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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: SEPTEMBER 25, 1999
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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: 0-18281
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HOLOGIC, INC.
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(Exact name of registrant as specified in its charter)
Delaware 04-2902449
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(State of Incorporation) (I.R.S. Employer Identification No.)
35 CROSBY DRIVE, BEDFORD, MASSACHUSETTS 01730
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(Address of principal executive offices) (Zip Code)
(781) 999-7300
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
RIGHTS TO PURCHASE COMMON STOCK
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
10-K. X
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The aggregate market value of the registrant's Common Stock held by non-
affiliates of the registrant as of November 30, 1999 was $82,250,878 based on
the price of the last reported sale on the Nasdaq National Market System on that
date.
As of December 16, 1999 there were 15,302,799 shares of the registrant's Common
Stock, $.01 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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INTRODUCTORY STATEMENT
We have made forward-looking statements in this document that are subject
to risks and uncertainties. Forward-looking statements include statements of our
plans, objectives, expectations and intentions. Also, when we use words such as
"may," "will," "should," "could," "would," "expects," "anticipates," "believes,"
"plans," "intends," "estimates," "is being" or "goal" or other variations of
these terms or comparable terminology, we are making forward-looking statements.
These statements, which include statements relating to the timing and
availability of products under development, our ability to market such products
once developed, the anticipated growth or expansion of the markets for our
products, and other matters are subject to risks and uncertainties that could
cause actual results to differ materially from those anticipated. You should
note that many factors could affect our future financial results and could cause
these results to differ materially from those expressed in our forward-looking
statements. These forward-looking statements speak only as of the date of this
report. We expressly disclaim any obligation or undertaking to release publicly
any updates or revisions to any forward-looking statement contained in this
report to reflect any change in our expectations or any change in events,
conditions or circumstances on which any of our forward-looking statements are
based. Factors that could cause or contribute to differences in our future
financial results include those discussed in the risk factors set forth in Item
7 below as well as those discussed elsewhere in this report.
PART I
ITEM 1. BUSINESS
We are a leading supplier of high quality, innovative and clinically
valuable diagnostic systems and tests. We develop, manufacture and market X-ray
bone densitometers and ultrasound bone analyzers that address a growing market
for osteoporosis prevention and treatment -- a key element of women's health
care. Our systems are used by more leading medical schools, universities and
osteoporosis opinion leaders than any other bone densitometer. Our Quantitative
Digital Radiography (QDR/(R)/) X-ray bone densitometers are used for the precise
measurement of bone density to assist in the diagnosis and monitoring of
osteoporosis and other metabolic bone diseases.
Direct Radiography Corp., one of our wholly owned subsidiaries, provides
dose-efficient, high productivity direct-to-digital X-ray image capture systems
for the medical and nondestructive testing markets. Direct Radiography Corp.
manufactures DirectRay(R) digital X-ray detectors and markets the detectors as a
component for original equipment manufacturers, known as OEMs, to incorporate
into their own products.
FluoroScan Imaging Systems, Inc., another of our wholly owned subsidiaries,
distributes low intensity, real time mini c-arm X-ray imaging devices that
address a trend towards minimally invasive surgery. These systems provide
surgeons with high-resolution images at radiation levels and at a cost well
below those of conventional X-ray and fluoroscopic equipment.
We maintain an active research and development program dedicated to
bringing a continuing series of new products to market and to maintaining our
position as a technology leader in the fields of bone densitometry, direct-to-
digital imaging and mini c-arm systems.
We were incorporated in Massachusetts in October 1985 and reincorporated in
Delaware in March 1990. We view our operations and manage our business as
principally three operating segments: bone assessment products, direct-to-
digital imaging products, and mini c-arm imaging products. We have provided
financial information concerning these segments in Item 8 of this report,
Financial Statements and Supplementary Data. The Hologic logo is one of our
service marks. QDR, QDR-1000, ACCLAIM and Sahara are our registered trademarks.
QDR-1000W, QDR 1000plus, QDR-2000, QDR 2000plus, QDR 4500, QDR 4500A, QDR
4500SL, QDR 4500W, QDR 4500C, Delphi, FluoroScan, FluoroScan I, FluoroScan II,
FluoroScan III, Premier, Officemate, FluoroScan Imaging Systems, DirectRay,
iiRAD, EPEX, RADEX and Direct Radiography and UBA 575+ are other trademarks that
we own.
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BONE ASSESSMENT PRODUCTS
Overview
Osteoporosis. Osteoporosis is a condition characterized by reduced bone
density that leads to an increased risk of fractures. Bone is a dynamic organ
that is maintained through a process referred to as remodeling in which old bone
is removed through a process referred to as resorption, and new bone is formed.
In early adulthood, the levels of bone resorption and bone formation are
generally balanced, with the quantity and distribution of bone throughout the
body varying over time depending on muscle mass, strength and use. When
remodeling does not function properly, and resorption exceeds formation, the
result is a net loss of bone mass and density, often causing diminished
structural integrity of the skeleton, particularly of the trabecular "spongy"
bone, and an increased risk of fracture.
According to the National Osteoporosis Foundation, 28 million Americans, 80%
of whom are women, and approximately 250 million people worldwide, suffer from
osteoporosis. Osteoporosis typically develops silently over a period of years,
eventually progressing to a point where a fracture can easily occur, causing
pain and disability. The post-menopausal female population has the highest
incidence of osteoporosis and the highest rate of loss of quality of life and
mortality due to osteoporosis. The National Osteoporosis Foundation estimates
that in the United States osteoporosis contributes to more than 1.5 million
fractures annually, and the costs to the U.S. healthcare system to treat these
osteoporosis-related fractures exceed $14 billion annually. Furthermore, it is
estimated that women can lose up to 20% of their bone mass in the 5-7 years
following menopause. Hip fractures lead to the most serious consequences.
According to the National Osteoporosis Foundation, as many as one in every five
hip fracture patients dies from complications within a year after fracture, one
in every four requires long-term care and an even higher percentage of hip
fracture patients never return to an active and independent lifestyle. According
to the World Health Organization, the "aging of America" could increase the
incidence of hip fracture by as much as 280% by the year 2040.
Osteoporosis is often thought to be an inevitable and untreatable consequence
of aging. We believe that the recent development and introduction of new drug
therapies, the aging of the population, and an increased focus on women's health
issues and preventive medical practices has created a growing awareness among
patients and physicians that osteoporosis is treatable.
Therapies. Pharmaceutical companies are investing considerable resources in
the development of new therapies to treat osteoporosis, and in marketing
initiatives designed to increase the awareness that osteoporosis is treatable.
As a result of the recent introduction of new therapies to treat and prevent
osteoporosis, the market for osteoporosis therapies has grown to over $1 billion
annually. In September 1995, the FDA approved Merck's drug Fosamax for the
treatment of osteoporosis. In April 1997, the FDA approved an expansion of the
permitted use for Fosamax to include the prevention of osteoporosis. In
December 1997, the FDA approved Eli Lilly's drug Evista(R) for the prevention of
osteoporosis. The FDA has recently expanded this approval to encompass
additional indications for the need for treatment. Proctor & Gamble is expected
to receive FDA approval for their new osteoporosis therapy in 2000. Many
clinical studies are underway as well by these and other pharmaceutical
companies for the development of drugs to prevent and treat osteoporosis. Many
of these new drugs, including Fosamax and Evista, are demonstrating that they
may be able to slow down or even reverse bone loss in patients suffering from
osteoporosis or at risk of suffering from the disease.
Diagnosis and Monitoring of Osteoporosis. Since our introduction of the first
DXA bone densitometer in 1987, dual-energy X-ray absorptiometry has become the
primary means of measuring bone density. The most advanced DXA systems can be
used to measure the bone density of the whole body, or any site, including the
most important fracture sites of the hip or spine. As a result of their
precision and versatility, DXA systems have become the predominant means of
evaluating low bone density before fractures occur and monitoring changes in a
patient's bone density in response to therapies.
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In addition to low bone density, the presence of a vertebral fracture is an
important indicator of the risk of a future fracture. Numerous studies have
determined that patients with a single spine fracture have four to five times
the risk of future spine fracture and twice the risk of future hip fracture.
However, fractures of the spine are often difficult to diagnose in the course of
typical clinical evaluation, because the most prevalent fractures do not have
symptoms, and the conventional lateral spine X-ray test is not commonly ordered,
due to its inconvenience and high dose. As a result, only about one in four
spine fractures are recognized clinically, and the evaluation of a patient's
risk for osteoporosis usually does not include consideration of a spine
fracture, despite the demonstrated importance of this information. Our recently
introduced Delphi DXA system, which is capable of providing a combination of
bone mineral density assessment and spine fracture assessment, should
significantly improve the clinician's ability to accurately target therapy to
treat and prevent osteoporosis.
Ultrasound has long been used in medical testing. However, the use of
ultrasound for the detection of osteoporosis was not commercially introduced
until recently, and then only in some foreign countries. Ultrasound measurement
has concentrated mainly on the heel, which is comprised primarily of spongy
trabecular bone, as a measuring site. Initial clinical trials of ultrasound
systems have indicated a significant association of low ultrasonic bone
measurements of the heel and the risk of fracture. Major advantages of
ultrasound examination are the complete absence of radiation and the small size
and low cost of the equipment. Ultrasound devices do not use X-rays in making
their measurements and therefore do not require X-ray licensing or registered
operators. However, because ultrasound bone measurements currently are not as
precise as DXA and other measurements, they are less reliable for continued
monitoring of small changes in bone density or for assessing the response to
therapies. In addition, they are generally limited to measurements at peripheral
sites, not the more important spine or hip fracture sites. Accordingly, we
believe that ultrasound systems will be used predominantly as a low cost initial
screening or diagnostic tool and not as a patient monitoring tool.
Reimbursement. In the United States, the Health Care Finance Administration,
known as HCFA, establishes guidelines for the reimbursement of health care
providers treating Medicare and Medicaid patients. Under current HCFA
guidelines the following reimbursement levels for bone density assessment have
been recommended:
. $131 for a DXA bone density assessment of the hip and spine;
. $40 for a DXA bone density assessment of a peripheral site, such as the
wrist, hand or heel;
. $42 for an ultrasound bone density assessment of a peripheral site; and
. $24 for an assessment of vertebral fractures.
Under these guidelines a DXA examination that includes both an assessment of the
bone density of the spine and of vertebral fractures should be reimbursed $131
for the bone density assessment and $24 for the vertebral fracture assessment.
The differential in reimbursement between central and peripheral exams
recognizes the important benefit of DXA measurements of the critical fracture
sites, the hip and spine, in assisting in the detection and monitoring of bone
disease. In part, as a result of the reimbursement policy recommendations
implemented by HCFA, DXA bone density examinations, and to a lesser extent,
ultrasound bone density measurements, are paid for by a growing number of
private third party insurers in the United States.
In several European countries, Japan and other international markets, there
has been a greater availability or acceptance of osteoporosis therapies and an
earlier adoption of reimbursement for bone densitometry exams. Countries in
which reimbursement for the use of X-ray bone densitometers has been approved
include Belgium, Brazil, Canada, Germany, Greece, Japan, South Korea, Spain and
Switzerland. In addition, the Japanese government has been actively supporting
an educational program to promote public awareness of osteoporosis as a
treatable disease. In Latin American countries such as Argentina, Brazil and
Chile, and in Pacific Rim countries, such as Australia, The Peoples Republic of
China, South Korea and Taiwan, there has been a growing use of osteoporosis
therapies and an increased use of osteoporosis diagnostic and monitoring
equipment.
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Bone Assessment Market. The bone assessment market includes both a research
market and a clinical market. The research market consists of pharmaceutical
companies, testing facilities and teaching hospitals. The clinical market,
which offers us the greatest opportunity for growth, consists of two market
segments:
. the radiology market, which includes hospitals, radiologists and specialty
practices; and
. the primary care market, which includes physicians in general practice,
internal medicine and gynecology.
The demand for bone densitometers in the radiology market has slowed in the
past year due, in part, to the maturity and significant penetration of that
market, which we estimate to be approximately 40-50% in the United States. We
believe that there is more opportunity for growth in the primary care market.
Industry sources estimate that there are over 150,000 primary care physicians in
the United States. To date, penetration of this market segment has been slow.
However, we believe that with the emergence of ultrasound and other low cost
screening alternatives, and the increasing awareness among patient and physician
populations of the benefits of early detection and treatment of osteoporosis,
this market presents significant opportunities for growth.
Products
Our bone assessment products include a family of DXA bone densitometers which
are used for the precise measurement of bone density to assist physicians in the
diagnosis and monitoring of metabolic bone diseases such as osteoporosis. Since
commercially introducing the first DXA bone densitometer in 1987, we introduced
our first bone densitometer capable of assessing the bone density of the entire
body in 1989, introduced the first bone densitometer capable of taking lateral
measurements of the spine in 1991, introduced the QDR 4500 ACCLAIM fourth
generation series of bone densitometers in 1995, and in November 1999 introduced
the first bone densitometer capable of assessing vertebral fractures, the
Delphi.
We believe that a significant potential market exists for relatively low-cost
products that assess bone mineral status, employ technologies that do not use X-
ray or other ionizing radiation and may be used in a doctor's office. In order
to address this market, we developed and introduced the Sahara Clinical Bone
Sonometer, a dry ultrasound device that measures bone density of the heel.
QDR X-Ray Bone Densitometers. Since our first commercial shipment of a DXA
system in October 1987, we have sold more than 7,500 DXA systems. We believe
that our systems' performance advantages and their early adoption by leading
clinical investigators have led to their market acceptance. Our DXA systems have
been purchased for multiple-site studies sponsored by the pharmaceutical
companies and by the United States government for evaluation of the incidence
and treatment of osteoporosis.
Advantages of our DXA systems include high precision, low patient radiation
exposure equivalent to 1/10th of a conventional chest X-ray, a relatively fast
scanning time, low operating cost, no radioactive source and the ability to
measure bone density of the most important fracture sites, the spine and hip.
Our studies and those of independent investigators have demonstrated that the
systems can detect a change in spine bone density with a precision error of less
than 1%.
All our DXA systems employ our patented Automatic Internal Reference System,
which continuously calibrates each patient's bone density measurement to a known
standard. This system virtually eliminates errors that might result from manual
calibration and saves operators the time-consuming task of calibrating several
times a day. The system automatically compensates for drift in the X-ray system,
detectors or other electronic components, which ensures long-term measurement
stability.
Each of our DXA systems contains an X-ray source mounted beneath the patient.
The X-ray source generates alternating high and low energy pulses in a thin beam
that passes through our patented Automatic Internal Reference
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System and then through the patient to an X-ray detector mounted above the
patient. When the X-ray beam is detected, it contains information about the
X-ray absorbing characteristics of both the patient and the calibration
materials in the Automatic Internal Reference System at each of the two levels
of radiation. The system converts this information into a digital format which
is processed and analyzed by a computer and displayed on a high-resolution color
monitor, both of which are incorporated into the system.
We have invested substantial resources in developing operating and
applications software for our systems. The software includes calibration
software, automated scan and analysis programs for each scan site, and a patient
data base manager that archives all raw data for later retrieval and analysis
and allows the operator to review the current image with an earlier image of the
same patient.
In November 1999, we introduced the Delphi QDR series bone densitometer at the
annual meeting of the Radiological Society of North America. The new Delphi QDR
series bone densitometer offers physicians the ability to simultaneously assess
two of the strongest risk factors for osteoporotic fracture: existing fractures
of the spine and low bone density. Using high-resolution fan-beam X-ray imaging
technology, Delphi provides instant vertebral assessment, permitting rapid
visual inspection of the spine in a clinical setting. The combination of bone
mineral density assessment and spine fracture assessment should improve the
clinician's ability to accurately target therapy to those who can benefit most.
We anticipate we will begin commercial shipments of the Delphi system in early
2000.
Our QDR 4500 ACCLAIM series of bone densitometers offers rapid scanning and
high-resolution imaging using the latest available fan beam and high density,
solid-state multi-detector array technology. In addition, the QDR 4500 ACCLAIM
series is built in modular configurations that allow customers to add new
features and capabilities, while protecting their investment in the equipment
and patient data. The ACCLAIM series is comprised of four modular systems: the
high-end QDR 4500A, the QDR 4500SL, the QDR 4500W and the QDR 4500C clinical
bone densitometer.
An important feature of the QDR 4500A and QDR 4500SL is their ability to
perform lateral, side-to-side scans of the lower spine, without turning the
patient on her side, in addition to the posterior-anterior, back-to-front
measurements. The QDR 4500A and QDR 4500SL ACCLAIM are capable of producing high
quality images of the spine, lateral spine, hip and other skeletal sites. The
ACCLAIM's scan arm allows for multiple scan views without patient repositioning.
The images produced can be combined with capabilities that enable the dimensions
of the spine to be determined with a radiation dose approximately ten to 100
times lower than that of conventional chest X-rays. Using the QDR 4500A or the
QDR 4500SL, high-quality lateral images of the entire spine can be obtained in
as little as ten seconds.
The ACCLAIM and Delphi systems are designed to be installed in a standard
examination room. The special tabletop design and motorized scanner C-arm allow
the QDR 4500C and QDR 4500SL to be installed in an 8ft x 8ft examination room.
The QDR 4500W, QDR 4500A and Delphi systems require an 8ft x 10ft room.
Installation requirements for any of the ACCLAIM or Delphi bone densitometers
are minimal, and these systems normally do not require special electrical,
structural or lead-shielding preparation. In addition to their small size, the
QDR 4500 and Delphi series offer virtually silent operation. In fiscal 1999,
the ACCLAIM series accounted for approximately 82% of our DXA sales.
Our QDR 4000 pencil beam bone densitometer combines the reliability and
economy of our DXA bone densitometers with a unique package of value-added
applications that provide physicians with bone density measurements of the hip,
spine and forearm. The QDR 4000 is targeted at the price-sensitive segment of
the market.
Ultrasound. In December 1994, we acquired the ultrasound bone analyzer
business of Walker Sonix. Walker Sonix had developed an ultrasound product line
to assess bone mineral status of the heel. The Walker Sonix ultrasound devices
measured two ultrasound parameters through a water medium to characterize bone
mineral status. The use of water as a medium, which is a characteristic of other
ultrasound bone analyzers, requires the patient to place her foot in water. The
use of water requires cumbersome plumbing and cleaning mechanisms to be
incorporated in the system.
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We developed internally an enhanced dry ultrasound bone analyzer, called
Sahara, that does not require the use of water. We believe that this "dry"
technology offers further operator convenience by the elimination of the water
handling required between each patient. On March 13, 1998, the FDA approved our
commercial sale of the Sahara. We believe that ultrasound systems represent a
relatively low cost, compact, easy-to-use, non-ionizing, measurement technique
to assist in the initial diagnosis of osteoporosis.
DIRECT-TO-DIGITAL IMAGING PRODUCTS
Overview
On June 3, 1999, we acquired Direct Radiography Corp. and the land and
buildings where it conducts its business for approximately $20 million. Direct
Radiography, now one of our wholly owned subsidiaries, has developed proprietary
direct-to-digital imaging technology that allows X-ray processing to occur
without the need for conventional X-ray film. With this technology, direct-to-
digital systems and products can produce radiographic images in a matter of
seconds and then electronically display, transfer and store these images in a
computer.
For nearly 100 years, conventional projection radiography has used film to
capture X-ray images. Conventional technology requires that X-ray film be
exposed and then chemically processed to create a visible image for diagnosis.
For over 60 of those years, the standard for medical imaging has been X-ray film
in combination with various intensifying screens because of the functional
utility and perceived high viewing quality of film-produced images. X-ray film
has performed the functions of capture, display, storage, and communication of
the image data.
Digital imaging modalities, such as computed tomography, ultrasound and
nuclear medicine, gained widespread acceptance in the 1970s as alternatives to
conventional X-ray film. In the 1980s, magnetic resonance imaging, computed
radiography and digital subtraction angiography furthered the trend toward
digital imaging. Even so, an estimated 65% of all diagnostic examinations are
still performed using conventional analog radiography.
Until recently, efforts to integrate conventional radiography into the digital
environment have been less than satisfactory compromises, requiring both
intermediate conversion steps and additional work by technologists. These
compromises include the use of film digitizers, phosphor-based computed
radiography systems and the digital conversion of video outputs.
The recent emergence of direct-to-digital imaging technology has provided the
means to address the problems associated with the earlier digital techniques by
avoiding the intermediate conversion process and reducing work for
technologists. This technology allows very rapid access to digital images and
provides an image quality that we believe exceeds that of both screen-film
receptors and computed radiographic systems.
Direct-to-digital detectors such as Direct Radiography's flat panel detector
use an X-ray semiconductor material, amorphous selenium, to directly convert
X-ray photons into an electric charge. Unlike conventional film and indirect-
conversion digital technologies, these direct-to-digital detectors do not
require the use of intensifying screens, intermediate steps or additional
processes to capture and convert the incident X-ray energy.
The Direct Radiography proprietary flat panel technology, DirectRay, uses
solid state electronic and semiconductor technologies to directly capture X-ray
photons and convert them into digital signals. We believe this direct-to-
digital conversion process produces superior quality images when compared to
other competitive technologies such as computed radiography systems and
conventional screen film systems. These other technologies use an indirect
conversion process that first converts X-ray energy into light and then converts
light into electrical signals. We believe this indirect photo conversion
process degrades the image quality when compared to images produced using the
DirectRay flat panel technology. We offer the DirectRay flat panel digital
technology in several forms, including fully integrated radiography systems,
image capture upgrades to existing X-ray equipment, and stand-alone components
for OEMs to incorporate into their own equipment.
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We believe that trends in the healthcare industry will increase the demand for
direct-to-digital technologies such as DirectRay. Digital capture technology
addresses the trend towards decentralization of healthcare, allowing diagnostic
images to be captured in an outpatient setting and delivered electronically for
interpretation throughout the provider's computer network. The capture of
diagnostic images in digital format should enable hospitals to share patient
data and allow radiologists to confer more easily regarding diagnoses. Patient
images can be transmitted electronically to any location without compromising
image quality. We believe our direct-to-digital technology meets the needs of
hospital radiology departments, particularly the need to increase productivity
and to reduce costs. A direct-to-digital system can significantly enhance
productivity by eliminating costs associated with the handling and development
of film. Direct-to-digital technologies should also benefit from the increasing
installation of hospital Picture, Archive and Communication Systems, known as
PACS, to store X-ray images electronically and replace costly film archiving
systems.
Since acquiring Direct Radiography Corp. in June 1999, we have proceeded with
the integration of that company and its technology into our product line. Our
focus over the past six months has been commercializing our existing products,
expanding our product line, establishing research and development priorities,
and developing a global distribution network. At the annual meeting of the
Radiological Society of North America in November 1999, we introduced two new
integrated direct-to-digital general radiography systems, the EPEX(TM) and
RADEX(TM). The addition of these two new systems to our product line will
provide hospitals with a variety of configurations and price-points to meet
their specific direct-to-digital needs.
We have pursued and continue to pursue agreements to expand our direct-to-
digital market. In September 1999 we entered into an OEM agreement with E-Com
Technology LTD of Zhuhai, China, to sell our DirectRay detectors. In October we
entered into a long-term sales agreement with Agfa Corporation. The agreement
gives Agfa exclusive worldwide selling rights to DirectRay X-ray image capture
detectors for the nondestructive testing market. Agfa has advised us that it
plans to sell the DirectRay detectors in a broad range of nondestructive testing
applications where image quality and throughput are critical. In addition,
Kodak Corporation has announced that it intends to purchase DirectRay flat panel
detectors for use in new products. In making its announcement, Kodak stated
that it selected this technology because it delivers the highest standard of
digital radiography image quality available today, and because this technology
alone among current digital radiography technologies has the potential for use
across the full range of clinical applications in the future. Kodak further
explained that its decision was based on an in-depth analysis of digital
radiography technologies, its own extensive understanding of imaging science,
and the investment in research and clinical validation by a number of companies
currently developing the amorphous selenium digital radiography technology.
These developments reinforce our belief that direct-to-digital imaging is a
state-of-the-art technology that has the potential to be a leading digital
imaging product in radiology if the X-Ray market transitions from film-based to
full digital imaging in both medical and non-medical markets.
PRODUCTS
All of our Direct Radiography products employ our patented DirectRay flat
panel technology. Employed similarly to a conventional X-ray film cassette, the
panel is paired with a controller that provides power and performs basic image
processing. The panel and controller are positioned under the examining table
and make use of a mechanical sleeve, referred to as a "bucky," that holds the
DirectRay panel in place.
Integrated Products. Our Direct Radiography integrated product line offers
high quality imaging, ease-of-use, a full range of motion for easy patient
positioning in multiple planes, and full DICOM compliance, which is the standard
protocol for communicating with a hospital's Picture, Archive and Communication
Systems, known as PACS.
. EPEX and RADEX. In November 1999, we introduced two new integrated direct-
to-digital general radiography systems at the annual meeting of the
Radiological Society of North America. The EPEX system is a high-end system
that permits a full range of general radiography examinations. The RADEX
system is a
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simpler general radiography system designed with need for flexibility as
required by outpatient departments. We expect that these systems will be
available for installation in early calendar 2000.
. DR1000. The DR1000 system is designed for general purpose radiology. The
system has a ceiling-mounted U-arm that can be moved to various positions
and distances to accommodate a wide range of examinations, including many
of the most difficult trauma procedures, with a minimum of patient
inconvenience. This flexibility allows the system to be used for multiple
purposes: as a chest unit; a skeletal unit; a trauma unit; a head unit; an
extremity unit; and a pediatric unit.
. DR1000C. The DR1000C is a dedicated chest radiography system. The system is
configured to provide a wide range of vertical motion, allowing upright
chest radiography of most patients, ranging from a small child to a large
adult.
Digital Upgrade Products. Our Digital Upgrade products offer customers a cost-
effective way to convert existing conventional film-based X-ray equipment to
DirectRay technology. This customized offering includes a replacement bucky
assembly specifically designed for the DirectRay detector, and related control
equipment. This product is installed in place of the existing bucky mechanism
in the examination table, enabling the conversion to a direct-to-digital system.
This upgrade opportunity will vary depending on the different specifications on
the wide variety of X-ray systems installed worldwide. This upgrade is
currently available for some of General Electric's conventional X-ray systems.
We expect to introduce additional upgrade products for some of the more widely
used conventional products during fiscal 2000.
OEM Products. We offer our DirectRay panel for sale to OEMs that desire to
incorporate direct-to-digital technology into their product offerings. Our
current OEM customers include Agfa, Analogic (a supplier to Kodak) and E-Com
Technology.
MINI C-ARM IMAGING PRODUCTS
Overview
We manufacture and distribute the FluoroScan Imaging System, a low intensity,
real-time mini c-arm X-ray imaging device which provides high resolution images
at radiation levels and at a cost well below those of conventional X-ray and
fluoroscopic equipment. These mini c-arm systems are used primarily by
orthopedic surgeons to perform minimally invasive surgical procedures on a
patient's extremities, such as the hand, wrist, knee, foot and ankle.
We believe that trends in the healthcare industry could broaden the use of
mini c-arms from the hospitals and surgery centers to private orthopedic and
podiatric physician groups. Some of these trends include:
. the emergence of technology that enables minimally invasive procedures and
therapies;
. the increase in the number of office-based procedures and examinations as a
result of efforts to contain healthcare costs; and
. the development of new treatments and pharmaceuticals such as synthetic
bone materials that are facilitated by the use of a mini c-arm to perform
these procedures.
PRODUCTS
Our offering of mini c-arm products includes the OfficeMate, the FluoroScan
III and the more recently introduced Premier product line. The OfficeMate and
FluoroScan III use a "night vision" intensifier. The intensifier allows the
systems to produce high resolution readily viewable images by using a small
amount of radiation, converting it to visible light and amplifying it
approximately 50,000 times. The same night vision intensifier, as used by the
military, allows clear views of a battlefield at night by amplifying small
amounts of light. Advantages of these FlouroScan
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<PAGE>
systems over conventional X-ray imaging devices, such as c-arms, image
intensifiers and fluoroscopy equipment, include a substantial reduction of
radiation to the patient and of scatter radiation to the surgeon and other
operating room personnel, a cost of approximately one-third of the cost of a
conventional c-arm, and mobility.
In combining our expertise developed using "night vision" technology and dual-
energy X-ray technology, we developed a new X-ray image intensifier that we
incorporated in our Premier mini c-arm product line. By coupling this
intensifier with other technical innovations, we have been able to significantly
improve our image quality.
Premier. We introduced the Premier mini c-arm system in August 1998. The
Premier's .085 mm focal spot X-ray tube, currently the smallest in the mini c-
arm industry, provides clear resolution and detailed images on a six-inch field
of view. The Premier's mini c-arm is designed to rotate 360 degrees easily.
The Premier also features:
. readily accessible surgeon centered controls on the c-arm, which make both
assisted and unassisted operation much easier;
. a compact design;
. dual video channels that allow a surgeon to display different views of the
anatomy for side-by-side comparison;
. four image buffer memories for instant recall of previous images;
. permanent storage of up to 4,000 full resolution digital images; and
. built-in video and Ethernet connections that allow the user to output
images to a printer or workstation, send to or receive from remote work
stations, or record, review and archive images using existing Windows NT or
hospital Picture, Archive and Communication Systems, known as PACS.
We believe that the combination of advanced technical features and ease-of-use
has made the Premier attractive to hospital, surgery centers, orthopedic group
practices and private physician offices.
OfficeMate. We introduced the OfficeMate imaging system in fiscal 1997. This
system was designed specifically to meet the needs of the physician office. The
OfficeMate features efficient, user-friendly operation, high resolution real-
time and freeze frame images, full 360-degree arm rotation and the choice of
three or four inch field-of-view. Due to its compact size and portability, we
believe the OfficeMate is well suited for the in-office extremity imaging
requirements of hand and orthopedic surgeons.
FluoroScan III. We introduced the FluoroScan III imaging system in fiscal
1996. The FluoroScan III has a four or five inch field-of-view and is targeted
primarily at orthopedic surgeons, operating rooms, emergency rooms and
ambulatory surgery centers. Like the Premier, the FluoroScan III has dual video
channels that allow a surgeon to display different views of the anatomy for
side-by-side comparison, four image buffer memories for instant recall of
previous images and the capability for permanent storage of up to 4,000 full
resolution digital images.
Other Products: Scanora and Cranex
In order to take advantage of our European sales force and associated
distribution capability, we distribute Scanora and Cranex, specialized systems
for taking X-ray images of facial structures. These systems are manufactured by
Soredex, S.A., a division of Orion Corporation of Helsinki, Finland. We are the
exclusive distributor of Scanora and Cranex systems in Western Europe, the
Middle East and Africa, excluding South Africa and Namibia. In addition, we have
non-exclusive distribution rights in several Eastern European countries. Our
distribution agreement with Soredex is renewable annually.
MARKETING AND SALES
Domestic Market. In the United States, we sell our bone densitometer, direct-
to-digital imaging and mini c-arm products to hospitals, hospital radiology
departments, and radiology clinics primarily through our direct sales force. We
sell our DXA products to the primary care market through a combination of our
direct sales force and an independent
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distributor, Physician Sales and Service, Inc., known as PSS. PSS had previously
been our exclusive distributor for most of our DXA products in this market. We
converted this exclusive relationship to a nonexclusive relationship in November
1999. We continue to have an exclusive distribution agreement with PSS to sell
our Sahara bone sonometer to the primary care market. Our Sahara distribution
agreement with PSS expires in May 2000 and may be terminated by either party on
30 days notice. In fiscal 1999, PSS accounted for approximately 14% of our
product sales.
Strategic Alliance Program. During the first two quarters of fiscal 1999, we
marketed our DXA products to the primary care market in the United States, in
part, through our strategic alliance program with Sanwa Business Credit
Corporation, now known as Fleet Business Credit Corporation. Under this
program, Sanwa purchased bone densitometry equipment from us that they leased to
physicians, primarily in the primary care market, on a fee-per-scan basis. At
the end of February 1999, Fleet discontinued the placement of new bone
densitometers under our strategic alliance program. Under our strategic alliance
program, we continue to be obligated to remarket equipment repossessed by or
returned to Fleet Business Credit Corporation. As Fleet has received significant
returns under this program, our efforts to remarket equipment sold under the
strategic alliance program could have a material adverse effect on our future
product sales. We have also guaranteed to reimburse Fleet for certain losses
that Fleet may incur as a result of this arrangement up to 10% of the total fee-
per-scan contracts funded under the program. We are currently in litigation
with Fleet over this arrangement as described in further detail in Item 3.
International Markets. We sell our products in international markets through
independent distributors, as well as a direct sales force in France, the Benelux
countries, Spain and Portugal. As of November 30, 1999, we had 12 employees
engaged in sales in Europe. We distribute our DXA and ultrasound products in
Japan through Toyo Medic, which has been our exclusive distributor in Japan
since April 1988. The agreement requires Toyo Medic to purchase minimum
quantities and to provide technical and warranty support to its customers.
In a number of other territories outside the United States, we sell our
systems through independent distributors, all of whom offer technical support.
We offer our DXA systems into Latin America, including Argentina, Brazil and
Chile, and into Pacific Rim countries other than Japan, including Australia, The
Peoples Republic of China, South Korea and Taiwan, by working with local sales
representatives and distributors or entering into strategic marketing alliances
in those territories. We believe that with time, Eastern Europe may present a
significant opportunity for growth, and we are also seeking to expand our
presence in the area. In fiscal 1999, foreign sales accounted for approximately
37% of our product sales. See Note 11 of Notes to Consolidated Financial
Statements for geographical information concerning those sales.
OEM and Upgrade Markets for Direct Radiography Products. Our sales to OEMs
are coordinated by our OEM sales manager, who oversees a team of individuals
from sales, marketing, engineering, operations and senior management. In
October we entered into a long-term OEM sales agreement with Agfa Corporation
providing Agfa with exclusive worldwide selling rights to DirectRay X-ray image
capture detectors for the nondestructive testing market. We also entered into
an OEM agreement with E-Com Technology to sell our DirectRay detectors in China.
Our current OEM customers include Agfa, Analogic (a supplier to Kodak) and E-Com
Technology.
In the United States, we market our upgrade systems primarily through
independent distributors. Our current distributors for upgrades include
Richardson Electronics, MedAssets and North American Imaging, and we are in
discussions with potential additional distributors to expand this network.
COMPETITION
The bone assessment market is highly competitive and characterized by
continual change and improvement in technology, and multiple technologies that
have been or are under development. Some of the companies in this industry have
significantly greater manufacturing, marketing and financial resources than we
do. Competitors may develop superior products or products of similar quality
for sale at the same or lower prices. Moreover, our products could be
11
<PAGE>
rendered obsolete by new industry standards or changing technology. We cannot
assure that we will be able to compete successfully with existing or new
competitors.
Lunar, Norland Medical Systems, Aloka, Diagnostic Medical Systems and Hitachi
have developed DXA systems to measure bone density of the hip and spine. In
addition, Lunar, Norland Medical Systems, OSI Systems and Schick have peripheral
X-ray systems that compete with our DXA and ultrasound bone densitometry
products, primarily on price. We believe that competition in the field of DXA
bone densitometry is based upon product versatility and features, price,
precision, speed of measurement, patient radiation dose, cost and ease of
operation, product reliability and quality of service. While we are generally
not the lowest cost provider of DXA systems, we believe that we have been able
to compete effectively because of our advanced technology and product features.
We believe that an advantage of the Delphi system will be its unique ability,
among other DXA systems, to assess vertebral fractures as well as bone density.
However, we cannot assure that this system will be commercially successful.
Recently, increased competition, which has resulted in price reductions, and a
slow down in our penetration of the primary care market have adversely affected
our DXA sales.
In ultrasound, we compete with Lunar, Myriad, McCue and OSI Systems and expect
additional competitors in the future based upon the greater availability of
ultrasound technology. We believe that competition in the field of ultrasound
systems is based on price, precision, speed of measurement, cost and ease of
operation, product versatility, product reliability and quality of service. We
believe that advantages of our Sahara ultrasound bone analyzer system include
the system's dry operation, simple single-button operation, and a compact and
self-contained design that does not require the use of a separate computer. We
believe that ultrasound systems also compete with DXA systems in the diagnostic
market for initial screening of patients. However, we believe that because
ultrasound systems can only measure peripheral skeletal sites and do not have
the precision of DXA systems, DXA systems will continue to be the predominant
means of monitoring bone density for patients being treated for or at high risk
of osteoporosis.
Our direct-to-digital imaging products compete with traditional X-ray systems
as well as indirect-conversion systems such as computed radiography systems,
which are less expensive than our products, and other direct-to-digital systems.
Many of these competitors have established relationships with hospitals and
other of our potential customers in our targeted markets. The larger
competitors in these markets include General Electric, Siemens, Philips, Canon
and Varian. We have only recently introduced our direct-to-digital imaging
products, and have had only limited sales of these products, primarily for test
purposes. As a result, the markets for these products are unproven. There is a
significant installed base of conventional X-ray imaging products in hospitals
and radiological practices. The use of our direct-to digital X-ray imaging
products would require these potential customers to either modify or replace
their existing X-ray imaging equipment. Because of the early stage of the
markets for these products, it is likely that our evaluation of the potential
markets for these products will materially vary with time. We cannot assure
that any significant market will develop for our direct-to-digital imaging
products.
Our mini c-arm products compete directly with mini c-arms manufactured and
sold by a limited number of companies including Lunar, OEC Medical and XiTec. We
also compete indirectly with manufacturers of conventional c-arm image
intensifiers including Philips, Siemens, General Electric, OEC Medical, Fischer
Imaging and Picker International. We believe that competition for our mini c-arm
systems is based largely on price, quality, service and production capabilities.
We believe that advantages of our mini c-arm systems include low levels of
radiation, low costs, mobility, quality and durability.
MANUFACTURING
We manufacture our DXA and ultrasound systems at our headquarters facility in
Bedford, Massachusetts. Manufacturing operations for our DXA and ultrasound
systems consist primarily of assembly, test, burn-in and quality control. We
purchase a major portion of the parts and peripheral components for these
products, and manufacture some subsystems, such as the high-voltage X-ray power
supply, from raw materials. Parts and materials for our DXA systems are
generally readily available from several supply sources.
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We manufacture our direct radiography plates at our manufacturing facility in
Newark, Delaware and our EPEX and RADEX systems at our facility in Bedford,
Massachusetts. Our DR1000 and DR1000C systems are currently manufactured by an
X-ray system manufacturer. Our manufacture of DirectRay plates consists
primarily of vapor deposition in clean rooms, assembly, test, burn-in and
quality control. We rely on one or only a limited number of suppliers for key
components or subassemblies for our plates. In particular we have only one
source of supply for our panel and only one source of supply for the coating of
that panel.
Our manufacture of the rest of a DirectRay system differs from the process for
manufacture of the plate, and consists primarily of assembly, test, burn-in and
quality control. Parts and materials for these systems are generally readily
available from several supply sources.
We manufacture our mini c-arm systems at our manufacturing facility in
Northbrook, Illinois. Manufacturing operations for our mini c-arms consist
primarily of final assembly, test and quality control. All of the materials and
most of the purchased components used in manufacturing these products are
readily available from numerous sources. However, several key components require
high technology including the X-ray tube, image intensifier, video camera and
fiberoptic taper are manufactured by only one or a small number of suppliers.
Obtaining alternative sources of supply of components or systems that are
available from only one or a limited number of suppliers could involve
significant delays and other costs, and these supplies may not be available to
us on reasonable terms, if at all. The failure of a component supplier or
contract assembler to provide acceptable quality and timely components or
assembly service at an acceptable price, or an interruption of supplies from
such a supplier could have a material adverse effect on our business, financial
condition or results of operations.
BACKLOG
Our backlog as of November 30, 1999 totaled $10.7 million and as of November
30, 1998 totaled $10.6 million. Backlog consists of purchase orders for which a
delivery schedule within the next twelve months has been specified by the
customer. Orders included in backlog may be canceled or rescheduled by customers
without significant penalty. Backlog as of any particular date should not be
relied upon as indicative of our net revenues for any future period.
RESEARCH AND DEVELOPMENT
Our research and development efforts are focused on enhancing our existing
products and developing new products. Our current emphasis is the development
of software improvements for our existing products, and the development of the
digital plates and the engineering and system design of new end-use digital
radiography products. Our research and development personnel also are involved
in establishing protocols, monitoring, and interpreting and submitting test data
to the FDA and other regulatory agencies to obtain the requisite clearances and
approvals for our products. Our research and development group was responsible
for the development of our Delphi QDR series bone densitometer, and the
development of our EPEX and RADEX direct-to-digital imaging systems introduced
at the annual meeting of the Radiological Society of North America in November
1999. Our research and product development expenses were approximately
$12.7 million in fiscal 1999, $9.8 million in fiscal 1998 and $8.5 million in
fiscal 1997.
Patents and Proprietary Rights
We rely primarily on a combination of trade secrets, patents, copyright and
trademark laws, and confidentiality procedures to protect our technology. Due to
the rapid technological change that characterizes the medical instrumentation
industry, we believe that the improvement of existing products, reliance upon
trade secrets and unpatented proprietary know-how and the development of new
products are generally as important as patent protection in establishing and
maintaining a competitive advantage. Nevertheless, we have obtained patents and
will continue to make efforts to obtain patents, when available, in connection
with our product development program. As of November 30,
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1999, we have obtained 59 patents, licensed 17 patents and have pending 53
patent applications in the United States. Of these patents, 33 licensed or owned
patents relate to our DXA technology, 29 patents relate to our Direct
Radiography technology, 12 patents relate to our ultrasound technology and one
relates to our mini c-arm technology. These patents have expiration dates
ranging from 1999 to 2016. One of our licensed U.S. ultrasound patents will
expire in this year, and two licensed patents with ultrasound and X-ray claims
will expire in 2001. We do not believe that the expiration of these patents will
have a material adverse effect on our business. We have obtained or applied for
corresponding patents and patent applications for some of our patents and patent
applications in selected foreign countries.
In June 1989, we granted an exclusive worldwide license of our DXA technology
to Vivid Technologies, Inc., an affiliate of S. David Ellenbogen and Jay A.
Stein, our Chief Executive Officer and Senior Vice President, for the sole
purpose of developing a baggage inspection and security system. In September
1996, we also granted Vivid Technologies, Inc. a nonexclusive license to be used
for the development of X-ray based products for process control applications in
the food and beverage industry. We have also each granted to the other a non-
exclusive, royalty-free license to use any unpatented technology developed by
the other in connection with research and development activities. In addition,
we each have the right to obtain from the other an exclusive license, on
commercially reasonable terms to be negotiated, for any patented new
developments. In connection with a proposed acquisition of Vivid by PerkinElmer,
we and Vivid have agreed that upon completion of the merger, these arrangements
will terminate, other than Vivid's exclusive license to our existing patents and
technology for the development, manufacture and sale of X-ray screening security
systems for explosives, drugs, currency and other contraband.
We had been involved in extensive patent litigation with Lunar, with each
party claiming that the other was infringing certain patents held by the other.
This litigation was settled by agreement dated November 22, 1995. The agreement
also provides that neither party will engage the other party in patent
litigation for a period of ten years following the date of the agreement,
regardless of the infringement claimed and regardless of whether the technology
in question currently exists or is developed or acquired by the other party in
the future. Neither party is required to disclose to the other any of its
technology during this ten year period or otherwise.
Regulation
The medical devices manufactured and marketed by us are subject to regulation
by the FDA and, in many instances, by foreign governments. Under the Federal
Food, Drug and Cosmetic Act, known as the FDA Act, manufacturers of medical
devices must comply with certain regulations governing the testing,
manufacturing, packaging and marketing of medical devices. Our products are also
subject to the Radiation Control for Health and Safety Act, administered by the
FDA, which imposes performance standards and record keeping, reporting, product
testing and product labeling requirements for devices using radiation, such as
X-rays.
The FDA generally must approve the commercial sale of new medical devices.
Commercial sales of our medical devices within the United States must be
preceded by either a premarket notification filing pursuant to Section 510(k) of
the FDA Act or the granting of a premarket approval. The 510(k) notification
filing must contain information that establishes that the device is
substantially equivalent to an existing device that has been continuously
marketed since May 28, 1976.
The premarket approval procedure involves a more complex and lengthy testing
and review process by the FDA than the 510(k) premarket notification procedure
and often requires at least several years to obtain. We must first obtain an
investigational device exemption, known as an IDE, for the product to conduct
extensive clinical testing of the device to obtain the necessary clinical data
for submission to the FDA. The FDA will thereafter only grant premarket approval
if, after evaluating this clinical data, it finds that the safety and efficacy
of the product has been sufficiently demonstrated. This approval may restrict
the number of devices distributed or require additional patient follow-up for an
indefinite period of time. On March 13, 1998, the FDA granted us premarket
approval for Sahara.
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Our systems are also subject to approval by certain foreign regulatory and
safety agencies. The FluoroScan System technology is governed by the
International Traffic in Arms Regulations of the United States Department of
State. As a result, the export of FluoroScan Systems to some countries may be
limited or prohibited.
We cannot assure that the FDA or foreign regulatory agencies will give the
requisite approvals or clearances for any of our medical devices under
development on a timely basis, if at all. Moreover, after clearance is given,
these agencies can later withdraw the clearance or require us to change the
device or its manufacturing process or labeling, to supply additional proof of
its safety and effectiveness, or to recall, repair, replace or refund the cost
of the medical device, if it is shown to be hazardous or defective. The process
of obtaining clearance to market products is costly and time-consuming and can
delay the marketing and sale of our products.
As a manufacturer of medical devices, we are subject to additional FDA
regulations and our manufacturing processes and facilities are subject to
continuing review by the FDA. Most states and many other foreign countries
monitor and require licensing of X-ray devices. Federal, state and foreign
regulations regarding the manufacture and sale of medical devices are subject to
future change. We cannot predict what impact, if any, such changes might have on
our business.
EMPLOYEES
As of November 30, 1999, we had 436 full-time employees, including 100 in
manufacturing operations, 95 in research and development, 181 in marketing,
sales and support services, and 60 in finance and administration. None of our
employees are represented by a union. We consider our employee relations to be
good.
ITEM 2. PROPERTIES
On July 30, 1998, we purchased a 200,000 square foot building located in
Bedford, Massachusetts for approximately $20 million in cash and incurred costs
of approximately $5 million for renovations. We moved our headquarters and
manufacturing into this facility on January 25, 1999. In connection with the
acquisition of Direct Radiography Corp., we purchased a 168,000 square foot
research and development, manufacturing and administrative site in Newark,
Delaware at which Direct Radiography Corp. conducts its research and development
and plate manufacture. We currently occupy approximately 66,000 square feet of
this building, which houses our plate manufacturing facility, including both a
class 1 and a class 2 clean room. We lease approximately 99,000 of the
remaining square feet of the facility to Agfa. This lease expires in May 2000,
and we are negotiating with Agfa for a longer term lease for 44,000 square feet
of this area. We intend to lease the remainder of the space that becomes
available in May 2000 to third parties. We also use approximately 25,500 square
feet of space in Northbrook, Illinois under a lease that expires in February
2001. We also maintain sales and service offices in France, Belgium and Spain.
We believe that we have adequate space for our anticipated needs and that
suitable additional space will be available at commercially reasonable prices as
needed.
ITEM 3. LEGAL PROCEEDINGS
On September 30, 1999, we filed suit against Fleet Business Credit
Corporation, formerly known as Sanwa Business Credit Corporation, in
Massachusetts Superior Court in Middlesex County. The lawsuit sought declaratory
relief and damages relating to our Strategic Alliance Program with Fleet
Business Credit Corporation. Under the program, which was discontinued in
February of this year, we sold bone densitometers to Sanwa, which Sanwa leased
to physicians on a fee-per-scan basis. Sanwa agreed to bear the primary risk
under the leases and to reimburse us for remarketing expenses. Fleet has
advised us that it has incurred substantial losses under the program and has
sought to shift the losses that Fleet faces to us and has failed to reimburse us
for its remarketing expenses. In our suit, we sought declaratory judgment
regarding Fleet's contractual obligations, reimbursement of remarketing
expenses, damages for Fleet's violation of its covenant of good faith and fair
dealing, and attorney's fees.
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On October 1, 1999, Fleet filed a complaint in the Chancery Division of the
Circuit Court of Cook County, Illinois, seeking an injunction to stop the
Massachusetts action, and alleging fraud, breach of warranty and breach of
contract by us. The complaint seeks unspecified damages in excess of $50,000
for each count. The complaint relates to units sold and returned under the
strategic alliance program as described in further detail in Item 7 of this
report, Management's Discussion and Analysis of Financial Condition and Results
of Operations, under the heading, Liquidity and Capital Resources. Following
filing of this action, we stipulated to the dismissal of our Massachusetts
lawsuit. We filed a motion to dismiss the Illinois suit on December 18, 1999,
and we are awaiting a hearing date. If the motion is not granted, we intend to
file a counterclaim consistent with our claims in our initial Massachusetts
suit. We believe that we have meritorious defenses and counterclaims and intend
to vigorously pursue our position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Information. Our common stock is traded on the Nasdaq National Market
under the symbol "HOLX." The following table sets forth, for the periods
indicated, the high and low bid prices per share of our common stock, as
reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 26, 1998 High Low
<S> <C> <C>
First Quarter $ 29 1/8 $ 20 3/8
Second Quarter $ 29 5/8 $ 18 3/4
Third Quarter $ 29 3/4 $ 17 3/8
Fourth Quarter $ 18 15/16 $ 9 7/8
- ------------------------------------------------------------------------------
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 25, 1999 High Low
<S> <C> <C>
First Quarter $ 16 7/16 $ 9 7/8
Second Quarter $ 13 3/8 $ 8 1/2
Third Quarter $ 11 1/8 $ 5 1/2
Fourth Quarter $ 6 7/16 $ 3 15/16
- -------------------------------------------------------------------------------
</TABLE>
Number of Holders. As of December 16, 1999, there were approximately 1,959
holders of record of our common stock, including multiple beneficial holders at
depositaries, banks and brokers listed as a single holder in the street name of
each respective depositary, bank or broker.
Dividend Policy. We have never declared or paid cash dividends on our capital
stock and do not plan to pay any cash dividends in the foreseeable future. Our
current policy is to retain all of our earnings to finance future growth.
Recent Sales of Unregistered Securities. On November 12, 1998, we granted
3,000 shares of our common stock to each of three of our executive officers. On
that same date, we also granted 500 shares of our common stock to each of four
of our non-executive employees. These shares were granted in connection with the
performance of services.
We did not register these securities under the Securities Act of 1933, as
amended, in reliance upon the exemptions from registration set forth in Sections
3(b) and 4(2) of that act, relating to offers and sales by an issuer not
involving any public offering. None of these transactions, either individually
or in the aggregate, involved a public offering.
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ITEM 6. SELECTED FINANCIAL DATA.
Our historical selected financial data has been retroactively restated to
reflect the merger with FluoroScan in a pooling-of-interests transaction in
August 1996.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
September 30, September 28, September 27, September 26, September 25,
1995 1996 1997 1998 1999
====================================================================================================================================
CONSOLIDATED STATEMENT OF OPERATIONS DATA (In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales $54,276 $ 88,201 $102,781 $111,498 $ 81,737
Other revenue 2,270 3,390 3,908 4,066 2,403
------- -------- -------- -------- --------
56,546 91,591 106,689 115,564 84,140
------- -------- -------- -------- --------
Costs and Expenses:
Cost of product sales 27,549 41,253 47,492 55,891 50,333
Research and development 4,499 7,283 8,527 9,778 12,664
Selling and marketing 11,052 16,504 19,448 28,589 19,658
General and administrative 6,879 9,081 8,827 10,452 10,963
Litigation expenses 2,533 798 --- --- ---
Acquisition expenses --- 1,949 --- --- ---
------- -------- -------- -------- --------
52,512 76,868 84,294 104,710 93,618
------- -------- -------- -------- --------
Income (loss) from operations 4,034 14,723 22,395 10,854 (9,478)
Interest income 883 2,583 5,346 5,998 4,204
Other expense (56) (249) (172) (664) (548)
------- -------- -------- -------- --------
Income (loss) before income taxes 4,861 17,057 27,569 16,188 (5,822)
Provision (benefit) for income taxes 1,513 5,700 9,840 5,800 (2,075)
------- -------- -------- -------- --------
Net income (loss) $ 3,348 $ 11,357 $ 17,729 $ 10,388 ($3,747)
======= ======== ======== ======== ========
Net income (loss) per share:
Basic $.33 $.97 $1.37 $.78 $(.27)
======= ======== ======== ======== ========
Diluted $.34 $.91 $1.30 $.75 $(.27)
======= ======== ======== ======== ========
Weighted average number of shares outstanding:
Basic 10,230 11,698 12,986 13,259 13,950
======= ======== ======== ======== ========
Diluted 9,831 12,524 13,672 13,766 13,950
======= ======== ======== ======== ========
====================================================================================================================================
Consolidated Balance Sheet Data
Working capital $27,189 $ 97,199 $112,869 $ 99,633 $ 89,823
Total assets 44,083 123,107 144,667 172,597 175,770
Total liabilities 12,551 15,835 17,900 32,215 25,348
Stockholders' equity 31,532 107,272 126,767 140,382 150,423
====================================================================================================================================
</TABLE>
(1) All share and per share data has been restated to reflect the 2-for-1 stock
split that occurred on March 25, 1996.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis should be read in conjunction with the
"Selected Consolidated Financial Data" and the Consolidated Financial Statements
included elsewhere in this Report and the information described under the
caption "Risk Factors" below.
OVERVIEW
From inception through fiscal 1998, we had experienced generally increasing
annual sales as interest in bone diseases, such as osteoporosis, has grown, as
new drug therapies have become available in the United States and other
countries to treat these diseases and as the use of DXA systems to measure bone
density has become more widespread. In fiscal 1999, sales of our X-ray bone
densitometers decreased by approximately 45% compared to fiscal 1998. This
decrease was primarily due to lower sales to the primary care market in the
United States and, to a lesser extent, increased competition, which has resulted
in price reductions.
We introduced the first dual energy X-ray absorptiometry (DXA) bone
densitometer in 1987 and continued with a string of new product advancements
including the introduction of the fourth-generation clinically-oriented ACCLAIM
series of bone densitometers in fiscal 1995. Recently, at the November 1999
Radiological Society of North America ("RSNA") show we introduced our latest DXA
bone densitometer, Delphi, which is the only densitometer to measure vertebral
fracture assessment as well as bone mineral density. Vertebral fractures are an
important risk factor for osteoporosis and together with bone mineral density
assessment can significantly improve the estimation of future fracture risk.
In July 1996, we began international shipments of Sahara, a completely dry
ultrasound bone sonometer system that does not require water as a coupling
medium like the other competitive devices. In March 1998, Sahara was approved
for sale in the United States by the FDA. We believe that future growth of our
bone assessment products will be in part conditional upon the success of sales
of Sahara, especially in the United States to the primary care market.
In fiscal 1996, we acquired FluoroScan Imaging Systems, Inc., an industry
leader in the field of mini c-arm imaging systems. Sales of mini c-arms
accounted for approximately 18% of our total revenues in fiscal 1999 and for
less than 10% of our total revenues prior to this year.
On June 3, 1999, Hologic acquired Direct Radiography Corp. and the land and
buildings at which it conducts its business for approximately $20 million. DRC
is a development stage manufacturer of digital x-ray systems for medical imaging
and non-destructive testing applications. At the recent RSNA show, we
introduced two new general radiography digital systems, EPEX and RADEX,
scheduled to be available in early 2000. These systems complement the currently
available chest system and upgrade system. In fiscal 2000, we expect to
continue to invest heavily in the research and development of the digital plates
and the engineering and system design of new end-use digital radiography
products.
On June 29, 1999, we sold the Medical Data Management division to Synarc,
Inc., a privately held imaging provider, in exchange for a minority ownership
position in Synarc, Inc. Our revenues from this division for the first nine
months of fiscal 1999 were $1.2 million. The sale of this division did not
result in any significant gain or loss to us.
The availability of reimbursement to healthcare providers for bone density
measurements of patients continues as an important factor in the attractiveness
of our bone densitometers. Effective January 1, 1998, the Health Care Finance
Administration, the agency which administers Medicare, increased the recommended
reimbursement rates for central DXA tests to a national average of $131, from
$121, and in October 1998, the American Medical Association established a
permanent Current Procedural Terminology ("CPT") code for ultrasound bone
density measurement. The newly created CPT code became effective January 1,
1999 with a recommended national average reimbursement rate of $42. In
addition, the recommended reimbursement rate for central DXA tests has remained
at approximately $131 on average.
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Reimbursement also exists for vertebral fracture assessment, available on our
new Delphi, at a national average of approximately $24.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
revenues represented by items as shown in our consolidated statements of
operations.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
---------------------------------------------------
September 27, September 26, September 25,
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Revenues:
Product Sales 96.3 % 96.5 % 97.1 %
Other revenue 3.7 3.5 2.9
- ----------------------------------------------------------------------------------------------------
100.0 100.0 100.0
- ----------------------------------------------------------------------------------------------------
Cost and expenses:
Cost of product sales 44.5 48.4 59.8
Research and development 8.0 8.5 15.1
Selling and marketing 18.2 24.7 23.4
General and administrative 8.3 9.0 13.0
- ----------------------------------------------------------------------------------------------------
79.0 90.6 111.3
- ----------------------------------------------------------------------------------------------------
Income (loss) from operations 21.0 9.4 (11.3)
Interest income 5.0 4.7 5.0
Other expense (0.2) (0.1) (0.7)
- ----------------------------------------------------------------------------------------------------
Income (loss) before income taxes 25.8 14.0 (7.0)
Provision (benefit) for income taxes 9.2 5.0 (2.5)
Net income (loss) 16.6% 9.0% (4.5)%
- ----------------------------------------------------------------------------------------------------
</TABLE>
FISCAL YEAR ENDED SEPTEMBER 25, 1999 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 26,
1998
REVENUES. Total revenues decreased 27% to $84.1 million in fiscal 1999
compared to $115.6 million in fiscal 1998. The decrease in revenues was
primarily due to a decrease in revenues from DXA sales and in other revenues.
These decreases were partially offset by an increase in the number of mini c-arm
product sales, primarily from our recently introduced Premier system and, to a
lesser extent, by revenues from DRC. The decrease in DXA revenues was a result
of a decrease in the total number of domestic DXA bone densitometer product
shipments, especially to the United States primary care market including
strategic alliance sales to a leasing company, and to decreased unit prices.
This leasing company discontinued the placement of new bone densitometers under
the strategic alliance program in February 1999.
Other revenues consist primarily of revenue relating to medical data
management services provided to pharmaceutical companies to assist in the
collection and monitoring of clinical trial data, royalty revenues from our
licensing of our DXA technology to Vivid Technologies, Inc. for explosives
detection screening, and additional revenues generated from our Strategic
Alliance Program on a fee-per-scan basis. In fiscal 1999, other revenues
decreased 41% to $2.4 million from $4.1 million in fiscal 1998 primarily due to
a decrease in revenues relating to medical data management services provided by
our medical data management division, which we sold to Synarc in June 1999, and
from a decrease in royalty revenues. Under the terms of our license agreement
with Vivid, Vivid is currently required to pay us 3% of its cumulative revenues
of up to $200 million derived from the license. Upon Vivid reaching $200 million
of cumulative revenues, the royalty will be eliminated. As of September 30,
1999, Vivid had reached approximately $124 million in cumulative revenues. In
connection with a contemplated merger between Vivid and PerkinElmer, Vivid has
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agreed to pay Hologic $2.0 million plus all royalties accrued through
September 30, 1999 for a fully paid-up license to the Hologic technology if the
merger, scheduled to occur in January 2000, is completed. If the merger is not
completed, the ongoing 3% royalty will remain unchanged.
Total revenues for the fourth quarter of fiscal 1999 increased slightly (less
than 1%) from $20 million in the immediately preceding quarter and decreased 19%
compared to the fourth quarter of fiscal 1998. The sequential quarter increase
was primarily attributable to the inclusion of $1 million of DRC sales of chest
systems and digital arrays, an increase in mini c-arm sales by FluoroScan, and
offset by a slight decline in DXA bone densitometer sales. Historically, our
sales have been somewhat seasonal, with generally lower sales in our fourth
quarter, reflecting summer vacation schedules. In the current quarter, compared
to the fourth quarter of last year, we experienced softer sales of DXA and
Sahara bone densitometers in our major markets, predominately into the primary
care market which decreased 64%. Offsetting this decrease was an increase in
sales of FluoroScan mini c-arms and DRC digital systems in the current quarter.
In fiscal 1999, approximately 63% of product sales were generated in the
United States, 24% in Europe, 7% in Asia and 6% in other international markets.
In fiscal 1998, approximately 72% of product sales were generated in the United
States, 18% in Europe, 6% in other international markets and 4% in Asia.
We expect that foreign sales in the current fiscal year will continue to
account for a substantial portion of product sales. Continued economic and
currency related uncertainty in a number of foreign countries, especially in
Asia and Latin America, could reduce our future sales to these markets.
COSTS AND EXPENSES. The cost of product sales increased as a percentage of
product sales to 62% in fiscal 1999 from 50% in fiscal 1998. These costs
increased as a percentage of product sales primarily due to a decrease of
approximately 43% in the number of DXA bone densitometers sold and, to a lesser
extent, lower average selling prices. In addition, the current year includes
manufacturing costs of approximately $3.2 million related to DRC, which has
significant fixed manufacturing and is operating significantly below
manufacturing capacity. Absent DRC, cost of product sales would have increased
to approximately 58%. The reduction in DXA sales volume and the low sales
volume of digital imaging plates resulted in the under absorption of fixed
manufacturing costs.
Research and development expenses increased 30% to $12.7 million, 15% of total
revenues, in fiscal 1999 from $9.8 million, 8% of total revenues, in fiscal
1998. This increase was primarily due to the acquisition of DRC which added
approximately $2.7 million of research and development expenses since June 3,
1999. We anticipate that research and development costs will increase over the
next year as a result of the research and development efforts at DRC.
Selling and marketing expenses decreased 31% to $19.7 million, 24% of product
sales, in fiscal 1999 from $28.6 million, 26% of product sales, in fiscal 1998.
The decrease in selling and marketing expenses in 1999 is primarily due to a
decrease in sales commissions paid to our sales representative for the United
States primary care market based on the lower sales volume in that market.
Selling and marketing expenses related to DRC were approximately $500,000 for
the current year.
General and administrative expenses increased 5% to $11.0 million, 13% of
total revenues, in fiscal 1999 from $10.5 million, 9% of total revenues, in
fiscal 1998. The increase was primarily due to an increase in the accounts
receivable reserve of approximately $900,000 related to our foreign receivables,
especially in Brazil and the addition of approximately $500,000 of general and
administrative expenses related to DRC in fiscal 1999. These increases were
partially offset by savings achieved as a result of our downsizing implemented
in the third quarter of fiscal 1999.
Total costs and expenses related to DRC totaled approximately $6.9 million for
the four months included in the fiscal 1999 results. We expect to continue to
incur significant costs and expenses at DRC for the foreseeable future as
efforts are placed on developing and commercializing our digital radiography
systems.
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In the third quarter of 1999, we implemented a cost-reduction strategy in an
effort to reduce operating expenses. We reduced our U.S. workforce by
approximately 10% through attrition and a corporate downsizing. A strategy to
streamline operations and reduce discretionary spending for our existing
business was also implemented. We did not fully realize the cost savings
discussed above until the fourth quarter of fiscal 1999.
INTEREST INCOME. Interest income decreased to $4.2 million in fiscal 1999
from $5.5 million in fiscal 1998. This decrease was due to a lower investment
base than in the prior year, as a result of the use of cash to purchase our new
facility and for the acquisition of DRC.
OTHER EXPENSE. Other expense decreased to $548,000 in fiscal 1999 from
$664,000 in fiscal 1998. These expenses include foreign currency transaction
losses and interest costs on a bank line of credit used by our European
subsidiaries to borrow funds in their local currencies to pay for all
intercompany sales, thereby reducing the foreign currency exposure on those
transactions. To the extent that foreign currency exchange rates fluctuate in
the future, we may be exposed to continued financial risk. Although we have
established a borrowing line denominated in the two foreign currencies, the
French franc and the Belgian franc, in which the subsidiaries currently conduct
business to minimize this risk, we cannot assure that we will be successful or
can fully hedge our outstanding exposure.
PROVISION FOR INCOME TAXES. In fiscal 1999 we have a benefit for income taxes
as a result of the current year's loss. Our effective tax rate was 35.8% in
fiscal 1998 which was lower than the statutory tax rates due primarily to the
favorable Federal and state tax treatment afforded our foreign sales corporation
and the favorable state tax treatment of a portion of our interest income.
FISCAL YEAR ENDED SEPTEMBER 26, 1998 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 27,
1997
REVENUES. Total revenues increased 8% to $115.6 million in fiscal 1998
compared to $106.7 million in fiscal 1997. The increase in revenues was due to
an increase in the total number of Sahara product sales, especially in the
United States, and an increase in the total number of DXA product sales, which
were partially offset by decreased sales of mini c-arm imaging systems. The
increase in the number of DXA bone densitometers sold was primarily attributable
to a significant increase in sales to the primary care market in the United
States, partially offset by a decrease in sales to the domestic hospital and
radiology markets and a decrease in the number of DXA's sold internationally,
especially in Asia. Additionally, in the United States, the increase in the
number of DXA bone densitometers sold was partially offset by lower average
selling prices primarily attributed to this shift in sales to the primary care
market. The primary care market accounted for 35% of total revenues in fiscal
1998 compared to 5% in fiscal 1997.
In fiscal 1998, other revenues increased 4% to $4.1 million from $3.9 million
in fiscal 1997 primarily due to additional fee-per-scan revenues.
In fiscal 1998, approximately 72% of product sales were generated in the
United States, 18% in Europe, 6% in other international markets and 4% in Asia.
In fiscal 1997, approximately 61% of product sales were generated in the United
States, 20% in Europe, 10% in Asia and 9% in other international markets.
COSTS AND EXPENSES. The cost of product sales increased as a percentage of
product sales to 50% in fiscal 1998 from 46% in fiscal 1997. This increase was
primarily due to a dramatic shift in the product sales mix to the primary care
market in the United States, lower sales to its hospital and radiology markets
which tended to purchase the higher gross margin ACCLAIM systems and lower sales
prices for mini c-arm systems. In the first half of the fiscal year, we
predominantly sold the lower gross margin QDR 1000plus in the primary care
market. In the second half of the fiscal year, sales shifted in this market to
our QDR 4500C but at an average selling price less than in the prior year.
Partially offsetting these factors were increased sales of the higher gross
margin Sahara ultrasound sonometers, especially in the United States.
22
<PAGE>
Research and development expenses increased 15% to $9.8 million, 8% of total
revenues, in fiscal 1998 from $8.5 million, 8% of total revenues, in fiscal
1997. This increase was primarily due to the addition of engineering personnel
and outside consultants working on the development of new products and product
enhancements.
Selling and marketing expenses increased 47% to $28.6 million, 26% of product
sales, in fiscal 1998 from $19.4 million, 19% of product sales, in fiscal 1997.
The increase in selling and marketing expenses in 1998 is primarily due to an
increase in sales commissions based on the higher sales volume in the primary
care market in the United States.
General and administrative expenses increased 18% to $10.5 million, 9% of
total revenues, in fiscal 1998 from $8.8 million, 8% of total revenues, in
fiscal 1997. This increase was primarily due to an increase in accounts
receivable reserve related to our foreign accounts receivable, especially in
Brazil, and an increase in employee benefit related expenses.
INTEREST INCOME. Interest income increased to $5.5 million in fiscal 1998
from $5.3 million in fiscal 1997. In fiscal 1998, we held a higher investment
base than in the prior year.
OTHER EXPENSE. Other expense increased to $664,000 in fiscal 1998 from
$172,000 in fiscal 1997. These expenses were primarily attributable to the
interest costs on a bank line of credit used by our European subsidiaries.
PROVISION FOR INCOME TAXES. Our effective tax rate was 35.8% in fiscal 1998
and 35.7% in fiscal 1997. Our effective tax rate is lower than the statutory
tax rates due primarily to the favorable Federal and state tax treatment
afforded our foreign sales corporation and the favorable state tax treatment of
certain of our interest income.
LIQUIDITY AND CAPITAL RESOURCES
At September 25, 1999, working capital was approximately $90.0 million, and
cash, cash equivalents and short-term investments totaled $62.7 million. The
cash, cash equivalents and short-term investments balance decreased
approximately $13.2 million during fiscal 1999 primarily due to payments for the
DRC acquisition and for facility renovations. Included in other assets were
marketable securities with maturities exceeding one year totaling $3.0 million.
We finance some sales to Latin America over a two-to-three year time-frame.
At September 25, 1999, we had total accounts receivable outstanding of
approximately $6.5 million relating to these sales, of which $1.0 million were
long-term and included in other assets. Due to the economic and currency related
uncertainties in these countries, we increased our bad debt reserve by
approximately $900,000 in the current fiscal year.
In fiscal 1999, we purchased approximately $8.9 million of property and
equipment, which consisted primarily of building improvements, furniture and
fixtures for this new building and, to a lesser extent, computers. In fiscal
1998, we purchased our 200,000 square foot headquarters building for
$20.0 million in cash. We moved our headquarters into this facility on
January 25, 1999. Through September 25, 1999, we have incurred approximately
$5.0 million for renovations to this building. On June 3, 1999, we acquired DRC
and the building in which it conducts its operations for approximately
$7.0 million in cash plus approximately 1.9 million shares of our common stock.
In connection with a fee-per-scan program offered for our DXA bone
densitometers, we have entered into a remarketing agreement whereby we have
agreed to perform certain remarketing activities and to cover certain losses
incurred by the leasing company up to 10% of the total fee-per-scan contracts
funded. Under this strategic alliance program, we installed approximately
$60.6 million in units since 1996. As of November 30, 1999, approximately 30% of
these systems were awaiting remarketing after having been returned, net of
remarketed or converted units. This fee-per-scan program was terminated in
February 1999. The leasing company purchased all the DXA densitometers covered
under these contracts from us. We reserved for potential losses under these
contracts during the fee-per-scan program term by deferring revenue of an amount
equal to 10% of the contracts funded. We are in litigation that we initiated
with the leasing company through a declaratory judgement action regarding the
extent of our
23
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respective obligations under this contract. The leasing company is seeking
unspecified compensatory damages and other relief. We believe that the claims
are groundless and are vigorously defending ourselves. Nevertheless, litigation
can be expensive and time consuming. While we believe that the outcome will not
have a material adverse effect on our business, we cannot guarantee the outcome
of this litigation. An unfavorable outcome or prolonged litigation could
materially harm our business, results of operations or financial condition.
Except as set forth above, we do not have any significant capital commitments.
We believe that existing sources of liquidity will provide adequate cash to fund
our anticipated working capital and other cash needs for the foreseeable future.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133, as amended by SFAS No. 137, is effective for fiscal years beginning after
June 15, 2000. We believe that the adoption of this new accounting standard will
not have a material impact on our financial statements.
RISK FACTORS
This report contains forward looking statements that involve risks and
uncertainties, such as statements of our objectives, expectations and
intentions. The cautionary statements made in this Report should be read as
applicable to all forward-looking statements wherever they appear in this
Report. Our actual results could differ materially from those discussed
herein. Factors that could cause or contribute to such differences include
those discussed below, as well as those discussed elsewhere in this Report.
We are incurring significant losses.
We incurred net losses of $3.7 million in fiscal 1999. Of these losses, net
losses of approximately $3.6 million were attributable to our recent acquisition
and the operations of Direct Radiography Corp. Direct Radiography Corp. has had
only limited sales of its products, primarily for test purposes. In addition,
lower sales to the primary care market in the United States and increased
competition, which has resulted in price reductions, have adversely affected our
bone densitometry business. We intend to incur significant expenses in
connection with the further development and commercialization of our direct
radiography products. We do not expect to be profitable for at least the next
twelve months.
WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE THE OPERATIONS OF DIRECT
RADIOGRAPHY CORP.
We acquired Direct Radiography Corp. in June 1999. That acquisition involves
numerous risks generally associated with acquisitions, including:
. the diversion of management's attention;
. the assimilation of operations, personnel and products of the acquired
businesses;
. the ability to manage geographically remote units; and
. the potential loss of key employees of the acquired businesses.
We may not be able to successfully integrate the operations of Direct
Radiography Corp. Failure to do so would have a material adverse effect on our
business, results of operations and financial condition.
24
<PAGE>
OUR SUCCESS DEPENDS ON NEW PRODUCT DEVELOPMENT.
We have a continuing research and development program designed to develop new
products and to enhance and improve our products. With the acquisition of Direct
Radiography Corp., we are expending substantial resources to develop and enhance
our direct-to-digital imaging products. The successful development of our
products and product enhancements are subject to numerous risks, both known and
unknown, including:
. unanticipated delays;
. budget overruns;
. technical problems; and
. other difficulties that could result in the abandonment or substantial
change in the design, development and commercialization of these new
products.
Given the uncertainties inherent with product development and introduction, we
can not assure that any of product development efforts will be successful on a
timely basis or within budget, if at all. Our failure to develop new products
and product enhancements on a timely basis or within budget could have a
material adverse effect on our business, results of operations or financial
condition.
THE MARKETS FOR OUR DIRECT RADIOGRAPHY PRODUCTS ARE UNPROVEN.
In 1998, Direct Radiography Corp. was the first company to introduce direct-
to-digital X-ray imaging products in the United States. Since that
introduction, Direct Radiography Corp. has had only limited sales of its
products, primarily for test purposes. As a result, the markets for these
products are unproven. There is a significant installed base of conventional X-
ray imaging products in hospitals and radiological practices. The use of our
direct-to digital X-ray imaging products would require these potential customers
to either modify or replace their existing X-ray imaging equipment. Because of
the early stage of the markets for these products, it is likely that our
evaluation of the potential markets for these products will materially vary with
time. We cannot assure that any significant market will develop for our direct
radiography products.
THE TERMINATION OF THE PLACEMENT OF NEW SYSTEMS UNDER OUR STRATEGIC ALLIANCE
PROGRAM, WHICH ACCOUNTED FOR A LARGE PORTION OF OUR SALES IN FISCAL 1998, IS
ADVERSELY AFFECTING OUR OPERATING RESULTS.
At the end of February 1999, Sanwa, now known as Fleet Business Credit
Corporation, discontinued the placement of new bone densitometers under our
strategic alliance program. Under this program, Sanwa purchased bone
densitometry equipment from us that they leased to physicians, primarily in the
primary care market, on a fee-per-scan basis. Our sales under this program
accounted for 5% of our product revenues in fiscal 1999 and 33% of those
revenues in fiscal 1998. The discontinuance of new placements under this
program has adversely affected our results of operations. Our operating results
may continue to be materially and adversely affected unless we can obtain
replacement revenue from more conventional sales or leasing programs.
OUR REMARKETING OBLIGATIONS UNDER THE STRATEGIC ALLIANCE PROGRAM COULD
ADVERSELY AFFECT OUR FUTURE PRODUCT SALES.
Under our strategic alliance program, we continue to be obligated to perform
certain remarketing activities for equipment repossessed by or returned to Fleet
Business Credit Corporation. As Fleet has received significant returns under
this program, their efforts to remarket the returned equipment could have a
material adverse effect on our future product sales.
AN UNFAVORABLE OUTCOME OR PROLONGED LITIGATION IN OUR LAWSUIT WITH FLEET COULD
MATERIALLY HARM OUR BUSINESS.
We are in litigation that we initiated with Fleet through a declaratory
judgement action regarding the extent of our respective obligations under our
strategic alliance program. Fleet is seeking unspecified compensatory damages
and
25
<PAGE>
other relief. We believe that the claims are groundless and we are vigorously
defending ourselves. Nevertheless, litigation can be extremely expensive and
time consuming. Furthermore, we cannot make any guarantees regarding the outcome
of this action. An unfavorable outcome or prolonged litigation could materially
harm our business, results of operations or financial condition.
Our reliance on a single sales representative for a significant portion of our
revenues could have a material adverse effect on our results of operations.
In the United States, we have sold our products to the primary care market
primarily through Physician Sales and Services, Inc., known as PSS. PSS had
previously been our exclusive distributor for most of our DXA products in this
market. We converted this to a nonexclusive relationship in November 1999. We
continue to have an exclusive distribution agreement with PSS to sell our Sahara
bone sonometer to the primary care market. Our reliance on a single sales
representative for this important market could have a material adverse effect on
our results of operations. In fiscal 1998, sales in which PSS acted as either
our sales representative or distributor, which included sales under our
strategic alliance program, accounted for 35% of our product revenues. In
fiscal 1999, sales to or through PSS accounted for 14% of our product revenues.
This reduction in sales was in large part due to changes in our strategic
alliance program which took effect in the beginning of the fiscal year and the
subsequent termination of that program. Our Sahara agreement with PSS expires
in May 2000 and may be terminated by either party on thirty days notice. We
cannot assure that the agreement will be continued. Even if the agreement is
continued, we may not continue to receive significant revenues through PSS's
efforts. Our failure to generate significant revenues from the primary care
market, through the efforts of PSS or otherwise, is likely to have a material
adverse effect upon our business, results of operation or financial condition.
OUR RELIANCE ON ONE OR ONLY A LIMITED NUMBER OF SUPPLIERS FOR SOME KEY
COMPONENTS OR SUBASSEMBLIES FOR OUR PRODUCTS COULD HAVE A MATERIAL ADVERSE
AFFECT ON OUR BUSINESS.
We rely on one or only a limited number of suppliers for some key components
or subassemblies for our products. In particular we have only one source of
supply for each of the panel and the coating of that panel for our direct
radiography products. In addition we have only limited sources of supply for
several key components used in our mini c-arm systems. Obtaining alternative
sources of supply of these components could involve significant delays and other
costs, may not be available to us on reasonable terms, if at all. The failure of
a component supplier or contract assembler to provide acceptable quality and
timely components or assembly service at an acceptable price, or an interruption
of supplies from such a supplier could have a material adverse effect on our
business, financial condition or results of operations.
THE SUCCESS OF OUR BONE DENSITOMETRY BUSINESS DEPENDS IN LARGE PART ON THE
DEVELOPMENT AND MORE WIDESPREAD ACCEPTANCE OF COMPLEMENTARY THERAPIES.
Our bone densitometers and related products are used to assist physicians in
diagnosing patients at risk for osteoporosis and other bone disorders, and to
monitor the effectiveness of therapies to treat these disorders. As a result,
the success of these products will in large part be dependent upon the
development and more widespread acceptance of drug therapies to prevent and to
treat osteoporosis. Over the last several years, the FDA has approved a number
of drug therapies to treat osteoporosis. We also understand that a number of
other drug therapies are under development. While sales of our bone densitometry
products have benefited from the increased availability and use of these
therapies, most patients who are at risk for osteoporosis continue to go
untreated. We cannot assure that any therapies under development or in clinical
trials will prove to be effective, obtain regulatory approval, or that any
approved therapy will gain wide acceptance. Even if these therapies gain
widespread acceptance, we can not assure that such acceptance will increase the
sales of our products.
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THE SUCCESS OF OUR BONE DENSITOMETRY PRODUCTS DEPENDS ON OUR BROADENING MARKET
ACCEPTANCE.
The success of our bone densitometer and related products depends on our
ability to increase sales to primary care providers, such as gynecologists and
family physicians. Although we had initial success in placing our products with
these groups during fiscal 1998, during the current fiscal year, our sales to
this group have slowed. We may not be successful in obtaining broader market
acceptance for our products or in increasing sales to targeted groups. Our
failure to achieve such success could have a material adverse effect on our
business, results of operations or financial condition.
THE UNCERTAINTY OF HEALTH CARE REFORM COULD ADVERSELY AFFECT OUR BUSINESS.
Health care reform proposals and medical cost containment measures in the
United States and in many foreign countries could:
. limit the use of our products;
. reduce reimbursement available for such use; or
. adversely affect the use of new therapies for which our products may be
targeted.
These reforms or cost containment measures, including the uncertainty in the
medical community regarding their nature and effect, could have a material
adverse effect on our business, results of operations or financial condition.
A REDUCTION IN REIMBURSEMENT LEVELS COULD HAVE A MATERIAL ADVERSE EFFECT ON
OUR BUSINESS.
Health care insurance systems in the United States and abroad have approved
reimbursement for bone densitometer use. In the United States, many third-party
insurers pay for bone density examinations. In addition, the Health Care Finance
Administration, known as HCFA, has approved reimbursement for X-ray and
ultrasound examinations. HCFA establishes guidelines for the reimbursement of
health care providers treating Medicare and Medicaid patients. The actual
reimbursement amounts are determined by the individual state Medicare carriers.
There are often delays between the reimbursement approvals by the Health Care
Finance Administration and by a state Medicare carrier. Moreover, states may
choose not to follow the Health Care Finance Administration reimbursement
guidelines. A reduction in reimbursement levels for our products could have a
material adverse effect on our business, results of operations or financial
condition.
OUR SUCCESS DEPENDS UPON OUR ABILITY TO ADAPT TO RAPID CHANGES IN TECHNOLOGY
AND CUSTOMER REQUIREMENTS.
The market for our products has been characterized by rapid technological
change, frequent product introductions and evolving customer requirements. We
believe that these trends will continue into the foreseeable future. Our
success will depend, in part, upon our ability to enhance our existing products,
successfully develop new products that meet increasing customer requirements and
gain market acceptance. If we fail to do so our products may be rendered
obsolete or uncompetitive by new industry standards or changing technology.
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY.
We may not be able to compete successfully. A number of companies have
developed, or are expected to develop, products that compete or will compete
with our products. Many of these competitors and potential competitors have
substantially greater resources than we do.
Lunar, Norland Medical Systems, Aloka, Diagnostic Medical Systems and Hitachi
have developed dual X-ray systems to measure bone density. In ultrasound, we
compete with Lunar, Myriad, McCue and OSI Systems and expect additional
competitors in the future based upon the greater availability of ultrasound
technology. In addition, Lunar, Norland Medical Systems, OSI Systems and Schick
have peripheral X-ray systems that compete with our dual X-ray and ultrasound
bone densitometry products, primarily on price.
27
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Our direct-to-digital imaging products will compete with traditional X-ray
systems as well as computed radiography systems, which are less expensive than
our products, and other direct-to-digital systems. Many of these competitors
have established relationships with hospitals and other of our potential
customers in our targeted markets. The larger competitors in these markets
include General Electric, Siemens and Philips, Canon and Varian.
Our mini c-arm products compete directly with mini c-arms manufactured and
sold by a limited number of companies including Lunar, OEC Medical and XiTec. We
also compete indirectly with manufacturers of conventional c-arm image
intensifiers including Philips, Siemens, General Electric, OEC Medical, Fischer
Imaging and Picker International.
OUR RESULTS OF OPERATIONS ARE SUBJECT TO SIGNIFICANT QUARTERLY VARIATION AND
SEASONAL FLUCTUATION.
Our results of operations have been and may continue to be subject to
significant quarterly variation. The results for a particular quarter may vary
due to a number of factors, including:
. the overall state of health care and cost containment efforts;
. the development status and demand for drug therapies to treat osteoporosis;
. the development status and demand for our direct-to-digital imaging
products;
. economic conditions in our markets;
. the timing of orders;
. the timing of expenditures in anticipation of future sales;
. the mix of products sold by us;
. the introduction of new products and product enhancements by us or our
competitors; and
. pricing and other competitive conditions.
We also believe that our sales may be somewhat seasonal, with reduced orders
in the summer months reflecting summer vacation schedules. Customers may also
cancel or reschedule shipments. Production difficulties could also delay
shipments. Any of these factors also could have a material adverse effect on our
business, results of operations or financial condition.
REDUCTIONS IN REVENUES COULD HAVE A MATERIAL ADVERSE EFFECT ON OPERATING
RESULTS BECAUSE A HIGH PERCENTAGE OF OUR OPERATING EXPENSES IS RELATIVELY
FIXED.
A high percentage of our operating expenses is relatively fixed. We likely
will not be able to reduce spending to compensate for adverse fluctuations in
revenues. As a result, shortfalls in revenues are likely to have a material
adverse effect on our operating results.
OUR DELAY OR INABILITY TO OBTAIN ANY NECESSARY UNITED STATES OR FOREIGN
REGULATORY CLEARANCES OR APPROVALS FOR OUR PRODUCTS COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS.
Our products are medical devices that are the subject of a high level of
regulatory oversight. Our delay or inability to obtain any necessary United
States or foreign regulatory clearances or approvals for our products could have
a material adverse effect on our business. The process of obtaining clearances
and approvals can be costly and time-consuming. There is a risk that any
approvals or clearances, once obtained, may be withdrawn or modified. Medical
devices cannot be marketed in the United States without clearance or approval by
the FDA. Medical devices sold in the United States must also be manufactured in
compliance with FDA Good Manufacturing Practices, which regulate the design,
manufacture, packing, storage and installation of medical devices. Moreover,
medical devices are required to comply with FDA regulations relating to
investigational research and labeling. States may also regulate the manufacture,
sale and use of medical devices, particularly those that employ X-ray
technology. Our products are also subject to approval and regulation by foreign
regulatory and safety agencies.
28
<PAGE>
WE CONDUCT OUR BUSINESS WORLDWIDE WHICH EXPOSES US TO A NUMBER OF DIFFICULTIES
IN COORDINATING OUR INTERNATIONAL ACTIVITIES AND DEALINGS WITH MULTIPLE
REGULATORY ENVIRONMENTS.
We maintain sales and service offices in Belgium, France and Spain, and
sell our products to customers throughout the world. Our worldwide business may
be materially adversely affected by:
. difficulties in staffing and managing operations in multiple locations;
. greater difficulties in trade accounts receivable collection;
. possible adverse tax consequences;
. governmental currency controls;
. changes in various regulatory requirements;
. political and economic changes and disruptions;
. export/import controls; and
. tariff regulations.
We have recently experienced difficulties in collecting accounts receivable in
Latin America, which as of September 25, 1999 totaled $6.5 million, including
$1.0 million of long-term accounts receivable included in other assets. In
fiscal 1999, we increased our reserve against our receivables, including these
Latin American receivables, by $900,000.
FLUCTUATIONS IN THE EXCHANGE RATES, IN RELATION TO THE U.S. DOLLAR, AND THE
OTHER FOREIGN CURRENCIES IN WHICH WE CONDUCT OUR BUSINESS COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR OPERATING RESULTS.
In fiscal 1999, foreign sales accounted for approximately 37% of our product
sales. We maintain sales and service offices in Belgium, France and Spain. The
expenses and sales of these offices are denominated in local currencies. We
anticipate that foreign sales and sales denominated in foreign currencies will
continue to account for a significant portion of our total sales. Fluctuations
in the value of local currencies have caused and are likely to continue to
cause, amounts translated into U.S. dollars to fluctuate in comparison with
previous periods. In particular, an increase in the value of the local
currencies in which we have offices would likely increase our expenses relative
to U.S. dollar sales and could have a material adverse effect on our operating
results. We have hedged our foreign currency exposure by borrowing funds in
local European currencies to pay the expenses of our foreign offices. There is a
risk that these hedging activities will not be successful in mitigating our
foreign exchange risk exposure.
WE ARE NOT CERTAIN HOW WE WILL BE AFFECTED BY THE EURO CONVERSION.
On January 1, 1999, 11 of the 15 member countries of the European Union,
including Belgium, France and Spain, established fixed conversion rates between
their existing sovereign currencies and the euro. The European Union has
scheduled January 1, 2002 for the transition to the euro to be complete. We have
significant operations within the European Union and are currently preparing for
the euro conversion. The issues that we are addressing include:
. preparing our information systems for the euro;
. analyzing the benefit of decreased exchange rate risk in cross border
transactions involving participating countries; and
. assessing the potential impact of increased price transparency.
In addition, the euro may impact general economic conditions such as interest
and foreign exchange rates within the participating countries or in other areas
where we operate. We are analyzing the impact of the euro with a view to
minimizing the effects on our operations. We do not expect the costs of
upgrading our systems for the euro to be material.
29
<PAGE>
YEAR 2000 READINESS DISCLOSURE; OUR FAILURE TO RESOLVE THE YEAR 2000 PROBLEM
COULD CAUSE DISRUPTIONS IN OUR COMPUTER SYSTEMS THAT COULD PREVENT US FROM
ENGAGING IN NORMAL BUSINESS ACTIVITIES.
The year 2000 issue is the potential for system and processing failure of
date-related data and the result of computer-controlled systems using two digits
rather than four to define the applicable year. For example, computer programs
that have date-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. Systems that do not properly recognize date-
sensitive information when the year changes to 2000 could generate system
failure or miscalculations causing disruptions of operations, including a
temporary inability to process transactions, send invoices or engage in similar
ordinary business activities. We have defined year 2000 compliance as the
ability for us, our products and our suppliers to continue normal business
activities in the year 2000 and beyond.
We have evaluated the year 2000 issue with respect to our financial and
management information systems, our products and our suppliers. At this point in
our assessment, we are not currently aware of any year 2000 problems that are
reasonably likely to have a material adverse effect on our business, results of
operations or financial condition, without taking into account our efforts to
avoid such problems. We believe that our accounting and information systems are
currently compliant as a result of installing an upgrade version of the software
made available through the annual maintenance contract. We also use other
application hardware and software which we believe to be year 2000 complaint.
There is a risk that, notwithstanding our internal review, if we have not
properly identified all year 2000 compliance issues with respect to our
management and information systems, we may not be able to implement all
necessary changes to these systems on a timely basis and within budget. Such a
failure could result in a material disruption to our business, including the
inability to track and fill orders on a timely basis, which could have a
material adverse effect on our business, results of operations or financial
condition.
We have evaluated our bone densitometer products in production and believe
them to be year 2000 compliant. We have also undertaken a general review of our
previously sold bone densitometer products and determined that many of those
products will need software upgrades to become year 2000 compliant. We have
developed a year 2000 compliant software upgrade for these systems and plan to
make it available to our customers, at our expense. We do not expect these
costs to be material. Some customers will need computer hardware upgrades in
addition to the software upgrades to become year 2000 compliant.
We are also exposed to the risk that we could experience material shipment
delays from our major component suppliers or material sales delays from our
major customers due to year 2000 issues relating either to their management
information or production systems. We have inquired of these suppliers in an
attempt to ascertain their year 2000 readiness. Although we do not currently
anticipate that we will experience any material shipment delays from our major
product suppliers or any material sales delays from our major customers due to
year 2000 issues, these third parties could experience year 2000 problems that
could have a material adverse effect on our business, results of operations or
financial condition.
Apart from our activities described above, we do not have and do not plan to
develop a contingency plan to address year 2000 issues. Should any
unanticipated significant year 2000 issues arise, our failure to implement such
a contingency plan could have a material adverse effect on our business,
financial condition and results of operations.
To the extent that we do not identify any material non-compliant year 2000
issues affecting us or third parties, such as our suppliers, service providers
and customers, the most reasonably likely worst case year 2000 scenario is a
systemic failure beyond our control, such as a prolonged telecommunications or
electrical failure, or a general disruption in United States or global business
activities that could result in a significant economic downturn. We believe that
the primary business risks, in the event of such failure or other disruption,
would include but not be limited to, loss of customers or orders, increased
operating costs, inability to obtain inventory on a timely basis, disruptions in
product shipments, or other business interruptions of a material nature, as well
as claims of mismanagement, misrepresentation,
30
<PAGE>
or breach of contract, any of which could have a material adverse effect on our
business, results of operations or financial condition.
OUR BUSINESS COULD BE MATERIALLY ADVERSELY AFFECTED IF WE ARE UNABLE TO
PROTECT OUR PROPRIETARY TECHNOLOGY.
We rely primarily on a combination of trade secrets, patents, copyright and
trademark laws, confidentiality procedures to protect our technology. As of
November 30, 1999, we had obtained 59 patents, licensed 17 patents and have
pending 53 patent applications in the United States. These patents have
expiration dates ranging from 1999 to 2016. One of our licensed U.S. ultrasound
patents will expire in this year, and two licensed patents with ultrasound and
X-ray claims will expire in 2001. We have obtained or applied for corresponding
patents and patent applications in several foreign countries for certain of our
patents and patent applications. There is a risk that these patent applications
will not be granted or that the patent or patent application will not provide
significant protection for our products and technology. Moreover, there is a
risk that foreign intellectual property laws will not protect our intellectual
property rights to the same extent as United States intellectual property laws.
In the absence of significant patent protection, we may be vulnerable to
competitors who attempt to copy our products, processes or technology.
OUR SETTLEMENT AGREEMENT WITH LUNAR, WHICH PROVIDES THAT EACH OF US MAY NOT
ENFORCE OUR PROPRIETARY RIGHTS AGAINST THE OTHER FOR A TEN YEAR PERIOD ENDING
NOVEMBER 2005 COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
We were involved in extensive patent litigation with Lunar, with each party
claiming that the other was infringing patents held by the other. This
litigation was settled by agreement dated November 22, 1995. The agreement
provides for royalties to be paid by each party to the other for future sales of
products using defined technologies. We do not believe that amounts to be paid
by either party under this arrangement will be material. The agreement also
provides that neither party will engage in patent litigation with the other
party relating to these technologies for a period of ten years following the
date of the agreement, regardless of the infringement claimed and whether the
technology in question currently exists or is developed or acquired by the other
party in the future. As a result, Lunar could use our technology during this
period in a manner that would materially and adversely affect our business.
OUR BUSINESS COULD BE MATERIALLY ADVERSELY AFFECTED IF WE INFRINGE UPON THE
INTELLECTUAL PROPERTY RIGHTS OF OTHERS.
There has been substantial litigation regarding patent and other intellectual
property rights in the medical device and related industries. We have been, and
may be in the future, notified that we may be infringing intellectual property
rights possessed by other third parties. If any such claims are asserted against
our intellectual property rights, we may seek to enter into royalty or licensing
arrangements. There is a risk in these situations that no license will be
available or that a license will not be available on reasonable terms.
Alternatively, we may decide to litigate such claims or to design around the
patented technology. These actions could be costly and would divert the efforts
and attention of our management and technical personnel. As a result, any
infringement claims by third parties or other claims for indemnification by
customers resulting from infringement claims, whether or not proven to be true,
may have a material adverse effect on our business, financial condition and
results of operations.
WE MAY NOT BE SUCCESSFUL IN IDENTIFYING, ACQUIRING, DEVELOPING AND EXPANDING
PRODUCTS AND TECHNOLOGY.
We expect to continue to seek to expand our products and technology through
acquisitions or strategic alliances in complementary markets, including other
diagnostic or imaging markets and other women's health care markets. There is a
risk that we will not be successful in identifying, acquiring and developing
products and technology. There are additional risks that, once identified, we
will not consummate such acquisitions and that, once acquired, we will not
successfully integrate the technology or businesses.
31
<PAGE>
OUR FUTURE SUCCESS WILL DEPEND ON THE CONTINUED SERVICES OF OUR EXECUTIVE
OFFICERS AND KEY RESEARCH AND DEVELOPMENT PERSONNEL.
The loss of any of our executive officers or key research and development
personnel could have a material adverse effect on our business and prospects.
Our success will also depend upon our ability to attract and retain other
qualified managerial and technical personnel. Competition for such personnel,
particularly software engineers and other technical personnel, is intense. We
may not be able to attract and retain personnel necessary for the development of
our business. We do not have any key man life insurance for any of our officers
or other key personnel.
OUR CHIEF EXECUTIVE OFFICER AND SENIOR VICE PRESIDENT ALSO SERVE IN SIMILAR
POSITIONS OF ANOTHER COMPANY, WHICH DIVERTS THEIR ATTENTION AND COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
S. David Ellenbogen, our Chief Executive Officer, and Jay A. Stein, our
Senior Vice President, also serve in similar positions at Vivid Technologies,
Inc. Under a management agreement between Vivid and us, we agreed to provide
management services to Vivid, including the part-time assistance of Mr.
Ellenbogen and Dr. Stein. As a result, we do not have the full time and
attention of these key executive officers, which could have a material adverse
effect on our business. Vivid Technologies, Inc. has entered into a merger
agreement with PerkinElmer Corporation. The merger is currently scheduled to be
completed in January 2000. If the merger is completed, the management agreement
with Vivid will terminate and Mr. Ellenbogen and Dr. Stein will no longer be
officers of Vivid.
THERE IS A RISK THAT OUR INSURANCE WILL NOT BE SUFFICIENT TO PROTECT US FROM
PRODUCT LIABILITY CLAIMS, OR THAT IN THE FUTURE PRODUCT LIABILITY INSURANCE
WILL NOT BE AVAILABLE TO US AT A REASONABLE COST, IF AT ALL.
Our business involves the risk of product liability claims inherent to the
medical device business. We maintain product liability insurance subject to
certain deductibles and exclusions. There is a risk that our insurance will not
be sufficient to protect us from product liability claims, or that product
liability insurance will not be available to us at a reasonable cost, if at all.
An underinsured or uninsured claim could have a material adverse effect on our
business, financial condition or results of operations.
PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND BY-LAWS AND A RIGHTS
DISTRIBUTION MAY HAVE THE EFFECT OF DISCOURAGING ADVANTAGEOUS OFFERS FOR OUR
BUSINESS OR COMMON STOCK AND LIMIT THE PRICE THAT INVESTORS MIGHT BE WILLING
TO PAY IN THE FUTURE FOR SHARES OF OUR COMMON STOCK.
Our Certificate of Incorporation, By-laws and the provisions of Delaware
corporate law include provisions that may have the effect of discouraging or
preventing a change in control. In addition, we made a rights distribution in
December 1992 that could also have the effect of discouraging or preventing a
change in control. These provisions could limit the price that our stockholders
might receive in the future for shares of our common stock.
THE VOLATILITY OF OUR STOCK PRICE COULD ADVERSELY AFFECT YOUR INVESTMENT IN
OUR STOCK.
The market price of the common stock has been, and may continue to be, highly
volatile. We believe that a variety of factors could cause the price of the
common stock to fluctuate, perhaps substantially, including:
. announcements and rumors of developments related to our business;
. quarterly fluctuations in our actual or anticipated operating results and
order levels;
. general conditions in the worldwide economy;
. announcements of technological innovations;
. new products or product enhancements by us or our competitors;
. developments in patents or other intellectual property rights and
litigation; and
. developments in our relationships with our customers and suppliers.
32
<PAGE>
In addition, in recent years the stock market in general and the markets for
shares of small capitalization and "high-tech" companies in particular, have
experienced extreme price fluctuations which have often been unrelated to the
operating performance of affected companies. Any such fluctuations in the
future could adversely affect the market price of the common stock, and the
market price of the common stock may decline.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Financial Instruments, Other Financial Instruments, and Derivative Commodity
Instruments. SFAS No. 107, Disclosure of Fair Value of Financial Instruments,
requires disclosure about fair value of financial instruments. Financial
instruments consist of cash equivalents, short and long-term investments,
accounts receivable, accounts payable and debt obligations. The fair value of
these financial instruments approximates their carrying amount.
Primary Market Risk Exposures. Our primary market risk exposures are in the
areas of interest rate risk and foreign currency exchange rate risk. We incur
interest expense on loans made under a line of credit at the Europe Interbank
Offered Rate. At September 25, 1999, our outstanding borrowings under the line
of credit were $1.1 million, at a weighted average interest rate of 5.8%.
Substantially all of our sales outside the United States are conducted in U.S.
dollar denominated transactions. We operate two European subsidiaries which
incur expenses denominated in local currencies. However, we believe that these
operating expenses will not have a material adverse effect on our business,
results of operations or financial condition.
33
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
34
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Consolidated Financial Statements
as of September 26, 1998 and September 25, 1999
Together with Auditors' Report
<PAGE>
Report of Independent Public Accountants
To Hologic, Inc.:
We have audited the accompanying consolidated balance sheets of Hologic, Inc. (a
Delaware corporation) and subsidiaries as of September 26, 1998 and September
25, 1999, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended September
25, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these 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 consolidated financial position of
Hologic, Inc. and subsidiaries as of September 26, 1998 and September 25, 1999,
and the results of their operations and their cash flows for each of the three
years in the period ended September 25, 1999, in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
Boston, Massachusetts
November 5, 1999
1
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
Assets
September 26, September 25,
1998 1999
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 48,423 $ 36,508
Short-term investments 27,479 26,170
Accounts receivable, less reserves of $2,100 and $3,480, respectively 29,287 28,056
Inventories 20,438 17,596
Prepaid expenses and other current assets 6,221 6,841
-------- --------
Total current assets 131,848 115,171
-------- --------
Property and Equipment, at cost:
Land - 10,002
Buildings and improvements 20,066 28,812
Equipment 8,633 15,981
Furniture and fixtures 1,910 3,224
Leasehold improvements 1,729 605
-------- --------
32,338 58,624
Less--Accumulated depreciation and amortization 6,440 8,154
-------- --------
25,898 50,470
-------- --------
Other Assets, net 14,851 10,129
-------- --------
Total assets $172,597 $175,770
======== ========
Liabilities and Stockholders' Equity
Current Liabilities:
Line of credit $ 3,799 $ 1,103
Accounts payable 5,497 6,063
Accrued expenses 12,453 10,103
Deferred revenue 10,466 8,079
-------- --------
Total current liabilities 32,215 25,348
-------- --------
Commitments and Contingencies (Notes 8 and 13)
Stockholders' Equity:
Common stock, $.01 par value-
Authorized--30,000 shares
Issued--13,378 and 15,303 shares, respectively 134 153
Capital in excess of par value 95,100 109,624
Retained earnings 46,187 42,440
Accumulated other comprehensive loss (575) (1,330)
Treasury stock, at cost--45 shares in 1998 and 1999 (464) (464)
-------- --------
Total stockholders' equity 140,382 150,423
-------- --------
Total liabilities and stockholders' equity $172,597 $175,770
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In Thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended
---------------------------------------------------------
September 27, September 26, September 25,
1997 1998 1999
<S> <C> <C> <C>
Revenues:
Product sales $ 102,781 $ 111,498 $ 81,737
Other revenue 3,908 4,066 2,403
------------- ------------ ------------
106,689 115,564 84,140
------------- ------------ ------------
Costs and Expenses:
Cost of product sales 47,492 55,891 50,333
Research and development 8,527 9,778 12,664
Selling and marketing 19,448 28,589 19,658
General and administrative 8,827 10,452 10,963
------------- ------------ ------------
84,294 104,710 93,618
------------- ------------ ------------
Income (loss) from operations 22,395 10,854 (9,478)
Interest Income 5,346 5,998 4,204
Other Expense (172) (664) (548)
------------- ------------ ------------
Income (loss) before provision (benefit) for income taxes 27,569 16,188 (5,822)
Provision (Benefit) for Income Taxes 9,840 5,800 (2,075)
------------- ------------ ------------
Net income (loss) $ 17,729 $ 10,388 $ (3,747)
============= ============ ============
Net Income (Loss) per Share:
Basic $ 1.37 $ .78 $ (.27)
============= ============ ============
Diluted $ 1.30 $ .75 $ (.27)
============= ============ ============
Weighted Average Number of Shares Outstanding:
Basic 12,986 13,259 13,950
============= ============ ============
Diluted 13,672 13,766 13,950
============= ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(In Thousands)
<TABLE>
<CAPTION>
Common Stock Capital in Treasury Stock
Number of $.01 Excess of Par Retained Number of
Shares Par Value Value Earnings Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Balance, September 28, 1996 12,871 $ 129 $ 89,254 $ 18,070 - $ -
Exercise of stock options 212 2 1,346 - - -
Stock issued for employee compensation 7 - 137 - - -
Issuance of common stock under employee
stock purchase plan 11 - 226 - - -
Issuance of common stock under 401(k) plan 10 - 215 - - -
Compensation for grants of stock options
to nonemployees - - 20 - - -
Tax benefit from stock options exercised - - 470 - - -
Net income - - - 17,729 - -
Translation adjustments - - - - - -
------ --------- -------- -------- ------- ------
Comprehensive income
Balance, September 27, 1997 13,111 131 91,668 35,799 - -
Exercise of stock options 229 2 1,307 - - -
Stock issued for employee compensation 9 - 227 - - -
Issuance of common stock under employee
stock purchase plan 17 - 278 - - -
Issuance of common stock under 401(k) plan 12 1 291 - - -
Purchase of treasury stock - - - - 45 (464)
Compensation for grants of stock options
to nonemployees - - 133 - - -
Tax benefit from stock options exercised - - 1,196 - - -
Net income - - - 10,388 - -
Translation adjustments - - - - - -
------ --------- -------- -------- ------- ------
Comprehensive income
Balance, September 26, 1998 13,378 134 95,100 46,187 45 (464)
Exercise of stock options 30 - 131 - - -
Stock issued for employee compensation 11 - 144 - - -
Issuance of common stock under employee
stock purchase plan 27 - 163 - - -
Issuance of shares related to acquisition 1,857 19 13,910 - - -
Compensation for grants of stock options
to nonemployees - - 133 - - -
Tax benefit from stock options exercised - - 43 - - -
Net loss - - - (3,747) - -
Translation adjustments - - - - - -
------ --------- -------- -------- ------- ------
Comprehensive loss
Balance, September 25, 1999 15,303 $ 153 $109,624 $ 42,440 45 $ (464)
====== ========= ======== ======== ======= ======
<CAPTION>
Accumulated
Other Total
Comprehensive Stockholders' Comprehensive
Income (Loss) Equity Income (Loss)
<S> <C> <C> <C>
Balance, September 28, 1996 $ (179) $ 107,274 $ -
Exercise of stock options - 1,348 -
Stock issued for employee compensation - 137 -
Issuance of common stock under employee
stock purchase plan - 226 -
Issuance of common stock under 401(k) plan - 215 -
Compensation for grants of stock options
to nonemployees - 20 -
Tax benefit from stock options exercised - 470 -
Net income - 17,729 17,729
Translation adjustments (652) (652) (652)
---------- --------- -----------
Comprehensive income 17,077
===========
Balance, September 27, 1997 (831) 126,767 -
Exercise of stock options - 1,309 -
Stock issued for employee compensation - 227 -
Issuance of common stock under employee
stock purchase plan - 278 -
Issuance of common stock under 401(k) plan - 292 -
Purchase of treasury stock - (464) -
Compensation for grants of stock options
to nonemployees - 133 -
Tax benefit from stock options exercised - 1,196 -
Net income - 10,388 10,388
Translation adjustments 256 256 256
---------- --------- -----------
Comprehensive income 10,644
===========
Balance, September 26, 1998 (575) 140,382 -
Exercise of stock options - 131 -
Stock issued for employee compensation - 144 -
Issuance of common stock under employee
stock purchase plan - 163 -
Issuance of shares related to acquisition - 13,929 -
Compensation for grants of stock options
to nonemployees - 133 -
Tax benefit from stock options exercised - 43 -
Net loss - (3,747) (3,747)
Translation adjustments (755) (755) (755)
---------- --------- -----------
Comprehensive loss $ (4,502)
===========
Balance, September 25, 1999 $ (1,330) $ 150,423
========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
Years Ended
-----------------------------------------------------
September 27, September 26, September 25,
1997 1998 1999
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 17,729 $ 10,388 $ (3,747)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities-
Depreciation and amortization 1,252 1,851 3,474
Deferred income taxes 182 (2,500) (2,128)
Compensation expense related to issuance of common stock and stock
options 271 302 243
Changes in assets and liabilities, net of DRC acquisition-
Accounts receivable (9,694) 526 4,010
Inventories (2,082) (7,234) 6,130
Prepaid expenses and other current assets 218 405 (81)
Accounts payable 1,375 265 (200)
Accrued expenses 1,782 3,447 (3,006)
Deferred revenue 1,529 7,179 (2,388)
------------ ----------- ------------
Net cash provided by operating activities 12,562 14,629 2,307
------------ ----------- ------------
Cash Flows from Investing Activities:
Purchases of held-to-maturity investments (10,624) (69,282) (40,848)
Sales of held-to-maturity investments 3,120 95,020 46,675
Acquisition of Direct Radiography Corporation - - (7,972)
Purchases of available-for-sale investments (71,832) - -
Sales of available-for-sale investments 69,375 - -
Purchase of property and equipment (2,082) (22,597) (8,879)
Increase in other assets (105) (3,714) (107)
------------ ----------- ------------
Net cash used in investing activities (12,148) (573) (11,131)
------------ ----------- ------------
Cash Flows from Financing Activities:
(Repayments) borrowings under line of credit (2,452) 3,716 (2,695)
Net proceeds from sale of common stock 1,574 1,587 294
Purchase of treasury stock - (464) -
Tax benefit from stock options exercised 470 1,196 43
------------ ----------- ------------
Net cash (used in) provided by financing activities (408) 6,035 (2,358)
------------ ----------- ------------
Effect of Exchange Rate Changes on Cash (668) 240 (733)
------------ ----------- ------------
Net (Decrease) Increase in Cash and Cash Equivalents (662) 20,331 (11,915)
Cash and Cash Equivalents, beginning of year 28,754 28,092 48,423
------------ ----------- ------------
Cash and Cash Equivalents, end of year $ 28,092 $ 48,423 $ 36,508
============ =========== ============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for income taxes $ 7,380 $ 5,993 $ 2,592
============ =========== ============
Cash paid during the year for interest $ 128 $ 324 $ 229
============ =========== ============
Supplemental Disclosure of Noncash Financing Activities:
Issuance of common stock under 401(k) plan $ 215 $ 292 $ -
============ =========== ============
Stock issued for employee compensation $ 137 $ 227 $ 144
============ =========== ============
Acquisition of Direct Radiography Corporation in 1999:
Fair value of assets acquired $ - $ - $ 23,423
Liabilities assumed - - (1,522)
Cash paid - - (7,216)
Acquisition costs incurred - - (756)
------------ ----------- ------------
Fair value of stock issued $ - $ - $ 13,929
============ =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
(1) Operations
Hologic, Inc. and subsidiaries (the Company or Hologic) is engaged in the
development, manufacture and distribution of proprietary X-ray, digital X-
ray and other medical systems.
(2) Summary of Significant Accounting Policies
The accompanying consolidated financial statements reflect the application
of certain accounting policies as described in this note and elsewhere in
the accompanying consolidated financial statements.
(a) Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and all of its wholly owned subsidiaries. All
material intercompany accounts and transactions have been eliminated
in consolidation.
(b) Fiscal Year
The Company's fiscal year ends on the last Saturday in September.
Fiscal 1997, 1998 and 1999 ended on September 27, 1997, September 26,
1998 and September 25, 1999, respectively.
(c) Management's Estimates and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statement, and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
The Company is subject to a number of risks similar to those of other
companies of similar size in its industry, including rapid
technological changes, competition, customer concentration, government
regulations and dependence on key individuals.
(d) Cash and Cash Equivalents and Investments
The Company considers all highly liquid investments with maturities of
three months or less at the time of acquisition to be cash
equivalents. Included in cash equivalents at September 26, 1998 and
September 25, 1999 are approximately $5,808 and $5,824, respectively,
of securities purchased under agreements to resell. The securities
purchased under agreements to resell are collateralized by U.S.
government securities. Short-term investments have maturities of
greater than three
6
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
(Continued)
months and consist of commercial paper, corporate bonds and securities
issued by the U.S. government and its agencies. Investments with
maturities of greater than one year have been classified as long-term.
The Company had long-term investments of approximately $7,483 and
$2,966, with an average maturity period of 26 months and 51 months, as
of September 26, 1998 and September 25, 1999, respectively, which are
included in other assets in the accompanying consolidated balance
sheets.
The Company accounts for investments in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. In accordance with SFAS No.
115, investments that the Company has the positive intent and ability
to hold to maturity are reported at amortized cost, which approximates
fair market value, and are classified as held-to-maturity. The
investments that the Company has deemed to be held-to-maturity include
cash equivalents and securities issued by U.S. government agencies,
which total approximately $81,026 and $62,758 at September 26, 1998
and September 25, 1999, respectively.
(e) Concentration of Credit Risk
SFAS No. 105, Disclosure of Information about Financial Instruments
with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk, requires disclosure of any significant
off-balance-sheet and credit risk concentrations. Financial
instruments that subject the Company to credit risk consist primarily
of cash, short-term investments, trade accounts receivable and long-
term receivables. The Company's credit risk is managed by investing
its cash in high-quality money market instruments, securities of the
U.S. government and its agencies, and high-quality corporate issuers.
The Company has not experienced any material losses related to
receivables from individual customers, geographic regions or groups of
customers in the X-ray and medical devices industry. Due to these
factors, no additional credit risk beyond amounts provided for, is
believed by management to be inherent in the Company's accounts
receivable.
The Company utilizes distributors in certain countries with various
credit terms, depending on the individual circumstances. One
distributor had amounts due to the Company of approximately $1,169 and
$748 as of September 26, 1998 and September 25, 1999, respectively.
This distributor accounted for 5%, 2% and 3.5% of product sales for
fiscal 1997, 1998 and 1999, respectively.
The Company finances certain sales to Latin American customers over
two to three years. At September 26, 1998 and September 25, 1999, the
Company had long-term accounts receivable outstanding of approximately
$2,904 and $1,020, respectively, relating to these sales, which are
included in other assets. The economic and currency related
uncertainties in these countries may increase the likelihood of
nonpayment. As a result, the Company increased its bad debt reserve
during fiscal 1999.
7
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
(Continued)
The Company has sold its systems to a leasing company, which in turn
leased the systems to third parties. The leasing company accounted for
13%, 33% and 5% of product sales for fiscal 1997, 1998 and 1999,
respectively (see Notes 10 and 13).
(f) Disclosure of Fair Value of Financial Instruments
The Company's financial instruments consist mainly of cash and cash
equivalents, short-term investments, accounts receivable, line of
credit and accounts payable. The carrying amounts of the Company's
cash and cash equivalents, short-term investments, accounts
receivable, line of credit and accounts payable approximate fair value
due to the short-term nature of these instruments.
(g) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of the following:
<TABLE>
<CAPTION>
September 26, September 25,
1998 1999
<S> <C> <C>
Raw materials and work-in-process $13,859 $ 7,918
Finished goods 6,579 9,678
------- -------
$20,438 $17,596
======= =======
</TABLE>
Work-in-process and finished goods inventories consist of materials, labor
and manufacturing overhead.
(i) Depreciation and Amortization
The Company provides for depreciation and amortization by charges to
operations, using the straight-line and declining-balance methods,
which allocate the cost of property and equipment over the following
estimated useful lives:
<TABLE>
<CAPTION>
Estimated
Asset Classification Useful Life
<S> <C>
Building and improvements 40 years
Equipment 3-5 years
Furniture and fixtures 5-7 years
Leasehold improvements Life of lease
</TABLE>
8
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
(Continued)
(j) Long-Lived Assets
The Company assesses the realizability of its long-lived assets,
including intangible assets, in accordance with SFAS No. 121,
Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. To date, the Company has not identified any
impairments requiring adjustment.
(k) Foreign Currency Translation
The Company translates the financial statements of its foreign
subsidiaries in accordance with SFAS No. 52, Foreign Currency
Translation. In translating the accounts of the foreign subsidiaries
into U.S. dollars, assets and liabilities are translated at the rate
of exchange in effect at year-end, while stockholders' equity is
translated at historical rates. Revenue and expense accounts are
translated using the weighted average exchange rate in effect during
the year. Gains and losses from foreign currency translation are
credited or charged to cumulative translation adjustment, included in
stockholders' equity, in the accompanying consolidated balance sheets.
Transaction gains and losses in fiscal 1997, 1998 and 1999 were not
significant.
(l) Revenue Recognition
The Company recognizes product revenue upon shipment. A provision is
made at that time for estimated warranty costs to be incurred. Other
revenues are recorded at the time the product is shipped or the
service is rendered. In connection with a fee-per-scan arrangement
with a leasing Company for certain products, the Company has entered
into a remarketing agreement whereby the Company has agreed to perform
certain remarketing activities and to help recover certain losses
incurred by the leasing Company up to 10% of the total fee-per-scan
contracts funded. The leasing Company purchases all such products
covered under these contracts from the Company. The Company has
reserved for potential losses under these contracts by deferring
revenue in an amount equal to 10% of the contracts funded (see Notes
10 and 13).
Maintenance revenues are recognized over the term of the contract.
9
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
(Continued)
(m) Research and Development and Software Development Costs
Research and development costs have been charged to operations as
incurred. SFAS No. 86, Accounting for the Costs of Computer Software
to Be Sold, Leased or Otherwise Marketed, requires the capitalization
of certain computer software development costs incurred after
technological feasibility is established. The Company believes that
once technological feasibility of a software product has been
established, the additional development costs incurred to bring the
product to a commercially acceptable level are not significant.
(n) Net Income (Loss) Per Share
Basic and diluted net income (loss) per share are presented in
conformity with SFAS No. 128, Earnings per Share. Basic net income
(loss) per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding during the
period. Diluted net loss per share in 1999 is computed in the same way
as basic, as all common equivalent shares are considered antidilutive.
Diluted net income per share is computed by dividing net income by the
diluted weighted average number of common and common-equivalent shares
outstanding during the period. The weighted average number of common-
equivalent shares has been determined in accordance with the treasury
stock method. Common stock equivalents include options to purchase
common stock.
The reconciliation of basic and diluted shares outstanding is as
follows:
<TABLE>
<CAPTION>
1997 1998 1999
<S> <C> <C> <C>
Weighted average common shares outstanding 12,986 13,259 13,950
Effect of dilutive securities stock options 686 507 -
------ ------ ------
Weighted average common shares outstanding,
assuming dilution 13,672 13,766 13,950
====== ====== ======
</TABLE>
Dilutive weighted average shares outstanding do not include 163, 831
and 1,866 common-equivalent shares for the end of fiscal years 1997,
1998 and 1999, respectively, as their effect would have been
antidilutive.
(o) Derivative Financial Instruments
10
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
(Continued)
At September 26, 1998 and September 25, 1999, the Company had no
instruments requiring disclosure under SFAS No. 119, Disclosure about
Derivative Financial Instruments and Fair Value of Financial
Instruments.
(p) Comprehensive Income (Loss)
SFAS No. 130, Reporting Comprehensive Income, requires disclosure of
comprehensive income and its components. Comprehensive income is
defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from
nonowner sources. Comprehensive income consists entirely of the net
income or loss plus the Company's translation adjustments and is
disclosed in the accompanying statements of stockholders' equity.
(q) Recently Issued Accounting Standards
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities establishes accounting and reporting standards requiring
that every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at fair value. The
statement requires that changes in the derivative's fair value be
recognized in earnings currently, unless specific hedge accounting
criteria are met. Special accounting or qualifying hedges allows
derivative gains and losses to offset related results on the hedged
item in the income statement, and require that a company must formally
document, designate and assess the effectiveness of transactions that
receive hedge accounting. SFAS No. 133, as amended by SFAS 137, is
effective for all fiscal quarters of fiscal years after June 15, 2000.
As the Company does not currently engage in derivatives or hedging
transactions, there will be no current impact to the Company's results
of operations, financial position or cash flows upon the adoption of
SFAS No. 133.
(3) Acquisition
On June 3, 1999, pursuant to a securities purchase agreement dated April
28, 1999, as amended (the Securities Purchase Agreement), between Hologic,
Sterling Diagnostic Imaging, Inc., a Delaware corporation (SDI) and SDI
Investments, LLC, a Delaware limited liability company (SDI Investments),
Hologic purchased 100% of the issued and outstanding shares of capital
stock of Direct Radiography Corporation Holding Corp., the parent company
of Direct Radiography Corp. (DRC), a manufacturer of digital X-ray systems
for medical imaging and non-destructive testing applications. On June 3,
1999, pursuant to a contract of sale (the Contract of Sale) with Glasgow
Land Company, a Delaware limited liability company and a wholly-owned
subsidiary of SDI Investments, Hologic also purchased the land and building
in Glasgow, Delaware, at which DRC conducted its business. Hologic paid
approximately $21,145 for DRC and the real estate, of which approximately
$7,216 was paid in cash and of which approximately $13,929 was paid by
delivery of 1,857 shares of Hologic's common stock, par value $.01 per
share (the Purchase Price). In connection with the acquisition, Hologic
incurred $756 of acquisition costs. The Acquisition was accounted for as a
purchase in accordance with
11
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
(Continued)
Accounting Principles Board Opinion No. 16. Accordingly, the results of the
operations of DRC have been included in the accompanying consolidated
financial statements from the date of acquisition. In accordance with APB
Opinion No. 16, the Company allocated the purchase price of the Acquisition
based on the fair value of the assets acquired and liabilities assumed.
The aggregate purchase price of $21,901 including acquisition costs was
allocated as follows:
<TABLE>
<S> <C>
Current assets $ 4,788
Property, plant and equipment 18,635
Liabilities assumed (1,522)
-------
$21,901
=======
</TABLE>
Unaudited pro forma operating results for the Company, assuming the
Acquisition of DRC occurred on September 28, 1997 and September 27, 1998
are as follows:
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Net sales $116,565 $86,466
Net income (loss) 382 (9,114)
Net income per share-
Basic .03 (.60)
Diluted .02 (.60)
</TABLE>
(4) Line of Credit
The Company maintains a line of credit with a bank for the equivalent of
$3,000, which bears interest at the Europe Interbank Offered Rate (3.2% at
September 25, 1999) plus 1.50%. As of September 25, 1999 $1,103 was
outstanding. The borrowings under this line are primarily used by the
Company's European subsidiaries to settle intercompany sales and are
denominated in the respective local currencies of its European
subsidiaries. The line of credit may be canceled by the bank with 30 days
notice. The average outstanding balance during fiscal 1999 was
approximately $1,527 and the weighted average interest rate for fiscal 1999
was 5.8%. Interest expense on this line of credit of approximately $66, $60
and $82 has been included in other expenses in the accompanying
consolidated statements of operations for 1997, 1998 and 1999,
respectively.
12
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
(Continued)
(5) Income Taxes
The Company provides for income taxes under the liability method in
accordance with SFAS No. 109, Accounting for Income Taxes.
The provision (benefit) for income taxes in the accompanying consolidated
statements of operations consists of the following:
<TABLE>
<CAPTION>
Years Ended
-------------------------------------------------
September 27, September 26, September 25,
1997 1998 1999
<S> <C> <C> <C>
Federal-
Current $ 8,852 $ 7,327 $ -
Deferred 142 (2,207) (1,953)
------------- ------------ ------------
8,994 5,120 (1,953)
State-
Current 795 973 53
Deferred 40 (293) (175)
------------- ------------ ------------
835 680 (122)
Foreign-
Current 11 - -
------------- ------------ ------------
$ 9,840 $ 5,800 $ (2,075)
============= ============ ============
</TABLE>
A reconciliation of the federal statutory rate to the Company's effective
tax rate is as follows:
13
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
(Continued)
<TABLE>
<CAPTION>
Years Ended
----------------------------------------------------
September 27, September 26, September 25,
1997 1998 1999
<S> <C> <C> <C>
Income tax provision at federal statutory rate 35.0% 35.0% (35.0)%
Increase (decrease) in tax resulting from-
Net effect of (income) losses of foreign
subsidiaries not provided (0.6) 0.1 2.7
State tax provision(benefit), net of
federal benefit 2.3 2.7 (0.9)
Research and development tax credit (0.9) (0.9) -
Effect of not providing U.S. taxes on
exempt FSC income (1.4) (1.2) -
Other 1.3 0.1 (2.4)
----------- ---------- --------
35.7% 35.8% (35.6)%
=========== ========== ========
</TABLE>
The components of domestic and foreign income (loss) before the provision
(benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
Years Ended
------------------------------------------------
September 27, September 26, September 25,
1997 1998 1999
<S> <C> <C> <C>
Domestic $ 27,063 $ 16,266 $ (5,368)
Foreign 506 (78) (454)
---------- ---------- ------------
$ 27,569 $ 16,188 $ (5,822)
========== ========== ============
</TABLE>
During fiscal 1997, 1998 and 1999, the Company realized tax benefits of
approximately $470, $1,196 and $43, respectively, relating to the
exercise of certain stock options. These benefits are reflected as a
component of capital in excess of par value.
14
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(In Thousands, except per share data)
(Continued)
The components of the net deferred tax asset recognized as other current
assets in the accompanying consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
September 26, September 25,
1998 1999
<S> <C> <C>
Deferred tax assets $ 4,665 $ 6,898
Valuation allowance (568) (673)
------------ ------------
$ 4,097 $ 6,225
============ ============
</TABLE>
The Company has recorded a valuation allowance against a portion of its
deferred tax assets. The valuation allowance relates primarily to certain
deferred tax assets in foreign jurisdictions, for which realization is
uncertain.
The approximate income tax effect of each type of temporary difference and
carryforward before allocation of the valuation allowance is approximately as
follows:
<TABLE>
<CAPTION>
September 26, September 25,
1998 1999
<S> <C> <C>
Net operating loss carryforwards $ 360 $ 2,458
Nondeductible accruals 332 486
Nondeductible reserves 1,568 2,096
Other temporary differences (182) 571
Deferred revenue 2,587 1,287
------------ ------------
$ 4,665 $ 6,898
============ ============
</TABLE>
(6) Common Stock
(a) Stock Option Plans
The Company's 1986 Combination Stock Option Plan (the 1986 Plan) is
administered by the Board of Directors. Under the terms of the 1986
Plan, the Company granted employees either incentive stock options or
nonqualified stock options to purchase shares of the Company's common
stock at a price not less than fair market value at the date of
grant. In addition, the Company may grant nonqualified options to
other participants. During fiscal 1996, the 1986 Plan was terminated.
Options granted under the 1986 Plan vest over a five-year period and
are exercisable at varying dates.
15
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
(Continued)
The Company's 1994 Stock Option Plan (the 1994 Plan) and the 1995
Stock Option Plan (the 1995 Plan), both of which were originally
adopted by FluoroScan, are administered by the Board of Directors and
the Company has issued options to purchase 276 shares of the Company's
common stock, as of September 25, 1999. Under the terms of the 1994
Plan and the 1995 Plan, the Company may grant employees either
incentive stock options, nonqualified stock options, stock
appreciation rights, restricted stock and deferred stock awards at a
price not less than the fair market value on the date of grant. The
Company does not intend to grant any additional options under these
plans.
In June 1995, the Board of Directors adopted the 1995 Combination
Stock Option Plan (the 1995 Combination Plan), pursuant to which the
Company is authorized to issue 1,100 options to purchase shares of
common stock. Under the terms of the 1995 Combination Plan, the
Company may grant employees either incentive stock options or
nonqualified stock options to purchase shares of the Company's common
stock at a price not less than the fair market value at the date of
grant. In addition, the Company may grant nonqualified options to
other participants. As of September 25, 1999, the Company had 254
shares available for future grant under this plan.
The Company's 1990 Nonemployee Director Stock Option Plan (the
Directors' Plan) allows for eligible directors to receive options to
purchase 10 shares of common stock upon election as a director. The
options vest ratably over a five-year period. In addition, eligible
directors are entitled to annual option grants to purchase eight
shares of common stock, which vest after six months. Option grants
under the Directors' Plan are at not less than fair market value on
the date of grant. The Company has reserved 200 shares of common stock
for issuance under the Directors' Plan. As of September 25, 1999, the
Company had no shares available for future grant.
In May 1997, the Board of Directors adopted the 1997 Employee Equity
Incentive Plan (the 1997 Plan), pursuant to which the Company is
authorized to issue 500 shares of common stock. Under the terms of the
1997 Plan, the Company may grant employees either nonqualified stock
options, stock appreciation rights, performance shares, restricted
stock, or stock units. As of September 25, 1999 the Company had 290
shares available for future grant under this plan.
In March 1999, the Board of Directors adopted the 1999 Equity
Incentive Plan (the 1999 Plan), pursuant to which the Company is
authorized to issue 300 shares, plus an annual increase, as defined.
Under the terms of the 1999 Plan, the Company may grant employees
either incentive stock options, non-qualified stock options, stock
appreciation rights, performance shares, restricted stock, or stock
units. As of September 25, 1999 the Company had 490 shares available
for future grant under this plan.
The following table summarizes all stock option activity under all of
the plans for the three years ended September 25, 1999.
16
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
(Continued)
<TABLE>
<CAPTION>
Number Exercise Weighted
of Shares Price per Average
Share Exercise Price
<S> <C> <C> <C>
Outstanding, September 28, 1996 1,604 $ .50-$49.00 $ 11.24
Granted 325 19.25-29.13 21.60
Terminated (225) 1.94-37.75 21.46
Exercised (212) 1.88-30.98 10.36
-------------- -------------- --------------
Outstanding, September 27, 1997 1,492 .50-49.00 12.08
Granted 399 10.25-29.50 24.24
Terminated (93) 2.63-45.25 21.97
Exercised (229) .50-25.38 5.72
-------------- -------------- --------------
Outstanding, September 26, 1998 1,569 1.81-49.00 15.52
Granted 1,396 4.13-15.88 9.86
Terminated (805) 1.94-49.00 21.62
Exercised (30) 1.94-11.00 4.41
-------------- -------------- --------------
Outstanding, September 25, 1999 2,130 $ 1.81-$44.25 $ 9.66
============== ============== ==============
Exercisable, September 25, 1999 1,009 $ 1.81-$44.25 $ 9.61
============== ============== ==============
Exercisable, September 26, 1998 818 $ 1.81-$49.00 $ 10.46
============== ============== ==============
Exercisable, September 27, 1997 582 $ .50-$49.00 $ 8.78
============== ============== ==============
</TABLE>
17
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
(Continued)
The range of exercise prices for options outstanding and options exercisable at
September 25, 1999 are as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- -------------------------------------------------------------------------------------
Weighted
Average
Remaining
Contractual Weighted Weighted
Range of Options Life Average Options Average
Exercise Price Outstanding (Years) Exercise Price Exercisable Exercise Price
<S> <C> <C> <C> <C> <C>
$ 1.81 - $ 5.63 333 5.56 $ 3.46 281 $ 3.27
$ 5.94 - $ 6.81 381 9.32 6.74 26 6.19
$ 7.00 - $ 8.25 366 5.74 8.18 320 8.19
$ 8.44 - $ 8.88 132 9.40 8.87 1 8.52
$ 8.94 - $11.00 457 7.88 10.95 170 10.94
$ 11.38 - $13.25 313 8.73 13.12 90 13.12
$ 13.63 - $44.25 148 7.25 24.05 121 24.37
------------- ------------ -------------- ----------- --------------
$ 1.81 - $45.00 2,130 7.58 $ 9.66 1,009 $ 9.61
============= ============ ============== =========== ==============
</TABLE>
The weighted average grant date fair value under the Black-Scholes option
pricing model of options granted during the years ended September 27, 1997,
September 26, 1998 and September 25, 1999 under the various plans is $14.62,
$14.81 and $6.59 per share, respectively. As of September 27, 1997, September
26, 1998 and September 25, 1999, the weighted average remaining contractual life
of outstanding options under these plans is 7.69, 7.49 and 7.58 years,
respectively.
The Company accounts for its stock-based compensation plans under Accounting
Principle Board Opinion No. 25, Accounting for Stock Issued to Employees. In
October 1995 the Financial Accounting Standards Board (FASB) issued SFAS No.
123, Accounting for Stock-Based Compensation, which established a fair-value-
based method of accounting for stock-based compensation plans. The Company has
adopted the disclosure-only alternative under SFAS No. 123 that requires
disclosure of the pro forma effects on net income (loss) and earnings (loss) per
share as if SFAS No. 123 had been adopted, as well as certain other information.
18
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
(Continued)
The Company has computed the pro forma disclosures required under SFAS
No. 123 for all stock options, stock issuances under the employee stock
purchase plan and warrants granted to employees of the Company in fiscal
years ended September 26, 1998 and September 25, 1999, using the Black-
Scholes option pricing model prescribed by SFAS No. 123. The assumptions
used to calculate the SFAS No. 123 pro forma disclosure and the weighted
average information for the fiscal years ended September 27, 1997,
September 26, 1998 and September 25, 1999 are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
<S> <C> <C> <C>
Risk-free interest rate 6.00% 5.96% 6.12%
Expected dividend yield - - -
Expected lives 6 years 6 years 6 years
Expected volatility 70% 70% 70%
</TABLE>
The pro forma effect of applying SFAS No. 123 for all options granted,
stock issuances under the employee stock purchase plan and warrants
granted to employees of the Company in fiscal years ended September 27,
1997, September 26, 1998 and September 25, 1999 would be as follows:
<TABLE>
<CAPTION>
1997 1998 1999
<S> <C> <C> <C>
Net income (loss) as reported $17,729 $10,388 $(3,747)
Pro forma net income (loss) 16,731 8,761 (5,388)
Diluted net income (loss) per $ 1.30 $ .75 $ (.27)
share, as reported
Pro forma diluted net income (loss) $ 1.22 $ .64 $ (.39)
per share
</TABLE>
(b) Employee Stock Purchase Plan
In December 1994, the Company adopted the 1995 Employee Stock Purchase
Plan (the ESP Plan) in compliance with Section 423 of the Internal
Revenue Code. Employees who have completed three consecutive months or
1,000 hours, whether or not consecutive, of employment with the Company
are eligible to participate in the ESP Plan. The ESP Plan allows
participants to purchase common stock of the Company at 85% of the fair
market value, as defined. The Company may issue up to 200 shares under
the ESP Plan. During fiscal 1997, 1998 and 1999, the Company issued 11,
17 and 27 shares, respectively, under the ESP Plan. At September 25,
1999, the Company has 121 shares available for purchase under the ESP
Plan.
(c) Rights Agreement
19
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
(Continued)
In December 1992, the Company adopted a shareholder rights plan. The
plan is intended to protect shareholders from unfair or coercive
takeover practices. In accordance with the plan, the Board of
Directors declared a dividend distribution of one common stock
purchase right for each share of common stock outstanding until the
rights become detachable. Each right entitles the registered holder to
purchase from the Company one share of common stock for $90, adjusted
for certain events. In the event that the Company is acquired in a
merger or other business combination transaction or more than 50% of
its assets or earning power is sold, each holder shall thereafter have
the right to receive, upon exercise of each right, that number of
shares of common stock of the acquiring company that, at the time of
such transaction, would have a market value of two times the $90 per
share exercise price. The rights will not be detachable or exercisable
until certain events occur. The Board of Directors may elect to
terminate the rights under certain circumstances.
(d) Treasury Stock
In 1998, the Board of Directors authorized the purchase of up to 1,000
shares of the Company's common stock. As of September 25, 1999, the
Company has purchased 45 shares under this authorization.
(6) Profit Sharing 401(k) Plan
The Company has a qualified profit sharing plan covering substantially all
of its employees. Contributions to the plan are at the discretion of the
Company's Board of Directors. The Company has recorded approximately $235,
$360 and $440 as a provision for the profit sharing contribution for
fiscal 1997, 1998 and 1999, respectively.
(7) Related Party Transactions
(a) Management Services Agreement
The Company has an agreement with Vivid Technologies, Inc. (Vivid),
an affiliated company, whereby the Company provides management,
administrative and support services. The Company charged Vivid
approximately $130, $140 and $151 under the agreement during fiscal
1997, 1998 and 1999, respectively, which have been offset against
operating expenses of the Company. Of these amounts, approximately
$16 and $66 were unpaid as of September 26, 1998 and September 25,
1999, respectively.
(b) License and Technology Agreement
The Company has an agreement with Vivid whereby Vivid obtained a
perpetual, exclusive worldwide license to utilize certain of the
Company's technology and patents for the sole purpose of developing
baggage and inspection security systems (the Exclusive License). In
20
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
(Continued)
September 1996, this license was amended to grant Vivid a nonexclusive
license to utilize these patents and technology for certain new
product development for other applications (the Nonexclusive License).
Royalty payments to the Company under the Exclusive License are 5% of
product revenue on Vivid's first $50 million in sales; thereafter,
payments are 3% of Vivid's sales up to $200 million. Royalty payments
under the Nonexclusive License are 3% on sales up to $200 million.
Subsequent to year-end, Vivid and another company entered into a
merger agreement (the Merger) and Hologic and Vivid entered into a
termination agreement dated October 4, 1999. Under this termination
agreement the license fee will terminate upon the effective date of
the Merger. As part of the termination agreement, Vivid is to pay
Hologic $2,000 upon the consummation date of the Merger. If the Merger
does not consummate on or before April 30, 2000, the terms of the
termination agreement shall be modified, as defined. If the Merger
does not consummate before October 30, 2000, the termination agreement
shall become void and Vivid will become responsible for any
outstanding royalties under the original license agreement, as
amended. The Company recognized approximately $950, $1,070 and $378 of
royalty revenue under the Exclusive License for fiscal 1997, 1998 and
1999, respectively. Approximately $519 and $246 were outstanding at
September 26, 1998 and September 25, 1999, respectively. The Company
has not recognized any royalty revenue under the Nonexclusive License.
(8) Commitments
(a) Operating Leases
Certain subsidiaries of the Company conduct their operations in leased
facilities under operating lease agreements that expire through fiscal
2002. The Company and its subsidiaries lease certain equipment under
operating lease agreements that expire through fiscal 2002. Future
minimum lease payments under the operating leases are approximately as
follows:
<TABLE>
<CAPTION>
Fiscal Years Amount
Ending
<S> <C>
September 30, 2000 $ 734
September 29, 2001 488
September 28, 2002 264
--------
$ 1,486
========
</TABLE>
Rental expense was approximately $1,107, $1,937 and $297 for fiscal
1997, 1998 and 1999, respectively.
(b) Patent Acquisition
21
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
(Continued)
In fiscal 1992, the Company acquired certain patents pertaining to
technology incorporated into certain of the Company's products. The
Company paid approximately $245 for these patents and related expenses
upon entering into the agreement. In May 1993, this agreement was
amended such that the Company paid approximately $344 for additional
patent rights and related expenses, of which $50 was paid through the
issuance of 21 shares of common stock. In January 1998, the Company
made the final payment of $1,086 with respect to the acquisition of
these patent rights. The cost of these patents is being amortized over
their expected life of 10 years.
(9) Collaboration Agreement
In June 1995, the Company acquired a 5% minority interest in a
collaborating company. To acquire this minority interest, the Company
issued 56 shares of common stock and paid $76 in cash in return for all of
the outstanding convertible preferred stock of the collaborating company.
The Company also entered into a development agreement with the
collaborating company related to a certain product. As part of the
development agreement, the Company reimbursed the collaborating company
for expenses incurred in the development of this product. The Company
incurred $552, $344 and $689 of expense, net of related royalty revenue,
in connection with this agreement in 1997, 1998 and 1999, respectively.
The Company and the collaborating company have suspended this project.
(10) Fee per Scan Program
The Company had a fee per scan program with a leasing company whereby the
Company sold its systems to the leasing company, which, in turn, leased
the systems to third parties. Under the terms of the agreement, the
Company is contingently liable for a certain amount per system, up to a
maximum of the greater of (i) the sale price of four systems or (ii) 10%
of the aggregate value of systems sold under the program. The Company
recorded the amount for which it is contingently liable as deferred
revenue. The Company and the leasing company have commenced claims
against each other regarding this program (see Note 13).
22
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
(Continued)
(11) Business Segments and Geographic Information
Effective for the fiscal year ended September 25, 1999, the Company has
adopted SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information. SFAS No. 131 establishes standards for reporting
information regarding operating segments in annual financial statements
and requires selected information for those segments to be presented in
interim financial reports issued to stockholders. SFAS No. 131 also
establishes standards for related disclosures about products and services
and geographic areas. Operating segments are identified as components of
an enterprise about which separate discrete financial information is
available for evaluation by the chief operating decision maker, or
decision making group, in making decisions how to allocate resources and
assess performance. The Company's chief decision-maker, as defined under
SFAS No. 131, is the chief operating officer. To date, the Company has
viewed its operations and manages its business as principally three
operating segments: the manufacture and sale of Bone Assessment Products,
Mini-C Arm Imaging products and Digital Imaging products. Intersegment
sales and transfers are not significant.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on the sales, operating income, net income and total
assets. Segment information for fiscal years ended 1997, 1998 and 1999 is
as follows.
<TABLE>
<CAPTION>
1997 1998 1999
<S> <C> <C> <C>
Total revenues-
Bone Assessment $ 95,101 $ 105,465 $ 67,949
Mini C-Arm Imaging 11,588 10,099 15,075
Digital Imaging - - 1,116
---------- ---------- ----------
$ 106,689 $ 115,564 $ 84,140
========== ========== ==========
Operating income (loss)-
Bone Assessment $ 24,552 $ 13,205 $ (4,725)
Mini C-Arm Imaging (2,157) (2,351) 1,076
Digital Imaging - - (5,829)
---------- ---------- ----------
$ 22,395 $ 10,854 $ (9,478)
========== ========== ==========
Net income (loss)-
Bone Assessment $ 18,904 $ 12,108 $ (647)
Mini C-Arm Imaging (1,175) (1,720) 576
Digital Imaging - - (3,676)
---------- ---------- ----------
$ 17,729 $ 10,388 $ (3,747)
========== ========== ==========
Identifiable assets-
</TABLE>
23
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
(Continued)
<TABLE>
<CAPTION>
1997 1998 1999
<S> <C> <C> <C>
Bone Assessment $ 127,165 $ 155,654 $ 137,835
Mini C-Arm Imaging 17,502 16,943 17,280
Digital Imaging - - 20,655
---------- ---------- ----------
$ 144,667 $ 172,597 $ 175,770
========== ========== ==========
Depreciation and amortization-
Bone Assessment $ 1,084 $ 1,637 $ 2,458
Mini C-Arm Imaging 168 214 239
Digital Imaging - - 777
---------- ---------- ----------
$ 1,252 $ 1,851 $ 3,474
========== ========== ==========
Capital expenditures-
Bone Assessment $ 1,719 $ 22,543 $ 7,747
Mini C-Arm Imaging 363 54 741
Digital Imaging - - 391
---------- ---------- ----------
$ 2,082 $ 22,597 $ 8,879
========== ========== ==========
</TABLE>
Export sales from the United States to unaffiliated customers primarily in
Europe, Asia and Latin America during fiscal 1997, 1998 and 1999 totaled
approximately $24,751, $14,496 and $13,378, respectively.
Transfers between the Company and its European subsidiaries are generally
recorded at amounts similar to the prices paid by unaffiliated foreign
dealers. All intercompany profit is eliminated in consolidation.
Export product sales as a percentage of total product sales are as follows:
<TABLE>
<CAPTION>
Years Ended
----------------------------------------------------
September 27, September 26, September 25,
1997 1998 1999
<S> <C> <C> <C>
Europe 20% 18% 24%
Asia 10 4 7
All others 9 6 6
--- --- ---
39% 28% 37%
=== === ===
</TABLE>
(12) Accrued Expenses
Accrued expenses consist of the following:
24
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
(Continued)
<TABLE>
<CAPTION>
September 26, September 25,
1998 1999
<S> <C> <C>
Accrued payroll and employee benefits $ 2,233 $ 2,114
Accrued commissions 3,769 2,644
Accrued income taxes 3,748 689
Accrued warranty 1,077 1,172
Other accrued expenses 1,626 3,484
------------ ------------
$ 12,453 $ 10,103
============ ============
</TABLE>
(13) Litigation
Hologic has commenced a claim against Fleet Business Credit Corp.
(FBCC), in which Hologic seeks a declaratory judgment with respect to
the parties' respective rights and obligations under a Master Product
Financing Agreement (the Agreement) dated September 25, 1996, as
supplemented and amended. FBCC subsequently commenced a separate action
against Hologic in state court in Illinois to recover damages allegedly
arising out of or relating to the Agreement. Neither Hologic nor FBCC
has precisely quantified the alleged potential liability of Hologic to
FBCC and Hologic is vigorously defending against the claims asserted by
FBCC.
In the ordinary course of business, the Company is party to various
types of litigation. The Company believes it has meritorious defenses to
all claims, and, in its opinion, all litigation currently pending or
threatened will not have a material effect on the Company's financial
position or results of operations.
25
<PAGE>
HOLOGIC, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands, except per share data)
(Continued)
(14) Quarterly Statement of Operations Information (Unaudited)
The following table presents a summary of quarterly results of
operations for 1998 and 1999:
<TABLE>
<CAPTION>
1998
------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Total revenue $ 26,121 $ 30,197 $ 34,426 $ 24,820
Net income 2,063 2,720 4,289 1,316
Diluted net income per common
and common equivalent share .15 .20 .31 .09
<CAPTION>
1999
------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Total revenue $ 24,632 $ 19,362 $ 20,008 $ 20,138
Net income (loss) 2,037 (1,088) (1,533) (3,163)
Diluted net income (loss) per
common and common
equivalent share .15 (.08) (.11) (.23)
</TABLE>
26
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Directors
The biographical information below regarding our directors includes
information they furnished to us concerning their principal occupation for the
last five years, other directorships they have held, and their ages as of
December 16, 1999.
<TABLE>
<CAPTION>
Director
Name Age Position Since
---- --- -------- -----
<S> <C> <C> <C>
S. David Ellenbogen 61 Chairman of the Board and
Chief Executive Officer 1985
Steve L. Nakashige 50 President and
Chief Operating Officer and Director 1998
Jay A. Stein 57 Senior Vice President, Chief
Technical Officer and Director 1985
Irwin Jacobs 62 Director 1990
William A. Peck 66 Director 1990
Gerald Segel 78 Director 1990
Elaine Ullian 52 Director 1996
</TABLE>
Mr. Ellenbogen, a co-founder of Hologic, has served as our Chief Executive
Officer and a director since we were formed in October 1985, as the Chairman of
our Board of Directors since May 1994, as our President from October 1985 until
May 1994 and as our Treasurer from October 1985 until February 1992. Prior to
founding Hologic, Mr. Ellenbogen served as President, Treasurer and a director
of Diagnostic Technology, Inc., which he co-founded with Dr. Stein in 1981.
Diagnostic Technology, which developed an X-ray product for digital angiography,
was acquired in 1982 by Advanced Technology Laboratories, Inc., a wholly-owned
subsidiary of Squibb Corporation. Mr. Ellenbogen was involved in the management
of the digital angiography group of Advanced Technology Laboratories from 1982
to 1985. Since July 1989, Mr. Ellenbogen has also been the President and a
director of Vivid Technologies, Inc. and typically devotes approximately sixteen
hours per week to Vivid pursuant to a management agreement between Vivid and
Hologic. For more information about this relationship, you should refer to
Item 13 of this report.
Mr. Nakashige has served as President and Chief Operating Officer of Hologic
since May 1994 and has served as a director since 1998. From 1988 to 1994,
Mr. Nakashige was with General Electric Medical Systems where he held the
position of Senior Manager, Ultrasound Business from 1990 to 1994 and Manager,
Ultrasound Marketing Operations from 1988 to 1990. From 1986 to 1988,
Mr. Nakashige was Vice President of Operations of Biosound Inc., a medical
equipment manufacturer.
Dr. Stein, a co-founder of Hologic, has served as our Senior Vice President,
Chief Technical Officer and a director since we were formed. Dr. Stein
co-founded Diagnostic Technology with Mr. Ellenbogen in 1981, served as
35
<PAGE>
Vice President and Technical Director of Diagnostic Technology and was Technical
Director of the digital angiography group of its successor, Advanced Technology
Laboratories, from 1982 to 1985. Dr. Stein received a Ph.D. in Physics from The
Massachusetts Institute of Technology. He is the principal author of fifteen
patents involving x-ray technology. Since July 1989, Dr. Stein has also been the
Senior Vice President, Technical Director and a director of Vivid and has been
devoting approximately eight hours per week to Vivid pursuant to a management
agreement between the Company and Vivid. For more information about this
relationship, you should refer to Item 13 of this report.
Mr. Jacobs has been a director of Hologic since January 1990. Mr. Jacobs,
currently retired, was the President of Dataviews, Inc., a company which
manufactures and distributes software products, from January 1992 to September
1997. Since December 1990, Mr. Jacobs has also been the Chairman of the Board
of Personal Protection Consultants, Inc., a company which provides specialized
training to hospitals and law enforcement agencies. From May 1990 to December
1990, Mr. Jacobs was a Vice President of Ask Computers, Inc., a computer system
developer. From 1987 to May 1990, Mr. Jacobs was the President and Chairman of
the Board of Directors of Perception Technology Corp., a manufacturer of voice
response systems.
Dr. Peck has been a director of Hologic since January 1990. In 1989, Dr. Peck
became the Vice Chancellor for Medical Affairs at Washington University
(Executive Vice Chancellor since 1993) and Dean of the Washington University
School of Medicine in St. Louis, Missouri. From 1976 until his appointment as
Vice Chancellor, Dr. Peck was a Professor of Medicine and the Co-Chairman of the
Department of Medicine at Washington University, and the Physician-in-Chief at
the Jewish Hospital of St. Louis. Dr. Peck is a member of the Board of Trustees
of the National Osteoporosis Foundation and served as its President from 1985 to
1990. Dr. Peck also serves as a director of Allied Healthcare Products, Inc.,
Angelica Corporation, Reinsurance Group of America, Inc. and TIAA-CREF Trust
Company.
Mr. Segel has been a director of Hologic since March 1990. Mr. Segel,
currently retired, was Chairman of the Board of Tucker Anthony Incorporated from
January 1987 to May 1990. From 1983 through January 1987 he served as President
of Tucker Anthony Incorporated. Mr. Segel also serves as a director of
Vivid and Boston Communications Group, Inc.
Ms. Ullian has been a director of Hologic since February 1996. In 1996,
Ms. Ullian was appointed President and Chief Executive Officer of Boston Medical
Center, the successor corporation of Boston University Medical Center Hospital.
In April 1994, Ms. Ullian was appointed President and Chief Executive Officer of
Boston University Medical Center Hospital. From January 1987 to March 1994,
Ms. Ullian held the position of President and Chief Executive Officer of
Faulkner Corporation/Faulkner Hospital. From 1984 to 1987, she was Vice
President for Clinical Operations at New England Medical Center. Ms. Ullian also
serves as a director of Vertex Pharmaceuticals.
Executive Officers
We have listed below the names of our executive officers who do not also serve
as directors, together with biographical information that they have furnished
us:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Jean Chaintreuil 44 Vice President of European Operations
Mark A. Duerst 43 Vice President of Sales
Glenn P. Muir 40 Vice President of Finance and Treasurer
</TABLE>
Executive officers are chosen by and serve at the discretion of our Board of
Directors.
Mr. Chaintreuil has served as Vice President of our European Operations since
February 1993. Mr. Chaintreuil has held the position of President, Hologic
Europe since joining us in October 1991. From 1986 to 1991, Mr. Chaintreuil
36
<PAGE>
held a variety of positions with General Electric/C.G.R., including
International Marketing Manager for mammography and stand-alone products and
Regional Sales and Service Manager for the Paris and west France territory.
Mr. Duerst has served as our Vice President of Sales since September 1994.
Prior to that, Mr. Duerst held the position of Director of North American Sales
since 1990 and the position of Central Regional Sales Manager since joining us
in 1989. From 1988 to 1989, Mr. Duerst was an independent marketing and sales
consultant and from 1983 to 1987 he was Director of Sales and Marketing of Lunar
Corporation.
Mr. Muir, a Certified Public Accountant, has served as our Vice President of
Finance and Treasurer since February 1992. Prior to that, Mr. Muir held the
position of Controller since joining us in October 1988. From 1986 to 1988, Mr.
Muir was Vice President of Finance and Administration and Chief Financial
Officer of Metallon Engineered Materials Corp., a manufacturer of composite
materials. Mr. Muir received an MBA from the Harvard Graduate School of
Business Administration in 1986. Mr. Muir also serves as a director of Vivid
Technologies, Inc.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, our directors, executive
officers, and any persons holding more than ten percent of our common stock are
required to report their initial ownership of our common stock and any
subsequent changes in that ownership to the Securities and Exchange Commission.
Specific filing deadlines of these reports have been established and we are
required to disclose in this report any failure to file by these dates during
the fiscal year ended September 25, 1999. To the best of the our knowledge, all
of these filing requirements have been satisfied. In making this statement, we
have relied solely on written representations of our directors and executive
officers and any ten percent stockholders, and copies of the reports that they
filed with the SEC.
37
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation during
the last three fiscal years of our Chief Executive Officer and our four other
most highly compensated executive officers whose annual salary and bonus
exceeded $100,000 for services in all capacities to us during the last fiscal
year (the "named executive officers").
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
NAME AND FISCAL ----------------------- STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) AWARDS ($)(1) OPTIONS (#) COMPENSATION ($)(2)
- -------------------- ------ ----------------------- ------------- ----------- -------------------
<S> <C> <C> <C> <C> <C> <C>
S. David Ellenbogen 1999 $244,297 --- $75,000 45,000 $3,500
Chairman and CEO 1998 $216,945 $150,000 $75,000 20,000 $3,500
1997 $201,382 $150,000 --- 25,000 $3,325
Steve L. Nakashige 1999 $200,954 --- $75,000 40,000 $3,500
President and COO 1998 $174,407 $ 75,000 $75,000 20,000 $3,500
1997 $152,441 $ 75,000 --- 20,000 $3,325
Jay A. Stein 1999 $205,759 --- --- 25,000 $3,500
Sr. Vice President 1998 $185,248 $ 25,000 --- 10,000 $3,500
Chief Technical 1997 $181,440 $ 25,000 --- 15,000 $3,325
Officer
Jean Chaintreuil 1999 $228,791 --- --- 25,000 ---
Vice President 1998 $244,574 $ 15,000 --- 10,000 ---
European Operations 1997 $242,031 $ 15,000 --- 15,000 ---
Mark A. Duerst 1999 $193,420 --- --- 25,000 $3,500
Vice President 1998 $235,347 $ 25,000 --- 10,000 $3,500
Sales and Marketing 1997 $197,909 $ 35,000 --- 15,000 $3,325
</TABLE>
__________________
(1) Represents 2,913 restricted shares of common stock granted to each of
Messrs. Ellenbogen and Nakashige on November 14, 1997 and 3,000 restricted
shares of common stock on November 12, 1998. The amounts reported in this
column represent the fair market value of restricted shares of common stock
granted on November 14, 1997, and November 12, 1998 calculated as of the
grant date. We may repurchase the underlying shares under certain
circumstances before November 14, 1999 and November 12, 2000. At September
25, 1999, the aggregate number of restricted shares and fair market value
of such shares on that date held by the respective named executive officers
was as follows: Mr. Ellenbogen 5,913 shares with an aggregate fair market
value of $24,391 and Mr. Nakashige 5,913 shares with an aggregate fair
market value of $24,391. Dividends, if any, paid to holders of the our
common stock would also be paid to holders of restricted shares.
(2) The amounts reported in this column consist of our matching contribution
under our 401(k) Profit-Sharing Plan.
38
<PAGE>
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth the stock options granted to our named
executive officers during the fiscal year ended September 25, 1999.
<TABLE>
<CAPTION>
Individual Grants Potential Realizable Value
------------------------------------------------------------------ at Assumed Annual Rates
Number of of Stock Price Appreciation
Securities % of Total for Option Term (3)
Underlying Options Granted ---------------------------
Options to Employees Exercise Price Expiration
Name Granted (#) (1) in Fiscal Year ($/share)(2) Date 5% ($) 10% ($)
- ---- --------------- -------------- ------------ ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
S.D. Ellenbogen 25,000 2% $13.125 11/12/08 $206,356 $522,947
20,000 2% $13.125 11/12/08 $165,085 $418,357
S. Nakashige 20,000 2% $13.125 11/12/08 $165,085 $418,357
20,000 2% $13.125 11/12/08 $165,085 $418,357
J. Stein 15,000 1% $13.125 11/12/08 $123,814 $313,768
10,000 1% $13.125 11/12/08 $ 82,542 $209,179
J. Chaintreuil 15,000 1% $13.125 11/12/08 $123,814 $313,768
10,000 1% $13.125 11/12/08 $ 82,542 $209,179
M. Duerst 15,000 1% $13.125 11/12/08 $123,814 $313,768
10,000 1% $13.125 11/12/08 $ 82,542 $209,179
</TABLE>
_____________
(1) Options vest at the rate of 20% per year, beginning in 1998. The options
were granted under our 1995 Combination Stock Option Plan.
(2) The exercise price is equal to the fair market value of the stock on the
date of grant.
(3) The 5% and 10% assumed rates of annual compounded stock price appreciation
are set forth in the rules of the SEC and do not represent our estimate or
projection of future common stock prices.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth certain information regarding the exercise of
stock options during the fiscal year ended September 25, 1999 and the fiscal
year-end value of unexercised options for our named executive officers.
<TABLE>
<CAPTION>
<S>
Number of
Securities Underlying Value of Unexercised
Unexercised Options In-the-Money Options at
Shares Acquired Value at Fiscal Year-End (#) Fiscal Year-End ($)(1)
Name on Exercise (#) Realized ($) Exercisable / Unexercisable Exercisable/Unexercisable
- ---- --------------- ------------ ------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
S. D. Ellenbogen --- --- 124,996 / 43,004 $56,250 / $ ---
S. Nakashige --- --- 150,332 / 34,668 $39,375 / $ ---
J. Stein --- --- 118,996 / 29,004 $56,250 / $ ---
J. Chaintreuil --- --- 32,332 / 35,668 $ 3,500 / $ ---
M. Duerst --- --- 57,164 / 20,336 $ 8,750 / $ ---
</TABLE>
___________________
(1) Based upon the $ 4.125 closing market price of our common stock as reported
on the Nasdaq National Market on September 25, 1999 minus the respective
option exercise price.
39
<PAGE>
Compensation of Directors
In fiscal 1999, each non-employee director received (i) an annual retainer
of $12,000, payable $3,000 per quarter, (ii) a director's meeting fee of $1,500
for each meeting of the Board of Directors at which the director was physically
present and $600 for each meeting at which the director participated by
telephone and (iii) a committee meeting fee for each meeting of a committee of
the Board of Directors at which the director was physically present, in the
amount of $1,200 if the meeting was held on a day other than the day of the
meeting of the Board of Directors and $600 if held on the same day as the
meeting of the Board of Directors, but no fee if the committee meeting was held
at the same time or immediately in conjunction with the meeting of the Board of
Directors.
Non-employee directors are also eligible to receive stock options pursuant
to our Amended and Restated 1990 Non-Employee Director Stock Option Plan (the
"Director's Plan"). The Director's Plan provides that each eligible director
will receive an option to purchase 10,000 shares of common stock at the time the
director is first elected to the Board of Directors. These options become
exercisable in increments of 2,000 shares over a five year period for each year
that the director remains affiliated with us. Each director who has served as a
director for a full fiscal year will be granted an option to purchase an
additional 8,000 shares of common stock on December 15 of each year, provided he
or she continues to be an eligible director, until the director has received
options to purchase 44,000 additional shares. These options become exercisable
in full six months after the date of grant. The exercise price for all options
granted under the Director's Plan is the fair market value of the common stock
at the time the option is granted. The exercise price may be paid in cash, with
common stock (valued at fair market value on the date of purchase), or by a
combination of cash and common stock. On December 15, 1998, options to purchase
8,000 shares of common stock, at an exercise price of $11.00 per share, were
granted to each of Messrs. Jacobs and Segel and Dr. Peck and Ms. Ullian under
the Director's Plan. There are no remaining shares available for issuance under
this plan.
Beginning in 1999, non-employee directors are eligible to receive stock
options pursuant to our 1999 Equity Incentive Plan (the "1999 Plan"). The 1999
Plan provides that, unless otherwise determined by the Board of Directors, each
of our directors who is not also one of our employees shall automatically be
granted a nonqualified option to acquire 25,000 shares of common stock as of the
date he or she is first elected to the Board or, with respect to such directors
serving on the Board as of the effective date of the 1999 Plan, as of the date
of our 1999 Annual Meeting. In each case, the option price will be the fair
market value of the common stock on such date and the expiration date will be
the tenth anniversary thereof. Each such nonqualified option will become
exercisable in 20% installments beginning on January 1 of the first year after
the grant date, and on January 1 of each year thereafter, until such option is
fully exercisable on January 1 of the fifth year following the grant date.
Furthermore, unless otherwise determined by the Board of Directors, each of
our directors who is not also one of our employees and who has served as a
director for six months shall automatically be granted a nonqualified option to
acquire 3,000 shares of common stock as of January 1 of each year, beginning
with January 1, 2000. The option price will be the fair market value of the
common stock on such date and the expiration date will be the tenth anniversary
thereof. These options are exercisable on and after the date that is six months
after the date of grant. On March 9, 1999, options to purchase 25,000 shares of
common stock, at an exercise price of $8.875 per share, were granted to each of
Messrs. Jacobs and Segel and Dr. Peck and Ms. Ullian under the 1999 Plan.
EXECUTIVE BONUS PROGRAM
The Compensation Committee of the Board of Directors approved an Executive and
Key Employee Bonus Program for fiscal 2000 under which executive officers,
senior management and key contributors selected by the Compensation Committee
may be eligible for cash bonuses, awarded at the discretion of the Compensation
Committee, to be paid in the first quarter of fiscal 2001. This program is
designed to attract and retain key talent and is directly related to our success
and to an overall increase in shareholder value. Under this program, executive
officers are measured against a combination of strategic, divisional and
individual goals to qualify for a bonus. Considerations include an evaluation of
overall and divisional revenues and profitability, new product development and
introductions, and improved shareholder value. For fiscal 1999 no bonuses were
awarded to executive officers.
40
<PAGE>
Severance Agreements
Severance agreements are in effect with each of the Named Executive
Officers. The agreements are intended to encourage the executives to continue to
carry on their duties in the event of a change of control of Hologic. Under the
terms of these agreements, if termination of an executive's employment occurs
within the three-year period following a change of control of Hologic and the
termination is by Hologic (or its successor) other than for cause or disability
or by the executive for good reason (each as defined in the agreement), each
executive will be entitled to receive, among other things, in a lump sum in
cash: (i) the executive's accrued salary; (ii) a pro rata portion of such
executive's highest annual bonus; (iii) if the executive has remained employed
for one year following the change of control, a special bonus equal to the sum
of the executive's annual salary and highest annual bonus; and (iv) a severance
amount equal to $1.00 less than the executive's base amount (as defined in the
tax code), multiplied by three. In addition, all unvested stock options or stock
appreciation rights held by the executive shall be immediately exercisable for a
one year period following the executive's termination date. The severance
agreements confer no benefits prior to a change of control. In the event that
any payments received by the executives in connection with a change of control
are subject to the excise tax imposed upon certain change of control payments
under federal tax laws or would be nondeductible to us under such laws, the
agreements provide for a reduction in the amount to be paid to the executive to
an amount which is one dollar less than the maximum that can be paid without
subjecting the payments to such excise tax or resulting in such payments being
nondeductible to us.
41
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as of December 16, 1999
with respect to the beneficial ownership of our common stock of each director,
each named executive officer in the Summary Compensation Table under "Executive
Compensation", below, all executive officers and directors as a group, and each
person known by us to be the beneficial owner of 5% or more of our common stock.
This information is based upon information received from or on behalf of the
named individuals.
<TABLE>
<CAPTION>
Beneficial Ownership (1)
--------------------------
Name Of NUMBER PERCENT OF
Beneficial Owner OF SHARES COMMON SHARES
- ---------------- ---------- --------------
<S> <C> <C>
S. David Ellenbogen (2) 561,082 3.6%
Jay A. Stein (3) 396,309 2.6%
Steve L. Nakashige (4) 160,430 1.0%
Jean Chaintreuil (4) 36,332 *
Mark A. Duerst (4) 59,164 *
Irwin Jacobs (4) 53,000 *
William A. Peck (4) 35,000 *
Gerald Segel (4) 49,000 *
Elaine Ullian (4) 35,000 *
All directors and executive officers as a group
(10 persons)(4) 1,487,505 9.3%
- ---------------------
</TABLE>
* Less than one percent.
(1) Unless otherwise noted, each person identified possesses sole voting and
investment power with respect to the shares listed.
(2) Includes (i) 48,110 shares held by, or in trust for, Mr. Ellenbogen's
children and grandchildren and (ii) 7,150 shares held by Mr. Ellenbogen as
trustee, all of which shares Mr. Ellenbogen disclaims beneficial ownership.
Also includes options to purchase 128,996 shares of common stock which are
exercisable within 60 days after December 16, 1999.
(3) Includes (i) 7,230 shares held by, or in trust, for Dr. Stein's children
and (ii) 23,170 shares held by Dr. Stein as trustee or custodian, all of
which shares Dr. Stein disclaims beneficial ownership. Also includes
options to purchase 120,996 shares of common stock which are exercisable
within 60 days after December 16, 1999.
(4) Includes the following shares subject to options which are exercisable
within 60 days after December 16, 1999: Mr. Nakashige - 154,332; Mr.
Chaintreuil - 36,332; Mr. Duerst - 59,164; Mr. Jacobs - 53,000; Dr. Peck -
35,000; Mr. Segel - 49,000; Ms. Ullian - 35,000; and all directors and
executive officers as a group 765,152.
42
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
For the fiscal year ended September 25, 1999, the following transactions
occurred which involved more than $60,000 with any director, executive officer,
five percent (5%) beneficial owner of our common stock or any member of the
immediate family of any of the foregoing persons.
VIVID TECHNOLOGIES, INC.
In June 1989, we granted an exclusive perpetual license to use certain patent
rights and technology to Vivid Technologies, Inc. for the development,
manufacture and sale of X-ray screening security systems for explosives, drugs,
currency and other contraband (subject to termination by either party for
certain defaults). In September 1996, this license was amended to grant Vivid a
nonexclusive license to use these patents and technology for the development,
manufacture and sale of X-ray-based products capable of being used for process
control applications in the food and beverage industries. Mr. Ellenbogen and
Dr. Stein are directors of Vivid and hold similar offices in Vivid as they do
with us. Mr. Ellenbogen and Dr. Stein collectively beneficially own
approximately 12% of the outstanding voting stock of Vivid.
Under the license agreement, Vivid is required to pay us royalties of 5% of
the first $50 million of net sales of screening security systems using our
technology, and 3% of net sales in excess of $50 million, up to a maximum of
$200 million of net sales of these products. Vivid is also required to pay
royalties of 3% up to a maximum of $200 million of net sales of products covered
by the nonexclusive license for food and beverage process control. The maximum
aggregate royalties payable to us by Vivid under this exclusive arrangement are
$7 million, and under the nonexclusive arrangement, are $6 million. In fiscal
1999, Vivid paid us royalties of approximately $393,000 under the license
agreement, on aggregate sales through fiscal 1999 of approximately $125 million.
Under a management agreement, we provided Vivid with the part-time management
services of Mr. Ellenbogen and Dr. Stein. Under this arrangement, Vivid was
required to pay us its proportionate share of the salary of our employees
rendering services to Vivid. Currently, the payments made under this arrangement
are Vivid's proportionate share of Mr. Ellenbogen's and Dr. Stein's
compensation. Under this arrangement, no compensation is paid by Vivid to any of
our employees. The management agreement may be terminated by either party on six
month's written notice. For the fiscal year ended September 25, 1999, Vivid was
charged approximately $151,000 by us for services rendered under the agreement.
We estimate that Mr. Ellenbogen and Dr. Stein have typically devoted
approximately sixteen and eight hours per week, respectively, on matters
involving Vivid.
In October 1999 the license and technology agreement with Vivid was
terminated subject to the completion of the merger of Vivid with EG&G, Inc., now
known as PerkinElmer, Inc. Upon the effective date of the merger, Vivid will
pay us $2 million as a fully paid up, exclusive license to utilize our
technology for X-ray security systems. If Vivid's merger with PerkinElmer is
not consummated, this termination will be cancelled and royalties will continue
to be owed per the license agreement.
43
<PAGE>
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) Financial Statements
Report of Independent Public Accountants
Consolidated Balance Sheets as of September 26, 1998
and September 25, 1999
Consolidated Statements of Operations for the years
ended September 27, 1997, September 26, 1998 and September 25, 1999
Consolidated Statements of Stockholders' Equity for the years ended
September 27, 1997, September 26, 1998 and September 25, 1999
Consolidated Statements of Cash Flows for the years ended September
27, 1997, September 26, 1998 and September 25, 1999
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
The following financial statement schedules are filed as part of this
report and should be read in conjunction with the consolidated
financial statements:
SCHEDULE
--------
Report of Independent Public Accountants on Schedule II,
Valuation and Qualifying Accounts
All other schedules have been omitted because they are not required or
because the required information is given in the Consolidated Financial
Statements or Notes thereto.
(3) Listing of Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Reference
------ ---------
<C> <S> <C>
2.01 Securities Purchase Agreement dated April 28, 1999, as amended on M-1
June 3, 1999, by and among Hologic, Sterling Diagnostic Imaging, Inc.,
and SDI Investments, L.L.C.
2.02 Contract of Sale dated April 28, 1999, as amended on June 3, 1999, by M-2
and between Hologic and Glasgow Land Company, L.L.C.
3.01 Certificate of Incorporation of Hologic A-3.01
3.02 By-laws of Hologic A-3.02
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Reference
------ ---------
<C> <S> <C>
4.01 Specimen certificate for shares of Hologic's Common Stock B-1
4.02 Description of capital stock (contained in the Certificate of A-3.01
Incorporation of Hologic, filed as Exhibit 3.01).
4.03 Rights Agreement dated December 22, 1992 C-1
4.04 Form of Rights Certificate C-2
4.05 Amendment No. 1 to Rights Agreement, dated as of December 13, 1995 H-4.01
4.06 Amendment No. 2 to Rights Agreement, dated as of December 9, 1996 H-4.02
4.07 Amendment No. 3 to Rights Agreement, dated as of April 25, 1999 L-4.03
10.01 1986 Combination Stock Option Plan, as amended E-10.07*
10.02 Amended and Restated 1990 Non-Employee Director Stock Option Plan F-10.08*
10.03 1995 Employee Stock Purchase Plan E-10.09*
10.04 1995 Combination Stock Option Plan F-10.10*
10.05 Amended and Restated 1999 Equity Incentive Plan K-10*
10.06 Form of Indemnification Agreement for directors and certain officers of A-10.12*
Hologic
10.07 Employment Agreement with an officer of Hologic D-10.22*
10.08 Severance Agreement with an officer of Hologic filed herewith*
10.09 Severance Agreement with an officer of Hologic filed herewith*
10.10 Severance Agreement with an officer of Hologic filed herewith*
10.11 Severance Agreement with an officer of Hologic filed herewith*
10.12 Management Services Agreement by and between Hologic and Vivid A-10.17*
Technologies, Inc.
10.13 Amendment No. 1 to Management Services Agreement filed herewith*
10.14 License Agreement by and between Hologic and Vivid Technologies, Inc. A-10.18
10.15 Amendment No.1 to the License Agreement by and between Hologic and Vivid G-10.25
Technologies, Inc.
10.16 Termination Agreement filed herewith
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Reference
------ ---------
<C> <S> <C>
10.17 Facility Lease by and between Hologic and Mangen Management Company G-10.26
10.18 Building Purchase and Sale Agreement I-10
10.19 Master Product Financing Agreement J-10.34**
10.20 Amendment to Master Product Financing Agreement by and between Hologic N-10.2
and Sanwa Business Credit Corporation
10.21 Amended and Restated Program Supplement Number 1 to Master Product N-10.3
Financing Agreement by and between Hologic and Sanwa Business Credit
Corporation
10.22 Distribution Agreement by and between Hologic and PSS for Sahara J-10.36**
10.23 Severance Agreement with an officer of Hologic filed herewith*
10.24 Severance Agreement with an officer of Hologic filed herewith*
21.01 Subsidiaries of the Company filed herewith
23.01 Consent of Arthur Andersen LLP filed herewith
</TABLE>
_______________________
* Management compensation plan or arrangement
** Confidentiality requested as to certain provisions
A We previously filed this exhibit on January 24, 1990 with the referenced
exhibit number as an exhibit to our Registration Statement on Form S-1
(Registration No. 33-33128), and the previously filed exhibit is
incorporated herein by reference.
B We previously filed this exhibit on January 31, 1990 with the referenced
exhibit number as an exhibit to our Registration Statement on Form 8-A, and
the previously filed exhibit is incorporated herein by reference.
C We previously filed this exhibit on January 29, 1993 with the referenced
exhibit number as an exhibit to our Registration Statement on Form 8-A, and
the previously filed exhibit is incorporated herein by reference.
D We previously filed this exhibit on December 22, 1993 with the referenced
exhibit number as an exhibit to our 1993 Annual Report on Form 10-K (SEC
File No. 000-18281) for the fiscal year ended September 25, 1993, and the
previously filed exhibit is incorporated herein by reference.
E We previously filed this exhibit on December 22, 1994 with the referenced
exhibit number as an exhibit to our 1994 Annual Report on Form 10-K (SEC
File No. 000-18281) for the fiscal year ended September 24, 1994, and the
previously filed exhibit is incorporated herein by reference.
F We previously filed this exhibit on December 26, 1995, with the referenced
exhibit number as an exhibit to our 1995 Annual Report on Form 10-K (SEC
File No. 000-18281) for the fiscal year ended September 30, 1995, and the
previously filed exhibit is incorporated herein by reference.
46
<PAGE>
G We previously filed this exhibit on December 27, 1996 with the referenced
exhibit number as an exhibit to our 1996 Annual Report on Form 10-K (SEC
File No. 000-18281) for the fiscal year ended September 28, 1996, and the
previously filed exhibit is incorporated herein by reference.
H We previously filed this exhibit on January 17, 1997 with the referenced
exhibit number as an exhibit to our Registration Statement on Form 8-A/A,
and the previously filed exhibit is incorporated herein by reference.
I We previously filed this exhibit on August 7, 1998 with the referenced
exhibit number as an exhibit to our 1998 Third Quarter Report on Form 10-Q
(SEC File No. 000-18281) for the quarter ended June 27, 1998, and the
previously filed exhibit is incorporated herein by reference.
J We previously filed this exhibit on December 23, 1998 with the referenced
exhibit number as an exhibit to our 1998 Annual Report on Form 10-K (SEC
File No. 000-18281) for the fiscal year ended September 26, 1998, and the
previously filed exhibit is incorporated herein by reference.
K We previously filed this exhibit on May 11, 1999 with the referenced exhibit
number as an exhibit to our 1999 Second Quarter Report on Form 10-Q (SEC
File No. 000-18281) for the quarter ended March 27, 1999, and the previously
filed exhibit is incorporated herein by reference.
L We previously filed this exhibit on May 20, 1999 with the referenced exhibit
number as an exhibit to our Registration Statement on Form 8-A/A, and the
previously filed exhibit is incorporated herein by reference.
M We previously filed this exhibit on June 18, 1999 with the referenced
exhibit number as an exhibit to our Current Report on Form 8-K (SEC File
No. 000-18281) dated as of June 3, 1999, and the previously filed exhibit is
incorporated herein by reference.
N We previously filed this exhibit on October 1, 1999 with the referenced
exhibit number as an exhibit to our Current Report on Form 8-K (SEC File
No. 000-18281) dated as of September 29, 1999, and the previously filed
exhibit is incorporated herein by reference.
(d) Financial Statement Schedules:
The financial statement schedules required are included as part of Item (2)
above.
47
<PAGE>
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.
HOLOGIC, INC.
By: /s/ S. David Ellenbogen
_______________________________
S. DAVID ELLENBOGEN
Chief Executive Officer
Dated: December 22, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
Director
/s/ S. David Ellenbogen and Chief Executive Officer December 22, 1999
- -----------------------------
S. DAVID ELLENBOGEN
Director, President
/s/ Steve L. Nakashige and Chief Operating Officer December 22, 1999
- -----------------------------
STEVE L. NAKASHIGE
Vice President, Finance and
Principal Financial and
/s/ Glenn P. Muir Accounting Officer December 22, 1999
- -----------------------------
GLENN P. MUIR
Director and
/s/ Jay A. Stein Senior Vice President December 22, 1999
- -----------------------------
JAY A. STEIN
/s/ Irwin Jacobs Director December 22, 1999
- -----------------------------
IRWIN JACOBS
/s/ William A. Peck Director December 22, 1999
- -----------------------------
WILLIAM A. PECK
/s/ Gerald Segel Director December 22, 1999
- -----------------------------
GERALD SEGEL
/s/ Elaine Ullian Director December 22, 1999
- -----------------------------
ELAINE ULLIAN
</TABLE>
48
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To Hologic, Inc.
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Hologic, Inc. and subsidiaries included in
this Form 10-K and have issued our report thereon dated November 5, 1999. Our
audits were made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in Item 14 is the
responsibility of the Company's management and is presented for the purposes of
complying with the Securities Exchange Commission's rules and is not part of the
basic financial statements. The schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/Arthur Andersen LLP
Boston, Massachusetts
November 5, 1999
49
<PAGE>
SCHEDULE II
HOLOGIC, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at Charged to Balance
Beginning Costs and at End of
of Period Expenses Period
---------- ---------- ---------
<S> <C> <C> <C>
Allowance for Uncollectible Amounts Year Ended:
September 27, 1997 $1,360 $ 100 $1,460
September 26, 1998 $1,460 $ 640 $2,100
September 25, 1999 $2,100 $1,380 $3,480
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Reference
------ ---------
<C> <S> <C>
2.01 Securities Purchase Agreement dated April 28, 1999, as amended on M-1
June 3, 1999, by and among Hologic, Sterling Diagnostic Imaging, Inc.,
and SDI Investments, L.L.C.
2.02 Contract of Sale dated April 28, 1999, as amended on June 3, 1999, by M-2
and between Hologic and Glasgow Land Company, L.L.C.
3.01 Certificate of Incorporation of Hologic A-3.01
3.02 By-laws of Hologic A-3.02
4.01 Specimen certificate for shares of Hologic's Common Stock B-1
4.02 Description of capital stock (contained in the Certificate of A-3.01
Incorporation of Hologic, filed as Exhibit 3.01).
4.03 Rights Agreement dated December 22, 1992 C-1
4.04 Form of Rights Certificate C-2
4.05 Amendment No. 1 to Rights Agreement, dated as of December 13, 1995 H-4.01
4.06 Amendment No. 2 to Rights Agreement, dated as of December 9, 1996 H-4.02
4.07 Amendment No. 3 to Rights Agreement, dated as of April 25, 1999 L-4.03
10.01 1986 Combination Stock Option Plan, as amended E-10.07*
10.02 Amended and Restated 1990 Non-Employee Director Stock Option Plan F-10.08*
10.03 1995 Employee Stock Purchase Plan E-10.09*
10.04 1995 Combination Stock Option Plan F-10.10*
10.05 Amended and Restated 1999 Equity Incentive Plan K-10*
10.06 Form of Indemnification Agreement for directors and certain officers of A-10.12*
Hologic
10.07 Employment Agreement with an officer of Hologic D-10.22*
10.08 Severance Agreement with an officer of Hologic filed herewith*
10.09 Severance Agreement with an officer of Hologic filed herewith*
10.10 Severance Agreement with an officer of Hologic filed herewith*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Reference
------ ---------
<C> <S> <C>
10.11 Severance Agreement with an officer of Hologic filed herewith*
10.12 Management Services Agreement by and between Hologic and Vivid A-10.17*
Technologies, Inc.
10.13 Amendment No. 1 to Management Services Agreement filed herewith*
10.14 License Agreement by and between Hologic and Vivid Technologies, Inc. A-10.18
10.15 Amendment No.1 to the License Agreement by and between Hologic and Vivid G-10.25
10.16 Termination Agreement filed herewith
10.17 Facility Lease by and between Hologic and Mangen Management Company G-10.26
10.18 Building Purchase and Sale Agreement I-10
10.19 Master Product Financing Agreement J-10.34**
10.20 Amendment to Master Product Financing Agreement by and between Hologic N-10.2
and Sanwa Business Credit Corporation
10.21 Amended and Restated Program Supplement Number 1 to Master Product N-10.3
Financing Agreement by and between Hologic and Sanwa Business Credit
Corporation
10.22 Distribution Agreement by and between Hologic and PSS for Sahara J-10.36**
10.23 Severance Agreement with an officer of Hologic filed herewith*
10.24 Severance Agreement with an officer of Hologic filed herewith*
21.01 Subsidiaries of the Company filed herewith
23.01 Consent of Arthur Andersen LLP filed herewith
</TABLE>
_______________________
* Management compensation plan or arrangement
** Confidentiality requested as to certain provisions
A We previously filed this exhibit on January 24, 1990 with the referenced
exhibit number as an exhibit to our Registration Statement on Form S-1
(Registration No. 33-33128), and the previously filed exhibit is
incorporated herein by reference.
B We previously filed this exhibit on January 31, 1990 with the referenced
exhibit number as an exhibit to our Registration Statement on Form 8-A, and
the previously filed exhibit is incorporated herein by reference.
C We previously filed this exhibit on January 29, 1993 with the referenced
exhibit number as an exhibit to our Registration Statement on Form 8-A, and
the previously filed exhibit is incorporated herein by reference.
<PAGE>
D We previously filed this exhibit on December 22, 1993 with the referenced
exhibit number as an exhibit to our 1993 Annual Report on Form 10-K (SEC
File No. 000-18281) for the fiscal year ended September 25, 1993, and the
previously filed exhibit is incorporated herein by reference.
E We previously filed this exhibit on December 22, 1994 with the referenced
exhibit number as an exhibit to our 1994 Annual Report on Form 10-K (SEC
File No. 000-18281) for the fiscal year ended September 24, 1994, and the
previously filed exhibit is incorporated herein by reference.
F We previously filed this exhibit on December 26, 1995, with the referenced
exhibit number as an exhibit to our 1995 Annual Report on Form 10-K (SEC
File No. 000-18281) for the fiscal year ended September 30, 1995, and the
previously filed exhibit is incorporated herein by reference.
G We previously filed this exhibit on December 27, 1996 with the referenced
exhibit number as an exhibit to our 1996 Annual Report on Form 10-K (SEC
File No. 000-18281) for the fiscal year ended September 28, 1996, and the
previously filed exhibit is incorporated herein by reference.
H We previously filed this exhibit on January 17, 1997 with the referenced
exhibit number as an exhibit to our Registration Statement on Form 8-A/A,
and the previously filed exhibit is incorporated herein by reference.
I We previously filed this exhibit on August 7, 1998 with the referenced
exhibit number as an exhibit to our 1998 Third Quarter Report on Form 10-Q
(SEC File No. 000-18281) for the quarter ended June 27, 1998, and the
previously filed exhibit is incorporated herein by reference.
J We previously filed this exhibit on December 23, 1998 with the referenced
exhibit number as an exhibit to our 1998 Annual Report on Form 10-K (SEC
File No. 000-18281) for the fiscal year ended September 26, 1998, and the
previously filed exhibit is incorporated herein by reference.
K We previously filed this exhibit on May 11, 1999 with the referenced exhibit
number as an exhibit to our 1999 Second Quarter Report on Form 10-Q (SEC
File No. 000-18281) for the quarter ended March 27, 1999, and the previously
filed exhibit is incorporated herein by reference.
L We previously filed this exhibit on May 20, 1999 with the referenced exhibit
number as an exhibit to our Registration Statement on Form 8-A/A, and the
previously filed exhibit is incorporated herein by reference.
M We previously filed this exhibit on June 18, 1999 with the referenced
exhibit number as an exhibit to our Current Report on Form 8-K (SEC File
No. 000-18281) dated as of June 3, 1999, and the previously filed exhibit is
incorporated herein by reference.
N We previously filed this exhibit on October 1, 1999 with the referenced
exhibit number as an exhibit to our Current Report on Form 8-K (SEC File
No. 000-18281) dated as of September 29, 1999, and the previously filed
exhibit is incorporated herein by reference.
<PAGE>
EXHIBIT 10.08
AGREEMENT
AGREEMENT by and between HOLOGIC, INC., a Delaware corporation (the
"Company"), and Glenn P. Muir (the "Executive"), dated as of the 6th day of
March, 1998.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat, or occurrence of a Change of Control
(as defined below) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall be the first
-------------------
date during the "Change of Control Period" (as defined in Section 1(b)) on which
a Change of Control occurs. Anything in this Agreement to the contrary
notwithstanding, if the Executive's employment with the Company is terminated or
the Executive ceases to be an officer of the Company prior to the date on which
a Change of Control occurs, and it is reasonably demonstrated that such
termination of employment (1) was at the request of a third party who has taken
steps reasonably calculated to effect the Change of Control or (2) otherwise
arose in connection with or
<PAGE>
anticipation of the Change of Control, then for all purposes of this Agreement
the "Effective Date" shall mean the date immediately prior to the date of such
termination of employment.
(b) The "Change of Control Period" is the period commencing on the
date hereof and ending on the third anniversary of such date; provided, however
that commencing on the date one year after the date hereof, and on each annual
anniversary of such date (such date and each annual anniversary thereof is
hereinafter referred to as the "Renewal Date"), the Change of Control Period
shall be automatically extended without any further action by the Company or the
Executive so as to terminate three years from such Renewal Date; provided,
however, that if the Company shall give notice in writing to the Executive, at
least 60 days prior to the Renewal Date, stating that the Change of Control
Period shall not be extended, then the Change of Control Period shall expire
three years from the last effective Renewal Date.
2. Change of Control. For the purpose of this Agreement, a "Change
-----------------
of Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock"); provided, however, that any
acquisition by the Company or its subsidiaries, or any employee benefit
plan (or related trust) of the Company or its subsidiaries of 20% or more
of Outstanding Company Common Stock shall not constitute a Change in
Control; and provided, further, that any acquisition by a corporation with
respect to which, following such acquisition, more than 50% of
-2-
<PAGE>
the then outstanding shares of common stock of such corporation, is then
beneficially owned, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners of the
Outstanding Company Common Stock immediately prior to such acquisition in
substantially the same proportion as their ownership, immediately prior to
such acquisition, of the Outstanding Company Common Stock, shall not
constitute a Change in Control; or
(b) Any transaction which results in the Continuing Directors (as
defined in the Certificate of Incorporation of the Company) constituting
less than a majority of the Board of Directors of the Company; or
(c) Approval by the stockholders of the Company of (i) a
reorganization, merger or consolidation, in each case, with respect to
which all or substantially all of the individuals and entities who were the
beneficial owners of the Outstanding Company Common Stock immediately prior
to such reorganization, merger or consolidation do not, following such
reorganization, merger or consolidation, beneficially own, directly or
indirectly, more than 50% of the then outstanding shares of common stock of
the corporation resulting from such a reorganization, merger or
consolidation, (ii) a complete liquidation or dissolution of the Company or
(iii) the sale or other disposition of all or substantially all of the
assets of the Company, excluding a sale or other disposition of assets to a
subsidiary of the Company.
Anything in this Agreement to the contrary notwithstanding, if an event
that would, but for this paragraph, constitute a Change of Control results from
or arises out of a purchase or other
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<PAGE>
acquisition of the Company, directly or indirectly, by a corporation or other
entity in which the Executive has a greater than ten percent (10%) direct or
indirect equity interest, such event shall not constitute a Change of Control.
3. Employment Period. Subject to the terms and conditions hereof,
-----------------
the Company hereby agrees to continue the Executive in its employ, and the
Executive hereby agrees to remain in the employ of the Company, for the period
commencing on the Effective Date and ending on the last day of the thirty-sixth
month following the month in which the Effective Date occurs (the "Employment
Period").
4. Terms of Employment. (a) Position and Duties. (i) During the
------------------- -------------------
Employment Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities shall
be at least commensurate in all material respects with the most significant of
those held, exercised and assigned at any time during the 90-day period
immediately preceding the Effective Date and (B) the Executive's services shall
be performed at the location where the Executive was employed immediately
preceding the Effective Date or any office or location less than 35 miles from
such location.
(ii) During the Employment Period, and excluding any periods
of vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote his full business time to the business and affairs of the
Company and, to the extent necessary to discharge the responsibilities assigned
to the Executive hereunder, to use the Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities. During the Employment
Period it shall not be a violation of this Agreement for the Executive to (A)
serve on corporate, civic or charitable boards or committees, (B) deliver
lectures, fulfill speaking engagements or teach at educational institutions and
(C) manage personal investments, so long as such activities do not
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<PAGE>
significantly interfere with the performance of the Executive's responsibilities
as an employee of the Company in accordance with this Agreement. It is expressly
understood and agreed that to the extent that any such activities have been
conducted by the Executive prior to the Effective Date, the continued conduct of
such activities (or the conduct of activities similar in nature and scope
thereto) subsequent to the Effective Date, including, without limitation,
activities with respect to Vivid Technologies, Inc., shall not thereafter be
deemed to interfere with the performance of the Executive's responsibilities to
the Company.
(b) Compensation. (i) Base Salary. During the Employment Period,
------------ -----------
the Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable to the Executive by the Company and its
affiliated companies in respect of the twelve-month period immediately preceding
the month in which the Effective Date occurs. During the Employment Period, the
Annual Base Salary shall be reviewed at least annually and shall be increased at
any time and from time to time as shall be substantially consistent with
increases in base salary awarded in the ordinary course of business to other
peer executives of the Company and its affiliated companies. Any increase in
Annual Base Salary shall not serve to limit or reduce any other obligation to
the Executive under this Agreement. Annual Base Salary shall not be reduced
after any such increase and the term Annual Base Salary as utilized in this
Agreement shall refer to Annual Base Salary as so increased. As used in this
Agreement, the term "affiliated companies" includes any company controlled by,
controlling or under common control with the Company.
(iii) Annual Bonus. In addition to Annual Base Salary, the
------------
Executive shall be awarded, for each fiscal year during the Employment Period,
an annual bonus (the "Annual Bonus") in cash at least equal to the average
annualized (for any fiscal year consisting of less
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<PAGE>
than twelve full months or with respect to which the Executive has been employed
by the Company for less than twelve full months) bonus (the "Average Annual
Bonus") paid or payable to the Executive by the Company and its affiliated
companies in respect of the three fiscal years immediately preceding the fiscal
year in which the Effective Date occurs. Each such Annual Bonus shall be paid no
later than the end of the third month of the fiscal year next following the
fiscal year for which the Annual Bonus is awarded, unless the Executive shall
elect to defer the receipt of such Annual Bonus pursuant to deferral plans of
the Company.
(iv) Special Bonus. In addition to Annual Base Salary and
-------------
Annual Bonus payable as hereinabove provided, if the Executive remains employed
with the Company and/or its affiliated companies through the first anniversary
of the Effective Date, the Company shall pay to the Executive a special bonus
(the "Special Bonus") in recognition of the Executive's services during the
crucial one-year transition period following the Change of Control in cash equal
to the sum of (A) the Executive's Annual Base Salary and (B) the greater of (x)
the Annual Bonus paid or payable (and annualized for any fiscal year consisting
of less than twelve full months or for which the Executive has been employed for
less than twelve full months) to the Executive for the most recently completed
fiscal year during the Employment Period, if any, and (y) the Average Annual
Bonus (such greater amount hereafter referred to as the "Highest Annual Bonus").
The Special Bonus shall be paid no later than 30 days following the first
anniversary of the Effective Date.
(v) Incentive, Savings and Retirement Plans. In addition to
---------------------------------------
Annual Base Salary and Annual Bonus payable as hereinabove provided, the
Executive shall be entitled to participate during the Employment Period in all
incentive, savings and retirement plans, practices, policies and programs
applicable to other peer executives of the Company and its affiliated companies,
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<PAGE>
but in no event shall such plans practices, policies and programs provide the
Executive with incentive, savings and retirement benefits opportunities, in each
case, less favorable, in the aggregate, than the most favorable of those
provided by the Company and its affiliated companies for the Executive under
such plans, practices, policies and programs as in effect at any time during the
one-year immediately preceding the Effective Date, or, if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(vi) Welfare Benefit Plans. During the Employment Period,
---------------------
the Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and its
affiliated companies (including, without limitation, medical, prescription,
dental, disability, salary continuance, employee life, group life, accidental
death and travel accident insurance plans and programs) and applicable to other
peer executives of the Company and its affiliated companies, but in no event
shall such plans, practices, policies and programs provide benefits which are
less favorable, in the aggregate, than the most favorable of such plans,
practices, policies and programs in effect at any time during the one-year
period immediately preceding the Effective Date, or, if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(vii) Expenses. During the Employment Period, the Executive
--------
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive upon submission of appropriate accountings in
accordance with the most favorable policies, practices and procedures of the
Company and its affiliated companies in effect at any time during the one-
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<PAGE>
year period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
(viii) Fringe Benefits. During the Employment Period, the
---------------
Executive shall be entitled to fringe benefits in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect at any time during the one-year period
immediately preceding the Effective Date or, if more favorable to the Executive,
as in effect at any time thereafter with respect to other peer executives of the
Company and its affiliated companies.
(ix) Office and Support Staff. During the Employment Period,
------------------------
the Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the one-year period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
(x) Vacation. During the Employment Period, the Executive
--------
shall be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies as
in effect at any time during the one-year period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect at any time
thereafter with respect to other peer incentives of the Company and its
affiliated companies.
-8-
<PAGE>
5. Termination of Employment. (a) Death or Disability. The
------------------------- -------------------
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period (pursuant
to the definition of "Disability" set forth below), it may give to the Executive
written notice in accordance with Section 12(b) of this Agreement of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" means the absence of the Executive from
the Executive's duties with the Company on a full-time basis for 180 consecutive
business days as a result of incapacity due to mental or physical illness which
is determined to be total and permanent by a physician selected by the Company
or its insurers and acceptable to the Executive or the Executive's legal
representative (such agreement as to acceptability not to be withheld
unreasonably).
(b) Cause. The Company may terminate the Executive's employment
-----
during the Employment Period for "Cause". For purposes of this Agreement,
"Cause" means (i) an act or acts of personal dishonesty taken by the Executive
and intended to result in substantial personal enrichment of the Executive at
the expense of the Company, (ii) repeated violations by the Executive of the
Executive's obligations under Section 4(a) of this Agreement (other than as a
result of incapacity due to physical or mental illness) which are demonstrably
willful and deliberate on the Executive's part, which are committed in bad faith
or without reasonable belief that such violations are in the best interests of
the Company and which are not remedied in a
-9-
<PAGE>
reasonable period of time after receipt of written notice from the Company or
(iii) the conviction of the Executive of a felony involving moral turpitude.
(c) Good Reason. The Executive's employment may be terminated during
-----------
the Employment Period by the Executive for Good Reason. For purposes of this
Agreement, "Good Reason" means:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 4(a) of this Agreement, or any
other action by the Company which results in a diminution in such position,
authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice thereof
given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which
is remedied by the Company promptly after receipt of notice thereof given
by the Executive;
(iii) the Company's requiring the Executive to be based at
any office or location other than that described in Section 4(a)(i)(B)
hereof;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
-10-
<PAGE>
For purposes of this Section 5(c), any good faith determination of
"Good Reason" made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for
---------------------
Cause or by the Executive for Good Reason shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than
fifteen days after the giving of such notice). The failure by the Executive or
the Company to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason or Cause shall not waive any right
of the Executive or the Company hereunder or preclude the Executive or the
Company from asserting such fact or circumstance in enforcing the Executive's or
the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means the date of
-------------------
receipt of the Notice of Termination or any later date specified therein, as the
case may be; provided however, that (i) if the Executive's employment is
terminated by the Company other than for Cause, death or Disability, the Date of
Termination shall be the date on which the Company notifies the Executive of
such termination and (ii) if the Executive's employment is terminated by reason
of death or Disability, the Date of Termination shall be the date of death of
the Executive or the Disability Effective Date, as the case may be.
6. Obligations of the Company upon Termination.
-------------------------------------------
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<PAGE>
(a) Death. If the Executive's employment is terminated by reason
-----
of the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for (i) payment of the sum of the following
amounts: (A) the Executive's Annual Base Salary through the Date of Termination
to the extent not theretofore paid, (B) the product of (I) the Highest Annual
Bonus and (II) a fraction, the numerator of which is the number of days in the
current fiscal year through the Date of Termination, and the denominator of
which is 365, (C) the Special Bonus, if due to the Executive pursuant to Section
4(b)(iv), to the extent not theretofore paid, and (D) any compensation
previously deferred by the Executive (together with any accrued interest or
earnings thereon) and any accrued bonus amounts or vacation pay, in each case,
to the extent not yet paid by the Company (the amounts described in
subparagraphs (A), (B), (C) and (D) are hereafter referred to as "Accrued
Obligations" and shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination),
(ii) for the remainder of the Employment Period, or such longer period as any
plan, program, practice or policy may provide, the Company shall continue
benefits to the Executive and/or the Executive's family at least equal to those
which would have been provided in accordance with the applicable plans, programs
practices and policies described in Section 4(b)(v) of this Agreement as if the
Executive's employment had not been terminated in accordance with the most
favorable plans, practices, programs or policies of the Company and its
affiliated companies as in effect and applicable generally to other peer
executives and their families during the one year period immediately preceding
the Effective Date or, if more favorable to the Executive, as in effect at any
time thereafter with respect to other peer executives of the Company and its
affiliated companies and their families (such continuation of such benefits for
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<PAGE>
the applicable period herein set forth shall be hereinafter referred to as
"Welfare Benefit Continuation") (for purposes of determining eligibility of the
Executive for retiree benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained employed until the
end of the Employment Period and to have retired on the last day of such
period), and (iii) payment to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination of
an amount equal to the sum of the Executive's Annual Base Salary and the Highest
Annual Bonus. Subject to the provisions of Section 9 hereof, but, otherwise,
anything herein to the contrary notwithstanding, the Executive's family shall be
entitled to receive benefits at least equal to the most favorable benefits
provided by the Company and any of its affiliated companies to surviving
families of peer executives of the Company and such affiliated companies under
such plans, programs, practices and policies relating to family death benefits,
if any, as in effect with respect to other peer executives and their families at
any time during the one year period immediately preceding the Effective Date or,
if more favorable to the Executive and/or the Executive's family, as in effect
on the date of the Executive's death with respect to other peer executives of
the Company and its affiliated companies and their families.
(b) Disability. If the Executive's employment is terminated by reason of
----------
the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for (i)
payment of the Accrued Obligations (which shall be paid in a lump sum in cash
within 30 days of the Date of Termination), (ii) the timely payment and
provision of the Welfare Benefit Continuation, and (iii) payment to the
Executive in a lump sum in cash within 30 days of the Date of Termination of an
amount equal to the sum of the Executive's Annual Base Salary and the Highest
Annual Bonus. In addition,
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<PAGE>
the Company shall transfer to the Executive the insurance policy written with
respect to the Executive under the Company's Group Term Life Insurance Policy
for Executive Officers and the right to the full cash surrender value thereof.
Subject to the provisions of Section 9 hereof, but, otherwise, anything herein
to the contrary notwithstanding, the Executive shall be entitled after the
Disability Effective Date to receive disability and other benefits at least
equal to the most favorable of those provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as in
effect with respect to other peer executives and their families at any time
during the one year period immediately preceding the Effective Date or, if more
favorable to the Executive and/or the Executive's family, as in effect at any
time thereafter with respect to other peer executives of the Company and its
affiliated companies and their families.
(c) Cause, Other than for Good Reason. If the Executive's employment
---------------------------------
shall be terminated by the Company for Cause or by the Executive other than for
Good Reason (and other than by reason of his death or disability) during the
Employment Period, this Agreement shall terminate without further obligations to
the Executive other than the obligation to pay to the Executive Annual Base
Salary through the Date of Termination, plus the amount of any compensation
previously deferred by the Executive and any accrued bonus amounts or vacation
pay, in each case, to the extent theretofore unpaid. In such case, such amounts
shall be paid to the Executive in a lump sum in cash within 30 days of the Date
of Termination. The Executive shall, in such event, also be entitled to any
benefits required by law that are not otherwise provided by this Agreement.
(d) Good Reason; Other Than for Cause or Disability. If, during the
-----------------------------------------------
Employment Period, the Company shall terminate the Executive's employment other
than for Cause, death or
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<PAGE>
Disability, or if the Executive shall terminate employment under this Agreement
for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
A. all Accrued Obligations; and
B. the amount (such amount shall be hereinafter referred to as
the "Severance Amount") equal to one dollar ($1.00) less than the product
of (I) three (3) and (II) the Executive's "base amount" as defined in
Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the
"Code"); and
(ii) the Company shall timely pay and provide the Welfare Benefit
Continuation provided, however, that if the Executive becomes reemployed
with another employer and is eligible to receive medical or other welfare
benefits under another employer provided plan, the medical or other welfare
benefits described herein shall be secondary to those provided under such
other plan during such applicable period of eligibility; and
(iii) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive and/or the Executive's family
any other amounts or benefits required to be paid or provided or which the
Executive and/or the Executive's family is eligible to receive pursuant to
this Agreement and under any plan, program, policy or practice or contract
or agreement of the Company and its affiliated companies as in effect and
applicable generally to other peer executives of the Company and its
affiliated companies and their families (such
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<PAGE>
other amounts and benefits shall be hereinafter referred to as the "Other
Benefits"); and
(iv) all unvested options or stock appreciation rights which Executive
then holds to acquire securities from the Company shall be immediately and
automatically exercisable as of the Effective Date, and the Executive shall
have the right to exercise any such options or stock appreciation rights
for a period of one year after the Date of Termination. Notwithstanding the
foregoing, until two years from the date of this Agreement, such options
and/or stock appreciation rights shall not be accelerated if such
acceleration would result in the failure of a transaction which has been
approved by the Continuing Directors (as defined in the Company's charter)
and entered into by the Company to qualify as a pooling for accounting
purposes; and
(v) the Company shall transfer to the Executive the insurance policy
written with respect to the Executive under the Company's Group Term Life
Insurance Policy for Executive Officers and the right to the full cash
surrender value thereof.
7. Non-exclusivity of Rights. Except as provided in Section 6, nothing
-------------------------
in this Agreement shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plans, programs,
policies or practices, provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor shall anything herein
limit or otherwise affect such rights as the Executive may have under any other
agreements with the Company or any of its affiliated companies. Amounts which
are vested benefits or which the Executive is otherwise entitled to receive
under any plan, policy, practice or program of the
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<PAGE>
Company or any of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy, practice or
program except as explicitly modified by this Agreement.
8. Full Settlement. (a) The Company's obligation to make the payments
---------------
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and, except as
provided in Section 6(d)(ii), such amounts shall not be reduced whether or not
the Executive obtains other employment. The Company agrees to pay promptly as
incurred, to the full extent permitted by law, all legal fees and expenses which
the Executive may reasonably incur as a result of any contest (regardless of the
outcome thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement, unless a
court of competent jurisdiction determines that the Executive made such effort
in bad faith), plus in each case interest at the applicable Federal rate
provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as
amended (the "Code").
(b) If there shall be any dispute between the Company and the Executive
(i) in the event of any termination of the Executive's employment by the
Company, whether such termination was for Cause, or (ii) in the event of any
termination of employment by the Executive, whether Good Reason existed, then,
unless and until there is a final, nonappealable
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<PAGE>
judgment by a court of competent jurisdiction declaring that such termination
was for Cause or that the determination by the Executive of the existence of
Good Reason was not made in good faith, the Company shall pay all amounts, and
provide all benefits, to the Executive and/or the Executive's family or other
beneficiaries, as the case may be, that the Company would be required to pay or
provide pursuant to Section 6(d) as though such termination were by the Company
without Cause, or by the Executive with Good Reason; provided, however, that the
Company shall not be required to pay any disputed amount pursuant to this
paragraph except upon receipt of an undertaking by or on behalf of the Executive
to repay all such amounts to which the Executive is ultimately adjudged by such
court not to be entitled.
9. Certain Reduction in Payments by the Company.
---------------------------------------------
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement (a "Payment"), would be
nondeductible by the Company for Federal income tax purposes because of Section
280G of the Code or would subject the Executive to the excise tax imposed by
Section 4999 of the Code, then the aggregate present value of amounts payable or
distributable to or for the benefit of the Executive pursuant to this Agreement
(such payments or distributions pursuant to this Agreement are hereinafter
referred to as "Agreement Payments") shall be reduced (but not below zero) to
the Reduced Amount. The "Reduced Amount" shall be one dollar less than an
amount expressed in present value which maximizes the aggregate present value of
Agreement Payments but which does not result in any of the amount paid to the
Executive being not deductible by reason of Section 280G of the Code or subject
to the excise
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<PAGE>
tax imposed by Section 4999 of the Code. For purposes of this Section 9,
present value shall be determined in accordance with Section 280G(d)(4) of the
Code.
(b) All determinations required to be made under this Section 9 shall be
made by Arthur Andersen LLP (or its successor) unless such firm shall be the
accounting firm of the individual, entity or group effecting the Change of
Control or any affiliate of the Company at the Date of Termination, in which
case such determinations shall be made by an accounting firm of national
standing agreed to by the Company and the Executive, or, if the Company does not
so agree within 10 days of the Date of Termination, such an accounting firm
shall be selected by the Executive (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the Executive within 15
business days of the date such firm is selected or such earlier time as is
requested by the Company and an opinion to the Executive that he has substantial
authority not to report any Excise Tax on his Federal income tax return with
respect to any Agreement Payments. Any such determination by the Accounting Firm
shall be binding upon the Company and the Executive. Within five business days
of the determination by the Accounting Firm as to the Reduced Amount, the
Company shall pay to or distribute to or for the benefit of the Executive such
amounts as are then due to the Executive under this Agreement.
(c) As a result of the uncertainty in the application of Section 280G of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Agreement Payments will have been made by the
Company which should not have been made ("Overpayment") or that additional
Agreement Payments which will not have been made by the Company could have been
made ("Underpayment"), in each case, consistent with the calculations required
to be made hereunder. In the event that the Accounting Firm, based upon the
assertion of a deficiency by the Internal Revenue Service against the Executive
which the
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Accounting Firm believes has a high probability of success determines that an
Overpayment has been made, any such Overpayment paid or distributed by the
Company to or for the benefit of the Executive shall be treated for all purposes
as a loan ab initio to the Executive which the Executive shall repay to the
Company together with interest at the applicable Federal rate provided for in
Section 7872(f)(2) of the Code. In the event that the Accounting Firm, based
upon controlling precedent or other substantial authority, determines that an
Underpayment has occurred, any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive together with interest at the
applicable Federal rate provided for in Section 7872(f)(2) of the Code.
10. Confidential Information. The Executive shall hold in a fiduciary
------------------------
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the Executive and
----------
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will
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or the laws of descent and distribution. This Agreement shall inure to the
benefit of and be enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise. In addition, the
Executive shall be entitled, upon exercise of any outstanding stock options or
stock appreciation rights of the Company, to receive in lieu of shares of the
Company's stock, shares of such stock or other securities of such successor as
the holders of shares of the Company's stock received pursuant to the terms of
the merger, consolidation or sale.
12. Miscellaneous. (a) This Agreement shall be governed by and construed
-------------
in accordance with the laws of the Commonwealth of Massachusetts, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
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<PAGE>
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
Glenn P. Muir
19 Dane Road
Lexington, MA 02173
If to the Company:
Hologic, Inc.
590 Lincoln Street
Waltham, Massachusetts 02154
Attention: Chief Executive Officer
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(d) The Company may withhold from any amounts payable under this Agreement
such Federal, state or local taxes as shall be required to be withheld pursuant
to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof shall not be deemed to be a waiver of such
provision or any other provision thereof.
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<PAGE>
(f) This Agreement contains the entire understanding of the Company and
the Executive with respect to the subject matter hereof and by entering into
this Agreement the Executive waives all rights he may have under the Company's
separation policy, provided that if the Company's separation policy would
provide greater benefits to the Executive than this Agreement, than the
Executive may elect to receive benefits under the Company's separation policy in
lieu of the benefits provided hereunder.
(g) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, prior to the Effective Date, the employment of the Executive by
the Company is "at will" and may be terminated by either the Executive or the
Company at any time. Moreover, if prior to the Effective Date, the Executive's
employment with the Company terminates, then the Executive shall have no further
rights under this Agreement. Notwithstanding anything contained herein, if,
during the Employment Period, the Executive shall terminate employment with the
Company other than for Good Reason, the Executive shall have no liability to the
Company.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant
to the authorization from its Board of Directors, the Company has caused these
presents to be executed in its name on its behalf, all as of the day and year
first above written.
HOLOGIC, INC.
By: /s/ S. David Ellenhogen
---------------------------------
Name: S. David Ellenhogen
Title: Chairman & CEO
EXECUTIVE
/s/ Glenn P. Muir
-------------------------------------
Glenn P. Muir
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<PAGE>
EXHIBIT 10.09
AGREEMENT
AGREEMENT by and between HOLOGIC, INC., a Delaware corporation (the
"Company"), and Mark A. Duerst (the "Executive"), dated as of the 6th day of
March, 1998.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat, or occurrence of a Change of Control
(as defined below) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall be the first
-------------------
date during the "Change of Control Period" (as defined in Section 1(b)) on which
a Change of Control occurs. Anything in this Agreement to the contrary
notwithstanding, if the Executive's employment with the Company is terminated or
the Executive ceases to be an officer of the Company prior to the date on which
a Change of Control occurs, and it is reasonably demonstrated that such
termination of employment (1) was at the request of a third party who has taken
steps reasonably calculated to effect the Change of Control or (2) otherwise
arose in connection with or
<PAGE>
anticipation of the Change of Control, then for all purposes of this Agreement
the "Effective Date" shall mean the date immediately prior to the date of such
termination of employment.
(b) The "Change of Control Period" is the period commencing on the
date hereof and ending on the third anniversary of such date; provided, however
that commencing on the date one year after the date hereof, and on each annual
anniversary of such date (such date and each annual anniversary thereof is
hereinafter referred to as the "Renewal Date"), the Change of Control Period
shall be automatically extended without any further action by the Company or the
Executive so as to terminate three years from such Renewal Date; provided,
however, that if the Company shall give notice in writing to the Executive, at
least 60 days prior to the Renewal Date, stating that the Change of Control
Period shall not be extended, then the Change of Control Period shall expire
three years from the last effective Renewal Date.
2. Change of Control. For the purpose of this Agreement, a "Change
-----------------
of Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20% or more of the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock"); provided, however,
that any acquisition by the Company or its subsidiaries, or any
employee benefit plan (or related trust) of the Company or its
subsidiaries of 20% or more of Outstanding Company Common Stock shall
not constitute a Change in Control; and provided, further, that any
acquisition by a corporation with respect to which, following such
acquisition, more than 50% of
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the then outstanding shares of common stock of such corporation, is
then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners of the Outstanding Company Common Stock immediately
prior to such acquisition in substantially the same proportion as
their ownership, immediately prior to such acquisition, of the
Outstanding Company Common Stock, shall not constitute a Change in
Control; or
(b) Any transaction which results in the Continuing Directors (as
defined in the Certificate of Incorporation of the Company)
constituting less than a majority of the Board of Directors of the
Company; or
(c) Approval by the stockholders of the Company of (i) a
reorganization, merger or consolidation, in each case, with respect to
which all or substantially all of the individuals and entities who
were the beneficial owners of the Outstanding Company Common Stock
immediately prior to such reorganization, merger or consolidation do
not, following such reorganization, merger or consolidation,
beneficially own, directly or indirectly, more than 50% of the then
outstanding shares of common stock of the corporation resulting from
such a reorganization, merger or consolidation, (ii) a complete
liquidation or dissolution of the Company or (iii) the sale or other
disposition of all or substantially all of the assets of the Company,
excluding a sale or other disposition of assets to a subsidiary of the
Company.
Anything in this Agreement to the contrary notwithstanding, if an
event that would, but for this paragraph, constitute a Change of Control results
from or arises out of a purchase or other
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<PAGE>
acquisition of the Company, directly or indirectly, by a corporation or other
entity in which the Executive has a greater than ten percent (10%) direct or
indirect equity interest, such event shall not constitute a Change of Control.
3. Employment Period. Subject to the terms and conditions hereof,
-----------------
the Company hereby agrees to continue the Executive in its employ, and the
Executive hereby agrees to remain in the employ of the Company, for the period
commencing on the Effective Date and ending on the last day of the thirty-sixth
month following the month in which the Effective Date occurs (the "Employment
Period").
4. Terms of Employment. (a) Position and Duties. (i) During the
------------------- -------------------
Employment Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities shall
be at least commensurate in all material respects with the most significant of
those held, exercised and assigned at any time during the 90-day period
immediately preceding the Effective Date and (B) the Executive's services shall
be performed at the location where the Executive was employed immediately
preceding the Effective Date or any office or location less than 35 miles from
such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive agrees
to devote his full business time to the business and affairs of the Company and,
to the extent necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable best efforts to perform
faithfully and efficiently such responsibilities. During the Employment Period
it shall not be a violation of this Agreement for the Executive to (A) serve on
corporate, civic or charitable boards or committees, (B) deliver lectures,
fulfill speaking engagements or teach at educational institutions and (C) manage
personal investments, so long as such activities do not
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<PAGE>
significantly interfere with the performance of the Executive's responsibilities
as an employee of the Company in accordance with this Agreement. It is expressly
understood and agreed that to the extent that any such activities have been
conducted by the Executive prior to the Effective Date, the continued conduct of
such activities (or the conduct of activities similar in nature and scope
thereto) subsequent to the Effective Date, including, without limitation,
activities with respect to Vivid Technologies, Inc., shall not thereafter be
deemed to interfere with the performance of the Executive's responsibilities to
the Company.
(b) Compensation. (i) Base Salary. During the Employment Period,
------------ -----------
the Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable to the Executive by the Company and its
affiliated companies in respect of the twelve-month period immediately preceding
the month in which the Effective Date occurs. During the Employment Period, the
Annual Base Salary shall be reviewed at least annually and shall be increased at
any time and from time to time as shall be substantially consistent with
increases in base salary awarded in the ordinary course of business to other
peer executives of the Company and its affiliated companies. Any increase in
Annual Base Salary shall not serve to limit or reduce any other obligation to
the Executive under this Agreement. Annual Base Salary shall not be reduced
after any such increase and the term Annual Base Salary as utilized in this
Agreement shall refer to Annual Base Salary as so increased. As used in this
Agreement, the term "affiliated companies" includes any company controlled by,
controlling or under common control with the Company.
(iii) Annual Bonus. In addition to Annual Base Salary, the
------------
Executive shall be awarded, for each fiscal year during the Employment Period,
an annual bonus (the "Annual Bonus") in cash at least equal to the average
annualized (for any fiscal year consisting of less
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than twelve full months or with respect to which the Executive has been employed
by the Company for less than twelve full months) bonus (the "Average Annual
Bonus") paid or payable to the Executive by the Company and its affiliated
companies in respect of the three fiscal years immediately preceding the fiscal
year in which the Effective Date occurs. Each such Annual Bonus shall be paid no
later than the end of the third month of the fiscal year next following the
fiscal year for which the Annual Bonus is awarded, unless the Executive shall
elect to defer the receipt of such Annual Bonus pursuant to deferral plans of
the Company.
(iv) Special Bonus. In addition to Annual Base Salary and Annual
-------------
Bonus payable as hereinabove provided, if the Executive remains employed with
the Company and/or its affiliated companies through the first anniversary of the
Effective Date, the Company shall pay to the Executive a special bonus (the
"Special Bonus") in recognition of the Executive's services during the crucial
one-year transition period following the Change of Control in cash equal to the
sum of (A) the Executive's Annual Base Salary and (B) the greater of (x) the
Annual Bonus paid or payable (and annualized for any fiscal year consisting of
less than twelve full months or for which the Executive has been employed for
less than twelve full months) to the Executive for the most recently completed
fiscal year during the Employment Period, if any, and (y) the Average Annual
Bonus (such greater amount hereafter referred to as the "Highest Annual Bonus").
The Special Bonus shall be paid no later than 30 days following the first
anniversary of the Effective Date.
(v) Incentive, Savings and Retirement Plans. In addition to
---------------------------------------
Annual Base Salary and Annual Bonus payable as hereinabove provided, the
Executive shall be entitled to participate during the Employment Period in all
incentive, savings and retirement plans, practices, policies and programs
applicable to other peer executives of the Company and its affiliated companies,
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<PAGE>
but in no event shall such plans practices, policies and programs provide the
Executive with incentive, savings and retirement benefits opportunities, in each
case, less favorable, in the aggregate, than the most favorable of those
provided by the Company and its affiliated companies for the Executive under
such plans, practices, policies and programs as in effect at any time during the
one-year immediately preceding the Effective Date, or, if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(vi) Welfare Benefit Plans. During the Employment Period, the
---------------------
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental death and
travel accident insurance plans and programs) and applicable to other peer
executives of the Company and its affiliated companies, but in no event shall
such plans, practices, policies and programs provide benefits which are less
favorable, in the aggregate, than the most favorable of such plans, practices,
policies and programs in effect at any time during the one-year period
immediately preceding the Effective Date, or, if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(vii) Expenses. During the Employment Period, the Executive
--------
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive upon submission of appropriate accountings in
accordance with the most favorable policies, practices and procedures of the
Company and its affiliated companies in effect at any time during the one-
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<PAGE>
year period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
(viii) Fringe Benefits. During the Employment Period, the
---------------
Executive shall be entitled to fringe benefits in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect at any time during the one-year period
immediately preceding the Effective Date or, if more favorable to the Executive,
as in effect at any time thereafter with respect to other peer executives of the
Company and its affiliated companies.
(ix) Office and Support Staff. During the Employment Period, the
------------------------
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the one-year period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
(x) Vacation. During the Employment Period, the Executive shall
--------
be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies as
in effect at any time during the one-year period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect at any time
thereafter with respect to other peer incentives of the Company and its
affiliated companies.
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<PAGE>
5. Termination of Employment. (a) Death or Disability. The
------------------------- -------------------
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period (pursuant
to the definition of "Disability" set forth below), it may give to the Executive
written notice in accordance with Section 12(b) of this Agreement of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" means the absence of the Executive from
the Executive's duties with the Company on a full-time basis for 180 consecutive
business days as a result of incapacity due to mental or physical illness which
is determined to be total and permanent by a physician selected by the Company
or its insurers and acceptable to the Executive or the Executive's legal
representative (such agreement as to acceptability not to be withheld
unreasonably).
(b) Cause. The Company may terminate the Executive's employment
-----
during the Employment Period for "Cause". For purposes of this Agreement,
"Cause" means (i) an act or acts of personal dishonesty taken by the Executive
and intended to result in substantial personal enrichment of the Executive at
the expense of the Company, (ii) repeated violations by the Executive of the
Executive's obligations under Section 4(a) of this Agreement (other than as a
result of incapacity due to physical or mental illness) which are demonstrably
willful and deliberate on the Executive's part, which are committed in bad faith
or without reasonable belief that such violations are in the best interests of
the Company and which are not remedied in a
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reasonable period of time after receipt of written notice from the Company or
(iii) the conviction of the Executive of a felony involving moral turpitude.
(c) Good Reason. The Executive's employment may be terminated during
-----------
the Employment Period by the Executive for Good Reason. For purposes of this
Agreement, "Good Reason" means:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Section 4(a) of this Agreement,
or any other action by the Company which results in a diminution in
such position, authority, duties or responsibilities, excluding for
this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at
any office or location other than that described in Section 4(a)(i)(B)
hereof;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
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For purposes of this Section 5(c), any good faith determination of
"Good Reason" made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for Cause
---------------------
or by the Executive for Good Reason shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than
fifteen days after the giving of such notice). The failure by the Executive or
the Company to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason or Cause shall not waive any right
of the Executive or the Company hereunder or preclude the Executive or the
Company from asserting such fact or circumstance in enforcing the Executive's or
the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means the date of
-------------------
receipt of the Notice of Termination or any later date specified therein, as the
case may be; provided however, that (i) if the Executive's employment is
terminated by the Company other than for Cause, death or Disability, the Date of
Termination shall be the date on which the Company notifies the Executive of
such termination and (ii) if the Executive's employment is terminated by reason
of death or Disability, the Date of Termination shall be the date of death of
the Executive or the Disability Effective Date, as the case may be.
6. Obligations of the Company upon Termination.
-------------------------------------------
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(a) Death. If the Executive's employment is terminated by reason of
-----
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for (i) payment of the sum of the following
amounts: (A) the Executive's Annual Base Salary through the Date of Termination
to the extent not theretofore paid, (B) the product of (I) the Highest Annual
Bonus and (II) a fraction, the numerator of which is the number of days in the
current fiscal year through the Date of Termination, and the denominator of
which is 365, (C) the Special Bonus, if due to the Executive pursuant to Section
4(b)(iv), to the extent not theretofore paid, and (D) any compensation
previously deferred by the Executive (together with any accrued interest or
earnings thereon) and any accrued bonus amounts or vacation pay, in each case,
to the extent not yet paid by the Company (the amounts described in
subparagraphs (A), (B), (C) and (D) are hereafter referred to as "Accrued
Obligations" and shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination),
(ii) for the remainder of the Employment Period, or such longer period as any
plan, program, practice or policy may provide, the Company shall continue
benefits to the Executive and/or the Executive's family at least equal to those
which would have been provided in accordance with the applicable plans, programs
practices and policies described in Section 4(b)(v) of this Agreement as if the
Executive's employment had not been terminated in accordance with the most
favorable plans, practices, programs or policies of the Company and its
affiliated companies as in effect and applicable generally to other peer
executives and their families during the one year period immediately preceding
the Effective Date or, if more favorable to the Executive, as in effect at any
time thereafter with respect to other peer executives of the Company and its
affiliated companies and their families (such continuation of such benefits for
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the applicable period herein set forth shall be hereinafter referred to as
"Welfare Benefit Continuation") (for purposes of determining eligibility of the
Executive for retiree benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained employed until the
end of the Employment Period and to have retired on the last day of such
period), and (iii) payment to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination of
an amount equal to the sum of the Executive's Annual Base Salary and the Highest
Annual Bonus. Subject to the provisions of Section 9 hereof, but, otherwise,
anything herein to the contrary notwithstanding, the Executive's family shall be
entitled to receive benefits at least equal to the most favorable benefits
provided by the Company and any of its affiliated companies to surviving
families of peer executives of the Company and such affiliated companies under
such plans, programs, practices and policies relating to family death benefits,
if any, as in effect with respect to other peer executives and their families at
any time during the one year period immediately preceding the Effective Date or,
if more favorable to the Executive and/or the Executive's family, as in effect
on the date of the Executive's death with respect to other peer executives of
the Company and its affiliated companies and their families.
(b) Disability. If the Executive's employment is terminated by reason
----------
of the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for (i)
payment of the Accrued Obligations (which shall be paid in a lump sum in cash
within 30 days of the Date of Termination), (ii) the timely payment and
provision of the Welfare Benefit Continuation, and (iii) payment to the
Executive in a lump sum in cash within 30 days of the Date of Termination of an
amount equal to the sum of the Executive's Annual Base Salary and the Highest
Annual Bonus. In addition,
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the Company shall transfer to the Executive the insurance policy written with
respect to the Executive under the Company's Group Term Life Insurance Policy
for Executive Officers and the right to the full cash surrender value thereof.
Subject to the provisions of Section 9 hereof, but, otherwise, anything herein
to the contrary notwithstanding, the Executive shall be entitled after the
Disability Effective Date to receive disability and other benefits at least
equal to the most favorable of those provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as in
effect with respect to other peer executives and their families at any time
during the one year period immediately preceding the Effective Date or, if more
favorable to the Executive and/or the Executive's family, as in effect at any
time thereafter with respect to other peer executives of the Company and its
affiliated companies and their families.
(c) Cause, Other than for Good Reason. If the Executive's employment
---------------------------------
shall be terminated by the Company for Cause or by the Executive other than for
Good Reason (and other than by reason of his death or disability) during the
Employment Period, this Agreement shall terminate without further obligations to
the Executive other than the obligation to pay to the Executive Annual Base
Salary through the Date of Termination, plus the amount of any compensation
previously deferred by the Executive and any accrued bonus amounts or vacation
pay, in each case, to the extent theretofore unpaid. In such case, such amounts
shall be paid to the Executive in a lump sum in cash within 30 days of the Date
of Termination. The Executive shall, in such event, also be entitled to any
benefits required by law that are not otherwise provided by this Agreement.
(d) Good Reason; Other Than for Cause or Disability. If, during the
-----------------------------------------------
Employment Period, the Company shall terminate the Executive's employment other
than for Cause, death or
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Disability, or if the Executive shall terminate employment under this Agreement
for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the
following amounts:
A. all Accrued Obligations; and
B. the amount (such amount shall be hereinafter referred to
as the "Severance Amount") equal to one dollar ($1.00) less than the
product of (I) three (3) and (II) the Executive's "base amount" as
defined in Section 280G(b)(3) of the Internal Revenue Code of 1986, as
amended (the "Code"); and
(ii) the Company shall timely pay and provide the Welfare Benefit
Continuation provided, however, that if the Executive becomes
reemployed with another employer and is eligible to receive medical or
other welfare benefits under another employer provided plan, the
medical or other welfare benefits described herein shall be secondary
to those provided under such other plan during such applicable period
of eligibility; and
(iii) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive and/or the Executive's
family any other amounts or benefits required to be paid or provided
or which the Executive and/or the Executive's family is eligible to
receive pursuant to this Agreement and under any plan, program, policy
or practice or contract or agreement of the Company and its affiliated
companies as in effect and applicable generally to other peer
executives of the Company and its affiliated companies and their
families (such
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<PAGE>
other amounts and benefits shall be hereinafter referred to as the
"Other Benefits"); and
(iv) all unvested options or stock appreciation rights which
Executive then holds to acquire securities from the Company shall be
immediately and automatically exercisable as of the Effective Date,
and the Executive shall have the right to exercise any such options or
stock appreciation rights for a period of one year after the Date of
Termination. Notwithstanding the foregoing, until two years from the
date of this Agreement, such options and/or stock appreciation rights
shall not be accelerated if such acceleration would result in the
failure of a transaction which has been approved by the Continuing
Directors (as defined in the Company's charter) and entered into by
the Company to qualify as a pooling for accounting purposes; and
(v) the Company shall transfer to the Executive the insurance
policy written with respect to the Executive under the Company's Group
Term Life Insurance Policy for Executive Officers and the right to the
full cash surrender value thereof.
7. Non-exclusivity of Rights. Except as provided in Section 6,
-------------------------
nothing in this Agreement shall prevent or limit the Executive's continuing or
future participation in any benefit, bonus, incentive or other plans, programs,
policies or practices, provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor shall anything herein
limit or otherwise affect such rights as the Executive may have under any other
agreements with the Company or any of its affiliated companies. Amounts which
are vested benefits or which the Executive is otherwise entitled to receive
under any plan, policy, practice or program of the
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<PAGE>
Company or any of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy, practice or
program except as explicitly modified by this Agreement.
8. Full Settlement. (a) The Company's obligation to make the
---------------
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and, except as
provided in Section 6(d)(ii), such amounts shall not be reduced whether or not
the Executive obtains other employment. The Company agrees to pay promptly as
incurred, to the full extent permitted by law, all legal fees and expenses which
the Executive may reasonably incur as a result of any contest (regardless of the
outcome thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement, unless a
court of competent jurisdiction determines that the Executive made such effort
in bad faith), plus in each case interest at the applicable Federal rate
provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as
amended (the "Code").
(b) If there shall be any dispute between the Company and the
Executive (i) in the event of any termination of the Executive's employment by
the Company, whether such termination was for Cause, or (ii) in the event of any
termination of employment by the Executive, whether Good Reason existed, then,
unless and until there is a final, nonappealable
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<PAGE>
judgment by a court of competent jurisdiction declaring that such termination
was for Cause or that the determination by the Executive of the existence of
Good Reason was not made in good faith, the Company shall pay all amounts, and
provide all benefits, to the Executive and/or the Executive's family or other
beneficiaries, as the case may be, that the Company would be required to pay or
provide pursuant to Section 6(d) as though such termination were by the Company
without Cause, or by the Executive with Good Reason; provided, however, that the
Company shall not be required to pay any disputed amount pursuant to this
paragraph except upon receipt of an undertaking by or on behalf of the Executive
to repay all such amounts to which the Executive is ultimately adjudged by such
court not to be entitled.
9. Certain Reduction in Payments by the Company.
---------------------------------------------
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement (a "Payment"), would be
nondeductible by the Company for Federal income tax purposes because of Section
280G of the Code or would subject the Executive to the excise tax imposed by
Section 4999 of the Code, then the aggregate present value of amounts payable or
distributable to or for the benefit of the Executive pursuant to this Agreement
(such payments or distributions pursuant to this Agreement are hereinafter
referred to as "Agreement Payments") shall be reduced (but not below zero) to
the Reduced Amount. The "Reduced Amount" shall be one dollar less than an
amount expressed in present value which maximizes the aggregate present value of
Agreement Payments but which does not result in any of the amount paid to the
Executive being not deductible by reason of Section 280G of the Code or subject
to the excise
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tax imposed by Section 4999 of the Code. For purposes of this Section 9, present
value shall be determined in accordance with Section 280G(d)(4) of the Code.
(b) All determinations required to be made under this Section 9 shall
be made by Arthur Andersen LLP (or its successor) unless such firm shall be the
accounting firm of the individual, entity or group effecting the Change of
Control or any affiliate of the Company at the Date of Termination, in which
case such determinations shall be made by an accounting firm of national
standing agreed to by the Company and the Executive, or, if the Company does not
so agree within 10 days of the Date of Termination, such an accounting firm
shall be selected by the Executive (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the Executive within 15
business days of the date such firm is selected or such earlier time as is
requested by the Company and an opinion to the Executive that he has substantial
authority not to report any Excise Tax on his Federal income tax return with
respect to any Agreement Payments. Any such determination by the Accounting
Firm shall be binding upon the Company and the Executive. Within five business
days of the determination by the Accounting Firm as to the Reduced Amount, the
Company shall pay to or distribute to or for the benefit of the Executive such
amounts as are then due to the Executive under this Agreement.
(c) As a result of the uncertainty in the application of Section 280G
of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Agreement Payments will have been made by the
Company which should not have been made ("Overpayment") or that additional
Agreement Payments which will not have been made by the Company could have been
made ("Underpayment"), in each case, consistent with the calculations required
to be made hereunder. In the event that the Accounting Firm, based upon the
assertion of a deficiency by the Internal Revenue Service against the Executive
which the
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<PAGE>
Accounting Firm believes has a high probability of success determines that an
Overpayment has been made, any such Overpayment paid or distributed by the
Company to or for the benefit of the Executive shall be treated for all purposes
as a loan ab initio to the Executive which the Executive shall repay to the
Company together with interest at the applicable Federal rate provided for in
Section 7872(f)(2) of the Code. In the event that the Accounting Firm, based
upon controlling precedent or other substantial authority, determines that an
Underpayment has occurred, any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive together with interest at the
applicable Federal rate provided for in Section 7872(f)(2) of the Code.
10. Confidential Information. The Executive shall hold in a
------------------------
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the Company
and those designated by it. In no event shall an asserted violation of the
provisions of this Section 10 constitute a basis for deferring or withholding
any amounts otherwise payable to the Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the Executive and
----------
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will
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<PAGE>
or the laws of descent and distribution. This Agreement shall inure to the
benefit of and be enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise. In addition, the Executive shall be entitled, upon exercise
of any outstanding stock options or stock appreciation rights of the Company, to
receive in lieu of shares of the Company's stock, shares of such stock or other
securities of such successor as the holders of shares of the Company's stock
received pursuant to the terms of the merger, consolidation or sale.
12. Miscellaneous. (a) This Agreement shall be governed by and
-------------
construed in accordance with the laws of the Commonwealth of Massachusetts,
without reference to principles of conflict of laws. The captions of this
Agreement are not part of the provisions hereof and shall have no force or
effect. This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective successors
and legal representatives.
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<PAGE>
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
Mark A. Duerst
169 Marlboro Road
Sudbury, Massachusetts 01776
If to the Company:
Hologic, Inc.
590 Lincoln Street
Waltham, Massachusetts 02154
Attention: Chief Executive Officer
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(d) The Company may withhold from any amounts payable under this Agreement
such Federal, state or local taxes as shall be required to be withheld pursuant
to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof shall not be deemed to be a waiver of such
provision or any other provision thereof.
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<PAGE>
(f) This Agreement contains the entire understanding of the Company and the
Executive with respect to the subject matter hereof and by entering into this
Agreement the Executive waives all rights he may have under the Company's
separation policy, provided that if the Company's separation policy would
provide greater benefits to the Executive than this Agreement, than the
Executive may elect to receive benefits under the Company's separation policy in
lieu of the benefits provided hereunder.
(g) The Executive and the Company acknowledge that, except as may otherwise
be provided under any other written agreement between the Executive and the
Company, prior to the Effective Date, the employment of the Executive by the
Company is "at will" and may be terminated by either the Executive or the
Company at any time. Moreover, if prior to the Effective Date, the Executive's
employment with the Company terminates, then the Executive shall have no further
rights under this Agreement. Notwithstanding anything contained herein, if,
during the Employment Period, the Executive shall terminate employment with the
Company other than for Good Reason, the Executive shall have no liability to the
Company.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant
to the authorization from its Board of Directors, the Company has caused these
presents to be executed in its name on its behalf, all as of the day and year
first above written.
HOLOGIC, INC.
By: /s/ S. David Ellenhogen
--------------------------------
Name:
Title:
EXECUTIVE
/s/ Mark A. Duerst
___________________________________
Mark A. Duerst
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<PAGE>
EXHIBIT 10.10
AGREEMENT
AGREEMENT by and between HOLOGIC, INC., a Delaware corporation (the
"Company"), and S. David Ellenbogen (the "Executive"), dated as of the 6th day
of March, 1998.
The Board of Directors of the Company (the "Board"), has determined that it
is in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat, or occurrence of a Change of Control (as defined below) of
the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall be the first date
-------------------
during the "Change of Control Period" (as defined in Section 1(b)) on which a
Change of Control occurs. Anything in this Agreement to the contrary
notwithstanding, if the Executive's employment with the Company is terminated or
the Executive ceases to be an officer of the Company prior to the date on which
a Change of Control occurs, and it is reasonably demonstrated that such
termination of employment (1) was at the request of a third party who has taken
steps reasonably calculated to effect the Change of Control or (2) otherwise
arose in connection with or
<PAGE>
anticipation of the Change of Control, then for all purposes of this Agreement
the "Effective Date" shall mean the date immediately prior to the date of such
termination of employment.
(b) The "Change of Control Period" is the period commencing on the date
hereof and ending on the third anniversary of such date; provided, however that
commencing on the date one year after the date hereof, and on each annual
anniversary of such date (such date and each annual anniversary thereof is
hereinafter referred to as the "Renewal Date"), the Change of Control Period
shall be automatically extended without any further action by the Company or the
Executive so as to terminate three years from such Renewal Date; provided,
however, that if the Company shall give notice in writing to the Executive, at
least 60 days prior to the Renewal Date, stating that the Change of Control
Period shall not be extended, then the Change of Control Period shall expire
three years from the last effective Renewal Date.
2. Change of Control. For the purpose of this Agreement, a "Change of
-----------------
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock"); provided, however, that any
acquisition by the Company or its subsidiaries, or any employee benefit
plan (or related trust) of the Company or its subsidiaries of 20% or more
of Outstanding Company Common Stock shall not constitute a Change in
Control; and provided, further, that any acquisition by a corporation with
respect to which, following such acquisition, more than 50% of
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<PAGE>
the then outstanding shares of common stock of such corporation, is then
beneficially owned, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners of the
Outstanding Company Common Stock immediately prior to such acquisition in
substantially the same proportion as their ownership, immediately prior to
such acquisition, of the Outstanding Company Common Stock, shall not
constitute a Change in Control; or
(b) Any transaction which results in the Continuing Directors (as
defined in the Certificate of Incorporation of the Company) constituting
less than a majority of the Board of Directors of the Company; or
(c) Approval by the stockholders of the Company of (i) a
reorganization, merger or consolidation, in each case, with respect to
which all or substantially all of the individuals and entities who were the
beneficial owners of the Outstanding Company Common Stock immediately prior
to such reorganization, merger or consolidation do not, following such
reorganization, merger or consolidation, beneficially own, directly or
indirectly, more than 50% of the then outstanding shares of common stock of
the corporation resulting from such a reorganization, merger or
consolidation, (ii) a complete liquidation or dissolution of the Company or
(iii) the sale or other disposition of all or substantially all of the
assets of the Company, excluding a sale or other disposition of assets to a
subsidiary of the Company.
Anything in this Agreement to the contrary notwithstanding, if an event
that would, but for this paragraph, constitute a Change of Control results from
or arises out of a purchase or other
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<PAGE>
acquisition of the Company, directly or indirectly, by a corporation or other
entity in which the Executive has a greater than ten percent (10%) direct or
indirect equity interest, such event shall not constitute a Change of Control.
3. Employment Period. Subject to the terms and conditions hereof, the
-----------------
Company hereby agrees to continue the Executive in its employ, and the Executive
hereby agrees to remain in the employ of the Company, for the period commencing
on the Effective Date and ending on the last day of the thirty-sixth month
following the month in which the Effective Date occurs (the "Employment
Period").
4. Terms of Employment. (a) Position and Duties. (i) During the
------------------- -------------------
Employment Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities shall
be at least commensurate in all material respects with the most significant of
those held, exercised and assigned at any time during the 90-day period
immediately preceding the Effective Date and (B) the Executive's services shall
be performed at the location where the Executive was employed immediately
preceding the Effective Date or any office or location less than 35 miles from
such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive agrees
to devote his full business time to the business and affairs of the Company and,
to the extent necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable best efforts to perform
faithfully and efficiently such responsibilities. During the Employment Period
it shall not be a violation of this Agreement for the Executive to (A) serve on
corporate, civic or charitable boards or committees, (B) deliver lectures,
fulfill speaking engagements or teach at educational institutions and (C) manage
personal investments, so long as such activities do not
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<PAGE>
significantly interfere with the performance of the Executive's responsibilities
as an employee of the Company in accordance with this Agreement. It is expressly
understood and agreed that to the extent that any such activities have been
conducted by the Executive prior to the Effective Date, the continued conduct of
such activities (or the conduct of activities similar in nature and scope
thereto) subsequent to the Effective Date, including, without limitation,
activities with respect to Vivid Technologies, Inc., shall not thereafter be
deemed to interfere with the performance of the Executive's responsibilities to
the Company.
(b) Compensation. (i) Base Salary. During the Employment Period, the
------------ -----------
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable to the Executive by the Company and its
affiliated companies in respect of the twelve-month period immediately preceding
the month in which the Effective Date occurs. During the Employment Period, the
Annual Base Salary shall be reviewed at least annually and shall be increased at
any time and from time to time as shall be substantially consistent with
increases in base salary awarded in the ordinary course of business to other
peer executives of the Company and its affiliated companies. Any increase in
Annual Base Salary shall not serve to limit or reduce any other obligation to
the Executive under this Agreement. Annual Base Salary shall not be reduced
after any such increase and the term Annual Base Salary as utilized in this
Agreement shall refer to Annual Base Salary as so increased. As used in this
Agreement, the term "affiliated companies" includes any company controlled by,
controlling or under common control with the Company.
(iii) Annual Bonus. In addition to Annual Base Salary, the Executive
------------
shall be awarded, for each fiscal year during the Employment Period, an annual
bonus (the "Annual Bonus") in cash at least equal to the average annualized (for
any fiscal year consisting of less
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<PAGE>
than twelve full months or with respect to which the Executive has been employed
by the Company for less than twelve full months) bonus (the "Average Annual
Bonus") paid or payable to the Executive by the Company and its affiliated
companies in respect of the three fiscal years immediately preceding the fiscal
year in which the Effective Date occurs. Each such Annual Bonus shall be paid no
later than the end of the third month of the fiscal year next following the
fiscal year for which the Annual Bonus is awarded, unless the Executive shall
elect to defer the receipt of such Annual Bonus pursuant to deferral plans of
the Company.
(iv) Special Bonus. In addition to Annual Base Salary and Annual
-------------
Bonus payable as hereinabove provided, if the Executive remains employed with
the Company and/or its affiliated companies through the first anniversary of the
Effective Date, the Company shall pay to the Executive a special bonus (the
"Special Bonus") in recognition of the Executive's services during the crucial
one-year transition period following the Change of Control in cash equal to the
sum of (A) the Executive's Annual Base Salary and (B) the greater of (x) the
Annual Bonus paid or payable (and annualized for any fiscal year consisting of
less than twelve full months or for which the Executive has been employed for
less than twelve full months) to the Executive for the most recently completed
fiscal year during the Employment Period, if any, and (y) the Average Annual
Bonus (such greater amount hereafter referred to as the "Highest Annual Bonus").
The Special Bonus shall be paid no later than 30 days following the first
anniversary of the Effective Date.
(v) Incentive, Savings and Retirement Plans. In addition to Annual
---------------------------------------
Base Salary and Annual Bonus payable as hereinabove provided, the Executive
shall be entitled to participate during the Employment Period in all incentive,
savings and retirement plans, practices, policies and programs applicable to
other peer executives of the Company and its affiliated companies,
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<PAGE>
but in no event shall such plans practices, policies and programs provide the
Executive with incentive, savings and retirement benefits opportunities, in each
case, less favorable, in the aggregate, than the most favorable of those
provided by the Company and its affiliated companies for the Executive under
such plans, practices, policies and programs as in effect at any time during the
one-year immediately preceding the Effective Date, or, if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(vi) Welfare Benefit Plans. During the Employment Period, the
---------------------
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental death and
travel accident insurance plans and programs) and applicable to other peer
executives of the Company and its affiliated companies, but in no event shall
such plans, practices, policies and programs provide benefits which are less
favorable, in the aggregate, than the most favorable of such plans, practices,
policies and programs in effect at any time during the one-year period
immediately preceding the Effective Date, or, if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(vii) Expenses. During the Employment Period, the Executive shall be
--------
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Executive upon submission of appropriate accountings in accordance with the
most favorable policies, practices and procedures of the Company and its
affiliated companies in effect at any time during the one-
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<PAGE>
year period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
(viii) Fringe Benefits. During the Employment Period, the Executive
---------------
shall be entitled to fringe benefits in accordance with the most favorable
plans, practices, programs and policies of the Company and its affiliated
companies in effect at any time during the one-year period immediately preceding
the Effective Date or, if more favorable to the Executive, as in effect at any
time thereafter with respect to other peer executives of the Company and its
affiliated companies.
(ix) Office and Support Staff. During the Employment Period, the
------------------------
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the one-year period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
(x) Vacation. During the Employment Period, the Executive shall be
--------
entitled to paid vacation in accordance with the most favorable plans, policies,
programs and practices of the Company and its affiliated companies as in effect
at any time during the one-year period immediately preceding the Effective Date
or, if more favorable to the Executive, as in effect at any time thereafter with
respect to other peer incentives of the Company and its affiliated companies.
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<PAGE>
5. Termination of Employment. (a) Death or Disability. The Executive's
------------------------- -------------------
employment shall terminate automatically upon the Executive's death during the
Employment Period. If the Company determines in good faith that the Disability
of the Executive has occurred during the Employment Period (pursuant to the
definition of "Disability" set forth below), it may give to the Executive
written notice in accordance with Section 12(b) of this Agreement of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" means the absence of the Executive from
the Executive's duties with the Company on a full-time basis for 180 consecutive
business days as a result of incapacity due to mental or physical illness which
is determined to be total and permanent by a physician selected by the Company
or its insurers and acceptable to the Executive or the Executive's legal
representative (such agreement as to acceptability not to be withheld
unreasonably).
(b) Cause. The Company may terminate the Executive's employment during
-----
the Employment Period for "Cause". For purposes of this Agreement, "Cause" means
(i) an act or acts of personal dishonesty taken by the Executive and intended to
result in substantial personal enrichment of the Executive at the expense of the
Company, (ii) repeated violations by the Executive of the Executive's
obligations under Section 4(a) of this Agreement (other than as a result of
incapacity due to physical or mental illness) which are demonstrably willful and
deliberate on the Executive's part, which are committed in bad faith or without
reasonable belief that such violations are in the best interests of the Company
and which are not remedied in a
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<PAGE>
reasonable period of time after receipt of written notice from the Company or
(iii) the conviction of the Executive of a felony involving moral turpitude.
(c) Good Reason. The Executive's employment may be terminated during
-----------
the Employment Period by the Executive for Good Reason. For purposes of this
Agreement, "Good Reason" means:
(i) the assignment to the Executive of any duties inconsistent in
any respect with the Executive's position (including status, offices,
titles and reporting requirements), authority, duties or responsibilities
as contemplated by Section 4(a) of this Agreement, or any other action by
the Company which results in a diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by
the Executive;
(ii) any failure by the Company to comply with any of the provisions
of Section 4(b) of this Agreement, other than an isolated, insubstantial
and inadvertent failure not occurring in bad faith and which is remedied by
the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive to be based at any office
or location other than that described in Section 4(a)(i)(B) hereof;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section
11(c) of this Agreement.
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<PAGE>
For purposes of this Section 5(c), any good faith determination of
"Good Reason" made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for Cause or by
---------------------
the Executive for Good Reason shall be communicated by Notice of Termination to
the other party hereto given in accordance with Section 12(b) of this Agreement.
For purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than fifteen days after the
giving of such notice). The failure by the Executive or the Company to set forth
in the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive or
the Company hereunder or preclude the Executive or the Company from asserting
such fact or circumstance in enforcing the Executive's or the Company's rights
hereunder.
(e) Date of Termination. "Date of Termination" means the date of receipt
-------------------
of the Notice of Termination or any later date specified therein, as the case
may be; provided however, that (i) if the Executive's employment is terminated
by the Company other than for Cause, death or Disability, the Date of
Termination shall be the date on which the Company notifies the Executive of
such termination and (ii) if the Executive's employment is terminated by reason
of death or Disability, the Date of Termination shall be the date of death of
the Executive or the Disability Effective Date, as the case may be.
6. Obligations of the Company upon Termination.
-------------------------------------------
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<PAGE>
(a) Death. If the Executive's employment is terminated by reason of the
-----
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement, other than for (i) payment of the sum of the following amounts: (A)
the Executive's Annual Base Salary through the Date of Termination to the extent
not theretofore paid, (B) the product of (I) the Highest Annual Bonus and (II) a
fraction, the numerator of which is the number of days in the current fiscal
year through the Date of Termination, and the denominator of which is 365, (C)
the Special Bonus, if due to the Executive pursuant to Section 4(b)(iv), to the
extent not theretofore paid, and (D) any compensation previously deferred by the
Executive (together with any accrued interest or earnings thereon) and any
accrued bonus amounts or vacation pay, in each case, to the extent not yet paid
by the Company (the amounts described in subparagraphs (A), (B), (C) and (D) are
hereafter referred to as "Accrued Obligations" and shall be paid to the
Executive's estate or beneficiary, as applicable, in a lump sum in cash within
30 days of the Date of Termination), (ii) for the remainder of the Employment
Period, or such longer period as any plan, program, practice or policy may
provide, the Company shall continue benefits to the Executive and/or the
Executive's family at least equal to those which would have been provided in
accordance with the applicable plans, programs practices and policies described
in Section 4(b)(v) of this Agreement as if the Executive's employment had not
been terminated in accordance with the most favorable plans, practices, programs
or policies of the Company and its affiliated companies as in effect and
applicable generally to other peer executives and their families during the one
year period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect at any time thereafter with respect to other peer
executives of the Company and its affiliated companies and their families (such
continuation of such benefits for
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<PAGE>
the applicable period herein set forth shall be hereinafter referred to as
"Welfare Benefit Continuation") (for purposes of determining eligibility of the
Executive for retiree benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained employed until the
end of the Employment Period and to have retired on the last day of such
period), and (iii) payment to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination of
an amount equal to the sum of the Executive's Annual Base Salary and the Highest
Annual Bonus. Subject to the provisions of Section 9 hereof, but, otherwise,
anything herein to the contrary notwithstanding, the Executive's family shall be
entitled to receive benefits at least equal to the most favorable benefits
provided by the Company and any of its affiliated companies to surviving
families of peer executives of the Company and such affiliated companies under
such plans, programs, practices and policies relating to family death benefits,
if any, as in effect with respect to other peer executives and their families at
any time during the one year period immediately preceding the Effective Date or,
if more favorable to the Executive and/or the Executive's family, as in effect
on the date of the Executive's death with respect to other peer executives of
the Company and its affiliated companies and their families.
(b) Disability. If the Executive's employment is terminated by reason of
----------
the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for (i)
payment of the Accrued Obligations (which shall be paid in a lump sum in cash
within 30 days of the Date of Termination), (ii) the timely payment and
provision of the Welfare Benefit Continuation, and (iii) payment to the
Executive in a lump sum in cash within 30 days of the Date of Termination of an
amount equal to the sum of the Executive's Annual Base Salary and the Highest
Annual Bonus. In addition,
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<PAGE>
the Company shall transfer to the Executive the insurance policy written with
respect to the Executive under the Company's Group Term Life Insurance Policy
for Executive Officers and the right to the full cash surrender value thereof.
Subject to the provisions of Section 9 hereof, but, otherwise, anything herein
to the contrary notwithstanding, the Executive shall be entitled after the
Disability Effective Date to receive disability and other benefits at least
equal to the most favorable of those provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as in
effect with respect to other peer executives and their families at any time
during the one year period immediately preceding the Effective Date or, if more
favorable to the Executive and/or the Executive's family, as in effect at any
time thereafter with respect to other peer executives of the Company and its
affiliated companies and their families.
(c) Cause, Other than for Good Reason. If the Executive's employment
---------------------------------
shall be terminated by the Company for Cause or by the Executive other than for
Good Reason (and other than by reason of his death or disability) during the
Employment Period, this Agreement shall terminate without further obligations to
the Executive other than the obligation to pay to the Executive Annual Base
Salary through the Date of Termination, plus the amount of any compensation
previously deferred by the Executive and any accrued bonus amounts or vacation
pay, in each case, to the extent theretofore unpaid. In such case, such amounts
shall be paid to the Executive in a lump sum in cash within 30 days of the Date
of Termination. The Executive shall, in such event, also be entitled to any
benefits required by law that are not otherwise provided by this Agreement.
(d) Good Reason; Other Than for Cause or Disability. If, during the
-----------------------------------------------
Employment Period, the Company shall terminate the Executive's employment other
than for Cause, death or
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<PAGE>
Disability, or if the Executive shall terminate employment under this Agreement
for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
A. all Accrued Obligations; and
B. the amount (such amount shall be hereinafter referred to as
the "Severance Amount") equal to one dollar ($1.00) less than the product
of (I) three (3) and (II) the Executive's "base amount" as defined in
Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the
"Code"); and
(ii) the Company shall timely pay and provide the Welfare Benefit
Continuation provided, however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical or other welfare benefits
under another employer provided plan, the medical or other welfare benefits
described herein shall be secondary to those provided under such other plan
during such applicable period of eligibility; and
(iii) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive and/or the Executive's family any
other amounts or benefits required to be paid or provided or which the Executive
and/or the Executive's family is eligible to receive pursuant to this Agreement
and under any plan, program, policy or practice or contract or agreement of the
Company and its affiliated companies as in effect and applicable generally to
other peer executives of the Company and its affiliated companies and their
families (such
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<PAGE>
other amounts and benefits shall be hereinafter referred to as the "Other
Benefits"); and
(iv) all unvested options or stock appreciation rights which Executive
then holds to acquire securities from the Company shall be immediately and
automatically exercisable as of the Effective Date, and the Executive shall
have the right to exercise any such options or stock appreciation rights
for a period of one year after the Date of Termination. Notwithstanding the
foregoing, until two years from the date of this Agreement, such options
and/or stock appreciation rights shall not be accelerated if such
acceleration would result in the failure of a transaction which has been
approved by the Continuing Directors (as defined in the Company's charter)
and entered into by the Company to qualify as a pooling for accounting
purposes; and
(v) the Company shall transfer to the Executive the insurance policy
written with respect to the Executive under the Company's Group Term Life
Insurance Policy for Executive Officers and the right to the full cash
surrender value thereof.
7. Non-exclusivity of Rights. Except as provided in Section 6, nothing
-------------------------
in this Agreement shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plans, programs,
policies or practices, provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor shall anything herein
limit or otherwise affect such rights as the Executive may have under any other
agreements with the Company or any of its affiliated companies. Amounts which
are vested benefits or which the Executive is otherwise entitled to receive
under any plan, policy, practice or program of the
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<PAGE>
Company or any of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy, practice or
program except as explicitly modified by this Agreement.
8. Full Settlement. (a) The Company's obligation to make the payments
---------------
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and, except as
provided in Section 6(d)(ii), such amounts shall not be reduced whether or not
the Executive obtains other employment. The Company agrees to pay promptly as
incurred, to the full extent permitted by law, all legal fees and expenses which
the Executive may reasonably incur as a result of any contest (regardless of the
outcome thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement, unless a
court of competent jurisdiction determines that the Executive made such effort
in bad faith), plus in each case interest at the applicable Federal rate
provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as
amended (the "Code").
(b) If there shall be any dispute between the Company and the Executive
(i) in the event of any termination of the Executive's employment by the
Company, whether such termination was for Cause, or (ii) in the event of any
termination of employment by the Executive, whether Good Reason existed, then,
unless and until there is a final, nonappealable
-17-
<PAGE>
judgment by a court of competent jurisdiction declaring that such termination
was for Cause or that the determination by the Executive of the existence of
Good Reason was not made in good faith, the Company shall pay all amounts, and
provide all benefits, to the Executive and/or the Executive's family or other
beneficiaries, as the case may be, that the Company would be required to pay or
provide pursuant to Section 6(d) as though such termination were by the Company
without Cause, or by the Executive with Good Reason; provided, however, that the
Company shall not be required to pay any disputed amount pursuant to this
paragraph except upon receipt of an undertaking by or on behalf of the Executive
to repay all such amounts to which the Executive is ultimately adjudged by such
court not to be entitled.
9. Certain Reduction in Payments by the Company.
---------------------------------------------
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement (a "Payment"), would be
nondeductible by the Company for Federal income tax purposes because of Section
280G of the Code or would subject the Executive to the excise tax imposed by
Section 4999 of the Code, then the aggregate present value of amounts payable or
distributable to or for the benefit of the Executive pursuant to this Agreement
(such payments or distributions pursuant to this Agreement are hereinafter
referred to as "Agreement Payments") shall be reduced (but not below zero) to
the Reduced Amount. The "Reduced Amount" shall be one dollar less than an
amount expressed in present value which maximizes the aggregate present value of
Agreement Payments but which does not result in any of the amount paid to the
Executive being not deductible by reason of Section 280G of the Code or subject
to the excise
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<PAGE>
tax imposed by Section 4999 of the Code. For purposes of this Section 9, present
value shall be determined in accordance with Section 280G(d)(4) of the Code.
(b) All determinations required to be made under this Section 9 shall be
made by Arthur Andersen LLP (or its successor) unless such firm shall be the
accounting firm of the individual, entity or group effecting the Change of
Control or any affiliate of the Company at the Date of Termination, in which
case such determinations shall be made by an accounting firm of national
standing agreed to by the Company and the Executive, or, if the Company does not
so agree within 10 days of the Date of Termination, such an accounting firm
shall be selected by the Executive (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the Executive within 15
business days of the date such firm is selected or such earlier time as is
requested by the Company and an opinion to the Executive that he has substantial
authority not to report any Excise Tax on his Federal income tax return with
respect to any Agreement Payments. Any such determination by the Accounting Firm
shall be binding upon the Company and the Executive. Within five business days
of the determination by the Accounting Firm as to the Reduced Amount, the
Company shall pay to or distribute to or for the benefit of the Executive such
amounts as are then due to the Executive under this Agreement.
(c) As a result of the uncertainty in the application of Section 280G of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Agreement Payments will have been made by the
Company which should not have been made ("Overpayment") or that additional
Agreement Payments which will not have been made by the Company could have been
made ("Underpayment"), in each case, consistent with the calculations required
to be made hereunder. In the event that the Accounting Firm, based upon the
assertion of a deficiency by the Internal Revenue Service against the Executive
which the
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<PAGE>
Accounting Firm believes has a high probability of success determines that an
Overpayment has been made, any such Overpayment paid or distributed by the
Company to or for the benefit of the Executive shall be treated for all purposes
as a loan ab initio to the Executive which the Executive shall repay to the
Company together with interest at the applicable Federal rate provided for in
Section 7872(f)(2) of the Code. In the event that the Accounting Firm, based
upon controlling precedent or other substantial authority, determines that an
Underpayment has occurred, any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive together with interest at the
applicable Federal rate provided for in Section 7872(f)(2) of the Code.
10. Confidential Information. The Executive shall hold in a fiduciary
------------------------
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the Executive and
----------
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will
-20-
<PAGE>
or the laws of descent and distribution. This Agreement shall inure to the
benefit of and be enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise. In addition, the
Executive shall be entitled, upon exercise of any outstanding stock options or
stock appreciation rights of the Company, to receive in lieu of shares of the
Company's stock, shares of such stock or other securities of such successor as
the holders of shares of the Company's stock received pursuant to the terms of
the merger, consolidation or sale.
12. Miscellaneous. (a) This Agreement shall be governed by and construed
-------------
in accordance with the laws of the Commonwealth of Massachusetts, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
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<PAGE>
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
S. David Ellenbogen
9 Pauline Drive
Natick MA 01760
If to the Company:
Hologic, Inc.
590 Lincoln Street
Waltham, Massachusetts 02154
Attention: Chief Executive Officer
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(d) The Company may withhold from any amounts payable under this Agreement
such Federal, state or local taxes as shall be required to be withheld pursuant
to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof shall not be deemed to be a waiver of such
provision or any other provision thereof.
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<PAGE>
(f) This Agreement contains the entire understanding of the Company and
the Executive with respect to the subject matter hereof and by entering into
this Agreement the Executive waives all rights he may have under the Company's
separation policy, provided that if the Company's separation policy would
provide greater benefits to the Executive than this Agreement, than the
Executive may elect to receive benefits under the Company's separation policy in
lieu of the benefits provided hereunder.
(g) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, prior to the Effective Date, the employment of the Executive by
the Company is "at will" and may be terminated by either the Executive or the
Company at any time. Moreover, if prior to the Effective Date, the Executive's
employment with the Company terminates, then the Executive shall have no further
rights under this Agreement. Notwithstanding anything contained herein, if,
during the Employment Period, the Executive shall terminate employment with the
Company other than for Good Reason, the Executive shall have no liability to the
Company.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant
to the authorization from its Board of Directors, the Company has caused these
presents to be executed in its name on its behalf, all as of the day and year
first above written.
HOLOGIC, INC.
By: /s/ Glenn P. Mair
--------------------------------
Name: Glenn P. Mair
Title: V.P. Finance & Treasurer
EXECUTIVE
/s/ S. David Ellenbogen
-----------------------------------
S. David Ellenbogen
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<PAGE>
EXHIBIT 10.11
AGREEMENT
AGREEMENT by and between HOLOGIC, INC., a Delaware corporation (the
"Company"), and Steve L. Nakashige (the "Executive"), dated as of the 6th day
of March, 1998.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat, or occurrence of a Change of Control
(as defined below) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall be the first
-------------------
date during the "Change of Control Period" (as defined in Section 1(b)) on which
a Change of Control occurs. Anything in this Agreement to the contrary
notwithstanding, if the Executive's employment with the Company is terminated or
the Executive ceases to be an officer of the Company prior to the date on which
a Change of Control occurs, and it is reasonably demonstrated that such
termination of employment (1) was at the request of a third party who has taken
steps reasonably calculated to effect the Change of Control or (2) otherwise
arose in connection with or
<PAGE>
anticipation of the Change of Control, then for all purposes of this Agreement
the "Effective Date" shall mean the date immediately prior to the date of such
termination of employment.
(b) The "Change of Control Period" is the period commencing on the
date hereof and ending on the third anniversary of such date; provided, however
that commencing on the date one year after the date hereof, and on each annual
anniversary of such date (such date and each annual anniversary thereof is
hereinafter referred to as the "Renewal Date"), the Change of Control Period
shall be automatically extended without any further action by the Company or the
Executive so as to terminate three years from such Renewal Date; provided,
however, that if the Company shall give notice in writing to the Executive, at
least 60 days prior to the Renewal Date, stating that the Change of Control
Period shall not be extended, then the Change of Control Period shall expire
three years from the last effective Renewal Date.
2. Change of Control. For the purpose of this Agreement, a "Change
-----------------
of Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20% or more of the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock"); provided, however,
that any acquisition by the Company or its subsidiaries, or any
employee benefit plan (or related trust) of the Company or its
subsidiaries of 20% or more of Outstanding Company Common Stock shall
not constitute a Change in Control; and provided, further, that any
acquisition by a corporation with respect to which, following such
acquisition, more than 50% of
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<PAGE>
the then outstanding shares of common stock of such corporation, is
then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners of the Outstanding Company Common Stock immediately
prior to such acquisition in substantially the same proportion as
their ownership, immediately prior to such acquisition, of the
Outstanding Company Common Stock, shall not constitute a Change in
Control; or
(b) Any transaction which results in the Continuing Directors (as
defined in the Certificate of Incorporation of the Company)
constituting less than a majority of the Board of Directors of the
Company; or
(c) Approval by the stockholders of the Company of (i) a
reorganization, merger or consolidation, in each case, with respect to
which all or substantially all of the individuals and entities who
were the beneficial owners of the Outstanding Company Common Stock
immediately prior to such reorganization, merger or consolidation do
not, following such reorganization, merger or consolidation,
beneficially own, directly or indirectly, more than 50% of the then
outstanding shares of common stock of the corporation resulting from
such a reorganization, merger or consolidation, (ii) a complete
liquidation or dissolution of the Company or (iii) the sale or other
disposition of all or substantially all of the assets of the Company,
excluding a sale or other disposition of assets to a subsidiary of the
Company.
Anything in this Agreement to the contrary notwithstanding, if an
event that would, but for this paragraph, constitute a Change of Control results
from or arises out of a purchase or other
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<PAGE>
acquisition of the Company, directly or indirectly, by a corporation or other
entity in which the Executive has a greater than ten percent (10%) direct or
indirect equity interest, such event shall not constitute a Change of Control.
3. Employment Period. Subject to the terms and conditions hereof,
-----------------
the Company hereby agrees to continue the Executive in its employ, and the
Executive hereby agrees to remain in the employ of the Company, for the period
commencing on the Effective Date and ending on the last day of the thirty-sixth
month following the month in which the Effective Date occurs (the "Employment
Period").
4. Terms of Employment. (a) Position and Duties. (i) During the
------------------- -------------------
Employment Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities shall
be at least commensurate in all material respects with the most significant of
those held, exercised and assigned at any time during the 90-day period
immediately preceding the Effective Date and (B) the Executive's services shall
be performed at the location where the Executive was employed immediately
preceding the Effective Date or any office or location less than 35 miles from
such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive agrees
to devote his full business time to the business and affairs of the Company and,
to the extent necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable best efforts to perform
faithfully and efficiently such responsibilities. During the Employment Period
it shall not be a violation of this Agreement for the Executive to (A) serve on
corporate, civic or charitable boards or committees, (B) deliver lectures,
fulfill speaking engagements or teach at educational institutions and (C) manage
personal investments, so long as such activities do not
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<PAGE>
significantly interfere with the performance of the Executive's responsibilities
as an employee of the Company in accordance with this Agreement. It is expressly
understood and agreed that to the extent that any such activities have been
conducted by the Executive prior to the Effective Date, the continued conduct of
such activities (or the conduct of activities similar in nature and scope
thereto) subsequent to the Effective Date, including, without limitation,
activities with respect to Vivid Technologies, Inc., shall not thereafter be
deemed to interfere with the performance of the Executive's responsibilities to
the Company.
(b) Compensation. (i) Base Salary. During the Employment Period,
------------ -----------
the Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable to the Executive by the Company and its
affiliated companies in respect of the twelve-month period immediately preceding
the month in which the Effective Date occurs. During the Employment Period, the
Annual Base Salary shall be reviewed at least annually and shall be increased at
any time and from time to time as shall be substantially consistent with
increases in base salary awarded in the ordinary course of business to other
peer executives of the Company and its affiliated companies. Any increase in
Annual Base Salary shall not serve to limit or reduce any other obligation to
the Executive under this Agreement. Annual Base Salary shall not be reduced
after any such increase and the term Annual Base Salary as utilized in this
Agreement shall refer to Annual Base Salary as so increased. As used in this
Agreement, the term "affiliated companies" includes any company controlled by,
controlling or under common control with the Company.
(iii) Annual Bonus. In addition to Annual Base Salary, the
------------
Executive shall be awarded, for each fiscal year during the Employment Period,
an annual bonus (the "Annual Bonus") in cash at least equal to the average
annualized (for any fiscal year consisting of less
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<PAGE>
than twelve full months or with respect to which the Executive has been employed
by the Company for less than twelve full months) bonus (the "Average Annual
Bonus") paid or payable to the Executive by the Company and its affiliated
companies in respect of the three fiscal years immediately preceding the fiscal
year in which the Effective Date occurs. Each such Annual Bonus shall be paid no
later than the end of the third month of the fiscal year next following the
fiscal year for which the Annual Bonus is awarded, unless the Executive shall
elect to defer the receipt of such Annual Bonus pursuant to deferral plans of
the Company.
(iv) Special Bonus. In addition to Annual Base Salary and Annual
-------------
Bonus payable as hereinabove provided, if the Executive remains employed with
the Company and/or its affiliated companies through the first anniversary of the
Effective Date, the Company shall pay to the Executive a special bonus (the
"Special Bonus") in recognition of the Executive's services during the crucial
one-year transition period following the Change of Control in cash equal to the
sum of (A) the Executive's Annual Base Salary and (B) the greater of (x) the
Annual Bonus paid or payable (and annualized for any fiscal year consisting of
less than twelve full months or for which the Executive has been employed for
less than twelve full months) to the Executive for the most recently completed
fiscal year during the Employment Period, if any, and (y) the Average Annual
Bonus (such greater amount hereafter referred to as the "Highest Annual Bonus").
The Special Bonus shall be paid no later than 30 days following the first
anniversary of the Effective Date.
(v) Incentive, Savings and Retirement Plans. In addition to Annual
---------------------------------------
Base Salary and Annual Bonus payable as hereinabove provided, the Executive
shall be entitled to participate during the Employment Period in all incentive,
savings and retirement plans, practices, policies and programs applicable to
other peer executives of the Company and its affiliated companies,
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but in no event shall such plans practices, policies and programs provide the
Executive with incentive, savings and retirement benefits opportunities, in each
case, less favorable, in the aggregate, than the most favorable of those
provided by the Company and its affiliated companies for the Executive under
such plans, practices, policies and programs as in effect at any time during the
one-year immediately preceding the Effective Date, or, if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(vi) Welfare Benefit Plans. During the Employment Period, the
---------------------
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental death and
travel accident insurance plans and programs) and applicable to other peer
executives of the Company and its affiliated companies, but in no event shall
such plans, practices, policies and programs provide benefits which are less
favorable, in the aggregate, than the most favorable of such plans, practices,
policies and programs in effect at any time during the one-year period
immediately preceding the Effective Date, or, if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(vii) Expenses. During the Employment Period, the Executive shall be
--------
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Executive upon submission of appropriate accountings in accordance with the
most favorable policies, practices and procedures of the Company and its
affiliated companies in effect at any time during the one-
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<PAGE>
year period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
(viii) Fringe Benefits. During the Employment Period, the Executive
---------------
shall be entitled to fringe benefits in accordance with the most favorable
plans, practices, programs and policies of the Company and its affiliated
companies in effect at any time during the one-year period immediately preceding
the Effective Date or, if more favorable to the Executive, as in effect at any
time thereafter with respect to other peer executives of the Company and its
affiliated companies.
(ix) Office and Support Staff. During the Employment Period, the
------------------------
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the one-year period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
(x) Vacation. During the Employment Period, the Executive shall be
--------
entitled to paid vacation in accordance with the most favorable plans, policies,
programs and practices of the Company and its affiliated companies as in effect
at any time during the one-year period immediately preceding the Effective Date
or, if more favorable to the Executive, as in effect at any time thereafter with
respect to other peer incentives of the Company and its affiliated companies.
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<PAGE>
5. Termination of Employment. (a) Death or Disability. The
------------------------- -------------------
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period (pursuant
to the definition of "Disability" set forth below), it may give to the Executive
written notice in accordance with Section 12(b) of this Agreement of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" means the absence of the Executive from
the Executive's duties with the Company on a full-time basis for 180 consecutive
business days as a result of incapacity due to mental or physical illness which
is determined to be total and permanent by a physician selected by the Company
or its insurers and acceptable to the Executive or the Executive's legal
representative (such agreement as to acceptability not to be withheld
unreasonably).
(b) Cause. The Company may terminate the Executive's employment
-----
during the Employment Period for "Cause". For purposes of this Agreement,
"Cause" means (i) an act or acts of personal dishonesty taken by the Executive
and intended to result in substantial personal enrichment of the Executive at
the expense of the Company, (ii) repeated violations by the Executive of the
Executive's obligations under Section 4(a) of this Agreement (other than as a
result of incapacity due to physical or mental illness) which are demonstrably
willful and deliberate on the Executive's part, which are committed in bad faith
or without reasonable belief that such violations are in the best interests of
the Company and which are not remedied in a
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<PAGE>
reasonable period of time after receipt of written notice from the Company or
(iii) the conviction of the Executive of a felony involving moral turpitude.
(c) Good Reason. The Executive's employment may be terminated during
-----------
the Employment Period by the Executive for Good Reason. For purposes of this
Agreement, "Good Reason" means:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Section 4(a) of this Agreement,
or any other action by the Company which results in a diminution in
such position, authority, duties or responsibilities, excluding for
this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at
any office or location other than that described in Section 4(a)(i)(B)
hereof;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
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For purposes of this Section 5(c), any good faith determination of
"Good Reason" made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for Cause
---------------------
or by the Executive for Good Reason shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than
fifteen days after the giving of such notice). The failure by the Executive or
the Company to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason or Cause shall not waive any right
of the Executive or the Company hereunder or preclude the Executive or the
Company from asserting such fact or circumstance in enforcing the Executive's or
the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means the date of
-------------------
receipt of the Notice of Termination or any later date specified therein, as the
case may be; provided however, that (i) if the Executive's employment is
terminated by the Company other than for Cause, death or Disability, the Date of
Termination shall be the date on which the Company notifies the Executive of
such termination and (ii) if the Executive's employment is terminated by reason
of death or Disability, the Date of Termination shall be the date of death of
the Executive or the Disability Effective Date, as the case may be.
6. Obligations of the Company upon Termination.
-------------------------------------------
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(a) Death. If the Executive's employment is terminated by reason
-----
of the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for (i) payment of the sum of the following
amounts: (A) the Executive's Annual Base Salary through the Date of Termination
to the extent not theretofore paid, (B) the product of (I) the Highest Annual
Bonus and (II) a fraction, the numerator of which is the number of days in the
current fiscal year through the Date of Termination, and the denominator of
which is 365, (C) the Special Bonus, if due to the Executive pursuant to Section
4(b)(iv), to the extent not theretofore paid, and (D) any compensation
previously deferred by the Executive (together with any accrued interest or
earnings thereon) and any accrued bonus amounts or vacation pay, in each case,
to the extent not yet paid by the Company (the amounts described in
subparagraphs (A), (B), (C) and (D) are hereafter referred to as "Accrued
Obligations" and shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination),
(ii) for the remainder of the Employment Period, or such longer period as any
plan, program, practice or policy may provide, the Company shall continue
benefits to the Executive and/or the Executive's family at least equal to those
which would have been provided in accordance with the applicable plans, programs
practices and policies described in Section 4(b)(v) of this Agreement as if the
Executive's employment had not been terminated in accordance with the most
favorable plans, practices, programs or policies of the Company and its
affiliated companies as in effect and applicable generally to other peer
executives and their families during the one year period immediately preceding
the Effective Date or, if more favorable to the Executive, as in effect at any
time thereafter with respect to other peer executives of the Company and its
affiliated companies and their families (such continuation of such benefits for
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<PAGE>
the applicable period herein set forth shall be hereinafter referred to as
"Welfare Benefit Continuation") (for purposes of determining eligibility of the
Executive for retiree benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained employed until the
end of the Employment Period and to have retired on the last day of such
period), and (iii) payment to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination of
an amount equal to the sum of the Executive's Annual Base Salary and the Highest
Annual Bonus. Subject to the provisions of Section 9 hereof, but, otherwise,
anything herein to the contrary notwithstanding, the Executive's family shall be
entitled to receive benefits at least equal to the most favorable benefits
provided by the Company and any of its affiliated companies to surviving
families of peer executives of the Company and such affiliated companies under
such plans, programs, practices and policies relating to family death benefits,
if any, as in effect with respect to other peer executives and their families at
any time during the one year period immediately preceding the Effective Date or,
if more favorable to the Executive and/or the Executive's family, as in effect
on the date of the Executive's death with respect to other peer executives of
the Company and its affiliated companies and their families.
(b) Disability. If the Executive's employment is terminated by reason
----------
of the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for (i)
payment of the Accrued Obligations (which shall be paid in a lump sum in cash
within 30 days of the Date of Termination), (ii) the timely payment and
provision of the Welfare Benefit Continuation, and (iii) payment to the
Executive in a lump sum in cash within 30 days of the Date of Termination of an
amount equal to the sum of the Executive's Annual Base Salary and the Highest
Annual Bonus. In addition,
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<PAGE>
the Company shall transfer to the Executive the insurance policy written with
respect to the Executive under the Company's Group Term Life Insurance Policy
for Executive Officers and the right to the full cash surrender value thereof.
Subject to the provisions of Section 9 hereof, but, otherwise, anything herein
to the contrary notwithstanding, the Executive shall be entitled after the
Disability Effective Date to receive disability and other benefits at least
equal to the most favorable of those provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as in
effect with respect to other peer executives and their families at any time
during the one year period immediately preceding the Effective Date or, if more
favorable to the Executive and/or the Executive's family, as in effect at any
time thereafter with respect to other peer executives of the Company and its
affiliated companies and their families.
(c) Cause, Other than for Good Reason. If the Executive's employment
---------------------------------
shall be terminated by the Company for Cause or by the Executive other than for
Good Reason (and other than by reason of his death or disability) during the
Employment Period, this Agreement shall terminate without further obligations to
the Executive other than the obligation to pay to the Executive Annual Base
Salary through the Date of Termination, plus the amount of any compensation
previously deferred by the Executive and any accrued bonus amounts or vacation
pay, in each case, to the extent theretofore unpaid. In such case, such amounts
shall be paid to the Executive in a lump sum in cash within 30 days of the Date
of Termination. The Executive shall, in such event, also be entitled to any
benefits required by law that are not otherwise provided by this Agreement.
(d) Good Reason; Other Than for Cause or Disability. If, during the
-----------------------------------------------
Employment Period, the Company shall terminate the Executive's employment other
than for Cause, death or
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<PAGE>
Disability, or if the Executive shall terminate employment under this Agreement
for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
A. all Accrued Obligations; and
B. the amount (such amount shall be hereinafter referred to as
the "Severance Amount") equal to one dollar ($1.00) less than the product
of (I) three (3) and (II) the Executive's "base amount" as defined in
Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the
"Code"); and
(ii) the Company shall timely pay and provide the Welfare Benefit
Continuation provided, however, that if the Executive becomes reemployed
with another employer and is eligible to receive medical or other welfare
benefits under another employer provided plan, the medical or other welfare
benefits described herein shall be secondary to those provided under such
other plan during such applicable period of eligibility; and
(iii) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive and/or the Executive's family
any other amounts or benefits required to be paid or provided or which the
Executive and/or the Executive's family is eligible to receive pursuant to
this Agreement and under any plan, program, policy or practice or contract
or agreement of the Company and its affiliated companies as in effect and
applicable generally to other peer executives of the Company and its
affiliated companies and their families (such
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<PAGE>
other amounts and benefits shall be hereinafter referred to as the "Other
Benefits"); and
(iv) all unvested options or stock appreciation rights which Executive
then holds to acquire securities from the Company shall be immediately and
automatically exercisable as of the Effective Date, and the Executive shall
have the right to exercise any such options or stock appreciation rights
for a period of one year after the Date of Termination. Notwithstanding the
foregoing, until two years from the date of this Agreement, such options
and/or stock appreciation rights shall not be accelerated if such
acceleration would result in the failure of a transaction which has been
approved by the Continuing Directors (as defined in the Company's charter)
and entered into by the Company to qualify as a pooling for accounting
purposes; and
(v) the Company shall transfer to the Executive the insurance policy
written with respect to the Executive under the Company's Group Term Life
Insurance Policy for Executive Officers and the right to the full cash
surrender value thereof.
7. Non-exclusivity of Rights. Except as provided in Section 6,
-------------------------
nothing in this Agreement shall prevent or limit the Executive's continuing or
future participation in any benefit, bonus, incentive or other plans, programs,
policies or practices, provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor shall anything herein
limit or otherwise affect such rights as the Executive may have under any other
agreements with the Company or any of its affiliated companies. Amounts which
are vested benefits or which the Executive is otherwise entitled to receive
under any plan, policy, practice or program of the
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<PAGE>
Company or any of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy, practice or
program except as explicitly modified by this Agreement.
8. Full Settlement. (a) The Company's obligation to make the
---------------
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and, except as
provided in Section 6(d)(ii), such amounts shall not be reduced whether or not
the Executive obtains other employment. The Company agrees to pay promptly as
incurred, to the full extent permitted by law, all legal fees and expenses which
the Executive may reasonably incur as a result of any contest (regardless of the
outcome thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement, unless a
court of competent jurisdiction determines that the Executive made such effort
in bad faith), plus in each case interest at the applicable Federal rate
provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as
amended (the "Code").
(b) If there shall be any dispute between the Company and the
Executive (i) in the event of any termination of the Executive's employment by
the Company, whether such termination was for Cause, or (ii) in the event of any
termination of employment by the Executive, whether Good Reason existed, then,
unless and until there is a final, nonappealable
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<PAGE>
judgment by a court of competent jurisdiction declaring that such termination
was for Cause or that the determination by the Executive of the existence of
Good Reason was not made in good faith, the Company shall pay all amounts, and
provide all benefits, to the Executive and/or the Executive's family or other
beneficiaries, as the case may be, that the Company would be required to pay or
provide pursuant to Section 6(d) as though such termination were by the Company
without Cause, or by the Executive with Good Reason; provided, however, that the
Company shall not be required to pay any disputed amount pursuant to this
paragraph except upon receipt of an undertaking by or on behalf of the Executive
to repay all such amounts to which the Executive is ultimately adjudged by such
court not to be entitled.
9. Certain Reduction in Payments by the Company.
---------------------------------------------
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement (a "Payment"), would be
nondeductible by the Company for Federal income tax purposes because of Section
280G of the Code or would subject the Executive to the excise tax imposed by
Section 4999 of the Code, then the aggregate present value of amounts payable or
distributable to or for the benefit of the Executive pursuant to this Agreement
(such payments or distributions pursuant to this Agreement are hereinafter
referred to as "Agreement Payments") shall be reduced (but not below zero) to
the Reduced Amount. The "Reduced Amount" shall be one dollar less than an
amount expressed in present value which maximizes the aggregate present value of
Agreement Payments but which does not result in any of the amount paid to the
Executive being not deductible by reason of Section 280G of the Code or subject
to the excise
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<PAGE>
tax imposed by Section 4999 of the Code. For purposes of this Section 9, present
value shall be determined in accordance with Section 280G(d)(4) of the Code.
(b) All determinations required to be made under this Section 9 shall
be made by Arthur Andersen LLP (or its successor) unless such firm shall be the
accounting firm of the individual, entity or group effecting the Change of
Control or any affiliate of the Company at the Date of Termination, in which
case such determinations shall be made by an accounting firm of national
standing agreed to by the Company and the Executive, or, if the Company does not
so agree within 10 days of the Date of Termination, such an accounting firm
shall be selected by the Executive (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the Executive within 15
business days of the date such firm is selected or such earlier time as is
requested by the Company and an opinion to the Executive that he has substantial
authority not to report any Excise Tax on his Federal income tax return with
respect to any Agreement Payments. Any such determination by the Accounting
Firm shall be binding upon the Company and the Executive. Within five business
days of the determination by the Accounting Firm as to the Reduced Amount, the
Company shall pay to or distribute to or for the benefit of the Executive such
amounts as are then due to the Executive under this Agreement.
(c) As a result of the uncertainty in the application of Section 280G
of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Agreement Payments will have been made by the
Company which should not have been made ("Overpayment") or that additional
Agreement Payments which will not have been made by the Company could have been
made ("Underpayment"), in each case, consistent with the calculations required
to be made hereunder. In the event that the Accounting Firm, based upon the
assertion of a deficiency by the Internal Revenue Service against the Executive
which the
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Accounting Firm believes has a high probability of success determines that an
Overpayment has been made, any such Overpayment paid or distributed by the
Company to or for the benefit of the Executive shall be treated for all purposes
as a loan ab initio to the Executive which the Executive shall repay to the
Company together with interest at the applicable Federal rate provided for in
Section 7872(f)(2) of the Code. In the event that the Accounting Firm, based
upon controlling precedent or other substantial authority, determines that an
Underpayment has occurred, any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive together with interest at the
applicable Federal rate provided for in Section 7872(f)(2) of the Code.
10. Confidential Information. The Executive shall hold in a
------------------------
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the Company
and those designated by it. In no event shall an asserted violation of the
provisions of this Section 10 constitute a basis for deferring or withholding
any amounts otherwise payable to the Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the Executive and
----------
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will
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or the laws of descent and distribution. This Agreement shall inure to the
benefit of and be enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise. In addition, the Executive shall be entitled, upon exercise
of any outstanding stock options or stock appreciation rights of the Company, to
receive in lieu of shares of the Company's stock, shares of such stock or other
securities of such successor as the holders of shares of the Company's stock
received pursuant to the terms of the merger, consolidation or sale.
12. Miscellaneous. (a) This Agreement shall be governed by and
-------------
construed in accordance with the laws of the Commonwealth of Massachusetts,
without reference to principles of conflict of laws. The captions of this
Agreement are not part of the provisions hereof and shall have no force or
effect. This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective successors
and legal representatives.
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(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
Steve L. Nakashige
34 Chicory Lane
Westford, MA 01886
If to the Company:
Hologic, Inc.
590 Lincoln Street
Waltham, Massachusetts 02154
Attention: Chief Executive Officer
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof shall not be deemed to be a waiver of such
provision or any other provision thereof.
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<PAGE>
(f) This Agreement contains the entire understanding of the Company
and the Executive with respect to the subject matter hereof and by entering into
this Agreement the Executive waives all rights he may have under the Company's
separation policy, provided that if the Company's separation policy would
provide greater benefits to the Executive than this Agreement, than the
Executive may elect to receive benefits under the Company's separation policy in
lieu of the benefits provided hereunder.
(g) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, prior to the Effective Date, the employment of the Executive by
the Company is "at will" and may be terminated by either the Executive or the
Company at any time. Moreover, if prior to the Effective Date, the Executive's
employment with the Company terminates, then the Executive shall have no further
rights under this Agreement. Notwithstanding anything contained herein, if,
during the Employment Period, the Executive shall terminate employment with the
Company other than for Good Reason, the Executive shall have no liability to the
Company.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
HOLOGIC, INC.
By: /s/ S. David Ellenbogen
________________________________
Name: S. David Ellenbogen
Title: Chairman and CEO
EXECUTIVE
/s/ Steve L. Nakashige
____________________________________
Steve L. Nakashige
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EXHIBIT 10.13
AMENDMENT NO. 1
TO
MANAGEMENT SERVICES AGREEMENT
Amendment made this 4th day of October, 1999, to be effective as of the
Effective Time (as defined below), by and between Hologic, Inc. ("Hologic") and
Vivid Technologies, Inc. (formerly known as Vivitech, "Vivid") to the Management
Services Agreement dated as of June 22, 1989 by and between Hologic and Vivid
(the "Agreement"). Except as set forth below, the Agreement shall remain in
full force and effect. Capitalized terms used herein and not otherwise defined
shall have the meanings ascribed to them in the Agreement.
Preliminary Statement
WHEREAS the Agreement was entered into at the time when Vivid was a
development stage company;
WHEREAS Hologic and Vivid agree that neither party required the protection
afforded by a six-month notice to termination provision in the Agreement;
WHEREAS Vivid and EG&G, Inc. have entered into an Agreement and Plan of
Merger dated the date hereof (the "Merger Agreement"), pursuant to which Vivid
will merge with a subsidiary of EG&G, Inc. and become a wholly owned subsidiary
of EG&G, Inc. (the "Merger");
WHEREAS the parties contemplate that the Agreement will be terminated
immediately upon the Effective Time (as defined in the Merger Agreement);
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is being acknowledged, the parties agree as follows:
1. Section 2 of the Agreement shall be deleted in its entirety and the
following substituted in its place:
"2. Term. This Agreement shall continue until terminated by either party.
----
Such termination will take effect immediately unless the parties
mutually agree otherwise."
2. This Amendment is effective only upon the occurrence of the Effective
Time. If the Merger Agreement is terminated in accordance with Article VII
thereof, this Amendment shall be null and void. This Amendment may be amended or
modified only by a written instrument executed by Vivid and Hologic.
3. The Agreement, as supplemented and modified by this Amendment, together
with the other writings referred to in the Agreement or delivered pursuant
thereto which form a part thereof, contain the entire agreement among the
parties with respect to the subject matter thereof
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<PAGE>
and amend, restate and supersede all prior and contemporaneous arrangements or
understandings with respect thereto.
4. Upon effectiveness of this Amendment, on and after the date hereof, each
reference in the Agreement to "this Agreement," "hereunder," "hereof," "herein"
or words of like import, and each reference in the other documents entered into
in connection with the Agreement, shall mean and be a reference to the
Agreement, as amended hereby. Except as specifically amended above, the
Agreement shall remain in full force and effect and is hereby ratified and
confirmed.
5. This Amendment shall be governed by and construed in accordance with the
internal laws (and not the law of conflicts) of the Commonwealth of
Massachusetts.
6. This Amendment may be executed in any number of counterparts and each
such counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
[Remainder of page intentionally left blank]
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<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
HOLOGIC, INC. VIVID TECHNOLOGIES, INC.
By: /s/ Steve L. Nakashige By: William J. Frain
------------------------------ ------------------------------
Title: President & COO Title: Chief Financial Officer
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EXHIBIT 10.16
TERMINATION AGREEMENT
This Termination Agreement dated as of October 4, 1999 is entered into by
and between:
Hologic, Inc., a Massachusetts corporation, having a place of business at
35 Crosby Drive, Bedford, Massachusetts 01730-1401 ("Hologic") and
Vivid Technologies, Inc., a Delaware corporation, (f/k/a Vivitech, Inc,),
having a place of business at 10E Commerce Way, Woburn, MA 01801 ("Vivid").
CONSIDERATION UNDERLYING THIS AGREEMENT
WHEREAS, the parties entered into a License and Technology Agreement dated
as of June 22, 1989, as amended by a First Amendment to License and Technology
Agreement dated as of September 25, 1996 (as so amended, the "License
Agreement"); and
WHEREAS, Vivid and EG&G, Inc. have entered into an Agreement and Plan of
Merger dated October 4, 1999, ("Merger Agreement"), pursuant to which Vivid will
merge with a subsidiary of EG&G, Inc. and become wholly owned subsidiary of
EG&G, Inc. (the "Merger"); and
WHEREAS, the Parties which to provide for termination of the License
Agreement upon consummation of the Merger ("Effective Date"); and
NOW THEREFORE, in consideration of the premises and of the mutual covenants
and agreements contained herein, and intending to be legally bound, the parties
agree as follows:
1. Capitalized terms used herein and not otherwise defined shall have the
same respective meanings as those terms set forth in the License Agreement.
2. In accordance with paragraph 12(a) of the License Agreement, Hologic and
Vivid mutually agree to terminate the License Agreement, subject to the terms
and conditions of this Agreement.
3. The royalty provision of paragraph 5 of the License Agreement shall be
accelerated as of October 1, 1999 and Vivid shall pay to Hologic on the
Effective Date, by federal funds wire transfer in immediately available funds,
an amount equal to the sum of (i) Two Million Dollars ($2,000,000).
4. As consideration for the payment to Hologic referred to in paragraph 3,
hereof, the perpetual, exclusive, worldwide license to utilize the Base
Technology and Know-how to design, develop, improve, enhance, manufacture,
market and sell the Original Product shall survive this termination and be held
by Vivid as a paid-up, perpetual, exclusive, worldwide license as of October 1,
1999, subject to payment of any royalties accrued for periods ending prior to
said date. All other license rights granted by Hologic to Vivid under the
License Agreement shall terminate on the Effective Date.
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5. The confidentiality provision of paragraph 10, the indemnification
provisions of paragraph 13, and the non-competition provision of paragraph 17 of
the License Agreement shall survive this termination.
6. This Termination Agreement shall only take effect upon the occurrence of
the Effective Date, in the event the Merger is not consummated for any reason on
or before April 30, 2000, Vivid shall be immediately responsible for royalties,
as required under the License Agreement, for the quarters ending December 31,
1999 and March 31, 2000, and the payment referred to in paragraph 3 above shall
be reduced by those amounts (the resulting amount shall be referred to as the
"Net Amount"). The Net Amount shall bear interest at a rate of 9% per annum from
May 1, 2000 until the date paid. In the event the Merger Agreement is terminated
for any reason or the Merger is not consummated by October 30, 2000, this
Termination Agreement shall be null and void and shall have no further force or
effect, Vivid shall provide Hologic with prompt notice of any termination of the
Merger Agreement. In the event this Termination Agreement is terminated, Vivid
shall be responsible for any outstanding royalties under the License Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
HOLOGIC, INC. VIVID TECHNOLOGIES, INC.
By: /s/ Steve L. Nakashige By: /s/ William J. Frain
------------------------------ ------------------------------
Title: President & COO Title: Chief Financial Officer
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Exhibit 10.23
AGREEMENT
AGREEMENT by and between HOLOGIC, INC., a Delaware corporation (the
"Company"), and Jay A. Stein (the "Executive"), dated as of the 6th day of
March, 1998.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat, or occurrence of a Change of Control
(as defined below) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall be the first
-------------------
date during the "Change of Control Period" (as defined in Section 1(b)) on which
a Change of Control occurs. Anything in this Agreement to the contrary
notwithstanding, if the Executive's employment with the Company is terminated or
the Executive ceases to be an officer of the Company prior to the date on which
a Change of Control occurs, and it is reasonably demonstrated that such
termination of employment (1) was at the request of a third party who has taken
steps reasonably calculated to effect the Change of Control or (2) otherwise
arose in connection with or
<PAGE>
anticipation of the Change of Control, then for all purposes of this Agreement
the "Effective Date" shall mean the date immediately prior to the date of such
termination of employment.
(b) The "Change of Control Period" is the period commencing on the
date hereof and ending on the third anniversary of such date; provided, however
that commencing on the date one year after the date hereof, and on each annual
anniversary of such date (such date and each annual anniversary thereof is
hereinafter referred to as the "Renewal Date"), the Change of Control Period
shall be automatically extended without any further action by the Company or the
Executive so as to terminate three years from such Renewal Date; provided,
however, that if the Company shall give notice in writing to the Executive, at
least 60 days prior to the Renewal Date, stating that the Change of Control
Period shall not be extended, then the Change of Control Period shall expire
three years from the last effective Renewal Date.
2. Change of Control. For the purpose of this Agreement, a "Change
-----------------
of Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock"); provided, however, that any
acquisition by the Company or its subsidiaries, or any employee benefit
plan (or related trust) of the Company or its subsidiaries of 20% or more
of Outstanding Company Common Stock shall not constitute a Change in
Control; and provided, further, that any acquisition by a corporation with
respect to which, following such acquisition, more than 50% of
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<PAGE>
the then outstanding shares of common stock of such corporation, is then
beneficially owned, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners of the
Outstanding Company Common Stock immediately prior to such acquisition in
substantially the same proportion as their ownership, immediately prior to
such acquisition, of the Outstanding Company Common Stock, shall not
constitute a Change in Control; or
(b) Any transaction which results in the Continuing Directors (as
defined in the Certificate of Incorporation of the Company) constituting
less than a majority of the Board of Directors of the Company; or
(c) Approval by the stockholders of the Company of (i) a
reorganization, merger or consolidation, in each case, with respect to
which all or substantially all of the individuals and entities who were the
beneficial owners of the Outstanding Company Common Stock immediately prior
to such reorganization, merger or consolidation do not, following such
reorganization, merger or consolidation, beneficially own, directly or
indirectly, more than 50% of the then outstanding shares of common stock of
the corporation resulting from such a reorganization, merger or
consolidation, (ii) a complete liquidation or dissolution of the Company or
(iii) the sale or other disposition of all or substantially all of the
assets of the Company, excluding a sale or other disposition of assets to a
subsidiary of the Company.
Anything in this Agreement to the contrary notwithstanding, if an event
that would, but for this paragraph, constitute a Change of Control results from
or arises out of a purchase or other
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<PAGE>
acquisition of the Company, directly or indirectly, by a corporation or other
entity in which the Executive has a greater than ten percent (10%) direct or
indirect equity interest, such event shall not constitute a Change of Control.
3. Employment Period. Subject to the terms and conditions hereof,
-----------------
the Company hereby agrees to continue the Executive in its employ, and the
Executive hereby agrees to remain in the employ of the Company, for the period
commencing on the Effective Date and ending on the last day of the thirty-sixth
month following the month in which the Effective Date occurs (the "Employment
Period").
4. Terms of Employment. (a) Position and Duties. (i) During the
------------------- -------------------
Employment Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities shall
be at least commensurate in all material respects with the most significant of
those held, exercised and assigned at any time during the 90-day period
immediately preceding the Effective Date and (B) the Executive's services shall
be performed at the location where the Executive was employed immediately
preceding the Effective Date or any office or location less than 35 miles from
such location.
(ii) During the Employment Period, and excluding any periods
of vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote his full business time to the business and affairs of the
Company and, to the extent necessary to discharge the responsibilities assigned
to the Executive hereunder, to use the Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities. During the Employment
Period it shall not be a violation of this Agreement for the Executive to (A)
serve on corporate, civic or charitable boards or committees, (B) deliver
lectures, fulfill speaking engagements or teach at educational institutions and
(C) manage personal investments, so long as such activities do not
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<PAGE>
significantly interfere with the performance of the Executive's responsibilities
as an employee of the Company in accordance with this Agreement. It is expressly
understood and agreed that to the extent that any such activities have been
conducted by the Executive prior to the Effective Date, the continued conduct of
such activities (or the conduct of activities similar in nature and scope
thereto) subsequent to the Effective Date, including, without limitation,
activities with respect to Vivid Technologies, Inc., shall not thereafter be
deemed to interfere with the performance of the Executive's responsibilities to
the Company.
(b) Compensation. (i) Base Salary. During the Employment Period,
------------ -----------
the Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable to the Executive by the Company and its
affiliated companies in respect of the twelve-month period immediately preceding
the month in which the Effective Date occurs. During the Employment Period, the
Annual Base Salary shall be reviewed at least annually and shall be increased at
any time and from time to time as shall be substantially consistent with
increases in base salary awarded in the ordinary course of business to other
peer executives of the Company and its affiliated companies. Any increase in
Annual Base Salary shall not serve to limit or reduce any other obligation to
the Executive under this Agreement. Annual Base Salary shall not be reduced
after any such increase and the term Annual Base Salary as utilized in this
Agreement shall refer to Annual Base Salary as so increased. As used in this
Agreement, the term "affiliated companies" includes any company controlled by,
controlling or under common control with the Company.
(iii) Annual Bonus. In addition to Annual Base Salary, the
------------
Executive shall be awarded, for each fiscal year during the Employment Period,
an annual bonus (the "Annual Bonus") in cash at least equal to the average
annualized (for any fiscal year consisting of less
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than twelve full months or with respect to which the Executive has been employed
by the Company for less than twelve full months) bonus (the "Average Annual
Bonus") paid or payable to the Executive by the Company and its affiliated
companies in respect of the three fiscal years immediately preceding the fiscal
year in which the Effective Date occurs. Each such Annual Bonus shall be paid no
later than the end of the third month of the fiscal year next following the
fiscal year for which the Annual Bonus is awarded, unless the Executive shall
elect to defer the receipt of such Annual Bonus pursuant to deferral plans of
the Company.
(iv) Special Bonus. In addition to Annual Base Salary and
-------------
Annual Bonus payable as hereinabove provided, if the Executive remains employed
with the Company and/or its affiliated companies through the first anniversary
of the Effective Date, the Company shall pay to the Executive a special bonus
(the "Special Bonus") in recognition of the Executive's services during the
crucial one-year transition period following the Change of Control in cash equal
to the sum of (A) the Executive's Annual Base Salary and (B) the greater of (x)
the Annual Bonus paid or payable (and annualized for any fiscal year consisting
of less than twelve full months or for which the Executive has been employed for
less than twelve full months) to the Executive for the most recently completed
fiscal year during the Employment Period, if any, and (y) the Average Annual
Bonus (such greater amount hereafter referred to as the "Highest Annual Bonus").
The Special Bonus shall be paid no later than 30 days following the first
anniversary of the Effective Date.
(v) Incentive, Savings and Retirement Plans. In addition to
---------------------------------------
Annual Base Salary and Annual Bonus payable as hereinabove provided, the
Executive shall be entitled to participate during the Employment Period in all
incentive, savings and retirement plans, practices, policies and programs
applicable to other peer executives of the Company and its affiliated companies,
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but in no event shall such plans practices, policies and programs provide the
Executive with incentive, savings and retirement benefits opportunities, in each
case, less favorable, in the aggregate, than the most favorable of those
provided by the Company and its affiliated companies for the Executive under
such plans, practices, policies and programs as in effect at any time during the
one-year immediately preceding the Effective Date, or, if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(vi) Welfare Benefit Plans. During the Employment Period,
---------------------
the Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and its
affiliated companies (including, without limitation, medical, prescription,
dental, disability, salary continuance, employee life, group life, accidental
death and travel accident insurance plans and programs) and applicable to other
peer executives of the Company and its affiliated companies, but in no event
shall such plans, practices, policies and programs provide benefits which are
less favorable, in the aggregate, than the most favorable of such plans,
practices, policies and programs in effect at any time during the one-year
period immediately preceding the Effective Date, or, if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(vii) Expenses. During the Employment Period, the Executive
--------
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive upon submission of appropriate accountings in
accordance with the most favorable policies, practices and procedures of the
Company and its affiliated companies in effect at any time during the one-
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year period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
(viii) Fringe Benefits. During the Employment Period, the
---------------
Executive shall be entitled to fringe benefits in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect at any time during the one-year period
immediately preceding the Effective Date or, if more favorable to the Executive,
as in effect at any time thereafter with respect to other peer executives of the
Company and its affiliated companies.
(ix) Office and Support Staff. During the Employment Period,
------------------------
the Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the one-year period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
(x) Vacation. During the Employment Period, the Executive
--------
shall be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies as
in effect at any time during the one-year period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect at any time
thereafter with respect to other peer incentives of the Company and its
affiliated companies.
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5. Termination of Employment. (a) Death or Disability. The
------------------------- -------------------
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period (pursuant
to the definition of "Disability" set forth below), it may give to the Executive
written notice in accordance with Section 12(b) of this Agreement of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" means the absence of the Executive from
the Executive's duties with the Company on a full-time basis for 180 consecutive
business days as a result of incapacity due to mental or physical illness which
is determined to be total and permanent by a physician selected by the Company
or its insurers and acceptable to the Executive or the Executive's legal
representative (such agreement as to acceptability not to be withheld
unreasonably).
(b) Cause. The Company may terminate the Executive's employment
-----
during the Employment Period for "Cause". For purposes of this Agreement,
"Cause" means (i) an act or acts of personal dishonesty taken by the Executive
and intended to result in substantial personal enrichment of the Executive at
the expense of the Company, (ii) repeated violations by the Executive of the
Executive's obligations under Section 4(a) of this Agreement (other than as a
result of incapacity due to physical or mental illness) which are demonstrably
willful and deliberate on the Executive's part, which are committed in bad faith
or without reasonable belief that such violations are in the best interests of
the Company and which are not remedied in a
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reasonable period of time after receipt of written notice from the Company or
(iii) the conviction of the Executive of a felony involving moral turpitude.
(c) Good Reason. The Executive's employment may be terminated during
-----------
the Employment Period by the Executive for Good Reason. For purposes of this
Agreement, "Good Reason" means:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 4(a) of this Agreement, or any
other action by the Company which results in a diminution in such position,
authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice thereof
given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which
is remedied by the Company promptly after receipt of notice thereof given
by the Executive;
(iii) the Company's requiring the Executive to be based at
any office or location other than that described in Section 4(a)(i)(B)
hereof;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
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For purposes of this Section 5(c), any good faith determination of
"Good Reason" made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for
---------------------
Cause or by the Executive for Good Reason shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than
fifteen days after the giving of such notice). The failure by the Executive or
the Company to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason or Cause shall not waive any right
of the Executive or the Company hereunder or preclude the Executive or the
Company from asserting such fact or circumstance in enforcing the Executive's or
the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means the date of
-------------------
receipt of the Notice of Termination or any later date specified therein, as the
case may be; provided however, that (i) if the Executive's employment is
terminated by the Company other than for Cause, death or Disability, the Date of
Termination shall be the date on which the Company notifies the Executive of
such termination and (ii) if the Executive's employment is terminated by reason
of death or Disability, the Date of Termination shall be the date of death of
the Executive or the Disability Effective Date, as the case may be.
6. Obligations of the Company upon Termination.
-------------------------------------------
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(a) Death. If the Executive's employment is terminated by reason
-----
of the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for (i) payment of the sum of the following
amounts: (A) the Executive's Annual Base Salary through the Date of Termination
to the extent not theretofore paid, (B) the product of (I) the Highest Annual
Bonus and (II) a fraction, the numerator of which is the number of days in the
current fiscal year through the Date of Termination, and the denominator of
which is 365, (C) the Special Bonus, if due to the Executive pursuant to Section
4(b)(iv), to the extent not theretofore paid, and (D) any compensation
previously deferred by the Executive (together with any accrued interest or
earnings thereon) and any accrued bonus amounts or vacation pay, in each case,
to the extent not yet paid by the Company (the amounts described in
subparagraphs (A), (B), (C) and (D) are hereafter referred to as "Accrued
Obligations" and shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination),
(ii) for the remainder of the Employment Period, or such longer period as any
plan, program, practice or policy may provide, the Company shall continue
benefits to the Executive and/or the Executive's family at least equal to those
which would have been provided in accordance with the applicable plans, programs
practices and policies described in Section 4(b)(v) of this Agreement as if the
Executive's employment had not been terminated in accordance with the most
favorable plans, practices, programs or policies of the Company and its
affiliated companies as in effect and applicable generally to other peer
executives and their families during the one year period immediately preceding
the Effective Date or, if more favorable to the Executive, as in effect at any
time thereafter with respect to other peer executives of the Company and its
affiliated companies and their families (such continuation of such benefits for
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the applicable period herein set forth shall be hereinafter referred to as
"Welfare Benefit Continuation") (for purposes of determining eligibility of the
Executive for retiree benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained employed until the
end of the Employment Period and to have retired on the last day of such
period), and (iii) payment to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination of
an amount equal to the sum of the Executive's Annual Base Salary and the Highest
Annual Bonus. Subject to the provisions of Section 9 hereof, but, otherwise,
anything herein to the contrary notwithstanding, the Executive's family shall be
entitled to receive benefits at least equal to the most favorable benefits
provided by the Company and any of its affiliated companies to surviving
families of peer executives of the Company and such affiliated companies under
such plans, programs, practices and policies relating to family death benefits,
if any, as in effect with respect to other peer executives and their families at
any time during the one year period immediately preceding the Effective Date or,
if more favorable to the Executive and/or the Executive's family, as in effect
on the date of the Executive's death with respect to other peer executives of
the Company and its affiliated companies and their families.
(b) Disability. If the Executive's employment is terminated by reason of
----------
the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for (i)
payment of the Accrued Obligations (which shall be paid in a lump sum in cash
within 30 days of the Date of Termination), (ii) the timely payment and
provision of the Welfare Benefit Continuation, and (iii) payment to the
Executive in a lump sum in cash within 30 days of the Date of Termination of an
amount equal to the sum of the Executive's Annual Base Salary and the Highest
Annual Bonus. In addition,
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the Company shall transfer to the Executive the insurance policy written with
respect to the Executive under the Company's Group Term Life Insurance Policy
for Executive Officers and the right to the full cash surrender value thereof.
Subject to the provisions of Section 9 hereof, but, otherwise, anything herein
to the contrary notwithstanding, the Executive shall be entitled after the
Disability Effective Date to receive disability and other benefits at least
equal to the most favorable of those provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as in
effect with respect to other peer executives and their families at any time
during the one year period immediately preceding the Effective Date or, if more
favorable to the Executive and/or the Executive's family, as in effect at any
time thereafter with respect to other peer executives of the Company and its
affiliated companies and their families.
(c) Cause, Other than for Good Reason. If the Executive's employment
---------------------------------
shall be terminated by the Company for Cause or by the Executive other than for
Good Reason (and other than by reason of his death or disability) during the
Employment Period, this Agreement shall terminate without further obligations to
the Executive other than the obligation to pay to the Executive Annual Base
Salary through the Date of Termination, plus the amount of any compensation
previously deferred by the Executive and any accrued bonus amounts or vacation
pay, in each case, to the extent theretofore unpaid. In such case, such amounts
shall be paid to the Executive in a lump sum in cash within 30 days of the Date
of Termination. The Executive shall, in such event, also be entitled to any
benefits required by law that are not otherwise provided by this Agreement.
(d) Good Reason; Other Than for Cause or Disability. If, during the
-----------------------------------------------
Employment Period, the Company shall terminate the Executive's employment other
than for Cause, death or
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Disability, or if the Executive shall terminate employment under this Agreement
for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
A. all Accrued Obligations; and
B. the amount (such amount shall be hereinafter referred to as
the "Severance Amount") equal to one dollar ($1.00) less than the product
of (I) three (3) and (II) the Executive's "base amount" as defined in
Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the
"Code"); and
(ii) the Company shall timely pay and provide the Welfare Benefit
Continuation provided, however, that if the Executive becomes reemployed
with another employer and is eligible to receive medical or other welfare
benefits under another employer provided plan, the medical or other welfare
benefits described herein shall be secondary to those provided under such
other plan during such applicable period of eligibility; and
(iii) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive and/or the Executive's family
any other amounts or benefits required to be paid or provided or which the
Executive and/or the Executive's family is eligible to receive pursuant to
this Agreement and under any plan, program, policy or practice or contract
or agreement of the Company and its affiliated companies as in effect and
applicable generally to other peer executives of the Company and its
affiliated companies and their families (such
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<PAGE>
other amounts and benefits shall be hereinafter referred to as the "Other
Benefits"); and
(iv) all unvested options or stock appreciation rights which Executive
then holds to acquire securities from the Company shall be immediately and
automatically exercisable as of the Effective Date, and the Executive shall
have the right to exercise any such options or stock appreciation rights
for a period of one year after the Date of Termination. Notwithstanding the
foregoing, until two years from the date of this Agreement, such options
and/or stock appreciation rights shall not be accelerated if such
acceleration would result in the failure of a transaction which has been
approved by the Continuing Directors (as defined in the Company's charter)
and entered into by the Company to qualify as a pooling for accounting
purposes; and
(v) the Company shall transfer to the Executive the insurance policy
written with respect to the Executive under the Company's Group Term Life
Insurance Policy for Executive Officers and the right to the full cash
surrender value thereof.
7. Non-exclusivity of Rights. Except as provided in Section 6, nothing
-------------------------
in this Agreement shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plans, programs,
policies or practices, provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor shall anything herein
limit or otherwise affect such rights as the Executive may have under any other
agreements with the Company or any of its affiliated companies. Amounts which
are vested benefits or which the Executive is otherwise entitled to receive
under any plan, policy, practice or program of the
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Company or any of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy, practice or
program except as explicitly modified by this Agreement.
8. Full Settlement. (a) The Company's obligation to make the payments
---------------
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and, except as
provided in Section 6(d)(ii), such amounts shall not be reduced whether or not
the Executive obtains other employment. The Company agrees to pay promptly as
incurred, to the full extent permitted by law, all legal fees and expenses which
the Executive may reasonably incur as a result of any contest (regardless of the
outcome thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement, unless a
court of competent jurisdiction determines that the Executive made such effort
in bad faith), plus in each case interest at the applicable Federal rate
provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as
amended (the "Code").
(b) If there shall be any dispute between the Company and the Executive
(i) in the event of any termination of the Executive's employment by the
Company, whether such termination was for Cause, or (ii) in the event of any
termination of employment by the Executive, whether Good Reason existed, then,
unless and until there is a final, nonappealable
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<PAGE>
judgment by a court of competent jurisdiction declaring that such termination
was for Cause or that the determination by the Executive of the existence of
Good Reason was not made in good faith, the Company shall pay all amounts, and
provide all benefits, to the Executive and/or the Executive's family or other
beneficiaries, as the case may be, that the Company would be required to pay or
provide pursuant to Section 6(d) as though such termination were by the Company
without Cause, or by the Executive with Good Reason; provided, however, that the
Company shall not be required to pay any disputed amount pursuant to this
paragraph except upon receipt of an undertaking by or on behalf of the Executive
to repay all such amounts to which the Executive is ultimately adjudged by such
court not to be entitled.
9. Certain Reduction in Payments by the Company.
---------------------------------------------
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement (a "Payment"), would be
nondeductible by the Company for Federal income tax purposes because of Section
280G of the Code or would subject the Executive to the excise tax imposed by
Section 4999 of the Code, then the aggregate present value of amounts payable or
distributable to or for the benefit of the Executive pursuant to this Agreement
(such payments or distributions pursuant to this Agreement are hereinafter
referred to as "Agreement Payments") shall be reduced (but not below zero) to
the Reduced Amount. The "Reduced Amount" shall be one dollar less than an
amount expressed in present value which maximizes the aggregate present value of
Agreement Payments but which does not result in any of the amount paid to the
Executive being not deductible by reason of Section 280G of the Code or subject
to the excise
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tax imposed by Section 4999 of the Code. For purposes of this Section 9,
present value shall be determined in accordance with Section 280G(d)(4) of the
Code.
(b) All determinations required to be made under this Section 9 shall be
made by Arthur Andersen LLP (or its successor) unless such firm shall be the
accounting firm of the individual, entity or group effecting the Change of
Control or any affiliate of the Company at the Date of Termination, in which
case such determinations shall be made by an accounting firm of national
standing agreed to by the Company and the Executive, or, if the Company does not
so agree within 10 days of the Date of Termination, such an accounting firm
shall be selected by the Executive (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the Executive within 15
business days of the date such firm is selected or such earlier time as is
requested by the Company and an opinion to the Executive that he has substantial
authority not to report any Excise Tax on his Federal income tax return with
respect to any Agreement Payments. Any such determination by the Accounting Firm
shall be binding upon the Company and the Executive. Within five business days
of the determination by the Accounting Firm as to the Reduced Amount, the
Company shall pay to or distribute to or for the benefit of the Executive such
amounts as are then due to the Executive under this Agreement.
(c) As a result of the uncertainty in the application of Section 280G of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Agreement Payments will have been made by the
Company which should not have been made ("Overpayment") or that additional
Agreement Payments which will not have been made by the Company could have been
made ("Underpayment"), in each case, consistent with the calculations required
to be made hereunder. In the event that the Accounting Firm, based upon the
assertion of a deficiency by the Internal Revenue Service against the Executive
which the
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Accounting Firm believes has a high probability of success determines that an
Overpayment has been made, any such Overpayment paid or distributed by the
Company to or for the benefit of the Executive shall be treated for all purposes
as a loan ab initio to the Executive which the Executive shall repay to the
Company together with interest at the applicable Federal rate provided for in
Section 7872(f)(2) of the Code. In the event that the Accounting Firm, based
upon controlling precedent or other substantial authority, determines that an
Underpayment has occurred, any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive together with interest at the
applicable Federal rate provided for in Section 7872(f)(2) of the Code.
10. Confidential Information. The Executive shall hold in a fiduciary
------------------------
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the Executive and
----------
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will
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<PAGE>
or the laws of descent and distribution. This Agreement shall inure to the
benefit of and be enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise. In addition, the
Executive shall be entitled, upon exercise of any outstanding stock options or
stock appreciation rights of the Company, to receive in lieu of shares of the
Company's stock, shares of such stock or other securities of such successor as
the holders of shares of the Company's stock received pursuant to the terms of
the merger, consolidation or sale.
12. Miscellaneous. (a) This Agreement shall be governed by and construed
-------------
in accordance with the laws of the Commonwealth of Massachusetts, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
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<PAGE>
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
Jay A. Stein
If to the Company:
Hologic, Inc.
590 Lincoln Street
Waltham, Massachusetts 02154
Attention: Chief Executive Officer
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(d) The Company may withhold from any amounts payable under this Agreement
such Federal, state or local taxes as shall be required to be withheld pursuant
to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof shall not be deemed to be a waiver of such
provision or any other provision thereof.
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<PAGE>
(f) This Agreement contains the entire understanding of the Company and
the Executive with respect to the subject matter hereof and by entering into
this Agreement the Executive waives all rights he may have under the Company's
separation policy, provided that if the Company's separation policy would
provide greater benefits to the Executive than this Agreement, than the
Executive may elect to receive benefits under the Company's separation policy in
lieu of the benefits provided hereunder.
(g) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, prior to the Effective Date, the employment of the Executive by
the Company is "at will" and may be terminated by either the Executive or the
Company at any time. Moreover, if prior to the Effective Date, the Executive's
employment with the Company terminates, then the Executive shall have no further
rights under this Agreement. Notwithstanding anything contained herein, if,
during the Employment Period, the Executive shall terminate employment with the
Company other than for Good Reason, the Executive shall have no liability to the
Company.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant
to the authorization from its Board of Directors, the Company has caused these
presents to be executed in its name on its behalf, all as of the day and year
first above written.
HOLOGIC, INC.
By: /s/ S. David Ellenhogen
---------------------------------
Name: S. David Ellenhogen
Title: Chairman & CEO
EXECUTIVE
/s/ Jay A. Stein
-------------------------------------
Jay A. Stein
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Exhibit 10.24
AGREEMENT
AGREEMENT by and between HOLOGIC, INC., a Delaware corporation (the
"Company"), and Jean Chaintreuil (the "Executive"), dated as of the 6th day of
March, 1998.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat, or occurrence of a Change of Control
(as defined below) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall be the first
-------------------
date during the "Change of Control Period" (as defined in Section 1(b)) on which
a Change of Control occurs. Anything in this Agreement to the contrary
notwithstanding, if the Executive's employment with the Company is terminated or
the Executive ceases to be an officer of the Company prior to the date on which
a Change of Control occurs, and it is reasonably demonstrated that such
termination of employment (1) was at the request of a third party who has taken
steps reasonably calculated to effect the Change of Control or (2) otherwise
arose in connection with or
<PAGE>
anticipation of the Change of Control, then for all purposes of this Agreement
the "Effective Date" shall mean the date immediately prior to the date of such
termination of employment.
(b) The "Change of Control Period" is the period commencing on the
date hereof and ending on the third anniversary of such date; provided, however
that commencing on the date one year after the date hereof, and on each annual
anniversary of such date (such date and each annual anniversary thereof is
hereinafter referred to as the "Renewal Date"), the Change of Control Period
shall be automatically extended without any further action by the Company or the
Executive so as to terminate three years from such Renewal Date; provided,
however, that if the Company shall give notice in writing to the Executive, at
least 60 days prior to the Renewal Date, stating that the Change of Control
Period shall not be extended, then the Change of Control Period shall expire
three years from the last effective Renewal Date.
2. Change of Control. For the purpose of this Agreement, a "Change
-----------------
of Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock"); provided, however, that any
acquisition by the Company or its subsidiaries, or any employee benefit
plan (or related trust) of the Company or its subsidiaries of 20% or more
of Outstanding Company Common Stock shall not constitute a Change in
Control; and provided, further, that any acquisition by a corporation with
respect to which, following such acquisition, more than 50% of
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<PAGE>
the then outstanding shares of common stock of such corporation, is then
beneficially owned, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners of the
Outstanding Company Common Stock immediately prior to such acquisition in
substantially the same proportion as their ownership, immediately prior to
such acquisition, of the Outstanding Company Common Stock, shall not
constitute a Change in Control; or
(b) Any transaction which results in the Continuing Directors (as
defined in the Certificate of Incorporation of the Company) constituting
less than a majority of the Board of Directors of the Company; or
(c) Approval by the stockholders of the Company of (i) a
reorganization, merger or consolidation, in each case, with respect to
which all or substantially all of the individuals and entities who were the
beneficial owners of the Outstanding Company Common Stock immediately prior
to such reorganization, merger or consolidation do not, following such
reorganization, merger or consolidation, beneficially own, directly or
indirectly, more than 50% of the then outstanding shares of common stock of
the corporation resulting from such a reorganization, merger or
consolidation, (ii) a complete liquidation or dissolution of the Company or
(iii) the sale or other disposition of all or substantially all of the
assets of the Company, excluding a sale or other disposition of assets to a
subsidiary of the Company.
Anything in this Agreement to the contrary notwithstanding, if an event
that would, but for this paragraph, constitute a Change of Control results from
or arises out of a purchase or other
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acquisition of the Company, directly or indirectly, by a corporation or other
entity in which the Executive has a greater than ten percent (10%) direct or
indirect equity interest, such event shall not constitute a Change of Control.
3. Employment Period. Subject to the terms and conditions hereof,
-----------------
the Company hereby agrees to continue the Executive in its employ, and the
Executive hereby agrees to remain in the employ of the Company, for the period
commencing on the Effective Date and ending on the last day of the thirty-sixth
month following the month in which the Effective Date occurs (the "Employment
Period").
4. Terms of Employment. (a) Position and Duties. (i) During the
------------------- -------------------
Employment Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities shall
be at least commensurate in all material respects with the most significant of
those held, exercised and assigned at any time during the 90-day period
immediately preceding the Effective Date and (B) the Executive's services shall
be performed at the location where the Executive was employed immediately
preceding the Effective Date or any office or location less than 35 miles from
such location.
(ii) During the Employment Period, and excluding any periods
of vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote his full business time to the business and affairs of the
Company and, to the extent necessary to discharge the responsibilities assigned
to the Executive hereunder, to use the Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities. During the Employment
Period it shall not be a violation of this Agreement for the Executive to (A)
serve on corporate, civic or charitable boards or committees, (B) deliver
lectures, fulfill speaking engagements or teach at educational institutions and
(C) manage personal investments, so long as such activities do not
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<PAGE>
significantly interfere with the performance of the Executive's responsibilities
as an employee of the Company in accordance with this Agreement. It is expressly
understood and agreed that to the extent that any such activities have been
conducted by the Executive prior to the Effective Date, the continued conduct of
such activities (or the conduct of activities similar in nature and scope
thereto) subsequent to the Effective Date, including, without limitation,
activities with respect to Vivid Technologies, Inc., shall not thereafter be
deemed to interfere with the performance of the Executive's responsibilities to
the Company.
(b) Compensation. (i) Base Salary. During the Employment Period,
------------ -----------
the Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable to the Executive by the Company and its
affiliated companies in respect of the twelve-month period immediately preceding
the month in which the Effective Date occurs. During the Employment Period, the
Annual Base Salary shall be reviewed at least annually and shall be increased at
any time and from time to time as shall be substantially consistent with
increases in base salary awarded in the ordinary course of business to other
peer executives of the Company and its affiliated companies. Any increase in
Annual Base Salary shall not serve to limit or reduce any other obligation to
the Executive under this Agreement. Annual Base Salary shall not be reduced
after any such increase and the term Annual Base Salary as utilized in this
Agreement shall refer to Annual Base Salary as so increased. As used in this
Agreement, the term "affiliated companies" includes any company controlled by,
controlling or under common control with the Company.
(iii) Annual Bonus. In addition to Annual Base Salary, the
------------
Executive shall be awarded, for each fiscal year during the Employment Period,
an annual bonus (the "Annual Bonus") in cash at least equal to the average
annualized (for any fiscal year consisting of less
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than twelve full months or with respect to which the Executive has been employed
by the Company for less than twelve full months) bonus (the "Average Annual
Bonus") paid or payable to the Executive by the Company and its affiliated
companies in respect of the three fiscal years immediately preceding the fiscal
year in which the Effective Date occurs. Each such Annual Bonus shall be paid no
later than the end of the third month of the fiscal year next following the
fiscal year for which the Annual Bonus is awarded, unless the Executive shall
elect to defer the receipt of such Annual Bonus pursuant to deferral plans of
the Company.
(iv) Special Bonus. In addition to Annual Base Salary and
-------------
Annual Bonus payable as hereinabove provided, if the Executive remains employed
with the Company and/or its affiliated companies through the first anniversary
of the Effective Date, the Company shall pay to the Executive a special bonus
(the "Special Bonus") in recognition of the Executive's services during the
crucial one-year transition period following the Change of Control in cash equal
to the sum of (A) the Executive's Annual Base Salary and (B) the greater of (x)
the Annual Bonus paid or payable (and annualized for any fiscal year consisting
of less than twelve full months or for which the Executive has been employed for
less than twelve full months) to the Executive for the most recently completed
fiscal year during the Employment Period, if any, and (y) the Average Annual
Bonus (such greater amount hereafter referred to as the "Highest Annual Bonus").
The Special Bonus shall be paid no later than 30 days following the first
anniversary of the Effective Date.
(v) Incentive, Savings and Retirement Plans. In addition to
---------------------------------------
Annual Base Salary and Annual Bonus payable as hereinabove provided, the
Executive shall be entitled to participate during the Employment Period in all
incentive, savings and retirement plans, practices, policies and programs
applicable to other peer executives of the Company and its affiliated companies,
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but in no event shall such plans practices, policies and programs provide the
Executive with incentive, savings and retirement benefits opportunities, in each
case, less favorable, in the aggregate, than the most favorable of those
provided by the Company and its affiliated companies for the Executive under
such plans, practices, policies and programs as in effect at any time during the
one-year immediately preceding the Effective Date, or, if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(vi) Welfare Benefit Plans. During the Employment Period,
---------------------
the Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and its
affiliated companies (including, without limitation, medical, prescription,
dental, disability, salary continuance, employee life, group life, accidental
death and travel accident insurance plans and programs) and applicable to other
peer executives of the Company and its affiliated companies, but in no event
shall such plans, practices, policies and programs provide benefits which are
less favorable, in the aggregate, than the most favorable of such plans,
practices, policies and programs in effect at any time during the one-year
period immediately preceding the Effective Date, or, if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(vii) Expenses. During the Employment Period, the Executive
--------
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive upon submission of appropriate accountings in
accordance with the most favorable policies, practices and procedures of the
Company and its affiliated companies in effect at any time during the one-
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year period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
(viii) Fringe Benefits. During the Employment Period, the
---------------
Executive shall be entitled to fringe benefits in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect at any time during the one-year period
immediately preceding the Effective Date or, if more favorable to the Executive,
as in effect at any time thereafter with respect to other peer executives of the
Company and its affiliated companies.
(ix) Office and Support Staff. During the Employment Period,
------------------------
the Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the one-year period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
(x) Vacation. During the Employment Period, the Executive
--------
shall be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies as
in effect at any time during the one-year period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect at any time
thereafter with respect to other peer incentives of the Company and its
affiliated companies.
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<PAGE>
5. Termination of Employment. (a) Death or Disability. The
------------------------- -------------------
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period (pursuant
to the definition of "Disability" set forth below), it may give to the Executive
written notice in accordance with Section 12(b) of this Agreement of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" means the absence of the Executive from
the Executive's duties with the Company on a full-time basis for 180 consecutive
business days as a result of incapacity due to mental or physical illness which
is determined to be total and permanent by a physician selected by the Company
or its insurers and acceptable to the Executive or the Executive's legal
representative (such agreement as to acceptability not to be withheld
unreasonably).
(b) Cause. The Company may terminate the Executive's employment
-----
during the Employment Period for "Cause". For purposes of this Agreement,
"Cause" means (i) an act or acts of personal dishonesty taken by the Executive
and intended to result in substantial personal enrichment of the Executive at
the expense of the Company, (ii) repeated violations by the Executive of the
Executive's obligations under Section 4(a) of this Agreement (other than as a
result of incapacity due to physical or mental illness) which are demonstrably
willful and deliberate on the Executive's part, which are committed in bad faith
or without reasonable belief that such violations are in the best interests of
the Company and which are not remedied in a
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<PAGE>
reasonable period of time after receipt of written notice from the Company or
(iii) the conviction of the Executive of a felony involving moral turpitude.
(c) Good Reason. The Executive's employment may be terminated during
-----------
the Employment Period by the Executive for Good Reason. For purposes of this
Agreement, "Good Reason" means:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 4(a) of this Agreement, or any
other action by the Company which results in a diminution in such position,
authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice thereof
given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which
is remedied by the Company promptly after receipt of notice thereof given
by the Executive;
(iii) the Company's requiring the Executive to be based at
any office or location other than that described in Section 4(a)(i)(B)
hereof;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
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<PAGE>
For purposes of this Section 5(c), any good faith determination of
"Good Reason" made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for
---------------------
Cause or by the Executive for Good Reason shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than
fifteen days after the giving of such notice). The failure by the Executive or
the Company to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason or Cause shall not waive any right
of the Executive or the Company hereunder or preclude the Executive or the
Company from asserting such fact or circumstance in enforcing the Executive's or
the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means the date of
-------------------
receipt of the Notice of Termination or any later date specified therein, as the
case may be; provided however, that (i) if the Executive's employment is
terminated by the Company other than for Cause, death or Disability, the Date of
Termination shall be the date on which the Company notifies the Executive of
such termination and (ii) if the Executive's employment is terminated by reason
of death or Disability, the Date of Termination shall be the date of death of
the Executive or the Disability Effective Date, as the case may be.
6. Obligations of the Company upon Termination.
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(a) Death. If the Executive's employment is terminated by reason
-----
of the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for (i) payment of the sum of the following
amounts: (A) the Executive's Annual Base Salary through the Date of Termination
to the extent not theretofore paid, (B) the product of (I) the Highest Annual
Bonus and (II) a fraction, the numerator of which is the number of days in the
current fiscal year through the Date of Termination, and the denominator of
which is 365, (C) the Special Bonus, if due to the Executive pursuant to Section
4(b)(iv), to the extent not theretofore paid, and (D) any compensation
previously deferred by the Executive (together with any accrued interest or
earnings thereon) and any accrued bonus amounts or vacation pay, in each case,
to the extent not yet paid by the Company (the amounts described in
subparagraphs (A), (B), (C) and (D) are hereafter referred to as "Accrued
Obligations" and shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination),
(ii) for the remainder of the Employment Period, or such longer period as any
plan, program, practice or policy may provide, the Company shall continue
benefits to the Executive and/or the Executive's family at least equal to those
which would have been provided in accordance with the applicable plans, programs
practices and policies described in Section 4(b)(v) of this Agreement as if the
Executive's employment had not been terminated in accordance with the most
favorable plans, practices, programs or policies of the Company and its
affiliated companies as in effect and applicable generally to other peer
executives and their families during the one year period immediately preceding
the Effective Date or, if more favorable to the Executive, as in effect at any
time thereafter with respect to other peer executives of the Company and its
affiliated companies and their families (such continuation of such benefits for
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the applicable period herein set forth shall be hereinafter referred to as
"Welfare Benefit Continuation") (for purposes of determining eligibility of the
Executive for retiree benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained employed until the
end of the Employment Period and to have retired on the last day of such
period), and (iii) payment to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination of
an amount equal to the sum of the Executive's Annual Base Salary and the Highest
Annual Bonus. Subject to the provisions of Section 9 hereof, but, otherwise,
anything herein to the contrary notwithstanding, the Executive's family shall be
entitled to receive benefits at least equal to the most favorable benefits
provided by the Company and any of its affiliated companies to surviving
families of peer executives of the Company and such affiliated companies under
such plans, programs, practices and policies relating to family death benefits,
if any, as in effect with respect to other peer executives and their families at
any time during the one year period immediately preceding the Effective Date or,
if more favorable to the Executive and/or the Executive's family, as in effect
on the date of the Executive's death with respect to other peer executives of
the Company and its affiliated companies and their families.
(b) Disability. If the Executive's employment is terminated by reason of
----------
the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for (i)
payment of the Accrued Obligations (which shall be paid in a lump sum in cash
within 30 days of the Date of Termination), (ii) the timely payment and
provision of the Welfare Benefit Continuation, and (iii) payment to the
Executive in a lump sum in cash within 30 days of the Date of Termination of an
amount equal to the sum of the Executive's Annual Base Salary and the Highest
Annual Bonus. In addition,
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the Company shall transfer to the Executive the insurance policy written with
respect to the Executive under the Company's Group Term Life Insurance Policy
for Executive Officers and the right to the full cash surrender value thereof.
Subject to the provisions of Section 9 hereof, but, otherwise, anything herein
to the contrary notwithstanding, the Executive shall be entitled after the
Disability Effective Date to receive disability and other benefits at least
equal to the most favorable of those provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as in
effect with respect to other peer executives and their families at any time
during the one year period immediately preceding the Effective Date or, if more
favorable to the Executive and/or the Executive's family, as in effect at any
time thereafter with respect to other peer executives of the Company and its
affiliated companies and their families.
(c) Cause, Other than for Good Reason. If the Executive's employment
---------------------------------
shall be terminated by the Company for Cause or by the Executive other than for
Good Reason (and other than by reason of his death or disability) during the
Employment Period, this Agreement shall terminate without further obligations to
the Executive other than the obligation to pay to the Executive Annual Base
Salary through the Date of Termination, plus the amount of any compensation
previously deferred by the Executive and any accrued bonus amounts or vacation
pay, in each case, to the extent theretofore unpaid. In such case, such amounts
shall be paid to the Executive in a lump sum in cash within 30 days of the Date
of Termination. The Executive shall, in such event, also be entitled to any
benefits required by law that are not otherwise provided by this Agreement.
(d) Good Reason; Other Than for Cause or Disability. If, during the
-----------------------------------------------
Employment Period, the Company shall terminate the Executive's employment other
than for Cause, death or
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<PAGE>
Disability, or if the Executive shall terminate employment under this Agreement
for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
A. all Accrued Obligations; and
B. the amount (such amount shall be hereinafter referred to as
the "Severance Amount") equal to one dollar ($1.00) less than the product
of (I) three (3) and (II) the Executive's "base amount" as defined in
Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the
"Code"); and
(ii) the Company shall timely pay and provide the Welfare Benefit
Continuation provided, however, that if the Executive becomes reemployed
with another employer and is eligible to receive medical or other welfare
benefits under another employer provided plan, the medical or other welfare
benefits described herein shall be secondary to those provided under such
other plan during such applicable period of eligibility; and
(iii) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive and/or the Executive's family
any other amounts or benefits required to be paid or provided or which the
Executive and/or the Executive's family is eligible to receive pursuant to
this Agreement and under any plan, program, policy or practice or contract
or agreement of the Company and its affiliated companies as in effect and
applicable generally to other peer executives of the Company and its
affiliated companies and their families (such
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other amounts and benefits shall be hereinafter referred to as the "Other
Benefits"); and
(iv) all unvested options or stock appreciation rights which Executive
then holds to acquire securities from the Company shall be immediately and
automatically exercisable as of the Effective Date, and the Executive shall
have the right to exercise any such options or stock appreciation rights
for a period of one year after the Date of Termination. Notwithstanding the
foregoing, until two years from the date of this Agreement, such options
and/or stock appreciation rights shall not be accelerated if such
acceleration would result in the failure of a transaction which has been
approved by the Continuing Directors (as defined in the Company's charter)
and entered into by the Company to qualify as a pooling for accounting
purposes; and
(v) the Company shall transfer to the Executive the insurance policy
written with respect to the Executive under the Company's Group Term Life
Insurance Policy for Executive Officers and the right to the full cash
surrender value thereof.
7. Non-exclusivity of Rights. Except as provided in Section 6, nothing
-------------------------
in this Agreement shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plans, programs,
policies or practices, provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor shall anything herein
limit or otherwise affect such rights as the Executive may have under any other
agreements with the Company or any of its affiliated companies. Amounts which
are vested benefits or which the Executive is otherwise entitled to receive
under any plan, policy, practice or program of the
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Company or any of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy, practice or
program except as explicitly modified by this Agreement.
8. Full Settlement. (a) The Company's obligation to make the payments
---------------
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and, except as
provided in Section 6(d)(ii), such amounts shall not be reduced whether or not
the Executive obtains other employment. The Company agrees to pay promptly as
incurred, to the full extent permitted by law, all legal fees and expenses which
the Executive may reasonably incur as a result of any contest (regardless of the
outcome thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement, unless a
court of competent jurisdiction determines that the Executive made such effort
in bad faith), plus in each case interest at the applicable Federal rate
provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as
amended (the "Code").
(b) If there shall be any dispute between the Company and the Executive
(i) in the event of any termination of the Executive's employment by the
Company, whether such termination was for Cause, or (ii) in the event of any
termination of employment by the Executive, whether Good Reason existed, then,
unless and until there is a final, nonappealable
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<PAGE>
judgment by a court of competent jurisdiction declaring that such termination
was for Cause or that the determination by the Executive of the existence of
Good Reason was not made in good faith, the Company shall pay all amounts, and
provide all benefits, to the Executive and/or the Executive's family or other
beneficiaries, as the case may be, that the Company would be required to pay or
provide pursuant to Section 6(d) as though such termination were by the Company
without Cause, or by the Executive with Good Reason; provided, however, that the
Company shall not be required to pay any disputed amount pursuant to this
paragraph except upon receipt of an undertaking by or on behalf of the Executive
to repay all such amounts to which the Executive is ultimately adjudged by such
court not to be entitled.
9. Certain Reduction in Payments by the Company.
---------------------------------------------
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement (a "Payment"), would be
nondeductible by the Company for Federal income tax purposes because of Section
280G of the Code or would subject the Executive to the excise tax imposed by
Section 4999 of the Code, then the aggregate present value of amounts payable or
distributable to or for the benefit of the Executive pursuant to this Agreement
(such payments or distributions pursuant to this Agreement are hereinafter
referred to as "Agreement Payments") shall be reduced (but not below zero) to
the Reduced Amount. The "Reduced Amount" shall be one dollar less than an
amount expressed in present value which maximizes the aggregate present value of
Agreement Payments but which does not result in any of the amount paid to the
Executive being not deductible by reason of Section 280G of the Code or subject
to the excise
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tax imposed by Section 4999 of the Code. For purposes of this Section 9,
present value shall be determined in accordance with Section 280G(d)(4) of the
Code.
(b) All determinations required to be made under this Section 9 shall be
made by Arthur Andersen LLP (or its successor) unless such firm shall be the
accounting firm of the individual, entity or group effecting the Change of
Control or any affiliate of the Company at the Date of Termination, in which
case such determinations shall be made by an accounting firm of national
standing agreed to by the Company and the Executive, or, if the Company does not
so agree within 10 days of the Date of Termination, such an accounting firm
shall be selected by the Executive (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the Executive within 15
business days of the date such firm is selected or such earlier time as is
requested by the Company and an opinion to the Executive that he has substantial
authority not to report any Excise Tax on his Federal income tax return with
respect to any Agreement Payments. Any such determination by the Accounting Firm
shall be binding upon the Company and the Executive. Within five business days
of the determination by the Accounting Firm as to the Reduced Amount, the
Company shall pay to or distribute to or for the benefit of the Executive such
amounts as are then due to the Executive under this Agreement.
(c) As a result of the uncertainty in the application of Section 280G of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Agreement Payments will have been made by the
Company which should not have been made ("Overpayment") or that additional
Agreement Payments which will not have been made by the Company could have been
made ("Underpayment"), in each case, consistent with the calculations required
to be made hereunder. In the event that the Accounting Firm, based upon the
assertion of a deficiency by the Internal Revenue Service against the Executive
which the
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Accounting Firm believes has a high probability of success determines that an
Overpayment has been made, any such Overpayment paid or distributed by the
Company to or for the benefit of the Executive shall be treated for all purposes
as a loan ab initio to the Executive which the Executive shall repay to the
Company together with interest at the applicable Federal rate provided for in
Section 7872(f)(2) of the Code. In the event that the Accounting Firm, based
upon controlling precedent or other substantial authority, determines that an
Underpayment has occurred, any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive together with interest at the
applicable Federal rate provided for in Section 7872(f)(2) of the Code.
10. Confidential Information. The Executive shall hold in a fiduciary
------------------------
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the Executive and
----------
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will
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or the laws of descent and distribution. This Agreement shall inure to the
benefit of and be enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise. In addition, the
Executive shall be entitled, upon exercise of any outstanding stock options or
stock appreciation rights of the Company, to receive in lieu of shares of the
Company's stock, shares of such stock or other securities of such successor as
the holders of shares of the Company's stock received pursuant to the terms of
the merger, consolidation or sale.
12. Miscellaneous. (a) This Agreement shall be governed by and construed
-------------
in accordance with the laws of the Commonwealth of Massachusetts, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
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<PAGE>
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
Jean Chaintreuil
If to the Company:
Hologic, Inc.
590 Lincoln Street
Waltham, Massachusetts 02154
Attention: Chief Executive Officer
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(d) The Company may withhold from any amounts payable under this Agreement
such Federal, state or local taxes as shall be required to be withheld pursuant
to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof shall not be deemed to be a waiver of such
provision or any other provision thereof.
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(f) This Agreement contains the entire understanding of the Company and
the Executive with respect to the subject matter hereof and by entering into
this Agreement the Executive waives all rights he may have under the Company's
separation policy, provided that if the Company's separation policy would
provide greater benefits to the Executive than this Agreement, than the
Executive may elect to receive benefits under the Company's separation policy in
lieu of the benefits provided hereunder.
(g) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, prior to the Effective Date, the employment of the Executive by
the Company is "at will" and may be terminated by either the Executive or the
Company at any time. Moreover, if prior to the Effective Date, the Executive's
employment with the Company terminates, then the Executive shall have no further
rights under this Agreement. Notwithstanding anything contained herein, if,
during the Employment Period, the Executive shall terminate employment with the
Company other than for Good Reason, the Executive shall have no liability to the
Company.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant
to the authorization from its Board of Directors, the Company has caused these
presents to be executed in its name on its behalf, all as of the day and year
first above written.
HOLOGIC, INC.
By: /s/ S. David Ellenhogen
---------------------------------
Name: S. David Ellenhogen
Title: Chairman & CEO
EXECUTIVE
/s/ Jean Chaintreuil
-------------------------------------
Jean Chaintreuil
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EXHIBIT 21.01
HOLOGIC SUBSIDIARIES
Hologic Europe N.V.
Horizon Park
Leuvensesteenweg 510, Bus 31
1930 Zaventem
Belgium
Hologic France S.A.
Parc du Moulin de Massy
35 rue du Saule Trapu
F-91882 Massy Cedex
France
FluoroScan Imaging Systems, Inc.
650B Anthony Trail
Northbrook, IL 60062
Direct Radiography Corp.
Glasgow Business Community
Route 896, Building 600
P.O. Box 6020
Newark, DE 19714
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our Firm included in or made a part of this Form 10K,
into the Company's previously filed Registration Statement File Nos. 33-35191,
33-47830, 33-87792, 33-84795, 333-11853, 333-11849,333-34003 and 333-79167.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
December 20, 1999
