chief Financial Officer
Inside Back Cover
<PAGE>
ZYGO
Zygo Corporation
Laurel Brook Road
Middlefield, Connecticut 06455
Telephone: 860-347-8506
Fax: 860-347-8372
E-mail: [email protected]
Web Site: http://www.zygo.com
Design: Gene Mayer Associates, Inc. Milford, CT USA
Back Cover
<PAGE>
APPENDIX TO FORM FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED AND
EDGAR-FILED TEXTS:
(1) Boldface typeface is displayed with capital letters, italic typeface is
displayed in normal type.
(2) Because the printed page breaks are not reflected, certain tabular and
columnar headings and symbols are displayed differently in this filing.
(3) Bullet points and similar graphic signals are omitted.
(4) Page numbering has been omitted.
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
Technical Instrument Company (California)
100% owned by Registrant (effective as of August 8, 1996)
NexStar Corporation (Colorado)
100% owned by Registrant (effective as of September 12, 1996)
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 12, 1996, with respect to the
consolidated balance sheets of Zygo Corporation and consolidated subsidiary as
of June 30, 1996, and 1995 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, 1996, which reports appear in or are
incorporated by reference into the June 30, 1996 Annual Report on Form 10-K405
of Zygo Corporation.
KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Hartford, Connecticut
September 30, 1996
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, 1996, 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 part 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 day of 18th day of
July 1996.
/s/ Michael R. Corboy
------------------------
Michael R. Corboy
STATE OF TEXAS, COUNTY OF DALLAS ss.:
On the 18th day of July 1996, 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
============================
[Seal] EDITH JONES
MY COMMISSION EXPIRES
November 30, 1995
============================
<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,
1996, 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 part 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 day of 8th day of
July 1996.
/s/ Paul F. Forman
------------------------
Paul F. Forman
STATE OF CONNECTICUT, COUNTY OF NEW HAVEN ss.: MIDDLEFIELD
On the 8th day of July 1996, 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.
/s/ Alice H. Girardi
------------------------
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, Robert G. McKelvey, George McKelvey Co., Inc., 529
Washington Blvd., 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, 1996, 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 part 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 day of 8th day of
July 1996.
/s/ Robert G. McKelvey
------------------------
Robert G. McKelvey
STATE OF NEW JERSEY, COUNTY OF MONMOUTH ss.:
On the 8th day of July 1996, 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, 2001
<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,
1996, 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 part 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 day of 8th day of
July 1996.
/s/ Paul W. Murrill
------------------------
Paul W. Murrill
STATE OF LOUISIANA, PARISH OF E. BATON ROUGE ss.:
On the 8th day of July 1996, 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.
/s/ Sharon M. Taylor
------------------------
Notary Public
Sharon M. Taylor
<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, John R. Rockwell, Harbour Ridge, 12790 Mariner Court,
Palm City, Florida 34990, 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, 1996, 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 part 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 day of 11th day of
July 1996.
/s/ John R. Rockwell
------------------------
John R. Rockwell
STATE OF MAINE, COUNTY OF YORK ss.:
On the 11th day of July 1996, before me personally came John R. Rockwell 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/ Jill K. Schmidt
------------------------
Notary Public
exp. 10/25/02
<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, 1996, 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 part 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 day of 15th day of
July 1996.
/s/ Robert B. Taylor
------------------------
Robert B. Taylor
STATE OF CONNECTICUT, COUNTY OF MIDDLESEX ss.:
On the 15th day of July 1996, 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, 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, 1996, 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 part 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 day of 29th day of
July 1996.
/s/ Seymour E. Liebman
------------------------
Seymour E. Liebman
STATE OF NEW YORK, COUNTY OF NASSAU ss.:
On the 29th day of July 1996, 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/ William J. McMorris
------------------------
Notary Public
WILLIAM J. McMORRIS
Notary Public, State of New York
No. 31-4930757
Commission Expires April 18, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and the consolidated statement of earnings and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 17,945
<SECURITIES> 20,035
<RECEIVABLES> 9,925
<ALLOWANCES> 267
<INVENTORY> 7,034
<CURRENT-ASSETS> 56,677
<PP&E> 17,805
<DEPRECIATION> 11,436
<TOTAL-ASSETS> 64,037
<CURRENT-LIABILITIES> 9,921
<BONDS> 0
0
0
<COMMON> 492
<OTHER-SE> 52,932
<TOTAL-LIABILITY-AND-EQUITY> 64,037
<SALES> 53,478
<TOTAL-REVENUES> 53,478
<CGS> 28,634
<TOTAL-COSTS> 42,477
<OTHER-EXPENSES> 358
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 11,661
<INCOME-TAX> 3,730
<INCOME-CONTINUING> 7,931
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,931
<EPS-PRIMARY> 1.53
<EPS-DILUTED> 1.53
</TABLE>
