<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JULY 28, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
Commission File Number 0-25376
TYLAN GENERAL, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 04-2659273
(State or other jurisdiction) (I.R.S. employer identification
of incorporation or organization) number)
15330 AVENUE OF SCIENCE, SAN DIEGO CALIFORNIA 92128-3407
(Address of principal executive offices)
(619) 618-1990
(Registrant's telephone number, including area code)
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. (X) YES ( ) NO
As of August 25, 1996, there were 7,841,082 shares of the Registrant's Common
Stock outstanding.
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TYLAN GENERAL, INC.
FORM 10-Q
JULY 28, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements:
Consolidated Statements of Operations for the three and
nine months ended July 28, 1996 and July 30, 1995 3
Consolidated Balance Sheets as of July 28, 1996 and October 29, 1995 4
Consolidated Statements of Cash Flows for the
nine months ended July 28, 1996 and July 30, 1995 5
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II - OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 19
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
TYLAN GENERAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------- ------------------------
JULY 28, JULY 30, JULY 28, JULY 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES ............................................... $39,294 $32,610 $114,718 $83,048
COST OF SALES 23,483 18,479 68,641 47,909
------- ------- -------- -------
Gross profit .................................. 15,811 14,131 46,077 35,139
OPERATING EXPENSES:
Sales and marketing .................................. 5,886 4,097 16,505 10,511
General and administrative ........................... 4,826 3,824 13,653 10,096
Research and development ............................. 2,881 1,972 8,416 5,269
Business combination and integration costs ........... 3,661 3,661
Amortization, primarily goodwill ..................... 112 127 333 381
------- ------- -------- -------
INCOME (LOSS) FROM OPERATIONS ........................... (1,555) 4,111 3,509 8,882
------- ------- -------- -------
OTHER INCOME (EXPENSE):
Interest expense -- net .............................. (583) (420) (1,235) (1,398)
Foreign currency exchange gain (loss) net ............ (11) (172) 3 225
Costs to deter potential unsolicited attempt to
acquire the Company ................................ (550) (550)
Other -- net ......................................... (66) (141) (128) (197)
------- ------- -------- -------
Total other income (expense) .................. (1,210) (733) (1,910) (1,370)
------- ------- -------- -------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM ............................... (2,765) 3,378 1,599 7,512
INCOME TAX (EXPENSE) BENEFIT ............................ 1,292 (1,350) (611) (3,098)
------- ------- -------- -------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM ................. (1,473) 2,028 988 4,414
EXTRAORDINARY ITEM, NET OF INCOME
TAX BENEFIT .......................................... (224) (224) (695)
------- ------- -------- -------
NET INCOME (LOSS) ....................................... $(1,697) $ 2,028 $ 764 $ 3,719
======= ======= ======== =======
EARNINGS (LOSS) PER SHARE DATA:
Earnings (loss) per share before extraordinary item... $ (0.19) $ 0.30 $ 0.13 $ 0.71
Extraordinary item per share ......................... $ (0.03) $ (0.03) $ (0.11)
------- ------- -------- -------
Earnings (loss) per share ............................ $ (0.22) $ 0.30 $ 0.10 $ 0.60
======= ======= ======== =======
WEIGHTED AVERAGE SHARES
OUTSTANDING .......................................... 7,830 6,717 7,960 6,218
======= ======= ======== =======
</TABLE>
See notes to consolidated financial statements.
3
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TYLAN GENERAL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JULY 28, OCTOBER 29,
1996 1995
-------- ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ........................................ $ 2,739 $15,328
Accounts receivable .............................................. 25,280 21,370
Inventories (Note 4) ............................................. 27,903 19,875
Prepaid expenses and other........................................ 2,507 1,686
Deferred income taxes............................................. 3,668 1,910
------- -------
Total current assets ...................................... 62,097 60,169
PROPERTY net ....................................................... 26,339 21,187
GOODWILL net ....................................................... 2,863 3,100
DEFERRED INCOME TAXES .............................................. 385 385
OTHER ASSETS ....................................................... 2,182 2,561
------- -------
TOTAL $93,866 $87,402
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................. $13,600 $13,872
Accrued expenses ................................................. 9,201 7,252
Short-term borrowings ............................................ 5,114 --
Current portion of long-term debt and capital leases ............. 1,912 2,393
Income taxes payable ............................................. 697 1,991
------- -------
Total current liabilities ................................. 30,524 25,508
LONG-TERM DEBT AND CAPITAL LEASES .................................. 15,706 15,270
------- -------
Total liabilities ......................................... 46,230 40,778
MINORITY INTEREST................................................... 476 400
COMMITMENTS AND CONTINGENCIES (Notes 3, 5)
STOCKHOLDERS' EQUITY:
Common stock (authorized -- 50,000,000 shares, par value
$.001, issued and outstanding -- 7,841,082 shares and
7,776,228 shares)............................................ 8 7
Paid-in capital .................................................. 37,311 36,818
Retained earnings ................................................ 10,246 9,482
Notes receivable-stock purchases ................................. (333) (317)
Cumulative translation adjustment ................................ (72) 234
------- -------
Total stockholders' equity................................. 47,160 46,224
------- -------
TOTAL $93,866 $87,402
======= =======
</TABLE>
See notes to consolidated financial statements.
4
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TYLAN GENERAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------
JULY 28, JULY 30,
1996 1995
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ....................................................... $ 764 $ 3,719
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Write down of assets to net realizable value ................ 2,000
Write-off of unamortized deferred issuance cost ............. 949
Depreciation and amortization ............................... 3,534 2,664
Deferred income taxes ....................................... (1,758)
Minority interest and other ................................. 265 (18)
Change in assets and liabilities:
Accounts receivable .................................... (4,197) (5,556)
Inventories ............................................ (8,253) (5,524)
Prepaid expenses and other ............................. (2,279) (898)
Accounts payable and other liabilities ................. 522 7,674
-------- -------
Net cash provided by (used in) operating
activities ...................................... (9,402) 3,010
-------- -------
INVESTING ACTIVITIES:
Capital expenditures ............................................. (8,992) (7,047)
Capitalized software and other ................................... (605)
-------- -------
Net cash used in investing activities .............. (8,992) (7,652)
-------- -------
FINANCING ACTIVITIES:
Net proceeds under line of credit ................................ 4,002 1,757
Proceeds from short-term debt .................................... 717
Proceeds from long-term debt ..................................... 5,858 3,389
Repayments of long-term debt ..................................... (5,000) (6,509)
Proceeds from capital leases ..................................... 652
Repayments of capital leases ..................................... (353) (723)
Net proceeds from initial public offering ........................ 7,403
Proceeds from exercise of stock options and employee
stock purchases ............................................... 494 370
Translation adjustments and other ................................ 87 (87)
-------- -------
Net cash provided by financing activities .......... 5,805 6,252
-------- -------
INCREASE (DECREASE) IN CASH ........................................ (12,589) 1,610
CASH AT BEGINNING OF PERIOD ........................................ 15,328 1,727
-------- -------
CASH AT END OF PERIOD .............................................. $ 2,739 $ 3,337
======== =======
</TABLE>
See notes to consolidated financial statements.
5
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TYLAN GENERAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
NINE MONTHS ENDED
--------------------
July 28, July 30,
1996 1995
-------- --------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest .................................................... $1,380 $1,902
Income taxes, net of refunds................................. $ 947 $1,535
SUPPLEMENTAL INFORMATION OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Capital lease obligations incurred for various machinery
and equipment purchases ..................................... $ 651 $ 536
</TABLE>
See notes to consolidated financial statements.
6
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TYLAN GENERAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The interim consolidated financial statements included herein have been
prepared by Tylan General, Inc. (the "Company") without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission (the "SEC").
Certain information and footnote disclosures, normally included in annual
financial statements, have been condensed or omitted pursuant to such SEC rules
and regulations; nevertheless, the management of the Company believes that the
disclosures herein are adequate to make the information presented not
misleading. These consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto for
the year ended October 29, 1995 included in the Company's Form 10-K and with
the Company's Current Report on Form 8-K dated July 3, 1996. In the opinion of
management, the consolidated financial statements included herein reflect all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the consolidated financial position of the Company as of July
28, 1996 and the results of its operations for the three-month and nine-month
periods ended July 28, 1996 and July 30, 1995. The results of operations for
the interim periods are not necessarily indicative of the results which may be
reported for any other interim period or for the entire fiscal year.
All assets and liabilities of foreign subsidiaries are translated into
U.S. dollars at the rates of exchange in effect at the close of the period.
The aggregate effect of translating the balance sheets is included as a
separate component of stockholders' equity entitled "cumulative translation
adjustment." Revenues and expenses are translated into U.S. dollars at the
average rates of exchange during the period.
2. MERGER WITH SPAN INSTRUMENTS, INC.
On July 3, 1996, the Company issued 1.3 million shares of its common stock
in exchange for all of the outstanding shares of common stock of Span
Instruments, Inc. ("Span"), a manufacturer of high purity pressure monitoring
and control instruments. The merger was accounted for as a pooling of
interests. Therefore, the Company's consolidated financial statements for the
periods prior to the merger have been restated to include the results of
operations, the financial position and cash flows of Span.
Prior to the combination, Span's fiscal year ended August 31. In recording
the business combination, Span's financial statements for the interim periods
ended July 28, 1996 were combined with Tylan General's for the same periods.
Span's financial
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statements for the three and nine months ended May 31, 1995 were combined with
Tylan General's for the three and nine months ended July 30, 1995.
Span had net sales of $4.9 million and a net loss of $826 thousand for the
two months ended October 29, 1995. Consolidated operating results and the net
change in consolidated cash and cash equivalents exclude Span's results of
operations, change in financial position and change in cash flows for the two
months ended October 29, 1995 in the interim period ended July 28, 1996.
Included in the consolidated statements of operations for the interim
periods ended July 28, 1996 were costs of $3.7 million related to the
combination and integration of Span into Tylan General. These costs include
professional fees of $1.0 million and integration costs of $2.7 million, which
include the write down of $2.0 million in assets associated with a software
product line and severance of former employees. The consolidated statements of
operations for the interim periods ended July 28, 1996 also include costs
associated with the prepayment of Span indebtedness which are presented as an
extraordinary loss (net of income tax benefit) of $224 thousand.
3. POSSIBLE SALE OF COMPANY
On July 3, 1996, the Company announced that its board of directors had
adopted a shareholder rights plan designed to protect shareholders from various
abusive takeover tactics, including attempts to acquire control of the Company
at an inadequate price. Direct expenses associated with the adoption of such
plan and other measures to protect the Company and its shareholders from abusive
takeover tactics, composed primarily of attorneys' and investment bankers' fees,
totaled $550 thousand during the three months ended July 28, 1996 and were
recorded in the consolidated statements of operations under the caption Other
Income (Expense).
On August 20, 1996, the Company announced that it had received expressions
of interest from potential industry buyers regarding the acquisition of the
Company. The Company also announced that David Ferran, the Company's chairman,
president and CEO, would investigate the possibility of making an acquisition
proposal in conjunction with Don E. Whitson, the Company's vice chairman and
chief administrative officer. The board of directors formed a special
committee of directors to supervise the process which has retained Goldman,
Sachs & Co. as its financial adviser.
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4. INVENTORIES
The components of inventory at July 28, 1996 and October 29, 1995
consisted of the following (in thousands of dollars):
<TABLE>
<CAPTION>
July 28, October 29,
1996 1995
-------- -----------
<S> <C> <C>
Raw materials ............................ $20,621 $12,599
Work in process .......................... 2,244 2,669
Finished goods ........................... 5,038 4,607
------- -------
Total .................................... $27,903 $19,875
======= =======
</TABLE>
5. RESEARCH AND DEVELOPMENT AGREEMENTS
In August 1996, the Company signed a five-year research and
development agreement with Innovative Lasers Corporation ("ILC"). Under terms
of the agreement, ILC will undertake research and development of certain
products which may be sold to the Company or incorporated into the Company's
products and the Company will make equal quarterly payments of $400 thousand to
ILC through January 2001. Following the first contract year the Company may
terminate the agreement prior to the expiration date, by providing advance
notice of six quarters (or until end of the term of the agreement, if earlier).
Work and quarterly payments would continue during the notice period.
In April 1996, the Company signed a five-year research and development
agreement with Integrated Sensing Systems, Inc. ("ISSYS"). Under terms of the
agreement, ISSYS will undertake research and development of certain products
which may be sold to the Company or incorporated into the Company's products
and the Company will make equal quarterly payments of $250 thousand to ISSYS
through January 2001. The Company may terminate the agreement prior to the
expiration date, at which time the Company will be obligated to make quarterly
payment through the end of the current contract year plus the next full
contract year.
6. COMPLIANCE WITH SECURITY AGREEMENTS AND COVENANTS
As a result of the merger with Span, the Company is not in compliance
with certain of its financial and other loan covenants at July 28, 1996. The
Company has received waivers or notice of forbearance with respect to such from
its bank lenders. Management believes that it is probable that these
violations will be cured within the grace period and thus prevent the
obligation from becoming callable. However, there can be no assurance that the
Company will not require additional waivers in the future or, if required, that
the lenders will grant them. In the event that management determines that it
is probable that the Company will not be able to cure the above violations then
approximately $11 million will be reclassified to short-term debt.
9
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements that involve risks
and uncertainties. The Company's actual future results could differ materially
from those forward-looking statements. Factors that could cause or contribute
to such differences include, but are not limited to, uncertainties related to
the integration of the operations of Span with the Company's operations, risks
associated with changes in demand for semiconductor capital equipment, changes
in product mix and the development and introduction of new products, as well as
those factors discussed elsewhere in this section and in the Company's Annual
Report on Form 10-K for the fiscal year ended October 29, 1995.
GENERAL
Tylan General designs, manufactures and markets precision mass flow
controllers, gas panels and pressure measurement and control instrumentation.
The Company's products are used primarily in integrated circuit ("IC")
fabrication, and also in other manufacturing processes such as flat panel
display and fiber optic cable fabrication.
The Company's business depends substantially upon the capital expenditures
of IC manufacturers, which in turn depend upon the demand for ICs and products
utilizing ICs. IC manufacturers purchase the Company's products either as part
of processing systems purchased from semiconductor capital equipment suppliers
("equipment suppliers") or directly from the Company for retrofit or
replacement applications. Sales to equipment suppliers and IC manufacturers
accounted for a substantial majority of the Company's net sales in the first
nine months of fiscal 1996 and substantially all of the Company's growth in net
sales in recent years. The Company anticipates that sales to such customers
will continue to account for a substantial majority of its sales.
The semiconductor industry is highly cyclical and historically has
experienced periods of oversupply, resulting in significantly reduced demand
for capital equipment, including the products manufactured by the Company. In
1991 and 1992, the semiconductor capital equipment industry and the Company
were materially and adversely impacted by decreased demand for semiconductor
capital equipment. In recent years, the IC industry has experienced
significant growth which in turn has resulted in significant growth in the
semiconductor capital equipment industry. The Company believes that the rate
of growth in the IC industry will continue to deteriorate, and further, there
can be no assurance that demand for ICs and products utilizing ICs will not
decline or that supply of ICs will not outpace demand. The Company does not
expect to be able to sustain in the future the rate of growth in revenues that
it experienced for the three months and nine months ended July 28, 1996
compared to the three months and nine months ended July 30, 1995. The Company
anticipates that a significant portion of new orders for its products will
depend upon demand from IC manufacturers building or expanding large
fabrication facilities, and there can be no assurance that such demand
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will exist. In recent months, several IC manufacturers have delayed or
canceled planned capacity expansions as the supply of ICs from existing sources
has outpaced the demand for ICs. Such delays have resulted in rescheduling of
some significant orders for the Company's products. The Company expects that
existing conditions of oversupply in the IC market will continue, resulting in
further delays and cancellation of orders for the Company's products. A further
weakening of demand for semiconductor capital equipment, as well as downturns
or slowdowns in the IC market, will have a material adverse effect on the
Company's business, financial condition and results of operations. It is
difficult to determine how long these conditions will persist, but the Company
has taken cost reduction steps, including a 17 percent work force reduction, to
better position the Company during this difficult period. However, the
Company's need to continue to invest in research and development, marketing and
customer service and support capabilities will limit its ability to reduce
expenses in response to such downturns or slowdowns.
On July 3, 1996, the Company acquired Span. The merger was accounted for
as a pooling of interests, and, therefore, the Company's consolidated financial
statements for the periods prior to the merger have been restated to include the
results of operations, the financial position and cash flows of Span. Unless
the context indicates otherwise, references herein to the Company include the
operations of Span. If the Company is to realize the anticipated benefits of
the merger with Span, the operations of the two companies must be integrated and
combined efficiently. The process of rationalizing management services,
administrative organizations, facilities, management information systems and
other aspects of operations, while managing a larger and geographically expanded
entity, will present a significant challenge to the management of the Company.
There can be no assurance that the integration process will be successful or
that the anticipated benefits of the business combination will be fully
realized. The dedication of management resources to such integration may
detract attention from the day-to-day business of the Company. The difficulties
of integration may be increased by the necessity of coordinating geographically
separated organizations, integrating personnel with disparate business
backgrounds and combining different corporate cultures. There can be no
assurance that there will not be substantial costs associated with the
integration process, that such activities will not result in a decrease in
revenues or that there will not be other material adverse effects of these
integration efforts. Such effects could materially reduce the short-term
earnings of the Company. The Company incurred a charge of $3.7 million in the
third quarter of fiscal 1996, to reflect the combination of the two companies,
including transaction and integration costs. There can be no assurance that the
Company will not incur additional charges in subsequent quarters to reflect
costs associated with the merger.
RESULTS OF OPERATIONS
The Company's quarterly results have in the past and may in the future
vary significantly due to a number of factors, including factors pertaining to
(i) customer demand, such as general economic conditions in the semiconductor
industry, market acceptance of products of both the Company and its customers,
changes in product mix, and the timing, cancellation or delay of customer
orders; (ii) competition, such as competitive pressures on prices of the
Company's products, the introduction or announcement of new products by
competitors and intellectual property rights of third
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parties; (iii) manufacturing and operations, such as fluctuations in
manufacturing yields, availability and cost of production capacity and raw
materials, inventory obsolescence and inventory management; (iv) fluctuations
in foreign currency exchange rates; (v) new product development, such as
increased research, development and marketing expenses associated with new
product introductions, the Company's ability to introduce new products and
technologies on a timely basis and the amount and timing of recognition of
non-recurring development revenue; (vi) sales and marketing, such as
concentration of customers, discounts that may be granted to certain customers,
product returns and exchanges and credit losses in the event of non-performance
by customers or other creditors; and (vii) the current and potential future
dependence on the Company's existing product lines; as well as other factors,
such as levels of expenses relative to revenue levels, personnel changes and
generally prevailing economic conditions.
The following table sets forth for the periods indicated the relative
percentages that certain income and expense items bear to net sales:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------- ---------------------
July 28, July 30, July 28, July 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales ............................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales ........................................... 59.8 56.7 59.8 57.7
----- ----- ----- -----
Gross profit ....................................... 40.2 43.3 40.2 42.3
Operating expenses:
Sales and marketing ................................ 15.0 12.6 14.4 12.7
General and administrative ......................... 12.3 11.7 11.9 12.2
Research and development ........................... 7.3 6.0 7.3 6.3
Business combination and integration costs ......... 9.3 - 3.2 -
Amortization, primarily goodwill ................... .3 .4 .3 .5
----- ----- ----- -----
Total operating expenses ........................... 44.2 30.7 37.1 31.7
----- ----- ----- -----
Income (loss) from operations ........................... (4.0) 12.6 3.1 10.6
Other income (expense) -- net ........................... (3.0) (2.2) (1.7) (1.6)
----- ----- ----- -----
Income (loss) before income taxes and extraordinary
item ............................................... (7.0) 10.4 1.4 9.0
Income tax (expense) benefit ............................ 3.3 (4.2) (.5) (3.7)
----- ----- ----- -----
Income (loss) before extraordinary item ................. (3.7) 6.2 .9 5.3
Extraordinary item, net of income tax benefit ........... (.6) - (.2) (.8)
----- ----- ----- -----
Net income (loss) ....................................... (4.3)% 6.2% .7% 4.5%
===== ===== ===== =====
</TABLE>
Net Sales. Net sales for the three months ended July 28, 1996 increased
20.5% to $39.3 million from $32.6 million for the three months ended July 30,
1995. Net sales for the nine months ended July 28, 1996 increased 38.1% to
$114.7 million from $83.0 million for the nine months ended July 30, 1995. The
increase in net sales for this year's third quarter over last year's third
quarter was primarily due to higher demand for gas panel products in the U.S.
and flow products particularly in Asia. On a year-to-date basis,
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all major product categories experienced higher demand this year than last on a
worldwide basis.
The Company believes the strong business environment that fueled the
increased demand for the Company's products for the three months and nine
months ended July 28, 1996 compared to the prior year has decidedly weakened.
Many of the Company's largest customers have reduced their order rate, delayed
or canceled orders for the Company's products as a result of canceled or
delayed planned capacity expansions by device makers. These slowdowns and any
future downturns will have a material adverse effect on the Company's business,
financial condition and results of operations.
For the three months ended July 28, 1996, net sales to U.S. customers
increased by 15.6% to $27.7 million from $24.0 million for the three months
ended July 30, 1995. For the nine months ended July 28, 1996, net sales to
U.S. customers increased by 37.7% to $83.0 million from $60.3 million for the
nine months ended July 30, 1995. The increase in net sales for the three
months ended July 28, 1996 compared to the prior year was primarily due to
higher demand for gas panel products . For the nine months ended July 28,1996,
sales of gas panels as well as sales of flow and pressure products accounted
for most of the increase in sales over the prior year.
Sales to U.S. customers have decreased somewhat as a percentage of total
net sales. Sales to U.S. customers accounted for 70.6% and 73.5% of the
Company's total net sales for the three months ended July 28, 1996 and July 30,
1995, respectively. Sales to U.S. customers were 72.3% and 72.5% of total net
sales for the nine months ended July 28, 1996 and the nine months ended July
30, 1995, respectively.
For the three months ended July 28, 1996, net sales to customers located
outside the U.S. (primarily in Asia and Europe) increased by 34.0% to $11.6
million from $8.6 million for the three months ended July 30, 1995. For the
nine months ended July 28, 1996, net sales to customers located outside of the
United States (primarily in Asia and Europe) increased by 39.3% to $31.8
million from $22.8 million for the nine months ended July 30, 1995. The
increases in sales to customers outside the U.S. were largely due to higher
demand for flow products in both Europe and Asia.
The Company anticipates that international sales will continue to account
for a significant portion of net sales. International sales are subject to
certain risks that could material and adversely affect the Company's results of
operations including difficulties in staffing and managing foreign subsidiary
operations, exchange rate fluctuations, tariffs, import restrictions and other
barriers, unexpected changes in regulatory requirements, political and economic
instability, difficulties in accounts receivable collection, extended payment
terms, and potentially adverse tax consequences. A significant portion of the
Company's sales to U.S.-based equipment suppliers are incorporated into systems
delivered outside the United States, and these risks also apply to those sales.
The Company's international sales are also subject to certain governmental
restrictions, including the Export Administration Act and the regulations
promulgated thereunder.
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There can be no assurance that these factors will not have a material adverse
effect on the Company's business, financial condition and results of operations
in the future or require the Company to modify its current business practices.
Sales of the Company's products are concentrated with a small number of
customers. Sales to the Company's five largest customers for the three months
ended July 28, 1996 and July 30 1995 were 32.3% and 36.2% of net sales,
respectively. Sales to Lam Research Corporation alone accounted for 11.9% and
9.4% of net sales for the three months ended July 28, 1996 and July 30, 1995
respectively. Sales to the Company's five largest customers for the nine
months ended July 28, 1996 and July 30, 1995 were 31.8% and 33.7% of net sales,
respectively. Sales to Lam Research Corporation alone accounted for 15.6% and
12.1% of net sales for the nine months ended July 28. 1996 and July 30, 1995,
respectively. The Company expects that sales of its product to relatively few
customers will continue to account for a high percentage of its net sales.
None of the Company's customers has entered into a long-term agreement
requiring it to purchase the Company's products. The loss of a significant
customer or any reduction in orders from any significant customer, including
reductions due to changes in customer buying patterns, market, economic or
competitive conditions in the IC industry or in the industries that manufacture
product utilizing IC's, would have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company believes that its future success will depend, in part, on the
Company's ability to maintain and increase the acceptance of its products in
the market. Because a substantial investment is required by IC manufacturers
to install and integrate capital equipment into IC production line, the Company
believes that equipment suppliers choose component suppliers based on similar
factors. It has generally been the Company's experience that once a component
supplier has been chosen for a specific application or system, an equipment
supplier of IC manufacturer will continue to use or nominate such component
supplier's products for that application or system and will frequently
consolidate other component requirements with the same supplier. For this
reason, equipment suppliers and IC manufactures may develop strong ties with
particular component suppliers. Consequently, it will be difficult for the
Company to sell products to potential customers that have established
relationships with other component suppliers. The Company's ability to receive
orders will depend, in part, upon potential customers undertaking an evaluation
for new equipment. Most potential customers conduct such evaluations
infrequently. As a result, there can be no assurance that the Company will be
able to maintain or increase the market acceptance of its products.
Gross profit. The Company's gross profit for the three months ended
July 28, 1996 increased to $15.8 million from $14.1 million for the three
months ended July 30, 1995 and decreased as a percentage of net sales to 40.2%
from 43.3%. The Company's gross profit for the nine months ended July 28, 1996
increased to $46.1 million from $35.1 million for the nine months ended July
30, 1995 and decreased as a percentage of net sales to 40.2% from 42.3%. The
decreases in gross profit percentages from the prior year periods primarily
resulted from higher relative sales of gas panels, which carry a
14
<PAGE> 15
lower gross margin than other major products, higher manufacturing costs (due
to lower plant efficiencies and duplicate facilities costs) and price
concessions to certain customers in exchange for volume purchase arrangements.
From time to time, the Company has experienced declines in prices for some
of its products that materially and adversely affected the Company's gross
margin, primarily as a result of negotiated price reductions related to volume
purchase arrangements. The Company believes that worldwide competitive
pressures in the Company's market could result in declines in the prices of its
products in the future. Declines in the selling prices of the Company's
products, if not offset by reductions in the cost of producing such products
and increased unit volume sales, or by sales of products with higher gross
margins, will have a material adverse effect on the Company's business,
financial condition and results of operations.
Sales and Marketing. Sales and marketing expense increased 43.7% to $5.9
million for the three months ended July 28, 1996 from $4.1 million for the
three months ended July 30, 1995 and increased as a percentage of net sales to
15.0% from 12.6%. Sales and marketing expense increased 57.0% to $16.5 million
for the nine months ended July 28, 1996 from $10.5 million for the nine months
ended July 30, 1995 and increased as a percentage of net sales to 14.4% from
12.7%. The increases in sales and marketing expense for the three and nine
months ended July 28, 1996 compared to the prior year were primarily due to
increased staffing , higher travel expenses and higher sales commissions
required to support higher sales levels and further penetrate new and existing
markets .
General and Administrative. General and administration expense increased
26.2% to $4.8 million for the three months ended July 28, 1996 from $3.8
million for the three months ended July 30, 1995 and increased as a percentage
of net sales to 12.3% from 11.7%. General and administration expense increased
35.2% to $13.7 million for the nine months ended July 28, 1996 from $10.1
million for the nine months ended July 30, 1995 but decreased as a percentage
of net sales to 11.9% from 12.2%. The increases in general and administrative
expense were primarily due to increased staffing required to support the
Company's expanding international operations and overall business activity,
increased stockholder reporting expense, more business travel and higher
professional fees.
The Company has undergone a period of rapid growth and expansion of its
worldwide organization. The difficulty of managing a globally dispersed
organization has strained the Company's management, manufacturing and human
resources. Continued expansion by the Company may further strain such
resources. Any failure on the part of the Company to manage its dispersed
organization or expand in an efficient manner could have a material adverse
effect on the Company's business, financial condition and results of
operations. Moreover, there can be no assurance that the Company's systems,
procedures and controls will be adequate to support its organization and
operations.
15
<PAGE> 16
Research and Development. Research and development expense increased
46.1% to $2.9 million for the three months ended July 28, 1996 from $2.0
million for the three months ended July 30, 1995 and increased as a percentage
of net sales to 7.3% from 6.0%. Research and development expense increased
59.7% to $8.4 million for the nine months ended July 28, 1996 from $5.3 million
for the nine months ended July 30, 1995 and increased as a percentage of net
sales to 7.3% from 6.3%. The increases in research and development expense for
the three and nine months ended July 28, 1996 compared to the prior year
resulted primarily from higher staffing levels and the increased use of
contracted engineering services including payments to ISSYS under a research
and development contract. The Company does not expect its spending on research
and development in the future to decline significantly as a percentage of net
sales.
The Company believes that its future success will depend, in part, on the
Company's ability to develop and manufacture new products and product
enhancements. The markets in which the Company competes are characterized by
evolving industry standards and frequent improvements in products and services.
To compete effectively in such markets, the Company must continually improve
its products and its process management technologies and develop new
technologies and products that compete effectively on the basis of price and
performance and that adequately address customer requirements. The markets in
which the Company's customers compete are also characterized by rapidly changing
technology and emerging industry standards. To compete effectively, the
Company must adapt its products to meet these technological changes and to
support such standards. There can be no assurance that the Company will be
able to improve its existing products or its process management technologies or
develop new products or technologies. Even if the Company is able to develop
new or enhanced products, there can be no assurance such products will be cost
effective or introduced in a timely manner. Failure of the Company to develop
or introduce new products or product enhancements in a timely manner will have
a material adverse effect on the Company's business, financial condition and
results of operations.
Business Combination and Integration Costs. During the three months ended
July 28, 1996, the Company incurred costs totaling $3.7 million relative to the
merger of Span into Tylan General. These costs are further described in Note
2. to the Consolidated Financial Statements.
Other Income (Expense) Net. For the three months ended July 28, 1996,
other expense was $1.2 million compared to other expense of $733 thousand for
the three months ended July 30, 1995. For the nine months ended July 28, 1996,
other expense was $1.9 million compared to other expense of $1.4 million for
the nine months ended July 30, 1995. The increase in other expense for the
period ended July 28, 1996 compared to the prior year was primarily due to $550
thousand in costs incurred for actions to deter potential unsolicited attempts
to acquire the Company as described in Note 2. to the Consolidated Financial
Statements.
16
<PAGE> 17
Provision for Income Taxes. The Company's effective tax rate benefit was
46.7% for the three months ended July 28, 1996 as compared to an effective tax
rate expense of 40.0% for the three months ended July 30, 1995. The effective
tax rate benefit of 46.7% for the third quarter of fiscal 1996 was higher than
the experienced rate of 38% due to the realization of additional state net
operating loss benefit. The Company's effective tax rate was 38.2% for the
nine months ended July 28, 1996 as compared to 41.2% for the nine months ended
July 30, 1995. The change in the effective tax rate for the three and nine
months ended July 28, 1996 over the prior year was primarily due to the
realization of additional foreign tax credit benefits. The Company's effective
tax rate for the three and nine months ended July 28, 1996 was higher than the
U.S. statutory tax rate of 35% due to state taxes, the non-deductibility of
goodwill amortization and higher foreign tax rates.
Extraordinary Items. In July 1996, the Company prepaid $5.0 million in
Span debt. With this prepayment, the Company paid and expensed $150 thousand
in pre-payment penalty and wrote off unamortized prepaid financing costs of
$189 thousand. The total amount of $339 thousand was recorded, net of income
tax benefit, as an extraordinary item of $224 thousand in the third quarter of
1996.
In February 1995, the Company repaid $5.4 million in debt with proceeds
from the Company's Initial Public Offering. In connection with the repayment
of debt, the Company wrote-off the unamortized deferred issue costs of $949
thousand and incurred a prepayment penalty of $250 thousand. The total amount
of $1.2 million was recorded, net of income tax benefit, as an extraordinary
item of $695 thousand in the second quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of July 28, 1996, the Company had $2.7 million in cash, cash
equivalents and short term investments and net working capital of $31.6
million.
In June 1996, the Company obtained a new $11.0 million global revolving
line of credit to replace a $4.0 million revolving line of credit and a $3.5
million capital term loan facility. The new line of credit permits borrowings
by the Company's various international subsidiaries and permits borrowings
denominated in Japanese yen and Korean won up to $4.0 million and $1.0 million,
respectively. The new line of credit expires in March 1997. As of July 28,
1996, there was $4.5 million outstanding under the new line of credit. In
addition, Span Instruments has a $12.0 million revolving line of credit that
requires monthly interest payments with principal due at maturity on January 1,
1998. As of July 28, 1996 there was $9.3 million outstanding under the Span
line of credit. The Company, as a result of the merger with Span, is not in
compliance with certain of its financial and other loan covenants at July 28,
1996. As stated in Note 6 to the Consolidated Financial Statements, the
Company has received waivers or notice of forbearance relative to
non-compliance but in the event that management determines that it is probable
that the Company will not be able to cure the above violations then
approximately $11 million will be reclassified to short-term debt.
For the first nine months of fiscal 1996, the Company's operating
activities used $9.4 million in cash, primarily as a result of increases in
inventories and accounts receivable to support higher sales levels.
17
<PAGE> 18
The Company's financing activities for the first nine months of fiscal
1996, generated $5.8 million in cash, primarily from utilization of credit
lines in the U.S. and in Japan and short-term borrowings in Japan. Investing
activities in the nine month period used $9.0 million in cash for capital
expenditures.
18
<PAGE> 19
PART II OTHER INFORMATION
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K
(a) Exhibit Index
3.1(i) Certificate of Designation of Series A Junior Participating
Preferred Stock of Registrant, filed with the Delaware
Secretary of State on July 3, 1996.
4.1 Reference is made to Exhibit 3.1(i).
10.1 Employment Agreement between Registrant and David L. Stone,
dated as of July 2, 1996.
10.2 Employment Agreement between Registrant and Donald E. Whitson,
dated as of July 3, 1996.
10.3 Employment Agreement between Registrant, Span Instruments,
Inc. and George A. Yurch, Jr., dated as of July 3, 1996.
10.4 Severance Protection Agreement between Registrant and David J.
Ferran, dated as of July 22, 1996.
11.1 Statement Re Computation of Per Share Earnings.
27 Financial Data Schedule
(b) On July 3, 1996, the Company reported in a Current Report on Form 8-K
that its Board of Directors had declared a dividend distribution of
preferred share purchase rights to holders of the Company's common
stock.
On July 17, 1996, the Company reported in a Current Report on Form 8-K
that it had acquired Span Instruments, Inc. ("Span") in a transaction
pursuant to which the Company issued 1.3 million shares of its common
stock to the former shareholders of Span.
19
<PAGE> 20
TYLAN GENERAL, INC.
SIGNATURES
Pursuant to the requirements 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.
TYLAN GENERAL, INC.
Date: September 11, 1996 By: /s/ David L. Stone
----------------------------------
David L. Stone
Executive Vice President, Chief
Financial Officer and Secretary
(Principal Financial and
Accounting Officer)
20
<PAGE> 1
EXHIBIT 3.1(i)
Certificate of Designation
of
Series A Junior Participating Preferred Stock
of
Tylan General, Inc.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
Tylan General, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation") hereby
certifies that the following resolution was duly adopted by the Board of
Directors of the Corporation as required by Section 151 of the General
Corporation Law of the State of Delaware at a meeting duly called and held on
July 2, 1996.
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation in accordance with the provisions of the
Certificate of Incorporation, the Board of Directors hereby creates a series of
Series A Junior Participating Preferred Stock, with a par value of $0.001 per
share, of the Corporation and hereby states the designation and number of
shares, and fixes the relative rights, preferences and limitations thereof (in
addition to the provisions set forth in the Certificate of Incorporation which
are applicable to the Preferred Stock of all classes and series) as follows:
Series A Junior Participating Preferred Stock
1.
<PAGE> 2
SECTION 1. DESIGNATION, PAR VALUE AND AMOUNT. The shares of such series
shall be designated as "SERIES A JUNIOR PARTICIPATING PREFERRED STOCK"
(hereinafter referred to as "SERIES A PREFERRED STOCK"), the shares of such
series shall be with par value of $0.001 per share, and the number of shares
constituting such series shall be 500,000; provided, however, that, if more than
a total of 500,000 shares of Series A Preferred Stock shall be issuable upon the
exercise of Rights (the "RIGHTS") issued pursuant to the Rights Agreement, dated
as of July 2, 1996 between the Corporation and The First National Bank of
Boston, as Rights Agent (as amended from time to time) (the "RIGHTS AGREEMENT"),
the Board of Directors of the Corporation, pursuant to Section 151 of the
General Corporation Law of the State of Delaware, shall direct by resolution or
resolutions that a certificate be properly executed, acknowledged and filed
providing for the total number of shares of Series A Preferred Stock authorized
to be issued to be increased (to the extent that the Certificate of
Incorporation then permits) to the largest number of whole shares (rounded up to
the nearest whole number) issuable upon exercise of the Rights.
SECTION 2. DIVIDENDS AND DISTRIBUTIONS.
(a) Subject to the prior and superior rights of the holders of
any shares of any series of Preferred Stock ranking prior and superior to the
shares of Series A Preferred Stock with respect to dividends, the holders of
shares of Series A Preferred Stock shall be entitled to receive, when, as and if
declared by the Board of Directors out of assets legally available for the
purpose, quarterly dividends payable in cash on the first business day of
November, February, May and August in each year (each such date being referred
to herein as a "QUARTERLY DIVIDEND PAYMENT DATE"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or fraction
of a share of Series A Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to the greater of (a) $1.00 or (b) subject to the provision
for adjustment hereinafter set forth, 100 times the aggregate per share amount
of all cash dividends, and 100 times the aggregate per share amount (payable in
kind) of all non-cash dividends or other distributions other than a dividend
payable in shares of Common Stock, par value $0.001 per share, of the
Corporation (the "COMMON STOCK") or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), declared on the Common Stock
since the immediately preceding Quarterly Dividend Payment Date, or, with
respect to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series A Preferred Stock.
(b) The Corporation shall declare a dividend or distribution
on the Series A Preferred Stock as provided in paragraph (a) above immediately
after it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided that, in the event no
dividend or distribution shall have been declared on the Common Stock during the
period between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend
2.
<PAGE> 3
Payment Date, a dividend of $1.00 per share on the Series A Preferred Stock
shall nevertheless be payable on such subsequent Quarterly Dividend Payment
Date.
(c) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares of Series A
Preferred Stock, unless the date of issue of such shares is prior to the record
date for the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment Date or is a date after
the record date for the determination of holders of shares of Series A Preferred
Stock entitled to receive a quarterly dividend and before such Quarterly
Dividend Payment Date, in either of which events such dividends shall begin to
accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the shares of Series
A Preferred Stock in an amount less than the total amount of such dividends at
the time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more than 60 days
prior to the date fixed for the payment thereof.
SECTION 3. VOTING RIGHTS. The holders of shares of Series A Preferred
Stock shall have the following voting rights:
(a) Except as provided in paragraph C of this Section 3 and
subject to the provision for adjustment hereinafter set forth, each share of
Series A Preferred Stock shall entitle the holder thereof to 100 votes on all
matters submitted to a vote of the stockholders of the Corporation.
(b) Except as otherwise provided herein or by law, the holders
of shares of Series A Preferred Stock and the holders of shares of Common Stock
shall vote together as one class on all matters submitted to a vote of
stockholders of the Corporation.
(c) (i) If, on the date used to determine stockholders of
record for any meeting of stockholders for the election of directors, a default
in preference dividends (as defined in subparagraph (v) below) on the Series A
Preferred Stock shall exist, the holders of the Series A Preferred Stock shall
have the right, voting as a class as described in subparagraph (ii) below, to
elect two directors (in addition to the directors elected by holders of Common
Stock of the Corporation). Such right may be exercised (a) at any meeting of
stockholders for the election of directors or (b) at a meeting of the holders of
shares of Voting Preferred Stock (as hereinafter defined), called for the
purpose in
3.
<PAGE> 4
accordance with the By-laws of the Corporation, until all such cumulative
dividends (referred to above) shall have been paid in full or until
non-cumulative dividends have been paid regularly for at least one year.
(ii) The right of the holders of Series A Preferred
Stock to elect two directors, as described above, shall be exercised as a class
concurrently with the rights of holders of any other series of Preferred Stock
upon which voting rights to elect such directors have been conferred and are
then exercisable. The Series A Preferred Stock and any additional series of
Preferred Stock which the Corporation may issue and which may provide for the
right to vote with the foregoing series of Preferred Stock are collectively
referred to herein as "VOTING PREFERRED STOCK."
(iii) Each director elected by the holders of shares
of Voting Preferred Stock shall be referred to herein as a "PREFERRED DIRECTOR."
A Preferred Director so elected shall continue to serve as such director for a
term of one year, except that upon any termination of the right of all of such
holders to vote as a class for Preferred Directors, the term of office of such
directors shall terminate. Any Preferred Director may be removed by, and shall
not be removed except by, the vote of the holders of record of a majority of the
outstanding shares of Voting Preferred Stock then entitled to vote for the
election of directors, present (in person or by proxy) and voting together as a
single class (a) at a meeting of the stockholders, or (b) at a meeting of the
holders of shares of such Voting Preferred Stock, called for the purpose in
accordance with the By-laws of the Corporation, or (c) by written consent signed
by the holders of a majority of the then outstanding shares of Voting Preferred
Stock then entitled to vote for the election of directors, taken together as a
single class.
(iv) So long as a default in any preference dividends
on the Series A Preferred Stock shall exist or the holders of any other series
of Voting Preferred Stock shall be entitled to elect Preferred Directors, (a)
any vacancy in the office of a Preferred Director may be filled (except as
provided in the following clause (b)) by an instrument in writing signed by the
remaining Preferred Director and filed with the Corporation and (b) in the case
of the removal of any Preferred Director, the vacancy may be filled by the vote
or written consent of the holders of a majority of the outstanding shares of
Voting Preferred Stock then entitled to vote for the election of directors,
present (in person or by proxy) and voting together as a single class, at such
time as the removal shall be effected. Each director appointed as aforesaid by
the remaining Preferred Director shall be deemed, for all purposes hereof, to be
a Preferred Director. Whenever (x) no default in preference dividends on the
Series A Preferred Stock shall exist and (y) the holders of other series of
Voting Preferred Stock shall no longer be entitled to elect such Preferred
Directors, then the number of directors constituting the Board of Directors of
the Corporation shall be reduced by two.
4.
<PAGE> 5
(v) For purposes hereof, a "DEFAULT IN PREFERENCE
DIVIDENDS" on the Series A Preferred Stock shall be deemed to have occurred
whenever the amount of cumulative and unpaid dividends on the Series A Preferred
Stock shall be equivalent to six full quarterly dividends or more (whether or
not consecutive), and, having so occurred, such default shall be deemed to exist
thereafter until, but only until, all cumulative dividends on all shares of the
Series A Preferred Stock then outstanding shall have been paid through the last
Quarterly Dividend Payment Date or until, but only until, non-cumulative
dividends have been paid regularly for at least one year.
(d) Except as set forth herein (or as otherwise required by
applicable law), holders of Series A Preferred Stock shall have no general or
special voting rights and their consent shall not be required for taking any
corporate action.
SECTION 4. CERTAIN RESTRICTIONS.
(a) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in Section 2
are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred Stock
outstanding shall have been paid in full, the Corporation shall not
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except dividends paid ratably on the Series A Preferred Stock
and all such parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for
consideration (except as provided in (iv) below) shares of any stock ranking
junior (either as to dividends or upon liquidation, dissolution or winding up)
to the Series A Preferred Stock, provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such junior stock in
exchange for shares of any stock of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the Series A
Preferred Stock;
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock, or any shares of stock
ranking on a parity (either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred
5.
<PAGE> 6
Stock, except in accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good faith will result in
fair and equitable treatment among the respective series or classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (a) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
SECTION 5. REACQUIRED SHARES. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Certificate of Incorporation, in any other Certificate of Amendment creating a
series of Preferred Stock or as otherwise required by law.
SECTION 6. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) Subject to the prior and superior rights of holders of any
shares of any series of Preferred Stock ranking prior and superior to the shares
of Series A Preferred Stock with respect to rights upon liquidation, dissolution
or winding up (voluntary or otherwise), no distribution shall be made to the
holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock unless,
prior thereto, the holders of shares of Series A Preferred Stock shall have
received $100 per share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such payment
(the "SERIES A LIQUIDATION PREFERENCE"). Following the payment of the full
amount of the Series A Liquidation Preference, no additional distributions shall
be made to the holders of shares of Series A Preferred Stock unless, prior
thereto, the holders of shares of Common Stock shall have received an amount per
share (the "CAPITAL ADJUSTMENT") equal to the quotient obtained by dividing (i)
the Series A Liquidation Preference by (ii) 100 (such number in clause (ii), the
"ADJUSTMENT NUMBER"). Following the payment of the full amount of the Series A
Liquidation Preference and the Capital Adjustment in respect of all outstanding
shares of Series A Preferred Stock and Common Stock, respectively, holders of
Series A Preferred Stock and holders of Common Stock shall receive their ratable
and proportionate share of the remaining assets to be distributed in the ratio
of the Adjustment Number to 1 with respect to such Preferred Stock and Common
Stock, on a per share basis, respectively.
6.
<PAGE> 7
(b) In the event, however, that there are not sufficient
assets available to permit payment in full of the Series A Liquidation
Preference and the liquidation preferences of all other series of preferred
stock, if any, which rank on a parity with the Series A Preferred Stock, then
such remaining assets shall be distributed ratably to the holders of Series A
Preferred Stock and the holders of such parity shares in proportion to their
respective liquidation preferences. In the event, however, that there are not
sufficient assets available to permit payment in full of the Capital Adjustment,
then such remaining assets shall be distributed ratably to the holders of Common
Stock.
SECTION 7. CONSOLIDATION, MERGER, ETC. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
SECTION 8. NO REDEMPTION. The shares of Series A Preferred Stock shall
not be redeemable.
SECTION 9. RANKING. The Series A Preferred Stock shall rank junior to
all other series of the Corporation's Preferred Stock as to the payment of
dividends and the distribution of assets, unless the terms of any such series
shall provide otherwise.
SECTION 10. AMENDMENT. The Certificate of Incorporation of the
Corporation shall not be further amended in any manner which would materially
alter or change the powers, preferences or special rights of the Series A
Preferred Stock so as to affect them adversely without the affirmative vote of
the holders of a majority or more of the outstanding shares of Series A
Preferred Stock, voting separately as a class.
7.
<PAGE> 8
IN WITNESS WHEREOF, this Certificate of Designation is executed on
behalf of the Corporation by its Chairman of the Board and attested by its
Secretary as of the 2nd day of July, 1996.
/s/ David J. Ferran
------------------------------
David J. Ferran
Chairman of the Board, President and Chief
Executive Officer
Attest:
/s/ David L. Stone
- ---------------------
David L. Stone
Secretary
8.
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") is made and effective as of July 2, 1996
by and between TYLAN GENERAL, INC., a Delaware corporation (the "Company"), and
DAVID L. STONE (the "Employee"), with respect to the following facts.
A. The Board of Directors (the "Board") of the Company has determined
that the best interests of the Company would be served by Employee's employment
by the Company in the capacity of Chief Financial Officer and such mutually
acceptable additional capacities as the Chief Administrative Officer may
delegate to him from time to time during the term of this Agreement.
B. The Company wishes to assure itself of the continued benefit of
Employee's services provided in this Agreement, and Employee is willing to serve
in the employ of the Company solely within the terms hereof for said period.
C. The Company and Employee desire to define their respective rights
and obligations as provided herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions contained herein, and for other good and valuable consideration,
receipt of which is hereby acknowledged, the parties agree as follows:
1. EMPLOYMENT
The Company hereby agrees to employ the Employee to serve in
the capacity of Chief Financial Officer of the Company, and Employee hereby
accepts such employment by the Company upon the terms and conditions set forth
herein.
2. POSITION AND RESPONSIBILITIES
(a) DUTIES. The Company shall employ Employee in the capacity
of Chief Financial Officer and such other mutually acceptable executive
positions as the Chief Administrative Officer may determine to be in the best
interests of the Company, and Employee shall serve as such for the term and
under other conditions hereinafter set forth. Employee shall devote his full
business time and attention to the performance of such services and to such
other services as may be necessarily requested by the Chief Administrative
Officer that are consistent with those required of a Chief Financial Officer of
a company. In this capacity as Chief Financial Officer, Employee shall perform
such duties and have such powers and authority as are customary for the Chief
Financial Officer of a company. The Employee shall report directly to and shall
be responsible to the Chief Administrative Officer regarding his services. In
the event that,
1.
<PAGE> 2
without his consent, Employee is assigned to a position involving a different
title or materially lesser authority and responsibility, then Employee shall
have the option, exercisable for 30 days following notice to Employee of such
assignment or new title, to resign for good reason, as defined in Section 7(d)
herein, in which case Employee shall be entitled to the benefits set forth in
Section 8(c) herein.
(b) COMPETITIVE ACTIVITY. Except upon the prior written
consent of the Chief Administrative Officer, Employee, during the term of his
employment hereunder, will not accept any other employment of any nature and
will not engage, directly or indirectly, in any other business activity (whether
or not pursued for pecuniary advantage) that is or may be competitive with, or
that might place him in a competing position to that of the Company or any other
corporation or entity that directly or indirectly controls, is controlled by or
is under common control with the Company.
3. TERM OF EMPLOYMENT
The effective date of this Agreement shall be July 2, 1996
(the "Effective Date"), and it shall remain in effect until terminated pursuant
to Section 7.
4. WORKING FACILITIES
Employee shall be furnished with a private office, secretarial
and other necessary clerical assistance, and such other facilities, amenities
and services as may at the time be generally furnished to executive officers of
the Company and as are appropriate for Employee's position and adequate for the
performance of his duties hereunder.
5. PLACE OF PERFORMANCE
In connection with this Agreement, Employee shall maintain an
office at the principal executive offices of Tylan General, Inc. in San Diego,
California.
6. SALARY, BONUS, EXPENSES AND BENEFITS
(a) SALARY. The Company shall continue to pay Employee such
salary as is currently in effect as to Employee. Employee's salary shall be
reviewed and revised (if appropriate) at least annually by the Chief
Administrative Officer and shall be adjusted based upon Employee's job
performance, the Company's financial condition and performance and the salary
and compensation levels of executives in similar companies with similar
responsibilities. Any increases in Employee's salary pursuant to this Section
6(a) shall require approval by the Compensation Committee of the Board of
Directors of the Company (the "Committee") (without the vote of the Employee if
Employee is a member of such committee).
2.
<PAGE> 3
(b) BONUS. Employee shall be eligible to participate in the
Company's annual incentive bonus plan, as administered by the Committee. The
Committee (without the vote of the Employee if Employee is a member of such
committee) shall determine in good faith the amount of such bonus giving
consideration to the Company's overall achievement of the goals set forth in the
Company's annual plan for the applicable fiscal year and Employee's performance
during the year. The Company shall pay such bonus no later than 45 days after
the end of each fiscal year of the Company.
(c) PARTICIPATION IN WELFARE AND BENEFIT PLANS. Employee shall
be entitled to participate in, personally and/or for the benefit of his family
or other beneficiaries, any welfare, insurance, pension, or other employee
benefit plans as are at the time made generally available to other executives of
the Company. Employee shall be eligible to receive during the term hereof all
benefits for which executives are eligible under every such plan or program to
the extent permissible under the general terms and provisions of such plans or
programs and in accordance with the provisions thereof.
(d) VACATION. Employee shall be entitled to seven weeks' paid
vacation time each year, during which such time his compensation hereunder shall
be paid in full. Unless otherwise directed by the Chief Administrative Officer,
Employee shall have the discretion to take vacation time on the dates as he
determines to be appropriate and not detrimental to the Company.
(e) HOLIDAYS, LEAVE DAYS, ETC. Employee shall be entitled to
such holidays, sick leave, leaves of absence and other absences as are at the
time made generally available to other executives of the Company of comparable
tenure and position.
(f) AUTOMOBILE. During the term of this Agreement, the Company
shall make an automobile available to Employee under such terms and conditions
as are presently applied or as may be later applied to other executives of the
Company of comparable tenure and position. In connection therewith, the Company
shall bear all expenses relating to such automobile, including insurance,
maintenance and repair, gas and oil. Upon termination of this Agreement, the
Company shall offer Employee the right to purchase the automobile then being
operated by Employee at the depreciated value of such automobile or to assume
the Company's lease of such automobile and shall execute and deliver to Employee
all documentation necessary to establish Employee's ownership or leasing of such
automobile.
(g) LIFE INSURANCE. The Company shall pay for and provide life
insurance for each year of this Agreement for the benefit of Employee under the
Company's group life insurance plan.
3.
<PAGE> 4
(h) HEALTH INSURANCE. The Company shall provide health
insurance for Employee under the Company's health insurance plan.
(i) DISABILITY INSURANCE. The Company shall provide disability
insurance for Employee pursuant to the Company's directors' and officers'
disability policy according to the Company's policy established by the
Committee.
(j) REIMBURSEMENT OF EXPENSES. The Company shall pay or
reimburse Employee, on a monthly basis, for reasonable travel, entertainment,
promotional and other expenses incurred by Employee in the performance of his
obligations under this Agreement. Employee must submit timely detailed expense
reports for appropriate review prior to reimbursement.
(k) OTHER FRINGE BENEFITS. Employee shall be entitled to any
and all other fringe benefits according to the Company's policy as set by the
Committee.
7. TERMINATION
Employee's employment under this Agreement may be terminated
by the Company or Employee as herein provided, without further obligation or
liability except as expressly provided herein.
(a) RESIGNATION, DEATH OR DISABILITY. Employee's employment
hereunder may be terminated at any time by Employee's resignation (other than a
resignation for good reason as provided in Section 7(d)), or by Employee's death
or disability. In the event Employee wishes to resign, he shall give the Company
not less than six months' prior notice of such resignation, which notice shall
indicate the proposed resignation date. Following receipt of such notice, the
Company shall have the right to accelerate the date of Employee's resignation
and to cause his resignation to become effective at any time prior to the
resignation date set forth in Employee's original notice; provided, however,
that such acceleration or changed effective date of resignation shall not affect
in any manner the delivery of any benefits or payments to which Employee may be
entitled under Section 8 of this Agreement. For purposes of this Agreement,
disability shall be deemed to have occurred only after the following procedure
has been satisfied. If within 45 days after notice of proposed termination for
disability is given to Employee by the Company, Employee has not returned to the
performance of substantially all his duties, the Company may terminate
Employee's employment by giving notice of termination for disability. The notice
of proposed termination may only be given by the Company following Employee's
substantial and material absence from Employee's duties by reason of physical or
mental disability for a period of 120 calendar days. This section shall be
carried out in accordance with the provisions of the federal Americans with
Disabilities Act.
4.
<PAGE> 5
(b) TERMINATION FOR CAUSE. Employee's employment hereunder may
be terminated by the Company for cause; provided, however, that Employee shall
be given notice of the Company's findings of conduct by Employee amounting to
cause for such termination. Cause for termination under this Agreement shall be
limited to (i) Employee's personal dishonesty or gross misconduct; (ii) a
material breach of any material provision of this Agreement; (iii) Employee's
refusal or failure to act in accordance with any lawful, reasonable direction or
order of the Chief Administrative Officer or the Board and such refusal or
failure results or is reasonably likely to result in a materially adverse effect
on the Company's business; (iv) conviction of any felony involving moral
turpitude (not including a conviction for operating a motor vehicle under the
influence of alcohol or any other motor vehicle violation if no bodily injury to
a third party is involved); (v) any chemical dependency or substance abuse
resulting in a continuous and material impairment of Employee's ability to
perform his duties under this Agreement; or (vi) the willful and continued
failure by Employee to substantially perform Employee's duties with the Company
or its subsidiaries or affiliates (other than any failure resulting from
disability) after a written demand identifies the manner in which the Company
believes that Employee has not substantially performed his duties. Termination
of Employee's employment under this Agreement for cause as set forth in clauses
(i) or (iv) of the preceding sentence shall be deemed to be effective upon
delivery of notice thereof in accordance with the provisions of Section 9(i) of
this Agreement. Employee shall have 30 days from the date notice is given for
cause as set forth in clause (ii), (iii), (v) or (vi) of the second sentence of
this Section 7(b) to cure such conduct.
(c) TERMINATION WITHOUT CAUSE. The Company shall have the
right, exercisable at any time during the term of this Agreement upon written
notice to Employee, to terminate Employee's employment without cause upon 30
days prior notice. If Employee is terminated without cause, he shall be entitled
to receive the severance benefits pursuant to Section 8(c) hereof subject to his
full compliance with said Section 8(c).
(d) RESIGNATION FOR GOOD REASON. During the term hereof,
Employee may regard Employee's employment as being constructively terminated and
may, therefore, resign within 30 days of Employee's discovery of the occurrence
of one or more of the following events, any of which will constitute "good
reason" for such resignation:
(1) Without Employee's express written consent, the
assignment to Employee of any duties materially inconsistent with Employee's
position, duties, responsibilities and status with the Company;
5.
<PAGE> 6
(2) Without Employee's express written consent, the
termination of and/or material reduction in Employee's facilities (including
office space and general location) and staff reporting available to Employee,
unless such reduction occurs as part of a company-wide action authorized by the
Board to reduce the Company's expenses;
(3) A reduction by the Company of Employee's base
salary or of any bonus compensation formula applicable to him unless in
connection with (i) an across-the-board reduction for all senior management of
the Company, (ii) a reduction after the second anniversary of the Effective Date
in order to make Employee's salary consistent with the Company's compensation
policy for senior management or (iii) a company-wide salary expense reduction
necessitated by poor financial performance of the Company, in any case as
determined by the Committee in its reasonable discretion;
(4) A failure by the Company to maintain any of the
employee benefits to which Employee is entitled at a level substantially equal
to or greater than the value of those employee benefits currently in effect
through the continuation of the same or substantially similar plans, programs
and policies; or the taking of any action by the Company or its affiliate(s)
that would materially affect Employee's participation in or reduce Employee's
benefits under any such plans, programs or policies, or deprive Employee of any
material fringe benefits enjoyed by Employee unless such failure or reduction
occurs as part of a company-wide action authorized by the Board (including the
vote of Employee if Employee is a Director of the Company) to reduce the
Company's expenses;
(5) The failure by the Company to permit Employee to
take substantially the same number of paid vacation days and leave to which
Employee is entitled;
(6) The Company or any affiliate(s) requiring
Employee to be based anywhere other than within 20 miles of San Diego,
California, except for required travel on the Company's or an affiliate's
business to an extent substantially consistent with Employee's present business
travel obligations;
(7) Any termination of Employee's employment by the
Company which is not effected pursuant to the requirements of this Section 7
with respect to death, disability or termination for cause;
(8) The failure of the Company to obtain the
assumption of this Agreement by any successor as contemplated in Section 9(e)
hereof;
(9) Any termination by the Company of Employee's
service on the Senior Executive Committee of the Company; and
6.
<PAGE> 7
(10) A material breach of any provision of this
Agreement by the Company.
In the event of the occurrence of any of the above listed events and in
the event Employee wishes to resign on the basis of occurrence of such event,
Employee shall give the Company notice of his proposed resignation, and the
Company shall have a period of 30 days following its receipt of such notice to
remedy the breach or occurrence giving rise to such proposed resignation. In the
event the Company fails to so remedy said breach or occurrence by expiration of
said 30-day period, Employee shall be deemed to have resigned from his
employment with the Company for good reason pursuant to this Section 7(d).
(e) RESIGNATION UPON MUTUAL AGREEMENT. In the event that
Employee resigns upon mutual agreement by the Company and Employee and upon six
months' notice by Employee to the Company, and on the condition that Employee
cooperates in performing all services reasonably required by the Company to
achieve a smooth transition following Employee's departure from the Company,
Employee shall be entitled to receive the payments and benefits set forth in
Section 8(d) herein.
(f) TERMINATION OBLIGATIONS. Employee hereby acknowledges and
agrees that all personal property of the Company, including, without limitation,
all books, manuals, records, reports, notes, contracts, lists, and other
documents, proprietary information, copies of any of the foregoing, and
equipment furnished to or prepared by Employee in the course of or incident to
his employment, belong to the Company and shall be promptly returned to the
Company upon termination of his employment for any reason. Employee shall retain
the rights to remove all of his personal property from the premises of the
Company and any personal property of the Company as may be mutually agreed upon
between the Company and Employee.
8. PAYMENTS TO EMPLOYEE UPON TERMINATION.
(a) DEATH OR DISABILITY. In the event of Employee's death or
disability, all benefits generally available to the Company's executives as of
the date of such an event as determined by the Committee shall be payable to
Employee or Employee's estate, without reduction, in accordance with the terms
of any plan, contract, understanding or arrangement forming the basis for such
payment, including, but not limited to, payments under the plans identified in
Section 6(c). Employee shall be entitled to such other payments as might arise
from any plan, contract, understanding or arrangement between Employee and the
Company at the time of any such event pursuant to Section 6(c) or 6(i) hereof.
7.
<PAGE> 8
(b) TERMINATION FOR CAUSE. In the event Employee is terminated
by the Company for cause as provided in Section 7(b), Employee shall be entitled
to receive the following:
(1) SEVERANCE PAYMENT. The Company shall pay Employee
severance benefits equal to: (1) six months' base salary, such salary payable at
Employee's base salary in effect at the time of termination; and (2) an amount
equal to fifty percent (50%) of the bonus that Employee actually received for
the Company's most recently completed fiscal year (the "Severance Payments").
(2) METHOD OF PAYMENT. The Severance Payments made to
Employee pursuant to Section 8(b)(1) above shall be paid to Employee as follows:
(i) the Company shall pay Employee that portion of the Severance Payments equal
to one month's base salary as promptly as possible following Employee's
termination for cause; and (ii) the remainder of the Severance Payments shall be
payable in one lump sum upon Employee's execution of a general release in
accordance with Section 8(b)(3) below. All Severance Payments will be subject to
standard deductions and withholding.
(3) PAYMENT IN LIEU OF CONTRACT DAMAGES. Payment of
the Severance Payments shall be in lieu of any further payments to the Employee
and any further accrual of benefits with respect to periods subsequent to the
date of the employment termination, and payment of all Severance Payments other
than that portion described in Section 8(b)(2)(i) above shall be conditioned on
Employee's execution within 21 days of employment termination of a general
release, in a form satisfactory to the Company, of any claims by Employee
related to the Agreement or the circumstances surrounding the termination of
employment hereunder.
(4) STOCK OPTION VESTING. All stock options granted
to Employee under a Stock Option Plan of the Company or otherwise shall cease
vesting as of the date of Employee's termination for cause or resignation
without good reason.
(5) HEALTH INSURANCE. To the extent permitted by the
federal COBRA law and by the Company's current group health insurance policies,
Employee will be eligible to continue his health insurance benefits at his own
expense and, later, to convert to an individual policy if Employee wishes.
Employee will be provided with a separate notice of his COBRA rights upon
termination. If Employee elects continued coverage under COBRA upon termination,
the Company, as part of Employee's Severance Payments, will pay Employee's COBRA
premiums for six (6) months following the date of Employee's termination for
cause.
8.
<PAGE> 9
(c) TERMINATION WITHOUT CAUSE OR RESIGNATION FOR GOOD REASON.
Upon the occurrence of termination without cause, or resignation for good
reason, as defined in Section 7(d), Employee shall be entitled to receive the
following:
(1) SEVERANCE BENEFITS. The Company shall pay
Employee severance benefits equal to: (1) eighteen (18) months' base salary,
such salary payable at Employee's base salary in effect at the time of
termination; and (2) an amount equal to one hundred percent (100%) of the bonus
that Employee actually received for the Company's most recently completed fiscal
year (the "Severance Benefits").
(2) METHOD OF PAYMENT. The Severance Benefits
provided for in Section 8(c)(1) above shall be paid to Employee as follows: (i)
the Company shall pay Employee that portion of the Severance Benefits equal to
one month's base salary as promptly as possible following Employee's termination
without cause or resignation for good reason; and (ii) the remainder of the
Severance Benefits shall be payable in one lump sum upon Employee's execution of
a general release in accordance with Section 8(c)(3) below. All Severance
Benefits will be subject to standard deductions and withholding.
(3) PAYMENT IN LIEU OF CONTRACT DAMAGES. Payment of
the Severance Benefits shall be in lieu of any further payments to the Employee
and any further accrual of benefits with respect to periods subsequent to the
date of the employment termination, and payment all Severance Benefits other
than that portion described in Section 8(c)(2)(i) above shall be conditioned on
Employee's execution within 21 days of employment termination of a general
release, in a form satisfactory to the Company, of any claims by Employee
related to the Agreement or the circumstances surrounding the termination of
employment hereunder. Notwithstanding the preceding sentence, neither the
Severance Benefits nor any other payments under this Section 8(c) shall reduce
or offset any benefits the Employee may be entitled to under the specific terms
of the benefit plans of the Company.
(4) STOCK OPTION VESTING. All stock options granted
to Employee under a Stock Option Plan of the Company or otherwise shall cease
vesting as of the date of Employee's termination without cause or resignation
for good reason.
(5) HEALTH INSURANCE. To the extent permitted by the
federal COBRA law and by the Company's current group health insurance policies,
Employee will be eligible to continue his health insurance benefits at his own
expense and, later, to convert to an individual policy if Employee wishes.
Employee will be provided with a separate notice of his COBRA rights upon
termination. If Employee elects continued coverage under COBRA upon termination,
the Company, as part of Employee's Severance Benefits, will pay Employee's COBRA
premiums for eighteen (18) months
9.
<PAGE> 10
following the date of Employee's termination without cause or resignation for
good reason.
(d) RESIGNATION UPON MUTUAL AGREEMENT. In the event that
Employee resigns upon mutual agreement by the Company and Employee and upon six
months' notice to the Company, and on the condition that Employee cooperates in
performing all services reasonably required by the Company to achieve a smooth
transition following Employee's departure from the Company, Employee shall be
entitled to receive the following:
(1) EMPLOYMENT DURING NOTICE PERIOD. Following the
date upon which Employee gives notice of resignation, the Company shall pay
Employee an amount equal to six (6) months' base salary (the "Mutual Agreement
Payments"). Such Mutual Agreement Payments shall be determined with reference to
the salary in effect for the month in which the date of notice of resignation
occurs. During the six months following Employee's notice of resignation (the
"Notice Period"), Employee shall, at the discretion of the Chief Administrative
Officer, continue to serve in the capacity of Chief Financial Officer of the
Company or in an unnamed advisory capacity, unless the Chief Administrative
Officer determines that Employee's services are not required. Whether or not
Employee's services are required during the Notice Period, Employee shall
receive the Mutual Agreement Payments.
(2) BONUS PAYMENTS. Effective upon Employee's
resignation upon mutual agreement, Employee's participation in the Company's
annual incentive bonus plan shall cease. At the end of the Notice Period,
Employee shall be eligible to receive a bonus of up to fifty percent (50%) of
the maximum bonus for which he would have been eligible had he remained an
employee of the Company for the remainder of the fiscal year in which his
resignation upon mutual agreement occurs (the "Bonus Payment"). The performance
measures upon which any such Bonus Payment is based shall be determined by
Employee's supervisor, and any such Bonus Payment shall be at the sole
discretion of Employee's supervisor. Notwithstanding the foregoing sentence, in
the event that Employee's services are not required during the Notice Period,
Employee shall receive the maximum Bonus Payment for which he would have been
eligible had he served in the capacity of Chief Financial Officer during the
Notice Period.
(3) GUARANTEED PAYMENT. At the end of the Notice
Period and in addition to the Bonus Payments, Employee shall receive a payment
equal to: (1) Employee's base salary for six (6) months, such salary payable at
Employee's base salary in effect at the time of Employee's notice of
resignation; and (2) an amount equal to fifty percent (50%) of the annual bonus
Employee actually received for the Company's most recently completed fiscal year
(the "Guaranteed Payment").
10.
<PAGE> 11
(4) METHOD OF PAYMENT. The Mutual Agreement Payments,
the Bonus Payment and the Guaranteed Payment provided for in Sections 8(d)(1),
(2) and (3) above shall be paid to Employee as follows: (i) the Company shall
pay Employee that portion of the Mutual Agreement Payments equal to one month's
base salary as promptly as possible following Employee's notice of resignation;
and (ii) the remainder of the Mutual Agreement Payments, the Bonus Payment and
the Guaranteed Payment shall be payable in one lump sum upon Employee's
execution of a general release in accordance with Section 8(d)(5) below. All
payments under this Section 8(d) will be subject to standard deductions and
withholding.
(5) PAYMENT IN LIEU OF CONTRACT DAMAGES. Payments
under this Section 8(d) shall be in lieu of any further payments to the Employee
and any further accrual of benefits with respect to periods subsequent to the
date of the employment termination, and payment of all Mutual Agreement Payments
other than that portion described in Section 8(d)(4)(i) above, all Bonus
Payments and all Guaranteed Payments shall be conditioned on Employee's
execution within 21 days of his notice of resignation of a general release, in a
form satisfactory to the Company, of any claims by Employee related to the
Agreement or the circumstances surrounding the termination of employment
hereunder. Notwithstanding the preceding sentence, no payments under this
Section 8(d) shall reduce or offset any benefits the Employee may be entitled to
under the specific terms of the benefit plans of the Company.
(6) STOCK OPTION VESTING. All stock options granted
to Employee under a Stock Option Plan of the Company or otherwise shall cease
vesting (i) as of the last day of the Notice Period if Employee continues to
provide services to the Company throughout the Notice Period; (ii) as of the
last day during the Notice Period on which Employee provides services to the
Company; or (iii) as of the date of Employee's resignation upon mutual agreement
if the Company chooses not to employ Employee during the Notice Period.
(7) HEALTH INSURANCE. To the extent permitted by the
federal COBRA law and by the Company's current group health insurance policies,
Employee will be eligible to continue his health insurance benefits at his own
expense and, later, to convert to an individual policy if Employee wishes.
Employee will be provided with a separate notice of his COBRA rights upon
termination. If Employee elects continued coverage under COBRA upon termination,
the Company, as part of Employee's Mutual Agreement Payments and Guaranteed
Payments, will pay Employee's COBRA premiums for twelve (12) months following
the date of Employee's resignation upon mutual agreement.
11.
<PAGE> 12
9. GENERAL PROVISIONS
(a) ENTIRE AGREEMENT. The terms and provisions of this
Agreement shall constitute the entire understanding between Employee and the
Company with respect to the subject matter hereof, and shall supersede any and
all prior agreements or understandings between Employee and the Company (or any
affiliate of the Company, including Span), whether written or oral.
(b) NO ADDITIONAL PAYMENTS OR BENEFITS. Except as expressly
provided herein, Employee will not receive any additional compensation,
severance or benefits of any kind after the date of termination.
(c) AMENDMENTS. This Agreement may be amended or modified only
by a written instrument executed by Employee and the Company.
(d) GOVERNING LAW. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of the State of
California.
(e) SEVERABILITY. In the event that any terms or provisions of
this Agreement shall be held to be invalid or unenforceable, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remaining terms and provisions hereof.
(f) ASSUMPTION. The Company shall require any
successor-in-interest (whether direct or indirect or as a result of purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company to expressly assume and agree to perform the
obligations under 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.
(g) ASSIGNABILITY. The rights or obligations contained in this
Agreement shall not be assigned, transferred or divided in any manner by
Employee or the Company, without the prior written consent of the other;
provided, however, that nothing in this Section 9(f) shall preclude Employee
from designating a beneficiary to receive any benefits hereunder upon his death,
or the executors, administrators or other legal representatives of Employee or
his estate from assigning any rights hereunder to the person(s) entitled
thereto. Notwithstanding the foregoing, this Agreement shall be assignable by
the Company without Employee's consent and be binding on (i) any affiliate of
the Company and (ii) any entity which by purchase of assets, merger or
otherwise, becomes a successor to the business of the Company.
12.
<PAGE> 13
(h) WAIVER OF BREACH. Any waiver of any breach of employment
terms set forth herein shall not be construed to be a continuing waiver or
consent to any subsequent breach on the part of Employee or the Company.
(i) HEADINGS. The headings of paragraphs herein are included
solely for convenience of reference and shall not control the meaning or
interpretation and performance of any of the provisions of this Agreement.
(j) NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered or if mailed by United States certified or
registered mail, prepaid, to the parties or their permitted assignees at the
following addresses (or at such other address as shall be given in writing by
either party to the other):
To: Tylan General, Inc.
15330 Avenue of Science
San Diego, California 92128
Attn: Chief Administrative Officer
To: David L. Stone
3103 Azahar Street
Carlsbad, California 92009
13.
<PAGE> 14
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the day and year first written above.
TYLAN GENERAL, INC.
By: /s/ David J. Ferran
---------------------------------------
Its: Chairman of the Board, President
and Chief Executive Officer
EMPLOYEE
/s/ David L. Stone
-------------------------------------------
David L. Stone
14.
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") is made and effective as of July 3, 1996
by and between TYLAN GENERAL, Inc., a Delaware corporation (the "Company"), and
DONALD E. WHITSON (the "Employee"), with respect to the following facts.
A. The Board of Directors (the "Board") of the Company has determined
that the best interests of the Company would be served by Employee's employment
by the Company in the capacity of Vice Chairman and Chief Administrative Officer
and such mutually acceptable additional capacities as the Chief Executive
Officer may delegate to him from time-to-time during the term of this Agreement.
B. The Company wishes to assure itself of the continued benefit of
Employee's services provided in this Agreement, and Employee is willing to serve
in the employ of the Company solely within the terms hereof for said period.
C. The Company and Employee desire to define their respective rights
and obligations as provided herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions contained herein, and for other good and valuable consideration,
receipt of which is hereby acknowledged, the parties agree as follows:
1. EMPLOYMENT
The Company hereby agrees to employ the Employee to serve in
the capacity of Vice Chairman and Chief Administrative Officer of the Company,
and Employee hereby accepts such employment by the Company upon the terms and
conditions set forth herein.
2. POSITION AND RESPONSIBILITIES
(a) DUTIES. The Company shall employ Employee in the capacity
of Vice Chairman and Chief Administrative Officer and such other mutually
acceptable executive positions as the Chief Executive Officer may determine to
be in the best interests of the Company, and Employee shall serve as such for
the term and under other conditions hereinafter set forth. Employee shall devote
his full business time and attention to the performance of such services and to
such other services as may be
1.
<PAGE> 2
necessarily requested by the Chief Executive Officer that are consistent with
those required of a Vice Chairman and Chief Administrative Officer of a company.
In this capacity as Vice Chairman and Chief Administrative Officer, Employee
shall perform such duties and have such powers and authority as are customary
for the Vice Chairman and Chief Administrative Officer of a company. The
Employee shall report directly to and shall be responsible to the Chief
Executive Officer regarding his services. In the event that, without his
consent, Employee is assigned to a position involving a different title or
materially lesser authority and responsibility, then Employee shall have the
option, exercisable for 30 days following notice to Employee of such assignment
or new title, to consider that this Agreement has been terminated without cause
in which case Employee shall be entitled to the benefits set forth in Section
8(c) herein.
(b) COMPETITIVE ACTIVITY. Except upon the prior written
consent of the Chief Executive Officer, Employee, during the term of his
employment hereunder, will not accept any other employment of any nature and
will not engage, directly or indirectly, in any other business activity (whether
or not pursued for pecuniary advantage) that is or may be competitive with, or
that might place him in a competing position to that of the Company or any other
corporation or entity that directly or indirectly controls, is controlled by or
is under common control with the Company.
3. TERM OF EMPLOYMENT
The effective date of this Agreement shall be July 3, 1996
(the "Effective Date") and shall remain in effect until terminated pursuant to
Section 7.
4. WORKING FACILITIES
Employee shall be furnished with a private office, secretarial
and other necessary clerical and stenographic assistance, and such other
facilities, amenities and services as may at the time be generally furnished to
executive officers of the Company and as are appropriate for Employee's position
and adequate for the performance of his duties hereunder.
5. PLACE OF PERFORMANCE
In connection with this Agreement, Employee shall maintain an
office at the principal executive offices of Span Instruments, Inc. ("Span") in
Plano, Texas.
6. SALARY, BONUS, EXPENSES AND BENEFITS
(a) SALARY. The Company shall pay Employee an initial salary
of $250,000 per year. Employee's salary shall be reviewed and revised (if
appropriate) at least annually by the Chief Executive Officer and shall be
adjusted based upon
2.
<PAGE> 3
Employee's job performance, the Company's financial condition and performance
and the salary and compensation levels of executives in similar companies with
similar responsibilities. Furthermore, any salary payable to Employee after the
second anniversary of the Effective Date shall be determined in accordance with
the Company's compensation policy for senior management. Any increases in
Employee's salary pursuant to this Section 6(a) shall require approval by the
Compensation Committee of the Board of Directors of the Company (the
"Committee") (without the vote of the Employee if Employee is a member of such
committee).
(b) BONUS. The Company shall pay Employee an annual bonus of
up to twenty-five percent (25%) of Employee's annual salary for the immediately
preceding year. The Committee (without the vote of the Employee if Employee is a
member of such committee) shall determine in good faith the amount of such bonus
giving consideration to the Company's overall achievement of the goals set forth
in the Company's annual plan for the applicable fiscal year and Employee's
performance during the year. The Company shall pay such bonus no later than 45
days after the end of each fiscal year of the Company.
(c) PARTICIPATION IN WELFARE AND BENEFIT PLANS. Employee shall
be entitled to participate in, personally and/or for the benefit of his family
or other beneficiaries, any welfare, insurance, pension, or other employee
benefit plans as are at the time made generally available to other executives of
the Company. Employee shall be eligible to receive during the term hereof all
benefits for which executives are eligible under every such plan or program to
the extent permissible under the general terms and provisions of such plans or
programs and in accordance with the provisions thereof.
(d) VACATION. Employee shall be entitled to six weeks' paid
vacation time each year, during which such time his compensation hereunder shall
be paid in full. Unless otherwise directed by the Chief Executive Officer,
Employee shall have the discretion to take vacation time on the dates as he
determines to be appropriate and not detrimental to the Company.
(e) HOLIDAYS, LEAVE DAYS, ETC. Employee shall be entitled to
such holidays, sick leave, leaves of absence and other absences as are at the
time made generally available to other executives of the Company of comparable
tenure and position.
(f) AUTOMOBILE. During the term of this Agreement, the Company
shall make an automobile available to Employee under such terms and conditions
as are presently applied or as may be later applied to other executives of the
Company of comparable tenure and position. In connection therewith, the Company
shall bear all expenses relating to such automobile, including insurance,
maintenance and repair, gas
3.
<PAGE> 4
and oil. Upon termination of this Agreement, the Company shall offer Employee
the right to purchase the automobile then being operated by Employee at the
depreciated value of such automobile or to assume the Company's lease of such
automobile and shall execute and deliver to Employee all documentation necessary
to establish Employee's ownership or leasing of such automobile.
(g) LIFE INSURANCE. The Company shall pay for and provide life
insurance for each year of this Agreement for the benefit of Employee under the
Company's group life insurance plan.
(h) HEALTH INSURANCE. The Company shall provide health
insurance for Employee under the Company's health insurance plan.
(i) DISABILITY INSURANCE. The Company shall provide disability
insurance for Employee pursuant to the Company's directors' and officers'
disability policy according to the Company's policy established by the
Committee.
(j) REIMBURSEMENT OF EXPENSES. The Company shall pay or
reimburse Employee, on a monthly basis, for reasonable travel, entertainment,
promotional and other expenses incurred by Employee in the performance of his
obligations under this Agreement. Employee must submit timely detailed expense
reports for appropriate review prior to reimbursement.
(k) TAX, LEGAL AND FINANCIAL ADVICE. The Company shall pay for
the fees and expenses of legal, tax and financial advisory, and income tax
preparation services for Employee in an aggregate amount not to exceed $1,500
for each year of this Agreement; provided that no payment of any fees shall be
made by the Company for legal services obtained by Employee in connection with
any dispute with the Company regarding this Agreement.
(l) OTHER FRINGE BENEFITS. Employee shall be entitled to any
and all other fringe benefits according to the Company's policy as set by the
Committee.
7. TERMINATION
Employee's employment under this Agreement may be terminated
by the Company or Employee as herein provided, without further obligation or
liability except as expressly provided herein.
(a) RESIGNATION, DEATH OR DISABILITY. Employee's employment
hereunder may be terminated at any time by Employee's resignation (other than a
resignation for good reason as provided in Section 7(d)), or by Employee's death
or disability. In the event Employee wishes to resign, he shall give the Company
not less
4.
<PAGE> 5
than 30 days prior notice of such resignation, which notice shall indicate the
proposed resignation date. Following receipt of such notice, the Company shall
have the right to accelerate the date of Employee's resignation and to cause his
resignation to become effective at any time prior to the resignation date set
forth in Employee's original notice; provided, however, that such acceleration
or changed effective date of resignation shall not affect in any manner the
delivery of any benefits or payments to which Employee may be entitled under
Section 8 of this Agreement. For purposes of this Agreement, disability shall be
deemed to have occurred only after the following procedure has been satisfied.
If within 45 days after notice of proposed termination for disability is given
to Employee by the Company, Employee has not returned to the performance of
substantially all his duties, the Company may terminate Employee's employment by
giving notice of termination for disability. The notice of proposed termination
may only be given by the Company following Employee's substantial and material
absence from Employee's duties by reason of physical or mental disability for a
period of 120 calendar days.
(b) TERMINATION FOR CAUSE. Employee's employment hereunder may
be terminated by the Company for cause; provided, however, that Employee shall
be given notice of the Company's findings of conduct by Employee amounting to
cause for such termination. Cause for termination under this Agreement shall be
limited to (i) Employee's personal dishonesty or gross misconduct; (ii) a
material breach of any material provision of this Agreement; (iii) Employee's
refusal or failure to act in accordance with any lawful, reasonable direction or
order of the Chief Executive Officer or the Board and such refusal or failure
results or is reasonably likely to result in a materially adverse effect on the
Company's business; (iv) conviction of any felony involving moral turpitude (not
including a conviction for operating a motor vehicle under the influence of
alcohol or any other motor vehicle violation if no bodily injury to a third
party is involved); (v) any chemical dependency or substance abuse resulting in
a continuous and material impairment of Employee's ability to perform his duties
under this Agreement; or (vi) the willful and continued failure by Employee to
substantially perform Employee's duties with the Company or its subsidiaries or
affiliates (other than any failure resulting from disability) after a written
demand identifies the manner in which the Company believes that Employee has not
substantially performed his duties. Termination of Employee's employment under
this Agreement for cause as set forth in clauses (i) or (iv) of the preceding
sentence shall be deemed to be effective upon delivery of notice thereof in
accordance with the provisions of Section 9(i) of this Agreement. Employee shall
have 30 days from the date notice is given for cause as set forth in clause
(ii), (iii), (v) or (vi) of the second sentence of this Section 7(b) to cure
such conduct.
(c) TERMINATION WITHOUT CAUSE. The Company shall have the
right, exercisable at any time during the term of this Agreement upon written
notice to Employee, to terminate Employee's employment without cause upon 30
days prior
5.
<PAGE> 6
notice. If Employee is terminated without cause, he shall be entitled to receive
the severance benefits pursuant to Section 8(c) hereof subject to his full
compliance with said Section 8(c).
(d) RESIGNATION FOR GOOD REASON. During the term hereof,
Employee may regard Employee's employment as being constructively terminated and
may, therefore, resign within 30 days of Employee's discovery of the occurrence
of one or more of the following events, any of which will constitute "good
reason" for such resignation:
(1) Without Employee's express written consent, the
assignment to Employee of any duties materially inconsistent with Employee's
position, duties, responsibilities and status with the Company;
(2) Without Employee's express written consent, the
termination and/or material reduction in Employee's facilities (including office
space and general location) and staff reporting available to Employee, unless
such reduction occurs as part of a company-wide action authorized by the Board
(including the vote of Employee) to reduce the Company's expenses;
(3) A reduction by the Company of Employee's base
salary or of any bonus compensation formula applicable to him unless in
connection with (i) an across-the-board reduction for all senior management of
the Company, (ii) a reduction after the second anniversary of the Effective Date
in order to make Employee's salary consistent with the Company's compensation
policy for senior management or (iii) a company-wide salary expense reduction
necessitated by poor financial performance of the Company, in any case as
determined by the Committee in its reasonable discretion;
(4) A failure by the Company to maintain any of the
employee benefits to which Employee is entitled at a level substantially equal
to or greater than the value of those employee benefits currently in effect
through the continuation of the same or substantially similar plans, programs
and policies; or the taking of any action by the Company or its affiliate(s)
that would materially affect Employee's participation in or reduce Employee's
benefits under any such plans, programs or policies, or deprive Employee of any
material fringe benefits enjoyed by Employee unless such failure or reduction
occurs as part of a company-wide action authorized by the Board (including the
vote of Employee if Employee is a Director of the Company) to reduce the
Company's expenses;
(5) The failure by the Company to permit Employee to
take substantially the same number of paid vacation days and leave to which
Employee is entitled;
6.
<PAGE> 7
(6) The Company or any affiliate(s) requiring
Employee to be based anywhere other than within 20 miles of Plano, Texas, except
for required travel on the Company's or an affiliate's business to an extent
substantially consistent with Employee's present business travel obligations;
(7) Any termination of Employee's employment by the
Company which is not affected pursuant to the requirements of this Section 7
with respect to death, disability or termination for cause;
(8) The failure of the Company to obtain the
assumption of this Agreement by any successor as contemplated in Section 9(e)
hereof; and
(9) A material breach of any provision of this
Agreement by the Company.
In the event of the occurrence of any of the above listed events and in
the event Employee wishes to resign on the basis of occurrence of such event,
Employee shall give the Company notice of his proposed resignation, and the
Company shall have a period of 30 days following its receipt of such notice to
remedy the breach or occurrence giving rise to such proposed resignation. In the
event the Company fails to so remedy said breach or occurrence by expiration of
said 30-day period, Employee shall be deemed to have resigned from his
employment with the Company for good reason pursuant to this Section 7(d).
(e) TERMINATION OBLIGATIONS. Employee hereby acknowledges and
agrees that all personal property of the Company, including, without limitation,
all books, manuals, records, reports, notes, contracts, lists, and other
documents, proprietary information, copies of any of the foregoing, and
equipment furnished to or prepared by Employee in the course of or incident to
his employment, belong to the Company and shall be promptly returned to the
Company upon termination of his employment for any reason. Employee shall retain
the rights to remove all of his personal property from the premises of the
Company and any personal property of the Company as may be mutually agreed upon
between the Company and Employee.
8. PAYMENTS TO EMPLOYEE UPON TERMINATION.
(a) DEATH OR DISABILITY. In the event of Employee's death or
disability, all benefits generally available to the Company's executives as of
the date of such an event as determined by the Committee shall be payable to
Employee or Employee's estate, without reduction, in accordance with the terms
of any plan, contract, understanding or arrangement forming the basis for such
payment, including, but not limited to, payments under the plans identified in
Section 6(c). Employee shall be entitled to such other payments as might arise
from any plan, contract, understanding or
7.
<PAGE> 8
arrangement between Employee and the Company at the time of any such event
pursuant to Section 6(c) or 6(i) hereof.
(b) TERMINATION FOR CAUSE OR RESIGNATION WITHOUT GOOD REASON.
In the event Employee is terminated by the Company for cause as provided in
Section 7(b) or Employee resigns for other than good reasons as defined in
Section 7(d), neither the Company nor an affiliate shall have any further
obligation or liability of any nature to Employee under this Agreement or
otherwise.
(c) TERMINATION WITHOUT CAUSE OR RESIGNATION FOR GOOD REASON.
Upon the occurrence of termination without cause, or resignation for good
reason, as defined in Section 7(d), Employee shall be entitled to receive the
following:
(1) SEVERANCE PAYMENT. The Company shall continue to
pay to the Employee his salary (i) until the date that is eighteen (18) months
from the effective date of this Agreement (the "Initial Period") and (ii) for
twelve (12) months following the later of (x) the date of Employee's actual
termination of employment and (y) termination of the Initial Period (the
"Severance Payment"). Such salary shall be determined with reference to the
salary in effect for the month in which the date of employment termination
occurs.
(2) METHOD OF PAYMENT. The Severance Payment shall be
paid to Employee in cash in one lump sum no later than thirty (30) days
following the actual date of termination.
(3) PAYMENT IN LIEU OF CONTRACT DAMAGES. The
Severance Payment shall be in lieu of any further payments to the Employee and
any further accrual of benefits with respect to periods subsequent to the date
of the employment termination and shall constitute a full satisfaction and
discharge of any claims by Employee related to the Agreement or the
circumstances surrounding the termination of employment hereunder.
Notwithstanding the preceding sentence, neither the Severance Payment nor any
other payments under this Section 8(c) shall reduce or offset any benefits the
Employee may be entitled to under the specific terms of the benefit plans of the
Company.
9. GENERAL PROVISIONS
(a) ENTIRE AGREEMENT. The terms and provisions of this
Agreement, together with the terms and provisions of the Noncompetition
Agreement dated the date hereof between Employee and the Parent, shall
constitute the entire understanding between Employee and the Company with
respect to the subject matter hereof, and shall supersede any and all prior
agreements or understandings between Employee and the Company (or any affiliate
of the Company, including Span), whether written or oral.
8.
<PAGE> 9
(b) AMENDMENTS. This Agreement may be amended or modified only
by a written instrument executed by Employee and the Company.
(c) GOVERNING LAW. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of the State of
California.
(d) SEVERABILITY. In the event that any terms or provisions of
this Agreement shall be held to be invalid or unenforceable, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remaining terms and provisions hereof.
(e) ASSUMPTION. The Company shall require any
successor-in-interest (whether direct or indirect or as a result of purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company to expressly assume and agree to perform the
obligations under 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.
(f) ASSIGNABILITY. The rights or obligations contained in this
Agreement shall not be assigned, transferred or divided in any manner by
Employee or the Company, without the prior written consent of the other;
provided, however, that nothing in this Section 9(f) shall preclude Employee
from designating a beneficiary to receive any benefits hereunder upon his death,
or the executors, administrators or other legal representatives of Employee or
his estate from assigning any rights hereunder to the person(s) entitled
thereto. Notwithstanding the foregoing, this Agreement shall be assignable by
the Company without Employee's consent and be binding on (i) any affiliate of
the Company and (ii) any entity which by purchase of assets, merger or
otherwise, becomes a successor to the business of the Company.
(g) WAIVER OF BREACH. Any waiver of any breach of employment
terms set forth herein shall not be construed to be a continuing waiver or
consent to any subsequent breach on the part of Employee or the Company.
(h) HEADINGS. The headings of paragraphs herein are included
solely for convenience of reference and shall not control the meaning or
interpretation and performance of any of the provisions of this Agreement.
(i) NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered or if mailed by United States certified or
registered mail, prepaid, to the parties or their permitted assignees at the
following addresses (or at such other address as shall be given in writing by
either party to the other):
9.
<PAGE> 10
To: Tylan General, Inc.
15330 Avenue of Science
San Diego, California 92128
Attn: Chief Executive Officer
To: Donald E. Whitson
Span Instruments, Inc.
1947 Avenue K
Plano, Texas 75074
10.
<PAGE> 11
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the day and year first written above.
TYLAN GENERAL, INC.
By: /s/ David J. Ferran
---------------------------------------
Its: Chairman of the Board, President
and Chief Executive Officer
EMPLOYEE
/s/ Donald E. Whitson
-------------------------------------------
Donald E. Whitson
11.
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") is made and effective as of July 3, 1996,
by and between TYLAN GENERAL, INC., a Delaware corporation (the "Parent"), SPAN
INSTRUMENTS, INC., a Texas corporation and a wholly-owned subsidiary of Parent
(the "Company"), and GEORGE A. YURCH, JR. (the "Employee").
WHEREAS, the Company desires to assure itself of the continued
services of Employee, and Employee desires to be employed by the Company, under
the terms and conditions herein; and
WHEREAS, the Company, the Parent and Employee desire to define their
respective rights and obligations as provided herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions contained herein, and for other good and valuable consideration,
receipt of which is hereby acknowledged, the parties agree as follows:
1. EMPLOYMENT; TERM
(a) EMPLOYMENT. The Company hereby agrees to continue to
employ, and the Parent hereby agrees to cause the Company to continue to employ,
the Employee to serve in the capacity of President of the Company, and Employee
hereby accepts such continued employment by the Company upon the terms and
conditions set forth herein.
(b) TERM. The effective date of this Agreement shall be July
3, 1996 (the "Effective Date") and shall remain in effect until the earlier of
(i) eighteen (18) months from the effective date or (ii) the date when
Employee's employment is terminated pursuant to Section 3 of this Agreement.
(c) DUTIES. During the term of this Agreement, Employee will,
to the best of his ability, devote substantially all of his business time and
attention to the performance of his duties hereunder, including such
responsibilities as shall be established by custom, by the Bylaws of the Company
and, from time to time, by the Board of Directors and/or senior management of
the Company or the Parent.
(d) COMPETITIVE ACTIVITY. Employee, during the term of his
employment hereunder, will not accept any other employment of any nature and
will not engage, directly or indirectly, in any other business activity (whether
or not pursued for pecuniary advantage) that is or may be competitive with, or
that might place him in a competing position to that of the Company or any other
corporation or entity that
1.
<PAGE> 2
directly or indirectly controls, is controlled by or is under common control
with the Company.
2. SALARY AND BENEFITS
(a) SALARY. The Company shall pay to Employee for the services
to be rendered hereunder a salary at an annual rate of $198,000, payable in
installments in accordance with Company policy, subject to increase in
accordance with the policies of the Company or the Parent, as determined by its
Board of Directors, in force from time to time (the "Salary").
(b) BENEFITS. Employee shall be eligible to participate in the
Company's employee benefit plans and incentive compensation programs for
employees, including the stock option plan of the Parent, subject in each case
to the generally applicable terms and conditions of the plan or program in
question.
3. TERMINATION
(a) GENERAL. Employee's employment under this Agreement may be
terminated by the Company, the Parent or Employee as herein provided, without
further obligation or liability except as expressly provided herein. The Company
shall not provide or pay for any employee benefits or bonuses following the
termination of Employee's employment pursuant to Section 3(b), 3(c) or 3(d)
hereof, and the vesting of any stock options granted to Employee during the term
of his employment with the Company shall cease on the date of such termination
of employment.
(b) RESIGNATION. Employee's employment hereunder may be
terminated at any time, upon 30 days prior notice, by Employee's resignation. If
Employee resigns, he shall be entitled to receive payments pursuant to Section
4(a) hereof, subject to his full compliance with said Section 4(a).
(c) DEATH OR DISABILITY. Employee's employment shall terminate
upon the date of Employee's death or disability. For purposes of this Agreement,
disability shall be deemed to have occurred only after the following procedure
has been satisfied. If within 45 days after notice of proposed termination for
disability is given to Employee by the Company or the Parent, Employee has not
returned to the performance of substantially all his duties, the Company or the
Parent may terminate Employee's employment by giving notice of termination for
disability. The notice of proposed termination may only be given by the Company
or the Parent following Employee's substantial and material absence from
Employee's duties by reason of physical or mental disability for a period of 120
calendar days.
2.
<PAGE> 3
(d) TERMINATION FOR CAUSE. Employee's employment hereunder may
be terminated by the Company or the Parent for cause; provided, however, that
Employee shall be given notice of the findings of conduct by Employee amounting
to cause for such termination. Cause for termination under this Agreement shall
be limited to (i) Employee's personal dishonesty or gross misconduct; (ii) a
material breach of any provision of this Agreement; (iii) Employee's refusal or
failure to act in accordance with any lawful, reasonable direction or order of
the Board of Directors or senior management of the Company or the Parent and
such refusal or failure results or is reasonably likely to result in a
materially adverse effect on the Company's or the Parent's business; or (iv) the
continued failure by Employee to perform Employee's duties with the Company or
its subsidiaries or affiliates, including the Parent (other than any failure
resulting from disability) in a manner consistent with Employee's position after
a written demand identifies the manner in which Employee's supervisor believes
that Employee has not substantially performed his duties. Termination of
Employee's employment under this Agreement for cause as set forth in clause (i)
of the preceding sentence shall be deemed to be effective upon delivery of
notice thereof in accordance with the provisions of Section 5(i) of this
Agreement. Employee shall have 30 days from the date notice is given for cause
as set forth in clause (ii), (iii) or (iv) of the second sentence of this
Section 3(d) to cure such conduct.
(e) TERMINATION WITHOUT CAUSE. The Company and the Parent
shall have the right, exercisable at any time during the term of this Agreement
upon written notice to Employee, to terminate Employee's employment without
cause upon 30 days prior notice. If Employee is terminated without cause, he
shall be entitled to receive severance benefits pursuant to Section 4(d) hereof,
subject to his full compliance with said Section 4(d).
(f) TERMINATION OBLIGATIONS. Employee hereby acknowledges and
agrees that all personal property of the Company or the Parent, including,
without limitation, all books, manuals, records, reports, notes, contracts,
lists, and other documents, proprietary information, copies of any of the
foregoing, and equipment furnished to or prepared by Employee in the course of
or incident to his employment, belong to the Company or the Parent, as the case
may be, and shall be promptly returned to the Company or the Parent, as the case
may be, upon termination of his employment for any reason. Employee shall retain
the rights to remove all of his personal property from the premises of the
Company and any personal property of the Company or the Parent as may be
mutually agreed upon between the Company or the Parent and Employee.
3.
<PAGE> 4
4. PAYMENTS TO EMPLOYEE UPON TERMINATION.
(a) RESIGNATION. In the event of Employee's resignation, the
Company shall continue to pay Employee Employee's Salary for a period of six (6)
months commencing on the date of Employee's resignation. Such salary shall be
determined with reference to the salary in effect for the month in which the
date of employment termination occurs. The Company's obligation to make each
such monthly payment is conditioned on Employee's performance of four (4) hours
of consulting services per month for the Company; provided, however, that the
Company's obligation to make such monthly payments pursuant to this Section 4(a)
shall cease if Employee engages, at any time during the six (6) months following
his resignation, directly or indirectly, in any other business activity (whether
or not pursued for pecuniary advantage) that is or may be competitive with, or
that might place him in a competing position to that of the Company or any other
corporation or entity that directly or indirectly controls, is controlled by or
is under common control with the Company.
(b) DEATH OR DISABILITY. In the event of Employee's death or
disability, all benefits generally available to the Company's employees as of
the date of such an event as determined by the Board of Directors of the Company
shall be payable to Employee or Employee's estate, without reduction, in
accordance with the terms of any plan, contract, understanding or arrangement
forming the basis for such payment.
(c) TERMINATION FOR CAUSE. In the event Employee is terminated
by the Company or the Parent for cause as provided in Section 3(d) hereof,
Employee shall be entitled to receive the following:
(1) TERMINATION PAYMENT. The Company shall continue
to pay to the Employee his salary for six (6) months following the date of
Employee's actual termination of employment (the "Termination Payment"). Such
salary shall be determined with reference to the salary in effect for the month
in which the date of employment termination occurs.
(d) TERMINATION WITHOUT CAUSE. In the event Employee is
terminated by the Company or the Parent without cause as provided in Section
3(e) hereof, Employee shall be entitled to receive the following:
(1) SEVERANCE PAYMENT. The Company shall continue to
pay to the Employee his salary (i) until the date that is twelve (12) months
from the effective date of this Agreement (the "Initial Period") and (ii) for
six (6) months following the later of (x) the date of Employee's actual
termination of employment and (y) termination of the Initial Period (the
"Severance Payment"). Such salary shall be determined with reference to the
salary in effect for the month in which the date of employment termination
occurs.
4.
<PAGE> 5
(e) PAYMENT IN LIEU OF CONTRACT DAMAGES. The Termination
Payment and the Severance Payment shall be in lieu of any further payments to
the Employee and any further accrual of benefits with respect to periods
subsequent to the date of the employment termination and shall constitute a full
satisfaction and discharge of any claims by Employee related to the Agreement or
the circumstances surrounding the termination of employment hereunder.
Notwithstanding the preceding sentence, neither the Termination Payment, the
Severance Payment nor any other payments under this Section 4(e) shall reduce or
offset any benefits the Employee may be entitled to under the specific terms of
the benefit plans of the Company.
5. GENERAL PROVISIONS
(a) ENTIRE AGREEMENT. The terms and provisions of this
Agreement, together with the terms and provisions of the Noncompetition
Agreement dated the date hereof between Employee and the Parent, shall
constitute the entire understanding between Employee, the Company and the Parent
with respect to the subject matter hereof, and shall supersede any and all prior
agreements or understandings between Employee, the Company and the Parent,
whether written or oral.
(b) AMENDMENTS. This Agreement may be amended or modified only
by a written instrument executed by Employee, the Company and the Parent.
(c) GOVERNING LAW. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of the State of
California.
(d) SEVERABILITY. In the event that any terms or provisions of
this Agreement shall be held to be invalid or unenforceable, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remaining terms and provisions hereof.
(e) ASSUMPTION. The Company and the Parent shall require any
successor-in-interest (whether direct or indirect or as a result of purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company or the Parent to expressly assume and agree to
perform the obligations under this Agreement in the same manner and to the same
extent that the Company or the Parent would be required to perform it if no such
succession had taken place.
(f) ASSIGNABILITY. The rights or obligations contained in this
Agreement shall not be assigned, transferred or divided in any manner by
Employee, the Company or the Parent, without the prior written consent of the
other; provided, however, that nothing in this Section 5(f) shall preclude
Employee from designating a beneficiary to receive any benefits hereunder upon
his death, or the executors, administrators or other legal
5.
<PAGE> 6
representatives of Employee or his estate from assigning any rights hereunder to
the person(s) entitled thereto. Notwithstanding the foregoing, this Agreement
shall be assignable by the Company without Employee's consent and be binding on
(i) the Parent or any other affiliate of the Company, and (ii) any entity which
by purchase of assets, merger or otherwise, becomes a successor to the business
of the Company or the Parent.
(g) WAIVER OF BREACH. Any waiver of any breach of employment
terms set forth herein shall not be construed to be a continuing waiver or
consent to any subsequent breach on the part of Employee, the Parent or the
Company.
(h) HEADINGS. The headings of paragraphs herein are included
solely for convenience of reference and shall not control the meaning or
interpretation and performance of any of the provisions of this Agreement.
(i) NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered or if mailed by United States certified or
registered mail, prepaid, to the parties or their permitted assignees at the
following addresses (or at such other address as shall be given in writing by
either party to the other):
To: Tylan General, Inc.
15330 Avenue of Science
San Diego, California 92128
Attn: Chief Executive Officer
To: Span Instruments, Inc.
2201 Avenue K
Plano, Texas 75074
Attn: President
To: George A. Yurch, Jr.
________________________
________________________
6.
<PAGE> 7
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the day and year first written above.
TYLAN GENERAL, INC. SPAN INSTRUMENTS, INC.
By: /s/ David J. Ferran By: /s/ Donald E. Whitson
------------------------------------- -----------------------------
Its: Chairman of the Board, President Its: Chief Executive Officer
and Chief Executive Officer
EMPLOYEE
/s/ George A. Yurch, Jr.
- -----------------------------------------
George A. Yurch, Jr.
7.
<PAGE> 1
EXHIBIT 10.4
SEVERANCE PROTECTION AGREEMENT
THIS AGREEMENT made as of the 22nd day of July, 1996, by and between
Tylan General, Inc. (the "Company") and David J. Ferran (the "Executive").
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that the possibility of a Change in Control (as hereinafter defined) exists and
that the threat or the occurrence of a Change in Control can result in
significant distractions of its key management personnel because of the
uncertainties inherent in such a situation;
WHEREAS, the Board has determined that it is essential and in the best
interest of the Company and its stockholders to retain the services of the
Executive in the event of a threat or occurrence of a Change in Control and to
ensure his continued dedication and efforts in such event without undue concern
for his personal financial and employment security; and
WHEREAS, in order to induce the Executive to remain in the employ of
the Company, particularly in the event of a threat or the occurrence of a Change
in Control, the Company desires to enter into this Agreement with the Executive
to provide the Executive with certain benefits in the event his employment is
terminated as a result of, or in connection with, a Change in Control and to
provide the Executive with certain other benefits whether or not the Executive's
employment is terminated.
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein, it is agreed as follows:
1. Term of Agreement. This Agreement shall commence as of the date
hereof and shall continue in effect until December 31, 1998; provided, however,
that on December 31, 1997 and on each anniversary thereof, the term of this
Agreement shall be automatically extended for one year unless either the Company
or the Executive shall have given written notice to the other prior thereto that
the term of this Agreement shall not be so extended; and provided, further,
however, that notwithstanding any such notice by the Company not to extend, the
term of this Agreement shall not expire prior to the expiration of 15 months
after the occurrence of a Change in Control.
2. Definitions.
2.1 Accrued Compensation. For purposes of this Agreement,
"Accrued Compensation" shall mean an amount which shall include all
amounts earned or accrued through the "Termination Date" (as
hereinafter defined) but not paid as of the Termination Date including
(i) base salary, (ii) reimbursement for reasonable and necessary
expenses incurred by the Executive on behalf of the Company ending on
the Termination Date, (iii) vacation and sick leave pay (to the extent
1.
<PAGE> 2
provided by Company policy or applicable law), and (iv) bonuses and
incentive compensation (other than the "Pro Rata Bonus" (as hereinafter
defined)).
2.2 Base Amount. For purposes of this Agreement, "Base Amount"
shall mean the greater of (a) the Executive's annual base salary at the
rate in effect immediately prior to the Change in Control and (b) the
Executive's annual base salary at the rate in effect on the Termination
Date, and shall include all amounts of his base salary that are
deferred under the qualified and non-qualified employee benefit plans
of the Company or any other agreement or arrangement.
2.3 Bonus Amount. For purposes of this Agreement, "Bonus
Amount" shall mean the greater of the Executive's annual bonus (without
giving effect to any pro ration) for the fiscal year in which a Change
in Control has occurred and the Executive's annual bonus (without
giving effect to any pro ration) for the fiscal year in which the
Termination Date occurs (calculated in accordance with any plan,
policy, agreement, or arrangement pursuant to which the Executive is
entitled to an annual bonus).
2.4 Cause. For purposes of this Agreement, a termination of
employment is for "Cause" if the Executive has been convicted of a
felony involving moral turpitude or the termination is evidenced by a
resolution adopted in good faith by two-thirds of the Board that the
Executive (a) intentionally and continually failed substantially to
perform his reasonably assigned duties with the Company (other than a
failure resulting from the Executive's incapacity due to physical or
mental illness or from the Executive's assignment of duties that would
constitute "Good Reason" as hereinafter defined) which failure
continued for a period of at least thirty days after a written notice
of demand for substantial performance has been delivered to the
Executive specifying the manner in which the Executive has failed
substantially to perform, or (b) intentionally engaged in conduct which
is demonstrably and materially injurious to the Company; provided,
however, that no termination of the Executive's employment shall be for
Cause until (x) there shall have been delivered to the Executive a copy
of a written notice setting forth that the Executive was guilty of the
conduct set forth in this Section 2.4 and specifying the particulars
thereof in detail, and (y) the Executive shall have been provided an
opportunity to be heard in person by the Board (with the assistance of
the Executive's counsel if the Executive so desires). Neither an act
nor a failure to act, on the Executive's part shall be considered
"intentional" unless the Executive has acted or failed to act with a
lack of good faith and with a lack of reasonable belief that the
Executive's action or failure to act was in the best interest of the
Company. Notwithstanding anything contained in this Agreement to the
contrary, no failure to perform by the Executive after a Notice of
2.
<PAGE> 3
Termination is given by the Executive shall constitute Cause for
purposes of this Agreement.
2.5 Change in Control. For purposes of this Agreement, a
"Change in Control" shall mean any of the following events:
(a) An acquisition (other than directly from the
Company) of any voting securities of the Company (the "Voting
Securities") by any "Person" (as the term person is used for
purposes of Section 13(d) or 14(d) of the Securities Exchange Act
of 1934, as amended (the "1934 Act")) immediately after which
such Person has "Beneficial Ownership" (within the meaning of
Rule 13d-3 promulgated under the 1934 Act) of thirty percent or
more of the combined voting power of the Company's then
outstanding Voting Securities; provided, however, that in
determining whether a Change in Control has occurred, Voting
Securities which are acquired in a "Non-Control Acquisition" (as
hereinafter defined) shall not constitute an acquisition which
would cause a Change in Control. A "Non-Control Acquisition"
shall mean an acquisition by (1) an employee benefit plan (or a
trust forming a part thereof) maintained by (x) the Company or
(y) any corporation or other Person of which a majority of its
voting power or its equity securities or equity interest is owned
directly or indirectly by the Company (a "Subsidiary"), (2) the
Company or any Subsidiary, or (3) any Person in connection with a
"Non-Control Transaction."
(b) The individuals who, as of the date hereof, are
members of the Board (the "Incumbent Board"), cease for any
reason to constitute at least two-thirds of the Board; provided,
however, that if the election, or nomination for election by the
Company's stockholders, of any new director was approved by a
vote of at least two-thirds of the then Incumbent Board, such new
director shall, for purposes of this Agreement, be considered as
a member of the Incumbent Board; provided, further, however, that
no individual shall be considered a member of the Incumbent Board
if such individual initially assumed office as a result of either
an actual or threatened "Election Contest" (as described in Rule
14a-11 promulgated under the 1934 Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of
a Person other than the Board (a "Proxy Contest") including by
reason of any agreement intended to avoid or settle any Election
Contest or Proxy Contest; or
(c) Approval by stockholders of the Company of:
(1) A merger, consolidation or
reorganization involving the Company, unless
3.
<PAGE> 4
(A) the stockholders of the Company,
immediately before such merger, consolidation or
reorganization, own, directly or indirectly,
immediately following such merger, consolidation or
reorganization, at least seventy percent of the
combined voting power of the outstanding Voting
Securities of the corporation resulting from such
merger or consolidation or reorganization (the
"Surviving Corporation") in substantially the same
proportion as their ownership of the Voting
Securities immediately before such merger,
consolidation or reorganization, and
(B) the individuals who were members of the
Incumbent Board immediately prior to the execution of
the agreement providing for such merger,
consolidation or reorganization constitute at least
two-thirds of the members of the board of directors
of the Surviving Corporation or a corporation
beneficially owning, directly or indirectly, a
majority of the Voting Securities of the Surviving
Corporation, and
(C) no Person (other than the Company, any
Subsidiary, any employee benefit plan (or any trust
forming a part thereof) maintained by the Company,
the Surviving Corporation or any Subsidiary, or any
Person who, immediately prior to such merger,
consolidation or reorganization had Beneficial
Ownership of fifteen percent or more of the then
outstanding Voting Securities) owns, directly or
indirectly, fifteen percent or more of the combined
voting power of the Surviving Corporation's then
outstanding voting securities, and
(D) a transaction described in
clauses (A) through (C) shall herein be
referred to as a "Non-Control Transaction";
(2) A complete liquidation or dissolution of
the Company; or
(3) An agreement for the sale or other
disposition of all or substantially all of the assets
of the Company to any Person (other than a transfer
to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be
deemed to occur solely because any Person (the "Subject Person")
acquired Beneficial Ownership of more than the permitted amount
of the outstanding Voting Securities as a result of the
acquisition of Voting Securities by the Company
4.
<PAGE> 5
which, by reducing the number of Voting Securities outstanding,
increases the proportional number of shares Beneficially Owned by
the Subject Person, provided that if a Change in Control would
occur (but for the operation of this sentence) as a result of the
acquisition of Voting Securities by the Company, and after such
share acquisition by the Company, the Subject Person becomes the
Beneficial Owner of any additional Voting Securities which
increases the percentage of the then outstanding Voting
Securities Beneficially Owned by the Subject Person, then a
Change in Control shall occur.
(d) Notwithstanding anything contained in this
Agreement to the contrary, if the Executive's employment is
terminated prior to a Change in Control and the Executive
reasonably demonstrates that such termination (i) was at the
request of a third party who has indicated an intention or taken
steps reasonably calculated to effect a Change in Control and who
effectuates a Change in Control (a "Third Party") or (ii)
otherwise occurred in connection with, or in anticipation of, a
Change in Control which actually occurs, then for all purposes of
this Agreement, the date of a Change in Control with respect to
the Executive shall mean the date immediately prior to the date
of such termination of the Executive's employment.
2.6 Company. For purposes of this Agreement, the "Company"
shall include the Company's "Successors and Assigns" (as hereinafter
defined).
2.7 Disability. For purposes of this Agreement, "Disability"
shall mean a physical or mental infirmity which impairs the Executive's
ability to substantially perform his duties with the Company for a
period of one hundred eighty consecutive days and the Executive has not
returned to his full time employment prior to the Termination Date as
stated in the "Notice of Termination" (as hereinafter defined).
2.8 Good Reason. (a) For purposes of this Agreement, "Good
Reason" shall mean the occurrence after a Change in Control of any of
the events or conditions described in subsections (1) through (9)
hereof:
(1) a change in the Executive's status,
title, position or responsibilities (including reporting
responsibilities) which, in the Executive's reasonable
judgment, represents an adverse change from his status, title,
position or responsibilities as in effect at any time within
ninety days
5.
<PAGE> 6
preceding the date of a Change in Control or at any time
thereafter; the assignment to the Executive of any duties or
responsibilities which, in the Executive's reasonable
judgment, are inconsistent with his status, title, position or
responsibilities as in effect at any time within ninety days
preceding the date of a Change in Control or at any time
thereafter; or any removal of the Executive from or failure to
reappoint or reelect him to any of such offices or positions,
except in connection with the termination of his employment
for Disability, Cause, as a result of his death or by the
Executive other than for Good Reason; provided, however, that,
for purposes of this Section 2.8(a)(1), the fact that a Change
in Control has occurred, in and of itself, shall not be deemed
to constitute Good Reason;
(2) a reduction in the Executive's base salary or any
failure to pay the Executive any compensation or benefits to
which he is entitled within five days of notice thereof;
(3) any event or occurrence constituting "good
reason," as it may be defined in any agreement between the
Executive and the Company or any of its affiliates;
(4) the Company's requiring the Executive to be based
at any place outside a 25-mile radius from the Executive's
primary place of employment (at the time of the Change of
Control), except for reasonably required travel on the
Company's business which is not materially greater than such
travel requirements prior to the Change in Control;
(5) the failure by the Company to provide the
Executive with compensation and benefits, in the aggregate, at
least equal (in terms of benefit levels and/or reward
opportunities) to those provided for under each other employee
benefit plan, program and practice in which the Executive was
participating at any time within ninety days preceding the
date of a Change in Control or at any time thereafter;
(6) the insolvency or the filing (by any party,
including the Company) of a petition for bankruptcy of the
Company, which petition is not dismissed within sixty days;
(7) any material breach by the Company of any
provision of this Agreement;
(8) any purported termination of the Executive's
employment for Cause by the Company which does not comply with
the terms of Section 2.4; or
(9) the failure of the Company to obtain an
agreement, satisfactory to the Executive, from any Successors
and Assigns to assume and agree to perform this Agreement, as
contemplated in Section 7 hereof.
6.
<PAGE> 7
(b) Any event or condition described in Section
2.8(a)(1) through (9) which occurs prior to a Change in Control
but which the Executive reasonably demonstrates (1) was at the
request of a Third Party, or (2) otherwise arose in connection
with, or in anticipation of, a Change in Control which actually
occurs, shall constitute Good Reason for purposes of this
Agreement notwithstanding that it occurred prior to the Change in
Control.
(c) The Executive's right to terminate his employment
pursuant to this Section 2.8 shall not be affected by his
incapacity due to a Disability
2.9 Notice of Termination. For purposes of this Agreement,
following a Change in Control, "Notice of Termination" shall mean a
written notice of termination from the Company of the Executive's
employment which indicates the specific termination provision in this
Agreement relied upon and which 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.
2.10 Pro Rata Bonus. For purposes of this Agreement, "Pro Rata
Bonus" shall have the meaning ascribed to such term in any agreement
between the Executive and the Company or any of its affiliates, or if
no such agreement with respect to such term exists, shall mean an
amount equal to (a) the Bonus Amount, multiplied by a fraction, (i) the
numerator of which is the number of days from the first day of the
Company's fiscal year in which the Executive ceases to be employed by
the Company until the Termination Date, and (ii) the denominator of
which is 365, less (b) any bonus included in the Bonus Amount in
respect of such fiscal year and previously paid.
2.11 Successors and Assigns. For purposes of this Agreement,
"Successors and Assigns" shall mean a corporation or other entity
acquiring all or substantially all the assets and business of the
Company whether by operation of law or otherwise, and any affiliate of
such Successors and Assigns.
2.12 Termination Date. For purposes of this Agreement,
"Termination Date" shall mean (a) in the case of the Executive's death,
his date of death, (b) in the case of Good Reason, the last day of his
employment, and (c) in all other cases, the date specified in the
Notice of Termination; provided, however, that if the Executive's
employment is terminated by the Company for Cause or due to Disability,
the date specified in the Notice of Termination shall be at least 30
days from the date the Notice of Termination is given to the Executive,
provided that in the case of Disability the Executive shall not have
returned to the full-time performance of his duties during such period
of at least 30 days.
7.
<PAGE> 8
3. Termination of Employment.
3.1 Severance Pay and Benefits. If, during the term of this
Agreement, the Executive shall cease to be employed by Company prior to
the expiration of 15 months after the occurrence of a Change in
Control, the Executive shall be entitled to the following compensation
and benefits:
(a) If the Executive's employment with the Company
shall be terminated at any time prior to the expiration of 15
months after the occurrence of the Change in Control (x) by reason
of the Executive's death or (y) by the Company for Disability, the
Company shall pay to the Executive the Accrued Compensation plus
the Pro Rata Bonus.
(b) During the period commencing on the date of the
Change in Control and ending on the 90th day thereafter (the
"Window Period"), if the Executive's employment with the Company
shall be terminated (other than by reason of the Executive's death
and other than by the Company for Disability), whether at the
instigation of the Executive or the Company, with or without
Cause, for Good Reason or not, the Executive shall be entitled to
the following:
(1) the Company shall pay the Executive all
Accrued Compensation and a Pro-Rata Bonus;
(2) the Company shall pay the Executive as
severance pay and in lieu of any further compensation for
periods subsequent to the Termination Date, in a single
payment an amount in cash equal to two and one-half times the
sum of (A) the Base Amount and (B) the Bonus Amount; provided,
however, that if and only if the Executive's employment with
the Company is terminated for the reasons set forth in Section
8(c) of that certain Employment Agreement between Vacuum
General, Inc. and the Executive, dated October 5, 1989, as it
may be amended, supplemented, restated or replaced from time
to time, including any such amendment, supplement, restatement
or replacement that is between the Company and the Executive
(the "Existing Employment Agreement") and the Executive elects
to require the Company to enter into a consulting contract
with the Executive in accordance with Section 8(c) of the
Existing Employment Agreement, the amount payable to the
Executive pursuant to this subsection 2 shall be reduced by an
amount equal to the aggregate amount payable or paid to the
Executive pursuant to Sections 8(c)(2)(i) and 8(c)(2)(iv) of
the Existing Employment Agreement but in any event the amount
payable to the Executive pursuant to this subsection 2 shall
not be reduced to an amount less than zero; and provided,
further, that if any
8.
<PAGE> 9
amount payable to the Executive pursuant to Sections
8(c)(2)(i) and 8(c)(2)(iv) of the Existing Employment
Agreement is not actually paid to the Executive (for whatever
reason or no reason, whether in accordance with the last
sentence of Section 8(c)(1) of the Existing Employment
Agreement or otherwise) within the one year period subsequent
to the Termination Date, all remaining unpaid amounts
described in Sections 8(c)(2)(i) and 8(c)(2)(iv) of the
Existing Employment Agreement shall become immediately due and
payable by the Company pursuant to this Agreement with
interest at the prime rate plus 2% or at the maximum rate
permitted by applicable law, if lower (for purposes of this
subsection 2, the prime rate will be the prime commercial
lending rate as announced from time to time by Bank of America
NT&SA, or its successor, as in effect at the close of business
on the business day preceding the Termination Date); and
(3) for a number of months equal to 30 (the
"Continuation Period"), the Company shall at its expense
continue on behalf of the Executive and his dependents and
beneficiaries the medical, dental and hospitalization benefits
provided (x) to the Executive at any time during the 90-day
period prior to the Change in Control or at any time
thereafter or (y) to other senior executives who continue in
the employ of the Company during the Continuation Period. The
coverage and benefits (including deductibles and costs)
provided in this Section 3.1(b)(3) during the Continuation
Period shall be no less favorable to the Executive and his
dependents and beneficiaries, than the most favorable of such
coverages and benefits described in clauses (x) and (y)
herein. The Company's obligation hereunder with respect to the
foregoing benefits shall be limited to the extent that the
Executive obtains any such benefits pursuant to a subsequent
employer's benefit plans, in which case the Company may reduce
the coverage of any benefits it is required to provide the
Executive hereunder as long as the aggregate coverages and
benefits of the combined benefit plans is no less favorable to
the Executive than the coverages and benefits required to be
provided hereunder. This subsection (3) shall not be
interpreted so as to limit any benefits to which the
Executive, his dependents or beneficiaries may be entitled
under any of the Company's employee benefit plans, programs or
practices following the Executive's termination of employment,
including without limitation, retiree medical and life
insurance benefits.
(c) After the expiration of the Window Period and
prior to the expiration of 15 months after the occurrence of the
Change in Control, if the Executive's employment with the Company
shall be terminated (other than by
9.
<PAGE> 10
reason of the Executive's death and other than by the Company for
Disability) (x) by the Company for any reason other than for Cause
or (y) by the Executive for Good Reason, the Executive shall be
entitled to the compensation and benefits described in subsections
(1) through (3) in Section 3.1(b) above.
(d) After the expiration of the Window Period and
prior to the expiration of 15 months after the occurrence of the
Change of Control, if the Executive's employment with the Company
shall be terminated by the Executive other than for Good Reason,
the Company shall pay to the Executive the Accrued Compensation
plus the Pro Rata Bonus.
(e) After the expiration of the Window Period and
prior to the expiration of 15 months after the occurrence of the
Change of Control, if the Executive's employment with the Company
shall be terminated by the Company for Cause, the Company shall
pay to the Executive the Accrued Compensation.
3.2 Payment Form. The amounts provided for in Sections 3.1 and
3.1(b)(1) and (2) shall be paid in a single lump sum cash payment
within five days after the Executive's Termination Date (or earlier, if
required by applicable law).
3.3 No Mitigation. The Executive shall not be required to
mitigate the amount of any payment provided for in this Agreement by
seeking other employment or otherwise and no such payment shall be
offset or reduced by the amount of any compensation or benefits
provided to the Executive in any subsequent employment except as
provided in Section 3.1(b)(3).
3.4 Other Severance Arrangements. Whether or not any Change in
Control shall occur, the following shall apply:
(a) The Existing Employment Agreement shall continue
in full force and effect in accordance with its terms.
(b) The Executive's entitlement to any other
compensation or benefits or any indemnification shall be
determined in accordance with the Company's employee benefit
plans, bonus plan and other applicable programs, policies and
practices or any indemnification agreement then in effect.
4. Notice of Termination. Following a Change in Control, any purported
termination of the Executive's employment by either party shall be communicated
by Notice of Termination to the other party. For purposes of this Agreement, no
such purported termination shall be effective without such Notice of
Termination.
10.
<PAGE> 11
5. Excise Tax Limitation.
5.1 Notwithstanding anything contained in this Agreement to
the contrary, to the extent that any payment or distribution of any
type to or for the benefit of the Executive (the "Severance Benefit")
would be subject to the excise tax (the "Excise Tax") imposed under
Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), the Severance Benefit shall be reduced (but not below zero) if
and to the extent that a reduction in the Severance Benefit would
result in the Executive retaining a larger amount, on an after-tax
basis (taking into account federal, state and local income taxes and
the Excise Tax), than if the Executive received the entire amount of
such Severance Benefit. Unless the Executive shall have given prior
written notice specifying a different order to the Company to
effectuate the foregoing, the Company shall reduce or eliminate the
Severance Benefit, by first reducing or eliminating the portion of the
Severance Benefit which is not payable in cash and then by reducing or
eliminating cash payments, in each case in reverse order beginning with
payments or benefits which are to be paid the farthest in time from the
Determination (as hereinafter defined).
5.2 The initial determination of whether the Severance Benefit
shall be reduced as provided in Section 5.1 and the amount of such
reduction shall be made at the Company's expense by an accounting firm
selected by the Company from among the six largest accounting firms in
the United States (the "Accounting Firm"). The Accounting Firm shall
provide its determination (the "Determination"), together with detailed
supporting calculations and documentation to the Company and the
Executive within ten days of the Termination Date. If the Accounting
Firm determines that no Excise Tax is payable by the Executive with
respect to a Severance Benefit, it shall furnish the Executive with an
opinion reasonably acceptable to the Executive that no Excise Tax will
be imposed with respect to any such Severance Benefit, and such
Determination shall be binding, final and conclusive upon the Company
and the Executive. If the Accounting Firm determines that an Excise Tax
would be payable, the Executive shall have the right to accept the
Determination of the Accounting Firm to the extent of the reduction, if
any, pursuant to Section 5.1, or to have such Determination reviewed by
an accounting firm selected by the Executive, at the expense of the
Company, in which case the determination of such second accounting firm
shall be binding, final and conclusive upon the Company and Executive.
6. Successors; Binding Agreement.
6.1 This Agreement shall be binding upon and shall inure to
the benefit of the Company, its Successors and Assigns, and the Company
shall require any
11.
<PAGE> 12
Successors and Assigns to expressly assume 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 or assignment had
taken place.
6.2 Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by the Executive, his beneficiaries
or legal representatives, except by will or by the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal personal representative.
7. Fees and Expenses. The Company shall pay all legal fees and related
expenses (including the costs of experts, evidence and counsel) reasonably
incurred by the Executive as they become due as a result of (a) the Executive
seeking to obtain or enforce any right or benefit provided by this Agreement
(including, but not limited to, any such fees and expenses incurred in
connection with the Dispute, and (b) the Executive's hearing before the Board as
contemplated in Section 2.4 of this Agreement; provided, however, that the
circumstances set forth in clause (a) (other than as a result of the Executive's
termination of employment under circumstances described in Section 2.5(d))
occurred on or after a Change in Control.
8. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt requested,
postage prepaid, by overnight courier or by facsimile, addressed to the
respective addresses and facsimile numbers last given by each party to the
other, provided that all notices to the Company shall be directed to the
attention of the Board with a copy to the Secretary of the Company. All notices
and communications shall be deemed to have been received on the date of delivery
thereof or on the third business day after the mailing thereof, except that
notice of change of address shall be effective only upon receipt.
9. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any benefit,
bonus, incentive or other plan or program provided by the Company (except for
any severance or termination policies, plans, programs or practices (other than
such policies, plans, programs or practices set forth in the Existing Employment
Agreement, which in accordance with Section 3.4(a) and subject to Section 16,
shall continue in full force and effect)) and for which the Executive may
qualify, nor shall anything herein limit or reduce such rights as the Executive
may have under any other agreements with the Company (except for any severance
or termination agreement (other than the Existing Employment Agreement, which in
accordance with Section 3.4(a) and subject to Section 16, shall continue in full
force and effect)). Amounts which are vested benefits or which the Executive is
12.
<PAGE> 13
otherwise entitled to receive under any plan or program of the Company shall be
payable in accordance with such plan or program, except as explicitly modified
by this Agreement.
10. No Guaranteed Employment. The Executive and the Company acknowledge
that, except as may otherwise be provided under any other written agreement
between the Executive and the Company, 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.
11. Settlement of Claims. 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 circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Company may have against the Executive or others.
12. Mutual Non-Disparagement. The Executive agrees that it will not
make or publish any statement critical of the Company, its affiliates and their
respective executive officers and directors, or in any way adversely affecting
or otherwise maligning the business or reputation of any member of the Company,
its affiliates and subsidiaries and their respective officers, directors and
employees. The Company, its affiliates and subsidiaries agree and the Company
shall use its best efforts to cause their respective executive officers and
directors to agree, that they will not make or publish any statement critical of
the Executive, or in any way adversely affecting or otherwise maligning the
Executive's reputation.
13. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and the Company. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreement or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement.
14. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of California without
giving effect to the conflict of laws principles thereof. Any action brought by
any party to this Agreement shall be brought and maintained in a court of
competent jurisdiction in San Diego county in the State of California.
13.
<PAGE> 14
15. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof, and, in
such event, such provision shall be changed and interpreted so as to best
accomplish the objectives of such invalid or unenforceable provision within the
limits of applicable law or applicable court decisions.
16. Entire Agreement. This Agreement, together with the Existing
Employment Agreement, constitutes the entire agreement between the parties
hereto and supersedes all prior agreements (other than the Existing Employment
Agreement), if any, understandings and arrangements, oral or written, between
the parties hereto with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Executive has executed this
Agreement as of the day and year first above written.
TYLAN GENERAL, INC.
ATTEST: By: /s/ Don E. Whitson
---------------------------
Don E. Whitson
Vice Chairman and Chief
Administrative Officer
By: /s/ David J. Ferran
---------------------------
David J. Ferran
14.
<PAGE> 1
EXHIBIT 11.1
TYLAN GENERAL. INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------ -----------------------
JULY 28, JULY 30, JULY 28, JULY 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income (loss) before extraordinary item.............. $(1,473) $ 2,028 $ 988 $ 4,414
Extraordinary item, net of income tax benefit........ (224) (224) (695)
------- ------- ------- -------
Net income (loss).................................... $(1,697) $ 2,028 $ 764 $ 3,719
======= ======= ======= =======
PRIMARY EARNINGS PER SHARE
Weighted average common and common
equivalent shares outstanding:
Weighted average common shares............ 7,830 6,443 7,804 5,989
Assumed exercise of outstanding stock
options and warrants (1)............... 274 156 229
------- ------- ------- -------
Total................................................ 7,830 6,717 7,960 6,218
======= ======= ======= =======
Earnings (loss) per share before extraordinary item.. $ (0.19) $ 0.30 $ 0.13 $ 0.71
Extraordinary item................................... (0.03) (0.03) (0.11)
------- ------- ------- -------
Earnings (loss) per share............................ $ (0.22) $ 0.30 $ 0.10 $ 0.60
======= ======= ======= =======
FULLY DILUTED EARNINGS PER SHARE
Weighted average common and common
equivalent shares outstanding:
Weighted average common shares............ 7,830 6,443 7,804 5,989
Assumed exercise of outstanding stock
options and warrants (1)............... 301 162 297
------- ------- ------- -------
Total................................................ 7,830 6,744 7,966 6,286
======= ======= ======= =======
Earnings (loss) per share before extraordinary item.. $ (0.19) $ 0.30 $ 0.13 $ 0.70
Extraordinary item per share......................... (0.03) (0.03) (0.11)
------- ------- ------- -------
Earnings (loss) per share............................ $ (0.22) $ 0.30 $ 0.10 $ 0.59
======= ======= ======= =======
</TABLE>
(1)Computed utilizing the treasury stock method.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-27-1996
<PERIOD-START> OCT-30-1995
<PERIOD-END> JUL-28-1996
<CASH> 2,739
<SECURITIES> 0
<RECEIVABLES> 25,280
<ALLOWANCES> 0
<INVENTORY> 27,903
<CURRENT-ASSETS> 62,097
<PP&E> 26,339
<DEPRECIATION> 0
<TOTAL-ASSETS> 93,866
<CURRENT-LIABILITIES> 30,524
<BONDS> 0
8
0
<COMMON> 0
<OTHER-SE> 47,152
<TOTAL-LIABILITY-AND-EQUITY> 93,866
<SALES> 114,718
<TOTAL-REVENUES> 114,718
<CGS> 68,641
<TOTAL-COSTS> 68,641
<OTHER-EXPENSES> 42,568
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,235
<INCOME-PRETAX> 1,599
<INCOME-TAX> 611
<INCOME-CONTINUING> 988
<DISCONTINUED> 0
<EXTRAORDINARY> (224)
<CHANGES> 0
<NET-INCOME> 764
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
