<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- -----------------------------------------------------------------
FORM 10-Q
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 28, 1997, or
/ / Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
-------- --------
-----------------------------
Commission File Number 1-7744
-----------------------------
PACIFIC SCIENTIFIC COMPANY
(Exact name of Registrant as specified in its charter)
94-0744970
(IRS Employer ID Number)
CALIFORNIA
(State or other jurisdiction of incorporation or organization)
620 Newport Center Drive, Suite 700
Newport Beach, California
(Address of principal executive offices)
92660
(Zip Code)
714/720-1714
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, address and fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(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 / /
Shares outstanding of the Registrant's common stock
as of March 28, 1997
12,220,000
CLASS
Common Stock, $1.00 par value
- -----------------------------------------------------------------
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PACIFIC SCIENTIFIC COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands)
- -----------------------------------------------------------------
MARCH 28, DECEMBER 27,
1997 1996
------------ ------------
(unaudited)
ASSETS
- ------
CURRENT ASSETS:
Cash .............................. $ 1,753 $ 2,986
Trade receivables (less allowance
for doubtful accounts of $1,095
and $1,063, respectively) ....... 52,427 52,971
Inventories, lower of cost
(principally average) or market:
Finished goods .................. 7,357 7,599
Work-in-progress ................ 17,265 16,658
Raw materials and purchased parts 27,590 25,125
Deferred income taxes ............. 9,986 7,023
Net assets held for disposition . 477 9,856
Other current assets ............ 1,736 1,081
------------ ------------
Total Current Assets .......... 118,591 123,299
------------ ------------
PROPERTY, AT COST:
Land and buildings ................ 18,088 13,503
Machinery and equipment ........... 101,934 103,835
------------ ------------
Total Property .................. 120,022 117,338
Less accumulated depreciation ..... 69,220 67,931
------------ ------------
Net Property .................... 50,802 49,407
------------ ------------
RESTRICTED CASH ..................... 6,184 6,171
NOTE RECEIVABLE ..................... 844 844
NOTES, PATENTS AND OTHER ............ 9,232 9,253
EXCESS OF COST OVER NET ASSETS ACQUIRED 37,582 38,354
------------ ------------
TOTAL ASSETS ...................... $223,235 $227,328
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable .................. $20,806 $18,318
Accrued employee
compensation & benefits ......... 4,705 5,406
Reserve for discontinued
Solium operation ................ 9,814 0
Other current liabilities ......... 3,683 8,061
------------ ------------
Total Current Liabilities ....... 39,008 31,785
------------ ------------
BANK BORROWING ...................... 59,537 60,509
CONVERTIBLE SUBORDINATED DEBENTURES . 16,974 16,974
INDUSTRIAL DEVELOPMENT BONDS ........ 5,625 5,625
OTHER LONG-TERM LIABILITIES ......... 6,158 5,625
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock, $1 par value ........ 12,220 12,195
Additional paid-in-capital ........ 4,560 4,394
Currency translation adjustment ... (150) (282)
Retained earnings ................. 79,303 90,503
------------ ------------
Total Stockholders' Equity ...... 95,933 106,810
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY .............. $223,235 $227,328
============ ============
- -------------------------------------------------------------------
The accompanying notes to consolidated financial statements are an
integral part of this statement.
- 2 -
<PAGE>
PART I (Continued)
ITEM 1. FINANCIAL STATEMENTS
PACIFIC SCIENTIFIC COMPANY
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(in thousands, except per share amounts)
- -------------------------------------------------------------------
QUARTER ENDED
-----------------------
MARCH 28, MARCH 29,
1997 1996
CONTINUING OPERATIONS --------- ---------
- ---------------------
SALES:
Electrical Equipment ................... $56,548 $55,126
Safety Equipment........................ 15,916 18,916
--------- ---------
Total Sales .......................... 72,464 74,042
COST OF SALES ............................ 49,286 49,924
--------- ---------
Gross Profit ........................... 23,178 24,118
--------- ---------
EXPENSES:
Selling and marketing .................. 7,644 7,880
General and administration ............. 7,618 6,915
Research and development ............... 3,257 3,517
--------- ---------
Total Expenses ....................... 18,519 18,312
--------- ---------
OPERATING INCOME ....................... 4,659 5,806
INTEREST AND OTHER (Net) ................. (539) (814)
--------- ---------
INCOME BEFORE INCOME TAX PROVISION ..... 4,120 4,992
INCOME TAX PROVISION ..................... (1,402) (1,897)
--------- ---------
INCOME FROM CONTINUING OPERATIONS ...... 2,718 3,095
--------- ---------
DISCONTINUED OPERATIONS
- -----------------------
LOSS FROM OPERATIONS OF
DISCONTINUED SOLIUM SUBSIDIARY
(Less Income Tax Benefit of $974
and $738 for 1997 and 1996, respectively) (1,523) (1,204)
LOSS ON DISPOSAL OF SOLIUM SUBSIDIARY
(Less Income Tax Benefit of $7,363) .... (12,040) 0
--------- ---------
LOSS FROM DISCONTINUED OPERATIONS ...... (13,563) (1,204)
NET (LOSS) INCOME ........................ ($10,845) $1,891
========= =========
EARNINGS PER SHARE
- ------------------
Continuing Operations .................. $0.22 $0.25
Discontinued Operations ................ (1.10) (0.10)
--------- ---------
Total .............................. ($0.88) $0.15
========= =========
COMMON AND EQUIVALENT SHARES OUTSTANDING 12,389,000 12,589,000
CASH DIVIDENDS PER COMMON SHARE .......... $0.03 $0.03
========= =========
- -------------------------------------------------------------------
The accompanying notes to consolidated financial statements are an
integral part of this statement.
- 3 -
<PAGE>
PART I (Continued)
ITEM 1. FINANCIAL STATEMENTS
PACIFIC SCIENTIFIC COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
- -------------------------------------------------------------------
THREE MONTHS ENDED
------------------------------
MARCH 28, MARCH 29,
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income .................... ($10,845) $ 1,891
Adjustments to reconcile net income to
net cash provided (used) by continuing
operations:
Depreciation and amortization ...... 3,084 2,555
Gain on disposal of equipment ...... 47 71
Deferred income taxes ................ (2,963) 0
Changes in assets and liabilities:
Receivables ........................ 544 (1,736)
Inventories ........................ (2,830) (982)
Net assets held for disposition .... 9,379 0
Other assets ....................... 125 1,487
Accounts payable and
accrued liabilities .............. 1,786 (906)
Reserve for disposal of
discontinued operations ............ 9,814 0
Other liabilities .................. (3,845) (3,737)
----------- -----------
Net cash provided (used)
by operating activities ............ 4,295 (1,357)
----------- -----------
- ------------------------------------------------------------------
Net cash provided (used)
by continuing operations ............. 5,570 (232)
Net cash provided (used)
by discontinued operations ....... ... (1,274) (1,125)
- ------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of plant and equipment ..... (4,515) (5,983)
Decrease in short-term investments ... 0 (1,443)
----------- -----------
Net cash used by
investing activities ............... (4,515) (7,426)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of short-term
borrowings and debt ................ 0 5,127
Repayment of long-term
borrowings and debt ................ (972) (532)
Cash dividends on common stock ....... (366) (364)
Issuances of common stock ............ 192 963
----------- -----------
Net cash provided (used)
by financing activities ............ (1,146) 5,194
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ........ 132 (52)
----------- -----------
NET DECREASE IN CASH ................... (1,233) (3,641)
CASH AND CASH EQUIVALENTS,
Beginning of Period .................... 2,986 6,123
----------- -----------
CASH AND CASH EQUIVALENTS,
End of Period .......................... $ 1,753 $ 2,482
=========== ==========
- ------------------------------------------------------------------
The accompanying notes to consolidated financial statements are an
integral part of this statement.
- 4 -
<PAGE>
PART I (Continued)
ITEM 1. FINANCIAL STATEMENTS (Continued)
PACIFIC SCIENTIFIC COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) INTERIM ACCOUNTING POLICY
The unaudited interim condensed consolidated financial statements
presented herein have been prepared in accordance with the
instructions to Form 10-Q and do not include all of the information
and note disclosures required by generally accepted accounting
principles. In the opinion of management, these condensed
consolidated financial statements contain all adjustments
(consisting of normal recurring accruals) necessary to present
fairly the Company's consolidated financial position, results of
operations and cash flows. These interim condensed consolidated
financial statements should be read in conjunction with the
disclosures contained herein and with the consolidated financial
statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 27, 1996.
2) DISCONTINUED OPERATION
On April 9, 1997, the Company announced that it will seek a
strategic buyer for its Solium technology and equipment, and phase-
out of the Solium subsidiary. The Solium subsidiary has been
accounted for in the financial statements presented herein as a
discontinued operation in accordance with APB 30, which among other
provisions, expects the plan of disposal to be carried out within
one year. The details concerning the discontinuance are provided
in the Form 8-K report filed on April 21, 1997, and incorporated
herein by reference.
3) EARNINGS PER SHARE
Earnings per common and common equivalent share were computed by
dividing net income by the weighted average number of common and
common equivalent shares outstanding during each period. Common
equivalent shares consist of the estimated number of shares
issuable upon exercise of dilutive stock options reduced by the
number of common shares assumed to have been reacquired with the
proceeds from exercise of the options.
- 5 -
<PAGE>
PART I (Continued)
ITEM 1. FINANCIAL STATEMENTS (Continued)
PACIFIC SCIENTIFIC COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3) EARNINGS PER SHARE (Continued)
For the Three Months Ended
--------------------------
MARCH 28, MARCH 29,
PRIMARY 1997 1996
- ------- --------- ----------
AVERAGE NUMBER OF SHARES OUTSTANDING 12,205,000 12,110,000
AVERAGE NUMBER OF SHARES
ASSUMING EXERCISE OF DILUTIVE
EMPLOYEE STOCK OPTIONS 184,000 479,000
COMMON AND COMMON EQUIVALENT SHARES 12,389,000 12,589,000
- -------------------------------------------------------------------
FULLY DILUTED
- -------------
AVERAGE NUMBER OF SHARES OUTSTANDING 12,205,000 12,110,000
AVERAGE NUMBER OF SHARES
ASSUMING EXERCISE OF DILUTIVE
EMPLOYEE STOCK OPTIONS 184,000 447,000
COMMON AND COMMON EQUIVALENT SHARES 12,389,000 12,557,000
- -------------------------------------------------------------------
NOTES:
- ------
1) The Company has outstanding convertible subordinated
debentures issued April 26, 1983. Inclusion of these debentures
would be antidilutive and, accordingly, they have been excluded
from the above totals for the periods.
2) The Company will adopt FASB 128, Earnings Per Share, as
required, after December 15, 1997. Had the Company adopted FASB
128 during the first quarter of 1997, there would have been no
material change in earnings per share.
4) RECLASSIFICATIONS
The 1996 financial statements have been reclassified to reflect the
decision to discontinue the Solium subsidiary and to conform to the
1997 financial statement presentation.
- 6 -
<PAGE>
PART I (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FIRST QUARTER 1997 vs. FIRST QUARTER 1996
Continuing Operations
- ---------------------
Net sales from continuing operations were $72,464,000 in the first
quarter of 1997, a 2% or $1,578,000 decline in sales from the same
period in the prior year. First quarter sales in the Electrical
Equipment segment were $56,548,000, a 3% or $1,422,000 increase
over the same period of the prior year. The sales from the Safety
Equipment segment were $15,916,000, a 16% or $3,000,000 decrease
compared to the same period of the prior year.
Gross margin on sales decreased $940,000 to 32.0% of sales in the
first quarter of 1997 from 32.6% in the prior year. The lower
gross margin was the result of product mix and lower sales.
Sales and marketing expenses increased as a percent of sales to
10.9% in the first quarter of 1997, as compared to 10.6% in the
same period of the prior year. This increase of 0.3% is due to
fixed marketing expense being allocated over a smaller sales base.
General and administration expenses were 10.5% of sales in the
first quarter of 1997, compared to 9.3% of sales in the prior year.
Expenses were higher in the first quarter of 1997 due to expenses
of the new management information system. Also included in the
first quarter of 1997 expenses was a charge of $264,000 to retire
$5.6 million of industrial revenue bonds, representing a write-off
of the remaining unamortized expenses involved in the issuance of
the bonds.
Research and development expenses were equal to 4.5% of sales in
the first quarter of 1997, as compared to 4.8% in the prior year
period. This level of expense reflects a continued emphasis on new
product development. R&D expenses for the Electrical Equipment
segment were 5.1% of sales and 2.0% for the Safety Equipment
segment.
Interest and other (net) decreased $275,000 in the current quarter
compared to the first quarter of 1997, due primarily to $508,000
allocated to the discontinued Solium operation, as compared to
$265,000 in the prior year period. The increase in interest
allocated to Solium was based on higher intercompany debt at
Solium, as compared to prior year. The average rate of interest
paid on the bank debt during the first quarter of 1997 was 5.9%,
compared to 6.1% in 1996.
Income before taxes decreased $872,000 from the prior year period,
primarily due to lower sales of the Safety Equipment segment and
lower gross margins in the Electrical Equipment segment due to the
product mix.
The effective blended tax rate for the total of continuing and
discontinued operations in the first quarter of 1997 was 39% as
compared to 38% in the same quarter of 1996. For continuing
operations, the tax rate in the first quarter was 34%, due to
allocating the recapture of certain tax credits to discontinued
operations. The tax credits were related to capital equipment
investments in the Solium subsidiary. The effective tax rate for
the entire year of 1997 is expected to be 39%.
Net income per share for the first quarter of 1997 was 22 cents as
compared to 25 cents in the prior year. The adjusted weighted-
average shares for the first quarter of 1997 were 12,389,000 as
compared to 12,589,000 in the prior year period. The difference is
incremental shares resulting mainly from stock options that were
"in the money" in 1996, due to the higher average stock price in
the first quarter of 1996 as compared to 1997. The increase in
shares outstanding, from 12,146,000 as of March 29, 1996 to
12,200,000 as of March 27, 1997, is the result of the exercise of
stock options.
- 7 -
<PAGE>
PART I (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FIRST QUARTER 1997 vs. FIRST QUARTER 1996 (Continued)
Total orders received in the first quarter of 1997 were
$81,048,000, up 14% from the prior year period, and the backlog at
the end of the quarter was $104,750,000. Orders for the Electrical
Equipment segment during the first quarter totaled $60,459,000,
down 2%, while orders for the Safety Equipment segment totaled
$20,589,000, up 30% as compared to the same quarter of the prior
year.
Discontinued Operations
- -----------------------
On April 9, 1997, the Company announced that it will seek a
strategic buyer for its Solium technology and equipment, and phase
out the Solium subsidiary. As a result, the Company is reporting
a charge of $12,040,000, net of taxes, on the disposal of Solium
and Solium has been reclassified as a discontinued operation. The
decision was made after the Company concluded that it does not have
the market and industry position to achieve sufficient success in
the near term.
In light of the reclassification, the first quarter of 1997 and
prior corresponding period have been restated to separately present
continuing operations, Solium's past operations and the
discontinuance charge. Solium operations in the first quarter 1997
incurred an after tax loss of $1,523,000 compared with a loss from
Solium operations of $1,204,000 in the first quarter of 1996.
The Solium subsidiary has been accounted for as a discontinued
operation in accordance with APB 30, which among other provisions,
expects the plan of disposal to be carried out within one year. As
of the date of this filing, no negotiations are underway which
would result in transferring the Solium product line to another
company. The outcome of any negotiations concerning the
disposition of Solium and the specific date for such disposition
cannot be determined at this time.
Loss From Discontinuance of Solium Subsidiary: The loss from the
discontinuance of the Solium subsidiary is summarized as follows:
Estimated loss on disposal of net assets ............ $12,919,000
Estimated operating loss through
the expected date of disposal ..................... 6,484,000
Income tax benefit .................................. (7,363,000)
------------
Estimated loss on disposal ........................ $12,040,000
Operations Of The Discontinued Solium Subsidiary: The operating
results of the discontinued Solium subsidiary are summarized as
follows:
THREE MONTHS ENDED
--------------------------------
March 28, 1997 March 29, 1996
-------------- --------------
Sales ........................ $315,000 $652,000
Loss before income taxes ..... (2,497,000) (1,942,000)
Income tax benefit ........... 974,000 738,000
Net Income ................. ($1,523,000) ($1,204,000)
The ultimate financial impact of the disposal of the Solium
subsidiary could differ from management's estimate.
- 8 -
<PAGE>
PART I (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL POSITION AND LIQUIDITY
Debt less cash and restricted cash was $74,199,000 at the end of
the first three months in 1997 as compared to $53,079,000 in the
same period of the prior year. The main reason for the increased
debt was the cash required for fixed assets purchases, working
capital and operational losses at Solium.
Net cash flow provided by operating activities was $4,296,000 in
the first three months of 1997 as compared to $1,357,000 used in
the same period of the prior year. The total effect on "net cash
provided by operating activities," due to the operations and
discontinuance of Solium in the first quarter of 1997, was as
follows:
Loss from discontinued operations .............. (1,523,000)
Loss on disposal of discontinued operations .... (12,040,000)
Deferred income tax ............................ (2,963,000)
Net assets held for sale ....................... 9,379,000
Reserve for disposal of discontinued operations 9,814,000
------------
Total ........................................ 2,667,000
Depreciation and amortization increased due to additional assets
placed in service during the first quarter of 1997. Receivables
decreased during the quarter, resulting in a source of cash.
Inventories increased within the Safety Equipment segment due to a
customer request to temporarily delay shipments and preparation for
an increase in the shipping rate at the start of the second
quarter. Purchase of plant and equipment totaled $4,515,000 in the
first quarter of 1997 as compared to $5,983,000 in the prior year.
During the first quarter of 1997, debt was reduced by $972,000 and
cash declined by $1,233,000.
The Company's working capital was $83,584,000 on March 28, 1997 for
a current ratio of 3.4:1.
As of March 27, 1997, the Company had approximately $9,000,000 of
outstanding foreign exchange contracts in which foreign currencies
could be sold. These contracts serve to hedge foreign currency
exposures.
At the end of the first quarter of 1997, the Company had unused
lines of credit of $8,000,000.
The cash to be expended in the discontinuance of the Solium
subsidiary is not expected to adversely affect the Company's
ability to finance operations and fund planned capital
expenditures. Additionally, the Company believes that internally
generated funds plus the existing lines of credit will meet all
cash requirements foreseeable at this time.
This report contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Act of 1934, as amended. The Company
intends that such statements shall be protected by the safe harbors
provided for in such sections.
Such statements are subject to risks and uncertainties that could
cause actual results to vary materially from those projected in the
forward-looking statements. The Company may experience significant
fluctuations in future operating results due to a number of
economic, competitive and other factors, including, among other
things, the size and timing of customer orders, changes in laws,
new or increased competition, delays in new products, changes in
market demand, market acceptance of new products, seasonality in
product purchasers, changes in foreign exchange rates and others.
- 9 -
<PAGE>
PART I (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL POSITION AND LIQUIDITY (Continued)
These factors and others, including the outcome of the legal
proceedings discussed in Part II, Item 1 of this report, could
cause operating results to vary significantly from those in prior
periods, and those projected in forward-looking statements.
Additional information with respect to these and other factors that
could materially affect the Company and its operations are included
in the Company's filings with the Securities and Exchange
Commission and are incorporated herein.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a co-defendant, with certain of its past and present
officers, in actions filed in October 1996 in the United States
District Court for the Central District of California by certain
shareholders of the Company's common stock and an individual who
purchased the Company's 7-3/4% convertible subordinated debentures,
due 2003. A motion for class certification has been granted in
both complaints and the cases have been consolidated. The Company
and its past and present officers are also co-defendants in an
action filed in December 1996 in Orange County Superior Court by
prior shareholders of Met One, Inc. All the complaints allege that
the Company made false and misleading statements regarding the
Company and its Solium subsidiary. In addition, the Superior Court
action includes allegations concerning the Company's HYT
subsidiary. These actions, in aggregate, seek compensatory damages
of approximately $98 million plus legal fees. The Superior Court
action also seeks punitive damages plus rescission of the sale of
Met One as remedies. The Company believes the allegations made are
without merit and, in any event, the purported damages are greatly
overstated. The Company intends to vigorously pursue its defense,
and it has submitted claims to its insurers in connection with the
defense of these lawsuits. The management, at this time, is not
able to determine the eventual disposition of these matters.
However, in all matters of litigation, an unfavorable outcome could
have an adverse effect on the Company's consolidated results of
operations in the period in which that matter is resolved.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 1997 Annual Meeting of Stockholders was held on April
16, 1997, for the purpose of electing a Board of Directors of six
members for the ensuing year and ratify the selection of Deloitte
& Touche LLP as the Company's independent public accountants for
1997. The meeting was attended by approximately 88% of the
stockholders in person or by proxy. The results of the stockholder
vote were as follows:
NOMINEE VOTES FOR WITHHELD
------- --------- --------
Walter F. Beran 10,067,707 622,333
Ralph O. Briscoe .......... 10,101,277 ........ 588,763
Lester Hill ............... 10,123,017 ........ 567,023
Ralph D. Ketchum .......... 10,073,092 ........ 616,948
William A. Preston ........ 10,108,569 ........ 581,471
Millard H. Pryor, Jr. ..... 10,077,112 ........ 612,928
- 10 -
<PAGE>
PART II - OTHER INFORMATION (Continued)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS (Continued)
The ratification of Deloitte & Touche LLP as public accountants for
1997 was approved with 10,608,841 affirmative votes, 53,593 votes
against and 27,606 abstained and unvoted votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
- ---------------
10.1 Employment Agreement with Lester Hill
10.2 Stock Option Agreement with Lester Hill
10.3 Deferred Contribution Plan Agreement with Lester Hill
(b) Reports on Form 8-K
- -------------------------
A report on Form 8-K, dated April 9, 1997, disclosing the Company's
announcement regarding Solium was filed with the Securities and
Exchange Commission on April 21, 1997.
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
PACIFIC SCIENTIFIC COMPANY, Registrant
By: /s/ Richard V. Plat Date: May 9, 1997
------------------------------- -----------------
Richard V. Plat
Executive Vice President
and Secretary
EXHIBITS
- --------
10.1 Employment Agreement with Lester Hill
10.2 Stock Option Agreement with Lester Hill
10.3 Deferred Contribution Plan Agreement with Lester Hill
- 11 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE FIRST QUARTER ENDED MARCH 28,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000075608
<NAME> PACIFIC SCIENTIFIC COMPANY
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-27-1996
<PERIOD-START> DEC-28-1996
<PERIOD-END> MAR-28-1997
<EXCHANGE-RATE> 1.00
<CASH> 1,753,000
<SECURITIES> 0
<RECEIVABLES> 53,522,000
<ALLOWANCES> (1,095,000)
<INVENTORY> 52,212,000
<CURRENT-ASSETS> 118,591,000
<PP&E> 120,022,000
<DEPRECIATION> 69,220,000
<TOTAL-ASSETS> 223,235,000
<CURRENT-LIABILITIES> 35,007,000
<BONDS> 82,136,000
0
0
<COMMON> 12,220,000
<OTHER-SE> 83,713,000
<TOTAL-LIABILITY-AND-EQUITY> 223,235,000
<SALES> 72,464,000
<TOTAL-REVENUES> 72,464,000
<CGS> 49,286,000
<TOTAL-COSTS> 18,519,000
<OTHER-EXPENSES> 539,000
<LOSS-PROVISION> 107,000
<INTEREST-EXPENSE> 799,000
<INCOME-PRETAX> 4,120,000
<INCOME-TAX> 1,402,000
<INCOME-CONTINUING> 2,718,000
<DISCONTINUED> (13,563,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,845,000)
<EPS-PRIMARY> (0.88)
<EPS-DILUTED> (0.88)
</TABLE>
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
WITH
LESTER HILL
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is effective as
of the 17th day of February, 1997, between PACIFIC SCIENTIFIC
COMPANY, a California corporation (the "Company"), and LESTER
"BUCK" HILL (the "Executive").
In consideration of the promises and covenants set forth
below, the parties hereto agree as follows:
1. Employment.
The Company hereby agrees to employ Executive, and
Executive hereby agrees to accept such employment with the
Company, on the terms and conditions set forth herein.
2. Term.
The employment of Executive by the Company as provided
in this Agreement will commence on February 17, 1997 (the "Start
Date"), and end on December 31, 2000, unless further extended or
sooner terminated as hereinafter provided. On January 1, 2000,
and on January 1 of each year thereafter (each an "Extension
Date"), the term of Executive's employment hereunder shall
automatically be extended for one additional year unless, prior
to such Extension Date, either party delivers written notice to
the other party that the term of Executive's employment hereunder
will not be extended or that Executive's employment is otherwise
terminated pursuant to the terms of this Agreement.
3. Position and Duties.
Executive shall serve as Chairman of the Board,
President and Chief Executive Officer of the Company, or such
other position or positions as may be agreed upon by Executive
and the Board of Directors. Executive shall at all times perform
his duties and obligations faithfully and diligently and shall
devote all his business time, attention and efforts exclusively
to the business of the Company. Executive shall industriously
perform his duties under the supervision of and report to the
Board of Directors of the Company and shall accept and comply
with all directions from and all policies established from time
to time by the Board of Directors of the Company.
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Executive's primary duties shall include, without limitation,
responsibility for the day-to-day management of the Company and
such other duties as may from time to time be prescribed by the
Board of Directors of the Company. Executive shall promote the
trade and business of the Company to the best of his ability and
shall adhere to the Company's policies and procedures applicable
to the Company's employees generally.
Executive shall not directly or indirectly render any
services of a business, commercial or professional nature to any
other person, entity or organization, whether for compensation or
otherwise, without the prior consent of the Company's Board of
Directors; provided, however, that the foregoing shall not
preclude Executive from (i) serving on boards of trade
associations and/or charitable organizations (subject to
reasonable approval of the Board of Directors of the Company),
(ii) continuing to serve on the Board of Directors of Metrologic
Instruments, Inc. and on the Board of Advisors for Femtometrics,
Inc. (as long as such corporations do not compete with the
Company) and (iii) engaging in charitable activities and
community affairs, provided that such activities and
directorships do not interfere with the proper performance of
Executive's duties and responsibilities hereunder.
4. Place of Performance.
In connection with Executive's employment by the
Company and except for required travel on Company business,
Executive shall be based at the principal executive offices of
the Company, currently based in Newport Beach, California.
5. Compensation and Related Matters.
(a) Salary. During the term of Executive's
employment hereunder, the Company shall pay to Executive a salary
of $325,000 per annum, subject to increase (but not decrease) in
the sole discretion of Board of Directors based on performance
and salary reviews of Executive in accordance with Company
policy. Such salary shall be paid in equal semi-monthly
installments (or such shorter intervals as the Company may elect)
and shall accrue from day to day. Executive's salary shall be
subject to annual review by the Company's Board of Directors or
its Compensation Committee.
(b) Performance Bonus. During the term of
Executive's employment hereunder, Executive shall be eligible
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for an annual bonus (which bonus may be pursuant to the Company's
Management Incentive Plan) based on Executive's performance,
which bonus shall be payable within ninety days after the end of
each Company fiscal year. The amount of such bonus, if any,
shall be determined by the Board of Directors by evaluating
Executive's performance against certain goals and objectives
(whether quantifiable, subjective or both) established by the
Board of Directors after consultation with Executive prior to the
end of the first quarter of each fiscal year, except that for the
1997 fiscal year, the goals and objectives are to be established
by mutual agreement prior to the end of the second quarter of
1997. The full "target" amount of such bonus for accomplishing
the goals and objectives shall be 75% of Executive's then current
base salary as set forth in Section 5(a).
(c) Vacations. During the term of Executive's
employment hereunder, Executive shall be entitled to four weeks
of vacation in each calendar year, and to compensation with
respect to earned but unused vacation days determined in
accordance with the Company's vacation policy.
(d) Expenses. During the term of Executive's
employment hereunder, Executive shall be entitled to receive
reimbursement for all reasonable out-of-pocket travel and other
expenses (excluding ordinary commuting expenses) incurred by
Executive in performing Executive's services hereunder, provided
that:
(i) Each such expenditure is of a nature quali-
fying it as a proper business expenditure of the Company and is
approved by the Company; and
(ii) Executive furnishes to the Company adequate
documentary evidence for the substantiation of such expenditures
and Executive otherwise complies with Company policies with
respect to expense reimbursement.
(e) Stock Option. Executive acknowledges that, as
additional compensation for Executive's employment hereunder,
Executive will be granted a nonstatutory stock option (the "Stock
Option") to acquire 250,000 of the Company's common stock
pursuant to the Stock Option Agreement attached hereto as Exhibit
A. Executive's right to exercise the Stock Option shall be
governed by the terms of the Stock Option Agreement.
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On or before June 1, 1997, the Company shall (i) file
with the Securities and Exchange Commission a Registration
Statement on Form S-8 for the purpose of registering under the
Securities Act in 1933 the shares of common stock underlying the
Stock Option, and (b) file with the New York Stock Exchange, Inc.
a Supplemental Listing Application for the purpose of listing the
shares of common stock subject to the Stock Option on the New
York Stock Exchange.
Executive may, from time to time, be eligible to
receive additional options as determined in the sole discretion
of the Company's Board of Directors and the Compensation
Committee of the Board of Directors.
(f) Medical Insurance and Other Benefits. During the
term of Executive's employment hereunder, Executive will be
entitled to participate in any medical, dental and disability
insurance plans, life insurance plans, retirement plans and other
employee welfare and benefit plans or programs made available to
the Company's senior-level executives or its employees generally,
as such plans and programs may be in effect from time to time.
(g) Retirement Plan. During the term of Executive's
employment hereunder, Executive will be entitled to participate
in a non-qualified defined contribution plan established by the
Company and described on Exhibit B hereto.
(h) Automobile Allowance. During Executive's
employment hereunder, the Company shall pay to Executive an
automobile allowance of $1,100 per month.
6. Termination.
(a) Agreement Terminable at Will. Notwithstanding
anything herein to the contrary, this Agreement and Executive's
employment with the Company are terminable at will by the Company
for any reason, with or without prior notice or cause; provided
that Executive's entitlement to payments and benefits following
such termination will depend on the type of termination and shall
be governed by the other provisions of this Section 6.
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(b) Termination for Cause.
(1) The Company may at any time upon notice to
Executive terminate this Agreement and Executive's employment
hereunder for "Cause" pursuant to the provisions of this Section
6(b). Executive shall be given notice by the Board of Directors
of its intention to terminate Executive for Cause, and the Board
shall give Executive an opportunity to address, at the Board's
option, the Board or a committee of one or more directors
regarding the grounds on which the proposed termination for Cause
is based.
For purposes of this Agreement, the Company shall have
"Cause" to terminate Executive's employment hereunder upon:
(A) The breach by Executive of any material provision
or covenant of this Agreement; or
(B) Executive's failure to perform or the gross
negligence in the performance of Executive's material duties
hereunder (and if such failure or gross negligence is susceptible
to cure by Executive, the failure to effect such cure by
Executive within thirty (30) days after written notice of such
failure or gross negligence is given to Executive); or
(C) Executive's engagement in an act of dishonesty or
falsification or any transaction involving a material conflict of
interest which was not disclosed to and approved by the Company's
Board of Directors; or
(D) Except as permitted hereunder, Executive's
unexplained absences from the Company; or
(E) Executive's use of alcohol, which use interferes
with the performance of Executive's duties hereunder, or
Executive's use of illegal narcotics; or
(F) Executive's indictment for a crime of theft,
embezzlement, fraud, misappropriation of funds or other alleged
act of dishonesty by Executive, or Executive's indictment for any
other felony or other crime involving moral turpitude; or
(G) Executive's engagement in discrimination or
harassment on any statutorily prohibited basis; or
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(H) Executive's engagement in any violation of law
relating to Executive's employment by the Company or violation by
Executive of Executive's duty of loyalty to the Company.
(2) If this Agreement is terminated by the
Company for Cause pursuant to this Section 6(b), the Company
shall have no further obligation or liability to Executive,
except that Executive shall be entitled to receive only (i) the
portion of Executive's salary as set forth in Section 5(a) which
has been earned up to the Date of Termination, (ii) compensation
for any accrued and unused vacation up to the Date of
Termination, and (iii) reimbursement, pursuant to Section 5(d)
for business expenses incurred up to the Date of Termination
(collectively, the "Minimum Payments").
(c) Death.
(1) This Agreement and Executive's employment
hereunder shall terminate automatically upon Executive's death.
(2) If this Agreement is terminated because of
Executive's death pursuant to this Section 6(c), the Company
shall have no further obligation or liability to Executive,
except that Executive shall be entitled to receive only (i) the
Minimum Payments, and (ii) any life insurance proceeds Executive
is otherwise entitled to under any applicable life insurance in
effect on the Date of Termination.
(d) Disability.
(1) If Executive becomes disabled during
Executive's employment hereunder, this Agreement and Executive's
employment hereunder shall terminate on the date of determination
by the Board of Directors of the Company of such disability. As
used herein, "disability" shall mean any condition that qualifies
as a disability under the Company's long-term disability plan as
in effect on the date of determination or which renders Executive
incapable of performing substantially all of his managerial and
executive services hereunder for ninety (90) days or more in the
aggregate during any calendar year, and which at any time after
such ninety (90) days the Company's Board of Directors shall
determine continues to render Executive incapable of performing
his managerial and executive services hereunder.
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(2) If this Agreement is terminated because of
Executive's disability pursuant to this Section 6(d), the Company
shall have no further obligation or liability to Executive,
except that Executive shall be entitled to receive only (i) the
Minimum Payments, and (ii) any benefits to which Executive is
entitled under the Company's long-term disability plan as in
effect on the Date of Termination.
(e) Termination Other Than for Cause, Death or
Disability.
(1) The Company shall, for any reason, be
entitled to terminate this Agreement and Executive's employment
hereunder at any time without Cause and other than on account of
Executive's death or disability pursuant to this Section 6(e).
(2) If this Agreement is terminated by the
Company pursuant to this Section 6(e), the Company shall have no
further obligation or liability to Executive, except that
Executive shall be entitled to receive only (i) the Minimum
Payments, and (ii) a severance payment of, at the option of
Executive, either (A) twenty-four (24) months of Executive's then
current salary as set forth in Section 5(a) payable in a lump sum
within thirty (30) days after the Date of Termination or as
otherwise mutually agreed to by the parties, or (B) twenty-four
months of Executive's then current salary as set forth in Section
5(a) payable in semi-monthly installments over a twenty-four
month period after the Date of Termination.
(f) Resignation for Good Reason.
(1) Executive shall be entitled to terminate
this Agreement and Executive's employment hereunder at any time
for Good Reason pursuant to the provisions of this Section 6(f).
For purposes of this Agreement, Executive shall
have "Good Reason" to terminate Executive's employment hereunder
if:
(A) The Company relocates its principal
executive offices outside the area within a radius of twenty-five
(25) miles from Newport Beach, California without the consent of
Executive, and Executive gives the Company written notice of his
objection to such relocation within five days of being informed
of such contemplated relocation; or
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(B) Without Executive's express consent, the
Company substantially reduces Executive's duties and
responsibilities such that it results in a material adverse
reduction in Executive's position, authority or responsibilities,
and the Company fails to cure such reduction in duties and
responsibilities within twenty (20) days after written notice
specifying the particular acts objected to and the specific cure
requested is given to the Company by Executive.
(2) If this Agreement is terminated by Executive
for Good Reason pursuant to this Section 6(f), the Company shall
have no further obligation or liability to Executive, except that
Executive shall be entitled to receive only (i) the Minimum
Payments, and (ii) a severance of, at the option of Executive,
either (A) twenty-four (24) months of Executive's then current
salary as set forth in Section 5(a) payable in a lump sum within
thirty (30) days after the Date of Termination or as otherwise
mutually agreed to by the parties, or (B) twenty-four months of
Executive's then current salary as set forth in Section 5(a)
payable in semi-monthly installments over a twenty-four month
period after the Date of Termination.
(g) Resignation without Good Reason.
(1) Executive shall be entitled to terminate
this Agreement and Executive's employment hereunder without Good
Reason at any time on thirty (30) days prior written notice
delivered by Executive to the Company.
(2) If this Agreement is terminated by Executive
pursuant to this Section 6(g), the Company shall have no further
obligation or liability to Executive, except that Executive shall
be entitled to receive only the Minimum Payments.
(h) Termination of Employment Following a Change of
Control. If within one year following a "Change of Control of
the Company" (i) Executive terminates his employment for Good
Reason, (ii) the Company terminates Executive's employment other
than for Cause, death or disability, or (iii) the Company
delivers notice to Executive that it is not extending the term of
Executive's employment pursuant to Section 2 of this Agreement
for one year, then the Company shall be obligated to pay to
Executive or Executive's estate the payments and benefits
provided in Subsection 6(f)(2) above.
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For purposes of this Agreement, a "Change of Control of
the Company" shall be deemed to have occurred if:
A. the shareholders of the Company approve a
definitive agreement to sell, transfer, or otherwise dispose of
all or substantially all of the Company's assets and properties;
or
B. any "person" (as such term is used in Section
13(d) and 14(d) of the Securities Exchange Act of 1934) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934), directly or indirectly, of
securities of the Company representing fifty percent (50%) or
more of the combined voting power of the Company's then
outstanding securities; provided, however, that the following
shall not constitute a "Change in Control" of the Company:
(1) any acquisition directly from the Company
(excluding any acquisition resulting from the exercise of a
conversion or exchange privilege in respect of outstanding
convertible or exchangeable securities); or
(2) any acquisition by an employee benefit plan
(or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company; or
C. the shareholders of the Company approve the
dissolution or liquidation of the Company; or
D. the shareholders of the Company approve a
definitive agreement to merge or consolidate the Company with or
into another entity or entities, the result of which merger or
consolidation is that less than 50% of the outstanding voting
securities of the surviving or resulting entity are, or are to
be, owned by holders of the Company's common stock immediately
prior to the merger.
(i) Notice of Termination. Any termination of
Executive's employment by the Company or by Executive (other than
termination pursuant to Section 6(c) above) shall be communicated
by a written Notice of Termination to the other party hereto.
For purposes of this Agreement, a "Notice of Termination" means a
notice which (i) indicates the specific termination provision in
this Agreement relied upon, (ii) sets forth the circumstances
which provide a basis for termination of Executive's employment
under the provisions so indicated, and (iii) if the termination
date is other than the date of receipt of such notice, specifies
the termination date of this Agreement (which date shall not be
more than thirty (30) days after the giving of such notice).
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(j) Date of Termination. "Date of Termination" shall
mean the date of death, the date of the determination of a
disability, the date of receipt of the Notice of Termination or
the date specified therein, as the case may be.
7. Exclusivity of Payments.
Upon termination of Executive's employment hereunder,
Executive shall not be entitled to any severance payments or
severance benefits from the Company or any payments by the
Company on account of any claim for wrongful termination,
including but not limited to claims under any federal, state or
local human and civil rights or labor laws, other than the pay-
ments and benefits provided in Section 6, except for any benefits
which may be due to Executive in the normal course under any
employee benefit plan or program of the Company which provides
for benefits after termination of employment. Executive's right
to receive payments or benefits under this Agreement upon
termination of employment will cease if Executive breaches any
provision of Sections 8 or 9 below.
8. Proprietary Information.
(a) Definition. Executive hereby acknowledges that
Executive possesses and may make use of, acquire, create, develop
or add to certain confidential and/or proprietary information
regarding the Company and its business (whether in existence
prior to, as of or after the date hereof, collectively,
"Proprietary Information"), which Proprietary Information shall
include, without limitation, all of the following materials and
information (whether or not reduced to writing and whether or not
patentable or protected by copyright): trade secrets,
inventions, processes, formulae, programs, technical data, "know-
how," procedures, manuals, confidential reports and communica-
tions, marketing methods, product sales or cost information, new
product ideas or improvements, new packaging ideas or
improvements, research and development programs, identities or
lists of suppliers, vendors or customers, financial information
and financial projections of the Company, or any other
confidential or proprietary information relating to the Company
and/or its business. The term "Proprietary Information" does not
include any information that (i) at the time of disclosure is
generally available to and known by the public (other than as a
result of its disclosure by Executive), (ii) was available to
Executive prior to disclosure by the Company, provided that the
person who was the source of such information was not known by
Executive to be subject to an obligation of confidentiality to
the Company, or (iii) becomes available to Executive on a non-
confidential basis from a person other than the Company or its
representatives, provided that the source of such information was
not known by Executive to be subject to an obligation of
confidentiality to the Company.
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(b) Nondisclosure. During the term of this Agreement
and thereafter, Executive will not, without the prior express
written consent of the Board of Directors, disclose or make any
use of any Proprietary Information except as may be required in
the course of the performance of Executive's services under this
Agreement.
(c) Agreement Not to Solicit Employees and Customers.
To protect the Proprietary Information and trade secrets of the
Company, Executive agrees, during the term of this Agreement and
for a period of two (2) years after termination of this
Agreement, not to, directly or indirectly, either on Executive's
own behalf or on behalf of any other person or entity, solicit or
employ any person who is an employee of the Company or any
Company subsidiary or attempt to persuade any customer of the
Company or any Company subsidiary to cease to do business or to
reduce the amount of business which any customer of the Company
or any Company subsidiary has customarily done or contemplates
doing with the Company or the subsidiary. Executive agrees that
the covenants contained in this paragraph are reasonable and
desirable.
(d) Agreement Not To Compete. During the term of
Executive's employment by the Company and, in the event of
termination of Executive's employment by the Company pursuant to
Section 6(e), for a period of twenty-four (24) months thereafter,
Executive will not, directly or indirectly, whether as an
officer, director, stockholder, partner, employee, representative
or otherwise, become or be interested in, or be associated in
business with, any person, corporation, firm, partnership or
other entity which engages in any business or activity which is a
competitor of the Company or any of the Company's subsidiaries.
In the event Executive's employment is terminated by the Company
pursuant to Section 6(e) above, Executive agrees, for a period of
twenty-four (24) months after Executive's termination of
employment by the Company, to be available to provide reasonable
consulting services to the Company at such reasonable times as
the Company and Executive may mutually agree. Notwithstanding
the foregoing, nothing contained in this paragraph shall prevent
Executive from holding or acquiring common stock in any company
which is publicly traded on any national recognized stock
exchange or The NASDAQ Stock Market provided that such holdings
are less than one percent (1%) of the outstanding capital stock
of such publicly-traded company. Executive agrees that the
covenants contained in this paragraph are reasonable and
desirable.
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9. Protection of Property.
All records, files, manuals, documents, specifications,
lists of customers, forms, materials, supplies, computer programs
and other materials furnished to the Executive by the Company,
used on its behalf or generated or obtained during the course of
the performance of the Executive's services hereunder, shall be
the property of the Company. Upon termination of Executive's
employment with the Company, Executive shall immediately deliver
to the Company, or its authorized representative, all such
property, including all copies, remaining in Executive's
possession or control.
10. Specific Performance.
In the event of the breach by Executive of any of the
provisions of Sections 8 or 9, the Company, in addition to all
other rights and remedies existing in its favor and
notwithstanding the provisions of Section 11 hereof, may apply to
any court of law or equity of competent jurisdiction for specific
performance and/or injunctive or other relief in order to enforce
or prevent any violations of the provisions thereof.
11. Arbitration.
The parties hereto acknowledge that it is in their best interests
to facilitate the informal resolution of any disputes arising out
of this Agreement or otherwise by mutual cooperation and without
resorting to litigation. As a result, if any party has a dispute
arising hereunder or otherwise, including but not limited to any
claim for breach of any contract or covenant (express or
implied), any dispute regarding Executive's termination of
employment from the Company, tort claims, claims for harassment
or discrimination (including, but not limited to, race, sex,
religion, national origin, age, handicap or disability), claims
for compensation or benefits (except where a benefit plan or
pension plan or insurance policy specifies a different claims
procedure) and claims for violation of public policy or, any
federal, state or other governmental law, statute, regulation or
ordinance (except for claims involving workers' compensation
benefits), and the parties are unable to reach agreement among
themselves, then a settlement conference must be held within
thirty (30) days upon receipt of a notice by the complaining
party describing in detail the complaint and setting forth a
proposed solution to the complaint. The settlement conference
will be held in any Orange County, California, office of the
Judicial Arbitration and Mediation Services/Endispute ("JAMS").
The complaining party must contact JAMS to schedule the
conference and the parties must agree on a retired judge from the
JAMS panel. If the parties are unable to agree upon such a
retired judge, JAMS shall provide a list of three available
judges and each party may strike one judge. The remaining judge
will serve as the mediator at the settlement conference.
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If the dispute is not settled by the above-described
format, the parties agree to submit the dispute to JAMS for
binding arbitration. A three-judge panel will be selected to
arbitrate the dispute. JAMS will provide the names of five
potential arbitrators, giving each party the opportunity to
strike one name. The remaining three arbitrators will serve as
the arbitration panel. The parties agree that the arbitration
must be initiated within the time period of the statute of
limitations applicable to the claim(s) if the claim(s) had been
filed in Court. Arbitration may be initiated by the aggrieved
party by sending written notice of an intent to arbitrate by
registered certified mail to all parties and to JAMS. The notice
must contain a description of the dispute, the amount involved
and the remedies sought. All fees and expenses of the
arbitration, including a transcript if either request, will be
borne by the parties equally. Each party will pay for the fees
and expenses of its own attorneys, experts, witnesses, and
preparation and presentation of proofs and post-hearing briefs
unless the party prevails on a claim for which attorneys' fees
are recoverable by statute, in which case the arbitrators may
award attorneys' fees and costs to the prevailing party.
12. Election to the Board of Directors.
(a) The Company shall nominate Executive to be
elected to the Company's Board of Directors at the first meeting
of the Board of Directors after the Start Date.
(b) Upon Executive's cessation of employment with
the Company for any reason, Executive shall thereupon be deemed
to have resigned from the Board of Directors of the Company,
every parent or subsidiary of the Company on which he is then
serving as a director, and any other company on which Executive
is then serving at the request of the Company as a director, in
each case effective as of the date of cessation of employment.
13. Representation by Counsel.
Executive acknowledges that he has been represented by
legal counsel in connection with this Agreement and has consulted
with such legal counsel.
14. Successors.
This Agreement is personal to the Executive and is not
assignable by the Executive otherwise than by will or the laws of
descent and distribution without the prior written consent of the
Company's Board of Directors. This Agreement shall inure to the
benefit of and be enforceable by Executive's legal
representatives. This Agreement shall inure to the benefit of
and be binding upon the Company and its successors and assigns.
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15. Notice.
For purposes of this Agreement, notices, demands and
all other communications provided for in the Agreement shall be
in writing and shall be deemed to have been duly given when
delivered or (unless otherwise specified) mailed by United States
registered mail, return receipt requested, postage prepaid,
addressed as follows:
If to Executive: Executive's address as on file
with the Company
If to Company: Pacific Scientific Company
620 Newport Beach Drive
Newport Beach, California 92660
Attention: Secretary
or to such other address as any party may have furnished to the
others in writing in accordance herewith, except that notices of
change of address shall be effective only upon receipt thereof.
16. Section 280G.
Anything in this Agreement to the contrary
notwithstanding, Executive's payments and benefits under this
Agreement and all other arrangements or programs shall not, in
the aggregate, exceed the maximum amount that may be paid to
Executive without triggering golden parachute penalties under
Section 280G and related provisions of the Internal Revenue Code,
as amended, as determined in good faith by the Company's
independent auditors. If Executive's benefits must be cut back
to avoid triggering such penalties, Executive's benefits will be
cut back in the priority order Executive designates or, if
Executive fails to promptly designate an order, in the priority
order designated by the Company. Executive and the Company agree
to reasonably cooperate with each other in connection with any
administrative or judicial proceedings concerning the existence
or amount of golden parachute penalties on payments or benefits
Executive receives.
17. Entire Agreement.
This Agreement, together with the documents referenced
herein, contains the entire agreement of the parties hereto with
respect to the subject matter hereof. It supersedes any and all
other agreements, either oral or in writing, between the parties
hereto with respect to the employment of Employee by the Company.
Each party to this Agreement acknowledges that no
representations, inducements, promises or agreements, written,
oral or otherwise, have been made by any party, or anyone acting
on behalf of any party, which are not embodied herein, and that
no other agreement, statement or promise not contained in this
Agreement shall be valid or binding.
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18. Amendment; Waiver; Governing Law.
No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or
discharge is agreed to in a writing signed by Executive and by
such officer of the Company as may be specifically designated by
the Company's Board of Directors. No waiver by either party
hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at
any prior or subsequent time. The validity, interpretation,
construction and performance of this Agreement shall be governed
by the laws of the State of California.
19. Validity.
The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which
shall remain in full force and effect.
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 will constitute one and the same
instrument.
21. Survivability.
The provisions in Sections 8, 9, 10, 11 and 16 of this
Agreement shall survive any termination of this Agreement.
22. Withholding of Taxes; Tax Reporting.
The Company may withhold from any amounts payable
under this Agreement all such Federal, state, city and other
taxes, and may file with appropriate governmental authorities all
such information, returns or other reports with respect to the
tax consequences of any amounts payable under this Agreement, as
may, in its reasonable judgment, be required by law.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
PACIFIC SCIENTIFIC COMPANY, EXECUTIVE
a California corporation
By: /s/ RICHARD V. PLAT By: /s/ LESTER HILL
Name: Richard V. Plat Lester "Buck" Hill
Title: Executive Vice President
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EXHIBIT 10.2
STOCK OPTION AGREEMENT
WITH
LESTER HILL
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EXHIBIT 10.2
Exhibit A
PACIFIC SCIENTIFIC COMPANY
NONSTATUTORY STOCK OPTION AGREEMENT
THIS NONSTATUTORY STOCK OPTION AGREEMENT (the "Agreement")
between PACIFIC SCIENTIFIC COMPANY, a California corporation (the
"Company"), and LESTER "BUCK" HILL ("Employee") is entered into
as of the 18th day of February, 1997.
RECITALS
A. Pursuant to an Employment Agreement dated as of
February 17, 1997, between the Company and Employee (the
"Employment Agreement"), the Company has agreed to grant to
Employee an option to purchase shares of the Company's common
stock.
B. The Company and Employee desire to enter into this
Agreement to memorialize the grant of the option to Employee.
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant. The Company hereby grants to Employee the
right to purchase up to 250,000 shares of common stock of the
Company at a price of $12.625 per share (which price equals the
closing price of the Company's common stock on the New York Stock
Exchange as of the date of this Agreement), on the terms and
conditions set forth herein. This option is not intended to
qualify as an incentive stock option under Section 422 of the
Internal Revenue Code, as amended, and is not made pursuant to
any Company stock option plan. Employee agrees that Employee and
any other person who may be entitled hereunder to exercise this
option shall be bound by all terms and conditions of this
Agreement.
2. Exercisability. The option granted herein shall
become exercisable at the following times and in the following
amounts:
The option shall become exercisable in cumulative
increments of 50,000 shares on each of February 18, 1997,
February 18, 1998, February 18, 1999, February 18, 2000, and
February 18, 2001. The option granted hereunder shall lapse and
expire on the tenth (10th) anniversary of the date hereof.
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If Employee does not purchase the full number of
shares he is entitled to purchase in any one year, the right to
purchase such shares carries over to the subsequent years during
the term of this option.
Notwithstanding the foregoing, this option shall
automatically become fully exercisable upon a "Change of Control
of the Company," as such term is defined below.
For purposes of this Agreement, a "Change of
Control of the Company" shall be deemed to have occurred if:
(a) the shareholders of the Company approve a
definitive agreement to sell, transfer, or otherwise dispose of
all or substantially all of the Company's assets and properties;
or
(b) any "person" (as such term is used in Section
13(d) and 14(d) of the Securities Exchange Act of 1934) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934), directly or indirectly, of
securities of the Company representing fifty percent (50%) or
more of the combined voting power of the Company's then
outstanding securities; provided, however, that the following
shall not constitute a "Change in Control" of the Company:
(i) any acquisition directly from the Company
(excluding any acquisition resulting from the exercise of a
conversion or exchange privilege in respect of outstanding
convertible or exchangeable securities); or
(ii) any acquisition by an employee benefit plan
(or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company;
(c) the shareholders of the Company approve the
dissolution or liquidation of the Company; or
(d) the shareholders of the Company approve a
definitive agreement to merge or consolidate the Company with or
into another entity or entities, the result of which merger or
consolidation less than 50% of the outstanding voting securities
of the surviving or resulting entity are, or are to be, owned by
holders of the Company's common stock immediately prior to the
merger.
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3. Exercise. This option may be exercised on the terms
and conditions contained herein by giving five (5) days' prior
written notice of exercise to the Company, specifying the number
of shares to be purchased and the price to be paid therefor and
by delivering a check in the amount of the purchase price payable
to the Company. The purchase price may also be paid, in whole or
in part, by delivery to the Company of outstanding shares of the
Company's common stock previously held by the Employee valued at
"Fair Market Value".
For the purposes of this Agreement, "Fair Market Value"
as of a certain date (the "Determination Date") means: (a) the
closing price of a share of the Company's common stock on the
principal exchange on which shares of the Company's common stock
are then trading, if any, on the Determination Date, or, if
shares were not traded on the Determination Date, then on the
nearest preceding trading day during which a sale occurred; or
(b) if such stock is not traded on an exchange but is quoted on
NASDAQ or a successor quotation system, (i) the last sales price
(if the stock is then listed as a National Market Issue under The
Nasdaq National Market System) or (ii) the mean between the
closing representative bid and asked prices (in all other cases)
for the stock on the Determination Date as reported by NASDAQ or
such successor quotation system; or (c) if such stock is not
publicly traded on an exchange and not quoted on NASDAQ or a
successor quotation system, the mean between the closing bid and
asked prices for the stock, on the Determination Date, as
determined in good faith by the Board; or (d) if the Company's
stock is not publicly traded, the fair market value established
in good faith by the Board.
Provided that a public market in the Company's common
stock exists, Employee will be entitled to exercise this option
through a "same day sale" commitment from Employee and a broker-
dealer that is a member of the National Association of Securities
Dealers (an "NASD Dealer") whereby the Employee irrevocably
elects to exercise the option and to sell a portion of the shares
so purchased to pay the exercise price and any applicable tax
withholding and whereby the NASD Dealer irrevocably commits upon
receipt of such shares to forward the exercise price and the
payment of all required taxes directly to the Company.
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4. Termination of Employment.
(a) Termination by Employee. If Employee's
employment is terminated by Employee, Employee shall have ninety
(90) days following the "Date of Termination" (as defined in
Section 6(j) of the Employment Agreement) to exercise this
option, but only to the extent that this option was exercisable
on such Date of Termination.
(b) Termination for Cause. If Employee's employment
is terminated by the Company for "Cause" (as defined in Section
6(b) of the Employment Agreement) the Employee shall have ninety
(90) days following the Date of Termination to exercise this
option, but only to the extent that this option was exercisable
on such Date of Termination.
(c) Death. If Employee's employment is terminated
for death, or having ceasing to be an employee, but during the
period during which Employee could have exercised this option in
accordance with the terms of this Agreement, Employee should die,
Employee's executor or administrator of Employee's estate shall
have the right for twelve (12) months following such death to
exercise this option, but only to the extent that this option was
exercisable on the date of Employee's death.
(d) Disability. If Employee's employment is
terminated for "disability" (as defined in Section 6(d) of the
Employment Agreement), Employee or his administrator or legal
guardian, shall have the right for six (6) months following such
Date of Termination to exercise this option, but only to the
extent that this option was exercisable on such Date of
Termination.
(e) Other. If Employee's employment is terminated
for any reason other than as set forth in Sections 4(a), (b), (c)
and (d) above, Employee shall have ninety (90) days following
such Date of Termination to exercise this option, but only to the
extent that this option was exercisable on such Date of
Termination.
5. Transferability. This option shall be transferable
only by will or by the laws of descent and distribution to the
estate (or other personal representative) of Employee and shall
be exercisable during Employee's lifetime only by him. Except as
otherwise provided herein, any attempt at alienation, assignment,
pledge, hypothecation, transfer, sale, attachment, execution or
similar process, whether voluntary or involuntary, with respect
to all or any part of this option or any right under this
Agreement, shall be null and void and, at the Company's option,
shall cause Employee's rights under this Agreement to terminate.
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6. Withholding Requirements. In the event the Company
determines that it is required to withhold state or Federal
income taxes as a result of the exercise of this option, Employee
shall be required, as a condition to the exercise hereof, to make
arrangements satisfactory to the Company to enable it to satisfy
such withholding requirements.
7. Rights as a Stockholder. Employee, or any permitted
transferee of Employee, shall have no rights as a stockholder
with respect to any shares covered by this option until the date
of the issuance of a stock certificate for such shares. No
adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property),
distributions or other rights for which the record date is prior
to the date such stock certificate is issued, except as provided
in Section 8 of this Agreement. This Agreement shall not confer
upon Employee any right of continued employment by the Company or
interfere in any way in the Company's right to terminate
Employee.
8. Recapitalization. The number of shares of Common Stock
covered by this option and the exercise price thereof shall be
proportionately adjusted for any increase or decrease in the
number of issued shares of common stock resulting from a
subdivision or consolidation of such shares or the payment of a
stock dividend (but only of common stock) or any other increase
or decrease in the number of issued shares of common stock
effected without receipt of consideration by the Company.
Subject to any required action by stockholders, if the Company is
the surviving corporation in any merger or consolidation, this
option shall pertain and apply to the securities to which a
holder of the number of shares of common stock subject to the
option would have been entitled.
The foregoing adjustments shall be made by the
Company's Board of Directors, whose determination shall be
conclusive and binding on the Company and Employee.
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Except as expressly provided in this Section 8,
Employee shall have no rights by reason of any subdivision or
consolidation of shares of stock of any class, the payment of any
stock dividend or any other increase or decrease in the number of
shares of stock of any class, or by reason of any dissolution,
liquidation, merger, consolidation or spin-off of assets or stock
of another corporation, and any issue by the Company of shares of
stock of any class, or securities convertible into shares of
stock of any class, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number of shares
subject to this option or the exercise price thereof.
This option shall not affect in any way the right or
power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure,
to merge or consolidate or to dissolve, liquidate, sell or
transfer all or any part of its business or assets.
9. Securities Act and Other Regulatory Requirements. This
option is not exercisable, in whole or in part, and the Company
is not obligated to sell any shares of the Company's common stock
subject to this option, if such exercise or sale, in the opinion
of counsel for the Company, would violate the Securities Act of
1933 (or any other federal or state statutes having similar
requirements) as it may be in effect at that time.
Further, the Board of Directors of the Company may
require as a condition of issuance of any shares under this
option that Employee furnish a written representation that he is
acquiring the shares for investment and not with a view to
distribution to the public. The certificate evidencing any
shares issued pursuant to this option shall bear such restrictive
legends as required by federal or state law.
On or before June 1, 1997, the Company shall (a) file with
the Securities and Exchange Commission a Registration Statement
on Form S-8 for the purpose of registering the shares of common
stock subject to this option under the Securities Act of 1933,
and (b) file with New York Stock Exchange, Inc. a Supplemental
Listing Application for the purpose of listing the shares of
common stock subject to this option on the New York Stock
Exchange.
10. Effect of Exercise. Upon the exercise of all or any
part of this option, the number of shares of common stock subject
to the option under this Agreement shall be reduced by the number
of shares with respect to which such exercise is made.
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11. Notices. Any notice or other communication required
or permitted hereunder or by law shall be validly given or made
only if in writing and delivered in person to an officer or duly
authorized representative of the other party, or deposited in the
United States mail, duly certified or registered, return receipt
requested, postage prepaid, and addressed to the party to whom
intended. If sent to the Company, it shall be addressed in care
of the Secretary, Pacific Scientific Company, 620 Newport Beach
Drive, Newport Beach, California 92660, and if sent to Employee,
it shall be addressed to Employee's address on file with the
Company on the date of such notice. If sent by mail, notice
shall be deemed given two days after deposit of such notice in
the mail and in accordance with this section. Any party may from
time to time, by written notice to the other, designate a
different address for notice which shall be substituted for that
specified above.
12. Choice of Law; Counterparts. This Agreement, and all
rights and obligations hereunder, shall be governed by the laws
of the State of California. This Agreement may be executed in
one or more counterparts, each of which when so executed and
delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument.
13. Successor. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective
successors, heirs, beneficiaries, executors and administrators.
14. Paragraph Headings; Employment. Paragraph headings
are for convenience only and are not part of the context. This
Agreement shall not obligate the Company or any affiliate to
employ Employee for any period of time nor does this Agreement
constitute a contract or agreement for employment.
IN WITNESS WHEREOF, this Agreement is executed as of
the date first written above.
PACIFIC SCIENTIFIC COMPANY,
a California corporation
By: /s/ RICHARD V. PLAT
Name: Richard V. Plat
Title: Executive Vice President
EMPLOYEE:
/s/ LESTER HILL
Lester "Buck" Hill
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EXHIBIT 10.3
DEFERRED CONTRIBUTION PLAN AGREEMENT
WITH
LESTER HILL
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EXHIBIT 10.3
EXHIBIT B
PACIFIC SCIENTIFIC COMPANY
Deferred Compensation Agreement
Pacific Scientific Company (Company) and Lester "Buck" Hill
(Executive) hereby agree to the following deferred compensation
arrangement.
1. Monthly Deferred Compensation Accruals: As of the last day
of each accounting month, the Company shall credit $5,000 to
Executive's Deferred Compensation Account maintained pursuant to
Section 2 of this Agreement. No further credits shall be made to
Executive's Deferred Compensation Account after his active
employment permanently ceases.
2. Deferred Compensation Account: The Company shall maintain on
its books a Deferred Compensation Account for the Executive. This
Deferred Compensation Account shall be credited with deferred
compensation accruals in accordance with Section 1 of this
Agreement.
3. Earnings on the Deferred Compensation Account: During 1997
the amount deferred under Section 1 above will be credited monthly
with interest at an annual rate of 9% (the current expected long-
term rate of return of the Company's qualified Retirement Plan).
The earnings rate for all subsequent periods of employment
will be the actual annual rate of return on the Executive's account
in the Pacific Scientific Company Savings Plan, as determined by
the Company at its sole discretion.
The earnings rate on any amount remaining after the
Executive's separation from employment will be the long-term rate
of return on the Company's Retirement Plan then in effect.
4. Vesting: Executive's Deferred Compensation Account shall be
vested and nonforfeitable at all times.
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Deferred Compensation Agreement
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5. Election of Executive as to the Form and Date of Commencement
of Benefits: The Executive, upon acceptance of the terms of this
Agreement, will elect the form of benefit and the commencement date
of benefits to be paid under this Agreement. The election may be
changed at the discretion of the Executive; however, the most
recent subsequent election made at least two years prior to the end
of active employment will determine the form of benefit and the
date benefits are to be commenced.
a. The Executive can choose any form of benefit currently offered
by the Retirement Plan and, in addition, may choose a lump sum
payment or a sixty or one hundred and twenty-month payout.
b. The Executive may elect to receive benefits commencing with
the end of his active employment or commencing at a specified time
or age following the end of his active employment.
In the event of the death of the Executive, the accumulated
account will be distributed to a beneficiary or in the event there
is no living beneficiary to the estate to the Executive per the
election currently in effect.
6. Miscellaneous: This deferred compensation arrangement shall
be unfunded and Executive shall have no greater rights than as an
unsecured general creditor of the Company with respect to amount
due under this Agreement. The Company shall be entitled to
withhold taxes from any payments under this Agreement, as required
by applicable law. This Agreement may only be modified by written
agreement of parties to this Agreement.
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Deferred Compensation Agreement
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Furthermore, this Agreement is part and will be administered
under the terms of the Pacific Scientific Company Supplemental
Retirement Plan. In an event of a conflict between the Agreement
and the Plan, the terms of this Agreement will control.
Entered into this 18 day of February , 1997.
EXECUTIVEPACIFIC SCIENTIFIC COMPANY
/s/ LESTER HILL By: /s/ RICHARD V. PLAT
Lester "Buck" Hill Name: Richard V. Plat
Title: Executive Vice President
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